富美實 (FMC) 2003 Q3 法說會逐字稿

Good morning and welcome to the 2003 third-quarter earnings release conference call for FMC Corporation. (OPERATOR INSTRUCTIONS). I will now turn the call over to Mr. Eric Norris, Director of Investor Relations for FMC. Mr. Norris, you may begin.

Thank you and good morning and welcome to FMC's third-quarter 2003 conference call everyone. As a reminder, our discussion today will encompass certain statements which are forward-looking and subject to various risks and uncertainties concerning specific factors summarized in 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 upon these risks and uncertainties.

During the conference call, we may refer to non-GAAP financial firms on our FMC Investor Relations Website available at www.irfmc.com. You will find a definition of all such terms under the heading entitled "Glossary of Financial Terms." In addition, we have provided a reconciliation of certain non-GAAP figures, which we will use on this call to GAAP also available on our Website. Immediately following this call, we will be sending all conference call participants a brief request by e-mail for your feedback on the quality and scope of the call. I encourage you to give us your feedback and thank you in advance for your time.

Now for the agenda. It will include and start with Bill Walter, Chairman, President and CEO, who will review the highlights for the third quarter of 2003. Then, consistent with the new format we introduced earlier this year in which we feature one of our businesses, Bill will turn the call over to Ted Butz, Vice President and Group Manager of Specialty Chemicals, for a view of excitement. Following Ted, Kim Foster, Senior Vice President and CFO, will give free cash flow and debt. Bill Walter will then discuss outlook for the reminder 2003, as well as for full year 2004 and closing the prepared portion of the call. Afterwards, we will take your questions.

It is my pleasure to turn the call over now to Bill Walter.

Thanks, Eric, and good morning to all of you. During the third quarter, we continued to make steady progress on the commitments we set forth earlier this year. First, we delivered a good third quarter on target with the guidance of 45 cents to 50 cents per share that we provided three months ago, this despite a disappointing end to the North American crop season. Second, we followed through on our commitment to take aggressive actions in Industrial Chemicals highlighted by the recent Astaris restructuring, which should significantly improve that venture's profitability going forward. And finally, we are ahead of our cash flow objectives and expect to generate $30 to $40 million of free cash flow in 2003.

Let me get right into the details of each of these points starting with some of the highlights of the quarter. After-tax income for the quarter before restructuring charges was $16.8 million or 47 cents per share, which was appreciably lower than last year's 79 cents per share. Nearly all the change versus last year's quarter can be accounted for by a drop in affiliate earnings driven by Astaris and higher interest expense resulting from last year's refinance. Favorable currency translation added 2.2 million or 5 cents per share to the quarter's results.

On a GAAP basis, we reported a loss of $3.4 million or 10 cents a share driven by three things -- a restructuring charge to equity earnings of affiliates of $27.4 million after-tax for the previously announced restructuring of Astaris; restructuring and other charges of $6.2 million for severance expenses in Industrial Chemicals and an asset write-off in Specialty Chemicals. These two were partially offset by a net gain of $13.4 million after-tax resulting from a gain on the sale of excess real estate in our Foret operations.

Sales of $470 million were down 1 percent versus the third quarter of 2002. Industrial Chemicals sales were up 4 percent from the prior year quarter driven almost entirely by Foret due to higher peroxygens selling prices and volumes and the favorable impact of foreign currency.

In our domestic businesses, weaker soda ash export prices and lower volumes in peroxygens were only partially offset by higher prices in hydrogen peroxide, bi-carbonite and caustic soda.

Ag product sales were down 9 percent as a result of weak pest pressure in selected North American crop markets, lower sales in Brazil due to the exit of lower margin third party products, and further distributor channel inventory reductions, particularly in North America. The North American pest pressure was particularly weak in the corn mite and cotton worm markets compared to last year. Partially offsetting this decline were stronger sales in Europe and a favorable foreign currency translation. As expected, Specialty Chemicals year-over-year sales gains of 2 percent, slowed from the stronger results reported in the first two quarters of this year. Ted Butz will elaborate in a moment on those segments' performance.

Operating profit before special items declined 10.1 million or 18 percent. A decrease in Industrial Chemicals earnings of 12.4 million obviously accounts for more than all of the decline. The decrease in industrial was due primarily to a weaker phosphorus results at Astaris; however, higher manufacturing cost associated with scheduled mine maintenance in our alkaline business also favorably impacted the segment's results versus last year's quarter. Despite lower sales, agriculture products delivered earnings which were up $3.3 million or 16 percent versus the prior year quarter driven by an improved sales mix and more efficient plant operations. Earnings in Specialty Chemicals were roughly flat, a less profitable mix versus the prior year offset the benefit of the higher sales. And finally, corporate and other expenses were slightly higher.

