富美實 (FMC) 2003 Q1 法說會逐字稿

Good morning, my name is Carol and I will be your conference facilitator today. At this time, I will like to welcome everyone to the 2003 FMC Corporation First Quarter Earnings Conference Call. All lines have been place on mute to prevent any background noise. After the speakers remarks there will be a question and answer period. If you would like to ask a question during this time simply press "star" then the number "1" on your telephone key pad. If you would like to withdraw your question, press "star" then number "2" on your telephone key pad. Thank you, I will now turn the call over to Mr. Eric Norris, Mr. Norris you may begin your conference.

Good morning and welcome everyone to FMC's first quarter 2003 conference call. As a remainder our discussion today will encompass certain statements which are forward-looking and subject to various risks and uncertainties concerning specific factors. Summarizing FMC's 2002 Form 10-K and other SEC filings, such information represents our best judgment based on today's information, actual results may vary based on these risks and uncertainties.

Before beginning I want to talk about steps we are taking to improve our communications with analysts, investors, and shareholders. First we have recently launched a new FMC investor relation's website available at ir.fmc.com. Among many other items, this website has our outlook statement for the quarter and full year, as well as reconciliation of certain non-GAAP figures which we'll use on this call to GAAP figures. During-- both the outlook and the GAAP reconciliation can be found on the conference page. Additionally, a glossary of financial terms page is available which defines terms we often use on conference calls such as today. Second, immediately following this call we will be sending to all our conference call participants a brief request by email for your feedback on the quality and scope of the call. I encourage you to give us your feedback and thanking in advance for your time. We also want to thank those of you who have participated in our Q1 shareholder survey the [inaudible] of your feedback was very useful.

The conference call will follow our standard format with one new item. William Walter, Chairman, President and CEO will view highlights of the first quarter 2003. Then what we intend to be a standard part of our conference call as going forward, we will spend a few moments for following on FMC's businesses this quarter. Bob Harries, Senior Vice President of Industrial Chemical and Shared Services will review phosphorus chemicals including Astaris and Foret. During Bob's remarks, you may find it useful to reference a February, UBS Warburg presentation discussing phosphorous chemicals in much more detail it is available on our website on the conference call and presentations page.

Following Bob, Kim Foster, Senior Vice President and CFO will review cash flow and in closing, William Walter will discuss our view on 2003 and key priorities. Afterwards, as usual we will take your questions. My pleasure to turn the call over now to William Walter.

Thanks Eric and let me extend my good morning to all of you as well. As expected the first quarter which is typically our weakest, proved to be especially difficult this year. Year-over-year earnings performance suffered from higher interest expense, higher interest costs, and the continued weak market environment in our Industrial Chemicals businesses, particularly in phosphorous. These difficulties masked an outstanding performance in our Specialty Chemical segment. We also benefited during the quarter from our strong focus on those things which we can control. We took actions to further reduce our cost structure and improve productivity, and we have aggressively managed working capital and CAPEX. We are on, if not ahead of schedule to meet our cash flow objectives. Net income for the quarter was $1.9m or 5 cents per share, lower than the prior year primarily due to higher interest expense. Favorable currency translation of approximately 2 cents a share was offset by higher energy cost of the same amount.

Let me know provide you some of the highlights of the quarter. Sales of $434m were essentially flat versus the first quarter of 2002. Ag. products sales were down slightly 2% to primarily to further channel inventory reductions and some timing shifts in demand in North America and Europe. Partially offsetting this weakness were strong early seasonal sales in the home and profession pesticide markets and good growth in Latin America particularly herbicides. Especially, chemicals had an outstanding quarter with sales up 10% driven by both biopolymer and lithium. Continued steady microcrystalline cellulous growth in the pharmaceutical formulation market. Strong [lithium] demand in the pharmaceutical synthesis market and growth in the battery market was the driving forces behind the segments top line growth. Industrial Chemicals continued to decline versus prior year, with sales falling 5% driven by flat-to-down volumes in peroxide and alkaline markets, modestly higher peroxide prices on a sequential basis, and lower phosphorus price. Favorable currency translation resulting principally from the strength of the Euro increased sales at Foret Biopolymer and Ag. products in that order, adding a total of approximately $16m to the quarter’s performance versus prior year.

