CF工業控股 (CF) 2005 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Third Quarter 2005 CF Industries Earnings Conference Call. My name is Shakira (ph), and I will be your coordinator for today.

At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session toward the end of the conference. If any time during the call you require assistance, please dial star followed by zero and a coordinator will be happy to assist you. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Mr. Chuck Nekvasil, Director of Investor Relations. Please proceed, sir.

Thank you, Shakira. Good morning ladies and gentlemen and thank you for joining us on this conference call for CF Industries Holdings.

I'm Chuck Nekvasil, Director of Public and Investor Relations and with me are Steve Wilson our chairman and chief executive officer and Ernie Thomas our senior vice president and chief financial officer.

Yesterday afternoon, CF Industries Holdings, Inc. released it third quarter results. As you read our news release posted on the investor relations section of our website at www.cfindustries.com and as you listen to this conference call recognize that both contain forward-looking statements within the meaning of federal securities laws. All statements in this call other than those relating to our historical information or current information are forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties many of which are beyond our control and which could actual results to differ materially from such statements. These risks and uncertainties include those spelled out in the "Safe Harbor" statement included in the news release. Please consider all forward-looking statements in light of those and other risks and uncertainties.

With that, let me introduce Steve Wilson our chairman and chief executive officer.

Thanks Chuck and thank you all for joining us and for your interest in CF Industries. Yesterday's news release details our performance for the third quarter and nine months. Admittedly, it was a complex report to interpret as the number of IPO related and other adjustments significantly affect reported results.

Briefly, the strong demand higher average selling prices for all of our products and increased shipments of our phosphate fertilizer CF Industry sales increase by 10% versus a year ago.

Total volume decreased 7% to 1.6 million tons as the significant increase in phosphate fertilizer volume was more than offset by a decline in nitrogen volume. The decline in nitrogen was due to strong second quarter shipments which had reduced inventories going into the third quarter.

Scheduled plant turnarounds and production and shipping disruptions caused by the two Gulf Coast hurricanes. The company generated strong operating earnings for both the third quarter and the nine-month period.

Operating earnings in the third quarter were $35.1 million vs. 32.3 a year ago, and adjusted third quarter net earnings were $13.8 million down about 3% from 2004's third quarter. However, as noted earlier unusual and non-recurring items related to the IPO, as well as several other items, significantly and negatively impacted reported net income.

In a minute, I'll ask Ernie Thomas our Chief Financial Officer to walk you through those items in more detail and describe how those items impacted our operating earnings and lead to the net loss of $91.4 million, or a $1.66 per common share. Notwithstanding that reported net loss though, I believe the company performed well during a difficult quarter.

Let me highlight a few points. Operationally, our team dealt very effectively with serious issues related to the Gulf Coast hurricanes. Employees are at Donaldsonville nitrogen complex safely executed our plan to orderly shutdown procedures and the facility came through the storms with only superficial damage.

Afterward, our employees brought the complex back to appropriate operating levels in an equally safe and effective fashion. Similarly, at our Central Florida phosphate operations CF employees responded quickly and rescheduled two plant turnarounds when the affects of Hurricane Rita sharply reduced the availability of sulfur. This already-completed action should permit us to minimize any lost production for the upcoming spring selling season now that sulfur supplies have returned to normal. In fact, I think the entire CF Industries organization performed well during the quarter.

Throughout much of the third quarter, and frankly, through much of the year, our senior executive team has been heavily involved in planning and completing the company's IPO. The strong operating results this company has achieved so far this year, I believe, testifies to the strength and depth of the organization we've established and to the ability of that organization to cope with significant challenges.

The effectiveness of our forward pricing program was clearly demonstrated during the quarter. In talking with investors during recent weeks, its become apparent that there's still a bit of confusion about just how this program works. Let me reiterate that the forward pricing program, or FPPs, objective is risk management, which is exactly what it did during the period of sharply escalating natural gas costs. Perhaps, we should adopt the term 'margin risk management program' to more fully describe the concept.

