10-K

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

Commission file number 1-10351

Potash Corporation of Saskatchewan Inc.

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

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

122 – 1st Avenue South

Saskatoon, Saskatchewan, Canada S7K 7G3

306-933-8500

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

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

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

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

          Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  Yes x  No o

          At June 30, 2003, the aggregate market value of the 52,183,854 Common Shares held by non-affiliates of the registrant was approximately $3,339,766,680.

          At February 29, 2004, the registrant had 53,367,413 Common Shares outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

          Portions of the registrant’s Annual Report to Shareholders for the fiscal year ended December 31, 2003 (the “2003 Annual Report”), filed as Exhibit 13, are incorporated by reference into Part II.

          Portions of the registrant’s Proxy Circular for its Annual Meeting of Shareholders to be held on May 6, 2004 (the “2004 Proxy Circular”), attached as Exhibit 99, are incorporated by reference into Part III.

DEFINED TERMS

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

FORWARD-LOOKING STATEMENTS

      This document, including the documents incorporated by reference, contain “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 that relate to future events or our future financial performance. Statements containing words such as “could”, “expect”, “may”, “anticipate”, “believe”, “intend”, “estimate”, “plan” and similar expressions constitute forward-looking statements. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws.

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

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

• changes in competitive pressures, including pricing pressure;

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

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

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

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

• unexpected geological conditions;

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

• the outcome of legal proceedings;

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

• acquisitions we may undertake in the future.

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

      As a result of these and other factors, there is no assurance that any of the events, circumstances or results anticipated by forward-looking statements included or incorporated by reference into this document will occur or, if they do, of what impact they will have on our business or on our results of operations and financial condition.

TABLE OF CONTENTS

Exhibit 11

Exhibit 12

Exhibit 13

Exhibit 21

Exhibit 23

Exhibit 31(A)

Exhibit 31(B)

Exhibit 32

Exhibit 99

PART I

ITEMS 1 and 2.     Business and Properties.

General

      We are one of the world’s largest integrated fertilizer and related industrial and feed products companies. In 2003, our potash operations represented an estimated 16% of global production, 23% of global potash capacity and 69% of global potash excess capacity. We are the fourth largest producer of phosphates worldwide by capacity. In 2003, our phosphate operations represented an estimated 6% of world phosphoric acid production. We are the third largest producer of nitrogen products worldwide by capacity. In 2003, our nitrogen operations represented an estimated 2% of world ammonia production.

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

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

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

      Through Florida Favorite Fertilizer in Florida and Farmer’s Favorite Fertilizer in Georgia and Alabama, we manufacture, process and distribute fertilizer and other agricultural supplies from plants located in Florida, Alabama and Georgia.

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

History

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

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

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

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

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

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

• PCS Yumbes S.C.M. (formerly Minera Yolanda S.C.M.), a Chilean sodium nitrate and potassium nitrate producer, in 1999;

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

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• an animal feed plant in Brazil in March 2000 from Mitsui Company;

• 20% of the total outstanding equity of Sociedad Química y Minera de Chile S.A., or SQM, a Chilean specialty fertilizer, iodine and lithium company, in transactions in October 2001 and April and May of 2002; and

• an animal feed plant in Joplin, Missouri together with a related animal feed distribution business in March 2002.

      In 2003, we made the following significant acquisitions and dispositions: In October 2003, we purchased 26% of the shares of Arab Potash Company from Jordan Investment Corporation, an arm of the Jordanian government, for approximately $178 million. In November 2003, we entered into an agreement with SQM to sell the shares of PCS Yumbes for an aggregate purchase price of $35 million, subject to adjustments. This transaction is expected to close no later than December 31, 2004.

Potash Operations

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

Properties

      All potash produced by the Company in Saskatchewan is in the southern half of the Province, where extensive potash deposits are found. The potash ore is contained in a predominantly rock salt formation known as the prairie evaporites, which lie about 3,000 feet below the surface. The evaporite deposits, which are bounded by limestone formations and contain the potash beds of approximately 8 to 17 feet thickness. Three potash deposits of economic importance occur in the Province, the Esterhazy, Belle Plaine and Patience Lake members. The Patience Lake member is mined at the Lanigan, Allan, Patience Lake and Cory mines, and the Esterhazy member is mined at the Rocanville and Esterhazy mines.

      Under a long-term mining and processing agreement effective through December 31, 2026, IMC Esterhazy Canada Limited Partnership (“IMC”) mines and processes our mineral rights at the Esterhazy mine. We have the option to terminate this agreement every five years. The next opportunity to terminate is December 31, 2006, for which notice must be given no later than June 30, 2006. IMC has the option to abandon the mine at any time after December 31, 2011, thus terminating the mining and processing agreement. In each year the maximum finished product we are permitted to take under the mining and processing agreement is 952,500 tonnes and the minimum required amount is 453,600 tonnes. For the year ending December 31, 2004, we have notified IMC that we require 952,500 tonnes of finished product. Water inflow at the Esterhazy mine has continued, to a greater or lesser degree, since December 1985. We share, on an annual basis, in such water inflow remediation costs.

      We also produce potash at our mine near Sussex, New Brunswick from the flank of an elongated salt structure. We produce granular product at our Cassidy Lake, New Brunswick facility using standard grade product from certain of our other mine sites. We also hold an interest in certain oil and gas rights within the vicinity of the New Brunswick mine. Natural gas has been discovered and we, in conjunction with Corridor Resources Inc., now supply the New Brunswick facility with natural gas to meet its fuel needs. During the investigation for natural gas in the vicinity of the Sussex division, potash was detected to the south and east of the existing mine operations. Exploration permits have been obtained and preliminary seismic and drilling has taken place. We are exploring this potash deposit for possible future development.

      We control the right to mine 613,559 acres of land in Saskatchewan. Included in these holdings are mineral rights to 506,803 acres contained in blocks around the six mines in which we have an interest, of which acres we own approximately 36%, approximately 50% are under lease from the Province of Saskatchewan and approximately 14% are leased from other parties. Our remaining 106,756 acres are located elsewhere in Saskatchewan. Our leases with the Province of Saskatchewan are for 21 year terms, renewable at our option. Our significant leases with other parties are also for 21 year terms. Such leases are renewable at our option, providing generally that production is continuing or, in one case, that there is continuation of the

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Crown lease. In New Brunswick, we mine pursuant to a mining lease with the Province of New Brunswick. The lease is for a term of 21 years from 1978 with renewal provisions for three additional 21 years periods.

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

      PCS Yumbes, which we acquired in 1999, holds mining concessions on certain sodium nitrate deposits in the Atacama desert in northern Chile. In November 2003, we entered into an agreement with SQM to sell our interest in PCS Yumbes.

Production

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

      In 2003, our conventional potash operations (including Esterhazy) mined 18.9 million tonnes of ore at an average grade of 22.76% potassium oxide (K₂O). In 2003, our potash production from all our operations (including Esterhazy) consisted of 7.094 million tonnes of potash (KCl) with an average grade of 61.06% K₂O, representing 44% of North American production.

      Our present annual potash production capacity is approximately 12.1 million tonnes KCl, which includes maximum annual production under the Mining and Processing Agreement with IMC of 952,500 tonnes at Esterhazy. In 2003, our production capacity represented an estimated 53% of the North American total capacity while our excess capacity was an estimated 75% of North American excess production capacity. We allocate production among our mines on the basis of various factors, including cost efficiency and the grades of product that can be produced. The Patience Lake mine, which was originally a conventional underground mine, now employs a solution mining method, while the other Saskatchewan mines we own or in which we have an interest employ conventional underground mining methods.

      The New Brunswick mine is a conventional cut and fill mine. In addition to potash production, this mine also produced 0.57 million tonnes of sodium chloride (salt) in 2003. We continue to incur costs at the New Brunswick division in relation to management of a brine inflow.

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

			2003 Production						2002 Production						2001 Production
							Finished						Finished						Finished
			Ore				Product		Ore				Product		Ore				Product
	Annual		(millions		Grade		(millions		(millions		Grade		(millions		(millions		Grade		(millions
	Capacity(3)		of tonnes)		% K2O		of tonnes)		of tonnes)		% K2O		of tonnes)		of tonnes)		% K2O		of tonnes)
Lanigan		3.828		5.359		20.63		1.488		4.947		19.92		1.424		4.756		20.82		1.354
Rocanville		2.295		5.999		23.50		1.989		5.060		23.26		1.700		4.767		23.21		1.593
Allan		1.885		2.790		24.78		0.934		2.537		24.43		0.864		2.352		24.11		0.768
Cory		1.361		2.459		25.03		0.730		2.376		24.96		0.677		2.515		25.08		0.747
Patience Lake(1)		1.033						0.251						0.230						0.241
New Brunswick		0.785		2.311		23.21		0.749		1.828		22.97		0.599		1.876		22.83		0.609
Totals(2)				18.918				6.141		16.748				5.494		16.266				5.312

(1) Solution mine.

(2)	Does not include Finished Product from Esterhazy of .953 for each of 2003 and 2002 and .816 for 2001.
(3)	million tonnes of Finished Product (KCl).

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

Reserves

      The Company’s estimates for its conventional mining operations in Saskatchewan are based on exploration drill hole data, seismic data and actual mining results during the past 25 years. Reserves are estimated by identifying material in place that is delineated on at least two sides and material in place within a one mile radius or distance from an existing sampled mine entry. A historical extraction ratio from the thirty to thirty five years of mining results is then applied to estimate the reserves. Mineral Resources beyond the reserve calculations are contained within a seven to ten mile economic radius of the existing shafts depending upon travel conditions. The Company’s estimated recoverable ore as of December 31, 2003 for each of our Saskatchewan mines is as follows:

	Reserves				Mineral Resources
	Tonnes(1)(2)(3)		Average		Tonnes
	(millions of tonnes		Grade		(millions of tonnes of
	of recoverable ore)		(K2O)		recoverable ore)(2)(3)
Allan		253		25.9%		960
Cory		202		25.1%		830
Lanigan		437		22.0%		1,300
Rocanville		386		22.5%		200

(1)	There has been no third party review of reserve estimates within the last three years.
(2)	The extraction ratio of recoverable ore to in place material for each mine is as follows: Allan 0.32, Cory 0.26, Lanigan 0.30 and Rocanville 0.33
(3)	The concentration of recoverable ore tonnes to finished product (KCl) for each of the divisions is as follows: Allan 2.904, Cory 3.39, Lanigan 3.5, Rocanville 3.003.

      The Company believes that, based on its estimates of reserves and resources and with production rates at full capacity and utilizing current technology, each of the Allan, Cory and Lanigan mines has a life in excess of 100 years and the Rocanville mine has a life in excess of 84 years.

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      Given the characteristics of the solution mining method employed at the Patience Lake mine, it is not possible to estimate definitively the productive capacity of or the recoverable ore from this operation. However, based on information obtained upon the acquisition of the mine, current technology and the present mining area for this operation, the Company believes that the mine has a life of at least 40 years for the existing mine workings. Estimates are made utilizing the ore surfaces available for dissolution in the abandoned mine workings, the concentration of the circulated brine recovered from the mine, annual evaporation rates from the ponds and the annual rate of KCL recovered from the ponds.

      Based on geophysics, exploration drill hole data, definition drilling underground and actual mining results, the Company estimates reserves of 89.5 million tonnes of recoverable ore at an average grade of 25.6% and 29.3 million tonnes of estimated finished product (KCI) at its New Brunswick mine. The Company believes that, based upon its reserve and resource estimates, the New Brunswick mine has a life of approximately 80 years with production at full capacity.

Phosphate Operations

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

Properties

      We conduct our phosphate operations primarily at two facilities, one a 35,000-acre facility near Aurora, North Carolina and the other a 100,580-acre facility near White Springs in northern Florida. We believe the Aurora facility to be the largest integrated phosphate mine and phosphate processing complex at one site in the world. The Aurora facility includes a six million tonne per-year mining operation, four sulfuric acid plants, four phosphoric acid plants, a purified acid plant, a liquid fertilizer plant, a superphosphoric acid (SPA) plant, two diammonium phosphate (DAP) plants, a defluorinated phosphate (DFP) animal feed plant and a solid fertilizer plant capable of producing DAP, granular triple superphosphate (GTSP) or monoammonium phosphate (MAP). Expansion of our purified phosphoric acid production plant at Aurora was completed in the first quarter of 2003. The expansion increased capacity by 83,000 tonnes to 251,000 tonnes P₂O₅.

      The White Springs facility is the third largest P₂O₅ producer, by capacity, in the United States. The White Springs facility includes a mine and two production facilities, Suwannee River and Swift Creek, with two sulfuric acid plants, three phosphoric acid plants, two DAP plants, a SPA plant, a dicalcium phosphate plant and a DFP plant located at the Suwannee River complex and two sulfuric acid plants, a phosphoric acid plant and superphosphoric plant located at the Swift Creek complex.

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

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

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

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

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

      The animal feed plant at Kinston, North Carolina ceased production during the first quarter of 2003.

Plant Locations	Phosphate Products Produced
Aurora, North Carolina	DAP, GTSP, MAP, SPA, Animal Feed, Merchant Grade Phosphoric Acid (“MGA”), purified acid
White Springs, Florida		SPA, DAP, MAP, MGA, Animal Feed
Cincinnati, Ohio		Blended purified acid products
Geismar, Louisiana		MGA, SPA, liquid fertilizer
Marseilles, Illinois		Animal Feed
Weeping Water, Nebraska		Animal Feed
Joplin, Missouri		Animal Feed
Sao Vincente, Brazil		Animal Feed

Production

      We extract phosphate ore using surface mining techniques. At each mine site, the ore is mixed with recycled water to form a slurry, which is pumped from the mine site to our processing facilities. The ore is then screened to remove coarse materials, washed to remove clay and floated to remove sand to produce phosphate “rock”. The annual production capacity of our mines is currently 9.6 million tonnes of phosphate rock. During 2003, the Aurora facility’s total production of phosphate rock was 3.08 million tonnes and the White Springs facility’s total production of phosphate rock was 2.69 million tonnes. The sequence for mining portions of the Aurora property has been identified in the permit issued by the U.S. Army Corps of Engineers in 1997.

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

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

      Our phosphate operations purchase all of their ammonia from or through PCS Nitrogen and PCS Sales (USA), Inc., which are our wholly owned subsidiaries. Phosphoric acid is reacted with ammonia to produce DAP and MAP as well as liquid fertilizers. In addition, ammonia operations include the purchase, sale and terminalling of anhydrous ammonia. Most of the ammonia that we purchase from third parties is produced in

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Russia and imported through an ammonia terminal which we operate located within the port of Savannah (Garden City, Georgia).

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

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

Phosphate Rock

(Million Tonnes)

			2003				2002				2001
	Annual
	Capacity		Production		%P2O5		Production		%P2O5		Production		%P2O5
Aurora, NC		6.0		3.078		27.40		3.444		26.91		3.938		26.94
White Springs, FL		3.6		2.686		30.76		1.547		30.16		1.677		30.19
Geismar, LA		—		—		—		—		—		—		—
Total		9.6		5.764				4.991				5.615

Phosphoric Acid

(Million Tonnes P₂O₅)

	Annual		2003		2002		2001
	Capacity		Production		Production		Production
Aurora, NC		1.202		0.919		0.852		0.916
White Springs, FL		1.093		0.777		0.480		0.473
Geismar, LA		0.202		0.165		0.180		0.184
Total		2.497		1.861		1.512		1.573

Reserves

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

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

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

      Since receipt of the reports (1995 for Aurora and 1997 for White Springs) we have annually adjusted and updated the ore reserve estimates for both the Aurora and White Springs operations by making adjustments

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for ore consumed, number of tons sterilized (i.e., bypassed), deletions (for property sold, traded or agreed to be set aside for environmental or other purposes), additions (based on land and mineral right acquisitions) and other appropriate adjustments. There has been no third party review of the estimates within the past three years.

      The following table sets forth the Company’s estimated proven and probable phosphate reserves for Aurora and White Springs as at December 31, 2003 at an average grade of 30.7% P₂O₅.

	Tonnes of
	Phosphate Rock		Average Grade
	(millions of tonnes)		% P2O5
Aurora		366		30.7%
White Springs		58		30.7%
Total		424

      The reserves set forth above for Aurora would permit mining to continue at normal rates for about 75 years. The Aurora phosphate mine has an estimated annual capacity of 6.0 million tonnes of phosphate rock and its processing plants have the capacity to produce 1.2 million P₂O₅ tonnes of phosphoric acid. Prior to our acquisition of Texasgulf in April 1995, Texasgulf transferred approximately 408 million tonnes of phosphate reserves to a newly established company, the common stock of which was transferred to Elf Aquitaine, Inc. and Williams Acquisition Holding Company, Inc. We were granted a 20-year right of first refusal (from April 10, 1995) in the event that the newly established company proposes to sell the reserves. In addition, the newly established company and Elf and Williams agreed, for a period of ten years from April 10, 1995, not to compete with us with respect to those reserves.

      At White Springs, we estimate that additional recoverable reserves equivalent to 6 million tonnes of phosphate rock could be purchased at market rates from nearby owners. Accordingly, the total reserves and available purchase rock of 64 million tonnes of phosphate rock at White Springs would sustain the mine for 18 years at a mining rate of 3.6 million tonnes per year. The White Springs mine has an estimated annual capacity of 3.6 million tonnes of phosphate rock and the processing plants have the capacity to produce annually 1.1 million P₂O₅ tonnes of phosphoric acid.

Nitrogen Operations

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

Properties

      PCS Nitrogen has five nitrogen production facilities, of which four are located in the United States and one is located in Trinidad. The following table sets forth the facility locations and production capabilities:

Plant Locations	Nitrogen Products Produced
Augusta, Georgia	Ammonia, urea, nitric acid, ammonium nitrate and nitrogen solutions
Geismar, Louisiana*	Ammonia, nitric acid and nitrogen solutions
Lima, Ohio	Ammonia, urea, nitric acid and nitrogen solutions
Memphis, Tennessee*	Ammonia and urea
Point Lisas, Trinidad	Ammonia and urea

* In June 2003, PCS Nitrogen indefinitely shut down its Memphis plant and suspended production of ammonia and nitrogen solutions at Geismar due to high U.S. natural gas costs and low product margins.

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Production

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

Service Agreements

      BP Chemicals, Inc. (“BPC”) operates the Lima plant on PCS Nitrogen’s behalf under an operating agreement that can be terminated by either party with nine months’ notice. PCS Nitrogen’s payments to BPC under the operating agreement are generally based on an agreed annual budget and are made through the reimbursement of expenses incurred by BPC in providing such operating services. Such expenses do not include natural gas procurement or transportation costs. In addition, due to the mutual interdependence of the Lima plant and BPC’s operations, PCS Nitrogen and BPC have agreed to provide each other with certain manufacturing support services at cost pursuant to a contract extending for as long as the plants continue to operate and either party is required to provide support services thereunder.

      The Geismar plant is integrated with a larger chemical manufacturing complex owned by Honeywell International, Inc. (“Honeywell”). PCS Nitrogen and Honeywell have an agreement to provide certain support services to each other, including the provision of utilities, the discharge of wastewater, security, dock and emergency services, and other essential services.

      At Augusta, PCS Nitrogen uses contract labor personnel provided by Augusta Services Company, Inc., which is owned 50% by PCS Nitrogen and 50% by DSM Chemicals North America, Inc., to provide purchasing, stores and spare parts management, maintenance, repair, shipping and certain other services for the Augusta plant.

      Despite our belief that most of the services described above are available from other sources, the termination of or the need to replace certain of those services (such as steam, well water supply and dock services) could, in the aggregate, involve potentially significant capital expenditures, increased operating costs and disruption to the operation of the affected plant.

Raw Materials

      Natural gas is the primary raw material used for the production of nearly all of PCS Nitrogen’s products. For 2003, the purchase and transport of natural gas, excluding purchased product, comprised over half of PCS Nitrogen’s total cost of goods sold, including the gain on our 2003 natural gas hedges in the U.S. of $89.9 million. In the U.S., PCS Nitrogen employs natural gas hedges with the goal of minimizing risk from volatile gas prices. In Trinidad, natural gas is purchased pursuant to long-term contracts using pricing formulas related to the market price of ammonia. With the exception of the Trinidad facility, PCS Nitrogen purchases most of its natural gas from producers or marketers at the point of delivery of the natural gas into the pipeline system, then pays the pipeline company and, where applicable, the local distribution company to transport the natural gas to PCS Nitrogen’s facilities. Approximately 75% of PCS Nitrogen’s domestic consumption of natural gas is delivered pursuant to firm transportation contracts, which do not permit the pipeline or local distribution company to interrupt service to, or divert natural gas from, the plant.

PCS Joint Venture

      We indirectly hold all outstanding interests in PCS Joint Venture, LP (“PCS Joint Venture”), a limited partnership doing business in Florida as Florida Favorite Fertilizer and in Georgia and Alabama as Farmer’s Favorite Fertilizer. Potash Corporation of Saskatchewan (Florida), Inc. is the general partner of PCS Joint

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Venture. PCS Joint Venture manufactures, processes and distributes fertilizer and other agricultural supplies from plants located in Florida, Alabama and Georgia.

Marketing

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

		2003		2002		2001
		(millions of dollars)
Potash(1)
	Canada	$	36.1	$	23.7	$	24.0
	United States		214.0		206.2		212.7
	Canpotex(2)		260.6		241.2		237.6
	Other		108.4		73.4		57.5
	Total	$	619.1	$	544.5	$	531.8
Phosphates
	Canada	$	70.1	$	61.3	$	60.5
	United States		584.6		481.2		480.0
	PhosChem(2)		80.8		34.4		65.3
	Other		46.4		59.9		47.8
	Total	$	781.9	$	636.8	$	653.6
Nitrogen
	Canada	$	9.5	$	8.8	$	2.3
	United States		1,002.6		690.0		835.2
	Other		52.7		48.6		57.9
	Total	$	1,064.8	$	747.4	$	895.4

(1)	Data for 2001 does not include PCS Yumbes, which was accounted for on a pre-production basis in such year.
(2)	See discussion below for information regarding Canpotex Limited and PhosChem sales.

      The following table summarizes our net sales from potash, phosphate and nitrogen products, by category of product, in the past three calendar years. Certain of the prior years’ figures have been reclassified to conform with the current year’s presentation.

		2003		2002		2001
		(millions of dollars)
Potash(1)
	Potash	$	566.8	$	516.0	$	525.5
	Miscellaneous (nitrates and salt)		52.3		28.5		6.3
		$	619.1	$	544.5	$	531.8
Phosphates
	Fertilizer — liquids	$	167.7	$	144.9	$	145.0
	Fertilizer — solids		249.2		113.4		130.1
	Feed		182.6		216.8		208.6
	Industrial		174.5		155.1		168.1
	Miscellaneous		7.9		6.6		1.8
		$	781.9	$	636.8	$	653.6

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		2003		2002		2001
		(millions of dollars)
Nitrogen(2)
	Ammonia	$	498.3	$	285.1	$	392.3
	Urea		283.5		217.6		217.7
	Nitrogen Solutions		98.5		96.4		126.8
	Nitric Acid/ Ammonium Nitrate		165.0		127.5		136.7
	Miscellaneous		19.5		20.8		21.9
		$	1,064.8	$	747.4	$	895.4

(1)	Data for 2001 does not include PCS Yumbes, which was accounted for on a pre-production basis in such year.
(2)	Including purchased product.

      For further financial information about our business segments and domestic and international sales, see Note 17 to our 2003 consolidated financial statements, incorporated by reference under Item 8 in this report on Form 10-K.

      We have a diversified customer base and, apart from sales to Canpotex Limited, no one customer accounted for more than 10% of our sales in 2003.

      Potash from our Saskatchewan mines for sale outside North America is sold exclusively to Canpotex. PCS Sales (Canada) Inc. executes offshore marketing and sales for our New Brunswick potash and executes marketing and sales for our potash, phosphate and nitrogen products in Canada. PCS Sales (USA), Inc. executes marketing and sales for our potash, phosphate and nitrogen products in the United States. PCS Sales (USA), Inc. also generally executes international marketing and sales of our potassium and sodium nitrate products. PhosChem, an association formed under the U.S. Webb-Pomerene Act, is the principal vehicle through which we execute offshore marketing and sales for our phosphate fertilizers. See “Offshore Marketing” below.

      At December 31, 2003, our sales and transportation and distribution functions were handled by 183 employees in Chicago, Illinois and various other locations in the United States and Brazil, and 14 employees in Saskatoon, Saskatchewan.

North American Marketing

      In 2003, North American net sales from potash products represented 10% of our total net sales, substantially all of which was attributable to potash customers in the United States. Typically, our North American potash sales are larger in the first half of the year. The vast majority of sales are made on the spot market with the balance made under short-term contracts. We have no material contractual obligations in connection with North American sales to sell potash in the future at a fixed price.

      In 2003, North American net sales from phosphate products represented 27% of our total net sales, substantially all of which was attributable to phosphate customers in the United States. In 2003, the majority of PCS Phosphate’s phosphate product sales were made on the spot market, with the balance made under short-term contracts (generally on an annual basis) and a limited number of sales made pursuant to multi-year contracts. We have no material contractual obligations in connection with North American sales to sell phosphate products in the future at a fixed price.

      In 2003, North American net sales from nitrogen products represented 41% of our total net sales and PCS Nitrogen’s non-fertilizer products accounted for approximately 55% of PCS Nitrogen’s nitrogen revenue. Typically, North American nitrogen fertilizer sales are greatest in the second calendar quarter. In 2003, the majority of PCS Nitrogen’s nitrogen product sales were made on the spot market, with the balance made under short-term and multi-year contracts. We have no material contractual obligations in connection with North American sales to sell nitrogen in the future at a fixed price.

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

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

Offshore Marketing

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

      In general, Canpotex sales are allocated among the producers based on production capacity. If a shareholder cannot satisfy demand for potash by Canpotex, the remaining shareholders are entitled to satisfy the demand pro rata based on their allotted production capacity. We currently supply 54.2% of Canpotex’s requirements. Canpotex generally sells potash to government agencies and private firms pursuant to six-month contracts at negotiated prices or by spot sales.

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

	2003			2002			2001
Asia		71	%		72	%		73	%
Latin America		21			16			16
Oceania		5			9			8
Europe		3			3			3
Total		100	%		100	%		100	%

      For 2003, sales to Canpotex represented 11% of our total net sales and net sales from offshore sales of potash from the New Brunswick mine, through PCS Sales (Canada) Inc., represented 3% of our total net sales. In April 2003, Canpotex’s marketing joint venture for certain offshore markets (outside North America and Europe) with JSC Uralkali, a Russian potash producer, was terminated effective June 1, 2003. We do not believe this to have had a material effect on Canpotex.

      Since 1975, PhosChem has been the largest exporter of U.S. phosphate fertilizers. Currently, the members of PhosChem are PCS Phosphate, IMC Phosphates Company, a joint venture between IMC Global Inc. and Phosphate Resource Partners LLP, and Mississippi Phosphates Corporation. The PhosChem members have agreed to export their fertilizer products exclusively through PhosChem, except for exports to Canada, any member state of the European Union or the European Economic Area, sales through the U.S. Agency for International Development Tenders and sales to certain buyers affiliated with members. Historically, PhosChem negotiated prices and other terms for the export sale of its members’ phosphate fertilizer products. According to the terms of a PhosChem agreement effective January 1, 1995, IMC Phosphates is responsible for the marketing of solid fertilizers (DAP, MAP and GTSP), and PCS Phosphate, or its sales affiliate (PCS Sales (USA), Inc.), is responsible for the marketing of liquid fertilizer products (merchant grade phosphoric acid) to export countries. Total sales for 2003 (on a P₂O₅ basis) were apportioned as follows: 80% to IMC Phosphates Company; 14% to PCS Phosphate; and 6% to Mississippi

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Phosphates. The PhosChem agreement is renewed annually. If the PhosChem agreement is not renewed, we do not believe the disbanding of PhosChem would materially affect our sales of fertilizer.

      Revenue from sales to PhosChem accounted for 3% of our total net sales in 2003. Other offshore phosphate sales accounted for 2% of our total net sales in 2003. All of our phosphate sales to China were made through PhosChem. In 2003, 65% of PhosChem’s volume was in the form of DAP.

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

	2003			2002			2001
Asia		84	%		90	%		83	%
Latin America		10			4			8
Oceania		6			6			9
Total		100	%		100	%		100	%

      With respect to offshore sales of nitrogen, ammonia and urea, sales predominate and originate primarily from Trinidad, with other sales coming from purchased product locations. For 2003, net sales from offshore sales of nitrogen represented 2% of our total net sales.

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

Distribution and Transportation

      We have an extensive infrastructure and distribution system to store and transport our products. In addition to storage located at our production facilities, in 2003, we owned or leased approximately 175 strategically located warehouses to store our products and better serve our customers. To complement our distribution system, we also own or lease in excess of 6,000 rail cars.

      In 2003, the industry experienced significant cost increases with regard to rail rates and leasing vessels for dry cargo shipments as a result of greater demand than available supply.

Potash Products

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

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

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

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Phosphate Products

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

      Sulfur is delivered to the White Springs facility primarily by unit trains from Canada. Most of the phosphoric acid and chemical fertilizers produced at the White Springs facility are shipped to domestic destinations by rail. We also ship some of our products, produced at the White Springs facility, through the bulk terminal located in Morehead City, North Carolina, for offshore sales.

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

Nitrogen Products

      We distribute our nitrogen products by barge, railcar, truck, and direct pipeline to our customers and through our strategically located storage terminals in high consumption areas. We lease or own approximately 30 nitrogen terminal facilities with an aggregate storage capacity of approximately 325,000 tons of product. The terminals provide off-season storage and also serve local dealers during the peak seasonal demand period.

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

Competition

      The markets for potash, both domestic and foreign, are highly competitive. Since potash is a commodity, producers must compete based on price and service (e.g., delivery time and ability to supply high quality material). Apart from competitive pricing, we compete based on the quality of our products and services provided to customers. Among other things, we provide quality service by maintaining warehouses, leasing railcars and chartering ocean-going vessels to enhance our delivery capabilities. The high cost of transporting potash affects competition in various geographic areas. Our potash competition includes three North American producers and potash producers located outside North America, including in the former Soviet Union republics, Israel and Germany. We recently acquired a 26% share ownership of Arab Potash Company in Jordan.

      Many phosphate products, particularly solid fertilizers, are commodities, with little or no product differentiation, and thus trade on the basis of prices determined in highly competitive markets. Our principal advantage at Aurora and White Springs in competing with other producers is that we operate integrated phosphate mine and phosphate processing complexes, while most of our competitors are required to ship phosphate rock by rail or truck greater distances from their mines to their chemical processing plants, thus incurring substantially higher rock processing costs. In addition, due to our location in North Carolina and the relatively high cost of transportation, our U.S. phosphate sales from Aurora have a natural advantage in the Northeast, mid-Atlantic and eastern Midwest regions. Similarly, White Springs and other Florida producers have a natural advantage in the South. Gulf Coast producers have a natural advantage in areas of the Midwest accessible to barge traffic up the Mississippi River.

      We also compete with government enterprises and independent phosphate producers in important exporting countries, including Morocco, Tunisia, Jordan, South Africa, Russia and Australia. In addition,

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increased phosphate production in the traditionally important export markets of China and India have impacted export sales to those countries.

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

      Nitrogen, the most widely produced nutrient, is a regional business. However, ammonia, the feedstock for all nitrogen products, can be manufactured in any country with adequate natural gas supplies and is a way for developing nations to monetize their gas. Several countries with large reserves and low production costs use little of their gas domestically, and can produce ammonia cheaply for the export market. Rising natural gas costs in the developed world have led to plant closures, since gas is at least 70 percent of the cost of producing ammonia there. The resulting tight supply has increased prices, attracting less expensive imports from areas of lower-cost gas such as Trinidad, Venezuela and the Middle East. The U.S. is increasingly supplied from offshore.

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

      Our nitrogen production serves both fertilizer and industrial customers, with our U.S. plants primarily supplying industrial customers and Trinidad our fertilizer customers. We are not immune when expensive natural gas makes U.S. ammonia plants non-competitive with offshore production, but our lower-cost Trinidad plants help offset this. The high cost of gas in North America and competition from inexpensive exports have resulted in poor financial circumstances for many competitors and the industry continues to consolidate. Within North America, sales are regionalized due to transportation costs. Cooperatives, one private company and two public companies are our main competitors. Imports from inexpensive offshore production are expected to continue, but rising freight costs limit them somewhat.

Employees

      At December 31, 2003, we employed 4,904 persons, of whom 1,786 were salaried and 3,118 were hourly paid. Of these employees, our potash operations employed 1,646 people, the phosphate operations 2,333, and the nitrogen operations 571. Excluding sales personnel, the Saskatoon and Northbrook offices had a staff of 233. Our sales group employed 121 people.

      We have entered into nine collective bargaining agreements with labor organizations representing employees. The collective bargaining agreements at the Allan, Cory and Patience Lake divisions expire on April 30, 2005. The Lanigan agreement expires on January 31, 2006. PCS and the Rocanville Potash Employees Association have a contract that expires on May 31, 2006. The agreement between IMC and the union representing the employees at the Esterhazy mine expired on January 31, 2004 and they are currently in negotiations. The union agreement at PCS Cassidy Lake expires December 31, 2004. The collective bargaining agreement with the union representing employees at the White Springs plant expires on December 1, 2006 and the collective agreement at the PCS Purified Phosphates facility in Cincinnati expires November 1, 2004. PCS Nitrogen has one location in Memphis (currently shutdown indefinitely) with a collective bargaining agreement that expires September 17, 2004. In addition, the agreement between BP Chemicals, Inc. and the union representing employees at the Lima plant expires February 17, 2006. We believe our relations with our employees to be good.

Royalties and Certain Taxes

      Saskatchewan potash production is taxed at the provincial level under The Mineral Taxation Act, 1983 (Saskatchewan). This tax consists of a base payment and a profits tax. In addition to the Potash Production Tax, rental fees, taxes and royalties are payable to the Province of Saskatchewan and municipalities by potash producers in respect of potash reserves or production of potash in the Province of Saskatchewan. Our taxes, fees and royalty expenses were $51.3 million in 2003.

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      We are subject to capital tax on our paid-up capital (as defined in The Corporation Capital Tax Act of Saskatchewan) and our taxable capital (as defined in the New Brunswick Income Tax Act). In addition, a resource corporation in the Province of Saskatchewan pays a corporate capital tax surtax based on the value of Saskatchewan resource sales. This surtax is only payable to the extent that it exceeds the regular capital tax. In 2003, we paid capital tax of $4.9 million and surtax of $14.0 million.

      We pay royalties to the New Brunswick government on the basis of production from our New Brunswick mine. In addition, we pay municipal taxes. Our expenses for such royalties and municipal taxes were $6.2 million in 2003.

      We do not make royalty payments in connection with our phosphate and nitrogen operations.

Income Taxes

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

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

      The effective consolidated rate for 2003 was 40% of pre-tax income (exclusive of the charge related to PCS Yumbes and a fourth quarter income tax reversal) compared with 36% for 2002.

Environmental Matters

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

      We believe that we are currently in material compliance with applicable environmental laws and regulations and that we are also well positioned to meet anticipated requirements under these laws and regulations. Although significant capital expenditures and operating costs have been and will continue to be incurred on account of environmental laws and regulations, we do not believe, except as otherwise set out herein, that such environmental laws and regulations have had, or will have, a material adverse effect on our business. However, we cannot predict the impact of new or changed laws, regulations or permit requirements, including the matters discussed below, or changes in the ways that such laws, regulations or permit requirements are administered, interpreted, or enforced.

      We are also subject to environmental statutes that address investigation and, where necessary, remediation of contaminated properties. In addition, we, and our individual facilities, implement programs and requirements to restore and reclaim sites after mining activities. Our obligations and potential liabilities under these statutes and programs have been, and can be expected to continue to be, significant. We do not believe, except as set out herein, that such obligations and potential liabilities have had, or will have, a material adverse effect on our business. However, it is often difficult to estimate and predict the potential costs and liabilities associated with these programs, and there is no guarantee that we will not in the future be identified as potentially responsible for additional costs under these programs, either as a result of changes in existing laws and regulations or as a result of the identification of additional matters or properties covered by these programs.

Environmental Requirements, Permits and Regulatory Approvals

      Many of our operations and facilities are required by federal, provincial, state and local environmental laws to operate in compliance with a range of regulatory requirements, permits and regulatory approvals. Such

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

      With respect to air emissions, we anticipate that additional actions and expenditures may be required to meet increasingly stringent U.S. federal and state regulatory and permit requirements, including existing and anticipated regulations under the federal Clean Air Act. Federal and state regulation of hazardous air pollutants is expected to require additional air emission control equipment and increased operating expenditures at some U.S. facilities. The Clean Air Act operating permit program requires the addition of enhanced emissions monitoring equipment at some facilities. Recent rules require specific new controls for hydrogen fluoride emissions in phosphoric acid production. Some states, including Louisiana, also regulate ammonia and nitric acid as hazardous air pollutants. Further, the U.S. Environmental Protection Agency has published new National Ambient Air Quality Standards for both ozone and particulate matter which are more stringent than existing standards and has issued a number of regulations establishing requirements to reduce nitrogen oxide (NOx) emissions and other criteria air pollutant emissions. Louisiana and Georgia are considering approaches for atmospheric ozone control, which may include additional controls and restrictions for NOx. We continue to monitor developments in these various programs and to assess their potential impact on our operations.

      Our facility in Geismar, Louisiana, is subject to various permit requirements under the Clean Air Act and must obtain a Title V operating permit for each of four operating areas at the plant. Pursuant to a Compliance Order issued by the Louisiana Department of Environmental Quality in 2001, we reviewed its air permits and air permit applications and provided information to address certain deficiencies in its Title V permit applications. We continue to provide information to and cooperate with the Louisiana Department of Environmental Quality on the Title V permits.

      Significant portions of our phosphate reserves in Aurora, North Carolina are located in wetlands. Under the Clean Water Act, we must obtain a permit from the U.S. Army Corps of Engineers (the “Corps”) before disturbing the wetlands. In 1997, the Corps issued a permit granting us approval to mine certain areas, subject to mining being completed no later than 2017. The permit contains various provisions on mitigation of wetland impacts associated with mining covered by the permit, and we have acquired additional land adjacent to the Aurora facility for mitigation purposes. Our mining activities in North Carolina also require various authorizations from agencies of the State of North Carolina, including State mining permits that contain bonding and reclamation requirements. The State has issued a renewed mining permit effective through August 1, 2013 for the areas presently being mined, including the wetlands covered by the 1997 Corps permit.

      On April 4, 2002, the Pamlico-Tar River Foundation filed a complaint under the Clean Water Act against the Corps, the U.S. Environmental Protection Agency, several individual employees of those agencies and us in U.S. District Court for the Eastern District of North Carolina contesting and seeking revocation of the 1997 Corps permit and alleging that the U.S. Environmental Protection Agency and the Corps, in the issuance of the permit, violated certain requirements under the Clean Water Act and the National Environmental Policy Act governing their evaluation of the activities to be permitted and of reasonable and practicable alternatives to those activities. We believe that the 1997 Corps permit was properly issued and intend to vigorously defend this lawsuit. All parties to the case have filed motions for summary judgment based on the administrative record. We continue to mine in accordance with the permit under the supervision of the Corps and do not expect the claim to have a material adverse effect on our financial position or results of operations.

      On November 2, 2000, we filed a permit application seeking authorization from the Corps to continue mining on the peninsula following depletion of the reserves authorized to be mined under the current permit. The Corps’ permitting process involves environmental studies of potential mining areas and evaluation of mine plans and reclamation alternatives. All affected regulatory authorities, various commenting agencies, and

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interested outside parties, including special interest groups and others who may provide organized opposition to our mining plans, participate in the process. Selection of mine plans and reclamation alternatives and the outcome of the environmental studies could require changes to current reclamation and mitigation practices, potentially resulting in higher costs and changes to mining areas with reserve impacts. The magnitude of such cost impacts cannot be estimated until the studies and evaluations are completed. Failure to secure the required approvals for continuation of the mining operations under any reclamation or mitigation alternative would negatively affect our reserves and costs.

      In 2003, the Corps issued a federal wetlands impact permit, expiring in 2040, for mining operations covering nearly all remaining reserves in the White Springs project area. State approvals were granted for the same area with no expiration date. Local (Hamilton County) approval was granted in 2003 for that area, with provision for a five-year compliance review and automatic renewal of the permit, contingent only upon compliance with permit conditions at the time of renewal. Future mine permitting at White Springs is expected to be limited to the addition of three small areas removed from consideration in late 2002 and minor modifications as needed to accommodate operational changes.

      Lands mined by White Springs after July l, 1975 and unmined lands used in certain mining operations after July 1, 1984 are subject to mandatory reclamation requirements of the State of Florida. Wetlands must be reclaimed on an acre-for-acre basis under the rules of the Florida Department of the Environment unless otherwise provided in a Memorandum of Agreement, dated February 1, 1995, between us and the Florida Department of the Environment. The Memorandum of Agreement established alternate procedures for us to follow for wetlands reclamation on certain specified lands. The current practice of White Springs is to return most upland areas to commercial pine plantation, which is the predominant pre-operation land use. Reclaimed lands include uplands, wetlands and lakes. The Memorandum of Agreement also provided for mitigation of mining impacts in a portion of the mining area, particularly impacts to wetlands, to be done through funding of public acquisition of environmentally sensitive lands in the region. Our contribution for the land acquisition program through 2003 totaled $6.4 million. In the course of permitting for remaining operations at White Springs, we agreed that lands mined after January 1, 2003 would be excluded from the Memorandum of Agreement.

Capping of Byproduct Gypsum Stacks

      Production of phosphoric acid also produces gypsum, which is normally placed in above-ground storage areas called gypsum stacks. In Florida, regulations require companies to “cap” the gypsum stacks in order to reduce seepage into groundwater when such stacks reach their design capacity, which in the case of White Springs exceeds the projected operating life of the facility, or if groundwater standards are not being met. We expect to be allowed to continue using the three gypsum stacks at the White Springs facility for their remaining useful lives. We also have gypsum stacks at the Aurora facility in North Carolina and the Geismar facility in Louisiana. In North Carolina, on exhaustion of the mine’s phosphate reserves, disposition of the remaining gypsum must comply with the laws in effect at that time. The inactive portions of the gypsum stacks at the Geismar facility are capped and have water management systems in place.

Potash Decommissioning Regulations

      The environmental regulations of the Province of Saskatchewan require each potash mine to have decommissioning and reclamation plans. Financial assurances for these plans must be established within one year following approval of these plans by the responsible provincial minister. Pursuant to the regulations, we filed the plans with the Minister of the Environment for Saskatchewan in the spring of 1997. In February 1998, we were advised that, although the plans were technically acceptable, the regulatory agency did not accept the schedule proposed for decommissioning of the waste salt piles. Following further discussions between the provincial potash industry and the regulatory agency, we were advised in July 2000 that the plans submitted in 1997 were accepted, provided that the plans are revised by 2005. A government-industry task force was established to produce mutually acceptable revisions of the plans, which would incorporate a cost benefit analysis of the decommissioning options. The process of revising the plans is continuing. In 2001, agreement was reached with the Provincial Government on financial assurances for the decommissioning and

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reclamation plan to cover the interim period before 2005. In July 2001, a Cdn$2.0 million Letter of Credit was posted and it will remain in effect until the revised plans are accepted. Because of the uncertainty regarding the final nature of the plans, the timing of implementation and the structure of the financial assurance, we are unable, at this time, to accurately estimate the financial implications of the plans.

Site Assessment and Remediation

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

      In 1999, PCS Joint Venture signed an Administrative Order on Consent with the U.S. Environmental Protection Agency under CERCLA pursuant to which PCS Joint Venture agreed to conduct a Remedial Investigation and Feasibility Study of certain soil and groundwater conditions at a PCS Joint Venture blending facility in Lakeland, Florida and certain adjoining property (collectively referred to as the “Landia Site”). PCS Joint Venture and another party are sharing the costs of the Remedial Investigation and Feasibility Study, which is projected to be completed some time in 2004. There are ongoing efforts to identify and locate other parties who may be liable for remediation at Lakeland.

      In 1994, PCS Joint Venture responded to information requests from the U.S. Environmental Protection Agency and the Georgia Department of Natural Resources, Environmental Protection Division (“GEPD”) regarding conditions at its Moultrie, Georgia location. PCS Joint Venture believes that the lead-contaminated soil and groundwater found at the site is attributable to former operations at the site prior to PCS Joint Venture’s ownership. PCS Joint Venture initially submitted a proposed Corrective Action Plan to GEPD in 1999, which has now been revised several times in response to GEPD comments. PCS Joint Venture has also conducted and submitted an assessment of the site. Based on its review of the assessment and the Corrective Action Plan, GEPD has expressed its opinion that remediation of the site will require some excavation and off-site disposal of impacted soil and installation of a groundwater recovery and treatment system. We continue to assess various remedial alternatives and plan to present GEPD with alternative on-site management options.

      PCS Joint Venture is cooperating with regulatory authorities in their investigations of the Lakeland and Moultrie sites. We established an accrual in the amount of $18 million to reflect a reasonable estimate of our liabilities at these sites. The accrual has been revised down to $14.9 million since the establishment of the accrual in response to conditions at these sites.

      We are also engaged in on-going site assessment and/or remediation activities at a number of other facilities currently or previously owned or operated by us. In each instance, we are working with the appropriate regulatory authorities to address these sites. In the past, we have received other notices identifying us as a potentially responsible party with respect to certain sites that were never owned or operated by us. We reviewed information pertinent to these sites and responded to these notices. Among these sites is the site of a former fertilizer blending operation in Charleston, South Carolina known as the “Planter’s site.” While we maintain that we have no liability for the Planter’s site, either as the successor to any former owner or operator of the site or otherwise, we have been engaged in discussions with the U.S. Environmental Protection Agency concerning the Planter’s site. Based on current information about these various facilities and sites and other potentially responsible parties, we believe that our future obligation with respect to these facilities and sites will not have a material adverse effect on our financial position or results of operation.

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Facility and Product Security

      Following the September 11, 2001 terrorist attacks in the United States, we, through our Safety, Health and Environment department, evaluated and addressed actual and potential security issues and requirements associated with our operations in the United States and elsewhere. Additional actions and expenditures may be required under existing and anticipated regulations from the U.S. Coast Guard and the U.S. Department of Transportation, and possibly other agencies. In the United States, Congress continues to consider federal legislation designed to reduce the risk of any future terrorist acts at industrial facilities. We believe that we are in material compliance with applicable security requirements and we also have adopted security measures and enhancements beyond those presently required. To date, neither the security regulations nor our expenditures on security matters have had a material adverse effect on our business. We are unable to predict the potential future costs to us of any new governmental programs or voluntary initiatives.

Environmental Costs and Expenditures

      We anticipate that our operating and capital expenditures related to environmental regulatory matters in 2004 and 2005 will not differ materially from the range of amounts expended within the past two years. The major categories of expenditures include reclamation and restoration costs at our mining operations (most particularly phosphate mining), including management of mining by-products such as gypsum and various mine tailings, the cost of regulatory compliance and environmental management related to ongoing operations other than mining, and costs related to assessment and remediation of environmental contamination related to our activities and those of our predecessors, including waste disposal practices and ownership and operation of real property and facilities.

Reclamation and Restoration Costs

      At December 31, 2003, we had accrued a total of $82.8 million for site reclamation and restoration. The current portion of restoration and reclamation costs accrued in 2003 totaled $3.5 million. These amounts represent our current estimate of potential site restoration and reclamation costs as last assessed in December 2003. The expenditures are generally incurred over an extended period of time.

      Annual environmental costs for reclamation and restoration during the year ended December 31, 2003 were $15.1 million. Of this amount, $14.4 million was charged to operations and $0.7 million was capitalized. In prior years, the amounts reported for reclamation and restoration expenditures included all environmental costs incurred by our phosphate operations, including the cost of regulatory compliance and environmental management related to ongoing operations other than mining and gypsum management. The land reclamation and restoration totals now include only those environmental costs which are related to mining operations and gypsum management and do not include environmental operating expenses related to the production of phosphoric acid, fertilizer, feed and other products. Beginning with 2003, we report these costs separately to measure the relative costs of land reclamation and restoration versus other environmental costs.

Gypsum Stack Costs

     At December 31, 2003, $33.3 million of the above-described accrued reclamation costs related to the gypsum stack capping, closure and post-closure operating and maintenance requirements applicable to the White Springs facility under Florida law and $21.1 million of the amount accrued is applicable to the North Carolina facility. We have guaranteed the gypsum stack capping, closure and post-closure obligations of White Springs and PCS Nitrogen, respectively, in Florida and Louisiana pursuant to those states’ financial assurance requirements. The State of Florida is presently reviewing, and is expected to revise, its financial assurance requirements to ensure that all responsible parties have sufficient resources to cover all closure and post closure costs and liabilities associated with gypsum stacks. This review may result in the imposition of more stringent requirements to demonstrate financial responsibility and/or inclusion of a greater scope of closure and post-closure costs than under current law.

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Site Assessment and Remediation Costs

      We have accrued assessment costs, including legal and consulting fees, and remediation costs related to the clean-up of contaminated sites currently or formerly associated with our or with our predecessors’ businesses in the amount of $14.9 million for certain PCS Joint Venture facilities, $0.3 million for various sulfur facilities and $2.0 million for the phosphate business. The current portion of these costs totaled $15.2 million.

Environmental Operating Costs and Capital Expenditures

      Our operating expenses, other than reclamation and restoration and gypsum stack capping, relating to compliance with environmental laws and regulations governing on-going operations were approximately $59.0 million for the year ended December 31, 2003 as compared to $52.7 million for the year ended December 31, 2002. These amounts include environmental operating expenses related to the production of phosphoric acid, fertilizer, feed and other products which in previous years were included in the amounts reported for land reclamation and restoration.

      We routinely undertake environmental capital projects. In 2003, capital expenditures of $12.1 million (2002 — $15.0 million) were incurred to meet pollution prevention and control objectives and $0.3 million (2002 — $0.5 million) were incurred to meet other environmental objectives. We expect that our capital requirements for environmental projects may increase in the future due to increasingly stringent environmental regulations arising from current and future requirements of law.

Legislation

      In September 1987, legislation was adopted in Saskatchewan that authorized the government to control production at potash mines located in the Province of Saskatchewan. The legislation, which has not taken effect but which can be brought into effect by proclamation of the Cabinet of Saskatchewan, permits the Cabinet, and the Potash Resources Board which would be created under such legislation, to prescribe rates of potash production in Saskatchewan, and to allocate production among individual mines. We cannot predict at this time if or when the legislation will be proclaimed or its impact on our financial position or results of operations.

      In 2002, the Canadian government ratified the Kyoto Protocol, which calls for Canada to reduce its emissions of “greenhouse gases” to 94% of its 1990 emissions by 2012. It is expected that, by then, our potash divisions will be required to use energy more efficiently or purchase “credits”. However, at this time, we are unable to predict the impact of this initiative, as plans for implementing the protocol have not yet been developed by the government. The United States is not presently expected to ratify the Kyoto Protocol and has announced plans for voluntary programs and incentives. Brazil and Trinidad and Tobago have also ratified the Kyoto Protocol. Our operations there would not be immediately impacted by the implementation of the treaty as these are developing countries, which do not have any specific emission reduction requirements. We continue to monitor the status of the Kyoto Protocol and the range of potential impacts and incentives associated with it. At this time, we cannot assess the impact of these programs or incentives.

I-21

Our Executive Officers

      The name, age, period of service with the Company and position held for each of our executive officers as at February 29, 2004 are as follows:

			Served
Name	Age		Since		Position Held
WILLIAM J. DOYLE		53		1987	President and Chief Executive Officer
JAMES F. DIETZ		57		1997	Executive Vice President and Chief Operating Officer
WAYNE R. BROWNLEE		51		1988	Senior Vice President, Treasurer and Chief Financial Officer
JOHN L. M. HAMPTON		50		1988	Senior Vice President, General Counsel and Secretary
BETTY-ANN L. HEGGIE		50		1981	Senior Vice President, Corporate Relations
BARBARA JANE IRWIN		48		2000	Senior Vice President, Administration
ROBERT A. JASPAR		45		1997	Senior Vice President, Information Technology
G. DAVID DELANEY		43		1997	President, PCS Sales
GARTH W. MOORE		55		1982	President, PCS Potash
THOMAS J. REGAN, JR.		59		1995	President, PCS Phosphate
DAPHNE ARNASON		48		1988	Vice President, Internal Audit
KAREN G. CHASEZ		50		2000	Vice President, Procurement, PCS Administration (USA)
DONALD R. ROBERTS		64		1993	Vice President, Safety, Health and Environment, PCS Administration (USA)
DENIS A. SIROIS		48		1978	Vice President and Corporate Controller

      All of the officers have had the principal occupation indicated for the previous five years except as follows: Mr. Doyle was President and Chief Operating Officer of PCS from July 1, 1998 to July 1, 1999. Mr. Dietz was President of PCS Nitrogen from July 1998 to November 2000. On July 12, 1999, Mr. Brownlee was appointed Senior Vice President, Treasurer and Chief Financial Officer. Mr. Brownlee was Senior Vice President Expansion and Development from May 1995 to July 1999. Prior to October 2000, Ms. Irwin was a Consultant and Principal with Hewitt Associates LLC, human resources consultants. Mr. Jaspar was Vice President, Internal Audit from December 2000 to June 2003, Director, Internal Audit from January to November 2000 and Senior Auditor of the Corporation from July 1997 to December 1999. Mr. Delaney was appointed President, PCS Sales on March 24, 2000. Mr. Delaney was Vice President, Industrial Sales of PCS Sales from March 1997 to March 24, 2000. Mr. Regan was Executive Vice President of PCS Phosphate from March 1997 to July 1999. Ms. Arnason was Senior Director, Taxation from November 2000 to June 2002 and Director, Taxation from July 1995 to October 2000. Ms. Chasez was Vice President, Administration & Business Affairs for British Sulphur North America Inc. from June 1990 to May 2000. Mr. Roberts was Vice President, Technical Services, PCS Potash from April 1997 to May 2000.

PRESENTATION OF FINANCIAL INFORMATION

      We have three principal business segments: potash, phosphate and nitrogen. For information with respect to the net sales, gross margin and assets attributable to each segment and to our domestic and international sales, see Note 17 to our audited consolidated financial statements as of December 31, 2003 and 2002 and for each of the years in the three-year period ended December 31, 2003, incorporated by reference under Item 8.

      We present our consolidated financial statements in accordance with accounting principles generally accepted in Canada, or Canadian GAAP. See Note 34 to our 2003 consolidated financial statements for a discussion of certain significant differences between Canadian GAAP and accounting principles generally accepted in the United States, or U.S. GAAP, as they relate to us.

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

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WHERE YOU CAN FIND MORE INFORMATION

      We file annual, quarterly and current reports and other information with the Securities and Exchange Commission. You may read and copy any of the information on file with the Commission at the Commission’s Public Reference Room, 450 Fifth Street, N.W., Room 1024, Washington, DC 20549. Please call the Commission at 1-800-SEC-0330 for further information on the public reference room. In addition, the Commission maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file, as we do, electronically with the Commission.

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

ITEM 3.     Legal Proceedings.

Nitrochem

      On May 1, 2003, Nitrochem Distribution, Ltd. filed an action in U.S. District Court for the Southern District of New York against our subsidiary, PCS Sales (USA), Inc. (“Sales (USA)”). Nitrochem alleges that Sales (USA) entered into a contract for ammonia in 2001 that contained an automatic renewal provision for 2002. Nitrochem further alleges that Sales (USA) failed to take delivery of a specified amount of ammonia in 2002. Sales (USA) has denied all of Nitrochem’s substantive allegations. Nitrochem is seeking damages in the amount of $12 million. The matter is scheduled to proceed to trial on March 31. We believe that the outcome of the litigation will not have a material adverse effect on our consolidated results of operations or financial position.

Geismar Facility Investigation

      In 2003, the Company’s wholly owned subsidiary, PCS Nitrogen, Inc. concluded the federal grand jury investigation and parallel state investigations of its Geismar, Louisiana facility by pleading guilty to one felony violation of the Clean Air Act in the United States District Court for the Middle District of Louisiana and one felony violation of analogous state law in each of the Eighteenth and Twenty-third Judicial Districts of the State of Louisiana. The Company paid a fine of $1.75 million to the U.S. government and $125,000 to each of the two state judicial districts and had a five-year probationary period imposed on it.

General

      In the normal course of business, we are subject to legal proceedings being brought against us. The amounts that these proceedings may cost us are not reasonably estimable, due to uncertainty as to the final outcome. However, we do not believe these proceedings in the aggregate will have a material adverse effect on our consolidated financial position or results of operations.

Environmental Proceedings

      For a description of certain environmental proceedings in which we are involved, see “Environmental Matters” under Items 1 and 2.

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

      Not applicable.

I-23

PART II

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

      The information under “Common Share Prices and Volumes” and “Shareholder Information — Ownership and — Dividends” on page 79 and “11 Year Report” on page 47 in the registrant’s 2003 Annual Report, filed as Exhibit 13, is incorporated herein by reference.

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

ITEM 6.     Selected Financial Data.

      The information under “11 Year Report” on page 47 in our 2003 Annual Report, filed as Exhibit 13, is incorporated herein by reference.

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

      The information under “Management’s Discussion & Analysis of Financial Condition and Results of Operations” on pages 12 through 46 in our 2003 Annual Report, filed as Exhibit 13, is incorporated herein by reference.

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

      The information under “Management’s Discussion & Analysis of Financial Condition and Results of Operations — Market Risks Associated with Financial Instruments” on pages 36 and 37 in our 2003 Annual Report, filed as Exhibit 13, is incorporated herein by reference.

ITEM 8.     Financial Statements and Supplementary Data.

      The Consolidated Financial Statements contained on pages 51 through 77 in our 2003 Annual Report, filed as Exhibit 13, are incorporated herein by reference.

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

      Not applicable.

ITEM 9A.     Controls and Procedures.

      As of December 31, 2003, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon that evaluation and as of December 31, 2003, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective to provide reasonable assurance in all material respects to ensure that information required to be disclosed in the reports we file and submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported as and when required.

      There has been no change in our internal control over financial reporting during the year ended December 31, 2003 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART III

ITEM 10.     Directors and Executive Officers of the Registrant.

      The information under “Election of Directors” and the second paragraph of page 13 regarding “audit committee financial experts” in our 2004 Proxy Circular, attached as Exhibit 99, is incorporated herein by reference. Information concerning executive officers is set forth under “Our Executive Officers” in Part I.

      We have adopted a Code of Business Conduct that applies to all of our directors, officers and employees. We make this code, as well as our corporate governance principles and the respective Charters of our Corporate Governance and Nominating, Audit and Compensation Committees, available, free of charge, on our website, http://www.potashcorp.com or by request.

ITEM 11.     Executive Compensation.

      The information under “Executive Compensation” in our 2004 Proxy Circular, attached as Exhibit 99, is incorporated herein by reference. Each such incorporation by reference shall be deemed not to include the information referred to in Item 402(a)(8) of Regulation S-K.

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

      The information under “Ownership of Shares” and “Election of Directors” in our 2004 Proxy Circular, attached as Exhibit 99, is incorporated herein by reference.

Equity Compensation Plan Information

      The following table provides information about shares of Potash Corporation of Saskatchewan Inc. that may be issued under our compensation plans, as of December 31, 2003:

	(a)		(b)		(c)
	Number of securities				Number of securities remaining
	to be issued upon		Weighted-average exercise		available for future issuance
	exercise of		price of outstanding		under equity compensation
	outstanding options,		options, warrants and		plans (excluding securities
Plan Category	warrants and rights		rights (as at Dec. 31, 2003)		reflected in column (a))
Equity compensation plans approved by security holders		5,438,011	$	69.40		26,714
Equity compensation plans not approved by security holders		n/a		n/a		n/a

ITEM 13.     Certain Relationships and Related Transactions.

      The information under “Election of Directors” and “Executive Compensation” in our 2004 Proxy Circular, attached as Exhibit 99, is incorporated herein by reference.

ITEM 14.     Principal Accountant Fees and Services.

      The information under “Appointment of Auditors” in our 2004 Proxy Circular, attached as Exhibit 99, is incorporated herein by reference.

III-1

PART IV

ITEM 15.     Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a) List of Documents Filed as Part of this Report

1.   Consolidated Financial Statements in Annual Report

      The Consolidated Financial Statements contained on pages 51-77 in our 2003 Annual Report, filed as Exhibit 13, are incorporated under Item 8 by reference.

Auditors’ Report	51
Consolidated Statements of Financial Position	52
Consolidated Statements of Operations and Retained Earnings	53
Consolidated Statements of Cash Flow	54
Notes to the Consolidated Financial Statements	55-77

2.   Schedules

      All Schedules are omitted because the required information is inapplicable or is presented in the Consolidated Financial Statements.

3.   Exhibits

Exhibit
Number		Description of Document
	3(a)	Articles of Continuance of the registrant dated May 15, 2002, incorporated by reference to Exhibit 3(a) to the registrant’s report on Form 10-Q for the quarterly period ended June 30, 2002 (the “Second Quarter 2002 Form 10-Q”).
	3(b)	Bylaws of the registrant effective May 15, 2002, incorporated by reference to Exhibit 3(a) to the Second Quarter 2002 Form 10-Q.
	4(a)	Term Credit Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated September 25, 2001, incorporated by reference to Exhibit 4(a) to the registrant’s report on Form 10-Q for the quarterly period ended September 30, 2001.
	4(b)	Syndicated Term Credit Facility Amending Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated as of September 23, 2003, incorporated by reference to Exhibit 4(b) to the registrant’s report on Form 10-Q for the quarterly period ended September 30, 2003 (the “Third Quarter 2003 Form 10-Q”).
	4(c)	Indenture dated as of June 16, 1997, between the registrant and The Bank of Nova Scotia Trust Company of New York, incorporated by reference to Exhibit 4(a) to the registrant’s report on Form 8-K dated June 18, 1997 (the “1997 Form 8-K”).
	4(d)	Indenture dated as of February 27, 2003, between the registrant and The Bank of Nova Scotia Trust Company of New York, incorporated by reference to Exhibit 4(c) to the registrant’s report on Form 10-K for the year ended December 31, 2002 (the “2002 Form 10-K”).
	4(e)	Form of Notes relating to the registrant’s offering of $400,000,000 principal amount of 7.125% Notes due June 15, 2007, incorporated by reference to Exhibit 4(b) to the 1997 Form 8-K.
	4(f)	Form of Notes relating to the registrant’s offering of $600,000,000 principal amount of 7 3/4% Notes due May 31, 2011, incorporated by reference to Exhibit 4 to the registrant’s report on Form 8-K dated May 17, 2001.
	4(g)	Form of Note relating to the registrant’s offering of $250,000,000 principal amount of 4.875% Notes due March 1, 2013, incorporated by reference to Exhibit 4 to the registrant’s report on Form 8-K dated February 28, 2003.

