##### Table of Contents



Form 10-K/A
 Amendment No. 2
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2004
Commission file number 1-10351
 
 Potash Corporation of Saskatchewan Inc.
 (Exact name of the registrant as specified in its charter)
 Canada
    
    N/A(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. employer
identification no.)
 122
 1st Avenue South
Saskatoon, Saskatchewan, Canada S7K 7G3
306-933-8500
 (Address and telephone number of the registrants principal executive offices)
 Securities registered pursuant to Section 12(b) of the Act:
 Title of each class
    
    Name of exchange on which registeredCommon Shares, No Par Value
    
    New York Stock Exchange
  Securities registered pursuant to Section 12(g) of the Act: none
 þ o
 þ
 þ o




---



##### Table of Contents



EXPLANATORY NOTE




---



TABLE OF CONTENTS  PART IIITEM 6. Selected Financial Data.ITEM 8. Financial Statements and Supplementary Data.PART IVITEM 15. Exhibits and Financial Statement Schedules.SIGNATURESStatement re Computation of Per Share EarningsConsent of Deloitte & Touche LLPCertification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002    Table of Contents  
 PART II
 
 ITEM 6. Selected Financial Data.
  (in millions of US dollars, except per-share amounts)US GAAP
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Net income (loss) (1)
    
    
    290.5
    
    
    
    (84.2
    )
    
    
    60.4
    
    
    
    94.4
    
    
    
    196.9Net income (loss) per share  basic (1)
    
    
    2.69
    
    
    
    (0.81
    )
    
    
    0.58
    
    
    
    0.91
    
    
    
    1.88Total assets
    
    
    5,202.7
    
    
    
    4,520.0
    
    
    
    4,511.0
    
    
    
    4,378.1
    
    
    
    3,967.0
 (1)
    
    US GAAP figures restated, as described and quantified in Note 36 to the
registrants Consolidated Financial Statements included in this Amendment.
 II-1




---



##### Table of Contents



ITEM 8. Financial Statements and Supplementary Data.
 Managements Responsibility for Financial Reporting MANAGEMENTS REPORT ON FINANCIAL STATEMENTS The accompanying consolidated financial statements and related financial information are the
responsibility of PotashCorp management and have been prepared in accordance with accounting
principles generally accepted in Canada and include amounts based on estimates and
judgments. Financial information included elsewhere in this report is consistent with the
consolidated financial statements. Our independent auditors, Deloitte & Touche LLP, provide an audit of the consolidated financial
statements, as reflected in their report for 2004 included on
Page II-3. The consolidated financial statements are approved by the Board of Directors on the recommendation
of the audit committee. The audit committee of the Board of Directors is composed of directors who are not officers or
employees of PotashCorp. PotashCorps interim consolidated financial statements and MD&A are
discussed and reviewed by the audit committee with management and the independent auditors before
such information is approved by the committee and submitted to securities commissions or other
regulatory authorities. The annual consolidated financial statements and MD&A are also reviewed by
the audit committee together with management and the independent auditors and are approved by the
board. In addition, the audit committee has the duty to review critical accounting policies and significant
estimates and judgments underlying the consolidated financial statements as presented by
management; and to approve the fees of the independent auditors. Deloitte & Touche LLP, the independent auditors, obtain an understanding of PotashCorps internal
controls and procedures for financial reporting to plan and conduct such tests and other audit
procedures as they consider necessary in the circumstances. The independent auditors have full and
independent access to the audit committee to discuss their audit and related matters.   -s- W. Doyle
W. Doyle
President and
Chief Executive Officer
 -s- W. Brownlee
W. Brownlee
Senior Vice President and
Chief Financial Officer
    II-2




---



##### Table of Contents



Report of Independent Registered Chartered Accountants TO THE SHAREHOLDERS OF POTASH CORPORATION OF SASKATCHEWAN INC. We have audited the consolidated statements of financial position of Potash Corporation of
Saskatchewan Inc. (the Company) as at December 31, 2004 and 2003 and the consolidated statements of
operations and retained earnings and cash flow for each of the years in the three-year period ended
December 31, 2004. These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the
standards of the Public Company Accounting Oversight Board (United States). These standards require
that we plan and perform an audit to obtain reasonable assurance whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. In our opinion, these consolidated financial statements present fairly, in all material respects,
the financial position of Potash Corporation of Saskatchewan Inc. as at December 31, 2004 and 2003
and the results of its operations and its cash flows for each of the years in the three-year period
ended December 31, 2004, in accordance with Canadian generally accepted accounting principles. We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of the Companys internal control over financial reporting
as of December 31, 2004, based on the criteria established in Internal Control  Integrated
Frameworkissued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) and our
report dated February 17, 2005 expressed an unqualified opinion on managements assessment of the
effectiveness of the Companys internal control over financial reporting and an unqualified opinion
on the effectiveness of the Companys internal control over financial reporting. Our previous report dated
February 17, 2005, has been withdrawn and Note 36 to the
financial statements has been revised, as described therein.

(DELOITTE AND TOUCHE LLP SIGNATURE)Independent Registered Chartered Accountants
Saskatoon, Saskatchewan, Canada
February 17, 2005, except as to Note 36 which is as of
November 9, 2005  COMMENTS BY AUDITORS ON CANADA-UNITED STATES OF AMERICA REPORTING DIFFERENCES The standards of the Public Company Accounting Oversight Board (United States) require the addition
of an explanatory paragraph (following the opinion paragraph) when there are changes that have an
effect on the comparability of the consolidated financial statements or changes that have been
implemented in the financial statements, such as the changes described in Note 3, Note 14, Note 28 and Note 36 to Potash Corporation of Saskatchewan Inc.s consolidated
financial statements. Our report to the shareholders dated
February 17, 2005 (except as to Note 36 which is as of
November 9, 2005), is expressed in
accordance with Canadian reporting standards, which do not require a reference to such changes in
accounting principles in the auditors report when the changes are properly accounted for and
adequately disclosed in the consolidated financial statements.


(DELOITTE AND TOUCHE LLP SIGNATURE)Independent Registered Chartered Accountants
Saskatoon, Saskatchewan, Canada
February 17, 2005, except as to Note 36 which is as of
November 9, 2005 II-3




---



##### Table of Contents



Managements
Report on Internal Control over Financial Reporting and Report of
Independent Registered Chartered Accountants thereon Managements Report on
Internal Control over Financial Reporting and the Report of
Independent Registered Chartered Accountants on managements
assessment of the registrants internal control over financial
reporting, included on pages 55 and 57 of the
registrants 2004 Annual Report, filed as Exhibit 13, are
incorporated by reference in this Item 8. II-4




---



##### Table of Contents



CONSOLIDATED STATEMENTS OF FINANCIAL POSITION as at December 31
    
    in millions of US dollars except share amounts2004
    
    
    2003AssetsCurrent assetsCash and cash equivalents
    
    $
    458.9
    
    
    $
    4.7Accounts receivable(Note 5)
    
    
    352.6
    
    
    
    305.0Inventories(Note 6)
    
    
    396.8
    
    
    
    395.2Prepaid expenses and other current assets
    
    
    35.3
    
    
    
    29.01,243.6
    
    
    
    733.9Property, plant and equipment(Note 7)
    
    
    3,098.9
    
    
    
    3,108.1Other assets(Note 8)
    
    
    650.2
    
    
    
    595.4Intangible assets(Note 8)
    
    
    37.1
    
    
    
    32.9Goodwill(Note 9)
    
    
    97.0
    
    
    
    97.0$
    5,126.8
    
    
    $
    4,567.3LiabilitiesCurrent liabilitiesShort-term debt(Note 10)
    
    $
    93.5
    
    
    $
    176.2Accounts payable and accrued charges (Note 11)
    
    
    599.9
    
    
    
    380.3Current portion of long-term debt(Note 12)
    
    
    10.3
    
    
    
    1.3703.7
    
    
    
    557.8Long-term debt(Note 12)
    
    
    1,258.6
    
    
    
    1,268.6Future income tax liability(Note 26)
    
    
    499.4
    
    
    
    484.2Accrued post-retirement/post-employment benefits(Note 14)
    
    
    193.4
    
    
    
    194.5Accrued environmental costs and asset retirement obligations
(Note 15)
    
    
    81.2
    
    
    
    81.3Other non-current liabilities and deferred credits
    
    
    4.9
    
    
    
    7.12,741.2
    
    
    
    2,593.5Commitments,Contingencies
and Guarantees(Notes 13,30 and
31, respectively)Shareholders EquityShare capital(Note 16)
    
    
    1,408.4
    
    
    
    1,245.8Unlimited authorization of common shares without par value;
issued and outstanding 110,630,503 and 106,224,432 shares
in 2004 and 2003, respectivelyUnlimited
authorization of first preferred shares; none outstandingContributed surplus(Note 17)
    
    
    275.7
    
    
    
    265.2Retained earnings
    
    
    701.5
    
    
    
    462.82,385.6
    
    
    
    1,973.8$
    5,126.8
    
    
    $
    4,567.3
 (See Notes to the Consolidated Financial Statements)
 Approved by the Board,  -s-
    

-s- E. Robert StrombergDirector
    
    Director
 II-5




---



##### Table of Contents



CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS for the years ended December 31
    
    in millions of US dollars except per-share amounts2004
    
    
    2003
    
    
    2002Sales(Note 18)
    
    $
    3,244.4
    
    
    $
    2,799.0
    
    
    $
    2,224.4Less: Freight
    
    
    238.7
    
    
    
    234.5
    
    
    
    215.2Transportation and distribution
    
    
    104.3
    
    
    
    98.7
    
    
    
    80.5Cost of
goods sold (Note 19)
    
    
    2,220.0
    
    
    
    2,085.4
    
    
    
    1,621.4Gross Margin
    
    
    681.4
    
    
    
    380.4
    
    
    
    307.3Selling and
administrative (Note 20)
    
    
    130.6
    
    
    
    96.1
    
    
    
    91.7Provincial
mining and other taxes (Note 21)
    
    
    92.6
    
    
    
    57.0
    
    
    
    68.0Provision
for plant shutdowns (Note 22)
    
    
    
    
    
    
    123.7
    
    
    
    Provision
for PCS Yumbes S.C.M. (Note 23)
    
    
    3.6
    
    
    
    140.5
    
    
    
    Foreign exchange loss
    
    
    19.7
    
    
    
    51.9
    
    
    
    5.5Other income
(Note 24)
    
    
    (79.4
    )
    
    
    (33.2
    )
    
    
    (24.8
    )167.1
    
    
    
    436.0
    
    
    
    140.4Operating Income (Loss)
    
    
    514.3
    
    
    
    (55.6
    )
    
    
    166.9Interest
Expense(Note 25)
    
    
    84.0
    
    
    
    91.3
    
    
    
    83.1Income (Loss) Before Income Taxes
    
    
    430.3
    
    
    
    (146.9
    )
    
    
    83.8Income
Taxes(Note 26)
    
    
    131.7
    
    
    
    (20.6
    )
    
    
    30.2Net Income (Loss)
    
    
    298.6
    
    
    
    (126.3
    )
    
    
    53.6Retained
Earnings, Beginning of Year
    
    
    462.8
    
    
    
    641.4
    
    
    
    639.8Dividends
    
    
    (59.9
    )
    
    
    (52.3
    )
    
    
    (52.0
    )Retained
Earnings, End of Year
    
    $
    701.5
    
    
    $
    462.8
    
    
    $
    641.4Net
Income (Loss) per Share  Basic(Note 27)
    
    $
    2.77
    
    
    $
    (1.21
    )
    
    $
    0.52Net
Income (Loss) per Share  Diluted(Note
27)
    
    $
    2.70
    
    
    $
    (1.21
    )
    
    $
    0.51Dividends per Share
    
    $
    0.55
    
    
    $
    0.50
    
    
    $
    0.50
 (See Notes to the Consolidated Financial Statements)
 II-6




---



##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH FLOW for the years ended December 31
    
    in millions of US dollars2004
    
    
    
    
    
    
    2003
    
    
    
    
    
    
    2002Operating ActivitiesNet income (loss)
    
    
    
    
    
    $
    298.6
    
    
    
    
    
    
    $
    (126.3
    )
    
    
    
    
    
    $
    53.6Items not
affecting cash
Depreciation and amortization
    
    
    240.0
    
    
    
    
    
    
    
    227.4
    
    
    
    
    
    
    
    219.1Stock-based compensation
    
    
    11.1
    
    
    
    
    
    
    
    1.0
    
    
    
    
    
    
    
    (Gain) loss
on disposal of property, plant and equipment
    
    
    (0.7
    )
    
    
    
    
    
    
    1.0
    
    
    
    
    
    
    
    1.0Gain on sale
of long-term investments (Note 4)
    
    
    (34.4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Provision for plant shutdowns
    
    
    
    
    
    
    
    
    
    
    118.3
    
    
    
    
    
    
    
    Provision for PCS Yumbes S.C.M.
    
    
    3.6
    
    
    
    
    
    
    
    127.6
    
    
    
    
    
    
    
    Foreign exchange on future income tax
    
    
    17.2
    
    
    
    
    
    
    
    35.9
    
    
    
    
    
    
    
    1.0Provision for (recovery of) future income tax
    
    
    26.3
    
    
    
    
    
    
    
    (20.6
    )
    
    
    
    
    
    
    6.0Share of earnings of equity investees
    
    
    (30.9
    )
    
    
    
    
    
    
    (12.4
    )
    
    
    
    
    
    
    (5.3
    )(Recovery of) provision for post-retirement/post-employment
benefits
    
    
    (1.1
    )
    
    
    
    
    
    
    9.7
    
    
    
    
    
    
    
    18.2Accrued environmental costs and asset retirement obligations
    
    
    (0.1
    )
    
    
    
    
    
    
    1.3
    
    
    
    
    
    
    
    (3.0
    )Other non-current liabilities and deferred credits
    
    
    
    
    
    
    
    
    
    
    1.6
    
    
    
    
    
    
    
    (1.4
    )Subtotal of items not affecting cash
    
    
    
    
    
    
    231.0
    
    
    
    
    
    
    
    490.8
    
    
    
    
    
    
    
    235.6Changes in non-cash operating working capitalAccounts receivable
    
    
    (51.9
    )
    
    
    
    
    
    
    (39.5
    )
    
    
    
    
    
    
    (11.1
    )Inventories
    
    
    (10.5
    )
    
    
    
    
    
    
    11.8
    
    
    
    
    
    
    
    (18.2
    )Prepaid expenses and other current assets
    
    
    (6.3
    )
    
    
    
    
    
    
    11.4
    
    
    
    
    
    
    
    (3.9
    )Accounts payable and accrued charges
    
    
    102.2
    
    
    
    
    
    
    
    51.6
    
    
    
    
    
    
    
    37.0Current income taxes
    
    
    86.5
    
    
    
    
    
    
    
    (18.3
    )
    
    
    
    
    
    
    23.4Subtotal of changes in non-cash operating working capital
    
    
    
    
    
    
    120.0
    
    
    
    
    
    
    
    17.0
    
    
    
    
    
    
    
    27.2Cash provided by operating activities
    
    
    
    
    
    
    649.6
    
    
    
    
    
    
    
    381.5
    
    
    
    
    
    
    
    316.4Investing ActivitiesAdditions to
property, plant and equipment
    
    
    
    
    
    
    (220.5
    )
    
    
    
    
    
    
    (150.7
    )
    
    
    
    
    
    
    (212.2
    )Proceeds
from disposal of property, plant and equipment
    
    
    
    
    
    
    2.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Investment in Sociedad Quimica y Minera de Chile S.A. (SQM)
(Note 4)
    
    
    
    
    
    
    (97.2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23.2
    )Investment in Arab Potash Company (APC)
    
    
    
    
    
    
    (8.3
    )
    
    
    
    
    
    
    (178.3
    )
    
    
    
    
    
    
    Proceeds from sale of long-term investments (Note 4)
    
    
    
    
    
    
    66.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Proceeds
from sale of shares of PCS Yumbes S.C.M.
(Note 23)
    
    
    
    
    
    
    34.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends received from equity investees
    
    
    
    
    
    
    8.7
    
    
    
    
    
    
    
    4.0
    
    
    
    
    
    
    
    Other assets and intangibles
    
    
    
    
    
    
    (2.8
    )
    
    
    
    
    
    
    (32.7
    )
    
    
    
    
    
    
    (36.0
    )Cash used in investing activities
    
    
    
    
    
    
    (216.8
    )
    
    
    
    
    
    
    (357.7
    )
    
    
    
    
    
    
    (271.4
    )Cash before financing activities
    
    
    
    
    
    
    432.8
    
    
    
    
    
    
    
    23.8
    
    
    
    
    
    
    
    45.0Financing ActivitiesProceeds from long-term debt obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250.0
    
    
    
    
    
    
    
    11.2Repayment of long-term debt obligations
    
    
    
    
    
    
    (1.0
    )
    
    
    
    
    
    
    (3.4
    )
    
    
    
    
    
    
    (1.3
    )Repayment of short-term debt obligations
    
    
    
    
    
    
    (82.7
    )
    
    
    
    
    
    
    (296.8
    )
    
    
    
    
    
    
    (28.1
    )Dividends
    
    
    
    
    
    
    (56.1
    )
    
    
    
    
    
    
    (52.3
    )
    
    
    
    
    
    
    (52.0
    )Issuance of shares
    
    
    
    
    
    
    161.2
    
    
    
    
    
    
    
    58.9
    
    
    
    
    
    
    
    4.4Cash provided by (used in) financing activities
    
    
    
    
    
    
    21.4
    
    
    
    
    
    
    
    (43.6
    )
    
    
    
    
    
    
    (65.8
    )Increase (Decrease) in Cash and Cash Equivalents

    
    
    
    
    454.2
    
    
    
    
    
    
    
    (19.8
    )
    
    
    
    
    
    
    (20.8
    )Cash and
Cash Equivalents, Beginning of Year
    
    
    
    
    
    
    4.7
    
    
    
    
    
    
    
    24.5
    
    
    
    
    
    
    
    45.3Cash and Cash Equivalents, End of Year
    
    
    
    
    
    $
    458.9
    
    
    
    
    
    
    $
    4.7
    
    
    
    
    
    
    $
    24.5Supplemental cash flow disclosureInterest paid
    
    
    
    
    
    $
    83.3
    
    
    
    
    
    
    $
    83.8
    
    
    
    
    
    
    $
    81.2Income taxes paid
    
    
    
    
    
    $
    33.5
    
    
    
    
    
    
    $
    22.8
    
    
    
    
    
    
    $
    4.4
  (See Notes to the Consolidated Financial Statements)
 II-7




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US dollars except share and per-share amounts NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS in millions of US dollars except share and per-share amounts  1.
    DESCRIPTION OF BUSINESS With its subsidiaries, Potash
Corporation of Saskatchewan Inc. (PCS)  together known as PotashCorp or the
company except to the extent the context otherwise
requires  forms an integrated fertilizer and related
industrial and feed products company. The company has
producing assets in the following locations:  
    Potash
    five mines and mills and mining rights to
potash reserves at a sixth location, all in the
province of Saskatchewan
    one mine and two mills in the province of New Brunswick
    Phosphate
    a mine and processing plant in the
state of North Carolina
    a mine and two processing plants in
the state of Florida
    a processing plant in the state of Louisiana
    phosphate feed plants in five states
and one in Brazil
    two industrial phosphoric acid plants, in the states of North Carolina and Ohio
    Nitrogen
    four plants in the states of Georgia,
Louisiana, Ohio and Tennessee
    large-scale operations in Trinidad The company owns or leases approximately 175 terminal and
warehouse facilities strategically located in Canada and
the United States, and services customers with a fleet of
approximately 6,600 railcars. PotashCorp sells potash from its Saskatchewan mines for
use outside North America exclusively to Canpotex Limited
(Canpotex). Canpotex, a potash export, sales and
marketing company owned in equal shares by the three
potash producers in the Province of Saskatchewan
(including the company), resells potash to offshore
customers. PCS Sales (Canada) Inc. and PCS Sales (USA),
Inc., wholly owned subsidiaries of PotashCorp, execute
marketing and sales for the companys potash, phosphate
and nitrogen products in North America. PCS Sales (Canada)
Inc. executes offshore marketing and sales for the
companys New Brunswick potash. PCS Sales (USA), Inc.
generally executes offshore marketing and sales for the
companys nitrogen products. Phosphate Chemicals Export
Association, Inc. (PhosChem), an unrelated phosphate
export association established under United States law, is
the principal vehicle through which the company executes
offshore marketing and sales for its phosphate
fertilizers.  2.
    SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The companys accounting policies are in accordance with
Canadian generally accepted accounting principles
(Canadian GAAP). These policies are consistent with
accounting principles generally accepted in the United
States (US GAAP) in all material respects except as
outlined in Note 36. The preparation of consolidated
financial statements in accordance with generally accepted
accounting principles requires management to make
estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated
 financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates. As described in Notes 22 and 23, during 2003 the company approved
plans to restructure certain operations. Those plans required significant
estimates to be made of: (i) the recoverability of the carrying value of
certain assets based on their capacity to generate future cash flows;
and (ii) employee termination, contract termination and other exit
costs. Because restructuring activities are complex processes that can
take several months to complete, they involve periodically reassessing
estimates. As a result, the company may have to change originally
reported estimates when actual payments are made or the activities
are completed. As described in Note 16, on July 21, 2004, the Board of Directors of
PCS approved a split of the companys outstanding common shares on
a two-for-one basis. The stock split was effected in the form of a stock
dividend. All equity-based benefit plans, share and per-share data have
been retroactively adjusted to reflect the stock split. The following accounting policies are considered to be significant: PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of
PotashCorp and its principal operating subsidiaries:  
    PCS Sales (Canada) Inc.
    PCS Joint Venture, L. P.
    PCS Sales (USA), Inc.
    PCS Phosphate Company, Inc.
    PCS Purified Phosphates
    White Springs Agricultural Chemicals, Inc. (White Springs)
    PCS Nitrogen, Inc. (PCS Nitrogen)
    PCS Nitrogen Fertilizer, L. P.
    PCS Nitrogen Ohio, L. P.
    PCS Nitrogen Trinidad Limited
    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. All significant intercompany balances and transactions have been
eliminated. CASH EQUIVALENTS Highly liquid investments with an original maturity of three months or
less are considered to be cash equivalents. INVENTORIES Inventories of finished product, raw materials and work in process are
valued at the lower of cost and market. Cost for substantially all raw
materials and work in process inventories is determined using the first
in, first out (FIFO) method. Certain inventories of materials and supplies
are valued at the lower of average cost and replacement cost and
certain inventories of materials and supplies are valued at the lower
of cost and market. Cost for substantially all finished product is
determined using the weighted average cost method.
   II-8




