##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-Q

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

For the Quarterly Period Ended June 30,
2004

OR

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

Commission File Number 1-10351

POTASH CORPORATION OF SASKATCHEWAN
INC.

(Exact name of registrant as specified in its
charter)


|                                             |  |                    
|-------------------------------------------- |  | -------------------
|Canada                                       |  | N/A                
|(State or other jurisdiction of              |  | (I.R.S. Employer   
|incorporation or organization)               |  | Identification No.)
|                                            
|122  1st Avenue South                       |  | S7K 7G3            
|Saskatoon, Saskatchewan, Canada              |  | (Zip Code)         
|(Address of principal executive
    offices) |  |                    

306-933-8500

(Registrants telephone number, including
area code)


Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past 90 days.

YES x  NO o

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Exchange Act
Rule 12b-2).

YES x  NO o

APPLICABLE ONLY TO CORPORATE
ISSUERS:

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

As at July 31,
2004, Potash Corporation of Saskatchewan Inc. had 53,899,605
Common Shares outstanding.





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TABLE OF CONTENTS



|                                                                                                             |                                                             |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------- |  |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                                                                               
|                                                                                                             | ITEM 1. FINANCIAL STATEMENTS                               
|                                                                                                             | Notes to the Consolidated Financial Statements             
|PART II. OTHER INFORMATION                                                                                  
|                                                                                                             | ITEM 1. LEGAL PROCEEDINGS                                  
|                                                                                                             | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|                                                                                                             | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                   
|SIGNATURES                                                                                                  
|Canpotex Producer Agreement amending agreement dated as of July 1, 2002                                     
|Third amendment to Agreement of Limited Partnership of PCS Nitrogen Fertilizer, L.P. dated December 15, 2003
|Resolution and Form of Agreement of Indemnification - July 21, 2004                                         
|Statement re Computation of Per Share Earnings                                                              
|Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                     
|Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                     
|Certification pursuant to Section 906 of the Sarbanes-Oxley Act 2002                                        



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##### Table of Contents






PART I.     FINANCIAL
INFORMATION






ITEM 1.FINANCIAL
STATEMENTS


Potash Corporation of Saskatchewan
Inc.

Consolidated Statements of Financial
Position

(in millions of US dollars except share
amounts)


|                                                                                                                                                                              |                                      |             |         |              |  |   |         |       | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------ | ----------- | ------- | ------------ |  | - | ------- | ----- | 
|                                                                                                                                                                              |                                      | June 30,    |         | December 31,
|                                                                                                                                                                              |                                      | 2004        |         | 2003        
|                                                                                                                                                                             
|                                                                                                                                                                             
|                                                                                                                                                                              |                                      | (unaudited) |         |             
|Assets                                                                                                                                                                        |                                      |             |         |              |  |   |         |      
|Current assets                                                                                                                                                                |                                      |             |         |              |  |   |         |      
|                                                                                                                                                                              | Cash and cash equivalents            |             | $       | 206.5        |  |   | $       | 4.7   | 
|                                                                                                                                                                              | Accounts receivable                  |             |         | 293.8        |  |   |         | 305.0 | 
|                                                                                                                                                                              | Inventories (Note 3)                 |             |         | 386.7        |  |   |         | 395.2 | 
|                                                                                                                                                                              | Prepaid expenses                     |             |         | 22.1         |  |   |         | 29.0  | 
|                                                                                                                                                                             
|                                                                                                                                                                              |                                      |             | 909.1   |              |  |   | 733.9   |      
|                                                                                                                                                                             
|Property, plant and equipment                                                                                                                                                 |                                      |             | 3,055.5 |              |  |   | 3,108.1 |      
|Other assets                                                                                                                                                                  |                                      |             | 606.2   |              |  |   | 628.3   |      
|Goodwill                                                                                                                                                                      |                                      |             | 97.0    |              |  |   | 97.0    |      
|                                                                                                                                                                             
|                                                                                                                                                                              |                                      | $           | 4,667.8 |              |  | $ | 4,567.3 |      
|                                                                                                                                                                             
|Liabilities                                                                                                                                                                   |                                      |             |         |              |  |   |         |      
|Current liabilities                                                                                                                                                           |                                      |             |         |              |  |   |         |      
|                                                                                                                                                                              | Short-term debt                      |             | $       | 91.4         |  |   | $       | 176.2 | 
|                                                                                                                                                                              | Accounts payable and accrued charges |             |         | 427.0        |  |   |         | 380.3 | 
|                                                                                                                                                                              | Current portion of long-term debt    |             |         | 1.3          |  |   |         | 1.3   | 
|                                                                                                                                                                             
|                                                                                                                                                                              |                                      |             | 519.7   |              |  |   | 557.8   |      
|                                                                                                                                                                             
|Long-term debt                                                                                                                                                                |                                      |             | 1,268.1 |              |  |   | 1,268.6 |      
|Future income tax liability                                                                                                                                                   |                                      |             | 474.1   |              |  |   | 484.2   |      
|Accrued post-retirement/post-employment benefits                                                                                                                              |                                      |             | 201.1   |              |  |   | 194.5   |      
|Accrued environmental costs and asset retirement
    obligations                                                                                                              |                                      |             | 83.2    |              |  |   | 81.3    |      
|Other non-current liabilities and deferred credits                                                                                                                            |                                      |             | 4.5     |              |  |   | 7.1     |      
|                                                                                                                                                                             
|                                                                                                                                                                              |                                      |             | 2,550.7 |              |  |   | 2,593.5 |      
|                                                                                                                                                                             
|Shareholders Equity                                                                                                                                                          |                                      |             |         |              |  |   |         |      
|Share capital                                                                                                                                                                 |                                      |             | 1,287.2 |              |  |   | 1,245.8 |      
|Unlimited authorization of common shares without
    par value;
    Issued and outstanding 53,723,105 and 53,112,216 at
    June 30, 2004 and December 31, 2003, respectively |                                      |             |         |              |  |   |         |      
|Contributed surplus                                                                                                                                                           |                                      |             | 270.8   |              |  |   | 265.2   |      
|Retained earnings                                                                                                                                                             |                                      |             | 559.1   |              |  |   | 462.8   |      
|                                                                                                                                                                             
|                                                                                                                                                                              |                                      |             | 2,117.1 |              |  |   | 1,973.8 |      
|                                                                                                                                                                             
|                                                                                                                                                                              |                                      | $           | 4,667.8 |              |  | $ | 4,567.3 |      
|                                                                                                                                                                             

(See Notes to the Consolidated Financial
Statements)

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Potash Corporation of Saskatchewan
Inc.

Consolidated Statements of Operations and
Retained Earnings

(in millions of US dollars except per-share
amounts)


(unaudited)


|                                           |         |                    |       |                  |  |      |       |      |  |   |         |      |  |   |         |      | 
|------------------------------------------ | ------- | ------------------ | ----- | ---------------- |  | ---- | ----- | ---- |  | - | ------- | ---- |  | - | ------- | ---- | 
|                                           |         |                    |       |                 
|                                           |         | Three Months Ended |       | Six Months Ended
|                                           |         | June 30            |       | June 30         
|                                           |         | 2004               |       | 2003             |  | 2004 |       | 2003
|                                          
|                                          
|Sales                                      |         | $                  | 833.7 |                  |  | $    | 745.0 |      |  | $ | 1,562.1 |      |  | $ | 1,406.8 |     
|Less: Freight                              |         |                    | 68.9  |                  |  |      | 60.5  |      |  |   | 127.0   |      |  |   | 124.9   |     
|Transportation
    and distribution        |         |                    | 31.3  |                  |  |      | 27.5  |      |  |   | 54.3    |      |  |   | 50.5    |     
|Cost
    of goods sold                     |         |                    | 562.8 |                  |  |      | 534.7 |      |  |   | 1,086.1 |      |  |   | 1,028.0 |     
|                                          
|Gross Margin                               |         |                    | 170.7 |                  |  |      | 122.3 |      |  |   | 294.7   |      |  |   | 203.4   |     
|                                          
|Selling and administrative                 |         |                    | 25.4  |                  |  |      | 23.9  |      |  |   | 51.6    |      |  |   | 47.6    |     
|Provincial mining and other taxes          |         |                    | 29.3  |                  |  |      | 14.8  |      |  |   | 44.4    |      |  |   | 32.9    |     
|Provision for plant shutdowns (Note 5)     |         |                    |      |                  |  |      |      |      |  |   |        |      |  |   | 2.2     |     
|Provision for PCS Yumbes S.C.M. (Note 6)   |         |                    | 5.9   |                  |  |      |      |      |  |   | 5.9     |      |  |   |        |     
|Foreign exchange (gain) loss               |         |                    | (9.9  | )                |  |      | 22.4  |      |  |   | (18.1   | )    |  |   | 39.3    |     
|Other income                               |         |                    | (9.2  | )                |  |      | (11.9 | )    |  |   | (16.1   | )    |  |   | (16.4   | )   
|                                          
|                                           |         |                    | 41.5  |                  |  |      | 49.2  |      |  |   | 67.7    |      |  |   | 105.6   |     
|                                          
|Operating Income                           |         |                    | 129.2 |                  |  |      | 73.1  |      |  |   | 227.0   |      |  |   | 97.8    |     
|Interest Expense                           |         |                    | 20.9  |                  |  |      | 23.2  |      |  |   | 43.0    |      |  |   | 42.6    |     
|                                          
|Income Before Income Taxes                 |         |                    | 108.3 |                  |  |      | 49.9  |      |  |   | 184.0   |      |  |   | 55.2    |     
|Income Taxes (Note 7)                      |         |                    | 35.7  |                  |  |      | 20.0  |      |  |   | 60.7    |      |  |   | 22.1    |     
|                                          
|Net Income                                 |         | $                  | 72.6  |                  |  | $    | 29.9  |      |  |   | 123.3   |      |  |   | 33.1    |     
|                                           |         |                    |       |                  |  |      |       |      |  |  
|Retained Earnings, Beginning of
    Period |         |                    |       |                  |  |      |       |      |  |   | 462.8   |      |  |   | 641.4   |     
|Dividends                                  |         |                    |       |                  |  |      |       |      |  |   | (27.0   | )    |  |   | (26.1   | )   
|                                          
|Retained Earnings, End of Period           |         |                    |       |                  |  |      |       |      |  | $ | 559.1   |      |  | $ | 648.4   |     
|                                          
|Net Income Per Share (Note 8)              |         |                    |       |                  |  |      |       |      |  |   |         |      |  |   |         |     
|                                           | Basic   |                    | $     | 1.36             |  |      | $     | 0.57 |  |   | $       | 2.31 |  |   | $       | 0.64 | 
|                                           | Diluted |                    | $     | 1.34             |  |      | $     | 0.57 |  |   | $       | 2.28 |  |   | $       | 0.63 | 
|                                          
|Dividends Per Share                        |         | $                  | 0.25  |                  |  | $    | 0.25  |      |  | $ | 0.50    |      |  | $ | 0.50    |     
|                                          

(See Notes to the Consolidated Financial
Statements)

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Potash Corporation of Saskatchewan
Inc.

Consolidated Statements of Cash Flow

(in millions of US dollars)


(unaudited)


|                                                            |                                                                  |                    |       |                  |   |      |       |       |   |   |       |       |   |   |        |       |  
|----------------------------------------------------------- | ---------------------------------------------------------------- | ------------------ | ----- | ---------------- | - | ---- | ----- | ----- | - | - | ----- | ----- | - | - | ------ | ----- | -
|                                                            |                                                                  |                    |       |                 
|                                                            |                                                                  | Three Months Ended |       | Six Months Ended
|                                                            |                                                                  | June 30            |       | June 30         
|                                                            |                                                                  | 2004               |       | 2003             |   | 2004 |       | 2003 
|                                                           
|                                                           
|Operating Activities                                        |                                                                  |                    |       |                  |   |      |       |       |   |   |       |       |   |   |        |      
|Net income                                                  |                                                                  | $                  | 72.6  |                  |   | $    | 29.9  |       |   | $ | 123.3 |       |   | $ | 33.1   |      
|                                                           
|Items not affecting cash                                    |                                                                  |                    |       |                  |   |      |       |       |   |   |       |       |   |   |        |      
|                                                            | Depreciation and amortization                                    |                    |       | 63.9             |   |      |       | 60.0  |   |   |       | 123.6 |   |   |        | 119.0 |  
|                                                            | Stock-based compensation                                         |                    |       | 2.8              |   |      |       |      |   |   |       | 5.6   |   |   |        |      |  
|                                                            | (Gain) loss on disposal of property, plant
    and equipment     |                    |       | (0.3             | ) |      |       | 0.3   |   |   |       | (0.3  | ) |   |        | 0.3   |  
|                                                            | Foreign exchange on future income tax                            |                    |       | (4.9             | ) |      |       | 13.3  |   |   |       | (7.8  | ) |   |        | 25.1  |  
|                                                            | Provision for future income tax                                  |                    |       | 9.3              |   |      |       | 20.0  |   |   |       | 24.3  |   |   |        | 22.1  |  
|                                                            | Share of earnings of equity investees                            |                    |       | (3.9             | ) |      |       | (2.6  | ) |   |       | (7.7  | ) |   |        | (4.9  | )
|                                                            | Provision for PCS Yumbes S.C.M.                                  |                    |       | 5.9              |   |      |       |      |   |   |       | 5.9   |   |   |        |      |  
|                                                            | Provision for post-retirement/post-employment
    benefits       |                    |       | 1.1              |   |      |       | (1.9  | ) |   |       | 6.6   |   |   |        | 9.1   |  
|                                                            | Accrued environmental costs and asset retirement
    obligations |                    |       | 0.8              |   |      |       | 0.8   |   |   |       | 1.9   |   |   |        | 1.1   |  
|                                                            | Other non-current liabilities and deferred credits               |                    |       | (1.4             | ) |      |       | 0.4   |   |   |       | (2.6  | ) |   |        | 0.5   |  
|                                                           
|                                                            | Subtotal of items not affecting cash                             |                    |       | 73.3             |   |      |       | 90.3  |   |   |       | 149.5 |   |   |        | 172.3 |  
|                                                           
|Changes in non-cash operating working
    capital           |                                                                  |                    |       |                  |   |      |       |       |   |   |       |       |   |   |        |      
|                                                            | Accounts receivable                                              |                    |       | (23.3            | ) |      |       | 14.8  |   |   |       | 9.6   |   |   |        | (35.5 | )
|                                                            | Inventories                                                      |                    |       | 29.7             |   |      |       | (24.0 | ) |   |       | 3.1   |   |   |        | (51.9 | )
|                                                            | Prepaid expenses                                                 |                    |       | 18.2             |   |      |       | 7.2   |   |   |       | 6.9   |   |   |        | 1.2   |  
|                                                            | Accounts payable and accrued charges                             |                    |       | (17.6            | ) |      |       | (49.5 | ) |   |       | (8.1  | ) |   |        | 5.2   |  
|                                                            | Current income taxes                                             |                    |       | 25.3             |   |      |       | (1.7  | ) |   |       | 28.2  |   |   |        | (13.4 | )
|                                                           
|                                                            | Subtotal of changes in non-cash operating
    working capital    |                    |       | 32.3             |   |      |       | (53.2 | ) |   |       | 39.7  |   |   |        | (94.4 | )
|                                                           
|Cash provided by operating
    activities                   |                                                                  |                    | 178.2 |                  |   |      | 67.0  |       |   |   | 312.5 |       |   |   | 111.0  |      
|                                                           
|Investing Activities                                        |                                                                  |                    |       |                  |   |      |       |       |   |   |       |       |   |   |        |      
|Additions to property, plant and equipment                  |                                                                  |                    | (33.0 | )                |   |      | (30.9 | )     |   |   | (49.4 | )     |   |   | (47.9  | )    
|Proceeds from disposal of property, plant and
    equipment |                                                                  |                    | 0.7   |                  |   |      |      |       |   |   | 0.7   |       |   |   |       |      
|Dividends received from equity investees                    |                                                                  |                    | 4.6   |                  |   |      | 4.0   |       |   |   | 4.6   |       |   |   | 4.0    |      
|Other assets                                                |                                                                  |                    | 3.5   |                  |   |      | (2.5  | )     |   |   | 4.3   |       |   |   | (10.8  | )    
|                                                           
|Cash used in investing activities                           |                                                                  |                    | (24.2 | )                |   |      | (29.4 | )     |   |   | (39.8 | )     |   |   | (54.7  | )    
|                                                           
|Cash before financing activities                            |                                                                  |                    | 154.0 |                  |   |      | 37.6  |       |   |   | 272.7 |       |   |   | 56.3   |      
|                                                           
|Financing Activities                                        |                                                                  |                    |       |                  |   |      |       |       |   |   |       |       |   |   |        |      
|Proceeds from long-term debt                                |                                                                  |                    |      |                  |   |      |      |       |   |   |      |       |   |   | 250.0  |      
|Repayment of long-term debt                                 |                                                                  |                    | (0.3  | )                |   |      | (0.3  | )     |   |   | (0.5  | )     |   |   | (0.5   | )    
|Proceeds from (repayment of) short-term debt                |                                                                  |                    | 33.5  |                  |   |      | (32.8 | )     |   |   | (84.8 | )     |   |   | (241.6 | )    
|Dividends                                                   |                                                                  |                    | (13.5 | )                |   |      | (13.1 | )     |   |   | (27.0 | )     |   |   | (26.1  | )    
|Issuance of shares                                          |                                                                  |                    | 21.6  |                  |   |      | 0.4   |       |   |   | 41.4  |       |   |   | 0.9    |      
|                                                           
|Cash provided by (used in) financing
    activities         |                                                                  |                    | 41.3  |                  |   |      | (45.8 | )     |   |   | (70.9 | )     |   |   | (17.3  | )    
|                                                           
|Increase (Decrease) in Cash and Cash
    Equivalents        |                                                                  |                    | 195.3 |                  |   |      | (8.2  | )     |   |   | 201.8 |       |   |   | 39.0   |      
|Cash and Cash Equivalents, Beginning of
    Period          |                                                                  |                    | 11.2  |                  |   |      | 71.7  |       |   |   | 4.7   |       |   |   | 24.5   |      
|                                                           
|Cash and Cash Equivalents, End of
    Period                |                                                                  | $                  | 206.5 |                  |   | $    | 63.5  |       |   | $ | 206.5 |       |   | $ | 63.5   |      
|                                                           
|Supplemental cash flow disclosure                           |                                                                  |                    |       |                  |   |      |       |       |   |   |       |       |   |   |        |      
|                                                            | Interest paid                                                    |                    | $     | 30.3             |   |      | $     | 38.0  |   |   | $     | 43.6  |   |   | $      | 39.4  |  
|                                                            | Income taxes paid                                                |                    | $     | 9.0              |   |      | $     | 4.2   |   |   | $     | 15.2  |   |   | $      | 20.1  |  
|                                                           

(See Notes to the Consolidated Financial
Statements)

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Potash Corporation of Saskatchewan
Inc.






Notes to the Consolidated Financial
Statements

(in millions of US dollars except share and
per-share amounts)


(unaudited)


1.   Significant Accounting
Policies

Basis of Presentation

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s accounting policies are in
accordance with accounting principles generally accepted in
Canada (Canadian GAAP). These policies are
consistent with accounting principles generally accepted in the
United States (US GAAP) except as outlined in
Note 15. The accounting policies used in preparing these
interim consolidated financial statements are consistent with
those used in the preparation of the 2003 annual consolidated
financial statements, except as disclosed in Note 2.

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

In 2003, the company approved plans to
restructure certain operations. Those plans required significant
estimates to be made of: (i) the recoverability of the
carrying value of certain assets based on their capacity to
generate future cash flows, and (ii) employee termination,
contract termination and other exit costs. Because restructuring
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 as actual payments are made or activities are
completed. Please refer to Note 5 and Note 6.

Principles of Consolidation

The consolidated financial statements include the
accounts of the company 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.


 PCS
Nitrogen, Inc.


 PCS
Nitrogen Fertilizer, L.P.


 PCS
Nitrogen Ohio, L.P.


 PCS
Nitrogen Trinidad Limited


 PCS
Cassidy Lake Company


 PCS
Yumbes S.C.M. (PCS Yumbes)


 PCS
Fosfatos do Brasil Ltda.


Recent Accounting
Pronouncements

In June 2003, the Canadian Institute of Chartered
Accountants (CICA) issued Accounting
Guideline 15 (AcG-15), Consolidation of
Variable Interest Entities. AcG-15 is harmonized with US
GAAP and provides guidance for applying the principles in CICA
Section 1590, Subsidiaries to those entities

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(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. AcG-15 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. The CICA has recently issued a draft guideline of
proposed amendments to AcG-15 in an effort to clarify certain
issues. The amended guideline is expected to be effective for
all annual and interim periods beginning on or after
November 1, 2004. The company is currently reviewing the
proposed changes to the guideline to determine the potential
impact, if any, on its consolidated financial statements.


In June and July, 2004, the CICA approved
re-exposure drafts of proposed Section 3855,
Financial Instruments  Recognition and
Measurement, and Section 3865, Hedges.
The CICA has confirmed that mandatory implementation of
standards developed from the re-exposure drafts will be for
interim and annual financial statements relating to years
commencing on or after October 1, 2005. The CICA has also
approved, subject to written ballot, a proposed new
Section 1530, Comprehensive Income. Companies
will not be permitted to apply Section 1530 until
Sections 3855 and 3865 are finalized. The re-exposure
drafts are intended to increase harmonization with US GAAP.

