10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

Commission file number 1-10351

Potash Corporation of Saskatchewan Inc.

(Exact name of the registrant as specified in its charter)

Canada	N/A
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification no.)

Suite 500, 122 – 1^st Avenue South

Saskatoon, Saskatchewan, Canada S7K 7G3

306-933-8500

(Address and telephone number of the registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of exchange on which registered
Common Shares, No Par Value	New York Stock Exchange

The Common Shares are also listed on the Toronto Stock Exchange in Canada

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

                              Yes þ          No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

                              Yes o          No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.          þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

                              Large accelerated filer þ          Accelerated filer o          Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

                              Yes o          No þ

At June 30, 2006, the aggregate market value of the 103,642,663 Common Shares held by non-affiliates of the registrant was approximately $8,910,159,764.93. At February 20, 2007, the registrant had 104,991,251 Common Shares outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Financial Review Annual Report for the fiscal year ended December 31, 2006 (the “2006 Financial Review”), attached as Exhibit 13, are incorporated by reference into Part II.

Portions of the registrant’s Proxy Circular for its Annual and Special Meeting of Shareholders to be held on May 3, 2007 (the “2007 Proxy Circular”), attached as Exhibit 99(a), are incorporated by reference into Part III.

POTASH CORPORATION OF SASKATCHEWAN INC.

Form 10-K

Annual Report

For the Fiscal Year Ended December 31, 2006

Table of Contents

FORWARD-LOOKING STATEMENTS			1
PART I			2
	Item 1.	Business	2
	Item 1A.	Risk Factors	22
	Item 1B.	Unresolved Staff Comments	25
	Item 2.	Properties	25
	Item 3.	Legal Proceedings	25
	Item 4.	Submission of Matters to a Vote of Security Holders	25
PART II			26
	Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters	26
	Item 6.	Selected Financial Data	26
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	26
	Item 8.	Financial Statements and Supplementary Data	26
	Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	27
	Item 9A.	Controls and Procedures	27
	Item 9B.	Other Information	27
PART III			28
	Item 10.	Directors, Executive Officers and Corporate Governance of the Registrant	28
	Item 11.	Executive Compensation	28
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	28
	Item 13.	Certain Relationships and Related Transactions, and Director Independence	28
	Item 14.	Principal Accounting Fees and Services	28
PART IV			29
	Item 15.	Exhibits and Financial Statement Schedules	29
SIGNATURES			34
Stock Option Plan - Directors
Stock Option Plan - Officers and Employees
Amended and Restated Agreement Between Registrant and William J. Doyle
International Agency Agreement Dated Effective December 15, 2006
2005 Performance Option Plan and Form of Option Agreement
2006 Performance Option Plan and Form of Option Agreement
Statement Re Computation of Per Share Earnings
Computation of Ratio Earnings to Fixed Charges
2006 Financial Review Annual Report
Subsidaries of the Registrant
Consent of Deloitte & Touche LLP
Certificate of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certificate of CFO Pursuant to Section 302 of the Surbanes-Oxley Act of 2002
Certificate of Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
2007 Notice of Meeting, Proxy Circular and Form of Proxy
2006 Summary Annual Report

- - i -

Forward-Looking Statements

This document, including the documents incorporated by reference, contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 that relate to future events or our future financial performance. Statements containing words such as “could,” “expect,” “may,” “anticipate,” “believe,” “intend,” “estimate,” “plan” and similar expressions constitute forward-looking statements. These statements are based on certain factors and assumptions as set forth in this document and the documents incorporated by reference herein, including foreign exchange rates, expected growth, results of operations, performance and business prospects and opportunities. We consider these factors and assumptions to be reasonable based on information currently available.

Forward-looking statements are subject to important risks and uncertainties that are difficult to predict. The results or events predicted in forward-looking statements may differ materially from actual results or events. Some of the factors that could cause actual results or events to differ from current expectations include the following:

• variances from our assumptions with respect to foreign exchange rates, expected growth, results of operations, performance and business prospects and opportunities;

• fluctuations in supply and demand for fertilizer, including fluctuations as a result of economic or political conditions in our markets, which, among other things, can cause volatility in the prices of our fertilizer products;

• changes in competitive pressures, including pricing pressure;

• unexpected or adverse weather conditions, which can impact demand for fertilizer and timing of fertilizer sales during the year;

• volatility in the price of natural gas, which is the primary raw material used for our nitrogen products, and risks associated with our continued ability to manage natural gas costs in the United States through hedging activities;

• fluctuations in the prices and availability of other raw materials, including sulfur, which is a primary input in our phosphate operations;

• fluctuations in the cost and availability of transportation and distribution for our raw materials and products, including ocean freight;

• unexpected geological conditions, including water inflows;

• imprecision in reserve estimates;

• changes in capital markets and in currency and exchange rates;

• the outcome of legal proceedings;

• changes in government regulations, including environmental regulations, which could increase our costs of compliance and otherwise affect our business; and

• acquisitions we may undertake in the future.

We sell to a diverse group of customers both by geography and by end product. Market conditions will vary on a year-over-year basis, and sales can be expected to shift from one period to another.

In addition to the factors mentioned above, see “Risk Factors” under Item 1A for a description of other factors affecting forward-looking statements. As a result of these and other factors, there is no assurance that any of the events, circumstances or results anticipated by forward-looking statements included or incorporated by reference into this document will occur or, if they do, of what impact they will have on our business or on our results of operations and financial condition.

Forward-looking statements are given only as at the date of this document or the document incorporated by reference herein, and we disclaim any obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

FORM 10-K │ Forward-Looking Statements

Page 1

Part I

Item 1.      Business.

General

Potash Corporation of Saskatchewan Inc. is a corporation organized under the laws of Canada. As used in this document, the term “PCS” refers to Potash Corporation of Saskatchewan Inc. and the terms “we,” “us,” “our,” “PotashCorp” and the “Company” refer to PCS and its direct and indirect subsidiaries, individually or in any combination, as applicable.

We are one of the world’s largest integrated fertilizer and related industrial and feed products companies. We are the largest producer of potash worldwide by capacity. In 2006, we estimate our potash operations represented 15% of global production, 22% of global potash capacity and 55% of global potash excess capacity. We are the third largest producer of phosphates worldwide by capacity. In 2006, we estimate our phosphate operations produced 6% of world phosphoric acid production. In 2006, we estimate our nitrogen operations were the fourth largest producer of nitrogen products worldwide by capacity and produced 2% of world ammonia production.

Our potash is produced from six mines in Saskatchewan and one mine in New Brunswick. Of these mines, we own and operate five in Saskatchewan and the one in New Brunswick.

Our phosphate operations include the manufacture and sale of solid and liquid phosphate fertilizers, animal feed supplements and industrial acid, which is used in food products and industrial processes. We believe that our North Carolina facility is the world’s largest integrated phosphate mine and processing plant. We also have a phosphate mine and two mineral processing plant complexes in northern Florida, six phosphate feed plants in the United States and one feed plant in Brazil. In addition, we can produce a variety of phosphate products at our Geismar, Louisiana facility.

Our nitrogen operations involve the production of nitrogen fertilizers and nitrogen feed and industrial products, including ammonia, urea, nitrogen solutions, ammonium nitrate and nitric acid. We have nitrogen facilities in Georgia, Louisiana, Ohio and Trinidad.

We indirectly hold all outstanding interests in PCS Joint Venture, Ltd. (“PCS Joint Venture”), a limited partnership doing business in Georgia as Farmer’s Favorite Fertilizer. Potash Corporation of Saskatchewan (Florida), Inc. is the general partner of PCS Joint Venture. PCS Joint Venture formerly manufactured, processed and distributed fertilizer and other agricultural supplies from plants located in Florida and Georgia. In 2006, PCS Joint Venture sold all of its Florida assets and shut down its Georgia manufacturing facility. PCS Joint Venture is selling its remaining inventory in Georgia.

We are organized under the laws of Canada. Our principal executive offices are located at 122 – 1^st Avenue South, Suite 500, Saskatoon, Saskatchewan, Canada S7K 7G3, and our telephone number is (306) 933-8500.

History

PCS is a corporation continued under the Canada Business Corporations Act and is the successor to a corporation without share capital established by the Province of Saskatchewan in 1975. Between 1976 and 1990, we acquired substantial interests in the Saskatchewan potash industry. We purchased the Cory mine in 1976, the Rocanville and Lanigan mines in 1977, and, by 1990, 100% of the Allan mine when we acquired all of the outstanding shares of Saskterra Fertilizers Ltd.

In 1989, the Province of Saskatchewan privatized PCS. While the Province initially retained an ownership interest in PCS, this interest had been reduced to zero by the end of 1993. Since 1993, we have made the following acquisitions of significance to the development of our Company:

• the New Brunswick potash mine and port facilities and our Patience Lake mine in Saskatchewan in 1993;

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• PCS Phosphate Company, Inc. (formerly Texasgulf Inc.) and White Springs Agricultural Chemicals, Inc., phosphate fertilizer and feed producers, in 1995;

• Arcadian Corporation, a producer of nitrogen fertilizer, industrial and feed products, in 1997;

• PCS Cassidy Lake, a potash mill facility located at Clover Hill, New Brunswick, in 1998;

• approximately 9% of the outstanding shares of Israel Chemicals Ltd. (“ICL”) pursuant to a public offering by the State of Israel in 1998. In June 2005, we acquired twenty-one million additional shares in ICL, increasing our ownership interest to 10%;

• PCS Purified Phosphates (formerly a joint venture we had with Albright & Wilson Americas Inc.), a phosphoric acid joint venture, in 2000;

• 20% of the total outstanding equity of Sociedad Química y Minera de Chile S.A. (“SQM”), a Chilean specialty fertilizer, iodine and lithium company, in transactions in October 2001 and April and May of 2002. In 2004, we sold a portion of this investment and subsequently acquired ICL’s entire indirect interest in SQM, resulting in an indirect holding of 24.99% of the outstanding equity of SQM. In October and December 2006, we increased our investments in SQM, increasing our ownership interest to 31.62% of SQM’s outstanding equity;

• 26% of the shares of Arab Potash Company (“APC”) from Jordan Investment Corporation, an arm of the Jordanian government, in October of 2003. In June 2005, we acquired one million additional shares in APC and in April 2006, we acquired 220,100 additional shares in APC, increasing our ownership interest to approximately 28%; and

• 9.99% of the shares of Sinofert Holdings Limited (“Sinofert”), a vertically-integrated fertilizer company and a subsidiary of Sinochem Corporation, in July 2005. In February 2006, we exercised an option to acquire an additional 10.01% of the shares of Sinofert, increasing our ownership interest to 20%.

Potash Operations

Our potash operations include the mining and production of potash, which is predominantly used as fertilizer.

Properties

All potash produced by the Company in Saskatchewan is in the southern half of the Province, where extensive potash deposits are found. The potash ore is contained in a predominantly rock salt formation known as the Prairie Evaporite, which lies about 1,000 metres below the surface. The evaporite deposits, which are bounded by limestone formations, contain the potash beds of approximately 2.4 to 5.1 metres thickness. Three potash deposits of economic importance occur in the Province, the Esterhazy, Belle Plaine and Patience Lake Members. The Patience Lake Member is mined at the Lanigan, Allan, Patience Lake and Cory mines, and the Esterhazy Member is mined at the Rocanville and Esterhazy mines.

Under a mining and processing agreement effective through December 31, 2026 and subject to available reserves, Mosaic Potash Esterhazy Limited Partnership (“Mosaic”) mines and processes our mineral rights at the Esterhazy mine. We have the option to terminate this agreement every five years. The next opportunity to terminate is December 31, 2011, for which notice must be given no later than June 30, 2011. Mosaic has the option to abandon the mine at any time after December 31, 2011, thus terminating the mining and processing agreement. In each year the maximum finished product we are permitted to take under the mining and processing agreement is 952,500 tonnes and the minimum required amount is 453,600 tonnes. For the year ending December 31, 2007, we have notified Mosaic that we require 952,500 tonnes of finished product. Water inflow at the Esterhazy mine has continued, to a greater or lesser degree, since December 1985. In January 2007, Mosaic announced it had identified a new water inflow at the Esterhazy mine, and that efforts were underway to address the inflow. We share, on an annual basis, in such water inflow remediation costs at the Esterhazy mine. See “Production” and “Reserves” tables for additional information.

Also, under the mining and processing agreement with Mosaic, the Company has the right to acquire up to 25% participation in any expansion of the Esterhazy mine. In April, 2005, Mosaic announced plans to expand capacity at Esterhazy by 360,000 tonnes at a cost of $28 million. The Company participated in this expansion, investing 25% of the cost for 25% of the additional tonnage, on top of our current maximum annual entitlement of 952,500 tonnes. These new tonnes are expected to be available commencing in 2007.

FORM 10-K │ Part I

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We also produce potash at our mine near Sussex, New Brunswick from the flank of an elongated salt structure. We also hold an interest in certain oil and gas rights in the vicinity of the New Brunswick mine. Natural gas has been discovered and we, in conjunction with Corridor Resources Inc., now supply the New Brunswick facility with natural gas to meet its fuel needs. During exploration for natural gas in the vicinity of the Sussex division, potash was detected to the south and east of the existing mine operations. Exploration permits were obtained, and enough detailed 3D seismic and drilling has taken place to delineate a potash resource large enough to warrant mine design and capital cost estimate studies. As part of our continued evaluation efforts, we commenced drilling of an additional borehole in December 2006.

We control the right to mine 646,835 acres of land in Saskatchewan. Included in these holdings are mineral rights to 540,079 acres contained in blocks around the six mines in which we have an interest, of which acres approximately 34% we own, approximately 52% are under lease from the Province of Saskatchewan and approximately 14% are leased from other parties. Our remaining 106,756 acres are located elsewhere in Saskatchewan. Our leases with the Province of Saskatchewan are for 21 year terms, renewable at our option. Our significant leases with other parties are also for 21 year terms. Such leases are renewable at our option, providing generally that production is continuing and that there is continuation of the applicable Crown lease. In New Brunswick, we mine pursuant to a mining lease with the Province of New Brunswick. We control the right to mine 58,263 acres of land in New Brunswick. The lease is for a term of 21 years from 1978 with renewal provisions for three additional 21 year periods. This lease was renewed effective June 13, 1999.

The following map shows the location of our Canadian mining operations and Esterhazy.

Production

We produce potash using both conventional and solution mining methods. In conventional operations, shafts are sunk to the ore body and mining machines cut out the ore, which is lifted to the surface for processing. In solution mining, the potash is dissolved in warm brine and pumped to the surface for processing. Approximately 12 grades of potash are produced to suit different preferences of the various markets.

In 2006, our conventional potash operations (excluding Esterhazy) mined 18.893 million tonnes of ore at an average grade of 23.11% potassium oxide (“K₂O”). In 2006, our potash production from all our operations (including Esterhazy) consisted of 7.018 million tonnes of potash (“KCl”) with an average grade of 61.17% K₂O, representing 47% of North American production.

Our present annual potash production capacity is approximately 12.89 million tonnes KCl, which includes maximum annual production under the mining and processing agreement with Mosaic of 952,500 tonnes at Esterhazy. In 2006, our production capacity represented an estimated 55% of the North American total capacity while our excess capacity was an estimated 70% of North American excess production capacity. We allocate production among our mines on the basis of various factors, including cost efficiency and the grades of product that can be produced. The Patience Lake mine, which was originally a conventional underground mine, now employs a

FORM 10-K │ Part I

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solution mining method. The other Saskatchewan mines we own or in which we have an interest employ conventional underground mining methods.

The New Brunswick mine is a conventional cut and fill underground mining operation. In addition to potash production, this mine also produced 0.60 million tonnes of sodium chloride (salt) in 2006. We continue to incur costs at the New Brunswick division in relation to management of a brine inflow.

The following table sets forth, for each of the past three years, the production of ore, grade and finished product for each of our mines.

	Annual
	Capacity		2006 Production						2005 Production						2004 Production
	Finished						Finished						Finished						Finished
	Product		Ore				Product		Ore				Product		Ore				Product
	(Millions		(Millions		Grade		(Millions		(Millions		Grade		(Millions		(Millions		Grade		(Millions
	of tonnes)		of tonnes)		% K2O		of tonnes)		of tonnes)		% K2O		of tonnes)		of tonnes)		% K2O		of tonnes)
Lanigan		3.828		5.416		20.16		1.471		7.439		20.33		2.023		7.372		20.11		2.025
Rocanville		3.044		5.675		23.99		1.897		7.519		24.70		2.573		5.334		24.25		1.833
Allan		1.885		2.984		25.14		0.992		4.323		24.19		1.431		3.862		25.22		1.344
Cory		1.361		2.545		25.12		0.772		2.753		24.90		0.826		2.531		24.95		0.738
Patience Lake(1)		1.033		–		–		0.190		–		–		0.251		–		–		0.239
Esterhazy(2)		0.953		–		–		0.953		–		–		0.953		–		–		0.953
New Brunswick		0.785		2.273		23.03		0.743		2.284		23.37		0.759		2.371		23.24		0.782
Totals		12.889		18.893				7.018		24.318				8.816		21.470				7.914

(1)	Solution mine.
(2)	Product tonnes received at Esterhazy are based on a mining and processing agreement with Mosaic.

The mining of potash is a capital-intensive business subject to the normal risks and capital expenditure requirements associated with mining operations. The processing of ore may be subject to delays and costs resulting from mechanical failures and such hazards as unusual or unexpected geological formations, subsidence, floods and other water inflows, and other conditions involved in mining ore.

Reserves

The Company’s estimates for its conventional mining operations in Saskatchewan are based on exploration drill hole data, seismic data and actual mining results during the past 36 to 41 years. In Saskatchewan reserves are estimated by identifying material in place that is delineated on at least two sides and material in place within one mile from an existing sampled mine entry or borehole. The Company’s estimates for its conventional mining operations in New Brunswick are based on exploration drill hole data, seismic data and actual mining results during the past 23 years. In New Brunswick reserves are estimated by identifying material in place delineated by drilling or mining with results projected conservatively from these intersections.

A historical extraction ratio from the 23 to 41 years of mining results is applied to estimate the mineable reserves. The Company’s estimated recoverable ore (reserve tonnage only) as of December 31, 2006 for each of our potash mines is as follows:

	Mineral Reserves		Average
	(Millions of tonnes		Grade		Years of Remaining
	recoverable ore)(1)(2)(3)		K2O		Mine Life(4)
Allan		288		25.9%		77
Cory		209		25.1%		80
Lanigan		427		22.0%		63
Rocanville		382		22.5%		62
Patience Lake(5)		–		–		–
Esterhazy(6)		21		24.5%		7
New Brunswick		71		25.6%		30

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(1)	Mineral reserves include proven and probable reserves. There has been no third party review of reserve estimates within the last three years. Current estimates reflect refinements and adjustments to the analysis conducted during 2006 using methodology described in the body of this report.
(2)	The extraction ratio of recoverable ore to in-place material for each mine is as follows: Allan 0.32, Cory 0.26, Lanigan 0.30, Rocanville 0.33 and New Brunswick 0.46.
(3)	The concentration of recoverable ore tonnes to finished product (KCl) for each of the divisions is as follows (three-year running average): Allan 2.96, Cory 3.35, Lanigan 3.67, Rocanville 2.94 and New Brunswick 3.03.
(4)	Estimates are based upon proven and probable reserves and annual mining rates (million tonnes of ore hoisted per year) equal to the three-year running average for each of the divisions as follows: Allan 3.72, Cory 2.61, Lanigan 6.74, Rocanville 6.18 and New Brunswick 2.31. Mining rates are constrained by the equipment and manpower we utilize at each mine so that our production capacity at each mine depends, in part, on the ore concentration ratio encountered at each mine.
(5)	Given the characteristics of the solution mining method employed at the Patience Lake mine, it is not possible to estimate reliably the productive capacity of or the recoverable ore reserve from this operation. In solution mining, the potash is dissolved in warm brine and pumped to the surface for processing. Chemical compositions and volumes of brine pumped into and out of the underground mineralized zone are known, but the precise nature of the solution mining process is not. Estimates are made utilizing the surfaces available for dissolution in the abandoned mine workings, the concentration of the circulated brine recovered from the mine, annual crystallization rates in the ponds and the annual volume of KCl recovered from the ponds. However, this inability to properly describe details of the mining process precludes reporting of an ore reserve for Patience Lake. The extent of the Patience Lake potash resource is given in the next table. The Patience Lake operation accounted for only 2.7% of the Company’s potash production in 2006.
(6)	At Esterhazy, mine operator Mosaic mines potash for which the Company holds mineral rights. Production is carried out under a mining and processing agreement with Mosaic. The Esterhazy mineral reserve tonnage presented here is the current estimate of mineable tonnes remaining in the Company’s lands after reconciliation of historic tonnes mined and product received from Mosaic. Lands agreed to be not mineable by both Mosaic and the Company have been removed. Since the tonnage of product to be received by the Company is based on an agreement with Mosaic, the entire tonnage available is placed in the “Mineral Reserves (Millions of tonnes recoverable ore)” category. The “Years of Remaining Mine Life” reported for Esterhazy assumes that the maximum amount of product possible under the agreement, exclusive of participation in the proposed expansion of the Esterhazy mine discussed above, will be received by the Company.

Resources

Mineral resources, which are exclusive of the mineral reserves reported above, are contained within the lands for which a mining lease is held at each mine. Note that the resources are reported as mineralization in-place while the reserves are reported as recoverable ore.

In Saskatchewan, where geological correlations are straightforward, the mineral resource categories are interpreted by the Company as follows:

• areas with detailed exploration coverage (drilling, seismic, close to underground workings) are reported in the measured mineral resource category;

• areas with sparse exploration coverage (usually seismic coverage only) and far from underground workings are reported in the indicated mineral resource category;

• areas with limited exploration coverage, but still within the mining lease, are reported in the inferred mineral resource category.

Exploration information used to infer and compute resource tonnage estimates for Saskatchewan consists of physical sampling (boreholes) and surface seismic data (3D and 2D).

In New Brunswick, where geology is complex, mineral resource categories are interpreted by the Company as follows:

• areas with many drillhole intersections within a seismically defined area and with consistent stratigraphy, mineralogy and potash quality are reported in the measured mineral resource category;

• areas with fewer drill intersections within a seismically defined area, or with structurally modified (folded) and less consistent mineralogy, but still exhibiting good quality potash intersections, are reported in the indicated mineral resource category;

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• areas with sparse drilling, complex geology, partial seismic coverage and/or inconsistent potash quality in drill intersections are reported in the inferred mineral resource category.

Exploration information used to infer and compute resource tonnage estimates in New Brunswick consists of physical sampling (boreholes and regional surface mapping), surface seismic data (3D and 2D), airborne electromagnetic and regional gravity data.

The Company’s estimated mineral resource tonnage as of December 31, 2006 for each of our mines is as follows:

	Mineral Resource
	Measured Resource		Indicated Resource		Inferred Resource
	(Millions of tonnes		Millions of tonnes		(Millions of tonnes
	in-place)		in-place)		in-place)
Allan		1,013		–		3,776
Cory		889		138		2,887
Lanigan		1,108		2,338		1,643
Rocanville		–		–		1,096
Patience Lake(1)		–		–		–
Esterhazy(2)		–		–		–
New Brunswick(3)		296		93		–

(1)	Given the characteristics of the solution mining method employed at the Patience Lake mine as described in footnote 5 in the “Mineral Reserve” table, it is not possible to estimate reliably the resource tonnage from this operation. The Patience Lake mining lease covers 299.7 km2.
(2)	Since mining at Esterhazy is carried out under an agreement with mine operator Mosaic, all potash tonnes anticipated from this operation are reported in the “Mineral Reserve” table. The Company holds no mineral resource tonnage over and above the reported reserve at Esterhazy.
(3)	In New Brunswick, the layer of mineralized material varies in thickness and geology is complex. The Company has identified an area of 25.1 km2 where this layer of mineralized material is likely to occur. Further exploration drilling is required to define a mineral resource tonnage in this area.

The scientific and technical information included in the Potash Operations section has been prepared under the supervision of persons who are “qualified persons” under Canadian National Instrument 43-101. For Saskatchewan and New Brunswick operations, Garth Moore, P. Eng. (President, PCS Potash) is the qualified person who supervised the preparation of the information and who verified the data disclosed herein.

Data for the mineral reserve and mineral resource estimates for our mining operations reported herein were verified by:

• reviewing underground potash sample information (boreholes and in-mine ore samples);

• reviewing surface geophysical exploration results (3D and 2D seismic data);

• cross-checking mined-tonnages reported by minesite technical staff with tonnages estimated from mine survey information; and

• cross-checking reserve and resource computations carried out by senior mine technologists.

Phosphate Operations

We mine phosphate ore and manufacture phosphoric acid, solid and liquid fertilizers, animal feed supplements and purified phosphoric acid which is used in food products and industrial processes.

Properties

We conduct our phosphate operations primarily at two facilities, one a 35,000-acre facility near Aurora, North Carolina and the other a 100,580-acre facility near White Springs in northern Florida. We believe the Aurora facility, with a capacity of 1.2 million tonnes of phosphoric acid (“P₂O₅”) per year, to be the largest integrated phosphate mine and phosphate processing complex at one site in the world. The Aurora facility includes a 6.0 million tonne per-year mining operation, four sulfuric acid plants, four phosphoric acid plants, four purified acid plants, a liquid fertilizer plant, a superphosphoric acid (“SPA”) plant, a defluorinated phosphate (“DFP”) or animal feed plant and two granulation plants capable of producing diammonium phosphate (“DAP”) or monoammonium phosphate

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(“MAP”). The expansion of the company’s purified acid production facility at Aurora was completed in June 2006. The expansion increased the facility’s purified acid capacity by 82,000 tonnes per year, raising the total plant capacity to 333,000 tonnes per year of purified phosphoric acid.

The White Springs facility is the third largest phosphoric acid producer, by capacity, in the United States. The White Springs facility includes a mine and two production facilities, Suwannee River and Swift Creek, with two sulfuric acid plants, one phosphoric acid plant, two DAP plants, a SPA plant, a dicalcium phosphate plant and a DFP plant located at the Suwannee River complex and two sulfuric acid plants, a phosphoric acid plant and a superphosphoric plant located at the Swift Creek complex.

The location of our Aurora and White Springs mining operations are as shown on the following map.

At our Geismar, Louisiana facility, we manufacture phosphoric acid. The Geismar facility has a sulfuric acid plant, a phosphoric acid plant and a liquid fertilizer plant. A significant portion of the phosphoric acid produced at the Geismar facility is sold as feedstock to Innophos, Inc. for use in its neighboring purified acid plant. Our other phosphate properties include:

• animal feed plants in Marseilles, Illinois; Weeping Water, Nebraska; Joplin, Missouri; and Sao Vincente, Brazil;

• a technical and food grade phosphate plant in Cincinnati, Ohio; and

• terminal facilities at Morehead City, North Carolina and Savannah, Georgia.

Plant Locations	Phosphate Products Produced
Aurora, North Carolina	DAP, MAP, SPA, animal feed, liquid fertilizer, purified acid, merchant grade phosphoric acid (“MGA”)
White Springs, Florida	SPA, DAP, MAP, MGA, animal feed
Cincinnati, Ohio	Blended purified acid products
Geismar, Louisiana(1)	MGA
Marseilles, Illinois	Animal feed
Weeping Water, Nebraska	Animal feed
Joplin, Missouri	Animal feed
Sao Vincente, Brazil	Animal feed

(1) In July 2006, we indefinitely suspended production of superphosphoric acid and ammonium polyphosphate products at this location.

Production

We extract phosphate ore using surface mining techniques. At each mine site, the ore is mixed with recycled water to form a slurry, which is pumped from the mine site to our processing facilities. The ore is then screened to remove

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coarse materials, washed to remove clay and floated to remove limestone and calcareous gangue to produce phosphate “rock.” The annual production capacity of our mines is currently 9.6 million tonnes of phosphate rock. During 2006, the Aurora facility’s total production of phosphate rock was 4.58 million tonnes and the White Springs facility’s total production of phosphate rock was 3.11 million tonnes. The sequence for mining portions of the Aurora property has been identified in the permit issued by the U.S. Army Corps of Engineers in 1997. The permit expires in 2017, but the reserves in these areas could be exhausted before then. We are seeking a new permit from the Corps to mine additional areas. The Company expects to have the necessary approvals for mine continuation by the end of 2007. Failure to secure the required approvals for continuation of the mining operations, on acceptable terms, would negatively affect our reserves and costs.

Phosphate rock is the major input in our phosphorus processing operations. Substantially all of the phosphate rock produced is used internally for the production of phosphoric acid, SPA, chemical fertilizers, purified phosphoric acid and animal feed products. Unlike the Aurora and White Springs operations, the Geismar facility does not mine phosphate rock. Presently, the Geismar facility purchases phosphate rock from Morocco pursuant to a long-term agreement with a Moroccan government-owned company, wherein prices are reset at prescribed dates through negotiation.

In addition to phosphate ore, the principal raw materials we require are sulfur and ammonia. The production of phosphoric acid requires substantial quantities of sulfur, which we purchase from third parties. In December 1997, we entered into a ten-year supply contract with an offshore supplier to supply a portion of our sulfur requirements. In connection therewith, we built a multipurpose ocean-going vessel to ship such sulfur and to handle sulfuric acid, phosphoric acid and other chemicals. We produce sulfuric acid at the Aurora facility, White Springs facility and Geismar facility.

Our phosphate operations purchase all of their ammonia at market rates from or through our nitrogen and sales subsidiaries. Phosphoric acid is reacted with ammonia to produce DAP and MAP as well as liquid fertilizers. In addition, ammonia operations include the purchase, sale and terminalling of anhydrous ammonia. Much of the ammonia that we purchase from third parties is produced in Russia and imported through an ammonia terminal which we operate located within the port of Savannah.

We produce MGA at Aurora, White Springs and Geismar. Some MGA is sold to foreign and domestic fertilizer producers and industrial customers. We further process the balance of the MGA to make solid fertilizer (DAP and MAP); liquid fertilizers; animal feed supplements for the poultry and livestock markets; and purified phosphoric acid for use in a wide variety of food, technical and industrial applications.

The following table sets forth, for each of the last three years, the Company’s production of phosphate rock (including tonnage and grade) and the production of phosphoric acid.

Phosphate Rock

(Millions of tonnes)

			2006				2005				2004
	Annual
	Capacity		Production		% P2O5		Production		% P2O5		Production		% P2O5
Aurora, NC		6.0		4.577		27.62		4.417		27.68		3.964		27.49
White Springs, FL		3.6		3.114		29.79		3.186		30.28		2.745		30.96
Geismar, LA		–		–		–		–		–		–		–
Total		9.6		7.691				7.603				6.709

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Phosphoric Acid

(Millions of tonnes P₂O₅)

	Annual		2006		2005		2004
	Capacity		Production		Production		Production
Aurora, NC		1.202		1.080		1.048		1.018
White Springs, FL		0.966		0.881		0.865		0.773
Geismar, LA		0.202		0.147		0.184		0.171
Total		2.370		2.108		2.097		1.962

Reserves

Our phosphate deposits in North Carolina occur in a formation known as the Pungo River formation of the middle Miocene age. The formation, typically 75 feet to 125 feet below ground surface, is composed of interbedded phosphatic sands, silts and clays, diatomaceous clays and phosphatic limestone. Phosphate of value in the ore horizon occurs as pellets of brown and black sand-sized particles, with flat-sided angular quartz grains and variable amounts of silt, clay and interbedded limestone. The phosphate ore (matrix) horizon throughout is distinguished by its relative uniformity in thickness, percent P₂O₅ and other quality characteristics.

Our White Springs operations are in Hamilton County, Florida. The Hamilton County phosphate deposits in the North Florida Phosphate District are reported to be of the middle Miocene and Pliocene ages. Because of partial reworking during the Pliocene age, these deposits tend to be more variable than middle Miocene deposits, such as those found in North Carolina.

In estimating our phosphate reserves, we had previously retained a third party to prepare reports of the estimated phosphate ore reserves at Aurora and White Springs. Based on (i) a review and assessment of the Company’s land-ownership maps, (ii) drilling and technical assays and assessments, (iii) discussions with Company personnel familiar both with the geology of the phosphate ore deposits and each site’s mining operations and (iv) judgments regarding the recoverability of phosphate from the ore deposits based on economic and technical factors such as the ore grade, mining, transportation and beneficiation issues and environmental and regulatory factors, the reserve estimates set forth in the reports were developed.

Since receipt of the reports (1995 for Aurora and 1997 for White Springs) we annually adjusted and updated the ore reserve estimates for both the Aurora and White Springs operations by making adjustments for ore consumed, number of tonnes sterilized (i.e., bypassed), deletions (for property sold, traded or agreed to be set aside for environmental or other purposes), additions (based on land and mineral right acquisitions) and other appropriate adjustments. There has been no third party review of the estimates within the last three years.

The following table sets forth the Company’s estimated proven and probable phosphate reserves for Aurora and White Springs as at December 31, 2006 at an average grade of 30.7% P₂O₅.

	Tonnes of
	Phosphate Rock		Average Grade
	(Millions of tonnes)		% P2O5
Aurora		350		30.7%
White Springs		50		30.7%
Total		400

The reserves set forth above for Aurora would permit mining to continue at annual production rates for about 90 years. This mine life is based on an average annual production rate of approximately 3.89 million tonnes of 30.7% concentrate over the three-year period ended December 31, 2006. Prior to our acquisition of Texasgulf in April 1995, Texasgulf transferred approximately 408 million tonnes of phosphate reserves to a newly established company, the common stock of which was transferred to Elf Aquitaine, Inc. and Williams Acquisition Holding Company, Inc. We were granted a 20-year right of first refusal (from April 10, 1995) in the event that the newly established company proposes to sell the reserves.

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The reserves set forth above for White Springs would permit mining to continue at annual production rates for about 17 years. This mine life is based on an average annual production rate of approximately 2.98 million tonnes of 30.7% concentrate over the three-year period ended December 31, 2006.

The scientific and technical information included in the Phosphate Operations section has been prepared by persons who are “qualified persons” under Canadian National Instrument 43-101. For the Aurora operation, I. K. Gilmore CPG, PG (PCS Phosphate – Aurora, Superintendent Mine Planning & Chief Geologist) is the qualified person who prepared the information and who verified the data disclosed here. For the White Springs operation, Cameron Lynch P.E. (PCS Phosphate – White Springs, Superintendent Mine Planning/ Mine Services) is the qualified person who supervised the preparation of the information and verified the data disclosed herein.

Data for the mineral reserve estimates reported for Aurora were verified by reviewing:

• existing reserve areas for ownership status and mining parameters;

• drill hole database;

• surveyed areas mined, sterilized, acquired or deleted;

• the calculated area of drill hole influence; and

• the calculation of the in situ tonnes of P₂O₅ depleted or added as summarized in monthly and annual reports.

Data for the mineral reserve estimates reported for White Springs were verified by reviewing:

• existing reserve areas for ownership status and mine geometry parameters;

• existing and new drill hole data;

• input and output parameters for analysis in geostatistical three-dimensional modeling software developed by a third-party vendor;

• mined-tonnage reported by mine operations staff with tonnages forecast by Mine Planning staff; and

• reserve computations carried out by senior staff geologist.

Nitrogen Operations

Our nitrogen operations include production of nitrogen fertilizers and nitrogen chemicals. These products are used for agricultural, industrial and animal nutrition purposes.

Properties

We have four nitrogen production facilities, of which three are located in the United States and one is located in Trinidad. The following table sets forth the facility locations and production capabilities:

Plant Locations(1)	Nitrogen Products Produced
Augusta, Georgia	Ammonia, urea, nitric acid, ammonium nitrate and nitrogen solutions
Geismar, Louisiana(2)	Ammonia, nitric acid and nitrogen solutions
Lima, Ohio(3)	Ammonia, urea, nitric acid and nitrogen solutions
Point Lisas, Trinidad	Ammonia and urea

(1)	In September 2006, we permanently discontinued ammonia and urea production at our Memphis, Tennessee facility, which had been in indefinite shutdown since June 2003.
(2)	In June 2003, we suspended production of ammonia and nitrogen solutions at Geismar due to high U.S. natural gas costs and low product margins. On September 15, 2005, nitrogen solutions production in Geismar was restarted.
(3)	INEOS USA LLC operates the Lima facility under an operating agreement with the Company.

Production

Unlike potash and phosphate, nitrogen is not mined. It is taken from the air and reacted with a hydrogen source, usually natural gas reformed with steam, to produce ammonia. We can produce ammonia at all domestic plants and in Trinidad. The ammonia is used to produce a full line of upgraded nitrogen products, including urea, nitrogen solutions, ammonium nitrate and nitric acid. Ammonia, urea and nitrogen solutions are sold as fertilizers to agricultural customers and to industrial customers for various applications, while nitric acid and ammonium nitrate are sold to industrial customers for various applications. Urea is also sold for animal feed applications.

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Raw Materials

Natural gas is the primary raw material used for the production of nearly all of our nitrogen products. In the U.S., we employ natural gas hedges with the goal of minimizing risk from volatile gas prices. In Trinidad, natural gas is purchased pursuant to long-term contracts using pricing formulas related to the market price of ammonia. In Trinidad, we have multiple long-term gas contracts in place which can provide the entire ammonia complex with 100% of our needs, including all announced expansions for 2007, 95% through 2010, 85% through 2011, 81% through 2012, 69% through 2013 and 61% through 2018. With the exception of the Trinidad facility, we purchase most of our natural gas from producers or marketers at the point of delivery of the natural gas into the pipeline system, then pay the pipeline company and, where applicable, the local distribution company to transport the natural gas to our nitrogen facilities. Approximately 91% of our domestic consumption of natural gas by our nitrogen operations is delivered pursuant to firm transportation contracts, which do not permit the pipeline or local distribution company to interrupt service to, or divert natural gas from, the plant.

Marketing

The following table summarizes our sales from potash, phosphate and nitrogen products (by geographical distribution) in the past three fiscal years. Certain of the prior years’ figures have been reclassified to conform with the current year’s presentation.

		2006		2005		2004
		(millions of dollars)
Potash
	Canada	$	65.7	$	69.3	$	48.3
	United States		557.6		576.6		445.8
	Canpotex(1)		467.1		577.1		421.9
	Other		137.1		118.1		140.1
	Total	$	1,227.5	$	1,341.1	$	1,056.1
Nitrogen
	Canada	$	13.9	$	16.8	$	5.0
	United States		1,185.1		1,262.1		1,116.2
	Other		85.1		89.9		89.2
	Total	$	1,284.1	$	1,368.8	$	1,210.4
Phosphates
	Canada	$	78.1	$	89.1	$	82.5
	United States		799.9		754.3		680.6
	PhosChem(1)		232.2		166.7		140.4
	Other		144.9		127.2		74.4
	Total	$	1,255.1	$	1,137.3	$	977.9

(1) See discussion below for information regarding Canpotex Limited (“Canpotex”) and Phosphate Chemicals Export Association, Inc. (“PhosChem”) sales.

For financial information about our business segments and North American and offshore sales, see the information under “Business Segment Review” on pages 26 through 33 in our 2006 Financial Review, attached as Exhibit 13, and Note 18, Segment Information, to our 2006 consolidated financial statements, incorporated by reference under Item 8 in this report. Information with respect to the geographical locations of long-lived assets is disclosed in Note 18, Segment Information, to our 2006 consolidated financial statements incorporated by reference under Item 8 in this report.

We have a diversified customer base and, apart from sales to Canpotex, no one customer accounted for more than 10% of our sales in 2006.

Potash from our Saskatchewan mines for sale outside Canada and the United States is sold exclusively to Canpotex. PCS Sales (Canada) Inc. and PCS Sales (USA), Inc. execute offshore marketing and sales for our New Brunswick

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potash and marketing and sales for our potash, phosphate and nitrogen products in Canada. PCS Sales (USA), Inc. executes marketing and sales for our potash, phosphate and nitrogen products in the United States. PhosChem, an association formed under the U.S. Webb-Pomerene Act, is the principal vehicle through which we execute offshore marketing and sales for our phosphate fertilizers. See “Offshore Marketing” below.

North American Marketing

In 2006, North American sales from potash products represented 17% of our total sales, substantially all of which were attributable to potash customers in the United States. Typically, our North American potash sales are larger in the first half of the year. The vast majority of sales are made on the spot market with the balance made under short-term contracts. We have no material contractual obligations in connection with North American sales to sell potash in the future at a fixed price.

In 2006, North American sales from phosphate products represented 23% of our total sales, substantially all of which were attributable to phosphate customers in the United States. In 2006, the majority of our phosphate product sales were made on the spot market, with the balance made under short-term contracts (generally on an annual basis) and a limited number of sales made pursuant to multi-year contracts. We have no material contractual obligations in connection with North American sales to sell phosphate products in the future at a fixed price.

In 2006, North American sales from nitrogen products represented 32% of our total sales and our total non-fertilizer products accounted for approximately 69% of our total nitrogen revenue. Typically, North American nitrogen fertilizer sales are greatest in the second calendar quarter. In 2006, the majority of our nitrogen product sales were made on the spot market, with the balance made under short-term and multi-year contracts. We have no material contractual obligations in connection with North American sales to sell nitrogen in the future at a fixed price.

Ammonia purchased by us is used in our operations and is sold to third party customers by PCS Sales (USA), Inc.

The primary customers for fertilizer products are retailers, dealers, cooperatives, distributors and other fertilizer producers. Such retailers, dealers and cooperatives have both distribution and application capabilities. The primary customers for industrial products are chemical product manufacturers. The majority of our purified phosphoric acid is sold directly to consumers of the product, with the balance sold through an authorized non-exclusive distribution network.

Offshore Marketing

Potash we produce in Saskatchewan for sale outside Canada and the United States is sold to Canpotex, which is owned in equal shares by the three potash producers in the Province of Saskatchewan (including us). Canpotex, which was incorporated in 1970 and commenced operations in 1972, acts as an export company and as a unified sales, marketing and distribution force for all Saskatchewan potash production in the offshore marketplace. Each shareholder of Canpotex has an equal voting interest as a shareholder and through its nominees on the board of directors. All the shareholders of Canpotex have agreed that, as long as they are members of Canpotex, and with respect to potash produced in Canada, they will not make offshore sales independently. The members of Canpotex have exempted production from our New Brunswick mine from this requirement. Any member may terminate its membership in Canpotex at specified times of the year on six months’ notice.

In general, Canpotex sales are allocated among the producers based on production capacity. If a shareholder cannot satisfy demand for potash by Canpotex, the remaining shareholders are entitled to satisfy the demand pro rata based on their allotted production capacity. In 2006 we supplied 55.8% of Canpotex’s requirements. Canpotex generally sells potash to government agencies and private firms pursuant to contracts at negotiated prices or by spot sales.

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The following table sets forth the percentage of sales volumes by Canpotex for the past three calendar years in the various geographical regions:

	2006		2005		2004
Asia		70%		73%		69%
Latin America		22		19		22
Oceania		5		6		6
Europe		3		2		3
Total		100%		100%		100%

For 2006, sales to Canpotex represented 12% of our total sales. Offshore sales of potash from the New Brunswick mine, through PCS Sales (Canada) Inc. and PCS Sales (USA), Inc., represented 4% of our total sales in 2006.

Since 1975, PhosChem has been the largest exporter of U.S. phosphate fertilizers. Currently, the members of PhosChem are PCS Sales (USA), Inc., Mosaic Global Crop Nutrition LLC and CF Industries, Inc. The PhosChem members have agreed to export their fertilizer products exclusively through PhosChem, except for exports to Canada, any member state of the European Union or the European Economic Area, sales through the U.S. Agency for International Development Tenders and sales to certain buyers affiliated with members. Historically, PhosChem negotiated prices and other terms for the export sale of its members’ phosphate fertilizer products. According to the terms of a PhosChem agreement effective January 1, 1995, Mosaic Global Operations Inc. is responsible for the marketing of solid fertilizers (DAP, MAP and GTSP), and PCS Sales (USA), Inc., is responsible for the marketing of liquid merchant grade phosphoric acid to export countries. Total sales for 2006 (on a P₂O₅ basis) were apportioned as follows: 78% to Mosaic Global Crop Nutrition LLC; 18% to PCS Sales (USA), Inc., 2% to Mississippi Phosphates Corporation and 2% to CF Industries, Inc. The PhosChem agreement is renewed annually. Effective December 31, 2006, Mississippi Phosphates Corporation withdrew from PhosChem.

Revenue from sales to PhosChem accounted for 6% of our total sales in 2006. Other offshore phosphate sales accounted for 4% of our total sales in 2006. All of our phosphate fertilizer sales to China were made through PhosChem. In 2006, 92% of PhosChem’s sales volume was in the form of DAP.

The following table sets forth the percentage of DAP sales volumes of PhosChem for the past three calendar years in the various geographical regions:

	2006		2005		2004
Asia		71%		79%		78%
Latin America		23		16		10
Oceania		4		4		7
Other		2		1		5
Total		100%		100%		100%

With respect to offshore sales of nitrogen, ammonia and urea sales predominate and originate primarily from Trinidad, with other sales coming from purchased product locations. For 2006, our offshore sales of nitrogen products represented 2% of our total sales.

Offshore sales are subject to those risks customarily encountered in foreign operations, including (i) fluctuations in foreign currency exchange rates; (ii) changes in currency and exchange controls; (iii) the availability of foreign exchange; (iv) laws, policies and actions affecting foreign trade; and (v) other economic, political and regulatory policies of foreign governments.

Distribution and Transportation

We have an extensive infrastructure and distribution system to store and transport our products. In addition to storage located at our production facilities, in 2006, we owned or leased approximately 176 strategically located warehouses to store our products and better serve our customers. To complement our distribution system, we also own or lease approximately 7,100 rail cars.

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In 2006, the industry experienced significant cost increases with regard to truck and rail freight rates, rail equipment and leasing ocean vessels for dry cargo shipments as a result of greater demand than available supply.

Potash Products

Transportation costs add significantly to the total cost of potash. Producers have a definite advantage in markets close to their sources of supply (e.g., Saskatchewan producers in the Midwestern United States, New Brunswick producers on the U.S. Eastern Seaboard and New Mexico producers in the Southern and Western United States). International shipping cost variances permit offshore producers (including those in the nations of the former Soviet Union, Germany and Israel) to compete effectively in some of our traditional markets.

Most of our potash for North American customers is shipped by rail. Shipments are also made by rail from each of our Saskatchewan mines to Thunder Bay, Ontario, for shipment by lake vessel to our warehouses and storage facilities in Canada and the United States. Potash from the New Brunswick mine is shipped primarily by ocean-going vessel from the Port of Saint John, although truck and rail transport are also used for North American customers.

In the case of our sales to Canpotex, potash is transported by rail principally to Vancouver, British Columbia, where port facilities exist for storage pending shipment overseas. We have an equity interest in Canpotex Bulk Terminals Limited, which is a part owner of these port facilities. Through Canpotex, we also have an interest in a port facility located in Portland, Oregon.

Phosphate Products

With respect to phosphates, we have long-term leases on shipping terminals in Morehead City and Beaufort, North Carolina, through which we receive and store Aurora facility raw materials and finished product. We use barges and tugboats to transport solid products, phosphoric acid and sulfur between the Aurora facility and Morehead City, North Carolina. Raw materials and products, including sulfur, are also transported to and from the Aurora facility by rail.

Sulfur is delivered to the White Springs facility by rail and truck from Canada and the U.S. Most of the phosphoric acid and chemical fertilizers produced at the White Springs facility are shipped to domestic destinations by rail. We also ship some of our products, produced at the White Springs facility, through the bulk terminal located in Morehead City, North Carolina and through a leased terminal in Tampa, Florida, for offshore sales. We receive ammonia for our phosphate operations at White Springs and Aurora primarily through our ammonia terminal in Savannah, Georgia; the ammonia is shipped by rail from Savannah to the White Springs facility.

Much of the Geismar facility’s phosphoric acid and sulfuric acid is delivered via pipeline to nearby customers. The balance of the facility’s phosphate products are shipped by rail or tank truck. Phosphate rock feedstock is delivered to Geismar from Morocco in large ocean-going vessels. Sulfur is delivered to the Geismar facility by barge, truck and rail.

Nitrogen Products

We distribute our nitrogen products by vessel, barge, railcar, truck and direct pipeline to our customers and through our strategically located storage terminals in high consumption areas. We lease or own approximately 19 nitrogen terminal facilities. The terminals provide off-season storage and also serve local dealers during the peak seasonal demand period.

We distribute products from the Trinidad plant to markets in Latin America and Europe in addition to the United States. Our distribution operations in Trinidad employ three long-term chartered ocean-going vessels and utilize short-term and spot charters as necessary for the transportation of ammonia. All bulk urea production from Trinidad is shipped through third-party carriers.

Competition

Potash is a commodity and consequently producers compete based on price and service (e.g., delivery time and ability to supply high quality material). We price competitively and sell high quality products and provide high

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quality service to our customers. Our service includes maintaining warehouses, leasing railcars and chartering ocean-going vessels to enhance our delivery capabilities. The high cost of transporting potash affects competition in various geographic areas. Our competition includes three North American producers and offshore producers located in the former Soviet Union, the Middle East and Europe.

Markets for phosphate products are highly competitive. Our principal advantage at Aurora and White Springs is that we operate integrated phosphate mine and phosphate processing complexes, while most of our competitors are required to ship phosphate rock by rail or truck greater distances from their mines to their mineral processing plants, thus incurring substantially higher rock processing costs. In addition, due to our location in North Carolina and the relatively high cost of transportation, our U.S. phosphate sales from Aurora have a natural advantage in the Northeast, mid-Atlantic and eastern Midwest regions. Similarly, White Springs and other Florida producers have a natural advantage in the South. Gulf Coast producers have a natural advantage in areas of the Midwest accessible to barge traffic up the Mississippi River.

We compete with government enterprises and independent phosphate producers in important exporting countries, including Morocco, Tunisia, Jordan, South Africa, Russia and Australia. In addition, increased phosphate fertilizer production in the traditionally important U.S. export markets of China and India have impacted U.S. export sales to those countries.

Within the animal feed supplement business in the phosphate segment, opportunities exist to differentiate products based on nutritional content, thereby making it less commodity-like. We have a significant presence in the domestic feed supplement market segments.

Industrial products are the least commodity-like of the phosphate products as product quality is a more significant consideration for customer buying decisions. We market industrial phosphate products only in the U.S. and we compete against domestic suppliers and imports from Morocco, Israel and China.

Nitrogen, globally the most widely produced nutrient, is primarily a regional business. However, ammonia, the feedstock for all nitrogen products, can be manufactured in any country with adequate natural gas supplies and can enable developing nations to monetize their natural gas resources. Several countries with large reserves and low production costs use little of their gas domestically, and can produce ammonia cheaply for the export market. Rising natural gas costs in the developed world have led to plant closures, since natural gas is up to 90% of the cash cost of producing ammonia in these developed countries. The resulting tight supply has increased prices, attracting less expensive imports from areas of lower-cost natural gas such as Trinidad, Venezuela and the Middle East.

Nitrogen is an input into industrial production of a wide range of products. Manufacturers want consistent quality and just-in-time delivery to keep their plants running. Many industrial consumers are attached to their suppliers by pipeline.

Our nitrogen production serves both fertilizer and industrial customers. Our U.S. plants primarily supply industrial customers, and Trinidad supplies both our fertilizer and industrial customers. We are not immune when expensive natural gas makes U.S. ammonia plants non-competitive with offshore production, but our lower-cost Trinidad operations help offset this. Within North America, sales are regionalized due to transportation costs. CF Industries, Inc., Koch Industries, Inc., Terra Industries, Inc. and importers are our main competitors. Imports from inexpensive offshore production are expected to continue.

Employees

At December 31, 2006, we employed 4,871 persons, of whom 1,692 were salaried and 3,179 were hourly paid. Of these employees, our potash operations employed 1,677 people, the phosphate operations 2,052 and the nitrogen operations 669. Our sales and transportation and distribution functions were handled by 192 employees in Northbrook, Illinois and various other locations in the United States and Brazil and 19 employees in Saskatoon, Saskatchewan. Excluding sales personnel, the Saskatoon and Northbrook offices had a staff of 262.

We have entered into eight collective bargaining agreements with labor organizations representing employees. The collective bargaining agreements at the Allan, Cory and Patience Lake divisions expire on April 30, 2008. The Lanigan agreement expires on January 31, 2009. PCS and the Rocanville Potash Employees Association have an agreement that expires on May 31, 2009. The agreement between Mosaic and the union representing the employees

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at the Esterhazy mine expired on January 31, 2007 and negotiations for a new agreement have commenced. The agreement at PCS Cassidy Lake expires on December 31, 2007. The collective bargaining agreement with the union representing employees at the White Springs plant expires on December 4, 2009 and the agreement at the PCS Purified Phosphates facility in Cincinnati expires on November 1, 2007. In addition, the agreement between INEOS USA LLC and the union representing employees at the Lima plant expires on February 16, 2009. We believe our relations with our employees to be good.

Royalties and Certain Taxes

Saskatchewan potash production is taxed at the provincial level under The Mineral Taxation Act, 1983 (Saskatchewan). This tax consists of a base payment and a profits tax (“Potash Production Tax”). In addition to the Potash Production Tax, rental fees, taxes and royalties are payable to the Province of Saskatchewan, municipalities and others by potash producers in respect of potash sales, production or property in the Province of Saskatchewan. Our taxes, fees and royalty expenses were $60.8 million in 2006.

As a resource corporation in the Province of Saskatchewan, we are subject to capital tax that is the greater of a percentage of our taxable paid up capital or a percentage of the value of our resource sales (as defined in The Corporation Capital Tax Act of Saskatchewan). In addition, we pay capital tax on our taxable capital as defined in the New Brunswick Income Tax Act. In 2006, we paid total capital tax of $33.8 million .

We pay royalties to the New Brunswick government on the basis of production from our New Brunswick mine. In addition, we pay municipal taxes. Our expenses for such royalties and municipal taxes were $8.9 million in 2006.

For 2006, miscellaneous taxes paid (not included above) totaled $4.0 million. We do not make royalty payments in connection with our phosphate and nitrogen operations.

Income Taxes

PCS and certain subsidiaries are subject to federal income taxes (which include the Large Corporations Tax) and provincial income taxes in Canada.

Our subsidiaries that operate in the United States are subject to U.S. federal and state income taxes. These subsidiaries are not currently subject to federal cash income taxes by virtue of net operating losses incurred. Our nitrogen subsidiary operating in Trinidad is subject to Trinidadian taxes.

The consolidated reported income tax rate for 2006 was approximately 20% compared to 33% in 2005. The lower rate resulted from reducing our consolidated effective income tax rate from 33% to 30% to reflect lower Canadian federal and provincial corporate income tax rates enacted during the year. This decreased our future income tax liability by $44.8 million, the benefit of which was recorded in 2006. In addition, we received income tax refunds totalling $34.1 million during the year.

Environmental Matters

Our operations are subject to numerous environmental requirements under federal, provincial, state and local laws and regulations of Canada, U.S., Brazil and Trinidad and Tobago. These laws and regulations govern matters such as air emissions, wastewater discharges, land use and reclamation and solid and hazardous waste management. Many of these laws, regulations and permit requirements are becoming increasingly stringent, and the cost of compliance with these requirements can be expected to increase over time.

Our operating expenses, other than those associated with asset retirement obligations, relating to compliance with environmental laws and regulations governing ongoing operations were approximately $92.6 million for the year ended December 31, 2006, as compared to $87.2 million and $68.9 million for the years ending December 31, 2005 and December 31, 2004, respectively. These amounts include environmental operating expenses related primarily to the production of phosphoric acid, fertilizer, feed and other products.

We routinely undertake environmental capital projects. In 2006, capital expenditures of $13.6 million (2005 – $10.0 million) were incurred to meet pollution prevention and control objectives and $0.2 million (2005 – $0.6 million) were incurred to meet other environmental objectives. Future capital expenditures are subject to a number of uncertainties, including changes to environmental regulations and interpretations, and enforcement

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initiatives. While we currently anticipate that our operating and capital expenditures related to environmental regulatory matters in 2007 will not differ materially from amounts expended in the past two years, at this time we are unable to estimate the capital expenditures we may make in subsequent years to meet pollution prevention and control objectives and other environmental objectives.

Environmental Requirements, Permits and Regulatory Approvals

Many of our operations and facilities are required by federal, provincial, state and local environmental laws to operate in compliance with a range of regulatory requirements, permits and approvals. Such permits and approvals typically have to be renewed or reissued periodically. We may also become subject to new laws or regulations that impose new requirements or require us to obtain new or additional permits or approvals. We believe that we are currently in material compliance with existing regulatory programs, permits and approvals. However, there can be no assurance that such permits or approvals will issue in the ordinary course. Further, the terms and conditions of future regulations, permits and approvals may be more stringent and may require increased expenditures on our part.

With respect to air emissions, we anticipate that additional actions and expenditures may be required to meet increasingly stringent U.S. federal and state regulatory and permit requirements, including existing and anticipated regulations under the federal Clean Air Act. The U.S. Environmental Protection Agency (“USEPA”) has issued a number of regulations establishing requirements to reduce nitrogen oxide (“NOx”) emissions and other air pollutant emissions. We continue to monitor developments in these various programs and to assess their potential impact on our operations.

In 2002, the Canadian government ratified the Kyoto Protocol, which calls for Canada to reduce its emissions of “greenhouse gases” to 94% of its 1990 emissions by 2012. The Kyoto Protocol became effective on February 16, 2005. The Canadian government continues to consider regulatory approaches for addressing the Kyoto Protocol requirements. Accordingly, we are unable to predict the impact of this program on our operations in Canada. The United States is not presently expected to ratify the Kyoto Protocol and has announced plans for voluntary programs and incentives. Brazil and Trinidad and Tobago have also ratified the Kyoto Protocol. Our operations there would not be immediately impacted by the implementation of the treaty as these are developing countries, which do not have any specific emission reduction requirements. We continue to monitor the development of programs to implement the obligations established by the Kyoto Protocol and will continue to assess the range of potential impacts of these programs on our operations.

The USEPA announced an initiative to evaluate implementation within the phosphate industry of a particular exemption for mineral processing wastes under the hazardous waste program. In connection with this industry-wide initiative, the USEPA conducted hazardous waste compliance evaluation inspections at numerous phosphate operations, including our plants in Aurora, North Carolina, Geismar, Louisiana and White Springs, Florida. On September 27, 2005 and December 14, 2005, respectively, the USEPA notified us of various alleged violations of the Resource Conservation and Recovery Act at our Aurora and White Springs plants. We and other industry members have met with representatives of the U.S. Department of Justice, USEPA and various state environmental agencies regarding potential resolution of these matters. We are uncertain if any resolution will be possible without litigation or, if litigation occurs, what the outcome would be. At this time, we are unable to evaluate the extent of any exposure that we may have in these matters.

Significant portions of our phosphate reserves in Aurora, North Carolina are located in wetlands. Under the Clean Water Act, we must obtain a permit from the U.S. Army Corps of Engineers (the “Corps”) before disturbing the wetlands. We have a permit from the Corps to mine specified areas. This permit expires in 2017, but the reserves in these areas could be exhausted before then. We are seeking a new permit from the Corps to mine additional areas. This process includes significant public review and comment that could affect current mitigation and reclamation practices. The Company expects to have the necessary approvals for mine continuation by the end of 2007. Failure to secure the required approvals for continuation of the mining operations on acceptable terms would negatively affect our reserves and costs.

In 2003, the Corps issued a federal wetlands impact permit, expiring in 2040, for mining operations covering nearly all remaining reserves in the White Springs project area. State approvals were granted for the same area with no expiration date. Local (Hamilton County) approval was granted in 2003 for that area, with provision for a five-year

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compliance review and automatic renewal of the permit, contingent only upon compliance with permit conditions at the time of renewal.

Asset Retirement Obligations

We have recorded in the accompanying consolidated financial statements an asset retirement obligation for the costs associated with the retirement of our long-lived assets when a legal liability to retire such assets exists. This includes obligations incurred as a result of acquisition, construction or normal operation of these assets. The major categories of asset retirement obligations include reclamation and restoration costs at our potash and phosphate mining operations (most particularly phosphate mining), including the management of materials generated by mining and mineral processing, such as various mine tailings and gypsum; land reclamation and revegetation programs; decommissioning of underground and surface operating facilities; general clean-up activities aimed at returning the areas to an environmentally acceptable condition; and post-closure care and maintenance.

The estimation of asset retirement obligation costs depends on the development of environmentally acceptable closure and post-closure plans, which, in some cases, may require significant research and development to identify preferred methods for such plans which are economically sound and which, in most cases, may not be implemented for several decades. We have continued to utilize appropriate technical resources, including outside consultants, to develop specific site closure and post-closure plans in accordance with the requirements of the various jurisdictions in which we operate. Our asset retirement obligations include reclamation costs related to the gypsum stack capping, closure and post-closure operating and maintenance requirements applicable to our phosphate facilities. The asset retirement obligations are generally incurred over an extended period of time. At December 31, 2006, we had accrued a total of $100.7 million for asset retirement obligations. The current portion totaled $7.2 million.

Lands mined by White Springs after July 1, 1975 and unmined lands used in certain mining operations after July 1, 1984 are subject to mandatory reclamation requirements of the State of Florida. Reclaimed lands include uplands, wetlands and lakes. Wetlands must be reclaimed on an acre-for-acre basis. For wetlands mined prior to 2003, alternative mitigation standards are established by a Memorandum of Agreement between us and the Florida Department of Environmental Protection pursuant to which we have contributed $6.9 million through the end of 2006 for the acquisition of environmentally sensitive lands. The current practice of White Springs is to return most upland areas to commercial pine plantation, which is the predominant pre-operation land use.

The environmental regulations of the Province of Saskatchewan require each potash mine to have decommissioning and reclamation plans. Financial assurances for these plans must be established within one year following approval of these plans by the responsible provincial minister. The Minister of the Environment for Saskatchewan provisionally approved the plans in July 2000. In July 2001, a Cdn$2.0 million irrevocable Letter of Credit was posted. We submitted a revised plan when it was due in 2006 and are awaiting a response from the Province. The Company is unable to predict, at this time, the outcome of the ongoing review of the plans or the timing of implementation and structure of any financial assurance requirements.

Site Assessment and Remediation

We are also subject to environmental statutes that address investigation and, where necessary, remediation of contaminated properties. The U.S. Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”) and other U.S. federal and state laws impose liability on, among others, past and present owners and operators of properties or facilities at which hazardous substances have been released into the environment and persons who arrange for disposal of hazardous substances that are released into the environment. Liability under these laws may be imposed jointly and severally and without regard to fault or the legality of the original actions, although such liability may be divided or allocated according to various equitable and other factors. We have incurred and expect to continue to incur costs and liabilities because of our current and former operations, including those of divested and acquired businesses. We have generated and, with respect to our current operations, continue to generate substances that could result in liability for us under these laws.

We have accrued $18.6 million for costs associated with site assessment and remediation, including consulting fees, related to the clean-up of contaminated sites currently or formerly associated with the company or its predecessors’ businesses. The current portion of these costs totaled $1.8 million. The accrued amounts include the company’s or

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its subsidiaries’ expected final share of the costs for the site assessment and remediation matters, including matters described below to the extent the incurrence of the costs is reasonably probable and reasonably estimable.

In 1994, PCS Joint Venture responded to information requests from the USEPA and the Georgia Department of Natural Resources, Environmental Protection Division (“GEPD”) regarding conditions at its Moultrie, Georgia location. PCS Joint Venture believes that the lead-contaminated soil and groundwater found at the site are attributable to former operations at the site prior to PCS Joint Venture’s ownership. In 2005, the GEPD approved a Corrective Action Plan to address environmental conditions at this location. As anticipated, the approved remedy requires some excavation and off-site disposal of impacted soil and installation of a groundwater recovery and treatment system. PCS Joint Venture began the remediation in November 2005 and completed soil excavation in March 2006, and it is proceeding consistent with the projected schedule and budget.

In 1998, we and other parties were notified by the USEPA of potential liability under CERCLA with respect to certain soil and groundwater conditions at a PCS Joint Venture blending facility in Lakeland, Florida and certain adjoining property. In 1999, PCS Joint Venture signed an Administrative Order and Consent with the USEPA pursuant to which PCS Joint Venture agreed to conduct a Remedial Investigation and Feasibility Study (“RI/FS”) of these conditions. PCS Joint Venture and another party are sharing the costs of the RI/FS, which is nearing completion. In December 2006, the parties submitted the focused feasibility study to the USEPA and Florida Department of Environment for final review and comment. No final determination has yet been made of the nature, timing or cost of remedial action that may be needed, nor to what extent costs incurred may be recoverable from third parties. Although PCS Joint Venture sold the Lakeland property in July 2006, it has retained the above described remediation responsibilities and has indemnified the third-party purchaser for the costs of remediation and certain related claims.

The USEPA has identified PCS Nitrogen, Inc. (“PCS Nitrogen”) as a potentially responsible party with respect to a former fertilizer blending operation in Charleston, South Carolina, known as the Planters Property or Columbia Nitrogen Site, formerly owned by a company from which PCS Nitrogen acquired certain other assets. The USEPA has requested the reimbursement of $3.0 million of previously-incurred response costs and the performance or financing of future site investigation and response activities from PCS Nitrogen and other named potentially responsible parties. In September 2005, Ashley II of Charleston, L.L.C., the current owner of the Planters Property, filed a complaint in the United States District Court for the District of South Carolina seeking a declaratory judgment that PCS Nitrogen is liable to pay environmental response costs that Ashley II of Charleston, L.L.C. alleges it has incurred and will incur in connection with response activities at the site. The Court has scheduled a trial in the first quarter of 2007 for the first phase of the case, in which it will consider whether PCS Nitrogen has any liability for these costs. PCS Nitrogen has filed third party complaints in the case against owners and operators that should be responsible parties with respect to the site. PCS Nitrogen denies that it is a potentially responsible party and is vigorously defending its interests in these actions.

PCS Phosphate Company, Inc. (“PCS Phosphate”), along with several other entities has received notice from parties to an Administrative Settlement Agreement (“Settling Parties”) with USEPA of alleged contribution liability under CERCLA for costs incurred and to be incurred addressing PCB soil contamination at the Ward Superfund Site in Raleigh, North Carolina (“Site”). PCS Phosphate has agreed to participate, on a non joint and several basis, with the Settling Parties in the performance of the removal action and the payment of other costs associated with the Site, including reimbursement of USEPA’s past costs. The cost of performing the removal at the Site is estimated at $12 to $17 million. We understand that removal activities will commence at the Site in 2007. We anticipate recovering some portion of our expenditures in this matter from other liable parties.

The Company is also engaged in ongoing site assessment and/or remediation activities at a number of other facilities and sites. Based on current information, the Company does not believe, except as set out herein, that its future obligations and potential liabilities are reasonably likely to have a material adverse effect on its consolidated financial position or results of operations. However, it is often difficult to estimate and predict the potential costs and liabilities associated with these programs, and there is no guarantee that we will not in the future be identified as potentially responsible for additional costs under these programs, either as a result of changes in existing laws and regulations or as a result of the identification of additional matters or properties covered by these programs.

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Facility and Product Security

Following the September 11, 2001 terrorist attacks in the United States, we, through our Safety, Health and Environment department, evaluated and addressed actual and potential security issues and requirements associated with our operations in the United States and elsewhere. Additional actions and expenditures may be required in the future. In the United States, in the recently passed Department of Homeland Security (“DHS”) appropriations bill, Congress adopted language that authorizes DHS for a three year period to regulate the security of certain chemical facilities. It is anticipated that Congress will continue to consider federal legislation designed to reduce the risk of any future terrorist acts at industrial facilities. We believe that we are in material compliance with applicable security requirements and we also have adopted security measures and enhancements beyond those presently required. To date, neither the security regulations nor our expenditures on security matters have had a material adverse effect on our financial position or results of operations. We are unable to predict the potential future costs to us of any new governmental programs or voluntary initiatives.

Our Executive Officers

The name, age, period of service with the Company and position held for each of our executive officers as at February 20, 2007 are as follows:

			Served
Name	Age		Since		Position Held
William J. Doyle		56		1987	President and Chief Executive Officer
Wayne R. Brownlee		54		1988	Executive Vice President, Treasurer and Chief Financial Officer
James F. Dietz		60		1997	Executive Vice President and Chief Operating Officer
Barbara Jane Irwin		51		2000	Senior Vice President, Administration
Robert A. Jaspar		48		1997	Senior Vice President, Information Technology
Joseph A. Podwika		44		1997	Senior Vice President, General Counsel and Secretary
G. David Delaney		46		1997	President, PCS Sales
Garth W. Moore		58		1982	President, PCS Potash
Thomas J. Regan, Jr.		62		1995	President, PCS Phosphate and PCS Nitrogen
Stephen F. Dowdle		56		1999	Senior Vice President, Fertilizer Sales, PCS Sales
Daphne J. Arnason		51		1988	Vice President, Internal Audit
Karen G. Chasez		53		2000	Vice President, Procurement
John R. Hunt		48		1997	Vice President, Safety, Health and Environment
Denis A. Sirois		51		1978	Vice President and Corporate Controller

Each of the officers have held the position indicated above for the previous five years except as follows:

Name	Dates of Service	Position Held
Wayne R. Brownlee	July 1999 – December 2005	Senior Vice President, Treasurer and Chief Financial Officer
Robert A. Jaspar	December 2000 – June 2003	Vice President, Internal Audit
Joseph A. Podwika	January 2005 – December 2005	Vice President, General Counsel and Secretary
	March 2002 – December 2004	Senior Counsel, U.S.
Thomas J. Regan, Jr.	August 1999 – January 2007	President, PCS Phosphate
Stephen F. Dowdle	July 2000 – December 2005	Vice President, Fertilizer Sales, PCS Sales
Daphne J. Arnason	November 2000 – June 2002	Senior Director, Taxation
John R. Hunt	November 2003 – January 2005	Senior Director, Operations Development
	March 2000 – October 2003	General Manager, Memphis Plant

Presentation of Financial Information

We have three principal business segments: potash, phosphate and nitrogen. For information with respect to the sales, gross margin and assets attributable to each segment and to our North American and offshore sales, see Note 18, Segment Information, to our consolidated financial statements as of December 31, 2006 and 2005 and for

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each of the years in the three-year period ended December 31, 2006, incorporated by reference under Item 8 of this Form 10-K.

We present our consolidated financial statements in accordance with accounting principles generally accepted in Canada, or Canadian GAAP. See Note 32, Reconciliation of Canadian and United States Generally Accepted Accounting Principles, to our 2006 consolidated financial statements, incorporated by reference under Item 8 of this Form 10-K, for a discussion of certain significant differences between Canadian GAAP and accounting principles generally accepted in the United States, or U.S. GAAP, as they relate to us.

Unless otherwise specified, financial information is presented in U.S. dollars.

Where You Can Find More Information

We file annual, quarterly and current reports and other information with the Securities and Exchange Commission (the “Commission”). You may read and copy any of the information on file with the Commission at the Commission’s Public Reference Room, 100 F Street, NE, Room 1580, Washington, DC 20549. Please call the Commission at 1-800-SEC-0330 for further information on the public reference room. In addition, the Commission maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file, as we do, electronically with the Commission.

We make available, free of charge through our website, http://www.potashcorp.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as is reasonably practicable after such material is electronically filed with or furnished to the Commission. The information on our website is not incorporated by reference into this annual report on Form 10-K.

Item 1A. Risk Factors.

Our performance and future development could be materially affected by a wide range of risk factors. Any or all of these risks could have a material adverse effect on our business, financial condition, results of operations and cash flows and on the market price of our common stock. We use an integrated risk management framework to identify risks across all segments of the Company, evaluate those risks, and implement strategies designed to mitigate those risks. Our strategies to mitigate these risks are described under “Managing Risk” on pages 21 and 22 in our 2006 Financial Review, attached as Exhibit 13, incorporated herein by reference. See also note regarding “Forward-Looking Statements,” earlier in this report.

Set forth below are the most significant risks and uncertainties that affect the Company and its businesses:

Global demand for our products that differs from expectations or that is higher or lower than our excess capacity could adversely affect the results of future operations.

We supply product both in North America and offshore and demand for our product is affected by regional and global markets. For example, we expect recent flooding at a global competitor’s mine in Russia to increase demand for our potash. We predict the future level of demand for our products and attempt to meet growing demand through utilization of our excess capacity. Accurate predictions allow us to avoid surplus inventory and missed sales opportunities. However, incorrect predictions can lead to rising costs and decreased profits. Growth in demand that exceeds our expectations results in lost opportunity to sell our products and may harm the credibility of our business strategy.

Growth in demand below expectations reduces our expected sales and creates excess inventory and unwanted costs. A decrease in demand could result from a variety of factors, including increasing agricultural input costs, depressed commodity prices, adverse weather conditions, economic downturns, foreign currency fluctuations or changes in agricultural practices.

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Inflows of water into our potash mines, or potash mines in which we have an interest, could result in increased costs and could require us to abandon a mine, either of which could adversely affect the results of our operations.

The presence of water-bearing strata in many underground mines carries the risk of water inflows into such mines. It is difficult to predict if water inflow will occur at our mines or mines in which we have an interest. We are currently managing water inflows at our New Brunswick mine, while ongoing water inflows are being managed at the Esterhazy mine, in which we have an interest in the mineral rights. Additional water inflows at these or other mines could increase the costs required to operate such mines, injure our employees or lead to the abandonment of a mine. The risk of underground water inflows, similar to other underground risks, are not insurable.

The Company may be adversely affected by changing anti-trust laws to which it is subject.

We are subject to anti-trust 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 anti-trust laws globally, or the interpretation, administration or enforcement thereof, may limit our future acquisitions, or the operations of Canpotex and PhosChem.

New product supply can create a structural market imbalance, which could reduce our profits.

Many of our products are commodities and the markets for these products are highly competitive. We compete with other producers on price, product quality and service. An increase in the competitive supply of our products that outpaces the growth in world consumption could depress prices for a prolonged period. A decrease in the price of crop nutrients could negatively affect the Company’s financial performance.

Potash

With recently favorable prices for potash products, producers have been, and will likely continue to be, engaged in expansion and development projects to increase production. Many of the proposed projects to increase potash production are speculative. However, a potash supply increase beyond market demand could depress prices and negatively affect the Company’s financial performance.

Phosphate

Phosphate producers are both private and government enterprises. In addition, governments influence a significant proportion of world capacity for diammonium phosphate (“DAP”), the major phosphate fertilizer product. Through subsidy, control or ownership, governments may encourage overproduction of DAP. Furthermore, governments may accept little or no profit on DAP sales to support domestic employment. Such policies increase the risk of a supply/demand imbalance and lower prices for our products.

Nitrogen

The barriers to entry into the nitrogen business are relatively low. Nitrogen is taken from the air and reacted with a hydrogen source, usually natural gas reformed with steam, to produce ammonia. Ammonia is then used to produce nitrogen products for a wide variety of uses. Countries with large reserves of natural gas and low production costs can produce a large supply of ammonia cheaply for the export market. While the Company’s lower cost nitrogen operations in Trinidad provide us with advantages, the Company is affected by the expensive natural gas markets in the United States.

Cyclicality in supply and demand can result in unfavorable market conditions and lower profits.

The market for crop nutrients, particularly certain phosphate and nitrogen products, tends to move in cycles. Periods of high demand, increasing profits and high capacity utilization generally lead to new plant investment and increased production. This growth increases supply until the market is over-saturated, leading to declining prices and declining capacity utilization until the cycle repeats. This cyclicality in prices can result in supply/demand imbalances; pressure on prices, profit margins and profitable operations; and, eventually, shutdown costs. The fertilizer business is dependent on conditions in the economy generally and the agriculture sector, both in North America and offshore.

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The agricultural sector can be affected by adverse weather conditions, cost of inputs, commodity prices, animal diseases, the availability of government support programs and other uncertainties that may affect sales of fertilizer products, and our performance.

The Company is subject to risks associated with international operations, which could negatively affect sales to customers in foreign countries as well as the operations and assets in such countries.

The Company has operations and investments in countries outside of Canada and the United States. Historically, these countries have had less stable political environments. We have a nitrogen production facility in Trinidad and a feed plant in Brazil. Much of the ammonia that we purchase from third parties is produced in Russia. In addition, we have significant investments in SQM, APC, Sinofert and ICL. Additionally, potash from our Saskatchewan operations for sale outside Canada and the United States is sold exclusively to Canpotex, which acts as an export marketing and sales company. A large portion of Canpotex sales are to China. Other key offshore customers are located in Brazil, India, Indonesia, Malaysia and Japan.

Political and economic conditions, foreign trade policies, fiscal policies, laws, regulations and other activities of foreign governments may affect performance and development of our operations and investments. Our operations and investments may be affected by abrupt political change, forced divestiture, selective discrimination, inconvertibility of funds, armed conflict, terrorist activity and unexpected changes in regulatory requirements, social, political, labor and economic conditions. Risks inherent in doing business inside the United States and Canada also exist in foreign countries and may be exaggerated by differences in culture, laws and regulations. Moreover, global expansion opportunities with the lowest cost and the highest synergies are located in politically sensitive regions.

A shortage of railcars and bulk ships for carrying our products and increased transit time could result in customer dissatisfaction, loss of sales and higher transportation costs.

We rely heavily upon railcars and ocean freightliners to transport product to our customers. Transportation is an important part of the final sale price of our products and some of our customers require just-in-time delivery. Finding affordable and dependable transportation is important in allowing us to supply customers close to our operating facilities and customers around the world. An interruption in these transport services due to factors including labor disputes, adverse weather or other environmental events, and changes to rail or ocean freight systems would negatively affect our ability to deliver product to our customers, which could affect our financial performance.

Strong demand for grain and other products affect railcar availability. A shortage of railcars for carrying product and increased transit time in North America may result in customer dissatisfaction, loss of sales and higher transportation costs. A strong world economy fuels increased demand and higher dry bulk freight rates for ocean transport. The shipping industry has a shortage of ships and the substantial time frame needed to build new ships prevents rapid market response. Delays and missed shipments relying on ocean freight could result in customer dissatisfaction and loss of sales potential, which could negatively affect our financial performance.

Deliberate, malicious acts involving our products or facilities or downstream product mishaps may expose employees, contractors or the public to extensive injury, cause property damage or affect the Company’s reputation.

Intentional acts of destruction could hinder our sales or production and interrupt our supply chain. Facilities could be damaged leading to a reduction in our operational production capacity. Employees, contractors and the public could suffer substantial physical injury. The consequences of any such actions could damage our reputation, negatively affecting our sales and profits.

Damage to our reputation could negatively affect our performance.

Loss of our reputation can be the consequence of a number of events. Reputation loss cuts across all risk categories and may result in loss of investor confidence, loss of customer confidence, poor community relations and employee apathy. Loss of our reputation could interfere with our ability to execute our strategies. Reputation loss is a negative consequence resulting from these or other risks and can have a detrimental affect on our performance.

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Other risks may hurt our operating results.

In addition to the above, other risks may affect our performance including unexpected or adverse weather conditions; price risks associated with feedstocks, including natural gas and sulfur; other hedging activities; changes in capital markets; changes in currencies and exchange rates; unexpected geological or environmental conditions; legal proceedings; changes in government policy and regulation, including environmental regulations; inherent risks in industrial operations, including inability to obtain insurance for underground operations and rock falls that could cause injury or death; inappropriate handling and transportation of some of our products by customers or carriers; and future acquisitions by the Company.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Information concerning our properties is set forth under the “Properties” sections in Item 1.

Item 3. Legal Proceedings.

General

In the normal course of business, we are subject to legal proceedings being brought against us. While the final outcome of these proceedings is uncertain, we believe that these proceedings, in the aggregate, are not reasonably likely to have a material adverse effect on our financial position or results of operations.

Environmental Proceedings

For a description of certain environmental proceedings in which we are involved, see “Environmental Matters” under Item 1.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

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Part II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters.

The information under “Common Share Prices and Volumes”, “Ownership”, “Dividends” and “NYSE Corporate Governance” on page 88 in our 2006 Financial Review, attached as Exhibit 13 is incorporated herein by reference and “11 Year Report” on page 49 in our 2006 Financial Review, attached as Exhibit 13, is incorporated herein by reference.

In each quarter of 2005 and 2006, the Company paid a cash dividend of $0.15 per common share, for a total of $0.60 each year.

Dividends paid to U.S. holders of our Common Shares, who do not use the shares in carrying on a business in Canada, are subject to a Canadian withholding tax under the Income Tax Act. Under the Canada-U.S. Income Tax Convention (1980), the rate of withholding is generally reduced to 15%. Subject to certain limitations, the Canadian withholding tax is treated as a foreign income tax that can generally be claimed as a deduction from income or as a credit against the U.S. income tax liability of the holder. Holders are generally not subject to tax under the Income Tax Act with respect to any gain realized from a disposition of Common Shares.

During the quarter ended December 31, 2006 the Company did not purchase any of its equity securities registered pursuant to Section 12 of the Securities Exchange Act of 1934.

Item 6. Selected Financial Data.

The information under “11 Year Report” on page 49 in our 2006 Financial Review, attached as Exhibit 13, is incorporated herein by reference. Such information has been presented on the basis of Canadian GAAP. These principles differ in certain significant respects from U.S. GAAP. The following supplemental financial data is provided on the basis of reconciliations between Canadian and U.S. GAAP.

	(in millions of U.S. dollars, except per-share amounts)
U.S. GAAP	2006		2005		2004		2003			2002
Net income (loss)		625.8		532.7		290.5		(84.2	)		60.4
Net income (loss) per share – basic		6.02		4.91		2.69		(0.81	)		0.58
Total assets		7,038.9		5,841.8		5,202.7		4,520.0			4,511.0
Long-term obligations		1,339.8		1,257.6		1,258.6		1,268.6			1,019.9

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The information under “Management’s Discussion & Analysis of Financial Condition and Results of Operations” on pages 1 through 49 and “Appendix” on page 89 in our 2006 Financial Review, attached as Exhibit 13, is incorporated herein by reference.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

The information under “Management’s Discussion & Analysis of Financial Condition and Results of Operations – Market Risks Associated With Financial Instruments” on pages 43 and 44 in our 2006 Financial Review, attached as Exhibit 13, is incorporated herein by reference.

Item 8. Financial Statements and Supplementary Data.

The information under “Management’s Responsibility for Financial Reporting”, “Report of Independent Registered Chartered Accountants”, “Comments by Independent Registered Chartered Accountants on Canada-

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United States of America Reporting Differences” and “Consolidated Financial Statements” contained on pages 53 through 87 in our 2006 Financial Review, attached as Exhibit 13, are incorporated herein by reference and “Management’s Discussion & Analysis of Financial Condition and Results of Operations – Quarterly Results and Review of Fourth-Quarter Performance” on pages 35 and 36 in our 2006 Financial Review, attached as Exhibit 13, are incorporated herein by reference.

Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

As of December 31, 2006, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon that evaluation and as of December 31, 2006, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports the Company files and submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported as and when required.

There has been no change in our internal control over financial reporting during the year ended December 31, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. “Management’s Report on Internal Control Over Financial Reporting” and the “Report of Independent Registered Chartered Accountants” contained on pages 53 through 55 in our 2006 Financial Review, attached as Exhibit 13, are incorporated herein by reference.

Item 9B. Other Information.

None.

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Part III

Item 10. Directors, Executive Officers and Corporate Governance of the Registrant.

The information under “Board of Directors – Nominees for Election to the Board of Directors” and the first two paragraphs under “Corporate Governance – Report of the Audit Committee” in our 2007 Proxy Circular, attached as Exhibit 99(a), is incorporated herein by reference. Information concerning executive officers is set forth under “Our Executive Officers” in Part I.

We have adopted a Code of Conduct that applies to all of our directors, officers and employees. We make this code, as well as our corporate governance principles and the respective Charters of our Corporate Governance and Nominating, Audit and Compensation Committees, available free of charge on our website, http://www.potashcorp.com, or by request. We intend to disclose certain amendments to our Code of Conduct, or any waivers of our Code of Conduct granted to executive officers and directors, on our website within four business days following the date of such amendment or waiver.

Item 11. Executive Compensation.

The information under “Board of Directors – Director Compensation,” and “Compensation” in our 2007 Proxy Circular, attached as Exhibit 99(a), is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information under “Ownership of Shares”, and the tables titled “At-Risk” Investments and Year Over Year Changes” and “Equity Compensation Plan Information” in our 2007 Proxy Circular, attached as Exhibit 99(a), is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information under “Board of Directors – Director Independence and Other Relationships” on pages 11 through 13 in our 2007 Proxy Circular, attached as Exhibit 99(a), is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services.

The information under “Appointment of Auditors” in our 2007 Proxy Circular, attached as Exhibit 99(a), is incorporated herein by reference.

FORM 10-K │ Part III

Page 28

Part IV

Item 15. Exhibits and Financial Statement Schedules.

List of Documents Filed as Part of this Report

1.     Consolidated Financial Statements in Annual Report

The consolidated financial statements contained on pages 53 through 87 in our 2006 Financial Review, attached as Exhibit 13, are incorporated under Item 8 by reference.

Report of Independent Registered Chartered Accountants	54-55
Consolidated Statements of Financial Position	56
Consolidated Statements of Operations and Retained Earnings	57
Consolidated Statements of Cash Flow	58
Notes to the Consolidated Financial Statements	59-87

2.     Schedules

Schedules not listed are omitted because the required information is inapplicable or is presented in the consolidated financial statements.

REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS

To the Board of Directors and Shareholders of Potash Corporation of Saskatchewan Inc.

We have audited the consolidated financial statements of Potash Corporation of Saskatchewan Inc. and subsidiaries (the “Company”) as of December 31, 2006 and 2005, and for each of the three years in the period ended December 31, 2006, management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, and the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, and have issued our reports thereon dated February 14, 2007 (which audit report on the consolidated financial statements expresses an unqualified opinion and includes a separate report titled Comments by Independent Registered Chartered Accountants on Canada – United States of America Reporting Differences referring to changes in accounting principles); such consolidated financial statements and reports are included in your 2006 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedules of the Company listed in Item 15. These consolidated financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

/s/ Deloitte & Touche LLP

Independent Registered Chartered Accountants

Saskatoon, Saskatchewan, Canada

February 14, 2007

FORM 10-K │ Part IV

Page 29

Potash Corporation of Saskatchewan Inc.

Schedule II – Valuation and Qualifying Accounts

(in millions of U.S. dollars)

(audited)

				Additions
		Balance at		Charged to
		Beginning of		Costs and				Balance at
Description		Year		Expenses		Deductions		End of Year
Allowance for doubtful trade accounts receivable
	2006		5.1		0.7		1.1		4.7
	2005		4.6		0.5		–		5.1
	2004		4.9		0.7		1.0		4.6
Allowance for inventory valuation
	2006		12.9		2.4		6.4		8.9
	2005		14.5		7.1		8.7		12.9
	2004		11.9		5.1		2.5		14.5
Allowance for deferred income tax assets
	2006		45.5		11.2		3.6		53.1
	2005		29.4		16.1		–		45.5
	2004		11.4		18.4		0.4		29.4

3.  Exhibits

Exhibit
Number		Description of Document
	3(a)	Articles of Continuance of the registrant dated May 15, 2002, incorporated by reference to Exhibit 3(a) to the registrant’s report on Form 10-Q for the quarterly period ended June 30, 2002 (the “Second Quarter 2002 Form 10-Q”).
	3(b)	Bylaws of the registrant effective May 15, 2002, incorporated by reference to Exhibit 3(b) to the Second Quarter 2002 Form 10-Q.
	4(a)	Term Credit Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated September 25, 2001, incorporated by reference to Exhibit 4(a) to the registrant’s report on Form 10-Q for the quarterly period ended September 30, 2001.
	4(b)	Syndicated Term Credit Facility Amending Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated as of September 23, 2003, incorporated by reference to Exhibit 4(b) to the registrant’s report on Form 10-Q for the quarterly period ended September 30, 2003 (the “Third Quarter 2003 Form 10-Q”).
	4(c)	Syndicated Term Credit Facility Second Amending Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated as of September 21, 2004, incorporated by reference to Exhibit 4(c) to the registrant’s report on Form 8-K dated September 21, 2004.
	4(d)	Syndicated Term Credit Facility Third Amending Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated as of September 20, 2005, incorporated by reference to Exhibit 4(a) to the registrant’s report on Form 8-K dated September 22, 2005.
	4(e)	Syndicated Term Credit Facility Fourth Amending Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated as of September 27, 2006, incorporated by reference to Exhibit 4(e) to the registrant’s report on Form 10-Q for the quarterly period ended September 30, 2006.
	4(f)	Indenture dated as of June 16, 1997, between the registrant and The Bank of Nova Scotia Trust Company of New York, incorporated by reference to Exhibit 4(a) to the registrant’s report on Form 8-K dated June 18, 1997 (the “1997 Form 8-K”).
	4(g)	Indenture dated as of February 27, 2003, between the registrant and The Bank of Nova Scotia Trust Company of New York, incorporated by reference to Exhibit 4(c) to the registrant’s report on Form 10-K for the year ended December 31, 2002 (the “2002 Form 10-K”).
	4(h)	Form of Notes relating to the registrant’s offering of $400,000,000 principal amount of 7.125% Notes due June 15, 2007, incorporated by reference to Exhibit 4(b) to the 1997 Form 8-K.

FORM 10-K │ Part IV

Page 30

Exhibit
Number		Description of Document
	4(i)	Form of Notes relating to the registrant’s offering of $600,000,000 principal amount of 7.75% Notes due May 31, 2011, incorporated by reference to Exhibit 4 to the registrant’s report on Form 8-K dated May 17, 2001.
	4(j)	Form of Note relating to the registrant’s offering of $250,000,000 principal amount of 4.875% Notes due March 1, 2013, incorporated by reference to Exhibit 4 to the registrant’s report on Form 8-K dated February 28, 2003.
	4(k)	Form of Note relating to the registrant’s offering of $500,000,000 principal amount of 5.875% Notes due December 1, 2036, incorporated by reference to Exhibit 4(a) to the registrant’s report on Form 8-K dated November 29, 2006.

The registrant hereby undertakes to file with the Securities and Exchange Commission, upon request, copies of any constituent instruments defining the rights of holders of long-term debt of the registrant or its subsidiaries that have not been filed herewith because the amounts represented thereby are less than 10% of the total assets of the registrant and its subsidiaries on a consolidated basis.

Exhibit
Number		Description of Document
	10(a)	Sixth Voting Agreement dated April 22, 1978, between Central Canada Potash, Division of Noranda, Inc., Cominco Ltd., International Minerals and Chemical Corporation (Canada) Limited, PCS Sales and Texasgulf Inc., incorporated by reference to Exhibit 10(f) to the registrant’s registration statement on Form F-1 (File No. 33-31303) (the “F-1 Registration Statement”).
	10(b)	Canpotex Limited Shareholders Seventh Memorandum of Agreement effective April 21, 1978, between Central Canada Potash, Division of Noranda Inc., Cominco Ltd., International Minerals and Chemical Corporation (Canada) Limited, PCS Sales, Texasgulf Inc. and Canpotex Limited as amended by Canpotex S&P amending agreement dated November 4, 1987, incorporated by reference to Exhibit 10(g) to the F-1 Registration Statement.
	10(c)	Producer Agreement dated April 21, 1978, between Canpotex Limited and PCS Sales, incorporated by reference to Exhibit 10(h) to the F-1 Registration Statement.
	10(d)	Canpotex/ PCS Amending Agreement, dated as of October 1, 1992, incorporated by reference to Exhibit 10(f) to the registrant’s report on Form 10-K for the year ended December 31, 1995 (the “1995 Form 10-K”).
	10(e)	Canpotex PCA Collateral Withdrawing/ PCS Amending Agreement, dated as of October 7, 1993, incorporated by reference to Exhibit 10(g) to the 1995 Form 10-K.
	10(f)	Canpotex Producer Agreement amending agreement dated as of January 1, 1999, incorporated by reference to Exhibit 10(f) to the registrant’s report on Form 10-K for the year ended December 31, 2000 (the “2000 Form 10-K”).
	10(g)	Canpotex Producer Agreement amending agreement dated as of July 1, 2002, incorporated by reference to Exhibit 10(g) to the registrant’s report on Form 10-Q for the quarterly period ended June 30, 2004 (the “Second Quarter 2004 Form 10-Q”).
	10(h)	Esterhazy Restated Mining and Processing Agreement dated January 31, 1978, between International Minerals & Chemical Corporation (Canada) Limited and the registrant’s predecessor, incorporated by reference to Exhibit 10(e) to the F-1 Registration Statement.
	10(i)	Agreement dated December 21, 1990, between International Minerals & Chemical Corporation (Canada) Limited and the registrant, amending the Esterhazy Restated Mining and Processing Agreement dated January 31, 1978, incorporated by reference to Exhibit 10(p) to the registrant’s report on Form 10-K for the year ended December 31, 1990.
	10(j)	Agreement effective August 27, 1998, between International Minerals & Chemical (Canada) Global Limited and the registrant, amending the Esterhazy Restated Mining and Processing Agreement dated January 31, 1978 (as amended), incorporated by reference to Exhibit 10(l) to the 1998 Form 10-K.
	10(k)	Agreement effective August 31, 1998, among International Minerals & Chemical (Canada) Global Limited, International Minerals & Chemical (Canada) Limited Partnership and the registrant assigning the interest in the Esterhazy Restated Mining and Processing Agreement dated January 31, 1978 (as amended) held by International Minerals & Chemical (Canada) Global Limited to International Minerals & Chemical (Canada) Limited Partnership, incorporated by reference to Exhibit 10(m) to the 1998 Form 10-K.

FORM 10-K │ Part IV

Page 31

Exhibit
Number		Description of Document
	10(l)	Potash Corporation of Saskatchewan Inc. Stock Option Plan – Directors, as amended.
	10(m)	Potash Corporation of Saskatchewan Inc. Stock Option Plan – Officers and Employees, as amended.
	10(n)	Short-Term Incentive Plan of the registrant effective January 2000, as amended March 10, 2005, incorporated by reference to Exhibit 10(x) to the Form 10-K for the year ended December 31, 2004.
	10(o)	Resolution and Forms of Agreement for Supplemental Retirement Income Plan, for officers and key employees of the registrant, incorporated by reference to Exhibit 10(o) to the 1995 Form 10-K.
	10(p)	Amending Resolution and revised forms of agreement regarding Supplemental Retirement Income Plan of the registrant, incorporated by reference to Exhibit 10(x) to the registrant’s report on Form 10-Q for the quarterly period ended June 30, 1996.
	10(q)	Amended and restated Supplemental Retirement Income Plan of the registrant and text of amendment to existing supplemental income plan agreements, incorporated by reference to Exhibit 10(mm) to the registrant’s report on Form 10-Q for the quarterly period ended September 30, 2000 (the “Third Quarter 2000 Form 10-Q”).
	10(r)	Form of Letter of amendment to existing supplemental income plan agreements of the registrant dated November 4, 2002, incorporated by reference to Exhibit 10(cc) to the 2002 Form 10-K.
	10(s)	Amended and restated agreement dated February 20, 2007, between the registrant and William J. Doyle concerning the Supplemental Retirement Income Plan.
	10(t)	Supplemental Retirement Benefits Plan for U.S. Executives dated effective January 1, 1999, incorporated by reference to Exhibit 10(aa) to the Second Quarter 2002 Form 10-Q.
	10(u)	Forms of Agreement dated December 30, 1994, between the registrant and certain officers of the registrant, concerning a change in control of the registrant, incorporated by reference to Exhibit 10(p) to the 1995 Form 10-K.
	10(v)	Form of Agreement of Indemnification dated August 8, 1995, between the registrant and certain officers and directors of the registrant, incorporated by reference to Exhibit 10(q) to the 1995 Form 10-K.
	10(w)	Resolution and Form of Agreement of Indemnification dated January 24, 2001, incorporated by reference to Exhibit 10(ii) to the 2000 Form 10-K.
	10(x)	Resolution and Form of Agreement of Indemnification – July 21, 2004, incorporated by reference to Exhibit 10(ii) to the Second Quarter 2004 Form 10-Q.
	10(y)	Chief Executive Officer Medical and Dental Benefits, incorporated by reference to Exhibit 10(jj) to the Form 10-K for the year ended December 31, 2004.
	10(z)	Second Amended and Restated Membership Agreement dated January 1, 1995, among Phosphate Chemicals Export Association, Inc. and members of such association, including Texasgulf Inc., incorporated by reference to Exhibit 10(t) to the 1995 Form 10-K.
	10(aa)	International Agency Agreement dated effective December 15, 2006, between Phosphate Chemicals Export Association, Inc. and PCS Sales (USA), Inc.
	10(bb)	Deferred Share Unit Plan for Non-Employee Directors, incorporated by reference to Exhibit 4.1 to the registrant’s Form S-8 (File No. 333-75742) filed December 21, 2001.
	10(cc)	Potash Corporation of Saskatchewan Inc. 2005 Performance Option Plan and Form of Option Agreement, as amended.
	10(dd)	Potash Corporation of Saskatchewan Inc. 2006 Performance Option Plan and Form of Option Agreement, as amended.
	10(ee)	Medium Term Incentive Plan of the registrant effective January 2006, incorporated by reference to Exhibit 10(dd) to the registrant’s report on Form 10-K for the year ended December 31, 2005.
	11	Statement re Computation of Per Share Earnings.
	12	Computation of Ratio of Earnings to Fixed Charges.
	13	2006 Financial Review Annual Report. The 2006 Financial Review Annual Report, except for those portions that are expressly incorporated by reference, is furnished for the information of the Commission and is not to be deemed “filed” as part of or otherwise form part of this filing.
	21	Subsidiaries of the registrant.
	23	Consent of Deloitte & Touche LLP.

FORM 10-K │ Part IV

Page 32

Exhibit
Number		Description of Document
	31(a)	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31(b)	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	99(a)	2007 Notice of Meeting, Proxy Circular and Form of Proxy. The 2007 Notice of Meeting, Proxy Circular and Form of Proxy, except for those portions thereof that are expressly incorporated by reference, are furnished for the information of the Commission and are not to be deemed “filed” as part of or otherwise form part of this filing.
	99(b)	2006 Summary Annual Report. The 2006 Summary Annual Report is furnished for the information of the Commission and is not to be deemed “filed” as part of or otherwise form part of this filing.

FORM 10-K │ Part IV

Page 33

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

POTASH CORPORATION OF SASKATCHEWAN INC.

By:	/s/ WILLIAM J. DOYLE
	____________________________________ William J. Doyle President and Chief Executive Officer February 27, 2007

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ DALLAS J. HOWE Dallas J. Howe	Chair of the Board	February 27, 2007
/s/ WAYNE R. BROWNLEE Wayne R. Brownlee	Executive Vice President, Treasurer and Chief Financial Officer (Principal financial and accounting officer)	February 27, 2007
/s/ WILLIAM J. DOYLE William J. Doyle	President and Chief Executive Officer	February 27, 2007
/s/ FREDERICK J. BLESI Frederick J. Blesi	Director	February 27, 2007
/s/ JOHN W. ESTEY John W. Estey	Director	February 27, 2007
/s/ WADE FETZER III Wade Fetzer III	Director	February 27, 2007
/s/ ALICE D. LABERGE Alice D. Laberge	Director	February 27, 2007
/s/ JEFFREY J. MCCAIG Jeffrey J. McCaig	Director	February 27, 2007
/s/ MARY MOGFORD Mary Mogford	Director	February 27, 2007
/s/ PAUL J. SCHOENHALS Paul J. Schoenhals	Director	February 27, 2007

FORM 10-K │ Signatures

Page 34

Signature	Title	Date
/s/ E. ROBERT STROMBERG, Q.C. E. Robert Stromberg, Q.C.	Director	February 27, 2007
/s/ JACK G. VICQ Jack G. Vicq	Director	February 27, 2007
/s/ ELENA VIYELLA DE PALIZA Elena Viyella de Paliza	Director	February 27, 2007

FORM 10-K │ Signatures

Page 35

EXHIBIT INDEX

Exhibit
Number		Description of Document
	3(a)	Articles of Continuance of the registrant dated May 15, 2002, incorporated by reference to Exhibit 3(a) to the registrant’s report on Form 10-Q for the quarterly period ended June 30, 2002 (the “Second Quarter 2002 Form 10-Q”).
	3(b)	Bylaws of the registrant effective May 15, 2002, incorporated by reference to Exhibit 3(b) to the Second Quarter 2002 Form 10-Q.
	4(a)	Term Credit Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated September 25, 2001, incorporated by reference to Exhibit 4(a) to the registrant’s report on Form 10-Q for the quarterly period ended September 30, 2001.
	4(b)	Syndicated Term Credit Facility Amending Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated as of September 23, 2003, incorporated by reference to Exhibit 4(b) to the registrant’s report on Form 10-Q for the quarterly period ended September 30, 2003 (the “Third Quarter 2003 Form 10-Q”).
	4(c)	Syndicated Term Credit Facility Second Amending Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated as of September 21, 2004, incorporated by reference to Exhibit 4(c) to the registrant’s report on Form 8-K dated September 21, 2004.
	4(d)	Syndicated Term Credit Facility Third Amending Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated as of September 20, 2005, incorporated by reference to Exhibit 4(a) to the registrant’s report on Form 8-K dated September 22, 2005.
	4(e)	Syndicated Term Credit Facility Fourth Amending Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated as of September 27, 2006, incorporated by reference to Exhibit 4(e) to the registrant’s report on Form 10-Q for the quarterly period ended September 30, 2006.
	4(f)	Indenture dated as of June 16, 1997, between the registrant and The Bank of Nova Scotia Trust Company of New York, incorporated by reference to Exhibit 4(a) to the registrant’s report on Form 8-K dated June 18, 1997 (the “1997 Form 8-K”).
	4(g)	Indenture dated as of February 27, 2003, between the registrant and The Bank of Nova Scotia Trust Company of New York, incorporated by reference to Exhibit 4(c) to the registrant’s report on Form 10-K for the year ended December 31, 2002 (the “2002 Form 10-K”).
	4(h)	Form of Notes relating to the registrant’s offering of $400,000,000 principal amount of 7.125% Notes due June 15, 2007, incorporated by reference to Exhibit 4(b) to the 1997 Form 8-K.
	4(i)	Form of Notes relating to the registrant’s offering of $600,000,000 principal amount of 7.75% Notes due May 31, 2011, incorporated by reference to Exhibit 4 to the registrant’s report on Form 8-K dated May 17, 2001.
	4(j)	Form of Note relating to the registrant’s offering of $250,000,000 principal amount of 4.875% Notes due March 1, 2013, incorporated by reference to Exhibit 4 to the registrant’s report on Form 8-K dated February 28, 2003.
	4(k)	Form of Note relating to the registrant’s offering of $500,000,000 principal amount of 5.875% Notes due December 1, 2036, incorporated by reference to Exhibit 4(a) to the registrant’s report on Form 8-K dated November 29, 2006.

The registrant hereby undertakes to file with the Securities and Exchange Commission, upon request, copies of any constituent instruments defining the rights of holders of long-term debt of the registrant or its subsidiaries that have not been filed herewith because the amounts represented thereby are less than 10% of the total assets of the registrant and its subsidiaries on a consolidated basis.

