富美實 (FMC) 2004 Q1 法說會逐字稿

Good morning and welcome to the 2004 first-quarter earnings release conference call for FMC Corporation. All lines will be placed on listen-only mode throughout the conference. After the speaker's presentation, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS). I will now turn over the conference to Mr. Eric Norris, Director of Investor Relations for FMC. Mr. Norris, you may begin.

Thank you, Mickey (ph), and good morning everyone. Welcome to FMC’s first quarter 2004 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 2003 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 terms. On our FMC Investor Relations site available at IR.FMC.com, you will find the definitions 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'll use on this call, to GAAP, also available on our website.

Getting on to the agenda. The agenda for the conference call is as follows. Bill Walter, Chairman, President and CEO will review highlights of the quarter and provide some analysis of the drivers of our financial performance. Then, Kim Foster, Senior Vice President and CFO will review free cash flow and debt. Bill Walter will wrap up the discussion and outlook for 2004 and close the prepared portion of the call. Afterwards, we'll take your question.

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

Thanks, Eric, and good morning to all of you. We had a strong start to 2004, a year that we expect to be a major turning point in our financial performance. We significantly exceeded our earlier expectations, delivering earnings of 38 cents per share. Our results were driven by continued outstanding performance in Agricultural Products, thanks, in large part, to a robust Brazilian crop protection market and the successful implementation of our focused business strategy. And, finally, the remainder of our portfolio delivered as we'd expected and remains on track for a much stronger 2004 than what we experienced in 2003.

Let me start with some of highlights of the quarter. After-tax income before restructuring charges and on a continuing basis was $13.9 million, or $0.38 per share, over seven times last year's $0.05 per share, largely due to higher operating profit and lower interest expense. On a GAAP basis, we reported net income of 5.5 million, or $0.15 per diluted share. GAAP earnings were lower, due to the restructuring and other charges of $6.6 million after-tax, or 18 cents per share that we took, which were largely related to the ongoing restructuring efforts at Astaris. And secondly, an environmental charge to discontinued operations, $1.8 million after-tax, or approximately $0.05 per share.

Sales of 505.7 million were up 17 percent versus the first quarter of 2003. Here again, Ag Products was a key driver, with segment sales increasing 35 percent versus the prior-year quarter. A broad-based increase across both insecticides and herbicides was driven by a robust Brazilian farm economy, above normal pest pressures, and growth in new products. Market improvement in Asia versus a depressed 2003, and a stronger euro also provided a boost to the quarter.

Industrial Chemicals sales were up 10 percent from the prior-year quarter, largely as a result of higher domestic selling prices, increased soda ash volumes, strong Foret performance in peroxygens and phosphates, and the favorable impact of foreign currency.

Specialty chemical sales were up 6 percent, driven primarily by BioPolymer's growth in the pharmaceutical market and favorable FX translation. This segment also experienced increased demand in the food ingredients and lithium battery markets. Favorable foreign currency translation across the entire corporation accounted for $21 million of our quarterly increase in sales.

Operating profit before special items of $38.9 million was up 33 percent versus the first quarter a year ago. Ag Products' operating profit improved nearly fourfold from 5.3 in the first quarter of 2003 to $19.7 million in the current quarter. The quarter-over-quarter improvement resulted from the increased sales, improved product mix, and reduced manufacturing cost.

Higher SA&R expense, due primarily to the success of our product development efforts and our higher sales, was the only offset to the business's significant increase in operating profit. Despite higher sales in Industrial Chemicals and some modest improvement in the Astaris venture, due to the restructuring, Industrial Chemical earnings were $3.1 million below the prior-year period, due to lower soda ash export prices and higher energy costs.

Earnings in Specialty Chemicals were essentially flat as higher raw materials in BioPolymer offset the benefit of higher sales in the quarter. Favorable foreign currency translation across the entire corporation contributed $2.6 million to an increase in operating profit in the quarter.

Interest expense net was 20.4 million, a decline of 4.9 million versus the same period last year, due to the lower rates following our December term loan repricing and lower debt levels.