Before I turn the call over to Ted, I would like elaborate a little further on the actions being taken by Astaris. The significant restructuring which is now underway at Astaris is expected to take about nine months to implement. The Board of Managers of Astaris has approved a plan that will result in the closing of four facilities, the exit of the commodity sodium tripolyphosphate business, and once completed the reduction of nearly $40 to $50 million of cost on an annual basis. With this restructuring, Astaris will improve its own phosphorus chemicals capacity utilization from approximately 60 percent to greater than 90, and it will also drive overall utilization to much healthier levels. The resulting business should have revenues of about $400 million, generate modest operating profit, and produce steady free cash flow. Any subsequent improvements in selling prices and/or in economic recovery should lead to further improvements in both profits and cash flows.

As a consequence of the restructuring and assuming Astaris is not refinanced, we expect full year 2004 people obligations to be in the range of $40 to $50 million. However, we remain optimistic that with this restructuring Astaris will be able to refinance during 2004 under terms which no longer require the support of its parents. And, therefore, we will not be required to make the four keep-wells that I just mentioned.

In closing, we believe that the outcome of the entire restructuring will be very positive for Astaris and will cap future keep-well spending for FMC. Going forward, FMC's strategy for Astaris is simple and focused -- namely to help the Astaris management team achieve the full benefits of the restructuring.

I will now turn the call over to Ted Butz for a discussion of our Specialty Chemicals business. By way of brief background, Ted was recently elected by the Board as Vice President and Group Manager for Industrial Chemicals. Prior to that, Ted had been division manager for BioPolymer. Ted's leadership has been an essential part of our BioPolymer success, and I am pleased to have him on the senior leadership team.

Thank you, Bill, for the introduction and good morning to you all. I am pleased to be here this morning and would be happy to answer any of your questions at the end of this conference call.

Over the next several minutes, I would like to give you a brief overview of the Specialty Chemicals group to discuss how we are focused on driving future growth. At the end, I will sum up our quarter, year-to-date and full year performance. The Specialty Chemicals segment is comprised of a group of businesses that have a significant portion of their revenues based on differentiated product offerings, including a number of proprietary technologies. They are also supported by strong market-oriented franchises where FMC has leading positions.

Our largest division, BioPolymer, accounts for about three-quarters of the segment's sales and even higher pollution of earning. BioPolymer is a global market leader in all three of its major product offerings -- microcrystalline cellulose, carrageenan and alginates -- with market share positions ranging from 30 to over 50 percent. These products are sold across three market-focused businesses -- pharmaceuticals, food ingredients and personal care, each of which has dedicated sales, marketing and application resources.

The end-use markets for BioPolymer have attractive growth rates that have been consistently above GDP growth and are less cyclical than markets served by other FMC businesses. BioPolymer serves the Who's Who of food and pharmaceutical companies. It also has a broad customer base with low customer concentration and broad geographic reach. Food ingredients is BioPolymer's largest business, accounting for close to 50 percent of revenues. This business is the leader in providing ingredients that impart unique texture, structure and physical stability to a broad array of food products. Key applications include dairy, beverages, and other convenience and healthy food categories that tend to grow faster than the overall food market. Industry growth has averaged 3 to 4 percent with BioPolymer's food business tending to grow over time at rates faster than the industry.

On an earnings basis, we believe we outperform other food ingredient producers due to our successful track record of provide novel functionality with improved cost and use to our customers. Outstanding product quality and technical support and integrated global logistics capabilities and a relentless focus on productivity drive our continued performance.

BioPolymer's other major business is pharmaceuticals. This business accounts for over 40 percent of sales and is a clear global leader in providing functional incipients, which are the inactive formulation ingredients for cabling and binding of oral dose form drugs, primarily under the Avicel brand of microcrystalline and cellulose. In addition to microcrystalline and cellulose, the pharmaceuticals business has leading but smaller positions in carrageenan, alginates and other cellulose-based product. These products deliver unique properties that solve customer needs in diverse applications such as antireflux treatment, dental impressions, liquid cough medicines and coated tablets.