Exhibit
Number		Description of Document
	10(a)	Sixth Voting Agreement dated April 22, 1978, between Central Canada Potash, Division of Noranda, Inc., Cominco Ltd., International Minerals and Chemical Corporation (Canada) Limited, PCS Sales and Texasgulf Inc., incorporated by reference to Exhibit 10(f) to the registrant’s registration statement on Form F-1 (File No. 33-31303) (the “F-1 Registration Statement”).
	10(b)	Canpotex Limited Shareholders Seventh Memorandum of Agreement effective April 21, 1978, between Central Canada Potash, Division of Noranda Inc., Cominco Ltd., International Minerals and Chemical Corporation (Canada) Limited, PCS Sales, Texasgulf Inc. and Canpotex Limited as amended by Canpotex S&P amending agreement dated November 4, 1987, incorporated by reference to Exhibit 10(g) to the F-1 Registration Statement.
	10(c)	Producer Agreement dated April 21, 1978, between Canpotex Limited and PCS Sales, incorporated by reference to Exhibit 10(h) to the F-1 Registration Statement.
	10(d)	Canpotex/ PCS Amending Agreement, dated as of October 1, 1992, incorporated by reference to Exhibit 10(f) to the registrant’s report on Form 10-K for the year ended December 31, 1995 (the “1995 Form 10-K”).
	10(e)	Canpotex PCA Collateral Withdrawing/ PCS Amending Agreement, dated as of October 7, 1993, incorporated by reference to Exhibit 10(g) to the 1995 Form 10-K.
	10(f)	Canpotex Producer Agreement amending agreement dated as of January 1, 1999, incorporated by reference to Exhibit 10(f) to the registrant’s report on Form 10-K for the year ended December 31, 2000 (the “2000 Form 10-K”).
	10(g)	Canpotex Producer Agreement amending agreement dated as of July 1, 2002, incorporated by reference to Exhibit 10(g) to the registrant’s report on Form 10-Q for the quarterly period ended June 30, 2004 (the “Second Quarter 2004 Form 10-Q”).
	10(h)	Esterhazy Restated Mining and Processing Agreement dated January 31, 1978, between International Minerals & Chemical Corporation (Canada) Limited and the registrant’s predecessor, incorporated by reference to Exhibit 10(e) to the F-1 Registration Statement.
	10(i)	Agreement dated December 21, 1990, between International Minerals & Chemical Corporation (Canada) Limited and the registrant, amending the Esterhazy Restated Mining and Processing Agreement dated January 31, 1978, incorporated by reference to Exhibit 10(p) to the registrant’s report on Form 10-K for the year ended December 31, 1990.
	10(j)	Agreement effective August 27, 1998, between International Minerals & Chemical (Canada) Global Limited and the registrant, amending the Esterhazy Restated Mining and Processing Agreement dated January 31, 1978 (as amended), incorporated by reference to Exhibit 10(l) to the 1998 Form 10-K.
	10(k)	Agreement effective August 31, 1998, among International Minerals & Chemical (Canada) Global Limited, International Minerals & Chemical (Canada) Limited Partnership and the registrant assigning the interest in the Esterhazy Restated Mining and Processing Agreement dated January 31, 1978 (as amended) held by International Minerals & Chemical (Canada) Global Limited to International Minerals & Chemical (Canada) Limited Partnership, incorporated by reference to Exhibit 10(m) to the 1998 Form 10-K.
	10(l)	Potash Corporation of Saskatchewan Inc. Stock Option Plan – Directors, as amended.
	10(m)	Potash Corporation of Saskatchewan Inc. Stock Option Plan – Officers and Employees, as amended.
	10(n)	Short-Term Incentive Plan of the registrant effective January 2000, as amended March 10, 2005, incorporated by reference to Exhibit 10(x) to the Form 10-K for the year ended December 31, 2004.
	10(o)	Resolution and Forms of Agreement for Supplemental Retirement Income Plan, for officers and key employees of the registrant, incorporated by reference to Exhibit 10(o) to the 1995 Form 10-K.
	10(p)	Amending Resolution and revised forms of agreement regarding Supplemental Retirement Income Plan of the registrant, incorporated by reference to Exhibit 10(x) to the registrant’s report on Form 10-Q for the quarterly period ended June 30, 1996.
	10(q)	Amended and restated Supplemental Retirement Income Plan of the registrant and text of amendment to existing supplemental income plan agreements, incorporated by reference to Exhibit 10(mm) to the registrant’s report on Form 10-Q for the quarterly period ended September 30, 2000 (the “Third Quarter 2000 Form 10-Q”).
	10(r)	Form of Letter of amendment to existing supplemental income plan agreements of the registrant dated November 4, 2002, incorporated by reference to Exhibit 10(cc) to the 2002 Form 10-K.
	10(s)	Amended and restated agreement dated February 20, 2007, between the registrant and William J. Doyle concerning the Supplemental Retirement Income Plan.

Exhibit
Number		Description of Document
	10(t)	Supplemental Retirement Benefits Plan for U.S. Executives dated effective January 1, 1999, incorporated by reference to Exhibit 10(aa) to the Second Quarter 2002 Form 10-Q.
	10(u)	Forms of Agreement dated December 30, 1994, between the registrant and certain officers of the registrant, concerning a change in control of the registrant, incorporated by reference to Exhibit 10(p) to the 1995 Form 10-K.
	10(v)	Form of Agreement of Indemnification dated August 8, 1995, between the registrant and certain officers and directors of the registrant, incorporated by reference to Exhibit 10(q) to the 1995 Form 10-K.
	10(w)	Resolution and Form of Agreement of Indemnification dated January 24, 2001, incorporated by reference to Exhibit 10(ii) to the 2000 Form 10-K.
	10(x)	Resolution and Form of Agreement of Indemnification – July 21, 2004, incorporated by reference to Exhibit 10(ii) to the Second Quarter 2004 Form 10-Q.
	10(y)	Chief Executive Officer Medical and Dental Benefits, incorporated by reference to Exhibit 10(jj) to the Form 10-K for the year ended December 31, 2004.
	10(z)	Second Amended and Restated Membership Agreement dated January 1, 1995, among Phosphate Chemicals Export Association, Inc. and members of such association, including Texasgulf Inc., incorporated by reference to Exhibit 10(t) to the 1995 Form 10-K.
	10(aa)	International Agency Agreement dated effective December 15, 2006, between Phosphate Chemicals Export Association, Inc. and PCS Sales (USA), Inc.
	10(bb)	Deferred Share Unit Plan for Non-Employee Directors, incorporated by reference to Exhibit 4.1 to the registrant’s Form S-8 (File No. 333-75742) filed December 21, 2001.
	10(cc)	Potash Corporation of Saskatchewan Inc. 2005 Performance Option Plan and Form of Option Agreement, as amended.
	10(dd)	Potash Corporation of Saskatchewan Inc. 2006 Performance Option Plan and Form of Option Agreement, as amended.
	10(ee)	Medium Term Incentive Plan of the registrant effective January 2006, incorporated by reference to Exhibit 10(dd) to the registrant’s report on Form 10-K for the year ended December 31, 2005.
	11	Statement re Computation of Per Share Earnings.
	12	Computation of Ratio of Earnings to Fixed Charges.
	13	2006 Financial Review Annual Report. The 2006 Financial Review Annual Report, except for those portions that are expressly incorporated by reference, is furnished for the information of the Commission and is not to be deemed “filed” as part of or otherwise form part of this filing.
	21	Subsidiaries of the registrant.
	23	Consent of Deloitte & Touche LLP.
	31(a)	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31(b)	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	99(a)	2007 Notice of Meeting, Proxy Circular and Form of Proxy. The 2007 Notice of Meeting, Proxy Circular and Form of Proxy, except for those portions thereof that are expressly incorporated by reference, are furnished for the information of the Commission and are not to be deemed “filed” as part of or otherwise form part of this filing.
	99(b)	2006 Summary Annual Report. The 2006 Summary Annual Report is furnished for the information of the Commission and is not to be deemed “filed” as part of or otherwise form part of this filing.

EX-10.L

Exhibit 10(l)

POTASH CORPORATION OF SASKATCHEWAN INC.
STOCK OPTION PLAN — DIRECTORS

1.	Purpose of Plan
	Potash Corporation of Saskatchewan Inc. (the “Corporation”) by resolution of its Board of Directors (the “Board”) has established this Plan to encourage directors of the Corporation to promote the growth and profitability of the Corporation by providing them with the opportunity through options to acquire Common Shares of the Corporation (“Common Shares”).
2.	Administration
	This Plan shall be administered by the Board.
3.	Grant of Options
	From time to time the Board may designate individual directors of the Corporation to be granted options to purchase Common Shares and the number of Common Shares which each such person will be granted an option to purchase; provided that the aggregate number of Common Shares subject to such options may not exceed the number provided for in paragraph 4 of this Plan.
4.	Shares Subject to Option
	The aggregate number of Common Shares issuable after January 24, 1995 pursuant to options under this Plan may not exceed 456,000 shares. The number of Common Shares issuable pursuant to options under this Plan shall be subject to adjustment under paragraphs 8 and 9.
	The aggregate number of Common Shares in respect of which options have been granted to any one person and which remain outstanding shall not at any time exceed 5% of the number of issued and outstanding Common Shares (on a non-diluted basis) at that time.
	If any option granted under this Plan, or any portion thereof, expires or terminates for any reason without having been exercised in full, the Common Shares with respect to which such option has not been exercised shall again be available for further options under this Plan.

5.	Option Price
	The option price under this Plan to any optionee shall be the fair market value of the Common Shares at such time which, for optionees resident in the United States and any other optionees designated by the Board, shall be deemed to be the closing price per share of the Common Shares on the New York Stock Exchange on the last trading day immediately preceding the day the option is granted and, for all other optionees, shall be deemed to be the closing price per share of the Common Shares on The Toronto Stock Exchange on the last trading day immediately preceding the day the option is granted; provided that, in either case, if the Common Shares did not trade on such exchange on such day the option price shall be the closing price per share on such exchange on the last day on which the Common Shares traded on such exchange prior to the day the option is granted.
6.	Terms of Option
	The period during which an option is exercisable may not exceed 10 years from the date the option is granted. The option agreement may contain provisions limiting the number of Common Shares with respect to which the option may be exercised in any one year. Each option agreement shall contain provisions to the effect that:

a.	if an optionee ceases to be a director of the Corporation by reason of his or her death or an optionee who is a retiree pursuant to clause b below dies, the legal personal representatives of the optionee will be entitled to exercise any unexercised options, including such options that may vest after the date of death, during the period ending at the end of the twelfth calendar month following the calendar month in which the optionee dies, failing which exercise the options terminate;
b.	subject to the terms of clause a above, if an optionee ceases to be a director of the Corporation by reason of retirement in accordance with the then prevailing retirement policy of the Corporation, the optionee will be entitled to exercise any unexercised options, including such options as may vest after the date of retirement, until the expiry date of such options or the date on which such options are otherwise terminated in accordance with the provisions of this Plan, failing which exercise the options terminate;
c.	if an optionee ceases to be a director of the Corporation for any reason other than as provided in the preceding clauses a. or b., the optionee will be entitled to exercise any unexercised options, to the extent exercisable at the date of such event, during the period ending at the end of the calendar month immediately following the calendar month in which the event occurs, failing which exercise the options terminate; and
d.	each option is personal to the optionee and is not assignable, except (i) as provided in the preceding clause a, and (ii) at the election of the Board, an option may be assignable to the spouse, children and grandchildren of the original optionee and to a trust, partnership or limited liability company, the entire beneficial interest of which is held by one or more of the foregoing.

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	Nothing contained in the preceding clauses a, b or c shall extend the period during which an option may be exercised beyond its stipulated expiry date or the date on which it is otherwise terminated in accordance with the provisions of this Plan.
	If an option is assigned pursuant to the preceding subclause (ii) of clause d, the references in the preceding clauses a, b and c to ceasing to be a director or death of an optionee shall not relate to the assignee of an option but shall relate to the original optionee. In the event of such assignment, legal personal representatives of the original optionee shall not be entitled to exercise the assigned option, but the assignee of the option or the legal personal representatives of the assignee may exercise the option during the applicable specified period.
7.	Exercise of Options
	Subject to the provisions of this Plan, an option may be exercised from time to time by delivering to the Corporation at its registered office a written notice of exercise specifying the number of shares with respect to which the option is being exercised and accompanied by payment in cash or certified cheque in full of the purchase price of the shares then being purchased.
8.	Adjustments
	Appropriate adjustments to the authorized limits set forth in paragraph 4, in the number, class and/or type of shares optioned and in the option price per share, both as to options granted or to be granted, shall be made by the Board to give effect to adjustments in the number of Common Shares which result from subdivisions, consolidations or reclassifications of the Common Shares, the payment of share dividends by the Corporation, the reconstruction, reorganization or recapitalization of the Corporation or other relevant changes in the capital of the Corporation. If the Corporation sells all or substantially all of its assets as an entirety or substantially as an entirety, options under this Plan may be exercised, in whole or in part, at any time up to and including (but not after) a date 30 days following the date of completion of such sales or prior to the close of business on the date the option expires, whichever is earlier.
9.	Mergers
	If the Corporation proposes to amalgamate or merge with another body corporate, the Corporation shall give written notice thereof to optionees in sufficient time to enable them to exercise outstanding options, to the extent they are otherwise exercisable by their terms, prior to the effective date of such amalgamation or merger if they so elect. The Corporation shall use its best efforts to provide for the reservation and issuance by the amalgamated or continuing corporation of an appropriate number of shares, with appropriate adjustments, so as to give effect to the continuance of the options to the extent reasonably practicable. In the event that the Board determines in good faith that such continuance is not in the circumstances practicable, it may upon 30 days’ notice to optionees terminate the options.

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10.	Change of Control
	If a “change of control” of the Corporation occurs, each then outstanding option granted under this Plan may be exercised, in whole or in part, even if such option is not otherwise exercisable by its terms. For purposes of this paragraph 10, a change of control of the Corporation shall be deemed to have occurred if:

a.	within any period of two consecutive years, individuals who at the beginning of such period constituted the Board and any new directors whose appointment by the Board or nomination for election by shareholders of the Corporation was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose appointment or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board;
b.	there occurs an amalgamation, merger, consolidation, wind-up, reorganization or restructuring of the Corporation with or into any other entity, or a similar event or series of such events, other than any such event or series of events which results in securities of the surviving or consolidated corporation representing 50% or more of the combined voting power of the surviving or consolidated corporation’s then outstanding securities entitled to vote in the election of directors of the surviving or consolidated corporation being beneficially owned, directly or indirectly, by the persons who were the holders of the Corporation’s outstanding securities entitled to vote in the election of directors of the Corporation prior to such event or series of events in substantially the same proportions as their ownership immediately prior to such event of the Corporation’s then outstanding securities entitled to vote in the election of directors of the Corporation;
c.	50% or more of the fixed assets (based on book value as shown on the most recent available audited annual or unaudited quarterly consolidated financial statements) of the Corporation are sold or otherwise disposed of (by liquidation, dissolution, dividend or otherwise) in one transaction or series of transactions within any twelve month period;
d.	any party, including persons acting jointly or in concert with that party, becomes (through a take-over bid or otherwise) the beneficial owner, directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation’s then outstanding securities entitled to vote in the election of directors of the Corporation, unless in any particular situation the Board determines in advance of such event that such event shall not constitute a change of control; or
e.	the Board approves and/or recommends that shareholders accept, approve or adopt any transaction that would constitute a change of control under clause b, c or d above.

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11.	Amendment or Discontinuance of this Plan
	The Board may amend or discontinue the Plan at any time, without obtaining the approval of shareholders of the Corporation unless required by the relevant rules of the Toronto Stock Exchange, provided that, subject to paragraphs 8, 9, and 10, no such amendment may increase the aggregate maximum number of Common Shares that may be subject to stock options under this Plan, change the manner of determining the minimum option price, extend the option period under any option beyond 10 years, expand the assignment provisions of the Plan or, without the consent of the holder of the option, alter or impair any option previously granted to an optionee under this Plan; and, provided further, for greater certainty, that, without the prior approval of the Corporation’s shareholders, stock options issued under this Plan shall not be repriced, replaced, or regranted through cancellation, or by lowering the option price of a previously granted stock option. Pre-clearance of the Toronto Stock Exchange of amendments to the Plan will be required to the extent provided under the relevant rules of the Toronto Stock Exchange.
12.	Evidence of Options
	Each option granted under this Plan shall be embodied in a written option agreement between the Corporation and the optionee which shall give effect to the provisions of this Plan.

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EX-10.M

Exhibit 10(m)

POTASH CORPORATION OF SASKATCHEWAN INC.
STOCK OPTION PLAN — OFFICERS AND EMPLOYEES

1.	Purpose of Plan
	Potash Corporation of Saskatchewan Inc. (the “Corporation”) by resolution of its Board of Directors (the “Board”) has established this Plan to encourage officers and employees of the Corporation and its subsidiaries to promote the growth and profitability of the Corporation by providing them with the opportunity through options to acquire Common Shares of the Corporation (“Common Shares”).
2.	Administration
	This Plan shall be administered by the Board.
3.	Grant of Options
	From time to time the Board may designate individual officers and employees of the Corporation and its subsidiaries eligible to be granted options to purchase Common Shares and the number of Common Shares which each such person will be granted an option to purchase; provided that the aggregate number of Common Shares subject to such options may not exceed the number provided for in paragraph 4 of this Plan.
4.	Shares Subject to Option
	The aggregate number of Common Shares issuable after February 3, 1998 pursuant to options under this Plan may not exceed 6,926,125 shares. The number of Common Shares issuable pursuant to options under this Plan shall be subject to adjustment under paragraphs 8 and 9.
	The aggregate number of Common Shares in respect of which options have been granted to any one person and which remain outstanding shall not at any time exceed 5% of the number of issued and outstanding Common Shares (on a non-diluted basis) at that time.
	If any option granted under this Plan, or any portion thereof, expires or terminates for any reason without having been exercised in full, the Common Shares with respect to which such option has not been exercised shall again be available for further options under this Plan.

5.	Option Price
	The option price under this Plan to any optionee shall be fixed by the Board when the option is granted and shall be not less than the fair market value of the Common Shares at such time which, for optionees resident in the United States and any other optionees designated by the Board, shall be deemed to be the closing price per share of the Common Shares on the New York Stock Exchange on the last trading day immediately preceding the day the option is granted and, for all other optionees, shall be deemed to be the closing price per share of the Common Shares on The Toronto Stock Exchange on the last trading day immediately preceding the day the option is granted; provided that, in either case, if the Common Shares did not trade on such exchange on such day the option price shall be the closing price per share on such exchange on the last day on which the Common Shares traded on such exchange prior to the day the option is granted.
6.	Terms of Option
	The period during which an option is exercisable may not exceed 10 years from the date the option is granted, and the option agreement may contain provisions limiting the number of Common Shares with respect to which the option may be exercised in any one year. Each option agreement shall contain provisions to the effect that:

a.	if the employment of an optionee as an officer or employee of the Corporation or a subsidiary terminates, by reason of his or her death, or if an optionee who is a retiree pursuant to clause b below dies, the legal personal representatives of the optionee will be entitled to exercise any unexercised options, including such options that may vest after the date of death, during the period ending at the end of the twelfth calendar month following the calendar month in which the optionee dies, failing which exercise the options terminate;
b.	subject to the terms of clause a above, if the employment of an optionee as an officer or employee of the Corporation or a subsidiary terminates, by reason of retirement in accordance with the then prevailing retirement policy of the Corporation or subsidiary, the optionee will be entitled to exercise any unexercised options, including such options as may vest after the date of retirement, until the expiry date of such options or the date on which such options are otherwise terminated in accordance with the provisions of this Plan, failing which exercise the options terminate. Notwithstanding the foregoing, the Board may, at the time of grant, prescribe such shorter period of time for exercise following retirement as it deems appropriate;
c.	if the employment of an optionee as an officer or employee of the Corporation or a subsidiary terminates, for any reason other than as provided in the preceding clauses a or b, the optionee will be entitled to exercise any unexercised options, to the extent exercisable at the date of such event, during the period ending at the end of the calendar month immediately following the calendar month in which the event occurs, failing which exercise the options terminate.

For greater certainty and for these purposes, an optionee’s employment with the Corporation or a subsidiary shall be considered to have terminated effective on the last day of the optionee’s actual and active employment with the Corporation or subsidiary whether such day is selected by agreement with the optionee or unilaterally by the Corporation or subsidiary and whether with or without advance notice to the optionee. For the avoidance of doubt, no period of notice that is given or ought to have been given under applicable law in respect of such termination of employment will be utilized in determining an optionee’s entitlement under the Plan; and

d.

each option is personal to the optionee and is not assignable, except (i) as provided in the preceding clause a, and (ii) at the election of the Board, an option may be assignable to the spouse, children and grandchildren of the original optionee and to a trust, partnership or limited liability company, the entire beneficial interest of which is held by one or more of the foregoing.

	Nothing contained in the preceding clauses a, b, or c shall extend the period during which an option may be exercised beyond its stipulated expiry date or the date on which it is otherwise terminated in accordance with the provisions of this Plan.
	If an option is assigned pursuant to the preceding subclause (ii) of clause d, the references in the preceding clauses a, b and c to the termination of employment or death of an optionee shall not relate to the assignee of an option but shall relate to the original optionee. In the event of such assignment, legal personal representatives of the original optionee shall not be entitled to exercise the assigned option, but the assignee of the option or the legal personal representatives of the assignee may exercise the option during the applicable specified period.
7.	Exercise of Options
	Subject to the provisions of this Plan, an option may be exercised from time to time by delivering to the Corporation at its registered office a written notice of exercise specifying the number of shares with respect to which the option is being exercised and accompanied by payment in cash or certified cheque in full of the purchase price of the shares then being purchased.
8.	Adjustments
	Appropriate adjustments to the authorized limits set forth in paragraph 4, in the number, class and/or type of shares optioned and in the option price per share, both as to options granted or to be granted, shall be made by the Board to give effect to adjustments in the number of Common Shares which result from subdivisions, consolidations or reclassifications of the Common Shares, the payment of share dividends by the Corporation, the reconstruction, reorganization or recapitalization of the Corporation or other relevant changes in the capital of the Corporation. If the Corporation sells all or substantially all of its assets as an entirety or substantially as an entirety, options under this Plan may be exercised, in whole or in part, at any time up to and including (but not after) a date 30 days following the date of completion of such sales or prior to the close of business on the date the option expires, whichever is earlier.

9.	Mergers
	If the Corporation proposes to amalgamate or merge with another body corporate, the Corporation shall give written notice thereof to optionees in sufficient time to enable them to exercise outstanding options, to the extent they are otherwise exercisable by their terms, prior to the effective date of such amalgamation or merger if they so elect. The Corporation shall use its best efforts to provide for the reservation and issuance by the amalgamated or continuing corporation of an appropriate number of shares, with appropriate adjustments, so as to give effect to the continuance of the options to the extent reasonably practicable. In the event that the Board determines in good faith that such continuance is not in the circumstances practicable, it may upon 30 days’ notice to optionees terminate the options.
10.	Change of Control
	If a “change of control” of the Corporation occurs, each then outstanding option granted under this Plan may be exercised, in whole or in part, even if such option is not otherwise exercisable by its terms. For purposes of this paragraph 10, a change of control of the Corporation shall be deemed to have occurred if:

a.	within any period of two consecutive years, individuals who at the beginning of such period constituted the Board and any new directors whose appointment by the Board or nomination for election by shareholders of the Corporation was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose appointment or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board;
b.	there occurs an amalgamation, merger, consolidation, wind-up, reorganization or restructuring of the Corporation with or into any other entity, or a similar event or series of such events, other than any such event or series of events which results in securities of the surviving or consolidated corporation representing 50% or more of the combined voting power of the surviving or consolidated corporation’s then outstanding securities entitled to vote in the election of directors of the surviving or consolidated corporation being beneficially owned, directly or indirectly, by the persons who were the holders of the Corporation’s outstanding securities entitled to vote in the election of directors of the Corporation prior to such event or series of events in substantially the same proportions as their ownership immediately prior to such event of the Corporation’s then outstanding securities entitled to vote in the election of directors of the Corporation;
c.	50% or more of the fixed assets (based on book value as shown on the most recent available audited annual or unaudited quarterly consolidated financial statements) of the Corporation are sold or otherwise disposed of (by liquidation, dissolution, dividend or otherwise) in one transaction or series of transactions within any twelve month period;

d.

any party, including persons acting jointly or in concert with that party, becomes (through a take-over bid or otherwise) the beneficial owner, directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation’s then outstanding securities entitled to vote in the election of directors of the Corporation, unless in any particular situation the Board determines in advance of such event that such event shall not constitute a change of control; or

e.

the Board approves and/or recommends that shareholders accept, approve or adopt any transaction that would constitute a change of control under clause b, c or d above.

11.	Amendment or Discontinuance of this Plan
	The Board may amend or discontinue the Plan at any time, without obtaining the approval of shareholders of the Corporation unless required by the relevant rules of the Toronto Stock Exchange, provided that, subject to paragraphs 8, 9, and 10, no such amendment may increase the aggregate maximum number of Common Shares that may be subject to stock options under this Plan, change the manner of determining the minimum option price, extend the option period under any option beyond 10 years, expand the assignment provisions of the Plan, permit non-employee directors to participate in the Plan or, without the consent of the holder of the option, alter or impair any option previously granted to an optionee under this Plan; and, provided further, for greater certainty, that, without the prior approval of the Corporation’s shareholders, stock options issued under this Plan shall not be repriced, replaced, or regranted through cancellation, or by lowering the option price of a previously granted stock option. Pre-clearance of the Toronto Stock Exchange of amendments to the Plan will be required to the extent provided under the relevant rules of the Toronto Stock Exchange.
12.	Evidence of Options
	Each option granted under this Plan shall be embodied in a written option agreement between the Corporation and the optionee which shall give effect to the provisions of this Plan.

EX-10.S

Exhibit 10(s)

THIS AGREEMENT made as of this 20th day of February, 2007.

BETWEEN:

POTASH CORPORATION OF SASKATCHEWAN INC.,
a corporation organized under the laws of the Canada

(hereinafter called “PCS Inc”)

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William J. Doyle
of Northbrook, Illinois, an executive of the
Corporation

(hereinafter called the “Executive”)

WHEREAS the Executive is in the employ of PCS Inc. or one of its direct or indirect subsidiaries (hereinafter collectively the “Corporation”) and renders valuable service to the Corporation;

AND WHEREAS the Executive is a member of the Pension Plan;

AND WHEREAS the Corporation desires to recognize the value of the Executive’s service and to secure his continued employment;

NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, the Executive and the Corporation covenant and agree as follows:

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1.	DEFINITIONS
	For purposes of this Agreement, the terms “Continuous Service”, and “Spouse” shall have the meanings given those terms in the PCS Inc. Pension Plan from time to time.
	The term “Earnings” shall mean the Executive’s annual base pay plus:

(a)	100% of all bonuses paid or payable to the Executive in a calendar year pursuant to the Corporation’s annual incentive plan or any similar plan substituted therefore; and
(b)	any other payment made in a given year to the Executive which payment is specifically designated to be included in Earnings by the Compensation Committee of the Board of Directors of the Corporation.

For purposes of calculating benefits payable under this Agreement, the amended definition of “Earnings” as set forth above shall be applied retroactively to the date of implementation of the original (1991) Agreement. To the extent that any prior Agreement, or any amendment to such an Agreement (including, but not limited to, the May 16, 2000 letter from Mr. John Hampton and your acceptance thereof) provides for an alternate definition of Earnings, such alternate definition shall no longer be controlling, and shall be replaced and superseded by the definition described above.

For purposes of this Agreement, the term “Pension Plan” means the PCS Inc. Pension Plan, the PCS U.S. Employees’ Savings Plan, and any prior or alternate plans from which the Executive is entitled to benefits by reason of his service with the Corporation.

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2.	QUALIFICATION FOR PENSION PLAN SUPPLEMENT
	To qualify for the supplemental retirement benefits described in this Agreement, the Executive shall:

(a)	remain in the continuous service of the Corporation from the date of this Agreement until his retirement from the Corporation; and
(b)	not retire from the Corporation prior to age 55.

	For purposes of this Agreement, any termination of employment from the Corporation by the Executive on or after age 55 shall be deemed to be the Executive’s retirement from the Corporation.
3.	RETIREMENT DATES

(a)	Normal Retirement
	Upon the Executive’s retirement from the Corporation at age 65, the Executive shall receive the supplemental retirement benefits as described in paragraph 4.
(b)	Early Retirement
	If the Executive retires from the Corporation after attaining age 55, but prior to attainment of age 65, the Executive shall receive supplemental retirement benefits as described in paragraph 4, except that such supplemental retirement benefits shall be reduced by 5/12 of 1% for each month that the commencement date of the supplemental retirement benefit payments precedes the Executive’s attainment of age 62.
(c)	Postponed Retirement
	If the Executive retires from the Corporation after attaining age 65, the Executive shall continue to accrue benefits under this Agreement until his actual retirement date and shall receive the supplemental retirement benefits as described in paragraph 4.

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4.	AMOUNT OF SUPPLEMENT
	The annual supplemental retirement benefit payable under this Agreement, if any, shall be calculated as follows:

(a)	5% of the Executive’s average 3 highest calendar years’ Earnings
	multiplied by
	the Executive’s years (including partial years calculated to the last full month completed) of Continuous Service up to a maximum of 10 years
	PLUS
(b)	2% of the Executive’s average 3 highest calendar years’ Earnings
	multiplied by
	the Executive’s years (including partial years calculated to the last full month completed) of Continuous Service in excess of 25 years to a maximum of 10 additional years
	MINUS
(c)	the annual retirement benefit which can be provided to the Executive under the Pension Plan on a life-only basis.

For purposes of calculating the offset amount under section (c) above, the Corporation shall determine an actuarial equivalent annuity offset representing the employer portion of benefits reasonably expected to be provided under the Pension Plan, based on reasonable actuarial equivalent factors. The exchange rate used to convert Canadian or U.S. dollars shall be the rate in effect at noon on the business day immediately preceding the Executive’s termination of employment.

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5. PAYMENT OF PENSION PLAN SUPPLEMENT FOLLOWING RETIREMENT

(a)	Form of Payment
	The supplemental retirement benefits payable pursuant to paragraph 4 shall be paid to the Executive in the form of a single lump sum payment, calculated as of the first day of the month immediately following the Executive’s last day of employment. The lump sum payment shall reflect the present value of the life annuity benefit described in paragraph 4, and shall be calculated on the basis of reasonable actuarial factors as determined by the Corporation. The lump sum payment shall also include an “earnings adjustment,” as further described in section (b) below.
(b)	Timing of Payment
	The lump sum payment described in section (a) above shall be paid to the Executive on the date that is six months following the date the Executive retires from the Corporation, or as soon as administratively possible thereafter. Should the Executive die after retirement, but prior to receiving payment, such lump sum payment shall be made to the Executive’s Spouse or other beneficiary designated by the Executive, or otherwise to the Executive’s estate.
	The lump sum payment shall include an “earnings adjustment” to reflect the six-month delay described above. The appropriate earnings adjustment shall be determined by the Corporation, using the same interest rate as was used to calculate the unadjusted lump sum payment described in section (a) above.

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6.	DEATH PRIOR TO RETIREMENT
	Should the Executive die after attaining age 55 but prior to his retirement from the Corporation, the Executive’s Spouse (if any) shall receive a single lump sum payment. The lump sum payment shall reflect the present value of a survivor annuity, equal to the annual benefit the Spouse would have received had the Executive retired immediately prior to his death and elected a 60% survivor pension. The lump sum payment shall be calculated based on the methodology described in paragraph 5, and shall be payable on the first day of the month immediately following the Executive’s date of death.
	The Executive shall not receive any benefits pursuant to this Agreement if he should die prior to attaining age 55.
7.	FUNDING

(a)	General
	The Corporation will not be required to establish or contribute to a trust fund or other funding arrangement of any kind for the provision of the supplemental retirement benefit or any other payment which may become payable under this Agreement. Neither the Executive nor any other person shall acquire by reason of this Agreement any right in or title to any assets, funds or property of the Corporation. Any benefits which become payable hereunder shall be paid from the general assets of the Corporation. The Executive shall have only a contractual right to the amounts, if any, payable hereunder unsecured by any asset of the Corporation.
	Nothing contained in this Agreement constitutes a guarantee by the Corporation that the assets of the Corporation shall be sufficient to pay any benefit to any person. Prior to 2005, the Corporation agreed to purchase a letter of credit from a financial institution to secure the benefits of the Executive. Effective as of January 1, 2005, no such letter of credit shall be in effect.

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(b)	Establishment of Rabbi Trust
	The Compensation Committee of the Board of the Corporation may, at its sole and absolute discretion, establish an irrevocable rabbi trust that is a grantor trust within the meaning of Internal Revenue Code sections 671-677 for the benefit of the Executive and beneficiaries of the Executive (as well as for other participants and beneficiaries in nonqualified plans and agreements sponsored by the Corporation). Such a trust shall have an independent trustee, selected by the Committee, who shall have fiduciary duty to carry out the terms and conditions of the Plan.
	The provisions of subsections (c), (d), and (e) below shall apply only if the Committee exercises its discretion and establishes a rabbi trust.
(c)	Terms of Rabbi Trust
	The assets of the rabbi trust shall be subject to the claims of general creditors in the event of a bankruptcy or insolvency under such terms that are specifically defined by the provisions of the rabbi trust and under a required procedure for notifying the trustee of any such bankruptcy or insolvency.
(d)	Funding

(i)	In General
	Except as provided in paragraph (ii) below, at the sole and absolute discretion of the Committee, the Corporation shall contribute cash to the rabbi trust for the benefit of the Executive and his or her beneficiaries, as the Committee deems appropriate.
(ii)	Change in Control
	If a Change in Control occurs, the rabbi trust shall be funded immediately with an amount equal to the actuarial equivalent of the benefits under the Agreement. The Corporation’s actuary shall determine the amount to be funded.

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(e)	Distributions
	Following a Change in Control, distributions of the Executive’s benefits shall be made from the rabbi trust directly to the Executive or the Executive’s beneficiary in accordance with section 5 or 6 (as the case may be).
	To the extent any benefits provided under this Agreement are actually paid from the rabbi trust, the Corporation shall have no further obligation for the benefit to the extent so paid, but to the extent not so paid, such benefits shall remain the obligation of, and shall be paid by the Corporation.

8.	SUCCESSORS AND ASSIGNS
	This Agreement shall enure to the benefit of and be binding upon the Corporation and its assigns and upon the Executive and his heirs, executors, administrators, successors and assigns.
9.	WITHHOLDING TAX
	The benefits payable pursuant to this Agreement shall be subject to such withholding tax as required by law.
10.	AMENDMENT
	This Agreement may be amended at any time upon the written agreement of the Corporation and the Executive. This Agreement when duly signed by the Corporation and the Executive shall replace any prior Agreement dealing with Supplemental Executive Retirement Income.
11.	GOVERNING LAWS
	This Agreement shall be governed by the laws applicable in the province of Saskatchewan.

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IN WITNESS WHEREOF the Corporation has executed this Agreement by its duly authorized officers on its behalf and the Executive has executed this Agreement as of the date first above written.

Potash Corporation of Saskatchewan Inc.

/s/ John W. Estey

Executive

/s/ William Doyle

SIGNED SEALED AND DELIVERED in
the presence of:

Melody Elliott

Name of Witness

/s/ Melody Elliott

Signature of Witness

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EX-10.AA

Exhibit 10(aa)

INTERNATIONAL AGENCY AGREEMENT

          THIS INTERNATIONAL AGENCY AGREEMENT (“Agreement”) is made as of December 15, 2006, by and between Phosphate Chemicals Export Association, Inc., a Delaware non-profit corporation (the “Association”) and PCS Sales (USA), Inc., a Delaware corporation (“Agent”).

Recitals

     A.     The Association has been formed as a non-profit corporation to engage solely in export trade as defined by the act of the U.S. Congress entitled “An Act to Promote Export Trade, and for other Purposes,” approved April 10, 1918, commonly known as the “Webb-Pomerene Act” (hereinafter, the “Act”), as amended, and is governed pursuant to that certain Second Amended and Restated Membership Agreement dated as of January 1, 1995 (the “Membership Agreement”);

     B.     The Association hereby desires to appoint the Agent, and the Agent hereby desires to accept such appointment, as the Association’s independent and, except as set forth in the Membership Agreement, exclusive export marketing agent for Wet Phosphatic Materials, pursuant to the terms and conditions of this Agreement;

          NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, it is agreed as follows:

I.     APPOINTMENT AND SCOPE

          1.1     Appointment. Subject to the terms and conditions hereof, the Association hereby appoints Agent, for the term of this Agreement, as its independent and, except as set forth in the Membership Agreement and in the International Agency Agreement between the Association and Mosaic, exclusive export agent for the marketing, solicitation of orders for and freighting of the Wet Phosphatic Materials identified more specifically in Exhibit A hereto attached and incorporated herein by reference (the “Products”). Agent hereby accepts such appointment and agrees to devote its best efforts to the performance of such duties as may be reasonably necessary to promote export trade in Wet Phosphatic Materials.

          1.2     Independent Contractor Status. This Agreement does not constitute a general agency. Agent shall be a legal representative of the Association only for the limited purposes set forth in this Agreement with respect to its responsibilities as export agent for Wet Phosphatic Materials. Agent is not granted and shall not exercise the right or authority to assume or create any obligation or responsibility on behalf of or in the name of the Association. Agent shall take no action which could confer on the Association “permanent establishment” or equivalent status (as defined in any applicable law or income tax treaty) or otherwise subject the Association to income taxation in any country or political subdivision in or for which the Agent has responsibility under this Agreement. Agent shall be responsible for all of its own expenses and employees.

          1.3     Sales Restrictions.

               A.     Agent agrees not to appoint sub-agents in the sale of Products unless such appointment is approved in writing by the Association.

               B.     Notwithstanding anything to the contrary in this Agreement, it is understood and agreed that Agent shall have no authority whatsoever to, and shall not (i) sell, accept orders for or contract for the sale of Products on behalf of or as agent of the Association; (ii) establish or purport to establish terms and conditions of sale on behalf of the Association; and/or (iii) sign any contracts, offers or other documents of any kind whatsoever on behalf of the Association or commit or bind, or purport to commit or bind, the Association in any manner.

               C.     Agent acknowledges and agrees that the Association has sole authority to establish the selling price and other terms and conditions respecting all sales of Products by the Association, including, without limitation, to offer to sell, to accept, to reject or cancel in whole or in part any order or proposed order in each case, or sign any contracts, offers or other documents of any kind whatsoever on behalf of the Association or commit or bind or purport to commit or bind the Association in any manner.

               D.     In transmitting any offers to purchase Products from the Association, Agent shall inform prospective purchasers that all terms and conditions of sale, including but not limited to the price, require the written acceptance and approval of the Association.

II.     COMPENSATION

          2.1     Compensation Payable. Subject to the provisions of this Agreement, the Association shall pay Agent a fee for all of Agent’s services pursuant to this Agreement as should be determined by the Board of Directors. Such compensation shall be paid in equal quarterly installments due and payable on the first business day of each calendar quarter during the term hereof.

III.     AGENT’S COVENANTS AND REPRESENTATIONS

          3.1     Sales Promotion. Agent shall use its reasonable efforts to promote the sale and use of Products by all existing and potential customers outside of the United States and Canada.

          3.2     Sales Policies and Procedures. Agent shall comply at all times with the Association’s sales policies and procedures in effect from time to time. A current copy of such sales policies and procedures is attached hereto as Exhibit B. Any breach of such sales policies and procedures shall be deemed a breach of this Agreement. The Association may amend, modify or otherwise change such policies and procedures upon sixty (60) days’ notice to Agent.

          3.3     Instructions. The Agent will issue reasonable instructions to each Member as to delivery, quality, grading, packing, invoicing and shipping of Export Sales made by the Association. It is the Agent’s understanding that each Member will use its reasonable efforts to comply with all such instructions.

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          3.4     Confidential Information. During the term of this Agreement, Agent will have access to certain pricing, technical, marketing and other confidential information of the Association and of individual Members of the Association. Agent acknowledges that such confidential information comprises valuable trade secrets and is proprietary to the Association and such Members of the Association. Agent shall hold such confidential information in strict confidence and shall not use or disclose the same except as required to perform its obligations under this Agreement. The foregoing obligation shall not extend to information which is or becomes public knowledge through no fault of Agent or which is required to be disclosed by law.

          3.5     Trade Name(s). Agent may identify itself on letterhead, business cards and signs as an authorized export marketing agent of the Association, and in sales and promotional materials, provided such materials have been previously approved by the Association. Agent shall not register the Association’s trade name(s) or any name(s) closely resembling them.

          3.6     Indemnification. The Association agrees that it shall be solely responsible for and shall indemnify and hold the Agent harmless from and against, and will pay to the Agent the full amount of any loss, claim, damage, liability or expense (including reasonable attorneys’ fees) resulting to the Agent, either directly or indirectly, from any acts or omissions of the Agent, including negligent acts or omissions, in its performance of its duties and obligations under this Agreement except to the extent that the loss, claim, liability or expense is due to the Agent’s gross negligence or willful and wanton misconduct. The Agent agrees to give the Association written notice of and the right to assume the defense of any action against the Agent in respect of any such loss, claim, damage, liability or expense, and no settlement relating to any such loss, claim, damage, liability or expense shall be made which affects the Association’s liability under this provision unless the Association gives written consent to such settlement, which consent shall not be withheld unreasonably. Any amount due to the Agent under the aforesaid indemnity shall be due and payable by the Association on demand.

IV.     TERM AND TERMINATION

          4.1     Term and Renewal. This Agreement shall continue in full force and effect for an initial term expiring December 31, 2007. Thereafter, unless terminated as provided in Article 4.2 below or by mutual written consent, this Agreement will be automatically renewed for successive one calendar year terms.

          4.2     Termination. This Agreement may be terminated prior to expiration of the initial or any renewal term, as provided in Article 4.1 above, by prior written notice to the other party as follows:

               A.     By either party, in the event the other party should fail to perform any of its obligations hereunder and should fail to remedy such nonperformance within thirty (30) calendar days after receiving written demand therefore; provided, however, that upon a second breach of the same obligation, the other party may forthwith terminate this Agreement upon notice to the breaching party;

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               B.     By either party, effective immediately, if the other party should be declared insolvent or bankrupt or make an assignment or other arrangement for the benefit of its creditors, or if such other party should have any of its material assets expropriated;

               C.     By the Association, effective immediately, if Agent should attempt to sell, assign, delegate or transfer any of its rights and obligations under this Agreement without having obtained the Association’s prior written consent thereto, or if there should occur any material adverse change in the management, ownership, control or financial or technical resources of Agent; or

               D.     By the Association, effective immediately, if any law or regulation should be adopted or in effect in any country or other political subdivision in which Agent serves in any capacity as marketing representative for the Association which would restrict the Association’s termination rights hereunder or otherwise invalidate any provisions hereof; or

               E.     After December 31, 2007 by either party, without cause, upon ninety (90) days’ prior notice to the other party.

          4.3     Consequences of Termination or Non-Renewal. Upon termination or non-renewal of this Agreement, Agent shall immediately: (i) return to the Association, and cease all use of, the confidential information theretofore furnished by the Association and in Agent’s possession or control at the date of termination; (ii) cease promoting sales of the Products and identifying itself in any manner as an authorized marketing representative or using any of the Association’s trade names; and (iii) take such action as is necessary to terminate Agent’s registration as the Association’s independent marketing representative with any governmental authority.

          4.4     Sole Remedy. Agent’s right to receive, pro rated to the date of any termination, the compensation provided in section 2.1 above, shall constitute Agent’s entire compensation for or arising out of termination or non-renewal of this Agreement and shall be in lieu of any and all other claims Agent may have against the Association as a result thereof. Under no circumstances shall the Association be liable to Agent by reason of termination or non-renewal of this Agreement for compensation, reimbursement or damages for (i) loss of prospective compensation; (ii) good will or loss thereof; or (iii) expenditures, investments, leases or any other type of commitment made in connection with the business of such party or in reliance on the existence of this Agreement.

V.     GENERAL PROVISIONS

          5.1     Entire Agreement. This Agreement, including the Exhibits hereto, represents the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior discussions, agreements and understandings of every kind and nature between them. Except as provided herein, no modification of this Agreement will be effective unless in writing by both parties.

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          5.2     Notices. All notices under this Agreement shall be in English and shall be in writing and given by either registered airmail, cable (confirmation by answer back), telex (confirmation by answer back) or facsimile transmission (with confirmation copy sent by registered mail) addressed to the parties at the addresses below, or to such other address of which either party may advise the other in writing. Notices will be deemed given upon receipt, in accordance with the respective permitted methods of confirmation.

Agent

PCS Sales (USA), Inc.
Suite 400
1101 Skokie Boulevard
Northbrook, IL 60062
ATTENTION: G. David Delaney

Association

c/o CF Industries, Inc.
One Salem Lake Drive
Long Grove, IL 60047
ATTENTION: Monty Summa

c/o Mosaic Crop Nutrition LLC
Suite E490
Atria Corporate Center
3033 Campus Drive
Plymouth, MN 55441
ATTENTION: James T. Thompson

c/o PCS Sales (USA), Inc.
Suite 400
1101 Skokie Boulevard
Northbrook, IL 60062
ATTENTION: G. David Delaney

c/o Foley & Lardner LLP
Suite 500
3000 K Street, NW
Washington, DC 20007-5143
ATTENTION: Howard W. Fogt, Jr., Secretary

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          5.3     Force Majeure. Except as otherwise provided in this Article 5.3, neither party hereto shall be liable for failure to fulfill its obligations herein to the extent that such performance is prevented by Force Majeure, including, without limitation the following occurrences or other causes, similar or dissimilar, beyond a party’s reasonable control: war, revolution, civil commotion, public enemies, arrests; labor troubles, disturbances or disputes, strikes or lockouts of workmen, railway men, truck drivers, stevedores, warehousemen or crew (whether or not it is possible for a Party to resolve such labor troubles, disturbances, disputes, strikes or lockouts); breakdown or stoppage of railway, shortage of cars; interruption, stoppage or shortage of the a party’s fuel or power supply now or hereafter under contract; delay, stoppage or destruction or loss of or damage to goods in transit; epidemics, quarantines, frost, fire, tempests, inundations, acts of God; accidents and breakdowns of machinery, boilers or production facilities; restraints of established authorities; damage, loss or delay caused by ship or crew, and hindrances of whatsoever nature in producing (at a party’s plant(s)), transporting or loading the Phosphatic Materials occurring without the negligence of the party.

          5.4     Severability. Subject to the provisions of Article 4.2(D) above, the illegality or unenforceability of any provision of this Agreement shall not affect the validity and enforceability of any legal and enforceable provisions hereof.

          5.5     Non-Assignment. This Agreement shall not be assigned by the Association or the Agent without the prior written consent of the other party hereto.

          5.6     Applicable Law. This Agreement shall be governed by the internal laws of Delaware without regard to conflict of laws.

          5.7     Waiver. The Agent agrees that the failure of the Association at any time to require performance by the Agent of any of the provisions herein shall not operate as a waiver of the right of the Association to request strict performance of the same of like provisions, or any other provisions hereof, at a later time.

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     IN WITNESS WHEREOF, the Association and Agent have caused this instrument to be executed by their duly authorized employees, as of the day and year first above written.

ATTEST:	AGENT   PCS Sales (USA), Inc.
/s/ JOSEPH A. PODWIKA	By:	/s/ DAVID DELANEY
(Assistant) Secretary		Name:	DAVID DELANEY
		Title:	PRESIDENT
ATTEST:	ASSOCIATION   Phosphate Chemicals Export Association, Inc.
/s/ ROBERTA DHOOGHE	By:	/s/ STEVEN H. PAXTON
(Assistant) Secretary		Name:	STEVEN H. PAXTON
		Title:	PRESIDENT

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EXHIBIT A

Products

     The Products of the Association pursuant to this Agreement shall mean those Wet Phosphatic Materials which are specifically listed below. The Association reserves the right to withdraw any Products from this list immediately upon written notice to Agent. For purposes hereof, the term “Phosphatic Materials” shall mean any fertilizer, or industrial product, whether liquid or solid, containing P₂O₅, other than (i) phosphate rock, (ii) technical or food grade phosphoric acid, (iii) human consumable products, (iv) animal feed phosphates, (v) sodium tripolyphosphate or (vi) industrial products used to manufacture metal cleaning products.

List of Products

1.	Merchant-Grade Phosphoric Acid
2.	Superphosphoric Acid
3.
4.
5.
6.
7.
8.
9.
10.

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EXHIBIT B

SALES POLICIES AND PROCEDURES FOR

INTERNATIONAL AGENTS

          1.     Market Support

               A.     Marketing Analysis: Agent shall, on an annual basis, advise the Association concerning business and marketing conditions with respect to the sale of Products to customers outside the United States. Agent’s marketing analysis shall focus on the prospective sale of Products to customers outside of the United States. Agent shall keep the Association fully advised of all pertinent market conditions, developments and other factors which may be of interest to the Association.

               B.     Marketing Advice: Agent shall advise the Association concerning any and all matters which relate to the marketing of Products to customers outside the United States. In this regard, Agent shall provide the Association with advice and consultation concerning any technical, financial, legal or other requirements which may be applicable to the sale of Products to customers outside the United States. Agent shall also advise the Association concerning laws, customs and procedures, taxes, fees, licenses and permits, contract procedures, and other matters relating to the Association’s conduct of business outside the United States and the sale of its Products. Agent shall assist the Association in developing business strategies for short- and long-term export market penetration.

               C.     Marketing Development: Agent shall devote its best efforts to developing prospective customers for Products. In order to accomplish such market development, Agent shall actively promote the sale of Products to customers outside the United States, meet with current and prospective customers of the Association for the purpose of generating interest in Products, regularly advise such customers of improvements and changes in the state of the art of Products, promptly respond to inquiries from prospective customers concerning Products, submit to appropriate officials of customers all documentation relating to inquiries and promptly advise the Association of any customers who are interested in purchasing Products.

               D.     Marketing Assistance: As appropriate, Agent shall arrange meetings and provide professional support between Association representatives and prospective customers of Products. Agent shall assist the Association in arranging for the presentation of Products to prospective customers. Agent shall provide all necessary translation and interpretation assistance to the Association in order to identify problem areas and interpretation of customers’ views and requirements.

               E.     Marketing Administration: While Mosaic Global Operations, Inc. (“Mosaic”) has certain stated responsibility for administration of all Export Sales of Dry and Wet Phosphatic Materials made by the Association, Agent shall have authority and responsibility as set forth in Paragraph 1.1 of this International Agency Agreement with respect to the Export Sale of Wet Phosphatic Materials. Moreover, on request by Mosaic, Agent shall (i) assist with the administration of orders for Products, (ii) act as liaison on all matters between the Association

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and customers, (iii) assist in obtaining prompt payment, provisional and final acceptance of the Products by customers, and (iv) assist in having all bonds, standby letters of credit and guarantees posted by the Association promptly canceled and/or returned by customers to the appropriate financial institution upon completion by the Association of all contractual obligations related thereto.

               F.     Marketing Reporting Requirement: Agent shall submit reports to the Association in writing in such form, and containing such information, as the Association may reasonably request from time to time. Such reports shall include Agent’s analysis of business and marketing conditions outside the United States relative to the sale of Products and summarizing Agent’s activities on behalf of the Association relative to marketing, service and general Product support.

          2.     Terms and Conditions of Sale. Agent shall solicit orders for Products in the Association’s name from customers outside the United States and Canada at the prices specified by the Association in quotations offered to customers from time to time and subject to the Association’s then-current terms and conditions of sale. The Association may change its terms and conditions and/or its suggested prices at any time by giving prior written notice to customers, except that prices in the Association’s quotations will remain firm until the expiry of the quotation.

          3.     Documentation. Agent shall promptly forward to the Association every original order for Products received by it together with all attachments and data necessary for completion of the sale. Orders shall be submitted in a manner and form prescribed by the Association and signed and dated by the customer. No order for the Products shall be binding on the Association unless or until accepted by the Association in writing. The Association may refuse to accept any order for any cause which it may deem sufficient. The Association shall forward to Agent a copy of invoices covering those shipments of the Products to the Territory with respect to which Agent is entitled to compensation hereunder.

          4.     Payment. All payments for Products shall be made by customers directly to the Association, and Agent shall have no authority to accept payment from purchasers of Products. Agent shall (i) promptly forward to the Association any checks, drafts, instruments and other payments which it may receive directly in payment of accounts due the Association, (ii) cooperate fully with the Association in the collection of accounts due, and (iii) furnish credit reports and other credit information pertaining to customers which may be required by the Association.

          5.     Import Licenses, Exchange Controls and Other Governmental Approvals; Compliance. Agent shall assist the Association in obtaining import licenses, export licenses, currency exchange approvals and other governmental approvals inside or outside of the United States which may be necessary to permit the sale by the Association and the purchase by customers of, and the payment by customers for, Products, orders for which are solicited by Agent. Agent shall comply with any and all governmental laws, regulations and orders which may be applicable to it by reason of its execution and performance of this Agreement, including any requirement to be registered as the Association’s independent marketing representative with any governmental authority, and including any and all laws, regulations or orders which govern

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or affect the ordering, export, shipment, import, sale (including government procurement), delivery and redelivery of Products outside the United States.

          6.     Questionable Payments. Agent certifies that neither it, nor any of its directors, officers, employees or agents is an official, agent or employee of any government or governmental agency or political party or a candidate for any political office on the date of this Agreement. Agent shall promptly notify the Association of the occurrence of any event which would or may result in an exception to the foregoing representation. Agent shall not, directly or indirectly, in the name of, on behalf of or for the benefit of the Association offer, promise or authorize to pay, or pay any compensation, or give anything of value to, any official, agent or employee of any government or governmental agency, or to any political party or officer, employee or agent thereof. Agent shall require each of its directors, officers, employees and agents to comply with the provisions of this section 6. Any breach of the provisions of this section 6 shall entitle the Association to terminate this Agreement effective immediately upon notice to Agent.

          7.     Aftermarket Support. Agent shall use its best efforts to assist the Association in arranging for aftermarket support at reasonable prices to all customers of the Products outside the United States whose orders are solicited by Agent. Notwithstanding the foregoing, Agent shall not provide aftermarket support to purchasers of the Products outside the United States on behalf of the Association unless the Association and Agent shall have entered into an agreement specifically related to aftermarket support.

          8.     Safety Standards. Agent agrees to advise the Association fully as necessary with respect to all safety standards, specifications and other requirements imposed by law, order or regulation outside the United States and applicable to sales of the Products to customers.

          9.     Product Alteration. Agent agrees not to alter or modify the Products, in whole or in part, whether to comply with applicable safety standards, specifications or otherwise, without first obtaining the express written consent to and approval of each such alteration or modification from the Association.

          10.     Local Law. Agent shall notify the Association of the existence and content of any mandatory provision of any applicable laws or regulations of any country or political subdivision which materially conflicts with any provision of this Agreement at the time of its execution or thereafter.

          11.     Protection of Property Rights. Agent agrees to cooperate with and assist the Association in the protection of trade names owned by or licensed to the Association and shall inform the Association immediately of any infringements or other improper action with respect to such trade names which shall come to the attention of Agent.

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EX-10.CC

Exhibit 10(cc)

2005 PERFORMANCE OPTION PLAN

1.     Purpose of Plan

     Potash Corporation of Saskatchewan Inc. (the “Corporation”) by resolution of its Board of Directors (the “Board”) has established, subject to shareholder approval at the Corporation’s 2005 Annual and Special Meeting of shareholders, this Potash Corporation of Saskatchewan Inc. 2005 Performance Option Plan (the “Plan”) to support the Corporation’s compensation philosophy of providing selected employees and officers with an opportunity to: promote the growth and profitability of the Corporation; align their interests with shareholders; and, earn compensation commensurate with corporate performance. The Corporation believes this Plan will directly assist in supporting the Corporation’s compensation philosophy by providing participants with the opportunity through stock options, which will vest, if at all, based on corporate performance over a three-year period, to acquire Common Shares of the Corporation (“Common Shares”).

2.     Duration of this Plan

     This Plan was adopted by the Board on February 28, 2005 to be effective as of January 1, 2005 (the “Effective Date”), subject to shareholder approval at the Corporation’s 2005 Annual and Special Meeting of shareholders, and shall remain in effect, unless sooner terminated as provided herein, until one (1) year from the Effective Date, at which time it will terminate. After this Plan is terminated, no stock options may be granted but stock options previously granted shall remain outstanding in accordance with their applicable terms and conditions and this Plan’s terms and conditions.

3.     Administration

     This Plan shall be administered by the Compensation Committee of the Board or any other committee designated by the Board to administer this Plan (the “Committee”). The Committee shall be responsible for administering this Plan, subject to this Section 3 and the other provisions of this Plan. The Committee may employ attorneys, consultants, accountants, agents, and other individuals, any of whom may be an employee, and the Committee, the Corporation, and its officers and directors shall be entitled to rely upon the advice, opinions, or valuations of any such individuals. All actions taken and all interpretations and determinations made by the Committee shall be made in the Committee’s sole discretion and shall be final and binding upon the participants, the Corporation, and all other interested individuals.

4.     Authority of the Committee

     The Committee shall have full and exclusive discretionary power to interpret the terms and the intent of this Plan and any Stock Option Award Agreement or other agreement or document ancillary to or in connection with this Plan, to determine eligibility for stock options and to adopt such rules, regulations, forms, instruments, and guidelines for administering this Plan as the Committee may deem necessary or proper. Such authority shall include adopting modifications and amendments to any Stock Option Award Agreement that are necessary to comply with the laws of the countries and other jurisdictions in which the Corporation and/or its subsidiaries operate.

5.     Shares Subject to Stock Options

     The aggregate number of Common Shares issuable after February 28, 2005 pursuant to stock options under this Plan may not exceed 1,200,000 Common Shares. The aggregate number of Common Shares in respect of which stock options have been granted to any one person pursuant to this Plan and which remain outstanding shall not at any time exceed 300,000. The authorized limits under this Plan shall be subject to adjustment under Sections 12 and 13.

     If any stock option granted under this Plan, or any portion thereof, expires or terminates for any reason without having been exercised in full, the Common Shares with respect to which such option has not been exercised shall again be available for further stock options under this Plan; provided, however, that any stock option that is granted under this Plan that does not vest as a result of a failure to satisfy the Performance Measures, shall not be again available for grant under this Plan.

6.     Grant of Stock Options

     From time to time the Board may designate individual officers and employees of the Corporation and its subsidiaries eligible to be granted options to purchase Common Shares and the number of Common Shares which each such person will be granted a stock option to purchase; provided that the aggregate number of Common Shares subject to such stock options may not exceed the number provided for in Section 5 of this Plan. Non-employee directors and other non-employee contractors and third party vendors are not eligible to participate in this Plan.

7.     Option Price

     The option price for any option granted under this Plan to any optionee shall be fixed by the Board when the option is granted and shall be not less than the fair market value of the Common Shares at such time which, for optionees resident in the United States and any other optionees designated by the Board, shall be deemed to be the closing price per Common Share on the New York Stock Exchange on the last trading day immediately preceding the day the option is granted and, for all other optionees, shall be deemed to be the closing price per Common Share on the Toronto Stock Exchange on the last trading day immediately preceding the day the option is granted; provided that, in either case, if the Common Shares did not trade on such exchange on such day the option price shall be the closing price per share on such exchange on the last day on which the Common Shares traded on such exchange prior to the day the option is granted.

8.     Vesting of Stock Options

     Subject to achievement of Performance Measures as certified and approved by the Audit Committee of the Board, stock options granted under this Plan will vest no later than thirty (30) days after the audited financial statements for the applicable Performance Period have been approved by the Board.

9.     Performance Measures for Vesting of Stock Options

(a) The Performance Measures which will be used to determine the degree to which stock options will vest over the three-year period beginning the first day of the fiscal year in which they are granted (the “Performance Period”) shall be cash flow return on investment (“CFROI”) and weighted average cost of debt and equity capital (“WACC”).

(i)

CFROI is the ratio of after tax operating cash flow to average gross investment over the fiscal year, calculated as A divided by B, where (1) A equals operating income plus nonrecurring or unusual items plus accrued incentive awards plus depreciation and amortization less cash taxes, and (2) B equals the average of total assets plus accumulated depreciation plus accumulated amortization less cash and cash equivalents less non interest bearing current liabilities.

(ii)

WACC is the weighted average cost of debt and equity capital, calculated as [A times the product of B divided by C] plus [D times the product of E divided by C], where (1) A equals the after-tax market yield cost of debt, (2) B equals the market value of debt less cash and cash equivalents (3) C equals the market value of debt less cash and cash equivalents, plus the market value of equity, (4) D equals the cost of equity, and (5) E equals the market value of equity.

(b) In determining the number of stock options that will actually vest based on the degree to which the Performance Measures have been attained during the applicable Performance Period, the following chart shall be utilized which shows the three year average excess of CFROI being greater than WACC and the respective portion of the stock option that will vest:

Performance Measure	Vesting Scale
3 year average excess of	% of Stock Option
CFROI > WACC	Grant Vesting
<0%	0%
0.20%	30%
1.20%	70%
2.20%	90%
2.50%	100%

(c) In assessing the portion of the stock options that shall vest in accordance with the above chart, the following shall be done:

(i)	Each year, the CFROI and WACC will be calculated in accordance with the definitions herein, based on the audited financial statements and approved by the Audit Committee.
(ii)	In each Performance Period, the average of the three fiscal years shall be calculated by taking the simple average of the individual years’ results.
(iii)	The resulting three-year average will then be applied, using the scale above to determine the number of stock options, if any, that will vest as of the end of the Performance Period.
(iv)	For results falling between the reference points in the chart above, the level of vesting shall be mathematically interpolated between the reference points.

10.     Terms of Stock Options

     The period during which a stock option is exercisable may not exceed 10 years from the date the stock option is granted, and the Stock Option Award Agreement may contain provisions limiting the number of Common Shares with respect to which the stock option may be exercised in any one year. Each stock option agreement shall contain provisions to the effect that:

(a)	if the employment of an optionee as an officer or employee of the Corporation or a subsidiary terminates, by reason of his or her death, or if an optionee who is a retiree pursuant to Section 10(b) dies, the legal personal representatives of the optionee will be entitled to exercise any unexercised vested options, including such stock options that may vest after the date of death, during the period ending at the end of the twelfth calendar month following the calendar month in which the optionee dies, failing which exercise the stock options terminate;
(b)	subject to the terms of Section 10(a) above, if the employment of an optionee as an officer or employee of the Corporation or a subsidiary terminates, by reason of retirement in accordance with the then prevailing retirement policy of the Corporation or subsidiary, the optionee will be entitled to exercise any unexercised vested stock options, including such stock options that may vest after the date of retirement, during the period ending at the end of the 36th month following the calendar month in which the optionee retires, failing which exercise the stock options terminate;
(c)	if the employment of an optionee as an officer or employee of the Corporation or a subsidiary terminates, for any reason other than as provided in Sections 10(a) or (b), the optionee will be entitled to exercise any unexercised vested stock options, to the extent exercisable at the date of such event, during the period ending at the end of the calendar month immediately following the calendar month in which the event occurs, failing which exercise the stock options terminate;

(d)

for greater certainty and for these purposes, an optionee’s employment with the Corporation or a subsidiary shall be considered to have terminated effective on the last day of the optionee’s actual and active employment with the Corporation or subsidiary whether such day is selected by agreement with the optionee or unilaterally by the Corporation or subsidiary and whether with or without advance notice to the optionee. For the avoidance of doubt, no period of notice that is given or ought to have been given under applicable law in respect of such termination of employment will be utilized in determining an optionee’s entitlement under the Plan. The employment of an optionee with the Corporation shall be deemed to have terminated for all purposes of the Plan if such person is employed by or provides services to a person that is a subsidiary of the Corporation and such person ceases to be a subsidiary of the Corporation, unless the Committee determines otherwise; and

(e)

each stock option is personal to the optionee and is not assignable, except (i) as provided in Section 10(a), and (ii) at the election of the Board, a stock option may be assignable to the spouse, children and grandchildren of the original optionee and to a trust, partnership or limited liability company, the entire beneficial interest of which is held by one or more of the foregoing.

     Nothing contained in Sections 10(a), (b) or (c) shall extend the period during which a stock option may be exercised beyond its stipulated expiration date or the date on which it is otherwise terminated in accordance with the provisions of this Plan.

     If a stock option is assigned pursuant to Section 10(e)(ii), the references in Sections 10(a), (b) and (c) to the termination of employment or death of an optionee shall not relate to the assignee of a stock option but shall relate to the original optionee. In the event of such assignment, legal personal representatives of the original optionee shall not be entitled to exercise the assigned stock option, but the assignee of the stock option or the legal personal representatives of the assignee may exercise the stock option during the applicable specified period.

11.     Exercise of Stock Options

     Subject to the provisions of this Plan, a vested stock option may be exercised from time to time by delivering to the Corporation at its registered office a written notice of exercise specifying the number of Common Shares with respect to which the stock option is being exercised and accompanied by payment in cash or certified cheque in full of the purchase price of the Common Shares then being purchased.

12.     Adjustments

     Appropriate adjustments to the authorized limits set forth in Section 5, in the number, class and/or type of Common Shares optioned and in the option price per share, both as to stock options granted or to be granted, shall be made by the Board to give effect to adjustments in the number of Common Shares which result from subdivisions, consolidations or reclassifications of the Common Shares, the payment of share dividends by the Corporation, the reconstruction, reorganization or recapitalization of the Corporation or other relevant changes in the capital of the Corporation.

13.     Mergers

     If the Corporation proposes to amalgamate or merge with another body corporate, the Corporation shall give written notice thereof to optionees in sufficient time to enable them to exercise outstanding vested stock options, to the extent they are otherwise exercisable by their terms, prior to the effective date of such amalgamation or merger if they so elect. The Corporation shall use its best efforts to provide for the reservation and issuance by the amalgamated or continuing corporation of an appropriate number of Common Shares, with appropriate adjustments, so as to give effect to the continuance of the stock options to the extent reasonably practicable. In the event that the Board determines in good faith that such continuance is not in the circumstances practicable, it may upon 30 days’ notice to optionees terminate the stock options.

14.     Change of Control

     If a “change of control” of the Corporation occurs, each then outstanding stock option granted under this Plan may be exercised, in whole or in part, even if such option is not otherwise exercisable by its terms. For purposes of this Plan, a change of control of the Corporation shall be deemed to have occurred if any of the following occur, unless the Board adopts a plan after the Effective Date of this Plan that has a different definition (in which case such definition shall be applied), or the Committee decides to modify or amend the following definition through an amendment of this Plan:

(a)	within any period of two consecutive years, individuals who at the beginning of such period constituted the Board and any new directors whose appointment by the Board or nomination for election by shareholders of the Corporation was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose appointment or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board;
(b)	there occurs an amalgamation, merger, consolidation, wind-up, reorganization or restructuring of the Corporation with or into any other entity, or a similar event or series of such events, other than any such event or series of events which results in securities of the surviving or consolidated corporation representing 50% or more of the combined voting power of the surviving or consolidated corporation’s then outstanding securities entitled to vote in the election of directors of the surviving or consolidated corporation being beneficially owned, directly or indirectly, by the persons who were the holders of the Corporation’s outstanding securities entitled to vote in the election of directors of the Corporation prior to such event or series of events in substantially the same proportions as their ownership immediately prior to such event of the Corporation’s then outstanding securities entitled to vote in the election of directors of the Corporation;
(c)	50% or more of the fixed assets (based on book value as shown on the most recent available audited annual or unaudited quarterly consolidated financial statements) of the Corporation are sold or otherwise disposed of (by liquidation, dissolution, dividend or otherwise) in one transaction or series of transactions within any twelve month period;
(d)	any party, including persons acting jointly or in concert with that party, becomes (through a take-over bid or otherwise) the beneficial owner, directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation’s then outstanding securities entitled to vote in the election of directors of the Corporation, unless in any particular situation the Board determines in advance of such event that such event shall not constitute a change of control; or
(e)	the Board approves and/or recommends that shareholders accept, approve or adopt any transaction that would constitute a change of control under clause b, c or d above and determines that the change of control resulting from such transaction will be deemed to have occurred as of a specified date earlier than the date under b, c or d, as applicable.

15.     Amendment or Discontinuance of this Plan

     The Board may amend or discontinue the Plan at any time, without obtaining the approval of shareholders of the Corporation unless required by the relevant rules of the Toronto Stock Exchange, provided that, subject to Sections 12, 13, and 14, no such amendment may increase the aggregate maximum number of Common Shares that may be subject to stock options under this Plan, change the manner of determining the minimum option price, extend the option period under any option beyond 10 years, expand the assignment provisions of the Plan, permit non-employee directors to participate in the Plan or, without the consent of the holder of the option, alter or impair any option previously granted to an optionee under this Plan; and, provided further, for greater certainty, that, without the prior approval of the Corporation’s shareholders, stock options issued under this Plan shall not be repriced, replaced, or regranted through cancellation, or by lowering the option price of a previously granted stock option. Pre-clearance of the Toronto Stock Exchange of amendments to the Plan will be required to the extent provided under the relevant rules of the Toronto Stock Exchange.

16.     Evidence of Stock Options

     Each stock option granted under this Plan shall be evidenced by a written stock option agreement between the Corporation and the optionee which shall give effect to the provisions of this Plan and include such other terms as the Committee shall determine (“Stock Option Award Agreement”).

Potash Corporation of Saskatchewan Inc.

This certificate evidences and confirms the grant to [     ] (the “Optionee”) of options to purchase the number of Common Shares of the Corporation specified under Paragraph (1) on the terms and subject to the conditions of the Potash Corporation of Saskatchewan Inc. 2005 Performance Option Plan (the “2005 Plan”) and the terms and conditions set forth below. In the event of any inconsistency between the terms of the 2005 Plan and those set forth below, the terms of the 2005 Plan shall control. Capitalized terms used below that are not defined in this certificate shall have the meanings specified in the 2005 Plan.

1.	Number of Shares: The Optionee is hereby granted options under the 2005 Plan to Purchase [     ] Common Shares.
2.	Option Exercise Price: The exercise price for each Common Share is $[     ].
3.	Time and Conditions to Vesting: The options will become vested following the end of the Performance Period January 1, 2005 through December 31, 2007 if, and to the extent, the applicable Performance Measures for the Performance Period are achieved. Subject to applicable conditions under the 2005 Plan with respect to continued employment during the Performance Period and achievement of the minimum Performance Measures, the date for vesting will be determined but will not be later than 30 days after the audited financial statements of the Corporation for the 2007 fiscal year of the Corporation have been approved by the Board. Upon vesting, the Optionee will have the right to purchase a number of Common Shares covered by the option equal to the percentage determined in accordance with the performance matrix and vesting scale provided under the 2005 Plan.
4.	Once vested, the options will continue to be exercisable until the expiry date for the options of May 5, 2015.
5.	Notwithstanding the provisions of paragraph 4 above, this option will terminate as provided in paragraph 10 of the 2005 Plan in the event that the actual and active employment of the Optionee ceases. The option is personal to the Optionee and is not assignable, except in accordance with the conditions attached hereto as Appendix I.
6.	Notice of exercise of the option is to be given in accordance with paragraph 11 of the 2005 Plan.
7.	Adjustments to the option may be made as provided in paragraph 12 of the 2005 Plan, the provisions of paragraph 13 of the 2005 Plan shall apply in the event of a proposed amalgamation or merger of the Corporation, and the provisions of paragraph 14 of the 2005 Plan will apply in the event of a “change of control” of the Corporation as defined in that paragraph.
8.	This grant of option is subject to receipt of any necessary regulatory approvals and shall be governed by the laws of Saskatchewan.

	Potash Corporation of Saskatchewan Inc.
	by:
	President and
Date: May 5, 2005	Chief Executive Officer

EX-10.DD

Exhibit 10(dd)

2006 Performance Option Plan

1.	PURPOSE OF PLAN
	Potash Corporation of Saskatchewan Inc. (the “Corporation”) by resolution of its Board of Directors (the “Board”) has established, subject to shareholder approval at the Corporation’s 2006 Annual and Special Meeting of shareholders, this Potash Corporation of Saskatchewan Inc. 2006 Performance Option Plan (the “Plan”) to support the Corporation’s compensation philosophy of providing selected employees and officers with an opportunity to: promote the growth and profitability of the Corporation; align their interests with shareholders; and earn compensation commensurate with corporate performance. The Corporation believes this Plan will directly assist in supporting the Corporation’s compensation philosophy by providing participants with the opportunity through stock options, which will vest, if at all, based on corporate performance over a three-year period, to acquire Common Shares of the Corporation (“Common Shares”).
2.	DURATION OF THIS PLAN
	This Plan was adopted by the Board on February 27, 2006 to be effective as of January 1, 2006 (the “Effective Date”), subject to shareholder approval at the Corporation’s 2006 Annual and Special Meeting of shareholders, and shall remain in effect, unless sooner terminated as provided herein, until one (1) year from the Effective Date, at which time it will terminate. After this Plan is terminated, no stock options may be granted but stock options previously granted shall remain outstanding in accordance with their applicable terms and conditions and this Plan’s terms and conditions.
3.	ADMINISTRATION
	This Plan shall be administered by the Compensation Committee of the Board or any other committee designated by the Board to administer this Plan (the “Committee”). The Committee shall be responsible for administering this Plan, subject to this Section 3 and the other provisions of this Plan. The Committee may employ attorneys, consultants, accountants, agents, and other individuals, any of whom may be an employee, and the Committee, the Corporation, and its officers and directors shall be entitled to rely upon the advice, opinions, or valuations of any such individuals. All actions taken and all interpretations and determinations made by the Committee shall be made in the Committee’s sole discretion and shall be final and binding upon the participants, the Corporation, and all other interested individuals. To the extent applicable, the Plan shall be administered with respect to optionees subject to the laws of the U.S. so as to avoid the application of penalties pursuant to Section 409A of the Internal Revenue Code.
4.	AUTHORITY OF THE COMMITTEE
	The Committee shall have full and exclusive discretionary power to interpret the terms and the intent of this Plan and any Stock Option Award Agreement or other agreement or document ancillary to or in connection with this Plan, to determine eligibility for stock options and to adopt such rules, regulations, forms, instruments, and guidelines for administering this Plan as the Committee may deem necessary or proper. Such authority shall include adopting modifications and amendments to any Stock Option Award Agreement that are necessary to comply with the laws of the countries and other jurisdictions in which the Corporation and/or its subsidiaries operate.
5.	SHARES SUBJECT TO STOCK OPTIONS
	The aggregate number of Common Shares issuable after February 27, 2006 pursuant to stock options under this Plan may not exceed 1,400,000 Common Shares. The aggregate number of Common Shares in respect of which stock options have been granted to any one person pursuant to this Plan and which remain outstanding shall not at any time exceed 300,000. The authorized limits under this Plan shall be subject to adjustment under Sections 12 and 13.
	If any stock option granted under this Plan, or any portion thereof, expires or terminates for any reason without having been exercised in full, the Common Shares with respect to which such option has not been exercised shall again be available for further stock options under this Plan; provided, however, that any stock option that is granted under this Plan that does not vest as a result of a failure to satisfy the Performance Measures, shall not be again available for grant under this Plan.
6.	GRANT OF STOCK OPTIONS
	From time to time the Board may designate individual officers and employees of the Corporation and its subsidiaries eligible to be granted options to purchase Common Shares and the number of Common Shares which each such person will be granted a stock option to purchase; provided that the aggregate number of Common Shares subject to such stock options may not exceed the number provided for in Section 5 of this Plan. Non-employee directors and other non-employee contractors and third party vendors are not eligible to participate in this Plan.

7.	OPTION PRICE
	The option price for any option granted under this Plan to any optionee shall be fixed by the Board when the option is granted and shall be not less than the fair market value of the Common Shares at such time which, for optionees resident in the United States and any other optionees designated by the Board, shall be deemed to be the closing price per Common Share on the New York Stock Exchange on the last trading day immediately preceding the day the option is granted and, for all other optionees, shall be deemed to be the closing price per Common Share on the Toronto Stock Exchange on the last trading day immediately preceding the day the option is granted; provided that, in either case, if the Common Shares did not trade on such exchange on such day the option price shall be the closing price per share on such exchange on the last day on which the Common Shares traded on such exchange prior to the day the option is granted.
8.	VESTING OF STOCK OPTIONS
	Subject to achievement of Performance Measures as certified and approved by the Audit Committee of the Board, stock options granted under this Plan will vest no later than thirty (30) days after the audited financial statements for the applicable Performance Period have been approved by the Board.
9.	PERFORMANCE MEASURES FOR VESTING OF STOCK OPTIONS

(a) The Performance Measures which will be used to determine the degree to which stock options will vest over the three-year period beginning the first day of the fiscal year in which they are granted (the “Performance Period”) shall be cash flow return on investment (“CFROI”) and weighted average cost of debt and equity capital (“WACC”).

(i)

CFROI is the ratio of after tax operating cash flow to average gross investment over the fiscal year, calculated as A divided by B, where (1) A equals operating income plus nonrecurring or unusual items plus accrued incentive awards plus depreciation and amortization less cash taxes, and (2) B equals the average of total assets plus accumulated depreciation plus accumulated amortization less cash and cash equivalents less non interest bearing current liabilities.

(ii)

WACC is the weighted average cost of debt and equity capital, calculated as [A times the product of B divided by C] plus [D times the product of E divided by C], where (1) A equals the after-tax market yield cost of debt, (2) B equals the market value of debt less cash and cash equivalents (3) C equals the market value of debt less cash and cash equivalents, plus the market value of equity, (4) D equals the cost of equity, and (5) E equals the market value of equity.

(b) In determining the number of stock options that will actually vest based on the degree to which the Performance Measures have been attained during the applicable Performance Period, the following chart shall be utilized which shows the three year average excess of CFROI being greater than WACC and the respective portion of the stock option that will vest:

Performance Measure	Vesting Scale
3 year average excess of	% of Stock Option
CFROI> WACC	Grant Vesting
<0%	0%
0.20%	30%
1.20%	70%
2.20%	90%
2.50%	100%

(c) In assessing the portion of the stock options that shall vest in accordance with the above chart, the following shall be done:

(i)	Each year, the CFROI and WACC will be calculated in accordance with the definitions herein, based on the audited financial statements and approved by the Audit Committee.
(ii)	In each Performance Period, the average of the three fiscal years shall be calculated by taking the simple average of the individual years’ results.

(iii)	The resulting three-year average will then be applied, using the scale above to determine the number of stock options, if any, that will vest as of the end of the Performance Period.
(iv)	For results falling between the reference points in the chart above, the level of vesting shall be mathematically interpolated between the reference points.

10.	TERMS OF STOCK OPTIONS
	The period during which a stock option is exercisable may not exceed 10 years from the date the stock option is granted, and the Stock Option Award Agreement may contain provisions limiting the number of Common Shares with respect to which the stock option may be exercised in any one year. Each stock option agreement shall contain provisions to the effect that:

(a)	if the employment of an optionee as an officer or employee of the Corporation or a subsidiary terminates, by reason of his or her death, or if an optionee who is a retiree pursuant to Section 10(b) dies, the legal personal representatives of the optionee will be entitled to exercise any unexercised vested options, including such stock options that may vest after the date of death, during the period ending at the end of the twelfth calendar month following the calendar month in which the optionee dies, failing which exercise the stock options terminate;
(b)	subject to the terms of Section 10(a) above, if the employment of an optionee as an officer or employee of the Corporation or a subsidiary terminates, by reason of retirement in accordance with the then prevailing retirement policy of the Corporation or subsidiary, the optionee will be entitled to exercise any unexercised vested stock options, including such stock options that may vest after the date of retirement, during the period ending at the end of the 36th month following the calendar month in which the optionee retires, failing which exercise the stock options terminate;
(c)	if the employment of an optionee as an officer or employee of the Corporation or a subsidiary terminates, for any reason other than as provided in Sections 10(a) or (b), the optionee will be entitled to exercise any unexercised vested stock options, to the extent exercisable at the date of such event, during the period ending at the end of the calendar month immediately following the calendar month in which the event occurs, failing which exercise the stock options terminate;
(d)	for greater certainty and for these purposes, an optionee’s employment with the Corporation or a subsidiary shall be considered to have terminated effective on the last day of the optionee’s actual and active employment with the Corporation or subsidiary whether such day is selected by agreement with the optionee or unilaterally by the Corporation or subsidiary and whether with or without advance notice to the optionee. For the avoidance of doubt, no period of notice that is given or ought to have been given under applicable law in respect of such termination of employment will be utilized in determining an optionee’s entitlement under the Plan. The employment of an optionee with the Corporation shall be deemed to have terminated for all purposes of the Plan if such person is employed by or provides services to a person that is a subsidiary of the Corporation and such person ceases to be a subsidiary of the Corporation, unless the Committee determines otherwise; and
(e)	each stock option is personal to the optionee and is not assignable, except (i) as provided in Section 10(a), and (ii) at the election of the Board, a stock option may be assignable to the spouse, children and grandchildren of the original optionee and to a trust, partnership or limited liability company, the entire beneficial interest of which is held by one or more of the foregoing.

	Nothing contained in Sections 10(a), (b) or (c) shall extend the period during which a stock option may be exercised beyond its stipulated expiration date or the date on which it is otherwise terminated in accordance with the provisions of this Plan.
	If a stock option is assigned pursuant to Section 10(e)(ii), the references in Sections 10(a), (b) and (c) to the termination of employment or death of an optionee shall not relate to the assignee of a stock option but shall relate to the original optionee. In the event of such assignment, legal personal representatives of the original optionee shall not be entitled to exercise the assigned stock option, but the assignee of the stock option or the legal personal representatives of the assignee may exercise the stock option during the applicable specified period.
11.	EXERCISE OF STOCK OPTIONS
	Subject to the provisions of this Plan, a vested stock option may be exercised from time to time by delivering to the Corporation at its registered office a written notice of exercise specifying the number of Common Shares with respect to which the stock option is being exercised and accompanied by payment in cash or certified cheque in full of the purchase price of the Common Shares then being purchased.

12.	ADJUSTMENTS
	Appropriate adjustments to the authorized limits set forth in Section 5, in the number, class and/or type of Common Shares optioned and in the option price per share, both as to stock options granted or to be granted, shall be made by the Board to give effect to adjustments in the number of Common Shares which result from subdivisions, consolidations or reclassifications of the Common Shares, the payment of share dividends by the Corporation, the reconstruction, reorganization or recapitalization of the Corporation or other relevant changes in the capital of the Corporation.
13.	MERGERS
	If the Corporation proposes to amalgamate or merge with another body corporate, the Corporation shall give written notice thereof to optionees in sufficient time to enable them to exercise outstanding vested stock options, to the extent they are otherwise exercisable by their terms, prior to the effective date of such amalgamation or merger if they so elect. The Corporation shall use its best efforts to provide for the reservation and issuance by the amalgamated or continuing corporation of an appropriate number of Common Shares, with appropriate adjustments, so as to give effect to the continuance of the stock options to the extent reasonably practicable. In the event that the Board determines in good faith that such continuance is not in the circumstances practicable, it may upon 30 days’ notice to optionees terminate the stock options.
14.	CHANGE OF CONTROL
	If a “change of control” of the Corporation occurs, each then outstanding stock option granted under this Plan may be exercised, in whole or in part, even if such option is not otherwise exercisable by its terms. For purposes of this Plan, a change of control of the Corporation shall be deemed to have occurred if any of the following occur, unless the Board adopts a plan after the Effective Date of this Plan that has a different definition (in which case such definition shall be applied), or the Committee decides to modify or amend the following definition through an amendment of this Plan:

(a)	within any period of two consecutive years, individuals who at the beginning of such period constituted the Board and any new directors whose appointment by the Board or nomination for election by shareholders of the Corporation was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose appointment or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board;
(b)	there occurs an amalgamation, merger, consolidation, wind-up, reorganization or restructuring of the Corporation with or into any other entity, or a similar event or series of such events, other than any such event or series of events which results in securities of the surviving or consolidated corporation representing 50% or more of the combined voting power of the surviving or consolidated corporation’s then outstanding securities entitled to vote in the election of directors of the surviving or consolidated corporation being beneficially owned, directly or indirectly, by the persons who were the holders of the Corporation’s outstanding securities entitled to vote in the election of directors of the Corporation prior to such event or series of events in substantially the same proportions as their ownership immediately prior to such event of the Corporation’s then outstanding securities entitled to vote in the election of directors of the Corporation;
(c)	50% or more of the fixed assets (based on book value as shown on the most recent available audited annual or unaudited quarterly consolidated financial statements) of the Corporation are sold or otherwise disposed of (by liquidation, dissolution, dividend or otherwise) in one transaction or series of transactions within any twelve month period;
(d)	any party, including persons acting jointly or in concert with that party, becomes (through a take-over bid or otherwise) the beneficial owner, directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation’s then outstanding securities entitled to vote in the election of directors of the Corporation, unless in any particular situation the Board determines in advance of such event that such event shall not constitute a change of control; or
(e)	the Board approves and/or recommends that shareholders accept, approve or adopt any transaction that would constitute a change of control under clause (b), (c) or (d) above and determines that the change of control resulting from such transaction will be deemed to have occurred as of a specified date earlier than the date under (b), (c) or (d), as applicable.

15.	AMENDMENT OR DISCONTINUANCE OF THIS PLAN
	The Board may amend or discontinue the Plan at any time, without obtaining the approval of shareholders of the Corporation unless required by the relevant rules of the Toronto Stock Exchange, provided that, subject to Sections 12, 13, and 14, no such amendment may increase the aggregate maximum number of Common Shares that may be subject to stock options under this Plan, change the manner of determining the minimum option price, extend the option period under any option beyond 10 years, expand the assignment provisions of the Plan, permit non-employee directors to participate in the Plan or, without the consent of the holder of the option, alter or impair any option previously granted to an optionee under this Plan; and, provided further, for greater certainty, that, without the prior approval of the Corporation’s shareholders, stock options issued under this Plan shall not be repriced, replaced, or regranted through cancellation, or by lowering the option price of a previously granted stock option. Pre-clearance of the Toronto Stock Exchange of amendments to the Plan will be required to the extent provided under the relevant rules of the Toronto Stock Exchange.
16.	EVIDENCE OF STOCK OPTIONS
	Each stock option granted under this Plan shall be evidenced by a written stock option agreement between the Corporation and the optionee which shall give effect to the provisions of this Plan and include such other terms as the Committee shall determine (“Stock Option Award Agreement”).
17.	WITHHOLDING
	To the extent that the Corporation is required to withhold federal, provincial, state, local or foreign taxes in connection with any payment made or benefit realized by an optionee or other person hereunder, and the amounts available to the Corporation for such withholding are insufficient, it shall be a condition to the receipt of such payment or the realization of such benefit that the optionee or such other person make arrangements satisfactory to the Corporation for payment of the balance of such taxes required to be withheld, which arrangements (in the discretion of the Board) may include relinquishment of a portion of such benefit. Participants shall also make such arrangements in connection with the disposition of Common Shares acquired upon the exercise of option rights with respect to this Plan.

Potash Corporation of Saskatchewan Inc.

This certificate evidences and confirms the grant to                      (the “Optionee”) of options to purchase the number of Common Shares of the Corporation specified under Paragraph (1) on the terms and subject to the conditions of the Potash Corporation of Saskatchewan Inc. 2006 Performance Option Plan (the “2006 Plan”) and the terms and conditions set forth below. In the event of any inconsistency between the terms of the 2006 Plan and those set forth below, the terms of the 2006 Plan shall control. Capitalized terms used below that are not defined in this certificate shall have the meanings specified in the 2006 Plan.

1.	Number of Shares: The Optionee is hereby granted options under the 2006 Plan to Purchase                      Common Shares.
2.	Option Exercise Price: The exercise price for each Common Share is $                    .
3.	Time and Conditions to Vesting: The options will become vested following the end of the Performance Period January 1, 2006 through December 31, 2008 if, and to the extent, the applicable Performance Measures for the Performance Period are achieved. Subject to applicable conditions under the 2006 Plan with respect to continued employment during the Performance Period and achievement of the minimum Performance Measures, the date for vesting will be determined but will not be later than 30 days after the audited financial statements of the Corporation for the 2008 fiscal year of the Corporation have been approved by the Board. Upon vesting, the Optionee will have the right to purchase a number of Common Shares covered by the option equal to the percentage determined in accordance with the performance matrix and vesting scale provided under the 2006 Plan.
4.	Once vested, the options will continue to be exercisable until the expiry date for the options of May 4, 2016.
5.	Notwithstanding the provisions of paragraph 4 above, this option will terminate as provided in paragraph 10 of the 2006 Plan in the event that the actual and active employment of the Optionee ceases. The option is personal to the Optionee and is not assignable, except in accordance with the conditions attached hereto as Appendix I.
6.	Notice of exercise of the option is to be given in accordance with paragraph 11 of the 2006 Plan.
7.	Adjustments to the option may be made as provided in paragraph 12 of the 2006 Plan, the provisions of paragraph 13 of the 2006 Plan shall apply in the event of a proposed amalgamation or merger of the Corporation, and the provisions of paragraph 14 of the 2006 Plan will apply in the event of a “change of control” of the Corporation as defined in that paragraph.
8.	This grant of option is subject to receipt of any necessary regulatory approvals and shall be governed by the laws of Saskatchewan.

	Potash Corporation of Saskatchewan Inc.
Date:	By:
		President and Chief Executive Officer

EX-11

Exhibit 11

POTASH CORPORATION OF SASKATCHEWAN INC.
COMPUTATION OF PER SHARE EARNINGS
FOR THE YEARS ENDED DECEMBER 31

	2006			2005
A   Net income as reported, Canadian GAAP ($ millions)		631.8			542.9
B   Items adjusting net income ($ millions)		(6.0	)		(10.2	)
C   Net income, U.S. GAAP ($ millions)		625.8			532.7
D   Weighted average number of shares outstanding		103,960,000			108,568,000
E   Net additional shares issuable for diluted earnings per share calculation (Canadian GAAP)		2,270,000			2,510,000
F   Net additional shares issuable for diluted earnings per share calculation (U.S. GAAP)		2,263,000			2,510,000
CANADIAN GAAP
Basic earnings per share (A/D)		6.08			5.00
Diluted earnings per share (A/(D+E))		5.95			4.89
UNITED STATES GAAP
Basic earnings per share (C/D)		6.02			4.91
Diluted earnings per share (C/(D+F))		5.89			4.80

EX-12

Exhibit 12

Potash Corporation of Saskatchewan Inc.
Ratio of Earnings to Fixed Charges
(in millions of U.S. dollars, except ratio amounts)
(unaudited)

	Year ended December 31
	2006			2005			2004			2003			2002
Canadian GAAP
Net income (loss)	$	631.8		$	542.9		$	298.6		$	(126.3	)	$	53.6
Income taxes		158.1			267.4			131.7			(20.6	)		30.2
Share of earnings of equity investees		(54.4	)		(52.1	)		(30.9	)		(12.4	)		(5.3	)
Fixed charges		183.5			149.1			132.4			117.8			102.7
Distributed income of equity investees		29.9			18.6			8.7			4.0			—
Interest capitalized		(19.1	)		(5.7	)		(2.5	)		(1.5	)		(4.2	)
Total Earnings Available for Fixed Charges	$	929.8		$	920.2		$	538.0		$	(39.0	)	$	177.0
Fixed Charges
Interest expensed and capitalized	$	163.6		$	127.2		$	112.8		$	105.7		$	92.0
Amortization of debt issue costs		1.0			2.2			2.2			2.1			1.9
Estimated portion of rent expense representing interest		18.9			19.7			17.4			10.0			8.8
Total Fixed Charges	$	183.5		$	149.1		$	132.4		$	117.8		$	102.7
Ratio of Earnings to Fixed Charges		5.07			6.17			4.06			—	(1)		1.72

⁽¹⁾ Earnings were inadequate to cover fixed charges by $156.8 million for the year ended December 31, 2003.

U.S. GAAP
Net income (loss)	$	625.8		$	532.7		$	290.5		$	(84.2	)	$	60.4
Income taxes		174.4			288.0			151.9			7.4			34.4
Share of earnings of equity investees		(54.9	)		(55.8	)		(30.9	)		(12.4	)		(5.3	)
Fixed charges		183.5			149.1			132.4			117.8			102.7
Distributed income of equity investees		29.9			18.6			8.7			4.0			—
Interest capitalized		(19.1	)		(5.7	)		(2.5	)		(1.5	)		(4.2	)
Total Earnings Available for Fixed Charges	$	939.6		$	926.9		$	550.1		$	31.1		$	188.0
Fixed Charges
Interest expensed and capitalized	$	163.6		$	127.2		$	112.8		$	105.7		$	92.0
Amortization of debt issue costs		1.0			2.2			2.2			2.1			1.9
Estimated portion of rent expense representing interest		18.9			19.7			17.4			10.0			8.8
Total Fixed Charges	$	183.5		$	149.1		$	132.4		$	117.8		$	102.7
Ratio of Earnings to Fixed Charges		5.12			6.22			4.15			—	(2)		1.83

⁽²⁾ Earnings were inadequate to cover fixed charges by $86.7 million for the year ended December 31, 2003.

EX-13

Exhibit 13

ENRICHING FOOD AND LIVES

PotashCorp’s high-quality potash, nitrogen and phosphate restore and strengthen the earth’s soils. As the world’s largest fertilizer enterprise by capacity, we help farmers produce the nutritious crops that enrich food — and lives.

To PotashCorp, however, enriching lives means more than growing crops. It means helping people gain access to healthier food, particularly in offshore nations experiencing explosive economic growth. It means supplying animal feed ingredients to nourish cattle, poultry and other meat sources to improve the protein content of diets. It means playing a critical role in the emerging drive to produce crop-based energy sources like ethanol and other biofuels, which will compete with food for crops and land. It means producing industrial products used to make consumer goods ranging from cola drinks to plasma TVs. Finally, it means improving the crop yield from a limited arable land base as part of the fight against climate change.

By contributing to lives in these ways, we lay the foundation for our success — and enrich the lives of the stakeholders we serve.

NUTRIENTS THAT ENRICH

PotashCorp converts the potash, nitrogen and phosphate derived directly or indirectly
from nature to a form that plants and animals can easily use.

POTASH	NITROGEN	PHOSPHATE
the quality nutrient	the cell builder	the energizer
is mined from deposits left behind when prehistoric seas evaporated. Potassium strengthens plant root systems, improves color, texture and durability, increases yields and adds to handling and storage qualities. As a feed supplement, it aids animal growth and milk production. In industry, it is used in such products as computer and TV screens, soaps, de-icers and water softeners.	is “mined” from the air (which is 78 percent nitrogen) and converted into forms that can be directly used by plants and animals. An essential part of proteins and amino acids, nitrogen speeds growth, is critical to plant yield and quality, and is needed for maturation. Industry uses it for plastics, resins and adhesives.	is mined from deposits containing ancient sea fossils. It is processed into intermediate phosphoric acid that can be sold or further processed into fertilizer, feed and industrial products. Critical to key plant energy reactions, phosphorus speeds maturity and cell reproduction. As a feed supplement, it is essential for growth and cell repair. Industrial applications include soft drinks, food products and metal treatment.

1

POTASHCORP | 2006 | FINANCIAL REVIEW

1	2 Core Businesses and Markets	2	The Global Development Story
	The global drivers of our success, our markets and the heart of what makes us PotashCorp.	4	Overview of Our Global Enterprise
		6	The World Leader in Potash
		8	Trinidad Production Gives Nitrogen Advantage
		10	The Specialty Phosphate Producer
2	12 Objectives and Strategies	12	Objectives and Strategies
	What we are trying to achieve and how we plan to do it.	13	Our Potash Strategy
		14	Our Nitrogen Strategy
		15	Our Phosphate Strategy
3	16 Capability to Deliver	16	Potash: We Supply the World
	How we accomplish what we’ve promised, the drivers of our business and the risks we must manage.	17	Nitrogen: Increasing Our Trinidad Advantage
		18	Phosphate: Building on Our Product Diversity
		19	Key Performance Drivers
		20	Rewarding Results
		21	Managing Risk
4	23 Performance and Prospects	23	Factors That Shaped 2006 Business Conditions
	What we achieved in 2006 and our outlook for 2007 and beyond, plus key sensitivities, cash flow, liquidity and capital resources, and critical accounting estimates.	25	2006 Financial Overview
		26	Business Segment Review
		37	2007 Outlook
		39	Liquidity and Capital Resources/Management
		44	Accounting Estimates and Changes
5	50 Financial Information	50	Financial Performance Indicators
	Key information and data about PotashCorp in 2006, including financial indicators and consolidated financial statements.	54	Independent Registered Chartered Accountants’ Reports
		56	Consolidated Financial Statements
		89	Appendix

MANAGEMENT’S DISCUSSION & ANALYSIS
of Financial Condition and Results of Operations (in US Dollars)

The following discussion and analysis is the responsibility of management and is as of February 20, 2007. The Board of Directors carries out its responsibility for review of this disclosure principally through its audit committee, comprised exclusively of independent directors. The audit committee reviews this disclosure and recommends its approval by the Board of Directors. Additional information relating to us (which is not incorporated by reference herein) can be found on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.

2006 AT A GLANCE: THE POTASH ADVANTAGE

Our Potash First strategy is based on factors that give the nutrient
a unique position in the fertilizer universe.

	POTASH — K	NITROGEN — N	PHOSPHATE — P
Base Product	Potassium chloride (KCl)	Ammonia (NH3)	Phosphoric acid (P2O5)
Availability of Raw Materials 1	Very limited	Abundant (natural gas)	Limited
Cost of New Capacity 2	~ $1.6 billion / 2 MMT KCl	~ $700 million / 1 MMT NH3	~ $1.3 billion / 1 MMT P2O5
Greenfield 3 Development Time 4	5-7 years	2-3 years	3-4 years
Producing Countries 5	12	~ 60	~ 40 (based on phosphoric acid)
State- or Subsidy-Controlled Capacity 6	19%	57%	47%
Industry Operating Rate 7	82%	85%	78%
PotashCorp Capacity 8	12.9 MMT potassium chloride	3.9 MMT ammonia	2.4 MMT phosphoric acid
PotashCorp % of World Capacity	22	2	6
PotashCorp World Position	# 1	# 4	# 3
by Capacity 9

1-9, See Appendix — Footnotes, Page 89
MMT = million metric tonnes

2          POTASHCORP 2006 FINANCIAL REVIEW / MD&A » CORE BUSINESSES & MARKETS

SECTION 1

CORE BUSINESSES AND MARKETS

DEMAND FOR FERTILIZER RISES WITH ECONOMIC GROWTH AND CHANGING PRIORITIES

The success of a global fertilizer enterprise like PotashCorp continues to be driven by the rapid growth of offshore economies. The countries experiencing this growth — many of them in Asia — are also characterized by increasing demand for dietary protein, rising populations and shrinking land bases per capita. These factors combine to put great pressure on producers to improve crop yields.

Compounding this pressure to produce is the emerging demand for biofuels as a renewable energy source. By competing for crops, food and fuel markets have begun to strain the world’s grain production system.

These drivers of today’s fertilizer demand offer great opportunities for our global enterprise, and raise expectations for it.

Our Story Starts with Economic Growth

With Asian nations leading the way, the world economy grew by over 5 percent in 2006. Higher incomes in China — which surpassed its 2005 economic growth — India, Malaysia, Indonesia and other Asian countries gave hundreds of millions of people the ability to afford healthier diets and improved lifestyles.

Demand for Food Rises as Economies Grow

With the world population rising by 75 million a year and per capita income increasing in countries with emerging economies, more money is being spent on better-quality, protein-rich food, especially meat. Meat requires more grain, oilseed meal, and phosphate and nitrogen feed supplements to nourish the animals that provide it. With shrinking agricultural land bases, China, India and other Asian countries must increase imports to meet their food needs. Brazil, a rising agricultural powerhouse whose total production of meat, soybeans, sugar and ethanol reached record volumes in 2006, is helping meet this demand, along with traditional producers and exporters.

Biofuel Production Depends on Grain

High oil prices, desire for energy independence and growing environmental awareness have spurred nations worldwide to include crop-based biofuels in their energy strategies. Led by the US and Brazil, global ethanol production has doubled in the last four years to more than 14 billion gallons per year, while more than 1 billion gallons of biodiesel are now produced annually. This growth is expected to accelerate as countries allocate more of their crop production to biofuels. Ethanol could consume 20 percent of the US corn crop in 2007, rising to over 35 percent by 2015, according to Doane forecasts.

Grain Consumption Rises, Stocks Shrink

With production lagging behind consumption, grain continues to be withdrawn from world inventories, which now have less than two months’ supply in reserve. A sharp rise in demand, bad weather, supply problems or a disruption in the global distribution system could cause major difficulties.

China and India Led World Growth

The growth of PotashCorp’s business is tied to countries with accelerating GDP, where customers are eager to improve soil nutrient balance to meet the demand for meat-based diets.

World Biofuel Production Jumps in 2006

Demand for renewable fuel sources will compete with rising food needs for crops, driving farmers to produce more.

POTASHCORP 2006 FINANCIAL REVIEW / MD&A » CORE BUSINESSES & MARKETS          3

Rising Demand Pushes Up Crop Prices

The combined demands of food and biofuel markets are driving up global crop prices. US wheat prices could exceed $5 a bushel in 2007. At over $3 a bushel, corn has reached a 10-year high, with futures already at $4. Farmers are expected to receive more than $7 a bushel for soybeans in 2007 despite high inventories, mainly because of competition for available land. Record sugar prices remain high, while those for palm oil and rice are strong and rising. US farmers are expected to respond to these prices by increasing wheat and corn plantings, reducing soybean acres and feeding their land the fertilizer it needs to produce high yields of quality crops.

Greater Need to Balance Soil Nutrient Application

Crops require the three primary nutrients — nitrogen, phosphate and potash — and there are no substitutes. While nitrogen has the most obvious impact on yield, phosphate and potash work with it to improve crop quality and disease resistance. A proper balance of all three nutrients is therefore required to maximize production. Potash, however, has been under-applied in many countries, due to tight farm credit policies or short supply. Countries such as China, India and Brazil now recognize the economic benefits of balanced fertilization and are beginning to adjust their applications accordingly.

Farmers Recognize Fertilizer’s Economic Impact

For major crops in the US, fertilization accounts for a relatively small part of farmers’ total production costs — between 4 percent and 14 percent. The return on this investment can be as much as three times what they spend. This is why farmers’ demand for fertilizer historically has been relatively inelastic to price.

The Solution Is Fertilizer — Especially Potash

The conclusion is clear: Farmers need to nurture their land to meet the increasing demand for crops to make both food and fuel for a rising global population. Adequate fertilization of the world’s limited and vital agricultural land is required to meet the challenges ahead. After decades of imbalanced fertilization practices in many countries, one of the most effective actions farmers can take is to add adequate potash to their soil. The multi-year growth story in potash is expected to continue.

Global Grain Stocks Falling in Response

More grain has been consumed than produced in most recent years, reducing the stocks-to-use ratio to the lowest level ever recorded. With little new arable land available, raising yields to keep production on pace with consumption depends on fertilization.

Significant Fertilizer Growth Potential

China and India could achieve recommended nutrient levels by each applying about 30 million more tonnes of KCI, N and P₂O₅ annually. Soybeans, Brazil’s major crop, draw nitrogen from the air but are hungry for potash.

   

This exciting development story explains why demand is growing for PotashCorp’s products, especially potash, the nutrient that has been last in the application chain. The following sections of this report will explain how we have prepared to meet that demand, today and in the future. We will describe our strategy and the resources we are putting behind that strategy, and discuss our 2006 financial performance and future prospects.

4          POTASHCORP 2006 FINANCIAL REVIEW / MD&A » BUSINESS OVERVIEW

OVERVIEW OF OUR GLOBAL ENTERPRISE

PotashCorp’s business is built on the sale of potash, nitrogen and phosphate products. We have operations and strategic investments in eight countries and our products are sold in more than 50, serving three markets:

• Fertilizer, focused on balanced plant nutrition (N, P, K)

• Feed supplements, focused on animal nutrition (mainly P)

• Industrial, focused on products used in high-grade food, technical and other applications (N, P as phosphoric acid, K).

Through dedicated fertilizer, feed, industrial nitrogen and purified acid sales teams, we sell more than two-thirds of our N, P and K in North America.

PotashCorp Is the World’s Largest Fertilizer Producer

PotashCorp’s combined capacity in potash, nitrogen and phosphate fertilizer is unsurpassed. Our excess capacity in potash gives us the unique ability to meet demand as it rises.

OUR BUSINESS BEGINS WITH FERTILIZER

Fertilizer generated 60 percent of our net sales and 70 percent of gross margin in the past three years. Offshore customers took 50 percent of total fertilizer sales volumes in 2006, primarily potash and phosphate. Our nitrogen fertilizers are sold mainly in North America.

In both the Northern and Southern Hemispheres, fertilizers are mainly applied in the spring and fall. Government policy that influences farm income and subsidy levels affects fertilizer purchases in North America and offshore. Farmers base their application rates and purchasing decisions on such factors as crop prices, weather and subsidies.

Among major crops, rice, corn, wheat and cotton require all three nutrients while soybeans need mainly potash and phosphate. The amount of each nutrient required depends on crop and soil conditions.

POTASH IS THE CORE OF OUR FERTILIZER BUSINESS

Potash is the biggest earnings contributor to our fertilizer business and the focus of our long-term strategy. It typically generates about 60 percent of our total gross margin and provides the lion’s share of our global reach.

More than 60 percent of our potash goes offshore for use on rice, soybeans, sugar cane, corn and crops that produce palm oil, rubber, bananas, oranges and coffee. Our North American market has historically been stable.

The major crops used to produce ethanol and other biofuels vary, but all are heavy users of potash. The US, the largest ethanol producer, uses mainly corn, as do China and Argentina. Brazil, the second largest producer, and India rely on sugar cane. The US uses soybeans to produce biodiesel, while Malaysia and Indonesia plan to use palm oil to make biodiesel for power plants and vehicles.

Biofuel Crops Are Large Users of Potash

Rising demand for ethanol and other biofuels — which are made from potash-reliant crops — makes our excess capacity critical.

VARIED SALES TO VARIED CUSTOMERS

Our offshore customers are primarily governments and private importers. In North America, we sell to retailers, cooperatives and distributors that provide storage and application services to farmers, the end-users.

POTASHCORP 2006 FINANCIAL REVIEW / MD&A » BUSINESS OVERVIEW          5

We sell our Saskatchewan potash offshore through Canpotex, which markets for the province’s three producers. It competes globally with marketing agencies such as Belarusian Potash Company and International Potash Company and producers such as Israel Chemicals Ltd. (ICL) and Kali & Salz (K+S). Canpotex agents in growing markets ensure that our products are prominently represented.

PotashCorp Can Meet Rising Potash Demand

Canpotex sales and costs are allocated to its Saskatchewan owners based on their share of provincial potash capacity. Canpotex is well positioned to meet rising world demand, and PotashCorp will have the largest share of that.