---



##### Table of Contents



NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS  |  in
millions of US dollars except share and per-share amounts   2.
    SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PREPAID EXPENSES Prepaid expenses include prepaid freight relating to
product inventory stored at warehouse and terminal
facilities. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment (which includes mine
development costs) are carried at cost. Costs of
additions, betterments, renewals and interest during
construction are capitalized. Maintenance and repair expenditures, which do not improve
or extend productive life, are expensed as incurred. DEPRECIATION AND AMORTIZATION Certain mining and milling assets are depreciated using
the units of production method based on the shorter of
estimates of reserves or service lives. Other asset
classes are depreciated or amortized on a straight-line
basis as follows: land improvements 5 to 30 years,
buildings and improvements 6 to 30 years and machinery and
equipment (comprised primarily of plant equipment) 20 to
25 years. GOODWILL All business combinations are accounted for using the
purchase method. Goodwill is carried at cost, is not
amortized and represents the excess of the purchase price
and related costs over the fair value assigned to the net
tangible assets of businesses acquired. OTHER ASSETS AND INTANGIBLES Issue costs of long-term obligations are capitalized to
deferred charges and are amortized to expense over the
term of the related liability. Preproduction costs are
capitalized to deferred charges and represent costs
incurred prior to obtaining commercial production at new
facilities, net of revenue earned, and are amortized on either a straight-line or
units of production basis over a maximum of 10 years. The costs of constructing bases for gypsum stacks and
settling ponds are capitalized to deferred charges and are
amortized on a straight-line basis over their estimated
useful lives of 3 to 5 years. Investments in which the company exercises significant
influence (but does not control) are accounted for using
the equity method. Other investments are stated at cost.
An investment is considered impaired if its fair value
falls below its cost, and the decline is considered other
than temporary. Rotational plant maintenance costs, which consist
primarily of planned major maintenance projects (also
known as turnarounds), are capitalized when incurred and
are amortized over a period that generally does not exceed
1 year. Finite-lived intangible assets are amortized over their
estimated useful lives as follows: production and
technology rights 25 to 30 years and computer software 5
years. ASSET IMPAIRMENT The company reviews both long-lived assets to be held and
used and identifiable intangible assets with finite lives
whenever events or changes in circumstances indicate that
the carrying amount of such assets may not be fully
recoverable. Determination of recoverability is based on
an estimate of undiscounted future cash flows resulting
from the use of the asset and its eventual disposition.
Measurement of an impairment loss for long-lived assets
and certain identifiable intangible
 assets that management expects to hold and use is based on
the fair value of the assets, whereas such assets to be
disposed of are reported at the lower of carrying amount
or fair value less costs to sell. During 2004 and 2003,
the company recognized asset impairment charges as described in Notes 22 and 23. As at December
31, 2004, the company determined that there were no other
triggering events requiring impairment analysis. Goodwill impairment is assessed at the reporting unit
level at least annually, in April. Reporting units
comprise business operations with similar economic
characteristics and strategies and may represent either a
business segment or a business unit within a business
segment. Potential impairment is identified when the
carrying value of a reporting unit, including the
allocated goodwill, exceeds its fair value. Goodwill
impairment is measured as the excess of the carrying
amount of the reporting units allocated goodwill over the
implied fair value of the goodwill, based on the fair
value of the assets and liabilities of the reporting unit. The fair values are estimated using accepted valuation
methodologies such as discounted future net cash flows,
earnings multiples or prices for similar assets, whichever
is most appropriate under the circumstances. LEASES Leases entered into are classified as either capital or
operating leases. Leases that transfer substantially all
of the benefits and risks of ownership of property to the
company are accounted for as capital leases. Equipment
acquired under capital leases is depreciated on the same
basis as other property, plant and equipment. Gains or
losses resulting from sale/leaseback transactions are
deferred and amortized in proportion to the amortization
of the leased asset. Rental payments under operating
leases are expensed as incurred. POST-EMPLOYMENT AND POST-RETIREMENT BENEFITS The company offers a number of benefit plans that provide
pension and other benefits to qualified employees. These
plans include defined benefit pension plans, supplemental
pension plans, defined contribution plans and health,
disability, dental and life insurance plans. The company accrues its obligations under employee benefit
plans and the related costs, net of plan assets. The cost
of pensions and other retirement benefits earned by
employees is generally actuarially determined using the
projected benefit method prorated on service and
managements best estimate of expected plan investment
performance, salary escalation, retirement ages of
employees and expected health-care costs. For the purpose
of calculating the expected return on plan assets, those
assets are valued at fair value. Prior service costs from
plan amendments are deferred and amortized on a
straight-line basis over the average remaining service
period of employees active at the date of amendment.
Actuarial gains (losses) arise from the difference between
actual long-term rate of return on plan assets for a
period and the expected long-term rate of return on plan
assets for that period, or from changes in actuarial
assumptions used to determine the accrued benefit
obligation. The excess of the net accumulated actuarial
gain (loss) over 10 percent of the greater of the benefit
obligation and the fair value of plan assets is amortized
over the average remaining service period of active
employees. The average remaining service period of the
active employees covered by the companys pension plans is
16.3 years (2003  15.3). The average remaining service
period of the active employees covered by the
   II-9




---



##### Table of Contents



NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS  |  in millions of US dollars except share and per-share amounts   2.
    SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) companys other benefits plans is 13.7 years (2003  13.5).
When the restructuring of a benefit plan gives rise to
both a curtailment and a settlement of obligations, the
curtailment is accounted for prior to the settlement.
Actuaries perform valuations on a regular basis to
determine the actuarial present value of the accrued
pension and other retirement benefits. Pension expense includes the net of managements best
estimate of the cost of benefits provided, interest cost
of projected benefits, return on plan assets, amortization
of experience gains or losses and plan amendments, and
changes in the valuation allowance. Defined contribution plan costs are recognized in earnings
for services rendered by employees during the period. ENVIRONMENTAL COSTS AND ASSET RETIREMENT OBLIGATIONS Environmental costs that relate to current operations are
expensed or capitalized as appropriate. Environmental
costs are capitalized if the costs extend the life of the
property, increase its capacity, mitigate or prevent
contamination from future operations, or relate to legal
asset retirement obligations. Costs that relate to
existing conditions caused by past operations and that do
not contribute to current or future revenue generation are
expensed. Provisions for estimated costs are recorded when
environmental remedial efforts are likely and the costs
can be reasonably estimated. In determining the
provisions, the company uses the most current information
available, including similar past experiences, available
technology, regulations in effect, the timing of
remediation and cost-sharing arrangements. The company recognizes its obligations to retire certain
tangible long-lived assets in accordance
with Canadian Institute of Chartered Accountants (CICA)
Section 3110, Accounting for Asset Retirement
Obligations (see Note 3). Under Section 3110, the fair
value of a liability for an asset retirement obligation is
recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part
of the carrying amount of the long-lived asset and then
amortized over its estimated useful life. In subsequent
periods, the asset retirement obligation is adjusted for
the passage of time and any changes in the amount or
timing of the underlying future cash flows through charges
to earnings. A gain or loss may be incurred upon
settlement of the liability. STOCK-BASED COMPENSATION PLANS The company has four stock-based compensation plans, which
are described in Note 28. The company accounts for its
grants under those plans in accordance with the fair value
based method of accounting for stock-based compensation.
For stock option plans, the fair value of stock options is
determined on their grant date and recorded as
compensation expense over the period that the stock
options vest, with a corresponding increase to contributed
surplus. When stock options are exercised, the proceeds,
together with the amount recorded in contributed surplus,
are recorded in share capital. FOREIGN EXCHANGE TRANSACTIONS The companys functional currency is the US dollar. Canadian dollar operating transactions are translated to
US dollars at the average exchange rate for the previous
month. Trinidad dollar operating transactions are
translated to US dollars at the average
 exchange rate for the period. Monetary assets and
liabilities are translated at period-end exchange rates.
Non-monetary assets owned at December 31, 1994 have been
translated under the translation of convenience method at
the December 31, 1994 year-end exchange rate of US $1.00 =
Cdn $1.4028. Additions subsequent to December 31, 1994
are translated at the exchange rate prevailing at the time
of the transaction. Translation exchange gains and losses
of integrated foreign operations are reflected in
earnings. DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instruments are used by the company
to manage its exposure to exchange rate, interest rate and
commodity price fluctuations. The companys policy is not
to utilize derivative financial instruments for trading or
speculative purposes. The company formally documents all
relationships between hedging instruments and hedged
items, as well as its risk-management objective and
strategy for undertaking the hedge transaction. This
process includes linking derivatives to specific assets
and liabilities or to specific firm commitments or
forecasted transactions. The company also assesses, both
at the hedges inception and on an ongoing basis, whether
the derivatives that are used in hedging transactions are
highly effective in offsetting changes in fair values of
hedged items. When derivative instruments have been
designated within a hedge relationship and are highly
effective in offsetting the identified risk
characteristics of specific financial assets and
liabilities, or groups of financial assets and
liabilities, hedge accounting is applied to these
derivative instruments. Hedge accounting requires that
gains, losses, revenue and expenses of a hedging item be
recognized in the same period that the associated gains,
losses, revenue and expenses of the hedged item are
recognized. A hedging relationship is terminated if the
hedge ceases to be effective; if the underlying asset or
liability being hedged is derecognized or if it is no
longer probable that the anticipated transaction will
occur and the derivative instrument is still outstanding; or if the derivative instrument is no longer
designated as a hedging instrument. If a hedging
relationship is terminated, the difference between the
fair value and the accrued value of the hedging derivatives upon
termination is deferred and recognized into earnings on
the same basis as gains, losses, revenue and expenses of
the previously hedged item are recognized. The company enters into natural gas futures, swaps and
option agreements to manage the cost of natural gas. Gains
or losses resulting from changes in the fair value of
natural gas hedging transactions which have not yet been
settled are not recognized, as they generally relate to
changes in the spot price of anticipated natural gas
purchases. Gains or losses arising from gas hedging
transactions that have been settled, terminated or cease
to be effective prior to maturity are deferred as a
component of inventory until the product containing the
hedged item is sold, at which time both the natural gas
purchase cost and the related hedging deferral are
recorded as cost of sales. The company regularly evaluates
its unrecognized or deferred gains and losses on these
derivatives from a net realizable value of inventory
perspective and establishes appropriate provisions, if
necessary. The company periodically uses interest rate swaps to
manage the interest rate mix of the total debt portfolio
and related overall cost of borrowing. Hedge accounting
treatment for interest rate swaps results in interest
expense on the related debt being reflected at hedged
rates rather than original contractual interest rates.
   II-10




---



##### Table of Contents



NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS  |  in millions of US dollars except share and per-share amounts  2.
    SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The company enters into foreign currency forward contracts
in respect of its Canadian dollar requirements for
operating and capital expenditures. These contracts are
not designated as hedging instruments for accounting
purposes. Accordingly, they are marked-to-market and
carried at fair value as assets or liabilities, as
appropriate, with changes in fair value recognized in
earnings. REVENUE RECOGNITION Sales revenue is recognized when the product is shipped,
the sales price is determinable and collectability is
reasonably assured. Revenue is recorded based on the FOB
mine, plant, warehouse or terminal price, except for
certain vessel sales which are shipped on a delivered
basis. Transportation costs are recovered from the
customer through sales pricing. RECENT ACCOUNTING PRONOUNCEMENTS In June 2003, the CICA issued Accounting Guideline 15
(AcG-15), Consolidation of Variable Interest
Entities. In August 2004, a revised guideline
(AcG-15(R)) was
issued to ensure that AcG-15 was harmonized with FIN
46(R), its US GAAP equivalent. AcG-15(R) provides guidance
for applying consolidation principles to certain entities
that are subject to control on a basis other than
ownership of voting interests. AcG-15(R) is effective for
annual and interim periods, beginning on or after November 1, 2004. The company does not expect application of the
guideline to have a material impact on its consolidated
financial statements. In January 2005, the CICA issued Section 1530,
Comprehensive Income, Section 3251, Equity, Section
3855, Financial Instruments  Recognition and
Measurement and Section 3865, Hedges. Under the new
standards: a new location for recognizing certain gains and
losses  other comprehensive income  has been introduced providing an ability for certain gains and
losses arising from changes in fair value to be
temporarily recorded outside the income statement, but in
a transparent manner; all financial instruments, including
derivatives, are to be included on a companys balance
sheet and measured in most cases at their fair values; and
existing requirements for hedge accounting are extended.
The guidance will apply for interim and annual financial
statements relating to fiscal years beginning on or after
October 1, 2006. Earlier adoption will be permitted only
as of the beginning of a fiscal year. The company is in
the process of evaluating the impact of these recently
issued standards on its consolidated financial statements.  3.
    CHANGES IN ACCOUNTING POLICY SOURCES OF GAAP Effective January 1, 2004, the company prospectively
adopted new accounting requirements of the CICA as issued
in Section 1100, Generally Accepted Accounting
Principles. This section establishes standards for
financial reporting in accordance with Canadian GAAP and
provides guidance on sources to consult when selecting
accounting policies and determining appropriate
disclosures when a matter is not dealt with explicitly in
the primary sources of Canadian GAAP. In light of the new
Section 1100 provisions, the company reviewed the
application of its accounting policies and changed the
consolidated financial statement presentation of sales
revenue, freight costs and transportation and distribution
expenses, which were previously reported on a net basis,
to now reporting as separate line items on the
Consolidated Statements of Operations and Retained
 Earnings. There was no effect on gross margin or net
income. All comparative information has been appropriately
reclassified. ASSET RETIREMENT OBLIGATIONS As described in Note 2, on January 1, 2004, the company
retroactively adopted CICA Section 3110, Accounting for
Asset Retirement Obligations, which requires the company
to record an asset and related liability for the costs
associated with the retirement of long-lived tangible
assets when a legal liability to retire such assets
exists. This includes obligations incurred as a result of
acquisition, construction or normal operation of a
long-lived asset. The company has recorded asset
retirement obligations primarily associated with certain
closure, reclamation and restoration costs for its potash
and phosphate operations (see Note 15). The adoption of Section 3110 did not have a significant
effect on the results of operations or financial position
of the company. Had the provisions of Section 3110 been
applied as of January 1, 2003, the pro forma effects on
net loss would not have been material for the year ended
December 31, 2003. HEDGING RELATIONSHIPS Effective January 1, 2004, the company adopted CICA
Accounting Guideline 13 (AcG-13), Hedging
Relationships. This guideline sets out the criteria that
must be met in order to apply hedge accounting for
derivatives. The guideline provides detailed guidance on
the identification, designation, documentation and
effectiveness of hedging relationships for purposes of
applying hedge accounting, and the discontinuance of hedge
accounting. Income and expenses on derivative instruments
designated and qualifying as hedges under this guideline
are recognized in earnings in the same period as the
related hedged item. Ineffective hedging relationships and
hedges not designated in a hedging relationship are
carried at fair value on the Consolidated Statement of
Financial Position, and subsequent changes in their fair value are recorded in earnings. The adoption
of this accounting guideline did not have a material
impact on the consolidated financial statements.  4.
    BUSINESS ACQUISITION On December 21, 2004, the company acquired all the
outstanding shares of RAC Investments Ltd. (RAC Investments), an indirect subsidiary of Israel
Chemicals Ltd. (ICL), for $100.7, including acquisition
costs. RAC Investments is an investment holding company
which indirectly owns 19,200,242 Series A shares and
2,699,773 Series B shares in SQM, a Chilean specialty
fertilizer, iodine and lithium company. RAC Investments
earnings have been included in the consolidated financial
statements since the acquisition date. The following table
summarizes the fair value of the assets acquired and
liabilities assumed at the date of acquisition. Cash
    
    $
    3.5Investment in SQM
    
    
    97.2Total assets acquired
    
    
    100.7Future income taxes
    
    
    Total liabilities assumed
    
    
    Net assets acquired
    
    
    100.7Less: cash acquired
    
    
    (3.5
    )Cash consideration
    
    $
    97.2
   II-11




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US dollars except share and per-share amounts   4. BUSINESS ACQUISITION (CONTINUED) Prior to execution of the above noted transaction, the
company (through a subsidiary) sold 8,500,000 Series A
shares of SQM via public auction on the Santiago Stock
Exchange (the Exchange) and 1,301,724 Series A shares in
other Exchange transactions. Proceeds on sale were
$66.3, resulting in a non-taxable gain recorded in Other
Income of $34.4, net of selling costs (see Note 24).The
company now indirectly holds 63,062,037 Series A shares
and 2,699,773 Series B shares of SQM. 5. ACCOUNTS RECEIVABLE 2004
    
    
    2003Trade accounts  Canpotex
    
    $
    55.7
    
    
    $
    28.3 Other
    
    
    260.0
    
    
    
    244.8Non-trade accounts
    
    
    41.5
    
    
    
    36.8357.2
    
    
    
    309.9Less allowance for doubtful accounts
    
    
    (4.6
    )
    
    
    (4.9
    )$
    352.6
    
    
    $
    305.0
 6. INVENTORIES 2004
    
    
    2003Finished product
    
    $
    181.8
    
    
    $
    160.7Materials and supplies
    
    
    97.7
    
    
    
    108.0Raw materials
    
    
    50.3
    
    
    
    54.1Work in process
    
    
    67.0
    
    
    
    72.4$
    396.8
    
    
    $
    395.2
 7.
PROPERTY, PLANT AND EQUIPMENT 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
 2003AccumulatedDepreciation and
    
    Net BookCost
    
    Amortization
    
    ValueLand and improvements
    
    $
    225.7
    
    
    $
    38.6
    
    
    $
    187.1Buildings and improvements
    
    
    469.0
    
    
    
    164.9
    
    
    
    304.1Machinery and equipment
    
    
    3,856.4
    
    
    
    1,317.2
    
    
    
    2,539.2Mine development costs
    
    
    133.2
    
    
    
    55.5
    
    
    
    77.7$
    4,684.3
    
    
    $
    1,576.2
    
    
    $
    3,108.1
 Depreciation and amortization of property, plant and equipment included in cost of goods sold and
in selling and administrative was $210.9 (2003  $193.9; 2002  $188.2).The net carrying amount
of property, plant and equipment not being amortized at December 31, 2004 because it was under
construction or development was $234.9 (2003  $170.8). During the year, the company recorded an impairment charge
of $6.2 (2003  $117.6; 2002  $NIL) relating to certain
assets (see Notes 22 and 23). Interest capitalized to
property, plant and equipment during the year was $2.5
(2003  $1.5; 2002  $4.2).
 8. OTHER ASSETS AND INTANGIBLE ASSETS 2004
    
    
    2003Other
assetsInvestments at equityAPC  27 percent ownership;
quoted market value of $346.2
    
    $
    202.0
    
    
    $
    181.5SQM  25 percent ownership;
quoted market value of $445.5
    
    
    240.2
    
    
    
    164.7Other
    
    
    20.4
    
    
    
    17.0Investments at costICL  9 percent ownership;
quoted market value of $254.5
    
    
    92.8
    
    
    
    92.8Deferred charges  net of accumulated
amortization of $35.0 (2003  $26.1)
    
    
    34.8
    
    
    
    44.1Accrued pension benefit asset
    
    
    25.6
    
    
    
    22.2Rotational plant maintenance costs net of accumulated amortization
of $48.0 (2003  $33.2)
    
    
    
    
    
    
    14.8Other
    
    
    34.4
    
    
    
    58.3$
    650.2
    
    
    $
    595.4Intangible
assets net of accumulated
amortization of $11.4 (2003  $7.9)
    
    $
    37.1
    
    
    $
    32.9
 The companys share of earnings of equity investees
of $30.9 (2003  $12.4; 2002  $5.3) is included in other
income (see Note 24). During the year, the company recorded an impairment
charge of $NIL (2003  $65.4; 2002  $NIL) relating to
certain deferred charges. Amortization of deferred charges
and rotational plant maintenance costs included in cost of
goods sold and in selling and administrative was $25.6
(2003  $28.5; 2002  $30.2). Intangible assets relate primarily to production and
technology rights and computer software. Other than
goodwill (see Note 9), the company has not recognized any
intangible assets with indefinite useful lives. Total
amortization expense relating to finite-lived intangible
assets for 2004 was $3.5 (2003  $5.0; 2002 
$0.7). Amortization expense in each of the next five years
is estimated to be $5.3 for 2005, $6.0 for 2006, $5.2 for
2007, $3.9 for 2008 and $3.1 for 2009. 9. GOODWILL 2004
    
    
    2003Cost
    
    $
    104.3
    
    
    $
    104.3Accumulated amortization
    
    
    7.3
    
    
    
    7.3$
    97.0
    
    
    $
    97.0
 10. SHORT-TERM DEBT Short-term debt was $93.5 at
December 31, 2004 (2003 
$176.2). The weighted average interest rate on this debt
was 1.42 percent (2003  1.43 percent; 2002  1.70
percent). The company had an unsecured line of credit
available for short-term financing (net of letters of
credit of $15.1 and direct borrowings of $NIL) in the
amount of $59.9 at December 31, 2004 (2003  $45.3). In
addition, the company is authorized to borrow a further
$406.5 under its commercial paper program. The line of credit is subject to financial tests and
other covenants. The principal covenants require a debt to
capital ratio of less than or equal to 0.55:1, a long-term
debt to EBITDA (defined in the agreement as earnings
before interest, income taxes, provincial mining and other
taxes, depreciation, amortization and other non-cash
expenses) ratio of
    II-12




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US dollars except share and per-share amounts   10. SHORT-TERM DEBT (CONTINUED) less than or equal to 3.5:1, tangible net worth in an
amount greater than or equal to $1,250.0 and debt of
subsidiaries not to exceed $590.0. The line of credit is
subject to other customary covenants and events of
default, including an event of default for non-payment of
other debt in excess of Cdn $40.0. Non-compliance with such
covenants could result in accelerated payment of amounts
due under the line of credit, and its termination. The
company was in compliance with the above-mentioned
covenants at December 31, 2004. 11. ACCOUNTS PAYABLE AND ACCRUED CHARGES 2004
    
    
    2003Trade accounts
    
    $
    193.0
    
    
    $
    161.6Other payables
    
    
    127.7
    
    
    
    93.1Current portion accrued environmental
costs and asset retirement obligations
    
    
    19.5
    
    
    
    18.7Accrued interest
    
    
    16.8
    
    
    
    16.1Accrued compensation
    
    
    58.8
    
    
    
    32.8Current
portion post-retirement/
post-employment benefits
    
    
    23.8
    
    
    
    15.3Income taxes
    
    
    143.6
    
    
    
    29.4Dividends
    
    
    16.7
    
    
    
    13.3$
    599.9
    
    
    $
    380.3
 12. LONG-TERM DEBT 2004
    
    
    2003Industrial Revenue and Pollution
Control Obligations
    
    $
    9.0
    
    
    $
    9.0Adjustable Rate Industrial Revenue and Pollution
Control Obligations bearing interest at an average
rate of 1.307% (2003  1.166%; 2002  1.725%)
and maturing in 2005. There are no sinking fund
requirements prior to maturity. Bank letters of
credit
are pledged as collateral for these loans.Notes 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 interest.Other
    
    
    9.9
    
    
    
    10.91,268.9
    
    
    
    1,269.9Less current maturities
    
    
    10.3
    
    
    
