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SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2002

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-10351

POTASH CORPORATION OF SASKATCHEWAN INC.

306-933-8500

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 x  NO o

APPLICABLE ONLY TO CORPORATE ISSUERS:

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

     As at October 31, 2002, Potash Corporation of Saskatchewan Inc. had 52,057,190 Common Shares outstanding.

PART I.  FINANCIAL INFORMATION

      These interim consolidated financial statements do not include all disclosures normally provided in annual financial statements and should be read in conjunction with the most recent annual financial statements. In management’s opinion, the unaudited financial information includes all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly such information. Interim results are not necessarily indicative of the results expected for the fiscal year.

Potash Corporation of Saskatchewan Inc.

Consolidated Statements of Income and Retained Earnings

(See Notes to the Consolidated Financial Statements)

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Potash Corporation of Saskatchewan Inc.

Consolidated Statements of Financial Position

(See Notes to the Consolidated Financial Statements)

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Potash Corporation of Saskatchewan Inc.

Consolidated Statements of Cash Flow

(See Notes to the Consolidated Financial Statements)

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Potash Corporation of Saskatchewan Inc.

Notes to the Consolidated Financial Statements

1.   Significant Accounting Policies

      The company’s accounting policies are in accordance with accounting principles generally accepted in Canada (“Canadian GAAP”). These policies are consistent with accounting principles generally accepted in the United States (“US GAAP”) except as outlined in Note 9. The accounting policies used in preparing these interim financial statements are consistent with those used in the preparation of the annual financial statements, except as disclosed in Note 2.

Basis of Presentation

      The consolidated financial statements include the accounts of Potash Corporation of Saskatchewan Inc. and its principal operating subsidiaries (the “company” except to the extent the context otherwise requires):

     — PCS Sales (Canada) Inc.

2.   Change in Accounting Policy

      The company has adopted the provisions of section 3062 of the Canadian Institute of Chartered Accountants Handbook “Goodwill and Other Intangible Assets”. This pronouncement is being applied on a prospective basis and requires that goodwill be subject to an impairment test at least annually rather than be amortized. On an annual basis, the adoption of this pronouncement will reduce amortization expense by approximately $3.0 million ($0.75 million per quarter). The company has completed its annual assessment of goodwill and there is no impairment.

      The company has also adopted the provisions of section 3870 of the Canadian Institute of Chartered Accountants Handbook “Stock-Based Compensation and Other Stock-Based Payments”. This pronouncement requires that all non-employee stock-based compensation be accounted for using the fair value method which would recognize the fair value of the compensation cost in the financial statements. Employee stock-based compensation must be accounted for using the fair value method for plans that are direct awards of stock or that call for settlement in cash or other assets. The company’s stock option plans are not this type and therefore the company is not required to account for them using the fair value method. As the exercise price of the stock options granted is the market value the day immediately prior to the grant date, no compensation cost is recorded. The adoption of this pronouncement has not had any effect on the company’s results of operations or financial position for any of the periods presented.

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3.   Inventories

4.   Income Taxes

      The company’s effective consolidated income tax rate approximates 36 percent for all periods presented.

5.   Net Income Per Share

      Basic net income per share for the quarter is calculated on the weighted average shares issued and outstanding for the three months ended September 30, 2002 of 52,039,000 (2001 — 51,875,000). Basic net income per share for the year-to-date is calculated on the weighted average shares issued and outstanding for the nine months ended September 30, 2002 of 52,006,000 (2001 — 51,867,000). Diluted net income per share is calculated based on the weighted average shares issued and outstanding during the period, adjusted 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 period. Weighted average shares outstanding for the diluted net income per share calculation for the quarter were 52,262,000 (2001 — 52,166,000) and for the year-to-date were 52,291,000 (2001 — 52,183,000).

6.   Segment Information

      The company has three reportable business segments: potash, phosphate and nitrogen. These business segments are differentiated by the chemical nutrient contained in the product that each produces. Inter-segment net sales are made under terms which approximate market prices. Potash segment data for 2002 includes the Chilean nitrate operations which commenced commercial production in February 2002.