With those as highlights, let me provide some more detailed commentary by business, starting first with Ag Products. The strength of Ag's performance is a testament to the success of our focus, our global alliance initiatives, and the cost reduction strategies that we had been pursuing over the past few years. At the time of our last conference call, we had expected Ag's performance for the quarter and for the year to strengthen as a result of these strategies. What we had not fully anticipated was the strength of Brazil's farm economy and the higher than normal pest pressures in Brazil, particularly in cotton.

Brazilian farm economy is enjoying a remarkable period of growth, driven by its competitive cost position, modern farming techniques, and increases in accessible aerable acreage. These factors, combined with high global commodity prices for cotton and soybeans, have resulted in boom market conditions for the Brazilian crop protection market, which has grown at least 30 percent over the last year.

As many of you know, pest pressures can have a material impact on Ag product's financial performance in any one quarter. Typically, we work under the assumption that there will be normal pest pressures. During this past quarter, very strong pest pressures developed in Brazil, particularly in cotton, promoting the use of rescue insecticides. As the quarter progressed, it became clear to us that Brazilian market conditions and strong pest pressures would result in a significant sales increase and much stronger earnings in the business then we had earlier expected. As strong as the Brazilian market is at the moment, it's important to point out that the growing season in Brazil has come to an end. And as a result, we do not expect Brazil to have any ongoing effect on our results in the second and third quarters.

That said, we continue to have confidence in our Agricultural Products business. Over the coming quarters, we will share details about additional steps we're taking to reduce manufacturing costs, leverage our SG&A infrastructure, progress our focused market access alliance initiatives, and launch several new products acquired through our strategic alliances.

Moving on now to the rest of our portfolio. As I earlier indicated, things are largely on track. Starting first with Industrial Chemicals. In our alkali business, price and volume have trended as we expected. Domestic prices are up, while export prices are down. Overall volume growth is up in the mid single digits over the previous year, mainly the result of strong export demand. Also, as we anticipated, Salva (ph) has announced their intentions to mothball the American soda ash operations, and Chinese production has been curtailed due to high salt, energy and freight costs.

North American industry capacity utilization has risen to about 97 percent, a sold-out condition for all practical purposes. Unfortunately, land and ocean freight and energy costs were a greater drag on earnings then we had earlier anticipated. We expect the freight situation to improve during the balance of the year. Furthermore, export prices have stabilized and domestic market conditions appear favorable for further price increases during the next contract cycle.

In peroxygens, both domestically and in Europe, price and volume trends were positive. European hydrogen peroxide volume growth of 4 to 5 percent is still trending ahead of North America. However, we have seen evidence recently of an improved North American paper market. European capacity utilization remains at 95 percent, and North American utilization at 91. Higher natural gas costs on our unhedged balance unfavorably impacted the quarters earnings.

In phosphorous chemicals, selling prices were up slightly versus the prior-year quarter and versus the fourth quarter of 2003. In the past few months, broad-based price increases were announced in both North America and Europe. The impact of these increases will be mitigated by contractual restrictions this year. Nevertheless, we expect some modest improvement in selling prices as the year goes on.

The impetus for higher prices has been driven by global capacity reductions at both Astaris and Rhodia (ph), as well as China's inability to supply due to power shortages. In several reported cases, in fact, Chinese producers have had to shut down their elemental phosphorous units altogether.

At Astaris, restructuring remains on track. Conda, Green River, and the Bedford Park distribution facilities are all down, and customer demand for these plants has been successfully transitioned to the remaining network. The last facilities to be closed, Trenton, will be shut down during the second quarter, as remaining products are transitioned. As importantly, the savings projected from these transitions are also on track and are expected to hit our P&L as planned.

Turning now to Specialty Chemicals. BioPolymer sales growth was very consistent both with what we had expected and have seen over the past several years. As I indicated earlier, however, earnings growth was not as strong, due to the impact of higher raw materials, primarily seaweed-based inputs. We are implementing selective price increases and diversifying our supply base in an effort to offset this unfavorable impact. However, we expect the impact to linger through at least the second quarter and partially offset the otherwise-strong earnings growth we would typically expect to see in BioPolymer.