In July 2004, the CICA proposed, subject to
comments received following exposure, to amend
Section 3500, Earnings per Share, to conform to
recent corresponding amendments proposed by the US Financial
Accounting Standards Board (FASB) and to those
adopted by the International Accounting Standards Board. The
CICA expects to issue its proposals in the fourth quarter of
2004 with an effective date for interim and annual periods
relating to fiscal years beginning on or after January 1,
2005.

2.   Changes in Accounting
Policy

Sources of GAAP

Effective January 1, 2004, the company
prospectively adopted new accounting requirements of the CICA as
issued in Section 1100, Generally Accepted Accounting
Principles. This section establishes standards for
financial reporting in accordance with GAAP and provides
guidance on sources to consult when selecting accounting
policies and determining appropriate disclosures when a matter
is not dealt with explicitly in the primary sources of GAAP. In
light of the new Section 1100 provisions, the company
reviewed the application of its accounting policies and changed
the consolidated financial statement presentation of sales
revenue, freight costs and transportation and distribution
expenses, without any effect on gross margin or net income. All
comparative information has been appropriately reclassified.

In prior years, the company reported sales
revenues (net of discounts, and including amounts recoverable
from customers for freight, transportation and distribution) net
of related freight, transportation and distribution expenses.
The company now reports sales revenues (net of discounts, and
including amounts recoverable from customers for freight,
transportation and distribution), freight costs, and
transportation and distribution expenses as separate line items
on the Consolidated Statements of Operations and Retained
Earnings.

Asset Retirement Obligations

On January 1, 2004, the company adopted CICA
Section 3110, Accounting for Asset Retirement
Obligations, which requires the company to record an asset
and related liability for the costs associated with the
retirement of long-lived tangible assets when a legal liability
to retire such assets exists. This includes obligations incurred
as a result of acquisition, construction, or normal operation of
a long-lived asset. The provisions of Section 3110 require
the asset retirement obligation to be recorded at fair value at
the time the liability is incurred. Accretion expense is
recognized as an operating expense using the credit-adjusted
risk-free interest rate in effect when the liability was
recognized. The associated asset retirement obligations are
capitalized as part of the carrying amount of the long-lived
asset and depreciated over the estimated remaining

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useful life of the asset. The company has
recorded asset retirement obligations primarily associated with
certain closure, reclamation, and restoration costs for its
potash and phosphate operations.


The adoption of Section 3110 did not have a
significant effect on the results of operations or financial
position of the company. Had the provisions of Section 3110
been applied as of January 1, 2003, the pro forma
effects for the year ended December 31, 2003 on net loss
would not have been material. As required under the standard,
the company will make periodic assessments as to the
reasonableness of its asset retirement obligation estimates and
revise those estimates accordingly. The respective asset and
liability balances will be adjusted, which will correspondingly
increase or decrease the amounts expensed in future periods.

Hedging Relationships

Effective January 1, 2004, the company
adopted CICA Accounting Guideline 13, Hedging
Relationships. This guideline sets out the criteria that
must be met in order to apply hedge accounting for derivatives
and is based on many of the principles outlined in the US
standards relating to derivative instruments and hedging
activities. Specifically, the guideline provides detailed
guidance on the identification, designation, documentation and
effectiveness of hedging relationships, for purposes of applying
hedge accounting, and the discontinuance of hedge accounting.
Income and expenses on derivative instruments designated and
qualifying as hedges under this guideline are recognized in
earnings in the same period as the related hedged item.
Ineffective hedging relationships and hedges not designated in a
hedging relationship are carried at fair value on the
Consolidated Statement of Financial Position, and subsequent
changes in their fair value are recorded in earnings. The
adoption of this accounting guideline did not have a material
impact on the consolidated financial statements.

3.   Inventories

|                       |  |             |       |              |  |   |       | 
|---------------------- |  | ----------- | ----- | ------------ |  | - | ----- | 
|                       |  | June 30,    |       | December 31,
|                       |  | 2004        |       | 2003        
|                      
|                      
|                       |  | (unaudited) |       |             
|Finished product       |  | $           | 165.7 |              |  | $ | 160.7 | 
|Materials and supplies |  |             | 104.8 |              |  |   | 108.0 | 
|Raw materials          |  |             | 43.8  |              |  |   | 54.1  | 
|Work in process        |  |             | 72.4  |              |  |   | 72.4  | 
|                      
|                       |  | $           | 386.7 |              |  | $ | 395.2 | 
|                      

4.   Long-term Debt

In January and February 2004, the company entered
into interest rate swap contracts designated as fair value
hedges that effectively converted a notional amount of $300.0 of
fixed rate debt (due 2011) into floating rate debt based on
six-month US dollar LIBOR rates. Net settlements on the swap
instruments are recorded as adjustments to interest expense. The
company did not enter into any interest rate swap contracts
in 2003.

5.   Provision for Plant
Shutdowns

Memphis and Geismar Nitrogen
Operations  2003

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. The plants
have not been re-started since that time.

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 in the third quarter of 2003. The number of
employees terminated as a result of the shutdowns was 187, of
which 186 had left the company as of June 30, 2004. The
company has made payments relating to the terminations totaling
$4.0. All

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remaining workforce reduction costs pertaining to
the 187 employees are expected to be paid by
December 31, 2004.


In connection with the shutdowns, management had
determined that the carrying amounts of the long-lived assets at
the Memphis and 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, was
recognized. Of the total impairment charge, $100.6 related to
property, plant and equipment and $1.0 related to other assets.
As part of its review, management also wrote-down certain parts
inventories at these plants in the amount of $12.4.

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
June 30, 2004. Such costs will be recognized and recorded
in the period in which they are incurred.

Kinston Phosphate Feed Plant 
2003

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 continued to
operate 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 the long-lived 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, was recognized.

No additional costs were incurred in connection
with the plant shutdowns in the first half of 2004. 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:

|                                          |  |             |       |             |  |   |       | 
|----------------------------------------- |  | ----------- | ----- | ----------- |  | - | ----- | 
|                                          |  | Cumulative  |       | Total Costs
|                                          |  | Costs       |       | Expected   
|                                          |  | Incurred to |       | to be      
|                                          |  | Date        |       | 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 | 
|                                         

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The following table summarizes, by reportable
segment, the costs accrued as of June 30, 2004 in
connection with the plant shutdowns described above:

|                                          |  |              |     |          |  |          |      |   |  |   |     | 
|----------------------------------------- |  | ------------ | --- | -------- |  | -------- | ---- | - |  | - | --- | 
|                                          |  | Accrued      |     |          |  | Accrued 
|                                          |  | Balance      |     |          |  | Balance 
|                                          |  | December 31, |     | Cash     |  | June 30,
|                                          |  | 2003         |     | Payments |  | 2004    
|                                         
|                                         
|Nitrogen Segment                          |  |              |     |          |  |          |      |   |  |   |     | 
|Employee termination and related benefits |  | $            | 2.1 |          |  | $        | (1.3 | ) |  | $ | 0.8 | 
|                                         
|Phosphate Segment                         |  |              |     |          |  |          |      |   |  |   |     | 
|Employee termination and related benefits |  |              | 0.5 |          |  |          | (0.1 | ) |  |   | 0.4 | 
|                                         
|                                          |  | $            | 2.6 |          |  | $        | (1.4 | ) |  | $ | 1.2 | 
|                                         

The accrued balance is included in accounts
payable and accrued charges in the Consolidated Statement of
Financial Position as of June 30, 2004.

6.   Provision for PCS Yumbes
S.C.M.

2003

In November 2003, the company entered into a
share purchase agreement with Sociedad Quimica y Minera de Chile
S.A. (SQM), whereby SQM is to acquire the shares of
PCS Yumbes for an aggregate purchase price of $35.0, 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 the
closing. It is expected that closing will occur no later than
the end of 2004.

In 2003, management conducted 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 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 pre-production costs, and $0.5 related to deferred
acquisition costs. As part of the review, management also
wrote-down certain non-parts inventory by $50.2 due to the need
to liquidate all inventories that would not be transferred to
SQM under the agreement.

The company plans to eliminate all employee
positions at PCS Yumbes by December 31, 2004 and has
recorded a provision of $1.8 pertaining to contractual
termination benefits to be paid, primarily under Chilean law. As
of June 30, 2004, 141 of the employees had left the
company. The remaining 83 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.

The company had incurred early termination
penalties in respect of certain PCS Yumbes contractual
arrangements. The company recorded a provision of $11.1 in the
third quarter of 2003 for these contract termination costs and
$0.3 remained to be paid at June 30, 2004.

2004

During the three months ended June 30, 2004,
the company recorded an additional writedown of $5.9, relating
primarily to certain mining machinery and equipment that will
not be transferred to SQM under the terms of the agreement and
that management plans to sell prior to the end of the year. As
of June 30, 2004, the fair value and carrying amount of the
machinery and equipment that remains to be sold was $1.5. For
measurement purposes, fair value was determined in reference to
market prices for similar assets.

9



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The following table summarizes the total amount
of costs incurred for the three month and six month periods
ended June 30, 2004, the total amount of costs incurred to
date and the total costs expected to be incurred in connection
with PCS Yumbes:

|                                          |  |                  |       |             |  |             |     |             |  |   |       |  |  |   |       | 
|----------------------------------------- |  | ---------------- | ----- | ----------- |  | ----------- | --- | ----------- |  | - | ----- |  |  | - | ----- | 
|                                          |  | Cumulative Costs |       | Costs       |  | Cumulative  |     | Total Costs
|                                          |  | Incurred to      |       | Incurred to |  | Costs       |     | Expected   
|                                          |  | December 31,     |       | June 30,    |  | Incurred to |     | to be      
|                                          |  | 2003             |       | 2004        |  | Date        |     | Incurred   
|                                         
|                                         
|Potash Segment                            |  |                  |       |             |  |             |     |             |  |   |       |  |  |   |       | 
|Contract termination costs                |  | $                | 11.1  |             |  | $           |    |             |  | $ | 11.1  |  |  | $ | 11.1  | 
|Employee termination and related benefits |  |                  | 1.8   |             |  |             |    |             |  |   | 1.8   |  |  |   | 1.8   | 
|Writedown of non-parts inventory          |  |                  | 50.2  |             |  |             |    |             |  |   | 50.2  |  |  |   | 50.2  | 
|Asset impairment charges                  |  |                  | 77.4  |             |  |             | 5.9 |             |  |   | 83.3  |  |  |   | 83.3  | 
|                                         
|                                          |  | $                | 140.5 |             |  | $           | 5.9 |             |  | $ | 146.4 |  |  | $ | 146.4 | 
|                                         

The following table summarizes the costs accrued
as of June 30, 2004 in connection with PCS Yumbes as
described above:

|                                          |  |              |     |             |  |             |     |             |  |          |      |   |  |   |      |   |  |   |     | 
|----------------------------------------- |  | ------------ | --- | ----------- |  | ----------- | --- | ----------- |  | -------- | ---- | - |  | - | ---- | - |  | - | --- | 
|                                          |  | Accrued      |     | Costs       |  | Cash        |     |             |  | Accrued 
|                                          |  | Balance      |     | Incurred to |  | Payments    |     |             |  | Balance 
|                                          |  | December 31, |     | June 30,    |  | and         |     | Non-cash    |  | June 30,
|                                          |  | 2003         |     | 2004        |  | Adjustments |     | Settlements |  | 2004    
|                                         
|                                         
|Potash Segment                            |  |              |     |             |  |             |     |             |  |          |      |   |  |   |      |   |  |   |     | 
|Contract termination costs                |  | $            | 0.6 |             |  | $           |    |             |  | $        | (0.3 | ) |  | $ |     |   |  | $ | 0.3 | 
|Employee termination and related benefits |  |              | 1.2 |             |  |             |    |             |  |          | (0.4 | ) |  |   |     |   |  |   | 0.8 | 
|Asset impairment charges                  |  |              |    |             |  |             | 5.9 |             |  |          |     |   |  |   | (5.9 | ) |  |   |    | 
|                                         
|                                          |  | $            | 1.8 |             |  | $           | 5.9 |             |  | $        | (0.7 | ) |  | $ | (5.9 | ) |  | $ | 1.1 | 
|                                         

The accrued balance is included in accounts
payable and accrued charges in the Consolidated Statement of
Financial Position as of June 30, 2004.

7.   Income Taxes

The companys consolidated income tax rate
for the three month and six month periods ended June 30,
2004 approximates 33 percent (2003 
40 percent). The decrease in rate is due primarily to the
impact of Saskatchewan resource tax incentives, changes to the
Canadian federal resource allowance, and the scheduled Canadian
federal statutory rate reduction.

8.   Net Income Per
Share

Basic net income per share for the quarter is
calculated on the weighted average shares issued and outstanding
for the three months ended June 30, 2004 of 53,523,000
(2003  52,100,000). Basic net income per share for
the year-to-date is calculated on the weighted average shares
issued and outstanding for the six months ended June 30,
2004 of 53,433,000 (2003  52,094,000).

Diluted net income per share is calculated based
on the weighted average shares issued and outstanding during the
period, adjusted by the total of the additional common shares
that would have been issued assuming exercise of all stock
options with exercise prices at or below the average market
price for the period. For periods in which there was a loss
attributable 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 antidilutive to
the net loss per share. Weighted average shares outstanding for
the diluted net income per share calculation for the quarter
were 54,321,000 (2003  52,337,000) and for the
year-to-date were 54,115,000 (2003  52,331,000).

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9.   Segment
Information

The company has three reportable business
segments: potash, phosphate and nitrogen. These business
segments are differentiated by the chemical nutrient contained
in the product that each produces. Inter-segment sales are made
under terms that approximate market prices.

|                                |  |                                  |       |           |  |          |       |            |  |              |       |  |  |   |     |  |  |   |       | 
|------------------------------- |  | -------------------------------- | ----- | --------- |  | -------- | ----- | ---------- |  | ------------ | ----- |  |  | - | --- |  |  | - | ----- | 
|                                |  |                                 
|                                |  | Three Months Ended June 30, 2004
|                               
|                               
|                                |  | Potash                           |       | Phosphate |  | Nitrogen |       | All Others |  | Consolidated
|                               
|                               
|Sales                           |  | $                                | 316.4 |           |  | $        | 236.9 |            |  | $            | 280.4 |  |  | $ |    |  |  | $ | 833.7 | 
|Freight                         |  |                                  | 41.2  |           |  |          | 16.1  |            |  |              | 11.6  |  |  |   |    |  |  |   | 68.9  | 
|Transportation and distribution |  |                                  | 12.5  |           |  |          | 7.4   |            |  |              | 11.4  |  |  |   |    |  |  |   | 31.3  | 
|Net sales  third party         |  |                                  | 262.7 |           |  |          | 213.4 |            |  |              | 257.4 |  |  |   |    |  |  |   |       | 
|Cost of goods sold              |  |                                  | 141.3 |           |  |          | 207.7 |            |  |              | 213.8 |  |  |   |    |  |  |   | 562.8 | 
|Gross Margin                    |  |                                  | 121.4 |           |  |          | 5.7   |            |  |              | 43.6  |  |  |   |    |  |  |   | 170.7 | 
|Depreciation and amortization   |  |                                  | 19.9  |           |  |          | 21.4  |            |  |              | 20.3  |  |  |   | 2.3 |  |  |   | 63.9  | 
|Inter-segment sales             |  |                                  | 0.7   |           |  |          | 3.4   |            |  |              | 22.3  |  |  |   |    |  |  |   |      | 

|                                |  |                                  |       |           |  |          |       |            |  |              |       |  |  |   |     |  |  |   |       | 
|------------------------------- |  | -------------------------------- | ----- | --------- |  | -------- | ----- | ---------- |  | ------------ | ----- |  |  | - | --- |  |  | - | ----- | 
|                                |  |                                 
|                                |  | Three Months Ended June 30, 2003
|                               
|                               
|                                |  | Potash                           |       | Phosphate |  | Nitrogen |       | All Others |  | Consolidated
|                               
|                               
|Sales                           |  | $                                | 219.7 |           |  | $        | 214.3 |            |  | $            | 311.0 |  |  | $ |    |  |  | $ | 745.0 | 
|Freight                         |  |                                  | 30.3  |           |  |          | 17.5  |            |  |              | 12.7  |  |  |   |    |  |  |   | 60.5  | 
|Transportation and distribution |  |                                  | 8.3   |           |  |          | 7.1   |            |  |              | 12.1  |  |  |   |    |  |  |   | 27.5  | 
|Net sales  third party         |  |                                  | 181.1 |           |  |          | 189.7 |            |  |              | 286.2 |  |  |   |    |  |  |   |       | 
|Cost of goods sold              |  |                                  | 120.4 |           |  |          | 190.7 |            |  |              | 223.6 |  |  |   |    |  |  |   | 534.7 | 
|Gross Margin                    |  |                                  | 60.7  |           |  |          | (1.0  | )          |  |              | 62.6  |  |  |   |    |  |  |   | 122.3 | 
|Depreciation and amortization   |  |                                  | 15.6  |           |  |          | 19.6  |            |  |              | 22.9  |  |  |   | 1.9 |  |  |   | 60.0  | 
|Inter-segment sales             |  |                                  | 1.2   |           |  |          | 2.8   |            |  |              | 17.2  |  |  |   |    |  |  |   |      | 

|                                |  |                                |       |           |  |          |       |            |  |              |       |  |  |   |     |  |  |   |         | 
|------------------------------- |  | ------------------------------ | ----- | --------- |  | -------- | ----- | ---------- |  | ------------ | ----- |  |  | - | --- |  |  | - | ------- | 
|                                |  |                               
|                                |  | Six Months Ended June 30, 2004
|                               
|                               
|                                |  | Potash                         |       | Phosphate |  | Nitrogen |       | All Others |  | Consolidated
|                               
|                               
|Sales                           |  | $                              | 540.1 |           |  | $        | 454.5 |            |  | $            | 567.5 |  |  | $ |    |  |  | $ | 1,562.1 | 
|Freight                         |  |                                | 74.7  |           |  |          | 31.8  |            |  |              | 20.5  |  |  |   |    |  |  |   | 127.0   | 
|Transportation and distribution |  |                                | 21.2  |           |  |          | 12.7  |            |  |              | 20.4  |  |  |   |    |  |  |   | 54.3    | 
|Net sales  third party         |  |                                | 444.2 |           |  |          | 410.0 |            |  |              | 526.6 |  |  |   |    |  |  |   |         | 
|Cost of goods sold              |  |                                | 256.1 |           |  |          | 405.2 |            |  |              | 424.8 |  |  |   |    |  |  |   | 1,086.1 | 
|Gross Margin                    |  |                                | 188.1 |           |  |          | 4.8   |            |  |              | 101.8 |  |  |   |    |  |  |   | 294.7   | 
|Depreciation and amortization   |  |                                | 36.8  |           |  |          | 41.9  |            |  |              | 40.2  |  |  |   | 4.7 |  |  |   | 123.6   | 
|Inter-segment sales             |  |                                | 3.6   |           |  |          | 6.5   |            |  |              | 44.1  |  |  |   |    |  |  |   |        | 

|                                |  |                                |       |           |  |          |       |            |  |              |       |  |  |   |     |  |  |   |         | 
|------------------------------- |  | ------------------------------ | ----- | --------- |  | -------- | ----- | ---------- |  | ------------ | ----- |  |  | - | --- |  |  | - | ------- | 
|                                |  |                               
|                                |  | Six Months Ended June 30, 2003
|                               
|                               
|                                |  | Potash                         |       | Phosphate |  | Nitrogen |       | All Others |  | Consolidated
|                               
|                               
|Sales                           |  | $                              | 420.9 |           |  | $        | 405.4 |            |  | $            | 580.5 |  |  | $ |    |  |  | $ | 1,406.8 | 
|Freight                         |  |                                | 63.0  |           |  |          | 35.4  |            |  |              | 26.5  |  |  |   |    |  |  |   | 124.9   | 
|Transportation and distribution |  |                                | 16.3  |           |  |          | 11.9  |            |  |              | 22.3  |  |  |   |    |  |  |   | 50.5    | 
|Net sales  third party         |  |                                | 341.6 |           |  |          | 358.1 |            |  |              | 531.7 |  |  |   |    |  |  |   |         | 
|Cost of goods sold              |  |                                | 231.5 |           |  |          | 357.2 |            |  |              | 439.3 |  |  |   |    |  |  |   | 1,028.0 | 
|Gross Margin                    |  |                                | 110.1 |           |  |          | 0.9   |            |  |              | 92.4  |  |  |   |    |  |  |   | 203.4   | 
|Depreciation and amortization   |  |                                | 30.9  |           |  |          | 38.2  |            |  |              | 46.1  |  |  |   | 3.8 |  |  |   | 119.0   | 
|Inter-segment sales             |  |                                | 3.6   |           |  |          | 5.5   |            |  |              | 28.8  |  |  |   |    |  |  |   |        | 

11



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10. Stock-Based Compensation

The company has two stock option plans. Prior to
2003, the company applied the intrinsic value based method of
accounting for the plans.