Income from operations excluding restructuring charges in the prior year rose $3.1m or approximately 11%. However, as a result of losses at our equity affiliates or specifically Astaris, operating profit declined 14% quarter-over-quarter. Let me briefly review now some of the details of those results. Ag. products earnings were down approximately $1m in what is seasonally a weak quarter. Lower sales and unfavorable manufacturing variances impacted the segments profits, Specialty Chemical earnings, a significant positive contributor to our operating profit, was up 34% versus the prior year. Higher sales, and improved manufacturing productivity, drove the growth and profitability. Industrial Chemicals down 58%, was a source of nearly all the decline in our operating profit. A majority of that decline came from phosphorus operations at both Astaris and Foret. Higher energy costs also played a role.

Equity earnings [in] affiliates were down $7.6m year-over-year. Most of this is Astaris, and Astaris is consolidated into the operating profit of the Industrial Chemical segment. The decline of Astaris resulting -- the decline of Astaris resulted from the absence of any power resale and lower pricing. Lastly, FMC’s operating profit benefited from lower corporate spending primarily due to the absence of transition cost we had following last years FTI spin-off. As Eric earlier indicated, we intend to profile our business this, and every quarter going forward. I will now turn the call over to Bob Harries for discussion of our phosphorus chemicals businesses. Bob.

Thank you Bill and good morning. I’m going to briefly profile our two phosphorus chemical businesses, discuss their recent performance, which obviously has been very disappointing and outline actions we are taking to improve the situation. As Eric mentioned a more detailed presentation of the market which I made in February at the UBS Warburg conference is available on that website. As most of you know, Astaris is a 50:50 joint venture with Solutia based in the US with over $400m in annual sales entirely in phosphorus chemicals. The venture is accounted for by the equity method that is a major driver of FMC’s equity earnings [in affiliates] as Bill just said. The sales of Astaris are not consolidated in FMC’s results, but we do consolidate the equity earnings [in affiliates] in Industrial Chemicals operating profits in that segment presentation.

FMC Foret is a consolidated subsidiary of FMC based in Spain with annual sales of roughly $200m, about half of which is phosphorus chemicals. Remaining sales are primarily in peroxygens and particularly in hydrogen peroxide. The business is consolidated within our Industrial Chemical segment.

First some background on the market and our position in it. Phosphorus chemicals are a broad range of derivatives produced either from elemental phosphorus [P4] or from purified phosphoric acid, often shortened to PPA. Today, all major producers have shifted a majority of their phosphorus sourcing to PPA via a chemical process, which purifies the fertilizer stream and is usually lower cost. About 20% of applications still require P4 due to its purity and these applications tend to be in specialty niches. Phosphorus chemicals are used in a variety of industrial applications and global demand is fairly flat in total. Product range includes the more commodity [inaudible] and sodium tripolyphosphate, otherwise called STPP and PPA, and a wide variety of chemical phosphates or salts and at the specialized end, food phosphates and several elemental phosphorus dependent products. Astaris’ sales tend to be biased towards food phosphates and phosphoric acid, whereas Foret are biased towards STPP for detergent applications.

Astaris FMC and Rhodia are the only global full line producers. In North America, Astaris averages an estimated 40% share across a range of different products with Rhodia as a number two player; in Europe FMC Foret has a better 10% share versus other larger players including Rhodia.

Now, let me talk about the key drivers of underperformance of FMC and indeed, of the industry at large. They are; low capacity utilization rates, increasing globalization of the industry and producer instability. Starting with the first, low capacity utilization; while it is tough to calculate capacity utilization given the complexity of the product line in this case, we believe the capacity utilization overall is currently running at about 75%. Fortunately, even with the global recession, capacity utilizations for prospects are improving due to several shutdowns and derides including Rhodia's at [White Heaven] in England. However, we still have a way to get to what I would consider healthy utilization rates, namely 90% and above.

