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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

For the fiscal year ended December 31, 2002

Potash Corporation of Saskatchewan Inc.

122 – 1st Avenue South

Securities registered pursuant to Section 12(b) of the Act:

The Common Shares are also listed on The Toronto Stock Exchange in Canada

Securities registered pursuant to Section 12(g) of the Act: none

          Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

          Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

          Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  Yes x  No o

          At June 28, 2002, the aggregate market value of the 51,972,957 Common Shares held by non-affiliates of the registrant was approximately $3,466,596,296.

          At March 15, 2003, the registrant had 52,094,982 Common Shares outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

          Portions of the registrant’s Annual Report to Shareholders for the fiscal year ended December 31, 2002 (the “2002 Annual Report”), filed as Exhibit 13, are incorporated by reference into Part II.

          Portions of the registrant’s Proxy Circular for its Annual Meeting of Shareholders to be held on May 8, 2003 (the “2003 Proxy Circular”), attached as Exhibit 99, are incorporated by reference into Part III.

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PART I

ITEMS 1 and 2.     Business and Properties.

General

      Potash Corporation of Saskatchewan Inc. (“PCS”) and its direct and indirect subsidiaries (together with PCS’s predecessors, the “Company”) is one of the world’s largest integrated fertilizer and related industrial and feed products companies. The Company is the largest potash producer worldwide by capacity. In 2002, the Company’s potash operations represented an estimated 15% of global production, 23% of global potash capacity and 65% of global potash excess capacity. The Company is the fourth largest producer of phosphates worldwide by capacity. In 2002, its phosphate operations represented an estimated 5% of world phosphoric acid production and 6% of world phosphoric acid capacity. The Company is the second largest producer of nitrogen products in the Western Hemisphere. In 2002, its nitrogen operations represented an estimated 3% of world ammonia production.

      The Company’s potash operations pull potash from six mines in Saskatchewan, five of which it owns and operates, and one mine in New Brunswick, which it owns and operates. The Company also has a potassium nitrate production facility in Chile.

      The Company’s phosphate operations include the manufacture and sale of solid and liquid phosphate fertilizers, animal feed supplements and purified phosphoric acid, which is used in food products and industrial processes. The Company believes that its North Carolina plant is the world’s largest vertically integrated phosphate mine and processing plant. The Company also has a phosphate mine and two chemical plant complexes in northern Florida, four stand alone phosphate feed plants in the United States and one feed plant in Brazil. In addition, the Company produces a variety of phosphate products at its Geismar, Louisiana facility.

      The Company’s nitrogen operations involve the production of nitrogen fertilizers and nitrogen chemicals, including ammonia, urea, nitrogen solutions, ammonium nitrate and nitric acid. The Company operates nitrogen facilities in Georgia, Louisiana, Ohio, Tennessee and Trinidad.

      Through Florida Favorite Fertilizer in Florida and Farmer’s Favorite Fertilizer in Georgia and Alabama, the Company manufactures, processes and distributes fertilizer and other agricultural supplies from plants located in Florida, Alabama and Georgia.

      PCS is organized under the laws of Canada. The principal executive offices are located at 122 – 1st Avenue South, Suite 500, Saskatoon, Saskatchewan, Canada S7K 7G3, telephone: (306) 933-8500.

History

      PCS is a corporation continued under the Canada Business Corporations Act and is the successor to a corporation without share capital established by the Province of Saskatchewan in 1975. Between 1976 and 1990, the Company acquired substantial interests in the Saskatchewan potash industry. It purchased the Cory mine in 1976, the Rocanville and Lanigan mines in 1977, and, by 1990, 100% of the Allan mine when the Company acquired all of the outstanding shares of Saskterra Fertilizers Ltd. In addition, in 1978 the Company acquired reserves at Esterhazy, which are mined by a third party.

      In 1989, the Company was privatized by the Province of Saskatchewan. While the Province initially retained an ownership interest in the Company, this interest had been reduced to zero by the end of 1993. In 1993, the Company acquired from Rio Algom Limited (“Rio”) its New Brunswick potash mine and port facilities and its Patience Lake mine in Saskatchewan (the “Rio Acquisition”).

      In 1995, the Company purchased all of the outstanding shares of Texasgulf Inc., a phosphate fertilizer and feed producer, from Elf Aquitaine, Inc. (“Elf (USA)”) and Williams Acquisition Holding Company, Inc. (“Williams”). At the time of the acquisition, the name Texasgulf Inc. was changed to PCS Phosphate Company, Inc. (“PCS Phosphate”).

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      In 1995, the Company purchased all of the outstanding shares of White Springs Agricultural Chemicals, Inc. (“White Springs”), a phosphate fertilizer and feed producer, from Occidental Chemical Corporation (“OxyChem”).

      In 1997, the Company through its subsidiary PCS Nitrogen, Inc. (“PCS Nitrogen”) acquired all of the outstanding shares of Arcadian Corporation, a producer of nitrogen fertilizer, industrial and feed products.

      In 1998, the Company acquired the potash mill facility located at Clover Hill, New Brunswick. The facility is operated as PCS Cassidy Lake.