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. Prospective application
of the fair value method did not have an impact on the first
three fiscal quarters of 2003 since the company did not grant
any options during those periods. Since the companys stock
option awards vest over two years, the compensation cost
included in the determination of net income for the three month
and six month periods ended June 30, 2004 and 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, Stock-based
Compensation and Other Stock-based Payments. The following
table illustrates the effect on net income and net income per
share if the fair value based method had been applied to all
outstanding and unvested awards in each period.

|                          |  |                                                                                                                                                    |      |               |      |               |      |      |      |      |       |  |      |   |      |  |      |  
|------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | ------------- | ---- | ------------- | ---- | ---- | ---- | ---- | ----- |  | ---- | - | ---- |  | ---- | -
|                          |  |                                                                                                                                                    |      |               |      |              
|                          |  |                                                                                                                                                    |      | Three Months  |      | Six Months   
|                          |  |                                                                                                                                                    |      | Ended June 30 |      | Ended June 30
|                          |  |                                                                                                                                                    |      | 2004          |      | 2003          |      | 2004 |      | 2003
|                         
|                         
|Net income  as reported  |  | $                                                                                                                                                  | 72.6 |               |      | $             | 29.9 |      |      | $    | 123.3 |  |      | $ | 33.1 | 
|Add:                      |  | Stock-based employee compensation expense
    included in reported net income, net of related tax effects                                          |      |               | 2.2  |               |      |      |     |      |       |  | 4.4  |   |      |  |     |  
|Less:                     |  | Total stock-based employee compensation expense
    determined under fair value based method for all option awards,
    net of related tax effects |      |               | (3.2 | )             |      |      | (3.7 | )    |       |  | (6.4 | ) |      |  | (7.4 | )
|                         
|Net income  pro forma(1) |  | $                                                                                                                                                  | 71.6 |               |      | $             | 26.2 |      |      | $    | 121.3 |  |      | $ | 25.7 | 
|                         

|    |                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Compensation expense under the fair value 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.

|                             |             |  |   |      |  |  |   |      |  |  |   |      |  |  |   |      | 
|---------------------------- | ----------- |  | - | ---- |  |  | - | ---- |  |  | - | ---- |  |  | - | ---- | 
|Basic net income per share   |             |  |   |      |  |  |   |      |  |  |   |      |  |  |   |     
|                             | As reported |  | $ | 1.36 |  |  | $ | 0.57 |  |  | $ | 2.31 |  |  | $ | 0.64 | 
|                             | Pro forma   |  | $ | 1.34 |  |  | $ | 0.50 |  |  | $ | 2.27 |  |  | $ | 0.49 | 
|                            
|Diluted net income per share |             |  |   |      |  |  |   |      |  |  |   |      |  |  |   |     
|                             | As reported |  | $ | 1.34 |  |  | $ | 0.57 |  |  | $ | 2.28 |  |  | $ | 0.63 | 
|                             | Pro forma   |  | $ | 1.32 |  |  | $ | 0.50 |  |  | $ | 2.24 |  |  | $ | 0.49 | 

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 options |  |      | 8  years |      |  |      | 8  years |  |  |   | 8  years | 
|Expected forfeitures     |  |      | 16%      |      |  |      | 10%      |  |  |   | 10%      | 

The fair value of options granted in the fourth
quarter of 2003 was $15.7 (2002  $20.1).

12



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11. Post-Retirement/Post-Employment
Expenses

|                               |  |                    |      |                  |  |      |      |      |  |   |       |   |  |   |       |  
|------------------------------ |  | ------------------ | ---- | ---------------- |  | ---- | ---- | ---- |  | - | ----- | - |  | - | ----- | -
|                               |  |                    |      |                 
|                               |  | Three Months Ended |      | Six Months Ended
|                               |  | June 30            |      | June 30         
|                               |  | 2004               |      | 2003             |  | 2004 |      | 2003
|                              
|                              
|Pension Plans                  |  |                    |      |                  |  |      |      |      |  |   |       |   |  |   |       |  
|Service cost                   |  | $                  | 3.5  |                  |  | $    | 3.0  |      |  | $ | 7.0   |   |  | $ | 6.0   |  
|Interest cost                  |  |                    | 7.5  |                  |  |      | 7.4  |      |  |   | 15.0  |   |  |   | 14.8  |  
|Expected return on plan assets |  |                    | (8.4 | )                |  |      | (7.6 | )    |  |   | (16.8 | ) |  |   | (15.2 | )
|Net amortization               |  |                    | 1.1  |                  |  |      | 1.3  |      |  |   | 2.2   |   |  |   | 2.6   |  
|                              
|Net expense                    |  | $                  | 3.7  |                  |  | $    | 4.1  |      |  | $ | 7.4   |   |  | $ | 8.2   |  
|                              

|                            |  |                    |     |                  |  |      |     |      |  |   |      |  |  |   |      | 
|--------------------------- |  | ------------------ | --- | ---------------- |  | ---- | --- | ---- |  | - | ---- |  |  | - | ---- | 
|                            |  |                    |     |                 
|                            |  | Three Months Ended |     | Six Months Ended
|                            |  | June 30            |     | June 30         
|                            |  | 2004               |     | 2003             |  | 2004 |     | 2003
|                           
|                           
|Other Post-Retirement Plans |  |                    |     |                  |  |      |     |      |  |   |      |  |  |   |      | 
|Service cost                |  | $                  | 1.4 |                  |  | $    | 1.4 |      |  | $ | 2.8  |  |  | $ | 2.8  | 
|Interest cost               |  |                    | 3.5 |                  |  |      | 3.2 |      |  |   | 7.0  |  |  |   | 6.4  | 
|Net amortization            |  |                    | 0.4 |                  |  |      | 0.5 |      |  |   | 0.8  |  |  |   | 1.0  | 
|                           
|Net expense                 |  | $                  | 5.3 |                  |  | $    | 5.1 |      |  | $ | 10.6 |  |  | $ | 10.2 | 
|                           

Pension plan contributions to be paid by the
company during 2004 are not expected to differ significantly
from the amounts previously disclosed in the consolidated
financial statements for the year ended December 31, 2003.

12. 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.

13. 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 during the
first six months of 2004.

Mining Risk

In common with other companies in the industry,
the company is unable to acquire insurance for underground
assets.

Investment in APC

The terms of a shareholders agreement with Jordan
Investment Company (JIC) 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 Arab
Potash Company (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.

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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.

14. 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
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 June 30, 2004, the
maximum potential amount of future (undiscounted) payments under
significant guarantees provided to third parties approximated
$88.4, 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 June 30, 2004, 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 and cash margin requirements
of approximately $24.7 to maintain derivatives, which are
included in accounts payable and accrued charges.

Refer to Note 29 of our 2003 Annual Report
for a description of other guarantees relating to the company.
There have been no significant changes to these guarantees
during the first six months of 2004, other than the annual
automatic renewal of the letter of credit posted by the company
in respect of the Province of Saskatchewans potash
decommissioning and reclamation financial assurance requirements.

15. 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 (SEC), the effect
of these principal differences on the companys interim
consolidated financial statements is described and quantified
below. For a complete discussion of Canadian and US GAAP
differences, see Note 34 to the consolidated financial
statements for the year ended December 31, 2003 in our 2003
Annual Report.

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).

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.

14



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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.

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 this, a
difference between Canadian and US GAAP has been recorded
for the effects of recognizing a pension valuation allowance and
the changes therein under Canadian GAAP.

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 Operations and
Consolidated Statements of Cash Flow to be translated at
applicable weighted-average exchange rates; whereas, the
Consolidated Statements of Financial Position were permitted to
be translated at the December 31, 1994 year-end exchange
rate. The use of disparate exchange rates under US GAAP
gave rise to a foreign currency translation adjustment. Under
US GAAP, this adjustment is reported as a component of
accumulated OCI.

Derivative instruments and hedging activities:Under Canadian GAAP, income and
expenses on derivative instruments designated as and qualifying
as effective fair value hedges or cash flow hedges are
recognized in earnings in the same period as the related hedged
item. Gains or losses arising from settled natural gas 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. Derivatives associated with
ineffective hedging relationships and hedges not designated in a
hedging relationship are carried at fair value on the
Consolidated Statement of Financial Position, and subsequent
changes in their fair value are recorded in earnings. In
accordance with SFAS No. 133 Accounting for
Derivative Instrument and Hedging Activities and its
related interpretations and amendments under US GAAP, the
company records all derivatives as either assets or liabilities
on the Consolidated Statements of Financial Position and
measures those instruments at fair value. For derivatives that
are designated as and qualify as effective cash flow hedges, the
portion of gain or loss on the derivative instrument effective
at offsetting changes in the hedged item is reported as a
component of accumulated OCI and reclassified into earnings as
cost of goods sold when the hedged transaction affects earnings.
For derivative instruments that are designated as and qualify as
effective fair value hedges, the gain or loss on the derivative
instrument as well as the offsetting gain or loss on the hedged
item attributable to the hedged risk is recognized in earnings
as interest expense in the period the changes in fair value
occur. Ineffective portions of cash flow or fair value hedges
are recorded in earnings in the current period. Derivatives not
designated as hedging instruments are marked to market through
earnings in the period the changes in fair value occur.

Freight, transportation and distribution:The company has changed its accounting
policy regarding consolidated financial statement presentation
of freight costs and transportation and distribution expenses
under US GAAP. In prior years, the company included freight
costs in cost of goods sold and transportation and distribution
expenses in operating expenses under US GAAP. Effective
January 1, 2004, the company discloses freight costs and
transportation and distribution expenses under US GAAP as
separate line items within gross margin on the Consolidated
Statements of Operations and Retained Earnings. This presentation

15



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is consistent with the new Canadian GAAP
presentation described in Note 2. All comparative
information has been appropriately reclassified.


Depreciation and amortization:Depreciation and amortization under
Canadian GAAP is higher than under US GAAP, as a result of
differences in the carrying amounts of property, plant and
equipment under Canadian and US GAAP.

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.

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 income, net
income per share, total assets and shareholders
equity:

|                                                   |                                           |                    |            |      |   |   |            |      |  
|-------------------------------------------------- | ----------------------------------------- | ------------------ | ---------- | ---- | - | - | ---------- | ---- | -
|                                                   |                                           |                   
|                                                   |                                           | Three Months Ended
|                                                   |                                           | June 30           
|                                                   |                                           | 2004               |            | 2003
|                                                  
|                                                  
|                                                   |                                           |                   
|                                                   |                                           | (unaudited)       
|Net income as reported  Canadian GAAP             |                                           | $                  | 72.6       |      |   | $ | 29.9       |     
|Items increasing or decreasing reported net income |                                           |                    |            |      |   |   |            |     
|                                                   | Pre-operating costs                       |                    |            |     |   |   |            | 1.8  |  
|                                                   | Depreciation and amortization             |                    |            | 2.1  |   |   |            | 2.2  |  
|                                                   | Accretion of asset retirement obligations |                    |            |     |   |   |            | (0.9 | )
|                                                   | Future income taxes                       |                    |            | (0.7 | ) |   |            | (1.2 | )
|                                                  
|Net income  US GAAP                               |                                           | $                  | 74.0       |      |   | $ | 31.8       |     
|                                                  
|Weighted average shares outstanding 
    US GAAP  |                                           |                    | 53,523,000 |      |   |   | 52,100,000 |     
|                                                  
|Basic net income per share  US GAAP               |                                           | $                  | 1.38       |      |   | $ | 0.61       |     
|                                                  
|Diluted net income per share 
    US GAAP         |                                           | $                  | 1.36       |      |   | $ | 0.61       |     
|                                                  

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|                                                   |                                           |                  |            |      |   |   |            |      |  
|-------------------------------------------------- | ----------------------------------------- | ---------------- | ---------- | ---- | - | - | ---------- | ---- | -
|                                                   |                                           |                 
|                                                   |                                           | Six Months Ended
|                                                   |                                           | June 30         
|                                                   |                                           | 2004             |            | 2003
|                                                  
|                                                  
|                                                   |                                           |                 
|                                                   |                                           | (unaudited)     
|Net income as reported  Canadian GAAP             |                                           | $                | 123.3      |      |   | $ | 33.1       |     
|Items increasing or decreasing reported net income |                                           |                  |            |      |   |   |            |     
|                                                   | Pre-operating costs                       |                  |            |     |   |   |            | 3.1  |  
|                                                   | Depreciation and amortization             |                  |            | 4.2  |   |   |            | 4.3  |  
|                                                   | Accretion of asset retirement obligations |                  |            | 3.3  |   |   |            | (1.7 | )
|                                                   | Future income taxes                       |                  |            | (2.7 | ) |   |            | (2.2 | )
|                                                  
|Net income  US GAAP                               |                                           | $                | 128.1      |      |   | $ | 36.6       |     
|                                                  
|Weighted average shares outstanding 
    US GAAP  |                                           |                  | 53,433,000 |      |   |   | 52,094,000 |     
|                                                  
|Basic net income per share 
    US GAAP           |                                           | $                | 2.40       |      |   | $ | 0.70       |     
|                                                  
|Diluted net income per share 
    US GAAP         |                                           | $                | 2.37       |      |   | $ | 0.70       |     
|                                                  

|                                                        |                                                                       |             |         |              |   |   |         |        |  
|------------------------------------------------------- | --------------------------------------------------------------------- | ----------- | ------- | ------------ | - | - | ------- | ------ | -
|                                                        |                                                                       | June 30,    |         | December 31,
|                                                        |                                                                       | 2004        |         | 2003        
|                                                       
|                                                       
|                                                        |                                                                       | (unaudited) |         |             
|Total assets as reported  Canadian GAAP                |                                                                       | $           | 4,667.8 |              |   | $ | 4,567.3 |       
|Items increasing (decreasing) reported total
    assets |                                                                       |             |         |              |   |   |         |       
|                                                        | Inventory                                                             |             |         | (2.2         | ) |   |         | (2.7   | )
|                                                        | Available-for-sale securities unrealized holding
    gain             |             |         | 90.5         |   |   |         | 35.0   |  
|                                                        | Fair value of derivative instruments                                  |             |         | 64.5         |   |   |         | 59.8   |  
|                                                        | Property, plant and equipment                                         |             |         | (130.7       | ) |   |         | (134.9 | )
|                                                        | Post-retirement and post-employment benefits                          |             |         | 13.9         |   |   |         | 13.9   |  
|                                                        | Intangible asset relating to additional minimum
    pension liability |             |         | 2.7          |   |   |         | 2.7    |  
|                                                        | Goodwill                                                              |             |         | (46.7        | ) |   |         | (46.7  | )
|                                                       
|Total assets  US GAAP                                  |                                                                       | $           | 4,659.8 |              |   | $ | 4,494.4 |       
|                                                       

|                                                                |                                                                         |             |         |              |   |   |         |        |  
|--------------------------------------------------------------- | ----------------------------------------------------------------------- | ----------- | ------- | ------------ | - | - | ------- | ------ | -
|                                                                |                                                                         | June 30,    |         | December 31,
|                                                                |                                                                         | 2004        |         | 2003        
|                                                               
|                                                               
|                                                                |                                                                         | (unaudited) |         |             
|Total shareholders equity as
    reported  Canadian GAAP      |                                                                         | $           | 2,117.1 |              |   | $ | 1,973.8 |       
|Items increasing (decreasing) reported
    shareholders equity |                                                                         |             |         |              |   |   |         |       
|                                                                | Accumulated other comprehensive income, net of
    related income taxes |             |         | 63.8         |   |   |         | 14.8   |  
|                                                                | Foreign currency translation adjustment                                 |             |         | 20.9         |   |   |         | 20.9   |  
|                                                                | Accretion of asset retirement obligations                               |             |         |             |   |   |         | (3.3   | )
|                                                                | Provision for asset impairment                                          |             |         | (218.0       | ) |   |         | (218.0 | )
|                                                                | Depreciation and amortization                                           |             |         | 40.6         |   |   |         | 36.4   |  
|                                                                | Post-retirement and post-employment benefits                            |             |         | 13.9         |   |   |         | 13.9   |  
|                                                                | Future income taxes                                                     |             |         | 32.0         |   |   |         | 34.7   |  
|                                                               
|Shareholders equity  US GAAP                                  |                                                                         | $           | 2,070.3 |              |   | $ | 1,873.2 |       
|                                                               

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|                               |                                                                              |                  |       |       |   |   |      |       |  
|------------------------------ | ---------------------------------------------------------------------------- | ---------------- | ----- | ----- | - | - | ---- | ----- | -
|                               |                                                                              |                 
|                               |                                                                              | Six Months Ended
|                               |                                                                              | June 30         
|                               |                                                                              | 2004             |       | 2003 
|                              
|                              
|                               |                                                                              |                 
|                               |                                                                              | (unaudited)     
|Net income  US GAAP           |                                                                              | $                | 128.1 |       |   | $ | 36.6 |      
|Other comprehensive income     |                                                                              |                  |       |       |   |   |      |      
|                               | Change in unrealized holding gain on
    available-for-sale securities       |                  |       | 55.5  |   |   |      | 34.1  |  
|                               | Change in gains and losses on derivatives
    designated as cash flow hedges |                  |       | 43.5  |   |   |      | 96.0  |  
|                               | Reclassification to income of gains and losses on
    cash flow hedges       |                  |       | (25.8 | ) |   |      | (55.0 | )
|                               | Future income taxes related to other
    comprehensive income                |                  |       | (24.2 | ) |   |      | (30.0 | )
|                              
|                               | Other comprehensive income, net of related income
    taxes                  |                  |       | 49.0  |   |   |      | 45.1  |  
|                              
|Comprehensive income  US GAAP |                                                                              | $                | 177.1 |       |   | $ | 81.7 |      
|                              

The balances related to each component of
accumulated other comprehensive income, net of related income
taxes, are as follows:

|                                                                   |  |             |       |              |  |   |       |  
|------------------------------------------------------------------ |  | ----------- | ----- | ------------ |  | - | ----- | -
|                                                                   |  | June 30,    |       | December 31,
|                                                                   |  | 2004        |       | 2003        
|                                                                  
|                                                                  
|                                                                   |  | (unaudited) |       |             
|Unrealized gains and losses on available-for-sale
    securities   |  | $           | 59.7  |              |  | $ | 22.6  |  
|Gains and losses on derivatives designated as
    cash flow hedges |  |             | 55.0  |              |  |   | 43.1  |  
|Additional minimum pension liability                               |  |             | (30.0 | )            |  |   | (30.0 | )
|Foreign currency translation adjustment                            |  |             | (20.9 | )            |  |   | (20.9 | )
|                                                                  
|Accumulated other comprehensive
    income  US GAAP               |  | $           | 63.8  |              |  | $ | 14.8  |  
|                                                                  

Supplemental US GAAP
Disclosures

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 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 was effective for the company in the first
quarter, and there was no material impact on its financial
position, results of operations or cash flows from adoption.

In December 2003, the SEC issued Staff Accounting
Bulletin (SAB) No. 104, Revenue
Recognition, which supersedes SAB No. 101. The
primary purpose of SAB No. 104 is to rescind
accounting guidance contained in SAB No. 101 and the
SECs Revenue Recognition in Financial Statements
Frequently Asked Questions and Answers related to multiple
element revenue arrangements. The changes noted in
SAB No. 104 did not have a material impact on the
companys consolidated financial statements.

In December 2003, the Medicare Prescription Drug
Improvement and Modernization Act of 2003 (the Act)
was signed into law. The Act introduces a prescription drug
benefit beginning in 2006 under Medicare (Medicare Part D)
as well as a federal subsidy to sponsors of retiree health care
benefit plans that provide a benefit that is at least
actuarially equivalent to Medicare Part D. At this point,
the companys analysis regarding the impact of the
legislation is preliminary, as it awaits guidance from various
governmental and regulatory agencies concerning the requirements
that must be met to obtain these cost reductions, as well as the
manner in which such savings should be measured. Based on this
preliminary analysis, the company expects that the legislation
will eventually reduce its costs for some of its programs, and
some of the companys retiree medical plans may need to be
modified in order to qualify for beneficial treatment. In May

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2004, FASB Staff Position No. 106-2 was
issued to provide additional guidance on the accounting for the
effects of the Act. The company does not expect the legislation
to have a significant impact on its consolidated financial
statements.


In March 2004, the FASB ratified consensuses
reached by the Emerging Issues Task Force (EITF)
with respect to EITF Issue No. 03-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain
Investments. EITF Issue No. 03-1 addresses
recognition, measurement and disclosure of other-than-temporary
impairment evaluations for securities within the scope of
SFAS 115, Accounting for Certain Investments in Debt
and Equity Securities, and equity securities that are not
subject to the scope of SFAS No. 115 and are not
accounted for under the equity method according to Accounting
Principles Board Opinion No. 18, The Equity Method of
Accounting for Investments in Common Stock. The
recognition and measurement guidance is effective for reporting
periods beginning after June 15, 2004. Disclosures for cost
method investments are required to be included in annual
financial statements prepared for fiscal years ending after
June 15, 2004. The company has determined that its
practices are substantially consistent with the application
guidance of EITF Issue No. 03-1; therefore, adoption is not
expected to have a significant impact on its consolidated
financial statements.

In March 2004, the FASB issued an exposure draft,
Share-Based Payment  an amendment of Statements
No. 123 and 95 that addresses the accounting for
share-based payment transactions in which an enterprise receives
employee services in exchange for (a) equity instruments of
the enterprise or (b) liabilities that are based on the
fair value of the enterprises equity instruments or that
may be settled by the issuance of such equity instruments. The
proposal would eliminate the ability to account for share-based
compensation transactions using APB Opinion No. 25,
Accounting for Stock Issued to Employees, and
generally would require instead that such transactions be
accounted for using a fair-value-based method. The proposal
would be applied prospectively for fiscal years beginning after
December 15, 2004, as if all share-based compensation
awards granted, modified, or settled after December 15,
1994, had been accounted for using the fair-value-based method
of accounting. The company is currently reviewing the proposal
to determine the potential impact, if any, on its consolidated
financial statements.

In June 2004, the FASB issued an exposure draft
of a proposed Statement, Fair Value Measurements to
provide guidance on how to measure the fair value of financial
and non-financial assets and liabilities when required by other
authoritative accounting pronouncements. The proposed statement
attempts to address concerns about the ability to develop
reliable estimates of fair value and inconsistencies in fair
value guidance provided by current US GAAP, by creating a
framework that clarifies the fair value objective and its
application in GAAP. In addition, the proposal expands
disclosures required about the use of fair value to remeasure
assets and liabilities. The standard would be effective for
financial statements issued for fiscal years beginning after
June 15, 2005.