The key to success in the pharmaceutical business is our very strong customer franchisees and the dedication we put to superior quality service and reliability. Industry growth in pharmaceutical incipients has tended toward 4 percent annually. FMC has grown at rates slightly higher than the industry, due to the favorable trends of customers to formulate with microcrystalline cellulose and our ability to drive the sales of other smaller products under our FMC market umbrella.

The third and smallest BioPolymer business is personal care, which focuses on oral care and cosmetic markets. This business is a leader in providing innovative technologies in such applications such as toothpaste, skincare and face masks.

Expanding BioPolymer has been a key objective, and we have been working on several attractive growth platforms. In pharmaceuticals, new technologies and alliances will play a key role in broadening our presence beyond the traditional incipient market. Although many of these programs have long development cycles, we are encouraged by the potential size of the opportunities. The potential over a five or ten year period to double the size of our business is there with the portfolios that we are working on.

An example of this effort is to broaden BioPolymer presence in pharmaceuticals, as illustrated by the potential of a small biomedical acquisition we made in early 2002. This business, which is now now called FMC Novamatrix, focuses on high purity hydrocarlides (ph) marketed to the biomedical field. Use of these high purity materials are expanding at a double-digit rate due to their unique properties and such end-use applications as wound healing, tissue engineering, and other cell-based therapies.

In addition, we have recently announced an alliance with BioProgress PLC in the UK to develop and market an innovative drug delivery mechanism named Enrobe to pharmaceutical companies worldwide. We're very excited about this alliance and see a great future as we continue to work with them to develop that.

Turning back to food ingredients. In food and personal care, the development cycle and product lifecycles are much shorter and require a sharper focus on improving cost and use and focused application support. The success of our process development efforts continue to be a major driver of profit growth and has opened up new opportunities for us. Having the worldwide applications capabilities with seven technical labs across the globe has also allowed us to take advantage of regional trends that we have successfully transferred to customers in other areas of the world.

Finally, selective external development is also an attractive growth opportunity for BioPolymer. Our platforms in food ingredients and pharmaceuticals are very strong and can be added to with related businesses that would benefit from the market franchise and operational focus that we bring. In any potential acquisition, however, we are looking for companies that would improve our leadership position, broaden our product and service portfolio to existing customers and offer significant intangible synergies.

Let me now turn to the other business in Specialty Chemicals, the lithium division. This business has done a good job in restoring profitability in recent years. It has positioned itself longer-term for continued growth. Lithium chemistry offers unique properties that apply to a broad array of end-user opportunities. Over the last several years, we have exited from the commodity grade lithium carbonate and focused our resources on higher margin downstream activity.

Today our lithium sales mix is split among four end market segments. First, polymers is the largest segment accounting for approximately 30 percent of sales. Given their utilities as initiators, butyllithium and other organometallic products have demonstrated great value in synthetic polymer markets. Sales have grown at rates above GDP.

Second, pharmaceuticals synthesis accounts for about 25 percent of sales with attractive annual growth rates consistent with that of the pharmaceutical industry. Butyllithium and several new chemistries are the key products in this segment. Our strategy is to become a broader-based total solution provider in order to capture additional opportunities with key pharmaceutical customers. Third, the energy storage segment has been the fastest-growing segment and now accounts for almost 20 percent of sales. Sales have been growing in excess of 10 percent annually as lithium-based batteries continue to be the preferred technology. Although this segment has attractive growth fundamentals, our strategy here is to focus on developing more proprietary technologies that will allow us to improve profitability.

Fourth, inorganics account for the remaining 25 percent of sales. A wide variety of industrial applications with slower growth potential characterizes this segment. Over the last years, we have reduced our focus on these segments and are developing selective new niche opportunities. Priorities for the lithium business are to continue to improve profitability and shift the sales mix toward higher value downstream markets. We expect the division to provide returns in excess of the cost of capital in 2004.

Let me now comment on Specialty Chemicals performance this quarter, year-to-date and expected full year outlook. Third-quarter sales were up only 2 percent due to the anticipated second half 2003 slowdown in lithium demand in the pharmaceuticals emphasis market, following the strong first half growth driven by the timing of production campaign. In BioPolymer, weaker food ingredients sales in the nutritional beverage segment were more than offset by strong pharmaceutical demand and favorable foreign currency translation. Earnings for the quarter were essentially flat versus the prior year quarter.