    1.3$
    1,258.6
    
    
    $
    1,268.6
 The company has entered into back-to-back loan
arrangements involving certain financial assets and
financial liabilities. The company has presented financial
assets of $310.1 and financial liabilities of $316.0 on a
net basis because a legal right to set-off exists,
and intends to settle on a net basis. Other long-term debt
in the above table includes a net financial liability of
$5.9 (2003  $5.9) pursuant to these arrangements.
 The company has a syndicated
credit facility, renewable
annually, which provides for unsecured advances of up to
$750.0 (less the amount of direct borrowings and
commercial paper outstanding). As at December 31, 2004, no
amounts were outstanding and $656.5 was available under
the facility. Principal covenants and events of default
under the credit facility requirements are the same as the
line of credit as described in Note 10. The notes payable
are not subject to any financial test covenants but are
subject to certain customary covenants (including
limitations on liens and sale and leaseback transactions)
and events of default, including an event of default for
acceleration of other debt in excess of $50.0. Neither the
Industrial Revenue and Pollution Control Obligations nor
the other long-term debt instruments are subject to any
financial test covenants but each is subject to certain
customary covenants and events of default, including, for
other long-term debt, an event of default for non-payment
of other debt in excess of $25.0. Non-compliance with such
covenants could result in accelerated payment of the
related debt. The company was in compliance with the
above-mentioned covenants at December 31, 2004. Long-term debt at
December 31, 2004 will mature as follows: 2005
    
    $
    10.32006
    
    
    1.32007
    
    
    400.62008
    
    
    0.32009
    
    
    0.3Subsequent years
    
    
    856.1$
    1,268.9
 13. COMMITMENTS LEASE COMMITMENTS The company has various long-term operating lease
agreements for buildings, port facilities, equipment,
ocean-going transportation vessels, mineral leases and
railcars, the latest of which expires in 2025. Rental
expense for operating leases for the years ended December 31,
2004, 2003 and 2002 was $69.6,$39.9 and
$41.2, respectively. PURCHASE COMMITMENTS The company has long-term agreements for the purchase of
sulfur for use in the production of phosphoric acid. These
agreements provide for minimum purchase quantities, and certain prices are based
on market rates at the time of delivery. The commitments
included in the table below are based on contract prices
as at December 31, 2004. The company has entered into long-term natural gas
contracts with the National Gas Company of Trinidad. The
contracts provide for prices that vary with ammonia market
prices, escalating floor prices and minimum purchase
quantities. The commitments included in the table below are
based on floor prices and minimum purchase quantities. The company also has a long-term agreement for the
purchase of phosphate rock used at the Geismar
facility. The commitments included in the table below are
based on the expected purchase quantity and current base
prices (less applicable discounts).
   II-13




---



##### Table of Contents



NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS  |  in millions of US dollars except share and per-share amounts   13.
    COMMITMENTS (CONTINUED) OTHER COMMITMENTS Other operating commitments consist principally of amounts
relating to the companys contracts to purchase limestone
that run through 2007 and various rail freight contracts,
the latest of which expire in 2010. Minimum future commitments under these contractual
arrangements for the next five years and thereafter are
shown below. Operating
    
    Purchase
    
    OtherLeases
    
    Commitments
    
    Commitments2005
    
    $
    78.9
    
    
    $
    104.5
    
    
    $
    13.42006
    
    
    69.8
    
    
    
    99.7
    
    
    
    10.82007
    
    
    62.9
    
    
    
    91.2
    
    
    
    9.12008
    
    
    50.9
    
    
    
    79.9
    
    
    
    8.42009
    
    
    47.2
    
    
    
    79.9
    
    
    
    8.4Thereafter
    
    
    257.3
    
    
    
    452.0
    
    
    
    4.2Total
    
    $
    567.0
    
    
    $
    907.2
    
    
    $
    54.3
  14.
    POST-RETIREMENT/POST-EMPLOYMENT BENEFITS PENSION PLANS Canada Substantially all employees of the company are
participants in either a defined contribution or a defined
benefit pension plan.
 The company has established a supplemental retirement
income plan for senior management which is unfunded,
non-contributory and provides a supplementary pension
benefit. The plan is provided for by charges to earnings sufficient to
meet the projected benefit obligation. United States The company has defined benefit pension plans that cover a
substantial majority of its employees. Benefits are based
on a combination of years of service and compensation
levels, depending on the plan. Generally, contributions to the US plans are made to meet or exceed
minimum funding requirements of the Employee Retirement
Income Security Act of 1974 (ERISA). Trinidad The company has contributory defined benefit pension plans
that cover a substantial majority of its employees.
Benefits are based on service. The plans assets consist
mainly of local government and other bonds, local mortgage
and mortgage-backed securities, fixed income deposits and
cash. OTHER POST-RETIREMENT PLANS The company provides certain
contributory health-care
plans and non-contributory life insurance benefits for
retired employees. These plans contain certain
cost-sharing features such as deductibles and coinsurance,
and are unfunded, with benefits subject to change.
   DEFINED BENEFIT PENSION AND OTHER POST-RETIREMENT/POST-EMPLOYMENT BENEFIT PLANS The components of net expense for the companys pension and other post-retirement/post-employment
benefit plans, computed actuarially, were as follows: Pension
    
    
    Other2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Costs arising in the periodService cost for benefits earned during the
year
    
    $
    12.9
    
    
    $
    12.2
    
    
    $
    12.0
    
    
    $
    5.2
    
    
    $
    5.5
    
    
    $
    4.1Interest cost on projected benefit obligations
    
    
    30.2
    
    
    
    29.6
    
    
    
    28.1
    
    
    
    13.2
    
    
    
    12.9
    
    
    
    13.9Actual return on plan assets
    
    
    (47.1
    )
    
    
    (73.3
    )
    
    
    18.1
    
    
    
    
    
    
    
    
    
    
    
    Actuarial loss (gain)
    
    
    23.3
    
    
    
    27.3
    
    
    
    37.1
    
    
    
    (6.8
    )
    
    
    25.7
    
    
    
    7.4Plan amendments
    
    
    
    
    
    
    2.3
    
    
    
    1.9
    
    
    
    
    
    
    
    (12.6
    )
    
    
    Change in valuation allowance
    
    
    (2.2
    )
    
    
    2.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Costs arising in the period
    
    
    17.1
    
    
    
    0.1
    
    
    
    97.2
    
    
    
    11.6
    
    
    
    31.5
    
    
    
    25.4Difference between costs arising in the
period and
costs recognized in the period in respect of:Return on plan assets
    
    
    13.6
    
    
    
    42.9
    
    
    
    (50.0
    )
    
    
    
    
    
    
    
    
    
    
    Actuarial (gain) loss
    
    
    (20.2
    )
    
    
    (27.4
    )
    
    
    (36.5
    )
    
    
    9.5
    
    
    
    (13.6
    )
    
    
    3.5Plan amendments
    
    
    0.4
    
    
    
    (2.2
    )
    
    
    (1.8
    )
    
    
    (1.9
    )
    
    
    2.5
    
    
    
    (9.7
    )Transitional obligation
    
    
    1.5
    
    
    
    5.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net expense
    
    $
    12.4
    
    
    $
    18.5
    
    
    $
    8.9
    
    
    $
    19.2
    
    
    $
    20.4
    
    
    $
    19.2
 The assumptions used to determine the benefit obligation and expense for the companys significant
plans were as follows (weighted average as of December 31): Pension
    
    
    Other2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Discount rate  obligation
    
    
    5.75%
    
    
    
    6.10%
    
    
    
    6.50%
    
    
    
    5.75%
    
    
    
    6.10%
    
    
    
    6.50%Discount rate  expense
    
    
    6.10%
    
    
    
    6.50%
    
    
    
    7.25%
    
    
    
    6.10%
    (1)
    
    
    6.50%
    
    
    
    7.25%Long-term rate of return on assets
    
    
    8.50%
    
    
    
    8.50%
    
    
    
    9.00%
    
    
    
    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. II-14




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US dollars except share and per-share amounts  14.
    POST-RETIREMENT/POST-EMPLOYMENT BENEFITS (CONTINUED) The assumed health-care cost trend rates are as follows: 2004
    
    
    2003
    
    
    2002Health-care cost trend rates assumed for next year
    
    
    6.00%
    
    
    
    6.00%
    
    
    
    10.00%Ultimate
health-care cost trend rate assumed
    
    
    6.00%
    
    
    
    6.00%
    
    
    
    6.00%Year that the rate reaches the ultimate trend rate
    
    
    2004
    
    
    
    2003
    
    
    
    2006
 Effective January 1, 2004, the companys largest retiree medical plan limits the companys share of
annual medical cost increases to 4.5 percent for recent and future retirees. Any cost increases in
excess of this amount are funded by increased retiree contributions. The company employs a building block approach in determining the long-term rate of return for
pension plan assets. Historical markets are studied and long-term historical relationships between
equities and fixed-income are preserved consistent with the widely accepted capital market
principle that assets with higher volatility generate a greater return over the long run. Current
market factors such as inflation and interest rates are evaluated before long-term capital market
assumptions are determined. The long-term rate of return is established with proper consideration
of diversification and rebalancing. Peer data and historical returns are considered to check for
reasonability and appropriateness. The company is a sponsor of
certain US post-retirement health-care plans that were impacted by the
US Medicare Prescription Drug, Improvement and Modernization Act of 2003. This legislation expanded
Medicare to include (for the first time) coverage for prescription drugs and introduced a
prescription drug benefit and federal subsidy to sponsors of retiree
health-care benefit plans that
provide benefits at least actuarially equivalent to Medicare Part D. The company has accounted for
the impact of the legislation prospectively as of July 1, 2004. The federal subsidy had the effect
of reducing the companys accumulated post-retirement benefit obligation by $23.2 and reducing the
net periodic post-retirement benefit cost for the period by $1.7. The company uses a December 31 measurement date for the majority of its plans. The most recent
actuarial valuations of the majority of the pension plans for funding purposes were as of January 1, 2004,
and the next required valuations will be as of January 1, 2005. The change in benefit
obligations and change in plan assets for the above pension and other post-retirement/post-employment plans were as
follows: Pension
    
    
    Other2004
    
    
    2003
    
    
    2004
    
    
    2003Change in Benefit ObligationsBalance, beginning of year
    
    $
    502.4
    
    
    $
    449.2
    
    
    $
    230.7
    
    
    $
    208.3Service cost
    
    
    12.9
    
    
    
    12.2
    
    
    
    5.2
    
    
    
    5.5Interest cost
    
    
    30.2
    
    
    
    29.6
    
    
    
    13.2
    
    
    
    12.9Participants contributions
    
    
    0.2
    
    
    
    0.3
    
    
    
    2.8
    
    
    
    1.8Actuarial loss (gain)
    
    
    23.9
    
    
    
    27.3
    
    
    
    (6.8
    )
    
    
    25.7Foreign exchange rate changes
    
    
    3.1
    
    
    
    6.4
    
    
    
    1.1
    
    
    
    Amendments
    
    
    
    
    
    
    2.3
    
    
    
    
    
    
    
    (14.0
    )Benefits paid
    
    
    (24.1
    )
    
    
    (24.9
    )
    
    
    (10.8
    )
    
    
    (9.5
    )Balance, end of year
    
    
    548.6
    
    
    
    502.4
    
    
    
    235.4
    
    
    
    230.7Change in Plan AssetsFair value, beginning of year
    
    
    406.1
    
    
    
    330.4
    
    
    
    
    
    
    
    Actual return on plan assets
    
    
    47.1
    
    
    
    73.6
    
    
    
    
    
    
    
    Employer contributions
    
    
    20.5
    
    
    
    23.3
    
    
    
    8.0
    
    
    
    7.7Participants contributions
    
    
    0.2
    
    
    
    0.3
    
    
    
    2.8
    
    
    
    1.8Foreign exchange rate changes
    
    
    3.1
    
    
    
    3.4
    
    
    
    
    
    
    
    Benefits paid
    
    
    (24.1
    )
    
    
    (24.9
    )
    
    
    (10.8
    )
    
    
    (9.5
    )Fair value, end of year
    
    
    452.9
    
    
    
    406.1
    
    
    
    
    
    
    
    Funded Status
    
    
    (95.7
    )
    
    
    (96.3
    )
    
    
    (235.4
    )
    
    
    (230.7
    )Valuation allowance
    
    
    (11.7
    )
    
    
    (13.9
    )
    
    
    
    
    
    
    Unamortized net actuarial loss
    
    
    93.1
    
    
    
    86.1
    
    
    
    55.3
    
    
    
    70.5Unamortized prior service cost
    
    
    3.8
    
    
    
    4.4
    
    
    
    (9.1
    )
    
    
    (15.3
    )Unamortized transitional obligation
    
    
    6.7
    
    
    
    7.6
    
    
    
    1.4
    
    
    
    Accrued
post-retirement/post-employment
benefits
    
    $
    (3.8
    )
    
    $
    (12.1
    )
    
    $
    (187.8
    )
    
    $
    (175.5
    )Amounts included in:LiabilitiesCurrent (Note 11)
    
    $
    (16.0
    )
    
    $
    (7.7
    )
    
    $
    (7.8
    )
    
    $
    (7.6
    )Long-term
    
    
    (4.6
    )
    
    
    (17.7
    )
    
    
    (188.8
    )
    
    
    (176.8
    )Other assets (Note 8)
    
    
    16.8
    
    
    
    13.3
    
    
    
    8.8
    
    
    
    8.9$
    (3.8
    )
    
    $
    (12.1
    )
    
    $
    (187.8
    )
    
    $
    (175.5
    )
 II-15




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US dollars except share and per-share amounts   14.
    POST-RETIREMENT/POST-EMPLOYMENT BENEFITS (CONTINUED) The accumulated benefit obligation for all defined benefit
pension plans was $484.7 and $439.6 at December 31, 2004
and 2003, respectively. The aggregate projected benefit
obligation, accumulated benefit obligation and aggregate
fair value of plan assets for pension plans with
accumulated benefit obligations in excess of plan assets
were as follows: 2004
    
    
    2003Projected benefit obligation
    
    $
    520.4
    
    
    $
    460.1Accumulated benefit obligation
    
    
    467.9
    
    
    
    411.4Fair value of plan assets
    
    
    391.1
    
    
    
    355.0
 SENSITIVITY OF ASSUMPTIONS The effect of a change in the
health-care cost trend rate
on the other post-retirement/post-employment benefit
obligation and the aggregate of service and interest cost
would have been as follows: 2004
    
    
    2003
    
    
    2002As reported:Benefit obligation
    
    $
    235.4
    
    
    $
    230.7
    
    
    $
    208.3Aggregate of service
and interest cost
    
    
    18.4
    
    
    
    18.4
    
    
    
    18.0Increase of 1.0 percentage point:Benefit obligation
    
    
    34.4
    
    
    
    36.3
    
    
    
    35.0Aggregate of service
and interest cost
    
    
    3.3
    
    
    
    3.8
    
    
    
    3.3Decrease of 1.0 percentage point:Benefit obligation
    
    
    (35.3
    )
    
    
    (31.7
    )
    
    
    (28.7
    )Aggregate of service
and interest cost
    
    
    (3.4
    )
    
    
    (3.1
    )
    
    
    (2.7
    )
 The above sensitivities should be used with
caution. Changes in amounts based on a 1.0 percentage point
variation in assumptions generally cannot be extrapolated
because the relationship of the change in assumption to
the change in amounts may not be linear. The sensitivities
have been calculated independently of changes in other key
variables. Changes in one factor may result in changes in
another, which could amplify or reduce certain
sensitivities. PLAN ASSETS Approximate asset allocations, by asset category, of the
companys significant pension plans were as follows at
December 31: Asset Category
    
    Target
    
    
    2004
    
    
    2003Equity securities
    
    
    65%
    
    
    
    67%
    
    
    
    67%Debt securities
    
    
    35%
    
    
    
    32%
    
    
    
    32%Real estate
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    1%
    
    
    
    1%Total
    
    
    100%
    
    
    
    100%
    
    
    
    100%
 The company employs a total return investment approach
whereby a mix of equities and fixed income investments is
used to maximize the long-term return of plan assets for a
prudent level of risk. Risk tolerance is established
through careful consideration of plan liabilities, plan
funded status and corporate financial condition. The
investment portfolio contains a diversified blend of
equity and fixed income investments.
 Furthermore, equity investments are diversified across US
and non-US stocks, as well as growth, value and small and
large capitalizations. US equities also are diversified
across actively managed and passively invested portfolios.
Other assets such as private equity and hedge funds are not used at this time. Derivatives may
be used to gain market exposure in an efficient and timely
manner; however, derivatives may not be used to leverage
the portfolio beyond the market value of the underlying
investments. Investment risk is measured and monitored on
an ongoing basis through quarterly investment portfolio
reviews, annual liability measurements and periodic
asset/liability studies. Investment strategy in Trinidad
is largely dictated by local investment restrictions
(maximum of 50 percent in equities and 20 percent foreign)
and asset availability since the local equity market is
small and there is little secondary market activity in
debt securities. DEFINED CONTRIBUTION SAVINGS PLANS All of the companys US employees may participate in
defined contribution savings plans. These plans are
subject to US federal tax limitations and provide for
voluntary employee salary deduction contributions. The
company suspended its contributions of up to 5 percent of
salary in July 2003. Contributions were reinstated in
August 2004, providing a minimum of 3 percent (to a
maximum of 6 percent) of salary based on company
performance. The companys 2004 contributions were $2.9
(2003  $3.4; 2002  $5.0). All of the companys Canadian
salaried employees and certain hourly employees
participate in the PCS Inc. Savings Plan and may make
voluntary contributions. The company suspended its
contributions to this plan in July 2003. Contributions
were reinstated in August 2004, providing a minimum of 3
percent (to a maximum of 6 percent) of salary based on
company performance. The companys contributions in 2004
were $0.7 (2003  $0.9; 2002  $1.5). CASH PAYMENTS Total cash payments for pensions and other post-retirement/ post-employment benefits for 2004,
consisting of cash contributed by the company to its funded pension plans, cash payments directly
to beneficiaries for its unfunded other benefit plans and cash contributed to its defined
contribution plans, were $32.4 (2003  $35.5). Approximately $35.1 is expected to be contributed by the
company to all plans during 2005. ESTIMATED FUTURE BENEFIT PAYMENTS The following benefit payments, which reflect expected
future service, as appropriate, are expected to be paid
from either corporate assets or the qualified pension
trusts: OtherReduction dueto MedicarePension
    
    
    Gross
    
    
    Part D Subsidy
    
    Net2005
    
    $
    23.5
    
    
    $
    9.0
    
    
    $
    
    
    
    $
    9.02006
    
    
    24.0
    
    
    
    9.4
    
    
    
    0.6
    
    
    
    8.82007
    
    
    24.8
    
    
    
    10.0
    
    
    
    0.6
    
    
    
    9.42008
    
    
    25.9
    
    
    
    10.5
    
    
    
    0.6
    
    
    
    9.92009
    
    
    27.4
    
    
    
    11.0
    
    
    
    0.7
    
    
    
    10.32010-2014
    
    
    162.9
    
    
    
    65.8
    
    
    
    4.3
    
    
    
    61.5
   II-16




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US dollars except share and
per-share amounts  15.
    ENVIRONMENTAL COSTS AND ASSET
RETIREMENT OBLIGATIONS The company records an asset and related retirement
obligation for the costs associated with the retirement of
long-lived tangible assets when a legal liability to
retire such assets exists. The major categories of asset
retirement obligations include reclamation and restoration
costs at the companys potash and phosphate mining
operations (most particularly phosphate mining), including
management of mining byproducts such as gypsum and various
mine tailings, land reclamation and revegetation programs,
decommissioning of underground and surface operating
facilities, general clean-up activities aimed at returning
the areas to an environmentally acceptable condition, and
post-closure care and maintenance. The asset retirement
obligations are generally incurred over an extended period
of time. The estimation of asset retirement obligation costs
depends on the development of environmentally acceptable
closure and post-closure plans. In some cases, this may
require significant research and development to identify
preferred methods for such plans which are economically
sound and which, in most cases, may not be implemented for
several decades. The company has continued to utilize
appropriate technical resources, including outside
consultants, to develop specific site closure and
post-closure plans in accordance with the requirements of
the various jurisdictions in which it operates. The company
estimates that the undiscounted cash flows required to
settle the asset retirement obligations approximate
$2,040.0. The estimated cash flows have been discounted at
credit-adjusted risk-free rates ranging from 5.00 percent
to 6.75 percent. Other than certain land reclamation
programs, settlement of the obligations is typically
correlated with mine life estimates. Cash flow payments
are expected to occur principally over the next 75 years
for the companys phosphate operations. Payments relating
to most potash operations are not expected to occur until
after that time. The present value of the companys asset
retirement obligations at December 31, 2004 totalled $85.0
(2003  $81.6), as set out in the table below. The current
portion totalled $4.8 (2003  $3.5). Other environmental
liabilities typically relate to regulatory compliance,
environmental management associated with ongoing
operations other than mining, site assessment and
remediation of environmental contamination related to the
activities of the company and its predecessors, including waste disposal practices and ownership and
operations of real property and facilities. SITE ASSESSMENT AND REMEDIATION COSTS The company has accrued assessment costs, including legal
and consulting fees, and remediation costs related to the
clean-up of contaminated sites currently or formerly
associated with the company or its predecessors business
in the amount of $14.4 (2003  $14.9) for certain PCS
Joint Venture facilities, $0.3 (2003  $0.3) for various
sulfur facilities and $1.0 (2003  $2.0) for other matters
in the phosphate and nitrogen businesses. The current
portion of these costs totalled $14.7 (2003  $15.2). ENVIRONMENTAL OPERATING COSTS AND CAPITAL
EXPENDITURES The companys operating expenses, other than costs
associated with asset retirement obligations, relating to
compliance with environmental laws and regulations
governing ongoing operations
 were approximately $68.9 (2003  $59.0; 2002  $52.7). These amounts include
environmental operating expenses related primarily to the
production of phosphoric acid, fertilizer, feed and other
products. The company routinely undertakes environmental capital
projects. In 2004, capital expenditures of $7.6 (2003 
$12.1) were incurred to meet pollution prevention and
control objectives and $0.3 (2003  $0.3) were incurred to
meet other environmental objectives. Following is a reconciliation of asset retirement and
other environmental obligations as at December 31: 2004
    
    
    2003Asset retirement obligations,
beginning of year
    
    $
    81.6
    
    
    $
    83.0Liabilities incurred
    
    
    15.7
    
    
    
    14.4Liabilities settled
    
    
    (16.0
    )
    
    
    (14.4
    )Accretion expense
    
    
    5.2
    
    
    
    3.3Revisions in estimated cash flows
    
    
    (1.5
    )
    
    
    (4.7
    )Asset
retirement obligations, end of year
    
    
    85.0
    
    
    
    81.6Other environmental liabilities
    
    
    15.7
    
    
    
    18.4Less current
portion(Note 11)
    
    
    (19.5
    )
    