Lithium's performance was also very consistent with our expectations. The balance of the year for lithium should look a lot like last year. We expect a spike in pharmaceutical synthesis demand during the second quarter and steady demand growth in primary batteries throughout the remaining nine months of the year.

In summary, we had a quarter driven by Ag products, but the balance of the business is performing as expected. And we remain poised to deliver strong earnings growth in 2004 and beyond. I would now like to turn the call over to Kim Foster for a review of cash flow and the balance sheet. Kim?

Thanks, Bill. And good morning all. The first-quarter results represent a continuation of the trend we have been experiencing for some time now. That is, the strengthening of the balance sheet and restoring financial flexibility to the company. More specifically, we are targeting to reduce net debt by $300 million between 2003 and 2006. As I reported in the fourth-quarter conference call, net debt was reduced 47 million during 2003 to an absolute level of $856 million.

For the year 2004, we've targeted an additional 20 to $40 million in net debt reduction. As we have discussed previously, the normalized trough free cash flow for FMC should be approximately $100 million. During 2004, we expect to incur the last significant unusual draws on this cash flow. Specifically, we anticipate making approximately $40 million in keep-well (ph) payments to Astaris, and incurring approximately $35 million in shut-down and remediation spending at Pocatello.

As Bill mentioned, the restructuring at Astaris is on plan, and the commercial outlook is beginning to brighten. As I mentioned in the last conference call, after the keep-well payments are made by FMC and Solutia in the second quarter of 2004, Astaris should be debt-free. Assuming favorable financial market conditions in the second half of 2004, we believe Astaris will be well-positioned to refinance itself independent of parental assurances. Any benefit from an Astaris refinancing this year will be an upside to the cash flow targets.

For the quarter, FMC's free cash flow was $30 million better than the same period last year. The improvement resulted primarily from higher earnings and lower capital spending. This improvement is consistent with our expectations, and it increases our confidence that we'll meet our full-year net debt reduction target.

Spending on Pocatello shut-down and remediation was $4 million for the quarter. As expected, there were no keep-well payments to Astaris during the quarter. Spending to address legacy and environmental liabilities was $5 million for the quarter. We expect full-year spending to be approximately 25 million.

Working capital for the quarter was 273 million, an increase of $123 million from the beginning of the year, due primarily to the seasonal nature of the Ag Products business. By comparison, the working capital build for the first quarter of 2003 was 121 million. While the working capital increases were essentially the same for each quarter, revenues were higher by $72 million for the first quarter of 2004. We are evidence that our focus on working capital management is paying off.

Capital spending for the quarter was 13 million. We continue to expect total 2004 capital spending to be in line with 2003 or about 90 million, compared to roughly $130 million in depreciation and amortization. As we've recounted on prior calls, we have ample capacity to meet the demand growth within our businesses for the next several years, and therefore continue to spend only that capital necessary for maintenance, profit improvement and regulatory purposes.

Net interest expense of approximately $20 million was significantly reduced in the first quarter, compared to a year ago. The approximately $5 million in lower interest expense was driven by lower debt level and the December repricing of the term loan. We remain comfortable with our full-year guidance of net interest expense of $82 million. Tax rate on operating profit from continuing operations and before restructuring charges was 23 percent. We expect this tax rate to be a good estimate for the full-year tax rate.

In summary, we are continually taking steps to improve our performance, regain our financial flexibility, and we remain committed to reducing net debt by $300 million by the end of 2006.

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

Thanks, Kim. In short, we had a great start to what I think will be a very good year. Ag Products delivered, obviously, outstanding performance in the quarter, and the remainder of the portfolio performance as expected. We are positioned for a strong double-digit growth in earnings in '04. Our strategic objectives remain the same -- specifically, to realize FMC's inherent operating leverage, to create greater financial flexibility, and to focus the portfolio on higher growth businesses. And we continue to make solid progress towards each of them.

