##### 





Managementsreport to theshareholders




The audited consolidated financial statements and all information contained in
this annual report are the responsibility of management and the audited
consolidated financial statements are approved by the Board of Directors of the
Corporation. The financial statements have been prepared by management in
accordance with accounting principles generally accepted in Canada and, where
appropriate, reflect managements best estimates and judgments based on
currently available information. The Corporation has established an internal
audit program and accounting and reporting systems supported by internal
controls designed to safeguard assets from loss or unauthorized use and ensure
the accuracy of the financial records. The financial information presented
throughout this annual report is consistent with the financial statements. KPMG
LLP, an independent firm of chartered accountants, has been appointed by the
shareholders as external auditors of the Corporation. The Auditors Report to
the Shareholders, which describes the scope of their examination and expresses
their opinion, is presented below. The Audit Committee of the Board of Directors, whose members are unrelated and
independent of management, meets at least four times a year with management,
the internal auditors and the external auditors to oversee the discharge of the
responsibilities of the respective parties. The Audit Committee reviews the
independence of the external auditors, and pre-approves audit and permitted
non-audit services, and reviews the consolidated financial statements and other
financial disclosure documents before they are presented to the Board for
approval.  (-s- John M. Van Brunt)
    
    (-s- Bruce G. Waterman)John M. Van Brunt (signed)
Vice Chairman of the Board
& Chief Executive Officer
Calgary, Canada
March 4, 2003
    
    Bruce G. Waterman (signed)
Senior Vice President, Finance
& Chief Financial Officer






Auditors report tothe shareholders




We have audited the consolidated balance sheets of Agrium Inc. as at December
31, 2002 and 2001, and the consolidated statements of operations and retained
earnings and cash flows for each of the years in the three year period ended
December 31, 2002. These financial statements are the responsibility of the
Corporations management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Corporation as at December 31,
2002 and 2001, and the results of its operations and its cash flows for each of
the years in the three year period ended December 31, 2002, in accordance with
Canadian generally accepted accounting principles.  (-s- KPMG LLP) KPMG LLP (signed)
Chartered Accountants
Calgary, Canada
March 4, 2003




Financial Statements and Notes     55





---



##### 



Financial Statements

Consolidated statements of operationsand retained earnings

Years ended December 31
    
    2002
    
    
    2001
    
    
    2000(millions of U.S. dollars, except per share amounts)
    
    
    
    
    
    
    Restated (note 7)Sales
    
    $
    2,198
    
    
    $
    2,174
    
    
    $
    1,973Direct freight
    
    
    115
    
    
    
    111
    
    
    
    100Net sales
    
    
    2,083
    
    
    
    2,063
    
    
    
    1,873Cost of product
    
    
    1,564
    
    
    
    1,516
    
    
    
    1,326Gross profit
    
    
    519
    
    
    
    547
    
    
    
    547ExpensesSelling, general and administrative
    
    
    246
    
    
    
    268
    
    
    
    253Depreciation, depletion and amortization
    
    
    148
    
    
    
    141
    
    
    
    107Royalties and other taxes
    
    
    19
    
    
    
    22
    
    
    
    19Other expenses (note 3)
    
    
    38
    
    
    
    36
    
    
    
    5Argentine charges  Peso translation (note 4)
    
    
    14
    
    
    
    20
    
    
    
    Argentineches U.S. dollar forced conversion (note 4)
    
    
    (10
    )
    
    
    29
    
    
    
    Earnings before interest expense and income taxes
    
    
    64
    
    
    
    31
    
    
    
    163Interest on long-term debt
    
    
    59
    
    
    
    55
    
    
    
    36Other interest
    
    
    9
    
    
    
    19
    
    
    
    1Earnings (loss) before income taxes
    
    
    (4
    )
    
    
    (43
    )
    
    
    126Current income tax (recovery) (note 6)
    
    
    (21
    )
    
    
    28
    
    
    
    9Future income tax (recovery) (note 6)
    
    
    17
    
    
    
    (26
    )
    
    
    35Income taxes
    
    
    (4
    )
    
    
    2
    
    
    
    44Net earnings (loss)
    
    $
    
    
    
    $
    (45
    )
    
    $
    82Retained earnings  beginning of year
    
    
    245
    
    
    
    315
    
    
    
    255Change in accounting policy (note 13)
    
    
    (29
    )
    
    
    
    
    
    
    Common share dividends declared
    
    
    (14
    )
    
    
    (13
    )
    
    
    (13
    )Preferred securities charges
    
    
    (11
    )
    
    
    (12
    )
    
    
    (9
    )Retained earnings  end of year
    
    $
    191
    
    
    $
    245
    
    
    $
    315Basic earnings (loss) per share (note 7)
    
    $
    (0.08
    )
    
    $
    (0.49
    )
    
    $
    0.65Average outstanding shares (in millions)
    
    
    123
    
    
    
    115
    
    
    
    112Diluted earnings (loss) per share (note 7)
    
    $
    (0.08
    )
    
    $
    (0.49
    )
    
    $
    0.62Average outstanding shares (in millions)
    
    
    123
    
    
    
    115
    
    
    
    132Dividends per common share for the year
    
    $
    0.11
    
    
    $
    0.11
    
    
    $
    0.11


See accompanying notes.


56     Financial Statements and Notes



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##### 



Financial Statements

Consolidated statements of cash flows

Years ended December 31
    
    2002
    
    
    2001
    
    
    2000(millions of U.S. dollars)OperatingNet earnings (loss)
    
    $
    
    
    
    $
    (45
    )
    
    $
    82Items not affecting cash:Depreciation, depletion and amortization
    
    
    148
    
    
    
    141
    
    
    
    107Argentine charges  Peso translation (note 4)
    
    
    14
    
    
    
    20
    
    
    
    Argentine charges  U.S. dollar forced conversion (note 4)
    
    
    (10
    )
    
    
    29
    
    
    
    Future income tax (recovery) (note 6)
    
    
    17
    
    
    
    (26
    )
    
    
    35Net changes in non-cash working capitalAccounts receivable
    
    
    11
    
    
    
    21
    
    
    
    23Inventories
    
    
    43
    
    
    
    (66
    )
    
    
    (32
    )Prepaid expenses
    
    
    (4
    )
    
    
    (2
    )
    
    
    (5
    )Accounts payable and accrued liabilities
    
    
    19
    
    
    
    (25
    )
    
    
    98Income and other taxes
    
    
    (14
    )
    
    
    40
    
    
    
    (52
    )Cash provided by operating activities
    
    
    224
    
    
    
    87
    
    
    
    256InvestingCapital assets
    
    
    (52
    )
    
    
    (164
    )
    
    
    (179
    )Acquisition (note 8)
    
    
    
    
    
    
    (19
    )
    
    
    (246
    )Decrease (increase) in other assets
    
    
    2
    
    
    
    (32
    )
    
    
    (48
    )Proceeds from disposal of assets and investments
    
    
    9
    
    
    
    3
    
    
    
    28Net change in non-cash working capital
    
    
    9
    
    
    
    27
    
    
    
    (24
    )Other
    
    
    3
    
    
    
    (15
    )
    
    
    6Cash used in investing activities
    
    
    (29
    )
    
    
    (200
    )
    
    
    (463
    )FinancingCommon shares
    
    
    108
    
    
    
    1
    
    
    
    3Bank indebtedness issue (repayment)
    
    
    (211
    )
    
    
    (97
    )
    
    
    130Issue (repayment) of long-term debt
    
    
    (9
    )
    
    
    267
    
    
    
    10Common share dividends paid
    
    
    (14
    )
    
    
    (13
    )
    
    
    (13
    )Preferred securities charges paid
    
    
    (11
    )
    
    
    (12
    )
    
    
    (9
    )Cash provided (used) by financing activities
    
    
    (137
    )
    
    
    146
    
    
    
    121Increase (decrease) in cash and cash-equivalents
    
    
    58
    
    
    
    33
    
    
    
    (86
    )Cash and cash-equivalents  beginning of year
    
    
    51
    
    
    
    18
    
    
    
    104Cash and cash-equivalents  end of year
    
    $
    109
    
    
    $
    51
    
    
    $
    18Supplemental cash flow disclosure:Interest paid
    
    $
    67
    
    
    $
    72
    
    
    $
    67Income tax paid (received)
    
    $
    (6
    )
    
    $
    (2
    )
    
    $
    54


See accompanying notes.

Financial Statements and Notes     57





---



##### 



Financial Statements

Consolidated balance sheets

As at December 31
    
    2002
    
    
    2001(millions of U.S. dollars)ASSETSCurrent assetsCash and cash-equivalents
    
    $
    109
    
    
    $
    51Accounts receivable (note 9)
    
    
    187
    
    
    
    218Inventories (note 10)
    
    
    353
    
    
    
    400Prepaid expenses
    
    
    35
    
    
    
    34684
    
    
    
    703Capital assets(note 11)
    
    
    1,400
    
    
    
    1,494Other assets(note 12)
    
    
    85
    
    
    
    132Goodwill(note 13)
    
    
    
    
    
    
    45$
    2,169
    
    
    $
    2,374LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesBank indebtedness (note 14)
    
    $
    1
    
    
    $
    211Accounts payable and accrued liabilities (note 15)
    
    
    340
    
    
    
    349Income and other taxes payable
    
    
    
    
    
    
    13Current portion of long-term debt (note 16)
    
    
    25
    
    
    
    7366
    
    
    
    580Long-term debt (note 16)Recourse debt
    
    
    604
    
    
    
    621Non-recourse debt  Profertil
    
    
    132
    
    
    
    141736
    
    
    
    762Other liabilities(note 17)
    
    
    140
    
    
    
    127Future income taxes(note 6)
    
    
    163
    
    
    
    1621,405
    
    
    
    1,631Shareholders equityShare capital (note 18)Authorized: unlimited common shares and preferred securitiesIssued and outstanding:Common shares:      2002  126 million (2001  115 million)
    
    
    484
    
    
    
    376Preferred securities:  8% Non-convertible: 2002  7 million (2001  7 million)
    
    
    171
    
    
    
    171Preferred securit 6% Convertible: 2002  2 million (2001  2 million)
    
    
    50
    
    
    
    50Retained earnings
    
    
    191
    
    
    
    245Cumulative translation adjustment
    
    
    (132
    )
    
    
    (99
    )764
    
    
    
    743Commitments (note 20)Contingencies (note 21)$
    2,169
    
    
    $
    2,374


See accompanying notes.


APPROVED BY THE BOARD:



John M. Van Brunt (signed) Director
    
    Harry G. Schaefer (signed) Director


58    Financial Statements and Notes





---



##### 



Notes to the Consolidated Financial Statements





1.  SIGNIFICANT ACCOUNTING POLICIES
The Corporations accounting policies are in accordance with accounting
principles generally accepted in Canada (Canadian GAAP) and, except as outlined
in note 24, are in accordance with accounting principles generally accepted in
the United States (U.S. GAAP). The underlying financial records contain amounts
based on informed estimates and best judgments of management. Certain
comparative figures have been reclassified to conform to the current years
presentation. The Corporations significant accounting policies are summarized
below:

FOREIGN
CURRENCYThe United States (U.S.) dollar is the unit of measurement for the majority of
the Corporations business transactions and accordingly, the Corporation
adopted the U.S. dollar as its reporting currency. The Corporations Canadian
North America Wholesale, Canadian Corporate and South America Retail operations
are considered self-sustaining and are translated into U.S. dollars using the
current rate method. Under this method, assets and liabilities are translated
at period end exchange rates and items included in the statements of operations
and retained earnings and cash flows are translated at the rates in effect at
the time of the transaction. The gain or loss on translation is charged to the
cumulative translation adjustment account in shareholders equity. The
Corporations joint venture interest (Profertil) is considered integrated and is
translated into U.S. dollars using the temporal method. Under this method,
monetary assets and liabilities are translated at year end exchange rates and
items included on the statements of operations and cash flows are translated at
rates in effect at the time of the transaction. Non-monetary assets and
liabilities are translated at historical rates. The gain or loss on translation
is charged to the statements of operations as Argentine charges  Peso
translation. Approximate exchange rates used in translation are as follows:

Period End
    

2002
    
    
    2001
    
    
    2000U.S. dollar
    
    
    1.00
    
    
    
    1.00
    
    
    
    1.00Argentine peso
    
    
    3.37
    
    
    
    1.70
    
    
    
    1.00Canadian dollar
    
    
    1.58
    
    
    
    1.59
    
    
    
    1.50Period AverageU.S. dollar
    
    
    1.00
    
    
    
    1.00
    
    
    
    1.00Argentine peso
    
    
    3.16
    
    
    
    1.00
    
    
    
    1.00Canadian dollar
    
    
    1.57
    
    
    
    1.55
    
    
    
    1.49


CONSOLIDATIONThe consolidated financial statements include the assets, liabilities and
results of the operations of the Corporation and all of its subsidiaries.
Profertil is accounted for using the proportionate consolidation method under
which the Corporations share of Profertils revenues, expenses, assets and
liabilities are included in the accounts. All intercompany transactions and
balances are eliminated. The cost of investments in subsidiaries in excess of
the fair value of the net identifiable assets acquired is recorded as goodwill.