The second major driver is increased globalization; world trade is increasingly driven by capacity growth of the Chinese, particularly in P4 and [STPP] and the Israelis particularly in PPI and food phosphates. Importers have initiated downward price pressure in North America, which to-date has been sustained by several domestic producers. The third driver, I listed, was producer instability -- we believed that protracted divestment attempt of a major supplier and speculation that further industry restructuring may occur has had a destabilizing effect on selling prices.

All the three of the drivers, I've just described contribute to Astaris' current expectations of the 4-5% average price decline across this product lines into '03 versus 2002. We do not believe these price increases will continue for too much longer; let me recite some recent signs that the marketing conditions have been improving. Domestic demand in China's increasingly putting pressure on local producers to serve the whole markets; moreover in the last two months acute shortages of electric power have emerged in the western provinces of China; the major hydroelectric power area, and therefore major phosphorus producing area. These power, and therefore, phosphorus shortages have resulted from both severe low rainfall issues and a diversion of power to urban areas in China.

Additionally, we believe the weakness of the dollar has begun to reduce the appetite for all importers into the U.S. Furthermore the current level of unsustainable pricing is moderating domestic producer's appetite to gain share. In fact, we expect the industry including Astaris to be looking for selective opportunities to raise prices later in 2003.

Lastly, our understanding is of the protected divestment process or one of our competitors may be drawing to a close. In the midst of all this, of course, FMC and Astaris are not sitting still. Astaris has derided capacity as a trend facility and suspended operations at the drive valley phosphate, [rock mine]. The new CEO at Astaris has completed our headcount, the reduction of 15% which comes on top of all the earlier that reductions we have taken at Stratus. Again, all these moves will save Astaris more than $10m per year. Astaris is also totally restructuring, as I think most of you know, its raw material [feed] to the Astaris systems. Its owned [Conda], [Idaho] PPA facility is now operating about 90% of nameplate. The start [up] has been slower than first anticipated, largely result of the quality of the fertilizer feed that is showing improvement that all major mechanical issues addressed and I'll turn this to dealing with the one remaining major process issue being evaluated right now. The other major source of PPA for Astaris is from PCS, Potash Company of Saskachewan, which has recently started up a new line which is committed to Astaris and is producing as planned.

These restructuring and raw material cost savings are expected to offset, but not much more than offset the loss of the power resale at Astaris, which we talked about before. Now the selling prices, which I indicated will be down 4-5%, and restructuring charges taken to operating earnings are expected to drive FMC share of Astaris’ earnings down around $15m pretax, in 2003 versus 2002.

Similarly at Foret, aggressive actions have been taken. Foret has regained volumes from its share losses last year albeit in much lower -- at much lower selling prices. Leveraging, what is a low cost position that Foret enjoys and most of those sales are going to exports. Foret has also initiated a restructuring of its overhead cost with significant reductions being taken in SG&A. For the full year, Foret expects pretty flat year as cost savings and improved volumes in peroxygens will help offset lower selling prices. Clearly, phosphorous chemicals are continuing area of focus and of action. We with Astaris and at Foret are rendering further actions to restructure and reduce costs as well as to explore broader options and that’s the summary in terms of our phosphorus business and I want to turn the call over to Kim who is going to discuss the cash flow.

Thanks Bob and good morning all. As Bill earlier indicated, [we aggressively] managed working capital. Capital spending during [inaudible] track, free cash flow, operating cash flow [inaudible] $97m -- operating cash flow for the quarter was negative $97m. This figure is below what we typically would expect, given the seasonal build in working capital that we have seen in previous first quarters of $125-150m. Aggressive working capital management, which we initiated last year primarily in our agricultural products business has resulted in lower first quarter working capital build as well as reduced investment in working capital on an annual base. For the year 2003, we expect that working capital reductions will contribute $25-30m to FMC’s free cash flow.