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7.   Plant Closures

      Accruals associated with the previous year’s plant closures are as follows:

8.   Pro Forma Stock Compensation Expense

      The company has two stock-based compensation plans for which fair value accounting is not required. No compensation expense has been recognized with respect to these plans as 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. Had compensation expense for the company’s plans been determined based on the fair value at the grant dates for awards under the plans, the company’s net income and net income per share would have been reduced to the pro forma amounts indicated below:

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      In calculating the foregoing pro forma amounts, the fair value of the options currently vesting was estimated as of the date of grant using the Modified Black-Scholes option-pricing model with the following weighted average assumptions:

9.   United States Generally Accepted Accounting Principles

      A description of certain significant differences between Canadian GAAP and US GAAP follows:

      Marketable securities: The company’s investments in Israel Chemicals Ltd. and Sociedad Quimica y Minera de Chile S.A. (“SQM”) are stated at cost. US GAAP would require 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 Other Comprehensive Income (“OCI”).

      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 provisions for asset impairment in 1999 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.

      Pre-operating costs: Operating costs incurred during the start-up phase of new projects are deferred until commercial production levels are reached, at which time they are amortized over the estimated life of the project. US GAAP would require that these costs be expensed as incurred.

      Foreign currency translation adjustment: The foreign currency translation adjustment results from the restatement of prior periods so that all periods presented are in the same reporting currency. US GAAP requires that the comparative Consolidated Statements of Income and the Consolidated Statements of Cash Flow be translated using weighted average exchange rates for the applicable periods. In contrast, the Consolidated Statements of Financial Position are translated using the exchange rates at the end of the applicable periods in accordance with Canadian GAAP. The difference in these exchange rates is what gives rise to the foreign currency translation adjustment.

      Derivative instruments and hedging activities: The company’s derivative instruments which have not yet been settled are not recognized in the consolidated financial statements and gains or losses arising from settled hedging transactions 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. US GAAP would require that derivative instruments be recorded at fair value in the balance sheet with the change in fair value of instruments designated as cash flow hedges recorded as OCI (see SFAS 133 Disclosures below).

      Net sales: Sales are recorded net of freight costs (less related revenues) and transportation and distribution expenses. US GAAP would require that net freight costs be included in cost of sales and transportation and distribution expenses be reported as operating expenses.

      Comprehensive income: Comprehensive income is not recognized under Canadian GAAP. US GAAP would require the recognition of comprehensive income.

      Depreciation and amortization: Depreciation and amortization under Canadian GAAP is higher than under US GAAP, as the net book values of property, plant and equipment and goodwill under Canadian GAAP are higher than under US GAAP.

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      Provision for plant closures: The provision for plant closures under Canadian GAAP in 2000 included severance expense, which was accrued when management having the appropriate authority approved the plan. US GAAP would require that severance not be accrued until the plan was announced to the employees. Under US GAAP severance was expensed as paid in 2001.

      The application of US GAAP, as described above, would have had the following approximate effects on net income, net income per share, total assets and shareholders’ equity:

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New Accounting Pronouncements

      Effective January 1, 2002, the company adopted SFAS 141 “Business Combinations”. This pronouncement requires the use of the purchase method of accounting for business combinations. The adoption of this pronouncement has not had a significant impact on the financial position or results of operations of the company as the company has accounted for all subsidiary acquisitions using the purchase method.

      Effective January 1, 2002, the company also adopted SFAS 142 “Goodwill and Other Intangible Assets”. This pronouncement is being applied on a prospective basis and requires that goodwill be subject to an impairment test at least annually rather than be amortized. On an annual basis this pronouncement will reduce amortization expense by approximately $2.0 million ($0.5 million per quarter). The company has completed its annual assessment of goodwill and there is no impairment.

