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Exhibit 13




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worlds foremost supplier of
potash,
  Our Vision
 the partner of choice,
  Our Strategy
 Potash First strategy,
  
 enriching food
  enriching lives
  enriching our stakeholders
  CONTENTS 2 4 9 15 23
 For Managements Discussion & Analysis and complete financial statements, please see the
accompanying 2005 Financial Review.




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PotashCorps 2005 Performance
 double-digit price increases record
earnings and
gross margin.
 2005 Business Highlights
 
    
    Delivered record earnings for the second straight year, with
$542.9 million beating our previous mark by 82 percent
    
    Achieved record gross margin of $1.125 billion
    
    Reached record potash gross margin of $707.4 million
    
    Delivered record nitrogen gross margin of $318.7 million,
including $217.1 million from Trinidad
    
    Generated $98.9 million in phosphate gross margin, more
than six times the 2004 total
    
    Repurchased 9.5 million PotashCorp shares, nearly
9 percent of the company
 2005 Operating Highlights
 
    
    Increased potash production to a record 8.82 million tonnes
    
    Initiated projects to bring back 1.9 million tonnes of idle
potash capacity over the next two years
    
    Recognized as Canadas best corporate reporter, earning the
Overall Award of Excellence in Corporate Reporting for the
second consecutive year
 Second
Consecutive Record for Potash Gross Margin
 
   2005
Financial Highlights | All financial data in this report are stated in US dollars.
$ millions except per-share amounts
 2005
    
    
    CHANGE
    
    
    2004
    
    
    CHANGE
    
    
    2003
    
    
    5-YEAR
    
    
    10-YEARYOY
    
    
    
    
    
    
    YOY
    
    
    
    
    
    
    CAGR**
    
    
    CAGR**Financial ResultsSales
    
    $
    3,847.2
    
    
    
    19
    %
    
    $
    3,244.4
    
    
    
    16
    %
    
    $
    2,799.0
    
    
    
    10
    %
    
    
    9
    %Net sales *
    
    $
    3,475.6
    
    
    
    20
    %
    
    $
    2,901.4
    
    
    
    18
    %
    
    $
    2,465.8
    
    
    
    11
    %
    
    
    9
    %Gross margin
    
    $
    1,125.0
    
    
    
    65
    %
    
    $
    681.4
    
    
    
    79
    %
    
    $
    380.4
    
    
    
    23
    %
    
    
    11
    %Net income (loss)
    
    $
    542.9
    
    
    
    82
    %
    
    $
    298.6
    
    
    
    n/m
    
    
    $
    (126.3
    )
    
    
    35
    %
    
    
    10
    %Net income (loss) per
diluted share
    
    $
    4.89
    
    
    
    81
    %
    
    $
    2.70
    
    
    
    n/m
    
    
    $
    (1.21
    )
    
    
    33
    %
    
    
    8
    %EBITDA *
    
    $
    1,135.0
    
    
    
    50
    %
    
    $
    754.3
    
    
    
    339
    %
    
    $
    171.8
    
    
    
    20
    %
    
    
    11
    %Additions to property,
plant
and equipment
    
    $
    382.7
    
    
    
    74
    %
    
    $
    220.5
    
    
    
    46
    %
    
    $
    150.7Dividends paid
    
    $
    65.4
    
    
    
    17
    %
    
    $
    56.1
    
    
    
    7
    %
    
    $
    52.3Financial PositionTotal assets
    
    $
    5,357.9
    
    
    
    5
    %
    
    $
    5,126.8
    
    
    
    12
    %
    
    $
    4,567.3Net debt *
    
    $
    1,417.1
    
    
    
    57
    %
    
    $
    903.5
    
    
    
    (37
    %)
    
    $
    1,441.4Cash flow prior to
working
capital changes *
    
    $
    860.3
    
    
    
    60
    %
    
    $
    538.3
    
    
    
    46
    %
    
    $
    368.5Cash provided by
operating activities
    
    $
    865.1
    
    
    
    31
    %
    
    $
    658.3
    
    
    
    71
    %
    
    $
    385.5
 n/m  not meaningful*
    
    See reconciliation and description of certain non-GAAP measures in Financial Performance
Indicators in our Financial Review, Pages 50 to 52.**
    
    Compound annual growth rate expressed as a percentage.




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The Potash Advantage




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The PotashCorp Advantage
   
   1
    
    Unmatched position in potashPotashCorp is uniquely positioned to meet rising global potash demand by
bringing on additional production in a timely and cost-effective manner.2
    
    Global resourcesOur large, low-cost potash facilities in Canada are complemented
by strategic investments in Jordan, Israel, Chile and China.3
    
    Targeted strengths in nitrogen and phosphateLong-term, lower-cost natural gas contracts in Trinidad provide an edge
in serving the US nitrogen market. In phosphate, our superior-quality
rock gives us greater ability to produce higher-margin industrial acids,
especially purified acid.4
    
    Executing long-term vision and strategiesPotashCorp has followed a steady course for two decades, using
proven business strategies that capitalize on our unique strengths.5
    
    Strong cash flowStrong cash flow has been used to strengthen our business. In 2005,
we reinvested $1.5 billion, including $852 million to repurchase
9.5 million shares (about 9 percent of our company).6
    
    StabilityPotashCorp captured 87 percent of gross margin from areas of our
business that are less dependent on volatile agricultural cycles.7
    
    Commitment to Core ValuesWe are committed to safety, integrity, listening, sharing, accountability and
continuous improvement.
 1,2
1 PotashCorps mineral rights at Esterhazy are mined by Mosaic Potash
Esterhazy Limited Partnership under a long-term agreement.




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Enriching Our Communities




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Enriched performance
       Cash Flow Continues to Fuel Growth
   PotashCorps Strong Cash Flow




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A new era in potash




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Tight focus, reduced volatility
     
 Growth from Diverse Markets
   Geographic Diversity
Among Offshore Markets




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Partner of choice
        Enriching lives




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(our long term goals)Continuous improvement and accountability are among our core values at
PotashCorp.Each year, we set targets connected to our goals and operating strategies and report on our
performance.
 
 To continue to outperform our sector and other basic materials companies in total shareholder return.
2006 Targets 1Exceed total shareholder return
performance for our sector and
companies on the DJUSBM
for 2006. 2Non-cash operating working
capital to be less than 10 percent
of net sales. 3Total cash flow return to exceed
cost of capital by 800 basis points. 4Carry a higher multiple than
the average of other fertilizer
companies on both earnings
and cash flow. 5Exceed 2005 gross margin by
20 percent. 2005 Targets Exceed total shareholder return
performance for our sector* and
companies on the Dow Jones U.S.
Basic Materials Index (DJUSBM) for
2005 and three-year average.
Be the preferred fertilizer investment
as measured by surveys.
Non-cash operating working capital
to be less than 10 percent of net
sales.** Total cash flow return to exceed cost
of capital by 500 basis points.**
Carry a higher multiple than the
average of other fertilizer companies
on both earnings and cash flow.
Exceed five-year average of historical
gross margin as a percentage of
net sales.** Be at the top of our earnings
guidance range. 2005 Results Three-year return of 158 percent surpassed the DJUSBM,
although PotashCorp trailed the sector for that period.
Return for 2005 was below that of the sector and DJUSBM.
A survey of buy- and sell-side analysts clearly identified
PotashCorp as the leading investment in the sector.
PotashCorps non-cash operating working capital was
approximately 5 percent of net sales.
Total cash flow return exceeded cost of capital by
780 basis points. PotashCorp multiples were higher than the average of other
fertilizer companies based on earnings and cash flow.
Gross margin as a percentage of net sales reached 32 percent,
well above the five-year average of 20 percent.
Earnings per share of $4.89 exceeded our initial guidance of
$3.50$4.25 per share. Gross Margin Increases as a Percentage of Net Sales Focusing on High-Margin Businesses A rising gross margin as a percentage of net sales reflected our tighter
focus on areas of our business that provide the greatest gross margin:
potash, Trinidad nitrogen and industrial phosphate, primarily purified
phosphoric acid. These three businesses generated 87 percent of PotashCorps total
gross margin in 2005 and each delivered a high percentage of gross
margin in relation to net sales  potash was 60 percent, Trinidad
nitrogen 38 percent and purified phosphate 29 percent.
Graph source: PotashCorp * Sector = Mosaic, Agrium, Yara, SQM, ICL and K&S. ** See reconciliation and description of certain non-GAAP measures in Financial Performance Indicators in our Financial Review, Pages 50 to 52.




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To remain the leader and preferred supplier of potash, nitrogen and phosphate products worldwide.
2006 Targets 1 Increase North American realized
prices for potash by 10 percent. 2 Increase offshore potash sales
volumes by 5 percent. 3 Increase North American realized
feed prices by 20 percent. 4 Increase realized nitric acid prices
by 5 percent. 2005 Targets Increase potash sales volumes by
5 percent at 25 percent higher
realized prices. Industrial nitrogen net sales from US
plants to comprise 70 percent of the
total from those plants. Increase North American feed
realized prices by 15 percent. Increase purified acid price
realizations by 5 percent. Implement enterprise-wide customer
complaint system to facilitate
tracking and resolution. Outperform competitors on quality
and service as measured by
customer surveys. Expand computer applications
e-mail capabilities to improve
communications with customers
and vendors. 2005 Results Potash sales volumes decreased by approximately 1 percent,
while realized prices were up by 38 percent.
Industrial nitrogen represented 73 percent of net sales
from US facilities. Monocal rose by 17 percent, Dical 19 percent and
DFP 28 percent, for an overall increase of 21 percent.
Realized prices for purified acid increased by 10 percent.
A new system, with automated tracking and reporting, was
developed and implemented.
PotashCorp outperformed the industry average for quality and
service in all key product categories.
Customers and vendors now can receive automated order
information by fax or e-mail. Purified
Phosphate
Industrial
Nitrogen
Feed Fertilizer
Scale of 1-100 PotashCorp PotashCorps Superior Product Quality Industry Average Matching Strengths to Opportunities Tight fundamentals led to higher prices for purified acid products. North American supply
tightened considerably as China reduced production in the face of higher energy costs,
removing approximately 150,000 tonnes from the export market. European producers
moved more product to China, leaving a supply gap in the Western Hemisphere.
With our superior-quality rock, PotashCorp focused on higher-margin industrial phosphate
products and received better realized prices for our purified acid, leading to a gross margin
increase. We are building on this advantage by expanding our facility at Aurora.
Graph source: PotashCorp Maintaining the Highest Standards Customers consistently list product quality as one of the key criteria they use in choosing a
supplier. Our annual customer survey showed that PotashCorp continues to outperform
competitors in terms of quality in each of our major product categories: fertilizer, feed,
industrial nitrogen and purified phosphate.
Service is another important differentiator and PotashCorp has always been a leader in this
area. When asked about ease of placing an order and response to problems or questions,
PotashCorps average score in the four customer groups was approximately 10 percent
higher than the average of our competitors. Graph source: Independent Teleresearch Company Purified Acid Prices Strengthen




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To be the low-cost supplier in our industry.
2006 Targets 1 Achieve rock costs at Aurora
and White Springs 3 percent
below 2005. 2 Achieve conversion costs for
P2O5 production 9 percent
better than 2005. 3 Achieve 5-percent reduction
in per-tonne potash conversion
costs on a Canadian dollar basis. 4 Improve energy efficiency in
Trinidad by 10 percent from 2005. 5 Reduce/avoid transportation and
distribution expenses to achieve a
level 3 percent below market rates. 2005 Targets Achieve rock costs at Aurora and
White Springs 5 percent below 2004.
Achieve conversion costs for P2O5
production 4 percent better than
2004. Achieve 5-percent reduction in
per-tonne potash conversion costs
on a Canadian dollar basis.
Achieve energy efficiency in nitrogen 2 percent better than 2004.
Operate the Aurora DFP plant at
design capacity.
Yield a 3-percent saving in
transportation and distribution
from industry benchmark. 2005 Results Rock costs for 2005 were 1 percent below 2004.
P2O5 conversion costs for 2005 were 1 percent below 2004.
Canadian dollar potash conversion costs rose by 5 percent,
largely due to a 25-percent increase in natural gas costs.
Energy efficiency in nitrogen remained the same as in 2004.
The facility demonstrated its ability to operate at 98 percent of
design capacity. Through cost-avoidance and expense management,
transportation and distribution expenses were kept 5 percent
below market rates. Turning Transportation and Distribution
into a Competitive Edge Strong long-term relationships with key transportation suppliers, carefully managed
cost-avoidance strategies and a proactive approach to ocean freight contracts
enabled PotashCorp to better control expenses and increase gross margin in 2005.
While transportation costs have risen by an average 2-3 percent annually, the
sharp spike in demand for railcars, combined with rising fuel costs and higher risk
premiums, led to cost increases of 10-50 percent for some companies in 2005. By securing long-term contracts in advance of these increases, PotashCorp was
able to minimize the impact of price hikes. Distribution partners recognized the
value of our long-term business, along with our large volumes and high safety
standards. This enabled us to negotiate better rates with reduced risk premiums.
In a similar fashion, long-term ocean freight rate contracts provide a competitive
advantage in shipping potash to offshore customers and ammonia from Trinidad.
Various cost-avoidance measures yielded savings that far exceeded the industry
benchmark, securing our position as a low-cost supplier to our customers. We made investments to improve our transportation and distribution profile in
Brazil, including a new warehouse. As our potash volumes to offshore customers
increase, infrastructure improvements are required. We view the improvement of
our ability to move additional volumes with increasing efficiency as an important
investment in our potash business, which is one of the main reasons for our
investment in Sinofert. We opened a new warehouse in Brazil in January 2006.
Potash is shipped to Brazil by sea, then trucked to our
warehouse, which gives us an advantage in distribution
to customers around that country. achieved
partially achieved
did not achieve




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To move closer to our goal of no harm to people, no accidents, no damage to the environment.
2006 Targets 1 Reduce recordable and lost-time
injury rates by 30 percent from
2005 levels. 2 Reduce reportable releases and
permit excursions by 30 percent
from 2005 levels. 3 Achieve 100-percent compliance on
all environmental, safety and
security audit action items. 2005 Targets Reduce recordable and lost-time
injury rates by 10 percent.
Reduce reported releases and permit
excursions by 25 percent.
Achieve 100-percent compliance on
all environmental and safety audit
action items. 2005 Results Recordable and lost-time injury rates both increased from the
record-low levels of 2004. Releases and permit excursions were reduced by 30 percent.
100-percent compliance was achieved. Making Accident Prevention a Priority Reducing risk is part of PotashCorps business strategy  and one of the fundamental principles of our approach
to safety. Even after the
record safety performance of 2004, our company continued to focus on new ways to prevent accidents. While our
results in 2005 did not
meet our expectations, the commitment to safety remained a priority. This led to the creation of a high-level team focused on the prevention of accidents with employees and
contractors. This Senior Safety
Leadership Team is shifting attention from traditional safety measures such as the frequency of lost-time
injuries or recordable accidents
and placing greater attention on eliminating behaviors that cause accidents before injuries happen. Were looking for trends of behaviors that cause accidents, so that we can eliminate those vulnerabilities,
said Jim Dietz, PotashCorps
Executive Vice President, Chief Operating Officer and safety team leader. When we accomplish this, well really
be a leading company in
terms of safety. For example, the PCS Phosphate Aurora railyard created a Critical Behavior Inventory, illustrated with photos, to
demonstrate the correct
(and incorrect) methods of dealing with railcars. Since we began focused observation of railyard practices,
overall safe behavior has
increased from 98.5 percent to 99.8 percent. The Senior Safety Leadership Team discussed this approach with safety managers from all of PotashCorps operating
facilities at a safety
conference in 2005. The objective is to create consistency in how safety policies, procedures and practices are
applied and measured. Senior Safety Leadership Team The Senior Safety Leadership Team is composed of
(from left to right): Tom Brower, Senior Director, Safety and Health Jim Dietz, Executive Vice President and Chief Operating Officer Garth Moore, President, PCS Potash John Hunt, Vice President, Safety, Health and Environment Tom Regan, President, PCS Phosphate Clark Bailey, Vice President, Manufacturing and Technical,
PCS Nitrogen




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To have motivated and productive employees committed to our long-term goals.
2006 Targets 1 Fill at least 75 percent of senior
staff openings with internal
candidates. 2 Maintain or improve employee
engagement levels as measured
by employee engagement survey. 3 Stabilize rate of employee
turnover at Trinidad operations. 2005 Targets Integrate key corporate performance
metrics into regular employee
reviews, providing managers with
greater discretion to reward
individual achievement.
Proactively improve orientation
programs for new employees and
career development processes for
existing employees.
Complete implementation of a human
resources administration system
enabled by information technology.
Maintain personnel turnover
improvements achieved in 2004
in Trinidad. 2005 Results Key performance indicators are being used in more
departmental and individual goal-setting and performance
discussions. Changes to compensation and incentive pay
have been implemented to allow flexibility in rewarding
excellent performance. A framework for employee orientation, including a handbook
for new employees, is in development. Cross-border transfers
are being improved, creating new opportunities for current
employees. Full implementation has been completed in the United States,
while final extension into Canada is on hold. Turnover in Trinidad increased as PotashCorp employees
were recruited to fill positions in a rapidly developing
chemical sector. Putting Performance First Continuous improvement is a core value at PotashCorp  one that requires
people in our company to deliver better performance in all areas of our
operations year after year. In recognition of this, we have developed
compensation and advancement plans that challenge and reward
employees who drive the companys success. This includes a system of short- and long-term incentives based on
PotashCorps overall performance, using indicators such as total shareholder
return and cash flow return versus the cost of capital to measure success.
The programs are designed to develop strong corporate management and
provide a financial incentive for employees to achieve success. In 2006, the short-term incentive program will be extended to include
approximately 1,500 employees. In addition to linking employee rewards
with corporate performance objectives, this strengthens PotashCorps ability
to attract and retain key talent and provides more people with greater
potential to share in our success. Recognizing that people are motivated by more than financial rewards, we
have placed a priority on giving top performers the ability to advance. In
2005, 41 of 54 senior-level position movements were filled from within,
including all opportunities at the executive level.
Integrity and sharing what we learn are core values
at PotashCorp. At our Annual Meeting of Shareholders,
Trent Sereda and Tanya Krause (shown here) were
recognized for living these values as they perform
their functions in the Saskatoon office. achieved
partially achieved
did not achieve




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To improve the socio-economic well-being of our communities.
2006 Targets 1 Continue to be engaged with
community support projects at
each of our plants and offices. 2 Achieve a 10-percent increase
in individual participation in the
matching gift program and a
20-percent increase in total
donations. 3 Remain in the top quartile of
governance practices as measured
by external reviews. 2005 Targets Be in the top quartile of responses
in a survey of community leaders.
Be engaged with community
support projects at each of our
plants and offices.
Achieve a 10-percent increase in
individual participation in the matching
gift program and a 20-percent
increase in total donations.
Remain in the top quartile of
governance practices as measured
by external reviews. 2005 Results A survey conducted in Aurora showed that people view
PotashCorp as important to the local economy (97 percent),
a strong community supporter (89 percent) and a good
employer (85 percent). Our company and our people were engaged in efforts to
improve our communities. This included cash donations,
volunteer efforts and relationship-building activities like
Limestone Days at Weeping Water. Individual participation increased by 15 percent and total
donations rose by 58 percent. PotashCorps governance practices were ranked in the top
10 percent of 209 S&P/TSX companies evaluated by Report
on Business magazine. Joining Hands with Our Communities Being engaged with our communities extends beyond the employment and financial
impact of our facilities. We are active volunteers in the places where we work and live,
and support initiatives that bring us closer to our communities. Our people have
embraced this by supporting local organizations, with activities such as:  At White Springs, our employees have a long-term relationship with the Hamilton
County School System, working with at-risk kids and preparing them for opportunities
to join the workforce.  A team of Trinidad employees participated in the Energy Challenge, a 24-hour outdoor
event that involves hiking mountain trails and building sleeping accommodations, to
raise money for FEEL, which works with charitable agencies to provide aid to people
in Trinidad and Tobago.  Aurora workers spent a day during the holiday season ringing bells to raise money for
the Salvation Army.  In Rocanville, our people formed a team to raise money by running in the 24-Hour
Relay For Life.  Our Cory personnel donated food and gifts to local charitable organizations.
In total, 100 percent of our facilities, including each of our operating facilities and our
corporate offices in Saskatoon and Northbrook, made connections in their communities
through volunteerism, partnerships and financial donations. Many PotashCorp employees demonstrated
their compassion and commitment following
Hurricane Katrina. Led by employees at Geismar
who opened their homes to victims, people
from across our company contributed to the
effort by delivering supplies and cooking for
volunteers. Debra Flerlage, an executive
secretary at our Northbrook office, organized
a clothing drive that gathered more than
70 bags of clothing from her fellow employees.
As a company, we donated $250,000 to the
relief effort. achieved
partially achieved
did not achieve




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##### Table of Contents



Highlights of Sustainability Achievements in 2005
 Governance
  Energy
  Community Relations
  Safety
  Environment
  Stakeholder Engagement
   
    
    it is the right thing to do
 
    
    it is good business.
   PotashCorps Commitment to Sustainability
 Our Sustainability Vision
  Our Sustainability Commitments
 Health and Safety:
 Integrity:
 Governance:
 Financial Performance:
 Environmental Responsibility:
 Energy:
 Employees:
 Stakeholder Engagement:
 Community Development:
 Customers and Business Partners:




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##### Table of Contents



Why is corporate governance such an important part of sustainability?
   What changes did PotashCorps board introduce in 2005
to strengthen its governance?
       
 
 A Clear Approach to Disclosure




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How did sustainability contribute to business performance and
shareholder value in 2005?
  
    
    Paying attention to environmental and social issues lowers our risk profile and our costs.
 
    
    Our efforts to improve energy efficiency reduce costs and make us more competitive.
 
    
    A culture of integrity, fairness and opportunity is a key motivator for our employees.
 
    
    We benefit from reduced insurance premiums that resulted from our joint commitment to
safety with a local business partner.
      
 
 Creating
Value by Doing Whats Right
  
    
    50% of a companys market value can be attributed to sustainable business practices.
 
    
    35% of institutional investors make portfolio decisions based on intangibles like safety,
health and environmental performance.
    
    81% of Global 500 executives place safety, health, environmental and social issues among the top
10 value drivers of their businesses.
  
 How is PotashCorp driving its sustainability program
into the organization?




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##### Table of Contents



What were the priority areas for PotashCorps sustainability
program in 2005?
    
 
 In Touch with Our Communities
   
 What steps did PotashCorp take in 2005 to help meet its customers needs for sustainable
supplies of potash?




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Shared Values, Shared Success
   
 How is PotashCorp strengthening its position
as an employer of choice?




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##### Table of Contents



Living by Our Code
   
 Why does PotashCorp place so much importance on
stakeholder engagement?
   What did you learn from your external stakeholders in 2005?
      
 Investors Value Potash First
   Value-Driving
Capabilities of the Nutrients




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##### Table of Contents



PotashCorp Board of Directors
 
 Frederick J. Blesi, 2, 5
 William J. Doyle, 1
 John W. Estey, 3, 4
 Wade Fetzer III, 2, 3
 Dallas J. Howe, 1, 2
 Alice D. Laberge, 4, 5
 Jeffrey J. McCaig, 3, 5
 Mary Mogford, 2, 5
 Paul J. Schoenhals, 3, 4
 E. Robert Stromberg, 1, 2, 4
 Jack G. Vicq, 1, 5
 Elena Viyella de Paliza, 1, 4
 committees
    

1 Executive     2
Corporate governance and nominating     3 Compensation4 Safety, health and environment     5 Audit




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Corporate Officers and Key Management
 
 William J. Doyle  President and Chief Executive Officer
 Wayne R. Brownlee  Executive Vice President and Chief Financial Officer
 James F. Dietz  Executive Vice President and Chief Operating Officer
 Betty-Ann L. Heggie  Senior Vice President, Corporate Relations
 Barbara Jane Irwin  Senior Vice President, Administration
 Robert A. Jaspar  Senior Vice President, Information Technology
 Joseph A. Podwika  Senior Vice President, General Counsel and Secretary
 G. David Delaney  President, PCS Sales
 Garth W. Moore  President, PCS Potash
 Thomas J. Regan, Jr.  President, PCS Phosphate
 Stephen F. Dowdle  Senior Vice President, Fertilizer Sales, PCS Sales
 Daphne J. Arnason  Vice President, Internal Audit
 Karen G. Chasez  Vice President, Procurement
 John R. Hunt  Vice President, Safety, Health and Environment
 Denis A. Sirois  Vice President and Corporate Controller




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##### Table of Contents



Shareholder Information
 Annual Meeting
    Dividends
   Information for Shareholders Outside Canada
  Ownership
  Shares Listed
 
 Investor Inquiries
  Common Share Transfer Agent
 In Canada:
    
    In the United States:CIBC Mellon Trust Company
    
    Mellon Investor Services, L.L.C.600 The Dome Tower
    
    480 Washington Boulevard333  7th Avenue SW
    
    Jersey City NJ 07310-1900Calgary AB T2P 2Z1Phone:
    
    (403) 232-2400
    
    Phone: (800) 526-0801(800) 387-0825Website: www.cibcmellon.com
    
    Website: www.mellon.com
  
 Interim Reports, News Releases and Form 10-K
   NYSE Corporate Governance
  Corporate Offices
 Canada:
    
    Suite 500, 122  1st Avenue South, Saskatoon SK S7K 7G3 Phone: (306) 933-8500US:
    
    Suite 400, 1101 Skokie Boulevard, Northbrook IL 60062 Phone: (847) 849-4200




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Common Share Prices and Volumes
   Toronto Stock Exchange1
    
    
    New York Stock ExchangeHigh
    
    
    Low
    
    
    Volume
    
    
    High
    
    
    Low
    
    
    Volume2005
    
    First Quarter
    
    
    113.92
    
    
    
    89.11
    
    
    
    18,297,446
    
    
    
    92.00
    
    
    
    72.91
    
    
    
    32,012,000Second Quarter
    
    
    132.11
    
    
    
    98.39
    
    
    
    13,432,009
    
    
    
    106.67
    
    
    
    79.27
    
    
    
    29,833,400Third Quarter
    
    
    137.99
    
    
    
    108.23
    
    
    
    14,451,392
    
    
    
    115.15
    
    
    
    92.85
    
    
    
    24,526,600Fourth Quarter
    
    
    108.89
    
    
    
    84.76
    
    
    
    22,180,812
    
    
    
    93.32
    
    
    
    72.77
    
    
    
    46,103,900Year 2005
    
    
    137.99
    
    
    
    84.76
    
    
    
    68,361,659
    
    
    
    115.15
    
    
    
    72.77
    
    
    
    132,475,9002004
    
    First Quarter
    
    
    57.93
    
    
    
    50.96
    
    
    
    12,670,142
    
    
    
    44.75
    
    
    
    38.13
    
    
    
    15,905,400Second Quarter
    
    
    64.87
    
    
    
    54.58
    
    
    
    12,009,046
    
    
    
    48.50
    
    
    
    39.46
    
    
    
    23,604,000Third Quarter
    
    
    81.00
    
    
    
    60.75
    
    
    
    13,237,872
    
    
    
    64.25
    
    
    
    45.78
    
    
    
    30,366,000Fourth Quarter
    
    
    104.06
    
    
    
    76.05
    
    
    
    16,211,631
    
    
    
    84.00
    
    
    
    60.65
    
    
    
    29,245,700Year 2004
    
    
    104.06
    
    
    
    50.96
    
    
    
    54,128,691
    
    
    
    84.00
    
    
    
    38.13
    
    
    
    99,121,1002003
    
    First Quarter
    
    
    51.40
    
    
    
    41.28
    
    
    
    15,018,768
    
    
    
    33.18
    
    
    
    27.48
    
    
    
    25,139,800Second Quarter
    
    
    47.21
    
    
    
    40.75
    
    
    
    12,704,274
    
    
    
    32.75
    
    
    
    29.82
    
    
    
    21,213,000Third Quarter
    
    
    50.52
    
    
    
    42.40
    
    
    
    8,477,440
    
    
    
    36.78
    
    
    
    30.95
    
    
    
    14,140,200Fourth Quarter
    
    
    57.75
    
    
    
    46.88
    
    
    
    14,428,736
    
    
    
    43.63
    
    
    
    35.24
    
    
    
    24,381,780Year 2003
    
    
    57.75
    
    
    
    40.75
    
    
    
    50,629,218
    
    
    
    43.63
    
    
    
    27.48
    
    
    
    84,874,780
 1
    
    Trading prices are in Cdn $

Source: Thomson Financial


Yearly POT Stock Price  NYSE Composite







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(NET SALES CHART)
    

(EBITDA CHART)
    

(GROSS MARGIN CHART)(CASH FLOW RETURN ON INVESTMENT CHART)
    

(ADJUSTED EBITDA INTEREST COVERAGE CHART)
    

(NET DEBT TO CAPITAL CHART)
 *
    
    See reconciliation and description of certain non-GAAP measures in Financial Performance
Indicators in our Financial Review, Pages 50 to 52.