Given the strong start we've had to the year, we foresee higher full-year earnings than we had anticipated several months ago. Specifically, we expect earnings of $2.65 to $2.85 per share before restructuring and other charges, resulting from the strong first quarter in Ag Products, and an expected rebound in Industrial Chemicals, largely related to improvement at Astaris and lower interest expense.

For the second quarter, we anticipate earnings of $0.75 to $0.85 per share, due to an improving outlook for Industrial Chemicals and, again, lower interest expense. For the year, as Kim had indicated, we continue to expect debt reduction of 20 to $40 million, a number which should rise above 100 million in 2005 and result in cumulative debt reduction by the end of '06 of 300 million.

Finally, we expect to sustain the rise on our return on invested capital, which should exceed 12 percent by the end of 2006. We believe that successful performance against these three metrics -- earnings growth, debt reduction, and return on invested capital -- is the key for unlocking shareholder value in FMC. With that, I would now like to close the prepared portion of the call and turn it over to your questions. Operator?

Thank you, Mr. Walter. (OPERATOR INSTRUCTIONS). Kevin McCarthy, Banc of America Securities.

Yes, good morning, Bill and Kim. Congratulations on some exceptional Ag results this quarter. I wanted to get a feel for how much of these great results could be sustainable. If I look at the 14.5 million improvement in operating profit year-to-year, just wondering if you might shed some light on how much of that is attributable to your cost reduction efforts versus volume growth from existing products and new products that you've enjoyed?

Kevin, Bill, good morning to you and thank you for the congratulations. A good question; complex answer. First, the majority -- the vast majority -- of the improved results in the first quarter of '04 versus '03, in Ag, are in Latin America, and more specifically in Brazil. That improvement has been broad-based across virtually all products, insecticides and herbicides. It's across older products, current branded products and new products which we've acquired through our strategic alliances. I don't have available to me, Kevin -- and even if I did, I don't think I'd get into the level of detail -- of exactly how much came from each source. But again, the improvement was largely -- well, it was Latin America, Brazil, and largely commercially-driven as opposed to cost improvements.

Okay. That's helpful. Switching gears to Specialty Chemicals -- you mentioned that raw material costs are rising. I have not checked my seaweed cost index lately, but maybe you can shed some light on what that cost pressure is like and how much that is affecting your profitability.

Yes, Kevin, where do I start? The cost pressures are primarily on our warm water bay seaweeds, (indiscernible), specifically. They tend to be focused in two geographic sources, Indonesia and the Philippines, as opposed to broad-based across the world. They were significant enough in the quarter to largely offset what you would expect to be an earnings improvement from the topline growth that we achieved in the second. As I said in my prepared comments, we're doing a couple of things to mitigate the effect of those increases going forward. One, we are broadening our global sourcing to move away from those two specific countries. And think we have opportunities to mitigate that, or the impact of those cost increases. And second, implementing selected price increases in our attempt to recover the impact of it. But again, it's on selected seaweeds. It was significant enough to largely offset a normal earnings growth that you'd expect in this segment, that would accrue to the volume gains that we had.

Okay. Thanks. Just finally, if I may, a clarification question on your Specialty Chemicals guidance. I think you indicated you are seeing, or expect rather, mid single digit revenue growth. And then earnings growth for full-year 2004 to be slightly weaker. I was wondering if that "slightly weaker" is relative to the mid single digit increase in the topline or relative to last year's earnings?

Yes, clarification. It is relative to the revenue growth, Kevin, not to last year --

Okay. So you still see earnings up in this segment?

Correct.

Okay. Thank you very much.

Michael Judd, Greenwich Consultants.

Yes, also congratulations on a good quarter. My question relates to the international price for soda ash. I think you mentioned that it might have flattened out recently. What are some of the drivers there? And what can we expect moving into the rest of the year?

