富美實 (FMC) 2003 Q4 法說會逐字稿

Good morning and welcome to the 2003 fourth-quarter earnings release conference call for FMC Corporation. Phone lines will be placed on listen-only mode throughout the conference. After the speakers' presentation there will be a question and answer period. (OPERATOR INSTRUCTIONS) I will now turn the conference to Mr. Eric Norris, Director of Investor Relations for FMC. Mr. Norris, you may begin.

Thank you; and good morning and welcome everyone to FMC's fourth-quarter 2003 conference call. 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 upon today's information. Actual results may vary based upon these risks and uncertainties.

During the conference call, we may refer to non-GAAP financial terms. On our FMC investor relations website you will find the definition of 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.

The agenda for the conference call is as follows. Bill Walter, Chairman, President and CEO, will review highlights of the quarter. Then consistent with our practice throughout the past year, in which we feature one of our businesses, Bill will turn the call over to Michael Wilson, Vice President, Industrial Chemicals Group, for a review of that segment. Following Michael, Kim Foster, Senior Vice President and CFO, will review cash flow and debt. Bill Walter will then discuss outlook for 2004 and close the prepared portion of the call. Afterwards we will take your questions.

It's my pleasure to turn the call over now to Bill Walter. Bill?

Thanks, Eric, and good morning to everybody. 2003 was a year in which we met or exceeded on both the financial and operational targets we had set for ourselves at the beginning of the year. Our fourth-quarter results were an essential ingredient in our full-year success.

First, we exceeded our fourth-quarter earnings estimates, delivering 76 cents per diluted share, versus the previously guided range of 65 to 70 cents a share, due largely to the stronger top-line growth in ag products. Second, we continued to make headway in improving industrial chemicals performance, including initiating a major restructuring in Astaris and achieving higher domestic selling prices in 2004 for both soda ash and hydrogen peroxide. And finally, we ended the year with lower net debt than expected.

Let me start with some highlights on the stronger than expected performance in the quarter. After-tax income for the quarter, before restructuring charges and on a continuing operations basis, was $27.2 million or 76 cents per share, 23 percent higher than last year's 62 cents per share. Favorable currency translation accounted for 1.6 million or 3 cents per share of the quarter's favorable results.

On a GAAP basis we reported net income of $6.3 million or 18 cents per diluted share. GAAP earnings were lower than reported due to two things, the restructuring and other charges of $7.6 million after-tax or 21 cents per share, largely related to the ongoing restructuring at Astaris; and second, an environmental charge to discontinued operations of $13.3 million or 37 cents per share, related to a number of legacy sites.

Sales of $506.9 million were up 10 percent versus the fourth quarter of 2002. Ag products was the key driver, with segment sales increasing 30 percent versus the prior year quarter. A broadbased rebound in Brazil and strong demand in Europe drove this significant improvement.

Industrial chemicals sales were up 4 percent from the prior-year quarter, driven by higher peroxygen selling prices, the favorable impact of foreign currency at Foret, and increased soda ash export volumes. These were partially offset by weaker soda ash export prices and lower domestic hydrogen peroxide volumes in the pulp market. And as expected, specialty chemicals' quarter over quarter sales were roughly flat as BioPolymer's growth in the pharmaceuticals market was offset by lower lithium sales due to timing.

Operating profits before special items was essentially flat despite the decline in equity earnings and affiliates. Ag products earnings improvements of 36 percent was driven by their higher sales. Industrial chemicals, despite higher sales, earnings declined due to several reasons. One, the ongoing weakness at Astaris, the results of which, while improving, are still below the fourth-quarter 2002 levels. Higher freight cost in our alkali business; and finally, higher energy costs. Finally then, earnings in the specialty chemicals segment were up slightly due to improved mix.

I would now like to turn the call over to Michael Wilson who will provide an update on our industrial chemicals business. Michael has assumed responsibility for the industrial chemicals group late last year with the retirement of Bob Harries. Prior to his current assignment, Michael had been division manager of our lithium business. He's done a great job getting up to speed on all of our industrial chemicals businesses, and I'm pleased to have him on the senior leadership team. Michael?

Thank you, Bill, for the introduction; and good morning. I'd like to spend my time with you today discussing our soda ash and peroxygen business, reviewing our recent round of successful price increases in North America. I will only touch briefly on phosphorus chemicals. Much of the story there concerned the Astaris restructuring, which, while going quite well, is still in its early phases. I plan to provide a more in-depth review of Astaris during another conference call later this year when the restructuring is further along.