IV-1

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

Exhibit
Number		Description of Document
	10(a)	Sixth Voting Agreement dated April 22, 1978, between Central Canada Potash, Division of Noranda, Inc., Cominco Ltd., International Minerals and Chemical Corporation (Canada) Limited, PCS Sales and Texasgulf Inc., incorporated by reference to Exhibit 10(f) to the registrant’s registration statement on Form F-1 (File No. 33-31303) (the “F-1 Registration Statement”).
	10(b)	Canpotex Limited Shareholders Seventh Memorandum of Agreement effective April 21, 1978, between Central Canada Potash, Division of Noranda Inc., Cominco Ltd., International Minerals and Chemical Corporation (Canada) Limited, PCS Sales, Texasgulf Inc. and Canpotex Limited as amended by Canpotex S&P amending agreement dated November 4, 1987, incorporated by reference to Exhibit 10(g) to the F-1 Registration Statement.
	10(c)	Producer Agreement dated April 21, 1978, between Canpotex Limited and PCS Sales, incorporated by reference to Exhibit 10(h) to the F-1 Registration Statement.
	10(d)	Canpotex/PCS Amending Agreement dated as of October 1, 1992, incorporated by reference to Exhibit 10(f) to the registrant’s report on Form 10-K for the year ended December 31, 1995 (the “1995 Form 10-K”).
	10(e)	Canpotex PCA Collateral Withdrawing/PCS Amending Agreement dated as of October 7, 1993, incorporated by reference to Exhibit 10(g) to the 1995 Form 10-K.
	10(f)	Canpotex Producer Agreement amending agreement dated as of January 1, 1999, incorporated by reference to Exhibit 10(f) to the registrant’s report on Form 10-K for the year ended December 31, 2000 (the “2000 Form 10-K”).
	10(g)	Form of Agreement of Limited Partnership of Arcadian Fertilizer, L.P. dated as of March 3, 1992, and the related Certificate of Limited Partnership of Arcadian Fertilizer, L.P., filed with the Secretary of State of the State of Delaware on March 3, 1992, incorporated by reference to Exhibits 3.1 and 3.2 to Arcadian Partners L.P.’s Registration Statement on Form S-1 (File No. 33-45828).
	10(h)	Amendment to Agreement of Limited Partnership of Arcadian Fertilizer, L.P. and related Certificates of Limited Partnership of Arcadian Fertilizer, L.P. filed with the Secretary of State of the State of Delaware on March 6, 1997 and November 26, 1997, incorporated by reference to Exhibit 10(f) to the registrant’s report on Form 10-K for the year ended December 31, 1998 (the “1998 Form 10-K”).
	10(i)	Second amendment to Agreement of Limited Partnership of PCS Nitrogen Fertilizer, L.P. dated December 15, 2002, incorporated by reference to Exhibit 10(i) to the 2002 Form 10-K.
	10(j)	Geismar Complex Services Agreement dated June 4, 1984, between Honeywell International, Inc. and Arcadian Corporation, incorporated by reference to Exhibit 10.4 to Arcadian Corporation’s Registration Statement on Form S-1 (File No. 33-34357).
	10(k)	Esterhazy Restated Mining and Processing Agreement dated January 31, 1978, between International Minerals & Chemical Corporation (Canada) Limited and the registrant’s predecessor, incorporated by reference to Exhibit 10(e) to the F-1 Registration Statement.
	10(l)	Agreement dated December 21, 1990, between International Minerals & Chemical Corporation (Canada) Limited and the registrant, amending the Esterhazy Restated Mining and Processing Agreement dated January 31, 1978, incorporated by reference to Exhibit 10(p) to the registrant’s report on Form 10-K for the year ended December 31, 1990.

IV-2

Exhibit
Number		Description of Document
	10(m)	Agreement effective August 27, 1998, between International Minerals & Chemical (Canada) Global Limited and the registrant, amending the Esterhazy Restated Mining and Processing Agreement dated January 31, 1978 (as amended), incorporated by reference to Exhibit 10(l) to the 1998 Form 10-K.
	10(n)	Agreement effective August 31, 1998, among International Minerals & Chemical (Canada) Global Limited, International Minerals & Chemical (Canada) Limited Partnership and the registrant assigning the interest in the Esterhazy Restated Mining and Processing Agreement dated January 31, 1978 (as amended) held by International Minerals & Chemical (Canada) Global Limited to International Minerals & Chemical (Canada) Limited Partnership, incorporated by reference to Exhibit 10(m) to the 1998 Form 10-K.
	10(o)	Operating Agreement dated May 11, 1993, between BP Chemicals Inc. and Arcadian Ohio, L.P., as amended by the First Amendment to the Operating Agreement dated as of November 20, 1995, between BP Chemicals Inc. and Arcadian Ohio, L.P. (the “First Amendment”), incorporated by reference to Exhibit 10.2 to Arcadian Partners L.P.’s current report on Form 8-K for the report event dated May 11, 1993, except for the First Amendment which is incorporated by reference to Arcadian Corporation’s report on Form 10-K for the year ended December 31, 1995.
	10(p)	Second Amendment to Operating Agreement between BP Chemicals, Inc. and Arcadian Ohio, L.P., dated as of November 25, 1996, incorporated by reference to Exhibit 10(k) of the registrant’s report on Form 10-K for the year ended December 31, 1997 (the “1997 Form 10-K”).
	10(q)	Manufacturing Support Agreement dated May 11, 1993, between BP Chemicals Inc. and Arcadian Ohio, L.P., incorporated by reference to Exhibit 10.3 to Arcadian Partners L.P.’s current report on Form 8-K for the report event dated May 11, 1993.
	10(r)	First Amendment to Manufacturing Support Agreement dated as of November 25, 1996, between BP Chemicals, Inc. and Arcadian Ohio, L.P., incorporated by reference to Exhibit 10(l) to the 1997 Form 10-K.
	10(s)	Letter of amendment to the Manufacturing Support Agreement and Operating Agreement dated September 8, 2003, between BP Chemicals Inc. and PCS Nitrogen Ohio, L.P., incorporated by reference to Exhibit 10(s) to the Third Quarter 2003 Form 10-Q.
	10(t)	Potash Corporation of Saskatchewan Inc. Stock Option Plan — Directors, as amended January 23, 2001, incorporated by reference to Exhibit 10(bb) to the Second Quarter 2001 Form 10-Q.
	10(u)	Potash Corporation of Saskatchewan Inc. Stock Option Plan — Officers and Employees, as amended January 23, 2001, incorporated by reference to Exhibit 10(aa) to the 2000 Form 10-K.
	10(v)	Short-Term Incentive Plan of the registrant effective January 2000, incorporated by reference to Exhibit 10(z) to the registrant’s report on Form 10Q for the quarterly period ended March 31, 2000 (the “First Quarter 2000 Form 10-Q”).
	10(w)	Long-Term Incentive Plan of the registrant effective January 2000, incorporated by reference to Exhibit 10(aa) to the registrant’s report on Form 10-Q for the quarterly period ended June 30, 2000 (the “Second Quarter 2000 Form 10-Q”).
	10(x)	Long-Term Incentive Plan of the registrant, effective January 2003, incorporated by reference to Exhibit 10(y) to the 2002 Form 10-K.
	10(y)	Resolution and Forms of Agreement for Supplemental Retirement Income Plan, for officers and key employees of the registrant, incorporated by reference to Exhibit 10(o) to the 1995 Form 10-K.
	10(z)	Amending Resolution and revised forms of agreement regarding Supplemental Retirement Income Plan of the registrant, incorporated by reference to Exhibit 10(x) to the registrant’s report on Form 10-Q for the quarterly period ended June 30, 1996.

IV-3

Exhibit
Number		Description of Document
	10(aa)	Amended and restated Supplemental Retirement Income Plan of the registrant and text of amendment to existing supplemental income plan agreements, incorporated by reference to Exhibit 10(mm) to the registrant’s report on Form 10-Q for the quarterly period ended September 30, 2000 (the “Third Quarter 2000 Form 10-Q”).
	10(bb)	Form of Letter of amendment to existing supplemental income plan agreements of the registrant dated November 4, 2002, incorporated by reference to Exhibit 10(cc) to the 2002 Form 10-K.
	10(cc)	Supplemental Retirement Benefits Plan for U.S. Executives dated effective January 1, 1999, incorporated by reference to Exhibit 10(aa) to the Second Quarter 2002 Form 10-Q.
	10(dd)	Forms of Agreement dated December 30, 1994, between the registrant and certain officers of the registrant, concerning a change in control of the registrant, incorporated by reference to Exhibit 10(p) to the 1995 Form 10-K.
	10(ee)	Form of Agreement of Indemnification dated August 8, 1995, between the registrant and certain officers and directors of the registrant, incorporated by reference to Exhibit 10(q) to the 1995 Form 10-K.
	10(ff)	Resolution and Form of Agreement of Indemnification dated January 24, 2001, incorporated by reference to Exhibit 10(ii) to the 2000 Form 10-K.
	10(gg)	Chief Executive Officer Medical and Dental Plan, incorporated by reference to Exhibit 10(jj) to the 2000 Form 10-K.
	10(hh)	Second Amended and Restated Membership Agreement dated January 1, 1995, among Phosphate Chemicals Export Association, Inc. and members of such association, including Texasgulf Inc., incorporated by reference to Exhibit 10(t) to the 1995 Form 10-K.
	10(ii)	International Agency Agreement dated January 1, 1995, between Phosphate Chemicals Export Association, Inc. and Texasgulf Inc. establishing Texasgulf Inc. as exclusive marketing agent for such association’s wet phosphatic materials, incorporated by reference to Exhibit 10(u) to the 1995 Form 10-K.
	10(jj)	Deferred Share Unit Plan for Non-Employee Directors, incorporated by reference to Exhibit 4.1 to the registrant’s Form S-8 (File No. 333-75742) filed December 21, 2001.
	11	Statement re Computation of Per Share Earnings.
	12	Computation of Ratio of Earnings to Fixed Charges.
	13	2003 Annual Report. The 2003 Annual Report, except for those portions that are expressly incorporated by reference, is furnished for the information of the Commission and is not to be deemed “filed” as part of this filing.
	21	Subsidiaries of the registrant.
	23	Consent of Deloitte & Touche LLP.
	31(a)	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31(b)	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	99	2004 Notice of Meeting, Proxy Circular and Form of Proxy. The 2004 Notice of Meeting, Proxy Circular and Form of Proxy, except for those portions thereof that are expressly incorporated by reference, are furnished for the information of the Commission and are not to be deemed “filed” as part of this filing.

(b) Reports on Form 8-K

      None filed.

IV-4

SIGNATURES

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

POTASH CORPORATION OF SASKATCHEWAN INC.
By:	/s/ WILLIAM J. DOYLE
	William J. Doyle
	President and Chief Executive Officer
	March 11, 2004

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

Signature	Title	Date
/s/ DALLAS J. HOWE Dallas J. Howe	Chair of the Board	March 11, 2004
/s/ WAYNE R. BROWNLEE Wayne R. Brownlee	Senior Vice President, Treasurer and Chief Financial Officer (Principal financial and accounting officer)	March 11, 2004
/s/ WILLIAM J. DOYLE William J. Doyle	President and Chief Executive Officer	March 11, 2004
/s/ FREDERICK J. BLESI Frederick J. Blesi	Director	March 11, 2004
/s/ JOHN W. ESTEY John W. Estey	Director	March 11, 2004
/s/ WADE FETZER III Wade Fetzer III	Director	March 11, 2004
/s/ ALICE D. LABERGE Alice D. Laberge	Director	March 11, 2004
/s/ JEFFREY J. MCCAIG Jeffrey J. McCaig	Director	March 11, 2004
/s/ MARY MOGFORD Mary Mogford	Director	March 11, 2004

Signature	Title	Date
/s/ PAUL J. SCHOENHALS Paul J. Schoenhals	Director	March 11, 2004
/s/ E. ROBERT STROMBERG, Q.C. E. Robert Stromberg, Q.C.	Director	March 11, 2004
/s/ JACK G. VICQ Jack G. Vicq	Director	March 11, 2004
/s/ ELENA VIYELLA DE PALIZA Elena Viyella de Paliza	Director	March 11, 2004

EXHIBIT INDEX

Exhibit
Number		Description of Document
	3(a)	Articles of Continuance of the registrant dated May 15, 2002, incorporated by reference to Exhibit 3(a) to the registrant’s report on Form 10-Q for the quarterly period ended June 30, 2002 (the “Second Quarter 2002 Form 10-Q”).
	3(b)	Bylaws of the registrant effective May 15, 2002, incorporated by reference to Exhibit 3(a) to the Second Quarter 2002 Form 10-Q.
	4(a)	Term Credit Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated September 25, 2001, incorporated by reference to Exhibit 4(a) to the registrant’s report on Form 10-Q for the quarterly period ended September 30, 2001.
	4(b)	Syndicated Term Credit Facility Amending Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated as of September 23, 2003, incorporated by reference to Exhibit 4(b) to the registrant’s report on Form 10-Q for the quarterly period ended September 30, 2003 (the “Third Quarter 2003 Form 10-Q”).
	4(c)	Indenture dated as of June 16, 1997, between the registrant and The Bank of Nova Scotia Trust Company of New York, incorporated by reference to Exhibit 4(a) to the registrant’s report on Form 8-K dated June 18, 1997 (the “1997 Form 8-K”).
	4(d)	Indenture dated as of February 27, 2003, between the registrant and The Bank of Nova Scotia Trust Company of New York, incorporated by reference to Exhibit 4(c) to the registrant’s report on Form 10-K for the year ended December 31, 2002 (the “2002 Form 10-K”).
	4(e)	Form of Notes relating to the registrant’s offering of $400,000,000 principal amount of 7.125% Notes due June 15, 2007, incorporated by reference to Exhibit 4(b) to the 1997 Form 8-K.
	4(f)	Form of Notes relating to the registrant’s offering of $600,000,000 principal amount of 7 3/4% Notes due May 31, 2011, incorporated by reference to Exhibit 4 to the registrant’s report on Form 8-K dated May 17, 2001.
	4(g)	Form of Note relating to the registrant’s offering of $250,000,000 principal amount of 4.875% Notes due March 1, 2013, incorporated by reference to Exhibit 4 to the registrant’s report on Form 8-K dated February 28, 2003.

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

Exhibit
Number		Description of Document
	10(a)	Sixth Voting Agreement dated April 22, 1978, between Central Canada Potash, Division of Noranda, Inc., Cominco Ltd., International Minerals and Chemical Corporation (Canada) Limited, PCS Sales and Texasgulf Inc., incorporated by reference to Exhibit 10(f) to the registrant’s registration statement on Form F-1 (File No. 33-31303) (the “F-1 Registration Statement”).
	10(b)	Canpotex Limited Shareholders Seventh Memorandum of Agreement effective April 21, 1978, between Central Canada Potash, Division of Noranda Inc., Cominco Ltd., International Minerals and Chemical Corporation (Canada) Limited, PCS Sales, Texasgulf Inc. and Canpotex Limited as amended by Canpotex S&P amending agreement dated November 4, 1987, incorporated by reference to Exhibit 10(g) to the F-1 Registration Statement.
	10(c)	Producer Agreement dated April 21, 1978, between Canpotex Limited and PCS Sales, incorporated by reference to Exhibit 10(h) to the F-1 Registration Statement.

Exhibit
Number		Description of Document
	10(d)	Canpotex/PCS Amending Agreement dated as of October 1, 1992, incorporated by reference to Exhibit 10(f) to the registrant’s report on Form 10-K for the year ended December 31, 1995 (the “1995 Form 10-K”).
	10(e)	Canpotex PCA Collateral Withdrawing/PCS Amending Agreement dated as of October 7, 1993, incorporated by reference to Exhibit 10(g) to the 1995 Form 10-K.
	10(f)	Canpotex Producer Agreement amending agreement dated as of January 1, 1999, incorporated by reference to Exhibit 10(f) to the registrant’s report on Form 10-K for the year ended December 31, 2000 (the “2000 Form 10-K”).
	10(g)	Form of Agreement of Limited Partnership of Arcadian Fertilizer, L.P. dated as of March 3, 1992, and the related Certificate of Limited Partnership of Arcadian Fertilizer, L.P., filed with the Secretary of State of the State of Delaware on March 3, 1992, incorporated by reference to Exhibits 3.1 and 3.2 to Arcadian Partners L.P.’s Registration Statement on Form S-1 (File No. 33-45828).
	10(h)	Amendment to Agreement of Limited Partnership of Arcadian Fertilizer, L.P. and related Certificates of Limited Partnership of Arcadian Fertilizer, L.P. filed with the Secretary of State of the State of Delaware on March 6, 1997 and November 26, 1997, incorporated by reference to Exhibit 10(f) to the registrant’s report on Form 10-K for the year ended December 31, 1998 (the “1998 Form 10-K”).
	10(i)	Second amendment to Agreement of Limited Partnership of PCS Nitrogen Fertilizer, L.P. dated December 15, 2002, incorporated by reference to Exhibit 10(i) to the registrant’s report on Form 10-K for the year ended December 31, 2002 (the “2002 Form 10-K”).
	10(j)	Geismar Complex Services Agreement dated June 4, 1984, between Honeywell International, Inc. and Arcadian Corporation, incorporated by reference to Exhibit 10.4 to Arcadian Corporation’s Registration Statement on Form S-1 (File No. 33-34357).
	10(k)	Esterhazy Restated Mining and Processing Agreement dated January 31, 1978, between International Minerals & Chemical Corporation (Canada) Limited and the registrant’s predecessor, incorporated by reference to Exhibit 10(e) to the F-1 Registration Statement.
	10(l)	Agreement dated December 21, 1990, between International Minerals & Chemical Corporation (Canada) Limited and the registrant, amending the Esterhazy Restated Mining and Processing Agreement dated January 31, 1978, incorporated by reference to Exhibit 10(p) to the registrant’s report on Form 10-K for the year ended December 31, 1990.
	10(m)	Agreement effective August 27, 1998, between International Minerals & Chemical (Canada) Global Limited and the registrant, amending the Esterhazy Restated Mining and Processing Agreement dated January 31, 1978 (as amended), incorporated by reference to Exhibit 10(l) to the 1998 Form 10-K.
	10(n)	Agreement effective August 31, 1998, among International Minerals & Chemical (Canada) Global Limited, International Minerals & Chemical (Canada) Limited Partnership and the registrant assigning the interest in the Esterhazy Restated Mining and Processing Agreement dated January 31, 1978 (as amended) held by International Minerals & Chemical (Canada) Global Limited to International Minerals & Chemical (Canada) Limited Partnership, incorporated by reference to Exhibit 10(m) to the 1998 Form 10-K.
	10(o)	Operating Agreement dated May 11, 1993, between BP Chemicals Inc. and Arcadian Ohio, L.P., as amended by the First Amendment to the Operating Agreement dated as of November 20, 1995, between BP Chemicals Inc. and Arcadian Ohio, L.P. (the “First Amendment”), incorporated by reference to Exhibit 10.2 to Arcadian Partners L.P.’s current report on Form 8-K for the report event dated May 11, 1993, except for the First Amendment which is incorporated by reference to Arcadian Corporation’s report on Form 10-K for the year ended December 31, 1995.

Exhibit
Number		Description of Document
	10(p)	Second Amendment to Operating Agreement between BP Chemicals, Inc. and Arcadian Ohio, L.P., dated as of November 25, 1996, incorporated by reference to Exhibit 10(k) of the registrant’s report on Form 10-K for the year ended December 31, 1997 (the “1997 Form 10-K”).
	10(q)	Manufacturing Support Agreement dated May 11, 1993, between BP Chemicals Inc. and Arcadian Ohio, L.P., incorporated by reference to Exhibit 10.3 to Arcadian Partners L.P.’s current report on Form 8-K for the report event dated May 11, 1993.
	10(r)	First Amendment to Manufacturing Support Agreement dated as of November 25, 1996, between BP Chemicals, Inc. and Arcadian Ohio, L.P., incorporated by reference to Exhibit 10(l) to the 1997 Form 10-K.
	10(s)	Letter of amendment to the Manufacturing Support Agreement and Operating Agreement dated September 8, 2003, between BP Chemicals Inc. and PCS Nitrogen Ohio, L.P., incorporated by reference to Exhibit 10(s) to the Third Quarter 2003 Form 10-Q.
	10(t)	Potash Corporation of Saskatchewan Inc. Stock Option Plan — Directors, as amended January 23, 2001, incorporated by reference to Exhibit 10(bb) to the Second Quarter 2001 Form 10-Q.
	10(u)	Potash Corporation of Saskatchewan Inc. Stock Option Plan — Officers and Employees, as amended January 23, 2001, incorporated by reference to Exhibit 10(aa) to the 2000 Form 10-K.
	10(v)	Short-Term Incentive Plan of the registrant effective January 2000, incorporated by reference to Exhibit 10(z) to the registrant’s report on Form 10Q for the quarterly period ended March 31, 2000 (the “First Quarter 2000 Form 10-Q”).
	10(w)	Long-Term Incentive Plan of the registrant effective January 2000, incorporated by reference to Exhibit 10(aa) to the registrant’s report on Form 10-Q for the quarterly period ended June 30, 2000 (the “Second Quarter 2000 Form 10-Q”).
	10(x)	Long-Term Incentive Plan of the registrant, effective January 2003, incorporated by reference to Exhibit 10(y) to the 2002 Form 10-K.
	10(y)	Resolution and Forms of Agreement for Supplemental Retirement Income Plan, for officers and key employees of the registrant, incorporated by reference to Exhibit 10(o) to the 1995 Form 10-K.
	10(z)	Amending Resolution and revised forms of agreement regarding Supplemental Retirement Income Plan of the registrant, incorporated by reference to Exhibit 10(x) to the registrant’s report on Form 10-Q for the quarterly period ended June 30, 1996.
	10(aa)	Amended and restated Supplemental Retirement Income Plan of the registrant and text of amendment to existing supplemental income plan agreements, incorporated by reference to Exhibit(mm) to the registrant’s report on Form 10-Q for the quarterly period ended September 30, 2000 (the “Third Quarter 2000 Form 10-Q”).
	10(bb)	Form of Letter of amendment to existing supplemental income plan agreements of the registrant dated November 4, 2002, incorporated by reference to Exhibit 10(dd) to the 2002 Form 10-K.
	10(cc)	Supplemental Retirement Benefits Plan for U.S. Executives dated effective January 1, 1999, incorporated by reference to Exhibit 10(aa) to the Second Quarter 2002 Form 10-Q.
	10(dd)	Forms of Agreement dated December 30, 1994, between the registrant and certain officers of the registrant, concerning a change in control of the registrant, incorporated by reference to Exhibit 10(p) to the 1995 Form 10-K.
	10(ee)	Form of Agreement of Indemnification dated August 8, 1995, between the registrant and certain officers and directors of the registrant, incorporated by reference to Exhibit 10(q) to the 1995 Form 10-K.
	10(ff)	Resolution and Form of Agreement of Indemnification dated January 24, 2001, incorporated by reference to Exhibit 10(ii) to the 2000 Form 10-K.

Exhibit
Number		Description of Document
	10(gg)	Chief Executive Officer Medical and Dental Plan, incorporated by reference to Exhibit 10(jj) to the 2000 Form 10-K.
	10(hh)	Second Amended and Restated Membership Agreement dated January 1, 1995, among Phosphate Chemicals Export Association, Inc. and members of such association, including Texasgulf Inc., incorporated by reference to Exhibit 10(t) to the 1995 Form 10-K.
	10(ii)	International Agency Agreement dated January 1, 1995, between Phosphate Chemicals Export Association, Inc. and Texasgulf Inc. establishing Texasgulf Inc. as exclusive marketing agent for such association’s wet phosphatic materials, incorporated by reference to Exhibit 10(u) to the 1995 Form 10-K.
	10(jj)	Deferred Share Unit Plan for Non-Employee Directors, incorporated by reference to Exhibit 4.1 to the registrant’s Form S-8 (File No. 333-75742) filed December 21, 2001.
	11	Statement re Computation of Per Share Earnings.
	12	Computation of Ratio of Earnings to Fixed Charges.
	13	2003 Annual Report. The 2003 Annual Report, except for those portions that are expressly incorporated by reference, is furnished for the information of the Commission and is not to be deemed “filed” as part of this filing.
	21	Subsidiaries of the registrant.
	23	Consent of Deloitte & Touche LLP.
	31(a)	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31(b)	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	99	2004 Notice of Meeting, Proxy Circular and Form of Proxy. The 2004 Notice of Meeting, Proxy Circular and Form of Proxy, except for those portions thereof that are expressly incorporated by reference, are furnished for the information of the Commission and are not to be deemed “filed” as part of this filing.

EX-11

Exhibit 11

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

		2003			2002
A	Net (loss) income as reported, Canadian GAAP ($ millions)	$	(126.3	)	$	53.6
B	Items adjusting net (loss) income ($ millions)	$	46.5		$	7.0
C	Net (loss) income, US GAAP ($ millions)	$	(79.8	)	$	60.6
D	Weighted average number of shares outstanding		52,230,000			52,021,000
E	Net additional shares issuable for diluted (loss) earnings per share calculation		—			295,000
	CANADIAN GAAP
	Basic (loss) earnings per share (A/D)	$	(2.42	)	$	1.03
	Diluted (loss) earnings per share (A/(D+E))	$	(2.42	)	$	1.03
	UNITED STATES GAAP
	Basic (loss) earnings per share (C/D)	$	(1.53	)	$	1.16
	Diluted (loss) earnings per share (C/(D+E))	$	(1.53	)	$	1.16

EX-12 4 o11946exv12.htm EXHIBIT 12

Exhibit 12

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

		Year ended December 31
		2003			2002			2001			2000		1999
Canadian GAAP
Net (loss) income		$	(126.3	)	$	53.6		$	121.2		$	198.0	$	(412.0	)
Income taxes			(20.6	)		30.2			68.2			67.2		7.5
Share of earnings of equity investees			(12.4	)		(5.3	)		—			—		—
Fixed charges			117.8			102.7			104.3			104.6		93.3
Distributed income of equity investees			4.0			—			—			—		—
Interest capitalized			(1.5	)		(4.2	)		(0.5	)		—		(2.6	)
	Total Earnings Available for Fixed Charges	$	(39.0	)	$	177.0		$	293.2		$	369.8	$	(313.8	)
Fixed Charges
Interest expensed and capitalized			105.7			92.0			83.9			66.6		56.4
Amortization of debt issue costs			2.1			1.9			0.8			1.2		1.2
Estimated portion of rent expense representing interest			10.0			8.8			19.6			36.8		35.7
	Total Fixed Charges		117.8			102.7			104.3			104.6		93.3
Ratio of Earnings to Fixed Charges			—	1		1.72			2.81			3.54		—	1

¹ Earnings were inadequate to cover fixed charges by $156.8 million and $407.1 million for the years ended December 31, 2003 and December 31, 1999, respectively.

EX-13 5 o11946exv13.htm EXHIBIT 13

Exhibit 13

Fertilizer Feeds The Soil. The land is important to all of us – for food, for recreation and for the many ways it nourishes wildlife and our ecosystem. With proper care, it will continue to provide the things people need and enjoy. But every crop produced draws nitrogen, phosphate and potash from the soil. Fertilizer replaces what’s been borrowed and protects the soil for future generations.

Why Fertilizer?

1 The number of people is growing and everyone wants to eat. Right now, there are more than 6 billion people on the planet. Within 50 years, there will be almost 9 billion. For everyone to eat, more food must be produced. The challenge is made greater by a steady decline in productive land available for agriculture.

Fortunately, farmers are becoming more efficient. The proper use of fertilizer and modern agricultural techniques have enabled farmers to double world production of grain over the past 40 years, even though less land is used.

2 Growing economies demand more powerful diets. People in developing nations currently consume about one-third as much meat as those in developed countries. As their economies gain strength, they want to add more protein-rich food such as milk, eggs and meat to their diets.

To do that, more animals must be produced, which requires more grain. It takes approximately seven kilograms of grain to produce one kilogram of beef. To meet the expectation of improved diets, more grain must be produced on available land.

3 We have green space and animals have homes. As our population grows, farmland is lost to cities and roads – and the amount of agricultural land per capita is lessened.

Without fertilizer, the world’s remaining green space would have to be plowed up just to meet food demand. Forests and wetlands that support trees, plants and wildlife would be lost.

Fertilizer provides a more sustainable solution by restoring the vitality of existing farmland while maintaining animal habitats and green space for our enjoyment.

4 More food. Better food. Fertilizer brings more than quantity to food production; it adds quality. The nutrients that plants draw from the soil become part of our food supply and are essential for human health.

By using fertilizer, farmers grow plants that are stronger and taste better. The wheat contains more protein, carrots have more carotene and leafy plants retain more Vitamin C. On top of that, plants like corn and watermelon are juicier and taste sweeter.

The soil is nature’s nutrient cupboard. If we keep it stocked by replenishing nutrients, we can continue to enjoy abundant, affordable and healthy food. Fertilizer is the key.

CONTENTS

Corporate Overview	2
Financial Highlights	3
Letter to Shareholders	3
Goals and Targets	9
MD&A	12
11 Year Report	47
Financial Performance Indicators	48
Management’s Responsibility	51
Auditors’ Report	51
Consolidated Financial Statements	52
Board of Directors	78
Shareholder Information	79
Corporate Information	80

Extreme poverty and hunger fuel division and desperation. Without development and hope, there will be no peace.

– Kofi Annan, United Nations Secretary-General

PotashCorp 2003 Annual Report   1

PotashCorp’s aim is to be the global low-cost supplier of potash into all key world markets and to complement this by leveraging the strength of our low-cost gas in nitrogen and specialty products in phosphate.

Why PotashCorp?

1 The world needs more of what we have. Demand for nitrogen, phosphate and potash continues to grow. World grain production has fallen behind consumption, reducing grain stocks. Farmers need to increase fertilizer use so that food production can keep pace.

At the same time, PotashCorp has built a stronger position with animal feed and industrial customers. This growth is adding balance to our business and providing the potential for more attractive and stable margins.

2 We play to our strengths. It isn’t enough to have great resources. You need to know what to do with them. At PotashCorp, we recognize the value of our leading global position in potash and supplement that with strategies tailored to our areas of strength in phosphate and nitrogen, limiting the volatility of the commodity markets.

In all three nutrients, we focus on quality, a key factor in our customers’ buying decisions.

3 Size creates cost advantages and market prominence. While we don’t think like a commodity company, our products are sold in a commodity market. As a large producer of all three nutrients, our size creates efficiencies that make us a low-cost producer in each nutrient. In addition, our market-driven philosophy ensures we remain a prominent global supplier. Agile and adaptive to the needs of our customers, we work every day to retain our preferred supplier status.

4 Financial strength gives us flexibility and growth leverage. Even as the fertilizer industry faced one of the longest down cycles in its history, PotashCorp remained financially strong. Over the past five years, we generated cash flow from operations of $1.6 billion and are now emerging into better market conditions.

The pressures of recent years have pushed the industry toward consolidation. PotashCorp has the financial strength to explore acquisition opportunities as they arise and the cash flow to pay down debt quickly.

5 We foster a culture that sustains success. We’ve made a commitment to sustainable development at every level of our organization, believing it is essential to our success today and in the future. With clearly defined goals, values and expectations that reach from our directors to management to front-line employees, we have established an environment that draws leadership from all levels of the company.

2   PotashCorp 2003 Annual Report

Who Are We?

As the world’s largest producer, by capacity, of the three primary plant nutrients potash, phosphate and nitrogen, PotashCorp is a leader in the global fertilizer industry. We meet the needs of customers around the world for fertilizer, animal feed supplements and industrial products. As a producer, we are large, low-cost, global and market-driven. As a company, we are profit-seeking and shareholder-focused, and have built strong relationships with our customers, employees and communities. Our commitment to continuous improvement, self-assessment and doing the right thing for all our stakeholders is an essential driver of our success today and tomorrow.

	Potash (K)	Phosphate (P)	Nitrogen (N)
Net Sales 2003	25% of total	32% of total	43% of total
Gross Margin 2003	53% of total	(4%) of total	51% of total
Customer Type	92% fertilizer	62% fertilizer	46% fertilizer
(Based on 2003 sales volumes)	8% feed/industrial	38% feed/industrial	54% feed/industrial

From Nature for Natural Growth

Each of the three nutrients is drawn from nature and all are essential for healthy plant production and more nutritious food. PotashCorp converts these natural ingredients to a form that is digestible by plants. Potassium (K) is
found in evaporated
sea beds.
Phosphorus (P) is
provided by fossilized
remains of sea creatures.
Nitrogen (N) forms
78 percent of the
air we breathe.

PotashCorp 2003 Annual Report   3

2003 Business Highlights

• Sold record potash volumes

• Acquired 26 percent interest in Arab Potash Company

• Nitrogen prices increased

• Realized $90 million in natural gas hedges

Financial Highlights
All financial data in this report are stated in US dollars
$ millions except per-share amounts

	2003			2002		2001
Net sales	$	2,465.8		$	1,928.7	$	2,080.8
Net (loss) income	$	(126.3	)	$	53.6	$	121.2
Adjusted net income *	$	76.9		$	53.6	$	121.2
Net (loss) income per diluted share	$	(2.42	)	$	1.03	$	2.32
Adjusted net income per diluted share *	$	1.46		$	1.03	$	2.32
Gross margin	$	380.4		$	307.3	$	407.3
EBITDA *	$	171.8		$	386.0	$	455.4
Adjusted EBITDA *	$	417.7		$	386.0	$	455.4
Cash flow prior to working capital changes *	$	364.5		$	289.2	$	345.8
Cash provided by operating activities	$	381.5		$	316.4	$	75.7

* See reconciliation and description of certain non-GAAP measures in Financial Performance Indicators on Pages 48-50

To our shareholders:

Why fertilizer? The answers are as diverse as the people who see the value of our products. Farmers, environmentalists and social scientists all appreciate the importance of fertilizer in food production and land conservation.

My answer to the question “Why fertilizer?” was shaped on a year-long trip that followed my college graduation in 1972. I visited countries that were prosperous and others that struggled to provide the basic elements for survival. I saw nations where food was plentiful and places where people faced starvation on a daily basis. I learned that fundamental human needs – water, food, growth, hope – should never be taken for granted.

Kofi Annan, Secretary-General of the United Nations, has consistently championed agricultural development as the foundation for health, economic stability and world peace. The insight of that sentiment is at the heart of why fertilizer is so important – not just for our individual needs, but to world development.

Fertilizer replenishes the strength of the soil, empowering it to supply the nutrient content in the food we eat. It drives agricultural production, which has been the basis for every developed nation around the world. It enables people to feed themselves and trade for things they need. That contributes to economic opportunities, health and happiness.

That’s why I believe fertilizer is so important and why the opportunities for PotashCorp remain bountiful.

William J. Doyle, President and Chief Executive Officer

4   PotashCorp 2003 Annual Report

Why decommoditize?

Even though fertilizer is essential for sustainable food production, it is not immune to the rise and fall of commodity cycles. Our business faces diverse pressures, including new fertilizer capacity that comes on stream, reduced crop prices and changes in government policy around the world. We faced all three in recent years, creating one of the longest down cycles our industry has ever seen.

At PotashCorp we believe the value of our company should stand above swings in the commodity market as much as possible. To “decommoditize” our company, we developed a strategy designed to smooth the highs and lows of commodity cycles and wrap earnings around a rising trend line to ensure we will always be a sustainable enterprise.

For shareholders, our objective is to provide value without volatility. These higher-quality earnings set PotashCorp apart from our peers. One of the keys is greater transparency. By reducing uncertainty – whether discussing current conditions or long-term strategies – we clear the path for better returns.

Why N, P and K?

We have remarkable resources in each of the three nutrients and build upon our unique advantages in each to support our strategy. PotashCorp’s aim is to be the global low-cost supplier of potash into all key world markets and to complement this by leveraging the strength of our low-cost gas in nitrogen and specialty products in phosphate.

As our name suggests, potash is the cornerstone of our company and provides a solid base for our performance. We are the world’s largest potash company. Of the three nutrients, potash faces the fewest environmental pressures and least government ownership, supporting our objective of higher-quality earnings. Still, we have expanded our enterprise and broadened our base with nitrogen and phosphate production aimed at the least volatile areas of those nutrients.

The value of this strategy, built on three nutrients serving three distinct markets, has been proven in the challenging conditions of recent years. Our plans to generate better performance as conditions improve are explained in greater detail in the management’s discussion and analysis section of this report.

What happened in 2003?

In general terms, our potash franchise remained strong as volumes increased; our nitrogen operations contributed more as prices improved dramatically; and phosphate battled through a sluggish market. Prices for inputs like natural gas, necessary for nitrogen production, and sulfur, for phosphate processing, jumped significantly. The Canadian dollar surged in relation to its US counterpart, which generated a relative increase in our potash costs. Following production, our industry (and our customers) faced ocean freight rates that reached unprecedented highs. This hurt our earnings in potash, where we are a global supplier, but worked to our advantage in our nitrogen business, which is regional, by restricting competitive imports.

In potash, we sold more tonnes as Brazil, one of our best and fastest-growing markets, imported record volumes for the second consecutive year. In North America, we were successful in achieving a $10 per tonne price increase in the fall. By year-end, Saskatchewan producers (through Canpotex) and Russian producers (through IPC) signed large-volume contracts at higher prices with purchasing agencies in China, even though that customer handles its own freight. It’s a sign that markets are tightening and the value of potash is increasing.

In nitrogen, ammonia and natural gas prices decoupled for the first time since the mid-1990s, reflecting the very tight supply/demand dynamics for nitrogen products. By the end of 2003, ammonia prices reached the highest level seen in almost 30 years. The high-cost

PotashCorp 2003 Annual Report   5

gas environment in North America continued to shift production offshore, increasing the value of our Trinidad asset.

Phosphate, unfortunately, remained in its earnings trough as world consumption has not absorbed new capacity that came on stream in the past few years. In North America, demand was sluggish. Offshore, China and India have historically been important markets for US producers, but now their governments are pouring subsidies into domestic production, skirting their WTO commitments and decreasing the need for imports. That situation must be corrected before phosphate producers can increase operating rates and profitability.

How did PotashCorp respond?

We believe in leadership and action, rather than sitting back and waiting for market conditions to improve. Our experienced management team has seen the cycles of the fertilizer industry in the past and knows how to respond. In 2003, we saw our industry in transition and used this period to reconfigure some areas of our company to better fit the new reality.

In our most significant move, we took another step forward in the globalization of our potash business with the purchase of 26 percent of Arab Potash Company (APC). We nominated individuals to the top four management positions at APC and can utilize this investment as a form of a hedge against rising freight rates. This, like our previous investments in Israel Chemicals Ltd. (ICL) and SQM in Chile, expands our enterprise and adds to our global prominence in potash.

In addition, we entered into an agreement to sell our potassium nitrate operation at Yumbes to SQM, a producer of higher-margin specialty products. We believe this transaction will improve the performance of both companies over the long term.

In North America, we announced plans for expanded potash production and compaction capacity at Rocanville, made economically feasible by tax changes in Saskatchewan. This will increase our production of granular potash, which is in great demand by key potential growth markets.

In phosphate, the opening of our new industrial plant was a bright spot, shining a light on the product diversity we can achieve with our high-quality ore. Our DFP plant had start-up issues but should reach full operation by the end of the first quarter in 2004. Our greatest advantage, however, is our long-term ore position, as we have completed the move into our best rock deposit near Aurora and recently gained a life-of-mine permit at White Springs.

Our realignment also included a shift in our North American nitrogen operations, as we turned our attention to capturing greater value from our warehouse and distribution network, increasing the sale of purchased tonnes in 2003. As we move forward, we will supply the US, our primary market, with a combination of Trinidad and domestic production as well as tonnes purchased for resale, with an eye toward using the source of supply with the highest margins.

In addition, we sold our natural gas hedges in North America at the height of the market in February, generating a significant cash benefit that contributed to our profitability in nitrogen.

Of course, any down cycle requires some tough decisions. We announced indefinite shutdowns of nitrogen production at Memphis and of ammonia and nitrogen solutions production at Geismar. Both these facilities are on the Mississippi River and vulnerable to imports. We tightened our belts across the company and every member of our executive management team led the way by taking a 10 percent pay reduction. Board members followed suit by voluntarily reducing their annual retainer by 10 percent. A salary freeze for middle management was introduced and reductions in company contributions

Potash Prescription for Healthier Food

In February 2004, the Institute of Medicine of the National Academy of Science released its latest review of dietary intake requirements. The report stated that most North Americans need to roughly double their consumption of potassium, which lowers blood pressure and reduces risk of kidney stones and bone loss. The Institute recommended that potassium from food sources, including bananas, spinach, cantaloupe and other fruits and vegetables, is a better option than supplements. The potassium in these foods comes from the soil and is replenished by potash fertilizer.

6   PotashCorp 2003 Annual Report

to employee savings plans were implemented. Even though our company has performed reasonably well, our industry is not at its peak and we must take measures to protect the long-term value of PotashCorp.

What were the results?

In 2003, PotashCorp had a net loss of $2.42 per share which includes writedowns and charges relating to Yumbes, Geismar and Memphis. Net income, adjusted to exclude impairment charges and shutdown-related costs, was $76.9* million or $1.46* per share, despite another sub-par year for our industry and the challenges of sharp increases in costs. The true value of that performance is disguised by the rise of the Canadian dollar, which cost our company approximately $0.94 per share, although about two-thirds is a non-cash foreign exchange loss. Otherwise, our performance would have been ahead of our original guidance. In addition, cash flow continued to be a strength of our company as we achieved $381.5 million in cash flow from operating activities, 21 percent higher than last year.

Our share price on the New York Stock Exchange ended the year at $86.48. Our total shareholder return was up 38 percent. This exceeded the performance of the Dow Jones Basic Materials Index, which increased 36 percent in 2003, as well as our sector average, which increased 26 percent excluding our company. In Canada, our share price growth was limited by the strength of the Canadian dollar.

What is expected in 2004?

The good news is that the beginning of a turnaround late in 2003 is a signal that we are approaching the end of this long down cycle. Grain consumption is projected to exceed production for the fifth consecutive year and world grain stocks are expected to fall to their lowest point in 44 years. US farmers are reporting higher net income and, offshore, prices for many crops are improved. These are important factors as farmers know that fertilizer is a good investment that brings higher yields and enhanced profitability.

The changing global trade environment is also in our favor. China has exported as much as 15 million tonnes of corn into a 75-million-tonne market in recent years, substantially reducing its internal stockpiles.

At the same time, China’s annual trade surplus with the US has grown from $30 billion to $120 billion. International trade is relatively new to China and, as it gains confidence in its trading partners, it will increase imports to meet its WTO commitments. Last year, China issued licenses allowing importers to ship only 13,000 tonnes of corn into the country; in 2004 it has issued licenses for 7.7 million tonnes of imported corn. This is good news for farmers and the fertilizer industry.

What does it mean to PotashCorp?

As potash consumption grows, we are in position to be the biggest beneficiary. We have been patient over the years, while operators in Russia and Belarus increased their exports as they adjusted to a free-market system at home. Now, they are operating at or near capacity and their only route to increased profits is higher prices. That will help our entire industry.

With the rest of the potash industry operating at more than 90 percent of capacity, PotashCorp is in a good position to begin to use our excess capacity to capture new demand growth. With increased volumes, which lower our cost per tonne, and better prices, the future for potash is very bright. Our immediate goal is to recover the margin losses created by rising ocean freight rates and the strengthening Canadian dollar. Early in 2004, we announced price increases in both North American and offshore markets. In addition, we will see the benefit from the sale of Yumbes, which eroded gross margin by approximately $23 million in 2003.

* See reconciliation and description of certain non-GAAP measures in Financial Performance Indicators on Pages 48-50.

PotashCorp 2003 Annual Report   7

In phosphate, we enter the year expecting that things can only improve. Last year, we had at least $22 million in costs that should now be behind us. In approximate figures, our restart of DAP production at White Springs cost $7 million and start-up issues at our DFP plant added $15 million. While some of the start-up issues carried over into the first quarter, DFP performance in 2004 should be much better. Overall rock costs were down 11 percent from 2002, demonstrating the advantage of the transition to our higher-grade ore zone at Aurora, which is closer to our processing facilities. Rock costs should improve even further this year.

However, the earnings trough for the phosphate industry will continue unless industry rationalization picks up speed or China and India begin to live up to WTO commitments.

The tighter supply/demand balance in nitrogen is expected to continue through 2004, supporting higher ammonia prices and providing greater leverage for PotashCorp. High ocean freight rates work in our favor in nitrogen, making imports from the Middle East less competitive in North America. That, combined with the high cost of natural gas in North America, increases the value and importance of our Trinidad asset.

Corporately, we look forward to better tax rates in Canada at provincial and federal levels, which will improve our earnings.

What do we value at PotashCorp?

We have a series of long-term goals and remain faithful to them. Each year, we set targets to help us achieve those goals. While these targets are aggressive, they make us stretch and challenge us to achieve continuous improvement. Our goals and performance

against 2003 targets, along with our new targets for 2004, follow this letter.

While all of our targets are important, my greatest satisfaction in 2003 was our improved safety performance. More than anything else, we want our people to be safe and return home to their families each night. They are the heart and soul of our company and their well-being is essential for our success. We have a clearly stated goal in this area: no harm to people, no accidents and no damage to the environment. This will continue to be a top priority at PotashCorp.

We also take special pride in our corporate governance, an area of heightened interest for investors. In 2003, a study by the Rotman School of Business at the University of Toronto honored PotashCorp as having the best corporate governance practices in Canada. That is a credit to Donald Phillips, our previous Board Chair who retired in May, and Dallas Howe, our current Chair who led our corporate governance committee in the past. I would also like to recognize the efforts of long-time board members Douglas Bourne and Thomas Wright, who retired in May, and welcome our new board members John Estey, Alice Laberge and Elena Viyella de Paliza. The leadership from our directors has been – and will continue to be – essential to our progress.

That leadership has created a culture of excellence that contributed to a number of important awards and achievements in 2003. The Council for Sustainable Florida presented PCS Phosphate’s White Springs operation with the Sustainable Florida Award for our environmental efforts. In Saskatchewan, we won several awards at the Mine Rescue Emergency Response Competition. In nitrogen, our Geismar and Trinidad operations reached six million and three million hours, respectively, without a lost-time accident. Corporately, the Toronto Stock Exchange and Canadian Institute of

Significant Safety Milestones and Awards 2003
PERIOD WITHOUT LOST — TIME INJURY			SAFETY AWARDS
SITE	MILESTONE	DATE	SITE		AWARD
Aurora Cassidy Lake	1 million hours 6 years	February 2 August 22	Aurora	•	Norfolk Southern’s Thoroughbred Safety Award for tank car inspection
Geismar New Brunswick	6 million hours 3 years	June 15 December 12		•	North Carolina Department of Labor Safety Award
Patience Lake Trinidad White Springs	3 years 3 million hours 1 million hours	March 17 August 22 April 3	Geismar	•	Louisiana Chemical Association’s award for distinguished achievement in the safety category

8   PotashCorp 2003 Annual Report

Chartered Accountants honored us by recognizing our website as the best forum for electronic disclosure in any industry. These same organizations presented us with the award for excellence in corporate reporting in the mining sector for our 2002 annual report, corporate governance, website and sustainability report.

Our report on sustainable development – a first for our company and the first in the North American fertilizer industry – is a part of the overall approach to best practices that runs throughout our company. Each year, we have an annual meeting of our operations managers to gather the best ideas from within our organization and implement them on a wider scale. In 2003, we extended this approach to the national meeting of PCS Sales with the goal of ensuring our exceptional customer service is present at all stages of the sales transaction.

In March, I spoke on sustainable development and food production at a conference in Rome sponsored by both the Food and Agriculture Organization of the United Nations and the International Fertilizer Industry Association. It brought me back to many of the lessons learned on that first trip after college. The issues of food production remain as important today as they were 30 years ago. Economic development and prosperity are still built on agriculture. Our health, happiness and world peace remain tied to our ability to grow food.

That is at the heart of what we do at PotashCorp and answers the simple question, “Why fertilizer?”

William J. Doyle
President and Chief Executive Officer

February 27, 2004

Growing Markets, Growing Opportunity

Of the three nutrients, potash represents our best opportunity for growth. As a primary supplier to developing nations, we are a low-cost producer with abundant capacity.

Potash is produced in a limited number of areas, but is in global demand. Since transportation makes up about half of the delivered cost, producers usually sell to the closest markets. After supplying home markets, producers export into the “free trade area,” which has the most growth potential and little or no indigenous production. This includes Latin America, Africa, Asia and Oceania. Efficient, low-cost delivery is the key. PotashCorp supplies Asia from Saskatchewan, while our New Brunswick operations serve Latin America. Our investment in APC, which is ideally situated to serve Europe and India, provides a form of a hedge against rising freight rates.

These growing markets are expected to increase consumption of all three nutrients, especially potash, in the years ahead.

• In China, where rice is a staple for 1.3 billion people and is triple cropped, replenishing nutrients is important to continued production.

• India is the third-largest consumer of fertilizer in the world and still lacks adequate amounts of all three nutrients. Over the next decade, it is recommended that India’s consumption of nitrogen should double, phosphate triple and potash almost quadruple.

• Brazil’s potash consumption is also expected to increase more than 50 percent, as it is fast becoming the world’s largest producer of soybeans, a huge consumer of potash fertilizer.

PotashCorp 2003 Annual Report   9

What are PotashCorp’s long-term goals?

Our business goals are linked to the philosophy at the heart of PotashCorp. We are a leader in our industry and it is important that we hold ourselves to the highest standards. We believe in accountability and hope our targets and performance encourage discussion with our stakeholders.

1 To continue to outperform our sector and other basic materials companies in total shareholder return.

While all our targets move us toward our long-term goals, this is a goal which is evaluated and assessed on an annual basis. In 2003, PotashCorp’s total shareholder return was 38 percent on the New York Stock Exchange while the Dow Jones Basic Materials Index was 36 percent and our sector 26 percent.

	2003 Targets:	2003 Results:
•	Decrease our non-cash working capital* as a percentage of revenue by 10 percent.		Non-cash working capital went from $461 million to $349 million in 2003. As a percentage of revenue, it went from 24 percent to 14 percent, a reduction of 42 percent.
•	Increase cash flow return* by 10 percent.		Cash flow return for 2003 was 2.6 percent compared to 6.7 percent for 2002. The main factors for the decrease were the provisions for plant shutdowns at Memphis, Geismar and Kinston and the impairment charges at Yumbes. The total of these provisions was $264.2 million before tax.
•	Implement key corporate performance metrics on a comprehensive and systematic basis.		Development of metrics reporting framework commenced, with implementation planned for 2004.

2004 Targets:	•	Exceed total shareholder return performance of the companies on the Dow Jones Basic Materials Index.
	•	Be at the top of our earnings guidance range.
	•	Work with the management and board of APC to improve its shareholder return.
	•	Maintain non-cash working capital at year-end rates.
	•	Total cash flow return on investment to exceed cost of capital by 200 basis points.

2 To remain the leader and preferred supplier of nitrogen, phosphate and potash products worldwide.

	2003 Targets:	2003 Results:
•	Capture an equitable share of world potash consumption growth.		PotashCorp increased offshore potash volumes by 19 percent, while total world demand grew by an estimated 5 percent.
•	Double our DAP and MAP sales volumes.		DAP/MAP volumes were up 101 percent.
•	Increase feed and industrial sales volumes in nitrogen by 10 percent and in phosphate by 15 percent while achieving higher prices.		Feed and industrial nitrogen sales decreased by 4 percent; however, prices were up 42 percent. Industrial phosphate sales were up 12 percent, while prices were flat. Phosphate feed volumes were down 10 percent and prices were down 6 percent.
•	Move specialty products from index pricing to negotiated pricing, reflecting their differentiation.		Agreements connected to costs, fixed prices or locked margins were signed with the market leaders in five of our primary industrial markets.
•	Receive 20 percent of customer purchase orders through electronic data interchange.		By December 2003, 22 percent of customer purchase orders were received through electronic data interchange.

2004 Targets:	•	To continue to be the preferred supplier, as measured by customer surveys.
	•	Reduce the number of customer complaints by 5 percent.
	•	Increase total potash sales volumes by 5 percent at 5 percent higher realized prices.
	•	Increase purified acid sales by 12 percent.
	•	Increase North American industrial nitrogen sales volumes to 60 percent of total nitrogen sales.
	•	Increase DFP volumes by 18 percent at 16 percent higher realized prices.

achieved
partially achieved
did not achieve

* See reconciliation and description of certain non-GAAP measures in Financial Performance Indicators on Pages 48-50

10   PotashCorp 2003 Annual Report

3 To be the low-cost supplier in our industry.

	2003 Targets:	2003 Results:
•	Reduce phosphate rock costs by 20 percent per tonne over the course of the year.		Average phosphate rock costs were reduced by 11 percent, more than halfway to our target.
•	Replace fuel oil at our New Brunswick operations with natural gas accessed and developed at our site, reducing costs by $2.0 million.		Following the transition, costs were reduced by $1.2 million. On a full year, the projected saving is $2.1 million.
•	Achieve average natural gas input costs in North America 10 percent below the average NYMEX spot price.		The US hedged gas consumed by PotashCorp was 26 percent below the NYMEX price.
•	Reduce domestic transportation costs by 5 percent.		During 2003 our overall domestic freight costs were reduced by 7.2 percent.
•	Achieve 96.5 percent reliability performance in nitrogen operations.		Performance reliability in nitrogen reached 96.5 percent.

2004 Targets:	•	Reduce per-tonne conversion costs in each of our three nutrients by 5 percent.
	•	Reduce phosphate rock costs by 5 percent.
	•	Achieve average natural gas input costs in North America 10 percent below the average NYMEX spot price.
	•	Implement supply-chain management process.
	•	Reduce domestic transportation and distribution expenses by 5 percent.
	•	Realize expected savings from negotiated medical plan design.

4 To move closer to our goal of no harm to people, no accidents, no damage to the environment.

	2003 Targets:	2003 Results:
•	Reduce recordable accident frequency rate by 10 percent.		Reduced rate by 17.5 percent to 2.21 per 200,000 hours worked, the lowest rate in the company’s history.
•	Reduce the number of environmental releases and permit excursions below 2002 levels.		Environmental releases and permit excursions were reduced from 53 to 39.
•	Complete security vulnerability analyses (SVAs) at all our nitrogen plants.		Security vulnerability analyses were completed at all nitrogen plants. In addition, PotashCorp completed SVAs at all phosphate plants storing anhydrous ammonia.

2004 Targets:	•	Reduce recordable and lost-time injury frequency rates by 10 percent.
	•	Reduce the number of environmental releases and permit excursions by 10 percent.
	•	Implement proactive facility security plans addressing current and anticipated security regulations.
	•	Through the use of effective management processes, continue to avoid major adverse incidents.

5 To have motivated and productive employees committed to our long-term goals.

	2003 Targets:	2003 Results:
•	Implement a human resources administration system enabled by information technology.		System testing and integration are under way. Implementation is scheduled for completion by the end of 2004.
•	Implement new systems and management processes to track benefits and identify potential areas for savings, thus aligning our people practices with our business goals.		Completion of new systems and management processes led to a change in three programs which will result in year-over-year savings of approximately $5 million.
•	Review and update performance management processes across the company to achieve consistency.		Introduction of new forms to review performance and new reports for senior staff, which include an employee-readiness analysis for succession planning.
•	Provide a competitive compensation program with a stronger incentive-based approach.		A new long-term incentive program with more rigorous performance measures was introduced. A Special Awards pilot program was also launched.

 

PotashCorp 2003 Annual Report   11

2004 Targets:	•	Implement key corporate performance metrics.
	•	Implement employee incentives that tie compensation more directly to the achievement of key corporate financial performance measures.
	•	Complete implementation of succession management and employee development processes to improve focus on key talent and critical shortages.
	•	Complete implementation of a human resources administration system enabled by information technology.
	•	Reduce turnover by employee segments.

6 To improve the socio-economic well-being of our communities.

	2003 Targets:	2003 Results:
•	Develop corporate volunteer projects in Saskatoon and Northbrook that reflect employees’ interests.		Northbrook employees participated in the Lambs Farm Winter Clean-up; Saskatoon employees worked with the Child Hunger Education Program.
•	Produce our first sustainable development report, providing information on PotashCorp’s economic, social and environmental performance.		Our sustainable development report, released in August, was recognized as the 7th best in Canada in Stratos Inc.’s 2003 Benchmark Survey of Corporate Sustainability Reporting.
•	Conduct communication drills in conjunction with emergency management exercises at all facilities, ensuring our ability to deliver information to our communities in a crisis situation.		All the company’s plants conducted emergency management exercises and crisis communication drills in 2003.

2004 Targets:	•	Be engaged with community support projects at each of our plants and offices.
	•	Develop crisis management and communication plans for Saskatoon and Northbrook offices.

7 To be a leader in corporate governance.

	2003 Target:	2003 Results:
•	Adopt a comprehensive statement of governance principles designed to capture current best practices.		The Board adopted a comprehensive statement of governance principles, which will be reviewed annually by the corporate governance committee. Our company was recognized by the Rotman School of Management at the University of Toronto as having the best corporate governance practices among companies traded on the Toronto Stock Exchange. Further to that, the company initiated stock-option expensing in the fourth quarter.

2004 Target: • Conduct a review of governance policies and principles to identify and implement most recent best practices.

12   PotashCorp 2003 Annual Report

Management’s Discussion & Analysis

of Financial Condition and Results of Operations (in US Dollars)

The following discussion and analysis is the responsibility of management. The Board of Directors carries out its responsibility for review of this disclosure principally through its audit committee, comprised exclusively of independent directors. The audit committee reviews this disclosure and recommends its approval by the Board of Directors.

PotashCorp and Our Business Environment	12	Financial Overview	26	Related Party Transactions	37
PotashCorp Vision	16	Potash Results	27	Critical Accounting Estimates	37
PotashCorp Strategy	17	Phosphate Results	28	Recent Accounting Pronouncements	40
Key Performance Drivers	20	Nitrogen Results	30	Risk Management	40
Action Plan and Capability to Deliver	21	Expenses and Other Income	32	Outlook	42
What Happened in 2003	22	Liquidity and Capital Resources	33	Key Earnings Sensitivities	44
2003 Earnings Guidance Review	25	Market Risks	36	Forward-Looking Statements	44
				Appendix	45

PotashCorp and Our Business Environment

PotashCorp has built a global business on the natural nutrients potash, phosphate and nitrogen, which are used primarily in fertilizer. We sell to North American retailers, cooperatives and distributors that provide storage and application services to farmers, the end users. Our offshore customers are governments and private importers that tend to buy under contract, while spot sales are more prevalent in North America. Fertilizers are sold primarily for spring and fall application in both northern and southern hemispheres.

Since transportation is an important part of the final selling price, producers usually sell to the closest customers. In North America, we sell mainly on a delivered basis and use rail, barge, truck and pipeline. Offshore customers purchase product either at the port or with freight included. In the case of potash, approximately 60 percent of our customers buy it freight included and the remainder are responsible for ocean freight.

Potash, phosphate and nitrogen are also used as inputs for producers of animal feed and industrial products. Currently, both are produced primarily in North America and Europe but other regions are increasing both production and consumption. Feed and industrial sales are more evenly distributed throughout the year than fertilizer sales and are primarily by contract.

In all product categories (fertilizer, animal feed and industrial products), price is the most important variable in the buying decision. North American customer surveys indicate that product quality is the next most important factor when a supplier is being chosen. Customers’ specific needs also affect their buying decisions. For example, in Japan, where our potash products are commonly used in industrial applications, quality is a significant factor. In China, there is a strong preference for red potash products, like those we produce at our Allan, Saskatchewan operation. In Brazil, granular potash to blend with the other nutrients is key.

			DEMAND DRIVERS
Fertilizer		Feed		Industrial
•	Acres planted	•	Demand for meat	•	Economic growth
•	Application rates per acre	•	Herd and flock size	•	Rising world population
•	Rising world population	•	Economic growth	•	Desire for products that contribute to
•	Desire for protein-rich diets	•	Rising world population		modern living
•	World grain stocks and crop commodity prices	•	Government policy
•	Weather	•	Regulations affecting substitutable products
•	Government policy, GDP

PotashCorp 2003 Annual Report   13

	Industry facts
	Potash	Phosphate	Nitrogen
Base Product	Potassium chloride	Phosphate rock – phosphoric acid	Ammonia
Geographic Availability of Raw Materials1	Very limited	Limited	Readily available in numerous locations (natural gas)
Cost of New Capacity2	Approximately $500 million for 1 million tonnes KCl	Approximately $1 billion for 1 million tonnes P2O5	Approximately $500 million for 1 million tonnes ammonia
Greenfield3	5 years	3 years	2 years
Development Time4
Producing Countries5	12 (based on KCl)	Approximately 45 (based on	Approximately 70 (based on
	# 1 – Canada	phosphoric acid)	ammonia)
	# 2 – Russia	# 1 – US	# 1 – China
	# 3 – Belarus	# 2 – China	# 2 – India
	# 4 – Germany	# 3 – Morocco	# 3 – Russia
		# 4 – Russia	# 4 – US
State- or Subsidy- Controlled Production6	14%	38%	50%
Expected Long-Term World Fertilizer Consumption7 Growth Rate8	2%	2%	2%
Major Importers9	KCl	DAP	Ammonia
	# 1 – US	# 1 – China	# 1 – US
	# 2 – Brazil	# 2 – Pakistan	# 2 – India
	# 3 – China	# 3 – India	# 3 – South Korea
	# 4 – India	# 4 – Vietnam	# 4 – Turkey
Percentage Traded Across Borders10	82%	46% (DAP)	13% (Ammonia)
	PotashCorp facts
Capacity11	12.1 million tonnes potash 23% of world capacity	2.5 million tonnes phosphoric acid 6% of world capacity	3.9 million tonnes ammonia 2% of world capacity
World Position by Capacity11	#1	#4	#3
Raw Materials Availability12	More than 100 years in Saskatchewan at current operating rates Additional deposits in New Brunswick	Approximately 75 years in North Carolina at current operating rates	Trinidad natural gas producers have approximately 40 years of reserves13; our contracts with them are approximately 9 percent of the total
Production Cost Position vs World Producers14	Low-cost	Low-cost P2O5 Low-cost purified acid Medium-cost DAP	Trinidad operations low-cost US operations high-cost (consistent with all natural gas-based US producers)
Production Facilities	Seven operations in Canada (plus interest at Esterhazy) Potassium nitrate operation in Chile (currently being divested)	Two mines in the US Three processing operations in the US Seven feed plants (6 – US, 1 – Brazil)	Four plants in the US Large complex in Trinidad
Key Cost Sensitivities	Operating rate, natural gas, $CDN/$US exchange rate	Cost of phosphate rock, sulfur, ammonia; operating rate	Natural gas, conversion efficiency, operating rate
Competitive Strengths	Low-cost producer 69% of world excess capacity15 Greater exposure to growing offshore markets	Long-term rock position High-quality rock Production diversity Widest product range	Flexible product mix and sources Close ties to industrial customers Long-term access to lower-cost gas in Trinidad US distribution system

1-15 — See Appendix, Page 45

14   PotashCorp 2003 Annual Report

PotashCorp North American Markets¹⁶

	Potash	Phosphate	Nitrogen
Major Consuming Crops	Corn, wheat, soybeans, cotton	Wheat, corn, soybeans, cotton	Wheat, corn, cotton
Market Share17	30% (KCl)	22% (P2O5)	16% (N)
Main Customers18	Cooperatives, national accounts, independent dealers	Cooperatives, feed producers, Astaris, Rhodia (industrial)	US DAP producers, cooperatives, BASF, DSM (industrial)
Main Competitors19	IMC, Agrium, MissChem, imports from Russia and Belarus	IMC, Cargill, Simplot, CF	CF, MissChem, Koch, Terra, imports from other Trinidad producers, Russia and the Middle East
Sales Approach	PotashCorp sales team	PotashCorp sales team	PotashCorp sales team
PotashCorp Offshore Markets20
Major Consuming Crops	Rice, corn, wheat, soybeans, oil palm, sugarcane, coffee	Wheat, rice, corn, soybeans, cotton	Wheat, rice, corn
Market Share21	11% (KCl)	1% (P2O5)	0.2% (N)
Main Customers	Brazil, China, Japan, Malaysia, Indonesia	China, Brazil, Mexico	Limited sales
Main Competitors22	Belaruskali (Belarus), Uralkali (Russia), Silvinit (Russia), Kali & Salz (Germany), Dead Sea Works (Israel)	OCP (Morocco), GCT (Tunisia), Phosagro (Russia), JPMC (Jordan), various producers in China and India	Limited sales
Sales Approach	Canpotex23 and PotashCorp sales team	PhosChem24 and PotashCorp sales team	PotashCorp sales team

16-24 — See Appendix, Page 45

PotashCorp in the world potash scene

Worldwide, potash deposits that can be mined economically are very limited. There are few producers and many consumers. The US, a mature market, is the largest potash importer, and developing nations with limited indigenous production are the greatest growth markets. PotashCorp is a prominent supplier in both these markets.