      In 1998, the Company purchased, pursuant to a public offering by the State of Israel, 108,359,925 Ordinary Shares of Israel Chemicals Ltd. (“ICL”) for approximately $92 million. This purchase represents approximately 9% of the issued and outstanding Ordinary Shares of ICL. Through its subsidiaries, ICL is a potash, phosphate and bromine producer and is also involved in other specialty chemical products.

      In 1999, the Company purchased all of the outstanding shares of Minera Yolanda SCM, a Chilean sodium nitrate and potassium nitrate producer for approximately $37 million. At the time of the acquisition, the name was changed to PCS Yumbes SCM (“PCS Yumbes”).

      In March 2000, the Company completed the purchase of an animal feed plant in Brazil from Mitsui Company. The plant is capable of producing 110,000 tonnes per annum of animal-feed phosphate.

      In March 2000, the Company completed a transaction with Rhodia Inc. (“Rhodia”) to acquire the remaining 50% ownership interest in a phosphoric acid joint venture company formerly called Albright & Wilson Company for approximately $42 million. Upon closing of the transaction, the partnership was renamed PCS Purified Phosphates. The Company and Albright & Wilson Americas Inc. had been operating the business as a 50/50 partnership. Upon completion of the transaction, the Company became the 100% owner of the purified acid plant and blending plant in Aurora, North Carolina and the technical and food grade phosphate plant in Cincinnati, Ohio. Rhodia retained a polyphosphoric acid production unit in Charleston, South Carolina.

      In October 2001, the Company purchased, pursuant to a public auction, approximately 48 million Class A shares of Sociedad Química y Minera de Chile S.A. (“SQM”), a Chilean company, for an aggregate purchase price of approximately 91.5 billion Chilean pesos (approximately US $129 million). The purchase represented approximately 34% of the issued and outstanding Class A shares of SQM and approximately 18% of the total issued and outstanding equity (Class A and Class B) of SQM. In April and May of 2002, the Company purchased an additional 5.3 million shares of SQM for approximately $22 million, bringing ownership to approximately 37.5% of the outstanding Class A shares and approximately 20% of the total issued and outstanding Class A and Class B shares. SQM is in the specialty fertilizer, iodine and lithium businesses.

      In March 2002, the Company purchased a 163,000 tonne animal feed plant in Joplin, Missouri from Farmland Industries, Inc. together with a related animal feed distribution business from Land O’Lakes Farmland Feeds, LLC.

Presentation of Financial Information

      The Company has three principal business segments: potash, phosphate and nitrogen. For information with respect to the net sales, operating income and assets attributable to each segment and to the Company’s domestic and international sales, see Note 16 to the Company’s audited consolidated financial statements as at December 31, 2002 and 2001 and for each of the three years ended December 31, 2002 (together with the Notes thereto, the “Consolidated Financial Statements”), incorporated by reference under Item 8.

      The Company presents its financial statements in accordance with accounting principles generally accepted in Canada (“Canadian GAAP”). See Note 29 to the Consolidated Financial Statements for a discussion of certain significant differences between Canadian GAAP and accounting principles generally accepted in the United States as they relate to the Company.

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      Unless otherwise specified, financial information is presented in U.S. dollars.

Forward-Looking Statements

      This document, including the documents incorporated by reference, contain “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 that relate to future events or the Company’s future financial performance. Statements containing words such as “could”, “expect”, “may”, “anticipate”, “believe”, “intend”, “estimate”, “plan” and similar expressions constitute forward-looking statements. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws.

      Forward-looking statements are subject to important risks, uncertainties and assumptions that are difficult to predict. The results or events predicted in forward-looking statements may differ materially from actual results or events. Some of the factors that could cause actual results or events to differ from current expectations include the following:

	•	fluctuations in supply and demand for fertilizer, including fluctuations as a result of economic or political conditions in the Company’s markets, which can cause volatility in the prices of the Company’s fertilizer products;
	•	changes in competitive pressures, including pricing pressure;
	•	unexpected or adverse weather conditions, which can impact demand for fertilizer and timing of fertilizer sales during the year;
	•	volatility in the price of natural gas, which is the primary raw material used for the Company’s nitrogen products, and risks associated with the Company’s continued ability to manage natural gas costs in the United States through hedging activities;
	•	fluctuations in the prices and availability of other raw materials, including sulfur, which is a primary input in the Company’s phosphate operations;
	•	unexpected mining conditions, which could change the Company’s costs of production for potash and phosphates or cause changes in reserve estimates;
	•	changes in capital markets and in currency and exchange rates;
	•	the outcome of legal proceedings;
	•	changes in government regulations, including environmental regulations, which could increase the Company’s costs of compliance and otherwise affect the business; and
	•	acquisitions the Company may undertake in the future.

      The Company sells to a diverse group of customers both by geography and by end product. Market conditions will vary on a year-over-year basis, and sales can be expected to shift from one period to another.

      As a result of these and other factors, there is no assurance that any of the events, circumstances or results anticipated by forward-looking statements included or incorporated by reference into this document will occur or, if they do, of what impact they will have on the Company’s business or on its results of operations and financial condition.

