##### 



Exhibit
13

(FRONT COVER PAGE)



---



##### 



Fertilizer Feeds The Soil. The land is important to all of us  for food, for
recreation and for the many ways it nourishes wildlife and our ecosystem. With
proper care, it will continue to provide the things people need and enjoy. But
every crop produced draws nitrogen, phosphate and potash from the soil.
Fertilizer replaces whats been borrowed and protects the soil for future
generations.
 (PICTURE)
   Why Fertilizer?  1 The number of people is growing and everyone wants to eat. Right now, there
are more than 6 billion people on the planet. Within 50 years, there will be
almost 9 billion. For everyone to eat, more food must be produced. The
challenge is made greater by a steady decline in productive land available for
agriculture.


Fortunately, farmers are becoming more efficient. The proper use of fertilizer
and modern agricultural techniques have enabled farmers to double world
production of grain over the past 40 years, even though less land is used.
 2 Growing economies demand more powerful diets. People in developing nations
currently consume about one-third as much meat as those in developed countries.
As their economies gain strength, they want to add more protein-rich food such
as milk, eggs and meat to their diets.


To do that, more animals must be produced, which requires more grain. It takes
approximately seven kilograms of grain to produce one kilogram of beef. To meet
the expectation of improved diets, more grain must be produced on available land.
 3 We have green space and animals have homes. As our population grows, farmland
is lost to cities and roads  and the amount of agricultural land per capita is
lessened.


Without fertilizer, the worlds remaining green space would have to be plowed
up just to meet food demand. Forests and wetlands that support trees, plants
and wildlife would be lost.Fertilizer provides a more sustainable solution by restoring the vitality of
existing farmland while maintaining animal habitats and green space for our
enjoyment.
 4 More food. Better food. Fertilizer brings more than quantity to food
production; it adds quality. The nutrients that plants draw from the soil
become part of our food supply and are essential for human health.


By using fertilizer, farmers grow plants that are stronger and taste better.
The wheat contains more protein, carrots have more carotene and leafy plants
retain more Vitamin C. On top of that, plants like corn and watermelon are
juicier and taste sweeter.The soil is natures nutrient cupboard. If we keep it stocked by replenishing
nutrients, we can continue to enjoy abundant, affordable and healthy food.
Fertilizer is the key.
    CONTENTS Corporate Overview
    
    
    2Financial Highlights
    
    
    3Letter to Shareholders
    
    
    3Goals and Targets
    
    
    9MD&A
    
    
    1211 Year Report
    
    
    47Financial Performance Indicators
    
    
    48Managements Responsibility
    
    
    51Auditors Report
    
    
    51Consolidated Financial Statements
    
    
    52Board of Directors
    
    
    78Shareholder Information
    
    
    79Corporate Information
    
    
    80
 Extreme poverty and hunger fuel division and desperation. Without development
and hope, there will be no peace.  Kofi Annan, United Nations Secretary-General




---



##### 



PotashCorp 2003 Annual Report   1

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

Why PotashCorp?



1 The world needs more of what we have. Demand for nitrogen, phosphate and potash continues to grow. World grain production
has fallen behind consumption, reducing grain stocks. Farmers need to increase
fertilizer use so that food production can keep
pace. At the same time, PotashCorp has built a stronger position with animal feed and
industrial customers. This growth is adding balance to our business and
providing the potential for more attractive and stable
margins. 2 We play to our strengths. It isnt enough to have great resources. You need
to know what to do with them. At PotashCorp, we recognize the value of our
leading global position in potash and supplement that with strategies tailored
to our areas of strength in phosphate and nitrogen, limiting the volatility of
the commodity markets. In all three nutrients, we focus on quality, a key factor in our customers
buying decisions. 3 Size creates cost advantages and market prominence. While we dont think like a commodity company, our products are
sold in a commodity market. As a large producer of all three nutrients, our
size creates efficiencies that make us a low-cost producer in each nutrient. In
addition, our market-driven philosophy ensures we remain a prominent global
supplier. Agile and adaptive to the needs of our customers, we work every day
to retain our preferred supplier status. (PICTURE)


(PICTURE) 4 Financial strength gives us flexibility and
growth leverage. Even as the fertilizer industry faced one of the longest down
cycles in its history, PotashCorp remained financially strong. Over the past
five years, we generated cash flow from operations of $1.6 billion and are now
emerging into better market conditions. The pressures of recent years have pushed the industry toward consolidation.
PotashCorp has the financial strength to explore acquisition opportunities as
they arise and the cash flow to pay down debt
quickly. (PICTURE) 5 We foster a culture that sustains success. Weve made a commitment to sustainable development at every level of our
organization, believing it is essential to our success today and in the future.
With clearly defined goals, values and expectations that reach from our
directors to management to front-line employees, we have established an
environment that draws leadership from all levels of the
company.






---



##### 



2   PotashCorp
2003 Annual Report



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


(PICTURE)


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


From Nature for Natural Growth

Each of the three nutrients
is drawn from nature and
all are essential for healthy
plant production and more
nutritious food. PotashCorp
converts these natural
ingredients to a form that
is digestible by plants.
    

Potassium
(K) is
found in evaporated
sea beds.(PICTURE)
    
    Phosphorus
(P) is
provided by fossilized
remains of sea creatures.(PICTURE)
    
    Nitrogen
(N) forms
78 percent of the

air we breathe.(PICTURE)






---



##### 



PotashCorp 2003 Annual Report   3



2003 Business Highlights  
    
    Sold record potash volumes
    
    Acquired 26 percent interest in Arab Potash Company
    
    Nitrogen prices increased
    
    Realized $90 million in natural gas hedges
 Financial HighlightsAll financial data in this report are stated in US dollars
$ millions except per-share amounts 2003
    
    
    2002
    
    
    2001Net sales
    
    $
    2,465.8
    
    
    $
    1,928.7
    
    
    $
    2,080.8Net (loss) income
    
    $
    (126.3
    )
    
    $
    53.6
    
    
    $
    121.2Adjusted net income *
    
    $
    76.9
    
    
    $
    53.6
    
    
    $
    121.2Net (loss) income per diluted share
    
    $
    (2.42
    )
    
    $
    1.03
    
    
    $
    2.32Adjusted net income per diluted share *
    
    $
    1.46
    
    
    $
    1.03
    
    
    $
    2.32Gross margin
    
    $
    380.4
    
    
    $
    307.3
    
    
    $
    407.3EBITDA *
    
    $
    171.8
    
    
    $
    386.0
    
    
    $
    455.4Adjusted EBITDA *
    
    $
    417.7
    
    
    $
    386.0
    
    
    $
    455.4Cash flow prior to working capital changes *
    
    $
    364.5
    
    
    $
    289.2
    
    
    $
    345.8Cash provided by operating activities
    
    $
    381.5
    
    
    $
    316.4
    
    
    $
    75.7
 * See reconciliation and description of certain non-GAAP measures in Financial Performance Indicators on Pages 48-50


To our shareholders:



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


My answer to the question Why fertilizer? was shaped on a year-long trip that
followed my college graduation in 1972. I visited countries that were
prosperous and others that struggled to provide the basic elements for
survival. I saw nations where food was plentiful and places where people faced
starvation on a daily basis. I learned that fundamental human needs  water,
food, growth, hope  should never be taken for granted. Kofi Annan, Secretary-General of the United Nations, has consistently
championed agricultural development as the foundation for health, economic
stability and world peace. The insight of that sentiment is at the heart of why
fertilizer is so important  not just for our individual needs, but to world
development. Fertilizer replenishes the strength of the soil, empowering it to supply the
nutrient content in the food we eat. It drives agricultural production, which
has been the basis for every developed nation around the world. It enables
people to feed themselves and trade for things they need. That contributes to
economic opportunities, health and happiness. Thats why I believe fertilizer is so important and why the opportunities for
PotashCorp remain bountiful. William J. Doyle, President and Chief Executive Officer


(WILLIAM J. DOYLE PICTURE)




---



##### 



4   PotashCorp
2003 Annual Report





Why decommoditize? Even though fertilizer is essential for sustainable food production, it is not
immune to the rise and fall of commodity cycles. Our business faces diverse
pressures, including new fertilizer capacity that comes on stream, reduced crop
prices and changes in government policy around the world. We faced all three in
recent years, creating one of the longest down cycles our industry has ever
seen. At PotashCorp we believe the value of our company should stand above swings in
the commodity market as much as possible. To decommoditize our company, we
developed a strategy designed to smooth the highs and lows of commodity cycles
and wrap earnings around a rising trend line to ensure we will always be a
sustainable enterprise. For shareholders, our objective is to provide value without volatility. These
higher-quality earnings set PotashCorp apart from our peers. One of the keys is
greater transparency. By reducing uncertainty  whether discussing current
conditions or long-term strategies  we clear the path for better returns. Why N, P and K? We have remarkable resources in each of the three nutrients and build upon our
unique advantages in each to support our strategy. PotashCorps aim is to be
the global low-cost supplier of potash into all key world markets and to
complement this by leveraging the strength of our low-cost gas in nitrogen and
specialty products in phosphate. As our name suggests, potash is the cornerstone of our company and provides a
solid base for our performance. We are the worlds largest potash company. Of
the three nutrients, potash faces the fewest environmental pressures and least
government ownership, supporting our objective of higher-quality earnings.
Still, we have expanded our enterprise and broadened our base with nitrogen and
phosphate production aimed at the least volatile areas of those nutrients. The value of this strategy, built on three nutrients serving three distinct
markets, has been proven in the challenging conditions of recent years. Our
plans to generate better performance as conditions improve are explained in
greater detail in the managements discussion and analysis section of this
report.


(POTASH FIRST STRATEGY BAR CHART) What happened in 2003? In general terms, our potash franchise remained strong as volumes increased;
our nitrogen operations contributed more as prices improved dramatically; and
phosphate battled through a sluggish market. Prices for inputs like natural
gas, necessary for nitrogen production, and sulfur, for phosphate processing,
jumped significantly. The Canadian dollar surged in relation to its US
counterpart, which generated a relative increase in our potash costs. Following
production, our industry (and our customers) faced ocean freight rates that
reached unprecedented highs. This hurt our earnings in potash, where we are a
global supplier, but worked to our advantage in our nitrogen business, which is
regional, by restricting competitive imports. In potash, we sold more tonnes as Brazil, one of our best and fastest-growing
markets, imported record volumes for the second consecutive year. In North
America, we were successful in achieving a $10 per tonne price increase in the
fall. By year-end, Saskatchewan producers (through Canpotex) and Russian
producers (through IPC) signed large-volume contracts at higher prices with
purchasing agencies in China, even though that customer handles its own
freight. Its a sign that markets are tightening and the value of potash is
increasing. In nitrogen, ammonia and natural gas prices decoupled for the first time since
the mid-1990s, reflecting the very tight supply/demand dynamics for nitrogen
products. By the end of 2003, ammonia prices reached the highest level seen in
almost 30 years. The high-cost




---



##### 



PotashCorp 2003 Annual Report   5



gas environment in North America continued to shift production offshore,
increasing the value of our Trinidad asset. Phosphate, unfortunately, remained in its earnings trough as world consumption
has not absorbed new capacity that came on stream in the past few years. In
North America, demand was sluggish. Offshore, China and India have historically
been important markets for US producers, but now their governments are pouring
subsidies into domestic production, skirting their WTO commitments and
decreasing the need for imports. That situation must be corrected before
phosphate producers can increase operating rates and profitability. How did PotashCorp respond? We believe in leadership and action, rather than sitting back and waiting for
market conditions to improve. Our experienced management team has seen the
cycles of the fertilizer industry in the past and knows how to respond. In
2003, we saw our industry in transition and used this period to reconfigure
some areas of our company to better fit the new reality. In our most significant move, we took another step forward in the globalization
of our potash business with the purchase of 26 percent of Arab Potash Company
(APC). We nominated individuals to the top four management positions at APC and
can utilize this investment as a form of a hedge against rising freight rates.
This, like our previous investments in Israel Chemicals Ltd. (ICL) and SQM in
Chile, expands our enterprise and adds to our global prominence in potash. In addition, we entered into an agreement to sell our potassium nitrate
operation at Yumbes to SQM, a producer of higher-margin specialty products. We
believe this transaction will improve the performance of both companies over
the long term.
 In North America, we announced plans for expanded potash production and
compaction capacity at Rocanville, made economically feasible by tax changes in
Saskatchewan. This will increase our production of granular potash, which is in
great demand by key potential growth markets. In phosphate, the opening of our new industrial plant was a bright spot,
shining a light on the product diversity we can achieve with our high-quality
ore. Our DFP plant had start-up issues but should reach full operation by the
end of the first quarter in 2004. Our greatest advantage, however, is our
long-term ore position, as we have completed the move into our best
rock deposit near Aurora and recently gained a life-of-mine permit at White
Springs. Our realignment also included a shift in our North American nitrogen
operations, as we turned our attention to capturing greater value from our
warehouse and distribution network, increasing the sale of purchased tonnes in
2003. As we move forward, we will supply the US, our primary market, with a
combination of Trinidad and domestic production as well as tonnes purchased for
resale, with an eye toward using the source of supply with the highest margins. In addition, we sold our natural gas hedges in North America at the height of
the market in February, generating a significant cash benefit that contributed
to our profitability in nitrogen. Of course, any down cycle requires some tough decisions. We announced
indefinite shutdowns of nitrogen production at Memphis and of ammonia and
nitrogen solutions production at Geismar. Both these facilities are on the
Mississippi River and vulnerable to imports. We tightened our belts across the
company and every member of our executive management team led the way by taking
a 10 percent pay reduction. Board members followed suit by voluntarily reducing
their annual retainer by 10 percent. A salary freeze for middle management was
introduced and reductions in company contributions
   Potash Prescription for Healthier FoodIn February 2004, the Institute of Medicine of the National Academy of Science
released its latest review of dietary intake requirements. The report stated
that most North Americans need to roughly double their consumption of
potassium, which lowers blood pressure and reduces risk of kidney stones and
bone loss. The Institute recommended that potassium from food sources,
including bananas, spinach, cantaloupe and other fruits and vegetables, is a
better option than supplements. The potassium in these foods comes from the
soil and is replenished by potash fertilizer.
    
    (PICTURE)




---



##### 



6   PotashCorp 2003 Annual Report



to employee savings plans were implemented. Even though our company has
performed reasonably well, our industry is not at its peak and we must take
measures to protect the long-term value of PotashCorp. What were the results? In 2003, PotashCorp had a net loss of $2.42 per share which includes writedowns
and charges relating to Yumbes, Geismar and Memphis. Net income, adjusted to
exclude impairment charges and shutdown-related costs, was $76.9* million or
$1.46* per share, despite another sub-par year for our industry and the
challenges of sharp increases in costs. The true value of that performance is
disguised by the rise of the Canadian dollar, which cost our company
approximately $0.94 per share, although about two-thirds is a non-cash foreign
exchange loss. Otherwise, our performance would have been ahead of our original
guidance. In addition, cash flow continued to be a strength of our company as
we achieved $381.5 million in cash flow from operating activities, 21 percent
higher than last year. Our share price on the New York Stock Exchange ended the year at $86.48. Our
total shareholder return was up 38 percent. This exceeded the performance of
the Dow Jones Basic Materials Index, which increased 36 percent in 2003, as
well as our sector average, which increased 26 percent excluding our company.
In Canada, our share price growth was limited by the strength of the Canadian
dollar. (POT SHARES OUTPERFORM CHART)
 What is expected in 2004? The good news is that the beginning of a turnaround late in 2003 is a signal
that we are approaching the end of this long down cycle. Grain consumption is
projected to exceed production for the fifth consecutive year and world grain
stocks are expected to fall to their lowest point in 44 years. US farmers are
reporting higher net income and, offshore, prices for many crops are improved.
These are important factors as farmers know that fertilizer is a good
investment that brings higher yields and enhanced profitability. The changing global trade environment is also in our favor. China has exported
as much as 15 million tonnes of corn into a 75-million-tonne market in recent
years, substantially reducing its internal stockpiles. At the same time, Chinas annual trade surplus with the US has grown from $30
billion to $120 billion. International trade is relatively new to China and, as
it gains confidence in its trading partners, it will increase imports to meet
its WTO commitments. Last year, China issued licenses allowing importers to ship only 13,000 tonnes of corn into the
country; in 2004 it has issued licenses for 7.7 million tonnes of imported
corn. This is good news for farmers and the fertilizer industry. What does it mean to PotashCorp? As potash consumption grows, we are in position to be the biggest beneficiary.
We have been patient over the years, while operators in Russia and Belarus
increased their exports as they adjusted to a free-market system at home. Now,
they are operating at or near capacity and their only route to increased
profits is higher prices. That will help our entire industry. With the rest of the potash industry operating at more than 90 percent of
capacity, PotashCorp is in a good position to begin to use our excess capacity
to capture new demand growth. With increased volumes, which lower our cost per
tonne, and better prices, the future for potash is very bright. Our immediate
goal is to recover the margin losses created by rising ocean freight rates and
the strengthening Canadian dollar. Early in 2004, we announced price increases
in both North American and offshore markets. In addition, we will see the
benefit from the sale of Yumbes, which eroded gross margin by approximately $23
million in 2003.  *
    
    See reconciliation and description of certain non-GAAP measures in Financial
Performance Indicators on Pages 48-50.




---



##### 



PotashCorp 2003 Annual Report   7







In phosphate, we enter the year expecting that things can only improve. Last
year, we had at least $22 million in costs that should now be behind us. In
approximate figures, our restart of DAP production at White Springs cost $7
million and start-up issues at our DFP plant added $15 million. While some of
the start-up issues carried over into the first quarter, DFP performance in
2004 should be much better. Overall rock costs were down 11 percent from 2002,
demonstrating the advantage of the transition to our higher-grade ore zone at
Aurora, which is closer to our processing facilities. Rock costs should improve
even further this year. However, the earnings trough for the phosphate industry will continue unless
industry rationalization picks up speed or China and India begin to live up to
WTO commitments. The tighter supply/demand balance in nitrogen is expected to continue through
2004, supporting higher ammonia prices and providing greater leverage for
PotashCorp. High ocean freight rates work in our favor in nitrogen, making
imports from the Middle East less competitive in North America. That, combined
with the high cost of natural gas in North America, increases the value and
importance of our Trinidad asset. Corporately, we look forward to better tax rates in Canada at provincial and
federal levels, which will improve our earnings. What do we value at PotashCorp? We have a series of long-term goals and remain faithful to them. Each year, we
set targets to help us achieve those goals. While these targets are aggressive,
they make us stretch and challenge us to achieve continuous improvement. Our
goals and performance


against 2003 targets, along with our new targets for 2004, follow this letter. While all of our targets are important, my greatest satisfaction in 2003 was
our improved safety performance. More than anything else, we want our people to
be safe and return home to their families each night. They are the heart and
soul of our company and their well-being is essential for our success. We have
a clearly stated goal in this area: no harm to people, no accidents and no
damage to the environment. This will continue to be a top priority at
PotashCorp. We also take special pride in our corporate governance, an area of heightened
interest for investors. In 2003, a study by the Rotman School of Business at the University of Toronto honored
PotashCorp as having the best corporate governance practices in Canada. That is
a credit to Donald Phillips, our previous Board Chair who retired in May, and
Dallas Howe, our current Chair who led our corporate governance committee in
the past. I would also like to recognize the efforts of long-time board members
Douglas Bourne and Thomas Wright, who retired in May, and welcome our new board
members John Estey, Alice Laberge and Elena Viyella de Paliza. The leadership
from our directors has been  and will continue to be  essential to our
progress. That leadership has created a culture of excellence that contributed to a
number of important awards and achievements in 2003. The Council for
Sustainable Florida presented PCS Phosphates White Springs operation with the
Sustainable Florida Award for our environmental efforts. In Saskatchewan, we
won several awards at the Mine Rescue Emergency Response Competition. In
nitrogen, our Geismar and Trinidad operations reached six million and three
million hours, respectively, without a lost-time accident. Corporately, the
Toronto Stock Exchange and Canadian Institute of




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






---



##### 



8   PotashCorp
2003 Annual Report





Chartered Accountants honored us by recognizing our website as the best forum
for electronic disclosure in any industry. These same organizations presented
us with the award for excellence in corporate reporting in the mining sector
for our 2002 annual report, corporate governance, website and sustainability
report. Our report on sustainable development  a first for our company and the first
in the North American fertilizer industry  is a part of the overall approach
to best practices that runs throughout our company. Each year, we have an
annual meeting of our operations managers to gather the best ideas from within
our organization and implement them on a wider scale. In 2003, we extended this
approach to the national meeting of PCS Sales with the goal of ensuring our
exceptional customer service is present at all stages of the sales transaction. In March, I spoke on sustainable development and food production at a
conference in Rome sponsored by both the Food and Agriculture Organization of
the United Nations and the International Fertilizer Industry Association. It
brought me back to many of the lessons learned on that first trip after
college. The issues of food production remain as important today as they were
30 years ago. Economic development and prosperity are still built on
agriculture. Our health, happiness and world peace remain tied to our ability
to grow food. That is at the heart of what we do at PotashCorp and answers the simple
question, Why fertilizer? -s- William J. Doyle William J. DoylePresident and Chief Executive Officer February 27, 2004


Growing Markets, Growing Opportunity Of the three nutrients, potash represents our best opportunity for growth. As a
primary supplier to developing nations, we are a low-cost producer with
abundant capacity. (FEW PRODUCERS CHART) Potash is produced in a limited number of areas, but is in global demand. Since
transportation makes up about half of the delivered cost, producers usually
sell to the closest markets. After supplying home markets, producers export
into the free trade area, which has the most growth potential and little or
no indigenous production. This includes Latin America, Africa, Asia and
Oceania. Efficient, low-cost delivery is the key. PotashCorp supplies Asia from
Saskatchewan, while our New Brunswick operations serve Latin America. Our investment in APC, which is ideally
situated to serve Europe and India, provides a form of a hedge against rising
freight rates. (FERTILIZER USE BAR CHART) These growing markets are expected to increase consumption of all three
nutrients, especially potash, in the years ahead.  In China, where rice is a staple for 1.3 billion people and is triple
cropped, replenishing nutrients is important to continued production.
  India is the third-largest consumer of fertilizer in the world and still
lacks adequate amounts of all three nutrients. Over the next decade, it is
recommended that Indias consumption of nitrogen should double, phosphate
triple and potash almost quadruple.
  Brazils potash consumption is also expected to increase more than 50
percent, as it is fast becoming the worlds largest producer of soybeans, a
huge consumer of potash fertilizer.




---



##### 





PotashCorp 2003 Annual Report   9 What are PotashCorps long-term goals? Our business goals are linked to the philosophy at the heart of PotashCorp. We
are a leader in our industry and it is important that we hold ourselves to the
highest standards. We believe in accountability and hope our targets and
performance encourage discussion with our stakeholders.  1
    
    To continue to outperform our sector and other basic materials companies in
total shareholder return. While all our targets move us toward our long-term goals, this is a goal which
is evaluated and assessed on an annual basis. In 2003, PotashCorps total
shareholder return was 38 percent on the New York Stock Exchange while the Dow
Jones Basic Materials Index was 36 percent and our sector 26 percent. 2003 Targets:
    
    2003 Results:
    
    Decrease our non-cash working capital* as a percentage
of revenue by 10 percent.
    
    (o)
    
    Non-cash working capital went from $461 million to
$349 million in 2003. As a percentage of revenue, it went
from 24 percent to 14 percent, a reduction of 42 percent.
    
    Increase cash flow return* by 10 percent.
    
    (o)
    
    Cash flow return for 2003 was 2.6 percent compared to
6.7 percent for 2002. The main factors for the decrease were
the provisions for plant shutdowns at Memphis, Geismar and
Kinston and the impairment charges at Yumbes. The total of
these provisions was $264.2 million before tax.
    
    Implement key corporate performance metrics on a comprehensive and systematic basis.
    
    (o)
    
    Development of metrics reporting framework commenced, with implementation planned for 2004.
 2004 Targets:
    
    
    
    Exceed total shareholder return performance of the companies on
the Dow Jones Basic Materials Index.
    
    Be at the top of our earnings guidance range.
    
    Work with the management and board of APC to improve its shareholder return.
    
    Maintain non-cash working capital at year-end rates.
    
    Total cash flow return on investment to exceed cost of capital by 200 basis points.
  2
    
    To remain the leader and preferred supplier of nitrogen, phosphate and potash products worldwide. 2003 Targets:
    
    2003 Results:
    
    Capture an equitable share of world potash
consumption growth.
    
    (o)
    
    PotashCorp increased offshore potash volumes by 19 percent,
while total world demand grew by an estimated 5 percent.
    
    Double our DAP and MAP sales volumes.
    
    (o)
    
    DAP/MAP volumes were up 101 percent.
    
    Increase feed and industrial sales volumes in nitrogen
by 10 percent and in phosphate by 15 percent while
achieving higher prices.
    
    (o)
    
    Feed and industrial nitrogen sales decreased by 4 percent;
however, prices were up 42 percent. Industrial phosphate
sales were up 12 percent, while prices were flat. Phosphate
feed volumes were down 10 percent and prices were down
6 percent.
    
    Move specialty products from index pricing to negotiated
pricing, reflecting their differentiation.
    
    (o)
    
    Agreements connected to costs, fixed prices or locked
margins were signed with the market leaders in five of
our primary industrial markets.
    
    Receive 20 percent of customer purchase orders through
electronic data interchange.
    
    (o)
    
    By December 2003, 22 percent of customer purchase
orders were received through electronic data interchange.
 2004 Targets:
    
    
    
    To continue to be the preferred supplier, as measured by customer surveys.
    
    Reduce the number of customer complaints by 5 percent.
    
    Increase total potash sales volumes by 5 percent at 5 percent higher realized prices.
    
    Increase purified acid sales by 12 percent.
    
    Increase North American industrial nitrogen sales volumes to 60 percent of total nitrogen sales.
    
    Increase DFP volumes by 18 percent at 16 percent higher realized prices.
 achieved (o)
partially achieved (o)
did not achieve(o) * See reconciliation and description of certain non-GAAP measures in Financial Performance Indicators on Pages 48-50




---



##### 





10   PotashCorp 2003 Annual Report  3
    
    To be the low-cost supplier in our industry. 2003 Targets:
    
    2003 Results:
    
    Reduce phosphate rock costs by 20 percent per tonne
over the course of the year.
    
    (o)
    
    Average phosphate rock costs were reduced by 11 percent,
more than halfway to our target.
    
    Replace fuel oil at our New Brunswick operations with
natural gas accessed and developed at our site, reducing
costs by $2.0 million.
    
    (o)
    
    Following the transition, costs were reduced by $1.2 million.
On a full year, the projected saving is $2.1 million.
    
    Achieve average natural gas input costs in North America
10 percent below the average NYMEX spot price.
    
    (o)
    
    The US hedged gas consumed by PotashCorp was 26 percent
below the NYMEX price.
    
    Reduce domestic transportation costs by 5 percent.
    
    (o)
    
    During 2003 our overall domestic freight costs were reduced
by 7.2 percent.
    
    Achieve 96.5 percent reliability performance in
nitrogen operations.
    
    (o)
    
    Performance reliability in nitrogen reached 96.5 percent.
 2004 Targets:
    
    
    
    Reduce per-tonne conversion costs in each of our three nutrients by 5 percent.
    
    Reduce phosphate rock costs by 5 percent.
    
    Achieve average natural gas input costs in North America 10 percent below the
average NYMEX spot price.
    
    Implement supply-chain management process.
    
    Reduce domestic transportation and distribution expenses by 5 percent.
    
    Realize expected savings from negotiated medical plan design.
  4
    
    To move closer to our goal of no harm to people, no accidents, no damage to the environment. 2003 Targets:
    
    2003 Results:
    
    Reduce recordable accident frequency rate by 10 percent.
    
    (o)
    
    Reduced rate by 17.5 percent to 2.21 per 200,000 hours worked,
the lowest rate in the companys history.
    
    Reduce the number of environmental releases and permit
excursions below 2002 levels.
    
    (o)
    
    Environmental releases and permit excursions were reduced
from 53 to 39.
    
    Complete security vulnerability analyses (SVAs) at all our
nitrogen plants.
    
    (o)
    
    Security vulnerability analyses were completed at all
nitrogen plants. In addition, PotashCorp completed SVAs
at all phosphate plants storing anhydrous ammonia.
 2004 Targets:
    
    
    
    Reduce recordable and lost-time injury frequency rates by 10 percent.
    
    Reduce the number of environmental releases and permit excursions by 10 percent.
    
    Implement proactive facility security plans addressing current and anticipated security regulations.
    
    Through the use of effective management processes, continue to avoid major adverse incidents.
  5
    
    To have motivated and productive employees committed to our long-term goals. 2003 Targets:
    
    2003 Results:
    
    Implement a human resources administration system
enabled by information technology.
    
    (o)
    
    System testing and integration are under way. Implementation
is scheduled for completion by the end of 2004.
    
    Implement new systems and management processes to
track benefits and identify potential areas for savings, thus
aligning our people practices with our business goals.
    
    (o)
    
    Completion of new systems and management processes led to
a change in three programs which will result in year-over-year
savings of approximately $5 million.
    
    Review and update performance management processes
across the company to achieve consistency.
    
    (o)
    
    Introduction of new forms to review performance and new
reports for senior staff, which include an employee-readiness
analysis for succession planning.
    
    Provide a competitive compensation program with a
stronger incentive-based approach.
    
    (o)
    
    A new long-term incentive program with more rigorous
performance measures was introduced. A Special Awards
pilot program was also launched.




---



##### 





PotashCorp 2003 Annual Report   11 (PICTURE-KEYBOARD) 2004 Targets:
    
    
    
    Implement key corporate performance metrics.
    
    Implement employee incentives that tie compensation more directly to the
achievement of key corporate financial performance measures.
    
    Complete implementation of succession management and employee development
processes to improve focus on key talent and critical shortages.
    
    Complete implementation of a human resources administration system enabled by
information technology.
    
    Reduce turnover by employee segments.
  6
    
    To improve the socio-economic well-being of our communities. 2003 Targets:
    
    2003 Results:
    
    Develop corporate volunteer projects in Saskatoon and
Northbrook that reflect employees interests.
    
    (o)
    
    Northbrook employees participated in the Lambs Farm Winter
Clean-up; Saskatoon employees worked with the Child Hunger
Education Program.
    
    Produce our first sustainable development report,
providing information on PotashCorps economic,
social and environmental performance.
    
    (o)
    
    Our sustainable development report, released in August, was
recognized as the 7th best in Canada in Stratos Inc.s 2003
Benchmark Survey of Corporate Sustainability Reporting.
    
    Conduct communication drills in conjunction with
emergency management exercises at all facilities,
ensuring our ability to deliver information to our
communities in a crisis situation.
    
    (o)
    
    All the companys plants conducted emergency management
exercises and crisis communication drills in 2003.
 2004 Targets:
    
    
    
    Be engaged with community support projects at each of our plants and offices.
    
    Develop crisis management and communication plans for Saskatoon and Northbrook offices.
  7
    
    To be a leader in corporate governance. 2003 Target:
    
    2003 Results:
    
    Adopt a comprehensive statement of governance
principles designed to capture current best practices.
    
    (o)
    
    The Board adopted a comprehensive statement of governance
principles, which will be reviewed annually by the corporate
governance committee. Our company was recognized by
the Rotman School of Management at the University of
Toronto as having the best corporate governance practices
among companies traded on the Toronto Stock Exchange.
Further to that, the company initiated stock-option expensing
in the fourth quarter.
 2004 Target:
    
    
    
    Conduct a review of governance policies and principles to identify and implement most
recent best practices.




---



##### 



12   PotashCorp 2003 Annual Report

(RED QUESTIONMARK)

Managements Discussion & Analysis

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

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

PotashCorp and Our Business Environment
    
    
    12
    
    
    Financial Overview
    
    
    26
    
    
    Related Party Transactions
    
    
    37PotashCorp Vision
    
    
    16
    
    
    Potash Results
    
    
    27
    
    
    Critical Accounting Estimates
    
    
    37PotashCorp Strategy
    
    
    17
    
    
    Phosphate Results
    
    
    28
    
    
    Recent Accounting Pronouncements
    
    
    40Key Performance Drivers
    
    
    20
    
    
    Nitrogen Results
    
    
    30
    
    
    Risk Management
    
    
    40Action Plan and Capability to Deliver
    
    
    21
    
    
    Expenses and Other Income
    
    
    32
    
    
    Outlook
    
    
    42What Happened in 2003
    
    
    22
    
    
    Liquidity and Capital Resources
    
    
    33
    
    
    Key Earnings Sensitivities
    
    
    442003 Earnings Guidance Review
    
    
    25
    
    
    Market Risks
    
    
    36
    
    
    Forward-Looking Statements
    
    
    44Appendix
    
    
    45


PotashCorp and Our Business Environment




PotashCorp has built a global business on the
natural nutrients potash, phosphate and
nitrogen, which are used primarily in
fertilizer. We sell to North American
retailers, cooperatives and distributors that
provide storage and application services to
farmers, the end users. Our offshore customers
are governments and private importers that
tend to buy under contract, while spot sales
are more prevalent in North America.
Fertilizers are sold primarily for spring and
fall application in both northern and southern
hemispheres. Since transportation is an important part of
the final selling price, producers usually
sell to the closest customers. In North
America, we sell mainly on a delivered basis
and use rail, barge, truck and pipeline.
Offshore customers purchase product either at
the port or with freight included. In the case
of potash, approximately 60 percent of our
customers buy it freight included and the
remainder are responsible for ocean freight.


Potash, phosphate and nitrogen are also used
as inputs for producers of animal feed and
industrial products. Currently, both are
produced primarily in North America and Europe
but other regions are increasing both
production and consumption. Feed and
industrial sales are more evenly distributed
throughout the year than fertilizer sales and
are primarily by contract. In all product categories (fertilizer, animal
feed and industrial products), price is the
most important variable in the buying
decision. North American customer surveys
indicate that product quality is the next most
important factor when a supplier is being
chosen. Customers specific needs also affect
their buying decisions. For example, in Japan,
where our potash products are commonly used in
industrial applications, quality is a
significant factor. In China, there is a
strong preference for red potash products,
like those we produce at our Allan,
Saskatchewan operation. In Brazil, granular
potash to blend with the other
nutrients is key.


