##### 



EXHIBIT 99.2
 
 2006
 Managements Discussion &
Analysis of
Operations and Financial
Condition




---



##### 



TABLE OF CONTENTS12
    
    
    Forward-looking Statements14
    
    
    Executive Summary16
    
    
    Our Business, Strategy & Key Drivers18
    
    
    Our Reporting Structure21
    
    
    Our Retail Business31
    
    
    Our Wholesale Business47
    
    
    Our Advanced Technologies Business51
    
    
    Our Other Business Segment52
    
    
    Outlook57
    
    
    Key Business Sensitivities58
    
    
    Our Consolidated Performance71
    
    
    Our Accounting Policies74
    
    
    Business Risks80
    
    
    Controls & Procedures
 Managements Discussion & Analysis of Operations and Financial Condition
 FEBRUARY 21, 2007




---



##### 




    
    disclosures made under the heading Outlook;
    
    our 2007 key corporate goals;
    
    key drivers for our business and industry trends;
    
    the amount and type of future capital expenditures and capital resources;
    
    future cash requirements and long-term obligations;
    
    business strategies and plans for implementing them;
    
    goals, expansion and growth of our business and operations;
    
    future seed volumes, prices and sales;
    
    availability of raw materials, particularly gas availability or gas price relative to
nitrogen prices;
    
    risk mitigation activities; and,
    
    our future results and plans, including respecting our recent acquisitions.
  
    
    general economic, market and business conditions, including: supply, demand and price of
crop nutrients and input or feedstock prices, seed and crop protection products; supply and demand
for grain and other agricultural crops; changes in government agricultural, safety, environmental
and other legislation and policies; fluctuations in foreign exchange rates, actions by competitors
and others including changes to industry capacity and utilization and product pricing; performance
by customers, suppliers, personnel and counterparties to financial instruments; and changes in
capital markets;
    
    weather conditions and seasonal patterns;
    
    general operating risks associated with: investment in foreign jurisdictions; the level and
effectiveness of future capital expenditures and reliability of performance of existing capital
assets; ability to transport or deliver production to markets; present and discontinued mining
operations; and labor disruptions; and,
    
    strategic risks including: our ability to implement our business strategy; results of our
risk mitigation strategies, including hedging and insurance; our ability to integrate any assets we
have acquired or we may acquire or the performance of those assets; the opportunities, or lack of
opportunities, that may be presented to and pursued by us; technological changes; and other
factors, many of which are beyond our control.
  12
    
    AGRIUM ANNUAL REPORT 2006




---



##### 




    
    continuation of the recent positive market developments throughout 2007, including an almost
doubling of corn prices, and a resulting increase in U.S. corn and wheat acreage which is expecting
to support increased demand for nutrients, crop protection products, seed, and retail services;
    
    anticipated continuation of tight world fertilizer markets, supporting higher prices and
increased margins;
    
    lowering our Canadian phosphate rock costs on a per unit basis by mid-2007;
    
    our Kenai, Alaska nitrogen plant production being limited to approximately 75 percent and
operating for only about eight months in 2007;
    
    the continuation of the Argentine urea price cap to growers of $300 per tonne which could
limit our urea margins;
    
    increased sales and gross profit to be generated from our new Advanced Technologies business
unit with 2007 to represent our first full year of operations in this business segment;
    
    achievement of $45-million in unrealized Retail synergies and margin improvement from the
Royster-Clark acquisition by the end of 2007;
    
    continuation of the recent rise in demand of grains and oilseeds in the U.S., Brazil,
Canada, Europe, and various countries in Asia; and,
    
    realizing the expected benefits from our Saskatchewan potash mine expansion completed in
late 2006.
     AGRIUM ANNUAL REPORT 2006
    
    13




---



##### 



Executive Summary
    
    
    a $136-million pre-tax impairment to the carrying cost of our Canadian phosphate operations;
    
    reduced U.S. corn acreage and low crop prices in the first half of 2006, that impacted
nutrient and other crop input demand;
    
    high cost inventory carryover from the fall of 2005; and,
    
    protracted Chinese potash price negotiations that resulted in reduced international potash
shipments throughout the first half of 2006.
 14
    
    AGRIUM ANNUAL REPORT 2006




---



##### 




    
    Corn prices are almost double year ago levels and are anticipated to remain strong in 2007.
This is expected to result in a significant increase in corn acreage and a corresponding
increase in demand for nutrients, crop protection products, seed and retail services.
    
    Global and North American nitrogen prices are as much as 30 percent above 2006.
    
    Benchmark phosphate and potash prices have strengthened over the same period last year, and
the early resolution of the Chinese potash negotiation is expected to be a positive
development in 2007.
    
    
    almost doubled our U.S. retail operations through the acquisition of Royster-Clark, and
implemented actions that are expected to result in retail synergies of $45-million by the end of
2007;
    
    significantly expanded our North American distribution network;
    
    expanded our potash production by over 300,000 tonnes; and,
    
    grew our Advanced Technologies business through two acquisitions and a 150,000 tonne
expansion of our ESN® facility, and now report this business separately.
 AGRIUM ANNUAL REPORT 2006
    
    15




---



##### 



Our
Business,Strategy & Key Drivers
 
  (WHITE ARROW)
    
    OUR MISSIONProviding Ingredients for Growth.(WHITE ARROW)
    
    OUR VISIONBe one of the Worlds
Leading Providers of Inputs
for Plant Growth by Creating Value for Each
of our Stakeholders.
  16
    
    AGRIUM ANNUAL REPORT 2006




---



##### 




    
    invest across the value chain;
    
    establish or maintain lowest cost to serve wholesaleposition; and,
    
    diversify geographically.
    
    
    global and regional grain markets. Higher grain prices normally result in growers expanding
seeded acreage and increasing crop input application to optimize yields;
    
    supply and demand balance for the three major crop nutrients:
 o
    
    change in demand for nutrients, which is correlated directly with crop prices;o
    
    new capacity additions or plant closures; and,o
    
    changes in operating rates, which can be affected by changes to cost of production. For nitrogen,
this is largely due to changes in natural gas or other energy feedstock costs. For potash and
phosphate, this may include mining costs or rock quality factors;
 
    
    government policies or actions that may impact:
 o
    
    the economics and farm practices of the agriculture or crop sector, or the crop input market,
which may then impact crop input demand; and,o
    
    changes to nutrient capacity, operating rates, or nutrient trade;
 
    
    global and regional gross domestic production (GDP), where the rate of GDP growth can impact
industrial demand for our Wholesale products and, in the long-term, agricultural nutrient demand as
it supports growing global meat and grain consumption; and,
    
    the growing trend towards increased focus on environmental and economically sustainable products
and practices.
 AGRIUM ANNUAL REPORT 2006
    
    17




---



##### 



Our Reporting Structure
  
    
    Our Retail segment, with net sales of about $2-billion in 2006, operates in North and South
America, providing crop inputs and services directly to farmers.
    
    Our Wholesale segment, with net sales of about $2.3-billion, operates in North and
South America and produces, markets and distributes all major crop nutrients for agricultural and
industrial customers both domestically and around the world.
    
    Our Advanced Technologies segment operates in North America, with net sales of about $100-million
in 2006. This is a new segment created this year after completing two acquisitions and a
significant capacity expansion of our production of ESN controlled-release nitrogen fertilizer for
broad acre crops.
   Twelve Months Ended December 312006
    
    
    
    2005(millions of U.S. dollars)
    
    
    Net Sales
    
    
    
    Gross Profit
    
    
    
    Net Sales
    
    
    
    Gross ProfitRetailFertilizer
    
    
    
    1,065
    
    
    
    
    217
    
    
    
    
    626
    
    
    
    
    141Chemicals
    
    
    
    591
    
    
    
    
    154
    
    
    
    
    458
    
    
    
    
    130Other
    
    
    
    319
    
    
    
    
    124
    
    
    
    
    158
    
    
    
    
    76Total
    
    
    
    1,975
    
    
    
    
    495
    
    
    
    
    1,242
    
    
    
    
    347WholesaleNitrogen
    
    
    
    1,376
    
    
    
    
    291
    
    
    
    
    1,622
    
    
    
    
    479Potash
    
    
    
    213
    
    
    
    
    98
    
    
    
    
    255
    
    
    
    
    157Phosphate
    
    
    
    298
    
    
    
    
    27
    
    
    
    
    319
    
    
    
    
    59Purchase for resale
    
    
    
    382
    
    
    
    
    19
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    2,269
    
    
    
    
    435
    
    
    
    
    2,196
    
    
    
    
    695Advanced Technologies
    
    
    
    101
    
    
    
    
    19
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    (152
    )
    
    
    
    7
    
    
    
    
    (144
    )
    
    
    
    (4
    )TOTAL
    
    
    
    4,193
    
    
    
    
    956
    
    
    
    
    3,294
    
    
    