Our sales group handles our New Brunswick potash and all North American potash sales. New Brunswick is well located for sales to Brazil and other Latin American countries, and to the eastern US. Our sales group also handles North American phosphate and all our nitrogen sales.

Our phosphate fertilizer is sold offshore by PhosChem, a US marketing association that includes producers Mosaic and CF Industries. PhosChem competes with other global producers and, in several countries, with domestic producers as well.

PRICING

China, India and Brazil are the largest offshore fertilizer customers. China buys from Canpotex under three-year memoranda of understanding, like the one signed in August 2006 for 2007-2009. Pricing is negotiated each year. India traditionally buys on six-month contracts, and Brazil on the spot market. Japan, Malaysia,

Indonesia, Vietnam and Thailand are other important offshore customers supplied by Canpotex.

North American customers buy N, P and K on the spot market for resale to farmers. Maintaining our position in this market depends on continually engaging with our customers through value-added alignments with dealers, whose success benefits us.

Customers typically put price first in their buying decisions for all our products. Next come reliability of supply and product quality, where PotashCorp ranks above the industry average, according to our annual customer surveys.

THE LOGISTICS OF HANDLING GROWTH

Approximately 40 percent of Canpotex’s offshore potash customers buy at the port where the product is loaded (FOB) and pay the freight costs. The remainder buy at their port of delivery with freight included (CFR), paid by Canpotex. Thus, changing freight rates affect our margins.

Most offshore phosphate sales are FOB, but North American phosphate and nitrogen sales are primarily CFR.

Saskatchewan’s distance from ports makes potash transportation and distribution costs significant. We reduce those costs by jointly marketing through Canpotex to offshore customers. For North American sales of all of our products, we operate a transportation department with approximately 200 distribution facilities and about 7,100 railcars.

FEED AND INDUSTRIAL BUSINESSES PROVIDE STABILITY

Sales of feed and industrial products are significantly less seasonal and cyclical than fertilizer sales.

We sell feed products — primarily phosphate with some nitrogen —mainly to US bulk feed producers that blend them into animal feeds. Brazil and Mexico are our largest offshore feed markets.

Industry uses nitrogen, phosphate and some potash to make a range of important products for modern living. Offshore, rising incomes are driving growth in demand for these industrial products. In the US, we enjoy long-term relationships with industrial customers, such as BASF and DSM in nitrogen and ICL Performance Products and Innophos in phosphate.

DEMAND DRIVERS

•  Rising world population and economic growth

FERTILIZER

• Desire for protein-rich diets

• Acres planted and application rates

• Crop selection and commodity prices

• World grain stocks

• Increasing biofuel production

• Weather

• Currency strength

• Government policy

FEED

• Demand for protein-rich diets from various animal sources

• Herd and flock size

• Government policy

INDUSTRIAL

• Desire for products that contribute to modern living

• Government policy

6          POTASHCORP 2006 FINANCIAL REVIEW / MD&A » POTASH

THE WORLD LEADER IN POTASH

PotashCorp Is the Largest Potash Company

As world demand for potash rises, we will be able to respond. We have 12.9 million tonnes of existing low-cost capacity and in 2006 could produce 10 million tonnes of that. We expect to bring on the rest by the end of 2010. We believe we could add a further 2.8 million tonnes of new capacity by 2015.

The world’s largest potash producer by capacity, PotashCorp had an estimated 22 percent of global capacity in 2006. While our overall position was relatively unchanged, our share of excess capacity fell briefly (from 75 percent in 2005 to 55 percent in 2006) when the global operating rate dropped due to lack of demand during prolonged price negotiations with China and India. Competitors took capacity off-line, which increased their share of excess capacity. They quickly returned to near full operating rates when negotiations concluded. In 2007, our share of excess capacity is expected to be approximately 75 percent.

The flooding that closed Uralkali’s Berezniki 1 mine in late October made our excess capacity even more important.

Our business is enhanced by significant investments in producers Sociedad Quimica y Minera de Chile (SQM) in Chile, Arab Potash Company (APC) in Jordan and Israel Chemicals Ltd. (ICL) in Israel, and fertilizer distributor Sinofert Holdings Limited (Sinofert) in China.

POTASH ADVANTAGES

Potash is the best long-term fertilizer enterprise because it has many structural advantages over the other primary nutrient businesses.

First, only 12 countries produce significant amounts, as good deposits that are economical to mine are rare. Canada, Russia and Belarus together have nearly two-thirds of world reserves and

production. Canada accounted for about 30 percent of 2006 global production, and PotashCorp provided half of that.

Producers in the former Soviet Union (Belaruskali, Uralkali and Silvinit), Germany (K+S) and Israel (ICL) are our major offshore competitors. China, India, Brazil and, increasingly, Southeast Asia are the principal markets for FSU producers and for Canpotex. Although restrained by tariffs, FSU producers ship into the European Union. Kali & Salz’s main markets are Europe and Brazil while ICL ships to India, China, Southeast Asia, Brazil and Europe.

Mosaic and Agrium are PotashCorp’s major North American competitors. Our share of Canadian producers’ sales to the North American market held steady in 2006 at 41 percent. While we have less exposure than Mosaic and Agrium combined to this historically stable market, we have more opportunity in and exposure to the growing offshore markets.

A second potash advantage is that most ownership is in the private sector, where decisions are more likely to be made for economic, not political, reasons. Global supply fundamentals are thus more market-oriented and stable. The significant government ownership that does exist is mainly in Belarus, where the economy and GDP growth depend heavily on US dollar-denominated potash sales. China’s production, mostly government-owned, is consumed internally.

Potash is used in more than 150 countries, and 80 percent is traded across borders. The growth markets are offshore nations with little or no indigenous production, where PotashCorp, through Canpotex, is a prominent supplier. China and the US are the largest importers.

Offshore Markets Offer Long-Term Growth in Potash Demand

The US market is large and mature, while sales to offshore countries, which have under-applied potash for years, are growing rapidly. China imports 75-80 percent of its requirements, India 100 percent and Brazil 85 percent.

POTASHCORP 2006 FINANCIAL REVIEW / MD&A » POTASH          7

Potash Sales Driven by Need for Food, Feed, Fiber, Fuel

Rising world demand for food, feed, fiber and biofuels could drive growth in potash demand up to 4 percent a year, with PotashCorp best able to respond.

Barriers to entry to the potash business are more significant than to nitrogen or phosphate. Reserves are limited mainly to Saskatchewan, Russia and Belarus, and greenfield costs are high and rising. We estimate that a conventional 2-million-tonne mine in Saskatchewan would cost at least $1.6 billion and take five to seven years to bring into production.

Since 1962, world potash demand has grown by 2.6 percent per year. Though industry consultants suggest it will continue at about 3 percent through 2010, rising demand for crops to make biofuels could push it up to 4 percent. Either rate would require 1.5-2 million tonnes of new production annually — roughly equivalent to opening a greenfield mine every year. Incremental expansions announced by competitors will be insufficient to keep pace with such growth in demand.

2006 Cost of Producing a Tonne of Potash

Our production cost structure has a low percentage of fixed costs, which allows us to vary production to meet market demand.

POTASH STRENGTHS

• Majority of world excess capacity, which can be brought on stream quickly at a substantial discount to comparable greenfield capacity

• Low-cost, flexible production, small percentage of fixed costs

• Significant reserve life from existing mine shafts

• Strong free cash flow to reinvest in internal growth or offshore opportunities

• Solid contributions from investments in offshore producers

• Few world producers, little government ownership

• Substantial barriers to entry, with high cost and long lead time

• No substitutable products for potash

POTASH WEAKNESSES

• High Saskatchewan resource taxes and federal and provincial income taxes, relative to global competitors

• High rail and ocean freight delivery costs of Saskatchewan potash, potential for rail bottlenecks

• Some competitors working on low-cost incremental expansions

• Production costs exposed to natural gas price risk, Canadian dollar volatility

• Water inflow at New Brunswick increases production costs there and risks loss of production

POTASH OPPORTUNITIES

• Long-term growth in consumption expected to continue

• With competitors at or near capacity, our excess capacity allows us to achieve a higher share of offshore market growth

• Potential need for supply to replace 1.2 million tonnes of lost production from Uralkali’s Berezniki 1

• Potential for multi-year strength in agriculture driven by use of crops for food and biofuels

POTASH THREATS

• Continued upward pricing trend may attract greenfield projects

• Demand can be temporarily affected by changes in offshore markets

• Short-term weaknesses in global supply/demand fundamentals affect PotashCorp disproportionately

8           POTASHCORP 2006 FINANCIAL REVIEW / MD&A » NITROGEN

TRINIDAD PRODUCTION GIVES NITROGEN ADVANTAGE

Largest Offshore Ammonia Capacity in the
Western Hemisphere

Our long-term, lower-cost natural gas contracts in Trinidad give us an edge over most North American ammonia producers. Proximity to the US, which accounts for 40 percent of global imports, is also key to our Trinidad advantage.

A successful, sustainable nitrogen business requires access to a long-term, lower-cost natural gas source to make ammonia and downstream nitrogen products, plus proximity to the primary end-user. PotashCorp, the fourth largest global producer, enjoys both.

We produce two-thirds of our nitrogen in Trinidad, a country with extensive natural gas reserves and a stable, low-risk government, with the benefit of long-term, lower-cost gas contracts indexed to ammonia prices. Our large Trinidad operation is less than a week’s sailing time from our many port facilities in the US, the world’s largest ammonia importer and second largest consumer.

Nitrogen is a fragmented regional business with widespread production and use. China, India, Russia and the US are the largest producing countries. Only 10-12 percent of world production comes from the largest private sector companies: Yara (Norway), Agrium (Canada), PotashCorp, Togliatti (Russia) and CF Industries (US). China is by far the largest consumer.

The feedstock for all downstream nitrogen products, ammonia can generally be manufactured wherever there is an accessible natural gas reserve. When countries do not consume all their gas internally, they often choose to monetize it by converting it into a transportable nitrogen product or, in some regions, to liquefied natural gas (LNG), both mainly for export.

Despite this, only 13 percent of ammonia is traded across borders; much is used locally in industry and it is difficult and costly to transport. Specialized refrigerated and pressurized rail and ocean

vessels are in short supply. Urea, a solid made from ammonia, is easier and cheaper to transport.

More than half of world ammonia capacity is government-owned, so production decisions can be made for political reasons and can significantly disrupt global nitrogen markets.

Historically, the world nitrogen business was cyclical, and in the last five years, high gas costs made the US industry its swing producer. The cycle would peak when US consumption exceeded supply, pushing up prices and attracting imports from lower-cost gas regions. This would reduce North American nitrogen prices to marginal producers’ cost of production, which was driven by US gas costs. When gas was $1-$2 per MMBtu, cycle peaks were short-lived. Since early 2000, however, US gas costs have risen substantially and generally held steady, permanently shuttering marginal nitrogen capacity, tightening supply and raising prices. As the US was the swing producer during this period, its high gas prices underpinned higher nitrogen prices, improving the profitability of global producers.

These peak conditions have lasted longer than in the past because high oil costs in Europe have pulled up natural gas prices there, shutting down marginal ammonia plants and raising nitrogen prices. Europe became a more attractive market for Russian, Ukrainian and Middle Eastern exporters eager to avoid the high transportation costs to the US Gulf. As a result, competitive pressures fell in the US, even as gas costs there declined. This decoupling of nitrogen and gas prices improved profitability of producers in the US and nearby, while Europe became the world’s swing producer. With tight supply/demand fundamentals and higher agricultural demand going into 2007, these favorable nitrogen conditions seem set to continue.

Natural Gas Price Affects Ammonia Production

Europe had the world’s highest natural gas costs in 2006, which shut down ammonia plants there and raised prices, attracting ammonia imports from nearby low-cost gas regions.

POTASHCORP 2006 FINANCIAL REVIEW / MD&A » NITROGEN          9

US Gas and Ammonia Prices Decouple

US ammonia prices decoupled from natural gas prices in 2006 as Europe became the world’s swing producer, improving the profitability of the US nitrogen industry.

During previous peak-of-cycle conditions, new nitrogen supply came on line quickly in low-cost gas regions. Now, however, spiking costs for construction of greenfield projects have tempered the effect of the high nitrogen prices. Costs that have risen by about 40 percent in less than two years have caused several projects planned in the Middle East and Trinidad to be deferred or scrapped, further extending the market strength in nitrogen.

Logistic/transportation costs regionalize North American nitrogen sales. Imported products move easily into the US Gulf, and have the greatest effect on competitors close to the Mississippi River system or the Gulf. These include CF Industries, Terra and Koch, which are among the first to curtail production when gas prices rise. We shuttered ammonia production at our Geismar plant in 2003 largely in response to imports. Our Augusta and Lima plants operate in interior regions somewhat insulated from Gulf imports and North American sources for which transportation costs are significant.

Most of our US-produced nitrogen is delivered to stable industrial customers with high expectations for product quality and delivery to keep their plants running efficiently.

NITROGEN STRENGTHS

• Long-term, lower-cost natural gas contracts in Trinidad

• 67 percent of our ammonia production is in Trinidad, close to the US

• About 85 percent of our US-manufactured ammonia is sold to stable industrial customers

• Hedging program mitigates natural gas price risk related to US production

NITROGEN WEAKNESSES

• 33 percent of our ammonia production in the US, using higher-cost gas

• Contractual commitments to US industrial customers may force us to operate unprofitably amid rising gas prices, as re-pricing may lag by 60-90 days

• Many nitrogen plants globally, with significant government ownership and influence

NITROGEN OPPORTUNITIES

• High US volume demand

• Europe now acts as swing supplier with high gas costs, supporting stronger US prices

• Multi-year strength in agriculture could favor fertilizers

• Higher construction costs discourage greenfield plants

• LNG projects in low-cost gas regions provide alternatives for monetizing gas, reducing new supply pressures in nitrogen

NITROGEN THREATS

• Abundant low-cost natural gas in developing countries may lead to its monetization as nitrogen products

• Small supply/demand fluctuations can significantly affect prices

• Short construction period for new capacity can impact the market quickly

• Reduction in differential between US and Trinidad natural gas prices could reduce our Trinidad advantage

• Pending changes in transport regulations could substantially increase the cost of transporting ammonia and the difficulty in siting terminals

2006 Cost of Producing a Tonne of Ammonia

Natural gas accounts for between 75 percent and 90 percent of the cash cost of producing a tonne of ammonia. Our Trinidad contracts keep our overall average gas price down despite exposure of our US production to higher-cost gas.

10          POTASHCORP 2006 FINANCIAL REVIEW / MD&A » PHOSPHATE

THE SPECIALTY PHOSPHATE PRODUCER

The phosphate business has long been identified with the solid fertilizer DAP. However, with over-abundant DAP capacity around the world, companies that can direct their phosphoric acid — the base for downstream fertilizers, feed supplements and products used by industry — into more profitable non-fertilizer areas have a long-term competitive advantage.

PotashCorp, the world’s third largest producer, has abundant and accessible phosphate rock low in metallic impurities. This permits economical processing and enables us to allocate about 40 percent of our phosphoric acid to industrial and feed products outside the fertilizer commodity cycle. The remainder goes into liquid and solid fertilizers.

It is necessary from an operational standpoint to produce more phosphoric acid than can be consumed in our industrial and feed products. Our high operating rate helps to spread phosphate’s fixed costs over more of this production. We are pursuing the development of alternative uses and markets for phosphoric acid, which would give us more flexibility to reduce solid fertilizer production.

The superior rock quality at Aurora and our wet process technology enable us to be a significant player in the growing, high-margin, purified acid business. Industrial customers depend upon its high quality. Industry demand is increasing globally, and the closure of several energy-intensive thermal plants has restructured US production.

Feed supplements are the other specialty phosphate business. We are one of several producers of Dical and Monocal, used primarily

in beef and pork production, but Aurora’s quality rock gives us a competitive edge in producing DFP for poultry.

China, the US, Morocco and Russia are the largest phosphate producers, but rock deposits are not rare. Production takes place in approximately 40 countries, with nearly half traded across borders.

Governments own or control almost half of global production and often accept minimal or negative returns to support political objectives. As a result, world DAP capacity has surged. US DAP capacity was built for export markets, particularly China and India, which have developed domestic capacity. In both countries, the government has driven this expansion to reduce dependence on imports. Saudi Arabia is building a major DAP operation that is projected to come on line in 2010.

In the next five years, 6 million tonnes of DAP capacity is expected to be brought into production, according to industry consultants and producer announcements. Global demand grows by about 900,000 tonnes a year, so DAP’s long-term supply/demand fundamentals may be threatened unless permanent shutdowns offset this new production. However, the market was reasonably tight at the end of 2006 after permanent and indefinite plant closures in the US and Europe, together with a positive outlook for US and global demand.

The US, China and India are the world’s largest phosphoric acid consumers, and China, the US, India and Brazil are significant consumers of phosphate fertilizers. The US uses the most phosphate products for industry.

PotashCorp Rock Permits Phosphate Diversification

The high quality and low impurities of our phosphate rock enable us to make a wide range of phosphate products, including the purified acid required for industrial and feed products. We are one of only three purified acid producers in North America.

Lower Rock Costs Create Competitive Advantage

With phosphate rock supply tight, our abundant reserves close to our operations are of great value. We began drawing on our best reserves (NCPC) in 2002, and have kept our costs stable while competitors’ costs are rising.

POTASHCORP 2006 FINANCIAL REVIEW / MD&A » PHOSPHATE          11

The feed phosphate market is growing globally. It has declined in the US, although that has been tempered in part by rising meat production for export. Industry rationalization has improved the supply/demand dynamics, and rising global meat consumption makes the long-term outlook favorable.

In phosphate markets, Morocco’s OCP is our major offshore competitor, while we compete in North America with Mosaic, CF Industries, Mississippi Phosphate, Agrifos and Agrium. Moroccan and Israeli imports vie with us for North American industrial sales. Offshore fertilizer sales are made through PhosChem, which competes with global producers and, in India and China, with domestic producers as well. In China, indigenous producers compete for feed sales.

2006 Cost of Producing a Tonne of Phosphoric Acid

High fixed costs are associated with phosphate production. Our success in this segment depends on efficiently producing phosphoric acid and channeling it to products that have higher margins.

PHOSPHATE STRENGTHS

• Significant low-cost phosphate rock reserves

• High-quality rock and proven technology enable economical production of high-margin industrial and feed products

• Mining near processing facilities provides cost advantage

• Good position in North American purified acid and feed phosphate markets

PHOSPHATE WEAKNESSES

• Product mix still requires some DAP/MAP production

• Need to transport ammonia to DAP/MAP plants, which is becoming more difficult and costly

• Higher sulfur, ammonia costs can negatively impact margins

• Need to consider alternatives to Savannah import terminal, which receives ammonia for DAP production, as lease expires at end of 2008

• High fixed costs mean plants do not perform profitably at lower operating rates

PHOSPHATE OPPORTUNITIES

• Tight phosphate rock, phosphoric acid and solid fertilizer supply/demand fundamentals

• Few companies globally with rock good enough to economically produce purified acid

• Multi-year strength in agriculture could favor fertilizers

PHOSPHATE THREATS

• Significant government control and intervention globally in constructing capacity and restricting imports

• Increased offshore DAP production reduces US exports

• Low DAP margins can cause producers to switch to feed production, hurting this business

• High barriers to exit because of significant environmental restoration and remediation costs

• Environmental and permitting requirements

What makes PotashCorp unique?

• In potash — our excess capacity, which will serve a growing market

• In nitrogen — our low-cost supply to the US from Trinidad

• In phosphate — our rock quality enables diversification into feed
and industrial products

On these characteristics, we are building and enriching our future.

12          POTASHCORP 2006 FINANCIAL REVIEW / MD&A » OBJECTIVES & STRATEGIES

SECTION 2

OBJECTIVES AND STRATEGIES

HOW POTASHCORP SEES THE FUTURE

Our company’s goal is to be the partner of choice, providing superior value to all our stakeholders. We strive to be the highest quality low-cost producer and sustainable gross margin leader in the products we sell and the markets we serve.

OUR STRATEGY: Potash First for Growth, Trinidad Nitrogen and Purified Acid for Earnings Stability

Our strategy focuses on generating long-term growth while striving to minimize fluctuations in our upward-trending earnings line. This value proposition has given our stakeholders superior value for many years.

We apply this strategy by concentrating on our highest margin products. This dictates our Potash First strategy, which is driven by gross margin and long-term growth potential, and our emphasis on Trinidad nitrogen and purified phosphoric acid.

Our potash and purified acid businesses have sustained margins driven by less competitive pressure and lower-cost production than other products. Long-term natural gas contracts in Trinidad give us a significant cost advantage in nitrogen over US producers exposed to higher US gas prices that are unlikely to fall significantly.

We strive to grow PotashCorp by enhancing our position as supplier of choice to our customers, delivering the highest quality products at market prices when they are needed. We seek to be the preferred supplier to high-volume, high-margin customers

PotashCorp Builds on Strongest Businesses

Our strategy is to grow businesses that fall into the top right quadrant of lowest costs and competitive pressures — potash, our offshore potash investments and purified phosphoric acid.

with the lowest credit risk. It is critical that our customers recognize our ability to create value for them based on the price they pay for our products.

As we plan our future, we carefully weigh our choices for our strong cash flow. We base all investment decisions on cash flow return materially exceeding cost of capital, evaluating the best return on any investment that matches our Potash First strategy. Most of our recent capital expenditures have gone to investments in our own potash capacity, and we look to increase our existing offshore potash investments and seek other merger and acquisition opportunities in this nutrient. Expansion of Trinidad nitrogen and industrial phosphoric acid is another priority. We also consider share repurchase and increased dividends as ways to maximize shareholder value over the long term. In 2005, for example, we invested $852 million to buy 9.5 million PotashCorp shares at an average price of under $90 per share. At our 2006 closing share price, this had added over $510 million in shareholder value, and continued to appreciate after year-end.

Emphasis on Potash, Trinidad Nitrogen, Purified Acid

Focused on growth with minimal earnings volatility, we emphasize our highest margin businesses, leveraging our strengths to expand the most profitable areas in each segment.

POTASHCORP 2006 FINANCIAL REVIEW / MD&A » POTASH STRATEGY          13

OUR POTASH STRATEGY: Meet Rising World Demand with Our Excess Capacity

In potash, our business strategy is to fill rising world demand by bringing on our substantial existing excess capacity and adding new expansion capacity, while extending our global enterprise through strategic investments or acquisitions.

Growing offshore markets present us with great opportunities, and we are pacing our internal growth to ensure that our low-cost production will be ready to meet this demand as it arises. This is the basis for our potash value proposition.

This growth strategy is balanced by the stable defensive strategy we have followed for almost two decades — producing only what the market requires. Although consumption follows an upward-moving trend line, it may experience temporary fluctuations. Short-term events can affect buying patterns, as occurred in 2006 when extended price negotiations with China and India, continuing farm economic issues in Brazil, and low crop prices and higher input costs in US markets had an impact.

In addition to our potash operations, we have extended our global enterprise through investments in producers SQM, APC and ICL (32 percent, 28 percent and 10 percent ownership, respectively) and our 20-percent stake in Sinofert, China’s major fertilizer distributor. These investments provide strategic value and add to our bottom line.

APC, where we appoint the top four management positions, has a significant advantage in delivering potash to India and other Asian markets. Our investment in SQM gives us an influential position in the world’s leading producer of upgraded potash products used by specialized agricultural enterprises. By investing in Sinofert, we have partnered with the largest distributor in the fastest growing potash market.

Multiple greenfield mines of competitors offer the major long-term threat to our strategy but it is minimized by the lack of economic, long-lived, accessible deposits and the rapidly increasing capital cost and lengthy development time. Although higher potash prices and profitability increase the threat, our recent estimates suggest that current prices do not justify the investment. With a large capital commitment and no positive cash flow over the project period, building a new mine carries considerable risk.

Ensuring the World Has Enough Potash

Almost half of the growth in potash capacity in the next five years is expected to be provided by PotashCorp through restoration of idled capacity, debottlenecking and expansion projects.

PotashCorp Production Is Driven by Markets

When demand rises, our excess capacity offers significant gross margin potential as volumes and prices increase, and we can spread fixed costs over more tonnes, creating larger margins.

14           POTASHCORP 2006 FINANCIAL REVIEW / MD&A » NITROGEN STRATEGY

OUR NITROGEN STRATEGY: Reduce Volatility by Building on Our Trinidad Asset

We enhance our overall strategy of growth with reduced volatility by maximizing Trinidad ammonia under our long-term, lower-cost natural gas contracts. The stability this provides in a high-cost US gas environment is the first component of our nitrogen value proposition. PotashCorp has developed the largest offshore ammonia capacity in the Western Hemisphere on these contracts and on proximity to the US.

Our primary nitrogen market is North America. We supply both the fertilizer and industrial markets while concentrating our US production on industrial sales. Our ammonia operations at Augusta and Lima are linked by pipeline to customer plants. Industrial customers buy over two-thirds of the urea we produce in the US and about 85 percent of the ammonia. Maximizing these stable sales is the second component of our nitrogen value proposition.

Margin volatility due to natural gas costs affects how we operate our US plants. In a high-cost gas environment, we may reduce operating rates and purchase product to meet customer commitments. Augusta and Lima produced ammonia and downstream products in 2006. Geismar, where ammonia production has been curtailed since 2003, processes imported ammonia into nitric acid for the industrial market and UAN for fertilizer when that market is sufficiently attractive. Memphis, temporarily shuttered in 2003, was permanently closed in 2006.

Our nitrogen strategy could be enhanced with partnerships that leverage our marketing and operations expertise in low-cost natural gas regions.

Trinidad Production and US Industrial Products
Drive Nitrogen Gross Margin

Our lower-cost Trinidad base provides significant, stable nitrogen gross margin, while we concentrate on industrial sales in the US. We employ a hedging program that mitigates the risk of US natural gas price volatility.

Natural Gas Contracts Keep Trinidad Costs Down

Multi-year, lower-cost contracts protect our Trinidad production costs, providing our nitrogen complex with most of its gas needs through 2011, declining thereafter, but subject to renegotiation before each contract expires.

POTASHCORP 2006 FINANCIAL REVIEW / MD&A » PHOSPHATE STRATEGY          15

OUR PHOSPHATE STRATEGY: Enhance Stability by Developing Industrial and Feed

With its high quality, few impurities and resulting low production costs, our phosphate rock allows us to maintain a diversified line of phosphate products. We can allocate our phosphoric acid to the most profitable downstream products, particularly purified acid and feed, rather than to fertilizers, which are affected by cyclicality. This increases earnings stability, which is the focus of our phosphate strategy.

In the stable US industrial phosphate business, where we are the lowest-cost producer with costs continuing to decline, our strategy is to opportunistically capture growing demand. Purified acid generates the segment’s highest margins, and we have responded to rising global demand by expanding to gain market share as competitors close high-cost, energy-intensive plants.

Our strategy in phosphate feed supplements is to focus on price rather than volumes in North America and develop infrastructure offshore to increase sales there. Supply/demand fundamentals have shifted as a result of curtailed production in North America, and long-term export growth is promoted by rising offshore meat production.

In phosphate fertilizers, our strategy is to maintain profitability by controlling costs. We allot phosphoric acid not used to make feed and industrial products to the most profitable combination of liquid and solid fertilizers that compete in this volatile market. By producing more tonnes, we lower our per-tonne fixed costs.

Although our phosphate business gains stability from industrial products, DAP must perform well for it to excel. The short-term market appears satisfactory but substantial overcapacity threatens DAP long-term, making continued development of non-fertilizer opportunities strategically important.

Industrial Products Provide Stability

Stable performance in industrial products and a strong turnaround in feed phosphate supplements justify our focus on higher-margin specialty phosphate products.

What makes PotashCorp strong?

• With our Potash First strategy, we supply global growth in fertilizer demand but
produce only what the market needs

• In nitrogen, we leverage our lower-cost Trinidad production

• In phosphate, we emphasize the industrial and feed products that provide
earnings stability

16          POTASHCORP 2006 FINANCIAL REVIEW / MD&A » CAPABILITY TO DELIVER

SECTION 3

CAPABILITY TO DELIVER

OUR COMMITMENT

We deploy all necessary resources to ensure we can deliver on our value proposition and support our vision and strategy. Those resources start with an experienced management team that takes a broad view of our business, develops long-term strategies and commits the company to them. Our solid capital structure allows us to take advantage of opportunities and withstand short-term business fluctuations. Our substantial cash flow generation is both the cause and the result of our success. A productive workforce, motivated sales teams and coordinated transportation network round out the strengths that ensure we can deliver to our stakeholders.

Cash Goes to Excess Capacity and Investments

We use much of our cash to prepare for tomorrow’s demands: to bring on potash excess capacity, to add flexibility to our product mix or to invest in other world-class potash companies.

Strategy Determines Capital Expenditures

Consistent with our Potash First strategy, much of our capital went to restoring capacity at Allan and Lanigan. We also built on our Trinidad nitrogen and purified acid assets.

POTASH: We Supply the World

In 2006, we allocated more of our resources to potash, which provides quality earnings through growth, high margins and low volatility.

Tight global market conditions are expected to continue for the long term. After a temporary slowdown in 2006, our competitors are back to near full operating rates, so we must be ready to meet the world’s increasing need for potash.

We have 12.9 million tonnes of capacity but were set up and staffed to produce 10 million tonnes in 2006. Responding to demand, we produced only 7 million tonnes.

Preparing to Meet Rising World Demand

Much of our excess capacity has not been used since the mid-1980s, so we are investing the money to have it ready when it’s needed. Through a combination of bringing back idled capacity and expansions, we expect to have 13.5 million tonnes of capacity ready by the end of 2010 to meet rising world demand.

Beyond that, we believe we can make other expansions in Saskatchewan and New Brunswick that could add a net of

POTASHCORP PROJECTED CAPACITY

(million tonnes KCl)
2006 Production	7.0
2006 Idled capacity	3.0
2007 Allan and Esterhazy debottlenecks	0.5
2008 Lanigan debottleneck	1.5
2010 Cory and Patience Lake debottlenecks/expansions	1.5
2013 Esterhazy interest potentially depleted	(1.0	)
2011-2015 Other SK and NB expansions	3.2
Total projected capacity before greenfield	15.7

By the end of 2010, we expect to have 13.5 million tonnes of potash ready if markets require it, with another 2.2 million tonnes (net) in the wings. This can be done at a substantial discount to the cost of equivalent greenfield capacity in Saskatchewan.

POTASHCORP 2006 FINANCIAL REVIEW / MD&A » CAPABILITY TO DELIVER          17

2.2 million tonnes, for a potential total capacity of 15.7 million tonnes by 2015. This is apart from and in advance of potential greenfield projects.

To better meet the needs of tomorrow’s potash markets and improve the flexibility of our product mix, we are investing $114 million at Allan and Lanigan to add 1.25 million tonnes of compaction capacity. Increasingly sophisticated farming practices in North America, Brazil and China require upgraded granular potash to blend with granular nitrogen (urea) and solid phosphate fertilizers (DAP/MAP) for consistent one-pass application. Granular commands a premium of approximately $10 to $20 per tonne.

Labor, our most significant potash production cost, is stable. Three-year contracts were negotiated with the unions representing our employees at Allan, Cory, Patience Lake and Cassidy Lake in 2005 and at Lanigan in 2006 and with the Employees Association at Rocanville in 2006. Our New Brunswick operation is not unionized.

Broadening Our Offshore Investments

We continue to strengthen our global position by increasing our strategic investments in offshore companies. In February 2006, we spent $126 million to double our share in Sinofert to 20 percent, further enhancing our relationship with this vital link in China’s fertilizer chain. Sinofert controls 60 percent of the distribution of fertilizers imported by China, and generates more than half its gross margin through potash sales. We raised our ownership of specialty potash producer SQM in Chile from 25 percent to 32 percent in the fourth quarter of 2006, at a cost of $235 million.

Investing in Our Distribution Chain

Responding to the growth in world potash demand requires a distribution system that ensures we and Canpotex can meet future customer commitments.

Because most long-term growth in demand is expected to come from offshore markets, Canpotex is improving its distribution system. In 2006, work began on a $15-million project to increase capacity at its Portland, Oregon terminal by 1 million tonnes. Expansion alternatives for Vancouver’s Neptune terminal are being considered, along with a potential new export terminal on the West Coast.

Canpotex currently leases 3,500 specialized potash railcars and is preparing its fleet to meet new demand expectations. This could mean adding roughly 500 cars per year for the next few years.

Continued congestion at Brazil’s government-run terminals has made it difficult to meet that country’s rising potash demand. In 2006, we completed a $3.2-million terminal at Lavras, which can handle 70,000 tonnes of potash a year. We also partnered with two other companies to complete the Perola Fertilizer Terminal at the Brazilian port of Santos, paying $0.9 million for our 58-percent share and contributing a further $5.4 million for our share of construction costs. This terminal will handle potash principally, with annual throughput capability of 500,000 tonnes.

In North America, we have over 100 terminals in the US, most of which are on a variable cost basis, which means they are available if needed and we pay only when we use them.

We have a long-term contract with Canadian National Railway until 2010 while Canpotex has a contract with CP Rail until 2012. We continue to have excellent relationships with our major carriers.

Equity Investments Provide Strategic
and Monetary Value

The combined market value of all our offshore potash investments is $3.1 billion, more than $1.9 billion above their book value and equivalent to almost $29 per PotashCorp share.

NITROGEN: Increasing Our Trinidad Advantage

Our nitrogen strategy relies on our lower-cost Trinidad production, so we allocated cash to projects that allowed us to maximize production under our existing natural gas contracts. In 2005 and 2006, we invested $62 million to debottleneck all four ammonia production units, adding 294,000 tonnes of capacity. Strong nitrogen markets and efficient design have provided a payback period of less than three years at each unit.

We have signed long-term leases on ammonia vessels at fixed prices to lower transportation costs and secure our ability to deliver Trinidad product economically to the US. Ownership or major supply contracts at seven deepwater ports give us logistical strength and flexibility for these imports.

In our US production, we attempt to manage the volume and price volatility inherent in the nitrogen business through,

18           POTASHCORP 2006 FINANCIAL REVIEW / MD&A » CAPABILITY TO DELIVER

respectively, a focus on stable industrial demand and our natural gas hedging program.

We employ a 10-year hedging program to manage our US gas price risk. The amount of gas hedged in current and future years depends mainly on the amount of gas required to operate our US plants. We also consider future gas price opportunities relative to product pricing expectations, seasonal gas consumption, pricing and inventory/storage patterns and weather.

PotashCorp’s Nitrogen Sales by Plant

Our versatile Trinidad operation produces both fertilizer and industrial-grade nitrogen that supplements our high-margin US production for industrial customers. This enhances our Trinidad advantage.

PHOSPHATE: Building on Our Product Diversity

In phosphate, we stress the strategic position of industrial and feed products, with their lower costs, fewer competitive pressures, and higher prices and margins.

We supported this strategy in 2006 by completing an 82,000-tonne purified phosphoric acid circuit at Aurora at a cost of $75 million, $17 million of it spent in 2006. This is the fourth circuit at Aurora that uses the economical wet process production system.

With our Aurora DFP plant running well, we consolidated some of our other feed phosphate production to improve the cost structure of this business. This added to the significant margin improvement in feed phosphates in 2006.

US demand for solid fertilizers is expected to grow for the next few years and we are ensuring that our distribution system can effectively meet customer needs. We are also looking at options beyond 2009 when the global DAP market may become less attractive.

PotashCorp Is Lowest-Cost Purified Acid Producer

Higher-quality rock and more efficient technology give us the lowest landed cost for purified phosphoric acid in the US market. This makes our products attractive ingredients for food, metal finishing chemicals and more.

   

What makes PotashCorp reliable?

• We are putting resources behind our strategy in all three nutrients to deliver on our value proposition

• We consider our risks as we measure our progress in achieving our goals

POTASHCORP 2006 FINANCIAL REVIEW / MD&A » KEY PERFORMANCE DRIVERS          19

KEY PERFORMANCE DRIVERS

Each year we set corporate-level targets — key performance indicators (KPIs) — to advance our goals and drive desired results. In 2006, we took the next step, engaging our employees to set more detailed department and individual KPIs aligned with our corporate objectives. Throughout the organization and in the spirit

of growth and continuous improvement, these indicators of performance are regularly measured and monitored, with timely feedback provided about progress toward achieving our goals. The following outlines our key corporate goals, the drivers of success in achieving them, and how we measure performance.

Key Corporate Goals	Key Performance Drivers	Indicators of Performance
Outperform our sector and companies on the Dow Jones US Basic Materials (DJUSBM) Index and be the preferred fertilizer investment	•  Net income and cash flow growth, and future growth potential	•  PotashCorp and sector share price and DJUSBM Index changes •  PotashCorp cash flow return on investment compared to WACC •  PotashCorp and sector comparative multiple analyses (P/E, CFPS, EV/EBITDA) •  PotashCorp investor surveys
Maximize sustainable segment gross margins	•  Optimize mix of prices, volumes, products, customers •  Efficient production, effective managing of input costs and hedging strategies	•  Segment gross margin growth/stability •  Price/volume/cost analysis •  Cash flow return on investment at segment level
Be the preferred supplier to our customers	•  Minimize number of customer complaints •  Primary focus on quality and service •  Order fill rate categories	•  Frequency and nature of customer complaints •  Monthly and annual customer surveys comparing our performance to that of our competitors
Be the low-cost supplier of products into our primary markets	•  Reduce cash costs •  Spend sustaining capital to maintain or improve our low-cost position and productivity	•  Total per-tonne nutrient/primary product cost, including supporting selling and administrative expenses •  Percentage of shipments by preferred carrier and route •  Performance reliability relative to maintenance cost
No harm to people, no accidents, no damage to the environment	•  Reduce injury rates •  Minimize impact of our business on the environment	•  Lost-time/recordable injury rates •  Environmental events, reportable releases and permit excursions
Have motivated, productive employees	•  Encourage and reward performance that supports our strategies	•  Comparisons with other companies’ compensation and benefits by industry, company size and region •  Annual employee surveys to determine engagement with corporate goals and objectives •  Activities to increase employee productivity and buy-in to objectives
Positively impact the communities where we operate	•  Contribute to socio-economic well-being •  Constantly improve on our leadership in corporate governance	•  Media coverage, number of events sponsored, total charitable donations and volunteer hours •  Community surveys •  Board updates governance practices by monitoring outside opinion and internal effectiveness

LEAD THE GLOBAL FERTILIZER INDUSTRY Using a balanced scorecard-type approach, we have developed a system for tracking the drivers of our success.

20          POTASHCORP 2006 FINANCIAL REVIEW / MD&A » REWARDING RESULTS

REWARDING RESULTS: Compensation

Philosophy, Reward Structure and Oversight

Our objective is to attract, motivate and retain world-class talent that can drive our business forward in a manner which encourages individuals to perform and deliver results that provide sustaining shareholder value. Our executive compensation policies are designed to achieve this goal, with most compensation being variable, fluctuating based on individual and corporate performance.

Four primary elements comprise executive compensation, as explained in detail below: base salary, short-term incentives, performance units issued under a Medium-Term Incentive Plan (MTIP) and performance stock options issued as long-term incentives. Medium- and long-term variable components like MTIP and performance stock options comprise about 60 percent

of the total compensation package, while short-term incentives account for about 15 percent. Base salary makes up the remainder.

The compensation committee of our Board of Directors oversees our executive compensation program and, among other responsibilities, carefully monitors the proportion of remuneration that is performance-related on both a short- and long-term basis.

We do not have any non-qualified deferred compensation arrangements in place for management. Additionally, performance stock options are awarded once per year, only upon shareholder approval and at the closing market price of our shares on the day before the options are granted.

Compensation			Performance
Element	Form	Eligibility	Period	Determination
Base salary	Cash	All salaried employees	Annual	•  Targets are set to the median of comparable companies, adjusted to reflect individual and corporate performance.
Short-term incentives	Cash	All executives and most salaried staff (~1,500 people)	1 year	•  Based on achieving predetermined goals for corporate performance or a combination of corporate and operating group performance. •  Can be adjusted (± 20%) to recognize individual performance.
Medium-term incentives (MTIP)	Performance share units	All executives and senior management (~65 people)	3 years	•  Units issued at our average share price at award date. •  Units vest and are paid out at the end of the three-year performance period calculated whereby half the units vest in accordance with specific total shareholder return (TSR)1 targets and half vest in accordance with our TSR relative to a selected peer group’s TSR. •  Payout value is based on the number of vested units multiplied by our 30-day average share price at the end of the performance period.
Long-term incentives	Performance stock options	All executives, senior management and other selected management (~235 people)	3 years (vesting) 10 years (option term)	•  Performance stock options incorporate a performance-based vesting schedule measuring the three-year average excess of cash flow return over our weighted average cost of capital. •  Vested share value is based on our share price appreciation within the option term.

¹ TSR is the total shareholder return on an investment in PotashCorp stock from the time the investment is made.
TSR has two components: (1) growth in share price and (2) related dividend income on the shares.

PERFORMANCE STOCK OPTIONS ALIGN EXECUTIVE COMPENSATION, SHAREHOLDER INTERESTS

We place significant emphasis on pay-for-performance, with “at risk” components of total compensation linked directly to the enhancement of cash flow return and total shareholder return. An example of the performance conditions that must be achieved before vesting will occur in our performance stock option plans is set out here. For additional information, please refer to our 2007 proxy circular on our website.

PERFORMANCE MEASURE	VESTING SCALE
3-Year Average Excess of Cash Flow Return on Investment over Weighted Average Cost of Capital	Percentage of Stock Option Grant Vesting
<0%	0%
0.20%	30%
1.20%	70%
2.20%	90%
2.50%	100%

POTASHCORP 2006 FINANCIAL REVIEW / MD&A » RISK MANAGEMENT          21

MANAGING RISK

To effectively plan and execute our strategy, we analyze all risks associated with our business goals and objectives. We select the risks to actively manage based on their likelihood, severity and ability to adversely affect PotashCorp. Through mitigation responses, we accept, control, share, transfer, diversify or avoid each risk.

Management reports annually to the Board of Directors about risk management actions and plans. Each year we re-evaluate risks, and address new risks resulting from operational changes, external factors or elevation of risks that were previously identified.

The major risk categories identified are: Markets/business, distribution, operational, financial and information technology, regulatory and integrity/empowerment. The risk ranking matrix establishes relative risk levels. A relative risk can be lowered by reducing either the likelihood of it occurring or the significance of the consequence, should it occur.

Loss of reputation is the most severe risk, for it could threaten our earnings, access to capital or our brand by creating negative opinions of PotashCorp in the minds of employees, customers, investors or our communities.

Major risks are as follows:

Political Risk

Global potash expansion opportunities with the lowest cost and the highest logistic synergies are located in politically sensitive regions such as Jordan, Israel, Russia and Belarus.

Mitigation requires board/management dialogue about strategy and acceptable risk levels as we strive for geographic diversity. A business portfolio approach prevents over-reliance on any one investment, and limits transaction size relative to PotashCorp’s enterprise value. We recognize that relationships with connected local partners can reduce the political risk in offshore investments.

Risks Particular to Underground Mines

All mining companies face the risk of unexpected underground rock falls that can result in life-threatening injuries. We upgraded this risk in 2006, as several ground falls have occurred in our potash mines since November 2004. Mitigation actions have included developing a canopy to protect the helper of a mining machine operator.

The presence of water-bearing strata in many underground mines around the world carries the risk of water inflow, with no insurance available. This is a risk for our potash mines. We are successfully managing water inflows at our New Brunswick operation, while an ongoing water inflow is being managed at Esterhazy, where we have a 25-percent interest. Our other conventional mines are currently dry.

Our Earth Sciences group uses advanced geo-seismic monitors to record micro-events, provide information to help predict ground falls and help us avoid areas with unusual ground conditions that could carry the danger of water inflow. It is also developing ground-penetrating radar that could help determine unusual ground conditions.

Many serious risks of 2005 remain high on the 2006 risk matrix:

Potash Capacity

Customers are concerned about potash supply in light of recent flooding of a Russian mine and forecast growth in demand. If PotashCorp was unable to respond in time to this increased demand, the credibility of our long-time strategy of bringing on our excess capacity when the market requires could be harmed.

We are bringing back previously idled capacity at Allan and Lanigan, and believe we can add another 1.5 million tonnes at Cory and Patience Lake by the end of 2010. Expansions at other Saskatchewan operations and at New Brunswick could add a net of 2.2 million tonnes by 2015, giving us a total capacity of 15.7 million tonnes apart from and in advance of potential greenfield projects.

1 Negligible $5M2Low $5M-49M3Medium $50M-499M4Major $500M-5B5Extreme $5B5Probable(annual)CBBAA4High (1-3 yrs) DCBBA3Medium(3-10 yrs)DDCBB2Low (10-25 yrs)EDDCB1Remote ( 25 yrs) EEDDCAExtreme:Initiate risk management activities immediately to reduce risk. If such activities cannot sufficiently reduce risk level, consider discontinuation of the applicable business operation in order to avoid the risk. B Major: Initiate risk management activities at next available opportunity to reduce risk. If such activities cannot sufficiently reduce risk level, board approval is required to confirm acceptance of this major risk level. C Acceptable: Level of risk is acceptable within tolerances of the current Risk Management Policy. No additional risk management activities required. D Low: Monitor risk according to Risk Management Policy requirements, but no additional risk management activities required. E Negligible: Consider discontinuing any related risk management activities in order to direct resources to higher value activities, providing such discontinuance does not adversely affect any other risk areas.

22          POTASHCORP 2006 FINANCIAL REVIEW / MD&A » RISK MANAGEMENT

New Supply Creates Market Imbalance

Increasing competitive supply of solid phosphate fertilizer, particularly DAP, is projected to outpace growth in world consumption in the next five years, potentially depressing prices and risking our phosphate margins. We are leveraging our strengths in specialty industrial and feed products and streamlining DAP and feed production to optimize production costs.

Risk of Cyclicality

Short-term price cyclicality carries most risk in phosphate and nitrogen fertilizers, due to competitive costs, availability of supply and world demand. Pricing pressures could result in shutdown costs and shrinking margins. We mitigate this risk in phosphate by focusing on less cyclical non-fertilizer products, while optimizing fertilizer production to maintain operating rates at levels that lower production costs. In nitrogen, we maximize our lower-cost Trinidad production while focusing on less cyclical US industrial markets. During periods of high gas costs, we reduce operating rates of our US plants while employing gas price risk hedging strategies.

Suppressed Demand Creates Market Imbalance

Our potash success could be threatened if expected growth in demand failed to materialize, negatively impacting sales volumes and price realizations. While it is difficult to precisely predict future buying patterns, industry consultants anticipate 3-percent average annual growth in world consumption through 2011. However, temporary blips in demand are a feature of the global potash market.

Since 1987, we have mitigated this risk by matching our production to market demand, which protects our margins.

Security Risks

Deliberate, malicious acts could cause injury, property damage or harm to PotashCorp’s reputation. Products could be stolen and used in criminal acts or terrorism. We have increased security and intrusion measures, and maintain strict controls and operating procedures. We are playing an active role in TFI’s efforts to address security at chemical facilities.

Distribution Risks

Railway efficiencies and demand for grain and other commodities affect railcar availability. A shortage of railcars for carrying potash and increased transit time in North America could result in customer dissatisfaction, loss of sales and higher distribution costs.

Both PotashCorp and Canpotex bought additional hopper cars in 2005, and worked with major rail carriers to ensure potash moved smoothly and quickly. As a result, we lowered this risk level in 2006.

Regulatory Risk

PotashCorp is subject to antitrust laws in various countries, and may be adversely affected by changes in those laws. We cannot predict how the laws or their interpretation, administration and enforcement will change over time. However, such changes may limit our future acquisitions or operations of Canpotex and PhosChem.

Risk to Reputation

Any of these risks could negatively affect our reputation, which is one of our most valuable assets and key to achieving our strategies and delivering on our value proposition. We mitigate this risk by continually building goodwill and communicating with stakeholders, using best practices, committing to sustainability, ensuring transparency and practicing leading-edge corporate governance. We strive to have no surprises for stakeholders.

POTASHCORP 2006 FINANCIAL REVIEW / MD&A » FACTORS THAT SHAPED 2006 BUSINESS CONDITIONS          23

SECTION 4

PERFORMANCE AND PROSPECTS

FACTORS THAT SHAPED 2006 BUSINESS CONDITIONS

1	Strong Global Economic Growth
	The world economy continued to perform robustly in 2006. Global GDP grew by 5.1 percent, building on 2004 and 2005 for the strongest three-year performance in more than 30 years. Buoyant Asian economies spurred this achievement: China grew by 10.5 percent, India 8.3 percent, Malaysia 5.5 percent, Indonesia 5.2 percent and Thailand 4.5 percent. People spent much of the resulting higher income on bigger and better diets containing more protein from animals nourished on grain. Lifestyle changes included more access to industrial products and use of mechanized transportation, which increased demand for fuel.
2	Oil Prices Soar
	More than ever, the world runs on oil. Global demand for transportation fuels jumped in 2006 to supply the needs of the rising world population and increasing industrialization. The major oil-producing countries were hard-pressed to meet demand from their limited production capability. Prices rose to record levels early in the year, backed off slightly but remained high throughout 2006.
3	Growth in Fertilizer Demand Slows
	High fuel prices and weak grain and oilseed prices during the 2006 spring planting season combined to affect farmers’ fertilizer application. Many cut back, hoping that fertilizer prices would soften. As a result, consumption fell below the recent growth trend.

	Potash				Nitrogen				Phosphate
	2006		2005		2006		2005		2006		2005
Total World Demand10 (Million Product Tonnes)		48.2		51.3		149.2		146.4		61.8		61.6
PotashCorp Share of World Production11		15%		17%		2%		2%		6%		6%

10-11, See Appendix — Footnotes, Page 89

4	Extended China/India Negotiations, Strong Brazilian Currency, High Input Costs Temporarily Reduce Potash Imports
	Price negotiations between China and India and their major suppliers stretched from November 2005 to July 2006. During this period, imports by these countries were down sharply. Brazil’s imports were also down from its 2004 record as its strengthening currency reduced farmers’ margins on soybeans sold into the international market in US dollars.

US imports fell because the agricultural sector put off purchasing in hopes that prices would fall, while high fuel costs and low crop prices reduced application rates.

As a result, world potash sales were down by 6 percent.

5	World Grain Consumption Exceeds Production
	World demand for grain grew in 2006 while production fell, due to adverse weather in several regions and less-than-optimal fertilization. By the end of the current crop year, wheat and coarse grain inventories are expected to be just 15 percent of world consumption, less than two months’ supply — the lowest level ever recorded by USDA. However, the simultaneous long

24          POTASHCORP 2006 FINANCIAL REVIEW / MD&A » FACTORS THAT SHAPED 2006 BUSINESS CONDITIONS

	decline in stocks-to-use ratios for corn, wheat and rice appears to have reached the point at which prices rise enough to encourage farmers to grow more. The spinoff effect of three crops competing for additional acres is strengthening prices for other crops such as soybeans, where acreage is projected to decline.
6	Biofuel Production Accelerates
	High oil prices and strong demand for transportation fuels boosted the economics for biofuel production in 2006 and it accelerated around the world, led by the US, Brazil and China. Ethanol production consumed 17 percent of the corn grown in the US in 2006 and over half of Brazil’s sugar cane crop.

7	US Crop Prices Strengthened Substantially
	Declining global crop inventories, poor weather and rising demand for corn for biofuel production all combined to push up US prices for wheat and corn. For the first time since 1996, US farm gate wheat prices climbed above $4.50 per bushel, while corn prices exceeded $3.00 per bushel.

8	Uralkali Flooding Tightens Potash Supply/Demand Balance
	In late October, water began flowing into Uralkali’s Berezniki 1 mine, reportedly due to a failure of the water-protective strata surrounding the potash beds. When the inflow reached 1,200 cubic meters per hour (5,300 US gallons per minute) in late October, the mine, which had limited remaining ore reserves, was abandoned.
	Following the flooding loss of Berezniki 1, Uralkali reduced its production plan for 2007 by 1.2 million tonnes. With most global producers operating near capacity by year-end, the absence of its product tightened the supply/demand balance.
9	US DAP Exports Continue to Fall
	US DAP exports fell in 2006, continuing a trend begun in 1999 when offshore capacity started to grow. Although India’s total imports remained strong at 2.8 million tonnes, Pakistan was down 500,000 tonnes and China 350,000 tonnes. As a result, US exports fell to 47 percent of world trade.

10	Feed, Industrial Phosphates Demand Up
	The global market for feed and industrial phosphates grew by 4 percent in 2006. Feed product prices strengthened in both domestic and offshore markets.
11	Europe Became the Nitrogen Swing Supplier
	Natural gas prices rose in the EU with oil prices and were higher than in the US. This forced European nitrogen producers to curtail production as their cash costs approached or exceeded world ammonia prices. The EU became the marginal world ammonia producer, the swing supplier. In the US, the ammonia supply/demand balance remained tight, supporting prices. Nitrogen imports were down as the EU competed for products from low-cost gas regions.

POTASHCORP 2006 FINANCIAL REVIEW / MD&A » 2006 FINANCIAL OVERVIEW          25

2006 FINANCIAL OVERVIEW

This section provides an overview of our financial performance based on our consolidated financial statements on Pages 56 to 58. All references to per-share amounts pertain to diluted net income per share (EPS). Certain of the prior years’ figures have been reclassified to conform with the current year’s presentation.

	Dollars (millions, except per-share amounts)						% Increase (Decrease)
	2006		2005		2004		2006			2005
Sales	$	3,766.7	$	3,847.2	$	3,244.4		(2	)		19
Gross Margin	$	1,002.0	$	1,125.0	$	681.4		(11	)		65
Operating Income	$	875.5	$	892.6	$	514.3		(2	)		74
Net Income	$	631.8	$	542.9	$	298.6		16			82
Net Income per Share — Diluted	$	5.95	$	4.89	$	2.70		22			81

  2006 Earnings Compared to Guidance

  2006 Earnings Compared to 2005

The company’s initial midpoint estimate for 2006 EPS, based on the Outlook and assumptions described in our 2005 Annual Report, was approximately $5.75 per share. The final result was $5.95 per share. The primary causes of this variance from our guidance midpoint were:

	Effect
Cause	on EPS
Potash realized prices lower	$	(0.35	)
Potash volumes lower		(0.63	)
Increased potash costs		(0.21	)
Lower provincial mining taxes		0.29
Subtotal potash		(0.90	)
Lower nitrogen realized prices (exclusive of purchased product)		(0.18	)
Cost of natural gas lower		0.57
Lower gain on natural gas hedges		(0.07	)
Nitrogen costs higher (exclusive of cost of natural gas and purchased ammonia) and volumes lower		(0.20	)
Subtotal nitrogen		0.12
Phosphate realized prices higher		0.08
Increased input costs for rock, lower input costs for ammonia		(0.05	)
Phosphate other costs higher, higher phosphate sales volumes		(0.17	)
Subtotal phosphate		(0.14	)
Increase in other income		0.12
Increase in selling and administrative		(0.08	)
Foreign exchange and interest expense variance		0.10
Subtotal other		0.14
Subtotal of the above		(0.78	)
Higher weighted averaged number of shares outstanding		(0.01	)
Income tax refunds received during 2006		0.32
Canadian federal and provincial income tax rate reductions during 2006		0.42
Change in effective annual income tax rate from 33 percent to 30 percent		0.25
Total variance from 2006 diluted EPS guidance	$	0.20

The company’s EPS for 2005 was $4.89 per share. The final EPS for 2006 was $5.95 per share. The primary causes of this increase from last year’s actuals were:

	Effect
Cause	on EPS
Potash offshore realized prices lower	$	(0.12	)
Potash North American realized prices higher		0.20
Increased potash costs due to foreign exchange		(0.16	)
Increased potash costs along with lower potash sales volumes		(0.80	)
Lower provincial mining taxes		0.43
Subtotal potash		(0.45	)
Increased nitrogen realized prices (exclusive of purchased product)		0.14
Cost of natural gas lower		0.21
Nitrogen costs higher (exclusive of cost of natural gas and purchased ammonia)		(0.33	)
Purchased product margin lower		(0.07	)
Lower manufactured nitrogen sales volumes		(0.12	)
Higher gain on natural gas hedges and purchased product margin		0.15
Subtotal nitrogen		(0.02	)
Phosphate realized prices higher		0.55
Increased input costs for ammonia, sulfur and rock		(0.51	)
Phosphate sales volumes higher		0.12
Subtotal phosphate		0.16
Increase in other income		0.19
Increase in selling and administrative		(0.08	)
Foreign exchange variance and increase in interest expense		0.08
Subtotal other		0.19
Subtotal of the above		(0.12	)
Reduction in weighted average number of shares outstanding		0.25
Income tax refunds received during 2006		0.31
Canadian federal and provincial income tax rate reductions during 2006		0.40
Change in effective annual income tax rate from 33 percent to 30 percent		0.22
Total variance from 2005 diluted EPS	$	1.06

 
 

26           POTASHCORP 2006 FINANCIAL REVIEW / MD&A » POTASH RESULTS

BUSINESS SEGMENT REVIEW

We report our results of operations in three business segments: potash, nitrogen and phosphate. These business segments are differentiated by the chemical nutrient contained in the product that each produces. Our reporting structure reflects how we manage our business and how we classify our operations for planning and measuring performance.

We include net sales in our segment disclosures in the consolidated financial statements pursuant to Canadian generally accepted accounting principles (Canadian GAAP), which requires segmentation based upon our internal organization and reporting of revenue and profit measures derived from internal accounting methods. Net sales (and the related per-tonne amounts) are primary revenue measures we use and review in making decisions about operating matters on a business segment basis. These decisions include assessments about potash, nitrogen and phosphate performance and the resources to be allocated to these segments. We also use net sales (and the related per-tonne amounts) for business planning and monthly forecasting. Net sales are calculated as sales revenues less freight, transportation and distribution expenses.

Our discussion of segment operating performance is set out below and includes nutrient product and/or market performance where applicable to give further insight into these results.

POTASH RESULTS

							% Increase												% Increase												% Increase
	Dollars (millions)						(Decrease)						Tonnes (thousands)						(Decrease)						Average Price per Tonne						(Decrease)
	2006		2005		2004		2006			2005			2006		2005		2004		2006			2005			2006		2005		2004		2006			2005
Sales	$	1,227.5	$	1,341.1	$	1,056.1		(8	)		27
Freight		130.5		129.7		128.7		1			1
Transportation and distribution		38.8		34.5		32.6		12			6
	$	1,058.2	$	1,176.9	$	894.8		(10	)		32
Net sales
North American	$	470.5	$	495.6	$	347.5		(5	)		43			2,785		3,144		3,246		(11	)		(3	)	$	168.95	$	157.64	$	107.06		7			47
Offshore		576.0		668.3		504.6		(14	)		32			4,411		5,020		5,030		(12	)		—		$	130.56	$	133.13	$	100.33		(2	)		33
		1,046.5		1,163.9		852.1		(10	)		37			7,196		8,164		8,276		(12	)		(1	)	$	145.42	$	142.56	$	102.97		2			38
Miscellaneous products		11.7		13.0		42.7		(10	)		(70	)		—		—		—		—			—			—		—		—		—			—
		1,058.2		1,176.9		894.8		(10	)		32			7,196		8,164		8,276		(12	)		(1	)	$	147.05	$	144.16	$	108.12		2			33
Cost of goods sold		497.1		469.5		472.0		6			(1	)													$	69.08	$	57.51	$	57.03		20			1
Gross Margin	$	561.1	$	707.4	$	422.8		(21	)		67														$	77.97	$	86.65	$	51.09		(10	)		70

Note 18 to the consolidated financial statements provides information pertaining to our business segments.

2006 vs 2005

Highlights

• PotashCorp entered 2006 with potash shipments to China at a virtual standstill as its fertilizer buyers negotiated price with suppliers. India followed the same course — and both countries deferred purchases, drawing down inventories until price settlements were reached in the third quarter. The China

 Potash gross margin variance attributable to:

Dollars (millions)
				2006 vs 2005
				Change in Prices/Costs							Total Gross
	Change in							Cost of			Margin
	Sales Volumes				Net Sales			Goods Sold			Variance
North American	$	(40.6	)		$	31.6		$	(8.4	)	$	(17.4	)
Offshore		(56.8	)			(11.2	)		(61.6	)		(129.6	)
Other1		(2.8	)			0.4			3.1			0.7
Total	$	(100.2	)		$	20.8		$	(66.9	)	$	(146.3	)

¹ Includes change in product mix.

agreement called for a base price increase of $25 per tonne over the 2005 contract price. The signing of the China deal served to spur shipments across Southeast Asia and Latin America, where customers had delayed purchasing ahead of the price settlement. Offshore sales volumes increased in the latter half of the year, but still annual sales volumes were 12 percent lower than 2005.

• North American potash demand was constrained during the first three quarters of the year as customers delayed purchasing and relied on inventories in the face of high fuel costs and low crop prices.

• Reduced sales volumes raised the per-tonne fixed distribution costs for the year and, combined with softening prices due to extended contract negotiations, resulted in declining margins on offshore potash sales in 2006. Though North American sales volumes were down 11 percent compared to 2005, realized prices were 7 percent higher.

POTASHCORP 2006 FINANCIAL REVIEW / MD&A » POTASH RESULTS          27

• Following our strategy of producing to meet market demand increased our costs per tonne during 2006. We incurred 66 plant shutdown weeks, up from 24 weeks during 2005. In response to increased demand in the latter part of the year, PotashCorp produced a record 2.4 million tonnes during the fourth quarter, raising 2006 production to 7.0 million tonnes, down from 8.8 million tonnes in 2005.

• PotashCorp’s inventories at the end of the year were reduced to 0.9 million tonnes from a high of 1.4 million tonnes at mid-year.

Sales and Cost of Goods Sold

The most significant contributors to the $146.3-million decline in gross margin were as follows:

• Sales by Canpotex were reduced from 8.2 million to 6.7 million tonnes, contributing to the 12-percent decline in our offshore sales volumes. Canpotex shipments to China and India totalled 2.0 million tonnes, down 40 percent from the 3.3 million tonnes shipped in 2005. Except for certain shipments from Russia, China was virtually absent from the market until late in July 2006 as it waited to conclude new pricing contracts with suppliers. Brazil took approximately 1.0 million tonnes of potash from Canpotex in 2006, a reduction of 4 percent from 2005, although taking 30 percent more potash in fourth-quarter 2006 than in fourth-quarter 2005. Brazil continued to be affected by a strong real relative to the US dollar and lower soybean prices. This pressured margins for Brazilian farmers and limited credit availability, leading to fewer acres being planted and a decrease in imported crop inputs. Hesitancy to purchase large positions in potash until conclusion of the Chinese negotiations led Brazilian customers to delay purchases. Following the negotiations and coupled with improving market conditions, Brazil’s volumes increased sharply. Sales volumes in 2006 increased to many smaller potash-consuming countries such as Indonesia, Malaysia, the Philippines, Taiwan and Vietnam, which together took 1.7 million tonnes from Canpotex, an increase of 20 percent over 2005.

• North American sales volumes dropped for the year despite a rebound in the fourth quarter. First- and second-quarter reductions resulted from reduced field applications due to

low crop prices, high energy input costs and, to a lesser degree, weather. Sales volumes were relatively flat in the third quarter; however, with demand growing and record-low inventories, prices for many crops — including corn, wheat and soybeans — began to rise significantly, giving farmers the motivation and the resources to boost their fertilizer use. Consequently, we shipped record potash volumes in the fourth quarter (0.85 million tonnes).

• Realized prices in the offshore market were negatively impacted initially by higher per-unit throughput distribution costs resulting from the reduced sales volumes. Higher prices were realized during the latter part of the year as potash flowing to China through Canpotex was at the higher 2006 price. Realized prices were lower on sales to Brazil due to increased competition in the marketplace early in the year, though they rebounded strongly after completion of the price negotiations with China and India. Realized prices in the North American market were 7 percent higher as price increases announced during 2005 held

Despite a year of challenges in several markets, our overall potash prices rose by 2 percent in 2006, on top of healthy price increases in 2005. North American prices were up by 7 percent, while offshore prices fell by 2 percent.

Potash Production (million tonnes KCl)
					Production					Mine Site
	Capacity		2006			2005		2004		Employees
										(active)
Lanigan SK		3.828		1.471			2.023		2.025		402
Rocanville SK		3.044		1.897			2.573		1.833		343
Allan SK		1.885		.992			1.431		1.344		312
Cory SK		1.361		.772			.826		.738		224
Patience Lake SK		1.033		.190			.251		.239		66
Esterhazy SK1		.953		.953			.953		.953		—
New Brunswick NB		.785		.743			.759		.782		323
TOTAL		12.889		7.018			8.816		7.914		1,670

¹  PotashCorp’s mineral rights at Esterhazy are mined by Mosaic Potash Esterhazy Limited Partnership under a mining and processing agreement.
For calendar year 2007, our production allocation is 0.953 million tonnes.

28           POTASHCORP 2006 FINANCIAL REVIEW / MD&A » POTASH RESULTS / NITROGEN RESULTS

into the first half of 2006, but dropped off during the third quarter as higher producer inventories at the start of the quarter contributed to heightened competitive pressures. Prices increased in the fourth quarter as our North American price increase announced for October 1 began to be realized in November. Prices in the North American market were $38 per tonne, or 29 percent, higher than offshore prices. The gap between the two markets is due in part to offshore contracts lagging behind North American spot market increases. It also reflects product quality, as North American customers prefer granular product that commands a premium over standard product more typically consumed offshore.

• The change in gross margin was negatively impacted by higher cost of goods sold. Production shutdowns, higher depreciation charges due to completion of some of our expansion projects, higher natural gas prices earlier in the year and escalating prices for supplies and services throughout the year increased unit cost of goods sold. The impact of a stronger average Canadian dollar for most of the year also negatively impacted cost of goods sold, by over $3.50 per tonne.

2005 vs 2004

The most significant factors contributing to the $284.6-million increase in gross margin were:

• Price increases were achieved in all markets due to strong demand for potash. North American realized prices rose 47 percent, or over $50 per tonne, due to product price increases effected throughout the year.

• World GDP grew by an estimated 4.3 percent in 2005, led by countries such as China and India. This contributed to strong potash demand from these key offshore customers. Canpotex sold record volumes during 2005 as its sales to India and China

rose 53 percent and 32 percent, respectively. This was partially offset by a decline in sales volumes to Brazil, as well as Indonesia, Malaysia and Vietnam, which all experienced significant drought during the year. In Brazil, our largest purchasing country in 2004, a strong currency, weak soybean prices and tighter agricultural credit negatively affected consumption. Despite the record sales volumes of 8.2 million tonnes achieved by Canpotex (2004 — 7.8 million tonnes), of which we supplied 54 percent, our total offshore sales volumes were below 2004 due to Brazil’s lower imports from our New Brunswick operation. Sales to China represented 26 percent of our offshore sales volumes, while Brazil represented 17 percent and India 10 percent.

• Saskatchewan competitors were product-constrained throughout most of the year. As a result, we were able to supply a greater portion of the North American market. The North American potash market took 12 percent fewer tonnes during 2005 because a sharp spike in energy costs combined with low crop commodity prices led dealers to step back from the fertilizer market in the fall after a strong first half. Our North American sales volumes for the year were still 3.1 million tonnes, only 3 percent lower than 2004.

• PotashCorp produced a record 8.8 million tonnes of potash in 2005. The expansion at Rocanville and additional shifts at Lanigan and Allan early in the year increased production from 7.9 million tonnes in 2004 and resulted in economies of scale and higher operating efficiencies. Costs on a per-tonne basis rose 1 percent from the prior year, due to higher energy costs and the economic impact of a stronger Canadian dollar. A decline in the US dollar compared to the Canadian dollar during 2005 negatively impacted cost of goods sold by over $3.00 per tonne.

NITROGEN RESULTS

							% Increase												% Increase												% Increase
	Dollars (millions)						(Decrease)						Tonnes (thousands)						(Decrease)						Average Price per Tonne						(Decrease)
	2006		2005		2004		2006			2005			2006		2005		2004		2006			2005			2006		2005		2004		2006			2005
Sales	$	1,284.1	$	1,368.8	$	1,210.4		(6	)		13
Freight		36.8		39.9		38.1		(8	)		5
Transportation and distribution		52.2		49.5		42.3		5			17
	$	1,195.1	$	1,279.4	$	1,130.0		(7	)		13
Net sales Ammonia	$	499.7	$	490.0	$	458.0		2			7			1,695		1,672		1,776		1			(6	)	$	294.84	$	293.05	$	257.85		1			14
Urea		317.8		369.5		259.1		(14	)		43			1,199		1,321		1,165		(9	)		13		$	264.97	$	279.63	$	222.44		(5	)		26
Nitrogen solutions, nitric acid, ammonium nitrate		305.4		284.2		239.2		7			19			1,781		1,850		1,797		(4	)		3		$	171.45	$	153.67	$	133.13		12			15
Purchased		43.7		109.9		151.5		(60	)		(27	)		145		377		612		(62	)		(38	)	$	301.92	$	291.28	$	247.66		4			18
		1,166.6		1,253.6		1,107.8		(7	)		13			4,820		5,220		5,350		(8	)		(2	)	$	242.03	$	240.15	$	207.07		1			16
Miscellaneous		28.5		25.8		22.2		10			16			—		—		—		—			—			—		—		—		—			—
		1,195.1		1,279.4		1,130.0		(7	)		13			4,820		5,220		5,350		(8	)		(2	)	$	247.93	$	245.09	$	211.23		1			16
Cost of goods sold		879.5		960.7		887.2		(8	)		8														$	182.45	$	184.04	$	165.84		(1	)		11
Gross Margin	$	315.6	$	318.7	$	242.8		(1	)		31														$	65.48	$	61.05	$	45.39		7			35

Note 18 to the consolidated financial statements provides information pertaining to our business segments.

POTASHCORP 2006 FINANCIAL REVIEW / MD&A » NITROGEN RESULTS          29
 

 Nitrogen gross margin variance attributable to:

Dollars (millions)
				2006 vs 2005
				Change in Prices/Costs							Total Gross
	Change in							Cost of			Margin
	Sales Volumes				Net Sales			Goods Sold			Variance
Ammonia	$	2.8			$	4.0		$	(17.0	)	$	(10.2	)
Urea		(14.6	)			(17.7	)		(1.1	)		(33.4	)
Solutions, NA, AN		(2.7	)			32.2			(1.8	)		27.7
Purchased		(7.6	)			1.5			(3.0	)		(9.1	)
Hedge gains		—				—			24.9			24.9
Other1		0.9				(4.5	)		0.6			(3.0	)
Total	$	(21.2	)		$	15.5		$	2.6		$	(3.1	)

¹ Includes change in product mix.

2006 vs 2005

Highlights

• Rising global natural gas prices led to nitrogen production curtailments, particularly in Western Europe, and high prices overseas in 2006. With higher ocean freight also a factor, less nitrogen from Baltic and Arab Gulf producers found its way to the US, reducing competitive pressures in North America.

• North American natural gas spot prices dropped significantly throughout 2006 compared to the high levels seen in late 2005 during the aftermath of hurricanes in the US Gulf region, which negatively affected realized prices. However, ammonia and urea prices strengthened significantly later in the year as heightened demand and tight global supply conditions led to a decoupling from US natural gas costs. Natural gas costs (exclusive of the benefit of our North American hedging program) were 8 percent lower than in 2005, while realized ammonia prices were 1 percent higher and realized urea prices 5 percent lower.

• Our Trinidad facility, which benefits from long-term, lower-cost natural gas price contracts, delivered $182.5 million (or 58 percent) of nitrogen gross margin for the year. Our US operations contributed $59.6 million in gross margin, and we gained $73.5 million from our natural gas hedges during the year.

• In September 2006, PotashCorp elected to permanently discontinue ammonia and urea production at Memphis, Tennessee. The plant had been put into indefinite shutdown mode in June 2003 as high natural gas costs were eroding nitrogen fertilizer margins. There was no material financial statement impact resulting from these changes.

Sales and Cost of Goods Sold

Gross margin declined $3.1 million, primarily as a result of the following changes:

• High natural gas prices that were sustained at more than $13 per MMBtu during the fourth quarter of 2005 caused ammonia prices to climb rapidly in late 2005 and led to industry production curtailments, tightening market supply. Though North American natural gas spot prices dropped significantly during the first half

of 2006, ammonia and urea prices continued to exceed 2005 levels until the third quarter. Tight global supply conditions led to nitrogen prices decoupling from gas costs through the second half of 2006, but fourth-quarter ammonia and urea prices were lower compared to the peaks reached in fourth-quarter 2005 when the aftermath of Hurricane Katrina was still affecting natural gas costs. Realized annual ammonia prices were 1 percent higher than in 2005 though urea prices were 5 percent lower. Realized prices for nitric acid and ammonium nitrate generally followed the rise in ammonia prices. Higher ammonium nitrate realized prices contributed a favorable $29.6 million to the change in gross margin as a result of our customer contracts tied to either natural gas prices or the NOLA ammonia price, but on a quarterly time-lag basis.

• Total nitrogen sales volumes declined by 8 percent. Nitrogen fertilizer sales represented the majority of this drop, down 23 percent primarily due to mechanical production problems and gas input supply constraints. We sold less purchased product in 2006, as less product was available in the market due to offshore production being redirected to Europe in search of higher netbacks.

• Cost of goods sold declined on a per-tonne basis, positively contributing to the change in gross margin by $2.6 million. Higher natural gas costs earlier in 2006 curtailed production at Augusta and Lima. Mechanical problems at Lima also limited its production in the second and third quarters. Finally, reduced production at our 01 and 02 plants in Trinidad due to additional plant turnarounds related to debottlenecking projects increased costs. These were partially offset by lower natural gas costs later in the year. Natural gas costs continue to be the single most important contributor to cost of goods sold, typically representing between 75 percent and 90 percent of the cash cost of producing one tonne of ammonia. The company’s total average natural gas cost, including the benefit of our hedge and lower-cost Trinidad gas contracts, was $3.83 per MMBtu, 14 percent lower than in 2005. Our US natural gas hedging activities contributed $73.5 million to gross margin, compared to $48.6 million last year.

2005 vs 2004

The most significant factors impacting the nitrogen segment and contributing to the $75.9-million increase in gross margin were the following:

• Hurricanes that struck the US Gulf region during 2005 and cold weather late in the year led to high US natural gas prices during the fourth quarter. This caused ammonia prices to climb rapidly late in 2005 and led North American producers to curtail half of their ammonia operating capacity by year-end, tightening market supply.

• Urea realized prices increased 26 percent due to tighter supply/demand fundamentals in world trade, as higher natural gas prices caused further US nitrogen curtailments and China’s

30          POTASHCORP 2006 FINANCIAL REVIEW / MD&A » NITROGEN RESULTS

export taxes reduced its urea exports by over 2 million tonnes compared to 2004. Realized prices for ammonia grew by 14 percent as a result of the high gas costs and production curtailments in the US. Tight supply led to increased ammonia imports that were subject to high freight rates which further influenced prices. The rise in realized prices for ammonia and urea favorably impacted margins due to our long-term, lower-cost natural gas price contracts in Trinidad. Our Trinidad facility provided $217.1 million of 2005 gross margin and contributed 68 percent of nitrogen gross margin, compared to $145.3 million, or 60 percent, in 2004. Realized prices for nitrogen solutions, nitric acid and ammonium nitrate generally followed the rise in ammonia and urea prices, as a number of our customer contracts are tied to either natural gas prices or the NOLA ammonia price.

• Cost of goods sold increased 11 percent per tonne. Higher natural gas costs, which led to production curtailments at Augusta and Lima during the fourth quarter of 2005, were partially offset by increased production at our Trinidad operation. Our total average natural gas cost, including the benefit of the natural gas hedges and our lower-cost Trinidad gas contracts, was $4.46 per MMBtu in 2005, 20 percent higher than in 2004. Our North American natural gas hedging activities contributed $48.6 million to gross margin, compared to $43.0 million in 2004.

• The major debottlenecking projects at our 03 and 04 Trinidad plants were completed during the year, resulting in additional ammonia production capacity.

Nitrogen prices fell from the high levels of 2005 as US natural gas prices dropped, but strengthened later in the year when they decoupled from gas prices. Our overall nitrogen prices were up by 1 percent, with the highest increases in nitric acid and ammonium nitrate.

Nitrogen Production (million tonnes)
	Ammonia1									Urea Solids										Nitrogen Solutions2
	Annual			Production						Annual			Production							Annual			Production
	Capacity			2006		2005		2004		Capacity			2006		2005		2004			Capacity			2006		2005		2004
Trinidad4		2.177			1.932		1.887		1.837		.709			.688		.748		.619			—			—		—		—
Augusta GA5		.688			.633		.655		.665		.381			.318		.360		.368			.581			.197		.242		.225
Lima OH6		.588			.339		.382		.460		.329			.186		.225		.238			.227			.071		.079		.104
Geismar LA7		.483			—		—		—		—			—		—		—			1.028			.098		.118		—
TOTAL		3.936	8		2.904		2.924		2.962		1.419	8		1.192		1.333		1.225			1.836			.366		.439		.329
	Nitric Acid1,3									Ammonium Nitrate Solids
	Annual				Production					Annual				Production					Employees
	Capacity			2006		2005		2004		Capacity			2006		2005		2004			Active
Trinidad		—			—		—		—		—			—		—		—			410
Augusta GA		.541			.529		.518		.544		.538			.536		.503		.544			118
Lima OH		.100			.098		.098		.103		—			—		—		—			6	9
Geismar LA		.844			.531		.568		.521		—			—		—		—			59
TOTAL		1.485			1.158		1.184		1.168		.538			.536		.503		.544			593	10

1	A substantial portion is upgraded to value-added products.
2	Based on 32% N content.
3	As 100% HNO3 tonnes.
4	Capital project expansion raised ammonia capacity by 170,000 tonnes.
5	Ammonium nitrate solids capacity increased by 26,000 tonnes.
6	Ammonia capacity increased by 38,000 tonnes.

7	Indefinitely shut down production of ammonia and nitrogen solutions June 4, 2003; restarted nitrogen solutions production on September 15, 2005.
8	Memphis plant permanently discontinued production in September 2006, reducing total ammonia capacity by 371,000 tonnes and total urea solids capacity by 409,000 tonnes.
9	INEOS USA LLC operates the Lima facility under an operational agreement with PCS Nitrogen.
10	487 contract employees work at the nitrogen plants, for a total active workforce of 1,080.

POTASHCORP 2006 FINANCIAL REVIEW / MD&A » PHOSPHATE RESULTS          31

PHOSPHATE RESULTS

							% Increase										% Increase												% Increase
	Dollars (millions)						(Decrease)				Tonnes (thousands)						(Decrease)						Average Price per Tonne						(Decrease)
	2006		2005		2004		2006		2005		2006		2005		2004		2006			2005			2006		2005		2004		2006		2005
Sales	$	1,255.1	$	1,137.3	$	977.9		10		16
Freight		88.5		80.1		71.9		10		11
Transportation and distribution		43.1		37.9		29.4		14		29
	$	1,123.5	$	1,019.3	$	876.6		10		16
Net sales Fertilizer – liquids	$	240.6	$	208.2	$	147.3		16		41		1,017		931		704		9			32		$	236.53	$	223.68	$	209.17		6		7
Fertilizer – solids		391.6		346.7		324.7		13		7		1,634		1,516		1,590		8			(5	)	$	239.64	$	228.60	$	204.16		5		12
Feed		239.2		221.0		190.6		8		16		780		860		888		(9	)		(3	)	$	306.69	$	256.96	$	214.78		19		20
Industrial		239.7		231.2		204.1		4		13		647		664		611		(3	)		9		$	370.42	$	348.12	$	334.09		6		4
		1,111.1		1,007.1		866.7		10		16		4,078		3,971		3,793		3			5		$	272.46	$	253.61	$	228.50		7		11
Miscellaneous		12.4		12.2		9.9		2		23		—		—		—		—			—			—		—		—		—		—
		1,123.5		1,019.3		876.6		10		16		4,078		3,971		3,793		3			5		$	275.48	$	256.66	$	231.11		7		11
Cost of goods sold		998.2		920.4		860.8		8		7													$	244.75	$	231.75	$	226.94		6		2
Gross Margin	$	125.3	$	98.9	$	15.8		27		526													$	30.73	$	24.91	$	4.17		23		497

Note 18 to the consolidated financial statements provides information pertaining to our business segments.

 Phosphate gross margin variance attributable to:

Dollars (millions)
				2006 vs 2005
	Change			Change in Prices/Costs							Total Gross
	in Sales							Cost of			Margin
	Volumes				Net Sales			Goods Sold			Variance
Fertilizer — liquids	$	19.0			$	13.5		$	(20.4	)	$	12.1
Fertilizer — solids		12.7				17.8			(41.2	)		(10.7	)
Feed		(2.2	)			38.8			(3.8	)		32.8
Industrial		(3.5	)			14.5			(19.0	)		(8.0	)
Other1		7.4				(7.5	)		0.3			0.2
Total	$	33.4			$	77.1		$	(84.1	)	$	26.4

¹  Includes change in product mix.

2006 vs 2005

Highlights

• In 2006, phosphate generated $125.3 million in gross margin, 27 percent higher than the $98.9 million in 2005. Phosphate gross margin was negatively impacted by a $6.3-million writedown of assets at Geismar during 2006.

• Price increases were realized in all major product categories, in response to continuing high input costs and reasonably tight supply/demand fundamentals.

• Specialty products remained the foundation of our phosphate business, proving their value as stable, higher margin businesses. Feed and industrial products contributed $55.1 million and $46.3 million of 2006 gross margin, respectively, while liquid fertilizer, which was directly impacted by the above-mentioned writedown, added $27.1 million for the year after the writedown. Within industrial, purified phosphoric acid was again the most profitable product, generating gross margin of $47.3 million for the year, representing 27 percent of net sales.

Sales and Cost of Goods Sold

• Higher prices realized in the feed and fertilizer markets, due to tight industry fundamentals, were supplemented by industrial price increases implemented in 2005 that held through 2006. Higher feed prices implemented as a result of a strong pricing stance over volumes contributed $38.8 million to the gross margin increase. Of this increase, Monocal represented $22.6 million due to higher realized prices achieved in both the North American and offshore markets. Fertilizer prices contributed positively to the change in gross margin due to stronger demand.

• Sales volumes were relatively flat, though there was a change in product mix. Fertilizer sales volumes improved, contributing $31.7 million to the change in gross margin, as supply/demand fundamentals were strong. This was partially offset by a 9-percent decline in feed sales volumes resulting from our decision to remain firm on pricing and reduce sales of lower margin products, and a 3-percent decline in industrial sales volumes due to reduced market demand.

• The price variance in cost of goods sold negatively impacted the change in gross margin by $84.1 million, primarily due to higher raw material costs and a change in product mix. However, 8 percent higher sulfur prices and 7 percent higher ammonia prices combined to reduce gross margin by $11.4 million and $8.1 million, respectively. Phosphate rock costs were up 5 percent as a result of higher costs for purchased rock at Geismar and higher electrical and chemical processing costs at Aurora and White Springs. The writedown of assets, a change in product mix (requiring more ammonia to be used), higher depreciation charges and escalating prices for supplies and services throughout the year further increased costs.

32          POTASHCORP 2006 FINANCIAL REVIEW / MD&A » PHOSPHATE RESULTS

2005 vs 2004

The $83.1-million improvement in gross margin was largely attributable to the following sales and cost of goods sold components:

• Higher-margin industrial phosphate products represented 55 percent of phosphate gross margin at $54.3 million in 2005, compared to $47.7 million in 2004, when all other major product categories saw negative gross margins.

• Increased export demand, industry curtailments, higher ammonia and sulfur input costs and the closure of a competitor’s plant led to price increases in all major product categories. In feed, we benefited from tighter North American supplies and higher prices. Realized prices for solid fertilizers were up as demand in India and Pakistan increased during 2005. As well, industry curtailments and production cutbacks in the US during the latter part of 2005 (resulting from the continuing effects of Hurricanes Katrina and Rita and the closure of US Chem’s plant) led to reduced supply. Liquid phosphate fertilizers benefited from strong demand, resulting in higher realized prices. Price increases for liquid fertilizers in

the Indian market were a major contributor to overall favorable offshore price realizations, but higher prices in the North American market were also achieved.

• Liquid fertilizer sales volumes were 32 percent higher as the benefit of the first full year of an MGA contract with India was realized. These volumes were partially offset by declines in solid fertilizer volumes as reduced demand in Brazil more than offset higher Pakistan and India purchases. The decline in solid fertilizer volumes positively impacted gross margin as the products for which sales declined were lower margin products.

• Cost of goods sold rose by $59.6 million. Although a 7-percent increase in phosphoric acid production levels allowed us to benefit from operating rate efficiencies, we experienced an unfavorable price variance of $52.6 million due to increases in chemical, reagent and energy costs, as well as higher fixed costs (primarily fringe benefits and accretion expense associated with asset retirement obligations). Additionally, raw material input costs for ammonia and sulfur increased by 10 percent and 3 percent, respectively. The cost and availability of both of these inputs were negatively impacted by the hurricanes.

Purified Acid Production (million tonnes P₂O₅)

	Annual		Production
	Capacity	2006	2005	2004
Aurora NC	.3331	.245	.248	.246

¹  Reflects an 82,000-tonne expansion as of July 1, 2006.

Purified acid is a feedstock for production of downstream industrial products such as metal brighteners, cola drinks and pharmaceuticals.

Phosphate Feed Production (million tonnes)

	Annual				Production				Employees
	Capacity		2006		2005		2004		(active)
Marseilles IL		.278		.119		.127		.138		25
White Springs FL (Monocal)		.272		.212		.190		.126		26
Weeping Water NE		.209		.117		.119		.122		33
Joplin MO		.163		.082		.080		.087		24
Aurora NC (DFP)		.159		.085		.115		.079		28
White Springs FL (DFP)1		.100		—		.044		.086		—
Fosfatos do Brasil		.110		.049		.076		.075		90
TOTAL		1.291		.664		.751		.713		226

¹  Ceased production July 31, 2005.

Prices for all our phosphate products rose in 2006, with tight fundamentals pushing feed up by almost $50 a tonne, or 19 percent, and fertilizers by 5-6 percent. Feed and industrial products contributed 81 percent of phosphate gross margin.

Rock and Acid Production

	Phosphate Rock Production (million tonnes)								Phosphoric Acid (million tonnes P2O5)
	Annual				Production				Annual				Production				Employees
	Capacity		2006		2005		2004		Capacity		2006		2005		2004		(active)
Aurora NC		6.000		4.577		4.417		3.964		1.202		1.080		1.048		1.018		1,011
White Springs FL		3.600		3.114		3.186		2.745		.966		.881		.865		.773		860
Geismar LA		—		—		—		—		.202		.147		.184		.171		75
TOTAL		9.600		7.691		7.603		6.709		2.370		2.108		2.097		1.962		1,946

POTASHCORP 2006 FINANCIAL REVIEW / MD&A » PHOSPHATE RESULTS / EXPENSES & OTHER INCOME          33

Phosphate Production (million tonnes product)

		Aurora									White Springs									Geismar
		Annual			Production						Annual			Production						Annual			Production
		Capacity			2006		2005		2004		Capacity			2006		2005		2004		Capacity			2006		2005		2004
Liquids:	MGA1		1.835			1.722		1.697		1.687		1.908			.843		.879		.858		.337			.241		.304		.282
	SPA		.676			.353		.149		.224		1.138			.655		.719		.569		.196			.015		.059		.086
Solids (total)			1.247	DAP		.609		.495		.472		.710	DAP		.495		.477		.575		—	DAP		—		—		—
				MAP		.372		.413		.525			MAP		.159		.172		.091			MAP		—		—		—
				Total		.981		.908		.997			Total		.654		.649		.666			Total		—		—		—

¹  A substantial portion is consumed internally in the production of downstream products. The balance is exported to phosphate fertilizer producers and sold domestically to dealers who custom-mix liquid fertilizer.

EXPENSES AND OTHER INCOME

	Dollars (millions), except percentage amounts															% Increase (Decrease)
	2006		% of Sales		2005			% of Sales		2004			% of Sales			2006			2005
Selling and administrative	$	158.4		4	$	144.5			4	$	130.6			4			10			11
Provincial mining and other taxes		66.5		2		137.2			4		92.6			3			(52	)		48
Foreign exchange gain (loss)		4.4		—		(12.5	)		—		(19.7	)		(1	)		n/m			(37	)
Other income		94.0		2		61.8			2		75.8			2			52			(18	)
Interest expense		85.6		2		82.3			2		84.0			3			4			(2	)
Income tax expense		158.1		4		267.4			7		131.7			4			(41	)		103

n/m = not meaningful

2006 vs 2005

Selling and administrative expenses increased as higher expenses associated with certain of our performance-based compensation plans (which are linked in part to the company’s share price performance), higher stock option expense (as costs associated with both the 2005 and 2006 Performance Option Plans were recognized during 2006 compared to only the 2005 Performance Option Plan during 2005) and increased corporate amortization costs were incurred during 2006.

Provincial mining and other taxes declined 52 percent in 2006 compared to 2005, principally due to decreases in the Saskatchewan Potash Production Tax and corporate capital tax. Saskatchewan’s Potash Production Tax is comprised of a base tax per tonne of product sold and an additional tax based on mine profits. The profits tax component declined significantly as a result of the deductibility of our capital expenditures to bring back idled potash capacity. This component, which is calculated on a per-tonne basis, was enhanced by high capital expenditures (which are grossed up by 20 percent for profits tax purposes) and 12 percent lower potash sales volumes. In addition, during the second quarter of 2006, the Province of Saskatchewan enacted changes to reduce the capital tax resource surcharge from 3.6 percent to 3 percent over the next three years, with a 0.3 percentage point reduction effective July 1, 2006.

Treasury activity and the year-end translation of Canadian dollar-denominated monetary items on the Consolidated Statement of Financial Position contributed to a net foreign exchange gain of

$4.4 million in 2006. The Canadian dollar gained strength against the US dollar over the first half of 2006, then weakened during the second half. The strengthening of the Canadian dollar relative to the US dollar during 2005 contributed to foreign exchange losses of $12.5 million last year.

Other income increased by $32.2 million as a $3.0-million dividend was received from Sinofert during 2006 and dividend income from our investment in ICL increased by $8.9 million compared to 2005. A reduction in loss on disposal of assets compared to that recognized during 2005 and a higher gain on sale of property, plant and equipment (including a $4.4-million gain on the sale of four of the company’s PCS Joint Venture Ltd. properties) further contributed to the increase. These were complemented by a slightly higher share of earnings from equity investees during 2006.

Including the current portion, weighted average long-term debt outstanding during 2006 was $1,296.7 million (2005 -$1,266.3 million) with a weighted average interest rate of 6.9 percent (2005 — 6.9 percent). The weighted average interest rate on short-term debt outstanding in 2006 was 5.2 percent (2005 - 3.5 percent) and the weighted average short-term debt outstanding was $518.8 million (2005 — $115.9 million). Though the average balance of short-term debt outstanding was higher at higher interest rates, the interest expense category increased only $3.3 million due to the impact of higher capitalized interest because of expansion and other projects and interest income recognized on income tax refunds received during 2006.

34          POTASHCORP 2006 FINANCIAL REVIEW / MD&A » EXPENSES & OTHER INCOME

The company’s consolidated reported income tax rate for 2006 was approximately 20 percent (2005 — 33 percent). The reduction was due to the following:

• During 2006, we reduced our consolidated effective income tax rate from 33 percent to 30 percent, primarily due to two factors that occurred during the year. First, the Province of Saskatchewan enacted changes to the corporate income tax, reducing the rate from 17 percent to 12 percent over the next three years. The impact of this change, reducing our future income tax liability by $21.9 million, was also recognized during the year. Second, we revised our estimated allocation of annual income before income taxes by jurisdiction as a result of a decrease in expected potash operating income in Canada.

• During 2006, the Government of Canada enacted changes to the federal corporate income tax and the corporate surtax. The corporate income tax rate will be reduced from 21 percent to 19 percent over the next four years and the corporate surtax will be reduced from 1.12 percent to nil in 2008. The $22.9-million impact of this change that reduced our future income tax liability was recognized during 2006.

• Income tax refunds totalling $34.1 million were recorded, relating to a recent Canadian appeal court decision (pertaining to a uranium producer) which affirmed the deductibility of the Saskatchewan capital tax resource surcharge.

The combination of income tax refunds received, changes in tax rates and lower operating income led to a decline in income tax expense of $109.3 million compared to 2005. For 2006, 60 percent of the effective rate pertained to current income taxes and 40 percent to future income taxes, aside from the impact of the aforementioned income tax refunds and the effect of the Canadian tax rate changes on the company’s future income tax liability recognized during the year. The decrease in the current tax provision from 85 percent last year is largely due to the significant decrease in potash operating income in Canada and the change in mix and levels of income earned in the company’s other tax jurisdictions.

2005 vs 2004

Selling and administrative expenses increased by $13.9 million over 2004, primarily as a result of the non-cash expense associated with performance stock options approved by the company’s shareholders and granted to employees in the second quarter of 2005 (none were granted in 2004). Total pre-tax stock option expense recorded in 2005 was $27.5 million, of which 81 percent pertained to selling and administrative expenses. This compared to $11.1 million in 2004, when 74 percent represented selling and administrative expenses. The remaining changes in selling and administrative expenses resulted largely from increased repair and maintenance activities, partially offset by reductions in other performance-based compensation due to movements in our share price.

Provincial mining and other taxes rose by $44.6 million, principally due to increased Saskatchewan Potash Production Tax and corporate capital tax. The profits tax component rose significantly, driven by 38 percent higher realized potash prices year over year.

The year-end translation of Canadian dollar-denominated monetary items on the Consolidated Statement of Financial Position contributed to a net foreign exchange loss of $12.5 million in 2005. The impact of the change in the Canadian dollar relative to the US dollar was not as significant for the year ended December 31, 2005 as it was in 2004, when a foreign exchange loss of $19.7 million was recognized.

Other income declined $14.0 million over 2004 despite an increase of $21.2 million in our share of earnings from equity investments in SQM and APC. The primary reason for the decline was that other income in 2004 included a $34.4-million gain on the sale of approximately 9.8 million shares of SQM.

Weighted average long-term debt outstanding in 2005 was $1,266.3 million (2004 — $1,269.5 million) with a weighted average interest rate of 6.9 percent (2004 — 6.9 percent). The weighted average interest rate on short-term debt outstanding was 3.5 percent (2004 — 1.4 percent). Despite the higher average interest rates on short-term debt, interest expense decreased by $1.7 million in 2005, largely due to the impact of higher average cash balances.

 IMPACT OF FOREIGN EXCHANGE

Because of the international nature of our operations, we incur costs and expenses in a number of foreign currencies other than the US dollar. The exchange rates covering such currencies have varied substantially over the last three years. The sharp decline in the US dollar has had a significant unfavorable impact on costs and expenses incurred in other currencies, which are translated into US dollars for financial reporting purposes. In Canada, our revenue is earned and received in US dollars while the cost base for our potash operations is in Canadian dollars. This results in higher translated expenses without any offsetting increase in revenues.

The following table shows the impact on net income if the 2006 exchange rate had remained at the 2005 year-end rate of 1.1659, and the impact on 2005 net income had the rate remained at the 2004 year-end rate of 1.2036:

Impact on net income	2006		2005
Dollars (millions), except per-share amounts
Operating income increase before income taxes	$	8.6	$	12.1
Net income increase		6.0		8.1
Diluted net income per share increase		0.06		0.07

A general description of our hedging activities to help mitigate volatility is outlined on Page 44.

POTASHCORP 2006 FINANCIAL REVIEW / MD&A » EXPENSES & OTHER INCOME / QUARTERLY RESULTS          35

Our effective consolidated income tax rate for 2005 was approximately 33 percent of income before income taxes. This compares to a rate of approximately 33 percent in 2004 when adjusted to reflect the non-taxable gain on the sale of SQM shares and the provision for PCS Yumbes. Income tax expense increased substantially over 2004, driven by the marked rise in operating

income. For the year, 85 percent of the effective rate pertained to current income taxes and 15 percent to future income taxes. The increase in the current portion of the current/future split from 80 percent in 2004 was principally due to the substantial rise in potash operating income in Canada.

QUARTERLY RESULTS AND REVIEW OF FOURTH-QUARTER PERFORMANCE

(unaudited, in millions of US dollars except per-share amounts)
	2006										2005
	Q1		Q2		Q3		Q4		Total		Q1		Q2		Q3		Q4		Total
Sales	$	861.6	$	928.7	$	953.5	$	1,022.9	$	3,766.7	$	921.4	$	1,057.3	$	938.0	$	930.5	$	3,847.2
Less: Freight		54.9		62.3		65.6		73.0		255.8		67.2		67.4		59.9		55.2		249.7
Transportation & distribution		31.2		35.8		37.6		29.5		134.1		28.9		32.1		29.8		31.1		121.9
Cost of goods sold		572.0		577.2		604.5		621.1		2,374.8		566.8		613.0		568.8		602.0		2,350.6
Gross margin		203.5		253.4		245.8		299.3		1,002.0		258.5		344.8		279.5		242.2		1,125.0
Operating income		192.1		194.7		223.2		265.5		875.5		216.7		265.7		214.9		195.3		892.6
Net income		125.5		175.1		145.2		186.0		631.8		131.3		164.2		130.3		117.1		542.9
Net income per share
— basic		1.21		1.69		1.40		1.78		6.08		1.18		1.50		1.20		1.11		5.00
Net income per share
— diluted		1.19		1.65		1.37		1.74		5.95		1.15		1.46		1.17		1.09		4.89
Potash gross margin		90.8		132.8		153.6		183.9		561.1		176.2		223.3		167.6		140.3		707.4
Nitrogen gross margin		79.4		91.7		62.4		82.1		315.6		65.3		99.4		79.7		74.3		318.7
Phosphate gross margin		33.3		28.9		29.8		33.3		125.3		17.0		22.1		32.2		27.6		98.9

Net income per share for each quarter has been computed based on the weighted average number of shares issued and outstanding during the respective quarter; therefore, quarterly amounts may not add to the annual total. Per-share calculations are based on full dollar and share amounts.

Certain aspects of our business can be impacted by seasonal factors. Fertilizers are sold primarily for spring and fall application in both northern and southern hemispheres. However, planting conditions and the timing of customer purchases will vary each year and fertilizer sales can be expected to shift from one quarter to another. Most feed and industrial sales are by contract and are more evenly distributed throughout the year.

In the fourth quarter of 2006, record potash sales volumes, supported by strong gross margins in phosphate and nitrogen, lifted us to the best quarter in company history with fourth-quarter earnings of $1.74 per share ($186.0 million), a 59-percent increase over the $1.09 ($117.1 million) earned in the same quarter last year. This raised our 2006 earnings to $5.95 per share ($631.8 million) from $4.89 per share ($542.9 million) in 2005, our third straight year of record earnings.

Highlights of our 2006 fourth quarter include:

• Potash gross margin of $183.9 million was 31 percent above the $140.3 million in the fourth quarter of 2005. Gross margin as a percentage of net sales rebounded to 57 percent during the quarter, up from 53 percent in the two trailing quarters and 47 percent in the first quarter. Our total potash sales volumes for the fourth quarter reached 2.2 million tonnes as offshore sales volumes grew to 1.3 million tonnes from 1.1 million tonnes in fourth-quarter 2005. Canpotex shipped 2.0 million tonnes during the fourth quarter, up from 1.8 million tonnes in the same quarter last year as quarter-over-quarter shipments to China and India rose by 41 percent and 4 percent, respectively. In North America, strong fall application and some dealer restocking drove up quarter-over-quarter sales volumes by 58 percent to 0.85 million tonnes. In response to increased demand in the latter part of the year, we produced a record 2.4 million tonnes during the fourth quarter. Compared to the fourth quarter of 2005, potash production costs were higher due to the stronger average Canadian dollar exchange rate and rising prices for petroleum-

based supplies and repair services, offset by lower natural gas costs.

• Nitrogen gross margin of $82.1 million was a fourth-quarter record and the third highest in our history, 10 percent greater than the $74.3-million gross margin in the same quarter of 2005. Fourth-quarter realized prices for ammonia and urea declined by 20 percent and 17 percent, respectively, from the peaks reached in the fourth quarter of 2005. Nitrogen production was up 8 percent in the fourth quarter of 2006 following the first-half completion of debottlenecking projects in Trinidad, enabling a 10-percent increase in ammonia sales volumes in the quarter. Trinidad contributed $48.1 million of gross margin for the quarter, representing 59 percent of segment gross margin. Industrial sales volumes were up 8 percent from last year’s fourth quarter and represented 68 percent of total nitrogen sales, while fertilizer tonnes were down 13 percent from the same quarter of 2005. Urea sales volumes were up 9 percent quarter over quarter because of strong industrial sales.

• Phosphate gross margin grew to $33.3 million from $27.6 million in the fourth quarter of 2005, achieving a level it had previously reached only once since 1999. Industrial products contributed $8.3 million in gross margin and feed products contributed $13.8 million. Liquid fertilizer sales volumes were 28 percent higher than in the same quarter last year, driven by strong

36          POTASHCORP 2006 FINANCIAL REVIEW / MD&A » QUARTERLY RESULTS / KEY EARNINGS SENSITIVITIES

Offshore sales, mainly to India. Solid fertilizer sales volumes increased by 26 percent compared to fourth-quarter 2005 due to higher sales in North America (driven by strong demand after a late harvest) and offshore (driven by significantly higher demand in Pakistan and Latin America). Stronger competitive pressures, however, resulted in fourth-quarter prices for solid phosphate fertilizers falling 5 percent from the same period last year, though liquid fertilizer prices were up slightly due to strong offshore sales demand. Feed prices rose 12 percent quarter over quarter due to a tighter supply/demand balance. These increases were partially offset by higher input and production costs.

•

Selling and administrative expenses increased $15.3 million from last year’s fourth quarter, primarily due to higher expenses associated with certain of our performance-based compensation plans, which are linked, in part, to the company’s share price performance.

• The Canadian dollar weakened against the US dollar during the fourth quarter of 2006 and the translation of Canadian-dollar denominated monthly items contributed to $13.6 million of foreign exchange gains during the period. This compared to losses of $0.1 million during last year’s fourth quarter when the Canadian dollar strengthened marginally.

• Other income was $14.2 million higher than in the fourth quarter of 2005 as we realized a higher share of earnings from our equity investees and gains on sale of property, plant and equipment compared to losses during the fourth quarter of 2005.

• Our consolidated reported income tax rate for the quarter ended December 31, 2006 was approximately 25 percent, compared to 33 percent during the same period in 2005. The reduction was due to a change in the company’s effective rate from 33 percent to 30 percent during 2006 and the recording of income tax refunds in fourth-quarter 2006.

KEY EARNINGS SENSITIVITIES

A number of factors affect the earnings of the company’s three nutrient segments. The table below shows the key factors and their approximate effect on EPS based on the assumptions used in the 2007 earnings guidance of $6.25 to $7.25 per share.

		Effect
INPUT COST SENSITIVITIES		on EPS
NYMEX gas price	Nitrogen	+ 0.07
increases by $1/MMBtu	Potash	– 0.05
Sulfur changes by $5/long ton	Phosphate	± 0.07
Canadian to US dollar strengthens by $0.01	Canadian operating expenses net of provincial taxes	– 0.04
	Translation gain/loss	– 0.03

		Effect
PRICE AND VOLUME SENSITIVITIES		on EPS
Price	Potash changes by $5/tonne	± 0.22
	DAP/MAP changes by $5/tonne	± 0.05
	Ammonia increases by $10/tonne
	• Nitrogen	+ 0.05
	• Phosphate	– 0.02
	Urea changes by $10/tonne	± 0.08
Volume	Potash changes by 100,000 tonnes	± 0.06
	Nitrogen changes by 50,000 N tonnes	± 0.06
	Phosphate changes by 50,000 P2O5 tonnes	± 0.07

The above sensitivities affect cash flow as well, except the translation gain/loss which is primarily non-cash.

 INDICATORS TO WATCH IN 2007

FERTILIZER

• Weather and global acreage planted

• Ethanol and biodiesel developments

• US corn acres

• US dollar exchange rates with global currencies

• Global crop prices

• Ocean freight rates

• Prices for natural gas, ammonia and sulfur

• EU and US nitrogen curtailments

• Brazil — weather, soybean prices, credit policy, soybean acres planted

• China’s agricultural taxes, subsidies, corn trade, soybean imports

• US progress on new Farm Bill 2007

FEED AND INDUSTRIAL

• Health of US and world economies

• Effect of livestock-based disease restrictions on world trade — such as Avian flu, BSE, F&MD

• Potential tightening of restrictions on the use of meat and bone meal in animal feeds

• Impact of residual grain from ethanol production on US feed phosphate consumption

• Consumer spending, housing starts, household improvements, and vehicle production and sales

POTASHCORP 2006 FINANCIAL REVIEW / MD&A » 2007 OUTLOOK          37

2007 OUTLOOK

1 Economy: The world economy is expected to maintain its strong momentum in 2007, with the International Monetary Fund projecting growth at 4.9 percent. The fast-growing Asian economies, led by China and India, should again be major growth drivers, as people continue to improve their lifestyles through better diets and increased use of products from industry.