With 12 million tonnes of capacity, we could supply nearly 30 percent of annual global requirements if we operated at our full rate. We have 69 percent of world excess capacity, so we expect to provide this vital nutrient to the world for many decades to come.

Our major competitors in North America are Agrium and IMC, each of which is more significantly leveraged toward North American sales than we are. Globally, we compete with producers in Belarus, Russia, Germany and Israel to serve customers in markets with little or no indigenous potash production, such as Asia and Latin America.

Market trends include continued industry consolidation, aggressive competition and shrinking government control — from 66 percent of the industry in 1980 to 14 percent in 2003.

Strengths:

• Low-cost, flexible production with a low percentage of fixed costs

• Excess capacity to respond to growth in world consumption

• Greater exposure in growing offshore markets

• Stable pricing, historically

• Few world producers, reduced government control

• High cost of entry to the business

• Moderate prices discourage investment in new greenfield capacity

Weaknesses:

• Highly competitive North American market

• High freight costs to ship Saskatchewan potash to port

• Currently high ocean freight costs

• Recent rise of the Canadian dollar, increasing production costs

• High provincial and federal taxes

• Water inflow at New Brunswick continues to negatively impact margins

Opportunities:

• As the major supplier to the offshore market, we are well positioned to fill potential growth in consumption with our excess capacity

• We believe our competitors are operating at or near capacity, which could allow us to benefit from a significant portion of future growth

Threats:

• Competitors’ debottlenecking of existing plants may fill rising offshore demand and offset potential market growth for us

PotashCorp 2003 Annual Report   15

PotashCorp in the world phosphate scene

World capacity of the major phosphate fertilizer product, diammonium phosphate (DAP), has surged in recent years. US DAP production is primarily intended for export, and historically much of it went to India and China, which are now developing their domestic production behind trade barriers created to protect it. The current excess supply of DAP relative to consumption is depressing prices.

Governments influence a significant proportion of world capacity, through subsidy control, ownership or by overproducing and accepting negligible to negative returns to support employment.

In these circumstances, PotashCorp’s product diversification has allowed us to cut DAP production and shift our high-quality phosphoric acid to liquid fertilizers, animal feeds and industrial production, all important niche markets. We believe we are a low-cost producer of these products, and we have the most capacity in North America for phosphate feeds. Use of liquid fertilizers is growing as more farmers adopt conservation tillage. The expansion of our purified acid plant at Aurora in 2003 enhanced our position as one of the world’s low-cost producers of this product.

In North America, our major competitors for both fertilizer and feed products are IMC and Cargill, while imports from Morocco and Israel compete for industrial sales. In offshore markets, competition for fertilizer sales comes from indigenous producers in India and China and from other global producers. In China, indigenous producers compete for feed sales.

Strengths:

• High-quality, long-term deposits close to low-cost processing facilities

• The industry’s most diversified product line

• Existing permits at Aurora for 8 years and covering estimated life of mine at White Springs (18 years)

Weaknesses:

• US producer dependency on declining world DAP trade has led to lower sales volumes and higher costs per tonne (high fixed costs)

• Excess world DAP capacity in many hands can easily be brought back on stream

• Too much government intervention, either in constructing capacity or in restricting imports

• Offshore sales heavily exposed to China and India, which seek self-sufficiency

Opportunities:

• Our high-quality ore allows us to develop more high-margin products

• Our strong competitive cost position in industrial acid makes us less susceptible to offshore competition

• Potential growth in offshore feed markets

Threats:

• Depressed fertilizer prices have encouraged others to expand into the feed business, hurting margins

• Competitors with liquidity issues selling at lower prices to accelerate cash flow

• Higher barriers to exit because environmental costs force some companies to continue production at uneconomic levels, impacting supply/demand fundamentals

16   PotashCorp 2003 Annual Report

PotashCorp in the world nitrogen scene

Nitrogen, the most widely produced nutrient, is a regional business. Ammonia, the feedstock for all nitrogen products, can be manufactured in any country with adequate natural gas supplies and is a way for developing nations to monetize their gas. Several countries with large gas reserves and low production costs use little of their gas domestically, and produce ammonia cheaply for the export market.

Rising natural gas costs in the developed world have led to plant closures, since gas is at least 70 percent of the cost of producing ammonia there. The resulting tight supply has increased prices, attracting imports from areas of lower-cost gas such as Trinidad, Venezuela and the Middle East. The US is increasingly supplied from offshore and in 2003, imports of urea were up by 23 percent and ammonia by 21 percent over 2002.

Nitrogen is an input in industrial production of a wide range of products that enhance modern living, and manufacturers want consistent quality and just-in-time delivery to keep their plants running efficiently. Most are attached to their suppliers by pipeline. Improvements in GDP in developing nations have historically supported growth in demand for these lifestyle products.

PotashCorp nitrogen production serves both fertilizer and industrial customers, with our US plants primarily supplying industrial customers and Trinidad our fertilizer customers. We are not immune when expensive natural gas makes US ammonia plants non-competitive with offshore production, but our low-cost Trinidad plants

help offset this. The high cost of gas in North America and competition from cheap imports have resulted in poor financial circumstances for many competitors and the industry continues to consolidate.

Within North America, sales are regionalized due to transportation costs. This limits competition from Agrium which serves a different niche market. CF Industries, a cooperative, Koch, a private company, and Terra and MissChem, both publicly traded companies, are our main competitors. Imports from inexpensive offshore production are expected to continue, but rising freight costs limit them somewhat.

Strengths:

• More than half of our production is in Trinidad where we benefit from favorable gas contracts and proximity to the US market

• Our gas hedging program in the US helps stabilize costs there

• Some of our US plants are linked by pipeline to industrial customers willing to pay a premium for secure, high-quality supply

Weaknesses:

• Uncompetitive natural gas costs in North America

• Contractual commitments to industrial customers may require us to operate unprofitable plants in a high-cost gas environment

• Small volume changes can significantly impact prices

Opportunities:

• High volume demand in the US

• Plants in Trinidad allow for expanded low-cost production

• Our US distribution system allows us to import and sell purchased tonnes

• Current higher freight rates make imports to US from the Middle East less competitive

• Consolidation of US industry

Threats:

• Competitors need only a short time frame to bring on new capacity when supply/demand ratio is tight

• Poor financial condition of competitors may cause liquidity issues, resulting in acceptance of lower prices to accelerate cash flow

PotashCorp Vision

We see PotashCorp as a long-term business enterprise providing superior value to all our stakeholders. To achieve this, we believe we need to be the sustainable gross margin leader in the products we sell and the markets we serve.

Through our strategy, we attempt to minimize the natural volatility of our business; risk rises with volatility and we believe the capital markets will assign a better earnings multiple to a growth company with lower risk. We also strive for increased earnings, and to outperform our peer group and other basic materials companies in total shareholder return, a key measure in any company’s value.

We constantly link our financial performance with areas of extended responsibility: the environment, our social and economic stakeholders and all who depend on us. For each of these stakeholder groups, we focus on increased transparency to improve our relationships, believing this gives us a competitive advantage.

PotashCorp 2003 Annual Report   17

PotashCorp Strategy

PotashCorp’s strategy is based on our commitment to seek earnings growth and quality. We build value with reduced volatility. The company intends to be the industry’s low-cost global potash supplier on a delivered basis and to complement that by leveraging the strengths of our low-cost gas in Trinidad and our specialty phosphate products.

Day-to-day, we aim to maximize gross margin by focusing on the right blend of price, volumes and asset utilization, growing our business by enhancing our position as the supplier of choice. At the same time, we strive to build on our strengths by acquiring and maintaining low-cost, high-quality capacity that complements our existing assets and adds strategic value. We make decisions based on our determination to have our returns on cash flow materially exceed our cost of capital.

Potash Strategy: Building on global leadership

Our strategy in potash is designed to capture the benefits of our high-quality ore, low-cost production and excess capacity. We match supply to demand to minimize inventory overhang and we believe price and margin to be more important than volumes; our goal is to increase earnings over time. We also focus on maintaining our low-cost position in both production and on a delivered basis. We expect to use our excess capacity to respond to and benefit from demand growth. Increased production should lower our unit costs and improve margins.

Threats to this strategy come from competitors expanding their operations to increase capacity. Such expansions, while dampening our growth in the short term, should eventually be absorbed as new production has historically been consumed by rising demand. The

threat of major new capacity in potash in the form of a new mine is somewhat constrained, as we believe there are few geographic opportunities and it takes considerable capital and long lead times to bring a greenfield operation into production. We believe current potash margins do not support such investments.

Our strategy is best measured over the long term, as potash has the longest cycle of the three nutrients. Since we adopted this approach in 1987, it has been severely tested through two down cycles. In both instances, we responded to the unbalanced supply/demand equation created by large volumes from world competitors by reducing our production, and our potash profitability remained relatively stable. As consumption grew and supply/demand tightened, we increased production and generated better margins. In the future, we expect to use our excess capacity to meet the growth in developing nations.

Transportation costs are increasingly important and our sales strategy is built with customer proximity in mind. We are advantaged supplying Asia and the US from our Saskatchewan operations and with our New Brunswick facility serving South and Central America. This allows for

18   PotashCorp 2003 Annual Report

quicker and more cost-efficient delivery — an important factor as ocean freight rates reached unprecedented levels in 2003. Our recent investment in Jordan-based Arab Potash Company (APC), where we nominated individuals to the top four management positions, shows this strategy at work.

Domestically, our strategy relies on a distribution network in the US and Canada that allows timely delivery to high-demand spring and fall markets. We maximize these systems, attempting to get the lowest freight rates possible. Offshore sales of our Saskatchewan potash are handled through our membership in Canpotex, which minimizes transportation and marketing costs. This is important in pursuit of our goal of being the lowest-cost supplier on a delivered basis to any customer around the globe.

Shifts in foreign currencies affect our strategy. As currencies, including the Canadian dollar, strengthen against the US dollar, translated production costs rise in many countries. Together with higher freight rates, this squeezes margins, creating a need for higher prices. Investments in companies such as APC are aimed at providing a natural hedge against rising freight costs and currency fluctuations, since the Jordanian dinar is indexed to the US dollar. PotashCorp will continue to review investment opportunities that offer freight advantages, provide economic hedges and expand our enterprise. We will also explore opportunities in upgraded potash (which offers higher returns and less volatility), consistent with our investment in SQM, the world’s largest producer of specialty upgraded potash products.

Phosphate Strategy: Strength through diversification

In phosphate, we work to maximize the benefits of our long-term rock position, multi-year mining permits and high-quality ore that enables low-cost production and product diversity. The quality of our ore allows us to produce the upgraded feed and industrial products whose margins are more stable, to reduce the volatility of phosphate fertilizer.

1, 2 — See Appendix, Page 45

We support this strategy with specialized sales teams to sell each product line in North America. Our initiatives to develop non-fertilizer products help us move toward the top right quadrant as there are fewer competitive pressures in these businesses. Our high-quality rock gives

us an advantage, allowing us to produce these higher-end products at lower costs than our competition. We will look for opportunities to further diversify, especially in the industrial acid area.

With phosphate’s high percentage of fixed costs, maximum profitability is achieved only when running at full capacity in a tight supply/demand situation. During 2003, we ran our DAP plants at 61 percent of capacity, due to a weak supply/demand equation -

PotashCorp 2003 Annual Report   19

which increased operating costs on a per-tonne basis. In recent years, an earnings trough has been created by new world capacity coming on stream and reduced imports by China and India. It appears that their governments are attempting to build domestic industries by subsidizing production and skirting their commitments to the World Trade Organization. This has markedly extended the down cycle for phosphate. PotashCorp is responding with the goal of keeping fixed costs flat in 2004 and continuing to emphasize our industrial and feed businesses.

Nitrogen Strategy: Flexible supply sources

Our nitrogen strategy is designed to moderate the impact of volatile natural gas prices and take advantage of cyclical upswings. With favorable gas contracts in Trinidad, we can shelter margins for some of our products. In North America, we employ natural gas hedges with the goal of minimizing risk from gas prices and protecting US margins.

Nitrogen is a regional business, so North America is our primary market. We supply this market through a combination of tonnes produced in Trinidad, US production and purchased tonnes which we re-sell, always seeking to source the highest-margin method of supply. Our multiple port facilities, warehouse and distribution network, dedicated sales and customer service teams and associated infrastructure make it possible to supply customers from this flexible production base.

Trinidad is home to more than half of our ammonia production and is ideally situated to service the sizeable US market. Our US plants, located in different regions, focus on industrial sales, where quality and security of supply are key. With varied production rates at these operations, we plan to maximize sales to industrial customers, supplemented by fertilizer sales, to run our plants at the highest possible operating rate to help control costs.

High natural gas costs in North America are unlikely to significantly abate. This means that smaller, less efficient operations or those close to the Gulf of Mexico and more vulnerable to imports will be unable to compete over the long term.

In response, we indefinitely shut down production at our Memphis facility and ammonia and nitrogen solutions production at Geismar, eliminating low-margin sales. Lima was restructured, which should reduce its costs by $10 million annually, a portion of which will be realized in 2004. In 2003, we demonstrated that we can effectively use our distribution system and increase purchased tonnes. This could allow us to raise sales volumes in the future without increasing production.

Sales Strategy: The supplier of choice

In a commodity business, where products are similar and price is the most important influence on buying decisions, our goal is to move our customer base to the top right quadrant of highest volumes and highest margins. We want to be the supplier of choice to our customers, always getting the final opportunity to win their business. Our industry, including PotashCorp, has experienced gross margin deterioration over the last three to four years. To help insulate ourselves from the cyclicality of commodity pricing, we continue to pursue markets that require our stringent specifications in both product quality and service. This effort has been rewarded through contracts tied to costs plus a margin, or non-cyclical premium pricing. Our extensive North American distribution network also gives us a logistical advantage to supply the growing needs of our customers. Higher prices are necessary for increased profitability and we work to balance our volume and price expectations. Thus we seek to become the preferred supplier to high-volume, high-margin customers with the lowest credit risk.

20   PotashCorp 2003 Annual Report

Key Performance Drivers

While being a supplier of choice and strengthening and increasing stakeholder engagement are key to our long-term performance, our immediate profitability is driven by lower production costs and higher realized prices, which contribute to increased gross margin. We achieve lower per-unit production costs through higher operating rates, which are generated by tightened supply. As with all commodity businesses, higher prices generally follow. However, this often encourages competitors to bring on new production, which impacts the supply/demand balance until new market demand growth is achieved.

We do not view PotashCorp as a typical commodity company that merely endures low prices and waits for them to rise. We have a decommoditizing strategy designed to moderate the highs and lows and outperform at both ends of the cycle. Its success is influenced by many variables that are beyond our control. While some factors like our levels of production and sales volumes are within our control, all must be balanced with one another to optimize our asset base.

 

Measuring Key Performance Drivers

Above all, our goal is to provide superior shareholder returns. Low costs and higher prices have an immediate impact on our success in improving gross margins whereas, longer-term, our key performance drivers include recognition as supplier of choice with our customers and engagement with our employees, shareholders and communities. PotashCorp continually reviews and monitors these corporate-wide key performance drivers and related measurements and believes they are critical to determining whether the implementation of our strategies in each nutrient is successful. A summary is provided below.

Potash

Our strategy in potash is based on bringing on excess capacity as the world market grows. We believe this strategy is successful when potash margins are higher than in the trailing quarter and in the same period a year earlier. We also evaluate our success in achieving our proportionate share of growth in world demand and maintaining our target market share in North America. On the cost side of the equation, we monitor shutdown weeks as they impact costs.

Phosphate

We evaluate our diversification efforts by monitoring the sales split and gross margin results between fertilizer and non-fertilizer products. We track our strategy of entering niche markets by monitoring realized prices. Phosphate rock costs are integral to our performance, as it takes approximately 3.5 tonnes of rock to make one tonne of P₂O₅. While our goal is to reduce rock costs, we follow an orderly mining plan for the long term rather than mining only high-grade rock for short-term gains. We also track input costs, which is especially important given the volatility of raw materials like sulfur and ammonia.

Nitrogen

Our goal is to maximize nitrogen production where our costs are lowest and margins highest. We compare Trinidad to North American production, exclusive of natural gas hedges. In North America, we aim to stabilize production costs through hedges and compare our natural gas costs to what they would have been had we purchased off the spot market. Industrial sales typically bring better prices than fertilizer and we monitor prices to confirm that performance. We prefer to settle industrial prices through negotiation rather than selling from an index to reflect their differentiation, and measure our progress in this regard.

Financial

We believe that total shareholder return is an important value measure and that maximizing long-term shareholder value is a function of providing superior returns on investment over our business cycle(s) that exceed our cost of capital. As such, we regularly compare returns on cash flow to weighted average cost of capital.

Stakeholder Engagement

While shareholders are our priority, long-term value can only be reached by maintaining the support of a broader audience. We conduct ongoing industry discussions with investors, analysts, customers and employees to monitor attitudes. Our objective is to collaborate with stakeholders and we measure the success of our interaction with key audiences through surveys. Every year, we survey the investment community and every two years, we survey customers to measure our service at every stage of the transaction. We regularly review the competitiveness of our compensation and benefit programs to ensure they provide the right balance of meeting employee financial security needs against our company’s low-cost supplier objectives. We continually track safety and environmental performance and provide these, and other measures, in our sustainable development report and on our award-winning website.

DRIVER	MEASURE	2004 OBJECTIVES
Value and Valuation	• Total shareholder return	• Outperform peer group and other basic materials companies
	• Earnings growth	• Meet earnings per share guidance of $2.70–$3.50
Margin	• Margin growth	• Exceed our five-year historic average gross margin as a percentage of revenue
Supplier of Choice	• Customer satisfaction	• Reduce number of customer complaints compared to 2003
Stakeholder Engagement	• Safety performance	• Reduce injury frequency rate by 10 percent compared to 2003
	• Environmental performance	• Reduce environmental incidents by 10 percent compared to 2003
	• Employee engagement	• Reduce turnover by employee segments compared to 2003

PotashCorp 2003 Annual Report   21

Action Plan and Capability to Deliver

Business System

Fundamental to delivering on our strategy is our ability to produce, sell and deliver products competitively. Our success is determined by the value we provide for the prices our customers pay.

Production

In potash, the rising Canadian dollar is increasing our translated production costs and creating a need to absorb costs and improve productivity within our operations. By narrowing our product lines, we will generate efficiencies that should lead to lower production costs while still meeting customers’ needs. Over the longer term, we recognize a growing demand for granular product and will continue to work on an expansion and new compaction capacity at Rocanville, which is expected to begin production entering 2005. In nitrogen, we must contend with higher natural gas prices in North America that have made US production less competitive with imports from countries with lower-cost gas. We are reviewing the potential of expansions in Trinidad to capitalize on our gas position. By using our distribution system for purchased tonnes, we can source product with the best margins. We also can consider sales agreements for developing nitrogen projects in lower-cost gas environments. In phosphate, the high percentage of fixed costs is being spread over fewer tonnes through the down cycle, which raises our production costs. We intend to explore optimization strategies for each facility and product line to increase operating rates and efficiencies. We will also consider further diversification with industrial phosphoric acid.

With many years of high-quality deposits in potash and phosphate and long-term gas contracts for our nitrogen production in Trinidad, we believe we are well positioned with limited restraints on our raw material supplies. We think this combined asset base is unmatched in our industry.

Sales

In North America, continued engagement with our customers, along with strategic alliances with dealers who warehouse our products, will determine our success in maintaining market share. Our participation in the fertilizer sales organizations Canpotex and PhosChem, where we share marketing costs and volumes with other producers, is important to our offshore margins. These organizations also maintain a network of agents in offshore markets aimed at ensuring our products benefit from market growth.

We have extended our enterprise with an investment in SQM in Chile, which produces an upgraded potash product. Our investment in APC in Jordan helps us benefit from its transportation logistics in an environment of high freight costs. Our extended enterprise also includes an investment in ICL, another leading low-cost potash producer. Maintaining a continuous presence in the global potash market will help protect our prominent position with customers.

Delivery

As a producer of bulk commodities that are traded in large volumes around the world, our success requires an efficient transportation

system. This is achieved by operating our own transportation department, with a distribution network of approximately 175 terminal and warehouse facilities and a fleet of approximately 6,000 railcars. Again, the key is the relationship between costs versus a return on our investment in the system. Recent increases in ocean freight rates are raising our cost to deliver to offshore customers that purchase potash on contracts with freight costs included. In the short term, we are reducing our contract commitment time and, in the long term, we believe our ability to use our diverse locations to deliver from the most freight-logical source should support margin expansion.

Support System

To sustain our business and take advantage of growth in world markets, we need to maintain the confidence of our employees, customers and shareholders. We also need to maintain a strong balance sheet during the low points in the commodity cycle and position ourselves for potential acquisitions.

Employees

Our entrepreneurial management team is experienced and knowledgeable in our business. Our culture aims to be non-bureaucratic and to encourage leadership at all levels. We have longevity among employees, with annual turnover below 5 percent. Our challenges are to recruit and retain the best people in our industry and to continue to develop an entrepreneurial culture built on responsible risk-taking.

Management compensation is linked to shareholders through a long-term incentive plan tied to total shareholder return and a short-term incentive plan based on variables that we believe correlate to shareholder return.

To protect the future of the company, the Board of Directors reviews succession planning on an annual basis. Formal programs have been adopted to encourage advancement from within. Certain positions have been designed as training positions, giving management candidates an opportunity to develop a wider skill set and knowledge base. Compensation policies have been developed to attract and retain the best people for our business.

Customers

Customers’ perceptions of our ability to create value for them based on the price they pay for our products are fundamental to our ability

When members of our industry raised concerns about the public’s misconceptions regarding fertilizer and its use, PotashCorp listened. We responded by launching Fertile Minds (www.fertile-minds.org), an information program that provides simple, science-based facts about where fertilizer comes from and how it aids mankind.

22   PotashCorp 2003 Annual Report

to maintain and grow their business. We follow up our sales with customer service that is available 24/7, and do regular customer surveys to determine whether we are outperforming our competitors at every stage of the sales transaction. Our dedicated sales teams for each product (fertilizer, feed and industrial) focus on increasing their specific knowledge level to provide maximum value for customers.

Investors

Maintaining good relationships with the investment community can serve to increase our multiple and reduce our cost of capital. We are aided in this by our investment-grade credit rating (Moody’s: Baa2, with a positive outlook; Standard and Poor’s: BBB+; Dominion Bond Rating Service: R1 low).

Our ability to create value for shareholders is evaluated on an ongoing basis. We also explore various ways to return the greatest value to our shareholders, through share buyback programs, payment of dividends or organic investment. Each year in the 15 years since we became publicly traded, we have paid a dividend to our shareholders. Despite the ups and downs of the fertilizer industry, this has always been a priority.

Finance

We strive to keep our debt-to-capital ratio between 35 and 40 percent. If we want to move the business to the quadrant of lowest cost and least competition, we must be prepared to make acquisitions or increase the level of investment in our existing businesses. We believe our strong balance sheet provides a solid base for acquisitions. Our cash flow provides flexibility for new investment in our own business and paying down debt quickly. It also provides continuing access to capital markets. Tax rates are important to our financial resources and recent changes at both the federal and provincial levels in Canada will improve our position. Federal income tax changes will be phased in over the next four years.

Reputation

To protect our reputation, we constantly communicate and pride ourselves on honesty and keeping our commitments. Our core values espouse integrity, concern for the safety of people and the environment, continuous improvement, accessibility and

accountability. We strive to listen to our stakeholders and share what we learn. In addition to our spirit of transparency, we have developed many leading-edge policies, including our approach to corporate governance and crisis communications. Our well-received sustainable development report demonstrates our efforts to collaborate with all stakeholders. Our success in this area is important to maintaining approval from our communities and protecting our license to operate.

With all stakeholders, we strive to have “no surprises.” We are bringing an investment-style cost versus return approach to these initiatives to balance our financial, social and environmental objectives.

Governments

We operate in an international industry where a high percentage of products cross borders, with competitors in different jurisdictions around the world. To offset the impact of market-distorting subsidies and government intervention, we work closely with a number of industry committees in an effort to ensure that trade agreements are adhered to and products can move unencumbered. This includes the American Phosphate Trade Committee, which lobbies governments in the US and India regarding subsidies which we believe distort trade.

Technology and Systems

Our business is becoming increasingly global. With operations and employees in many countries, technology is an important part of communications. It is also key to customer convenience where electronic data interchange is becoming an important component to service. We monitor and respond to changes in technology, upgrading our systems on an ongoing basis. We were the first fertilizer company to provide a website to enable customers to track orders and review account history.

In addition to meeting the increasing expectations of our stakeholders for information, we are focused on creating a system that ensures management has the right information at the right time to measure results that are indicative of our performance. Thus, we are currently developing an enterprise-wide reporting system for key performance indicators.

What Happened in 2003?

	Potash				Phosphate				Nitrogen
	2003		2002		2003		2002		2003		2002
Total World Consumption1 (product tonnes — millions)		42.9		41.2		56.5		55.1		133.4		131.9
PotashCorp Share of World Production2		16%		15%		6%		5%		2%		3%
PotashCorp Operating Rate3		58%		53%		75%		61%		81%		93%
World Operating Rate4 excluding PotashCorp5		94%		92%		71%		73%		80%		82%
	Phosphate based on phosphoric acid. Nitrogen based on ammonia. 1-5 – See Appendix, Page 45

PotashCorp 2003 Annual Report   23

Factors That Shaped 2003 Business Conditions

1 Stronger Foreign Currencies; Weaker US Dollar

Over the course of 2003, the currencies of several countries gained strength against the US dollar. As fertilizer is sold around the world in US dollars, all companies that produce in a home currency that increased relative to the US dollar experienced margin pressure on exports. At the same time, many importers gained buying power, a factor we believe led to increased trade of grains and fertilizer.

2 Another Drop in World Grain Stocks

For the fifth consecutive year, wheat and coarse grain consumption is projected to exceed production. The rising world population and a growing demand for meat, which requires additional grain, increased consumption while poor weather and other factors reduced production. Europe was hit by a cold winter and drought, while North American farmers faced hot, dry conditions. These factors reduced inventories and pushed the stocks-to-use ratio to historic low levels. China, while pursuing economic growth, sold into world markets, contributing to the decline.

3 Better Prices for Crop Commodities and Increased Fertilizer Use

A drop in grain inventories and a weakened US dollar created a favorable environment for crop commodities. Soybean prices jumped to $7.17 per bushel at the US farmgate by year-end – the highest level in six years. Internationally traded prices for corn, cotton, rice, palm oil and rubber were also up. As these prices rose, more acres were planted. World fertilizer consumption increased by 2 percent; nitrogen consumption by 1.3 percent, phosphate by 2.4 percent and potash by 4.2 percent.

4 More Operating Cash for US Farmers

As reported by USDA, total net cash farm income climbed to over $60 billion. Farmers’ cash receipts increased as the lack of Canadian live beef imports drove up US meat prices and tight grain supplies pushed up grain prices. That provides farmers with the cash necessary to buy inputs for their business if they so choose.

5 Higher Prices for US Natural Gas

As spring inventories of natural gas hit their lowest level in years, prices spiked to more than $9 per MMBtu in February. That led to more drilling activity, but the new production was drawing upon higher-cost reserves. As inventories were rebuilt, the gas price fell back to the $4-$6 range, and was supported there by the increased cost of production.

6 US Economy Improved

The US economy grew 6 percent in the second half of 2003. Housing starts reached their highest point since 1978 and auto sales, spurred by low interest rates and dealer incentive programs, reached 16.6 million units. The year ended on a high note with December factory production rising for the fourth straight month. With US economic growth of 3.1 percent for the full year, demand for industrial products was high. The world economy followed along, growing by 3.5 percent after two consecutive years of 2 percent growth. This increase was led by China, with 9 percent economic growth, and the US.

24   PotashCorp 2003 Annual Report

7 Ocean Freight Rates Skyrocket

The growing economies of Asia increased their demand for many goods including coal and iron ore, creating a heavy load on the world transportation system. With many older vessels being decommissioned, the benchmark Baltic Panamax Ocean Freight Index jumped more than two and a half times the rate of 2002. As panamax vessels are used to transport large-volume dry goods, including fertilizer, this index is a key indicator of global freight costs.

8 US Feed Phosphate Use Down

Manufacturers of compound feeds now produce tighter formulations in response to improved scientific knowledge of animal and poultry nutritional requirements. This new “precision feeding” and improved animal genetics are primary reasons for the 5 percent decline of feed phosphate consumption in the US in 2003. The single case of Bovine Spongiform Encephalopathy (BSE) discovered in Canada in the spring halted the import of live beef animals into the US, reducing the number of animals requiring feed. This contributed to the US beef production decline of about 3 percent. A case of BSE discovered in the US at year-end forced regulators to examine feed formulations, with the potential for further restrictions on the animal parts allowed in feed, which may increase the need for supplements.

9 Ammonia Prices Decouple from Natural Gas

For the first time since the mid-1990s, ammonia prices decoupled from natural gas prices and tight supply/demand fundamentals took hold. In 2003, world ammonia consumption grew by 1.1 percent and

this demand was met by increasing worldwide operating rates rather than by new capacity. US ammonia production declined by 16.5 percent as high North American gas prices forced plant curtailments. As a result, US ammonia import demand increased by 20.5 percent. World ammonia exports grew by 6.3 percent, spurring the increase in nitrogen prices.

10 US DAP Exports Decline

For the US industry, there was a 6 percent decline in DAP exports which kept prices down. These prices, combined with rising input costs, squeezed producers’ margins.

China’s domestic DAP production increased by almost 20 percent which decreased imports by 30 percent. It imported about 2.8 million tonnes of DAP, although the tariff rate quota (TRQ) level set for 2003 was 5.95 million.

In India, production problems reduced domestic production by 13 percent, forcing it to increase imports from 2002’s record low level. However, India maintained its subsidy system which protects its high-cost domestic industry from global competition.

11 Asia and Latin America Lead Increased Potash Demand

Canadian producers used formerly idle capacity to capture a larger share of the growing world market. Exports from Vancouver were the fastest-growing in the industry. Canpotex exported a record 6.3 million tonnes KCl, 1 million tonnes more than in 2002. Brazil led that growth with record imports from all suppliers of 5.9 million tonnes KCl.

PotashCorp 2003 Annual Report     25

2003 Earnings Guidance Review: Results versus Expectations

The company’s initial estimate for diluted earnings per share (EPS) for 2003 was approximately $2.00 per share. The final result was a loss of $2.42 per share. The primary causes of this $4.42 variance from the forecast amount were:

C A U S E	Effect on EPS
Potash sales volumes higher		0.14
Potash offshore realized prices lower		(0.17	)
Effect of foreign exchange on operating costs net of its effect on provincial mining taxes		(0.17	)
Decreased potash unit cost of sales (exclusive of foreign exchange)		0.16
Lower provincial mining taxes (exclusive of foreign exchange)		0.09
Potassium nitrate operations		(0.06	)
Subtotal potash		(0.01	)
Increased input costs:
Cost of sulfur		(0.11	)
Cost of ammonia		(0.07	)
Rock costs		(0.07	)
Start-up issues at new DFP plant in Aurora		(0.17	)
Conversion costs higher		(0.23	)
Phosphate sales volumes lower		(0.12	)
Subtotal phosphate		(0.77	)
Increased nitrogen realized prices (exclusive of purchased product)		1.14
Higher gross margin on purchased product		0.13
Cost of natural gas higher		(0.88	)
Nitrogen unit cost of sales higher (exclusive of cost of natural gas and purchased product)		(0.18	)
Gain on natural gas hedges		0.41
Subtotal nitrogen		0.62
Foreign exchange variance		(0.55	)
Increase in other income		0.12
Increase in interest expense		(0.07	)
Subtotal of the above		(0.66	)
Provision for PCS Yumbes and plant shutdowns		(3.88	)
Future income tax reversal		0.12
Total variance from forecast diluted EPS		(4.42	)

Potash

• Potash sales volumes in the offshore market were up but realized prices were down due to sharply higher freight rates.

• Unit cost of sales was up due to a stronger Canadian dollar and higher natural gas costs.

• Provincial mining taxes were down due to lower margins on potash and lower Saskatchewan potash taxes due to a revised tax structure.

• The potassium nitrate operations in Chile continued to be affected by high costs due to low operating rates and lower than expected prices.

Phosphate

• Higher costs were primarily attributable to defluorinated feed phosphate (DFP) start-up issues, lower production and higher prices for ammonia and sulfur inputs.

• Feed and industrial volumes were down due to lower demand for feed and competitive pressures in both markets.

Nitrogen

• The higher unit cost of sales was due to lower operating rates and higher natural gas costs. This was more than offset by the higher prices that followed industry-wide production cutbacks due to high natural gas prices, which tightened supply.

• Following the indefinite shutdowns at Geismar and Memphis, manufactured tonnes were replaced with purchased tonnes, which increased gross margin for purchased tonnes.

• The gain on natural gas hedges was locked in as the company liquidated our 2003 gas futures contracts in February when natural gas prices spiked.

Corporate

• The Canadian dollar strengthened significantly against the US dollar, compared to initial expectations.

• Other income increased due to APC equity earnings, nitrogen insurance proceeds and a larger ICL dividend.

• Interest expense increased, primarily due to the issuance of 10-year notes in March 2003 in place of lower-cost commercial paper.

• The provision for PCS Yumbes and plant shutdowns pertained to asset writedowns, workforce reductions and contract terminations at the Yumbes, Memphis, Geismar and Kinston facilities.

• Future income tax reversal of $6.5 million, due to revised estimates of future income tax liabilities.

26   PotashCorp 2003 Annual Report

2003 Financial Overview

All references to per-share amounts pertain to diluted income or loss per share. 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. For periods in which there was a loss applicable to common shares, stock options with exercise prices at or below the average market price for the period were excluded for the calculations of diluted net loss per share, as inclusion of these securities would have been anti-dilutive to the net loss per share. Certain of the prior years’ figures have been reclassified to conform with the current year’s presentation.

	Dollars (millions) except per-share amounts							% Increase (Decrease)
	2003			2002		2001		2003		2002
Net Sales	$	2,465.8		$	1,928.7	$	2,080.8		28		(7	)
Gross Margin	$	380.4		$	307.3	$	407.3		24		(25	)
Provision for Plant Shutdowns and PCS Yumbes S.C.M.	$	(264.2	)		—		—		—		—
Operating (Loss) Income	$	(55.6	)	$	166.9	$	269.7		n/m		(38	)
Net (Loss) Income	$	(126.3	)	$	53.6	$	121.2		n/m		(56	)
Net (Loss) Income per Share – Basic	$	(2.42	)	$	1.03	$	2.34		n/m		(56	)
Net (Loss) Income per Share – Diluted	$	(2.42	)	$	1.03	$	2.32		n/m		(56	)
n/m = not meaningful

Gross margin for the year was higher than in 2002 as strong nitrogen prices, natural gas hedging gains and record potash volumes more than offset weak phosphate markets.

The company had a net loss of $126.3 million in 2003, or $2.42 per share. This compares to net income in 2002 of $53.6 million, or $1.03 per share. The 2003 net loss reflected impairment and shutdown charges that were the equivalent of $3.88 per share and the effect of a stronger Canadian dollar, which was the equivalent of $0.94 per share. In addition, PotashCorp experienced high ocean freight rates for potash sales, higher natural gas costs for nitrogen and potash production, and higher input costs for sulfur and ammonia in phosphate.

Impairment and shutdown charges related to asset writedowns, workforce reductions and contract terminations at the Yumbes, Memphis, Geismar and Kinston facilities totalled $203.2 million ($264.2 million before tax). Charges for Yumbes were $140.5 million, for Memphis and Geismar $118.8 million and for Kinston $4.9 million.

The Canadian dollar started the year at 1.5796 compared to the US dollar and ended it 18 percent higher, at 1.2924, the largest single-year change in 25 years. This stronger Canadian dollar affects PotashCorp’s financials on our foreign exchange gain or loss line arising from currency conversion and on our Canadian dollar operating costs. The effect was to reduce earnings by the equivalent of $0.94 per share, through:

• A foreign exchange loss of the equivalent of $0.60 per share, which was primarily non-cash.

• The US dollar equivalent of Canadian cash costs of potash production, freight and administration increased, partially offset by a decrease in provincial taxes, reducing earnings by the equivalent of $0.34 per share.

The largest component of the unrealized foreign exchange loss for 2003 pertains to the translation of future income tax liabilities on the Consolidated Statements of Financial Position at December 31, 2003.

PotashCorp 2003 Annual Report   27

Potash Results

							% Increase												% Increase											% Increase
	Dollars (millions)						(Decrease)						Tonnes (thousands)						(Decrease)					Average per MT						(Decrease)
	2003		2002		2001		2003			2002			2003		2002		2001		2003		2002			2003		2002		2001		2003			2002
Net Sales
North American	$	230.6	$	215.3	$	232.1		7			(7	)		2,870		2,780		2,894		3		(4	)	$	80.33	$	77.45	$	80.21		4			(3	)
Offshore		336.2		300.7		293.4		12			2			4,213		3,547		3,349		19		6		$	79.80	$	84.76	$	87.62		(6	)		(3	)
		566.8		516.0		525.5		10			(2	)		7,083		6,327		6,243		12		1		$	80.01	$	81.55	$	84.18		(2	)		(3	)
Miscellaneous		52.3		28.5		6.3		84			352			—		—		—		—		—			—		—		—		—			—
		619.1		544.5		531.8		14			2			7,083		6,327		6,243		12		1		$	87.41	$	86.06	$	85.18		2			1
Cost of Goods Sold
Cash Costs		363.0		280.2		249.6		30			12													$	51.25	$	44.28	$	39.98		16			11
Depreciation and Amortization		52.4		46.3		34.1		13			36													$	7.40	$	7.32	$	5.46		1			34
		415.4		326.5		283.7		27			15													$	58.65	$	51.60	$	45.44		14			14
Gross Margin	$	203.7	$	218.0	$	248.1		(7	)		(12	)												$	28.76	$	34.46	$	39.74		(17	)		(13	)

Note 17 to the Consolidated Financial Statements provides additional information pertaining to our business segments.

2003 vs 2002

Sales volumes from our potash segment rose 12 percent in 2003 for a new record, led by offshore sales that were 6 percent higher than our record set in 2000 and 19 percent above 2002. Brazil bought 36 percent more from us than in 2002, making it our largest customer for the second straight year and a key market. Sales to India, Indonesia, Vietnam and Malaysia were up significantly; China sales were flat.

Lower realized offshore prices reflected the year-long escalation in freight rates. A tight supply/demand balance in North America raised sales volumes by 3 percent and prices by 4 percent. We have slightly increased our share of this market.

Higher volumes and increased domestic prices did not offset higher unit cost of sales, which was pushed up by the stronger Canadian dollar. Otherwise, unit cost of sales would have been lower than in 2002, even with higher natural gas costs, because volumes were up significantly.

The gross margin dropped from 2002 in our potash segment, despite record sales. This was principally attributed to escalating offshore freight rates and higher unit cost of sales. The increase in costs was due primarily to the strengthening Canadian dollar, which raised costs by approximately $4.50 per tonne over 2002. These increased costs were partially offset by higher operating rates.

2003 Potash Production  (million tonnes KCl)

			2003		2002		2001		Mine Site
	Capacity		Production		Production		Production		Employees
									(active)
Lanigan SK		3.828		1.488		1.424		1.354		330
Rocanville SK		2.295		1.989		1.700		1.593		324
Allan SK		1.885		.934		.864		.768		270
Cory SK		1.361		.730		.677		.747		195
Patience Lake SK		1.033		.251		.230		.241		67
Esterhazy SK1		.953		.953		.953		.816		0
New Brunswick NB		.785		.749		.599		.609		329
TOTAL		12.140		7.094		6.447		6.128		1,515

1 PotashCorp’s mineral rights at Esterhazy are mined by IMC Esterhazy Canada Limited Partnership under a long-term agreement. For calendar year 2004, our production allocation is 0.953 million tonnes.

28   PotashCorp 2003 Annual Report

2002 vs 2001

The gross margin drop from 2001 in our potash segment was principally attributable to Yumbes, our potassium nitrate plant in Chile, and to increased competitive pressures in domestic and offshore markets.

Net sales volumes from this segment rose slightly in 2002, due to higher offshore volumes and the first year of sales from Yumbes. Previously, Yumbes had been in preproduction and costs that were capitalized had been offset by revenues. North American sales volumes were down, as we chose not to participate in some lower-priced domestic sales. Volumes were further affected by a poor spring planting season, a late harvest and an early winter. Prices came under pressure, we believe, when North American competitors seeking

higher cash flow attempted to sell more potash to capitalize on its profitability. Offshore, we set a sales record in March, and we sold additional tonnes to China, Brazil, Japan and Malaysia. However, we did not experience the growth we had anticipated entering the year as we encountered aggressive competition in offshore markets, resulting in lost sales and lower prices.

Unit cost of sales decreased, primarily because potash production tonnes were up. This was more than offset by start-up problems and low operating rates at Yumbes. Since the market has not yet absorbed all the available nitrate capacity, prices for that nutrient have not recovered to the levels of the late 1990s. In total, Yumbes negatively affected potash gross margin.

Phosphate Results

								% Increase												% Increase														% Increase
	Dollars (millions)							(Decrease)						Tonnes (thousands)						(Decrease)							Average per MT							(Decrease)
	2003			2002		2001		2003			2002			2003		2002		2001		2003			2002				2003			2002		2001		2003			2002
Net Sales
Fertilizer — liquids	$	167.7		$	144.9	$	145.0		16			(0	)		751		675		741		11			(9	)		$	223.17		$	214.55	$	195.56		4			10
Fertilizer — solids		249.2			113.4		130.1		120			(13	)		1,494		745		927		101			(20	)		$	166.78		$	152.26	$	140.30		10			9
Feed		182.6			216.8		208.6		(16	)		4			861		961		874		(10	)		10			$	212.25		$	225.55	$	238.79		(6	)		(6	)
Industrial		174.5			155.1		168.1		13			(8	)		541		482		503		12			(4	)		$	322.72		$	321.93	$	334.32		0			(4	)
		774.0			630.2		651.8		23			(3	)		3,647		2,863		3,045		27			(6	)		$	212.23		$	220.12	$	214.06		(4	)		3
Miscellaneous		7.9			6.6		1.8		20			267			—	—		—			—		—					—		—		—			—		—
	$	781.9		$	636.8	$	653.6		23			(3	)		3,647		2,863		3,045		27			(6	)		$	214.40		$	222.43	$	214.65		(4	)		4
North American	$	654.8		$	542.5	$	538.9		21			1			2,886		2,310		2,278		25			1			$	226.91		$	234.88	$	236.57		(3	)		(1	)
Offshore		127.1			94.3		114.7		35			(18	)		761		553		767		38			(28	)		$	167.04		$	170.37	$	149.54		(2	)		14
		781.9			636.8		653.6		23			(3	)		3,647		2,863		3,045		27			(6	)		$	214.40		$	222.43	$	214.65		(4	)		4
Cost of Goods Sold
Cash Costs		722.7			518.1		517.1		39			0															$	198.16		$	180.96	$	169.82		10			7
Depreciation and Amortization		75.7			76.8		72.0		(1	)		7															$	20.76		$	26.83	$	23.65		(23	)		13
		798.4			594.9		589.1		34			1															$	218.92		$	207.79	$	193.47		5			7
Gross Margin	$	(16.5	)	$	41.9	$	64.5		n/m			(35	)														$	(4.52	)	$	14.64	$	21.18		n/m			(31	)
Note 17 to the Consolidated Financial Statements provides additional information pertaining to our business segments.																										n/m = not meaningful

PotashCorp 2003 Annual Report   29

2003 vs 2002

Higher fertilizer prices and increased sales volumes of liquid and solid fertilizers and industrial products in 2003 were more than offset by rising input costs, resulting in negative gross margin in our phosphate segment.

Solid fertilizer sales volumes more than doubled in 2003 with the restart of White Springs’ DAP capacity, and sales were up significantly in both North American and offshore markets. Sales of liquid fertilizers rose by 11 percent, with more than 90 percent of our sales in the US where PotashCorp is the largest supplier. Feed margins were under pressure as overall demand was down, and competitive pressures from new capacity domestically and in Asia and Latin America affected sales in both markets. Industrial volumes increased with completion of the expansion of the purified acid plant at Aurora in the first quarter.

Higher fertilizer prices reflect a somewhat improving market demand and tighter supply. US ending inventories of both DAP and MAP were well below the five-year average. Feed prices were kept down by new competitive capacity, and flat prices for industrial products reflect competitive pressure of imports from China, Israel and Africa.

Phosphate production costs were positively affected by 11 percent lower rock costs year-over-year, but this was more than offset by rising prices for the key inputs of sulfur and ammonia, up 54 percent and 47 percent, respectively, or a total of $73 million. DAP start-up costs at White Springs also increased total costs by $7 million. Start-up issues at the new DFP plant in Aurora increased costs by $15 million in 2003. Inventories for our finished feed products were significantly reduced over the year as feed operating rates were reduced to draw down this inventory. This raised unit costs of production as proportionately higher fixed costs were spread over fewer tonnes, further impacting feed margins.

2003 Rock and Acid Production

	Phosphate Rock (million tonnes)								Phosphoric Acid (million tonnes P2O5)
	Annual		2003		2002		2001		Annual		2003		2002		2001		Employees
	Capacity		Production		Production		Production		Capacity		Production		Production		Production		(active)
Aurora NC		6.0		3.078		3.444		3.938		1.202		.919		.852		.916		995
White Springs FL		3.6		2.686		1.547		1.677		1.093		.777		.480		.473		880
Geismar LA		—		—		—		—		.202		.165		.180		.184		85
Total		9.6		5.764		4.991		5.615		2.497		1.861		1.512		1.573		1,960

2003 Phosphate Production  (million tonnes product)

		Aurora								White Springs								Geismar
		Annual		2003		2002		2001		Annual		2003		2002		2001		Annual		2003		2002		2001
		Capacity		Production		Production		Production		Capacity		Production		Production		Production		Capacity		Production		Production		Production
Liquids:	MGA1		1.835		1.522		1.336		1.377		1.908		.966		.828		.834		.337		.272		.324		.332
	SPA		.676		.285		.200		.219		1.138		.748		.639		.662		.196		.091		.117		.116
Solids:	DAP		1.247		.377		.495		.791		.710		.625		.028		—		—		—		—		—
	MAP		.469		.469		.255		.071		—		—		—		—		—		—		—		—

1 A substantial portion is consumed internally in the production of downstream products. The balance is exported to phosphate fertilizer producers and sold domestically to dealers that custom-mix liquid fertilizer.

2003 Phosphate Feed Production  (million tonnes)

	Annual		2003		2002		2001		Employees
	Capacity		Production		Production		Production		(active)
Marseilles IL		.278		.151		.177		.192		36
White Springs FL (monocal)		.272		.060		.137		.154		32
Weeping Water NE		.209		.147		.166		.170		46
Joplin MO1		.163		.088		.104		—		35
Aurora NC (DFP)		.159		.050		.004		—		38
Kinston NC2		.141		.008		.054		.063		3
White Springs FL (DFP)		.100		.059		.096		.089		0
Fosfatos do Brasil		.110		.051		.047		.053		76
TOTAL		1.432		.614		.785		.721		266

1	Purchased March 1, 2002
2	Ceased production February 19, 2003

30   PotashCorp 2003 Annual Report

2002 vs 2001

Overall phosphate net sales volumes decreased slightly in 2002, mainly because we decided not to participate in low-priced offshore markets for liquid fertilizers and, for the first half of the year, solid fertilizers. Increased DAP imports by China encouraged a return to the offshore market in the second half of 2002. North American feed sales volumes were flat as a competitor brought on new capacity, customers tightened feed formulation and competition increased from meat and bone meal and from phytase. Offshore feed volumes increased significantly with higher sales to Mexico and the Philippines, and from our Brazilian feed plant. Industrial sales volumes and prices were each down 4 percent.

Overall liquid fertilizer prices were up due to product mix, as less low-priced product was sold into the offshore market. Tighter supply pushed up prices for solid fertilizers. Competitive pressures also pushed down feed prices in both domestic and offshore markets as new capacity came on stream. Prior period contract adjustments with a major customer, plus competitive pressures, kept industrial prices down.

Several factors joined to raise phosphate production costs. Lower production volumes meant fixed costs had to be allocated over fewer tonnes. We used high-cost inventoried rock from an area where dredging costs were incurred. Sulfur shortages late in the year cut operating rates and raised input costs, increasing unit costs. The purified acid plant at Aurora experienced operating problems in the third quarter, which affected costs.

Nitrogen Results

							% Increase												% Increase												% Increase
	Dollars (millions)						(Decrease)						Tonnes (thousands)						(Decrease)						Average per MT						(Decrease)
	2003		2002		2001		2003			2002			2003		2002		2001		2003			2002			2003		2002		2001		2003		2002
Net Sales
Ammonia	$	368.0	$	232.7	$	313.6		58			(26	)		1,755		1,867		1,993		(6	)		(6	)	$	209.63	$	124.66	$	157.35		68		(21	)
Urea		276.9		212.0		215.4		31			(2	)		1,470		1,592		1,346		(8	)		18		$	188.33	$	133.16	$	160.03		41		(17	)
Nitrogen Solutions		85.8		93.3		114.9		(8	)		(19	)		730		1,097		1,156		(33	)		(5	)	$	117.52	$	85.04	$	99.39		38		(14	)
Nitric Acid / Ammonium Nitrate		165.0		127.5		136.2		29			(6	)		1,414		1,361		1,258		4			8		$	116.70	$	93.65	$	108.27		25		(14	)
Purchased		149.6		61.1		93.4		145			(35	)		711		474		628		50			(25	)	$	210.53	$	128.89	$	148.73		63		(13	)
		1,045.3		726.6		873.5		44			(17	)		6,080		6,391		6,381		(5	)		—		$	171.92	$	113.69	$	136.89		51		(17	)
Miscellaneous		19.5		20.8		21.9		(6	)		(5	)		—		—		—		—			—			—		—		—		—		—
	$	1,064.8	$	747.4	$	895.4		42			(17	)		6,080		6,391		6,381		(5	)		—		$	175.13	$	116.95	$	140.32		50		(17	)
Fertilizer	$	480.0	$	317.4	$	424.7		51			(25	)		2,810		2,976		3,270		(6	)		(9	)	$	170.82	$	106.64	$	129.88		60		(18	)
Feed and Industrial		584.8		430.0		470.7		36			(9	)		3,270		3,415		3,111		(4	)		10		$	178.83	$	125.92	$	151.30		42		(17	)
		1,064.8		747.4		895.4		42			(17	)		6,080		6,391		6,381		(5	)		—		$	175.13	$	116.95	$	140.32		50		(17	)
Cost of Goods Sold
Cash Costs		782.0		612.0		727.9		28			(16	)													$	128.62	$	95.76	$	114.07		34		(16	)
Depreciation and Amortization		89.6		88.0		72.8		2			21														$	14.73	$	13.77	$	11.41		7		21
		871.6		700.0		800.7		25			(13	)													$	143.35	$	109.53	$	125.48		31		(13	)
Gross Margin	$	193.2	$	47.4	$	94.7		308			(50	)													$	31.78	$	7.42	$	14.84		328		(50	)
Note 17 to the Consolidated Financial Statements provides additional information pertaining to our business segments.

 

PotashCorp 2003 Annual Report   31

2003 vs 2002

Nitrogen gross margin more than quadrupled in 2003, reflecting sharply increased prices that benefited PotashCorp’s Trinidad production, and liquidation of certain natural gas hedge contracts in February.

Poor margins at our US plants due to high natural gas costs led to the indefinite shutdown of the Memphis plant and of Geismar’s ammonia and nitrogen solutions production. The reduced production of ammonia, urea and nitrogen solutions was more than offset by considerably higher prices. Nitric acid and ammonium nitrate volumes increased to meet demand, as did purchased sales volumes. The company’s warehouse and distribution network was used effectively for these imports.

As more shutdowns in the US industry tightened supply, prices increased significantly. Product prices, which had previously reflected the cost premium on natural gas, began trading off the

supply/demand fundamentals during the fourth quarter, providing unhedged margin to our US plants.

Nitrogen production costs reflected the higher natural gas prices. PotashCorp’s average gas costs in the US and Trinidad were up 33 percent over 2002. However, since the Trinidad facility operates with favorable natural gas contracts which mitigate the impact of volatility, the company is a net beneficiary of high-priced US natural gas. Trinidad provided 52 percent of nitrogen gross margin. The remainder came from our 2003 natural gas hedges in the US, which provided a gross margin contribution of approximately $90 million.

High ocean freight rates — detrimental for potash — worked in the company’s favor for nitrogen as they made imports from the Middle East less competitive in North America and helped tighten market supply.

2003 Nitrogen Production (million tonnes)

	Ammonia1								Urea Solids								Nitrogen Solutions2								Nitric Acid/Ammonium Nitrate
	Annual		2003		2002		2001		Annual		2003		2002		2001		Annual		2003		2002		2001		Annual		2003		2002		2001		Employees
	Capacity		Production		Production		Production		Capacity		Production		Production		Production		Capacity		Production		Production		Production		Capacity		Production		Production		Production		(active)
Trinidad		1.851		1.759		1.768		1.835		.631		.647		.674		.514		—		—		—		—		—		—		—		—		395
Augusta GA		.688		.655		.689		.612		.381		.334		.363		.335		.581		.223		.220		.292		1.053		1.073		1.051		.988		112
Lima OH		.542		.510		.496		.488		.329		.280		.208		.191		.227		.120		.124		.113		.097		.097		.098		.096		53
Geismar LA5		.483		.116		.369		.475		—		—		—		—		1.028		.250		.721		.807		.844		.589		.731		.706		53
Memphis TN6		.371		.154		.324		.288		.409		.178		.374		.295		—		—		—		—		—		—		—		—		67
TOTAL		3.935		3.194		3.646		3.698		1.750		1.439		1.619		1.335		1.836		.593		1.065		1.212		1.994		1.759		1.880		1.790		5714

1	A substantial portion is upgraded to value-added products.	4	319 contract employees work at the nitrogen plants, for a total active workforce of 890.
2	Based on 32% N content.	5	Indefinitely shut down production of ammonia and nitrogen solutions June 4, 2003.
3	BP Chemicals operates the Lima facility under an operational agreement with PCS Nitrogen.	6 7	Indefinitely shut down production June 4, 2003. Includes reassigned employees.

32   PotashCorp 2003 Annual Report

2002 vs 2001

Nitrogen net sales were down in 2002 primarily due to lower prices. Total nitrogen sales volumes were flat in 2002, as higher sales of urea and nitric acid more than offset lower sales of ammonia and nitrogen solutions. Urea volumes rose as field conditions drove farmers away from ammonia, and stronger industrial demand raised nitric acid and ammonium nitrate sales volumes. We shut down nitrogen solutions production at Geismar for three months due to oversupply and low prices caused by large imports, primarily from Russia, in the first half of 2002. As a result, nitrogen solutions sales volumes were down.

Until very late in the year, low natural gas prices made it feasible for North American competitors to produce at higher rates than in 2001. In addition, new capacity came on stream in Trinidad at mid-

year. The resulting oversupply drove product prices down. Higher gas prices near the end of the year led to improvements in most product prices but this improvement was tempered as US plant curtailments were lower than anticipated. Late in the year, nitrogen solutions prices improved in anticipation that anti-dumping duties would be levied on imported product from certain competitors.

The unit cost of sales fell in 2002, primarily because the average unit cost of natural gas was down 15 percent on a year-over-year basis. These reductions were partially offset by increased depreciation and amortization due to a full year’s depreciation of the Trinidad plants, whose long-term leases we purchased in May 2001, and accelerated amortization of turnaround costs.

Expenses and Other Income

	Dollars (millions)								% Increase (Decrease)
	2003			2002		2001			2003			2002
Selling and Administrative	$	96.1		$	91.7	$	99.7			5			(8	)
Provincial Mining and Other Taxes		57.0			68.0		70.0			(16	)		(3	)
Provision for Plant Shutdowns		123.7			—		—			—			—
Provision for PCS Yumbes S.C.M.		140.5			—		—			—			—
Foreign Exchange Loss (Gain)		51.9			5.5		(13.7	)		844			n/m
Other Income		33.2			24.8		18.4			34			35
Interest Expense		91.3			83.1		80.3			10			3
Income Tax (Recovery) Expense		(20.6	)		30.2		68.2			n/m			(56	)
						n/m = not meaningful

2003 vs 2002

Selling and administrative expenses increased by $4.4 million, primarily due to the stronger Canadian dollar. Other contributing factors were increases in amortization expense, consulting and professional fees, fringe benefits and stock-based compensation expense. These were substantially offset by company-wide cost restraints, including pay reductions for the executive management team, a salary freeze for middle management and reduction in company contributions to employee savings plans.

A revised tax structure for potash producers in Saskatchewan contributed $5.6 million to earnings, the equivalent of $0.06 per share. Saskatchewan’s Potash Production Tax is comprised of a base tax per tonne of product sold and an additional tax based on mine profits. Effective January 2003, the provincial government reduced the profits tax on all incremental sales tonnes above the 2001 and 2002 average of 5.722 million tonnes. In addition, to the extent that net capital spending is greater than 90 percent of 2002 net expenditures, the excess is fully deductible in the current year. This will benefit the company to the extent that we increase sales with improved market demand. The Saskatchewan divisions and the New Brunswick division also pay a provincial Crown royalty, which is accounted for in cost of goods sold.

In 2003, the company recorded a provision for plant shutdowns of $123.7 million. This related to the indefinite shutdown of Memphis,

the suspension of ammonia and nitrogen solutions production at Geismar and the closure of Kinston, a phosphate feed supplement plant maintained as a warehouse after ceasing operations earlier in the year. The plant shutdown provision recognized a writedown of certain plant assets and costs associated with eliminating job positions, primarily by the end of the year. High US natural gas costs and low product margins affected both Memphis and Geismar. Kinston’s closure reduces feed supplement production capacity by 0.141 million tonnes annually. Note 21 of the consolidated financial statements provides additional information on the provision for plant shutdowns.

In August, after providing SQM with an irrevocable option to acquire our interest in PCS Yumbes, PotashCorp recorded a charge of $140.5 million, recognizing a writedown of certain assets and costs associated with workforce reductions and contract terminations. Acquired in 1999, PCS Yumbes produces potassium nitrate, sodium nitrate and iodine in the Atacama Desert in northern Chile. On November 20, 2003, PotashCorp and SQM entered into a share purchase agreement whereby SQM is to acquire the shares of PCS Yumbes for $35.0 million (including the price of the option), subject to adjustments. Note 22 of the consolidated financial statements provides additional information on this agreement and the provision for PCS Yumbes.

 

PotashCorp 2003 Annual Report   33

The company’s foreign exchange loss increased significantly over 2002 due to the strengthening of the Canadian dollar relative to the US dollar. The foreign exchange loss arose primarily from the year-end translation of the Canadian-dollar denominated monetary items on the consolidated statement of financial position. At December 31, 2003, the Canadian dollar was $0.29 higher than at December 31, 2002, compared to a $0.01 increase the preceding year. This was the equivalent of $0.60 per share, compared to $0.02 in 2002. Exposure to the Brazilian real had a nominal impact on the company in 2003 but contributed a loss of nearly $0.05 per share in 2002.

For the year, other income was up $8.4 million, primarily due to APC equity earnings, nitrogen insurance proceeds, the excess of 2003 equity earnings from SQM over 2002 equity earnings and dividends, and higher ICL dividends.

Interest expense increased, primarily due to the issuance of $250.0 million of 4.875 percent 10-year notes in March 2003 under the company’s shelf registration. These notes replaced lower-cost commercial paper. Weighted average long-term debt outstanding for the year was $1,230.9 million, compared to $1,023.3 million in 2002, with a weighted average interest rate of 7.0 percent (2002 —7.4 percent). The weighted average interest rate on short-term debt for 2003 was 1.4 percent (2002 — 1.7 percent).

The effective consolidated income tax rate in 2003 was approximately 40 percent of income before income taxes (exclusive of the charges relating to PCS Yumbes described previously and a future income tax reversal of $6.5 million). This compares to a rate of approximately 36 percent for 2002. The increase was primarily due to the expiration of the last tax holiday in Trinidad. The 2003 tax provision was all future income taxes, compared to a current/future split of 80/20 for 2002. The decrease in the current portion was primarily due to utilization of tax losses in the US as well as certain reclassifications from current to future income taxes.

2002 vs 2001

Selling and administrative expenses decreased due to spending restraint in all areas of PotashCorp, and an accounting policy change that eliminated amortization of goodwill. The reduction in gross margin per tonne on potash sales meant lower provincial mining and other taxes.

For the year, the company incurred a foreign exchange loss of $5.5 million compared to a gain of $13.7 million in 2001, a swing of $19.2 million. The 2002 foreign exchange loss primarily related to the devaluation of the Brazilian real throughout the year as well as the strengthening of the Canadian dollar. In 2001, the Canadian dollar weakened considerably against the US dollar, resulting in the majority of the large foreign exchange gain for the year.