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##### 



CONTENTS
 2 Managements Discussion & AnalysisSECTION 1 Core Businesses and MarketsThe Global Development Story
    
    
    3Overview of Our Business
    
    
    5PotashCorp in the World Potash Scene
    
    
    6PotashCorp in the World Nitrogen Scene
    
    
    8PotashCorp in the World Phosphate Scene
    
    
    9SECTION 2 Objectives and StrategiesStrategy for Today and Tomorrow
    
    
    11Our Potash Strategy
    
    
    12Our Nitrogen Strategy
    
    
    13Our Phosphate Strategy
    
    
    14SECTION 3 Capability to DeliverPotash: Supplying the World
    
    
    15Nitrogen: Supporting Our Trinidad Production
    
    
    17Phosphate: Using Our Product Diversity
    
    
    17Key Performance Drivers
    
    
    18Rewarding Results
    
    
    19Managing Risk
    
    
    20SECTION 4 Performance and ProspectsFactors That Shaped 2005 Business Conditions
    
    
    222005 Financial Overview
    
    
    25Business Segment Review
    
    
    262006 Outlook
    
    
    36Liquidity
and Capital Resources/Management
    
    
    39Accounting
Estimates and Changes
    
    
    4450
Financial InformationSECTION
5Financial Performance Indicators
    
    
    50Auditors Reports
    
    
    54Consolidated Financial Statements
    
    
    56Appendix
    
    
    89




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##### Table of Contents



Potash (K)
    
    Nitrogen (N)
    
    Phosphate (P)Base Product
    
    Potassium chloride (KCl)
    
    Ammonia (NH3)
    
    Phosphate rock  phosphoric acid (P2O5)Geographic
Availability of
    
    Very limited
    
    Readily available in
    
    LimitedRaw Materials1
    
    
    
    numerous locations(natural gas)Cost of New
    
    Approximately
    
    Approximately $500
    
    Approximately $1 billion forCapacity2
    
    $1.2 billion for 2
    
    million for 1 million
    
    1 million tonnes P2O5million tonnes KCl
    
    tonnes ammoniaGreenfield3
Development Time 4
    
    5 years
    
    2 years
    
    3 yearsProducing
Countries5
    
    12
    
    Approximately 60
    
    44 (based on phosphoric acid)State- or
Subsidy- Controlled
Production 6
    
    18%
    
    51%
    
    47%Industry Operating
Rate 7
    
    91%
    
    85%
    
    76%PotashCorp
Capacity8
    
    12.9 million tonnes
    
    4.1 million tonnes
    
    2.5 million tonnespotash
    
    ammonia
    
    phosphoric acid22% of world capacity
    
    2% of world capacity
    
    6% of world capacityPotashCorp World
Position by
Capacity 9
    
    # 1
    
    # 4
    
    # 3




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##### Table of Contents



Core Businesses and Markets
 
 THE
GLOBAL DEVELOPMENT STORY:
 ECONOMIC GROWTH DRIVES DEMAND FOR FERTILIZER
  
    
    rising population
    
    accelerating income growth
    
    improving diets that drive the ever-increasing demand for protein
    
    a shrinking land base per capita that makes higher crop yields vital.
 Growing Economies
  Rising Incomes
  Population Growing, Land Base Per Capita Falling
 
 Global Trade
  World
GDP Growth, 2005
 
   Land
Available to Agriculture Is Declining




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Need for Nutrients
  Grain Stocks Shrinking as Consumption Rises
  Fertilizer Is Vital
  Elasticity of Demand for Fertilizer
  This is the global development story that tells of rising demand for PotashCorps products,
especially potash. From here, well outline how we are positioned to meet that demand, today and in
the future; discuss our strategy; outline the resources were putting behind our strategy; and
describe our financial performance
and prospects.
 Significant Fertilizer Growth Potential
 
  2 5
 World
N, P and K Demand Forecast to Grow
 
   DEMAND DRIVERS
 FERTILIZER
    
    FEED
    
    INDUSTRIAL Rising world population
    
     Demand for protein-rich
    
     Rising world population Economic growth and resulting
    
    diets from various animal sources
    
     Economic growthdesire for protein-rich diets
    
     Herd and flock size
    
     Desire for products that contribute Acres planted and application rates
    
     Economic growth and rising
    
    to modern living Crop selection and commodity prices
    
    population
    
     Government policy World grain stocks
    
     Government policy Weather Currency strength Government policy




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OVERVIEW OF OUR BUSINESS:
 FERTILIZER IS MOST SIGNIFICANT
 fertilizer feed supplements industrial
 Worlds
Ten Largest Fertilizer Companies
 
   POTASH IS THE BIGGEST CONTRIBUTOR
  Diverse
Customer Base in Potash
  
       Diverse
Crop Use of Potassium




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FEED AND INDUSTRIAL ARE MORE STABLE
     
 POTASHCORP IN THE WORLD POTASH SCENE
      PotashCorp
Is the Largest Potash Company
 
 *
    
    Investments are: 10% of ICL, 28% of APC and 25% of SQM.**
    
    We own 20% of Sinofert, which has an option to purchase
Sinochem Corporations 20% interest in Qinghai Salt Lake, the
major potash producer in China.Source:
Fertecon, IFA, PotashCorp




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##### Table of Contents



World Potash Production and Consumption
 
    Strengths
 
    
    75 percent of world excess capacity to respond to rising global
consumption
    
    This excess capacity can be brought on stream quickly for roughly
one-quarter of the cost of comparable greenfield capacity
    
    Low-cost, flexible production with small percentage of fixed costs
    
    Significant reserve life from existing mine shafts
    
    Few world producers, little government ownership of assets
    
    Historically stable pricing with upward trend
    
    Substantial barriers to entry, with high cost/long lead time for
greenfield mines; still no greenfield announcements
    
    High volumes reduce distribution costs
    
    Strong free cash flow supports value proposition
    
    No substitutable products for potash
 Weaknesses
 
    
    Competitors continue with low-cost incremental expansions
    
    High Saskatchewan resource taxes and federal and provincial
income taxes, relative to global competitors
    
    Production uses higher-cost North American natural gas
    
    High freight costs to ship Saskatchewan potash to port
    
    Exposure to volatility in currency and ocean freight costs
    
    Water inflow at New Brunswick increases production costs there
    
    Potential for rail transportation bottlenecks
 Opportunities
 
    
    Long-term growth in consumption is expected to continue
    
    With competitors at or near capacity, our excess capacity allows
us to achieve a higher share of offshore market growth
    
    Further international investment opportunities
 Threats
 
    
    Continued upward pricing trend may attract greenfield operations
    
    Exposure to fluctuating offshore markets
    
    Short-term weaknesses in global supply/demand fundamentals
fall disproportionately on PotashCorp
 Cost of
Producing a Tonne of Potash




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POTASHCORP IN THE WORLD NITROGEN SCENE
  
    
    Access to low-cost natural gas with which to make ammonia
and downstream nitrogen products.
    
    Proximity to the US market, because ammonia is costly to
transport and because the US accounts for more than
40 percent of world ammonia imports.
   Largest Offshore Ammonia Capacity in the
Western Hemisphere
 
 *
    
    There are no current plans to restart Geismar or Memphis.**
    
    Tringen is the government portion only.Source: Blue, Johnson; Fertecon; Agrium; PotashCorp     World
Natural Gas Costs




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##### Table of Contents



Strengths
 
    
    Long-term, lower-cost natural gas contracts in Trinidad
    
    65 percent of our gross ammonia production is in Trinidad
    
    Trinidad plants are expanding within existing gas contracts,
adding to cost-advantageous production there
    
    Close proximity of Trinidad production to the US
    
    84 percent of our US manufactured ammonia is sold outside
fertilizer cycles to industrial customers, the largest connected
by pipeline
    
    Hedging program mitigates natural gas price risk related to
US production
 Weaknesses
 
 
 Opportunities
 
    
    High volume demand in the US
    
    Natural gas costs now drive the US market
    
    US distribution system allows us to import and sell
purchased tonnes
    
    US industry consolidation
 Threats
 
    
    Abundant low-cost natural gas in developing countries leads to
its monetization as nitrogen products
    
    Small supply/demand fluctuations can significantly impact prices
    
    Nitrogen plants are spread globally, with significant government
ownership and influence
    
    Short construction period for new capacity can impact the
market quickly
    
    Reduction in differential between US and Trinidad natural
gas prices
 Cost of Producing a Tonne of Ammonia
 
   
 POTASHCORP IN THE WORLD PHOSPHATE SCENE




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Most Diversified Producer
 
     Lower
Rock Costs Create Competitive Advantage
 
      Strengths
 
    
    Significant phosphate rock reserves
    
    Mining close to processing facilities gives competitive
cost advantage
    
    High rock quality and proven technology enable economical
production diversity
    
    Well positioned in North American purified acid and feed
phosphate markets
 Weaknesses
 
    
    Product mix still requires production of some solid fertilizers
(DAP/MAP)
    
    Increases in sulfur and ammonia costs can negatively
impact margins
    
    High percentage of fixed production costs means plants do
not perform profitably at lower operating rates
 Opportunities
 
    
    World phosphate rock supply/demand fundamentals are
expected to remain tight
    
    Very few companies globally with high-quality rock to
economically produce purified acid
    
    Rationalization in North American feed phosphate market
    
    Increased demand by growing economies for industrial and
feed phosphates
 Threats
 
    
    Significant government control and intervention globally in
constructing capacity and restricting imports
    
    China and India increase DAP production, reducing US exports
    
    Low DAP margins can cause producers to switch to feed
production, hurting this business
    
    High barriers to exit because of significant environmental
restoration and remediation costs




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##### Table of Contents



Cost
of Producing a Tonne of Phosphoric Acid
 
   We are building a foundation for the future on
what makes us unique. In potash, it is our excess
capacity, which serves a growing market.
In nitrogen, our position as a low-cost supplier
to the US from Trinidad makes us stand out.
In phosphate, the quality of our rock allows us
to readily diversify our production into feed and
industrial products.
 
 Objectives and Strategies
 VISION FOR TOMORROW
  
 STRATEGY FOR TODAY AND TOMORROW: Generate Long-Term Growth, Reduce Natural Volatility
   Strategic
Positioning Profile
 
  PotashCorps Highest-Margin Business




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##### Table of Contents



OUR POTASH STRATEGY: Meet World Demand for Long-Term Growth
      PotashCorp
Production Is Driven by Markets
 
   Illustrative
Greenfield Potash Sensitivities




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##### Table of Contents



OUR NITROGEN STRATEGY: Build on Our Trinidad Asset for Reduced Volatility
      PotashCorp Trinidad Gross Margin Potential
 
 *
    
    Trinidad contribution to total nitrogen gross margin is shown on the graph at right.Source: PotashCorp  PotashCorp Nitrogen Gross Margin




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##### Table of Contents



OUR PHOSPHATE STRATEGY: Develop Industrial and Feed for Reduced Volatility
      PotashCorp Phosphate Gross Margin
 
   With our Potash First strategy, we focus on supplying global growth in fertilizer demand
but only produce what the market needs. Our strategy in nitrogen and phosphate focuses
on Trinidad nitrogen and the stability provided by industrial and feed products.




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##### Table of Contents



Capability to Deliver
 POTASHCORPS COMMITMENT
   PotashCorp 2005 Capital Expenditures
 
   
 POTASH: Supplying the World
    Making Our Excess Capacity Ready
   Breakdown
of PotashCorp Capacity




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##### Table of Contents



PotashCorp  Potash Capacity and Production
 
      Investing in Our Distribution Chain
  PotashCorp 2005 Cash Usage
 
     Increasing Investments Offshore




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##### Table of Contents



NITROGEN: Supporting Our Trinidad Production
    NYMEX
and PotashCorp Gas Prices
 
   
 PHOSPHATE: Using Our Product Diversity
      We are putting our resources behind our strategy in all three nutrients to
deliver on our value proposition. As we measure our progress in achieving
our goals, we always consider our risk.




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##### Table of Contents



KEY PERFORMANCE DRIVERS




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##### Table of Contents



REWARDING RESULTS
 PHILOSOPHY
   Compensation
    
    
    
    
    
    PerformanceElement
    
    Form
    
    Eligibility
    
    Period
    
    DeterminationBase salary
    
    Cash
    
    All staff
    
    Annual
    
        Base salary targets are set to the
median of comparable companies,
adjusted to reflect individual
performance and internal equity.Short-term
incentives
    
    Cash
    
    All executives and
most
full-time permanent
salaried staff
Total: 1,500 people
(approximately)
    
    1 year
    
        Awards are based on the achievement
of predetermined goals for
corporate performance or a
combination of corporate and
operating group performance.
    Individual awards can be adjusted
(+/‐ 20%) to recognize individual
performance.Medium-term
incentives
    
    Performance
share units
    
    All executives
 and senior
management
Total: 65 people
(approximately)
    
    3 years
    
        Units are issued at a price equal to
the average market price of our
common shares at award date.
    Each award vests and is paid out at
the end of the three-year
performance period in relation to a
vesting schedule whereby half of
the units are vested in accordance
with corporate total shareholder
return (TSR)1 targets and
half of the units are vested in
accordance
with corporate TSR relative to a
selected competitive groups TSR.    The value at payout is based on the
number of vested units multiplied by
the 30-day average common share price
at the end
of the performance period.Long-term
incentives
    
    Performance stock options
    
    All executives and
 other selected
managers
Total: 215 people
(approximately)
    
    3 years
(vesting)

10 years
(option term)
    
        Performance stock options incorporate
a performance-based vesting
schedule measuring three-year average
excess of cash flow return
over weighted average cost of capital.
    Value of vested shares based on our
common share price
appreciation over the 10-year term.
 1
    
    TSR represents the total return on an investment in PotashCorp stock from the time
the investment is made.The total return has two components: (1) growth in the share price and (2) dividend income on the
shares.
 EXECUTIVE COMPENSATION LINKED TO KEY BUSINESS DRIVERS
  PERFORMANCE MEASURE
    
    VESTING SCALE3-Year Average Excess of Cash Flow Return on
    
    Percentage ofInvestment over Weighted Average Cost of Capital
    
    Stock Option Grant Vesting<0%
    
    0%0.20%
    
    30%1.20%
    
    70%2.20%
    
    90%2.50%
    
    100%




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REWARD STRUCTURE
   
 MANAGING RISK
     Sustaining Growth and Our Earnings Multiple
   Potash Capacity
   Downstream Product Mishaps




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##### Table of Contents



Labor Relations
   Regulatory Risk
    New Supply Creates Structural Market Imbalance
   Suppressed Demand Creates Structural
Market Imbalance
   Risk of Cyclicality
  
 GLOBAL RISK ENVIRONMENT World events and trends that are not unique to our sector but rather impact the
international business environment  e.g. interest rates, exchange rates
or wars affecting international trade. RISK TO STRATEGY Risks to strategy limit the
implementation of these
strategies due to a lack of
integration or changes in the
business environment,
hindering our ability to take
advantage of opportunities. RISK CATEGORIES Market / Business Risk Distribution Risk Operational Risk Financial /
Information Technology Risk Regulatory Risk Integrity / Empowerment Risk RISK TO REPUTATION Risks to reputation threaten
PotashCorps earnings, capital
or brand by creating negative
opinions of the company in the
minds of employees, customers,
investors or our communities.




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##### Table of Contents



Political Risk
  Distribution Risks
  Security Risks
  Risk to Reputation
  
 Performance and Prospects
 
 FACTORS THAT SHAPED 2005 BUSINESS CONDITIONS
 1 Continued Strength in Global Economy
  World Economic Growth
 
  2 World Grain and Rice Inventories Decline
  World
Grain Production and Consumption




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##### Table of Contents



3 Growth in World Potash Demand Returns to Historical Levels
  World Potash Demand* Growth
 
 
 4 Another Record Year for Canpotex
  Canpotexs Sales Volumes
 
  5 Fertilizer Prices Rise
  6 Growing Pains in Brazil
  7 Belarusian Potash Company Initiated
  8 Hurricanes Spike US Gas Prices, Further Tighten Nitrogen Supply
  US Natural Gas Price vs Ammonia Price




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##### Table of Contents



Potash
    
    
    Nitrogen
    
    
    Phosphate2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Total World Demand
10
(Million Product
Tonnes)
    
    
    50.7
    
    
    
    50.2
    
    
    
    143.5
    
    
    
    140.4
    
    
    
    61.4
    
    
    
    60.2PotashCorp Share of
World Production
11
    
    
    17
    %
    
    
    16
    %
    
    
    2
    %
    
    
    2
    %
    
    
    6
    %
    
    
    6
    %
 10-11, See Appendix, Page 89
 9 US Ammonia Production Down, Imports Up
  Delivered Ammonia Costs to US Gulf
  
 *
    
    Trinidad assumes ammonia based on US gas at $9.00 per MMBtu.Source: Fertecon, OMS, PotashCorp
 10 Consolidation of Purified Acid Market Continues
   11 Feed Market Contraction, Industry Rationalization
  US DFP Capacity and Production
 
 Source: TFI, PotashCorp
 12 Global DAP Market Strengthened by Indias Large Purchases
  India
 DAP Imports
 
 Source: Fertecon




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##### Table of Contents



2005 FINANCIAL OVERVIEW
  Dollars (millions)
    
    
    % Increase (Decrease)2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004Sales
    
    $
    3,847.2
    
    
    $
    3,244.4
    
    
    $
    2,799.0
    
    
    
    19
    
    
    
    16Gross Margin
    
    $
    1,125.0
    
    
    $
    681.4
    
    
    $
    380.4
    
    
    
    65
    
    
    
    79Operating Income
    
    $
    892.6
    
    
    $
    514.3
    
    
    $
    (55.6
    )
    
    
    74
    
    
    
    n/mNet Income
    
    $
    542.9
    
    
    $
    298.6
    
    
    $
    (126.3
    )
    
    
    82
    
    
    
    n/mNet Income
Per Share  Diluted
    
    $
    4.89
    
    
    $
    2.70
    
    
    $
    (1.21
    )
    
    
    81
    
    
    
    n/m
 n/m = not meaningful
 2005 Earnings Compared to Guidance
  EffectCause
    
    on EPSPotash realized prices higher
    
    
    0.52Potash volumes lower
    
    
    (0.41
    )Increased potash costs
    
    
    (0.28
    )Lower provincial mining taxes
    
    
    0.17Subtotal potash
    
    
    Increased nitrogen realized prices (exclusive
of purchased product)
    
    
    2.14Cost of natural gas and purchased ammonia higher
    
    
    (1.55
    )Larger gain on natural gas hedges and
purchased product margin
    
    
    0.28Nitrogen costs lower (exclusive of cost
of natural gas and purchased ammonia)
    
    
    0.06Subtotal nitrogen
    
    
    0.93Phosphate realized prices higher
    
    
    0.87Increased input costs for ammonia, sulfur and rock
    
    
    (0.46
    )Phosphate other costs higher along
with lower phosphate sales volumes
    
    
    (0.09
    )Subtotal phosphate
    
    
    0.32Increase in other income
    
    
    0.06Increase in selling and administrative
    
    
    (0.15
    )Foreign exchange variance and
higher interest expense
    
    
    (0.15
    )Subtotal other
    
    
    (0.24
    )Total variance from 2005 diluted EPS guidance
    
    
    1.01
 2005 Earnings Compared to 2004
  EffectCause
    
    on EPSPotash offshore realized prices higher
    
    
    1.01Potash North
American realized prices higher
    
    
    0.91Increase in potash costs due to foreign exchange
    
    
    (0.15
    )Increased potash costs along with lower
potash sales volumes
    
    
    (0.06
    )Higher provincial mining taxes
    
    
    (0.26
    )Subtotal potash
    
    
    1.45Increased nitrogen realized prices (exclusive
of purchased product)
    
    
    1.05Cost of natural gas and purchased ammonia higher
    
    
    (0.70
    )Nitrogen costs lower (exclusive of cost of natural gas
and purchased ammonia) combined with higher
manufactured volumes
    
    
    0.05Larger gain on natural gas hedges and purchased
product margin
    
    
    0.05Subtotal nitrogen
    
    
    0.45Phosphate realized prices higher
    
    
    0.58Increased input costs for ammonia and sulfur
    
    
    (0.08
    )Subtotal phosphate
    
    
    0.50Increase in other income (excluding gain on sale
of SQM shares)
    
    
    0.12Increase in selling and administrative
    
    
    (0.08
    )Foreign exchange variance and decrease in
interest expense
    
    
    0.06Subtotal other
    
    
    0.10Subtotal of the above
    
    
    2.50Gain from the sale of SQM shares in 2004
    
    
    (0.31
    )Total variance from 2004 diluted EPS
    
    
    2.19




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##### Table of Contents



BUSINESS SEGMENT REVIEW
    POTASH RESULTS
 % Increase
    

    
    
    
    
    
    
    
    
    
    
    
    

    
    % Increase
    

    
    
    
    
    
    
    
    
    
    
    
    

    
    % IncreaseDollars (millions)
    
    

    (Decrease)
    
    

    Tonnes (thousands)
    
    

    (Decrease)
    
    

    Average Price per Tonne
    
    

    (Decrease)2005
    
    
    2004
    
    
    2003
    

    
    2005
    
    
    2004
    

    
    2005
    
    
    2004
    
    
    2003
    

    
    2005
    
    
    2004
    

    
    2005
    
    
    2004
    
    
    2003
    

    
    2005
    
    
    2004Sales
    
    $
    1,341.1
    
    
    $
    1,056.1
    
    
    $
    758.7
    

    
    
    27
    
    
    
    39Freight
    
    
    129.7
    
    
    
    128.7
    
    
    
    109.9
    

    
    
    1
    
    
    
    17Transportation
and distribution
    
    
    34.5
    
    
    
    32.6
    
    
    
    29.7
    

    
    
    6
    
    
    
    10$
    1,176.9
    
    
    $
    894.8
    
    
    $
    619.1
    

    
    
    32
    
    
    
    45Net salesNorth American
    
    $
    495.6
    
    
    $
    347.5
    
    
    $
    230.6
    

    
    
    43
    
    
    
    51
    

    
    
    3,144
    
    
    
    3,246
    
    
    
    2,870
    

    
    
    (3
    )
    
    
    13
    

    
    $
    157.64
    
    
    $
    107.06
    
    
    $
    80.33
    

    
    
    47
    
    
    
    33Offshore
    
    
    668.3
    
    
    
    504.6
    
    
    
    336.2
    

    
    
    32
    
    
    
    50
    

    
    
    5,020
    
    
    
    5,030
    
    
    
    4,213
    

    
    
    
    
    
    
    19
    

    
    $
    133.13
    
    
    $
    100.33
    
    
    $
    79.80
    

    
    
    33
    
    
    
    261,163.9
    
    
    
    852.1
    
    
    
    566.8
    

    
    
    37
    
    
    
    50
    

    
    
    8,164
    
    
    
    8,276
    
    
    
    7,083
    

    
    
    (1
    )
    
    
    17
    

    
    $
    142.56
    
    
    $
    102.97
    
    
    $
    80.01
    

    
    
    38
    
    
    
    29Miscellaneous
products
    
    
    13.0
    
    
    
    42.7
    
    
    
    52.3
    

    
    
    (70
    )
    
    
    (18
    )

    
    
    
    
    
    
    
    
    
    
    
    

    
    
    
    
    
    
    
    

    
    
    
    
    
    
    
    
    
    
    
    

    
    
    
    
    
    
    1,176.9
    
    
    
    894.8
    
    
    
    619.1
    

    
    
    32
    
    
    
    45
    

    
    
    8,164
    
    
    
    8,276
    
    
    
    7,083
    

    
    
    (1
    )
    
    
    17
    

    
    $
    144.16
    
    
    $
    108.12
    
    
    $
    87.41
    

    
    
    33
    
    
    
    24Cost of goods sold
    
    
    469.5
    
    
    
    472.0
    
    
    
    415.4
    

    
    
    (1
    )
    
    
    14
    

    
    
    
    
    
    
    
    
    
    
    
    

    
    
    
    
    
    
    
    

    
    $
    57.51
    
    

    $
    57.03
    
    
    $
    58.65
    

    
    
    1
    
    
    
    (3
    )Gross Margin
    
    $
    707.4
    
    
    $
    422.8
    
    
    $
    203.7
    

    
    
    67
    
    
    
    108
    

    
    
    
    
    
    
    
    
    
    
    
    

    
    
    
    
    
    
    
    

    
    $
    86.65
    
    
    $


    51.09
    
    
    $
    28.76
    

    
    
    70
    
    
    
    78
  2005 VS 2004
 Highlights
 
    
    Gross margin as a percentage of net sales increased to 60 percent, a 28-percent improvement
from the 2004 figure of 47 percent.
    
    Tight global potash supply resulted in higher realized prices, contributing the majority of our
total annual change in gross margin. World GDP grew an estimated 4.3 percent in 2005,
led by countries such as China and India. Growing prosperity allows people to improve their
diets, primarily with more protein from animal sources which in turn require more grain  and, as a
result, more fertilizer. This contributed to strong potash demand from some key offshore customers,
particularly China and India. This increased demand was partially offset by reduced imports by
Brazil, our largest customer in 2004. A strong currency, weak soybean prices and tighter
agricultural credit negatively affected Brazilian consumption.
 
    
    In North America, a sharp spike in energy costs combined with low crop commodity prices led
dealers to step back from the fertilizer market in the fall after a strong first half of the year.
US purchasers appear to have deferred buying decisions from the fall of 2005 to the spring of 2006
to avoid building high-cost inventories.
    
    We produced 8.8 million tonnes of potash in 2005 and ended the year with total inventories of
approximately 1.1 million tonnes, up from the historic low of 0.5 million tonnes at the end of
2004 but still approximately 1 million tonnes less than our total storage capacity.
 Potash
gross margin variance attributable to:
 Dollars (millions)
 2005 vs 2004Change in Prices
    
    
    Total GrossChange in
    

    
    
    
    
    
    Cost of
    

    
    MarginSales Volumes
    

    
    Net Sales
    
    
    Goods Sold
    

    
    VarianceNorth American
    
    $
    (7.7
    )

    
    $
    158.7
    
    
    $
    (14.1
    )

    
    $
    136.9Offshore
    
    
    (9.4
    )

    
    
    174.7
    
    
    
    (22.7
    )

    
    
    142.6Other
    
    
    5.5
    

    
    
    (1.8
    )
    
    
    1.4
    

    
    
    5.1Total
    
    $
    (11.6
    )

    
    $
    331.6
    
    
    $
    (35.4
    )

    
    $
    284.6




---



##### Table of Contents



Potash Production
 Mine SiteProduction
    
    
    EmployeesCapacity
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    (active)Lanigan SK
    
    
    3.828
    
    
    
    2.023
    
    
    
    2.025
    
    
    
    1.488
    
    
    
    378Rocanville SK 1
    
    
    3.044
    
    
    
    2.573
    
    
    
    1.833
    
    
    
    1.989
    
    
    
    340Allan SK
    
    
    1.885
    
    
    
    1.431
    
    
    
    1.344
    
    
    
    .934
    
    
    
    293Cory SK
    
    
    1.361
    
    
    
    .826
    
    
    
    .738
    
    
    
    .730
    
    
    
    207Patience Lake SK
    
    
    1.033
    
    
    
    .251
    
    
    
    .239
    
    
    
    .251
    
    
    
    66Esterhazy SK 2
    
    
    .953
    
    
    
    .953
    
    
    
    .953
    
    
    
    .953
    
    
    
    0New Brunswick NB
    
    
    .785
    
    
    
    .759
    
    
    
    .782
    
    
    
    .749
    
    
    
    332TOTAL
    
    
    12.889
    
    
    
    8.816
    
    
    
    7.914
    
    
    
    7.094
    
    
    
    1,616
 1
    
    Expansion at Rocanville during 2005 raised its capacity to 3.044 million tonnes and
total capacity to 12.889 million tonnes.2
    
    PotashCorps mineral rights at Esterhazy are mined by Mosaic Potash Esterhazy Limited
Partnership under a long-term agreement.For calendar year 2006, our production allocation is 0.953 million tonnes.
 