2 Food: The higher incomes in developing countries are expected to permit greater expenditures on food products, with increased protein intake from animal products being the top priority. China’s Ministry of Agriculture predicts that national consumption of pork and eggs will increase significantly by 2030, beef and poultry will double and dairy consumption could more than quadruple.

in ethanol production, as much as 50 percent more by the end of the decade, according to USDA. Malaysia and Indonesia are projected to plant more oil palm for use in producing biodiesel, allocating 40 percent of their combined output to it. Europe will likely be a major destination for this substitute for petroleum-based diesel, so it can meet its transportation sector target of 5.7 percent biofuels by 2010.

4 Crop Inventories: In 2007, global inventories of the major crops are expected to continue to decline, driven by increasing consumption for food, feed, fiber and biofuels and the lack of adequate balanced fertilization in many countries.

3 Biofuels: Rising global oil demand for transportation and other uses is projected by Fertecon to keep oil prices above $50 per barrel in 2007 and between $45 and $65 for the rest of the decade. This is expected to accelerate the biofuels revolution. US ethanol production is expected to consume more than 20 percent of the crop in 2007, rising to 30 percent by 2010. In Brazil, more land is expected to be planted to sugar cane for use

5 Crop Prices: Higher prices are expected for the major large-acreage crops, driven for corn and wheat by the decline in global inventories to the critical point at which market signals encourage growers to increase production. Prices for crops such as soybeans are projected to strengthen because of competition from corn and wheat for planted acreage.

38          POTASHCORP 2006 FINANCIAL REVIEW / MD&A » 2007 OUTLOOK

6 Fertilizer: Farmers around the world are expected to respond to higher crop prices by planting more of the high fertilizer-consuming crops used in biofuels production, such as corn, sugar cane and oil palm. Developing countries seeking to boost their low soil fertility levels are expected to apply more fertilizer. These factors are projected to drive fertilizer sales, with forecast growth of 10 percent in demand for potash, 5.8 percent for phosphate (phosphoric acid) and 3.4 percent for nitrogen, according to industry consultants.

7	Potash: Global potash sales are projected by industry consultants to increase by 10 percent in 2007 as countries refill the potash pipelines depleted during the extended 2006 price negotiations with China and India. Three-percent annual growth is projected for 2008 and beyond, although demand for crops to produce biofuels could push that up to 4 percent.
	In 2007, China and India are expected to increase imports substantially to replenish their inventories and meet rising consumption. Strengthening soybean prices are expected to boost Brazil’s imports. US sales are projected to increase sharply to restock field inventories and supply nutrients for the additional acres planted to corn.
	The flooding and subsequent closure of Berezniki 1 in late 2006 forced Uralkali to reduce its 2007 production plan by 1.2 million tonnes. As a result, more Canadian potash should be required to meet world needs.
8	Natural Gas: Natural gas prices strengthened with the onset of the 2006/2007 winter, and the futures market projects that they will remain between $7.00 and $9.50/MMBtu from 2007 to 2010. In regions with limited natural gas resources and growing consumption — including several developing countries, the US and the EU — the tight supply/demand balance has increased gas prices. This is projected to accelerate development of a global liquefied natural gas (LNG) infrastructure, pushing up gas prices in regions where they are now low and making the

economics of producing nitrogen products there and transporting them to high-cost gas regions less attractive.

9 Nitrogen: Nitrogen demand is expected to surge in 2007 in response to higher crop prices and growing biofuel production. Despite new capacity coming on stream, demand growth is expected to exceed supply throughout the year, underpinning prices.

10 Phosphate: As new global capacity displaces US imports, the long decline in the US share of the global DAP market is projected to continue, falling to one-third by the end of the decade. Recent US phosphate shutdowns are projected to maintain relatively strong markets through 2008, but new capacity in China and Saudi Arabia near the end of the decade may soften markets by 2010. Increases in domestic production in India, the world’s largest DAP importer, in 2007 are expected to keep pace with growth in consumption, holding imports near the 2006 level of 2.8 million tonnes.

POTASHCORP 2006 FINANCIAL REVIEW / MD&A » FINANCIAL CONDITION REVIEW / LIQUIDITY & CAPITAL RESOURCES          39

FINANCIAL CONDITION REVIEW

Total assets were $6,217.0 million at December 31, 2006, up $859.1 million or 16 percent over December 31, 2005. Total liabilities increased by $211.3 million from December 31, 2005 to $3,436.7 million at December 31, 2006, and total shareholders’ equity increased by $647.8 million during the same period to $2,780.3 million.

During the fourth quarter of 2006, we issued 30-year notes payable in the principal amount of $500.0 million, bearing interest at 5.875 percent. A portion of the net proceeds from these notes will be used to repay $400.0 million of 7.125 percent notes when they mature in 2007, and, in the interim, was used to reduce outstanding short-term debt. The balance of the net proceeds from the notes issued is intended for general corporate purposes.

The largest contributors to the increase in assets during 2006 were intercorporate investments, property, plant and equipment and cash. During the year, we acquired: (1) an additional 10-percent interest in the ordinary shares of Sinofert for $126.3 million; (2) 220,100 additional shares of APC for $3.7 million; and (3) an additional 17,450,015 Class B shares of SQM for $235.0 million. As a result of these purchases, our ownership interest in Sinofert increased from 10 percent to 20 percent, our interest in APC remained at 28 percent and our interest in SQM increased from 25 percent to 32 percent. We also made additions to property, plant and equipment of $508.6 million ($216.7 million of which was spent to bring back idled potash capacity at our Allan and Lanigan operations). Cash increased $231.8 million, largely due to proceeds from long-term debt issued during the fourth quarter.

The increase in liabilities was greatly attributable to the issuance of long-term debt during 2006. This was partially offset by a $297.5 million decline in accounts payable and accrued charges at the end of 2006 compared to 2005. Current income taxes payable declined by $160.4 million as a result of Canadian installments for 2006 based on expectations higher than actual results, while the 2005 required installments were significantly lower than accrued for 2005. A reclassification of amounts between current and future income tax liability and lower Canadian income tax rates also contributed to the decrease. Hedging margin deposits were down $150.9 million due to lower natural gas prices and reduced volumes of derivative contracts outstanding. Short-term debt also declined, by $94.3 million, as a portion of the proceeds from issuance of long-term debt was used to repay short-term debt. There was a change in mix between current and long-term debt as $400.0 million of the company’s notes payable were classified to current during 2006. The notes, having an interest rate of 7.125 percent, are payable on June 15, 2007.

Share capital, retained earnings and contributed surplus all increased at December 31, 2006 compared to 2005. Share capital was $52.3 million higher due to the issuance of common shares arising from stock option exercises and our dividend reinvestment plan. Recognition of compensation cost associated with our stock-based compensation plans increased contributed surplus by $29.5 million while the issuance of common shares arising from stock option exercises reduced the balance, for a net increase of $26.0 million. Net earnings of $631.8 million for 2006 increased retained earnings while dividends declared of $62.3 million reduced the balance, for a net increase in retained earnings of $569.5 million at December 31, 2006 compared to December 31, 2005.

LIQUIDITY AND CAPITAL RESOURCES

The following section explains how we manage our cash and capital resources to carry out our strategy and deliver results.

Liquidity risk arises from our general funding needs and in the management of our assets, liabilities and optimal capital structure. We manage liquidity risk to maintain sufficient liquid financial resources to fund our balance sheet and meet our commitments and obligations in the most cost-effective manner possible.

CASH REQUIREMENTS

The following aggregated information about our contractual obligations and other commitments aims to provide insight into our short- and long-term liquidity and capital resource requirements. The information presented in the table below does not include obligations that have original maturities of less than one year, planned capital expenditures or potential share repurchases.

Contractual Obligations and Other Commitments Payments Due by Period — Dollars (millions)
	Total		Within 1 year		1 to 3 years		3 to 5 years		Over 5 years
Long-term debt	$	1,757.5	$	400.4	$	0.5	$	600.7	$	755.9
Estimated interest payments on long-term debt		599.2		102.8		177.2		153.8		165.4
Operating leases		646.7		79.3		145.0		130.4		292.0
Purchase obligations		831.1		143.0		208.8		140.5		338.8
Other commitments		74.2		21.5		24.1		10.0		18.6
Other long-term liabilities		953.1		33.7		76.7		60.8		781.9
Total	$	4,861.8	$	780.7	$	632.3	$	1,096.2	$	2,352.6

40          POTASHCORP 2006 FINANCIAL REVIEW / MD&A » LIQUIDITY & CAPITAL RESOURCES

Long-Term Debt

Long-term debt consists of $1,750.0 million of notes payable that were issued under US shelf registration statements ($500.0 million of which were issued during 2006), a net of $5.9 million under a back-to-back loan arrangement (described in Note 12 to the consolidated financial statements) and other commitments of $1.6 million payable over the next five years.

The notes payable represent over 99 percent of our total long-term debt portfolio and are unsecured. Of the notes outstanding, $400.0 million bear interest at 7.125 percent and mature in 2007, $600.0 million bear interest at 7.750 percent and mature in 2011, $250.0 million bear interest at 4.875 percent and mature in 2013 and $500.0 million bear interest at 5.875 percent and mature in 2036. There are no sinking fund requirements. The notes payable are not subject to any financial test covenants but are subject to certain customary covenants (including limitations on liens and sale and leaseback transactions) and events of default, including an event of default for acceleration of other debt in excess of $50.0 million. The other long-term debt instruments are not subject to any financial test covenants but are subject to certain customary covenants and events of default, including, for other long-term debt, an event of default for non-payment of other debt in excess of $25.0 million. Non-compliance with such covenants could result in accelerated payment of the related debt. The company was in compliance with all covenants as at December 31, 2006.

The estimated interest payments on long-term debt in the table on Page 39 include our cumulative scheduled interest payments on fixed and variable rate long-term debt. Interest on variable rate debt is based on interest rates prevailing at December 31, 2006.

Operating Leases

We have long-term operating lease agreements for buildings, port facilities, equipment, ocean-going transportation vessels and railcars, the latest of which expires in 2020. The most significant operating leases consist of three items. The first is our lease of railcars, which extends to approximately 2020. The second is the lease of port facilities at the Port of Saint John for shipping New Brunswick potash offshore. This lease runs until 2018. The third is the lease of four vessels for transporting ammonia from Trinidad. One vessel agreement runs until 2019; the others terminate in 2016.

Purchase Obligations

We have long-term agreements for the purchase of sulfur for use in the production of phosphoric acid. These agreements provide for minimum purchase quantities and certain prices are based on market rates at the time of delivery. The commitments included in the table on Page 39 are based on contract prices.

We have entered into long-term natural gas contracts with the National Gas Company of Trinidad and Tobago Limited, the latest of which expires in 2018. The contracts provide for prices that vary primarily with ammonia market prices, escalating floor prices and minimum purchase quantities. The commitments included in the table on Page 39 are based on floor prices and minimum purchase quantities.

We also have long-term agreements for the purchase of phosphate rock used at our Geismar facility. The commitments included in the table on Page 39 are based on the expected purchase quantity and current net base prices.

Other Commitments

Other operating commitments consist principally of amounts relating to various rail freight contracts, the latest of which expires in 2010, and mineral lease commitments, the latest of which expires in 2025.

Other Long-Term Liabilities

Other long-term liabilities consist primarily of net accrued pension and other post-retirement benefits, future income taxes, environmental costs and asset retirement obligations.

Future income tax liabilities may vary according to changes in tax laws, tax rates and the operating results of the company. Since it is impractical to determine whether there will be a cash impact in any particular year, all long-term future income tax liabilities have been reflected in the “over 5 years” category in the table on Page 39.

Capital Expenditures

We expect to incur capital expenditures of approximately $225 million for opportunity capital during 2007, and approximately $175 million to sustain operations at existing levels.

SOURCES AND USES OF CASH

The company’s cash flows from operating, investing and financing activities, as reflected in the Consolidated Statements of Cash Flow, are summarized in the following table:

Dollars (millions) except percentage amounts
										% Increase
										(Decrease)
	2006			2005			2004			2006			2005
Cash provided by operating activities	$	696.8		$	865.1		$	658.3			(19	)		31
Cash used in investing activities	$	(839.7	)	$	(555.3	)	$	(225.5	)		51			146
Cash provided by (used in) financing activities	$	374.7		$	(674.8	)	$	21.4			n/m			n/m
Increase (decrease) in cash and cash equivalents	$	231.8		$	(365.0	)	$	454.2			n/m			n/m

n/m = not meaningful

Dollars (millions) except ratio and percentage amounts
										% Increase
	December 31			December 31			December 31			(Decrease)
	2006			2005			2004			2006		2005
Current assets	$	1,310.2		$	1,110.8		$	1,243.6			18		(11	)
Current liabilities	$	(1,103.5	)	$	(1,096.1	)	$	(703.7	)		1		56
Working capital	$	206.7		$	14.7		$	539.9			n/m		(97	)
Current ratio		1.19			1.01			1.77			18		(43	)

n/m = not meaningful

Our liquidity needs can be met through a variety of sources, including: cash generated from operations, short-term borrowings against our line of credit and commercial paper program, long-term debt issued under our US shelf registration statements, and long-

POTASHCORP 2006 FINANCIAL REVIEW / MD&A » CAPITAL STRUCTURE & MANAGEMENT          41

term debt drawn down under our syndicated credit facility. Our primary uses of funds are operational expenses, sustaining and opportunity capital spending, intercorporate investments, dividends, and interest and principal payments on our debt securities.

Cash provided by operating activities declined by $168.3 million, largely attributable to a $248.8-million decrease in net cash flows from non-cash operating working capital. Operating cash flow due to changes in accounts payable and accrued charges reduced cash flow from operations by $269.1 million during 2006 due to: (1) reductions in income tax payable because of paying 2005 Canadian income taxes due in first-quarter 2006 and making Canadian installments for 2006 based on expectations higher than actual results; (2) a decline in hedging margin deposits due to falling gas prices and reduced volumes of derivative contracts outstanding; and (3) payments of performance-based compensation accruals that were outstanding at December 31, 2005. This compares to a $238.1-million increase in operating cash flow from changes in accounts payable and accrued charges during 2005 when hedging margin deposits increased by $145.2 million, caused by higher natural gas prices at December 31, 2005 compared to December 31, 2004.

Cash used in investing activities rose $284.4 million year over year. The most significant cash outlays included:

• During 2006, we acquired additional interests in Sinofert, APC and SQM, for which cash paid totalled $352.5 million. The Sinofert purchase price was financed by short-term debt; the purchase prices of APC and SQM were financed by cash on hand. In 2005, we acquired 1 million additional shares in APC for $18.6 million,

21 million additional shares in ICL for $74.9 million and a 10-percent interest in Sinofert for $97.4 million.

•

Our spending on property, plant and equipment increased by $125.9 million as compared to last year, largely due to major capital expansion projects in potash. In total, we invested $508.6 million, or 14 percent of sales (2005 — $382.7 million, or 10 percent of sales) in capital projects, which were financed by our short-term credit facilities. Approximately 58 percent (2005 — 43 percent) of our consolidated capital expenditures related to the potash segment.

Cash provided by financing activities increased by $1,049.5 million during 2006 compared to 2005, largely attributable to the fact that in 2005 we used $851.9 million to repurchase common shares under our normal course issuer bid. As well, the company received $483.9 million proceeds from issuance of long-term debt (net of discount and issue costs) and repaid $1.3 million during 2006, as compared to repayments in 2005 totalling $10.1 million. This was partially offset by a $94.3-million reduction of short-term debt, compared to proceeds of $158.7 million in 2005, and proceeds from the issuance of common shares $46.6 million lower than in 2005.

We believe that internally generated cash flow, supplemented by borrowing from existing financing sources if necessary, will be sufficient to meet our anticipated capital expenditures and other cash requirements in 2007, exclusive of any possible acquisitions, as was the case in 2006. At this time, we do not reasonably expect any presently known trend or uncertainty to affect our ability to access our historical sources of cash.

CAPITAL STRUCTURE AND MANAGEMENT

Capital Structure
Dollars (millions), except as noted

	December 31		December 31
	2006		2005
Short-term debt	$	157.9	$	252.2
Current portion of long-term debt		400.4		1.2
Long-term debt		1,357.1		1,257.6
Total debt		1,915.4		1,511.0
Shareholders’ equity	$	2,780.3	$	2,132.5
Total debt to capital		41%		41%
Fixed rate debt as a percentage of total indebtedness		91%		83%
Common shares outstanding		104,801,049		103,593,792
Stock options outstanding		4,768,548		5,081,756
Dividend payout ratio		10%		12%

Principal Debt Instruments
Dollars (millions) at December 31, 2006

	Total		Amount		Amount		Amount
	Amount		Outstanding		Committed		Available
Syndicated credit facility	$	750.0	$	—	$	157.9	$	592.1
Line of credit		75.0		—		17.3		57.7
Commercial paper		750.0		157.9		—		592.1
US shelf registrations		2,000.0		1,750.0		—		250.0

We use a combination of short-term and long-term debt to finance our operations. We typically pay floating rates of interest on our short-term debt and fixed rates on our long-term debt.

We have a $750.0-million syndicated credit facility, renewed in September 2005 for a five-year term and extended in September 2006 for one additional year, which provides for unsecured advances. The amount available to us is the total facility amount less direct borrowings and amounts committed in respect of commercial paper outstanding. No funds were borrowed under the facility as of December 31, 2006. The line of credit is renewable annually and outstanding letters of credit and direct borrowings reduce the amount available. Both the line of credit and the syndicated credit facility have financial tests and other covenants with which we must comply at each quarter-end. Principal covenants under the credit facility and line of credit require a debt-to-capital ratio of less than or equal to 0.55:1, a long-term debt-to-EBITDA (defined in the respective agreements as earnings before interest, income taxes, provincial mining and other taxes, depreciation, amortization and other non-cash expenses) ratio of less than or equal to 3.5:1, tangible net worth greater than or equal to $1,250.0 million and debt of subsidiaries not to exceed $590.0 million. The syndicated credit facility and line of credit are also subject to other customary covenants and events of default, including an event of default for

42          POTASHCORP 2006 FINANCIAL REVIEW / MD&A » CAPITAL STRUCTURE & MANAGEMENT

non-payment of other debt in excess of Cdn $40.0 million. Non-compliance with any of the above covenants could result in accelerated payment of the related debt and amount due under the line of credit, and termination of the line of credit. We were in compliance with all covenants as at December 31, 2006.

The commercial paper market is a source of “same day” cash for the company. During the first quarter of 2006, we increased our commercial paper program from $500.0 million to $750.0 million. Access to this source of short-term financing depends primarily on maintaining our R1 low credit rating by DBRS and conditions in the money markets. The interest rates we pay are partly based on the quality of our credit ratings, which are all investment grade. Our credit rating, as measured by Standard & Poor’s senior debt ratings and Moody’s senior debt ratings, remained unchanged from December 31, 2005 at BBB+ with a stable outlook and Baa1 with a stable outlook, respectively.

We also have a US shelf registration statement under which we may issue up to an additional $250.0 million in unsecured debt securities.

For 2006, our weighted average cost of capital was 8.8 percent (2005 — 8.3 percent), of which 86 percent represented equity (2005 — 89 percent).

OUTSTANDING SHARE DATA

We had 104,801,049 common shares issued and outstanding at December 31, 2006, compared to 103,593,792 common shares issued and outstanding at December 31, 2005. The company issued 1,207,257 common shares pursuant to the exercise of stock options and our dividend reinvestment plan.

During the second quarter, the 2006 Performance Option Plan was approved by our shareholders. It permits the grant to eligible employees of options to purchase common shares of the company at an exercise price based on the closing price of the shares on the day prior to the grant. The key design difference between the 2005 and 2006 Performance Option Plans and the company’s other stock option plans is the performance-based vesting feature. In general, options will vest, if at all, according to a schedule based on the three-year average excess of the company’s consolidated cash flow return on investment over the weighted average cost of capital.

At December 31, 2006, there were 4,768,548 options to purchase common shares outstanding under the company’s four stock option plans, as compared to 5,081,756 at December 31, 2005.

OFF-BALANCE SHEET ARRANGEMENTS

We enter into off-balance sheet arrangements in the normal course of our business, including guarantee contracts, certain derivative instruments and long-term fixed price contracts. We do not reasonably expect any presently known trend or uncertainty to affect our ability to continue using these arrangements. These types of arrangements are discussed below.

Guarantee Contracts

In the normal course of operations, we provide indemnifications that are often standard contractual terms to counterparties in transactions such as purchase and sale contracts, service

agreements, director/officer contracts and leasing transactions. These indemnification agreements may require us to compensate the counterparties for costs incurred as a result of various events. The terms of these indemnification agreements will vary based upon the contract, the nature of which prevents us from making a reasonable estimate of the maximum potential amount that we could be required to pay to counterparties. Historically, we have not made any significant payments under such indemnifications and no amounts have been accrued in our consolidated financial statements with respect to these guarantees (apart from any appropriate accruals relating to the underlying potential liabilities).

Various debt obligations (such as overdrafts, lines of credit with counterparties for derivatives and back-to-back loan arrangements) and other commitments (such as railcar leases) related to certain subsidiaries and investees have been directly guaranteed by the company under such agreements with third parties. We would be required to perform on these guarantees in the event of default by the guaranteed parties. No material loss is anticipated by reason of such agreements and guarantees. At December 31, 2006, the maximum potential amount of future (undiscounted) payments under significant guarantees provided to third parties approximated $367.2 million, representing the maximum risk of loss if there were a total default by the guaranteed parties, without consideration of possible recoveries under recourse provisions or from collateral held or pledged. At December 31, 2006, no subsidiary balances subject to guarantees were outstanding in connection with the company’s cash management facilities, and we had no liabilities recorded for other obligations other than subsidiary bank borrowings of approximately $5.9 million and cash margins held of approximately $22.8 million to maintain derivatives.

We have guaranteed the gypsum stack capping, closure and post-closure obligations of White Springs and Geismar, in Florida and Louisiana, respectively, pursuant to the financial assurance regulatory requirements in those states. In February 2005, the Florida Environmental Regulation Commission approved certain modifications to the financial assurance requirements designed to ensure that responsible parties have sufficient resources to cover all closure and post-closure costs and liabilities associated with gypsum stacks in the state. The new requirements became effective in July 2005 and include financial strength tests that are more stringent than under previous law and a requirement that gypsum stack closure cost estimates include the cost of treating process water. The company has met these financial assurance responsibilities as of December 31, 2006. Costs associated with the retirement of long-lived tangible assets are included in the accrued costs reflected in Note 15 to our consolidated financial statements to the extent that a legal liability to retire such assets exists.

The environmental regulations of the Province of Saskatchewan require each potash mine to have decommissioning and reclamation plans. Financial assurances for these plans must be established within one year following approval of these plans by the responsible provincial minister. The Minister of Environment for Saskatchewan provisionally approved the plans

POTASHCORP 2006 FINANCIAL REVIEW / MD&A » MARKET RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS          43

in July 2000. In July 2001, a Cdn $2.0 million irrevocable Letter of Credit was posted. We submitted a revised plan when it was due in 2006 and are awaiting a response from the province. The company is unable to predict, at this time, the outcome of the ongoing review of the plans or the timing of implementation and structure of any financial assurance requirements.

Derivative Instruments

We use derivative financial instruments to manage exposure to commodity price, interest rate and foreign exchange rate fluctuations. We may choose to enter into certain derivative transactions that may not qualify for hedge accounting treatment under Canadian GAAP, but nonetheless economically hedge certain aspects of our business strategies. These economic hedges are recorded at fair value on our Consolidated Statements of Financial Position and marked-to-market each reporting period. However, we consider any derivative transactions that are specifically designated (and qualify) for hedge accounting under Canadian GAAP to be off-balance sheet items since they are not recorded at fair value.

We employ derivative instruments to hedge the future cost of anticipated natural gas purchases, primarily for our US nitrogen plants. By policy, the maximum period for these hedges cannot exceed 10 years. Exceptions to policy may be made with the

specific approval of our Gas Policy Advisory Committee. The fair value of our gas hedging contracts at December 31, 2006 was $120.3 million (2005 — $277.1 million).

We may use interest rate swaps to manage the interest rate mix of our total debt portfolio and related overall cost of borrowing. In 2006, the company terminated interest rate swap contracts that effectively converted a notional amount of $300.0 million (2005 —$225.0 million) of fixed rate debt (due 2011) into floating rate debt for cash proceeds of $5.2 million (2005 — $1.8 million) and a gain of $5.1 million (2005 — $1.6 million). Hedge accounting on all terminated interest rate swap contracts was discontinued prospectively. The associated gains are being amortized over the remaining term of the related debt as a reduction to interest expense. No interest rate swap contracts were outstanding as at December 31, 2006 or 2005.

Note 27 to our consolidated financial statements provides more detail on our accounting for and types of derivatives.

Long-Term Fixed Price Contracts

Certain of our long-term raw materials agreements contain fixed price components. Our significant agreements, and the related obligations under such agreements, are discussed in Cash Requirements on Page 40.

MARKET RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS

Market risk is the potential for loss from adverse changes in the market value of financial instruments. The level of market risk to which we are exposed varies depending on the composition of our derivative instrument portfolio, as well as current and expected market conditions. The following discussion provides additional detail regarding our exposure to the risks of changing commodity prices, interest rates and foreign exchange rates. A discussion of enterprise-wide risk management can be found on Pages 21 to 22.

COMMODITY RISK

Our natural gas purchase strategy is based on diversification of price for our total gas requirements (which represent the forecast consumption of natural gas volumes by our manufacturing and mining facilities). The objective is to acquire a reliable supply of natural gas feedstock and fuel on a location-adjusted, cost-competitive basis in a manner that minimizes volatility without undue risk.

Our US nitrogen results are significantly affected by the price of natural gas. As discussed above, we employ derivative commodity instruments related to a portion of our natural gas requirements (primarily futures, swaps and options) for the purpose of managing our exposure to commodity price risk in the purchase of natural gas, not for speculative or trading purposes. Changes in the market value of these derivative instruments have a high correlation to changes in the spot price of natural gas.

A sensitivity analysis has been prepared to estimate our market risk exposure arising from derivative commodity instruments. The fair value of such instruments is calculated by valuing each position using quoted market prices where available or prices provided by other external sources. Market risk is estimated as the potential loss in fair value resulting from a hypothetical 10-percent adverse change in such prices. The results of this analysis indicate that as of December 31, 2006, our estimated derivative commodity instruments’ market risk exposure was $30.5 million (2005 — $60.7 million), based on our gas hedging contracts fair-valued at $120.3 million (2005 — $277.1 million). Actual results may differ from this estimate. Changes in the fair value of such derivative instruments, with maturities in 2007 through 2016, will generally relate to changes in the spot price of natural gas purchases.

INTEREST RATE RISK

We address interest rate risk by using a diversified portfolio of fixed and floating rate instruments. This exposure is also managed by aligning current and long-term assets with demand and fixed-term debt and by monitoring the effects of market changes in interest rates.

As at December 31, 2006, our short-term debt (comprised of commercial paper) was $157.9 million, our current portion of long-term debt was $400.4 million and our long-term portion was $1,357.1 million. Long-term debt, including the current portion, is

44          POTASHCORP 2006 FINANCIAL REVIEW / MD&A » RELATED PARTY TRANSACTIONS / CRITICAL ACCOUNTING ESTIMATES

comprised primarily of $1,750.0 million of notes payable that were issued under our US shelf registration statements. Since most of our outstanding borrowings have fixed interest rates, the primary market risk exposure is to changes in fair value. It is estimated that, all else constant, a hypothetical 10-percent change in interest rates would not materially impact our results of operations or financial position. If interest rates changed significantly, management would likely take actions to manage our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in our financial structure.

FOREIGN EXCHANGE RISK

We also enter into foreign currency forward contracts for the primary purpose of limiting exposure to exchange rate fluctuations relating to Canadian dollar operating and capital expenditures and capital expenditures denominated in currencies other than the US or Canadian dollar. These contracts are not designated as hedging

instruments for accounting purposes. Gains or losses resulting from foreign exchange contracts are recognized in earnings in the period in which changes in fair value occur.

As at December 31, 2006, we had entered into foreign currency forward contracts to sell US dollars and receive Canadian dollars in the notional amount of $100.0 million (2005 — $43.0 million) at an average exchange rate of 1.1478 (2005 — 1.1852) per US dollar. The company had also entered into forward contracts to sell US dollars and receive euros in the notional amount of $4.2 million (2005 — $2.2 million) at an average exchange rate of 1.2558 (2005 — 1.2145) per euro and to sell Canadian dollars and receive euros in the notional amount of Cdn $3.4 million (2005 —$4.5 million) at an average exchange rate of 1.3988 (2005 —1.3940) per euro. The company also had other small forward exchange contracts outstanding at December 31, 2006 to reduce other currency exposures. Maturity dates for all forward contracts are within 2007.

RELATED PARTY TRANSACTIONS

The company sells potash from our Saskatchewan mines for use outside of North America exclusively to Canpotex. Sales for the year ended December 31, 2006 were $467.1 million (2005 —

$577.1 million; 2004 — $421.9 million). Sales to Canpotex are at prevailing market prices and are settled on normal trade terms.

CRITICAL ACCOUNTING ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with Canadian GAAP. These principles differ in certain significant respects from US GAAP, and these differences are described and quantified in Note 32 to the consolidated financial statements.

Our significant accounting policies are contained in Note 2 to the consolidated financial statements. Certain of these policies involve critical accounting estimates because they require us to make particularly subjective or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts could be reported under different conditions or using different assumptions. We have discussed the development, selection and application of our key accounting policies, and the critical accounting estimates and assumptions they involve, with the audit committee of the Board of Directors, and it has reviewed the disclosures described in this section.

The following section discusses the critical accounting estimates and assumptions that management has made and how they affect the amounts reported in the consolidated financial statements. We consider these estimates to be an important part of understanding our financial statements.

VARIABLE INTEREST ENTITIES

In the normal course of business, we may enter into arrangements that need to be examined to determine whether they fall under

the variable interest entity (VIE) accounting guidance described in the following section. Management needs to exercise significant judgment to determine if VIE relationships are required to be consolidated. This process involves understanding the arrangements, determining whether the entity is considered a VIE under the accounting rules and determining our variable interests in the VIE. We use a variety of complex estimation processes involving both qualitative and quantitative factors that may involve the use of a number of assumptions about the business environment in which an entity operates to determine whether such entity is a VIE, and to analyze and calculate its expected losses and its expected residual returns. These processes involve estimating the future cash flows and performance of the entity, analyzing the variability in those cash flows and allocating the losses and returns among the identified parties holding variable interests. Our interests are then compared to those of the unrelated outside parties to identify the party that is the primary beneficiary, and thus should consolidate the entity. In addition, there is a significant amount of judgment exercised in interpreting the provisions of the accounting guidance and applying them to our specific transactions.

PENSION AND OTHER POST-RETIREMENT COSTS

We sponsor plans that provide pensions and other post-retirement benefits for most of our employees. We believe the accounting estimates related to our employee benefit plan costs are critical

POTASHCORP 2006 FINANCIAL REVIEW / MD&A » CRITICAL ACCOUNTING ESTIMATES           45

accounting estimates because: (1) the amounts are based on complex actuarial calculations using several assumptions; and (2) given the magnitude of our estimated costs, differences in actual results or changes in assumptions could materially affect our consolidated financial statements.

Due to the long-term nature of these plans, the calculation of expenses and obligations depends on various assumptions such as discount rates, expected rates of return on assets, health-care cost trend rates, projected salary increases, retirement age, mortality and termination rates. These assumptions are determined by management and are reviewed annually by our actuaries. The discount rate reflects the weighted average interest rate at which the pension and other post-retirement liabilities could be effectively settled using high-quality bonds at the measurement date. The rate varies by country. We determine the discount rate using a yield curve approach. Based on the respective plans’ demographics, expected future pension benefit and medical claims payments are measured and discounted to determine the present value of the expected future cash flows. The cash flows are discounted using yields on high-quality AA-rated non-callable bonds with cash flows of similar timing. The expected rate of return on plan assets assumption is based on expected returns for the various asset classes. Other assumptions are based on actual experience and our best estimates. Actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense and the recorded obligation in future periods. We have included a table in Note 14 to the consolidated financial statements that quantifies the impact of these differences in each of the last three years. These differences relate primarily to: (1) actual versus expected return on plan assets; (2) actual actuarial gains/losses incurred on the benefit obligation versus those expected and recognized in the consolidated financial statements; and (3) actual past service costs incurred as a result of plan amendments versus those expected and recognized in the consolidated financial statements.

The following table provides the sensitivity of benefit obligations and expense for our major plans to changes in the discount rate, expected long-term return on plan assets, rate of compensation

Impact of a 0.5% Change in Key Assumptions
Dollars (millions)

	Pension Plans						Other Plans
	Obligation			Expense			Obligation			Expense
Discount rate
Decrease in assumption	$	42.7		$	4.2		$	19.8		$	2.1
Increase in  assumption		(38.9	)		(3.9	)		(18.3	)		(1.9	)
Expected long-term rate of return
Decrease in assumption		n/a			2.6			n/a			n/a
Increase in assumption		n/a			(2.6	)		n/a			n/a
Rate of compensation increase
Decrease in assumption		(8.3	)		(1.8	)		n/a			n/a
Increase in assumption		8.8			1.8			n/a			n/a
Medical trend rate
Decrease in assumption		n/a			n/a			(15.0	)		(2.6	)
Increase in assumption		n/a			n/a			17.7			2.9

n/a = not applicable

increase and medical trend rate assumptions. A lower discount rate results in a higher benefit obligation and a lower funded status. Similarly, poor fund performance results in a lower fair value of plan assets and a lower funded status. In either situation, we may have to increase cash contributions to the benefit plans. The sensitivity analysis should be used with caution as the changes are hypothetical and the impact of changes in each key assumption may not be linear. For further details on our annual expense and obligation, see Note 14 to the consolidated financial statements.

ASSET RETIREMENT OBLIGATIONS AND OTHER ENVIRONMENTAL COSTS

We have significant liabilities relating to asset retirement obligations and other environmental matters. The major categories of our asset retirement obligations include reclamation and restoration costs at our potash and phosphate mining operations (most particularly phosphate mining). Other environmental liabilities typically relate to regulatory compliance, environmental management associated with ongoing operations other than mining, and site assessment and remediation of contamination related to the activities of the company and its predecessors.

We believe the accounting estimates related to asset retirement obligations and other environmental costs are critical accounting estimates because: (1) we will not incur most of these costs for a number of years, requiring us to make estimates over a long period; (2) environmental laws and regulations and interpretations by regulatory authorities could change or circumstances affecting our operations could change, either of which could result in significant changes to our current plans; and (3) given the magnitude of our estimated costs, changes in any or all of these estimates could have a material impact on our consolidated financial statements.

Accruals for asset retirement obligations and other environmental matters totalled $119.3 million at December 31, 2006 (2005 —$109.6 million). In arriving at this amount, we considered the nature, extent and timing of current and proposed reclamation and closure techniques in view of present environmental laws and regulations. It is reasonably possible that the ultimate costs could change in the future and that changes to these estimates could have a material effect on our consolidated financial statements.

INCOME TAXES

We operate in a specialized industry and in several tax jurisdictions. As a result, our income is subject to various rates of taxation. The breadth of the company’s operations and the global complexity of tax regulations require assessments of uncertainties and judgments in estimating the taxes we will ultimately pay. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions, outcomes of tax litigation and resolution of disputes arising from federal, provincial, state and local tax audits. The resolution of these uncertainties and the associated final taxes may result in adjustments to our tax assets and tax liabilities.

46          POTASHCORP 2006 FINANCIAL REVIEW / MD&A » CRITICAL ACCOUNTING ESTIMATES

We estimate future income taxes based upon temporary differences between the assets and liabilities that we report in our consolidated financial statements and the tax basis of our assets and liabilities as determined under applicable tax laws. We record a valuation allowance against our future income tax assets when we believe, based on all available evidence, that it is not “more likely than not” that all of our future income tax assets recognized will be realized prior to their expiration. The amount of the future income tax asset recognized and considered realizable could, however, be reduced if projected income is not achieved.

ASSET IMPAIRMENT

We review long-lived assets and intangible assets with finite lives whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows, and measurement of an impairment loss is based on the fair value of the assets. We believe that the accounting estimate related to asset impairment is a critical accounting estimate because: (1) it is highly susceptible to change from period to period as it requires management to make assumptions about future sales, margins and market conditions over the long-term life of the assets; and (2) the impact that recognizing an impairment would have on our financial position and results of operations may be material. During 2006, we indefinitely ceased operations at two production units in Geismar, Louisiana. In connection with these activities, we recognized impairment charges totalling $6.3 million, as more fully described in Note 19 to the consolidated financial statements. As at December 31, 2006, we determined that there were no other triggering events requiring additional impairment analysis.

Goodwill is not amortized, but is assessed for impairment at the reporting unit level annually, or sooner if events or changes in circumstances indicate that the carrying amount could exceed fair value. Goodwill is assessed for impairment using a two-step approach, with the first step being to assess whether the fair value of the reporting unit to which the goodwill is associated is less than its carrying value. If this is the case, a second impairment test is performed which requires a comparison of the fair value of goodwill to its carrying amount. If fair value is less than carrying value, goodwill is considered impaired and an impairment charge must be recognized immediately. The fair value of our reporting units is determined from internally developed valuation models that consider various factors such as normalized and projected earnings, present value of future cash flows and discount rates. In each of the last two years, we tested goodwill for impairment, and in each year we determined that, based on our assumptions, the fair value of our reporting units exceeded their carrying amounts and therefore we did not recognize impairment.

Long-term investments that are carried at cost or accounted for using the equity method are also reviewed to determine whether fair value is below carrying value. An investment is considered impaired if any such decline is considered other than temporary.

Factors and judgments we consider in determining whether a loss is temporary include the length of time and extent to which fair value has been below cost; financial condition and near-term prospects of the investee; and our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery. For actively traded securities, we typically consider quoted market value to be fair value. For thinly traded securities where market quotes are either not available or not representative of fair value, we use estimation techniques such as market or income valuation approaches to determine fair value.

We cannot predict if an event that triggers impairment will occur, when it will occur or how it will affect the asset amounts we have reported. Although we believe our estimates are reasonable and consistent with current conditions, internal planning and expected future operations, such estimates are subject to significant uncertainties and judgments. As a result, it is reasonably possible that the amounts reported for asset impairments could be different if we were to use different assumptions or if market and other conditions were to change. The changes could result in non-cash charges that could materially affect our consolidated financial statements.

STOCK-BASED COMPENSATION

We account for stock-based compensation in accordance with the fair value recognition provisions of Canadian GAAP. As such, stock-based compensation expense is measured at the grant date based on the fair value of the award and is recognized as an expense over the vesting period. Determining the fair value of stock-based awards at the grant date requires judgment, including estimating the expected term of stock options, the expected volatility of our stock and expected dividends. In addition, judgment is required to estimate the number of stock-based awards that are expected to be forfeited.

For those awards with performance conditions that determine the number of options to which our employees will be entitled, measurement of compensation cost is based on our best estimate of the outcome of the performance conditions. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially impacted.

DEPRECIATION AND AMORTIZATION

We depreciate certain mining and milling assets using the units of production method based on the shorter of estimates of reserve or service lives. We have other assets that we depreciate on a straight-line basis over their estimated useful lives.

We perform assessments of our existing assets and depreciable lives in connection with the review of mine operating plans. When we determine that assigned asset lives do not reflect the expected remaining period of benefit, we make prospective changes to their depreciable lives. There are a number of uncertainties inherent in estimating reserve quantities, particularly as they relate to assumptions regarding future prices, the geology of our mines, the mining methods we use and the related costs we incur to develop and mine our reserves. Changes in these

POTASHCORP 2006 FINANCIAL REVIEW / MD&A » RECENT ACCOUNTING CHANGES          47

assumptions could result in material adjustments to our reserve estimates, which could result in changes to units of production depreciation expense in future periods. Although some degree of variability is expected, we believe the extent of our technical data and operating experience mitigates the potential for significant changes in reserve estimates.

As discussed on Page 46, we review and evaluate our long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. We believe it is unlikely that revisions to our estimates of reserves would give rise to an impairment of our assets because of their significant size in relation to our asset-carrying values.

RECENT ACCOUNTING CHANGES AND EFFECTIVE DATES

2006

In November 2004, the US accounting standards for inventory were amended, requiring abnormal amounts of idle facility expense, freight, handling costs and spoilage to be recognized as current period charges. The guidance was effective for us in 2006 and did not have a material impact on our US GAAP consolidated financial statements.

In December 2004, US accounting requirements relating to share-based payments were revised. In 2005, interpretations were released to help clarify and interpret the guidance. With limited exceptions, compensation cost is now measured based on the grant-date fair value of the instruments issued. In addition, liability awards are re-measured each reporting period. The standards were effective for us in 2006 and did not have a material impact on our US GAAP consolidated financial statements.

In March 2005, the US accounting standards for accounting for stripping costs incurred during production in the mining industry were approved. Effective for 2006, stripping costs incurred during production are variable inventory costs that are to be attributed to ore produced in that period as a component of inventory and recognized in cost of sales in the same period as related revenue. Refer to Note 32 to our consolidated financial statements for the impact of this guidance.

In October 2005, the Canadian Institute of Chartered Accountants (CICA) issued guidance to address whether a company has an implicit variable interest in a variable interest entity (VIE) or potential VIE when specific conditions exist. This guidance is very similar to rules issued in the US earlier that year. An implicit variable interest acts the same as an explicit variable interest except that it involves the absorbing and/or receiving of variability indirectly from the entity (rather than directly). The identification of an implicit variable interest is a matter of judgment that depends on the relevant facts and circumstances. This guidance was effective for us in 2006. Implementation did not have a material impact on our consolidated financial statements.

In November 2005, the CICA issued guidance to clarify the accounting treatment for a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event. Under this guidance, which is similar to that issued in the US earlier that year, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The guidance was effective

for us in 2006, and did not have a material impact on our consolidated financial statements.

In September 2006, the US Securities and Exchange Commission (SEC) issued guidance on quantifying misstatements in the financial statements, requiring that misstatements identified in the current year financial statements which result from misstatements of prior year financial statements be quantified and evaluated using a dual approach that includes both an income statement and balance sheet assessment of any misstatement. The guidance was effective for fiscal years ending after November 15, 2006 and did not have a material impact on our US GAAP consolidated financial statements.

In September 2006, the US standard setters issued a standard on employers’ accounting for defined benefit pension and other post-retirement benefit plans that requires: (1) recognition of the over-funded or under-funded status of a benefit plan as an asset or liability in the statement of financial position; (2) recognition of existing unrecognized net gains and losses, unrecognized prior service costs and credits, and unrecognized net transition assets or obligations in other comprehensive income; and (3) measurement of defined benefit plan assets and obligations as of the year-end date. The guidance is effective for our December 31, 2006 US GAAP consolidated financial statements. Refer to Note 32 to our consolidated financial statements for the impact of this guidance.

2007, 2008

In January 2005, the CICA issued new guidance relating to comprehensive income, equity, financial instruments and hedges. Under the new standards: (1) a new location for recognizing certain gains and losses — other comprehensive income — has been introduced, providing for certain gains and losses arising from changes in fair value to be temporarily recorded outside the income statement, but in a transparent manner; (2) existing requirements for hedge accounting are extended; and (3) all financial instruments, including derivatives, are to be included on a company’s balance sheet and measured (in most cases) at fair value. The guidance will be effective for the first quarter of 2007. We are reviewing the guidance to determine the potential impact on our consolidated financial statements.

In March 2006, the CICA reached a conclusion on the accounting for stripping costs that differs from the US standards, concluding that such stripping costs should be accounted for according to the benefit received by the entity and recorded as either a component of inventory or a betterment to the mineral property, depending

48           POTASHCORP 2006 FINANCIAL REVIEW / MD&A » FORWARD-LOOKING STATEMENTS

on the benefit received. The implementation of this guidance is effective January 1, 2007, and is not expected to have a material impact on our consolidated financial statements.

The US and Canadian standard setters issued guidance in April and September 2006, respectively, providing additional clarification on how to analyze and consolidate a VIE. The guidance concludes that the “by-design” approach should be used to assess variability (that is created by the risks it is designed to create and pass along to its interest holders) when applying the VIE standards. The “by-design” approach focuses on the substance of the risks created over the form of the relationship. The guidance may be applied to all entities (including newly created entities) with which an enterprise first becomes involved, and to all entities previously required to be analyzed as variable interest entities when a reconsideration event has occurred, effective January 1, 2007. The implementation of this guidance is not expected to have a material impact on our consolidated financial statements.

In July 2006, the CICA revised guidance on treatment of accounting changes. The revised standards require that: (1) voluntary changes in accounting policy are made only if they result in the financial statements providing reliable and more relevant information; (2) changes in accounting policy are generally applied retrospectively; and (3) prior period errors are corrected retrospectively. This guidance is effective for fiscal years beginning on or after January 1, 2007 and is not expected to have a material impact on our consolidated financial statements.

In July 2006, the CICA issued guidance on how compensation cost attributable to a stock-based award for a compensation plan containing provisions which allow an employee’s award to continue vesting after the employee has retired should be accounted for. Compensation cost for an employee who is eligible to retire at the grant date should be recognized on the grant date. In the case of an employee who will become eligible to retire during the vesting

period, the compensation cost should be recognized over the period from the grant date to the date the employee becomes eligible to retire. The implementation of the guidance is effective January 1, 2007, and is not expected to have a material impact on our consolidated financial statements.

In July 2006, the US standard setters issued guidance on accounting for uncertainty in income taxes, prescribing a comprehensive model for how a company should recognize, measure, present and disclose uncertain tax positions that it has taken or expects to take on a tax return. The evaluation of tax positions will be a two-step process, whereby: (1) the company determines whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position; and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the company would recognize the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with the taxing authority. We are reviewing the guidance (which is effective for the first quarter of 2007) to determine the potential impact, if any, on our consolidated financial statements.

In September 2006, the US standard setters issued guidance on accounting for planned major maintenance activities in the airline industry that prohibits use of the accrue-in-advance method of accounting. The guidance is effective for the first quarter of 2007, and is not expected to have a material impact on our consolidated financial statements.

In September 2006, the US standard setters issued a framework for measuring fair value which is effective for the first quarter of 2008. We are reviewing the guidance to determine the potential impact, if any, on our consolidated financial statements.

For further information relating to the impact of the release of recent accounting pronouncements in Canada and the US on our consolidated financial statements, see Notes 2 and 32 to our consolidated financial statements.

FORWARD-LOOKING STATEMENTS

This 2006 Financial Review, including the “Key Earnings Sensitivities” and “Outlook” sections of Management’s Discussion & Analysis of Financial Condition and Results of Operations, contains forward-looking statements. These statements can be identified by expressions of belief, expectation or intention, as well as those statements that are not historical fact. These statements are based on certain factors and assumptions as set forth in this 2006 Financial Review, including expected foreign exchange rates, expected growth, results of operations, performance and business prospects and opportunities. While the company considers these factors and assumptions to be reasonable based on information currently available, they may prove to be incorrect. A number of factors could cause actual results to differ materially from those in the forward-looking statements, including, but not limited to: fluctuations in supply and demand in fertilizer, sulfur, transportation and petrochemical markets; changes in competitive pressures, including pricing pressures; risks associated with natural gas and other hedging

activities; changes in capital markets; changes in currency and exchange rates; unexpected geological or environmental conditions, including water inflow; and government policy changes. Additional risks and uncertainties can be found in our Form 10-K for the fiscal year ended December 31, 2006 under the captions “Forward-Looking Statements” and “Item 1A — Risk Factors” and in our filings with the US Securities and Exchange Commission and the Canadian provincial securities commissions. Forward-looking statements are given only as at the date of this report and the company disclaims any obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. In the case of guidance, should subsequent events show that the forward-looking statements released herein may be materially off-target, the company will evaluate whether to issue and, if appropriate following such review, issue a news release updating guidance or explaining reasons for the difference.

POTASHCORP 2006 FINANCIAL REVIEW / MD&A » 11 YEAR REPORT          49

11 YEAR REPORT

FINANCIAL DATA (in millions of US dollars except share, per-share and percentage amounts)

	2006		2005		2004		2003			2002		2001		2000			1999			1998		1997		1	1996
Sales
Potash		1,227.5		1,341.1		1,056.1		758.7			669.0		655.2		710.3			688.6			663.3		644.0			521.1
Nitrogen		1,284.1		1,368.8		1,210.4		1,156.4			841.4		993.5		964.5			744.7			844.2		939.3			111.3
Phosphate		1,255.1		1,137.3		977.9		883.9			714.0		732.1		868.1			922.3			1,099.5		1,036.7			972.5
Total sales		3,766.7		3,847.2		3,244.4		2,799.0			2,224.4		2,380.8		2,542.9			2,355.6			2,607.0		2,620.0			1,604.9
5-year CAGR 3		9.6%
10-year CAGR 3		8.9%
Gross margin
Potash		561.1		707.4		422.8		203.7			218.0		248.1		307.4			304.2			319.2		261.4			193.0
Nitrogen		315.6		318.7		242.8		193.2			47.4		94.7		104.7			(21.4	)		64.8		133.0			2.1
Phosphate		125.3		98.9		15.8		(16.5	)		41.9		64.5		76.8			130.5			230.1		196.6			196.2
Total gross margin		1,002.0		1,125.0		681.4		380.4			307.3		407.3		488.9			413.3			614.1		591.0			391.3
5-year CAGR 3		19.7%
10-year CAGR 3		9.9%
Depreciation and amortization
Potash		58.3		64.5		66.4		52.4			46.3		34.1		40.9			37.2			36.2		39.6			38.5
Nitrogen		77.6		72.0		79.7		86.4			88.0		72.8		66.1			83.5			86.7		69.0			—
Phosphate		94.6		95.6		84.4		78.9			76.8		72.0		68.1			61.8			59.1		55.1			51.6
Other		11.9		10.3		9.5		9.7			8.0		6.8		11.9			8.6			8.9		6.3			—
Total depreciation and amortization		242.4		242.4		240.0		227.4			219.1		185.7		187.0			191.1			190.9		170.0			90.1
Operating income (loss)		875.5		892.6		514.3		(55.6	)		166.9		269.7		326.8			(353.0	)		442.3		442.0			297.4
Net income (loss)* 2		631.8		542.9		298.6		(126.3	)		53.6		121.2		198.0			(412.0	)		261.0		297.1			209.0
5-year CAGR 3		39.1%
10-year CAGR 3		11.7%
Net income (loss) per share — basic 5		6.08		5.00		2.77		(1.21	)		0.52		1.17		1.89			(3.80	)		2.41		2.84			2.29
Net income (loss) per share — diluted 5		5.95		4.89		2.70		(1.21	)		0.51		1.16		1.88			(3.80	)		2.39		2.81			2.27
Dividends per share		0.60		0.60		0.55		0.50			0.50		0.50		0.50			0.50			0.48		0.52			0.53
Cash provided by operating activities		696.8		865.1		658.3		385.5			316.4		75.7		480.4			343.6			578.0		467.8			296.2
Working capital		206.7		14.7		539.9		176.1			8.6		47.1		(148.7	)		(104.8	)		329.2		281.7			278.8
Total assets		6,217.0		5,357.9		5,126.8		4,567.3			4,685.6		4,597.3		4,145.7			3,916.8			4,534.3		4,427.6			2,494.4
Long-term debt		1,357.1		1,257.6		1,258.6		1,268.6			1,019.9		1,013.7		413.7			437.0			933.3		1,130.0			620.0
Shareholders’ equity		2,780.3		2,132.5		2,385.6		1,973.8			2,092.5		2,086.5		2,012.1			1,962.4			2,453.8		2,227.9			1,405.5
Shares outstanding at the end of the year (thousands) 4,5		104,801		103,594		110,631		106,224			104,156		103,904		103,682			107,388			108,488		107,792			91,164

OPERATING DATA (thousands)

	2006		2005		2004		2003		2002		2001		2000		1999		1998		1997		1	1996
Employees at year-end (actual #)		4,871		4,879		4,906		4,904		5,199		4,997		5,338		5,498		5,744		5,751			4,490
Potash production (KCl) tonnage		7,018		8,816		7,914		7,094		6,447		6,128		7,149		6,388		6,995		6,483			5,782
Nitrogen production (N) tonnage		2,579		2,600		2,558		2,619		2,990		3,032		2,706		3,138		3,121		2,349			—
Phosphate production (P2O5) tonnage		2,108		2,097		1,962		1,861		1,512		1,573		2,042		2,124		2,363		2,282			2,096
Potash sales — KCl tonnes		7,196		8,164		8,276		7,083		6,327		6,243		6,912		6,474		6,283		6,640			5,612
Nitrogen sales — product tonnes		4,820		5,220		5,350		6,080		6,391		6,381		6,760		6,705		6,596		5,851			535
Phosphate sales — product tonnes		4,078		3,971		3,793		3,647		2,863		3,045		3,893		4,016		4,627		4,434			4,305

1	Data for 1997 and thereafter reflect the acquisition of Arcadian Corporation on March 6, 1997.
2	There were no extraordinary items or discontinued operations in any of the accounting periods.
3	Compound annual growth rate expressed as a percentage.
4	Common shares were repurchased in 2005, 2000 and 1999 in the amounts of 9.500 million, 2.070 million and 0.630 million, respectively.
5	All share and per-share data have been retroactively restated to reflect the stock dividend of one common share for each share owned by shareholders of record at the close of business on August 11, 2004. The stock dividend had the same effect as a two-for-one stock split.

The consolidated financial statements of the company have been prepared in accordance with Canadian generally accepted accounting principles. These principles differ in certain material respects from those applicable in the United States. (See Note 32 to the company’s consolidated financial statements.) Certain of the prior years’ figures have been reclassified to conform with the current year’s presentation.

Additional Information

*  The after-tax effects of asset impairment, plant shutdown, plant closure and office consolidation charges and the gain on sale of long-term investments are included (as applicable) in the data for 2006, 2004, 2003, 2000 and 1999 in the amounts of $4.5, $(30.8), $203.2, $1.5 and $547.1, respectively.

50          POTASHCORP 2006 FINANCIAL REVIEW | FINANCIAL PERFORMANCE INDICATORS

FINANCIAL PERFORMANCE INDICATORS (in millions of US dollars except share, per-share and tonnage amounts)

SUMMARY

	2006		2005			2004		2003			2002		2001			2000		1999			1998			1997			1996
Net income (loss)1		631.8		542.9			298.6		(126.3	)		53.6		121.2			198.0		(412.0	)		261.0			297.1			209.0
Net income (loss) share — diluted		5.95		4.89			2.70		(1.21	)		0.51		1.16			1.88		(3.80	)		2.39			2.81			2.27
EBITDA2		1,117.9		1,135.0			754.3		171.8			386.0		455.4			513.8		(161.9	)		633.2			612.0			387.5
Cash flow prior to working capital changes3		940.8		860.3			538.3		368.5			289.2		345.8			405.1		319.6			556.2			489.3			321.7
Cash provided by operating activities		696.8		865.1			658.3		385.5			316.4		75.7			480.4		343.6			578.0			467.8			296.2
Return on assets		10.2%		10.1%			5.8%		(2.8%	)		1.1%		2.6%			4.8%		(10.5%	)		5.8%			6.7%			8.4%
Cash flow return4		14.5%		14.7%			11.1%		2.9%			6.3%		8.5%			10.5%		(3.7%	)		12.6%			13.0%			13.0%
Weighted average cost of capital		8.8%		8.3%			8.4%		7.3%			7.3%		7.7%			8.7%		8.7%			8.3%			8.8%			9.7%
Total shareholder return		79.6%		(2.7%	)		93.4%		37.5%			5.2%		(20.4%	)		64.6%		(23.0%	)		(21.9%	)		(1.1%	)		21.4%
Total debt to capital		40.8%		41.5%			36.4%		42.3%			41.7%		42.1%			31.1%		31.9%			29.5%			35.7%			30.9%
Net debt to capital5		36.4%		39.9%			27.5%		42.2%			41.3%		41.3%			28.7%		30.8%			28.1%			35.5%			30.9%

RECONCILIATIONS AND CALCULATIONS

	2006			2005			2004			2003			2002			2001			2000			1999			1998			1997			1996
Net income (loss)1		631.8			542.9			298.6			(126.3	)		53.6			121.2			198.0			(412.0	)		261.0			297.1			209.0
Income taxes		158.1			267.4			131.7			(20.6	)		30.2			68.2			67.2			7.5			117.5			69.1			43.7
Interest expense		85.6			82.3			84.0			91.3			83.1			80.3			61.6			51.5			63.8			75.8			44.7
Depreciation and amortization		242.4			242.4			240.0			227.4			219.1			185.7			187.0			191.1			190.9			170.0			90.1
EBITDA2		1,117.9			1,135.0			754.3			171.8			386.0			455.4			513.8			(161.9	)		633.2			612.0			387.5
5-year CAGR7		19.7%
10-year CAGR7		11.2%
Cash flow prior to working capital changes3		940.8			860.3			538.3			368.5			289.2			345.8			405.1			319.6			556.2			489.3			321.7
Accounts receivable		11.0			(107.6	)		(51.9	)		(39.5	)		(11.1	)		69.9			(52.2	)		33.8			48.8			23.5			(7.4	)
Inventories		13.9			(119.9	)		(10.5	)		11.8			(18.2	)		(76.1	)		(27.4	)		(16.1	)		(7.9	)		19.9			2.5
Prepaid expenses and other current assets		0.2			(5.8	)		(6.3	)		11.4			(3.9	)		2.3			(3.1	)		3.2			(16.6	)		3.7			(1.9	)
Accounts payable and accrued charges		(269.1	)		238.1			188.7			33.3			60.4			(266.2	)		158.0			3.1			(2.5	)		(68.6	)		(18.7	)
Changes in non-cash operating working capital		(244.0	)		4.8			120.0			17.0			27.2			(270.1	)		75.3			24.0			21.8			(21.5	)		(25.5	)
Cash provided by operating activities		696.8			865.1			658.3			385.5			316.4			75.7			480.4			343.6			578.0			467.8			296.2
Net income (loss)		631.8			542.9			298.6			(126.3	)		53.6			121.2			198.0			(412.0	)		261.0			297.1			209.0
Total assets		6,217.0			5,357.9			5,126.8			4,567.3			4,685.6			4,597.3			4,145.7			3,916.8			4,534.3			4,427.6			2,494.4
Return on assets		10.2%			10.1%			5.8%			(2.8%	)		1.1%			2.6%			4.8%			(10.5%	)		5.8%			6.7%			8.4%
Net income (loss)		631.8			542.9			298.6			(126.3	)		53.6			121.2			198.0			(412.0	)		261.0			297.1			209.0
Income taxes		158.1			267.4			131.7			(20.6	)		30.2			68.2			67.2			7.5			117.5			69.1			43.7
Interest expense		85.6			82.3			84.0			91.3			83.1			80.3			61.6			51.5			63.8			75.8			44.7
Current income taxes		(108.1	)		(227.3	)		(105.4	)		—			(24.2	)		(20.5	)		(32.6	)		(14.7	)		(19.4	)		(34.6	)		(20.0	)
Depreciation and amortization		242.4			242.4			240.0			227.4			219.1			185.7			187.0			191.1			190.9			170.0			90.1
Cash flow4		1,009.8			907.7			648.9			171.8			361.8			434.9			481.2			(176.6	)		613.8			577.4			367.5
Total assets		6,217.0			5,357.9			5,126.8			4,567.3			4,685.6			4,597.3			4,145.7			3,916.8			4,534.3			4,427.6			2,494.4
Cash and cash equivalents		(325.7	)		(93.9	)		(458.9	)		(4.7	)		(24.5	)		(45.3	)		(100.0	)		(44.0	)		(68.0	)		(8.8	)		—
Accumulated depreciation of property, plant and equipment		2,073.8			1,927.7			1,754.9			1,576.2			1,454.7			1,274.3			1,111.8			951.0			812.4			662.0			528.7
Accumulated amortization of other assets and intangible assets		72.6			66.4			65.1			70.1			59.1			42.0			38.0			42.0			49.2			17.7			11.8
Accumulated amortization of goodwill		7.3			7.3			7.3			7.3			7.3			7.3			4.3			1.4			27.4			12.7			0.4
Accounts payable and accrued charges		(545.2	)		(842.7	)		(599.9	)		(380.3	)		(347.0	)		(271.4	)		(525.9	)		(349.1	)		(349.7	)		(348.1	)		(180.0	)
Adjusted assets		7,499.8			6,422.7			5,895.3			5,835.9			5,835.2			5,604.2			4,673.9			4,518.1			5,005.6			4,763.1			2,855.3
Average adjusted assets		6,961.3			6,159.0			5,865.6			5,835.6			5,719.7			5,139.1			4,596.0			4,761.9			4,884.4			4,447.0			2,830.7
Cash flow return4		14.5%			14.7%			11.1%			2.9%			6.3%			8.5%			10.5%			(3.7%	)		12.6%			13.0%			13.0%

See footnotes on Page 52.

POTASHCORP 2006 FINANCIAL REVIEW | FINANCIAL PERFORMANCE INDICATORS          51

FINANCIAL PERFORMANCE INDICATORS (in millions of US dollars except share, per-share and tonnage amounts)

RECONCILIATIONS AND CALCULATIONS (continued)

	2006			2005			2004			2003			2002			2001			2000			1999			1998			1997			1996
Weighted average cost of capital		8.8%			8.3%			8.4%			7.3%			7.3%			7.7%			8.7%			8.7%			8.3%			8.8%			9.7%
End of year closing price (dollars)		143.48			80.22			83.06			43.24			31.80			30.69			39.16			24.10			31.94			41.50			42.50
Beginning of year opening price (dollars)		80.22			83.06			43.24			31.80			30.69			39.16			24.10			31.94			41.50			42.50			35.44
Change in share price (dollars)		63.26			(2.84	)		39.82			11.44			1.11			(8.47	)		15.06			(7.84	)		(9.56	)		(1.00	)		7.06
Dividends per share (dollars)		0.60			0.60			0.55			0.50			0.50			0.50			0.50			0.50			0.48			0.52			0.53
Total shareholder return		79.6%			(2.7%	)		93.4%			37.5%			5.2%			(20.4%	)		64.6%			(23.0%	)		(21.9%	)		(1.1%	)		21.4%
Short-term debt		157.9			252.2			93.5			176.2			473.0			501.1			488.8			474.5			94.9			101.9			6.3
Current portion of long-term debt		400.4			1.2			10.3			1.3			3.4			—			5.7			7.4			0.4			2.7			1.8
Long-term debt		1,357.1			1,257.6			1,258.6			1,268.6			1,019.9			1,013.7			413.7			437.0			933.3			1,130.0			620.0
Total debt		1,915.4			1,511.0			1,362.4			1,446.1			1,496.3			1,514.8			908.2			918.9			1,028.6			1,234.6			628.1
Cash and cash equivalents		(325.7	)		(93.9	)		(458.9	)		(4.7	)		(24.5	)		(45.3	)		(100.0	)		(44.0	)		(68.0	)		(8.8	)		—
Net debt 5		1,589.7			1,417.1			903.5			1,441.4			1,471.8			1,469.5			808.2			874.9			960.6			1,225.8			628.1
Shareholders’ equity		2,780.3			2,132.5			2,385.6			1,973.8			2,092.5			2,086.5			2,012.1			1,962.4			2,453.8			2,227.9			1,405.5
Total debt to capital		40.8%			41.5%			36.4%			42.3%			41.7%			42.1%			31.1%			31.9%			29.5%			35.7%			30.9%
Net debt to capital5		36.4%			39.9%			27.5%			42.2%			41.3%			41.3%			28.7%			30.8%			28.1%			35.5%			30.9%
Current assets		1,310.2			1,110.8			1,243.6			733.9			832.0			819.6			871.7			726.2			774.2			734.5			467.0
Current liabilities		(1,103.5	)		(1,096.1	)		(703.7	)		(557.8	)		(823.4	)		(772.5	)		(1,020.4	)		(831.0	)		(445.0	)		(452.8	)		(188.2	)
Working capital		206.7			14.7			539.9			176.1			8.6			47.1			(148.7	)		(104.8	)		329.2			281.7			278.8
Cash and cash equivalents		(325.7	)		(93.9	)		(458.9	)		(4.7	)		(24.5	)		(45.3	)		(100.0	)		(44.0	)		(68.0	)		(8.8	)		—
Short-term debt		157.9			252.2			93.5			176.2			473.0			501.1			488.8			474.5			94.9			101.9			6.3
Current portion of long-term debt		400.4			1.2			10.3			1.3			3.4			—			5.7			7.4			0.4			2.7			1.8
Non-cash operating working capital		439.3			174.2			184.8			348.9			460.5			502.9			245.8			333.1			356.5			377.5			286.9
Sales		3,766.7			3,847.2			3,244.4			2,799.0			2,224.4			2,380.8			2,542.9			2,355.6			2,607.0			2,620.0			1,604.9
Freight		255.8			249.7			238.7			234.5			215.2			216.7			222.1			212.5			216.5			226.6			144.6
Transportation and distribution		134.1			121.9			104.3			98.7			80.5			83.3			83.1			77.0			77.9			61.7			49.1
Net sales6		3,376.8			3,475.6			2,901.4			2,465.8			1,928.7			2,080.8			2,237.7			2,066.1			2,312.6			2,331.7			1,411.2
Potash net sales
North American		470.5			495.6			347.5			230.6			215.3			232.1			237.8			237.4			227.6			210.2			157.6
Offshore		576.0			668.3			504.6			336.2			300.7			293.4			340.9			325.9			317.9			294.0			245.6
Miscellaneous products		11.7			13.0			42.7			52.3			28.5			6.3			3.4			2.3			2.9			3.8			2.3
Total		1,058.2			1,176.9			894.8			619.1			544.5			531.8			582.1			565.6			548.4			508.0			405.5
Potash sales (thousands KCl tonnes)
North American		2,785			3,144			3,246			2,870			2,780			2,894			2,939			2,871			2,702			3,017			2,589
Offshore		4,411			5,020			5,030			4,213			3,547			3,349			3,973			3,603			3,581			3,623			3,023
Total		7,196			8,164			8,276			7,083			6,327			6,243			6,912			6,474			6,283			6,640			5,612
Weighted average shares outstanding
Basic (thousands)		103,960			108,568			107,967			104,460			104,042			103,758			104,820			108,460			108,354			104,550			91,074
Diluted (thousands)		106,230			111,078			110,739			104,460			104,632			104,372			105,406			108,460			109,003			105,642			92,119

Certain of the prior years’ figures have been reclassified to conform with the current year’s presentation.

See footnotes on Page 52.

52          POTASHCORP 2006 FINANCIAL REVIEW | FINANCIAL PERFORMANCE INDICATORS

FINANCIAL PERFORMANCE INDICATORS (in millions of US dollars except share, per-share and tonnage amounts)

NON-GAAP FINANCIAL MEASURES AND FOOTNOTES TO RECONCILIATIONS AND CALCULATIONS

The following information is included for convenience only. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles (“GAAP”). EBITDA, adjusted EBITDA, cash flow prior to working capital changes, cash flow, cash flow return, net debt, net debt to capital and consolidated net sales are not measures of financial performance (nor do they have standardized meanings) under either Canadian GAAP or US GAAP. In evaluating these measures, investors should consider that the methodology applied in calculating such measures may differ among companies and analysts.

The company uses both GAAP and certain non-GAAP measures to assess performance. Management believes these non-GAAP measures provide useful supplemental information to investors in order that they may evaluate PotashCorp’s financial performance using the same measures as management. Management believes that, as a result, the investor is afforded greater transparency in assessing the financial performance of the company. These non-GAAP financial measures should not be considered as a substitute for, nor superior to, measures of financial performance prepared in accordance with GAAP.

1	The after-tax effects of asset impairment, plant shutdown, plant closure and office consolidation charges and the gain on sale of long-term investments are included (as applicable) in the data for 2006, 2004, 2003, 2000 and 1999 in the amounts of $4.5, $(30.8), $203.2, $1.5 and $547.1, respectively.
2	PotashCorp uses EBITDA and adjusted EBITDA as supplemental financial measures of its operational performance. Management believes EBITDA and adjusted EBITDA to be important measures as they exclude the effects of items which primarily reflect the impact of long-term investment decisions, rather than the performance of the company’s day-to-day operations. As compared to net income (loss) according to GAAP, these measures are limited in that they do not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in the company’s business, or the non-cash charges associated with impairments and shutdown-related costs, or gain on sale of long-term investments. Management evaluates such items through other financial measures such as capital expenditures and cash flow provided by operating activities. The company believes that these measurements are useful to measure a company’s ability to service debt and to meet other payment obligations or as a valuation measurement.
	EBITDA has not been adjusted for the non-cash effects of asset impairment, plant shutdown, plant closure and office consolidation charges, nor the gain on sale of long-term investments. The non-cash effects of these items applicable to 2006, 2004, 2003, 2000 and 1999 were $6.3, $(30.8), $245.9, $(5.6) and $563.7, respectively. Considering the effects of these non-cash items, adjusted EBITDA for 2006, 2004, 2003, 2000 and 1999 would have been $1,124.2, $723.5, $417.7, $508.2 and $401.8, respectively.
3	Cash flow prior to working capital changes is defined as the cash provided by operating activities, exclusive of changes in non-cash operating working capital. PotashCorp uses cash flow prior to working capital changes as a supplemental financial measure in its evaluation of liquidity. Management believes that adjusting principally for the swings in non-cash working capital items due to seasonality assists management in making long-term liquidity assessments. The company also believes that this measurement is useful as a measure of liquidity or as a valuation measurement.
4	PotashCorp uses cash flow and cash flow return as supplemental measures to evaluate the performance of the company’s assets in terms of the cash flow they have generated. Calculated on the total cost basis of the company’s assets rather than on the depreciated value, these measures reflect cash returned on the total investment outlay. The company believes these measures are one of the best predictors of shareholder value. As such, management believes this information to be useful to investors.
5	Management believes that net debt and net-debt-to-capital ratio are useful to investors because they are helpful in determining the company’s leverage. It

	also believes that, since the company has the ability to and may elect to use a portion of cash and cash equivalents to retire debt or to incur additional expenditures without increasing debt, it is appropriate to apply cash and cash equivalents to debt in calculating net debt and net debt to capital. PotashCorp believes that this measurement is useful as a financial leverage measure.
6	Management includes net sales in its segment disclosures in the consolidated financial statements pursuant to Canadian GAAP, which requires segmentation based upon the company’s internal organization and reporting of revenue and profit measures derived from internal accounting methods. Net sales (and related per-tonne amounts and other ratios) are primary revenue measures it uses and reviews in making decisions about operating matters on a business segment basis. These decisions include assessments about potash, nitrogen and phosphate performance and the resources to be allocated to these segments. It also uses net sales (and related per-tonne amounts and other ratios) for business segment planning and monthly forecasting. Net sales are calculated as sales revenues less freight, transportation and distribution expenses. Net sales presented on a consolidated basis rather than by business segment is considered a non-GAAP financial measure.
7	Compound annual growth rate expressed as a percentage.

FINANCIAL TERMS

Total shareholder return = (change in market price per common share + dividends per share) / beginning market price per common share

Debt to capital = total debt / (total debt + total shareholders’ equity)

Net debt to capital = (total debt – cash and cash equivalents) / (total debt – cash and cash equivalents + total shareholders’ equity)

Current income taxes = income tax expense (recovery) – provision for (recovery of) future income tax

Cash flow = net income or loss + income taxes + interest –current income taxes + depreciation and amortization

Cash flow return = cash flow / average (total assets – cash and cash equivalents + accumulated depreciation and amortization – accounts payable and accrued charges)

EBITDA = earnings (net income or loss) before interest, taxes, depreciation and amortization

Adjusted EBITDA = EBITDA + impairment charges + non-cash shutdown / closure-related costs and office consolidation costs – gain on sale of long-term investments

Return on assets = net income or loss / total assets

Market value of total capital = market value of total debt – cash and cash equivalents + market value of equity

Weighted average cost of capital = simple quarterly average of ((market value of total debt – cash and cash equivalents) / market value of total capital x after-tax cost of debt + market value of equity / market value of total capital x cost of equity)

Average adjusted assets = simple average of the current year’s adjusted assets and the previous year’s adjusted assets, except when a material acquisition occurred, in which case the weighted average rather than the simple average is calculated; the last material acquisition was in 1997

POTASHCORP 2006 FINANCIAL REVIEW / MANAGEMENT’S RESPONSIBILITY          53

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

MANAGEMENT’S REPORT ON FINANCIAL STATEMENTS

The accompanying consolidated financial statements and related financial information are the responsibility of PotashCorp management and have been prepared in accordance with accounting principles generally accepted in Canada and include amounts based on estimates and judgments. Financial information included elsewhere in this report is consistent with the consolidated financial statements.

Our independent registered chartered accountants, Deloitte & Touche LLP, provide an audit of the consolidated financial statements, as reflected in their report for 2006 included on Page 55.

The consolidated financial statements are approved by the Board of Directors on the recommendation of the audit committee.

The audit committee of the Board of Directors is composed of directors who are not officers or employees of PotashCorp. PotashCorp’s interim consolidated financial statements and MD&A are discussed and analyzed by the audit committee with management and the independent registered chartered accountants before such information is approved by the committee and submitted to securities commissions or other regulatory authorities. The annual consolidated financial statements and MD&A are also analyzed by the audit committee together with management and the independent registered chartered accountants and are approved by the board.

In addition, the audit committee has the duty to review critical accounting policies and significant estimates and judgments underlying the consolidated financial statements as presented by management, and to approve the fees of the independent registered chartered accountants.

Deloitte & Touche LLP, the independent registered chartered accountants, have full and independent access to the audit committee to discuss their audit and related matters.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining an adequate system of internal control over financial reporting. During the past year, we have directed efforts to improve and document our internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Management has assessed the effectiveness of the company’s internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and concluded that the company’s internal control over financial reporting was effective as of December 31, 2006. Management’s assessment of the effectiveness of the company’s internal control over financial reporting as of December 31, 2006 has been audited by Deloitte & Touche LLP, as reflected in their report for 2006 included on Page 54.

W. Doyle	W. Brownlee
President and	Executive Vice President and
Chief Executive Officer	Chief Financial Officer

February 14, 2007

54          POTASHCORP 2006 FINANCIAL REVIEW / INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS’ REPORTS

REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF POTASH CORPORATION OF SASKATCHEWAN INC.

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Potash Corporation of Saskatchewan Inc. and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’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. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of 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, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management and other personnel 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 the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the 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, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as of and for the year ended December 31, 2006 and our report dated February 14, 2007 expressed an unqualified opinion on these financial statements and included a separate report titled Comments by Independent Registered Chartered Accountants on Canada-United States of America Reporting Differences referring to changes in accounting principles.

Independent Registered Chartered Accountants
Saskatoon, Canada

February 14, 2007

POTASHCORP 2006 FINANCIAL REVIEW /INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS’ REPORTS          55

REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF POTASH CORPORATION OF SASKATCHEWAN INC.

We have audited the accompanying consolidated statements of financial position of Potash Corporation of Saskatchewan Inc. and subsidiaries (the “Company”) as of December 31, 2006 and 2005, and the related consolidated statements of operations and retained earnings and cash flow for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these 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 plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Potash Corporation of Saskatchewan Inc. and subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006 in conformity with Canadian generally accepted accounting principles.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 14, 2007 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Independent Registered Chartered Accountants
Saskatoon, Canada
February 14, 2007

COMMENTS BY INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
ON CANADA-UNITED STATES OF AMERICA REPORTING DIFFERENCES

The standards of the Public Company Accounting Oversight Board (United States) require the addition of an explanatory paragraph when there are changes that have an effect on the comparability of the consolidated financial statements or changes that have been implemented in the financial statements, such as the changes described in Note 3 and Note 26 to Potash Corporation of Saskatchewan Inc.’s consolidated financial statements. Although we conducted our audits in accordance with both Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), our report to the shareholders dated February 14, 2007 is expressed in accordance with Canadian reporting standards, which do not require a reference to such changes in accounting principles in the auditors’ report when the changes are properly accounted for and adequately disclosed in the consolidated financial statements.

Independent Registered Chartered Accountants
Saskatoon, Canada
February 14, 2007

56           POTASHCORP 2006 FINANCIAL REVIEW / CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

as at December 31	in millions of US dollars except share amounts
	2006		2005
Assets
Current assets
Cash and cash equivalents	$	325.7	$	93.9
Accounts receivable (Note 5)		442.3		453.3
Inventories (Note 6)		501.3		522.5
Prepaid expenses and other current assets		40.9		41.1
		1,310.2		1,110.8
Property, plant and equipment (Note 7)		3,525.8		3,262.8
Other assets (Note 8)		1,254.7		852.8
Intangible assets (Note 8)		29.3		34.5
Goodwill (Note 9)		97.0		97.0
	$	6,217.0	$	5,357.9
Liabilities
Current liabilities
Short-term debt (Note 10)	$	157.9	$	252.2
Accounts payable and accrued charges (Note 11)		545.2		842.7
Current portion of long-term debt (Note 12)		400.4		1.2
		1,103.5		1,096.1
Long-term debt (Note 12)		1,357.1		1,257.6
Future income tax liability (Note 24)		632.1		543.3
Accrued pension and other post-retirement benefits (Note 14)		219.6		213.9
Accrued environmental costs and asset retirement obligations (Note 15)		110.3		97.3
Other non-current liabilities and deferred credits		14.1		17.2
		3,436.7		3,225.4
Commitments, Contingencies and Guarantees (Notes 13, 28 and 29, respectively)
Shareholders’ Equity
Share capital (Note 16)		1,431.6		1,379.3
Unlimited authorization of common shares without par value; issued and outstanding 104,801,049 and 103,593,792 shares at December 31, 2006 and 2005, respectively
Unlimited authorization of first preferred shares; none outstanding
Contributed surplus (Note 17)		62.3		36.3
Retained earnings		1,286.4		716.9
		2,780.3		2,132.5
	$	6,217.0	$	5,357.9

(See Notes to the Consolidated Financial Statements)

Approved by the Board of Directors,

Director	Director

POTASHCORP 2006 FINANCIAL REVIEW / CONSOLIDATED FINANCIAL STATEMENTS          57

CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

for the years ended December 31	in millions of US dollars except per-share amounts
		2006			2005			2004
Sales (Note 18)		$	3,766.7		$	3,847.2		$	3,244.4
Less: Freight			255.8			249.7			238.7
Transportation and distribution			134.1			121.9			104.3
Cost of goods sold (Note 19)			2,374.8			2,350.6			2,220.0
Gross Margin			1,002.0			1,125.0			681.4
Selling and administrative (Note 20)			158.4			144.5			130.6
Provincial mining and other taxes (Note 21)			66.5			137.2			92.6
Foreign exchange (gain) loss			(4.4	)		12.5			19.7
Other income (Note 22)			(94.0	)		(61.8	)		(75.8	)
			126.5			232.4			167.1
Operating Income			875.5			892.6			514.3
Interest Expense (Note 23)			85.6			82.3			84.0
Income Before Income Taxes			789.9			810.3			430.3
Income Taxes (Note 24)			158.1			267.4			131.7
Net Income			631.8			542.9			298.6
Retained Earnings, Beginning of Year			716.9			701.5			462.8
Repurchase of Common Shares (Note 16)			—			(462.5	)		—
Dividends			(62.3	)		(65.0	)		(59.9	)
Retained Earnings, End of Year		$	1,286.4		$	716.9		$	701.5
Net Income per Share — Basic (Note 25)		$	6.08		$	5.00		$	2.77
Net Income per Share — Diluted (Note 25)		$	5.95		$	4.89		$	2.70
Dividends per Share		$	0.60		$	0.60		$	0.55

(See Notes to the Consolidated Financial Statements)

58          POTASHCORP 2006 FINANCIAL REVIEW / CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CASH FLOW

for the years ended December 31								in millions of US dollars
			2006					2005					2004
Operating Activities
Net income			$	631.8				$	542.9				$	298.6
Adjustments to reconcile net income to cash provided by operating activities
Depreciation and amortization	242.4					242.4					240.0
Stock-based compensation	29.5					27.5					11.1
(Gain) loss on disposal of property, plant and equipment and long-term investments	(8.6	)				11.8					(35.1	)
Provisions for phosphate plant shutdowns and PCS Yumbes S.C.M.	6.3					—					3.6
Foreign exchange on future income tax	0.5					8.9					17.2
Provision for future income tax	50.0					40.1					26.3
Undistributed earnings of equity investees	(24.5	)				(33.5	)				(22.2	)
Other long-term liabilities	13.4					20.2					(1.2	)
Subtotal of adjustments				309.0					317.4					239.7
Changes in non-cash operating working capital
Accounts receivable	11.0					(107.6	)				(51.9	)
Inventories	13.9					(119.9	)				(10.5	)
Prepaid expenses and other current assets	0.2					(5.8	)				(6.3	)
Accounts payable and accrued charges	(269.1	)				238.1					188.7
Subtotal of changes in non-cash operating working capital				(244.0	)				4.8					120.0
Cash provided by operating activities				696.8					865.1					658.3
Investing Activities
Additions to property, plant and equipment				(508.6	)				(382.7	)				(220.5	)
Purchase of long-term investments				(352.5	)				(190.9	)				(105.5	)
Proceeds from disposal of property, plant and equipment and long-term investments				22.0					12.4					103.3
Other assets and intangible assets				(0.6	)				5.9					(2.8	)
Cash used in investing activities				(839.7	)				(555.3	)				(225.5	)
Cash before financing activities				(142.9	)				309.8					432.8
Financing Activities
Proceeds from (repayment of) long-term debt obligations				482.6					(10.1	)				(1.0	)
(Repayment of) proceeds from short-term debt obligations				(94.3	)				158.7					(82.7	)
Dividends				(60.9	)				(65.4	)				(56.1	)
Repurchase of common shares				—					(851.9	)				—
Issuance of common shares				47.3					93.9					161.2
Cash provided by (used in) financing activities				374.7					(674.8	)				21.4
Increase (Decrease) in Cash and Cash Equivalents				231.8					(365.0	)				454.2
Cash and Cash Equivalents, Beginning of Year				93.9					458.9					4.7
Cash and Cash Equivalents, End of Year			$	325.7				$	93.9				$	458.9
Cash and cash equivalents comprised of:
Cash			$	7.9				$	18.4				$	78.3
Short-term investments				317.8					75.5					380.6
			$	325.7				$	93.9				$	458.9
Supplemental cash flow disclosure
Interest paid			$	106.8				$	86.3				$	83.3
Income taxes paid			$	226.8				$	141.6				$	33.5

(See Notes to the Consolidated Financial Statements)

NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts          59

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.     DESCRIPTION OF BUSINESS

With its subsidiaries, Potash Corporation of Saskatchewan Inc. (“PCS”) — together known as “PotashCorp” or “the company” except to the extent the context otherwise requires — forms an integrated fertilizer and related industrial and feed products company. The company has producing assets in the following locations:

• Potash

– five mines and mills and mining rights to potash reserves at a sixth location, all in the province of Saskatchewan

– one mine and mill in the province of New Brunswick

• Phosphate

– a mine and processing plants in the state of North Carolina

– a mine and two processing plants in the state of Florida

– a processing plant in the state of Louisiana

– phosphate feed plants in five states and one in Brazil

– an industrial phosphoric acid plant in the state of Ohio

• Nitrogen

– three plants in the states of Georgia, Louisiana and Ohio

– large-scale operations in Trinidad

The company owns or leases approximately 176 terminal and warehouse facilities, some of which have multi-product capability, for a total of 205 distribution points strategically located in Canada and the United States, and services customers with a fleet of approximately 7,100 railcars.

PotashCorp sells potash from its Saskatchewan mines for use outside North America exclusively to Canpotex Limited (“Canpotex”). Canpotex, a potash export, sales and marketing company owned in equal shares by the three potash producers in the province of Saskatchewan (including the company), resells potash to offshore customers. PCS Sales (Canada) Inc. and PCS Sales (USA), Inc., wholly owned subsidiaries of PCS, execute marketing and sales for the company’s potash, nitrogen and phosphate products in North America, and execute offshore marketing and sales for the company’s New Brunswick potash. PCS Sales (USA), Inc. generally executes offshore marketing and sales for the company’s nitrogen products. Phosphate Chemicals Export Association, Inc. (“PhosChem”), an unrelated phosphate export association established under United States law, is the principal vehicle through which the company executes offshore marketing and sales for its phosphate fertilizers.

2.     SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The company’s accounting policies are in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”). These policies are consistent with accounting principles generally accepted in the United States (“US GAAP”) in all material respects except as outlined in Note 32.

The preparation of consolidated financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period.

Key areas where management has made complex or subjective judgments (often as a result of matters that are inherently uncertain) include, among others, the fair value of certain assets; recoverability of investments, long-lived assets and goodwill; variable interest entities (“VIEs”); litigation; environmental and asset retirement obligations; pensions and other post-retirement benefits; stock-based compensation; and income taxes. Actual results could differ from these and other estimates, the impact of which would be recorded in future periods.

The following accounting policies are considered to be significant:

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of PotashCorp and its subsidiaries, and any VIEs for which the company is the primary beneficiary. Principal operating subsidiaries include:

• PCS Sales (Canada) Inc.

– PCS Joint Venture, Ltd. (“PCS Joint Venture”)

• PCS Sales (USA), Inc.

• PCS Phosphate Company, Inc. (“PCS Phosphate”)

– PCS Purified Phosphates

• White Springs Agricultural Chemicals, Inc. (“White Springs”)

• PCS Nitrogen Fertilizer, L.P.

• PCS Nitrogen Ohio, L.P.

• PCS Nitrogen Trinidad Limited

• PCS Cassidy Lake Company (“PCS Cassidy Lake”)

• PCS Yumbes S.C.M. (“PCS Yumbes”) — sold in 2004

• PCS Fosfatos do Brasil Ltda.

All significant intercompany balances and transactions have been eliminated.

CASH EQUIVALENTS

Highly liquid investments with an original maturity of three months or less are considered to be cash equivalents.

INVENTORIES

Inventories of finished product, raw materials and intermediate products are valued at the lower of cost and market. Cost for substantially all product inventories is determined using the weighted average cost method. Certain inventories of materials and supplies are valued at the lower of average cost and replacement cost, and certain inventories of materials and supplies are valued at the lower of cost and market.

PREPAID EXPENSES

Prepaid expenses include prepaid freight and throughput costs relating to product inventory stored at warehouse and terminal facilities.

60          NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts

2.     SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment (which includes mine development costs) are carried at cost. Costs of additions, betterments, renewals and interest during construction are capitalized.

Maintenance and repair expenditures, which do not improve or extend productive life, are expensed in the year incurred.

Certain mining and milling assets are depreciated using the units of production method based on the shorter of estimates of reserves or service lives. Other asset classes are depreciated or amortized on a straight-line basis as follows: land improvements 5 to 30 years, buildings and improvements 6 to 30 years and machinery and equipment (comprised primarily of plant equipment) 20 to 25 years.

GOODWILL

All business combinations are accounted for using the purchase method. Identifiable intangible assets are recognized separately from goodwill. Goodwill is carried at cost, is not amortized and represents the excess of the purchase price and related costs over the fair value assigned to the net identifiable assets of a business acquired.

OTHER ASSETS AND INTANGIBLE ASSETS

Issue costs of long-term obligations are capitalized to deferred charges and are amortized to expense over the term of the related liability using the effective interest rate method.

Preproduction costs are capitalized to deferred charges and represent costs incurred prior to obtaining commercial production at new facilities, net of revenue earned, and are amortized on either a straight-line or units of production basis over a maximum of 10 years.

The costs of constructing bases for gypsum stacks and settling ponds are capitalized to deferred charges and are amortized on a straight-line basis over their estimated useful lives of 3 to 5 years.

Investments in which the company exercises significant influence (but does not control) are accounted for using the equity method. Other investments are stated at cost. An investment is considered impaired if its fair value falls below its cost and the decline is considered other than temporary. Factors the company considers in determining whether a decline is temporary include the length of time and extent to which fair value has been below cost, the financial condition and near-term prospects of the investee, and the company’s ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery. For actively traded securities, the company typically considers quoted market value to be fair value. For thinly traded securities where market quotes are either not available or not representative of fair value, it uses estimation techniques such as those described under Asset Impairment. When there has been a decline in value that is other than temporary, the carrying value of the investment is appropriately reduced.

Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives as follows: production and technology rights 25 to 30 years and computer software 5 years.

ASSET IMPAIRMENT

The company reviews both long-lived assets to be held and used and identifiable intangible assets with finite lives whenever events or changes in circumstances indicate that the carrying amount of such

assets may not be fully recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets and certain identifiable intangible assets that management expects to hold and use is based on the fair value of the assets, whereas such assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.

Goodwill impairment is assessed at the reporting unit level at least annually (in April), or more frequently if events or circumstances indicate there may be an impairment. Reporting units comprise business operations with similar economic characteristics and strategies and may represent either a business segment or a business unit within a business segment. Potential impairment is identified when the carrying value of a reporting unit, including the allocated goodwill, exceeds its fair value. Goodwill impairment is measured as the excess of the carrying amount of the reporting unit’s allocated goodwill over the implied fair value of the goodwill, based on the fair value of the assets and liabilities of the reporting unit.

The fair values are estimated using accepted valuation methodologies such as discounted future net cash flows, earnings multiples or prices for similar assets, whichever is most appropriate under the circumstances.

LEASES

Leases entered into are classified as either capital or operating leases. Leases that transfer substantially all of the benefits and risks of ownership of property to the company are accounted for as capital leases. Equipment acquired under capital leases is depreciated over the period of expected use on the same basis as other similar property, plant and equipment. Gains or losses resulting from sale/leaseback transactions are deferred and amortized in proportion to the amortization of the leased asset. Rental payments under operating leases are expensed as incurred.

PENSION AND OTHER POST-RETIREMENT BENEFITS

The company offers a number of benefit plans that provide pension and other benefits to qualified employees. These plans include defined benefit pension plans, supplemental pension plans, defined contribution plans and health, disability, dental and life insurance plans.

The company accrues its obligations under employee benefit plans and the related costs, net of plan assets. The cost of pensions and other retirement benefits earned by employees is generally actuarially determined using the projected benefit method prorated on service and management’s best estimate of expected plan investment performance, salary escalation, retirement ages of employees and expected health-care costs. For the purpose of calculating the expected return on plan assets, those assets are valued at fair value. Prior service costs from plan amendments are deferred and amortized on a straight-line basis over the average remaining service period of employees active at the date of amendment. Actuarial gains (losses) arise from the difference between actual long-term rate of return on plan assets for a period and the expected long-term rate of return on plan assets for that period, or from changes in actuarial assumptions used to determine the accrued benefit obligation. The excess of the net accumulated actuarial gain (loss) over 10 percent of the greater of the benefit obligation and the fair value of plan assets is amortized

NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts          61
 

2.   SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

over the average remaining service period of active employees. When the restructuring of a benefit plan gives rise to both a curtailment and a settlement of obligations, the curtailment is accounted for prior to the settlement. Actuaries perform valuations on a regular basis to determine the actuarial present value of the accrued pension and other post-retirement benefits.

Pension and other post-retirement benefit expense includes, as applicable, the net of management’s best estimate of the cost of benefits provided, interest cost of projected benefits, return on plan assets, amortization of experience gains or losses and plan amendments, and changes in the valuation allowance.

Defined contribution plan costs are recognized in earnings for services rendered by employees during the period.

ENVIRONMENTAL COSTS AND ASSET RETIREMENT OBLIGATIONS

Environmental costs that relate to current operations are expensed or capitalized as appropriate. Environmental costs are capitalized if the costs extend the life of the property, increase its capacity, mitigate or prevent contamination from future operations, or relate to legal asset retirement obligations. Costs that relate to existing conditions caused by past operations and that do not contribute to current or future revenue generation are expensed. Provisions for estimated costs are recorded when environmental remedial efforts are likely and the costs can be reasonably estimated. In determining the provisions, the company uses the most current information available, including similar past experiences, available technology, regulations in effect, the timing of remediation and cost-sharing arrangements.

The company recognizes its obligations to retire certain tangible long-lived assets. The fair value of a liability for an asset retirement obligation is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset and then amortized over its estimated useful life. In subsequent periods, the asset retirement obligation is adjusted for the passage of time and any changes in the amount or timing of the underlying future cash flows through charges to earnings. A gain or loss may be incurred upon settlement of the liability.

STOCK-BASED COMPENSATION PLANS

Grants under the company’s stock-based compensation plans are accounted for in accordance with the fair value-based method of accounting. For stock option plans, the fair value of stock options is determined on their grant date and recorded as compensation expense over the period that the stock options vest, with a corresponding increase to contributed surplus. When stock options are exercised, the proceeds, together with the amount recorded in contributed surplus, are recorded in share capital.

FOREIGN EXCHANGE TRANSACTIONS

The company’s functional currency is the US dollar.

Canadian and Trinidad dollar operating transactions are translated to US dollars at the average exchange rate for the previous month. Monetary assets and liabilities are translated at period-end exchange rates. Non-monetary assets owned at December 31, 1994

have been translated under the translation of convenience method at the December 31, 1994 year-end exchange rate of US $1.00 = Cdn $1.4028. Additions subsequent to December 31, 1994 are translated at the exchange rate prevailing at the time of the transaction. Translation exchange gains and losses of integrated foreign operations are reflected in earnings.

DERIVATIVE FINANCIAL INSTRUMENTS

Derivative financial instruments are used by the company to manage its exposure to exchange rate, interest rate and commodity price fluctuations. The company’s policy is not to use derivative financial instruments for trading or speculative purposes. The company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking the hedge transaction. This process includes linking derivatives to specific assets and liabilities or to specific firm commitments or forecast transactions. The company also assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values of hedged items. When derivative instruments have been designated within a hedge relationship and are highly effective in offsetting the identified risk characteristics of specific financial assets and liabilities, or groups of financial assets and liabilities, hedge accounting is applied to these derivative instruments. Hedge accounting requires that gains, losses, revenue and expenses of a hedging item be recognized in the same period that the associated gains, losses, revenue and expenses of the hedged item are recognized. A hedging relationship is terminated if the hedge ceases to be effective; if the underlying asset or liability being hedged is derecognized or if it is no longer probable that the anticipated transaction will occur and the derivative instrument is still outstanding; or if the derivative instrument is no longer designated as a hedging instrument. If a hedging relationship is terminated, the difference between the fair value and the accrued value of the hedging derivatives upon termination is deferred and recognized into earnings on the same basis as gains, losses, revenue and expenses of the previously hedged item are recognized.

The company enters into natural gas futures, swaps and option agreements to manage the cost of natural gas. Gains or losses resulting from changes in the fair value of natural gas hedging transactions which have not yet been settled are not recognized, as they generally relate to changes in the spot price of anticipated natural gas purchases. Gains or losses arising from gas hedging transactions that have been settled, terminated or cease to be effective prior to maturity are deferred as a component of inventory until the product containing the hedged item is sold, at which time both the natural gas purchase cost and the related hedging deferral are recorded as cost of sales. The company regularly evaluates its unrecognized or deferred gains and losses on these derivatives from a net realizable value of inventory perspective and establishes appropriate provisions, if necessary.

The company periodically uses interest rate swaps to manage the interest rate mix of its total debt portfolio and related overall cost of borrowing. Hedge accounting treatment for interest rate swaps results in interest expense on the related debt being reflected at hedged rates rather than original contractual interest rates.

62          NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts  

2.   SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The company enters into foreign currency forward contracts in respect of its Canadian dollar requirements for operating and capital expenditures. These contracts are not designated as hedging instruments for accounting purposes. Accordingly, they are marked-to-market and carried at fair value as assets or liabilities, as appropriate, with changes in fair value recognized through foreign exchange (gain) loss in earnings.

REVENUE RECOGNITION

Sales revenue is recognized when the product is shipped, the sales price is determinable and collectability is reasonably assured. Revenue is recorded based on the FOB mine, plant, warehouse or terminal price, except for certain vessel sales or specific product sales which are shipped on a delivered basis. Transportation costs are recovered from the customer through sales pricing.

RECENT ACCOUNTING PRONOUNCEMENTS

Comprehensive Income, Equity, Financial Instruments and Hedges

In January 2005, the Canadian Institute of Chartered Accountants (“CICA”) issued Section 1530, “Comprehensive Income”, Section 3251, “Equity”, Section 3855, “Financial Instruments — Recognition and Measurement” and Section 3865, “Hedges”. The new standards increase harmonization with US GAAP and will require the following:

• Financial assets will be classified as either loans and receivables, held-to-maturity, held-for-trading or available-for-sale. Loans and receivables will include all loans and receivables except debt securities and will be accounted for at amortized cost. Held-to-maturity classification will be restricted to fixed maturity instruments that the company intends and is able to hold to maturity and will be accounted for at amortized cost. Held-for-trading instruments will be recorded at fair value with unrealized gains and losses reported in net income. The remaining financial assets will be classified as available-for-sale. These will be recorded at fair value with unrealized gains and losses reported in a new category of the Consolidated Statement of Financial Position under shareholders’ equity called other comprehensive income (“OCI”);

• Financial liabilities will be classified as either held-for-trading or other. Held-for-trading instruments will be recorded at fair value with realized and unrealized gains and losses reported in net income. Other instruments will be accounted for at amortized cost with gains and losses reported in net income in the period that the liability is derecognized; and

• Derivatives will be classified as held-for-trading unless designated as hedging instruments. All derivatives, including embedded derivatives that must be separately accounted for, will be recorded at fair value on the Consolidated Statement of Financial Position. For derivatives that hedge the changes in fair value of an asset or liability, changes in the derivatives’ fair value will be reported in net income and be substantially offset by changes in the fair value of the hedged asset or liability attributable to the risk being hedged. For derivatives that hedge variability in cash flows, the effective portion of the changes in the derivatives’ fair value will be initially recognized in OCI and the ineffective portion will be recorded in net income. The amounts temporarily recorded in OCI will subsequently

be reclassified to net income in the periods when net income is affected by the variability in the cash flows of the hedged item.

The above guidance is effective January 1, 2007. The company is currently reviewing the guidance to determine the potential impact on its consolidated financial statements.

Stripping Costs Incurred in the Production Phase of a Mining Operation

In March 2006, the Emerging Issues Committee issued Abstract No. 160, “Stripping Costs Incurred in the Production Phase of a Mining Operation” (“EIC-160”). EIC-160 discusses the treatment of costs associated with the activity of removing overburden and other mine waste minerals in the production phase of a mining operation. It concludes that such stripping costs should be accounted for according to the benefit received by the entity and recorded as either a component of inventory or a betterment to the mineral property, depending on the benefit received. The implementation of EIC-160, which is effective January 1, 2007, is not expected to have a material impact on the company’s consolidated financial statements.

Accounting Changes

In July 2006, the CICA revised Section 1506, “Accounting Changes”, which requires that: (1) voluntary changes in accounting policy are made only if they result in the financial statements providing reliable and more relevant information; (2) changes in accounting policy are generally applied retrospectively; and (3) prior period errors are corrected retrospectively. Section 1506 is effective for fiscal years beginning on or after January 1, 2007 with early adoption permitted. The implementation of this guidance is not expected to have a material impact on the company’s consolidated financial statements.

Stock-Based Compensation for Employees Eligible to Retire Before the Vesting Date

In July 2006, the Emerging Issues Committee issued Abstract No. 162, “Stock-Based Compensation for Employees Eligible to Retire Before the Vesting Date” (“EIC-162”). EIC-162 discusses how compensation cost attributable to a stock-based award for a compensation plan containing provisions which allow an employee’s stock-based award to continue vesting after the employee has retired from the entity should be accounted for in the case of an employee who is eligible to retire at the grant date, or who will become eligible to retire during the vesting period. In the case of an employee who is eligible to retire at the grant date, EIC-162 concludes that compensation cost should be recognized on the grant date. In the case of an employee who will become eligible to retire during the vesting period, the compensation cost should be recognized over the period from the grant date to the date the employee becomes eligible to retire. The implementation of EIC-162 is effective January 1, 2007, and is not expected to have a material impact on the company’s consolidated financial statements.

Determining the Variability to be Considered in Applying the Variable Interest Entity Standards

In September 2006, the Emerging Issues Committee issued Abstract No. 163, “Determining the Variability to be Considered in Applying AcG-15” (“EIC-163”). This guidance provides additional clarification on how to analyze and consolidate a variable interest entity (“VIE”). EIC-163 concludes that the “by-design” approach should be the

NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts          63
 

2.   SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

method used to assess variability (that is created by risks the entity is designed to create and pass along to its interest holders) when applying the VIE standards. The “by-design” approach focuses on the substance of the risks created over the form of the relationship. The guidance may be applied to all entities (including newly created entities) with which an enterprise first becomes involved, and to all entities previously required to be analyzed under the VIE standards when a reconsideration event has occurred, effective January 1, 2007, with early adoption encouraged. The implementation of this guidance is not expected to have a material impact on the company’s consolidated financial statements.

3.   CHANGE IN ACCOUNTING POLICIES

IMPLICIT VARIABLE INTEREST

In January 2006, the company adopted Emerging Issues Committee Abstract No. 157, “Implicit Variable Interests Under AcG-15” (“EIC-157”). EIC-157 addresses whether a company has an implicit variable interest in a VIE or potential VIE when specific conditions exist. An implicit variable interest acts the same as an explicit variable interest except that it involves the absorbing and/or receiving of variability indirectly from the entity (rather than directly). The identification of an implicit variable interest is a matter of judgment that depends on the relevant facts and circumstances. The implementation of EIC-157 did not have a material impact on the company’s consolidated financial statements.

CONDITIONAL ASSET RETIREMENT OBLIGATIONS

In April 2006, the company adopted Emerging Issues Committee Abstract No. 159, “Conditional Asset Retirement Obligations” (“EIC-159”). EIC-159 clarifies the accounting treatment for a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. Under EIC-159, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The implementation of EIC-159 did not have a material impact on the company’s consolidated financial statements.

4.   BUSINESS ACQUISITIONS

2006 AND 2005

The company did not have any significant business acquisitions in 2006 or 2005.

2004

On December 21, 2004, the company acquired all the outstanding shares of RAC Investments Ltd. (“RAC Investments”), an indirect subsidiary of Israel Chemicals Ltd. (“ICL”), for $100.7, including acquisition costs. RAC Investments is an investment holding company which indirectly owns 19,200,242 Series A shares and 2,699,773 Series B shares in Sociedad Quimica y Minera de Chile S.A. (“SQM”). RAC Investments’ earnings have been included in the consolidated financial statements since the acquisition date.

The fair value of the net assets acquired at the date of acquisition was $100.7, comprised of cash of $3.5 and an investment in SQM of $97.2. No liabilities were assumed. Cash consideration paid was $97.2.

Prior to execution of the above-noted transaction, the company (through a subsidiary) sold 8,500,000 Series A shares of SQM via public auction on the Santiago Stock Exchange (the “Exchange”) and 1,301,724 Series A shares in other Exchange transactions. Proceeds on sale were $66.3, resulting in a non-taxable gain recorded in other income of $34.4, net of selling costs (see Note 22).

5.   ACCOUNTS RECEIVABLE

		2006			2005
Trade accounts	— Canpotex	$	84.1		$	71.6
	— Other		329.3			343.0
Non-trade accounts			33.6			43.8
			447.0			458.4
Less allowance for doubtful accounts			(4.7	)		(5.1	)
		$	442.3		$	453.3

6.   INVENTORIES

	2006		2005
Finished product	$	237.1	$	268.5
Intermediate products		98.5		94.9
Raw materials		62.4		59.9
Materials and supplies		103.3		99.2
	$	501.3	$	522.5

7.   PROPERTY, PLANT AND EQUIPMENT

	2006
			Accumulated
			Depreciation and		Net Book
	Cost		Amortization		Value
Land and improvements	$	233.3	$	51.9	$	181.4
Buildings and improvements		547.9		206.4		341.5
Machinery and equipment		4,618.0		1,750.4		2,867.6
Mine development costs		200.4		65.1		135.3
	$	5,599.6	$	2,073.8	$	3,525.8
	2005
			Accumulated
			Depreciation and		Net Book
	Cost		Amortization		Value
Land and improvements	$	224.4	$	47.0	$	177.4
Buildings and improvements		521.1		194.2		326.9
Machinery and equipment		4,280.7		1,622.8		2,657.9
Mine development costs		164.3		63.7		100.6
	$	5,190.5	$	1,927.7	$	3,262.8

Depreciation and amortization of property, plant and equipment included in cost of goods sold and in selling and administrative expenses was $226.3 (2005 — $227.4; 2004 — $210.9). The net carrying amount of property, plant and equipment not being amortized at December 31, 2006 because it was under construction or development was $381.6 (2005 — $332.8).

During the year, the company recorded an impairment charge of $6.3 (2005 — $NIL; 2004 — $6.2) relating to certain assets. As at December 31, 2006, the company determined that there were no other triggering events requiring impairment analysis. Interest capitalized to property, plant and equipment during the year was $19.1 (2005 — $5.7; 2004 — $2.5).