Capital spending continues to receive considerable amount of our attention. First, as a reminder FMC has adequate capacity in all our major business areas and we do not foresee the need for expansion capital in the near future. Secondly, while we continue to spend on appropriate safety, environmental, and maintenance capital, spending for most nonessential capital has been deferred. Capital spending during the first three months of 2003, historically a seasonally low quarter, was $17m. For the year, we anticipate capital spending of $85m.

Environmental remediation spending for discontinued operations was $5m for the quarter and we maintained our previous full year guidance of $25m. As we have discussed in the past, FMC’s full year free cash flow in [trough] operating conditions is approximately $100m. However in 2003, free cash flow will be zero. As we have previously communicated, this is due to three unusual calls on that free cash flow totaling $100m. While the total of three items has not changed; the size has changed slightly since our last discussion, namely Pocatello shutdown and remediation cost which we now expect to be $25m, slightly lower than the previous estimate due to timing of spending. Secondly, Astaris financing obligations, which we now expect to be about $50m, higher than previously due to the deterioration of the business about which Harries just talked about, and an [earn] out payment associated with 1999 soda ash acquisition that we now expect to be a maximum of $40m.

Things changed significantly in 2004 and beyond. Let me give you a brief commentary. We expect Pocatello remediation spending to drop to $15m in 2004 and remain at that level for several years. We expect this years Astaris keep-well payment, when combined with Solutia’s equal payment would provide significant deleveraging at Astaris such that the venture will be able to refinance itself in 2004 without parental support. There are no more acquisition-related liabilities or earn outs in 2004 and beyond. As a result, our free cash flow available for debt reduction should be relatively unencumbered by unusual items allowing us to significantly deleverage the balance sheet from 2004 to 2006.

Before I turn the call back to Bill, let me address a much-discussed topic these days, pension expense and funding. FMC's pension assets performed very well in 2002, on a relative basis at least’ with a return of negative 1.4%. We do not anticipate making any major funding contributions in 2003. However, we do expect higher pension expense as we have changed our rate of return assumption from 9%-- to 9% from 9.25% for 2003. As a result, our total pension expense will increase in 2003 with an impact of roughly 5 cents per share. I will now turn the discussion back to Bill, for wrap up. Bill.

Thanks, Kim. Let me reiterate that despite the difficult quarter, we did have some bright spots and we are working diligently to make further improvements where we can, Specialty Chemicals in particular performed very well helping to offset the continuing difficulties in phosphorus chemicals, and as Bob has noted, looking to the bright side of Industrial Chemicals, we did begin to see the first positive indications of pricing momentum after several years of mothballing and slowly recovering demand in Industrial Chemical markets.

Capacity utilization rates in both hydrogen peroxide and soda ash are moving in below 90%. Indeed a 5-cent-a-pound price increase for hydrogen peroxide was recently announced with support of five of six producers. Importantly, we remain on track to meet our full year EPS and cash flow targets, and we remain comfortable with the guidance we gave in January of $1.75 to $2 per share. Second quarter earnings are expected to be between 55 and 60 cents a share depending upon Ag. Products demand which is typically strongest in the second and third quarters.

Stronger quarterly earnings are expected in the second half of 2003, as a result of several facts. First, the seasonal nature of Agricultural Products and to a lesser extent hydrogen peroxide; second, a realization of a full value of our ongoing cost-reduction efforts; and finally lower interest expense. Once we come off the working capital build for Ag. Products, which Kim, just discussed, and we retire the scheduled 2003 debt maturity, our interest expense will drop from about $27m per quarter, which we experienced this quarter to about $22m to $23m in fourth quarter.