CASH AND CASH-EQUIVALENTSShort-term investments with an original maturity of three months or less are
considered to be cash-equivalents and are stated at their fair value.

INVENTORIESWholesale inventories include both direct and indirect production costs and
freight to transport the product from the production facility to the final
warehouse facility. Inventory is valued at the lower of weighted average cost
and net realizable value.

Retail inventories are recorded at the lower of purchased cost or net
realizable value, and include the cost of delivery to move the product to the
respective farm center.

CAPITAL ASSETSCapital assets are recorded at cost and include the cost of improvements,
replacements and betterments. Cost is defined as expenditures incurred up to
the commencement of commercial production. This includes external direct costs
of material and services, internal costs for personnel working directly on the
project, interest incurred during construction and net revenue less associated
expenses earned on product sold prior to achieving commercial production
levels.

Financial Statements and Notes     59



---



##### 



Notes to the Consolidated
Financial Statements





Depreciation is calculated using the straight-line method based on the
estimated service lives of the respective assets, ranging from three to 25
years. Depletion of resource properties is based on engineering estimates of
reserve life. Depreciation is not provided on major additions until
commencement of commercial operations.

Management reviews capital assets on an ongoing basis to determine if
circumstances indicate impairment in the carrying value or changes in the
estimated useful life of the asset. If an impairment has occurred, an
impairment charge is recognized as depreciation expense in the amount the
carrying value of the asset exceeds its fair value. Where the estimate of
useful life changes, depreciation is adjusted prospectively to reflect the
change in the amortization period.

OTHER ASSETSOther assets include long-term receivables, investments in associated
corporations and intangible assets.

Investments in associated companies, where the Corporation has the ability to
exercise significant influence, which is generally evidenced by
ownership of
between 20 percent and 50 percent of the equity, are carried on the equity
basis of accounting. The Corporations share of earnings is included in other
income. Investments where the Corporation does not exercise significant
influence are accounted for using the cost method.

Intangible assets include assets with finite lives. Finite life intangibles
such as software costs have lives ranging from three to five years and are
amortized over that period. Deferred financing costs are amortized over the
term of the associated debt instrument. Management reviews finite life
intangible assets on an ongoing basis to determine if circumstances indicate
impairment in the carrying value or changes in the estimated useful life of the
asset. If an impairment has occurred, an impairment charge is recognized as
amortization expense in the amount the carrying value of the asset exceeds its
fair value. Where the estimate of useful life changes, the amortization is
adjusted prospectively to reflect the change in amortization period.

EMPLOYEE FUTURE BENEFITSEmployee future benefits are funded by the Corporation and obligations are
determined using the projected benefit method of actuarial valuation prorated
over the projected length of employee service. Past service costs, experience
gains or losses and the effects of changes in plan assumptions are amortized on
a straight-line basis over the expected average remaining service life of the
relevant employee group. Contributions by the Corporation to defined
contribution employee future benefit plans are expensed as incurred.

SITE RESTORATION AND RECLAMATIONThe Corporation is affected by extensive environmental regulations relating to
current operations and discontinued mining operations. These regulations
include requirements for future site decommissioning, restoration and
reclamation.

Management reviews costs for future removal and site restoration on an ongoing
basis. Provisions are charged against income when the cost of site restoration
exceeds the salvage value of the asset. The charge against income is based on
the remaining service life of the asset.

Expenditures which increase the life
or efficiency of a facility, or which reduce or prevent future contamination,
are capitalized. Expenditures relating to existing conditions, which are
estimable, are recorded as an expense. The expense is recorded net of
anticipated recoveries in a systematic manner over the estimated life of the
underlying assets. Potential future costs which are not reasonably estimable
due to uncertainty of outcome, timing and the nature of the work to be
performed, are considered contingencies, as such, no liability is recorded as
site restoration and reclamation until the amount becomes likely or estimable.
Any associated expenditures are expensed as incurred.

FUTURE INCOME TAXESFuture income taxes are recognized for differences between the carrying values
of assets and liabilities and their respective income tax bases. Future income
tax assets and liabilities are measured using substantively enacted income tax
rates expected to apply to taxable income in the years in which temporary
differences are expected to be reversed or settled. The effect on future income
tax assets and liabilities of a change in rates is included in earnings in the
period during which the change is considered substantively enacted. Future
income tax assets are recorded in the financial statements if realization is
considered more likely than not.

60     Financial Statements and Notes



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##### 











STOCK-BASED COMPENSATIONThe Corporation has a stock option plan, which is described in note 19.
Consideration received on exercise of the stock options is recorded as share
capital. It is the Corporations policy to issue stock options at the market
price on the last business day prior to the date of granting the option, and no
compensation expense is recorded. The pro forma net earnings (loss) and basic
earnings (loss) per share amounts had the Corporation charged the fair value of
stock-based compensation to net earnings (loss) is disclosed in note 19. The
Corporation issues Deferred Stock Units (DSUs) to Directors and Stock
Appreciation Rights (SARs) to employees. Both are remuneration and rewards that
settle in cash and are expensed to production and selling, general and
administration costs when DSUs are issued or share price thresholds are
achieved.

REVENUE RECOGNITIONFor Wholesale operations, revenue is recognized when the product is delivered
to the customer at the plant, warehouse or terminal site or when the risks and
rewards of ownership are otherwise transferred to the customer. For Retail
operations, revenue is recognized when a customer purchases and takes delivery
of the product or service. Transportation costs are recovered from the customer
through product or service pricing.

FINANCIAL INSTRUMENTSThe Corporation utilizes derivatives and other financial instruments to manage
exposure to changes in cash flows related to natural gas supply and foreign
exchange. Gains and losses on contracts that are designated as hedges and
calculated to be effective are recognized in inventory in the same period as
the hedged transaction, and then included in the cost of product when the
related inventory is sold. For these cash flow hedges, effectiveness is
achieved if the changes in the cash flows of the derivatives substantially
offset the changes in the cash flows of the hedged position and the expected
timing in the cash flows is similar.

The Corporation utilizes derivatives and
other financial instruments to manage exposure to changes in the fair value of
long-term debt due to fluctuations in interest rates. Gains and losses on
contracts that are designated as hedges and calculated to be effective
are recognized as an adjustment to interest expense in the same period as the
hedged transaction. For these fair value hedges, effectiveness is achieved if
the changes in the fair value of the derivative substantially offset the
changes in the fair value of the long-term debt.

Unrealized gains and losses on contracts that are designated as hedges and
calculated to be effective are not recognized on the consolidated balance
sheet. If a derivative that qualified as a hedge is settled early or
de-designated, the gain or loss at that date will be recognized when the hedged
transaction is recognized.

FACILITY TURNAROUND COSTSCosts incurred during the temporary shutdown of a production facility for
periodic scheduled maintenance are charged to production costs on a
straight-line basis over the period until the next scheduled turnaround,
generally one to four years. Unamortized costs that will be charged to
production costs within one year of the balance sheet date are included in
prepaid expenses, and all other costs are included in other assets.

IDLE FACILITY COSTSCosts incurred when a facility is shut down, due to market conditions or
facility failure, are charged to other expense.

Financial Statements and Notes     61



---



##### 



Notes to the Consolidated
Financial Statements





2.  CHANGES IN ACCOUNTING POLICY AND ACCOUNTING DEVELOPMENTS
The following table outlines the changes made to Canadian GAAP by the Canadian
Institute of Chartered Accountants (CICA) that affect the 2002 reporting
period:

SECTION AND EFFECTIVE DATE
    
    DESCRIPTION OF CHANGE
    
    ADOPTION BY THE CORPORATIONAccounting Guideline 13
Hedging relationships
July 1, 2003
    
    This accounting guideline sets forth the criteria
required for a derivative instrument to qualify
as a hedging instrument. Included in the
recommendations are the requirements for the
Corporation to put in place formal documentation,
which identifies managements strategy and
objective of the transaction and outlines how
the Corporation will test the effectiveness of the
hedged item in relation to the instrument.
    
    The Corporation adopted Statement of Financial
Accounting Standards (SFAS) 133 for U.S. GAAP
purposes beginning January 1, 2001 that has
similar requirements to this accounting guideline
and as such the Corporation is in compliance with
this guidance.Section 3063
Impairment of
Long-Lived Assets
April 1, 2003
    
    This section requires that asset impairment be
determined through a two-step process. A loss
would be recorded when the net book value of
an asset exceeds the expected undiscounted
future cash flows from the asset. The second
step determines the impairment loss to be the
difference between the fair value and the
carrying value of the asset. Fair value would be
determined by calculating the present value of
the future cash flows. This effectively harmonizes
Canadian standards with the U.S. standard
SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets.
    
    The Corporation adopted this section effective
December 31, 2002.Accounting Guideline 14
Disclosure of Guarantees
December 31, 2002
    
    This guideline is a supplement to the
contingency disclosure requirements. The
guideline requires the disclosure of the
maximum potential of the future payments, the
current carrying value of the liability, if any, the
nature of any recourse provisions, nature of any
assets held as collateral and the approximate
extent to which proceeds from the liquidation
of assets would cover the maximum potential
future obligations of any guarantee.
    
    The Corporation adopted this section
December 31, 2002.


62     Financial Statements and Notes



---



##### 



SECTION AND EFFECTIVE DATE
    
    DESCRIPTION OF CHANGE
    
    ADOPTION BY THE CORPORATIONSection 3870
Stock-based Compensation
July 1, 2002
    
    The section requires stock-based
compensation to employees be measured
and recognized based on the fair value of
the equity instruments or disclosed in the
notes to the financial statements.
For awards to employees that settle in
cash, compensation cost should reflect
the difference between the market price and
the value price specified in the award.
    
    The Corporation retroactively adopted this section
and has chosen to follow the intrinsic method with
disclosure, of the impact of the fair value method.
The Corporation issues stock options and stock
appreciation rights at market prices, so there is no
impact on previously stated earnings (note 19)Section 3062
Goodwill and Other
Intangible Assets
January 1, 2002
    
    This standard requires intangibles to be
separated into finite or indefinite life assets.
Finite life intangibles are amortized over their
useful lives with an annual review of the
amortization method and useful life. Indefinite
life intangibles and goodwill are not amortized
and are tested for impairment annually.
    
    The Corporation adopted this section effective
January 1, 2002 and discontinued amortizing
goodwill at that date (note 13)


Financial Statements and Notes     63



---



##### 



Notes to the Consolidated
Financial Statements





3.  OTHER EXPENSES2002
    
    
    2001
    
    
    2000North America WholesaleIdle facility costs
    
    $
    8
    
    
    $
    15
    
    
    $
    Site restoration and reclamation
    
    
    7
    
    
    
    5
    
    
    
    3Other
    
    
    1
    
    
    
    4
    
    
    
    (7
    )16
    
    
    
    24
    
    
    
    (4
    )North America RetailInterest income
    
    (
    16
    )
    
    
    (16
    )
    
    
    (16
    )Allowance for doubtful accounts
    
    
    3
    
    
    
    5
    
    
    
    6(
    13
    )
    
    
    (11
    )
    
    
    (10
    )South America Wholesale
    
    
    4
    
    
    
    4
    
    
    
    1South America Retail
    
    
    4
    
    
    
    3
    
    
    
    1OtherSite restoration and reclamation
    
    
    3
    
    
    
    3
    
    
    
    2Interest and intersegment eliminations
    
    
    16
    
    
    
    6
    
    
    
    11Other
    
    
    8
    
    
    
    7
    
    
    
    427
    
    
    
    16
    
    
    
    17$
    38
    
    
    $
    36
    
    
    $
    5


4.  ARGENTINE CHARGES
During 2002, the Corporation realized a devaluation loss in the translation of
its South America Wholesale operations of $14-million (2001  $20-million).
For its South America Retail Operations the impact was a $34-million (2001 
$23-million) devaluation charge to the cumulative translation adjustment
account, a component of shareholders equity. During 2002, the Corporations
South America Operations collected receivables at rates better than anticipated
and recovered $10-million of the $29-million charge recorded at December 31,
2001. This charge was recorded against working capital and was made up
primarily of accounts receivable in South America Retail. This reflected the
anticipated impact of the contract index law, legislating conversion of all
U.S. dollar debts to Argentine pesos on a one to one basis, representing forced
conversion of a portion of the Corporations U.S. dollar assets in Argentina.

In January 2002, the Government of Argentina cancelled the long-standing
convertibility law of one Argentina peso for one U.S. dollar. In its place, the
Government created a commercial peso to be exchanged at 1.40 pesos for one
U.S. dollar, and a free floating peso. Subsequently, the government announced
that the commercial peso would only be used to convert U.S. dollar bank
deposits and all remaining transactions and balances would be based on a
free-floating system. The Government also passed legislation referred to as the
contract index law, which resulted in an initial payment on a one U.S. dollar
equals one Argentine peso basis for all U.S. dollar denominated monetary
balances including working capital items.