64          NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts  

7.   PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

Acquiring or constructing property, plant and equipment by incurring a liability does not result in a cash outflow for the company until the liability is paid. In the period the related liability is incurred, the change in operating accounts payable on the Consolidated Statement of Cash Flow is typically reduced by such amount. In the period the liability is paid, the amount is reflected as a cash outflow for investing activities. The applicable net change in operating accounts payable that was reclassified (to) from investing activities on the Consolidated Statement of Cash Flow in 2006 was $(2.6) (2005 — $26.0). The net change in accounts payable in 2004 was not significant.

8.   OTHER ASSETS AND INTANGIBLE ASSETS

	2006		2005
Other assets
Investments at equity
SQM — 32-percent ownership; quoted market value of $1,140.3	$	514.7	$	261.0
Arab Potash Company (“APC”) — 28-percent ownership; quoted market value of $361.4		223.7		224.6
Other		19.1		19.6
Investments at cost
Sinofert Holdings Limited (“Sinofert”) — 20-percent ownership; quoted market value of $482.3		223.7		97.4
ICL — 10-percent ownership; quoted market value of $799.0		167.7		167.7
Deferred charges — net of accumulated amortization of $50.0 (2005 — $50.7)		44.5		30.1
Accrued pension benefit asset		26.8		25.4
Other		34.5		27.0
	$	1,254.7	$	852.8
Intangible assets — net of accumulated amortization of $22.6 (2005 — $15.7)	$	29.3	$	34.5

During 2006, the company acquired: (1) an additional 10-percent interest in the ordinary shares of Sinofert for $126.3; (2) 220,100 additional shares of APC for $3.7; and (3) an additional 17,450,015 Class B shares of SQM for $235.0. The Sinofert purchase price was financed by short-term debt; the purchase prices of APC and SQM were financed by cash on hand. At December 31, 2006, the company had amounts in accounts payable related to the acquisition of SQM shares. As a result, the company reclassified $12.5 in its Consolidated Statement of Cash Flow from operating accounts payable to reduce the cash outflow related to the purchase of long-term investments for the year. There were no amounts accrued related to acquisitions of long-term investments in 2005 or 2004.

The cost of the additional investment in SQM acquired during 2006 exceeded the proportionate share of net book value of the identifiable assets by approximately $167.5 at December 31, 2006. This difference was allocated to the fair value of the reserves and mining concessions and will be recognized as a reduction in the future share of earnings from SQM on a unit of production basis. The purchase price allocation

for this acquisition will be finalized during 2007. The excess of cost of the additional investment in APC acquired during 2006 over the share of net book value of the identifiable assets was not significant.

As noted in the above table, certain of the company’s investments in international entities are accounted for under the equity method. Accounting principles generally accepted in those foreign jurisdictions may vary in certain important respects from Canadian GAAP. The company’s share of earnings of these equity investees under the applicable foreign GAAP has been adjusted for the significant effects of conforming to Canadian GAAP. The company’s share of earnings of equity investees of $54.4 (2005 — $52.1; 2004 — $30.9) is included in other income (see Note 22). Dividends received from equity investees were $29.9 (2005 — $18.6; 2004 — $8.7).

Amortization of deferred charges included in cost of goods sold and in selling and administrative expenses was $9.2 (2005 — $10.9; 2004 — $25.6).

Intangible assets relate primarily to production and technology rights and computer software. Other than goodwill (see Note 9), the company has not recognized any intangible assets with indefinite useful lives. Total amortization expense relating to finite-lived intangible assets for 2006 was $6.9 (2005 — $4.1; 2004 — $3.5). Amortization expense in each of the next five years calculated upon such assets held as at December 31, 2006 is estimated to be $6.2 for 2007, $4.5 for 2008, $3.7 for 2009, $3.2 for 2010 and $0.9 for 2011.

9.   GOODWILL

	2006		2005
Cost	$	104.3	$	104.3
Accumulated amortization		7.3		7.3
	$	97.0	$	97.0

Substantially all of the company’s recorded goodwill relates to the nitrogen segment.

10.  SHORT-TERM DEBT

Short-term debt was $157.9 at December 31, 2006 (2005 —$252.2). The weighted average interest rate on this debt was 5.20 percent (2005 — 3.54 percent; 2004 — 1.42 percent). The company had an unsecured line of credit available for short-term financing (net of letters of credit of $17.3 and direct borrowings of $NIL) in the amount of $57.7 at December 31, 2006 (2005 — $56.3). In addition, the company is authorized to borrow a further $592.1 under its commercial paper program.

The line of credit is subject to financial tests and other covenants. The principal covenants require a debt-to-capital ratio of less than or equal to 0.55:1, a long-term debt-to-EBITDA (as defined in the agreement to be earnings before interest, income taxes, provincial mining and other taxes, depreciation, amortization and other non-cash expenses) ratio of less than or equal to 3.5:1, tangible net worth in an amount greater than or equal to $1,250.0 and debt of subsidiaries not to exceed $590.0. The line of credit is subject to other customary covenants and events of default, including an event of default for non-payment of other debt in excess of Cdn $40.0. Non-compliance with such covenants could result in accelerated payment of amounts due under the line of credit, and its

NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts          65
 

10.  SHORT-TERM DEBT (CONTINUED)

termination. The company was in compliance with the above-mentioned covenants at December 31, 2006.

11.  ACCOUNTS PAYABLE AND ACCRUED CHARGES

	2006		2005
Trade accounts	$	228.9	$	224.6
Income and other taxes		75.5		239.4
Accrued compensation		49.5		72.7
Deferred revenue		25.2		9.1
Accrued interest		24.6		18.5
Margin deposits		22.8		173.7
Dividends		16.1		16.1
Current portion accrued environmental costs and asset retirement obligations		9.0		12.3
Current portion pension and other post-retirement benefits		8.9		8.5
Other payables		84.7		67.8
	$	545.2	$	842.7

12.  LONG-TERM DEBT

	2006		2005
Notes Payable
7.125% notes payable June 15, 2007	$	400.0	$	400.0
7.750% notes payable May 31, 2011		600.0		600.0
4.875% notes payable March 1, 2013		250.0		250.0
5.875% notes payable December 1, 2036		500.0		—
The notes were issued under US shelf registration statements covering up to $2,000.0 of debt securities. The notes are unsecured and there are no sinking fund requirements prior to maturity. The 2011, 2013 and 2036 notes are redeemable, in whole or in part, at the company’s option at any time prior to maturity for a price at least equal to the principal amount of the notes to be redeemed, plus accrued interest. Under certain conditions related to change in control, the company is required to make an offer to purchase all, or any part, of the 2036 notes at 101 percent of the principal amount of the notes repurchased, plus accrued interest.
Other		7.5		8.8
		1,757.5		1,258.8
Less current maturities		400.4		1.2
	$	1,357.1	$	1,257.6

The company has entered into back-to-back loan arrangements involving certain financial assets and financial liabilities. The company has presented financial assets of $310.1 and financial liabilities of $316.0 on a net basis because a legal right to set-off exists, and it intends to settle with the same party on a net basis. Other long-term debt in the above table includes a net financial liability of $5.9 (2005 — $5.9) pursuant to these arrangements.

The company has a syndicated revolving credit facility, renewed in September 2005 for a five-year term and extended in September

2006 for one additional year, which provides for unsecured advances of up to $750.0 (less the amount of direct borrowings and commercial

paper outstanding). As at December 31, 2006, no amounts were outstanding and $592.1 was available under the facility. Principal covenants and events of default under the credit facility requirements are the same as the line of credit described in Note 10. The notes payable are not subject to any financial test covenants but are subject to certain customary covenants (including limitations on liens and sale and leaseback transactions) and events of default, including an event of default for acceleration of other debt in excess of $50.0. The other long-term debt instruments are not subject to any financial test covenants but are subject to certain customary covenants and events of default, including, for other long-term debt, an event of default for non-payment of other debt in excess of $25.0. Non-compliance with such covenants could result in accelerated payment of the related debt. The company was in compliance with the above-mentioned covenants at December 31, 2006.

Long-term debt at December 31, 2006 will mature as follows:

2007	$	400.4
2008		0.2
2009		0.3
2010		0.3
2011		600.4
Subsequent years		755.9
	$	1,757.5

13.  COMMITMENTS

LEASE COMMITMENTS

The company has various long-term operating lease agreements for buildings, port facilities, equipment, ocean-going transportation vessels and railcars, the latest of which expires in 2020. Rental expense for operating leases for the years ended December 31, 2006, 2005 and 2004 was $75.4, $78.9 and $69.6, respectively.

PURCHASE COMMITMENTS

The company has long-term agreements for the purchase of sulfur for use in the production of phosphoric acid. These agreements provide for minimum purchase quantities and certain prices are based on market rates at the time of delivery. The commitments included in the table below are based on contract prices as at December 31, 2006.

The company has entered into long-term natural gas contracts with the National Gas Company of Trinidad and Tobago Limited, the latest of which expires in 2018. The contracts provide for prices that vary primarily with ammonia market prices, escalating floor prices and minimum purchase quantities. The commitments included in the table below are based on floor prices and minimum purchase quantities.

The company also has long-term agreements for the purchase of phosphate rock used at its Geismar facility. The commitments included in the table below are based on the expected purchase quantity and current base prices (less applicable discounts).

OTHER COMMITMENTS

Other operating commitments consist principally of various rail freight contracts and mineral leases, the latest of which expires in 2025.

66           NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts  

13.  COMMITMENTS (CONTINUED)

Minimum future commitments under these contractual arrangements for the next five years and thereafter are shown below.

	Operating		Purchase		Other
	Leases		Commitments		Commitments
2007	$	79.3	$	143.0	$	21.5
2008		70.7		123.4		12.5
2009		74.3		85.4		11.6
2010		69.3		72.8		7.1
2011		61.1		67.7		2.9
Thereafter		292.0		338.8		18.6
Total	$	646.7	$	831.1	$	74.2

14.  PENSION AND OTHER POST-RETIREMENT BENEFITS

PENSION PLANS

Canada

Substantially all employees of the company are participants in either a defined contribution or a defined benefit pension plan.

The company has established a supplemental defined benefit retirement income plan for senior management which is unfunded, non-contributory and provides a supplementary pension benefit. The

plan is provided for by charges to earnings sufficient to meet the projected benefit obligation.

United States

The company has defined benefit pension plans that cover a substantial majority of its employees. Benefits are based on a combination of years of service and compensation levels, depending on the plan. Contributions to the US plans are made to meet or exceed minimum funding requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”).

Trinidad

The company has contributory defined benefit pension plans that cover a substantial majority of its employees. Benefits are based on a combination of pay and service. The plans’ assets consist mainly of local government and other bonds, local mortgage and mortgage-backed securities, fixed income deposits and cash.

OTHER POST-RETIREMENT PLANS

The company provides certain contributory health-care plans and non-contributory life insurance benefits for retired employees. These plans contain certain cost-sharing features such as deductibles and coinsurance, and are unfunded, with benefits subject to change.

DEFINED BENEFIT PLANS

The components of net expense for the company’s pension and other post-retirement benefit plans, computed actuarially, were as follows:

	Pension									Other
	2006			2005			2004			2006			2005			2004
Costs arising in the period
Service cost for benefits earned during the year	$	14.2		$	13.8		$	12.9		$	4.7		$	5.7		$	5.2
Interest cost on projected benefit obligations		33.5			31.1			30.2			12.4			13.3			13.2
Actual return on plan assets		(42.1	)		(34.3	)		(47.1	)		—			—			—
Actuarial loss (gain)		8.9			27.9			23.3			18.4			(12.7	)		(6.8	)
Plan amendments		1.4			3.5			—			(1.7	)		11.5			—
Plan curtailments		—			0.4			—			—			—			—
Change in valuation allowance		2.0			2.4			(2.2	)		—			—			—
Costs arising in the period		17.9			44.8			17.1			33.8			17.8			11.6
Difference between costs arising in the period and costs recognized in the period in respect of:
Return on plan assets		3.9			(2.7	)		13.6			—			—			—
Actuarial (gain) loss		(1.7	)		(23.6	)		(20.2	)		(16.4	)		15.4			9.5
Plan amendments		1.0			(2.3	)		0.4			(1.1	)		(13.0	)		(1.9	)
Transitional obligation		1.6			1.4			1.5			0.4			0.3			—
Net expense	$	22.7		$	17.6		$	12.4		$	16.7		$	20.5		$	19.2

The assumptions used to determine the benefit obligation and expense for the company’s significant plans were as follows (weighted average as of December 31):

	Pension									Other
	2006			2005			2004			2006			2005			2004
Discount rate — obligation		5.85	%		5.70	%		5.75	%		5.85	%		5.70	%		5.75	%
Discount rate — expense		5.70	%		5.75	%		6.10	%		5.70	%		5.75	%		6.10	%1
Long-term rate of return on assets		8.00	%		8.50	%		8.50	%		n/a			n/a			n/a
Rate of increase in compensation levels		4.00	%		4.00	%		4.00	%		n/a			n/a			n/a

¹ Discount rate changed to 6.25% effective July 1, 2004, upon recognition of Medicare Part D.

The average remaining service period of the active employees covered by the company’s pension plans is 11.5 years (2005 — 10.3 years). The average remaining service period of the active employees covered by the company’s other benefits plans is 11.8 years (2005 — 13.7 years).

NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts          67
 

14.  PENSION AND OTHER POST-RETIREMENT BENEFITS (CONTINUED)

The assumed health-care cost trend rates are as follows:

	2006			2005			2004
Health-care cost trend rates assumed for next year		6.00	%		6.00	%		6.00	%
Ultimate health-care cost trend rate assumed		6.00	%		6.00	%		6.00	%
Year that the rate reaches the ultimate trend rate		2006			2005			2004

Effective January 1, 2004, the company’s largest retiree medical plan limits the company’s share of annual medical cost increases to 4.5 percent for recent and future retirees. Any cost increases in excess of this amount are funded by increased retiree contributions.

The company’s discount rate assumption reflects the weighted average interest rate at which the pension and other post-retirement liabilities could be effectively settled using high-quality bonds at the measurement date. The rate varies by country. The company determines the discount rate using a yield curve approach. Based on the plan’s demographics, expected future pension benefit and medical claims, payments are measured and discounted to determine the present value of the expected future cash flows. The cash flows are discounted using yields on high-quality AA-rated non-callable bonds with cash flows of similar timing. The equivalent level discount rate is then used as input by the company to determine the final discount rate. The rate selected for the December 31, 2006 measurement date will be used to determine expense for fiscal 2007.

The expected long-term rate of return on assets assumption is determined using a building block approach. The expected real rate of return for each individual asset class is determined based on expected future performance. These rates are weighted based on the current asset portfolio. A separate determination is made of the underlying impact of expenses, inflation, rebalancing, diversification and the actively managed portfolio premium. The resulting total expected asset return is compared to the historic returns achieved by the portfolio. Based on these input items, a final rate is selected by the company.

The company uses a December 31 measurement date. The most recent actuarial valuations of the majority of the pension plans for funding purposes were as of January 1, 2006, and the next required valuations will be as of January 1, 2007. The change in benefit obligations and change in plan assets for the above pension and other post-retirement plans were as follows:

	Pension						Other						Total
	2006			2005			2006			2005			2006			2005
Change in benefit obligations
Balance, beginning of year	$	595.3		$	548.6		$	222.6		$	235.4
Service cost		14.2			13.8			4.7			5.7
Interest cost		33.5			31.1			12.4			13.3
Participants’ contributions		0.3			0.2			0.1			3.1
Actuarial loss (gain)		8.9			27.9			18.4			(12.7	)
Foreign exchange rate changes		2.0			(3.4	)		(0.2	)		0.7
Plan amendments		1.4			3.5			(1.7	)		(11.5	)
Benefits paid		(29.2	)		(26.4	)		(8.9	)		(11.4	)
Balance, end of year		626.4			595.3			247.4			222.6		$	873.8		$	817.9
Change in plan assets
Fair value, beginning of year		480.8			452.9			—			—
Actual return on plan assets		42.1			34.3			—			—
Employer contributions		24.7			24.2			8.8			8.3
Participants’ contributions		0.3			0.2			0.1			3.1
Foreign exchange rate changes		1.2			(4.4	)		—			—
Benefits paid		(29.2	)		(26.4	)		(8.9	)		(11.4	)
Fair value, end of year		519.9			480.8			—			—			519.9			480.8
Funded status		(106.5	)		(114.5	)		(247.4	)		(222.6	)		(353.9	)		(337.1	)
Valuation allowance		(16.1	)		(14.1	)		—			—			(16.1	)		(14.1	)
Unamortized net actuarial loss		117.4			118.4			58.0			41.6			175.4			160.0
Unamortized prior service cost		5.7			6.0			(18.5	)		(19.5	)		(12.8	)		(13.5	)
Unamortized transitional obligation		5.1			6.7			0.6			1.0			5.7			7.7
Accrued pension and other post-retirement benefit asset (liability)	$	5.6		$	2.5		$	(207.3	)	$	(199.5	)	$	(201.7	)	$	(197.0	)
Amounts included in:
Other assets (Note 8)	$	26.4		$	25.0		$	0.4		$	0.4		$	26.8		$	25.4
Liabilities
Current (Note 11)		(0.3	)		(0.4	)		(8.6	)		(8.1	)		(8.9	)		(8.5	)
Long-term		(20.5	)		(22.1	)		(199.1	)		(191.8	)		(219.6	)		(213.9	)
	$	5.6		$	2.5		$	(207.3	)	$	(199.5	)	$	(201.7	)	$	(197.0	)

68           NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts
 

14.  PENSION AND OTHER POST-RETIREMENT BENEFITS (CONTINUED)

Letters of credit secured certain of the unfunded defined benefit plans as at December 31, 2006 and 2005.

The company is a sponsor of certain US post-retirement health-care plans that were impacted by the US Medicare Prescription Drug, Improvement and Modernization Act of 2003. This legislation expanded Medicare to include (for the first time) coverage for prescription drugs and introduced a prescription drug benefit and federal subsidy to sponsors of retiree health-care benefit plans that provide benefits at least “actuarially equivalent” to Medicare Part D. The company accounted for the impact of the legislation prospectively as of July 1, 2004. The federal subsidy had the effect of reducing the company’s accumulated post-retirement benefit obligation by $23.2 and reducing the net periodic post-retirement benefit cost for the year by $2.4 (2005 — $3.7).

The accumulated benefit obligation for all defined benefit pension plans was $557.8 and $534.7 at December 31, 2006 and 2005, respectively. The aggregate projected benefit obligation, accumulated benefit obligation and aggregate fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were as follows:

	2006		2005
Projected benefit obligation	$	597.5	$	568.4
Accumulated benefit obligation		543.4		521.0
Fair value of plan assets		457.7		419.0

SENSITIVITY OF ASSUMPTIONS

The effect of a change in the health-care cost trend rate on the other post-retirement benefit obligation and the aggregate of service and interest cost would have been as follows:

	2006			2005			2004
As reported:
Benefit obligation	$	247.4		$	222.6		$	235.4
Aggregate of service and interest cost		17.1			19.0			18.4
Impact of increase of 1.0 percentage point:
Benefit obligation		36.7			31.4			34.4
Aggregate of service and interest cost		2.8			3.2			3.3
Impact of decrease of 1.0 percentage point:
Benefit obligation		(29.2	)		(27.8	)		(35.3	)
Aggregate of service and interest cost		(2.2	)		(2.9	)		(3.4	)

The above sensitivities are hypothetical and should be used with caution. Changes in amounts based on a 1.0 percentage point variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in amounts may not be linear. The sensitivities have been calculated independently of changes in other key variables. Changes in one factor may result in changes in another, which could amplify or reduce certain sensitivities.

PLAN ASSETS

Approximate asset allocations, by asset category, of the company’s significant pension plans were as follows at December 31:

Asset Category	Target		2006		2005
Equity securities	65	%	66	%	67	%
Debt securities	35	%	34	%	33	%
Real estate	—		—		—
Other	—		—		—
Total	100	%	100	%	100	%

The company employs a total return on investment approach whereby a mix of equities and fixed income investments is used to maximize the long-term return of plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities, plan funded status and corporate financial condition. The investment portfolio contains a diversified blend of equity and fixed income investments.

Furthermore, equity investments are diversified across US and non-US stocks, as well as growth, value and small and large capitalizations. US equities are also diversified across actively managed and passively invested portfolios. Other assets such as private equity, real estate and hedge funds are not used at this time. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews, annual liability measurements and periodic asset/liability studies. The investment strategy in Trinidad is largely dictated by local investment restrictions (maximum of 50 percent in equities and 20 percent foreign) and asset availability since the local equity market is small and there is little secondary market activity in debt securities.

DEFINED CONTRIBUTION PLANS

All of the company’s US employees may participate in defined contribution savings plans. These plans are subject to US federal tax limitations and provide for voluntary employee salary deduction contributions. The company suspended its contributions of up to 5 percent of salary in July 2003. Contributions were reinstated in August 2004, providing a minimum of 3 percent (to a maximum of 6 percent) of salary depending on employee contributions and company performance. The company’s 2006 contributions were $6.2 (2005 — $6.1; 2004 — $2.9).

All of the company’s Canadian salaried employees and certain hourly employees participate in the PCS Inc. Savings Plan and may make voluntary contributions. The company suspended its contributions to this plan in July 2003. Contributions were reinstated in August 2004, providing a minimum of 3 percent (to a maximum of 6 percent) of salary based on company performance. The company’s contributions in 2006 were $3.9 (2005 — $4.4; 2004 — $1.3).

Certain of the company’s Canadian employees participate in the contributory PCS Inc. Pension Plan. The member contributes to the plan at the rate of 5.5 percent of the member’s earnings, or such other percentage amount as may be established by a collective agreement, and the company contributes for each member at the same rate. The member may also elect to make voluntary additional contributions. The company’s contributions in 2006 were $5.0 (2005 — $4.5; 2004 — $3.9).

NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts          69
 

14.  PENSION AND OTHER POST-RETIREMENT BENEFITS (CONTINUED)

CASH PAYMENTS

Total cash payments for pensions and other post-retirement benefits for 2006, consisting of cash contributed by the company to its funded pension plans, cash payments directly to beneficiaries for its unfunded other benefit plans and cash contributed to its defined contribution plans, were $48.7. Approximately $59.5 is expected to be contributed by the company to all plans during 2007.

ESTIMATED FUTURE BENEFIT PAYMENTS

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid from either corporate assets or the qualified pension trusts:

			Other
					Reduction due
					to Medicare
	Pension		Gross		Part D Subsidy		Net
2007	$	27.0	$	10.2	$	0.9	$	9.3
2008		29.9		11.0		1.1		9.9
2009		31.4		11.7		1.2		10.5
2010		33.2		12.7		1.4		11.3
2011		35.1		13.7		1.6		12.1
2012-2016		211.4		82.0		10.9		71.1

15.  ENVIRONMENTAL COSTS AND ASSET RETIREMENT OBLIGATIONS

The company records an asset and related retirement obligation for the costs associated with the retirement of long-lived tangible assets when a legal liability to retire such assets exists. The major categories of asset retirement obligations include: reclamation and restoration costs at the company’s potash and phosphate mining operations (most particularly phosphate mining), including management of materials generated by mining and mineral processing, such as various mine tailings and gypsum; land reclamation and revegetation programs; decommissioning of underground and surface operating facilities; general clean-up activities aimed at returning the areas to an environmentally acceptable condition; and post-closure care and maintenance.

The estimation of asset retirement obligation costs depends on the development of environmentally acceptable closure and post-closure plans. In some cases, this may require significant research and development to identify preferred methods for such plans that are economically sound and that, in most cases, may not be implemented for several decades. The company has continued to utilize appropriate technical resources, including outside consultants, to develop specific site closure and post-closure plans in accordance with the requirements of the various jurisdictions in which it operates. The company estimates that the undiscounted cash flows required to settle the asset retirement obligations approximate $3,800. The estimated cash flows have been discounted at credit-adjusted risk-free rates ranging from 5.40 percent to 6.75 percent. Other than certain land reclamation programs, settlement of the obligations is typically correlated with mine life estimates. Cash flow payments are

expected to occur principally over the next 100 years for the company’s phosphate operations. Payments relating to certain potash operations are not expected to occur until after that time. The present value of the company’s asset retirement obligations at December 31, 2006 totalled $100.7 (2005 — $91.8), as set out in the table on Page 70. The asset retirement obligations are generally incurred over an extended period of time. The current portion totalled $7.2 (2005 — $6.6).

Certain of the company’s facilities have asbestos-containing materials which the company will be obligated to remove and dispose of in a special manner should the asbestos become friable (i.e., readily crumbled or powdered) or should the property be demolished. As of December 31, 2006, the company has not recognized this conditional asset retirement obligation in its consolidated financial statements for most locations, because it does not have sufficient information to estimate the fair value of the obligation. As a result of the longevity of the company’s facilities where asbestos exists (due in part to its maintenance procedures) and the fact that the company does not have plans for major changes that would require the removal of asbestos, the timing of the removal of asbestos is indeterminable and the time over which the company may settle the obligation cannot be reasonably estimated as at December 31, 2006. It would recognize a liability in the period in which sufficient information is available to reasonably estimate its fair value.

Other environmental liabilities typically relate to regulatory compliance, environmental management practices associated with ongoing operations other than mining, site assessment and remediation of environmental contamination related to the activities of the company and its predecessors, including waste disposal practices and ownership and operations of real property and facilities.

SITE ASSESSMENT AND REMEDIATION COSTS

The company has accrued $18.6 (2005 — $17.8) for costs associated with site assessment and remediation, including consulting fees, related to the clean-up of contaminated sites currently or formerly associated with the company or its predecessors’ businesses. The current portion of these costs totalled $1.8 (2005 — $5.7).

ENVIRONMENTAL OPERATING COSTS AND CAPITAL EXPENDITURES

The company’s operating expenses, other than costs associated with asset retirement obligations, relating to compliance with environmental laws and regulations governing ongoing operations for 2006 were approximately $92.6 (2005 — $87.2; 2004 — $68.9). These amounts include environmental operating expenses related primarily to the production of phosphoric acid, fertilizer, feed and other products.

The company routinely undertakes environmental capital projects. In 2006, capital expenditures of $13.6 (2005 — $10.0) were incurred to meet pollution prevention and control objectives and $0.2 (2005 — $0.6) were incurred to meet other environmental objectives.

70            NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts
 

15.  ENVIRONMENTAL COSTS AND ASSET RETIREMENT OBLIGATIONS (CONTINUED)

Following is a reconciliation of asset retirement and other environmental obligations as at December 31:

	2006			2005
Asset retirement obligations, beginning of year	$	91.8		$	85.0
Liabilities incurred		7.2			8.5
Liabilities settled		(3.6	)		(6.0	)
Accretion expense		3.3			4.4
Revisions in estimated cash flows		2.0			(0.1	)
Asset retirement obligations, end of year		100.7			91.8
Other environmental liabilities		18.6			17.8
Less current portion (Note 11)		(9.0	)		(12.3	)
	$	110.3		$	97.3

16.  SHARE CAPITAL

AUTHORIZED

The company is authorized to issue an unlimited number of common shares without par value and an unlimited number of first preferred shares. The common shares are not redeemable or convertible. The first preferred shares may be issued in one or more series with rights and conditions to be determined by the PCS Board of Directors. No first preferred shares have been issued.

ISSUED	2006		2005			2004
	Consideration		Consideration			Consideration
Issued, beginning of year		$ 1,379.3		$ 1,408.4			$ 1,245.8
Shares issued under option plans		50.9		95.7			162.1
Shares issued for dividend reinvestment plan		1.4		0.3			0.5
Shares repurchased		—		(125.1	)		—
Issued, end of year		$ 1,431.6		$ 1,379.3			$ 1,408.4
ISSUED	2006		2005			2004
	Number of		Number of			Number of
	Common Shares		Common Shares			Common Shares
Issued, beginning of year		103,593,792		110,630,503			106,224,432
Shares issued under option plans		1,193,808		2,459,594			4,397,324
Shares issued for dividend reinvestment plan		13,449		3,695			8,747
Shares repurchased		—		(9,500,000	)		—
Issued, end of year		104,801,049		103,593,792			110,630,503

NORMAL COURSE ISSUER BID

On January 25, 2005, the Board of Directors of PCS authorized a share repurchase program of up to 5,500,000 common shares (approximately 5 percent of the company’s issued and outstanding common shares) through a normal course issuer bid. On September 22, 2005, the Board of Directors authorized an increase in the number of common shares sought under the share repurchase program. This amendment allowed PotashCorp to repurchase up to 4,000,000 additional common shares. Shares could be repurchased from time to time on the open market through February 14, 2006 at prevailing market prices. The timing and amount of purchases, if any, under the program were dependent upon the availability and alternative uses of capital, market conditions and other factors. The company completed the repurchase program by December 31, 2005. No further program was authorized in 2006.

During 2005, the company repurchased for cancellation 9,500,000 common shares under the program, at a net cost of $851.9 and an average price per share of $89.67. The repurchase resulted in a reduction of share capital of $125.1, and the excess net cost over the average book value of the shares was recorded as a reduction of contributed surplus of $264.3 and a reduction of retained earnings of $462.5.

17.  CONTRIBUTED SURPLUS

	2006		2005			2004
Balance, beginning of year	$	36.3	$	275.7		$	265.2
Stock-based compensation		26.0		24.9			10.5
Share repurchases (Note 16)		—		(264.3	)		—
Balance, end of year	$	62.3	$	36.3		$	275.7

NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts          71
 

18.  SEGMENT INFORMATION

The company has three reportable business segments: potash, nitrogen and phosphate. These business segments are differentiated by the chemical nutrient contained in the product that each produces. Inter-segment sales are made under terms that approximate market value. The accounting policies of the segments are the same as those described in Note 2.

2006
	Potash		Nitrogen		Phosphate		All others		Consolidated
Sales	$	1,227.5	$	1,284.1	$	1,255.1	$	—	$	3,766.7
Freight		130.5		36.8		88.5		—		255.8
Transportation and distribution		38.8		52.2		43.1		—		134.1
Net sales — third party		1,058.2		1,195.1		1,123.5		—
Cost of goods sold		497.1		879.5		998.2		—		2,374.8
Gross Margin		561.1		315.6		125.3		—		1,002.0
Inter-segment sales		5.7		112.4		7.2		—		—
Depreciation and amortization		58.3		77.6		94.6		11.9		242.4
Goodwill		—		96.6		—		0.4		97.0
Assets		1,478.0		1,480.7		1,753.9		1,504.4		6,217.0
Additions to property, plant and equipment		293.2		75.5		119.7		20.2		508.6
2005
	Potash		Nitrogen		Phosphate		All others		Consolidated
Sales	$	1,341.1	$	1,368.8	$	1,137.3	$	—	$	3,847.2
Freight		129.7		39.9		80.1		—		249.7
Transportation and distribution		34.5		49.5		37.9		—		121.9
Net sales — third party		1,176.9		1,279.4		1,019.3		—
Cost of goods sold		469.5		960.7		920.4		—		2,350.6
Gross Margin		707.4		318.7		98.9		—		1,125.0
Inter-segment sales		5.8		100.7		14.0		—		—
Depreciation and amortization		64.5		72.0		95.6		10.3		242.4
Goodwill		—		96.6		—		0.4		97.0
Assets		1,236.8		1,526.5		1,723.0		871.6		5,357.9
Additions to property, plant and equipment		165.5		99.3		109.5		8.4		382.7
2004
	Potash		Nitrogen		Phosphate		All others		Consolidated
Sales	$	1,056.1	$	1,210.4	$	977.9	$	—	$	3,244.4
Freight		128.7		38.1		71.9		—		238.7
Transportation and distribution		32.6		42.3		29.4		—		104.3
Net sales — third party		894.8		1,130.0		876.6		—
Cost of goods sold		472.0		887.2		860.8		—		2,220.0
Gross Margin		422.8		242.8		15.8		—		681.4
Inter-segment sales		5.9		92.9		12.1		—		—
Depreciation and amortization		66.4		79.7		84.4		9.5		240.0
Goodwill		—		96.6		—		0.4		97.0
Assets		1,374.9		1,428.4		1,615.6		707.9		5,126.8
Additions to property, plant and equipment		92.2		62.1		56.8		9.4		220.5

72           NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts
 

18.  SEGMENT INFORMATION (CONTINUED)

As described in Note 1, PhosChem and Canpotex execute offshore marketing, sales and distribution functions for certain of the company’s products. Financial information by geographic area is summarized in the following table:

	Country of Origin
	Canada		United States		Trinidad		Other		Consolidated
2006
Sales to customers outside the company
Canada	$	65.7	$	92.0	$	—	$	—	$	157.7
United States		557.5		1,454.9		530.2		—		2,542.6
PhosChem		—		232.2		—		—		232.2
Canpotex		467.1		—		—		—		467.1
Other		137.2		136.7		77.0		16.2		367.1
	$	1,227.5	$	1,915.8	$	607.2	$	16.2	$	3,766.7
Operating income	$	426.9	$	216.4	$	171.8	$	60.4	$	875.5
Capital assets and goodwill	$	1,207.7	$	1,761.3	$	610.4	$	43.4	$	3,622.8
	Country of Origin
	Canada		United States		Trinidad		Other		Consolidated
2005
Sales to customers outside the company
Canada	$	69.3	$	105.9	$	—	$	—	$	175.2
United States		576.6		1,470.9		545.5		—		2,593.0
PhosChem		—		166.7		—		—		166.7
Canpotex		577.1		—		—		—		577.1
Other		118.2		106.7		86.6		23.7		335.2
	$	1,341.2	$	1,850.2	$	632.1	$	23.7	$	3,847.2
Operating income	$	464.1	$	170.2	$	199.3	$	59.0	$	892.6
Capital assets and goodwill	$	954.6	$	1,751.1	$	612.4	$	41.7	$	3,359.8
	Country of Origin
	Canada		United States		Trinidad		Other		Consolidated
2004
Sales to customers outside the company
Canada	$	48.3	$	87.5	$	—	$	—	$	135.8
United States		443.0		1,383.7		413.1		2.8		2,242.6
PhosChem		—		140.4		—		—		140.4
Canpotex		421.9		—		—		—		421.9
Other		114.9		57.3		86.1		45.4		303.7
	$	1,028.1	$	1,668.9	$	499.2	$	48.2	$	3,244.4
Operating income	$	250.0	$	67.8	$	139.8	$	56.7	$	514.3
Capital assets and goodwill	$	831.2	$	1,722.6	$	601.4	$	40.7	$	3,195.9

19.  COST OF GOODS SOLD

The primary components of cost of goods sold are labor, employee benefits, services, raw materials (including inbound freight and purchasing and receiving costs), operating supplies, energy costs, property and miscellaneous taxes, depreciation and amortization, and provision for plant shutdowns.

PROVISION FOR PLANT SHUTDOWNS — PHOSPHATE SEGMENT

In July 2006, the company indefinitely suspended production of superphosphoric acid and ammonium polyphosphate products at its Geismar, Louisiana location due to higher input costs and lower product margins for those products at that location, compared to the company’s other facilities. No employee positions were terminated. The plants have not been re-started since that time and company management has determined that there are no immediate intentions of re-starting the plants.

In connection with the shutdowns, management determined that the carrying amounts of the long-lived assets related to the production facilities were not fully recoverable, and an impairment loss of $6.3, equal to the amount by which the carrying amount of the asset groups exceeded their respective fair values, was recognized. Fair values were determined based on an estimate of future cash flows resulting from the use of the assets and their eventual disposition. All of the impairment loss related to property, plant and equipment and is included in cost of goods sold.

NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts          73
 

20.  SELLING AND ADMINISTRATIVE

The primary components of selling and administrative are compensation, employee benefits, supplies, communications, travel, professional services, and depreciation and amortization.

21.  PROVINCIAL MINING AND OTHER TAXES

Provincial mining and other taxes consist of:

	2006		2005		2004
Potash Production Tax	$	28.6	$	94.8	$	63.7
Saskatchewan corporate capital taxes and other		37.9		42.4		28.9
	$	66.5	$	137.2	$	92.6

22.  OTHER INCOME

	2006		2005		2004
Share of earnings of equity investees	$	54.4	$	52.1	$	30.9
Dividend income		21.1		9.2		8.2
Gain on sale of long-term investments (Note 4)		—		—		34.4
Other		18.5		0.5		2.3
	$	94.0	$	61.8	$	75.8

23.  INTEREST EXPENSE

	2006			2005			2004
Interest expense on
Short-term debt	$	34.5		$	7.0		$	3.4
Long-term debt		97.6			94.1			89.0
Interest capitalized to property, plant and equipment		(19.1	)		(5.7	)		(2.5	)
Interest income		(27.4	)		(13.1	)		(5.9	)
	$	85.6		$	82.3		$	84.0

24.  INCOME TAXES

As the company operates in a specialized industry and in several tax jurisdictions, its income is subject to various rates of taxation.

The provision for income taxes differs from the amount that would have resulted from applying the Canadian statutory income tax rates to income before income taxes as follows:

	2006			2005			2004
Income before income taxes
Canada	$	320.1		$	381.5		$	175.0
United States		219.3			170.0			69.1
Trinidad		148.5			175.6			118.5
Other		102.0			83.2			67.7
	$	789.9		$	810.3		$	430.3
Federal and provincial statutory tax rates		39.25%			42.52%			43.36%
Tax at statutory rates	$	310.0		$	344.5		$	186.6
Adjusted for the effect of:
Recoveries upon Canadian tax rate reductions		(44.8	)		—			—
Refunds upon deduction of Saskatchewan resource surcharge		(34.1	)		—			—
Net non-deductible provincial taxes and royalties and resource allowances		(6.3	)		(1.2	)		8.1
Stock-based compensation deduction		(5.8	)		(13.2	)		(17.1	)
Gain on sale of long-term investments		—			—			(14.9	)
Additional tax deductions		(15.5	)		(14.8	)		(11.0	)
Difference between Canadian rate and rates applicable to subsidiaries in other countries		(50.5	)		(48.9	)		(26.7	)
Other		5.1			1.0			6.7
Income tax expense	$	158.1		$	267.4		$	131.7

74           NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts
 

24.  INCOME TAXES (CONTINUED)

Details of income tax expense are as follows:

	2006			2005			2004
Canada
Current	$	51.8		$	170.5		$	69.4
Future		(4.3	)		12.6			11.5
United States — Federal
Current		2.3			0.8			14.7
Future		43.7			30.8			(19.4	)
United States — State
Current		2.6			2.2			2.2
Future		5.7			(12.8	)		12.5
Trinidad and other
Current		51.4			53.8			19.1
Future		4.9			9.5			21.7
Income tax expense	$	158.1		$	267.4		$	131.7

The tax effects of temporary differences that give rise to significant portions of the net future income tax liability are:

	2006		2005
Future income tax assets:
Loss and credit carryforwards	$	207.3	$	266.2
Accrued pension and other post-retirement benefits		71.0		70.0
Other		69.7		44.5
Total future income tax assets		348.0		380.7
Future income tax liabilities:
Basis difference in fixed assets		826.2		833.6
Basis difference in long-term debt		52.3		—
Basis difference in investments		27.7		27.7
Other		73.9		62.7
Total future income tax liabilities		980.1		924.0
Net future income tax liability	$	632.1	$	543.3

The company has determined that it is more likely than not that the future income tax assets will be realized through a combination of future reversals of temporary differences and taxable income.

At December 31, 2006, the company has income tax losses carried forward of approximately $415.7 that will begin to expire in 2018. In addition, it has alternative minimum tax credits of approximately $11.7 that carry forward indefinitely. The benefit relating to these amounts has been recognized by reducing future income tax liabilities.

25.  NET INCOME PER SHARE

	2006		2005		2004
Basic net income per share1
Net income available to common shareholders	$	631.8	$	542.9	$	298.6
Weighted average number of common shares		103,960,000		108,568,000		107,967,000
Basic net income per share	$	6.08	$	5.00	$	2.77
Diluted net income per share1
Net income available to common shareholders	$	631.8	$	542.9	$	298.6
Weighted average number of common shares		103,960,000		108,568,000		107,967,000
Dilutive effect of stock options		2,270,000		2,510,000		2,772,000
Weighted average number of diluted common shares		106,230,000		111,078,000		110,739,000
Diluted net income per share	$	5.95	$	4.89	$	2.70

¹ Net income per share calculations are based on full dollar and share amounts.

Diluted net income per share is calculated based on the weighted average number of shares issued and outstanding during the year. The denominator is: (1) increased by the total of the additional common shares that would have been issued assuming exercise of all stock options with exercise prices at or below the average market price for the year; and (2) decreased by the number of shares that the company

NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts          75
 

25.  NET INCOME PER SHARE (CONTINUED)

could have repurchased if it had used the assumed proceeds from the exercise of stock options to repurchase them on the open market at the average share price for the year. For performance-based stock option plans, the number of contingently issuable potential common shares included in the calculation is based on the number of shares that would be issuable based on period-to-date (rather than anticipated) performance, if the effect is dilutive.

No options outstanding were excluded from the calculation of diluted net income per share for 2006, 2005 and 2004 as a result of the options’ exercise price being greater than the average market price of the common shares for the year.

26.  STOCK-BASED COMPENSATION

The company has six stock-based compensation plans, which are described below. The compensation cost that has been charged against income for those plans was $44.3 (2005 — $37.3; 2004 — $35.3).

STOCK OPTION PLANS

The company has four stock option plans.

Under the Officers and Employees Plan, the company could, after February 3, 1998, issue up to 13,852,250 common shares pursuant to the exercise of options. Under the Directors Plan, the company could, after January 24, 1995, issue up to 912,000 common shares pursuant to the exercise of options. Under both plans, the exercise price is the quoted market closing price of the company’s common shares on the last trading day immediately preceding the date of the grant and an option’s maximum term is 10 years. All options granted to date have provided that one-half of the options granted in a year will vest one year from the date of the grant, with the other half vesting the following year. No stock options have been granted under the Directors Plan since November 2002, and the PCS Board of Directors determined in 2003 to discontinue granting stock options to directors. Effective November 2006, the PCS Board of Directors formally terminated these plans in respect of any future option grants.

Under the 2005 Performance Option Plan, the company could, after February 28, 2005 and before January 1, 2006, issue options to acquire up to 1,200,000 common shares. Under the 2006 Performance Option Plan, which was approved on May 4, 2006, the company could, after February 27, 2006 and before January 1, 2007, issue options to acquire up to 1,400,000 common shares. Under the performance plans, the exercise price is the quoted market closing price of the company’s common shares on the last trading day immediately preceding the date of the grant and an option’s maximum term is 10 years. The key design difference between the 2005 and 2006 Performance Option Plans and the company’s other stock option plans is the performance-based vesting feature. In general, options will vest, if at all, according to a schedule based on the three-year average excess of the company’s consolidated cash flow return on investment over weighted average cost of capital.

The company issues new common shares to satisfy stock option exercises.

A summary of the status of the plans as of December 31, 2006, 2005 and 2004 and changes during the years ending on those dates is presented as follows:

Number of Shares Subject to Option

	Performance Option Plans						Officers and Employees and Directors Plans
	2006			2005			2006			2005			2004
Outstanding, beginning of year		1,186,000			—			3,895,756			6,400,730			10,876,022
Granted		894,900			1,188,500			—			—			—
Exercised		—			—			(1,193,808	)		(2,459,594	)		(4,397,324	)
Cancelled		(14,300	)		(2,500	)		—			(45,380	)		(77,968	)
Outstanding, end of year		2,066,600			1,186,000			2,701,948			3,895,756			6,400,730
The company did not grant any stock options in 2004.
Weighted Average Exercise Price
	Performance Option Plans						Officers and Employees and Directors Plans
	2006			2005			2006			2005			2004
Outstanding, beginning of year		$   90.08			$        —			$   38.41			$   38.14			$   36.64
Granted		101.01			88.25			—			—			—
Exercised		—			—			39.93			38.14			36.67
Cancelled		90.90			90.38			—			41.03			38.59
Outstanding, end of year		94.13			90.08			38.04			38.41			38.14

The aggregate grant-date fair value of all options granted during the year was $34.5 (2005 — $35.4; 2004 — $NIL).

76           NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts
 

26.  STOCK-BASED COMPENSATION (CONTINUED)

The following table summarizes information about stock options outstanding at December 31, 2006:

	Options Outstanding					Options Exercisable
Range of			Weighted Average	Weighted Average				Weighted Average
Exercise Prices	Number		Remaining Life	Exercise Price		Number		Exercise Price
Officers and Employees and Directors Plans
$21.84 to $31.50		564,400	4 years		$ 30.68		564,400		$ 30.68
$33.00 to $42.87		1,497,498	6 years		$ 37.92		1,497,498		$ 37.92
$43.38 to $52.13		640,050	5 years		$ 44.78		640,050		$ 44.78
		2,701,948	5 years		$ 38.04		2,701,948		$ 38.04
Performance Option Plans
$88.23 to $101.01		2,066,600	8 years		$ 94.13		—		—
		4,768,548	6 years		$ 62.34		2,701,948		$ 38.04

The foregoing options have expiry dates ranging from November 2007 to May 2016.

Prior to 2003, the company applied the intrinsic value-based method of accounting for the plans. Effective December 15, 2003, it adopted the fair value-based method of accounting for stock options prospectively to all employee awards granted, modified or settled after January 1, 2003. Since the company’s stock option awards at that time vested over two years, the compensation cost included in the determination of net income for the year ended December 31, 2004 is less than that which would have been recognized if the fair value-based method had been applied to all awards since the original effective date of CICA Section 3870, “Stock-based Compensation and Other Stock-based Payments”. If the fair value-based method had been applied to all outstanding and unvested awards in each period, it would have reduced net income for 2004 to $294.6 from $298.6, and as a result reduced basic net income per share to $2.73 from $2.77 and reduced diluted net income per share to $2.66 from $2.70. There is no impact from this change in years subsequent to 2004.

The fair value of each option grant was estimated as of the grant date using the Black-Scholes-Merton option-pricing model. The following weighted-average assumptions were used in arriving at the grant-date fair values associated with stock options for which compensation cost was recognized during 2004, 2005 and 2006:

	Year of Grant
	2006		2005		2003		2002
Expected dividend		$0.60		$0.60		$0.50		$0.50
Expected volatility		30%		28%		27%		32%
Risk-free interest rate		4.90%		3.86%		4.06%		4.13%
Expected life of options	6.5 years		6.5 years		8 years		8 years

The expected dividend on the company’s stock was based on the current annualized dividend rate as at the date of grant. Expected volatility was based on historical volatility of the company’s stock over a period commensurate with the expected term of the stock option. The risk-free interest rate for the expected life of the option was based, as applicable, on the implied yield available on zero-coupon government issues with an equivalent remaining term at the time of the grant. Historical data were used to estimate the expected life of the option.

A summary of the status of the company’s non-vested shares subject to option as of December 31, 2006, and changes during the year then ended, is presented below:

	Number of			Weighted Average
	Shares Subject			Grant-Date
	to Option			Fair Value
Non-vested at January 1, 2006		1,186,000		$	29.82
Granted		894,900			38.53
Vested		—			—
Cancelled		(14,300	)		30.25
Non-vested at December 31, 2006		2,066,600		$	33.58

As of December 31, 2006, 2,066,600 options remained unvested and there was $14.6 of total unrecognized compensation cost related to the company’s stock option plans. This cost is expected to be recognized over the period through December 31, 2008.

Cash received from stock option exercises for the year ended December 31, 2006 was $47.3 (2005 — $93.9).

DEFERRED SHARE UNIT AND OTHER PLANS

The company offers a deferred share unit plan to non-employee directors, which, in 2006, entitled those directors to receive discretionary grants of deferred share units (“DSUs”), each of which has a value equal to the market value of a common share at the time of its grant.

NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts          77
 

26.  STOCK-BASED COMPENSATION (CONTINUED)

The plan also allows each director to choose to receive, in the form of DSUs, all or a percentage of the director’s fee, which would otherwise be payable in cash. Each DSU fully vests upon award, but is distributed only when the director has ceased to be a member of the Board of Directors of the company. Vested units are settled in cash based on the common share price at that time. As of December 31, 2006, the total DSUs held by participating directors was 71,283 (2005 — 63,635; 2004 — 50,999).

The company offers a performance unit incentive plan to senior executives and other key employees. The performance objectives under the plan are designed to further align the interests of executives and key employees with those of shareholders by linking the vesting of awards to the total return to shareholders over the three-year performance period ending December 31, 2008. Total shareholder return measures the capital appreciation in the company’s common shares, including dividends paid over the performance period. Vesting of one-half of the awards is based on increases in the total shareholder return over the three-year performance period. Vesting of the remaining one-half of the awards is based on the extent to which the total shareholder return matches or exceeds the total shareholder return of the common shares of a pre-defined peer group. Vested units are settled in cash based on the common share price generally at the end of the performance period. Compensation expense for this program is recorded over the three-year performance cycle of the program. The amount of compensation expense is adjusted over the three-year performance cycle to reflect the current market value of common shares and the number of shares vested in accordance with the vesting schedule based upon total shareholder return, and such return compared to the company’s peer group.

During 2006, cash of $34.5 was used to settle the company’s liability in respect of its performance unit incentive plan for the performance period January 1, 2003 to December 31, 2005. Other cash payments made in respect of the company’s stock-based compensation plans during 2006 were not significant.

27.  FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Derivative financial instruments are financial contracts whose value is derived from a foreign exchange rate, interest rate or commodity index. The company uses derivative financial instruments, including foreign currency forward contracts, futures, swaps and option agreements, to manage foreign exchange, interest rate and commodity price risk. Any derivative transactions that are specifically designated (and qualify) for hedge accounting are considered by the company to be off-balance-sheet items since they are not recorded at fair value on the Consolidated Statements of Financial Position. The notional amounts of the company’s financial instruments described below represent the amount to which a rate or price is applied in order to calculate the amount of cash that must be exchanged under the contract. These notional amounts do not represent assets or liabilities and therefore are not reflected in the Consolidated Statements of Financial Position.

The company manages interest rate exposures by using a diversified portfolio of fixed and floating rate instruments. Its sensitivity to fluctuations in interest rates is substantially limited to certain of its cash and cash equivalents, short-term debt and long-term debt. During the year, the company terminated its interest rate swap contracts that effectively converted a notional amount of $300.0 (2005 — $225.0) of fixed rate debt (due 2011) into floating rate debt for cash proceeds of $5.2 (2005 — $1.8) and a gain of $5.1 (2005 —$1.6). Hedge accounting on all terminated interest rate swap contracts was discontinued prospectively. The associated gains are being amortized over the remaining term of the related debt as a reduction to interest expense. No interest rate swap contracts were outstanding as at December 31, 2006 or 2005.

In addition to physical spot and term purchases, the company at times employs futures, swaps and option agreements to establish the cost on a portion of its natural gas requirements. These instruments are intended to hedge the future cost of the anticipated natural gas purchases for its US nitrogen and phosphate plants. Under these arrangements, the company receives or makes payments based on the differential between a specified price and the actual spot price of natural gas. The company has certain available lines of credit that are used to reduce cash margin requirements to maintain the derivatives. At December 31, 2006, it had collected cash margin requirements of $22.8 (2005 — $173.7) which were included in accounts payable and accrued charges (see Note 11).

As at December 31, 2006, the company had derivatives qualifying for hedge accounting in the form of swaps which represented a notional amount of 50.0 MMBtu with maturities in 2007 through 2016. As at December 31, 2006, deferred gains from settled hedging transactions were $8.0 (2005 — $(7.2)).

As at December 31, 2006, the company had entered into foreign currency forward contracts to sell US dollars and receive Canadian dollars in the notional amount of $100.0 (2005 — $43.0) at an average exchange rate of 1.1478 (2005 — 1.1852) per US dollar. The company had also entered into forward contracts to sell US dollars and receive euros in the notional amount of $4.2 (2005 — $2.2) at an average exchange rate of 1.2558 (2005 — 1.2145) per euro, and to sell Canadian dollars and receive euros in the notional amount of Cdn $3.4 (2005 — $4.5) at an average exchange rate of 1.3988 (2005 — 1.3940) per euro. The company also had other small forward exchange contracts outstanding at December 31, 2006 to reduce other currency exposures. Maturity dates for all forward contracts are within 2007.

The company is exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments. It anticipates, however, that counterparties will be able to fully satisfy their obligations under the contracts.

The major concentration of credit risk arises from the company’s receivables. A majority of its sales are in North America and are primarily for use in the agricultural industry. The company seeks to manage the credit risk relating to these sales through a credit management program. Internationally, the company’s products are sold primarily through two export associations whose accounts receivable are substantially insured or secured by letters of credit.

78          NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts
 

27.  FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)

FAIR VALUE

Fair value represents point-in-time estimates that may change in subsequent reporting periods due to market conditions or other factors. The estimated fair values disclosed below are designed to approximate amounts at which the financial instruments could be exchanged in a current transaction between willing parties. However, some financial instruments lack an available trading market and therefore, certain fair values are based on estimates using net present value and other valuation techniques, which are significantly affected by assumptions as to the amount and timing of estimated future cash flows and discount rates, all of which reflect varying degrees of risk.

Due to their short-term nature, the fair value of cash and cash equivalents, accounts receivable, short-term debt, and accounts payable and accrued charges is assumed to approximate carrying value. The fair value of the company’s gas hedging contracts at December 31, 2006 approximated $120.3 (2005 — $277.1). Futures contracts are exchange-traded and fair value was determined based on exchange prices. Swaps and option agreements are traded in the over-the-counter market and fair value was calculated based on a price that was converted to an exchange-equivalent price. The fair value of the company’s notes payable at December 31, 2006 approximated $1,776.8 (2005 — $1,324.9) and reflects a current yield valuation based on observed market prices. The fair value of the company’s other long-term debt instruments approximated carrying value.

28.  CONTINGENCIES

CANPOTEX

PCS is a shareholder in Canpotex, which markets potash offshore. Should any operating losses or other liabilities be incurred by Canpotex, the shareholders have contractually agreed to reimburse it for such losses or liabilities in proportion to their productive capacity. There were no such operating losses or other liabilities in 2006, 2005 or 2004.

MINING RISK

In common with other companies in the industry, the company is unable to acquire insurance for underground assets.

INVESTMENT IN APC

The company is party to a shareholders agreement with Jordan Investment Company (“JIC”) with respect to its investment in APC. The terms of the shareholders agreement provide that, from October 17, 2006 to October 16, 2009, JIC may seek to exercise a put option (the “Put”) to require the company to purchase JIC’s remaining common shares in APC. If the Put were exercised, the company’s purchase price would be calculated in accordance with a specified formula based, in part, on earnings of APC. The amount, if any, which the company may have to pay for JIC’s remaining common shares if there was to be a valid exercise of the Put would be determinable at the time JIC provides appropriate notice to the company pursuant to the terms of the agreement.

LEGAL AND OTHER MATTERS

In 1994, PCS Joint Venture responded to information requests from the US Environmental Protection Agency (“USEPA”) and the Georgia Department of Natural Resources, Environmental Protection Division (“GEPD”) regarding conditions at its Moultrie, Georgia location. PCS Joint Venture believes that the lead-contaminated soil and groundwater found at the site are attributable to former operations at the site prior to PCS Joint Venture’s ownership. In 2005, the GEPD approved a Corrective Action Plan to address environmental conditions at this location. As anticipated, the approved remedy requires some excavation and off-site disposal of impacted soil and installation of a groundwater recovery and treatment system. PCS Joint Venture began the remediation in November 2005 and completed soil excavation activities in March 2006, and it is proceeding consistent with the projected schedule and budget.

In 1998, the company, along with other parties, was notified by the USEPA of potential liability under the US federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”) with respect to certain soil and groundwater conditions at a PCS Joint Venture blending facility in Lakeland, Florida and certain adjoining property. In 1999, PCS Joint Venture signed an Administrative Order and Consent with the USEPA pursuant to which PCS Joint Venture agreed to conduct a Remedial Investigation and Feasibility Study (“RI/FS”) of these conditions. PCS Joint Venture and another party are sharing the costs of the RI/FS, which is nearing completion. In December 2006, the parties submitted the focused feasibility study to the USEPA and Florida Department of Environment for final review and comment. No final determination has yet been made of the nature, timing or cost of remedial action that may be needed, nor to what extent costs incurred may be recoverable from third parties. Although PCS Joint Venture sold the Lakeland property in July 2006, it has retained the above-described remediation responsibilities and has indemnified the third-party purchaser for the costs of remediation and certain related claims.

The USEPA has identified PCS Nitrogen, Inc. (“PCS Nitrogen”) as a potentially responsible party with respect to a former fertilizer blending operation in Charleston, South Carolina, known as the Planters Property or Columbia Nitrogen Site, formerly owned by a company from which PCS Nitrogen acquired certain other assets. The USEPA has requested reimbursement of $3.0 of previously-incurred response costs and the performance or financing of future site investigation and response activities from PCS Nitrogen and other named potentially responsible parties. In September 2005, Ashley II of Charleston, L.L.C., the current owner of the Planters Property, filed a complaint in the United States District Court for the District of South Carolina seeking a declaratory judgment that PCS Nitrogen is liable to pay environmental response costs that Ashley II of Charleston, L.L.C. alleges it has incurred and will incur in connection with response activities at the site. The Court has scheduled a trial in the first quarter of 2007 for the first phase of the case in which it will consider whether PCS Nitrogen has any liability for these costs. PCS Nitrogen has filed third-party complaints in the case against owners and operators that should be responsible parties with respect to the site. PCS Nitrogen denies that it is a potentially responsible party and is vigorously defending its interests in these actions.

NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts          79
 

28.  CONTINGENCIES (CONTINUED)

PCS Phosphate, along with several other entities has received notice from parties to an Administrative Settlement Agreement (“Settling Parties”) with USEPA of alleged contribution liability under CERCLA for costs incurred and to be incurred addressing PCB soil contamination at the Ward Superfund Site in Raleigh, North Carolina (“Site”). PCS Phosphate has agreed to participate, on a non joint and several basis, with the Settling Parties in the performance of the removal action and the payment of other costs associated with the Site, including reimbursement of USEPA’s past costs. The cost of performing the removal at the Site is estimated at $12.0 to $17.0. We understand that removal activities will commence at the Site in 2007. We anticipate recovering some portion of our expenditures in this matter from other liable parties.

The USEPA announced an initiative to evaluate implementation within the phosphate industry of a particular exemption for mineral processing wastes under the hazardous waste program. In connection with this industry-wide initiative, the USEPA conducted hazardous waste compliance evaluation inspections at numerous phosphate operations, including the company’s plants in Aurora, North Carolina, Geismar, Louisiana and White Springs, Florida. In September 2005 and December 2005 respectively, the USEPA notified the company of various alleged violations of the Resource Conservation and Recovery Act at its Aurora and White Springs plants. The company and other industry members have met with representatives of the US Department of Justice, the USEPA and various state environmental agencies regarding potential resolutions of these matters. The company is uncertain if any resolution will be possible without litigation, or, if litigation occurs, what the outcome would be. At this time, the company is unable to evaluate the extent of any exposure that it may have in these matters.

The company is also engaged in ongoing site assessment and/or remediation activities at a number of other facilities and sites. Based on current information, it does not believe that its future obligations with respect to these facilities and sites are reasonably likely to have a material adverse effect on its consolidated financial position or results of operations.

Various other claims and lawsuits are pending against the company in the ordinary course of business. While it is not possible to determine the ultimate outcome of such actions at this time, and there exist inherent uncertainties in predicting such outcomes, it is management’s belief that the ultimate resolution of such actions is not reasonably likely to have a material adverse effect on the company’s consolidated financial position or results of operations.

The breadth of the company’s operations and the global complexity of tax regulations require assessments of uncertainties and judgments in estimating the taxes it will ultimately pay. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions, outcomes of tax litigation and resolution of disputes arising from federal, provincial, state and local tax audits. The resolution of these uncertainties and the associated final taxes may result in adjustments to the company’s tax assets and tax liabilities.

The company owns facilities which have been either permanently or indefinitely shut down. It expects to incur nominal annual

expenditures for site security and other maintenance costs at certain of these facilities. Should the facilities be dismantled, certain other shutdown-related costs may be incurred. Such costs would not be expected to have a material adverse effect on the company’s consolidated financial position or results of operations and would be recognized and recorded in the period in which they were incurred.

29.  GUARANTEES

In the normal course of operations, the company provides indemnifications that are often standard contractual terms to counterparties in transactions such as purchase and sale contracts, service agreements, director/officer contracts and leasing transactions. These indemnification agreements may require the company to compensate the counterparties for costs incurred as a result of various events, including environmental liabilities and changes in (or in the interpretation of) laws and regulations, or as a result of litigation claims or statutory sanctions that may be suffered by the counterparty as a consequence of the transaction. The terms of these indemnification agreements will vary based upon the contract, the nature of which prevents the company from making a reasonable estimate of the maximum potential amount that it could be required to pay to counterparties. Historically, the company has not made any significant payments under such indemnifications and no amounts have been accrued in the accompanying consolidated financial statements with respect to these indemnification guarantees (apart from any appropriate accruals relating to the underlying potential liabilities).

The company enters into agreements in the normal course of business that may contain features that meet the definition of a guarantee. Various debt obligations (such as overdrafts, lines of credit with counterparties for derivatives, and back-to-back loan arrangements) and other commitments (such as railcar leases) related to certain subsidiaries and investees have been directly guaranteed by the company under such agreements with third parties. The company would be required to perform on these guarantees in the event of default by the guaranteed parties. No material loss is anticipated by reason of such agreements and guarantees. At December 31, 2006, the maximum potential amount of future (undiscounted) payments under significant guarantees provided to third parties approximated $367.2. As many of these guarantees will not be drawn upon and the maximum potential amount of future payments does not consider the possibility of recovery under recourse or collateral provisions, this amount is not indicative of future cash requirements or the company’s expected losses from these arrangements. At December 31, 2006, no subsidiary balances subject to guarantees were outstanding in connection with the company’s cash management facilities, and it had no liabilities recorded for other obligations other than subsidiary bank borrowings of approximately $5.9, which are reflected in other long-term debt in Note 12, and the cash margin requirements to maintain derivatives as disclosed in Note 27.

The company has guaranteed the gypsum stack capping, closure and post-closure obligations of White Springs and PCS Nitrogen in Florida and Louisiana, respectively, pursuant to the financial assurance regulatory requirements in those states. In February 2005, the Florida Environmental Regulation Commission approved certain modifications to the financial assurance requirements designed to

80          NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts
 

29.  GUARANTEES (CONTINUED)

ensure that responsible parties have sufficient resources to cover all closure and post-closure costs and liabilities associated with gypsum stacks in the state. The new requirements became effective in July 2005 and include financial strength tests that are more stringent than under previous law and a requirement that gypsum stack closure cost estimates include the cost of treating process water. The company has met its financial assurance responsibilities as of December 31, 2006. Costs associated with the retirement of long-lived tangible assets have been accrued in the accompanying consolidated financial statements to the extent that a legal liability to retire such assets exists (see Note 15).

The environmental regulations of the Province of Saskatchewan require each potash mine to have decommissioning and reclamation plans. Financial assurances for these plans must be established within one year following approval of these plans by the responsible provincial minister. The Minister of Environment for Saskatchewan provisionally approved the plans in July 2000. In July 2001, a Cdn $2.0 irrevocable letter of credit was posted. We submitted a revised plan when it was due in 2006 and are awaiting a response from the Province. The company is unable to predict, at this time, the outcome of the ongoing review of the plans or the timing of implementation and structure of any financial assurance requirements.

During the year, the company entered into various other commercial letters of credit in the normal course of operations. As at December 31, 2006, $17.3 of letters of credit were outstanding (2005 — $18.7).

The company expects that it will be able to satisfy all applicable credit support requirements without disrupting normal business operations.

30.  RELATED PARTY TRANSACTIONS

Sales to Canpotex are at prevailing market prices. Sales for the year ended December 31, 2006 were $467.1 (2005 — $577.1; 2004 —$421.9). Account balances resulting from the Canpotex transactions are included in the Consolidated Statements of Financial Position and settled on normal trade terms (see Note 5).

31.  COMPARATIVE FIGURES

Certain of the prior years’ figures have been reclassified to conform with the current year’s presentation.

32.  RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

Canadian GAAP varies in certain significant respects from US GAAP. As required by the United States Securities and Exchange Commission, the effect of these principal differences on the company’s consolidated financial statements is described and quantified below:

(a) Long-term investments: The company’s investments in ICL and Sinofert are stated at cost. US GAAP requires that these investments be classified as available-for-sale and be stated at market value with the difference between market value and cost reported as a component of other comprehensive income (“OCI”).

Certain of the company’s investments in international entities are accounted for under the equity method. Accounting principles generally accepted in those foreign jurisdictions may vary in certain

important respects from Canadian GAAP and in certain other respects from US GAAP. The company’s share of earnings of these equity investees under Canadian GAAP has been adjusted for the significant effects of conforming to US GAAP.

(b) Property, plant and equipment and goodwill: The net book value of property, plant and equipment and goodwill under Canadian GAAP is higher than under US GAAP, as past provisions for asset impairment under Canadian GAAP were measured based on the undiscounted cash flow from use together with the residual value of the assets. Under US GAAP, they were measured based on fair value, which was lower than the undiscounted cash flow from use together with the residual value of the assets. Fair value for this purpose was determined based on discounted expected future net cash flows.

(c) Depreciation and amortization: Depreciation and amortization under Canadian GAAP is higher than under US GAAP, as a result of differences in the carrying amounts of property, plant and equipment under Canadian and US GAAP.

(d) Exploration costs: Under Canadian GAAP, capitalized exploration costs are classified under property, plant and equipment. For US GAAP, these costs are generally expensed until such time as a final feasibility study has confirmed the existence of a commercially mineable deposit.

(e) Pre-operating costs: Operating costs incurred during the start-up phase of new projects are deferred under Canadian GAAP until commercial production levels are reached, at which time they are amortized over the estimated life of the project. US GAAP requires that these costs be expensed as incurred. As at December 31, 2006 and 2005, the start-up costs deferred for Canadian GAAP were not material.

(f) Asset retirement obligations: The company adopted SFAS No. 143, “Accounting for Asset Retirement Obligations”, for US GAAP purposes effective January 1, 2003. A GAAP difference arises because the equivalent Canadian standard was not adopted until January 1, 2004.

(g) Pension and other post-retirement benefits: Under Canadian GAAP, when a defined benefit plan gives rise to an accrued benefit asset, a company must recognize a valuation allowance for the excess of the adjusted benefit asset over the expected future benefit to be realized from the plan asset. Changes in the pension valuation allowance are recognized in income. US GAAP does not specifically address pension valuation allowances, and the US regulators have interpreted this to be a difference between Canadian and US GAAP. In light of this, a difference between Canadian and US GAAP has been recorded for the effects of recognizing a pension valuation allowance and the changes therein under Canadian GAAP.

In addition, the company is required to recognize the difference between the benefit obligation and the fair value of plan assets in the Consolidated Statement of Financial Position with the offset to OCI. No similar requirement exists under Canadian GAAP.

(h) Foreign currency translation adjustment: The company adopted the US dollar as its functional and reporting currency on January 1, 1995. At that time, the consolidated financial statements were translated into US dollars at the December 31, 1994 year-end exchange rate using the translation of convenience method under Canadian GAAP. This translation method was not permitted under US

NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts          81
 

32.  RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)

GAAP. US GAAP required the comparative Consolidated Statements of Operations and Consolidated Statements of Cash Flow to be translated at applicable weighted-average exchange rates, whereas the Consolidated Statements of Financial Position were permitted to be translated at the December 31, 1994 year-end exchange rate. The use of disparate exchange rates under US GAAP gave rise to a foreign currency translation adjustment. Under US GAAP, this adjustment is reported as a component of accumulated OCI.

(i) Derivative instruments and hedging activities: Under Canadian GAAP, the company’s derivatives used for non-trading purposes that do not qualify for hedge accounting are carried at fair value on the Consolidated Statements of Financial Position, with changes in fair value reflected in earnings. Derivatives embedded within hybrid instruments are generally not separately accounted for except for those related to equity-linked deposit contracts, which are not applicable to the company. Gains and losses on derivative instruments held within an effective hedge relationship are recognized in earnings on the same basis and in the same period as the underlying hedged items. There is no difference in accounting between Canadian and US GAAP in respect of derivatives held by the company that do not qualify for hedge accounting. Unlike Canadian GAAP, however, for US GAAP purposes the company recognizes all of its derivative instruments (whether designated in hedging relationships or not, or embedded within hybrid instruments) at fair value on the Consolidated Statements of Financial Position. Under US GAAP, the accounting for changes in the fair value (i.e. gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship. For strategies designated as fair value hedges, the effective portion of the change in the fair value of the derivative is offset in income against the change in fair value, attributed to the risk being hedged, of the underlying hedged asset, liability or firm commitment. For cash flow hedges, the effective portion of the changes in the fair value of the derivative is accumulated in OCI until the variability in cash flows being hedged is recognized in earnings in future accounting periods. For both fair value and cash flow hedges, if a derivative instrument is designated as a hedge and meets the criteria for hedge effectiveness, earnings offset is available, but only to the extent that the hedge is effective. Ineffective portions of fair value or cash flow hedges are recorded in earnings in the current period.

(j) Comprehensive income: Comprehensive income is recognized and measured under US GAAP pursuant to SFAS No. 130, “Reporting Comprehensive Income”. This standard defines comprehensive income as all changes in equity other than those resulting from investments by owners and distributions to owners. Comprehensive income is comprised of net income and OCI. OCI refers to amounts that are recorded as an element of shareholders’ equity but are excluded from net income because these transactions or events were attributed to changes from non-owner sources. As described in Note 2, Canadian standards relating to comprehensive income are not effective for the company until the fiscal year beginning January 1, 2007.

(k) Stock-based compensation: Under Canadian GAAP, the company’s stock-based compensation plan awards classified as liabilities are measured at intrinsic value at each reporting period. Effective January 1, 2006, US GAAP requires that these liability awards be measured at fair value at each reporting period. As at December 31, 2006, the difference between Canadian and US GAAP was not significant. The company uses a Monte Carlo simulation model to estimate the fair value of its performance unit incentive plan liability for US GAAP purposes.

Under Canadian GAAP, stock options are recognized over the service period, which for PotashCorp is established by the option performance period. Effective January 1, 2006, under US GAAP stock options are recognized over the requisite service period, which does not commence until the option plan is approved by the company’s shareholders and options are granted thereunder. For options granted under the PotashCorp 2006 Performance Option Plan, the service period commenced January 1, 2006 under Canadian GAAP and May 4, 2006 under US GAAP. This difference impacts the stock-based compensation cost recorded and may impact diluted earnings per share.

(l) Stripping costs: Under Canadian GAAP, the company capitalizes and amortizes costs associated with the activity of removing overburden and other mine waste minerals in the production phase.

Effective January 1, 2006, US GAAP requires such stripping costs to be attributed to ore produced in that period as a component of inventory and recognized in cost of sales in the same period as related revenue. In accordance with US GAAP, the company has recorded the effect of initially applying this consensus as a cumulative-effect adjustment recognized in the opening balance of retained earnings as of January 1, 2006.

(m) Deferred debt costs: Under Canadian GAAP, issue costs and deferred interest rate swap gains related to long-term debt are included in other assets and other long-term liabilities, respectively. US GAAP requires these costs to be included as an adjustment to the carrying value of the long-term debt.

(n) Income taxes related to the above adjustments: The income tax adjustment reflects the impact on income taxes of the US GAAP adjustments described above. Accounting for income taxes under Canadian and US GAAP is similar, except that income tax rates of enacted or substantively enacted tax law must be used to calculate future income tax assets and liabilities under Canadian GAAP, whereas only income tax rates of enacted tax law can be used under US GAAP.

(o) Income tax consequences of stock-based employee compensation: Under Canadian GAAP, the income tax benefit attributable to stock-based compensation that is deductible in computing taxable income but is not recorded in the consolidated financial statements as an expense of any period (the “excess benefit”) is considered to be a permanent difference. Accordingly, such amount is treated as an item that reconciles the statutory income tax rate to the company’s effective income tax rate. Under US GAAP, the excess benefit is recognized as additional paid-in capital.

(p) Cash flow statements: US GAAP requires the disclosure of income taxes paid. Canadian GAAP requires the disclosure of income tax cash flows, which would include any income taxes recovered during the year.

82          NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts
 

32.  RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)

The application of US GAAP, as described above, would have had the following effects on net income, net income per share, total assets and shareholders’ equity.

	2006			2005			2004
Net income as reported — Canadian GAAP	$	631.8		$	542.9		$	298.6
Items increasing (decreasing) reported net income
Cash flow hedge ineffectiveness		(4.5	)		2.3			2.6
Depreciation and amortization		8.4			8.4			8.4
Stock-based compensation		1.3			—			—
Stripping costs		2.6			—			—
Exploration costs		—			(6.4	)		—
Accretion of asset retirement obligations		—			—			3.3
Share of earnings of equity investees		0.5			3.7			—
Pension and other post-retirement benefits		2.0			2.4			(2.2	)
Deferred income taxes relating to the above adjustments		(3.0	)		(3.4	)		(4.3	)
Income taxes related to stock-based compensation		(13.3	)		(17.2	)		(15.9	)
Net income — US GAAP	$	625.8		$	532.7		$	290.5
Basic weighted average shares outstanding — US GAAP		103,960,000			108,568,000			107,967,000
Diluted weighted average shares outstanding — US GAAP		106,223,000			111,078,000			110,739,000
Basic net income per share — US GAAP	$	6.02		$	4.91		$	2.69
Diluted net income per share — US GAAP	$	5.89		$	4.80		$	2.62
Total assets as reported — Canadian GAAP	$	6,217.0		$	5,357.9
Items increasing (decreasing) reported total assets
Inventory and other current assets		8.0			(7.2	)
Available-for-sale securities (unrealized holding gain)		889.9			355.2
Fair value of derivative instruments		120.3			277.1
Property, plant and equipment		(109.7	)		(118.1	)
Exploration costs		(6.4	)		(6.4	)
Stripping costs		(21.8	)		—
Deferred debt costs		(23.9	)		—
Pension and other post-retirement benefits		6.7			14.1
Intangible asset relating to additional minimum pension liability		—			11.1
Investment in equity investees		5.5			4.8
Goodwill		(46.7	)		(46.7	)
Total assets — US GAAP	$	7,038.9		$	5,841.8
Total shareholders’ equity as reported — Canadian GAAP	$	2,780.3		$	2,132.5		$	2,385.6
Items increasing (decreasing) reported shareholders’ equity
Accumulated other comprehensive income, net of related income taxes		733.5			343.2			96.8
Foreign currency translation adjustment		20.9			20.9			20.9
Provision for asset impairment		(218.0	)		(218.0	)		(218.0	)
Depreciation and amortization		61.6			53.2			44.8
Exploration costs		(6.4	)		(6.4	)		—
Stripping costs		2.6			—			—
Cash flow hedge ineffectiveness		0.4			4.9			2.6
Pension and other post-retirement benefits		16.1			14.1			11.7
Share of other comprehensive income of equity investees		4.2			3.7			—
Deferred income taxes relating to the above adjustments		24.0			27.0			30.4
Cumulative effect adjustment to retained earnings in respect of stripping costs		(16.3	)		—			—
Shareholders’ equity — US GAAP	$	3,402.9		$	2,375.1		$	2,374.8

NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts          83
 

32.  RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)

SUPPLEMENTAL US GAAP DISCLOSURE

Recent Accounting Pronouncements

Inventory Costs

In November 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 151, “Inventory Costs”, to clarify that abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) should be recognized as current-period charges, and to require the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. The guidance was effective for inventory costs incurred during 2006 and did not have a material impact on the company’s consolidated financial statements.

Stripping Costs Incurred in the Production Phase of a Mining Operation

In March 2005, the FASB ratified the consensus reached by the Emerging Issues Task Force on Issue No. 04-6, “Accounting for Stripping Costs Incurred During Production in the Mining Industry”, that stripping costs incurred during production are variable inventory costs that should be attributed to ore produced in that period as a component of inventory and recognized in cost of sales in the same period as related revenue. The consensus was effective for the company in the first quarter of 2006. In accordance with the transition guidance, the company recorded the effect of initially applying the consensus as a cumulative-effect adjustment, reducing the opening balance of US GAAP retained earnings by $16.3 as of January 1, 2006.

Determining the Variability to be Considered in Applying the Variable Interest Entity Standards

In April 2006, the FASB issued FSP FIN 46(R)-6 “Determining the Variability to be Considered in Applying FASB Interpretation No. 46(R)”. Consistent with EIC-163, this guidance provided additional clarification on how to analyze and consolidate VIEs. The guidance did not have a material impact on the company’s consolidated financial statements.

Uncertainty in Income Taxes

In July 2006, the FASB issued FIN No. 48, “Accounting for Uncertainty in Income Taxes”. FIN No. 48 prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its consolidated financial statements uncertain tax positions that it has taken or expects to take on a tax return (including a decision whether to file or not to file a return in a particular jurisdiction). Under the model, the consolidated financial statements will reflect expected future income tax consequences of such positions, presuming the taxing authorities’ full knowledge of the position and all relevant facts, but without considering time values. The evaluation of tax positions under FIN No. 48 will be a two-step process, whereby: (1) the company determines whether it

is more likely than not that the tax positions will be sustained based on the technical merits of the position; and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the company would recognize the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with the taxing authority. FIN No. 48 also revises disclosure requirements and introduces a prescriptive, annual, tabular roll-forward of the unrecognized tax benefits. The company is reviewing the guidance (which is effective for the first quarter of 2007) to determine the potential impact, if any, on its consolidated financial statements.

Planned Major Maintenance Activities

In September 2006, the FASB issued FSP No. AUG AIR-1, “Accounting for Planned Major Maintenance Activities”. The FSP prohibits use of the accrue-in-advance method of accounting for planned major maintenance activities in annual and interim financial reporting periods. The guidance is effective for the first quarter of 2007. The company is reviewing the guidance to determine the potential impact, if any, on its consolidated financial statements.

Quantifying Misstatements in the Financial Statements

In September 2006, the SEC Staff issued Staff Accounting Bulletin 108, “Quantifying Misstatements in the Financial Statements” (“SAB 108”). SAB 108 requires that misstatements identified in the current year financial statements which result from misstatements of prior year financial statements be quantified and evaluated using a dual approach that includes both an income statement and balance sheet assessment of any misstatement. The guidance was effective for fiscal years ending after November 15, 2006 and did not have a material impact on the company’s consolidated financial statements.

Framework for Fair Value Measurement

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, which establishes a framework for measuring fair value. It also expands disclosures about fair value measurements and is effective for the first quarter of 2008. The company is currently reviewing the guidance to determine the potential impact, if any, on its consolidated financial statements.

Defined Benefit Pension and Other Post-Retirement Benefit Plans

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Benefit Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)”. SFAS No. 158 requires an entity to: (1) recognize the over-funded or under-funded status of a benefit plan as an asset or liability in the statement of financial position; (2) recognize the existing unrecognized net gains and losses, unrecognized prior-service costs and credits, and unrecognized net transition assets or obligations in OCI; and (3) measure defined benefit plan assets and obligations as of the year-end date. The guidance is effective for the company’s December 31, 2006 consolidated financial statements. In accordance with the transition guidance, the company recorded the effect of initially applying the statement to its pension and other

84          NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts  

32. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)

post-retirement liability as a cumulative effect adjustment as at the end of 2006. The effect of implementing SFAS No. 158 is outlined in the table below:

	At December 31, 2006
	Prior to			Effect of
	adopting			adopting
	SFAS No. 158			SFAS No. 158			As reported
Prepaid pension costs	$	42.9		$	(9.8	)	$	33.1
Intangible pension asset		9.0			(9.0	)		—
Current liabilities		(8.9	)		—			(8.9	)
Long-term liabilities		(300.1	)		(78.0	)		(378.1	)
Deferred income tax liability		109.3			26.0			135.3
Accumulated other comprehensive income		47.1			70.8			117.9

Available-for-Sale Securities

The company’s investments in ICL and Sinofert are classified as available-for-sale. The fair market value of these investments at December 31, 2006 was $1,281.3 and the unrealized holding gain was $889.9.

Deferred Income Taxes

The total valuation allowance recognized for deferred income tax assets in 2006 was $53.1 (2005 — $45.5). The company has determined that it is more likely than not that the deferred income tax assets net of the valuation allowance will be realized through a combination of future reversals of temporary differences and taxable income.

Stock-Based Compensation

The total compensation cost charged to income in respect of the company’s six stock-based compensation plans under US GAAP was $43.0 for the year ended December 31, 2006 (2005 — $37.3).

Prior to 2003, the company applied the intrinsic value-based method of accounting for its stock option plans under US GAAP. Effective December 15, 2003, the company adopted the fair value-based method of accounting for stock options prospectively to all employee awards granted, modified or settled after January 1, 2003 pursuant to the transitional provisions of SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure”. Since the company’s stock option awards at that time vested over two years, the compensation cost included in the determination of net income for the year ended December 31, 2004 is less than that which would have been recognized if the fair value-based method had been applied to all awards since the original effective date of SFAS No. 123, “Accounting for Stock-Based Compensation”. If the fair value-based method had been applied to all outstanding and unvested awards in each period, it would have reduced net income for 2004 to $286.5 from $290.5, and as a result reduced basic net income per share to $2.65 from $2.69 and reduced diluted net income per share to $2.59 from $2.62. There is no impact from this change in years subsequent to 2004.

The aggregate intrinsic value of options outstanding at December 31, 2006 under the Performance Option Plans was $95.8, and the aggregate intrinsic value of options exercisable was $NIL. The aggregate intrinsic value of options outstanding at December 31, 2006 under the Officers and Employees and Directors Plans was $284.7, and the aggregate intrinsic value of options exercisable was $284.7. The total intrinsic value of stock options exercised was $72.9 during the year ended December 31, 2006. No stock options vested during this period.

As of December 31, 2006, there was $15.9 of total unrecognized compensation cost related to the company’s stock option plans. This cost is expected to be recognized over the period through December 31, 2008.

The company issued 157,165 performance units during 2006 (2005 — NIL) under the performance unit incentive plan at a weighted average grant-date fair value of $78.48 per unit. As at December 31, 2006, 150,763 units remained unvested and outstanding. Total unrecognized compensation cost approximated $18.5, which is expected to be recognized over the period through December 31, 2008. However, such amount will be subject to change, as these liability awards are remeasured at fair value at each reporting period.

Derivative Instruments and Hedging Activities

The company has designated its natural gas derivative instruments as cash flow hedges.

The portion of gain or loss on derivative instruments designated as cash flow hedges that are effective at offsetting changes in the hedged item is reported as a component of accumulated OCI and then is reclassified into cost of goods sold when the product containing the hedged item impacts earnings. Any hedge ineffectiveness is recorded in cost of goods sold in the current period. During the year, a gain of $73.5 was recognized in cost of goods sold (2005 — $48.6; 2004 — $43.0). Of the deferred gains at year-end, approximately $50.9 will be reclassified to cost of goods sold within the next 12 months.

Pension and Other Post-Retirement Benefits

The unamortized actuarial loss, unamortized prior service cost and unamortized transitional obligation included in accumulated other comprehensive income and expected to be recognized in net periodic pension cost during 2007 is $10.2, $2.3 and $(0.9), respectively.

Related Party Transactions

During the year, sales to a company associated with the immediate family of a member of the PCS Board of Directors totalled $16.0 (2005 — $12.6). These transactions were conducted in the normal course of business at the prevailing market prices and on normal trade terms.

SUPPLEMENTAL SCHEDULES

The following supplemental schedules present the consolidated Financial Position, Operations and Retained Earnings, Comprehensive Income, Accumulated Other Comprehensive Income, and Cash Flow in accordance with US GAAP as adjusted for the GAAP differences described in this note.

NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts          85

 

32. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED)

SUPPLEMENTAL SCHEDULE OF CONSOLIDATED FINANCIAL POSITION

As at December 31

	2006		2005
Assets
Current assets
Cash and cash equivalents	$	325.7	$	93.9
Accounts receivable		442.3		453.3
Inventories		494.9		515.3
Prepaid expenses and other current assets		40.9		41.1
Current portion of derivative instruments		50.9		103.9
		1,354.7		1,207.5
Derivative instruments		69.4		173.2
Property, plant and equipment		3,409.8		3,138.4
Other assets		2,125.4		1,226.8
Intangible assets		29.3		45.6
Goodwill		50.3		50.3
	$	7,038.9	$	5,841.8
Liabilities
Current liabilities
Short-term debt	$	157.9	$	252.2
Accounts payable and accrued charges		573.5		842.7
Current portion of long-term debt		400.4		1.2
		1,131.8		1,096.1
Long-term debt		1,339.8		1,257.6
Deferred income tax liability		668.5		690.2
Accrued pension and other post-retirement benefits		378.1		308.3
Accrued environmental costs and asset retirement obligations		110.3		97.3
Other non-current liabilities and deferred credits		7.5		17.2
		3,636.0		3,466.7
Shareholders’ Equity
Share capital		1,431.6		1,379.3
Additional paid-in capital		113.1		75.1
Retained earnings		1,124.7		577.5
Accumulated other comprehensive income		733.5		343.2
		3,402.9		2,375.1
	$	7,038.9	$	5,841.8

SUPPLEMENTAL SCHEDULE OF CONSOLIDATED ACCUMULATED OTHER COMPREHENSIVE INCOME

For the Years Ended December 31

	2006			2005		2004
Accumulated other comprehensive income, beginning of year	$	343.2		$	96.8	$	31.2
Other comprehensive income, net of related income taxes		461.1			246.4		65.6
Cumulative effect adjustment related to pension and other post-retirement benefits		(70.8	)		—		—
Accumulated other comprehensive income, end of year	$	733.5		$	343.2	$	96.8

86          NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts
 

32. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED)

SUPPLEMENTAL SCHEDULE OF CONSOLIDATED ACCUMULATED OTHER COMPREHENSIVE INCOME (continued)

The balances related to each component of accumulated other comprehensive income, net of related income taxes, are as follows:

	2006			2005			2004
Unrealized gains and losses on available-for-sale securities	$	792.0		$	236.3		$	106.7
Gains and losses on derivatives designated as cash flow hedges		79.4			182.4			47.4
Additional minimum pension liability		—			(55.4	)		(36.4	)
Pension and other post-retirement benefits*		(117.9	)		—			—
Share of other comprehensive income of equity investees		0.9			0.8			—
Foreign currency translation adjustment		(20.9	)		(20.9	)		(20.9	)
Accumulated other comprehensive income, end of year	$	733.5		$	343.2		$	96.8

* 2006 comprised of unamortized net actuarial loss of $(122.9), unamortized prior service costs of $9.0 and unamortized transitional obligation of $(4.0).

SUPPLEMENTAL SCHEDULE OF CONSOLIDATED OPERATIONS AND RETAINED EARNINGS

For the Years Ended December 31

		2006			2005			2004
Sales		$	3,766.7		$	3,847.2		$	3,244.4
Less:	Freight		255.8			249.7			238.7
	Transportation and distribution		134.1			121.9			104.3
	Cost of goods sold		2,365.4			2,337.5			2,207.9
Gross Margin			1,011.4			1,138.1			693.5
Selling and administrative			158.0			144.5			130.6
Provincial mining and other taxes			66.5			137.2			92.6
Foreign exchange (gain) loss			(4.4	)		12.5			19.7
Share of earnings of equity investees			(54.9	)		(55.8	)		(30.9	)
Other income			(39.6	)		(3.3	)		(44.9	)
			125.6			235.1			167.1
Operating Income			885.8			903.0			526.4
Interest Expense			85.6			82.3			84.0
Income Before Income Taxes			800.2			820.7			442.4
Income Taxes			174.4			288.0			151.9
Net Income			625.8			532.7			290.5
Retained Earnings, Beginning of Year			577.5			572.3			341.7
Cumulative Effect Adjustment in Respect of Stripping Costs			(16.3	)		—			—
Repurchase of Common Shares			—			(462.5	)		—
Dividends			(62.3	)		(65.0	)		(59.9	)
Retained Earnings, End of Year		$	1,124.7		$	577.5		$	572.3
Net Income per Share – Basic		$	6.02		$	4.91		$	2.69
Net Income per Share – Diluted		$	5.89		$	4.80		$	2.62
Dividends per Share		$	0.60		$	0.60		$	0.55

SUPPLEMENTAL SCHEDULE OF CONSOLIDATED COMPREHENSIVE INCOME

For the Years Ended December 31

	2006			2005			2004
Net income	$	625.8		$	532.7		$	290.5
Other comprehensive income
Change in unrealized holding gains and losses on available-for-sale securities		534.7			193.5			101.2
Change in gains and losses on derivatives designated as cash flow hedges		(68.2	)		255.0			49.3
Reclassification to income of gains and losses on cash flow hedges		(79.7	)		(53.5	)		(43.0	)
Adjustment to additional minimum pension liability		11.7			(28.4	)		(9.6	)
Share of other comprehensive income of equity investees		0.2			1.1			—
Deferred income taxes related to other comprehensive income		62.4			(121.3	)		(32.3	)
Other comprehensive income, net of related income taxes		461.1			246.4			65.6
Comprehensive income	$	1,086.9		$	779.1		$	356.1

NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS / in millions of US dollars except share and per-share amounts          87

 

32. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED)

SUPPLEMENTAL SCHEDULE OF CONSOLIDATED CASH FLOW

For the Years Ended December 31

	2006			2005			2004
Operating Activities
Net income	$	625.8		$	532.7		$	290.5
Adjustments to reconcile net income to cash provided by operating activities Depreciation and amortization		234.0			234.0			231.6
Stock-based compensation		28.5			27.5			11.1
(Gain) loss on disposal of property, plant and equipment and long-term investments		(8.6	)		11.8			(35.1	)
Provisions for phosphate plant shutdowns and PCS Yumbes		6.3			—			3.6
Foreign exchange on deferred income tax		0.5			8.9			17.2
Provision for deferred income tax		52.7			43.5			30.6
Undistributed earnings of equity investees		(25.0	)		(37.2	)		(22.2	)
Other long-term liabilities		13.4			20.2			(2.3	)
Changes in non-cash operating working capital
Accounts receivable		11.0			(107.6	)		(51.9	)
Inventories		15.8			(122.2	)		(10.5	)
Prepaid expenses and other current assets		(1.8	)		(8.2	)		(8.9	)
Accounts payable and accrued charges		(269.1	)		238.1			188.7
Cash provided by operating activities		683.5			841.5			642.4
Investing Activities
Additions to property, plant and equipment		(508.6	)		(376.3	)		(220.5	)
Purchase of long-term investments		(352.5	)		(190.9	)		(105.5	)
Proceeds from disposal of property, plant and equipment and long-term investments		22.0			12.4			103.3
Other assets and intangible assets		(0.6	)		5.9			(2.8	)
Cash used in investing activities		(839.7	)		(548.9	)		(225.5	)
Financing Activities
Proceeds from (repayment of) long-term debt obligations		482.6			(10.1	)		(1.0	)
(Repayment of) proceeds from short-term debt obligations		(94.3	)		158.7			(82.7	)
Dividends		(60.9	)		(65.4	)		(56.1	)
Repurchase of common shares		—			(851.9	)		—
Issuance of common shares		47.3			93.9			161.2
Income taxes related to stock-based compensation		13.3			17.2			15.9
Cash provided (used in) by financing activities		388.0			(657.6	)		37.3
Increase (Decrease) in Cash and Cash Equivalents		231.8			(365.0	)		454.2
Cash and Cash Equivalents, Beginning of Year		93.9			458.9			4.7
Cash and Cash Equivalents, End of Year	$	325.7		$	93.9		$	458.9
Supplemental cash flow disclosure
Income taxes paid	$	296.8		$	141.6		$	33.5

88          POTASHCORP 2006 FINANCIAL REVIEW / SHAREHOLDER INFORMATION
 

SHAREHOLDER INFORMATION

INVESTOR INQUIRIES

Denita Stann, Director, Investor Relations Canada: (800) 667-0403 US: (800) 667-3930
e-mail: ir@potashcorp.com

Visit us at www.potashcorp.com

DIVIDENDS

Dividend amounts paid to shareholders resident in Canada are adjusted by the exchange rate applicable on the dividend record date. Dividends are normally paid in February, May, August and November, with record dates normally set approximately three weeks earlier. Future cash dividends will be paid out of, and are conditioned upon, the company’s available earnings.

Shareholders who wish to have their dividends deposited directly to their bank accounts should contact the transfer agent and registrar, CIBC Mellon Trust Company.

Registered shareholders can have dividends reinvested in newly issued common shares of PotashCorp at prevailing market rates.

OWNERSHIP

On February 20, 2007, there were 1,762 holders of record of the company’s common shares.

CORPORATE OFFICES

Canada:	US:
Suite 500	Suite 400
122 – 1st Avenue South	1101 Skokie Boulevard
Saskatoon SK S7K 7G3	Northbrook IL 60062
Phone: (306) 933-8500	Phone: (847) 849-4200

COMMON SHARE PRICES AND VOLUMES

This table sets forth the high and low prices, as well as the volumes, for the company’s common shares as traded on the Toronto Stock Exchange and the New York Stock Exchange (composite transactions) on a quarterly basis. Potash Corporation of Saskatchewan Inc. is on the S&P/TSX 60 and the S&P/TSX Composite indices.

	Toronto Stock Exchange1						New York Stock Exchange
	High		Low		Volume		High		Low		Volume
2006
First Quarter		113.88		91.50		21,008,219		99.24		78.15		55,217,500
Second Quarter		117.00		86.79		18,686,817		106.40		78.84		54,130,300
Third Quarter		118.46		92.01		14,141,380		106.48		82.03		41,196,600
Fourth Quarter		170.89		113.25		19,487,859		147.19		101.50		61,695,700
Year 2006		170.89		86.79		73,324,275		147.19		78.15		212,240,100
2005
First Quarter		113.92		89.11		18,297,446		92.00		72.91		32,012,000
Second Quarter		132.11		98.39		13,432,009		106.67		79.27		29,833,400
Third Quarter		137.99		108.23		14,451,392		115.15		92.85		24,526,600
Fourth Quarter		108.89		84.76		22,180,812		93.32		72.77		46,103,900
Year 2005		137.99		84.76		68,361,659		115.15		72.77		132,475,900

¹ Trading prices are in Cdn$ Source: Thomson Financial

NYSE CORPORATE GOVERNANCE

Disclosure contemplated by 303A.11 of the NYSE’s listed company manual is available on our website at www.potashcorp.com. The company has filed annual written affirmations/ certifications pursuant to the NYSE listing company manual. The certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 are filed as exhibits to our 2006 Annual Report on Form 10-K.

Yearly POT Stock Price — NYSE Composite

Note: Data are adjusted for a stock split effective August 2004 on both the TSX and NYSE.)

POTASHCORP 2006 FINANCIAL REVIEW / APPENDIX          89

 

MARKET AND INDUSTRY DATA STATEMENT

Some of the market and industry data contained in this annual report and this Management’s Discussion & Analysis of Financial Condition and Results of Operations are based on internal surveys, market research, independent industry publications or other publicly available information. Although we believe that the independent sources used by us are reliable, we have not independently verified and cannot guarantee the accuracy or completeness of this information. Similarly, we believe our internal research is reliable, but such research has not been verified by any independent sources.

Information in the preparation of this annual report is based on statistical data and other material available at February 20, 2007.

FOOTNOTES, SOURCES, ABBREVIATIONS, TERMS AND MEASURES

FOOTNOTES
1	Geographic Availability of Raw Materials	Source: Fertecon, EIA
2	Cost of New Capacity	Source: Fertecon, PotashCorp
3	Greenfield	Definition: New operation built on undeveloped site
4	Greenfield Development Time	Source: Fertecon, PotashCorp
5	Producing Countries	Source: Fertecon
6	State- or Subsidy- Controlled Production	Source: Fertecon, British Sulphur, PotashCorp
7	Industry Operating Rate	Source: Fertecon, PotashCorp
8	PotashCorp Capacity	Source: Fertecon, PotashCorp
9	PotashCorp World Position by Capacity	Source: Fertecon; Blue, Johnson; Agrium; Mosaic; PotashCorp
10	Total World Demand	Source: Fertecon, IFA, PotashCorp
11	PotashCorp Share of World Production	Source: Fertecon; Blue, Johnson; Agrium; Mosaic; PotashCorp

ABBREVIATED COMPANY NAMES AND SOURCES*
Agrifos	Agrifos Fertilizer Inc., USA
Agrium	Agrium Inc. (TSX and NYSE: AGU), Canada
APC	Arab Potash Company Ltd. (Amman: ARPT), Jordan
BASF	BASF Group (Xetra: BAS, NYSE: BF), USA
Belaruskali	PA Belaruskali, Belarus
Blue, Johnson	Blue, Johnson & Associates, USA
BPC	Belarusian Potash Company, Belarus
British Sulphur	British Sulphur Consultants, UK
Canpotex	Canpotex Limited, Canada
CF Industries	CF Industries, Inc., USA
CNC	Caribbean Nitrogen Company, Trinidad
CP Rail	Canadian Pacific Railway, Canada
CVRD	Companhia Vale do Rio Doce, Brazil
Doane	Doane Agricultural Services, USA
DJUSBM	Dow Jones U.S. Basic Materials Index, USA
DSM	DSM Chemicals North America Inc. (XAMS: DSMA,
	NYSE: DSMKY), USA
EIA	Energy Information Administration, USA
Emaphos	Euro-Maroc-Phosphore, Morocco
Fertecon	Fertecon Limited and Fertecon Research Centre Limited, UK
Israel Chemicals (ICL)	Israel Chemicals Ltd. (Tel Aviv: CHIM), Israel
IFA	International Fertilizer Industry Association, France
IMF	International Monetary Fund, USA
INEOS	INEOS USA LLC, USA
INNOPHOS	Innophos, Inc., USA
Intrepid	Intrepid Potash, USA
IPNI	International Plant Nutrition Institute, USA
Kali & Salz (K+S)	Kali und Salz GmbH (Xetra: SDF), Germany
Koch	Koch Industries, Inc., USA
Mississippi Phosphate	Mississippi Phosphate Corporation, USA
Mosaic	The Mosaic Company (NYSE: MOS), USA
NCPC	North Carolina Phosphate Company, USA
NOLA	New Orleans, Louisiana, USA
NYMEX	New York Mercantile Exchange, USA
NYSE	New York Stock Exchange, USA
OCP	Office Cherifien des Phosphates, Morocco
Pemex	Petroleos Mexicanos, Mexico
PhosChem	Phosphate Chemical Export Association, Inc., USA
PIRA	PIRA Energy Group, USA
Prayon	Prayon Inc., USA
QSLP	Qinghai Salt Lake Potash Co. Ltd., China

ABBREVIATED COMPANY NAMES AND SOURCES* (continued)
Rotem	Rotem Amfert Negev Fertilizers Limited, Israel
Silvinit	JSC Silvinit, Russia
Sinofert	Sinofert Holdings Limited (HKSE, 0297.HK), China
SQM	Sociedad Quimica y Minera de Chile S.A. (Santiago Bolsa de Comercio Exchange, NYSE: SQM), Chile
Terra	Terra Industries, Inc. (NYSE: TRA), USA
TFI	The Fertilizer Institute, USA
Tringen	Trinidad Nitrogen Co., Limited, Trinidad
TSX	Toronto Stock Exchange, Canada
Uralkali	JSC Uralkali, Russia
USDA	US Department of Agriculture, USA
Yara	Yara International (Formerly Hydro Agri and Hydro Gas and Chemicals) (Oslo: YAR), Norway

GLOSSARY OF TERMS
2006E	2006 Estimated
2007F	2007 Forecast
Canpotex	An export company owned by all Saskatchewan producers of potash (PotashCorp, Mosaic and Agrium).
Consumption vs Demand	Product applied vs product purchased
FSU	The former Soviet Union
Large Florida	Large Florida phosphate producers, excluding PotashCorp
North America	The North American market includes Canada and the United States.
Offshore	Offshore markets include all markets except Canada and the United States.
PhosChem	An association formed under the Webb-Pomerene Act for US exports of phosphate fertilizer products. Members are PotashCorp, Mosaic and CF Industries. PCS Sales is responsible for export sales of liquid fertilizers for all PhosChem members while Mosaic is responsible for sales of solid fertilizers for members.
PotashCorp	Potash Corporation of Saskatchewan Inc. (PCS) and its direct or indirect subsidiaries, individually or in any combination, as applicable
State- or Subsidy- Controlled Production	State-controlled: Operational control in the hands of the state Subsidy-controlled: The state provides subsidies which control the economic viability of the operation

SCIENTIFIC TERMS
Nitrogen	NH3	ammonia (anhydrous), 82.2% N
	HNO3	nitric acid, 22% N (liquid)
	UAN	nitrogen solutions, 28-32% N (liquid)
Phosphate	P2O5	phosphoric acid (liquid)
	MGA	merchant grade acid, 54% P2O5 (liquid)
	DAP	diammonium phosphate, 46% P2O5 (solid)
	MAP	monoammonium phosphate, 52% P2O5 (solid)
	SPA	superphosphoric acid, 70% P2O5 (liquid)
	MCP	monocalcium phosphate, 48.1% P2O5 (solid)
	DCP	dicalcium phosphate, 42.4% P2O5 (solid)
	DFP	defluorinated phosphate, 41.2% P2O5 (solid)
Potash	KCl	potassium chloride, 60-63.2% (solid)

FERTILIZER MEASURES
P2O5 tonne	Measures the phosphorus content of fertilizers having different chemical analyses
N tonne	Measures the nitrogen content of fertilizers having different chemical analyses
Product tonne	Standard measure of the weights of all types of potash, phosphate and nitrogen products

* Where PotashCorp is listed as a source in conjunction with external sources, we have supplemented the external data with internal analysis.

EX-21

Exhibit 21

SUBSIDIARIES OF
POTASH CORPORATION OF SASKATCHEWAN INC.

	Jurisdiction of
	Incorporation or
Name of Entity	Formation
101070338 Saskatchewan Ltd.	Saskatchewan
175360 Canada Inc.	Canada
609430 Saskatchewan Ltd.	Saskatchewan
628550 Saskatchewan Ltd.	Saskatchewan
AA Sulfuric Corporation	Louisiana
Augusta Service Company, Inc.	Delaware
Canpotex Bulk Terminals Limited	Canada
Chilkap Resources Ltd.	Yukon
Inversiones El Boldo Limitada	Chile
Inversiones El Roble Limitada	Chile
Inversiones El Sauce Limitada	Chile
Inversiones PCS Chile S.A.	Chile
Inversiones RAC Chile Limitada	Chile
Minera Saskatchewan Limitada	Chile
PCS Administration (USA), Inc.	Delaware
PCS (Barbados) Holdings SRL	Barbados
PCS (Barbados) Investment Company Ltd.	Barbados
PCS (Barbados) Shipping Ltd.	Barbados
PCS Cassidy Lake Company	Ontario
PCS Cassidy Lake Limited	Canada
PCS Chesapeake LLC	Delaware
PCS Chile I LLC	Delaware
PCS Chile II LLC	Delaware
PCS Fosfatos do Brasil Ltda.	Brazil
PCS Hungary Holding Limited Liability Company	Hungary
PCS Industrial Products Inc.	Delaware
PCS Joint Venture, Ltd.	Florida
PCS Jordan LLC	Delaware
PCS L.P. Inc.	Delaware
PCS LP LLC 2	Delaware
PCS Nitrogen Ammonia Terminal Corporation I	Texas
PCS Nitrogen Ammonia Terminal Corporation II	Delaware
PCS Nitrogen Delaware LLC	Delaware
PCS Nitrogen Fertilizer, L.P.	Delaware
PCS Nitrogen Fertilizer Limited	Trinidad
PCS Nitrogen Fertilizer Operations, Inc.	Delaware
PCS Nitrogen, Inc.	Delaware
PCS Nitrogen LCD Corporation	Delaware
PCS Nitrogen Limited	Trinidad
PCS Nitrogen Ohio, L.P.	Delaware
PCS Nitrogen Payroll Corporation	Delaware
PCS Nitrogen Trinidad Corporation	Delaware
PCS Nitrogen Trinidad Limited	Trinidad
PCS Phosphate Company, Inc.	Delaware
PCS Purified Phosphates	Virginia
PCS Sales (Canada) Inc.	Saskatchewan

	Jurisdiction of
	Incorporation or
Name of Entity	Formation
PCS Sales (Indiana), Inc.	Indiana
PCS Sales (Iowa), Inc.	Iowa
PCS Sales (USA), Inc.	Delaware
PCS USA LLC	Delaware
Phosphate Holding Company, Inc.	Delaware
Potash Corporation of Saskatchewan (Florida) Inc.	Florida
Potash Corporation of Saskatchewan Transport Limited	Saskatchewan
PotashCorp Finance (Barbados) Limited	Barbados
Potash Holding Company, Inc.	Delaware
RAC Investments Ltd.	Cayman
Texasgulf Aircraft Inc.	Delaware
TG Corporation	Delaware
White Springs Agricultural Chemicals, Inc.	Delaware

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS

POTASH CORPORATION OF SASKATCHEWAN INC.