In July 2004, the EITF discussed Issue
No. 04-6, Accounting for Post-Production Stripping
Costs in the Mining Industry. This issue addresses whether
post-production stripping costs should be expensed, deferred and
amortized, or capitalized as inventory costs. Diversity in
practice has arisen because these stripping costs may benefit
both current period production (because removal of the waste is
necessary to extract the material mined in the current period),
as well as benefiting future periods (because the costs
facilitate access to additional minerals to be mined in the
future). The EITF discussed various views and did not reach a
consensus. It has asked the mining industry working group to
further develop the views and make a recommendation.

Available-for-Sale Security

The companys investment in ICL is
classified as available-for-sale. The fair market value of this
investment at June 30, 2004 was $208.9 and the unrealized
holding gain was $116.1.

Stock-based Compensation

Prior to 2003, the company applied the intrinsic
value based method of accounting for its stock option plans
under US GAAP. Effective December 15, 2003, the company
adopted the fair value based method of

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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.
Prospective application of the fair value method did not have an
impact on the first three fiscal quarters of 2003 since the
company did not grant any options during those periods. Since
the companys stock option awards vest over two years, the
compensation cost included in the determination of net income
for the three month and six month periods ended June 30,
2004 and 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 income and net
income per share under US GAAP if the fair value based method
had been applied to all outstanding and unvested awards in each
period.


|                                            |  |                                                                                                                                                    |      |               |      |               |      |      |      |      |       |  |      |   |      |  |      |  
|------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | ------------- | ---- | ------------- | ---- | ---- | ---- | ---- | ----- |  | ---- | - | ---- |  | ---- | -
|                                            |  |                                                                                                                                                    |      |               |      |              
|                                            |  |                                                                                                                                                    |      | Three Months  |      | Six Months   
|                                            |  |                                                                                                                                                    |      | Ended June 30 |      | Ended June 30
|                                            |  |                                                                                                                                                    |      | 2004          |      | 2003          |      | 2004 |      | 2003
|                                           
|                                           
|Net income  as reported under
    US GAAP  |  | $                                                                                                                                                  | 74.0 |               |      | $             | 31.8 |      |      | $    | 128.1 |  |      | $ | 36.6 | 
|Add:                                        |  | Stock-based employee compensation expense
    included in reported net income, net of related tax effects                                          |      |               | 2.2  |               |      |      |     |      |       |  | 4.4  |   |      |  |     |  
|Less:                                       |  | Total stock-based employee compensation expense
    determined under fair value based method for all option awards,
    net of related tax effects |      |               | (3.2 | )             |      |      | (3.7 | )    |       |  | (6.4 | ) |      |  | (7.4 | )
|                                           
|Net income  pro forma under
    US GAAP(1) |  | $                                                                                                                                                  | 73.0 |               |      | $             | 28.1 |      |      | $    | 126.1 |  |      | $ | 29.2 | 
|                                           

|    |                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Compensation expense under the fair value 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.

|                                           |             |  |   |      |  |  |   |      |  |  |   |      |  |  |   |      | 
|------------------------------------------ | ----------- |  | - | ---- |  |  | - | ---- |  |  | - | ---- |  |  | - | ---- | 
|Basic net income per share under US GAAP   |             |  |   |      |  |  |   |      |  |  |   |      |  |  |   |     
|                                           | As reported |  | $ | 1.38 |  |  | $ | 0.61 |  |  | $ | 2.40 |  |  | $ | 0.70 | 
|                                           | Pro forma   |  | $ | 1.36 |  |  | $ | 0.54 |  |  | $ | 2.36 |  |  | $ | 0.56 | 
|                                          
|Diluted net income per share under US GAAP |             |  |   |      |  |  |   |      |  |  |   |      |  |  |   |     
|                                           | As reported |  | $ | 1.36 |  |  | $ | 0.61 |  |  | $ | 2.37 |  |  | $ | 0.70 | 
|                                           | Pro forma   |  | $ | 1.34 |  |  | $ | 0.54 |  |  | $ | 2.33 |  |  | $ | 0.56 | 

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. This process includes attributing
derivatives that are designated as cash flow hedges to floating
rate assets or liabilities or forecasted transactions and
attributing derivatives that are designated as fair value hedges
to fixed rate assets or liabilities. The company also 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.

Cash
Flow Hedges

The company has designated its natural gas
derivative instruments as cash flow hedges. The companys
natural gas purchase strategy is based on diversification of
price for its total gas requirements. The objective is to
acquire a reliable supply of natural gas feedstock and fuel on a
location-adjusted, cost-competitive basis in a manner that
minimizes volatility without undue risk. The company 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

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purchases primarily for its US nitrogen plants.
By policy, except as specifically permitted by the
companys Gas Policy Advisory Committee, the maximum period
for these hedges cannot exceed five years. The company uses
these instruments to reduce price risk, not for speculative
purposes.


The portion of gain or loss on derivative
instruments designated as cash flow hedges that are effective at
offsetting changes in the hedged item is reported as a component
of accumulated OCI and then is reclassified into cost of goods
sold when the product containing the hedged item is sold. Any
hedge ineffectiveness is recorded in cost of goods sold in the
current period. During the quarter, a gain of $15.3 was
recognized in cost of goods sold ($25.8 gain on a
year-to-date basis). Of the deferred gains at quarter-end,
approximately $43.5 will be reclassified to cost of goods sold
within the next 12 months. The fair value of the
companys gas hedging contracts at June 30, 2004 was
$77.1. The ineffectiveness of hedges on existing derivative
instruments for the quarter and year-to-date was not material to
the consolidated financial statements.

Fair
Value Hedges

The company primarily uses interest rate swaps to
manage the interest rate mix of the total debt portfolio and
related overall cost of borrowing. In January and February 2004,
the company entered into interest rate swap agreements with
total notional amounts of $300.0, whereby the company, over the
remaining terms of the underlying notes, will receive a fixed
rate payment equivalent to the fixed interest rate of the
underlying note and pay a floating rate of interest that is
based on six-month US dollar LIBOR. The fair value of the swaps
outstanding at June 30, 2004 was a liability of $12.6. All
interest rate swaps qualify for the shortcut method of hedge
accounting, thus there is no ineffectiveness related to these
hedges. Changes in the fair value of derivatives that hedge
interest rate risk are recorded in interest expense each period.
The offsetting changes in the fair values of the related debt
are also recorded in interest expense. The company does not
maintain any other fair value hedges.

16. Comparative Figures

Certain of the prior periods figures have
been reclassified to conform with the current periods
presentation.

17. Subsequent Events

On July 21, 2004, the Board of Directors of
PCS approved a split of the companys outstanding common
shares on a two-for-one basis. The stock split is to be effected
in the form of a stock dividend of one additional common share
for each share owned by shareholders of record at the close of
business on August 11, 2004. The companys common
shares are expected to commence trading on a split basis on
August 9, 2004 on the Toronto Stock Exchange and
August 18, 2004 on the New York Stock Exchange. All
equity-based benefit plans will be adjusted to reflect the
issuance of additional shares or options due to the declaration
of the stock split. All share and per-share data for future
periods will reflect the stock split.

On July 21, 2004, PCSs Board of
Directors also declared a quarterly cash dividend of
US $0.15 per common share (on a post-split basis)
payable November 15, 2004 to shareholders of record at the
close of business on October 25, 2004. This amount
represents a 20-percent increase in the companys quarterly
cash dividend.

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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS
    OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 and, prior to
its publication, approves, pursuant to the authority delegated
to it by the Board of Directors, this disclosure. 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. Additional
information relating to the company, including our Annual Report
on Form 10-K, can be found on SEDAR at www.sedar.com and on
EDGAR at www.sec.gov/edgar.shtml.

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.

Potash, phosphate and nitrogen are also used as
inputs for the production 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.

POTASHCORP VISION

We see PotashCorp as a long-term business
enterprise and we aim 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. 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.

POTASHCORP STRATEGY

PotashCorps strategy is based on our
commitment to seek earnings growth and quality. 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 becoming 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.

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.

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

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outperform at both ends of the cycle. Our 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.


In our 2003 Annual Report, we identified four key
performance drivers for the company: (i) value and
valuation, (ii) gross margin, (iii) supplier of
choice, and (iv) stakeholder engagement. Each key
performance driver has an associated annual measurement target.
Our interim performance relating to key financial measures,
including gross margin and earnings growth, is provided in the
section titled Financial Overview below.

FINANCIAL OVERVIEW

This discussion and analysis is based on the
companys unaudited interim consolidated financial
statements reported under generally accepted accounting
principles in Canada (Canadian GAAP). These
principles differ in certain significant respects from
accounting principles generally accepted in the United States.
These differences are described and quantified in Note 15
to the unaudited interim consolidated financial statements
included in Item 1 of this Quarterly Report on
Form 10-Q. All references to per-share amounts pertain to
diluted net income 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. Note that as discussed
below in the section titled Subsequent Events, the
Board of Directors of PCS has approved a split of the
companys outstanding common shares in the form of a stock
dividend. All share amounts presented here are on a pre-stock
split basis. All amounts in dollars are expressed as US dollars
unless otherwise indicated.

Effective January 1, 2004, the company
prospectively adopted new accounting requirements of the
Canadian Institute of Chartered Accountants (CICA)
as issued in Section 1100, Generally Accepted
Accounting Principles, as described in Note 2 to the
unaudited interim consolidated financial statements. In light of
the new provisions, the company changed the consolidated
financial statement presentation of sales revenue, freight costs
and transportation and distribution expenses, without any effect
on gross margin or net income. All comparative information has
been appropriately reclassified. In prior years, the company
reported sales revenues (net of discounts, and including amounts
recoverable from customers for freight, transportation and
distribution) net of related freight, transportation and
distribution expenses. The company now reports sales revenues
(net of discounts, and including amounts recoverable from
customers for freight, transportation and distribution), freight
costs, and transportation and distribution expenses as separate
line items on the Consolidated Statements of Operations and
Retained Earnings.

Earnings Guidance Review

The companys guidance for earnings per
share for second-quarter 2004 was in the range of $0.70 to
$0.90, and was updated in June to reflect expectations of
earnings of more than $1.00 before consideration of foreign
exchange translation gains. The final result was net income of
$72.6 million, or $1.34 per share. The increase in earnings
was largely due to higher potash prices and record
second-quarter sales volumes in the potash domestic market.
Additionally, our earnings guidance anticipated a strong
Canadian dollar of 1.2924 during the second quarter; however,
the actual average exchange rate impacting Canadian dollar
operating costs for the quarter was 1.3497, and the quarter-end
exchange rate was 1.3404.

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Overview of Actual Results

|                                              |  |                            |       |                          |  |        |       |        |  |      |      |      |  |        |     |        |  |   |         |  |  |   |         |  |  |   |       |  |  |  |     | 
|--------------------------------------------- |  | -------------------------- | ----- | ------------------------ |  | ------ | ----- | ------ |  | ---- | ---- | ---- |  | ------ | --- | ------ |  | - | ------- |  |  | - | ------- |  |  | - | ----- |  |  |  | --- | 
|                                              |  |                            |       |                         
|                                              |  | Three Months Ended June 30 |       | Six Months Ended June 30
|                                             
|                                             
|                                              |  | Dollar                     |       | %                        |  |        |       | Dollar |  | %   
|(Dollars millions  except per-share amounts) |  | 2004                       |       | 2003                     |  | Change |       | Change |  | 2004 |      | 2003 |  | Change |     | Change
|                                             
|                                             
|Sales                                         |  | $                          | 833.7 |                          |  | $      | 745.0 |        |  | $    | 88.7 |      |  |        | 12  |        |  | $ | 1,562.1 |  |  | $ | 1,406.8 |  |  | $ | 155.3 |  |  |  | 11  | 
|Freight                                       |  |                            | 68.9  |                          |  |        | 60.5  |        |  |      | 8.4  |      |  |        | 14  |        |  |   | 127.0   |  |  |   | 124.9   |  |  |   | 2.1   |  |  |  | 2   | 
|Transportation and Distribution               |  |                            | 31.3  |                          |  |        | 27.5  |        |  |      | 3.8  |      |  |        | 14  |        |  |   | 54.3    |  |  |   | 50.5    |  |  |   | 3.8   |  |  |  | 8   | 
|Cost of Goods Sold                            |  |                            | 562.8 |                          |  |        | 534.7 |        |  |      | 28.1 |      |  |        | 5   |        |  |   | 1,086.1 |  |  |   | 1,028.0 |  |  |   | 58.1  |  |  |  | 6   | 
|                                             
|Gross Margin                                  |  | $                          | 170.7 |                          |  | $      | 122.3 |        |  | $    | 48.4 |      |  |        | 40  |        |  | $ | 294.7   |  |  | $ | 203.4   |  |  | $ | 91.3  |  |  |  | 45  | 
|                                             
|Operating Income                              |  | $                          | 129.2 |                          |  | $      | 73.1  |        |  | $    | 56.1 |      |  |        | 77  |        |  | $ | 227.0   |  |  | $ | 97.8    |  |  | $ | 129.2 |  |  |  | 132 | 
|                                             
|Net Income                                    |  | $                          | 72.6  |                          |  | $      | 29.9  |        |  | $    | 42.7 |      |  |        | 143 |        |  | $ | 123.3   |  |  | $ | 33.1    |  |  | $ | 90.2  |  |  |  | 273 | 
|                                             
|Net Income Per Share  Basic                  |  | $                          | 1.36  |                          |  | $      | 0.57  |        |  | $    | 0.79 |      |  |        | 139 |        |  | $ | 2.31    |  |  | $ | 0.64    |  |  | $ | 1.67  |  |  |  | 261 | 
|                                             
|Net Income Per Share  Diluted                |  | $                          | 1.34  |                          |  | $      | 0.57  |        |  | $    | 0.77 |      |  |        | 135 |        |  | $ | 2.28    |  |  | $ | 0.63    |  |  | $ | 1.65  |  |  |  | 262 | 
|                                             

US farmers had excellent spring conditions
that allowed planting to start early and proceed at a record
pace. However, even a bumper crop will not be able to meet world
demand projections. Grain consumption is expected to outpace
production for the sixth straight year and drive the
worlds grain stocks-to-use ratio to its lowest level on
record. This is happening as the population in many developing
nations is growing and gaining economic strength, creating
demand for more and better food. That is driving up prices for
many crop commodities in international markets and sparking
demand for fertilizer at a time when a weaker US dollar
internationally is facilitating a healthy trade environment.

Second quarter net income was $72.6 million,
or $1.34 per share, the companys highest quarterly
earnings in more than five years. This compares to $0.57 per
diluted share in last years second quarter, an increase of
135 percent. The increased earnings were primarily driven
by a 40 percent increase in gross margin to
$170.7 million. Potash, the foundation of the
companys business and the focus of its long-term growth
strategy, doubled its gross margin from second quarter 2003 and
provided over 70 percent of the quarters total. On a
year-to-date basis, net income increased $90.2 million, led
by a $91.3 million increase in gross margin. Potash
contributed $78.0 million to the year-over-year margin
growth.

Better potash prices and volumes were the two
main contributors to the second-quarter performance as the
company benefited from improving fundamentals in the fertilizer
industry. After an extended down cycle that can be traced back
almost six years, global conditions that include low grain
inventories, higher commodity prices and an increase in acres
planted helped strengthen fertilizer consumption and prices.
With potash competitors operating at or close to capacity,
potash prices were at their highest level in over 20 years,
and the company was a primary beneficiary of these improved
market conditions. Overall potash sales volumes and prices
increased 23 percent and 18 percent, respectively, on
a quarter-over-quarter basis. Volumes and prices both increased
14 percent year over year. Given higher operating rates,
product costs remained relatively flat despite a significantly
stronger Canadian to US dollar average exchange rate
compared to second-quarter and year-to-date 2003.

Conditions in phosphate improved in the second
quarter, contributing $5.7 million to gross margin, up from
a loss of $1.0 million in last years same quarter.
Sales volumes and sales prices on a delivered basis increased
7 percent and 5 percent, respectively, on a
quarter-over-quarter basis and by 9 percent and
5 percent, respectively, year over year. However, cost of
sales per tonne increased by 2 percent from last
years same quarter and by 4 percent for the six-month
period.

Nitrogen gross margin contributed
$43.6 million during the quarter, although this fell short
of last years second-quarter gross margin of
$62.6 million. The companys natural gas hedging
activities contributed $15.3 million to second-quarter
gross margin compared to $28.0 million in last years
same quarter. Despite 16-percent lower sales volumes on a
year-to-date basis, nitrogen gross margin grew to
$101.8 million from $92.4 million, principally due to
an 18-percent increase in average realized prices.

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Expenses declined by $7.7 million for the
quarter and $37.9 million for the first six months as
compared to the prior year. Provincial Mining and Other Taxes
increased by $14.5 million on a quarter-over-quarter basis
and $11.5 million year over year as a result of an increase
in sales volumes, as well as an increase in price and profit per
tonne. The Canadian dollar exchange rate compared to the
US dollar started the year at 1.2924, ended the first
quarter at 1.3105 and ended the second quarter at 1.3404; last
years exchange rates were 1.5796, 1.4693 and 1.3553 over
comparable periods. The weakening of the Canadian dollar created
favorable changes in foreign exchange of $32.3 million
quarter over quarter and $57.4 million year over year,
arising principally from currency translation of Canadian dollar
denominated monetary assets and liabilities. The company also
recorded a further writedown relating to PCS Yumbes of
$5.9 million during the quarter.

Total assets were $4,667.8 million at
June 30, 2004, up $100.5 million, or 2 percent,
from December 31, 2003. This increase resulted primarily
from significant cash balances generated from operations, offset
in part by depreciation and amortization of the companys
long-lived assets.

Business Segment Review

Note 9 to the unaudited interim consolidated
financial statements provides information pertaining to our
business segments. Management includes net sales in its segment
disclosures in the notes to the consolidated financial
statements pursuant to CICA Section 1701 Segment
Disclosures. This standard is founded on a management
approach, which requires segmentation based upon our internal
organization and reporting of revenue and profit measures
derived from internal accounting methods. Net sales (and the
related per tonne amounts) are primary revenue measures used and
reviewed by the companys management in making decisions
about operating matters on a business segment basis. These
decisions include assessments about potash, phosphate and
nitrogen performance and the resources to be allocated to these
segments. Management also uses net sales (and the related per
tonne amounts) for business planning and monthly forecasting
purposes. Net sales are calculated as sales revenues less
freight, transportation and distribution expenses. The
discussion and analysis below is based on the segment measures
used and reviewed by management.