Also looking ahead, our investments in our growth platforms are paying off. Ag. Products, BioPolymer, and lithium are poised for stronger earnings growth this year and over the next several. We are working hard to deliver on our goals of maximizing free cash flow by holding CAPEX flat last year well below the D&A, and improving working capital by $25m to $30m that Kim, talked about.

Again as Kim had described, the unusual calls in our cash in 2003 will nearly disappear next year, and open the door to significant debt reduction culminating in $300m lower debt by the end of 2006. Simply said, we are taking all the necessary steps to put FMC in a position to leverage an economic turnaround, and I remain bullish about FMC's future. At this point, I would like to open the conference call to your questions. Operator.

Thank you, sir. This time, I would like to remind everyone if you would like to ask a question, please press "star" then the number "1" on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Sir your first question will come from John Roberts with [Buckingham] Research.

Good morning, guys.

Morning, John.

The timing issue in the herbicide business, it is -- was it unusual this quarter or was it unusual timing a year ago, and if it was this quarter, could you remind me is it due to strength you had in the fourth quarter or is this delayed sales that will show up in the first -- in the second quarter here?

John, this is Kim it is a continuing delay of sales closer to the planning seasons for our product lines, which, you know, a lot of our growth is coming from carfentrazone which is our post herbicide so it’s a delay into the second and third quarters.

What was the manufacturing issue in the quarter?

John, this is Kim again we are continuing to restructure on the cost side of the equation for our Agricultural Products group. You may remember last year we bought carfentrazone plant at the end of the first quarter. We are continuing to consolidated and reduce cost largely at our Baltimore, Maryland plant and it’s a similar impact into our cost.

Okay. And, then secondly, the tax rate of 20.8% in the quarter, we can assume that I guess for the rest of the three quarters of this year. And, would that rate apply to Bob Harries 15m swing in profits from the Astaris and can we-- tax [affected] to that rate and saves about 33 cents year-on-year impact FMC.

John, this is Kim again the blended tax rate that you referred to of course includes taxes from all the tax jurisdictions that we are in. On a book basis U.S. domestic tax which is largely where Astaris is located-- get tax affected at 39%.

Okay. The 39% applies to that $15m and that 20.8% we can use for the next three quarters.

That 22.3 should apply for the next three quarters. Yes. Correct.

Then, maybe I calculated wrong I thought it was 20.8.

Your next question will come from Kevin McCarthy with Bank of America.

Good morning, Bill question on lithium it seems as though that business is improved dramatically over the past year or two, if you've transitioned towards the Specialty side. Is that a fair assessment and if so are margins in lithium now approaching those of BioPolymers?

Kevin, Bill, your characterization of lithium is correct for those who don’t follow as closely as Kevin has we have gone through a three year transition or repositioning of that business into this specialty and primarily into pharmaceutical and secondary battery. Those moves have been successful there is a recovery underway topline and bottomline. And, I would expect that trend Kevin, to continue with respect to the margins, no the business is not up yet to the margins of BioPolymer, but it is improving and moving in the right direction.

Okay. Another question on soda ash, I'm hearing that your surcharges may have been delayed there could you comment on that and also comment on whether we might see any favorable substitution affects. As the price of caustic soda has moved up quiet a bit in the second quarter?

Yeah Kevin, it’s Bob Harries, in terms of this surcharge we are still hoping to get more agreement on the surcharge, but we have had some success to-date we expect to get some more going forward. In terms of the substitution between caustic and soda ash, typically the price of caustic has get above, and stay above, and they expected to stay above, $150 a ton on a caustic soda basis. And, so right now we are not counting on significantly increased sales coming from substitution.

Okay. Thanks very much.

Your next question will come from Dmitri Silversteyn with Longbow Research.

Good morning, gentlemen. Couple of questions, on the food ingredients when you talked about the timing shift of some of the orders in the BioPolymers business, do you expect that to come back in the second quarter and what would the impact be, you know, first quarter which you didn’t get much, you expect to get in second quarter?