DEMAND DRIVERSFertilizer
    Feed
    Industrial
    Acres planted
    
    Demand for meat
    
    Economic growth
    Application rates per acre
    
    Herd and flock size
    
    Rising world population

    Rising world population
    
    Economic growth
    
    Desire for products that contribute to
    Desire for protein-rich diets
    
    Rising world population
    
    modern living
    World grain stocks and crop commodity prices
    
    Government policy
    Weather
    
    Regulations affecting substitutable products
    Government policy, GDP




---



##### 



PotashCorp 2003 Annual Report   13

Industry
factsPotash
    
    Phosphate
    
    NitrogenBase Product
    
    Potassium chloride
    Phosphate rock
 phosphoric acid
    AmmoniaGeographic Availability
of Raw Materials1
    
    Very limited
    Limited
    Readily available in numerous
locations (natural gas)Cost of New Capacity2
    
    Approximately $500 million for
1 million tonnes KCl
    Approximately $1 billion for
1 million tonnes P2O5
    Approximately $500 million for
1 million tonnes ammoniaGreenfield3
    
    5 years
    3 years
    2 yearsDevelopment Time4Producing Countries5
    
    12 (based on KCl)
    Approximately 45 (based on
    Approximately 70 (based on# 1  Canada
    phosphoric acid)
    ammonia)# 2  Russia
    # 1  US
    # 1  China# 3  Belarus
    # 2  China
    # 2  India# 4  Germany
    # 3  Morocco
    # 3  Russia# 4  Russia
    # 4  USState- or Subsidy-
Controlled Production6
    
    14%
    38%
    50%Expected Long-Term World
Fertilizer Consumption7
Growth Rate8
    
    2%
    2%
    2%Major Importers9
    
    KCl
    DAP
    Ammonia# 1  US
    # 1  China
    # 1  US# 2  Brazil
    # 2  Pakistan
    # 2  India# 3  China
    # 3  India
    # 3  South Korea# 4  India
    # 4  Vietnam
    # 4  TurkeyPercentage Traded
Across Borders10
    
    82%
    46% (DAP)
    13% (Ammonia)PotashCorp factsCapacity11
    
    12.1 million tonnes potash23% of world capacity
    2.5 million tonnes phosphoric acid6% of world capacity
    3.9 million tonnes ammonia2% of world capacityWorld Position
by Capacity11
    
    #1
    #4
    #3Raw Materials
Availability12
    
    More than 100 years in
Saskatchewan at current
operating rates
Additional deposits in New Brunswick
    Approximately 75 years in
North Carolina at current
operating rates
    Trinidad natural gas producers
have approximately 40 years of
reserves13; our contracts with
them are approximately 9 percent of the totalProduction Cost Position
vs World Producers14
    
    Low-cost
    Low-cost P2O5
Low-cost purified acid
Medium-cost DAP
    Trinidad operations low-cost
US operations high-cost
(consistent with all natural gas-based
US producers)Production Facilities
    
    Seven operations in Canada
(plus interest at Esterhazy)
Potassium nitrate operation in Chile (currently being divested)
    Two mines in the US
Three processing operations in the US
Seven feed plants (6  US, 1  Brazil)
    Four plants in the US
Large complex in TrinidadKey Cost
Sensitivities
    
    Operating rate, natural gas,
$CDN/$US exchange rate
    Cost of phosphate rock, sulfur,
ammonia; operating rate
    Natural gas, conversion efficiency,
operating rateCompetitive Strengths
    

Low-cost
producer69% of world excess capacity15
Greater exposure to growing offshore markets
    Long-term rock position
High-quality rock
Production diversity
Widest product range
    Flexible product mix and sources
Close ties to industrial customers
Long-term access to lower-cost gas
in TrinidadUS distribution system


1-15
 See Appendix, Page 45



---



##### 



14   PotashCorp 2003 Annual Report

PotashCorp
North American Markets16

Potash
    
    Phosphate
    
    NitrogenMajor Consuming Crops
    
    Corn, wheat, soybeans, cotton
    Wheat, corn, soybeans, cotton
    Wheat, corn, cottonMarket Share17
    
    30% (KCl)
    22% (P2O5)
    16% (N)Main Customers18
    
    Cooperatives, national accounts,
independent dealers
    Cooperatives, feed producers,
Astaris, Rhodia (industrial)
    US DAP producers, cooperatives,
BASF, DSM (industrial)Main Competitors19
    
    IMC, Agrium, MissChem, imports
from Russia and Belarus
    IMC, Cargill, Simplot, CF
    CF, MissChem, Koch, Terra,
imports from other Trinidad producers, Russia and the Middle EastSales Approach
    
    PotashCorp sales team
    PotashCorp sales team
    PotashCorp sales teamPotashCorp
Offshore Markets20Major Consuming Crops
    
    Rice, corn, wheat, soybeans,
oil palm, sugarcane, coffee
    Wheat, rice, corn, soybeans, cotton
    Wheat, rice, cornMarket Share21
    
    11% (KCl)
    1% (P2O5)
    0.2% (N)Main Customers
    
    Brazil, China, Japan, Malaysia,
Indonesia
    China, Brazil, Mexico
    Limited salesMain Competitors22
    

Belaruskali
(Belarus), Uralkali (Russia), Silvinit (Russia), Kali & Salz (Germany), Dead Sea Works (Israel)
    OCP (Morocco), GCT (Tunisia),
Phosagro (Russia), JPMC (Jordan), various producers in China and India
    Limited salesSales Approach
    
    Canpotex23 and PotashCorp sales team
    PhosChem24 and PotashCorp sales team

PotashCorp
sales team






PotashCorp in the world potash scene Worldwide, potash deposits that can be mined
economically are very limited. There are few
producers and many consumers. The US, a mature
market, is the largest potash importer, and
developing nations with limited indigenous
production are the greatest growth markets.
PotashCorp is a prominent supplier in both
these markets. With 12 million tonnes of capacity, we could
supply nearly 30 percent of annual global
requirements if we operated at our full rate.
We have 69 percent of world excess capacity,
so we expect to provide this vital nutrient to
the world for many decades to come. Our major competitors in North America are
Agrium and IMC, each of which is more
significantly leveraged toward North American
sales than we are. Globally, we compete with
producers in Belarus, Russia, Germany and
Israel to serve customers in markets with
little or no indigenous potash production,
such as Asia and Latin America. Market trends include continued industry
consolidation, aggressive competition and
shrinking government control  from 66 percent
of the industry in 1980 to 14 percent in 2003. Strengths:  
    
    Low-cost, flexible production with a low percentage of fixed costs
    
    Excess capacity to respond to growth in world consumption
    
    Greater exposure in growing offshore markets
    
    Stable pricing, historically
    
    Few world producers, reduced government control
    
    High cost of entry to the business
    
    Moderate prices discourage investment in new greenfield capacity


(PLANTS AND ANIMALS) Weaknesses:  
    
    Highly competitive North American market
    
    High freight costs to ship Saskatchewan potash to port
    
    Currently high ocean freight costs
    
    Recent rise of the Canadian dollar, increasing production costs
    
    High provincial and federal taxes
    
    Water inflow at New Brunswick continues to negatively impact margins Opportunities:  
    
    As the major supplier to the offshore market, we are well
positioned to fill potential growth in consumption with our excess
capacity
    
    We believe our competitors are operating at or near capacity, which
could allow us to benefit from a significant portion of future growth Threats:  
    
    Competitors debottlenecking of existing plants may fill rising
offshore demand and offset potential market growth for us




---



##### 



PotashCorp 2003 Annual Report   15  (POTASHCORP IS THE LARGEST COMPANY BAR GRAPH) PotashCorp in the world phosphate scene

World capacity of the major phosphate
fertilizer product, diammonium phosphate
(DAP), has surged in recent years. US DAP
production is primarily intended for export,
and historically much of it went to India and
China, which are now developing their domestic
production behind trade barriers created to
protect it. The current excess supply of DAP
relative to consumption is depressing prices.Governments influence a significant proportion
of world capacity, through subsidy control,
ownership or by overproducing and accepting
negligible to negative returns to support
employment.In these circumstances, PotashCorps product
diversification has allowed us to cut DAP
production and shift our high-quality
phosphoric acid to liquid fertilizers, animal
feeds and industrial production, all important
niche markets. We believe we are a low-cost
producer of these products, and we have the
most capacity in North America for phosphate
feeds. Use of liquid fertilizers is growing as
more farmers adopt conservation tillage. The
expansion of our purified acid plant at Aurora
in 2003 enhanced our position as one of the
worlds low-cost producers of this product.In North America, our major competitors for
both fertilizer and feed products are IMC and
Cargill, while imports from Morocco and Israel
compete for industrial sales. In offshore
markets, competition for fertilizer sales
comes from indigenous producers in India and
China and from other global producers. In
China, indigenous producers compete for feed
sales. Strengths:


    
    High-quality, long-term deposits close to low-cost processing facilities
    
    The industrys most diversified product line
    
    Existing permits at Aurora for 8 years and covering estimated life
of mine at White Springs (18 years)
 (PICTURE) Weaknesses:

    
    US producer dependency on declining world DAP trade has led to
lower sales volumes and higher costs per tonne (high fixed costs)
    
    Excess world DAP capacity in many hands can easily be brought back on stream
    
    Too much government intervention, either in constructing capacity or in restricting imports
    
    Offshore sales heavily exposed to China and India, which seek self-sufficiency Opportunities:

    
    Our high-quality ore allows us to develop more high-margin products
    
    Our strong competitive cost position in industrial acid makes us
less susceptible to offshore competition
    
    Potential growth in offshore feed markets Threats:


    
    Depressed fertilizer prices have encouraged others to expand into the feed business, hurting margins
    
    Competitors with liquidity issues selling at lower prices to accelerate cash flow
    
    Higher barriers to exit because environmental costs force some
companies to continue production at uneconomic levels, impacting
supply/demand fundamentals (PHOSPHATE ROCK POSITION BAR GRAPH)




---



##### 



16   PotashCorp 2003 Annual Report  (PICTURE) PotashCorp in the world nitrogen scene

Nitrogen, the most widely produced nutrient,
is a regional business. Ammonia, the feedstock
for all nitrogen products, can be manufactured
in any country with adequate natural gas
supplies and is a way for developing nations
to monetize their gas. Several countries with
large gas reserves and low production costs
use little of their gas domestically, and
produce ammonia cheaply for the export market.Rising natural gas costs in the developed
world have led to plant closures, since gas is
at least 70 percent of the cost of producing
ammonia there. The resulting tight supply has
increased prices, attracting imports from
areas of lower-cost gas such as Trinidad,
Venezuela and the Middle East. The US is
increasingly supplied from offshore and in
2003, imports of urea were up by 23 percent
and ammonia by 21 percent over 2002.Nitrogen is an input in industrial production
of a wide range of products that enhance
modern living, and manufacturers want
consistent quality and just-in-time delivery
to keep their plants running efficiently. Most
are attached to their suppliers by pipeline.
Improvements in GDP in developing nations have
historically supported growth in demand for
these lifestyle products.PotashCorp nitrogen production serves both
fertilizer and industrial customers, with our
US plants primarily supplying industrial
customers and Trinidad our fertilizer
customers. We are not immune when expensive
natural gas makes US ammonia plants
non-competitive with offshore production, but
our low-cost Trinidad plants (LARGEST OFFSHORE AMMONIA)
 help offset this. The high cost of gas in
North America and competition from cheap
imports have resulted in poor financial
circumstances for many competitors and the
industry continues to consolidate. Within North America, sales are regionalized
due to transportation costs. This limits
competition from Agrium which serves a
different niche market. CF Industries, a
cooperative, Koch, a private company, and
Terra and MissChem, both publicly traded
companies, are our main competitors. Imports
from inexpensive offshore production are
expected to continue, but rising freight costs
limit them somewhat. Strengths:


    
    More than half of our production is in Trinidad where we benefit
from favorable gas contracts and proximity to the US market
    
    Our gas hedging program in the US helps stabilize costs there
    
    Some of our US plants are linked by pipeline to industrial
customers willing to pay a premium for secure, high-quality supply Weaknesses:



    
    Uncompetitive natural gas costs in North America
    
    Contractual commitments to industrial customers may require us to
operate unprofitable plants in a high-cost gas environment
    
    Small volume changes can significantly impact prices Opportunities:


    
    High volume demand in the US
    
    Plants in Trinidad allow for expanded low-cost production
    
    Our US distribution system allows us to import and sell purchased tonnes
    
    Current higher freight rates make imports to US from the Middle East less competitive
    
    Consolidation of US industry Threats:


    
    Competitors need only a short time frame to bring on new capacity
when supply/demand ratio is tight
    
    Poor financial condition of competitors may cause liquidity issues,
resulting in acceptance of lower prices to accelerate cash flow PotashCorp Vision
 We see PotashCorp as a long-term business
enterprise providing superior value to all our
stakeholders. To achieve this, we believe we
need to be the sustainable gross margin leader
in the products we sell and the markets we
serve. Through our strategy, we attempt to minimize
the natural volatility of our business; risk
rises with volatility and we believe the
capital markets will assign a better earnings
multiple to a growth company with lower risk.
We also strive for increased earnings, and to
outperform our peer group and other basic
materials companies in total shareholder
return, a key measure in any companys value. We constantly link our financial performance
with areas of extended responsibility: the
environment, our social and economic
stakeholders and all who depend on us. For
each of these stakeholder groups, we focus on
increased transparency to improve our
relationships, believing this gives us a
competitive advantage.




---



##### 



PotashCorp 2003 Annual Report   17  (OUR VISION: EARNINGS GROWTH AND QUALITY) PotashCorp Strategy
 PotashCorps strategy is based on our
commitment to seek earnings growth and
quality. We build value with reduced
volatility. The company intends to be the
industrys low-cost global potash supplier on
a delivered basis and to complement that by
leveraging the strengths of our low-cost gas
in Trinidad and our specialty phosphate
products. Day-to-day, we aim to maximize gross margin by
focusing on the right blend of price, volumes
and asset utilization, growing our business by
enhancing our position as the supplier of
choice. At the same time, we strive to build
on our strengths by acquiring and maintaining
low-cost, high-quality capacity that
complements our existing assets and adds
strategic value. We make decisions based on
our determination to have our returns on cash
flow materially exceed our cost of capital. (STRATEGIC POSITIONING)
 Potash Strategy: Building on global leadership

Our strategy in potash is designed to capture
the benefits of our high-quality ore, low-cost
production and excess capacity. We match
supply to demand to minimize inventory
overhang and we believe price and margin to be
more important than volumes; our goal is to
increase earnings over time. We also focus on
maintaining our low-cost position in both
production and on a delivered basis. We expect
to use our excess capacity to respond to and
benefit from demand growth. Increased
production should lower our unit costs and
improve margins.Threats to this strategy come from competitors
expanding their operations to increase
capacity. Such expansions, while dampening our
growth in the short term, should eventually be
absorbed as new production has historically
been consumed by rising demand. The (STRATEGIC POSITIONING: POTASH) threat of major new capacity in potash in the
form of a new mine is somewhat constrained, as
we believe there are few geographic
opportunities and it takes considerable capital
and long lead times to bring a greenfield
operation into production. We believe current
potash margins do not support such investments. Our strategy is best measured over the long
term, as potash has the longest cycle of the
three nutrients. Since we adopted this approach
in 1987, it has been severely tested through
two down cycles. In both instances, we
responded to the unbalanced supply/demand
equation created by large volumes from world
competitors by reducing our production, and our
potash profitability remained relatively
stable. As consumption grew and supply/demand
tightened, we increased production and
generated better margins. In the future, we
expect to use our excess capacity to meet the
growth in developing nations. Transportation costs are increasingly
important and our sales strategy is built with
customer proximity in mind. We are advantaged
supplying Asia and the US from our
Saskatchewan
operations and with our New Brunswick facility
serving South and Central America. This allows
for




---



##### 



18   PotashCorp 2003 Annual Report  quicker and more cost-efficient delivery  an
important factor as ocean freight rates
reached unprecedented levels in 2003. Our
recent investment in Jordan-based Arab Potash
Company (APC), where we nominated individuals
to the top four management positions, shows
this strategy at work. Domestically, our strategy relies on a
distribution network in the US and Canada that
allows timely delivery to high-demand spring
and fall markets. We maximize these systems,
attempting to get the lowest freight rates
possible. Offshore sales of our Saskatchewan
potash are handled through our membership in
Canpotex, which minimizes transportation and
marketing costs. This is important in pursuit
of our goal of being the lowest-cost supplier
on a delivered basis to any customer around the
globe. (POTASH OPERATING RATES CHART) Shifts in foreign currencies affect our
strategy. As currencies, including the
Canadian dollar, strengthen against the US
dollar, translated production costs rise in
many countries. Together with higher freight
rates, this squeezes margins, creating a need
for higher prices. Investments in companies
such as APC are aimed at providing a natural
hedge against rising freight costs and
currency fluctuations, since the Jordanian
dinar is indexed to the US dollar. PotashCorp
will continue to review investment
opportunities that offer freight advantages,
provide economic hedges and expand our
enterprise. We will also explore opportunities
in upgraded potash (which offers higher
returns and less volatility), consistent with
our investment in SQM, the worlds largest
producer of specialty upgraded potash
products. Phosphate Strategy: Strength through diversification
In phosphate, we work to maximize the benefits
of our long-term rock position, multi-year
mining permits and high-quality ore that
enables low-cost production and product
diversity. The quality of our ore allows us to
produce the upgraded feed and industrial
products whose margins are more stable, to
reduce the volatility of phosphate fertilizer.1, 2  See Appendix, Page 45
 We support this strategy with specialized
sales teams to sell each product line in North
America. Our initiatives to develop
non-fertilizer products help us move toward
the top right quadrant as there are fewer
competitive pressures in these businesses. Our
high-quality rock gives (STRATEGIC POSITIONING: PHOSPHATE CHART) us an advantage, allowing us to produce these
higher-end products at lower costs than our
competition. We will look for opportunities to
further diversify, especially in the
industrial acid area. With phosphates high percentage of fixed
costs, maximum profitability is achieved only
when running at full capacity in a tight
supply/demand situation. During 2003, we ran
our DAP plants at 61 percent of capacity, due
to a weak supply/demand equation - (PHOSPHATE PRODUCT DIVERSIFICATION BAR CHART)




---



##### 



PotashCorp 2003 Annual Report   19  which increased operating costs on a per-tonne
basis. In recent years, an earnings trough has
been created by new world capacity coming on
stream and reduced imports by China and India.
It appears that their governments are
attempting to build domestic industries by
subsidizing production and skirting their
commitments to the World Trade Organization.
This has markedly extended the down cycle for
phosphate. PotashCorp is responding with the
goal of keeping fixed costs flat in 2004 and
continuing to emphasize our industrial and
feed businesses. Nitrogen Strategy: Flexible supply sources Our nitrogen strategy is designed to moderate
the impact of volatile natural gas prices and
take advantage of cyclical upswings. With
favorable gas contracts in Trinidad, we can
shelter margins for some of our products. In
North America, we employ natural gas hedges
with the goal of minimizing risk from gas
prices and protecting US margins.
Nitrogen is a regional business, so North
America is our primary market. We supply this
market through a combination of tonnes
produced in Trinidad, US production and
purchased tonnes which we re-sell, always
seeking to source the highest-margin method of
supply. Our multiple port facilities,
warehouse and distribution network, dedicated
sales and customer service teams and
associated infrastructure make it possible to
supply customers from this flexible production
base. (HEDGING STABILIZES NITROGEN BUSINESS CHART) Trinidad is home to more than half of our
ammonia production and is ideally situated to
service the sizeable US market. Our US plants,
located in different regions, focus on
industrial sales, where quality and security
of supply are key. With varied production
rates at these operations, we plan to maximize
sales to industrial customers, supplemented by
fertilizer sales, to run our plants at the
highest possible operating rate to help
control costs.
 High natural gas costs in North America are
unlikely to significantly abate. This means
that smaller, less efficient operations or
those close to the Gulf of Mexico and more
vulnerable to imports will be unable to
compete over the long term. In response, we indefinitely shut down
production at our Memphis facility and ammonia
and nitrogen solutions production at Geismar,
eliminating low-margin sales. Lima was
restructured, which should reduce its costs by
$10 million annually, a portion of which will
be realized in 2004. In 2003, we demonstrated
that we can effectively use our distribution
system and increase purchased tonnes. This
could allow us to raise sales volumes in the
future without increasing production. (STRATEGIC POSITIONING: NITROGEN CHART) Sales Strategy: The supplier of choice In a commodity business, where products are
similar and price is the most important
influence on buying decisions, our goal is to
move our customer base to the top right
quadrant of highest volumes and highest
margins. We want to be the supplier of choice
to our customers, always getting the final
opportunity to win their business. Our
industry, including PotashCorp, has experienced
gross margin deterioration over the last three
to four years. To help insulate ourselves from
the cyclicality of commodity pricing, we
continue to pursue markets that require our
stringent specifications in both product
quality and service. This effort has been
rewarded through contracts tied to costs plus a
margin, or non-cyclical premium pricing. Our
extensive North American distribution network
also gives us a logistical advantage to supply
the growing needs of our customers. Higher
prices are necessary for increased
profitability and we work to balance our volume
and price expectations. Thus we seek to become
the preferred supplier to high-volume,
high-margin customers with the lowest credit
risk.




---



##### 



20   PotashCorp 2003 Annual Report

Key Performance Drivers




While being a supplier of choice and strengthening and increasing stakeholder
engagement are key to our long-term performance, our immediate profitability is
driven by lower production costs and higher realized prices, which contribute
to increased gross margin. We achieve lower per-unit production costs through
higher operating rates, which are generated by tightened supply. As with all
commodity businesses, higher prices generally follow. However, this often
encourages competitors to bring on new production, which impacts the
supply/demand balance until new market demand growth is achieved. We do not view PotashCorp as a typical commodity company that merely endures
low prices and waits for them to rise. We have a decommoditizing strategy
designed to moderate the highs and lows and outperform at both ends of the
cycle. Its success is influenced by many variables that are beyond our control.
While some factors like our levels of production and sales volumes are within
our control, all must be balanced with one another to optimize our asset base.


(QUESTION MARK GRAPHIC)




Measuring Key Performance Drivers Above all, our goal is to provide superior
shareholder returns. Low costs and higher
prices have an immediate impact on our success
in improving gross margins whereas,
longer-term, our key performance drivers
include recognition as supplier of choice with
our customers and engagement with our
employees, shareholders and communities.
PotashCorp continually reviews and monitors
these corporate-wide key performance drivers
and related measurements and believes they are
critical to determining whether the
implementation of our strategies in each
nutrient is successful. A summary is provided
below. Potash Our strategy in potash is based on bringing on
excess capacity as the world market grows. We
believe this strategy is successful when
potash margins are higher than in the trailing
quarter and in the same period a year earlier.
We also evaluate our success in achieving our
proportionate share of growth in world demand
and maintaining our target market share in
North America. On the cost side of the
equation, we monitor shutdown weeks as they
impact costs. Phosphate We evaluate our diversification efforts by
monitoring the sales split and gross margin
results between fertilizer and non-fertilizer
products. We track our strategy of entering
niche markets by monitoring realized prices.
Phosphate rock costs are integral to our
performance, as it takes approximately 3.5
tonnes of rock to make one tonne of P2O5.
While our goal is to reduce rock costs, we
follow an orderly mining plan for the long
term rather than mining only high-grade rock
for short-term gains. We also track input
costs, which is especially important given the
volatility of raw materials like sulfur and
ammonia.


Nitrogen Our goal is to maximize nitrogen production
where our costs are lowest and margins
highest. We compare Trinidad to North American
production, exclusive of natural gas hedges.
In North
America, we aim to stabilize production costs
through hedges and compare our natural gas
costs to what they would have been had we
purchased off the spot market. Industrial
sales typically bring better prices than
fertilizer and we monitor prices to confirm
that performance. We prefer to settle
industrial prices through negotiation rather
than selling from an index to reflect their
differentiation, and measure our progress in
this regard. Financial We believe that total shareholder return is an
important value measure and that maximizing
long-term shareholder value is a function of
providing superior returns on investment over
our business cycle(s) that exceed our cost of
capital. As such, we regularly compare returns
on cash flow to weighted average cost of
capital. Stakeholder Engagement While shareholders are our priority, long-term
value can only be reached by maintaining the
support of a broader audience. We conduct
ongoing industry discussions with investors,
analysts, customers and employees to monitor
attitudes. Our objective is to collaborate
with stakeholders and we measure the success
of our interaction with key audiences through
surveys. Every year, we survey the investment
community and every two years, we survey
customers to measure our service at every
stage of the transaction. We regularly review
the competitiveness of our compensation and
benefit programs to ensure they provide the
right balance of meeting employee financial
security needs against our companys low-cost
supplier objectives. We continually track
safety and environmental performance and
provide these, and other measures, in our
sustainable development report and on our
award-winning website.


DRIVER
    
    MEASURE
    
    2004 OBJECTIVESValue and Valuation
    
     Total shareholder return
    
     Outperform peer group and other basic materials companies Earnings growth
    
     Meet earnings per share guidance of $2.70$3.50Margin
    
     Margin growth
    
     Exceed our five-year historic average gross margin as a percentage of revenueSupplier of Choice
    
     Customer satisfaction
    
     Reduce number of customer complaints compared to 2003Stakeholder Engagement


     Safety performance
    
     Reduce injury frequency rate by 10 percent compared to 2003 Environmental performance
    
     Reduce environmental incidents by 10 percent compared to 2003 Employee engagement
    
     Reduce turnover by employee segments compared to 2003




---



##### 



PotashCorp 2003 Annual Report   21

Action Plan and Capability to Deliver




Business System Fundamental to delivering on our strategy is
our ability to produce, sell and deliver
products competitively. Our success is
determined by the value we provide for the
prices our customers pay. Production In potash, the rising Canadian dollar is
increasing our translated production costs and
creating a need to absorb costs and improve
productivity within our operations. By
narrowing our product lines, we will generate
efficiencies that should lead to lower
production costs while still meeting
customers needs. Over the longer term, we
recognize a growing demand for granular
product and will continue to work on an
expansion and new compaction capacity at
Rocanville, which is expected to begin
production entering 2005. In nitrogen, we must
contend with higher natural gas prices in
North America that have made US production
less competitive with imports from countries
with lower-cost gas. We are reviewing the
potential of expansions in Trinidad to
capitalize on our gas position. By using our
distribution system for purchased tonnes, we
can source product with the best margins. We
also can consider sales agreements for
developing nitrogen projects in lower-cost gas
environments. In phosphate, the high
percentage of fixed costs is being spread over
fewer tonnes through the down cycle, which
raises our production costs. We intend to
explore optimization strategies for each
facility and product line to increase
operating rates and efficiencies. We will also
consider further diversification with
industrial phosphoric acid. With many years of high-quality deposits in
potash and phosphate and long-term gas
contracts for our nitrogen production in
Trinidad, we believe we are well positioned
with limited restraints on our raw material
supplies. We think this combined asset base is
unmatched in our industry. Sales In North America, continued engagement with
our customers, along with strategic alliances
with dealers who warehouse our products, will
determine our success in maintaining market
share. Our participation in the fertilizer
sales organizations Canpotex and PhosChem,
where we share marketing costs and volumes
with other producers, is important to our
offshore margins. These organizations also
maintain a network of agents in offshore
markets aimed at ensuring our products benefit
from market growth. We have extended our enterprise with an
investment in SQM in Chile, which produces an
upgraded potash product. Our investment in APC
in Jordan helps us benefit from its
transportation logistics in an environment of
high freight costs. Our extended enterprise
also includes an investment in ICL, another
leading low-cost potash
producer. Maintaining a continuous presence in
the global potash market will help protect our
prominent position with customers. Delivery As a producer of bulk commodities that are
traded in large volumes around the world, our
success requires an efficient transportation


system. This is achieved by operating our own
transportation department, with a distribution
network of approximately 175 terminal and
warehouse facilities and a fleet of
approximately 6,000 railcars. Again, the key
is the relationship between costs versus a
return on our investment in the system. Recent
increases in ocean freight rates are raising
our cost to deliver to offshore customers that
purchase potash on contracts with freight
costs included. In the short term, we are
reducing our contract commitment time and, in
the long term, we believe our ability to use
our diverse locations to deliver from the most
freight-logical source should support margin
expansion. Support System To sustain our business and take advantage of
growth in world markets, we need to maintain
the confidence of our employees, customers and
shareholders. We also need to maintain a
strong balance sheet during the low points in
the commodity cycle and position ourselves for
potential acquisitions. Employees Our entrepreneurial management team is
experienced and knowledgeable in our business.
Our culture aims to be non-bureaucratic and to
encourage leadership at all levels. We have
longevity among employees, with annual
turnover below 5 percent. Our challenges are
to recruit and retain the best people in our
industry and to continue to develop an
entrepreneurial culture built on responsible
risk-taking. Management compensation is linked to
shareholders through a long-term incentive
plan tied to total shareholder return and a
short-term incentive plan based on variables
that we believe correlate to shareholder
return. To protect the future of the company, the
Board of Directors reviews succession planning
on an annual basis. Formal programs have been
adopted to encourage advancement from within.
Certain positions have been designed as
training positions, giving management
candidates an opportunity to develop a wider
skill set and knowledge base. Compensation
policies have been developed to attract and
retain the best people for our business. Customers Customers perceptions of our ability to
create value for them based on the price they
pay for our products are fundamental to our
ability When members of our industry
raised
concerns about the publics
misconceptions regarding
fertilizer and its use,
PotashCorp listened. We
responded by launching
Fertile Minds
(www.fertile-minds.org), an
information program that
provides simple,
science-based facts about
where fertilizer comes from
and how it aids mankind.
    

(BLACK QUESTIONMARK GRAPHIC)




---



##### 



22   PotashCorp 2003 Annual Report



to maintain and grow their business. We follow
up our sales with customer service that is
available 24/7, and do regular customer
surveys to determine whether we are
outperforming our competitors at every stage
of the sales transaction. Our dedicated sales
teams for each product (fertilizer, feed and
industrial) focus on increasing their specific
knowledge level to provide maximum value for
customers. Investors Maintaining good relationships with the
investment community can serve to increase our
multiple and reduce our cost of capital. We
are aided in this by our investment-grade
credit rating (Moodys: Baa2, with a positive
outlook; Standard and Poors: BBB+; Dominion
Bond Rating Service: R1 low). Our ability to create value for shareholders
is evaluated on an ongoing basis. We also
explore various ways to return the greatest
value to our shareholders, through share
buyback programs, payment of dividends or
organic investment. Each year in the 15 years
since we became publicly traded, we have paid
a dividend to our shareholders. Despite the
ups and downs of the fertilizer industry, this
has always been a priority. Finance We strive to keep our debt-to-capital ratio
between 35 and 40 percent. If we want to move
the business to the quadrant of lowest cost
and least competition, we must be prepared to
make acquisitions or increase the level of
investment in our existing businesses. We
believe our strong balance sheet provides a
solid base for acquisitions. Our cash flow
provides flexibility for new investment in our
own business and paying down debt quickly. It
also provides continuing access to capital
markets. Tax rates are important to our
financial resources and recent changes at both
the federal and provincial levels in Canada
will improve our position. Federal income tax
changes will be phased in over the next four
years. Reputation To protect our reputation, we constantly
communicate and pride ourselves on honesty and
keeping our commitments. Our core values
espouse integrity, concern for the safety of
people and the environment, continuous
improvement, accessibility and


accountability.
We strive to listen to our stakeholders and
share what we learn. In addition to our spirit
of transparency, we have developed many
leading-edge policies, including our approach
to corporate governance and crisis
communications. Our well-received sustainable
development report demonstrates our efforts to
collaborate with all stakeholders. Our success
in this area is important to maintaining
approval from our communities and protecting
our license to operate. With all stakeholders, we strive to have no
surprises. We are bringing an investment-style cost versus
return approach to these initiatives to
balance our financial, social and
environmental objectives. Governments We operate in an international industry where
a high percentage of products cross borders,
with competitors in different jurisdictions
around the world. To offset the impact of
market-distorting subsidies and government
intervention, we work closely with a number of
industry committees in an effort to ensure
that trade agreements are adhered to and
products can move unencumbered. This includes
the American Phosphate Trade Committee, which
lobbies governments in the US and India
regarding subsidies which we believe distort
trade. Technology and Systems Our business is becoming increasingly global.
With operations and employees in many
countries, technology is an important part of
communications. It is also key to customer
convenience where electronic data interchange
is becoming an important component to service.
We monitor and respond to changes in
technology, upgrading our systems on an
ongoing basis. We were the first fertilizer
company to provide a website to enable
customers to track orders and review account
history. In addition to meeting the increasing
expectations of our stakeholders for
information, we are focused on creating a
system that ensures management has the right
information at the right time to measure
results that are indicative of our
performance. Thus, we are currently developing
an enterprise-wide reporting system for key
performance indicators.


What Happened in 2003?


Potash
    Phosphate
    Nitrogen2003
    2002
    2003
    2002
    2003
    2002Total
World Consumption1
(product tonnes  millions)
    
    
    42.9
    
    
    41.2
    
    
    56.5
    
    
    55.1
    
    
    133.4
    
    
    131.9PotashCorp Share of World Production2
    
    
    16%
    
    
    15%
    
    

6%
    
    

5%
    
    

2%
    
    

3%PotashCorp Operating Rate3
    
    
    58%
    
    
    53%
    
    
    75%
    
    
    61%
    
    

81%
    
    

93%World
Operating Rate4excluding PotashCorp5
    
    
    94%
    
    
    92%
    
    
    71%
    
    
    73%
    
    

80%
    
    

82%Phosphate based on phosphoric acid. Nitrogen based on ammonia.
1-5  See Appendix, Page 45




---



##### 



PotashCorp 2003 Annual Report   23 Factors That Shaped 2003 Business Conditions  1
    
    Stronger Foreign Currencies; Weaker US Dollar (FOREIGN CURRENCIES CHART) Over the course of 2003, the currencies of
several countries gained strength against the
US dollar. As fertilizer is sold around the
world in US dollars, all companies that
produce in a home currency that increased
relative to the US dollar experienced margin
pressure on exports. At the same time, many
importers gained buying power, a factor we
believe led to increased trade of grains and
fertilizer.  2
    
    Another Drop in World Grain Stocks (WORLD GRAIN STOCKS CHART) For the fifth consecutive year, wheat and
coarse grain consumption is projected to
exceed production. The rising world population
and a growing demand for meat, which requires
additional grain, increased consumption while
poor weather and other factors reduced
production. Europe was hit by a cold winter
and drought, while North American farmers
faced hot, dry conditions. These factors
reduced inventories and pushed the
stocks-to-use ratio to historic low levels.
China, while pursuing economic growth, sold
into world markets, contributing to the
decline.
 3
    
    Better Prices for Crop Commodities and Increased Fertilizer Use (WORLD FERTILIZER GROWTH CHART) A drop in grain inventories and a weakened US
dollar created a favorable environment for crop
commodities. Soybean prices jumped to $7.17 per
bushel at the US farmgate by year-end  the
highest level in six years. Internationally
traded prices for corn, cotton, rice, palm oil
and rubber were also up. As these prices rose,
more acres were planted. World fertilizer
consumption increased by 2 percent; nitrogen
consumption by 1.3 percent, phosphate by 2.4
percent and potash by 4.2 percent.  4
    
    More Operating Cash for US Farmers As reported by USDA, total net cash farm
income climbed to over $60 billion. Farmers
cash receipts increased as the lack of
Canadian live beef imports drove up US meat
prices and tight grain supplies pushed up
grain prices. That provides farmers with the
cash necessary to buy inputs for their
business if they so choose.  5
    
    Higher Prices for US Natural Gas As spring inventories of natural gas hit their
lowest level in years, prices spiked to more
than $9 per MMBtu in February. That led to
more drilling activity, but the new production
was drawing upon higher-cost reserves. As
inventories were rebuilt, the gas price fell
back to the $4-$6 range, and was supported
there by the increased cost of production.  6
    
    US Economy Improved The US economy grew 6 percent in the second
half of 2003. Housing starts reached their
highest point since 1978 and auto sales,
spurred by low interest rates and dealer
incentive programs, reached 16.6 million
units. The year ended on a high note with
December factory production rising for the
fourth straight month. With US economic growth
of 3.1 percent for the full year, demand for
industrial products was high. The world
economy followed along, growing by 3.5 percent
after two consecutive years of 2 percent
growth. This increase was led by China, with 9
percent economic growth, and the US.




---



##### 



24   PotashCorp 2003 Annual Report  7
    
    Ocean Freight Rates Skyrocket (OCEAN FREIGHT INDEX CHART) The growing economies of Asia increased their
demand for many goods including coal and iron
ore, creating a heavy load on the world
transportation system. With many older vessels
being decommissioned, the benchmark Baltic
Panamax Ocean Freight Index jumped more than
two and a half times the rate of 2002. As
panamax vessels are used to transport
large-volume dry goods, including fertilizer,
this index is a key indicator of global
freight costs.  8
    
    US Feed Phosphate Use Down Manufacturers of compound feeds now produce
tighter formulations in response to improved
scientific knowledge of animal and poultry
nutritional requirements. This new precision
feeding and improved animal genetics are
primary reasons for the 5 percent decline of
feed phosphate consumption in the US in 2003.
The single case of Bovine Spongiform
Encephalopathy (BSE) discovered in Canada in
the spring halted the import of live beef
animals into the US, reducing the number of
animals requiring feed. This contributed to the
US beef production decline of about 3 percent.
A case of BSE discovered in the US at year-end
forced regulators to examine feed formulations,
with the potential for further restrictions on
the animal parts allowed in feed, which may
increase the need for supplements.  9
    
    Ammonia Prices Decouple from Natural Gas (AMMONIA PRICES DECOUPLE FROM NATURAL GAS CHART) For the first time since the mid-1990s,
ammonia prices decoupled from natural gas
prices and tight supply/demand fundamentals
took hold. In 2003, world ammonia consumption
grew by 1.1 percent and
 this demand was met by
increasing worldwide operating rates rather
than by new capacity. US ammonia production
declined by 16.5 percent as high North
American gas prices forced plant curtailments.
As a result, US ammonia import demand
increased by 20.5 percent. World ammonia
exports grew by 6.3 percent, spurring the
increase in nitrogen prices.  10
    
    US DAP Exports Decline (US DAP EXPORTS DECLINE CHART) For the US industry, there was a 6 percent
decline in DAP exports which kept prices down.
These prices, combined with rising input
costs, squeezed producers margins. Chinas domestic DAP production increased by
almost 20 percent which decreased imports by
30 percent. It imported about 2.8 million
tonnes of DAP, although the tariff rate quota
(TRQ) level set for 2003 was 5.95 million. In India, production problems reduced domestic
production by 13 percent, forcing it to
increase imports from 2002s record low level.
However, India maintained its subsidy system
which protects its high-cost domestic industry
from global competition.  11
    
    Asia and Latin America Lead Increased Potash Demand (ASIA AND LATIN AMERICA POTASH DEMAND CHART) Canadian producers used formerly idle capacity
to capture a larger share of the growing world
market. Exports from Vancouver were the
fastest-growing in the industry. Canpotex
exported a record 6.3 million tonnes KCl, 1
million tonnes more than in 2002. Brazil led
that growth with record imports from all
suppliers of 5.9 million tonnes KCl.




---



##### 



PotashCorp 2003 Annual Report
   
25 2003 Earnings Guidance Review: Results versus Expectations  The companys initial estimate for diluted
earnings per share (EPS) for 2003 was
approximately $2.00 per share. The final
result was a loss of $2.42 per share. The
primary causes of this $4.42 variance from the
forecast amount were: C A U S E
    
    Effecton EPSPotash sales volumes higher
    
    
    0.14Potash offshore realized prices lower
    
    
    (0.17
    )Effect of foreign exchange on operating costs
net of its effect on provincial mining taxes
    
    
    (0.17
    )Decreased potash unit cost of sales (exclusive of foreign exchange)
    
    
    0.16Lower provincial mining taxes (exclusive of foreign exchange)
    
    
    0.09Potassium nitrate operations
    
    
    (0.06
    )Subtotal potash
    
    
    (0.01
    )Increased input costs:Cost of sulfur
    
    
    (0.11
    )Cost of ammonia
    
    
    (0.07
    )Rock costs
    
    
    (0.07
    )Start-up issues at new DFP plant in Aurora
    
    
    (0.17
    )Conversion costs higher
    
    
    (0.23
    )Phosphate sales volumes lower
    
    
    (0.12
    )Subtotal phosphate
    
    
    (0.77
    )Increased nitrogen realized prices (exclusive of purchased product)
    
    
    1.14Higher gross margin on purchased product
    
    
    0.13Cost of natural gas higher
    
    
    (0.88
    )Nitrogen unit cost of sales higher (exclusive of cost of
natural gas and purchased product)
    
    
    (0.18
    )Gain on natural gas hedges
    
    
    0.41Subtotal nitrogen
    
    
    0.62Foreign exchange variance
    
    
    (0.55
    )Increase in other income
    
    
    0.12Increase in interest expense
    
    
    (0.07
    )Subtotal
of the above
    
    
    (0.66
    )Provision for PCS Yumbes and plant shutdowns
    
    
    (3.88
    )Future income tax reversal
    
    
    0.12Total variance from forecast diluted EPS
    
    
    (4.42
    )
 Potash


    
    Potash sales volumes in the offshore market were up but realized
prices were down due to sharply higher freight rates.
    
    Unit cost of sales was up due to a stronger Canadian dollar and
higher natural gas costs.
 
    
    Provincial mining taxes were down due to lower margins on potash
and lower Saskatchewan potash taxes due to a revised tax structure.
    
    The potassium nitrate operations in Chile continued to be affected
by high costs due to low operating rates and lower than expected
prices. Phosphate


    
    Higher costs were primarily attributable to defluorinated feed
phosphate (DFP) start-up issues, lower production and higher prices for
ammonia and sulfur inputs.
    