    
    (18.7
    )$
    81.2
    
    
    $
    81.3
  16.
    SHARE CAPITAL AUTHORIZED: The company is authorized to issue an unlimited number of
common shares without par value and an unlimited
number of first preferred shares. The first preferred
shares may be issued in one or more series with rights and
conditions to be determined by the Board of Directors. Issued:
    
    2004
    
    
    2003
    
    
    2002Consideration
    
    
    Consideration
    
    
    ConsiderationIssued, beginning of year
    
    $
    1,245.8
    
    
    $
    1,186.9
    
    
    $
    1,182.5Shares issued under option
    
    
    162.1
    
    
    
    58.7
    
    
    
    4.3Shares issued for dividend
reinvestment plan
    
    
    0.5
    
    
    
    0.2
    
    
    
    0.1Issued, end of year
    
    $
    1,408.4
    
    
    $
    1,245.8
    
    
    $
    1,186.9
 Issued:
    
    2004
    
    
    2003
    
    
    2002Number of
    
    
    Number of
    
    
    Number ofCommon Shares
    
    
    Common Shares
    
    
    Common SharesIssued, beginning of year
    
    
    106,224,432
    
    
    
    104,155,296
    
    
    
    103,904,964Shares issued under option
    
    
    4,397,324
    
    
    
    2,061,700
    
    
    
    243,800Shares issued for dividend
reinvestment plan
    
    
    8,747
    
    
    
    7,436
    
    
    
    6,532Issued, end of year
    
    
    110,630,503
    
    
    
    106,224,432
    
    
    
    104,155,296
 On July 21, 2004, the Board of Directors of PCS approved a
split of the companys outstanding common shares on a
two-for-one basis. The stock split was effected in the
form of a stock dividend of one additional common share
for each share owned by shareholders of record at the
close of business on August 11, 2004. All equity-based
benefit plans and share data have been retroactively
adjusted to reflect the stock split.  17.
    CONTRIBUTED SURPLUS 2004
    
    
    2003
    
    
    2002Balance, beginning of year
    
    $
    265.2
    
    
    $
    264.2
    
    
    $
    264.2Stock-based compensation
    
    
    10.5
    
    
    
    1.0
    
    
    
    Balance, end of year
    
    $
    275.7
    
    
    $
    265.2
    
    
    $
    264.2
   II-17




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US dollars except share and per-share amounts  18.
    SEGMENT INFORMATION The company has three reportable business segments: potash, phosphate and nitrogen. These business
segments are differentiated by the chemical nutrient contained in the product that each produces.
Inter-segment sales are made under terms that approximate market value. The accounting policies of
the segments are the same as those described in Note 2. 2004Potash
    
    
    Phosphate
    
    
    Nitrogen
    
    
    All others
    
    
    ConsolidatedSales
    
    $
    1,056.1
    
    
    $
    977.9
    
    
    $
    1,210.4
    
    
    $
    
    
    
    $
    3,244.4Freight
    
    
    128.7
    
    
    
    71.9
    
    
    
    38.1
    
    
    
    
    
    
    
    238.7Transportation and distribution
    
    
    32.6
    
    
    
    29.4
    
    
    
    42.3
    
    
    
    
    
    
    
    104.3Net sales  third party
    
    
    894.8
    
    
    
    876.6
    
    
    
    1,130.0
    
    
    
    Cost of goods sold
    
    
    472.0
    
    
    
    860.8
    
    
    
    887.2
    
    
    
    
    
    
    
    2,220.0Gross Margin
    
    
    422.8
    
    
    
    15.8
    
    
    
    242.8
    
    
    
    
    
    
    
    681.4Inter-segment sales
    
    
    5.9
    
    
    
    12.1
    
    
    
    92.9
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    66.4
    
    
    
    84.4
    
    
    
    79.7
    
    
    
    9.5
    
    
    
    240.0Provision for PCS Yumbes
    
    
    3.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.6Goodwill
    
    
    
    
    
    
    
    
    
    
    96.6
    
    
    
    0.4
    
    
    
    97.0Assets
    
    
    1,576.9
    
    
    
    1,532.9
    
    
    
    1,511.1
    
    
    
    505.9
    
    
    
    5,126.8Additions to property, plant and equipment
    
    
    92.2
    
    
    
    55.9
    
    
    
    63.0
    
    
    
    9.4
    
    
    
    220.52003Potash
    
    
    Phosphate
    
    
    Nitrogen
    
    
    All others
    
    
    ConsolidatedSales
    
    $
    758.7
    
    
    $
    883.9
    
    
    $
    1,156.4
    
    
    $
    
    
    
    $
    2,799.0Freight
    
    
    109.9
    
    
    
    75.8
    
    
    
    48.8
    
    
    
    
    
    
    
    234.5Transportation and distribution
    
    
    29.7
    
    
    
    26.2
    
    
    
    42.8
    
    
    
    
    
    
    
    98.7Net sales  third party
    
    
    619.1
    
    
    
    781.9
    
    
    
    1,064.8
    
    
    
    Cost of goods sold
    
    
    415.4
    
    
    
    798.4
    
    
    
    871.6
    
    
    
    
    
    
    
    2,085.4Gross Margin
    
    
    203.7
    
    
    
    (16.5
    )
    
    
    193.2
    
    
    
    
    
    
    
    380.4Inter-segment sales
    
    
    6.0
    
    
    
    9.4
    
    
    
    67.8
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    52.4
    
    
    
    75.7
    
    
    
    89.6
    
    
    
    9.7
    
    
    
    227.4Provision for plant shutdowns
    
    
    
    
    
    
    4.9
    
    
    
    118.8
    
    
    
    
    
    
    
    123.7Provision for PCS Yumbes
    
    
    140.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    140.5Goodwill
    
    
    
    
    
    
    
    
    
    
    96.6
    
    
    
    0.4
    
    
    
    97.0Assets
    
    
    1,240.1
    
    
    
    1,541.3
    
    
    
    1,479.1
    
    
    
    306.8
    
    
    
    4,567.3Additions to property, plant and equipment
    
    
    50.9
    
    
    
    51.0
    
    
    
    44.1
    
    
    
    4.7
    
    
    
    150.72002Potash
    
    
    Phosphate
    
    
    Nitrogen
    
    
    All others
    
    
    ConsolidatedSales
    
    $
    669.0
    
    
    $
    714.0
    
    
    $
    841.4
    
    
    $
    
    
    
    $
    2,224.4Freight
    
    
    99.9
    
    
    
    58.8
    
    
    
    56.5
    
    
    
    
    
    
    
    215.2Transportation and distribution
    
    
    24.6
    
    
    
    18.4
    
    
    
    37.5
    
    
    
    
    
    
    
    80.5Net sales  third party
    
    
    544.5
    
    
    
    636.8
    
    
    
    747.4
    
    
    
    Cost of goods sold
    
    
    326.5
    
    
    
    594.9
    
    
    
    700.0
    
    
    
    
    
    
    
    1,621.4Gross Margin
    
    
    218.0
    
    
    
    41.9
    
    
    
    47.4
    
    
    
    
    
    
    
    307.3Inter-segment sales
    
    
    6.4
    
    
    
    6.4
    
    
    
    24.6
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    46.3
    
    
    
    76.8
    
    
    
    88.0
    
    
    
    8.0
    
    
    
    219.1Goodwill
    
    
    
    
    
    
    
    
    
    
    96.6
    
    
    
    0.4
    
    
    
    97.0Assets
    
    
    1,198.4
    
    
    
    1,577.0
    
    
    
    1,602.4
    
    
    
    307.8
    
    
    
    4,685.6Additions to property, plant and equipment
    
    
    35.5
    
    
    
    126.3
    
    
    
    47.0
    
    
    
    3.4
    
    
    
    212.2
 II-18




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US dollars except share and per-share amounts  18.
    SEGMENT INFORMATION (CONTINUED) As described in Note 1, PhosChem and Canpotex execute marketing and sales for certain of the
companys offshore sales. Financial information by geographic area is summarized in the following
table: 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
    
    
    $
    3,195.9Country 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
    
    
    $
    3,205.1Country of OriginCanada
    
    
    United States
    
    
    Trinidad
    
    
    Other
    
    
    Consolidated2002Sales to customers outside the companyCanada
    
    $
    27.8
    
    
    $
    79.1
    
    
    $
    
    
    
    $
    
    
    
    $
    106.9United States
    
    
    301.8
    
    
    
    1,099.5
    
    
    
    209.6
    
    
    
    9.0
    
    
    
    1,619.9PhosChem
    
    
    
    
    
    
    37.6
    
    
    
    
    
    
    
    
    
    
    
    37.6Canpotex
    
    
    241.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    241.2Other
    
    
    73.0
    
    
    
    67.4
    
    
    
    49.4
    
    
    
    29.0
    
    
    
    218.8$
    643.8
    
    
    $
    1,283.6
    
    
    $
    259.0
    
    
    $
    38.0
    
    
    $
    2,224.4Operating income (loss)
    
    $
    145.6
    
    
    $
    17.8
    
    
    $
    20.5
    
    
    $
    (17.0
    )
    
    $
    166.9Capital assets and goodwill
    
    $
    778.0
    
    
    $
    1,875.3
    
    
    $
    627.9
    
    
    $
    85.7
    
    
    $
    3,366.9
  19.
    COST OF GOODS SOLD The primary components of
cost of goods sold are labor, employee benefits, services, raw materials
(including inbound freight and purchasing and receiving costs),
operating supplies, energy
costs, property and miscellaneous taxes, and depreciation and amortization.  20.
    SELLING AND ADMINISTRATIVE The primary components of selling and administrative are compensation, employee benefits, supplies,
communications, travel, professional services and depreciation and amortization.  21.
    PROVINCIAL MINING AND OTHER TAXES Provincial mining and other taxes consist of: 2004
    
    
    2003
    
    
    2002Potash Production Tax
    
    $
    63.7
    
    
    $
    35.8
    
    
    $
    47.7Saskatchewan corporate capital taxes and other
    
    
    28.9
    
    
    
    21.2
    
    
    
    20.3$
    92.6
    
    
    $
    57.0
    
    
    $
    68.0
 II-19




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US dollars except share and
per-share amounts  22.
    PROVISION FOR PLANT SHUTDOWNS MEMPHIS AND GEISMAR NITROGEN OPERATIONS  2003 In June 2003, the company indefinitely shut down its
Memphis, Tennessee plant and suspended production of
ammonia and nitrogen solutions at its Geismar, Louisiana
facilities due to high US natural gas costs and low
product margins. The operations have not been restarted. The company determined that all employee
positions pertaining to the affected operations would be
eliminated, and recorded $4.8 in connection with costs of
special termination benefits in 2003. The number of
employees terminated as a result of the shutdowns was
187, of whom 186 had left the company as of December 31, 2004. The company has made payments relating to the
terminations totalling $4.4 and expects to pay the
remainder in 2005. In connection with the shutdowns, management had
determined that the carrying amounts of the long-lived
assets at the Memphis and Geismar nitrogen facilities were
not fully recoverable, and an impairment loss of
$101.6, equal to the amount by which the carrying amount of
the facilities asset groups exceeded their respective
fair values, was recognized. Of the total impairment
charge, $100.6 related to property, plant and equipment and
$1.0 related to other assets. As part of its review,
management also wrote down certain parts inventories at
these plants in the amount of $12.4. In addition to the costs described above, management
expects to incur other shutdown-related costs of
approximately $12.1 and nominal annual expenditures for
site security and other maintenance costs. The other
shutdown-related costs have not been recorded in the
consolidated financial statements as of December 31, 2004. Such costs will be recognized and recorded in the
period in which they are incurred.
 KINSTON PHOSPHATE FEED PLANT  2003 The phosphate feed plant at
Kinston, North Carolina ceased
operations in 2003. In that year, the company recorded
$0.6 for costs of special termination benefits, $0.3 for
parts inventory writedowns and $4.0 for long-lived asset
impairment charges. The Kinston property was sold in 2004 for nominal
proceeds. There was no significant gain or loss on sale. No additional significant costs were incurred in
connection with the plant shutdowns in 2004. The following
table summarizes, by reportable segment, the total costs
incurred to date and the total costs expected to be
incurred in connection with the plant shutdowns described
above: Costs
    
    
    Total CostsIncurred
    
    
    Expected toto Date
    
    
    Be IncurredNitrogen SegmentEmployee termination and related benefits
    
    $
    4.8
    
    
    $
    4.8Writedown of parts inventory
    
    
    12.4
    
    
    
    12.4Asset impairment charges
    
    
    101.6
    
    
    
    101.6Other related exit costs
    
    
    
    
    
    
    12.1118.8
    
    
    
    130.9Phosphate SegmentEmployee termination and related benefits
    
    
    0.6
    
    
    
    0.6Writedown of parts inventory
    
    
    0.3
    
    
    
    0.3Asset impairment charges
    
    
    4.0
    
    
    
    4.04.9
    
    
    
    4.9$
    123.7
    
    
    $
    135.8
 Fair value for purposes of all impairment measurements was
determined based on discounted expected future net cash
flows.
   The following table summarizes, by reportable segment, the costs accrued as of December 31, 2004 in
connection with the plant shutdowns described above: Accrued Balance
    
    
    Cash Payments
    
    
    Accrued BalanceDecember 31, 2003
    
    
    and Adjustments
    
    
    December 31, 2004Nitrogen SegmentEmployee termination and related benefits
    
    $
    2.1
    
    
    $
    (1.7
    )
    
    $
    0.4Phosphate SegmentEmployee termination and related benefits
    
    
    0.5
    
    
    
    (0.5
    )
    
    
    $
    2.6
    
    
    $
    (2.2
    )
    
    $
    0.4
 The accrued balance is included in accounts payable and accrued charges in the Consolidated
Statement of Financial Position as of December 31, 2004.  23.
    PROVISION FOR PCS YUMBES S.C.M. 2004 In December 2004, the company concluded the sale of 100 percent of its shares of PCS Yumbes to
SQM. Acquired by the company in 1999, PCS Yumbes holds mining concessions on certain sodium nitrate
deposits in the Atacama Desert in northern Chile and is a producer of
potassium nitrate, sodium
nitrate and iodine. Proceeds pursuant to the agreement totalled
$42.3, including certain working capital adjustments of $6.2 and contingent consideration of $1.1. The company
received $34.5 of the sale price prior to the end of the year. The
total gain on sale was $3.5, of
which $2.6 has been recognized in 2004. The deferred portion of the gain will be recognized in
earnings in proportion to any future dilution or sale of part or all of the companys interest in
SQM. During the year, the company
recorded an additional writedown of $6.2, relating primarily to certain
mining machinery and equipment that was not transferred to SQM under the terms of the agreement and
that management plans to sell prior to the end of 2005. As of
December 31, 2004, the fair value and
carrying amount of the machinery and equipment that remained to be sold was $0.5. For measurement
purposes, fair value was determined in reference to market prices for similar assets. II-20




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US dollars except share and
per-share amounts  23.
    PROVISION FOR PCS YUMBES S.C.M. (CONTINUED) 2003 In 2003, in connection with entering into the share purchase (and related) agreement with
SQM, management conducted an assessment of the recoverability of the long-lived assets of the PCS
Yumbes operations. As a result of its review, management determined that the carrying amounts of PCS
Yumbes long-lived assets were not recoverable and recorded an
impairment charge of $77.4, equal to
the amount by which the carrying amount of the asset group exceeded fair value. Of the total
impairment charge, $13.0 related to property, plant and equipment, $63.9 related to deferred
pre-production costs and $0.5 related to deferred acquisition costs. For purposes of the impairment
measurement, fair value was determined in reference to the commercial agreement referred to
above. As part of the review, management also wrote down certain non-parts inventory by $50.2 due to
the need to liquidate all inventories that would not be transferred to SQM under the agreement. The company recorded a provision of $1.8 in 2003 pertaining to contractual termination benefits to
be paid to employees, primarily under Chilean law. The company had also incurred early termination
penalties in respect of certain PCS Yumbes contractual arrangements and recorded a provision of
$11.1 in 2003 for these contract termination costs. The following table summarizes the amounts recognized during 2004 and 2003 in connection with PCS
Yumbes: AmountsCumulative to
    
    
    RecognizedDecember 31, 2003
    
    
    in 2004
    
    
    TotalPotash SegmentContract termination costs
    
    $
    11.1
    
    
    $
    
    
    
    $
    11.1Employee termination and related benefits
    
    
    1.8
    
    
    
    
    
    
    
    1.8Writedown of non-parts inventory
    
    
    50.2
    
    
    
    
    
    
    
    50.2Asset impairment charges
    
    
    77.4
    
    
    
    6.2
    
    
    
    83.6Gain on sale
    
    
    
    
    
    
    (2.6
    )
    
    
    (2.6
    )$
    140.5
    
    
    $
    3.6
    
    
    $
    144.1
 The following table
summarizes the costs accrued as of December 31, 2004 in connection with PCS
Yumbes as described above: Accrued Balance
    
    
    Costs Incurred
    
    
    Cash Payments
    
    
    Non-cash
    
    
    Accrued BalanceDecember 31, 2003
    
    
    During 2004
    
    
    and Adjustments
    
    
    Settlements
    
    
    December 31, 2004Potash SegmentContract termination costs
    
    $
    0.6
    
    
    $
    
    
    
    $
    (0.6
    )
    
    $
    
    
    
    $
    Employee termination and related benefits
    
    
    1.2
    
    
    
    
    
    
    
    (1.2
    )
    
    
    
    
    
    
    Asset impairment charges
    
    
    
    
    
    
    6.2
    
    
    
    
    
    
    
    (6.2
    )
    
    
    $
    1.8
    
    
    $
    6.2
    
    
    $
    (1.8
    )
    
    $
    (6.2
    )
    
    $
    
  24.
    OTHER INCOME 2004
    
    
    2003
    
    
    2002Share of earnings of equity investees
    
    $
    30.9
    
    
    $
    12.4
    
    
    $
    5.3Dividend income
    
    
    8.2
    
    
    
    5.6
    
    
    
    7.7Gain on sale
of long-term investments (Note 4)
    
    
    34.4
    
    
    
    
    
    
    
    Other
    
    
    5.9
    
    
    
    15.2
    
    
    
    11.8$
    79.4
    
    
    $
    33.2
    
    
    $
    24.8
  25.
    INTEREST EXPENSE 2004
    
    
    2003
    
    
    2002Interest (income) expense onShort-term debt and cash and cash equivalents
    
    $
    (1.8
    )
    
    $
    3.6
    
    
    $
    8.0Long-term debt
    
    
    85.8
    
    
    
    87.7
    
    
    
    75.1$
    84.0
    
    
    $
    91.3
    
    
    $
    83.1
 II-21




---



##### Table of Contents



NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS  |  in millions of US dollars except share and per-share amounts  26.
    INCOME TAXES As the company operates in a specialized industry and in several tax jurisdictions, its income is
subject to various rates of taxation. The provision for income taxes differs from the amount that would have resulted from applying the
Canadian statutory income tax rates to income (loss) before income taxes as follows: 2004
    
    
    2003
    
    
    2002Income (loss) before income taxesCanada
    
    $
    175.0
    
    
    $
    16.3
    
    
    $
    56.8United States
    
    
    69.1
    
    
    
    (86.3
    )
    
    
    21.5Trinidad
    
    
    118.5
    
    
    
    80.6
    
    
    
    20.5Other
    
    
    67.7
    
    
    
    (157.5
    )
    
    
    (15.0
    )$
    430.3
    
    
    $
    (146.9
    )
    
    $
    83.8Federal and provincial statutory tax rates
    
    
    43.36%
    
    
    
    44.36%
    
    
    
    46.12%Tax at statutory rates
    
    $
    186.6
    
    
    $
    (65.2
    )
    
    $
    38.7Adjusted for the effect of:Writedown of PCS Yumbes
    
    
    1.4
    
    
    
    50.8
    
    
    
    Gain on sale of long-term investments
    
    
    (14.9
    )
    
    
    
    
    
    
    Net non-deductible provincial taxes and royalties and resource allowances
    
    
    8.1
    
    
    
    7.5
    
    
    
    10.2Stock-based compensation deduction
    
    
    (17.1
    )
    
    
    (5.4
    )
    
    
    Additional tax deductions
    
    
    (11.0
    )
    
    
    (11.8
    )
    
    
    (18.6
    )Difference between Canadian rate and rates applicable to subsidiaries in other countries
    (26.7
    )
    
    
    4.4
    
    
    
    0.8Other
    
    
    5.3
    
    
    
    (0.9
    )
    
    
    (0.9
    )Income tax expense (recovery)
    
    $
    131.7
    
    
    $
    (20.6
    )
    
    $
    30.2
  Details of income tax expense (recovery) are as follows: 2004
    
    
    2003
    
    
    2002CanadaCurrent
    
    $
    69.4
    
    
    $
    14.9
    
    
    $
    46.2Future
    
    
    11.5
    
    
    
    20.6
    
    
    
    (10.1
    )United States  FederalCurrent
    
    
    14.7
    
    
    
    (16.4
    )
    
    
    (27.5
    )Future
    
    
    (19.4
    )
    
    
    (40.7
    )
    
    
    19.2United States  StateCurrent
    
    
    2.2
    
    
    
    (0.6
    )
    
    
    1.6Future
    
    
    12.5
    
    
    
    (8.5
    )
    
    
    (1.5
    )Trinidad and otherCurrent
    
    
    19.1
    
    
    
    2.1
    
    
    
    3.9Future
    
    
    21.7
    
    
    
    8.0
    
    
    
    (1.6
    )Income tax expense (recovery)
    
    $
    131.7
    
    
    $
    (20.6
    )
    
    $
    30.2
 The tax effects of temporary differences that give rise to
significant portions of the net future income tax
liability are: 2004
    
    
    2003Future income tax assets:Loss and credit carryforwards
    
    $
    294.2
    
    
    $
    271.3Post-retirement/post-employment benefits
    
    
    78.3
    
    
    
    55.2Accrued environmental costs and
assetretirement obligations
    
    
    0.9
    
    
    
    4.0Other
    
    
    31.8
    
    
    
    29.5Total future income tax assets
    
    
    405.2
    
    
    
    360.0Future income tax liabilities:Basis difference in fixed assets
    
    
    814.3
    
    
    
    806.1Basis difference in investments
    
    
    27.6
    
    
    
    Other
    
    
    62.7
    
    
    
    38.1Total future income tax liabilities
    
    
    904.6
    
    
    
    844.2Net future income tax liability
    
    $
    499.4
    
    
    $
    484.2
 Earnings of certain international subsidiaries would be
taxed upon their repatriation. The company has not
recognized a future income tax liability for these
undistributed earnings as it does not currently expect
them to be repatriated. Taxes that would be payable, at
existing tax rates, if all foreign subsidiaries
accumulated unremitted earnings were repatriated as at
December 31, 2004 are estimated to be $30.3. At December 31, 2004, the company has income tax losses
carried forward of approximately $644.9 which will begin
to expire in 2010. In addition, the company has alternative
minimum tax credits of approximately $0.2 which carry
forward indefinitely. The benefit relating to these
amounts has been recognized by reducing future income tax
liabilities.  27.
    NET INCOME (LOSS) PER SHARE 2004
    