    
    1,038
 18
    
    AGRIUM ANNUAL REPORT 2006




---



##### 



We made three acquisitions in 2006, including a major agricultural retail business in the
U.S. and two smaller acquisitions in the specialty fertilizer business. These three acquisitions
are intended to enhance our position across the value chain and further broaden our stable earnings
base. A summary of these acquisitions is provided below, with more detail contained in each of our
business sections.
 LARGEST
U.S. AGRICULTURAL RETAILER
 Agrium acquired control of Royster-Clark on February 9, 2006. Royster-Clark was a major retail
distributor of crop nutrients, seed, crop protection products, and associated services to U.S.
growers. At the time, they operated over 250 retail centers across the Corn Belt, mid-Atlantic and
south-eastern crop regions of the U.S., and more than 30 seed processing, fertilizer granulation
and fertilizer blending facilities. Their wholesale fertilizer operations also included significant
storage and distribution assets, a related wholesale fertilizer purchase for resale business, as
well as two nitrogen production facilities. In 2005, Royster-Clark reported total annual revenues
in excess of $1-billion (wholesale and retail combined).
 AGRIUM ANNUAL REPORT 2006
    
    19




---



##### 



The larger of the two nitrogen production facilities, located at East Dubuque, Illinois, was
subsequently sold to Rentech, Inc. in April 2006 for almost $70-million, including net working
capital of about $20-million. Agrium has been appointed as the exclusive distributor for nitrogen
products from the facility as part of a related 10-year agreement.
 The purchase price for Royster-Clark was approximately $404-million after net proceeds from the
sale price of the East Dubuque facility. We integrated the Royster-Clark assets into our respective
Retail and Wholesale business units in 2006. We expect to be able to capture $45-million in
synergies from the newly acquired retail assets and about $10-million in synergies through our
wholesale operations by the end of 2007. The anticipated synergies are from a combination of
reduced expenses, administrative efficiencies and a significant improvement in margins for
nutrients and crop protection products.
 LEADER IN ADVANCED TECHNOLOGIES
 We acquired the fertilizer technology and professional products businesses of Nu-Gro in
January 2006 for $86-million, significantly expanding our product line, marketing channels and
customer base. Nu-Gro produced and distributed controlled-release and professional turf products,
and reported 2005 total annual sales of approximately $70-million and average gross margins of
about 24 percent. Their wide range of branded controlled-release nitrogen products are marketed to
finished product producers for use on golf courses, sport turf, home lawns, high yield agricultural
crops, nurseries and in greenhouses. Professional turf products are marketed directly for use in
golf course and lawn care applications.
 We acquired the controlled-release fertilizer business of Pursell Technologies in August 2006 for
$78.5-million, adding further expertise in the development, commercialization and marketing of
polymer-coating technologies. Total 2005 sales revenue on an annualized basis was reported at
$74-million with gross margins similar to the Nu-Gro business. In addition, we also purchased the
new technology business of Pursell Technologies which included patented technology for emerging
non-fertilizer controlled-release products, such as specific crop protection products, for
$12.5-million, plus contingent payments based on a percentage of future sales.
 
 20
    
    AGRIUM ANNUAL REPORT 2006




---



##### 



Our Retail Business




---



##### 



(WHITE ARROW)
    
    1
    
    Crop Production Services (CPS) with about $1-billion in sales in 2006 and
324 farm centers, serving the Corn Belt and Eastern agricultural regions of the
U.S.;(WHITE ARROW)
    
    2
    
    Western Farm Service (WFS) with about $700-million in sales in 2006 and
82 farm centers serving the Western U.S., California, Arizona,
Washington, Oregon and Idaho; and,(WHITE ARROW)
    
    3
    
    Agroservicios Pampeanos S.A. (ASP) in South America with $165-million
in sales in 2006 and 30 facilities, primarily in the grain growing region
of Argentina and the fruit growing region of Chile.
 
   22
    
    AGRIUM ANNUAL REPORT 2006




---



##### 



(LONG WHITE ARROW)
    
    a commitment to a strict program of performance management;(LONG WHITE ARROW)
    
    growing the business in general and the seed business in particular;(LONG WHITE ARROW)
    
    building relationships with leading growers in each of our markets;(LONG WHITE ARROW)
    
    focusing expansion in the prime agricultural regions; and,(LONG WHITE ARROW)
    
    optimizing returns from economies of scale across all products, systems and services.
  KEY RETAIL DEVELOPMENTS
  AGRIUM ANNUAL REPORT 2006
    
    23




---



##### 



CROP NUTRIENTS
    24
    
    AGRIUM ANNUAL REPORT 2006




---



##### 



CROP PROTECTION PRODUCTS
    
 AGRIUM ANNUAL REPORT 2006
    
    25




---



##### 



SEED, SERVICES & OTHER PRODUCTS
     
 26
    
    AGRIUM ANNUAL REPORT 2006




---



##### 



RETAIL PERFORMANCE
 Year Ended December 31
    
    
    
    Variance Analysis2006 v.
    
    
    
    2005 v.(millions of U.S. dollars)
    
    
    2006(a)
    
    
    
    2005(a)
    
    
    
    2004(a)
    
    
    
    2005
    
    
    
    2004FertilizersNet sales
    
    
    
    1,065
    
    
    
    
    626
    
    
    
    
    556
    
    
    
    
    439
    
    
    
    
    70Cost of product
    
    
    
    848
    
    
    
    
    485
    
    
    
    
    425
    
    
    
    
    363
    
    
    
    
    60Gross profit
    
    
    
    217
    
    
    
    
    141
    
    
    
    
    131
    
    
    
    
    76
    
    
    
    
    10Crop protection productsNet sales
    
    
    
    591
    
    
    
    
    458
    
    
    
    
    416
    
    
    
    
    133
    
    
    
    
    42Cost of product
    
    
    
    437
    
    
    
    
    328
    
    
    
    
    298
    
    
    
    
    109
    
    
    
    
    30Gross profit
    
    
    
    154
    
    
    
    
    130
    
    
    
    
    118
    
    
    
    
    24
    
    
    
    
    12Seed and other products
and servicesNet sales
    
    
    
    319
    
    
    
    
    158
    
    
    
    
    142
    
    
    
    
    161
    
    
    
    
    16Cost of product
    
    
    
    195
    
    
    
    
    82
    
    
    
    
    75
    
    
    
    
    113
    
    
    
    
    7Gross profit
    
    
    
    124
    
    
    
    
    76
    
    
    
    
    67
    
    
    
    
    48
    
    
    
    
    9Total RetailTotal Retail net sales
    
    
    
    1,975
    
    
    
    
    1,242
    
    
    
    
    1,114
    
    
    
    
    733
    
    
    
    
    128Total cost of product
    
    
    
    1,480
    
    
    
    
    895
    
    
    
    
    798
    
    
    
    
    585
    
    
    
    
    97Total gross profit
    
    
    
    495
    
    
    
    
    347
    
    
    
    
    316
    
    
    
    
    148
    
    
    
    
    31Selling expenses
    
    
    
    361
    
    
    
    
    239
    
    
    
    
    222
    
    
    
    
    122
    
    
    
    
    17General and administrative
    
    
    
    23
    
    
    
    
    10
    
    
    
    
    8
    
    
    
    
    13
    
    
    
    
    2Depreciation and amortization
    
    
    
    30
    
    
    
    
    17
    
    
    
    
    18
    
    
    
    
    13
    
    
    
    
    (1
    )Other expenses
    
    
    
    (14
    )
    
    
    
    (15
    )
    
    
    
    (13
    )
    
    
    
    1
    
    
    
    
    (2
    )EBIT
    
    
    
    95
    
    
    
    
    96
    
    
    
    
    81
    
    
    
    
    (1
    )
    
    
    
    15
 (a)
    
    International Retail net sales were $165-million (2005 
$146-million, 2004  $118-million) and
gross profit was $30-million (2005  $26-million, 2004  $22-million).
 AGRIUM ANNUAL REPORT 2006
    
    27




---



##### 



FERTILIZER
  28
    
    AGRIUM ANNUAL REPORT 2006




---



##### 



CROP PROTECTION
     
 AGRIUM ANNUAL REPORT 2006
    
    29




---



##### 



SEED, SERVICES & OTHER
    
 EXPENSES
  30
    
    AGRIUM ANNUAL REPORT 2006




---



##### 



Our Wholesale Business
  1
    
    diversity in our product mix, including producing and marketing all major crop nutrients;2
    
    our competitive cost position for most of our Wholesale assets, particularly on a delivered cost basis; and,3
    
    our extensive associated storage and distribution system, which allows us to better serve our customers.