    Feed and industrial volumes were down due to lower demand for feed
and competitive pressures in both markets. Nitrogen


    
    The higher unit cost of sales was due to lower operating rates and
higher natural gas costs. This was more than offset by the higher
prices that followed industry-wide production cutbacks due to high
natural gas prices, which tightened supply.
    
    Following the indefinite shutdowns at Geismar and Memphis,
manufactured tonnes were replaced with purchased tonnes, which
increased gross margin for purchased tonnes.
    
    The gain on natural gas hedges was locked in as the company
liquidated our 2003 gas futures contracts in February when natural gas
prices spiked. Corporate


    
    The Canadian dollar strengthened significantly against the US
dollar, compared to initial expectations.
    
    Other income increased due to APC equity earnings, nitrogen
insurance proceeds and a larger ICL dividend.
    
    Interest expense increased, primarily due to the issuance of
10-year notes in March 2003 in place of lower-cost commercial paper.
    
    The provision for PCS Yumbes and plant shutdowns pertained to asset
writedowns, workforce reductions and contract terminations at the
Yumbes, Memphis, Geismar and Kinston facilities.
    
    Future income tax reversal of $6.5 million, due to revised estimates of future income tax liabilities.
   (EARNINGS RESULT VS EXPECTATIONS CHART)




---



##### 



26   PotashCorp 2003 Annual Report



2003 Financial Overview
 All references to per-share amounts pertain to diluted income or loss per
share. Diluted net income per share is calculated based on the weighted average
shares issued and outstanding during the period, adjusted by the total of the
additional common shares that would have been issued assuming exercise of all
stock options with exercise prices at or below the average market price for the
period. For periods in which there was a loss applicable to common shares,
stock options with exercise prices at or below the average market price for the
period were excluded for the calculations of diluted net loss per share, as
inclusion of these securities would have been anti-dilutive to the net loss per
share. Certain of the prior years figures have been reclassified to conform
with the current years presentation. Dollars (millions) except per-share amounts
    
    % Increase (Decrease)2003
    
    
    2002
    
    
    2001
    
    
    2003
    
    
    2002Net Sales
    
    $
    2,465.8
    
    
    $
    1,928.7
    
    
    $
    2,080.8
    
    
    
    28
    
    
    
    (7
    )Gross Margin
    
    $
    380.4
    
    
    $
    307.3
    
    
    $
    407.3
    
    
    
    24
    
    
    
    (25
    )Provision for Plant Shutdowns and PCS Yumbes S.C.M.
    
    $
    (264.2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating (Loss) Income
    
    $
    (55.6
    )
    
    $
    166.9
    
    
    $
    269.7
    
    
    
    n/m
    
    
    
    (38
    )Net (Loss) Income
    
    $
    (126.3
    )
    
    $
    53.6
    
    
    $
    121.2
    
    
    
    n/m
    
    
    
    (56
    )Net (Loss) Income per Share  Basic
    
    $
    (2.42
    )
    
    $
    1.03
    
    
    $
    2.34
    
    
    
    n/m
    
    
    
    (56
    )Net (Loss) Income per Share  Diluted
    
    $
    (2.42
    )
    
    $
    1.03
    
    
    $
    2.32
    
    
    
    n/m
    
    
    
    (56
    )n/m = not meaningful
  Gross margin for the year was higher than in
2002 as strong nitrogen prices, natural gas
hedging gains and record potash volumes more
than offset weak phosphate markets. The company had a net loss of $126.3 million
in 2003, or $2.42 per share. This compares to
net income in 2002 of $53.6 million, or $1.03
per share. The 2003 net loss reflected
impairment and shutdown charges that were the
equivalent of $3.88 per share and the effect
of a stronger Canadian dollar, which was the
equivalent of $0.94 per share. In addition,
PotashCorp experienced high ocean freight
rates for potash sales, higher natural gas
costs for nitrogen and potash production, and
higher input costs for sulfur and ammonia in
phosphate. Impairment and shutdown charges related to
asset writedowns, workforce reductions and
contract terminations at the Yumbes, Memphis,
Geismar and Kinston facilities totalled $203.2
million ($264.2 million before tax). Charges
for Yumbes were $140.5 million, for Memphis
and Geismar $118.8 million and for Kinston
$4.9 million.
 The Canadian dollar started the year at 1.5796
compared to the US dollar and ended it 18
percent higher, at 1.2924, the largest
single-year change in 25 years. This stronger
Canadian dollar affects PotashCorps
financials on our foreign exchange gain or
loss line arising from currency conversion and
on our Canadian dollar operating costs. The
effect was to reduce earnings by the
equivalent of $0.94 per share, through:  
    
    A foreign exchange loss of the equivalent of $0.60 per share, which
was primarily non-cash.
    
    The US dollar equivalent of Canadian cash costs of potash
production, freight and administration increased, partially offset by a
decrease in provincial taxes, reducing earnings by the equivalent of
$0.34 per share. The largest component of the unrealized
foreign exchange loss for 2003 pertains to the
translation of future income tax liabilities
on the Consolidated Statements of Financial
Position at December 31, 2003.
   (CANADIAN DOLLAR EXCHANGE RATE AND POTASH GROSS MARGIN BY QUARTER CHARTS)




---



##### 



PotashCorp 2003 Annual Report   27 Potash Results
 % Increase
    
    
    
    
    
    
    
    
    
    
    
    
    
    % Increase
    
    
    
    
    
    
    
    
    
    
    
    
    
    % IncreaseDollars (millions)
    
    (Decrease)
    
    Tonnes (thousands)
    
    (Decrease)
    
    Average per MT
    
    (Decrease)2003
    
    
    2002
    
    
    2001
    
    
    2003
    
    
    2002
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2003
    
    
    2002
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2003
    
    
    2002Net SalesNorth American
    
    $
    230.6
    
    
    $
    215.3
    
    
    $
    232.1
    
    
    
    7
    
    
    
    (7
    )
    
    
    2,870
    
    
    
    2,780
    
    
    
    2,894
    
    
    
    3
    
    
    
    (4
    )
    
    $
    80.33
    
    
    $
    77.45
    
    
    $
    80.21
    
    
    
    4
    
    
    
    (3
    )Offshore
    
    
    336.2
    
    
    
    300.7
    
    
    
    293.4
    
    
    
    12
    
    
    
    2
    
    
    
    4,213
    
    
    
    3,547
    
    
    
    3,349
    
    
    
    19
    
    
    
    6
    
    
    $
    79.80
    
    
    $
    84.76
    
    
    $
    87.62
    
    
    
    (6
    )
    
    
    (3
    )566.8
    
    
    
    516.0
    
    
    
    525.5
    
    
    
    10
    
    
    
    (2
    )
    
    
    7,083
    
    
    
    6,327
    
    
    
    6,243
    
    
    
    12
    
    
    
    1
    
    
    $
    80.01
    
    
    $
    81.55
    
    
    $
    84.18
    
    
    
    (2
    )
    
    
    (3
    )Miscellaneous
    
    
    52.3
    
    
    
    28.5
    
    
    
    6.3
    
    
    
    84
    
    
    
    352
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    619.1
    
    
    
    544.5
    
    
    
    531.8
    
    
    
    14
    
    
    
    2
    
    
    
    7,083
    
    
    
    6,327
    
    
    
    6,243
    
    
    
    12
    
    
    
    1
    
    
    $
    87.41
    
    
    $
    86.06
    
    
    $
    85.18
    
    
    
    2
    
    
    
    1Cost of Goods SoldCash Costs
    
    
    363.0
    
    
    
    280.2
    
    
    
    249.6
    
    
    
    30
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    51.25
    
    
    $
    44.28
    
    
    $
    39.98
    
    
    
    16
    
    
    
    11Depreciation and
Amortization
    
    
    52.4
    
    
    
    46.3
    
    
    
    34.1
    
    
    
    13
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    7.40
    
    
    $
    7.32
    
    
    $
    5.46
    
    
    
    1
    
    
    
    34415.4
    
    
    
    326.5
    
    
    
    283.7
    
    
    
    27
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    58.65
    
    
    $
    51.60
    
    
    $
    45.44
    
    
    
    14
    
    
    
    14Gross Margin
    
    $
    203.7
    
    
    $
    218.0
    
    
    $
    248.1
    
    
    
    (7
    )
    
    
    (12
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    28.76
    
    
    $
    34.46
    
    
    $
    39.74
    
    
    
    (17
    )
    
    
    (13
    )
 Note
17 to the Consolidated Financial Statements provides additional
information pertaining to our business segments.
 2003 vs 2002  Sales volumes from our potash segment rose 12
percent in 2003 for a new record, led by
offshore sales that were 6 percent higher than
our record set in 2000 and 19 percent above
2002. Brazil bought 36 percent more from us
than in 2002, making it our largest customer
for the second straight year and a key market.
Sales to India, Indonesia, Vietnam and
Malaysia were up significantly; China sales
were flat.


Lower realized offshore prices reflected the
year-long escalation in freight rates. A tight
supply/demand balance in North America raised
sales volumes by 3 percent and prices by 4
percent. We have slightly increased our share
of this market.Higher volumes and increased domestic prices
did not offset higher unit cost of sales,
which was pushed up by the stronger Canadian
dollar. Otherwise, unit cost of sales would
have been lower than in 2002, even with higher
natural gas costs, because volumes were up
significantly.The gross margin dropped from 2002 in our
potash segment, despite record sales. This was
principally attributed to escalating offshore
freight rates and higher unit cost of sales.
The increase in costs was due primarily to the
strengthening Canadian dollar, which raised
costs by approximately $4.50 per tonne over
2002. These increased costs were partially
offset by higher operating rates.
 (LINE GRAPH POTASH PRICE REALIZATIONS)




|2003 Potash Production | (million tonnes KCl)
|---------------------- | --------------------

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


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



---



##### 



28   PotashCorp 2003 Annual Report

(OFFSHORE SALES AND SHUTDOWNS GRAPHS)



2002 vs 2001 The gross margin drop from 2001 in our potash
segment was principally attributable to
Yumbes, our potassium nitrate plant in Chile,
and to increased competitive pressures in
domestic and offshore markets.


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


higher cash flow attempted to sell more potash
to capitalize on its profitability. Offshore,
we set a sales record in March, and we sold
additional tonnes to China, Brazil, Japan and
Malaysia. However, we did not experience the
growth we had anticipated entering the year as
we encountered aggressive competition in
offshore markets, resulting in lost sales and
lower prices. Unit cost of sales decreased, primarily
because potash production tonnes were up. This
was more than offset by start-up problems and
low operating rates at Yumbes. Since the
market has not yet absorbed all the available
nitrate capacity, prices for that nutrient
have not recovered to the levels of the late
1990s. In total, Yumbes negatively affected
potash gross margin.


Phosphate Results


% Increase
    
    
    
    
    
    
    
    
    
    
    
    
    
    % Increase
    
    
    
    
    
    
    
    
    
    
    
    
    
    % IncreaseDollars (millions)
    
    (Decrease)
    
    Tonnes (thousands)
    
    (Decrease)
    
    Average per MT
    
    (Decrease)2003
    
    2002
    
    2001
    
    2003
    
    2002
    
    2003
    
    2002
    
    2001
    
    2003
    
    2002
    
    2003
    
    2002
    
    2001
    
    2003
    
    2002Net SalesFertilizer  liquids
    
    $
    167.7
    
    
    $
    144.9
    
    
    $
    145.0
    
    
    
    16
    
    
    
    (0
    )
    
    
    751
    
    
    
    675
    
    
    
    741
    
    
    
    11
    
    
    
    (9
    )
    
    $
    223.17
    
    
    $
    214.55
    
    
    $
    195.56
    
    
    
    4
    
    
    
    10Fertilizer  solids
    
    
    249.2
    
    
    
    113.4
    
    
    
    130.1
    
    
    
    120
    
    
    
    (13
    )
    
    
    1,494
    
    
    
    745
    
    
    
    927
    
    
    
    101
    
    
    
    (20
    )
    
    $
    166.78
    
    
    $
    152.26
    
    
    $
    140.30
    
    
    
    10
    
    
    
    9Feed
    
    
    182.6
    
    
    
    216.8
    
    
    
    208.6
    
    
    
    (16
    )
    
    
    4
    
    
    
    861
    
    
    
    961
    
    
    
    874
    
    
    
    (10
    )
    
    
    10
    
    
    $
    212.25
    
    
    $
    225.55
    
    
    $
    238.79
    
    
    
    (6
    )
    
    
    (6
    )Industrial
    
    
    174.5
    
    
    
    155.1
    
    
    
    168.1
    
    
    
    13
    
    
    
    (8
    )
    
    
    541
    
    
    
    482
    
    
    
    503
    
    
    
    12
    
    
    
    (4
    )
    
    $
    322.72
    
    
    $
    321.93
    
    
    $
    334.32
    
    
    
    0
    
    
    
    (4
    )774.0
    
    
    
    630.2
    
    
    
    651.8
    
    
    
    23
    
    
    
    (3
    )
    
    
    3,647
    
    
    
    2,863
    
    
    
    3,045
    
    
    
    27
    
    
    
    (6
    )
    
    $
    212.23
    
    
    $
    220.12
    
    
    $
    214.06
    
    
    
    (4
    )
    
    
    3Miscellaneous
    
    
    7.9
    
    
    
    6.6
    
    
    
    1.8
    
    
    
    20
    
    
    
    267
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    781.9
    
    
    $
    636.8
    
    
    $
    653.6
    
    
    
    23
    
    
    
    (3
    )
    
    
    3,647
    
    
    
    2,863
    
    
    
    3,045
    
    
    
    27
    
    
    
    (6
    )
    
    $
    214.40
    
    
    $
    222.43
    
    
    $
    214.65
    
    
    
    (4
    )
    
    
    4North American
    
    $
    654.8
    
    
    $
    542.5
    
    
    $
    538.9
    
    
    
    21
    
    
    
    1
    
    
    
    2,886
    
    
    
    2,310
    
    
    
    2,278
    
    
    
    25
    
    
    
    1
    
    
    $
    226.91
    
    
    $
    234.88
    
    
    $
    236.57
    
    
    
    (3
    )
    
    
    (1
    )Offshore
    
    
    127.1
    
    
    
    94.3
    
    
    
    114.7
    
    
    
    35
    
    
    
    (18
    )
    
    
    761
    
    
    
    553
    
    
    
    767
    
    
    
    38
    
    
    
    (28
    )
    
    $
    167.04
    
    
    $
    170.37
    
    
    $
    149.54
    
    
    
    (2
    )
    
    
    14781.9
    
    
    
    636.8
    
    
    
    653.6
    
    
    
    23
    
    
    
    (3
    )
    
    
    3,647
    
    
    
    2,863
    
    
    
    3,045
    
    
    
    27
    
    
    
    (6
    )
    
    $
    214.40
    
    
    $
    222.43
    
    
    $
    214.65
    
    
    
    (4
    )
    
    
    4Cost of Goods SoldCash Costs
    
    
    722.7
    
    
    
    518.1
    
    
    
    517.1
    
    
    
    39
    
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    198.16
    
    
    $
    180.96
    
    
    $
    169.82
    
    
    
    10
    
    
    
    7Depreciation and
Amortization
    
    
    75.7
    
    
    
    76.8
    
    
    
    72.0
    
    
    
    (1
    )
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    20.76
    
    
    $
    26.83
    
    
    $
    23.65
    
    
    
    (23
    )
    
    
    13798.4
    
    
    
    594.9
    
    
    
    589.1
    
    
    
    34
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    218.92
    
    
    $
    207.79
    
    
    $
    193.47
    
    
    
    5
    
    
    
    7Gross Margin
    
    $
    (16.5
    )
    
    $
    41.9
    
    
    $
    64.5
    
    
    
    n/m
    
    
    
    (35
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (4.52
    )
    
    $
    14.64
    
    
    $
    21.18
    
    
    
    n/m
    
    
    
    (31
    )Note
17 to the Consolidated Financial Statements provides additional
information pertaining to our business segments.
    n/m = not meaningful




---



##### 



PotashCorp 2003 Annual Report   29



2003 vs 2002 Higher fertilizer prices and increased sales
volumes of liquid and solid fertilizers and
industrial products in 2003 were more than
offset by rising input costs, resulting in
negative gross margin in our phosphate
segment.


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


Higher fertilizer prices reflect a somewhat
improving market demand and tighter supply. US
ending inventories of both DAP and MAP were
well below the five-year average. Feed prices
were kept down by new competitive capacity,
and flat prices for industrial products
reflect competitive pressure of imports from
China, Israel and Africa. Phosphate production costs were positively
affected by 11 percent lower rock costs
year-over-year, but this was more than offset
by rising prices for the key inputs of sulfur
and ammonia, up 54 percent and 47 percent,
respectively, or a total of $73 million. DAP
start-up costs at White Springs also increased
total costs by $7 million. Start-up issues at
the new DFP plant in Aurora increased costs by
$15 million in 2003. Inventories for our
finished feed products were significantly
reduced over the year as feed operating rates
were reduced to draw down this inventory. This
raised unit costs of production as
proportionately higher fixed costs were spread
over fewer tonnes, further impacting feed
margins.


2003 Rock and Acid Production

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




|2003 Phosphate Production | (million tonnes product)
|------------------------- | ------------------------

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


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



|2003 Phosphate Feed Production | (million tonnes)
|------------------------------ | ----------------

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


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



---



##### 



30   PotashCorp 2003 Annual Report

(POTASHCORP PHOSPHATE PRICES AND SALES VOLUMES GRAPHS)



2002 vs 2001 Overall phosphate net sales volumes decreased
slightly in 2002, mainly because we decided not
to participate in low-priced offshore markets
for liquid fertilizers and, for the first half
of the year, solid fertilizers. Increased DAP
imports by China encouraged a return to the
offshore market in the second half of 2002.
North American feed sales volumes were flat as
a competitor brought on new capacity, customers
tightened feed formulation and competition
increased from meat and bone meal and from
phytase. Offshore feed volumes increased
significantly with higher sales to Mexico and
the Philippines, and from our Brazilian feed
plant. Industrial sales volumes and prices were
each down 4 percent.


Overall liquid fertilizer prices were up due
to product mix, as less low-priced product was
sold into the offshore market. Tighter supply
pushed up prices for solid fertilizers.
Competitive pressures also pushed down feed
prices in both domestic and offshore markets
as new capacity came on stream. Prior period
contract adjustments with a major customer,
plus competitive pressures, kept industrial
prices down. Several factors joined to raise phosphate
production costs. Lower production volumes
meant fixed costs had to be allocated over
fewer tonnes. We used high-cost inventoried
rock from an area where dredging costs were
incurred. Sulfur shortages late in the year
cut operating rates and raised input costs,
increasing unit costs. The purified acid plant
at Aurora experienced operating problems in
the third quarter, which affected costs.


Nitrogen Results


% Increase
    
    
    
    
    
    
    
    
    
    
    
    
    
    % Increase
    
    
    
    
    
    
    
    
    
    
    
    
    
    % IncreaseDollars (millions)
    
    (Decrease)
    
    Tonnes (thousands)
    
    (Decrease)
    
    Average per MT
    
    (Decrease)2003
    
    
    2002
    
    
    2001
    
    
    2003
    
    
    2002
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2003
    
    
    2002
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2003
    
    
    2002Net SalesAmmonia
    
    $
    368.0
    
    
    $
    232.7
    
    
    $
    313.6
    
    
    
    58
    
    
    
    (26
    )
    
    
    1,755
    
    
    
    1,867
    
    
    
    1,993
    
    
    
    (6
    )
    
    
    (6
    )
    
    $
    209.63
    
    
    $
    124.66
    
    
    $
    157.35
    
    
    
    68
    
    
    
    (21
    )Urea
    
    
    276.9
    
    
    
    212.0
    
    
    
    215.4
    
    
    
    31
    
    
    
    (2
    )
    
    
    1,470
    
    
    
    1,592
    
    
    
    1,346
    
    
    
    (8
    )
    
    
    18
    
    
    $
    188.33
    
    
    $
    133.16
    
    
    $
    160.03
    
    
    
    41
    
    
    
    (17
    )Nitrogen Solutions
    
    
    85.8
    
    
    
    93.3
    
    
    
    114.9
    
    
    
    (8
    )
    
    
    (19
    )
    
    
    730
    
    
    
    1,097
    
    
    
    1,156
    
    
    
    (33
    )
    
    
    (5
    )
    
    $
    117.52
    
    
    $
    85.04
    
    
    $
    99.39
    
    
    
    38
    
    
    
    (14
    )Nitric Acid /
Ammonium Nitrate
    
    
    165.0
    
    
    
    127.5
    
    
    
    136.2
    
    
    
    29
    
    
    
    (6
    )
    
    
    1,414
    
    
    
    1,361
    
    
    
    1,258
    
    
    
    4
    
    
    
    8
    
    
    $
    116.70
    
    
    $
    93.65
    
    
    $
    108.27
    
    
    
    25
    
    
    
    (14
    )Purchased
    
    
    149.6
    
    
    
    61.1
    
    
    
    93.4
    
    
    
    145
    
    
    
    (35
    )
    
    
    711
    
    
    
    474
    
    
    
    628
    
    
    
    50
    
    
    
    (25
    )
    
    $
    210.53
    
    
    $
    128.89
    
    
    $
    148.73
    
    
    
    63
    
    
    
    (13
    )1,045.3
    
    
    
    726.6
    
    
    
    873.5
    
    
    
    44
    
    
    
    (17
    )
    
    
    6,080
    
    
    
    6,391
    
    
    
    6,381
    
    
    
    (5
    )
    
    
    
    
    
    $
    171.92
    
    
    $
    113.69
    
    
    $
    136.89
    
    
    
    51
    
    
    
    (17
    )Miscellaneous
    
    
    19.5
    
    
    
    20.8
    
    
    
    21.9
    
    
    
    (6
    )
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,064.8
    
    
    $
    747.4
    
    
    $
    895.4
    
    
    
    42
    
    
    
    (17
    )
    
    
    6,080
    
    
    
    6,391
    
    
    
    6,381
    
    
    
    (5
    )
    
    
    
    
    
    $
    175.13
    
    
    $
    116.95
    
    
    $
    140.32
    
    
    
    50
    
    
    
    (17
    )Fertilizer
    
    $
    480.0
    
    
    $
    317.4
    
    
    $
    424.7
    
    
    
    51
    
    
    
    (25
    )
    
    
    2,810
    
    
    
    2,976
    
    
    
    3,270
    
    
    
    (6
    )
    
    
    (9
    )
    
    $
    170.82
    
    
    $
    106.64
    
    
    $
    129.88
    
    
    
    60
    
    
    
    (18
    )Feed and Industrial
    
    
    584.8
    
    
    
    430.0
    
    
    
    470.7
    
    
    
    36
    
    
    
    (9
    )
    
    
    3,270
    
    
    
    3,415
    
    
    
    3,111
    
    
    
    (4
    )
    
    
    10
    
    
    $
    178.83
    
    
    $
    125.92
    
    
    $
    151.30
    
    
    
    42
    
    
    
    (17
    )1,064.8
    
    
    
    747.4
    
    
    
    895.4
    
    
    
    42
    
    
    
    (17
    )
    
    
    6,080
    
    
    
    6,391
    
    
    
    6,381
    
    
    
    (5
    )
    
    
    
    
    
    $
    175.13
    
    
    $
    116.95
    
    
    $
    140.32
    
    
    
    50
    
    
    
    (17
    )Cost of Goods SoldCash Costs
    
    
    782.0
    
    
    
    612.0
    
    
    
    727.9
    
    
    
    28
    
    
    
    (16
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    128.62
    
    
    $
    95.76
    
    
    $
    114.07
    
    
    
    34
    
    
    
    (16
    )Depreciation and
Amortization
    
    
    89.6
    
    
    
    88.0
    
    
    
    72.8
    
    
    
    2
    
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    14.73
    
    
    $
    13.77
    
    
    $
    11.41
    
    
    
    7
    
    
    
    21871.6
    
    
    
    700.0
    
    
    
    800.7
    
    
    
    25
    
    
    
    (13
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    143.35
    
    
    $
    109.53
    
    
    $
    125.48
    
    
    
    31
    
    
    
    (13
    )Gross Margin
    
    $
    193.2
    
    
    $
    47.4
    
    
    $
    94.7
    
    
    
    308
    
    
    
    (50
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    31.78
    
    
    $
    7.42
    
    
    $
    14.84
    
    
    
    328
    
    
    
    (50
    )Note 17 to the Consolidated Financial Statements provides additional information pertaining to our business segments.




---



##### 



PotashCorp 2003 Annual Report   31

(POTASHCORP NITROGEN PRICES AND SALES VOLUMES GRAPHS)

2003 vs 2002



Nitrogen gross margin more than quadrupled in
2003, reflecting sharply increased prices that
benefited PotashCorps Trinidad production, and
liquidation of certain natural gas hedge
contracts in February. Poor margins at our US plants due to high
natural gas costs led to the indefinite
shutdown of the Memphis plant and of Geismars
ammonia and nitrogen solutions production. The
reduced production of ammonia, urea and
nitrogen solutions was more than offset by
considerably higher prices. Nitric acid and
ammonium nitrate volumes increased to meet
demand, as did purchased sales volumes. The
companys warehouse and distribution network
was used effectively for these imports. As more shutdowns in the US industry tightened
supply, prices increased significantly. Product
prices, which had previously reflected the cost
premium on natural gas, began trading off the


supply/demand fundamentals during the fourth
quarter, providing unhedged margin to our US
plants. Nitrogen production costs reflected the higher
natural gas prices. PotashCorps average gas
costs in the US and Trinidad were up 33
percent over 2002. However, since the Trinidad
facility operates with favorable natural gas
contracts which mitigate the impact of
volatility, the company is a net beneficiary
of high-priced US natural gas. Trinidad
provided 52 percent of nitrogen gross margin.
The remainder came from our 2003 natural gas
hedges in the US, which provided a gross
margin contribution of approximately $90
million. High ocean freight rates  detrimental for
potash  worked in the companys favor for
nitrogen as they made imports from the Middle
East less competitive in North America and
helped tighten market supply.


2003 Nitrogen Production (million tonnes)

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


1
    
    A substantial portion is upgraded to value-added products.
    
    4
    
    319 contract employees work at the nitrogen plants, for a total active workforce of 890.2
    
    Based on 32% N content.
    
    5
    
    Indefinitely shut down production of ammonia and nitrogen solutions June 4, 2003.3
    
    BP Chemicals operates the Lima
facility under an operational agreement with PCS Nitrogen.
    
    67
    
    Indefinitely shut down production June 4, 2003.
Includes reassigned employees.




---



##### 



32   PotashCorp 2003 Annual Report

2002 vs 2001



Nitrogen net sales were down in 2002 primarily
due to lower prices. Total nitrogen sales
volumes were flat in 2002, as higher sales of
urea and nitric acid more than offset lower
sales of ammonia and nitrogen solutions. Urea
volumes rose as field conditions drove farmers
away from ammonia, and stronger industrial
demand raised nitric acid and ammonium nitrate
sales volumes. We shut down nitrogen solutions
production at Geismar for three months due to
oversupply and low prices caused by large
imports, primarily from Russia, in the first
half of 2002. As a result, nitrogen solutions
sales volumes were down. Until very late in the year, low natural gas
prices made it feasible for North American
competitors to produce at higher rates than in
2001. In addition, new capacity came on stream
in Trinidad at mid-


year. The resulting oversupply drove product
prices down. Higher gas prices near the end of
the year led to improvements in most product
prices but this improvement was tempered as US
plant curtailments were lower than
anticipated. Late in the year, nitrogen
solutions prices improved in anticipation that
anti-dumping duties would be levied on
imported product from certain competitors. The unit cost of sales fell in 2002, primarily
because the average unit cost of natural gas
was down 15 percent on a year-over-year basis.
These reductions were partially offset by
increased depreciation and amortization due to
a full years depreciation of the Trinidad
plants, whose long-term leases we purchased in
May 2001, and accelerated amortization of
turnaround costs.


Expenses and Other Income


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




2003 vs 2002 Selling and administrative expenses increased
by $4.4 million, primarily due to the stronger
Canadian dollar. Other contributing factors
were increases in amortization expense,
consulting and professional fees, fringe
benefits and stock-based compensation expense.
These were substantially offset by
company-wide cost restraints, including pay
reductions for the executive management team,
a salary freeze for middle management and
reduction in company contributions to employee
savings plans. A revised tax structure for potash producers
in Saskatchewan contributed $5.6 million to
earnings, the equivalent of $0.06 per share.
Saskatchewans Potash Production Tax is
comprised of a base tax per tonne of product
sold and an additional tax based on mine
profits. Effective January 2003, the
provincial government reduced the profits tax
on all incremental sales tonnes above the 2001
and 2002 average of 5.722 million tonnes. In
addition, to the extent that net capital
spending is greater than 90 percent of 2002
net expenditures, the excess is fully
deductible in the current year. This will
benefit the company to the extent that we
increase sales with improved market demand.
The Saskatchewan divisions and the New
Brunswick division also pay a provincial Crown
royalty, which is accounted for in cost of
goods sold. In 2003, the company recorded a provision for
plant shutdowns of $123.7 million. This
related to the indefinite shutdown of Memphis,


the suspension of ammonia and nitrogen
solutions production at Geismar and the
closure of Kinston, a phosphate feed
supplement plant maintained as a warehouse
after ceasing operations earlier in the year.
The plant shutdown provision recognized a
writedown of certain plant assets and costs
associated with eliminating job positions,
primarily by the end of the year. High US
natural gas costs and low product margins
affected both Memphis and Geismar. Kinstons
closure reduces feed supplement production
capacity by 0.141 million tonnes annually.
Note 21 of the consolidated financial
statements provides additional information on
the provision for plant shutdowns. In August, after providing SQM with an
irrevocable option to acquire our interest in
PCS Yumbes, PotashCorp recorded a charge of
$140.5 million, recognizing a writedown of
certain assets and costs associated with
workforce reductions and contract
terminations. Acquired in 1999, PCS Yumbes
produces potassium nitrate, sodium nitrate and
iodine in the Atacama Desert in northern
Chile. On November 20, 2003, PotashCorp and
SQM entered into a share purchase agreement
whereby SQM is to acquire the shares of PCS
Yumbes for $35.0 million (including the price
of the option), subject to adjustments. Note
22 of the consolidated financial statements
provides additional information on this
agreement and the provision for PCS Yumbes.




---



##### 



PotashCorp 2003 Annual Report   33



The companys foreign exchange loss increased
significantly over 2002 due to the
strengthening of the Canadian dollar relative
to the US dollar. The foreign exchange loss
arose primarily from the year-end translation
of the Canadian-dollar denominated monetary
items on the consolidated statement of
financial position. At December 31, 2003, the
Canadian dollar was $0.29 higher than at
December 31, 2002, compared to a $0.01
increase the preceding year. This was the
equivalent of $0.60 per share, compared to
$0.02 in 2002. Exposure to the Brazilian real
had a nominal impact on the company in 2003
but contributed a loss of nearly $0.05 per
share in 2002. For the year, other income was up $8.4
million, primarily due to APC equity earnings,
nitrogen insurance proceeds, the excess of
2003 equity earnings from SQM over 2002 equity
earnings and dividends, and higher ICL
dividends. Interest expense increased, primarily due to
the issuance of $250.0 million of 4.875
percent 10-year notes in March 2003 under the
companys shelf registration. These notes
replaced lower-cost commercial paper. Weighted
average long-term debt outstanding for the
year was $1,230.9 million, compared to
$1,023.3 million in 2002, with a weighted
average interest rate of 7.0 percent (2002
7.4 percent). The weighted average interest
rate on short-term debt for 2003 was 1.4
percent (2002  1.7 percent). The effective consolidated income tax rate in
2003 was approximately 40 percent of income
before income taxes (exclusive of the charges
relating to PCS Yumbes described previously
and a future income tax reversal of $6.5
million). This compares to a rate of
approximately 36 percent for 2002. The
increase was primarily due to the expiration
of the last tax holiday in Trinidad. The 2003
tax provision was all future income taxes,
compared to a current/future split of 80/20
for 2002. The decrease in the current portion
was primarily due to utilization of tax losses
in the US as well as certain reclassifications
from current to future income taxes.


2002 vs 2001 Selling and administrative expenses decreased
due to spending restraint in all areas of
PotashCorp, and an accounting policy change
that eliminated amortization of goodwill. The
reduction in gross margin per tonne on potash
sales meant lower provincial mining and other
taxes. For the year, the company incurred a foreign
exchange loss of $5.5 million compared to a
gain of $13.7 million in 2001, a swing of
$19.2 million. The 2002 foreign exchange loss
primarily related to the devaluation of the
Brazilian real throughout the year as well as
the strengthening of the Canadian dollar. In
2001, the Canadian dollar weakened
considerably against the US dollar, resulting
in the majority of the large foreign exchange
gain for the year. Other income increased as compared to 2001,
primarily due to the adoption of equity
accounting for SQM after we increased our
ownership from 18 percent in 2001 to 20
percent in 2002. This increase was partially
offset by a reduction in miscellaneous items. Interest expense on long-term debt increased
as the $600.0 million of notes issued in May
2001 were outstanding for the full year.
However, this increase was largely offset by
reduced interest expense on short-term debt as
commercial paper average balances and interest
rates were lower than in 2001. Weighted
average total debt outstanding increased from
$1,205.7 million in 2001 to $1,511.7 million
in 2002. The weighted average interest rate on
total debt outstanding was 6.0 percent (2001
 6.2 percent). The effective consolidated income tax rate
remained at 36 percent of income before income
taxes. The current/future split approximated
80/20, compared to a 30/70 split in 2001,
primarily because of higher proportional
earnings in Canada in 2002.


Liquidity and Capital Resources


Cash Requirements



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


(GRAPHIC)


Contractual Obligations and Other Commitments

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




---



##### 



34   PotashCorp 2003 Annual Report



Long-term Debt Long-term debt consists of $1,250.0 million of
notes payable that were issued under our US
shelf registration statements, $9.0 million of
Adjustable Rate Industrial Revenue and
Pollution Control Obligations, a net of $5.9
million under a back-to-back loan arrangement
(described in Note 11 to the consolidated
financial statements) and other commitments of
$5.0 million payable over the next five years.
The notes payable are unsecured. Of the notes
outstanding, $400.0 million bear interest at
7.125 percent and mature in 2007, $600.0
million bear interest at 7.750 percent and
mature in 2011 and $250.0 million bear
interest at 4.875 percent and mature in 2013.
There are no sinking fund requirements. The
Adjustable Rate Industrial Revenue and
Pollution Control Obligations bear interest at
varying rates, are secured by bank letters of
credit and have no sinking fund requirements.
The notes payable are not subject to any
financial test covenants but are subject to
certain customary covenants (including
limitations on liens and sale and leaseback
transactions) and events of default, including
an event of default for acceleration of other
debt in excess of $50.0 million. Neither the
Industrial Revenue and Pollution Control
Obligations nor the other long-term debt
instruments are subject to any financial test
covenants but each is subject to certain
customary covenants and events of default,
including, for other long-term debt, an event
of default for acceleration of other debt of
$25.0 million or more. Non-compliance with any
of the above covenants could result in
accelerated payment of the related debt. We
were in compliance with all covenants as at
December 31, 2003. The company manages interest rate exposures by
using a diversified portfolio of fixed and
floating rate instruments. Our sensitivity to
fluctuations in interest rates is
substantially limited to certain of our cash,
short-term investments, short-term debt and
long-term debt. In January and February 2004,
we entered into interest rate swap contracts
that effectively converted a notional amount
of $300.0 million of fixed rate debt into
floating rate debt based on LIBOR rates. Net
settlements on these swap instruments will be
recorded as adjustments to interest expense.
We did not enter into any interest rate swap
contracts in 2003 or 2002. Operating Leases We have long-term operating lease agreements
for buildings, port facilities, equipment,
ocean-going transportation vessels and
railcars, the latest of which expires in 2020
(excluding mineral leases). The most significant operating leases consist
primarily of three items. The first is our
lease of railcars used to transport finished
goods and raw materials. These leases extend
to approximately 2020. The second is the lease
of port facilities at the Port of Saint John
for shipping New Brunswick potash offshore.
This lease runs until 2018. The third is the
lease of three vessels for transporting
ammonia from Trinidad, which extends to 2011. Purchase Obligations We have long-term agreements for the purchase
of sulfur for use in the production of
phosphoric acid. These agreements provide for
minimum purchase quantities, and certain
prices are based on


market rates at the time of delivery. The
commitments included in the above table are
based on the market prices at December 31,
2003. Our Trinidad subsidiaries have entered into
long-term natural gas contracts with the
National Gas Company of Trinidad. The
contracts provide for prices that vary with
ammonia market prices, escalating floor prices
and minimum purchase quantities. The
commitments included in the above table are
based on floor prices and minimum purchase
quantities. We also have a long-term agreement through
2010 for the purchase of phosphate rock used
at our Geismar facility. This agreement set
base prices (less volume discounts) through
December 2003. Prices in subsequent years are
subject to renegotiation. The commitments
included in the above table are based on the
expected purchase quantity and the set base
prices (less applicable discounts). Other Commitments Other operating commitments consist of amounts
relating to an acid storage agreement that is
in effect until 2004, our Rocanville expansion
and compactor upgrade project through 2005,
contracts to purchase limestone that run
through 2007 and various rail freight
contracts, the latest of which expire in 2010. Other Long-term Liabilities Other long-term liabilities consist primarily
of accrued post-retirement/post-employment
benefits and accrued reclamation costs. Capital Expenditures During 2004, we expect to incur capital
expenditures of approximately $95.0 million
for opportunity capital and approximately
$110.0 million for sustaining capital. The
most significant single project relates to the
expansion and increase of granular production
capacity at Rocanville. We have also exercised an option agreement to
purchase certain corporate office facilities
for approximately $8.1 million in 2005. We anticipate that all capital spending will
be financed by internally generated cash flows
supplemented, if and as necessary, by
borrowing from existing financing sources. Sources and Uses of CashDollars (millions) 2003
    
    
    2002Cash provided by operating activities
    
    $
    381.5
    
    
    $
    316.4Cash used in investing activities
    
    $
    357.7
    
    
    $
    271.4Cash used in financing activities
    
    $
    43.6
    
    
    $
    65.8
 PotashCorps principal sources of funds
include the cash generated from our
operations, short-term borrowings against our
line of credit and commercial paper program,
and long-term debt issued under our US shelf
registration statement and drawn down under
our syndicated credit facility. Our primary
uses of funds are operational expenses,
sustaining and opportunity capital spending,
dividends, and interest and principal payments
on our debt securities. Cash provided by operating activities was
$381.5 million, up $65.1 million from 2002.
The increase was primarily due to the




---



##### 



PotashCorp 2003 Annual Report   35



significant improvement in nitrogen margins
and record potash volumes, offset by weaker
phosphate results. Although we recorded a net
loss of $126.3 million, $245.9 million of that
related to non-cash provisions for plant
shutdowns ($118.3 million) and PCS Yumbes
($127.6 million). The increase in accounts receivable was due to
fourth-quarter net sales being 26 percent
higher than in the same period last year. Our
customer credit policies have remained
substantially consistent with 2002. The
increase in accounts payable reflected the
related costs of the stronger fourth-quarter
net sales. The decrease in inventories
reflected managements efforts to reduce
phosphate work in process and feed inventories
to more sustainable levels and the reduction
in the carrying amount of inventory at the
Yumbes operations, as described in Note 22 to
the consolidated financial statements. Cash used in investing activities was $357.7
million, an increase of $86.3 million over last
year. Additions to property, plant and
equipment totalled $150.7 million, with 75
percent for sustaining capital. The decrease
from $212.2 million in 2002 was primarily due
to opportunity capital spending that year on
the DFP plant and expansion of the purified
acid plant at Aurora. On October 16, 2003, we purchased from Jordan
Investment Company, an arm of the Jordanian
government, 26 percent of the shares of APC.
The purchase price of $178.3 million was
financed by short-term debt. The equity method
is being used to account for this investment.
APC is publicly traded on the Amman Stock
Exchange. It produces potash from the Dead Sea
and is the worlds eighth largest producer,
with 2 million tonnes of annual capacity. Its
primary markets are India (22 percent), China
(16 percent) and Europe (16 percent), a good
complement to PotashCorps 2003 sales to North
America (41 percent), Brazil (16 percent) and
China (11 percent). Cash used in financing activities was $43.6
million, $22.2 million less than in 2002.
During the first quarter, we issued $250.0
million of 4.875 percent notes due in 2013,
under our US shelf registration statement. The
net proceeds from the notes were used to repay
short-term debt in that quarter. For the
entire year, PotashCorp repaid $296.8 million
of short-term debt. We maintained our dividend
and paid out $52.3 million in dividends,
similar to the amount paid in 2002. As our
share price appreciated during the year, stock
options were exercised. This, along with our
dividend reinvestment plan, contributed $58.9
million in financing activities, compared to
$4.4 million in 2002. PotashCorp believes that internally generated
cash flow, supplemented by borrowing from
existing financing sources, will be sufficient
to meet our anticipated capital expenditures
and other cash requirements in 2004, exclusive
of any possible acquisitions, as was the case
in 2003. At this time, the company does not
reasonably expect any presently known trend or
uncertainty to affect our ability to access
our historical sources of cash.