Year-to-date sales and earning reflect the success of our growth initiatives and focus productivity enhancement throughout the segment. Sales are up 8 percent versus the prior year period, and earnings have grown 18 percent on a year-over-year basis. While these are very strong results, they will be somewhat tempered on a full year basis by fourth quarter performance, which is expected to be similar to the third quarter. That said, we still expect full year 2003 sales growth in the mid single digit range and earnings growth to be well over 10 percent.

In summary, I am very excited about what we are doing in Specialty Chemicals. I believe we have a very exciting future, also an important role in FMC's growth strategy.

With that, I would like to now turn over the conference to Kim Foster.

Thanks, Ted, and good morning all. Consistent with previous quarterly conference call, I will focus my comments on one of FMC's key 2003 commitments, namely continuing to focus on free cash flow and improving financial flexibility. The bottom line is that we are now ahead of the target we set for our full year performance.

During the quarter, gross long-term debt was reduced by 125 million as the 6 3/8 senior notes due in September were funded from the restricted cash account. Long-term debt was also reduced as the drawings on our committed credit facility were reduced 76 million or to zero. Short-term debt primarily in our foreign operations was reduced 6 million. Cash, excluding restricted cash, increased 60 million. In total then, net debt at the end of the quarter was 793 million, down 142 million from the balance at the end of June.

On a year-to-date basis, free cash flow was $73 million. In previous communications, we identified a target of 25 to 30 million in 2003 cash flow from operating working capital improvements. During the last quarter's conference call, we expressed confidence that we would exceed that target. I can now report that operating working capital has provided a source of $34 million during the first nine months of 2003.

In addition to the operating working capital improvements, lower capital spending has favorably contributed to the nine-month free cash flow performance. For the first three quarters, capital spending was $59 million, while depreciation and amortization was $93 million. As we have previously discussed, we continue to spend inappropriate safety, environmental and maintenance capital. However, we are benefiting from having adequate capacity in all our major business areas, hence awarding requirements for expansion capital.

Also contributing to the year-to-date cash flow was $13 million in net proceeds from the sale of Foret's office building in Barcelona. This transaction closed in the third quarter. During the fourth quarter, we will be relocating to a nearby appropriately sized leased office space. Incorporating the benefits of these improvements, we are revising our free cash flow guidance for the full year to $30 to $40 million. Of course, and as we have previously discussed, FMC continues to have certain unusual spending items, which absent the benefit of these recent improvements, would have largely offset any free cash flow.

While the various components have shifted in size since the last conference call, the total is approximately the same as we last discussed. Here is what they look like on a year-to-date basis and what we expect for the full year. First, Pocatello shutdown and remediation spending of $4 million year-to-date, which we now estimate to be approximately $15 million, by the end of 2003. Second, Astaris' financial obligation or keep-wells of $48 million year-to-date, which we estimate to be approximately $63 million by the end of '03. And third, an earnout payment associated with the 1999 soda ash acquisition that we have not yet paid but expect to pay in December at a maximum of $35 million.

Let me now provide an update on how these unusual items change in 2004. First, Pocatello shutdown and remediation spending should be approximately 30 to 35 million. This increase is due to deferrals from 2003. The total projected spending for the lifetime of the project remains unchanged. Second, Astaris' financial obligations or keep-wells are projected to be $40 to $50 million, depending upon the success of the recently announced restructuring program and the subsequent timing of Astaris' refinancing. And third, there are not anymore earn-out payments on acquisitions.

In summary then, we are ahead of the cash flow targets we set for 2003. In addition, working capital improvements are a significant contributor to the full year guidance of $30 to $40 million in free cash flow.

I will now turn the discussion back to you, Bill.

In summary, I think we had a good quarter. We hit the midpoint of our earnings expectations, we took aggressive actions on Industrial Chemicals and expect to reap the benefit of a much stronger Astaris going forward as a result. And finally, we are on track to exceed our cash flow targets for 2003.

So as far as the earnings outlook for the balance of 2003, we remain confident about the fourth quarter and expect earnings in the range of 65 to 70 cents per share before restructuring and other charges. Industrial Chemicals and lower interest expense are the key drivers. In Industrial Chemicals, we expect improved operations in alkali and lower costs in Astaris as the early benefits of the restructuring start to accrue.

Regarding interest expense, we expect to see a $2 million quarterly reduction related primarily to the retirement of the September 2003 bond maturities with restricted cash already on the balance sheet.