---



##### 



Nitrogen Volumes
    
    
    
    Phosphate Volumes
    
    
    
    Potash VolumesCapacity
    
    
    
    Production
    
    
    
    Sales
    
    
    
    Capacity
    
    
    
    Production
    
    
    
    Sales
    
    
    
    Capacity (a)
    
    
    
    Production
    
    
    
    SalesNorth AmericaCanada
    
    
    
    3,625
    
    
    
    
    2,962
    
    
    
    
    1,590
    
    
    
    
    680
    
    
    
    
    420
    
    
    
    
    431
    
    
    
    
    2,100
    
    
    
    
    1,209
    
    
    
    
    89U.S.
    
    
    
    1,273
    
    
    
    
    608
    
    
    
    
    2,077
    
    
    
    
    644
    
    
    
    
    475
    
    
    
    
    461
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    642International (b)
    
    
    
    1,521
    
    
    
    
    1,300
    
    
    
    
    1,393
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    548Total
    
    
    
    6,419
    
    
    
    
    4,870
    
    
    
    
    5,060
    
    
    
    
    1,324
    
    
    
    
    895
    
    
    
    
    906
    
    
    
    
    2,100
    
    
    
    
    1,209
    
    
    
    
    1,279
 (a)
    
    Potash capacity expansion was essentially complete by 2006 year end, previous
capacity was 1.79 million tonnes.(b)
    
    International nitrogen capacity includes our 50 percent ownership of the Profertil
facility in Argentina and our Kenai, Alaska facility.
 32
    
    AGRIUM ANNUAL REPORT 2006




---



##### 



NITROGEN (N) PRODUCTS
     AGRIUM ANNUAL REPORT 2006
    
    33




---



##### 



Nitrogen Strategy & Key Developments
     
    
    The first of these gasification projects would entail gasifying asphaltenes, a by-product
from the process of refining bitumen or heavy oil from the oilsands from Northern Alberta. We
entered into a Memorandum of Understanding with the Northern Lights Partnership in August 2006
for the supply of hydrogen, by-product sulphur and other products from a proposed heavy oil
upgrader and gasification facility that would be adjacent to Agriums Redwater, Alberta
nitrogen and phosphate operations. If this project were to proceed it would not be completed
until after 2010. We view the evaluation of the long-term potential to use gasification of
asphaltenes as a feedstock in order to enhance the competitiveness of our Alberta nitrogen
facilities as a priority.
    
    The other proposed gasification project is the development of an industry partnership for a
gasification unit at Kenai, Alaska. The project would be to develop a world-class,
low-emission coal gasification facility that would create a long-term off-take gas opportunity
for our Kenai facility and would also generate competitively priced electricity for the
regional power grid. A decision on whether to proceed to the next stage of engineering is
expected in 2007.
   34
    
    AGRIUM ANNUAL REPORT 2006




---



##### 



Potash Strategy and Key Developments
  
    
    We completed our 310,000 tonne potash expansion bringing our new total capacity to 2.1
million tonnes in late 2006. This expansion focused on making significant improvements to wet
milling, upgrades to hoist motors, skips and conveyer belts, electrical systems and new
compactors that increase the percentage of premium product we can produce. We have also added
50,000 tonnes of additional potash storage at the mine site.
    
    We are conducting detailed engineering on a second expansion to our Vanscoy potash mine,
which could add an additional 350,000 tonnes of capacity. If this project were to proceed, it
would bring our total capacity to almost 2.5 million tonnes. A decision on whether to proceed
would likely take place in late 2007, after engineering and cost estimate studies are
completed. Timing for this expansion would likely be completed in 2010.
    
    We have identified possible additional improvements to our Vanscoy mine that could ultimately
increase its capacity to three million tonnes. It is too early to provide a timeline or
capital cost estimate for expansions to reach this higher capacity figure.
    
    We continued to explore and evaluate the opportunity for a new greenfield potash mine in
either Manitoba or Saskatchewan. We have conducted preliminary seismic exploration and secured
Crown and freehold mineral leases in both provinces.
 AGRIUM ANNUAL REPORT 2006
    
    35




---



##### 



Phosphate Strategy and Key Developments
      36
    
    AGRIUM ANNUAL REPORT 2006




---



##### 



AGRIUM ANNUAL REPORT 2006
    
    37




---



##### 



WHOLESALE PERFORMANCE
 Year Ended December 31
    
    
    
    Variance Analysis2006 v. 2005
    
    
    
    2005 v. 2004(millions of U.S. dollars)
    
    
    2006
    
    
    
    2005
    
    
    
    2004
    
    
    
    Change
    
    
    
    Price
    
    
    
    Volume
    
    
    
    Change
    
    
    
    Price
    
    
    
    VolumeNitrogenNet sales
    
    
    
    1,376
    
    
    
    
    1,622
    
    
    
    
    1,317
    
    
    
    
    (246
    )
    
    
    
    (54
    )
    
    
    
    (192
    )
    
    
    
    305
    
    
    
    
    302
    
    
    
    
    3Gross profit
    
    
    
    291
    
    
    
    
    479
    
    
    
    
    409
    
    
    
    
    (188
    )
    
    
    
    (111
    )
    
    
    
    (77
    )
    
    
    
    70
    
    
    
    
    72
    
    
    
    
    (2
    )PotashNet sales
    
    
    
    213
    
    
    
    
    255
    
    
    
    
    214
    
    
    
    
    (42
    )
    
    
    
    8
    
    
    
    
    (50
    )
    
    
    
    41
    
    
    
    
    67
    
    
    
    
    (26
    )Gross profit
    
    
    
    98
    
    
    
    
    157
    
    
    
    
    106
    
    
    
    
    (59
    )
    
    
    
    (28
    )
    
    
    
    (31
    )
    
    
    
    51
    
    
    
    
    62
    
    
    
    
    (11
    )PhosphateNet sales
    
    
    
    298
    
    
    
    
    319
    
    
    
    
    315
    
    
    
    
    (21
    )
    
    
    
    32
    
    
    
    
    (53
    )
    
    
    
    4
    
    
    
    
    33
    
    
    
    
    (29
    )Gross profit
    
    
    
    27
    
    
    
    
    59
    
    
    
    
    74
    
    
    
    
    (32
    )
    
    
    
    (22
    )
    
    
    
    (10
    )
    
    
    
    (15
    )
    
    
    
    (9
    )
    
    
    
    (6
    )Product purchased for resaleNet sales
    
    
    
    382
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    382
    
    
    
    
    
    
    
    
    
    382
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gross profit
    
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    
    
    
    
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total net sales
    
    
    
    2,269
    
    
    
    
    2,196
    
    
    
    
    1,846
    
    
    
    
    73
    
    
    
    
    (14
    )
    
    
    
    87
    
    
    
    
    350
    
    
    
    
    402
    
    
    
    
    (52
    )Total gross profit
    
    
    
    435
    
    
    
    
    695
    
    
    
    
    589
    
    
    
    
    (260
    )
    
    
    
    (161
    )
    
    
    
    (99
    )
    
    
    
    106
    
    
    
    
    125
    
    
    
    
    (19
    )Selling expenses
    
    
    
    30
    
    
    
    
    20
    
    
    
    
    18
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2General &
administrative
    
    
    
    29
    
    
    
    
    25
    
    
    
    
    25
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Depreciation & amortization
    
    
    
    125
    
    
    
    
    122
    
    
    
    
    131
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9
    )Royalties
    
    
    
    8
    
    
    
    
    35
    
    
    
    
    22
    
    
    
    
    (27
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    13Other expenses
    
    
    
    16
    
    
    
    
    1
    
    
    
    
    47
    
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (46
    )EBIT before
special items
    
    
    
    227
    
    
    
    
    492
    
    
    
    
    346
    
    
    
    
    (265
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    146Special itemsKenai award and settlement
    
    
    
    
    
    
    
    
    
    
    
    
    
    (86
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    86Asset impairment
    
    
    
    136
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    136
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EBIT
    
    
    
    91
    
    
    
    
    492
    
    
    
    
    432
    
    
    
    
    (401
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    60
 38
    
    AGRIUM ANNUAL REPORT 2006




---



##### 



NITROGEN GROSS PROFIT
  NITROGEN PERFORMANCE
 Year Ended December 31
    
    
    
    Variance Analysis2006 v. 2005
    
    
    
    2005 v. 2004(millions of U.S.dollars, thousandsof tonnes)
    
    
    2006
    
    
    
    2005
    
    
    
    2004
    
    
    
    Change
    
    
    
    Price
    
    
    
    Volume
    
    
    
    Change
    
    
    
    Price
    
    
    
    VolumeNitrogen DomesticTotal tonnes sold
    
    
    
    3,667
    
    
    
    
    3,939
    
    
    
    
    3,892
    
    
    
    
    (272
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    47Total net sales
    
    
    
    1,044
    
    
    
    
    1,160
    
    
    
    
    924
    
    
    
    
    (116
    )
    
    
    
    (36
    )
    
    
    
    (80
    )
    
    
    
    236
    
    
    
    
    225
    
    
    
    
    11Cost of product
    
    
    
    900
    
    
    
    
    931
    
    
    
    
    721
    
    
    
    
    (31
    )
    