Debt InstrumentsDollars (millions) Total
    
    Amount Outstanding at
    
    Amount Available atAmount
    
    December 31, 2003
    
    December 31, 2003Syndicated Credit Facility
    
    $
    750.0
    
    
    $
    
    
    
    $
    573.8Line of Credit
    
    
    75.0
    
    
    
    11.2
    
    
    
    45.3Commercial Paper
    
    
    500.0
    
    
    
    176.2
    
    
    
    323.8US Shelf Registration
    
    
    2,000.0
    
    
    
    1,250.0
    
    
    
    750.0
 PotashCorp has a syndicated credit facility,
renewable annually, which provides for
unsecured advances. During third-quarter 2003,
it was increased to $750.0 million from $650.0
million. The amount available is the total
committed amount less direct borrowings and
commercial paper outstanding. The line of
credit is also renewable annually and the
amount available is reduced by outstanding
letters of credit and direct borrowings. During
the third quarter, it was reduced to $75.0
million from $120.0 million. Both the line of
credit and the syndicated credit facility have
financial tests and other covenants with which
the company must comply at each quarter-end.
Principal covenants under the credit facility
and line of credit require debt to capital of
less than or equal to 0.55:1, long-term debt to
EBITDA (defined in the respective agreements as
earnings before interest, income taxes,
provincial mining and other taxes,
depreciation, amortization and other non-cash
expenses) of less than or equal to 3.5:1,
tangible net worth greater than or equal to
$1,250.0 million and debt of subsidiaries less
than $590.0 million. The line of credit is also
subject to other customary covenants and events
of default, including an event of default for
non-payment of other debt in excess of Cdn
$40.0 million. Non-compliance with any of the
above covenants could result in accelerated
payment of the related debt and termination of
the line of credit. We were in compliance with
all covenants as at December 31, 2003. We also have a commercial paper program of up
to $500.0 million. Access to this source of
short-term financing depends primarily on our
rating by Dominion Bond Rating Service (DBRS)
and conditions in the money markets.
PotashCorps commercial paper is currently
rated by DBRS as R1 low, which should allow
unrestricted access to the money markets. We have a US shelf registration statement
under which we may issue up to an additional
$750.0 million in unsecured debt securities. At the end of 2003, our weighted average cost
of capital was 7.7 percent (2002  7.0
percent), of which 26 percent represented debt
and 74 percent equity. The increase was
primarily due to a shift in mix to equity 
which carries a higher cost than debt  as
the stock price closed 36 percent higher this
year-end compared to last. As well, the
risk-free rate used in calculating the cost of
equity increased over 2002. Off-Balance Sheet Arrangements In the normal course of operations, PotashCorp
engages in a variety of transactions that,
under Canadian GAAP, are either not recorded
on our balance sheet or are recorded on our
balance sheet in amounts that differ from the
full contract amounts. Principal off-balance
sheet




---



##### 



36   PotashCorp 2003 Annual Report



activities we undertake include issuance of
guarantee contracts, certain derivative
instruments and long-term fixed price
contracts. We do not reasonably expect any
presently known trend or uncertainty to affect
our ability to continue using these
arrangements. These types of arrangements are
discussed below. Guarantee Contracts In the normal course of operations, we provide
indemnifications that are often standard
contractual terms to counterparties in
transactions such as purchase and sale
contracts, service agreements,
director/officer contracts and leasing
transactions. These indemnification agreements
may require us to compensate the
counterparties for costs incurred as a result
of various events, including environmental
liabilities, changes in (or in the
interpretation of) laws and regulations, or as
a result of litigation claims or statutory
sanctions that may be suffered by the
counterparty as a consequence of the
transaction. The terms of these
indemnification agreements will vary based
upon the contract. The nature of the
indemnification agreements prevents us from
making a reasonable estimate of the maximum
potential amount we could be required to pay
to counterparties. Historically, we have not
made any significant payments under such
indemnifications and no amounts have been
accrued in our consolidated financial
statements with respect to these
indemnification guarantees. We have guaranteed various debt obligations
(such as cash management facility overdrafts,
lines of credit with counterparties for
derivatives, and back-to-back loan
arrangements) for certain subsidiaries. We
would be required to perform on these
guarantees in the event of default by the
guaranteed parties. No material loss is
anticipated by reason of such agreements and
guarantees. Note 29 to the consolidated
financial statements provides detailed
information regarding the nature and potential
maximum exposure for these guarantees. PotashCorp has guaranteed the gypsum stack
capping, closure and post-closure obligations
of White Springs and PCS Nitrogen, in Florida
and Louisiana, respectively, pursuant to the
financial assurance regulatory requirements in
those states. The State of Florida is
presently reviewing, and is expected to
revise, its financial assurance requirements
to ensure that responsible parties have
sufficient resources to cover all closure and
post-closure costs and liabilities associated
with gypsum stacks. This review may result in


the imposition of more stringent requirements
to demonstrate financial responsibility and/or
inclusion of a greater scope of closure and
post-closure costs than under current law.
Note 14 to the consolidated financial
statements provides additional information
regarding our gypsum stack obligations. The environmental regulations of the Province
of Saskatchewan require each potash mine to
have decommissioning and reclamation (D&R)
plans. In 2001, agreement was reached with the
provincial government on the financial
assurances for the D&R plan to cover
an interim period through to July 1, 2005. A
government-industry task force has been
established to assess decommissioning options
for all Saskatchewan potash producers and to
produce mutually acceptable revisions to the
plan schedules. In July 2001, a Cdn $2.0
million letter of credit was posted that will
remain in effect until the revised plans are
accepted. Derivative Instruments In addition to physical spot and term
purchases, PotashCorp employs futures, swaps
and option agreements to manage the cost on a
portion of our natural gas requirements. These
instruments are intended to hedge the future
cost of the committed and anticipated natural
gas purchases primarily for our US nitrogen
and phosphate plants. By company policy, the
maximum period for these hedges cannot exceed
five years. We use these instruments to reduce
price risk, not for speculative or trading
purposes. Derivative instruments which have
not yet been settled are not recognized in our
consolidated financial statements under
Canadian GAAP, and gains or losses arising
from settled hedging transactions are deferred
as a component of inventory until the product
containing the hedged item is sold, at which
time both the natural gas purchase cost and
the related hedging deferral are recorded as
cost of goods sold. The fair value of our gas hedging contracts at
December 31, 2003 approximated $59.8 million
(2002  $52.7 million). Note 27 to our
consolidated financial statements provides
detailed information regarding the nature of
our financial instruments. Long-term Fixed Price Contracts Certain of our long-term raw materials
agreements contain fixed price components. Our
significant agreements, and the related
obligations under such agreements, are
discussed in Contractual Obligations and
Other Commitments.


Market Risks Associated with Financial Instruments




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


transactions
are not recognized as they generally relate to
changes in the spot price of anticipated
natural gas purchases. A sensitivity analysis has been prepared to
estimate our market risk exposure arising from
derivative commodity instruments. The fair
value of such instruments is calculated by
valuing each position using quoted market
prices. Market risk is estimated as the
potential loss in fair value resulting from a
hypothetical 10 percent adverse change in such
prices. The results of this analysis indicate
that as of December 31, 2003, our estimated
derivative commodity instruments market risk
exposure was $27.5 million (2002  $17.6
million). Actual results may differ from this
estimate. Changes in the fair value of such
derivative




---



##### 



PotashCorp 2003 Annual Report   37



instruments, with maturities in 2004 through
2009, will generally relate to changes in the
spot price of anticipated natural gas
purchases. Foreign Exchange Risk The company also enters into forward exchange
contracts for the sole purpose of limiting
exposure to exchange rate fluctuations
relating to certain trade accounts. These
contracts are not designated as hedging
instruments for accounting purposes. Gains or
losses resulting from foreign exchange
contracts are recognized at the time the
contracts are entered into and are included in
other income. As at December 31, 2003, the company had
entered into forward exchange contracts to
sell US dollars and receive Canadian dollars
in the notional amount of $46.0 million (2002
 $28.0 million) at an average exchange rate
of $1.3315 (2002  $1.5855). As at December
31, 2003, the company had also entered into a
forward exchange contract to sell US dollars
and receive euros in the notional amount of
$1.9 million (2002  $NIL) at an exchange
rate of $1.1707. Expected maturity dates for
all forward contracts are within fiscal 2004. Interest Rate Risk We address interest rate risk by using a
diversified portfolio of fixed and floating
rate instruments. We are exposed to risk
resulting from changes in interest rates as a
result of the issuance of variable rate debt
and commercial paper. The company manages this
exposure by


aligning current and long-term
assets with variable and fixed rate debt,
limiting variable rate and fixed rate
exposures to percentages of total
capitalization and by monitoring the effects
of market changes in interest rates. As at December 31, 2003, our short-term debt
(comprised of commercial paper) was $176.2
million, our current portion of long-term debt
was $1.3 million and our long-term debt was
$1,268.6 million. Long-term debt is comprised
primarily of $1,250.0 million of notes payable
that were issued under our US shelf
registration statements at a fixed interest
rate. Subsequent to year-end, we entered into
contracts that exchanged a notional amount of
$300.0 million of our 7.75 percent fixed rate
notes into floating rate debt based on LIBOR
rates. One means of assessing exposure to interest
rate changes is a duration-based analysis that
measures the potential loss in net earnings
and cash flow resulting from a hypothetical 10
percent change in interest rates across
interest rate sensitive maturities. Under this
model, it is estimated that, all else
constant, such a change would not materially
impact our 2004 net earnings or cash flows
based on the same level of borrowing. If
interest rates changed significantly,
management would likely take actions to manage
our exposure to the change. However, due to
the uncertainty of the specific actions that
would be taken and their
possible effects, the sensitivity analysis
assumes no changes in our financial structure.


Related Party Transactions




The company sells potash from our Saskatchewan
mines for use outside of North America
exclusively to Canpotex Limited, a potash
export, sales and marketing company owned in
equal shares by the three potash producers in
the Province of Saskatchewan. Sales to
Canpotex for the year ended December 31, 2003
were $260.6 million (2002  $241.2 million;
2001  $237.6 million). Sales to Canpotex are
at prevailing market prices and are settled on
normal trade terms. In connection with entering into the option
agreement with SQM on August 27, 2003, PCS
Yumbes has agreed to purchase potash from


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


Critical Accounting Estimates




Our discussion and analysis of our financial
condition and results of operations are based
upon our consolidated financial statements,
which have been prepared in accordance with
accounting principles generally accepted in
Canada. These principles differ in certain
significant respects from accounting
principles generally accepted in the United
States. These differences are described and
quantified in Note 34 to the consolidated
financial statements. Our significant accounting policies are
contained in Note 2 to the consolidated
financial statements. Certain of these
policies involve critical accounting estimates
because they require us to make particularly
subjective or complex judgments about matters
that are


inherently uncertain and because of the
likelihood that materially different amounts
could be reported under different conditions
or using different assumptions. We have discussed the development, selection
and application of our key accounting
policies, and the critical accounting
estimates and assumptions they involve, with
the audit committee of the Board of Directors,
and our audit committee has reviewed the
disclosures described in this section. Other accounting policies, primarily those
requiring estimates with lower levels of
uncertainty than those discussed below, are
also important to understanding our
consolidated financial statements.




---



##### 



38   PotashCorp 2003 Annual Report



As such, the notes to our consolidated
financial statements should be read in
conjunction with this discussion. The following section discusses the critical
accounting estimates and assumptions that
management has made under these principles and
how they affect the amounts reported in the
consolidated financial statements. Asset Impairment We review long-lived assets and certain
identifiable intangible assets to be held and
used whenever events or changes in
circumstances indicate that the carrying
amount of such assets may not be fully
recoverable. Determination of recoverability
is based on an estimate of undiscounted future
cash flows resulting from the use of the asset
and its eventual disposition. Measurement of
an impairment loss for long-lived assets and
certain identifiable intangible assets that
management expects to hold and use is based on
the fair value of the assets, whereas such
assets to be disposed of are reported at the
lower of carrying amount or fair value less
costs to sell. We believe that the accounting estimate
related to asset impairment is a critical
accounting estimate because: (1) it is highly
susceptible to change from period to period as
it requires management to make assumptions
about future sales and margins and market
conditions over the long-term life of the
assets; and (2) the impact that recognizing an
impairment would have on the assets reported
on our balance sheet as well as our operations
may be material. During 2003, we indefinitely
shut down our Memphis nitrogen plant,
suspended production of ammonia and nitrogen
solutions at our Geismar facilities, ceased
operations at our Kinston phosphate feed plant
and entered into an agreement to sell our
shares of PCS Yumbes. In connection with these
activities, we reassessed the recoverability
of our long-lived assets and determined that
the carrying amounts at these locations were
not fully recoverable based on our best
estimates. As a result, asset impairment
charges totalling $183.0 million (before tax)
were recognized, as more fully described in
Notes 21 and 22 to the consolidated financial
statements. As at December 31, 2003, we
determined that there were no other triggering
events requiring additional impairment
analysis. In each of the last two years, we
have tested the long-lived assets at the above
facilities for impairment and in each year, we
determined that based on our assumptions, the
sum of the expected future cash flows
(undiscounted and without interest charges)
exceeded the carrying value and therefore we
did not recognize an impairment. Goodwill impairment is assessed at the
reporting unit level annually or sooner if
events or changes in circumstances indicate
that the carrying amount could exceed fair
value. Reporting units comprise business
operations with similar economic
characteristics and strategies and may
represent either a business segment or a
business unit within a business segment.
Potential impairment is identified when the
carrying value of a reporting unit, including
the
allocated goodwill, exceeds its fair value.
Goodwill impairment is measured as the excess
of the carrying amount of the reporting units
allocated goodwill over the implied fair value
of the goodwill, based on the fair value of
the assets and liabilities of the reporting
unit. In each of the


last two years, we have
tested goodwill for impairment and in each
year, we determined that based on our
assumptions, the fair value of our reporting
units exceeded their carrying amounts and
therefore we did not recognize an impairment
in such periods. We believe that our estimates of future cash
flows and fair value are reasonable. Although
we believe these estimates are consistent with
current conditions, internal planning and
expected future operations, such estimates are
subject to significant uncertainties and
judgments. As a result, it is reasonably
possible that the amounts reported for asset
impairments in connection with the
above-described initiatives could be different
if we were to use different assumptions or if
market and other conditions were to change in
the future. It is also possible that forecast
cash flows used to support the remaining
carrying values of the assets may change in
the future due to uncertain market conditions,
changes to our strategies and product
portfolio, or other factors and could also
result in higher charges than estimated to
date. The changes could result in non-cash
charges that could materially affect our
results of operations and financial position. Restructuring Charges As described in Notes 21 and 22 to the
consolidated financial statements, we approved
plans to restructure the Memphis, Geismar,
Kinston and Yumbes operations in 2003. In
addition to asset impairment analyses, these
plans required us to make critical estimates
regarding employee termination, contract
termination and other exit costs. We make
these estimates based on the terms of the
contracts involved, the number and pay scale
of employees scheduled for termination and
other related factors. Because such activities
are complex processes that can take several
months to complete, they will involve
periodically reassessing the estimates made
when the original decision to exit the
activities was made. As a result, we may have
to change originally reported estimates when
actual payments are made or the related
activities are completed. Post-Retirement and Post-Employment Costs We maintain plans that provide pensions and
other retirement and post-employment benefits
for most of our employees. We believe the
accounting estimates related to our employee
benefit plan costs are critical accounting
estimates because: (1) the amounts are based
on highly complex actuarial calculations
utilizing several assumptions; and (2) given
the magnitude of our estimated employee
benefit plan costs, differences in actual
results or changes in assumptions could
materially affect our results of operations
and financial position. Our pensions and other retirement and
post-employment benefits expense is calculated
by our actuaries based on key assumptions
determined by management. The valuations use
managements assumptions for the discount
rate, expected long-term rate of return
on plan assets, rate of compensation increase,
health care cost trend and expected average
remaining years of service of employees. The two most significant assumptions are the
discount rate and the expected long-term rate
of return on plan assets. The discount rate is
the interest rate used to determine the
present value of the future cash




---



##### 



PotashCorp 2003 Annual Report   39



flows that we expect will be needed to settle
employee benefit obligations. It is usually
based on the yield on long-term high-quality
corporate fixed income investments. We
determine the appropriate discount rate at the
end of every year. Our discount rate was 6.10
percent at December 31, 2003, compared to 6.50
percent at December 31, 2002. Changes in the
discount rate may affect earnings and the
projected benefit obligation. For example, a
0.5 percent reduction in discount rate could
increase our 2004 expense for our major plans
by approximately $4.0 million. Additionally, a
lower discount rate results in a higher
obligation, which could require us to make
additional contributions to the plans. In
2003, we assumed an expected long-term rate of
return on plan assets of 8.50 percent. We
estimate that a 0.5 percent reduction in the
expected asset return rate could increase our
2004 expense for our major plans by
approximately $1.6 million. Additional
information regarding our accounting for
pensions and other employee benefits,
including other sensitivity analyses for key
assumptions, is included in Note 13 to the
consolidated financial statements. Environmental Liabilities We have significant liabilities relating to
environmental matters. The two primary sources
of these are the requirements to close the
gypsum stacks and to reclaim the land mined in
our phosphate operations. We believe the accounting estimates related to
reclamation, closure and other environmental
costs are critical accounting estimates
because: (1) we will not incur most of these
costs for a number of years, requiring us to
make estimates over a long period; (2)
environmental laws and regulations and
interpretations by regulatory authorities
could change in the future or circumstances
affecting our operations could change, either
of which could result in significant changes
to our current plans; and (3) given the
magnitude of our estimated reclamation and
closure costs, changes in any or all of these
estimates could have a material impact on our
results of operations and financial position. (POTASHCORP ENVIRONMENTAL EXPENDITURES GRAPH)


When it is probable that environmental costs
will be incurred and can reasonably be
estimated, we accrue costs associated with
environmental obligations at the most likely
estimate. Accruals for closure costs,
reclamation and other environmental matters
totalled $100.0 million at December 31, 2003.
In arriving at this accrual amount we
considered the nature, extent and timing of
current and proposed reclamation and closure
techniques in view of present environmental
laws and regulations. It is reasonably
possible the ultimate costs could change in
the future and that changes to these estimates
could have a material effect on our results of
operations and financial position. Depreciation and Amortization We depreciate certain mining and milling
assets using the units of production  method
based on the shorter of estimates of deposit or service lives. We
have other assets that we depreciate on a
straight-line basis over their estimated
useful lives. We believe the accounting estimates related to
depreciation and amortization are critical
accounting estimates because: (1) the
determination of deposits involves
uncertainties with respect to the ultimate
geology of our deposits and the assumptions
used in determining the economic feasibility
of mining those deposits, including estimated
sales prices and costs of conducting future
mining activities; and (2) changes in
estimated deposits and useful asset lives can
have a material impact on operations. We perform annual assessments of our existing
assets, including a review of asset costs and
depreciable lives, in connection with the
review of mine operating plans. When we
determine that assigned asset lives do not
reflect the expected remaining period of
benefit, we make prospective changes to their
depreciable lives. There are a number of uncertainties inherent
in estimating quantities of deposits,
including many factors beyond our control.
These uncertainties relate to assumptions
regarding future prices, the geology of our
mines, the mining methods we use and the
related costs we incur to develop and mine our
deposits. Changes in these assumptions could
result in material adjustments to our deposit
estimates, which could result in changes to
units of production depreciation and
amortization expense in future periods, with
corresponding adjustments to results of
operations. Although some degree of
variability is expected, we believe the extent
of our technical data and operating experience
mitigates the potential for significant
changes in deposit estimates. On a periodic
basis, management reviews the deposits that
reflect estimates of the quantities and grades
at our mines which we believe can be recovered
and sold at prices in excess of the total cost
associated with extraction and processing.
Managements calculations of potash deposits
are based on in-house engineering and
geological estimates using current operating
costs, prices and demand for our products.
Deposits should not, however, be interpreted
as assurances of mine life or of the
profitability of current or future operations. As discussed above, we review and evaluate our
long-lived assets for impairment when events
or changes in circumstances indicate that the
related carrying amounts may not be
recoverable and changes to our estimates of
deposits could have an impact on our
assessment of




---



##### 



40   PotashCorp 2003 Annual Report



asset impairment. However, we believe it is
unlikely that revisions to our estimates of
deposits would give rise to an impairment of
our assets because of the significant size of
our deposits in relation to our asset-carrying
values. Income Taxes We operate in a specialized industry and in
several tax jurisdictions. As such, our income
is subject to various rates of taxation. We
are required to estimate our income taxes in
each of these jurisdictions as part of
preparing our consolidated financial
statements. These estimates consider, among
other factors, differing tax rates between
jurisdictions, allocation factors, tax
credits, nondeductible items, changes in
enacted tax laws and rates, and managements
expectations of future results. We estimate future income taxes based upon
temporary differences between the income and
losses that we report in our consolidated


financial statements and our taxable income
and losses as determined under applicable tax
laws. We record the tax effect of these
temporary differences as future income tax
assets or liabilities, as applicable, in our
consolidated financial statements. Future
income tax assets generally result in
deductible amounts in determining taxable
income of future periods when the carrying
amount of the asset or liability is recovered
or settled. Future income tax liabilities
typically reflect taxable amounts in
determining taxable income of future periods
when the carrying amount of the asset or
liability is recovered or settled. We use judgment and estimates when calculating
income taxes. If our judgments and estimates
prove to be inaccurate, or if certain tax
rates or laws change, our results of
operations and financial position could be
materially impacted in future periods.


Recent Accounting Pronouncements




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


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


Risk Management




An important part of PotashCorps strategic
planning process is understanding and managing
risk. Our approach to this responsibility
begins with our identification and analysis of
the specific risks we face. We then rank them
in order of importance, according to their
likelihood of occurring and the significance
of the consequences, and determine the most
effective ways to manage them. Tier I risks
are ranked the highest with Tier II considered
less likely and with less consequence. In 2002, management reported to the Board on
our most significant risks, our risk response
options and our risk administration. In 2003,
we updated the Board on the progress made on
those risks, and reported on the next tier of
risks. Tier I Risks Risk to Reputation is key with investors,
whose general confidence in corporations has
been shaken by scandals. With the public,
reputation risk revolves around a lack of
understanding of and growing concerns about
fertilizer production and use. For investors, PotashCorp implemented a
leading edge practice in corporate governance
and reaffirmed our commitment to timely and
complete disclosure. To educate the public on
the science of fertilizer, we developed a
grassroots program called Fertile Minds.


(RISK MANAGEMENT AND QUESTION MARK) We adopted best practices in production and
implemented a crisis communication program
with regular drills to handle any possible
mishaps. To maintain and build on our
credibility with the public, in 2003 we
produced our first sustainability report. Commodity price volatility affects a bulk
commodity business in which product quality
differentiation is negligible, prices are
affected by supply/demand dynamics and
products may be susceptible to large price
swings. PotashCorp aims to manage this risk generally
through product and sales diversity. We have
three nutrients and many products within each
nutrient, and sell to diverse markets (North
America, offshore) for diverse end uses
(fertilizer, industrial, feed). We also manage
this risk




---



##### 



PotashCorp 2003 Annual Report   41



through
alternative product sourcing  such as
was made possible by our recent 26 percent
investment in APC in Jordan  in an effort to
minimize the cost of delivering a bulk
commodity. There is a particular risk in the price
volatility of natural gas, our highest-cost
raw material input and essential to our
nitrogen production. We reduce this risk
through our hedging program and our long-term
gas contracts in Trinidad. Foreign country risk arises because many
future growth opportunities are likely to be
outside North America, and may include
exchange rate risk as well as political and/or
security risks. These risks can be reduced through financial
hedges for exchange rates, by insuring against
political risks, and by requiring higher
investment return thresholds for potential
offshore transactions. A supplemental benefit
of our involvement in Jordan is that it
combats price volatility, but it increased our
foreign country risk, although we chose to
remain self-insured. This illustrates the
interrelatedness of risks. In such
circumstances, we analyze our choices with a
view to minimizing risk and maximizing
benefit. Risk of access to capital to finance growth.
We aim to manage this risk by maintaining
strong cash flow, a conservative balance sheet
and management credibility through
high-quality disclosure and transparency. Security risks around some of our products. We
have increased security measures at all plants
producing and/or storing ammonia, with such
methods as enhanced perimeter security with
restricted storage areas, searching of
incoming and outgoing trucks and extra
security on site, including 24/7 patrols. Risk to information systems involves the
security of data from accidental or deliberate
destruction and from outside intrusion, and
the security of corporate hardware from
failure, destruction or theft. We secure data with modern systems of access
and protection, and regular backup. Our
hardware is protected from physical loss, and
we have backup site availability and
appropriate insurance. Workplace safety and health risks to workers
arising from safety and health hazards in
their normal work activities. These risks are
managed directly by individuals or front-line
teams and involve the use of measures such as
structured risk assessments, permits to work,
or written procedures, safety audits and
process hazard analyses. Risks to human resources come from replacement
of an aging, highly-skilled workforce, medical
benefit cost inflation, and increased pension
liability due to lower market returns on
invested funds compounded by lower prescribed
discount rates for calculating pension
liabilities. We aim to manage these risks by maintaining
policies and
programs aimed at positioning us as an
employer of choice, balanced with the need for
cost control through plan design,
administrative controls and employee
cost-sharing. Tier II Risks Risk from possible illegal acts could expose
the company to civil damages and/or criminal
or regulatory penalties.


PotashCorp has responded to this risk by
implementing a code of conduct. In addition,
policies were put in place in many areas
including corporate ethics, corporate
governance, compliance training, foreign
corrupt practices, insider trading and
anti-trust. We benchmark the policies of
companies that lead in these areas and
incorporate elements of their policies into
our own. We then communicate these policies to
our employees to raise awareness, institute
employee education through training and
drills, and monitor for compliance and
effectiveness. Financial risk at present is most closely
associated with changes in interest rates for
short-term or fixed rate debt. A higher
short-term rate increases our interest
expense; with fixed rate debt, the risk is
that rates may float lower, on average, than
the fixed rate over the term of the debt. We cannot control interest rates, but in a
market where the short-term rate is expected
to increase, our fixed rate debt will avoid
any additional costs. Acts of nature, such as weather, flooding or
power outages, can pose risks to our
operations. None of these is predictable, nor
can we easily relocate our plants to avoid
risk since their location is usually driven by
economic factors or proximity to the nutrient
source. One of our best defenses is our geographic
dispersion; we do not rely on a single plant in
any of our businesses. We have insurance to
mitigate loss from wind, surface flooding,
earthquakes, equipment damage and associated
business interruption, and we self-insure our
potash underground assets. We also rely on
careful seismic testing, geological and
hydrological models and safety procedures in
anomalous conditions. Cash flow volatility can result in maintaining
excess cash balances, thus forgoing interest
income, or in excess overdrafts, increasing
short-term interest costs. PotashCorp controls this risk by carefully
managing our cash balances and by investing
surpluses for longer terms. Tax compliance is the most significant tax
risk. Failure to comply with regulations in
the jurisdictions in which we operate could in
some cases significantly affect our business.
All our operations must be aware of potential
tax and filing requirements, and our
accounting and other corporate data must be
both accurate and complete. It is necessary to be informed and educated on
jurisdictional
matters. We have been able to compare our
existing tax practices to those of companies
we acquire, and have sought improvements. Credit risk reflects the situation that we
have receivables in the agricultural sector,
that we have little recourse for collection of
accounts receivable overseas, and that
counterparties may default on natural gas
hedging contracts. Such failure of
counterparties is the hardest to control. PotashCorps bad debts amounted to .0001
percent of our net sales in 2003, which
reflects our careful evaluation of
credit-worthiness among our customers. To
protect our interests, we require offshore
customers to provide letters of credit or bank
guarantees, and we insure offshore receivables
in both Canada and the United States. Our
credit department evaluates counterparties
before we enter into contracts for gas hedging.




---



##### 



42   PotashCorp 2003 Annual Report

Outlook




Agriculture Low world grain inventories and a tight
supply/demand balance for grains, oilseeds and
commodities such as rubber, cotton, palm oil,
coffee and cocoa are expected to support
rising prices. This should encourage global
producers to increase yields of these crops.
Higher fertilizer application rates and
increased crop acreages are key to achieving
this. In the US, record net farm income and the
recent strength in markets for corn, soybeans
and cotton are expected to encourage farmers
to plant more acres to these crops. In 2004,
stronger crop prices and the shift in planted
acres are projected to raise US consumption of
nitrogen, phosphate and potash fertilizers by
1-2 percent, while global consumption is
expected to rise by more than 2 percent. (WORLD GRAIN PRODUCTION AND CONSUMPTION GRAPH) Economy In 2004, the global economy is expected to
grow at 3-3.5 percent, according to certain
economic consultants. China and India are
expected to lead in GDP growth, China in the 8
percent range and India exceeding 5 percent. US economic growth of approximately 8 percent
in the third quarter of 2003 set the stage for
anticipated growth of approximately 4-5 percent
in 2004. With consumer confidence good, both
auto sales and housing starts are projected to
continue at high levels. Business confidence is
improving, and inventories are being
replenished. Ocean Freight Rates At the end of 2003, ocean freight rates jumped
to 260 percent of the levels at the beginning
of the year. Demand for bulk carriers surged
at a time when the fleet had aged and
shipbuilders were unable to quickly meet the
need.


Shipyards around the world are expected to
maximize their resources dedicated to building
bulk carriers. However, the lengthy lead time
for construction, continued decommissioning of
older vessels and growth in demand are
expected to keep bulk carrier rates high
during 2004. Natural Gas Futures price projections for natural gas in
the next few years are in the range of
$4.50-$6.00/MMBtu, as drilling and development
costs for reserves have increased and the life
of reserves brought into production has been
shortened. Gazprom, the natural gas supplier to Russian
nitrogen producers, is under increasing
pressure to be profitable in the domestic
market. Gas consumers who once did not pay bills are
now expected to do so, to work with Gazprom on
a tolling basis, or to provide it with equity
participation in their operations. This has
encouraged Russian industries that use gas to
pass these costs on to their customers. (DELIVERED CASH COST OF AMMONIA TO US GULF CHART) Potash With 86 percent of production controlled by
privately held companies, the global potash
industry is expected to operate in 2004 with
little interference from government agendas.
The strong growth in demand experienced in
Latin America and Asia in 2003 is expected to
continue to tighten the supply/demand balance
in 2004. Anticipated growth in soybean
production in Brazil should encourage potash
demand there. In North America, prices are expected to
continue to rise in response to higher costs
and tight supply. Offshore, higher freight
costs pressured margins in late 2003 for
product delivered under contracts requiring
the supplier to pay freight. Customers were
advised that future contracts would address
the impact of these higher freight




---



##### 



PotashCorp 2003 Annual Report   43



costs, and in 2004 the costs are expected to
be passed on to them as their contracts become
due. Potash gross margin should benefit from the
sale of Yumbes, which previously reduced
margins by approximately $23.0 million
annually. (POTASH DEMAND EXPECTED GRAPH) Phosphate The supply/demand balance tightened and prices
improved late in 2003. This is expected to
continue through the spring season in 2004.
However, the phosphate industry continues to
face issues of oversupply. China and India, large potential markets for
US phosphate exports, are expected to continue
to support their domestic industries in 2004. Input costs are expected to continue to be
high. US natural gas prices should support
ammonia prices, and a close balance between
supply and demand, led by Chinas increasing
need for sulfur to grow its domestic phosphate
production, is keeping sulfur prices up. Single cases of BSE in each of Canada and the
US in 2003 are expected to reduce consumption
of meat and bone meal (derived from animal
byproducts), which competes with phosphate
feed supplements such as dical, monocal and
DFP. PotashCorp expects better results from our
phosphate operations in 2004 than in 2003 as
certain costs, such as those associated with
the move to the new ore zone at Aurora and the
start-up at White Springs, are now behind us. Nitrogen Higher natural gas prices are expected to
continue to challenge US nitrogen producers.
Approximately 3.5 million tonnes of US ammonia
production capacity have been permanently
curtailed since 1999, with another 4 million
tonnes considered vulnerable to continued high
levels of imports.