Let me began by first providing a brief summary of our industrial chemicals businesses. We are a low-cost producer of inorganic chemicals with number-one market positions in North American soda ash; hydrogen peroxide and persulfate, collectively referred to as peroxygen; and phosphorus chemicals. In North America we participate in phosphorus chemicals through Astaris LLC, a 50-50 joint venture with Solutia. In Europe, FMC Foret, our wholly-owned Spanish subsidiary, is one of the leading inorganic chemicals producers on the Iberian peninsula, participating mainly in phosphorus chemicals and peroxygens.

For the year just ended, we reported full-year segment sales of $770 million, up 2 percent from 2002. Sales were up primarily due to higher peroxygen selling prices and favorable foreign currency translation at Foret. These gains were partially offset by lower export prices in soda ash and weaker North American hydrogen peroxide volume to the pulp market. Earnings of $34 million were down substantially from 2002, due primarily to weaker affiliate earnings from Astaris, which was impacted by competitive pressures and the absence of a power resell benefit realized in the prior year.

Our largest consolidated industrial chemicals businesses is our alkali business, which consist predominantly of soda ash. This division represented 47 percent of segment sales in 2003. FMC holds a 29 percent of share of the North American soda ash market, and we are the lowest cost producer in the world. Other North American producers include Solvay, OCI, General Chemical, and IMC.

All North American producers manufacture soda ash from naturally occurring deposits, most of which are in Wyoming. This resource provides North American suppliers a cost advantage of nearly 50 percent versus the most cost-efficient synthetic production, the predominant mode of soda ash manufacture outside of North America. As a result of this advantage, natural soda ash producers are able to compete in many markets outside of North America, primarily those in Asia and Latin America. All North American producers, with the exception of IMC, participate in ANSAC, a legalized export cooperative. Exports currently represent over 40 percent of all North American production.

About half the demand for soda ash is for the production of glass of all forms, architectural, flat, automotive, container, and fiberglass. The effect of plastic substitution for glass and beverage containers in North America has resulted in essentially flat domestic demand for soda ash for several decades. In developing regions of the world, soda ash demand tends to grow with GDP. The net result is that demand for U.S.-produced soda ash has grown at 1 to 3 percent per year for the past decade. Because of expected share gains in export markets by ANSAC, growth in 2004 is expected to be at the upper end of this range.

The most significant determinant of industry pricing, and therefore profitability, is the balance of supply and demand. Since 2000 when the greenfield operation of American Soda came online, the profitability of the U.S. soda ash industry has been hurt by overcapacity and weak pricing. American Soda entered the industry with the false premise that its technology would superior to that of existing U.S. producers. After two years of operating at a substantial loss, the operation has been acquired Solvay for what appears to be a distressed value. Based upon its economics and actions Solvay has recently taken at its Green River, Wyoming, site, we expect that Solvay will shut down the former American Soda facility and consolidate production at its Wyoming operation during early 2004.

A tightened supply situation, in which effective capacity utilization has risen to 94 percent, has led to the best domestic soda ash price increase since the mid 1990s. That said, we were unable to realize the full announced $7 per ton increase across every account, largely because of multiyear contract caps many competitors put in place during the prolonged 2001 through 2003 slump.

Provided current industry conditions continue, we expect to realize a much more significant price increase in 2005. Furthermore, should Solvay shut down the American Soda operation, effective capacity utilization will rise to 98 to 99 percent by late 2004.

Lastly, there are no plant capacity additions in North America; and FMC possesses the mothballed capacity that most rationally should be restarted when the conditions warrant. We would plan to bring that capacity on in increments consistent with market demand growth, but only when prices have reached acceptable levels.

That's the good news. The bad news is that export prices continue to decline, primarily as a result of recent capacity additions in China. However, we expect that any excess capacity in China will be short-lived for two reasons. First, with 8 to 9 percent GDP growth in China, the new Chinese capacity will be absorbed quickly by demand growth. Second, with prices in China projected to remain around 900 RMD, we believe that many smaller, less economic suppliers will be forced to shut down, as has happened historically at this price level.

Higher costs are likely to exacerbate the decline in profitability for the weaker Chinese producers. Increasing costs include energy prices, especially for coal; higher salt cost, a key ingredient to synthetic production, due to a shortage estimated to last six to 12 months; a decrease in the VAT drawback for exported soda ash; and increases in ocean freight for exported goods.