Where You Can Find More Information

      The Company files annual, quarterly and current reports and other information with the Securities and Exchange Commission. You may read and copy any of the information on file with the Commission at the Commission’s Public Reference Room, 450 Fifth Street, N.W., Room 1024, Washington, DC 20549. Please call the Commission at 1-800-SEC-0330 for further information on the public reference room. In addition, the Commission maintains an Internet site at http://www.sec.gov that contains reports, proxy and information

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      The Company makes available, free of charge through its website, http://www.potashcorp.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as is reasonably practicable after such material is electronically filed with or furnished to the Commission. The information on the Company’s website is not incorporated by reference into this report on Form 10-K.

Potash Operations

      The Company’s potash operations include the mining and production of potash, which is predominantly used as fertilizer.

Properties

      The Company controls the right to mine 614,530 acres of land in Saskatchewan. Included in these holdings are mineral rights to 507,775 acres contained in blocks around the six mines in which the Company has an interest, of which acres approximately 36% are owned by the Company, approximately 50% are under lease from the Province of Saskatchewan and approximately 14% are leased from other parties. The majority of the leases are for 21-year terms, renewable at the Company’s option. The Company’s remaining 106,755 acres are located elsewhere in Saskatchewan.

      Potash is mined by the Company from two main potash bearing formations in Saskatchewan: the Patience Lake member of the prairie evaporites in the north and the Esterhazy member of the prairie evaporites in the south. The Patience Lake member is mined at the Lanigan, Allan, Patience Lake and Cory mines, and the Esterhazy member is mined at the Rocanville and Esterhazy mines.

      Under a long-term mining and processing agreement (the “Mining and Processing Agreement”) effective through December 31, 2026, IMC Esterhazy Canada Limited Partnership (“IMC”) mines and processes PCS reserves at the Esterhazy mine. PCS has the option to terminate this agreement every five years. The next opportunity to terminate is December 31, 2006, for which notice must be given no later than June 30, 2006. IMC has the option to abandon the mine at any time after December 31, 2011, thus terminating the Mining and Processing Agreement. In each year the maximum finished product the Company is permitted to take under the Mining and Processing Agreement is 952,500 tonnes and the minimum required amount is 453,600 tonnes. For the year ending December 31, 2003, the Company has notified IMC that it requires 952,500  tonnes of finished product. Water inflow at the Esterhazy mine has continued, to a greater or lesser degree, since December 1985. Substantial pumping capacity has been installed and remedial efforts have been undertaken. The Company shares, on an annual basis, in such water inflow remediation costs.

      Potash is also produced by the Company at its mine near Sussex, New Brunswick from the flank of an elongated salt structure. Granular product is also produced by the Company at its Cassidy Lake, New Brunswick facility (“Cassidy Lake Facility”) using standard grade product from certain of the Company’s other mine sites. The Company also holds an interest in certain oil and gas rights within the vicinity of the New Brunswick mine. Natural gas has been discovered and the Company, in conjunction with Corridor Resources Inc., is continuing investigations with a view to determining the extent, nature and commercial viability of the gas discovery. The Company expects to be able to use gas produced from the discovery in its processing facility at the New Brunswick mine by mid-2003. During the investigation for natural gas in the vicinity of the Sussex division, potash was detected to the south and east of the existing mine operations. Exploration permits have been obtained and preliminary seismic and drilling took place in 2002. The Company is exploring the potash ore reserve for possible future development.

      PCS Yumbes, acquired in 1999, holds mining concessions on certain sodium nitrate reserves in the Atacama desert in northern Chile. The production facility has been designed to produce 0.285 million tonnes of potassium nitrate, 0.060 million tonnes of sodium nitrate and 360 tonnes of iodine per year at full

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Production

      The Company produces potash using both conventional and solution mining methods. In conventional operations, shafts are sunk to the ore body and mining machines cut out the ore, which is lifted to the surface for processing. In solution mining, the potash is dissolved in a warm brine and pumped to the surface for processing. Approximately 20 grades of potash are produced to suit preferences of the various markets.

      In 2002, the Company’s conventional potash operations mined 19.7 million tonnes of ore at an average grade of 22.7% potassium oxide (K₂O). In 2002, the Company’s potash production consisted of 6.45 million tonnes of potash (KCl) with an average grade of 61.05% K₂O, representing 42% of North American production.

      The Company’s present annual potash production capacity is approximately 12.1 million tonnes KCl, which includes maximum annual production under the Mining and Processing Agreement with IMC of 952,500 tonnes at Esterhazy. In 2002, the Company’s production capacity represented an estimated 55% of the North American total while its excess capacity was an estimated 83.3% of North American excess production capacity. The Company allocates production among its mines on the basis of various factors, including the grades of product which can be produced and cost efficiency. The Patience Lake mine, which was originally a conventional underground mine, now employs a solution mining method, while the other Saskatchewan mines which the Company owns or in which it has an interest employ conventional underground mining methods.

      The New Brunswick mine is a conventional cut and fill mine. In addition to potash production, this mine also produced .54 million tonnes of sodium chloride (salt) in 2002. The Company continues to incur costs at the New Brunswick division in relation to management of a brine inflow.