    
    2003
    
    
    2002Basic net income (loss) per shareNet income
(loss) available
to common shareholders
    
    $
    298.6
    
    
    $
    (126.3
    )
    
    $
    53.6Weighted average number
of common shares
    
    107,967,000
    
    
    104,460,000
    
    
    104,042,000Basic net income (loss)
per share
    
    $
    2.77
    
    
    $
    (1.21
    )
    
    $
    0.52Diluted net income (loss) per shareNet income (loss) available
to common shareholders
    
    $
    298.6
    
    
    $
    (126.3
    )
    
    $
    53.6Weighted average number
of common shares
    
    107,967,000
    
    
    104,460,000
    
    
    104,042,000Dilutive effect of
stock options
    
    2,772,000
    
    
    
    
    
    590,000Weighted average number
of diluted common shares
    
    110,739,000
    
    
    104,460,000
    
    
    104,632,000Diluted net income (loss)
per share
    
    $
    2.70
    
    
    $
    (1.21
    )
    
    $
    0.51
   II-22




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US dollars except share and
per-share amounts  27.
    NET INCOME (LOSS) PER SHARE (CONTINUED) Diluted net income (loss) per share is calculated based on
the weighted average number of shares issued and
outstanding during the year. The denominator is: (i) increased by the total of the additional common shares
that would have been issued assuming exercise of all stock
options with exercise prices at or below the average
market price for the year; and (ii) decreased by the number
of shares that the company could have repurchased if it
had used the proceeds from the exercise of stock options
to repurchase them on the open market at the average share
price for the year. For years in which there was a loss
applicable to common shares, stock options with exercise
prices at or below the average market price for the year
were excluded from the calculations of diluted net loss
per share, as inclusion of these securities would have been
anti-dilutive to the net loss per share. Excluded from the calculation of diluted net income (loss)
per share were average options outstanding of NIL (2003 
2,239,861; 2002  4,230,525) as the options exercise price
was greater than the average market price of the common
shares for the year. All per-share data have been retroactively adjusted to
reflect the stock split described in Note 16.  28.
    STOCK-BASED COMPENSATION The company has four stock-based compensation plans, which
are described below. The company accounts for its grants
under those plans in accordance with the fair value based
method of accounting for stock-based compensation. The
compensation cost that has been charged against income for
those plans was $35.3 (2003  $6.6; 2002  $5.7). STOCK OPTION PLANS The company has two option
plans. Under the Officers and
Employees Plan, the company may, after February 3, 1998, issue
up to 13,852,250 common shares pursuant to the exercise of
options.
 Under the Directors Plan, the
company may, after January 24, 1995, issue up to 912,000 common shares pursuant to the exercise of options. Under both plans, the
exercise price is the quoted market closing price of the
companys common shares on the last trading day
immediately preceding the date of the grant, and an
options maximum term is 10 years. All options granted to
date have provided that one-half of the options granted in
a year will vest one year from the date of the grant, with
the other half of the options vesting the following year. The company did not grant any
stock options in 2004. A
summary of the status of the plans as of December 31,
2004, 2003 and 2002 and changes during the years ending on
those dates is presented as follows: Number of Shares Subject to Option 2004
    
    
    2003
    
    
    2002Outstanding, beginning
of year
    
    
    10,876,022
    
    
    
    11,638,750
    
    
    
    10,088,550Granted
    
    
    
    
    
    
    1,399,072
    
    
    
    1,815,200Exercised
    
    
    (4,397,324
    )
    
    
    (2,061,700
    )
    
    
    (243,800
    )Cancelled
    
    
    (77,968
    )
    
    
    (100,100
    )
    
    
    (21,200
    )Outstanding, end of year
    
    
    6,400,730
    
    
    
    10,876,022
    
    
    
    11,638,750
 Weighted Average Exercise Price 2004
    
    
    2003
    
    
    2002Outstanding, beginning
of year
    
    $
    34.70
    
    
    $
    32.99
    
    
    $
    32.61Granted
    
    
    
    
    
    
    39.50
    
    
    
    33.25Exercised
    
    
    34.34
    
    
    
    28.28
    
    
    
    17.47Cancelled
    
    
    38.78
    
    
    
    35.41
    
    
    
    39.20Outstanding, end of year
    
    
    34.97
    
    
    
    34.70
    
    
    
    32.99
 The weighted average grant-date fair value of options
granted during the year was $NIL (2003  $15.7; 2002 
$20.1).
   The following table
summarizes information about stock options outstanding at December 31, 2004: Options Outstanding
    
    
    Options ExercisableRange of
    
    Number
    
    
    Weighted Average
    
    
    Weighted Average
    
    
    
    
    
    
    Weighted AverageExercise Prices
    
    Outstanding
    
    
    Remaining Life
    
    
    Exercise Price
    
    
    Number
    
    
    Exercise Price$21.84
    
    
    287,500
    
    
    
    5 years
    
    
    $
    21.84
    
    
    
    287,500
    
    
    $
    21.84$30.64
    
    
    698,200
    
    
    
    6 years
    
    
    
    30.64
    
    
    
    698,200
    
    
    
    30.64$29.04 to $32.69
    
    
    855,500
    
    
    
    7 years
    
    
    
    31.45
    
    
    
    855,500
    
    
    
    31.45$33.25
    
    
    1,208,350
    
    
    
    8 years
    
    
    
    33.25
    
    
    
    1,208,350
    
    
    
    33.25$33.94
    
    
    733,600
    
    
    
    4 years
    
    
    
    33.94
    
    
    
    733,600
    
    
    
    33.94$35.19 to $37.38
    
    
    626,400
    
    
    
    1.5 years
    
    
    
    36.18
    
    
    
    626,400
    
    
    
    36.18$39.50
    
    
    1,250,320
    
    
    
    9 years
    
    
    
    39.50
    
    
    
    574,400
    
    
    
    39.50$40.88 to $43.38
    
    
    740,860
    
    
    
    3 years
    
    
    
    43.33
    
    
    
    740,860
    
    
    
    43.336,400,730
    
    
    
    6 years
    
    
    $
    34.97
    
    
    
    5,724,810
    
    
    $
    34.43
 The foregoing options have
expiry dates ranging from November 7, 2005 to November 20, 2013. Prior to 2003, the company applied the intrinsic value based method of accounting for the plans.
Effective December 15, 2003, the company adopted the fair value based method of accounting for
stock options prospectively to all employee awards granted, modified or settled after January 1,
2003. Since the companys stock option awards vest over two years, the compensation cost included
in the determination of net income (loss) for years ended
December 31, 2004 and 2003 is less than
that which would have been recognized if the fair value based method had been applied to all awards
since the original effective date of CICA Section 3870, Stock-based Compensation and Other
Stock-based Payments. The following table illustrates the effect on net income (loss) and the
related per-share amount if the fair value based method had been applied to all outstanding and
unvested awards in each period. II-23




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US
dollars except share and per-share amounts  28.
    STOCK-BASED COMPENSATION (CONTINUED) 2004
    
    
    2003
    
    
    2002Net income (loss)  as reported
    
    $
    298.6
    
    
    $
    (126.3
    )
    
    $
    53.6Add:      Stock-based employee compensation expense included in reported
net income(loss), net of related tax effects
    
    
    8.8
    
    
    
    0.8
    
    
    
    Deduct: Total stock-based employee compensation expense determined under
fair valuebased method for all option awards, net of related tax effects
    
    
    (12.8
    )
    
    
    (14.8
    )
    
    
    (14.3
    )Net income (loss)  pro forma (1)
    
    $
    294.6
    
    
    $
    (140.3
    )
    
    $
    39.3
 (1)
 2004
    
    
    2003
    
    
    2002Basic net income (loss) per shareAs reported
    
    $
    2.77
    
    
    $
    (1.21
    )
    
    $
    0.52Pro forma
    
    
    2.73
    
    
    
    (1.34
    )
    
    
    0.38Diluted net income (loss) per shareAs reported
    
    $
    2.70
    
    
    $
    (1.21
    )
    
    $
    0.51Pro forma
    
    
    2.66
    
    
    
    (1.34
    )
    
    
    0.38
  In calculating the foregoing
pro forma amounts, the fair
value of each option grant was estimated as of the date of
grant using the modified Black-Scholes option-pricing
model with the following weighted-average assumptions: Year of Grant2003
    
    
    2002
    
    
    2001Expected dividend
    

    $0.50
    
    


    $0.50
    
    

    $0.50Expected volatility
    
    
    27%
    
    
    
    32%
    
    
    
    32%Risk-free interest rate
    
    
    4.06%
    
    
    
    4.13%
    
    
    
    4.54%Expected life of options
    
    8 years
    
    
    8 years
    
    
    8 yearsExpected forfeitures
    
    
    16%
    
    
    
    10%
    
    
    
    10%
 DEFERRED SHARE UNIT AND OTHER PLANS The company offers a deferred share unit plan to
non-employee directors, which entitles those directors to
receive discretionary grants of deferred share units
(DSUs), each of which has a value equal to the market value
of a common share at the time of its grant. The plan also
allows each director to choose to receive, in the form of
DSUs, all or a percentage of the directors fee, which would
otherwise be payable in cash. Each DSU fully vests upon
award, but is distributed only when the director has ceased
to be a member of the Board of Directors of the
company. Vested units are settled in cash based on the
common share price at that time. As of December 31, 2004,
the total DSUs held by participating directors was 50,999
(2003  35,906; 2002  20,526). The company offers a long-term incentive plan to senior
executives and other key employees. The performance
objectives under the plan are designed to further align
the interests of executives and key employees with those
of shareholders by linking the vesting of awards to the
total return to shareholders over the three-year
performance period ending December 31, 2005. Total
shareholder return measures the capital appreciation in
the companys common shares, including dividends paid over
the performance period. Vesting of one-half of the awards
is based on increases in the total shareholder return over
the three-year performance period. Vesting of the remaining
one-half of the awards is based on the extent to which the
total shareholder return matches or exceeds the total
shareholder return of the common shares of a pre-defined
peer group. Vested units are settled in cash based on the
common share price generally at the end of the performance
period.
 Compensation expense for this program is recorded over the
three-year performance cycle of the program. The amount of
compensation expense is adjusted over the three-year
performance cycle to reflect the current market value of
common shares and the number of shares vested in
accordance with the vesting schedule based upon total
shareholder return and such return compared to the
companys peer group.  29.
    FINANCIAL INSTRUMENTS AND RISK MANAGEMENT The company uses financial instruments, including foreign
currency forward contracts, futures, swaps and option
agreements, to manage foreign exchange, interest rate and
commodity price risk. These hedging derivatives represent off-balance sheet items, since these derivatives are not recorded at fair value on the Consolidated
Statements of Financial Position. The company manages interest rate exposures by using a
diversified portfolio of fixed and floating rate
instruments. The companys sensitivity to fluctuations in
interest rates is substantially limited to certain of its
cash and cash equivalents, short-term debt and long-term
debt. In January and February 2004, the company entered into
interest rate swap contracts designated as fair value
hedges that effectively converted a notional amount of
$300.0 of fixed rate debt (due 2011) into floating rate
debt based on six-month US dollar LIBOR rates. Net
settlements on the swap instruments have been recorded as
adjustments to interest expense. In October 2004, the
company terminated the interest rate swap contracts for
cash proceeds of $3.0 and a gain of $0.8. Hedge accounting
was discontinued prospectively and the associated gain is
being amortized over the remaining term of the debt as a
reduction to interest expense. The company did not enter
into any interest rate swap contracts in 2003. In addition to physical spot and term purchases, the
company at times employs futures, swaps and option
agreements to establish the cost on a portion of its
natural gas requirements. These instruments are intended to
hedge the future cost of the committed and anticipated
natural gas purchases for its US nitrogen and phosphate
plants. Under these arrangements, the company receives or
makes payments based on the differential between a
specified price and the actual spot price of natural
gas. The company has certain available lines of credit
which are utilized to reduce cash margin requirements to
maintain the derivatives. At
   II-24




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US dollars except share and
per-share amounts  29.
    FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED) December 31, 2004, the company had collected cash margin
requirements of $28.5 (2003  $4.3) which were included in
accounts payable. As at December 31, 2004, the company had derivatives
qualifying for deferral in the form of futures and swaps.
The futures represented a notional amount of 2.8 MMBtu of
natural gas with maturities in 2005. The swaps represented
a notional amount of 91.4 MMBtu with maturities in 2005
through 2014. As at December 31, 2004, deferred losses from
settled hedging transactions were $3.0 (2003  $2.7). As at December 31, 2004, the company had entered into
foreign currency forward contracts to sell US dollars and
receive Canadian dollars in the notional amount of $54.1
(2003  $46.0) at an average exchange rate of 1.2306 (2003
 1.3315). The company also had small forward contracts
outstanding as at December 31, 2004 to reduce exposure to
the euro and Swiss franc. The notional amounts of the
companys derivatives do not represent assets or
liabilities and therefore are not reflected in the
Consolidated Statements of Financial Position. Maturity
dates for all forward contracts are within 2005. The company is exposed to credit-related losses in the
event of non-performance by counterparties to derivative
financial instruments. The company anticipates, however,
that counterparties will be able to fully satisfy their
obligations under the contracts. The major concentration of credit risk arises from the
companys receivables. A majority of its sales are in
North America and are primarily for use in the
agricultural industry. The company seeks to manage the
credit risk relating to these sales through a credit
management program. Internationally, the companys
products are sold primarily through two export
associations whose accounts receivable are substantially
insured or secured by letters of credit. FAIR VALUE Fair value represents point-in-time estimates that may
change in subsequent reporting periods due to market conditions or other factors. The estimated fair values disclosed below are designed to approximate amounts at
which the financial instruments could be exchanged in a
current transaction between willing parties. However, some
financial instruments lack an available trading market and
therefore certain fair values are based on estimates using
net present value and other valuation techniques, which
are significantly affected by assumptions as to the amount
and timing of estimated future cash flows and discount
rates, all of which reflect varying degrees of risk. Due to their short-term nature, the fair value of cash and
cash equivalents, accounts receivable, short-term debt, and
accounts payable and accrued charges is assumed to
approximate carrying value. The fair value of the companys
gas hedging contracts at December 31, 2004 approximated
$66.5 (2003  $59.8). Futures contracts are
exchange-traded and fair value was determined based on
exchange prices. Swaps and option agreements are traded in
the over-the-counter market and fair value was calculated
based on a price that was converted to an
exchange-equivalent price. The fair value of the companys
notes payable at December 31, 2004 approximated $1,383.2
(2003  $1,417.8) and reflects a current yield valuation
based on observed market prices. The fair value of the
companys other long-term debt instruments approximated
carrying value.
 30.
    CONTINGENCIES CANPOTEX PotashCorp is a shareholder in Canpotex which markets
potash offshore. Should any operating losses or other
liabilities be incurred by Canpotex, the shareholders have
contractually agreed to reimburse Canpotex for such losses
or liabilities in proportion to their productive capacity.
There were no such operating losses or other liabilities
in 2004, 2003 or 2002. MINING RISK In common with other
companies in the industry, the company
is unable to acquire insurance for underground assets. INVESTMENT IN APC The terms of a shareholders agreement with Jordan
Investment Company (JIC) provide that, from October
17, 2006 to October 16, 2009, JIC may seek to exercise a put
option (the Put) to require the company to purchase
JICs remaining common shares in APC. If the Put were exercised, the companys purchase price would be
calculated in accordance with a specified formula based, in
part, on future earnings of APC. The amount, if any, which
the company may have to pay for JICs remaining common
shares if there was to be a valid exercise of the Put is
not presently determinable. LEGAL AND OTHER MATTERS In 1998, the company, along
with other parties, was notified
by the US Environmental Protection Agency (EPA) of
potential liability under the US federal Comprehensive
Environmental Response, Compensation and Liability Act of
1980 (CERCLA) with respect to certain soil and
groundwater conditions at a PCS Joint Venture blending
facility in Lakeland, Florida and certain adjoining
property. In 1999, PCS Joint Venture signed an
Administrative Order on Consent with EPA pursuant to which
PCS Joint Venture agreed to conduct a Remedial
Investigation and Feasibility Study (RI/FS) of these
conditions. PCS Joint Venture and another party are
sharing the costs of the RI/FS. The draft feasibility study
has been submitted for review and approval, and selection
of a remedy is projected to occur some time in 2005. No
final determination has yet been made of the nature, timing
or cost of remedial action that may be needed, nor to what
extent costs incurred may be recoverable from third
parties. In 1994, PCS Joint Venture responded to information
requests from the EPA and the Georgia Department of
Natural Resources, Environmental Protection Division
(GEPD), regarding conditions at its Moultrie, Georgia
location. PCS Joint Venture believes that the
lead-contaminated soil and groundwater found at the site
is attributable to former operations at the site prior to
PCS Joint Ventures ownership. PCS Joint Venture initially
submitted a proposed Corrective Action Plan to GEPD in
1999, which has now been revised several times in response
to GEPD comments. PCS Joint Venture has also conducted and
submitted an assessment of the site. Based on its review
of the assessment and the Corrective Action Plan, GEPD has
expressed its opinion that remediation of the site will
require some excavation and off-site disposal of impacted
soil and installation of a groundwater recovery and
treatment system. The company has continued discussions
with GEPD regarding a remedial plan for the site. In 2003, EPA notified PCS Nitrogen that it considered PCS
Nitrogen to be a potentially responsible party with
respect to a former fertilizer
   II-25




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US dollars except share and
per-share amounts  30.
    CONTINGENCIES (CONTINUED) blending operation in South Carolina formerly owned by a
company from which PCS Nitrogen acquired certain other
assets. It is the companys understanding that EPA is
conducting an assessment of conditions at the site and
intends to propose a remedial plan for the site in the
coming year. The company intends to continue to assert its
position that it is not a responsible party. The company is
also engaged in ongoing site assessment and/or remediation
activities at a number of other facilities and sites.
Based on current information, it believes that its future
obligations with respect to these facilities and sites
will not have a material adverse effect on the companys
consolidated financial position or results of operations. The breadth of the companys operations and the global
complexity of tax regulations require assessments of
uncertainties and judgments in estimating the ultimate
taxes the company will pay. The final taxes paid are
dependent upon many factors, including negotiations with
taxing authorities in various jurisdictions, outcomes of
tax litigation and resolution of disputes arising from
federal, provincial, state and local tax audits. The
resolution of these uncertainties and the associated final
taxes may result in adjustments to the companys tax
assets and tax liabilities. Various other claims and lawsuits are pending against the
company in the ordinary course of business. While it is not
possible to determine the ultimate outcome of such actions
at this time, and there exist inherent uncertainties in
predicting such outcomes, it is managements belief that
the ultimate resolution of such actions will not have a
material adverse effect on the companys consolidated
financial position or results of operations. 31. GUARANTEES In the normal course of
operations, the company provides
indemnifications that are often standard contractual terms
to counterparties in transactions such as purchase and
sale contracts, service agreements, director/officer
contracts and leasing transactions. These indemnification
agreements may require the company to compensate the
counterparties for costs incurred as a result of various
events, including environmental liabilities and changes in
(or in the interpretation of) laws and regulations, or as
a result of litigation claims or statutory sanctions that
may be suffered by the counterparty as a consequence of
the transaction. The terms of these indemnification agreements
will vary based upon the contract, the nature of which prevents the company from making a reasonable
estimate of the maximum potential amount that it could be
required to pay to counterparties. Historically, the
company has not made any significant payments under such
indemnifications and no amounts have been accrued in the
accompanying consolidated financial statements with
respect to these indemnification guarantees. The company enters into agreements in the normal course of
business that may contain features which meet the
definition of a guarantee. Various debt obligations (such
as overdrafts, lines of credit with counterparties for
derivatives, and back-to-back loan arrangements) and other
commitments (such as railcar leases) related to certain
subsidiaries have been directly guaranteed by the company
under such agreements with third parties. The company
would be required to perform on these guarantees in the
event of default by the guaranteed parties. No material
loss is anticipated by reason of such agreements and
guarantees. At December 31, 2004, the maximum potential
 amount of future (undiscounted) payments under significant
guarantees provided to third parties approximated $159.9,
representing the maximum risk of loss if there were a
total default by the guaranteed parties, without
consideration of possible recoveries under recourse
provisions or from collateral held or pledged. At December
31, 2004, no subsidiary balances subject to guarantees
were outstanding in connection with the companys cash
management facilities, and the company had no liabilities
recorded for other obligations other than subsidiary bank
borrowings of approximately $5.9, which are reflected in
other long-term debt in Note 12, and the cash margin
requirements to maintain derivatives as disclosed in Note
29. The company has guaranteed the gypsum stack capping,
closure and post-closure obligations of White Springs and
PCS Nitrogen, in Florida and Louisiana, respectively,
pursuant to the financial assurance regulatory
requirements in those states. The State of Florida is
presently reviewing, and is expected to revise, its
financial assurance requirements to ensure that
responsible parties have sufficient resources to cover all
closure and post-closure costs and liabilities associated
with gypsum stacks. This review may result in the
imposition of more stringent requirements to demonstrate
financial responsibility and/or inclusion of a greater
scope of closure and post-closure costs than under current
law. The environmental regulations of the Province of
Saskatchewan require each potash mine to have
decommissioning and reclamation (D&R) plans. In
2001, agreement was reached with the provincial government
on the financial assurances for the D&R plan to cover an
interim period to July 1, 2005. In October 2004, this interim
period was extended to July 1, 2006. A government/industry
task force has been established to assess decommissioning
options for all Saskatchewan potash producers and to
produce mutually acceptable revisions to the plan
schedules. The company has posted a Cdn $2.0 letter of
credit as collateral that will remain in effect until the
revised plans are accepted. During the year, the company
entered into various other commercial letters of credit in
the normal course of operations. The company expects that it will be able to satisfy all
applicable credit support requirements without disrupting
normal business operations.  32.
    RELATED PARTY TRANSACTIONS Sales to Canpotex are at prevailing market prices. Sales
for the year ended December 31, 2004 were $421.9 (2003 
$260.6; 2002  $241.2). Account balances resulting from the
Canpotex transactions are included in the Consolidated
Statements of Financial Position and settled on normal
trade terms (see Note 5). In connection with entering into the agreement with SQM as
described in Note 23, PCS Yumbes agreed to purchase potash
from SQM at a negotiated price that approximated market
value. In addition, PCS Yumbes agreed to sell to SQM all
of its potassium nitrate production at a negotiated price
that approximated market value. Both agreements were in
effect until closing of the PCS Yumbes sale agreement in
December 2004. Potash purchases from SQM for the year were
$7.0 (2003  $13.1; 2002  $17.9). Potassium nitrate sales
to SQM for the year were $25.1 (2003  $25.8; 2002 
$2.1). All transactions with SQM are settled on normal
trade terms.
   II-26