Further pressure will come from ANSAC, which has forecast a significant share gain in Asia this year. The net-net for FMC's soda ash business in 2004 is that higher domestic prices and greater export shipments will be more than offset by lower export prices and higher energy cost. This will result in a slightly lower profit year for our alkali business, despite our pricing success in North America and the stronger demand growth in the export market.

Turning now to peroxygens, the North American business represented 20 percent of segment sales in 2003. We also sell peroxygens in Europe through Foret. While there is substantial specialty peroxygen sales in both divisions, the most significant driver of peroxygen profitability is hydrogen peroxide. In North America, we are the number one producer of hydrogen peroxide, with four geographically well-positioned plants and a 23 percent market share. In Europe we are a niche player with two plants, one in Spain and one in the Netherlands.

Key competitors include Degussa, Atofina, Solvay, Chemera, and AXO. Because hydrogen peroxide is shipped in dilute form in water, the markets are regional in nature. Demand for hydrogen peroxide is driven largely by bleaching needs within the pulp market. The remainder of hydrogen peroxide demand is from the electronics, environmental, and detergent markets. In 2003 total demand growth in the U.S. was about 2 percent, whereas in Europe demand growth was over 4 percent reflecting a relatively stronger European pulp and paper market. Growth rates in 2004 are expected to be similar to 2003 in both regions.

While overcapacity did exist in both regions during the 2001 through 2002 downturn, plant mothballs in the U.S. and demand growth in Europe has helped push effective capacity utilizations up substantially. Capacity utilization is now estimated at 91 percent in North America and 95 percent in Europe. Other than relatively minor debottlenecking opportunities, there are no foreseen capacity additions.

Given this favorable environment, hydrogen peroxide pricing moved up during 2003 and is expected to increase again in 2004. Average 2003 prices were 5 percent higher in North America and 8 percent higher in Europe versus year-end 2002 prices. North American industry is expected to realize another 5 percent increase in selling prices in 2004. In Europe, the industry is expected to gain a similar amount.

Offsetting the favorable effects of higher volumes and prices will be higher natural gas cost. Energy accounts for approximately 50 percent of the cost of sales for the typical hydrogen peroxide producer. Despite FMC's hedging program, the impact of higher natural gas costs will mitigate some of our 2004 profit growth in peroxygens.

When we add it all up, we see 2004 as marking the beginning of a turnaround for industrial chemicals. In soda ash, a domestic price recovery is underway, though export prices will lag that recovery and impact 2004 profitability unfavorably. Hydrogen peroxide, both in North America and Europe, will continue the price recovery which began in 2003. And lastly, at Astaris, the restructuring program remains on plan, with plant closures and product transfers on schedule and with targeted annualized savings of 40 to $50 million still expected. As a result of Astaris's restructuring, industry capacity utilization has increased, and though our forecasts are not dependent on market recovery, we believe some price improvement could also be realized in 2004.

In total, in 2004 we expect our industrial chemicals segment sales to grow at a low single digit rate; segment earnings to grow by well over 50 percent, yet fall short of 2001-2002 levels. In 2005, we expect further improvement in earnings as we realize substantially higher selling prices and begin delivering earnings levels not seen since the 1990s.

With that, I'd like to call over to Kim Foster. Kim?

Thanks, Michael, and good morning, all. As Bill Walter indicated in his opening remarks, we met the financial targets we set at the beginning of 2003. These financial targets are a component of our broader and longer-term strategy of strengthening our balance sheet and restoring financial flexibility to the company. Specifically, we are on track to reduce our net debt by $300 million by the end of 2006. During 2003, we progressed $47 million towards this goal.

2003's strong cash flow performance resulted from superb execution throughout the organization and occurred, as we have frequently discussed, despite the usual cash demands of Astaris's keepwell, Pocatello shut down and remediation costs, and the final cash payment associated with the TG Soda acquisition.

In his remarks Michael Wilson touched briefly on Astaris. Let me add a few additional details. The Astaris restructuring plan has been on track from the beginning. We have detailed plans addressing product qualifications, sourcing transitions, employee communications, and plant shutdowns just to name a few. The goal of course is to improve the profitability and cash flow of Astaris.

As an early indicator, Astaris's gross debt at year end was approximately $71 million, slightly favorable to the projections that were made when the restructuring plan was announced. On December 17, 2003, Solutia, our joint venture partner in Astaris, filed for bankruptcy protection. To date Solutia's bankruptcy filing has had no impact on the operations at Astaris, and Solutia remains a committed partner in the Astaris joint venture.