Other income increased as compared to 2001, primarily due to the adoption of equity accounting for SQM after we increased our ownership from 18 percent in 2001 to 20 percent in 2002. This increase was partially offset by a reduction in miscellaneous items.

Interest expense on long-term debt increased as the $600.0 million of notes issued in May 2001 were outstanding for the full year. However, this increase was largely offset by reduced interest expense on short-term debt as commercial paper average balances and interest rates were lower than in 2001. Weighted average total debt outstanding increased from $1,205.7 million in 2001 to $1,511.7 million in 2002. The weighted average interest rate on total debt outstanding was 6.0 percent (2001 — 6.2 percent).

The effective consolidated income tax rate remained at 36 percent of income before income taxes. The current/future split approximated 80/20, compared to a 30/70 split in 2001, primarily because of higher proportional earnings in Canada in 2002.

Liquidity and Capital Resources

Cash Requirements

The following aggregated information about our contractual obligations and other commitments aims to provide insight into our short- and long-term liquidity and capital resource needs and demands. The information presented in the table below does not include obligations that have original maturities of less than one year or planned capital expenditures.

Contractual Obligations and Other Commitments

	Payments Due By Period
	Dollars (millions)
	Total		Within 1 year		1 to 3 years		3 to 5 years		Over 5 years
Long-term Debt	$	1,269.9	$	1.3	$	11.6	$	400.9	$	856.1
Operating Leases		380.8		69.6		107.9		67.3		136.0
Purchase Obligations		1,045.5		152.0		189.9		171.7		531.9
Other Commitments		69.2		18.4		20.7		17.5		12.6
Other Long-term Liabilities		309.8		34.0		42.8		34.8		198.2
Total	$	3,075.2	$	275.3	$	372.9	$	692.2	$	1,734.8

 

34   PotashCorp 2003 Annual Report

Long-term Debt

Long-term debt consists of $1,250.0 million of notes payable that were issued under our US shelf registration statements, $9.0 million of Adjustable Rate Industrial Revenue and Pollution Control Obligations, a net of $5.9 million under a back-to-back loan arrangement (described in Note 11 to the consolidated financial statements) and other commitments of $5.0 million payable over the next five years. The notes payable are unsecured. Of the notes outstanding, $400.0 million bear interest at 7.125 percent and mature in 2007, $600.0 million bear interest at 7.750 percent and mature in 2011 and $250.0 million bear interest at 4.875 percent and mature in 2013. There are no sinking fund requirements. The Adjustable Rate Industrial Revenue and Pollution Control Obligations bear interest at varying rates, are secured by bank letters of credit and have no sinking fund requirements. The notes payable are not subject to any financial test covenants but are subject to certain customary covenants (including limitations on liens and sale and leaseback transactions) and events of default, including an event of default for acceleration of other debt in excess of $50.0 million. Neither the Industrial Revenue and Pollution Control Obligations nor the other long-term debt instruments are subject to any financial test covenants but each is subject to certain customary covenants and events of default, including, for other long-term debt, an event of default for acceleration of other debt of $25.0 million or more. Non-compliance with any of the above covenants could result in accelerated payment of the related debt. We were in compliance with all covenants as at December 31, 2003.

The company manages interest rate exposures by using a diversified portfolio of fixed and floating rate instruments. Our sensitivity to fluctuations in interest rates is substantially limited to certain of our cash, short-term investments, short-term debt and long-term debt. In January and February 2004, we entered into interest rate swap contracts that effectively converted a notional amount of $300.0 million of fixed rate debt into floating rate debt based on LIBOR rates. Net settlements on these swap instruments will be recorded as adjustments to interest expense. We did not enter into any interest rate swap contracts in 2003 or 2002.

Operating Leases

We have long-term operating lease agreements for buildings, port facilities, equipment, ocean-going transportation vessels and railcars, the latest of which expires in 2020 (excluding mineral leases).

The most significant operating leases consist primarily of three items. The first is our lease of railcars used to transport finished goods and raw materials. These leases extend to approximately 2020. The second is the lease of port facilities at the Port of Saint John for shipping New Brunswick potash offshore. This lease runs until 2018. The third is the lease of three vessels for transporting ammonia from Trinidad, which extends to 2011.

Purchase Obligations

We have long-term agreements for the purchase of sulfur for use in the production of phosphoric acid. These agreements provide for minimum purchase quantities, and certain prices are based on

market rates at the time of delivery. The commitments included in the above table are based on the market prices at December 31, 2003.

Our Trinidad subsidiaries have entered into long-term natural gas contracts with the National Gas Company of Trinidad. The contracts provide for prices that vary with ammonia market prices, escalating floor prices and minimum purchase quantities. The commitments included in the above table are based on floor prices and minimum purchase quantities.

We also have a long-term agreement through 2010 for the purchase of phosphate rock used at our Geismar facility. This agreement set base prices (less volume discounts) through December 2003. Prices in subsequent years are subject to renegotiation. The commitments included in the above table are based on the expected purchase quantity and the set base prices (less applicable discounts).

Other Commitments

Other operating commitments consist of amounts relating to an acid storage agreement that is in effect until 2004, our Rocanville expansion and compactor upgrade project through 2005, contracts to purchase limestone that run through 2007 and various rail freight contracts, the latest of which expire in 2010.

Other Long-term Liabilities

Other long-term liabilities consist primarily of accrued post-retirement/post-employment benefits and accrued reclamation costs.

Capital Expenditures

During 2004, we expect to incur capital expenditures of approximately $95.0 million for opportunity capital and approximately $110.0 million for sustaining capital. The most significant single project relates to the expansion and increase of granular production capacity at Rocanville.

We have also exercised an option agreement to purchase certain corporate office facilities for approximately $8.1 million in 2005.

We anticipate that all capital spending will be financed by internally generated cash flows supplemented, if and as necessary, by borrowing from existing financing sources.

Sources and Uses of Cash

Dollars (millions)

	2003		2002
Cash provided by operating activities	$	381.5	$	316.4
Cash used in investing activities	$	357.7	$	271.4
Cash used in financing activities	$	43.6	$	65.8

PotashCorp’s principal sources of funds include the cash generated from our operations, short-term borrowings against our line of credit and commercial paper program, and long-term debt issued under our US shelf registration statement and drawn down under our syndicated credit facility. Our primary uses of funds are operational expenses, sustaining and opportunity capital spending, dividends, and interest and principal payments on our debt securities.

Cash provided by operating activities was $381.5 million, up $65.1 million from 2002. The increase was primarily due to the

 

PotashCorp 2003 Annual Report   35

significant improvement in nitrogen margins and record potash volumes, offset by weaker phosphate results. Although we recorded a net loss of $126.3 million, $245.9 million of that related to non-cash provisions for plant shutdowns ($118.3 million) and PCS Yumbes ($127.6 million).

The increase in accounts receivable was due to fourth-quarter net sales being 26 percent higher than in the same period last year. Our customer credit policies have remained substantially consistent with 2002. The increase in accounts payable reflected the related costs of the stronger fourth-quarter net sales. The decrease in inventories reflected management’s efforts to reduce phosphate work in process and feed inventories to more sustainable levels and the reduction in the carrying amount of inventory at the Yumbes operations, as described in Note 22 to the consolidated financial statements.

Cash used in investing activities was $357.7 million, an increase of $86.3 million over last year. Additions to property, plant and equipment totalled $150.7 million, with 75 percent for sustaining capital. The decrease from $212.2 million in 2002 was primarily due to opportunity capital spending that year on the DFP plant and expansion of the purified acid plant at Aurora.

On October 16, 2003, we purchased from Jordan Investment Company, an arm of the Jordanian government, 26 percent of the shares of APC. The purchase price of $178.3 million was financed by short-term debt. The equity method is being used to account for this investment. APC is publicly traded on the Amman Stock Exchange. It produces potash from the Dead Sea and is the world’s eighth largest producer, with 2 million tonnes of annual capacity. Its primary markets are India (22 percent), China (16 percent) and Europe (16 percent), a good complement to PotashCorp’s 2003 sales to North America (41 percent), Brazil (16 percent) and China (11 percent).

Cash used in financing activities was $43.6 million, $22.2 million less than in 2002. During the first quarter, we issued $250.0 million of 4.875 percent notes due in 2013, under our US shelf registration statement. The net proceeds from the notes were used to repay short-term debt in that quarter. For the entire year, PotashCorp repaid $296.8 million of short-term debt. We maintained our dividend and paid out $52.3 million in dividends, similar to the amount paid in 2002. As our share price appreciated during the year, stock options were exercised. This, along with our dividend reinvestment plan, contributed $58.9 million in financing activities, compared to $4.4 million in 2002.

PotashCorp believes that internally generated cash flow, supplemented by borrowing from existing financing sources, will be sufficient to meet our anticipated capital expenditures and other cash requirements in 2004, exclusive of any possible acquisitions, as was the case in 2003. At this time, the company does not reasonably expect any presently known trend or uncertainty to affect our ability to access our historical sources of cash.

Debt Instruments

Dollars (millions)

	Total		Amount Outstanding at		Amount Available at
	Amount		December 31, 2003		December 31, 2003
Syndicated Credit Facility	$	750.0	$	—	$	573.8
Line of Credit		75.0		11.2		45.3
Commercial Paper		500.0		176.2		323.8
US Shelf Registration		2,000.0		1,250.0		750.0

PotashCorp has a syndicated credit facility, renewable annually, which provides for unsecured advances. During third-quarter 2003, it was increased to $750.0 million from $650.0 million. The amount available is the total committed amount less direct borrowings and commercial paper outstanding. The line of credit is also renewable annually and the amount available is reduced by outstanding letters of credit and direct borrowings. During the third quarter, it was reduced to $75.0 million from $120.0 million. Both the line of credit and the syndicated credit facility have financial tests and other covenants with which the company must comply at each quarter-end. Principal covenants under the credit facility and line of credit require debt to capital of less than or equal to 0.55:1, long-term debt to EBITDA (defined in the respective agreements as earnings before interest, income taxes, provincial mining and other taxes, depreciation, amortization and other non-cash expenses) of less than or equal to 3.5:1, tangible net worth greater than or equal to $1,250.0 million and debt of subsidiaries less than $590.0 million. The line of credit is also subject to other customary covenants and events of default, including an event of default for non-payment of other debt in excess of Cdn $40.0 million. Non-compliance with any of the above covenants could result in accelerated payment of the related debt and termination of the line of credit. We were in compliance with all covenants as at December 31, 2003.

We also have a commercial paper program of up to $500.0 million. Access to this source of short-term financing depends primarily on our rating by Dominion Bond Rating Service (DBRS) and conditions in the money markets. PotashCorp’s commercial paper is currently rated by DBRS as R1 low, which should allow unrestricted access to the money markets.

We have a US shelf registration statement under which we may issue up to an additional $750.0 million in unsecured debt securities.

At the end of 2003, our weighted average cost of capital was 7.7 percent (2002 — 7.0 percent), of which 26 percent represented debt and 74 percent equity. The increase was primarily due to a shift in mix to equity — which carries a higher cost than debt — as the stock price closed 36 percent higher this year-end compared to last. As well, the risk-free rate used in calculating the cost of equity increased over 2002.

Off-Balance Sheet Arrangements

In the normal course of operations, PotashCorp engages in a variety of transactions that, under Canadian GAAP, are either not recorded on our balance sheet or are recorded on our balance sheet in amounts that differ from the full contract amounts. Principal off-balance sheet

 

36   PotashCorp 2003 Annual Report

activities we undertake include issuance of guarantee contracts, certain derivative instruments and long-term fixed price contracts. We do not reasonably expect any presently known trend or uncertainty to affect our ability to continue using these arrangements. These types of arrangements are discussed below.

Guarantee Contracts

In the normal course of operations, we provide indemnifications that are often standard contractual terms to counterparties in transactions such as purchase and sale contracts, service agreements, director/officer contracts and leasing transactions. These indemnification agreements may require us to compensate the counterparties for costs incurred as a result of various events, including environmental liabilities, changes in (or in the interpretation of) laws and regulations, or as a result of litigation claims or statutory sanctions that may be suffered by the counterparty as a consequence of the transaction. The terms of these indemnification agreements will vary based upon the contract. The nature of the indemnification agreements prevents us from making a reasonable estimate of the maximum potential amount we could be required to pay to counterparties. Historically, we have not made any significant payments under such indemnifications and no amounts have been accrued in our consolidated financial statements with respect to these indemnification guarantees.

We have guaranteed various debt obligations (such as cash management facility overdrafts, lines of credit with counterparties for derivatives, and back-to-back loan arrangements) for certain subsidiaries. We would be required to perform on these guarantees in the event of default by the guaranteed parties. No material loss is anticipated by reason of such agreements and guarantees. Note 29 to the consolidated financial statements provides detailed information regarding the nature and potential maximum exposure for these guarantees.

PotashCorp has guaranteed the gypsum stack capping, closure and post-closure obligations of White Springs and PCS Nitrogen, in Florida and Louisiana, respectively, pursuant to the financial assurance regulatory requirements in those states. The State of Florida is presently reviewing, and is expected to revise, its financial assurance requirements to ensure that responsible parties have sufficient resources to cover all closure and post-closure costs and liabilities associated with gypsum stacks. This review may result in

the imposition of more stringent requirements to demonstrate financial responsibility and/or inclusion of a greater scope of closure and post-closure costs than under current law. Note 14 to the consolidated financial statements provides additional information regarding our gypsum stack obligations.

The environmental regulations of the Province of Saskatchewan require each potash mine to have decommissioning and reclamation (D&R) plans. In 2001, agreement was reached with the provincial government on the financial assurances for the D&R plan to cover an interim period through to July 1, 2005. A government-industry task force has been established to assess decommissioning options for all Saskatchewan potash producers and to produce mutually acceptable revisions to the plan schedules. In July 2001, a Cdn $2.0 million letter of credit was posted that will remain in effect until the revised plans are accepted.

Derivative Instruments

In addition to physical spot and term purchases, PotashCorp employs futures, swaps and option agreements to manage the cost on a portion of our natural gas requirements. These instruments are intended to hedge the future cost of the committed and anticipated natural gas purchases primarily for our US nitrogen and phosphate plants. By company policy, the maximum period for these hedges cannot exceed five years. We use these instruments to reduce price risk, not for speculative or trading purposes. Derivative instruments which have not yet been settled are not recognized in our consolidated financial statements under Canadian GAAP, 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 goods sold.

The fair value of our gas hedging contracts at December 31, 2003 approximated $59.8 million (2002 — $52.7 million). Note 27 to our consolidated financial statements provides detailed information regarding the nature of our financial instruments.

Long-term Fixed Price Contracts

Certain of our long-term raw materials agreements contain fixed price components. Our significant agreements, and the related obligations under such agreements, are discussed in “Contractual Obligations and Other Commitments.”

Market Risks Associated with Financial Instruments

Commodity Risk

PotashCorp’s nitrogen operations are significantly affected by the price of natural gas. We employ derivative commodity instruments related to a portion of our natural gas requirements (primarily futures, swaps and options) for the purpose of managing our exposure to commodity price risk in the purchase of natural gas. Changes in the market value of these derivative instruments have a high correlation to changes in the spot price of natural gas. Gains or losses arising from settled hedging transactions are deferred as a component of inventory until the product containing the hedged item is sold. Changes in the market value of open hedging

transactions are not recognized as they generally relate to changes in the spot price of anticipated natural gas purchases.

A sensitivity analysis has been prepared to estimate our market risk exposure arising from derivative commodity instruments. The fair value of such instruments is calculated by valuing each position using quoted market prices. Market risk is estimated as the potential loss in fair value resulting from a hypothetical 10 percent adverse change in such prices. The results of this analysis indicate that as of December 31, 2003, our estimated derivative commodity instruments market risk exposure was $27.5 million (2002 — $17.6 million). Actual results may differ from this estimate. Changes in the fair value of such derivative

 

PotashCorp 2003 Annual Report   37

instruments, with maturities in 2004 through 2009, will generally relate to changes in the spot price of anticipated natural gas purchases.

Foreign Exchange Risk

The company also enters into forward exchange contracts for the sole purpose of limiting exposure to exchange rate fluctuations relating to certain trade accounts. These contracts are not designated as hedging instruments for accounting purposes. Gains or losses resulting from foreign exchange contracts are recognized at the time the contracts are entered into and are included in other income.

As at December 31, 2003, the company had entered into forward exchange contracts to sell US dollars and receive Canadian dollars in the notional amount of $46.0 million (2002 — $28.0 million) at an average exchange rate of $1.3315 (2002 — $1.5855). As at December 31, 2003, the company had also entered into a forward exchange contract to sell US dollars and receive euros in the notional amount of $1.9 million (2002 — $NIL) at an exchange rate of $1.1707. Expected maturity dates for all forward contracts are within fiscal 2004.

Interest Rate Risk

We address interest rate risk by using a diversified portfolio of fixed and floating rate instruments. We are exposed to risk resulting from changes in interest rates as a result of the issuance of variable rate debt and commercial paper. The company manages this exposure by

aligning current and long-term assets with variable and fixed rate debt, limiting variable rate and fixed rate exposures to percentages of total capitalization and by monitoring the effects of market changes in interest rates.

As at December 31, 2003, our short-term debt (comprised of commercial paper) was $176.2 million, our current portion of long-term debt was $1.3 million and our long-term debt was $1,268.6 million. Long-term debt is comprised primarily of $1,250.0 million of notes payable that were issued under our US shelf registration statements at a fixed interest rate. Subsequent to year-end, we entered into contracts that exchanged a notional amount of $300.0 million of our 7.75 percent fixed rate notes into floating rate debt based on LIBOR rates.

One means of assessing exposure to interest rate changes is a duration-based analysis that measures the potential loss in net earnings and cash flow resulting from a hypothetical 10 percent change in interest rates across interest rate sensitive maturities. Under this model, it is estimated that, all else constant, such a change would not materially impact our 2004 net earnings or cash flows based on the same level of borrowing. If interest rates changed significantly, management would likely take actions to manage our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in our financial structure.

Related Party Transactions

The company sells potash from our Saskatchewan mines for use outside of North America exclusively to Canpotex Limited, a potash export, sales and marketing company owned in equal shares by the three potash producers in the Province of Saskatchewan. Sales to Canpotex for the year ended December 31, 2003 were $260.6 million (2002 — $241.2 million; 2001 — $237.6 million). Sales to Canpotex are at prevailing market prices and are settled on normal trade terms.

In connection with entering into the option agreement with SQM on August 27, 2003, PCS Yumbes has agreed to purchase potash from

SQM at a negotiated price that approximates market value. In addition, PCS Yumbes has agreed to sell to SQM all of its potassium nitrate production at a negotiated price that approximates market value. Both agreements are in effect until no later than December 31, 2004. Potash purchases from SQM for the year were $13.1 million (2002 — $17.9 million). Potassium nitrate sales to SQM for the year were $25.8 million (2002 — $2.1 million). All transactions with SQM are settled on normal trade terms.

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in Canada. These principles differ in certain significant respects from accounting principles generally accepted in the United States. These differences are described and quantified in Note 34 to the consolidated financial statements.

Our significant accounting policies are contained in Note 2 to the consolidated financial statements. Certain of these policies involve critical accounting estimates because they require us to make particularly subjective or complex judgments about matters that are

inherently uncertain and because of the likelihood that materially different amounts could be reported under different conditions or using different assumptions.

We have discussed the development, selection and application of our key accounting policies, and the critical accounting estimates and assumptions they involve, with the audit committee of the Board of Directors, and our audit committee has reviewed the disclosures described in this section.

Other accounting policies, primarily those requiring estimates with lower levels of uncertainty than those discussed below, are also important to understanding our consolidated financial statements.

 

38   PotashCorp 2003 Annual Report

As such, the notes to our consolidated financial statements should be read in conjunction with this discussion.

The following section discusses the critical accounting estimates and assumptions that management has made under these principles and how they affect the amounts reported in the consolidated financial statements.

Asset Impairment

We review long-lived assets and certain identifiable intangible assets to be held and used whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets and certain identifiable intangible assets that management expects to hold and use is based on the fair value of the assets, whereas such assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.

We believe that the accounting estimate related to asset impairment is a critical accounting estimate because: (1) it is highly susceptible to change from period to period as it requires management to make assumptions about future sales and margins and market conditions over the long-term life of the assets; and (2) the impact that recognizing an impairment would have on the assets reported on our balance sheet as well as our operations may be material. During 2003, we indefinitely shut down our Memphis nitrogen plant, suspended production of ammonia and nitrogen solutions at our Geismar facilities, ceased operations at our Kinston phosphate feed plant and entered into an agreement to sell our shares of PCS Yumbes. In connection with these activities, we reassessed the recoverability of our long-lived assets and determined that the carrying amounts at these locations were not fully recoverable based on our best estimates. As a result, asset impairment charges totalling $183.0 million (before tax) were recognized, as more fully described in Notes 21 and 22 to the consolidated financial statements. As at December 31, 2003, we determined that there were no other triggering events requiring additional impairment analysis. In each of the last two years, we have tested the long-lived assets at the above facilities for impairment and in each year, we determined that based on our assumptions, the sum of the expected future cash flows (undiscounted and without interest charges) exceeded the carrying value and therefore we did not recognize an impairment.

Goodwill impairment is assessed at the reporting unit level annually or sooner if events or changes in circumstances indicate that the carrying amount could exceed fair value. Reporting units comprise business operations with similar economic characteristics and strategies and may represent either a business segment or a business unit within a business segment. Potential impairment is identified when the carrying value of a reporting unit, including the allocated goodwill, exceeds its fair value. Goodwill impairment is measured as the excess of the carrying amount of the reporting unit’s allocated goodwill over the implied fair value of the goodwill, based on the fair value of the assets and liabilities of the reporting unit. In each of the

last two years, we have tested goodwill for impairment and in each year, we determined that based on our assumptions, the fair value of our reporting units exceeded their carrying amounts and therefore we did not recognize an impairment in such periods.

We believe that our estimates of future cash flows and fair value are reasonable. Although we believe these estimates are consistent with current conditions, internal planning and expected future operations, such estimates are subject to significant uncertainties and judgments. As a result, it is reasonably possible that the amounts reported for asset impairments in connection with the above-described initiatives could be different if we were to use different assumptions or if market and other conditions were to change in the future. It is also possible that forecast cash flows used to support the remaining carrying values of the assets may change in the future due to uncertain market conditions, changes to our strategies and product portfolio, or other factors and could also result in higher charges than estimated to date. The changes could result in non-cash charges that could materially affect our results of operations and financial position.

Restructuring Charges

As described in Notes 21 and 22 to the consolidated financial statements, we approved plans to restructure the Memphis, Geismar, Kinston and Yumbes operations in 2003. In addition to asset impairment analyses, these plans required us to make critical estimates regarding employee termination, contract termination and other exit costs. We make these estimates based on the terms of the contracts involved, the number and pay scale of employees scheduled for termination and other related factors. Because such activities are complex processes that can take several months to complete, they will involve periodically reassessing the estimates made when the original decision to exit the activities was made. As a result, we may have to change originally reported estimates when actual payments are made or the related activities are completed.

Post-Retirement and Post-Employment Costs

We maintain plans that provide pensions and other retirement and post-employment benefits for most of our employees. We believe the accounting estimates related to our employee benefit plan costs are critical accounting estimates because: (1) the amounts are based on highly complex actuarial calculations utilizing several assumptions; and (2) given the magnitude of our estimated employee benefit plan costs, differences in actual results or changes in assumptions could materially affect our results of operations and financial position.

Our pensions and other retirement and post-employment benefits expense is calculated by our actuaries based on key assumptions determined by management. The valuations use management’s assumptions for the discount rate, expected long-term rate of return on plan assets, rate of compensation increase, health care cost trend and expected average remaining years of service of employees.

The two most significant assumptions are the discount rate and the expected long-term rate of return on plan assets. The discount rate is the interest rate used to determine the present value of the future cash

 

PotashCorp 2003 Annual Report   39

flows that we expect will be needed to settle employee benefit obligations. It is usually based on the yield on long-term high-quality corporate fixed income investments. We determine the appropriate discount rate at the end of every year. Our discount rate was 6.10 percent at December 31, 2003, compared to 6.50 percent at December 31, 2002. Changes in the discount rate may affect earnings and the projected benefit obligation. For example, a 0.5 percent reduction in discount rate could increase our 2004 expense for our major plans by approximately $4.0 million. Additionally, a lower discount rate results in a higher obligation, which could require us to make additional contributions to the plans. In 2003, we assumed an expected long-term rate of return on plan assets of 8.50 percent. We estimate that a 0.5 percent reduction in the expected asset return rate could increase our 2004 expense for our major plans by approximately $1.6 million. Additional information regarding our accounting for pensions and other employee benefits, including other sensitivity analyses for key assumptions, is included in Note 13 to the consolidated financial statements.

Environmental Liabilities

We have significant liabilities relating to environmental matters. The two primary sources of these are the requirements to close the gypsum stacks and to reclaim the land mined in our phosphate operations.

We believe the accounting estimates related to reclamation, closure and other environmental costs are critical accounting estimates because: (1) we will not incur most of these costs for a number of years, requiring us to make estimates over a long period; (2) environmental laws and regulations and interpretations by regulatory authorities could change in the future or circumstances affecting our operations could change, either of which could result in significant changes to our current plans; and (3) given the magnitude of our estimated reclamation and closure costs, changes in any or all of these estimates could have a material impact on our results of operations and financial position.

When it is probable that environmental costs will be incurred and can reasonably be estimated, we accrue costs associated with environmental obligations at the most likely estimate. Accruals for closure costs, reclamation and other environmental matters totalled $100.0 million at December 31, 2003. In arriving at this accrual amount we considered the nature, extent and timing of current and proposed reclamation and closure techniques in view of present environmental laws and regulations. It is reasonably possible the ultimate costs could change in the future and that changes to these estimates could have a material effect on our results of operations and financial position.

Depreciation and Amortization

We depreciate certain mining and milling assets using the units of production method based on the shorter of estimates of deposit or service lives. We have other assets that we depreciate on a straight-line basis over their estimated useful lives.

We believe the accounting estimates related to depreciation and amortization are critical accounting estimates because: (1) the determination of deposits involves uncertainties with respect to the ultimate geology of our deposits and the assumptions used in determining the economic feasibility of mining those deposits, including estimated sales prices and costs of conducting future mining activities; and (2) changes in estimated deposits and useful asset lives can have a material impact on operations.

We perform annual assessments of our existing assets, including a review of asset costs and depreciable lives, in connection with the review of mine operating plans. When we determine that assigned asset lives do not reflect the expected remaining period of benefit, we make prospective changes to their depreciable lives.

There are a number of uncertainties inherent in estimating quantities of deposits, including many factors beyond our control. These uncertainties relate to assumptions regarding future prices, the geology of our mines, the mining methods we use and the related costs we incur to develop and mine our deposits. Changes in these assumptions could result in material adjustments to our deposit estimates, which could result in changes to units of production depreciation and amortization expense in future periods, with corresponding adjustments to results of operations. Although some degree of variability is expected, we believe the extent of our technical data and operating experience mitigates the potential for significant changes in deposit estimates. On a periodic basis, management reviews the deposits that reflect estimates of the quantities and grades at our mines which we believe can be recovered and sold at prices in excess of the total cost associated with extraction and processing. Management’s calculations of potash deposits are based on in-house engineering and geological estimates using current operating costs, prices and demand for our products. Deposits should not, however, be interpreted as assurances of mine life or of the profitability of current or future operations.

As discussed above, we review and evaluate our long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable and changes to our estimates of deposits could have an impact on our assessment of

 

40   PotashCorp 2003 Annual Report

asset impairment. However, we believe it is unlikely that revisions to our estimates of deposits would give rise to an impairment of our assets because of the significant size of our deposits in relation to our asset-carrying values.

Income Taxes

We operate in a specialized industry and in several tax jurisdictions. As such, our income is subject to various rates of taxation. We are required to estimate our income taxes in each of these jurisdictions as part of preparing our consolidated financial statements. These estimates consider, among other factors, differing tax rates between jurisdictions, allocation factors, tax credits, nondeductible items, changes in enacted tax laws and rates, and management’s expectations of future results.

We estimate future income taxes based upon temporary differences between the income and losses that we report in our consolidated

financial statements and our taxable income and losses as determined under applicable tax laws. We record the tax effect of these temporary differences as future income tax assets or liabilities, as applicable, in our consolidated financial statements. Future income tax assets generally result in deductible amounts in determining taxable income of future periods when the carrying amount of the asset or liability is recovered or settled. Future income tax liabilities typically reflect taxable amounts in determining taxable income of future periods when the carrying amount of the asset or liability is recovered or settled.

We use judgment and estimates when calculating income taxes. If our judgments and estimates prove to be inaccurate, or if certain tax rates or laws change, our results of operations and financial position could be materially impacted in future periods.

Recent Accounting Pronouncements

In December 2003, the FASB revised FIN No. 46 “Consolidation of Variable Interest Entities”, which clarifies the application of Accounting Research Bulletin No. 51 “Consolidated Financial Statements” to those entities (defined as Variable Interest Entities (“VIEs”)) in which either the equity at risk is not sufficient to permit that entity to finance its activities without additional subordinated financial support from other parties, or equity investors lack voting control, an obligation to absorb expected losses or the right to receive expected residual returns. FIN No. 46 requires consolidation by a

business of VIEs in which it is the primary beneficiary. The primary beneficiary is defined as the party that has exposure to the majority of the expected losses and/or expected residual returns of the VIE. FIN No. 46 is effective for the company no later than March 31, 2004. In Canada, Accounting Guideline 15 “Consolidation of Variable Interest Entities” has harmonized with FIN No. 46 and is effective for the company no later than December 31, 2004. We expect no material impact on our financial position, results of operations or cash flows from adoption.

Risk Management

An important part of PotashCorp’s strategic planning process is understanding and managing risk. Our approach to this responsibility begins with our identification and analysis of the specific risks we face. We then rank them in order of importance, according to their likelihood of occurring and the significance of the consequences, and determine the most effective ways to manage them. Tier I risks are ranked the highest with Tier II considered less likely and with less consequence.

In 2002, management reported to the Board on our most significant risks, our risk response options and our risk administration. In 2003, we updated the Board on the progress made on those risks, and reported on the next tier of risks.

Tier I Risks

Risk to Reputation is key with investors, whose general confidence in corporations has been shaken by scandals. With the public, reputation risk revolves around a lack of understanding of and growing concerns about fertilizer production and use.

For investors, PotashCorp implemented a leading edge practice in corporate governance and reaffirmed our commitment to timely and complete disclosure. To educate the public on the science of fertilizer, we developed a grassroots program called Fertile Minds.

We adopted best practices in production and implemented a crisis communication program with regular drills to handle any possible mishaps. To maintain and build on our credibility with the public, in 2003 we produced our first sustainability report.

Commodity price volatility affects a bulk commodity business in which product quality differentiation is negligible, prices are affected by supply/demand dynamics and products may be susceptible to large price swings.

PotashCorp aims to manage this risk generally through product and sales diversity. We have three nutrients and many products within each nutrient, and sell to diverse markets (North America, offshore) for diverse end uses (fertilizer, industrial, feed). We also manage this risk

 

PotashCorp 2003 Annual Report   41

through alternative product sourcing — such as was made possible by our recent 26 percent investment in APC in Jordan — in an effort to minimize the cost of delivering a bulk commodity.

There is a particular risk in the price volatility of natural gas, our highest-cost raw material input and essential to our nitrogen production. We reduce this risk through our hedging program and our long-term gas contracts in Trinidad.

Foreign country risk arises because many future growth opportunities are likely to be outside North America, and may include exchange rate risk as well as political and/or security risks.

These risks can be reduced through financial hedges for exchange rates, by insuring against political risks, and by requiring higher investment return thresholds for potential offshore transactions. A supplemental benefit of our involvement in Jordan is that it combats price volatility, but it increased our foreign country risk, although we chose to remain self-insured. This illustrates the interrelatedness of risks. In such circumstances, we analyze our choices with a view to minimizing risk and maximizing benefit.

Risk of access to capital to finance growth. We aim to manage this risk by maintaining strong cash flow, a conservative balance sheet and management credibility through high-quality disclosure and transparency.

Security risks around some of our products. We have increased security measures at all plants producing and/or storing ammonia, with such methods as enhanced perimeter security with restricted storage areas, searching of incoming and outgoing trucks and extra security on site, including 24/7 patrols.

Risk to information systems involves the security of data from accidental or deliberate destruction and from outside intrusion, and the security of corporate hardware from failure, destruction or theft.

We secure data with modern systems of access and protection, and regular backup. Our hardware is protected from physical loss, and we have backup site availability and appropriate insurance.

Workplace safety and health risks to workers arising from safety and health hazards in their normal work activities. These risks are managed directly by individuals or front-line teams and involve the use of measures such as structured risk assessments, permits to work, or written procedures, safety audits and process hazard analyses.

Risks to human resources come from replacement of an aging, highly-skilled workforce, medical benefit cost inflation, and increased pension liability due to lower market returns on invested funds compounded by lower prescribed discount rates for calculating pension liabilities.

We aim to manage these risks by maintaining policies and programs aimed at positioning us as an employer of choice, balanced with the need for cost control through plan design, administrative controls and employee cost-sharing.

Tier II Risks

Risk from possible illegal acts could expose the company to civil damages and/or criminal or regulatory penalties.

PotashCorp has responded to this risk by implementing a code of conduct. In addition, policies were put in place in many areas including corporate ethics, corporate governance, compliance training, foreign corrupt practices, insider trading and anti-trust. We benchmark the policies of companies that lead in these areas and incorporate elements of their policies into our own. We then communicate these policies to our employees to raise awareness, institute employee education through training and drills, and monitor for compliance and effectiveness.

Financial risk at present is most closely associated with changes in interest rates for short-term or fixed rate debt. A higher short-term rate increases our interest expense; with fixed rate debt, the risk is that rates may float lower, on average, than the fixed rate over the term of the debt.

We cannot control interest rates, but in a market where the short-term rate is expected to increase, our fixed rate debt will avoid any additional costs.

Acts of nature, such as weather, flooding or power outages, can pose risks to our operations. None of these is predictable, nor can we easily relocate our plants to avoid risk since their location is usually driven by economic factors or proximity to the nutrient source.

One of our best defenses is our geographic dispersion; we do not rely on a single plant in any of our businesses. We have insurance to mitigate loss from wind, surface flooding, earthquakes, equipment damage and associated business interruption, and we self-insure our potash underground assets. We also rely on careful seismic testing, geological and hydrological models and safety procedures in anomalous conditions.

Cash flow volatility can result in maintaining excess cash balances, thus forgoing interest income, or in excess overdrafts, increasing short-term interest costs.

PotashCorp controls this risk by carefully managing our cash balances and by investing surpluses for longer terms.

Tax compliance is the most significant tax risk. Failure to comply with regulations in the jurisdictions in which we operate could in some cases significantly affect our business. All our operations must be aware of potential tax and filing requirements, and our accounting and other corporate data must be both accurate and complete.

It is necessary to be informed and educated on jurisdictional matters. We have been able to compare our existing tax practices to those of companies we acquire, and have sought improvements.

Credit risk reflects the situation that we have receivables in the agricultural sector, that we have little recourse for collection of accounts receivable overseas, and that counterparties may default on natural gas hedging contracts. Such failure of counterparties is the hardest to control.

PotashCorp’s bad debts amounted to .0001 percent of our net sales in 2003, which reflects our careful evaluation of credit-worthiness among our customers. To protect our interests, we require offshore customers to provide letters of credit or bank guarantees, and we insure offshore receivables in both Canada and the United States. Our credit department evaluates counterparties before we enter into contracts for gas hedging.

 

42   PotashCorp 2003 Annual Report

Outlook

Agriculture

Low world grain inventories and a tight supply/demand balance for grains, oilseeds and commodities such as rubber, cotton, palm oil, coffee and cocoa are expected to support rising prices. This should encourage global producers to increase yields of these crops. Higher fertilizer application rates and increased crop acreages are key to achieving this.

In the US, record net farm income and the recent strength in markets for corn, soybeans and cotton are expected to encourage farmers to plant more acres to these crops. In 2004, stronger crop prices and the shift in planted acres are projected to raise US consumption of nitrogen, phosphate and potash fertilizers by 1-2 percent, while global consumption is expected to rise by more than 2 percent.

Economy

In 2004, the global economy is expected to grow at 3-3.5 percent, according to certain economic consultants. China and India are expected to lead in GDP growth, China in the 8 percent range and India exceeding 5 percent.

US economic growth of approximately 8 percent in the third quarter of 2003 set the stage for anticipated growth of approximately 4-5 percent in 2004. With consumer confidence good, both auto sales and housing starts are projected to continue at high levels. Business confidence is improving, and inventories are being replenished.

Ocean Freight Rates

At the end of 2003, ocean freight rates jumped to 260 percent of the levels at the beginning of the year. Demand for bulk carriers surged at a time when the fleet had aged and shipbuilders were unable to quickly meet the need.

Shipyards around the world are expected to maximize their resources dedicated to building bulk carriers. However, the lengthy lead time for construction, continued decommissioning of older vessels and growth in demand are expected to keep bulk carrier rates high during 2004.

Natural Gas

Futures price projections for natural gas in the next few years are in the range of $4.50-$6.00/MMBtu, as drilling and development costs for reserves have increased and the life of reserves brought into production has been shortened.

Gazprom, the natural gas supplier to Russian nitrogen producers, is under increasing pressure to be profitable in the domestic market. Gas consumers who once did not pay bills are now expected to do so, to work with Gazprom on a tolling basis, or to provide it with equity participation in their operations. This has encouraged Russian industries that use gas to pass these costs on to their customers.

Potash

With 86 percent of production controlled by privately held companies, the global potash industry is expected to operate in 2004 with little interference from government agendas. The strong growth in demand experienced in Latin America and Asia in 2003 is expected to continue to tighten the supply/demand balance in 2004. Anticipated growth in soybean production in Brazil should encourage potash demand there.

In North America, prices are expected to continue to rise in response to higher costs and tight supply. Offshore, higher freight costs pressured margins in late 2003 for product delivered under contracts requiring the supplier to pay freight. Customers were advised that future contracts would address the impact of these higher freight

 

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costs, and in 2004 the costs are expected to be passed on to them as their contracts become due.

Potash gross margin should benefit from the sale of Yumbes, which previously reduced margins by approximately $23.0 million annually.

Phosphate

The supply/demand balance tightened and prices improved late in 2003. This is expected to continue through the spring season in 2004. However, the phosphate industry continues to face issues of oversupply.

China and India, large potential markets for US phosphate exports, are expected to continue to support their domestic industries in 2004.

Input costs are expected to continue to be high. US natural gas prices should support ammonia prices, and a close balance between supply and demand, led by China’s increasing need for sulfur to grow its domestic phosphate production, is keeping sulfur prices up.

Single cases of BSE in each of Canada and the US in 2003 are expected to reduce consumption of meat and bone meal (derived from animal byproducts), which competes with phosphate feed supplements such as dical, monocal and DFP.

PotashCorp expects better results from our phosphate operations in 2004 than in 2003 as certain costs, such as those associated with the move to the new ore zone at Aurora and the start-up at White Springs, are now behind us.

Nitrogen

Higher natural gas prices are expected to continue to challenge US nitrogen producers. Approximately 3.5 million tonnes of US ammonia production capacity have been permanently curtailed since 1999, with another 4 million tonnes considered vulnerable to continued high levels of imports.

Global supply/demand in nitrogen products has been tight, as close to a quarter of US ammonia capacity is curtailed and the new world capacity coming on stream will not match expected growth in demand during 2004.

We will continue to evaluate our plant shutdowns at Geismar and Memphis, basing any potential restart decisions on a combination of market conditions and the right balance of prices versus volumes.

The company was approximately 80 percent hedged at $2.85 per MMBtu for our 2004 natural gas needs, as of February 5, 2004. On that date our 2004 hedge was valued at approximately $33 million. Our US hedges are subject to collared profits through the second quarter of 2004.

Gas escalators have been included in certain industrial contracts to help offset cost volatility.

PotashCorp will continue to maintain appropriate levels of security at nitrogen production facilities and terminals and during transit of our products.

PotashCorp Financial Outlook

Capital expenditures for 2004 are expected to approximate $205.0 million, of which approximately $110.0 million will be for sustaining capital. This is up from $150.7 million in 2003, due primarily to opportunity capital set aside for the expansion of granular production capacity at Rocanville. Depreciation and amortization are expected to approximate $220.0 million, similar to 2003 levels.

The effective consolidated tax rate for 2004 is expected to approximate 35 percent. This is down from the 2003 rate of 40 percent (exclusive of charges for Yumbes and a fourth-quarter income tax reversal) due to Saskatchewan tax incentives and Canadian statutory rate reductions. In 2004, one-quarter of the consolidated tax rate is anticipated to be current and three-quarters future. The increase in the current tax provision from zero percent in 2003 to 25 percent in 2004 is primarily due to an expected increase in potash operating income. Provincial mining and other resource taxes are expected to approximate $6 per KCl tonne, compared to $8 per KCl tonne in 2003. The decrease from 2003 is largely due to the accelerated depreciation on the Rocanville expansion for profits tax purposes in 2004.

Stock option expense is expected to approximate $11.0 million in 2004, or approximately $0.13 per share, up from $1.0 million in 2003, as it will include a full year’s expense compared to the one month charged in 2003. This non-cash expense is due to our adoption of a new provision of Canadian GAAP. (See Notes 3 and 26 of the consolidated financial statements for more detail.)

Given what we perceive to be positive industry fundamentals, PotashCorp expects our 2004 net income to be in the range of $2.70-$3.50 per share. This annual range of earnings should generate approximately $100 million more in cash from operating activities in 2004 over 2003.

Items that could result in earnings at the lower end of the range include lower potash prices and volumes, lower nitrogen prices and a higher than expected Canadian dollar. Items that could result in earnings at the higher end include a reduction in phosphate operating costs, an

 

44   PotashCorp 2003 Annual Report

increase in phosphate feed volumes following a recently announced competitor shutdown, a weakening of the Canadian dollar or lower freight rates. The company expects the Canadian dollar to remain flat from the end of the year and has estimated it to approximate 1.2900 for most of 2004.

Several factors could swing our annual earnings projection positively or negatively, including natural gas prices, sulfur prices, spring planting conditions, level of imports, world economic and political conditions and trade patterns of major consumers of potash, phosphate and nitrogen.

INDICATORS TO WATCH
Fertilizer	Feed and Industrial
• Weather and acreage planted • China’s grain stocks and corn exports • Crop prices • US dollar exchange rates • Ocean freight rates • Prices for natural gas, sulfur and ammonia • Russia’s protectionist trade policies versus WTO entry • India’s reform of DAP subsidies • Impact of European Union enlargement on Russia’s exports	• Health of US and world economies • Effect of livestock diseases and restrictions on meat trade • Possible tightening of restrictions on meat and bone meal in animal feeds • Consumer spending and inventory levels of vehicles, housing and retail goods

Key Earnings Sensitivities

Earnings of the company’s three nutrient segments are sensitive to a number of factors. The key factors and their approximate effect on EPS based on assumptions comparable to 2003 actuals are shown here.

INPUT COST SENSITIVITIES		Effect on EPS			PRICE AND VOLUME SENSITIVITIES		Effect on EPS
NYMEX natural gas increases by $1/MMBtu	Nitrogen		+0.27	PRICE	Potash changes by $5/tonne			±0.29
					DAP/MAP changes by $5/tonne			±0.09
	Potash		–0.08
					Ammonia increases by $10/tonne	Nitrogen		+0.13
Sulfur changes by $5/long ton	Phosphate		±0.12			Phosphate		–0.04
					Urea changes by $10/tonne			±0.15
Canadian to US dollar changes by $0.01	Canadian operating expenses net of provincial taxes		±0.02
				VOLUME	Potash changes by 100,000 product tonnes			±0.04
	Foreign exchange gain/loss		±0.03		Phosphate changes by 50,000 P2O5 tonnes			±0.11
					Nitrogen changes by 50,000 N tonnes			±0.09

Due to the large volumes of potash sold as compared to DAP/MAP or urea/ammonia, the change in potash prices has a much larger effect on EPS than do the products with lower sales volumes. Changes in potash sales volumes have much less impact due to the additional cost of sales associated with the extra tonnes sold.

The above sensitivities affect cash flow as well, except foreign exchange gain/loss which is primarily non-cash.

Forward-Looking Statements

Certain statements in this annual report and this Management’s Discussion and Analysis of Financial Condition and Results of Operations, including those in the “Outlook” section relating to the period after December 31, 2003, are forward-looking statements subject to risks and uncertainties. A number of factors could cause actual results to differ materially from those expressed in the forward-looking statements, including, but not limited to: fluctuation in supply and demand in fertilizer, sulfur, petrochemical and transportation markets; changes in competitive pressures, including pricing pressures; risks associated with natural gas and other hedging activities; changes in capital markets; changes in currency and exchange rates; fluctuation in costs of distribution and

transportation; unexpected geological or environmental conditions; imprecision in resource estimates; the outcome of legal proceedings; changes in government policy and regulation; worldwide political conditions; acquisitions the company may undertake in the future; and the Fertilizer and Feed and Industrial Indicators to Watch as described herein. The company sells to a diverse group of customers both by geography and by end product. Market conditions will vary on a year-over-year basis and sales can be expected to shift from one period to another. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by applicable law.

PotashCorp 2003 Annual Report   45

Market and Industry Data

Some of the market and industry data contained in this annual report and this Management’s Discussion & Analysis of Financial Condition and Results of Operations are based on internal surveys, market research, independent industry publications or other publicly available information. Although we believe that the independent sources used by us are reliable, we have not independently verified and cannot guarantee the accuracy or completeness of this information. Similarly, we believe our internal research is reliable, but such research has not been verified by any independent sources.

Information in the preparation of this annual report is based on statistical data and other material available at February 27, 2004.

Appendix

Sources and Glossary of Terms¹

Page 13 Footnotes:

Fact		Reference2
1	Geographic Availability of Raw Materials	Source: Fertecon, EIA
2	Cost of New Capacity	Source: Fertecon
3	Greenfield	Definition: New operation built on undeveloped site
4	Greenfield Development Time	Source: Fertecon
5	Producing Countries	Source: Fertecon
6	State- or Subsidy-Controlled	Definitions:
	Production	State-Controlled: Operational control in the hands of the state Subsidy-Controlled: The state provides subsidies that control the economic viability of the operation Source: British Sulphur
7	Consumption	Definition: Consumer end use
8	Expected Long-Term World Fertilizer Consumption	Source: Fertecon * Non-rounded growth rates:
	Growth Rate	Potash: 2.190%; Phosphate: 1.878%; Nitrogen: 2.128%
9	Major Importers	Source: Fertecon
10	Percentage Traded Across Borders	Source: Fertecon
11	Capacity; World Position by Capacity	Source: Fertecon, NRCan, PotashCorp
12	Raw Materials Availability	Source: PotashCorp, EIA (For more information, see Part 1 Description of Business in 2003 Form 10-K)
13	40 Years of Reserves	Note: with existing and known anticipated operations
14	Production Cost Position vs World Producers	Source: British Sulphur; Blue, Johnson
15	Excess Capacity	Source: Fertecon, PotashCorp Definition: Capacity not presently being operated

Page 14 Footnotes:

Fact		Reference
16	North America	Definition: The North American market includes Canada and the United States
17	North American Market Share	Source: Fertecon; Blue, Johnson; PPI; PotashCorp
18	North American Main Customers
	Abbreviated Customer Name	Complete Customer Name
	Astaris Rhodia	Astaris LLC Rhodia Inc.
	BASF	BASF Group
	DSM	DSM Chemicals North America Inc.
19	North American Main Competitors
	Abbreviated Producer Name	Complete Producer Name
	IMC	IMC Global Inc. (NYSE: IGL)
	Agrium	Agrium Inc. (TSX and NYSE: AGU)
	Cargill	Cargill, Incorporated
	Simplot	J.R. Simplot Company
	CF	CF Industries, Inc.
	MissChem (or Mississippi Chemical)	Mississippi Chemical Corporation (over the counter: MSPIQ)
	Koch	Koch Industries, Inc.
	Terra	Terra Industries, Inc. (NYSE: TRA)

20	Offshore	Definition: Offshore markets include all markets except the US and Canada
21	Offshore Market Share	Source: Fertecon, PotashCorp
22	Offshore Main Competitors
	Abbreviated Producer Name	Complete Producer Name
	Belaruskali	PA Belaruskali
	Uralkali	JSC Uralkali
	Silvinit	JSC Silvinit
	Kali & Salz	Kali und Salz GmbH
	Dead Sea Works (or DSW)	Dead Sea Works, Ltd.
	OCP	Office Cherifien des Phosphates
	GCT	The Groupe Chimique Tunisien
	Phosagro	The Phosagro Company
	JPMC	Jordan Phosphate Mines Co.
23	Canpotex	An export company owned by all Saskatchewan producers (PotashCorp, IMC Global and Agrium). Sales through Canpotex are generally allocated pro rata to each producer on the basis of productive capacity. PotashCorp provides approximately 54% of Canpotex product.
24	PhosChem	An association formed under the Webb-Pomerene Act for US exports of phosphate fertilizer products. Members are PotashCorp, IMC Global and Mississippi Chemical. PCS Sales is responsible for export sales of liquid fertilizers for all PhosChem members while IMC Global is responsible for sales of solid fertilizers for members.

Page 15 Footnotes:

Other Producers
Abbreviated Producer Name	Complete Producer Name
IPC	International Potash Company
ICL	Israel Chemicals Limited
SQM	Sociedad Quimica y Minera de Chile S.A.
APC	Arab Potash Company
CVRD	Companhia Vale do Rio Doce
SF Phosphates	SF Phosphates Ltd. Company

Page 18 Footnotes:

Fact		Reference
1	Operating Rate (percent)	Definition: Total production divided by total capacity times 100
2	Demand	Definition: Producers’ home sales plus imports

Page 22 Footnotes:

Fact		Reference
1	Consumption Total World Consumption	Definition: Consumer end use Source: Fertecon, PotashCorp
2	PotashCorp Share of World Production	Source: Fertecon, PotashCorp
3	PotashCorp Operating Rate	Source: PotashCorp
4	Operating Rate (percent)	Definition: Total production divided by total capacity times 100
5	Operating Rate excluding PotashCorp	Source: Fertecon, PotashCorp

 

46   PotashCorp 2003 Annual Report

Footnotes to the Appendix

1	Where PotashCorp is listed as a source in conjunction with external sources, we have supplemented the external data with internal analysis.
2	Abbreviated Source Name	Complete Source Name and Location
	EIA	Energy Information Administration Washington, DC, USA
	NRCan	Natural Resources Canada Ottawa, ON, Canada
	PPI	Potash & Phosphate Institute Norcross, GA, USA
	PPIC	Potash & Phosphate Institute of Canada Saskatoon, SK, Canada
	Fertecon	Fertecon Limited Tunbridge Wells, Kent, England
	British Sulphur	British Sulphur Corporation Limited London, England
	Overseas Marine Services	Overseas Marine Services New York, NY, USA
	Blue, Johnson	Blue, Johnson & Associates Albuquerque, NM, USA
	IFA	International Fertilizer Industry Association Paris, France
	NYMEX	New York Mercantile Exchange New York, NY, USA
	OANDA	OANDA Corporation New York, NY, USA; Toronto, ON, Canada
	USDA	US Department of Agriculture Washington, DC, USA
	Canpotex	Canpotex Limited Saskatoon, SK, Canada
	Doane	Doane Agricultural Services St. Louis, MO, USA
	The Conference Board	The Conference Board New York, NY, USA

Fertilizer Measures

K₂O tonne
Measures the potassium content of fertilizers having different chemical analyses; to convert to a KCl tonne, divide by 0.61

P₂O₅ tonne
Measures the phosphorus content of fertilizers having different chemical analyses

N tonne
Measures the nitrogen content of fertilizers having different chemical analyses

Nutrient tonne
Measures the nutrient weight of potassium, phosphate and nitrogen fertilizers; consists of K₂O tonnes, P₂O₅ tonnes and N tonnes

Product tonne
Standard measure of the weights of all types of potash, phosphate and nitrogen products

Conversion Factors

To Convert:	To:	Multiply By:
Tons, long	pounds	2240.0
Tons, long	metric tonnes	1.0161
Tons, long	short tons	1.2000
Tonnes, metric	pounds	2204.6
Tonnes, metric	long tons	0.9842
Tonnes, metric	short tons	1.1023
Tons, short	pounds	2000.0
Tons, short	long tons	0.8929
Tons, short	metric tonnes	0.9072

Scientific Terms

Nitrogen

NH3	anhydrous ammonia, 82% N (gas, liquid)
HNO3	nitric acid (liquid)
NH4NO3	ammonium nitrate, 34% N (solid, liquid)
CO(NH2)2	urea, 46% N (solid)
UAN	nitrogen solutions, 28-32% N (liquid)

Phosphate

P2O5	phosphoric acid
MGA	merchant grade acid, 54% P2O5 (liquid)
DAP	diammonium phosphate, 46% P2O5 (solid)
MAP	monoammonium phosphate, 52% P2O5 (solid)
SPA	superphosphoric acid, 70% P2O5 (liquid)

Potash

KCl	potassium chloride
K2O	potassium oxide
KNO3	potassium nitrate
NaNO3	sodium nitrate

Nitrogen Production Factors

To produce
1 short ton of:	Requires:
Ammonia	33.5 million Btu of natural gas
Urea solution	0.58 tons of ammonia 0.78 tons of carbon dioxide (CO2)
Urea prills (46% N)	1.01 tons of urea solution
Nitric acid (22% N)	0.29 tons of ammonia
Ammonium nitrate solution	0.80 tons of nitric acid 0.22 tons of ammonia
UAN solution (32% N)	0.45 tons of ammonium nitrate solution 0.35 tons of urea solution

Phosphate Production Factors

To produce
1 short ton of:	Requires:
Sulfuric Acid (100% H2SO4)	0.33 short tons sulfur
Phosphoric Acid (100% P2O5)	2.8 short tons sulfuric acid 3.5-4.0 short tons phosphate rock
Diammonium Phosphate (46% P2O5)	1.175 short tons of wet phosphoric acid (40% P2O5) or 0.47 short tons P2O5 0.23 short tons ammonia or in raw material form:
	1.65-1.90 short tons phosphate rock 0.44 short tons sulfur 0.23 short tons ammonia
Triple Super Phosphate	0.4 short tons 70 BPL rock 0.85 short tons 40% P2O5 phosphoric acid

Statistical data calculated by PotashCorp are based on these production and conversion factors.

PotashCorp 2003 Annual Report   47

11 Year Report for the years ended December 31

	2003			2002		2001		2000			1999			1998		1997(4)		1996		1995(3)		1994(2)		1993(1)
Financial Data (in millions of US dollars except per share amounts)
Net Sales
Potash		619.1			544.5		531.8		582.1			565.6			548.4		508.0		405.5		421.4		365.1		213.1
Phosphate		781.9			636.8		653.6		785.2			846.5			1,012.9		955.6		897.0		412.1		—		—
Nitrogen		1,064.8			747.4		895.4		870.4			654.0			751.3		868.1		108.7		23.0		—		—
Total Net Sales		2,465.8			1,928.7		2,080.8		2,237.7			2,066.1			2,312.6		2,331.7		1,411.2		856.5		365.1		213.1
Gross Margin Potash		203.7			218.0		248.1		307.4			304.2			319.2		261.4		193.0		217.9		161.2		80.7
Phosphate		(16.5	)		41.9		64.5		76.8			130.5			230.1		196.6		196.2		87.1		—		—
Nitrogen		193.2			47.4		94.7		104.7			(21.4	)		64.8		133.0		2.1		2.3		—		—
Total Gross Margin		380.4			307.3		407.3		488.9			413.3			614.1		591.0		391.3		307.3		161.2		80.7
Depreciation and Amortization
Potash		52.4			46.3		34.1		40.9			37.2			36.2		39.6		38.5		42.1		39.3		29.9
Phosphate		75.7			76.8		72.0		68.1			61.8			59.1		55.1		51.7		28.8		—		—
Nitrogen		89.6			88.0		72.8		66.1			83.5			86.7		69.0		—		—		—		—
Other		9.7			8.0		6.8		11.9			8.6			8.8		6.3		—		—		—		—
Total Depreciation and Amortization		227.4			219.1		185.7		187.0			191.1			190.9		170.0		90.1		71.0		39.3		29.9
Operating (Loss) Income		(55.6	)		166.9		269.7		326.8			(353.0	)		442.3		442.0		297.4		219.6		97.5		56.9
Net (Loss) Income*(5)		(126.3	)		53.6		121.2		198.0			(412.0	)		261.0		297.1		209.0		159.5		91.2		44.7
Net (Loss) Income per share – Basic		(2.42	)		1.03		2.34		3.78			(7.60	)		4.82		5.68		4.59		3.68		2.12		1.13
Net (Loss) Income per share – Diluted		(2.42	)		1.03		2.32		3.76			(7.60	)		4.79		5.63		4.54		3.64		2.12		1.12
Dividends per share		1.00			1.00		1.00		0.99			0.99			0.96		1.03		1.06		1.06		0.77		0.53
Cash Provided by Operating Activities		381.5			316.4		75.7		480.4			343.6			578.0		467.8		296.2		233.5		150.7		49.8
Working Capital		176.1			8.6		47.1		(148.7	)		(104.8	)		329.2		281.7		278.8		136.1		103.3		37.0
Total Assets		4,567.3			4,685.6		4,597.3		4,145.7			3,916.8			4,534.3		4,427.6		2,494.4		2,581.8		1,027.8		1,036.4
Long-Term Debt		1,268.6			1,019.9		1,013.7		413.7			437.0			933.3		1,130.0		620.0		714.5		2.0		20.1
Shareholders’ Equity		1,973.8			2,092.5		2,086.5		2,012.1			1,962.4			2,453.8		2,227.9		1,405.5		1,241.9		964.3		903.7
Operating Data (thousands)
Employees at Year-End (actual #)		4,904			5,199		4,997		5,338			5,498			5,744		5,751		4,490		4,579		1,781		1,818
Potash Production (KCI) Tonnage		7,094			6,447		6,128		7,149			6,388			6,995		6,483		5,782		6,071		5,298		3,902
Phosphate Production (P205) Tonnage		1,861			1,512		1,573		2,042			2,124			2,363		2,282		2,096		1,008		—		—
Nitrogen Production (N) Tonnage		2,619			2,990		3,032		2,706			3,138			3,121		2,349		—		—		—		—
Potash Sales – KCI Tonnes		7,083			6,327		6,243		6,912			6,474			6,283		6,640		5,612		5,848		5,569		3,795
Phosphate Sales – Product Tonnes		3,647			2,863		3,045		3,893			4,016			4,627		4,434		4,305		2,206		—		—
Nitrogen Sales – Product Tonnes		6,080			6,391		6,381		6,760			6,705			6,596		5,851		535		115		—		—

(1)	Data for 1993 and thereafter reflect the acquisition of Potash Company of America assets on October 7, 1993.
(2)	The consolidated financial statements of the company for 1994 and prior years have been restated to US dollars using the translation of convenience method. The Canadian dollar amounts for these periods have been converted to US dollars at the exchange rate of US$1.00 = CDN$1.4028.
(3)	Data for 1995 and thereafter reflect the acquisition of Texasgulf Inc. on April 10, 1995 and the acquisition of White Springs Agricultural Chemicals, Inc. on October 31, 1995.
(4)	Data for 1997 and thereafter reflect the acquisition of Arcadian Corporation on March 6, 1997.
(5)	There were no extraordinary items nor were there any discontinued operations in any of the accounting periods.

The consolidated financial statements of the company have been prepared in accordance with Canadian generally accepted accounting principles. These principles differ in some respects from those applicable in the United States. (See Note 34 to the company’s consolidated financial statements.) Certain of the prior years’ figures have been reclassified to conform with the current year’s presentation.

Additional Information

* The after-tax effects of charges for asset impairments, plant shutdowns, plant closures and office consolidation are included (as applicable) in the data for 2003, 2000 and 1999 in the amounts of $203.2 million, $1.5 million and $547.1 million, respectively.