The conditions which caused these
events to occur in January 2002, existed at the December 31, 2001 balance sheet
date and the financial results for the December 31, 2001 period were adjusted
accordingly.

5.  SEGMENTATION
The Corporations activities are divided geographically and then by functional
area into five reportable segments. The four operating segments are North
America Wholesale, North America Retail, South America Wholesale and South
America Retail. Wholesale comprises the production and sales of the three
primary nutrients: nitrogen, phosphate and potash. Retail comprises the sale of
fertilizers, chemicals, seed, custom application services and agronomic
consulting. The fifth segment is Other, which includes corporate overhead and
inter-segment eliminations. Net sales between segments and countries are
accounted for at prices which approximate fair market value.

64     Financial Statements and Notes



---



##### 



SEGMENTED NET SALES, EXPENSES, NET WORKING CAPITAL, CAPITAL ASSETS, TOTAL ASSETS AND CAPITAL EXPENDITURES

North America
    
    South America2002
    Wholesale
    
    Retail
    
    Wholesale
    
    Retail
    
    Other
    
    TotalNet sales  external customers
    
    $
    1,094
    
    
    $
    849
    
    
    $
    60
    
    
    $
    80
    
    
    $
    
    
    
    $
    2,083Net
sales internal customers
    
    
    78
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    (82
    )
    
    
    Total net sales
    
    
    1,172
    
    
    
    849
    
    
    
    64
    
    
    
    80
    
    
    
    (82
    )
    
    
    2,083Cost of product
    
    
    976
    
    
    
    593
    
    
    
    28
    
    
    
    50
    
    
    
    (83
    )
    
    
    1,564Gross profit
    
    
    196
    
    
    
    256
    
    
    
    36
    
    
    
    30
    
    
    
    1
    
    
    
    519Expenses:Selling, general and administrative
    
    
    24
    
    
    
    191
    
    
    
    4
    
    
    
    8
    
    
    
    19
    
    
    
    246Depreciation, depletion and amortization
    
    
    102
    
    
    
    20
    
    
    
    18
    
    
    
    1
    
    
    
    7
    
    
    
    148Royalties and other taxes
    
    
    13
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    19Other (income) expense
    
    
    17
    
    
    
    (12
    )
    
    
    4
    
    
    
    4
    
    
    
    25
    
    
    
    38Argentine charges  Peso translation
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    14Argentine
charges U.S. dollar forced conversion
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (8
    )
    
    
    
    
    
    
    (10
    )Earnings (loss) before interest expense
and income taxes
    
    $
    40
    
    
    $
    52
    
    
    $
    (2
    )
    
    $
    25
    
    
    $
    (51
    )
    
    $
    64Net working capital
    
    $
    310
    
    
    $
    71
    
    
    $
    (23
    )
    
    $
    47
    
    
    $
    (87
    )
    
    $
    318Capital assets
    
    $
    1,032
    
    
    $
    96
    
    
    $
    248
    
    
    $
    6
    
    
    $
    18
    
    
    $
    1,400Total assets
    
    $
    1,515
    
    
    $
    326
    
    
    $
    314
    
    
    $
    64
    
    
    $
    (50
    )
    
    $
    2,169Capital expenditures
    
    $
    41
    
    
    $
    10
    
    
    $
    
    
    
    $
    
    
    
    $
    1
    
    
    $
    52


North America
    
    South America2001
    Wholesale
    
    Retail
    
    Wholesale
    
    Retail
    
    Other
    
    TotalNet sales  external customers
    
    $
    1,086
    
    
    $
    831
    
    
    $
    63
    
    
    $
    83
    
    
    $
    
    
    
    $
    2,063Net
sales internal customers
    
    
    74
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    (82
    )
    
    
    Total net sales
    
    
    1,160
    
    
    
    831
    
    
    
    71
    
    
    
    83
    
    
    
    (82
    )
    
    
    2,063Cost of product
    
    
    925
    
    
    
    574
    
    
    
    43
    
    
    
    58
    
    
    
    (84
    )
    
    
    1,516Gross profit
    
    
    235
    
    
    
    257
    
    
    
    28
    
    
    
    25
    
    
    
    2
    
    
    
    547Expenses:Selling, general and administrative
    
    
    33
    
    
    
    193
    
    
    
    7
    
    
    
    16
    
    
    
    19
    
    
    
    268Depreciation, depletion and amortization
    
    
    96
    
    
    
    20
    
    
    
    13
    
    
    
    5
    
    
    
    7
    
    
    
    141Royalties and other taxes
    
    
    16
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    22Other (income) expense
    
    
    26
    
    
    
    (12
    )
    
    
    4
    
    
    
    3
    
    
    
    15
    
    
    
    36Argentine charges  Peso translation
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    20Argentine
charges U.S. dollar forced conversion
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    27
    
    
    
    
    
    
    
    29Earnings (loss) before interest expense
and income taxes
    
    $
    64
    
    
    $
    51
    
    
    $
    (18
    )
    
    $
    (26
    )
    
    $
    (40
    )
    
    $
    31Net working capital
    
    $
    267
    
    
    $
    37
    
    
    $
    (30
    )
    
    $
    45
    
    
    $
    (196
    )
    
    $
    123Capital assets
    
    $
    1,087
    
    
    $
    106
    
    
    $
    262
    
    
    $
    15
    
    
    $
    24
    
    
    $
    1,494Total assets
    
    $
    1,625
    
    
    $
    316
    
    
    $
    346
    
    
    $
    73
    
    
    $
    14
    
    
    $
    2,374Capital expenditures
    
    $
    126
    
    
    $
    14
    
    
    $
    18
    
    
    $
    3
    
    
    $
    3
    
    
    $
    164


Financial Statements and Notes     65



---



##### 



Notes to the Consolidated
Financial Statements

North America
    
    South America2000
    Wholesale
    
    Retail
    
    Wholesale
    
    Retail
    
    Other
    
    TotalNet sales  external customers
    
    $
    982
    
    
    $
    815
    
    
    $
    7
    
    
    $
    69
    
    
    $
    
    
    
    $
    1,873Net
sales internal customers
    
    
    63
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    (68
    )
    
    
    Total net sales
    
    
    1,045
    
    
    
    815
    
    
    
    12
    
    
    
    69
    
    
    
    (68
    )
    
    
    1,873Cost of product
    
    
    767
    
    
    
    568
    
    
    
    10
    
    
    
    50
    
    
    
    (69
    )
    
    
    1,326Gross profit
    
    
    278
    
    
    
    247
    
    
    
    2
    
    
    
    19
    
    
    
    1
    
    
    
    547Expenses:Selling, general and administrative
    
    
    30
    
    
    
    186
    
    
    
    4
    
    
    
    14
    
    
    
    19
    
    
    
    253Depreciation, depletion and amortization
    
    
    71
    
    
    
    20
    
    
    
    1
    
    
    
    5
    
    
    
    10
    
    
    
    107Royalties and other taxes
    
    
    14
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    19Other (income) expense
    
    
    (3
    )
    
    
    (10
    )
    
    
    1
    
    
    
    1
    
    
    
    16
    
    
    
    5Earnings (loss) before interest expense and income taxes
    
    $
    166
    
    
    $
    47
    
    
    $
    (4
    )
    
    $
    (1
    )
    
    $
    (45
    )
    
    $
    163Net working capital
    
    $
    205
    
    
    $
    81
    
    
    $
    (144
    )
    
    $
    73
    
    
    $
    (206
    )
    
    $
    9Capital assets
    
    $
    1,061
    
    
    $
    112
    
    
    $
    256
    
    
    $
    27
    
    
    $
    28
    
    
    $
    1,484Total assets
    
    $
    1,557
    
    
    $
    340
    
    
    $
    328
    
    
    $
    120
    
    
    $
    26
    
    
    $
    2,371Capital expenditures
    
    $
    94
    
    
    $
    17
    
    
    $
    62
    
    
    $
    1
    
    
    $
    5
    
    
    $
    179


NET SALES AND GROSS PROFIT BY BUSINESS SEGMENT AND PRODUCT LINE

2002
    
    2001
    
    2000Net
    
    Cost of
    
    Gross
    
    Net
    
    Cost of
    
    Gross
    
    Net
    
    Cost of
    
    GrossSales
    
    Product
    
    Profit
    
    Sales
    
    Product
    
    Profit
    
    Sales
    
    Product
    
    ProfitNorth America WholesaleNitrogenAmmonia
    
    $
    242
    
    
    $
    222
    
    
    $
    20
    
    
    $
    323
    
    
    $
    239
    
    
    $
    84
    
    
    $
    246
    
    
    $
    173
    
    
    $
    73Urea
    
    
    330
    
    
    
    292
    
    
    
    38
    
    
    
    304
    
    
    
    253
    
    
    
    51
    
    
    
    299
    
    
    
    216
    
    
    
    83Other
    
    
    140
    
    
    
    135
    
    
    
    5
    
    
    
    150
    
    
    
    135
    
    
    
    15
    
    
    
    92
    
    
    
    76
    
    
    
    16712
    
    
    
    649
    
    
    
    63
    
    
    
    777
    
    
    
    627
    
    
    
    150
    
    
    
    637
    
    
    
    465
    
    
    
    172Phosphate
    
    
    239
    
    
    
    202
    
    
    
    37
    
    
    
    179
    
    
    
    173
    
    
    
    6
    
    
    
    196
    
    
    
    177
    
    
    
    19Potash
    
    
    158
    
    
    
    91
    
    
    
    67
    
    
    
    138
    
    
    
    80
    
    
    
    58
    
    
    
    151
    
    
    
    81
    
    
    
    70Sulphate and other products
    
    
    63
    
    
    
    34
    
    
    
    29
    
    
    
    66
    
    
    
    45
    
    
    
    21
    
    
    
    61
    
    
    
    44
    
    
    
    171,172
    
    
    
    976
    
    
    
    196
    
    
    
    1,160
    
    
    
    925
    
    
    
    235
    
    
    
    1,045
    
    
    
    767
    
    
    
    278North America RetailFertilizers
    
    
    366
    
    
    
    265
    
    
    
    101
    
    
    
    386
    
    
    
    278
    
    
    
    108
    
    
    
    352
    
    
    
    254
    
    
    
    98Chemicals
    
    
    361
    
    
    
    266
    
    
    
    95
    
    
    
    336
    
    
    
    245
    
    
    
    91
    
    
    
    358
    
    
    
    267
    
    
    
    91Other products and services
    
    
    122
    
    
    
    62
    
    
    
    60
    
    
    
    109
    
    
    
    51
    
    
    
    58
    
    
    
    105
    
    
    
    47
    
    
    
    58849
    
    
    
    593
    
    
    
    256
    
    
    
    831
    
    
    
    574
    
    
    
    257
    
    
    
    815
    
    
    
    568
    
    
    
    247South America WholesaleNitrogen
    
    
    61
    
    
    
    26
    
    
    
    35
    
    
    
    68
    
    
    
    41
    
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    Other products and services
    
    
    3
    
    
    
    2
    
    
    
    1
    
    
    
    3
    
    
    
    2
    
    
    
    1
    
    
    
    12
    
    
    
    10
    
    
    
    264
    
    
    
    28
    
    
    
    36
    
    
    
    71
    
    
    
    43
    
    
    
    28
    
    
    
    12
    
    
    
    10
    
    
    
    2South America RetailFertilizers
    
    
    53
    
    
    
    31
    
    
    
    22
    
    
    
    57
    
    
    
    38
    
    
    
    19
    
    
    
    47
    
    
    
    32
    
    
    
    15Other products and services
    
    
    27
    
    
    
    19
    
    
    
    8
    
    
    
    26
    
    
    
    20
    
    
    
    6
    
    
    
    22
    
    
    
    18
    
    
    
    480
    
    
    
    50
    
    
    
    30
    
    
    
    83
    
    
    
    58
    
    
    
    25
    
    
    
    69
    
    
    
    50
    
    
    
    19Other
    
    
    (82
    )
    
    
    (83
    )
    
    
    1
    
    
    
    (82
    )
    
    
    (84
    )
    
    
    2
    
    
    
    (68
    )
    
    
    (69
    )
    
    
    1Total
    
    $
    2,083
    
    
    $
    1,564
    
    
    $
    519
    
    
    $
    2,063
    
    
    $
    1,516
    
    
    $
    547
    
    
    $
    1,873
    
    
    $
    1,326
    
    
    $
    547


66     Financial Statements and Notes



---



##### 



NET SALES BY MARKET DESTINATION AND ASSETS BY COUNTRY

2002
    
    2001
    
    2000Net
    
    Capital
    
    
    
    
    
    Net
    
    Capital
    
    
    
    
    
    Net
    
    CapitalSales
    
    Assets
    
    Goodwill
    
    Sales
    
    Assets
    
    Goodwill
    
    Sales
    
    Assets
    
    GoodwillCanada
    
    $
    403
    
    
    $
    522
    
    
    $
    
    
    
    $
    383
    
    
    $
    545
    
    
    $
    
    
    