We recognize the apparent volatility in an industry where we're producing a commodity from another commodity. While our customer offering is termed the FPP, we don't just forward price our fertilizer products. We close the margin loop, so to speak. As customers place forward orders, we lock in a substantial portion of the margin on those orders by fixing the costs of the supply needed to meet those order, whether that supply is manufactured product or more recently purchased products.

For manufactured product, as we've explained, we use financial instruments to effectively fix the costs of natural gas, the largest and most valuable component of our supply costs. For purchase product, we manage the risk by balancing fixed price sales and fixed price purchases, and we periodically review our portfolio of committed fixed price business vis-a'-vis our supply to ensure that we have appropriately matched the volumes of fixed priced sales with supplies whose costs have been largely fixed.

As we explained on our update call several weeks ago, the programs buffer of pre-hurricane gas pricing is not expected to benefit our fourth quarter or the first quarter of next year to the same extent as it did in the third quarter.

Finally, let me note that we maintained a strong financial position and good liquidity during this challenging period. In all, then, I believe that in a period marked by significant challenges, CF Industries performed extremely well.

At this point, Ernie Thomas, our CFO, will provide you with some detail on the quarters numbers.

Thank you, Steve, and good morning everyone. I'd like to start with a review of our financial highlights for the third quarter.

First, we successfully completed our reorganization, initial public offering, August 16th. We sold 47.4 million shares of common stock and received net proceeds of $715.4 million. We did not retain any of those proceeds.

We repaid all of our outstanding term notes on August 17th, $235.6 million plus prepayment penalties and accrued interest of 29.3 million. We replaced our $140 million senior credit facility with a new larger $250 million senior credit facility.

We established a $99.9 million valuation allowance against our net operating loss carry forwards that were generated with (ph) a cooperative for tax purposes.

We sold our interest in CF Martin Sulfur for $18.6 million and finally, on October 27th, we declare our first quarterly dividend of $2.00 per share payable on-- $0.02 per share payable on November 30th, 2005.

Now, I'd like to take you to the nitro chart included with our earnings release and add some more color on those numbers.

As Steve explained, our next sales for the quarter increased 10% over the prior year due primarily to higher pricing across all products which would have offset declines in volume. Our gross margin increased by 28% to $56 million. I should point out that including the gross margin was a $14.1 million gain in the early termination of natural gas hedges associated with our forward pricing program.

As mentioned in our release, anytime we terminate hedge positions early and fail to purchase the underlying natural gas to produce product, you must recognize any gains or losses immediately. Because it reduced production plans for the fourth quarter, a $14.1 million gain is really a pull ahead of cost benefit from the fourth quarter into the third quarter.

Our SG&A expenses increased by 80% to $17.7 million in the current period compared to 9.9 million in 2004. This increase was due largely to increased expenses related to our IPO and extra compensation expense. Operating earnings increased by just under 9% to $35.1 million for the quarter.

Net interest in the quarter moved from an expense of $4 million in 2004 to income of $0.09 million in 2005 due to a combination of lower interest expense and because of lower average debt outstanding in the interest income of short term investments for the period.

Our non-operating net increased from income of $0.02 million a year ago to income of $1.8 million in the third quarter of 2005 due to gains realized in the sales of distribution terminals and excess land in our (inaudible) facility.

The income tax provision for the quarter was $94.6 million comprising a non-cash charge of $99.9 million to establish a valuation allowance mentioned earlier and a $6.1 million refund of Canadian taxes. Income tax expense of 1.8 million on pretax earnings for the quarter and a tax benefit of $.9 million for adjustments of prior years tax returns.

As Steve mentioned, our balance sheet and liquidity remains strong points for the company throughout the quarter.

At September 30th, we had cash and short term investments of $317.5 million against $4.2 million of debt outstanding. We also had a current liability of $183 million for customer advances related to our Ford pricing program. Our senior credit facility remained undrawn at September 30th.

With the exception of receipts of customer advances, our operating cash flow in the quarter was very similar to 2004 levels. Receipts from customer advances fell from 222.5 million in 2004 to 53.3 million in 2005.