Dmitri, Bill welcome back. It is just timing we are to see a majority of it recovered in the second quarter, although a little bit will spillover over to the third. And, we have not quantified or not going to quantify the specific amount of the impact of that in either Q1 or in subsequent quarters.

Okay. Then let me follow up little bit differently. You've had very good pharmaceutical related sales in both lithium and biopolymers. Should we expect that to continue? Is there something in those numbers that lets you think or makes you think that this -- high single-digit growth or 10% growth is sustainable, particularly with this push off from the first to second quarter or was this just a campaign that you run, and it would not be recurring?

Dmitri, it's a little bit of both. First of all, both in our biopolymers and lithium business, there will be increasing lumpiness in our pharmaceutical sales as our pharmaceutical customers campaign their production. And unfortunately, we don't have as much visibility into their production plans, as we would like to have. So, you are going to see some lumpiness. I would expect to continue to see strong pharmaceutical demand in both businesses through the second quarter, maybe not at the same rate we saw in the first. It should not lead to a 10% increase for the year. We are still believing that sales growth, topline growth in that segment ought to be in the mid low-high single digits.

Okay, all right. The [power resales], when does that impact anniversary? Did you -- you stopped doing that in the second quarter or third quarter last year?

Well, it went through most of last year but that was front-end loaded. But it's now stopped beginning the end of '02.

Okay. So, probably one more quarter of pretty significant year-over-year head wind and then the comparison should get easier?

Yes.

In terms of profitability in the Industrial Chemicals, from that particular part of it?

Exactly. I just want to take this opportunity on Astaris to correct something that I apparently said in my prepared remarks that the utilization rate of [Conda] facility is running at 70%. Apparently, I said 90%.

Okay, thank you for the clarification. Okay gentlemen, thank you.

Your next question will come from William R. Young with CSFB.

Good morning gentlemen. I would like to follow up on the soda ash question. What's the latest, in your view, on the domestic price without the surcharge, and how it compares to last year? And then secondly, if I remember correctly, export prices had been under pressure. May be you can give us an update on that as well?

Export pricing, dealing with that first, has been under some pressure, and we would expect that assuming that the global economies begin to gather some speed here, that that would reduce. It hasn't been all that sharp, Bill, in terms of pressure on a year-over-year basis, but we had expected some improvement.

Has it been flat, say for the last three or four months or drifting in which direction?

I would say it was pretty flat.

Okay. Sure.

The domestic price increase-- we are expecting that over a year-over-year basis that a lot of that's got eroded by what happened at the end of last year with repositioning from some customers trying to take advantage of the unstable position of a couple of competitors, which we have mentioned before. So, the result has been that the net realization expected in '03 versus '02 from that price increase is going to be very small, if anything.

Okay, great. Thanks.

Your next question will come from Fred Seymour with Simor Company.

Yes, I just had this one comment or question on caustic soda pricing. Vulcan Materials, as I understood, markets that for you, and in their conference call, they said the prices were kind of flat to slightly up year-to-year. And you've picked up caustic volume and pricing. Volumes I know are down, but sequentially -- but is there something in your contract, is there some kind of a delay where your prices are down versus your selling agent's prices that are flat?

On a quarter-over-quarter basis, based upon the formula we have for the resale of that volume, we are down some. So there is a lag effect.

I see. So you will be enjoying higher caustic prices as the year goes along?

We think so, yes.

[inaudible]. Thank you.

And your next question will come from Myron Limb with CX Investments.

I am wondering about the -- with the hydrogen peroxide price increase, does that make up for any type of cost increase you are getting for the manufacturing of hydrogen peroxide due to higher energy prices -- I mean higher energy costs or is that sort of gravy and you know how has the cost of the hydrogen peroxide, you know, fared in this recent past quarter or two?

We are talking about a 5% announced price increase. As the contracts roll out, we are going to see some improvement in pricing for peroxide as a result of that in 2003. But the big bang will be in 2004. We have energy surcharge out there in peroxide also, and that’s obviously calculated to offset the energy impact that business was facing particularly in the early part of the year, very early part of the year where energy prices were so high.