Let me turn now to 2004. We believe that 2003 marks a low point of earnings for FMC from which we are poised to generate significant growth. Price recovery in Industrial Chemicals, debt reduction and, therefore, lower interest expense, and continued earnings growth in both Specialty Chemicals and Agricultural Products should provide for good tailwind for a much improved 2004.

However, we expect there will be several things working against us next year. Lower soda ash export prices and higher energy, insurance and pension costs to name a few. The result is an outlook for next year which we believe to be at the moment toward the lower end of the current range of analyst projections. That said, 2004 will be a year in which we make even greater progress toward our long-term strategic objectives. Those objectives being to maximize and realize the operating leverage that is inherent in the existing businesses. To create greater financial flexibility, ultimately recovering our investment-grade rating. And finally, focusing the portfolio on our higher growth businesses. We will share more details with you regarding our 2004 outlook and the specific 2004 milestones we plan to set versus our strategic objectives during the fourth-quarter conference call.

Thank you for your time today. Now, operator, we look forward to the questions.

(OPERATOR INSTRUCTIONS). Andrew Cash, UBS Warburg.

It is good to see that you are selling some real estate there. I was thinking maybe you were going to sell something in the U.S. before you sell something in Europe. Could you give us an update on your portfolio in the U.S. and perhaps what you are thinking about in terms of timing of some sales there?

Sure. We have two significant properties. One, the former defense operations we had in San Jose, California, and second, our Princeton research facility, which has large unutilized both land, lab and office space which we are interested in monetizing.

I cannot report any real progress on either one of those right now. It is not the greatest real estate market in either of those two markets. But, again, we continue to work on it. We don't have a timetable, but those properties have got values well in excess of $100 billion (ph).

Are those properties actually making you money now? Are you getting any return on that $100 million (ph) quarterly investment?

Nominal.

So you are just waiting for a turnaround in the market essentially, which is going to be the trigger for you?

We are waiting for the right price.

A couple of other things. Soda ash, could you give us the U.S. volume change in the third quarter and the price change?

There virtually was no change in either one in the third quarter. Domestic demand year-over-year in the third quarter was flat. Now I have got to think about soda ash pricing. Soda ash pricing in Q3 '03 was slightly below pricing in Q3 '02 but consistent with Q2 of '03.

That leads to my third and final question. It has to do with the world is booming and the economy is huge GDP numbers. Why aren't we seeing better volumes? Perhaps you are going to tell us that you've got huge booked orders.

I wish I could tell you we have got huge book orders. It's the Industrial Chemicals group that is most sensitive to economic cycles. I wish I could report that we are seeing a sustained significant improvement in demand in the two major businesses there -- soda ash and hydrogen peroxide -- we are not. The domestic soda ash market remains flat, but that is not a new phenomenon. It has been essentially flat for the last 20 years, and hydrogen peroxide pulp demand also remains relatively flat compared to last year.

We saw some early signs of improving demand in the first quarter and early into the second, but that does not seem to have sustained itself. I will let you speculate as to why those are not -- why the pulp market is not recovering.

Just if I could, continuing on the soda ash. Is the export -- what is your outlook for the export business in soda ash? Could you offset U.S. flatness or decline in the soda ash business with some strong growth in the exports?

Andy, we continue to see export demand growth in the soda ash business '03 over '02 and anticipate we will see a similar growth '04 versus '03. That growth -- again, I guess I need to back up. Our outlook and expectation for domestic demand is for a flat market. Couple that with the comments I just made about export, we ought to see an overall demand growth in soda ash year-over-year, therefore further improving capacity utilization rates across the industry.

But the price in the export market is under pressure, is that right?

Yes. We have talked about domestic export pricing pressures now for the last two quarters. Those continued in the third quarter, and we would expect it in the fourth as well. Those are driven primarily by competition out of China in the South Asian market.

All right. Thank you very much.

Kevin McCarthy, Bank of America.

You alluded to some mix effects that help you preserve profitability in agricultural chemicals despite the pressure on the top line there. Can you walk us through what some of those effects were, which product lines, and what you expect on profitability there going forward. Also, is your market share stable in this relevant product lines?

Sure, Kevin. Let me make sure I address all of those. First, the mix effect. A reduction in lower margin third-party products in Brazil, number one. Lower herbicide sales in North America, number two. And, therefore, an improved shift mix toward insecticides where we enjoy higher margins.

Profitability in that segment going forward from here, we would expect fourth-quarter profitability on a percentage basis to be consistent with the third, and I would expect that we will see some margin improvement as we roll into '04.