Adjusted free cash flow. It is operating cash flow adjusted for working capital changes, customer advances, distribution to our minority partner in Canada and capital spending increased from $32.1 million in 2004 to $38.5 million in the current quarter.

Gross margin for the quarter and I imagine was very similar to 2004 results where the current quarter includes a $14.1 million hedge gain in the fourth quarter. The gross margin in our phosphate segment improved sharply in the quarter versus 2004 moving from $5 million dollars to $11 million in the current period.

Now I will take you through the last two charts in the package a walk down from pretax earnings to adjusted net earnings and also reported EBITDA down to adjusted EBITDA.

Starting with pretax earnings - we reported $32.2 million in 2005. We had some non-recurring unusual items in the quarter, a $28.3 million loss on the extinguishment of debt, as an add-back the $2.9 million in IPO related expenses to $1.9 million long term incentive plan the non-recurring portion, 1.9 is also an add back, and then the timing of the natural gas hedge gains to pull ahead from the fourth quarter to $14.1 million (inaudible) and then these items totals $19 million increasing the reported earnings before tax to $22.2 million compared to the $23.1 million pretax earnings in the prior period.

The tax affect of 8.4 million equates to adjusted net earnings of $13.8 million versus the 14.3 reported in the prior period.

In terms of EBITDA, unadjusted EBITDA for the quarter was 25.4 million versus 54.3 million in the prior period. Adjusting for the same items as adjusted for the income, a total of $19 million (inaudible) for 44.4 million adjusted EBITDA versus 54.3 in the prior period and, again, the $14.1 million hedge gain is really a fourth quarter pull ahead and is also adjusted out to give to the $44.4 million adjusted EBITDA. Now Steve will wrap things up.

Thanks, Ernie. When we met with investors on our road show, we spent a great deal of time talking with some of you about the type of guidance CF Industries would provide investors after we went public. We recognize the need to provide you with the information you require to understand our performance and prospects, but we also recognize the extreme volatility in this business, not just on the raw materials side but also on the finished product pricing side.

The third quarter only reinforced our concerns about our ability to offer meaningful earnings guidance in this industry. What we believe is appropriate going forward, then, is to provide you with general commentary on market conditions and challenges, perspective on our operating plans, and a snapshot of business booked under our forward priced program for the coming quarter as well as any other information we believe is relevant.

I'll talk about the markets first. Of course, the big question in everyone's mind is how willing farmers will be to pay today's high fertilizer prices in a market in which grain prices are at historically low levels?

As we reported in the news release, our own fall season, and that's the fertilizer application farmers make in the fall after the harvest to replenish the soils nutrients, particularly nitrogen. Our fall season is off to a strong start, and the weather seems to be cooperating. We believe that's a pretty good indication that farmers are planning to plant a sizeable corn crop next spring and, similarly, is a good indication that our fourth quarter volume could be comparable to the fourth quarter volume of last year.

We noted in our news release the potential impact that increased purchased product and our supply mix could have on margins. There's still a lot of unknowns with respect to 2006, but let me share some of the generally known factors.

First, worldwide supply and demand dynamics for fertilizer products remain relatively tight. Natural gas prices have come off their peaks, but they remain at troubling levels. Grain prices, especially corn, are low, and there's an inventory overhang in the United States but that stands against the back drop of relatively low world grain stocks. So looking ahead we see a tendency towards a tighter supply demand balance and higher prices, for corn in particular, perhaps as early as next harvest.

Ethanol driven demand is also a significant positive for corn farmers, representing as much as 15% of the total crop and almost a three-fold increase over just five years ago.

There are other concerns, of course - one is new capacity. Trade reports indicate that there will be as much as 4.5 million tons of export oriented capacity coming online during 2006. The International Trade Commission's ruling on Russian Urea is expected soon. That's another unknown, and there's also a question of the potential for crop rotation out of corn into beans next spring.

