富美實 (FMC) 2005 Q1 法說會逐字稿

Good morning and welcome to the 2005 first quarter earnings release conference call for FMC corporation. [OPERATOR INSTRUCTIONS] I will now turn the conference over to Mr. Eric Norris. Mr. Norris, you may begin.

Thank you. Good morning and welcome everyone to FMC's first quarter 2005 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 summarizing FMC's 2004 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 nonGAAP financial terms on our FMC Investor Relations website available at IR.FMC.com you will find the definition of all such terms under the heading entitled glossary of financial terms. In addition we provide a reconciliation of certain nonGAAP 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, following Bill, Kim Foster, Senior Vice President and CFO will review the quarters cash flow and discuss our improving credit profile. Bill Walter will then discuss corporate objectives, define the outlook for 2005, and then we will take your questions. Also on the call with us today is Brennen Arndt who as announced the other day will be succeeding me succeeding me in the position of Director, Investor Relations. Brennen is a great addition to FMC and I know he looks forward to meeting you all during our transition in the second quarter. It is my pleasure now to turn the call over to Bill Walter. Bill?

Thanks Eric, and good morning to everyone. The year is off to a very good start with a strong first quarter performance across the entire company. Industrial chemicals is experiencing significant earnings leverage from one of the best pricing environments in a decade. Ag products has delivered another outstanding performance, specialty chemicals is making progress and realizing higher selling prices and improved productivity and our net debt at the end of the quarter is $20 million lower than at the end of 2004, even with the seasonal working capital build in Ag products.

Let me get into more of the financial and operating details with you now. After tax income for the quarter before restructuring and other income and charges was $42.8 million versus 13.9 million in the year earlier quarter. Favorable foreign currency translation added $1.4 million to the quarters results. Added. On a GAAP basis current quarter earnings were 64.5 million, significantly higher than both the prior years first quarter and our nonGAAP pro forma figures due to a $29 million after tax net gain resulting from the sale of a portion of our San Jose land partially offset by restructuring and other income and charges of 7.3 million. Earnings in the prior year quarter included charges that totaled $8.4 million after tax. Sales of $552.4 million increased 9% versus the first quarter of 2004.

Taking a look by segment, Ag products experienced the strongest growth in the quarter due mainly to higher insecticide sales in Brazil, particularly in cotton as well as increases in planted acreage and strong pest pressures. North American sales benefited from a shift in demand from the fourth quarter of 2004 into the first quarter of 2005. Industrial chemicals was also a key contributor to revenue growth with sales up 10% versus the prior year quarter due primarily to higher domestic and export soda ash selling prices, improved selling prices in phosphates and hydrogen peroxide and continued volume growth for hydrogen peroxide in both U.S. and Europe. Specialty chemical sales grew 2% versus the prior year quarter. BioPolymer sales were relatively flat as the benefits of higher selling prices and increased food ingredient sales were offset by unfavorable timing in the pharmaceutical and personal care markets. Higher lithium sales benefited from strong demand in the polymer market and favorable timing of demand in the pharmaceutical synthesis market.

First quarter 2005 operating profit before restructuring and other income and charges of $74.3 million was nearly double the same last year. Ag products earnings increased 71% due to higher sales, improved mix, and continued manufacturing productivity improvements. Industrial chemicals earnings more than tripled due largely to the benefit of higher selling prices across the segment and lower costs at our Astaris joint venture partially offset by higher raw material, freight, and energy costs. Specialty chemical earnings were up 15% due to higher selling prices, lower overhead costs, and favorable foreign currency translation partially offset by increased raw material costs. Corporate expense increased primarily due to higher costs associated with SOX compliance.