    
    New three-year labor contracts were successfully ratified at our Allan, Cory and Patience
Lake mines in the fourth quarter. These contracts extend to April 30, 2008.
 Sales and Cost of Goods Sold
  
    
    Price increases were achieved in all markets due to strong demand for potash. Higher realized
prices on sales to Canpotex contributed $151.1 million to the increase while $23.6 million was
realized on offshore sales from our New Brunswick operation. North
American realized prices rose 47 percent, or over $50 per tonne, due to product price increases effected throughout the year.
    
    Prices in the North American market were nearly $25 per tonne, or 18 percent, higher than
offshore prices. The gap between the two markets is partly due to offshore customers purchasing
under long-term contracts that lag behind North American spot-market increases. The difference also reflects product mix, as North American customers
prefer granular product that commands a premium over standard product, which is more typically
consumed offshore.
 PotashCorp Potash Prices
 
  Our potash prices increased by 38 percent in 2005. Offshore prices rose throughout the year
but fell off in the fourth quarter due to a greater percentage of lower-priced tonnes being sold to
China under an old contract.
 
    
    Canpotex sold record volumes during 2005 as its sales to
India and China rose 53 percent and 32 percent, respectively. This was partially offset by a decline in sales volumes to Brazil, as well
as Indonesia, Malaysia and Vietnam, which all experienced significant drought during the year.
Despite the record sales volumes of 8.2 million tonnes achieved by Canpotex (2004  7.8 million
tonnes), of which we supplied 54 percent, our total offshore sales volumes were below 2004 due to
Brazils lower imports from our New Brunswick operation. Sales to China represented 26 percent of
our offshore sales volumes, while Brazil represented 17 percent and India 10 percent.
    
    Saskatchewan competitors were product-constrained throughout most of the year. As a result, we
were able to increase our market share in North America by 10 percent. The North American
potash market took 12 percent fewer tonnes during 2005 because, we believe, many dealers
delayed fourth-quarter purchases until 2006. Our North American sales volumes for the year were
still 3.1 million tonnes, only 3 percent lower than 2004.
    
    PotashCorp produced a record 8.8 million tonnes of potash in 2005. The expansion at Rocanville
and additional shifts at Lanigan and Allan early in the year increased production from 7.9 million
tonnes in 2004 and resulted in economies of scale and higher operating efficiencies. Costs on a
per-tonne basis, however, rose 1 percent from the prior year, due primarily to higher energy costs
(in particular, natural gas) and the economic impact of a stronger Canadian dollar. A decline in
the US dollar compared to the Canadian dollar during 2005 negatively impacted cost of goods sold by
over $3.00 per tonne.
 2004 VS 2003




---



##### Table of Contents



NITROGEN RESULTS
 % Increase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    % Increase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    % IncreaseDollars
(millions)
    
    

(Decrease)
    
    

Tonnes (thousands)
    
    
    (Decrease)
    
    
    Average Price per Tonne
    
    

    (Decrease)2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004Sales
    
    $
    1,368.8
    
    
    $
    1,210.4
    
    
    $
    1,156.4
    
    
    
    13
    
    
    
    5Freight
    
    
    39.9
    
    
    
    38.1
    
    
    
    48.8
    
    
    
    5
    
    
    
    (22
    )Transportation
and distribution
    
    
    49.5
    
    
    
    42.3
    
    
    
    42.8
    
    
    
    17
    
    
    
    (1
    )$
    1,279.4
    
    
    $
    1,130.0
    
    
    $
    1,064.8
    
    
    
    13
    
    
    
    6Net salesAmmonia
    
    $
    490.0
    
    
    $
    458.0
    
    
    $
    368.0
    
    
    
    7
    
    
    
    24
    
    
    
    1,672
    
    
    
    1,776
    
    
    
    1,755
    
    
    
    (6
    )
    
    
    1
    
    
    $
    293.05
    
    
    $
    257.85
    
    
    $
    209.63
    
    
    
    14
    
    
    
    23Urea
    
    
    369.5
    
    
    
    259.1
    
    
    
    276.9
    
    
    
    43
    
    
    
    (6
    )
    
    
    1,321
    
    
    
    1,165
    
    
    
    1,470
    
    
    
    13
    
    
    
    (21
    )
    
    $
    279.63
    
    
    $
    222.44
    
    
    $
    188.33
    
    
    
    26
    
    
    
    18Nitrogen solutions,
nitric acid,
ammonium nitrate
    
    
    284.2
    
    
    
    239.2
    
    
    
    250.8
    
    
    
    19
    
    
    
    (5
    )
    
    
    1,850
    
    
    
    1,797
    
    
    
    2,144
    
    
    
    3
    
    
    
    (16
    )
    
    $
    153.67
    
    
    $
    133.13
    
    
    $
    116.98
    
    
    
    15
    
    
    
    14Purchased
    
    
    109.9
    
    
    
    151.5
    
    
    
    149.6
    
    
    
    (27
    )
    
    
    1
    
    
    
    377
    
    
    
    612
    
    
    
    711
    
    
    
    (38
    )
    
    
    (14
    )
    
    $
    291.28
    
    
    $
    247.66
    
    
    $
    210.53
    
    
    
    18
    
    
    
    181,253.6
    
    
    
    1,107.8
    
    
    
    1,045.3
    
    
    
    13
    
    
    
    6
    
    
    
    5,220
    
    
    
    5,350
    
    
    
    6,080
    
    
    
    (2
    )
    
    
    (12
    )
    
    $
    240.15
    
    
    $
    207.07
    
    
    $
    171.92
    
    
    
    16
    
    
    
    20Miscellaneous
    
    
    25.8
    
    
    
    22.2
    
    
    
    19.5
    
    
    
    16
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,279.4
    
    
    
    1,130.0
    
    
    
    1,064.8
    
    
    
    13
    
    
    
    6
    
    
    
    5,220
    
    
    
    5,350
    
    
    
    6,080
    
    
    
    (2
    )
    
    
    (12
    )
    
    $
    245.09
    
    
    $
    211.23
    
    
    $
    175.13
    
    
    
    16
    
    
    
    21Cost of goods sold
    
    
    960.7
    
    
    
    887.2
    
    
    
    871.6
    
    
    
    8
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    184.04
    
    
    $
    165.84
    
    
    
    143.35
    
    
    
    11
    
    
    
    16Gross Margin
    
    $
    318.7
    
    
    $
    242.8
    
    
    $
    193.2
    
    
    
    31
    
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    61.05
    
    
    $
    45.39
    
    
    $
    31.78
    
    
    
    35
    
    
    
    43
  Nitrogen gross margin variance attributable to:
 Dollars (millions)
 2005 vs 2004Change in Prices
    
    
    Total GrossChange in
    
    
    
    
    
    
    Cost of
    
    
    MarginSales Volumes
    
    
    Net Sales
    
    
    Goods Sold
    
    
    VarianceAmmonia
    
    $
    (11.2
    )
    
    $
    63.4
    
    
    $
    (38.9
    )
    
    $
    13.3Urea
    
    
    19.6
    
    
    
    79.9
    
    
    
    (38.9
    )
    
    
    60.6Solutions, NA, AN
    
    
    13.4
    
    
    
    35.3
    
    
    
    (55.8
    )
    
    
    (7.1
    )Purchased
    
    
    (7.2
    )
    
    
    15.5
    
    
    
    (5.3
    )
    
    
    3.0Hedge gains
    
    
    
    
    
    
    
    
    
    
    5.6
    
    
    
    5.6Other
    
    
    (1.1
    )
    
    
    4.8
    
    
    
    (3.2
    )
    
    
    0.5Total
    
    $
    13.5
    
    
    $
    198.9
    
    
    $
    (136.5
    )
    
    $
    75.9
 2005 VS 2004
 Highlights
 
    
    Price increases were realized for all nitrogen products.
    
    Hurricanes that struck the US Gulf region during 2005 and cold weather in the US late in the year
led to high natural gas prices sustained at more than $13 per MMBtu during the fourth quarter. This
caused ammonia prices to climb rapidly late in 2005 and led North American producers to curtail
half of their ammonia operating capacity by year-end, tightening market supply.
    
    Higher ammonia and urea prices were beneficial for PotashCorps Trinidad facility due to our
long-term, lower-cost natural gas price contracts. Our Trinidad facility contributed 68 percent of
nitrogen gross margin for the year, while North American production added




---



##### Table of Contents



Sales and Cost of Goods Sold
  
    
    Urea realized prices increased 26 percent due to tighter
supply/demand fundamentals in world trade, as higher natural
gas prices caused further US industry curtailments and Chinese
export taxes reduced Chinese urea exports by over 2 million
tonnes in 2005, compared to 2004.
    
    Realized prices for ammonia grew by 14 percent as a result of
the high gas costs and production curtailments in the US. Tight
supply led to increased ammonia imports that were subject to
high freight rates that further influenced prices. The rise in
realized prices for ammonia and urea favorably impacted margins
due to our long-term, lower-cost natural gas price contracts at
Trinidad. Our Trinidad facility provided $217.1 million of 2005
gross margin and contributed 68 percent of nitrogen gross
margin, compared to $145.3 million, or 60 percent, in 2004.
    
    Realized prices for nitrogen solutions, nitric acid and ammonium
nitrate generally followed the rise in ammonia and urea prices,
as a number of our customer contracts are tied to either natural
gas prices or the NOLA ammonia price.
    
    Cost of goods sold increased 11 percent per tonne. Higher
natural gas costs, which led to production curtailments at our
Augusta and Lima facilities during the fourth quarter of 2005,
were partially offset by increased production at our Trinidad
operation (which produced at levels above its expected design
capacity). Natural gas costs are the single most important factor
contributing to our nitrogen cost of goods sold, typically
representing between 80 percent and 95 percent of the cash
cost of producing one tonne of ammonia. Our total average
natural gas cost, including the benefit of the natural gas hedges
and our lower-cost Trinidad gas contracts, was $4.46 per MMBtu
 PotashCorp
Nitrogen Prices
 
   Nitrogen Production
 Ammonia1
    
    Urea Solids
    
    Nitrogen Solutions2Annual
    
    Production
    
    Annual
    
    
    
    
    
    Production
    
    
    
    
    
    Annual
    
    
    
    
    
    ProductionCapacity
    
    2005
    
    2004
    
    2003
    
    Capacity
    
    2005
    
    2004
    
    2003
    
    Capacity
    
    2005
    
    2004
    
    2003Trinidad
    
    
    2.007
    
    
    
    1.887
    
    
    
    1.837
    
    
    
    1.759
    
    
    
    .709
    
    
    
    .748
    
    
    
    .619
    
    
    
    .647
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Augusta GA
    
    
    .688
    
    
    
    .655
    
    
    
    .665
    
    
    
    .655
    
    
    
    .381
    
    
    
    .360
    
    
    
    .368
    
    
    
    .334
    
    
    
    .581
    
    
    
    .242
    
    
    
    .225
    
    
    
    .223Lima OH
    
    
    .550
    
    
    
    .382
    
    
    
    .460
    
    
    
    .510
    
    
    
    .329
    
    
    
    .225
    
    
    
    .238
    
    
    
    .280
    
    
    
    .227
    
    
    
    .079
    
    
    
    .104
    
    
    
    .120Geismar
LA4
    
    
    .483
    
    
    
    
    
    
    
    
    
    
    
    .116
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.028
    
    
    
    .118
    
    
    
    
    
    
    
    .250Memphis
TN5
    
    
    .371
    
    
    
    
    
    
    
    
    
    
    
    .154
    
    
    
    .409
    
    
    
    
    
    
    
    
    
    
    
    .178
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TOTAL
    
    
    4.099
    
    
    
    2.924
    
    
    
    2.962
    
    
    
    3.194
    
    
    
    1.828
    
    
    
    1.333
    
    
    
    1.225
    
    
    
    1.439
    
    
    
    1.836
    
    
    
    .439
    
    
    
    .329
    
    
    
    .593
 Nitric Acid1,3
    Ammonium Nitrate SolidsAnnual
    

    
    

    
    
    Production
    
    
    
    
    
    Annual
    
    
    
    
    
    Production
    
    
    
    
    
    EmployeesCapacity
    
    2005
    
    2004
    
    2003
    
    Capacity
    
    2005
    
    2004
    
    2003
    
    ActiveTrinidad
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    406Augusta GA
    
    
    .541
    
    
    
    .518
    
    
    
    .544
    
    
    
    .534
    
    
    
    .512
    
    
    
    .503
    
    
    
    .544
    
    
    
    .539
    
    
    
    118Lima OH
    
    
    .100
    
    
    
    .098
    
    
    
    .103
    
    
    
    .097
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    6Geismar
LA4
    
    
    .844
    
    
    
    .568
    
    
    
    .521
    
    
    
    .589
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59Memphis
TN5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1TOTAL
    
    
    1.485
    
    
    
    1.184
    
    
    
    1.168
    
    
    
    1.220
    
    
    
    .512
    
    
    
    .503
    
    
    
    .544
    
    
    
    .539
    
    
    
    588
    7
 1
    
    A substantial portion is upgraded to value-added products.2
    
    Based on 32% N content.3
    
    As 100%
HNO3 tonnes.4
    
    Indefinitely shut down production of ammonia and nitrogen solutions June 4, 2003;
restarted nitrogen solutions production on September 15, 2005.5
    
    Indefinitely shut down production June 4, 2003.6
    
    Innovene USA LLC operates the Lima facility under an
operational agreement  with PCS Nitrogen.7
    
    485 contract employees work at the nitrogen plants, for a total active workforce of 1,073.




---



##### Table of Contents



2004 VS 2003
      PHOSPHATE RESULTS
 % Increase
    
    
    
    
    
    
    
    
    
    
    
    
    
    % Increase
    
    
    
    
    
    
    
    
    
    
    
    
    
    % IncreaseDollars (millions)
    
    (Decrease)
    
    Tonnes (thousands)
    
    (Decrease)
    
    Average Price per Tonne
    
    (Decrease)2005
    
    2004
    
    2003
    
    2005
    
    2004
    
    2005
    
    2004
    
    2003
    
    2005
    
    2004
    
    2005
    
    2004
    
    2003
    
    2005
    
    2004Sales
    
    $
    1,137.3
    
    
    $
    977.9
    
    
    $
    883.9
    
    
    
    16
    
    
    
    11Freight
    
    
    80.1
    
    
    
    71.9
    
    
    
    75.8
    
    
    
    11
    
    
    
    (5
    )Transportation
and distribution
    
    
    37.9
    
    
    
    29.4
    
    
    
    26.2
    
    
    
    29
    
    
    
    12$
    1,019.3
    
    
    $
    876.6
    
    
    $
    781.9
    
    
    
    16
    
    
    
    12Net salesFertilizer 
liquids
    
    $
    208.2
    
    
    $
    147.3
    
    
    $
    167.7
    
    
    
    41
    
    
    
    (12
    )
    
    
    931
    
    
    
    704
    
    
    
    751
    
    
    
    32
    
    
    
    (6
    )
    
    $
    223.68
    
    
    $
    209.17
    
    
    $
    223.17
    
    
    
    7
    
    
    
    (6
    )Fertilizer  solids
    
    
    346.7
    
    
    
    324.7
    
    
    
    249.2
    
    
    
    7
    
    
    
    30
    
    
    
    1,516
    
    
    
    1,590
    
    
    
    1,494
    
    
    
    (5
    )
    
    
    6
    
    
    $
    228.60
    
    
    $
    204.16
    
    
    $
    166.78
    
    
    
    12
    
    
    
    22Feed
    
    
    221.0
    
    
    
    190.6
    
    
    
    182.6
    
    
    
    16
    
    
    
    4
    
    
    
    860
    
    
    
    888
    
    
    
    861
    
    
    
    (3
    )
    
    
    3
    
    
    $
    256.96
    
    
    $
    214.78
    
    
    $
    212.25
    
    
    
    20
    
    
    
    1Industrial
    
    
    231.2
    
    
    
    204.1
    
    
    
    174.5
    
    
    
    13
    
    
    
    17
    
    
    
    664
    
    
    
    611
    
    
    
    541
    
    
    
    9
    
    
    
    13
    
    
    $
    348.12
    
    
    $
    334.09
    
    
    $
    322.72
    
    
    
    4
    
    
    
    41,007.1
    
    
    
    866.7
    
    
    
    774.0
    
    
    
    16
    
    
    
    12
    
    
    
    3,971
    
    
    
    3,793
    
    
    
    3,647
    
    
    
    5
    
    
    
    4
    
    
    $
    253.61
    
    
    $
    228.50
    
    
    $
    212.23
    
    
    
    11
    
    
    
    8Miscellaneous
    
    
    12.2
    
    
    
    9.9
    
    
    
    7.9
    
    
    
    23
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,019.3
    
    
    
    876.6
    
    
    
    781.9
    
    
    
    16
    
    
    
    12
    
    
    
    3,971
    
    
    
    3,793
    
    
    
    3,647
    
    
    
    5
    
    
    
    4
    
    
    $
    256.66
    
    
    $
    231.11
    
    
    $
    214.40
    
    
    
    11
    
    
    
    8Cost of goods sold
    
    
    920.4
    
    
    
    860.8
    
    
    
    798.4
    
    
    
    7
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    231.75
    
    
    $
    226.94
    
    
    $
    218.92
    
    
    
    2
    
    
    
    4Gross Margin
    
    $
    98.9
    
    
    $
    15.8
    
    
    $
    (16.5
    )
    
    
    526
    
    
    
    n/m
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    24.91
    
    
    $
    4.17
    
    
    $
    (4.52
    )
    
    
    497
    
    
    
    n/mNote 18
to the consolidated financial statements provides information
pertaining to our business segments.

     
    n/m = not meaningful
 Phosphate
gross margin variance attributable to:
 Dollars (millions)
 2005
vs 2004Change in Prices
    
    Total GrossChange in
    
    
    
    
    
    Cost of
    
    MarginSales Volumes
    
    Net Sales
    
    Goods Sold
    
    VarianceFertilizer  liquids
    
    $
    27.6
    
    
    $
    21.6
    
    
    $
    (33.3
    )
    
    $
    15.9Fertilizer  solids
    
    
    (1.7
    )
    
    
    32.6
    
    
    
    (11.6
    )
    
    
    19.3Feed
    
    
    (0.4
    )
    
    
    37.5
    
    
    
    3.8
    
    
    
    40.9Industrial
    
    
    3.3
    
    
    
    14.3
    
    
    
    (11.0
    )
    
    
    6.6Other
    
    
    0.9
    
    
    
    
    
    
    
    (0.5
    )
    
    
    0.4Total
    
    $
    29.7
    
    
    $
    106.0
    
    
    $
    (52.6
    )
    
    $
    83.1
 2005 VS 2004
 Highlights
 
    
    Increased export demand, industry curtailments, higher input
costs (particularly for ammonia and sulfur) and the closure of a
competitors plant led to price increases.
    
    Hurricanes which struck the US Gulf region in the third quarter
disrupted competitor production of phosphate products,
reinforcing an already tight supply situation in the US marketplace.
    
    Feed phosphate conditions greatly improved, with 20 percent
higher realized prices due to tight supply/demand fundamentals.




---



##### Table of Contents




    
    Higher-margin industrial phosphate products represented
55 percent of phosphate gross margin at $54.3 million in 2005,
compared to $47.7 million in 2004, when all other major
product categories saw negative gross margins.
 Sales and Cost of Goods Sold
  
    
    Price improvements were realized in all major product
categories. In feed, we benefited from tighter North American
supplies and higher North American prices as previously
announced price increases were realized. Realized prices for solid fertilizers were up as demand in India and Pakistan
increased during 2005. As well, industry curtailments and
production cutbacks in the US during the latter part of 2005
(resulting from the continuing effects of Hurricanes Katrina and
Rita and the closure of US Chems plant) led to reduced supply.
Liquid phosphate fertilizers benefited from strong demand,
resulting in higher realized prices. Price increases for liquid
fertilizers in the Indian market were a major contributor to
overall favorable offshore price realizations, but higher prices
in the North American market were also achieved.
 
    
    Sales volumes were relatively flat, though there was a marked
change in product mix. Liquid fertilizer sales volumes were
32 percent higher as the benefit of the first full year of an MGA
 Purified
Acid Production 2 5
 Annual
    
    
    
    
    
    ProductionCapacity
    
    2005
    
    2004
    
    2003Aurora NC
    
    
    .251
    
    
    
    .248
    
    
    
    .246
    
    
    
    .204
  Phosphate Feed Production
 Annual
    
    
    
    
    
    Production
    
    
    
    
    
    EmployeesCapacity
    
    2005
    
    2004
    
    2003
    
    (active)Marseilles IL
    
    
    .278
    
    
    
    .127
    
    
    
    .138
    
    
    
    .151
    
    
    
    24White Springs FL
(monocal)
    
    
    .272
    
    
    
    .190
    
    
    
    .126
    
    
    
    .060
    
    
    
    23Weeping Water NE
    
    
    .209
    
    
    
    .119
    
    
    
    .122
    
    
    
    .147
    
    
    
    31Joplin MO
    
    
    .163
    
    
    
    .080
    
    
    
    .087
    
    
    
    .088
    
    
    
    26Aurora NC (DFP)
    
    
    .159
    
    
    
    .115
    
    
    
    .079
    
    
    
    .050
    
    
    
    31Kinston
NC1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    .008
    
    
    
    0White Springs FL
(DFP)2
    
    
    .100
    
    
    
    .044
    
    
    
    .086
    
    
    
    .059
    
    
    
    0Fosfatos do Brasil
    
    
    .110
    
    
    
    .076
    
    
    
    .075
    
    
    
    .051
    
    
    
    93TOTAL
    
    
    1.291
    
    
    
    .751
    
    
    
    .713
    
    
    
    .614
    
    
    
    228
 1
    
    Ceased production February 19, 2003.2
    
    Ceased production July 31, 2005. PotashCorp Phosphate Prices
 
   Rock and Acid Production
 Phosphate Rock (million tonnes)
    
    

Phosphoric
Acid (million tonnes
P2O5)Annual

    
    
    
    
    
    Production

    
    
    
    
    
    Annual

    
    
    
    
    
    Production

    
    
    
    
    
    EmployeesCapacity
    

2005
    
    
    2004
    

2003
    
    
    Capacity
    

2005
    
    
    2004
    

2003
    
    
    (active)Aurora NC
    
    
    6.000
    
    
    
    4.417
    
    
    
    3.964
    
    
    
    3.078
    
    
    
    1.202
    
    
    
    1.048
    
    
    
    1.018
    
    
    
    .919
    
    
    
    1,003White Springs FL
    
    
    3.600
    
    
    
    3.186
    
    
    
    2.745
    
    
    
    2.686
    
    
    
    .966
    1
    
    
    .865
    
    
    
    .773
    
    
    
    .777
    
    
    
    874Geismar LA
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    .202
    
    
    
    .184
    
    
    
    .171
    
    
    
    .165
    
    
    
    77TOTAL
    
    
    9.600
    
    
    
    7.603
    
    
    
    6.709
    
    
    
    5.764
    
    
    
    2.370
    
    
    
    2.097
    
    
    
    1.962
    
    
    
    1.861
    
    
    
    1,954
 1
    
    Elimination of a small phosphoric acid production circuit
reduced capacity from 1.093 million tonnes P2O5 to 0.966 million tonnes. Phosphate Production
 Aurora
    
    
    White Springs
    
    
    GeismarAnnual
    
    
    
    
    
    
    Production
    
    
    Annual
    
    
    
    
    
    
    Production
    
    
    Annual
    
    
    
    
    
    
    ProductionCapacity
    
    
    
    
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    Capacity
    
    
    
    
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    Capacity
    
    
    
    
    
    
    2005
    
    
    2004
    
    
    2003Liquids:MGA1
    
    
    1.835
    
    
    
    
    
    
    
    1.697
    
    
    
    1.687
    
    
    
    1.522
    
    
    
    1.908
    
    
    
    
    
    
    
    .879
    
    
    
    .858
    
    
    
    .966
    
    
    
    .337
    
    
    
    
    
    
    
    .304
    
    
    
    .282
    
    
    
    .272SPA
    
    
    .676
    
    
    
    
    
    
    
    .149
    
    
    
    .224
    
    
    
    .285
    
    
    
    1.138
    
    
    
    
    
    
    
    .719
    
    
    
    .569
    
    
    
    .748
    
    
    
    .196
    
    
    
    
    
    
    
    .059
    
    
    
    .086
    
    
    
    .091Solids (total)
    
    
    1.247
    
    
    DAP
    
    
    .495
    
    
    
    .472
    
    
    
    .377
    
    
    
    .710
    
    
    DAP
    
    
    .477
    
    
    
    .575
    
    
    
    .625
    
    
    
    
    
    
    DAP
    
    
    
    
    
    
    
    
    
    
    MAP
    
    
    .413
    
    
    
    .525
    
    
    
    .469
    
    
    
    
    
    
    MAP
    
    
    .172
    
    
    
    .091
    
    
    
    
    
    
    
    
    
    
    MAP
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    .908
    
    
    
    .997
    
    
    
    .846
    
    
    
    
    
    
    
    
    
    
    
    .649
    
    
    
    .666
    
    
    
    .625
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 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 who
custom-mix liquid fertilizer.




---



##### Table of Contents



contract with India was realized. These volumes were partially
offset by declines in solid fertilizer volumes as reduced demand
in Brazil more than offset higher Pakistan and India purchases.
The decline in solid fertilizer volumes positively impacted gross
margin as the products for which sales declined were lower-margin
products.
    
    Cost of goods sold rose by $59.6 million. Although a 7-percent
increase in phosphoric acid production levels allowed us to
benefit from operating rate efficiencies, we experienced an
unfavorable price variance of $52.6 million due to increases in chemical,
reagent and energy costs, as well as higher fixed
costs (primarily fringe benefits and accretion expense associated
with asset retirement obligations). Additionally, raw material input costs
for ammonia and sulfur increased by 10 percent and 3 percent,
respectively. The cost and availability of both of these inputs
were negatively impacted by the hurricanes.
 2004 VS 2003
      EXPENSES AND OTHER INCOME
 Dollars (millions)
    
    
    
    
    
    
    
    
    

% Increase (Decrease)2005
    

% of Sales
    
    2004
    

% of Sales
    
    2003
    

% of Sales
    
    2005
    
    2004Selling and administrative
    
    $
    144.5
    
    
    
    4
    
    
    $
    130.6
    
    
    
    4
    
    
    $
    96.1
    
    
    
    3
    
    
    
    11
    
    
    
    36Provincial mining and other taxes
    
    
    137.2
    
    
    
    4
    
    
    
    92.6
    
    
    
    3
    
    
    
    57.0
    
    
    
    2
    
    
    
    48
    
    
    
    62Foreign exchange loss
    
    
    12.5
    
    
    
    
    
    
    
    19.7
    
    
    
    1
    
    
    
    51.9
    
    
    
    2
    
    
    
    (37
    )
    
    
    (62
    )Other income
    
    
    61.8
    
    
    
    2
    
    
    
    79.4
    
    
    
    2
    
    
    
    33.2
    
    
    
    1
    
    
    
    (22
    )
    
    
    139Other expenses
    
    
    
    
    
    
    
    
    
    
    3.6
    
    
    
    
    
    
    
    264.2
    
    
    
    9
    
    
    
    (100
    )
    
    
    (99
    )Interest expense
    
    
    82.3
    
    
    
    2
    
    
    
    84.0
    
    
    
    3
    
    
    
    91.3
    
    
    
    3
    
    
    
    (2
    )
    
    
    (8
    )Income tax expense (recovery)
    
    
    267.4
    
    
    
    7
    
    
    
    131.7
    
    
    
    4
    
    
    
    (20.6
    )
    
    
    n/m
    
    
    
    103
    
    
    
    n/m
 n/m = not meaningful
 2005 VS 2004




---



##### Table of Contents



2004 VS 2003
      IMPACT OF FOREIGN EXCHANGE
   Impact on net income
    
    2005
    
    
    2004Dollars (millions), except per-share amountsOperating income increase before income taxes
    
    $
    12.1
    
    
    $
    26.3Net income increase
    
    
    8.1
    
    
    
    17.5Diluted net
income per share increase
    
    
    0.07
    
    
    
    0.15




---



##### Table of Contents



STATUS
OF 2003 RESTRUCTURING ACTIVITIES REPORTED IN OTHER EXPENSES
 Nitrogen and Phosphate Plant Shutdowns
    Provision for PCS Yumbes S.C.M.