    
    
    (33
    )
    
    
    
    64
    
    
    
    
    210
    
    
    
    
    (201
    )
    
    
    
    (9
    )Margin per tonne
    
    
    
    39
    
    
    
    
    58
    
    
    
    
    52Total gross profit
    
    
    
    144
    
    
    
    
    229
    
    
    
    
    203
    
    
    
    
    (85
    )
    
    
    
    (69
    )
    
    
    
    (16
    )
    
    
    
    26
    
    
    
    
    24
    
    
    
    
    2Nitrogen InternationalTotal tonnes sold
    
    
    
    1,393
    
    
    
    
    1,840
    
    
    
    
    1,881
    
    
    
    
    (447
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    (41
    )Total net sales
    
    
    
    332
    
    
    
    
    462
    
    
    
    
    393
    
    
    
    
    (130
    )
    
    
    
    (18
    )
    
    
    
    (112
    )
    
    
    
    69
    
    
    
    
    78
    
    
    
    
    (9
    )Cost of product
    
    
    
    185
    
    
    
    
    212
    
    
    
    
    187
    
    
    
    
    (27
    )
    
    
    
    (25
    )
    
    
    
    52
    
    
    
    
    25
    
    
    
    
    (30
    )
    
    
    
    5Margin per tonne
    
    
    
    106
    
    
    
    
    136
    
    
    
    
    110Total gross profit
    
    
    
    147
    
    
    
    
    250
    
    
    
    
    206
    
    
    
    
    (103
    )
    
    
    
    (42
    )
    
    
    
    (61
    )
    
    
    
    44
    
    
    
    
    48
    
    
    
    
    (4
    )NitrogenTotal tonnes sold
    
    
    
    5,060
    
    
    
    
    5,779
    
    
    
    
    5,773
    
    
    
    
    (719
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    6Total net sales
    
    
    
    1,376
    
    
    
    
    1,622
    
    
    
    
    1,317
    
    
    
    
    (246
    )
    
    
    
    (54
    )
    
    
    
    (192
    )
    
    
    
    305
    
    
    
    
    303
    
    
    
    
    2Cost of product
    
    
    
    1,085
    
    
    
    
    1,143
    
    
    
    
    908
    
    
    
    
    (58
    )
    
    
    
    (58
    )
    
    
    
    116
    
    
    
    
    235
    
    
    
    
    (231
    )
    
    
    
    (4
    )Margin per tonne
    
    
    
    58
    
    
    
    
    83
    
    
    
    
    71Total gross profit
    
    
    
    291
    
    
    
    
    479
    
    
    
    
    409
    
    
    
    
    (188
    )
    
    
    
    (111
    )
    
    
    
    (77
    )
    
    
    
    70
    
    
    
    
    72
    
    
    
    
    (2
    )Selling price per tonne
    
    
    
    272
    
    
    
    
    281
    
    
    
    
    228Cost of product
per tonne
    
    
    
    214
    
    
    
    
    198
    
    
    
    
    157
 AGRIUM ANNUAL REPORT 2006
    
    39




---



##### 



NITROGEN PRICES
  
 NITROGEN PRODUCT COST
   40
    
    AGRIUM ANNUAL REPORT 2006




---



##### 



SALES VOLUMES AND OPERATING RATES
  (U.S.$ per MMBtu)
    
    
    2006
    
    
    
    2005
    
    
    
    2004NYMEX
    
    
    
    7.26
    
    
    
    
    8.55
    
    
    
    
    6.09AECO
    
    
    
    6.17
    
    
    
    
    7.03
    
    
    
    
    5.23Basis
    
    
    
    1.09
    
    
    
    
    1.52
    
    
    
    
    0.86WholesaleAverage  unhedged
    
    
    
    5.34
    
    
    
    
    5.36
    
    
    
    
    4.02Hedging impact
    
    
    
    (0.08
    )
    
    
    
    (0.12
    )
    
    
    
    Overall
weighted average (a)
    
    
    
    5.26
    
    
    
    
    5.24
    
    
    
    
    4.02
 (a)
    
    Weighted average gas price of all gas purchases, including 50 percent of Profertil
facility.
 AGRIUM ANNUAL REPORT 2006
    
    41




---



##### 



POTASH GROSS PROFIT
  POTASH PERFORMANCE
 Year Ended December 31
    
    
    
    Variance Analysis2006 v. 2005
    
    
    
    2005 v. 2004(millions of U.S. dollars,thousands of tonnes)
    
    
    2006
    
    
    
    2005
    
    
    
    2004
    
    
    
    Change
    
    
    
    Price
    
    
    
    Volume
    
    
    
    Change
    
    
    
    Price
    
    
    
    VolumePotash DomesticTotal tonnes sold
    
    
    
    731
    
    
    
    
    860
    
    
    
    
    1,066
    
    
    
    
    (129
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    (206
    )Total net sales
    
    
    
    143
    
    
    
    
    158
    
    
    
    
    143
    
    
    
    
    (15
    )
    
    
    
    9
    
    
    
    
    (24
    )
    
    
    
    15
    
    
    
    
    42
    
    
    
    
    (27
    )Cost of product
    
    
    
    80
    
    
    
    
    64
    
    
    
    
    79
    
    
    
    
    16
    
    
    
    
    (26
    )
    
    
    
    10
    
    
    
    
    (15
    )
    
    
    
    
    
    
    
    
    15Margin per tonne
    
    
    
    86
    
    
    
    
    109
    
    
    
    
    60Selling price per tonne
    
    
    
    196
    
    
    
    
    184
    
    
    
    
    134Total gross profit
    
    
    
    63
    
    
    
    
    94
    
    
    
    
    64
    
    
    
    
    (31
    )
    
    
    
    (17
    )
    
    
    
    (14
    )
    
    
    
    30
    
    
    
    
    42
    
    
    
    
    (12
    )Potash InternationalTotal tonnes sold
    
    
    
    548
    
    
    
    
    751
    
    
    
    
    730
    
    
    
    
    (203
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    21Total net sales
    
    
    
    70
    
    
    
    
    97
    
    
    
    
    71
    
    
    
    
    (27
    )
    
    
    
    (1
    )
    
    
    
    (26
    )
    
    
    
    26
    
    
    
    
    24
    
    
    
    
    2Cost of product
    
    
    
    35
    
    
    
    
    34
    
    
    
    
    29
    
    
    
    
    1
    
    
    
    
    (10
    )
    
    
    
    9
    
    
    
    
    5
    
    
    
    
    (4
    )
    
    
    
    (1
    )Margin per tonne
    
    
    
    64
    
    
    
    
    84
    
    
    
    
    58Selling price per tonne
    
    
    
    128
    
    
    
    
    129
    
    
    
    
    97Total gross profit
    
    
    
    35
    
    
    
    
    63
    
    
    
    
    42
    
    
    
    
    (28
    )
    
    
    
    (11
    )
    
    
    
    (17
    )
    
    
    
    21
    
    
    
    
    20
    
    
    
    
    1PotashTotal tonnes sold
    
    
    
    1,279
    
    
    
    
    1,611
    
    
    
    
    1,796
    
    
    
    
    (332
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    (185
    )Total net sales
    
    
    
    213
    
    
    
    
    255
    
    
    
    
    214
    
    
    
    
    (42
    )
    
    
    
    8
    
    
    
    
    (50
    )
    
    

    
    41
    
    
    
    
    66
    
    
    
    
    (25
    )Cost of product
    
    
    
    115
    
    
    
    
    98
    
    
    
    
    108
    
    
    
    
    17
    
    
    
    
    (36
    )
    
    
    
    19
    
    
    
    
    (10
    )
    
    
    
    (4
    )
    
    
    
    14Margin per tonne
    
    
    
    77
    
    
    
    
    97
    
    
    
    
    59Selling price per tonne
    
    
    
    167
    
    
    
    
    158
    
    
    
    
    119Total gross profit
    
    
    
    98
    
    
    
    
    157
    
    
    
    
    106
    
    
    
    
    (59
    )
    
    
    
    (28
    )
    
    
    
    (31
    )
    
    
    
    51
    
    
    
    
    62
    
    
    
    
    (11
    )Cost of product
per tonne
    
    
    
    90
    
    
    
    
    61
    
    
    
    
    60
 42
    
    AGRIUM ANNUAL REPORT 2006




---



##### 



POTASH PRICES
   
 POTASH PRODUCT COST
  AGRIUM ANNUAL REPORT 2006
    
    43




---



##### 



SALES VOLUMES
    PHOSPHATE GROSS PROFIT
  PHOSPHATE PERFORMANCE
 Year
EndedDecember 31
    
    
    
    Variance Analysis2006 v. 2005
    
    
    
    2005 v. 2004(millions of U.S.dollars, thousands
    
    
    2006
    
    
    
    2005
    
    
    
    2004
    
    
    
    Change
    
    
    
    Price
    
    
    