As we had anticipated in our March 24, earnings prerelease our results for the first quarter came in much stronger than we had expected in January. Furthermore the better than expected performance was broad-based across the corporation. While I will get into the details of our current 2005 outlook toward the end of my prepared remarks I want to first comment on the sources of unexpected strength in the first quarter and how we think about them for the balance of the year. The main source was Ag products Brazil. During the quarter sales improved significantly due to strong pest pressure particularly in cotton. Growth in planted acreage for cotton and soy beans and the introduction and growth of strategic third party products. With the Brazilian growing season now behind us this concludes a remarkable twelve-month period of strong sales and earnings growth. Assuming a return to normal pest pressures we currently anticipate that earnings in Brazil for the remainder of the year will be generally comparable with 2004.

In Specialty Chemicals we've indicated on previous occasions that the campaign manufacturing nature of our pharmaceutical customers in the lithium business can make earnings uneven at times. This was also a source of unexpected strength during the quarter that is not likely to repeat again for the balance of the year. In other income and expense included a benefit of almost $4 million resulting from gains of energy hedges related to our Foret operations. We view this as a unique event unlikely to the repeat any time during 2005.

In industrial chemicals export selling prices improved throughout the quarter as ANSAC the soda ash export cooperative implemented a significant price increase in Asia. While export prices can vary from quarter to quarter we do expect them to provide an ongoing benefit to our earnings for the balance of the year. However nearly all of that benefit is expected to be offset by higher than expected energy, raw material, and freight costs. That's my summary of the quarter. Let me now turn the call over to Kim.

Thanks Bill and good morning. I want to focus my remarks generally on the opportunities we have ahead of us related to our improving credit profile. But first let me discuss the first quarter from a cash flow and debt perspective. Free cash flow in the quarter was positive $15 million. This compares to a negative 76 million in the first quarter of 2004.

Let me walk you through the major drivers of this improvement. Cash from operating activities improved by 33 million period over period. Income from continuing operations excluding restructuring and other income and charges was the principal contributor to this improvement. Bill has outlined the reasons that income has improved. However, working capital performance also contributed modestly to this better performance. While working capital was a user of cash in the quarter primarily due to Ag seasonal working capital requirements the build was essentially the same in the first quarter of 2005 as it was in the first quarter of 2004. Despite a 9% increase in revenue. We will continue to focus on improving the productivity of our working capital.

Cash flow from discontinued operations benefited from the sale of our San Jose property. As our press release indicates during the quarter we completed the sale of one portion of our San Jose property. On which our former defense business had operated. To the city of San Jose for $56 million. We have an agreement with the city of San Jose for the sale of the remaining approximately 23 acres for another 25 million which we expect to close in 2006 subject to satisfaction of certain conditions including a state environmental review.

One again we continue to explore avenues to monetize nonproductive assets we'll continue to review the viability of any business that cannot sustain its cost of capital through a business cycle. Cash by investing activities is primarily driven by capital spending requirements. Capital spending of 13.9 million was roughly similar to last year while still well below D&A. I will reiterate as I have on many previous calls in the past that we expect to continue to spend below D&A levels. We can expect this relationship to continue even with the strong growth in our businesses as a result of a variety of factors including moth balled capacity in industrial chemicals, outsourcing strategies in Ag products and debottlenecking initiatives within the specialty chemicals business. Net/net for the quarter we reduced net debt by $20 million.

Looking ahead for the balance of 2005 we had previously guided $200 million of expected net debt reduction for the year. This guidance included the benefit of the San Jose land sale. Now with the expectations of higher full year earnings due to the strong first quarter we are increasing our target for net debt reduction in 2005 to $220 million.

Let me now turn to the topic of improving credit profile. Since the last call many of you have asked me to provide guidance regarding the next step in our financing strategy. We have not decided on any specific actions so I cannot be definitive. Let me outline several opportunities we are evaluating. First, our stronger free cash flow resulted in a much faster deleveraging than we originally expected. We are gratified by the upgrade in our outlook by the rating agencies in advance of our credit facility refinancing in the fourth quarter of last year. This indicates that the favorable trends we have been seeing -- that if the favorable trends we have been seeing continue we could expect to obtain a full investment grade status later this year. Such an event would result in the fall away of most of the restrictive covenants that we have had to bear since late 2002.