      As part of the Rio Acquisition, the Company granted a royalty interest to Rio based upon production and revenue from the New Brunswick and Patience Lake potash mines and mills (the “Royalty”). The terms of the Royalty provide that if production meets specified base production levels or the sales of potash are at prices which meet specified base sales prices, a royalty per tonne is to be paid, calculated on a formula basis. Payments under the Royalty are limited to a term expiring December 31, 2003 and to a maximum aggregate payment of Cdn$50 million. No payments have been made in respect of the Royalty to date.

Reserves

      The Company estimates that its conventional mines in Saskatchewan contained 4.63 billion tonnes of recoverable ore at an average grade of 23.06% K₂O as at December 31, 2002, and that such ore will yield 1.4 billion tonnes of finished product (KCl) at an average grade of 60% K₂O.

      The Company’s ore reserve estimates for its conventional mining operations in Saskatchewan are based on exploration drill hole data, seismic data and actual mining results during the past 25 years. The Company’s estimated recoverable ore and the estimated volumes of finished product from such ore as of December 31, 2002 are as follows:

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      The Company believes that, with production rates at full capacity and utilizing current technology, each of the Allan, Cory and Lanigan mines has a reserve life in excess of 100 years, the Rocanville mine has a reserve life in excess of 84 years, and that the Esterhazy mine has a reserve life of at least 17 years.

      Given the characteristics of the solution mining method employed at the Patience Lake mine, it is not possible to estimate definitively the productive capacity of or the recoverable ore from this operation. However, based on information obtained upon the acquisition of the mine, current technology and the present mining area for this operation, the Company believes that the mine has a reserve life of at least 40 years for the existing mine workings. Different techniques will have to be utilized to mine reserves outside of the existing mine workings.

      Based on geophysics, exploration drill hole data, definition drilling underground and actual mining results, the Company estimates proven reserves of 36.3 million tonnes of recoverable ore and 11.9 million tonnes of estimated finished product (KCl) at its New Brunswick mine. The Company believes that, based upon its proven reserves, the New Brunswick mine has a reserve life of approximately 15 years with production at full capacity. The Company estimates that probable reserves at the New Brunswick mine consist of 158.3 million tonnes of recoverable ore and 51.7 million tonnes of estimated finished product (KCl). The Company believes that, based upon its proven and probable reserves, the New Brunswick mine has a reserve life in excess of 80 years at full production capacity and utilizing current technology.

Phosphate Operations

      The Company mines phosphate ore and manufactures solid and liquid fertilizers, animal feed supplements and purified phosphoric acid which is used in food products and industrial processes.

Properties

      The Company conducts its phosphate operations primarily at two facilities, one a 35,000-acre facility near Aurora, North Carolina and the other a 96,000-acre facility near White Springs in northern Florida. The Company believes the Aurora facility to be the largest integrated phosphate mine and phosphate processing complex at one site in the world. The Aurora facility, having an annual P₂O₅ capacity of 1.2 million tonnes, includes a six million tonne per-year mining operation, four sulfuric acid plants, four phosphoric acid plants, a purified acid plant, a liquid fertilizer (11-37-0) plant, a superphosphoric acid plant, two diammonium phosphate (“DAP”) plants and a solid fertilizer plant capable of producing DAP, granular triple superphosphate (“GTSP”) or monoammonium phosphate (“MAP”). Expansion of the Company’s purified phosphoric acid production plant at Aurora was completed in the first quarter of 2003. The expansion increased capacity by 83,000 tonnes to 251,000 tonnes P₂O₅. The Company’s new 159,000 tonne DFP animal feed plant commenced commercial production during the fourth quarter of 2002.

      The White Springs facility is the third largest P₂O₅ producer, by capacity, in the United States, with an annual capacity of 1.1 million tonnes. The White Springs facility includes a mine and two production facilities, Suwannee River and Swift Creek, with two sulfuric acid plants, three phosphoric acid plants, two DAP plants, a superphosphoric acid plant, a dicalcium phosphate plant and a defluorinated phosphate rock plant located at the Suwannee River complex and two sulfuric acid plants and a phosphoric acid plant and superphosphoric plant located at the Swift Creek complex. At its Geismar, Louisiana facility, the Company manufactures a variety of phosphate products that are used for agricultural and industrial purposes. The Geismar facility has a sulfuric acid plant, a phosphoric acid plant, a superphosphoric acid plant, and a liquid fertilizer (11-37-0) plant. A significant portion of the phosphoric acid produced at the Geismar facility is sold as feedstock to Rhodia for use in its neighboring purified acid plant. The Company’s other phosphate properties include animal feed plants in Kinston, North Carolina; Marseilles, Illinois; Weeping Water, Nebraska; Joplin, Missouri and Sao Vincente, Brazil; a technical and food grade phosphate plant in Cincinnati, Ohio; and terminal facilities at Morehead City, North Carolina and Savannah, Georgia. The Kinston plant ceased production during the first quarter of 2003.

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      During fourth quarter of 2002, the Company resumed DAP production at White Springs following an extended shutdown which began in January 2001. The facility is expected to produce approximately 645,000 tonnes of DAP in 2003.