---



##### Table of Contents



QUARTERLY RESULTS AND REVIEW OF FOURTH-QUARTER PERFORMANCE
  2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2004Q1
    
    
    
    Q2
    
    
    
    Q3
    
    
    
    Q4
    
    
    Total
    
    
    Q1
    
    
    
    Q2
    
    
    
    Q3
    
    
    
    Q4
    
    
    TotalSales
    
    $
    921.4
    
    
    $
    1,057.3
    
    
    $
    938.0
    
    
    $
    930.5
    
    
    $
    3,847.2
    
    
    $
    728.4
    
    
    $
    833.7
    
    
    $
    815.7
    
    
    $
    866.6
    
    
    $
    3,244.4Less: Freight
    
    
    67.2
    
    
    
    67.4
    
    
    
    59.9
    
    
    
    55.2
    
    
    
    249.7
    
    
    
    58.1
    
    
    
    68.9
    
    
    
    51.2
    
    
    
    60.5
    
    
    
    238.7Transportation &
distribution
    
    
    28.9
    
    
    
    32.1
    
    
    
    29.8
    
    
    
    31.1
    
    
    
    121.9
    
    
    
    23.0
    
    
    
    31.3
    
    
    
    23.6
    
    
    
    26.4
    
    
    
    104.3Cost of goods sold
    
    
    566.8
    
    
    
    613.0
    
    
    
    568.8
    
    
    
    602.0
    
    
    
    2,350.6
    
    
    
    523.3
    
    
    
    562.8
    
    
    
    551.5
    
    
    
    582.4
    
    
    
    2,220.0Gross margin
    
    
    258.5
    
    
    
    344.8
    
    
    
    279.5
    
    
    
    242.2
    
    
    
    1,125.0
    
    
    
    124.0
    
    
    
    170.7
    
    
    
    189.4
    
    
    
    197.3
    
    
    
    681.4Operating income
    
    
    216.7
    
    
    
    265.7
    
    
    
    214.9
    
    
    
    195.3
    
    
    
    892.6
    
    
    
    97.8
    
    
    
    129.2
    
    
    
    133.1
    
    
    
    154.2
    
    
    
    514.3Net income
    
    
    131.3
    
    
    
    164.2
    
    
    
    130.3
    
    
    
    117.1
    
    
    
    542.9
    
    
    
    50.7
    
    
    
    72.6
    
    
    
    75.2
    
    
    
    100.1
    
    
    
    298.6Net income per
share  basic
    
    
    1.18
    
    
    
    1.50
    
    
    
    1.20
    
    
    
    1.11
    
    
    
    5.00
    
    
    
    0.48
    
    
    
    0.68
    
    
    
    0.69
    
    
    
    0.91
    
    
    
    2.77Net income per
share  diluted
    
    
    1.15
    
    
    
    1.46
    
    
    
    1.17
    
    
    
    1.09
    
    
    
    4.89
    
    
    
    0.47
    
    
    
    0.67
    
    
    
    0.68
    
    
    
    0.88
    
    
    
    2.70Potash gross margin
    
    
    176.2
    
    
    
    223.3
    
    
    
    167.6
    
    
    
    140.3
    
    
    
    707.4
    
    
    
    66.7
    
    
    
    121.4
    
    
    
    120.8
    
    
    
    113.9
    
    
    
    422.8Nitrogen gross
margin
    
    
    65.3
    
    
    
    99.4
    
    
    
    79.7
    
    
    
    74.3
    
    
    
    318.7
    
    
    
    58.2
    
    
    
    43.6
    
    
    
    68.0
    
    
    
    73.0
    
    
    
    242.8Phosphate gross
margin
    
    
    17.0
    
    
    
    22.1
    
    
    
    32.2
    
    
    
    27.6
    
    
    
    98.9
    
    
    
    (0.9
    )
    
    
    5.7
    
    
    
    0.6
    
    
    
    10.4
    
    
    
    15.8
      
    
    Our potash operations delivered gross margin of $140.3 million
(2004  $113.9 million) and raised our margin for the year for
this nutrient to $707.4 million. This is more than the combined
total margin for all three nutrients in 2004. Gross margin as a
percentage of net sales rose to 58 percent from 50 percent
quarter over quarter. Price was the largest contributor to the
substantial increase in margins. Realized prices for potash
were up 21 percent from last years fourth quarter, but down
5 percent from third-quarter 2005, as the fourth quarter
included record volumes of lower-priced standard-grade
tonnes sold to China under the old contract. We produced
2.4 million tonnes of potash in the fourth quarter, an increase
of 18 percent quarter over quarter that raised our 2005 total
to a record 8.8 million tonnes. We took six mine shutdown
weeks in the fourth quarter in response to 32 percent lower
sales volumes in North America, compared to the fourth quarter
of 2004.
 
    
    In nitrogen, gross margin of $74.3 million was 2 percent higher
than last years fourth quarter, raising 2005 gross margin to
$318.7 million, a 31-percent increase over our record 2004
margin of $242.8 million. As North America grew accustomed to
sustained high natural gas prices, nitrogen producers in the US
(including PotashCorp) curtailed production. This tightened
supply and led to increased ammonia imports. It also raised
ammonia prices by 27 percent quarter over quarter. We were
able to capitalize on this by producing nitrogen under long-term,
lower-cost gas contracts in Trinidad, a country well positioned to
deliver to the US market. Trinidad represented 65 percent of our
nitrogen production in 2005; it delivered 87 percent of the
quarters gross margin in this nutrient.
 
    
    Both the quarter and the year marked a resurgence for the
phosphate nutrient. Overall, phosphate gross margin of
$27.6 million for the quarter was up from $10.4 million in
the same quarter last year. Feed phosphate was the largest
contributor to the increase, as prices rose 3 percent over
the third quarter and 25 percent quarter over quarter as
supply/demand fundamentals tightened. In fertilizer, we
benefited from tighter supply and better prices, although the
gains were largely offset by higher costs for sulfur and ammonia.
 
    
    Selling and administrative expenses declined $18.3 million from
last years fourth quarter, reflecting reductions in accruals for
our performance unit incentive plan, which was tied to our
share price at year-end.
 
    
    Although the strong Canadian dollar unfavorably impacted
fourth-quarter results, the effect was smaller than in last years
same quarter given the much sharper decline in the US dollar
in that period.
 
    
    Other income declined $39.0 million from last years fourth
quarter, largely due to 2004s results reflecting a $34.4-million
gain on sale of certain shares of SQM.




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##### Table of Contents



2006 OUTLOOK
 Economy:
 Agriculture:
 World
Grain Stocks
 
  Ocean Freight Rates:
 Dry Bulk Vessel Supply and Demand
 
  Potash:
  Potash Demand* Growth vs Capacity
 
   Natural Gas:




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##### Table of Contents



NYMEX US Natural Gas Futures Prices
 
  Nitrogen:
 Vulnerable US Ammonia Plants
 
  Phosphate:
 DAP Imports by Country
 
  Feed Phosphate Products:
 Financial:




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##### Table of Contents



KEY EARNINGS SENSITIVITIES
  EffectINPUT
COST SENSITIVITIES
    
    
    
    
    
    on EPSNYMEX gas
price increases by
    
    Nitrogen
    
    
    + 0.13$1/MMBtu
    
    Potash
    
    
     0.04Sulfur changes by
    
    Phosphate
    
    
    ± 0.06$5/long tonCanadian to US dollar
changes by $0.01
    
    Canadian operating expenses net of provincial taxes
    
    
    ± 0.02Translation gain/loss
    
    
    ± 0.03
 EffectPRICE AND VOLUME SENSITIVITIES
    
    
    
    on EPSPrice

    
    Potash changes by $5/tonne
    
    
    ± 0.19DAP/MAP changes by $5/tonne
    
    
    ± 0.05Ammonia increases by $10/tonne
Nitrogen
    
    
    + 0.06
Phosphate
    
    
     0.02Urea changes by $10/tonne
    
    
    ± 0.07Volume

    
    Potash changes by 100,000 tonnes
    
    
    ± 0.06Phosphate changes by 50,000 P2O5 tonnes
    
    
    ± 0.06Nitrogen changes by 50,000 N tonnes
    
    
    ± 0.06
  INDICATORS TO WATCH IN 2006
 FERTILIZER
    
    FEED AND INDUSTRIAL   Weather and global acreage planted
    US dollar exchange rates with global currencies
    Global crop prices
    Ocean freight rates
    Prices for natural gas, ammonia and sulfur
    US nitrogen curtailments
    Brazil 
weather, soybean prices, credit
policy
    Chinas agricultural
policy, corn exports,
    soybean
imports
    US progress on new Farm
Bill 2007
    Ethanol and biodiesel
developments
    
       Health of US and world economies
    Effect of
livestock-based disease restrictions on world trade
     Avian flu, BSE, F&MD
    Potential tightening of restrictions on the use of meat and
    bone meal in animal feeds
    Impact of residual grain from ethanol production on US
    feed phosphate consumption
 FINANCIAL CONDITION REVIEW
   
    
    common share repurchases of $851.9 million;
    
    additions to property plant and equipment of $382.7 million
(including key expansion projects in all three nutrients);
    
    dividend payments of $65.4 million; and
    
    additional investments in APC and ICL of $18.6 million and
$74.9 million, respectively, and an initial investment in Sinofert
of $97.4 million.




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
   CASH REQUIREMENTS
  Long-Term Debt
   Contractual
Obligations and Other Commitments
 Total
    
    Within 1 year
    
    1 to 3 years
    
    3 to 5 years
    
    Over 5 yearsLong-term debt
    
    $
    1,258.8
    
    
    $
    1.2
    
    
    $
    400.7
    
    
    $
    0.6
    
    
    $
    856.3Estimated interest
payments on long-term debt
    
    
    392.7
    
    
    
    87.7
    
    
    
    132.6
    
    
    
    118.2
    
    
    
    54.2Operating leases
    
    
    560.6
    
    
    
    80.3
    
    
    
    137.6
    
    
    
    113.7
    
    
    
    229.0Purchase obligations
    
    
    943.7
    
    
    
    122.4
    
    
    
    223.7
    
    
    
    191.1
    
    
    
    406.5Other commitments
    
    
    43.0
    
    
    
    13.6
    
    
    
    16.8
    
    
    
    12.6
    
    
    
    Other long-term liabilities
    
    
    849.9
    
    
    
    45.9
    
    
    
    81.1
    
    
    
    70.2
    
    
    
    652.7Total
    
    $
    4,048.7
    
    
    $
    351.1
    
    
    $
    992.5
    
    
    $
    506.4
    
    
    $
    2,198.7




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##### Table of Contents



Operating Leases
  Purchase Obligations
    Other Commitments
  Other Long-Term Liabilities
   Capital Expenditures
  SOURCES AND USES OF CASH
  Dollars
 % Increase(Decrease)2005
    
    2004
    
    2003
    
    2005
    
    2004Cash provided by
operating activities
    
    $
    865.1
    
    
    $
    658.3
    
    
    $
    385.5
    
    
    
    31
    
    
    
    71Cash used in
investing activities
    
    $
    (555.3
    )
    
    $
    (225.5
    )
    
    $
    (361.7
    )
    
    
    146
    
    
    
    (38
    )Cash (used in) provided by
financing activities
    
    $
    (674.8
    )
    
    $
    21.4
    
    
    $
    (43.6
    )
    
    
    n/m
    
    
    
    n/mNet (decrease) increase in
cash and cash equivalents
    
    $
    (365.0
    )
    
    $
    454.2
    
    
    $
    (19.8
    )
    
    
    n/m
    
    
    
    n/m
 n/m  not meaningful
 Dollars
 % IncreaseDecember 31
    
    
    December 31
    
    
    December 31
    
    
    (Decrease)2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004Current assets
    
    $
    1,110.8
    
    
    $
    1,243.6
    
    
    $
    733.9
    
    
    
    (11
    )
    
    
    69Current liabilities
    
    $
    (1,096.1
    )
    
    $
    (703.7
    )
    
    $
    (557.8
    )
    
    
    56
    
    
    
    26Working capital
    
    $
    14.7
    
    
    $
    539.9
    
    
    $
    176.1
    
    
    
    (97
    )
    
    
    207Current ratio
    
    
    1.01
    
    
    
    1.77
    
    
    
    1.32
    
    
    
    (43
    )
    
    
    34
    
    
    In June 2005, we acquired 1,000,000 additional shares in APC
for $18.6 million and 21,000,000 additional shares in ICL for
$74.9 million. As a result of these purchases, our ownership
interest in APC increased from (approximately) 26 percent to
28 percent and our interest in ICL increased from
(approximately) 9 percent to 10 percent.




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##### Table of Contents




    
    In July 2005, we acquired a 10-percent interest in the
ordinary
shares of Sinofert for cash consideration of $97.4 million.
Pursuant to a strategic investment agreement, we also held
an option to acquire an additional 10-percent interest within
three years of the acquisition. We exercised the option
subsequent to year-end for $126.0 million, plus transaction costs. Sinofert, a vertically
integrated fertilizer enterprise in the Peoples Republic of China,
is a subsidiary of Sinochem Corporation and is listed on The
Hong Kong Stock Exchange.
 
    
    We invested $382.7 million, or 10 percent of revenues
(2004  $220.5 million, or 7 percent of revenues), in capital
projects, largely related to major expansion projects in all three
nutrients. Approximately 43 percent of our consolidated capital
expenditures related to the potash segment.
     CAPITAL STRUCTURE AND MANAGEMENT
 Capital Structure
 December 31
    
    December 312005
    
    
    
    2004Short-term debt
    
    $
    252.2
    
    
    $
    93.5Current portion of long-term
debt
    
    
    1.2
    
    
    
    10.3Long-term debt
    
    
    1,257.6
    
    
    
    1,258.6Total debt
    
    
    1,511.0
    
    
    
    1,362.4Shareholders equity
    
    $
    2,132.5
    
    
    $
    2,385.6Total debt to capital
    
    
    41
    %
    
    
    36
    %Fixed rate debt as a
percentage of
total indebtedness
    
    
    83
    %
    
    
    92
    %Common shares outstanding
    
    
    103,593,792
    
    
    
    110,630,503Stock options outstanding
    
    
    5,081,756
    
    
    
    6,400,730Dividend payout ratio
    
    
    12
    %
    
    
    20
    %
 Principal Debt Instruments
 Total
    
    Amount
    
    Amount
    
    AmountAmount
    
    Outstanding
    
    Committed
    
    AvailableSyndicated credit facility
    
    $
    750.0
    
    
    $
    
    
    
    $
    252.2
    
    
    $
    497.8Line of credit
    
    
    75.0
    
    
    
    
    
    
    
    18.7
    
    
    
    56.3Commercial paper
    
    
    500.0
    
    
    
    252.2
    
    
    
    
    
    
    
    247.8US shelf registration
    
    
    2,000.0
    
    
    
    1,250.0
    
    
    
    
    
    
    
    750.0




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##### Table of Contents



OUTSTANDING SHARE DATA
    OFF-BALANCE SHEET ARRANGEMENTS
  Guarantee Contracts




---



##### Table of Contents



Derivative Instruments
     Long-Term Fixed Price Contracts
  MARKET RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS
  COMMODITY RISK
    INTEREST RATE RISK




---



##### Table of Contents



FOREIGN EXCHANGE RISK
   RELATED PARTY TRANSACTIONS
   CRITICAL ACCOUNTING ESTIMATES
    VARIABLE INTEREST ENTITIES




---



##### Table of Contents



PENSION AND OTHER POST-RETIREMENT COSTS
    Impact
of a 0.5% Change in Key Assumptions
  Pension Plans
    
    Other PlansObligation
    
    Expense
    
    Obligation
    
    ExpenseDiscount rateDecrease in assumption
    
    $
    40.6
    
    
    $
    4.1
    
    
    $
    17.5
    
    
    $
    1.3Increase in assumption
    
    
    (36.9
    )
    
    
    (3.8
    )
    
    
    (15.7
    )
    
    
    (1.6
    )Expected long-term rate of returnDecrease in assumption
    
    
    n/a
    
    
    
    2.3
    
    
    
    n/a
    
    
    
    n/aIncrease in assumption
    
    
    n/a
    
    
    
    (2.3
    )
    
    
    n/a
    
    
    
    n/aRate of compensation increaseDecrease in assumption
    
    
    (8.5
    )
    
    
    (1.8
    )
    
    
    n/a
    
    
    
    n/aIncrease in assumption
    
    
    8.7
    
    
    
    1.8
    
    
    
    n/a
    
    
    
    n/aMedical trend rateDecrease in assumption
    
    
    n/a
    
    
    
    n/a
    
    
    
    (15.7
    )
    
    
    (3.1
    )Increase in assumption
    
    
    n/a
    
    
    
    n/a
    
    
    
    16.2
    
    
    
    2.2
 n/a  not applicable
 ASSET
RETIREMENT OBLIGATIONS AND OTHER ENVIRONMENTAL COSTS
    INCOME TAXES




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##### Table of Contents



ASSET IMPAIRMENT
     STOCK-BASED COMPENSATION




---



##### Table of Contents



DEPRECIATION AND AMORTIZATION
    RECENT ACCOUNTING CHANGES
 2005
  2006




---



##### Table of Contents



FORWARD-LOOKING STATEMENTS




---



##### Table of Contents



11 YEAR REPORT
 FINANCIAL DATA
 2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999
    
    
    1998
    
    
    19972
    
    
    1996
    
    
    19951SalesPotash
    
    
    1,341.1
    
    
    
    1,056.1
    
    
    
    758.7
    
    
    
    669.0
    
    
    
    655.2
    
    
    
    710.3
    
    
    
    688.6
    
    
    
    663.3
    
    
    
    644.0
    
    
    
    521.1
    
    
    
    530.2Nitrogen
    
    
    1,368.8
    
    
    
    1,210.4
    
    
    
    1,156.4
    
    
    
    841.4
    
    
    
    993.5
    
    
    
    964.5
    
    
    
    744.7
    
    
    
    844.2
    
    
    
    939.3
    
    
    
    111.3
    
    
    
    23.8Phosphate
    
    
    1,137.3
    
    
    
    977.9
    
    
    
    883.9
    
    
    
    714.0
    
    
    
    732.1
    
    
    
    868.1
    
    
    
    922.3
    
    
    
    1,099.5
    
    
    
    1,036.7
    
    
    
    972.5
    
    
    
    448.8Total sales
    
    
    3,847.2
    
    
    
    3,244.4
    
    
    
    2,799.0
    
    
    
    2,224.4
    
    
    
    2,380.8
    
    
    
    2,542.9
    
    
    
    2,355.6
    
    
    
    2,607.0
    
    
    
    2,620.0
    
    
    
    1,604.9
    
    
    
    1,002.85-year CAGR4
    
    
    10.1
    %10-year CAGR4
    
    
    9.1
    %Gross marginPotash
    
    
    707.4
    
    
    
    422.8
    
    
    
    203.7
    
    
    
    218.0
    
    
    
    248.1
    
    
    
    307.4
    
    
    
    304.2
    
    
    
    319.2
    
    
    
    261.4
    
    
    
    193.0
    
    
    
    217.9Nitrogen
    
    
    318.7
    
    
    
    242.8
    
    
    
    193.2
    
    
    
    47.4
    
    
    
    94.7
    
    
    
    104.7
    
    
    
    (21.4
    )
    
    
    64.8
    
    
    
    133.0
    
    
    
    2.1
    
    
    
    2.3Phosphate
    
    
    98.9
    
    
    
    15.8
    
    
    
    (16.5
    )
    
    
    41.9
    
    
    
    64.5
    
    
    
    76.8
    
    
    
    130.5
    
    
    
    230.1
    
    
    
    196.6
    
    
    
    196.2
    
    
    
    87.1Total gross margin
    
    
    1,125.0
    
    
    
    681.4
    
    
    
    380.4
    
    
    
    307.3
    
    
    
    407.3
    
    
    
    488.9
    
    
    
    413.3
    
    
    
    614.1
    
    
    
    591.0
    
    
    
    391.3
    
    
    
    307.35-year CAGR4
    
    
    22.5
    %10-year CAGR4
    
    
    11.1
    %Depreciation and amortizationPotash
    
    
    64.5
    
    
    
    66.4
    
    
    
    52.4
    
    
    
    46.3
    
    
    
    34.1
    
    
    
    40.9
    
    
    
    37.2
    
    
    
    36.2
    
    
    
    39.6
    
    
    
    38.5
    
    
    
    42.1Nitrogen
    
    
    72.2
    
    
    
    79.7
    
    
    
    86.4
    
    
    
    88.0
    
    
    
    72.8
    
    
    
    66.1
    
    
    
    83.5
    
    
    
    86.7
    
    
    
    69.0
    
    
    
    
    
    
    
    Phosphate
    
    
    95.4
    
    
    
    84.4
    
    
    
    78.9
    
    
    
    76.8
    
    
    
    72.0
    
    
    
    68.1
    
    
    
    61.8
    
    
    
    59.1
    
    
    
    55.1
    
    
    
    51.6
    
    
    
    28.9Other
    
    
    10.3
    
    
    
    9.5
    
    
    
    9.7
    
    
    
    8.0
    
    
    
    6.8
    
    
    
    11.9
    
    
    
    8.6
    
    
    
    8.9
    
    
    
    6.3
    
    
    
    
    
    
    
    Total depreciation and amortization
    
    
    242.4
    
    
    
    240.0
    
    
    
    227.4
    
    
    
    219.1
    
    
    
    185.7
    
    
    
    187.0
    
    
    
    191.1
    
    
    
    190.9
    
    
    
    170.0
    
    
    
    90.1
    
    
    
    71.0Operating income (loss)
    
    
    892.6
    
    
    
    514.3
    
    
    
    (55.6
    )
    
    
    166.9
    
    
    
    269.7
    
    
    
    326.8
    
    
    
    (353.0
    )
    
    
    442.3
    
    
    
    442.0
    
    
    
    297.4
    
    
    
    219.6Net income (loss)*3
    
    
    542.9
    
    
    
    298.6
    
    
    
    (126.3
    )
    
    
    53.6
    
    
    
    121.2
    
    
    
    198.0
    
    
    
    (412.0
    )
    
    
    261.0
    
    
    
    297.1
    
    
    
    209.0
    
    
    
    159.55-year CAGR4
    
    
    35.0
    %10-year CAGR4
    
    
    10.0
    %Net income (loss) per share  basic
    
    
    5.00
    
    
    
    2.77
    
    
    
    (1.21
    )
    
    
    0.52
    
    
    
    1.17
    
    
    
    1.89
    
    
    
    (3.80
    )
    
    
    2.41
    
    
    
    2.84
    
    
    
    2.29
    
    
    
    1.84Net income (loss) per share  diluted
    
    
    4.89
    
    
    
    2.70
    
    
    
    (1.21
    )
    
    
    0.51
    
    
    
    1.16
    
    
    
    1.88
    
    
    
    (3.80
    )
    
    
    2.39
    
    
    
    2.81
    
    
    
    2.27
    
    
    
    1.82Dividends per share
    
    
    0.60
    
    
    
    0.55
    
    
    
    0.50
    
    
    
    0.50
    
    
    
    0.50
    
    
    
    0.50
    
    
    
    0.50
    
    
    
    0.48
    
    
    
    0.52
    
    
    
    0.53
    
    
    
    0.53Cash provided by operating activities
    
    
    865.1
    
    
    
    658.3
    
    
    
    385.5
    
    
    
    316.4
    
    
    
    75.7
    
    
    
    480.4
    
    
    
    343.6
    
    
    
    578.0
    
    
    
    467.8
    
    
    
    296.2
    
    
    
    233.5Working capital
    
    
    14.7
    
    
    
    539.9
    
    
    
    176.1
    
    
    
    8.6
    
    
    
    47.1
    
    
    
    (148.7
    )
    
    
    (104.8
    )
    
    
    329.2
    
    
    
    281.7
    
    
    
    278.8
    
    
    
    136.1Total assets
    
    
    5,357.9
    
    
    
    5,126.8
    
    
    
    4,567.3
    
    
    
    4,685.6
    
    
    
    4,597.3
    
    
    
    4,145.7
    
    
    
    3,916.8
    
    
    
    4,534.3
    
    
    
    4,427.6
    
    
    
    2,494.4
    
    
    
    2,581.8Long-term debt
    
    
    1,257.6
    
    
    
    1,258.6
    
    
    
    1,268.6
    
    
    
    1,019.9
    
    
    
    1,013.7
    
    
    
    413.7
    
    
    
    437.0
    
    
    
    933.3
    
    
    
    1,130.0
    
    
    
    620.0
    
    
    
    714.5Shareholders equity
    
    
    2,132.5
    
    
    
    2,385.6
    
    
    
    1,973.8
    
    
    
    2,092.5
    
    
    
    2,086.5
    
    
    
    2,012.1
    
    
    
    1,962.4
    
    
    
    2,453.8
    
    
    
    2,227.9
    
    
    
    1,405.5
    
    
    
    1,241.9Shares outstanding at the end
of the year (thousands)
    
    
    103,594
    
    
    
    110,631
    
    
    
    106,224
    
    
    
    104,156
    
    
    
    103,904
    
    
    
    103,682
    
    
    
    107,388
    
    
    
    108,488
    
    
    
    107,792
    
    
    
    91,164
    
    
    
    90,880
 OPERATING DATA
 2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999
    
    
    1998
    
    
    19972
    
    
    1996
    
    
    19951Employees at year-end (actual #)
    
    
    4,879
    
    
    
    4,906
    
    
    
    4,904
    
    
    
    5,199
    
    
    
    4,997
    
    
    
    5,338
    
    
    
    5,498
    
    
    
    5,744
    
    
    
    5,751
    
    
    
    4,490
    
    
    
    4,579Potash
production (KCl) tonnage
    
    
    8,816
    
    
    
    7,914
    
    
    
    7,094
    
    
    
    6,447
    
    
    
    6,128
    
    
    
    7,149
    
    
    
    6,388
    
    
    
    6,995
    
    
    
    6,483
    
    
    
    5,782
    
    
    
    6,071Nitrogen production (N) tonnage
    
    
    2,600
    
    
    
    2,558
    
    
    
    2,619
    
    
    
    2,990
    
    
    
    3,032
    
    
    
    2,706
    
    
    
    3,138
    
    
    
    3,121
    
    
    
    2,349
    
    
    
    
    
    
    
    Phosphate production
(P2O5) tonnage
    
    
    2,097
    
    
    
    1,962
    
    
    
    1,861
    
    
    
    1,512
    
    
    
    1,573
    
    
    
    2,042
    
    
    
    2,124
    
    
    
    2,363
    
    
    
    2,282
    
    
    
    2,096
    
    
    
    1,008Potash sales
 KCl tonnes
    
    
    8,164
    
    
    
    8,276
    
    
    
    7,083
    
    
    
    6,327
    
    
    
    6,243
    
    
    
    6,912
    
    
    
    6,474
    
    
    
    6,283
    
    
    
    6,640
    
    
    
    5,612
    
    
    
    5,848Nitrogen sales  product tonnes
    
    
    5,220
    
    
    
    5,350
    
    
    
    6,080
    
    
    
    6,391
    
    
    
    6,381
    
    
    
    6,760
    
    
    
    6,705
    
    
    
    6,596
    
    
    
    5,851
    
    
    
    535
    
    
    
    115Phosphate sales  product tonnes
    
    
    3,971
    
    
    
    3,793
    
    
    
    3,647
    
    
    
    2,863
    
    
    
    3,045
    
    
    
    3,893
    
    
    
    4,016
    
    
    
    4,627
    
    
    
    4,434
    
    
    
    4,305
    
    
    
    2,206
 1
    
    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,
1995.2
    
    Data for 1997 and thereafter reflect the acquisition of Arcadian Corporation on March 6, 1997.3
    
    There were no extraordinary items or discontinued operations in any of the accounting periods.4
    
    Compound annual growth rate expressed as a percentage.
  Additional Information
 *
    
    The after-tax effects of asset impairment, plant shutdown, plant closure and
office consolidation charges and the gain on sale of long-term investments and Moab Inc.
are included (as applicable) in the data for 2004, 2003, 2000 and 1999 in the amounts of
$(30.8) million, $203.2 million, $1.5 million and $547.1 million, respectively.