We consent to the incorporation in the following Registration Statements of Potash Corporation of Saskatchewan Inc.:

• Registration Statement No. 33-37855 on Form S-8;

• Registration Statement No. 333-19215 on Form S-8;

• Registration Statement No. 333-93773 on Form S-8;

• Registration Statement No. 333-53531 on Form S-8;

• Registration Statement No. 333-75742 on Form S-8;

• Registration Statement No. 333-75744 on Form S-8;

• Registration Statement No. 333-113945 on Form S-8;

• Registration Statement No. 333-124677 on Form S-8;

• Registration Statement No. 333-89350 on Form S-3;

• Registration Statement No. 33-57920 on Form S-3; and

• Registration Statement No. 33-133854 on Form S-8

of our reports dated February 14, 2007 (which audit report on the consolidated financial statements expresses an unqualified opinion and includes a separate report titled Comments by Independent Registered Chartered Accountants on Canada-United States of America Reporting Differences referring to changes in accounting principles), relating to the financial statements and financial statement schedules of Potash Corporation of Saskatchewan Inc., and management’s report on the effectiveness of internal control over financial reporting, appearing in the Annual Report on Form 10-K of Potash Corporation of Saskatchewan Inc. for the year ended December 31, 2006.

/s/ Deloitte & Touche LLP
Independent Registered Chartered Accountants
Saskatoon, Canada
February 27, 2007

EX-31.A

Exhibit 31(a)

CERTIFICATION

I, William J. Doyle, certify that:

1. I have reviewed this Annual Report on Form 10-K of Potash Corporation of Saskatchewan 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 registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer 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 registrant 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 registrant, 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 registrant’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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’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 registrant’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 registrant’s internal control over financial reporting.

Date: February 27, 2007

By:	/s/ WILLIAM J. DOYLE
	William J. Doyle
	President and Chief Executive Officer

EX-31.B

Exhibit 31(b)

CERTIFICATION

I, Wayne R. Brownlee, certify that:

1. I have reviewed this Annual Report on Form 10-K of Potash Corporation of Saskatchewan 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 registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer 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 registrant 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 registrant, 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 registrant’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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’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 registrant’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 registrant’s internal control over financial reporting.

Date: February 27, 2007

By:	/s/ WAYNE R. BROWNLEE
	Wayne R. Brownlee
	Executive Vice President and Chief Financial Officer

EX-32

Exhibit 32

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Potash Corporation of Saskatchewan Inc. (the “Company”), does hereby certify, to such officer’s knowledge, that:

The Annual Report on Form 10-K for the year ended December 31, 2006 (the “Form 10-K”), of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February 27, 2007

By:	/s/ WILLIAM J. DOYLE
	William J. Doyle
	President and Chief Executive Officer

Date: February 27, 2007

By:	/s/ WAYNE R. BROWNLEE
	Wayne R. Brownlee
	Executive Vice President, Treasurer and Chief Financial Officer

The foregoing certification is being furnished as an exhibit to the Form 10-K pursuant to Item 601(6)(32) of Regulation S-K, section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed as part of the Form 10-K.

EX-99.A

Exhibit 99(a)

Table of Contents

			Page
Letter to Shareholders				1
Notice of Annual and Special Meeting of Shareholders				2
Management Proxy Circular				3
	Questions and Answers on Voting and Proxies			3
	Business of the Meeting			6
	Board of Directors			7
		Nominees for Election to the Board of Directors		7
		Director Independence and Other Relationships		11
		Director Compensation		13
		Attendance of Directors		18
		“At Risk” Investment and Year Over Year Changes		19
	Ownership of Shares			20
	Appointment of Auditors			21
	Adoption of 2007 Performance Option Plan			22
	Corporate Governance			25
		Statement of Corporate Governance Practices		25
		Report of the Audit Committee		25
		Report on Corporate Governance and Nominating Matters		26
	Compensation			29
		Report of the Compensation Committee and Compensation Committee Responsibilities and Procedures		29
		Compensation Discussion and Analysis		30
		Executive Compensation		41
	Performance Graphs			49
	Directors’ and Officers’ Liability Insurance			50
	Voting Shares			50
	2008 Shareholder Proposals			50
	Additional Information			50
	Directors’ Approval			50
	Appendix A — Disclosure of Corporate Governance Practices			51
	Appendix B — Resolution of Shareholders			61
	Appendix C — 2007 Performance Option Plan			62
	Appendix D — Board of Directors Charter			67

Potash Corporation of Saskatchewan Inc.

February 20, 2007

Dear Shareholder:

We are pleased to invite you to join our Board of Directors and senior management team at our 2007 Annual and Special Meeting of Shareholders. The meeting will be held on:

May 3, 2007

10:30 a.m. (local time)

Adam Ballroom

Delta Bessborough

601 Spadina Crescent East

Saskatoon, Saskatchewan, Canada

The items of business to be considered and voted upon at this meeting are set out in the Notice of Annual and Special Meeting and the accompanying Management Proxy Circular. In addition, this meeting provides you, the shareholder, with an opportunity to meet, listen to and ask questions of the people who are responsible for the performance of the Corporation.

Your vote and participation are very important. If you are unable to attend the meeting in person, you can vote by telephone, via the Internet or by completing and returning the enclosed proxy. Please refer to the “Questions and Answers on Voting and Proxies” section of the accompanying Management Proxy Circular for further information.

We will also webcast the meeting at www.potashcorp.com. We encourage you to visit our website at any time before the meeting as it provides useful information about our company.

We look forward to seeing you on May 3, 2007.

Sincerely,
D. J. HOWE	W. J. DOYLE
Board Chair	President and Chief Executive Officer

PCS Tower, Suite 500, 122 – 1st Avenue South, Saskatoon, Saskatchewan Canada    S7K 7G3

LETTER TO SHAREHOLDERS

Page 1

Notice of Annual and Special Meeting of Shareholders

NOTICE IS HEREBY GIVEN that the Annual and Special Meeting (the “Meeting”) of shareholders of Potash Corporation of Saskatchewan Inc. (the “Corporation”), a corporation organized under the laws of Canada, will be held on:

May 3, 2007

10:30 a.m. (local time)

Adam Ballroom

Delta Bessborough

601 Spadina Crescent East

Saskatoon, Saskatchewan, Canada

for the following purposes:

1.	to receive the consolidated financial statements of the Corporation for the fiscal year ended December 31, 2006 and the report of the auditors thereon;
2.	to elect the Board of Directors for 2007;
3.	to appoint auditors for 2007;
4.	to consider and, if deemed appropriate, adopt, with or without variation, a resolution (the full text of which is reproduced in Appendix B to the accompanying Management Proxy Circular) authorizing the Corporation to implement a new performance option plan, which is attached as Appendix C to the accompanying Management Proxy Circular; and
5.	to transact such other business as may properly come before the Meeting or any adjournments thereof.

DATED at Saskatoon, Saskatchewan this 20th day of February, 2007.

BY ORDER OF THE BOARD OF DIRECTORS

JOSEPH A. PODWIKA

Secretary

POTASH CORPORATION OF SASKATCHEWAN INC.

SUITE 500, 122 – 1^ST AVENUE SOUTH, SASKATOON, SK   CANADA S7K 7G3

NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS

Page 2

Management Proxy Circular

Questions and Answers on Voting and Proxies

1. Who can I call if I have questions about the information contained in this Management Proxy Circular or require assistance in completing my proxy form?

Georgeson Shareholder Communications Canada, Inc., the Corporation’s proxy solicitation agent, at 1-866-425-8527, for service in English and in French.

2. Who is soliciting my proxy?

The management of the Corporation. Solicitation of proxies will be primarily by mail, supplemented by telephone or other contact by employees of the Corporation (who will receive no additional compensation), and all such costs will be borne by the Corporation. We have retained the services of Georgeson for the solicitation of proxies in Canada and in the United States. Georgeson’s services are estimated to cost $25,000.

3. On what am I voting?

Three items:

(1)	the election of directors;
(2)	the appointment of auditors; and
(3)	a resolution authorizing the Corporation to implement a new performance option plan.

The Corporation’s Board of Directors and management recommend that you vote FOR items (1), (2) and (3).

4. Who is entitled to vote?

Common shareholders as at the close of business on March 12, 2007 (the “Record Date”) or their duly appointed representatives will be entitled to cast a vote.

As at February 20, 2007, 104,991,924 common shares in the capital of the Corporation (the “Shares”) are entitled to be voted at the Meeting.

5. By when must I vote?

This will depend on the way in which you will be voting:

(1)	If you are a Registered Shareholder planning to attend the Meeting and wish to vote your Shares in person at the Meeting, your vote will be taken and counted at the Meeting.
(2)	If you are a Registered Shareholder and voting using the proxy form, your proxy form should be received at the Toronto office of CIBC Mellon Trust Company by mail or facsimile prior to the commencement of the Meeting, or hand-delivered at the registration table on the day of the Meeting prior to the commencement of the Meeting.
(3)	If you are a Registered Shareholder and voting your proxy by telephone or Internet, your vote should be received by CIBC Mellon Trust Company no later than 11:00 p.m. (Saskatoon time) on Tuesday May 1, 2007.
(4)	If you are a Non-Registered Shareholder and wish to attend the Meeting or vote by proxy, you should refer to Item 11.

Please note that Items 6 to 10 below are only applicable to Registered Shareholders. Non-Registered Shareholders should refer to Item 11 for further information on voting.

6. How do I vote if I am a Registered Shareholder?

You are a Registered Shareholder if your name appears on your share certificate. The enclosed proxy form indicates whether you are a Registered Shareholder.

You can vote your Shares by proxy or in person at the Meeting if you are a Registered Shareholder:

(1) By Proxy

There are four ways that you can vote by proxy:

(a) By Telephone

Call 1-866-271-1207 from your touch-tone phone and follow the instructions (only available to Registered Shareholders resident in Canada or the United States).

You will need the control number located on the enclosed proxy form. You do not need to return your proxy form.

(b) On the Internet

Go to www.eproxyvoting.com/potash and follow the instructions on screen.

You will need the control number located on the enclosed proxy form. You do not need to return your proxy form.

MANAGEMENT PROXY CIRCULAR │ Questions and Answers on Voting and Proxies

Page 3

At any time, CIBC Mellon may cease to provide telephone and Internet voting, in which case shareholders can elect to vote by mail, by fax or by attending the Meeting in person, as described below.

(c) By Mail

By completing, dating and signing the enclosed proxy form and returning same in the envelope provided.

(d) By Fax

By completing, dating and signing the enclosed proxy form and forwarding same by fax to 1-866-781-3111 (toll-free within Canada and the United States) or 1-416-368-2502 (from any country other than Canada and the United States).

If your Shares are not registered in your name (e.g. if they are held through a bank, trust company, securities broker or other nominee), do not use the above fax number as it is reserved for Registered Shareholders. Instead, use the fax numbers, if any, provided by your nominee. See Item 11(1).

(2) By Attending the Meeting in Person

If you wish to vote in person at the Meeting, do not complete or return the proxy form.

7. What if I sign the proxy form as described in this Management Proxy Circular?

Signing the proxy form gives authority to Mr. Dallas J. Howe, Mr. William J. Doyle, Mr. Wayne R. Brownlee or Mr. Joseph A. Podwika, all of whom are either directors or officers of the Corporation, to vote your Shares at the Meeting in accordance with your voting instructions.

A proxy must be in writing and must be executed by you or by your attorney authorized in writing or, if the shareholder is a corporation or other legal entity, by an officer or attorney thereof duly authorized. A proxy may also be completed over the telephone or over the Internet. See Items 6(1)(a) and (b).

8. Can I appoint someone other than these people to vote my Shares?

Yes. You have the right to appoint some other person of your choice, who need not be a shareholder, to attend and act on your behalf at the Meeting. If you wish to do so, please strike out those four printed names appearing on the proxy form, and insert the name of your chosen proxyholder in the space provided thereon.

You cannot appoint a person to vote your Shares other than our directors or officers whose printed names appear on the proxy form if you decide to vote by telephone or Internet.

It is important to ensure that any other person you appoint is attending the Meeting and is aware that his or her appointment has been made to vote your Shares.

9. How will my Shares be voted if I vote by proxy?

The persons named in the proxy form must vote or withhold from voting your Shares in accordance with your instructions on the proxy form. In the absence of such instructions, however, your Shares will be voted FOR the election to the Corporation’s Board of Directors of the nominees as described in this Management Proxy Circular and on the proxy form, FOR the appointment of Deloitte & Touche LLP as auditors until the close of the next annual meeting, FOR the resolution authorizing the Corporation to implement a new performance option plan and FOR management’s proposals generally.

10. If I change my mind, can I take back my proxy once I have given it?

Yes. A shareholder who has voted by proxy may revoke it by voting again in any manner (telephone, Internet, mail or fax). In addition, you may revoke a voted proxy by depositing an instrument in writing (which includes another proxy form with a later date) executed by you or by your attorney authorized in writing with our Corporate Secretary at Suite 500, 122 – 1^st Avenue South, Saskatoon, Saskatchewan, Canada, S7K 7G3, at any time up to and including the last business day preceding the date of the Meeting, or any adjournment or postponement thereof or by depositing it with the Meeting chair on the day of the Meeting, or any adjournment or postponement thereof. You may also revoke a proxy in any other manner permitted by law.

Note that your participation in person in a vote by ballot at the Meeting will automatically revoke any proxy previously given by you in respect of business covered by that vote.

11. How do I vote if I am a Non-Registered Shareholder?

You are a Non-Registered (or Beneficial) Shareholder if your Shares are held through a bank, trust company, securities broker or other nominee.

For most of you, the proxy form or the request for voting instructions sent or to be sent by your nominee indicates whether you are a Non-Registered (or Beneficial) Shareholder.

There are two ways that you can vote your Shares if you are a Non-Registered (or Beneficial) Shareholder:

(1) By Providing Voting Instructions to Your Nominee

Your nominee is required to seek voting instructions from you in advance of the Meeting. Accordingly, you will receive, or have already received, from your nominee either a request for voting instructions or a proxy form for the number of Shares you hold.

MANAGEMENT PROXY CIRCULAR │ Questions and Answers on Voting and Proxies

Page 4

Every nominee has its own procedures which should be carefully followed by Non-Registered Shareholders to ensure that their Shares are voted at the Meeting. These procedures generally allow voting by telephone, on the Internet, by mail or by fax. Please contact your nominee for instructions in this regard.

If your Shares are not registered in your name, do not use the fax number in 6(1)(d) as this number is reserved for Registered Shareholders.

(2) By Attending the Meeting in Person

If you wish to vote in person at the Meeting, insert your own name in the space provided on the request for voting instructions or proxy form to appoint yourself as proxyholder and follow the instructions of your nominee.

Non-Registered Shareholders who instruct their nominee to appoint themselves as proxyholders should, at the Meeting, present themselves to a representative of CIBC Mellon at the table identified as “Beneficial Shareholders”. Do not otherwise complete the form sent to you as your vote will be taken and counted at the Meeting.

12. What if amendments are made to these matters or if other matters are brought before the Meeting?

The person named in the proxy form has discretionary authority with respect to amendments or variations to matters identified in the Notice of the Meeting and to other matters which may properly come before the Meeting.

As of the date of this Management Proxy Circular, our management knows of no such amendment, variation or other matter expected to come before the Meeting. If any other matters properly come before the Meeting, the persons named in the proxy form will vote on them in accordance with their best judgment.

13. How will the votes be counted?

All matters to be considered at the Meeting will each be determined by a majority of votes cast at the Meeting by proxy or in person. In the event of equal votes, the Meeting chair is entitled to a second or casting vote.

14. How can I contact the transfer agent?

You can contact the transfer agent as follows:

By mail:

CIBC Mellon Trust Company

P.O. Box 7010

Adelaide Street Postal Station

Toronto, Ontario, Canada M5C 2W9

By telephone:

1-800-387-0825 (toll-free within Canada and the United States)

or 1-416-643-5500 (from any country other than Canada and the United States)

By fax:

1-416-643-5501 (all countries)

Through the internet:

www.cibcmellon.com

Except as otherwise stated, the information contained herein is given as of February 20, 2007. Unless otherwise specified, all dollar amounts are expressed in United States dollars.

MANAGEMENT PROXY CIRCULAR │ Questions and Answers on Voting and Proxies

Page 5

Business of the Meeting

1. Financial Statements

The Consolidated Financial Statements for the fiscal year ended December 31, 2006 are included in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006 filed with the U.S. Securities and Exchange Commission (“SEC”) and the Canadian securities regulatory authorities.

2. Nominees for Election to the Board of Directors

The 12 nominees proposed for election as directors of the Corporation are listed beginning on page 7. All nominees have established their eligibility and willingness to serve as directors. Directors will hold office until the next annual meeting of shareholders of the Corporation or until their successors are elected or appointed.

Unless otherwise instructed, the persons designated in the form of proxy intend to vote for the election of the nominees listed beginning on page 7. If, for any reason, at the time of the Meeting any of the nominees are unable to serve, it is intended that the persons designated in the form of proxy will vote in their discretion for a substitute nominee or nominees.

3. Appointment of Auditors

Proxies solicited hereby will be voted to reappoint the firm of Deloitte & Touche LLP, the present auditors of the Corporation, as auditors of the Corporation to hold office until the next annual meeting of shareholders of the Corporation, unless the shareholder signing such proxy specifies otherwise.

4. Adoption of 2007 Performance Option Plan

At the Meeting, shareholders will be asked to consider and, if deemed appropriate, adopt, with or without variation, a resolution (the full text of which is reproduced as Appendix B to this Management Proxy Circular) authorizing the Corporation to implement a new performance option plan, which is attached as Appendix C to this Management Proxy Circular. Unless a proxy specifies otherwise, the persons designated in the form of proxy intend to vote for the resolution to approve the new performance option plan.

MANAGEMENT PROXY CIRCULAR │ Business of the Meeting

Page 6

Board of Directors

Nominees for Election to the Board of Directors

The articles of the Corporation provide that the Board of Directors of the Corporation (the “Board”) shall consist of a minimum of 6 directors and a maximum of 20, with the actual number to be determined from time to time by the Board. The Board has determined that, at the present time, there will be 12 directors.

Proxies solicited hereby will be voted for the following proposed nominees (or for substitute nominees in the event of contingencies not known at present) who will, subject to the bylaws of the Corporation and applicable corporate law, hold office until the next annual meeting of shareholders or until their successors are elected or appointed in accordance with the bylaws or applicable corporate law. In an uncontested election, any nominee for director who fails to receive votes in favor of his or her election representing at least a majority of the votes cast (added together with the votes withheld) shall tender his or her resignation for consideration by the Corporate Governance and Nominating Committee. Except in extenuating circumstances, it is expected that the committee will recommend to the Board that the resignation be accepted and effective within a period of 90 days and that the action taken be publicly disclosed. To the extent possible, the committee and Board members who act on the resignation shall be directors who have themselves received a majority of votes cast.

The following table states the names and ages of all the persons to be nominated for election as directors, all other positions and offices with the Corporation now held by them, their present principal occupation or employment, their business experience over the last five years, the period during which present directors of the Corporation have served as directors, their principal areas of expertise and their independence status. The table also discloses the value of at risk holdings for each of them as of February 20, 2007 and their overall board and committee meeting attendance.

For further detailed information on director independence, attendance, at risk holdings and compensation, please see the tables and narrative following this table.

FREDERICK J. BLESI

Age: 69⁽¹⁾

Glenview, Illinois, USA

Director since 2001

Independent⁽²⁾

Mr. Blesi is a retired Chairman and Chief Executive Officer of the Phosphate Chemicals Export Association, Inc. (“PhosChem”), principal exporter of U.S. phosphate chemicals. Before joining PhosChem, he was Vice President, International with International Minerals and Chemical Corporation. He is a director of the Evans Scholars Foundation and The Western Golf Association.

Principal Areas of Expertise/Experience:		Value of At Risk Holdings(3):
	Fertilizer Industry Global/International Commerce Business Management		February 2007(4): $1,607,452
Board Committee Membership:		Board & Committee Attendance(5) :
	Audit Corporate Governance and Nominating		96%

WILLIAM J. DOYLE

Age: 56

Winnetka, Illinois, USA

Director since 1989

Non-independent⁽²⁾

Mr. Doyle is President and Chief Executive Officer of the Corporation. He became President of PCS Sales in 1987, after a career with International Minerals and Chemical Corporation. He is Chairman of The Fertilizer Institute, Vice Chairman of Canpotex Limited, on the board of International Plant Nutrition Institute, as well as a member of the Executive Management group of the International Fertilizer Industry Association. Mr. Doyle is on the College Board of Advisors at Georgetown University.

Principal Areas of Expertise/Experience:		Value of At Risk Holdings(3):
	Fertilizer/Mining/Chemical Industry Global/International Commerce Business Management		February 2007(4): $13,072,125
Board Committee Membership:		Board & Committee Attendance(5) :
	Executive		100%

MANAGEMENT PROXY CIRCULAR │ Board of Directors

Page 7

JOHN W. ESTEY

Age: 56

Glenview, Illinois, USA

Director since 2003

Independent⁽²⁾

Mr. Estey is President and Chief Executive Officer of S&C Electric Company. He is a member of the Board of Governors of the National Electrical Manufacturers Association, a director of the Executives’ Club of Chicago and a member of the Dean’s Advisory Board at the Kellogg School of Management at Northwestern University.

Principal Areas of Expertise/Experience:		Value of At Risk Holdings(3):
	Global/International Commerce Business Management		February 2007(4): $1,481,192
Board Committee Membership:		Board & Committee Attendance(5) :
	Compensation (chair) Safety, Health and Environment		100%

WADE FETZER III

Age: 69

Glencoe, Illinois, USA

Director since 2002

Independent⁽²⁾

Mr. Fetzer is a Retired Partner with the investment banking firm Goldman Sachs. He serves on the boards of Sphere Communications, Northern Star Broadcasting, University of Wisconsin Foundation and Rush-Presbyterian St. Luke’s Medical Center. He is also on the Kellogg Alumni Advisory Board. Mr. Fetzer also currently serves on the Board of Directors of Sinofert Holdings Limited.

Principal Areas of Expertise/Experience:		Value of At Risk Holdings(3):
	Finance Accounting		February 2007(4): $2,092,541
Board Committee Membership:		Board & Committee Attendance(5) :
	Corporate Governance and Nominating Compensation		100%

DALLAS J. HOWE

Age: 62

Calgary, Alberta, Canada

Director since 1991

Independent⁽²⁾

Mr. Howe is owner and Chief Executive Officer of DSTC Ltd., a technology investment company, and a director of Advanced Data Systems Ltd. and the Saskatchewan Wheat Pool Inc. A director of Potash Corporation of Saskatchewan, the Crown corporation, from 1982 to 1989, he joined the Corporation’s Board in 1991 and was elected Chair in 2003.

Principal Areas of Expertise/Experience:		Value of At Risk Holdings(3):
	e-Commerce/Technology Business Management		February 2007(4): $4,359,271
Board Committee Membership:		Board & Committee Attendance(5) :
	Board Chair Executive (chair) Corporate Governance and Nominating		100%

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ALICE D. LABERGE

Age: 50

Vancouver, British Columbia, Canada

Director since 2003

Independent⁽²⁾

Ms. Laberge is a Corporate Director and the former President and Chief Executive Officer of Fincentric Corporation, a global provider of software solutions to financial institutions. She was previously Senior Vice President and Chief Financial Officer of MacMillan Bloedel Limited and is a director of the Royal Bank of Canada, the United Way of the Lower Mainland and St. Paul’s Hospital Foundation in Vancouver.

Principal Areas of Expertise/Experience:		Value of At Risk Holdings(3):
	e-Commerce/Technology Finance Accounting		February 2007(4): $1,163,477
Board Committee Membership:		Board & Committee Attendance(5) :
	Audit (chair) Safety, Health and Environment		100%

KEITH G. MARTELL

Age: 44

Saskatoon, Saskatchewan, Canada

Independent⁽²⁾

Mr. Martell is Executive Chairman of First Nations Bank of Canada. He is director of the Public Sector Pension Investment Board of Canada, the North West Company Inc., St. Paul’s Hospital Foundation Inc. in Saskatoon and Saskatoon Friendship Inn. He is a trustee of the North West Company Fund, Primrose Lake Trust and Flying Dust First Nations Treaty Land Entitlement Trust.

Principal Areas of Expertise/Experience:		Value of At Risk Holdings(3):
	Finance/Accounting First Nations Business Management		February 2007(4): $0
Board Committee Membership:		Board & Committee Attendance(5) :
	n/a		n/a

JEFFREY J. McCAIG

Age: 55

Houston, Texas, USA

Director since 2001

Independent⁽²⁾

Mr. McCaig is Chairman and Chief Executive Officer of Trimac Holdings, a bulk trucking and third-party logistics company. Prior to that, he practiced law, specializing in corporate finance and securities. He is a director of Orbus Pharma Inc., The Standard Life Assurance Company of Canada and Stoneham Administration Inc.⁽⁶⁾

Principal Areas of Expertise/Experience:		Value of At Risk Holdings(3):
	Transportation Industry Legal Business Management		February 2007(4): $1,613,412
Board Committee Membership:		Board & Committee Attendance(5) :
	Audit Compensation		100%

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MARY MOGFORD

Age: 62

Newcastle, Ontario,

Canada

Director since 2001

Independent⁽²⁾

Ms. Mogford is a Corporate Director and a former Ontario Deputy Minister of Finance and Deputy Minister of Natural Resources. She is a director of MDS Inc., the Institute of Corporate Directors of Canada, the SickKids Foundation and a member of the Altamira Advisory Council. She is a Fellow of the Institute of Corporate Directors (ICD) and an accredited director under the ICD/Rotman School of Business Directors’ Education Program.

Principal Areas of Expertise/Experience:		Value of At Risk Holdings(2) :
	Finance Public Policy Corporate Governance		February 2007(3): $1,960,420
Board Committee Membership:		Board & Committee Attendance(4) :
	Corporate Governance and Nominating (chair) Audit		100%

PAUL J.

SCHOENHALS

Age: 65

Calgary, Alberta, Canada

Director since 1992

Independent⁽²⁾

Mr. Schoenhals is President and Chief Executive Officer of Enform, a petroleum industry safety and training service. Mr. Schoenhals has advised that he will retire from Enform in March 2007. He is a former Member of the Legislative Assembly and Cabinet Minister in Saskatchewan and was Chairman of Potash Corporation of Saskatchewan, the Crown corporation, from 1987 to 1989.

Principal Areas of Expertise/Experience:		Value of At Risk Holdings(3) :
	Public Policy Business Management		February 2007(4): $1,360,010
Board Committee Membership:		Board & Committee Attendance(5) :
	Safety, Health and Environment (chair) Compensation		100%

E. ROBERT
STROMBERG, Q.C.

Age: 65

Jackfish Lake,

Saskatchewan, Canada

Director since 1991

Independent⁽²⁾

Mr. Stromberg was formerly associated with the Saskatchewan law firm Robertson Stromberg Pedersen. He is a director of NorSask Forest Products Inc. and Hitachi Canadian Industries Ltd. and holds the rank of Honorary Lieutenant-Colonel of the North Saskatchewan Regiment.

Principal Areas of Expertise/Experience:		Value of At Risk Holdings(3):
	Global/International Commerce Legal		February 2007(4): $2,873,664
Board Committee Membership:		Board & Committee Attendance(5) :
	Executive Safety, Health and Environment Corporate Governance and Nominating		100%

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ELENA VIYELLA DE PALIZA

Age: 52

Dominican Republic

Director since 2003

Non-independent⁽²⁾

Ms. Viyella de Paliza is President of Inter-Quimica, S.A., a chemicals importer and distributor, Monte Rio Power Corp. and Indescorp, S.A. She is a member of the board of the Inter-American Dialogue and past president of the Dominican Business Council, the Dominican Stock Exchange, Dominican Manufacturers Association and the National Agribusiness Board.

Principal Areas of Expertise/Experience:		Value of At Risk Holdings(3) :
	Fertilizer Industry Finance Business Management		February 2007(4): $1,233,293
Board Committee Membership:		Board & Committee Attendance(5) :
	Executive Safety, Health and Environment		93%

Ms. Paliza is not considered independent because of a business relationship in a company in which Ms. Paliza’s father and brother are interested parties but in which Ms. Paliza has no interest. This relationship is described in greater detail below.

Jack G. Vicq, who has served since 1989 will retire from the Board on May 3, 2007.

(1)	Mr Blesi is 69 as of the date of this Management Proxy Circular, but will be 70, the retirement age for directors, as of the date of the annual meeting. The Board has evaluated its guideline relating to the retirement age for directors and determined that it is appropriate for Mr. Blesi to serve for an additional year to accommodate the Board’s succession plan relating to his area of expertise.
(2)	See “Director Independence and Other Relationships”.
(3)	See “At Risk Investments and Year Over Year Changes” for additional detail.
(4)	Based on the closing price per Share on the New York Stock Exchange of $166.91 on February 20, 2007.
(5)	See “Attendance of Directors” for additional detail.
(6)	Mr. McCaig was a director of TCT Logistics Inc. (“TCT”) from June 2001 to January 2002. In January 2002, a receiver was appointed over the business and assets of TCT by a creditor of TCT.

All of the above directors have had the principal occupation described above for the previous five years other than Ms. Laberge, who was Chief Financial Officer of Fincentric Corporation from October 2000 to November 2003 and Chief Executive Officer from December 2003 to June 2005.

Director Independence and Other Relationships

The Board has determined that all of the directors of the Corporation and proposed nominees, with the exception of Mr. Doyle and Ms. Paliza, are independent within the meaning of the “PotashCorp Governance Principles”, National Instrument 58-101 “Disclosure of Corporate Governance Practices” (“NI 58-101”), applicable rules of the SEC and the New York Stock Exchange (“NYSE”) corporate governance rules. In addition, there are no interlocking director relationships among the board members.

For a director to be considered independent, the Board must determine that the director does not have any material relationship with the Corporation, either directly or indirectly (e.g. as a partner, shareholder or officer of an organization that has a relationship with the Corporation). Pursuant to the “PotashCorp Governance Principles” and the “Statement of Core Values and Code of Conduct”, directors and executive officers of the Corporation inform the Board as to their relationships with the Corporation and provide other pertinent information pursuant to questionnaires that they complete, sign and certify on an annual basis. The Board reviews such relationships to identify impairments to director independence and in connection with disclosure obligations under Item 404(a) of Regulation S-K under the Securities Exchange Act of 1934 (the “Exchange Act”).

As permitted by the NYSE corporate governance rules, the Board has adopted categorical standards to assist it in making determinations of director independence. These standards are set out in the “PotashCorp Governance Principles”, the full text of which is available on the Corporation’s website, www.potashcorp.com. The independence standards established by the Board are as follows:

1. A director will not be considered independent if, currently or within the preceding three years, as applicable:

(a)	the director is, or was, an employee or executive officer of the Corporation, including any affiliated entity of the Corporation;
(b)	an immediate family member of the director is, or was, an executive officer of the Corporation, including any affiliated entity of the Corporation;
(c)	the director is, or was, a partner of, employed by or affiliated with any of the Corporation’s present or former internal or external auditors;

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(d)	an immediate family member of the director is, or was, a partner of, employed by or affiliated with any of the Corporation’s present or former internal or external auditors as a partner, principal, manager or in any other capacity; or
(e)	an executive officer of the Corporation serves or served on the compensation committee of an entity which, in turn, employs or employed either (i) the particular director as an executive officer or (ii) an immediate family member of such director as an executive officer.

2.

A director will not be considered independent if the director received any direct compensation, or an immediate family member of the director received more than $100,000 in direct compensation, within the past three fiscal years from the Corporation, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided that such compensation is not contingent in any way on continued service).

3.

A director will not be considered independent if the director has any of the following commercial or charitable relationships:

(a)

the director has served as an executive officer or employee of, or any of his or her immediate family members has served as an executive officer of, another company that makes payments to, or receives payments from, the Corporation for property or services in an amount that, in any one of the three most recent fiscal years, exceeds the greater of (x) $1,000,000 and (y) 2 percent of the annual consolidated gross revenues of the company for which such director, or any of his or her immediate family members, has served as an executive officer (or as an employee in the case of the director); or

(b)

the director has served as an officer, director or trustee of a charitable organization, and the Corporation’s discretionary charitable contributions to that organization exceeds 1.5 percent of that organization’s total annual consolidated gross revenues within any one of the three most recent fiscal years (provided that the Corporation’s matching of employee charitable contributions will not be included in the amount of the Corporation’s contributions for this purpose).

4. Where a relationship exists as a result of a director who is a limited partner, a non-managing member or who occupies a similar position in an entity that does business with the Corporation, or who has a shareholding in such entity which is not significant, and who, in each case, has no active role in sales to, purchases from, or in providing services to the Corporation and derives no direct material benefit from same, such relationship shall be considered not to be material.

Mr. Doyle is the Chief Executive Officer (“CEO”) of the Corporation and is therefore not independent. Mr. Doyle is also Vice Chairman of Canpotex Limited. The Corporation had sales of approximately $467.1 million to Canpotex Limited in 2006.

Ms. Paliza’s father and brother are executive officers of Fertilizantes Santo Domingo, C. por A (“Fersan”), a fertilizer bulk blender and distributor of agrichemicals based in the Dominican Republic, which is a customer of the Corporation. Although representing less than 1% of the Corporation’s consolidated sales in 2006, sales to Fersan exceeded 2% of Fersan’s 2006 consolidated gross revenues. As such, Ms. Paliza does not meet the Corporation’s categorical independence standards which incorporate in relevant part the NYSE corporate governance rules. Ms. Paliza has no direct or indirect interest in the Corporation’s sales to and purchases by Fersan and all such transactions are completed on normal trade terms. Even though she does not meet the aforementioned independence standards, Ms. Paliza provides a valuable contribution to the Board through her industry knowledge and experience and international business perspective.

In determining the independence of its other directors, the Board evaluated business and other relationships that each director had with the Corporation. In doing so, it determined as immaterial (i) any relationship falling below the thresholds in 3(a) or covered pursuant to paragraph 4 above, and not otherwise required to be disclosed pursuant to Item 404(a) of Regulation S-K under the Exchange Act, including certain relationships of Mr. Estey, Mr. Fetzer, Mr. McCaig and Mr. Schoenhals, (ii) any relationships falling below the threshold in paragraph 3(b), including certain relationships of Mr. Martell, and (iii) any business relationship between the Corporation and an entity as to which the director in question has no relationship other than as a director thereof, including certain directorships of Mr. Fetzer, Mr. Howe, Ms. Laberge and Mr. McCaig.

Although disclosure is required pursuant to the regulations of the SEC under the Exchange Act, the Board also determined the following relationships relating to Mr. Stromberg do not impair his independence.

A son of Mr. Stromberg, David Stromberg, is a director and a major indirect shareholder of Micro Oil Inc. (“Micro Oil”), a privately held process oil blender and supplier based in Saskatoon, Saskatchewan. David Stromberg is also the president of Micro Oil. Another son of Mr. Stromberg, Jeffrey Stromberg, is a shareholder of Micro Oil. In 2006, receipts and payments in the amount of Cdn$889,404.27 were transacted between the Corporation and Micro Oil. Micro Oil and the Corporation have also entered into a confidentiality agreement relating to the development of oil processes used by the Corporation.

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Purchases from Micro Oil are made in the ordinary course of business. Mr. Stromberg has no interest in the business of his adult sons. Through his prominence in the Saskatchewan business community and his professional qualifications and experience, Mr. Stromberg has been and continues to be a valued member of the Board. His presence on the Board plays no role in the Corporation’s decision to transact business with Micro Oil. The Corporation has and will continue to make this decision on the basis of the best interests of the Corporation.

Director Compensation

2006 Director Compensation Package

We establish director compensation based on the advice of independent consultants, with a view to establishing compensation at the median of the applicable Comparator Group (see “Compensation Discussion and Analysis — Compensation Principles”).

In 2006, our directors who were not also officers or employees, that is all directors other than Mr. Doyle, (the “outside directors”) were compensated through the cash payment of an annual retainer plus other fees and the grant of Deferred Share Units (as defined below). In 2003, the Board decided to discontinue granting stock options to directors.

Cash Compensation

Each outside director was paid a retainer at an annual rate of $50,000, a per diem fee of $1,500 for meetings he or she attended and a travel fee of $500 per day where travel was required on a day or days on which a meeting did not occur. Outside directors received an additional $10,000 per year if they served as a chair of a Board Committee ($15,000 in the case of the Audit Committee Chair). All Audit Committee members received an additional $5,000 per year, with the exception of the Audit Committee Chair. Each outside director who was a member of a Board Committee received a per diem fee of $1,500 for meetings he or she attended, provided such meetings were not held the same day as a Board meeting. Outside directors were also reimbursed for expenses incurred in discharging their responsibilities. Mr. Howe, as Board Chair, received an annual retainer of $140,000, but did not receive per diem or travel fees.

As described below, each outside director could defer, in the form of Deferred Share Units, up to 100% of the annual retainer fees and any other fees payable to such director in respect of serving as a director, which would otherwise be payable in cash.

Stock-Based Compensation

Effective November 20, 2001, we adopted a Deferred Share Unit Plan for Non-Employee Directors (the “Plan”), which entitles non-employee directors to receive discretionary grants of deferred share units (“Deferred Share Units”), each of which has an initial value equal to the market value of a share at the time of its grant. The Plan also allows the director to defer, in the form of Deferred Share Units, up to 100% of the annual retainer and any other fees payable to such director in respect of serving as a director, which would otherwise be payable in cash. The Plan is intended to enhance our ability to attract and retain highly qualified individuals to serve as directors and promote a greater alignment of interests between such directors and our shareholders.

Each Deferred Share Unit is credited to the account of an individual director and fully vests upon an award, but is distributed only when the director has ceased to be a member of the Board or the board of directors of any subsidiary and the director is neither our employee nor an employee of any of our subsidiaries. At such time, the director will receive a cash payment equal to the market value of a number of shares purchased on the open market equal to the number of Deferred Share Units recorded in the director’s account (reduced by the amount of applicable withholding taxes). While the Compensation Committee, with Board approval, has the discretion to distribute shares in lieu of cash, the Committee and Board have determined that all distributions pursuant to the Plan will be made in cash. Deferred Share Units earn dividends in the form of additional Deferred Share Units at the same rate as dividends are paid on shares.

On July 1, 2004, the Board determined that the value of annual discretionary Deferred Share Unit grants be established at $55,000 for outside directors, with the exception of the Board Chair, Mr. Howe, whose annual value of Deferred Share Unit grant was set at $140,000. On November 16, 2006, each non-employee director received a discretionary grant of 399 Deferred Share Units, with the exception of the Board Chair, Mr. Howe, who was granted 1,015 Deferred Share Units.

The number of Deferred Share Units credited to the director’s account with respect to director retainer and other fees that the director elects to allocate to the Plan is determined as of the last trading day of each calendar quarter and is equal to the quotient obtained by dividing (a) the aggregate amount of fees allocated to the Plan for the relevant calendar quarter by (b) the market value of a share on such last trading day (determined on the basis of the closing price on the Toronto Stock Exchange (“TSX”) for participants resident in Canada and on the basis of the closing price on the NYSE for all other participants).

Each of the outside directors elected to receive 2006 director retainer and/or other fees in the form of Deferred Share Units as follows: Mr. Blesi, 100% of director retainer or 494 units and 0% of fees; Mr. Estey, 100% of director retainer or 494 units and 100% of fees or 370 units; Mr. Fetzer, 0% of director retainer and 0% of fees; Mr. Howe, 0% of director retainer and 0% of fees; Ms. Laberge, 25% of director retainer or 122 units and 0% of fees; Mr. McCaig, 100% of director retainer or 494 units and 0% of fees; Ms. Mogford, 0% of director retainer and 0% of fees; Mr. Schoenhals, 33.3% of director retainer or 163 units and 33.3% of fees or 125 units; Mr. Stromberg, 0% of director retainer and 0% of

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fees; Mr. Vicq, 0% of director retainer and 0% of fees and Ms. Viyella de Paliza, 0% of director retainer and 0% of fees.

Stock Ownership Guidelines

The Board believes that the economic interests of directors should be aligned with those of shareholders. To achieve this, all directors are expected to be shareholders through ownership of Shares and/or Deferred Share Units. In 2006, the applicable share ownership guidelines were as follows: by the time a director had served on the Board for ten months, he or she must own a minimum of 2,000 Shares. By the time a director had served on the Board for three years, he or she must own Shares and/or Deferred Share Units with a value at least five times the annual retainer paid to the particular director. The Board could make exceptions to this standard where, as a result of the unique financial circumstances of a director, compliance would result in an unacceptable hardship. As at December 31, 2006, all of our directors were in compliance with the minimum shareholding requirements described above.

Other Benefits

Directors participate in our Group Life insurance coverage (Cdn$50,000), Accidental Death and Dismemberment coverage (Cdn$100,000), Business Travel Accidental coverage (Cdn$250,000) and Supplemental Business Travel Medical coverage ($250,000) per calendar year.

2007 Director Compensation Package

On January 24, 2007 the board approved a new compensation package, effective January 1, 2007, for outside directors. Differences between the 2007 package and 2006 compensation follow.

Cash Compensation

As part of the new compensation package approved by the Board, outside directors are paid an annual retainer of $105,000, which is the nominal equivalent of the previous retainer of $50,000 plus the value of the annual discretionary Deferred Share Unit grant of $55,000. No change was made to the per diem, travel fees or fee for serving as a chair of a committee. Mr. Howe, as Board Chair, receives an annual retainer of $280,000, but does not receive per diem or travel fees.

Stock-Based Compensation

As a result of increasing the annual retainer of outside directors, discretionary grants of Deferred Share Units pursuant to the Plan will be discontinued. Directors still have the ability to defer all or a portion of their retainer or any other fees to Deferred Share Units in accordance with the Plan.

Stock Ownership Guidelines

The requirement to hold a minimum of 2,000 Shares within ten months of board service is no longer applicable. All directors are now required to hold Shares and/or Deferred Share Units with a value at least five times their newly increased annual retainer. One-half of the ownership threshold is required to be achieved within 2¹/2 years, and full compliance is required within five years of joining the Board. The Board may make exceptions to this standard where, as a result of the unique financial circumstances of a director, compliance would result in an unacceptable hardship. As of February 20, 2007, all of our directors were in compliance with the requirements described above.

Director Share Purchase Plan

The Board approved proceeding with a Director Share Purchase Plan, whereby directors may elect that all or a portion of their after tax (withholding) remuneration be used to purchase shares of PotashCorp at market. Purchase of these shares are expected to be made on the TSX for directors resident in Canada and the NYSE for directors resident outside of Canada.

Other Benefits

Other benefits remain the same as described for 2006.

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The following table sets forth compensation earned by our directors during fiscal 2006 as prescribed in accordance with Item 402(k) of Regulation S-K. The amounts set forth for each director in the “Stock Awards” and “Total” columns include the appreciation in value of Deferred Share Units received prior to 2006 pursuant to the Plan. The table in footnote (2) below sets forth further details, including the amount of each director’s 2006 annual retainer and meeting and other fees received in the form of cash and Deferred Share Units.

2006 Director Compensation

(see explanatory notes)

										Change in
										Pension
										Value and
								Non-Equity		Nonqualified
	Fees Earned or							Incentive Plan		Deferred		All Other
	Paid in Cash		Stock Awards			Option Awards		Compensation		Compensation		Compensation		Total
Name	($)(2)		($)(2)(3)			($)(4)		($)		Earnings		($)(5)		($)
(a)	(b)		(c)			(d)		(e)		(f)		(g)		(h)
Frederick J. Blesi		35,500		557,113	(6)		–		–		–		2,535		595,148
William J. Doyle(7)		–		–			–		–		–		–		–
John W. Estey		–		538,582	(8)		–		–		–		2,407		540,989
Wade Fetzer III		74,000		256,986	(9)		–		–		–		2,618		333,604
Dallas J. Howe		140,000		852,414	(10)		–		–		–		2,811		995,225
Alice D. Laberge		85,093		358,080	(11)		–		–		–		2,699		445,872
Jeffrey J. McCaig		40,500		559,387	(12)		–		–		–		1,907		601,794
Mary Mogford		100,500		524,934	(13)		–		–		–		4,258		629,692
Paul J. Schoenhals		58,696		446,328	(14)		–		–		–		2,903		507,927
E. Robert Stromberg, Q.C.		79,500		386,086	(15)		–		–		–		4,264		469,850
Jack G. Vicq		91,407		299,893	(16)		–		–		–		482		391,782
Elena Viyella de Paliza		76,500		343,057	(17)		–		–		–		2,769		422,326

(1)	Those amounts that were paid in Canadian dollars have been converted to United States dollars using the average exchange rate for the month prior to the date of payment.
(2)	The following table sets forth each director’s annual retainer, meeting and other fees for fiscal year 2006 that were received in the form of cash or deferred to Deferred Share Units.

Remuneration of Directors

For the Fiscal Year Ended December 31, 2006

													Percentage
	Annual Retainer				Meeting and Other Fees								of Total
									Annual Grant of				Remuneration
			Deferred				Deferred		Deferred Share		Total		in Deferred Share
	Cash		Share Units		Cash		Share Units		Units		Remuneration		Units
Name	($)		($)		($)		($)		($)		($)		(%)
Frederick J. Blesi		0		50,000		35,500		0		55,000		140,500		74.73
William J. Doyle		–		–		–		–		–		–		–
John W. Estey		0		50,000		0		37,000		55,000		142,000		100.00
Wade Fetzer III		50,000		0		24,000		0		55,000		129,000		42.64
Dallas J. Howe		140,000		0		0		0		140,000		280,000		50.00
Alice D. Laberge		37,500		12,500		47,593		0		55,000		152,593		44.24
Jeffrey J. McCaig		0		50,000		40,500		0		55,000		145,500		72.16
Mary Mogford		50,000		0		50,500		0		55,000		155,500		35.37
Paul J. Schoenhals		33,350		16,650		25,346		12,654		55,000		143,000		58.95
E. Robert Stromberg, Q.C.		50,000		0		29,500		0		55,000		134,500		40.89
Jack G. Vicq		50,000		0		41,407		0		55,000		146,407		37.57
Elena Viyella de Paliza		50,000		0		26,500		0		55,000		131,500		41.83
Total		460,850		179,150		320,846		49,654		690,000		1,700,500		54.03

(3) Reports the amounts recognized for fiscal year 2006 US GAAP financial statement reporting purposes in accordance with FAS 123R for Deferred Share Units received pursuant to the Plan. Deferred Share Units are settled in cash upon a director’s retirement and, therefore, are considered a liability award under FAS 123R. As such, we recognize amounts attributable to (1) the annual increase or decrease in the value of outstanding Deferred Share Units received prior to

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2006, which value is based on the annual increase or decrease in the market price of our Shares as measured on the last trading day of each year, and (2) the value of Deferred Share Units received in 2006, which value is based on the market price of our Shares on the last trading day of the year.

The amounts set forth in column (c) above primarily reflect amounts recognized for the 2006 increase in the value of outstanding Deferred Share Units received prior to 2006. This increase in value is based on the 2006 increase in the price of our Shares on the NYSE from $80.22 to $143.48. The amounts set forth in column (c) also reflect amounts recognized for the value of Deferred Share Units received in 2006, which value is based on $143.48, the price of our Shares on the NYSE on the last trading day of 2006. On November 16, 2006, each outside director received 399 discretionary Deferred Share Units, except for the Board Chair, Mr. Howe, who received 1,015 discretionary Deferred Share Units. Furthermore, each outside director was permitted to defer, in the form of Deferred Share Units, up to 100% of the annual retainer fees and any other fees payable to such director in respect of serving as a director, which we would otherwise have paid in cash. See “Remuneration of Directors” in footnote (2) above. The number of Deferred Share Units that each director elected to receive in Deferred Share Units, as opposed to cash, was determined by the closing price of our Shares on the last trading day of the quarter in which such fees were earned (on the basis of the closing price on the TSX for residents of Canada and on the basis of the closing price on the NYSE for all other participants) (Cdn$102.80 and $88.09 for the quarter ended March 31, 2006, Cdn$95.60 and $85.97 for the quarter ended June 30, 2006, Cdn$116.02 and $104.19 for the quarter ended September 30, 2006 and Cdn$167.00 and $143.48 for the quarter ended December 31, 2006).

As of December 31, 2006, the total number of all Deferred Share Units held by each outside director is as follows: Mr. Blesi, 7,623; Mr. Estey, 6,867; Mr. Fetzer, 3,533; Mr. Howe, 12,105; Ms. Laberge, 4,966; Mr. McCaig, 7,658; Ms. Mogford, 7,737; Mr. Schoenhals, 6,142; Mr. Stromberg, 5,558; Mr. Vicq, 4,206; and Ms. Viyella de Paliza, 4,884.

(4)	As of December 31, 2006, the total number of outstanding options held by each outside director is as follows: Mr. Blesi, 6,000; Mr. Estey, 0; Mr. Fetzer, 3,000; Mr. Howe, 32,400; Ms. Laberge, 0; Mr. McCaig, 26,000; Ms. Mogford, 6,000; Mr. Schoenhals, 0; Mr. Stromberg, 13,200; Mr. Vicq, 0; and Ms. Viyella de Paliza, 0.
(5)	Reports the cost of tax gross-ups for taxable benefits and life insurance premiums paid for the benefit of each director.
(6)	Includes $423,184 for appreciation in the value of the 6,689.60 Deferred Share Units received by Mr. Blesi prior to 2006, $57,249 (399.00 units) for the 2006 grant of discretionary Deferred Share Units, $70,936 (494.39 units) for Deferred Share Units representing 2006 fees deferred by Mr. Blesi and $5,745 for 2006 dividends on Mr. Blesi’s Deferred Share Units, which dividends were granted in the form of 40.04 additional Deferred Share Units. The grant date fair value of each grant of Deferred Share Units received by Mr. Blesi in 2006 is as follows: February 13, 2006 dividend of $1,003 (10.77 units), March 31, 2006 deferred retainer of $12,500 (141.90 units), May 12, 2006 dividend of $1,026 (10.40 units), June 30, 2006 deferred retainer of $12,500 (145.40 units), August 11, 2006 dividend of $1,050 (10.90 units), September 30, 2006 deferred retainer of $12,500 (119.97 units), November 13, 2006 dividend of $1,069 (7.98 units), November 16, 2006 discretionary grant of $55,000 (399.00 units) and December 31, 2006 deferred retainer of $12,500 (87.12 units).
(7)	As CEO, any compensation Mr. Doyle receives is disclosed in the Summary Compensation Table for Named Executive Officers (as defined below). See “Executive Compensation — Summary Compensation Table”.
(8)	Includes $352,293 for appreciation in the value of the 5,568.98 Deferred Share Units received by Mr. Estey prior to 2006, $57,249 (399.00 units) for the 2006 grant of discretionary Deferred Share Units, $124,101 (864.94 units) for Deferred Share Units representing 2006 fees deferred by Mr. Estey and $4,939 for 2006 dividends on Mr. Estey’s Deferred Share Units, which dividends were granted in the form of 34.42 additional Deferred Share Units. The grant date fair value of each grant of Deferred Share Units received by Mr. Estey in 2006 is as follows: February 13, 2006 dividend of $835 (8.96 units), March 31, 2006 deferred retainer and fees of $24,000 (272.45 units), May 12, 2006 dividend of $878 (8.89 units), June 30, 2006 deferred retainer and fees of $20,500 (238.46 units), August 11, 2006 dividend of $915 (9.50 units), September 30, 2006 deferred retainer and fees of $22,000 (211.15 units), November 13, 2006 dividend of $948 (7.07 units), November 16, 2006 discretionary grant of $55,000 (399.00 units) and December 31, 2006 deferred retainer and fees of $20,500 (142.88 units).
(9)	Includes $197,136 of appreciation in the value of the 3,116.28 Deferred Share Units received by Mr. Fetzer prior to 2006, $57,249 (399.00 units) for the 2006 grant of discretionary Deferred Share Units and $2,602 for 2006 dividends on Mr. Fetzer’s Deferred Share Units, which dividends were granted in the form of 18.13 additional Deferred Share Units. The grant date fair value of each grant of Deferred Share Units received by Mr. Fetzer in 2006 is as follows: February 13, 2006 dividend of $467 (5.02 units), May 12, 2006 dividend of $468 (4.74 units), August 11, 2006 dividend of $469 (4.87 units), November 13, 2006 dividend of $470 (3.50 units) and November 16, 2006 discretionary grant of $55,000 (399.00 units).
(10)	Includes $697,473 for appreciation in the value of the 11,025.49 Deferred Share Units received by Mr. Howe prior to 2006, $145,632 (1,015.00 units) for the 2006 grant of discretionary Deferred Share Units and $9,309 for 2006 dividends on Mr. Howe’s Deferred Share Units, which dividends were granted in the form of 64.88 additional Deferred Share Units. The grant date fair value of each grant of Deferred Share Units received by Mr. Howe in 2006 is as follows: February 13, 2006 dividend of $1,654 (17.64 units), May 12, 2006 dividend of $1,656 (17.48 units), August 11, 2006 dividend of $1,659 (17.46 units), November 13, 2006 dividend of $1,662 (12.30 units), and November 16, 2006 discretionary grant of $140,000 (1,015.00 units).
(11)	Includes $279,474 for appreciation in the value of the 4,417.86 Deferred Share Units received by Ms. Laberge prior to 2006, $57,249 (399.00 units) for the 2006 grant of discretionary Deferred Share Units, $17,587 (122.57 units) for Deferred Share Units representing 2006 fees deferred by Ms. Laberge and $3,770 for 2006 dividends on Ms. Laberge’s Deferred Share Units, which dividends were granted in the form of 26.28 additional Deferred Share Units. The grant date fair value of each grant of Deferred Share Units received by Ms. Laberge in 2006 is as follows: February 13, 2006 dividend of $663 (7.07 units), March 31, 2006 deferred retainer of $3,125 (34.93 units), May 12, 2006 dividend of $669 (7.06 units), June 30, 2006 deferred retainer of $3,125 (36.27 units), August 11, 2006 dividend of $675 (7.11 units), September 30, 2006 deferred retainer of $3,125 (30.12 units), November 13, 2006 dividend of $681 (5.04 units), November 16, 2006 discretionary grant of $55,000 (399.00 units) and December 31, 2006 deferred retainer of $3,125 (21.26 units).
(12)	Includes $425,428 for appreciation in the value of the 6,725.07 Deferred Share Units received by Mr. McCaig prior to 2006, $57,249 (399.00 units) for the 2006 grant of discretionary Deferred Share Units, $70,936 (494.39 units) for Deferred Share Units representing 2006 fees deferred by Mr. McCaig and $5,775 for 2006 dividends on Mr. McCaig’s Deferred Share Units, which dividends were granted in the form of 40.25 additional Deferred Share Units. The grant date fair value of each grant of Deferred Share Units received by Mr. McCaig in 2006 is as follows: February 13, 2006 dividend of $1,009 (10.83 units), March 31, 2006 deferred retainer of $12,500 (141.90 units), May 12, 2006 dividend of $1,032 (10.45 units), June 30, 2006 deferred retainer of $12,500 (145.40 units), August 11, 2006 dividend of $1,055 (10.95 units), September 30, 2006 deferred retainer of $12,500 (119.97 units), November 13, 2006 dividend of $1,075 (8.02 units), November 16, 2006 discretionary grant of $55,000 (399.00 units) and December 31, 2006 deferred retainer of $12,500 (87.12 units).
(13)	Includes $461,526 for appreciation in the value of the 7,295.69 Deferred Share Units received by Ms. Mogford prior to 2006, $57,249 (399.00 units) for the 2006 grant of discretionary Deferred Share Units and $6,160 for 2006 dividends on Ms. Mogford’s Deferred Share Units, which dividends were granted in the form of 42.93 additional Deferred Share Units. The grant date fair value of each grant of Deferred Share Units received by Ms. Mogford in 2006 is as follows: February 13, 2006 dividend of $1,094 (11.67 units), May 12, 2006 dividend of $1,096 (11.57 units), August 11, 2006 dividend of $1,098 (11.55 units), November 13, 2006 dividend of $1,100 (8.14 units) and November 16, 2006 discretionary grant of $55,000 (399.00 units).

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(14)	Includes $342,976 for appreciation in the value of the 5,421.69 Deferred Share Units received by Mr. Schoenhals prior to 2006, $57,249 (399.00 units) for the 2006 grant of discretionary Deferred Share Units, $41,429 (288.74 units) for Deferred Share Units representing 2006 fees deferred by Mr. Schoenhals and $5,775 for 2006 dividends on Mr. Schoenhals’s Deferred Share Units, which dividends were granted in the form of 32.58 additional Deferred Share Units. The grant date fair value of each grant of Deferred Share Units received by Mr. Schoenhals in 2006 is as follows: February 13, 2006 dividend of $813 (8.67 units), March 31, 2006 deferred retainer and fees of $8,159 (91.18 units), May 12, 2006 dividend of $828 (8.74 units), June 30, 2006 deferred retainer and fees of $6,660 (77.30 units), August 11, 2006 dividend of $841 (8.85 units), September 30, 2006 deferred retainer and fees of $7,659 (73.82 units), November 13, 2006 dividend of $854 (6.32 units), November 16, 2006 discretionary grant of $55,000 (399.00 units) and December 31, 2006 deferred retainer and fees of $6,826 (46.44 units).
(15)	Includes $324,507 for appreciation in the value of the 5,129.73 Deferred Share Units received by Mr. Stromberg prior to 2006, $57,249 (399.00 units) for the 2006 grant of discretionary Deferred Share Units and $4,331 for 2006 dividends on Mr. Stromberg’s Deferred Share Units, which dividends were granted in the form of 30.19 additional Deferred Share Units. The grant date fair value of each grant of Deferred Share Units received by Mr. Stromberg in 2006 is as follows: February 13, 2006 dividend of $769 (8.21 units), May 12, 2006 dividend of $771 (8.13 units), August 11, 2006 dividend of $772 (8.12 units), November 13, 2006 dividend of $773 (5.72 units) and November 16, 2006 discretionary grant of $55,000 (399.00 units).
(16)	Includes $239,448 for appreciation in the value of the 3,785.15 Deferred Share Units received by Mr. Vicq prior to 2006, $57,249 (399.00 units) for the 2006 grant of discretionary Deferred Share Units and $3,196 for 2006 dividends on Mr. Vicq’s Deferred Share Units, which dividends were granted in the form of 22.27 additional Deferred Share Units. The grant date fair value of each grant of Deferred Share Units received by Mr. Vicq in 2006 is as follows: February 13, 2006 dividend of $568 (6.06 units), May 12, 2006 dividend of $569 (6.00 units), August 11, 2006 dividend of $570 (5.99 units), November 13, 2006 dividend of $570 (4.22 units) and November 16, 2006 discretionary grant of $55,000 (399.00 units).
(17)	Includes $282,085 for appreciation in the value of the 4,459.14 Deferred Share Units received by Ms. Viyella de Paliza prior to 2006, $57,249 (399.00 units) for the 2006 grant of discretionary Deferred Share Units and $3,723 for 2006 dividends on Ms. Viyella de Paliza’s Deferred Share Units, which dividends were granted in the form of 25.95 additional Deferred Share Units. The grant date fair value of each grant of Deferred Share Units received by Ms. Viyella de Paliza in 2006 is as follows: February 13, 2006 dividend of $669 (7.18 units), May 12, 2006 dividend of $670 (6.79 units), August 11, 2006 dividend of $671 (6.97 units), November 13, 2006 dividend of $672 (5.01 units) and November 16, 2006 discretionary grant of $55,000 (399.00 units).

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Page 17

Attendance of Directors

The following tables provide a summary of Board and Committee meetings held during fiscal 2006 and attendance thereat.

	Number of
Type of Meeting Held	Meetings
Board of Directors		9
Audit Committee (“AUD”)		9
Compensation Committee (“COMP”)		6
Corporate Governance and Nominating Committee (“GOV”)		5
Executive Committee (“EXE”)		0
Safety, Health and Environment Committee (“SHE”)		5

								Total Board/Committee
Director	Board meetings attended				Committee meetings attended			meetings attended
Frederick J. Blesi		8 of 9		89%		9 of 9 AUD	100%		22 of 23	96%
						5 of 5 GOV	100%
William J. Doyle(1)		9 of 9		100%					9 of 9	100%
John W. Estey		9 of 9		100%		6 of 6 COMP (Chair)	100%		20 of 20	100%
						5 of 5 SHE	100%
Wade Fetzer III		9 of 9		100%		6 of 6 COMP	100%		20 of 20	100%
						5 of 5 GOV	100%
Dallas J. Howe(2)		9 of 9 (Chair	)	100%		5 of 5 GOV	100%		14 of 14	100%
Alice D. Laberge		9 of 9		100%		9 of 9 AUD (Chair) (3)	100%		23 of 23	100%
						5 of 5 SHE	100%
Jeffrey J. McCaig		9 of 9		100%		9 of 9 AUD	100%		24 of 24	100%
						6 of 6 COMP	100%
Mary Mogford		9 of 9		100%		9 of 9 AUD	100%		23 of 23	100%
						5 of 5 GOV (Chair)	100%
Paul J. Schoenhals		9 of 9		100%		6 of 6 COMP	100%		20 of 20	100%
						5 of 5 SHE (Chair)	100%
E. Robert Stromberg, Q.C.		9 of 9		100%		5 of 5 GOV	100%		19 of 19	100%
						5 of 5 SHE	100%
Jack G. Vicq		9 of 9		100%		9 of 9 AUD (Chair) (4)	100%		18 of 18	100%
Elena Viyella de Paliza		8 of 9		89%		5 of 5 SHE	100%		13 of 14	93%

(1)	Mr. Doyle was a member of only the Executive Committee, which did not meet in 2006. However, upon invitation of the applicable committees, he did attend all or a portion of many of the committee meetings held.
(2)	In addition to the committees of which he is a member, Mr. Howe, as Board Chair, regularly attends other committee meetings as well. Of the 20 such committee meetings held in 2006, Mr. Howe attended 19 of them.
(3)	Appointed Chair of Audit Committee May 4, 2006.
(4)	Served as Chair of Audit Committee until May 3, 2006.

Pursuant to the “PotashCorp Governance Principles”, the Board meets in executive session, with only independent directors present during each regularly scheduled meeting of the Board. The presiding officer at the executive session is Dallas J. Howe, the Board Chair, or, in his absence, a director selected by majority vote of those present. Sessions are of no fixed duration and participant directors are encouraged to raise and discuss any issues of concern.

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Page 18

“At Risk” Investment and Year Over Year Changes

The following table provides ownership information as at February 20, 2007 and February 27, 2006, respectively.

													Value of
											Total		Common
											At-Risk		Shares/DSUs				Equity at		Shares
									Common		Value of		Needed to				Risk		Deemed
									Shares		Common		Meet 2007				Multiple		to be
					Common				and		Shares		Ownership				of 2007		Beneficially
	Director				Shares		DSUs		DSUs		and DSUs		Guideline		Ownership		Annual		Owned
	Since		Year		(#)		(#)(1)		(#)		($)(2)		($)		Guideline Met(3)		Retainer		(#)(4)(5)
Frederick J. Blesi		2001		2007		2,000		7,631		9,631		1,607,452		525,000		Yes		14.6		8,000
				2006		2,000		6,700		8,700		835,635								11,000
				Change		–		+931		+931										-3,000
William J. Doyle		1989		2007		78,318		–		78,318		13,072,125		n/a		n/a		n/a		790,764
				2006		77,978		–		77,978		7,489,787								790,490
				Change		+340		n/a		+340										+274
John W. Estey		2003		2007		2,000		6,874		8,874		1,481,192		525,000		Yes		12.9		2,000
				2006		2,000		5,577		7,577		727,771								2,000
				Change		–		+1,297		+1,297										–
Wade Fetzer III		2002		2007		9,000		3,537		12,537		2,092,541		525,000		Yes		19.9		12,000
				2006		4,000		3,121		7,121		683,972								7,000
				Change		+5,000		+416		+5,416										+5,000
Dallas J. Howe		1991		2007		14,000		12,117		26,117		4,359,271		1,400,000		Yes		15.6		46,400
				2006		8,000		11,043		19,043		1,829,080								46,400
				Change		+6,000		+1,074		+7,074										–
Alice D. Laberge		2003		2007		2,000		4,971		6,971		1,163,477		525,000		Yes		10.0		2,000
				2006		2,000		4,424		6,424		617,025								2,000
				Change		–		+547		+547										–
Keith G. Martell		–		2007		0		n/a		n/a		n/a		525,000		No		n/a		0
				2006		n/a		n/a		n/a		n/a				(to be fully met by				n/a
				Change		n/a		n/a		n/a		n/a				May 3, 2012)				n/a
Jeffrey M. McCaig		2001		2007		2,000		7,666		9,666		1,613,412		525,000		Yes		14.7		28,000
				2006		2,000		6,735		8,735		838,997								28,000
				Change		–		+931		+931										–
Mary Mogford		2001		2007		4,000		7,745		11,745		1,960,420		525,000		Yes		16.3		10,000
				2006		4,000		7,307		11,307		1,086,037								10,000
				Change		–		+438		+438										–
Paul J. Schoenhals		1992		2007		2,000		6,148		8,148		1,360,010		525,000		Yes		11.8		2,000
				2006		2,000		5,430		7,430		713,652								2,000
				Change		–		+718		+718										–
E. Robert Stromberg		1991		2007		11,652		5,564		17,217		2,873,664		525,000		Yes		27.4		24,851
				2006		15,580		5,137		20,717		1,989,868								47,980
				Change		-3,928		+427		-3,500										-23,129
Jack G. Vicq		1989		2007		3,186		4,211		7,397		1,234,572		525,000		Yes		11.8		3,186
				2006		3,186		3,791		6,977		670,141								9,186
				Change		–		+420		+420										-6,000
Elena Viyella de Paliza		2003		2007		2,500		4,889		7,389		1,233,293		525,000		Yes		11.7		2,500
				2006		2,500		4,466		6,966		669,084								2,500
				Change		–		+423		+423										–

(1)	Deferred Share Units do not carry any voting rights. The number of Deferred Share Units held by each director has been rounded down to the nearest whole number.
(2)	Based on the closing price per Share on the NYSE of $96.05 on February 27, 2006 and $166.91 on February 20, 2007.
(3)	By the time a director has served on the Board for 5 years, he or she must own Shares and/or Deferred Share Units with a value at least five times the annual retainer paid to directors. One-half of the ownership threshold is required to be achieved within 21/2 years.
(4)	For 2007, the number of Shares indicated above as deemed to be beneficially owned by the nominated directors includes Shares purchasable by such directors within 60 days of February 20, 2007 through the exercise of options granted by the Corporation, as follows: Frederick J. Blesi 6,000 Shares; William J. Doyle 712,512 Shares; Wade Fetzer III 3,000 Shares; Dallas J. Howe 32,400 Shares; Jeffrey J. McCaig 26,000 Shares; Mary Mogford 6,000 Shares; and E. Robert Stromberg 13,200 Shares. No stock options have been granted to the Corporation’s non-employee directors since November 2002.

For 2006, the number of Shares indicated above as deemed to be beneficially owned by the nominated directors includes Shares purchasable by such directors within 60 days of February 27, 2006 through the exercise of options granted by the Corporation, as follows: Frederick J. Blesi 14,000 Shares; William J. Doyle 816,256 Shares; Wade Fetzer III 3,000 Shares; Dallas J. Howe 42,400 Shares; Jeffrey J. McCaig 26,000 Shares; Mary Mogford 6,000 Shares; and E. Robert Stromberg 32,400 Shares.

(5) No Shares beneficially owned by any of the directors are pledged as security.

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Page 19

Ownership of Shares

The following table sets forth information as of February 20, 2007, with respect to the beneficial ownership of Shares held by the executive officers of the Corporation named in the Summary Compensation Table herein and by all directors and executive officers of the Corporation as a group.

			Number of		Percentage
			Shares		of
	Number of		Beneficially		Outstanding
Name	Shares Held		Owned(1)(2)(3)(4)		Shares
William J. Doyle, Director, President and Chief Executive Officer		78,318		790,830		0.75%
Wayne R. Brownlee, Executive Vice President, Treasurer and Chief Financial Officer		17,499		185,719		0.18%
James F. Dietz, Executive Vice President and Chief Operating Officer		17,606		213,858		0.20%
Thomas J. Regan, Jr., President, PCS Phosphate and PCS Nitrogen		11,799		11,799		0.01%
Garth W. Moore, President, PCS Potash		8,623		56,843		0.05%
All directors and executive officers as a group, including the above-named individuals (26 persons)		242,355		1,854,121		1.77%

(1)	The number of Shares beneficially owned is reported on the basis of regulations of the SEC, and includes Shares that the individual has the right to acquire at any time within 60 days after February 20, 2007 and Shares directly or indirectly held by the individual or by certain family members or others over which the individual has sole or shared voting or investment power.
(2)	Each of the directors and executive officers of the Corporation owned less than 1% of the Shares issued and outstanding as at February 20, 2007. The directors and executive officers of the Corporation as a group beneficially owned approximately 1.766% of the Shares issued and outstanding as at February 20, 2007.
(3)	Includes Shares purchasable within 60 days after February 20, 2007 through the exercise of options granted by the Corporation, as follows: Mr. Doyle 712,512 Shares; Mr. Brownlee 168,220 Shares; Mr. Dietz 196,252 Shares; Mr. Regan 0 Shares; Mr. Moore 48,220 Shares and directors and executive officers as a group, including the foregoing individuals, 1,611,766 Shares.
(4)	No Shares beneficially owned by any of the directors or Named Executive Officers are pledged as security.

Listed below are the names and other information concerning persons known to the Corporation (from records and reports filed with the SEC on Schedule 13D or 13G) who owned, as of February 20, 2007, more than 5% of the Corporation’s Shares.

	Amount and Nature of		Percent of
Name and Address of Beneficial Owner	Beneficial Ownership		Class(1)
Capital Research and Management Company 333 South Hope Street Los Angeles, California 90071		12,567,800(2)(3)(4)		11.97%
PRIMECAP Management Company 225 S. Lake Ave., #400 Pasadena, California 91101		10,337,515(5)(6)		9.85%
Capital Group International, Inc. 11100 Santa Monica Blvd. Los Angeles, California 90025		8,902,880(7)(8)(9)		8.48%
FMR Corp. (Fidelity) 82 Devonshire Street Boston, Massachusetts 02109		8,348,918(10)(11)		7.95%
Capital Guardian Trust Company 11100 Santa Monica Blvd. Los Angeles, California 90025		7,418,980(9)(12)(13)		7.07%
Janus Capital Management LLC 151 Detroit Street Denver, Colorado 80206		6,504,606(14)(15)		6.20%
The Growth Fund of America, Inc. 333 South Hope Street Los Angeles, California 90071		5,304,000(4)(16)(17)		5.05%

(1)	Represents percent of Shares outstanding as of February 20, 2007.
(2)	Such person has sole dispositive power as to all 12,567,800 Shares and sole voting power as to 5,795,400 Shares.
(3)	As set forth in a Schedule 13G dated February 12, 2007.
(4)	Capital Research and Management Company may be deemed the beneficial owner of the Shares of its subsidiaries, including the 5,304,000 Shares beneficially owned by The Growth Fund of America, Inc.
(5)	Such person has sole dispositive power as to all 10,337,515 Shares and sole voting power as to 2,631,615 Shares.
(6)	As set forth in a Schedule 13G dated February 14, 2007.
(7)	Such person has sole dispositive power as to all 8,902,880 Shares and sole voting power as to 7,635,740 Shares.
(8)	As set forth in a Schedule 13G dated February 12, 2007.
(9)	Capital Group International, Inc. may be deemed the beneficial owner of the Shares of its subsidiaries, including the 7,418,980 Shares beneficially owned by Capital Guardian Trust Company.
(10)	Such person has sole dispositive power as to all 8,348,918 Shares and sole voting power as to 3,589,343 Shares.
(11)	As set forth in a Schedule 13G dated February 14, 2007.
(12)	Such person has sole dispositive power as to all 7,418,980 Shares and sole voting power as to 6,260,640 Shares.
(13)	As set forth in a Schedule 13G dated February 12, 2007.
(14)	Such person has sole dispositive power as to all 6,504,606 Shares and sole voting power as to all 6,504,606 Shares.
(15)	As set forth in a Schedule 13G dated February 14, 2007.
(16)	Such person has sole voting power as to all 5,304,000 Shares.
(17)	As set forth in a Schedule 13G dated February 12, 2007.

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Page 20

Appointment of Auditors

Deloitte & Touche LLP (or its predecessors) have been the Corporation’s auditors since the Corporation’s initial public offering in 1989. The Board, on recommendation from the Audit Committee, recommends the re-appointment of Deloitte & Touche LLP as auditors.

Proxies solicited hereby will be voted to reappoint the firm of Deloitte & Touche LLP, the present auditors, as auditors of the Corporation to hold office until the next annual meeting of shareholders, unless the shareholder signing such proxy specifies otherwise. The affirmative vote of a majority of Shares voted on such matter is required to reappoint the firm of Deloitte & Touche LLP as auditors of the Corporation.

A representative of Deloitte & Touche LLP is expected to attend the Meeting. At that time the representative will have the opportunity to make a statement if he or she desires and will be available to respond to appropriate questions.

Auditor’s Fees

For the years ended December 31, 2006 and December 31, 2005, Deloitte & Touche LLP received the following fees:

	Year ended December 31,
	2006		2005
Audit Fees		$2,361,000		$2,281,000
Audit Related Fees		255,000		201,000
Tax Fees		57,000		32,000
All Other Fees		0		3,000

Audit Fees

Deloitte & Touche LLP billed the Corporation $2,361,000 and $2,281,000 for 2006 and 2005, respectively, for the following audit services (i) audit of the annual consolidated financial statements of the Corporation for the fiscal years ended December 31, 2006 and 2005; (ii) review of the interim financial statements of the Corporation included in quarterly reports on Form 10-Q for the periods ended March 31, June 30 and September 30, 2006 and 2005; (iii) audits of individual statutory financial statements; and (iv) the provision of consent letters.

Audit-Related Fees

Deloitte & Touche LLP billed the Corporation $255,000 and $201,000 for 2006 and 2005, respectively, for the following services (i) accounting consultations regarding financial accounting and reporting standards; (ii) employee benefit plan audits; and (iii) due diligence procedures.

Tax Fees

Deloitte & Touche LLP billed the Corporation $57,000 and $32,000 for 2006 and 2005, respectively, for the following services (i) tax compliance; (ii) tax planning; and (iii) tax advice, including minimizing tax exposure or liability.

All Other Fees

Deloitte & Touche LLP billed the Corporation $0 and $3,000 for 2006 and 2005, respectively, for training services provided to the Corporation’s internal audit personnel.

Pre-Approval Policy for External Auditor Services

The Audit Committee monitors and reviews the independence of its auditors on an on-going basis. In addition, the Audit Committee has adopted processes for the pre-approval of engagements for services of its external auditors.

The Audit Committee’s policy requires pre-approval of all audit and non-audit services provided by the external auditor. The policy identifies three categories of external auditor services and the pre-approval procedures applicable to each category, as follows:

(1)	Audit and audit-related services — these are identified in the annual Audit Service Plan presented by the external auditor and require annual approval. The Audit Committee monitors the audit services engagement at least quarterly.
(2)	Pre-approved list of non-audit services — non-audit services which are reasonably likely to occur have been identified and receive general pre-approval of the Audit Committee, and as such do not require specific pre-approvals. The term of any general pre-approval is 12 months from approval unless otherwise specified. The Audit Committee annually reviews and pre-approves the services on this list.
(3)	Other proposed services — all proposed services not categorized above are brought forward on a case-by-case basis and specifically pre-approved by the Chair of the Audit Committee, to whom pre-approval authority has been delegated.

All fees paid to the independent auditors for 2006 were approved in accordance with the pre-approval policy.

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Adoption of 2007 Performance Option Plan

2007 Performance Option Plan

On February 20, 2007, the Board adopted a new performance option plan (the “2007 Performance Option Plan”), subject to the approval of the 2007 Performance Option Plan by the Corporation’s shareholders at the Meeting. If approved, the 2007 Performance Option Plan will be deemed effective as of January 1, 2007 and will permit the grant of options to purchase up to 1,000,000 Shares to individual officers and employees of the Corporation and its subsidiaries. Non-employee directors and other non-employee contractors and third party vendors will not be eligible to participate in the 2007 Performance Option Plan.

Options to purchase Shares may be granted under the terms of the 2007 Performance Option Plan only during 2007 and no options will be granted prior to the Meeting. Unless sooner terminated as provided therein, the 2007 Performance Option Plan will terminate on January 1, 2008, although the terms of the plan will continue to govern options granted thereunder prior to termination.

The 2007 Performance Option Plan will be administered by the Compensation Committee or any other Board Committee designated by the Board. A copy of the 2007 Performance Option Plan is attached hereto as Appendix C. This description of the 2007 Performance Option Plan is qualified, in its entirety, by the terms of the attached plan document.

If approved, the 2007 Performance Option Plan will result in up to 0.95% (as at February 20, 2007) of the outstanding share capital of the Corporation being available for issue pursuant to the exercise of options granted under the 2007 Performance Option Plan. The aggregate number of Shares in respect of which stock options may be granted to any one person pursuant to the 2007 Performance Option Plan and which remain outstanding may not at any time exceed 250,000 Shares, representing 0.24% (as at February 20, 2007) of the outstanding share capital of the Corporation.

Under the terms of the 2007 Performance Option Plan, options will have a term of ten years and will vest at the end of the three-year performance cycle ending December 31, 2009, subject to the Corporation’s achievement of the performance criteria described in the 2007 Performance Option Plan. The performance metrics and vesting scale have been designed in accordance with the Corporation’s compensation philosophy. See “Compensation Discussion and Analysis”. In general, options will vest as determined by a schedule that references the Corporation’s performance during the performance cycle as measured by reference to cash flow return on investment and weighted average cost of capital. Any options that do not become vested will terminate at the end of the performance cycle.

The number of options granted to each individual optionee will be targeted to deliver total compensation in the 75^th percentile of the Comparator Group for corporate performance, based on cash flow return on investment and weighted average cost of capital, above the 75^th percentile of the Dow Jones U.S. Basic Materials Index (“DJUSBMI”). Similarly, for corporate performance in the 50^th percentile of the DJUSBMI, the number of options granted will be targeted to deliver total compensation in the 50^th percentile of the Comparator Group.

It is anticipated that there will be approximately 235 participants in the 2007 Performance Option Plan. Following shareholder approval of the 2007 Performance Option Plan at the Meeting, a determination will be made as to the number of options to be granted to executive officers and other participants, which options will be granted in accordance with the criteria described below.

The option price for any option granted under the 2007 Performance Option Plan to any optionee shall be fixed by the Board when the option is granted and, for optionees resident in the United States and any other optionees designated by the Board, the option price shall not be less than the fair market value of a Share at such time, which shall be deemed to be the closing price per Share on the NYSE on the last trading day immediately preceding the day the stock option is granted. For all other optionees, the option price shall be deemed to be the closing price per Share on the TSX on the last trading day immediately preceding the day the stock option is granted. In either case, if the Shares did not trade on such exchange on such day, the option price shall be the closing price per Share on such exchange on the last day on which the Shares traded on such exchange prior to the day the stock option is granted.

The 2007 Performance Option Plan requires all options to be subject to provisions to the effect that:

(a)

if the employment of an optionee as an officer or employee of the Corporation or a subsidiary terminates by reason of his or her death, or if an optionee who is a retiree pursuant to paragraph (b) below dies during the 36-month period following retirement, the legal personal representatives of the optionee will be entitled to exercise any unexercised vested options, including such stock options that may vest after the date of death, during the period ending at the end of the twelfth calendar month following the calendar month in which the optionee dies, failing which exercise the stock options will terminate;

(b)

subject to the terms of paragraph (a) above, if the employment of an optionee as an officer or employee of the Corporation or a subsidiary terminates by reason of retirement in accordance with the then prevailing retirement policy of the Corporation or subsidiary, the optionee will be entitled to exercise any unexercised vested stock options, including such stock options that may vest after the date of retirement, during the period ending at the end of the 36th month following the

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	calendar month in which the optionee retires, failing which exercise the stock options will terminate;
(c)	if the employment of an optionee as an officer or employee of the Corporation or a subsidiary terminates for any reason other than as provided in paragraphs (a) or (b) above, the optionee will be entitled to exercise any unexercised vested stock options, to the extent vested and exercisable at the date of such event, during the period ending at the end of the calendar month immediately following the calendar month in which the event occurs, failing which exercise the stock options will terminate; and
(d)	each stock option is personal to the optionee and is not assignable, except (i) as provided in paragraph (a) above, and (ii) at the election of the Board, a stock option may be assignable to the spouse, children and grandchildren of the original optionee and to a trust, partnership or limited liability company, the entire beneficial interest of which is held by one or more of the foregoing.

Nothing contained in paragraphs (a), (b) or (c) above shall extend the period during which a stock option may be exercised beyond its ten-year term or any earlier date on which it is otherwise terminated in accordance with the provisions of the 2007 Performance Option Plan.

If a stock option is assigned pursuant to paragraph (d)(ii) above, the references in paragraphs (a), (b) and (c) above to the termination of employment or death of an optionee shall not relate to the assignee of a stock option but shall relate to the original optionee. In the event of such assignment, legal personal representatives of the original optionee shall not be entitled to exercise the assigned stock option, but the assignee of the stock option or the legal personal representatives of the assignee may exercise the stock option during the applicable specified period.

The Board may amend or discontinue the 2007 Performance Option Plan at any time, without obtaining approval of the shareholders of the Corporation unless required by the relevant rules of the TSX, provided that no such amendment may increase the aggregate maximum number of Shares that may be subject to stock options granted under the 2007 Performance Option Plan, change the manner of determining the minimum option price, extend the option term under any option beyond ten years, expand the assignment provisions of the 2007 Performance Option Plan, permit non-employee directors to participate in the 2007 Performance Option Plan or, without the consent of the holder of the option, alter or impair any option previously granted to an optionee under the 2007 Performance Option Plan; and provided further, for greater certainty, that, without the prior approval of the Corporation’s shareholders, stock options issued under the 2007 Performance Option Plan shall not be repriced, replaced or regranted through cancellation, or by lowering the option price of a previously granted stock option. In the event of certain transactions affecting the capitalization of the Corporation, including a merger, the Board shall make appropriate adjustments in the number or option price of outstanding options or the number of Shares available for grant and other authorized limits under the 2007 Performance Option Plan to reflect such transaction. In the event of change of control (as defined in the 2007 Performance Option Plan), all unvested options then outstanding will become fully vested.

A participant in the 2007 Performance Option Plan who is employed and resident in Canada will be deemed to receive a benefit from employment in the year he or she exercises options under the 2007 Performance Option Plan equal to the difference between the exercise price and the market price of the Shares at the time of exercise, multiplied by the number of Shares over which options are exercised. One-half of this amount will be deducted in the participant’s taxable income in the year of exercise. If the participant so elects, and subject to certain limitations, taxation of the said benefit may be deferred from the year of exercise until the earliest of the year the participant disposes of the Shares, dies or ceases to be resident in Canada for tax purposes. The participant will have a cost base in the optioned Shares equal to their market value on the date of exercise for purposes of computing any capital gain or capital loss on any subsequent disposition of the Shares. The Corporation may not take any tax deduction in respect of the benefits deemed to be received by participants under the 2007 Performance Option Plan in Canada.

All of the options granted under the 2007 Performance Option Plan will be treated as non-qualified stock options for U.S. federal income tax purposes. A participant in the 2007 Performance Option Plan who is employed and resident in the U.S. will not be deemed to receive any income at the time an option is granted, nor will the Corporation’s applicable subsidiary be entitled to a deduction at that time. However, when any part of an option is exercised, the participant will be deemed to have received ordinary income in an amount equal to the difference between the exercise price of the option and the fair market value of the Shares received on the exercise of the option. The Corporation’s applicable subsidiary will be entitled to a tax deduction in an amount equal to the amount of ordinary income realized by such participants. Upon any subsequent sale of the Shares acquired upon the exercise of an option, any gain (the excess of the amount received over the fair market value of the Shares on the date ordinary income was recognized) or loss (the excess of the fair market value of the Shares on the date ordinary income was recognized over the amount received) will be a long-term capital gain or loss if the sale occurs more than one year after such date of recognition and otherwise will be a short-term capital gain or loss.

Grants under the 2007 Performance Option Plan will be made after shareholder approval is obtained and during the 2007 fiscal year.

In order for the 2007 Performance Option Plan to become effective, the resolution to approve the 2007 Performance

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Option Plan must be passed by a majority of the votes cast by the shareholders who vote in respect of the resolution.

UNLESS A PROXY SPECIFIES THAT THE SHARES IT REPRESENTS SHOULD BE VOTED AGAINST THE RESOLUTION TO APPROVE THE 2007 PERFORMANCE OPTION PLAN, THE PROXYHOLDERS NAMED IN THE ACCOMPANYING FORM OF PROXY INTEND TO VOTE FOR THE RESOLUTION.

Securities Authorized for Issuance Under Equity Compensation Plans

The Corporation has four other stock option plans. On May 4, 2006, the Corporation’s shareholders approved the 2006 Performance Option Plan under which the Corporation was permitted, after February 27, 2006 and before January 1, 2007, to grant options for the issuance of up to 1,400,000 Shares pursuant to the exercise of the options. As at January 1, 2007, options to acquire 893,600 Shares had been granted and were outstanding under the 2006 Performance Option Plan. Grants under the 2006 Performance Option Plan were made during fiscal year 2006 only. The material terms of the 2006 Performance Option Plan are described in “Compensation Discussion and Analysis – Incentive Plan Compensation – Long-Term Incentives (Stock Options)”. Additional information regarding the 2006 Performance Option Plan, including the full text of the plan, can be found in the Corporation’s Management Proxy Circular for the fiscal year ended 2005. Apart from housekeeping and conforming amendments, no amendments with respect to the 2006 Performance Option Plan have been adopted since the beginning of the last fiscal year.

On May 5, 2005, the Corporation’s shareholders approved the 2005 Performance Option Plan under which the Corporation was permitted, after February 28, 2005 and before January 1, 2006, to grant options for the issuance of up to 1,200,000 Shares pursuant to the exercise of the options. As at January 1, 2007, options to acquire 1,173,000 Shares had been granted and were outstanding under the 2005 Performance Option Plan. Grants under the 2005 Performance Option Plan were made during fiscal year 2005 only. The material terms of the 2005 Performance Option Plan are described in the “Compensation Discussion and Analysis – Incentive Plan Compensation – Long-Term Incentives (Stock Options)”. Additional information regarding the 2005 Performance Option Plan, including the full text of the plan, can be found in the Corporation’s Management Proxy Circular for the fiscal year ended 2004. Apart from housekeeping and conforming amendments, no amendments with respect to the 2005 Performance Option Plan have been adopted since the beginning of the last fiscal year.

The Corporation’s Stock Option Plan – Officers and Employees and Stock Option Plan – Directors were each terminated by the Board on November 16, 2006. Options previously granted under the Stock Option Plan – Officers and Employees and Stock Option Plan – Directors will continue to be governed by the terms of their respective plan. As at January 1, 2007, 2,588,948 options were outstanding under the Stock Option Plan – Officers and Employees and 113,000 options were outstanding under the Stock Option Plan – Directors. Apart from housekeeping and conforming amendments, no amendments with respect to the Stock Option Plan – Officers and Employees and the Stock Option Plan – Directors have been adopted since the beginning of the last fiscal year.

The following table provides information about securities that may be issued under the Corporation’s existing equity compensation plans, as of December 31, 2006 and February 20, 2007.

Equity Compensation Plan Information

						(c) Number of Shares
	(a) Number of Shares					remaining available for
	to be issued			(b) Weighted-average		future issuance under
	upon exercise of			exercise price of		equity compensation
	outstanding options,			outstanding options,		plans (excluding Shares
Plan Category	warrants and rights			warrants and rights		reflected in column (a))
December 31, 2006
Equity compensation plans approved by shareholders		4,768,548	(1)	$	62.34		0
Equity compensation plans not approved by shareholders		n/a			n/a		n/a
February 20, 2007
Equity compensation plans approved by shareholders		4,578,346	(2)	$	63.26		0
Equity compensation plans not approved by shareholders		n/a			n/a		n/a

(1)	Of this amount, 1,173,000 options were outstanding pursuant to the 2005 Performance Option Plan, 893,600 options were outstanding pursuant to the 2006 Performance Option Plan, 2,588,948 options were outstanding pursuant to the Stock Option Plan – Officers and Employees and 113,000 options were outstanding pursuant to the Stock Option Plan – Directors.
(2)	Of this amount, 1,173,000 options were outstanding pursuant to the 2005 Performance Option Plan, 893,600 options were outstanding pursuant to the 2006 Performance Option Plan, 2,398,746 options were outstanding pursuant to the Stock Option Plan – Officers and Employees and 113,000 options were outstanding pursuant to the Stock Option Plan – Directors.

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Corporate Governance

Statement of Corporate Governance Practices

PotashCorp, its Board and its management are committed to the highest standard of corporate governance. The Board, through its Corporate Governance and Nominating Committee continually evaluates and enhances the Corporation’s corporate governance practices by monitoring Canadian and U.S. regulatory developments affecting corporate governance and transparency of public company disclosure.

As a Canadian reporting issuer with securities listed on the TSX and NYSE, the Corporation fully complies with the applicable regulatory requirements concerning corporate governance in both Canada and the United States.

In Canada, we comply with corporate governance rules of the Canadian securities regulatory authorities in all of the provinces and territories of Canada. The Corporation is required to disclose its corporate governance practices in accordance with NI 58-101 in reference to the benchmarks set out in National Policy 58-201 “Corporate Governance Guidelines” (“NP 58-201”).

In the United States, the Corporation is required to comply with the provisions of the Sarbanes-Oxley Act of 2002 and the rules adopted by the SEC pursuant to that Act, as well as the governance rules of the NYSE, in each case as applicable to a foreign private issuer. The Corporation complies with the current corporate governance rules of the NYSE. There are no significant differences between the Corporation’s corporate governance practices and those required of U.S. domestic issuers under the NYSE listing standards.

To comply with the applicable corporate governance standards and achieve those best practices, the Board has adopted the “PotashCorp Governance Principles” and “Statement of Core Values and Code of Conduct”. The complete text of the “PotashCorp Governance Principles”, the “Statement of Core Values and Code of Conduct”, and the Board and Committee Charters, as well as other governance related documents, can be found on the Corporation’s website, www.potashcorp.com, and are available in print to any shareholder who requests them.

In accordance with NI 58-101, the Corporation annually discloses information relating to its system of corporate governance. Details of the Corporation’s corporate governance practices are described in Appendix A to this Management Proxy Circular. Furthermore, in accordance with the requirements of NI 58-101, the text of the Corporation’s Board of Directors Charter is attached hereto as Appendix D. In addition, the Board of Directors Charter, the Board Committee charters and the “PotashCorp Governance Principles” are also available on the Corporation’s website, www.potashcorp.com, and in print to any shareholder who requests a copy from the Corporate Secretary of the Corporation.

The Board exercises its duties directly and through its Committees. The Board has five standing committees: the Audit Committee, the Corporate Governance and Nominating Committee, the Compensation Committee, the Executive Committee and the Safety, Health and Environment Committee. The recent activities of the Audit and Corporate Governance and Nominating Committees of the Board are described below in the Committee reports. The report of the Compensation Committee is contained in the section on Executive Compensation.

Report of the Audit Committee

The Corporation has a standing Audit Committee. The Board has determined that each of the following directors, who served as members of the Audit Committee during the year ended December 31, 2006, is independent according to the Board’s independence standards as set out in the “PotashCorp Governance Principles” (which is available on the Corporation’s website, www.potashcorp.com), NI 58-101, applicable rules of the SEC and the corporate governance rules of the NYSE. See also “Nominees for Election to the Board of Directors – Director Independence and Other Relationships”.

Alice D. Laberge (Chair)
Frederick J. Blesi
Jeffrey J. McCaig
Mary Mogford
Jack G. Vicq

The Board has determined that Mr. Vicq and Ms. Laberge qualify as “audit committee financial experts” under the rules of the SEC and thereby have the requisite accounting and/or related financial management expertise required under the rules of the NYSE. In addition, the Board, in its business judgment, has determined that each member of the Audit Committee is financially literate.

The purpose of the Audit Committee is to assist the Board in fulfilling its oversight responsibilities for (i) the integrity of the Corporation’s financial statements, (ii) the Corporation’s compliance with legal and regulatory requirements, (iii) the qualification and independence of the Corporation’s independent auditors, and (iv) the performance of the Corporation’s independent auditors. In accordance with the Audit Committee Charter adopted by the Board, the Audit Committee has responsibility for the oversight of the Corporation’s financial reporting and audit processes and related internal controls on behalf of the Board. During the fiscal year ended December 31, 2006, the Audit Committee met 9 times.

In overseeing the audit process, the Audit Committee obtained from the independent auditors their letter dated February 14, 2007, as required by the Independent Standards Board Standard No. 1, describing all relationships between the auditors and the Corporation that might bear on the

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auditors’ independence and the auditors’ judgment that they are, in fact, independent and discussed with the auditors the disclosures therein. The Audit Committee also reviewed the organizational structure, procedure and practices that support the objectivity of the internal audit department and reviewed the Internal Audit Department Charter. The Audit Committee reviewed with both the independent and the internal auditors their audit plans, audit scope and identification of audit risks.

The Audit Committee discussed, with and without management present, the results of the independent auditors’ communications required by generally accepted auditing standards, including those described in Statement on Auditing Standards No. 61, as amended, “Communication with Audit Committees”. The Committee also discussed the results of the internal audit examinations.

In meetings with financial management, internal audit and the independent auditors, the Audit Committee reviewed and discussed quarterly interim financial information prior to the earnings release for the applicable quarter. The Audit Committee also reviewed and approved the quarterly “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”).

The Audit Committee reviewed and discussed the MD&A and the audited financial statements of the Corporation as of and for the fiscal year ended December 31, 2006, with management and the independent auditors, including the quality, not just the acceptability, of the Corporation’s financial reporting practices and the completeness and clarity of the related financial disclosures. Management is responsible for the preparation of the Corporation’s financial statements and the independent auditors are responsible for auditing those financial statements.

The Audit Committee reviewed the processes involved in evaluating the Corporation’s internal control environment and the Audit Committee also oversaw and monitored the 2006 compliance process related to the certification and attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002.

Based on the above-mentioned review and discussions with management and the independent auditors, the Audit Committee recommended to the Board that the audited consolidated financial statements and MD&A be included in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, for filing with the SEC. The Audit Committee also recommended the reappointment, subject to shareholder approval, of the independent auditors.

The Audit Committee reviews the Corporation’s Disclosure Controls and Procedures on an annual basis. It also reviewed its committee charter and approved changes to the Corporation’s Statement of Core Values and Code of Conduct, principally to provide better direction to employees about how to raise ethics and compliance concerns within the Corporation. Both the Audit Committee Charter and the Code of Conduct are available to shareholders and others on the Corporation’s website, www.potashcorp.com. The Audit Committee has oversight responsibility for the Corporation’s compliance with legal and regulatory requirements. The Audit Committee receives regular periodic reports of the Corporation’s ethics and compliance activities, including a review of management’s compliance risk assessment and the efforts undertaken to mitigate ethics and compliance risks during the year, including an overview of the corporate ethics and compliance training program and quantitative and qualitative accounts of compliance matters which have been reported to the Corporation. In addition to ensuring that there are mechanisms for the anonymous submission of ethics and compliance reports generally, the Audit Committee has established specific procedures for:

•      the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls or auditing matters; and

•      the confidential, anonymous submission by employees of the Corporation of concerns regarding questionable accounting or auditing matters.

Submitted on behalf of the Audit Committee: Alice D. Laberge, Frederick J. Blesi, Jeffrey J. McCaig, Mary Mogford and Jack G. Vicq.

Report on Corporate Governance and

Nominating Matters

General

The Corporation has a standing Corporate Governance and Nominating Committee, referred to as the “CG&N Committee” hereinafter in this report. The CG&N Committee has a charter which is available to shareholders and others at the Corporation’s website, www.potashcorp.com. Each of the following five directors who comprise the CG&N Committee is independent according to the Board’s independence standards as set out in the “PotashCorp Governance Principles” (which is available on the Corporation’s website), NI 58-101, applicable rules of the SEC and the corporate governance rules of the NYSE. See also “Nominees for Election to the Board of Directors – Director Independence and Other Relationships”. During the fiscal year ended December 31, 2006, the CG&N Committee met 5 times.

Mary Mogford (Chair)
Frederick J. Blesi
Wade Fetzer III
Dallas J. Howe
E. Robert Stromberg

Disclosure Regarding Governance Procedures

The CG&N Committee is responsible for overseeing compliance with current and emerging governance requirements established by governmental regulators in the United States and Canada and by the NYSE and TSX. The CG&N Committee maintains a checklist of regulatory requirements which is updated and reviewed at every meeting. The CG&N Committee also is responsible for

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developing and implementing best Board governance practices. The Chair of the CG&N Committee works closely with the Corporate Secretary, the Associate General Counsel and the Director of Investor Relations to ensure that the CG&N Committee stays aware of developments and trends in best governance practices, particularly from the perspective of regulatory bodies, shareholder advocates, individual and institutional investors, governance organizations and academic commentators. In addition, the CG&N Committee is charged with management of the annual review of the performance of the Board, a process that is described in greater detail in Appendix A.

2006 Governance Activities

In 2006, the CG&N Committee’s mandate was expanded to include review of sustainability issues that are not already within the purview of another committee’s responsibility. These include social issues, such as philanthropy and human rights issues, and certain economic issues involving stakeholder relationships with customers and investors. In the area of Board evaluation, the CG&N Committee tailored its approach to Board self-evaluation by amending its assessment tools to place a greater emphasis on discussion of specific qualitative issues. The CG&N Committee also led the Board’s continuing director education efforts, which included a training session for the full Board conducted by an outside consultant in how to respond to a corporate crisis.

Disclosure Regarding Nominating Processes

Shareholders may propose individuals to be nominated for election as directors (a “Proposal”) in accordance with the provisions of Section 137 of the Canada Business Corporations Act (the “Act”). Shareholders wishing to make a Proposal should refer to the relevant sections of the Act for a description of the procedures to be followed. For additional information regarding shareholder proposals, see “2008 Shareholder Proposals”. Shareholders who do not meet the threshold criteria for making, or otherwise choose not to make, a Proposal may at any time suggest nominees for election to the Board. Names of and supporting information regarding such nominees should be submitted to: Corporate Secretary, Potash Corporation of Saskatchewan Inc., Suite 500, 122 – 1st Avenue South, Saskatoon, Saskatchewan, S7K 7G3, Canada.

The purpose of the CG&N Committee is to identify individuals qualified to become members of the Board consistent with criteria approved by the Board, to recommend to the Board nominees for election to the Board at each annual meeting of shareholders or to fill vacancies on the Board and to address related matters. In addition, the CG&N Committee also develops and recommends to the Board corporate governance principles applicable to the Corporation and is responsible for leading the annual review of the performance of the Board.

A CG&N Committee-recommended nominee for a position on the Board must, at a minimum, meet the qualification standards for directors established by Section 105 of the Act. In addition, such nominee must possess and exhibit the highest degree of integrity, professionalism, values and independent judgment. The CG&N Committee also believes that the Board should be comprised of directors who possess experience and expertise in one or more of the following areas:

•      fertilizer industry

•      global and international commerce

•      transportation industry

•      e-commerce and technology

•      finance

•      legal

•      accounting

•      mining industry

•      chemical industry

•      general business management

•      public policy

On an ongoing basis the CG&N Committee asks incumbent directors and senior management to suggest individuals who should be considered as proposed nominees to the Board. The CG&N Committee identifies the mix of expertise and qualities required for the Board. The Chair of the CG&N Committee, in consultation with the CG&N Committee, the Board Chair and the CEO maintains an evergreen list of potential candidates suggested by incumbent directors, senior management or shareholders and biographical information for each such potential candidate. When it becomes apparent that a vacancy on the Board will arise, either from mandatory or elective retirement or otherwise, the CG&N Committee reviews its list of potential candidates against the skill sets of incumbent Board members and the range of experience and expertise necessary for the Board. In completing this analysis, the CG&N Committee utilizes a skills matrix. Potential candidates who have, in the opinion of the CG&N Committee, the desired expertise are identified. Those who have the requisite qualifications and meet the Corporation’s standards are ranked by the CG&N Committee in order of preference and contacted to determine their interest in serving on the Board. If this process does not result in the identification of suitable nominees, the CG&N Committee may engage the services of a search firm to assist in the identification of director candidates. The CG&N Committee evaluates all potential candidates in the manner described, no matter what the source of the recommendation.

Prior to joining the Board, new directors are informed of the degree of energy and commitment the Corporation expects of its directors.

In an uncontested election, any nominee for director who fails to receive votes in favor of his or her election representing at least a majority of the votes cast (added together with the votes withheld) shall tender his or her

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resignation for consideration by the CG&N Committee. Except in extenuating circumstances, it is expected that the CG&N Committee will recommend to the Board that the resignation be accepted and effective within a period of 90 days and that the action taken be publicly disclosed. To the extent possible, the CG&N Committee and Board members who act on the resignation shall be directors who have themselves received a majority of votes cast.

Disclosure Regarding Director Orientation and Continuing Education

The Board has adopted a written New Director Orientation Policy designed to:

(a)	provide each new director with a baseline of knowledge about the Corporation that will serve as a basis for informed decision-making;
(b)	tailor the program for each new director to take into account his or her unique mix of skills, experience, education, knowledge and needs; and
(c)	deliver information over a period of time to minimize the likelihood of overload and maximize the lasting educational impact.

The orientation program is tailored to the needs of each new director and consists of a combination of written materials, one-on-one meetings with senior management, site visits and other briefings and training as appropriate.

The Board also recognizes the importance of ongoing director education and the need for each director to take personal responsibility for this process. To facilitate ongoing education, the Corporation:

(a)	maintains a director’s intranet site to facilitate the exchange of views and published information;
(b)	maintains a membership for each director in an organization dedicated to corporate governance and ongoing director education;
(c)	each year encourages and funds the attendance of each director at one seminar or conference of interest and relevance and funds the attendance of each committee Chair at one additional seminar or conference. In all cases, approval for attendance is obtained, in advance, from the Board Chair;
(d)	encourages presentations by outside experts to the Board or committees on matters of particular import or emerging significance; and
(e)	at least annually, schedules a site visit in conjunction with a Board meeting.

The Board holds one meeting each year at an operating facility. Site visits by the Board and meetings with senior management of the facility are incorporated into the itinerary.

Disclosure Regarding the Ability of Shareholders to Communicate With the Board of Directors

The Corporation has a process for shareholders or other interested parties who wish to communicate with members of the Board, including the presiding director or the non-management directors as a group. Communications in writing should be sent to:

PotashCorp Board of Directors
c/o Corporate Secretary
Suite 500, 122 – 1st Avenue South
Saskatoon, Saskatchewan S7K 7G3
CANADA

Communications by e-mail should be sent to directors@potashcorp.com.

Matters relating to the Corporation’s accounting, internal accounting controls or auditing matters are referred to the Audit Committee. Other matters are referred to the Board Chair.

To further facilitate communications between the Corporation’s shareholders and the Board, the Corporation has adopted a policy that all directors standing for re-election and all new director nominees are expected to attend the Meeting. In 2006, all such directors and nominees attended the annual meeting.

Submitted on behalf of the CG&N Committee: Mary Mogford, Frederick J. Blesi, Wade Fetzer III, Dallas J. Howe and E. Robert Stromberg.

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Compensation

Report of the Compensation Committee and Compensation Committee Responsibilities and Procedures

Composition of the Compensation Committee

We have a standing Compensation Committee, referred to as the “Committee” in this Compensation section. The Committee is, at present, composed of four directors: John W. Estey (Chair), Wade Fetzer III, Jeffrey J. McCaig and Paul J. Schoenhals. The Board has determined that each of the directors who served as members of the Committee during the year ended December 31, 2006, is independent according to the Board’s independence standards as set out in the “PotashCorp Governance Principles” (which is available on our website, www.potashcorp.com), NI 58-101, applicable rules of the SEC and the corporate governance rules of the NYSE. See also “Nominees for Election to the Board of Directors — Director Independence and Other Relationships”. The Committee has a Committee Charter, which is available on our website and in print to any shareholder who requests a copy from our Corporate Secretary. The Committee held 6 meetings in the last fiscal year.

Compensation Committee Responsibilities and Procedures

The Committee is charged with formulating and making recommendations to the Board in respect of compensation issues relating to our directors and senior officers. The Committee also makes recommendations regarding our stock option plans and administers the Short- and Medium-Term Incentive Plans, and our Performance Option Plans, each in accordance with its terms. The Committee reviews and makes recommendations regarding the general merit increase budget for salaried and non-bargaining hourly employees and has general oversight of employee benefit programs. In addition, the Committee, in consultation with the CEO, considers and reports to the Board regarding employee or executive succession matters. The Committee may delegate any of its responsibilities to a subcommittee comprised of one or more members of the Committee.