    Volume
    
    
    
    Change
    
    
    
    Price
    
    
    
    Volumeof tonnes)PhosphateTonnes sold
    
    
    
    906
    
    
    
    
    1,088
    
    
    
    
    1,201
    
    
    
    
    (182
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    (113
    )Net Sales
    
    
    
    298
    
    
    
    
    319
    
    
    
    
    315
    
    
    
    
    (21
    )
    
    
    
    32
    
    
    
    
    (53
    )
    
    
    
    4
    
    
    
    
    33
    
    
    
    
    (29
    )Cost of product
    
    
    
    271
    
    
    
    
    260
    
    
    
    
    241
    
    
    
    
    11
    
    
    
    
    (55
    )
    
    
    
    44
    
    
    
    
    19
    
    
    
    
    (42
    )
    
    
    
    23Gross Profit
    
    
    
    27
    
    
    
    
    59
    
    
    
    
    74
    
    
    
    
    (32
    )
    
    
    
    (22
    )
    
    
    
    (10
    )
    
    
    
    (15
    )
    
    
    
    (9
    )
    
    
    
    (6
    )Margin per tonne
    
    
    
    30
    
    
    
    
    54
    
    
    
    
    62Selling price
per tonne
    
    
    
    329
    
    
    
    
    293
    
    
    
    
    262Cost of product
per tonne
    
    
    
    299
    
    
    
    
    239
    
    
    
    
    200
 44
    
    AGRIUM ANNUAL REPORT 2006




---



##### 



PHOSPHATE PRICES
   
 PHOSPHATE PRODUCT COST
  AGRIUM ANNUAL REPORT 2006
    
    45




---



##### 



SALES VOLUMES
    46
    
    AGRIUM ANNUAL REPORT 2006




---



##### 



Our Advanced
Technologies Business
  1
    
    branded specialty fertilizer products with slow release technologies suitable for
golf courses turf, specialty crops, lawn care, horticulture and sport field applications (Polyon,
SCU, Duration, Nutralene, Nitroform, IB Nitrogen, Trikote);2
    
    associated branded professional products (ProTurf, Nu-Gro); and,3
    
    ESN®, the only polymer coated, environmentally friendly, controlled-release fertilizer
available for broad acre crops.




---



##### 



®
    
    
    integrate and grow the base business, including identifying and capturing synergies from the
three formerly separate businesses;
    
    continue to develop and improve our leading technologies and leverage them into new markets; and,
    
    expand internationally with our current and future technologies and potentially through
acquisitions.
  
    
    acquired two businesses to further expand our portfolio of environmentally friendly
controlled-release nitrogen products. Advanced Technologies now has the broadest portfolio of
controlled-release products in the world;
    
    solidified and consolidated our senior management team in Advanced Technologies with
representation from each of the previously separate businesses;
    
    integrated Agriums pre-existing Advanced Technologies business with the two newly acquired
operations;
    
    completed construction of the 150,000 tonne ESN® facility in February 2006; and,
    
    obtained approval for the use of ESN® on food crops in Canada; approval in the U.S. had
previously been obtained.
   48
    
    AGRIUM ANNUAL REPORT 2006




---



##### 



®
 
  
    
    Polymer-coated CRFs, ESN®, DurationCR® and Polyon®;
    
    Polymer-coated, sulphur coated CRFs (Trikote®); and,
    
    Reacted CRFs (Nutralene®, Nitroform®, and IB®Nitrogen).
  AGRIUM ANNUAL REPORT 2006
    
    49




---



##### 



® ® ®
 
  ® ®
  ADVANCED TECHNOLOGIES PERFORMANCE
 Year Ended December 31(millions of U.S. dollars)
    
    
    2006(a)Net sales
    
    
    
    101Cost of product
    
    
    
    82Gross Profit
    
    
    
    19Selling expenses
    
    
    
    5General and administrative
    
    
    
    7Depreciation and amortization
    
    
    
    8EBIT
    
    
    
    (1
    )
 (a)
    
    The 2006 figures represent the results of Nu-Gro from the date of acquisition of
January 25, 2006 and Pursell from the date of acquisition of August 4, 2006. Duration
and ESN figures have been included from July 1, 2006. Prior to July 1, 2006, the
Duration and ESN business was included in Wholesales results.
 50
    
    AGRIUM ANNUAL REPORT 2006




---



##### 



Our OtherBusiness Segment
     
    
    the higher Canadian dollar which increases general and administrative and other expenses when
expressed in U.S. dollars;
    
    costs related to evaluating potential merger and acquisition opportunities, investigation of the
feasibility of building a nitrogen production facility in Egypt and other Merger and Acquisition
costs; and,
    
    stock-based compensation expense reflecting the increase in our share price.
 AGRIUM ANNUAL REPORT 2006
    
    51




---



##### 



Outlook
    52
    
    AGRIUM ANNUAL REPORT 2006




---



##### 



AGRIUM ANNUAL REPORT 2006
    
    53




---



##### 



NITROGEN
   54
    
    AGRIUM ANNUAL REPORT 2006




---



##### 



POTASH
  
  AGRIUM ANNUAL REPORT 2006
    
    55




---



##### 



PHOSPHATE
  
   56
    
    AGRIUM ANNUAL REPORT 2006




---



##### 



Key Business Sensitivities
    Net EarningsChange in
    
    
    
    EBIT Impact
    
    
    
    Impact (b)Factor(a)
    
    
    
    (U.S.$ Millions)
    
    
    
    (U.S.$ Millions)Wholesale MarginsNitrogen(c)
    
    
    $
    10.00
    
    
    
    
    45
    
    
    
    
    31Phosphate
    
    
    $
    10.00
    
    
    
    
    10
    
    
    
    
    7Potash
    
    
    $
    10.00
    
    
    
    
    20
    
    
    
    
    14Exchange Rate from C$ to U.S.$
    
    
    $
    0.01
    
    
    
    
    5
    
    
    
    
    4Exchange rate from Argentine Peso
to U.S.$
    
    
    0.3 Pesos
    
    
    
    1
    
    
    
    
    1
 (a)
    
    Change in factor is per metric tonne unless otherwise specified.(b)
    
    To convert impact to an EPS basis, divide the net earnings impact by the number of
outstanding shares (133 million shares as of December, 31 2006.)(c)
    
    The sensitivity to nitrogen margins is inclusive of the natural gas sensitivity described in the text above.
   AGRIUM ANNUAL REPORT 2006
    
    57




---



##### 



Our ConsolidatedPerformance
  (millions of
    
    
    
    
    
    
    
    
    
    
    
    
    Net EarningsU.S. dollars
    
    
    
    
    
    
    
    
    
    
    
    
    (Loss) Per Share:except
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Long-termper share
    
    
    
    
    
    
    
    Net
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    Cash & Cash
    
    
    
    Cash
    
    
    
    Financialamounts)
    
    
    Net Sales
    
    
    
    Earnings
    
    
    
    Basic
    
    
    
    Diluted
    
    
    
    Assets
    
    
    
    Equivalents
    
    
    
    Dividends
    
    
    
    Liabilities2006Q1
    
    
    
    657
    
    
    
    
    (48
    )
    
    
    
    (0.37
    )
    
    
    
    (0.37
    )
    
    
    
    3,552
    
    
    
    
    49
    
    
    
    
    
    
    
    
    
    763Q2
    
    
    
    1,816
    
    
    
    
    142
    
    
    
    
    1.08
    
    
    
    
    1.06
    
    
    
    
    3,215
    
    
    
    
    69
    
    
    
    
    7
    
    
    
    
    965Q3
    
    
    
    821
    
    
    
    
    1
    
    
    
    
    0.01
    
    
    
    
    0.01
    
    
    
    
    3,169
    
    
    
    
    39
    
    
    
    
    
    
    
    
    
    926Q4
    
    
    
    899
    
    
    
    
    (62
    )
    
    
    
    (0.47
    )
    
    
    
    (0.47
    )
    
    
    
    3,265
    
    
    
    
    109
    
    
    
    
    8
    
    
    
    
    941Year
    
    
    
    4,193
    
    
    
    
    33
    
    
    
    
    0.25
    
    
    
    
    0.25
    
    
    
    
    3,265
    
    
    
    
    109
    
    
    
    
    15
    
    
    
    
    9412005Q1
    
    
    
    537
    
    
    
    
    24
    
    
    
    
    0.18
    
    
    
    
    0.18
    
    
    
    
    2,677
    
    
    
    
    326
    
    
    
    
    
    
    
    
    
    799Q2
    
    
    
    1,180
    
    
    
    
    133
    
    
    
    
    1.01
    
    
    
    
    0.99
    
    
    
    
    2,694
    
    
    
    
    427
    
    
    
    
    7
    
    
    
    
    784Q3
    
    
    
    807
    
    
    
    
    72
    
    
    
    
    0.54
    
    
    
    
    0.54
    
    
    
    
    2,817
    
    
    