---



##### Table of Contents



FINANCIAL PERFORMANCE INDICATORS
  
 SUMMARY
 2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999
    
    
    1998
    
    
    1997
    
    
    1996
    
    
    1995Net income (loss)1
    
    
    542.9
    
    
    
    298.6
    
    
    
    (126.3
    )
    
    
    53.6
    
    
    
    121.2
    
    
    
    198.0
    
    
    
    (412.0
    )
    
    
    261.0
    
    
    
    297.1
    
    
    
    209.0
    
    
    
    159.5Net income (loss) per diluted share
    
    
    4.89
    
    
    
    2.70
    
    
    
    (1.21
    )
    
    
    0.51
    
    
    
    1.16
    
    
    
    1.88
    
    
    
    (3.80
    )
    
    
    2.39
    
    
    
    2.81
    
    
    
    2.27
    
    
    
    1.82EBITDA2
    
    
    1,135.0
    
    
    
    754.3
    
    
    
    171.8
    
    
    
    386.0
    
    
    
    455.4
    
    
    
    513.8
    
    
    
    (161.9
    )
    
    
    633.2
    
    
    
    612.0
    
    
    
    387.5
    
    
    
    290.6Cash flow prior to
working capital changes3
    
    
    860.3
    
    
    
    538.3
    
    
    
    368.5
    
    
    
    289.2
    
    
    
    345.8
    
    
    
    405.1
    
    
    
    319.6
    
    
    
    556.2
    
    
    
    489.3
    
    
    
    321.7
    
    
    
    242.1Cash provided by operating activities
    
    
    865.1
    
    
    
    658.3
    
    
    
    385.5
    
    
    
    316.4
    
    
    
    75.7
    
    
    
    480.4
    
    
    
    343.6
    
    
    
    578.0
    
    
    
    467.8
    
    
    
    296.2
    
    
    
    233.5Return on assets
    
    
    10.1
    %
    
    
    5.8
    %
    
    
    (2.8
    %)
    
    
    1.1
    %
    
    
    2.6
    %
    
    
    4.8
    %
    
    
    (10.5
    %)
    
    
    5.8
    %
    
    
    6.7
    %
    
    
    8.4
    %
    
    
    6.2
    %Cash flow return4
    
    
    16.1
    %
    
    
    12.3
    %
    
    
    2.6
    %
    
    
    6.7
    %
    
    
    8.1
    %
    
    
    10.9
    %
    
    
    (3.5
    %)
    
    
    12.6
    %
    
    
    12.8
    %
    
    
    12.5
    %
    
    
    13.7
    %Weighted average cost of capital
    
    
    8.3
    %
    
    
    8.4
    %
    
    
    7.3
    %
    
    
    7.3
    %
    
    
    7.7
    %
    
    
    8.7
    %
    
    
    8.7
    %
    
    
    8.3
    %
    
    
    8.8
    %
    
    
    9.7
    %
    
    
    8.5
    %Total shareholder return
    
    
    (2.7
    %)
    
    
    93.4
    %
    
    
    37.5
    %
    
    
    5.2
    %
    
    
    (20.4
    %)
    
    
    64.6
    %
    
    
    (23.0
    %)
    
    
    (21.9
    %)
    
    
    (1.1
    %)
    
    
    21.4
    %
    
    
    111.6
    %Total debt to capital
    
    
    41.5
    %
    
    
    36.4
    %
    
    
    42.3
    %
    
    
    41.7
    %
    
    
    42.1
    %
    
    
    31.1
    %
    
    
    31.9
    %
    
    
    29.5
    %
    
    
    35.7
    %
    
    
    30.9
    %
    
    
    41.5
    %Net debt to capital5
    
    
    39.9
    %
    
    
    27.5
    %
    
    
    42.2
    %
    
    
    41.3
    %
    
    
    41.3
    %
    
    
    28.7
    %
    
    
    30.8
    %
    
    
    28.1
    %
    
    
    35.5
    %
    
    
    30.9
    %
    
    
    40.3
    %
 RECONCILIATIONS AND CALCULATIONS
 2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999
    
    
    1998
    
    
    1997
    
    
    1996
    
    
    1995Net income (loss)1
    
    
    542.9
    
    
    
    298.6
    
    
    
    (126.3
    )
    
    
    53.6
    
    
    
    121.2
    
    
    
    198.0
    
    
    
    (412.0
    )
    
    
    261.0
    
    
    
    297.1
    
    
    
    209.0
    
    
    
    159.5Income taxes
    
    
    267.4
    
    
    
    131.7
    
    
    
    (20.6
    )
    
    
    30.2
    
    
    
    68.2
    
    
    
    67.2
    
    
    
    7.5
    
    
    
    117.5
    
    
    
    69.1
    
    
    
    43.7
    
    
    
    22.9Interest expense
    
    
    82.3
    
    
    
    84.0
    
    
    
    91.3
    
    
    
    83.1
    
    
    
    80.3
    
    
    
    61.6
    
    
    
    51.5
    
    
    
    63.8
    
    
    
    75.8
    
    
    
    44.7
    
    
    
    37.2Depreciation and amortization
    
    
    242.4
    
    
    
    240.0
    
    
    
    227.4
    
    
    
    219.1
    
    
    
    185.7
    
    
    
    187.0
    
    
    
    191.1
    
    
    
    190.9
    
    
    
    170.0
    
    
    
    90.1
    
    
    
    71.0EBITDA2
    
    
    1,135.0
    
    
    
    754.3
    
    
    
    171.8
    
    
    
    386.0
    
    
    
    455.4
    
    
    
    513.8
    
    
    
    (161.9
    )
    
    
    633.2
    
    
    
    612.0
    
    
    
    387.5
    
    
    
    290.65-year CAGR7
    
    
    20.0
    %10-year CAGR7
    
    
    11.3
    %Cash flow prior to
working capital changes3
    
    
    860.3
    
    
    
    538.3
    
    
    
    368.5
    
    
    
    289.2
    
    
    
    345.8
    
    
    
    405.1
    
    
    
    319.6
    
    
    
    556.2
    
    
    
    489.3
    
    
    
    321.7
    
    
    
    242.1Accounts receivable
    
    
    (107.6
    )
    
    
    (51.9
    )
    
    
    (39.5
    )
    
    
    (11.1
    )
    
    
    69.9
    
    
    
    (52.2
    )
    
    
    33.8
    
    
    
    48.8
    
    
    
    23.5
    
    
    
    (7.4
    )
    
    
    (48.8
    )Inventories
    
    
    (119.9
    )
    
    
    (10.5
    )
    
    
    11.8
    
    
    
    (18.2
    )
    
    
    (76.1
    )
    
    
    (27.4
    )
    
    
    (16.1
    )
    
    
    (7.9
    )
    
    
    19.9
    
    
    
    2.5
    
    
    
    9.3Prepaid expenses and other
current assets
    
    
    (5.8
    )
    
    
    (6.3
    )
    
    
    11.4
    
    
    
    (3.9
    )
    
    
    2.3
    
    
    
    (3.1
    )
    
    
    3.2
    
    
    
    (16.6
    )
    
    
    3.7
    
    
    
    (1.9
    )
    
    
    2.5Accounts payable and accrued charges
    
    
    238.1
    
    
    
    188.7
    
    
    
    33.3
    
    
    
    60.4
    
    
    
    (266.2
    )
    
    
    158.0
    
    
    
    3.1
    
    
    
    (2.5
    )
    
    
    (68.6
    )
    
    
    (18.7
    )
    
    
    28.4Changes in non-cash operating
working capital
    
    
    4.8
    
    
    
    120.0
    
    
    
    17.0
    
    
    
    27.2
    
    
    
    (270.1
    )
    
    
    75.3
    
    
    
    24.0
    
    
    
    21.8
    
    
    
    (21.5
    )
    
    
    (25.5
    )
    
    
    (8.6
    )Cash provided by operating activities
    
    
    865.1
    
    
    
    658.3
    
    
    
    385.5
    
    
    
    316.4
    
    
    
    75.7
    
    
    
    480.4
    
    
    
    343.6
    
    
    
    578.0
    
    
    
    467.8
    
    
    
    296.2
    
    
    
    233.5Net income (loss)
    
    
    542.9
    
    
    
    298.6
    
    
    
    (126.3
    )
    
    
    53.6
    
    
    
    121.2
    
    
    
    198.0
    
    
    
    (412.0
    )
    
    
    261.0
    
    
    
    297.1
    
    
    
    209.0
    
    
    
    159.5Total assets
    
    
    5,357.9
    
    
    
    5,126.8
    
    
    
    4,567.3
    
    
    
    4,685.6
    
    
    
    4,597.3
    
    
    
    4,145.7
    
    
    
    3,916.8
    
    
    
    4,534.3
    
    
    
    4,427.6
    
    
    
    2,494.4
    
    
    
    2,581.8Return on assets
    
    
    10.1
    %
    
    
    5.8
    %
    
    
    (2.8
    %)
    
    
    1.1
    %
    
    
    2.6
    %
    
    
    4.8
    %
    
    
    (10.5
    %)
    
    
    5.8
    %
    
    
    6.7
    %
    
    
    8.4
    %
    
    
    6.2
    %Net income (loss)
    
    
    542.9
    
    
    
    298.6
    
    
    
    (126.3
    )
    
    
    53.6
    
    
    
    121.2
    
    
    
    198.0
    
    
    
    (412.0
    )
    
    
    261.0
    
    
    
    297.1
    
    
    
    209.0
    
    
    
    159.5Income taxes
    
    
    267.4
    
    
    
    131.7
    
    
    
    (20.6
    )
    
    
    30.2
    
    
    
    68.2
    
    
    
    67.2
    
    
    
    7.5
    
    
    
    117.5
    
    
    
    69.1
    
    
    
    43.7
    
    
    
    22.9Interest expense
    
    
    82.3
    
    
    
    84.0
    
    
    
    91.3
    
    
    
    83.1
    
    
    
    80.3
    
    
    
    61.6
    
    
    
    51.5
    
    
    
    63.8
    
    
    
    75.8
    
    
    
    44.7
    
    
    
    37.2Cash taxes paid
    
    
    (141.6
    )
    
    
    (33.5
    )
    
    
    (22.8
    )
    
    
    (4.4
    )
    
    
    (41.5
    )
    
    
    (13.4
    )
    
    
    (5.8
    )
    
    
    (19.2
    )
    
    
    (41.3
    )
    
    
    (32.9
    )
    
    
    (6.2
    )Depreciation and amortization
    
    
    242.4
    
    
    
    240.0
    
    
    
    227.4
    
    
    
    219.1
    
    
    
    185.7
    
    
    
    187.0
    
    
    
    191.1
    
    
    
    190.9
    
    
    
    170.0
    
    
    
    90.1
    
    
    
    71.0Cash flow4
    
    
    993.4
    
    
    
    720.8
    
    
    
    149.0
    
    
    
    381.6
    
    
    
    413.9
    
    
    
    500.4
    
    
    
    (167.7
    )
    
    
    614.0
    
    
    
    570.7
    
    
    
    354.6
    
    
    
    284.4Total assets
    
    
    5,357.9
    
    
    
    5,126.8
    
    
    
    4,567.3
    
    
    
    4,685.6
    
    
    
    4,597.3
    
    
    
    4,145.7
    
    
    
    3,916.8
    
    
    
    4,534.3
    
    
    
    4,427.6
    
    
    
    2,494.4
    
    
    
    2,581.8Cash and cash equivalents
    
    
    (93.9
    )
    
    
    (458.9
    )
    
    
    (4.7
    )
    
    
    (24.5
    )
    
    
    (45.3
    )
    
    
    (100.0
    )
    
    
    (44.0
    )
    
    
    (68.0
    )
    
    
    (8.8
    )
    
    
    
    
    
    
    (40.5
    )Accumulated depreciation of
property, plant and equipment
    
    
    1,927.7
    
    
    
    1,754.9
    
    
    
    1,576.2
    
    
    
    1,454.7
    
    
    
    1,274.3
    
    
    
    1,111.8
    
    
    
    951.0
    
    
    
    812.4
    
    
    
    662.0
    
    
    
    528.7
    
    
    
    454.1Accumulated amortization of
other assets and intangible assets
    
    
    66.4
    
    
    
    65.1
    
    
    
    70.1
    
    
    
    59.1
    
    
    
    42.0
    
    
    
    38.0
    
    
    
    42.0
    
    
    
    49.2
    
    
    
    17.7
    
    
    
    11.8
    
    
    
    9.8Accumulated amortization of goodwill
    
    
    7.3
    
    
    
    7.3
    
    
    
    7.3
    
    
    
    7.3
    
    
    
    7.3
    
    
    
    4.3
    
    
    
    1.4
    
    
    
    27.4
    
    
    
    12.7
    
    
    
    0.4
    
    
    
    Accounts payable and accrued charges
    
    
    (842.7
    )
    
    
    (599.9
    )
    
    
    (380.3
    )
    
    
    (347.0
    )
    
    
    (271.4
    )
    
    
    (525.9
    )
    
    
    (349.1
    )
    
    
    (349.7
    )
    
    
    (348.1
    )
    
    
    (180.0
    )
    
    
    (199.2
    )Adjusted assets
    
    
    6,422.7
    
    
    
    5,895.3
    
    
    
    5,835.9
    
    
    
    5,835.2
    
    
    
    5,604.2
    
    
    
    4,673.9
    
    
    
    4,518.1
    
    
    
    5,005.6
    
    
    
    4,763.1
    
    
    
    2,855.3
    
    
    
    2,806.0Average adjusted assets
    
    
    6,159.0
    
    
    
    5,865.6
    
    
    
    5,835.6
    
    
    
    5,719.7
    
    
    
    5,139.1
    
    
    
    4,596.0
    
    
    
    4,761.9
    
    
    
    4,884.4
    
    
    
    4,447.0
    
    
    
    2,830.7
    
    
    
    2,075.9Cash flow return4
    
    
    16.1
    %
    
    
    12.3
    %
    
    
    2.6
    %
    
    
    6.7
    %
    
    
    8.1
    %
    
    
    10.9
    %
    
    
    (3.5
    %)
    
    
    12.6
    %
    
    
    12.8
    %
    
    
    12.5
    %
    
    
    13.7
    %




---



##### Table of Contents



FINANCIAL PERFORMANCE INDICATORS
  RECONCILIATIONS AND CALCULATIONS (continued)
 2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999
    
    
    1998
    
    
    1997
    
    
    1996
    
    
    1995Weighted average cost of capital
    
    
    8.3
    %
    
    
    8.4
    %
    
    
    7.3
    %
    
    
    7.3
    %
    
    
    7.7
    %
    
    
    8.7
    %
    
    
    8.7
    %
    
    
    8.3
    %
    
    
    8.8
    %
    
    
    9.7
    %
    
    
    8.5
    %End of year closing price (dollars)
    
    
    80.22
    
    
    
    83.06
    
    
    
    43.24
    
    
    
    31.80
    
    
    
    30.69
    
    
    
    39.16
    
    
    
    24.10
    
    
    
    31.94
    
    
    
    41.50
    
    
    
    42.50
    
    
    
    35.44Beginning of year opening price (dollars)
    
    
    83.06
    
    
    
    43.24
    
    
    
    31.80
    
    
    
    30.69
    
    
    
    39.16
    
    
    
    24.10
    
    
    
    31.94
    
    
    
    41.50
    
    
    
    42.50
    
    
    
    35.44
    
    
    
    17.00Change in share price (dollars)
    
    
    (2.84
    )
    
    
    39.82
    
    
    
    11.44
    
    
    
    1.11
    
    
    
    (8.47
    )
    
    
    15.06
    
    
    
    (7.84
    )
    
    
    (9.56
    )
    
    
    (1.00
    )
    
    
    7.06
    
    
    
    18.44Dividends per share (dollars)
    
    
    0.60
    
    
    
    0.55
    
    
    
    0.50
    
    
    
    0.50
    
    
    
    0.50
    
    
    
    0.50
    
    
    
    0.50
    
    
    
    0.48
    
    
    
    0.52
    
    
    
    0.53
    
    
    
    0.53Total shareholder return
    
    
    (2.7
    %)
    
    
    93.4
    %
    
    
    37.5
    %
    
    
    5.2
    %
    
    
    (20.4
    %)
    
    
    64.6
    %
    
    
    (23.0
    %)
    
    
    (21.9
    %)
    
    
    (1.1
    %)
    
    
    21.4
    %
    
    
    111.6
    %Short-term debt
    
    
    252.2
    
    
    
    93.5
    
    
    
    176.2
    
    
    
    473.0
    
    
    
    501.1
    
    
    
    488.8
    
    
    
    474.5
    
    
    
    94.9
    
    
    
    101.9
    
    
    
    6.3
    
    
    
    Current portion of long-term debt
    
    
    1.2
    
    
    
    10.3
    
    
    
    1.3
    
    
    
    3.4
    
    
    
    
    
    
    
    5.7
    
    
    
    7.4
    
    
    
    0.4
    
    
    
    2.7
    
    
    
    1.8
    
    
    
    165.9Long-term debt
    
    
    1,257.6
    
    
    
    1,258.6
    
    
    
    1,268.6
    
    
    
    1,019.9
    
    
    
    1,013.7
    
    
    
    413.7
    
    
    
    437.0
    
    
    
    933.3
    
    
    
    1,130.0
    
    
    
    620.0
    
    
    
    714.5Total debt
    
    
    1,511.0
    
    
    
    1,362.4
    
    
    
    1,446.1
    
    
    
    1,496.3
    
    
    
    1,514.8
    
    
    
    908.2
    
    
    
    918.9
    
    
    
    1,028.6
    
    
    
    1,234.6
    
    
    
    628.1
    
    
    
    880.4Cash and cash equivalents
    
    
    (93.9
    )
    
    
    (458.9
    )
    
    
    (4.7
    )
    
    
    (24.5
    )
    
    
    (45.3
    )
    
    
    (100.0
    )
    
    
    (44.0
    )
    
    
    (68.0
    )
    
    
    (8.8
    )
    
    
    
    
    
    
    (40.5
    )Net debt5
    
    
    1,417.1
    
    
    
    903.5
    
    
    
    1,441.4
    
    
    
    1,471.8
    
    
    
    1,469.5
    
    
    
    808.2
    
    
    
    874.9
    
    
    
    960.6
    
    
    
    1,225.8
    
    
    
    628.1
    
    
    
    839.9Shareholders equity
    
    
    2,132.5
    
    
    
    2,385.6
    
    
    
    1,973.8
    
    
    
    2,092.5
    
    
    
    2,086.5
    
    
    
    2,012.1
    
    
    
    1,962.4
    
    
    
    2,453.8
    
    
    
    2,227.9
    
    
    
    1,405.5
    
    
    
    1,241.9Total debt to capital
    
    
    41.5
    %
    
    
    36.4
    %
    
    
    42.3
    %
    
    
    41.7
    %
    
    
    42.1
    %
    
    
    31.1
    %
    
    
    31.9
    %
    
    
    29.5
    %
    
    
    35.7
    %
    
    
    30.9
    %
    
    
    41.5
    %Net debt to capital5
    
    
    39.9
    %
    
    
    27.5
    %
    
    
    42.2
    %
    
    
    41.3
    %
    
    
    41.3
    %
    
    
    28.7
    %
    
    
    30.8
    %
    
    
    28.1
    %
    
    
    35.5
    %
    
    
    30.9
    %
    
    
    40.3
    %Current assets
    
    
    1,110.8
    
    
    
    1,243.6
    
    
    
    733.9
    
    
    
    832.0
    
    
    
    819.6
    
    
    
    871.7
    
    
    
    726.2
    
    
    
    774.2
    
    
    
    734.5
    
    
    
    467.0
    
    
    
    501.1Current liabilities
    
    
    (1,096.1
    )
    
    
    (703.7
    )
    
    
    (557.8
    )
    
    
    (823.4
    )
    
    
    (772.5
    )
    
    
    (1,020.4
    )
    
    
    (831.0
    )
    
    
    (445.0
    )
    
    
    (452.8
    )
    
    
    (188.2
    )
    
    
    (365.0
    )Working capital
    
    
    14.7
    
    
    
    539.9
    
    
    
    176.1
    
    
    
    8.6
    
    
    
    47.1
    
    
    
    (148.7
    )
    
    
    (104.8
    )
    
    
    329.2
    
    
    
    281.7
    
    
    
    278.8
    
    
    
    136.1Cash and cash equivalents
    
    
    (93.9
    )
    
    
    (458.9
    )
    
    
    (4.7
    )
    
    
    (24.5
    )
    
    
    (45.3
    )
    
    
    (100.0
    )
    
    
    (44.0
    )
    
    
    (68.0
    )
    
    
    (8.8
    )
    
    
    
    
    
    
    (40.5
    )Short-term debt
    
    
    252.2
    
    
    
    93.5
    
    
    
    176.2
    
    
    
    473.0
    
    
    
    501.1
    
    
    
    488.8
    
    
    
    474.5
    
    
    
    94.9
    
    
    
    101.9
    
    
    
    6.3
    
    
    
    Current portion of long-term debt
    
    
    1.2
    
    
    
    10.3
    
    
    
    1.3
    
    
    
    3.4
    
    
    
    
    
    
    
    5.7
    
    
    
    7.4
    
    
    
    0.4
    
    
    
    2.7
    
    
    
    1.8
    
    
    
    165.9Non-cash operating working capital
    
    
    174.2
    
    
    
    184.8
    
    
    
    348.9
    
    
    
    460.5
    
    
    
    502.9
    
    
    
    245.8
    
    
    
    333.1
    
    
    
    356.5
    
    
    
    377.5
    
    
    
    286.9
    
    
    
    261.5Sales
    
    
    3,847.2
    
    
    
    3,244.4
    
    
    
    2,799.0
    
    
    
    2,224.4
    
    
    
    2,380.8
    
    
    
    2,542.9
    
    
    
    2,355.6
    
    
    
    2,607.0
    
    
    
    2,620.0
    
    
    
    1,604.9
    
    
    
    1,002.8Freight
    
    
    249.7
    
    
    
    238.7
    
    
    
    234.5
    
    
    
    215.2
    
    
    
    216.7
    
    
    
    222.1
    
    
    
    212.5
    
    
    
    216.5
    
    
    
    226.6
    
    
    
    144.6
    
    
    
    92.8Transportation and distribution
    
    
    121.9
    
    
    
    104.3
    
    
    
    98.7
    
    
    
    80.5
    
    
    
    83.3
    
    
    
    83.1
    
    
    
    77.0
    
    
    
    77.9
    
    
    
    61.7
    
    
    
    49.1
    
    
    
    53.5Net sales6
    
    
    3,475.6
    
    
    
    2,901.4
    
    
    
    2,465.8
    
    
    
    1,928.7
    
    
    
    2,080.8
    
    
    
    2,237.7
    
    
    
    2,066.1
    
    
    
    2,312.6
    
    
    
    2,331.7
    
    
    
    1,411.2
    
    
    
    856.5Potash net salesNorth American
    
    
    495.6
    
    
    
    347.5
    
    
    
    230.6
    
    
    
    215.3
    
    
    
    232.1
    
    
    
    237.8
    
    
    
    237.4
    
    
    
    227.6
    
    
    
    210.2
    
    
    
    157.6
    
    
    
    146.1Offshore
    
    
    668.3
    
    
    
    504.6
    
    
    
    336.2
    
    
    
    300.7
    
    
    
    293.4
    
    
    
    340.9
    
    
    
    325.9
    
    
    
    317.9
    
    
    
    294.0
    
    
    
    245.6
    
    
    
    274.9Miscellaneous
    
    
    13.0
    
    
    
    42.7
    
    
    
    52.3
    
    
    
    28.5
    
    
    
    6.3
    
    
    
    3.4
    
    
    
    2.3
    
    
    
    2.9
    
    
    
    3.8
    
    
    
    2.3
    
    
    
    0.4Total
    
    
    1,176.9
    
    
    
    894.8
    
    
    
    619.1
    
    
    
    544.5
    
    
    
    531.8
    
    
    
    582.1
    
    
    
    565.6
    
    
    
    548.4
    
    
    
    508.0
    
    
    
    405.5
    
    
    
    421.4Potash sales (thousands KCl tonnes)North American
    
    
    3,144
    
    
    
    3,246
    
    
    
    2,870
    
    
    
    2,780
    
    
    
    2,894
    
    
    
    2,939
    
    
    
    2,871
    
    
    
    2,702
    
    
    
    3,017
    
    
    
    2,589
    
    
    
    2,273Offshore
    
    
    5,020
    
    
    
    5,030
    
    
    
    4,213
    
    
    
    3,547
    
    
    
    3,349
    
    
    
    3,973
    
    
    
    3,603
    
    
    
    3,581
    
    
    
    3,623
    
    
    
    3,023
    
    
    
    3,575Total
    
    
    8,164
    
    
    
    8,276
    
    
    
    7,083
    
    
    
    6,327
    
    
    
    6,243
    
    
    
    6,912
    
    
    
    6,474
    
    
    
    6,283
    
    
    
    6,640
    
    
    
    5,612
    
    
    
    5,848Weighted average shares outstandingBasic
(thousands)
    
    
    108,568
    
    
    
    107,967
    
    
    
    104,460
    
    
    
    104,042
    
    
    
    103,758
    
    
    
    104,820
    
    
    
    108,460
    
    
    
    108,354
    
    
    
    104,550
    
    
    
    91,074
    
    
    
    86,704Diluted (thousands)
    
    
    111,078
    
    
    
    110,739
    
    
    
    104,460
    
    
    
    104,632
    
    
    
    104,372
    
    
    
    105,406
    
    
    
    108,460
    
    
    
    109,003
    
    
    
    105,642
    
    
    
    92,119
    
    
    
    87,729




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##### Table of Contents



52      POTASHCORP 2005 ANNUAL REPORT | FINANCIAL PERFORMANCE INDICATORS
 FINANCIAL PERFORMANCE INDICATORS
  NON-GAAP FINANCIAL MEASURES AND FOOTNOTES TO RECONCILIATIONS AND CALCULATIONS
   1
    
    The after-tax effects of asset impairment, plant shutdown, plant closure and
office consolidation charges and the gain on sale of long-term investments
and Moab Inc. are included (as applicable) in the data for 2004, 2003, 2000
and 1999 in the amounts of $(30.8) million, $203.2 million, $1.5 million
and $547.1 million, respectively.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, or gain on sale of long-term investments. Management evaluates such
items through other financial measures such as capital expenditures and
cash flow provided by operating activities. The company believes that these
measurements are useful to measure a companys ability to service debt and
to meet other payment obligations or as a valuation measurement.EBITDA has not been adjusted for the non-cash effects of asset impairment,
plant shutdown, plant closure and office consolidation charges, nor the gain
on sale of long-term investments or Moab Inc. The non-cash effects of these
items applicable to 2004, 2003, 2000 and 1999 were $(30.8) million,
$245.9 million, $(5.6) million and $563.7 million, respectively. Considering
the effects of these non-cash items, adjusted EBITDA for 2004, 2003, 2000
and 1999 would have been $723.5 million, $417.7 million, $508.2 million
and $401.8 million, respectively.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 management in making long-term liquidity
assessments. The company also believes that this measurement is useful 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 are one of the best predictors of shareholder value. 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. It
also believes that, since the company has 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
believes that this measurement is useful as a financial leverage measure.6
    