Mike, thank you for the congratulations. Yes, you heard me correctly -- let me back up here. We saw further price deterioration in the export soda ash market in the first quarter '04 versus the prior year and versus the fourth quarter of '03. However, having said that, we also believe those prices have now stabilized. And they've stabilized for two reasons. One, is the export market, or at least the Asian and Latin American markets. Not necessarily export, but those markets. Demand growth continues to improve. And second, the Chinese are experiencing significant production difficulties due to shortages of energy and salt, and escalating both inland and ocean freight costs. So, we've seen a diminishment in the level of Chinese competition in the Asian market. The combination of all of which has led to the stability and provides us some optimism that export pricing has bottomed out and we ought to see some upward movement going forward.

Secondly, in the phosphorous area, again, you mentioned, I believe, that there's some hydroelectric problems, things like that, in China. And there's also some issues around the priorities that the Chinese have for their electricity and how that could potentially impact their ability to export elemental phosphorous. Can you talk a little bit about what impact that is having on the U.S. market, international markets, please?

Be happy to, Mike. I think anybody who follows China understands the challenges the Chinese economy has in providing sufficient electrical power to support all their growth. The result has been curtailments of production allocation of capacity, such that there have been any number of phosphorous producers who have had to shut down at least temporarily during the past quarter and continue into this quarter. The impact of all of which has been a -- almost disappearance of the Chinese in the P-4 market in the U.S. and a resulting shortage of P-4 capacity. Similarly, we have seen the Chinese import of P-4 and sodium tripolyphosphate into Europe decline by almost 50 percent year-over-year. So it is having a significant positive impact on the domestic producers in both North America and in Europe.

And what are the implications for domestic production? I realize it's a different process, but --

I'm not sure there are any implications for domestic production. The implications are going to be for domestic demand, and therefore domestic pricing. You've taken away, albeit a relatively small portion of capacity that had been serving the North American and European markets, but both of those markets are tight enough that the elimination of that capacity will materially tighten each of those regional markets. And simply facilitate the transfer of pricing flexibility to the remaining producers.

Thank you.

John Roberts, Buckingham Research.

Can you hear me?

Yes we can, John.

Bill, when you were first spun off there was a lot of portfolio review activity and even rumors that the Ag business was for sale. has the Ag business earned its way back into the core of the portfolio now? And if so, could you just bring us up-to-date on how you feel about the overall portfolio?

First, you're right in your characterization that we went through a fairly extensive review of the portfolio soon after the spin-off. I guess I'll, second, agree with you that there were rumors about Ag's potential sale. But we never acknowledged -- and won't even to this day acknowledge -- that it was or was not for sale. We have said all along, and we'll continue to say right now, that we believe Ag not only is a viable, but a very attractive business. Both the near-term and longer-term outlook for our Ag business is positive. It's earning the cost of capital well above the cost of capital, demonstrating good, consistent year-over-year sales and earnings growth and significant cash flow generation. So, I feel quite comfortable with Ag in the portfolio, as I do all the rest of the businesses. As I have said all along, however, that every piece of that portfolio is available if some owner wants to -- or some buyer wants to offer us a price that's greater than what we think it is worth to our current shareholders.

Okay. Thank you. Secondly, on the international soda ash market, could you just remind us -- any contract duration terms or issues that would actually preclude price from moving up in the near term if the market is tightening, as it seems to be?

Yes, John, it's all over the map, and it would be tough for me to sit here and characterize what the average export contract looks like. But it's certainly of a shorter duration than what exists in the U.S. Therefore, there are opportunities both for price increases as well as price declines during the course of the year. As a result, if in fact our call on export pricing is correct -- i.e., it is stabilized -- and if the Chinese continue to have production difficulties, I think there's some upside to export pricing through the balance of the year.

Dmitry silversteyn, Longbow Research.

congratulations on your very strong quarter. I have a question actually for each of the business units. In the Ag product, you mentioned -- or in Ag chemicals, you mentioned new product as being contributors to your performance. Outside of the spike in Brazil, I'm looking at new product as a more sustainable driver of growth. Can you give us a little bit more color of what the impact was in the quarter and what we can expect in terms of contribution for new products in the Ag business?