    
    415
    
    
    
    
    
    
    
    
    
    755Q4
    
    
    
    770
    
    
    
    
    54
    
    
    
    
    0.41
    
    
    
    
    0.40
    
    
    
    
    2,785
    
    
    
    
    300
    
    
    
    
    7
    
    
    
    
    719Year
    
    
    
    3,294
    
    
    
    
    283
    
    
    
    
    2.14
    
    
    
    
    2.12
    
    
    
    
    2,785
    
    
    
    
    300
    
    
    
    
    14
    
    
    
    
    7192004Q1
    
    
    
    435
    
    
    
    
    11
    
    
    
    
    0.08
    
    
    
    
    0.08
    
    
    
    
    2,416
    
    
    
    
    202
    
    
    
    
    
    
    
    
    
    978Q2
    
    
    
    1,011
    
    
    
    
    74
    
    
    
    
    0.56
    
    
    
    
    0.52
    
    
    
    
    2,345
    
    
    
    
    196
    
    
    
    
    7
    
    
    
    
    970Q3
    
    
    
    672
    
    
    
    
    83
    
    
    
    
    0.63
    
    
    
    
    0.60
    
    
    
    
    2,514
    
    
    
    
    299
    
    
    
    
    
    
    
    
    
    979Q4
    
    
    
    720
    
    
    
    
    98
    
    
    
    
    0.75
    
    
    
    
    0.71
    
    
    
    
    2,661
    
    
    
    
    425
    
    
    
    
    7
    
    
    
    
    972Year
    
    
    
    2,838
    
    
    
    
    266
    
    
    
    
    2.03
    
    
    
    
    1.91
    
    
    
    
    2,661
    
    
    
    
    425
    
    
    
    
    14
    
    
    
    
    972
  
    
    Net earnings in 2006 included income from three acquisitions that make a majority of their
earnings in the second quarter and were financed from a combination of incremental borrowings
and cash on hand.
    
    Fourth quarter earnings were negatively impacted by the impairment charge on our Canadian
phosphate assets of $136-million pre-tax or $95-million as a non-cash after tax charge.
 58
    
    AGRIUM ANNUAL REPORT 2006




---



##### 




    
    Net earnings in the first quarter of 2006 were negatively impacted by pre-tax losses of
$43-million ($0.21 diluted loss per share) due to natural gas hedges that did not qualify for hedge
accounting treatment. The majority of our natural gas hedges qualified for hedge accounting in
2006.
    
    Net earnings in the second quarter of 2006 were favorably impacted by an $18-million non-cash
future income tax recovery, discussed below.
    
    Net earnings and net earnings per share in the third and fourth quarters of 2004 included
income of $41-million and $9-million, respectively ($25-million after tax or $0.17 diluted
earnings per share in the third quarter and $5-million after tax or $0.04 diluted earnings per
share in the fourth quarter) in liquidated damages from an arbitration panel award relating to
our Kenai facility. Net earnings also included a $36-million gain ($21-million after tax or
$0.15 diluted earnings per share) in the fourth quarter of 2004 on the settlement of all
outstanding legal claims relating to our Kenai facility.
 INCOME TAXES
   INTEREST EXPENSE
  DIVIDENDS
  SEASONALITY
  AGRIUM ANNUAL REPORT 2006
    
    59




---



##### 



NET EARNINGS
   
    
    $42-million increase in selling, general and administrative, and depreciation expenses
related primarily to businesses acquired in 2006;
    
    $16-million settlement of a commercial dispute recorded as income in the fourth quarter of
2005 offset somewhat by a $13-million gain on the sale of a non-core oil and gas property in the
Canadian Arctic in the fourth quarter of 2006; and,
    
    $8-million increase in stock-based compensation expense due to a number of factors including
the increase in our share price.
 FINANCIAL POSITION AND LIQUIDITY
     60
    
    AGRIUM ANNUAL REPORT 2006




---



##### 



BUSINESS SEGMENT PERFORMANCE
  Retail
   
    
    an increase in international retail net sales of $8-million and gross profit of $2-million. As a
result of strong corn and soybean prices, farmers in Argentina expanded acreage and increased
spending on crop inputs to maximize yields and take advantage of strong margins.
    
    an increase in domestic sales volumes of $109-million and gross profit of $33-million primarily
due to the increased sales volumes from the acquisition of Royster-Clark in February. Net sales and
gross profit increased year-over-year for both fertilizers and chemicals. Although results in the
fourth quarter of 2006 were significantly higher than those in the same quarter of 2005, they were
still negatively impacted by very wet weather in the Eastern Corn Belt that prevented optimal fall
crop input application.
  Wholesale
   
    
    International sales volumes and gross profit were significantly lower than last year due
entirely to lower sales from our Kenai facility. Kenai was idled for most of the fourth
quarter in 2006 due to a lack of gas supply. Our Profertil facility increased fourth quarter
sales volumes by 10 percent year-over-year and gross profit contribution was similar to last
year.
 AGRIUM ANNUAL REPORT 2006
    
    61




---



##### 




    
    Domestic nitrogen sales volumes and margins increased compared to the fourth quarter of 2005
due to stronger North American demand and lower natural gas prices. North American nitrogen
sales volumes were 35 percent higher in the fourth quarter of 2006 than for the same quarter
of 2005 due to favorable pricing and higher ammonia sales through our Borger pipeline system.
Average nitrogen margins on domestic sales were $30 per tonne in the fourth quarter of 2006
versus $26 per tonne in the same quarter of 2005, as significantly lower natural gas prices
more than offset lower average nitrogen sales prices.
    
    Agriums overall natural gas costs for product produced in the fourth quarter of 2006 was
$4.97 per MMBtu compared to $7.56 per MMBtu for the same quarter of 2005. The U.S. benchmark
(NYMEX) natural gas price for the fourth quarter was $6.62 per MMBtu with the AECO (Alberta)
basis averaging $1.00 per MMBtu.
    Advanced Technologies
  Other
  62
    
    AGRIUM ANNUAL REPORT 2006




---



##### 



NON-CASH WORKING CAPITAL
  
    
    seasonality factors discussed on page 59 of this MD&A;
    
    building inventory for seasonal peak demand;
    
    demand for our products and services;
    
    selling prices of our products and services;
    
    raw material input and other costs; and,
    
    foreign exchange rates.
   CAPITAL EXPENDITURES
  (millions of U.S. dollars)
    
    
    2006
    
    
    
    2005
    
    
    
    2004Sustaining capital
    
    
    
    91
    
    
    
    
    87
    
    
    
    
    69Investment capital
    
    
    
    118
    
    
    
    
    88
    
    
    
    
    13TOTAL
    
    
    
    209
    
    
    
    
    175
    
    
    
    
    82
  AGRIUM ANNUAL REPORT 2006
    
    63




---



##### 



We acquired Royster-Clark on February 9, 2006 for approximately $404-million net of
proceeds from the sale of the East-Dubuque nitrogen facility on April 26, 2006 for
$70-million, including $20-million in working capital.We employed $85.8-million to acquire the fertilizer technology and professional products
business of Nu-Gro as of January 25, 2006.We acquired certain fixed assets and technologies of Pursell on August 8, 2006 for
$78.5-million, further enhancing our Advanced Technologies business. We also purchased
patented technology for emerging non-fertilizer controlled-release products, such as
specific crop protection products, for the consideration of $12.5-million plus contingent
payments based on a percentage of future sales.
   additional potash investment and expansion projects;additional investment in Advanced Technologies;Potential expansion of import, storage and distribution facilities in South America; and,possible one-off retail acquisitions.
  64
    
    AGRIUM ANNUAL REPORT 2006




---



##### 



(millions of U.S. dollars)
    
    Currency Denomination
    
    U.S. Dollar EquivalentCash and cash equivalents
    
    U.S. Dollars
    
    
    93Canadian Dollars
    
    
    8Argentine Pesos
    
    
    7Other
    
    
    1Short-term bank lines (unused)(a)
    
    U.S. Dollars
    
    
    431Argentine Pesos
    
    
    30Other non-cash working capital(b)
    
    U.S. Dollars
    
    
    490
 (a)
    
    Unused amounts are net of letters of credit
outstanding as at December 31, 2006(b)
    
    Includes amounts drawn
on our asset securitization program.
  FINANCING ACTIVITIES AND FINANCIAL POSITION
  25-month
 AGRIUM ANNUAL REPORT 2006
    
    65




---



##### 



CASH PROVIDED BY OPERATING ACTIVITIES
  ARGENTINA CURRENCY REPATRIATION
   FINANCIAL COVENANTS
  66
    
    AGRIUM ANNUAL REPORT 2006




---



##### 



DEBT RATINGS
     Senior Unsecured Notes and DebenturesMoodys Investors Services
    
    
    (Baa2)Dominion Bond Rating Service
    
    
    (BBB)Standard & Poors Ratings Services
    
    
    (BBB)
 OUTSTANDING SHARES
  Number of Shares
    
    
    