    Management includes net sales in its segment disclosures in the
consolidated financial statements pursuant to Canadian GAAP, which
requires segmentation based upon the companys internal organization and
reporting of revenue and profit measures derived from internal accounting
methods. Net sales (and related per-tonne amounts and other ratios) are
primary revenue measures it uses and reviews in making decisions about
operating matters on a business segment basis. These decisions include
assessments about potash, nitrogen and phosphate performance and the
resources to be allocated to these segments. It also uses net sales (and
related per-tonne amounts and other ratios) for business segment planning
and monthly forecasting. Net sales are calculated as sales revenues less
freight, transportation and distribution expenses. Net sales presented on a
consolidated basis rather than by business segment is considered a non-GAAP financial measure.7
    
    Compound annual growth rate expressed as a percentage.
 FINANCIAL TERMS
 Total shareholder return
 Debt to capital
 Net
debt to capital
 Cash
flow
 Cash
flow return
 EBITDA
 Adjusted EBITDA
 Return on assets
 Market value of total capital
 Weighted average cost of capital
 Average adjusted assets




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##### Table of Contents



MANAGEMENTS RESPONSIBILITY FOR FINANCIAL REPORTING
 MANAGEMENTS REPORT ON FINANCIAL STATEMENTS
       MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 Internal Control  Integrated Framework
 (W. Doyle)
    

(W. Brownlee)W. Doyle
    
    W. BrownleePresident and
    
    Executive Vice President andChief Executive Officer
    
    Chief Financial OfficerFebruary 14, 2006




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
 TO THE SHAREHOLDERS OF POTASH CORPORATION OF SASKATCHEWAN INC.
    Internal Control  Integrated Framework
 
 Independent Registered Chartered Accountants
  COMMENTS BY INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
ON CANADA-UNITED STATES OF AMERICA REPORTING DIFFERENCES
  
 Independent Registered Chartered Accountants




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
 TO THE SHAREHOLDERS OF POTASH CORPORATION OF SASKATCHEWAN INC.
 Internal Control  Integrated
Framework
    Internal Control  Integrated Framework Internal Control  Integrated Framework
  
 Independent Registered Chartered Accountants




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##### Table of Contents



CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
 as at December 31
    
    in millions of US dollars except share amounts
 2005
    
    
    2004AssetsCurrent assetsCash and cash equivalents
    
    $
    93.9
    
    
    $
    458.9Accounts receivable(Note 5)
    
    
    453.3
    
    
    
    352.6Inventories(Note 6)
    
    
    522.5
    
    
    
    396.8Prepaid expenses and other current assets
    
    
    41.1
    
    
    
    35.31,110.8
    
    
    
    1,243.6Property, plant and equipment(Note 7)
    
    
    3,262.8
    
    
    
    3,098.9Other assets(Note 8)
    
    
    852.8
    
    
    
    650.2Intangible assets(Note 8)
    
    
    34.5
    
    
    
    37.1Goodwill(Note 9)
    
    
    97.0
    
    
    
    97.0$
    5,357.9
    
    
    $
    5,126.8LiabilitiesCurrent liabilitiesShort-term debt(Note 10)
    
    $
    252.2
    
    
    $
    93.5Accounts payable and accrued charges(Note 11)
    
    
    842.7
    
    
    
    599.9Current portion of long-term debt(Note 12)
    
    
    1.2
    
    
    
    10.31,096.1
    
    
    
    703.7Long-term debt(Note 12)
    
    
    1,257.6
    
    
    
    1,258.6Future income tax liability(Note 25)
    
    
    543.3
    
    
    
    499.4Accrued pension and other post-retirement benefits(Note 14)
    
    
    213.9
    
    
    
    193.4Accrued environmental costs and asset retirement obligations(Note 15)
    
    
    97.3
    
    
    
    81.2Other non-current liabilities and deferred credits
    
    
    17.2
    
    
    
    4.93,225.4
    
    
    
    2,741.2Commitments, Contingencies and Guarantees(Notes 13, 29 and 30, respectively)Shareholders EquityShare capital (Note 16)
    
    
    1,379.3
    
    
    
    1,408.4Unlimited authorization of common shares without par value; issued and
outstanding
103,593,792 and 110,630,503 shares at December 31, 2005 and 2004, respectivelyUnlimited authorization of first preferred shares; none outstandingContributed surplus (Note 17)
    
    
    36.3
    
    
    
    275.7Retained earnings
    
    
    716.9
    
    
    
    701.52,132.5
    
    
    
    2,385.6$
    5,357.9
    
    
    $
    5,126.8
   (-s- Illegible Signature)
Director
    

(-s- E. Robert Stromberg)
Director




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##### Table of Contents



CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
 for the years ended December 31
    
    in millions of US dollars except per-share amounts2005
    
    
    2004
    
    
    2003Sales(Note 18)
    
    $
    3,847.2
    
    
    $
    3,244.4
    
    
    $
    2,799.0Less: Freight
    
    
    249.7
    
    
    
    238.7
    
    
    
    234.5Transportation and distribution
    
    
    121.9
    
    
    
    104.3
    
    
    
    98.7Cost of goods sold (Note 19)
    
    
    2,350.6
    
    
    
    2,220.0
    
    
    
    2,085.4Gross Margin
    
    
    1,125.0
    
    
    
    681.4
    
    
    
    380.4Selling and administrative (Note 20)
    
    
    144.5
    
    
    
    130.6
    
    
    
    96.1Provincial mining and other taxes(Note 21)
    
    
    137.2
    
    
    
    92.6
    
    
    
    57.0Foreign exchange loss
    
    
    12.5
    
    
    
    19.7
    
    
    
    51.9Other income (Note 22)
    
    
    (61.8
    )
    
    
    (79.4
    )
    
    
    (33.2
    )Other expenses (Note 23)
    
    
    
    
    
    
    3.6
    
    
    
    264.2232.4
    
    
    
    167.1
    
    
    
    436.0Operating Income (Loss)
    
    
    892.6
    
    
    
    514.3
    
    
    
    (55.6
    )Interest Expense(Note 24)
    
    
    82.3
    
    
    
    84.0
    
    
    
    91.3Income (Loss) Before Income Taxes
    
    
    810.3
    
    
    
    430.3
    
    
    
    (146.9
    )Income Taxes(Note 25)
    
    
    267.4
    
    
    
    131.7
    
    
    
    (20.6
    )Net Income (Loss)
    
    
    542.9
    
    
    
    298.6
    
    
    
    (126.3
    )Retained Earnings, Beginning of Year
    
    
    701.5
    
    
    
    462.8
    
    
    
    641.4Repurchase of Common Shares(Note 16)
    
    
    (462.5
    )
    
    
    
    
    
    
    Dividends
    
    
    (65.0
    )
    
    
    (59.9
    )
    
    
    (52.3
    )Retained Earnings, End of Year
    
    $
    716.9
    
    
    $
    701.5
    
    
    $
    462.8Net Income (Loss) per Share  Basic(Note 26)
    
    $
    5.00
    
    
    $
    2.77
    
    
    $
    (1.21
    )Net Income (Loss) per Share  Diluted(Note 26)
    
    $
    4.89
    
    
    $
    2.70
    
    
    $
    (1.21
    )Dividends per Share
    
    $
    0.60
    
    
    $
    0.55
    
    
    $
    0.50




---



##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH FLOW
 for the years ended December 31
    
    in millions of US dollars
 2005
    
    
    
    
    
    
    2004
    
    
    
    
    
    
    2003Operating ActivitiesNet income (loss)
    
    
    
    
    
    $
    542.9
    
    
    
    
    
    
    $
    298.6
    
    
    
    
    
    
    $
    (126.3
    )Adjustments to reconcile net income to cash provided by
operating activitiesDepreciation and amortization
    
    
    242.4
    
    
    
    
    
    
    
    240.0
    
    
    
    
    
    
    
    227.4Stock-based compensation
    
    
    27.5
    
    
    
    
    
    
    
    11.1
    
    
    
    
    
    
    
    1.0Loss (gain) on disposal of property, plant and equipment
    
    
    11.8
    
    
    
    
    
    
    
    (0.7
    )
    
    
    
    
    
    
    1.0Gain on sale
of long-term investments (Note 4)
    
    
    
    
    
    
    
    
    
    
    (34.4
    )
    
    
    
    
    
    
    Provisions for nitrogen and phosphate plant shutdowns
and PCS Yumbes S.C.M. (Note 23)
    
    
    
    
    
    
    
    
    
    
    3.6
    
    
    
    
    
    
    
    245.9Foreign exchange on future income tax
    
    
    8.9
    
    
    
    
    
    
    
    17.2
    
    
    
    
    
    
    
    35.9Provision for (recovery of) future income tax
    
    
    40.1
    
    
    
    
    
    
    
    26.3
    
    
    
    
    
    
    
    (20.6
    )Undistributed earnings of equity investees
    
    
    (33.5
    )
    
    
    
    
    
    
    (22.2
    )
    
    
    
    
    
    
    (8.4
    )Other long-term liabilities
    
    
    20.2
    
    
    
    
    
    
    
    (1.2
    )
    
    
    
    
    
    
    12.6Subtotal of adjustments
    
    
    
    
    
    
    317.4
    
    
    
    
    
    
    
    239.7
    
    
    
    
    
    
    
    494.8Changes in non-cash operating working capitalAccounts receivable
    
    
    (107.6
    )
    
    
    
    
    
    
    (51.9
    )
    
    
    
    
    
    
    (39.5
    )Inventories
    
    
    (119.9
    )
    
    
    
    
    
    
    (10.5
    )
    
    
    
    
    
    
    11.8Prepaid expenses and other current assets
    
    
    (5.8
    )
    
    
    
    
    
    
    (6.3
    )
    
    
    
    
    
    
    11.4Accounts payable and accrued charges
    
    
    238.1
    
    
    
    
    
    
    
    188.7
    
    
    
    
    
    
    
    33.3Subtotal of changes in non-cash operating working capital
    
    
    
    
    
    
    4.8
    
    
    
    
    
    
    
    120.0
    
    
    
    
    
    
    
    17.0Cash provided by operating activities
    
    
    
    
    
    
    865.1
    
    
    
    
    
    
    
    658.3
    
    
    
    
    
    
    
    385.5Investing ActivitiesAdditions to property, plant and equipment
    
    
    
    
    
    
    (382.7
    )
    
    
    
    
    
    
    (220.5
    )
    
    
    
    
    
    
    (150.7
    )Purchase of long-term investments
    
    
    
    
    
    
    (190.9
    )
    
    
    
    
    
    
    (105.5
    )
    
    
    
    
    
    
    (178.3
    )Proceeds from disposal of property, plant and equipment
    
    
    
    
    
    
    7.2
    
    
    
    
    
    
    
    2.5
    
    
    
    
    
    
    
    Proceeds
from sale of long-term investments (Notes 4
and 23)
    
    
    
    
    
    
    5.2
    
    
    
    
    
    
    
    100.8
    
    
    
    
    
    
    
    Other assets and intangible assets
    
    
    
    
    
    
    5.9
    
    
    
    
    
    
    
    (2.8
    )
    
    
    
    
    
    
    (32.7
    )Cash used in investing activities
    
    
    
    
    
    
    (555.3
    )
    
    
    
    
    
    
    (225.5
    )
    
    
    
    
    
    
    (361.7
    )Cash before financing activities
    
    
    
    
    
    
    309.8
    
    
    
    
    
    
    
    432.8
    
    
    
    
    
    
    
    23.8Financing ActivitiesProceeds from long-term debt obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250.0Repayment of long-term debt obligations
    
    
    
    
    
    
    (10.1
    )
    
    
    
    
    
    
    (1.0
    )
    
    
    
    
    
    
    (3.4
    )Proceeds from (repayment of) short-term debt obligations
    
    
    
    
    
    
    158.7
    
    
    
    
    
    
    
    (82.7
    )
    
    
    
    
    
    
    (296.8
    )Dividends
    
    
    
    
    
    
    (65.4
    )
    
    
    
    
    
    
    (56.1
    )
    
    
    
    
    
    
    (52.3
    )Repurchase of common shares
    
    
    
    
    
    
    (851.9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common shares
    
    
    
    
    
    
    93.9
    
    
    
    
    
    
    
    161.2
    
    
    
    
    
    
    
    58.9Cash (used in) provided by financing activities
    
    
    
    
    
    
    (674.8
    )
    
    
    
    
    
    
    21.4
    
    
    
    
    
    
    
    (43.6
    )(Decrease) Increase in Cash and Cash Equivalents
    
    
    
    
    
    
    (365.0
    )
    
    
    
    
    
    
    454.2
    
    
    
    
    
    
    
    (19.8
    )Cash and Cash Equivalents, Beginning of Year
    
    
    
    
    
    
    458.9
    
    
    
    
    
    
    
    4.7
    
    
    
    
    
    
    
    24.5Cash and Cash Equivalents, End of Year
    
    
    
    
    
    $
    93.9
    
    
    
    
    
    
    $
    458.9
    
    
    
    
    
    
    $
    4.7Supplemental cash flow disclosureInterest paid
    
    
    
    
    
    $
    86.3
    
    
    
    
    
    
    $
    83.3
    
    
    
    
    
    
    $
    83.8Income taxes paid
    
    
    
    
    
    $
    141.6
    
    
    
    
    
    
    $
    33.5
    
    
    
    
    
    
    $
    22.8




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##### Table of Contents



NOTES TO
THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US
dollars except share and per-share amounts
    
    59  1. DESCRIPTION OF BUSINESS
  
    
    Potash
    Phosphate
      
    
    Nitrogen
     2. SIGNIFICANT ACCOUNTING POLICIES
 BASIS OF PRESENTATION
     PRINCIPLES OF CONSOLIDATION
  
    
    PCS Sales (Canada) Inc.
  
    
    PCS Sales (USA), Inc.
    
    PCS Phosphate Company, Inc.
  
    
    White Springs Agricultural Chemicals, Inc. (White Springs)
    
    PCS Nitrogen, Inc. (PCS Nitrogen)
    
    
    PCS Cassidy Lake Company (PCS Cassidy Lake)
    
    PCS Yumbes S.C.M. (PCS Yumbes)  sold in 2004 (see Note 23)
    
    PCS Fosfatos do Brasil Ltda.
  CASH EQUIVALENTS
  INVENTORIES




---



##### Table of Contents



60
    
    NOTES TO
THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US
dollars except share and per-share amounts 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 PREPAID EXPENSES
  PROPERTY, PLANT AND EQUIPMENT
   DEPRECIATION AND AMORTIZATION
  GOODWILL
  OTHER ASSETS AND INTANGIBLES
      ASSET IMPAIRMENT
    LEASES
  PENSION AND OTHER POST-RETIREMENT BENEFITS




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##### Table of Contents



NOTES TO
THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US
dollars except share and per-share amounts
    
    61 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    ENVIRONMENTAL
COSTS AND ASSET RETIREMENT OBLIGATIONS
   STOCK-BASED COMPENSATION PLANS
  FOREIGN EXCHANGE TRANSACTIONS
   DERIVATIVE FINANCIAL INSTRUMENTS




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##### Table of Contents



62
    
    NOTES TO
THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US
dollars except share and per-share amounts 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    REVENUE RECOGNITION
  RECENT ACCOUNTING PRONOUNCEMENTS
  
    
    Financial assets will be classified as either
held-to-maturity, held-for-trading or available-for-sale. Held-to-maturity classification will
be restricted to fixed maturity instruments that the company
intends and is able to hold to maturity and will be accounted for
at amortized cost. Held-for-trading instruments will be recorded at
fair value with realized and unrealized gains and losses reported in
net income. The remaining financial assets will be classified as
available-for-sale. These will be recorded at fair value with
unrealized gains and losses reported in a new category of the
Consolidated Statement of Financial Position under shareholders
equity called other comprehensive income (OCI); and
    
    Derivatives will be classified as held-for-trading unless designated
as hedging instruments. All derivatives, including embedded
derivatives that must be separately accounted for, will be recorded
at fair value on the Consolidated Statement of Financial Position. For derivatives that hedge the changes in fair value of an asset or
liability, changes in the derivatives fair value will be reported in
net income and be substantially offset by changes in the fair value
of the hedged asset or liability attributable to the risk being
hedged. For derivatives that hedge variability in cash flows, the
effective portion of the changes in the derivatives fair value will
be initially recognized in OCI and the ineffective portion will be
recorded in net income. The amounts temporarily recorded in OCI
will subsequently be reclassified to net income in the periods
when net income is affected by the variability in the cash flows of
the hedged item.
    3. CHANGE IN ACCOUNTING POLICY
 CONSOLIDATION OF VARIABLE INTEREST ENTITIES




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##### Table of Contents



NOTES TO
THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US
dollars except share and per-share amounts
    
    63 3. CHANGE IN ACCOUNTING POLICY (CONTINUED)
   4. BUSINESS ACQUISITIONS
 2005
  2004
    5. ACCOUNTS RECEIVABLE
 2005
    
    
    2004Trade accounts  Canpotex
    
    $
    71.6
    
    
    $
    55.7 Other
    
    
    343.0
    
    
    
    260.0Non-trade accounts
    
    
    43.8
    
    
    
    41.5458.4
    
    
    
    357.2Less allowance for doubtful accounts
    
    
    (5.1
    )
    
    
    (4.6
    )$
    453.3
    
    
    $
    352.6
 6. INVENTORIES
 2005
    
    
    2004Finished product
    
    $
    268.5
    
    
    $
    181.8Intermediate products
    
    
    94.9
    
    
    
    67.0Raw materials
    
    
    59.9
    
    
    
    50.3Materials and supplies
    
    
    99.2
    
    
    
    97.7$
    522.5
    
    
    $
    396.8
 7. PROPERTY, PLANT AND EQUIPMENT
 2005AccumulatedDepreciation and
    
    
    Net BookCost
    
    
    Amortization
    
    
    ValueLand and improvements
    
    $
    224.4
    
    
    $
    47.0
    
    
    $
    177.4Buildings and improvements
    
    
    521.1
    
    
    
    194.2
    
    
    
    326.9Machinery and equipment
    
    
    4,289.6
    
    
    
    1,622.8
    
    
    
    2,666.8Mine development costs
    
    
    155.4
    
    
    
    63.7
    
    
    
    91.7$
    5,190.5
    
    
    $
    1,927.7
    
    
    $
    3,262.8
 2004AccumulatedDepreciation and
    
    
    Net BookCost
    
    
    Amortization
    
    
    ValueLand and
improvements
    
    $
    223.7
    
    
    $
    42.5
    
    
    $
    181.2Buildings and
improvements
    
    
    481.0
    
    
    
    177.6
    
    
    
    303.4Machinery and equipment
    
    
    4,011.1
    
    
    
    1,474.9
    
    
    
    2,536.2Mine development costs
    
    
    138.0
    
    
    
    59.9
    
    
    
    78.1$
    4,853.8
    
    
    $
    1,754.9
    
    
    $
    3,098.9




---



##### Table of Contents



64
    
    NOTES TO
THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US
dollars except share and per-share amounts 8. OTHER ASSETS AND INTANGIBLE ASSETS
 2005
    
    
    2004Other assetsInvestments at equityArab Potash
Company (APC) 
28-percent ownership;
quoted market value of $422.9
    
    $
    224.6
    
    
    $
    202.0SQM  25-percent ownership;
quoted market value of $705.1
    
    
    261.0
    
    
    
    240.2Other
    
    
    19.6
    
    
    
    20.4Investments at costICL  10-percent ownership;
quoted market value of $512.6
    
    
    167.7
    
    
    
    92.8Sinochem Hong Kong Holdings Limited
(Sinofert)  10-percent ownership;
quoted market value of $107.7
    
    
    97.4
    
    
    
    Deferred charges  net of accumulated
amortization of $50.7 (2004  $39.8)
    
    
    30.1
    
    
    
    34.8Accrued pension benefit asset
    
    
    25.4
    
    
    
    25.6Other
    
    
    27.0
    
    
    
    34.4$
    852.8
    
    
    $
    650.2Intangible assets net of accumulated
amortization of $15.7 (2004  $11.6)
    
    $
    34.5
    
    
    $
    37.1
      9. GOODWILL
 2005
    
    
    2004Cost
    
    $
    104.3
    
    
    $
    104.3Accumulated amortization
    
    
    7.3
    
    
    
    7.3$
    97.0
    
    
    $
    97.0
  10. SHORT-TERM DEBT
   11. ACCOUNTS PAYABLE AND ACCRUED CHARGES
 2005
    
    
    2004Income and other taxes
    
    $
    239.4
    
    
    $
    143.6Trade accounts
    
    
    194.6
    
    
    
    193.0Margin deposits
    
    
    173.7
    
    
    
    28.5Accrued compensation
    
    
    71.0
    
    
    
    58.8Accrued interest
    
    
    18.5
    
    
    
    16.8Dividends
    
    
    16.1
    
    
    
    16.7Current portion accrued environmental
costs and asset retirement obligations
    
    
    12.3
    
    
    
    19.5Current portion pension and
other post-retirement benefits
    
    
    8.5
    
    
    
    23.8Other payables
    
    
    108.6
    
    
    
    99.2$
    842.7
    
    
    $
    599.9




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##### Table of Contents



NOTES TO
THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US
dollars except share and per-share amounts
    
    65 12. LONG-TERM DEBT
 2005
    
    
    2004Industrial Revenue and Pollution
Control Obligations
    
    $
    
    
    
    $
    9.0Adjustable Rate Industrial Revenue and
Pollution Control Obligations that matured
in 2005Notes Payable7.125% notes payable June 15, 2007
    
    
    400.0
    
    
    
    400.07.750% notes payable May 31, 2011
    
    
    600.0
    
    
    
    600.04.875% notes payable March 1, 2013
    
    
    250.0
    
    
    
    250.0There 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. The 2011 and 2013 notes
are redeemable, in whole or in part, at the
companys option at any time prior to maturity
for a price at least equal to the principal
amount of the notes to be redeemed, plus
accrued interestOther
    
    
    8.8
    
    
    
    9.91,258.8
    
    
    
    1,268.9Less current maturities
    
    
    1.2
    
    
    
    10.3$
    1,257.6
    
    
    $
    1,258.6
    2006
    
    $
    1.22007
    
    
    400.52008
    
    
    0.22009
    
    
    0.32010
    
    
    0.3Subsequent
years
    
    
    856.3$
    1,258.8
 13. COMMITMENTS
 LEASE COMMITMENTS
  PURCHASE COMMITMENTS
    OTHER COMMITMENTS
   Operating
    
    
    Purchase
    
    
    OtherLeases
    
    
    Commitments
    
    
    Commitments2006
    
    $
    80.3
    
    
    $
    122.4
    
    
    $
    13.62007
    
    
    74.5
    
    
    
    124.0
    
    
    
    8.42008
    
    
    63.1
    
    
    
    99.7
    
    
    
    8.42009
    
    
    58.8
    
    
    
    94.8
    
    
    
    8.42010
    
    
    54.9
    
    
    
    96.3
    
    
    
    4.2Thereafter
    
    
    229.0
    
    
    
    406.5
    
    
    
    Total
    
    $
    560.6
    
    
    $
    943.7
    
    
    $
    43.0




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##### Table of Contents



66
    
    NOTES TO
THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US
dollars except share and per-share amounts 14. PENSION AND OTHER POST-RETIREMENT BENEFITS
 PENSION PLANS
 Canada
   United States
  Trinidad
  OTHER POST-RETIREMENT PLANS
  DEFINED BENEFIT PLANS
  Pension
    
    
    Other2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003Costs arising in the periodService cost for benefits
earned during the year
    
    $
    13.8
    
    
    $
    12.9
    
    
    $
    12.2
    
    
    $
    5.7
    
    
    $
    5.2
    
    
    $
    5.5Interest cost on projected
benefit obligations
    
    
    31.1
    
    
    
    30.2
    
    
    
    29.6
    
    
    
    13.3
    
    
    
    13.2
    
    
    
    12.9Actual return on plan assets
    
    
    (34.3
    )
    
    
    (47.1
    )
    
    
    (73.3
    )
    
    
    
    
    
    
    
    
    
    
    Actuarial loss (gain)
    
    
    27.9
    
    
    
    23.3
    
    
    
    27.3
    
    
    
    (12.7
    )
    
    
    (6.8
    )
    
    
    25.7Plan amendments
    
    
    3.5
    
    
    
    
    
    
    
    2.3
    
    
    
    11.5
    
    
    
    
    
    
    
    (12.6
    )Plan curtailments
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in valuation allowance
    
    
    2.4
    
    
    
    (2.2
    )
    
    
    2.0
    
    
    
    
    
    
    
    
    
    
    
    Costs arising in the period
    
    
    44.8
    
    
    
    17.1
    
    
    
    0.1
    
    
    
    17.8
    
    
    
    11.6
    
    
    
    31.5Difference between costs
arising in the period and
costs recognized in the
period in respect of:Return on plan assets
    
    
    (2.7
    )
    
    
    13.6
    
    
    
    42.9
    
    
    
    
    
    
    
    
    
    
    
    Actuarial (gain) loss
    
    
    (23.6
    )
    
    
    (20.2
    )
    
    
    (27.4
    )
    
    
    15.4
    
    
    
    9.5
    
    
    
    (13.6
    )Plan amendments
    
    
    (2.3
    )
    
    
    0.4
    
    
    
    (2.2
    )
    
    
    (13.0
    )
    
    
    (1.9
    )
    
    
    2.5Transitional obligation
    
    
    1.4
    
    
    
    1.5
    
    
    
    5.1
    
    
    
    0.3
    
    
    
    
    
    
    
    Net expense
    
    $
    17.6
    
    
    $
    12.4
    
    
    $
    18.5
    
    
    $
    20.5
    
    
    $
    19.2
    
    
    $
    20.4
  Pension
    
    
    Other2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003Discount rate  obligation
    
    
    5.70
    %
    
    
    5.75
    %
    
    
    6.10
    %
    
    
    5.70
    %
    
    
    5.75
    %
    
    
    6.10
    %Discount rate  expense
    
    
    5.75
    %
    
    
    6.10
    %
    
    
    6.50
    %
    
    
    5.75
    %
    
    
    6.10
    %1
    
    
    6.50
    %Long-term rate of return on assets
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/aRate of increase in compensation levels
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
 1
    
    Discount rate changed to 6.25% effective July 1, 2004, upon recognition of Medicare
Part D.
  2005
    
    
    2004
    
    
    2003Health-care cost trend rates assumed for next year
    
    
    6.00
    %
    
    
    6.00
    %
    
    
    6.00
    %Ultimate health-care cost trend rate assumed
    
    
    6.00
    %
    
    
    6.00
    %
    
    
    6.00
    %Year that the rate reaches the ultimate trend rate
    
    
    2005
    
    
    
    2004
    
    
    
    2003




---



##### Table of Contents



NOTES TO
THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US
dollars except share and per-share amounts
    
    67 14. PENSION AND OTHER POST-RETIREMENT BENEFITS (CONTINUED)
    Pension
    
    
    Other
    
    
    Total2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Change in benefit obligationsBalance, beginning of year
    
    $
    548.6
    
    
    $
    502.4
    
    
    $
    235.4
    
    
    $
    230.7Service cost
    
    
    13.8
    
    
    
    12.9
    
    
    
    5.7
    
    
    
    5.2Interest cost
    
    
    31.1
    
    
    
    30.2
    
    
    
    13.3
    
    
    
    13.2Participants contributions
    
    
    0.2
    
    
    
    0.2
    
    
    
    3.1
    
    
    
    2.8Actuarial loss (gain)
    
    
    27.9
    
    
    
    23.9
    
    
    
    (12.7
    )
    
    
    (6.8
    )Foreign exchange rate changes
    
    
    (3.4
    )
    
    
    3.1
    
    
    
    0.7
    
    
    
    1.1Plan amendments
    
    
    3.5
    
    
    
    
    
    
    
    (11.5
    )
    
    
    Benefits paid
    
    
    (26.4
    )
    
    
    (24.1
    )
    
    
    (11.4
    )
    
    
    (10.8
    )Balance, end of year
    
    
    595.3
    
    
    
    548.6
    
    
    
    222.6
    
    
    
    235.4
    
    
    $
    817.9
    
    
    $
    784.0Change in plan assetsFair value, beginning of year
    
    
    452.9
    
    
    
    406.1
    
    
    
    
    
    
    
    Actual return on plan assets
    
    
    34.3
    
    
    
    47.1
    
    
    
    
    
    
    
    Employer contributions
    
    
    24.2
    
    
    