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US dollars except share and
per-share amounts  33.
    QUARTERLY RESULTS (UNAUDITED) The following quarterly information in managements opinion includes all adjustments (consisting
solely of normal recurring adjustments) necessary for fair
presentation. All per-share data have
been retroactively adjusted to reflect the stock split described in Note 16. First Quarter
    
    
    Second Quarter
    
    
    Third Quarter
    
    
    Fourth Quarter2004Sales
    
    $
    728.4
    
    
    $
    833.7
    
    
    $
    815.7
    
    
    $
    866.6Less: Freight
    
    
    58.1
    
    
    
    68.9
    
    
    
    51.2
    
    
    
    60.5Transportation and distribution
    
    
    23.0
    
    
    
    31.3
    
    
    
    23.6
    
    
    
    26.4Cost of goods sold
    
    
    523.3
    
    
    
    562.8
    
    
    
    551.5
    
    
    
    582.4Gross Margin
    
    $
    124.0
    
    
    $
    170.7
    
    
    $
    189.4
    
    
    $
    197.3Operating Income
    
    $
    97.8
    
    
    $
    129.2
    
    
    $
    133.1
    
    
    $
    154.2Net Income
    
    $
    50.7
    
    
    $
    72.6
    
    
    $
    75.2
    
    
    $
    100.1Net Income per Share  Basic
    
    $
    0.48
    
    
    $
    0.68
    
    
    $
    0.69
    
    
    $
    0.91Net Income per Share  Diluted
    
    $
    0.47
    
    
    $
    0.67
    
    
    $
    0.68
    
    
    $
    0.88First Quarter
    
    
    Second Quarter
    
    
    Third Quarter
    
    
    Fourth Quarter2003Sales
    
    $
    661.8
    
    
    $
    745.0
    
    
    $
    674.6
    
    
    $
    717.6Less: Freight
    
    
    64.4
    
    
    
    60.5
    
    
    
    55.9
    
    
    
    53.7Transportation and distribution
    
    
    23.0
    
    
    
    27.5
    
    
    
    28.3
    
    
    
    19.9Cost of goods sold
    
    
    493.3
    
    
    
    534.7
    
    
    
    505.9
    
    
    
    551.5Gross Margin
    
    $
    81.1
    
    
    $
    122.3
    
    
    $
    84.5
    
    
    $
    92.5Operating Income (Loss)
    
    $
    24.7
    
    
    $
    73.1
    
    
    $
    (210.9
    )
    
    $
    57.5Net Income (Loss)
    
    $
    3.2
    
    
    $
    29.9
    
    
    $
    (185.9
    )
    
    $
    26.5Net Income (Loss) per Share  Basic
    
    $
    0.03
    
    
    $
    0.29
    
    
    $
    (1.78
    )
    
    $
    0.25Net Income (Loss) per Share  Diluted
    
    $
    0.03
    
    
    $
    0.29
    
    
    $
    (1.78
    )
    
    $
    0.25
 Net income (loss) per share for each quarter has been computed based on the weighted average number
of shares issued and outstanding during the respective quarter;
therefore, quarterly amounts may not
add to the annual total.  34.
    SEASONALITY The companys sales of fertilizer can be
seasonal. Typically, the second quarter of the year is when
fertilizer sales will be highest, due to the North
American spring planting season. However, planting
conditions and the timing of customer purchases will vary
each year and sales can be expected to shift from one
quarter to another.  35.
    COMPARATIVE FIGURES Certain of the prior years figures have been reclassified
to conform with the current years presentation.  36.
    RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES Canadian GAAP varies in certain significant respects from
US GAAP. As required by the United States Securities and
Exchange Commission, the effect of these principal
differences on the companys consolidated financial
statements is described and quantified below:  (a)
    Long-term
investments:The companys investment in ICL is stated at
cost. US GAAP requires that this investment be classified
as available-for-sale and be stated at market value with
the difference between market value and cost reported as a
component of Other Comprehensive Income (OCI). Under US
GAAP, when an investment previously accounted for using
the cost method qualifies for use of the equity method, the
investor should adopt the equity method of accounting. The
investment, results of operations (current and prior
periods presented), and retained earnings of the investor should be
adjusted retroactively.
 Under Canadian GAAP,
equity accounting is generally not applied retroactively.
In 2002, the company acquired additional shares in SQM and
adopted the equity method of accounting, though not on a
retroactive basis. In 2004, the company corrected this
omission in its US GAAP reconciliation to reflect a
reduction in 2002 opening accumulated other comprehensive
income, deferred income taxes payable and long-term
investments of $6.8, $3.9 and $10.7, respectively, and an
increase in other comprehensive income of $23.2. The
revision had no effect on 2002 opening retained
earnings, net income or net income per share.(b)
    Property, plant and equipment and goodwill:The net book
value of property, plant and equipment and goodwill under
Canadian GAAP is higher than under US GAAP, as past
provisions for asset impairment under Canadian GAAP were
measured based on the undiscounted cash flow from use
together with the residual value of the assets. Under US
GAAP they were measured based on fair value, which was
lower than the undiscounted cash flow from use together
with the residual value of the assets. Fair value for this
purpose was determined based on discounted expected future
net cash flows.(c)
    Depreciation and amortization:Depreciation and
amortization under Canadian GAAP is higher than under US
GAAP, as a result of differences in the carrying amounts
of property, plant and equipment under Canadian and US
GAAP.(d)
    Pre-operating costs:Operating costs incurred during the
start-up phase of new projects are deferred under Canadian GAAP until commercial production levels are reached, at which time they are amortized over the
estimated life of the project. US GAAP requires that these
costs be expensed as incurred.
   II-27




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US dollars except share and
per-share amounts  36.
    RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)  (e)
    Asset retirement obligations:The company adopted SFAS No.
143, Accounting for Asset Retirement Obligations, for US
GAAP purposes effective January 1, 2003. As described in
Note 3, the equivalent Canadian standard was not adopted
until January 1, 2004.(f)
    Post-retirement and post-employment benefits:Under
Canadian GAAP, when a defined benefit plan gives rise to
an accrued benefit asset, a company must recognize a
valuation allowance for the excess of the adjusted benefit
asset over the expected future benefit to be realized from
the plan asset. Changes in the pension valuation allowance
are recognized in income. US GAAP does not specifically
address pension valuation allowances, and the US
regulators have interpreted this to be a difference
between Canadian and US GAAP. In light of this, a
difference between Canadian and US GAAP has been recorded
for the effects of recognizing a pension valuation
allowance and the changes therein under Canadian GAAP.The companys accumulated benefit obligation for its US
pension plans exceeds the fair value of plan assets. US
GAAP requires the recognition of an additional minimum
pension liability in the amount of the excess of the
unfunded accumulated benefit obligation over the recorded
pension benefits liability. An offsetting intangible asset
is recorded equal to the unrecognized prior service costs,
with any difference recorded as a reduction of accumulated
OCI. No similar requirement exists under Canadian GAAP.(g)
    Foreign currency translation adjustment:The company
adopted the US dollar as its functional and reporting
currency on January 1, 1995. At that time, the consolidated
financial statements were translated into US dollars at
the December 31, 1994 year-end exchange rate using the
translation of convenience method under Canadian GAAP.
This translation method was not permitted under US GAAP.
US GAAP required the comparative Consolidated Statements
of Operations and Consolidated Statements of Cash Flow to
be translated at applicable weighted-average exchange
rates; whereas the Consolidated Statements of Financial
Position were permitted to be translated at the December
31, 1994 year-end exchange rate. The use of disparate
exchange rates under US GAAP gave rise to a foreign currency translation
adjustment. Under US GAAP, this adjustment is reported as a
component of accumulated OCI.(h)
    Derivative instruments and hedging activities:Under
Canadian GAAP, effective January 1, 2004, derivatives used
for non-trading purposes that do not qualify for hedge
accounting are carried at fair value on the Consolidated
Statements of Financial Position, with changes in fair
value reflected in earnings. Derivatives embedded within
hybrid instruments are generally not separately accounted
for except for those related to equity-linked deposit
contracts, which are not applicable to the company. Gains
and losses on derivative instruments held within an
effective hedge relationship are recognized in earnings on
the same basis and in the same period as the underlying
hedged items. There is no difference in accounting between
Canadian and US GAAP in respect of derivatives that do not
qualify for hedge accounting. Unlike Canadian
GAAP, however, the company recognizes all of its derivative
instruments (whether designated in hedging relationships
or not, or embedded within hybrid instruments) at fair value on the
Consolidated Statements of
 Financial Position
for US GAAP purposes. Under US GAAP, the accounting for
changes in the fair value (i.e. gains or losses) of a
derivative instrument depends on whether it has been
designated and qualifies as part of a hedging
relationship. For strategies designated as fair value
hedges, the effective portion of the change in the fair
value of the derivative is offset in income against the
change in fair value, attributed to the risk being hedged,
of the underlying hedged asset, liability or firm
commitment. For cash flow hedges, the effective portion of
the changes in the fair value of the derivative is
accumulated in OCI until the variability in cash flows
being hedged is recognized in earnings in future
accounting periods. For both fair value and cash flow
hedges, if a derivative instrument is designated as a hedge
and meets the criteria for hedge effectiveness, earnings
offset is available, but only to the extent that the hedge
is effective. Ineffective portions of fair value or cash
flow hedges are recorded in earnings in the current
period.(i)
    Freight, transportation and distribution:The company has
changed its accounting policy regarding consolidated
financial statement presentation of freight costs and
transportation and distribution expenses under US GAAP. In
prior years, the company included freight costs in cost of
goods sold and transportation and distribution expenses in
operating expenses under US GAAP. Effective January 1,
2004, the company discloses freight costs and
transportation and distribution expenses under US GAAP as
separate line items within gross margin on the Consolidated Statements of Operations and Retained
Earnings. This presentation is consistent with the new
Canadian GAAP presentation described in Note 3. All
comparative information has been appropriately
reclassified.(j)
    Provision for plant shutdowns:The 2003 provision for
plant shutdowns under Canadian GAAP includes $12.7 for
writedowns of parts inventory. US GAAP requires that these
writedowns be presented as a component of cost of goods
sold.(k)
    Provision for PCS Yumbes S.C.M.:The 2003 provision for
PCS Yumbes under Canadian GAAP includes $50.2 for
writedowns of non-parts inventory. US GAAP requires that
these writedowns be presented as a component of cost of
goods sold.(l)
    Comprehensive income:Comprehensive income is recognized
and measured under US GAAP pursuant to SFAS No. 130,
Reporting Comprehensive Income. This standard defines
comprehensive income as all changes in equity other than
those resulting from investments by owners and
distributions to owners. Comprehensive income is comprised
of two components, net income and OCI. OCI refers to
amounts that are recorded as an element of shareholders
equity but are excluded from net income because these
transactions or events were attributed to changes from
non-owner sources. As described in Note 2, Canadian
standards relating to comprehensive income are not
effective until fiscal years beginning on or after October 1, 2006.(m)
    Income taxes related to
the above adjustments:The income tax adjustment reflects the
impact on income taxes of the US GAAP adjustments
described above. Accounting for income taxes under
Canadian and US GAAP is similar, except that income tax
rates of enacted or substantively enacted tax law must be
used to calculate future income tax assets and liabilities
under Canadian GAAP, whereas only income tax rates of
enacted tax law can be used under US GAAP.
   II-28




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US dollars except share and
per-share amounts  36.
    RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED)  (n)
    Income tax consequences of stock-based employee compensation: Under Canadian GAAP, the income
tax benefit attributable to stock-based compensation that is deductible in computing taxable income
but is not recorded in the consolidated financial statements as an
expense of any period (the excess
benefit) is considered to be a permanent difference. Accordingly, such amount is treated as an
item that reconciles the statutory income tax rate to the companys effective income tax rate.
Under US GAAP, the excess benefit is recognized as additional paid-in capital. During 2005, the
company concluded that this US GAAP treatment had not been applied to
stock options granted by the
company prior to 2003.The following table presents the impact of the restatement adjustments on the companys previously
reported US GAAP reconciliation as at December 31, 2004 and 2003
and for each of the years in the three-year
period ended December 31, 2004: 2004
    
    
    2003
    
    

2002*As Previously
    
    
    
    
    
    
    As
    
    
    As Previously
    
    
    
    
    
    
    As
    
    
    As Previously
    
    
    
    
    
    
    AsReported
    
    
    Adjustments
    
    
    Restated
    
    
    Reported
    
    
    Adjustments
    
    
    Restated
    
    
    Reported
    
    
    Adjustments
    
    
    RestatedAs at
December 31Additional paid-in capital
    
    
    $275.7
    
    
    
    $  21.6
    
    
    
    $297.3
    
    
    
    $265.2
    
    
    
    $  5.7
    
    
    
    $270.9Retained earnings
    
    
    593.9
    
    
    
    (21.6
    )
    
    
    572.3
    
    
    
    347.4
    
    
    
    (5.7
    )
    
    
    341.7For the year
ended December 31Income taxes
    
    
    $136.0
    
    
    
    $  15.9
    
    
    
    $151.9
    
    
    
    $    3.0
    
    
    
    $  4.4
    
    
    
    $    7.4
    
    
    
    $34.2
    
    
    
    $  0.2
    
    
    
    $34.4Net income (loss)
    
    
    306.4
    
    
    
    (15.9
    )
    
    
    290.5
    
    
    
    (79.8
    )
    
    
    (4.4
    )
    
    
    (84.2
    )
    
    
    60.6
    
    
    
    (0.2
    )
    
    
    60.4Comprehensive income (loss)
    
    
    372.0
    
    
    
    (15.9
    )
    
    
    356.1
    
    
    
    (35.0
    )
    
    
    (4.4
    )
    
    
    (39.4
    )
    
    
    44.9
    
    
    
    (0.2
    )
    
    
    44.7Net income (loss) per share  basic
    
    
    2.84
    
    
    
    (0.15
    )
    
    
    2.69
    
    
    
    (0.76
    )
    
    
    (0.05
    )
    
    
    (0.81
    )
    
    
    0.58
    
    
    
    
    
    
    
    0.58Net income (loss) per share  diluted
    
    
    2.77
    
    
    
    (0.15
    )
    
    
    2.62
    
    
    
    (0.76
    )
    
    
    (0.05
    )
    
    
    (0.81
    )
    
    
    0.58
    
    
    
    
    
    
    
    0.58
 *Refer to
Note 36(a).The company has restated its US GAAP reconciliation on the following pages. These adjustments did
not have an effect on total assets, liabilities or shareholders equity for any of the periods
presented.(o)
    Cash flow statements: US GAAP does not permit the use of certain subtotals within the
classification of cash provided by operating activities, nor does it permit the subtotal of cash
before financing activities.The application of US GAAP,
as described above, would have had the following effects on net income
(loss), net income (loss) per share, total assets and
shareholders equity. All share and per-share
data have been retroactively adjusted to reflect the stock split
described in Note 16. 2004AsRestated**
    
    
    2003AsRestated**
    
    

2002*AsRestated**Net income (loss) as reported  Canadian GAAP
    
    $
    298.6
    
    
    $
    (126.3
    )
    
    $
    53.6Items increasing or decreasing reported net income (loss)Cash flow hedge ineffectiveness
    
    
    2.6
    
    
    
    
    
    
    
    Pre-operating costs
    
    
    
    
    
    
    63.0
    
    
    
    2.6Depreciation and amortization
    
    
    8.4
    
    
    
    8.5
    
    
    
    8.4Accretion of asset retirement obligations
    
    
    3.3
    
    
    
    (3.3
    )
    
    
    Post-retirement and post-employment benefits
    
    
    (2.2
    )
    
    
    2.0
    
    
    
    Deferred income taxes relating to the above adjustments
    
    
    (4.3
    )
    
    
    (23.7
    )
    
    
    (4.0
    )Income taxes
related to stock-based compensation
    
    
    (15.9
    )
    
    
    (4.4
    )
    
    
    (0.2
    )Net income (loss)  US GAAP
    
    $
    290.5
    
    
    $
    (84.2
    )
    
    $
    60.4Weighted average shares outstanding  US GAAP
    107,967,000
    
    104,460,000
    
    104,042,000Basic net income per share  US GAAP
    
    $
    2.69
    
    
    $
    (0.81
    )
    
    $
    0.58Total assets as reported  Canadian GAAP
    
    $
    5,126.8
    
    
    $
    4,567.3
    
    
    $
    4,685.6Items increasing (decreasing) reported total assetsInventory
    
    
    (3.0
    )
    
    
    (2.7
    )
    
    
    (4.0
    )Other current assets
    
    
    2.6
    
    
    
    
    
    
    
    Available-for-sale securities (unrealized holding gain)
    
    
    161.7
    
    
    
    60.6
    
    
    
    17.9Fair value of derivative instruments
    
    
    66.5
    
    
    
    59.8
    
    
    
    52.7Property, plant and equipment
    
    
    (126.5
    )
    
    
    (134.9
    )
    
    
    (143.4
    )Pre-operating costs
    
    
    
    
    
    
    
    
    
    
    (63.0
    )Post-retirement and post-employment benefits
    
    
    11.7
    
    
    
    13.9
    
    
    
    11.9Intangible asset relating to additional minimum pension liability
    
    
    9.6
    
    
    
    2.7
    
    
    
    Goodwill
    
    
    (46.7
    )
    
    
    (46.7
    )
    
    
    (46.7
    )Total assets  US GAAP
    
    $
    5,202.7
    
    
    $
    4,520.0
    
    
    $
    4,511.0Total shareholders equity as reported  Canadian GAAP
    
    $
    2,385.6
    
    
    $
    1,973.8
    
    
    $
    2,092.5Items
increasing (decreasing) reported shareholders equityAccumulated
other comprehensive income (loss),
net of related income taxes
    
    
    96.8
    
    
    
    31.2
    
    
    
    (13.6
    )Foreign 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
    
    
    44.8
    
    
    
    36.4
    
    
    
    27.9Pre-operating costs
    
    
    
    
    
    
    
    
    
    
    (63.0
    )Cash flow hedge ineffectiveness
    
    
    2.6
    
    
    
    
    
    
    
    Post-retirement and post-employment benefits
    
    
    11.7
    
    
    
    13.9
    
    
    
    11.9Deferred income taxes relating to the above adjustments
    
    
    30.4
    
    
    
    34.7
    
    
    
    58.4Shareholders equity  US GAAP
    
    $
    2,374.8
    
    
    $
    1,889.6
    
    
    $
    1,917.0
 *Refer to
Note 36(a).**Refer to
Note 36(n).  SUPPLEMENTAL US GAAP DISCLOSURE Recent Accounting Pronouncements In December 2003, the Financial Accounting Standards Board
(FASB) revised FIN No. 46, Consolidation of Variable
Interest Entities, which clarifies the application of
Accounting Research Bulletin No. 51 Consolidated
Financial Statements to those entities (defined as VIEs)
in which either the equity at risk is not sufficient to
permit that entity to finance its activities without
additional subordinated financial support from other
parties, or equity investors lack voting control, an
obligation to absorb expected losses or the right to
receive expected residual returns. FIN No. 46(R) requires
consolidation by a business of VIEs in which it is the
primary beneficiary. The primary beneficiary is defined as
the party that has
 exposure to the majority of the
expected losses and/or expected residual returns of the
VIE. FIN No. 46(R) was effective for the company in the
first quarter, and there was no material impact on its
financial position, results of operations or cash flows
from adoption. In July 2004, the Emerging Issues Task Force (EITF)
discussed Issue No. 04-6, Accounting for Post-Production
Stripping Costs in the Mining Industry. At its September
meeting, the EITF generally supported an approach that
stripping costs incurred during production are
mine-development costs that should be capitalized as an
investment in the mine, and these capitalized costs should
be attributed to reserves in a systematic and rational
manner. The EITF did not make this a final consensus
because it wanted to explore the impact of any consensus
on mines with differing physical patterns of ore location
(which affects the overall timing of attribution). Further
discussion of this issue is expected at a future EITF
meeting.
   II-29




---



##### Table of Contents



NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS  |  in millions of US
dollars except share and per-share amounts  36.
    RECONCILIATION OF CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED) In November 2004, the EITF ratified Issue No. 03-13,
Applying the Conditions in Paragraph 42 of FASB Statement
No.144, Accounting for the Impairment or Disposal of
Long-Lived Assets, in Determining Whether to Report
Discontinued Operations. The EITF reached a consensus
that classification of a disposed of or held-for-sale
component as a discontinued operation is only appropriate
if the ongoing entity (i) expects to have no continuing
direct cash flows, and (ii) does not retain or expect to
retain an interest, contract or other arrangement
sufficient to enable it to exert significant influence
over the disposed components operating and financial
policies after the disposal transaction. Application of
this consensus did not have a material impact on the
companys consolidated financial statements. In November 2004, the
FASB issued SFAS No. 151, Inventory
Costs, to clarify that abnormal amounts of idle facility
expense, freight, handling costs and wasted materials
(spoilage) should be recognized as current-period
charges, and to require the allocation of fixed production
overheads to inventory based on the normal capacity of the
production facilities. The guidance is effective for
inventory costs incurred during fiscal years beginning
after June 15, 2005. Earlier application is permitted. The
company is reviewing the guidance to determine the
potential impact, if any, on its consolidated financial
statements. In December 2004, the FASB issued SFAS No. 123 (revised
2004), Share-Based Payment, that will require
compensation costs related to share-based payment
transactions to be recognized in financial statements. With
limited exceptions, the amount of compensation cost will be
measured based on the grant-date fair value of the equity
or liability instruments issued. In addition, liability
awards will be remeasured each reporting period.
Compensation cost will be recognized over the period that
an employee provides service in exchange for the award.
The standard replaces SFAS No. 123, Accounting for
Stock-Based Compensation, and supersedes APB Opinion No.
25, Accounting for Stock Issued to Employees. It is
effective for the first interim or annual reporting period
beginning after
 June 15, 2005, meaning that the company will apply the
guidance to all employee awards of share-based payment
granted, modified or settled in the third quarter of 2005.
The company is reviewing the standard to determine the
potential impact, if any, on its consolidated financial
statements. Available-for-Sale Security The companys investment in ICL is classified as
available-for-sale. The fair market value of this
investment at December 31, 2004 was $254.5 and the
unrealized holding gain was $161.7. Deferred Income Taxes The total valuation allowance recognized for deferred
income tax assets in 2004 was $29.4 (2003  $11.4). The
company has determined that it is more likely than not
that the deferred income tax asset net of the valuation
allowance will be realized through a combination of future
reversals of temporary differences and taxable income. Stock-Based Compensation Prior to 2003, the company applied the intrinsic value
based method of accounting for its stock option plans
under US GAAP. No stock-based employee compensation cost
is reflected in 2002 net income, as all options granted
under the plans had an exercise price equal to the market
value of the underlying common stock on the date of grant.
Effective December 15, 2003, the company adopted the fair
value based method of accounting for stock options
prospectively to all employee awards granted, modified or
settled after January 1, 2003 pursuant to the transitional
provisions of SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. Since the
companys stock option awards vest over two years, the
compensation cost included in the determination of net
income (loss) for years ended December 31, 2004 and 2003 is
less than that which would have been recognized if the
fair value based method had been applied to all awards
since the original effective date of SFAS
No.123, Accounting for Stock-Based Compensation. The
following table illustrates the effect on net income
(loss) and net income (loss) per share under US GAAP if
the fair value based method had been applied to all
outstanding and unvested awards in each period.
   2004AsRestated**
    