    Share Capital(millions of
    
    
    
    Market Value(millions of(millions)
    
    
    
    U.S. dollars)
    
    
    
    U.S. dollars)Common shares
    
    
    
    133
    
    
    
    
    617
    
    
    
    
    4,621
  FUTURE CASH REQUIREMENTS
  
    
    aggregate contractual obligations;
    
    other obligations including asset retirement obligations and environmental remediation
liabilities, where the extent, timing, or amount of the obligations may be determined by some
future event that cannot be determined with substantial accuracy;
    
    employee future benefit obligations;
    
    general operating requirements including interest payments, income and other taxes payable
and peak seasonal working capital requirements;
    
    capital expenditure commitments; and,
    
    future growth opportunities, including acquisitions.
 AGRIUM ANNUAL REPORT 2006
    
    67




---



##### 



CONTRACTUAL OBLIGATIONS
  Payment due by period:Less than
    
    
    
    One to
    
    
    
    Four to
    
    
    
    After five(millions of U.S. dollars)
    
    
    one year
    
    
    
    three years
    
    
    
    five years
    
    
    
    years
    
    
    
    TotalLong-term debt (a) (b)
    
    
    
    51
    
    
    
    
    153
    
    
    
    
    212
    
    
    
    
    1,228
    
    
    
    
    1,664Operating leases (c)
    
    
    
    57
    
    
    
    
    77
    
    
    
    
    21
    
    
    
    
    23
    
    
    
    
    178Purchase obligations (d)(e)(f)
    
    
    
    739
    
    
    
    
    247
    
    
    
    
    149
    
    
    
    
    53
    
    
    
    
    1,188Total
    
    
    
    847
    
    
    
    
    477
    
    
    
    
    382
    
    
    
    
    1,304
    
    
    
    
    3,010
 (a)
    
    Includes interest payments(b)
    
    Failure to maintain certain financial ratios and other covenants may trigger early repayment
provisions (See financial covenants on page 66 of this MD&A).(c)
    
    Includes short-term leases for railcars and distribution facilities in Wholesale, vehicles and
application equipment in Retail and computer equipment lease.(d)
    
    Includes minimum commitments for
North America natural gas based on prevailing NYMEX forward prices at December 31, 2006. We commit
to purchase a large percentage of our production volume requirements for the next year at floating
prices, and actual prices may differ.(e)
    
    Includes our 50 percent share of Profertils annual gas purchase commitments of $202-million.(f)
    
    Purchase obligations exclude employee future benefits, for which employer contributions are
expected to be approximately $10-million in 2007.
 OTHER LONG-TERM OBLIGATIONS
  Payment due by period:Less than
    
    
    
    Six to 10
    
    
    
    11 to 15
    
    
    
    After 15(millions of U.S. dollars)
    
    
    six years
    
    
    
    years
    
    
    
    years
    
    
    
    years
    
    
    
    TotalAsset retirement obligations(a)
    
    
    
    25
    
    
    
    
    21
    
    
    
    
    79
    
    
    
    
    472
    
    
    
    
    597Environmental remediation
liabilities
    
    
    
    61
    
    
    
    
    22
    
    
    
    
    14
    
    
    
    
    20
    
    
    
    
    117Total
    
    
    
    86
    
    
    
    
    43
    
    
    
    
    93
    
    
    
    
    492
    
    
    
    
    714
 (a)
    
    Represents the undiscounted, inflation-adjusted estimated cash outflows required to settle
the asset retirement obligations in the amount of $71-million at December 31, 2006. See note 17 to
our 2006 consolidated financial statements for further discussion of asset retirement obligations.
 68
    
    AGRIUM ANNUAL REPORT 2006




---



##### 



ASSET SECURITIZATION
   DERIVATIVE INSTRUMENTS
      
    
    our natural gas exposure up to 75 percent of planned gas requirements for the current year plus
the following two years and 25 percent of planned gas requirements for the third and fourth ensuing
years; and,
    
    our foreign exchange exposure up to 75 percent of the estimated transactional exposure for the
next twelve-month period, 50 percent for months 13 to 24 and 25 percent for months 25 to 36.
 AGRIUM ANNUAL REPORT 2006
    
    69




---



##### 



RELATED PARTY TRANSACTIONS
  
 70
    
    AGRIUM ANNUAL REPORT 2006




---



##### 



Our Accounting Policies
     
    
    impairment occurs when the carrying value of a long-lived asset exceeds its fair value; and,
    
    changes in the estimate or different estimates that could have been selected could have a
material impact on our consolidated results of operations or financial condition.
  a)
    
    Plant, property and equipmentWe record plant, property and equipment at cost and include the cost of replacements and
betterments. In the event we construct a new production facility, cost is defined as expenditures
incurred up to the commencement of commercial production, and includes internal and external costs
of personnel, material and services.There are two key areas requiring significant estimates in the application of our plant, property
and equipment policy. These are in the determination of possible impairment and the estimating
of the useful lives of assets.Impairment occurs when the carrying value of a long-lived asset exceeds both the cash flows it is
capable of generating and its fair value. Fair value can be affected by a number of factors, such
as new technology, market conditions for our products, availability of raw material inputs and
estimated service lives of the assets. We review the carrying value of our plant, property and
equipment on a regular basis, and where it exceeds both the undiscounted cash flow and fair value
we consider the asset to be impaired. If impairment has occurred, an impairment charge is
recognized immediately.We depreciate our plant, property and equipment based on
their estimated service lives, which typically range from three to 25 years. We estimate initial service lives based on experience and
current technology. These estimates may be extended through sustaining capital programs or by
access to new supplies of raw materials. Factors affecting the fair value of our assets may also
affect the useful lives of our assets and these factors are constantly changing. We therefore
periodically review the estimated remaining lives of our facilities and adjust our depreciation
rates prospectively where appropriate.b)
    
    Indefinite-Lived Intangible AssetsIndefinite-lived intangible assets, including goodwill and certain other intangible assets, are
assessed for impairment on at least an annual basis or more often if events or circumstances
warrant. These impairment tests involve the use of both discounted and undiscounted cash
 AGRIUM ANNUAL REPORT 2006
    
    71




---



##### 



flow analyses to assess the fair value of both indefinite-lived and long-lived assets and the
recoverability of the carrying value of these assets. These analyses involve estimates of future
cash flows, estimated periods of use and applicable discount rates. If the fair values of these
assets as determined above are less than the related carrying values, impairment losses would be
recognized, as applicable.c)
    
    Purchase Price AllocationsDuring 2006, we acquired Nu-Gro, Royster-Clark, and Pursell. Allocation of the purchase prices
for these acquisitions involved considerable judgment in determining the fair values assigned to
the tangible and intangible assets acquired and the liabilities assumed on acquisition. Among other
things, the determination of these fair values involved the use of discounted cash flow analyses,
and estimated future prices, volumes, and operating and integration costs.d)
    
    Asset retirement obligations and environmental remediation liabilitiesAsset retirement obligations are recognized in the period in which they are incurred if a
reasonable estimate of fair value can be determined. An asset retirement obligation is an
existing legal obligation associated with the permanent removal from service of a long-lived
asset, which results from the acquisition, construction, development or normal operation of the
asset. The obligation is measured at fair value and is adjusted in subsequent periods through
accretion expense. The associated asset retirement costs are capitalized as part of the carrying
amount of the related asset.Environmental remediation liabilities relate to existing conditions caused by past
operations that give rise to a present, non-retirement-related remediation requirement are
expensed based on our best estimate of undiscounted future costs when remediation efforts are
probable and when the costs can reasonably be estimated based on current law and existing
technologies.Estimating the costs of both asset retirement obligations and environmental
remediation liabilities requires extensive judgment about the nature and timing of work to be
carried out in view of present environmental laws and regulations, and these estimates are
subject to considerable uncertainty. Changes in these estimates could have a material impact on
our results of operation and financial position.
     72
    
    AGRIUM ANNUAL REPORT 2006




---



##### 



(millions of U.S. dollars except pershare amounts)
    
    
    Retail
    
    
    
    Wholesale
    
    
    
    AdvancedTechnologies
    
    
    
    Other
    
    
    
    Consolidated
    
    
    
    DilutedPer Share2006EBITDA
    
    
    
    125
    
    
    
    
    352
    
    
    
    
    7
    
    
    
    
    (107
    )
    
    
    
    377Less depreciation, amortization and asset impairment
    
    
    
    30
    
    
    
    
    261
    
    
    
    
    8
    
    
    
    
    6
    
    
    
    
    305EBIT
    
    
    
    95
    
    
    
    
    91
    
    
    
    
    (1
    )
    
    
    
    (113
    )
    
    
    
    72Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (63
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    
    0.252005EBITDA
    
    
    
    113
    
    
    
    
    614
    
    
    
    
    
    
    
    
    
    (81
    )
    