    $
    423
    
    
    $
    586
    
    
    $
    United States
    
    
    1,425
    
    
    
    623
    
    
    
    
    
    
    
    1,385
    
    
    
    673
    
    
    
    45
    
    
    
    1,249
    
    
    
    615
    
    
    
    49Argentina
    
    
    118
    
    
    
    255
    
    
    
    
    
    
    
    121
    
    
    
    276
    
    
    
    
    
    
    
    76
    
    
    
    283
    
    
    
    Other
    
    
    137
    
    
    
    
    
    
    
    
    
    
    
    174
    
    
    
    
    
    
    
    
    
    
    
    125
    
    
    
    
    
    
    
    $
    2,083
    
    
    $
    1,400
    
    
    $
    
    
    
    $
    2,063
    
    
    $
    1,494
    
    
    $
    45
    
    
    $
    1,873
    
    
    $
    1,484
    
    
    $
    49


6.  INCOME TAXES
The significant components of future income tax assets and liabilities at
December 31 are as follows:

2002
    
    
    2001Loss carryforwards expiring through 2011
    
    $
    111
    
    
    $
    36Site restoration and reclamation
    
    
    32
    
    
    
    30Financial reserves and accruals
    
    
    17
    
    
    
    13Employee future benefits
    
    
    15
    
    
    
    12Intangible assets
    
    
    13
    
    
    
    Debt retirement and other financing
    
    
    5
    
    
    
    5Other
    
    
    
    
    
    
    3Future income tax assets before valuation allowance
    
    
    193
    
    
    
    99Valuation allowance
    
    
    (65
    )
    
    
    (1
    )Future income tax assets, net of valuation allowance
    
    
    128
    
    
    
    98Depreciation, depletion and amortization
    
    
    243
    
    
    
    228Deferred income
    
    
    24
    
    
    
    13Other
    
    
    24
    
    
    
    19Future income tax liabilities
    
    
    291
    
    
    
    260Net future income tax liabilities
    
    $
    163
    
    
    $
    162


Financial Statements and Notes     67



---



##### 



Notes to the ConsolidatedFinancial Statements

The major factors that caused variations from the expected combined Canadian
federal and provincial statutory income tax rate of 43 percent (2001  44
percent; 2000  45 percent) were the following:

2002
    
    
    2001
    
    
    2000Earnings (losses) before income tax:Canadian
    
    $
    (35
    )
    
    $
    (22
    )
    
    $
    48Foreign
    
    
    31
    
    
    
    (21
    )
    
    
    78$
    (4
    )
    
    $
    (43
    )
    
    $
    126Statutory rate
    
    
    43%
    
    
    
    44%
    
    
    
    45%Income tax at statutory rates
    
    
    (2
    )
    
    
    (19
    )
    
    
    57Differences in foreign tax rates
    
    
    (10
    )
    
    
    (10
    )
    
    
    (15
    )Manufacturing and processing allowance
    
    
    6
    
    
    
    5
    
    
    
    (2
    )Argentine peso translation and U.S. dollar forced conversion
    
    
    2
    
    
    
    22
    
    
    
    Resource Royalties and Allowances
    
    
    1
    
    
    
    4
    
    
    
    3Other
    
    
    (1
    )
    
    
    
    
    
    
    1Income tax provision
    
    $
    (4
    )
    
    $
    2
    
    
    $
    44Current:Canadian
    
    $
    (4
    )
    
    $
    26
    
    
    $
    (5
    )Foreign
    
    
    (17
    )
    
    
    2
    
    
    
    14(21
    )
    
    
    28
    
    
    
    9Future:Canadian
    
    
    
    
    
    
    (33
    )
    
    
    27Foreign
    
    
    17
    
    
    
    7
    
    
    
    817
    
    
    
    (26
    )
    
    
    35$
    (4
    )
    
    $
    2
    
    
    $
    44


7. EARNINGS (LOSS) PER SHARE

The following table summarizes the computation of net earnings (loss) per
share:

2002
    
    
    2001
    
    
    2000Numerator:
    
    
    
    
    
    
    
    Restated (e)Net earnings (loss)
    
    $
    
    
    
    $
    (45
    )
    
    $
    82Preferred securities charges net of tax(a)
    
    
    (11
    )
    
    
    (12
    )
    
    
    (9
    )Numerator for basic earnings (loss) per share
    
    
    (11
    )
    
    
    (57
    )
    
    
    73Preferred securities charges net of tax(a)
    
    
    
    
    
    
    
    
    
    
    9Numerator for diluted earnings (loss) per share
    
    $
    (11
    )
    
    $
    (57
    )
    
    $
    82Denominator:Weighted average denominator for basic common shares
    
    
    123
    
    
    
    115
    
    
    
    112Dilutive instruments:Stock options using the treasury stock method(b)
    
    
    
    
    
    
    
    
    
    
    1Preferred securities converted to common shares$175-million, eight percent(b),(c)
    
    
    
    
    
    
    
    
    
    
    18$50-million, six percent(b),(d)
    
    
    
    
    
    
    
    
    
    
    1Denominator for diluted earnings (loss) per share
    
    
    123
    
    
    
    115
    
    
    
    132Basic earnings (loss) per share
    
    $
    (0.08
    )
    
    $
    (0.49
    )
    
    $
    0.65Diluted earnings (loss) per share
    
    $
    (0.08
    )
    
    $
    (0.49
    )
    
    $
    0.62


68     Financial Statements and Notes





---



##### 







(a) PREFERRED SECURITIES CHARGES NET OF TAX

Under Canadian GAAP the preferred securities (note 18) are considered senior
equity instruments and the preferred securities charges that are charged to
retained earnings are deducted from net earnings (loss) for the computation of
basic earnings (loss) per share. For diluted earnings (loss) per share, these
preferred securities charges are added back when the impact of the senior
equity instrument is dilutive to basic earnings (loss) per share.

(b) ANTI-DILUTION

The Corporation excludes potential common share equivalents from the
calculation of diluted earnings (loss) per share when these instruments are
considered anti-dilutive.

(c) $175-MILLION, UNSECURED EIGHT PERCENT REDEEMABLE PREFERRED SECURITIES

The conversion of this series of preferred securities is based on the average
trading price of the Corporations common shares during the period.

(d) $50-MILLION, SIX PERCENT CONVERTIBLE PREFERRED SECURITIES

This series of preferred securities is convertible to common shares at the
fixed conversion price of $11.9677 per common share.

(e) THE TREASURY STOCK METHOD

Under the treasury stock method all options with an average share price less
than or equal to the average share price during the period are considered
outstanding. The Corporation adopted the treasury stock method in 2001 and
restated prior periods resulting in diluted earnings per share of $0.62 for
2000 compared to fully diluted earnings per share of $0.63.

8. ACQUISITION

In 2000, the Corporation acquired the Alaskan nitrogen facility and related
U.S. West Coast assets. Consideration paid consisted of $50-million principal
amount of six percent convertible preferred securities, 2.6 million of the
Corporations common shares valued at $25-million, and $246-million in cash. In
addition, the Corporation granted a right to receive contingent consideration
in the form of an Earn-out (note 21).

Concurrent with the purchase, the Corporation sold certain storage assets
acquired for proceeds of approximately $16-million. The net acquisition has
been accounted for under the purchase method of accounting with the net assets
acquired and liabilities assumed included in the balance sheet as at September
30, 2000, and results from operations included in the Corporations financial
statements from that date.

NET ASSETS ACQUIRED:

Current assets
    
    $
    99Current liabilities
    
    
    (23
    )Working capital
    
    
    76Tangible capital assets
    
    
    286Site restoration and reclamation
    
    
    (41
    )Consideration paid
    
    $
    321Transaction expenses
    
    
    10Disposition of non-core assets
    
    
    (16
    )Total net assets
    
    $
    315


Payments under the Earn-out arrangement are capitalized as part of the capital
assets and are amortized over the remaining life of the assets. During 2002,
nil (2001  $19-million) was capitalized as Earn-out amounts.

Financial Statements and Notes     69





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##### 



Notes to the ConsolidatedFinancial Statements

9. ACCOUNTS RECEIVABLE

2002
    
    
    2001North America WholesaleTrade accounts
    
    $
    91
    
    
    $
    102Allowance for doubtful accounts
    
    
    (1
    )
    
    
    (1
    )Rebates and other non-trade accounts
    
    
    4
    
    
    
    2094
    
    
    
    121North America RetailTrade accounts
    
    
    41
    
    
    
    41Allowance for doubtful accounts
    
    
    (7
    )
    
    
    (7
    )Rebates and other non-trade accounts
    
    
    21
    
    
    
    1455
    
    
    
    48South America Wholesale
    
    
    5
    
    
    
    9South America RetailTrade Accounts
    
    
    43
    
    
    
    46Allowance for doubtful accounts
    
    
    (12
    )
    
    
    (8
    )31
    
    
    
    38Other
    
    
    2
    
    
    
    2$
    187
    
    
    $
    218


On an ongoing basis, certain of the Corporations U.S. subsidiaries sell their
accounts receivable balances net of allowances to a subsidiary of the
Corporation. The subsidiary has an agreement to sell to a financial
institution, on an ongoing basis, an undivided percentage interest in this
designated pool of receivables, on a non-recourse basis, in an amount not to
exceed $125-million. The Corporation has granted a security interest to the
financial institution in the remaining receivables held by the subsidiary. The
fees and expenses are calculated based on the receivables sold and the
prevailing commercial paper rate. The agreement expires in December 2007 and
may be terminated earlier.

Servicing of the receivables sold is performed by a U.S. subsidiary of the
Corporation which charges a fee of 2 percent of the pool balance.

Receivables sold at December 31, were as follows:

2002
    
    
    2001North America Wholesale
    
    $
    34
    
    
    $
    21North America Retail
    
    
    80
    
    
    
    83$
    114
    
    
    $
    104


Average monthly receivables sold, fees and expenses incurred on this program
for the year ended December 31, were as follows:

2002
    
    
    2001North America Wholesale
    
    $
    23
    
    
    $
    30North America Retail
    
    
    75
    
    
    
    68$
    98
    
    
    $
    98Fees and expenses paid
    
    $
    3
    
    
    $
    4


70     Financial Statements and Notes





---



##### 



10. INVENTORIES

2002
    
    
    2001North America WholesaleFertilizers
    
    $
    110
    
    
    $
    172Operating supplies
    
    
    67
    
    
    
    70Raw materials
    
    
    24
    
    
    
    26201
    
    
    
    268North America RetailFertilizers
    
    
    47
    
    
    
    51Chemicals
    
    
    70
    
    
    
    63Other
    
    
    15
    
    
    
    7132
    
    
    
    121South America Wholesale
    
    
    7
    
    
    
    6South America Retail
    
    
    13
    
    
    
    5$
    353
    
    
    $
    400


Wholesale Fertilizers include the Corporations produced product as well as
work in process. Operating supplies include catalysts used in the wholesale
production process, materials used for maintenance and repairs and other
supplies. Raw materials consist primarily of phosphate rock, which has been
mined but not used in the production process. Inventories include storage and
transportation costs to move the product from production facilities to storage
locations.

Retail The cost of fertilizer, seed and chemical inventories represents the
purchase price plus transportation costs to move the product to the farm
centre.

11. CAPITAL ASSETS

2002
    
    
    2001Accumulated
    
    
    
    
    
    
    
    
    
    
    AccumulatedDepreciation,
    
    
    Net
    
    
    
    
    
    
    Depreciation,
    
    
    NetDepletion and
    
    
    Book
    
    
    
    
    
    
    Depletion and
    
    
    BookCost
    
    
    Amortization
    
    
    Value
    
    
    Cost
    
    
    Amortization
    
    
    ValueLand
    
    $
    28
    
    
    $
    
    
    
    $
    28
    
    
    $
    28
    
    
    $
    
    
    
    $
    28Buildings and improvements
    
    
    305
    
    
    
    132
    
    
    
    173
    
    
    
    303
    
    
    
    119
    
    
    
    184Building under capital lease
    
    
    15
    
    
    
    3
    
    
    
    12
    
    
    
    15
    
    
    
    2
    
    
    
    13Machinery and equipment
    
    
    2,007
    
    
    
    865
    
    
    
    1,142
    
    
    
    2,004
    
    
    
    790
    
    
    
    1,214Resource properties
    
    
    39
    
    
    
    21
    
    
    
    18
    
    
    
    39
    
    
    
    18
    
    
    
    21Construction in progress
    
    
    27
    
    
    
    
    
    
    
    27
    
    
    
    34
    
    
    
    
    
    
    
    34$
    2,421
    
    
    $
    1,021
    
    
    $
    1,400
    
    
    $
    2,423
    
    
    $
    929
    
    
    $
    1,494


Included in capital assets is interest capitalized during 2002 of nil (2001 
$1-million; 2000  $20-million).