    

2003AsRestated**
    
    

2002AsRestated**Net income (loss)  as reported under US GAAP
    
    $
    290.5
    
    
    $
    (84.2
    )
    
    $
    60.4Add:
 Stock-based employee compensation expense includedin reported
net income (loss), net of related tax effects

    
    8.8
    
    
    
    0.8
    
    
    
    Less: Total stock-based employee compensation expense determined underfair value
based method for all option awards, net of related tax effects
    
    
    (12.8
    )
    
    
    (14.8
    )
    
    
    (14.3
    )Net income
(loss)  pro forma under US
GAAP (1)
    
    $
    286.5
    
    
    $
    (98.2
    )
    
    $
    46.1(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.
 2004AsRestated**
    
    
    2003AsRestated**
    
    
    2002AsRestated**Basic net income (loss) per shareAs reported
    
    $
    2.69
    
    
    $
    (0.81
    )
    
    $
    0.58Pro forma
    
    
    2.65
    
    
    
    (0.94
    )
    
    
    0.44Diluted net income (loss) per shareAs reported
    
    $
    2.62
    
    
    $
    (0.81
    )
    
    $
    0.58Pro forma
    
    
    2.59
    
    
    
    (0.94
    )
    
    
    0.44**   Refer
to Note 36(n).
 II-30




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US dollars except share and per-share amounts  36.
    RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED) Derivative Instruments and Hedging Activities
   Related Party Transactions
  SUPPLEMENTAL SCHEDULES
  SUPPLEMENTAL SCHEDULE OF
CONSOLIDATED FINANCIAL POSITION
 2004AsRestated**
    
    

2003AsRestated**AssetsCurrent assetsCash and cash equivalents
    
    $
    458.9
    
    
    $
    4.7Accounts receivable
    
    
    352.6
    
    
    
    305.0Inventories
    
    
    393.8
    
    
    
    392.5Prepaid expenses and other current assets
    
    
    37.9
    
    
    
    29.0Current portion of derivative instruments
    
    
    38.2
    
    
    
    37.51,281.4
    
    
    
    768.7Derivative instruments
    
    
    28.3
    
    
    
    22.3Property, plant and equipment
    
    
    2,972.4
    
    
    
    2,973.2Other assets
    
    
    833.2
    
    
    
    672.6Intangible assets
    
    
    37.1
    
    
    
    32.9Goodwill
    
    
    50.3
    
    
    
    50.3$
    5,202.7
    
    
    $
    4,520.0LiabilitiesCurrent liabilitiesShort-term debt
    
    $
    93.5
    
    
    $
    176.2Accounts payable and accrued charges
    
    
    599.9
    
    
    
    380.3Current portion of long-term debt
    
    
    10.3
    
    
    
    1.3703.7
    
    
    
    557.8Long-term debt
    
    
    1,258.6
    
    
    
    1,268.6Deferred income tax liability
    
    
    521.6
    
    
    
    469.8Accrued post-retirement/post-employment benefits
    
    
    257.9
    
    
    
    242.5Accrued environmental costs and asset retirement obligations
    
    
    81.2
    
    
    
    84.6Other non-current liabilities and deferred credits
    
    
    4.9
    
    
    
    7.12,827.9
    
    
    
    2,630.4Shareholders EquityShare capital
    
    
    1,408.4
    
    
    
    1,245.8Additional paid-in capital
    
    
    297.3
    
    
    
    270.9Retained earnings
    
    
    572.3
    
    
    
    341.7Accumulated other comprehensive income
    
    
    96.8
    
    
    
    31.22,374.8
    
    
    
    1,889.6$
    5,202.7
    
    
    $
    4,520.0**   Refer
to Note 36(n).
 II-31




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US
dollars except share and per-share amounts  36.
    RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED) SUPPLEMENTAL SCHEDULE OF CONSOLIDATED OPERATIONS AND RETAINED EARNINGS  2004AsRestated**
    
    
    2003AsRestated**
    
    
    2002AsRestated**Sales
    
    $
    3,244.4
    
    
    $
    2,799.0
    
    
    $
    2,224.4Less: Freight
    
    
    238.7
    
    
    
    234.5
    
    
    
    215.2Transportation and distribution
    
    
    104.3
    
    
    
    98.7
    
    
    
    80.5Cost of goods sold
    
    
    2,207.9
    
    
    
    2,141.2
    
    
    
    1,610.4Gross Margin
    
    
    693.5
    
    
    
    324.6
    
    
    
    318.3Selling and administrative
    
    
    130.6
    
    
    
    96.1
    
    
    
    91.7Provincial mining and other taxes
    
    
    92.6
    
    
    
    57.0
    
    
    
    68.0Provision for plant shutdowns
    
    
    
    
    
    
    111.0
    
    
    
    Provision for PCS Yumbes S.C.M.
    
    
    3.6
    
    
    
    27.3
    
    
    
    Foreign exchange loss
    
    
    19.7
    
    
    
    51.9
    
    
    
    5.5Share of earnings of equity investees
    
    
    (30.9
    )
    
    
    (12.4
    )
    
    
    (5.3
    )Other income
    
    
    (48.5
    )
    
    
    (20.8
    )
    
    
    (19.5
    )167.1
    
    
    
    310.1
    
    
    
    140.4Operating Income
    
    
    526.4
    
    
    
    14.5
    
    
    
    177.9Interest Expense
    
    
    84.0
    
    
    
    91.3
    
    
    
    83.1Income (Loss) Before Income Taxes
    
    
    442.4
    
    
    
    (76.8
    )
    
    
    94.8Income Taxes
    
    
    151.9
    
    
    
    7.4
    
    
    
    34.4Net Income (Loss)
    
    
    290.5
    
    
    
    (84.2
    )
    
    
    60.4Retained
Earnings, Beginning of Year
    
    
    341.7
    
    
    
    478.2
    
    
    
    469.8Dividends
    
    
    (59.9
    )
    
    
    (52.3
    )
    
    
    (52.0
    )Retained
Earnings, End of Year
    
    $
    572.3
    
    
    $
    341.7
    
    
    $
    478.2Net Income (Loss) Per Share  Basic
    
    $
    2.69
    
    
    $
    (0.81
    )
    
    $
    0.58Net Income (Loss) Per Share  Diluted
    
    $
    2.62
    
    
    $
    (0.81
    )
    
    $
    0.58Dividends Per Share
    
    $
    0.55
    
    
    $
    0.50
    
    
    $
    0.50
 SUPPLEMENTAL SCHEDULE OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)  2004AsRestated**
    
    
    2003AsRestated**
    
    
    2002*AsRestated**Net income (loss)
    
    $
    290.5
    
    
    $
    (84.2
    )
    
    $
    60.4Other comprehensive income (loss)Change in unrealized holding gains and losses on available-for-sale securities
    
    
    101.2
    
    
    
    42.7
    
    
    
    (6.3
    )Change in gains and losses on derivatives designated as cash flow hedges
    
    
    49.3
    
    
    
    98.3
    
    
    
    66.0Reclassification to income of gains and losses on cash flow hedges
    
    
    (43.0
    )
    
    
    (89.9
    )
    
    
    (15.5
    )Adjustment to additional minimum pension liability
    
    
    (9.6
    )
    
    
    23.4
    
    
    
    (68.7
    )Deferred income taxes related to other comprehensive income
    
    
    (32.3
    )
    
    
    (29.7
    )
    
    
    8.8Other
comprehensive income (loss), net of related income taxes
    
    
    65.6
    
    
    
    44.8
    
    
    
    (15.7
    )Comprehensive income (loss)
    
    $
    356.1
    
    
    $
    (39.4
    )
    
    $
    44.7
 SUPPLEMENTAL SCHEDULE OF CONSOLIDATED ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)  2004
    
    
    2003
    
    
    2002
    *Accumulated
other comprehensive income (loss), beginning of year
    
    $
    31.2
    
    
    $
    (13.6
    )
    
    $
    2.1Other
comprehensive income (loss), net of related income taxes
    
    
    65.6
    
    
    
    44.8
    
    
    
    (15.7
    )Accumulated
other comprehensive income (loss), end of year
    
    $
    96.8
    
    
    $
    31.2
    
    
    $
    (13.6
    )
 The balances related to each
component of accumulated other comprehensive income (loss), net of
related income taxes, are as follows: 2004
    
    
    2003
    
    
    2002
    *Unrealized gains and losses on available-for-sale securities
    
    $
    106.7
    
    
    $
    39.0
    
    
    $
    13.3Gains and losses on derivatives designated as cash flow hedges
    
    
    47.4
    
    
    
    43.1
    
    
    
    38.0Additional minimum pension liability
    
    
    (36.4
    )
    
    
    (30.0
    )
    
    
    (44.0
    )Foreign currency translation adjustment
    
    
    (20.9
    )
    
    
    (20.9
    )
    
    
    (20.9
    )Accumulated
other comprehensive income (loss), end of year
    
    $
    96.8
    
    
    $
    31.2
    
    
    $
    (13.6
    )*    Refer to
Note 36(a).**   Refer to
Note 36(n).
 II-32




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  |  in millions of US dollars except share and
per-share amounts  36.
    RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED) SUPPLEMENTAL SCHEDULE OF CONSOLIDATED CASH FLOW  2004AsRestated**
    
    
    2003AsRestated**
    
    
    2002AsRestated**Operating ActivitiesNet income (loss)
    
    $
    290.5
    
    
    $
    (84.2
    )
    
    $
    60.4Items not affecting cashDepreciation and amortization
    
    
    231.6
    
    
    
    218.9
    
    
    
    208.1Stock-based compensation
    
    
    11.1
    
    
    
    1.0
    
    
    
    (Gain) loss
on disposal of property, plant and equipment
    
    
    (0.7
    )
    
    
    1.0
    
    
    
    1.0Gain on sale of long-term investments
    
    
    (34.4
    )
    
    
    
    
    
    
    Provision for plant shutdowns
    
    
    
    
    
    
    105.6
    
    
    
    Provision for PCS Yumbes S.C.M.
    
    
    3.6
    
    
    
    14.5
    
    
    
    Writedown of inventories
    
    
    
    
    
    
    62.9
    
    
    
    Foreign exchange on deferred income tax
    
    
    17.2
    
    
    
    35.9
    
    
    
    1.0Provision for deferred income tax
    
    
    30.6
    
    
    
    3.0
    
    
    
    10.0Income taxes
related to stock-based compensation
    
    
    15.9
    
    
    
    4.4
    
    
    
    0.2Share of earnings of equity investees
    
    
    (30.9
    )
    
    
    (12.4
    )
    
    
    (5.3
    )Provision for post-retirement/post-employment benefits
    
    
    1.1
    
    
    
    9.7
    
    
    
    18.2Accrued environmental costs and asset retirement obligations
    
    
    (3.4
    )
    
    
    4.6
    
    
    
    (3.0
    )Other non-current liabilities and deferred credits
    
    
    
    
    
    
    1.6
    
    
    
    (1.4
    )Changes in non-cash operating working capitalAccounts receivable
    
    
    (51.9
    )
    
    
    (39.5
    )
    
    
    (11.1
    )Inventories
    
    
    (10.5
    )
    
    
    14.5
    
    
    
    (14.2
    )Prepaid expenses and other current assets
    
    
    (8.9
    )
    
    
    9.4
    
    
    
    (3.9
    )Accounts payable and accrued charges
    
    
    102.2
    
    
    
    48.9
    
    
    
    33.0Current income taxes
    
    
    86.5
    
    
    
    (18.3
    )
    
    
    23.4Cash provided by operating activities
    
    
    649.6
    
    
    
    381.5
    
    
    
    316.4Investing ActivitiesAdditions to
property, plant and equipment
    
    
    (220.5
    )
    
    
    (150.7
    )
    
    
    (212.2
    )Proceeds
from disposal of property, plant and equipment
    
    
    2.5
    
    
    
    
    
    
    
    Investment in Sociedad Quimica y Minera de Chile S.A.
    
    
    (97.2
    )
    
    
    
    
    
    
    (23.2
    )Investment in Arab Potash Company
    
    
    (8.3
    )
    
    
    (178.3
    )
    
    
    Proceeds from sale of long-term investments
    
    
    66.3
    
    
    
    
    
    
    
    Proceeds from sale of shares of PCS Yumbes S.C.M.
    
    
    34.5
    
    
    
    
    
    
    
    Dividends received from equity investees
    
    
    8.7
    
    
    
    4.0
    
    
    
    Other assets and intangibles
    
    
    (2.8
    )
    
    
    (32.7
    )
    
    
    (36.0
    )Cash used in investing activities
    
    
    (216.8
    )
    
    
    (357.7
    )
    
    
    (271.4
    )Financing ActivitiesProceeds from long-term debt obligations
    
    
    
    
    
    
    250.0
    
    
    
    11.2Repayment of long-term debt obligations
    
    
    (1.0
    )
    
    
    (3.4
    )
    
    
    (1.3
    )Repayment of short-term debt obligations
    
    
    (82.7
    )
    
    
    (296.8
    )
    
    
    (28.1
    )Dividends
    
    
    (56.1
    )
    
    
    (52.3
    )
    
    
    (52.0
    )Issuance of shares
    
    
    161.2
    
    
    
    58.9
    
    
    
    4.4Cash provided by (used in) financing activities
    
    
    21.4
    
    
    
    (43.6
    )
    
    
    (65.8
    )Increase (Decrease) in Cash and Cash Equivalents
    
    
    454.2
    
    
    
    (19.8
    )
    
    
    (20.8
    )Cash and
Cash Equivalents, Beginning of Period
    
    
    4.7
    
    
    
    24.5
    
    
    
    45.3Cash and
Cash Equivalents, End of Period
    
    $
    458.9
    
    
    $
    4.7
    
    
    $
    24.5
   37.
    SUBSEQUENT EVENT On January 25, 2005, the Board of Directors of PCS authorized a share repurchase program of up to 5.5
million common shares (approximately 5 percent of the companys issued and outstanding common
shares) through a normal course issuer bid. If considered advisable, shares may be repurchased from
time to time on the open market through February 14, 2006 at
prevailing market prices. The timing and
amount of purchases, if any, under the program will be dependent upon the availability and
alternative uses of capital, market conditions and other factors. II-33




---



##### Table of Contents



PART IV
 
 
 ITEM 15. Exhibits and Financial Statement Schedules.
 (a) List of Documents Filed as Part of this Report
   Reports of Independent Registered Chartered Accountants
    
    II-3Consolidated Statements of Financial Position
    
    II-5Consolidated Statements of Operations and Retained Earnings
    
    II-6Consolidated Statements of Cash Flow
    
    II-7Notes to the Consolidated Financial Statements
    
    II-8 - II-33
   Potash Corporation of Saskatchewan Inc.
Schedule II  Valuation and Qualifying Accounts
(in millions of US dollars)
(unaudited)
 AdditionsBalance at
    
    
    Charged toBeginning of
    
    
    Costs and
    
    
    
    
    
    
    Balance atDescription
    
    Year
    
    
    Expenses
    
    
    Deductions
    
    
    End of YearAllowance for doubtful trade accounts receivable2004
    
    
    4.9
    
    
    
    0.7
    
    
    
    1.0
    
    
    
    4.62003
    
    
    6.0
    
    
    
    0.5
    
    
    
    1.6
    
    
    
    4.92002
    
    
    7.0
    
    
    
    
    
    
    
    1.0
    
    
    
    6.0Allowance for inventory valuation2004
    
    
    11.9
    
    
    
    5.1
    
    
    
    2.5
    
    
    
    14.52003
    
    
    4.3
    
    
    
    9.5
    
    
    
    1.9
    
    
    
    11.92002
    
    
    2.5
    
    
    
    2.1
    
    
    
    0.3
    
    
    
    4.3Allowance for deferred income tax assets2004
    
    
    11.4
    
    
    
    18.4
    
    
    
    0.4
    
    
    
    29.42003
    
    
    28.9
    
    
    
    1.0
    
    
    
    18.5
    
    
    
    11.42002
    
    
    37.1
    
    
    
    0.1
    
    
    
    8.3
    
    
    
    28.9
  ExhibitNumber
    
    Description of Document3(a)
    
    Articles of Continuance of the registrant dated May 15, 2002,
incorporated by reference to Exhibit 3(a) to the registrants
report on Form 10-Q for the quarterly period ended June 30,
2002 (the Second Quarter 2002 Form 10-Q).3(b)
    
    Bylaws of the registrant effective May 15, 2002, incorporated
by reference to Exhibit 3(b) to the Second Quarter 2002
Form 10‐Q.
 IV-1




---



##### Table of Contents



ExhibitNumber
    
    Description of Document4(a)
    
    Term Credit Agreement between The Bank of Nova Scotia and
other financial institutions and the registrant dated
September 25, 2001, incorporated by reference to Exhibit 4(a)
to the registrants report on Form 10-Q for the quarterly
period ended September 30, 2001.4(b)
    
    Syndicated Term Credit Facility Amending Agreement between The
Bank of Nova Scotia and other financial institutions and the
registrant dated as of September 23, 2003, incorporated by
reference to Exhibit 4(b) to the registrants report on Form
10-Q for the quarterly period ended September 30, 2003 (the
Third Quarter 2003 Form 10-Q).4(c)
    
    Syndicated Term Credit Facility Second Amending Agreement
between The Bank of Nova Scotia and other financial
institutions and the registrant dated as of September 21,
2004, incorporated by reference to Exhibit 4(c) to the
registrants report on Form 8-K dated September 21, 2004.4(d)
    
    Indenture dated as of June 16, 1997, between the registrant
and The Bank of Nova Scotia Trust Company of New York,
incorporated by reference to Exhibit 4(a) to the registrants
report on
Form 8-K dated June 18, 1997 (the 1997 Form 8-K).4(e)
    
    Indenture dated as of February 27, 2003, between the
registrant and The Bank of Nova Scotia Trust Company of New
York, incorporated by reference to Exhibit 4(c) to the
registrants report on Form 10-K for the year ended December
31, 2002 (the 2002 Form 10-K).4(f)
    
    Form of Notes relating to the registrants offering of
$400,000,000 principal amount of 7.125% Notes due June 15,
2007, incorporated by reference to Exhibit 4(b) to the 1997
Form 8-K.4(g)
    
    Form of Notes relating to the registrants offering of
$600,000,000 principal amount of 7 3/4% Notes due May 31,
2011, incorporated by reference to Exhibit 4 to the
registrants report on Form 8-K dated May 17, 2001.4(h)
    
    Form of Note relating to the registrants offering of
$250,000,000 principal amount of 4.875% Notes due March 1,
2013, incorporated by reference to Exhibit 4 to the
registrants report on Form 8-K dated February 28, 2003.
  ExhibitNumber
    
    Description of Document10(a)
    
    Sixth Voting Agreement dated April 22, 1978, between Central Canada
Potash, Division of Noranda, Inc., Cominco Ltd., International Minerals
and Chemical Corporation (Canada) Limited, PCS Sales and Texasgulf
Inc., incorporated by reference to Exhibit 10(f) to the registrants
registration statement on Form F-1 (File No. 33-31303) (the F-1
Registration Statement).10(b)
    
    Canpotex Limited Shareholders Seventh Memorandum of Agreement effective
April 21, 1978, between Central Canada Potash, Division of Noranda
Inc., Cominco Ltd., International Minerals and Chemical Corporation
(Canada) Limited, PCS Sales, Texasgulf Inc. and Canpotex Limited as
amended by Canpotex S&P amending agreement dated November 4, 1987,
incorporated by reference to Exhibit 10(g) to the F-1 Registration
Statement.10(c)
    
    Producer Agreement dated April 21, 1978, between Canpotex Limited and
PCS Sales, incorporated by reference to Exhibit 10(h) to the F-1
Registration Statement.10(d)
    
    Canpotex/PCS Amending Agreement, dated as of October 1, 1992,
incorporated by reference to Exhibit 10(f) to the registrants report
on Form 10-K for the year ended December 31, 1995 (the 1995 Form
10-K).10(e)
    
    Canpotex PCA Collateral Withdrawing/PCS Amending Agreement, dated as of
October 7, 1993, incorporated by reference to Exhibit 10(g) to the 1995
Form 10-K.10(f)
    
    Canpotex Producer Agreement amending agreement dated as of January 1,
1999, incorporated by reference to Exhibit 10(f) to the registrants
report on Form 10-K for the year ended December 31, 2000 (the 2000
Form 10-K).
 IV-2




---



##### Table of Contents



ExhibitNumber
    
    Description of Document10(g)
    
    Canpotex Producer Agreement amending agreement dated as of July 1,
2002, incorporated by reference to Exhibit 10(g) to the registrants
report on Form 10-Q for the quarterly period ended June 30, 2004 (the
Second Quarter 2004 Form 10-Q).10(h)
    
    Form of Agreement of Limited Partnership of Arcadian Fertilizer, L.P.
dated as of March 3, 1992, and the related Certificate of Limited
Partnership of Arcadian Fertilizer, L.P., filed with the Secretary of
State of the State of Delaware on March 3, 1992, incorporated by
reference to Exhibits 3.1 and 3.2 to Arcadian Partners L.P.s
Registration Statement on Form S-1 (File No. 33-45828).10(i)
    
    Amendment to Agreement of Limited Partnership of Arcadian Fertilizer,
L.P. and related Certificates of Limited Partnership of Arcadian
Fertilizer, L.P. filed with the Secretary of State of the State of
Delaware on March 6, 1997 and November 26, 1997, incorporated by
reference to Exhibit 10(f) to the registrants report on Form 10-K for
the year ended December 31, 1998 (the 1998 Form 10-K).10(j)
    
    Second amendment to Agreement of Limited Partnership of PCS Nitrogen
Fertilizer, L.P. dated December 15, 2002, incorporated by reference to
Exhibit 10(i) to the 2002 Form 10-K.10(k)
    
    Third amendment to Agreement of Limited Partnership of PCS Nitrogen
Fertilizer, L.P. dated December 15, 2003, incorporated by reference to
Exhibit 10(k) to the Second Quarter 2004 Form 10-Q.10(l)
    
    Geismar Complex Services Agreement dated June 4, 1984, between
Honeywell International, Inc. and Arcadian Corporation, incorporated by
reference to Exhibit 10.4 to Arcadian Corporations Registration
Statement on Form S-1 (File No. 33-34357).10(m)
    
    Esterhazy Restated Mining and Processing Agreement dated January 31,
1978, between International Minerals & Chemical Corporation (Canada)
Limited and the registrants predecessor, incorporated by reference to
Exhibit 10(e) to the F-1 Registration Statement.10(n)
    