Admittedly, the newly formed Solutia's creditors committee will exercise its fiduciary responsibilities on behalf of all of Solutia's creditors, and at some point will be reviewing the Astaris joint venture. For our part, we continue to believe that the restructured Astaris creates important shareholder value for both partners.

On December 23rd, we announced a repricing of our $247.5 million term loan facility. As we previously discussed, when we refinanced FMC in October of 2002, we did so during one of the worst financial markets in recent memory. What a difference a year makes! The pricing reduced the applicable margin by 225 basis points, which equates to annual interest savings of slightly over $5 million. In addition, we achieved favorable amendments to the covenants accommodating the financial impacts of the Astaris restructuring.

Looking ahead to 2004, we will be challenged to produce a similar reduction in net debt. That said, we are targeting a 20 to $40 million reduction in net debt, driven once again by a relentless focus on cash flow. Once again, however, our strong underlying operating cash flow will be reduced by usual demands on cash flow that will largely disappear in 2005. Specifically, we project Astaris keepwells at approximately 40 million, and Pocatello shut down and remediation spending of approximately 35 million. We are not including any significant asset divestitures in our projections.

Interest expense in 2004 should be lower by almost $10 million compared to 2003. The lower interest expense is driven by the December 2003 repricing of the term loan, reduced negative carry on lower restricted cash balances, and generally lower debt levels. While not explicitly incorporated in the interest projections, we expect to refinance our revolving credit facility during the latter half of 2004. Our revolving credit facility expires in October of 2005, and we plan to refinance the facility within approximately one year of the expiration date. We will provide more explicit guidance regarding the refinancing as the plan is more fully developed.

As we mentioned previously, the Astaris restructuring plan is off to a positive start. While a significant amount of hard work lies ahead, the positive outlook should provide refinancing options that have not existed for sometime. As the Astaris credit agreement expires in September of 2005, Astaris will be planning a refinancing in the second half of 2004. After the projected first-half 2004 keepwells are made, Astaris should be debt free. Therefore, after demonstrating consistent performance in line with the restructuring plan and when market conditions are appropriate, Astaris should be able to refinance itself independent of parental assurances. We expect these conditions to be present in late 2004 or early 2005.

In summary, we are on target to regain financial flexibility and to reduce net debt by $300 million by the end of 2006. I will now turn the discussion back to you, Bill.

Thanks, Kim. Let me summarize. We had a very strong quarter. We exceeded our fourth-quarter earnings estimates. We continued to make progress in improving the performance and outlook for our industrial chemicals segment. And we ended year with lower net debt.

Looking forward, our priorities for 2004 remained unchanged; namely, to realize the operating leverage inherent in our businesses, to create the greater financial flexibility, and to further focus the portfolio on our higher growth businesses. We expect these efforts to result in full-year 2004 earnings, before restructuring and other charges, of between $2.40 and $2.60 cents per diluted share, an increase of over 25 percent from 2003.

The key drivers of this expected improvement are the continued steady growth in specialty chemicals, driven by our strong franchises in both BioPolymer and lithium; further improvement in agricultural products profitability, albeit at a more modest growth than what the segment realized in 2003; an improvement in industrial chemicals earnings, as Michael earlier described; and the lower interest expense, as Kim just talked about.

Even with this very favorable outlook, we expect relatively flat quarter over quarter earnings in Q1 for several reasons, most of which are timing related. First, the first quarter has recently been, and is expected again this year, to remain seasonably the softest for agricultural products. Second, the timing of shipments in our domestic industrial chemical businesses will cause a shift in earnings to the second and third quarter. Also, the bulk of the Astaris savings are not expected until the second and third quarters, either. And finally, the quarterly timing of pharmaceuticals orders in our specialty chemicals business will be unfavorable in the quarter versus last year.

With that, I would now like to turn the call over to your questions. Operator.

(OPERATOR INSTRUCTIONS) Dmitry Silversteyn with Longbow Research.

Congratulations on a solid quarter. My one question off the bed is, you gave a fairly broad range, 2.40 to 2.60 EPS for '04. Can you kind of give us a little bit more color on what you are looking for to happen in '04 that will make you come in at the high-end versus the low end; and vice versa? In other words, what has to happen for you to do 2.60? And what may happen to make it come in at 2.40?