It is tough to measure market share, Kevin, midseason. There are not good industry data available until the season is over. But everything we have seen to date suggests, at least in North America, that we have retained share and have actually grown our share in Brazil and possibly even in Europe this year.

I guess I was under the impression that your second-quarter herbicide volumes might have been a little bit light because some was pushed back to the third quarter. It sounds like you have actually seen a mix shift away from herbicides and towards more profitable insecticides. Maybe you can elaborate a little bit more on what is going on with some of your key herbicide products.

Sure. The decline in herbicide demand that I talked about was primarily sulfurentizone. We did see good growth in demand for carfentrazone in the third quarter, both because of the timing delay from second to third that we talked about the second quarter conference call, plus a growth in share of carfentrazone.

Going forward from here, we would anticipate continued good growth and good margin in carfentrazone, and sulfurentizone I think at this point is probably pretty much got a flat demand outlook.

I enjoyed your rundown of Specialty Chemicals. That was very helpful. I was wondering if you could talk a little bit in terms of where you would invest for the future between biopolymers and lithium? And then running down food ingredients, pharma and personal care, I realize you don't have a lot of money to invest right now, but where do you see the best growth opportunities there?

Kevin, thanks for the question. I think it is a complicated answer, one I think we are obviously looking in a number of parts across the whole portfolio of BioPolymer and lithium. To look at in lithium some of the performance sides and pharmaceutical synthesis and other areas, we are just selectively starting to get in here and trying to find out whether we can expand in this area. That is very early stages today for us.

In technologies, we have been working a lot on internal technologies and continue to help both businesses, BioPolymer and lithium. Within BioPolymer, we have been doing a lot of internal development and recent alliances in the pharmaceuticals side. There, we probably don't see large acquisitions. We are really after novel technologies here and so making alliances like the BioProgress one that we just announced and/or buying the biomedical business Novamatrix, is exactly some of the opportunities that we see.

In food, we have a very attractive platform. We think we can get bigger and are willing to look at staying in texture ingredients. We bring a lot to the customers there. There it is more assessing what opportunities exist at the time and whether they are of the right value for us and can we get enough synergies for that.

In personal care there, that is a much smaller piece of it. There, it is mainly a lot of new technology investment to expand our position.

That is very helpful. Thanks a lot.

Bill Young, First Boston.

I was wondering a little bit about the future of Astaris. Number one, could you give us some idea -- I think you said you expect to lower cost there 40 to 50 million. You said something about nine months that will be complete? I just want to go over that a little bit, and how of that, do you think you are going to retain in your share of the equity of the earnings?

We did talk about a $40 to $50 million total annual cost savings once the restructuring is fully implemented. The restructuring process itself is going to take at least nine months, so we are now out to the second quarter or second half of next year. We should see some benefit of that restructuring earlier than that, but the full benefit probably will not accrue to us until '05.

We will be able to be more specific in answering your question at our fourth quarter conference call when Astaris is able -- when Astaris knows better exactly where they are in the restructuring process.

With respect to how much of that are we going to be able to retain, we will be able to retain most of it. There are some offsets, primarily related to our alkali business. We, in effect, told manufacturers of sodium tripolyphosphate for Astaris and Green River, and that total manufacturing has provided some overhead absorption for Green River that we are going to lose. We have not quantified exactly how much that is, but it is several million dollars a year.

You don't expect to lose too much due to competitive pricing ahead because of the higher operating rates in the industry, or generally people give us some of that kind of thing. That is why I was kind of curious.

Just the opposite. I would anticipate as a result of restructuring, the industry ought to see some price recovery, rather than price pressures. As I said, our capacity utilization rates are going to move to above 90 percent. The industry is going to move up to a very healthy rate. There are virtually only two integrated producers in the industry. My expectation is although we have not incorporated this in the $40 to $50 million guidance we have given, is that we will see improved pricing going forward.

Last but not least on Astaris, given your expectations for refinancing, what is your long-term strategy for your ownership of the business?

Bill, I think what we need to do is get through this restructuring at the moment before we speculate and comment about our long-term interest. Obviously our options are fairly broad. But until we get through this process, again I would just as soon not comment on it.

Dmitry Silversteyn, Longbow Research.

Good morning, gentlemen. A couple of questions. Can you quantify the price decline pressure you are witnessing in the (inaudible) export soda ash operations?

Yes. It has been about $1 or $2 a share year-to-date this year.