Global supply/demand in nitrogen products has
been tight, as close to a quarter of US
ammonia capacity is curtailed and the new
world capacity coming on stream will not match
expected growth in demand during 2004. We will continue to evaluate our plant
shutdowns at Geismar and Memphis, basing any
potential restart decisions on a combination
of market conditions and the right balance of
prices versus volumes. The company was approximately 80 percent
hedged at $2.85 per MMBtu for our 2004 natural
gas needs, as of February 5, 2004. On that
date our 2004 hedge was valued at
approximately $33 million. Our US hedges are subject to collared profits
through the second quarter of 2004. Gas escalators have been included in certain
industrial contracts to help offset cost
volatility. PotashCorp will continue to maintain
appropriate levels of security at nitrogen
production facilities and terminals and during
transit of our products. PotashCorp Financial Outlook Capital expenditures for 2004 are expected to
approximate $205.0 million, of which
approximately $110.0 million will be for
sustaining capital. This is up from $150.7
million in 2003, due primarily to opportunity
capital set aside for the expansion of
granular production capacity at Rocanville.
Depreciation and amortization are expected to
approximate $220.0 million, similar to 2003
levels. The effective consolidated tax rate for 2004
is expected to approximate 35 percent. This is
down from the 2003 rate of 40 percent
(exclusive of charges for Yumbes and a
fourth-quarter income tax reversal) due to
Saskatchewan tax incentives and Canadian
statutory rate reductions. In 2004,
one-quarter of the consolidated tax rate is
anticipated to be current and three-quarters
future. The increase in the current tax
provision from zero percent in 2003 to 25
percent in 2004 is primarily due to an
expected increase in potash operating income.
Provincial mining and other resource taxes are
expected to approximate $6 per KCl tonne,
compared to $8 per KCl tonne in 2003. The
decrease from 2003 is largely due to the
accelerated depreciation on the Rocanville
expansion for profits tax purposes in 2004. Stock option expense is expected to
approximate $11.0 million in 2004, or
approximately $0.13 per share, up from $1.0
million in 2003, as it will include a full
years expense compared to the one month
charged in 2003. This non-cash expense is due
to our adoption of a new provision of Canadian
GAAP. (See Notes 3 and 26 of the consolidated
financial statements for more detail.) Given what we perceive to be positive industry
fundamentals, PotashCorp expects our 2004 net
income to be in the range of $2.70-$3.50 per
share. This annual range of earnings should
generate approximately $100 million more in
cash from operating activities in 2004 over
2003. Items that could result in earnings at the
lower end of the range include lower potash
prices and volumes, lower nitrogen prices and
a higher than expected Canadian dollar. Items
that could result in earnings at the higher
end include a reduction in phosphate operating
costs, an




---



##### 



44   PotashCorp
2003 Annual Report



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


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


INDICATORS TO WATCHFertilizer
    Feed and Industrial
Weather and acreage planted
 Chinas
grain stocks and corn exports
 Crop
prices
 US dollar
exchange rates
 Ocean freight
rates
 Prices for
natural gas, sulfur and ammonia
 Russias
protectionist trade policies versus WTO entry
 Indias
reform of DAP subsidies
 Impact of
European Union enlargement on Russias exports


Health of US and world economies
 Effect of
livestock diseases and restrictions on meat trade
 Possible tightening of
restrictions on meat and bone
meal in animal feeds
 Consumer spending and inventory levels of vehicles, housing and
retail goods


Key Earnings Sensitivities


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

INPUT COST SENSITIVITIES
    
    Effecton EPS
    
    
    
    
    PRICE AND VOLUME SENSITIVITIES
    
    Effecton EPSNYMEX natural gas increases by $1/MMBtu
    
    Nitrogen
    
    
    +0.27
    
    
    PRICE
    
    Potash changes by $5/tonne
    
    
    
    

±0.29DAP/MAP changes by $5/tonne
    
    
    
    
    ±0.09Potash
    
    
    0.08Ammonia increases by $10/tonne
    
    Nitrogen
    
    
    +0.13Sulfur changes by $5/long ton
    
    Phosphate
    
    

±0.12
    
    
    
    
    
    
    Phosphate
    
    

0.04Urea changes by $10/tonne
    
    
    
    
    ±0.15Canadian to US dollar changes by $0.01
    

Canadian
operating expenses net of provincial taxes
    
    

±0.02VOLUME
    
    Potash changes by 100,000 product tonnes
    
    
    
    
    ±0.04Foreign exchange gain/loss
    
    
    ±0.03
    
    
    
    

Phosphate
changes by 50,000 P2O5 tonnes
    
    
    
    
    ±0.11Nitrogen
changes by 50,000 N tonnes
    
    
    
    
    ±0.09


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

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

Forward-Looking Statements




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


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




---



##### 



PotashCorp 2003
Annual Report   45

Market and Industry Data

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

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

Appendix


Sources and Glossary of Terms1



Page 13 Footnotes: Fact
    
    
    
    Reference21
    
    Geographic Availability of
Raw Materials
    
    Source: Fertecon, EIA2
    
    Cost of New Capacity
    
    Source: Fertecon3
    
    Greenfield
    
    Definition: New operation built on
undeveloped site4
    
    Greenfield Development Time
    
    Source: Fertecon5
    
    Producing Countries
    
    Source: Fertecon6
    
    State- or Subsidy-Controlled
    
    Definitions:Production
    
    State-Controlled: Operational control in
the hands of the state
Subsidy-Controlled: The state provides
subsidies that control the economic
viability of the operation
Source: British Sulphur7
    
    Consumption
    
    Definition: Consumer end use8
    
    Expected Long-Term World
Fertilizer Consumption
    
    Source: Fertecon
* Non-rounded growth rates:Growth Rate
    
    Potash: 2.190%; Phosphate: 1.878%;
Nitrogen: 2.128%9
    
    Major Importers
    
    Source: Fertecon10
    
    Percentage Traded Across
Borders
    
    Source: Fertecon11
    
    Capacity; World Position
by Capacity
    
    Source: Fertecon, NRCan, PotashCorp12
    
    Raw Materials Availability
    
    Source: PotashCorp, EIA (For more
information, see Part 1 Description of
Business in 2003 Form 10-K)13
    
    40 Years of Reserves
    
    Note: with existing and known anticipated
operations14
    
    Production Cost Position vs
World Producers
    
    Source: British Sulphur; Blue, Johnson15
    
    Excess Capacity
    
    Source: Fertecon, PotashCorp
Definition: Capacity not presently being operated
 Page 14 Footnotes: Fact
    
    
    
    Reference16
    
    North America
    
    Definition: The North American market
includes Canada and the United States17
    
    North American Market Share
    
    Source: Fertecon; Blue, Johnson; PPI;
PotashCorp18
    
    North American Main CustomersAbbreviated Customer Name
    
    Complete Customer NameAstaris
Rhodia
    
    Astaris LLC
Rhodia Inc.BASF
    
    BASF GroupDSM
    
    DSM Chemicals North America Inc.19
    
    North American Main CompetitorsAbbreviated Producer Name
    
    Complete Producer NameIMC
    
    IMC Global Inc. (NYSE: IGL)Agrium
    
    Agrium Inc. (TSX and NYSE: AGU)Cargill
    
    Cargill, IncorporatedSimplot
    
    J.R. Simplot CompanyCF
    
    CF Industries, Inc.MissChem
(or Mississippi Chemical)
    
    Mississippi Chemical Corporation
(over the counter: MSPIQ)Koch
    
    Koch Industries, Inc.Terra
    
    Terra Industries, Inc. (NYSE: TRA)


20
    
    Offshore
    
    Definition: Offshore markets include all
markets except the US and Canada21
    
    Offshore Market Share
    
    Source: Fertecon, PotashCorp22
    
    Offshore Main CompetitorsAbbreviated Producer Name
    
    Complete Producer NameBelaruskali
    
    PA BelaruskaliUralkali
    
    JSC UralkaliSilvinit
    
    JSC SilvinitKali & Salz
    
    Kali und Salz GmbHDead Sea Works (or DSW)
    
    Dead Sea Works, Ltd.OCP
    
    Office Cherifien des PhosphatesGCT
    
    The Groupe Chimique TunisienPhosagro
    
    The Phosagro CompanyJPMC
    
    Jordan Phosphate Mines Co.23
    
    Canpotex
    
    An export company owned by all
Saskatchewan producers (PotashCorp, IMC
Global and Agrium). Sales through Canpotex
are generally allocated pro rata to each
producer on the basis of productive capacity.
PotashCorp provides approximately 54% of
Canpotex product.24
    
    PhosChem
    
    An association formed under the
Webb-Pomerene Act for US exports of phosphate
fertilizer products. Members are PotashCorp,
IMC Global and Mississippi Chemical. PCS
Sales is responsible for export sales of liquid
fertilizers for all PhosChem members while
IMC Global is responsible for sales of solid
fertilizers for members.
 Page 15 Footnotes: Other ProducersAbbreviated Producer Name
    
    Complete Producer NameIPC
    
    International Potash CompanyICL
    
    Israel Chemicals LimitedSQM
    
    Sociedad Quimica y Minera de Chile S.A.APC
    
    Arab Potash CompanyCVRD
    
    Companhia Vale do Rio DoceSF Phosphates
    
    SF Phosphates Ltd. Company
 Page 18 Footnotes: Fact
    
    
    
    Reference1
    
    Operating Rate (percent)
    
    Definition: Total production
divided by total capacitytimes 1002
    
    Demand
    
    Definition: Producers home sales plus imports
 Page 22 Footnotes: Fact
    
    
    
    Reference1
    
    Consumption
Total World Consumption
    
    Definition: Consumer end use
Source: Fertecon, PotashCorp2
    
    PotashCorp Share of
World Production
    
    Source: Fertecon, PotashCorp3
    
    PotashCorp Operating Rate
    
    Source: PotashCorp4
    
    Operating Rate (percent)
    
    Definition: Total production divided by total
capacitytimes 1005
    
    Operating Rate excluding
PotashCorp
    
    Source: Fertecon, PotashCorp




---



##### 



46   PotashCorp
2003 Annual Report



Footnotes to the Appendix 1
    
    Where PotashCorp is listed as a source in conjunction with external sources,
we have supplemented the external data with internal analysis.2
    
    Abbreviated Source Name
    
    Complete Source Name and LocationEIA
    
    Energy Information Administration
Washington, DC, USANRCan
    
    Natural Resources Canada
Ottawa, ON, CanadaPPI
    
    Potash & Phosphate Institute
Norcross, GA, USAPPIC
    
    Potash & Phosphate Institute of Canada
Saskatoon, SK, CanadaFertecon
    
    Fertecon Limited
Tunbridge Wells, Kent, EnglandBritish Sulphur
    
    British Sulphur Corporation Limited
London, EnglandOverseas Marine Services
    
    Overseas Marine Services
New York, NY, USABlue, Johnson
    
    Blue, Johnson & Associates
Albuquerque, NM, USAIFA
    
    International Fertilizer Industry Association
Paris, FranceNYMEX
    
    New York Mercantile Exchange
New York, NY, USAOANDA
    
    OANDA Corporation
New York, NY, USA; Toronto, ON,CanadaUSDA
    
    US Department of Agriculture
Washington, DC, USACanpotex
    
    Canpotex Limited
Saskatoon, SK, CanadaDoane
    
    Doane Agricultural Services
St. Louis, MO, USAThe Conference Board
    
    The Conference Board
New York, NY, USA


Fertilizer Measures K2O tonneMeasures the potassium content of fertilizers having different chemical
analyses; to convert to a KCl tonne, divide by 0.61 P2O5 tonneMeasures the phosphorus content of fertilizers having different chemical
analyses N tonneMeasures the nitrogen content of fertilizers having different chemical analyses Nutrient tonneMeasures the nutrient weight of potassium, phosphate and nitrogen fertilizers;
consists of K2O tonnes, P2O5 tonnes and N tonnes Product tonneStandard measure of the weights of all types of potash, phosphate and nitrogen
products Conversion Factors To Convert:
    
    To:
    
    Multiply By:Tons, long
    
    pounds
    
    2240.0Tons, long
    
    metric tonnes
    
    1.0161Tons, long
    
    short tons
    
    1.2000Tonnes, metric
    
    pounds
    
    2204.6Tonnes, metric
    
    long tons
    
    0.9842Tonnes, metric
    
    short tons
    
    1.1023Tons, short
    
    pounds
    
    2000.0Tons, short
    
    long tons
    
    0.8929Tons, short
    
    metric tonnes
    
    0.9072




Scientific Terms Nitrogen NH3
    
    anhydrous ammonia, 82% N (gas, liquid)HNO3
    
    nitric acid (liquid)NH4NO3
    
    ammonium nitrate, 34% N (solid, liquid)CO(NH2)2
    
    urea, 46% N (solid)UAN
    
    nitrogen solutions, 28-32% N (liquid)
 Phosphate P2O5
    
    phosphoric acidMGA
    
    merchant grade acid, 54% P2O5 (liquid)DAP
    
    diammonium phosphate, 46% P2O5 (solid)MAP
    
    monoammonium phosphate, 52% P2O5 (solid)SPA
    
    superphosphoric acid, 70% P2O5 (liquid)
 Potash KCl
    
    potassium chlorideK2O
    
    potassium oxideKNO3
    
    potassium nitrateNaNO3
    
    sodium nitrate


Nitrogen Production Factors To produce1 short ton of:
    
    Requires:Ammonia
    
    33.5 million Btu of
natural gasUrea solution
    
    0.58 tons of ammonia
0.78 tons of carbon
dioxide (CO2)Urea prills (46% N)
    
    1.01 tons of urea
solutionNitric acid (22% N)
    
    0.29 tons of ammoniaAmmonium nitrate solution
    
    0.80 tons of nitric acid
0.22 tons of ammoniaUAN solution (32% N)
    
    0.45 tons of ammonium
nitrate solution
0.35 tons of urea
solution


Phosphate
Production Factors To produce1 short ton of:
    
    Requires:Sulfuric Acid(100% H2SO4)
    
    0.33 short tons sulfurPhosphoric Acid(100% P2O5)
    
    2.8 short tons sulfuric acid
3.5-4.0 short tons
phosphate rockDiammonium Phosphate(46% P2O5)
    
    1.175 short tons of wet
phosphoric acid
(40% P2O5)
or 0.47 short tons P2O5
0.23 short tons ammoniaor in raw material form:1.65-1.90 short tons
phosphate rock
0.44 short tons sulfur
0.23 short tons ammoniaTriple Super Phosphate
    
    0.4 short tons 70 BPL rock
0.85 short tons 40% P2O5
phosphoric acid


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



---



##### 



PotashCorp 2003 Annual Report   47

11 Year Report
    
    for the years ended December 31


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




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

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

Additional Information



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



---



##### 



48   PotashCorp 2003 Annual Report

Financial Performance Indicators
    (in millions of US dollars)


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




---



##### 



PotashCorp 2003 Annual Report   49

Financial Performance Indicators(in millions of US dollars)

Reconciliations and Calculations (continued)

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


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



---



##### 



50   PotashCorp 2003 Annual Report  Financial Performance Indicators Reconciliations
and Calculations (continued)
  (2)
    
    PotashCorp uses EBITDA and adjusted EBITDA as supplemental financial
measures of its operational performance. Management believes EBITDA and
adjusted EBITDA to be important measures as they exclude the effects of items
which primarily reflect the impact of long-term investment decisions, rather
than the performance of the companys day-to-day operations. As compared to net
income (loss) according to GAAP, these measures are limited in that they do not
reflect the periodic costs of certain capitalized tangible and intangible
assets used in generating revenues in the companys business or the non-cash
charges associated with impairments and shutdown-related costs. Management
evaluates such charges and costs through other financial measures such as
capital expenditures and cash flow provided by operating activities. The
company also believes that these measurements are used by certain investors and
analysts to measure a companys ability to service debt and to meet other
payment obligations or as a valuation measurement.(3)
    
    Cash flow prior to working capital changes is defined as the cash provided
by operating activities, exclusive of changes in non-cash operating working
capital. PotashCorp uses cash flow prior to working capital changes as a supplemental
financial measure in its evaluation of liquidity. Management believes that
adjusting principally for the swings in non-cash working capital items due to
seasonality assists it in making long-term liquidity assessments. The company
also believes that this measurement is used by certain investors and analysts
as a measure of liquidity or as a valuation measurement.(4)
    
    PotashCorp uses cash flow and cash flow return as supplemental measures to
evaluate the performance of the companys assets in terms of the cash flow they
have generated. Calculated on the total cost basis of the companys assets
rather than on the depreciated value, these measures reflect cash returned on
the total investment outlay. The company believes these measures to be one of
the best predictors of shareholder value and measures used by the investment
community in evaluating the companys investment decisions. As such, management
believes this information to be useful to investors.(5)
    
    Management believes that net debt and net debt to capital ratio are useful
to investors because they are helpful in determining the companys leverage. We
also believe that since we have the ability to and may elect to use a portion
of cash and cash equivalents to retire debt or to incur additional expenditures
without increasing debt, it is appropriate to apply cash and cash equivalents
to debt in calculating net debt and net debt to capital. PotashCorp also
believes that this measurement is used by certain investors and analysts as a
financial leverage measure. N/A  not available Certain of the prior years figures have been reclassified to conform with the
current years presentation.
 The preceding information is included for convenience only. Generally, a
non-GAAP financial measure is a numerical measure of a companys performance,
financial position or cash flows that either excludes or includes amounts that
are not normally excluded or included in the most directly comparable measure
calculated and presented in accordance with generally accepted accounting
principles (GAAP). Adjusted net income, adjusted net income per diluted
share, EBITDA, adjusted EBITDA, cash flow prior to working capital changes,
cash flow, cash flow return, net debt and net debt to capital are not measures
of financial performance (nor do they have standardized meanings) under either
Canadian GAAP or US GAAP. In evaluating these measures, investors should
consider that the methodology applied in calculating such measures may differ
among companies and analysts. The companys management believes these non-GAAP measures provide useful
supplemental information to investors in order that they may evaluate
PotashCorps financial performance using the same measures used by the
companys management. PotashCorps management believes that, as a result, the
investor is afforded greater transparency in assessing the financial
performance of the company. These non-GAAP financial measures should not be
considered as a substitute for, nor superior to, measures of financial
performance prepared in accordance with GAAP. Financial Terms Total shareholder return= (change in market price per common share + dividends
per share) / beginning market price per common share Book value per share= total shareholders equity / number of common shares
outstanding Debt to capital= total debt / (total debt + total shareholders equity) Net debt to capital= (total debt  cash and cash equivalents) / (total debt 
cash and cash equivalents + total shareholders equity) Cash
flow= net income or loss + income taxes + interest  cash taxes paid +
depreciation and amortization Cash flow return= cash flow / average (total assets + accumulated depreciation
and amortization  accounts payable and accrued charges) EBITDArepresents earnings (net income or loss) before interest, taxes,
depreciation and amortization Adjusted EBITDA= EBITDA + impairment charges + non-cash
shutdown/closure-related costs and office consolidation costs  gain on sale of
Moab Inc. Return on assets= net income or loss / total assets Average adjusted assets is calculated as the simple average of the current
years adjusted assets and the previous years adjusted assets, except in a
year where a material acquisition occurred, in which case the weighted average
rather than the simple average is calculated; the last material acquisition was
in 1997.




---



##### 



PotashCorp
2003 Annual Report   51



Managements Responsibility for Financial Reporting

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

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

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

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

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

-s- W. Doyle
    
    -s- W. BrownleeW. Doyle
    
    W. BrownleePresident and
    
    Senior Vice President andChief Executive Officer
    
    Chief Financial OfficerFebruary 6, 2004


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

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

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

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

Saskatoon,
Saskatchewan
    
    -s- Deloitte & Touche LLPFebruary 6, 2004
    
    Chartered Accountants


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



Saskatoon, Saskatchewan
    
    -s- Deloitte & Touche LLPFebruary 6, 2004
    
    Chartered Accountants




---



##### 



52   PotashCorp 2003 Annual Report



Consolidated Statements of Financial Position

as at December
31
    
    in millions of US Dollars2003
    
    
    2002AssetsCurrent AssetsCash and cash equivalents
    
    $
    4.7
    
    
    $
    24.5Accounts receivable (Note 4)
    
    
    305.0
    
    
    
    267.8Inventories (Note 5)
    
    
    395.2
    
    
    
    499.3Prepaid expenses
    
    
    29.0
    
    
    
    40.4733.9
    
    
    
    832.0Property, plant and equipment (Note 6)
    
    
    3,108.1
    
    
    
    3,269.9Other assets (Note 7)
    
    
    628.3
    
    
    
    486.7Goodwill (Note 8)
    
    
    97.0
    
    
    
    97.0$
    4,567.3
    
    
    $
    4,685.6LiabilitiesCurrent LiabilitiesShort-term debt (Note 9)
    
    $
    176.2
    
    
    $
    473.0Accounts payable and accrued charges (Note 10)
    
    
    380.3
    
    
    
    347.0Current portion of long-term debt (Note 11)
    
    
    1.3
    
    
    
    3.4557.8
    
    
    
    823.4Long-term debt (Note 11)
    
    
    1,268.6
    
    
    
    1,019.9Future income tax liability (Note 24)
    
    
    484.2
    
    
    
    468.9Accrued post-retirement/post-employment benefits (Note 13)
    
    
    194.5
    
    
    
    195.4Accrued reclamation costs (Note 14)
    
    
    81.3
    
    
    
    80.0Other non-current liabilities and deferred credits
    
    
    7.1
    
    
    
    5.52,593.5
    
    
    
    2,593.1Contingencies(Note 28)Shareholders EquityShare Capital (Note 15)
    
    
    1,245.8
    
    
    
    1,186.9Unlimited authorization of common shares without par value;
issued and outstanding 53,112,216 and 52,077,648 shares
in 2003 and 2002, respectivelyUnlimited authorization of first preferred shares; none outstandingContributed Surplus (Note 16)
    
    
    265.2
    
    
    
    264.2Retained Earnings
    
    
    462.8
    
    
    
    641.41,973.8
    
    
    
    2,092.5$
    4,567.3
    
    
    $
    4,685.6


(See
Notes to the Consolidated Financial Statements)


Approved by the Board,

-s- E. Robert Stromberg
    

-s- Jack G. VicqDirector
    
    Director




---



##### 



PotashCorp 2003 Annual Report   53



Consolidated Statements of Operations and Retained Earnings

for the years
ended December 31
    
    in millions of US Dollars except per-share amounts2003
    
    
    2002
    
    
    2001Net sales (Note 17)
    
    $
    2,465.8
    
    
    $
    1,928.7
    
    
    $
    2,080.8Cost of goods sold (Note 18)
    
    
    2,085.4
    
    
    
    1,621.4
    
    
    
    1,673.5Gross Margin
    
    
    380.4
    
    
    
    307.3
    
    
    
    407.3Selling and administrative (Note 19)
    
    
    96.1
    
    
    
    91.7
    
    
    
    99.7Provincial mining and other taxes (Note 20)
    
    
    57.0
    
    
    
    68.0
    
    
    
    70.0Provision for plant shutdowns (Note 21)
    
    
    123.7
    
    
    
    
    
    
    
    Provision for PCS Yumbes S.C.M. (Note 22)
    
    
    140.5
    
    
    
    
    
    
    
    Foreign exchange loss (gain)
    
    
    51.9
    
    
    
    5.5
    
    
    
    (13.7
    )Other income
    
    
    (33.2
    )
    
    
    (24.8
    )
    
    
    (18.4
    )436.0
    
    
    
    140.4
    
    
    
    137.6Operating (Loss) Income
    
    
    (55.6
    )
    
    
    166.9
    
    
    
    269.7Interest Expense(Note 23)
    
    
    91.3
    
    
    
    83.1
    
    
    
    80.3(Loss) Income Before Income Taxes
    
    
    (146.9
    )
    
    
    83.8
    
    
    
    189.4Income Taxes(Note 24)
    
    
    (20.6
    )
    
    
    30.2
    
    
    
    68.2Net (Loss) Income
    
    
    (126.3
    )
    
    
    53.6
    
    
    
    121.2Retained Earnings, Beginning of Year
    
    
    641.4
    
    
    
    639.8
    
    
    
    570.5Dividends
    
    
    (52.3
    )
    
    
    (52.0
    )
    
    
    (51.9
    )Retained Earnings, End of Year
    
    $
    462.8
    
    
    $
    641.4
    
    
    $
    639.8Net (Loss) Income per Share  Basic(Note 25)
    
    $
    (2.42
    )
    
    $
    1.03
    
    
    $
    2.34Net (Loss) Income per Share  Diluted(Note 25)
    
    $
    (2.42
    )
    
    $
    1.03
    
    
    $
    2.32Dividends per Share
    
    $
    1.00
    
    
    $
    1.00
    
    
    $
    1.00


(See
Notes to the Consolidated Financial Statements)




---



##### 



54   PotashCorp 2003 Annual Report



Consolidated Statements of Cash Flow  for the years ended December 31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
   in millions of US Dollars2003
    
    
    
    
    
    
    2002
    
    
    
    
    
    
    2001Operating ActivitiesNet (loss) income
    
    
    
    
    
    $
    (126.3
    )
    
    
    
    
    
    $
    53.6
    
    
    
    
    
    
    $
    121.2Items not affecting cashDepreciation and amortization
    
    
    227.4
    
    
    
    
    
    
    
    219.1
    
    
    
    
    
    
    
    185.7Loss on disposal of property, plant and equipment
    
    
    1.0
    
    
    
    
    
    
    
    1.0
    
    
    
    
    
    
    
    0.4Stock-based compensation
    
    
    1.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Provision for plant shutdowns
    
    
    118.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Provision for PCS Yumbes S.C.M.
    
    
    127.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Foreign exchange on future income tax
    
    
    35.9
    
    
    
    
    
    
    
    1.0
    
    
    
    
    
    
    
    (8.2
    )(Recovery of) provision for future income tax
    
    
    (20.6
    )
    
    
    
    
    
    
    6.0
    
    
    
    
    
    
    
    47.7Share of earnings of equity investees
    
    
    (12.4
    )
    
    
    
    
    
    
    (5.3
    )
    
    
    
    
    
    
    Provision for post-retirement/post-employment benefits
    
    
    9.7
    
    
    
    
    
    
    
    18.2
    
    
    
    
    
    
    
    2.1Accrued reclamation costs
    
    
    1.3
    
    
    
    
    
    
    
    (3.0
    )
    
    
    
    
    
    
    (3.7
    )Other non-current liabilities and deferred credits
    
    
    1.6
    
    
    
    
    
    
    
    (1.4
    )
    
    
    
    
    
    
    0.6Subtotal of items not affecting cash
    
    
    
    
    
    
    490.8
    
    
    
    
    
    
    
    235.6
    
    
    
    
    
    
    
    224.6Changes in non-cash operating working capitalAccounts receivable
    
    
    (39.5
    )
    
    
    
    
    
    
    (11.1
    )
    
    
    
    
    
    
    69.9Inventories
    
    
    11.8
    
    
    
    
    
    
    
    (18.2
    )
    
    
    
    
    
    
    (76.1
    )Prepaid expenses
    
    
    11.4
    
    
    
    
    
    
    
    (3.9
    )
    
    
    
    
    
    
    2.3Accounts payable and accrued charges
    
    
    51.6
    
    
    
    
    
    
    
    37.0
    
    
    
    
    
    
    
    (244.6
    )Current income taxes
    
    
    (18.3
    )
    
    
    
    
    
    
    23.4
    
    
    
    
    
    
    
    (21.6
    )Subtotal of changes in non-cash operating working capital
    
    
    
    
    
    
    17.0
    
    
    
    
    
    
    
    27.2
    
    
    
    
    
    
    
    (270.1
    )Cash provided by operating activities
    
    
    
    
    
    
    381.5
    
    
    
    
    
    
    
    316.4
    
    
    
    
    
    
    
    75.7Investing ActivitiesAdditions to property, plant and equipment
    
    
    
    
    
    
    (150.7
    )
    
    
    
    
    
    
    (212.2
    )
    
    
    
    
    
    
    (513.7
    )Investment in Sociedad Quimica y Minera
de Chile S.A. (SQM)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23.2
    )
    
    
    
    
    
    
    (130.4
    )Investment in Arab Potash Company (APC)
    
    
    
    
    
    
    (178.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends received from equity investees
    
    
    
    
    
    
    4.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additions to other assets
    
    
    
    
    
    
    (32.7
    )
    
    
    
    
    
    
    (36.0
    )
    
    
    
    
    
    
    (45.9
    )Cash used in investing activities
    
    
    
    
    
    
    (357.7
    )
    
    
    
    
    
    
    (271.4
    )
    
    
    
    
    
    
    (690.0
    )Cash (deficiency) before financing activities
    
    
    
    
    
    
    23.8
    
    
    
    
    
    
    
    45.0
    
    
    
    
    
    
    
    (614.3
    )Financing ActivitiesProceeds from long-term obligations
    
    
    
    
    
    
    250.0
    
    
    
    
    
    
    
    11.2
    
    
    
    
    
    
    
    600.0Repayment of long-term obligations
    
    
    
    
    
    
    (3.4
    )
    
    
    
    
    
    
    (1.3
    )
    
    
    
    
    
    
    (5.8
    )Proceeds from short-term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12.2Repayment of short-term debt
    
    
    
    
    
    
    (296.8
    )
    
    
    
    
    
    
    (28.1
    )
    
    
    
    
    
    
    Dividends
    
    
    
    
    
    
    (52.3
    )
    
    
    
    
    
    
    (52.0
    )
    
    
    
    
    
    
    (51.9
    )Issuance of shares
    
    
    
    
    
    
    58.9
    
    
    
    
    
    
    
    4.4
    
    
    
    
    
    
    
    5.1Cash (used in) provided by financing activities
    
    
    
    
    
    
    (43.6
    )
    
    
    
    
    
    
    (65.8
    )
    
    
    
    
    
    
    559.6Decrease in Cash and Cash Equivalents
    
    
    
    
    
    
    (19.8
    )
    
    
    
    
    
    
    (20.8
    )
    
    
    
    
    
    
    (54.7
    )Cash and Cash Equivalents, Beginning of Year
    
    
    
    
    
    
    24.5
    
    
    
    
    
    
    
    45.3
    
    
    
    
    
    
    
    100.0Cash
and Cash Equivalents, End of Year
    
    
    
    
    
    $
    4.7
    
    
    
    
    
    
    $
    24.5
    
    
    
    
    
    
    $
    45.3Supplemental cash flow disclosureInterest paid
    
    
    
    
    
    $
    83.8
    
    
    
    
    
    
    $
    81.2
    
    
    
    
    
    
    $
    79.3Income taxes paid
    
    
    
    
    
    $
    22.8
    
    
    
    
    
    
    $
    4.4
    
    
    
    
    
    
    $
    41.5


(See
Notes to the Consolidated Financial Statements)




---



##### 



PotashCorp 2003 Annual Report   55



Notes to the Consolidated Financial Statements

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




1.
    
    DESCRIPTION OF BUSINESS With its subsidiaries, Potash Corporation of
Saskatchewan Inc. (PCS)  together known as
PotashCorp or the company except to the
extent the context otherwise requires  forms
an integrated fertilizer and related
industrial and feed products company. The
company has producing assets in the following
locations:  
    
    Potash  
    
    five mines and
mills and mining rights to potash at a sixth location, all
in the province of Saskatchewan
    
    one mine and two mills in the province of New Brunswick
    
    one plant in Chile that produces sodium nitrate, potassium nitrate and other products  
    
    Phosphate  
    
    a mine and processing facility in the state of North Carolina
    
    a mine and processing facilities in the state of Florida
    
    a processing facility in the state of Louisiana
    
    phosphate feed plants in five states and one in Brazil
    
    two industrial phosphoric acid plants, in the states of North Carolina and Ohio  
    
    Nitrogen  
    
    four plants located in the states of Georgia, Louisiana, Ohio and Tennessee
    
    large-scale operations in Trinidad The company owns or leases approximately 175
terminal and warehouse facilities
strategically located in Canada and the United
States, and services customers with a fleet of
approximately 6,000 rail cars.PotashCorp sells potash from its Saskatchewan
mines for use outside North America
exclusively to Canpotex Limited (Canpotex).
Canpotex, a potash export, sales and marketing
company owned in equal shares by the three
potash producers in the Province of
Saskatchewan (including the company), resells
potash to offshore customers. PCS Sales
(Canada) Inc. and PCS Sales (USA), Inc.,
wholly owned subsidiaries of PotashCorp,
execute marketing and sales for the companys
potash, phosphate and nitrogen products in
North America. PCS Sales (Canada) Inc.
executes offshore marketing and sales for the
companys New Brunswick potash. PCS Sales
(USA), Inc. generally executes offshore
marketing and sales for the companys
nitrogen, potassium nitrate and sodium nitrate
products. Phosphate Chemicals Export
Association, Inc. (PhosChem), an unrelated
phosphate export association established under
United States law, is the principal vehicle
through which the company executes offshore
marketing
and sales for its phosphate fertilizers.  2.
    
    SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The companys accounting policies are in
accordance with Canadian generally accepted
accounting principles (Canadian GAAP). These
policies are consistent with accounting
principles generally accepted in the United
States (US GAAP) in all material respects
except as outlined in Note 34. The preparation
of consolidated financial statements in
accordance with generally accepted accounting


principles requires management to make
estimates and assumptions that affect the
reported amounts of assets and liabilities and
disclosure of contingent assets and
liabilities at the date of the consolidated
financial statements and the reported amounts
of revenues and expenses during the reporting
period. Actual results could differ from those
estimates. As described in Notes 21 and 22,
during the year the company approved plans to
restructure certain operations. These plans
require significant estimates to be made of
the recoverability of the carrying value of
certain assets based on their capacity to
generate future cash flows. Although company
management believes it has made reasonable
estimates consistent with current conditions,
internal planning and expected future
operations, such estimates are subject to
significant uncertainties and judgments. As a
result, it is reasonably possible that the
amounts reported for asset impairments in
connection with these initiatives could be
different if the company were to use different
assumptions or if conditions were to change in
the future. The company is also required to
report estimated expenses for employee
termination, contract termination and other
exit costs. Because such activities are
complex processes that can take several months
to complete, they involve periodically
reassessing estimates. As a result, the
company may have to change originally reported
estimates when actual payments are made or the
activities are completed. The following
accounting policies are considered to be
significant: Principles of Consolidation The consolidated financial statements include
the accounts of PotashCorp and its principal
operating subsidiaries:  
    
    PCS Sales (Canada) Inc. 
    
    PCS Joint Venture, L.P. 
    
    PCS Sales (USA), Inc.
    
    PCS Phosphate Company, Inc. 
    
    PCS Purified Phosphates 
    
    White Springs Agricultural Chemicals, Inc. (White Springs)
    
    PCS Nitrogen, Inc. (PCS Nitrogen) 
    
    PCS Nitrogen Fertilizer, L.P.
    
    PCS Nitrogen Ohio, L.P.
    
    PCS Nitrogen Limited
    
    PCS Nitrogen Trinidad Limited 
    
    PCS Cassidy Lake Company (PCS Cassidy Lake)
    
    PCS Yumbes S.C.M. (PCS Yumbes)
    
    PCS Fosfatos do Brasil Ltda. All significant intercompany balances and
transactions have been eliminated. Cash Equivalents Highly liquid investments with an original
maturity of three months or less are considered
to be cash equivalents. Inventories Inventories of finished product, raw materials
and work in process are valued at the lower of
cost and net realizable value. Cost for
substantially all raw materials and work in
process inventories is




---



##### 



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




2.
    
    SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) determined using the first in, first out
(FIFO) method. Certain inventories of
materials and supplies are valued at the lower
of average cost and replacement cost and
certain inventories of materials and supplies
are valued at the lower of cost and market.
Cost for substantially all finished product is
determined using the weighted average cost
method (see Note 3). Prepaid Expenses Prepaid expenses include prepaid freight
relating to product inventory stored at
warehouse and terminal facilities. Property, Plant and Equipment Property, plant and equipment (which includes
mine development costs) are carried at cost.
Costs of additions, betterments, renewals and
interest during construction are capitalized.


Maintenance and repair expenditures, which do
not improve or extend productive life, are
expensed as incurred. Depreciation and Amortization Depreciation and amortization are provided for
on a basis and at rates calculated to amortize
the cost of the property, plant and equipment
over their estimated useful lives.
Depreciation and amortization rates for all
mine assets (including mine development costs)
and potash mills are determined using the
units of production method based on the shorter of estimates
of deposit or service lives. Other asset classes are
depreciated or amortized on a straight-line
basis as follows: land improvements 5 to 30
years, buildings and improvements 6 to 30
years and machinery and equipment (comprised
primarily of plant equipment) 20 to 25 years. Goodwill All business combinations are accounted for
using the purchase method. Goodwill is carried
at cost and represents the excess of the
purchase price and related costs over the fair
value assigned to the net tangible assets of
businesses acquired. Effective January 1,
2002, goodwill is no longer amortized but is
subject to fair value impairment tests on at
least an annual basis. Other Assets Issue costs of long-term obligations are
capitalized to deferred charges and are
amortized to interest expense over the term of
the related liability.


Preproduction costs are capitalized to
deferred charges and represent costs incurred
prior to obtaining commercial production at
new facilities, net of revenue earned, and are
amortized on either a straight-line or units
of production basis over 10 years.The costs of constructing bases for gypsum
stacks and settling ponds are capitalized to
deferred charges and are amortized on a
straight-line basis over their estimated
useful lives of 3 to 5 years.Land held for sale is stated at the lower of
cost or net realizable value.Investments in
which the company exercises significant
influence (but does not control) are accounted
for using the equity method. Other investments
are stated at cost.Rotational plant maintenance costs, which
consist primarily of planned major maintenance
projects (also known as turnarounds), are
capitalized when incurred and are amortized
over 2 to 4 years.


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


Goodwill impairment is assessed at the
reporting unit level at least annually, in
April. Reporting units comprise business
operations with similar economic
characteristics and strategies and may
represent either a business segment or a
business unit within a business segment.
Potential impairment is identified when the
carrying value of a reporting unit, including
the allocated goodwill, exceeds its fair
value. Goodwill impairment is measured as the
excess of the carrying amount of the reporting
units allocated goodwill over the implied
fair value of the goodwill, based on the fair
value of the assets and liabilities of the
reporting unit. Leases Leases entered into are classified as either
capital or operating leases. Leases that
transfer substantially all of the benefits and
risks of ownership of property to the company
are accounted for as capital leases. At the
time a capital lease is entered into, an asset
is recorded together with the related
long-term obligation. Equipment acquired under
capital leases is being depreciated on the
same basis as other property, plant and
equipment. Gains or losses resulting from
sale-leaseback transactions are deferred and
amortized in proportion to the amortization of
the leased asset. Rental payments under
operating leases are expensed as incurred. Post-Employment and Post-Retirement Benefits The company offers a number of benefit plans
which provide
pension and other benefits to qualified
employees. These plans
include statutory pension plans, supplemental
pension plans, defined contribution plans and
health, disability, dental and life insurance
plans.


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




---



##### 



PotashCorp 2003 Annual Report   57



2.
    
    SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) settlement of obligations, the curtailment is
accounted for prior to the settlement.
Actuaries perform valuations on a regular
basis to determine the actuarial present value
of the accrued pension and other retirement
benefits. Pension expense includes the net of
managements best estimate of the cost of
benefits provided, interest cost of projected
benefits, return on pension plan assets and
amortization of experience gains or losses and
plan amendments. Defined contribution plan costs are recognized
in income for services rendered by employees
during the period. Environmental Costs Environmental expenditures that relate to
current operations are expensed or capitalized
as appropriate. Expenditures that relate to
existing conditions caused by past operations
and that do not contribute to current or
future revenue generation are expensed.
Provisions for estimated costs are recorded
when environmental remedial efforts are likely
and the costs can be reasonably estimated. In
determining the provisions, the company uses
the most current information available,
including similar past experiences, available
technology, regulations in effect, the timing
of remediation and cost-sharing arrangements. Stock-Based Compensation Plans The company has four stock-based compensation
plans, which are described in Note 26. The
company accounts for stock options using the
fair value method, whereby the fair value of
stock options is determined on their grant
date and recorded as compensation expense over
the period that the stock options vest, with a
corresponding increase to contributed surplus.
When stock options are exercised, the
proceeds, together with the amount recorded in
contributed surplus, are recorded in share
capital. Foreign Exchange Transactions The companys functional currency is the US dollar.