Yes, Dmitry, thank you for your congratulations. The comment about new products in the quarter, with new products in Brazil largely, products which we -- strategic products, which we have acquired from parties through the alliance that we have been building. We would expect continued growth of probably -- well, we'll see continued growth in those products going forward.

Outside of Brazil, the only significant new product we have is Flonicomid (ph), the ISK insecticide, which we still expect to register crop registration on in North America late this year. And could see some benefit from it in this year's results, but more likely 2005.

In addition to just pure new products, Dmitry, as I am sure you understand, we are constantly getting new labels on existing products -- i.e., extending the reach of our existing portfolio chemistries, and that's provided generally positive results across the segment in the first quarter, and should continue through the balance of the year and into '05.

Okay, so if I understand you correctly, then, your enthusiasm, if you will, for continued growth of Ag Products -- obviously not at the rate that you see in the first quarter -- is it mostly due to kind of a return-to-normalized growth patterns versus a somewhat, I guess, so-so year last year?

Our enthusiasm for Ag for this year and next is a combination of a number of things. Not necessarily in order -- a relatively strong farm economy globally, driven by high commodity crop prices. Second, the success of our focusing strategy that we started implementing here about 18 months ago. Third, new product and new labels, both new products from both -- primarily from our alliances, and new labels from existing products. And finally, our continued cost reduction efforts largely in the manufacturing area where we are outsourcing the intermediates of most of our products.

Okay. Understood. In Industrial Chemicals, can you -- it has been a while since you updated us on how things are going on in Europe with Foret, in terms of their various businesses and the market dynamics in that part of the world.

Let me try to give you a 30,000-foot view and talk to only the two largest product lines, phosphorous and peroxygens. First, phosphorous demand continues to improve. Second, import competition from the Chinese has declined, as I said, nearly 50 percent year-over-year. Third, Rhodia has closed one of their sodium tripolyphosphate plants in Europe and have additional assets up for sale. The result is a phosphorous market today that is -- a phosphorous industry today that is operating at fairly tight utilization rates. And we have seen positive price movement in the first quarter and expect that will sustain itself through the balance of the year.

The hydrogen peroxide demand in Europe continues to grow at about 4 to 5 percent a year. Capacity utilization in Europe today is 95 percent. The two small capacity additions that have been announced, first, only total 30,000 tons. Neither of those will come on before late '05. And therefore, we have seen already in '04, upward price movement. And we would expect that to continue through '05.

Do they have similar long-term contracts that you have in the U.S. for hydrogen peroxide?

Yes, they do. They tend to -- well, probably not quite as long, but they tend to contract on semiannual to annual basis. But the -- period, paragraph -- Having said that, and I think as we have talked in previous conference calls, the industry was successful in getting through a price -- the European industry was successful in getting a price increase through last year, and that has stuck. We are realizing most of the value of that right now.

Okay. Very good. Speaking with phosphorous in the U.S., with the Astaris restructuring proceeding and one plant left to go, as far as closure of facilities, I have a couple of questions. Number one is, between the price increases and lower cost of operation, has Astaris's performance improved enough for you to potentially have a lower keep-well payment? Or are you pretty much resigned to paying the full 40 million no matter what?

And secondly, you talked about possible price realization in Astaris as well, which was a little bit below what denominated (ph) prices were, obviously, because of contracts. Again, the question is -- are the contracts in the U.S. one to two years? And are there a lot of caps in the contracts that are out there right now in terms of maximum price escalation?

Dmitry, to your first question, there is probably -- we're probably being conservative in the guidance we are giving with respect to the Astaris keep-well for this year, but conservative only in a little bit. The keep-well payment is pretty well set, based upon the Astaris performance to date and ought to be in the range of 35 to $40 million. Again, let me emphasize that at that point, the keep-well obligations for both Astaris and FMC go to zero.