48   PotashCorp 2003 Annual Report

Financial Performance Indicators  (in millions of US dollars)

	2003			2002			2001			2000			1999			1998			1997			1996			1995			1994			1993
Summary
Net (loss) income		(126.3)			53.6			121.2			198.0			(412.0)			261.0			297.1			209.0			159.5			91.2			44.7
Adjusted net income(1)		76.9			53.6			121.2			199.5			135.1			261.0			297.1			209.0			159.5			91.2			44.7
Net (loss) income per diluted share		(2.42)			1.03			2.32			3.76			(7.60)			4.79			5.63			4.54			3.64			2.12			1.12
Adjusted net income per diluted share(1)		1.46			1.03			2.32			3.79			2.49			4.79			5.63			4.54			3.64			2.12			1.12
EBITDA(2)		171.8			386.0			455.4			513.8			(161.9)			633.2			612.0			387.5			290.6			136.8			86.8
Adjusted EBITDA(2)		417.7			386.0			455.4			508.2			401.8			633.2			612.0			387.5			290.6			136.8			86.8
Cash flow prior to working capital changes(3)		364.5			289.2			345.8			405.1			319.6			556.2			489.3			321.7			242.1			130.9			74.8
Cash provided by operating activities		381.5			316.4			75.7			480.4			343.6			578.0			467.8			296.2			233.5			150.7			49.8
Return on assets		(2.8%)			1.1%			2.6%			4.8%			(10.5%)			5.8%			6.7%			8.4%			6.2%			8.9%			4.3%
Cash flow return(4)		2.6%			6.7%			8.0%			10.8%			(3.5%)			12.6%			12.9%			12.5%			13.6%			10.0%			6.8%
Weighted average cost of capital		7.7			7.0%			7.6%			8.7%			9.1%			8.1%			8.7%			9.9%			8.8%			N/A			N/A
Total shareholder return		37.6%			5.2%			(20.3%)			64.6%			(23.0%)			(21.9%)			(1.1%)			21.4%			111.6%			35.7%			29.2%
Total debt to capital		42.3%			41.7%			42.1%			31.1%			31.9%			29.5%			35.7%			30.9%			41.5%			—			9.2%
Net debt to capital(5)		42.2%			41.3%			41.3%			28.7%			30.8%			28.1%			35.5%			30.9%			40.3%			—			9.2%
Reconciliations and Calculations
Net (loss) income		(126.3	)		53.6			121.2			198.0			(412.0	)		261.0			297.1			209.0			159.5			91.2			44.7
Provision for plant shutdowns		123.7			—			—			—			—			—			—			—			—			—			—
Provision for PCS Yumbes		140.5			—			—			—			—			—			—			—			—			—			—
Other provisions for plant closures, office consolidation and asset impairment		—			—			—			24.3			591.6			—			—			—			—			—			—
Gain on the sale of Moab Inc.		—			—			—			(16.3	)		—			—			—			—			—			—			—
Tax effect		(61.0	)		—			—			(6.5	)		(44.5	)		—			—			—			—			—			—
Adjusted net income(1)		76.9			53.6			121.2			199.5			135.1			261.0			297.1			209.0			159.5			91.2			44.7
Net (loss) income per diluted share		(2.42	)		1.03			2.32			3.76			(7.60	)		4.79			5.63			4.54			3.64			2.12			1.12
After-tax effect per diluted share for above provisions		3.88			—			—			0.03			10.09			—			—			—			—			—			—
Adjusted net income per diluted share(1)		1.46			1.03			2.32			3.79			2.49			4.79			5.63			4.54			3.64			2.12			1.12
Net (loss) income		(126.3	)		53.6			121.2			198.0			(412.0	)		261.0			297.1			209.0			159.5			91.2			44.7
Income taxes		(20.6	)		30.2			68.2			67.2			7.5			117.5			69.1			43.7			22.9			3.5			3.5
Interest expense		91.3			83.1			80.3			61.6			51.5			63.8			75.8			44.7			37.2			2.8			8.7
Depreciation and amortization		227.4			219.1			185.7			187.0			191.1			190.9			170.0			90.1			71.0			39.3			29.9
EBITDA(2)		171.8			386.0			455.4			513.8			(161.9	)		633.2			612.0			387.5			290.6			136.8			86.8
Impairment charges and non-cash shutdown/closure-related costs, office consolidation costs and the gain on sale of Moab Inc.		245.9			—			—			(5.6	)		563.7			—			—			—			—			—			—
Adjusted EBITDA(2)		417.7			386.0			455.4			508.2			401.8			633.2			612.0			387.5			290.6			136.8			86.8
Cash flow prior to working capital changes(3)		364.5			289.2			345.8			405.1			319.6			556.2			489.3			321.7			242.1			130.9			74.8
Accounts receivable		(39.5	)		(11.1	)		69.9			(52.2	)		33.8			48.8			23.5			(7.4	)		(48.8	)		(14.4	)		(6.3	)
Inventories		11.8			(18.2	)		(76.1	)		(27.4	)		(16.1	)		(7.9	)		19.9			2.5			9.3			14.6			(21.9	)
Prepaid expenses		11.4			(3.9	)		2.3			(3.1	)		3.2			(16.6	)		3.7			(1.9	)		2.5			0.5			(0.3	)
Accounts payable and accrued charges		51.6			37.0			(244.6	)		137.4			(5.0	)		1.3			(72.0	)		0.5			1.8			—			—
Current income taxes		(18.3	)		23.4			(21.6	)		20.6			8.1			(3.8	)		3.4			(19.2	)		26.6			19.1			3.5
Changes in non-cash operating working capital		17.0			27.2			(270.1	)		75.3			24.0			21.8			(21.5	)		(25.5	)		(8.6	)		19.8			(25.0	)
Cash provided by operating activities		381.5			316.4			75.7			480.4			343.6			578.0			467.8			296.2			233.5			150.7			49.8

PotashCorp 2003 Annual Report   49

Financial Performance Indicators (in millions of US dollars)

Reconciliations and Calculations (continued)

	2003			2002			2001			2000			1999			1998			1997			1996			1995			1994			1993
Net (loss) income		(126.3	)		53.6			121.2			198.0			(412.0	)		261.0			297.1			209.0			159.5			91.2			44.7
Total assets		4,567.3			4,685.6			4,597.3			4,145.7			3,916.8			4,534.3			4,427.6			2,494.4			2,581.8			1,027.8			1,036.4
Return on assets		(2.8%	)		1.1%			2.6%			4.8%			(10.5%	)		5.8%			6.7%			8.4%			6.2%			8.9%			4.3%
Net (loss) income		(126.3	)		53.6			121.2			198.0			(412.0	)		261.0			297.1			209.0			159.5			91.2			44.7
Income taxes		(20.6	)		30.2			68.2			67.2			7.5			117.5			69.1			43.7			22.9			3.5			3.5
Interest expense		91.3			83.1			80.3			61.6			51.5			63.8			75.8			44.7			37.2			2.8			8.7
Cash taxes paid		(22.8	)		(4.4	)		(41.5	)		(13.4	)		(5.8	)		(19.2	)		(41.3	)		(32.9	)		(6.2	)		(1.2	)		—
Depreciation and amortization		227.4			219.1			185.7			187.0			191.1			190.9			170.0			90.1			71.0			39.3			29.9
Cash flow(4)		149.0			381.6			413.9			500.4			(167.7	)		614.0			570.7			354.6			284.4			135.6			86.8
Total assets		4,567.3			4,685.6			4,597.3			4,145.7			3,916.8			4,534.3			4,427.6			2,494.4			2,581.8			1,027.8			1,036.4
Accumulated depreciation of property, plant and equipment		1,576.2			1,454.7			1,274.3			1,111.8			951.0			812.4			662.0			528.7			454.1			388.4			355.4
Accumulated amortization of goodwill		7.3			7.3			7.3			4.3			1.4			27.4			12.7			0.3			—			—			—
Accounts payable and accrued charges		(380.3	)		(347.0	)		(271.4	)		(525.9	)		(349.1	)		(349.7	)		(348.1	)		(180.0	)		(199.2	)		(60.9	)		(34.2	)
Adjusted Assets		5,770.5			5,800.6			5,607.5			4,735.9			4,520.1			5,024.4			4,754.2			2,843.4			2,836.7			1,355.3			1,357.6
Average Adjusted Assets		5,785.6			5,704.1			5,171.7			4,628.0			4,772.3			4,889.3			4,436.6			2,840.1			2,096.0			1,356.5			1,284.8
Cash flow return(4)		2.6%			6.7%			8.0%			10.8%			(3.5%	)		12.6%			12.9%			12.5%			13.6%			10.0%			6.8%
Weighted average cost of capital		7.7%			7.0%			7.6%			8.7%			9.1%			8.1%			8.7%			9.9%			8.8%			N/A			N/A
End of year closing price (dollars)		86.48			63.59			61.38			78.31			48.19			63.88			83.00			85.00			70.88			34.00			25.63
Beginning of year opening price (dollars)		63.59			61.38			78.31			48.19			63.88			83.00			85.00			70.88			34.00			25.63			20.25
Change in share price (dollars)		22.89			2.21			(16.93	)		30.12			(15.69	)		(19.12	)		(2.00	)		14.12			36.88			8.37			5.38
Dividends per share (dollars)		1.00			1.00			1.00			0.99			0.99			0.96			1.03			1.06			1.06			0.77			0.53
Total shareholder return		37.6%			5.2%			(20.3%	)		64.6%			(23.0%	)		(21.9%	)		(1.1%	)		21.4%			111.6%			35.7%			29.2%
Short-term debt		176.2			473.0			501.1			488.8			474.5			94.9			101.9			6.3			—			—			67.9
Current portion of long-term debt		1.3			3.4			—			5.7			7.4			0.4			2.7			1.8			165.9			0.6			3.1
Long-term debt		1,268.6			1,019.9			1,013.7			413.7			437.0			933.3			1,130.0			620.0			714.5			2.0			20.1
Total debt		1,446.1			1,496.3			1,514.8			908.2			918.9			1,028.6			1,234.6			628.1			880.4			2.6			91.1
Cash and cash equivalents		(4.7	)		(24.5	)		(45.3	)		(100.0	)		(44.0	)		(68.0	)		(8.8	)		—			(40.5	)		(16.6	)		—
Net debt(5)		1,441.4			1,471.8			1,469.5			808.2			874.9			960.6			1,225.8			628.1			839.9			(14.0	)		91.1
Shareholders’ Equity		1,973.8			2,092.5			2,086.5			2,012.1			1,962.4			2,453.8			2,227.9			1,405.5			1,241.9			964.3			903.7
Total debt to capital		42.3%			41.7%			42.1%			31.1%			31.9%			29.5%			35.7%			30.9%			41.5%			—			9.2%
Net debt to capital(5)		42.2%			41.3%			41.3%			28.7%			30.8%			28.1%			35.5%			30.9%			40.3%			—			9.2%
Current assets		733.9			832.0			819.6			871.7			726.2			774.2			734.5			467.0			501.1			164.7			149.6
Current liabilities		(557.8	)		(823.4	)		(772.5	)		1,020.4			(831.0	)		(445.0	)		(452.8	)		(188.2	)		(365.0	)		(61.4	)		(112.6	)
Working capital		176.1			8.6			47.1			(148.7	)		(104.8	)		329.2			281.7			278.8			136.1			103.3			37.0
Cash and cash equivalents		(4.7	)		(24.5	)		(45.3	)		(100.0	)		(44.0	)		(68.0	)		(8.8	)		—			(40.5	)		(16.6	)		—
Short-term debt		176.2			473.0			501.1			488.8			474.5			94.9			101.9			6.3			—			—			67.9
Current portion of long-term debt		1.3			3.4			—			5.7			7.4			0.4			2.7			1.8			165.9			0.6			3.1
Non-cash operating working capital		348.9			460.5			502.9			245.8			333.1			356.5			377.5			286.9			261.5			87.3			108.0

(1)	The company’s management uses adjusted net income (net (loss) income adjusted to exclude impairment charges and shutdown/closure-related costs, office consolidation costs and the gain on the sale of Moab Inc.) and adjusted net income per diluted share excluding such items as supplemental financial measures. These measures are used to evaluate PotashCorp’s operating performance and to compare such performance with the company’s historical operating results and the operating results of other companies. The company’s management believes that these measures allow management to consider the ongoing financial performance of the company with respect to short-term patterns and long-term trends without the potentially obscuring effects of impairment charges and shutdown/closure-related costs.
	As compared to net income (loss) according to GAAP, these measures are limited by the exclusion of items that have been identified by the company’s impairment and shutdown-related analysis. PotashCorp’s management compensates for these limitations by applying the specific recognition, measurement, presentation and disclosure provisions for such charges and costs as required under GAAP. Management also evaluates such charges and costs through other financial measures such as cash flow provided by operating activities.
	For periods in which there was a net loss applicable to common shareholders, any outstanding stock options to purchase the company’s common shares with underlying exercise prices less than the average market prices were excluded from the calculation of diluted net loss per share, as inclusion of these securities would have been anti-dilutive to the net loss per share.
	The weighted average number of shares used for calculating adjusted net income per share in 2003, 2000 and 1999 was 52,633,000, 52,703,000 and 54,230,000, respectively.

50   PotashCorp 2003 Annual Report

Financial Performance Indicators

Reconciliations and Calculations (continued)

(2)	PotashCorp uses EBITDA and adjusted EBITDA as supplemental financial measures of its operational performance. Management believes EBITDA and adjusted EBITDA to be important measures as they exclude the effects of items which primarily reflect the impact of long-term investment decisions, rather than the performance of the company’s day-to-day operations. As compared to net income (loss) according to GAAP, these measures are limited in that they do not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in the company’s business or the non-cash charges associated with impairments and shutdown-related costs. Management evaluates such charges and costs through other financial measures such as capital expenditures and cash flow provided by operating activities. The company also believes that these measurements are used by certain investors and analysts to measure a company’s ability to service debt and to meet other payment obligations or as a valuation measurement.
(3)	Cash flow prior to working capital changes is defined as the cash provided by operating activities, exclusive of changes in non-cash operating working capital. PotashCorp uses cash flow prior to working capital changes as a supplemental financial measure in its evaluation of liquidity. Management believes that adjusting principally for the swings in non-cash working capital items due to seasonality assists it in making long-term liquidity assessments. The company also believes that this measurement is used by certain investors and analysts as a measure of liquidity or as a valuation measurement.
(4)	PotashCorp uses cash flow and cash flow return as supplemental measures to evaluate the performance of the company’s assets in terms of the cash flow they have generated. Calculated on the total cost basis of the company’s assets rather than on the depreciated value, these measures reflect cash returned on the total investment outlay. The company believes these measures to be one of the best predictors of shareholder value and measures used by the investment community in evaluating the company’s investment decisions. As such, management believes this information to be useful to investors.
(5)	Management believes that net debt and net debt to capital ratio are useful to investors because they are helpful in determining the company’s leverage. We also believe that since we have the ability to and may elect to use a portion of cash and cash equivalents to retire debt or to incur additional expenditures without increasing debt, it is appropriate to apply cash and cash equivalents to debt in calculating net debt and net debt to capital. PotashCorp also believes that this measurement is used by certain investors and analysts as a financial leverage measure.

N/A – not available

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

The preceding information is included for convenience only. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles (“GAAP”). Adjusted net income, adjusted net income per diluted share, EBITDA, adjusted EBITDA, cash flow prior to working capital changes, cash flow, cash flow return, net debt and net debt to capital are not measures of financial performance (nor do they have standardized meanings) under either Canadian GAAP or US GAAP. In evaluating these measures, investors should consider that the methodology applied in calculating such measures may differ among companies and analysts.

The company’s management believes these non-GAAP measures provide useful supplemental information to investors in order that they may evaluate PotashCorp’s financial performance using the same measures used by the company’s management. PotashCorp’s management believes that, as a result, the investor is afforded greater transparency in assessing the financial performance of the company. These non-GAAP financial measures should not be considered as a substitute for, nor superior to, measures of financial performance prepared in accordance with GAAP.

Financial Terms

Total shareholder return = (change in market price per common share + dividends per share) / beginning market price per common share

Book value per share = total shareholders’ equity / number of common shares outstanding

Debt to capital = total debt / (total debt + total shareholders’ equity)

Net debt to capital = (total debt – cash and cash equivalents) / (total debt – cash and cash equivalents + total shareholders’ equity)

Cash flow = net income or loss + income taxes + interest – cash taxes paid + depreciation and amortization

Cash flow return = cash flow / average (total assets + accumulated depreciation and amortization – accounts payable and accrued charges)

EBITDA represents earnings (net income or loss) before interest, taxes, depreciation and amortization

Adjusted EBITDA = EBITDA + impairment charges + non-cash shutdown/closure-related costs and office consolidation costs – gain on sale of Moab Inc.

Return on assets = net income or loss / total assets

Average adjusted assets is calculated as the simple average of the current year’s adjusted assets and the previous year’s adjusted assets, except in a year where a material acquisition occurred, in which case the weighted average rather than the simple average is calculated; the last material acquisition was in 1997.

PotashCorp 2003 Annual Report   51

Management’s Responsibility for Financial Reporting

The accompanying consolidated financial statements and related financial information are the responsibility of PotashCorp management and have been prepared in accordance with accounting principles generally accepted in Canada and include amounts based on estimates and judgments. Financial information included elsewhere in this report is consistent with the consolidated financial statements.

To meet management’s responsibility for financial reporting and to obtain reasonable assurance for the integrity and reliability of the financial reports, the company’s accounting and internal control systems are designed to safeguard assets and to properly record transactions and events. Policies and procedures are maintained to support the accounting and internal control systems.

Our independent auditors, Deloitte & Touche LLP, provide an objective, independent audit of the consolidated financial statements. Their report for 2003 is included.

The Board of Directors, through the audit committee composed exclusively of outside directors, meets regularly with the independent auditors – both jointly and separately – to review significant accounting, reporting and internal control matters. The audit committee also recommends to the Board the independent auditors to be proposed to the shareholders for appointment at the annual meeting. Interim consolidated financial statements are reviewed by the audit committee prior to release to shareholders.

The consolidated financial statements are approved by the Board of Directors on the recommendation of the audit committee.

W. Doyle	W. Brownlee
President and	Senior Vice President and
Chief Executive Officer	Chief Financial Officer
February 6, 2004

Auditors’ Report to the Shareholders of Potash Corporation of Saskatchewan Inc.

We have audited the consolidated statements of financial position of Potash Corporation of Saskatchewan Inc. as at December 31, 2003 and 2002 and the consolidated statements of operations and retained earnings and of cash flow for each of the years in the three-year period ended December 31, 2003. These consolidated financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards in Canada and the United States of America. These standards require that we plan and perform an audit to obtain reasonable assurance whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of Potash Corporation of Saskatchewan Inc. as at December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2003 in accordance with Canadian generally accepted accounting principles.

Saskatoon, Saskatchewan
February 6, 2004	Chartered Accountants

Comments by Auditor on Canada-United States of America Reporting Differences

In the United States of America, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when there are changes in accounting principles that have a material effect on the comparability of the consolidated financial statements, such as the changes described in Note 3 to Potash Corporation of Saskatchewan Inc.’s consolidated financial statements, or when there is a retroactive restatement such as that described in Note 34. Our report to the shareholders dated February 6, 2004 is expressed in accordance with Canadian reporting standards, which do not require a reference to such changes in accounting principles in the auditors’ report when the changes are properly accounted for and adequately disclosed in the consolidated financial statements.

Saskatoon, Saskatchewan
February 6, 2004	Chartered Accountants

52   PotashCorp 2003 Annual Report

Consolidated Statements of Financial Position

as at December 31	in millions of US Dollars
	2003		2002
Assets
Current Assets
Cash and cash equivalents	$	4.7	$	24.5
Accounts receivable (Note 4)		305.0		267.8
Inventories (Note 5)		395.2		499.3
Prepaid expenses		29.0		40.4
		733.9		832.0
Property, plant and equipment (Note 6)		3,108.1		3,269.9
Other assets (Note 7)		628.3		486.7
Goodwill (Note 8)		97.0		97.0
	$	4,567.3	$	4,685.6
Liabilities
Current Liabilities
Short-term debt (Note 9)	$	176.2	$	473.0
Accounts payable and accrued charges (Note 10)		380.3		347.0
Current portion of long-term debt (Note 11)		1.3		3.4
		557.8		823.4
Long-term debt (Note 11)		1,268.6		1,019.9
Future income tax liability (Note 24)		484.2		468.9
Accrued post-retirement/post-employment benefits (Note 13)		194.5		195.4
Accrued reclamation costs (Note 14)		81.3		80.0
Other non-current liabilities and deferred credits		7.1		5.5
		2,593.5		2,593.1
Contingencies (Note 28)
Shareholders’ Equity
Share Capital (Note 15)		1,245.8		1,186.9
Unlimited authorization of common shares without par value; issued and outstanding 53,112,216 and 52,077,648 shares in 2003 and 2002, respectively
Unlimited authorization of first preferred shares; none outstanding
Contributed Surplus (Note 16)		265.2		264.2
Retained Earnings		462.8		641.4
		1,973.8		2,092.5
	$	4,567.3	$	4,685.6

(See Notes to the Consolidated Financial Statements)

Approved by the Board,

Director	Director

PotashCorp 2003 Annual Report   53

Consolidated Statements of Operations and Retained Earnings

for the years ended December 31	in millions of US Dollars except per-share amounts
	2003			2002			2001
Net sales (Note 17)	$	2,465.8		$	1,928.7		$	2,080.8
Cost of goods sold (Note 18)		2,085.4			1,621.4			1,673.5
Gross Margin		380.4			307.3			407.3
Selling and administrative (Note 19)		96.1			91.7			99.7
Provincial mining and other taxes (Note 20)		57.0			68.0			70.0
Provision for plant shutdowns (Note 21)		123.7			—			—
Provision for PCS Yumbes S.C.M. (Note 22)		140.5			—			—
Foreign exchange loss (gain)		51.9			5.5			(13.7	)
Other income		(33.2	)		(24.8	)		(18.4	)
		436.0			140.4			137.6
Operating (Loss) Income		(55.6	)		166.9			269.7
Interest Expense (Note 23)		91.3			83.1			80.3
(Loss) Income Before Income Taxes		(146.9	)		83.8			189.4
Income Taxes (Note 24)		(20.6	)		30.2			68.2
Net (Loss) Income		(126.3	)		53.6			121.2
Retained Earnings, Beginning of Year		641.4			639.8			570.5
Dividends		(52.3	)		(52.0	)		(51.9	)
Retained Earnings, End of Year	$	462.8		$	641.4		$	639.8
Net (Loss) Income per Share — Basic (Note 25)	$	(2.42	)	$	1.03		$	2.34
Net (Loss) Income per Share — Diluted (Note 25)	$	(2.42	)	$	1.03		$	2.32
Dividends per Share	$	1.00		$	1.00		$	1.00

(See Notes to the Consolidated Financial Statements)

54   PotashCorp 2003 Annual Report

Consolidated Statements of Cash Flow

for the years ended December 31											in millions of US Dollars
			2003					2002						2001
Operating Activities
Net (loss) income			$	(126.3	)			$	53.6					$	121.2
Items not affecting cash
Depreciation and amortization	227.4					219.1						185.7
Loss on disposal of property, plant and equipment	1.0					1.0						0.4
Stock-based compensation	1.0					—						—
Provision for plant shutdowns	118.3					—						—
Provision for PCS Yumbes S.C.M.	127.6					—						—
Foreign exchange on future income tax	35.9					1.0						(8.2	)
(Recovery of) provision for future income tax	(20.6	)				6.0						47.7
Share of earnings of equity investees	(12.4	)				(5.3	)					—
Provision for post-retirement/post-employment benefits	9.7					18.2						2.1
Accrued reclamation costs	1.3					(3.0	)					(3.7	)
Other non-current liabilities and deferred credits	1.6					(1.4	)					0.6
Subtotal of items not affecting cash				490.8					235.6						224.6
Changes in non-cash operating working capital
Accounts receivable	(39.5	)				(11.1	)					69.9
Inventories	11.8					(18.2	)					(76.1	)
Prepaid expenses	11.4					(3.9	)					2.3
Accounts payable and accrued charges	51.6					37.0						(244.6	)
Current income taxes	(18.3	)				23.4						(21.6	)
Subtotal of changes in non-cash operating working capital				17.0					27.2						(270.1	)
Cash provided by operating activities				381.5					316.4						75.7
Investing Activities
Additions to property, plant and equipment				(150.7	)				(212.2	)					(513.7	)
Investment in Sociedad Quimica y Minera de Chile S.A. (“SQM”)				—					(23.2	)					(130.4	)
Investment in Arab Potash Company (“APC”)				(178.3	)				—						—
Dividends received from equity investees				4.0					—						—
Additions to other assets				(32.7	)				(36.0	)					(45.9	)
Cash used in investing activities				(357.7	)				(271.4	)					(690.0	)
Cash (deficiency) before financing activities				23.8					45.0						(614.3	)
Financing Activities
Proceeds from long-term obligations				250.0					11.2						600.0
Repayment of long-term obligations				(3.4	)				(1.3	)					(5.8	)
Proceeds from short-term debt				—					—						12.2
Repayment of short-term debt				(296.8	)				(28.1	)					—
Dividends				(52.3	)				(52.0	)					(51.9	)
Issuance of shares				58.9					4.4						5.1
Cash (used in) provided by financing activities				(43.6	)				(65.8	)					559.6
Decrease in Cash and Cash Equivalents				(19.8	)				(20.8	)					(54.7	)
Cash and Cash Equivalents, Beginning of Year				24.5					45.3						100.0
Cash and Cash Equivalents, End of Year			$	4.7				$	24.5					$	45.3
Supplemental cash flow disclosure
Interest paid			$	83.8				$	81.2					$	79.3
Income taxes paid			$	22.8				$	4.4					$	41.5

(See Notes to the Consolidated Financial Statements)

PotashCorp 2003 Annual Report   55

Notes to the Consolidated Financial Statements

in millions of US Dollars except share and per-share amounts

1. DESCRIPTION OF BUSINESS

With its subsidiaries, Potash Corporation of Saskatchewan Inc. (“PCS”) – together known as “PotashCorp” or “the company” except to the extent the context otherwise requires – forms an integrated fertilizer and related industrial and feed products company. The company has producing assets in the following locations:

• Potash

– five mines and mills and mining rights to potash at a sixth location, all in the province of Saskatchewan

– one mine and two mills in the province of New Brunswick

– one plant in Chile that produces sodium nitrate, potassium nitrate and other products

• Phosphate

– a mine and processing facility in the state of North Carolina

– a mine and processing facilities in the state of Florida

– a processing facility in the state of Louisiana

– phosphate feed plants in five states and one in Brazil

– two industrial phosphoric acid plants, in the states of North Carolina and Ohio

• Nitrogen

– four plants located in the states of Georgia, Louisiana, Ohio and Tennessee

– large-scale operations in Trinidad

The company owns or leases approximately 175 terminal and warehouse facilities strategically located in Canada and the United States, and services customers with a fleet of approximately 6,000 rail cars.

PotashCorp sells potash from its Saskatchewan mines for use outside North America exclusively to Canpotex Limited (“Canpotex”). Canpotex, a potash export, sales and marketing company owned in equal shares by the three potash producers in the Province of Saskatchewan (including the company), resells potash to offshore customers. PCS Sales (Canada) Inc. and PCS Sales (USA), Inc., wholly owned subsidiaries of PotashCorp, execute marketing and sales for the company’s potash, phosphate and nitrogen products in North America. PCS Sales (Canada) Inc. executes offshore marketing and sales for the company’s New Brunswick potash. PCS Sales (USA), Inc. generally executes offshore marketing and sales for the company’s nitrogen, potassium nitrate and sodium nitrate products. Phosphate Chemicals Export Association, Inc. (“PhosChem”), an unrelated phosphate export association established under United States law, is the principal vehicle through which the company executes offshore marketing and sales for its phosphate fertilizers.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The company’s accounting policies are in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”). These policies are consistent with accounting principles generally accepted in the United States (“US GAAP”) in all material respects except as outlined in Note 34. The preparation of consolidated financial statements in accordance with generally accepted accounting

principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. As described in Notes 21 and 22, during the year the company approved plans to restructure certain operations. These plans require significant estimates to be made of the recoverability of the carrying value of certain assets based on their capacity to generate future cash flows. Although company management believes it has made reasonable estimates consistent with current conditions, internal planning and expected future operations, such estimates are subject to significant uncertainties and judgments. As a result, it is reasonably possible that the amounts reported for asset impairments in connection with these initiatives could be different if the company were to use different assumptions or if conditions were to change in the future. The company is also required to report estimated expenses for employee termination, contract termination and other exit costs. Because such activities are complex processes that can take several months to complete, they involve periodically reassessing estimates. As a result, the company may have to change originally reported estimates when actual payments are made or the activities are completed. The following accounting policies are considered to be significant:

Principles of Consolidation

The consolidated financial statements include the accounts of PotashCorp and its principal operating subsidiaries:

• PCS Sales (Canada) Inc.

– PCS Joint Venture, L.P.

• PCS Sales (USA), Inc.

• PCS Phosphate Company, Inc.

– PCS Purified Phosphates

• White Springs Agricultural Chemicals, Inc. (“White Springs”)

• PCS Nitrogen, Inc. (“PCS Nitrogen”)

– PCS Nitrogen Fertilizer, L.P.

– PCS Nitrogen Ohio, L.P.

– PCS Nitrogen Limited

– PCS Nitrogen Trinidad Limited

• PCS Cassidy Lake Company (“PCS Cassidy Lake”)

• PCS Yumbes S.C.M. (“PCS Yumbes”)

• PCS Fosfatos do Brasil Ltda.

All significant intercompany balances and transactions have been eliminated.

Cash Equivalents

Highly liquid investments with an original maturity of three months or less are considered to be cash equivalents.

Inventories

Inventories of finished product, raw materials and work in process are valued at the lower of cost and net realizable value. Cost for substantially all raw materials and work in process inventories is

56 Notes to the Consolidated Financial Statements in millions of US Dollars except share and per-share amounts

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

determined using the first in, first out (FIFO) method. Certain inventories of materials and supplies are valued at the lower of average cost and replacement cost and certain inventories of materials and supplies are valued at the lower of cost and market. Cost for substantially all finished product is determined using the weighted average cost method (see Note 3).

Prepaid Expenses

Prepaid expenses include prepaid freight relating to product inventory stored at warehouse and terminal facilities.

Property, Plant and Equipment

Property, plant and equipment (which includes mine development costs) are carried at cost. Costs of additions, betterments, renewals and interest during construction are capitalized.

Maintenance and repair expenditures, which do not improve or extend productive life, are expensed as incurred.

Depreciation and Amortization

Depreciation and amortization are provided for on a basis and at rates calculated to amortize the cost of the property, plant and equipment over their estimated useful lives. Depreciation and amortization rates for all mine assets (including mine development costs) and potash mills are determined using the units of production method based on the shorter of estimates of deposit or service lives. Other asset classes are depreciated or amortized on a straight-line basis as follows: land improvements 5 to 30 years, buildings and improvements 6 to 30 years and machinery and equipment (comprised primarily of plant equipment) 20 to 25 years.

Goodwill

All business combinations are accounted for using the purchase method. Goodwill is carried at cost and represents the excess of the purchase price and related costs over the fair value assigned to the net tangible assets of businesses acquired. Effective January 1, 2002, goodwill is no longer amortized but is subject to fair value impairment tests on at least an annual basis.

Other Assets

Issue costs of long-term obligations are capitalized to deferred charges and are amortized to interest expense over the term of the related liability.

Preproduction costs are capitalized to deferred charges and represent costs incurred prior to obtaining commercial production at new facilities, net of revenue earned, and are amortized on either a straight-line or units of production basis over 10 years.

The costs of constructing bases for gypsum stacks and settling ponds are capitalized to deferred charges and are amortized on a straight-line basis over their estimated useful lives of 3 to 5 years.

Land held for sale is stated at the lower of cost or net realizable value.

Investments in which the company exercises significant influence (but does not control) are accounted for using the equity method. Other investments are stated at cost.

Rotational plant maintenance costs, which consist primarily of planned major maintenance projects (also known as “turnarounds”), are capitalized when incurred and are amortized over 2 to 4 years.

Asset Impairment

The company reviews long-lived assets and certain identifiable intangible assets to be held and used whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets and certain identifiable intangible assets that management expects to hold and use is based on the fair value of the assets, whereas such assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. During 2003, the company recognized certain asset impairment charges as described in Notes 21 and 22. As at December 31, 2003, the company determined that there were no other triggering events requiring additional impairment analysis.

Goodwill impairment is assessed at the reporting unit level at least annually, in April. Reporting units comprise business operations with similar economic characteristics and strategies and may represent either a business segment or a business unit within a business segment. Potential impairment is identified when the carrying value of a reporting unit, including the allocated goodwill, exceeds its fair value. Goodwill impairment is measured as the excess of the carrying amount of the reporting unit’s allocated goodwill over the implied fair value of the goodwill, based on the fair value of the assets and liabilities of the reporting unit.

Leases

Leases entered into are classified as either capital or operating leases. Leases that transfer substantially all of the benefits and risks of ownership of property to the company are accounted for as capital leases. At the time a capital lease is entered into, an asset is recorded together with the related long-term obligation. Equipment acquired under capital leases is being depreciated on the same basis as other property, plant and equipment. Gains or losses resulting from sale-leaseback transactions are deferred and amortized in proportion to the amortization of the leased asset. Rental payments under operating leases are expensed as incurred.

Post-Employment and Post-Retirement Benefits

The company offers a number of benefit plans which provide pension and other benefits to qualified employees. These plans include statutory pension plans, supplemental pension plans, defined contribution plans and health, disability, dental and life insurance plans.

The company accrues its obligations under employee benefit plans and the related costs, net of plan assets. The cost of pensions and other retirement benefits earned by employees is actuarially determined using the projected benefit method prorated on service and management’s best estimate of expected plan investment performance, salary escalation, retirement ages of employees and expected health care costs. For the purpose of calculating the expected return on plan assets, those assets are valued at fair value. Prior service costs from plan amendments are amortized on a straight-line basis over the average remaining service period of employees active at the date of amendment. The excess of the net actuarial gain (loss) over 10 percent of the greater of the benefit obligation and the fair value of plan assets is amortized over the average remaining service period of active employees. When the restructuring of a benefit plan gives rise to both a curtailment and a

 

PotashCorp 2003 Annual Report   57

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

settlement of obligations, the curtailment is accounted for prior to the settlement. Actuaries perform valuations on a regular basis to determine the actuarial present value of the accrued pension and other retirement benefits.

Pension expense includes the net of management’s best estimate of the cost of benefits provided, interest cost of projected benefits, return on pension plan assets and amortization of experience gains or losses and plan amendments.

Defined contribution plan costs are recognized in income for services rendered by employees during the period.

Environmental Costs

Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to existing conditions caused by past operations and that do not contribute to current or future revenue generation are expensed. Provisions for estimated costs are recorded when environmental remedial efforts are likely and the costs can be reasonably estimated.

In determining the provisions, the company uses the most current information available, including similar past experiences, available technology, regulations in effect, the timing of remediation and cost-sharing arrangements.

Stock-Based Compensation Plans

The company has four stock-based compensation plans, which are described in Note 26. The company accounts for stock options using the fair value method, whereby the fair value of stock options is determined on their grant date and recorded as compensation expense over the period that the stock options vest, with a corresponding increase to contributed surplus. When stock options are exercised, the proceeds, together with the amount recorded in contributed surplus, are recorded in share capital.

Foreign Exchange Transactions

The company’s functional currency is the US dollar.

Canadian dollar operating transactions are translated to US dollars at the average exchange rate for the previous month. Trinidad dollar operating transactions are translated to US dollars at the average exchange rate for the period. Monetary assets and liabilities are translated at period-end exchange rates. Non-monetary assets owned at December 31, 1994 have been translated under the translation of convenience method at the December 31, 1994 year-end exchange rate of US $1.00 = CDN $1.4028. Additions subsequent to December 31, 1994 are translated at the exchange rate prevailing at the time of the transaction. Translation exchange gains and losses of integrated foreign operations are reflected in income.

Derivative Financial Instruments

Derivative financial instruments are used by the company to manage its exposure to exchange rate and commodity price fluctuations. The company’s policy is not to utilize derivative financial instruments for trading or speculative purposes.

The company enters into forward exchange contracts in respect of its Canadian dollar requirements for operating and capital expenditures. These contracts are not designated as hedging instruments for accounting purposes. Accordingly, any gains or losses are currently recognized in income.

The company enters into natural gas futures, swaps and option agreements to manage the cost of natural gas. The company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking the hedge transaction. This process includes linking derivatives to specific forecast transactions.

The company also assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair value of hedged items.

Gains or losses resulting from changes in the fair value of natural gas hedging transactions which have not yet been settled are not recognized, as they generally relate to changes in the spot price of anticipated natural gas purchases. Gains or losses arising from hedging transactions that have been settled, terminated or cease to be effective prior to maturity are deferred as a component of inventory until the product containing the hedged item is sold, at which time both the natural gas purchase cost and the related hedging deferral are recorded as cost of sales.

The company regularly evaluates its unrecognized or deferred gains and losses on these derivatives from a net realizable value of inventory perspective and establishes appropriate provisions, if necessary.

Revenue Recognition

Sales revenue is recognized when the product is shipped or a service is performed, the sales price is determinable, and collectability is reasonably assured. Revenue is recorded based on the FOB mine, plant, warehouse or terminal price, except for certain vessel sales which are shipped on a delivered basis. Transportation costs are recovered from the customer through sales pricing.

Natural Gas Operations

The company follows the full-cost method of accounting, whereby all costs associated with the exploration for and development of natural gas reserves are capitalized in one Canadian cost center. These costs include land acquisitions, drilling of productive, non-productive and dry or abandoned wells, geological and geophysical surveys and administrative expenses directly related to exploration and development activities. Costs associated with dry or abandoned wells are charged to the full-cost pool and subjected to depletion. Depletion is calculated using the units of production method based on estimated gross proved natural gas reserves as evaluated by independent engineers.

Proceeds from the disposition of natural gas properties are accounted for as a reduction in capitalized costs, with no gain or loss recognized unless such disposition would alter the depletion rate by more than 20 percent.

The net amount at which natural gas properties are carried is subject to a cost recovery test (the “ceiling test”). Under this test, an estimate is made of the ultimate recoverable amount from future net revenues using proved reserves and period-end prices, plus the net costs of major development projects and improved properties, less future removal and site restoration costs, overhead, financing costs and income taxes. If the net carrying costs exceed the ultimate recoverable amount, additional depletion is provided.

 

58 Notes to the Consolidated Financial Statements in millions of US Dollars except share and per-share amounts

3. CHANGES IN ACCOUNTING POLICY

Effective January 1, 2003, the company changed the method of determining cost for substantially all finished product inventories from the first in, first out method to the weighted average cost method. This change was made to more closely align product costing with product movement. This change in accounting policy had no significant effect on the company’s results of operations or financial position for any of the periods presented.

Effective December 15, 2003, the company adopted the fair value recognition provisions recommended by the Canadian Institute of Chartered Accountants (“CICA”) in Section 3870, “Stock-based Compensation and Other Stock-based Payments”, prospectively to all employee awards (of the type previously not accounted for at fair value) granted, modified or settled after January 1, 2003. Under the transitional provisions of Section 3870, stock-based compensation expense has not been recorded on any stock option awards granted by the company prior to January 1, 2003 (see Note 26).

4. ACCOUNTS RECEIVABLE

		2003			2002
Trade accounts	– Canpotex	$	28.3		$	36.3
	– Other		244.8			212.4
Non-trade accounts			36.8			25.1
			309.9			273.8
Less allowance for doubtful accounts			(4.9	)		(6.0	)
		$	305.0		$	267.8

5. INVENTORIES

	2003		2002
Finished product	$	160.7	$	165.0
Materials and supplies		108.0		123.5
Raw materials		54.1		44.6
Work in process		72.4		166.2
	$	395.2	$	499.3

During the year, the company recorded inventory writedowns of $62.9 (see Notes 21 and 22).

6. PROPERTY, PLANT AND EQUIPMENT

	2003
			Accumulated
			Depreciation and		Net Book
	Cost		Amortization		Value
Land and improvements	$	225.7	$	38.6	$	187.1
Buildings and improvements		469.0		164.9		304.1
Machinery and equipment		3,856.4		1,317.2		2,539.2
Mine development costs		133.2		55.5		77.7
	$	4,684.3	$	1,576.2	$	3,108.1

	2002
			Accumulated
			Depreciation and		Net Book
	Cost		Amortization		Value
Land and improvements	$	225.4	$	34.1	$	191.3
Buildings and improvements		451.3		210.7		240.6
Machinery and equipment		3,920.9		1,160.9		2,760.0
Mine development costs		127.0		49.0		78.0
	$	4,724.6	$	1,454.7	$	3,269.9

Depreciation and amortization of property, plant and equipment included in cost of goods sold and in selling and administrative was

$193.9 (2002 – $188.2; 2001 – $170.4). During the year, the company recorded an impairment charge of $117.6 relating to certain assets (see Notes 21 and 22). Interest capitalized to property, plant and equipment during the year was $1.5 (2002 – $4.2).

7. OTHER ASSETS

	2003		2002
Deferred charges – net of accumulated amortization of $34.0 (2002 – $21.3)	$	77.0	$	152.2
Prepaid pension costs		22.2		16.3
Investments at equity
APC – 26 percent ownership; quoted market value of $141.5		181.5		—
SQM – 20 percent ownership; quoted market value of $234.2 (2002 – $130.1)		164.7		158.9
Other		17.0		17.5
Investments at cost
ICL – 9 percent ownership		92.8		92.8
Rotational plant maintenance costs – net of accumulated amortization of $33.2 (2002 –$29.5)		14.8		29.5
Other		58.3		19.5
	$	628.3	$	486.7

During the year, the company recorded an impairment charge of $65.4 relating to certain deferred charges (see Notes 21 and 22).

On October 16, 2003, the company acquired 26 percent of the issued and outstanding common shares of APC from Jordan Investment Company (“JIC”). APC, a publicly listed company in Jordan, produces potash from the Dead Sea and has 2 million tonnes of annual capacity. The purchase price was $178.3 and was financed by short-term debt. The company has accounted for the investment by the equity method. The difference between the acquisition cost and the underlying net book value of APC’s assets at the date of purchase was $75.7. These amounts related principally to property, plant and equipment and are being amortized on a straight-line basis over the estimated useful lives of the underlying assets acquired. Subsequent to the acquisition, APC is 26.9 percent held by JIC, 26 percent held by the company, 21 percent held by Arab Mining Company, and the remainder of APC shares are held by other governments, banks and individual investors.

Amortization of deferred charges and rotational plant maintenance costs included in cost of goods sold and in selling and administrative was $33.5 (2002 – $30.9; 2001 – $12.3).

Included in other income is the company’s share of earnings of equity investees of $12.4 (2002 – $5.3; 2001 – $NIL).

8. GOODWILL

	2003		2002
Cost	$	104.3	$	104.3
Accumulated amortization		7.3		7.3
	$	97.0	$	97.0

In 2003 there was no amortization of goodwill included in selling and administrative (2002 – $NIL; 2001 – $3.0).

9. SHORT-TERM DEBT

Short-term debt was $176.2 at December 31, 2003 (2002 – $473.0). The weighted average interest rate on this debt was 1.43 percent (2002 – 1.70 percent). The company had an unsecured line of credit

PotashCorp 2003 Annual Report   59

9. SHORT-TERM DEBT (CONTINUED)

available for short-term financing (net of letters of credit of $18.5 and direct borrowings of $11.2) in the amount of $45.3 at December 31, 2003 (2002 – $134.5). In addition, the company is authorized to borrow a further $323.8 under its commercial paper program.

The line of credit is subject to financial tests and other covenants. The principal covenants require a debt to capital ratio of less than or equal to 0.55:1, a long-term debt to EBITDA (defined in the agreement as earnings before interest, income taxes, provincial mining and other taxes, depreciation, amortization and other non-cash expenses) ratio of less than or equal to 3.5:1, tangible net worth in an amount greater than or equal to $1,250.0 and debt of subsidiaries not to exceed $590.0. The line of credit is subject to other customary covenants and events of default, including an event of default for non-payment of other debt in excess of Cdn $40.0. Non-compliance with such covenants could result in accelerated payment of amounts due under the line of credit and its termination. The company was in compliance with the above-mentioned covenants at December 31, 2003.

10. ACCOUNTS PAYABLE AND ACCRUED CHARGES

	2003		2002
Trade accounts	$	259.8	$	218.4
Accrued environmental		18.7		18.6
Accrued interest		16.1		8.6
Accrued compensation		27.7		37.2
Current portion post-retirement/post-employment benefits		15.3		3.5
Income taxes		29.4		47.7
Dividends		13.3		13.0
	$	380.3	$	347.0

11. LONG-TERM DEBT

	2003		2002
Industrial Revenue and Pollution
Control Obligations	$	9.0	$	11.4
Adjustable Rate Industrial Revenue and Pollution Control Obligations bearing interest at an average rate of 1.166% (2002 average – 1.725%) and maturing in 2005. There are no sinking fund requirements prior to maturity. These loans are secured by bank letters of credit.
Notes Payable
7.125% notes payable June 15, 2007.		400.0		400.0
7.75% notes payable May 31, 2011.		600.0		600.0
4.875% notes payable March 1, 2013.		250.0		—
There are no sinking fund requirements prior to maturity. These notes were issued under US shelf registration statements covering up to $2,000.0 of debt securities. The notes are unsecured.
Other		10.9		11.9
		1,269.9		1,023.3
Less current maturities		1.3		3.4
	$	1,268.6	$	1,019.9

The company has entered into back-to-back loan arrangements involving certain financial assets and financial liabilities. It has presented financial assets of $310.1 and financial liabilities of $316.0 on a net basis because a legal right to set-off exists, and the company intends to settle on a net basis. Other long-term debt in the above

table includes a net financial liability of $5.9 (2002 – $5.9) pursuant to these arrangements.

The company has a syndicated credit facility, renewable annually, which provides for unsecured advances of up to $750.0 (less the amount of commercial paper outstanding). As at December 31, 2003, no amounts were outstanding and $573.8 was available under the facility. Principal covenants under the credit facility require a debt to capital ratio of less than or equal to 0.55:1, a long-term debt to EBITDA (defined in the agreement as earnings before interest, income taxes, provincial mining and other taxes, depreciation, amortization and other non-cash expenses) ratio of less than or equal to 3.5:1, tangible net worth greater than or equal to $1,250.0 and debt of subsidiaries not to exceed $590.0. The notes payable are not subject to any financial test covenants but are subject to certain customary covenants (including limitations on liens and sale and leaseback transactions) and events of default, including an event of default for acceleration of other debt in excess of $50.0. Neither the Industrial Revenue and Pollution Control Obligations nor the other long-term debt instruments are subject to any financial test covenants but each is subject to certain customary covenants and events of default, including, for other long-term debt, an event of default for acceleration of other debt of $25.0 or more. Non-compliance with any of the above covenants could result in accelerated payment of the related debt. The company was in compliance with the above-mentioned covenants at December 31, 2003.

Long-term debt at December 31, 2003 will mature as follows:

2004	$	1.3
2005		10.3
2006		1.3
2007		400.6
2008		0.3
Subsequent years		856.1
	$	1,269.9

12. COMMITMENTS

Lease Commitments

The company has long-term operating lease agreements for buildings, port facilities, equipment, ocean-going transportation vessels and railcars, the latest of which expires in 2020 (excluding mineral leases). Rental expense for operating leases for the years ended December 31, 2003, 2002 and 2001 was $39.9, $41.2 and $56.7, respectively.

Purchase Commitments

The company has long-term agreements for the purchase of sulfur for use in the production of phosphoric acid. These agreements provide for minimum purchase quantities and certain prices are based on market rates at the time of delivery. The commitments included in the table below are based on the market prices as at December 31, 2003.

The company’s Trinidad subsidiaries have entered into long-term natural gas contracts with the National Gas Company of Trinidad. The contracts provide for prices that vary with ammonia market prices, escalating floor prices and minimum purchase quantities. The commitments included in the table below are based on floor prices and minimum purchase quantities.

The company also has a long-term agreement for the purchase of phosphate rock used at the Geismar facility. This agreement set base prices (less volume discounts) through to December 2003. Prices in

 

60 Notes to the Consolidated Financial Statements in millions of US Dollars except share and per-share amounts

12. COMMITMENTS (CONTINUED)

subsequent years are subject to renegotiation. The commitments included in the table below are based on the expected purchase quantity and the set base prices (less applicable discounts).

Other Commitments

Other operating commitments consist of amounts relating to an acid storage agreement that is in effect until 2004, the company’s Rocanville expansion and compactor upgrade project through 2005, contracts to purchase limestone that run through 2007 and various rail freight contracts, the latest of which expire in 2010.

Minimum future commitments under these contractual arrangements for the next five years and thereafter are shown below.

	Operating		Purchase		Other
	Leases		Commitments		Commitments
2004	$	69.6	$	152.0	$	18.4
2005		58.9		98.1		11.6
2006		49.0		91.8		9.1
2007		42.7		91.8		9.1
2008		24.6		79.9		8.4
Thereafter		136.0		531.9		12.6
Total	$	380.8	$	1,045.5	$	69.2

13. POST-RETIREMENT/POST-EMPLOYMENT BENEFITS

Canada

Substantially all employees of the company are participants in either a defined contribution or a defined benefit pension plan.

The company has established a supplemental retirement income plan for senior management which is unfunded, non-contributory and provides a supplementary pension benefit. The plan is provided for by charges to earnings sufficient to meet the projected benefit obligation.

United States

The company has defined benefit pension plans that cover a substantial majority of its employees. Benefits are based on a combination of years of service and compensation levels, depending on the plan. Generally, contributions to the US plans are made to meet minimum funding requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”). Assets of both US funded plans consist mainly of corporate equity, US government and corporate debt securities and units of participation in a collective short-term investment fund.

Trinidad

The company has contributory defined benefit pension plans that cover a substantial majority of its employees. Benefits are based on service. The plans’ assets consist mainly of local government and other bonds, local mortgage and mortgage-backed securities, fixed income deposits and cash.

All Pension Plans

The components of net pension expense for the company’s pension plans, computed actuarially, were as follows:

	2003			2002			2001
Service cost for benefits earned during the year	$	12.2		$	12.0		$	10.2
Interest cost on projected benefit obligations		29.6			28.1			27.6
Expected return on plan assets		(30.4	)		(31.9	)		(30.1	)
Amortization of net loss		5.1			0.7			—
Net pension expense	$	16.5		$	8.9		$	7.7

Significant actuarial assumptions used in measuring the benefit obligation and net pension expense for the company’s funded plans were as follows (weighted average assumptions as of December 31):

	2003			2002			2001
Discount rate – obligation		6.10	%		6.50	%		7.25	%
Discount rate – expense		6.50	%		7.25	%		7.50	%
Long-term rate of return on assets		8.50	%		9.00	%		9.00	%
Rate of increase in compensation levels		4.00	%		4.00	%		4.50	%

The company employs a building block approach in determining the long-term rate of return for plan assets. Historical markets are studied and long-term historical relationships between equities and fixed income are preserved consistent with the widely accepted capital market principle that assets with higher volatility generate a greater return over the long run. Current market factors such as inflation and interest rates are evaluated before long-term capital market assumptions are determined. The long-term rate of return is established with proper consideration of diversification and rebalancing. Peer data and historical returns are reviewed to check for reasonability and appropriateness.

Other Post-Retirement Plans

The company provides certain contributory health care plans and non-contributory life insurance benefits for retired employees. These plans contain certain cost-sharing features such as deductibles and coinsurance, and are unfunded with benefits subject to change.

The components of this expense, computed actuarially, were as follows:

	2003		2002		2001
Service cost for benefits earned during the year	$	5.5	$	4.1	$	3.6
Interest cost on projected benefit obligations		12.9		13.9		11.1
Amortization of net loss		2.0		—		—
Net post-retirement expense	$	20.4	$	18.0	$	14.7

Significant actuarial assumptions used in measuring the post-retirement benefit obligation and expense were as follows (weighted average assumptions as of December 31):

	2003			2002			2001
Discount rate – obligation		6.10	%		6.50	%		7.25	%
Discount rate – expense		6.50	%		7.25	%		7.50	%
Initial health care cost trend rate		6.00	%		10.00	%		9.00	%
Ultimate health care cost trend rate		6.00	%		6.00	%		6.00	%

Effective January 1, 2004, the company’s largest retiree medical plan limits the company’s share of annual medical cost increases to 4.5 percent for recent and future retirees. Any cost increases in excess of this amount will be funded by increased retiree contributions.

If the health care cost trend rate was increased by 1.0 percentage point, the accumulated post-retirement benefit obligation and the aggregate of service and interest cost would have increased as follows:

	2003		2002		2001
Accumulated post-retirement benefit obligation	$	36.3	$	35.0	$	30.1
Aggregate of service and interest cost		3.8		3.3		2.7

PotashCorp 2003 Annual Report   61

13. POST-RETIREMENT/POST-EMPLOYMENT BENEFITS (CONTINUED)

If the health care cost trend rate was decreased by 1.0 percentage point, the accumulated post-retirement benefit obligation and the aggregate of service and interest cost would have decreased as follows:

	2003		2002		2001
Accumulated post-retirement benefit obligation	$	31.7	$	28.7	$	24.7
Aggregate of service and interest cost		3.1		2.7		2.1

All of the company’s US employees may participate in defined contribution savings plans. These plans are subject to US federal tax limitations and provide for voluntary employee salary deduction contributions of up to 15 percent of salary. The company’s matching contributions of up to 5 percent of salary were $3.4 and $5.0 for 2003 and 2002, respectively. All of the company’s Canadian salaried employees participated in the PCS Inc. Savings Plan until June 30, 2003. The company’s contributions in 2003 were $0.9 (2002 – $1.5).

The company uses a December 31 measurement date for the majority of its plans. The change in benefit obligations and change in plan assets for the above pension and post-retirement/post-employment plans were as follows:

							Post-retirement/
	Pension						Post-employment
	2003			2002			2003			2002
Change in Benefit Obligations
Balance, beginning of year	$	449.2		$	392.0		$	208.3		$	182.8
Service cost		12.2			12.0			5.5			4.1
Interest cost		29.6			28.1			12.9			13.9
Participants’ contributions		0.3			0.3			—			—
Actuarial loss		27.3			37.0			25.7			12.3
Foreign exchange rate changes		6.4			—			—			—
Amendments		2.3			1.8			(14.0	)		—
Benefits paid		(24.9	)		(22.0	)		(7.7	)		(4.8	)
Balance, end of year		502.4			449.2			230.7			208.3
Change in Plan Assets
Fair value, beginning of year		318.5			352.7			—			—
Actual return on plan assets		73.6			(17.8	)		—			—
Employer contributions		23.3			5.2			7.7			4.8
Participants’ contributions		0.3			0.4			1.8			1.8
Foreign exchange rate changes		3.4			—			—			—
Valuation allowance		(2.0	)		—			—			—
Benefits paid		(24.9	)		(22.0	)		(9.5	)		(6.6	)
Fair value, end of year		392.2			318.5			—			—
Funded Status		(110.2	)		(130.7	)		(230.7	)		(208.3	)
Unamortized net actuarial loss		86.1			109.7			70.5			49.7
Unamortized prior service cost		4.4			1.0			(15.3	)		(4.0	)
Unamortized transitional obligation		7.6			—			—			—
Accrued post-retirement/post-employment benefits	$	(12.1	)	$	(20.0	)	$	(175.5	)	$	(162.6	)
Amounts recognized in the Statements of Financial Position consist of:
Current and long-term liabilities	$	(25.4	)	$	(36.3	)	$	(184.4	)	$	(162.6	)
Other assets		13.3			16.3			8.9			—
	$	(12.1	)	$	(20.0	)	$	(175.5	)	$	(162.6	)

The accumulated benefit obligation for all defined benefit pension plans was $439.6 and $404.1 at December 31, 2003 and 2002, respectively. The aggregate projected benefit obligation, accumulated benefit obligation and aggregate fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were as follows:

					Post-retirement/
	Pension				Post-employment
	2003		2002		2003		2002
Projected benefit obligation	$	460.1	$	431.1	$	—	$	—
Accumulated benefit obligation		411.4		386.0		230.7		208.3
Fair value of plan assets		355.0		289.7		—		—

62 Notes to the Consolidated Financial Statements in millions of US Dollars except share and per-share amounts

13. POST-RETIREMENT/POST-EMPLOYMENT BENEFITS (CONTINUED)

Plan Assets

Approximate asset allocations, by asset category, of the company’s significant pension plans were as follows at December 31, 2003:

Asset Category	2003		2002
Equity securities	67	%	61	%
Debt securities	32	%	38	%
Other	1	%	1	%
Total	100	%	100	%

The company employs a total return investment approach whereby a mix of equities and fixed income investments is used to maximize the long-term return of plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities, plan funded status and corporate financial condition. The investment portfolio contains a diversified blend of equity and fixed income investments.

Furthermore, equity investments are diversified across US and non-US stocks, as well as growth, value, and small and large capitalizations. US equities also are diversified across actively managed and passively invested portfolios. The company has a small allocation to an equity real estate fund that is in liquidation. Other assets such as private equity and hedge funds are not used at this time. Derivatives may be used to gain market exposure in an efficient and timely manner; however, derivatives may not be used to leverage the portfolio beyond the market value of the underlying investments. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews, annual liability measurements and periodic asset/liability studies.

Approximately $21.4 is expected to be contributed by the company to the pension plans during 2004.

14. ENVIRONMENTAL COSTS

The major categories of environmental expenditures include reclamation and restoration costs at the company’s mining operations (most particularly phosphate mining), including management of mining byproducts such as gypsum and various mine tailings, the cost of regulatory compliance and environmental management related to ongoing operations other than mining, and costs related to site assessment and remediation of environmental contamination related to the activities of the company and its predecessors, including waste disposal practices and ownership and operation of real property and facilities.

Reclamation and Restoration Costs

Site restoration and reclamation costs have been accrued for various sites. At December 31, 2003, the company had accrued the following amounts for site reclamation and restoration: $26.1 (2002 – 26.1) for the Aurora facility, $52.3 (2002 – 51.0) for the White Springs facility and $4.4 (2002 – 3.9) for the Cassidy Lake facility. The current portion of restoration and reclamation costs accrued in 2003 totalled $3.5 (2002 – 3.0). These amounts represent the company’s current estimate of potential site restoration and reclamation costs. The expenditures are generally incurred over an extended period of time.

During the year, the company incurred $0.7 (2002 – $NIL) in capital expenditures relating to reclamation and restoration activities.

Annual environmental expenditures for reclamation and restoration during the years ended December 31, 2003, 2002 and 2001 were $14.4, $13.8 and $19.2, respectively.

Gypsum Stack Costs

Production of phosphoric acid also produces gypsum, which is normally placed in above-ground storage areas called gypsum stacks. In Florida, regulations require companies to “cap” the gypsum stacks in order to reduce seepage into groundwater when such stacks reach their design capacity, which exceeds the projected operating life of the facility, or if groundwater standards are not being met. The company expects to be allowed to continue using the three gypsum stacks at the White Springs facility for their remaining useful lives. The company also has gypsum stacks at the Aurora facility in North Carolina and the Geismar facility in Louisiana. In North Carolina, on exhaustion of the mine’s phosphate reserves, disposition of the remaining gypsum must comply with the laws in effect at that time. The inactive portions of the gypsum stacks at the Geismar facility are capped and have water management systems in place.

At December 31, 2003, $33.3 (2002 – $33.3) of the above-described accrued reclamation costs relates to the gypsum stack capping, closure and post-closure operating and maintenance requirements applicable to the White Springs facility under Florida law, and $21.1 (2002 – $21.1) of the amount accrued is applicable to the North Carolina facility. The amounts pertaining to Louisiana are not material.

Site Assessment and Remediation Costs

The company has accrued assessment costs, including legal and consulting fees, and remediation costs related to the clean-up of contaminated sites currently or formerly associated with the company or its predecessors’ business in the amount of $14.9 (2002 – $15.3) for certain PCS Joint Venture facilities, $0.3 (2002 – $0.3) for various sulfur facilities and $2.0 (2002 – $2.0) for the phosphate business. The current portion of these costs totalled $15.2 (2002 – $15.6).

Environmental Operating Costs and Capital Expenditures

The company’s operating expenses, other than reclamation and restoration and gypsum stack capping, relating to compliance with environmental laws and regulations governing ongoing operations were approximately $59.0 (2002 – $52.7; 2001 – $49.2). These amounts include environmental operating expenses related to the production of phosphoric acid, fertilizer, feed and other products.

The company routinely undertakes environmental capital projects. In 2003, capital expenditures of $12.1 (2002 – $15.0) were incurred to meet pollution prevention and control objectives and $0.3 (2002 – $0.5) to meet other environmental objectives.

15. SHARE CAPITAL

Authorized:

The company is authorized to issue an unlimited number of common shares without par value and an unlimited number of first preferred shares. The first preferred shares may be issued in one or more series with rights and conditions to be determined by the Board of Directors.

PotashCorp 2003 Annual Report   63

15. SHARE CAPITAL (CONTINUED)

Issued:	2003		2002		2001
	Consideration		Consideration		Consideration
Issued, beginning of year	$	1,186.9	$	1,182.5	$	1,177.4
Shares issued under option		58.7		4.3		4.9
Shares issued for dividend reinvestment plan		0.2		0.1		0.2
Issued, end of year	$	1,245.8	$	1,186.9	$	1,182.5

Issued:	2003		2002		2001
	Number of		Number of		Number of
	Common Shares		Common Shares		Common Shares
Issued, beginning of year		52,077,648		51,952,482		51,840,572
Shares issued under option		1,030,850		121,900		108,400
Shares issued for dividend reinvestment plan		3,718		3,266		3,510
Issued, end of year		53,112,216		52,077,648		51,952,482

16. CONTRIBUTED SURPLUS

	2003		2002
Balance, beginning of year	$	264.2	$	264.2
Compensation expense relating to stock option awards		1.0		—
Balance, end of year	$	265.2	$	264.2

17. SEGMENT INFORMATION

The company has three reportable business segments: potash, phosphate and nitrogen. All three segments produce fertilizers for sale to agricultural customers. In addition, in 2003, approximately 55 percent of nitrogen net sales and 46 percent of phosphate net sales were from feed and industrial products. These business segments are differentiated by the chemical nutrient contained in the product that each produces. Inter-segment net sales are made under terms that approximate market value.

	2003
	Potash		Phosphate			Nitrogen		All others		Consolidated
Net sales — third party	$	619.1	$	781.9		$	1,064.8	$	—	$	2,465.8
Inter-segment net sales		6.0		9.4			67.8		—		—
Gross margin		203.7		(16.5	)		193.2		—		380.4
Depreciation and amortization		52.4		75.7			89.6		9.7		227.4
Provision for plant shutdowns		—		4.9			118.8		—		123.7
Provision for PCS Yumbes		140.5		—			—		—		140.5
Investments, at equity		181.5		—			17.0		164.7		363.2
Goodwill		—		—			96.6		0.4		97.0
Assets		1,240.1		1,541.3			1,479.1		306.8		4,567.3
Expenditures for segment capital assets		50.9		51.0			44.1		4.7		150.7

	2002
	Potash		Phosphate		Nitrogen		All others		Consolidated
Net sales — third party	$	544.5	$	636.8	$	747.4	$	—	$	1,928.7
Inter-segment net sales		6.4		6.4		24.6		—		—
Gross margin		218.0		41.9		47.4		—		307.3
Depreciation and amortization		46.3		76.8		88.0		8.0		219.1
Investments, at equity		—		—		17.5		158.9		176.4
Goodwill		—		—		96.6		0.4		97.0
Assets		1,198.4		1,577.0		1,602.4		307.8		4,685.6
Expenditures for segment capital assets		35.5		126.3		47.0		3.4		212.2

	2001
	Potash		Phosphate		Nitrogen		All others		Consolidated
Net sales — third party	$	531.8	$	653.6	$	895.4	$	—	$	2,080.8
Inter-segment net sales		7.1		6.0		37.6		—		—
Gross margin		248.1		64.5		94.7		—		407.3
Depreciation and amortization		34.1		72.0		72.8		6.8		185.7
Investments, at equity		—		—		17.8		—		17.8
Goodwill		—		—		96.6		0.4		97.0
Assets		1,203.3		1,471.2		1,640.0		282.8		4,597.3
Expenditures for segment capital assets		34.7		61.1		413.8		4.1		513.7

64 Notes to the Consolidated Financial Statements in millions of US Dollars except share and per-share amounts

17. SEGMENT INFORMATION (CONTINUED)

Financial information by geographic area is summarized in the following table:

	Country of Origin
	Canada		United States			Trinidad		Other			Consolidated
2003
Net sales to customers outside the company
Canada	$	36.1	$	79.6		$	—	$	—		$	115.7
United States		205.1		1,272.6			314.7		8.8			1,801.2
PhosChem		—		80.8			—		—			80.8
Canpotex		260.6		—			—		—			260.6
Other		75.6		42.3			45.8		43.8			207.5
	$	577.4	$	1,475.3		$	360.5	$	52.6		$	2,465.8
Operating income (loss)	$	97.8	$	(82.7	)	$	91.4	$	(162.1	)	$	(55.6	)
Capital assets and goodwill	$	786.2	$	1,745.6		$	604.7	$	68.6		$	3,205.1
2002
Net sales to customers outside the company
Canada	$	23.7	$	70.1		$	—	$	—		$	93.8
United States		200.2		995.9			175.3		6.0			1,377.4
PhosChem		—		34.4			—		—			34.4
Canpotex		241.2		—			—		—			241.2
Other		59.5		52.0			43.9		26.5			181.9
	$	524.6	$	1,152.4		$	219.2	$	32.5		$	1,928.7
Operating income (loss)	$	145.6	$	17.8		$	20.5	$	(17.0	)	$	166.9
Capital assets and goodwill	$	778.0	$	1,875.3		$	627.9	$	85.7		$	3,366.9
2001
Net sales to customers outside the company
Canada	$	24.0	$	62.8		$	—	$	—		$	86.8
United States		212.7		1,075.9			239.3		—			1,527.9
PhosChem		—		65.3			—		—			65.3
Canpotex		237.6		—			—		—			237.6
Other		55.7		60.0			33.8		13.7			163.2
	$	530.0	$	1,264.0		$	273.1	$	13.7		$	2,080.8
Operating income	$	175.4	$	34.0		$	59.8	$	0.5		$	269.7
Capital assets and goodwill	$	783.4	$	1,823.1		$	652.2	$	83.9		$	3,342.6

18. COST OF GOODS SOLD

The primary components of cost of goods sold are labor, employee benefits, services, raw materials (including inbound freight and purchasing and receiving costs), operating supplies, energy costs, property and miscellaneous taxes, and depreciation and amortization.