Canadian dollar operating transactions are
translated to US dollars at the average
exchange rate for the previous month. Trinidad
dollar operating transactions are translated
to US dollars at the average exchange rate for
the period. Monetary assets and liabilities
are translated at period-end exchange rates.
Non-monetary assets owned at December 31, 1994
have been translated under the translation of
convenience method at the December 31, 1994
year-end exchange rate of US $1.00 = CDN
$1.4028. Additions subsequent to December 31,
1994 are translated at the exchange rate
prevailing at the time of the transaction.
Translation exchange gains and losses of
integrated foreign operations are reflected in
income. Derivative Financial Instruments Derivative financial instruments are used by
the company to manage its exposure to exchange
rate and commodity price fluctuations. The
companys policy is not to utilize derivative
financial instruments for trading or
speculative purposes.


The company enters into forward exchange
contracts in respect of its Canadian dollar
requirements for operating and capital
expenditures. These contracts are not
designated as hedging instruments for
accounting purposes. Accordingly, any gains or
losses are currently recognized in income.


The company enters into natural gas futures,
swaps and option agreements to manage the cost
of natural gas. The company formally documents
all relationships between hedging instruments
and hedged items, as well as its risk
management objective and strategy for
undertaking the hedge transaction. This
process includes linking derivatives to
specific forecast transactions.


The company also assesses, both at the hedges
inception and on an ongoing basis, whether the
derivatives that are used in hedging
transactions are highly effective in
offsetting changes in fair value of hedged
items.Gains or losses resulting from changes in the
fair value of natural gas hedging transactions
which have not yet been settled are not
recognized, as they generally relate to
changes in the spot price of anticipated
natural gas purchases. Gains or losses arising
from hedging transactions that have been
settled, terminated or cease to be effective
prior to maturity are deferred as a component
of inventory until the product containing the
hedged item is sold, at which time both the
natural gas purchase cost and the related
hedging deferral are recorded as cost of
sales.The company regularly evaluates its
unrecognized or deferred gains and losses on
these derivatives from a net realizable value
of inventory perspective and establishes
appropriate provisions, if necessary. Revenue Recognition Sales revenue is recognized when the product
is shipped or a service is performed, the
sales price is determinable, and
collectability is reasonably assured. Revenue
is recorded based on the FOB mine, plant,
warehouse or terminal price, except for
certain vessel sales which are shipped on a
delivered basis. Transportation costs are
recovered from the customer through sales
pricing. Natural Gas Operations The company follows the full-cost method of
accounting, whereby all costs associated with
the exploration for and development of natural
gas reserves are capitalized in one Canadian
cost center. These costs include land
acquisitions, drilling of productive,
non-productive and dry or abandoned wells,
geological and geophysical surveys and
administrative expenses directly related to
exploration and development activities. Costs
associated with dry or abandoned wells are
charged to the full-cost pool and subjected to
depletion.
Depletion is calculated using the units of
production method based on estimated gross
proved natural gas reserves as evaluated by
independent engineers.


Proceeds from the disposition of natural gas
properties are accounted for as a reduction in
capitalized costs, with no gain or loss
recognized unless such disposition would alter
the depletion rate by more than 20 percent.The net amount at which natural gas properties
are carried is subject to a cost recovery test
(the ceiling test). Under this test, an
estimate is made of the ultimate recoverable
amount from future net revenues using proved
reserves and period-end prices, plus the net
costs of major development projects and
improved properties, less future removal and
site restoration costs, overhead, financing
costs and income taxes. If the net carrying
costs exceed the ultimate recoverable amount,
additional depletion is provided.




---



##### 



58
    
    Notes to the Consolidated Financial Statements
    
    
    
    in millions of US Dollars except share and per-share amounts




3. CHANGES IN ACCOUNTING POLICY Effective January 1, 2003, the company changed the method of determining cost
for substantially all finished product inventories from the first in, first out
method to the weighted average cost method. This change was made to more
closely align product costing with product movement. This change in accounting
policy had no significant effect on the companys results of operations or
financial position for any of the periods presented. Effective December 15, 2003, the company adopted the fair value recognition
provisions recommended by the Canadian Institute of Chartered Accountants
(CICA) in Section 3870, Stock-based Compensation and Other Stock-based
Payments, prospectively to all employee awards (of the type previously not
accounted for at fair value) granted, modified or settled after January 1,
2003. Under the transitional provisions of Section 3870, stock-based
compensation expense has not been recorded on any stock option awards granted
by the company prior to January 1, 2003 (see Note 26). 4. ACCOUNTS RECEIVABLE 2003
    
    
    2002Trade accounts
     Canpotex
    
    $
    28.3
    
    
    $
    36.3 Other
    
    
    244.8
    
    
    
    212.4Non-trade accounts
    
    
    36.8
    
    
    
    25.1309.9
    
    
    
    273.8Less allowance for doubtful accounts
    
    
    (4.9
    )
    
    
    (6.0
    )$
    305.0
    
    
    $
    267.8
 5. INVENTORIES 2003
    
    
    2002Finished product
    
    $
    160.7
    
    
    $
    165.0Materials and supplies
    
    
    108.0
    
    
    
    123.5Raw materials
    
    
    54.1
    
    
    
    44.6Work in process
    
    
    72.4
    
    
    
    166.2$
    395.2
    
    
    $
    499.3
 During the year, the company recorded inventory writedowns of $62.9 (see Notes
21 and 22). 6. PROPERTY, PLANT AND EQUIPMENT 2003AccumulatedDepreciation and
    
    Net BookCost
    
    Amortization
    
    ValueLand and improvements
    
    $
    225.7
    
    
    $
    38.6
    
    
    $
    187.1Buildings and improvements
    
    
    469.0
    
    
    
    164.9
    
    
    
    304.1Machinery and equipment
    
    
    3,856.4
    
    
    
    1,317.2
    
    
    
    2,539.2Mine development costs
    
    
    133.2
    
    
    
    55.5
    
    
    
    77.7$
    4,684.3
    
    
    $
    1,576.2
    
    
    $
    3,108.1
 2002AccumulatedDepreciation and
    
    Net BookCost
    
    Amortization
    
    ValueLand and improvements
    
    $
    225.4
    
    
    $
    34.1
    
    
    $
    191.3Buildings and improvements
    
    
    451.3
    
    
    
    210.7
    
    
    
    240.6Machinery and equipment
    
    
    3,920.9
    
    
    
    1,160.9
    
    
    
    2,760.0Mine development costs
    
    
    127.0
    
    
    
    49.0
    
    
    
    78.0$
    4,724.6
    
    
    $
    1,454.7
    
    
    $
    3,269.9
 Depreciation and amortization of property, plant and equipment included in cost
of goods sold and in selling and administrative was


$193.9 (2002  $188.2; 2001  $170.4). During the year, the company recorded an impairment charge of $117.6
relating to certain assets (see Notes 21 and 22). Interest capitalized to
property, plant and equipment during the year was $1.5 (2002  $4.2). 7. OTHER ASSETS 2003
    
    
    2002Deferred charges  net of accumulated
amortizationof $34.0 (2002  $21.3)
    
    $
    77.0
    
    
    $
    152.2Prepaid pension costs
    
    
    22.2
    
    
    
    16.3Investments at equityAPC  26 percent ownership; quoted
market value of $141.5
    
    
    181.5
    
    
    
    SQM  20 percent ownership; quoted
market value of $234.2 (2002  $130.1)
    
    
    164.7
    
    
    
    158.9Other
    
    
    17.0
    
    
    
    17.5Investments at costICL  9 percent ownership
    
    
    92.8
    
    
    
    92.8Rotational plant maintenance costs
 net of accumulated
amortization
of $33.2 (2002 $29.5)
    
    
    14.8
    
    
    
    29.5Other
    
    
    58.3
    
    
    
    19.5$
    628.3
    
    
    $
    486.7
 During the year, the company recorded an impairment charge of $65.4 relating to
certain deferred charges (see Notes 21 and 22). On October 16, 2003, the
company acquired 26 percent of the issued and outstanding common shares of APC
from Jordan Investment Company (JIC). APC, a publicly listed company in
Jordan, produces potash from the Dead Sea and has 2 million tonnes of annual
capacity. The purchase price was $178.3 and was financed by short-term debt.
The company has accounted for the investment by the equity method. The
difference between the acquisition cost and the underlying net book value of
APCs assets at the date of purchase was $75.7. These amounts related
principally to property, plant and equipment and are being amortized on a
straight-line basis over the estimated useful lives of the underlying assets
acquired. Subsequent to the acquisition, APC is 26.9 percent held by JIC, 26
percent held by the company, 21 percent held by Arab Mining Company, and the
remainder of APC shares are held by other governments, banks and individual
investors. Amortization of deferred charges and rotational plant maintenance
costs included in cost of goods sold and in selling and administrative was
$33.5 (2002  $30.9; 2001  $12.3). Included in other income is the companys share of earnings of equity investees
of $12.4 (2002  $5.3; 2001  $NIL). 8. GOODWILL 2003
    
    
    2002Cost
    
    $
    104.3
    
    
    $
    104.3Accumulated amortization
    
    
    7.3
    
    
    
    7.3$
    97.0
    
    
    $
    97.0
 In 2003 there was no amortization of goodwill included in selling and
administrative (2002  $NIL; 2001  $3.0). 9. SHORT-TERM DEBT Short-term debt was $176.2 at December 31, 2003 (2002  $473.0). The weighted
average interest rate on this debt was 1.43 percent (2002  1.70 percent). The
company had an unsecured line of credit




---



##### 



PotashCorp 2003 Annual Report   59



9. SHORT-TERM DEBT (CONTINUED) available for short-term financing (net of letters of credit of $18.5 and
direct borrowings of $11.2) in the amount of $45.3 at December 31, 2003 (2002 
$134.5). In addition, the company is authorized to borrow a further $323.8
under its commercial paper program. The line of credit is subject to financial
tests and other covenants. The principal covenants require a debt to capital
ratio of less than or equal to 0.55:1, a long-term debt to EBITDA (defined in
the agreement as earnings before interest, income taxes, provincial mining and
other taxes, depreciation, amortization and other non-cash expenses) ratio of
less than or equal to 3.5:1, tangible net worth in an amount greater than or
equal to $1,250.0 and debt of subsidiaries not to exceed $590.0. The line of
credit is subject to other customary covenants and events of default, including
an event of default for non-payment of other debt in excess of Cdn $40.0.
Non-compliance with such covenants could result in accelerated payment of
amounts due under the line of credit and its termination. The company was in
compliance with the above-mentioned covenants at December 31, 2003. 10. ACCOUNTS PAYABLE AND ACCRUED CHARGES 2003
    
    
    2002Trade accounts
    
    $
    259.8
    
    
    $
    218.4Accrued environmental
    
    
    18.7
    
    
    
    18.6Accrued interest
    
    
    16.1
    
    
    
    8.6Accrued compensation
    
    
    27.7
    
    
    
    37.2Current portion post-retirement/post-employment benefits
    
    
    15.3
    
    
    
    3.5Income taxes
    
    
    29.4
    
    
    
    47.7Dividends
    
    
    13.3
    
    
    
    13.0$
    380.3
    
    
    $
    347.0
 11. LONG-TERM DEBT 2003
    
    
    2002Industrial Revenue and PollutionControl Obligations
    
    $
    9.0
    
    
    $
    11.4Adjustable Rate Industrial Revenue and Pollution
Control Obligations bearing interest at an average
rate of 1.166% (2002 average  1.725%) and
maturing in 2005. There are no sinking fund
requirements prior to maturity. These loans are
secured by bank letters of credit.Notes Payable7.125% notes payable June 15, 2007.
    
    
    400.0
    
    
    
    400.07.75% notes payable May 31, 2011.
    
    
    600.0
    
    
    
    600.04.875% notes payable March 1, 2013.
    
    
    250.0
    
    
    
    There are no sinking fund requirements prior to
maturity. These notes were issued under US shelf
registration statements covering up to $2,000.0
of debt securities. The notes are unsecured.Other
    
    
    10.9
    
    
    
    11.91,269.9
    
    
    
    1,023.3Less current maturities
    
    
    1.3
    
    
    
    3.4$
    1,268.6
    
    
    $
    1,019.9
 The company has entered into back-to-back loan arrangements involving certain
financial assets and financial liabilities. It has presented financial assets
of $310.1 and financial liabilities of
$316.0 on a net basis because a legal right to set-off exists, and the company
intends to settle on a net basis. Other long-term debt in the above


table includes a net financial liability of $5.9 (2002  $5.9) pursuant to these
arrangements. The company has a syndicated credit facility, renewable annually, which
provides for unsecured advances of up to $750.0 (less the amount of commercial
paper outstanding). As at December 31, 2003, no amounts were outstanding and
$573.8 was available under the facility. Principal covenants under the credit
facility require a debt to capital ratio of less than or equal to 0.55:1, a
long-term debt to EBITDA (defined in the agreement as earnings before interest,
income taxes, provincial mining and other taxes, depreciation, amortization and
other non-cash expenses) ratio of less than or equal to 3.5:1, tangible net
worth greater than or equal to $1,250.0 and debt of subsidiaries not to exceed
$590.0. The notes payable are not subject to any financial test covenants but
are subject to certain customary covenants (including limitations on liens and
sale and leaseback transactions) and events of default, including an event of
default for acceleration of other debt in excess of $50.0. Neither the
Industrial Revenue and Pollution Control Obligations nor the other long-term
debt instruments are subject to any financial test covenants but each is
subject to certain customary covenants and events of default, including, for
other long-term debt, an event of default for acceleration of other debt of
$25.0 or more. Non-compliance with any of the above covenants could result in
accelerated payment of the related debt. The company was in compliance with the
above-mentioned covenants at December 31, 2003. Long-term debt at December 31, 2003 will mature as follows: 2004
    
    $
    1.32005
    
    
    10.32006
    
    
    1.32007
    
    
    400.62008
    
    
    0.3Subsequent years
    
    
    856.1$
    1,269.9
 12. COMMITMENTS Lease Commitments The company has long-term operating lease agreements for buildings, port
facilities, equipment, ocean-going transportation vessels and railcars, the
latest of which expires in 2020 (excluding mineral leases). Rental expense for
operating leases for the years ended December 31, 2003, 2002 and 2001 was
$39.9, $41.2 and $56.7, respectively. Purchase Commitments The company has long-term agreements for the purchase of sulfur for use in the
production of phosphoric acid. These agreements provide for minimum purchase
quantities and certain prices are based on market rates at the time of
delivery. The commitments included in the table below are based on the market
prices as at December 31, 2003. The companys Trinidad subsidiaries have entered into long-term natural gas
contracts with the National Gas Company of Trinidad. The contracts provide for
prices that vary with ammonia market prices, escalating floor prices and
minimum purchase quantities. The commitments included in the table below are
based on floor prices and minimum purchase quantities. The company also has a long-term agreement for the purchase of phosphate rock
used at the Geismar facility. This agreement set base prices (less volume
discounts) through to December 2003. Prices in




---



##### 



60
    
    Notes to the Consolidated Financial Statements
    
    
    
    in millions of US Dollars except share and per-share amounts




12. COMMITMENTS (CONTINUED) subsequent years are subject to renegotiation. The commitments included in the
table below are based on the expected purchase quantity and the set base prices
(less applicable discounts).  Other
Commitments
     Operating
    
    Purchase
    
    OtherLeases
    
    Commitments
    
    Commitments2004
    
    $
    69.6
    
    
    $
    152.0
    
    
    $
    18.42005
    
    
    58.9
    
    
    
    98.1
    
    
    
    11.62006
    
    
    49.0
    
    
    
    91.8
    
    
    
    9.12007
    
    
    42.7
    
    
    
    91.8
    
    
    
    9.12008
    
    
    24.6
    
    
    
    79.9
    
    
    
    8.4Thereafter
    
    
    136.0
    
    
    
    531.9
    
    
    
    12.6Total
    
    $
    380.8
    
    
    $
    1,045.5
    
    
    $
    69.2
  13.
POST-RETIREMENT/POST-EMPLOYMENT BENEFITS
  Canada
   The company has established a supplemental retirement income plan for senior
management which is unfunded, non-contributory and provides a supplementary
pension benefit. The plan is provided for by charges to earnings sufficient to
meet the projected benefit obligation.  United
States
    Trinidad
    All
Pension Plans
   2003
    
    
    2002
    
    
    2001Service cost for benefits
earned during the year
    
    $
    12.2
    
    
    $
    12.0
    
    
    $
    10.2Interest cost on projected
benefit obligations
    
    
    29.6
    
    
    
    28.1
    
    
    
    27.6Expected return on plan assets
    
    
    (30.4
    )
    
    
    (31.9
    )
    
    
    (30.1
    )Amortization of net loss
    
    
    5.1
    
    
    
    0.7
    
    
    
    Net pension expense
    
    $
    16.5
    
    
    $
    8.9
    
    
    $
    7.7


Significant actuarial assumptions used in measuring the benefit obligation and
net pension expense for the companys funded plans were as follows (weighted
average assumptions as of December 31): 2003
    
    
    2002
    
    
    2001Discount rate  obligation
    
    
    6.10
    %
    
    
    6.50
    %
    
    
    7.25
    %Discount rate  expense
    
    
    6.50
    %
    
    
    7.25
    %
    
    
    7.50
    %Long-term rate of
return on assets
    
    
    8.50
    %
    
    
    9.00
    %
    
    
    9.00
    %Rate of increase in
compensation levels
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    4.50
    %
 The company employs a building block approach in determining the long-term rate
of return for plan assets. Historical markets are studied and long-term
historical relationships between equities and fixed income are preserved
consistent with the widely accepted capital market principle that assets with
higher volatility generate a greater return over the long run. Current market
factors such as inflation and interest rates are evaluated before long-term
capital market assumptions are determined. The long-term rate of return is
established with proper consideration of diversification and rebalancing. Peer
data and historical returns are reviewed to check for reasonability and
appropriateness. Other Post-Retirement Plans The company provides certain contributory health care plans and
non-contributory life insurance benefits for retired employees. These plans
contain certain cost-sharing features such as deductibles and coinsurance, and
are unfunded with benefits subject to change. The components of this expense,
computed actuarially, were as follows: 2003
    
    
    2002
    
    
    2001Service cost for benefits
earned during the year
    
    $
    5.5
    
    
    $
    4.1
    
    
    $
    3.6Interest cost on projected
benefit obligations
    
    
    12.9
    
    
    
    13.9
    
    
    
    11.1Amortization of net loss
    
    
    2.0
    
    
    
    
    
    
    
    Net post-retirement expense
    
    $
    20.4
    
    
    $
    18.0
    
    
    $
    14.7
 Significant actuarial assumptions used in measuring the post-retirement benefit
obligation and expense were as follows (weighted average assumptions as of
December 31): 2003
    
    
    2002
    
    
    2001Discount rate  obligation
    
    
    6.10
    %
    
    
    6.50
    %
    
    
    7.25
    %Discount rate  expense
    
    
    6.50
    %
    
    
    7.25
    %
    
    
    7.50
    %Initial health care cost trend rate
    
    
    6.00
    %
    
    
    10.00
    %
    
    
    9.00
    %Ultimate health care
cost trend rate
    
    
    6.00
    %
    
    
    6.00
    %
    
    
    6.00
    %
 Effective January 1, 2004, the companys largest retiree medical plan limits
the companys share of annual medical cost increases to 4.5 percent for recent
and future retirees. Any cost increases in excess of this amount will be funded
by increased retiree contributions. If the health care cost trend rate was
increased by 1.0 percentage point, the accumulated post-retirement benefit
obligation and the aggregate of service and interest cost would have increased
as follows: 2003
    
    
    2002
    
    
    2001Accumulated post-retirement
benefit obligation
    
    $
    36.3
    
    
    $
    35.0
    
    
    $
    30.1Aggregate of service and
interest cost
    
    
    3.8
    
    
    
    3.3
    
    
    
    2.7




---



##### 



PotashCorp 2003 Annual Report   61

13. POST-RETIREMENT/POST-EMPLOYMENT BENEFITS (CONTINUED)

If the health care cost trend rate was decreased by 1.0 percentage point, the
accumulated post-retirement benefit obligation and the aggregate of service and
interest cost would have decreased as follows:

2003
    
    
    2002
    
    
    2001Accumulated post-retirement benefit obligation
    
    $
    31.7
    
    
    $
    28.7
    
    
    $
    24.7Aggregate of service and interest cost
    
    
    3.1
    
    
    
    2.7
    
    
    
    2.1


All of the companys US employees may participate in defined contribution
savings plans. These plans are subject to US federal tax limitations and
provide for voluntary employee salary deduction contributions of up to 15
percent of salary. The companys matching contributions of up to 5 percent of
salary were $3.4 and $5.0 for 2003 and 2002, respectively. All of the companys
Canadian salaried employees participated in the PCS Inc. Savings Plan until
June 30, 2003. The companys contributions in 2003 were $0.9 (2002  $1.5).

The
company uses a December 31 measurement date for the majority of its plans. The
change in benefit obligations and change in plan assets for the above pension
and post-retirement/post-employment plans were as follows:

Post-retirement/Pension
    
    Post-employment2003
    
    
    2002
    
    
    2003
    
    
    2002Change in Benefit ObligationsBalance, beginning of year
    
    $
    449.2
    
    
    $
    392.0
    
    
    $
    208.3
    
    
    $
    182.8Service cost
    
    
    12.2
    
    
    
    12.0
    
    
    
    5.5
    
    
    
    4.1Interest cost
    
    
    29.6
    
    
    
    28.1
    
    
    
    12.9
    
    
    
    13.9Participants contributions
    
    
    0.3
    
    
    
    0.3
    
    
    
    
    
    
    
    Actuarial loss
    
    
    27.3
    
    
    
    37.0
    
    
    
    25.7
    
    
    
    12.3Foreign exchange rate changes
    
    
    6.4
    
    
    
    
    
    
    
    
    
    
    
    Amendments
    
    
    2.3
    
    
    
    1.8
    
    
    
    (14.0
    )
    
    
    Benefits paid
    
    
    (24.9
    )
    
    
    (22.0
    )
    
    
    (7.7
    )
    
    
    (4.8
    )Balance, end of year
    
    
    502.4
    
    
    
    449.2
    
    
    
    230.7
    
    
    
    208.3Change in Plan AssetsFair value, beginning of year
    
    
    318.5
    
    
    
    352.7
    
    
    
    
    
    
    
    Actual return on plan assets
    
    
    73.6
    
    
    
    (17.8
    )
    
    
    
    
    
    
    Employer contributions
    
    
    23.3
    
    
    
    5.2
    
    
    
    7.7
    
    
    
    4.8Participants contributions
    
    
    0.3
    
    
    
    0.4
    
    
    
    1.8
    
    
    
    1.8Foreign exchange rate changes
    
    
    3.4
    
    
    
    
    
    
    
    
    
    
    
    Valuation allowance
    
    
    (2.0
    )
    
    
    
    
    
    
    
    
    
    
    Benefits paid
    
    
    (24.9
    )
    
    
    (22.0
    )
    
    
    (9.5
    )
    
    
    (6.6
    )Fair value, end of year
    
    
    392.2
    
    
    
    318.5
    
    
    
    
    
    
    
    Funded Status
    
    
    (110.2
    )
    
    
    (130.7
    )
    
    
    (230.7
    )
    
    
    (208.3
    )Unamortized net actuarial loss
    
    
    86.1
    
    
    
    109.7
    
    
    
    70.5
    
    
    
    49.7Unamortized prior service cost
    
    
    4.4
    
    
    
    1.0
    
    
    
    (15.3
    )
    
    
    (4.0
    )Unamortized transitional obligation
    
    
    7.6
    
    
    
    
    
    
    
    
    
    
    
    Accrued post-retirement/post-employment benefits
    
    $
    (12.1
    )
    
    $
    (20.0
    )
    
    $
    (175.5
    )
    
    $
    (162.6
    )Amounts recognized in the Statements of Financial Position consist of:Current and long-term liabilities
    
    $
    (25.4
    )
    
    $
    (36.3
    )
    
    $
    (184.4
    )
    
    $
    (162.6
    )Other assets
    
    
    13.3
    
    
    
    16.3
    
    
    
    8.9
    
    
    
    $
    (12.1
    )
    
    $
    (20.0
    )
    
    $
    (175.5
    )
    
    $
    (162.6
    )


The accumulated benefit obligation for all defined benefit pension plans was
$439.6 and $404.1 at December 31, 2003 and 2002, respectively. The aggregate
projected benefit obligation, accumulated benefit obligation and aggregate fair
value of plan assets for pension plans with accumulated benefit obligations in
excess of plan assets were as follows:

Post-retirement/Pension
    
    Post-employment2003
    
    
    2002
    
    
    2003
    
    
    2002Projected benefit obligation
    
    $
    460.1
    
    
    $
    431.1
    
    
    $
    
    
    
    $
    Accumulated benefit obligation
    
    
    411.4
    
    
    
    386.0
    
    
    
    230.7
    
    
    
    208.3Fair value of plan assets
    
    
    355.0
    
    
    
    289.7
    
    
    
    
    
    
    
    




---



##### 



62
    
    Notes to the Consolidated Financial Statements
    
    
    
    in millions of US Dollars except share and per-share amounts




13. POST-RETIREMENT/POST-EMPLOYMENT BENEFITS
(CONTINUED) Plan Assets Approximate asset allocations, by asset category, of the companys significant
pension plans were as follows at December 31, 2003: Asset Category
    
    
    2003
    
    
    2002Equity securities
    
    
    67
    %
    
    
    61
    %Debt securities
    
    
    32
    %
    
    
    38
    %Other
    
    
    1
    %
    
    
    1
    %Total
    
    
    100
    %
    
    
    100
    %
 The company employs a total return investment approach whereby a mix of
equities and fixed income investments is used to maximize the long-term return
of plan assets for a prudent level of risk. Risk tolerance is established
through careful consideration of plan liabilities, plan funded status and
corporate financial condition. The investment portfolio contains a diversified
blend of equity and fixed income investments. Furthermore, equity investments are diversified across US and non-US stocks, as
well as growth, value, and small and large capitalizations. US equities also
are diversified across actively managed and passively invested portfolios. The
company has a small allocation to an equity real estate fund that is in
liquidation. Other assets such as private equity and hedge funds are not used
at this time. Derivatives may be used to gain market exposure in an efficient
and timely manner; however, derivatives may not be used to leverage the
portfolio beyond the market value of the underlying investments. Investment
risk is measured and monitored on an ongoing basis through quarterly investment
portfolio reviews, annual liability measurements and periodic asset/liability
studies. Approximately $21.4 is expected to be contributed by the company to the pension
plans during 2004. 14. ENVIRONMENTAL COSTS The major categories of environmental expenditures include reclamation and
restoration costs at the companys mining operations (most particularly
phosphate mining), including management of mining byproducts such as gypsum and
various mine tailings, the cost of regulatory compliance and environmental
management related to ongoing operations other than mining, and costs related
to site assessment and remediation of environmental contamination related to
the activities of the company and its predecessors, including waste disposal
practices and ownership and operation of real property and facilities. Reclamation and Restoration Costs Site restoration and reclamation costs have been accrued for various sites. At
December 31, 2003, the company had accrued the following amounts for site
reclamation and restoration: $26.1 (2002
 26.1) for the Aurora facility, $52.3 (2002  51.0) for the White Springs
facility and $4.4 (2002  3.9) for the Cassidy Lake facility. The current
portion of restoration and reclamation costs accrued in 2003 totalled $3.5
(2002  3.0). These amounts represent the companys current estimate of
potential site restoration and reclamation costs. The expenditures are
generally incurred over an extended period of time. During the year, the
company incurred $0.7 (2002  $NIL) in capital expenditures relating to
reclamation and restoration activities.


Annual environmental expenditures for reclamation and restoration during
the years ended December 31, 2003, 2002 and 2001 were $14.4, $13.8 and $19.2,
respectively. Gypsum Stack Costs Production of phosphoric acid also produces gypsum, which is normally placed in
above-ground storage areas called gypsum stacks. In Florida, regulations
require companies to cap the gypsum stacks in order to reduce seepage into
groundwater when such stacks reach their design capacity, which exceeds the
projected operating life of the facility, or if groundwater standards are not
being met. The company expects to be allowed to continue using the three gypsum
stacks at the White Springs facility for their remaining useful lives. The
company also has gypsum stacks at the Aurora facility in North Carolina and the
Geismar facility in Louisiana. In North Carolina, on exhaustion of the mines
phosphate reserves, disposition of the remaining gypsum must comply with the
laws in effect at that time. The inactive portions of the gypsum stacks at the
Geismar facility are capped and have water management systems in place. At December 31, 2003, $33.3 (2002  $33.3) of the above-described accrued
reclamation costs relates to the gypsum stack capping, closure and post-closure
operating and maintenance requirements applicable to the White Springs facility
under Florida law, and $21.1 (2002  $21.1) of the amount accrued is applicable
to the North Carolina facility. The amounts pertaining to Louisiana are not
material. Site Assessment and Remediation Costs The company has accrued assessment costs, including legal and consulting fees,
and remediation costs related to the clean-up of contaminated sites currently
or formerly associated with the company or its predecessors business in the
amount of $14.9 (2002  $15.3) for certain PCS Joint Venture facilities, $0.3
(2002  $0.3) for various sulfur facilities and $2.0 (2002  $2.0) for the
phosphate business. The current portion of these costs totalled $15.2 (2002 
$15.6). Environmental Operating Costs and Capital Expenditures The companys operating expenses, other than reclamation and restoration and
gypsum stack capping, relating to compliance with environmental laws and
regulations governing ongoing operations were approximately $59.0 (2002 
$52.7; 2001  $49.2). These amounts include environmental operating expenses
related to the production of phosphoric acid, fertilizer, feed and other
products. The company
routinely undertakes environmental capital projects. In 2003, capital expenditures of $12.1 (2002  $15.0) were incurred to meet
pollution prevention and control objectives and $0.3 (2002  $0.5) to meet
other environmental objectives. 15. SHARE CAPITAL Authorized: The company is authorized to issue an unlimited number of common shares without
par value and an unlimited number of first preferred shares. The first
preferred shares may be issued in one or more series with rights and conditions
to be determined by the Board of Directors.




---



##### 



PotashCorp 2003 Annual Report   63



15. SHARE CAPITAL (CONTINUED) Issued:
    
    2003
    
    
    2002
    
    
    2001Consideration
    
    
    Consideration
    
    
    ConsiderationIssued, beginning of year
    
    $
    1,186.9
    
    
    $
    1,182.5
    
    
    $
    1,177.4Shares issued under option
    
    
    58.7
    
    
    
    4.3
    
    
    
    4.9Shares issued for dividend
reinvestment plan
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.2Issued, end of year
    
    $
    1,245.8
    
    
    $
    1,186.9
    
    
    $
    1,182.5
 Issued:
    
    2003
    
    
    2002
    
    
    2001Number of
    
    
    Number of
    
    
    Number ofCommon Shares
    
    
    Common Shares
    
    
    Common SharesIssued, beginning of year
    
    
    52,077,648
    
    
    
    51,952,482
    
    
    
    51,840,572Shares issued under option
    
    
    1,030,850
    
    
    
    121,900
    
    
    
    108,400Shares issued for dividend
reinvestment plan
    
    
    3,718
    
    
    
    3,266
    
    
    
    3,510Issued, end of year
    
    
    53,112,216
    
    
    
    52,077,648
    
    
    
    51,952,482


16. CONTRIBUTED SURPLUS 2003
    
    
    2002Balance, beginning of year
    
    $
    264.2
    
    
    $
    264.2Compensation expense relating
to stock option awards
    
    
    1.0
    
    
    
    Balance, end of year
    
    $
    265.2
    
    
    $
    264.2


17. SEGMENT INFORMATION

The company has three reportable business segments: potash, phosphate and
nitrogen. All three segments produce fertilizers for sale to agricultural
customers. In addition, in 2003, approximately 55 percent of nitrogen net sales
and 46 percent of phosphate net sales were from feed and industrial products.
These business segments are differentiated by the chemical nutrient contained
in the product that each produces. Inter-segment net sales are made under terms
that approximate market value.

2003Potash
    
    
    Phosphate
    
    
    Nitrogen
    
    
    All others
    
    
    ConsolidatedNet sales  third party
    
    $
    619.1
    
    
    $
    781.9
    
    
    $
    1,064.8
    
    
    $
    
    
    
    $
    2,465.8Inter-segment net sales
    
    
    6.0
    
    
    
    9.4
    
    
    
    67.8
    
    
    
    
    
    
    
    Gross margin
    
    
    203.7
    
    
    
    (16.5
    )
    
    
    193.2
    
    
    
    
    
    
    
    380.4Depreciation and amortization
    
    
    52.4
    
    
    
    75.7
    
    
    
    89.6
    
    
    
    9.7
    
    
    
    227.4Provision for plant shutdowns
    
    
    
    
    
    
    4.9
    
    
    
    118.8
    
    
    
    
    
    
    
    123.7Provision for PCS Yumbes
    
    
    140.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    140.5Investments, at equity
    
    
    181.5
    
    
    
    
    
    
    
    17.0
    
    
    
    164.7
    
    
    
    363.2Goodwill
    
    
    
    
    
    
    
    
    
    
    96.6
    
    
    
    0.4
    
    
    
    97.0Assets
    
    
    1,240.1
    
    
    
    1,541.3
    
    
    
    1,479.1
    
    
    
    306.8
    
    
    
    4,567.3Expenditures for segment capital assets
    
    
    50.9
    
    
    
    51.0
    
    
    
    44.1
    
    
    
    4.7
    
    
    
    150.7


2002Potash
    
    
    Phosphate
    
    
    Nitrogen
    
    
    All others
    
    
    ConsolidatedNet sales  third party
    
    $
    544.5
    
    
    $
    636.8
    
    
    $
    747.4
    
    
    $
    
    
    
    $
    1,928.7Inter-segment net sales
    
    
    6.4
    
    
    
    6.4
    
    
    
    24.6
    
    
    
    
    
    
    
    Gross margin
    
    
    218.0
    
    
    
    41.9
    
    
    
    47.4
    
    
    
    
    
    
    
    307.3Depreciation and amortization
    
    
    46.3
    
    
    
    76.8
    
    
    
    88.0
    
    
    
    8.0
    
    
    
    219.1Investments, at equity
    
    
    
    
    
    
    
    
    
    
    17.5
    
    
    
    158.9
    
    
    
    176.4Goodwill
    
    
    
    
    
    
    
    
    
    
    96.6
    
    
    
    0.4
    
    
    
    97.0Assets
    
    
    1,198.4
    
    
    
    1,577.0
    
    
    
    1,602.4
    
    
    
    307.8
    
    
    
    4,685.6Expenditures for segment capital assets
    
    
    35.5
    
    
    
    126.3
    
    
    
    47.0
    
    
    
    3.4
    
    
    
    212.2


2001Potash
    
    
    Phosphate
    
    
    Nitrogen
    
    
    All others
    
    
    ConsolidatedNet sales  third party
    
    $
    531.8
    
    
    $
    653.6
    
    
    $
    895.4
    
    
    $
    
    
    
    $
    2,080.8Inter-segment net sales
    
    
    7.1
    
    
    
    6.0
    
    
    
    37.6
    
    
    
    
    
    
    
    Gross margin
    
    
    248.1
    
    
    
    64.5
    
    
    
    94.7
    
    
    
    
    
    
    
    407.3Depreciation and amortization
    
    
    34.1
    
    
    
    72.0
    
    
    
    72.8
    
    
    
    6.8
    
    
    
    185.7Investments, at equity
    
    
    
    
    
    
    
    
    
    
    17.8
    
    
    
    
    
    
    
    17.8Goodwill
    
    
    
    
    
    
    
    
    
    
    96.6
    
    
    
    0.4
    
    
    
    97.0Assets
    
    
    1,203.3
    
    
    
    1,471.2
    
    
    
    1,640.0
    
    
    
    282.8
    
    
    
    4,597.3Expenditures for segment capital assets
    
    
    34.7
    
    
    
    61.1
    
    
    
    413.8
    
    
    
    4.1
    
    
    
    513.7




---



##### 



64
    
    Notes to the Consolidated Financial Statements
    
    
    
    in millions of US Dollars except share and per-share amounts


17. SEGMENT INFORMATION (CONTINUED)

Financial information by geographic area is summarized in the following table:

Country of OriginCanada
    
    
    United States
    
    
    Trinidad
    
    
    Other
    
    
    Consolidated2003Net sales to customers outside the companyCanada
    
    $
    36.1
    
    
    $
    79.6
    
    
    $
    
    
    
    $
    
    
    
    $
    115.7United States
    
    
    205.1
    
    
    
    1,272.6
    
    
    
    314.7
    
    
    
    8.8
    
    
    
    1,801.2PhosChem
    
    
    
    
    
    
    80.8
    
    
    
    
    
    
    
    
    
    
    
    80.8Canpotex
    
    
    260.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    260.6Other
    
    
    75.6
    
    
    
    42.3
    
    
    
    45.8
    
    
    
    43.8
    
    
    
    207.5$
    577.4
    
    
    $
    1,475.3
    
    
    $
    360.5
    
    
    $
    52.6
    
    
    $
    2,465.8Operating income (loss)
    
    $
    97.8
    
    
    $
    (82.7
    )
    
    $
    91.4
    
    
    $
    (162.1
    )
    
    $
    (55.6
    )Capital assets and goodwill
    
    $
    786.2
    
    
    $
    1,745.6
    
    
    $
    604.7
    
    
    $
    68.6
    
    
    $
    3,205.12002Net sales to customers outside the companyCanada
    
    $
    23.7
    
    
    $
    70.1
    
    
    $
    
    
    
    $
    
    
    
    $
    93.8United States
    
    
    200.2
    
    
    
    995.9
    
    
    
    175.3
    
    
    
    6.0
    
    
    
    1,377.4PhosChem
    
    
    
    
    
    
    34.4
    
    
    
    
    
    
    
    
    
    
    
    34.4Canpotex
    
    
    241.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    241.2Other
    
    
    59.5
    
    
    
    52.0
    
    
    
    43.9
    
    
    
    26.5
    
    
    
    181.9$
    524.6
    
    
    $
    1,152.4
    
    
    $
    219.2
    
    
    $
    32.5
    
    
    $
    1,928.7Operating income (loss)
    
    $
    145.6
    
    
    $
    17.8
    
    
    $
    20.5
    
    
    $
    (17.0
    )
    