Potash

|                                |                |                            |       |                    |  |                      |       |       |  |      |     |        |   |      |       |       |  |        |       |       |  |  |    |    |  |   |        |        |  |   |       |       |  |  |    |    | 
|------------------------------- | -------------- | -------------------------- | ----- | ------------------ |  | -------------------- | ----- | ----- |  | ---- | --- | ------ | - | ---- | ----- | ----- |  | ------ | ----- | ----- |  |  | -- | -- |  | - | ------ | ------ |  | - | ----- | ----- |  |  | -- | -- | 
|                                |                |                           
|                                |                | Three Months Ended June 30
|                               
|                               
|                                |                |                            |       |                    |  |                     
|                                |                | Dollars (millions)         |       | Tonnes (thousands) |  | Average Price per MT
|                               
|                               
|                                |                | %                          |       |                    |  | %                    |       |       |  | %   
|                                |                | 2004                       |       | 2003               |  | Change               |       | 2004  |  | 2003 |     | Change |   | 2004 |       | 2003  |  | Change
|                               
|                               
|Sales                           |                | $                          | 316.4 |                    |  | $                    | 219.7 |       |  |      | 44  |        |   |      |       |       |  |        |       |       |  |  |    |    |  |   |        |        |  |   |       |       |  |  |    |   
|Freight                         |                |                            | 41.2  |                    |  |                      | 30.3  |       |  |      | 36  |        |   |      |       |       |  |        |       |       |  |  |    |    |  |   |        |        |  |   |       |       |  |  |    |   
|Transportation and distribution |                |                            | 12.5  |                    |  |                      | 8.3   |       |  |      | 51  |        |   |      |       |       |  |        |       |       |  |  |    |    |  |   |        |        |  |   |       |       |  |  |    |   
|                               
|                                |                | $                          | 262.7 |                    |  | $                    | 181.1 |       |  |      | 45  |        |   |      |       |       |  |        |       |       |  |  |    |    |  |   |        |        |  |   |       |       |  |  |    |   
|                               
|Net Sales                       |                |                            |       |                    |  |                      |       |       |  |      |     |        |   |      |       |       |  |        |       |       |  |  |    |    |  |   |        |        |  |   |       |       |  |  |    |   
|                                | North American |                            | $     | 117.5              |  |                      | $     | 66.9  |  |      |     | 76     |   |      |       | 1,119 |  |        |       | 825   |  |  |    | 36 |  |   | $      | 104.99 |  |   | $     | 81.06 |  |  |    | 30 | 
|                                | Offshore       |                            |       | 138.2              |  |                      |       | 104.0 |  |      |     | 33     |   |      |       | 1,474 |  |        |       | 1,288 |  |  |    | 14 |  |   | $      | 93.77  |  |   | $     | 80.75 |  |  |    | 16 | 
|                               
|                                |                |                            | 255.7 |                    |  |                      | 170.9 |       |  |      | 50  |        |   |      | 2,593 |       |  |        | 2,113 |       |  |  | 23 |    |  | $ | 98.61  |        |  | $ | 80.87 |       |  |  | 22 |   
|                                | Miscellaneous  |                            |       | 7.0                |  |                      |       | 10.2  |  |      |     | (31    | ) |      |       |      |  |        |       |      |  |  |    |   |  |   |        |       |  |   |       |      |  |  |    |   | 
|                               
|                                |                |                            | 262.7 |                    |  |                      | 181.1 |       |  |      | 45  |        |   |      | 2,593 |       |  |        | 2,113 |       |  |  | 23 |    |  | $ | 101.31 |        |  | $ | 85.71 |       |  |  | 18 |   
|Cost of goods sold              |                |                            | 141.3 |                    |  |                      | 120.4 |       |  |      | 17  |        |   |      |       |       |  |        |       |       |  |  |    |    |  | $ | 54.49  |        |  | $ | 56.98 |       |  |  | (4 | ) 
|                               
|Gross Margin                    |                | $                          | 121.4 |                    |  | $                    | 60.7  |       |  |      | 100 |        |   |      |       |       |  |        |       |       |  |  |    |    |  | $ | 46.82  |        |  | $ | 28.73 |       |  |  | 63 |   
|                               

25



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##### Table of Contents



|                                |                |                          |       |                    |  |                      |       |       |  |      |    |        |   |      |       |       |  |        |       |       |  |  |    |    |  |   |       |        |  |   |       |       |  |  |    |    | 
|------------------------------- | -------------- | ------------------------ | ----- | ------------------ |  | -------------------- | ----- | ----- |  | ---- | -- | ------ | - | ---- | ----- | ----- |  | ------ | ----- | ----- |  |  | -- | -- |  | - | ----- | ------ |  | - | ----- | ----- |  |  | -- | -- | 
|                                |                |                         
|                                |                | Six Months Ended June 30
|                               
|                               
|                                |                |                          |       |                    |  |                     
|                                |                | Dollars (millions)       |       | Tonnes (thousands) |  | Average Price per MT
|                               
|                               
|                                |                | %                        |       |                    |  | %                    |       |       |  | %   
|                                |                | 2004                     |       | 2003               |  | Change               |       | 2004  |  | 2003 |    | Change |   | 2004 |       | 2003  |  | Change
|                               
|                               
|Sales                           |                | $                        | 540.1 |                    |  | $                    | 420.9 |       |  |      | 28 |        |   |      |       |       |  |        |       |       |  |  |    |    |  |   |       |        |  |   |       |       |  |  |    |   
|Freight                         |                |                          | 74.7  |                    |  |                      | 63.0  |       |  |      | 19 |        |   |      |       |       |  |        |       |       |  |  |    |    |  |   |       |        |  |   |       |       |  |  |    |   
|Transportation and distribution |                |                          | 21.2  |                    |  |                      | 16.3  |       |  |      | 30 |        |   |      |       |       |  |        |       |       |  |  |    |    |  |   |       |        |  |   |       |       |  |  |    |   
|                               
|                                |                | $                        | 444.2 |                    |  | $                    | 341.6 |       |  |      | 30 |        |   |      |       |       |  |        |       |       |  |  |    |    |  |   |       |        |  |   |       |       |  |  |    |   
|                               
|Net Sales                       |                |                          |       |                    |  |                      |       |       |  |      |    |        |   |      |       |       |  |        |       |       |  |  |    |    |  |   |       |        |  |   |       |       |  |  |    |   
|                                | North American |                          | $     | 191.6              |  |                      | $     | 129.3 |  |      |    | 48     |   |      |       | 1,901 |  |        |       | 1,654 |  |  |    | 15 |  |   | $     | 100.78 |  |   | $     | 78.18 |  |  |    | 29 | 
|                                | Offshore       |                          |       | 229.5              |  |                      |       | 188.5 |  |      |    | 22     |   |      |       | 2,640 |  |        |       | 2,327 |  |  |    | 13 |  |   | $     | 86.93  |  |   | $     | 81.00 |  |  |    | 7  | 
|                               
|                                |                |                          | 421.1 |                    |  |                      | 317.8 |       |  |      | 33 |        |   |      | 4,541 |       |  |        | 3,981 |       |  |  | 14 |    |  | $ | 92.73 |        |  | $ | 79.83 |       |  |  | 16 |   
|                                | Miscellaneous  |                          |       | 23.1               |  |                      |       | 23.8  |  |      |    | (3     | ) |      |       |      |  |        |       |      |  |  |    |   |  |   |       |       |  |   |       |      |  |  |    |   | 
|                               
|                                |                |                          | 444.2 |                    |  |                      | 341.6 |       |  |      | 30 |        |   |      | 4,541 |       |  |        | 3,981 |       |  |  | 14 |    |  | $ | 97.82 |        |  | $ | 85.81 |       |  |  | 14 |   
|Cost of goods sold              |                |                          | 256.1 |                    |  |                      | 231.5 |       |  |      | 11 |        |   |      |       |       |  |        |       |       |  |  |    |    |  | $ | 56.40 |        |  | $ | 58.15 |       |  |  | (3 | ) 
|                               
|Gross Margin                    |                | $                        | 188.1 |                    |  | $                    | 110.1 |       |  |      | 71 |        |   |      |       |       |  |        |       |       |  |  |    |    |  | $ | 41.42 |        |  | $ | 27.66 |       |  |  | 50 |   
|                               

The doubling of potash gross margin compared to
the same quarter last year is a result of significant increases
in both realized prices and sales volumes domestically and
offshore.

Sales increased $96.7 million and net sales
increased $81.6 million quarter over quarter. In the
domestic market, sales volumes increased 36 percent to a
record 1.119 million tonnes compared to last years
second quarter, contributing $23.5 million to the net sales
growth. Domestic prices climbed 30 percent over last
years second quarter due to price list increases sustained
from July 2003, September 2003, February 2004 and May 2004,
resulting in a favorable price variance of $27.1 million.
The increase in volumes was principally due to more acres
planted to fertilizer intensive crops, higher application rates
and dealers filling in advance of further price increases. In
addition, the company was able to capitalize on the fact that
some of its competitors were sold out of product. On a
year-over-year basis, domestic net sales increased from
$129.3 million to $191.6 million. The strong
second-quarter domestic volumes offset the 6 percent drop
experienced in the first quarter, and realized prices remained
29 percent higher than the prior year due to the four
above-mentioned price list increases.

Saskatchewan-sourced offshore sales volumes rose
23 percent quarter over quarter, driven by a record second
quarter for Canpotex. Canpotex shipped over 900,000 tonnes
on behalf of Saskatchewans potash producers in June alone.
Previously announced price increases took effect during the
quarter, and the high first-quarter ocean freight rates began to
decline. This resulted in realized Saskatchewan-sourced offshore
prices increasing 16 percent and favorably impacting net
sales by $15.8 million. Resolution of rail car supply and
rail power issues experienced in the first quarter improved
potash movement to the port in Vancouver. Sales volumes to
Brazil, China, Malaysia and Indonesia remained strong as high
prices for crops such as soybeans and palm oil continued to
drive demand for potash. New Brunswick offshore net sales also
increased 2 percent quarter over quarter, mostly
attributable to a 22-percent increase in realized prices. For
the six months, offshore net sales increased $41.0 million,
led by a 22-percent increase in Saskatchewan-sourced volumes
compared to same period last year. This volume increase
favorably impacted net sales by $31.2 million.

The growth in volumes allowed the company to
begin to capitalize on economies of scale. During the quarter,
the company produced 2.2 million tonnes of potash, or
7 percent more than the same quarter last year. The higher
operating rate to meet sales demand, combined with lower natural
gas costs and pulling potash from our larger mines, reduced
operating costs. This was offset by a stronger Canadian dollar,
which negatively affected costs by approximately $7.24 per tonne
in the first quarter and $3.80 per tonne in the second quarter
compared to the same periods last year.

The company incurred a margin loss of
$4.6 million at its PCS Yumbes operations in Chile during
the quarter (2003  $4.9 million). This loss was
higher than expected due to production problems. The company

26



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##### Table of Contents



does not anticipate any further significant
losses or provisions relating to this operation as it prepares
for closing the sale to Sociedad Quimica y Minera de Chile S.A.
(SQM) later this year.


Phosphate

|                                |                      |                            |       |                    |  |                      |       |       |  |      |     |        |   |      |     |      |  |        |     |     |  |  |   |     |   |   |        |        |  |   |        |        |  |  |     |    |  
|------------------------------- | -------------------- | -------------------------- | ----- | ------------------ |  | -------------------- | ----- | ----- |  | ---- | --- | ------ | - | ---- | --- | ---- |  | ------ | --- | --- |  |  | - | --- | - | - | ------ | ------ |  | - | ------ | ------ |  |  | --- | -- | -
|                                |                      |                           
|                                |                      | Three Months Ended June 30
|                               
|                               
|                                |                      |                            |       |                    |  |                     
|                                |                      | Dollars (millions)         |       | Tonnes (thousands) |  | Average Price per MT
|                               
|                               
|                                |                      | %                          |       |                    |  | %                    |       |       |  | %   
|                                |                      | 2004                       |       | 2003               |  | Change               |       | 2004  |  | 2003 |     | Change |   | 2004 |     | 2003 |  | Change
|                               
|                               
|Sales                           |                      | $                          | 236.9 |                    |  | $                    | 214.3 |       |  |      | 11  |        |   |      |     |      |  |        |     |     |  |  |   |     |   |   |        |        |  |   |        |        |  |  |     |   
|Freight                         |                      |                            | 16.1  |                    |  |                      | 17.5  |       |  |      | (8  | )      |   |      |     |      |  |        |     |     |  |  |   |     |   |   |        |        |  |   |        |        |  |  |     |   
|Transportation and distribution |                      |                            | 7.4   |                    |  |                      | 7.1   |       |  |      | 4   |        |   |      |     |      |  |        |     |     |  |  |   |     |   |   |        |        |  |   |        |        |  |  |     |   
|                               
|                                |                      | $                          | 213.4 |                    |  | $                    | 189.7 |       |  |      | 12  |        |   |      |     |      |  |        |     |     |  |  |   |     |   |   |        |        |  |   |        |        |  |  |     |   
|                               
|Net Sales                       |                      |                            |       |                    |  |                      |       |       |  |      |     |        |   |      |     |      |  |        |     |     |  |  |   |     |   |   |        |        |  |   |        |        |  |  |     |   
|                                | Fertilizer  liquids |                            | $     | 30.8               |  |                      | $     | 37.6  |  |      |     | (18    | ) |      |     | 143  |  |        |     | 170 |  |  |   | (16 | ) |   | $      | 214.66 |  |   | $      | 221.57 |  |  |     | (3 | )
|                                | Fertilizer  solids  |                            |       | 86.0               |  |                      |       | 60.5  |  |      |     | 42     |   |      |     | 427  |  |        |     | 354 |  |  |   | 21  |   |   | $      | 201.68 |  |   | $      | 171.04 |  |  |     | 18 |  
|                                | Feed                 |                            |       | 43.7               |  |                      |       | 44.4  |  |      |     | (2     | ) |      |     | 207  |  |        |     | 206 |  |  |   |    |   |   | $      | 211.02 |  |   | $      | 215.03 |  |  |     | (2 | )
|                                | Industrial           |                            |       | 50.3               |  |                      |       | 45.0  |  |      |     | 12     |   |      |     | 154  |  |        |     | 138 |  |  |   | 12  |   |   | $      | 327.22 |  |   | $      | 325.60 |  |  |     |   |  
|                               
|                                |                      |                            | 210.8 |                    |  |                      | 187.5 |       |  |      | 12  |        |   |      | 931 |      |  |        | 868 |     |  |  | 7 |     |   | $ | 226.49 |        |  | $ | 215.97 |        |  |  | 5   |   
|                                | Miscellaneous        |                            |       | 2.6                |  |                      |       | 2.2   |  |      |     | 18     |   |      |     |     |  |        |     |    |  |  |   |    |   |   |        |       |  |   |        |       |  |  |     |   |  
|                               
|                                |                      | $                          | 213.4 |                    |  | $                    | 189.7 |       |  |      | 12  |        |   |      | 931 |      |  |        | 868 |     |  |  | 7 |     |   | $ | 229.25 |        |  | $ | 218.49 |        |  |  | 5   |   
|                               
|                                | North American       |                            | $     | 163.5              |  |                      | $     | 161.4 |  |      |     | 1      |   |      |     | 662  |  |        |     | 696 |  |  |   | (5  | ) |   | $      | 243.13 |  |   | $      | 228.70 |  |  |     | 6  |  
|                                | Offshore             |                            |       | 49.9               |  |                      |       | 28.3  |  |      |     | 76     |   |      |     | 269  |  |        |     | 172 |  |  |   | 56  |   |   | $      | 185.56 |  |   | $      | 164.49 |  |  |     | 13 |  
|                               
|                                |                      |                            | 213.4 |                    |  |                      | 189.7 |       |  |      | 12  |        |   |      | 931 |      |  |        | 868 |     |  |  | 7 |     |   | $ | 229.25 |        |  | $ | 218.49 |        |  |  | 5   |   
|Cost of goods sold              |                      |                            | 207.7 |                    |  |                      | 190.7 |       |  |      | 9   |        |   |      |     |      |  |        |     |     |  |  |   |     |   | $ | 223.13 |        |  | $ | 219.64 |        |  |  | 2   |   
|                               
|Gross Margin                    |                      | $                          | 5.7   |                    |  | $                    | (1.0  | )     |  |      | n/m |        |   |      |     |      |  |        |     |     |  |  |   |     |   | $ | 6.12   |        |  | $ | (1.15  | )      |  |  | n/m |   
|                               
|n/m = not meaningful            |                      |                            |       |                    |  |                      |       |       |  |      |     |        |   |      |     |      |  |        |     |     |  |  |   |     |   |   |        |        |  |   |        |        |  |  |     |   

|                                |                      |                          |       |                    |  |                      |       |       |  |      |     |        |   |      |       |       |  |        |       |       |  |  |   |     |   |   |        |        |  |   |        |        |  |  |     |    |  
|------------------------------- | -------------------- | ------------------------ | ----- | ------------------ |  | -------------------- | ----- | ----- |  | ---- | --- | ------ | - | ---- | ----- | ----- |  | ------ | ----- | ----- |  |  | - | --- | - | - | ------ | ------ |  | - | ------ | ------ |  |  | --- | -- | -
|                                |                      |                         
|                                |                      | Six Months Ended June 30
|                               
|                               
|                                |                      |                          |       |                    |  |                     
|                                |                      | Dollars (millions)       |       | Tonnes (thousands) |  | Average Price per MT
|                               
|                               
|                                |                      | %                        |       |                    |  | %                    |       |       |  | %   
|                                |                      | 2004                     |       | 2003               |  | Change               |       | 2004  |  | 2003 |     | Change |   | 2004 |       | 2003  |  | Change
|                               
|                               
|Sales                           |                      | $                        | 454.5 |                    |  | $                    | 405.4 |       |  |      | 12  |        |   |      |       |       |  |        |       |       |  |  |   |     |   |   |        |        |  |   |        |        |  |  |     |   
|Freight                         |                      |                          | 31.8  |                    |  |                      | 35.4  |       |  |      | (10 | )      |   |      |       |       |  |        |       |       |  |  |   |     |   |   |        |        |  |   |        |        |  |  |     |   
|Transportation and distribution |                      |                          | 12.7  |                    |  |                      | 11.9  |       |  |      | 7   |        |   |      |       |       |  |        |       |       |  |  |   |     |   |   |        |        |  |   |        |        |  |  |     |   
|                               
|                                |                      | $                        | 410.0 |                    |  | $                    | 358.1 |       |  |      | 14  |        |   |      |       |       |  |        |       |       |  |  |   |     |   |   |        |        |  |   |        |        |  |  |     |   
|                               
|Net Sales                       |                      |                          |       |                    |  |                      |       |       |  |      |     |        |   |      |       |       |  |        |       |       |  |  |   |     |   |   |        |        |  |   |        |        |  |  |     |   
|                                | Fertilizer  liquids |                          | $     | 61.5               |  |                      | $     | 79.6  |  |      |     | (23    | ) |      |       | 279   |  |        |       | 346   |  |  |   | (19 | ) |   | $      | 219.87 |  |   | $      | 230.63 |  |  |     | (5 | )
|                                | Fertilizer  solids  |                          |       | 157.4              |  |                      |       | 99.0  |  |      |     | 59     |   |      |       | 782   |  |        |       | 588   |  |  |   | 33  |   |   | $      | 201.33 |  |   | $      | 168.45 |  |  |     | 20 |  
|                                | Feed                 |                          |       | 88.1               |  |                      |       | 91.9  |  |      |     | (4     | ) |      |       | 414   |  |        |       | 438   |  |  |   | (5  | ) |   | $      | 213.10 |  |   | $      | 209.42 |  |  |     | 2  |  
|                                | Industrial           |                          |       | 98.1               |  |                      |       | 84.1  |  |      |     | 17     |   |      |       | 299   |  |        |       | 260   |  |  |   | 15  |   |   | $      | 328.33 |  |   | $      | 323.40 |  |  |     | 2  |  
|                               
|                                |                      |                          | 405.1 |                    |  |                      | 354.6 |       |  |      | 14  |        |   |      | 1,774 |       |  |        | 1,632 |       |  |  | 9 |     |   | $ | 228.35 |        |  | $ | 217.28 |        |  |  | 5   |   
|                                | Miscellaneous        |                          |       | 4.9                |  |                      |       | 3.5   |  |      |     | 40     |   |      |       |      |  |        |       |      |  |  |   |    |   |   |        |       |  |   |        |       |  |  |     |   |  
|                               
|                                |                      | $                        | 410.0 |                    |  | $                    | 358.1 |       |  |      | 14  |        |   |      | 1,774 |       |  |        | 1,632 |       |  |  | 9 |     |   | $ | 231.18 |        |  | $ | 219.44 |        |  |  | 5   |   
|                               
|                                | North American       |                          | $     | 327.1              |  |                      | $     | 315.8 |  |      |     | 4      |   |      |       | 1,331 |  |        |       | 1,378 |  |  |   | (3  | ) |   | $      | 242.02 |  |   | $      | 226.74 |  |  |     | 7  |  
|                                | Offshore             |                          |       | 82.9               |  |                      |       | 42.3  |  |      |     | 96     |   |      |       | 443   |  |        |       | 254   |  |  |   | 74  |   |   | $      | 187.39 |  |   | $      | 166.26 |  |  |     | 13 |  
|                               
|                                |                      |                          | 410.0 |                    |  |                      | 358.1 |       |  |      | 14  |        |   |      | 1,774 |       |  |        | 1,632 |       |  |  | 9 |     |   | $ | 231.18 |        |  | $ | 219.44 |        |  |  | 5   |   
|Cost of goods sold              |                      |                          | 405.2 |                    |  |                      | 357.2 |       |  |      | 13  |        |   |      |       |       |  |        |       |       |  |  |   |     |   | $ | 228.47 |        |  | $ | 218.89 |        |  |  | 4   |   
|                               
|Gross Margin                    |                      | $                        | 4.8   |                    |  | $                    | 0.9   |       |  |      | 433 |        |   |      |       |       |  |        |       |       |  |  |   |     |   | $ | 2.71   |        |  | $ | 0.55   |        |  |  | 393 |   
|                               

In phosphate, our high quality ore enables us to
economically produce specialty products, which are the most
stable area of the phosphate business, and our 2004
second-quarter and first-half results proved the

27



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##### Table of Contents



effectiveness of this strategy. Industrial
products provided $10.1 million gross margin in this
years second quarter; however, this was partially offset
by losses in the other phosphate products, primarily due to
higher costs of ammonia and sulfur.


Phosphate sales increased $22.6 million and
net sales increased $23.7 million quarter over quarter. Higher
sales volumes and average realized prices of DAP and MAP solid
fertilizers favorably impacted net sales by $25.5 million.
Approximately 87,000 more tonnes of dry fertilizer phosphates
were sold into the offshore market compared to second-quarter
2003, largely driven by strong Latin American demand. The
company chose to sell more solid fertilizer offshore to conserve
domestic prices, which led to a 5-percent decline in domestic
volumes. The second quarter increase in DAP and MAP sales tonnes
contributed $16.4 million to the growth in net sales
compared to the same period last year. Higher delivered prices
for both DAP and MAP favorably impacted net sales by
$9.1 million quarter over quarter. On a year-over-year
basis, solid fertilizer net sales increased $58.4 million,
driven principally by offshore volumes more than tripling and
overall realized prices rising by 20 percent. The increase
in volumes resulted mainly from the restart of DAP capacity at
the White Springs Suwannee River plant during first-quarter 2003.

Net sales of liquid fertilizers declined
$6.8 million from the same quarter last year. With liquid
fertilizers oversupplied in the current market, the company
deliberately backed away from low-priced sales, resulting in a
16 percent decrease in sales volumes quarter over quarter,
but only a 3 percent decline in price. On a year-over-year
basis, net sales dropped $18.1 million. The decrease
resulted principally from 19 percent lower sales volumes,
as (i) dealers purchased in late 2003 for 2004s
spring season and (ii) the company consciously decided to
forego unprofitable sales tonnes in the second quarter.

Net sales of feed declined $0.7 million from
last years same quarter. Feed sales volumes were flat and
prices were down 2 percent. Domestically, competition was
heated in a declining market due to additional competitive
capacity; however, this was partially counterbalanced by
incremental sales realized from Coronet Industries, Inc.s
exit from the feed business. First-half 2004 net sales of feed
declined $3.8 million compared to first-half 2003. Sales
volumes during the six-month period declined 5 percent as
the industry faced decreased demand due to tightening feed
formulations and an abundance of meat and bone meal resulting
from restricted exports due to BSE and the avian influenza.