Production

      The Company extracts phosphate ore using surface mining techniques. At each mine site, the ore is mixed with recycled water to form a slurry, which is pumped from the mine site to the Company’s processing facilities. The ore is then screened to remove coarse materials, washed to remove clay and floated to remove sand to produce phosphate “rock”. The annual production capacity of the Company’s mines is currently 9.6 million tonnes of phosphate rock. During 2002, the Aurora facility’s total production of phosphate rock was 3.4 million tonnes and the White Springs facility’s total production of phosphate rock was 1.5 million tonnes. The sequence for mining portions of the Aurora property has been identified in the permit issued by the U.S. Army Corps of Engineers in 1997. In recent years, the Company has been mining in an area of non-optimal mining conditions. The quality and condition of the ore has been relatively inferior to ore previously mined at the Aurora facility. This, combined with the general configuration of the area, has not allowed for more efficient use of the Company’s mining equipment and technology. In 2001, the Company moved about one-half of the mining operation into an area believed to hold ore superior in thickness and quality, located closer to the Company’s chemical plants, and configured so as to generally allow more efficient use of Company mining equipment and technology. Movement of the entire mining operations into this area was completed in late 2002.

      Phosphate rock is the major input in the Company’s phosphorus processing operations. Substantially all of the phosphate rock produced by the Company is used internally for the production of phosphoric acid, superphosphoric acid (“SPA”), chemical fertilizers, purified phosphoric acid and animal feed products. The Geismar facility is not located near a mine. Presently the Geismar facility purchases phosphate rock from Morocco pursuant to a long-term agreement with a Moroccan government-owned company, wherein prices are reset at prescribed dates through negotiation.

      In addition to phosphate ore, the principal raw materials required by the Company are sulfur, sulfuric acid and ammonia. The production of phosphoric acid requires substantial quantities of sulfur, which the Company purchases from third parties. In December 1997, the Company entered into a ten-year supply contract with an offshore supplier to supply a portion of the Company’s sulfur requirements. In connection therewith, the Company built a multipurpose ocean-going vessel to ship such sulfur and to handle sulfuric acid, phosphoric acid and other chemicals. The Company produces sulfuric acid at the Aurora facility, White Springs facility and Geismar facility and purchases additional sulfuric acid from unaffiliated sellers. The Company also transports surplus production of sulfuric acid at the White Springs facility to the Aurora facility as needed.

      The Company’s phosphate operations purchase all of its ammonia from or through PCS Nitrogen and PCS Sales (USA), Inc., which are wholly owned subsidiaries of the Company. Phosphoric acid is reacted with ammonia to produce DAP and MAP as well as liquid fertilizers. In addition, ammonia operations include the purchase, sale and terminalling of anhydrous ammonia. Most of the ammonia that the Company purchases from third parties is produced in the Former Soviet Union (“FSU”) and imported through a Company operated ammonia terminal located within the port of Savannah (Garden City, Georgia).

      The Company produces merchant grade phosphoric acid (MGA) at Aurora, White Springs, and Geismar. Some MGA is sold to foreign and domestic fertilizer producers and industrial customers. The balance of the MGA is further processed by the Company to make solid fertilizer (primarily DAP), liquid fertilizers, animal feed supplements for the poultry and livestock markets, and purified phosphoric acid for use in a wide variety of food, technical and industrial applications.

Reserves

      At December 31, 2002, the Company’s Aurora phosphate mine had estimated proven and probable reserves of approximately 369 million tonnes of phosphate rock, at an average grade of 30.7% P₂O₅. These

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      The White Springs phosphate mine has estimated proven and probable reserves of approximately 52 million tonnes of phosphate rock, at an average grade of 30.7% P₂O₅. The Company estimates that additional reserves equivalent to 6 million tonnes of phosphate rock could be purchased at market rates from nearby owners. Accordingly, the total reserves and available purchase rock of 58 million tonnes of phosphate rock at White Springs would sustain the mine for 16 years at a mining rate of 3.6 million tonnes per year. The White Springs mine has an estimated annual capacity of 3.6 million tonnes of phosphate rock and the processing plants have the capacity to produce annually 1.1 million P₂O₅ tonnes of phosphoric acid.

Nitrogen Operations

      The Company’s nitrogen operations include production of nitrogen fertilizers and nitrogen chemicals. These products are used for agricultural, industrial and animal nutrition purposes.

Properties

      PCS Nitrogen manufactures nitrogen products at five facilities, of which four are located in the United States and one is located in Trinidad. The following table sets forth the facility locations and production capabilities:

Production

      Unlike potash and phosphate, nitrogen is not mined. It is taken from the air and reacted with a hydrogen source, usually natural gas reformed with steam, to produce ammonia. PCS Nitrogen produces ammonia at all domestic plants and in Trinidad. The ammonia is used to produce a full line of upgraded nitrogen products, including urea, nitrogen solutions, ammonium nitrate and nitric acid. Ammonia, urea, ammonium nitrate and nitrogen solutions are sold as fertilizers to agricultural customers and to industrial customers for various applications, while nitric acid is sold to industrial customers as an intermediate chemical feedstock. Urea is also sold for animal feed applications.

Service Agreements

      The Geismar plant is integrated with a larger chemical manufacturing complex owned by Honeywell International, Inc. (“Honeywell”). PCS Nitrogen and Honeywell have an agreement to provide certain support services to each other, including the provision of utilities, the discharge of wastewater, security, dock and emergency services, and other essential services.