    $
    166.9Capital assets and goodwill
    
    $
    778.0
    
    
    $
    1,875.3
    
    
    $
    627.9
    
    
    $
    85.7
    
    
    $
    3,366.92001Net sales to customers outside the companyCanada
    
    $
    24.0
    
    
    $
    62.8
    
    
    $
    
    
    
    $
    
    
    
    $
    86.8United States
    
    
    212.7
    
    
    
    1,075.9
    
    
    
    239.3
    
    
    
    
    
    
    
    1,527.9PhosChem
    
    
    
    
    
    
    65.3
    
    
    
    
    
    
    
    
    
    
    
    65.3Canpotex
    
    
    237.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    237.6Other
    
    
    55.7
    
    
    
    60.0
    
    
    
    33.8
    
    
    
    13.7
    
    
    
    163.2$
    530.0
    
    
    $
    1,264.0
    
    
    $
    273.1
    
    
    $
    13.7
    
    
    $
    2,080.8Operating income
    
    $
    175.4
    
    
    $
    34.0
    
    
    $
    59.8
    
    
    $
    0.5
    
    
    $
    269.7Capital assets and goodwill
    
    $
    783.4
    
    
    $
    1,823.1
    
    
    $
    652.2
    
    
    $
    83.9
    
    
    $
    3,342.6




18. COST OF GOODS SOLD The primary components of cost of goods sold are labor, employee benefits,
services, raw materials (including inbound freight and purchasing and receiving
costs), operating supplies, energy costs, property and miscellaneous taxes, and
depreciation and amortization. 19. SELLING AND ADMINISTRATIVE The primary components of selling and administrative are compensation, employee
benefits, supplies, communications, travel, professional services and
depreciation and amortization. 20. PROVINCIAL MINING AND OTHER TAXES Provincial mining and other taxes consist of: 2003
    
    
    2002
    
    
    2001Potash Production Tax
    
    $
    35.8
    
    
    $
    47.7
    
    
    $
    47.9Saskatchewan corporate
capital taxes and other
    
    
    21.2
    
    
    
    20.3
    
    
    
    22.1$
    57.0
    
    
    $
    68.0
    
    
    $
    70.0


21. PROVISION FOR PLANT SHUTDOWNS Memphis and Geismar Nitrogen Operations In June 2003, the company indefinitely shut down its Memphis, Tennessee plant
and suspended production of ammonia and nitrogen solutions at its Geismar,
Louisiana facilities due to high US natural gas costs and low product margins.
In August 2003, company management determined that there were no immediate
intentions of restarting the unprofitable plants. The company determined that all employee positions pertaining to the affected
operations would be eliminated and recorded $4.8 in connection with costs of
special termination benefits. The number of employees terminated as a result of
the shutdowns was 187, of whom 184 left the company as of December 31, 2003.
The company has made payments relating to the terminations totalling $2.7. All
workforce reduction costs pertaining to the 187 employees are expected to be
paid by December 31, 2004. In connection with the shutdowns, management conducted an assessment of the
recoverability of the long-lived assets in its nitrogen operations. As a result
of its review, management determined that the carrying amounts of the
long-lived assets at the Memphis and




---



##### 



PotashCorp 2003 Annual Report   65



21. PROVISION FOR PLANT SHUTDOWNS (CONTINUED) Geismar nitrogen facilities were not fully recoverable, and an impairment loss
of $101.6, equal to the amount by which the carrying amount of the facilities
asset groups exceeded their respective fair values, should be recognized. Of
the total impairment charge, $100.6 related to property, plant and equipment
and $1.0 related to other assets. For purposes of the impairment measurement,
fair value was determined based on the present value of expected future net
cash flows. As part of its review, management also determined that a writedown of certain
parts inventories at these plants in the amount of $12.4 was required. In addition to the costs described above, management expects to incur other
shutdown-related costs of approximately $11.1 and nominal annual expenditures
for site security and other maintenance costs. These amounts have not been
recorded in the consolidated financial statements as of December 31, 2003. Such
costs will be recognized and recorded in the period in which they are incurred. Kinston Phosphate Feed Plant The phosphate feed plant at Kinston, North Carolina ceased operations in the
first quarter of 2003. In that quarter, the company recorded $0.6 for costs of
special termination benefits for Kinston employees, $0.3 for parts inventory
writedowns and $1.3 for long-lived asset impairment charges. In lieu of full
plant closure, the company operated the facility as a warehouse. In the third
quarter of 2003, company management determined that the cost of operating
Kinston as a stand-alone warehouse was uneconomical. This decision triggered a
further review by management of the carrying amounts of


the plants long-lived assets. As a result of this review, management determined that the carrying
amounts of such assets were not recoverable, and an additional impairment
charge of $2.7, equal to the amount by which the carrying amount of the plants
long-lived assets exceeded their fair value, should be recognized. For purposes
of the impairment measurement, fair value was determined based on the present
value of expected future net cash flows. The following table summarizes, by reportable segment, the total amount of
costs incurred to date and the total costs expected to be incurred in
connection with the plant shutdowns described above: Costs
    
    Total CostsIncurred
    
    Expected toYear-to-Date
    
    be IncurredNitrogen SegmentEmployee termination and
related benefits
    
    $
    4.8
    
    
    $
    4.8Writedown of parts inventory
    
    
    12.4
    
    
    
    12.4Asset impairment charges
    
    
    101.6
    
    
    
    101.6Other related exit costs
    
    
    
    
    
    
    11.1118.8
    
    
    
    129.9Phosphate SegmentEmployee termination and
related benefits
    
    
    0.6
    
    
    
    0.6Writedown of parts inventory
    
    
    0.3
    
    
    
    0.3Asset impairment charges
    
    
    4.0
    
    
    
    4.04.9
    
    
    
    4.9$
    123.7
    
    
    $
    134.8


The following table summarizes, by reportable segment, the costs accrued as of
December 31, 2003 in connection with the plant shutdowns described above:

Costs Incurred
    
    Cash
    
    Non-cash
    
    Accrued BalanceYear-to-Date
    
    Payments
    
    Settlements
    
    at December 31Nitrogen SegmentEmployee termination and related benefits
    
    $
    4.8
    
    
    $
    (2.7
    )
    
    $
    
    
    
    $
    2.1Writedown of parts inventory
    
    
    12.4
    
    
    
    
    
    
    
    (12.4
    )
    
    
    Asset impairment charges
    
    
    101.6
    
    
    
    
    
    
    
    (101.6
    )
    
    
    118.8
    
    
    
    (2.7
    )
    
    
    (114.0
    )
    
    
    2.1Phosphate SegmentEmployee termination and related benefits
    
    
    0.6
    
    
    
    (0.1
    )
    
    
    
    
    
    
    0.5Writedown of parts inventory
    
    
    0.3
    
    
    
    
    
    
    
    (0.3
    )
    
    
    Asset impairment charges
    
    
    4.0
    
    
    
    
    
    
    
    (4.0
    )
    
    
    4.9
    
    
    
    (0.1
    )
    
    
    (4.3
    )
    
    
    0.5$
    123.7
    
    
    $
    (2.8
    )
    
    $
    (118.3
    )
    
    $
    2.6


22. PROVISION FOR PCS YUMBES S.C.M.

On August 27, 2003, the company provided to SQM an irrevocable option to
acquire PotashCorps interest in PCS Yumbes. Acquired in 1999, PCS Yumbes holds
mining concessions on certain sodium nitrate deposits in the Atacama Desert in
northern Chile and is a producer of potassium nitrate, sodium nitrate and
iodine. The option was exercised on November 20, 2003, at which time the
parties entered into a share purchase agreement under which SQM is to acquire
the shares of PCS Yumbes for an aggregate purchase price of $35.0 (including
the price of the option), subject to adjustments.

Under the terms of the share purchase agreement, and prior to the sale closing,
PCS Yumbes will continue to operate the facility and expeditiously liquidate
the inventory of nitrates. All other working capital is to be fully realized or
discharged (as applicable) by the company prior to closing, which will occur no
later than the end of 2004.

Upon entering the option agreement, management commenced an assessment of the
recoverability of the long-lived assets of the PCS Yumbes operations. As a
result of its review, management determined that the carrying amounts of PCS
Yumbes long-lived assets were not recoverable



---



##### 



66
    
    Notes to the Consolidated Financial Statements
    
    
    
    in millions of US Dollars except share and per-share amounts


22. PROVISION FOR PCS YUMBES S.C.M. (CONTINUED)

and recorded an impairment charge of $77.4, equal to the amount by which the
carrying amount of the asset group exceeded fair value. Of the total impairment
charge, $13.0 related to property, plant and equipment, $63.9 related to
deferred preproduction costs and $0.5 related to deferred acquisition costs.
For purposes of the impairment measurement, fair value was determined in
reference to the commercial agreement described above.

As part of this review, management also determined that a reduction in the
carrying amount of certain non-parts inventory equal to $50.2 was required, due
to the need to liquidate all inventories that would not be transferred to SQM
under the agreement.

The company has determined that all employee positions at PCS Yumbes will be
eliminated by December 31, 2004. Accordingly, the company has recorded a
provision of $1.8 pertaining to contractual termination benefits to be paid,
primarily under Chilean law. As of December 31, 2003, approximately 111 of the
employees had left the company, and the company had made contractual payments
relating to these terminations totalling $0.6. The remaining 113 employees are
expected to leave the company by December 31, 2004, and all remaining workforce
reduction costs are expected to be paid by that date.

In September 2003, the company incurred early termination penalties in respect
of certain PCS Yumbes contractual arrangements. The company recorded a
provision of $11.1 in respect of these contract termination costs and $0.6
remained to be paid by December 31, 2003. The following table summarizes the
total amount of costs incurred to date, and the total costs expected to be
incurred in connection with PCS Yumbes as described above:

Costs
    
    Total CostsIncurred
    
    Expected toYear-to-Date
    
    be IncurredPotash SegmentContract termination costs
    
    $
    11.1
    
    
    $
    11.1Employee termination and related benefits
    
    
    1.8
    
    
    
    1.8Writedown of non-parts inventory
    
    
    50.2
    
    
    
    50.2Asset impairment charges
    
    
    77.4
    
    
    
    77.4$
    140.5
    
    
    $
    140.5


The following table summarizes the costs accrued as of December 31, 2003 in connection with PCS Yumbes as described above:

Costs Incurred
    
    Cash
    
    Non-cash
    
    
    
    
    
    Accrued BalanceYear-to-Date
    
    Payments
    
    Settlements
    
    Adjustments
    
    at December 31Potash SegmentContract termination costs
    
    $
    11.1
    
    
    $
    (8.8
    )
    
    $
    
    
    
    $
    (1.7
    )
    
    
    $0.6Employee termination and related benefits
    
    
    1.8
    
    
    
    (0.6
    )
    
    
    
    
    
    
    
    
    
    
    1.2Writedown of non-parts inventory
    
    
    50.2
    
    
    
    
    
    
    
    (50.2
    )
    
    
    
    
    
    
    Asset impairment charges
    
    
    77.4
    
    
    
    
    
    
    
    (77.4
    )
    
    
    
    
    
    
    $
    140.5
    
    
    $
    (9.4
    )
    
    $
    (127.6
    )
    
    $
    (1.7
    )
    
    
    $1.8


23. INTEREST EXPENSE

2003
    
    
    2002
    
    
    2001Interest onShort-term debt
    
    $
    3.6
    
    
    $
    8.0
    
    
    $
    21.9Long-term debt
    
    
    87.7
    
    
    
    75.1
    
    
    
    58.4$
    91.3
    
    
    $
    83.1
    
    
    $
    80.3




---



##### 



PotashCorp 2003 Annual Report   67



24.
    
    INCOME TAXES As the company operates in a specialized
industry and in several tax jurisdictions, its
income is subject to various rates of
taxation. The provision for income taxes
differs from the amount that would have
resulted from applying the Canadian statutory
income tax rates to (loss) income before
income taxes as follows: 2003
    
    
    2002
    
    
    2001(Loss) income before income taxesCanada
    
    $
    16.3
    
    
    $
    56.8
    
    
    $
    96.8United States
    
    
    (86.3
    )
    
    
    21.5
    
    
    
    32.1Trinidad
    
    
    80.6
    
    
    
    20.5
    
    
    
    59.8Other
    
    
    (157.5
    )
    
    
    (15.0
    )
    
    
    0.7$
    (146.9
    )
    
    $
    83.8
    
    
    $
    189.4Federal and provincial
statutory tax rates
    
    
    44.36
    %
    
    
    46.12
    %
    
    
    46.12
    %Tax at statutory rates
    
    $
    (65.2
    )
    
    $
    38.7
    
    
    $
    87.3Adjusted for the effect of:Writedown of PCS Yumbes
    
    
    50.8
    
    
    
    
    
    
    
    Net non-deductible provincial
taxes and royalties and
resource allowances
    
    
    7.5
    
    
    
    10.2
    
    
    
    12.7Additional tax deductions
    
    
    (11.8
    )
    
    
    (18.6
    )
    
    
    (33.7
    )Difference between Canadian
rate and rates applicable to
subsidiaries in other countries
    
    
    4.4
    
    
    
    0.8
    
    
    
    (1.6
    )Other
    
    
    (6.3
    )
    
    
    (0.9
    )
    
    
    3.5Income tax (recovery) expense
    
    $
    (20.6
    )
    
    $
    30.2
    
    
    $
    68.2
 Details of income tax (recovery) expense are as follows: 2003
    
    
    2002
    
    
    2001CanadaCurrent
    
    $
    14.9
    
    
    $
    46.2
    
    
    $
    19.2Future
    
    
    20.6
    
    
    
    (10.1
    )
    
    
    19.9United
States  FederalCurrent
    
    
    (16.4
    )
    
    
    (27.5
    )
    
    
    (1.2
    )Future
    
    
    (40.7
    )
    
    
    19.2
    
    
    
    16.7United
States  StateCurrent
    
    
    (0.6
    )
    
    
    1.6
    
    
    
    0.2Future
    
    
    (8.5
    )
    
    
    (1.5
    )
    
    
    2.9Trinidad and otherCurrent
    
    
    2.1
    
    
    
    3.9
    
    
    
    2.3Future
    
    
    8.0
    
    
    
    (1.6
    )
    
    
    8.2Income tax (recovery) expense
    
    $
    (20.6
    )
    
    $
    30.2
    
    
    $
    68.2
 The tax effects of temporary differences that give rise to significant portions of the net future income tax liability are: 2003
    
    
    2002Future income tax assets:Loss and credit carryforwards
    
    $
    271.3
    
    
    $
    273.8Post-retirement/post-employment benefits
    
    
    55.2
    
    
    
    61.4Accrued reclamation costs
    
    
    4.0
    
    
    
    15.6Other
    
    
    29.5
    
    
    
    2.1Total future income tax assets
    
    
    360.0
    
    
    
    352.9Future income tax liabilities:Basis difference in fixed assets
    
    
    806.1
    
    
    
    799.2Other
    
    
    38.1
    
    
    
    22.6Total future income tax liabilities
    
    
    844.2
    
    
    
    821.8Net future income tax liability
    
    $
    484.2
    
    
    $
    468.9


At December 31, 2003, the company has income
tax losses carried forward of approximately
$636.0 which will begin to expire in 2010. In
addition, the company has alternative minimum
tax credits of approximately $0.4 which carry
forward indefinitely. The benefit relating to
these amounts has been recognized by reducing
future income tax liabilities.  25.
    
    NET (LOSS) INCOME PER SHARE 2003
    
    
    2002
    
    
    2001Basic net (loss) income per shareNet (loss) income available
to common shareholders
    
    $
    (126.3
    )
    
    $
    53.6
    
    
    $
    121.2Weighted average number
of common shares
    
    
    52,230,000
    
    
    
    52,021,000
    
    
    
    51,879,000Basic net (loss) income
per share
    
    $
    (2.42
    )
    
    $
    1.03
    
    
    $
    2.34Diluted net (loss) income per shareNet (loss) income available
to common shareholders
    
    $
    (126.3
    )
    
    $
    53.6
    
    
    $
    121.2Weighted average number
of common shares
    
    
    52,230,000
    
    
    
    52,021,000
    
    
    
    51,879,000Dilutive effect of
stock options
    
    
    
    
    
    
    295,000
    
    
    
    307,000Weighted average number
of diluted common shares
    
    
    52,230,000
    
    
    
    52,316,000
    
    
    
    52,186,000Diluted net (loss) income
per share
    
    $
    (2.42
    )
    
    $
    1.03
    
    
    $
    2.32
 Diluted net (loss) income per share is
calculated based on the weighted average
number of shares issued and outstanding during
the year, adjusted by the total of the
additional common shares that would have been
issued assuming exercise of all stock options
with exercise prices at or below the average
market price for the year. For years in which
there was a loss applicable to common shares,
stock options with exercise prices at or below
the average market price for the year were
excluded from the calculations of diluted net
loss per share, as inclusion of these
securities would have been anti-dilutive to
the net loss per share. Excluded from the calculation of diluted net
(loss) income per share were average options
outstanding of 2,239,861 (2002  4,230,525;
2001  4,281,825) as the options exercise
price was greater than the average market
price of the common shares for the year.  26.
    
    STOCK-BASED COMPENSATION The company has four stock-based compensation
plans, which are described below. The company
accounts for its grants under those
plans in accordance with the fair value based
method of accounting for stock-based
compensation. The compensation cost that has
been charged against income for those plans was
$6.6 (2002  $5.7; 2001  $5.3). Stock Option Plans The company has two option plans. Under the
Officers and Employees Plan, the company may,
after February 3, 1998, issue up to 6,926,125
common shares pursuant to the exercise of
options. Under the Directors Plan, the company
may, after January 24, 1995, issue up to
456,000 common shares pursuant to the exercise
of options.




---



##### 



68
    
    Notes to the Consolidated Financial Statements
    
    
    
    in millions of US Dollars except share and per-share amounts




26.  STOCK-BASED COMPENSATION (CONTINUED) Under both plans, the exercise price is the
quoted market closing price of the companys
common shares on the last trading day
immediately preceding the date of the grant,
and an options maximum term is 10 years. All
options granted to date have provided that
one-half of the options granted in a year will
vest one year from the date of the grant, with
the other half of the options vesting the
following year. A summary of the status of the plans as of
December 31, 2003, 2002 and 2001 and changes
during the years ending on those dates is
presented as follows:


Number of Shares Subject to Option 2003
    
    
    2002
    
    
    2001Outstanding, beginning of year
    
    
    5,819,375
    
    
    
    5,044,275
    
    
    
    4,236,275Granted
    
    
    699,536
    
    
    
    907,600
    
    
    
    922,200Exercised
    
    
    (1,030,850
    )
    
    
    (121,900
    )
    
    
    (108,400
    )Cancelled
    
    
    (50,050
    )
    
    
    (10,600
    )
    
    
    (5,800
    )Outstanding, end of year
    
    
    5,438,011
    
    
    
    5,819,375
    
    
    
    5,044,275
 Weighted Average Exercise Price 2003
    
    
    2002
    
    
    2001Outstanding, beginning of year
    
    $
    65.98
    
    
    $
    65.21
    
    
    $
    65.04Granted
    
    
    79.00
    
    
    
    66.50
    
    
    
    62.81Exercised
    
    
    56.56
    
    
    
    34.93
    
    
    
    44.77Cancelled
    
    
    70.82
    
    
    
    78.40
    
    
    
    60.59Outstanding, end of year
    
    
    69.40
    
    
    
    65.98
    
    
    
    65.21
 The weighted average grant-date fair value of
options granted during the year was $15.7
(2002  $20.1; 2001  $19.1).


The following table summarizes information about stock options outstanding at December 31, 2003:

Options Outstanding
    
    Options ExercisableRange of Exercise
    
    Number
    
    Weighted Average
    
    Weighted Average
    
    
    
    
    
    Weighted AveragePrices
    
    Outstanding
    
    Remaining Life
    
    Exercise Price
    
    Number
    
    Exercise Price$32.25
    
    
    73,000
    
    
    
    1 year
    
    
    
    $32.25
    
    
    
    73,000
    
    
    
    $32.25$43.69
    
    
    251,150
    
    
    
    6 years
    
    
    
    43.69
    
    
    
    251,150
    
    
    
    43.69$61.27
    
    
    591,400
    
    
    
    7 years
    
    
    
    61.27
    
    
    
    591,400
    
    
    
    61.27$58.08 to $65.38
    
    
    739,900
    
    
    
    8 years
    
    
    
    62.79
    
    
    
    739,900
    
    
    
    62.79$66.50
    
    
    862,450
    
    
    
    9 years
    
    
    
    66.50
    
    
    
    408,650
    
    
    
    66.50$67.88
    
    
    680,250
    
    
    
    5 years
    
    
    
    67.88
    
    
    
    680,250
    
    
    
    67.88$70.38 to $74.75
    
    
    756,825
    
    
    
    2.5 years
    
    
    
    72.47
    
    
    
    756,825
    
    
    
    72.47$79.00
    
    
    699,536
    
    
    
    10 years
    
    
    
    79.00
    
    
    
    
    
    
    
    $81.75 to $86.75
    
    
    783,500
    
    
    
    4 years
    
    
    
    86.45
    
    
    
    783,500
    
    
    
    86.455,438,011
    
    
    
    6.4 years
    
    
    
    $69.40
    
    
    
    4,284,675
    
    
    
    $68.14


The foregoing options have expiry dates ranging from November 10, 2004 to
November 20, 2013.

Prior to 2003, the company applied the intrinsic value based method of
accounting for the plans. No stock-based employee compensation cost is
reflected in 2002 or 2001 net income, as all options granted under the plans
had an exercise price equal to the market value of the underlying common stock
on the date of grant. As described in Note 3, effective December 15, 2003, the
company adopted the fair value based method of accounting for stock options
prospectively to all employee awards granted, modified or settled after January
1, 2003. Since the companys stock option awards vest over two years, the compensation cost
included in the determination of net loss for 2003 is less than that which
would have been recognized if the fair value based method had been applied to
all awards since the original effective date of CICA Section 3870. The
following table illustrates the effect on net (loss) income and the related
per-share amount if the fair value based method had been applied to all
outstanding and unvested awards in each period.

2003
    
    
    2002
    
    
    2001Net (loss) income  as reported
    $
    (126.3
    )
    
    $
    53.6
    
    
    $
    121.2Add:
    
    Stock-based employee compensation expense included in reported net loss, net of related tax effects
    
    0.8
    
    
    
    
    
    
    
    Deduct:
    
    Total stock-based employee compensation expense determined under fair value
based method for all awards, net of related tax effects
    
    (14.8
    )
    
    
    (14.3
    )
    
    
    (13.6
    )Net (loss) income  pro forma(1)
    $
    (140.3
    )
    
    $
    39.3
    
    
    $
    107.6


|(1) |  | Compensation expense under the fair value based method is recognized over
the vesting period of the related stock options. Accordingly, the pro forma
results of applying this method may not be indicative of future results.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---



##### 



PotashCorp
2003 Annual Report   69

26.  STOCK-BASED COMPENSATION (CONTINUED)

2003
    
    
    2002
    
    
    2001Basic net (loss) income per shareAs reported
    
    $
    (2.42
    )
    
    $
    1.03
    
    
    $
    2.34Pro forma
    
    
    (2.69
    )
    
    
    0.76
    
    
    
    2.07Diluted net (loss) income per shareAs reported
    
    $
    (2.42
    )
    
    $
    1.03
    
    
    $
    2.32Pro forma
    
    
    (2.69
    )
    
    
    0.75
    
    
    
    2.06




In calculating the foregoing pro forma
amounts, the fair value of each option grant
was estimated as of the date of grant using
the modified Black-Scholes option-pricing
model with the following weighted-average
assumptions: 2003
    
    2002
    
    2001Expected dividend
    
    $
    1.00
    
    $
    1.00
    
    $
    1.00Expected volatility
    
    
    27
    %
    
    
    32
    %
    
    
    32
    %Risk-free interest rate
    
    
    4.06
    %
    
    
    4.13
    %
    
    
    4.54
    %Expected life of option
    
    8 years
    
    8 years
    
    8 yearsExpected forfeitures
    
    
    16
    %
    
    
    10
    %
    
    
    10
    %
 Deferred Share Unit and Other Plans The company offers a deferred share unit plan
to non-employee directors, which entitles
non-employee directors to receive
discretionary grants of deferred share units
(DSUs), each of which has a value equal to the
market value of a common share at the time of
its grant. The plan also allows each director
to choose to receive, in the form of DSUs, all
or a percentage of the directors fee, which
would otherwise be payable in cash. Each DSU
fully vests upon award, but is distributed
only when the director has ceased to be a
member of the Board of Directors of the
company. Vested units are settled in cash
based on the common share price when
conversion takes place. As of December 31,
2003, the total DSUs held by participating
directors was 16,085 (2002  10,263; 2001 
4,768). The company offers a long-term
incentive plan to senior executives and other
key employees. The performance objectives
under the plan are designed to further align
the interests of executives and key employees
with those of shareholders by linking the
vesting of awards to the total return to
shareholders of the three-year performance
period ending December 31, 2005. Total
shareholder return measures the capital
appreciation in the companys common shares,
including dividends paid over the performance
period. Vesting of one-half of the awards is
based on increases in the total shareholder
return over the three-year performance period.
Vesting of the remaining one-half of the
awards is based on the extent to which the
total shareholder return matches or exceeds
the total shareholder return of the common
shares of a pre-defined peer group. Vested
units are settled in cash based on the common
share price generally at the end of the
performance period. 27.  FINANCIAL INSTRUMENTS AND RISK MANAGEMENT The company uses financial instruments,
including forward exchange contracts, futures,
swaps and option agreements, to
manage foreign exchange and commodity price
risk. The company does not hold or issue
financial instruments for trading purposes. As at December 31, 2003, the company had
entered into forward exchange contracts to sell
US dollars and receive Canadian dollars in the
notional amount of $46.0 (2002  $28.0) at an
average exchange rate of $1.3315 (2002 
$1.5855). As at December 31, 2003,


the company
had also entered into a forward exchange
contract to sell US dollars and receive euros
in the notional amount of $1.9 (2002  $NIL) at
an exchange rate of $1.1707. The notional
amounts of these derivatives do not represent
assets or liabilities and therefore are not
reflected in the Consolidated Statements of
Financial Position. Expected maturity dates for
all forward contracts are within 2004. The company manages interest rate exposures by
using a diversified portfolio of fixed and
floating rate instruments. The companys
sensitivity to fluctuations in interest rates
is substantially limited to certain of its
cash, short-term investments, short-term debt
and long-term debt. In January and February
2004, the company entered into interest rate
swap contracts that effectively converted a
notional amount of $300.0 of fixed rate debt
into floating rate debt based on LIBOR rates.
The company did not enter into any interest
rate swap contracts in 2003 or 2002. In addition to physical spot and term
purchases, the company at times employs
futures, swaps and option agreements to
establish the cost on a portion of its natural
gas requirements. These instruments are
intended to hedge the future cost of the
committed and anticipated natural gas
purchases for its US nitrogen and phosphate
plants. Under these arrangements, the company
receives or makes payments based on the
differential between a specified price and the
actual spot price of natural gas. The company
has certain available lines of credit which
are utilized to reduce cash margin
requirements to maintain the derivatives. At
December 31, 2003, the company had collected
cash margin requirements of $4.3 (2002  $4.6)
which were included in accounts payable. As at December 31, 2003, the company had
derivatives qualifying for deferral in the form
of futures and swaps. The futures represented a
notional amount of 5.6 MMBtu of natural gas
with maturities in 2004 through 2007. The swaps
represented a notional amount of 53.1 MMBtu
with maturities in 2004 through 2009. As at
December 31, 2003, net losses arising from
settled hedging transactions, which are
included as a component of finished goods
inventory, were $2.7 (2002  $4.0). The company is exposed to credit-related
losses in the event of non-performance by
counterparties to derivative financial
instruments. The company anticipates, however,
that counterparties will be able to fully
satisfy their obligations under the contracts. The major concentration of credit risk arises
from the companys receivables. A majority of
the companys sales are in North America and
are primarily for use in the agricultural
industry. The company seeks to manage the
credit risk relating to these sales through a
credit management program. Internationally,
the companys products are sold primarily
through two export associations whose accounts
receivable are substantially insured or
secured by letters of credit.




---



##### 



70
    
    Notes to the Consolidated Financial Statements
    
    
    
    in millions of US Dollars except share and per-share amounts




27. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED) Fair Value Fair value represents point-in-time estimates that may change in subsequent
reporting periods due to market conditions or other factors. The estimated fair
values disclosed below are designed to approximate amounts at which the
financial instruments could be exchanged in a current transaction between
willing parties. However, some financial instruments lack an available trading
market and therefore certain fair values are based on estimates using net
present value and other valuation techniques, which are significantly affected
by assumptions as to the amount and timing of estimated future cash flows and
discount rates, all of which reflect varying degrees of risk. Potential income
taxes and expenses that would be incurred on disposition of these financial
instruments are not reflected in the fair value estimates, and these estimates
should not be interpreted as being realizable in an immediate settlement of the
instruments. Due to their short-term nature, the fair value of cash and cash
equivalents, accounts receivable, short-term debt, and accounts payable and
accrued charges is assumed to approximate carrying value. The fair value of the
companys gas hedging contracts at December 31, 2003 approximated $59.8 (2002 
$52.7). The companys futures contracts are exchange-traded and fair value was
determined based on exchange prices. Swaps and option agreements are traded in
the over-the-counter market and fair value was calculated based on a price that
was converted to an exchange-equivalent price. The fair value of the companys
notes payable at December 31, 2003 approximated $1,417.8 (2002
 $1,169.0) and
reflects a current yield valuation based on observed market prices. The fair
value of the companys other long-term debt instruments approximated carrying
value. 28. CONTINGENCIES Canpotex PotashCorp is a shareholder in Canpotex which markets potash offshore. Should
any operating losses or other liabilities be incurred by Canpotex, the
shareholders have contractually agreed to reimburse Canpotex for such losses or
liabilities in proportion to their productive capacity. There were no such
operating losses or other liabilities in 2003, 2002 or 2001. Mining Risk In common with other companies in the industry, the company is unable to
acquire insurance for underground assets. Investment in APC The terms of the shareholders agreement with JIC (see Note 7) provide that,
from October 17, 2006 to October 16, 2009, JIC may seek to exercise a put
option (the Put) to require the company to purchase JICs remaining common
shares in APC. If the Put were exercised, the companys purchase price would be
calculated in
accordance with a specified formula based, in part, on future earnings of APC.
The amount, if any, which the company may have to pay for JICs remaining
common shares if there was to be a valid exercise of the Put is not presently
determinable. Legal Matters In 1998, the company, along with other parties, was notified by EPA of
potential liability under CERCLA with respect to certain soil and groundwater
conditions at a PCS Joint Venture blending facility in


Lakeland, Florida and certain adjoining property. In 1999, PCS Joint Venture signed an Administrative
Order on Consent with EPA pursuant to which PCS Joint Venture agreed to conduct
a Remedial Investigation and Feasibility Study (RI/FS) of these conditions.
PCS Joint Venture and another party are sharing the costs of the RI/FS. PCS
Joint Venture continues to assess and evaluate the nature and extent of the
impacts at the site. No final determination has yet been made of the nature,
timing or cost of remedial action that may be needed nor to what extent costs
incurred may be recoverable from third parties. Various other claims and lawsuits are pending against the company. While it is
not possible to determine the ultimate outcome of such actions at this time, it
is managements opinion that the ultimate resolution of such actions, including
those pertaining to environmental matters, will not have a material adverse
effect on the companys financial condition or results of operations. 29. GUARANTEES In the normal course of operations, the company provides indemnifications that
are often standard contractual terms to counterparties in transactions such as
purchase and sale contracts, service agreements, director/officer contracts and
leasing transactions. These indemnification agreements may require the company
to compensate the counterparties for costs incurred as a result of various
events, including environmental liabilities, changes in (or in the
interpretation of) laws and regulations, or as a result of litigation claims or
statutory sanctions that may be suffered by the counterparty as a consequence
of the transaction. The terms of these indemnification agreements will vary
based upon the contract, the nature of which prevents the company from making a
reasonable estimate of the maximum potential amount that could be required to
pay to counterparties. Historically, the company has not made any significant
payments under such indemnifications and no amounts have been accrued in the
accompanying consolidated financial statements with respect to these
indemnification guarantees. The company enters into agreements in the normal
course of business that may contain features which meet the definition of a
guarantee. Various debt obligations (such as overdrafts, lines of credit with
counterparties for derivatives, and back-to-back loan arrangements) related to
certain subsidiaries have been directly guaranteed by the company under such
agreements with third parties. The company would be required to perform on
these guarantees in the event of default by the guaranteed parties. No material
loss is anticipated by reason of such agreements and guarantees. At December
31, 2003, the maximum potential amount of future (undiscounted) payments under
significant guarantees provided to third parties approximated
$73.4, representing the maximum risk of loss if there were a total default by
the guaranteed parties, without consideration of possible recoveries under
recourse provisions or from collateral held or pledged. At December 31, 2003,
no subsidiary balances subject to guarantees were outstanding in connection
with the companys cash management facilities, and the company had no
liabilities recorded for other obligations other than subsidiary bank
borrowings of approximately $5.9, which are reflected in other long-term debt
in Note 11 and the cash margin requirements to maintain derivatives as
disclosed in Note 27.




---



##### 



PotashCorp 2003 Annual Report   71



29. GUARANTEES (CONTINUED) PotashCorp has guaranteed the gypsum stack capping, closure and post-closure
obligations of White Springs and PCS Nitrogen, in Florida and Louisiana,
respectively, pursuant to the financial assurance regulatory requirements in
those states. The State of Florida is presently reviewing, and is expected to
revise, its financial assurance requirements to ensure that responsible parties
have sufficient resources to cover all closure and post-closure costs and
liabilities associated with gypsum stacks. This review may result in the
imposition of more stringent requirements to demonstrate financial
responsibility and/or inclusion of a greater scope of closure and post-closure
costs than under current law. The environmental regulations of the Province of Saskatchewan require each
potash mine to have decommissioning and reclamation (D&R) plans. In 2001,
agreement was reached with the provincial government on the financial
assurances for the D&R plan to cover an interim period to July 1, 2005. A
government-industry task force has been established to assess decommissioning
options for all Saskatchewan potash producers and to produce mutually
acceptable revisions to the plan schedules. In July 2001, a Cdn $2.0 letter of


credit was posted as collateral that will remain in effect until the revised
plans are accepted. The company expects that it will be able to satisfy all applicable credit
support requirements without disrupting normal business operations. 30. RELATED PARTY TRANSACTIONS Sales to Canpotex are at prevailing market prices. Sales for the year ended
December 31, 2003 were $260.6 (2002  $241.2; 2001  $237.6). Account balances
resulting from the Canpotex transactions are included in the Consolidated
Statements of Financial Position and settled on normal trade terms (see Note
4). In connection with entering into the option agreement with SQM as described in
Note 22, PCS Yumbes has agreed to purchase potash from SQM at a negotiated
price that approximates market value. In addition, PCS Yumbes has agreed to
sell to SQM all of its potassium nitrate production at a negotiated price that
approximates market value. Both agreements are in effect until no later than
December 31, 2004. Potash purchases from SQM for the year were $13.1 (2002
 $17.9). Potassium nitrate sales to SQM for the year were $25.8 (2002
 $2.1).
All transactions with SQM are settled on normal trade terms.


31. QUARTERLY RESULTS (UNAUDITED)

The following quarterly information in managements opinion includes all
adjustments (consisting solely of normal recurring adjustments) necessary for
fair presentation.

First Quarter
    
    
    Second Quarter
    
    
    Third Quarter
    
    
    Fourth Quarter2003Net sales
    
    $
    574.4
    
    
    $
    657.0
    
    
    $
    590.4
    
    
    $
    644.0Gross Margin
    
    $
    81.1
    
    
    $
    122.3
    
    
    $
    84.5
    
    
    $
    92.5Operating Income (Loss)
    
    $
    24.7
    
    
    $
    73.1
    
    
    $
    (210.9
    )
    
    $
    57.5Net Income (Loss)
    
    $
    3.2
    
    
    $
    29.9
    
    
    $
    (185.9
    )
    
    $
    26.5Net Income (Loss) per Share  Basic
    
    $
    0.06
    
    
    $
    0.57
    
    
    $
    (3.57
    )
    
    $
    0.50Net Income (Loss) per Share  Diluted
    
    $
    0.06
    
    
    $
    0.57
    
    
    $
    (3.57
    )
    
    $
    0.50


First Quarter
    
    
    Second Quarter
    
    
    Third Quarter
    
    
    Fourth Quarter2002Net sales
    
    $
    464.6
    
    
    $
    492.7
    
    
    $
    458.9
    
    
    $
    512.5Gross Margin
    
    $
    79.7
    
    
    $
    88.7
    
    
    $
    75.1
    
    
    $
    63.8Operating Income
    
    $
    40.9
    
    
    $
    38.6
    
    
    $
    44.3
    
    
    $
    43.1Net Income
    
    $
    12.8
    
    
    $
    11.9
    
    
    $
    14.5
    
    
    $
    14.4Net Income per Share  Basic
    
    $
    0.25
    
    
    $
    0.23
    
    
    $
    0.28
    
    
    $
    0.28Net Income per Share  Diluted
    
    $
    0.24
    
    
    $
    0.23
    
    
    $
    0.28
    
    
    $
    0.28


Net Income (Loss) per Share for each quarter has been computed based on the
weighted average number of shares issued and outstanding during the respective
quarter; therefore, quarterly amounts may not add to the annual total.

32. SEASONALITY

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

33. COMPARATIVE FIGURES

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

34. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

Canadian GAAP varies in certain significant respects from US GAAP. As required
by the United States Securities and Exchange Commission, the effect of these
principal differences on the companys consolidated financial statements is
described and quantified below:

Long-term investments:The companys investment in Israel Chemicals Limited
(ICL) is stated at cost. US GAAP requires that this investment be classified
as available-for-sale and be stated at market value with the difference between
market value and cost reported as a component of Other Comprehensive Income
(OCI).