In our conference call in mid-October, I explained that we had approximately 220,000 tons of forward priced orders booked for 2006. Our total today stands at approximately 435,000 tons, still below the approximately 1.1 million FPP tons we have booked at this time last year but nearly double the total of just a few weeks ago. And let me add one more data point to the mix. Today, although our total FPP orders for 2006 are less than they were a year ago, our 2006 FPP orders for ammonia are almost 50% higher than they were at this time last year.

Ammonia, of course, is a product that requires the most special storage and distribution capabilities to bring to market. Customers may well believe that they need to get their orders on the books for ammonia to assure its supply for next spring.

Turning to production - we continue to operate our Donaldsonville complex at rates that should result in fourth quarter production of approximately half its product capacity. One ammonia plant and the Urea plant are operating at Medicine Hat, and the second ammonia plant is just coming up following a turnaround, a turnaround that incidentally included an upgrade that will reduce overall gas usage and increase output, and our phosphate operations are running at capacity.

We've increased purchases of nitrogen products to help address today's high natural gas costs, and we're using a combination of production and purchase product to meet commitments to our customers.

We took one more action during the third quarter that while longer term in nature is certainly critical to the future of CF Industries. I've established a strategic leadership team including my top reports and given that team the assignment to develop and prioritize our long-range strategic options to maximize shareholder value, including initiatives to diversify our nitrogen supply base.

We've understandably focused a great deal of our attention on the IPO and operating challenges during recent months, but we recognize the need to develop and refine our longer-term vision for the future.

So, we're still facing an uncertain marketplace, but it's somewhat less uncertain than it was just a few weeks ago. In this environment, we believe flexibility and nimbleness are important aspects of good performance. With that, let me open the call to your questions. Shakira, would you explain the Q&A procedures please?

(Operator Instructions)

Your first question comes from the line of Ronald Redfield with Redfield Blonsky. Please proceed.

Hi, good morning. I have a few questions, so cut me off anytime. I understand you can't give guidance for next year on revenues, but you are operating at half of capacity. If that were to continue based on today's pricing, can you give us a high/low of what the revenues would be expected and what the gross profit percentage would be? And I don't mind a range.

That's a question that includes a number of hypotheticals, and its certainly a scenario that we have not laid out ourselves, so I'm afraid I can't give you that guidance.

No problem. How about during this quarter, were you typically at 50% capacity for the entire quarter?

The comment that we made is when we look at our operating plans for the full quarter and our production as individual products, the total product volume we expect to produce during the quarter will equal roughly half of our product production capability.

And was that the way it was for quarter ended 9/30/05?

Our operating configuration changes on a regular basis based upon a number of factors. It's not one continuous pattern.

But if you know production, or if you think you don't know, but if it's going to be half percent capacity next year, you certainly know what capacity percentage was in the quarter just ended?

I'm not sure I understand your question.

At what percent capacity, on average, during the three months ended September 30, '05, what was your capacity used to capacity ratio?

I actually believe we were roughly at capacity for the third quarter.

At capacity, at 100% for third quarter?

Yes. Probably not 100% but it was darn close.

Okay, and you won't give guidance for next year's gross profit percentage?

That's correct, and I just want to clarify my last comment that we did have turnarounds in the third quarter, so, obviously, we didn't include that capacity in my off the cuff-

So we just have to go quarter by quarter because if there's no guidance and no - if you were near 100% or 85% going down to 50%, we don't know what costs will change in relation to the revenues so it's impossible to do a gross profit calculation even from a 5% to 15% net growth profit range right?

I'm frankly not in a position to comment on your ability to do our calculation. We will help you with the factors that we talked about and that is how are we operating in the fourth quarter? What's our forward look at business like and the fact that we have been purchasing products when its economically advantageous to do so in replacement for production.

Your next question comes from the line of David Silver with J.P. Morgan. Please proceed.

(inaudible - technical difficulty).

David, you're cutting out.