A 12-percent increase in industrial volumes
favorably impacted net sales compared to last years same
quarter, while prices held flat. Year over year, net sales
increased by $14.0 million, chiefly due to the closure of a
competitive facility and more product being available from the
purified acid plant expansion at Aurora that was completed in
the first quarter of 2003.

While overall phosphate prices and volumes were
up over the same quarter last year, product costs continued to
be a challenge. Costs of goods sold increased 2 percent
from second-quarter 2003 and 4 percent from first-half 2003
on a per-tonne basis. Similar to the first three months of the
year, the increase in the second quarter resulted primarily from
higher raw material costs and higher phosphate operating costs.
Quarter over quarter, sulfur costs per tonne increased
3 percent and ammonia costs per tonne increased
8 percent, negatively impacting margins by
$0.9 million and $1.6 million, respectively. Phosphate
rock costs declined 3 percent from last years same
quarter and 4 percent from first-half 2003. Year over year,
sulfur and ammonia input costs per tonne rose 8 percent and
33 percent, respectively, negatively impacting margins by a
total of $17.4 million.

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##### Table of Contents



Nitrogen

|                                |                                  |                            |       |                    |  |                      |       |       |  |      |     |        |   |      |       |      |  |        |       |     |  |  |     |     |   |   |        |        |  |   |        |        |  |  |     |     |  
|------------------------------- | -------------------------------- | -------------------------- | ----- | ------------------ |  | -------------------- | ----- | ----- |  | ---- | --- | ------ | - | ---- | ----- | ---- |  | ------ | ----- | --- |  |  | --- | --- | - | - | ------ | ------ |  | - | ------ | ------ |  |  | --- | --- | -
|                                |                                  |                           
|                                |                                  | Three Months Ended June 30
|                               
|                               
|                                |                                  |                            |       |                    |  |                     
|                                |                                  | Dollars (millions)         |       | Tonnes (thousands) |  | Average Price per MT
|                               
|                               
|                                |                                  | %                          |       |                    |  | %                    |       |       |  | %   
|                                |                                  | 2004                       |       | 2003               |  | Change               |       | 2004  |  | 2003 |     | Change |   | 2004 |       | 2003 |  | Change
|                               
|                               
|Sales                           |                                  | $                          | 280.4 |                    |  | $                    | 311.0 |       |  |      | (10 | )      |   |      |       |      |  |        |       |     |  |  |     |     |   |   |        |        |  |   |        |        |  |  |     |    
|Freight                         |                                  |                            | 11.6  |                    |  |                      | 12.7  |       |  |      | (9  | )      |   |      |       |      |  |        |       |     |  |  |     |     |   |   |        |        |  |   |        |        |  |  |     |    
|Transportation and distribution |                                  |                            | 11.4  |                    |  |                      | 12.1  |       |  |      | (6  | )      |   |      |       |      |  |        |       |     |  |  |     |     |   |   |        |        |  |   |        |        |  |  |     |    
|                               
|                                |                                  | $                          | 257.4 |                    |  | $                    | 286.2 |       |  |      | (10 | )      |   |      |       |      |  |        |       |     |  |  |     |     |   |   |        |        |  |   |        |        |  |  |     |    
|                               
|Net Sales                       |                                  |                            |       |                    |  |                      |       |       |  |      |     |        |   |      |       |      |  |        |       |     |  |  |     |     |   |   |        |        |  |   |        |        |  |  |     |    
|                                | Ammonia                          |                            | $     | 108.8              |  |                      | $     | 108.0 |  |      |     | 1      |   |      |       | 503  |  |        |       | 517 |  |  |     | (3  | ) |   | $      | 216.22 |  |   | $      | 208.86 |  |  |     | 4   |  
|                                | Urea                             |                            |       | 60.8               |  |                      |       | 65.6  |  |      |     | (7     | ) |      |       | 308  |  |        |       | 343 |  |  |     | (10 | ) |   | $      | 197.18 |  |   | $      | 191.14 |  |  |     | 3   |  
|                                | Nitrogen Solutions               |                            |       | 16.6               |  |                      |       | 28.7  |  |      |     | (42    | ) |      |       | 117  |  |        |       | 243 |  |  |     | (52 | ) |   | $      | 142.27 |  |   | $      | 118.36 |  |  |     | 20  |  
|                                | Nitric Acid and Ammonium Nitrate |                            |       | 45.8               |  |                      |       | 40.9  |  |      |     | 12     |   |      |       | 376  |  |        |       | 350 |  |  |     | 7   |   |   | $      | 121.92 |  |   | $      | 116.65 |  |  |     | 5   |  
|                                | Purchased                        |                            |       | 19.6               |  |                      |       | 37.6  |  |      |     | (48    | ) |      |       | 105  |  |        |       | 164 |  |  |     | (36 | ) |   | $      | 187.71 |  |   | $      | 228.70 |  |  |     | (18 | )
|                               
|                                |                                  |                            | 251.6 |                    |  |                      | 280.8 |       |  |      | (10 | )      |   |      | 1,409 |      |  |        | 1,617 |     |  |  | (13 | )   |   | $ | 178.57 |        |  | $ | 173.65 |        |  |  | 3   |    
|                                | Miscellaneous                    |                            |       | 5.8                |  |                      |       | 5.4   |  |      |     | 7      |   |      |       |     |  |        |       |    |  |  |     |    |   |   |        |       |  |   |        |       |  |  |     |    |  
|                               
|                                |                                  | $                          | 257.4 |                    |  | $                    | 286.2 |       |  |      | (10 | )      |   |      | 1,409 |      |  |        | 1,617 |     |  |  | (13 | )   |   | $ | 182.73 |        |  | $ | 176.99 |        |  |  | 3   |    
|                               
|                                | Fertilizer                       |                            | $     | 109.0              |  |                      | $     | 135.0 |  |      |     | (19    | ) |      |       | 590  |  |        |       | 791 |  |  |     | (25 | ) |   | $      | 184.90 |  |   | $      | 170.74 |  |  |     | 8   |  
|                                | Non-fertilizer                   |                            |       | 148.4              |  |                      |       | 151.2 |  |      |     | (2     | ) |      |       | 819  |  |        |       | 826 |  |  |     | (1  | ) |   | $      | 181.17 |  |   | $      | 182.97 |  |  |     | (1  | )
|                               
|                                |                                  |                            | 257.4 |                    |  |                      | 286.2 |       |  |      | (10 | )      |   |      | 1,409 |      |  |        | 1,617 |     |  |  | (13 | )   |   | $ | 182.73 |        |  | $ | 176.99 |        |  |  | 3   |    
|Cost of goods sold              |                                  |                            | 213.8 |                    |  |                      | 223.6 |       |  |      | (4  | )      |   |      |       |      |  |        |       |     |  |  |     |     |   | $ | 151.79 |        |  | $ | 138.28 |        |  |  | 10  |    
|                               
|Gross Margin                    |                                  | $                          | 43.6  |                    |  | $                    | 62.6  |       |  |      | (30 | )      |   |      |       |      |  |        |       |     |  |  |     |     |   | $ | 30.94  |        |  | $ | 38.71  |        |  |  | (20 | )  
|                               

|                                |                                  |                          |       |                    |  |                      |       |       |  |      |     |        |   |      |       |       |  |        |       |       |  |  |     |     |   |   |        |        |  |   |        |        |  |  |    |    | 
|------------------------------- | -------------------------------- | ------------------------ | ----- | ------------------ |  | -------------------- | ----- | ----- |  | ---- | --- | ------ | - | ---- | ----- | ----- |  | ------ | ----- | ----- |  |  | --- | --- | - | - | ------ | ------ |  | - | ------ | ------ |  |  | -- | -- | 
|                                |                                  |                         
|                                |                                  | Six Months Ended June 30
|                               
|                               
|                                |                                  |                          |       |                    |  |                     
|                                |                                  | Dollars (millions)       |       | Tonnes (thousands) |  | Average Price per MT
|                               
|                               
|                                |                                  | %                        |       |                    |  | %                    |       |       |  | %   
|                                |                                  | 2004                     |       | 2003               |  | Change               |       | 2004  |  | 2003 |     | Change |   | 2004 |       | 2003  |  | Change
|                               
|                               
|Sales                           |                                  | $                        | 567.5 |                    |  | $                    | 580.5 |       |  |      | (2  | )      |   |      |       |       |  |        |       |       |  |  |     |     |   |   |        |        |  |   |        |        |  |  |    |   
|Freight                         |                                  |                          | 20.5  |                    |  |                      | 26.5  |       |  |      | (23 | )      |   |      |       |       |  |        |       |       |  |  |     |     |   |   |        |        |  |   |        |        |  |  |    |   
|Transportation and distribution |                                  |                          | 20.4  |                    |  |                      | 22.3  |       |  |      | (9  | )      |   |      |       |       |  |        |       |       |  |  |     |     |   |   |        |        |  |   |        |        |  |  |    |   
|                               
|                                |                                  | $                        | 526.6 |                    |  | $                    | 531.7 |       |  |      | (1  | )      |   |      |       |       |  |        |       |       |  |  |     |     |   |   |        |        |  |   |        |        |  |  |    |   
|                               
|Net Sales                       |                                  |                          |       |                    |  |                      |       |       |  |      |     |        |   |      |       |       |  |        |       |       |  |  |     |     |   |   |        |        |  |   |        |        |  |  |    |   
|                                | Ammonia                          |                          | $     | 220.5              |  |                      | $     | 187.0 |  |      |     | 18     |   |      |       | 915   |  |        |       | 950   |  |  |     | (4  | ) |   | $      | 240.79 |  |   | $      | 196.78 |  |  |    | 22 | 
|                                | Urea                             |                          |       | 115.8              |  |                      |       | 138.6 |  |      |     | (16    | ) |      |       | 563   |  |        |       | 761   |  |  |     | (26 | ) |   | $      | 205.62 |  |   | $      | 182.09 |  |  |    | 13 | 
|                                | Nitrogen Solutions               |                          |       | 27.2               |  |                      |       | 49.2  |  |      |     | (45    | ) |      |       | 194   |  |        |       | 437   |  |  |     | (56 | ) |   | $      | 140.00 |  |   | $      | 112.85 |  |  |    | 24 | 
|                                | Nitric Acid and Ammonium Nitrate |                          |       | 92.5               |  |                      |       | 79.7  |  |      |     | 16     |   |      |       | 732   |  |        |       | 705   |  |  |     | 4   |   |   | $      | 126.50 |  |   | $      | 112.98 |  |  |    | 12 | 
|                                | Purchased                        |                          |       | 60.1               |  |                      |       | 67.5  |  |      |     | (11    | ) |      |       | 258   |  |        |       | 319   |  |  |     | (19 | ) |   | $      | 233.68 |  |   | $      | 211.47 |  |  |    | 11 | 
|                               
|                                |                                  |                          | 516.1 |                    |  |                      | 522.0 |       |  |      | (1  | )      |   |      | 2,662 |       |  |        | 3,172 |       |  |  | (16 | )   |   | $ | 193.88 |        |  | $ | 164.56 |        |  |  | 18 |   
|                                | Miscellaneous                    |                          |       | 10.5               |  |                      |       | 9.7   |  |      |     | 8      |   |      |       |      |  |        |       |      |  |  |     |    |   |   |        |       |  |   |        |       |  |  |    |   | 
|                               
|                                |                                  | $                        | 526.6 |                    |  | $                    | 531.7 |       |  |      | (1  | )      |   |      | 2,662 |       |  |        | 3,172 |       |  |  | (16 | )   |   | $ | 197.84 |        |  | $ | 167.65 |        |  |  | 18 |   
|                               
|                                | Fertilizer                       |                          | $     | 213.3              |  |                      | $     | 236.8 |  |      |     | (10    | ) |      |       | 1,081 |  |        |       | 1,466 |  |  |     | (26 | ) |   | $      | 197.34 |  |   | $      | 161.71 |  |  |    | 22 | 
|                                | Non-fertilizer                   |                          |       | 313.3              |  |                      |       | 294.9 |  |      |     | 6      |   |      |       | 1,581 |  |        |       | 1,706 |  |  |     | (7  | ) |   | $      | 198.18 |  |   | $      | 172.75 |  |  |    | 15 | 
|                               
|                                |                                  |                          | 526.6 |                    |  |                      | 531.7 |       |  |      | (1  | )      |   |      | 2,662 |       |  |        | 3,172 |       |  |  | (16 | )   |   | $ | 197.84 |        |  | $ | 167.65 |        |  |  | 18 |   
|Cost of goods sold              |                                  |                          | 424.8 |                    |  |                      | 439.3 |       |  |      | (3  | )      |   |      |       |       |  |        |       |       |  |  |     |     |   | $ | 159.60 |        |  | $ | 138.52 |        |  |  | 15 |   
|                               
|Gross Margin                    |                                  | $                        | 101.8 |                    |  | $                    | 92.4  |       |  |      | 10  |        |   |      |       |       |  |        |       |       |  |  |     |     |   | $ | 38.24  |        |  | $ | 29.13  |        |  |  | 31 |   
|                               

Nitrogen gross margin was $43.6 million
during the quarter, although this fell short of last years
second-quarter gross margin by $19.0 million. Overall sales
volumes were down 13 percent compared to the second quarter
of 2003, due primarily to the decision to keep production shut
down at Memphis and Geismar. The continued shutdowns contributed
to a 52-percent reduction in US nitrogen solutions sales volumes
and a 27-percent decline in US urea volumes compared to
last years same quarter, negatively impacting net sales by

29



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##### Table of Contents



$14.8 million and $11.7 million,
respectively. These volume reductions, however, were partially
offset by a rise in realized prices that increased net sales of
these products by a total of $5.3 million. During the
quarter, Trinidad experienced production problems resulting in
some lost tonnage that negatively impacted gross margin by
approximately $5.0 million. Trinidads ammonia and
urea prices increased 4 percent and 5 percent,
respectively, favorably impacting net sales by
$2.8 million. At our US plants, improved prices for
ammonia and urea contributed to net sales growth by
$3.3 million. Net sales of purchased products declined by
$18.0 million from the same quarter last year, owing to:
(i) an 18-percent drop in realized prices largely because
of improvements in Black Sea ammonia supply; and (ii) a
36-percent decline in volumes quarter over quarter resulting
from the companys decision to abstain from low margin
sales.


Ammonia prices have historically followed gas
prices. When natural gas prices rise, some North American
nitrogen production is often forced to shut down. The
supply/demand balance then tends to tighten, which often leads
to higher nitrogen prices. The company benefits when gas prices
are high in North America, as we receive higher prices for our
products. Meanwhile, most of our ammonia is produced with
low-cost gas in Trinidad, capitalizing on a freight advantage to
the large US market. In the last half of 2003, ammonia prices
decoupled from natural gas and enjoyed a spike, but the
traditional relationship returned by February this year. We
entered the first quarter at the crest of the price wave and
benefited from record Tampa ammonia prices. This was followed by
a price fall of approximately $140 per tonne in the early part
of the second quarter. A number of factors contributed to this
price fall, including: (i) several North American producers
were operating at high rates and restarted US production that
had previously been shut down, (ii) increased volumes were
experienced from Arab Gulf countries and the former Soviet
Union, and (iii) producers sold ammonia in lieu of
upgrading to urea due to better margins. As the second quarter
progressed, tight North American supply/demand fundamentals once
again created a strong pricing environment.

On a year-to-date basis, we benefited from our
ability to produce nitrogen with low-cost gas in Trinidad as
ammonia prices achieved record levels in February. Almost
55 percent of this years gross margin in nitrogen
came from Trinidad, and the remainder came from our
US operations, which include our natural gas hedging
activities. Markedly higher prices for nitrogen products led to
a gross margin increase of 10 percent year over year. Gross
margin rose despite a 16-percent reduction in sales tonnes, due
predominantly to the decision to keep production shut down at
Memphis and Geismar and tonnage outages at Trinidad. The
shutdowns were an important factor contributing to a 55-percent
reduction in US nitrogen solutions sales volumes, a
39-percent decline in US urea volumes, and a 13-percent
decline in US ammonia volumes compared to 2003. These reductions
negatively impacted year-to-date net sales by
$27.2 million, $36.5 million, and $7.3 million,
respectively. Consistent with second-quarter results, the
year-to-date decreases in volume were offset in part by realized
price growth. Trinidads ammonia and urea prices increased
27 percent and 15 percent, respectively, favorably
impacting net sales by $39.2 million. Nitric acid and
ammonium nitrate net sales increased $12.8 million,
$9.0 million of which was caused by improvements in
realized prices of 12 percent.

Costs for nitrogen production continued to move
in tandem with natural gas prices. With a greater percentage of
production from Trinidad, the companys overall average gas
cost declined 7 percent over last years second
quarter ($3.09 per MMBtu compared to $3.32). However, higher gas
prices in Trinidad and North America raised cost of goods sold
by nearly $13.50 per tonne quarter over quarter. On a
year-to-date basis, the average unit cost of natural gas in 2004
was $3.39 per MMBtu compared to $3.12 MMBtu in 2003. This
increase was a key factor in a 15-percent rise in per-tonne
costs year over year. The companys natural gas hedging
activities reflected a gain of $15.3 million for the
quarter (2003  $28.0 million). Year to date, the
company has recorded a natural gas hedging gain of
$25.8 million (2003  $55.0 million).

30



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##### Table of Contents



Expenses and Other Income

|                                  |  |                    |      |                  |  |        |      |      |  |      |      |        |  |   |       |   |  |   |      |  |  |  |      |  
|--------------------------------- |  | ------------------ | ---- | ---------------- |  | ------ | ---- | ---- |  | ---- | ---- | ------ |  | - | ----- | - |  | - | ---- |  |  |  | ---- | -
|                                  |  |                    |      |                 
|                                  |  | Three Months Ended |      | Six Months Ended
|                                  |  | June 30            |      | June 30         
|                                 
|                                 
|                                  |  | %                  |      |                  |  | %     
|Dollars (millions)                |  | 2004               |      | 2003             |  | Change |      | 2004 |  | 2003 |      | Change
|                                 
|                                 
|Selling and Administrative        |  | $                  | 25.4 |                  |  | $      | 23.9 |      |  |      | 6    |        |  | $ | 51.6  |   |  | $ | 47.6 |  |  |  | 8    |  
|Provincial Mining and Other Taxes |  |                    | 29.3 |                  |  |        | 14.8 |      |  |      | 98   |        |  |   | 44.4  |   |  |   | 32.9 |  |  |  | 35   |  
|Provision for Plant Shutdowns     |  |                    |     |                  |  |        |     |      |  |      |     |        |  |   |      |   |  |   | 2.2  |  |  |  | (100 | )
|Provision for PCS Yumbes S.C.M.   |  |                    | 5.9  |                  |  |        |     |      |  |      |     |        |  |   | 5.9   |   |  |   |     |  |  |  |     |  
|Foreign Exchange (Gain) Loss      |  |                    | (9.9 | )                |  |        | 22.4 |      |  |      | (144 | )      |  |   | (18.1 | ) |  |   | 39.3 |  |  |  | (146 | )
|Other Income                      |  |                    | 9.2  |                  |  |        | 11.9 |      |  |      | (23  | )      |  |   | 16.1  |   |  |   | 16.4 |  |  |  | (2   | )
|Interest Expense                  |  |                    | 20.9 |                  |  |        | 23.2 |      |  |      | (10  | )      |  |   | 43.0  |   |  |   | 42.6 |  |  |  | 1    |  
|Income Tax Expense                |  |                    | 35.7 |                  |  |        | 20.0 |      |  |      | 79   |        |  |   | 60.7  |   |  |   | 22.1 |  |  |  | 175  |  

Selling and administrative expenses increased
$1.5 million on a quarter-over-quarter basis and
$4.0 million on a year-over-year basis. This increase was
primarily due to the recording of $2.1 million in
compensation expense relating to stock options during the
quarter and $4.1 million year to date. This non-cash
expense arose on prospective adoption of a new provision of
Canadian GAAP in late 2003. As such, no corresponding amounts
were recorded in the first six months of 2003.

Provincial Mining and Other Taxes increased by
$14.5 million on a quarter-over-quarter basis and
$11.5 million year over year as a result of an increase in
sales volumes, as well as an increase in price and profit per
tonne. The second quarter also includes an adjustment of
$2.4 million relating to first quarter sales due to the
increase in profits per tonne. 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. These changes have allowed the company to begin expanding
capacity at Rocanville. The Saskatchewan divisions and the New
Brunswick division also pay a provincial Crown royalty, which is
accounted for in cost of goods sold.

Refer to the section titled Status of
Restructuring Activities for a discussion of the provision
for plant shutdowns and provision for PCS Yumbes S.C.M.

The company experienced net foreign exchange
gains of $9.9 million in second-quarter 2004 compared to
net foreign exchange losses of $22.4 million in the same
period last year. Of the second quarters gain,
$3.0 million related to corporate treasury activities and
the balance arose primarily from the period-end translation of
Canadian-dollar denominated monetary items on the Consolidated
Statement of Financial Position. The foreign exchange gain
increased significantly quarter over quarter and on a
year-to-date basis due to the weakening of the Canadian dollar
relative to the US dollar at the most recent applicable
fiscal quarter-end. As at June 30, 2004, the Canadian
dollar was $0.03 weaker than at March 31, 2004 and $0.05
weaker than at December 31, 2003. This compares to the
significant strengthening of the Canadian dollar by $0.11 from
December 31, 2002 to March 31, 2003 and by $0.22 from
December 31, 2002 to June 30, 2003.