---



##### 



72
    
    Notes to the Consolidated Financial Statements
    
    
    
    in millions of US Dollars except share and per-share amounts




34. RECONCILIATION OF CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED) Property, plant and equipment and goodwill:The net book value of property,
plant and equipment and goodwill under Canadian GAAP is higher than under US
GAAP, as past provisions for asset impairment under Canadian GAAP were measured
based on the undiscounted cash flow from use together with the residual value
of the assets. Under US GAAP they were measured based on fair value, which was
lower than the undiscounted cash flow from use together with the residual value
of the assets. Pre-operating costs:Operating costs incurred during the start-up phase of new
projects are deferred under Canadian GAAP until commercial production levels
are reached, at which time they are amortized over the estimated life of the
project. US GAAP requires that these costs be expensed as incurred. Asset retirement obligations:Asset retirement obligations are not presently
required under Canadian GAAP. US GAAP would require that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying
amount of the long-lived asset and then amortized over its estimated useful
life. The asset retirement obligation must be accreted to its future value. Post-retirement and post-employment benefits:Under Canadian GAAP, when a
defined benefit plan gives rise to an accrued benefit asset, a company must
recognize a valuation allowance for the excess of the adjusted benefit asset
over the expected future benefit to be realized from the plan asset. Changes in
the pension valuation allowance are recognized in income. US GAAP does not
specifically address pension valuation allowances, and the US regulators have
interpreted this to be a difference between Canadian and US GAAP. In light of
these developments, a difference between Canadian and US GAAP has been recorded
for the effects of recognizing a pension valuation allowance and the changes
therein under Canadian GAAP. This change has resulted in a retroactive increase
of opening retained earnings under US GAAP in 2001 of $7.6. There was no change
to net income or net income per share under US GAAP for the years ended
December 31, 2002 or 2001. The companys accumulated benefit obligation for its US pension plans exceeds
the fair value of plan assets. US GAAP requires the recognition of an
additional minimum pension liability in the amount of the excess of the
unfunded accumulated benefit obligation over the recorded pension benefits
liability. An offsetting intangible asset is recorded equal to the unrecognized
prior service costs, with any difference recorded as a reduction of accumulated
OCI. No similar requirement exists under Canadian GAAP. Foreign currency translation adjustment:The company adopted
the US dollar as its functional and reporting currency on January 1, 1995. At
that time, the consolidated financial statements were translated into US
dollars at the December 31, 1994 year-end exchange rate using the translation
of convenience method under Canadian GAAP. This translation method was not
permitted under US GAAP. US GAAP required the comparative Consolidated
Statements of Income and Consolidated Statements of Cash Flow to be translated
at applicable weighted-average exchange rates; whereas, the Consolidated
Statements of Financial Position were permitted to


be translated at the December 31, 1994 year-end exchange rate. The use of disparate exchange rates
under US GAAP gave rise to a foreign currency translation adjustment. Under US
GAAP, this adjustment is reported as a component of accumulated OCI. Derivative instruments and hedging activities:The companys derivative
instruments which have not yet been settled are not recognized in the
consolidated financial statements under Canadian GAAP, and gains or losses
arising from settled hedging transactions are deferred as a component of
inventory until the product containing the hedged item is sold, at which time
both the natural gas purchase cost and the related hedging deferral are
recorded as cost of goods sold. US GAAP requires that derivative instruments,
whether designated in hedging relationships or not, be recorded at fair value
in the Consolidated Statements of Financial Position. The accounting for
changes in the fair value (i.e., gains or losses) of a derivative instrument
depends on whether it has been designated and qualifies as part of a hedging
relationship. The portion of gain or loss on derivative instruments designated
as cash flow hedges that are effective at offsetting changes in the hedged item
is reported as a component of OCI and then is reclassified into cost of goods
sold when the product containing the hedged item is sold (see supplemental
Derivative Instruments and Hedging Activities disclosures below). The
ineffective portion is recognized in cost of goods sold. Net sales:Net sales includes amounts recoverable from customers for freight,
transportation and distribution and are recorded net of the related freight,
transportation and distribution expenses. Under US GAAP, the company includes
freight costs in cost of goods sold and transportation and distribution
expenses in operating expenses. Provision for plant shutdowns:The provision
for plant shutdowns under Canadian GAAP includes $12.7 (2002  $NIL; 2001 
$NIL) for writedowns of parts inventory. US GAAP requires that these writedowns
be presented as a component of cost of goods sold. In 2001, the provision under
Canadian GAAP included severance expense that was accrued when management
having the appropriate authority approved the plan. US GAAP required that
severance not be accrued until the plan was announced to the employees. Provision for PCS Yumbes S.C.M.:The provision for PCS Yumbes under Canadian
GAAP includes $50.2 for writedowns of non-parts inventory. US GAAP requires
that these writedowns be presented as a component of cost of goods sold. Depreciation and amortization:Depreciation and amortization under Canadian
GAAP is higher than under US GAAP, as a result of differences in the carrying
amounts of property, plant and
equipment and goodwill under Canadian and US GAAP. Comprehensive income:Comprehensive income is recognized and measured under US
GAAP pursuant to SFAS No. 130 Reporting Comprehensive Income. This standard
defines comprehensive income as all changes in equity other than those
resulting from investments by owners and distributions to owners. Comprehensive
income is comprised of two components, net income and OCI. OCI refers to
amounts that are recorded as an element of shareholders equity but are
excluded from net income because these transactions or events were attributed
to changes from non-owner sources. The concept of comprehensive income does not
yet exist under Canadian GAAP.




---



##### 



PotashCorp 2003 Annual Report   73



34. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (CONTINUED) Income taxes:The income tax adjustment reflects the impact on income taxes of
the US GAAP adjustments described above. Accounting for income taxes under
Canadian and US GAAP is


similar, except that income tax rates of enacted or
substantively enacted tax law must be used to calculate future income tax
assets and liabilities under Canadian GAAP; whereas only income tax rates of
enacted tax law can be used under US GAAP.


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

2003
    
    
    2002
    
    
    2001(1)Net (loss) income as reported  Canadian GAAP
    
    $
    (126.3
    )
    
    $
    53.6
    
    
    $
    121.2Items increasing or decreasing reported net (loss) incomeProvision for plant closures
    
    
    
    
    
    
    
    
    
    
    (9.0
    )Pre-operating costs
    
    
    63.0
    
    
    
    2.6
    
    
    
    (41.7
    )Depreciation and amortization
    
    
    8.5
    
    
    
    8.4
    
    
    
    9.7Accretion of asset retirement obligations
    
    
    (3.3
    )
    
    
    
    
    
    
    Post-retirement and post-employment benefits
    
    
    2.0
    
    
    
    
    
    
    
    Future income taxes
    
    
    (23.7
    )
    
    
    (4.0
    )
    
    
    14.4Net (loss) income  US GAAP
    
    $
    (79.8
    )
    
    $
    60.6
    
    
    $
    94.6Weighted average shares outstanding  US GAAP
    
    
    52,230,000
    
    
    
    52,021,000
    
    
    
    51,879,000Basic net income per share  US GAAP
    
    $
    (1.53
    )
    
    $
    1.16
    
    
    $
    1.82Total assets as reported  Canadian GAAP
    
    $
    4,567.3
    
    
    $
    4,685.6
    
    
    $
    4,597.3Items increasing (decreasing) reported total assetsInventory
    
    
    (2.7
    )
    
    
    (4.0
    )
    
    
    Available-for-sale securities (unrealized holding gain [loss])
    
    
    35.0
    
    
    
    (7.7
    )
    
    
    34.9Fair value of natural gas hedging contracts
    
    
    59.8
    
    
    
    52.7
    
    
    
    8.9Property, plant and equipment
    
    
    (134.9
    )
    
    
    (143.4
    )
    
    
    (151.8
    )Pre-operating costs
    
    
    
    
    
    
    (63.0
    )
    
    
    (65.6
    )Post-retirement and post-employment benefits
    
    
    13.9
    
    
    
    11.9
    
    
    
    11.9Intangible asset relating to additional minimum pension liability
    
    
    2.7
    
    
    
    
    
    
    
    Goodwill
    
    
    (46.7
    )
    
    
    (46.7
    )
    
    
    (46.7
    )Total assets  US GAAP
    
    $
    4,494.4
    
    
    $
    4,485.4
    
    
    $
    4,388.9Total shareholders equity as reported  Canadian GAAP
    
    $
    1,973.8
    
    
    $
    2,092.5
    
    
    $
    2,086.5Items increasing (decreasing) reported shareholders equityAccumulated other comprehensive income (loss), net of related income taxes
    
    
    14.8
    
    
    
    (30.0
    )
    
    
    8.9Foreign currency translation adjustment
    
    
    20.9
    
    
    
    20.9
    
    
    
    20.9Accretion of asset retirement obligations
    
    
    (3.3
    )
    
    
    
    
    
    
    Provision for asset impairment
    
    
    (218.0
    )
    
    
    (218.0
    )
    
    
    (218.0
    )Depreciation and amortization
    
    
    36.4
    
    
    
    27.9
    
    
    
    19.5Pre-operating costs
    
    
    
    
    
    
    (63.0
    )
    
    
    (65.6
    )Post-retirement and post-employment benefits
    
    
    13.9
    
    
    
    11.9
    
    
    
    11.9Future income taxes
    
    
    34.7
    
    
    
    58.4
    
    
    
    62.4Shareholders equity  US GAAP
    
    $
    1,873.2
    
    
    $
    1,900.6
    
    
    $
    1,926.5


(1) The figures for 2001 have been restated for the US GAAP difference relating
to pension valuation allowances as described on Page 72.


Supplemental US GAAP Disclosure

Available-for-Sale Security

The companys investment in ICL is classified as available-for-sale. The fair
market value of this investment at December 31, 2003 was $153.4 and the
unrealized holding gain was $60.6.

Recent Accounting Pronouncements

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



---



##### 



74
    
    Notes to the Consolidated Financial Statements
    
    
    
    in millions of US Dollars except share and per-share amounts


34. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (CONTINUED)

FIN No. 46 requires consolidation by a business of VIEs in which it is the
primary beneficiary. The primary beneficiary is defined as the party that has
exposure to the majority of the expected losses and/or expected residual
returns of the VIE. FIN No. 46 is effective for the company no later than March
31, 2004. The company expects no material impact on its financial position,
results of operations or cash flows from adoption.

Stock-based Compensation

Prior to 2003, the company applied the intrinsic value based method of
accounting for its stock option plans. No stock-based employee compensation
cost is reflected in 2002 or 2001 net income, as all options granted under the
plans had an exercise price equal to the market value of the underlying common
stock on the date of grant. Effective December 15, 2003, the company adopted
the fair value based method of accounting for stock options prospectively to
all employee awards granted, modified or settled after January 1, 2003 pursuant
to the transitional provisions of SFAS No. 148 Accounting for Stock-Based
Compensation  Transition and Disclosure. Since the companys stock option
awards vest over two years, the compensation cost included in the determination
of net loss for 2003 is less than that which would have been recognized if the
fair value based method had been applied to all awards since the original
effective date of SFAS No. 123 Accounting for Stock-Based Compensation. The
following table illustrates the effect on net (loss) income and net (loss)
income per share under US GAAP if the fair value based method had been applied
to all outstanding and unvested awards in each period.

2003
    
    
    2002
    
    
    2001Net (loss) income  as reported under US GAAP
    
    $
    (79.8
    )
    
    $
    60.6
    
    
    $
    94.6Add:
    Stock-based employee compensation expense included inreported net loss, net of related tax effects
    
    
    0.8
    
    
    
    
    
    
    
    Deduct:
    Total stock-based employee compensation expensedetermined under fair value based method for all awards,net of related tax effects
    
    
    (14.8
    )
    
    
    (14.3
    )
    
    
    (13.6
    )Net (loss) income  pro forma under US GAAP(1)
    
    $
    (93.8
    )
    
    $
    46.3
    
    
    $
    81.0


|(1) |  | Compensation expense under the fair value based method is recognized over
the vesting period of the related stock options. Accordingly, the pro forma
results of applying this method may not be indicative of future results.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2003
    
    
    2002
    
    
    2001Basic net (loss) income per share under US GAAPAs reported
    
    $
    (1.53
    )
    
    $
    1.16
    
    
    $
    1.82Pro forma
    
    $
    (1.80
    )
    
    $
    0.89
    
    
    $
    1.56Diluted net (loss) income per share under US GAAPAs reported
    
    $
    (1.53
    )
    
    $
    1.16
    
    
    $
    1.81Pro forma
    
    $
    (1.80
    )
    
    $
    0.89
    
    
    $
    1.55


Derivative Instruments and Hedging Activities

The company formally documents all relationships between hedging instruments
and hedged items, as well as its risk management objective and strategy for
undertaking various hedge transactions. The companys natural gas purchase
strategy is based on diversification of price for its total gas requirements.
Its objective is to acquire a reliable supply of natural gas feedstock and fuel
on a location-adjusted, cost-competitive basis in a manner that minimizes
volatility without undue risk. It employs derivative instruments including
futures, swaps and option agreements in order to manage the cost on a portion
of its natural gas requirements. These instruments are intended to hedge the
future cost of the committed and anticipated natural gas purchases primarily
for its US nitrogen plants. The maximum period for these hedges cannot exceed
five years. The company uses these instruments to reduce price risk, not for
speculative purposes.

The company formally assesses, both at the inception of the hedge and on an
ongoing basis, whether each derivative is highly effective in offsetting
changes in cash flows or fair value of the hedged item. Fluctuations in the
value of the derivative instruments are generally offset by changes in the
hedged item; however, if it is determined that a derivative is not highly
effective as a hedge or if a derivative is sold, expires or ceases to be a
highly effective hedge, the company will discontinue hedge accounting
prospectively for the affected derivative. The amounts previously recognized in
accumulated OCI are then reclassified to cost of goods sold when the product
containing the hedged item is sold. The ineffectiveness of hedges on existing
derivative instruments for the year ended December 31, 2003 was not material.

The company has designated its natural gas derivative instruments as cash flow
hedges. The gain or loss of an effective cash flow hedge is deferred in OCI
until such time as the natural gas that it relates to is used, at which time
the gain or loss is reclassified from OCI to cost of goods sold. During the
year, a gain of $89.9 was recognized in cost of goods sold (2002  $15.5; 2001
 $43.9). Of the deferred gains at year-end, approximately $35.3 will be
reclassified to cost of goods sold within the next 12 months.



---



##### 



PotashCorp 2003 Annual Report   75

34. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (CONTINUED)

The following supplemental schedules present the consolidated Financial
Position, Operations and Retained Earnings, Cash Flow, Comprehensive (Loss)
Income and Accumulated Other Comprehensive Income (Loss) in accordance with US
GAAP as adjusted for the GAAP differences described in this note.

Supplemental Schedule of Consolidated Financial Position
As at December 31

2003
    
    
    2002AssetsCurrent AssetsCash and cash equivalents
    
    $
    4.7
    
    
    $
    24.5Accounts receivable
    
    
    305.0
    
    
    
    267.8Inventories
    
    
    392.5
    
    
    
    495.3Prepaid expenses
    
    
    29.0
    
    
    
    40.4Fair value of natural gas hedging contracts
    
    
    59.8
    
    
    
    52.7791.0
    
    
    
    880.7Property, plant and equipment
    
    
    2,973.2
    
    
    
    3,126.5Other assets
    
    
    679.9
    
    
    
    427.9Goodwill
    
    
    50.3
    
    
    
    50.3$
    4,494.4
    
    
    $
    4,485.4LiabilitiesCurrent LiabilitiesShort-term debt
    
    $
    176.2
    
    
    $
    473.0Accounts payable and accrued charges
    
    
    380.3
    
    
    
    347.0Current portion of long-term debt
    
    
    1.3
    
    
    
    3.4557.8
    
    
    
    823.4Long-term debt
    
    
    1,268.6
    
    
    
    1,019.9Future income tax liability
    
    
    460.6
    
    
    
    391.9Accrued post-retirement/post-employment benefits
    
    
    242.5
    
    
    
    264.1Accrued reclamation costs and asset retirement obligations
    
    
    84.6
    
    
    
    80.0Other non-current liabilities and deferred credits
    
    
    7.1
    
    
    
    5.52,621.2
    
    
    
    2,584.8Shareholders EquityShare Capital
    
    
    1,245.8
    
    
    
    1,186.9Additional Paid-in Capital
    
    
    265.2
    
    
    
    264.2Retained Earnings
    
    
    347.4
    
    
    
    479.5Accumulated Other Comprehensive Income (Loss)
    
    
    14.8
    
    
    
    (30.0
    )1,873.2
    
    
    
    1,900.6$
    4,494.4
    
    
    $
    4,485.4




---



##### 



76
    
    Notes to the Consolidated Financial Statements
    
    
    
    in millions of US Dollars except share and per-share amounts


34. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (CONTINUED)

Supplemental Schedule of Consolidated Operations and Retained Earnings
For the Years Ended December 31

2003
    
    
    2002
    
    
    2001(1)Net sales
    
    $
    2,799.0
    
    
    $
    2,224.5
    
    
    $
    2,395.1Cost of goods sold
    
    
    2,375.7
    
    
    
    1,825.7
    
    
    
    1,938.2Gross Margin
    
    
    423.3
    
    
    
    398.8
    
    
    
    456.9Selling and administrative
    
    
    96.1
    
    
    
    91.7
    
    
    
    98.4Transportation and distribution
    
    
    98.7
    
    
    
    80.5
    
    
    
    82.9Provincial mining and other taxes
    
    
    57.0
    
    
    
    68.0
    
    
    
    70.0Provision for plant shutdowns
    
    
    111.0
    
    
    
    
    
    
    
    9.0Provision for PCS Yumbes S.C.M.
    
    
    27.3
    
    
    
    
    
    
    
    Foreign exchange loss (gain)
    
    
    51.9
    
    
    
    5.5
    
    
    
    (13.7
    )Other income
    
    
    (33.2
    )
    
    
    (24.8
    )
    
    
    (18.4
    )408.8
    
    
    
    220.9
    
    
    
    228.2Operating Income
    
    
    14.5
    
    
    
    177.9
    
    
    
    228.7Interest Expense
    
    
    91.3
    
    
    
    83.1
    
    
    
    80.3(Loss) Income before Income Taxes
    
    
    (76.8
    )
    
    
    94.8
    
    
    
    148.4Income Taxes
    
    
    3.0
    
    
    
    34.2
    
    
    
    53.8Net (Loss) Income
    
    
    (79.8
    )
    
    
    60.6
    
    
    
    94.6Retained Earnings, Beginning of Year
    
    
    479.5
    
    
    
    470.9
    
    
    
    428.2Dividends
    
    
    (52.3
    )
    
    
    (52.0
    )
    
    
    (51.9
    )Retained Earnings, End of Year
    
    $
    347.4
    
    
    $
    479.5
    
    
    $
    470.9Net (Loss) Income Per Share  Basic
    
    $
    (1.53
    )
    
    $
    1.16
    
    
    $
    1.82Net (Loss) Income Per Share  Diluted
    
    $
    (1.53
    )
    
    $
    1.16
    
    
    $
    1.81Dividends Per Share
    
    $
    1.00
    
    
    $
    1.00
    
    
    $
    1.00


|(1) |  | The figures for 2001 have been restated for the US GAAP difference relating to pension valuation allowances as described on Page 72.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------

Supplemental Schedule of Consolidated Comprehensive (Loss) Income
For the Years Ended December 31

2003
    
    
    2002
    
    
    2001Net (loss) income
    
    $
    (79.8
    )
    
    $
    60.6
    
    
    $
    94.6Other comprehensive (loss) incomeChange in unrealized holding gain on available-for-sale securities
    
    
    42.7
    
    
    
    (42.6
    )
    
    
    (6.8
    )Change in gains and losses on derivatives designated as cash flow hedges
    
    
    98.3
    
    
    
    66.0
    
    
    
    (165.6
    )Reclassification to income of gains and losses on cash flow hedges
    
    
    (89.9
    )
    
    
    (15.5
    )
    
    
    (43.9
    )Adjustment to additional minimum pension liability
    
    
    23.4
    
    
    
    (68.7
    )
    
    
    Future income taxes related to other comprehensive income
    
    
    (29.7
    )
    
    
    21.9
    
    
    
    78.2Other comprehensive income (loss), net of related income taxes
    
    
    44.8
    
    
    
    (38.9
    )
    
    
    (138.1
    )Comprehensive (loss) income
    
    $
    (35.0
    )
    
    $
    21.7
    
    
    $
    (43.5
    )


Supplemental Schedule of Consolidated Accumulated Other Comprehensive Income (Loss)
For the Years Ended December 31

2003
    
    
    2002
    
    
    2001Accumulated other comprehensive (loss) income, beginning of year
    
    $
    (30.0
    )
    
    $
    8.9
    
    
    $
    7.2Cumulative effect of initial adoption of SFAS 133, net of related income taxes
    
    
    
    
    
    
    
    
    
    
    139.8Other comprehensive income (loss), net of related income taxes
    
    
    44.8
    
    
    
    (38.9
    )
    
    
    (138.1
    )Accumulated other comprehensive income (loss), end of year
    
    $
    14.8
    
    
    $
    (30.0
    )
    
    $
    8.9


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

2003
    
    
    2002
    
    
    2001Unrealized gains and losses on available-for-sale securities
    
    $
    22.6
    
    
    $
    (3.1
    )
    
    $
    24.1Gains and losses on derivatives designated as cash flow hedges
    
    
    43.1
    
    
    
    38.0
    
    
    
    5.7Additional minimum pension liability
    
    
    (30.0
    )
    
    
    (44.0
    )
    
    
    Foreign currency translation adjustment
    
    
    (20.9
    )
    
    
    (20.9
    )
    
    
    (20.9
    )Accumulated other comprehensive income (loss), end of year
    
    $
    14.8
    
    
    $
    (30.0
    )
    
    $
    8.9




---



##### 



PotashCorp 2003 Annual Report   77

34. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (CONTINUED)

Supplemental Schedule of Consolidated Cash Flow
For the Years Ended December 31

2003
    
    
    2002
    
    
    2001Operating ActivitiesNet (loss) income
    
    $
    (79.8
    )
    
    $
    60.6
    
    
    $
    94.6Items not affecting cashDepreciation and amortization
    
    
    218.9
    
    
    
    208.1
    
    
    
    176.0Loss on disposal of property, plant and equipment
    
    
    1.0
    
    
    
    1.0
    
    
    
    0.4Stock-based compensation
    
    
    1.0
    
    
    
    
    
    
    
    Provision for plant shutdowns
    
    
    105.6
    
    
    
    
    
    
    
    Provision for PCS Yumbes S.C.M.
    
    
    14.5
    
    
    
    
    
    
    
    Writedown of inventories
    
    
    62.9
    
    
    
    
    
    
    
    Foreign exchange on future income tax
    
    
    35.9
    
    
    
    1.0
    
    
    
    (8.2
    )Provision for future income tax
    
    
    3.0
    
    
    
    10.0
    
    
    
    33.3Share of earnings of equity investees
    
    
    (12.4
    )
    
    
    (5.3
    )
    
    
    Provision for post-retirement/post-employment benefits
    
    
    9.7
    
    
    
    18.2
    
    
    
    2.1Accrued reclamation costs and asset retirement obligations
    
    
    4.6
    
    
    
    (3.0
    )
    
    
    (3.7
    )Other non-current liabilities and deferred credits
    
    
    1.6
    
    
    
    (1.4
    )
    
    
    0.6Changes in non-cash operating working capitalAccounts receivable
    
    
    (39.5
    )
    
    
    (11.1
    )
    
    
    69.9Inventories
    
    
    14.5
    
    
    
    (14.2
    )
    
    
    (76.1
    )Prepaid expenses
    
    
    9.4
    
    
    
    (3.9
    )
    
    
    2.3Accounts payable and accrued charges
    
    
    48.9
    
    
    
    33.0
    
    
    
    (235.6
    )Current income taxes
    
    
    (18.3
    )
    
    
    23.4
    
    
    
    (21.6
    )Cash provided by operating activities
    
    
    381.5
    
    
    
    316.4
    
    
    
    34.0Investing ActivitiesAdditions to property, plant and equipment
    
    
    (150.7
    )
    
    
    (212.2
    )
    
    
    (513.7
    )Investment in SQM
    
    
    
    
    
    
    (23.2
    )
    
    
    (130.4
    )Investment in APC
    
    
    (178.3
    )
    
    
    
    
    
    
    Dividends received from equity investees
    
    
    4.0
    
    
    
    
    
    
    
    Additions to other assets
    
    
    (32.7
    )
    
    
    (36.0
    )
    
    
    (4.2
    )Cash used in investing activities
    
    
    (357.7
    )
    
    
    (271.4
    )
    
    
    (648.3
    )Financing ActivitiesProceeds from long-term obligations
    
    
    250.0
    
    
    
    11.2
    
    
    
    600.0Repayment of long-term obligations
    
    
    (3.4
    )
    
    
    (1.3
    )
    
    
    (5.8
    )Proceeds from short-term debt
    
    
    
    
    
    
    
    
    
    
    12.2Repayment of short-term debt
    
    
    (296.8
    )
    
    
    (28.1
    )
    
    
    Dividends
    
    
    (52.3
    )
    
    
    (52.0
    )
    
    
    (51.9
    )Issuance of shares
    
    
    58.9
    
    
    
    4.4
    
    
    
    5.1Cash (used in) provided by financing activities
    
    
    (43.6
    )
    
    
    (65.8
    )
    
    
    559.6Decrease in Cash and Cash Equivalents
    
    
    (19.8
    )
    
    
    (20.8
    )
    
    
    (54.7
    )Cash and Cash Equivalents, Beginning of Year
    
    
    24.5
    
    
    
    45.3
    
    
    
    100.0Cash and Cash Equivalents, End of Year
    
    $
    4.7
    
    
    $
    24.5
    
    
    $
    45.3




---



##### 



78   PotashCorp 2003 Annual Report

Board of Directors


(BOARD OF DIRECTORS PICTURES)



Frederick J. Blesi, of Glenview, Illinois, is a retired Chairman and CEO of the
Phosphate Chemicals Export Association Inc.
(PhosChem), principal exporter of US phosphate chemicals. Before joining
PhosChem, he was Vice President, International with International Minerals and
Chemical Corporation. He is a director of the Evans Scholars Foundation and The
Western Golf Association. He joined the PCS Inc. Board in
2001. (3,5) William J. Doyle, of Saskatoon,
Saskatchewan, is President and CEO of Potash Corporation of Saskatchewan Inc.
He became President of PCS Sales in 1987, after a career with International
Minerals and Chemical Corporation. He is a director of Canpotex Limited, The
Fertilizer Institute and the Potash & Phosphate Institute and is Chairman of
the Production and International Trade Committee for the International
Fertilizer Industry Association. Mr. Doyle is on the College Board of Advisors
at Georgetown University. He joined the PCS Inc. Board in 1989. (1) John W. Estey, of Glenview, Illinois, is President and CEO of S&C Electric
Company. He has been a director on the IEEE/Power Engineering Society Governing
Board since 1992 and is currently past president of the Society. A member of
the Board of Governors of the National Electrical Manufacturers Association, he
is also a director of the Executives Club of Chicago. He joined the PCS Inc.
Board in 2003. (3,4) Wade Fetzer III, of Glencoe, Illinois, is Retired Partner with the investment
banking firm Goldman Sachs. He sits on the boards of Serologicals Corporation,
Sphere Communications, Northern Star Broadcasting, University of Wisconsin
Foundation and Rush-Presbyterian St. Lukes Medical Center. He is also on the
Kellogg Alumni Advisory Board. He joined the PCS Inc. Board in
2002. (2,3)


Dallas J. Howe, of Calgary, Alberta, serves in a management role with GE
Medical Systems Information Technology, which now includes the company he
formerly owned, BDM Information Systems. He is owner and CEO of DSTC Ltd., a
technology investment company, and a director of Advanced Data Systems Ltd., as
well as a member of the University of Saskatchewan Board of Governors. A
director of the PCS Crown corporation from 1982 to 1989, he joined the PCS Inc.
Board in 1991 and was elected Chair in 2003. (1,2) Alice D. Laberge, of Vancouver, British Columbia, is President and CEO of
Fincentric Corporation, a global provider of software solutions to financial
institutions. She was formerly Senior Vice President and Chief Financial
Officer of MacMillan Bloedel Limited, and is a director of BC Hydro, the United
Way of the Lower Mainland and St. Pauls Hospital Foundation. She joined the
PCS Inc. Board in 2003. (4,5) Jeffrey J. McCaig, of Calgary, Alberta, is President, CEO and a director
of Trimac Corporation, a bulk trucking and third-party logistics company. Prior
to that, he practiced law, specializing in corporate financing and securities.
He is a director of Orbus Pharma Inc. He joined the PCS Inc. Board in 2001. (3,5) Mary Mogford, of Newcastle, Ontario, is a Corporate Director and Partner in
Mogford Campbell Inc., a strategic business and
financial consulting company. A former Deputy Minister of Finance and Deputy
Minister of Natural Resources in Ontario, she is a director of Empire Company
Ltd., Falconbridge Ltd., MDS Inc. and Sears Canada Inc., and a member of the
Altamira Advisory Council. She joined the PCS Inc. Board in 2001. (2,5)


Paul J. Schoenhals, of Calgary, Alberta, is President of Petroleum Industry
Training Service. He is a former Member of the Legislative Assembly and Cabinet
Minister in Saskatchewan and was Chairman of Potash Corporation of
Saskatchewan, the Crown corporation, from 1987 to 1989. He joined the PCS Inc.
Board in 1992. (3,4) E. Robert Stromberg, Q.C., of Saskatoon, Saskatchewan, is associated with the
Saskatchewan law firm Robertson Stromberg Pedersen. He is a director of NorSask
Forest Products Inc. and Hitachi Canadian Industries Ltd., and Chairman of the
Saskatoon Airport Authority. He joined the PCS Inc. Board in 1991. (1,2,4) Jack G. Vicq, Professor Emeritus of Accounting, University of Saskatchewan, was
formerly Associate Dean of Commerce and responsible for the Centre for
International Business Studies. Formerly holder of the A. W. Johnson
Distinguished Chair in Public Policy in the Saskatchewan Department of Finance,
he is currently Chairman of the Provincial Court Commission. He joined the PCS
Inc. Board in 1989. (1,5) Elena Viyella de Paliza, of the Dominican Republic, is President of
Inter-Quimica, S.A., a chemicals importer and distributor, Monte Rio Power Corp
and Indescorp, S.A. Formerly executive vice president of FERSAN, a fertilizer
bulk blender and agrochemical distributor, she is past president of the
Dominican Stock Exchange, Dominican Manufacturers Association and the National
Agribusiness Board. She joined the PCS Inc. Board in 2003. (1,2) (1) Executive committee(2) Corporate governance and nominating committee(3) Compensation committee(4) Safety, health and environment committee(5) Audit committee




---



##### 



PotashCorp 2003
Annual Report   79

| |  |                         |  | 
| |  | ----------------------- |  | 
| |  | Shareholder Information |  | 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Annual MeetingThe Annual Shareholders meeting will be held at 10:30 a.m. Central Standard
Time May 6, 2004 in the Adam Ballroom, Delta Bessborough Hotel, 601 Spadina
Crescent East, Saskatoon, Saskatchewan.It will be carried live on the
companys website, www.potashcorp.com.Holders of common shares as of March 18, 2004 are entitled to vote at the
meeting and are encouraged to participate.DividendsDividend amounts paid to shareholders resident in Canada are adjusted by the
exchange rate applicable on the dividend record date. Dividends are normally
paid in February, May, August and November, with record dates normally set
approximately three weeks earlier. Future cash dividends will be paid out of,
and are conditioned upon, the companys available earnings. Shareholders who
wish to have their dividends deposited directly in their bank accounts should
contact the transfer agent and registrar, CIBC Mellon Trust Company.Registered shareholders can have dividends reinvested in newly issued common
shares of PotashCorp at prevailing market rates.Information
for Shareholders Outside CanadaDividends paid to residents in countries with which Canada has bilateral tax
treaties are generally subject to the 15 percent Canadian non-resident
withholding tax. There is no Canadian tax on gains from the sale of shares or
debt instruments owned by non-residents not carrying on business in Canada. No
government in Canada levies estate taxes or succession duties.OwnershipOn February 27, 2004, there were 2,096 holders of record of the companys common
shares.Shares ListedToronto Stock ExchangeNew York Stock
ExchangeTicker Symbol: POT |  | Common Share Transfer AgentIn Canada:CIBC Mellon Trust CompanySuite 750  One Lombard Place
Winnipeg, Manitoba R3B 0X3
Phone: (204) 987-2490(800) 387-0825
Website: www.cibcmellon.comIn the United States:
Mellon Investor Services, L.L.C.
85 Challenger Road, Overpeck Center
Ridgefield Park, New Jersey 07660
Phone: (800) 526-0801 
Website: www.melloninvestor.comShareholders with address changes or those with inquiries concerning their
Potash Corporation of Saskatchewan Inc. stock are invited to contact:CIBC Mellon Trust (address above), or
John Hampton, Corporate Secretary
PotashCorp
Suite 500, 122  1st Avenue South
Saskatoon, Saskatchewan S7K 7G3Investor InquiriesBetty-Ann Heggie, Senior Vice President, Corporate Relations
Canada: (800) 667-0403
US:        (800) 667-3930
e-mail: corporate.relations@potashcorp.com
 
Visit us at www.potashcorp.comInterim Reports, News Releases and Form 10-KNon-registered shareholders who wish to receive quarterly reports should
contact the Corporate Relations department. News releases are available via fax
and e-mail.Copies of the companys most recent Form 10-K are available upon request or on
our website.

Common
Share Prices and Volumes
 The adjacent table sets forth the high and low prices, as well as the volumes,
for the companys common shares as traded on the Toronto Stock Exchange and the
New York Stock Exchange (composite transactions) on a quarterly basis.
Potash Corporation of Saskatchewan Inc. is on the S&P/TSX 60 and
the S&P/TSX Composite indices.  1Trading prices are in CDN$
 Toronto Stock
Exchange1
    
    New York Stock ExchangeHigh
    
    
    Low
    
    
    Volume
    
    
    High
    
    
    Low
    
    
    Volume2003First Quarter
    
    
    102.80
    
    
    
    82.56
    
    
    
    7,509,384
    
    
    
    66.36
    
    
    
    54.95
    
    
    
    12,569,900Second Quarter
    
    
    94.41
    
    
    
    81.50
    
    
    
    6,352,137
    
    
    
    65.49
    
    
    
    59.64
    
    
    
    10,606,500Third Quarter
    
    
    101.03
    
    
    
    84.80
    
    
    
    4,238,720
    
    
    
    73.55
    
    
    
    61.90
    
    
    
    7,070,100Fourth Quarter
    
    
    115.50
    
    
    
    93.76
    
    
    
    7,214,368
    
    
    
    87.25
    
    
    
    70.48
    
    
    
    12,190,890Year 2003
    
    
    115.50
    
    
    
    81.50
    
    
    
    25,314,609
    
    
    
    87.25
    
    
    
    54.95
    
    
    
    42,437,3902002First Quarter
    
    
    105.65
    
    
    
    90.34
    
    
    
    4,938,188
    
    
    
    66.30
    
    
    
    56.50
    
    
    
    6,907,200Second Quarter
    
    
    109.02
    
    
    
    93.00
    
    
    
    5,751,984
    
    
    
    68.38
    
    
    
    60.75
    
    
    
    9,058,600Third Quarter
    
    
    102.00
    
    
    
    79.38
    
    
    
    8,034,108
    
    
    
    66.50
    
    
    
    49.65
    
    
    
    15,082,300Fourth Quarter
    
    
    108.50
    
    
    
    93.55
    
    
    
    7,880,053
    
    
    
    69.20
    
    
    
    60.30
    
    
    
    14,913,600Year 2002
    
    
    109.02
    
    
    
    79.38
    
    
    
    26,604,333
    
    
    
    69.20
    
    
    
    49.65
    
    
    
    45,961,700




---



##### 



80   PotashCorp
2003 Annual Report

Corporate Information


Corporate Officers and Key Management



(W. DOYLE PICTURE)
    
    William J. Doyle
President and
Chief Executive Officer(J. DIETZ PICTURE)
    
    James F. Dietz
Executive Vice President and Chief Operating Officer(W. BROWNLEE PICTURE)
    
    Wayne R. Brownlee
Senior Vice President, Treasurer and Chief Financial Officer(J. HAMPTON PICTURE)
    
    John L. M. Hampton
Senior Vice President, General Counsel and Secretary


(B. HEGGIE PICTURE)
    
    Betty-Ann L. Heggie
Senior Vice President, Corporate Relations(B. IRWIN PICTURE)
    
    Barbara Jane Irwin
Senior Vice President, Administration(R. JASPAR PICTURE)
    
    Robert A. Jaspar
Senior Vice President, Information Technology


(G. DELANEY PICTURE)
    
    G. David Delaney
President,
PCS Sales(G. MOORE PICTURE)
    
    Garth W. Moore
President,
PCS Potash(T. REGAN, JR. PICTURE)
    

Thomas
J. Regan, Jr.
President,
PCS Phosphate


(D. ARNASON PICTURE)
    
    Daphne J. Arnason
Vice President, Internal Audit(K. CHASEZ PICTURE)
    
    Karen G. Chasez
Vice President, Procurement(D. ROBERTS PICTURE)
    
    Donald R. Roberts
Vice President, Safety, Health and Environment(D. SIROIS PICTURE)
    

Denis
A. Sirois
Vice President and
Corporate Controller


Corporate Offices

PotashCorp
Suite 500, 122  1st Avenue South
Saskatoon, SK S7K 7G3
Phone: (306) 933-8500
    
    PotashCorp
Suite 400, 1101 Skokie Boulevard
Northbrook, IL 60062
Phone: (847) 849-4200


(POT STOCK PRICE AND POT SHARE OWNERSHIP CHARTS)



---



##### 



(INSIDE BACK COVER PAGE)



---



##### 



(BACK COVER PAGE)