19. SELLING AND ADMINISTRATIVE

The primary components of selling and administrative are compensation, employee benefits, supplies, communications, travel, professional services and depreciation and amortization.

20. PROVINCIAL MINING AND OTHER TAXES

Provincial mining and other taxes consist of:

	2003		2002		2001
Potash Production Tax	$	35.8	$	47.7	$	47.9
Saskatchewan corporate capital taxes and other		21.2		20.3		22.1
	$	57.0	$	68.0	$	70.0

21. PROVISION FOR PLANT SHUTDOWNS

Memphis and Geismar Nitrogen Operations

In June 2003, the company indefinitely shut down its Memphis, Tennessee plant and suspended production of ammonia and nitrogen solutions at its Geismar, Louisiana facilities due to high US natural gas costs and low product margins. In August 2003, company management determined that there were no immediate intentions of restarting the unprofitable plants.

The company determined that all employee positions pertaining to the affected operations would be eliminated and recorded $4.8 in connection with costs of special termination benefits. The number of employees terminated as a result of the shutdowns was 187, of whom 184 left the company as of December 31, 2003. The company has made payments relating to the terminations totalling $2.7. All workforce reduction costs pertaining to the 187 employees are expected to be paid by December 31, 2004.

In connection with the shutdowns, management conducted an assessment of the recoverability of the long-lived assets in its nitrogen operations. As a result of its review, management determined that the carrying amounts of the long-lived assets at the Memphis and

PotashCorp 2003 Annual Report   65

21. PROVISION FOR PLANT SHUTDOWNS (CONTINUED)

Geismar nitrogen facilities were not fully recoverable, and an impairment loss of $101.6, equal to the amount by which the carrying amount of the facilities’ asset groups exceeded their respective fair values, should be recognized. Of the total impairment charge, $100.6 related to property, plant and equipment and $1.0 related to other assets. For purposes of the impairment measurement, fair value was determined based on the present value of expected future net cash flows.

As part of its review, management also determined that a writedown of certain parts inventories at these plants in the amount of $12.4 was required.

In addition to the costs described above, management expects to incur other shutdown-related costs of approximately $11.1 and nominal annual expenditures for site security and other maintenance costs. These amounts have not been recorded in the consolidated financial statements as of December 31, 2003. Such costs will be recognized and recorded in the period in which they are incurred.

Kinston Phosphate Feed Plant

The phosphate feed plant at Kinston, North Carolina ceased operations in the first quarter of 2003. In that quarter, the company recorded $0.6 for costs of special termination benefits for Kinston employees, $0.3 for parts inventory writedowns and $1.3 for long-lived asset impairment charges. In lieu of full plant closure, the company operated the facility as a warehouse. In the third quarter of 2003, company management determined that the cost of operating Kinston as a stand-alone warehouse was uneconomical. This decision triggered a further review by management of the carrying amounts of

the plant’s long-lived assets. As a result of this review, management determined that the carrying amounts of such assets were not recoverable, and an additional impairment charge of $2.7, equal to the amount by which the carrying amount of the plant’s long-lived assets exceeded their fair value, should be recognized. For purposes of the impairment measurement, fair value was determined based on the present value of expected future net cash flows.

The following table summarizes, by reportable segment, the total amount of costs incurred to date and the total costs expected to be incurred in connection with the plant shutdowns described above:

	Costs		Total Costs
	Incurred		Expected to
	Year-to-Date		be Incurred
Nitrogen Segment
Employee termination and related benefits	$	4.8	$	4.8
Writedown of parts inventory		12.4		12.4
Asset impairment charges		101.6		101.6
Other related exit costs		—		11.1
		118.8		129.9
Phosphate Segment
Employee termination and related benefits		0.6		0.6
Writedown of parts inventory		0.3		0.3
Asset impairment charges		4.0		4.0
		4.9		4.9
	$	123.7	$	134.8

The following table summarizes, by reportable segment, the costs accrued as of December 31, 2003 in connection with the plant shutdowns described above:

	Costs Incurred		Cash			Non-cash			Accrued Balance
	Year-to-Date		Payments			Settlements			at December 31
Nitrogen Segment
Employee termination and related benefits	$	4.8	$	(2.7	)	$	—		$	2.1
Writedown of parts inventory		12.4		—			(12.4	)		—
Asset impairment charges		101.6		—			(101.6	)		—
		118.8		(2.7	)		(114.0	)		2.1
Phosphate Segment
Employee termination and related benefits		0.6		(0.1	)		—			0.5
Writedown of parts inventory		0.3		—			(0.3	)		—
Asset impairment charges		4.0		—			(4.0	)		—
		4.9		(0.1	)		(4.3	)		0.5
	$	123.7	$	(2.8	)	$	(118.3	)	$	2.6

22. PROVISION FOR PCS YUMBES S.C.M.

On August 27, 2003, the company provided to SQM an irrevocable option to acquire PotashCorp’s interest in PCS Yumbes. Acquired in 1999, PCS Yumbes holds mining concessions on certain sodium nitrate deposits in the Atacama Desert in northern Chile and is a producer of potassium nitrate, sodium nitrate and iodine. The option was exercised on November 20, 2003, at which time the parties entered into a share purchase agreement under which SQM is to acquire the shares of PCS Yumbes for an aggregate purchase price of $35.0 (including the price of the option), subject to adjustments.

Under the terms of the share purchase agreement, and prior to the sale closing, PCS Yumbes will continue to operate the facility and expeditiously liquidate the inventory of nitrates. All other working capital is to be fully realized or discharged (as applicable) by the company prior to closing, which will occur no later than the end of 2004.

Upon entering the option agreement, management commenced an assessment of the recoverability of the long-lived assets of the PCS Yumbes operations. As a result of its review, management determined that the carrying amounts of PCS Yumbes’ long-lived assets were not recoverable

66 Notes to the Consolidated Financial Statements in millions of US Dollars except share and per-share amounts

22. PROVISION FOR PCS YUMBES S.C.M. (CONTINUED)

and recorded an impairment charge of $77.4, equal to the amount by which the carrying amount of the asset group exceeded fair value. Of the total impairment charge, $13.0 related to property, plant and equipment, $63.9 related to deferred preproduction costs and $0.5 related to deferred acquisition costs. For purposes of the impairment measurement, fair value was determined in reference to the commercial agreement described above.

As part of this review, management also determined that a reduction in the carrying amount of certain non-parts inventory equal to $50.2 was required, due to the need to liquidate all inventories that would not be transferred to SQM under the agreement.

The company has determined that all employee positions at PCS Yumbes will be eliminated by December 31, 2004. Accordingly, the company has recorded a provision of $1.8 pertaining to contractual termination benefits to be paid, primarily under Chilean law. As of December 31, 2003, approximately 111 of the employees had left the company, and the company had made contractual payments relating to these terminations totalling $0.6. The remaining 113 employees are expected to leave the company by December 31, 2004, and all remaining workforce reduction costs are expected to be paid by that date.

In September 2003, the company incurred early termination penalties in respect of certain PCS Yumbes contractual arrangements. The company recorded a provision of $11.1 in respect of these contract termination costs and $0.6 remained to be paid by December 31, 2003. The following table summarizes the total amount of costs incurred to date, and the total costs expected to be incurred in connection with PCS Yumbes as described above:

	Costs		Total Costs
	Incurred		Expected to
	Year-to-Date		be Incurred
Potash Segment
Contract termination costs	$	11.1	$	11.1
Employee termination and related benefits		1.8		1.8
Writedown of non-parts inventory		50.2		50.2
Asset impairment charges		77.4		77.4
	$	140.5	$	140.5

The following table summarizes the costs accrued as of December 31, 2003 in connection with PCS Yumbes as described above:

	Costs Incurred		Cash			Non-cash						Accrued Balance
	Year-to-Date		Payments			Settlements			Adjustments			at December 31
Potash Segment
Contract termination costs	$	11.1	$	(8.8	)	$	—		$	(1.7	)		$0.6
Employee termination and related benefits		1.8		(0.6	)		—			—			1.2
Writedown of non-parts inventory		50.2		—			(50.2	)		—			—
Asset impairment charges		77.4		—			(77.4	)		—			—
	$	140.5	$	(9.4	)	$	(127.6	)	$	(1.7	)		$1.8

23. INTEREST EXPENSE

	2003		2002		2001
Interest on
Short-term debt	$	3.6	$	8.0	$	21.9
Long-term debt		87.7		75.1		58.4
	$	91.3	$	83.1	$	80.3

 

PotashCorp 2003 Annual Report   67

24. INCOME TAXES

As the company operates in a specialized industry and in several tax jurisdictions, its income is subject to various rates of taxation.

The provision for income taxes differs from the amount that would have resulted from applying the Canadian statutory income tax rates to (loss) income before income taxes as follows:

	2003			2002			2001
(Loss) income before income taxes
Canada	$	16.3		$	56.8		$	96.8
United States		(86.3	)		21.5			32.1
Trinidad		80.6			20.5			59.8
Other		(157.5	)		(15.0	)		0.7
	$	(146.9	)	$	83.8		$	189.4
Federal and provincial statutory tax rates		44.36	%		46.12	%		46.12	%
Tax at statutory rates	$	(65.2	)	$	38.7		$	87.3
Adjusted for the effect of:
Writedown of PCS Yumbes		50.8			—			—
Net non-deductible provincial taxes and royalties and resource allowances		7.5			10.2			12.7
Additional tax deductions		(11.8	)		(18.6	)		(33.7	)
Difference between Canadian rate and rates applicable to subsidiaries in other countries		4.4			0.8			(1.6	)
Other		(6.3	)		(0.9	)		3.5
Income tax (recovery) expense	$	(20.6	)	$	30.2		$	68.2

Details of income tax (recovery) expense are as follows:

	2003			2002			2001
Canada
Current	$	14.9		$	46.2		$	19.2
Future		20.6			(10.1	)		19.9
United States – Federal
Current		(16.4	)		(27.5	)		(1.2	)
Future		(40.7	)		19.2			16.7
United States – State
Current		(0.6	)		1.6			0.2
Future		(8.5	)		(1.5	)		2.9
Trinidad and other
Current		2.1			3.9			2.3
Future		8.0			(1.6	)		8.2
Income tax (recovery) expense	$	(20.6	)	$	30.2		$	68.2

The tax effects of temporary differences that give rise to significant portions of the net future income tax liability are:

	2003		2002
Future income tax assets:
Loss and credit carryforwards	$	271.3	$	273.8
Post-retirement/post-employment benefits		55.2		61.4
Accrued reclamation costs		4.0		15.6
Other		29.5		2.1
Total future income tax assets		360.0		352.9
Future income tax liabilities:
Basis difference in fixed assets		806.1		799.2
Other		38.1		22.6
Total future income tax liabilities		844.2		821.8
Net future income tax liability	$	484.2	$	468.9

At December 31, 2003, the company has income tax losses carried forward of approximately $636.0 which will begin to expire in 2010. In addition, the company has alternative minimum tax credits of approximately $0.4 which carry forward indefinitely. The benefit relating to these amounts has been recognized by reducing future income tax liabilities.

25. NET (LOSS) INCOME PER SHARE

	2003			2002		2001
Basic net (loss) income per share
Net (loss) income available to common shareholders	$	(126.3	)	$	53.6	$	121.2
Weighted average number of common shares		52,230,000			52,021,000		51,879,000
Basic net (loss) income per share	$	(2.42	)	$	1.03	$	2.34
Diluted net (loss) income per share
Net (loss) income available to common shareholders	$	(126.3	)	$	53.6	$	121.2
Weighted average number of common shares		52,230,000			52,021,000		51,879,000
Dilutive effect of stock options		—			295,000		307,000
Weighted average number of diluted common shares		52,230,000			52,316,000		52,186,000
Diluted net (loss) income per share	$	(2.42	)	$	1.03	$	2.32

Diluted net (loss) income per share is calculated based on the weighted average number of shares issued and outstanding during the year, 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 year. For years in which there was a loss applicable to common shares, stock options with exercise prices at or below the average market price for the year were excluded from the calculations of diluted net loss per share, as inclusion of these securities would have been anti-dilutive to the net loss per share.

Excluded from the calculation of diluted net (loss) income per share were average options outstanding of 2,239,861 (2002 – 4,230,525; 2001 – 4,281,825) as the options’ exercise price was greater than the average market price of the common shares for the year.

26. STOCK-BASED COMPENSATION

The company has four stock-based compensation plans, which are described below. The company accounts for its grants under those plans in accordance with the fair value based method of accounting for stock-based compensation. The compensation cost that has been charged against income for those plans was $6.6 (2002 – $5.7; 2001 – $5.3).

Stock Option Plans

The company has two option plans. Under the Officers and Employees Plan, the company may, after February 3, 1998, issue up to 6,926,125 common shares pursuant to the exercise of options. Under the Directors Plan, the company may, after January 24, 1995, issue up to 456,000 common shares pursuant to the exercise of options.

68 Notes to the Consolidated Financial Statements in millions of US Dollars except share and per-share amounts

26.  STOCK-BASED COMPENSATION (CONTINUED)

Under both plans, the exercise price is the quoted market closing price of the company’s common shares on the last trading day immediately preceding the date of the grant, and an option’s maximum term is 10 years. All options granted to date have provided that one-half of the options granted in a year will vest one year from the date of the grant, with the other half of the options vesting the following year.

A summary of the status of the plans as of December 31, 2003, 2002 and 2001 and changes during the years ending on those dates is presented as follows:

Number of Shares Subject to Option

	2003			2002			2001
Outstanding, beginning of year		5,819,375			5,044,275			4,236,275
Granted		699,536			907,600			922,200
Exercised		(1,030,850	)		(121,900	)		(108,400	)
Cancelled		(50,050	)		(10,600	)		(5,800	)
Outstanding, end of year		5,438,011			5,819,375			5,044,275

Weighted Average Exercise Price

	2003		2002		2001
Outstanding, beginning of year	$	65.98	$	65.21	$	65.04
Granted		79.00		66.50		62.81
Exercised		56.56		34.93		44.77
Cancelled		70.82		78.40		60.59
Outstanding, end of year		69.40		65.98		65.21

The weighted average grant-date fair value of options granted during the year was $15.7 (2002 – $20.1; 2001 – $19.1).

The following table summarizes information about stock options outstanding at December 31, 2003:

	Options Outstanding						Options Exercisable
Range of Exercise	Number		Weighted Average		Weighted Average				Weighted Average
Prices	Outstanding		Remaining Life		Exercise Price		Number		Exercise Price
$32.25		73,000		1 year		$32.25		73,000		$32.25
$43.69		251,150		6 years		43.69		251,150		43.69
$61.27		591,400		7 years		61.27		591,400		61.27
$58.08 to $65.38		739,900		8 years		62.79		739,900		62.79
$66.50		862,450		9 years		66.50		408,650		66.50
$67.88		680,250		5 years		67.88		680,250		67.88
$70.38 to $74.75		756,825		2.5 years		72.47		756,825		72.47
$79.00		699,536		10 years		79.00		—		—
$81.75 to $86.75		783,500		4 years		86.45		783,500		86.45
		5,438,011		6.4 years		$69.40		4,284,675		$68.14

The foregoing options have expiry dates ranging from November 10, 2004 to November 20, 2013.

Prior to 2003, the company applied the intrinsic value based method of accounting for the plans. No stock-based employee compensation cost is reflected in 2002 or 2001 net income, as all options granted under the plans had an exercise price equal to the market value of the underlying common stock on the date of grant. As described in Note 3, effective December 15, 2003, the company adopted the fair value based method of accounting for stock options prospectively to all employee awards granted, modified or settled after January 1, 2003. Since the company’s stock option awards vest over two years, the compensation cost included in the determination of net loss for 2003 is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of CICA Section 3870. The following table illustrates the effect on net (loss) income and the related per-share amount if the fair value based method had been applied to all outstanding and unvested awards in each period.

		2003			2002			2001
Net (loss) income – as reported		$	(126.3	)	$	53.6		$	121.2
Add:	Stock-based employee compensation expense included in reported net loss, net of related tax effects		0.8			—			—
Deduct:	Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(14.8	)		(14.3	)		(13.6	)
Net (loss) income – pro forma(1)		$	(140.3	)	$	39.3		$	107.6

⁽¹⁾  Compensation expense under the fair value based method is recognized over the vesting period of the related stock options. Accordingly, the pro forma results of applying this method may not be indicative of future results.

PotashCorp 2003 Annual Report   69

26.  STOCK-BASED COMPENSATION (CONTINUED)

	2003			2002		2001
Basic net (loss) income per share
As reported	$	(2.42	)	$	1.03	$	2.34
Pro forma		(2.69	)		0.76		2.07
Diluted net (loss) income per share
As reported	$	(2.42	)	$	1.03	$	2.32
Pro forma		(2.69	)		0.75		2.06

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

	2003			2002			2001
Expected dividend	$	1.00		$	1.00		$	1.00
Expected volatility		27	%		32	%		32	%
Risk-free interest rate		4.06	%		4.13	%		4.54	%
Expected life of option	8 years			8 years			8 years
Expected forfeitures		16	%		10	%		10	%

Deferred Share Unit and Other Plans

The company offers a deferred share unit plan to non-employee directors, which entitles non-employee directors to receive discretionary grants of deferred share units (DSUs), each of which has a value equal to the market value of a common share at the time of its grant. The plan also allows each director to choose to receive, in the form of DSUs, all or a percentage of the director’s fee, which would otherwise be payable in cash. Each DSU fully vests upon award, but is distributed only when the director has ceased to be a member of the Board of Directors of the company. Vested units are settled in cash based on the common share price when conversion takes place. As of December 31, 2003, the total DSUs held by participating directors was 16,085 (2002 – 10,263; 2001 – 4,768).

The company offers a long-term incentive plan to senior executives and other key employees. The performance objectives under the plan are designed to further align the interests of executives and key employees with those of shareholders by linking the vesting of awards to the total return to shareholders of the three-year performance period ending December 31, 2005. Total shareholder return measures the capital appreciation in the company’s common shares, including dividends paid over the performance period. Vesting of one-half of the awards is based on increases in the total shareholder return over the three-year performance period. Vesting of the remaining one-half of the awards is based on the extent to which the total shareholder return matches or exceeds the total shareholder return of the common shares of a pre-defined peer group. Vested units are settled in cash based on the common share price generally at the end of the performance period.

27.  FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The company uses financial instruments, including forward exchange contracts, futures, swaps and option agreements, to manage foreign exchange and commodity price risk. The company does not hold or issue financial instruments for trading purposes.

As at December 31, 2003, the company had entered into forward exchange contracts to sell US dollars and receive Canadian dollars in the notional amount of $46.0 (2002 – $28.0) at an average exchange rate of $1.3315 (2002 – $1.5855). As at December 31, 2003,

the company had also entered into a forward exchange contract to sell US dollars and receive euros in the notional amount of $1.9 (2002 – $NIL) at an exchange rate of $1.1707. The notional amounts of these derivatives do not represent assets or liabilities and therefore are not reflected in the Consolidated Statements of Financial Position. Expected maturity dates for all forward contracts are within 2004.

The company manages interest rate exposures by using a diversified portfolio of fixed and floating rate instruments. The company’s sensitivity to fluctuations in interest rates is substantially limited to certain of its cash, short-term investments, short-term debt and long-term debt. In January and February 2004, the company entered into interest rate swap contracts that effectively converted a notional amount of $300.0 of fixed rate debt into floating rate debt based on LIBOR rates. The company did not enter into any interest rate swap contracts in 2003 or 2002.

In addition to physical spot and term purchases, the company at times employs futures, swaps and option agreements to establish the cost on a portion of its natural gas requirements. These instruments are intended to hedge the future cost of the committed and anticipated natural gas purchases for its US nitrogen and phosphate plants. Under these arrangements, the company receives or makes payments based on the differential between a specified price and the actual spot price of natural gas. The company has certain available lines of credit which are utilized to reduce cash margin requirements to maintain the derivatives. At December 31, 2003, the company had collected cash margin requirements of $4.3 (2002 – $4.6) which were included in accounts payable.

As at December 31, 2003, the company had derivatives qualifying for deferral in the form of futures and swaps. The futures represented a notional amount of 5.6 MMBtu of natural gas with maturities in 2004 through 2007. The swaps represented a notional amount of 53.1 MMBtu with maturities in 2004 through 2009. As at December 31, 2003, net losses arising from settled hedging transactions, which are included as a component of finished goods inventory, were $2.7 (2002 – $4.0).

The company is exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments. The company anticipates, however, that counterparties will be able to fully satisfy their obligations under the contracts.

The major concentration of credit risk arises from the company’s receivables. A majority of the company’s sales are in North America and are primarily for use in the agricultural industry. The company seeks to manage the credit risk relating to these sales through a credit management program. Internationally, the company’s products are sold primarily through two export associations whose accounts receivable are substantially insured or secured by letters of credit.

 

70 Notes to the Consolidated Financial Statements in millions of US Dollars except share and per-share amounts

27. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)

Fair Value

Fair value represents point-in-time estimates that may change in subsequent reporting periods due to market conditions or other factors. The estimated fair values disclosed below are designed to approximate amounts at which the financial instruments could be exchanged in a current transaction between willing parties. However, some financial instruments lack an available trading market and therefore certain fair values are based on estimates using net present value and other valuation techniques, which are significantly affected by assumptions as to the amount and timing of estimated future cash flows and discount rates, all of which reflect varying degrees of risk. Potential income taxes and expenses that would be incurred on disposition of these financial instruments are not reflected in the fair value estimates, and these estimates should not be interpreted as being realizable in an immediate settlement of the instruments.

Due to their short-term nature, the fair value of cash and cash equivalents, accounts receivable, short-term debt, and accounts payable and accrued charges is assumed to approximate carrying value. The fair value of the company’s gas hedging contracts at December 31, 2003 approximated $59.8 (2002 – $52.7). The company’s futures contracts are exchange-traded and fair value was determined based on exchange prices. Swaps and option agreements are traded in the over-the-counter market and fair value was calculated based on a price that was converted to an exchange-equivalent price. The fair value of the company’s notes payable at December 31, 2003 approximated $1,417.8 (2002 – $1,169.0) and reflects a current yield valuation based on observed market prices. The fair value of the company’s other long-term debt instruments approximated carrying value.

28. CONTINGENCIES

Canpotex

PotashCorp is a shareholder in Canpotex which markets potash offshore. Should any operating losses or other liabilities be incurred by Canpotex, the shareholders have contractually agreed to reimburse Canpotex for such losses or liabilities in proportion to their productive capacity. There were no such operating losses or other liabilities in 2003, 2002 or 2001.

Mining Risk

In common with other companies in the industry, the company is unable to acquire insurance for underground assets.

Investment in APC

The terms of the shareholders agreement with JIC (see Note 7) provide that, from October 17, 2006 to October 16, 2009, JIC may seek to exercise a put option (the “Put”) to require the company to purchase JIC’s remaining common shares in APC. If the Put were exercised, the company’s purchase price would be calculated in accordance with a specified formula based, in part, on future earnings of APC. The amount, if any, which the company may have to pay for JIC’s remaining common shares if there was to be a valid exercise of the Put is not presently determinable.

Legal Matters

In 1998, the company, along with other parties, was notified by EPA of potential liability under CERCLA with respect to certain soil and groundwater conditions at a PCS Joint Venture blending facility in

Lakeland, Florida and certain adjoining property. In 1999, PCS Joint Venture signed an Administrative Order on Consent with EPA pursuant to which PCS Joint Venture agreed to conduct a Remedial Investigation and Feasibility Study (“RI/FS”) of these conditions. PCS Joint Venture and another party are sharing the costs of the RI/FS. PCS Joint Venture continues to assess and evaluate the nature and extent of the impacts at the site. No final determination has yet been made of the nature, timing or cost of remedial action that may be needed nor to what extent costs incurred may be recoverable from third parties.

Various other claims and lawsuits are pending against the company. While it is not possible to determine the ultimate outcome of such actions at this time, it is management’s opinion that the ultimate resolution of such actions, including those pertaining to environmental matters, will not have a material adverse effect on the company’s financial condition or results of operations.

29. GUARANTEES

In the normal course of operations, the company provides indemnifications that are often standard contractual terms to counterparties in transactions such as purchase and sale contracts, service agreements, director/officer contracts and leasing transactions. These indemnification agreements may require the company to compensate the counterparties for costs incurred as a result of various events, including environmental liabilities, changes in (or in the interpretation of) laws and regulations, or as a result of litigation claims or statutory sanctions that may be suffered by the counterparty as a consequence of the transaction. The terms of these indemnification agreements will vary based upon the contract, the nature of which prevents the company from making a reasonable estimate of the maximum potential amount that could be required to pay to counterparties. Historically, the company has not made any significant payments under such indemnifications and no amounts have been accrued in the accompanying consolidated financial statements with respect to these indemnification guarantees.

The company enters into agreements in the normal course of business that may contain features which meet the definition of a guarantee. Various debt obligations (such as overdrafts, lines of credit with counterparties for derivatives, and back-to-back loan arrangements) related to certain subsidiaries have been directly guaranteed by the company under such agreements with third parties. The company would be required to perform on these guarantees in the event of default by the guaranteed parties. No material loss is anticipated by reason of such agreements and guarantees. At December 31, 2003, the maximum potential amount of future (undiscounted) payments under significant guarantees provided to third parties approximated $73.4, representing the maximum risk of loss if there were a total default by the guaranteed parties, without consideration of possible recoveries under recourse provisions or from collateral held or pledged. At December 31, 2003, no subsidiary balances subject to guarantees were outstanding in connection with the company’s cash management facilities, and the company had no liabilities recorded for other obligations other than subsidiary bank borrowings of approximately $5.9, which are reflected in other long-term debt in Note 11 and the cash margin requirements to maintain derivatives as disclosed in Note 27.

PotashCorp 2003 Annual Report   71

29. GUARANTEES (CONTINUED)

PotashCorp has guaranteed the gypsum stack capping, closure and post-closure obligations of White Springs and PCS Nitrogen, in Florida and Louisiana, respectively, pursuant to the financial assurance regulatory requirements in those states. The State of Florida is presently reviewing, and is expected to revise, its financial assurance requirements to ensure that responsible parties have sufficient resources to cover all closure and post-closure costs and liabilities associated with gypsum stacks. This review may result in the imposition of more stringent requirements to demonstrate financial responsibility and/or inclusion of a greater scope of closure and post-closure costs than under current law.

The environmental regulations of the Province of Saskatchewan require each potash mine to have decommissioning and reclamation (“D&R”) plans. In 2001, agreement was reached with the provincial government on the financial assurances for the D&R plan to cover an interim period to July 1, 2005. A government-industry task force has been established to assess decommissioning options for all Saskatchewan potash producers and to produce mutually acceptable revisions to the plan schedules. In July 2001, a Cdn $2.0 letter of

credit was posted as collateral that will remain in effect until the revised plans are accepted.

The company expects that it will be able to satisfy all applicable credit support requirements without disrupting normal business operations.

30. RELATED PARTY TRANSACTIONS

Sales to Canpotex are at prevailing market prices. Sales for the year ended December 31, 2003 were $260.6 (2002 – $241.2; 2001 – $237.6). Account balances resulting from the Canpotex transactions are included in the Consolidated Statements of Financial Position and settled on normal trade terms (see Note 4).

In connection with entering into the option agreement with SQM as described in Note 22, PCS Yumbes has agreed to purchase potash from SQM at a negotiated price that approximates market value. In addition, PCS Yumbes has agreed to sell to SQM all of its potassium nitrate production at a negotiated price that approximates market value. Both agreements are in effect until no later than December 31, 2004. Potash purchases from SQM for the year were $13.1 (2002 – $17.9). Potassium nitrate sales to SQM for the year were $25.8 (2002 – $2.1). All transactions with SQM are settled on normal trade terms.

31. QUARTERLY RESULTS (UNAUDITED)

The following quarterly information in management’s opinion includes all adjustments (consisting solely of normal recurring adjustments) necessary for fair presentation.

	First Quarter		Second Quarter		Third Quarter			Fourth Quarter
2003
Net sales	$	574.4	$	657.0	$	590.4		$	644.0
Gross Margin	$	81.1	$	122.3	$	84.5		$	92.5
Operating Income (Loss)	$	24.7	$	73.1	$	(210.9	)	$	57.5
Net Income (Loss)	$	3.2	$	29.9	$	(185.9	)	$	26.5
Net Income (Loss) per Share – Basic	$	0.06	$	0.57	$	(3.57	)	$	0.50
Net Income (Loss) per Share – Diluted	$	0.06	$	0.57	$	(3.57	)	$	0.50

	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
2002
Net sales	$	464.6	$	492.7	$	458.9	$	512.5
Gross Margin	$	79.7	$	88.7	$	75.1	$	63.8
Operating Income	$	40.9	$	38.6	$	44.3	$	43.1
Net Income	$	12.8	$	11.9	$	14.5	$	14.4
Net Income per Share – Basic	$	0.25	$	0.23	$	0.28	$	0.28
Net Income per Share – Diluted	$	0.24	$	0.23	$	0.28	$	0.28

Net Income (Loss) per Share for each quarter has been computed based on the weighted average number of shares issued and outstanding during the respective quarter; therefore, quarterly amounts may not add to the annual total.

32. 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.

33. COMPARATIVE FIGURES

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

34. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

Canadian GAAP varies in certain significant respects from US GAAP. As required by the United States Securities and Exchange Commission, the effect of these principal differences on the company’s consolidated financial statements is described and quantified below:

Long-term investments: The company’s investment in Israel Chemicals Limited (“ICL”) is stated at cost. US GAAP requires that this investment be classified as available-for-sale and be stated at market value with the difference between market value and cost reported as a component of Other Comprehensive Income (OCI).

72 Notes to the Consolidated Financial Statements in millions of US Dollars except share and per-share amounts

34. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)

Property, plant and equipment and goodwill: The net book value of property, plant and equipment and goodwill under Canadian GAAP is higher than under US GAAP, as past provisions for asset impairment under Canadian GAAP were measured based on the undiscounted cash flow from use together with the residual value of the assets. Under US GAAP they were measured based on fair value, which was lower than the undiscounted cash flow from use together with the residual value of the assets.

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

Asset retirement obligations: Asset retirement obligations are not presently required under Canadian GAAP. US GAAP would require that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset and then amortized over its estimated useful life. The asset retirement obligation must be accreted to its future value.

Post-retirement and post-employment benefits: Under Canadian GAAP, when a defined benefit plan gives rise to an accrued benefit asset, a company must recognize a valuation allowance for the excess of the adjusted benefit asset over the expected future benefit to be realized from the plan asset. Changes in the pension valuation allowance are recognized in income. US GAAP does not specifically address pension valuation allowances, and the US regulators have interpreted this to be a difference between Canadian and US GAAP. In light of these developments, a difference between Canadian and US GAAP has been recorded for the effects of recognizing a pension valuation allowance and the changes therein under Canadian GAAP. This change has resulted in a retroactive increase of opening retained earnings under US GAAP in 2001 of $7.6. There was no change to net income or net income per share under US GAAP for the years ended December 31, 2002 or 2001.

The company’s accumulated benefit obligation for its US pension plans exceeds the fair value of plan assets. US GAAP requires the recognition of an additional minimum pension liability in the amount of the excess of the unfunded accumulated benefit obligation over the recorded pension benefits liability. An offsetting intangible asset is recorded equal to the unrecognized prior service costs, with any difference recorded as a reduction of accumulated OCI. No similar requirement exists under Canadian GAAP.

Foreign currency translation adjustment: The company adopted the US dollar as its functional and reporting currency on January 1, 1995. At that time, the consolidated financial statements were translated into US dollars at the December 31, 1994 year-end exchange rate using the translation of convenience method under Canadian GAAP. This translation method was not permitted under US GAAP. US GAAP required the comparative Consolidated Statements of Income and Consolidated Statements of Cash Flow to be translated at applicable weighted-average exchange rates; whereas, the Consolidated Statements of Financial Position were permitted to

be translated at the December 31, 1994 year-end exchange rate. The use of disparate exchange rates under US GAAP gave rise to a foreign currency translation adjustment. Under US GAAP, this adjustment is reported as a component of accumulated OCI.

Derivative instruments and hedging activities: The company’s derivative instruments which have not yet been settled are not recognized in the consolidated financial statements under Canadian GAAP, 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 goods sold. US GAAP requires that derivative instruments, whether designated in hedging relationships or not, be recorded at fair value in the Consolidated Statements of Financial Position. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship. The portion of gain or loss on derivative instruments designated as cash flow hedges that are effective at offsetting changes in the hedged item is reported as a component of OCI and then is reclassified into cost of goods sold when the product containing the hedged item is sold (see supplemental Derivative Instruments and Hedging Activities disclosures below). The ineffective portion is recognized in cost of goods sold.

Net sales: Net sales includes amounts recoverable from customers for freight, transportation and distribution and are recorded net of the related freight, transportation and distribution expenses. Under US GAAP, the company includes freight costs in cost of goods sold and transportation and distribution expenses in operating expenses.

Provision for plant shutdowns: The provision for plant shutdowns under Canadian GAAP includes $12.7 (2002 – $NIL; 2001 – $NIL) for writedowns of parts inventory. US GAAP requires that these writedowns be presented as a component of cost of goods sold. In 2001, the provision under Canadian GAAP included severance expense that was accrued when management having the appropriate authority approved the plan. US GAAP required that severance not be accrued until the plan was announced to the employees.

Provision for PCS Yumbes S.C.M.: The provision for PCS Yumbes under Canadian GAAP includes $50.2 for writedowns of non-parts inventory. US GAAP requires that these writedowns be presented as a component of cost of goods sold.

Depreciation and amortization: Depreciation and amortization under Canadian GAAP is higher than under US GAAP, as a result of differences in the carrying amounts of property, plant and equipment and goodwill under Canadian and US GAAP.

Comprehensive income: Comprehensive income is recognized and measured under US GAAP pursuant to SFAS No. 130 “Reporting Comprehensive Income”. This standard defines comprehensive income as all changes in equity other than those resulting from investments by owners and distributions to owners. Comprehensive income is comprised of two components, net income and OCI. OCI refers to amounts that are recorded as an element of shareholders’ equity but are excluded from net income because these transactions or events were attributed to changes from non-owner sources. The concept of comprehensive income does not yet exist under Canadian GAAP.

PotashCorp 2003 Annual Report   73

34. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)

Income taxes: The income tax adjustment reflects the impact on income taxes of the US GAAP adjustments described above. Accounting for income taxes under Canadian and US GAAP is

similar, except that income tax rates of enacted or substantively enacted tax law must be used to calculate future income tax assets and liabilities under Canadian GAAP; whereas only income tax rates of enacted tax law can be used under US GAAP.

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

	2003			2002			2001(1)
Net (loss) income as reported – Canadian GAAP	$	(126.3	)	$	53.6		$	121.2
Items increasing or decreasing reported net (loss) income
Provision for plant closures		—			—			(9.0	)
Pre-operating costs		63.0			2.6			(41.7	)
Depreciation and amortization		8.5			8.4			9.7
Accretion of asset retirement obligations		(3.3	)		—			—
Post-retirement and post-employment benefits		2.0			—			—
Future income taxes		(23.7	)		(4.0	)		14.4
Net (loss) income – US GAAP	$	(79.8	)	$	60.6		$	94.6
Weighted average shares outstanding – US GAAP		52,230,000			52,021,000			51,879,000
Basic net income per share – US GAAP	$	(1.53	)	$	1.16		$	1.82
Total assets as reported – Canadian GAAP	$	4,567.3		$	4,685.6		$	4,597.3
Items increasing (decreasing) reported total assets
Inventory		(2.7	)		(4.0	)		—
Available-for-sale securities (unrealized holding gain [loss])		35.0			(7.7	)		34.9
Fair value of natural gas hedging contracts		59.8			52.7			8.9
Property, plant and equipment		(134.9	)		(143.4	)		(151.8	)
Pre-operating costs		—			(63.0	)		(65.6	)
Post-retirement and post-employment benefits		13.9			11.9			11.9
Intangible asset relating to additional minimum pension liability		2.7			—			—
Goodwill		(46.7	)		(46.7	)		(46.7	)
Total assets – US GAAP	$	4,494.4		$	4,485.4		$	4,388.9
Total shareholders’ equity as reported – Canadian GAAP	$	1,973.8		$	2,092.5		$	2,086.5
Items increasing (decreasing) reported shareholders’ equity
Accumulated other comprehensive income (loss), net of related income taxes		14.8			(30.0	)		8.9
Foreign currency translation adjustment		20.9			20.9			20.9
Accretion of asset retirement obligations		(3.3	)		—			—
Provision for asset impairment		(218.0	)		(218.0	)		(218.0	)
Depreciation and amortization		36.4			27.9			19.5
Pre-operating costs		—			(63.0	)		(65.6	)
Post-retirement and post-employment benefits		13.9			11.9			11.9
Future income taxes		34.7			58.4			62.4
Shareholders’ equity – US GAAP	$	1,873.2		$	1,900.6		$	1,926.5

(1) The figures for 2001 have been restated for the US GAAP difference relating to pension valuation allowances as described on Page 72.

Supplemental US GAAP Disclosure

Available-for-Sale Security

The company’s investment in ICL is classified as available-for-sale. The fair market value of this investment at December 31, 2003 was $153.4 and the unrealized holding gain was $60.6.

Recent Accounting Pronouncements

In December 2003, the FASB revised FIN No. 46 “Consolidation of Variable Interest Entities”, which clarifies the application of Accounting Research Bulletin No. 51 “Consolidated Financial Statements” to those entities (defined as Variable Interest Entities (“VIEs”)) in which either the equity at risk is not sufficient to permit that entity to finance its activities without additional subordinated financial support from other parties, or equity investors lack voting control, an obligation to absorb expected losses or the right to receive expected residual returns.

74 Notes to the Consolidated Financial Statements in millions of US Dollars except share and per-share amounts

34. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)

FIN No. 46 requires consolidation by a business of VIEs in which it is the primary beneficiary. The primary beneficiary is defined as the party that has exposure to the majority of the expected losses and/or expected residual returns of the VIE. FIN No. 46 is effective for the company no later than March 31, 2004. The company expects no material impact on its financial position, results of operations or cash flows from adoption.

Stock-based Compensation

Prior to 2003, the company applied the intrinsic value based method of accounting for its stock option plans. No stock-based employee compensation cost is reflected in 2002 or 2001 net income, as all options granted under the plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective December 15, 2003, the company adopted the fair value based method of accounting for stock options prospectively to all employee awards granted, modified or settled after January 1, 2003 pursuant to the transitional provisions of SFAS No. 148 “Accounting for Stock-Based Compensation — Transition and Disclosure”. Since the company’s stock option awards vest over two years, the compensation cost included in the determination of net loss for 2003 is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of SFAS No. 123 “Accounting for Stock-Based Compensation”. The following table illustrates the effect on net (loss) income and net (loss) income per share under US GAAP if the fair value based method had been applied to all outstanding and unvested awards in each period.

		2003			2002			2001
Net (loss) income – as reported under US GAAP		$	(79.8	)	$	60.6		$	94.6
Add:	Stock-based employee compensation expense included in
	reported net loss, net of related tax effects		0.8			—			—
Deduct:	Total stock-based employee compensation expense
	determined under fair value based method for all awards,
	net of related tax effects		(14.8	)		(14.3	)		(13.6	)
Net (loss) income – pro forma under US GAAP(1)		$	(93.8	)	$	46.3		$	81.0

⁽¹⁾ Compensation expense under the fair value based method is recognized over the vesting period of the related stock options. Accordingly, the pro forma results of applying this method may not be indicative of future results.

	2003			2002		2001
Basic net (loss) income per share under US GAAP
As reported	$	(1.53	)	$	1.16	$	1.82
Pro forma	$	(1.80	)	$	0.89	$	1.56
Diluted net (loss) income per share under US GAAP
As reported	$	(1.53	)	$	1.16	$	1.81
Pro forma	$	(1.80	)	$	0.89	$	1.55

Derivative Instruments and Hedging Activities

The company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. 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 manage 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. 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 formally assesses, both at the inception of the hedge and on an ongoing basis, whether each derivative is highly effective in offsetting changes in cash flows or fair value of the hedged item. Fluctuations in the value of the derivative instruments are generally offset by changes in the hedged item; however, if it is determined that a derivative is not highly effective as a hedge or if a derivative is sold, expires or ceases to be a highly effective hedge, the company will discontinue hedge accounting prospectively for the affected derivative. The amounts previously recognized in accumulated OCI are then reclassified to cost of goods sold when the product containing the hedged item is sold. The ineffectiveness of hedges on existing derivative instruments for the year ended December 31, 2003 was not material.

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, at which time the gain or loss is reclassified from OCI to cost of goods sold. During the year, a gain of $89.9 was recognized in cost of goods sold (2002 – $15.5; 2001 – $43.9). Of the deferred gains at year-end, approximately $35.3 will be reclassified to cost of goods sold within the next 12 months.

PotashCorp 2003 Annual Report   75

34. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)

The following supplemental schedules present the consolidated Financial Position, Operations and Retained Earnings, Cash Flow, Comprehensive (Loss) Income and Accumulated Other Comprehensive Income (Loss) in accordance with US GAAP as adjusted for the GAAP differences described in this note.

Supplemental Schedule of Consolidated Financial Position
As at December 31

	2003		2002
Assets
Current Assets
Cash and cash equivalents	$	4.7	$	24.5
Accounts receivable		305.0		267.8
Inventories		392.5		495.3
Prepaid expenses		29.0		40.4
Fair value of natural gas hedging contracts		59.8		52.7
		791.0		880.7
Property, plant and equipment		2,973.2		3,126.5
Other assets		679.9		427.9
Goodwill		50.3		50.3
	$	4,494.4	$	4,485.4
Liabilities
Current Liabilities
Short-term debt	$	176.2	$	473.0
Accounts payable and accrued charges		380.3		347.0
Current portion of long-term debt		1.3		3.4
		557.8		823.4
Long-term debt		1,268.6		1,019.9
Future income tax liability		460.6		391.9
Accrued post-retirement/post-employment benefits		242.5		264.1
Accrued reclamation costs and asset retirement obligations		84.6		80.0
Other non-current liabilities and deferred credits		7.1		5.5
		2,621.2		2,584.8
Shareholders’ Equity
Share Capital		1,245.8		1,186.9
Additional Paid-in Capital		265.2		264.2
Retained Earnings		347.4		479.5
Accumulated Other Comprehensive Income (Loss)		14.8		(30.0	)
		1,873.2		1,900.6
	$	4,494.4	$	4,485.4

76 Notes to the Consolidated Financial Statements in millions of US Dollars except share and per-share amounts

34. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)

Supplemental Schedule of Consolidated Operations and Retained Earnings
For the Years Ended December 31

	2003			2002			2001(1)
Net sales	$	2,799.0		$	2,224.5		$	2,395.1
Cost of goods sold		2,375.7			1,825.7			1,938.2
Gross Margin		423.3			398.8			456.9
Selling and administrative		96.1			91.7			98.4
Transportation and distribution		98.7			80.5			82.9
Provincial mining and other taxes		57.0			68.0			70.0
Provision for plant shutdowns		111.0			—			9.0
Provision for PCS Yumbes S.C.M.		27.3			—			—
Foreign exchange loss (gain)		51.9			5.5			(13.7	)
Other income		(33.2	)		(24.8	)		(18.4	)
		408.8			220.9			228.2
Operating Income		14.5			177.9			228.7
Interest Expense		91.3			83.1			80.3
(Loss) Income before Income Taxes		(76.8	)		94.8			148.4
Income Taxes		3.0			34.2			53.8
Net (Loss) Income		(79.8	)		60.6			94.6
Retained Earnings, Beginning of Year		479.5			470.9			428.2
Dividends		(52.3	)		(52.0	)		(51.9	)
Retained Earnings, End of Year	$	347.4		$	479.5		$	470.9
Net (Loss) Income Per Share — Basic	$	(1.53	)	$	1.16		$	1.82
Net (Loss) Income Per Share — Diluted	$	(1.53	)	$	1.16		$	1.81
Dividends Per Share	$	1.00		$	1.00		$	1.00

(1) The figures for 2001 have been restated for the US GAAP difference relating to pension valuation allowances as described on Page 72.

Supplemental Schedule of Consolidated Comprehensive (Loss) Income
For the Years Ended December 31

	2003			2002			2001
Net (loss) income	$	(79.8	)	$	60.6		$	94.6
Other comprehensive (loss) income
Change in unrealized holding gain on available-for-sale securities		42.7			(42.6	)		(6.8	)
Change in gains and losses on derivatives designated as cash flow hedges		98.3			66.0			(165.6	)
Reclassification to income of gains and losses on cash flow hedges		(89.9	)		(15.5	)		(43.9	)
Adjustment to additional minimum pension liability		23.4			(68.7	)		—
Future income taxes related to other comprehensive income		(29.7	)		21.9			78.2
Other comprehensive income (loss), net of related income taxes		44.8			(38.9	)		(138.1	)
Comprehensive (loss) income	$	(35.0	)	$	21.7		$	(43.5	)

Supplemental Schedule of Consolidated Accumulated Other Comprehensive Income (Loss)
For the Years Ended December 31

	2003			2002			2001
Accumulated other comprehensive (loss) income, beginning of year	$	(30.0	)	$	8.9		$	7.2
Cumulative effect of initial adoption of SFAS 133, net of related income taxes		—			—			139.8
Other comprehensive income (loss), net of related income taxes		44.8			(38.9	)		(138.1	)
Accumulated other comprehensive income (loss), end of year	$	14.8		$	(30.0	)	$	8.9

The balances related to each component of accumulated other comprehensive income (loss), net of related income taxes, are as follows:

	2003			2002			2001
Unrealized gains and losses on available-for-sale securities	$	22.6		$	(3.1	)	$	24.1
Gains and losses on derivatives designated as cash flow hedges		43.1			38.0			5.7
Additional minimum pension liability		(30.0	)		(44.0	)		—
Foreign currency translation adjustment		(20.9	)		(20.9	)		(20.9	)
Accumulated other comprehensive income (loss), end of year	$	14.8		$	(30.0	)	$	8.9

PotashCorp 2003 Annual Report   77

34. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)

Supplemental Schedule of Consolidated Cash Flow
For the Years Ended December 31

	2003			2002			2001
Operating Activities
Net (loss) income	$	(79.8	)	$	60.6		$	94.6
Items not affecting cash
Depreciation and amortization		218.9			208.1			176.0
Loss on disposal of property, plant and equipment		1.0			1.0			0.4
Stock-based compensation		1.0			—			—
Provision for plant shutdowns		105.6			—			—
Provision for PCS Yumbes S.C.M.		14.5			—			—
Writedown of inventories		62.9			—			—
Foreign exchange on future income tax		35.9			1.0			(8.2	)
Provision for future income tax		3.0			10.0			33.3
Share of earnings of equity investees		(12.4	)		(5.3	)		—
Provision for post-retirement/post-employment benefits		9.7			18.2			2.1
Accrued reclamation costs and asset retirement obligations		4.6			(3.0	)		(3.7	)
Other non-current liabilities and deferred credits		1.6			(1.4	)		0.6
Changes in non-cash operating working capital
Accounts receivable		(39.5	)		(11.1	)		69.9
Inventories		14.5			(14.2	)		(76.1	)
Prepaid expenses		9.4			(3.9	)		2.3
Accounts payable and accrued charges		48.9			33.0			(235.6	)
Current income taxes		(18.3	)		23.4			(21.6	)
Cash provided by operating activities		381.5			316.4			34.0
Investing Activities
Additions to property, plant and equipment		(150.7	)		(212.2	)		(513.7	)
Investment in SQM		—			(23.2	)		(130.4	)
Investment in APC		(178.3	)		—			—
Dividends received from equity investees		4.0			—			—
Additions to other assets		(32.7	)		(36.0	)		(4.2	)
Cash used in investing activities		(357.7	)		(271.4	)		(648.3	)
Financing Activities
Proceeds from long-term obligations		250.0			11.2			600.0
Repayment of long-term obligations		(3.4	)		(1.3	)		(5.8	)
Proceeds from short-term debt		—			—			12.2
Repayment of short-term debt		(296.8	)		(28.1	)		—
Dividends		(52.3	)		(52.0	)		(51.9	)
Issuance of shares		58.9			4.4			5.1
Cash (used in) provided by financing activities		(43.6	)		(65.8	)		559.6
Decrease in Cash and Cash Equivalents		(19.8	)		(20.8	)		(54.7	)
Cash and Cash Equivalents, Beginning of Year		24.5			45.3			100.0
Cash and Cash Equivalents, End of Year	$	4.7		$	24.5		$	45.3

78   PotashCorp 2003 Annual Report

Board of Directors

Frederick J. Blesi, of Glenview, Illinois, is a retired Chairman and CEO of the Phosphate Chemicals Export Association Inc. (PhosChem), principal exporter of US phosphate chemicals. Before joining PhosChem, he was Vice President, International with International Minerals and Chemical Corporation. He is a director of the Evans Scholars Foundation and The Western Golf Association. He joined the PCS Inc. Board in 2001. (3,5)

William J. Doyle, of Saskatoon, Saskatchewan, is President and CEO of Potash Corporation of Saskatchewan Inc. He became President of PCS Sales in 1987, after a career with International Minerals and Chemical Corporation. He is a director of Canpotex Limited, The Fertilizer Institute and the Potash & Phosphate Institute and is Chairman of the Production and International Trade Committee for the International Fertilizer Industry Association. Mr. Doyle is on the College Board of Advisors at Georgetown University. He joined the PCS Inc. Board in 1989. (1)

John W. Estey, of Glenview, Illinois, is President and CEO of S&C Electric Company. He has been a director on the IEEE/Power Engineering Society Governing Board since 1992 and is currently past president of the Society. A member of the Board of Governors of the National Electrical Manufacturers Association, he is also a director of the Executives’ Club of Chicago. He joined the PCS Inc. Board in 2003. (3,4)

Wade Fetzer III, of Glencoe, Illinois, is Retired Partner with the investment banking firm Goldman Sachs. He sits on the boards of Serologicals Corporation, Sphere Communications, Northern Star Broadcasting, University of Wisconsin Foundation and Rush-Presbyterian St. Luke’s Medical Center. He is also on the Kellogg Alumni Advisory Board. He joined the PCS Inc. Board in 2002. (2,3)

Dallas J. Howe, of Calgary, Alberta, serves in a management role with GE Medical Systems Information Technology, which now includes the company he formerly owned, BDM Information Systems. He is owner and CEO of DSTC Ltd., a technology investment company, and a director of Advanced Data Systems Ltd., as well as a member of the University of Saskatchewan Board of Governors. A director of the PCS Crown corporation from 1982 to 1989, he joined the PCS Inc. Board in 1991 and was elected Chair in 2003. (1,2)

Alice D. Laberge, of Vancouver, British Columbia, is President and CEO of Fincentric Corporation, a global provider of software solutions to financial institutions. She was formerly Senior Vice President and Chief Financial Officer of MacMillan Bloedel Limited, and is a director of BC Hydro, the United Way of the Lower Mainland and St. Paul’s Hospital Foundation. She joined the PCS Inc. Board in 2003. (4,5)

Jeffrey J. McCaig, of Calgary, Alberta, is President, CEO and a director of Trimac Corporation, a bulk trucking and third-party logistics company. Prior to that, he practiced law, specializing in corporate financing and securities. He is a director of Orbus Pharma Inc. He joined the PCS Inc. Board in 2001. (3,5)

Mary Mogford, of Newcastle, Ontario, is a Corporate Director and Partner in Mogford Campbell Inc., a strategic business and financial consulting company. A former Deputy Minister of Finance and Deputy Minister of Natural Resources in Ontario, she is a director of Empire Company Ltd., Falconbridge Ltd., MDS Inc. and Sears Canada Inc., and a member of the Altamira Advisory Council. She joined the PCS Inc. Board in 2001. (2,5)

Paul J. Schoenhals, of Calgary, Alberta, is President of Petroleum Industry Training Service. He is a former Member of the Legislative Assembly and Cabinet Minister in Saskatchewan and was Chairman of Potash Corporation of Saskatchewan, the Crown corporation, from 1987 to 1989. He joined the PCS Inc. Board in 1992. (3,4)

E. Robert Stromberg, Q.C., of Saskatoon, Saskatchewan, is associated with the Saskatchewan law firm Robertson Stromberg Pedersen. He is a director of NorSask Forest Products Inc. and Hitachi Canadian Industries Ltd., and Chairman of the Saskatoon Airport Authority. He joined the PCS Inc. Board in 1991. (1,2,4)

Jack G. Vicq, Professor Emeritus of Accounting, University of Saskatchewan, was formerly Associate Dean of Commerce and responsible for the Centre for International Business Studies. Formerly holder of the A. W. Johnson Distinguished Chair in Public Policy in the Saskatchewan Department of Finance, he is currently Chairman of the Provincial Court Commission. He joined the PCS Inc. Board in 1989. (1,5)

Elena Viyella de Paliza, of the Dominican Republic, is President of Inter-Quimica, S.A., a chemicals importer and distributor, Monte Rio Power Corp and Indescorp, S.A. Formerly executive vice president of FERSAN, a fertilizer bulk blender and agrochemical distributor, she is past president of the Dominican Stock Exchange, Dominican Manufacturers Association and the National Agribusiness Board. She joined the PCS Inc. Board in 2003. (1,2)

(1) Executive committee
(2) Corporate governance and nominating committee
(3) Compensation committee
(4) Safety, health and environment committee
(5) Audit committee

PotashCorp 2003 Annual Report   79

Shareholder Information

Annual Meeting
The Annual Shareholders meeting will be held at 10:30 a.m. Central Standard Time May 6, 2004 in the Adam Ballroom, Delta Bessborough Hotel, 601 Spadina Crescent East, Saskatoon, Saskatchewan.
It will be carried live on the company’s website, www.potashcorp.com.
Holders of common shares as of March 18, 2004 are entitled to vote at the meeting and are encouraged to participate.
Dividends
Dividend amounts paid to shareholders resident in Canada are adjusted by the exchange rate applicable on the dividend record date. Dividends are normally paid in February, May, August and November, with record dates normally set approximately three weeks earlier. Future cash dividends will be paid out of, and are conditioned upon, the company’s available earnings. Shareholders who wish to have their dividends deposited directly in their bank accounts should contact the transfer agent and registrar, CIBC Mellon Trust Company.
Registered shareholders can have dividends reinvested in newly issued common shares of PotashCorp at prevailing market rates.
Information for Shareholders Outside Canada
Dividends paid to residents in countries with which Canada has bilateral tax treaties are generally subject to the 15 percent Canadian non-resident withholding tax. There is no Canadian tax on gains from the sale of shares or debt instruments owned by non-residents not carrying on business in Canada. No government in Canada levies estate taxes or succession duties.
Ownership
On February 27, 2004, there were 2,096 holders of record of the company’s common shares.
Shares Listed
Toronto Stock Exchange
New York Stock Exchange
Ticker Symbol: POT Common Share Transfer Agent
In Canada:
CIBC Mellon Trust Company
Suite 750 — One Lombard Place
Winnipeg, Manitoba R3B 0X3
Phone: (204) 987-2490
(800) 387-0825 Website: www.cibcmellon.com
In the United States:
Mellon Investor Services, L.L.C.
85 Challenger Road, Overpeck Center
Ridgefield Park, New Jersey 07660
Phone: (800) 526-0801
Website: www.melloninvestor.com
Shareholders with address changes or those with inquiries concerning their Potash Corporation of Saskatchewan Inc. stock are invited to contact:
CIBC Mellon Trust (address above), or
John Hampton, Corporate Secretary
PotashCorp
Suite 500, 122 – 1st Avenue South
Saskatoon, Saskatchewan S7K 7G3
Investor Inquiries
Betty-Ann Heggie, Senior Vice President, Corporate Relations
Canada: (800) 667-0403
US:        (800) 667-3930
e-mail: corporate.relations@potashcorp.com
 
Visit us at www.potashcorp.com
Interim Reports, News Releases and Form 10-K
Non-registered shareholders who wish to receive quarterly reports should contact the Corporate Relations department. News releases are available via fax and e-mail.
Copies of the company’s most recent Form 10-K are available upon request or on our website.
 
 

Common Share Prices and Volumes

The adjacent table sets forth the high and low prices, as well as the volumes, for the company’s common shares as traded on the Toronto Stock Exchange and the New York Stock Exchange (composite transactions) on a quarterly basis. Potash Corporation of Saskatchewan Inc. is on the S&P/TSX 60 and the S&P/TSX Composite indices.

¹ Trading prices are in CDN$

	Toronto Stock Exchange1						New York Stock Exchange
	High		Low		Volume		High		Low		Volume
2003
First Quarter		102.80		82.56		7,509,384		66.36		54.95		12,569,900
Second Quarter		94.41		81.50		6,352,137		65.49		59.64		10,606,500
Third Quarter		101.03		84.80		4,238,720		73.55		61.90		7,070,100
Fourth Quarter		115.50		93.76		7,214,368		87.25		70.48		12,190,890
Year 2003		115.50		81.50		25,314,609		87.25		54.95		42,437,390
2002
First Quarter		105.65		90.34		4,938,188		66.30		56.50		6,907,200
Second Quarter		109.02		93.00		5,751,984		68.38		60.75		9,058,600
Third Quarter		102.00		79.38		8,034,108		66.50		49.65		15,082,300
Fourth Quarter		108.50		93.55		7,880,053		69.20		60.30		14,913,600
Year 2002		109.02		79.38		26,604,333		69.20		49.65		45,961,700

80   PotashCorp 2003 Annual Report

Corporate Information

Corporate Officers and Key Management

	William J. Doyle President and Chief Executive Officer
	James F. Dietz Executive Vice President and Chief Operating Officer
	Wayne R. Brownlee Senior Vice President, Treasurer and Chief Financial Officer
	John L. M. Hampton Senior Vice President, General Counsel and Secretary

	Betty-Ann L. Heggie Senior Vice President, Corporate Relations
	Barbara Jane Irwin Senior Vice President, Administration
	Robert A. Jaspar Senior Vice President, Information Technology

	G. David Delaney President, PCS Sales
	Garth W. Moore President, PCS Potash
	Thomas J. Regan, Jr. President, PCS Phosphate

	Daphne J. Arnason Vice President, Internal Audit
	Karen G. Chasez Vice President, Procurement
	Donald R. Roberts Vice President, Safety, Health and Environment
	Denis A. Sirois Vice President and Corporate Controller

Corporate Offices

PotashCorp
Suite 500, 122 – 1st Avenue South
Saskatoon, SK S7K 7G3
Phone: (306) 933-8500 PotashCorp
Suite 400, 1101 Skokie Boulevard
Northbrook, IL 60062
Phone: (847) 849-4200

EX-21 6 o11946exv21.htm EXHIBIT 21

Exhibit 21

SUBSIDIARIES OF
POTASH CORPORATION OF SASKATCHEWAN INC.

	Jurisdiction of Incorporation
Name of Entity	or Formation
175360 Canada Inc.	Canada
609430 Saskatchewan Ltd.	Saskatchewan
628550 Saskatchewan Ltd.	Saskatchewan
AA Sulfuric Corp.	Louisiana
AC Industries	Delaware
Augusta Service Company Inc.	Delaware
Canpotex Bulk Terminals Ltd.	Canada
Chilkap Resources Ltd.	Yukon
El Boldo Limitada	Chile
El Roble Limitada	Chile
Houston Ammonia Terminal, L.P.	Delaware
Inversiones PCS Chile Limitada	Chile
Minera Saskatchewan Limitada	Chile
PCS (Barbados) Shipping Ltd.	Barbados
PCS Administration (USA), Inc.	Delaware
PCS Barbados Holdings SRL	Barbados
PCS Cassidy Lake Company	Ontario
PCS Cassidy Lake Limited	Canada
PCS Chile I LLC	Delaware
PCS Chile II LLC	Delaware
PCS Fosfatos do Brasil Ltda.	Brazil
PCS Hungary Holding Limited	Hungary
PCS Industrial Products Inc.	Delaware
PCS Joint Venture, LP	Florida
PCS Jordan LLC	Delaware
PCS L.P. Inc.	Delaware
PCS Nitrogen Amm Term Corp I	Texas
PCS Nitrogen Amm Term Corp II	Delaware
PCS Nitrogen Delaware LLC	Delaware
PCS Nitrogen Fertilizer, L.P.	Delaware
PCS Nitrogen Fertilizer Limited	Trinidad
PCS Nitrogen Fertilizer Operations, Inc.	Delaware
PCS Nitrogen, Inc.	Delaware
PCS Nitrogen LCD Corporation	Delaware
PCS Nitrogen Limited	Trinidad
PCS Nitrogen Ohio, L.P.	Delaware
PCS Nitrogen Payroll Corporation	Delaware
PCS Nitrogen Trinidad Corporation	Delaware
PCS Nitrogen Trinidad Limited	Trinidad

	Jurisdiction of Incorporation
Name of Entity	or Formation
PCS Phosphate Company, Inc.	Delaware
PCS Purified Phosphates	Virginia
PCS Sales (Canada) Inc.	Saskatchewan
PCS Sales (Indiana), Inc.	Indiana
PCS Sales (Iowa), Inc.	Iowa
PCS Sales (USA), Inc.	Delaware
PCS USA LLC	Delaware
PCS Yumbes S.C.M.	Chile
Phosphate Holding Company, Inc.	Delaware
Potash Corporation of Saskatchewan (Florida) Inc.	Florida
Potash Corporation of Saskatchewan Transport Limited	Saskatchewan
Potash Holding Company, Inc.	Delaware
Texasgulf Aircraft Inc.	Delaware
Tg Corporation	Delaware
White Springs Agricultural Chemicals, Inc.	Delaware

EX-23 7 o11946exv23.htm EXHIBIT 23

Exhibit 23

Deloitte & Touche LLP
122 1st Ave. S.
Suite 400, PCS Tower

Saskatoon SK S7K 7E5
Canada
 
Tel: (306) 343-4400
Fax: (306) 343-4480
www.deloitte.ca

INDEPENDENT AUDITORS’ CONSENT

We consent to the incorporation by reference in the following Registration Statements of Potash Corporation of Saskatchewan Inc.:

• Registration Statement No. 33-37855 on Form S-8;

• Registration Statement No. 333-19215 on Form S-8;

• Registration Statement No. 333-93773 on Form S-8;

• Registration Statement No. 333-53531 on Form S-8;

• Registration Statement No. 333-75742 on Form S-8;

• Registration Statement No. 333-75744 on Form S-8;

• Registration Statement No. 333-27685 on Form S-3;

• Registration Statement No. 333-89350 on Form S-3; and

• Registration Statement No. 33-57920 on Form S-3DPOS

of our reports dated February 6, 2004 appearing in this Annual Report on Form 10-K of Potash Corporation of Saskatchewan Inc. for the year ended December 31, 2003.