Thanks for the compliment on the quarter. There are a number of things that could drive us to the high end of the range. Many related to industrial chemicals and related to the (technical difficulty) industrial sector of the economy. If we (technical difficulty)

Is it just me, or are you breaking up?

I am breaking up. I am picking it up my end, too, Dmitry. Can you hear me, Dmitry?

Yes, I can.

I am going to continue to talk my way through this, while we try to figure out what the source of the problem is. I think most of the opportunity for the upside (technical difficulty) actually in two areas. One is in our industrial chemical business, particularly on the domestic side, where stronger economic recovery could provide for more demand growth than we're anticipating.

Second, in our ag products business, the 2.40 is based upon certain assumptions about new label expansions, and (technical difficulty) pressures. If we would be able to accelerate (technical difficulty) and/or get a stronger pest pressure, we could see the high end of that range. (technical difficulty)

Fair enough. I hope you can hear me. I am going to ask my next question. The price increases in peroxide, as you said, you got 5 percent last year; and you got another 5 percent in this year's negotiation. Given that you were going into this year with, I think, two nominations of 3 cents and 5 cents a pound increase, it sounds like you got a portion of the 3 cent. Is the 5 cent to come later? Or are we pretty much done for the year with this 5 percent increase?

Representative: As you probably know, in the hydrogen peroxide market, a lot of the business is based upon annual contracts. And the increases that we got, we really got the maximum limit. When we didn't have restriction, we got full increases. Where we did, we got to the full amount of the cap.

So I wouldn't expect that there will be further increases this year unless, as Bill pointed out, we get a stronger economic turnaround, and we get to more of a sold-out position. If we end up in that scenario, there might be an opportunity for further increases in this calendar year.

Very good, gentlemen. Thank you.

Andrew O'Connor (ph), Strong Capital.

Congratulations on your quarter. Bill, I wanted to know what overall top-line growth would be commensurate with your outlook for earnings in '04? The company actually had revenues of 1.9 billion in '03 and 1.8 billion in '02. What top-line growth overall is commensurate with your earnings outlook for this year? Thanks.

Again, first thanks for the compliment on the quarter. The answer is low single digit. We ought to see flat sales in ag and middle single digit growth in both specialty and industrial.

Can we dissect the revenue growth in terms of unit growth and pricing?

I think as you know, we don't go down to that level of granularity across the businesses. It's really only on industrial that we get down to talking even notionally about what's happening in pricing. And I think Michael covered that very thoroughly.

Okay, fair enough. Secondly, in line with Kim's expectation that the company can reduce debt by 20 to 40 million in 2004, what capital expenditures are you envisioning for this year?

Capital expenditures in '04 should be approximately 90 million.

Kim, can you share with us how these monies will be spent?

Largely the monies, the highest percentage going to our industrial businesses, as you might imagine. More capital intensity. And the lower amounts in our agricultural businesses, as a result of the shift to more of an outsourcing strategy with ag into Asia and other developing countries in the world.

The maintenance CAPEX for the company again is?

We will have to get back to you on that. I do not actually know the specific portion of maintenance CAPEX. Although it is largely maintenance CAPEX in the number.

Okay. Thanks very much.

Kevin McCarthy, Banc of America Securities.

I thought your growth in agricultural products was remarkable; up 30 percent and even higher than the second quarter of '03, which strikes me as an unusual seasonal pattern. Can you talk about what's driving the growth in that business? And how much Brazil was up, specifically?

I didn't catch the last part of that. How much was Brazil specifically?

Yes. Exactly.

Let me talk about the fourth-quarter growth first, and then talk about the year overall. Fourth quarter was driven by Brazil and Europe largely, although we did see growth across all regions in the fourth quarter. Brazil probably accounted for roughly 50 percent of that top line, 50 to 60 percent of that top-line growth.

The growth in Brazil is driven by largely the health of the farm economy down there, which in turn is being driven by -- you can't call them generous, but favorable government policies toward the agricultural sector; as well as not quite record but very attractive global commodity crop prices. We would expect, by the way, that will continue into '04.

Growth for the year is again driven primarily by Brazil and Europe. In fact in North America as you will recall from our last-quarter conference call, had a seen a weak third quarter due to pretty low, by historical purposes, of pest pressures. I guess I'm wandering here a bit here with you at this point, Kevin, but it's Brazil and Europe for the year. Brazil, Europe, and virtually all regions in the fourth quarter.