$1 to $2 a ton you mean.

Sorry. A ton, not a share.

The prices there are generally higher for export than they are domestically, correct?

Yes.

The free cash flow guidance you have given for '03 of $30 to $40, is this above and beyond that keep-wells at Pocatello and the earn-out, or how do we take that guidance?

It includes the effect of those keep-well payments.

So this is actually money they should be freed to spend on debt reduction or whatever other corporate strategy you follow?

Yes. And this year, it will be primarily debt reduction.

Excellent. In the fourth quarter, the agricultural business if my memory serves me is not mostly, but to a large degree, influenced by the Asian market. With a month into the quarter, can you make any comments on how that business is going?

Dmitry, Bill. First of all, you're right. Fourth quarter for us is largely driven by Asia. Where we stand right now on the 29th of October is we are optimistic about the fourth quarter. Things are developing as we would expect. The drought seems to be ending in Australia, which will be positive for their cotton business and, therefore, for our pyrethroid business. And the level of generic competition seems to have stabilized, and we are seeing some demand growth for our products.

However, it is still only the 29th of October. There are 64 days left in the year. We are just going to have to wait it out.

And the final question. In the phosphorous business, obviously there has been a severe price competition. But my understanding is that it has abated a little bit and you are seeing some selected price increases. Is that correct, and is that still going on and picking up steam or losing steam as you head into the last quarter of the year?

Again, Dmitry, your characterization is correct. That business has seen severe price compression over the last two years. Although in the last 120 to 150 days, we have been encouraged by the number of price increase announcements and the fact that a number of those seem to be sticking. To date, those increases tend to be a niche or small products and markets. We are not counting on it, but we are optimistic that we will see further pricing improvement, particularly given Astaris' restructuring in the months, quarters and years ahead.

Do you expect the other integrated producer to do some sort of restructuring on the (inaudible) given the change in leadership there, as well as the (inaudible) they will see the benefits of your restructuring program?

It is impossible for me to speculate on what a competitor might do. Obviously we would view further restructuring by them or restructuring by them as a positive move. We think there are opportunities globally for further restructuring. Let us just hope they are responsible and step up to the obligations they have as one of the industry participants.

Just to sum up. Is it fair to say that things in phosphorous have at least stopped getting worse, and if not recovering, then at least hovering at a stable level?

That is a good way to characterize the situation right now.

John Roberts, Buckingham Research. Jay Harris, Goldsmith & Harris.

What will be the revenue size of Astaris once the restructuring is complete? How big an enterprise will it be?

As I said, it will be about $400 million in annual revenues.

Have you filed your answer to the Solutia (ph) complaint?

We have not.

I am wondering if you would make that available to us when you do file it?

I would be happy to.

Andrew Cash, UBS Warburg.

Just to go back to the export soda ash business. Is there a possibility that exports will never grow out of the U.S. again because of an increased capacity in the Far East? It just looks like they are building a lot of plants over there. Maybe there is never hope or at least in the next few years that there are going to be price increases in the export market.

I did not know you were that much of a pessimist.

I just got back from the Far East, and I learned some things, like PVC they are PVC plants using those old calcium carbide technology through acetylene. My gosh.

Andy, from our prospective, that export market for U.S. produced soda ash ought to continue to grow despite the capacity that the Chinese are bringing on right now for several reasons. One is the underlying demand growth for soda ash globally, particularly if the developing parts of the world continues to grow and grow at least GDP rates.

Second, the Chinese have had a historical pattern of bringing on capacity in lumps affecting the export market, slowing down the rate of AMSAC export volume growth and affecting pricing over the short-term. But those plans quickly get filled up. AMSAC returns to an export growth rate that attracts pretty much the market and pricing improves again. I don't see any reason why that should not continue to happen. What we know about we know about Chinese capacity and plans would suggest that that historical pattern is probably going to repeat itself.

I don't mean to get into too much detail here and put you on the spot, but having spent some time over there, it's really hard to get good information. I was just wondering how good do you think FMC's intelligence is on how much new capacity is actually being brought on in China over the next couple of years?

We think it is pretty good.

You think your intelligence is pretty good?

Yes and it's not just FMC's intelligence. This is a true AMSAC. You are really talking about the combined intelligence of five or six companies. There are several of us who have permanent assets on the ground in the way of employees and follow what is happening in the Chinese soda ash market very closely. I think we've got a pretty good handle on exactly what the cost of production is by facility over there. We think we've got a pretty good handle on announced capacity additions. We think we've got a pretty good handle on planned but unannounced capacity additions. I could be wrong.