/s/ Deloitte & Touche LLP

Chartered Accountants

Saskatoon, Saskatchewan, Canada

March 11, 2004

EX-31.A 8 o11946exv31wa.htm EXHIBIT 31(A)

Exhibit 31(a)

CERTIFICATION

I, William J. Doyle, certify that:

1.	I have reviewed this annual report on Form 10-K of Potash Corporation of Saskatchewan Inc.;
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
(b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 11, 2004	By:	/s/ WILLIAM J. DOYLE
		William J. Doyle
		President and Chief Executive Officer

EX-12

Exhibit 12 - Computation of Ratio Earnings

EX-13

Exhibit 13 - 2003 Annual Report

EX-21

Exhibit 21 - Subsidiaries of the Registrant

EX-23

Exhibit 23 - Consent of Deloitte & Touche LLP

EX-31.A

Exhibit 31(A) - Certification Pursuant to 302

EX-31.B

Exhibit 31(b)

CERTIFICATION

I, Wayne R. Brownlee, certify that:

1.	I have reviewed this annual report on Form 10-K of Potash Corporation of Saskatchewan Inc.;
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
(b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 11, 2004	By:	/s/ WAYNE R. BROWNLEE
		Wayne R. Brownlee
		Senior Vice President, Treasurer and Chief Financial Officer

EX-32

Exhibit 32

      Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Potash Corporation of Saskatchewan Inc. (the “Company”), does hereby certify, to such officer’s knowledge, that:

      The annual report on Form 10-K for the year ended December 31, 2003 (the “Form 10-K”), of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 11, 2004

/s/ WILLIAM J. DOYLE
_______________________________________
William J. Doyle
President and Chief Executive Officer

Dated: March 11, 2004

/s/ WAYNE R. BROWNLEE
_______________________________________
Wayne R. Brownlee
Senior Vice President, Treasurer, and
Chief Financial Officer

      The foregoing certification is being furnished as an exhibit to the Form 10-K pursuant to Item 601(6)(32) of Regulation S-K, section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed as part of the Form 10-K.

EX-99 11 o11946exv99.htm EXHIBIT 99

EXHIBIT 99

ANNUAL AND SPECIAL MEETING
MAY 6, 2004

POTASH CORPORATION OF SASKATCHEWAN INC.

NOTICE OF

ANNUAL AND SPECIAL MEETING

OF SHAREHOLDERS AND

MANAGEMENT PROXY CIRCULAR

TABLE OF CONTENTS

	Page
Letter to Shareholders		1
Notice of Annual and Special Meeting of Shareholders		2
Management Proxy Circular
Q&A on Proxy Voting		3
Election of Directors		7
Appointment of Auditors		12
Report of the Audit Committee		13
Report of the Compensation Committee		14
Executive Compensation		17
Compensation of Directors		24
Report on Corporate Governance and Nominating Matters		25
Performance Graphs		26
Directors’ and Officers’ Liability Insurance		27
Voting Shares		28
Ownership of Shares		28
Shareholder Proposal		29
2005 Shareholder Proposals		29
Additional Information		29
Directors’ Approval		29
Appendix A — Corporate Governance		A-1
Appendix B — Audit Committee Charter		B-1
Appendix C — Shareholder Proposal		C-1

March 11, 2004
 

Dear Shareholder:

          We are pleased to invite you to join our Board of Directors and senior management team at our 2004 Annual and Special Meeting of Shareholders. The meeting will be held on May 6, 2004 at 10:30 a.m. (local time) at the Delta Bessborough, 601 Spadina Crescent East, Saskatoon, Saskatchewan, Canada.

          The meeting provides you, the shareholder, with an opportunity to meet, listen to and ask questions of the people who are responsible for the performance of the Corporation. The Notice of Annual and Special Meeting and Management Proxy Circular describing the formal business of the meeting and related proxy are enclosed.

          Your vote is very important. Whether or not you plan to attend the meeting, you can make your voice heard by completing and sending us your proxy (full details are provided inside).

          If you are unable to attend in person, you will be able to listen to a webcast of the meeting at www.potashcorp.com. Prior to the meeting you may also wish to visit our website to view our most recently filed public documents.

          We look forward to seeing you on May 6, 2004.

Sincerely,
D.  J. Howe	W.  J. Doyle
Board Chair	President and Chief Executive Officer

Potash Corporation of Saskatchewan Inc.
PCS Tower,     Suite 500, 122 – 1st Avenue South,     Saskatoon, Saskatchewan Canada     S7K 7G3

POTASH CORPORATION OF SASKATCHEWAN INC.
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS

          NOTICE IS HEREBY GIVEN that the Annual and Special Meeting (the “Meeting”) of shareholders of Potash Corporation of Saskatchewan Inc. (the “Corporation”), a Canadian corporation, will be held on May 6, 2004 at 10:30 a.m. (local time) at the Delta Bessborough, 601 Spadina Crescent East, Saskatoon, Saskatchewan, Canada for the following purposes:

1.	to receive the consolidated financial statements of the Corporation for the year ended December 31, 2003 and the report of the auditors thereon;
2.	to elect directors;
3.	to appoint auditors for the Corporation;
4.	to consider the shareholder proposal attached as Appendix C to the accompanying Management Proxy Circular; and
5.	to transact such other business as may properly come before the Meeting or any adjournments thereof.

          DATED at Saskatoon, Saskatchewan this 11th day of March, 2004.

BY ORDER OF THE BOARD OF DIRECTORS

John L.M. Hampton

Secretary

 

POTASH CORPORATION OF SASKATCHEWAN INC.
MANAGEMENT PROXY CIRCULAR

QUESTIONS AND ANSWERS ON VOTING AND PROXIES

Your vote is important to us, and you can vote whether you attend the Meeting or not. Here is how:

1.	Q:	WHO CAN I CALL IF I HAVE QUESTIONS ABOUT THE INFORMATION CONTAINED IN THIS MANAGEMENT PROXY CIRCULAR OR REQUIRE ASSISTANCE IN COMPLETING MY PROXY FORM?
	A:	Georgeson Shareholder Communication Canada, Inc., the Corporation’s proxy solicitation agent, at 1-866-800-9418, for service in English and in French.
2.	Q:	WHO IS SOLICITING MY PROXY?
	A:	The management of the Corporation. Solicitation of proxies will be primarily by mail, supplemented by telephone or other contact by employees of the Corporation (who will receive no additional compensation), and all such costs will be borne by the Corporation. We have retained the services of Georgeson for the solicitation of proxies in Canada and in the United States. Georgeson’s services are estimated to cost $20,000.
3.	Q:	ON WHAT AM I VOTING?
	A:	Three items: (1) the election of directors, (2) the appointment of auditors and (3) the consideration of the shareholder proposal. The Corporation’s Board and management recommend that you vote FOR items (1) and (2) and AGAINST item (3).
4.	Q:	WHO IS ENTITLED TO VOTE?
	A:	Common shareholders as at the close of business on March 18, 2004 or their duly appointed representatives will be entitled to cast a vote.
		As at February 29, 2004, 53,367,413 common shares in the capital of the Corporation (the “Shares”) are entitled to be voted at the Meeting.
5.	Q:	BY WHEN MUST I VOTE?
	A:	This will depend on the way in which you will be voting: (a) If you plan to attend the Meeting and

		wish to vote your Shares in person at the Meeting, your vote will be taken and counted at the Meeting. Non-registered shareholders wishing to attend the Meeting should refer to “Voting by Non-Registered Shareholders” on page 5; (b) If you are voting using the proxy form, your proxy form should be received at the Winnipeg office of CIBC Mellon Trust Company by mail or facsimile prior to the commencement of the Meeting, or hand-delivered at the registration table on the day of the Meeting prior to the commencement of the Meeting; (c) If you are voting your proxy by telephone or Internet, your vote should be received no later than 11:00 p.m. (Saskatoon time) on Tuesday, May 4, 2004.
6.	Q:	WHAT IF I SIGN THE PROXY FORM AS DESCRIBED IN THIS MANAGEMENT PROXY CIRCULAR?
	A:	Signing the proxy form gives authority to Mr. Dallas J. Howe, Mr. William J. Doyle, Mr. Wayne R. Brownlee or Mr. John L.M. Hampton, all of whom are either directors or officers of the Corporation, to vote your Shares at the Meeting in accordance with your voting instructions. A PROXY MUST BE IN WRITING AND MUST BE EXECUTED BY YOU OR BY YOUR ATTORNEY AUTHORIZED IN WRITING OR, IF THE SHAREHOLDER IS A CORPORATION OR OTHER LEGAL ENTITY, BY AN OFFICER OR ATTORNEY THEREOF DULY AUTHORIZED. A PROXY MAY ALSO BE COMPLETED OVER THE TELEPHONE OR OVER THE INTERNET (See Questions No. 17(1) (a) and (b) and 18(1).
7.	Q:	CAN I APPOINT SOMEONE OTHER THAN THESE PEOPLE TO VOTE MY SHARES?
	A:	Yes. You have the right to appoint some other person of your choice, who need not be a shareholder, to attend and act on your behalf at the Meeting. If you wish to do so, please strike out those four printed names appearing on the proxy form, and insert the name of your chosen proxyholder in the space provided thereon.

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		YOU CANNOT APPOINT A PERSON TO VOTE YOUR SHARES OTHER THAN OUR DIRECTORS OR OFFICERS WHOSE PRINTED NAMES APPEAR ON THE PROXY FORM IF YOU DECIDE TO VOTE BY TELEPHONE OR INTERNET.
		IT IS IMPORTANT TO ENSURE THAT ANY OTHER PERSON YOU APPOINT IS ATTENDING THE MEETING AND IS AWARE THAT HIS OR HER APPOINTMENT HAS BEEN MADE TO VOTE YOUR SHARES. PROXY-HOLDERS SHOULD, AT THE MEETING, PRESENT THEMSELVES TO A REPRESENTATIVE OF CIBC MELLON AT THE TABLE IDENTIFIED AS “REGISTERED SHAREHOLDERS”.
8.	Q:	HOW WILL MY SHARES BE VOTED IF I VOTE BY PROXY?
	A:	The persons named in the proxy form must vote or withhold from voting your Shares in accordance with your instructions on the proxy form. In the absence of such instructions, however, your Shares will be voted FOR the election to the Corporation’s Board of nominees proposed by management mentioned in this Management Proxy Circular and on the proxy form, FOR the appointment of Deloitte & Touche LLP as auditors until the close of the next annual meeting, AGAINST the shareholder proposal and FOR management’s proposals generally.
9.	Q:	IF I CHANGE MY MIND, CAN I TAKE BACK MY PROXY ONCE I HAVE GIVEN IT?
	A:	Yes. A shareholder who has voted by proxy may revoke it by voting again in any manner (telephone, Internet, mail or fax). In addition, you may revoke a voted proxy by depositing an instrument in writing (which includes another proxy form with a later date) executed by you or by your attorney authorized in writing with our Corporate Secretary at Suite 500, 122 1st Avenue South, Saskatoon, Saskatchewan, Canada, S7K 7G3, at any time up to and including the last business day preceding the date of the Meeting, or any adjournment or postponement thereof or by depositing it with the Meeting chair on the day of the Meeting, or any adjournment or postponement thereof. You may also revoke a proxy in any other manner permitted by law.
		Note that your participation in person in a vote by ballot at the Meeting will automatically revoke any proxy previously given by you in respect of business covered by that vote.

10.	Q:	WHAT IF AMENDMENTS ARE MADE TO THESE MATTERS OR IF OTHER MATTERS ARE BROUGHT BEFORE THE MEETING?
	A:	The person named in the proxy form has discretionary authority with respect to amendments or variations to matters identified in the Notice of the Meeting and to other matters which may properly come before the Meeting. As of the date of this Management Proxy Circular, our management knows of no such amendment, variation or other matter expected to come before the Meeting. If any other matters properly come before the Meeting, the persons named in the proxy form will vote on them in accordance with their best judgment.
11.	Q:	HOW WILL THE VOTES BE COUNTED?
	A:	The election of directors will be determined by a plurality of votes cast at the Meeting by proxy or in person. The appointment of auditors and the consideration of the shareholder proposal will each be determined by a majority of votes cast at the Meeting by proxy or in person. In the event of equal votes, the Meeting chair is entitled to a second or casting vote.
12.	Q:	HOW CAN I CONTACT THE TRANSFER AGENT?
	A:	You can contact the transfer agent as follows:
		By mail: CIBC Mellon Trust Company Suite 750 1 Lombard Place Winnipeg, Manitoba, Canada R3B 0X3
		By telephone: 1-800-387-0825 (toll-free within Canada and the United States) or 1-416-643-5500 (from any country other than Canada and the United States)
		By fax: 1-416-643-5660 (all countries)
		By e-mail: inquiries@cibcmellon.com
13.	Q:	WHAT IS ELECTRONIC DELIVERY?
	A:	A voluntary program that permits shareholders to receive their disclosure documents electronically rather than by paper. Every year, we mail to our shareholders documentation, such as this Management Proxy Circular and our Annual Report, that must by law be delivered to shareholders of a public company. Consenting shareholders will receive an email containing a link

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		to disclosure documentation on our website (www.potashcorp.com). We believe that electronic delivery will benefit the environment and reduce our costs.
14.	Q:	IS ELECTRONIC DELIVERY MANDATORY?
	A:	No. Electronic delivery is voluntary; if you do not consent, you will continue to receive documentation by mail.
15.	Q:	IF I CONSENT TO ELECTRONIC DELIVERY, WHEN WILL IT BECOME EFFECTIVE?
	A:	If you consent to electronic delivery, you will be notified by email of the availability on our website (www.potashcorp.com) of all documentation which must be sent to you by law, which notification is expected to start with the second quarter of 2004.
16.	Q:	HOW CAN I CONSENT TO ELECTRONIC DELIVERY?
	A:	(a) If you are a registered shareholder, by (i) completing and returning the accompanying form entitled Consent to Electronic Delivery of Documents to our transfer agent CIBC Mellon Trust Company by mail or by fax at 1-416-643-5660, or (ii) by completing the online version of the form at www.cibcmellon.com/electronicdelivery; (b) if you are a non-registered shareholder, by enrolling according to the instructions provided by your nominee.
	VOTING BY REGISTERED SHAREHOLDERS
	You are a registered shareholder if your name appears on your share certificate. THE ENCLOSED PROXY FORM INDICATES WHETHER YOU ARE A REGISTERED SHAREHOLDER.
17.	Q:	HOW DO I VOTE?
	A:	You can vote your Shares by proxy or in person at the Meeting if you are a registered shareholder:
	(1)	BY PROXY
	There are four ways that you can vote by proxy:
		(a)  By Telephone
	Call 1-866-271-1207 from your touch-tone phone and follow the instructions (only available to registered shareholders resident in Canada or the United States). You will need the control number located on the enclosed proxy form. You do not need to return your proxy form.

		(b)  On the Internet
	Go to www.eproxyvoting.com/potash and follow the instructions on screen. You will need the control number located on the enclosed proxy form. You do not need to return your proxy form.
	At any time, CIBC Mellon may cease to provide telephone and Internet voting, in which case shareholders can elect to vote by mail, by fax or by attending the Meeting in person, as described below.
		(c)  By Mail
	By completing, dating and signing the enclosed proxy form and returning same in the envelope provided.
		(d)  By Fax
	By completing, dating and signing the enclosed proxy form and forwarding same by fax at 1-416-368-2502. IF YOUR SHARES ARE NOT REGISTERED IN YOUR NAME (E.G. IF THEY ARE HELD THROUGH A BANK, TRUST COMPANY, SECURITIES BROKER OR OTHER NOMINEE), DO NOT USE THE ABOVE FAX NUMBERS AS THEY ARE RESERVED FOR REGISTERED SHAREHOLDERS. INSTEAD, USE THE FAX NUMBERS, IF ANY, PROVIDED BY YOUR NOMINEE (See Question No. 18(1)).
	(2) BY ATTENDING THE MEETING IN PERSON
	If you wish to vote in person at the Meeting, do not complete or return the proxy form.
	VOTING BY NON-REGISTERED SHAREHOLDERS
	You are a non-registered (or beneficial) shareholder if your Shares are held through a bank, trust company, securities broker or other nominee. FOR MOST OF YOU, THE PROXY FORM SENT OR TO BE SENT BY YOUR NOMINEE INDICATES WHETHER YOU ARE A NON-REGISTERED (OR BENEFICIAL) SHAREHOLDER.
18.	Q:	HOW DO I VOTE?
	A:	There are two ways that you can vote your Shares if you are a non-registered (or beneficial) shareholder:
	(1)	BY PROVIDING VOTING INSTRUCTIONS TO YOUR NOMINEE
	Your nominee is required to seek voting instructions from you in advance of the Meeting. Accordingly, you will receive or have already received from your nominee either a request for voting instructions or a proxy form for the number of Shares you hold.
	Every nominee has its own procedures which should be carefully followed by non-registered shareholders to ensure that their Shares are voted at the Meeting. These procedures generally allow voting by telephone, on the

- 6 -

Internet, by mail or by fax. Please contact your nominee for instructions in this regard.

IF YOUR SHARES ARE NOT REGISTERED IN YOUR NAME, DO NOT USE THE FAX NUMBERS PROVIDED IN QUESTION NO. 17(1)(d) AS THESE NUMBERS ARE RESERVED FOR REGISTERED SHAREHOLDERS.

(2) BY ATTENDING THE MEETING IN PERSON

We do not have access to the names of our non-registered shareholders. Therefore, if you attend the Meeting, we will have no record of your shareholdings

or of your entitlement to vote unless your nominee has appointed you as proxyholder. If you wish to vote in person at the Meeting, insert your own name in the space provided on the request for voting instructions or proxy form to appoint yourself as proxyholder and follow the instructions of your nominee.

Non-registered shareholders who instruct their nominee to appoint themselves as proxyholders should, at the Meeting, present themselves to a representative of CIBC Mellon at the table identified as “Beneficial Shareholders”. Do not otherwise complete the form sent to you as your vote will be taken and counted at the Meeting.

          Except as otherwise stated, the information contained herein is given as of February 29, 2004. Unless otherwise specified, all dollar amounts are expressed in United States dollars.  

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ELECTION OF DIRECTORS

          The articles of the Corporation provide that the Board of Directors of the Corporation (the “Board”) shall consist of a minimum of 6 directors and a maximum of 20, with the actual number to be determined from time to time by the Board. The Board has determined that, at the present time, there will be 12 directors.

          Proxies solicited hereby will be voted for the following proposed nominees (or for substitute nominees in the event of contingencies not known at present) who will, subject to the bylaws of the Corporation and applicable corporate law, hold office until the next annual meeting of shareholders or until their successors are elected or appointed in accordance with the bylaws or applicable corporate law. The affirmative vote of

a plurality of the Shares present in person or by proxy at the Meeting and voted in respect of the election of directors is required to elect directors.

          The following table states the names and ages of all the persons to be nominated for election as directors, all other positions and offices with the Corporation now held by them, their present principal occupation or employment, their business experience over the last five years, the period during which present directors of the Corporation have served as directors, and the number of Shares and Share Units beneficially owned by each of them, including Shares over which any such individual has or shares voting or investment power.

	FREDERICK J. BLESI	Director Since 2001
		Number of Shares Beneficially Owned — 0
		Number of Shares Deemed to be Beneficially Owned — 12,250*
		Number of Share Units Held — 2,073**
	Mr. Blesi, 66, of Glenview, Illinois is a retired Chairman and Chief Executive Officer of the Phosphate Chemicals Export Association Inc. (“PhosChem”), the principal vehicle for the export of U.S. phosphate chemicals. Prior to joining PhosChem in 1981, he was Vice President, International with International Minerals and Chemical Corporation. He is a director of the Evans Scholars Foundation and the Western Golf Association.
	Mr. Blesi is the Chair of the Compensation Committee and a member of the Audit Committee.
	WILLIAM J. DOYLE	Director Since 1989
		Number of Shares Beneficially Owned — 52,091
		Number of Shares Deemed to be Beneficially Owned — 397,091*
		Number of Share Units Held — 0**
	Mr. Doyle, 53, of Saskatoon, Saskatchewan, is President and Chief Executive Officer of the Corporation. He became President of PCS Sales in 1987, after a career with International Minerals and Chemical Corporation. He is a director of Canpotex Limited, the Potash and Phosphate Institute and The Fertilizer Institute and is Chairman of the Production and International Trade Committee for the International Fertilizer Industry Association. Mr. Doyle is on the College Board of Advisors at Georgetown University.
	Mr. Doyle is a member of the Executive Committee.

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	JOHN W. ESTEY	Director Since 2003
		Number of Shares Beneficially Owned — 0
		Number of Shares Deemed to be Beneficially Owned — 0*
		Number of Share Units Held — 1,037**
	Mr. Estey, 53, of Glenview, Illinois, is President and Chief Executive Officer of S&C Electric Company, Chicago, Illinois. With S&C Electric Company since 1972, he has been President and CEO since 1997. He has served on the IEEE/Power Engineering Society Governing Board since 1992 and is currently past president of the Society. He is a member of the Board of Governors of the National Electrical Manufacturers Association and is a director of the Executives’ Club of Chicago.
	Mr. Estey is a member of the Compensation Committee and the Safety, Health and Environment Committee.
	WADE FETZER III	Director Since 2002
		Number of Shares Beneficially Owned — 1,000
		Number of Shares Deemed to be Beneficially Owned — 1,750*
		Number of Share Units Held — 851**
	Mr. Fetzer, 66, of Glencoe, Illinois, is a Retired Partner with the investment banking firm Goldman Sachs. With Goldman Sachs since 1971, he was responsible for investment banking services in the midwestern United States. He sits on the boards of Serologicals Corporation, Sphere Communications and Northern Star Broadcasting. He is also on the boards of the University of Wisconsin Foundation, the Kellogg Alumni Advisory Board and Rush-Presbyterian St. Luke’s Medical Center.
	Mr. Fetzer is a member of the Corporate Governance and Nominating Committee and the Compensation Committee.
	DALLAS J. HOWE	Director Since 1991
		Number of Shares Beneficially Owned — 3,000
		Number of Shares Deemed to be Beneficially Owned — 23,450*
		Number of Share Units Held — 2,852**
	Mr. Howe, 59, of Calgary, Alberta, is the Chair of the Corporation. He serves in a management role with GE Medical Systems Information Technology, of which the company he formerly owned, BDM Information Systems, is now a part. He is owner and Chief Executive Officer of DSTC Ltd., a technology investment company and a director of Advanced Data Systems Ltd. as well as a member of the University of Saskatchewan Board of Governors. He served on the Board of Potash Corporation of Saskatchewan, the Crown corporation, from 1982 to 1989.
	Mr. Howe is Board Chair, the Chair of the Executive Committee and a member of the Corporate Governance and Nominating Committee.

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	ALICE D. LABERGE	Director Since 2003
		Number of Shares Beneficially Owned — 200
		Number of Shares Deemed to be Beneficially Owned — 200*
		Number of Share Units Held — 870**
	Ms. Laberge, 47, of Vancouver, British Columbia, is President and Chief Executive Officer of Fincentric Corporation, a leading provider of software solutions to financial institutions. With Fincentric since October 2000, Ms. Laberge was previously the Senior Vice President and Chief Financial Officer of MacMillan Bloedel Limited, one of North America’s largest forest products companies until that company was acquired by Weyerhaeuser Company in November 1999. She is a director of BC Hydro, the United Way of the Lower Mainland and St. Paul’s Hospital Foundation.
	Ms. Laberge is a member of the Audit Committee and the Safety, Health and Environment Committee.
	JEFFREY J. McCAIG	Director Since 2001
		Number of Shares Beneficially Owned — 0
		Number of Shares Deemed to be Beneficially Owned — 12,250*
		Number of Share Units Held — 2,084**
	Mr. McCaig, 52, of Calgary, Alberta, is President, Chief Executive Officer and a director of Trimac Corporation, a bulk trucking and third-party logistics company. Before joining Trimac in 1983, he practiced law, specializing in corporate financing and securities. He is a director of Orbus Pharma Inc.
	Mr. McCaig is a member of the Audit Committee and the Compensation Committee.
	MARY MOGFORD	Director Since 2001
		Number of Shares Beneficially Owned — 1,000
		Number of Shares Deemed to be Beneficially Owned — 13,250*
		Number of Share Units Held — 2,909**
	Ms. Mogford, 59, of Newcastle, Ontario, is a Corporate Director and Partner in Mogford Campbell Inc., a strategic business and financial consulting company. A former Deputy Minister of Finance and Deputy Minister of Natural Resources in the Province of Ontario, she is a director of Empire Company Ltd., Falconbridge Ltd., MDS Inc., Sears Canada Inc., and is a member of the Altamira Advisory Council.
	Ms. Mogford is the Chair of the Corporate Governance and Nominating Committee and a member of the Audit Committee.
	PAUL J. SCHOENHALS	Director Since 1992
		Number of Shares Beneficially Owned — 1,000
		Number of Shares Deemed to be Beneficially Owned — 19,650*
		Number of Share Units Held — 1,629**
	Mr. Schoenhals, 62, of Calgary, Alberta, President of Petroleum Industry Training Service, was Chairman of Potash Corporation of Saskatchewan, the Crown corporation, from 1987 to 1989. He is a former Member of the Legislative Assembly and Cabinet Minister in Saskatchewan.
	Mr. Schoenhals is the Chair of the Safety, Health & Environment Committee and a member of the Compensation Committee.

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	E. ROBERT STROMBERG, Q.C.	Director Since 1991
		Number of Shares Beneficially Owned — 6,927
		Number of Shares Deemed to be Beneficially Owned — 29,377*
		Number of Share Units Held — 1,641**
	Mr. Stromberg, 62, of Saskatoon, Saskatchewan, is associated with the Saskatchewan law firm Robertson Stromberg Pedersen. He is a director of NorSask Forest Products Inc. and Hitachi Canadian Industries Ltd. and is Chairman of the Saskatoon Airport Authority.
	Mr. Stromberg is a member of the Executive Committee, the Safety, Health & Environment Committee and the Corporate Governance and Nominating Committee.
	JACK G. VICQ	Director Since 1989
		Number of Shares Beneficially Owned — 1,593
		Number of Shares Deemed to be Beneficially Owned — 20,743*
		Number of Share Units Held — 1,180**
	Mr. Vicq, 64, of Saskatoon, Saskatchewan, is Professor Emeritus of Accounting in the College of Commerce, University of Saskatchewan and was formerly Associate Dean of Commerce and responsible for the Centre for International Business Studies. He held the A.W. Johnson Distinguished Chair in Public Policy in the Saskatchewan Finance Department until May 2002 and is currently Chairman of the Provincial Court Commission.
	Mr. Vicq is the Chair of the Audit Committee and a member of the Executive Committee.
	ELENA VIYELLA DE PALIZA	Director Since 2003
		Number of Shares Beneficially Owned — 0
		Number of Shares Deemed to be Beneficially Owned — 0*
		Number of Share Units Held — 877**
	Ms. Viyella de Paliza, 49, of the Dominican Republic, is President of Inter-Quimica, S.A., a chemicals importer and distributor. She is also President and founder of Monte Rio Power Corp., a power generation company, and President of Indescorp, S.A. Until 1998, Ms. Viyella de Paliza was Executive Vice President of FERSAN, a fertilizer bulk blender and distributor of agrochemicals. She is past president of the Dominican Stock Exchange, the Dominican Manufacturers Association and the National Agribusiness Board.
	Ms. Viyella de Paliza is a member of the Executive Committee and the Corporate Governance and Nominating Committee.

* The number of Shares indicated above as deemed to be beneficially owned by the nominated directors includes Shares purchasable by such directors within 60 days of February 29, 2004 through the exercise of options granted by the Corporation, as follows: Frederick J. Blesi 12,250 Shares; William J. Doyle 345,000 Shares; Wade Fetzer III 750 Shares; Dallas J. Howe 20,450 Shares; Jeffrey J. McCaig 12,250 Shares; Mary Mogford 12,250 Shares; Paul J. Schoenhals 18,650 Shares; E. Robert Stromberg 22,450 Shares; and Jack G. Vicq 19,150 Shares.

          All of the above directors have had the principal occupation described above for the previous five years other than Mr. Doyle, who was President and Chief Operating Officer of the Corporation from July 1998 to July 1999 and Ms. Laberge, who was Chief Financial Officer of Fincentric Corporation from October 2000 to November 2003.

** See “Compensation of Directors”. Share Units do not carry any voting rights. The number of Share Units held by each director has been rounded down to the nearest whole number.

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Summary of Board and Committee Meetings Held For the 12-month period ended December 31, 2003
Board of Directors	9
Audit Committee	9
Compensation Committee	9
Corporate Governance and Nominating Committee	4
Executive Committee	1
Safety, Health and Environment Committee	4
Total number of meetings held	36

Summary of Attendance of Directors For the 12-month period ended December 31, 2003
Director	Board meetings attended	Committee meetings attended
Frederick J. Blesi	9 of 9	17 of 18
William J. Doyle	9 of 9	1 of 1
John W. Estey	4 of 5	6 of 7
Wade Fetzer III	9 of 9	13 of 13
Dallas J. Howe	9 of 9	9 of 9
Alice D. Laberge	5 of 5	6 of 6
Jeffrey J. McCaig	9 of 9	17 of 18
Mary Mogford	9 of 9	13 of 13
Paul J. Schoenhals	9 of 9	13 of 13
E. Robert Stromberg, Q.C.	9 of 9	7 of 7
Jack G. Vicq	9 of 9	10 of 10
Elena Viyella de Paliza	4 of 5	3 of 3

Director Independence

          Directors Blesi, Estey, Fetzer, Howe, Laberge, McCaig, Mogford, Schoenhals, Stromberg, Vicq and Paliza are independent Directors. Director Doyle is not independent. The basis for this determination follows.

          The Board is comprised of 12 Directors, all of whom are standing for re-election. Mr. Doyle is the Chief Executive Officer of the Corporation and is therefore not independent. Of the remaining 11 Directors, the Board has affirmatively determined that the following eight directors have no relationship (material or otherwise) with the Corporation other than as directors and are therefore independent: Mr. Blesi, Mr. Estey, Mr. Fetzer, Ms. Laberge, Ms. Mogford, Ms. Paliza, Mr. Schoenhals and Mr. Vicq. This group of Directors has reviewed the relationships between the Corporation and Mr. Howe, Mr. McCaig and Mr. Stromberg and based on the facts set forth below has affirmatively determined that such relationships are not material and that Mr. Howe, Mr. McCaig and Mr. Stromberg are therefore independent.

          Mr. Howe is a member of the Board of Governors of the University of Saskatchewan. The University’s consolidated gross revenues for each of its three most recently completed fiscal years were greater than 500 million dollars (Cdn). In each of those year’s payments (whether for goods and services supplied by the University in the ordinary course or by way of charitable contributions to the University) made by the

Corporation to the University were less than 0.1% of the University’s consolidated gross revenues and therefore de minimis. During the same periods, the Corporation received no payments from the University.

          Mr. McCaig is Chief Executive Officer of Trimac Corporation (“Trimac”), a bulk trucking and third party logistics company. During the most recently completed fiscal year the Corporation made payments to Trimac and its subsidiaries and affiliates for goods and services provided in the ordinary course of business. Such payments were less than 0.1% of Trimac’s consolidated gross revenues for the period and therefore de minimis. During the same period, the Corporation received no payments from Trimac.

          Mr. Stromberg is one of the “name” lawyers of the Saskatchewan law firm Robertson Stromberg Pedersen, the services of which the Corporation routinely uses. Mr. Stromberg is not a partner in the firm, does not participate in any partnership meetings or otherwise in the management of the firm and his remuneration is a monthly amount which is not directly or indirectly related to either the firm’s total billings or its billings for work performed for the Corporation. Mr. Stromberg does not provide any legal or consulting services of any nature to the Corporation other than in his role as a Director of the Corporation. In 2003, payments made by the Corporation to Robertson Stromberg Pedersen were substantially below the NYSE independence threshold of $1,000,000.

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APPOINTMENT OF AUDITORS

          Proxies solicited hereby will be voted to reappoint the firm of Deloitte & Touche LLP, the present auditors, as auditors of the Corporation to hold office until the next annual meeting of shareholders, unless the shareholder signing such proxy specifies otherwise. The affirmative vote of a majority of Shares voted on such matter is required to reappoint the firm of Deloitte & Touche LLP as auditors of the Corporation. Since the Corporation’s initial public offering in 1989, Deloitte & Touche LLP (or its predecessors) have been the Corporation’s auditors. A representative of Deloitte & Touche LLP is expected to attend the Meeting. At that time the representative will have the opportunity to make a statement if he or she desires and will be available to respond to appropriate questions.

          For the years ended December 31, 2003, and December 31, 2002, Deloitte & Touche LLP received the following fees:

	Year ended December 31,
		2003 $	2002 $
Audit Fees		1,291,000	1,062,000
Audit Related Fees		363,000	186,000
Tax Fees		62,000	277,000
All Other Fees		27,000	55,000

Audit Fees

          Deloitte & Touche LLP billed the Corporation $1,291,000 and $1,062,000 for 2003 and 2002, respectively, for the following audit services: (i) audit of the annual consolidated financial statements of the Corporation for the fiscal years ended December 31, 2003 and 2002; (ii) review of the interim financial statements of the Corporation included in quarterly reports on Form 10-Q for the periods ended March 31, June 30 and September 30, 2003 and 2002; (iii) audits of individual statutory financial statements; (iv) attest services and the provision of comfort letters; (v) the provision of consent letters; and (vi) review and advice in respect of accounting matters in connection with the Corporation’s shelf registration statement and prospectus filings.

Audit-Related Fees

          Deloitte & Touche LLP billed the Corporation $363,000 and $186,000 for 2003 and 2002, respectively, for the following services: (i) internal control reviews;

(ii) accounting consultations regarding financial accounting and reporting standards; (iii) employee benefit plan audits; and (iv) due diligence related to mergers and acquisitions.

Tax Fees

          Deloitte & Touche LLP billed the Corporation $62,000 and $277,000 for 2003 and 2002, respectively, for the following services: (i) tax compliance; (ii) tax planning; and (iii) tax advice, including minimizing tax exposure or liability.

All Other Fees

          Deloitte & Touche LLP billed the Corporation $27,000 and $55,000 for 2003 and 2002, respectively, for reports on conducting business in foreign jurisdictions.

Pre-Approval Policy for External Auditor Services

          The Audit Committee monitors and reviews the independence of its auditors on an on-going basis. In addition, the Committee has adopted processes for the pre-approval of engagements for services of its external auditors.

          The Audit Committee’s policy requires pre-approval of all audit and non-audit services provided by the external auditor. The policy identifies three categories of external auditor services and the pre-approval procedures applicable to each category, as follows:

(1)	Audit and audit-related services — these are identified in the annual Audit Service Plan presented by the external auditor and require annual approval. The Audit Committee monitors the audit services engagement at least quarterly.
(2)	Pre-approved list of non-audit services — non-audit services which are reasonably likely to occur have been identified and receive general pre-approval of the Audit Committee, and as such do not require specific pre-approvals. The term of any general pre-approval is 12 months from approval unless otherwise specified. The Audit Committee annually reviews and pre-approves the services on this list.
(3)	Other proposed services — all proposed services not categorized above are brought forward on a case by case basis and specifically pre-approved by the Chair of the Audit Committee, to whom pre-approval authority has been delegated.

          All fees paid to the independent auditors for 2003 were approved in accordance with the pre-approval policy.

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REPORT OF THE AUDIT COMMITTEE

          The Board of Directors has determined that each of the following directors, who served as members of the Audit Committee (the “Committee”) during the year ended December 31, 2003, is independent according to the Board’s independence standards as set out in the “PotashCorp Governance Principles”, which is available on the Corporation’s website, applicable rules of the U.S. Securities and Exchange Commission (the “SEC”) and the listing standards of the New York Stock Exchange (the “NYSE”):

Jack G. Vicq (Chair)
Frederick J. Blesi
Alice D. Laberge
Jeffrey J. McCaig
Mary Mogford

For additional information regarding Director independence, see “Election of Directors — Director Independence”.

          Mr. Vicq qualifies as an “audit committee financial expert” under the rules of the SEC and thereby has the requisite accounting and/or related financial management expertise pursuant to the rules of the NYSE. In addition, the Board in its business judgment has determined that each member of the Committee is financially literate.

          In accordance with the Audit Committee Charter adopted by the Board of Directors which is available on the Corporation’s website, the Audit Committee has responsibility for the oversight of the Corporation’s financial reporting and audit processes and related internal controls on behalf of the Board. During the fiscal year ended December 31, 2003, the Committee met 9 times.

          In overseeing the audit process, the Audit Committee obtained from the independent auditors their letter dated February 16, 2004 as required by the Independent Standards Board Standard No. 1 describing all relationships between the auditors and the Corporation that might bear on the auditors’ independence and the auditors’ judgment that they are, in fact, independent and discussed with the auditors the disclosures therein. The Committee also reviewed the organizational structure, procedure and practices that support the objectivity of the internal audit department. The Committee reviewed with both the independent and the internal auditors their audit plans, audit scope and identification of audit risks. The Committee discussed, with and without management present, the results of the independent auditors’ examination of the financial statements

and all communications required by generally accepted auditing standards, including those described in Statement on Auditing Standards No. 61, as amended, “Communication with Audit Committees”. The Committee also discussed the results of the internal audit examinations.

          In meetings with financial management, internal audit and the independent auditors, the Audit Committee reviewed and discussed quarterly interim financial information prior to the earnings release for the applicable quarter. The Committee also reviewed the quarterly and annual MD&A’s.

          The Audit Committee reviewed and discussed the audited financial statements of the Corporation as of and for the fiscal year ended December 31, 2003, with management and the independent auditors, including the quality, not just the acceptability, of the Corporation’s financial reporting practices and the completeness and clarity of the related financial disclosures. Management is responsible for the preparation of the Corporation’s financial statements and the independent auditors are responsible for auditing those financial statements.

          Based on the above-mentioned review and discussions with management and the independent auditors, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, for filing with the SEC. The Audit Committee also recommended the reappointment, subject to shareholder approval, of the independent auditors.

          The Committee reviews the Corporation’s Disclosure Controls and Procedures on an annual basis. In addition, on February 18, 2004, it reviewed and updated its Committee Charter, a copy of which is attached as Appendix B hereto. The Committee has established procedures for:

• the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls or auditing matters; and

• the confidential, anonymous submission by employees of the Corporation of concerns regarding questionable accounting or auditing matters.

Such procedures are set out in Annex “A” to the Audit Committee Charter attached hereto.

Submitted on behalf of the Audit Committee, Jack G. Vicq, Frederick J. Blesi, Alice D. Laberge, Jeffrey J. McCaig and Mary Mogford.

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REPORT OF THE COMPENSATION COMMITTEE

Composition of the Compensation Committee

          The Board of Directors has determined that each of the following Directors who served as a member of the Compensation Committee during the year ended December 31, 2003 is independent according to the Board’s independence standards as set out in the “PotashCorp Governance Principles” which is available on the Corporation’s website, and the listing standards of the New York Stock Exchange. For additional information regarding Director independence, see “Election of Directors — Director Independence”.

          The following individuals served as members of the Compensation Committee during the year which ended on December 31, 2003.

Frederick J. Blesi (Chair)
John W. Estey
Wade Fetzer III
Jeffrey J. McCaig
Paul J. Schoenhals
Dallas J. Howe

Compensation Committee Report on Executive
Compensation

          The Compensation Committee of the Board (the “Committee”) is, at present, composed of five independent directors. With the appointment of Dallas Howe to Board Chair effective May 8, 2003, John Estey joined the Committee effective that date. The Committee held 9 meetings in the last fiscal year.

          The Committee is charged with formulating and making recommendations to the Board in respect of compensation issues relating to directors and senior officers of the Corporation. The Committee also makes recommendations regarding the Corporation’s Stock Option Plans and administers its Short and Long-Term Incentive Plans, each in accordance with its terms. The Committee reviews and makes recommendations regarding the general merit increase budget for salaried and non-bargaining hourly employees and has general oversight of employee benefit programs. In addition, the Committee, in consultation with the Chief Executive Officer, considers and reports to the Board regarding corporate succession matters.

          Executive compensation policies, as described more fully below, are designed with the objective of attracting and retaining qualified executives by providing compensation packages which are competitive within the marketplace and by compensating them in a manner which encourages individual performance consistent with shareholder expectations.

Salary

          The Corporation has established a system of tiered salary levels for senior executives (i.e. vice president and above) of the Corporation. Currently, each senior executive position is assigned to the appropriate salary tier, considering the position’s internal value as well as external competitive comparisons. The external competitive comparisons are prepared by independent compensation consultants and currently consist of a group of 22 companies selected on the basis of a number of factors, including similar industry characteristics and market capitalization (the “Executive Comparator Group”). The Committee generally establishes salary guidelines at levels that approximate the median (the 50th percentile) of salaries paid by the Executive Comparator Group, adjusted through a regression analysis based on sales. In assessing base salaries, the Committee also takes into account the individual’s duties, performance and experience.

          Individual executive salaries are subject to approval by the Chief Executive Officer and the Compensation Committee, except for the Chief Executive Officer’s salary, which is subject to approval by the Compensation Committee and the Board.

          Effective July 1, 2003, corporate officers and key management of the Corporation voluntarily took a reduction of 10% in annual salary. The salaries of all Short-Term Incentive Plan eligible employees were also frozen for a minimum period of one year as part of cost-saving measures undertaken by the Corporation. In addition, effective August 1, 2003, the Corporation’s matching contributions to the 401(k) plan were suspended along with contributions by the Corporation to the Canadian employee savings plan.

Short-Term Incentive Compensation

          The Corporation’s Short-Term Incentive Plan is intended to aid in developing strong corporate management by providing financial incentives to key employees to achieve objectives which contribute materially to the Corporation’s success. The plan presently provides for incentive awards based on an individual’s performance, position with the Corporation and the financial results of the Corporation. Ranges of incentive awards are established for each position, which awards are expressed as a percentage of annual salary. The actual percentage used in calculating the award is generally determined by the Corporation’s cash flow return (as defined in the plan) in relation to a pre-established target, subject to adjustment based upon the individual’s performance and such other factors as the Committee deems appropriate. For certain participants in the plan employed at operating facilities, the award percentage is adjusted pursuant to a formula designed to reflect the actual results of the operating facility compared to an approved target for that facility. Under the terms of the plan, generally no payments are made if the cash flow return is less than 50% of the target set by the Board for that year. For senior executives, which

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include the Named Executive Officers, incentive awards can range from 15% to 140% of salary, depending upon actual cash flow return as compared to target return above the minimum threshold requirement, and subject to adjustment based on the Executive’s performance and such other factors as the Committee deems appropriate.

Long-Term Incentive Compensation

          The Corporation’s Long-Term Incentive Plan is intended to reward senior executives and other key employees for superior performance over an extended period and for their continued contributions to the long term success of the Corporation. The performance objectives under the plan are designed to further align the interests of executives and key employees with those of shareholders by linking the vesting of awards to the total return to shareholders over the three-year performance period ending December 31, 2005 (called Total Shareholder Return or TSR). TSR measures the capital appreciation in the Shares, including dividends paid over the performance period, and thereby simulates the actual investment performance of the Shares.

          A participant is awarded a number of units under the Long-Term Incentive Plan generally based on the participant’s salary, target award percentage and the Share price at the beginning of the performance period. The target award percentages range from 20% to 70%, depending upon the executive’s position with and potential for contribution to the success of the Corporation.

          Under the Long-Term Incentive Plan, vesting of one-half of the units is based on increases in the TSR over the three-year performance period ending December 31, 2005. Vesting of the remaining one-half of the units is based on the extent to which the TSR matches or exceeds the TSR of the common shares of a group of peer companies over the performance period. The peer group of companies consists of those companies that are included in the Dow Jones U.S. Basic Materials Companies Index.

          Participants are generally required to continue in a qualifying position with the Corporation throughout the performance period as one of the conditions to vesting. However, if a participant’s employment terminates earlier due to the participant’s retirement, disability or death or the Corporation terminates a participant’s employment without just cause, the participant will be entitled to a cash payment in settlement of a pro rata number of units, with vesting determined based on the achievement of performance objectives as of the date of termination. A participant who resigns or whose employment is terminated for just cause forfeits all rights to any units granted under the plan.

          Vested units are settled in cash based on the Share price at the end of the performance period. Depending on the extent to which the performance objectives are achieved, an amount ranging from 25% to 150% of the units granted under

the Long-Term Incentive Plan may become vested. Achievement of all target performance objectives entitles an eligible executive to payout of 100% of the units awarded under the plan. The target performance objective for one-half of the units is a TSR of 30% over the performance period. The target performance objective for the remaining units is to outperform the peer group index by 5% over the performance period. No units will vest if none of the minimum performance objectives are achieved. The minimum performance requirement for one-half of the units is a positive TSR. The minimum performance requirement for the remaining units is for the TSR to have matched the peer group index. The cash payout in settlement of a vested unit may not exceed 300% of the market value of a Share at the commencement of a performance cycle.

          The interests of management are also tied to the interests of the Corporation’s shareholders through the annual grant of options to executives and other key employees pursuant to the Corporation’s Stock Option Plan — Officers and Employees. The options are granted at 100% of market value, become exercisable over two years (or earlier in the event of a “change of control” as defined in the plan) and expire after ten years. Options are granted considering the position in and contribution made to the Corporation by the individual involved. The number of Shares subject to options granted to an individual is a function of the individual’s position within the Corporation and his or her ability to affect corporate performance.

          In considering whether to grant options and how many Shares are to be subject to options, the Committee considers the aggregate number of options outstanding and is also guided in such matters by applicable regulatory constraints.

          Beginning in the fourth quarter of 2003, the Corporation began to expense stock options. The November 20, 2003 grant represented the last full grant to be made from the existing plan. The Committee and senior management are working to design a plan to replace stock options for 2004 grants. The proposed design must meet both Canadian and U.S. requirements. A performance unit plan, with a three year performance period, vesting based upon achievements of key corporate and financial goals and awards paid only in cash is currently under consideration.

          The Corporation does not have any non-qualified deferred compensation arrangements in place for management.

          In relative terms, greater value within the compensation package is delivered through incentive compensation (short-term incentives, long-term incentives and options) than annual base salary. However, each element of the package is designed to complement the others in enabling the Corporation to achieve the objectives of its compensation policies.

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Chief Executive Officer Compensation

          The Committee reviews annually the CEO’s salary, any awards under the Short and Long-Term Incentive Plans and any grant of options under the Corporation’s Stock Option Plan — Officers and Employees. The CEO’s annual salary is determined primarily on the basis of his individual performance and the performance of the Corporation. While no mathematical weighting formula exists, the Committee considers all factors which it deems relevant including the net income of the Corporation, the Corporation’s share price, the duties and responsibilities of the CEO, the CEO’s individual performance relative to written objectives established at the beginning of each year, and current compensation levels. Awards pursuant to the Short and Long-Term Incentive Plans and under the Corporation’s Stock Option Plan — Officers and Employees are made in accordance with the plans as outlined above.

          Reference is also made to the compensation of chief executive officers of the Executive Comparator Group. The

comparison of the Corporation’s CEO compensation to the comparator group incorporates many factors including the relative size of the companies, their profitability and share price, the duties of the chief executive officer and any other extenuating or special circumstances. In general, the CEO’s compensation is set at the 50th percentile of the applicable range.

          Mr. Doyle’s compensation for 2003 as set forth in the Summary Compensation Table was determined in accordance with the foregoing and approved by the Committee together with all other independent members of the Board.

          Submitted on behalf of the Compensation Committee: Frederick J. Blesi, John W. Estey, Wade Fetzer III, Jeffrey J. McCaig and Paul J. Schoenhals.

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EXECUTIVE COMPENSATION

Summary Compensation Table

          The following table sets forth, for the periods indicated, all compensation earned by the individual who served as Chief Executive Officer of the Corporation during 2003 and by each of

the Corporation’s other five most highly compensated executive officers as of the end of calendar year 2003 for services rendered to the Corporation and its subsidiaries (the “Named Executive Officers”).

SUMMARY COMPENSATION TABLE(1)

										Long-Term
										Compensation
			Annual Compensation							Awards		Payouts
										Securities
							Other			Underlying
							Annual			Options		LTIP		All Other
			Salary		Bonus(2)		Compensation			Granted(3)		Payouts(4)		Compensation
Name and Principal Position	Year			$		$		$			#		$		$
William J. Doyle		2003		783,750		535,000		51,579	(5)		56,256		—		81,822	(6)
President and		2002		812,500		476,000		—			70,000		2,937,000		52,778	(6)
Chief Executive Officer		2001		787,500		425,000		53,464	(5)		70,000		—		51,895	(6)
James F. Dietz		2003		385,288		164,000		—			28,126		—		12,284	(7)
Executive Vice President		2002		395,719		150,000		—			35,000		908,000		94,407	(7)
and Chief Operating Officer		2001		378,125		128,000		—			35,000		—		23,237	(7)
Wayne R. Brownlee		2003		359,385		144,000		—			24,110		—		19,321	(8)
Senior Vice President,		2002		367,640		121,000		—			30,000		790,000		26,155	(8)
Treasurer and Chief Financial Officer		2001		350,065		110,000		1,241			30,000		—		25,193	(8)
Barbara J. Irwin		2003		322,333		126,000		—			24,110		—		11,629	(9)
Senior Vice President,		2002		322,591		109,000		—			30,000		488,000		12,078	(9)
Administration		2001		295,981		90,300		—			30,000		—		10,347	(9)
Garth W. Moore		2003		317,216		123,000		—			24,110		—		18,437	(10)
President,		2002		324,500		107,000		—			30,000		712,000		23,967	(10)
PCS Potash		2001		315,000		90,900		2,946			30,000		—		24,115	(10)
Thomas J. Regan		2003		317,216		123,000		—			24,110		—		10,226	(11)
President,		2002		324,500		107,000		—			30,000		712,000		94,395	(11)
PCS Phosphate		2001		315,000		90,900		—			30,000		—		17,447	(11)

(1)	Those amounts which were paid in Canadian dollars have been converted to United States dollars using the average exchange rate for the month prior to the date of payment.
(2)	Reports amounts awarded pursuant to the Corporation’s Short-Term Incentive Plan. See “Compensation Committee Report on Executive Compensation — Short-Term Incentive Compensation”.
(3)	Options granted pursuant to the Corporation’s Stock Option Plan — Officers and Employees.
(4)	Reflects payouts pursuant to the terms of the Long-Term Incentive Plan in effect for the performance period January 1, 2000 to

December 31, 2002. The calculation was based on performance over the three-year period, measured by reference to Total Shareholder Return (“TSR”). TSR of the Corporation measured the capital appreciation of the Shares over the performance period and included dividends paid. As such, it simulated the actual investment performance realized by shareholders. The Plan considered both the TSR of the Corporation, and the TSR performance relative to a peer group of companies (Agrium Inc., IMC Global Inc., Mississippi Chemical Corporation, and Terra Industries Inc.).

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The following table sets forth rates of return over the performance period.

	PotashCorp (NYSE)	IMC Global	Agrium (TSX) ($ Cdn)	MissChem	Terra Industries	Peer Group Average	S&P  500
Opening Share Price* (Jan. 2000)	47.38	16.09	11.61	5.73	1.38	—	—
Closing Share Price* (Dec. 2002)	63.99	10.63	17.43	0.31	1.60	—	—
TSR	41.41%	(30.97%)	54.45%	(93.05%)	16.36%	(13.30%)	(37.61%)**

* 5-day average
** Source: Georgeson & Co. (dividends reinvested)

For details regarding the LTIP in place for the performance period January 1, 2003 to December 31, 2005, see “Compensation Committee Report on Executive Compensation — Long-Term Incentive Compensation”.

(5)	Of the other annual compensation indicated for 2003, $34,854 reflects a payment made for personal tax preparation and administration. Of the other annual compensation indicated for 2001, $24,806 reflects a payment made for personal tax preparation and administration and $16,296 reflects a membership allowance.
(6)	The reported amounts for 2003, 2002 and 2001 consist, respectively, of:

(i)	$28,740, $44,895 and $43,820 which represents the Corporation’s contribution to the Corporation’s defined contribution pension and savings plans on behalf of the indicated Named Executive Officer;
(ii)	$8,532, $7,883 and $8,075 which represents the value of the benefit for group term life insurance premiums paid by the Corporation on behalf of the indicated Named Executive Officer; and
(iii)	$44,550 for 2003 which represents moving expenses.

(7) The reported amounts for 2003, 2002 and 2001 consist, respectively, of:

(i)	$10,000, $10,000 and $8,500 which represents contributions by the Corporation’s subsidiary to its defined contribution pension plan on behalf of the indicated Named Executive Officer;
(ii)	$2,284, $2,533 and $2,155 which represents the value of the benefit for group term life insurance premiums paid by the Corporation’s subsidiary on behalf of the indicated Named Executive Officer; and
(iii)	$81,874 for 2002 and $12,582 for 2001 which represents reimbursement for moving and relocation expenses.

(8) The reported amounts for 2003, 2002 and 2001 consist, respectively, of:

(i) $15,944, $22,626 and $21,957 which represents the Corporation’s contribution to its defined contribution pension and savings plans on behalf of the indicated Named Executive Officer; and

(ii) $3,377, $3,529 and $3,236 which represents the value of the benefit for group term life insurance premiums paid by the Corporation on behalf of the indicated Named Executive Officer.

(9) The reported amounts for 2003, 2002 and 2001 consist, respectively, of:

(i)	$9,707, $10,000 and $8,500 which represents contributions by the Corporation’s subsidiary to its defined contribution pension plan on behalf of the indicated Named Executive Officer; and
(ii)	$1,922, $2,078 and $1,847 which represents the value of the benefit for group term life insurance premiums paid by the Corporation’s subsidiary on behalf of the indicated Named Executive Officer.

(10) The reported amounts for 2003, 2002 and 2001 consist, respectively, of:

(i)	$14,682, $20,468 and $20,200 which represents the Corporation’s contribution to its defined contribution pension and savings plans on behalf of the indicated Named Executive Officer; and
(ii)	$3,755, $3,499 and $3,915 which represents the value of the benefit for group term life insurance premiums paid by the Corporation on behalf of the indicated Named Executive Officer.

(11) The reported amounts for 2003, 2002 and 2001 consist, respectively, of:

(i)	$8,348, $10,000 and $8,500 which represents contributions by the Corporation’s subsidiary to its defined contribution pension plan on behalf of the indicated named Executive Officer;
(ii)	$1,878, $2,028 and $1,966 which represents the value of the benefit for group term life insurance premiums paid by the Corporation’s subsidiary on behalf of the indicated Named Executive Officer; and
(iii)	$82,367 for 2002 and $6,981 for 2001 which represents reimbursement for moving and relocation expenses.

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Long-Term Incentive Plan

          Each of the Named Executive Officers participates in the Corporation’s Long-Term Incentive Plan, adopted in November 2002 for the performance cycle January 1, 2003 through December 31, 2005. For a description of the operation of the plan, see “Compensation Committee Report on Executive Compensation — Long-Term Incentive Compensation”.

No payouts were made to Named Executive Officers pursuant to the terms of the Long-Term Incentive Plan during the year ended December 31, 2003.

Options

OPTION GRANTS DURING THE
MOST RECENTLY COMPLETED FISCAL YEAR

Individual Grants
	Number of		% of Total
	Securities		Options
	Underlying		Granted to		Exercise or			Grant Date
	Options		Employees in		Base Price			Present Value
Name	Granted(1)(2)#		Fiscal Year		$/Share		Expiration Date		(3)(4)$
William J. Doyle		56,256		3.54	$	79.00 US	Nov. 20, 2013	$	1,250,008
James F. Dietz		28,126		1.77	$	79.00 US	Nov. 20, 2013	$	624,959
Wayne R. Brownlee		24,110		1.51	$	103.04 CDN	Nov. 20, 2013	$	553,735
Barbara J. Irwin		24,110		1.51	$	79.00 US	Nov. 20, 2013	$	535,724
Garth W. Moore		24,110		1.51	$	103.04 CDN	Nov. 20, 2013	$	553,735
Thomas J. Regan		24,110		1.51	$	79.00 US	Nov. 20, 2013	$	535,724

(1)	Options granted pursuant to the Corporation’s Stock Option Plan — Officers and Employees (the “Option Plan”).
(2)	Options granted on November 20, 2003. Subject to the terms of the Option Plan, each option is exercisable with respect to one-half of the indicated number on and after November 20, 2004 and with respect to the balance of the indicated number on and after November 20, 2005 (or earlier in the event of a “change of control” of the Corporation as defined in the Option Plan). All options are transferable (without consideration) to the spouse, children and grandchildren of the original optionee (or to a trust, partnership or limited liability company, the entire beneficial interest of which is held by one or more of the foregoing persons), in accordance with the terms and conditions of the Option Plan.
(3)	The Modified Black-Scholes Option Pricing Model was used to determine the grant date present value of the stock options granted in November 2003 by the Corporation to the Named Executive Officers. Under the Modified Black-Scholes Option Pricing Model, the grant date present value of the stock options referred to in the table was Cdn$29.91 per Share for Mr. Brownlee and Mr. Moore and $22.22 per Share for Mr. Doyle, Mr. Dietz, Ms. Irwin and Mr. Regan. The material assumptions and adjustments incorporated in the Modified Black-Scholes Option Pricing Model in estimating the value of options reflected in the above table include the following:

(i) an option term of 8 years; with respect to the options granted to Mr. Brownlee and Mr. Moore, an interest rate of 4.27% (representing the interest rate on a Canadian Treasury security with a maturity date corresponding to that of the option term) and with respect to options granted to Mr. Doyle, Mr. Dietz, Ms. Irwin and Mr. Regan, an interest rate of 3.97% (representing the interest rate on a U.S. Treasury security with a maturity date corresponding to that of the option term);

(ii)	with respect to the options granted to Mr. Brownlee and Mr. Moore, volatility of 27.51% (calculated using daily stock prices on the Toronto Stock Exchange for the three-year period prior to the grant date) and with respect to options granted to Mr. Doyle, Mr. Dietz, Ms. Irwin and Mr. Regan, volatility of 26.97% (calculated using daily stock prices on the New York Stock Exchange for the three-year period prior to the grant date);
(iii)	with respect to the options granted to Mr. Brownlee and Mr. Moore, dividends at the rate of Cdn$1.421 per Share and with respect to options granted to Mr. Doyle, Mr. Dietz, Ms. Irwin and Mr. Regan, dividends at the rate of $1.00 per Share (representing the annualized dividends paid with respect to a Share at the date of grant); and
(iv)	a reduction of approximately 16% to reflect the probability of forfeiture due to termination prior to vesting and the probability of a shortened option term due to termination of employment prior to the option expiration date.
	The ultimate values of the options will depend on the future market price of the Shares, which cannot be forecast with reasonable accuracy. The actual value, if any, an optionee will realize upon exercise of an option will depend on the excess of the market value of the Shares over the exercise price on the date the option is exercised.

(4) Amounts denominated in Canadian dollars are converted to United States dollars at the exchange rate in effect at the date of grant of the options.

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          The following table sets forth the options exercised during the year ended December 31, 2003 by the Named Executive Officers, the number of options held by the Named

Executive Officers at year end, and the year-end value of unexercised, in-the-money options held by such individuals at December 31, 2003.

AGGREGATED OPTION EXERCISES DURING THE MOST RECENTLY COMPLETED
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

					Number of				Value of Unexercised
					Securities Underlying				in-the-Money Options
	Securities				Options at FY-End				at FY-End(1)
	Acquired on		Aggregate Value			#		#		$		$
	Exercise		Realized				Not				Not
Name		#		$	Exercisable		Exercisable		Exercisable		Exercisable
William J. Doyle		70,000		2,403,791		345,000		91,256		6,000,457		1,137,244
James F. Dietz		15,000		579,199		127,500		45,626		3,665,462		568,607
Wayne R. Brownlee		5,000		196,104		193,500		39,110		3,926,172		245,282
Barbara J. Irwin		10,000		175,580		65,000		39,110		2,467,450		487,392
Garth W. Moore		0		0		171,000		39,110		2,980,111		245,282
Thomas J. Regan		75,000		1,722,243		38,750		39,110		775,167		487,392

(1) Values are calculated by determining the amount by which the market value of the Shares underlying the options on December 31, 2003 exceeded the exercise prices of the options and converting Canadian

dollar amounts to United States dollars using the December 31, 2003 exchange rate of $0.7737.

Pension Plans

          The Corporation maintains the Potash Corporation of Saskatchewan Inc. Pension Plan (the “PCS Plan”) which generally requires all participating employees to contribute 5.5% of their earnings (or such lesser amount as is deductible for Canadian income tax purposes) to the PCS Plan and the Corporation to contribute an equal amount. When an individual retires, the full amount in the individual’s account is used to produce the pension.

          The Corporation maintains a Supplemental Retirement Income Plan (the “Supplemental Plan”) which provides a supplementary pension benefit for certain of the Corporation’s officers and key managers. Under the basic terms of the Supplemental Plan, a pension benefit is provided in an amount equal to 2% of the average of the participant’s three highest years’ earnings multiplied by the participant’s years of pensionable service (to a maximum of 35 years), minus any annual retirement benefit payable under the PCS Plan or certain other tax qualified plans. For the purposes of the Supplemental Plan, earnings are defined as the participant’s annual base pay plus 100% of all bonuses paid or payable for such year pursuant to the Short-Term Incentive Plan. The normal retirement age pursuant to the

Supplemental Plan is 65, with a reduction in benefits for early retirement prior to age 62. No benefits pursuant to the Supplemental Plan are payable if termination occurs prior to age 55. Benefits payable to employees who have reached the minimum age (55) for retirement pursuant to the Supplemental Plan are secured by letters of credit provided by the Corporation and are generally paid in the form of an annuity for life, or at a participant’s election, in a single lump sum payment equal to the actuarial present value of the annual benefit provided by the Supplemental Plan.