And have people have expected the surcharges?

I am sorry.

Have people have expected the energy surcharges?

Some, yes.

Some is most or some is half or? Are you -- is that basically the business deteriorating even with flat prices in terms of the profitability, that’s what I'm trying to understand.

We are expecting improvement in peroxide. The energy surcharge is still out there and being negotiated. So we don’t know the final outcome, but we are showing some improvement.

Right and the energy surcharges will basically keep the profitability sort of in place?

Right. That’s what it was designed to do.

Okay. Go ahead.

Let me add a correction or a make a correction something Bob said. Bob talked about 5% price increase. It was a 5 cent price increase, and 5 cent in that business is more in the order of magnitude of 20% plus.

Okay. And then the other thing I wasn’t clear on for this -- that I guess that work out payment for the soda ash business, the $40m. My impression was that it was suppose to be for -- based upon the performance of the soda ash business. And it seems like the whole soda ash industry has done really terribly over the past couple of years, and then I am surprised that you know the number really is there. I was just wondering has your business been, I guess, much better than everybody else's or why is it still $40m payment?

That -- you are right. That second payment is calculated based upon the performance of the business. It is based upon the performance of the business beyond one year; in fact, it is on a three year period for the combined business. And the payment is less than we would have expected based upon some fall off in the performance of soda ash.

Okay. So it's sort of an average over the past three years.

Right.

Okay.

And we do believe that we do make more money in this business than our competitors based upon largely our low cost position as well as some specially niches we have.

Okay great thank you.

And your next question will come from John Task with Gunthen Neil (ph.)

I have got a question for Kim. Your combination of trade receivables and inventories increased 7.5% on flat sales, how do you reconcile that with the assertion that you have got working capital headed in right direction?

Hi John, this is Kim. As I mentioned also as a part of my prepared remarks, we have a seasonal build in our agricultural business. And almost all of the -- as you look into our balance sheet; in fact, about 80% of the trade receivable increase and essentially all of the inventory increase is associated with that normal and predictable seasonal build in our agricultural products business, which will release itself over the last nine months of the year.

Right. As a matter of fact, I probably did you a disservice by asking that question. I’m looking at the December receivables and inventory, should be looking at year ago. That comparison is probably more favorable, I imagine.

Yes, thank you John.

Good enough thanks Kim.

Sir, your next question will come from John Roberts with Buckingham Research.

Thanks, Bob you sort of indicated the divestment process for your problematic phosphorus competitors coming to a close. I didn’t know what the basis for that comment was, whether it’s just the disarray or the issues that we’ve got at the corporate level there that decisions just aren’t getting made and so there might be no deal or is there actually a new competitor you might face in this marketplace in sometime soon?

John, we don’t want to identify the competitor that you’re talking about and base of information is market intelligence, I really can’t say anymore than that. But we do expect a resolution one way or the other fairly soon.

Okay, because it’s different whether it gets resolved, but nothing happening versus the transaction happening, I imagine?

I think that’s right.

And you don’t want to give us any indication, which one’s better for you, I assume a transaction happening?

Yes.

Okay. And so if you’re upbeat about, you know, things stabilizing here, I guess we’re leaning that way.

That’s one interpretation.

Okay, thank you.

Your next question will come from Dmitri Silversteyn with Long bow Research.

Yes, I just need a quick follow-up on the sort -- I’m sorry on the peroxide business. You mentioned in your prepared remarks that lower sales into the pulp market affected the volumes of peroxide, [our] understanding was that the -- there was actually with some pre-buy in terms of inventory in the first quarter and the paper -- the pulp market at least the pulp market was relatively strong compared to what it’s been in the last two, three, four quarters. Is it just a question of you not seeing much of that because of the customers that you’re with in peroxide for pulp and coming more from Canada than in US or is there some other explanation?