12. OTHER ASSETS

2002
    
    
    2001South America value-added tax and other costs
    
    $
    49
    
    
    $
    73Receivable under environmental indemnity agreements
    
    
    
    
    
    
    11Long-term receivables
    
    
    10
    
    
    
    20Long-term investments
    
    
    13
    
    
    
    13Other
    
    
    13
    
    
    
    15$
    85
    
    
    $
    132


Financial Statements and Notes     71





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##### 



Notes to the ConsolidatedFinancial Statements

The long-term portions of value-added taxes are related to the investment in
South America Retail and the Corporations share of Profertil. Value-added tax
assets are accumulated on the balance sheet as costs are incurred and are
recovered against future value-added taxes collected by the Corporation and due
to the government.

13. GOODWILL

2002
    
    
    2001Cost
    
    $
    
    
    
    $
    67Accumulated amortization
    
    
    
    
    
    
    22$
    
    
    
    $
    45


Effective January 1, 2002, the Corporation adopted the new accounting standard
for goodwill. This standard requires that goodwill be subject to an annual
impairment test rather than being amortized. In 2002, the Corporation completed
the transitional impairment test using a discounted cash flow method for the
reporting unit that includes goodwill. The results of the test indicated that
goodwill recorded in the Corporations phosphate business, which was included
in the reportable segment entitled North America Wholesale, was impaired. The
amount of the impairment represented the entire goodwill balance of $45-million
or $29-million net of tax. The resulting impairment loss has been recognized as
a change in accounting policy and charged to retained earnings as of January 1,
2002.

Included in depreciation, depletion and amortization in the statement of
operations for 2002 is amortization of goodwill of nil (2001  $4-million;
2000  $3-million).

14. BANK INDEBTEDNESS

2002
    
    
    2001$225-million credit facility(a)
    
    $
    
    
    
    $
    186$56-million credit facility(b)
    
    
    
    
    
    
    20Profertil(c)
    
    
    1
    
    
    
    5$
    1
    
    
    $
    211


The weighted average interest rate for bank indebtedness in 2002 was six
percent (2001  five percent; 2000  eight percent).

(a) AGRIUM INC.

The Corporation has a $225-million, 364-day syndicated revolving credit
facility due in May 2003. Concurrent with the new share issue (note 18), this
facility was reduced from $300-million. This facility contains a 1.5-year
term-out provision exercisable at the Corporations option. Under this option
the Corporation can convert the facility into a term lending arrangement
following expiration of the 364-day revolving period. Agrium U.S. Inc., a
subsidiary of the Corporation, guarantees this facility. Interest rates are at
either LIBOR plus a spread, bankers acceptance rate plus a spread or a base
rate established by the bank plus variable spreads, at the election of the
Corporation. The loan agreements require the Corporation to maintain certain
financial ratios and other covenants.

(b) AGRIUM U.S. INC.

The Corporations wholly owned subsidiary, Agrium U.S. Inc., has a base
revolving credit facility of up to $56-million, which expires December 4, 2004.
Concurrent with the new share issue (note 18), this facility was reduced from
$75-million. This facility is guaranteed by the Corporation and requires the
Corporation to maintain certain financial ratios and other covenants.

(c) PROFERTIL

Profertil completed a bridge financing of up to $285-million which was repaid
with proceeds from the non-recourse syndicated 10-year term credit agreement
(note 16(e)) in March 2001.

Profertil utilizes limited short-term borrowings
from Argentine financial institutions at prevailing interest rates to fund
working capital requirements.The Corporations share of amounts outstanding was
$1-million at December 31, 2002 (2001  $5-million).

72     Financial Statements and Notes





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##### 



15. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

2002
    
    
    2001North America WholesaleTrade
    
    $
    59
    
    
    $
    55Customer rebates
    
    
    10
    
    
    
    11Accrued liabilities
    
    
    105
    
    
    
    112174
    
    
    
    178North America RetailTrade
    
    
    94
    
    
    
    98Accrued liabilities
    
    
    26
    
    
    
    29120
    
    
    
    127South America Wholesale
    
    
    5
    
    
    
    6South America Retail
    
    
    8
    
    
    
    7OtherAccrued interest payable
    
    
    14
    
    
    
    13Dividends payable
    
    
    7
    
    
    
    6Accrued liabilities
    
    
    12
    
    
    
    1233
    
    
    
    31$
    340
    
    
    $
    349


16. LONG-TERM DEBT

2002
    
    
    2001Unsecured6.86% senior notes due December 29, 2003 to 2007(a)
    
    $
    75
    
    
    $
    757.06% senior notes due December 29, 2004 to 2010(b)
    
    
    100
    
    
    
    1007% notes due February 1, 2004(c)
    
    
    75
    
    
    
    757.7% debentures due February 1, 2017(c)
    
    
    100
    
    
    
    1007.8% debentures due February 1, 2027(c)
    
    
    125
    
    
    
    1258.25% debentures due February 15, 2011(c)
    
    
    125
    
    
    
    125SecuredCapital lease obligation(d)
    
    
    14
    
    
    
    14Profertil  non-recourse(e)
    
    
    140
    
    
    
    145Profertil  other
    
    
    5
    
    
    
    8Other
    
    
    2
    
    
    
    2761
    
    
    
    769Principal repayments due within one year
    
    
    25
    
    
    
    7$
    736
    
    
    $
    762


(a) The notes have five equal annual principal repayments commencing December
29, 2003. These notes are guaranteed by Agrium U.S. Inc., a subsidiary of the
Corporation, and require the Corporation to maintain certain financial ratios
and other covenants.

(b) The notes have seven equal annual principal repayments
commencing December 29, 2004. These notes are guaranteed by Agrium U.S. Inc., a
subsidiary of the Corporation, and require the Corporation to maintain certain
financial ratios and other covenants.

(c) These notes and debentures require the Corporation to meet certain
financial ratios and other covenants.

(d) The capital lease obligation is comprised of the corporate head office
building lease (note 11), which is denominated in Canadian dollars, bears
interest at seven percent and expires in March 2019. Total payments, including
principal and interest, to be paid over the remainder of the lease are
$24-million, of which $10-million represents interest. Annual payments in each
of the next five years are included in note 20.

Financial Statements and Notes     73





---



##### 



Notes to the ConsolidatedFinancial Statements

(e) In 2000, Profertil entered into a syndicated term credit facility, the
majority of which was drawn in March 2001, to repay the $285-million bridge
financing facility that expired in March 2001. The Corporations share of
amounts outstanding under the Credit Agreement at December 31, 2002, is
$140-million of which $9-million is repayable within one year. At December 31,
2002, amounts outstanding under the credit agreement are broken into tranches
of $81-million, $71-million and $128-million, of which the Corporations share
is 50 percent. The two smaller tranches accrue interest at the LIBOR rate plus
a spread. The $128-million tranche accrues interest at a fixed rate. Principal
plus accrued interest is repayable in 18 semi-annual installments. The facility
matures December 31, 2010.

This facility became non-recourse to the Profertil joint venture partners once
completion guarantees on the facility had been released on November 30, 2001.
The Corporation has pledged its shares in Profertil to the bank as security in
the event of default. The joint venture partners have also entered into an
agreement which limits the transfer of the ownership interests in Profertil for
a period of six years commencing from the completion date, which was November
30, 2001.

17. OTHER LIABILITIES

2002
    
    
    2001Site restoration and reclamation(a)
    
    $
    94
    
    
    $
    90Employee future benefits(b)Pensions
    
    
    14
    
    
    
    10Other post-retirement benefits
    
    
    26
    
    
    
    23Other
    
    
    6
    
    
    
    4$
    140
    
    
    $
    127


(a) SITE RESTORATION AND RECLAMATION

During 2002, the Corporation accrued $10-million (2001  $8-million; 2000 
$46-million) for anticipated future expenditures.

Expenditures relating to restoration and reclamation were $6-million in 2002
(2001  $3-million) and were expensed or charged against provisions recorded
in previous years.

(b) EMPLOYEE FUTURE BENEFITS

The Corporation maintains both defined benefit and defined contribution pension
plans in Canada and in the United States, which are both contributory and
non-contributory with regard to participants. The majority of employees are
members of defined contribution pension plans. The Corporation also maintains
certain contributory health care plans and life insurance benefits for retired
employees. Benefits from defined benefit plans are based on either years of
service and compensation or a rated amount for each year of service. The
employee future benefit costs are determined annually by independent actuaries
and include current service costs and a provision for the amortization of prior
service costs. Employee future benefit costs for current service are charged to
earnings in the year incurred. The liability for past service is charged to
earnings over the remaining service lives of the employees.

The Corporation has additional defined benefit and defined contribution
retirement income plans for senior management, which are non-contributory and
provide a supplementary pension benefit. The plans are provided for by annual
charges to earnings sufficient to meet the projected benefit obligations.

74     Financial Statements and Notes



---



##### 



The components of net employee future benefits expense for the Corporations
defined benefit plans are computed actuarially as follows:

2002
    
    
    2001
    
    
    2000Defined benefit plansService cost for benefits earned during the year
    
    $
    4
    
    
    $
    3
    
    
    $
    3Interest cost on projected benefit obligations
    
    
    7
    
    
    
    6
    
    
    
    5Expected return on plan assets
    
    
    (6
    )
    
    
    (5
    )
    
    
    (5
    )Net amortization and deferral
    
    
    1
    
    
    
    
    
    
    
    1Net expense
    
    
    6
    
    
    
    4
    
    
    
    4Post-retirement plansService cost for benefits earned during the year
    
    
    2
    
    
    
    1
    
    
    
    1Interest cost on projected benefit obligations
    
    
    2
    
    
    
    2
    
    
    
    2Net expense
    
    
    4
    
    
    
    3
    
    
    
    3Defined contribution plans
    
    
    7
    
    
    
    7
    
    
    
    7Total expense
    
    $
    17
    
    
    $
    14
    
    
    $
    14


Significant actuarial assumptions used in calculating the net pension expense
for the Corporations defined benefit plans were as follows:

2002
    
    
    2001
    
    
    2000(percent)Pension plansDiscount rate
    
    
    7
    
    
    
    7
    
    
    
    7Long-term rate of return on assets
    
    
    8
    
    
    
    8
    
    
    
    8Rate of increase in compensation levels
    
    
    4
    
    
    
    5
    
    
    
    5Other post-retirement plansDiscount rate
    
    
    7
    
    
    
    7
    
    
    
    7Health care cost trend rate
    
    
    8
    
    
    
    8
    
    
    
    8


If the health care cost trend rate was increased or decreased by one percent,
the accumulated post-retirement benefit obligation and the aggregate of service
and interest cost would increase or decrease by $3-million, respectively.

Financial Statements and Notes     75





---



##### 



Notes to the ConsolidatedFinancial Statements

The changes in accumulated benefit obligations and change in plan assets for
the defined benefit pension and post-retirement benefits are outlined as
follows:

Post-retirementPension Plans
    
    
    Benefit Plans2002
    
    
    2001
    
    
    2000
    
    
    2002
    
    
    2001
    
    
    2000Change in benefit obligationsBalance, beginning of year
    
    $
    96
    
    
    $
    81
    
    
    $
    77
    
    
    $
    23
    
    
    $
    23
    
    
    $
    21Foreign exchange on Canadian obligations
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    

    
    
    
    
    
    
    
    
    Interest and service cost
    
    
    11
    
    
    
    9
    
    
    
    8
    
    
    
    4
    
    
    
    3
    
    
    
    3Acquisitions
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    Actuarial loss (gain)
    
    
    3
    
    
    
    5
    
    
    
    (3
    )
    
    
    5
    
    
    
    (2
    )
    
    
    (1
    )Transfer from CAI Retirement Plan(a)
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Benefits paid
    
    
    (5
    )
    
    
    (5
    )
    
    
    (4
    )
    
    
    (1
    )
    
    
    (1
    )
    
    
    Balance, end of year
    
    $
    105
    
    
    $
    96
    
    
    $
    81
    
    
    $
    31
    
    
    $
    23
    
    
    $
    23Change in plan assetsFair value, beginning of year
    
    $
    76
    
    
    $
    78
    
    
    $
    73
    
    
    $
    
    
    
    $
    
    
    
    $
    Foreign exchange on Canadian assets
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Actual return on plan assets
    
    
    (4
    )
    
    
    (6
    )
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    Employer contributions
    
    
    
    
    
    
    2
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    Transfer from CAI Retirement Plan(a)
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Benefits paid
    
    
    (5
    )
    
    
    (5
    )
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    Fair value, end of year
    
    $
    67
    
    
    $
    76
    
    
    $
    78
    
    
    $
    
    
    
    $
    
    
    
    $
    Unfunded status(b)
    
    
    38
    
    
    
    20
    
    
    
    3
    
    
    
    31
    
    
    
    23
    
    
    
    23Unrecognized net loss
    
    
    (26
    )
    
    
    (12
    )
    
    
    2
    
    
    
    (5
    )
    
    
    
    
    
    
    Accrued employee future benefits
    
    $
    12
    
    
    $
    8
    
    
    $
    5
    
    
    $
    26
    
    
    $
    23
    
    
    $
    23Other assets  prepaid employee future benefits
    
    $
    (2
    )
    
    $
    (2
    )
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Other liabilities  employee future benefits liability
    
    
    14
    
    
    
    10
    
    
    
    5
    
    
    
    26
    
    
    
    23
    
    
    
    23$
    12
    
    
    $
    8
    
    
    $
    5
    
    
    $
    26
    
    
    $
    23
    
    
    $
    23


(a) The assets and liabilities attributable to benefits accrued prior to May 1,
1993, under the Cominco American Incorporated Plan (CAI) were transferred to
the Corporation in 2001. These assets and liabilities were part of the spin-off
of the fertilizer assets that formed the initial public offering to create the
Corporation in 1993.