      BP Chemicals, Inc. (“BPC”) operates the Lima plant on PCS Nitrogen’s behalf under an operating agreement that can be terminated by either party with nine months’ notice. PCS Nitrogen’s payments to BPC

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      At Augusta, PCS Nitrogen uses contract labor personnel provided by Augusta Services Company, Inc., which is owned 50% by PCS Nitrogen and 50% by DSM Chemicals North America, Inc., to provide purchasing, stores and spare parts management, maintenance, repair, shipping and certain other services for the Augusta plant.

      Despite the Company’s belief that most of the services described above are available from other sources, the termination of or the need to replace certain of those services (such as steam, well water supply and dock services) could, in the aggregate, involve potentially significant capital expenditures, increased operating costs and disruption to the operation of the affected plant.

Raw Materials

      Natural gas is the primary raw material used for the production of ammonia and, as a result, virtually all of PCS Nitrogen’s other nitrogen products. For 2002, the purchase and transportation of natural gas accounted for approximately 54% of PCS Nitrogen’s total domestic production cost. PCS Nitrogen’s domestic gas requirements comprise approximately 50% of its total gas requirements. PCS Nitrogen’s current natural gas strategy is to purchase approximately one-half of its domestic natural gas in the spot market or on short-term contracts and approximately one-half of its domestic natural gas pursuant to fixed-price physical contracts or forward contracts which fix the price of future deliveries. The remaining approximately 50% of its natural gas is purchased in Trinidad using pricing formulas related to the market price of ammonia. With the exception of the Trinidad facility, PCS Nitrogen purchases most of its natural gas from producers or marketers at the point of delivery of the natural gas into the pipeline system, then pays the pipeline company and, where applicable, the local distribution company to transport the natural gas to PCS Nitrogen’s facilities. Approximately 75% of PCS Nitrogen’s domestic consumption of natural gas is delivered pursuant to firm transportation contracts which do not permit the pipeline or local distribution company to interrupt service to, or divert natural gas from, the plant.

PCS Joint Venture

      The Company indirectly holds all outstanding interests in a limited partnership (the “PCS Joint Venture”) doing business in Florida as Florida Favorite Fertilizer and in Georgia and Alabama as Farmer’s Favorite Fertilizer. Potash Corporation of Saskatchewan (Florida), Inc. is the general partner of PCS Joint Venture. PCS Joint Venture manufactures, processes and distributes fertilizer and other agricultural supplies from plants located in Florida, Alabama and Georgia.

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Marketing

      The following table summarizes the Company’s net sales from potash, phosphate and nitrogen products (by geographical distribution) in the past three calendar years:

(1)	Data for 2000 and 2001 does not include PCS Yumbes which was accounted for on a pre-production basis in those years.
(2)	See discussion below for information regarding sales of Canpotex Limited and PhosChem.

      The following table summarizes the Company’s net sales from potash, phosphate and nitrogen products, by category of product, in the past three calendar years:

(1)	Data for 2000 and 2001 does not include PCS Yumbes which was accounted for on a pre-production basis in those years.
(2)	Other includes ammonium nitrate, nitric acid and carbon dioxide.

      For further financial information about the Company’s business segments and domestic and international sales, see Note 16 to the Consolidated Financial Statements.

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      The Company has a diversified customer base, and apart from sales to Canpotex Limited (“Canpotex”), no one customer accounted for more than 10% of the Company’s sales in 2002.

      Potash from the Company’s Saskatchewan mines produced for use outside North America is sold exclusively to Canpotex. PCS Sales (Canada) Inc. executes offshore marketing and sales for the Company’s New Brunswick potash and executes marketing and sales for the Company’s potash, phosphate and nitrogen products in Canada. PCS Sales (USA), Inc. executes marketing and sales for the Company’s potash, phosphate and nitrogen products in the United States. PCS Sales (USA), Inc. also generally executes international marketing and sales of the Company’s potassium and sodium nitrate products. PhosChem, an association formed under the U.S. Webb-Pomerene Act, is the principal vehicle through which the Company executes offshore marketing and sales for its phosphate fertilizers. See “Offshore Marketing”.

      At December 31, 2002, the Company’s sales and transportation and distribution functions were handled by 187 employees in Chicago, Illinois and various other locations in the United States and Brazil, and 15 employees in Saskatoon, Saskatchewan.

North American Marketing

      In 2002, North American net sales from potash products represented 12% of the Company’s total net sales, substantially all of which was attributable to potash customers in the United States. Typically, North American potash sales of the Company are greatest in the first half of the year. The vast majority of sales are made on the spot market with the balance made under short-term contracts. The Company has no material contractual obligations in connection with North American sales to sell potash in the future at a fixed price.

      In 2002, North American net sales from phosphate products represented 28% of the Company’s total net sales, substantially all of which was attributable to phosphate customers in the United States. Typically, North American phosphate product sales are greatest in the first and second calendar quarters. In 2002, the majority of PCS Phosphate’s phosphate product sales were made on the spot market, with the balance made under short-term contracts (generally on an annual basis) and a limited number of sales made pursuant to multi-year contracts. The Company has no material contractual obligations in connection with North American sales to sell phosphate in the future at a fixed price.