    Agreement dated December 21, 1990, between International Minerals &
Chemical Corporation (Canada) Limited and the registrant, amending the
Esterhazy Restated Mining and Processing Agreement dated January 31,
1978, incorporated by reference to Exhibit 10(p) to the registrants
report on Form 10-K for the year ended December 31, 1990.10(o)
    
    Agreement effective August 27, 1998, between International Minerals &
Chemical (Canada) Global Limited and the registrant, amending the
Esterhazy Restated Mining and Processing Agreement dated January 31,
1978 (as amended), incorporated by reference to Exhibit 10(l) to the
1998 Form 10-K.10(p)
    
    Agreement effective August 31, 1998, among International Minerals &
Chemical (Canada) Global Limited, International Minerals & Chemical
(Canada) Limited Partnership and the registrant assigning the interest
in the Esterhazy Restated Mining and Processing Agreement dated January
31, 1978 (as amended) held by International Minerals & Chemical
(Canada) Global Limited to International Minerals & Chemical (Canada)
Limited Partnership, incorporated by reference to Exhibit 10(m) to the
1998 Form 10-K.10(q)
    
    Operating Agreement dated May 11, 1993, between BP Chemicals Inc. and
Arcadian Ohio, L.P., as amended by the First Amendment to the Operating
Agreement dated as of November 20, 1995, between BP Chemicals Inc. and
Arcadian Ohio, L.P. (the First Amendment), incorporated by reference
to Exhibit 10.2 to Arcadian Partners L.P.s current report on Form 8-K
for the report event dated May 11, 1993, except for the First Amendment
which is incorporated by reference to Arcadian Corporations report on
Form 10-K for the year ended December 31, 1995.10(r)
    
    Second Amendment to Operating Agreement between BP Chemicals, Inc. and
Arcadian Ohio, L.P., dated as of November 25, 1996, incorporated by
reference to Exhibit 10(k) of the registrants report on Form 10-K for
the year ended December 31, 1997 (the 1997 Form 10-K).10(s)
    
    Manufacturing Support Agreement dated May 11, 1993, between BP
Chemicals Inc. and Arcadian Ohio, L.P., incorporated by reference to
Exhibit 10.3 to Arcadian Partners L.P.s current report on Form 8-K for
the report event dated May 11, 1993.10(t)
    
    First Amendment to Manufacturing Support Agreement dated as of November
25, 1996, between BP Chemicals, Inc. and Arcadian Ohio, L.P.,
incorporated by reference to Exhibit 10(l) to the 1997 Form 10-K.
 IV-3




---



##### Table of Contents



ExhibitNumber
    
    Description of Document10(u)
    
    Letter of amendment to the Manufacturing Support Agreement and
Operating Agreement dated September 8, 2003, between BP Chemicals Inc.
and PCS Nitrogen Ohio, L.P., incorporated by reference to Exhibit 10(s)
to the Third Quarter 2003 Form 10-Q.10(v)
    
    Potash Corporation of Saskatchewan Inc. Stock Option Plan  Directors,
as amended January 23, 2001, incorporated by reference to Exhibit
10(bb) to the Second Quarter 2001 Form 10-Q.10(w)
    
    Potash Corporation of Saskatchewan Inc. Stock Option Plan  Officers
and Employees, as amended January 23, 2001, incorporated by reference
to Exhibit 10(aa) to the 2000 Form 10-K.10(x)
    
    Short-Term Incentive Plan of the registrant effective January 2000, as
amended March 10, 2005, incorporated by reference to Exhibit 10(x) to
the registrants report on Form 10-K for the year ended December 31,
2004, filed with the Commission on March 11, 2005 (the Original 2004
Form 10-K).10(y)
    
    Long-Term Incentive Plan of the registrant effective January 2000,
incorporated by reference to Exhibit 10(aa) to the registrants report
on Form 10-Q for the quarterly period ended June 30, 2000 (the Second
Quarter 2000 Form 10-Q).10(z)
    
    Long-Term Incentive Plan of the registrant effective January 2003,
incorporated by reference to Exhibit 10(y) to the 2002 Form 10-K.10(aa)
    
    Resolution and Forms of Agreement for Supplemental Retirement Income
Plan, for officers and key employees of the registrant, incorporated by
reference to Exhibit 10(o) to the 1995 Form 10-K.10(bb)
    
    Amending Resolution and revised forms of agreement regarding
Supplemental Retirement Income Plan of the registrant, incorporated by
reference to Exhibit 10(x) to the registrants report on Form 10-Q for
the quarterly period ended June 30, 1996.10(cc)
    
    Amended and restated Supplemental Retirement Income Plan of the
registrant and text of amendment to existing supplemental income plan
agreements, incorporated by reference to Exhibit 10(mm) to the
registrants report on Form 10-Q for the quarterly period ended
September 30, 2000 (the Third Quarter 2000 Form 10-Q).10(dd)
    
    Form of Letter of amendment to existing supplemental income plan
agreements of the registrant dated November 4, 2002, incorporated by
reference to Exhibit 10(cc) to the 2002 Form 10-K.10(ee)
    
    Supplemental Retirement Benefits Plan for U.S. Executives dated
effective January 1, 1999, incorporated by reference to Exhibit 10(aa)
to the Second Quarter 2002 Form 10-Q.10(ff)
    
    Forms of Agreement dated December 30, 1994, between the registrant and
certain officers of the registrant, concerning a change in control of
the registrant, incorporated by reference to Exhibit 10(p) to the 1995
Form 10-K.10(gg)
    
    Form of Agreement of Indemnification dated August 8, 1995, between the
registrant and certain officers and directors of the registrant,
incorporated by reference to Exhibit 10(q) to the 1995 Form 10-K.10(hh)
    
    Resolution and Form of Agreement of Indemnification dated January 24,
2001, incorporated by reference to Exhibit 10(ii) to the 2000 Form
10-K.10(ii)
    
    Resolution and Form of Agreement of Indemnification  July 21, 2004,
incorporated by reference to Exhibit 10(ii) to the Second Quarter 2004
Form 10-Q.10(jj)
    
    Chief Executive Officer Medical and Dental Benefits, incorporated by
reference to Exhibit 10(jj) to the Original 2004 Form 10‐K.10(kk)
    
    Second Amended and Restated Membership Agreement dated January 1, 1995,
among Phosphate Chemicals Export Association, Inc. and members of such
association, including Texasgulf Inc., incorporated by reference to
Exhibit 10(t) to the 1995 Form 10‐K.10(ll)
    
    International Agency Agreement dated January 1, 1995, between Phosphate
Chemicals Export Association, Inc. and Texasgulf Inc. establishing
Texasgulf Inc. as exclusive marketing agent for such associations wet
phosphatic materials, incorporated by reference to Exhibit 10(u) to the
1995 Form 10-K.
 IV-4




---



##### Table of Contents



ExhibitNumber
    
    Description of Document10(mm)
    
    Deferred Share Unit Plan for Non-Employee Directors, incorporated by
reference to Exhibit 4.1 to the registrants Form S-8 (File No.
333-75742) filed December 21, 2001.11
    
    Statement re Computation of Per Share Earnings.12
    
    Computation of Ratio of Earnings to Fixed Charges, incorporated by
reference to Exhibit 12 to the Original 2004 Form 10-K.13
    
    2004 Annual Report.*21
    
    Subsidiaries of the registrant, incorporated by reference to Exhibit 21
to the Original 2004 Form 10-K.23
    
    Consent of Deloitte & Touche LLP.31(a)
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31(b)
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.99
    
    2005 Notice of Meeting, Proxy Circular and Form of Proxy.**
   IV-5




---



##### Table of Contents



SIGNATURES
  POTASH CORPORATION OF SASKATCHEWAN INC.By:
    /s/ WILLIAM J. DOYLEWilliam J. Doyle
President and Chief Executive Officer
November 18, 2005  Signature
    
    Title
    
    Date/s/ DALLAS J. HOWE

Dallas J. Howe
    
    Chair of the Board
    
    November 18,
2005/s/ WAYNE R. BROWNLEE

Wayne R. Brownlee
    
    Senior Vice President, Treasurer and
Chief Financial Officer (Principal
financial and accounting officer)
    
    November 18,
2005/s/ WILLIAM J. DOYLE

William J. Doyle
    
    President and Chief Executive Officer
    
    November 18,
2005/s/ FREDERICK J. BLESI

Frederick J. Blesi
    
    Director
    
    November 18,
2005/s/ JOHN W. ESTEY

John W. Estey
    
    Director
    
    November 18,
2005/s/ WADE FETZER III

Wade Fetzer III
    
    Director
    
    November 18,
2005/s/ ALICE D. LABERGE

Alice D. Laberge
    
    Director
    
    November 18,
2005/s/ JEFFREY J. MCCAIG

Jeffrey J. McCaig
    
    Director
    
    November 18,
2005/s/ MARY MOGFORD

Mary Mogford
    
    Director
    
    November 18,
2005/s/ PAUL J. SCHOENHALS

Paul J. Schoenhals
    
    Director
    
    November 18,
2005/s/ E. ROBERT STROMBERG, Q.C.

E. Robert Stromberg, Q.C.
    
    Director
    
    November 18,
2005/s/ JACK G. VICQ

Jack G. Vicq
    
    Director
    
    November 18,
2005/s/ ELENA VIYELLA DE PALIZA

Elena Viyella de Paliza
    
    Director
    
    November 18,
2005




---



##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description of Document3(a)
    
    Articles of Continuance of the registrant dated May 15, 2002,
incorporated by reference to Exhibit 3(a) to the registrants
report on Form 10-Q for the quarterly period ended June 30,
2002 (the Second Quarter 2002 Form 10-Q).3(b)
    
    Bylaws of the registrant effective May 15, 2002, incorporated
by reference to Exhibit 3(b) to the Second Quarter 2002
Form 10‐Q.4(a)
    
    Term Credit Agreement between The Bank of Nova Scotia and
other financial institutions and the registrant dated
September 25, 2001, incorporated by reference to Exhibit 4(a)
to the registrants report on Form 10-Q for the quarterly
period ended September 30, 2001.4(b)
    
    Syndicated Term Credit Facility Amending Agreement between The
Bank of Nova Scotia and other financial institutions and the
registrant dated as of September 23, 2003, incorporated by
reference to Exhibit 4(b) to the registrants report on Form
10-Q for the quarterly period ended September 30, 2003 (the
Third Quarter 2003 Form 10-Q).4(c)
    
    Syndicated Term Credit Facility Second Amending Agreement
between The Bank of Nova Scotia and other financial
institutions and the registrant dated as of September 21,
2004, incorporated by reference to Exhibit 4(c) to the
registrants report on Form 8-K dated September 21, 2004.4(d)
    
    Indenture dated as of June 16, 1997, between the registrant
and The Bank of Nova Scotia Trust Company of New York,
incorporated by reference to Exhibit 4(a) to the registrants
report on
Form 8-K dated June 18, 1997 (the 1997 Form 8-K).4(e)
    
    Indenture dated as of February 27, 2003, between the
registrant and The Bank of Nova Scotia Trust Company of New
York, incorporated by reference to Exhibit 4(c) to the
registrants report on Form 10-K for the year ended December
31, 2002 (the 2002 Form 10-K).4(f)
    
    Form of Notes relating to the registrants offering of
$400,000,000 principal amount of 7.125% Notes due June 15,
2007, incorporated by reference to Exhibit 4(b) to the 1997
Form 8-K.4(g)
    
    Form of Notes relating to the registrants offering of
$600,000,000 principal amount of 7 3/4% Notes due May 31,
2011, incorporated by reference to Exhibit 4 to the
registrants report on Form 8-K dated May 17, 2001.4(h)
    
    Form of Note relating to the registrants offering of
$250,000,000 principal amount of 4.875% Notes due March 1,
2013, incorporated by reference to Exhibit 4 to the
registrants report on Form 8-K dated February 28, 2003.
  ExhibitNumber
    
    Description of Document10(a)
    
    Sixth Voting Agreement dated April 22, 1978, between Central Canada
Potash, Division of Noranda, Inc., Cominco Ltd., International Minerals
and Chemical Corporation (Canada) Limited, PCS Sales and Texasgulf
Inc., incorporated by reference to Exhibit 10(f) to the registrants
registration statement on Form F-1 (File No. 33-31303) (the F-1
Registration Statement).10(b)
    
    Canpotex Limited Shareholders Seventh Memorandum of Agreement effective
April 21, 1978, between Central Canada Potash, Division of Noranda
Inc., Cominco Ltd., International Minerals and Chemical Corporation
(Canada) Limited, PCS Sales, Texasgulf Inc. and Canpotex Limited as
amended by Canpotex S&P amending agreement dated November 4, 1987,
incorporated by reference to Exhibit 10(g) to the F-1 Registration
Statement.




---



##### Table of Contents



ExhibitNumber
    
    Description of Document10(c)
    
    Producer Agreement dated April 21, 1978, between Canpotex Limited and
PCS Sales, incorporated by reference to Exhibit 10(h) to the F-1
Registration Statement.10(d)
    
    Canpotex/PCS Amending Agreement, dated as of October 1, 1992,
incorporated by reference to Exhibit 10(f) to the registrants report
on Form 10-K for the year ended December 31, 1995 (the 1995 Form
10-K).10(e)
    
    Canpotex PCA Collateral Withdrawing/PCS Amending Agreement, dated as of
October 7, 1993, incorporated by reference to Exhibit 10(g) to the 1995
Form 10-K.10(f)
    
    Canpotex Producer Agreement amending agreement dated as of January 1,
1999, incorporated by reference to Exhibit 10(f) to the registrants
report on Form 10-K for the year ended December 31, 2000 (the 2000
Form 10-K).10(g)
    
    Canpotex Producer Agreement amending agreement dated as of July 1,
2002, incorporated by reference to Exhibit 10(g) to the registrants
report on Form 10-Q for the quarterly period ended June 30, 2004 (the
Second Quarter 2004 Form 10-Q).10(h)
    
    Form of Agreement of Limited Partnership of Arcadian Fertilizer, L.P.
dated as of March 3, 1992, and the related Certificate of Limited
Partnership of Arcadian Fertilizer, L.P., filed with the Secretary of
State of the State of Delaware on March 3, 1992, incorporated by
reference to Exhibits 3.1 and 3.2 to Arcadian Partners L.P.s
Registration Statement on Form S-1 (File No. 33-45828).10(i)
    
    Amendment to Agreement of Limited Partnership of Arcadian Fertilizer,
L.P. and related Certificates of Limited Partnership of Arcadian
Fertilizer, L.P. filed with the Secretary of State of the State of
Delaware on March 6, 1997 and November 26, 1997, incorporated by
reference to Exhibit 10(f) to the registrants report on Form 10-K for
the year ended December 31, 1998 (the 1998 Form 10-K).10(j)
    
    Second amendment to Agreement of Limited Partnership of PCS Nitrogen
Fertilizer, L.P. dated December 15, 2002, incorporated by reference to
Exhibit 10(i) to the 2002 Form 10-K.10(k)
    
    Third amendment to Agreement of Limited Partnership of PCS Nitrogen
Fertilizer, L.P. dated December 15, 2003, incorporated by reference to
Exhibit 10(k) to the Second Quarter 2004 Form 10-Q.10(l)
    
    Geismar Complex Services Agreement dated June 4, 1984, between
Honeywell International, Inc. and Arcadian Corporation, incorporated by
reference to Exhibit 10.4 to Arcadian Corporations Registration
Statement on Form S-1 (File No. 33-34357).10(m)
    
    Esterhazy Restated Mining and Processing Agreement dated January 31,
1978, between International Minerals & Chemical Corporation (Canada)
Limited and the registrants predecessor, incorporated by reference to
Exhibit 10(e) to the F-1 Registration Statement.10(n)
    
    Agreement dated December 21, 1990, between International Minerals &
Chemical Corporation (Canada) Limited and the registrant, amending the
Esterhazy Restated Mining and Processing Agreement dated January 31,
1978, incorporated by reference to Exhibit 10(p) to the registrants
report on Form 10-K for the year ended December 31, 1990.10(o)
    
    Agreement effective August 27, 1998, between International Minerals &
Chemical (Canada) Global Limited and the registrant, amending the
Esterhazy Restated Mining and Processing Agreement dated January 31,
1978 (as amended), incorporated by reference to Exhibit 10(l) to the
1998 Form 10-K.10(p)
    
    Agreement effective August 31, 1998, among International Minerals &
Chemical (Canada) Global Limited, International Minerals & Chemical
(Canada) Limited Partnership and the registrant assigning the interest
in the Esterhazy Restated Mining and Processing Agreement dated January
31, 1978 (as amended) held by International Minerals & Chemical
(Canada) Global Limited to International Minerals & Chemical (Canada)
Limited Partnership, incorporated by reference to Exhibit 10(m) to the
1998 Form 10-K.




---



##### Table of Contents



ExhibitNumber
    
    Description of Document10(q)
    
    Operating Agreement dated May 11, 1993, between BP Chemicals Inc. and
Arcadian Ohio, L.P., as amended by the First Amendment to the Operating
Agreement dated as of November 20, 1995, between BP Chemicals Inc. and
Arcadian Ohio, L.P. (the First Amendment), incorporated by reference
to Exhibit 10.2 to Arcadian Partners L.P.s current report on Form 8-K
for the report event dated May 11, 1993, except for the First Amendment
which is incorporated by reference to Arcadian Corporations report on
Form 10-K for the year ended December 31, 1995.10(r)
    
    Second Amendment to Operating Agreement between BP Chemicals, Inc. and
Arcadian Ohio, L.P., dated as of November 25, 1996, incorporated by
reference to Exhibit 10(k) of the registrants report on Form 10-K for
the year ended December 31, 1997 (the 1997 Form 10-K).10(s)
    
    Manufacturing Support Agreement dated May 11, 1993, between BP
Chemicals Inc. and Arcadian Ohio, L.P., incorporated by reference to
Exhibit 10.3 to Arcadian Partners L.P.s current report on Form 8-K for
the report event dated May 11, 1993.10(t)
    
    First Amendment to Manufacturing Support Agreement dated as of November
25, 1996, between BP Chemicals, Inc. and Arcadian Ohio, L.P.,
incorporated by reference to Exhibit 10(l) to the 1997 Form 10-K.10(u)
    
    Letter of amendment to the Manufacturing Support Agreement and
Operating Agreement dated September 8, 2003, between BP Chemicals Inc.
and PCS Nitrogen Ohio, L.P., incorporated by reference to Exhibit 10(s)
to the Third Quarter 2003 Form 10-Q.10(v)
    
    Potash Corporation of Saskatchewan Inc. Stock Option Plan  Directors,
as amended January 23, 2001, incorporated by reference to Exhibit
10(bb) to the Second Quarter 2001 Form 10-Q.10(w)
    
    Potash Corporation of Saskatchewan Inc. Stock Option Plan  Officers
and Employees, as amended January 23, 2001, incorporated by reference
to Exhibit 10(aa) to the 2000 Form 10-K.10(x)
    
    Short-Term Incentive Plan of the registrant effective January 2000, as
amended March 10, 2005, incorporated by reference to Exhibit 10(x) to
the registrants report on Form 10-K for the year ended December 31,
2004, filed with the Commission on March 11, 2005 (the Original 2004
Form 10-K).10(y)
    
    Long-Term Incentive Plan of the registrant effective January 2000,
incorporated by reference to Exhibit 10(aa) to the registrants report
on Form 10-Q for the quarterly period ended June 30, 2000 (the Second
Quarter 2000 Form 10-Q).10(z)
    
    Long-Term Incentive Plan of the registrant effective January 2003,
incorporated by reference to Exhibit 10(y) to the 2002 Form 10-K.10(aa)
    
    Resolution and Forms of Agreement for Supplemental Retirement Income
Plan, for officers and key employees of the registrant, incorporated by
reference to Exhibit 10(o) to the 1995 Form 10-K.10(bb)
    
    Amending Resolution and revised forms of agreement regarding
Supplemental Retirement Income Plan of the registrant, incorporated by
reference to Exhibit 10(x) to the registrants report on Form 10-Q for
the quarterly period ended June 30, 1996.10(cc)
    
    Amended and restated Supplemental Retirement Income Plan of the
registrant and text of amendment to existing supplemental income plan
agreements, incorporated by reference to Exhibit 10(mm) to the
registrants report on Form 10-Q for the quarterly period ended
September 30, 2000 (the Third Quarter 2000 Form 10-Q).10(dd)
    
    Form of Letter of amendment to existing supplemental income plan
agreements of the registrant dated November 4, 2002, incorporated by
reference to Exhibit 10(cc) to the 2002 Form 10-K.10(ee)
    
    Supplemental Retirement Benefits Plan for U.S. Executives dated
effective January 1, 1999, incorporated by reference to Exhibit 10(aa)
to the Second Quarter 2002 Form 10-Q.10(ff)
    
    Forms of Agreement dated December 30, 1994, between the registrant and
certain officers of the registrant, concerning a change in control of
the registrant, incorporated by reference to Exhibit 10(p) to the 1995
Form 10-K.10(gg)
    
    Form of Agreement of Indemnification dated August 8, 1995, between the
registrant and certain officers and directors of the registrant,
incorporated by reference to Exhibit 10(q) to the 1995 Form 10-K.




---



##### Table of Contents



ExhibitNumber
    
    Description of Document10(hh)
    
    Resolution and Form of Agreement of Indemnification dated January 24,
2001, incorporated by reference to Exhibit 10(ii) to the 2000 Form
10-K.10(ii)
    
    Resolution and Form of Agreement of Indemnification  July 21, 2004,
incorporated by reference to Exhibit 10(ii) to the Second Quarter 2004
Form 10-Q.10(jj)
    
    Chief Executive Officer Medical and Dental Benefits, incorporated by
reference to Exhibit 10(jj) to the Original 2004 Form 10‐K.10(kk)
    
    Second Amended and Restated Membership Agreement dated January 1, 1995,
among Phosphate Chemicals Export Association, Inc. and members of such
association, including Texasgulf Inc., incorporated by reference to
Exhibit 10(t) to the 1995 Form 10‐K.10(ll)
    
    International Agency Agreement dated January 1, 1995, between Phosphate
Chemicals Export Association, Inc. and Texasgulf Inc. establishing
Texasgulf Inc. as exclusive marketing agent for such associations wet
phosphatic materials, incorporated by reference to Exhibit 10(u) to the
1995 Form 10-K.10(mm)
    
    Deferred Share Unit Plan for Non-Employee Directors, incorporated by
reference to Exhibit 4.1 to the registrants Form S-8 (File No.
333-75742) filed December 21, 2001.11
    
    Statement re Computation of Per Share Earnings.12
    
    Computation of Ratio of Earnings to Fixed Charges, incorporated by
reference to Exhibit 12 to the Original 2004 Form 10-K.13
    
    2004 Annual Report.*21
    
    Subsidiaries of the registrant, incorporated by reference to Exhibit 21
to the Original 2004 Form 10-K.23
    
    Consent of Deloitte & Touche LLP.31(a)
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31(b)
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.99
    
    2005 Notice of Meeting, Proxy Circular and Form of Proxy.**