Other income declined $2.7 million from last
years same quarter due primarily to receipt of nitrogen
insurance proceeds of $2.0 million in 2003. This decline
was largely offset on a year-to-date basis by equity earnings
arising from SQM and the companys October 2003 investment
in Arab Potash Company (APC).

Interest expense decreased $2.3 million
quarter over quarter as a result of reduced commercial paper
balances outstanding, initiation of interest rate hedging
activities in January and February 2004, and a substantial
build-up of cash balances through June 2004. Despite the second
quarter reduction, interest expense for the first six months of
2004 was flat compared to the same period in 2003. This was
mainly due to the company replacing low-cost commercial paper
with $250.0 million of 4.875 percent ten-year notes in
March 2003 to better align current and long-term assets with
variable and fixed rate debt. Weighted average long-term debt
outstanding in the second quarter of 2004 was
$1,269.6 million (2003  $1,273.0 million)

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with a weighted average interest rate of
6.9 percent (2003  6.9 percent). Weighted
average long-term debt outstanding for the first six months of
2004 was $1,269.7 million (2003 
$1,189.7 million) with a weighted average interest rate of
6.9 percent (2003  7.1 percent). The
weighted average interest rate on short-term debt outstanding in
the second quarter of 2004 was 1.3 percent
(2003  1.5 percent) and for the first six months
of 2004 was 1.3 percent (2003  1.5 percent).


The companys effective consolidated income
tax rate for the second quarter and first six months of 2004
approximated 33 percent of income before income taxes. This
compares to an effective consolidated income tax rate of
approximately 40 percent for the comparable periods in
2003. The decrease in rate is due primarily to the impact of
Saskatchewan resource tax incentives, changes to the Canadian
federal resource allowance, and the scheduled Canadian federal
statutory rate reduction. Notwithstanding the reduction in
effective rate, income tax expense increased substantially
quarter over quarter and year over year, driven by the rise in
operating income levels. For the first six months of 2004,
60 percent of the effective rate pertained to current
income taxes and 40 percent related to future income taxes.
The increase in the current tax provision from zero percent in
2003 is primarily due to increases in potash operating income in
Canada.

Status of Restructuring
Activities

Memphis and Geismar Nitrogen
Operations  2003

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. The
plants have not been re-started since that time.

The company determined that all employee
positions pertaining to the affected operations would be
eliminated and recorded $4.8 million in connection with
costs of special termination benefits in the third quarter of
2003. The number of employees terminated as a result of the
shutdowns was 187, of which 186 had left the company as of
June 30, 2004. The company has made payments relating to
the terminations totaling $4.0 million. All remaining
workforce reduction costs pertaining to the 187 employees
are expected to be paid by December 31, 2004.

In connection with the shutdowns, management had
determined that the carrying amounts of the long-lived assets at
the Memphis and Geismar nitrogen facilities were not fully
recoverable, and an impairment loss of $101.6 million,
equal to the amount by which the carrying amount of the
facilities asset groups exceeded their respective fair
values, was recognized. Of the total impairment charge,
$100.6 million related to property, plant and equipment and
$1.0 million related to other assets. As part of its
review, management also wrote-down certain parts inventories at
these plants in the amount of $12.4 million.

In addition to the costs described above,
management expects to incur other shutdown-related costs of
approximately $11.1 million and nominal annual expenditures
for site security and other maintenance costs. These amounts
have not been recorded in the consolidated financial statements
as of June 30, 2004. Such costs will be recognized and
recorded in the period in which they are incurred.

No additional costs were incurred in connection
with the nitrogen plant shutdowns in the first six months of
2004.

Kinston Phosphate Feed Plant 
2003

The phosphate feed plant at Kinston, North
Carolina ceased operations in the first quarter of 2003. In that
quarter, the company recorded $0.6 million for costs of
special termination benefits for Kinston employees,
$0.3 million for parts inventory write-downs, and
$1.3 million for long-lived asset impairment charges. In
lieu of full plant closure, the company continued to operate 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 the
long-lived assets were not recoverable, and an additional
impairment charge of $2.7 million,

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equal to the amount by which the carrying amount
of the plants long-lived assets exceeded their fair value,
was recognized


No additional costs were incurred in connection
with the phosphate plant shutdown in the first six months of
2004.

PCS Yumbes S.C.M.

2003

In November 2003, the company entered into a
share purchase agreement with SQM, whereby SQM is to acquire the
shares of PCS Yumbes for an aggregate purchase price of
$35.0 million, 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 the closing. It is expected that closing will
occur no later than the end of 2004.

In 2003, management conducted 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 and recorded an impairment charge of
$77.4 million, equal to the amount by which the carrying
amount of the asset group exceeded fair value. Of the total
impairment charge, $13.0 million related to property, plant
and equipment, $63.9 million related to deferred
preproduction costs and $0.5 million related to deferred
acquisition costs. As part of the review, management also
wrote-down certain non-parts inventory by $50.2 million due
to the need to liquidate all inventories that would not be
transferred to SQM under the agreement.

The company plans to eliminate all employee
positions at PCS Yumbes by December 31, 2004 and has
recorded a provision of $1.8 million pertaining to
contractual termination benefits to be paid, primarily under
Chilean law. As of June 30, 2004, 141 of the employees had
left the company. The remaining 83 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.

The company had incurred early termination
penalties in respect of certain PCS Yumbes contractual
arrangements. The company recorded a provision of $11.1 million
in the third quarter of 2003 for these contract termination
costs and $0.3 million remained to be paid at June 30,
2004.

2004

During the three months ended June 30, 2004,
the company recorded an additional writedown of
$5.9 million, relating primarily to certain mining
machinery and equipment that will not be transferred to SQM
under the terms of the agreement and that management plans to
sell prior to the end of the year. As of June 30, 2004, the
fair value and carrying amount of the machinery and equipment
that remains to be sold was $1.5 million. For measurement
purposes, fair value was determined in reference to market
prices for similar assets.

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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 (Including Interest) |  | $                      | 1,742.5 |               |  | $            | 81.8  |              |  | $            | 572.0 |  |  | $ | 104.3 |  |  | $ | 984.4   | 
|Operating Leases                    |  |                        | 515.3   |               |  |              | 68.3  |              |  |              | 118.6 |  |  |   | 87.0  |  |  |   | 241.4   | 
|Purchase Obligations                |  |                        | 967.9   |               |  |              | 123.5 |              |  |              | 186.7 |  |  |   | 165.8 |  |  |   | 491.9   | 
|Other Commitments                   |  |                        | 62.4    |               |  |              | 18.1  |              |  |              | 18.8  |  |  |   | 17.1  |  |  |   | 8.4     | 
|Other Long-term Liabilities         |  |                        | 318.0   |               |  |              | 33.7  |              |  |              | 43.8  |  |  |   | 33.8  |  |  |   | 206.7   | 
|                                   
|Total                               |  | $                      | 3,606.1 |               |  | $            | 325.4 |              |  | $            | 939.9 |  |  | $ | 408.0 |  |  | $ | 1,932.8 | 
|                                   

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 2003 annual consolidated financial statements)
and other commitments of $4.5 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. The company was in
compliance with all covenants as at June 30, 2004.
Commencing this quarter, the commitments included in the above
table include our scheduled interest payments on fixed and
variable rate long-term debt. The contractual obligations and
other commitments table in our previous Quarterly Reports on
Form 10-Q excluded interest. Interest on variable rate debt
is based on prevailing interest rates. Except as described
below, there have been no significant changes to long-term debt
during the first two quarters of 2004.

In January and February 2004, the company entered
into interest rate swap contracts that effectively converted a
notional amount of $300.0 million of fixed rate debt (due
2011) into floating rate debt based on six-month US dollar LIBOR
rates. The company did not enter into any interest rate swap
contracts in 2003.

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).

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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.
During the quarter, two of the vessel agreements were extended
until 2016.

Purchase
Obligations

We have long-term agreements for the purchase of
sulfur for use in the production of phosphoric acid. These
agreements provide for minimum purchase quantities, and certain
prices are based on market rates at the time of delivery. The
commitments included in the above table are based on contract
prices.

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 sets base prices (less volume discounts) through
December 2004. 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 $115.0 million for
opportunity capital and approximately $90.0 million for
sustaining capital. The most significant single project relates
to the expansion and increase of granular potash production
capacity at Rocanville.

We have also exercised an option agreement to
purchase certain corporate office facilities for approximately
$8.0 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

The companys cash flows from operating,
investing and financing activities, as reflected in the
Consolidated Statements of Cash Flow, are summarized in the
following table:

|                                                |  |                    |       |                  |  |      |       |      |  |   |       |   |  |   |       |  
|----------------------------------------------- |  | ------------------ | ----- | ---------------- |  | ---- | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                                |  |                    |       |                 
|                                                |  | Three Months Ended |       | Six Months Ended
|                                                |  | June 30            |       | June 30         
|Dollars (millions)                              |  | 2004               |       | 2003             |  | 2004 |       | 2003
|                                               
|                                               
|Cash Provided by Operating Activities           |  | $                  | 178.2 |                  |  | $    | 67.0  |      |  | $ | 312.5 |   |  | $ | 111.0 |  
|Cash Used in Investing Activities               |  | $                  | (24.2 | )                |  | $    | (29.4 | )    |  | $ | (39.8 | ) |  | $ | (54.7 | )
|Cash Provided by (Used in) Financing Activities |  | $                  | 41.3  |                  |  | $    | (45.8 | )    |  | $ | (70.9 | ) |  | $ | (17.3 | )

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The following table presents summarized working
capital information as at June 30, 2004 compared to
December 31, 2003:

|                                        |  |          |        |              |  |   |        |  
|--------------------------------------- |  | -------- | ------ | ------------ |  | - | ------ | -
|                                        |  | June 30, |        | December 31,
|Dollars (millions) except ratio amounts |  | 2004     |        | 2003        
|                                       
|                                       
|Current Assets                          |  | $        | 909.1  |              |  | $ | 733.9  |  
|Current Liabilities                     |  | $        | (519.7 | )            |  | $ | (557.8 | )
|Working Capital                         |  | $        | 389.4  |              |  | $ | 176.1  |  
|Current Ratio                           |  |          | 1.75   |              |  |   | 1.32   |  

PotashCorps principal sources of funds
include 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 statements 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
$178.2 million, up $111.2 million from the second quarter
last year. Stronger gross margin in potash ($121.4 million
as compared to $60.7 million) driven by higher prices and
record volumes contributed significantly to the upsurge in the
quarter. In addition, working capital requirements were lower by
$32.3 million, largely due to lower inventory and prepaid
freight, transportation and distribution levels resulting from a
high volume of potash shipments. Strong first-half 2004 potash
margins were a key factor in a $201.5 million increase in
cash provided by operating activities compared to the same
period last year. In addition, working capital requirements were
$134.1 million lower, principally due to the collection of
higher receivable amounts outstanding at December 31, 2003
compared to December 31, 2002, lower potash inventory
levels, and improvements in phosphate work in process and feed
inventory management. Our customer credit policies have remained
substantially consistent with 2003.

Cash used in investing activities declined
$5.2 million quarter over quarter and $14.9 million
year over year. Additions to property, plant and equipment and
dividends received from equity investees remained flat compared
to the same periods last year. Cash outlays in connection with
other assets declined primarily due to lower spending during
second-quarter and first-half 2004, changes in long-term
inventory balances, and the fact that first-half 2003 included
issuance costs associated with a $250.0 million offering of
4.875 notes due in 2013.

Cash provided by financing activities during the
quarter was $41.3 million, an increase of $87.1 million
compared to the same quarter last year. The principal reasons
for the change relate to the exercise of stock options as our
share price appreciated during the quarter, and a
$66.3 million change in commercial paper balances as part
of our cash and debt management program. Year over year, cash
used in financing activities increased $53.6 million. In
March 2003, we issued $250.0 million of notes under our US
shelf registration statement. The net proceeds from the notes
were used to make short-term debt repayments of
$208.8 million in that quarter and $241.6 million in
the first half of 2003. Additionally, the company paid down
short-term debt by $84.8 million in the first six months of 2004
using cash generated from operations. The company has
historically paid quarterly dividends to shareholders, and such
payments were made in the first and second quarters of each of
2004 and 2003 at a rate of $0.25 per share. Cash received from
share issuances (largely from the exercise of stock options)
contributed $41.4 million in financing activities, compared
to $0.9 million in the first six months of 2003. The
companys NYSE share price at June 30, 2004 was $96.90
(2003  $64.00) compared to $86.48 at
December 31, 2003 (2002  $63.59).

As noted in the section titled Subsequent
Events, the company announced a 20-percent increase in its
quarterly cash dividend subsequent to June 30, 2004. Based
on the current number of common shares issued and outstanding,
this increase equates to approximately $2.7 million per
quarter, and is effective commencing with the dividend declared
by the Board of Directors on July 21, 2004.

PotashCorp believes that internally generated
cash flow, supplemented by borrowing from existing financing
sources if necessary, will be sufficient to meet our anticipated
capital expenditures and other cash requirements in 2004,
exclusive of any possible acquisitions, as was the case in 2003.
At this time, the

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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 |  | Amount Available
|                           |  | Amount             |         | at June 30, 2004   |  | at June 30, 2004
|                          
|                          
|Syndicated Credit Facility |  | $                  | 750.0   |                    |  | $                |        |  |  | $ | 658.6 | 
|Line of Credit             |  |                    | 75.0    |                    |  |                  | 3.3     |  |  |   | 57.0  | 
|Commercial Paper           |  |                    | 500.0   |                    |  |                  | 91.4    |  |  |   | 408.6 | 
|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 outstanding letters of credit and direct
borrowings reduce the amount available. Both the line of credit
and the syndicated credit facility have financial tests and
other covenants with which 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. The
company was in compliance with all covenants as at June 30,
2004.

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 continues to
be rated by DBRS as R1 low, which should allow unrestricted
access to the money markets. Our other ratings did not change
from December 31, 2003 (Moodys: Baa2, with a
positive outlook; Standard and
Poors: BBB+).

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 June 2004, our weighted average
cost of capital was 8.2 percent (2003 
6.7 percent), of which 22 percent represented debt and
78 percent equity. The increase was principally due to a shift
in mix to equity  which carries a higher cost than
debt  as the stock price closed 51-percent higher
this quarter-end compared to last.

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 Consolidated Statement of
Financial Position or are recorded on our Consolidated Statement
of Financial Position in amounts that differ from the full
contract amounts. Principal off-balance sheet 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

The company enters into agreements in the normal
course of business that may contain features that meet the
definition of a guarantee. Various debt obligations (such as
overdrafts, lines of credit with

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counterparties for derivatives, and back-to-back
loan arrangements) related to certain subsidiaries have been
directly guaranteed by the company under 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 June 30, 2004, the maximum potential amount
of future (undiscounted) payments under significant
guarantees provided to third parties approximated
$88.4 million, representing the maximum risk of loss if
there were a total default by the guaranteed parties, without
consideration of possible recoveries under recourse provisions
or from collateral held or pledged. At June 30, 2004, 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
and cash margin requirements of approximately $24.7 to maintain
derivatives, which are included in accounts payable and accrued
charges.


Refer to Note 29 of our 2003 Annual Report
for a description of other guarantees relating to the company.
There have been no significant changes to these guarantees
during the first six months of 2004, other than the annual
automatic renewal of the letter of credit posted by the company
in respect of the Province of Saskatchewans potash
decommissioning and reclamation financial assurance requirements.

Derivative Instruments

Under Canadian GAAP, the company does not record
the fair value of derivatives designated (and qualifying) as
effective hedges on its Consolidated Statement of Financial
Position.

The company has designated its natural gas
derivative instruments as cash flow hedges. The companys
natural gas purchase strategy is based on diversification of
price for its total gas requirements. The objective is to
acquire a reliable supply of natural gas feedstock and fuel on a
location-adjusted, cost-competitive basis in a manner that
minimizes volatility without undue risk. 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 its US nitrogen plants. By policy,
except as specifically permitted by the companys Gas
Policy Advisory Committee, the maximum period for these hedges
cannot exceed five years. The company uses these instruments to
reduce price risk, not for speculative purposes. The fair value
of the companys gas hedging contracts at June 30,
2004 was $77.1 million. 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 company primarily uses interest rate swaps to
manage the interest rate mix of the total debt portfolio and
related overall cost of borrowing. In January and February 2004,
the company entered into interest rate swap agreements with
total notional amounts of $300.0 million, whereby the
company, over the remaining terms of the underlying notes, will
receive a fixed rate payment equivalent to the fixed interest
rate of the underlying note and pay a floating rate of interest
that is based on six-month US dollar LIBOR. The fair value of
the swaps outstanding at June 30, 2004 was a liability of
$12.6 million.

Refer to Note 27 of our 2003 Annual Report
for detailed information regarding the nature of our financial
instruments. Other than as described above, there have been no
significant changes to these instruments during the first two
quarters of 2004.

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.

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OUTSTANDING SHARE DATA

The company had, at June 30, 2004,
53,723,105 common shares issued and outstanding, compared to
53,112,216 common shares issued and outstanding at
December 31, 2003. At June 30, 2004, there were
4,795,272 options to purchase common shares outstanding, as
compared to 5,438,011 at December 31, 2003.

RELATED PARTY TRANSACTIONS

The company sells potash from its 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 quarter ended
June 30, 2004 were $111.8 million (2003 
$78.1 million). On a year-to-date basis, these sales were
$184.4 million (2003  $141.8 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 in 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 quarter were $1.5 million (2003  $2.5
million). On a year-to-date basis, these purchases were
$4.7 million (2003  $2.7 million).
Potassium nitrate sales to SQM for the quarter were
$5.5 million (2003  $4.9 million). On a
year-to-date basis, these sales were $14.1 million
(2003  $9.9 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 is based upon our unaudited
interim consolidated financial statements, which have been
prepared in accordance with Canadian GAAP. These principles
differ in certain significant respects from accounting
principles generally accepted in the United States. These
differences are described and quantified in Note 15 to the
unaudited interim consolidated financial statements included in
Item 1 of this Quarterly Report on Form 10-Q.

The accounting policies used in preparing the
unaudited interim consolidated financial statements are
consistent with those used in the preparation of the 2003 annual
consolidated financial statements, except as disclosed in Note 2
to the unaudited interim 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.

In 2003, the company approved plans to
restructure certain operations. Those plans required significant
estimates to be made of: (i) the recoverability of the
carrying value of certain assets based on their capacity to
generate future cash flows, and (ii) employee termination,
contract termination and other exit costs. Because restructuring
activities are complex processes that can take several months to
complete, they involve periodically reassessing estimates. Refer
to Note 5 and Note 6 to the unaudited interim consolidated
financial statements for managements current estimate
assessments.

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.

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

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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 was effective for the company in the first quarter,
and there was no material impact on its financial position,
results of operations or cash flows from adoption. In Canada,
Accounting Guideline 15 (AcG-15),
Consolidation of Variable Interest Entities has
harmonized with FIN No. 46. The CICA has recently issued a
draft guideline of proposed amendments to AcG-15 in an effort to
clarify certain issues. The amended guideline is expected to be
effective for all annual and interim periods beginning on or
after November 1, 2004. The company is currently reviewing
the proposed changes to the guideline to determine the potential
impact, if any, on its consolidated financial statements.


In December 2003, the SEC issued Staff Accounting
Bulletin (SAB) No. 104, Revenue
Recognition, which supersedes SAB No. 101. The
primary purpose of SAB No. 104 is to rescind accounting
guidance contained in SAB No. 101 and the SECs
Revenue Recognition in Financial Statements Frequently
Asked Questions and Answers related to multiple element
revenue arrangements. The changes noted in SAB No. 104 did not
have a material impact on the companys consolidated
financial statements.

In December 2003, the Medicare Prescription Drug
Improvement and Modernization Act of 2003 (the Act)
was signed into law. The Act introduces a prescription drug
benefit beginning in 2006 under Medicare (Medicare Part D) as
well as a federal subsidy to sponsors of retiree health care
benefit plans that provide a benefit that is at least
actuarially equivalent to Medicare Part D. At this point, the
companys analysis regarding the impact of the legislation
is preliminary, as it awaits guidance from various governmental
and regulatory agencies concerning the requirements that must be
met to obtain these cost reductions, as well as the manner in
which such savings should be measured. Based on this preliminary
analysis, the company expects that the legislation will
eventually reduce its costs for some of its programs, and some
of the companys retiree medical plans may need to be
modified in order to qualify for beneficial treatment. In May
2004, FASB Staff Position No. 106-2 was issued to provide
additional guidance on the accounting for the effects of the
Act. The company does not expect the legislation to have a
significant impact on its consolidated financial statements.

In March 2004, the FASB ratified consensuses
reached by the Emerging Issues Task Force (EITF)
with respect to EITF Issue No. 03-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain
Investments. EITF Issue No. 03-1 addresses
recognition, measurement and disclosure of other-than-temporary
impairment evaluations for securities within the scope of SFAS
115, Accounting for Certain Investments in Debt and Equity
Securities, and equity securities that are not subject to
the scope of SFAS No. 115 and are not accounted for under
the equity method according to Accounting Principles Board
Opinion No. 18, The Equity Method of Accounting for
Investments in Common Stock. The recognition and
measurement guidance is effective for reporting periods
beginning after June 15, 2004. Disclosures for cost method
investments are required to be included in annual financial
statements prepared for fiscal years ending after June 15,
2004. The company has determined that its practices are
substantially consistent with the application guidance of EITF
Issue No. 03-1; therefore, adoption is not expected to have
a significant impact on its consolidated financial statements.