Oh, okay. I'm doing this DSL. I have a couple of quick questions. First, I appreciate the way you broke out the FPP volumes. You gave some indication of the phosphate portion. Can you also give us a breakout within the nitrogen segment of how much was for (ph) U.S. versus your Canadian operations?

Good morning, Dave. Actually, I don't have that information handy, and it isn't anything that we really track because we book our business, we make our supply plans, and it changes on a regular basis depending upon the whole mix of business. So, it might be - for example, we might plan to source some piece of business out of Donaldsonville this week. By the time we end up manufacturing it, it might be best obtained from Medicine Hat.

Your next question comes from the line of John Enwich (ph) with IMR Capital. Please proceed.

Just a couple unrelated questions, I'll ask them separately. Could you clarify the margin difference on your purchase versus manufacturing? I was under the impression that you - in this current environment, you're actually making a higher margin of purchasing and manufacturing update, but somewhere in this release it says the opposite. Can I get some clarification on that?

I'm not sure where in the release it makes a comment on that, but first of all, the economics of production versus purchasing varies by product. Each of our nitrogen products has a different gas content, ammonia having the most gas intensity, UAN having the least, and so as gas prices increase, the economics for ammonia deteriorate more quickly than the economics on UAN. We make the purchase vs. produce decision on an ongoing basis based upon the economics at various points in time, and it changes, frankly, daily based upon the international market prices for the product and, of course, you know the volatility associated with the gas strike.

Do you have a , kind of, peak working capital usage during the year and how dramatic is it?

Ernie.

Working capital uses during the year?

Yeah. Seasonal working capital.

Working capital is a big item of course is the inventory which varies depending on the gas price, and it's one of the reasons we use adjusted free cash flow because working capital flow because working capital is really a tough (inaudible) because it leaves so much for the gas price. So we couldn't give you a specific-

If the gas price were the same throughout the year, what would your peak inventory level be?

We have been actually reducing inventory since about the middle of 2003. In fact, just in terms of tonnage, we've taken inventory down. As Steve mentioned, I think, earlier, one of the problems with the volume of nitrogen products in the third quarter is that we had low inventories heading into the beginning of the quarter, but the dividends (ph) have been taking down our working capital requirements, I can tell you that much.

Okay and can you give gross margins on ammonia versus the other products?

It varies and, as Steve mentioned, depending on what happens with gas and international prices for ammonia, ammonia up in the midwest, it varies daily. There are no hard and fast rules there.

We have not chosen to break those out.

Thank you.

Your next question comes from the line of James Klingsborn with Morgan Stanley. Please proceed.

Hi. Can you give us a better idea - I know you said that it'sdepending on the economics, whether you'll purchase or produce, but going into 2006, I guess, assuming that the natural gas prices are what they are today in the future, would you be producing or purchasing those products?

James, good morning. Again, the economics associated with individual products and the timing of those sales are influenced by a number of variables, and it isn't just the gas costs, it is the price that is sustainable in the marketplace for those products and we make - I mentioned in my opening remarks the notion of nimbleness. That's really what I was referring to is that we need to be, and I think we are, in a position to make these decisions on a regular basis and rather quickly, and we look at each piece of business that our sales organization brings in and make a determination of the ideal sourcing for that business really on a daily basis.

Can you give us an idea of what your margins were for the nitrogen products and phosphate products for the third quarter?

Sure. Our gross margins percent for nitrogen in the third quarter, and this is actually on our release, was 17.4% versus 16.1 a year ago, but keep in mind that the third quarter of this year includes that hedge gain and timing of $14.1 million. In phosphate, the gross margin percentage a year ago was 3.6, and in the quarter just completed was 10.9.

For nitrogen, UAN - can you give a break down for that?

No, we're not prepared to do that, James.

All right, and then the Ford pricing program, you had said that your ammonia volumes were up 50 percent year over year. Could you give an idea for UAN and UAN-2?

Well, you can I think by doing a little analysis you'd certainly come to the conclusion that they're down, but we don't have that break down for you.

Are you seeing a shift in terms of future volumes more towards nitrogen just generally in the market outside of the Ford pricing program?