Additionally we are assessing when the right time is to refinance and reduce our interest expense. Even if our ratings upgrade is delayed longer than we would expect. Our first priority will be to address the 2009 Senior Secured notes. Not only do the notes carry a 10.25% interest rate they contain various restrictive covenants. Our improved credit profile and the favorable credit markets may offer us an opportunity to refinance these notes with favorable economics.

Next with nearly all of our debt in the United States we are not matching the global sources of our profits with the location and currency of our debt. In addition our significant domestic tax loss carry forwards are not efficiently matched to a primarily domestic debt portfolio. And finally we have nearly $200 million of cash overseas with a limited window under the American Jobs Creation Act for repatriation, we are evaluating how and when to repatriate that cash. As you can see our improving credit profile is allowing us to explore several refinancing strategies. The consequence of the next refinancing will be lower interest rates and significantly improved financial flexibility. We have not included any specific benefits from a refinancing in 2005 in our earnings guidance at this time. With that I will turn it back to you, Bill.

Kim, thanks. In summary we are clearly off to a great start in 2005 with strong performance across the Company, significant leverage, and higher selling prices in industrial chemicals and another outstanding performance in Ag. As importantly we expect 2005 to be a year of continued delivery against our objectives. As a reminder those are double-digit growth in earnings, $300 million in net debt reduction by 2006, and a minimum return on invested capital of 12% by the end of 2006.

Let me expand for a moment further on our expected performance on each of those objectives. First, earnings growth. With our strong first quarter performance we have raised our full year earnings outlook for 2005 to $4.15 to $4.30 per diluted share. This implies an outlook for the remainder of 2005 that is largely unchanged from our January outlook but an increase versus 2004 of over $1 per share or 32% if you take the midpoint range.

Let me get into the details by segment. In Ag products with the growing season over in Brazil we expect the strength of the first quarter to result in an increased full year outlook but as I mentioned earlier had little carry over effect on the results for the rest of the year. As you may recall from our guidance in January we expect generic price pressure in North America to be a head wind for the rest of the year. Nonetheless because of the strong start in the first quarter we expect Ags full year earnings to be up about 10%. In industrial chemicals we now expect about a 60% year on year improvement in earnings. Our upward revision versus January is driven by improvements in soda ash export selling prices, partially offset by higher than expected increases in energy, raw materials, and transportation costs. In specialty chemicals our outlook is unchanged. We expect steady growth in earnings resulting from higher selling prices, stable raw material costs and improved productivity. Our recent announcement to close the Copenhagen Carrageenin operation and consolidate production into other FMC facilities around the world is part of our productivity efforts.

For the second quarter we expect earnings before restructuring and other income and charges of between $1.15 and $1.25 per share. With respect to debt reduction we are far ahead of where we thought we would be when in 2003 we set a target of a $300 million reduction by the end of 2006. Through the first quarter of 2005 we've actually reduced about $220 million of net debt and as Kim just mentioned we are on course to reduce it by an additional 200 million by the end of this year. This would result in a net debt of approximately $500 million which would be $100 million less than we had targeted, one full year earlier than we expected. And I think it would be safe to say put us well into investment grade credit quality.

Finally return on our invested capital with strong earnings growth ahead of scheduled net debt reduction and low CapEx requirements our returns have steadily improved since 2003, rising from 8.4% in that year to our expectation of over 11% this. When you add it all up our better than expected performance has taken us one step further toward unlocking value for FMC shareholders and our stock performance since early 2003 certainly reflects that. However we are only part of the way to realizing the full value for our shareholders. We remain bullish about the prospects of continued strong earnings growth for the Company driven largely by industrial chemicals.