As described in the Committee’s charter, the Committee has the responsibility to:

(1)	Review and approve on an annual basis the corporate goals and objectives relevant to the compensation of our CEO. The Committee shall evaluate at least once a year the CEO’s performance in light of established goals and objectives and, based on such evaluation, shall, together with all other independent members of the Board, determine and approve the CEO’s annual compensation, including, as appropriate, salary, bonus, incentive and equity compensation;
(2)	Review and approve on an annual basis the evaluation process and compensation structure for our executive officers, including an annual Executive Salary Administration Program under which the parameters for salary adjustments (at the discretion of the CEO) for officers are established;
(3)	Review and make recommendations to the Board with respect to the adoption, amendment and termination of our management incentive-compensation and equity-compensation plans, oversee their administration and discharge any duties imposed on the Committee by any of those plans;
(4)	Assess the competitiveness and appropriateness of our policies relating to the compensation of the executive officers;
(5)	Review management’s long-range planning for executive development and succession, and develop a CEO succession plan;
(6)	Approve the Committee’s annual report on executive compensation for inclusion in our proxy statement, in accordance with applicable rules and regulations, and review and approve, prior to publication, the compensation sections of the proxy statement;
(7)	Review the general design and make-up of our broadly applicable benefit programs as to their general adequacy, competitiveness, internal equity, and cost effectiveness;
(8)	Annually review the performance of our pension plans;
(9)	Review periodically executive officer transactions in our securities and approve such transactions as appropriate for their exemption from short-swing profit liability under Section 16(b) of the Exchange Act;
(10)	Annually review and recommend to the Board a compensation package for our directors. In considering the director compensation package, the Committee may take into consideration the relative responsibilities of directors in serving on the Board and its various Committees. The Committee may request that management report to the Committee periodically on the status of the compensation package of the Board in relation to other similarly situated companies. Directors who are our employees shall not be compensated for their services as directors. The Committee shall review annually any stock ownership guidelines applicable to directors and shall recommend to the Board revisions to any such guidelines as appropriate; and

(11) Perform other review functions relating to management compensation and human resources policies as the Committee deems appropriate.

As the chief human resources officer, the Senior Vice President, Administration, is our company’s representative to the Committee and provides the Committee with information and input on corporate compensation and benefits philosophy and plan design, succession planning, program

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administration and the financial impact of director, executive and broad-based employee compensation and benefit programs. In addition, the Senior Vice President, Administration provides information to and works with the Committee’s executive compensation consultant as directed by the Committee.

Compensation Committee Interlocks and Insider Participation

During 2006, none of the members of the Committee served, or has at any time served, as an officer or employee of our company or any of our subsidiaries. None of our executive officers has served as a member of a compensation committee, or other committee serving an equivalent function, of any other entity, one of whose executive officers served as a member of the Committee.

Report of the Compensation Committee

The following report has been submitted by the Committee:

The Committee has reviewed and discussed the Compensation Discussion and Analysis contained in this Management Proxy Circular with management and, based on this review and discussion, recommends that it be included in our annual report on Form 10-K for the year ended December 31, 2006 and in this Management Proxy Circular.

By the Compensation Committee:

John W. Estey (Chair)

Wade Fetzer III

Jeffrey J. McCaig

Paul J. Schoenhals

Compensation Discussion and Analysis

Compensation Structure and Policies

We design executive compensation policies, as described below, to attract, motivate and retain qualified executives. We believe that the most effective compensation program is one that is competitive within the marketplace, rewards the achievement of specific annual, long-term and strategic goals by the company and aligns the interests of executives with shareholders by rewarding performance above established goals with the ultimate objective of increasing shareholder value. To accomplish these objectives, most compensation is variable and fluctuates based on individual and corporate performance. To align variable compensation with shareholder interests, we generally link the amount of variable compensation to total shareholder return or metrics with a demonstrated relationship to total shareholder return.

Compensation Principles

•      To emphasize performance-based compensation, we maintain total cash compensation levels (salary and annual short-term incentives) at the median (50th percentile) of the relevant group of comparable companies. We provide the opportunity to achieve compensation above the median through medium-term and long-term incentive plans (performance units and stock options) if our performance exceeds the median performance of comparable companies.

•      We determine competitive and median levels of compensation with the assistance of independent compensation consultants that prepare, at least annually, analyses of external competitive compensation. Such analyses currently consist of (1) a group of publicly traded U.S. companies with similar industry characteristics and market capitalization, which we refer to herein as the “Comparator Group”, and (2) additional U.S.-based company executive compensation survey information, which we refer to herein as the “Additional Surveys”. We refer to the Comparator Group and the Additional Surveys collectively as the “Comparative Compensation Information”. See “— Compensation Consultants and Comparator Groups”.

•      For the purpose of total cash compensation comparisons, we calculate the median of the Comparative Compensation Information by applying a regression analysis based upon revenues to the salaries and annual short-term incentive targets for each position studied.

•      We provide the opportunity to earn total compensation above the median through medium-term and long-term incentive plans. We design these plans with measures (total shareholder return and internal performance measures historically linked with total shareholder return) that require company performance above the median, relative to other basic materials companies, to deliver total compensation above the median. We use the total shareholder return of the DJUSBMI as a benchmark for determining the relative performance of our company.

•      For purposes of total compensation, including salary, annual short-term incentives, medium-term incentives and long-term incentives, we calculate the median and upper quartile by using the range between competitive levels based upon a comparative revenues regression analysis and a comparative market capitalization regression analysis.

•      We establish the value of retirement and welfare benefits at the median of comparable companies.

Elements of Executive Compensation

Our executive compensation consists of six main elements: base salary, short-term incentives, performance units issued under the Medium-Term Incentive Plan, which measures a performance period of three years, stock options issued as long-term incentives, pension benefits and severance benefits.

We combine these elements, particularly base salary, and the short, medium and long-term incentives, to provide a total compensation package that attracts highly qualified individuals and provides strong incentive value to align

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efforts and motivate executives to deliver company performance that creates sustaining shareholder value. The total value of the compensation package is weighted towards the variable incentive components. In particular, medium-term and long-term incentives comprise about 60% and short-term incentives comprise about 15% of total potential compensation value. We establish corporate performance goals for each variable incentive component. For short-term incentives, we set corporate and operating group financial and operating goals annually. The Medium-Term Incentive Plan incorporates absolute and relative total shareholder return targets over a three-year period, with potential payout occurring only at the end of the three-year period. Our long-term incentive program grants stock options, which we refer to as Performance Options because the plan includes a performance target required for vesting of the options in addition to the inherent requirement of stock appreciation for the vested options to have value. Vesting is determined at the end of a three-year period based upon a target for cash flow return on investment compared to the weighted average cost of capital. The option term is ten years from the date of grant.

More detail on each element and its purpose within the total executive compensation program is described in the following table and further in this report.

Current			Performance
Compensation	Form	Eligibility	Period	Determination
Base salary	Cash	All salaried employees	Annual	• For executive officers, we set base salary targets at the median of the Comparative Compensation Information, adjusted to reflect individual performance and internal equity.
Short-term incentives	Cash	All executives and most salaried staff employees	1 year	• We base awards on achievement of predetermined goals for corporate performance or a combination of corporate and operating group performance. • We establish targets at the median of the Comparative Compensation Information. • Individual awards may be adjusted (± 20%) to recognize individual performance, provided the total adjusted awards approximates the total awards at mid-point.

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Current			Performance
Compensation	Form	Eligibility	Period	Determination
Medium-term incentives	Performance Share Units	All executives and senior management (approximately 65 individuals)	3 years	• On January 1, 2006, we issued units at a price equal to the average closing price of our common stock for the last 30 trading days of 2005. • Each award vests and is paid out at the end of the three-year performance period (December 31, 2008) based on a vesting schedule whereby half of the units vest in accordance with our total shareholder return, or TSR, and half of the units vest in accordance with our TSR relative to the DJUSBMI’s TSR. • The value at payout equals the number of vested units multiplied by the average closing price of our common stock for the last 30 trading days of 2008, subject to a maximum value per unit of three times the average closing price of our common stock for the last 30 trading days of 2005.
Long-term incentives	Performance Options	All executives, senior management and other selected managers (approximately 235 individuals)	3 year vesting 10 year option term	• Options granted under the 2005, 2006 and 2007 Performance Option Plans vest based on our cash flow return on investment and weighted average cost of capital during the three-year performance period. • The value of vested options is based on appreciation of our common stock during the ten-year option period.

Post-Retirement and
Termination			Measurement
Compensation	Form	Eligibility	Period	Determination
Pension Benefits
Canadian Pension Plan	Cash	All Canadian salaried staff and certain union and non-union hourly employees	Pensionable service period	• Benefits are based on the participant’s required contributions (up to 5.5% of earnings) and equivalent matching contributions by our company.
Canadian Supplemental Retirement Income Plan	Cash	Selected senior executives (22 individuals)	Pensionable service period to a maximum of 35 years	• Benefits are based on 2% of the average of the participant’s three highest years’ earnings multiplied by years of pensionable service, minus the benefit payable under the Canadian Pension Plan. Certain senior executives’ benefits are calculated differently. See “— Pension Benefits” below. • No benefits are payable if the participant is not at least age 55 at termination; benefits are reduced if the participant is not at least age 62 at termination.

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Post-Retirement and
Termination			Measurement
Compensation	Form	Eligibility	Period	Determination
U.S. Pension Plan	Cash	All U.S. salaried and non-union hourly employees	Pensionable service period to a maximum of 35 years	• Benefits are based on 1.5% of the participant’s final average compensation, which is calculated using the highest paid 60 consecutive months of service out of the last 120 months, multiplied by years of service accrued after December 31, 1998. Participants with service accrued prior to January 1, 1999 under previous plans will have a portion of their benefit calculated pursuant to such plans. See “— Pension Benefits” below. • Benefits are reduced if the participant is not at least age 65, or age 62 with 20 years of service at termination.
U.S. Supplemental Plan	Cash	Eligible U.S. salaried and non-union hourly employees	Pensionable service period to a maximum of 35 years	• Benefits are intended to provide participants with the same aggregate benefits they would have received under the U.S. Pension Plan had there been no legal limitations on those benefits. • No benefits are payable if the participant is not at least age 55 at termination.
Severance Benefits
Change in control severance benefits	Cash, Insurance and Other Benefits	Selected senior executives (5 individuals)	Upon termination of employment	• Benefits are awarded in connection with termination within two years of a change of control. • Termination includes ceasing to be employed for any reason, including constructive dismissal, except by reason of death, disability, resignation or voluntary retirement, or dismissal for dishonest or willful misconduct.
General severance benefits	Cash	All salaried employees	Upon termination of employment	• Benefits are awarded in connection with termination without cause. • Benefits are generally based on two weeks of salary for each complete year of service, subject to a minimum of 4 weeks and a maximum of 52 weeks.

In addition to the above elements of compensation, certain U.S. employees participate in our 401(k) plan, which we refer to herein as the “401(k) Plan”, and certain Canadian employees participate in our Savings Plan, which we refer to herein as the “Savings Plan”. Pursuant to the 401(k) Plan and the Savings Plan, we make company contributions for the benefit of participants. For information about the amount of company contributions made for the benefit of Named Executive Officers (as defined below) pursuant to such plans, see “Executive Compensation — Summary Compensation Table”. We have no non-qualified deferred compensation arrangements in place for management. Where appropriate, we design our compensation arrangements to provide relief from Section 162(m) of the Internal Revenue Code.

Salary

We believe that salary is a necessary component to retaining qualified employees. We have established a system of tiered salary levels for senior executives (vice president and above). We assign senior executive positions to an appropriate salary tier, considering the position’s internal value, as well as

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external comparisons to relevant positions in the Comparative Compensation Information. Our Compensation Committee generally establishes salary guidelines at levels that approximate the median (the 50th percentile) of the Comparative Compensation Information, adjusted through a regression analysis utilizing revenues. Individual executive salaries for executives that report directly to the CEO are subject to approval by the CEO and the Committee. The CEO’s salary is subject to approval by the Committee and the Board.

Incentive Plan Compensation

We design our incentive plans with performance periods of varying durations. We provide executives with annual incentives through the Short-Term Incentive Plan, three-year incentives through the Medium-Term Incentive Plan and ten-year incentives through the Performance Option Plans. Our incentive plans do not provide mechanisms by which executives can monetize unvested equity awards or, except as described below in “Medium-Term Incentive Plan”, obtain value prior to the end of the relevant performance period. We believe that, in the aggregate, the range of performance periods in our incentive plans creates a strong alignment between the interests of our executive officers and shareholders.

Short-Term Incentive Plan

Our Short-Term Incentive Plan is intended to aid in developing strong corporate management by providing annual financial incentives to eligible employees to achieve corporate success. The plan provides for incentive awards based on an individual’s performance and position and our financial and operational results. The plan provides incentive to individuals during a near-term performance period, which we set at one year, and focuses on successful fulfillment of short term corporate and operational goals.

We assign participants an incentive award target, expressed as a percentage of salary. Achievement of the target is determined by our cash flow return, as defined in the plan. We adjust individual awards in accordance with individual performance and such other factors as the Committee deems appropriate. For certain participants employed at operating facilities, one-half of the award is based upon achievement of the corporate performance target and one-half is based upon achievement of annually determined operating facility targets, including safety, environmental performance and productivity. Under the terms of the plan, we generally make no payments if our cash flow return is less than 50% of the target set by the Board for that year.

For senior executives, including the Named Executive Officers, incentive awards can range from 15% to 200% of salary, depending upon an executive’s position, actual cash flow return above the minimum threshold return and compared to the target return. The awards are subject to adjustment (±20%) based on the executive’s performance and other factors that the Committee deems appropriate, provided that total adjusted awards approximate total awards at mid-point.

Beginning January 1, 2006, we extended participation in the plan to most salaried staff employees. An extensive study of cash compensation was conducted and indicated that competitive practice supports extending performance-based pay to most salaried staff employees. The purpose of the plan is to tie compensation more directly to corporate performance and to attract, retain, motivate and reward productive employees who support corporate goals.

Medium-Term Incentive Plan

Our Medium-Term Incentive Plan is intended to award senior executives and other key employees for superior performance over a three-year performance period and for their continued contributions to our success. The performance objectives under the plan are designed to further align the interests of executives and key employees with those of shareholders by linking the vesting of awards to the total return to shareholders, or TSR, over the three-year performance period beginning January 1, 2006 and ending December 31, 2008. TSR measures the capital appreciation in shares of our common stock, including dividends paid over the performance period, and thereby simulates the actual investment performance of the shares.

Under the Medium-Term Incentive Plan, we award participants a number of units based on the participant’s salary at the beginning of the performance period (multiplied by three), a target award percentage and the average share price over the 30 trading days immediately preceding the performance period. The target award percentages range from 20% to 70%, depending upon the executive’s position and potential for contribution to our success.

Units granted under the Medium-Term Incentive Plan vest over a three-year performance period ending December 31, 2008. One-half of the units vest based on increases in our TSR. The remaining one-half of the units vest based on the extent to which our TSR matches or exceeds the TSR of the common shares of a group of peer companies. The peer group of companies consists of the companies that are included in the DJUSBMI. Plan participants generally are required to continue in a qualifying position throughout the performance period as a condition to vesting. However, if a participant’s employment terminates earlier due to the participant’s retirement, disability or death, or we terminate a participant’s employment without just cause, the participant is entitled to a cash payment in settlement of a pro rata number of units, with vesting based on the achievement of performance objectives as of the date of termination. A participant who resigns or whose employment is terminated for just cause forfeits all rights to any units granted under the plan.

We settle vested units in cash based on the average price of our common stock over the last 30 trading days of the performance period. The price used to determine the cash payout may not exceed 300% of the market value of a share

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of our common stock as at the beginning of the performance cycle. Depending on the achievement of performance objectives, 0% to 150% of the units granted under the Medium-Term Incentive Plan vest. Achievement of the target performance objectives entitles a participant to 100% of the units awarded under the plan. The target performance objective for the half of the units based on total TSR is a TSR of 30% over the performance period. The target performance objective for the other half of the units is a TSR that outperforms the DJUSBMI by 5% over the performance period. A maximum of 150% of the units vest if actual performance exceeds target performance. For a TSR of 50% or more, half of the units vest at 150%. For a TSR that outperforms the DJUSBMI by 10% or more, the other half of the units vest at 150%. No units vest if the minimum performance objectives are not achieved. The minimum performance objective for the units based on total TSR is a positive TSR. The minimum performance requirement for the remaining units is for TSR to match the performance of the DJUSBMI.

Long-Term Incentives (Stock Options)

We provide our executives with long-term incentives through our Performance Option Plans. Our Performance Option Plans award options to senior executives and other key employees for superior performance over a three-year performance period. Options vest based on metrics with a demonstrated relationship to total shareholder return. The options have a ten year term from the date of grant, providing incentives to executives to promote long-term shareholder interests.

— Performance Option Plans

On May 4, 2006, our shareholders approved the 2006 Performance Option Plan under which we could offer, after February 27, 2006 and before January 1, 2007, options for the issuance of up to 1,400,000 shares pursuant to the exercise of options to eligible officers and employees. As of February 20, 2007, options to acquire 893,600 shares were issued and outstanding under the 2006 Performance Option Plan. As of February 20, 2007, options to acquire an additional 1,173,000 shares were issued and outstanding under the 2005 Performance Option Plan. For 2007, we are requesting shareholder approval of an amount of 1,000,000 options to be available for grant under the provisions of the 2007 Performance Option Plan. We expect that this amount is sufficient for one annual grant to be made after the Meeting and before January 1, 2008.

Under the 2005, 2006 and 2007 Performance Option Plans, the exercise price of an option is the quoted market closing price of our shares on the last trading day immediately preceding the date of grant. Option vesting is determined by achieving corporate performance goals that historically have correlated with our TSR and the relative performance of our TSR to the DJUSBMI TSR. We measure performance over a three-year period. A vesting schedule determines the percentage of options vested at the end of the three-year period and ties the level of total compensation to our performance. An option’s maximum term is ten years from the date of grant.

Using 10-year historical data, the Committee worked with Hewitt Associates to analyze the correlation between our cash flow return on investment (“CFROI”) minus our weighted average cost of capital (“WACC”) and our TSR and our performance relative to the DJUSBMI performance. Having established the link between our CFROI-WACC and TSR performance levels relative to the DJUSBMI performance, the Committee and Hewitt Associates developed a schedule based upon our CFROI-WACC levels to vest appropriate amounts of shares at different performance levels. Consultants at Watson Wyatt also reviewed and confirmed this methodology.

In order to deliver a level of total compensation that is consistent with the level of corporate performance achieved, data on compensation provided by the Comparative Compensation Information is analyzed on an annual basis to determine the 25th, 50th, and 75th percentile compensation levels for our management positions. We link these compensation study results and the vesting schedule to determine option grant levels that will deliver the appropriate compensation for the performance delivered.

— Stock Option Plan — Officers and Employees

As at February 20, 2007, options for a total of 2,398,746 shares were issued and outstanding under the Stock Option Plan — Officers and Employees (the “Stock Option Plan”). Options were granted with an exercise price equal to the quoted market closing price of our shares on the last trading day immediately preceding the date of grant. The options became exercisable over two years and expire after ten years. Currently, all options granted under the Stock Option Plan are exercisable. Pursuant to a resolution of our Board of Directors on November 16, 2006, no additional options may be granted under the Stock Option Plan. See “Performance Option Plans” above for a description of the incentive plans under which we currently grant stock options to officers and employees.

Post-Retirement and Termination Compensation

Pension Benefits

We provide pension benefits to supplement the income of our employees after their retirement. We provide post-retirement benefits to employees generally and typically do not consider an employee’s past compensation in determining eligibility for post-retirement benefits. In Canada, eligible employees, including senior executives, participate in the Potash Corporation of Saskatchewan Inc. Pension Plan, which we refer to as the Canadian Pension Plan, and a supplemental retirement income plan, which we refer to as the Canadian Supplemental Plan. In the United States, eligible employees, including senior executives, participate in a pension plan, which we refer to as the U.S. Pension Plan, and a supplemental pension plan, which we refer to as the U.S.

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Supplemental Plan. The Canadian Pension Plan is a defined contribution plan that includes individual and company contributions. Each of the Canadian Supplemental Plan, the U.S. Pension Plan and the U.S. Supplemental Plan is a defined benefit plan with benefits calculated based on the participant’s service and the plan’s benefit formula. In addition, certain U.S. employees participate in the 401(k) Plan and certain Canadian employees participate in the Savings Plan. We make contributions to the 401(k) Plan and the Savings Plan for the benefit of participants in accordance with the terms of such plans. For information about the amount of company contributions made for the benefit of Named Executive Officers pursuant to such plans, see “Executive Compensation — Summary Compensation Table”. Except as discussed in “— Change in Control Agreements” below, and otherwise as appropriate, we generally do not grant extra years of credited service under our pension plans.

We maintain the Canadian Pension Plan, which generally requires all participating employees to contribute 5.5% of their earnings (or such lesser amount as is deductible for Canadian income tax purposes) to the Canadian Pension Plan and our company to contribute an equal amount. When an individual retires, the full amount in the individual’s account is used to produce the pension.

We maintain the Canadian Supplemental Plan, which provides a supplementary pension benefit for certain of our officers and managers. Under the basic terms of the Canadian Supplemental Plan, a pension benefit is provided in an amount equal to 2% of the average of the participant’s three highest years’ earnings multiplied by the participant’s years of pensionable service (to a maximum of 35 years), minus any annual retirement benefit payable under the Canadian Pension Plan. For the purposes of the Canadian Supplemental Plan, earnings are defined as the participant’s annual base pay plus 100% of all bonuses paid or payable for such year pursuant to the Short-Term Incentive Plan. The normal retirement age pursuant to the Canadian Supplemental Plan is 65, with a reduction in benefits for early retirement prior to age 62. No benefits pursuant to the Canadian Supplemental Plan are payable if termination occurs prior to age 55. Benefits payable to employees who have reached the minimum age (55) for retirement pursuant to the Canadian Supplemental Plan may be secured by letters of credit provided by us or may be otherwise secured by us, if appropriate. Benefits are generally paid in the form of a single lump sum payment equal to the actuarial present value of the annual benefits or, in certain circumstances, an annuity for life.

For a designated group of senior officers, including Mr. William J. Doyle, Mr. Wayne R. Brownlee and Mr. Garth W. Moore, the benefit payable under the Canadian Supplemental Plan is an amount equal to (1) 5% of the average of the senior officer’s three highest years’ earnings multiplied by the senior officer’s years of pensionable service (to a maximum of 10 years), plus (2) 2% of the average of the senior officer’s three highest years of earnings multiplied by the senior officer’s years of pensionable service in excess of 25 years to a maximum of 10 additional years, minus (3) any annual retirement benefit payable under the Canadian Pension Plan and certain other tax qualified plans.

Prior to January 1, 1999, PCS Phosphate and PCS Nitrogen maintained separate defined benefit pension plans (the “Nitrogen Pension Plan” and the “Phosphate Pension Plan”) for their respective eligible U.S. employees, including Mr. James F. Dietz in the case of PCS Nitrogen and Mr. Thomas J. Regan, Jr. in the case of PCS Phosphate. Effective January 1, 1999, we consolidated our pension plans for U.S. employees and the Nitrogen Pension Plan was merged with and into the Phosphate Pension Plan to form the U.S. Pension Plan.

Under the U.S. Pension Plan, participants age 62 or older with at least 20 years of service receive a retirement benefit of 1.5% of the participant’s final average compensation (as defined below) multiplied by the participant’s years of service accrued after December 31, 1998 (maximum 35 years) in the form of a life annuity. Participants with service accrued prior to January 1, 1999 under previous plans, including Mr. Dietz and Mr. Regan, will have a portion of their retirement benefit calculated under the formulas for such plans. Employees not meeting the minimum age or years of service requirement at termination will receive a reduced benefit.

Pursuant to the U.S. Pension Plan, final average compensation is defined as compensation for the highest paid 60 consecutive months of service out of the last 120 months of service. Compensation is defined as a participant’s base pay plus the annually paid bonus under our Short-Term Incentive Plan. The retirement benefits from the U.S. Pension Plan for Mr. Dietz and Mr. Regan are subject to certain limitations on the amount of retirement benefits that may be provided under U.S. tax qualified pension plans. The U.S. Supplemental Plan is intended to provide a participant with the same aggregate benefits that such participant would have received had there been no legal limitations on the benefits provided by the U.S. Pension Plan. No benefits pursuant to the U.S. Supplemental Plan are payable if termination occurs prior to age 55.

For financial statement reporting purposes, as calculated in accordance with generally accepted accounting principles in Canada (“Canadian GAAP”), our total liability under the Canadian Supplemental Plan and the U.S. Supplemental Plan for all current and former executive officers and other covered employees was approximately $19.8 million as of December 31, 2006.

Severance Benefits

In cases of termination without cause, we strive to provide appropriate severance benefits that take into account the potential difficulty in obtaining comparable employment in a

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short period of time and provide for a complete separation between the terminated employee and our company. Our current severance policy for termination without cause, which is generally applicable to salaried employees, including the Named Executive Officers, is to provide notice of impending termination, or payment of salary in lieu of notice, equivalent to two weeks for each complete year of service (subject to a minimum of 4 weeks and a maximum of 52 weeks). Such policy is superseded by specific termination provisions contained in any applicable written agreement and may be subject to adjustment.

Change in Control Agreements

Effective December 30, 1994, we and, where applicable, PCS Sales, entered into change in control agreements with certain senior executives, including Mr. Doyle, Mr. Brownlee and Mr. Moore. At that time, we deemed such agreements to be appropriate arrangements with senior executives. Subsequently, we have not entered into new change in control agreements. The initial term of each 1994 change in control agreement was through December 31, 1997. The term of each agreement has automatically renewed for successive one-year periods since December 31, 1997 and continues to be subject to automatic renewal for successive one-year terms until the employee reaches age 65 or unless either party gives notice of termination.

Pursuant to the above agreements, a change in control of our company will be deemed to have occurred upon:

(a)	a significant (50% or more) change in the Board within any two-year period, not including replacement directors approved for nomination by the Board;
(b)	an amalgamation, merger, consolidation or other transaction whereby the control of our existing shareholders is diluted to less than 50% control of the surviving or consolidated entity;
(c)	a significant (50% or more based on book value) sale or other disposition of our fixed assets within any twelve-month period; or
(d)	any party’s acquisition of 20% or more of our voting securities.

Benefits pursuant to the change in control agreements require both a change in control and termination of the executive’s employment within two years following a change in control. Termination of the executive’s employment is defined to include the executive ceasing to be employed for any reason, including constructive dismissal, except by reason of death, disability, resignation or voluntary retirement, or dismissal for dishonest or willful misconduct.

The severance benefit entitlements upon termination of employment following a change in control of our company are:

(a)	a lump-sum payment of three times the executive’s current base salary and average bonus for the last three years;
(b)	a lump-sum payment of the pro-rata target bonus for the year in which the termination occurs;
(c)	immediate vesting and cash out of all outstanding Medium-Term Incentive Plan awards;
(d)	a credit of three additional years of service under the Canadian Supplemental Plan;
(e)	a three-year continuation of medical, disability and group term life insurance, provided that these benefits terminate upon obtaining similar coverage from a new employer or upon commencement of retiree benefits; and
(f)	financial or outplacement counseling to a maximum of Cdn$10,000.

Payments to be made pursuant to the foregoing and relating to the employee’s bonus may be deferred by the executive for up to three years or for such other period as may be permitted by the Income Tax Act (Canada). Mr. Doyle is entitled to a “gross up” of payments to cover excise taxes if payable in respect of such benefits.

All outstanding non-exercisable options granted to the executive pursuant to the option plan become exercisable upon the occurrence of a change in control. In the event no public market for the shares exists, we (or PCS Sales, as the case may be) will compensate the executive for the value of his or her options based on a share value approved by our shareholders upon a change in control, or, if no such value has been approved, the market value of the shares when last publicly traded.

Compensation Consultants and Comparator Groups

In 2005, the Committee engaged Watson Wyatt as executive compensation consultants. Watson Wyatt reports to the Chair of the Committee and provides input to the Committee on the philosophy and competitiveness of the design and award values for certain of our executive and director compensation programs. In addition, Watson Wyatt assists in the evaluation of compensation arrangements associated with certain strategic opportunities. In 2006, we paid Watson Wyatt approximately $144,000 for compensation consulting services. In accordance with our adherence to the best practice of retaining independent executive compensation consulting, Watson Wyatt does not perform any other consulting services for us. Any work other than executive compensation consulting services performed for us by Watson Wyatt must be approved in advance by the Chair of the Committee.

We use Hewitt Associates’ proprietary Total Compensation Measurement data services to provide specific compensation data for selected executive and director positions. Hewitt Associates has historically provided other human resources consulting services for us, including actuarial consulting, employee benefits design, finance consulting and recordkeeping services. In 2006, we paid Hewitt Associates approximately $43,000 for the Total Compensation

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Measurement data services and approximately $797,000 for actuarial and other services.

The Committee uses executive compensation analyses prepared on at least an annual basis by Watson Wyatt, Hewitt Associates and other independent compensation consultants. Such analyses currently consist of (1) a group of 22 publicly traded U.S. companies, or the Comparator Group, selected on the basis of a number of factors, including similar industry characteristics, amount of sales and market capitalization, and (2) additional U.S.-based company executive compensation survey information gathered by three compensation consulting services, or the Additional Surveys.

The 22 companies included in the Comparator Group in 2006 are:

Air Products and Chemicals, Inc.

Apache Corporation

Boise Cascade LLC

Eastman Chemical Company

Ecolab Inc.

Engelhard Corporation

Martin Marietta Materials, Inc.

MeadWestvaco Corporation

The Mosaic Company

Nalco Company

Packaging Corporation of America

Pactiv Corporation

Phelps Dodge Corporation

PPG Industries, Inc.

Praxair, Inc.

Rayonier Inc.

Rohm and Haas Company

Smurfit-Stone Container Corporation

Sonoco Products Company

The Valspar Corporation

Vulcan Materials Company

W.W. Grainger, Inc.

Executive Share Ownership Guidelines

We strongly support share ownership by our executives. In November 2004, we introduced minimum shareholding guidelines, to be met by November 2009 for the then-current executive officer group. Any individual promoted into a position subject to these guidelines will have a five-year period within which to meet the share ownership requirements. The shareholding requirements reflect the value of shares held and can be met through direct or beneficial ownership of shares, including shares held through our qualified defined contribution savings plans. Options and performance units (under the Medium-Term Incentive Plan) are not included in the definition of share ownership for purposes of the guidelines.

The Guidelines are:

	Share Ownership
Title	Guideline
Chief Executive Officer		5 times base salary
Chief Financial Officer, Chief Operating Officer, Senior Vice Presidents and Division Presidents		3 times base salary
Designated Senior Vice Presidents and Vice Presidents		1 times base salary

As of February 20, 2007, all of the Named Executive Officers hold shares with a value in excess of the ownership guidelines. The table below sets forth, for each Named Executive Officer, the number and value of shares held, the value of shares required to meet the ownership guidelines and the value of shares held as a multiple of the Named Executive Officer’s base salary.

Named	Number of	Value of	Value Required	Value Held
Executive	Shares	Shares	to Meet	as Multiple
Officer	Held	Held	Guidelines	of Salary
William J. Doyle	78,318	$13,072,057	$5,200,000	12.6x
Wayne R. Brownlee	17,499	$2,920,758	$1,440,000	6.1x
James F. Dietz	17,606	$2,938,617	$1,389,000	6.3x
Thomas J. Regan, Jr.	11,799	$1,969,371	$1,126,800	5.2x
Garth W. Moore	8,623	$1,439,265	$1,148,700	3.8x

Chief Executive Officer Compensation

The Committee reviews annually the CEO’s salary, any awards under our Short- and Medium-Term Incentive Plans and any grant of options under our option plans and makes its recommendations to the Board. With the assistance of Watson Wyatt, the Committee analyzes the relationship between our performance and the CEO’s annual earnings. The CEO’s annual salary is determined primarily on the basis of his individual performance and our company’s performance. While no mathematical weighting formula is used, the Committee considers all factors that it deems relevant, including our financial results, our TSR and performance relative to similar companies within our industry, the duties and responsibilities of the CEO, the CEO’s individual performance relative to written objectives established at the beginning of each year, current compensation levels and the effect of significant upturns or downturns in our performance. Awards pursuant to the Short- and Medium-Term Incentive Plans and under the option plans are made in accordance with the plans as outlined above. If minimum targets set under the Short- and Medium-Term Incentive Plans and option plans are not met, the CEO does not receive compensation pursuant to those plans.

With the assistance of Watson Wyatt, the Committee also references the compensation of the CEOs in the Comparative Compensation Information. The comparison of our CEO compensation to the Comparative Compensation Information incorporates many factors including the relative sales and market capitalization of the companies, their profitability and

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shareholder return history, the duties of the CEO and any other extenuating or special circumstances. In general, we set CEO cash compensation at the median of the applicable range.

In January 2007, the Committee and the Board reviewed Mr. Doyle’s performance relative to his 2006 performance goals for the purpose of determining his 2007 base pay level and 2006 short-term incentive bonus award. At that time, a 2007 salary of $1,040,000 and a short-term incentive bonus award of $750,000 for 2006 performance were recommended by the Committee and approved by the Board. The goals and related achievements upon which the decision was based were:

1. Improvement in all measurable safety indices.

2006 results were mixed. Recordable injury rates were at a record low, but above target. Lost time injuries, targeted to decrease, instead approximated 2005 rates. The Trinidad site, however, set an all-time record of 6 million hours without a lost time accident.

2. Meet or exceed approved 2006 budget, including earnings per share (“EPS”) and cash flow per share (“CFPS”) targets.

Due to prolonged price negotiations with China and India in 2006, which impacted potash sales, neither target was achieved.

3. Continue to drive the “Potash First” strategy.

This goal was achieved and included successfully increasing ownership in Sociedad Quimica y Minera de Chile S.A., or SQM, from 25% to 31.6%, and in Sinofert Holdings Limited, or Sinofert, from 10% to 20%. Other global potash opportunities and strategic developments in phosphate and nitrogen were initiated and continue to be actively pursued.

4. Outperform our peer group of basic materials companies.

In 2006, our stock price outperformed the DJUSBMI with annual results of 78.9% vs. 14.8%.

5. Continue to implement the Board-approved strategic plan to decommoditize our company with the focus on improving the return on our phosphate business.

Our new Aurora-based purified acid plant began operations in June 2006. The project came in under budget and met all capacity and quality requirements immediately. We expect that our first new Silicon Tetraflouride (STF) plant will be completed and operational by April 2007.

Phosphate gross margin increased 27% over 2005, to $125.3 million.

6. Grow the revenue base and bottom line for our company through strategic use of capital.

The following are expected to contribute significantly to future annual gross margin:

(1)	Potash capacity expansion and compaction projects at Allan ($187 million) and Lanigan ($313 million);
(2)	A Trinidad debottleneck project was completed ($74 million);
(3)	The Aurora purified acid expansion was completed ($72 million); and
(4)	The initial 10% interest in Sinofert was doubled to 20% for an investment of $126 million and our ownership interest in SQM was increased from 25% to 31.6% for an investment of $235 million.

7. Oversee the establishment of a global International Plant Nutrition Institute to ensure a scientific environmental defense for fertilizer products.

After a three year effort, the International Plant Nutrition Institute was established with 17 global founding members and a budget of over $9 million.

8. Show measurable success in leadership development and succession planning for our employees.

The goal to have 75% of senior positions filled with internal candidates fell slightly short at 72.4%. Activities related to succession planning and identification and development of key talent and leadership took place throughout the year.

9. Lead management’s effort in maintaining best corporate governance practices at all levels.

Supporting the foundation of excellent corporate governance by virtue of transparency and accountability, the CEO engaged numerous stakeholders (investors, analysts, customers, media, employees, etc.) in meetings and conference calls throughout the year. We responded to shareholder sentiment by adopting a majority vote policy for our Board. Our commitment to excellence in corporate governance was recognized by external monitors including the Globe and Mail which ranked the Corporation 9th out of over 200 Canadian companies in its 2006 corporate governance rankings. Our corporate reporting and disclosure practices were recognized by the Canadian Institute of Chartered Accountants (“CICA”) with awards in six different categories, including an unprecedented third year in a row as winner of the overall award for excellence in corporate reporting.

10. Improve product quality through strict adherence to size guide number (SGN) and uniformity index (UI) measurements so we can provide the highest quality products to our customers.

Higher UI standards for diammonium phosphate, or DAP, and monoammonium phosphate, or MAP, at Aurora and urea solids at Trinidad greatly reduced dust

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in our products. A newly installed ribbon blender in Aurora improved oil contact with dry phosphate products. Potash customer quality claim settlements were reduced from $34,000 in 2005 to $21,000 in 2006 against total 2006 potash sales of $1.228 billion.

11. Provide leadership for our company with the investment community, within our industry and in the communities in which our people work and reside.

The CEO supported and was directly involved in numerous analyst and shareholder meetings in 2006. The CEO is chairman of The Fertilizer Institute and is on the five person Executive Management Group of the International Fertilizer Industry Association, or IFA, where he was also elected to represent the Association as Vice President for Sustainable Development, a first for the industry. The International Plant Nutrition Institute became a reality in 2006 and the CEO was a key player in its creation.

In Saskatchewan, the CEO was chairman of the University of Saskatchewan campaign, raising over Cdn$100 million, the most successful campaign in the University’s history. We were the named sponsor of the highly successful Vanier Cup Canadian college football championship held in November 2006. The CEO serves as a director and member of two community business boards.

12. Find new ways to make it easier for our customers to do business with us.

Four important customer initiatives were introduced in 2006:

•      Posting all our product specification sheets on our company website, providing customers with access to the chemical and physical properties of all products;

•      Creating Customer Profile System to provide us with comprehensive up-to-date customer information to improve our ability to proactively assist our customers;

•      Creating a centralized internal online repository of all product analysis information to allow customer service representatives with 24/7 access to address customer inquiries; and

•      Establishing a comprehensive customer service disaster recovery plan, providing an alternate site, with information systems and telecommunications, to continue to serve customers in the event of a major disaster impacting the Northbrook, Illinois Customer Service Center.

Mr. Doyle’s award under our Short-Term Incentive Plan for 2006 as set forth in the “Summary Compensation Table” and salary for 2007 were determined in accordance with the foregoing and approved by the Committee and all other independent members of the Board.

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Executive Compensation

Summary Compensation Table⁽¹⁾

The following table sets forth, for our 2006 fiscal year, all compensation earned by the individuals who served as our Chief Executive Officer and our Chief Financial Officer, and by each of our other three most highly compensated executive officers as of the end of calendar year 2006, for services rendered to us and our subsidiaries (the “Named Executive Officers”).

													Change in
													Pension and
											Non-Equity		Nonqualified
											Incentive		Deferred
							Stock		Option		Plan		Compensation			All Other
			Salary		Bonus		Awards(2)		Awards(3)		Compensation(4)		Earnings			Compensation			Total
	Year		$		$		($)		($)		($)		($)			($)			($)
Name and Principal Position(a)	(b)		(c)		(d)		(e)		(f)		(g)		(h)			(i)			(j)
William J. Doyle		2006		1,000,000		–		1,120,382		5,797,500		750,000		94,917	(5)		180,958	(6)		8,943,757
President and Chief Executive Officer
Wayne R. Brownlee		2006		460,000		–		331,281		1,913,173		300,000		276,707	(7)		58,556	(8)		3,339,717
Executive Vice President Treasurer and Chief Financial Officer
James F. Dietz		2006		445,000		–		320,466		1,932,500		270,000		179,240	(9)		41,397	(10)		3,188,603
Executive Vice President and Chief Operating Officer
Thomas J. Regan, Jr.		2006		355,045		–		223,378		927,600		177,000		388,434	(11)		23,490	(12)		2,094,947
President, PCS Phosphate and PCS Nitrogen
Garth W. Moore		2006		366,400		–		234,609		918,323		171,000		–	(13)		34,704	(14)		1,725,036
President, PCS Potash

(1)

Those amounts that were paid in Canadian dollars have been converted to United States dollars using the average exchange rate for the month prior to the date of payment.

(2)

Reports the amounts recognized for fiscal year 2006 financial statement reporting purposes in accordance with revised Statement of Financial Accounting Standards No. 123R, “Share-Based Payment”, or FAS 123R, under generally accepted accounting principles in the United States, or US GAAP, for performance share units granted pursuant to our Medium-Term Incentive Plan in effect for the three-year performance period January 1, 2006 to December 31, 2008. See “Compensation Discussion and Analysis – Medium-Term Incentive Plan”. To calculate the amounts recognized in accordance with FAS 123R, the value of the performance share units was estimated quarterly using a Monte Carlo valuation model with the following assumptions:

	Quarter Ended			Quarter Ended			Quarter Ended			Quarter Ended
	March 31, 2006			June 30, 2006			September 30, 2006			December 31, 2006
Risk-Free Interest Rate		4.816	%		5.122	%		4.614	%		4.808	%
Dividend Yield		1.24	%		1.18	%		1.15	%		1.12	%
Correlation Between our Common Share Price and DJUSBMI		0.52			0.56			0.58			0.48
Volatility of our Common Share Price		27.87	%		30.85	%		29.83	%		31.53	%
Volatility of DJUSBMI		16.68	%		17.79	%		17.73	%		17.75	%

(3)	Reports the amounts recognized for fiscal year 2006 US GAAP financial statement reporting purposes in accordance with FAS 123R for options granted pursuant to the 2006 Performance Option Plan. The amounts reported represent the full grant date fair value of the awards in accordance with FAS 123R, because each of the Named Executive Officers are eligible for retirement. See “Compensation Discussion and Analysis – Long-Term Incentives”. For a discussion of the assumptions made in the valuation of the awards, see Notes 26 and 32 to our consolidated financial statements for the fiscal year ended December 31, 2006.
(4)	Reports amounts awarded pursuant to our Short-Term Incentive Plan for 2006 performance, which amounts were paid in 2007. See “Compensation Discussion and Analysis – Short-Term Incentive Plan”.
(5)	Reports the aggregate change of $94,917 in the actuarial present value of Mr. Doyle’s accumulated benefit under the Canadian Supplemental Plan.
(6)	Of the amount reported, $8,195 represents our contributions to the Canadian Pension Plan on behalf of Mr. Doyle, $60,000 represents our contributions to the Savings Plan on behalf of Mr. Doyle, $10,601 represents life insurance premiums paid for the benefit of Mr. Doyle, $14,040 represents medical insurance premiums paid on behalf of Mr. Doyle, $19,614 represents tax gross-ups for taxable benefits and $68,508 represents perquisites. Perquisites include country club memberships, financial and tax planning services, spousal travel benefits (while accompanying the executive on corporation business) and parking. The aggregate incremental cost of the financial and tax planning services paid for the benefit of Mr. Doyle was $38,412.
(7)	Reports the aggregate change of $276,707 in the actuarial present value of Mr. Brownlee’s accumulated benefit under the Canadian Supplemental Plan.
(8)	Of the amount reported, $8,218 represents our contributions to the Canadian Pension Plan on behalf of Mr. Brownlee, $27,600 represents our contributions to the Savings Plan on behalf of Mr. Brownlee, $4,240 represents life insurance premiums paid for the benefit of Mr. Brownlee, $6,743 represents tax gross-ups for taxable benefits and $11,755 represents perquisites. Perquisites include country club memberships, spousal travel benefits (while accompanying the executive on corporation business) and parking.
(9)	Reports the aggregate change of $98,885 in the actuarial present value of Mr. Dietz’s accumulated benefit under the U.S. Pension Plan and the aggregate change of $80,354 in the actuarial present value of Mr. Dietz’s accumulated benefit under the U.S. Supplemental Plan.

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(10)	Of the amount reported, $19,807 represents amounts contributed or paid by us in connection with the 401(k) Plan (including $13,057 in contributions to the 401(k) Plan on behalf of Mr. Dietz and $6,750 that exceeds the 401(k) Plan statutory limit and is therefore immediately taxable and paid to Mr. Dietz in cash), $7,459 represents life insurance premiums paid for the benefit of Mr. Dietz, $2,365 represents tax gross-ups for taxable benefits and $11,766 represents perquisites. The perquisites include country club memberships and reimbursement for spousal travel benefits (while accompanying the executive on corporation business).
(11)	Reports the aggregate change of $203,512 in the actuarial present value of Mr. Regan’s accumulated benefit under the U.S. Pension Plan and the aggregate change of $184,922 in the actuarial present value of Mr. Regan’s accumulated benefit under the U.S. Supplemental Plan.
(12)	Of the amount reported, $17,251 represents amounts contributed or paid by us in connection with the 401(k) Plan (including $13,200 in contributions to the 401(k) Plan on behalf of Mr. Regan and $4,051 that exceeds the 401(k) Plan statutory limit and is therefore immediately taxable and paid to Mr. Regan in cash) and $6,239 represents life insurance premiums paid for the benefit of Mr. Regan.
(13)	The actuarial present value of Mr. Moore’s accumulated benefit under the Canadian Supplemental Plan declined by $42,931 in 2006.
(14)	Of the amount reported, $8,233 represents our contributions to the Canadian Pension Plan on behalf of Mr. Moore, $21,984 represents our contributions to the Savings Plan on behalf of Mr. Moore, $4,006 represents life insurance premiums paid for the benefit of Mr. Moore and $481 represents tax gross-ups for taxable benefits.

Salary and Bonus

The amount of salary and bonus earned by each of our Named Executive Officers in fiscal year 2006, relative to the amount of incentive plan compensation, is generally consistent with our compensation policies as discussed in “Compensation Discussion and Analysis – Elements of Executive Compensation”.

Stock and Option Awards

For a description of the applicable formulas in determining the amounts payable under our Medium-Term Incentive Plan and our Performance Option Plan, see “Grants of Plan-Based Awards – Stock Awards” and “– Option Awards”.

Non-Equity Incentive Plan Compensation

Amounts reported in column (g) of the Summary Compensation Table reflect the amounts paid pursuant to our Short-Term Incentive Plan for the 2006 performance period. The amount of each Named Executive Officer’s award is generally equal to the officer’s award percentage, as determined by our cash flow return in 2006 compared to target cash flow return, multiplied by the officer’s salary. Individual awards may be adjusted (±20%), however, to recognize individual performance, provided the total of adjusted awards approximates the total awards at mid-point. Each officer’s award percentage is calculated according to the following schedule, which has been abbreviated from the full schedule included in our Short-Term Incentive Plan. In the following schedule, ACFR, or adjusted cash flow return ratio, equals our 2006 actual cash flow return, as defined in the plan, divided by the target cash flow return, as determined by the 2006 corporate budget approved by our Board. As per the terms of the Plan, we generally make no payments if our cash flow return is less than 50% of the target set by the Board for that year.

		Award Percentage when
	Award Percentage when	ACFR is Equal to or	Maximum Award Percentage
Officers	ACFR is Less than 1	Greater than 1	(ACFR Greater than 1.5)
Tier I: Corporate President, CEO	100% multiplied by ACFR	(200% multiplied by ACFR) minus 100%	200%
Tier IA: Executive VP and COO, Executive VP and CFO	70% multiplied by ACFR	(140% multiplied by ACFR) minus 70%	140%
Tier II: Sr. VP Admin., Sr. VP Corporate Relations, Subsidiary Presidents	55% multiplied by ACFR	(100% multiplied by ACFR) minus 55%	110%

For further details on our Short-Term Incentive Plan and for the complete award schedule, see our Short-Term Incentive Plan, filed as Exhibit 10(n) to our annual report on Form 10-K for the fiscal year ended December 31, 2006.

Employment Agreements

Except for the change in control agreements described above in “Compensation Discussion and Analysis — Post-Retirement and Termination Compensation”, we have not entered into individual employment agreements with any of our executive officers. For a discussion of the terms and conditions of executive officers’ compensation, see “Compensation Discussion and Analysis”.

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Grants of Plan-Based Awards

The following table provides information relating to plan-based awards granted in 2006 to the Named Executive Officers.

			Estimated Possible Payouts Under						Estimated Future Payouts Under
			Non-Equity Incentive Plan Awards(1)						Equity Incentive Plan Awards
																			Grant Date
															Exercise or		Closing		Fair Value
															Base Price		Market		of Stock and
															of Option		Price on		Option
	Grant		Threshold		Target		Maximum		Threshold		Target		Maximum		Awards(2)		Date of		Awards
Name	Date		($)		($)		($)		(#)		(#)		(#)		($/Sh)		Grant		($)
(a)	(b)		(c)		(d)		(e)		(f)		(g)		(h)		(k)		($/Sh)		(l)
William J. Doyle
Short-Term Incentive Plan				500,000		1,000,000		2,000,000
Medium-Term Incentive Plan		1/1/2006								0		26,934		40,401						2,103,007
Performance Option Plan		5/4/2006								0		150,000		150,000		$101.01		$103.40		5,797,500
Wayne R. Brownlee
Short-Term Incentive Plan				161,000		322,000		644,000
Medium-Term Incentive Plan		1/1/2006								0		7,964		11,946						621,829
Performance Option Plan		5/4/2006								0		50,000		50,000		Cdn$111.80		Cdn$114.50		1,913,173
James F. Dietz
Short-Term Incentive Plan				155,750		311,500		623,000
Medium-Term Incentive Plan		1/1/2006								0		7,704		11,556						601,528
Performance Option Plan		5/4/2006								0		50,000		50,000		$101.01		$103.40		1,932,500
Thomas J. Regan, Jr.
Short-Term Incentive Plan				97,637		195,275		390,550
Medium-Term Incentive Plan		1/1/2006								0		5,370		8,055						419,290
Performance Option Plan		5/4/2006								0		24,000		24,000		$101.01		$103.40		927,600
Garth W. Moore
Short-Term Incentive Plan				100,760		201,520		403,040
Medium-Term Incentive Plan		1/1/2006								0		5,640		8,460						440,371
Performance Option Plan		5/4/2006								0		24,000		24,000		Cdn$111.80		Cdn$114.50		918,323

(1)

The amounts in columns (c), (d) and (e) set forth the threshold, target and maximum values of the 2006 Short-Term Incentive Plan awards based on respective cash flow returns of 50%, 100% and 150% of target cash flow return for 2006. The actual amount of each Named Executive Officer’s 2006 Short-Term Incentive Plan award is set forth in column (g) of the Summary Compensation Table above.

(2)

Pursuant to the terms of the plan, options under the 2006 Performance Option Plan were granted with an exercise price equal to the closing market price per common share on the NYSE for Mr. Doyle, Mr. Dietz and Mr. Regan and on the TSX for Mr. Brownlee and Mr. Moore, in each case on the trading day immediately preceding the grant date. The closing market price on the grant date is shown in the adjoining column to column (k) in the above table.

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Stock Awards

Amounts reported in column (e) of the Summary Compensation table and certain amounts reported in columns (g), (h) and (l) of the Grant of Plan-Based Awards Table reflect performance share units granted during 2006 pursuant to our Medium-Term Incentive Plan. On January 1, 2006, Mr. Doyle received a grant of 26,934 performance share units, Mr. Brownlee received a grant of 7,964 performance share units, Mr. Dietz received a grant of 7,704 performance share units, Mr. Regan received a grant of 5,370 performance share units and Mr. Moore received a grant of 5,640 performance share units. The performance share units vest and are paid at the end of the three-year performance cycle (December 31, 2008) in relation to a vesting schedule whereby one-half of the units are vested in accordance with corporate Total Shareholder Return (TSR) and one-half of the units are vested in accordance with corporate TSR relative to the DJUSBMI’s TSR.

We use the following vesting schedules to determine how many units each Named Executive Officer receives at the end of the performance period ending December 31, 2008.

TSR Vesting Schedule
TSR	Vesting Percentage
0% or less	0%
10%	50%
20%	75%
30%	100%
40%	125%
50% or more	150%

Relative TSR Vesting Schedule
TSR minus DJUSBMI TSR	Vesting Percentage
Less than 0%	0%
0%	50%
5%	100%
10% or more	150%

For results falling between the reference points in the charts above, the level of vesting is mathematically interpolated between the reference points. The value at payout is based on the number of vested units multiplied by the trailing 30-day average common share price.

Option Awards

Amounts reported in column (f) of the Summary Compensation Table and certain amounts reported in columns (g), (h) and (l) of the Grant of Plan-Based Awards table reflect options granted during 2006 pursuant to our 2006 Performance Option Plan. On May 4, 2006, Mr. Doyle received a grant of 150,000 performance options, Mr. Brownlee and Mr. Dietz each received a grant of 50,000 performance options, and Mr. Regan and Mr. Moore each received a grant of 24,000 performance options. The options have 10-year terms and vest based on performance incentives over the three year performance period ending December 31, 2008. The performance incentives that will be used to determine vesting of the stock options are cash flow return on investment (“CFROI”) and weighted average cost of debt and equity capital (“WACC”).

CFROI is the ratio of after tax operating cash flow to average gross investment over the fiscal year, calculated as A divided by B, where (1) A equals operating income plus nonrecurring or unusual items plus accrued incentive awards plus depreciation and amortization less cash taxes, and (2) B equals the average of total assets plus accumulated depreciation plus accumulated amortization less cash and cash equivalents less non interest bearing current liabilities.

WACC is the weighted average cost of debt and equity capital, calculated as [A times the product of B divided by C] plus [D times the product of E divided by C], where (1) A equals the after-tax market yield cost of debt, (2) B equals the market value of debt less cash and cash equivalents (3) C equals the market value of debt less cash and cash equivalents, plus the market value of equity, (4) D equals the cost of equity, and (5) E equals the market value of equity.

We use the following vesting schedule to determine how many options each Named Executive Officer receives at the end of the performance period ending December 31, 2008.

TSR Vesting Schedule
3 Year Average of
CFROI Minus WACC	Vesting Percentage
Less than 0%	0%
0.20%	30%
1.20%	70%
2.20%	90%
2.50%	100%

For results falling between the reference points in the chart above, the level of vesting is mathematically interpolated between the reference points. The amount, if any, realized upon the exercise of stock options will depend on the market price of our Shares relative to the exercise price per Share of the stock option at the time of exercise.

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Outstanding Equity Awards at Fiscal Year-End

The following table provides information relating to exercisable and unexercisable stock options and unvested stock awards as of December 31, 2006 for the Named Executive Officers.

Option Awards

Stock Awards

Equity

Equity Incentive

Incentive Plan

Equity Incentive

Plan Awards:

Awards:

Plan Awards:

Market or

Number of

Number of

Number of

Number of

Payout Value

Securities

Securities

Securities

Unearned

of Unearned

Underlying

Underlying

Underlying

Shares, Units or

Shares, Units

Unexercised

Unexercised

Unexercised

Other Rights

or Other Rights

Options

Options

Unearned

Option

Option

That Have Not

That Have

Name

Exercisable

Unexercisable

Options(1)

Exercise Price

Expiration Date

Vested(2)

Not Vested(3)

(a)

(b)

(c)

(d)

(e)

(f)

(i)

(j)

William J. Doyle

80,000

$43.38

11/6/2007

100,000

$33.94

11/5/2008

140,000

$30.47

11/21/2010

140,000

—

$31.50

11/20/2011

140,000

$33.01

11/20/2012

112,512

$39.50

11/20/2013

225,000

$88.23

5/5/2015

150,000

$101.01

5/4/2016

40,401

$

5,675,868

Wayne R. Brownlee

60,000

Cdn$47.65

11/21/2010

60,000

Cdn$49.96

11/20/2011

60,000

—

Cdn$52.33

11/20/2012

48,220

Cdn$51.52

11/20/2013

65,000

Cdn$109.92

5/5/2015

50,000

Cdn$111.80

5/4/2016

11,946

$

1,678,273

James F. Dietz

70,000

$31.50

11/20/2011

70,000

—

$33.01

11/20/2012

56,252

$39.50

11/20/2013

65,000

$88.23

5/5/2015

50,000

$101.01

5/4/2016

11,556

$

1,623,483

Thomas J. Regan, Jr.

—

—

35,000

$88.23

5/5/2015

24,000

$101.01

5/4/2016

8,055

$

1,131,633

Garth W. Moore

48,220

Cdn$51.52

11/20/2013

—

35,000

Cdn$109.92

5/5/2015

24,000

Cdn$111.80

5/4/2016

8,460

$

1,188,531

(1)	The outstanding equity incentive plan awards reported in column (d) represent unearned options pursuant to our 2005 and 2006 Performance Option Plans. Options granted pursuant to the 2005 Performance Option Plan vest at the end of the performance period ending December 31, 2007, and options granted pursuant to the 2006 Performance Option Plan vest at the end of the performance period ending December 31, 2008. The reported number of shares underlying the options is based on achievement of the plans’ maximum performance levels.
(2)	The outstanding equity incentive plan awards reported in column (i) represent outstanding awards pursuant to our Medium-Term Incentive Plan, which vest at the end of the performance period ending December 31, 2008. The reported number of units is based on achievement of the plan’s maximum performance level.
(3)	Based on the average closing price of $140.488 of our common shares on the NYSE for the last 30 trading days of 2006.

Option Exercises and Stock Vested

The following table provides information relating to pre-tax amounts received upon the exercise of stock options by the Named Executive Officers during 2006.

	Option Awards				Stock Awards
	Number of				Number of
	Shares Acquired		Value Realized		Shares Acquired		Value Realized
	on Exercise		Upon Exercise(1)		on Vesting		Upon Vesting
Name	(#)		($)		(#)		($)
(a)	(b)		(c)		(d)		(e)
William J. Doyle		—		—		—		—
Wayne R. Brownlee(2)		110,000		11,404,165		—		—
James F. Dietz		50,000		3,489,905		—		—
Thomas J. Regan, Jr.		48,220		2,783,344		—		—
Garth W. Moore (2)		50,000		4,220,408		—		—

(1)	As required by Item 402(g) of Regulation S-K, the value realized upon exercise represents the value of Shares at the time of exercise less the exercise price.
(2)	The value realized upon exercise was converted to U.S. dollars using the average Canadian exchange rate of 1.13461 for fiscal year 2006.

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Pension Benefits

The following table provides information relating to the present value of the Named Executive Officers’ accumulated benefit under the Canadian Supplemental Plan, the U.S. Pension Plan and the U.S. Supplemental Plan.

		Number of Years			Present Value of		Payments During
		Credited Service			Accumulated Benefit(1)		Last Fiscal Year
Name	Plan Name	(#)			($)		($)
William J. Doyle	Canadian Supplemental Plan		19.67			8,303,385		—
Wayne R. Brownlee	Canadian Supplemental Plan		29.67	(2)		2,386,719		—
James F. Dietz	U.S. Pension Plan U.S. Supplemental Plan		13.5 9.83	(3)		377,876 493,535		—
Thomas J. Regan, Jr.	U.S. Pension Plan U.S. Supplemental Plan		9.75 9.75			867,568 733,241		—
Garth W. Moore	Canadian Supplemental Plan		24.58			1,882,169		—

(1)	The present value of accumulated benefit assumes retirement at the earliest age that does not require a reduction in benefits. For the Canadian Supplemental Plan, such age is 62. For the U.S. Pension Plan and U.S. Supplemental Plan, such age is 65 or age 62 with 20 years of service.
(2)	Mr. Brownlee’s years of credited service includes 11.6 years of service, from May 1977 to December 1988, with the government of Saskatchewan prior to the privatization of our company in 1989 and 18.1 years of service, from December 1988 to the present, with our company and our predecessors.
(3)	The difference in Mr. Dietz’s years of credited service under the U.S. Pension Plan and the U.S. Supplemental Plan relates to the plans’ differing treatment of Mr. Dietz’s years of credited service under the Nitrogen Pension Plan, a predecessor to the U.S. Pension Plan.

The present values of the accumulated benefits reported in the above table are generally calculated in accordance with the assumptions used for financial reporting purposes. See Note 14 to our consolidated financial statements for the fiscal year ended December 31, 2006. The total present value of accumulated benefits in our financial statements is calculated in accordance with Canadian GAAP. The assumptions for Mr. Doyle, Mr. Brownlee and Mr. Moore differ from the assumptions disclosed in Note 14 to our consolidated financial statements for the fiscal year ended December 31, 2006. The key assumptions used in calculating the present value of accumulated benefits for Mr. Doyle, Mr. Brownlee and Mr. Moore are as follows:

Interest Rate	5.20% per annum
Retirement Age	Age 62
Mortality Rates	1994 Unisex Pensioner Mortality Table

For additional information about the Canadian Supplemental Plan, the U.S. Pension Plan and the U.S. Supplemental Plan, see “Compensation Discussion and Analysis – Post-Retirement and Termination Compensation”.

Estimated Termination Payments and Benefits

The following table sets forth estimates of the amounts payable to each of our Named Executive Officers upon the specified termination events, assuming that each such event took place on the last business day of fiscal year 2006. The table does not quantify benefits under plans that are generally available to salaried employees and do not discriminate in favor of executive officers, including the Canadian Pension Plan, the U.S. Pension Plan, the Savings Plan and the 401(k) Plan. In addition, the table does not include the value of outstanding equity awards that have previously vested, such as stock options, which awards are set forth above in “Executive Compensation – Outstanding Equity Awards at Fiscal Year-End”. For descriptions of the

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compensation plans and agreements that provide for the payments set forth in the following table, including our severance policy and our change in control agreements, see “Compensation Discussion and Analysis — Elements of Executive Compensation”.

	William J.		Wayne R.		James F.		Thomas J.		Garth W.
	Doyle		Brownlee		Dietz		Regan, Jr.		Moore
	($)		($)		($)		($)		($)
Involuntary Termination/ Termination Without Cause		3,994,207		1,199,030		864,501		650,495		1,470,023
Salary/ Severance		757,861		639,606		231,797		273,284		692,677
Medium-Term Incentive Plan		1,891,956		559,424		541,161		377,211		396,177
Supplemental Plan(1)(2)(3)		1,332,686		0		91,543		0		381,169
Executive Health & Welfare Benefits		11,704		0		0		0		0
Retirement		22,026,392		6,410,572		6,347,454		3,330,241		3,782,048
Medium-Term Incentive Plan		1,891,956		559,424		541,161		377,211		396,177
Performance Options (36 Month
Continued Vesting)		18,801,750		5,851,148		5,714,750		2,953,030		3,004,702
Supplemental Plan(1)(2)(3)		1,332,686		0		91,543		0		381,169
Termination Following Change in Control		32,042,423		9,911,421		6,579,251		3,603,525		6,625,899
Salary/Severance		6,181,000		2,382,000		231,797		273,284		1,732,200
Medium-Term Incentive Plan		5,675,868		1,678,273		541,161		377,211		1,188,531
Performance Options (Accelerated)		18,801,750		5,851,148		5,714,750		2,953,030		3,004,702
Supplemental Plan(1)(2)(3)		1,332,686		0		91,543		0		700,466
Executive Health & Welfare Benefits		51,119		0		0		0		0
Death or Disability		1,891,956		559,424		541,161		377,211		96,177
Medium-Term Incentive Plan		1,891,956		559,424		541,161		377,211		96,177

(1)	Supplemental Plan refers to the Canadian Supplemental Plan for Mr. Doyle, Mr. Brownlee and Mr. Moore and to the U.S. Supplemental Plan for Mr. Dietz and Mr. Regan. The Supplemental Plan benefits set forth for each Named Executive Officer reflect the incremental value of benefits for each termination event that exceeds the present value of benefits set forth in the “Pension Benefits” table above.
(2)	As of December 31, 2006, Mr. Brownlee was age 54 and ineligible to receive benefits under the Canadian Supplemental Plan. No benefits are payable if the participant is not at least age 55 at termination.
(3)	As of December 31, 2006, Mr. Regan was age 62 with 20 years of service and eligible to receive full benefits under the U.S. Supplemental Plan. As such, the present value of benefits set forth in the “Pension Benefits” table above is equal to the value of benefits Mr. Regan would have received if he had retired December 31, 2006.

Payments Made Upon Involuntary Termination or Termination Without Cause

As quantified in the table above, upon involuntary termination or termination without cause, a Named Executive Officer is generally entitled to receive (1) severance in an aggregate amount equal to two weeks of salary for each year of service (subject to a minimum of four weeks and a maximum of fifty-two weeks), (2) a pro rata portion of the current performance period’s Medium-Term Incentive Plan award, (3) benefits under the Canadian or U.S. Supplemental Plan, as reduced in accordance with the plan’s early retirement provisions and (4) with respect to Mr. Doyle, executive health and welfare benefits during the severance period.

Payments Made Upon Retirement

As quantified in the table above, upon retirement, a Named Executive Officer is generally entitled to receive (1) a pro rata portion of the current performance period’s Medium-Term Incentive Plan award, (2) the right to exercise any vested performance options, including such options that may vest after retirement, for a period of three years and (3) benefits under the Canadian or U.S. Supplemental Plan, as reduced in accordance with the plan’s early retirement provisions.

Payments Made Upon Termination Following a Change in Control

As described in “Compensation Discussion and Analysis – Post-Retirement and Termination Compensation”, we have entered into change in control agreements with Mr. Doyle, Mr. Brownlee and Mr. Moore. As quantified in the table above, upon a termination within two years of a change in control, these Named Executive Officers are entitled to receive (1) severance in an aggregate amount equal to three times the executive’s current base salary and average bonus for the last three years, (2) immediate vesting and payout of the current performance period’s Medium-Term Incentive Plan award, (3) benefits under the Canadian Supplemental Plan, as supplemented by three additional years of service and as reduced in accordance with the plan’s early retirement provisions and (4) with respect to Mr. Doyle, executive health and welfare benefits for a period of three years. Mr. Doyle is also entitled to a tax gross-up to cover excise taxes, if payable for the receipt of benefits under the change in control agreement. If a termination following a change in

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control had occurred on December 31, 2006, the amount of such gross-up would have been $0.

As quantified in the table above, upon termination following a change in control, Named Executive Officers without change in control agreements are generally entitled to receive (1) severance in an aggregate amount equal to two weeks of salary for each year of service (subject to a minimum of four weeks and a maximum of fifty-two weeks), (2) a pro rata portion of the current performance period’s Medium-Term Incentive Plan award and (3) benefits under the Canadian or U.S. Supplemental Plan, as reduced in accordance with the plan’s early retirement provisions.

In addition, all outstanding options become exercisable upon a change in control without regard to whether the Named Executive Officer is terminated.

Payments Made Upon Death or Disability

As quantified in the table above, upon death or disability, a Named Executive Officer is generally entitled to receive a pro rata portion of the current performance period’s Medium-Term Incentive Plan award.

Generally, death or disability do not result in incremental value under the Canadian Supplemental Plan or the U.S. Supplemental Plan. If a Named Executive Officer becomes disabled, the individual may (1) go on long term disability, which would result in the continued accrual of Supplemental Plan benefits or (2) retire immediately, which would result in the same benefits as retirement. Canadian Supplemental Plan death benefits are generally payable at 60% of the amount of benefits if the participant had retired on the date of death. U.S. Supplemental Plan benefits are generally payable at the greater of (1) 50% of the amount of benefits if the participant had retired on the date of death, payable for the remainder of the spouse’s lifetime and (2) 100% of the amount of benefits if the participant had retired on the date of death, payable for a period of ten years.

Upon a Named Executive Officer’s death, any vested options, including such performance options that may vest after death, may be exercised for a period of one year after the date of death. Assuming a date of death of December 31, 2006, no additional performance options would have vested and no incremental value would have been received for this benefit.

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Performance Graphs

The following graph illustrates the Corporation’s cumulative shareholder return, assuming reinvestment of dividends, by comparing a $100 investment in the Shares at December 31, 2001 to the return on the Standard & Poor’s 500 Index^®, the DJUSBMI and a self-selected peer group.

	Dec-01		Dec-02		Dec-03		Dec-04		Dec-05		Dec-06
PotashCorp-NYSE Listing	$	100	$	105	$	145	$	283	$	275	$	495
Self-Selected Peer Group	$	100	$	103	$	129	$	217	$	309	$	510
S&P 500®	$	100	$	78	$	100	$	111	$	117	$	135
DJUSBMI	$	100	$	92	$	124	$	141	$	148	$	174

	Symbol
The self-selected peer group consists of:
Agrium Inc.*	AGU
Mosaic Co (formerly IMC Global Inc)	IGL
Yara International ASA	YAR NO
Israel Chemicals Limited	CHIM IT
Sociedad Quimica Y Minera de Chile S.A.	SQM/B CI
K+S AG	SDF GR

The following graph illustrates the Corporation’s cumulative shareholder return, assuming reinvestment of dividends, by comparing a Cdn$100 investment in the Shares at December 31, 2001 to the return on the S&P/ TSX Composite Index.

	Dec-01		Dec-02		Dec-03		Dec-04		Dec-05		Dec-06
PotashCorp-TSX Listing	$	100	$	104	$	119	$	213	$	200	$	362
S&P/ TSX Composite Index	$	100	$	88	$	111	$	127	$	158	$	185

^® Copyright^© 2007, Standard & Poor’s, a division of The McGraw Hill Companies, Inc. All rights reserved.

* TSX Listing.

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Directors’ and Officers’

Liability Insurance

The Corporation has acquired and maintains liability insurance for its directors and officers as well as those of its subsidiaries as a group. The coverage limit of each insurance is $100 million per claim and $100 million in the annual aggregate. The Corporation has entered into a one-year contract ending June 30, 2007. Premiums of $962,935 were paid by the Corporation for the last fiscal year. Claims for which the Corporation grants indemnification to the insured persons are subject to a $5 million deductible for any one loss.

Voting Shares

There are 104,991,924 Shares of the Corporation outstanding as of February 20, 2007, each Share carrying the right to one vote. Each shareholder of record at the close of business on March 12, 2007 is entitled to vote at the Meeting the Shares registered in his or her name on that date.

The quorum for any meeting of shareholders is one or more persons present and holding or representing by proxy not less than 5% of the total number of outstanding Shares.

2008 Shareholder Proposals

Proposals of shareholders intended to be presented at the Corporation’s annual meeting of shareholders in 2008 and which such shareholders are entitled to request be included in the Management Proxy Circular for that meeting, must be received at the Corporation’s principal executive offices not later than November 29, 2007.

Additional Information

Financial information relating to the Corporation is contained in its comparative financial statements and MD&A for the fiscal year ended December 31, 2006. Additional information relating to the Corporation that is not contained in this Management Proxy Circular, including the Corporation’s financial information as well as its most recent Form 10-K together with any document incorporated by reference therein, is available on SEDAR at www.sedar.com or EDGAR at www.sec.gov/edgar.shtml. Copies may also be obtained on request from the Corporate Secretary, Potash Corporation of Saskatchewan Inc., Suite 500, 122 – 1st Avenue South, Saskatoon, Saskatchewan, S7K 7G3, Canada.

Directors’ Approval

The contents and the sending of this Management Proxy Circular have been approved by the Board.

JOSEPH A. PODWIKA

Secretary

February 20, 2007

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Appendix A

Disclosure of Corporate Governance Practices

The following table discloses the Corporation’s current corporate governance practices in accordance with the requirements of NI 58-101.

			PotashCorp
Disclosure Requirement under Form 58-101F1			Compliance		Comments & Discussion
1.	(a)	Disclose the identity of directors who are independent.		Yes	The Board has determined that all of the directors of the Corporation with the exception of Mr. Doyle and Ms. Paliza are independent. See disclosure under the “Director Independence and Other Relationships” section of this Management Proxy Circular.
	(b)	Disclose the identity of directors who are not independent, and describe the basis of that determination.		Yes	See disclosure under the “Director Independence and Other Relationships” section of this Management Proxy Circular.
	(c)	Disclose whether or not a majority of directors are independent. If a majority of directors are not independent, describe what the board of directors (the board) does to facilitate its exercise of independent judgment in carrying out its responsibilities.		Yes	Ten of twelve, or 83.3%, of the Corporation’s current directors are independent.
	(d)	If a director is presently a director of any other issuer that is a reporting issuer (or the equivalent) in a jurisdiction or a foreign jurisdiction, identify both the director and the other issuer.		Yes	Such other directorships have been disclosed in the “Nominees for Election to the Board of Directors” section of this Management Proxy Circular.
	(e)	Disclose whether or not the independent directors hold regularly scheduled meetings at which members of management are not in attendance. If the independent directors hold such meetings, disclose the number of meetings held during the preceding 12 months. If the independent directors do not hold such meetings, describe what the board does to facilitate open and candid discussion among its independent directors.		Yes	The Board has adopted a policy for the independent members of the Board to meet without management present at each regularly scheduled meeting of the Board. These sessions are of no fixed duration and participating directors are encouraged to raise and discuss any issues of concern. This policy was complied with for all meetings of the Board in 2006.

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			PotashCorp
Disclosure Requirement under Form 58-101F1			Compliance		Comments & Discussion
	(f)	Disclose whether or not the chair of the board is an independent director. If the board has a chair or lead director who is an independent director, disclose the identity of the independent chair or lead director, and describe his or her role and responsibilities. If the board has neither a chair that is independent nor a lead director that is independent, describe what the board does to provide leadership for its independent directors.		Yes	Dallas J. Howe serves as the Board Chair, and is an independent director. He has served as Board Chair since 2003. A position description for the Board and Executive Committee Chair has been developed and approved by the Board. Amongst other things the Board and Executive Committee Chair is expected to: (a)  provide leadership to ensure effective functioning of the Board; (b)  lead in the assessment of Board and Executive Committee performance; (c)  assist the Compensation Committee in monitoring and evaluating the performance of the Chief Executive Officer and senior officers of the Corporation; (d)  lead the Board and Executive Committee in ensuring succession plans are in place at the senior management level; and (e)  act as an effective liaison among the Board and management.
	(g)	Disclose the attendance record of each director for all board meetings held since the beginning of the issuer’s most recently completed financial year.		Yes	Attendance records are fully disclosed in the “Attendance of Directors” section of this Management Proxy Circular. Pursuant to the “PotashCorp Governance Principles”, directors are expected to attend all meetings of the Board and Board committees upon which they serve, to come to such meetings fully prepared, and to remain in attendance for the duration of the meetings. Where a director’s absence from a meeting is unavoidable, the director should, as soon as practicable after the meeting, contact the Board Chair, the Chief Executive Officer or the Corporate Secretary for a briefing on the substantive elements of the meeting.
2.	Disclose the text of the board’s written mandate. If the board does not have a written mandate, how the board delineates its role and responsibilities.			Yes	The Board of Directors Charter is attached to this Management Proxy Circular as Appendix D.
3.	(a)	Disclose whether or not the board has developed written position descriptions for the chair and the chair of each board committee. If the board has not developed written position descriptions for the chair and/or the chair of each board committee, briefly describe how the board delineates the role and responsibilities of each such position.		Yes	A position description for the Board and Executive Committee Chair and each Board Committee Chair (which are attached to the relevant Board Committee Charters) has been developed and approved by the Board and can be found on the Corporation’s website at www.potashcorp.com.

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			PotashCorp
Disclosure Requirement under Form 58-101F1			Compliance		Comments & Discussion
	(b)	Disclose whether or not the board and CEO have developed a written position description for the CEO. If the board and CEO have not developed such a position description, briefly describe how the board delineates the role and responsibilities of the CEO.		Yes	A written position description for the Chief Executive Officer has been developed and approved by the Board. The Chief Executive Officer reports to the Board and has general supervision and control over the business and affairs of the Corporation. Amongst other things, the Chief Executive Officer is expected to: (a)  foster a corporate culture that promotes ethical practices, encourages individual integrity and fulfils social responsibility; (b)  develop and recommend to the Board a long-term strategy and vision for the Corporation that leads to creation of shareholder value; (c)  develop and recommend to the Board annual business plans and budgets that support the Corporation’s long-term strategy; and (d)  consistently strive to achieve the Corporation’s financial and operating goals and objectives.
4.	(a)	Briefly describe what measures the board takes to orient new directors regarding the role of the board, its committees and its directors, and the nature and operation of the issuer’s business.		Yes	The Board has adopted a written New Director Orientation Policy designed to: (a)  provide each new director with a baseline of knowledge about the Corporation that will serve as a basis for informed decision- making; (b)  tailor the program for each new director, taking into account his or her unique mix of skills, experience, education, knowledge and needs; and (c)  deliver information over a period of time to minimize the likelihood of overload and maximize the lasting educational impact. The orientation program is tailored to the needs of each new director, and consists of a combination of written materials, one-on-one meetings with senior management, site visits and other briefings and training as appropriate.

MANAGEMENT PROXY CIRCULAR │ Appendix A

Page 53

			PotashCorp
Disclosure Requirement under Form 58-101F1			Compliance		Comments & Discussion
	(b)	Briefly describe what measures, if any, the board takes to provide continuing education for its directors. If the board does not provide continuing education, describe how the board ensures that its directors maintain the skill and knowledge necessary for them to meet their obligations as directors.		Yes	The Board recognizes the importance of ongoing director education and the need for each director to take personal responsibility for this process. To facilitate ongoing education, the Corporation: (a)  maintains a director’s intranet site to facilitate the exchange of views and published information; (b)  maintains a membership for each director in an organization dedicated to corporate governance and ongoing director education; (c)  each year encourages and funds the attendance of each director at one seminar or conference of interest and relevance and funds the attendance of each Committee Chair at one additional seminar or conference. In all cases, approval for attendance is obtained, in advance, from the Board Chair; (d)  encourages presentations by outside experts to the Board or Committees on matters of particular import or emerging significance; and (e)  at least annually, schedules a site visit in conjunction with a Board meeting.
5.	(a)	(i)  Disclose whether or not the board has adopted a written code for its directors, officers and employees. If the board has adopted a written code, disclose how a person or company may obtain a copy of the written code.		Yes	The Board has adopted the “PotashCorp Code of Conduct”. The complete text of the “PotashCorp Code of Conduct”, as well as other governance related documents, can be found at www.potashcorp.com and are available in print to any shareholder who requests them.
		(ii) Describe how the board monitors compliance with its code, or if the board does not monitor compliance, explain whether and how the board ensures compliance with its code.		Yes	The Audit Committee reviews the process for communicating the “PotashCorp Code of Conduct” to the Corporation’s personnel, and for monitoring compliance therewith. The Board, through the Audit Committee, receives regular reports from management directly responsible for compliance-related matters (the General Counsel, Vice President Internal Audit and Senior Vice President Administration). In addition, annual compliance sign offs are sought from each employee. The Board, through the Audit Committee Chair, also receives reports of all financial or accounting issues raised through the Corporation’s anonymous toll-free hotline.
		(iii) If the board has adopted a written code, provide a cross-reference to any material change report filed since the beginning of the issuer’s most recently completed financial year that pertains to any conduct of a director or executive officer that constitutes a departure from the code.		Yes	The Corporation has not filed any material change reports since the beginning of the 2006 financial year that pertains to any conduct of a director or executive officer that constitutes a departure from the “PotashCorp Code of Conduct”. Pursuant to the “PotashCorp Governance Principles”, no waiver of the application of the “PotashCorp Code of Conduct” to directors or senior officers is permitted.

MANAGEMENT PROXY CIRCULAR │ Appendix A

Page 54

			PotashCorp
Disclosure Requirement under Form 58-101F1			Compliance		Comments & Discussion
	(b)	Describe any steps the board takes to ensure directors exercise independent judgment in considering transactions and agreements in respect of which a director or executive officer has a material interest.		Yes	Pursuant to the “PotashCorp Governance Principles”, each director of the Corporation must possess and exhibit the highest degree of integrity, professionalism and values, and must never be in a conflict of interest with the Corporation. A director who has a conflict of interest regarding any particular matter under consideration should advise the Board, refrain from debate on the matter and abstain from any vote regarding it. The Board has also developed categorical independence standards to assist it in determining when individual directors are free from conflicts of interests and are exercising independent judgment in discharging their responsibilities. All directors and senior officers are bound by the “PotashCorp Code of Conduct” and no waiver of the application of that Code to directors or senior officers is permitted.
	(c)	Describe any other steps the board takes to encourage and promote a culture of ethical business conduct.		Yes	The Corporation’s “Statement of Core Values and Code of Conduct” was redistributed to all employees in December 2006 and is continually reinforced with on-line training programs. At the end of 2006, all directors and employees were asked to sign a written confirmation of their compliance with the Code of Conduct. The Board, through the Audit Committee, requires the management Compliance Committee to annually report on the status of the corporation’s ethics and compliance programs, including receipt of the Compliance Risk Assessment, Summary of Ethics and Compliance Training during the current year and plans for ethics and compliance training in the coming year.

MANAGEMENT PROXY CIRCULAR │ Appendix A

Page 55

			PotashCorp
Disclosure Requirement under Form 58-101F1			Compliance		Comments & Discussion
6.	(a)	Describe the process by which the board identifies new candidates for board nomination.		Yes	The Corporate Governance and Nominating Committee (the “CG&N Committee”) is responsible for recruiting and proposing to the full Board new nominees for directors. The CG&N Committee, in the discharge of its duties: (a)  in consultation with the Board and Chief Executive Officer and, on an ongoing basis, identifies the mix of expertise and qualities required for the Board; (b)  assesses the attributes new directors should have for the appropriate mix to be maintained; (c)  in consultation with the Board and Chief Executive Officer and, on an ongoing basis, maintains a database of potential candidates; (d)  has implemented a procedure to identify, with as much advance notice as practicable, impending Board vacancies, so as to allow sufficient time for recruitment and for introduction of proposed nominees to the existing Board; (e)  develops a “short-list” of candidates and arranges for each candidate to meet with the CG&N Committee, the Board Chair and the Chief Executive Officer; (f)  recommends to the Board as a whole proposed nominee(s) and arranges for their introduction to as many Board members as practicable; (g)  ensures that prospective candidates are informed of the degree of energy and commitment the Corporation expects of its directors; and (h)  encourages diversity in the composition of the Board.
	(b)	Disclose whether or not the board has a nominating committee composed entirely of independent directors. If the board does not have a nominating committee composed entirely of independent directors, describe what steps the board takes to encourage an objective nomination process.		Yes	The Corporation has a standing CG&N Committee. Each of the five directors who comprise the CG&N Committee is independent. Please refer to “Director Independence and Other Relationships” and the “Report on Corporate Governance and Nominating Matters” sections of this Management Proxy Circular for additional information.
	(c)	If the board has a nominating committee, describe the responsibilities, powers and operation of the nominating committee.		Yes	The responsibilities, powers and operation of the CG&N Committee are set out in its charter, which is available on the Corporation’s website at www.potashcorp.com. Pursuant to the CG&N Committee Charter, the purpose of the CG&N Committee is to identify the individuals qualified to become members of the Board, to recommend to the Board nominees for election to the Board at each annual meeting of shareholders or to fill vacancies on the Board and to address related matters. Please refer to the “Report on Corporate Governance and Nominating Matters” section of this Management Proxy Circular for additional information.

MANAGEMENT PROXY CIRCULAR │ Appendix A

Page 56

			PotashCorp
Disclosure Requirement under Form 58-101F1			Compliance		Comments & Discussion
7.	(a)	Describe the process by which the board determines the compensation for your company’s directors and officers.		Yes	Director and officer compensation is established on the advice of independent consultants, with a view to establishing target compensation at the median of the applicable comparator group. Please refer to the “Compensation Discussion and Analysis” and the “Director Compensation” sections of this Management Proxy Circular, as well as the response to 7(d) below for additional information.
	(b)	Disclose whether or not the board has a compensation committee composed entirely of independent directors. If the board does not have a compensation committee composed entirely of independent directors, describe what steps the board takes to ensure an objective process for determining such compensation.		Yes	The Corporation has a standing Compensation Committee. Each of the four directors who comprise the Compensation Committee is independent. Please refer to the “Director Independence and Other Relationships” and “Compensation Discussion and Analysis” sections of this Management Proxy Circular for additional information.
	(c)	If the board has a compensation committee, describe the responsibilities, powers and operation of the compensation committee.		Yes	The responsibilities, powers and operation of the Compensation Committee are set out in its charter, which is available on the Corporation’s website at www.potashcorp.com. Pursuant to the Compensation Committee Charter, the purpose of the Compensation Committee is to carry out the Board’s responsibility for: (i) executive compensation (including philosophy and programs); (ii) management development and succession; (iii) Board compensation; and (iv) broadly applicable compensation and benefit programs. Please refer to the “Compensation Discussion and Analysis” section of this Management Proxy Circular for additional information.

MANAGEMENT PROXY CIRCULAR │ Appendix A

Page 57

			PotashCorp
Disclosure Requirement under Form 58-101F1			Compliance		Comments & Discussion
	(d)	If a compensation consultant or advisor has, at any time since the beginning of the issuer’s most recently completed financial year, been retained to assist in determining compensation for any of the issuer’s directors and officers, disclose the identity of the consultant or advisor and briefly summarize the mandate for which they have been retained. If the consultant or advisor has been retained to perform any other work for the issuer, state that fact and briefly describe the nature of the work.		Yes	In 2005, the Compensation Committee of the Board of Directors engaged Watson Wyatt as executive compensation consultants. Watson Wyatt provides input to the Committee on the philosophy and competitiveness of the design and award values for certain executive and director compensation programs. In addition, Watson Wyatt assists in the evaluation of compensation arrangements associated with certain strategic opportunities. In accordance with the Committee’s adherence to the best practice of retaining independent executive compensation consulting, Watson Wyatt does not perform any other consulting services for the Corporation. Any work other than executive compensation consulting services performed for the Corporation by Watson Wyatt must be approved in advance by the Chair of the Committee. Additionally, Hewitt Associates has historically provided executive compensation and human resources consulting services for the Corporation, including actuarial consulting, employee benefits design, finance consulting and recordkeeping services. The Committee will continue to use Hewitt Associates’ proprietary Total Compensation Measurement data services to provide specific compensation data for selected executive and director positions. This information has been and will continue to be supplemented with other compensation survey data available through Watson Wyatt.
8.	If the board has standing committees other than the audit, compensation and nominating committees, identify the committees and describe their function.			Yes	In addition to the Audit Committee, Compensation Committee and CG&N Committee, the Board also has an Executive Committee and a Safety, Health and Environment Committee. The Executive Committee is delegated all powers of the Board in respect of the business and affairs of the Corporation during the intervals between meetings of the Board, except only such powers specified in subsection 115(3) of the Canada Business Corporations Act in all cases in which specific directions shall not have been given by the Board. The Executive Committee rarely exercises such powers and did not meet in 2006. The Safety, Health and Environment Committee assists the Board review and recommend for approval policies, management systems and performance with respect to safety, health and environment matters affecting the Corporation.

MANAGEMENT PROXY CIRCULAR │ Appendix A

Page 58

		PotashCorp
Disclosure Requirement under Form 58-101F1		Compliance		Comments & Discussion
9.	Disclose whether or not the board, its committees and individual directors are regularly assessed with respect to their effectiveness and contribution. If assessments are regularly conducted, describe the process used for the assessments. If assessments are not regularly conducted, describe how the board satisfies itself that it, its committees, and individual directors are performing effectively.		Yes	Pursuant to the “PotashCorp Governance Principles”, which is available on the Corporation’s website at www.potashcorp.com, the Board has adopted the following five-part effectiveness evaluation program: 1.   Annual Board Assessment by all Members of the Board Each year Board members complete a detailed questionnaire which a) provides for quantitative ratings in key areas and b) seeks subjective comment in each of those areas. The questionnaire is administered by the Corporate Secretary. Responses are reviewed by the Corporate Secretary and the Chair of the CG&N Committee. A summary report is then prepared and provided to the Board Chair, the CG&N Committee and the Chief Executive Officer, and then reported to the full Board by the CG&N Committee Chair. Attribution of comments to individual directors in the summary report is made only if authorized by that director. In assessing the responses to the questionnaire, the focus is on continuous improvement. Matters requiring follow-up are identified, action plans are developed and there is ongoing monitoring by the CG&N Committee to ensure satisfactory results. As part of the annual Board assessment, the Board reviews and considers any proposed changes to the Board of Directors Charter.
				2.   Annual Assessment of each Committee* by Members of that Committee Each year members of each Committee* complete a detailed questionnaire designed to allow Committee members to evaluate how well each Committee is operating and to make suggestions for improvement. The questionnaire is administered by the Corporate Secretary who receives responses and reviews them with the appropriate Committee Chair. A summary report is then prepared and provided to the Board Chair, the Chair of the CG&N Committee, the appropriate Committee and the Chief Executive Officer and then reported to the full Board by the appropriate Committee Chair. As part of the annual Committee assessment, the Board reviews and considers any proposed changes to the Committee Charters. As with the Board assessment, the focus is on continuous improvement. Chairs of each Committee are expected to follow up on matters raised in the Committee assessments and take such action as appropriate.

*   Each of the Audit, Compensation, CG&N, and Safety, Health and Environment Committees participate in this process. Because of its limited activity, the Executive Committee does not.

MANAGEMENT PROXY CIRCULAR │ Appendix A

Page 59

	PotashCorp
Disclosure Requirement under Form 58-101F1	Compliance	Comments & Discussion
		3.   Annual Assessment of the Board Chair by Members of the Board Each year members of the Board are asked to assess and comment on the discharge, by the Board Chair, of his duties. Individual responses are received by the Chair of the CG&N Committee. A summary report is then provided to the Board Chair and the full Board, with no attribution of comments to individual directors without their consent. As part of the annual Board Chair assessment, the Board reviews and considers any proposed changes to the Board and Executive Committee Chair position description.
		4.   Annual Assessment of Each Committee Chair by Members of each Committee Each year, members of each Committee are asked to assess and comment on the discharge, by each Committee Chair, of his or her duties. Responses are received by the Corporate Secretary and the Committee Chair under review. A summary report is then provided to the appropriate Committee and to the full Board, with no attribution of comments to individual directors without their consent. As part of the annual Committee Chair assessment, the Board reviews and considers any proposed changes to the Committee Chair position descriptions.
		5.   Annual Assessment of Individual Directors Each year during the period from May to September, the Board Chair (and, as in the opinion of the Board Chair is desirable, the Chair of the CG&N Committee) formally meets with each director individually to engage in full and frank two-way discussion of any and all issues that either wish to raise, with a focus on maximizing the contribution of each director to the Board and Committees. In completing the review, the Board Chair will employ a checklist, discuss both short-term and long-term goals, and establish action items to allow individual directors to enhance both his or her personal contributions and overall Board effectiveness. The Board Chair will share peer feedback with each director as appropriate and will review progress and action taken. Each director, during such formal review, shall be prepared to discuss with the Board Chair how the directors, both individually and collectively, could operate more effectively. The Board Chair will discuss the results of the individual evaluations with the Chair of the CG&N Committee and report summary findings to both that Committee and to the full Board at the November meeting.

MANAGEMENT PROXY CIRCULAR │ Appendix A

Page 60

Appendix B

Resolution of Shareholders – 2007 Performance Option Plan

WHEREAS the Board of Directors of Potash Corporation of Saskatchewan Inc. (the “Corporation”) has, approved a new performance option plan (the “2007 Performance Option Plan”), a copy of which is attached as Appendix C to the Management Proxy Circular of the Corporation sent to the shareholders of the Corporation in connection with the annual and special meeting of shareholders of the Corporation to be held May 3, 2007;

NOW THEREFORE, BE IT RESOLVED that:

1.	the 2007 Performance Option Plan is hereby adopted and approved by the shareholders of the Corporation;
2.	any officer of the Corporation be and is hereby authorized and directed for and on behalf of the Corporation to do such things and to take such actions as may be necessary or desirable to carry out the intent of the foregoing resolution and the matters authorized thereby.

MANAGEMENT PROXY CIRCULAR │ Appendix B

Page 61

Appendix C

2007 Performance Option Plan

1.   PURPOSE OF PLAN

Potash Corporation of Saskatchewan Inc. (the “Corporation”) by resolution of its Board of Directors (the “Board”) has established, subject to shareholder approval at the Corporation’s 2007 Annual and Special Meeting of shareholders, this Potash Corporation of Saskatchewan Inc. 2007 Performance Option Plan (the “Plan”) to support the Corporation’s compensation philosophy of providing selected employees and officers with an opportunity to: promote the growth and profitability of the Corporation; align their interests with shareholders; and earn compensation commensurate with corporate performance. The Corporation believes this Plan will directly assist in supporting the Corporation’s compensation philosophy by providing participants with the opportunity through stock options, which will vest, if at all, based on corporate performance over a three-year period, to acquire Common Shares of the Corporation (“Common Shares”).

2.   DURATION OF THIS PLAN

This Plan was adopted by the Board on February 20, 2007 to be effective as of January 1, 2007 (the “Effective Date”), subject to shareholder approval at the Corporation’s 2007 Annual and Special Meeting of shareholders, and shall remain in effect, unless sooner terminated as provided herein, until one (1) year from the Effective Date, at which time it will terminate. After this Plan is terminated, no stock options may be granted but stock options previously granted shall remain outstanding in accordance with their applicable terms and conditions and this Plan’s terms and conditions.

3.   ADMINISTRATION

This Plan shall be administered by the Compensation Committee of the Board or any other committee designated by the Board to administer this Plan (the “Committee”). The Committee shall be responsible for administering this Plan, subject to this Section 3 and the other provisions of this Plan. The Committee may employ attorneys, consultants, accountants, agents, and other individuals, any of whom may be an employee, and the Committee, the Corporation, and its officers and directors shall be entitled to rely upon the advice, opinions, or valuations of any such individuals. All actions taken and all interpretations and determinations made by the Committee shall be made in the Committee’s sole discretion and shall be final and binding upon the participants, the Corporation, and all other interested individuals. To the extent applicable, the Plan shall be administered with respect to optionees subject to the laws of the U.S. so as to avoid the application of penalties pursuant to Section 409A of the Internal Revenue Code.

4.   AUTHORITY OF THE COMMITTEE

The Committee shall have full and exclusive discretionary power to interpret the terms and the intent of this Plan and any Stock Option Award Agreement or other agreement or document ancillary to or in connection with this Plan, to determine eligibility for stock options and to adopt such rules, regulations, forms, instruments, and guidelines for administering this Plan as the Committee may deem necessary or proper. Such authority shall include adopting modifications and amendments to any Stock Option Award Agreement that are necessary to comply with the laws of the countries and other jurisdictions in which the Corporation and/or its subsidiaries operate.

5.   SHARES SUBJECT TO STOCK OPTIONS

The aggregate number of Common Shares issuable after February 20, 2007 pursuant to stock options under this Plan may not exceed 1,000,000 Common Shares. The aggregate number of Common Shares in respect of which stock options have been granted to any one person pursuant to this Plan and which remain outstanding shall not at any time exceed 250,000. The authorized limits under this Plan shall be subject to adjustment under Sections 12 and 13.

If any stock option granted under this Plan, or any portion thereof, expires or terminates for any reason without having been exercised in full, the Common Shares with respect to which such option has not been exercised shall again be available for further stock options under this Plan; provided, however, that any stock option that is granted under this Plan that does not vest as a result of a failure to satisfy the Performance Measures, shall not be again available for grant under this Plan.

6.   GRANT OF STOCK OPTIONS

From time to time the Board may designate individual officers and employees of the Corporation and its subsidiaries eligible to be granted options to purchase Common Shares and the number of Common Shares which each such person will be granted a stock option to purchase; provided that the aggregate number of Common Shares subject to such stock options may not exceed the number provided for in Section 5 of this Plan. Non-employee directors and other non-employee contractors and third party vendors are not eligible to participate in this Plan.

MANAGEMENT PROXY CIRCULAR │ Appendix C

Page 62

7.   OPTION PRICE

The option price for any option granted under this Plan to any optionee shall be fixed by the Board when the option is granted and shall be not less than the fair market value of the Common Shares at such time which, for optionees resident in the United States and any other optionees designated by the Board, shall be deemed to be the closing price per Common Share on the New York Stock Exchange on the last trading day immediately preceding the day the option is granted and, for all other optionees, shall be deemed to be the closing price per Common Share on the Toronto Stock Exchange on the last trading day immediately preceding the day the option is granted; provided that, in either case, if the Common Shares did not trade on such exchange on such day the option price shall be the closing price per share on such exchange on the last day on which the Common Shares traded on such exchange prior to the day the option is granted.

8.   VESTING OF STOCK OPTIONS

Subject to achievement of Performance Measures as certified and approved by the Audit Committee of the Board, stock options granted under this Plan will vest no later than thirty (30) days after the audited financial statements for the applicable Performance Period have been approved by the Board.

9.   PERFORMANCE MEASURES FOR VESTING OF STOCK OPTIONS

(a) The Performance Measures which will be used to determine the degree to which stock options will vest over the three-year period beginning the first day of the fiscal year in which they are granted (the “Performance Period”) shall be cash flow return on investment (“CFROI”) and weighted average cost of debt and equity capital (“WACC”).

(i)

CFROI is the ratio of after tax operating cash flow to average gross investment over the fiscal year, calculated as A divided by B, where (1) A equals operating income plus nonrecurring or unusual items plus accrued incentive awards plus depreciation and amortization less cash taxes, and (2) B equals the average of total assets plus accumulated depreciation plus accumulated amortization less cash and cash equivalents less non interest bearing current liabilities.

(ii)

WACC is the weighted average cost of debt and equity capital, calculated as [A times the product of B divided by C] plus [D times the product of E divided by C], where (1) A equals the after-tax market yield cost of debt, (2) B equals the market value of debt less cash and cash equivalents (3) C equals the market value of debt less cash and cash equivalents, plus the market value of equity, (4) D equals the cost of equity, and (5) E equals the market value of equity.

(b) In determining the number of stock options that will actually vest based on the degree to which the Performance Measures have been attained during the applicable Performance Period, the following chart shall be utilized which shows the three year average excess of CFROI being greater than WACC and the respective portion of the stock option that will vest:

Performance Measure		Vesting Scale
3 year average excess of		% of Stock Option
CFROI > WACC		Grant Vesting
	<0%		0%
	0.20%		30%
	1.20%		70%
	2.20%		90%
	2.50%		100%

(c) In assessing the portion of the stock options that shall vest in accordance with the above chart, the following shall be done:

(i)	Each year, the CFROI and WACC will be calculated in accordance with the definitions herein, based on the audited financial statements and approved by the Audit Committee.
(ii)	In each Performance Period, the average of the three fiscal years shall be calculated by taking the simple average of the individual years’ results.
(iii)	The resulting three-year average will then be applied, using the scale above to determine the number of stock options, if any, that will vest as of the end of the Performance Period.
(iv)	For results falling between the reference points in the chart above, the level of vesting shall be mathematically interpolated between the reference points.

MANAGEMENT PROXY CIRCULAR │ Appendix C

Page 63

10. TERMS OF STOCK OPTIONS

The period during which a stock option is exercisable may not exceed 10 years from the date the stock option is granted, and the Stock Option Award Agreement may contain provisions limiting the number of Common Shares with respect to which the stock option may be exercised in any one year. Each stock option agreement shall contain provisions to the effect that:

(a)	if the employment of an optionee as an officer or employee of the Corporation or a subsidiary terminates, by reason of his or her death, or if an optionee who is a retiree pursuant to Section 10(b) dies, the legal personal representatives of the optionee will be entitled to exercise any unexercised vested options, including such stock options that may vest after the date of death, during the period ending at the end of the twelfth calendar month following the calendar month in which the optionee dies, failing which exercise the stock options terminate;
(b)	subject to the terms of Section 10(a) above, if the employment of an optionee as an officer or employee of the Corporation or a subsidiary terminates, by reason of retirement in accordance with the then prevailing retirement policy of the Corporation or subsidiary, the optionee will be entitled to exercise any unexercised vested stock options, including such stock options that may vest after the date of retirement, during the period ending at the end of the 36th month following the calendar month in which the optionee retires, failing which exercise the stock options terminate;
(c)	if the employment of an optionee as an officer or employee of the Corporation or a subsidiary terminates, for any reason other than as provided in Sections 10(a) or (b), the optionee will be entitled to exercise any unexercised vested stock options, to the extent exercisable at the date of such event, during the period ending at the end of the calendar month immediately following the calendar month in which the event occurs, failing which exercise the stock options terminate;
(d)	for greater certainty and for these purposes, an optionee’s employment with the Corporation or a subsidiary shall be considered to have terminated effective on the last day of the optionee’s actual and active employment with the Corporation or subsidiary whether such day is selected by agreement with the optionee or unilaterally by the Corporation or subsidiary and whether with or without advance notice to the optionee. For the avoidance of doubt, no period of notice that is given or ought to have been given under applicable law in respect of such termination of employment will be utilized in determining an optionee’s entitlement under the Plan. The employment of an optionee with the Corporation shall be deemed to have terminated for all purposes of the Plan if such person is employed by or provides services to a person that is a subsidiary of the Corporation and such person ceases to be a subsidiary of the Corporation, unless the Committee determines otherwise; and
(e)	each stock option is personal to the optionee and is not assignable, except (i) as provided in Section 10(a), and (ii) at the election of the Board, a stock option may be assignable to the spouse, children and grandchildren of the original optionee and to a trust, partnership or limited liability company, the entire beneficial interest of which is held by one or more of the foregoing.

Nothing contained in Sections 10(a), (b) or (c) shall extend the period during which a stock option may be exercised beyond its stipulated expiration date or the date on which it is otherwise terminated in accordance with the provisions of this Plan.

If a stock option is assigned pursuant to Section 10(e)(ii), the references in Sections 10(a), (b) and (c) to the termination of employment or death of an optionee shall not relate to the assignee of a stock option but shall relate to the original optionee. In the event of such assignment, legal personal representatives of the original optionee shall not be entitled to exercise the assigned stock option, but the assignee of the stock option or the legal personal representatives of the assignee may exercise the stock option during the applicable specified period.

11. EXERCISE OF STOCK OPTIONS

Subject to the provisions of this Plan, a vested stock option may be exercised from time to time by delivering to the Corporation at its registered office a written notice of exercise specifying the number of Common Shares with respect to which the stock option is being exercised and accompanied by payment in cash or certified cheque in full of the purchase price of the Common Shares then being purchased.

12. ADJUSTMENTS

Appropriate adjustments to the authorized limits set forth in Section 5, in the number, class and/or type of Common Shares optioned and in the option price per share, both as to stock options granted or to be granted, shall be made by the Board to give effect to adjustments in the number of Common Shares which result from subdivisions, consolidations or reclassifications of the Common Shares, the payment of share dividends by the Corporation, the reconstruction, reorganization or recapitalization of the Corporation or other relevant changes in the capital of the Corporation.

MANAGEMENT PROXY CIRCULAR │ Appendix C

Page 64

13. MERGERS

If the Corporation proposes to amalgamate or merge with another body corporate, the Corporation shall give written notice thereof to optionees in sufficient time to enable them to exercise outstanding vested stock options, to the extent they are otherwise exercisable by their terms, prior to the effective date of such amalgamation or merger if they so elect. The Corporation shall use its best efforts to provide for the reservation and issuance by the amalgamated or continuing corporation of an appropriate number of Common Shares, with appropriate adjustments, so as to give effect to the continuance of the stock options to the extent reasonably practicable. In the event that the Board determines in good faith that such continuance is not in the circumstances practicable, it may upon 30 days’ notice to optionees terminate the stock options.

14. CHANGE OF CONTROL

If a “change of control” of the Corporation occurs, each then outstanding stock option granted under this Plan may be exercised, in whole or in part, even if such option is not otherwise exercisable by its terms. For purposes of this Plan, a change of control of the Corporation shall be deemed to have occurred if any of the following occur, unless the Board adopts a plan after the Effective Date of this Plan that has a different definition (in which case such definition shall be applied), or the Committee decides to modify or amend the following definition through an amendment of this Plan:

(a)	within any period of two consecutive years, individuals who at the beginning of such period constituted the Board and any new directors whose appointment by the Board or nomination for election by shareholders of the Corporation was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose appointment or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board;
(b)	there occurs an amalgamation, merger, consolidation, wind-up, reorganization or restructuring of the Corporation with or into any other entity, or a similar event or series of such events, other than any such event or series of events which results in securities of the surviving or consolidated corporation representing 50% or more of the combined voting power of the surviving or consolidated corporation’s then outstanding securities entitled to vote in the election of directors of the surviving or consolidated corporation being beneficially owned, directly or indirectly, by the persons who were the holders of the Corporation’s outstanding securities entitled to vote in the election of directors of the Corporation prior to such event or series of events in substantially the same proportions as their ownership immediately prior to such event of the Corporation’s then outstanding securities entitled to vote in the election of directors of the Corporation;
(c)	50% or more of the fixed assets (based on book value as shown on the most recent available audited annual or unaudited quarterly consolidated financial statements) of the Corporation are sold or otherwise disposed of (by liquidation, dissolution, dividend or otherwise) in one transaction or series of transactions within any twelve month period;
(d)	any party, including persons acting jointly or in concert with that party, becomes (through a take-over bid or otherwise) the beneficial owner, directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation’s then outstanding securities entitled to vote in the election of directors of the Corporation, unless in any particular situation the Board determines in advance of such event that such event shall not constitute a change of control; or
(e)	the Board approves and/or recommends that shareholders accept, approve or adopt any transaction that would constitute a change of control under clause (b), (c) or (d) above and determines that the change of control resulting from such transaction will be deemed to have occurred as of a specified date earlier than the date under (b), (c) or (d), as applicable.