    
    
    646Less depreciation and amortization
    
    
    
    17
    
    
    
    
    122
    
    
    
    
    
    
    
    
    
    7
    
    
    
    
    146EBIT
    
    
    
    96
    
    
    
    
    492
    
    
    
    
    
    
    
    
    
    (88
    )
    
    
    
    500Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (49
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (168
    )Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    283
    
    
    
    
    2.122004EBITDA
    
    
    
    99
    
    
    
    
    563
    
    
    
    
    
    
    
    
    
    (39
    )
    
    
    
    623Less depreciation and amortization
    
    
    
    18
    
    
    
    
    131
    
    
    
    
    
    
    
    
    
    7
    
    
    
    
    156Less special items:Kenai award and settlement
    
    
    
    
    
    
    
    
    86
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    86EBIT before special items
    
    
    
    81
    
    
    
    
    346
    
    
    
    
    
    
    
    
    
    (46
    )
    
    
    
    381Plus special items:Kenai award and settlement
    
    
    
    
    
    
    
    
    86
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    86EBIT
    
    
    
    81
    
    
    
    
    432
    
    
    
    
    
    
    
    
    
    (46
    )
    
    
    
    467Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (69
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (132
    )Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    266
    
    
    
    
    1.91
  Financial
Instruments, Hedging Relations and Other Comprehensive Income
  AGRIUM ANNUAL REPORT 2006
    
    73




---



##### 



Business Risks
        
    
    The broad product diversity of our Wholesale business (nitrogen, potash, and phosphate)
reduces the impact of poor supply and demand fundamentals that can be experienced by a
particular product category.
    
    The geographic diversity of our customer base (North America, South America, international)
reduces the impact of poor economic, crop or weather conditions in any one region.
    
    Our extensive distribution and storage capability can help reduce wholesale variability that
may arise from a downturn in demand in a localized area.
    
    Our commitment to operational excellence helps ensure rigorous management of operational
risks that could compromise production efficiencies or increase operating costs.
    
    Our customers have diverse end-uses for our products (agriculture and industrial), with some
of our industrial sales prices based on a cost of production plus margin basis.
    
    Our Retail and Advanced Technologies businesses provide stability to our annual cash flows
and earnings.
    
    We also make prepay forward sales and may lock in nitrogen margins using forward gas price
hedging.
 74
    
    AGRIUM ANNUAL REPORT 2006




---



##### 




    
    Within our Retail business, we have further mitigating factors including:
 o
    
    product and service diversity (fertilizer, chemical, seed and application services); and,o
    
    geographic diversity that helps spread risk associated with regional weather and crops (broad
regional U.S. and South American markets).
     
    
    Our Kenai and Profertil nitrogen facilities have gas contracts that are not tied to North
American gas prices.
    
    We successfully concluded gas supply contract negotiations with Alaskan gas producers that is
expected to allow continued operation of the Kenai facility until October 31, 2007.
    
    In the short term, we use derivative instruments and other contractual arrangements to
attempt to reduce the risk of gas price volatility.
    
    Our practice of adjusting our production rates and sourcing supply for our customers from
purchased product when conditions dictate reduces our exposure to high natural gas costs.
    
    The majority of our nitrogen sold in North America is produced in Western Canada, which has
lower-cost gas than the average cost for our competitors who produce and sell elsewhere in
North America.
    
    In the long term, our goal is to increase our nitrogen capacity in areas where long-term
supplies of lower-cost trapped natural gas are available.
    
    For mining, we have medium-term highly competitive contracts in place with suppliers and
maintain high mining standards, employing the latest technologies and techniques to minimize
the risk of accident.
 AGRIUM ANNUAL REPORT 2006
    
    75




---



##### 




    
    Our extensive distribution and storage system allows us to move products to locations where
demand is strongest. However, our ability to react is limited by the shortness of the peak
selling season and margins on these sales in markets further from our production facilities
will be lower due to higher transport costs and potentially lower sales prices.
    
    Geographic diversity of our Wholesale markets and our Retail facilities affords some
protection against regional weather patterns.
    
    We also mitigate our exposure to weather-related risk through our sales to industrial
customers, which are not dependent on regional weather factors. Industrial sales represent
approximately 15 percent of our Wholesale net sales.
     
    
    We track our annual air emissions and have proactively undertaken projects designed to
improve plant energy efficiencies and reduce all emissions.
    
    We have taken, and will continue to take a leadership role in the fertilizer industrys
negotiations with the government on fair and equitable air emission reduction targets and a
pragmatic and realistic compliance system that preserves the global competitiveness of the
industry.
 76
    
    AGRIUM ANNUAL REPORT 2006




---



##### 




    
    We develop detailed forecasts of product movement needs for each facility and mode of
transport.
    
    We develop a strategic plan, with specific options, to help mitigate the potential for
increased cost or the reduced deliverability of ammonia and other products over the medium
term, and continue to work with industry associations to address these issues.
    
    We continually develop and maintain mutually beneficial long-term relationships with major
carriers.
    
    Most of our production facilities are serviced through multiple carriers and modes of
transportation, providing us with important shipping options.
    
    We maintain multiple supply points through our extensive distribution network.
    
    
    We seek to partner with reputable firms with experience or significant presence in foreign
countries in which we operate or intend to operate.
    
    We hire personnel located in the foreign country or who have operating experience in the
foreign country.
    
    We obtain non-recourse project financing with consortiums of international banks where
appropriate.
    
    We maintain excess cash related to international operations in U.S. dollars to the extent
practicable.
    
    We increase our required investment return to reflect our perceived risk of conducting
business in specific countries.
 AGRIUM ANNUAL REPORT 2006
    
    77




---



##### 




    
    Exposure to currency fluctuations is partially managed through our currency hedging programs.
    
    
    We have a structured annual Succession Planning process focused on actively accelerating the
development of leaders through targeted developmental opportunities.
    
    We conduct a continuous review and analysis of our Total Compensation program to ensure our
offering to employees is competitive in the markets in which we compete for talent.
    
    We maintain a focused approach to recruiting, developing and retaining key employees, which
will be supported by a formalized Talent Acquisition model currently under development.
    
    
    We have developed a detailed and systematic project review system to analyze the
rewards/risks of all significant investment projects, including acquisitions and expansions.
Each investment project must pass a gate process where it is reviewed by an investment
strategy committee to ensure it passes key criteria such as strategic fit, economic return or
our hurdle rate and various competitive and risk factors.
    
    As part of this process, we assign specific areas of responsibility to key personnel at
Agrium with experience in those areas who are then held accountable for results.
    
    We conduct extensive due diligence reviews and financial modeling analyses.
    
    We complete periodic assessments of previous acquisitions to update and enhance current and
future strategies in the spirit of continuous improvement and to ensure we remain a
disciplined investor.
 78
    
    AGRIUM ANNUAL REPORT 2006




---



##### 




    
    Our tax department proactively participates in tax and industry organizations and maintains
contacts with an extensive network of local and international tax consultants.
    
    We have centralized responsibility over the tax function in all the jurisdictions in which we
operate.
    
    
    We have established credit procedures that include rigorous assessment of a counterpartys
credit-worthiness and adherence to credit limits.
    
    For derivative hedging contracts, we have established counterparty trading limits and netting
agreements.
    
    In our Retail segment, we service customers in diverse geographic markets, reducing the
impact of poor economic or crop conditions in any particular region.
    AGRIUM ANNUAL REPORT 2006
    
    79




---



##### 




    
    We limit the number of farm centers offering ammonium nitrate to less than fifteen, developing
a detailed Retail security plan for remaining locations and ensuring that virtually all product is
sold as a blend with other fertilizer products and that we blend and apply the product for the
grower as much as possible. Our long-term goal is to phase out carrying ammonium nitrate entirely.
    
    We ensure strong board, executive and plant management leadership, engagement and
participation on EH&S matters.
    
    Highly skilled EH&S personnel are at all levels of the organization.
    
    An increasingly well-defined set of EH&S Key Performance Indicators, annual goals and systems
is cascaded from the Chief Executive Officer throughout the organization.
    
    Ongoing, close working relationships with industry associations, government agencies and law
enforcement ensure best practices, other risk management strategies and new regulations are
known, understood and met in a timely fashion.
    
    A three-tier system for compliance assurance provides the appropriate levels of management
(corporate, business unit, local) with more frequent assessment of their risk reduction
opportunities.
    
    Annually, we review our EH&S Policy for relevancy and modify it as necessary.
    
    We regularly evaluate and redefine the roles of business unit and corporate EH&S personnel.
    
    We drive responsibility for compliance assurance deeper into the organization, increasing the
frequency at which systemic, regulatory and business risk control measures are evaluated and
improved for optimal results.
 Controls & Procedures
  80
    
    AGRIUM ANNUAL REPORT 2006




---



##### 



Internal Control
 Integrated Framework
   AGRIUM ANNUAL REPORT 2006
    
    81