Let me elaborate for a moment. On top of the significant earnings improvement we will realize in industrial chemicals in 2005 we expect further gains in 2006 and beyond. We remain in the midst of the most favorable pricing environment in soda ash in the last decade while the already favorable market situation for peroxygens and phosphates both in North America and Europe continue to improve as a result of steady demand growth. We believe the current favorable market dynamics are sustainable for two reasons. First, we do not foresee any significant near term changes in the regional or global supply demand balances in any of our industrial businesses. And, second, the cost pressures on producers as well as the inadequacy of their current investment returns continue to favor a rising price environment.

While it is impossible to predict where prices will settle for the 2006 contract season for any product line, it is not unreasonable to assume that domestically at least, soda ash prices will see a more substantial rise in 2006 than it did in 2005 based upon announced increases to date and expiring competitive caps. Soda ash export prices will also rise though less dramatically than they did in 2005. Price recovery for peroxygens and phosphates should continue on their current trajectories and as in 2005 higher energy raw material costs are expected to partially offset the gains from ongoing price improvement. As a stock that in my opinion continues to be still grossly undervalued such a favorable earnings outlook continues to make FMC a great investment opportunity. With that let me thank you for your time and interest and now I would like to turn the call over to your questions. Operator?

[OPERATOR INSTRUCTIONS] First quarter, Stephen Weiss with Mindflow Capital Investment.

Bill, I have a couple of questions. I'm kind of concerned regarding your higher raw material costs. In the last year or so a lot of your competitors have recently been implementing some new strategic initiatives for technology to allow them to reduce their cost through their sourcing and their suppliers, to establish a better line of collaborations with suppliers, especially regarding like food stock, et cetera. I was interested if you could provide some color as to what you guys are planning on doing if you haven't already started, to reduce the sourcing costs with your suppliers, and establish better collaboration, just overall open up your supplier network a little better.

Steve, Bill Walter. I am going to have to answer the question by walking through each of our businesses with you because the issues with respect to raw materials costs and sources are quite different one to the next.

That would be great. Thank you.

As we've talked for the last five years in our agriculture products business we do have strategic initiatives underway to significantly change the source of and cost structure of our inputs in that business. We've been engaged in a process of moving manufacturing offshore primarily to China, India, and Mexico now for that five-year period and we will continue to do that over the next five years, in effect variablizing our cost structure and transferring the capital burden of manufacturing to our suppliers. In our industrial chemical business it is quite different picture. Many of those businesses are back and integrated into raw material and there are not strategic initiatives or alternatives available to us to materially change the cost profile of those businesses. Similarly in specialty chemicals, the raw materials are, while we are not backward integrated into the raw material the raw material is renewable natural resources that we do source worldwide. We continue to try to put more capacity in place by sponsoring the development of subsistence farmers throughout the world for sea weed and we continue to look for and evaluate alternative sources of supply of soft wood pulp for our microcrystalline cellulose business. Stephen, a long winded answers to your question but I do think we have the initiatives under way in the, in all of our businesses where those initiatives are appropriate.

How confident do you guys feel are gaining your objectives and reducing costs? When do you think it will be incorporated back into your business?

I'm sorry, Stephen, could you repeat that.

When do you think all these initiatives will actually be incorporated back into the business where you start seeing some of those results of those reduced costs?

We are seeing them daily. In our Ag products business for example we've talked about having realized a 40 to $50 million a year cumulative cost savings of raw materials in intermediates since we began the outsourcing initiative five years ago. We have largely in our industrial chemical businesses been able to offset higher energy costs through our cost production initiatives. Similarly in our specialty chemicals business I think with the exception of the last 9 to 12 months where we've seen significantly higher sea weed costs we've been successful in offsetting cost pressures in those businesses now for the last several years.

What are you guys doing in regards to like higher transportation costs, how are you seeing the ability to offset those?

It's probably a bigger challenge, Stephen. Transportation both domestic freight and ocean freight is a significant portion of our cost structure particularly in industrial chemicals segment. We have attempted with varying degrees of success in putting in place freight surcharges for our customers. Unfortunately we are a captive customer of the Union Pacific Railroad in our largest domestic business and have not been very successful in convincing them that their cost increases are inappropriate.