(b) During 2002, the Corporation replaced the form of security provided on some
of its defined benefit pension plans from cash to a letter of credit resulting
in a refund of contributions.

The plans assets consist primarily of corporate equities, corporate and
government bonds and debentures and cash.

76     Financial Statements and Notes





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##### 



18. SHARE CAPITAL

2002
    
    
    2001
    
    
    2000Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    AmountCommon shares (millions)Issued and outstanding, beginning of year
    
    
    115
    
    
    
    $376
    
    
    
    115
    
    
    $
    375
    
    
    
    112
    
    
    $
    347Shares issued, net of issuance costs
    
    
    11
    
    
    
    106
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issued on exercise of stock options
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    3Shares issued on acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    25Issued and Outstanding, end of year
    
    
    126
    
    
    
    $484
    
    
    
    115
    
    
    $
    376
    
    
    
    115
    
    
    $
    375Preferred securities(millions)Issued and outstanding, beginning of year
    
    
    9
    
    
    
    $221
    
    
    
    9
    
    
    $
    221
    
    
    
    7
    
    
    $
    171Securities issued on acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    50Issued and Outstanding, end of year
    
    
    9
    
    
    
    $221
    
    
    
    9
    
    
    $
    221
    
    
    
    9
    
    
    $
    221Total
    
    
    135
    
    
    
    $705
    
    
    
    124
    
    
    $
    597
    
    
    
    124
    
    
    $
    596


In March 2002, the Corporation issued 11.2 million common shares at $9.85 per
common share. The total proceeds from the issue, net of expenses, were
$106-million, and were used to pay down bank indebtedness. Concurrent with this
financing, the Corporations revolving credit facilities were reduced from
$375-million to $281-million and certain related covenants were amended.

The Corporation has two classes of preferred securities issued and outstanding:

(a) $175-MILLION, UNSECURED EIGHT PERCENT REDEEMABLE PREFERRED SECURITIES DUE JUNE 30, 2047

The charges on these securities are payable quarterly in arrears and the
Corporation has the right to defer the charges for up to 20 consecutive
quarterly periods, subject to certain restrictions. The preferred securities
are redeemable at the option of the Corporation, in whole or in part, on or
after April 22, 2003, at the principal amount plus accrued and unpaid charges
(the redemption price) to the date of redemption.

(b) $50-MILLION, SIX PERCENT CONVERTIBLE PREFERRED SECURITIES DUE SEPTEMBER 30, 2030

This class was issued on September 29, 2000, in connection with the acquisition
of the Alaskan nitrogen facility and related U.S. West Coast assets. The
preferred securities are convertible at the discretion of the holder into the
Corporations common shares at a conversion price of $11.9677 per common share.
The Corporation has the right to defer, at any time subject to certain
conditions, payments of charges on the securities by extending the payment
period for up to 20 consecutive quarterly periods. The Corporation may redeem
the securities, in whole but not in part, at any time on or after September 30,
2003, at a redemption price equal to 103 percent of the principal amount of the
securities plus accrued and unpaid charges.

The Corporation has the right to issue common shares and use the proceeds to
settle the deferred charges, principal and redemption payments and
consequently, both the eight percent redeemable preferred securities and six
percent convertible preferred securities are classified as equity under
Canadian GAAP.

Financial Statements and Notes     77





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##### 



Notes to the ConsolidatedFinancial Statements

19. STOCK-BASED COMPENSATION

The Corporation offers stock options, stock appreciation rights (SARs) and
deferred share units (DSUs) to employees and Directors as part of compensation
for services rendered.

STOCK OPTIONS

The Corporation has a stock option plan under which the Board of Directors may
grant options to acquire common shares to its officers and employees. At
December 31, 2002, the Board of Directors was authorized to grant options on up
to approximately 11 million (2001  nine million; 2000  nine million) common
shares on which approximately nine million (2001  eight million; 2000 
seven million) options had been granted. The exercise price of each option
equals the market price of the Corporations common shares on the last business
day prior to the date of grant and an options maximum term is 10 years.
Options are granted throughout the year and vest and become exercisable equally
over a four-year period, commencing one year after the grant date. In addition,
under this plan the Board of Directors has resolved to grant options to
officers of the Corporation on the basis of one option for each common share
acquired by the officer in the open market, to a maximum of 100,000 options per
officer, with the exercise price of each option equal to the purchase price
paid for the original share. These options lapse if the participant does not
hold 100 percent of the purchased shares on the first anniversary date, 75
percent on the second anniversary date, 50 percent on the third anniversary
date and 25 percent on the fourth anniversary date.

Stock option transactions for the respective years were as follows:

2002
    
    
    2001
    
    
    2000Weighted Avg.
    
    
    
    
    
    
    Weighted Avg.
    
    
    
    
    
    
    Weighted Avg.Options
    
    
    Exercise
    
    
    Options
    
    
    Exercise
    
    
    Options
    
    
    ExerciseOutstanding
    
    
    Price
    
    
    Outstanding
    
    
    Price
    
    
    Outstanding
    
    
    Price(millions)
    
    
    (Cdn. $)
    
    
    (millions)
    
    
    (Cdn. $)
    
    
    (millions)
    
    
    (Cdn. $)Outstanding, beginning of year
    
    
    8
    
    
    $
    16.20
    
    
    
    7
    
    
    $
    15.52
    
    
    
    6
    
    
    $
    16.40Granted
    
    
    1
    
    
    
    15.89
    
    
    
    1
    
    
    
    20.21
    
    
    
    1
    
    
    
    12.47Exercised
    
    
    
    
    
    
    10.82
    
    
    
    
    
    
    
    13.05
    
    
    
    
    
    
    
    16.38Cancelled
    
    
    
    
    
    
    18.52
    
    
    
    
    
    
    
    18.52
    
    
    
    
    
    
    
    17.43Outstanding, end of year
    
    
    9
    
    
    $
    16.21
    
    
    
    8
    
    
    $
    16.20
    
    
    
    7
    
    
    $
    15.52Exercisable, end of year
    
    
    6
    
    
    $
    16.34
    
    
    
    5
    
    
    $
    16.44
    
    
    
    4
    
    
    $
    17.11


FAIR VALUE OF STOCK OPTION COMPENSATION

The following is the pro forma net earnings (loss) and basic earnings (loss)
per share amounts had the Corporation charged the fair value of stock based
compensation to net earnings (loss) in each period:

2002
    
    
    2001
    
    
    2000(millions of U.S. dollars, except per share amounts)
    
    As Reported
    
    
    Proforma
    
    
    As Reported
    
    
    Proforma
    
    
    As Reported
    
    
    ProformaNet earnings (loss)
    
    $
    
    
    
    $
    (6
    )
    
    $
    (45
    )
    
    $
    (51
    )
    
    $
    82
    
    
    $
    74Earnings (loss) per common shareBasic
    
    $
    (0.08
    )
    
    $
    (0.14
    )
    
    $
    (0.49
    )
    
    $
    (0.54
    )
    
    $
    0.65
    
    
    $
    0.58


The fair value of these options has been estimated using a Black Scholes option
pricing model and based on the following assumptions:

2002
    
    
    2001
    
    
    2000Dividend yield
    
    
    0.6%
    
    
    
    0.5%
    
    
    
    0.9%Expected stock price volatility
    
    
    30%
    
    
    
    38%
    
    
    
    42%Risk-free interest rate
    
    
    5%
    
    
    
    6%
    
    
    
    6%Expected life of the options (years)
    
    
    10
    
    
    
    10
    
    
    
    10


The weighted average fair value price per share of options granted in the years
indicated was as follows: 2002  Cdn. $7.87; 2001  Cdn. $11.25; and 2000 
Cdn. $7.06.

78     Financial Statements and Notes



---



##### 



The following table summarizes stock options outstanding and exercisable under
the plan at December 31, 2002:

Options Outstanding
    
    
    Options ExercisableRange of
    
    Number
    
    
    Weighted Avg.
    
    
    Weighted Avg.
    
    
    Number
    
    
    Weighted Avg.Exercise
    
    Outstanding
    
    
    Remaining
    
    
    Exercise
    
    
    Exercisable
    
    
    ExercisePrices
    
    At Year End
    
    
    Contractual Life
    
    
    Price
    
    
    At Year End
    
    
    Price(Cdn. $)
    
    (millions)
    
    
    (years)
    
    
    (Cdn. $)
    
    
    (millions)
    
    
    (Cdn. $)Less than 11.85
    
    
    1
    
    
    
    6
    
    
    
    11.25
    
    
    
    1
    
    
    
    10.8611.86 to 12.85
    
    
    1
    
    
    
    5
    
    
    
    12.06
    
    
    
    1
    
    
    
    12.0512.86 to 13.85
    
    
    1
    
    
    
    6
    
    
    
    13.14
    
    
    
    
    
    
    
    13.1213.86 to 14.85
    
    
    
    
    
    
    8
    
    
    
    14.04
    
    
    
    
    
    
    
    14.0314.86 to 15.85
    
    
    
    
    
    
    7
    
    
    
    15.22
    
    
    
    
    
    
    
    15.2715.86 to 16.85
    
    
    1
    
    
    
    9
    
    
    
    15.92
    
    
    
    
    
    
    
    16.2416.86 to 17.85
    
    
    
    
    
    
    7
    
    
    
    17.52
    
    
    
    
    
    
    
    17.5117.86 to 18.85
    
    
    2
    
    
    
    4
    
    
    
    18.65
    
    
    
    2
    
    
    
    18.6518.86 to 20.50
    
    
    1
    
    
    
    5
    
    
    
    19.17
    
    
    
    1
    
    
    
    19.1720.51 to 22.15
    
    
    2
    
    
    
    7
    
    
    
    20.59
    
    
    
    1
    
    
    
    20.671.92 to 22.15
    
    
    9
    
    
    
    6
    
    
    
    16.21
    
    
    
    6
    
    
    
    16.34


SHAREHOLDERS RIGHTS PLAN

The Corporation has a shareholders rights plan under which one right is
issuable for each outstanding common share. The rights remain attached to the
shares and are not exercisable until the occurrence of certain designated
events.

STOCK APPRECIATION RIGHTS

The Corporation has a SARs plan whereby each eligible employee is granted SARs,
which provide for payment of a cash award based upon the appreciation in value
of the Corporations common shares. The payment is based on the Corporations
common stock price reaching certain guaranteed levels for 20 consecutive
trading days on the New York Stock Exchange over a five-year term expiring on
May 4, 2004. The employees receive cash for the SARs equal to their intrinsic
value, being the difference between the SARs base price and their market value
at the time the specified level is achieved.

For periods up to and including December 31, 2002, the target prices on the
SARs have been above the market price of the
Corporations common shares and thus no payments were required under the plan.
An expense will be recorded when the market price of the stock exceeds the
price associated with payment.

SAR transactions for the respective years were as follows:

2002
    
    
    2001
    
    
    2000SARs
    
    
    
    
    
    
    SARs
    
    
    
    
    
    
    SARsOutstanding
    
    
    Weighted Avg.
    
    
    Outstanding
    
    
    Weighted Avg.
    
    
    Outstanding
    
    
    Weighted Avg.(millions)
    
    
    Issue Price
    
    
    (millions)
    
    
    Issue Price
    
    
    (millions)
    
    
    Issue PriceOutstanding, beginning of year
    
    
    2
    
    
    $
    9.51
    
    
    
    1
    
    
    $
    9.01
    
    
    
    1
    
    
    $
    8.94Granted
    
    
    
    
    
    
    9.66
    
    
    
    1
    
    
    
    11.36
    
    
    
    
    
    
    
    10.00Cancelled
    
    
    --
    
    
    
    9.41
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding, end of year
    
    
    2
    
    
    $
    9.53
    
    
    
    2
    
    
    $
    9.51
    
    
    
    1
    
    
    $
    9.01


The potential expense, based on SARs outstanding at December 31, 2002, would be
$2-million if the share price reached $15, an additional $5-million if the
share price reached $22.50, an additional $10-million if the share price
reached $33.75 and an additional $17-million if the share price reached $50.

Financial Statements and Notes     79





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##### 



Notes to the ConsolidatedFinancial Statements

DIRECTORS DEFERRED SHARE UNIT PLANS

The Corporation has two DSUs plans. Under the first plan Directors of the
Corporation can elect to have a portion or all of their remuneration paid in
DSUs. The number of DSUs issued is calculated by dividing the Directors
remuneration by the fair market value of the Corporations common shares on the
conversion date.