In March 2004, the FASB issued an exposure draft,
Share-Based Payment  an amendment of Statements
No. 123 and 95 that addresses the accounting for
share-based payment transactions in which an enterprise receives
employee services in exchange for (a) equity instruments of
the enterprise or (b) liabilities that are based on the fair
value of the enterprises equity instruments or that may be
settled by the issuance of such equity instruments. The proposal
would eliminate the ability to account for share-based
compensation transactions using APB Opinion No. 25,
Accounting for Stock Issued to Employees, and
generally would require instead that such transactions be
accounted for using a fair-value-based method. The proposal
would be applied prospectively for fiscal years beginning after
December 15, 2004, as if all share-based compensation
awards granted, modified, or settled after December 15,
1994, had been accounted for using the fair-value-based method
of accounting. The company is currently reviewing the proposal
to determine the potential impact, if any, on its consolidated
financial statements.

In June 2004, the FASB issued an exposure draft
of a proposed Statement, Fair Value Measurements to
provide guidance on how to measure the fair value of financial
and non-financial assets and liabilities when

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required by other authoritative accounting
pronouncements. The proposed statement attempts to address
concerns about the ability to develop reliable estimates of fair
value and inconsistencies in fair value guidance provided by
current US GAAP, by creating a framework that clarifies the fair
value objective and its application in GAAP. In addition, the
proposal expands disclosures required about the use of fair
value to remeasure assets and liabilities. The standard would be
effective for financial statements issued for fiscal years
beginning after June 15, 2005.


In June and July, 2004, the CICA approved
re-exposure drafts of proposed Section 3855,
Financial Instruments  Recognition and
Measurement, and Section 3865, Hedges.
The CICA has confirmed that mandatory implementation of
standards developed from the re-exposure drafts will be for
interim and annual financial statements relating to years
commencing on or after October 1, 2005. The CICA has also
approved, subject to written ballot, a proposed new Section
1530, Comprehensive Income. Companies will not be
permitted to apply Section 1530 until Sections 3855 and
3865 are finalized. The re-exposure drafts are intended to
increase harmonization with US GAAP.

In July 2004, the EITF discussed Issue
No. 04-6, Accounting for Post-Production Stripping
Costs in the Mining Industry. This issue addresses whether
post-production stripping costs should be expensed, deferred and
amortized, or capitalized as inventory costs. Diversity in
practice has arisen because these stripping costs may benefit
both current period production (because removal of the waste is
necessary to extract the material mined in the current period),
as well as benefiting future periods (because the costs
facilitate access to additional minerals to be mined in the
future). The EITF discussed various views and did not reach a
consensus. It has asked the mining industry working group to
further develop the views and make a recommendation.

In July 2004, the CICA proposed, subject to
comments received following exposure, to amend
Section 3500, Earnings per Share, to conform to
recent corresponding amendments proposed by the FASB and to
those adopted by the International Accounting Standards Board.
The CICA expects to issue its proposals in the fourth quarter of
2004 with an effective date for interim and annual periods
relating to fiscal years beginning on or after January 1,
2005.

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 the combination of 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/or with less consequence.

In 2002, management reported to the Board of
Directors on our most significant risks, our risk response
options and our risk administration. In 2003, we updated the
Board of Directors on the progress made on those risks, and
reported on the next tier of risks. Refer to our 2003 Annual
Report for detailed information regarding managements
assessments of the companys Tier I and Tier II
risks. The identification and management of risk is an ongoing
process because circumstances change and risks change with them.
There have been no significant changes to managements
assessments during the first six months of 2004.

SUBSEQUENT EVENTS

On July 21, 2004, the Board of Directors of
PCS approved a split of the companys outstanding common
shares on a two-for-one basis. The stock split is to be effected
in the form of a stock dividend of one additional common share
for each share owned by shareholders of record at the close of
business on August 11, 2004. The companys common
shares are expected to commence trading on a split basis on
August 9, 2004 on the Toronto Stock Exchange and
August 18, 2004 on the New York Stock Exchange. All
equity-based benefit plans will be adjusted to reflect the
issuance of additional shares or options due to the declaration
of the stock split. All share and per-share data for future
periods will reflect the stock split.

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On July 21, 2004, PCSs Board of
Directors also declared a quarterly cash dividend of US $0.15
per common share (on a post-split basis) payable
November 15, 2004 to shareholders of record at the close of
business on October 25, 2004. This amount represents a
20-percent increase in the companys quarterly cash
dividend.

OUTLOOK

Market fundamentals for the second half of 2004
continue to look favorable. Inventories of all three nutrients
are extremely tight. According to The Fertilizer Institute, DAP
inventories are 31 percent below the five-year average;
urea inventories are 56 percent lower; and potash
41 percent lower. The companys potash inventory alone
was 31 percent below June 2003 levels. These low
inventories are occurring at a time of strong demand, creating
excellent fundamentals for fertilizer producers.

The outlook for potash is bullish, with demand
driven by Brazil, China and other Asian countries. In this
environment, the upward pricing trend should continue. In fact,
June offshore netbacks were approximately $12 per tonne higher
than the second quarter average, and as the company continues to
realize the full impact of the price increases negotiated
earlier in the year, netbacks are anticipated to move even
higher. While freight rates started to edge up in some markets
in late June, they remain unpredictable. In 2003, PotashCorp
produced 7.1 million tonnes KCl. Apart from the previously
announced Rocanville expansion, we believe we can bring on
2.5 million tonnes of our excess capacity in short order
with little or no new capital expense. We also believe an
additional 2.5 million tonnes could be brought on stream
with an investment over several years, previously estimated to
approximate $300 million. The company is continuing its
assessment of the capital investment required to bring on this
additional tonnage.

Similar to potash, nitrogen is coming out of the
second quarter with momentum. Ammonia netbacks at the end of
June were over $20 per tonne higher than the second quarter
average and July pricing is continuing to move upward. US
natural gas prices are projected to remain high, which should
deter the restart of US capacity and could lead to additional
shutdowns. New competitive production from Trinidad is expected
to hit the market late in the third quarter, however that will
likely be balanced by summer turnarounds and expected strong
demand. In the international market, urea demand, especially in
Latin America, continues to grow as a result of high global
commodity prices.

From July to December 2004, PotashCorp has
approximately 90 percent of its gas hedged in the range of
$3.20 per MMBtu. At current prices, the value of that hedge is
approximately $22.0 million. The company is also expanding
its Trinidad ammonia capacity by 132,000 tonnes at a total cost
of approximately $30.0 million. More than half of this
additional capacity is expected to come on stream in the first
quarter of 2005, with the remainder available in the third
quarter of 2005.

Late in the second quarter, a surge in solid
fertilizer demand emptied phosphate inventories in Florida that
could provide some momentum and a modest recovery for the second
half. The company is anticipating the most improvement in the
feed business with projected price increases and lower raw
material costs. The industrial business is expected to remain
the top performer in the phosphate product line.

Given the positive industry fundamentals, the
company is now expecting its 2004 earnings to be in the range of
$4.25 to $4.75 per share. This assumes a flat Canadian dollar
exchange rate of 1.2924, which was the rate in effect at
December 31, 2003. These earnings would generate cash from
operating activities of $500 million to $530 million.
Third-quarter earnings are expected to be in the range of $1.00
to $1.20 per share, assuming the same flat Canadian dollar
exchange rate. In the current trading range of the Canadian
dollar relative to the US dollar, a $0.01 change in the Canadian
dollar is expected to have an approximate $0.03 impact on
earnings per share in respect of unrealized foreign exchange
translation gains/losses.

Projected capital expenditures for 2004 are
unchanged at approximately $205.0 million, including the
expansion at Trinidad. Depreciation and amortization will likely
approximate $230.0 million for the year, up from the
original guidance of $220.0 million due to additional
depreciation for the potash operations as production is expected
to be higher than originally forecast.

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PotashCorps overall effective income tax
rate is still expected to approximate 33 percent for the
year; however, the current/future split is now expected to be
60/40 rather than 40/60 as a result of higher-than-expected
earnings from the potash division. Provincial mining and other
taxes should approximate 21 percent of total potash gross
margin for the rest of the year.

FORWARD LOOKING STATEMENTS

Certain statements in this quarterly report on
Form 10-Q 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 June 30, 2004, 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 and petrochemical markets; changes in
competitive pressures, including pricing pressures; risks
associated with natural gas and other hedging activities;
changes in capital markets; changes in currency and exchange
rates; unexpected geological or environmental conditions;
imprecision in reserve estimates; the outcome of legal
proceedings; changes in government policy and regulation; and
acquisitions the company may undertake in the future. The
company sells to a diverse group of customers both by geography
and by end product. Market conditions will vary on a
quarter-over-quarter and 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, except as otherwise
required by applicable law.



|        |                                                               
|------- | --------------------------------------------------------------
|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES
    ABOUT MARKET RISK

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
June 30, 2004, our estimated derivative commodity
instruments market risk exposure was $26.5 million
(2003  $24.5 million). Actual results may differ
from this estimate. Changes in the fair value of such derivative
instruments, with maturities in 2004 through 2009, will
generally relate to changes in the spot price of anticipated
natural gas purchases.

Foreign Exchange Risk

We also enter 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 in earnings in the period in which
changes in fair value occur.

As at June 30, 2004, we had entered into
forward exchange contracts to sell US dollars and receive
Canadian dollars in the notional amount of $77.5 million
(2003  $38.0 million) at an average exchange
rate of 1.3904 (2003  1.3880). Expected maturity
dates for all forward contracts are within fiscal 2004.

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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 June 30, 2004, our short-term debt
(comprised of commercial paper) was $91.4 million, our
current portion of long-term debt was $1.3 million and our
long-term debt was $1,268.1 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. In January and February 2004, 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 six-month US 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.



|        |                        
|------- | -----------------------
|ITEM 4. | CONTROLS AND PROCEDURES

As of June 30, 2004, 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 June 30, 2004, the Chief Executive Officer and
Chief Financial Officer concluded that the disclosure controls
and procedures were effective to provide reasonable assurance
that information required to be disclosed in the reports the
company files and submits under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported as and when
required.

There has been no change in our internal control
over financial reporting during the quarter ended June 30,
2004 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.

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PART II.     OTHER
INFORMATION






ITEM 1.LEGAL
PROCEEDINGS


Nitrochem

On May 1, 2003, Nitrochem Distribution, Ltd.
(Nitrochem) 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 alleged that Sales (USA) entered into a contract for
ammonia in 2001 that contained an automatic renewal provision
for 2002. Nitrochem further alleged that Sales (USA) failed to
take delivery of a specified amount of ammonia in 2002. Sales
(USA) denied all of Nitrochems substantive allegations.
Nitrochem was seeking damages in the amount of $12 million.
The matter proceeded to trial on March 31 and April 1,
2004. On May 3, 2004 a judgment was issued declaring that
Sales (USA) had no contractual obligation to purchase ammonia
from Nitrochem in 2002 and denying Nitrochems claim for
breach of contract. Nitrochem has appealed the judgment.




ITEM 4.     SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS



|    |                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | On May 6, 2004, the company held an annual
    meeting (the Meeting) of its shareholders.                                                                                                        
|   
|(b) | At the Meeting, the companys shareholders
    voted upon each of the following proposed director nominees with
    the results of the voting set forth opposite the name of each
    such nominee.

|                          |  |     |            |          |  |  |           | 
|------------------------- |  | --- | ---------- | -------- |  |  | --------- | 
|                          |  | FOR |            | WITHHELD
|                          |  |     |            |         
|Frederick J. Blesi        |  |     | 43,625,448 |          |  |  | 808,283   | 
|William J. Doyle          |  |     | 43,668,169 |          |  |  | 765,562   | 
|John W. Estey             |  |     | 43,625,130 |          |  |  | 808,601   | 
|Wade Fetzer III           |  |     | 43,666,340 |          |  |  | 767,391   | 
|Dallas J. Howe            |  |     | 43,040,188 |          |  |  | 1,393,543 | 
|Alice D. Laberge          |  |     | 43,667,379 |          |  |  | 766,352   | 
|Jeffrey J. McCaig         |  |     | 37,349,883 |          |  |  | 7,083,848 | 
|Mary Mogford              |  |     | 43,601,001 |          |  |  | 832,730   | 
|Paul J. Schoenhals        |  |     | 43,668,429 |          |  |  | 765,302   | 
|E. Robert Stromberg, Q.C. |  |     | 42,803,250 |          |  |  | 1,630,481 | 
|Jack G. Vicq              |  |     | 43,669,175 |          |  |  | 764,556   | 
|Elena Viyella de Paliza   |  |     | 43,625,588 |          |  |  | 808,143   | 



|    |                                                                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(c) | The companys shareholders also voted upon
    the appointment of the firm of Deloitte & Touche, LLP,
    the present auditors, as the companys auditors, to hold
    office until the next annual meeting of the companys
    shareholders; the results of the vote were: 43,428,274 shares
    for, 246,509 shares against and 757,216 shares withheld.
|   
|(d) | In addition, at the Meeting, the shareholders
    voted on the shareholder proposal included as Appendix C in
    the Management Proxy Circular dated March 11, 2004. The
    results of the vote were: 4,433,060 shares for, 34,227,653
    shares against and 4,066,609 shares withheld.                                                                 

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ITEM
6.     EXHIBITS AND REPORTS ON FORM
8-K

(a) 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.                                                                                                                           

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.

46



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##### Table of Contents



|        |       |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- | ----- | ----------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                        
|Number  |       | Description of Document
|        |       |                        
|       
|        | 10(c) |                         |  | Producer Agreement dated April 21, 1978,
    between Canpotex Limited and PCS Sales, incorporated by
    reference to Exhibit 10(h) to the F-1 Registration
    Statement.                                                                                                                                                                                                                                                                                                                                                                             
|       
|        | 10(d) |                         |  | Canpotex/PCS Amending Agreement, dated as of
    October 1, 1992, incorporated by reference to
    Exhibit 10(f) to the registrants report on
    Form 10-K for the year ended December 31, 1995 (the
    1995 Form 10-K).                                                                                                                                                                                                                                                                                                                          
|       
|        | 10(e) |                         |  | Canpotex PCA Collateral Withdrawing/PCS Amending
    Agreement, dated as of October 7, 1993, incorporated by
    reference to Exhibit 10(g) to the 1995 Form 10-K.                                                                                                                                                                                                                                                                                                                                                                                     
|       
|        | 10(f) |                         |  | Canpotex Producer Agreement amending agreement
    dated as of January 1, 1999, incorporated by reference to
    Exhibit 10(f) to the registrants report on
    Form 10-K for the year ended December 31, 2000 (the
    2000 Form 10-K).                                                                                                                                                                                                                                                                                                            
|       
|        | 10(g) |                         |  | Canpotex Producer Agreement amending agreement
    dated as of July 1, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|       
|        | 10(h) |                         |  | 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(i) |                         |  | 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(j) |                         |  | 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(k) |                         |  | Third amendment to Agreement of Limited
    Partnership of PCS Nitrogen Fertilizer, L.P. dated
    December 15, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                  
|       
|        | 10(l) |                         |  | 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(m) |                         |  | 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(n) |                         |  | 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(o) |                         |  | 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(p) |                         |  | 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.

47



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##### Table of Contents



|        |        |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------- | ------ | ----------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |                        
|Number  |        | Description of Document
|        |        |                        
|       
|        | 10(q)  |                         |  | 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(r)  |                         |  | 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(s)  |                         |  | 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(t)  |                         |  | 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(u)  |                         |  | 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(v)  |                         |  | 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(w)  |                         |  | 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(x)  |                         |  | Short-Term Incentive Plan of the registrant
    effective January 2000, incorporated by reference to
    Exhibit 10(z) to the registrants report on
    Form 10-Q for the quarterly period ended March 31,
    2000 (the First Quarter 2000 Form 10-Q).                                                                                                                                                                                                                                                                                                                                               
|       
|        | 10(y)  |                         |  | 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(z)  |                         |  | Long-Term Incentive Plan of the registrant
    effective January 2003, incorporated by reference to
    Exhibit 10(y) to the 2002 Form 10-K.                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|       
|        | 10(aa) |                         |  | 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(bb) |                         |  | 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(cc) |                         |  | 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(dd) |                         |  | 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(ee) |                         |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                 

48



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##### Table of Contents



|        |        |                         |  |                                                                                                                                                                                                                                                                                                                              
|------- | ------ | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |                        
|Number  |        | Description of Document
|        |        |                        
|       
|        | 10(ff) |                         |  | 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(gg) |                         |  | 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(hh) |                         |  | 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(ii) |                         |  | Resolution and Form of Agreement of
    Indemnification  July 21, 2004.                                                                                                                                                                                                                                                     
|       
|        | 10(jj) |                         |  | Chief Executive Officer Medical and Dental Plan,
    incorporated by reference to Exhibit 10(jj) to the 2000
    Form 10-K.                                                                                                                                                                                                  
|       
|        | 10(kk) |                         |  | 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(ll) |                         |  | 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(mm) |                         |  | 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.                                                                                                                                                                                                                                                                              
|       
|        | 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.                                                                                                                                                                                                                                                 

(b) REPORTS
ON FORM 8-K

None filed.

49



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##### Table of Contents






SIGNATURES

Pursuant to the requirements 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.    

August 5, 2004

| |     |                      
| | --- | ---------------------
| | By: | /s/ JOHN L.M. HAMPTON

| |                                                         
| | --------------------------------------------------------
| |                                                         
| | John L.M. Hampton                                       
| | Senior Vice President, General Counsel and
    Secretary

August 5, 2004

| |     |                      
| | --- | ---------------------
| | By: | /s/ WAYNE R. BROWNLEE

| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| |                                                                                                                     
| | Wayne R. Brownlee                                                                                                   
| | Senior Vice President, Treasurer, and Chief
    Financial Officer 
     (Principal Financial and Accounting Officer)

50



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##### Table of Contents



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.





---



##### Table of Contents



|        |       |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- | ----- | ----------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                        
|Number  |       | Description of Document
|        |       |                        
|       
|        | 10(c) |                         |  | Producer Agreement dated April 21, 1978,
    between Canpotex Limited and PCS Sales, incorporated by
    reference to Exhibit 10(h) to the F-1 Registration
    Statement.                                                                                                                                                                                                                                                                                                                                                                             
|       
|        | 10(d) |                         |  | Canpotex/PCS Amending Agreement, dated as of
    October 1, 1992, incorporated by reference to
    Exhibit 10(f) to the registrants report on
    Form 10-K for the year ended December 31, 1995 (the
    1995 Form 10-K).                                                                                                                                                                                                                                                                                                                          
|       
|        | 10(e) |                         |  | Canpotex PCA Collateral Withdrawing/PCS Amending
    Agreement, dated as of October 7, 1993, incorporated by
    reference to Exhibit 10(g) to the 1995 Form 10-K.                                                                                                                                                                                                                                                                                                                                                                                     
|       
|        | 10(f) |                         |  | Canpotex Producer Agreement amending agreement
    dated as of January 1, 1999, incorporated by reference to
    Exhibit 10(f) to the registrants report on
    Form 10-K for the year ended December 31, 2000 (the
    2000 Form 10-K).                                                                                                                                                                                                                                                                                                            
|       
|        | 10(g) |                         |  | Canpotex Producer Agreement amending agreement
    dated as of July 1, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|       
|        | 10(h) |                         |  | 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(i) |                         |  | 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(j) |                         |  | 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(k) |                         |  | Third amendment to Agreement of Limited
    Partnership of PCS Nitrogen Fertilizer, L.P. dated
    December 15, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                  
|       
|        | 10(l) |                         |  | 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(m) |                         |  | 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(n) |                         |  | 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(o) |                         |  | 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(p) |                         |  | 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.





---



##### Table of Contents



|        |        |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------- | ------ | ----------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |                        
|Number  |        | Description of Document
|        |        |                        
|       
|        | 10(q)  |                         |  | 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(r)  |                         |  | 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(s)  |                         |  | 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(t)  |                         |  | 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(u)  |                         |  | 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(v)  |                         |  | 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(w)  |                         |  | 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(x)  |                         |  | Short-Term Incentive Plan of the registrant
    effective January 2000, incorporated by reference to
    Exhibit 10(z) to the registrants report on
    Form 10-Q for the quarterly period ended March 31,
    2000 (the First Quarter 2000 Form 10-Q).                                                                                                                                                                                                                                                                                                                                               
|       
|        | 10(y)  |                         |  | 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(z)  |                         |  | Long-Term Incentive Plan of the registrant
    effective January 2003, incorporated by reference to
    Exhibit 10(y) to the 2002 Form 10-K.                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|       
|        | 10(aa) |                         |  | 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(bb) |                         |  | 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(cc) |                         |  | 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(dd) |                         |  | 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(ee) |                         |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                 





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##### Table of Contents



|        |        |                         |  |                                                                                                                                                                                                                                                                                                                              
|------- | ------ | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |                        
|Number  |        | Description of Document
|        |        |                        
|       
|        | 10(ff) |                         |  | 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(gg) |                         |  | 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(hh) |                         |  | 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(ii) |                         |  | Resolution and Form of Agreement of
    Indemnification  July 21, 2004.                                                                                                                                                                                                                                                     
|       
|        | 10(jj) |                         |  | Chief Executive Officer Medical and Dental Plan,
    incorporated by reference to Exhibit 10(jj) to the 2000
    Form 10-K.                                                                                                                                                                                                  
|       
|        | 10(kk) |                         |  | 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(ll) |                         |  | 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(mm) |                         |  | 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.                                                                                                                                                                                                                                                                              
|       
|        | 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.