Great. Bill, I really like what I'm hearing. It sounds like you guys are definitely on the ball and I think it will produce a lot of good results in the future. Thank you.

Your next question comes from the line of Michael Judd with Greenwich Consultants.

Good morning and congratulations on a great quarter. It seems to me like you guys should be, if it were up to me I would upgrade you today in terms of your credit. But having said that hopefully you will get upgraded sooner rather than later and I was just wondering if you could talk when that happens what are the priorities for tax, you've talked a number of times about how your stock price isn't really where you think it should be? Can you talk about relative priorities for cash other than debt pay down relative to a dividend versus share repurchase, please?

Mike, again, thanks for the comment on the congratulations on the quarter. I would be very disappointed if we do not get upgraded in the course of this calendar year. Obviously, though, we don't control that and have been disappointed by Moody's in the past. But to your question of priorities for cash once the upgrade occurs, Mike, we have not made those decisions. We have got a process underway to answer the question that you've asked. That process is not completed. We have not reviewed it with the Board and so it's premature for me to sit here and speculate with you. Although as I have said in the past all options are available. We simply need to figure out what we believe is in the best interest of our shareholders.

And then in terms of your earnings guidance for the second quarter I am working on my model here and quite honestly I can't get to a number that low. So are you guys just being ultra conservative? I saw your follow-on note but it seems to me that things are going to be a little better than perhaps you indicated, any thoughts along those lines?

Mike, I'm not as familiar with your model as maybe as I should be so I can't comment on where the disconnect between the two are. We are one month into the quarter. We feel pretty confident in the guidance that we just gave to say that we are being conservative, I wouldn't go there. You've got to be your own judge on that. We feel good about the second quarter.

Okay. And lastly it looks like your inventory levels declined sequentially. I think that's a good thing. Could you just talk a little bit about that in terms of management -- is that just you are doing a better job managing inventories or is there anything else going on?

I don't think there's anything else going on, Mike. The reduction occurred primarily in our agriculture products business as we've talked in prior conference calls now for probably a year and a half they've had a major initiative underway to get their total investment in working capital down. They continue to demonstrate good progress in that area and you've seen that in our inventory in the first quarter.

Thanks again.

Your next question comes from the line of Bill Judd with CSFB.

It's Bill Young, thank you. Bill, a question for you, could you give us a handle on the soda ash pricing percentage gains U.S.? And then Asia and then other export markets besides Asia give us a rough idea?

Yes, Bill. Let me try. And be patient with me here. What Michael Wilson said at the fourth quarter conference call with respect to the domestic U.S. market has held. And that is that we were successful in getting the full value of the announced price increase through for about half of our domestic customers. The full amount of that increase was really $22 a ton not the 30, the last $8 price increase was not announced until the contract season was essentially over. With respect to Asia --.

Hold on one second. The other half, are they all for renewal next year or do some of those still have further price protection?

We see very little if any competitive caps still in place in 2006.

Okay. Great.

With respect to Asia and let me back up if here with this Bill just a bit to remind everybody of the numbers. Exports represent about 40% of the North American demand, U.S. demand. Of that 40% about 40% goes to Asia. So you are talking about 16% of the overall volume. Again as Michael talked about in the fourth quarter conference call ANSAC announced a $15 a ton energy and freight surcharge in the third quarter. And was successful in large part in realizing that both in Asia and in Latin America. They also announced in late the fourth quarter a $50 a ton price increase in Asia alone. And in a large part of the upside in industrial chemicals for the first quarter and for the full year is the result of our now understanding that ANSAC was successful in realizing a major portion of that $50. Unfortunately as we have experienced now for probably a good 24 months a significant portion of that has been offset by rising freight and raw, and energy costs.

With respect to other the only other significant market is Latin America and their ANSAC saw only a nominal price increase. That's results from the fact that when Serls Valley left ANSAC two years ago, ANSAC to protect their share position there entered into a number of multi-year fixed price or limited price contracts and it's probably going to be another year or two before we see significant price release in Latin America.