Effective May 8, 2002, the Corporation implemented a DSU Plan for Directors
permitting grants in the discretion of the Board of Directors. Under this plan
a specified number of DSUs may be granted to each director, upon the approval
of the Board of Directors.

Under both plans, the DSUs are fully vested upon being granted but are not
payable until departure from the Board. The issue amount and subsequent changes
in the common share price in relation to the DSUs issue price will be recorded
as compensation expense and included in selling, general and administrative
expenses.

As of December 31, 2002, the fair value of the DSUs outstanding was less than
$1-million.

20. COMMITMENTS

2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007Operating expensesOperating commitments
    
    $
    37
    
    
    $
    31
    
    
    $
    30
    
    
    $
    22
    
    
    $
    18Natural gas commitments
    
    
    492
    
    
    
    92
    
    
    
    89
    
    
    
    84
    
    
    
    84Power, sulfuric acid and other payments
    
    
    34
    
    
    
    23
    
    
    
    23
    
    
    
    23
    
    
    
    22Profertil natural gas and other
    
    
    25
    
    
    
    25
    
    
    
    25
    
    
    
    25
    
    
    
    25588
    
    
    
    171
    
    
    
    167
    
    
    
    154
    
    
    
    149OtherLong-term debt and capital lease repayments
    
    
    25
    
    
    
    120
    
    
    
    49
    
    
    
    51
    
    
    
    54Total
    
    $
    613
    
    
    $
    291
    
    
    $
    216
    
    
    $
    205
    
    
    $
    203


The operating commitments consist primarily of short-term leases for rail cars
and contractual commitments at distribution facilities in North America
Wholesale, vehicles and application equipment in North America Retail and
office equipment and property leases throughout the Corporations operations.
The commitment represents the minimum payments in each of the next five years
under each agreement. Operating lease payments expensed in 2002 were
$28-million (2001  $23-million; 2000  $25-million).

The Corporation has also entered into a number of agreements with suppliers to
guarantee supply of raw materials required in the production processes at its
wholesale facilities. Amongst these are long-term fixed base-price natural gas
and co-generation power agreements at the Kenai, Alaska, Profertil and
Carseland facilities, which are included in the commitments, based on the
minimum obligations under these contracts. Additionally, the Corporations
minimum commitments for North American natural gas purchases not under fixed
base-price contracts are calculated using the prevailing New York Mercantile
Exchange (NYMEX) forward prices at December 31, 2002 adjusted for
transportation differentials to each production facility.

The Kenai facility has a natural gas purchase contract with a supplier that
expires July 1, 2009. The delivery price formula is based on a fixed price that
is adjusted by the previous years average spot U.S. Gulf Coast ammonia price.
The adjustment is made on July 1 each year if the average ammonia price exceeds
or drops below defined Gulf Coast ammonia prices set in the agreement for the
previous 12 months; otherwise only the base price applies for the next year.
The amounts payable under this contract are in dispute (note 21).

The Corporation entered into a power co-generation agreement for its Carseland
facility in 2001 that expires December 31, 2021. The minimum commitment under
this agreement is to purchase 60 mega watts of power per hour (MWh) for the
first ten years of the agreement and 20 MWh for the remainder of the term. The
price for the power is based on a fixed charge adjusted for inflation and a
variable charge based on the cost of natural gas, which is provided to the
facility for power generation.

80     Financial Statements and Notes





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##### 



Profertil has three 12-year natural gas purchase contracts. One is with the
other 50-percent partner in the Profertil joint venture. The contracts are
fixed base-price agreements where the base-price for natural gas is adjusted by
the quarterly average of Free On Board Caribbean granulated urea in U.S.
dollars per short ton and the quarterly average of West Texas Intermediate U.S.
dollars per barrel.

The Corporation has entered into an agreement to deliver a
minimum of 70,000 tonnes of purified phosphoric acid annually from its Conda,
Idaho, facility. The agreement expires December 31, 2016.

21. CONTINGENCIES
CONTINGENT PURCHASE PRICE
As part of the Alaskan nitrogen facility and related U.S. West Coast assets
acquisition, the Corporation granted to Union Oil Company of California
(Unocal) a right to receive an Earn-out payment pursuant to which Unocal is
entitled to receive a payment for each of the six years following the September
30, 2000 closing of the acquisition. The payment is equal to 35 percent of the
amount by which certain industry-recognized price commodity indices for ammonia
and urea exceed certain forecasted prices for such commodities based on
production capacity volumes of the Alaska production facilities acquired from
Unocal.

At December 31, 2002, the Corporations financial statements include
$8-million payable to Unocal under this arrangement. This amount is included in
accounts payable and accrued liabilities and is recorded as part of the cost to
acquire the Alaskan nitrogen facility and related U.S. West Coast assets
included in capital assets.

The Corporation has withheld payment of the $8-million from Unocal on the basis
that this liability has been set off against other amounts currently owing by
Unocal and is under dispute. At December 31, 2001, the Corporations financial
statements included $19-million with respect to this dispute. This amount was
legally offset in the year by certain receivables due to the Corporation that
are unrelated to the Earn-out. While the Corporation has accrued this amount,
it believes that no payment is due to Unocal in the event that Unocal cannot
meet its obligation under the Alaskan gas contract. The parties also disagree
on the calculation of the Earn-out to the extent of $9-million based on
different views of the application of a reference price adjustment factor.

On June 10, 2002 the Corporation filed a lawsuit against Unocal seeking
compensatory damages and restitution, punitive damages, and certain declaratory
relief relating to gas supply, the Earn-out, and environmental matters. Unocal
contemporaneously filed suit against the Corporation claiming damages for
breach of contract for non-payment of the Earn-out in 2001.

SITE RESTORATION AND RECLAMATION

The Corporation has contingent liabilities in respect of existing operations
and discontinued mining activities of predecessor corporations. These
liabilities are the subject of ongoing study and negotiation with various
regulatory authorities. The amounts are not reasonably estimable at this time.

LITIGATION

The Corporation, in the normal course of business, is subject to legal
proceedings being brought against it and its subsidiaries. The amounts are not
reasonably estimable, due to uncertainty as to the final outcome and management
does not believe these proceedings in aggregate will have a material adverse
effect on the Corporations consolidated financial position or results of
operations.

22. FINANCIAL INSTRUMENTS

The Corporation is subject to the risks and uncertainties inherent in the
fertilizer business. Financial results are subject to fluctuations in
fertilizer, natural gas, power and other raw material supply prices, and
fluctuations in foreign exchange and interest rates over which it has limited
control. In addition, the Corporation is subject to credit risks and the risks
of conducting business in an international environment. The Corporation manages
certain of these risks and uncertainties through the use of derivative
instruments.

PRICE RISK MANAGEMENT
Natural Gas Derivatives

The Corporation purchases substantially all of its natural gas requirements
through indexed priced contracts with suppliers other than gas supply
agreements for its facilities in Alaska and Argentina. The natural gas supply
price risk on indexed contracts is managed through

Financial Statements and Notes     81





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##### 



Notes to the ConsolidatedFinancial Statements

the use of natural gas price swaps and natural gas price option contracts. The
Corporation has the following derivative instruments related to natural gas
supply price risks outstanding at December 31, 2002:

Weighted
    
    
    
    
    
    
    Statement ofPeriod
    
    Notional
    
    
    Average
    
    
    Fair Value
    
    
    OperationsCovered
    
    Volumes
    
    
    Contract
    
    
    Gain (loss)
    
    
    Gain (loss)(million MMBtu)
    
    
    (price/MMBtu)Designated hedgesNatural Gas Call options  sold
    
    Jan. 2003  Dec. 2003
    
    
    9
    
    
    $
    5.00
    
    
    $
    (3
    )
    
    
    n/aNatural Gas Call options  purchased
    
    Jan. 2003  Dec. 2003
    
    
    9
    
    
    $
    6.00
    
    
    $
    1
    
    
    
    n/aNatural Gas Put options  sold
    
    Jan. 2003  Dec. 2003
    
    
    9
    
    
    $
    2.63
    
    
    $
    
    
    
    
    n/aNatural Gas Call options  purchased
    
    Jan. 2003  Dec. 2003
    
    
    9
    
    
    $
    3.50
    
    
    $
    10
    
    
    
    n/aNatural Gas basis swaps(b)
    
    Jan. 2003  Oct. 2003
    
    
    9
    
    
    
    n/a
    
    
    $
    (1
    )
    
    
    n/aNonhedging natural gas derivative instrumentsNatural Gas basis swaps(a)
    
    Jan. 2003  Oct. 2005
    
    
    3
    
    
    
    n/a
    
    
    $
    
    
    
    $
    Natural Gas basis swaps(b)
    
    Jan. 2003  Mar. 2003
    
    
    9
    
    
    
    n/a
    
    
    $
    (1
    )
    
    $
    (1
    )Natural Gas basis swaps(b)
    
    Jan. 2003  Oct. 2003
    
    
    3
    
    
    
    n/a
    
    
    $
    
    
    
    $
    Natural Gas basis swaps(c)
    
    Jan. 2003
    
    
    1
    
    
    
    n/a
    
    
    $
    
    
    
    $
    Natural Gas Put option  sold
    
    Jan. 2003  Oct. 2003
    
    
    3
    
    
    $
    2.00
    
    
    $
    
    
    
    $
    




(a) The basis swap requires the Corporation to purchase natural gas based on
the NYMEX index and to receive natural gas based on the SUMAS index.

(b) The
basis swap requires the Corporation to purchase natural gas based on the NYMEX
index and to receive natural gas based on the AECO index.

(c) The basis swap
requires the Corporation to purchase natural gas based on the monthly AECO
index and to receive natural gas based on the daily AECO index.

The Corporation had the following derivative instruments related to natural gas
supply price risks outstanding at December 31, 2001:

Weighted
    
    
    
    
    
    
    Statement ofPeriod
    
    Notional
    
    
    Average
    
    
    Fair Value
    
    
    OperationsCovered
    
    Volumes
    
    
    Contract
    
    
    Gain (loss)
    
    
    Gain (loss)(million MMBtu)
    
    
    (price/MMBtu)Designated hedgesNatural gas price swaps
    
    Jan. 2002  Oct. 2002
    
    
    10
    
    
    $
    4.94
    
    
    $
    (21
    )
    
    
    n/aDe-designated hedgesNatural gas price swaps
    
    Jan. 2002  Oct. 2002
    
    
    16
    
    
    $
    4.99
    
    
    $
    (36
    )
    
    $
    (10
    )Non-hedging natural gas derivative instrumentsNatural gas price swaps  sold
    
    Jan. 2002  Oct. 2002
    
    
    23
    
    
    $
    2.76
    
    
    $
    1
    
    
    $
    1Natural gas price swaps  purchased
    
    Jan. 2002  Oct. 2002
    
    
    3
    
    
    $
    2.30
    
    
    $
    2
    
    
    $
    2Natural gas basis swaps(a)
    
    Jan. 2002  Oct. 2005
    
    
    4
    
    
    
    n/a
    
    
    $
    
    
    
    $
    Natural gas Put options  sold
    
    Jan. 2002  Oct. 2003
    
    
    17
    
    
    $
    2.49
    
    
    $
    (4
    )
    
    $
    (4
    )Natural gas Put options  purchased
    
    Jan. 2002  Apr. 2002
    
    
    10
    
    
    $
    3.66
    
    
    $
    11
    
    
    $
    11Natural gas Call options  sold
    
    Jan. 2002  Apr. 2002
    
    
    9
    
    
    $
    4.56
    
    
    $
    
    
    
    $
    Natural gas Call options  purchased
    
    Jan. 2002  Apr. 2002
    
    
    9

    
    
    $
    4.56
    
    
    $
    
    
    
    $
    


(a) The basis swap requires the Corporation to purchase natural gas based on
the SUMAS index and receive natural gas based on the NYMEX index.

82     Financial Statements and Notes



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Realized and unrealized gains and losses on derivatives not designated as
hedges, including contracts de-designated, as described are included in the
statement of operations each period.

All unrealized losses on commodity derivatives designated as hedges will be
recognized against the cost of gas purchased and included in inventory in 2003.
As the inventory produced in relation to this natural gas supply is sold the
related inventory costs, including the unrealized losses, will be included in
cost of product.

During 2002, net realized losses of $37-million on derivative instruments
designated as hedges (2001  $58-million net gains) was allocated to
inventory. At December 31, 2002, $3-million of net realized losses (2001 
$12-million) remains in inventory, until the related inventory sells. During
2002 $46-million of net realized losses (2001  $70-million net gains, 2000 
$93-million net gains) were recorded as a component of cost of product. The
Corporation realized a loss of $5-million in 2002 on non-hedging natural gas
derivative instruments (2001  nil, 2000  nil).