I’m not sure, I know the detailed answer to that, but on a year-over-year -- quarter-over-quarter basis we think the pulp market is down a little bit, but we are seeing some improvement and expect towards the end of this year. But for the seasonal build that was talked about earlier as well as general improvement to see volumes come up.

So, you are seeing signs of some recovery in the pulp market?

Yes.

Okay, thank you.

Sir, your next question will come from Tony Deltora (ph.) with Federated Investors.

Gentlemen, I apologize if this has been answered earlier, but could you provide the depreciation and amortization numbers for the quarter please?

Tony, this is Kim Foster, $30m.

$30m. Okay, thank you very much.

Your next question will come from Fred Seymour with Seymour Company.

Yes, I was just thinking about the soda ash [sur] charges, as I recall I thought you were almost completely self sufficient in natural gas in Wyoming, is that still the case?

Fred, no its not. We purchase all of our natural gas in Wyoming. We are relatively self sufficient on electrical power and steam generation, but we purchase our natural gas.

Is that based on coal?

Yes.

Thank you.

Again, I would like to remind everyone if you would like to ask a question, please press “star” then the number “1” on your telephone keypad. Your next question will come from Kevin McCarthy of Banc of America.

Kim, what proportion of your insecticide sales are used for corn and are you concerned that proliferation of biotech trades in corn could cause some erosion there over the longer term?

Kevin, this is Kim. You wanted to know the percentage of our insecticide sales that are in corn?

Yes, I think your insecticide sales, are ball park, 500m or so and I’m just wondering how much of that might relate to the corn crop?

I understand now about 10-15%.

Okay and what are your thoughts about the proliferation of biotech trades there such as Monsanto's Yieldguard products?

Probably two answers to your question. One is off course all the Bt products that are in cotton and we've seen a maturation of the Bt in cotton, so we don't see any material further impact to our product lines there. One of the most recently talked about introduction is for corn rootworm in the corn market which will be introduced this year. The impact on us and our product lines will be very modest, if any at all this year, and we don't expect a material impact going forward as we did see in the cotton market when Bt cotton was introduced.

Fair enough thank you very much.

Your next question will come from Alia Glazo with Dupescliar & Company (ph.)

Gentleman thank you for this very in-depth presentation. During the presentation a couple of times you mentioned China. Could you give us your opinion the direction of economic activity in China and what do you think this SARS disease will have any impact whatsoever?

Well, I am not a Chinese economist, but from what I said there is clearly going to be a significant retraction in domestic GDP here in the second quarter whether that continuous to be year or not is beyond my knowledge base at the moment. Day one for the 9% GDP growth in the first quarter to what I think will be probably be negatively in the second quarter. It's clearly going to have some implications for the world economy, world trade. I don't think it will have a significant impact on us, most of the business we do in China is in our Agricultural Products group and we've seen no evidence that SARS is affecting that business yet.

Thank you very much.

Our next question will come form Steve Cohen (ph.) with Citigroup.

Hi. In your earnings release you talk about net debt being relatively flat from the start of '03 to the end of '03. I'm just curious what number are you using for the start of '03 for net debt.

Steve this is Kim. 900m.

Okay alright so that -- essentially that the total debt less the cash -- less the restricted cash?

That's correct.

Okay thanks.

Sir we have no further questions at this time do you have any closing remarks.

I do operator. Let me close just by saying that despite a weak first quarter, I think we do remain on track to accomplish the things we set out for ourselves this year. As I said, we feel comfortable with our full year earnings guidance that we gave to you in January. We are going to improve on our balance sheet management this year, we are taking further actions, not just in phosphorous but our across our entire Industrial Chemical businesses to position them for the eventually recovery that is going to occur, and finally we are beginning to realize the growth from the investments we've made in Ag. Products and our Specialty Chemicals group. We’re at the trough of our performance and we feel good about where we are going from here. With that let me thank you for joining us and look forward to talking to number of you over the course of the next quarter. Take care.

Thank you for participating in today's teleconference, you may now disconnect.