Are we seeing a shift--

Ammonia and UAN to UEA because it's more prone to import pressure?

No, I'll hazard a guess on the ammonia activity. I believe it's just related to corn farmers wanting to position product in their own supply chain for next spring because they are worried about availability. Ammonia is a product, as we've emphasized several times, that requires special handling and distribution, assets, and UREA is easier to move into the marketplace and, perhaps, maybe driving all this is for the farmer ammonia is, in fact, the cheapest source of nitrogen. It's 82% nitrogen. If a farmer has a capability to apply nitrogen with the equivalent required, and its available, and the weather cooperates, his first choice will always be ammonia.

All right, thank you.

Your next question comes from the line of Craig DeSasse (ph) with Off Wall Street (ph). Please proceed.

Hi guys. How are you?

Good morning.

Just a few quick questions. First of all on the SG&A, what's a normal level going forward on a quarterly basis that we might think about?

Difficult to estimate at this time. We moved from being private to public, and we still don't have a good estimate of some of the costs. I know we guided, during the road show, we expected about a $6 million annual increase. That did not include stock-based compensation, so I guess I would reserve to make that estimate a little bit later when we'll know a little bit more about some of the costs.

Okay, next question. Could you shine some light just to clarify - the actual what the Henry Hubb spot price versus what we see everyday on the futures market, is there a big spread today on that?

Craig, good morning. Yes, and I think I understand your question. If you look at the - and this is as of about an hour ago - the December price was around 11.50 - 11.56 to be precise at the time I looked at this, and the spot price was $9.34, so that's a $2.20 spread between the costs of buying gas today - the burn today vs. locking in a full month's supply for the month of December.

It's 11.08 by the way.

Oh, wonderful.

Since the end of December, yeah.

Wonderful. At any rate, that spread is huge by historical standards, and what will happen, as I'm sure most of you know, as we get towards the end of November these two numbers will converge, and the $64 question is how will that convergence take place? Will December move down to the spot or will the spot move up to December or somewhere in between.

Sure, but if we're doing calculations, if you theoretically to go out and buy gas today, you'd be saying nine and change?

Yes. If we decided today to ramp up more production, we would hope to achieve the daily rate, although if you were locking it in for several weeks you probably couldn't get quite to that level.

Sure. Okay and lastly, how shall we think about that hedged gain as far as what normalized earnings go?

When you think about it - because what really happened was an abnormal situation. Normally, we lock in a financial contract of gas, we take an FPP order, we later then go buy the physical gas, and normally those gains are timed to inventory over a two month period that match the flow of the natural gas. In the fourth quarter, we cut back reduction, and when you do that, you don't buy the underlying gas, you have to recognize those gains immediately.

I know, I understand how it works. I'm saying thinking about how to look at that number that 14.1 million. You sound like you're almost dismissing it.

No, we don't dismiss it. It's a very significant number. I think the notion that we're suggesting is that you may want to look at it as what would have been a normally fourth quarter pickup had to be recognized in the third quarter because it made the choice to purchase product rather than to produce.

If we had not cut back production, you would have never seen that number. It would have just been blended into our cost of sales in the fourth quarter, and there would have been no affect in the third quarter.

Got you. Thanks, guys.

Your next question comes from the line of John Reardon with Crowell Weedon. Please proceed.

Good morning, gentlemen. Could you give us a flavor on how the potential project with Terra Industries in Trinidad is coming along?

Sure. We don't have any significant announcement or event to report, but we have continued to work on, in particular, the capital costs. We are seeking to obtain the lowest possible bid from equipment suppliers and contractors on that project, and our focus right now is as soon as we possibly can to get to that lowest possible capital costs and then proceed through our analytical and approval process in our individual company.

Thank you.

Your next question comes from the line of Lavonne Voireden (ph) with Hacken Capital. Please proceed.

Good morning, guys.

Hi Lavonne. Good morning.