Second, with respect to price realization and contract terms, Astaris, similar to our peroxide and soda ash business, tends to contract on an annual calendar year basis. And therefore, the ability to realize price improvement through the course of a calendar year is limited. And, similar to what we had seen in peroxide and soda ash, in the relatively-weak markets of the last two years, there have been a number of multi-year contracts put in place with price caps, which will limit, at least short-term, the amount of price realization that Astaris is going to enjoy. Having said that, the industry is essentially sold out. There are supply delivery problems, and we are fairly confident that we will see some price increase this year, significantly more in 2005 and 2006.

And finally, you mentioned freight as one of the offsets to EBIT growth, especially in the Industrial Chemicals. Is it possible -- I know that in soda ash you have your annual price increase, and chances are you're not going to be able to renegotiate a mid-year price increase, despite the tight capacity. Is it possible to at least pass through a freight surcharge of some sort, or an energy surcharge?

We would hope we could, Dmitry. In fact, we announced a transportation surcharge effective April 1. To date, it is difficult to tell what success we're going to have in it, although I must acknowledge that the rest of the competitors have not exactly jumped on that opportunity. I'm disappointed, but we're going to continue to push, as the leader in the industry, for improved pricing however we can get it.

Okay. Switching gears, and my final question, on Specialty Chemicals. You mentioned that lithium was impacted by a non-recurrence of a pharma contract. Is this the last quarter that this is going to be in evidence? And going forward, what is the growth in rechargeable batteries that we should be looking for as a driver for lithium performance?

Dmitry, first with respect to the pharmaceutical piece of lithium. Increasingly -- and I think we've said this in the past -- there's going to be lumpiness quarter-to-quarter and year-over-year in the lithium business. Pharmaceuticals represents a growing portion of our total lithium offering, our total lithium sales. And our lithium customers in the pharmaceutical industry tend to campaign produce their products. Therefore, we will see, and I repeat myself, just lumpy demand. So it's not any one single contractor, even a small group of contracts; it's the nature of the business. With respect to secondary batteries, I think you'll continue to see, globally, at least a 10 percent increase in (technical difficulty). With the pick-up of technology industry and telecommunications industry, and the continued growth in consumer demand, and finally the product of choice -- lithium ion (ph) or lithium polymer batteries -- 10 percent is probably a conservative number.

Okay, and can you refresh my member -- how big of a percentage of lithium goes into the rechargeable batteries?

Batteries in total, both primary and secondary, represent about 20 percent of lithium sales.

Okay. Thank you. Thank you very much.

Andrew Cash, UBS.

Hi, guys. Actually, this is Don Hooker for Andy. A quick question regarding your energy costs -- you mentioned that energy costs hurt your alkali business. Could you remind us roughly percentage of your variable, of your cost, in alkali? What percentage of that is energy and your hedging of that? I understand you had some hedging previously -- maybe has expired? Could you talk about that a little bit? Thanks.

Don, you were breaking up, and I think I only got the first half of that question, which was to remind you what energy costs are a portion of our alkali costs? Could you repeat the second half?

Can you hear me now?

Yes, that's much better.

I was inquiring regarding your hedging strategy there -- had you previously hedged against energy costs, or hedges expiring? Could you elaborate on your hedging strategy?

Don, thanks. I did hear it this time. First of all, energy cost for the typical soda ash producer in Green River represents about 30 percent of their manufacturing costs. That will vary a little bit depending upon a particular producer's mix of energy -- those that are more natural gas intensive, that percentage is higher. For people like us that have got a broad base of energy -- coal, electricity and natural gas, that percentage is probably a little bit lower.

With respect to our hedging policy, we hedge forward 80 percent of our natural gas requirements, hedge forward twelve month. We don't have -- those are expiring all the time, and are being replaced, so the impact that we talked about in the quarter is not the result of an expired hedge and significant exposure. It's just on the 20 percent of -- well, it's two things. It's one, the average hedge price in the first quarter of '04 is higher than the average hedge price in the first quarter of '03. And second, the 20 percent unhedged is also at a much higher average price than what we experienced a year ago.

Okay. Thank you. And also a follow-up on an earlier question about the phosphorous -- I think you'd mentioned in a previous conference call that your operating rates there were roughly, in Astaris, in the U.S., were about 90 percent -- is that still true? Is that rising? At what point can we expect it to be sold out?