If I could follow-up with you, I would appreciate that.

John Roberts, Buckingham Research.

Most of my questions have been answered, but did you provide a breakdown in the specialty chemical BioPolymers area between the three major product lines -- microcrystalline, cellulose, carrageenan and alginates? I thought you did it by end market but not by product?

You are right. We have not given it by product, and we will not give it by product.

Let me try something else then. The pharmaceutical area overlaps both the lithium and the BioPolymer areas. Is there anything coordinated between that, or is it just two distinct areas of the pharmaceutical industry that they serve?

John, other than customer name, they sell to different parts in the customers, so we do coordinate some customer information between the businesses. But they both have their own sales efforts and really very different development cycle times between the synthesis side and the incipient business.

Byron Limb (ph), Sussex Investment Advisors (ph).

For the Astaris debt, there is a certain amount that you are responsible for that I guess is the maximum liability that the keep-well payment could be. What is the level of that debt?

Byron, at September of 3003, that debt was $85 million. If that is the total amount of Astaris debt, our obligation obviously is limited to one-half of that. And technically we're not responsible for the debt. We are responsible for shortfalls in EBITDA projections, but it is effectively as you characterize it responsibility for the debt.

Okay. And then are there any types of pension cash contributions that you are going to be making that is above the pension expense running through the income statement?

This is Kim Foster, the CFO. We have stated previously that we don't have any obligations as far as pension funding, but we have elected to make some pension contributions in '03. It is a matter of optimizing what our future pension contributions would be. Those contributions in '03 will be on the order of $7 million.

What about '04? Have you decided on that?

Well, we certainly have an anticipation through our budgeting process, and there, again, although no obligations, we expect to make some pension funding contributions around the same order of magnitude as the '03 contributions.

And then finally for the operating rate for the phosphorus production, after you do the rationalization of your plant, what do you anticipate the industry operating rates will be?

Good question, difficult to answer given the complexity of the different products made across the industry. We have said that Astaris' capacity utilization should rise both from 61 percent to north of 90 percent. Astaris represents 40 percent of the industry capacity. You can back into what that is probably going to do to overall capacity utilization levels, but it will raise it materially.

So probably it will be 70 to 80 type of range?

I would think higher than that.

Kevin McCarthy, Bank of America.

My question is on hydrogen peroxide. I know you have been proposing price increases there. Again, a nickel a pound earlier this year, but I also know that you have contractual provisions with some large buyers that may give them some stability. Could you talk a little bit about how much upside you would expect on pricing say in 2004 versus 2003 in hydrogen peroxide?

Kevin, you are asking me to get ahead of the process that we are engaged in right now in negotiating contracts. And ahead of it -- I mean to know what competitive price caps were put in place last year. As a result, I cannot answer the question today. I can answer it theoretically. Theoretically, the maximum is 5 cents. The reality is going to be something less than that, but how much less we are going to have to wait another 160 days or so before we really know.

Okay. Fair enough. Thank you.

Andy Tar (ph), Lumen.

A quick question. Kim, can you rundown quickly the balance sheet? Have you retired the MTMs that are due in December or Just the 125 of the September '03 notes?

The MTMs retirement has not been done. That will be done in the September. The 6 3/4 notes we did retire in September.

And term loans, what? Still around 244 to 245?

That is right.

What are the amortizations on the term loan in 2004 and 2005, if any?

Very small. The nominal on what you would expect on something like this; the nominal 1 percent or so.

At this time, there are no further questions.

Thanks, operator. Obviously that ends our call. Let me recap just for a second for you what I think has transpired in what we have said.

We feel pretty good about the third quarter despite continuing what to us at least is an anemic economy despite the weak pest pressures that we saw in North American agriculture in the third quarter and despite the challenges that continue to be presented across the spectrum of our industrial chemical businesses. We hit the midpoint. We took the actions in Astaris we said we were going to, and we are ahead of our plan for free cash flow.

We remain confident with respect to the fourth quarter and, therefore, the full year, subject to the normal caveats that we always attach to the outlook for our agriculture business, and we are bullish about the prospects for significantly improved results for the Company over the next several years. Both earnings and free cash flow should increase significantly.

With that, let me again thank you for joining us, and I look forward to talking to you in the weeks and months ahead. Thank you again.

Thank you for participating in today's conference call. You may now disconnect.