      The company has also adopted SFAS 144 “Accounting for the Impairment or Disposal of Long-Lived Assets”, which supercedes SFAS 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of”. SFAS 144 establishes a single accounting for long-lived assets to be disposed of by sale. The adoption of this pronouncement has not had any effect on the company’s results of operations or financial position for any of the periods presented.

SFAS 133 Disclosures

      The company’s natural gas purchase strategy is based on diversification of price for its total gas requirements. Its 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. It employs derivative instruments including futures, swaps and option agreements in order to establish the cost on a portion of its natural gas requirements. These instruments are intended to hedge the future cost of the committed and anticipated natural gas purchases primarily for its US nitrogen plants. By company policy, the maximum period for these hedges cannot exceed five years. The company uses these instruments to reduce price risk, not for speculative purposes.

      The company has designated its natural gas derivative instruments as cash flow hedges. The gain or loss of an effective cash flow hedge is deferred in OCI until such time as the natural gas that it relates to is used in production, at which time the gain or loss is reclassified from OCI to cost of sales. In the third quarter of 2002, $3.9 million of gains was recognized in cost of sales ($0.2 million gain on a year-to-date basis). Of the deferred gains at the quarter end, approximately $37.8 million will be reclassified to cost of sales within the next twelve months.

10. Seasonality

      The company’s sales of fertilizer are seasonal. Typically, the second quarter of the year is when fertilizer sales will be highest, due to the North American spring planting season. However, planting conditions and the timing of customer purchases will vary each year and sales can be expected to shift from one quarter to another.

11. Comparative Figures

      Certain of the prior period’s figures have been reclassified to conform with the current period’s presentation.

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      The narrative included under this Management’s Discussion and Analysis of Financial Condition and Results of Operations has been prepared on a nutrient basis with reference to the consolidated financial statements reported under Canadian GAAP.

Overview

(1)	Percentage of net sales is calculated on net sales by nutrient

      The primary reason for the increase in consolidated gross margin on a quarter-over-quarter basis was that gross margin for the nitrogen segment increased significantly due to improving conditions in that segment. On a year-to-date basis, significantly lower nitrogen product prices in the first nine months of 2002 as compared to last year more than offset per unit cost savings due to lower natural gas prices, resulting in lower gross margin.

      Potash volumes in the third quarter were lower as compared to the prior year in both the North American and offshore markets. In addition, prices for offshore products decreased. Potash per unit cost of sales (excluding nitrates) increased due primarily to an increase in the number of shutdown weeks (15.5 weeks in third quarter 2002 versus 11.1 weeks in the same period in 2001). On a year-to-date basis, overall volumes were flat while prices were down. The potash segment gross margin was also lower quarter-over-quarter and year-over-year due principally to the inclusion of the Chilean nitrate operation, which commenced commercial production in February 2002.

      In the third quarter, phosphate gross margin benefited from firming fertilizer prices, but this benefit was more than offset by increased per unit cost of sales due to lower operating rates and higher per unit sulfur costs. On a year-to-date basis, sales volumes are down primarily due to lower DAP and liquid fertilizer offshore sales. Prices are up on an overall basis. However, the benefit of increased prices was more than offset by higher per unit costs of sales, resulting in lower gross margin.

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      The weaker Canadian dollar contributed to an exchange gain of $5.0 million in third quarter 2002, compared to a gain of $10.0 million in last year’s third quarter. Year-to-date in 2002 there was an exchange loss of $5.9 million compared to a gain of $10.8 million in the first nine months of 2001, a difference of $16.7 million. The company has exposure to both the Canadian dollar and the Brazilian real. Of the 2002 year-to-date exchange loss, $4.9 million relates to the decline in the real. Generally, for each $.01 change in the Canadian dollar there is expected to be an approximate $1.2 million effect on the company’s foreign exchange gain/loss before tax. These gains/ losses are primarily non-cash so net income is affected more than cash flow.

      Other income on a year-over-year basis declined primarily due to a $2.0 million provision recorded in the second quarter of 2002 related to the Geismar EPA investigation (see Part II — Other Information — Legal Proceedings).

Potash