Foreign Exchange Derivatives

The Corporation is exposed to foreign exchange rate fluctuations on its
Canadian dollar cash flow. The Company enters into forward exchange contracts
and foreign exchange options to manage Canadian dollar foreign exchange
exposure. At December 31, 2002, the Corporation sold forward a notional amount
of $50-million (2001  $24-million) at an average rate of 1.5890 (2001 
$1.5738). In 2001, the Corporation had entered into a collar on a notional
amount of $36-million establishing the range the Corporation would pay for
Canadian dollars between $1.5700 and $1.5870, for a period of January to
December 2002. At December 31, 2002, the foreign exchange derivatives had an
unrealized gain of less than $1-million (2001  unrealized loss of less than
$1-million).

POWER, SULPHURIC ACID AND OTHER NORMAL PURCHASES

The Corporation purchases a portion of its power requirements through the use
of fixed price supply contracts. These contracts are treated as normal
purchases and sales. Purchase commitments are summarized in note 20.

FAIR VALUE AND CARRYING VALUE OF FINANCIAL INSTRUMENTS

2002
    
    
    2001Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    ValueUnsecured long-term debt
    
    $
    600
    
    
    $
    650
    
    
    $
    600
    
    
    $
    530Preferred securities
    
    
    221
    
    
    
    210
    
    
    
    221
    
    
    
    201Derivative financial instruments:Foreign currency options and forward contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )Natural gas SWAPs and options
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    (47
    )


The fair value of unsecured long-term debt, including the current portion and
preferred securities, is based on the quoted market price of these or similar
issues or by discounting expected cash flows at the rates currently offered to
the Corporation for debt and securities of the same remaining maturities.

The fair value of each class of other financial instruments, including cash and
short-term investments, accounts receivable, accounts payable, advances and
loans and bank indebtedness, approximates its carrying value due to their
short-term maturity.

CREDIT RISK MANAGEMENT

Wholesale in both North and South America sell mainly to large agribusinesses
representing a small number of customers. Letters of credit and credit
insurance are used to mitigate risk.

Retail in both North and South America serve large customer bases dispersed
over wide geographic areas in both the United States and Argentina. This
geographic diversity coupled with a concentration of effort on the large
financial stable entities, mitigates risk.

Credit exposure, as it relates to
any derivatives and other financial instruments, designated as hedges, is
managed by dealing with creditworthy counter parties in accordance with
established credit approval practices. At December 31, 2002, no significant
credit exposure exists with any counter party.

Financial Statements and Notes     83





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##### 



Notes to the ConsolidatedFinancial Statements

23. PROFERTIL

The Corporation has a 50-percent interest in Profertil. A contractual agreement
exists between the Corporation and the joint venture partner, which establishes
joint control over Profertil, and therefore the Corporations interest is
accounted for using the proportionate consolidation method.

A summary of the
Corporations 50-percent interest in the joint venture at December 31 is as
follows:

2002
    
    
    2001Balance SheetCash and cash-equivalents
    
    $
    18
    
    
    $
    13Accounts receivable
    
    
    5
    
    
    
    9Inventories and prepaid expenses
    
    
    7
    
    
    
    8Capital assets
    
    
    248
    
    
    
    262Other assets
    
    
    36
    
    
    
    54$
    314
    
    
    $
    346Bank Indebtedness
    
    
    $1
    
    
    $
    5Accounts payable and current portion of long-term debt
    
    
    52
    
    
    
    55Long-term debt
    
    
    135
    
    
    
    147Future income taxes
    
    
    (3
    )
    
    
    (6
    )$
    185
    
    
    $
    201Investment in Profertil
    
    $
    129
    
    
    $
    145Statement of OperationsGross profit
    
    $
    36
    
    
    $
    28Selling, general and administrative expenses
    
    
    4
    
    
    
    7Depreciation and amortization
    
    
    18
    
    
    
    13Argentina charges  Peso translation (note 4)
    
    
    14
    
    
    
    20Argentinacharges U.S. dollar forced conversion (note 4)
    
    
    (2
    )
    
    
    2Other expenses
    
    
    4
    
    
    
    4Loss before interest and taxes
    
    
    (2
    )
    
    
    (18
    )Interest expense
    
    
    15
    
    
    
    16Income taxes
    
    
    
    
    
    
    (4
    )Net loss
    
    $
    (17
    )
    
    $
    (30
    )


2002
    
    
    2001Statement of Cash FlowsOperating activities
    
    $
    27
    
    
    $
    (6
    )Investing activities
    
    
    (5
    )
    
    
    (39
    )Financing activities
    
    
    (17
    )
    
    
    58Decrease in cash and cash-equivalents
    
    $
    5
    
    
    $
    13


Commitments presented in note 20 include the Corporations 50-percent share in
the commitments of Profertil.

84     Financial Statements and Notes





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##### 



24. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN CANADA AND THE UNITED STATES
The Corporations consolidated financial statements are
prepared in accordance with Canadian GAAP. These principles differ in certain
respects from those applicable under U.S. GAAP. The approximate impact of these
differences on the Corporations financial statements is summarized below:

Consolidated Statements of Operations
    
    2002
    
    
    2001
    
    
    2000Net earnings (loss)  Canadian GAAP
    
    $
    
    
    
    $
    (45
    )
    
    $
    82Adjustments:Preferred securities charges(a)
    
    
    (17
    )
    
    
    (17
    )
    
    
    (15
    )Change in accounting policy(f)
    
    
    (43
    )
    
    
    
    
    
    
    Tax
    
    
    21
    
    
    
    5
    
    
    
    5Net earnings (loss)  U.S. GAAP
    
    $
    (39
    )
    
    $
    (57
    )
    
    $
    72Other comprehensive incomeNatural gas derivatives(c)Cumulative effect of SFAS 133
    
    
    
    
    
    
    (105
    )
    
    
    Change in unrealized and realized gains
    
    
    40
    
    
    
    68
    
    
    
    Additional minimum pension liability(d)
    
    
    (6
    )
    
    
    
    
    
    
    Translation adjustments(e)
    
    
    (32
    )
    
    
    (56
    )
    
    
    (23
    )Comprehensive income (loss)  U.S. GAAP(b)
    
    $
    (37
    )
    
    $
    (150
    )
    
    $
    49Basic earnings (loss) per common share  U.S. GAAPEarnings (loss) from operations
    
    $
    (0.08
    )
    
    $
    (0.49
    )
    
    $
    0.64Change in accounting policy(f)
    
    $
    (0.23
    )
    
    $
    
    
    
    $
    Net earnings (loss) per share  Basic
    
    $
    (0.31
    )
    
    $
    (0.49
    )
    
    $
    0.64Net earnings (loss) per share  Diluted
    
    $
    (0.31
    )
    
    $
    (0.49
    )
    
    $
    0.61


Consolidated Statements of Cash Flow
    
    2002
    
    
    2001
    
    
    2000Operating  Canadian GAAP
    
    $
    224
    
    
    $
    87
    
    
    $
    256Preferred
securities charges paid net of tax(a)
    
    
    (11
    )
    
    
    (12
    )
    
    
    (9
    )Operating  U.S. GAAP
    
    $
    213
    
    
    $
    75
    
    
    $
    247Investing  Canadian and U.S. GAAP
    
    $
    (29
    )
    
    $
    (200
    )
    
    $
    (463
    )Financing  Canadian GAAP
    
    $
    (137
    )
    
    $
    146
    
    
    $
    121Preferred
securities charges paid net of tax(a)
    
    
    11
    
    
    
    12
    
    
    
    9Financing  U.S. GAAP
    
    $
    (126
    )
    
    $
    158
    
    
    $
    130Cash and cash-equivalents  end of yearCanadian and U.S. GAAP
    
    $
    109
    
    
    $
    51
    
    
    $
    18


CONSOLIDATED BALANCE SHEETS

As discussed in (a) below, a significant difference between Canadian and U.S.
GAAP balance sheet items relates to preferred securities, which are not
considered equity instruments for U.S. GAAP due to the redemption feature. As
discussed in (c) below, Statement of Financial Accounting Standards (SFAS) 133
is effective for the Corporation January 1, 2001, and both the cumulative effect
from prospective adoption and the current period recognition of derivatives at
fair value result in differences between the balance sheets under U.S. and
Canadian GAAP. The remaining balance sheet items under U.S. GAAP are not
materially different from balances under Canadian GAAP.

DESCRIPTION OF SIGNIFICANT DIFFERENCES

(a) Preferred SecuritiesAs disclosed in note 18, the Corporation has included
the preferred securities as part of shareholders equity in accordance with
Canadian GAAP. Under U.S. GAAP, the preferred securities would be classified as
long-term debt and, accordingly, the annual carrying charges would be
recognized as interest expense under U.S. GAAP. At December 31, 2002, long-term
debt would increase by $225-million (2001  $225-million), other assets would
increase by $6-million (2001  $6-million), deferred tax (Canadian GAAP 
future income tax) would increase by $2-million (2001  $2-million), and
shareholders equity would decrease by $221-million (2001  $221-million).

Financial Statements and Notes     85





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##### 



Notes to the ConsolidatedFinancial Statements

(b) Other
Comprehensive Income (OCI) SFAS No. 130 requires the reporting of
comprehensive income in addition to net earnings. Comprehensive income includes
net income plus the results of certain shareholders equity changes not
reflected in the Consolidated Statements of Operations.

(c) Derivatives and Hedging Activities Effective January 1, 2001, the
Corporation adopted the provisions of SFAS No. 133 Accounting for Derivative
and Hedging Activities. SFAS No. 133 requires that all derivatives be
recognized as assets and liabilities on the balance sheet and measured at fair
value.

For derivatives designated as hedges, changes in the fair value of the
derivatives that are effective in offsetting the hedged risk are recognized in
OCI until the hedged item is recognized in earnings. Any ineffective portion of
the change in fair value is recognized in earnings each period. On initial
adoption of SFAS No. 133 on January 1, 2001, additional assets of $90-million
and liabilities of $8-million were recorded for U.S. GAAP purposes to reflect
the fair value of derivatives designated as hedges. As at January 1, 2001,
other comprehensive income included gains of $173-million and applicable taxes
of $68-million as the cumulative effect on adoption of SFAS No. 133. The gains
included the realized gain of $75-million (included in accounts payable for
Canadian GAAP as at December 31, 2000), other unrealized gains of $82-million
relating to cash flow hedges for forecasted purchases of natural gas and
$16-million of realized gain that is included in inventory for Canadian GAAP.

During 2002, OCI which is net of tax, included the change in unrealized fair
value of derivatives qualifying as hedges of $36-million (2001  $75-million).
It also included realized losses in 2002 of $3-million (2001  $7-million)
included in inventory for Canadian GAAP. In 2002 the loss recorded in inventory
of $7-million from 2001 was transferred from OCI and recognized in the
Consolidated Statement of Operations.

The balance sheet impact of recording
natural gas derivatives at fair value and transferring realized losses out of
inventory to accumulated other comprehensive income results in an increase in
accounts receivable of $7-million (2001  current liabilities of $47-million),
reduction in inventory of $3-million (2001  $12-million), increase in
deferred tax liability of $1-million (2001  reduction in deferred tax
liability $22-million), increase in accumulated other comprehensive income in
shareholders equity of $3-million (2001  reduction of $37-million).

(d) Unfunded Employee Benefits Under U.S. GAAP SFAS 87, an additional minimum
liability is recognized if the unfunded employee benefits Accumulated Benefit
Obligation exceeds the accrued benefit obligation that is recorded on the
balance sheet. This additional liability is recorded as a reduction to OCI. At
December 31, 2002, accumulated OCI included an additional charge net of tax of
$6-million (2001  nil).

(e) Foreign Currency Translation Adjustment Under U.S. GAAP SFAS 52, Foreign Currency Translation, translation adjustments
arising from translating a foreign entity balance sheet and income statement
into the reporting currency are accumulated in OCI.

(f) Change in Accounting Policy U.S. GAAP SFAS 142, Goodwill and Other
Intangible Assets was adopted effective January 1, 2002. The Corporation
adopted the Canadian GAAP equivalent standard, CICA section 3062, effective
January 1, 2002 (see Goodwill note 13), which mirrors the U.S. GAAP standard.
SFAS 142 however requires any goodwill impairment calculated on initial
adoption of the section to be charged against earnings in the current period
whereas Canadian GAAP requires the transitional adoption of the new policy to
be recorded against retained earnings.

(g) Joint Ventures Under U.S. GAAP, ownership in a joint venture where the
venturer does not own more than 50% and have a significant influence over the
operating activities of the joint venture is to be accounted for using the
equity method. Under Canadian GAAP, joint ventures are proportionately
consolidated. Net assets and earnings of the Corporation would be the same
under either method. Note 23 provides the detail of the joint venture as
included under Canadian GAAP.

New
Accounting Pronouncements

SFAS 143, Accounting for Asset Retirement Obligations is effective for the
Corporation as of January 1, 2003. This standard requires the Corporation to
determine and record obligations related to statutory, regulatory, contractual
or other legal obligations associated with the retirement of long-lived assets.
The obligation is recorded at fair value with the offsetting asset amortized
against earnings over the assets life. Adoption of this standard in 2003 should
not have a significant effect on the results from operations or the financial
position of the Corporation.

86     Financial Statements and Notes