          For a designated group of senior officers, including Mr. Doyle, Mr. Brownlee and Mr. Moore, the benefit payable under the Supplemental Plan is an amount equal to: (i) 5% of the average of the senior officer’s three highest years’ earnings multiplied by the senior officer’s years of pensionable service (to a maximum of 10 years), plus (ii) 2% of the average of the senior officer’s three highest years of earnings multiplied by the senior officer’s years of pensionable service in excess of 25 years to a maximum of 10 additional years, minus (iii) any annual retirement benefit payable under the PCS Plan and certain other tax qualified plans.

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          The following table shows the range of estimated annual benefits to Mr. Doyle, Mr. Brownlee and Mr. Moore pursuant to the Supplemental Plan. Estimated benefits payable pursuant to the Supplemental Plan will be reduced by any

benefits payable to Mr. Doyle, Mr. Brownlee and Mr. Moore pursuant to the PCS Plan and certain other tax qualified plans.

SUPPLEMENTAL RETIREMENT INCOME PLAN TABLE

Remuneration			Years of Service
$				10		20		30		40		50
	$	250,000	$	125,000	$	125,000	$	150,000	$	175,000	$	175,000
		500,000		250,000		250,000		300,000		350,000		350,000
		1,000,000		500,000		500,000		600,000		700,000		700,000
		1,500,000		750,000		750,000		900,000		1,050,000		1,050,000
		2,000,000		1,000,000		1,000,000		1,200,000		1,400,000		1,400,000
		3,000,000		1,500,000		1,500,000		1,800,000		2,100,000		2,100,000

          As of December 31, 2003, the average of the three highest years’ earnings for purposes of the Supplemental Plan for each Named Executive Officer participating in the Supplemental Plan were as follows: $1,444,083 for Mr. Doyle, $520,675 for Mr. Brownlee and $461,572 for Mr. Moore. The estimated credited years of service at assumed retirement age of 65 for each of the Named Executive Officers participating in the Supplemental Plan are as follows: 28 years for Mr. Doyle, 41 years for Mr. Brownlee and 31 years for Mr.  Moore.

          Prior to January 1, 1999, PCS Phosphate and PCS Nitrogen maintained separate defined benefit pension plans for their respective eligible U.S. employees, including Mr. Dietz in the case of PCS Nitrogen and Mr. Regan in the case of PCS Phosphate. Effective January 1, 1999 the Corporation consolidated its pension plans for U.S. employees and the Nitrogen Pension Plan was merged with and into the Phosphate Pension Plan to form a new U.S. Pension Plan (the “U.S. Pension Plan”).

          Under the U.S. Pension Plan, participants age 62 or older with at least 20 years of service receive a retirement benefit of 1.5% of the participant’s final average compensation (as defined below) multiplied by the participant’s years of

service accrued after December 31, 1998 (maximum 35 years) in the form of a life annuity. Participants with service accrued prior to January 1, 1999 under previous plans, including Mr. Dietz and Mr. Regan, will have a portion of their retirement benefit calculated under such plans. Employees not meeting the minimum age or years of service requirement at termination will receive a reduced benefit.

          Pursuant to the U.S. Pension Plan, final average compensation is defined as compensation for the highest paid 60 consecutive months of service out of the last 120 months of service. Compensation is defined as a participant’s base pay plus annual bonus. The benefits available under the U.S. Pension Plan are not subject to offset for other retirement benefits.

          The retirement benefits from the U.S. Pension Plan for Mr. Dietz, Ms. Irwin and Mr. Regan are subject to certain limitations on the amount of retirement benefits that may be provided under U.S. tax qualified pension plans. The Corporation maintains a supplemental pension plan (the “U.S. Supplemental Plan”) intended to provide participants with the same aggregate benefits that such participant would have received had there been no legal limitations on the benefits provided by the U.S. Pension Plan.

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          For Mr. Dietz, Ms. Irwin and Mr. Regan, the following table represents the range of estimated annual benefits under the U.S. Pension Plan and the U.S. Supplemental Plan for service on or after January 1, 1999.

POST-1998 SERVICE TABLE

Remuneration			Years of Service
$				10		15		20		25		30
	$	200,000	$	30,000	$	45,000	$	60,000	$	75,000	$	90,000
		300,000		45,000		67,500		90,000		112,500		135,000
		400,000		60,000		90,000		120,000		150,000		180,000
		500,000		75,000		112,500		150,000		187,500		225,000
		600,000		90,000		135,000		180,000		225,000		270,000
		700,000		105,000		157,500		210,000		262,500		315,000

          As of December 31, 2003, the final average compensation for the purposes of the U.S. Pension Plan and U.S. Supplemental Plan for Mr. Dietz was $531,926, for Ms. Irwin was $387,755 and for Mr. Regan was $419,084. The estimated credited years of post-1998 service under such plans at normal retirement age of 65 for Mr. Dietz is 13 years, for Ms. Irwin 20 years and for Mr. Regan 10 years.

          As of December 31, 1998, the Nitrogen Pension Plan provided a normal monthly retirement benefit equal to the sum of (i) 1.1% of the participant’s average monthly pay during the highest paid 60 consecutive calendar months of the last 120 calendar months of employment multiplied by the

participant’s credited service and (ii) 0.4% of (a) the excess of such average monthly pay over the participant’s “covered compensation” multiplied by (b) the participant’s credited service (up to a maximum of 35 years). “Covered compensation” is defined as the 35-year average of the U.S. Social Security wage bases measured from the year in which the participant reaches Social Security retirement age.

          The following table represents the range of estimated annual benefits for Mr. Dietz pursuant to the formula in the Nitrogen Pension Plan (including benefits relating to pre-1999 service under the U.S. Supplemental Plan).

NITROGEN PRE-1999 SERVICE TABLE

Remuneration			Years of Service
$				5		10		15		20		25
	$	200,000	$	14,000	$	28,000	$	41,000	$	55,000	$	69,000
		300,000		21,000		43,000		64,000		85,000		106,000
		400,000		29,000		58,000		86,000		115,000		144,000
		500,000		36,000		73,000		109,000		145,000		181,000
		600,000		44,000		88,000		131,000		175,000		219,000
		700,000		51,000		103,000		154,000		205,000		256,000

          As of December 31, 2003, the estimated credited years of pre-1999 service at normal retirement age of 65 for Mr. Dietz is 6 years for the purposes of the U.S. Pension Plan, and 2 years for purposes of the U.S. Supplemental Plan. Final average compensation is the same as that calculated for the purpose of the U.S. Pension Plan and post-1998 service.

          As of December 31, 1998, the PCS Phosphate Plan provided a retirement benefit of 2% of the participant’s final average compensation multiplied by the participant’s years of service (maximum 35 years). Prior to 1999, participants in the PCS Phosphate Plan were required to contribute 1% of base monthly compensation to the plan.

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The following table represents an estimate of the pre-1999 service component retirement income of Mr. Regan, at the levels of average compensation and years of service shown, calculated pursuant to the benefit formulas in the PCS Phosphate Plan and the U.S. Supplemental Plan, and includes the 1% participant contribution.

PHOSPHATE PRE-1999 SERVICE TABLE

Remuneration			Years of Service
$				10		15		20		25		30
	$	200,000	$	40,000	$	60,000	$	80,000	$	100,000	$	120,000
		300,000		60,000		90,000		120,000		150,000		180,000
		400,000		80,000		120,000		160,000		200,000		240,000
		500,000		100,000		150,000		200,000		250,000		300,000
		600,000		120,000		180,000		240,000		300,000		360,000
		700,000		140,000		210,000		280,000		350,000		420,000

          As of December 31, 2003, the credited years of pre-1999 service at normal retirement age of 65 for Mr. Regan is 12 years and final average compensation is $301,504. Final average compensation is calculated in the same manner as the U.S. Pension Plan and post-1998 service, except that compensation is defined as a participant’s base pay only.

Employment Contracts and Termination of Employment

Change in Control Agreements

          Effective December 30, 1994, the Corporation, and where applicable, PCS Sales, entered into Change in Control Agreements with certain senior executives, including Mr. Doyle, Mr. Brownlee and Mr. Moore. The initial term of each Change in Control Agreement was through December 31, 1997; however, the term of the Change in Control Agreements has been automatically renewed for successive one-year periods since December 31, 1997 and continues to be subject to automatic renewal for successive one-year terms until the employee reaches age 65 or unless either party gives notice of termination. A change in control of the Corporation will be deemed to have occurred if:

(a)	there is a significant (50 percent or more) change in the Board within any two-year period, not including replacement directors approved for nomination by the Board;
(b)	there occurs an amalgamation, merger, consolidation, or other transaction whereby the control of the existing shareholders of the Corporation is diluted to less than 50 percent control of the surviving or consolidated entity;
(c)	there occurs a significant (50 percent or more based on book value) sale or other disposition of the fixed assets of the Corporation within any twelve-month period; or
(d)	any party acquires 20 percent or more of the voting securities of the Corporation.

          Benefits pursuant to the Change in Control Agreements will be payable upon termination of the executive’s employment within two years following a change in control. Termination of the executive’s employment is defined to include the executive ceasing to be employed for any reason, including constructive dismissal, except by reason of death, disability, resignation or voluntary retirement, or dismissal for dishonest or willful misconduct.

          The severance benefit entitlements upon termination of employment following a change in control of the Corporation are:

(a)	a lump-sum payment of three times the executive’s current base salary and average bonus for the last three years;
(b)	a lump-sum payment of the pro-rata target bonus for the short year in which the termination occurs;
(c)	immediate vesting and cash out of all outstanding Long-Term Incentive Plan awards;
(d)	a credit of three additional years of service under the Supplemental Plan;
(e)	three-year continuation of medical, disability, and group term life insurance, provided that these benefits terminate upon obtaining similar coverage from a new employer or upon commencement of retiree benefits; and
(f)	financial or outplacement counselling to a maximum of Cdn$10,000.

          Payments to be made pursuant to the foregoing and relating to the employee’s bonus may be deferred by the

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executive for up to three years or for such other period as may be permitted by the Income Tax Act (Canada).

          All outstanding non-exercisable options granted to the executive pursuant to the Corporation’s Stock Option Plan for Officers and Employees become exercisable upon the occurrence of a change in control. In the event no public market for the Shares exists, the Corporation (or PCS Sales as the case may be) will compensate the executive for the value of his or her options on the basis of a share value approved by the shareholders of the Corporation upon a change in control, or, if no such value has been approved, then based upon the market value of the Shares when last publicly traded. For Mr. Doyle, there is provision for a “gross up” of payments to cover excise taxes if payable in respect of such benefits.

Other

          The current severance policy of the Corporation for termination without cause, which is applicable to all salaried employees including the Named Executive Officers, is to provide notice of impending termination, or payment of salary in lieu of notice, equivalent to two weeks for each complete year of service (subject to a minimum of 4 weeks and a maximum of 52 weeks). Such policy is superseded by specific termination provisions contained in a written agreement.

COMPENSATION OF DIRECTORS

          Directors of the Corporation are compensated through the cash payment of an annual retainer plus other fees and the grant of Share Units (as hereinafter defined). In 2003, the Board decided to discontinue granting stock options to Directors. Effective July 1, 2003, each Director voluntarily took a reduction of 10% in his or her annual retainer. Each outside director’s compensation package, comprised of the above components, approximates $97,000 annually, with the Board Chair’s compensation package approximating $193,000 annually. Details regarding each component of the compensation packages are as follows.

          Except as set forth below, each director who is not also an officer or employee of the Corporation (an “outside director”) receives from the Corporation an annual retainer of $27,000, a per diem fee of $1,000 for meetings he or she attends and a travel fee of $500 per day where travel is required on a day or days on which a meeting does not occur. Outside directors receive an additional $10,000 per year if they serve as a chair of a Board committee. Each outside director who is a member of a Board committee receives a per diem fee of $1,000 for meetings he or she attends, provided such meetings are not held the same day as a board meeting. Outside directors are also reimbursed for expenses incurred in discharging their responsibilities. Mr. Howe, as Board Chair, receives an annual retainer of $60,000 (as opposed to $27,000 for the other outside directors).

          Effective November 20, 2001, the Corporation adopted a Deferred Share Unit Plan for Non-Employee Directors (the “Plan”), which entitles non-employee directors to receive discretionary grants of deferred share units (“Share Units”), each of which has a value equal to the market value of a Share at the time of its grant. The Plan also allows the director to defer, in the form of Share Units, up to 100% of the annual retainer fees and any other fees payable to such director in respect of serving as a director (“Fees”), which would otherwise be payable in cash. The Plan is intended to enhance the Corporation’s ability to attract and retain highly qualified individuals to serve as directors and promote a greater alignment of interests between such directors and the shareholders of the Corporation.

          The number of Share Units credited to the director’s account with respect to Fees that the director elects to allocate to the Plan is determined as of the last trading day of each calendar quarter and is equal to the quotient obtained by dividing (a) the aggregate amount of Fees allocated to the Plan for the relevant calendar quarter by (b) the market value of a Share on such last trading day (determined on the basis of the closing price on the Toronto Stock Exchange for participants resident in Canada and on the basis of the closing price on the New York Stock Exchange for all other participants). Share Units earn dividends in the form of additional Share Units at the same rate as dividends on Shares.

          Each Share Unit is credited to the account of an individual director and fully vests upon an award, but is distributed only when the director has ceased to be a member of the Board or the board of directors of any subsidiary and the director is neither an employee of the Corporation nor of any subsidiary. At such time, the director will receive, at the discretion of the Compensation Committee and as approved by the Board, either a number of Shares purchased on the open market equal to the number of Share Units recorded in the director’s account (reduced by the amount of applicable withholding taxes), or a cash payment equal to the market value of the director’s Share Unit entitlement (less applicable withholding taxes). The Corporation has determined that payouts pursuant to the Plan will be made in cash.

          On November 20, 2003, each non-employee director received a discretionary grant of 620 Share Units, with the exception of the Board Chair, Mr. Howe, who was granted 1,423 Share Units.

          The Board believes that the economic interests of Directors should be aligned with those of shareholders. To achieve this, all Directors are expected to hold Shares and/or Share Units in the Corporation. By the time a Director has served on the Board for three years, he or she should own Shares and/or Share Units with a value at least five times the annual retainer paid to Directors. The Board may make exceptions to this standard where, as a result of the unique financial circumstances of a Director, compliance would result in an unacceptable hardship.

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          Directors also participate in the Corporation’s group life insurance coverage (Cdn$50,000) and Accidental Death and Dismemberment coverage (Cdn$100,000).

REPORT ON CORPORATE GOVERNANCE
AND NOMINATING MATTERS

Disclosure regarding Nominating Committee Processes

          The Corporation has a standing Corporate Governance and Nominating Committee (the “CG&N Committee”). At present, Ms. Mogford (Chair), Mr. Fetzer, Mr. Howe, Ms. Paliza and Mr. Stromberg comprise the CG&N Committee. The CG&N Committee has a charter which is available to security holders and others at the Corporation’s website, www.potashcorp.com. Each of the five Directors who comprise the CG&N Committee is independent as independence is defined in Section 303A of the New York Stock Exchange’s Listed Company Manual. For additional information regarding Director independence, see “Election of Directors — Director Independence”.

          Shareholders may propose individuals to be nominated for election as directors (a “Proposal”) in accordance with the provisions of Section 137 of the Canada Business Corporations Act (the “Act”). Shareholders wishing to make a Proposal should refer to the relevant sections of the Act for a description of the procedures to be followed. For additional information regarding shareholder proposals, see “Shareholder Proposals”. Security holders who do not meet the threshold criteria for making, or otherwise choose not to make, a Proposal, may at any time suggest nominees for election to the Board. Names of and supporting information regarding such nominees should be submitted to: Corporate Secretary, Potash Corporation of Saskatchewan Inc., 500 — 122 1st Avenue South, Saskatoon, Saskatchewan, S7K 7G3, Canada.

          A CG&N Committee–recommended nominee for a position on the Board must, at minimum, meet the qualification standards for directors established by Section 105 of the Act. In addition, such nominee must possess and exhibit the highest degree of integrity, professionalism and values and all non-employee nominees must be independent. The CG&N Committee believes that one or more of the Corporation’s Directors should possess extensive experience and expertise in each of the following areas:

• fertilizer industry

• global and international commerce

• transportation industry

• e-commerce and technology

• finance

• law

• accounting

• mining industry

• chemical industry

• general business management

• public policy

          On an ongoing basis the CG&N Committee asks incumbent Directors and senior management to suggest individuals who should be considered as proposed nominees to the Board. The Corporate Secretary maintains a list of all individuals suggested by incumbent Directors, senior management or security holders and biographical information for each such individual. When it becomes apparent that a vacancy on the Board will arise, either from mandatory or elective retirement or otherwise, the CG&N Committee reviews its list of proposed nominees as against the skill sets of incumbent Board members and the range of experience and expertise necessary for the Board. Proposed nominees who have, in the opinion of the CG&N Committee, the desired expertise are identified. Those who have the requisite qualifications and meet the Corporation’s standards are ranked by the CG&N Committee in order of preference and contacted to determine their interest in serving on the Board. If this process does not result in the identification of suitable nominees, the CG&N Committee may engage the services of a search firm to assist in the identification of director candidates. The CG&N Committee evaluates all proposed nominees in the manner described, no matter what the source of the recommendation.

Disclosure regarding the Ability of Security Holders to Communicate with the Board of Directors

          The Corporation has a process for security holders to communicate with the Board. Communications in writing should be sent to:

PotashCorp Board of Directors
c/o Corporate Secretary
500 — 122 1st Avenue South
Saskatoon, Saskatchewan S7K 7G3
CANADA

Communications by email should be sent to directors@potashcorp.com.

          Matters relating to the Corporation’s accounting, internal accounting controls or auditing matters will be referred to the Audit Committee. Other matters will be referred to the Board Chair.

          To further facilitate communications between the Corporation’s security holders and the Board, the Corporation has adopted a policy that all Directors standing for re-election and all new Director nominees are expected to attend the annual meeting of shareholders. In 2003, all such Directors and nominees attended the annual meeting.

Disclosure in Accordance with Toronto Stock Exchange Guidelines

          A statement on corporate governance pursuant to the requirements and guidelines of the Toronto Stock Exchange relating to disclosure of corporate governance practices is attached hereto as Appendix A.

- 26 -

PERFORMANCE GRAPHS

          The following graph illustrates the Corporation’s cumulative shareholder return, assuming reinvestment of dividends, by comparing a $100 investment in the Shares at

December 31, 1998 to the return on the Standard & Poor’s 500 Index and the Dow Jones Basic Materials Companies Index.

	Dec-98		Dec-99		Dec-00		Dec-01		Dec-02		Dec-03
Potash Corporation of Saskatchewan Inc. — NYSE Listing	$	100	$	71	$	127	$	101	$	107	$	147
S&P500®	$	100	$	121	$	110	$	97	$	76	$	97
Dow Jones US Basic Materials Companies Index	$	100	$	134	$	73	$	128	$	108	$	168

- 27 -

          The following graph illustrates the Corporation’s cumulative shareholder return, assuming reinvestment of dividends, by comparing a Cdn$100 investment in the Shares

at December 31, 1998 to the return on the S&P/TSX Companies Index.

	Dec-98		Dec-99		Dec-00		Dec-01		Dec-02		Dec-03
Potash Corporation of Saskatchewan Inc. — TSX Listing	$	100	$	73	$	126	$	107	$	111	$	127
S&P/TSX Composite Index	$	100	$	132	$	141	$	124	$	108	$	137

DIRECTORS’ AND OFFICERS’ LIABILITY
INSURANCE

          The Corporation has acquired and maintains liability insurance for its directors and officers as well as those of its subsidiaries as a group. The coverage limit of such insurance is $50 million per occurrence and $50 million in the annual aggregate. The Corporation has entered into a one-year

contract ending June 30, 2004. Premiums of $406,646 were paid by the Corporation for the last fiscal year. Claims for which the Corporation grants indemnification to the insured persons are subject to a $5 million deductible for any one loss.

- 28 -

VOTING SHARES

          There are 53,367,413 Shares of the Corporation outstanding as of February 29, 2004, each Share carrying the right to one vote. Each shareholder of record at the close of business on March 18, 2004 is entitled to vote at the Meeting the Shares registered in his or her name on that date.

          The quorum for any meeting of shareholders is one or more persons present and holding or representing by proxy not less than 5% of the total number of outstanding Shares.

OWNERSHIP OF SHARES

          The following table sets forth information as of February 29, 2004, with respect to the beneficial ownership of Shares held by the executive officers of the Corporation named in the Summary Compensation Table herein and by all directors and executive officers of the Corporation.

Name	Amount and Nature of Beneficial Ownership (1)(2)(3)
William J. Doyle		397,091
James F. Dietz		133,205
Wayne R. Brownlee		199,748
Barbara J. Irwin		67,500
Garth W. Moore		172,060
Thomas J. Regan		40,773
All directors and executive officers as a group, including the above-named individuals (25 persons)		1,653,162

(1)	The number of Shares beneficially owned is reported on the basis of regulations of the U.S. Securities and Exchange Commission, and includes Shares that the individual has the right to acquire at any time within 60 days after February 29, 2004 and Shares directly or indirectly held by the individual or by certain family members or others over which the individual has sole or shared voting or investment power.
(2)	Each of the directors and executive officers of the Corporation owned less than 1% of the Shares issued and outstanding as at February 29, 2004. The directors and executive officers of the Corporation as a group beneficially owned approximately 3.09% of the Shares issued and outstanding as at February 29, 2004.
(3)	Includes Shares purchasable within 60 days after February 29, 2004 through the exercise of options granted by the Corporation, as follows: Mr. Doyle 345,000 Shares; Mr. Dietz 127,500 Shares; Mr. Brownlee 193,500 Shares; Ms. Irwin 65,000 Shares, Mr. Moore 171,000 Shares, Mr. Regan 38,750 Shares and directors and executive officers as a group, including the foregoing individuals, 1,556,300 Shares.

          Listed below is the name and other information concerning persons known to the Corporation (from the

Corporation’s records and reports filed with the U.S. Securities and Exchange Commission on Schedule 13D or 13G) who owned, as of February 29, 2004 more than 5% of any class of the Corporation’s voting securities:

Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership	Percent of Class(1)
Lord, Abbett & Co. 90 Hudson Street Jersey City, New Jersey 07302	4,765,273(2)(3)		8.92	%
Primecap Management Company 225 South Lake Avenue Suite 400 Pasadena, California 91101	4,196,760(4)(5)		7.86	%
T. Rowe Price Associates, Inc. 100 E. Pratt Street Baltimore, Maryland 21202	3,622,050(6)(7)		6.78	%
Capital Research and Management Company 333 South Hope Street, Los Angeles, California 90071	3,513,200(8)(9)		6.58	%
Jarislowky, Fraser Limited 1010 Sherbrooke St. West Suite 2005 Montreal, Quebec H3A 2R7	3,093,820(10)(11)		5.79	%

(1)	Represents percent of Shares outstanding as of February 29, 2004.
(2)	Such person has sole voting and dispositive power as to all 4,765,273  Shares.
(3)	As set forth in a Schedule 13G dated January 26, 2004.
(4)	Such person has sole dispositive power as to all 4,196,760 Shares and sole voting power as to 841,710 Shares.
(5)	As set forth in a Schedule 13G (amendment) dated December 31, 2003.
(6)	Such person has sole dispositive power as to all 3,622,050 Shares and sole voting power as to 540,550 Shares.
(7)	As set forth in a Schedule 13G (amendment) dated February 13, 2004.
(8)	Such person has sole dispositive power as to all 3,513,200 Shares.
(9)	As set forth in a Schedule 13G dated February 9, 2004.
(10)	Such person has sole dispositive power as to all 3,093,820 Shares, sole voting power as to 2,785,070 Shares and shared voting power as to 308,750  Shares.
(11)	As set forth in a Schedule 13G dated February 6, 2004.

- 29 -

SHAREHOLDER PROPOSAL

          A proposal has been submitted by a shareholder for consideration at this Annual and Special Meeting. Such proposal and the Board’s response thereto are set forth in the attached Appendix  C.

2005 SHAREHOLDER PROPOSALS

          Proposals of shareholders intended to be presented at the Corporation’s annual meeting of shareholders in 2005 and which such shareholders are entitled to request be included in the Management Proxy Circular for that meeting, must be received at the Corporation’s principal executive offices not later than December 11, 2004.

ADDITIONAL INFORMATION

          Copies of the Corporation’s most recent Form 10-K together with any document incorporated by reference therein, the most recent annual financial statements together with the accompanying report of the auditor, and any interim financial statements filed subsequent to the filing of the most recent annual financial statements may be obtained on request from the Secretary of the Corporation.

DIRECTORS’ APPROVAL

          The contents and the sending of this Management Proxy Circular have been approved by the Board.

John L.M. Hampton
Secretary
March 11, 2004

APPENDIX A

Corporate Governance

          The Board of Directors, through its Corporate Governance and Nominating Committee which met 4 times in 2003, is focused on new threshold regulatory standards (both proposed and implemented) as well as best practices which go beyond the requirements mandated by regulation.

          To comply with those standards and achieve those best practices, the Board has adopted a comprehensive package of governance principles. The complete text of the Corporation’s Governance Principles and the text of each Committee Charter, as well as other governance related documents, can be found at www.potashcorp.com.

          In keeping with the Toronto Stock Exchange Guidelines on Corporate Governance, the following table describes the Corporation’s position on each of the enumerated areas.

		Does
		PCS
TSX Guidelines for		Currently
Effective Corporate Governance		Align?	Comments
1.	The Board of Directors should explicitly assume responsibility for stewardship of the corporation and specifically for: (a)  Adoption of a strategic planning process;	Yes	The Board of Director’s Charter provides that the Board has the responsibility to participate, as a whole and through its Committees, in identifying the objectives and goals of the business as well as associated risks, and the strategy by which it proposes to reach those goals and mitigate those risks. The Board, either directly or through Board Committees, assumes responsibility for overseeing the operation of the Corporation’s business and for supervising management.
			The Board devotes a significant portion of its annual three day mid-winter meeting to strategic planning, including a review of the plan and special presentations on matters of particular strategic significance.
			The Board has formalized its approach to strategic planning through the adoption of a strategic planning calendar. It provides a well-defined strategic planning process with specific activities, events and deliverables throughout a repeating 12-month cycle.
	(b)  Identification of the principal risks of the Corporation’s business and ensuring the implementation of appropriate risk management systems;	Yes	The Board has established a comprehensive approach to risk identification and management. A comprehensive “risk universe”, divided into four parts on the basis of Committee areas of responsibility, has been developed. Senior management, working with the appropriate Committees, identify significant risks from the risk universe. Senior executives are assigned responsibility for each significant risk and, working with a multi-disciplinary project team, they:
			(i)     evaluate the risk exposure of each significant risk;
			(ii)    recommend response modifications to achieve the appropriate level of exposure; and
			(iii)   refine the risk evaluation process for subsequent use.
			The results of such activities are reviewed with the appropriate Committees and are reported to the Board annually in November at a meeting convened for that purpose.

A-2

		Does
		PCS
TSX Guidelines for		Currently
Effective Corporate Governance		Align?	Comments
	(c)  Succession planning, including appointing, training and monitoring senior management;	Yes	The Board Charter provides that the Board has responsibility for succession planning, both for the Chief Executive Officer and for other management. Regular reviews of succession planning are made to the Board by management and the Compensation Committee regularly reviews Chief Executive Officer succession planning. The Board is also responsible for developing procedures and ensuring their implementation for appointing, training and monitoring senior management.
	(d)  Communications policy; and	Yes	The Board has adopted a comprehensive policy on corporate disclosure. A Disclosure Committee, composed of the Senior Vice President Corporate Relations, the Chief Operating Officer, the Chief Financial Officer, the President, PCS Sales, and the General Counsel has been created to oversee the application of the Disclosure Policy. The Disclosure Policy confirms the Corporation’s commitment to timely, consistent, credible, non-selective dissemination of material information and establishes procedures to effect such ends. The Disclosure Policy encompasses website postings, electronic communications, and dealings with regulators, analysts and the media.
	(e)  Integrity of internal control and management information systems.	Yes	The Audit Committee, which met 9 times in 2003, regularly reviews the integrity of the Corporation’s internal control and management information systems. Such reviews include receiving reports from the Chief Financial Officer, the Chief Information Officer, the Controller and the Internal Auditor and discussions with external auditors. Findings are summarized and reported to the Board.
2.	A majority of Directors should be “unrelated” (that is, independent of management and free from any conflict of interest).	Yes	As of March 15, 2004 twelve Directors comprised the Board. Of that number eleven were independent Directors.
			The Board’s definition of an “independent” Director is one who has no material relationship to the Corporation. An affirmative determination of the independence of each Director or nominee will be made in accordance with the rules of the New York Stock Exchange. Such determinations, as well as the basis for a determination that a relationship is not material and any standard adopted to assist in making determinations of independence, are disclosed in the attached Management Proxy Circular at “Election of Directors - Director Independence”.
			The Board has concluded that Directors who are independent under the New York Stock Exchange standard are also unrelated Directors for the purposes of the Guidelines with the result that eleven Directors are unrelated.
			As of March 15, 2004 the Corporation did not have a significant shareholder as defined in the Guidelines.

A-3

		Does
		PCS
TSX Guidelines for		Currently
Effective Corporate Governance		Align?	Comments
			A Policy has been established which provides that Directors will not stand for re-election after reaching the age of seventy years.
3.	Disclose for each Director whether the Director is related and how that conclusion was reached.	Yes	The Board has applied the New York Stock Exchange standard of independence and concluded that eleven of its Directors are independent. The remaining Director, Mr. Doyle, as an executive and employee of the Corporation is not independent. See “Election of Directors — Director Independence” in the attached Management Proxy Circular.
4.	The Board of Directors should appoint a Committee: (a)  responsible for proposing new nominees to the full Board for election; and	Yes	The Corporate Governance and Nominating Committee is responsible for recruiting and proposing to the full Board new nominees for Directors. The Committee, in the discharge of its duties:
			(i)     in consultation with the Board and Chief Executive Officer and, on an ongoing basis, identifies the mix of expertise and qualities required for the Board;
			(ii)    assesses the attributes new Directors should have for the appropriate mix to be maintained;
			(iii)   in consultation with the Board and Chief Executive Officer and, on an ongoing basis, maintains a database of potential candidates;
			(iv)   has implemented a procedure to identify, with as much advance notice as practicable, impending Board vacancies, so as to allow sufficient time for recruitment and for introduction of proposed nominees to the existing Board;
			(v)    develops a “short-list” of candidates and arranges for each candidate to meet with the Chairman and the Chief Executive Officer;
			(vi)   recommends to the Board as a whole proposed nominee(s) and arranges for their introduction to as many Board members as practicable;
			(vii)  ensures that prospective candidates are informed of the degree of time, energy and commitment the Corporation expects of its Directors; and
			(viii) encourages diversity in the composition of the Board.
	(b)  Composed exclusively of outside (non-management) Directors, a majority of whom are unrelated.	Yes	The Corporate Governance and Nominating Committee is composed of five outside Directors, each of whom is independent and unrelated.

A-4

		Does
		PCS
TSX Guidelines for		Currently
Effective Corporate Governance		Align?	Comments
5.	Implement a process for assessing the effectiveness of the Board, its committees and individual Directors.	Yes	The Board has adopted policies requiring annual Board assessment, annual Director self-assessment and annual Committee assessments. The Board assessment includes an assessment of the Board against its Charter. The results of such assessments are reported to the full Board and form a basis for continuous improvement in board practices.
			Responsibility for the assessment process and any follow- up action lies with the Corporate Governance and Nominating Committee and the Board Chair.
6.	Provide orientation and education programs for new Directors.	Yes	The Board has adopted a written New Director Orientation Policy designed to:
			(i)    provide each new Director with a baseline of knowledge about the Corporation which will serve as a basis for informed decision-making;
			(ii)   tailor the program for each new Director to take into account his or her unique mix of skills, experience, education, knowledge and needs; and
			(iii)  be delivered over a period of time to minimize the likelihood of overload and maximize the lasting educational impact.
			The orientation program is tailored to the needs of each new Director, and will consist of a combination of written material, one-on-one meetings with senior management, site visits and other briefings and training as appropriate.
7.	Consider size of Board with a view to facilitating effective decision-making.	Yes	The Board has considered its size and has concluded that a board comprising 12 members (its current size) allows it to most effectively discharge its duties.
8.	Review the adequacy and form of compensation of Directors in light of the responsibilities and risks involved in being an effective Director.	Yes	The Compensation Committee regularly reviews both the amount and components of the Corporation’s Director compensation package and the Chair’s compensation package and believes that the current compensation is appropriate for the responsibilities and risks assumed by the Directors.
			The Board has determined that a portion of the total annual compensation package should be paid in the form of Deferred Share Units (“Share Units”). As well, each Director can elect to take some or all of his or her annual and per diem fees in the form of Share Units. Each Share Unit has a floating value equivalent to one common share of the Corporation and cannot be paid out until the Director retires from the Board. The Board adopted the Share Unit component to more closely align the economic interests of Directors with those of the Corporation’s shareholders.

A-5

		Does
		PCS
TSX Guidelines for		Currently
Effective Corporate Governance		Align?	Comments
			The Board believes that the economic interests of Directors should be aligned with those of shareholders. To achieve this, all Directors are expected to hold shares and/or Share Units in the Corporation. By the time a Director has served on the Board for three years, he or she should own shares and/or Share Units with a value at least five times the annual retainer paid to Directors. The Board may make exceptions to this standard where, as a result of the unique financial circumstances of a Director, compliance would result in an unacceptable hardship.
9.	Board committees should generally be composed of outside Directors, a majority of whom are unrelated.	Yes	Of the five committees of the Board, four (the Audit, Compensation, Corporate Governance and Nominating, and Safety, Health and Environment Committees) are composed entirely of independent and unrelated Directors. The Executive Committee is composed of four independent unrelated Directors and one inside Director.
			Each Committee of the Board has a written Charter which details the Committee’s duties and responsibilities. The Charter of each Committee can be found at the Corporation’s website, www.potashcorp.com.
10.	Appoint a committee responsible for developing the Corporation’s approach to corporate governance issues and the Guidelines.	Yes	The Board has established a Corporate Governance and Nominating Committee. At present, that Committee is composed of five outside Directors, each of whom is independent and unrelated. The purpose of the Committee is to identify individuals qualified to become members of the Board consistent with the criteria approved by the Board, to recommend to the Board Director nominees for each annual meeting of shareholders and nominees for election to fill vacancies on the Board of Directors and to address related matters. The Committee shall also develop and recommend to the Board of Directors corporate governance principles applicable to the Corporation and be responsible for leading the annual review of the Board’s performance.
11.	(a)  Define limits to Management’s responsibilities by developing position descriptions for:       (i)   the Board; and	Yes	The Board has adopted a Charter which sets out its responsibilities and the limits to management’s responsibilities. The Board is specifically charged with:
			(a)    oversight and approval on an ongoing basis of the Corporation’s business strategy;
			(b)    appointment of the Chief Executive Officer and monitoring his or her performance;
			(c)    approving the appointment of all corporate officers and ensuring that adequate provision has been made for management succession;
			(d)    establishing standards for management and monitoring performance;

A-6

		Does
		PCS
TSX Guidelines for		Currently
Effective Corporate Governance		Align?	Comments
			(e)    approving procedures for strategy implementation, for identifying and managing risks and for insuring the integrity of internal control and management information systems; and
			(f)    reporting to shareholders on the performance of the business.
			The Board has specifically retained responsibility for managing its own affairs, including planning its composition, selecting the Board Chair, nominating candidates for election to the Board, appointing committees and determining Director compensation.
	(ii)  the Chief Executive Officer.	Yes	A written position description for the Chief Executive Officer has been developed and approved by the Board.
	(b)  Board should approve the Chief Executive Officer’s corporate objectives.	Yes	The Compensation Committee annually reviews the Chief Executive Officer’s performance as against specific written objectives established at the beginning of each year and together with all other independent members of the Board approves annually the Chief Executive Officer’s compensation package.
12.	Establish structures and procedures to ensure the Board can function independently of management.	Yes	The Board has determined that the Corporation is best served by dividing the responsibilities of Board Chair and Chief Executive Officer. The Board Chair is independent and unrelated and is chosen by the full Board. A position description for the Board Chair has been developed and approved by the Board. Amongst other things the Chair is expected to:
			(i)    provide leadership necessary for effective functioning of the Board;
			(ii)   lead in the assessment of Board performance;
			(iii)  assist the Compensation Committee in monitoring and evaluating the performance of the Chief Executive Officer;
			(iv)  lead the Board in ensuring succession plans are in place at the senior management level; and
			(v)    act as an effective liaison between the Board and management.
			The Board has also adopted a policy of meeting without management present at each regularly scheduled meeting of the Board. These sessions are of no fixed duration and participating Directors are encouraged to raise and discuss any issues of concern.

A-7

		Does
		PCS
TSX Guidelines for		Currently
Effective Corporate Governance		Align?	Comments
13.	(a)  The Audit Committee should have a mandate which specifically defines the roles and responsibility of the Audit Committee;	Yes	The Audit Committee has a comprehensive written Charter which was last reviewed and amended in 2004.
			The Committee is composed solely of independent, unrelated Directors. All members of the Committee must be financially literate and at least one member of the Committee must have accounting or related financial expertise. The Board has concluded that all members of the Committee are financially literate and Mr. Vicq is an “Audit Committee Financial Expert” within the rules of the U.S. Securities and Exchange Commission relating to audit committees.
			The Charter explicitly affirms that the external auditor is ultimately accountable to the shareholders through the Board of Directors and Audit Committee. The Committee regularly assesses the independence of the external auditor and in its review of annual and quarterly financial statements, there is included a discussion of the quality of the Corporation’s accounting principles and the relevance, reliability, comparability and understandability of the financial statements. The Audit Committee communicates directly with internal and external auditors and assumes responsibility for overseeing management reporting and internal control systems.
	(b)  All members should be outside Directors.	Yes	The Audit Committee is at present composed of five members, all of whom are independent and unrelated.
14.	Implement a system to enable individual Directors to engage outside advisors, at the expense of the Corporation in appropriate circumstances.	Yes	Individual Directors may engage outside advisors, at the Corporation’s expense, upon authorization of the Executive Committee.

APPENDIX B

POTASH CORPORATION OF SASKATCHEWAN INC.

AUDIT COMMITTEE CHARTER

1. Objectives

i)

The Audit Committee will assist the Board of Directors in fulfilling its oversight responsibilities for (1) the integrity of the company’s financial statements, (2) the company’s compliance with legal and regulatory requirements, (3) the independent auditor’s qualifications and independence, and (4) the performance of the company’s internal audit function and independent auditors. In performing its duties, the Committee will maintain effective working relationships, including engaging in full and frank discussions, with the Board of Directors, management, and the internal and external auditors. To perform his or her role effectively, each Committee member will obtain an understanding of the detailed responsibilities of Committee membership as well as the Corporation’s business, operations and risk.

ii)

In discharging its responsibilities, the Audit Committee is not itself responsible for the planning or conduct of audits or for any determination that the Corporation’s financial statements are complete and accurate or in accordance with Canadian or U.S. generally accepted accounting principles.

2. External Auditor Independence

i)	The Corporation’s external auditor is ultimately accountable to the shareholders through the Board of Directors and Audit Committee.
ii)	The Committee’s responsibilities regarding the independence of the external auditor are identified under the heading Duties, Powers and Responsibilities: External Audit.

3. Membership

i)	The Board of Directors shall appoint annually from among its members an Audit Committee to hold office for the ensuing year or until their successors are elected or appointed.
ii)	The Audit Committee shall consist of not less than three and not more than five members, none of whom is a current or former officer or employee of the Corporation or any of its affiliates and none of whom has any relationship to the Corporation that may interfere with the exercise of their independence from management and the Corporation. In addition, members must be financially literate and at least one member should be an Audit Committee Financial Expert. Each member shall meet the independence, experience and financial literacy requirements of applicable law and listing standards.
iii)	The Board of Directors may from time to time designate one of the members of the Audit Committee to be the Committee Chair and the Secretary of the Corporation shall be the Secretary of the Audit Committee.
iv)	Any member of the Audit Committee may be removed or replaced at any time by the Board of Directors and shall cease to be a member of the Audit Committee on ceasing to be a Director. The Board of Directors may fill vacancies on the Audit Committee by election from among the Board of Directors. If and whenever a vacancy shall exist on the Audit Committee, the remaining members may exercise all its powers so long as a quorum remains in office. Subject to the above, each member of the Audit Committee shall hold office as such until the next Annual Meeting of Shareholders after his or her election.

4. Meetings and Participation

i) Meetings of the Audit Committee shall provide a framework for a full and frank discussion of all relevant matters, including: financial statement disclosures, accounting, internal controls and auditing. To accomplish this:

• The Audit Committee shall meet at least once each quarter. Meeting agendas will be prepared and provided in advance to members, along with appropriate briefing materials.

• The Corporation’s internal auditor shall be entitled to receive notice of every meeting of the Audit Committee, and shall attend such meetings at the invitation of the Audit Committee. The external auditor shall be entitled to receive notice of every meeting of the Audit Committee and to attend and be heard thereat. The Audit Committee expects that both the internal and external auditors will have independent communication and information flow with it or the Committee Chair and has the authority to communicate directly with the internal and external auditors.

B-2

• The Audit Committee may invite such officers, directors and employees of the Corporation as it may see fit, or any external counsel, from time to time to attend meetings of the Audit Committee and assist in the discussion and consideration of the duties of the Audit Committee. The Audit Committee shall have full authority to investigate any matter brought to its attention with full access to all books, records, facilities and personnel of the Corporation.

• The time at which and place where the meetings of the Audit Committee shall be held and the calling of meetings and the procedure in all things at such meetings shall be determined by the Audit Committee; provided that meetings of the Audit Committee shall be convened whenever requested by the external auditor or any member of the Audit Committee in accordance with the Canada Business Corporations Act.

• No business may be transacted by the Audit Committee except at a meeting of its members at which a quorum of the Audit Committee is present. A majority of the members of the Audit Committee shall constitute a quorum.

• At least once each quarter, in the absence of any management representatives, the Audit Committee shall meet separately with both the Corporation’s internal and external auditors (“in camera” meetings).

• The Audit Committee shall keep minutes of its meetings in which shall be recorded all action taken by it, which minutes shall be approved by Committee members and available as soon as possible to the Board of Directors and provided to each Director who so requests. Items discussed in the in camera portion (with the external auditor and the internal auditor) of Audit Committee meetings will not be recorded in the minutes of that meeting.

5. Duties, Powers and Responsibilities

i) There is hereby delegated to the Audit Committee the duties and powers specified in section 171 of the Canada Business Corporations Act and, without limiting these duties and powers, the Audit Committee shall:

a) Financial Statements

• In the discussion of the external audit plan with the external auditor and management, members of the Committee shall satisfy themselves that both quantitative and appropriate qualitative factors have been taken into account in the determination of whether or not amounts or disclosures are material to financial statements.

• Review and discuss with both management and the external auditor the annual audited Financial Statements, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Selected Eleven-Year Data prior to their submission to the Board of Directors for approval, and make a determination whether to recommend to the Board of Directors that the audited Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations be included in the Corporation’s Form 10-K.

• Review and discuss with both management and the external auditor the unaudited quarterly financial statements of the Corporation and other financial information to be included in the Corporation’s Form 10-Q and, if such statements and information are found to conform to the accounting practices and standards of the Corporation, approve pursuant to the authority delegated to the Committee by the Board and authorize the release and publication of such statements and information. The Audit Committee shall also discuss the results of the external auditor’s review of the Corporation’s quarterly financial statements conducted in accordance with Statement of Auditing Standards (SAS) No. 71. The Committee shall also review, and prior to publication approve pursuant to the authority delegated to the Committee by the Board, the quarterly Management’s Discussion and Analysis of Financial Condition and Results of Operations.

• In the review of annual and quarterly financial statements, discuss the quality of the Corporation’s accounting principles, the reasonableness of significant judgments, the clarity of the disclosures in the financial statements and the adequacy of internal controls. The Audit Committee shall also discuss the results of the annual audit and any other matters required to be communicated to the Audit Committee by the external auditor under Canadian generally accepted auditing standards, U.S. generally accepted auditing standards, applicable law or listing standards, including matters required to be discussed by SAS No. 61, as amended by SAS No. 90. The framework for discussion will be from the perspective of those who use the statements and will include reference to relevance, reliability, comparability and understandability of these statements.

• Discuss the Corporation’s earnings press releases, as well as financial information and earnings guidance provided to analysts and ratings agencies. Such discussion may be done generally and the Committee need not discuss in advance each earnings release or each instance in which the Corporation may provide earnings guidance.

• Review in detail the result of the external auditor’s review of the Corporation’s financial records, including the management letter, and report to the Board of Directors any matters that remain unresolved. Such review shall address any problems or

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	difficulties the external auditor may have encountered in connection with the annual audit or otherwise, including any restrictions on the scope of activities or access to required information, any disagreements with management regarding generally accepted accounting principles and other matters, material adjustments to the financial statements recommended by the external auditor and adjustments that were proposed but “passed”, regardless of materiality.
•	Review periodically with management, the internal auditor and the external auditor the effect of new or proposed regulatory and accounting initiatives on the Corporation’s financial statements and other public disclosures and procedures.
•	Review with the external auditor (i) the Corporation’s critical accounting policies and estimates, and (ii) any alternative treatments of financial information under Canadian or U.S. generally accepted accounting principles that have been discussed with management.

b) Internal and Disclosure Controls

• The Audit Committee shall discuss with management, the internal auditor and the external auditor the Corporation’s major risk exposures (whether financial, operational or otherwise), the adequacy and effectiveness of the accounting and financial controls, and the steps management has taken to monitor and control such exposures and manage legal compliance programs, among other considerations that may be relevant to their respective audits.

• Review on an annual basis with management and the external auditor the Corporation’s internal controls and procedures and management’s internal control report, including any attestation of such report by the external auditor. Management and the internal auditor shall report periodically to the Audit Committee regarding any significant deficiencies in the design or operation of the Corporation’s internal controls, material weaknesses in internal controls and any fraud (regardless of materiality) involving persons having a significant role in the internal controls, as well as any significant changes in internal controls implemented by management during the most recent reporting period of the Corporation.

• Review with the Chief Executive Officer, the Chief Financial Officer and the General Counsel on an annual basis the Corporation’s disclosure controls and procedures, including any significant deficiencies in, or material non-compliance with, such controls and procedures.

• Discuss with the Chief Executive Officer and the Chief Financial Officer all elements of the certification required pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act. The Chair of the Audit Committee shall participate in the quarterly Sarbanes-Oxley Due Diligence Conference Call meeting.

c) Internal Audit

• Review with management, the external auditor and the internal auditor, the internal audit department charter, audit scope, audit plans, activities and staffing of the internal audit function.

• Review with management, the external auditor and the internal auditor, the internal auditor’s periodic activity reports.

• Review on an annual basis the experience and qualifications of the senior members of the internal auditors, the quality control procedures of the internal auditors and the overall effectiveness of the internal audit function including comparison with external benchmarks.

• If the internal audit services are outsourced, the Committee shall be responsible for the engagement, evaluation and termination of the internal audit service providers and shall approve fees paid to the internal audit service providers. As part of its responsibility to evaluate any internal audit service providers, the Committee shall review the quality control procedures applicable to the service providers. The Committee shall also obtain not less frequently than annually a report of the service providers addressing such service providers’ internal control procedures, issues raised by their most recent internal quality control review or by any inquiry or investigation by governmental or professional authorities for the preceding five years and the response of such service providers.

• Review internal audit costs annually.

• Discuss with the Chief Executive Officer any proposed dismissal, appointment or replacement of the internal auditor.

d) External Audit

• Review with the external auditor, management and the internal auditor the external auditor’s proposed audit plan and approach, including coordination with the internal auditor and the relationship between areas of audit emphasis and quantum of risk.

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• Review with the external auditor annually their written statement regarding relationships and services which may affect the external auditor’s objectivity and independence. The Audit Committee shall approve guidelines for the retention of the external auditor for any non-audit service and the fee for such service and shall determine procedures for the approval of audit and non-audit services in advance. The Audit Committee shall, in accordance with such procedures, approve in advance any audit or non-audit service provided to the Corporation by the external auditor, all as required by applicable law or listing standards.

• At least annually, review a report by the external auditor describing any material issues raised by the most recent internal quality control review of the local practice office or by any inquiry or investigation by governmental or professional authorities of the local practice office, within the preceding five years, and steps taken to address any such issues. The report shall also include any similar matters pertaining to offices other than the local practice office, to the extent the audit partner is aware of such matters.

• Ensure the regular rotation of the lead partner and the reviewing partner to the extent required by law, and regularly consider whether or not there should be a rotation of the Corporation’s external auditor.

• With management, evaluate the performance of the external auditor, and the lead partner of the external auditor, annually.

• Recommend the appointment, reappointment or replacement of the external auditor to the Board for recommendation to the shareholders.

• Review and recommend to the Board external audit fees.

• Review and approve guidelines for the Corporation’s hiring of former employees and partners of the external auditor, which shall meet the requirements of applicable law and listing standards.

e) Compliance

• Review periodically with management, including the General Counsel, and the external auditor any correspondence with, or other action by, regulators or government agencies and any employee complaints or published reports that raise concerns regarding the Corporation’s financial statements, accounting or auditing matters or compliance with the Corporation’s Code of Business Conduct. The Audit Committee shall also meet periodically and separately with the General Counsel and other appropriate legal staff of the Corporation or external counsel to review material legal affairs of the Corporation and the Corporation’s compliance with applicable law and listing standards.

• Review a summary of compliance with the Corporation’s Code of Business Conduct on an annual basis.

f) Reporting Responsibilities

• Regularly update the Board about Committee activities and ensure the Board is aware of matters which may significantly impact the financial condition or affairs of the Corporation.

• Prepare annually a report for inclusion in the proxy statement. This report will disclose the Committee’s activities that resulted from its financial reporting oversight responsibilities. Specifically, the report will deal with its review of the financial statements with management, the discussions it has had with the external auditor regarding their written disclosures pertaining to independence and other matters required to be discussed and will contain disclosure of all audit and non-audit fees paid to the external auditor.

• Prepare a report to the Board regarding the result of its annual self-assessment.

g) Other Responsibilities

• Maintain procedures for the receipt, retention and treatment of complaints received by the Corporation regarding financial statement disclosures, accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of the Corporation of concerns regarding financial statement disclosures, accounting, internal accounting controls and auditing matters. Such procedures are appended hereto as Annex “A”

• Review and address any complaints received by the Corporation regarding financial statement disclosures, accounting, internal accounting controls or auditing matters, and any confidential, anonymous submissions by employees of the Corporation of concerns regarding questionable accounting or auditing matters.

• Review annually a summary of the Corporation’s transactions with directors and officers and with firms that employ directors, as well as any other material related party transactions.

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• Review quarterly the report prepared by the Natural Gas Hedging Committee. If the hedged position is outside of the guidelines approved by the Natural Gas Hedging Committee, determine the reasons for this deviation and the actions that will be taken as a result.

• Evaluate its performance under this Charter. The Committee shall address all matters that the Committee considers relevant to its performance, including the following:

• The adequacy, appropriateness and quality of the information and recommendations presented by the Committee to the Board;

• The adequacy of information provided to the Committee by management, the internal auditor and the external auditor;

• Whether or not members have adequate opportunity to discuss issues and ask probing and/or challenging questions of management, where necessary;

• Whether or not the Audit Committee is kept apprised of the significant operational, financial and regulatory issues currently being faced by the Corporation;

• Whether or not the membership of the Committee contains the proper mix of relevant financial, legal and business talent; and,

• Whether or not management are proactive in assisting the Committee in keeping current on important business, financial, operational and regulatory matters.

• In assessing its own performance, the Audit Committee shall solicit feedback from the Board, CEO, CFO, the internal auditor and the external auditor on specific opportunities to improve Audit Committee effectiveness.

• Review and assess the adequacy of the Audit Committee Charter on an annual basis.

• Carry out such other duties as may be delegated to it by the Board of Directors from time to time.

6. Delegation

The Audit Committee may delegate any of its responsibilities to a subcommittee comprised of one or more members of the Committee.

7. Outside Experts

The Audit Committee may, if and when considered appropriate to do so, institute, direct and supervise an investigation into any matter related to the mandate of the Committee and may, for the purposes of such investigation or otherwise to carry out its duties, retain the services of outside legal counsel or other professionals, as required and set and direct payment of compensation of such professionals.

8. Remuneration

The members of the Audit Committee shall be entitled to receive such remuneration for acting as members of the Audit Committee as the Board of Directors may from time to time determine, subject to such limitations as may be imposed by applicable independence requirements.

9. Funding

The Corporation shall provide for appropriate funding, as determined by the Audit Committee, for (i) compensation to the public accounting firm for the purpose of preparing or issuing an audit report or performing other audit review or attest services; (ii) compensation to any outside experts employed by the Audit Committee; and (iii) ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.

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ANNEX “A”

To Potash Corporation of Saskatchewan Inc.
Audit Committee Charter

Procedures for the Submission of Complaints or Concerns
Regarding Financial Statement Disclosures, Accounting,
Internal Accounting Controls or Auditing Matters

1.	The Corporation shall forward to the Audit Committee of the Board of Directors any complaints that it has received regarding financial statement disclosures, accounting, internal accounting controls or auditing matters.
2.	Any employee of the Corporation may submit, on a confidential, anonymous basis if the employee so desires, any concerns regarding financial statement disclosures, accounting, internal accounting controls or auditing matters by setting forth such concerns in writing and forwarding them in a sealed envelope to the Chair of the Audit Committee, in care of the Corporate Secretary, 500 – 122 1st Avenue South, Saskatoon, SK, S7K 7G3, CANADA, such envelope to be labeled with a legend such as: “To be opened by the Audit Committee only”. If any employee would like to discuss any matter with the Audit Committee, the employee should indicate this in the submission and include a telephone number at which he or she might be contacted if the Audit Committee deems it appropriate. Any such envelopes received by the Corporate Secretary shall be forwarded promptly to the Chair of the Audit Committee.
3.	At each of its meetings, including any special meeting called by the Chair of the Audit Committee following the receipt of any information pursuant to this Annex, the Audit Committee shall review and consider any such complaints or concerns that it has received and take any action that it deems appropriate in order to respond thereto.
4.	The Audit Committee shall retain any such complaints or concerns for a period of no less than 7 years.
5.	This Annex A shall appear on the Corporation’s website as part of this Charter.

APPENDIX C

SHAREHOLDER PROPOSAL ON EXECUTIVE COMPENSATION

          The following Proposal has been submitted by a shareholder for consideration at the Meeting. The Corporation is legally required to include the Proposal in this Management Proxy Circular. For the reasons set out below, the Board and management oppose the Proposal.

          The submitting shareholder is the Carpenters’ Local 27 Pension Trust Fund (the “Fund”), 2589 Calabogie Road, RR #1, Burnstown, Ontario K0J 1G0. The Proposal and the Fund’s supporting statement are set out verbatim below.

Proposal

          Resolved, that the shareholders of Potash Corporation of Saskatchewan Inc. (“Company”) request that the Company’s Board of Directors and its Executive Compensation Committee replace the current system of compensation for senior executives with the following “Commonsense Executive Compensation” program including the following features:

(1) Salary — The chief executive officer’s (“CEO”) salary should be targeted at the mean of salaries paid at peer group companies, not to exceed $1,000,000 annually. No senior executive should be paid more than the CEO.

(2) Annual Bonus — The annual bonus paid to senior executives should be based on well-defined quantitative (financial) and qualitative (non-financial) performance measures. The maximum level of annual bonus should be a percentage of the executive’s salary level, capped at 100% of salary.

(3) Long-Term Equity Compensation — Long-term equity compensation to senior executives should be in the form of restricted shares, not stock options. The restricted share program should utilize justifiable performance criteria and challenging performance benchmarks. It should contain a vesting requirement of at least three years. Executives should be required to hold all shares awarded under the program for the duration of their employment. The value of the restricted share grant should not exceed $1,000,000 on the date of grant.

(4) Severance — The maximum severance payment to a senior executive should be no more than one year’s salary and bonus.

(5) Disclosure — Key components of the executive compensation plan should be outlined in the Compensation Committee’s report to shareholders, with variances from the Commonsense program explained in detail.

          The Commonsense compensation program should be implemented in a manner that does not violate any existing employment agreement or equity compensation plans.

Supporting Statement

          We believe that compensation paid to senior executives at most companies, including ours, is excessive, unjustified, and contrary to the interests of the Company, its shareholders, and other important corporate constituents. CEO pay has been described as a “wasteland that has not been reformed.” (Institutional Shareholder Services senior vice-president, Wall Street Journal, “Executive Pay Keeps Rising, Despite Outcry,” October 3, 2003). We believe that the growing disparity between the compensation paid to senior executives and average workers is a disturbing trend and contrary to the long-term interests of companies, their shareholders, workers and communities.

          We believe that it is long past time for shareholders to be proactive and provide companies clear input on the parameters of what they consider to be reasonable and fair executive compensation. We believe that executive compensation should be designed to promote the creation of long-term corporate value. The Commonsense executive compensation principles seek to focus senior executives, not on quarterly performance numbers, but on long-term corporate value growth, which should benefit all the important constituents of the Company. We challenge our Company’s leadership to embrace the ideas embodied in this proposal, which still offers senior executives the opportunity to build personal long-term wealth, but only when they generate long-term corporate value.

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          THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE AGAINST THE PROPOSAL FOR THE FOLLOWING REASONS:

          The Compensation Committee and the Board take very seriously their responsibilities to shareholders to ensure that appropriate levels of compensation are paid to the persons charged with the responsibility of ensuring the Corporation’s long-term success. The Board and the Compensation Committee believe that restricting potential incentive program features and capping compensation levels for executives at arbitrary levels would unduly restrict the Compensation Committee’s choice among performance based compensation arrangements and would place the Corporation at a significant competitive disadvantage in recruiting and retaining executives. Salary and compensation levels for executives and the CEO are generally established at levels that approximate the median of what our peers are paying. In addition, as proof of our executive group’s recognition of their responsibility to shareholders, all senior executive employees (including the CEO) have taken a voluntary 10% salary cut, effective July 1, 2003.

          The Board and the Compensation Committee agree that quarterly performance numbers should not take precedence over long-term growth in corporate value in the design and implementation of the executive compensation policies of the Corporation. As proof of this, the majority of the compensation of our executive group is incentive based. Through the long-term incentive plan and awards of stock options (which since December 2003 have been expensed), compensation for our executives has been tied to long-term performance of the Corporation, as the compensation received by executives under these plans is dependent upon the success of the Corporation over a number of years, not months.

          We also take very seriously our obligation to ensure there is detailed disclosure of executive compensation. In accordance with its Board-approved charter, the Compensation Committee of the Board reviews, approves and oversees all policies under which compensation is paid to the Corporation’s executives (other than the CEO, which is reviewed by the Board itself). Each year the Compensation Committee also issues a detailed report on executive compensation, which is included in the Corporation’s Management Proxy Circular, and discloses total compensation for the Corporation’s most highly paid executives. The Corporation annually engages independent compensation consultants to prepare comparisons of the compensation package of the Corporation’s executives with a peer group of companies.

          You, as shareholders, have elected the Board and entrusted it with the responsibility of managing your Corporation. Through the Board’s Compensation Committee, composed entirely of independent and unrelated Directors, your interests are protected. Your Corporation’s compensation policies have been designed, are administered and are focused on providing appropriate levels of compensation for its executive officers while motivating them to deliver sustained long-term value enhancement for the Corporation and its shareholders. The Board and the Compensation Committee (which each met 9 times in 2003) expend considerable time and effort in ensuring that shareholders' interests are protected. Rigid and arbitrary limits that remove flexibility from the hands of the Board and the Compensation Committee are not in the best interests of the Corporation and its shareholders. We believe, as our record demonstrates, that we have earned your trust — let us continue to administer our compensation policies in order to maximize our Corporation’s success.

          For the reasons described above, the Board believes that the Proposal is not in the best interests of the Corporation and shareholders.

          The Board strongly recommends that shareholders vote against the Proposal.

Proxy Potash Corporation of Saskatchewan Inc.

FOR USE AT THE ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 6, 2004.

THIS PROXY IS SOLICITED ON BEHALF OF MANAGEMENT OF THE CORPORATION.

The undersigned holder of common shares (“Shares”) of Potash Corporation of Saskatchewan Inc. (the “Corporation”) hereby appoints Dallas J. Howe, Board Chair, or failing him, William J. Doyle, President and Chief Executive Officer, or failing him, Wayne R. Brownlee, Senior Vice President, Treasurer and Chief Financial Officer, or failing him, John L.M. Hampton, Senior Vice President, General Counsel and Secretary, or instead of any of the foregoing,

,

as proxy for the undersigned to attend, vote and act for and on behalf of the undersigned at the annual and special meeting of shareholders of the Corporation to be held at the Delta Bessborough, 601 Spadina Crescent East, Saskatoon, Saskatchewan, Canada on Thursday, the 6th day of May, 2004 (the “Meeting”) at 10:30 a.m. (local time), and at any adjournments thereof, and hereby revokes any proxy previously given by the undersigned.

1. A shareholder has the right to appoint a person who need not be a shareholder, to represent him and to attend and act on his behalf at the Meeting, other than the nominees designated above, and may exercise such right by inserting the name of his nominee in the space provided above for that purpose.

2. The Shares represented by this proxy will be voted in accordance with any choice specified in this proxy. If no specification is made, the persons named above will vote such Shares for the election of the directors named in this proxy, for the appointment of Deloitte & Touche LLP as auditors of the Corporation and against the shareholder proposal attached as Appendix C to the accompanying Management Proxy Circular.

3. If this proxy is not dated, it shall be deemed to be dated on the date on which this proxy was mailed by the Corporation.

Without limiting the general powers hereby conferred, the Shares represented by this proxy are to be:

1.	o	VOTED FOR the election as directors of all nominees listed below (except as marked to the contrary below), or
	o	WITHHELD FROM VOTING for all nominees listed below.

INSTRUCTIONS: To withhold authority to vote for any individual nominee, strike a line through the nominee’s name in the list below.

(1)	F.J. Blesi	(5	)	D.J. Howe	(9	)	P.J. Schoenhals
(2)	W.J. Doyle	(6	)	A.D. Laberge	(10	)	E.R. Stromberg
(3)	J.W. Estey	(7	)	J.J. McCaig	(11	)	J.G. Vicq
(4)	W. Fetzer III	(8	)	M. Mogford	(12	)	E. Viyella de Paliza

2.	Voted FOR o, or AGAINST o, or WITHHELD FROM VOTING o on, the appointment of Deloitte & Touche LLP as auditors of the Corporation.
3.	Voted FOR o, or AGAINST o, or WITHHELD FROM VOTING o on, the shareholder proposal attached as Appendix C to the accompanying Management Proxy Circular.

Dated the day of , 2004.

Name of Shareholder (please print)

Signature of Shareholder

Potash Corporation
of Saskatchewan Inc.

EX-99

Exhibit 99 - Notice, Proxy Circular & Proxy