Where there any meaningful timing issues in the fourth quarter? Any sales pulled forward as far as you can tell from the first quarter, or pushed back into 4Q from 3Q?

Not of any significance, Kevin. The strength in Europe in the fourth quarter was primarily the result of our having got some new labels in the quarter which generated some new demand growth. But that was not pulling forward; but it was demand that we had not had in previous quarters.

Michael, I enjoyed your presentation. Is it fair to say that you got about half of the $7 a ton that you had on the table for soda ash? I thought your comment regarding a potential restart was interesting. What kind of pricing would you need to see in order to contemplate restarting production at Granger?

First of all, I do not want to specifically quantify the amount of the increase we got for competitive reasons. But much like my response on hydrogen peroxide, we feel it was very successful because where we didn't have any contract limitations we got the full $7; and where we did have caps we got the full amount of the cap. So I think we did as best as we could do.

And the good news going forward, as we talked about, one is caps are going to be less of an issue going forward. Secondly, capacity utilization continues to go up. And you can essentially say that we are getting close to a sold-out market. In fact, in certain seasonal periods now, we could have shortages as we get into later '04, which would be a favorable situation for the suppliers.

Thanks very much.

John Getz (ph), Fazena (ph) Investment.

Operator, we've lost John Getz.

Operator Bill Young, CSFB.

Very good quarter, gentlemen. A question about the soda ash area. Mike, why are you convinced that Solvay is going to shut down the soda ash production at the American Soda area?

We think that will be the case for a couple of reasons; predominantly just based on economics. We know that the facility was a high-cost facility. It was not economic. And rationally it would make sense to shut it down. Particularly if Solvay can transition that tonnage to their Wyoming facility where they have a lower cost and can leverage the operating rates there.

Why haven't they done it already?

We see some anecdotal evidence that they are moving in that direction by expansions that they've made in the rail yard and a movement of railcars from the Parachute, Colorado, area up to Green River.

The export price, can you give us an idea of how much that is down?

We don't quantify that. But you can work your way back to it. Make your assumption on the realization on the domestic price increase, and think about a 60/40 split between domestic and export. You can work your way to it. I mean if you assume we got a full $7 a ton on the domestic price increase, we lost $13 on export. If we got $5 domestic, we lost $7 on export.

I don't mean to get cute. We don't mean to get cute with anybody here, but it's just a level, again, of granularity that we would, for competitive reasons, just as soon not get into.

I appreciate what you've given us; thanks.

John Getz, Fazena Investments.

Two quick questions. One, I am going further the discussion of soda ash in the export market. We mentioned the Chinese price. First of all, are to infer that you think that the breakeven production cost is roughly 900 RMB?

And then the second part of that question is, I know that prices have fallen over all in the export market, but were you inferring that the Chinese price has fallen more than it has, say, in Thailand, where you are competing against Chinese exports?

First of all, at the 900 RMB level, we do believe it is a pricing level that many of the less efficient producers in China are not economic. Historically when pricing in China has reached this level we have seen shutdowns of capacity. We've seen shutdowns in capacity outside of China in Asia that haven't come back, and we have seen shutdowns in China which have gone down until market pricing improved.

I would say that the pricing in China has dropped more dramatically than pricing outside. It's predominantly a result of the capacity that was brought on in late '03 and anticipated capacity beginning second quarter of '04, as those suppliers were out preselling that capacity. I can't give you an exact number, but I think China pricing earlier in the year was probably 12 to 1300 RMG and had fallen to 900. So you can get an order of magnitude of the drop.

Thank you. On Astaris, you made the comment about first quarter not really reflecting much of the cost savings yet. I presume from that statement that the fourth quarter, the current quarter, has reflected a continued loss comparable to the third quarter. Is that right? Because nothing really has happened sequentially from the third quarter to the fourth quarter at Astaris.

There was slight improvement in the level of loss in Astaris in the fourth quarter versus the third. But it still operated at a loss.

Right. Thank you very much.

Andrew Cash with UBS.

This is Don Hooker (ph) calling for Andy right now. In your debt paydown prediction, forecast, are you including any sale of real estate in that or are you assuming that is coming down just from organic growth in your core business?

No significant sales of any assets.

So that is just organic. You also mentioned, shifting gears slightly, volume shifting in industrial chemicals away from the first quarter. Is this something unusual for this coming year, or is it something that will be typical going forward?

I think it's a onetime phenomenon, Don. Just a combination of customer order patterns; and our production schedules have a disproportionate share of the domestic volume in the second and third quarters versus history.