I wanted to come back to this, I guess, the gain that you recognized on the hedging. I just want to understand a little bit better - you went out and you purchased product, I guess, and, kind of, cancelled the hedges and booked the (ph) gain, but why would you do that as opposed to running it through your plants? Isn't there a certain amount of costs just with associated with running the plants that you kind of normally want to cover?

Lavonne, let me give you an example of how this decision process works. Let's assume that in the month we've booked the business that the gas price available for the production months was $8, and we locked in future contracts to fix our gas at $8. We, then, get to the month of production that we plan to produce the product, and gas is now $10. Normally, what we'd do would be to take the $2 gain from the futures, and we would buy the physical gas for $10 and, therefore, our net cost is 8.

If, however, we look around the Gulf and we find product available at a price that has in it, let's say, an implicit gas cost of 9.50, then in addition to getting the $2 gain on the hedging, we pick up another $0.50 a ton because we chose to buy it rather than produce it. That's what drives it economically, and I'm not citing those numbers as being actual numbers that we've experienced. That's an illustration of the concept.

Another way, Lavonne, to think about this is the verbal cost of purchasing versus verbal cost of producing, and when the verbal cost of purchasing is lower, then you're better off buying the product instead of making it.

Right. I guess what I was more focused on was the fixed costs within the actual plants themselves and how that comes out--

That's usual in the equation.

Fixed costs is a fixed cost. It's there in either case. It's a total marginal analysis.

It's very neutral.

Got you. Okay, thank you.

Thank you. Operator lets take two more questions if we can, and then we'll wrap this up.

Okay. Your next question comes from the line of John Hawkin with Whitney. Please proceed.

Hey, guys, good morning.

Hi, John.

Two quick questions, I think. One is just this trade-off between purchasing product vs. producing it. Could you just take ammonia for instance and could you give us a benchmark as to a price on natural gas where you'd flip between producing versus buying it on the open market? I mean, is there a rule of thumb that at ten bucks and below, you're going to produce versus buy, or eight bucks?

Actually, no, because the analysis is more complex than that. You also have to factor in what the available product is in terms of quantity and price. The impact that our purchase might have on the market itself.

Can you give us some sense of historical averages and what you've--

There have been times in the past when it's been un-economic to produce at $5 gas, and there've been times when it was economic to produce at $10 gas. So there is really no rule of thumb. It depends upon what the economics look like when you put all the valuables together in a specific case.

Okay, and then my one other quick question was you made, and I slightly missed your comment, but you were talking about new capacity coming online. Can you just repeat what you said? What product is that for and when is it coming on, and what percentage?

It's UREA, principally, and the number that I quoted was about 4.5 million tons.

What is that as a percent of current capacity, do you know?

I may have that. The export market for UREA globally is about 29 million tons. That's not the gross capacity around the world. That's the amount that crates (ph).

Okay, so that -- pretty meaningful then, huh?

It's meaningful in the context of the amount that's crated. We would get you the base of what the total capacity is globally; I just don't have that handy.

Okay, that would be great to know. Okay, good. Thanks guys.

Thank you.

Thank you.

And your last question comes from the line of Aaron Whiteman with Appaloosa Management. Please proceed.

Hi, guys.

Good morning.

Good morning.

I was wondering is there any change in the timing on the decision on alternative feedstock plant?

Aaron, we can barely here you. Operator, is everyone else hearing him?

I'll just repeat the question. The question was is there any change in our timing with respect to a decision process on alternative feedstock for Donaldsonville? I made the comment earlier about ramping up our efforts in the strategic planning arena front and center, and that effort is our focus on diversifying our nitrogen supply base including the dependence upon North American natural gas as a feedstock.

We are running hard in the area of looking at alternative feedstock for Donaldsonville. This is another case where we haven't reached a milestone, where we have anything definitive to share with you, and I can assure you that that is among the two or three top priorities that we have going forward, planning our own future.

I want to thank all of you for your interest in participating in our conference call this morning and your interest in the company. As I said earlier, I think we have responded quite well to a very challenging quarter, and I am confident that our organization will continue to merit your trust in the months ahead. Thanks again.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.