Don, you're right in your memory. We said that with the restructuring, Astaris's operating rates would move from the low 70 percent level into the 90 or above -- that is where we are. Simple math would say that with a 3 percent annual growth in end-use markets, you are within a year or two of at least Astaris being fully sold out. The rest of the industry, particularly with the declining import competition from the Chinese, is tightening fairly significantly. The net is that the phosphorous industry today, at least in some products, not necessarily across the board, is already tight and getting tighter. Which is providing the support for the positive price movement that we are beginning to see.

Okay. And you had mentioned in the previous question that these are priced on a calendar basis, so perhaps you will get pricing next year, but w should not expect too much this year. Is that your message?

That's correct, we will see some price improvement this year. In fact, as I said in my comments, we have already seen, on average, higher prices in the first quarter of '04 than what we had in the third quarter of '03. But the real impact in Astaris will be in 2005.

Okay. Great. Thanks a lot guys.

Byron Limbs (ph), Fight (ph) Investment Advisers.

Yes, for the contracts that are sort of limiting the price increase at Astaris, roughly what is the percentage of business that's under contracts versus the merchant side that can realize the immediate benefit of the price increases?

Byron, about 70 percent of Astaris's volume, as the calendar rolled over to January 1, was under contract. That percentage declines as we move into '05, but again, '06 probably drops to 40 or 50 percent next year.

Okay. And, is Astaris free cash flow positive?

Yes it is, excluding the restructuring charges.

Okay. For the Legacy environmental costs -- things like was spent at Pocatello and so forth, are you going to have any of these types of costs in '05 and '06?

Byron, this is Kim Foster. There are two different costs that you talked about. One was the Pocatello shutdown and remediation costs, which I indicated would be approximately $35 million in '04. There will be some tail on that, substantially diminished in those out years, as we will largely be (technical difficulty) that project by the end of '04. As it relates to the other Legacy environmental charges, which are for our discontinued operations, and not including the cost at Pocatello I just talked about, which is about $25 million a year, we expect, due to the nature of those costs and the nature of the relationships and planning that the EPA does, to be relatively constant for the next few years. The crystal ball after that starts to get cloudier.

Okay. And finally, when you talk about the seaweed prices going up in Indonesia and the Philippines, what are driving those price increases? Is it a seaweed shortage? Or higher energy cost to harvest? Or shipping? Or a weak U.S. dollar?

Byron, the energy component of drying seaweed is the sun. We've not seen any significant increases in that. It's a combination of two things, Byron. One is weather, and weather has curtailed the amount of -- weather has curtailed both the amount and the quality of seaweed that is being harvested and delivered to us. And so, that in and of itself, has got a two-pronged effect -- one, we're just paying a higher price, and second, we're getting a lower yield for the material that we receive. And the second is, there has been a global increase in the demand for seaweed as demand for carrageenan and alginates and other seaweed-based materials continue to grow.

Okay. Great. Thanks a lot.

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

Well, first of all, thank you. We had a great start to what I believe is going to be a very good year. And from my perspective, the momentum continues to build for very, very strong earnings growth and cash flow generation over the next few years. Demand growth is improving in all of our businesses. Industry conditions in our industrial chemical businesses are all favorable, with essentially a sold-out situation in soda ash and capacity utilization rates in the low to mid-90s in hydrogen peroxide and phosphorous chemicals. Our strategies in Ag are paying off, and the longer-term future for this business has never been brighter. And finally, the outlook for our specialty chemical businesses remains positive.

As a result, our confidence in the full-year outlook is high, obviously, with the normal caveat of assuming normal pest pressures in North America, as is our excitement about the next few years. I thank you for joining us, and to those on the phone who are shareholders, thank you for your vote of confidence in us.

With that, we will sign off. I look forward to seeing many of you over the course of the next few months. Thanks again.

This concludes the 2004 first quarter earnings release conference call for FMC Corporation. You may now disconnect.