You also mentioned some of your operating rates in hydrogen peroxide, which were pretty impressive. How high roughly can those go operating (technical difficulty) go on nameplate (ph) capacity before -- and what percentage of capacity is typically down for maintenance? How high can those operating rates go before you are actually literally sold out?

First of all, the capacity numbers that I am giving you are really percent of effective capacity. So it doesn't include mothballs, though of the capacity in North America that is mothballed, other than ours, none of that is likely to come back. I would say that once you get to anywhere above 95 percent, you're really in a situation where you can have market shortages in a seasonal time of year, if there is any production outage by a supplier. So we are approaching those levels.

Thanks a lot, guys.

John Roberts with Buckingham Research.

Kim, I may have missed it, but the currency benefit in the other income. I would have actually expected you would have had currency benefit in the operating results; and then if anything maybe a slightly offsetting number in other income; not to have a benefit in other income.

I'd like not to get into an accounting discussion; we could talk about this off-line. But in general what we do is we book sales at the current rate and then we make any adjustments between the sales and the hedged rate in other income. And because of what has happened, that that difference has been favorable this year. That is why you see the benefit in other income.

All right. So the currency benefit that a lot of times in other companies we see in operating, we see it down in your other income.

That is right, because we book sales at the current rate, not the hedged rate.

Mike, a couple of questions here on the industrial chemicals side. In '04, if we exclude what you've already got baked in for currency benefit in '04, and exclude the improvement in Astaris, is there a substantial improvement in the rest of industrial chemicals? Because it sounded like higher energy costs and the weaker international pricing was going to be a significant headwind.

Representative: Yes, there are some marginal improvements both in our Foret business that is headquartered in Spain, and improvements in our peroxygens business.

Is the lion's share of the improvement in '04 Astaris and currency?

As we indicated, the biggest driver of the improvement is the turnaround at Astaris via the restructuring. But Foret also is substantial.

Kim, if Astaris refinances later in '04, do you get back any cash from the keepwell payments that have been made, or do they keep everything when they refinance?

Depending upon the timing of the refinancing, we could get some cash back. Or it could affect the deferral plan. But certainly the refinancing would be positive from a cash perspective to FMC and Solutia.

The chargedown in discontinued operations during the quarter, is it fair to assume that is not Pocatello related? That you're head of the curve or at least on track in Pocatello; and this was something else?

Your assumptions are correct, it is not Pocatello. We are on schedule there. This represents a top off of the reserve for a number of historical legacy sites; not being driven by any one particular site. We go through a process fourth quarter generally, annually, of reviewing the adequacy of reserves. This just reflects our judgment of what is necessary to be taken.

Good. I just wanted to make sure it wasn't any sliding in Pocatello. One final question maybe in the industrial chemical business here. Given the concentrated nature of the U.S. soda ash and peroxide market, I am surprised the industry doesn't have contracts with automatic escalators for gas. If you look at the carbon black industry or the industrial gases marketplace, you've got enough concentration to have escalators built into the contracts. Have there been attempts to do that in the past, or any thoughts about in the future?

Let me act as a historian here, given Michael's short term in the saddle. There have been attempts, in fact when I was running the business, to change the contracting and pricing structure, with no success. We have occasionally in recent history been able to implement energy surcharges. But they have not sustained themselves very long. And more importantly have not found their way into contracts when contracts renewed.

It would make sense. We will continue to drive in that direction? But our success will be limited by the willingness of our competitors to move in the same direction.

But it's a more concentrated industry today that when you were running it, in both of them.

Yes, it is. And we've got smarter management now, too.

We can debate that later. Thanks, Bill.

Michael Judd, with Greenwich Consultants.

Question about the tax rate; what is your outlook for 2004? My first question.

The same tax rate as 2003, approximately 22 percent.

It looks like your SG&A and R&D expenses were up a little bit in the fourth quarter. Is that the ongoing run rate for 2004 now?

I think as I commented, we had some timing issues in R&D in ag in the fourth quarter which pushed that up. And to be very honest with you, I'm not sure there if is a seasonal pattern to the fourth-quarter SG&A. But there is no reason, I would think, that it should represent a new higher annualized run rate.

At Astaris, I guess there is a suit going on with Solutia. Is there anything new on that?

There is nothing new to report at this point. We have responded to the suit, and filed a motion for dismissal of the suit, based on a number of counts. It is really back for Solutia to respond at this point.