    20.5
    
    
    
    8.3
    
    
    
    8.0Participants contributions
    
    
    0.2
    
    
    
    0.2
    
    
    
    3.1
    
    
    
    2.8Foreign exchange rate changes
    
    
    (4.4
    )
    
    
    3.1
    
    
    
    
    
    
    
    Benefits paid
    
    
    (26.4
    )
    
    
    (24.1
    )
    
    
    (11.4
    )
    
    
    (10.8
    )Fair value, end of year
    
    
    480.8
    
    
    
    452.9
    
    
    
    
    
    
    
    
    
    
    
    480.8
    
    
    
    452.9Funded status
    
    
    (114.5
    )
    
    
    (95.7
    )
    
    
    (222.6
    )
    
    
    (235.4
    )
    
    
    (337.1
    )
    
    
    (331.1
    )Valuation allowance
    
    
    (14.1
    )
    
    
    (11.7
    )
    
    
    
    
    
    
    
    
    
    
    (14.1
    )
    
    
    (11.7
    )Unamortized net actuarial loss
    
    
    118.4
    
    
    
    93.1
    
    
    
    41.6
    
    
    
    55.3
    
    
    
    160.0
    
    
    
    148.4Unamortized prior service cost
    
    
    6.0
    
    
    
    3.8
    
    
    
    (19.5
    )
    
    
    (9.1
    )
    
    
    (13.5
    )
    
    
    (5.3
    )Unamortized transitional obligation
    
    
    6.7
    
    
    
    6.7
    
    
    
    1.0
    
    
    
    1.4
    
    
    
    7.7
    
    
    
    8.1Accrued pension and other
post-retirement benefit asset (liability)
    
    $
    2.5
    
    
    $
    (3.8
    )
    
    $
    (199.5
    )
    
    $
    (187.8
    )
    
    $
    (197.0
    )
    
    $
    (191.6
    )Amounts included in:Other assets (Note 8)
    
    $
    25.0
    
    
    $
    16.8
    
    
    $
    0.4
    
    
    $
    8.8
    
    
    $
    25.4
    
    
    $
    25.6LiabilitiesCurrent (Note 11)
    
    
    (0.4
    )
    
    
    (16.0
    )
    
    
    (8.1
    )
    
    
    (7.8
    )
    
    
    (8.5
    )
    
    
    (23.8
    )Long-term
    
    
    (22.1
    )
    
    
    (4.6
    )
    
    
    (191.8
    )
    
    
    (188.8
    )
    
    
    (213.9
    )
    
    
    (193.4
    )$
    2.5
    
    
    $
    (3.8
    )
    
    $
    (199.5
    )
    
    $
    (187.8
    )
    
    $
    (197.0
    )
    
    $
    (191.6
    )




---



##### Table of Contents



68
    
    NOTES TO
THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US
dollars except share and per-share amounts 14. PENSION AND OTHER POST-RETIREMENT BENEFITS (CONTINUED)
  2005
    
    
    2004Projected benefit obligation
    
    $
    568.4
    
    
    $
    520.4Accumulated benefit obligation
    
    
    521.0
    
    
    
    467.9Fair value of plan assets
    
    
    419.0
    
    
    
    391.1
 SENSITIVITY OF ASSUMPTIONS
  2005
    
    
    2004
    
    
    2003As reported:Benefit obligation
    
    $
    222.6
    
    
    $
    235.4
    
    
    $
    230.7Aggregate of service
and interest cost
    
    
    19.0
    
    
    
    18.4
    
    
    
    18.4Impact of increase of
1.0 percentage point:Benefit obligation
    
    
    31.4
    
    
    
    34.4
    
    
    
    36.3Aggregate of service
and interest cost
    
    
    3.2
    
    
    
    3.3
    
    
    
    3.8Impact of decrease of
1.0 percentage point:Benefit obligation
    
    
    (27.8
    )
    
    
    (35.3
    )
    
    
    (31.7
    )Aggregate of service
and interest cost
    
    
    (2.9
    )
    
    
    (3.4
    )
    
    
    (3.1
    )
  PLAN ASSETS
  Asset Category
    
    Target
    
    
    2005
    
    
    2004Equity securities
    
    
    65
    %
    
    
    67
    %
    
    
    67
    %Debt securities
    
    
    35
    %
    
    
    33
    %
    
    
    32
    %Real estate
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    1
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    DEFINED CONTRIBUTION PLANS
    CASH PAYMENTS




---



##### Table of Contents



NOTES TO
THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US
dollars except share and per-share amounts
    
    69 14.
    
    PENSION AND OTHER POST-RETIREMENT BENEFITS
(CONTINUED)
 ESTIMATED FUTURE BENEFIT PAYMENTS
  OtherReduction dueto MedicarePension
    
    
    Gross
    
    
    Part D Subsidy
    
    
    Net2006
    
    $
    25.2
    
    
    $
    9.4
    
    
    $
    0.5
    
    
    $
    8.92007
    
    
    26.6
    
    
    
    10.1
    
    
    
    0.5
    
    
    
    9.62008
    
    
    28.7
    
    
    
    10.8
    
    
    
    0.6
    
    
    
    10.22009
    
    
    29.0
    
    
    
    11.4
    
    
    
    0.6
    
    
    
    10.82010
    
    
    30.7
    
    
    
    12.1
    
    
    
    0.7
    
    
    
    11.42011-2015
    
    
    184.8
    
    
    
    70.2
    
    
    
    4.2
    
    
    
    66.0
 15.
    
    ENVIRONMENTAL COSTS AND ASSET RETIREMENT
OBLIGATIONS
    SITE ASSESSMENT AND REMEDIATION COSTS
  ENVIRONMENTAL OPERATING COSTS AND CAPITAL
EXPENDITURES
    2005
    
    
    2004Asset retirement obligations,
beginning of year
    
    $
    85.0
    
    
    $
    81.6Liabilities incurred
    
    
    8.5
    
    
    
    15.7Liabilities settled
    
    
    (6.0
    )
    
    
    (16.0
    )Accretion expense
    
    
    4.4
    
    
    
    5.2Revisions in estimated cash flows
    
    
    (0.1
    )
    
    
    (1.5
    )Asset retirement obligations,
end of year
    
    
    91.8
    
    
    
    85.0Other environmental liabilities
    
    
    17.8
    
    
    
    15.7Less current portion (Note 11)
    
    
    (12.3
    )
    
    
    (19.5
    )$
    97.3
    
    
    $
    81.2
 16.
    
    SHARE CAPITAL
 AUTHORIZED




---



##### Table of Contents



70
    
    NOTES TO
THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US
dollars except share and per-share amounts 16. SHARE CAPITAL (CONTINUED)
 ISSUED
    
    2005
    
    
    2004
    
    
    2003Consideration
    
    
    Consideration
    
    
    ConsiderationIssued, beginning
of year
    
    $
    1,408.4
    
    
    $
    1,245.8
    
    
    $
    1,186.9Shares issued under
option plans
    
    
    95.7
    
    
    
    162.1
    
    
    
    58.7Shares issued
for dividend
reinvestment plan
    
    
    0.3
    
    
    
    0.5
    
    
    
    0.2Shares repurchased
    
    
    (125.1
    )
    
    
    
    
    
    
    Issued, end of year
    
    $
    1,379.3
    
    
    $
    1,408.4
    
    
    $
    1,245.8
 ISSUED
    
    2005
    
    
    2004
    
    
    2003Number of
    
    
    Number of
    
    
    Number ofCommon Shares
    
    
    Common Shares
    
    
    Common SharesIssued, beginning
of year
    
    
    110,630,503
    
    
    
    106,224,432
    
    
    
    104,155,296Shares issued under
option plans
    
    
    2,459,594
    
    
    
    4,397,324
    
    
    
    2,061,700Shares issued
for dividend
reinvestment plan
    
    
    3,695
    
    
    
    8,747
    
    
    
    7,436Shares repurchased
    
    
    (9,500,000
    )
    
    
    
    
    
    
    Issued, end of year
    
    
    103,593,792
    
    
    
    110,630,503
    
    
    
    106,224,432
 NORMAL COURSE ISSUER BID
   17.
    
    CONTRIBUTED SURPLUS
 2005
    
    
    2004
    
    
    2003Balance, beginning of year
    
    $
    275.7
    
    
    $
    265.2
    
    
    $
    264.2Stock-based compensation
    
    
    24.9
    
    
    
    10.5
    
    
    
    1.0Share repurchases (Note 16)
    
    
    (264.3
    )
    
    
    
    
    
    
    Balance, end of year
    
    $
    36.3
    
    
    $
    275.7
    
    
    $
    265.2




---



##### Table of Contents



NOTES TO
THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US
dollars except share and per-share amounts
    
    71 18. SEGMENT INFORMATION
  2005
 Potash
    
    
    Nitrogen
    
    
    Phosphate
    
    
    All others
    
    
    ConsolidatedSales
    
    $
    1,341.1
    
    
    $
    1,368.8
    
    
    $
    1,137.3
    
    
    $
    
    
    
    $
    3,847.2Freight
    
    
    129.7
    
    
    
    39.9
    
    
    
    80.1
    
    
    
    
    
    
    
    249.7Transportation and distribution
    
    
    34.5
    
    
    
    49.5
    
    
    
    37.9
    
    
    
    
    
    
    
    121.9Net sales  third party
    
    
    1,176.9
    
    
    
    1,279.4
    
    
    
    1,019.3
    
    
    
    Cost of goods sold
    
    
    469.5
    
    
    
    960.7
    
    
    
    920.4
    
    
    
    
    
    
    
    2,350.6Gross Margin
    
    
    707.4
    
    
    
    318.7
    
    
    
    98.9
    
    
    
    
    
    
    
    1,125.0Inter-segment sales
    
    
    5.8
    
    
    
    100.7
    
    
    
    14.0
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    64.5
    
    
    
    72.2
    
    
    
    95.4
    
    
    
    10.3
    
    
    
    242.4Goodwill
    
    
    
    
    
    
    96.6
    
    
    
    
    
    
    
    0.4
    
    
    
    97.0Assets
    
    
    1,236.8
    
    
    
    1,526.5
    
    
    
    1,723.0
    
    
    
    871.6
    
    
    
    5,357.9Additions to
property, plant and equipment
    
    
    165.5
    
    
    
    99.3
    
    
    
    109.5
    
    
    
    8.4
    
    
    
    382.7
 2004
 Potash
    
    
    Nitrogen
    
    
    Phosphate
    
    
    All others
    
    
    ConsolidatedSales
    
    $
    1,056.1
    
    
    $
    1,210.4
    
    
    $
    977.9
    
    
    $
    
    
    
    $
    3,244.4Freight
    
    
    128.7
    
    
    
    38.1
    
    
    
    71.9
    
    
    
    
    
    
    
    238.7Transportation and distribution
    
    
    32.6
    
    
    
    42.3
    
    
    
    29.4
    
    
    
    
    
    
    
    104.3Net sales  third party
    
    
    894.8
    
    
    
    1,130.0
    
    
    
    876.6
    
    
    
    Cost of goods sold
    
    
    472.0
    
    
    
    887.2
    
    
    
    860.8
    
    
    
    
    
    
    
    2,220.0Gross Margin
    
    
    422.8
    
    
    
    242.8
    
    
    
    15.8
    
    
    
    
    
    
    
    681.4Inter-segment sales
    
    
    5.9
    
    
    
    92.9
    
    
    
    12.1
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    66.4
    
    
    
    79.7
    
    
    
    84.4
    
    
    
    9.5
    
    
    
    240.0Goodwill
    
    
    
    
    
    
    96.6
    
    
    
    
    
    
    
    0.4
    
    
    
    97.0Assets
    
    
    1,374.9
    
    
    
    1,428.4
    
    
    
    1,615.6
    
    
    
    707.9
    
    
    
    5,126.8Additions to
property, plant and equipment
    
    
    92.2
    
    
    
    62.1
    
    
    
    56.8
    
    
    
    9.4
    
    
    
    220.5
 2003
 Potash
    
    
    Nitrogen
    
    
    Phosphate
    
    
    All others
    
    
    ConsolidatedSales
    
    $
    758.7
    
    
    $
    1,156.4
    
    
    $
    883.9
    
    
    $
    
    
    
    $
    2,799.0Freight
    
    
    109.9
    
    
    
    48.8
    
    
    
    75.8
    
    
    
    
    
    
    
    234.5Transportation and distribution
    
    
    29.7
    
    
    
    42.8
    
    
    
    26.2
    
    
    
    
    
    
    
    98.7Net sales  third party
    
    
    619.1
    
    
    
    1,064.8
    
    
    
    781.9
    
    
    
    Cost of goods sold
    
    
    415.4
    
    
    
    871.6
    
    
    
    798.4
    
    
    
    
    
    
    
    2,085.4Gross Margin
    
    
    203.7
    
    
    
    193.2
    
    
    
    (16.5
    )
    
    
    
    
    
    
    380.4Inter-segment sales
    
    
    6.0
    
    
    
    67.8
    
    
    
    9.4
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    52.4
    
    
    
    86.4
    
    
    
    78.9
    
    
    
    9.7
    
    
    
    227.4Goodwill
    
    
    
    
    
    
    96.6
    
    
    
    
    
    
    
    0.4
    
    
    
    97.0Assets
    
    
    1,058.6
    
    
    
    1,386.0
    
    
    
    1,634.4
    
    
    
    488.3
    
    
    
    4,567.3Additions to
property, plant and equipment
    
    
    50.9
    
    
    
    39.8
    
    
    
    55.3
    
    
    
    4.7
    
    
    
    150.7




---



##### Table of Contents



72
    
    NOTES TO
THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US
dollars except share and per-share amounts 18.
    
    SEGMENT INFORMATION (CONTINUED)
  Country of OriginCanada
    
    
    United States
    
    
    Trinidad
    
    
    Other
    
    
    Consolidated2005Sales to customers outside the companyCanada
    
    $
    69.3
    
    
    $
    105.9
    
    
    $
    
    
    
    $
    
    
    
    $
    175.2United States
    
    
    576.6
    
    
    
    1,470.9
    
    
    
    545.5
    
    
    
    
    
    
    
    2,593.0PhosChem
    
    
    
    
    
    
    166.7
    
    
    
    
    
    
    
    
    
    
    
    166.7Canpotex
    
    
    577.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    577.1Other
    
    
    118.2
    
    
    
    106.7
    
    
    
    86.6
    
    
    
    23.7
    
    
    
    335.2$
    1,341.2
    
    
    $
    1,850.2
    
    
    $
    632.1
    
    
    $
    23.7
    
    
    $
    3,847.2Operating income
    
    $
    464.1
    
    
    $
    170.2
    
    
    $
    199.3
    
    
    $
    59.0
    
    
    $
    892.6Capital assets and goodwill
    
    $
    954.6
    
    
    $
    1,751.1
    
    
    $
    612.4
    
    
    $
    41.7
    
    
    $
    3,359.8
 Country of OriginCanada
    
    
    United States
    
    
    Trinidad
    
    
    Other
    
    
    Consolidated2004Sales to customers outside the companyCanada
    
    $
    48.3
    
    
    $
    87.5
    
    
    $
    
    
    
    $
    
    
    
    $
    135.8United States
    
    
    443.0
    
    
    
    1,383.7
    
    
    
    413.1
    
    
    
    2.8
    
    
    
    2,242.6PhosChem
    
    
    
    
    
    
    140.4
    
    
    
    
    
    
    
    
    
    
    
    140.4Canpotex
    
    
    421.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    421.9Other
    
    
    114.9
    
    
    
    57.3
    
    
    
    86.1
    
    
    
    45.4
    
    
    
    303.7$
    1,028.1
    
    
    $
    1,668.9
    
    
    $
    499.2
    
    
    $
    48.2
    
    
    $
    3,244.4Operating income
    
    $
    250.0
    
    
    $
    67.8
    
    
    $
    139.8
    
    
    $
    56.7
    
    
    $
    514.3Capital assets and goodwill
    
    $
    831.2
    
    
    $
    1,722.6
    
    
    $
    601.4
    
    
    $
    40.7
    
    
    $
    3,195.9
 Country of OriginCanada
    
    
    United States
    
    
    Trinidad
    
    
    Other
    
    
    Consolidated2003Sales to customers outside the companyCanada
    
    $
    41.1
    
    
    $
    91.4
    
    
    $
    
    
    
    $
    
    
    
    $
    132.5United States
    
    
    314.9
    
    
    
    1,392.4
    
    
    
    350.6
    
    
    
    11.7
    
    
    
    2,069.6PhosChem
    
    
    
    
    
    
    87.0
    
    
    
    
    
    
    
    
    
    
    
    87.0Canpotex
    
    
    260.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    260.6Other
    
    
    96.8
    
    
    
    58.9
    
    
    
    49.0
    
    
    
    44.6
    
    
    
    249.3$
    713.4
    
    
    $
    1,629.7
    
    
    $
    399.6
    
    
    $
    56.3
    
    
    $
    2,799.0Operating income (loss)
    
    $
    97.8
    
    
    $
    (82.7
    )
    
    $
    91.4
    
    
    $
    (162.1
    )
    
    $
    (55.6
    )Capital assets and goodwill
    
    $
    786.2
    
    
    $
    1,745.6
    
    
    $
    604.7
    
    
    $
    68.6
    
    
    $
    3,205.1
 19.
    
    COST OF GOODS SOLD
  20.
    
    SELLING AND ADMINISTRATIVE
  21.
    
    PROVINCIAL MINING AND OTHER TAXES
  2005
    
    
    2004
    
    
    2003Potash Production Tax
    
    $
    94.8
    
    
    $
    63.7
    
    
    $
    35.8Saskatchewan corporate
capital taxes and other
    
    
    42.4
    
    
    
    28.9
    
    
    
    21.2$
    137.2
    
    
    $
    92.6
    
    
    $
    57.0




---



##### Table of Contents



NOTES TO
THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US
dollars except share and per-share amounts
    
    73 22.
    
    OTHER INCOME
 2005
    
    
    2004
    
    
    2003Share of earnings of
equity investees
    
    $
    52.1
    
    
    $
    30.9
    
    
    $
    12.4Dividend income
    
    
    9.2
    
    
    
    8.2
    
    
    
    5.6Gain on sale of long-term
investments (Note 4)
    
    
    
    
    
    
    34.4
    
    
    
    Other
    
    
    0.5
    
    
    
    5.9
    
    
    
    15.2$
    61.8
    
    
    $
    79.4
    
    
    $
    33.2
 23.
    
    OTHER EXPENSES
 2005
    
    
    2004
    
    
    2003Provision for nitrogen and
phosphate plant shutdowns
    
    $
    
    
    
    $
    
    
    
    $
    123.7Provision for
PCS Yumbes S.C.M.
    
    
    
    
    
    
    3.6
    
    
    
    140.5$
    
    
    
    $
    3.6
    
    
    $
    264.2
 PROVISION FOR NITROGEN AND PHOSPHATE
PLANT SHUTDOWNS
 2003
       PROVISION FOR PCS YUMBES S.C.M.
 2004
   2003




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##### Table of Contents



74
    
    NOTES TO
THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US
dollars except share and per-share amounts 24.
    
    INTEREST EXPENSE
 2005
    
    
    2004
    
    
    2003Interest expense onShort-term debt
    
    $
    7.0
    
    
    $
    3.4
    
    
    $
    5.1Long-term debt
    
    
    88.4
    
    
    
    86.5
    
    
    
    88.7Interest income
    
    
    (13.1
    )
    
    
    (5.9
    )
    
    
    (2.5
    )$
    82.3
    
    
    $
    84.0
    
    
    $
    91.3
 25.
    
    INCOME TAXES
   2005
    
    
    2004
    
    
    2003Income (loss) before income taxesCanada
    
    $
    381.5
    
    
    $
    175.0
    
    
    $
    16.3United States
    
    
    170.0
    
    
    
    69.1
    
    
    
    (86.3
    )Trinidad
    
    
    175.6
    
    
    
    118.5
    
    
    
    80.6Other
    
    
    83.2
    
    
    
    67.7
    
    
    
    (157.5
    )$
    810.3
    
    
    $
    430.3
    
    
    $
    (146.9
    )Federal and provincial statutory tax rates
    
    
    42.52
    %
    
    
    43.36
    %
    
    
    44.36
    %Tax at statutory rates
    
    $
    344.5
    
    
    $
    186.6
    
    
    $
    (65.2
    )Adjusted for the effect of:Writedown of PCS Yumbes
    
    
    
    
    
    
    1.4
    
    
    
    50.8Gain on sale of long-term investments
    
    
    
    
    
    
    (14.9
    )
    
    
    Net
non-deductible provincial taxes and royalties and resource allowances
    
    
    (1.2
    )
    
    
    8.1
    
    
    
    7.5Stock-based compensation deduction
    
    
    (13.2
    )
    
    
    (17.1
    )
    
    
    (5.4
    )Additional tax deductions
    
    
    (14.8
    )
    
    
    (11.0
    )
    
    
    (11.8
    )Difference between Canadian rate and rates applicable to subsidiaries
in other countries
    
    
    (48.9
    )
    
    
    (26.7
    )
    
    
    4.4Other
    
    
    1.0
    
    
    
    5.3
    
    
    
    (0.9
    )Income tax expense (recovery)
    
    $
    267.4
    
    
    $
    131.7
    
    
    $
    (20.6
    )
  2005
    
    
    2004
    
    
    2003CanadaCurrent
    
    $
    170.5
    
    
    $
    69.4
    
    
    $
    14.9Future
    
    
    12.6
    
    
    
    11.5
    
    
    
    20.6United States  FederalCurrent
    
    
    0.8
    
    
    
    14.7
    
    
    
    (16.4
    )Future
    
    
    30.8
    
    
    
    (19.4
    )
    
    
    (40.7
    )United States  StateCurrent
    
    
    2.2
    
    
    
    2.2
    
    
    
    (0.6
    )Future
    
    
    (12.8
    )
    
    
    12.5
    
    
    
    (8.5
    )Trinidad and otherCurrent
    
    
    53.8
    
    
    
    19.1
    
    
    
    2.1Future
    
    
    9.5
    
    
    
    21.7
    
    
    
    8.0Income tax expense (recovery)
    
    $
    267.4
    
    
    $
    131.7
    
    
    $
    (20.6
    )




---



##### Table of Contents



NOTES TO
THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US
dollars except share and per-share amounts
    
    75 25.
    
    INCOME TAXES (CONTINUED)
  2005
    
    
    2004Future income tax assets:Loss and credit carryforwards
    
    $
    266.2
    
    
    $
    294.2Accrued pension and other post-retirement benefits
    
    
    80.3
    
    
    
    78.3Accrued environmental costs and asset retirement obligations
    
    
    0.1
    
    
    
    0.9Other
    
    
    44.4
    
    
    
    31.8Total future income tax assets
    
    
    391.0
    
    
    
    405.2Future income tax liabilities:Basis difference in fixed assets
    
    
    833.6
    
    
    
    814.3Basis difference in investments
    
    
    27.6
    
    
    
    27.6Other
    
    
    73.1
    
    
    
    62.7Total future income tax liabilities
    
    
    934.3
    
    
    
    904.6Net future income tax liability
    
    $
    543.3
    
    
    $
    499.4
   26.
    
    NET INCOME (LOSS) PER SHARE
 2005
    
    
    2004
    
    
    2003Basic net income (loss) per share1Net income (loss) available to common shareholders
    
    $
    542.9
    
    
    $
    298.6
    
    
    $
    (126.3
    )Weighted average number of common shares
    
    
    108,568,000
    
    
    
    107,967,000
    
    
    
    104,460,000Basic net income (loss) per share
    
    $
    5.00
    
    
    $
    2.77
    
    
    $
    (1.21
    )Diluted net income (loss) per share1Net income (loss) available to common shareholders
    
    $
    542.9
    
    
    $
    298.6
    
    
    $
    (126.3
    )Weighted average number of common shares
    
    
    108,568,000
    
    
    
    107,967,000
    
    
    
    104,460,000Dilutive effect of stock options
    
    
    2,510,000
    
    
    
    2,772,000
    
    
    
    Weighted average number of diluted common shares
    
    
    111,078,000
    
    
    
    110,739,000
    
    
    
    104,460,000Diluted net income (loss) per share
    
    $
    4.89
    
    
    $
    2.70
    
    
    $
    (1.21
    )
 1
    
    Net income (loss) per share calculations are based on full dollar and share
amounts.   27.
    
    STOCK-BASED COMPENSATION
  STOCK OPTION PLANS




---



##### Table of Contents



76
    
    NOTES TO
THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US
dollars except share and per-share amounts 27.
    
    STOCK-BASED COMPENSATION (CONTINUED)
    Number of Shares Subject to Option
 Performance Option Plan

    
    Officers and Employees and Directors Plans2005
    
    
    2005
    
    
    2004
    
    
    2003Outstanding, beginning of year
    
    
    
    
    
    
    6,400,730
    
    
    
    10,876,022
    
    
    
    11,638,750Granted
    
    
    1,188,500
    
    
    
    
    
    
    
    
    
    
    
    1,399,072Exercised
    
    
    
    
    
    
    (2,459,594
    )
    
    
    (4,397,324
    )
    
    
    (2,061,700
    )Cancelled
    
    
    (2,500
    )
    
    
    (45,380
    )
    
    
    (77,968
    )
    
    
    (100,100
    )Outstanding, end of year
    
    
    1,186,000
    
    
    
    3,895,756
    
    
    
    6,400,730
    
    
    
    10,876,022
  Weighted Average Exercise Price
 Performance Option Plan
    
    
    Officers and Employees and Directors Plans2005
    
    
    2005
    
    
    2004
    
    
    2003Outstanding, beginning of year
    
    $
    
    
    
    $
    38.14
    
    
    $
    36.64
    
    
    $
    31.95Granted
    
    
    88.25
    
    
    
    
    
    
    
    
    
    
    
    39.50Exercised
    
    
    
    
    
    
    38.14
    
    
    
    36.67
    
    
    
    28.56Cancelled
    
    
    90.38
    
    
    
    41.03
    
    
    
    38.59
    
    
    
    35.29Outstanding, end of year
    
    
    90.08
    
    
    
    38.41
    
    
    
    38.14
    
    
    
    36.64
   Options Outstanding
    
    
    Options ExercisableRange of
    
    Number
    
    
    Weighted Average
    
    
    Weighted Average
    
    
    
    
    
    
    Weighted AverageExercise Prices
    
    Outstanding
    
    
    Remaining Life
    
    
    Exercise Price
    
    
    Number
    
    
    Exercise PriceOfficers and Employees and Directors Plans$21.84 to $31.50
    
    
    828,000
    
    
    5 years
    
    $
    30.05
    
    
    
    828,000
    
    
    $
    30.05$33.01 to $42.85
    
    
    1,977,059
    
    
    7 years
    
    $
    38.20
    
    
    
    1,977,059
    
    
    $
    38.20$43.38 to $52.11
    
    
    1,090,697
    
    
    6 years
    
    $
    45.13
    
    
    
    1,090,697
    
    
    $
    45.133,895,756
    
    
    6 years
    
    $
    38.41
    
    
    
    3,895,756
    
    
    $
    38.41Performance Option Plan$88.23 to $94.28
    
    
    1,186,000
    
    
    9 years
    
    $
    90.08
    
    
    
    
    
    
    $
    5,081,756
    
    
    7 years
    
    $
    50.46
    
    
    
    3,895,756
    
    
    $
    38.41




---



##### Table of Contents



NOTES TO
THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US
dollars except share and per-share amounts
    
    77 27.
    