I had a question for Kim. Kim could you walk through a little bit about the cost associated with prepayment on that debt and basically when the break even would occur?

Bill, I can dimension this for you a little bit. I don't have all the specifics in front of me but there is, to remind you there is a hard call on the '09 notes in November of '06 and that's at half the coupon. There's a provision for calling them earlier, which is a May call at T plus 50. So what shifts the economics on that is of course our credit profile, the cheaper that we can refinance and the movement of T, if you will, or the Treasury Bill notes, shift those economics around and, of course, given where the credit markets are and where our credit profile has moved and our ability to refinance at even lower spreads over LIBOR we are approaching or at that point today on being able to make these economics of that refinancing make sense.

Nothing beyond that then for right now?

Nothing beyond that for right now, no.

Well, thanks.

Your next question comes from Kevin McCarthy with Banc of America Securities.

Good morning, Bill. If you had a free hand to pay a dividend today what sort of pay out ratio do you think is appropriate given your portfolio and the dramatically improved balance sheet?

Kevin, I don't have a free hand. I just haven't gone there. We have not -- I haven't even looked to see what a standard pay out ratio is among the chemical companies so I would be just speculating with you and it's not of value to either one of us for me to do that.

Fair enough. A couple questions on the Ag business, could you quantify for us the approximate amount of the shift from the fourth quarter into the first quarter of '05, please?

I think as we said Kevin, in both our third and fourth quarter conference calls that we expected that shift at an EBIT level to be approximately 3 to $5 million.

What would that translate to on the top line.

I believe we said 10 to 15 million.

Okay. And I guess you've talked for a few quarters now about the prospect of generic competition pressuring the Ag business yet they've continued to post excellent results there. Is it really a function of geography where you are anticipating more competition in the North American market where you have been more focused on South America in the most recent quarter?

It is exactly, Kevin. That expiration by events occurred in North America. We still have protection in Brazil, for example, and all of the generic competition we have or are encountering is in North America.

As I think about your pyrethroid family of insecticides how much would you expect price to be down in '05 versus '04 for that -- your piece of the portfolio, do you think?

Kevin, I haven't got all the data in front of me to be able to answer the question with the precision that you've asked nor if I did I don't think I would go there, what we have said though is that bifenthrin, and that is the molecule that has come off patent, permethrin and cypermethrin have been off patent for some period of time and whatever generic competition they are going to face is already behind us. With respect to bifenthrin, kind of the industry standard if you may is that when a product goes off patent and generic competition emerges one can see price declines in the range of 25 to 40 to maybe even 50%.

That's helpful. Thanks very much.

Next question from the line of Dmitry Silversteyn with Longbow Research.

Good morning, congratulations on a very strong quarter. A couple of questions if I may. You talked about the $7.3 million restructuring charges for the quarter. Can you give us a little bit more detail of which businesses this effects and what the restructuring charge includes.

Dmitry, this is Kim, the restructuring charges were a part of our specialty business and a part of our Ag products business.

And the specialty is the closure of the plants and relocation of production and some other cost setting initiatives. What was it in Ag products? Was it moving production to China and Mexico or was there something else going on?

Dmitry, the Ag products restructuring charges have to do with some actions we are taking in our formulating plants in the United States to make them more efficient.

Okay. Great.

Dmitry, if I could also the specialty comment, the 8(K) disclosure that you saw from us a few days ago having to do with our Denmark facility, the majority of those charges actually will take place in the second quarter.

So this quarter was what, then?

It was largely Ag but there were small other charges but largely Ag.

You talked about pharma-business being strong as far as lithium having to do with timing that you don't expect to repeat for the year but also pharma being somewhat of a weakness for you in the BioPolymer segment. Can you talk a little about that that and what your expectations are for the pharmaceutical portion of BioPolymers for the rest of the year?