      In 2002, North American net sales from nitrogen products represented 37% of the Company’s total net sales and PCS Nitrogen’s non-fertilizer products accounted for approximately 58% of PCS Nitrogen’s nitrogen revenue. Typically, North American nitrogen fertilizer sales are greatest in the second calendar quarter. In 2002, the majority of PCS Nitrogen’s nitrogen product sales were made on the spot market, with the balance made under short-term and multi-year contracts. The Company has no material contractual obligations in connection with North American sales to sell nitrogen in the future at a fixed price.

      Ammonia purchased by the Company is used in the Company’s operations and is sold to third party customers by PCS Sales (USA), Inc.

      The primary customers for fertilizer products are retailers, dealers, cooperatives, distributors and other fertilizer producers. Such retailers, dealers and cooperatives have both distribution and application capabilities. The primary customers for industrial products are chemical product manufacturers. The majority of the Company’s purified phosphoric acid is sold directly to consumers of the product, with the balance sold through an authorized non-exclusive distribution network.

Offshore Marketing

      Potash produced by the Company in Saskatchewan for sale outside North America is sold to Canpotex, which is owned in equal shares by the three potash producers in the Province of Saskatchewan (including the Company). Canpotex, which was incorporated in 1970 and commenced operations in 1972, acts as an export company and as a unified marketing force for all Saskatchewan potash production in the offshore marketplace. Each shareholder of Canpotex has an equal voting interest as a shareholder and through its nominees on the board of directors. The Company and the other shareholders of Canpotex have agreed that, as long as they are members of Canpotex, and with respect to potash produced in Canada, they will not make offshore sales

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      In general, Canpotex sales are allocated among the producers based on production capacity. If a shareholder cannot satisfy demand for potash by Canpotex, the remaining shareholders are entitled to satisfy the demand pro rata based on their allotted production capacity. The Company currently supplies 54.2% of Canpotex’s requirements. Canpotex sells potash to government agencies and private firms pursuant to six-month contracts at negotiated prices or by spot sales.

      The following table sets forth the percentage of sales by Canpotex for the past three calendar years in the various geographical regions:

      For 2002, sales to Canpotex represented 13% of the total net sales of the Company and net sales from offshore sales of potash from the New Brunswick mine, through PCS Sales (Canada) Inc., represented 3% of the total net sales of the Company. Canpotex’s marketing joint venture for certain offshore markets (outside North America and Europe) with JSC Uralkali, a Russian potash producer, continues.

      Since 1975, PhosChem has been the largest exporter of U.S. phosphate fertilizers. Currently, the members of PhosChem are PCS Phosphate, IMC Phosphates Company (“IMC-Phosphates”), a joint venture between IMC Global Inc. and Phosphate Resource Partners LLP, and Mississippi Phosphates Corporation (“MissChem”). The PhosChem members have agreed to export their fertilizer products exclusively through PhosChem, except for exports to Canada, any member state of the European Union or the European Economic Area, sales through the U.S. Agency for International Development Tenders and sales to certain buyers affiliated with members. Historically, PhosChem negotiated prices and other terms for the export sale of its members’ phosphate fertilizer products. According to the terms of a PhosChem agreement effective January 1, 1995, IMC-Phosphates is responsible for the marketing of solid fertilizers (DAP, MAP and GTSP), and PCS Phosphate, or its sales affiliate (PCS Sales (USA), Inc.), is responsible for the marketing of liquid fertilizer products (MGA) to export countries. Total sales for 2002 (on a P₂O₅ basis) were apportioned as follows: 81% to IMC-Phosphates; 7% to PCS Phosphate, and 12% to MissChem. The PhosChem agreement is renewed annually. If the PhosChem agreement is not renewed, the Company does not believe the disbanding of PhosChem would materially affect the Company’s sales of fertilizer, but there can be no assurance that, if PhosChem were to be disbanded, the Company would be able to find alternative outlets for its products or sell its products at prices or on terms similar to those expected to be obtained by PhosChem.

      Revenue from sales to PhosChem accounted for 2% of the Company’s total net sales in 2002. Other offshore phosphate sales accounted for 3% of the Company’s total net sales in 2002. All of the Company’s phosphate sales to China were made through PhosChem. Most of the Company’s sales of phosphate products to China are made to the central purchasing authority of the Chinese government. In 2002, 73% of PhosChem’s volume was in the form of DAP.

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      The following table sets forth the percentage of DAP sales of PhosChem for the past three calendar years in the various geographical regions:

      With respect to offshore sales of nitrogen, ammonia and urea, sales predominate and originate primarily from Trinidad, with other sales coming from purchased product locations. For 2002, net sales from offshore sales of nitrogen represented 2% of the net sales of the Company.

      Offshore sales are subject to those risks customarily encountered in foreign operations, including (i) fluctuations in foreign currency exchange rates, (ii) changes in currency and exchange controls, (iii) the availability of foreign exchange, (iv) laws, policies and actions affecting foreign trade and (v) other economic, political and regulatory policies of foreign governments.

Distribution and Transportation

      The Company has an extensive infrastructure and distribution system to transport and store its products. Other than storage facilities located at production plants, the Company used approximately 165 locations to store and handle its products in the field in 2002. The Company owns or leases in excess of 5,000 railcars.