In terms of a balance sheet item, do you have a number for your postretirement liabilities at the end of the year?

Let us get back to you rather than estimate that number; but yes, we do have one.

Dmitry Silversteyn, Longbow Research.

I have a follow-up question. It sounds like we talked about the price declines in the Asian market and the export of soda ash. You mentioned that that would be, hopefully, a short-term event. How short-term are we talking about? Are we talking about 2005 or 2006 before you are able to increase prices hopefully close to the old levels?

Let me put the capacity expansions there in perspective for you. There were two specific expansions, one which came on in the fourth quarter of '03; and one which is targeted for the second quarter of '04. Combined, those two expansions bring about 900,000 metric tons of capacity into China.

If you look at the size of the Chinese domestic market, which is 11 million tons, and assume a growth rate of about 8 percent, those capacity expansions really only represent about one year's domestic growth. On top of that, we did have a closure of capacity in Asia. OCI recently shuttered a 325,000 ton synthetic plant in Korea.

You completely cut out.

We have come to the conclusion it is your phone.

Is this better?

That is a lot better.

I'm sorry. You were talking about 325,000 tons coming out, recently being shutdown.

I was just adding the note that OCI recently shuttered a 325,000 ton synthetic plant in Korea.

The bottom line is it looks like the new addition, if anything, will bring the market back in balance within a year. Or the demand supply will be in balance within a year given 8 percent growth. Is that a good way of looking at it?

Yes. That would be my take away from the amount of capacity brought on line and the current demand and growth rates in China.

So by the end of 2005, you probably should have some pricing power in that part of the world. Is that the expectation?

We would hope that would be the case. There have also been some other announced capacity increases in future years. But to this point we don't know that any of those have been financed. Certainly none of them have metal in the ground at this point.

How do you look at the IMC's decision to pull out of ANSAC and compete with you guys directly, mostly for the South American market? Do you expect some price declines in that region as well, now?

First of all, we think it's really been a mistake on IMC's part. We think in the long run they would have been much better off in ANSAC. The surface rationale for their exit was to exploit freight advantages that they have, not having inland freight from their position in California to get to Latin America.

Clearly there is going to be some jockeying for business as IMC looks to change the geographic mix of their business; and that's going to have some short-term impacts on prices. There is some conversion and churn among the sales base. But I anticipate that would be short-lived. If you look at what has happened so far, basically ANSAC has increased their share in Latin America. I don't know specifically what IMC has done, but the loss share at this point really has come at the expense of the Eastern Europeans and Bulgaria.

Fair enough. One final question if I may. Was there any prebuying in the fourth quarter in either peroxide and soda ash, to kind of build inventory ahead of the price increases by your customers, that may detract from first-quarter or first-half expectations?

Nothing that I'm aware of, certainly nothing of significance.

Thank you very much.

Kevin McCarthy, Banc of America Securities.

Given the trends you are seeing in battery demand and in pharma, what kind of growth rate do you foresee in lithium, looking out over the next two or three years?

Kevin, the question can be answered simply. There are really four pieces to the lithium business. One I will call the more pure commodity; and that is a GDP business. And the second piece goes into specialty polymers, and that's probably a 3 to 5 percent a year growth. Third, is into pharmaceutical synthesis, and that's probably 6 to 8 percent. And the balance goes into energy storage devices, both chargeable and rechargeable. That is growing in excess of 10 percent. That is more than you asked for, but it's tough to answer your question with a single number.

Perhaps you can comment on your current energy hedge positions.

At this point we are forward hedged through all of '04 for at least 80 percent of our energy requirements.

Thank you very much.

(OPERATOR INSTRUCTIONS) At this time there are no further questions.

Let me, for all of your, recap today's conference call, at least from our perspective. First, we feel very good about the fourth-quarter and the full-year's results. Earnings were above our fourth-quarter guidance and at the high end of the range we provided to you a year ago.

There is clear evidence of improving operational and financial performance, improvements in our industrial chemical businesses. We realized good top-line growth and more importantly significant bottom-line growth in both ag and specialty. Our interest expense is declining, and we ended the year well ahead of our cash flow objectives.

Furthermore, we are bullish about the prospects for significantly higher earnings in 2004. We also believe that the '04 momentum will carry forward for the next several years, when we expect continued earnings growth and even stronger free cash flow generation. With that, let me thank you for joining us today, and for your continued support. I look forward to meeting with many of you in the weeks and months ahead. Thank you again.

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