Yes, Dmitry, I will. First of all just to remind everybody that we have seen and expect to continue to see indefinitely lumpiness in our quarter to quarter results and even year-over-year results in our lithium pharma-synthesis business. It's just a function of the nature of our customers manufacturing operations. The weakness if you can described it as a weakness I think we called it a timing issue in the BioPolymer pharma-area was a result of strong distributor demand in the fourth quarter of '04 part of which in retrospect was probably stealing from the first quarter of this year. We would expect that phenomena now to be behind us and that we would see normal demand out of the BioPolymer pharmaceutical customer base for the second, third, and fourth quarter.

Very good. Okay. Thanks. And I'm staying with the BioPolymers raw material is continuing to be somewhat of a problem for you, are you still on year-over-year basis, sequential basis, or both?

In BioPolymer it's year-over-year. As we move into the second quarter however that year-over-year issue ought to be largely behind us. Therefore you can backward calculate that on a sequential basis there is really not much change in BioPolymer raw materials. In lithium it's largely solvents in our lithium organolithium business. That, too, is a year-over-year phenomenon.

Thank you.

Our next question comes from the line of Bob Goldberg with Scopist Asset Management.

I just wanted to follow up on Mike's question about the second quarter guidance. I have to stick up for him because you did give very specific guidance for each line item on the income statement and plugging the numbers in it is very hard to come up with much less than $1.25 for the second quarter unless you are assuming that Ag is going to be down more than just slightly which is the way you worded it in the outlook statement that came out before the conference call. Maybe you can just talk a little bit about what are the ins and outs of Ag in the second quarter and then how you see that versus last year?

Bob, first of all with respect to the second quarter Ag, let's take Brazil out of the discussion because it's not relevant to either last year or this. The big change or changes if you may year-over-year in Ag are two. One is the generic competition in North America in bifenthrin and the second is the rising input cost that Ag has seen for packaging, operating supplies, et cetera. So that's, that's Ag. The other piece that people may not have in their model yet in the second quarter is this start up expenses for bringing back on line a portion of our mothballed soda ash capacity in Granger, Wyoming. We said I think it was in the fourth quarter conference call that the total P&L impact of that restart would be approximately $5 million a majority and a significant majority of that 5 million will occur in the second quarter.

How much of that, BIll, was in the first quarter, was it 1 million, 2 million.

Well, a significant majority of the five will occur in the second quarter.

Got you. Okay. Otherwise would industrial be up in the second quarter knitting out the start up cost?

I would hope your model has it up. If you are talking about year-over-year?

No, I meant, I'm sorry I meant sequentially. Of course year-over-year but sequentially.

Yes if you take a significant portion of 5 million and add it to what we have said the outlook for industrial is I think you would see it at worse flat sequentially.

I had also a question for Kim. In the Corporate and Other financial items, you didn't list cash taxes as an outflow. I was just wondering what you are expecting that to be for 2005.

Bob, let me remind you, again this is Kim, we are not a domestic U.S. cash taxpayer due to the significant net operating losses that we have in the United States we pay foreign taxes of roughly 4 to $5 million a quarter.

Okay. Is that the same guidance you've had in the past or is that changed at all in the last three months.

That's the same guidance we've been giving for a few years.

[OPERATOR INSTRUCTIONS] There are no further questions at this time. Gentlemen, are there any closing remarks?

There are operator. Thank you first of all and thank all of you for joining our call today. Obviously our first quarter performance puts us in a great position to have another outstanding year with strong double-digit earnings growth, net debt reduction in excess of $200 million and a return on invested capital that's going to approach 12%. More importantly we believe that our momentum is going to carry us well into 2006 and 2007 if not beyond. Given that outlook I remain as convinced as ever that we are grossly undervalued. There remains a great ride ahead for all of you. Thank you again. I look forward to seeing many of you in the next month or so, some of you as early as the B of A conference tomorrow. With that we are signing off. Thank you.

Thank you. This concludes today's FMC corporation conference call. You may now disconnect.