    STOCK-BASED COMPENSATION (CONTINUED)
 2005
    
    
    2004
    
    
    2003Net income (loss)  as reported
    
    $
    542.9
    
    
    $
    298.6
    
    
    $
    (126.3
    )Add:     Stock-based employee compensation expense included in reported
net income (loss), net of related tax effects
    
    
    18.4
    
    
    
    8.8
    
    
    
    0.8Less:
   Total stock-based employee compensation expense determined under
fair value-based method for all option awards, net of related tax effects
    
    
    (18.4
    )
    
    
    (12.8
    )
    
    
    (14.8
    )Net income (loss)  pro forma1
    
    $
    542.9
    
    
    $
    294.6
    
    
    $
    (140.3
    )
 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. 2005
    
    
    2004
    
    
    2003Basic net income (loss)
per shareAs reported
    
    $
    5.00
    
    
    $
    2.77
    
    
    $
    (1.21
    )Pro forma
    
    
    5.00
    
    
    
    2.73
    
    
    
    (1.34
    )Diluted net income (loss)
per shareAs reported
    
    $
    4.89
    
    
    $
    2.70
    
    
    $
    (1.21
    )Pro forma
    
    
    4.89
    
    
    
    2.66
    
    
    
    (1.34
    )
  Year of Grant2005
    
    
    2003
    
    
    2002Expected dividend
    
    $
    0.60
    
    
    $
    0.50
    
    
    $
    0.50Expected volatility
    
    
    28
    %
    
    
    27
    %
    
    
    32
    %Risk-free interest rate
    
    
    3.86
    %
    
    
    4.06
    %
    
    
    4.13
    %Expected life of options
    
    6.5 years
    
    8 years
    
    8 years
 DEFERRED SHARE UNIT AND OTHER PLANS
   28.
    
    FINANCIAL INSTRUMENTS AND RISK
MANAGEMENT




---



##### Table of Contents



78
    
    NOTES TO
THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US
dollars except share and per-share amounts 28.
    
    FINANCIAL INSTRUMENTS AND RISK
MANAGEMENT (CONTINUED)
      FAIR VALUE
   29.
    
    CONTINGENCIES
 CANPOTEX
  MINING RISK
  INVESTMENT IN APC
  LEGAL AND OTHER MATTERS




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##### Table of Contents



NOTES TO
THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US
dollars except share and per-share amounts
    
    79 29.
    
    CONTINGENCIES (CONTINUED)
       30.
    
    GUARANTEES




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##### Table of Contents



80
    
    NOTES TO
THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US
dollars except share and per-share amounts 30.
    
    GUARANTEES (CONTINUED)
      31.
    
    RELATED PARTY TRANSACTIONS
   32.
    
    COMPARATIVE FIGURES
  33.
    
    RECONCILIATION OF CANADIAN AND UNITED
STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
  (a) Long-term investments:
  (b) Property, plant and equipment and goodwill:
 (c) Depreciation and amortization:
 (d) Exploration costs:
 (e) Pre-operating costs:
 (f) Asset retirement obligations:
 (g) Pension and other post-retirement benefits:




---



##### Table of Contents



NOTES TO
THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US
dollars except share and per-share amounts
    
    81 33.
    
    RECONCILIATION OF CANADIAN AND UNITED
STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED)
   (h) Foreign currency translation adjustment:
 (i) Derivative instruments and hedging activities:
 (j) Provision for plant shutdowns:
 (k) Provision for PCS Yumbes S.C.M.:
 (l) Comprehensive income:
 (m) Income taxes related to the above adjustments:
 (n) Income tax consequences of stock-based employee
compensation:




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##### Table of Contents



82
    
    NOTES TO
THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US
dollars except share and per-share amounts 33.
    
    RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED)
 2005
    
    
    2004
    
    
    2003Net income (loss) as reported  Canadian GAAP
    
    $
    542.9
    
    
    $
    298.6
    
    
    $
    (126.3
    )Items increasing or decreasing reported net income (loss)Cash flow hedge ineffectiveness
    
    
    2.3
    
    
    
    2.6
    
    
    
    Pre-operating costs
    
    
    
    
    
    
    
    
    
    
    63.0Depreciation and amortization
    
    
    8.4
    
    
    
    8.4
    
    
    
    8.5Exploration costs
    
    
    (6.4
    )
    
    
    
    
    
    
    Accretion of asset retirement obligations
    
    
    
    
    
    
    3.3
    
    
    
    (3.3
    )Share of earnings of equity investees
    
    
    3.7
    
    
    
    
    
    
    
    Pension and other post-retirement benefits
    
    
    2.4
    
    
    
    (2.2
    )
    
    
    2.0Deferred income taxes relating to the above adjustments
    
    
    (3.4
    )
    
    
    (4.3
    )
    
    
    (23.7
    )Income taxes related to stock-based compensation
    
    
    (17.2
    )
    
    
    (15.9
    )
    
    
    (4.4
    )Net income (loss)  US GAAP
    
    $
    532.7
    
    
    $
    290.5
    
    
    $
    (84.2
    )Basic weighted average shares outstanding  US GAAP
    
    
    108,568,000
    
    
    
    107,967,000
    
    
    
    104,460,000Diluted weighted average shares outstanding  US GAAP
    
    
    111,078,000
    
    
    
    110,739,000
    
    
    
    104,460,000Basic net income (loss) per share  US GAAP
    
    $
    4.91
    
    
    $
    2.69
    
    
    $
    (0.81
    )Diluted net income (loss) per share  US GAAP
    
    $
    4.80
    
    
    $
    2.62
    
    
    $
    (0.81
    )Total assets as reported  Canadian GAAP
    
    $
    5,357.9
    
    
    $
    5,126.8
    
    
    $
    4,567.3Items increasing (decreasing) reported total assetsInventory and other current assets
    
    
    (7.2
    )
    
    
    (0.4
    )
    
    
    (2.7
    )Available-for-sale securities (unrealized holding gain)
    
    
    355.2
    
    
    
    161.7
    
    
    
    60.6Fair value of derivative instruments
    
    
    277.1
    
    
    
    66.5
    
    
    
    59.8Property, plant and equipment
    
    
    (118.1
    )
    
    
    (126.5
    )
    
    
    (134.9
    )Exploration costs
    
    
    (6.4
    )
    
    
    
    
    
    
    Pension and other post-retirement benefits
    
    
    14.1
    
    
    
    11.7
    
    
    
    13.9Intangible asset relating to additional minimum pension liability
    
    
    11.1
    
    
    
    9.6
    
    
    
    2.7Investment in equity investees
    
    
    4.8
    
    
    
    
    
    
    
    Goodwill
    
    
    (46.7
    )
    
    
    (46.7
    )
    
    
    (46.7
    )Total assets  US GAAP
    
    $
    5,841.8
    
    
    $
    5,202.7
    
    
    $
    4,520.0Total shareholders equity as reported  Canadian GAAP
    
    $
    2,132.5
    
    
    $
    2,385.6
    
    
    $
    1,973.8Items increasing (decreasing) reported shareholders equityAccumulated other comprehensive income (loss),
net of related income taxes
    
    
    343.2
    
    
    
    96.8
    
    
    
    31.2Foreign 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
    
    
    53.2
    
    
    
    44.8
    
    
    
    36.4Exploration costs
    
    
    (6.4
    )
    
    
    
    
    
    
    Cash flow hedge ineffectiveness
    
    
    4.9
    
    
    
    2.6
    
    
    
    Pension and other post-retirement benefits
    
    
    14.1
    
    
    
    11.7
    
    
    
    13.9Share of earnings of equity investees
    
    
    3.7
    
    
    
    
    
    
    
    Deferred income taxes relating to the above adjustments
    
    
    27.0
    
    
    
    30.4
    
    
    
    34.7Shareholders equity  US GAAP
    
    $
    2,375.1
    
    
    $
    2,374.8
    
    
    $
    1,889.6
 SUPPLEMENTAL US GAAP DISCLOSURE
 Recent Accounting Pronouncements




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##### Table of Contents



NOTES TO
THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US
dollars except share and per-share amounts
    
    83 33.
    
    RECONCILIATION OF CANADIAN AND UNITED
STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (CONTINUED)
       Available-for-Sale Security
  Deferred Income Taxes




---



##### Table of Contents



84
    
    NOTES TO
THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US
dollars except share and per-share amounts 33.
    
    RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED)
 Stock-Based Compensation
  2005
    
    
    2004
    
    
    2003Net income (loss)  as reported under US GAAP
    
    $
    532.7
    
    
    $
    290.5
    
    
    $
    (84.2
    )Add:
     Stock-based employee compensation expense included
in reported net income (loss), net of related tax effects
    
    
    18.4
    
    
    
    8.8
    
    
    
    0.8Less:
   Total stock-based employee compensation expense determined under
fair value-based method for all option awards, net of related
tax effects
    
    
    (18.4
    )
    
    
    (12.8
    )
    
    
    (14.8
    )Net income (loss)  pro forma under US GAAP 1
    
    $
    532.7
    
    
    $
    286.5
    
    
    $
    (98.2
    )
 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. 2005
    
    
    2004
    
    
    2003Basic net income (loss) per shareAs reported
    
    $
    4.91
    
    
    $
    2.69
    
    
    $
    (0.81
    )Pro forma
    
    
    4.91
    
    
    
    2.65
    
    
    
    (0.94
    )Diluted net income (loss) per shareAs reported
    
    $
    4.80
    
    
    $
    2.62
    
    
    $
    (0.81
    )Pro forma
    
    
    4.80
    
    
    
    2.59
    
    
    
    (0.94
    )
 Derivative Instruments and Hedging Activities
   Pensions and Other Post-Retirement Benefits
  Pension
    
    
    Other
    
    
    Total2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Prepaid pension costs
    
    $
    39.1
    
    
    $
    28.5
    
    
    $
    0.4
    
    
    $
    8.8
    
    
    $
    39.5
    
    
    $
    37.3Other intangible asset
    
    
    11.1
    
    
    
    9.6
    
    
    
    
    
    
    
    
    
    
    
    11.1
    
    
    
    9.6Current liabilities
    
    
    (0.4
    )
    
    
    (16.0
    )
    
    
    (8.1
    )
    
    
    (7.8
    )
    
    
    (8.5
    )
    
    
    (23.8
    )Long-term liabilities
    
    
    (116.5
    )
    
    
    (69.1
    )
    
    
    (191.8
    )
    
    
    (188.8
    )
    
    
    (308.3
    )
    
    
    (257.9
    )Accumulated other
comprehensive income
    
    
    83.3
    
    
    
    54.9
    
    
    
    
    
    
    
    
    
    
    
    83.3
    
    
    
    54.9Net amount recognized
    
    $
    16.6
    
    
    $
    7.9
    
    
    $
    (199.5
    )
    
    $
    (187.8
    )
    
    $
    (182.9
    )
    
    $
    (179.9
    )
 Related Party Transactions




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##### Table of Contents



NOTES TO
THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US
dollars except share and per-share amounts
    
    85 33.
    
    RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
 SUPPLEMENTAL SCHEDULES
  SUPPLEMENTAL SCHEDULE OF CONSOLIDATED FINANCIAL POSITION
 2005
    
    
    2004AssetsCurrent assetsCash and cash equivalents
    
    $
    93.9
    
    
    $
    458.9Accounts receivable
    
    
    453.3
    
    
    
    352.6Inventories
    
    
    515.3
    
    
    
    393.8Prepaid expenses and other current assets
    
    
    41.1
    
    
    
    37.9Current portion of derivative instruments
    
    
    103.9
    
    
    
    38.21,207.5
    
    
    
    1,281.4Derivative instruments
    
    
    173.2
    
    
    
    28.3Property, plant and equipment
    
    
    3,138.4
    
    
    
    2,972.4Other assets
    
    
    1,226.8
    
    
    
    823.6Intangible assets
    
    
    45.6
    
    
    
    46.7Goodwill
    
    
    50.3
    
    
    
    50.3$
    5,841.8
    
    
    $
    5,202.7LiabilitiesCurrent liabilitiesShort-term debt
    
    $
    252.2
    
    
    $
    93.5Accounts payable and accrued charges
    
    
    842.7
    
    
    
    599.9Current portion of long-term debt
    
    
    1.2
    
    
    
    10.31,096.1
    
    
    
    703.7Long-term debt
    
    
    1,257.6
    
    
    
    1,258.6Deferred income tax liability
    
    
    690.2
    
    
    
    521.6Accrued pension and other post-retirement benefits
    
    
    308.3
    
    
    
    257.9Accrued environmental costs and asset retirement obligations
    
    
    97.3
    
    
    
    81.2Other non-current liabilities and deferred credits
    
    
    17.2
    
    
    
    4.93,466.7
    
    
    
    2,827.9Shareholders EquityShare capital
    
    
    1,379.3
    
    
    
    1,408.4Additional paid-in capital
    
    
    75.1
    
    
    
    297.3Retained earnings
    
    
    577.5
    
    
    
    572.3Accumulated other comprehensive income
    
    
    343.2
    
    
    
    96.82,375.1
    
    
    
    2,374.8$
    5,841.8
    
    
    $
    5,202.7




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##### Table of Contents



86
    
    NOTES TO
THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US
dollars except share and per-share amounts 33.
    
    RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (CONTINUED)
 SUPPLEMENTAL SCHEDULE OF CONSOLIDATED OPERATIONS AND RETAINED EARNINGS
 2005
    
    
    2004
    
    
    2003Sales
    
    $
    3,847.2
    
    
    $
    3,244.4
    
    
    $
    2,799.0Less:  Freight
    
    
    249.7
    
    
    
    238.7
    
    
    
    234.5Transportation and distribution
    
    
    121.9
    
    
    
    104.3
    
    
    
    98.7Cost of goods sold
    
    
    2,337.5
    
    
    
    2,207.9
    
    
    
    2,141.2Gross Margin
    
    
    1,138.1
    
    
    
    693.5
    
    
    
    324.6Selling and administrative
    
    
    144.5
    
    
    
    130.6
    
    
    
    96.1Provincial mining and other taxes
    
    
    137.2
    
    
    
    92.6
    
    
    
    57.0Foreign exchange loss
    
    
    12.5
    
    
    
    19.7
    
    
    
    51.9Share of earnings of equity investees
    
    
    (55.8
    )
    
    
    (30.9
    )
    
    
    (12.4
    )Other income
    
    
    (9.7
    )
    
    
    (48.5
    )
    
    
    (20.8
    )Other expenses
    
    
    6.4
    
    
    
    3.6
    
    
    
    138.3235.1
    
    
    
    167.1
    
    
    
    310.1Operating Income
    
    
    903.0
    
    
    
    526.4
    
    
    
    14.5Interest Expense
    
    
    82.3
    
    
    
    84.0
    
    
    
    91.3Income (Loss) Before Income Taxes
    
    
    820.7
    
    
    
    442.4
    
    
    
    (76.8
    )Income Taxes
    
    
    288.0
    
    
    
    151.9
    
    
    
    7.4Net Income (Loss)
    
    
    532.7
    
    
    
    290.5
    
    
    
    (84.2
    )Retained Earnings, Beginning of Year
    
    
    572.3
    
    
    
    341.7
    
    
    
    478.2Repurchase of Common Shares
    
    
    (462.5
    )
    
    
    
    
    
    
    Dividends
    
    
    (65.0
    )
    
    
    (59.9
    )
    
    
    (52.3
    )Retained Earnings, End of Year
    
    $
    577.5
    
    
    $
    572.3
    
    
    $
    341.7Net
Income (Loss) per Share  Basic
    
    $
    4.91
    
    
    $
    2.69
    
    
    $
    (0.81
    )Net
Income (Loss) per Share  Diluted
    
    $
    4.80
    
    
    $
    2.62
    
    
    $
    (0.81
    )Dividends
per Share
    
    $
    0.60
    
    
    $
    0.55
    
    
    $
    0.50




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##### Table of Contents



NOTES TO
THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US
dollars except share and per-share amounts
    
    87 33.
    
    RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
 SUPPLEMENTAL SCHEDULE OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
 2005
    
    
    2004
    
    
    2003Net income (loss)
    
    $
    532.7
    
    
    $
    290.5
    
    
    $
    (84.2
    )Other comprehensive incomeChange in unrealized holding gains and losses on
available-for-sale securities
    
    
    193.5
    
    
    
    101.2
    
    
    
    42.7Change in gains and losses on derivatives designated
as cash flow hedges
    
    
    255.0
    
    
    
    49.3
    
    
    
    98.3Reclassification to income of gains and losses on cash flow hedges
    
    
    (53.5
    )
    
    
    (43.0
    )
    
    
    (89.9
    )Adjustment to additional minimum pension liability
    
    
    (28.4
    )
    
    
    (9.6
    )
    
    
    23.4Share of other comprehensive income of equity investees
    
    
    1.1
    
    
    
    
    
    
    
    Deferred income taxes related to other comprehensive income
    
    
    (121.3
    )
    
    
    (32.3
    )
    
    
    (29.7
    )Other comprehensive income, net of related income taxes
    
    
    246.4
    
    
    
    65.6
    
    
    
    44.8Comprehensive income (loss)
    
    $
    779.1
    
    
    $
    356.1
    
    
    $
    (39.4
    )
 SUPPLEMENTAL SCHEDULE OF CONSOLIDATED ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
 2005
    
    
    2004
    
    
    2003Accumulated other comprehensive income (loss), beginning of year
    
    $
    96.8
    
    
    $
    31.2
    
    
    $
    (13.6
    )Other comprehensive income, net of related income taxes
    
    
    246.4
    
    
    
    65.6
    
    
    
    44.8Accumulated other comprehensive income, end of year
    
    $
    343.2
    
    
    $
    96.8
    
    
    $
    31.2
  2005
    
    
    2004
    
    
    2003Unrealized gains and losses on available-for-sale securities
    
    $
    236.3
    
    
    $
    106.7
    
    
    $
    39.0Gains and losses on derivatives designated as cash flow hedges
    
    
    182.4
    
    
    
    47.4
    
    
    
    43.1Additional minimum pension liability
    
    
    (55.4
    )
    
    
    (36.4
    )
    
    
    (30.0
    )Share of other comprehensive income of equity investees
    
    
    0.8
    
    
    
    
    
    
    
    Foreign currency translation adjustment
    
    
    (20.9
    )
    
    
    (20.9
    )
    
    
    (20.9
    )Accumulated other comprehensive income, end of year
    
    $
    343.2
    
    
    $
    96.8
    
    
    $
    31.2




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88
    
    NOTES TO
THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US
dollars except share and per-share amounts 33.
    
    RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (CONTINUED)
 SUPPLEMENTAL SCHEDULE OF CONSOLIDATED CASH FLOW
 2005
    
    
    2004
    
    
    2003Operating ActivitiesNet income (loss)
    
    $
    532.7
    
    
    $
    290.5
    
    
    $
    (84.2
    )Adjustments to reconcile net income to cash provided by
operating activitiesDepreciation and amortization
    
    
    234.0
    
    
    
    231.6
    
    
    
    218.9Stock-based compensation
    
    
    27.5
    
    
    
    11.1
    
    
    
    1.0Loss (gain) on disposal of property, plant and equipment
    
    
    11.8
    
    
    
    (0.7
    )
    
    
    1.0Gain on sale of long-term investments
    
    
    
    
    
    
    (34.4
    )
    
    
    Provisions for nitrogen and phosphate plant shutdowns
and PCS Yumbes
    
    
    
    
    
    
    3.6
    
    
    
    120.1Writedown of inventories
    
    
    
    
    
    
    
    
    
    
    62.9Foreign exchange on deferred income tax
    
    
    8.9
    
    
    
    17.2
    
    
    
    35.9Provision for deferred income tax
    
    
    43.5
    
    
    
    30.6
    
    
    
    3.0Income taxes related to stock-based compensation
    
    
    17.2
    
    
    
    15.9
    
    
    
    4.4Undistributed earnings of equity investees
    
    
    (37.2
    )
    
    
    (22.2
    )
    
    
    (8.4
    )Other long-term liabilities
    
    
    20.2
    
    
    
    (2.3
    )
    
    
    15.9Changes in non-cash operating working capitalAccounts receivable
    
    
    (107.6
    )
    
    
    (51.9
    )
    
    
    (39.5
    )Inventories
    
    
    (122.2
    )
    
    
    (10.5
    )
    
    
    14.5Prepaid expenses and other current assets
    
    
    (8.2
    )
    
    
    (8.9
    )
    
    
    9.4Accounts payable and accrued charges
    
    
    238.1
    
    
    
    188.7
    
    
    
    30.6Cash provided by operating activities
    
    
    858.7
    
    
    
    658.3
    
    
    
    385.5Investing ActivitiesAdditions to property, plant and equipment
    
    
    (376.3
    )
    
    
    (220.5
    )
    
    
    (150.7
    )Purchase of long-term investments
    
    
    (190.9
    )
    
    
    (105.5
    )
    
    
    (178.3
    )Proceeds from disposal of property, plant and equipment
    
    
    7.2
    
    
    
    2.5
    
    
    
    Proceeds from sale of long-term investments
    
    
    5.2
    
    
    
    100.8
    
    
    
    Other assets and intangible assets
    
    
    5.9
    
    
    
    (2.8
    )
    
    
    (32.7
    )Cash used in investing activities
    
    
    (548.9
    )
    
    
    (225.5
    )
    
    
    (361.7
    )Financing ActivitiesProceeds from long-term debt obligations
    
    
    
    
    
    
    
    
    
    
    250.0Repayment of long-term debt obligations
    
    
    (10.1
    )
    
    
    (1.0
    )
    
    
    (3.4
    )Proceeds from (repayment of) short-term debt obligations
    
    
    158.7
    
    
    
    (82.7
    )
    
    
    (296.8
    )Dividends
    
    
    (65.4
    )
    
    
    (56.1
    )
    
    
    (52.3
    )Repurchase of common shares
    
    
    (851.9
    )
    
    
    
    
    
    
    Issuance of common shares
    
    
    93.9
    
    
    
    161.2
    
    
    
    58.9Cash (used in) provided by financing activities
    
    
    (674.8
    )
    
    
    21.4
    
    
    
    (43.6
    )(Decrease) Increase in Cash and Cash Equivalents
    
    
    (365.0
    )
    
    
    454.2
    
    
    
    (19.8
    )Cash and Cash Equivalents, Beginning of Period
    
    
    458.9
    
    
    
    4.7
    
    
    
    24.5Cash and Cash Equivalents, End of Period
    
    $
    93.9
    
    
    $
    458.9
    
    
    $
    4.7
 34. SUBSEQUENT EVENT




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##### Table of Contents



MARKET AND INDUSTRY DATA STATEMENT
   FOOTNOTES, SOURCES, ABBREVIATIONS, TERMS AND MEASURES
 FOOTNOTES1
    
    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-
    
    Source: Fertecon, British Sulphur, PotashCorpControlled Production7
    
    Industry Operating Rate
    
    Source: Fertecon, PotashCorp8
    
    PotashCorp Capacity
    
    Source: Fertecon, PotashCorp9
    
    PotashCorp World
    
    Source: Fertecon; Blue, Johnson; Agrium;Position by Capacity
    
    PotashCorp10
    
    Total World Demand
    
    Source: Fertecon11
    
    PotashCorp Share of
    
    Source: Fertecon; Blue, Johnson; Agrium;World Production
    
    PotashCorp
 ABBREVIATED COMPANY NAMES AND SOURCES*Agrium
    
    Agrium Inc. (TSX and NYSE: AGU), CanadaAPC
    
    Arab Potash Company Ltd. (Amman: ARPT), JordanBASF
    
    BASF Group (Xetra: BAS, NYSE: BF), USABelaruskali
    
    PA Belaruskali, BelarusBlue, Johnson
    
    Blue, Johnson & Associates, USABPC
    
    Belarusian Potash Company, BelarusBritish Sulphur
    
    British Sulphur Consultants, UKCanpotex
    
    Canpotex Limited, CanadaCF Industries
    
    CF Industries, Inc., USACherokee Chem
    
    Cherokee Nitrogen Co., USAChristensen
    
    Christensen, USACNC
    
    Caribbean Nitrogen Company, TrinidadCoastal
    
    Coastal Catalyst and Chemical Co., USACoronet
    
    Coronet Industries, Incorporated, USACVRD
    
    Companhia Vale do Rio Doce, BrazilDJUSBM
    
    Dow Jones U.S. Basic Materials Index, USADSM
    
    DSM Chemicals North America Inc. (XAMS: DSMA,
NYSE: DSMKY), USADyno
    
    Dyno Nobel Limited, NorwayFAO
    
    Food and Agriculture Organization
of the United Nations, USAFertecon
    
    Fertecon Limited and Fertecon Research Centre Limited,
UKICL
    
    Israel Chemicals Ltd. (Tel Aviv: CHIM), IsraelIFA
    
    International Fertilizer Industry Association, FranceIFDC
    
    International Fertilizer Development Center, USAIMC
    
    IMC Global Inc. (now Mosaic), USAIMF
    
    International Monetary Fund, USAInnovene
    
    Innovene USA LLC, USAIntrepid
    
    Intrepid Potash, USAKali & Salz (K&S)
    
    Kali und Salz GmbH (Xetra: SDF), GermanyKoch
    
    Koch Industries, Inc., USAMarsoft
    
    Marsoft Inc., USAMosaic
    
    The Mosaic Company (NYSE: MOS), USANCPC
    
    North Carolina Phosphate Company, USANOLA
    
    New Orleans, Louisiana, USANYMEX
    
    New York Mercantile Exchange, USAOCP
    
    Office Cherifien des Phosphates, MoroccoOMS
    
    Overseas Marine Services, USAOswal
    
    Oswal Chemicals & Fertilizers Limited, IndiaPemex
    
    Petroleos Mexicanos, MexicoPhosChem
    
    Phosphate Chemical Export Association, Inc., USAPPI
    
    Potash & Phosphate Institute, USAPPIC
    
    Potash & Phosphate Institute of Canada, CanadaSilvinit
    
    JSC Silvinit, RussiaSinofert
    
    Sinochem Hong Kong Holdings Limited
(HKSE, 0297.HK), ChinaSQM
    
    Sociedad Quimica y Minera de Chile S.A. (Santiago
Bolsa de Comercio Exchange, NYSE: SQM), ChileTerra
    
    Terra Industries, Inc. (NYSE: TRA), USATFI
    
    The Fertilizer Institute, USAThomson Financial
    
    Thomson Financial Inc., USATringen
    
    Trinidad Nitrogen Co., Limited, TrinidadTSX
    
    Toronto Stock Exchange, CanadaUralkali
    
    JSC Uralkali, RussiaUS Chem
    
    U.S. Agri-Chemicals Corporation, USAUSDA
    
    US Department of Agriculture, USAYara
    
    Yara International (Formerly Hydro Agri and Hydro Gas
and Chemicals) (Oslo: YAR), Norway
 GLOSSARY OF TERMSCanpotex
    
    An export company owned by all Saskatchewan producers
of potash (PotashCorp, Mosaic and Agrium).Consumption vs Demand
    
    Product applied vs product purchasedNorth America
    
    The North American market includes Canada and the
United States.Offshore
    
    Offshore markets include all markets except Canada and
the United States.PhosChem
    
    An association formed under the Webb-Pomerene Act
for US exports of phosphate fertilizer products. Members
are PotashCorp, Mosaic and Mississippi Phosphates
Corporation. PCS Sales is responsible for export sales of
liquid fertilizers for all PhosChem members while Mosaic
is responsible for sales of solid fertilizers for members.State- or Subsidy-
    
    State-controlled: Operational control in the hands of the
stateControlled Production
    
    Subsidy-controlled: The state provides subsidies which
control the economic viability of the operation
 SCIENTIFIC TERMSNitrogen
    
    NH3
    
    ammonia (anhydrous), 82.2% NHNO3
    
    nitric acid, 22% N (liquid)UAN
    
    nitrogen solutions, 28-32% N (liquid)Phosphate
    
    P2O5
    
    phosphoric acid (liquid)MGA
    
    merchant grade acid, 54% P2O5 (liquid)DAP
    
    diammonium phosphate, 46% P2O5 (solid)MAP
    
    monoammonium phosphate, 52% P2O5(solid)SPA
    
    superphosphoric acid, 70% P2O5(liquid)MCP
    
    monocalcium phosphate, 48.1% P2O5(solid)DCP
    
    dicalcium phosphate, 42.4%
P2O5 (solid)DFP
    
    defluorinated phosphate,
41.2%P2O5 (solid)Potash
    
    KCl
    
    potassium chloride, 60-63.2% (solid)
 FERTILIZER MEASURESP2O5 tonne
    
    Measures the phosphorus content of fertilizers having
different chemical analysesN tonne
    
    Measures the nitrogen content of fertilizers having different
chemical analysesProduct tonne
    
    Standard measure of the weights of all types of potash,
phosphate and nitrogen products
 *
    
    Where PotashCorp is listed as a source in conjunction with external sources, we have
supplemented the external data with internal analysis.




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