      Transportation costs add significantly to the total amounts paid by purchasers of potash. Producers have a definite advantage in markets close to their sources of supply (e.g., Saskatchewan producers in the Midwestern United States, New Brunswick producers on the U.S. Eastern Seaboard and New Mexico producers in the Southern and Western United States). International shipping cost variances permit offshore producers (including those in the FSU, Germany, Israel and Jordan) to compete effectively in some of the Company’s traditional markets.

      Most of the Company’s potash for North American customers is shipped by rail. Shipments are also made by rail from each of the Company’s Saskatchewan mines to Thunder Bay, Ontario, for shipment by lake vessel to the Company’s warehouses and storage facilities in Canada and the United States.

      Potash from the New Brunswick mine is shipped primarily by ocean-going vessel from the Port of Saint John, although truck and rail transport are also used for North American customers.

      In the case of the Company’s sales to Canpotex, potash is transported by rail principally to Vancouver, British Columbia, where port facilities exist for storage pending shipment overseas. The Company has an equity interest in Canpotex Bulk Terminals Limited, which is a part owner of these port facilities. The Company, through Canpotex, also has an interest in a port facility located in Portland, Oregon.

      With respect to phosphates, the Company has long-term leases on shipping terminals in Morehead City and Beaufort, North Carolina, through which it receives and stores raw materials for, as well as the products manufactured by, the Aurora facility. The Company uses barges and tug boats to transport solid products, phosphoric acid, sulfuric acid and sulfur between the Aurora facility and Morehead City, North Carolina. Raw materials and products are also transported to and from the Aurora facility by rail. The Company transports sulfur it purchases from Canada primarily in large, dedicated unit trains. Both CSX Corporation and Norfolk Southern Corporation serve the Aurora facility. The Company also built a multi-purpose ocean going vessel to carry raw material and products to and from the Aurora facility. The Company receives ammonia for its phosphate operations at Aurora through its ammonia terminal in Savannah, Georgia; the ammonia is shipped by rail from Savannah to the Aurora facility.

      Sulfur is delivered to the White Springs facility, primarily by unit trains from Canada and by rail from multiple domestic sources. Until 1999 the Norfolk Southern Corporation was the only railroad providing

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      Much of the Geismar facility’s phosphoric acid and sulfuric acid is delivered via pipeline to nearby customers. The balance of the facility’s phosphate products are shipped by rail or tank truck. Phosphate rock feedstock is delivered to Geismar from Morocco in large ocean going vessels. Sulfur is delivered to the Geismar facility by truck and rail.

      The Company makes domestic deliveries of animal feed products (bulk and bagged) by rail or truck from its manufacturing facilities and from several warehouses supplied from its manufacturing facilities.

      The Company distributes its nitrogen products by barge, railcar, truck, and direct pipeline to its customers and through its strategically located storage terminals in high consumption areas. The Company leases or owns approximately 50 nitrogen terminal facilities with an aggregate storage capacity of approximately 450,000 tons of product. The terminals provide off-season storage and also serve local dealers during the peak seasonal demand period.

      The Company distributes products from the Trinidad plant to markets in Latin America and Europe in addition to the United States. The Company’s distribution operations in Trinidad employ two long-term chartered ocean-going vessels and utilizes short term and spot charters as necessary for the transportation of ammonia. All bulk urea production is shipped through third-party carriers.

      The Company distributes product from the Yumbes operation by truck within Chile and by vessel offshore. The production from the Brazilian feed plant is sold within Brazil and transported by truck.

Competition

      The markets for potash, both domestic and foreign, are highly competitive. Since potash is a commodity, producers must compete based on price and service (e.g., delivery time and ability to supply all grades). Apart from competitive pricing, the Company’s principal method of competition is the quality of service it provides to customers. Among other things, the Company provides quality service by maintaining warehouses and leasing railcars to enhance its delivery capability. The high cost of transporting potash limits competition in various areas.

      The Company’s potash competition includes three North American producers and potash producers located outside North America in the FSU, Israel, Jordan and Germany. Because of the high capital cost and lead time required to construct a new mine, the Company’s principal competition is expected to continue to come from the owners of existing operations.

      Many phosphate products, particularly solid fertilizers, are commodities, with little or no product differentiation, and thus trade on the basis of prices determined in highly competitive markets. The vast majority of the U.S. phosphate rock not mined by the Company is produced in central Florida, southeast of Tampa, and most of the U.S. phosphate processing capacity, other than at the Aurora facility, is located in Florida and along the coast of the Gulf of Mexico.

      The Company’s principal advantages at Aurora and White Springs in competing with other producers is that it operates integrated phosphate mine and phosphate processing complexes, while most of its competitors are required to ship phosphate rock by rail or truck greater distances from their mines to their chemical processing plants, thus incurring substantially higher transportation costs.

      As a result of its location in North Carolina and the relatively high cost of transportation, the Company’s U.S. phosphate sales from Aurora have a natural advantage in the Northeast, mid-Atlantic and eastern Midwest regions, while White Springs and other Florida producers have a natural advantage in the South, and Gulf Coast producers have a natural advantage in areas of the Midwest accessible to barge traffic up the Mississippi River.

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