15. AMENDMENT OR DISCONTINUANCE OF THIS PLAN

The Board may amend or discontinue the Plan at any time, without obtaining the approval of shareholders of the Corporation unless required by the relevant rules of the Toronto Stock Exchange, provided that, subject to Sections 12, 13, and 14, no such amendment may increase the aggregate maximum number of Common Shares that may be subject to stock options under this Plan, change the manner of determining the minimum option price, extend the option period under any option beyond 10 years, expand the assignment provisions of the Plan, permit non-employee directors to participate in the Plan or, without the consent of the holder of the option, alter or impair any option previously granted to an optionee under this Plan; and, provided further, for greater certainty, that, without the prior approval of the Corporation’s shareholders, stock options issued under this Plan shall not be repriced, replaced, or regranted through cancellation, or by lowering the option price of a previously granted stock option. Pre-clearance of the Toronto Stock Exchange of amendments to the Plan will be required to the extent provided under the relevant rules of the Toronto Stock Exchange.

MANAGEMENT PROXY CIRCULAR │ Appendix C

Page 65

16. EVIDENCE OF STOCK OPTIONS

Each stock option granted under this Plan shall be evidenced by a written stock option agreement between the Corporation and the optionee which shall give effect to the provisions of this Plan and include such other terms as the Committee shall determine (“Stock Option Award Agreement”).

17. WITHHOLDING

To the extent that the Corporation is required to withhold federal, provincial, state, local or foreign taxes in connection with any payment made or benefit realized by an optionee or other person hereunder, and the amounts available to the Corporation for such withholding are insufficient, it shall be a condition to the receipt of such payment or the realization of such benefit that the optionee or such other person make arrangements satisfactory to the Corporation for payment of the balance of such taxes required to be withheld, which arrangements (in the discretion of the Board) may include relinquishment of a portion of such benefit. Participants shall also make such arrangements in connection with the disposition of Common Shares acquired upon the exercise of option rights with respect to this Plan.

MANAGEMENT PROXY CIRCULAR │ Appendix C

Page 66

Appendix D

Board of Directors Charter

1.   PURPOSE AND ROLE

The Board of Directors (the “Board”) of Potash Corporation of Saskatchewan Inc. (the “Corporation”) is responsible for the stewardship and oversight of the management of the Corporation and its global business. It has the statutory authority and obligation to protect and enhance the assets of the Corporation in the interest of all shareholders.

Although Directors may be elected by the shareholders to bring special expertise or a point of view to Board deliberations, they are not chosen to represent a particular constituency. The best interests of the Corporation and its shareholders must be paramount at all times.

The involvement and commitment of Directors is evidenced by regular Board and Committee meeting attendance, preparation, and active participation in setting goals and requiring performance in the interest of shareholders.

2.   COMPOSITION

The Board shall be comprised of that number of Directors as shall be determined from time to time by the Board, in accordance with the Corporation’s articles, bylaws and applicable laws.

3.   MEETINGS

The time at which and place where the meetings of the Board shall be held and the calling of the meetings and procedure in all things at such meetings shall be determined by the Board in accordance with the Corporation’s articles, bylaws and applicable laws.

The agenda for each Board meeting shall be established by the CEO and the Board Chair, taking into account suggestions from other members of the Board. Meeting materials and information shall be distributed in advance of each meeting so as to provide adequate time for review. The Board has a policy of holding one meeting each year at one of the Corporation’s operating facilities. Site visits by the Board and meetings with senior management of the facility are incorporated into the itinerary.

Directors are expected to attend, in person or via tele- or video-conference, all meetings of the Board and the Committees upon which they serve, to come to such meetings fully prepared, and to remain in attendance for the duration of the meeting. Where a Director’s absence from a meeting is unavoidable, the Director should, as soon as practicable after the meeting, contact the Board Chair, the CEO, or the Corporate Secretary for a briefing on the substantive elements of the meeting.

4.   CHAIR

The Chair of the Board shall have the duties and responsibilities set forth in the “Chair of the Board of Directors and Executive Committee Position Description.”

5.   RESPONSIBILITIES

The Board operates by delegating certain of its responsibilities to management and reserving certain powers to itself. Its principal duties fall into six categories:

▪    Overseeing and approving on an ongoing basis the Corporation’s business strategy and strategic planning process;

▪    Selection of the management;

▪    Setting goals and standards for management, monitoring their performance and taking corrective action where necessary;

▪    Approving policies, procedures and systems for implementing strategy, managing risk, and ensuring the integrity of the Corporation’s internal control and management information systems;

▪    Adopting a communications policy and reporting to shareholders on the performance of the business;

▪    Approval and completion of routine legal requirements.

          5.1 Strategy Determination

(a) The Board has the responsibility to participate, as a whole and through its Committees, in identifying the objectives and goals of the business as well as the associated risks, and the strategy by which it proposes to reach those goals and mitigate such risks. The Board shall adopt a strategic planning process and shall approve, on an

MANAGEMENT PROXY CIRCULAR │ Appendix D

Page 67

	annual basis, a strategic plan which takes into account, among other things, the opportunities and risks of the business.
(b)	The Board has the responsibility to ensure congruence between shareholder expectations, company plans and management performance.

          5.2 Selection of the Management

(a)	The Board retains the responsibility for managing its own affairs, including planning its composition, selecting its Chair, nominating candidates for election to the Board, appointing Committees and determining Director compensation.
(b)	The Board has the responsibility for the appointment and replacement of a Chief Executive Officer (“CEO”) of the Corporation, for monitoring CEO performance, determining CEO compensation, and providing advice and counsel in the execution of the CEO’s duties.
(c)	The Board has the responsibility for approving the appointment and remuneration of all corporate officers, acting upon the advice of the CEO.
(d)	The Board has the responsibility for, to the extent feasible, satisfying itself as to the integrity of the CEO and the other executive officers and that the CEO and other executive officers create a culture of integrity throughout the Corporation.
(e)	The Board has the responsibility for ensuring that adequate provision has been made for management succession (including appointing, training and monitoring senior management).

          5.3 Monitoring and Acting

(a)	The Board has the responsibility for monitoring the Corporation’s progress towards its goals, and revising and altering its direction in light of changing circumstances.
(b)	The Board has the responsibility for taking action when performance falls short of its goals or when other special circumstances (for example mergers and acquisitions or changes in control) warrant it.

          5.4 Policies and Procedures

(a)	The Board has the responsibility for developing the Corporation’s approach to corporate governance, including developing a set of corporate governance principles and guidelines that are specifically applicable to the Corporation.
(b)	The Board has the responsibility for approving and monitoring compliance with all significant policies, procedures and internal control and management systems by which the Corporation is operated.
(c)	The Board has responsibility for ensuring that the Corporation operates at all times within applicable laws and regulations, and to high ethical and moral standards.

          5.5 Reporting to Shareholders

(a)	The Board has the responsibility for adopting a communications policy for the Corporation, including adopting measures for receiving feedback from stakeholders.
(b)	The Board has the responsibility for ensuring that the financial performance of the Corporation is reported to shareholders on a timely, regular and non-selective basis.
(c)	The Board has the responsibility for ensuring that the financial results are reported fairly, and in accordance with generally accepted accounting principles.
(d)	The Board has the responsibility for timely and non-selective reporting of any other developments that have a significant and material impact on the value of the shareholders’ assets.
(e)	The Board has the responsibility for reporting annually to shareholders on its stewardship for the preceding year.
(f)	The Board has the responsibility for approving any payment of dividends to shareholders.

          5.6 Legal Requirements

(a) The Board is responsible for ensuring that legal requirements, documents and records have been properly prepared, approved and maintained.

MANAGEMENT PROXY CIRCULAR │ Appendix D

Page 68

          5.7 Other

(a)	On an annual basis, this Board Charter shall be reviewed and assessed, and any proposed changes shall be submitted to the Board for consideration.
(b)	Any security holder may contact the Board by email or by writing to the Board c/o the Corporate Secretary. Matters relating to the Corporation’s accounting, internal accounting controls or auditing matters will be referred to the Audit Committee. Other matters will be referred to the Board Chair.

MANAGEMENT PROXY CIRCULAR │ Appendix D

Page 69

Potash Corporation
of Saskatchewan Inc. Proxy

For use at the Annual and Special Meeting

of Shareholders to be held on May 3, 2007.

THIS PROXY IS SOLICITED ON BEHALF OF MANAGEMENT OF THE CORPORATION.

The undersigned holder of common shares (“Shares”) of Potash Corporation of Saskatchewan Inc. (the “Corporation”) hereby appoints Dallas J. Howe, Board Chair, or failing him, William J. Doyle, President and Chief Executive Officer, or failing him, Wayne R. Brownlee, Executive Vice President, Treasurer and Chief Financial Officer, or failing him, Joseph A. Podwika, Secretary, or instead of any of the foregoing,

as proxy for the undersigned to attend, vote and act for and on behalf of the undersigned at the annual and special meeting of shareholders of the Corporation to be held:

Thursday, the 3^rd day of May, 2007 (the “Meeting”)

10:30 a.m. (local time)

Delta Bessborough

601 Spadina Crescent East

Saskatoon, Saskatchewan, Canada

and at any adjournments thereof, and hereby revokes any proxy previously given by the undersigned.

1. A shareholder has the right to appoint a person who need not be a shareholder, to represent him and to attend and act on his behalf at the Meeting, other than the nominees designated above, and may exercise such right by inserting the name of his nominee in the space provided above for that purpose.

2.	The Shares represented by this proxy will be voted in accordance with any choice specified in this proxy. If no specification is made, the persons named above will vote such Shares FOR the election of the directors named in this proxy, FOR the appointment of Deloitte & Touche LLP as auditors of the Corporation and FOR the resolution (attached as Appendix B to the accompanying Management Proxy Circular) approving the adoption of a new performance option plan, the full text of which is attached as Appendix C to the accompanying Management Proxy Circular. This proxy confers authority to vote in the proxyholder’s discretion with respect to amendments to matters identified in the accompanying Notice of Meeting and with respect to other matters that may properly come before the Meeting.
3.	If this proxy is not dated, it shall be deemed to be dated on the date on which this proxy was mailed by the Corporation.
4.	Reference is made to the accompanying Management Proxy Circular of the Corporation for further information regarding the completion and use of this proxy and other information pertaining to the Meeting.

Without limiting the general powers hereby conferred, the Shares represented by this proxy are to be:

1.	Voted FOR, or WITHHELD FROM VOTING, the nominees for directors listed below.
		For	Withhold		For	Withhold
	(01) F. J. Blesi			(07) K. G. Martell
	(02) W. J. Doyle			(08) J. J. McCaig
	(03) J. W. Estey			(09) M. Mogford
	(04) W. Fetzer III			(10) P. J. Schoenhals
	(05) D. J. Howe			(11) E. R. Stromberg
	(06) A. D. Laberge			(12) E. Viyella de Paliza

		For	Withhold
2.	Voted FOR, or WITHHELD FROM VOTING, on the appointment of Deloitte & Touche LLP as auditors of the Corporation.
		For	Against
3.	Voted FOR or AGAINST the resolution (attached as Appendix B to the accompanying Management Proxy Circular) approving the adoption of a new performance option plan, the full text of which is attached as Appendix C to the accompanying Management Proxy Circular.

Dated the _______________  day of _________________________  2007.

 
Name of Shareholder  
Signature of Shareholder

EX-99.B

Exhibit 99(b)

ABOUT POTASHCORP

PotashCorp is an integrated producer of fertilizer, industrial and animal feed products. We are the world’s largest fertilizer enterprise by capacity, producing the three primary plant nutrients – potash, nitrogen and phosphate. Among these, potash – the namesake of our company – delivers the highest quality earnings in the fertilizer universe.

With a majority of the world’s excess potash capacity, large low-cost operations and strategic global investments, we have an unmatched ability to serve both North American and growing offshore markets.

 
Our Goal
Our goal is to be the partner of choice, providing superior value to all our stakeholders. We strive to be the highest quality low-cost producer and sustainable gross margin leader in the products we sell and the markets we serve.
We link our financial performance with areas of extended responsibility that include safety, the environment and all those who have a social or economic interest in our business.
Our Strategy
Committed to seeking earnings growth and to minimizing volatility, we employ a Potash First strategy, focusing our capital – internally and through investments – to build on our unmatched potash assets and meet the growing global demand for this vital nutrient.
By investing in potash capacity while producing to meet market demand, we create the opportunity for significant growth while limiting downside risk.
We complement our potash operations with focused nitrogen and phosphate businesses that emphasize the production of high-margin products with stable and sustainable earnings potential.

BUILDING A PLATFORM FOR LONG-TERM GROWTH

Many factors make us the leader in the fertilizer industry:

1	Unparalleled potash position With unrivaled potash resources and the majority of the world’s excess capacity, we have the unique ability to increase production to quickly and cost-effectively meet rising demand.
2	Access to key global markets With large low-cost potash operations in Canada, an extensive global distribution network and strategic investments in Jordan, Israel, Chile and China, we benefit from growth in all key world markets.
3	Targeted strengths in nitrogen and phosphate Long-term, lower-cost natural gas contracts in Trinidad and geographic proximity provide unique advantages in serving the US, the world’s largest nitrogen importer. Superior-quality phosphate rock enables us to produce higher-margin feed and industrial products, including purified acid.
4	Clear vision and skilled management Our management team’s ability to develop and execute focused, long-term strategies – proven in changing market conditions over nearly two decades – helps us capitalize on our unique strengths.
5	Commitment to sustainability and core values We promote the long-term viability and value of our company by monitoring our economic, environmental and social performance, and by living by our core values of safety, integrity, listening, sharing, accountability and continuous improvement.
6	Strong cash flow Our strong cash flow enables us to grow our business, choosing from options that include bringing back idled capacity, plant expansions and extending our global enterprise via investments.
7	High-quality earnings Our emphasis on potash, Trinidad nitrogen and industrial phosphates – almost 80 percent of our gross margin – delivers earnings growth with less dependence on volatile agricultural cycles.

UNLOCK MORE WITH KEYWORDS

The » symbol indicates that more information
is available online at www.PotashCorp2006AR.com

All financial data in this report are stated in US dollars.

CONTENTS

Overview	2
Letter to Shareholders	6
Business Environment	10
Sustainability	24
Financial Overview	28
Board and Senior Management	34
Shareholder Information	36
Glossary	38

2       OVERVIEW / POTASHCORP 2006 SUMMARY ANNUAL REPORT

WHY POTASH?

Potash is known as the quality nutrient because it significantly enhances the taste, texture, health and yield of crops. Among investors, it is also recognized as the quality nutrient because of its potential for greater growth, higher margins and stability.

█  Demand for potash is increasing

– Growing offshore economies are improving diets.

– Rising global populations and expanding urbanization are shrinking the per-capita agricultural land base.

– The need for alternative energy sources is creating new markets for crops.

█  Potash supply is tightening

– Most producers are operating at or near capacity.

█  Crop prices are rising, encouraging maximum production

– Prices for corn, wheat and other crops are reaching levels not experienced in the past decade.

█  The environment is favorable

– The potash industry has relatively few competitors, minimal government involvement and high barriers to entry.

– Significant new competitive production appears unlikely in the next five years due to the rarity of deposits and the high cost and long lead time to develop a greenfield mine.

POTASH	NITROGEN	PHOSPHATE
Fertilizer	Fertilizer	Fertilizer
–  strengthens plant roots and improves water retention, contributing to greater yields and disease resistance	–  a building block for proteins and enzymes; speeds growth and improves yield and quality	–  critical to energy reactions in plants; speeds maturity and reproduction and increases yields
Feed supplements	Feed supplements	Feed supplements
–  aids animal growth and milk production	–  essential to RNA, DNA and cell maturation	–  energizes animal muscles; aids growth
Industrial	Industrial	Industrial
–  used in TV screens, soaps and de-icers	–  used in plastics, resins and adhesives	–  used in soft drinks, food and metal treatment

Our Business Segments

WORLD POSITION BY CAPACITY

COMPETITIVE STRENGTHS
 
 
 
 
 

STRATEGIES
 
 
 
 
 

Facilities, Investments and Key Markets

FACILITIES

K POTASH	N NITROGEN
1 Allan SK	1 Augusta GA
2 Cory SK	2 Geismar LA
3 Esterhazy SK1	3 Lima OH
4 Lanigan SK	4 Point Lisas, Trinidad
5 Patience Lake SK
6 Rocanville SK
7 Sussex NB

inv INVESTMENTS

1 Arab Potash Company (APC), Jordan (28%)

2 Israel Chemicals Ltd. (ICL), Israel (10%)

3 Sociedad Quimica y Minera de Chile S.A. (SQM), Chile (32%)

4 Sinofert Holdings Limited (Sinofert), China (20%)

POTASHCORP 2006 SUMMARY ANNUAL REPORT / OVERVIEW        3

POTASH	NITROGEN	PHOSPHATE
13.5 million	58%	27%
Tonnes of potash capacity by the end of 2010	Percentage of nitrogen gross margin from Trinidad	Increase in phosphate gross margin year-over-year
1st	4th	3rd
•   Low-cost producer with 22 percent of world capacity and majority of world excess capacity •   Access to key markets through Canadian operations, a global distribution network and strategic offshore investments •   High barriers to entry	•   Majority of ammonia produced in Trinidad with long-term access to lower-cost natural gas •   Proximity of Trinidad production to the US, the world’s largest nitrogen importer •   US-produced ammonia sold primarily to stable industrial customer base	•   Unique, high-quality phosphate rock can be processed into diversified higher-margin products •   Long-term competitive cost advantage for phosphate rock in North America given proximity of mines to processing facilities •   Significant reserves
•   Use low-cost excess capacity to respond to growing world demand •   Produce only what the market needs •   Seek internal and global opportunities to add low-cost, high-quality capacity	•   Maximize Trinidad ammonia production under existing natural gas contracts •   Focus on less-cyclical industrial products at US-based plants	•   Maximize benefits of superior rock to produce diverse phosphate products that are less cyclical and more profitable

¹ PotashCorp’s mineral rights at Esterhazy are mined by Mosaic Potash Esterhazy Limited Partnership under a mining and processing agreement.

 
4
  OVERVIEW / POTASHCORP 2006 SUMMARY ANNUAL REPORT

2006 KEY FIGURES

$632 million	$941 million	20%
2006 Earnings (third consecutive record year)	2006 Cash flow prior to working capital changes1	5 Year EBITDA1 CAGR2

2006 Financial Highlights

• Delivered earnings of $632 million – a record for the third straight year – even as annual potash shipments to China and India declined by 40 percent because of extended price negotiations

• Achieved record cash flow prior to working capital changes¹ of $941 million

• Realized a year-over-year share price increase of 79 percent, and a 368-percent increase since the beginning of 2002

• Reached potash gross margin of $561 million, second only to the 2005 record of $707 million

• Generated more than $300 million in nitrogen gross margin for a second straight year

• Increased phosphate gross margin 27 percent year-over-year despite a reduction in solid fertilizer margins

2006 Operating Highlights

• Advanced projects to bring back 400,000 tonnes of idled potash capacity at Allan in 2007 and 1.5 million tonnes at Lanigan in 2008

• Concluded a two-year, 294,000-tonne expansion of ammonia capacity at Trinidad and an expansion of 82,000 tonnes P₂O₅ in purified acid capacity at Aurora

• Purchased an additional 10 percent of Sinofert, bringing our ownership in China’s largest fertilizer importer and distributor to 20 percent

• Acquired additional interest in SQM in Chile, a producer of specialty fertilizers, and APC in Jordan, one of the two lowest-cost potash suppliers to Mediterranean and Asian markets

• Received recognition as Canada’s best corporate reporter, earning the Overall Award of Excellence in Corporate Reporting from the Canadian Institute of Chartered Accountants for an unprecedented third consecutive year

NET INCOME	GROSS MARGIN	EBITDA 1	CASH FLOW RETURN 1
Despite constrained potash shipments for seven months of 2006, we achieved our highest net income ever and earned a record $5.95 per share (diluted).	Record second-half potash sales and strong contributions from nitrogen and phosphate produced the second highest gross margin in our history.	2006 EBITDA was consistent with record 2005 despite a temporary disruption in potash demand, verifying the effectiveness of our business strategy.	An indicator of shareholder value created, our cash flow return exceeded weighted average cost of capital by more than 5 percent.

POTASHCORP 2006 SUMMARY ANNUAL REPORT / OVERVIEW       5

$15 billion	$2.8 billion	79%
Total market capitalization at year-end	Market value of equity investments (book value of $1.1 billion)	Share price increase year-over-year

2006 Financial Highlights

($ millions, except per-share data and percentages)	2006		Change			2005		Change			2004		5-Year			10-Year
			YOY3					YOY3					CAGR2			CAGR2
Financial Results
Sales	$	3,766.7		-2	%	$	3,847.2		19	%	$	3,244.4		10	%		9	%
Net sales1	$	3,376.8		-3	%	$	3,475.6		20	%	$	2,901.4		10	%		9	%
Gross margin	$	1,002.0		-11	%	$	1,125.0		65	%	$	681.4		20	%		10	%
Net income	$	631.8		16	%	$	542.9		82	%	$	298.6		39	%		12	%
Net income per share – diluted	$	5.95		22	%	$	4.89		81	%	$	2.70		39	%		10	%
EBITDA1	$	1,117.9		-2	%	$	1,135.0		50	%	$	754.3		20	%		11	%
Additions to property, plant and equipment	$	508.6		33	%	$	382.7		74	%	$	220.5
Dividends per share	$	0.60		–		$	0.60		9	%	$	0.55
Financial Position
Total Assets	$	6,217.0		16	%	$	5,357.9		5	%	$	5,126.8
Net debt1	$	1,589.7		12	%	$	1,417.1		57	%	$	903.5
Cash flow prior to working capital changes1	$	940.8		9	%	$	860.3		60	%	$	538.3
Cash provided by operating activities	$	696.8		-19	%	$	865.1		31	%	$	658.3

1	See reconciliation and description of certain non-GAAP measures on Page 33
2	Compound annual growth rate expressed as a percentage
3	Year-over-year

For a complete list of financial
performance indicators, see our online
Annual Report, Keyword »

 
6
  LETTER TO SHAREHOLDERS / POTASHCORP 2006 SUMMARY ANNUAL REPORT

LETTER TO SHAREHOLDERS

In 2006, PotashCorp achieved record earnings despite disruptions in potash demand.

This provided an opportunity to demonstrate our ability to deliver growth with reduced volatility.

We entered 2007 with the factors that drive our success aligned better than ever before.

William J. Doyle
President and Chief Executive Officer

     The success of PotashCorp in 2006 is a testament to the power of focused long-term strategies that your company has patiently and consistently executed over nearly two decades.

     The most visible measure of their effectiveness is a third consecutive year of record earnings. We also achieved an all-time low recordable injury rate and had significant positive impacts on our communities, while our investors benefited from a 79-percent increase in our share price.

     This was achieved despite some very challenging conditions. We entered 2006 with potash shipments to China and, shortly afterward, India at a virtual standstill, as fertilizer buyers in those countries deferred purchases and drew down their inventories while negotiating new price contracts with global suppliers. This continued into the third quarter. Potash demand was further constrained as North America and other markets delayed purchasing and relied on inventories in the face of high fuel costs and low crop prices.

     While this created short-term challenges for producers, it allowed our company to demonstrate how our diverse, high-quality assets and long-term strategies – including our long-employed practice of matching production to market demand – keep us highly profitable even with a disruption in the potash market. Further, it proved the complementary benefit of our Trinidad nitrogen and industrial phosphate businesses, showing the importance of having world-class capabilities in all three nutrients.

     By year-end, our optimism was growing as the factors that fuel our success began to align in ways that suggest unprecedented opportunity. These include:

– growth in offshore economies where people have higher expectations for better diets;

– rising world population (primarily in these offshore markets) and a limited agricultural land base, making fertilizer use more important to farmers working to increase yields and improve food quality;

– a quest for alternative energy sources, such as ethanol and biodiesel, that is creating a growing market for key crops;

– historically low global grain inventories; and

– strong farm economics, including higher prices for many crop commodities, that encourage farmers to maximize production.

     These conditions ultimately raise demand for fertilizers – especially potash, the nutrient with the greatest impact on food quality. Our company holds most of the world’s unused potash capacity, giving us an unmatched ability to meet growing demand and reap the benefit of this expanding market.

     Our success is the product of an exceptionally motivated and talented workforce that is fully committed to maximizing the benefits of a resource base that we believe is the best in our industry.

     Even after a third year of record performance, our real opportunity is still in front of us.

POTASHCORP 2006 SUMMARY ANNUAL REPORT / LETTER TO SHAREHOLDERS       7

Growing Markets for Food, Feed, Fuel and Fiber

     We view 2006 as a transition toward even greater success as our offshore customers continued to gain economic strength. China’s GDP grew by more than 10 percent, while India’s was up more than 8 percent. As a whole, global GDP was up about 5 percent.

     With higher incomes, the first priority for many people is more nutritious, protein-rich food. China’s meat consumption, for example, has more than tripled in less than two decades. Producing more animals takes a greater supply of grain and feed supplements.

     A rising global population with more money leads to spreading urbanization. The agricultural land base per capita is less than half the 1950 level and is expected to fall a further 13 percent by 2020, making higher crop yields a necessity.

     Added to this, uncertainty over the world’s oil supply and desire for cleaner fuels have resulted in a surge of demand for alternative energy sources such as biofuels. The production of ethanol creates a new market for crops like corn and sugar cane, while biodiesel drives up demand for oil from crops like oil palm, soybeans and canola. In the US, ethanol used 6 percent of corn production in 2000 and is projected to take 20 percent of that crop in 2007.

     At the same time, the world grain stocks-to-use ratio is expected to fall to its lowest level on record in the 2006/2007 crop year, with less than two months’ supply.

     As a result, crop prices are rising. This gives farmers the motivation and resources to increase acres planted and responsibly intensify fertilizer application rates on all acres.

Meeting Growing Potash Demand

     Of the three nutrients, potash has the greatest growth potential.

     In the short term, many countries need to rebuild inventories that were drained in 2006. This is a lengthy process that will require significant increases in import volumes in 2007. Industry consultants are projecting the global potash market of almost 50 million tonnes will grow by 10 percent in 2007 and 3 percent per year to 2011. Demand for biofuels has the potential to raise this to 4 percent. This growth represents between 11 million and 14 million tonnes of additional annual demand within five years.

     The longer-term picture could be even more dramatic. To meet scientifically recommended application rates, China would need to raise its annual consumption from approximately 10 million tonnes to 26 million tonnes, India from 4 million tonnes to 10.5 million tonnes and Brazil from 5.5 million tonnes to 11.5 million tonnes.

     Supply, however, is expected to remain tight. Anticipated expansions by competitors would bring only 2.6 million tonnes of new production on stream by 2011. No greenfield projects have been announced and it is estimated that it would take five to seven years and more than $1.6 billion to bring a 2-million-tonne conventional mine into production in Canada. Given the high cost and long lead time, we do not expect any significant greenfield production to come on stream in the next five years. Supply was further tightened by the unfortunate flooding that closed a Russian competitor’s mine in October 2006, removing 1.2 million tonnes of annual production from the market.

     PotashCorp’s excess capacity can be brought on more quickly and at a significant discount to the cost of a greenfield mine, giving us a competitive advantage. We expect to have 13.5 million tonnes available by the end of 2010. Beyond this, we are reviewing additional projects that could increase our production capabilities to 15.7 million tonnes by 2015, or earlier if the market warrants, before we rely on greenfield opportunities. We have plenty of low-cost spare capacity to stay ahead of the market and will continue to be disciplined in its use.

     As we increase production, we reduce our per-tonne fixed costs. With greater volumes, lower costs and higher prices produced by tight fundamentals, we have triple leverage to improve performance for our shareholders.

Growing global demand for food and biofuels is adding to the pressure on farmers to grow more grain, driving up the need for fertilizers.

Potash demand is expected to grow 10 percent in 2007 and 3-4 percent per year through 2011.

PotashCorp can bring back unused capacity more quickly and at a lower cost than greenfield production.

Greater volumes, lower costs and higher prices give us triple leverage in potash.

8       LETTER TO SHAREHOLDERS / POTASHCORP 2006 SUMMARY ANNUAL REPORT

Nitrogen and phosphate generated record combined gross margin in 2006.

Strategic offshore investments extend our global potash enterprise.

Playing to Our Strengths

     The value of our nitrogen and phosphate operations was evident in 2006, as their combined gross margin reached a record level. While potash remains our foundation, focused nitrogen and phosphate businesses are essential components of our strategy and have served us exceptionally well.

     In nitrogen, higher natural gas prices in Europe led to curtailments, driving up ammonia prices in many regions. With higher ocean freight also a factor, less nitrogen found its way to the United States, reducing competitive import pressures. This was especially beneficial to our Trinidad operation, which is built on long-term, lower-cost gas contracts and has logistical advantages for shipping to the US. During 2005 and 2006, we completed debottlenecking projects that added 294,000 tonnes of ammonia production at Trinidad, further leveraging our advantage.

     In phosphate, where we use our superior quality rock to focus on higher-margin feed and industrial products, we generated our highest gross margin since 1999. These specialty products will remain our priority, as they provide stable and solid returns that shelter us from the volatility of the solid phosphate fertilizer market. We completed an expansion of 82,000 tonnes of P₂O₅ in purified acid capacity at Aurora in the second quarter of 2006, further increasing our gross margin potential.

Broadening Our Global Reach

     In addition to our internal growth strategies, we use our strong cash flow to invest in areas that will further enhance our long-term value and international advantages in potash. Our investments in Arab Potash Company (APC) in Jordan, Israel Chemicals Ltd. (ICL) in Israel, Sociedad Quimica y Minera de Chile S.A. (SQM) in Chile and Sinofert Holdings Limited (Sinofert) in China are natural and strategic extensions of our global potash enterprise. These investments were important contributors to PotashCorp’s bottom line in 2006.

     During the year, we spent $353 million to increase our ownership interest in APC and SQM and to exercise an option to raise our stake in Sinofert, expanding our position in a company with state-of-the-art distribution capabilities in the world’s largest fertilizer market. At the end of 2006, our investments in these publicly traded companies and in ICL had a total market value of $2.8 billion – exceeding book value by $1.7 billion.

█  Increasing Capacity to Meet Long-Term Potash Demand Growth

With the growth picture for potash becoming clear, we are preparing to further capitalize on our advantages in this nutrient.

Continuing work at Allan and Lanigan, along with a minor increase gained through our share of Mosaic’s Esterhazy expansion, will provide an additional 2 million tonnes of operational capacity by 2008. Projects planned for Cory and Patience Lake will build our capacity to 13.5 million tonnes by the end of 2010.

Although our access to 1 million tonnes from Esterhazy will end in approximately 2013, additional debottlenecking and technological improvements in Saskatchewan and New Brunswick could raise our capacity to 15.7 million tonnes by 2015. This would give us a substantial increase in capacity at a significant discount to the cost of greenfield development.

POTASHCORP 2006 SUMMARY ANNUAL REPORT / LETTER TO SHAREHOLDERS       9

Performing at All Levels

     Our financial success grows from a commitment to excellence across our company. This vision extends to all areas that impact our relationships with investors, customers, employees, suppliers and the communities and environments where we do business.

     Safety is the top priority for our company and the most important measure of our success. One of our most significant accomplishments in 2006 was reducing our recordable injury rate to a record low. In addition, our New Brunswick operation was awarded the John T. Ryan Award, the highest safety honor in the Canadian mining industry.

     We continued to take a leadership role in our communities. This included our title sponsorship of the 2006 PotashCorp Vanier Cup in Saskatoon, as we helped bring the Canadian university football championship to Western Canada for the first time. According to organizers, it generated more than Cdn $14 million in game-related spending, facility development and tourism. More than that, it became a rallying point in our hometown, pulling people together in support of a common interest.

     The desire to contribute to community has been embraced by our company and our employees. Our offices and operations have been recognized by their local United Way chapters and many of our facilities earned praise for their volunteerism and donations. We are proud of their efforts.

     Once again, our commitment to clearly communicating our performance to stakeholders was recognized as we received the Overall Award of Excellence from the Canadian Institute of Chartered Accountants for a third consecutive year, a first for any company. Our sustainability reporting was also rated No. 1 in Canada and among the world’s top 50 in a review led by SustainAbility, in partnership with the United Nations Environment Programme and Standard & Poor’s.

Built for Long-Term Success

     In 2006, we proved our ability to be responsive and adaptable, capitalizing on PotashCorp’s unique strengths to achieve earnings growth while minimizing volatility.

     In the coming years, growth from our offshore potash customers will continue to drive our business. Although we anticipate periods of short-term volatility, as we saw in 2006, the long-term growth trend is evident.

     For almost two decades, we have been building toward this time. We have assembled tremendous assets and carefully managed them with a long-term view. Now we are prepared to capitalize on them in an exceptionally favorable global environment for our products.

     Our role is to execute our strategies for maximum results over the long term. We will exercise our advantage in potash, using only as much of our capacity as required to meet market demand while building a company with an ongoing ability to generate larger margins and higher earnings. We will remain committed to serving all of our stakeholders.

     We do so with strong direction from our Board of Directors and exceptional efforts from our people.

     Your company is in an excellent and unmatched position to capitalize on the opportunities that lie ahead. Our ability to enrich the land, the food that grows on it and the lives of people who depend on it is more important than ever and we are ready to deliver.

     By making this our mission, we look forward to rewarding the PotashCorp shareholders who make it possible.

William J. Doyle, President and Chief Executive Officer
February 20, 2007

Our financial success is tied to our commitment to all stakeholder groups.

We report on our performance in all areas of our business.

For almost two decades, we’ve been preparing for the conditions we see today.

By enriching the land and the food grown on it, we will enrich our shareholders.

 
10
  BUSINESS ENVIRONMENT / POTASHCORP 2006 SUMMARY ANNUAL REPORT

BUSINESS ENVIRONMENT

The fundamental premise that drives the fertilizer industry is as elementary as the basic human need for nutrition:

With more people to feed, the world’s farmers must produce more food.

Our products help farmers increase yields by replenishing essential nutrients in their soil.

Although the need for fertilizer products is undeniable, success in the fertilizer industry requires a clear sense of evolving markets, a solid asset base, strategies designed to capture value in changing global conditions and an ability to execute those strategies for maximum results.

Six Keys to Understanding Our Business

1	The world needs more fertilizer
2	Potash is the core of our business
3	Our strategies emphasize earnings growth and quality
4	We are uniquely prepared to meet growing potash demand
5	The factors that drive our success are aligning
6	We are transparent and accountable

For a complete analysis of our business environment, see our online Annual
Report, Keyword »

Offshore Markets Are Driving
Rising Demand for Food

As recently as 1950, only 2.5 billion people shared the planet and its resources. By 1980, that number had grown to 4.4 billion. In 2007, it is expected to be 50 percent greater at 6.6 billion.

World Population Rising

The areas experiencing the most significant increases in population are now also benefiting from rapidly growing economies. Foremost among these are China and India, which enjoyed 2006 economic growth of more than 10 and 8 percent, respectively.

Offshore Economies Growing

As incomes rise, access to more nutritious food is often the first priority. Many of these nations are moving from low-cost, starch-based food to protein-rich diets with more meat. In the past two decades, meat consumption in China more than tripled to 70 million tonnes and is expected to reach 120 million tonnes by 2030.

The need to feed more people – and produce more animals for food – is driving up the demand for grain, oilseed meal and phosphate and nitrogen feed supplements. All these increase demand for our products.

Fertilizer Application Rates
Are Growing

In the past, many of these nations also under-applied fertilizer, particularly potash. Nitrogen has the most immediately visible impact on yield enhancement and was applied first, followed by phosphate. Potash, which has the greatest impact on food quality, was often the last nutrient in the chain. Now farmers around the world are recognizing the need to apply more of all three nutrients and are beginning to respond accordingly.

Fertilizer Growth Potential

China and India could achieve recommended nutrient levels by each applying about 30 million more tonnes of KCl, N and P₂O₅ annually. Soybeans, Brazil’s major crop, draw nitrogen from the air but are hungry for potash.

Production of Biofuels Is Increasing

Biofuels Creating New Demand

In addition to this food-driven demand, many countries are expanding their production of biofuels to alleviate reliance on non-renewable oil supplies. Global ethanol production, for example, has doubled in the last four years to 14 billion gallons. This is creating a new market for crops like corn, soybeans, sugar cane, oil palm and canola, placing even greater pressure on agricultural production.

Global Potash Supply Is Tightening

The growing demand for potash must be filled by a few global producers, as production can only occur in regions with economically viable deposits.

Except for PotashCorp, this producer base has been pushed to its production limits. Significant new sources of supply are unlikely within the next five years given barriers to entry: a greenfield mine would require a good ore deposit, a substantial investment (approximately $1.6 billion for a 2-million-tonne mine in Canada) and a development period of five to seven years.

Global Grain Stocks Falling

Wheat and Coarse Grains

More grain has been consumed than produced in most recent years, reducing the stocks-to-use ratio to the lowest level ever recorded.

Crop Prices Are Rising

These tightening market conditions are leading to higher prices for many crop commodities. Early in 2007, US corn prices reached a 10-year high and, like those for wheat and soybeans, are expected to remain elevated. World sugar prices climbed to record levels and palm oil prices have strengthened.

Higher Crop Prices

None of this is lost on farmers, who recognize the role of fertilizer in increasing yields and protecting the fertility of their soil. In the US, fertilizer typically represents only 4-14 percent of production costs for major crops, while the return can be as much as three times this amount.

These attractive economics, made even more pronounced by low global inventories and high commodity prices, set the stage for more acres to be planted and fertilizer applications to increase.

12       BUSINESS ENVIRONMENT / POTASHCORP 2006 SUMMARY ANNUAL REPORT

PotashCorp produces potash, nitrogen and phosphate for use in fertilizer, feed and industrial markets. We have operations and strategic investments in eight countries and our products are sold in more than 50 countries.

Among major crops, rice, corn, wheat and cotton require all three nutrients while soybeans need mainly potash and phosphate. The amount of each nutrient required depends on crop and soil conditions.

Fertilizer generated 60 percent of our net sales and 70 percent of gross margin in the past three years. Offshore customers took 50 percent of total fertilizer sales volumes in 2006, primarily potash and phosphate. Our nitrogen fertilizers are sold mainly in North America.

PotashCorp Gross Margin by Nutrient
2006

“Potash First” Maximizes Growth Potential and Gross Margin

As our name suggests, potash is the foundation of our business. We are the world’s largest potash company, with 22 percent of global capacity. This includes a majority of the world’s excess capacity, giving us the ability to meet rising demand for potash when others cannot.

With the rest of our industry operating at or near its maximum capability, we have an unparalleled ability to deploy our excess capacity and capture a significant share of market growth.

In 2006, potash generated $561 million and 56 percent of our total gross margin.

Over 60 percent of our potash goes offshore for use mainly in the production of rice, soybeans, palm oil, sugar, rubber, bananas, oranges and coffee. In North America, potash is used on corn, wheat, cotton, rice and soybeans, and the market has historically been stable.

Our potash operations include five large, low-cost mining and milling facilities in Saskatchewan and one in New Brunswick.

Largest Potash Company
2006

We also have mineral rights for ore included under a mining and processing agreement at a sixth location in Saskatchewan.

Our potash business is enhanced by increasingly significant offshore investments that extend our global reach, including:

█  20% of Sinofert in China

█  28% of APC in Jordan

█  10% of ICL in Israel

█  32% of SQM in Chile

Nitrogen and Phosphate Provide Balance and Stability

While potash is our core business, we also focus on our unique advantages in nitrogen and phosphate, which enhance our ability to serve a global customer base.

Trinidad Advantage in Nitrogen

PotashCorp is the world’s fourth largest producer of nitrogen, a business that requires abundant access to natural gas to make ammonia, the feedstock for other downstream products.

The core of our nitrogen operations is our facility in Trinidad, where we have advantages that include long-term lower-cost natural gas contracts and proximity to the United States, the world’s largest nitrogen importer. Approximately two-thirds of our ammonia is produced in Trinidad, a country with extensive natural gas reserves and a stable, low-risk government.

Stability and Diversity in Phosphate

PotashCorp is the world’s third largest phosphate producer, with the most diversified product line. While traditional phosphate businesses have been built around the solid fertilizer diammonium phosphate (DAP), we can produce higher margin industrial and feed products from our superior quality phosphate rock. This minimizes our exposure to the volatility in the phosphate fertilizer market.

PotashCorp is the largest and one of only three North American producers of industrial purified phosphoric acid, giving us a strong position in this business.

POTASHCORP 2006 SUMMARY ANNUAL REPORT / BUSINESS ENVIRONMENT       13

Peers in Our Industry

To achieve the highest sustainable results for our shareholders, management evaluates our performance against basic materials indices and our peers in the fertilizer sector. Some of the key metrics tracked are set out below.

Peer Performance Summary

Comparability of Peer Information

This information is included for convenience only. All peer group financial information included in the performance summary was obtained from publicly available reports published by the respective companies. We have not independently verified and cannot guarantee the accuracy or completeness of such information.

Readers are cautioned that, other than PotashCorp and Agrium, none of the companies identified in this group prepare their financial statements (and accompanying notes) in accordance with accounting principles generally accepted in Canada (Canadian GAAP). Accounting principles generally accepted in the foreign jurisdictions in which these peers operate may vary in certain material respects from Canadian GAAP, and such differences (if and as applicable) have not been identified or quantified for this purpose. For those companies with fiscal year-ends other than December 31, all financial information was based on the 12-month period comprising the most recent four fiscal quarters reported upon by such companies.

Sources: Company financial reports

1	Capital expenditures = additions to property, plant and equipment
2	Year ended December 31, 2006
3	Last four quarters ended November 30, 2006
4	Last four quarters ended September 30, 2006
5	Mosaic’s last four-quarter net income includes $287.6 million (pre-tax) and $285.6 million (after-tax), respectively, in phosphate division writedowns.
6	Agrium’s year-ended December 31, 2006 net income includes $136.0 million (pre-tax) and $95.0 million (after-tax), respectively, in phosphate division writedowns. As Agrium’s year-ended December 31, 2006 statement of cash flows was not provided by time of print, last four quarters ended September 30, 2006 were used in determining cash flow from operations and capital expenditures.
7	Yara net income, cash flow from operations and capital expenditures translated at 1 USD = NOK 6.3826, average exchange rate for 2006 as provided from company reports.
8	K+S net income, cash flow from operations and capital expenditures translated by quarter at: Q4 2005 1 USD = EUR 0.8408; Q1 2006 1 USD = EUR 0.8310; Q2 2006 1 USD = EUR 0.7951; and Q3 2006 1 USD = EUR 0.7846; average exchange rate in each quarter per Bloomberg.

14       BUSINESS ENVIRONMENT / POTASHCORP 2006 SUMMARY ANNUAL REPORT

PotashCorp’s goal is to achieve superior value for our stakeholders by generating long-term growth and minimizing the volatility inherent in the fertilizer business.

To achieve this goal, we implement strategies for our business as a whole and for all three nutrient segments individually that emphasize products which leverage our competitive strengths to deliver higher margins on a sustainable basis.

This dictates our Potash First approach, along with the following strategies for each nutrient:

█	Potash – Meet rising world demand
█	Nitrogen – Reduce volatility by focusing on our Trinidad asset
█	Phosphate – Enhance stability with industrial and feed production

As we plan our future, we choose from among several options how best to use our cash flow, including investing in our own potash capacity, offshore opportunities, share repurchase and increased dividends. Our 2005 share repurchase represented over $510 million in shareholder value as of December 31, 2006.

We base our investment decisions on cash flow return materially exceeding cost of capital.

Our Highest Margin Businesses
Year Ended December 31, 2006

RISK MITIGATION SUPPORTS STRATEGIES

Successful execution of our strategies requires us to examine all potential risks and manage them to lessen their ability to impact performance.

We examine risk in six key categories:

█	Markets/Business Risk
█	Distribution Risk
█	Operational Risk
█	Financial/Information Technology Risk
█	Regulatory Risk
█	Integrity/Empowerment Risk

Each year, management re-evaluates previously identified risks and examines changes in our business environment that hold the potential to create new risks. We develop mitigation strategies and present these to PotashCorp’s Board of Directors for approval.

We make it a priority to protect our reputation, as any risk that damages PotashCorp’s reputation could harm our ability to perform.

Pursuing the Best Position

PotashCorp’s Trinidad nitrogen facility We focus on areas of our business where we have cost advantages and lower competitive pressures, which allows us to maximize gross margin. We strive to build on the parts of our business that fit in the top right quadrant of our strategic positioning profile.

We recognize that some business segments are more competitive, but nonetheless contribute to stability in our earnings. Our Trinidad nitrogen operation, for example, faces higher competitive pressures but maintains significant margin potential because of its cost advantages.

Strategic Positioning

¹ See reconciliation and description of certain non-GAAP measures on Page 33

POTASHCORP 2006 SUMMARY ANNUAL REPORT / BUSINESS ENVIRONMENT       15

POTASH:

Meet Rising World Demand

To capitalize on our potash advantage and remain the preferred low-cost supplier into all key world markets, we follow these primary strategies:

█	Use our excess capacity to fill rising world demand.
	With our competitors operating at or near their maximum capabilities, we are uniquely able to meet demand increases and capture a disproportionate share of market growth. Further, as we bring on this excess capacity, we have triple leverage – higher sales volumes at higher prices, with lower fixed costs per tonne.

PotashCorp Production
Driven by Demand

█	Produce only what the market requires. If demand does not materialize, we will not use our excess capacity. For almost two decades, we have matched production to market demand, minimizing inventory overhang. This has enabled us to maximize the value of our potash, preserving our unused capacity for periods with rising demand and higher prices.
█	Maximize our internal capacity. Although we have opportunities for the development of a greenfield mine when growth in global demand makes that necessary, our shareholders benefit most from our ability to debottleneck or expand our capacity at our existing facilities. We can do this more quickly and at less cost than the five to seven years and approximately $1.6 billion needed for a greenfield mine. By reducing the time and cost of achieving more capacity, we reduce risk to our shareholders.
█	Extend our global potash enterprise through strategic investments. In addition to investing in our internal potash assets, we focus our capital on strategic global investments. Our investments in profitable and growing companies like SQM, APC, ICL and Sinofert add to our bottom line and, more importantly, provide strategic value by extending our global reach.

NITROGEN:

Reduce Volatility by Focusing on Our Trinidad Asset

To achieve long-term growth with minimal volatility, we operate our nitrogen business according to the following key strategies:

█

Leverage our proximity and long-term natural gas contracts in Trinidad to supply nitrogen to the US. Close access to the United States, combined with lower-cost gas contracts indexed to ammonia prices, provides a distinct advantage and more stable margins in a high-cost US gas environment.

█

Concentrate our US production on industrial sales that provide gross margin stability. Industrial products shelter us from the volatility of agricultural cycles. We use our US nitrogen production, with direct pipeline links from our production facilities, to supply this stable customer base. In a high-cost US gas environment, we rely on our hedge program to stabilize costs and, if necessary, reduce operating rates to minimize margin volatility.

PHOSPHATE:

Enhance Stability with Industrial and Feed Production

Our high-quality phosphate rock gives us distinct advantages over producers that make mostly fertilizers. We operate this business according to the following strategy:

█ Leverage our high-quality, low-impurity phosphate rock to maintain a diversified and higher margin product line. High-quality rock enables us to economically produce diversified industrial and feed products that are less affected by cyclicality and deliver better margins than phosphate fertilizers.

For a complete overview of our business strategies, see our online Annual Report,
Keyword »

16       BUSINESS ENVIRONMENT / POTASHCORP 2006 SUMMARY ANNUAL REPORT

As market demand for potash grows, PotashCorp will be prepared to deliver.

We are:

█	Maximizing capacity to have potash available when needed
	Primarily by bringing back idled capacity, we expect to have 13.5 million tonnes of operational capacity by the end of 2010.
	We believe other expansions in Saskatchewan and New Brunswick could raise our capacity to 15.7 million tonnes by 2015. Only then would we need to rely on a greenfield project.
█	Adding compaction capability to improve the flexibility of our product mix
	Compaction allows us to produce premium granular product, which is in demand in North American markets and increasingly in offshore markets. It commands $10 to $20 per tonne more than standard-grade potash. We are adding an additional 1.25 million tonnes of compaction capability at Allan and Lanigan which will enable us to move toward the product mix that tomorrow’s potash markets will demand.

█	Broadening our offshore investments
	We are continuing to strengthen our global enterprise by increasing ownership interests in key offshore potash businesses. This gives us greater reach to markets that are experiencing accelerating growth.

In 2006 we raised our ownership in:

– Sinofert, from 10 percent to 20 percent. This gives us a strategic foothold in China, the world’s largest fertilizer market. Sinofert distributes 60 percent of imported fertilizers in China and generates more than half its total gross margin through potash sales;

– SQM, a specialty potash, iodine and lithium producer in Chile, from 25 percent to 32 percent; and

– APC, a leading potash producer and key supplier to Mediterranean and Asian markets.

█	Investing in our distribution chain
	To capitalize on the growth opportunity in potash markets, it is important that our transportation and distribution system is prepared for increased volumes.
	In 2006, we:

– participated in the development of two terminals in Brazil; and

– added terminals in the US on a variable-cost basis where we pay only when we use them.

Canpotex, the offshore marketing company for all Saskatchewan potash producers, is strengthening its capabilities by:

– evaluating the addition of approximately 500 railcars per year over the next few years to transport product from Saskatchewan to West Coast ports;

– increasing capacity at its Portland, Oregon terminal by 1 million tonnes; and

– exploring alternatives for expansion or construction at West Coast port facilities that serve offshore markets.

Expanding Our Trinidad Advantage

█ Over the past two years, we expanded our Trinidad ammonia production. This gives us greater ability to meet rising US demand for ammonia while using our lowest-cost nitrogen facility.

Building on Phosphate Strengths

█ In 2006, we completed another purified phosphoric acid expansion at Aurora that will enable us to better serve higher-margin industrial markets.

POTASHCORP 2006 SUMMARY ANNUAL REPORT / BUSINESS ENVIRONMENT       17

UNDERSTANDING POTASH          For more information about potash, see our online Annual Report, Keyword »

STRATEGIES	RISKS	MITIGATION	CAPABILITY TO DELIVER
Use excess capacity to fill rising demand	• Insufficient capacity available in time to meet growing demand	• Pace internal growth to ensure production is available when needed	• ~ 75 percent of global excess capacity in 2007 and 13.5 million tonnes capacity by end of decade
	• Inadequate distribution capability to supply markets	• Invest in distribution chain	• Capacity at terminals in North America and Brazil is being raised
Produce only what the market requires	• Short-term reduction in demand	• Limit production in periods of lower demand	• Production curtailed historically, including 2006, to prevent inventory overhang
Extend global potash enterprise	• Competitor greenfield developments change market fundamentals	• Restore and expand capacity at a fraction of the cost and time of greenfield projects	• Lower-cost capacity up to 15.7 million tonnes before a greenfield mine is required

18       BUSINESS ENVIRONMENT / POTASHCORP 2006 SUMMARY ANNUAL REPORT

UNDERSTANDING NITROGEN More nitrogen information is at our online Annual Report, Keyword » 

STRATEGIES	RISKS	MITIGATION	CAPABILITY TO DELIVER
Leverage benefits of lower-cost Trinidad production	• Abundant low-cost gas supply in developing countries can lead to oversupply	• Protect Trinidad’s cost advantage and ability to deliver through gas contracts and vessel leases	• Multi-year, lower-cost gas contracts provide cost advantage and long-term vessel leases secure delivery
Concentrate US production on industrial sales	• Nitrogen fertilizers subject to volume and price volatility	• Emphasize sales to stable industrial customer base	• About 85 percent of US manufactured ammonia is sold to industrial customers, some linked directly by pipeline

POTASHCORP 2006 SUMMARY ANNUAL REPORT / BUSINESS ENVIRONMENT       19

UNDERSTANDING PHOSPHATE          For more on phosphate, see our online Annual Report, Keyword »

STRATEGIES	RISKS	MITIGATION	CAPABILITY TO DELIVER
Leverage high-quality phosphate rock to supply higher-margin product lines	• Changes in environmental or permitting requirements	• Engage with local communities and stakeholders to better understand and address their needs	• 2006 survey of community leaders affirmed strong support for operations
	• Less competitive in solid fertilizers given higher delivered ammonia costs, coupled with potential long-term oversupply of DAP	• Develop long-term plans to reduce exposure or rationalize production away from solid phosphate fertilizers	• Long-term solid phosphate fertilizer alternatives are under evaluation

20       BUSINESS ENVIRONMENT / POTASHCORP 2006 SUMMARY ANNUAL REPORT

Growing Demand + Tight Supply = Promising Outlook

For almost two decades, we have worked toward our long-term goal of being the highest quality low-cost producer and sustainable gross margin leader in the products we sell and markets we serve. We have faithfully executed the long-term strategies necessary to achieve this position.

This has allowed us to deliver superior value to stakeholders, even when short-term demand decreased or when the collapse of the Soviet Union led to a global oversupply of potash.

For the first time in our history, however, all the factors that drive our growth are now converging in our favor:

█ Long-term demand for fertilizer, especially potash, is growing as:

– More of the world’s growing population
wants – and can afford – nutritious food

– Renewable alternative energy sources are creating new demand for many crops

█	Potash supply is tight, with competitors operating at or near their capacities
█	Prices for crop commodities are rising
█	Our excess potash capacity will be available, as needed, to support this growing market.

These conditions represent a long-term change in the fundamentals of our industry. More than that, they create an ideal environment for PotashCorp’s strengths, giving us an opportunity to generate greater value for our shareholders.

For a more detailed outlook, see our online Annual Report,
Keyword »

POTASHCORP 2006 SUMMARY ANNUAL REPORT / BUSINESS ENVIRONMENT          21

The Fertilizer Outlook for 2007 Is Promising

The need for fertilizer is clear and the economics of agriculture are encouraging its use. With PotashCorp’s strong position in all three nutrients, especially potash, the outlook is bright.

External industry consultants project 2007 demand growth of 10 percent for potash, 5.8 percent for phosphate (phosphoric acid) and 3.4 percent for nitrogen.

Potash

A surge in global potash sales is expected in 2007 as farmers maximize acres planted to take advantage of higher crop prices and offshore markets rebuild inventories depleted during extended 2006 price negotiations with China and India. In addition to the 10-percent demand growth forecast for 2007, industry consultants anticipate growth of 3 percent per year through 2011. With oil projected to be between $45 and $65 per barrel during this period, demand for biofuels could bring this closer to 4 percent per year.

In a market of almost 50 million tonnes annually, 3-4 percent growth represents new production roughly equivalent to opening a greenfield mine every year.

Greenfield mines have a high cost and a long development time, and no such projects are currently underway. PotashCorp’s excess capacity, which can be accessed at a fraction of the cost of a greenfield development, stands as the best source of new supply for the next five years. With competitors at or near capacity, we should realize a significant share of this growth in demand.

Nitrogen

Higher crop prices are expected to drive up nitrogen demand more quickly than scheduled new capacity will become available over the course of 2007, further tightening fundamentals and underpinning global nitrogen prices. While strong prices have historically encouraged greenfield development, construction costs have risen approximately 40 percent and several projects have been deferred or scrapped. This gives our nitrogen facilities the potential to realize more significant gross margin.

Phosphate

Demand for higher-margin industrial and feed products is expected to remain steady in 2007, adding stability to this segment. The same is true of liquid fertilizer products. Low inventories for solid phosphate fertilizers are creating a positive pricing environment as we enter what is expected to be a strong fertilizer season.

While recent shutdowns in the US are expected to keep the solid fertilizer market relatively strong over the next two years, new capacity in China and Saudi Arabia near the end of the decade may affect the long-term fundamentals. US producers of the solid fertilizer DAP, which is the foundation of the phosphate fertilizer business, could face future challenges as the US share of the global DAP market is expected to fall from over half in 2005 to roughly one-third by the end of the decade.

World N, P and K Sales Growth Forecast

World Potash Sales Growth Forecast

US DAP Exports

22       BUSINESS ENVIRONMENT / POTASHCORP 2006 SUMMARY ANNUAL REPORT

Goals & Targets Our business goals are linked to the vision and strategy guiding the company.	l ACHIEVED ¤ PARTIALLY ACHIEVED ¦ DID NOT ACHIEVE
Each year we set targets linked to our goals, holding ourselves publicly accountable for our performance.

Shareholder Value

█  To continue to outperform our sector and other basic materials companies in total shareholder return.
2006 Targets	2006 Results	2007 Targets
Exceed total shareholder return performance for our sector and companies on the DJUSBM1 for 2006.	l Total shareholder return of 79.6 percent surpassed our sector at 53.5 percent and the DJUSBM at 17.6 percent.	1 Exceed total shareholder return performance for our sector and companies on the DJUSBM for 2007.
Non-cash operating working capital to be less than 10 percent of net sales.2	¦ PotashCorp’s non-cash operating working capital was approximately 13 percent of net sales.	2 Cash flow return to exceed weighted average cost of capital by 600 basis points.
Cash flow return2 to exceed weighted average cost of capital by 800 basis points.	¤ Cash flow return exceeded weighted average cost of capital by more than 500 basis points.	3 Carry a higher multiple than the average of other fertilizer companies on both earnings and cash flow.
Carry a higher multiple than the average of other fertilizer companies on both earnings and cash flow.	l PotashCorp multiples were higher than the average of other fertilizer companies based on earnings and cash flow.	4 Gross margin compound annual growth rate (CAGR) of 15 percent over next five years.
Exceed 2005 gross margin by 20 percent.	¦ Gross margin was 11 percent lower than in 2005.

Cost Management

█  To be the low-cost supplier on a delivered basis in our industry through ongoing cost reduction management.
2006 Targets	2006 Results	2007 Targets
Achieve 5-percent reduction in per-tonne potash conversion costs on a Canadian dollar basis.	¦ Canadian dollar potash conversion costs rose by 27 percent due to production curtailment.	1 Achieve 3-percent reduction in per-tonne potash conversion costs on a Canadian dollar basis.
Improve energy efficiency in Trinidad by 10 percent from 2005.	¤ Energy efficiency in Trinidad was improved by 3 percent from 2005.	2 Improve energy efficiency in Trinidad by 3 percent from 2006.
Achieve rock costs at Aurora and White Springs 3 percent below 2005.	¦ Rock costs were 5 percent above 2005, with power and reagent cost increases well above expectations.	3 Achieve rock costs at Aurora and White Springs 1 percent below 2006.
Achieve conversion costs for P2O5 production 9 percent better than 2005.	¤ P2O5 conversion costs were 3 percent better than 2005.	4 Maintain cash conversion costs for P2O5 at 2006 levels.
Reduce/avoid transportation and distribution expenses to achieve a level 3 percent below market rates.	l Transportation and distribution costs were 7 percent below market rates.	5 Reduce/avoid transportation and distribution expenses to achieve a level 3 percent below market rates.

¹ Dow Jones US Basic Materials index ² See reconciliation and description of certain non-GAAP measures on Page 33

POTASHCORP 2006 SUMMARY ANNUAL REPORT / BUSINESS ENVIRONMENT       23

Sales and Marketing

█  To remain the leader and preferred supplier of potash, nitrogen and phosphate products worldwide.
2006 Targets	2006 Results	2007 Targets
Increase North American realized prices for potash by 10 percent.	¤ North American realized potash prices increased by 7 percent.	1 Potash gross margin to exceed $800 million, more than 40 percent above 2006.
Increase offshore potash sales volumes by 5 percent.	¦ Offshore potash volumes declined by 12 percent due to extended price negotiations.	2 Phosphate gross margin to be up by 50 percent from 2006.
Increase North American realized feed prices by 20 percent.	l North American realized feed prices increased by 25 percent.	3 Nitrogen gross margin to exceed $325 million.
Increase realized nitric acid prices by 5 percent.	l Realized prices for nitric acid increased by 6 percent.	4 Outperform competitors on quality and service as measured by customer surveys.

Sustainability

█ To move closer to our goal of no harm to people, no accidents, no damage to the environment.
█ To have motivated and productive employees committed to our long-term goals.
█ To improve the socio-economic well-being of our communities.
█ To be a leader in corporate governance.
2006 Targets	2006 Results	2007 Targets
Reduce recordable injury rate by 30 percent from 2005.	¤ Achieved a record low recordable injury rate, representing a 23-percent reduction from 2005.	1 Reduce recordable injury rate by 15 percent from 2006.
Reduce lost-time injury rate by 30 percent from 2005.	¦ Lost-time injury rate was 8 percent above 2005.	2 Reduce lost-time injury rate by 40 percent from 2006.
Reduce reportable releases and permit excursions by 30 percent from 2005.	l Releases and permit excursions were reduced by 45 percent.	3 Reduce reportable releases and permit excursions by 10 percent from 2006.
Achieve total compliance on environmental, safety and security audit action items.	l 100-percent compliance was achieved.	4 Fill at least 75 percent of senior staff openings with internal candidates.
Fill at least 75 percent of senior staff openings internally.	¤ Filled 72 percent of senior staff openings with internal candidates.	5 Improve employee engagement, as measured by surveys, by 10 percent from 2006.
Maintain or improve employee engagement as measured by surveys.	N/A A new survey format used in 2006 made prior survey results incomparable. The new survey will serve as a baseline for future engagement surveys.	6 Achieve a 10-percent increase in individual participation in the matching gift program and a 20-percent increase in total donations.
Stabilize employee turnover at Trinidad operations.	l Employee turnover at Trinidad was reduced from 2005.	7 Remain in the top quartile of governance practices as measured by predetermined external reviews.
Continue to be engaged with community support projects at our plants and offices.	l Our company and people were engaged in volunteer efforts, cash donations and relationship-building activities.
Achieve a 10-percent increase in individual participation in the matching gift program and a 20-percent increase in total donations.	¦ Not achieved due to significant 2005 donations directed to Asian tsunami and Hurricane Katrina relief efforts. Excluding these two events, participation and donations exceeded 2005.
Remain in the top quartile of governance practices as measured by external reviews.	l Governance practices placed ninth among 204 S&P/TSX companies evaluated by Report on Business.

 
24
  SUSTAINABILITY / POTASHCORP 2006 SUMMARY ANNUAL REPORT

CONNECTING SUSTAINABILITY WITH LONG-TERM SHAREHOLDER VALUE

PotashCorp’s commitment to sustainability does more than measure financial, social and environmental performance. It brings our vision and values to the forefront when decisions are made. Ultimately, it improves the way we operate for all stakeholders, giving us greater strength for the future and building long-term shareholder value.		To hear audio interviews with senior management on key sustainability topics, see our online annual report,
Our sustainability committee has identified five key platforms that are important to our ongoing operational and financial success:		Keyword »
SAFETY	DIVERSITY
A safety-driven culture reduces the likelihood of accidents, injuries and death. While the well-being of employees and contractors is our main goal, the company also realizes operating efficiencies from fewer disruptions to work flow and lower insurance premiums. In 2006, our focus on safety led to a record low recordable injury rate.	Employees identified workplace diversity as an important factor in their engagement with PotashCorp. Diversity also gives us ideas and insights that are important for a company with global operations, investments and customers. To maximize the contribution of our broad workforce and focus on the strength we gain through diversity, we completed in-person and online diversity training with all our employees in 2006.
STAKEHOLDER ENGAGEMENT	ENVIRONMENT	PHILANTHROPY
Our long-term performance is directly related to our ability to understand stakeholder expectations and make decisions that position us to meet the needs of the people who depend on us. In 2006, we completed surveys with key customer groups, our investor base and community leaders at five locations. The results help shape decisions made by our Board of Directors and senior management team.	By restoring fertility to the world’s agricultural land, PotashCorp’s products are inherently beneficial to the environment. We strive to minimize the environmental impact of our operations and improve our energy efficiency. Over the past five years, our energy efficiency per tonne has improved by over 10 percent, resulting in significant savings.	A strong company can help build a healthy community. We contribute to organizations and events that improve the quality of life in the areas where we work and live. During the year, we continued to deliver significant support – in cash and through volunteer efforts – to various groups that improve our communities. By partnering with our employees through the matching gift program, we maximize the total value of our donations to a range of community partners.
	n  CEO DOYLE HEADS IFA SUSTAINABILITY INITIATIVE
	PotashCorp has taken a leadership role in our industry and has stepped to the forefront on issues of sustainability and transparency. In 2006, President and CEO Bill Doyle was elected by members of the International Fertilizer Industry Association (IFA) to be the organization’s first-ever Vice President for Sustainable Development. This position was created to strengthen the industry’s ability to address environmental issues and to promote the widespread adoption of sustainable business practices among the Association’s members.

POTASHCORP 2006 SUMMARY ANNUAL REPORT / SUSTAINABILITY          25

PROVIDING LEADERSHIP
AT THE BOARD LEVEL

Dallas Howe
Chair, PotashCorp Board of Directors

The evolution of PotashCorp’s corporate governance and sustainability practices is a priority for the company’s Board of Directors.

While our Board and its committees have historically been responsible for overseeing numerous aspects of sustainability – even before it became mainstream – we have expanded our role to better align with the company’s reporting practices. Each committee reviews sustainability performance in the areas within its particular mandate, using criteria utilized for the Dow Jones Sustainability Index. The corporate governance committee is responsible for sustainability issues that are not specifically addressed by other committees, such as philanthropy, human rights and economic issues involving relationships with customers and investors.

During the year, our Board continued to explore the areas of strategy, risk management and director education. At our March 2006 meeting, these areas converged as directors and management participated in a simulated crisis led by an outside facilitator. By looking ahead and developing practical, progressive plans for potential issues, we reduce risk for shareholders.

We also revised PotashCorp’s Core Values and Code of Conduct, giving employees greater direction about how to raise ethical or compliance concerns. Our people take pride in PotashCorp’s reputation and diligently protect it. Our Board and the audit committee receive regular reports on the company’s ethics and compliance activities and we review quantitative and qualitative accounts of compliance matters that are reported.

This commitment to the interests of stakeholders also shapes our philosophy on compensation. Company executives have a significant percentage of their compensation package tied to specific performance measures and we have expanded the number of employees with a percentage of their compensation connected to corporate performance. This ensures the focus of our people is closely aligned with the best interests of our stakeholders.

Our approach helps maintain a Board and management team that is focused on the expectations of PotashCorp’s stakeholders – not only for today but for generations to come.

  SETTING A
  NEW STANDARD
  FOR SAFETY

Safety is our No. 1 priority at PotashCorp and our emphasis on continuous improvement in this area led to a record low recordable injury rate in 2006.

Under the direction of the Senior Safety Leadership Team, each facility implemented a site safety action plan in 2006. These plans, which required the approval of division presidents, established goals and targets and examined safety from four key perspectives:

Accident Prevention – Each site looked for ways to eliminate actions with the potential to cause accidents.

Tracking Compliance – Each site completed a key procedures audit that quantified and analyzed compliance with our safety procedures.

Safety Attitudes – The Organizational Culture Diagnostic Instrument survey measured current attitudes toward safety and identified ways to further embed it into our culture.

Contractor Safety – PotashCorp implemented safety action plans that ensure contractors understand and live up to the same safety standards as our employees.

These plans remain integral to our safety strategy as we pursue further improvements.

Reducing Our Recordable Injury Rate

26          SUSTAINABILITY / POTASHCORP 2006 SUMMARY ANNUAL REPORT

LISTENING TO POTASHCORP STAKEHOLDERS

At the heart of sustainability is a desire to communicate with people outside the company who are affected by our performance. To encourage feedback, we use external consultants who annually survey key customer groups, investors and community leaders in the areas where we operate.

Here’s what they told us in 2006:

Fertilizer
Reliability of Long-Term Supply

Feed
PotashCorp’s Product Quality

Industrial Nitrogen
Most Important Factor After Price

Purified Phosphate
PotashCorp’s Product Quality

Customers

Each year, we ask fertilizer, feed, industrial nitrogen and purified phosphate customers to rate the performance of PotashCorp and our North American competitors. In 2006, these surveys reached customers who represented more than $1.3 billion in sales.

The findings both confirmed our beliefs and shed light on areas that can create opportunities for our company.

Our goal is to be a preferred supplier to our customers. By listening to their feedback, we strengthen our ability to achieve this goal.

Fertilizer

– PotashCorp received the industry’s highest ranking for reliability of supply, one of the most important criteria for customers.

– Our sales representatives were recognized as the most knowledgeable in the industry, which provides a significant advantage in maintaining strong relationships with customers.

– Ratings of our delivery and truck-loading capabilities suggest improvement is needed.

Feed

– Product quality issues are important to feed customers. PotashCorp earned the highest marks in this category.

– Phytase enzymes and alternative products are gaining traction with customers and are areas to be watched.

Industrial Nitrogen

– Availability of supply, quality and on-time delivery are important for industrial nitrogen customers. PotashCorp earned 93 of a possible 100 points for reliability of long-term supply and 95 for product quality. Customers were not asked to rate companies for on-time delivery.

– We earned the highest ratings for product quality, with customers’ most important measure of quality being the ability to meet product specifications.

– Rising costs for energy, raw materials and transportation are of importance to industrial nitrogen customers.

Purified Phosphate

– Product quality is the key criterion for purified phosphate customers. PotashCorp is consistently ranked as the industry leader in this category.

– Our scores on order entry and invoicing suggest these are areas where we can improve.

POTASHCORP 2006 SUMMARY ANNUAL REPORT / SUSTAINABILITY          27

Investors

Our investor survey, conducted in June/July 2006, included 19 buy-side (▲) analysts, some of whom held PotashCorp shares, and six sell-side (l) analysts.

Key Findings

– Potash is considered the biggest value driver for our company, with emerging markets’ desire for food as the key factor of influence.

– Many investors believe the agriculture environment will be even more positive within three years.

– Over three-quarters of investors view the potash sector as a long-term investment while nitrogen and phosphate are seen as more short-term and cyclical.

– Most investors place priority on growth and advocate strategic investment in assets.

Community Leaders

In 2006, surveys were completed with community leaders at our operations in Rocanville, Augusta, Lanigan, White Springs and Trinidad.

The surveys measured perceptions of:

– our community involvement;

– our business practices, specifically in the areas of safety, health and environment; and

– our impact on local economies.

Using the combined average scores from these five surveys, PotashCorp earned the following ratings on a scale from 1 (Not Performing Well) to 5 (Performing Very Well):

Community Involvement	4.3/5
Business Practices	4.3/5
Economic Value	4.4/5
Overall Rating	4.3/5

The surveys consistently showed high respect for our business practices. The impact on the local environment was commonly stressed, reminding us that focusing on sustainability and environmental initiatives will continue to be important to our long-term community support.

█ IMPROVING OUR COMMUNITIES

Engaging with local communities improves the quality of life where we operate. It can also strengthen relationships by giving us insight into stakeholders’ expectations and building support for our operations. This is critical as we pursue potential expansions and mining permits.

In 2006, PotashCorp:

– took an active role in sponsoring community events, including the PotashCorp Vanier Cup in Saskatoon (Canada’s university football championship) and the Cricket World Cup in Trinidad;

– increased awareness of our matching gift program and made improvements that reduced the minimum and increased the maximum contribution levels; and

– was named the Top Corporate Citizen by the North Suburban United Way, a chapter of the Metropolitan United Way of Chicago. We also received the Campaign Chair’s Choice Award from the United Way of Saskatoon and Area for the best overall performance by a workplace campaign, which reflected record employee contributions at the local minesites and the corporate office.

█ INVOLVING BUSINESS PARTNERS IN SUSTAINABILITY

In 2006, we encouraged business partners to embrace sustainability, knowing that more can be achieved if we act together.

Suppliers – To date, we have received documentation confirming human rights policies from approximately 97 percent of our key vendors and no companies have been removed from our supplier list for their human rights performance. We continue to obtain documentation from remaining companies.

Customers – PotashCorp’s new “Enriching” program (www.enriching.com) recognizes agricultural retailers and dealers who are promoting sustainable business practices in their communities. Our goal is to share customers’ sustainability efforts, encouraging more business partners to adopt practices that support sustainable development.

 
28
  FINANCIAL OVERVIEW / POTASHCORP 2006 SUMMARY ANNUAL REPORT

FINANCIAL OVERVIEW

Get inside the numbers
The condensed consolidated financial statements in this Summary Annual Report provide an overview of PotashCorp’s performance. For complete consolidated financial statements, notes and our Management’s Discussion & Analysis,
go to Keyword »

█ MANAGEMENT’S RESPONSIBILITY
FOR FINANCIAL REPORTING

PotashCorp management is responsible for the condensed consolidated financial statements and related financial information, which have been prepared in accordance with accounting principles generally accepted in Canada and include amounts based on estimates and judgments. Financial information included elsewhere in this report is consistent with the consolidated financial statements. Management is also responsible for establishing and maintaining an adequate system of internal control over financial reporting.

In order to meet its responsibility and ensure integrity of financial reporting, management has established a code of business ethics, and maintains appropriate internal controls and accounting systems.

The condensed consolidated financial statements and all other information in this Summary Annual Report should be read in conjunction with the audited consolidated financial statements and Management’s Discussion & Analysis of Financial Condition and Results of Operations.

Our independent registered chartered accountants, Deloitte & Touche LLP, have completed their audit and submitted their report.

W. Doyle
President and Chief Executive Officer

W. Brownlee
Executive Vice President
and Chief Financial Officer

February 14, 2007

█ REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS

TO THE SHAREHOLDERS OF POTASH CORPORATION OF SASKATCHEWAN INC.

We have audited the consolidated statements of financial position of Potash Corporation of Saskatchewan Inc. and subsidiaries (the “Company”) as of December 31, 2006 and 2005, and the related consolidated statements of operations and retained earnings and cash flows for each of the three years in the period ended December 31, 2006. We also have audited management’s assessment of the effectiveness of the Company’s internal control over financial reporting and the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006. Such consolidated financial statements, management’s assessment of the effectiveness of the Company’s internal control over financial reporting and our reports thereon (which audit report on the consolidated financial statements includes a separate report titled Comments by Independent Registered Chartered Accountants on Canada – United States of America Reporting Differences referring to changes in accounting principles) dated February 14, 2007, expressing unqualified opinions (which are not included herein) appear in the Company’s 2006 Financial Review. The accompanying condensed consolidated financial statements are the responsibility of the Company’s management. Our responsibility, in accordance with the applicable Assurance Guideline of The Canadian Institute of Chartered Accountants, is to express an opinion on such condensed consolidated financial statements in relation to the complete consolidated financial statements.

In our opinion, the accompanying condensed consolidated statements of financial position as of December 31, 2006 and 2005, and the related condensed consolidated statements of operations and retained earnings and cash flows for each of the two years in the period ended December 31, 2006 fairly summarize, in all material respects, the related complete consolidated financial statements in accordance with the criteria described in the Guideline referred to above.

These summarized financial statements do not contain all the disclosures required by Canadian generally accepted accounting principles. Readers are cautioned that these statements may not be appropriate for their purposes. For more information on the Company’s financial position, results of operations and cash flow, reference should be made to the related complete consolidated financial statements.

Independent Registered Chartered Accountants
Saskatoon, Canada

February 14, 2007

POTASHCORP 2006 SUMMARY ANNUAL REPORT / FINANCIAL OVERVIEW       29

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

as at December 31	in millions of US dollars except share amounts
		2006		2005
Assets						Management’s Discussion (unaudited)
Current assets						Property, plant and equipment Additions of $508.6 million in 2006 include $216.7 million to bring back idled potash capacity at our Allan and Lanigan operations.
Cash and cash equivalents		$	325.7	$	93.9
Accounts receivable			442.3		453.3
Inventories			501.3		522.5
Prepaid expenses and other current assets			40.9		41.1
			1,310.2		1,110.8
Property, plant and equipment			3,525.8		3,262.8
Other assets			1,254.7		852.8	Other assets With further investments in Sinofert ($126.3 million), APC ($3.7 million) and SQM ($235.0 million), the market value of our offshore investments exceeded book value by $1,653.2 million at year-end.
Intangible assets			29.3		34.5
Goodwill			97.0		97.0
		$	6,217.0	$	5,357.9
Liabilities
Current liabilities
Short-term debt		$	157.9	$	252.2
Accounts payable and accrued charges			545.2		842.7	Accounts payable and accrued charges Current income taxes payable declined by $160.4 million as a result of Canadian installments for 2006 based on expectations higher than actual results, while the 2005 required installments were significantly lower than taxes accrued for that year. A reclassification of amounts between current and future income tax liabilities and lower Canadian income tax rates also contributed to the decrease. Hedging margin deposits were down $150.9 million with lower natural gas prices and reduced volumes of derivative contracts outstanding.
Current portion of long-term debt			400.4		1.2
			1,103.5		1,096.1
Long-term debt			1,357.1		1,257.6
Future income tax liability			632.1		543.3
Accrued pension and other post-retirement benefits			219.6		213.9
Accrued environmental costs and asset retirement obligations			110.3		97.3
Other non-current liabilities and deferred credits			14.1		17.2
			3,436.7		3,225.4
Shareholders’ Equity
Share capital			1,431.6		1,379.3	Long-term debt The issue of $500.0 million in 30-year notes, with an interest rate of 5.875 percent, will provide capital to repay $400.0 million of notes, with an interest rate of 7.125 percent, maturing in 2007 and for general corporate purposes.
Unlimited authorization of common shares without par value; issued and outstanding 104,801,049 and 103,593,792 at December 31, 2006 and 2005, respectively
Contributed surplus			62.3		36.3
Retained earnings			1,286.4		716.9
			2,780.3		2,132.5
		$	6,217.0	$	5,357.9

Approved by the Board of Directors,

Director	Director

30       FINANCIAL OVERVIEW / POTASHCORP 2006 SUMMARY ANNUAL REPORT

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

for the years ended December 31		in millions of US dollars except per-share amounts
			2006			2005
Sales			$	3,766.7		$	3,847.2		Management’s Discussion (unaudited)
Less:	Freight			255.8			249.7		Gross margin Although potash shipments were severely constrained for the first seven months of 2006, the decline in gross margin was not substantial. Nitrogen gross margin benefited from a strong pricing environment, while phosphate gross margin was the highest since 1999.
	Transportation and distribution			134.1			121.9
	Cost of goods sold			2,374.8			2,350.6
Gross Margin				1,002.0			1,125.0
Selling and administrative				158.4			144.5
Provincial mining and other taxes				66.5			137.2
Foreign exchange (gain) loss				(4.4	)		12.5
Other income				(94.0	)		(61.8	)
				126.5			232.4		Provincial mining and other taxes Saskatchewan Potash Production Tax declined as a result of lower potash gross margin and the deductibility of capital expenditures on potash, most of it to bring back idled capacity.
Operating Income				875.5			892.6
Interest Expense				85.6			82.3
Income Before Income Taxes				789.9			810.3
Income Taxes				158.1			267.4		Other income Dividend income and earnings from equity investments comprised $75.5 million of 2006 other income (2005 – $61.3). The increase was primarily attributable to higher dividend income from ICL and a $3.0-million dividend from Sinofert received in 2006.
Net Income				631.8			542.9
Retained Earnings, Beginning of Year				716.9			701.5
Repurchase of Common Shares				–			(462.5	)
Dividends				(62.3	)		(65.0	)	Income taxes The combination of income tax refunds received, changes in tax rates and lower operating income led to a reported tax rate of approximately 20 percent in 2006 compared to 33 percent in 2005. Exclusive of income tax refunds and the effect of rate changes on our future income tax liability, our effective tax rate was 30 percent in 2006.
Retained Earnings, End of Year			$	1,286.4		$	716.9
Net Income per Share – Basic			$	6.08		$	5.00
Net Income per Share – Diluted			$	5.95		$	4.89
Dividends per Share			$	0.60		$	0.60

POTASHCORP 2006 SUMMARY ANNUAL REPORT / FINANCIAL OVERVIEW       31

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

for the years ended December 31		in millions of US dollars
		2006					2005
Operating Activities										Management’s Discussion (unaudited)
Net income		$	631.8				$	542.9		Cash provided by operating activities Changes provided by operating working capital negatively impacted cash provided by operating activities. Operating cash flow due to changes in accounts payable and accrued charges reduced cash flow from operations during 2006 due to: (1) reductions in income tax payable because of paying 2005 Canadian income taxes due in first-quarter 2006 and making Canadian installments for 2006 based on more optimistic expectations than actual results; (2) a decline in hedging margin deposits due to falling gas prices and reduced volumes of derivative contracts outstanding; and (3) payments of performance-based compensation accruals that were outstanding at December 31, 2005.
Adjustments to reconcile net income to cash provided by operating activities
Depreciation and amortization	242.4				242.4
Other	66.6				75.0
Subtotal of adjustments			309.0					317.4
Changes in non-cash operating working capital
Accounts receivable	11.0				(107.6	)
Inventories	13.9				(119.9	)
Prepaid expenses and other current assets	0.2				(5.8	)
Accounts payable and accrued charges	(269.1)				238.1
Subtotal of changes in non-cash operating working capital			(244.0	)				4.8
Cash provided by operating activities			696.8					865.1
Investing Activities
Additions to property, plant and equipment			(508.6	)				(382.7	)
Purchase of long-term investments			(352.5	)				(190.9	)
Proceeds from disposal of property, plant and equipment and long-term investments			22.0					12.4
Other assets and intangible assets			(0.6	)				5.9
Cash used in investing activities			(839.7	)				(555.3	)
Cash before financing activities			(142.9	)				309.8
										Repurchase of common shares We repurchased 9,500,000 common shares – at an average price of less than $90 per share – during 2005 under our normal course issuer bid. We completed the repurchase program by December 31, 2005 and did not initiate a new program in 2006.
Financing Activities
Proceeds from (repayment of) long-term debt obligations			482.6					(10.1	)
(Repayment of) proceeds from short-term debt obligations			(94.3	)				158.7
Dividends			(60.9	)				(65.4	)
Repurchase of common shares			–					(851.9	)
Issuance of common shares			47.3					93.9
Cash provided by (used in) financing activities			374.7					(674.8	)
Increase (Decrease) in Cash and Cash Equivalents			231.8					(365.0	)
Cash and Cash Equivalents, Beginning of Year			93.9					458.9
Cash and Cash Equivalents, End of Year		$	325.7				$	93.9
Supplemental cash flow disclosure
Interest paid		$	106.8				$	86.3
Income taxes paid		$	226.8				$	141.6

32       FINANCIAL OVERVIEW / POTASHCORP 2006 SUMMARY ANNUAL REPORT

5 YEAR FINANCIAL AND OPERATING DATA

FINANCIAL DATA (in millions of US dollars except per-share amounts)

	2006		2005		2004		2003			2002
Sales
Potash		1,227.5		1,341.1		1,056.1		758.7			669.0
Nitrogen		1,284.1		1,368.8		1,210.4		1,156.4			841.4
Phosphate		1,255.1		1,137.3		977.9		883.9			714.0
Total sales		3,766.7		3,847.2		3,244.4		2,799.0			2,224.4
Gross margin
Potash		561.1		707.4		422.8		203.7			218.0
Nitrogen		315.6		318.7		242.8		193.2			47.4
Phosphate		125.3		98.9		15.8		(16.5	)		41.9
Total gross margin		1,002.0		1,125.0		681.4		380.4			307.3
Capital expenditures
Potash		293.2		165.5		92.2		50.9			35.5
Nitrogen		75.5		99.3		62.1		39.8			47.0
Phosphate		119.7		109.5		56.8		55.3			126.3
Corporate/Sales		20.2		8.4		9.4		4.7			3.4
Total capital expenditures		508.6		382.7		220.5		150.7			212.2
EBITDA*		1,117.9		1,135.0		754.3		171.8			386.0
Net income (loss)		631.8		542.9		298.6		(126.3	)		53.6
Net income (loss) per share – diluted		5.95		4.89		2.70		(1.21	)		0.51
Cash flow provided by operating activities		696.8		865.1		658.3		385.5			316.4
Cash flow prior to working capital changes*		940.8		860.3		538.3		368.5			289.2
Total assets		6,217.0		5,357.9		5,126.8		4,567.3			4,685.6
Long-term debt		1,357.1		1,257.6		1,258.6		1,268.6			1,019.9
Shareholders’ equity		2,780.3		2,132.5		2,385.6		1,973.8			2,092.5

OPERATING DATA (in thousands of tonnes except employee numbers)

	2006		2005		2004		2003		2002
Employees at year-end		4,871		4,879		4,906		4,904		5,199
Potash production (KCl) tonnage		7,018		8,816		7,914		7,094		6,447
Nitrogen production (N) tonnage		2,579		2,600		2,558		2,619		2,990
Phosphate production (P2O5) tonnage		2,108		2,097		1,962		1,861		1,512
Potash sales – KCl tonnes		7,196		8,164		8,276		7,083		6,327
Nitrogen sales – product tonnes		4,820		5,220		5,350		6,080		6,391
Phosphate sales – product tonnes		4,078		3,971		3,793		3,647		2,863

* See reconciliation and description of certain non-GAAP measures on Page 33

FINANCIAL TERMS

Debt to capital

= total debt / (total debt + total shareholders’ equity)

Net debt to capital

= (total debt – cash and cash equivalents) / (total debt – cash and cash equivalents + total shareholders’ equity)

Current income taxes

= income tax expense (recovery) – provision for (recovery of) future income tax

Cash flow

= net income or loss + income taxes + interest – current income + depreciation and amortization

Cash flow return

= cash flow / average (total assets) – cash and cash equivalents + accumulated depreciation and amortization – accounts payable and accrued charges)

EBITDA

= earnings (net income or loss) before interest, taxes, depreciation and amortization

Return on assets

= net income or loss / total assets

POTASHCORP 2006 SUMMARY ANNUAL REPORT / FINANCIAL OVERVIEW       33

FINANCIAL PERFORMANCE INDICATORS (in millions of US dollars)

NON-GAAP FINANCIAL MEASURES AND FOOTNOTES TO RECONCILIATIONS AND CALCULATIONS

The following information is included for convenience only. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles (“GAAP”). EBITDA, cash flow prior to working capital changes, cash flow, cash flow return, net debt, net debt to capital and consolidated net sales are not measures of financial performance (nor do they have standardized meanings) under either Canadian GAAP or US GAAP. In evaluating these measures, investors should consider that the methodology applied in calculating such measures may differ among companies and analysts.

The company uses both GAAP and certain non-GAAP measures to assess performance. Management believes these non-GAAP measures provide useful supplemental information to investors in order that they may evaluate PotashCorp’s financial performance using the same measures as management. Management believes that, as a result, the investor is afforded greater transparency in assessing the financial performance of the company. These non-GAAP financial measures should not be considered as a substitute for, nor superior to, measures of financial performance prepared in accordance with GAAP.

RECONCILIATIONS AND CALCULATIONS

	2006			2005			2004			2003			2002			2001		1996
Net income (loss)		631.8			542.9			298.6			(126.3	)		53.6			121.2		209.0
Income taxes		158.1			267.4			131.7			(20.6	)		30.2			68.2		43.7
Interest expense		85.6			82.3			84.0			91.3			83.1			80.3		44.7
Depreciation and amortization		242.4			242.4			240.0			227.4			219.1			185.7		90.1
EBITDA1		1,117.9			1,135.0			754.3			171.8			386.0			455.4		387.5
Cash flow prior to working capital changes2		940.8			860.3			538.3			368.5			289.2
Accounts receivable		11.0			(107.6	)		(51.9	)		(39.5	)		(11.1	)
Inventories		13.9			(119.9	)		(10.5	)		11.8			(18.2	)
Prepaid expenses and other current assets		0.2			(5.8	)		(6.3	)		11.4			(3.9	)
Accounts payable and accrued charges		(269.1	)		238.1			188.7			33.3			60.4
Changes in non-cash operating working capital		(244.0	)		4.8			120.0			17.0			27.2
Cash provided by operating activities		696.8			865.1			658.3			385.5			316.4
Net income (loss)		631.8			542.9			298.6			(126.3	)		53.6
Total assets		6,217.0			5,357.9			5,126.8			4,567.3			4,685.6
Return on assets		10.2	%		10.1	%		5.8	%		(2.8	%)		1.1	%
Net income (loss)		631.8			542.9			298.6			(126.3	)		53.6
Income taxes		158.1			267.4			131.7			(20.6	)		30.2
Interest expense		85.6			82.3			84.0			91.3			83.1
Current income taxes		(108.1	)		(227.3	)		(105.4	)		–			(24.2	)
Depreciation and amortization		242.4			242.4			240.0			227.4			219.1
Cash flow3		1,009.8			907.7			648.9			171.8			361.8
Total assets		6,217.0			5,357.9			5,126.8			4,567.3			4,685.6
Cash and cash equivalents		(325.7	)		(93.9	)		(458.9	)		(4.7	)		(24.5	)
Accumulated depreciation of property, plant and equipment		2,073.8			1,927.7			1,754.9			1,576.2			1,454.7
Accumulated amortization of other assets and intangible assets		72.6			66.4			65.1			70.1			59.1
Accumulated amortization of goodwill		7.3			7.3			7.3			7.3			7.3
Accounts payable and accrued charges		(545.2	)		(842.7	)		(599.9	)		(380.3	)		(347.0	)
Adjusted assets		7,499.8			6,422.7			5,895.3			5,835.9			5,835.2
Average adjusted assets		6,961.3			6,159.0			5,865.6			5,835.6			5,719.7
Cash flow return3		14.5	%		14.7	%		11.1	%		2.9	%		6.3	%
Short-term debt		157.9			252.2			93.5			176.2			473.0
Current portion of long-term debt		400.4			1.2			10.3			1.3			3.4
Long-term debt		1,357.1			1,257.6			1,258.6			1,268.6			1,019.9
Total debt		1,915.4			1,511.0			1,362.4			1,446.1			1,496.3
Cash and cash equivalents		(325.7	)		(93.9	)		(458.9	)		(4.7	)		(24.5	)
Net debt4		1,589.7			1,417.1			903.5			1,441.4			1,471.8
Shareholders’ equity		2,780.3			2,132.5			2,385.6			1,973.8			2,092.5
Total debt to capital		40.8	%		41.5	%		36.4	%		42.3	%		41.7	%
Net debt to capital4		36.4	%		39.9	%		27.5	%		42.2	%		41.3	%
Sales		3,766.7			3,847.2			3,244.4			2,799.0			2,224.4			2,380.8		1,604.9
Freight		255.8			249.7			238.7			234.5			215.2			216.7		144.6
Transportation and distribution		134.1			121.9			104.3			98.7			80.5			83.3		49.1
Net sales5		3,376.8			3,475.6			2,901.4			2,465.8			1,928.7			2,080.8		1,411.2

Certain of the prior years’ figures have been reclassified to conform with the current year’s presentation.

FOOTNOTES

1	PotashCorp uses EBITDA as a supplemental financial measure of its operational performance. Management believes EBITDA to be an important measure as it excludes the effects of items which primarily reflect the impact of long-term investment decisions, rather than the performance of the company’s day-to-day operations. As compared to net income (loss) according to GAAP, this measure is limited in that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in the company’s business. Management evaluates such items through other financial measures such as capital expenditures and cash flow provided by operating activities. The company believes that this measurement is useful to measure a company’s ability to service debt and to meet other payment obligations or as a valuation measurement.
2	Cash flow prior to working capital changes is defined as the cash provided by operating activities, exclusive of changes in non-cash operating working capital. PotashCorp uses cash flow prior to working capital changes as a supplemental financial measure in its evaluation of liquidity. Management believes that adjusting principally for the swings in non-cash working capital items due to seasonality assists management in making long-term liquidity assessments. The company also believes that this measurement is useful as a measure of liquidity or as a valuation measurement.
3	PotashCorp uses cash flow and cash flow return as supplemental measures to evaluate the performance of the company’s assets in terms of the cash flow they have generated. Calculated on the total cost basis of the company’s assets rather than on the depreciated value, these measures reflect cash returned on the total investment outlay. The company believes these measures are one of the best predictors of shareholder value. As such, management believes this information to be useful to investors.
4	Management believes that net debt and net-debt-to-capital ratio are useful to investors because they are helpful in determining the company’s leverage. It also believes that, since the company has the ability to and may elect to use a portion of cash and cash equivalents to retire debt or to incur additional expenditures without increasing debt, it is appropriate to apply cash and cash equivalents to debt in calculating net debt and net debt to capital. PotashCorp believes that this measurement is useful as a financial leverage measure.
5	Management includes net sales in its segment disclosures in the consolidated financial statements pursuant to Canadian GAAP, which requires segmentation based upon the company’s internal organization and reporting of revenue and profit measures derived from internal accounting methods. Net sales (and related per-tonne amounts and other ratios) are primary revenue measures it uses and reviews in making decisions about operating matters on a business segment basis. These decisions include assessments about potash, nitrogen and phosphate performance and the resources to be allocated to these segments. It also uses net sales (and related per-tonne amounts and other ratios) for business segment planning and monthly forecasting. Net sales are calculated as sales revenues less freight, transportation and distribution expenses. Net sales presented on a consolidated basis rather than by business segment is considered a non-GAAP financial measure.

 
34
  BOARD AND SENIOR MANAGEMENT / POTASHCORP 2006 SUMMARY ANNUAL REPORT

POTASHCORP BOARD OF DIRECTORS

COMMITTEES

1	Executive
2	Corporate governance and nominating
3	Compensation
4	Safety, health and environment
5	Audit

Learn more about the PotashCorp Board of Directors

in our online Annual Report, Keyword »

POTASHCORP 2006 SUMMARY ANNUAL REPORT / BOARD AND SENIOR MANAGEMENT       35

CORPORATE OFFICERS AND KEY MANAGEMENT

 
36
  SHAREHOLDER INFORMATION / POTASHCORP 2006 SUMMARY ANNUAL REPORT

SHAREHOLDER INFORMATION

█ ANNUAL MEETING

The Annual Shareholders Meeting will be held at 10:30 a.m. Central Standard Time May 3, 2007 in the Adam Ballroom, Delta Bessborough Hotel, 601 Spadina Crescent East, Saskatoon, Saskatchewan.

It will be carried live on the company’s website, www.potashcorp.com.

Holders of common shares as of March 12, 2007 are entitled to vote at the meeting and are encouraged to participate.

█ DIVIDENDS

Dividend amounts paid to shareholders resident in Canada are adjusted by the exchange rate applicable on the dividend record date. Dividends are normally paid in February, May, August and November, with record dates normally set approximately three weeks earlier. Future cash dividends will be paid out of, and are conditioned upon, the company’s available earnings. Shareholders who wish to have their dividends deposited directly to their bank accounts should contact the transfer agent and registrar, CIBC Mellon Trust Company.

Registered shareholders can have dividends reinvested in newly issued common shares of PotashCorp at prevailing market rates.

█ INFORMATION FOR SHAREHOLDERS OUTSIDE CANADA

Dividends paid to residents in countries with which Canada has bilateral tax treaties are generally subject to the 15-percent Canadian non-resident withholding tax. There is no Canadian tax on gains from the sale of shares (assuming ownership of less than 25 percent) or debt instruments of the company owned by non-residents not carrying on business in Canada. No government in Canada levies estate taxes or succession duties.

█ INVESTOR INQUIRIES

Denita Stann, Director, Investor Relations
Canada: (800) 667-0403     US: (800) 667-3930
e-mail: ir@potashcorp.com

Visit us at www.potashcorp.com

█ COMMON SHARE TRANSFER AGENT

In Canada:		In the United States:
CIBC Mellon Trust Company		Mellon Investor Services, L.L.C.
P.O. Box 7010		480 Washington Boulevard
Adelaide Street Postal Station		Jersey City NJ  07310-1900
Toronto ON  M5C 2W9
Phone:	(416) 643-5500 (800) 387-0825	Phone: (800) 526-0801
Website: www.cibcmellon.com		Website: www.mellon.com

Shareholders with address changes or inquiries concerning their Potash Corporation of Saskatchewan Inc. stock are invited to contact:

CIBC Mellon Trust (address above), or
Joseph A. Podwika, Corporate Secretary
PotashCorp
Suite 500, 122 – 1st Avenue South
Saskatoon SK S7K 7G3

█ OWNERSHIP

On February 20, 2007, there were 1,762 holders of record of the company’s common shares.

█ SHARES LISTED

Toronto Stock Exchange
New York Stock Exchange
Ticker Symbol: POT

█ FINANCIAL REPORTS AND NEWS RELEASES

Annual reports, interim reports and news releases are available on our website or by contacting the Investor Relations department.

█ NYSE CORPORATE GOVERNANCE

Disclosure contemplated by 303A.11 of the NYSE’s listed company manual is available on our website at www.potashcorp.com. The company has filed annual written affirmations/certifications pursuant to the NYSE listing company manual. The certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 are filed as exhibits to our 2006 Annual Report on Form 10-K.

█ CORPORATE OFFICES
Canada:	US:
Suite 500	Suite 400
122 – 1st Avenue South Saskatoon SK  S7K 7G3 Phone: (306) 933-8500	1101 Skokie Boulevard Northbrook IL  60062 Phone: (847) 849-4200

POTASHCORP 2006 SUMMARY ANNUAL REPORT / SHAREHOLDER INFORMATION       37

SHAREHOLDER INFORMATION

█ COMMON SHARE PRICES AND VOLUMES

This table sets forth the high and low prices, as well as the volumes, for the company’s common shares as traded on the Toronto Stock Exchange and the New York Stock Exchange (composite transactions) on a quarterly basis. Potash Corporation of Saskatchewan Inc. is on the S&P/TSX 60 and the S&P/TSX Composite indices.

(Note: Data are adjusted for a stock split effective August 9, 2004 on the TSX and August 16, 2004 on the NYSE.)

		Toronto Stock Exchange1					New York Stock Exchange
			High	Low	Volume		High	Low	Volume
2006
First Quarter			113.88	91.50	21,008,219		99.24	78.15	55,217,500
Second Quarter			117.00	86.79	18,686,817		106.40	78.84	54,130,300
Third Quarter			118.46	92.01	14,141,380		106.48	82.03	41,196,600
Fourth Quarter			170.89	113.25	19,487,859		147.19	101.50	61,695,700
Year 2006			170.89	86.79	73,324,275		147.19	78.15	212,240,100
2005
First Quarter			113.92	89.11	18,297,446		92.00	72.91	32,012,000
Second Quarter			132.11	98.39	13,432,009		106.67	79.27	29,833,400
Third Quarter			137.99	108.23	14,451,392		115.15	92.85	24,526,600
Fourth Quarter			108.89	84.76	22,180,812		93.32	72.77	46,103,900
Year 2005			137.99	84.76	68,361,659		115.15	72.77	132,475,900
2004
First Quarter			57.93	50.96	12,670,142		44.75	38.13	15,905,400
Second Quarter			64.87	54.58	12,009,046		48.50	39.46	23,604,000
Third Quarter			81.00	60.75	13,237,872		64.25	45.78	30,366,000
Fourth Quarter			104.06	76.05	16,211,631		84.00	60.65	29,245,700
Year 2004			104.06	50.96	54,128,691		84.00	38.13	99,121,100
	1 Trading prices are in Cdn$					Source: Thomson Financial

Yearly POT Stock Price Since Inception – NYSE Composite

POT Share Ownership – Geographic Distribution 2006 Monthly POT Stock Price – NYSE Composite

 
38
  GLOSSARY / POTASHCORP 2006 SUMMARY ANNUAL REPORT

█ FORWARD-LOOKING STATEMENTS

This 2006 Summary Annual Report contains forward-looking statements. These statements can be identified by expressions of belief, expectation or intention, as well as those statements that are not historical fact. These statements are based on certain factors and assumptions as set forth in this Summary Annual Report including expected growth, results of operations, performance and business prospects and opportunities. While the company considers these factors and assumptions to be reasonable based on information currently available, they may prove to be incorrect. A number of factors could cause actual results to differ materially from those in the forward-looking statements, including, but not limited to: fluctuations in supply and demand in fertilizer, sulfur, transportation and petrochemical markets; changes in competitive pressures, including pricing pressures; risks associated with natural gas and other hedging activities; changes in capital markets; changes in currency and exchange rates; unexpected geological or environmental conditions, including water inflow; and government policy changes. Additional risks and uncertainties can be found in our Form 10-K for the fiscal year ended December 31, 2006 under the captions “Forward-Looking Statements” and “Item 1A – Risk Factors” and in our filings with the US Securities and Exchange Commission and the Canadian provincial securities commissions. Forward-looking statements are given only as at the date of this report and the company disclaims any obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. In the case of guidance, should subsequent events show that the forward-looking statements released herein may be materially off-target, the company will evaluate whether to issue and, if appropriate following such review, issue a news release updating guidance or explaining reasons for the difference.

█ MARKET AND INDUSTRY DATA STATEMENT

Some of the market and industry data contained in this Summary Annual Report are based on internal surveys, market research, independent industry publications or other publicly available information. Although we believe that the independent sources used by us are reliable, we have not independently verified and cannot guarantee the accuracy or completeness of this information. Similarly, we believe our internal research is reliable, but such research has not been verified by any independent sources.

Information in the preparation of this Summary Annual Report is based on statistical data and other material available at February 20, 2007.

█ SOURCES, ABBREVIATIONS, TERMS AND MEASURES

ABBREVIATED COMPANY NAMES AND SOURCES*
Agrium	Agrium Inc. (TSX and NYSE: AGU), Canada
APC	Arab Potash Company Ltd. (Amman: ARPT), Jordan
Belaruskali	PA Belaruskali, Belarus
Canpotex	Canpotex Limited, Canada
CVRD	Companhia Vale do Rio Doce, Brazil
Doane	Doane Agricultural Services, USA
Fergus/Peters	Fergus/Peters Group Inc., USA
Fertecon	Fertecon Limited and Fertecon Research Centre Limited, UK
Israel Chemicals (ICL)	Israel Chemicals Ltd. (Tel Aviv: ICL), Israel
IFA	International Fertilizer Industry Association, France
IMF	International Monetary Fund, USA
Intrepid	Intrepid Potash, USA
IPNI	International Plant Nutrition Institute, USA
Kali & Salz (K+S)	Kali und Salz GmbH (Xetra: SDF), Germany
Mosaic	The Mosaic Company (NYSE: MOS), USA
NYMEX	New York Mercantile Exchange, USA
PIRA	PIRA Energy Group, USA
Silvinit	JSC Silvinit, Russia
Sinofert	Sinofert Holdings Limited (HKSE, 0297.HK), China
SQM	Sociedad Quimica y Minera de Chile S.A. (Santiago Bolsa de Comercio Exchange, NYSE: SQM), Chile
Thomson Financial	Thomson Financial Inc., USA
TSX	Toronto Stock Exchange, Canada
Uralkali	JSC Uralkali, Russia
USDA	US Department of Agriculture, USA
Yara	Yara International (Formerly Hydro Agri and Hydro Gas and Chemicals) (Oslo: YAR), Norway
GLOSSARY OF TERMS
2006E	2006 Estimated
2007F	2007 Forecast
Canpotex	An export company owned by all Saskatchewan producers of potash (PotashCorp, Mosaic and Agrium)
GLOSSARY OF TERMS
Consumption vs Demand	Product applied vs product purchased
Greenfield	New operation built on undeveloped site
North America	The North American market includes Canada and the United States
Offshore	Offshore markets include all markets except Canada and the United States
PotashCorp	Potash Corporation of Saskatchewan Inc. (PCS) and its direct or indirect subsidiaries, individually or in any combination, as applicable
SCIENTIFIC TERMS
Nitrogen	NH3	ammonia (anhydrous), 82.2% N
	HNO3	nitric acid, 22% N (liquid)
	UAN	nitrogen solutions, 28-32% N (liquid)
Phosphate	P2O5	phosphoric acid (liquid)
	MGA	merchant grade acid, 54% P2O5 (liquid)
	DAP	diammonium phosphate, 46% P2O5 (solid)
	MAP	monoammonium phosphate, 52% P2O5 (solid)
	SPA	superphosphoric acid, 70% P2O5 (liquid)
	MCP	monocalcium phosphate, 48.1% P2O5 (solid)
	DCP	dicalcium phosphate, 42.4% P2O5 (solid)
	DFP	defluorinated phosphate, 41.2% P2O5 (solid)
Potash	KCl	potassium chloride, 60-63.2% (solid)
FERTILIZER MEASURES
P2O5 tonne	Measures the phosphorus content of fertilizers having different chemical analyses
N tonne	Measures the nitrogen content of fertilizers having different chemical analyses
Product tonne	Standard measure of the weights of all types of potash, phosphate and nitrogen products

* Where PotashCorp is listed as a source in conjunction with external sources, we have supplemented the external data with internal analysis.

POTASHCORP 2006 SUMMARY ANNUAL REPORT / POTASHCORP AT A GLANCE

WE HAVE A STRONG FOUNDATION...

With consistent strong performance and three consecutive years of record earnings, PotashCorp has built a strong and diverse enterprise with increasing value.

Our market capitalization has grown from $9 billion to $15 billion in two years and total assets now exceed $6 billion.

...FOR BUILDING FUTURE PERFORMANCE

From this foundation, we plan for even stronger performance as we move forward. For 2007, we are targeting earnings per share in the range of $6.25-$7.25 per share, with gross margin approximating $1.3 billion.

Source: PotashCorp

* See reconciliation and description of certain non-GAAP measures on Page 33