富美實 (FMC) 2005 Q2 法說會逐字稿

Good morning and welcome to the 2005 second-quarter earnings release conference call for FMC Corporation. [Operator Instructions] I would now like to turn the conference over to Mr. Brennen Arndt; Mr. Arndt you may begin.

Thank you, on behalf of our entire global team, welcome everyone to FMC’s second-quarter conference call and webcast. Our discussion today will include certain statements that are forward-looking and subject to various risks and uncertainties concerning specific items that are summarized in our 2004 Form 10-K and most-recent Form 10-Q and other SEC filings. This information represents our best judgment based on today’s information. Actual results may vary based upon these risks or uncertainties. During the conference call we will refer to certain non-GAAP financial terms, on our FMC Investor Relations website which is available at ir.fmc.com you will find the definition of these terms under the heading entitled glossary of financial terms. In addition on our investor relations home page, we have provided a reconciliation to GAAP of non-GAAP figures that we will use on the call; in addition we have also provided our outlook statement going forward.

Our Chairman, President and CEO Bill Walter will begin the call with a review of the highlights of the quarter; Bill will then turn the call over to Ted Butz, Vice President and General Manager of Specialty Chemicals who will provide us an in-depth review of the performance and growth prospects for the BioPolymer and Lithium businesses that comprise the Specialty Chemicals group; following Ted, Kim Foster, Senior Vice President and CFO will review the recent initiatives that have significantly strengthened our financial position. Bill Walter will then complete the prepared portion of the call with a discussion of our outlook for the balance of 2005. And we’ll then take your questions. So it is now my pleasure to turn the call over to Bill Walter, Bill?

Thanks Brennen, and good morning everyone. As you saw in our earnings release last night, we had another good quarter; once again exceeding prior years results. Our strong year-to-date results put us on track to meet or exceed all of the objectives we have set for the Company for the year. Let me summarize.

Sales of $575.6 million were up 6% verses the second quarter of 2004. Earnings before restructuring and other income and charges of $1.35 per diluted share were up 18% over last year’s second quarter results. Industrial Chemicals earnings more than doubled verses the prior year quarter on sales growth of 10%. Ag Products revenues grew modestly verses the prior year quarter. As expected, earnings were lower as the impact of generic bifenthrin competition in North America more than offset strong performance in Europe and Asia. With that said, Ag Products are still on track to deliver 10% earnings growth this year.

Specialty Chemical results were right on plan. Sales grew 5% and earnings grew 6%. Ted will review the details of that segment’s results for you in a few minutes.

And finally we made significant progress in strengthening our financial position. Since our last conference call we have executed a new unsecured $850 million credit agreement. We have completed the redemption of the entire $355 million principle amount of 10.25% Senior Notes. We have regained an investment-grade credit profile, reduced net debt to approximately $600 million, and are on track to reduce net debt by another $90 to $100 million by year end.

After-tax income for the quarter before restructuring and other income and charges was $52.8 million, up 24% over last year. Currency translation accounted for a favorable $1.6 million or $0.03 per share of the quarter’s results.

On a GAAP basis we reported net income of $31.2 million or $0.80 per share. GAAP earnings for the quarter included a restructuring, and other charges of $0.75 before tax, a gain of 24% before tax on the sale of an investment in a European joint venture; and a $0.04 per share charge for the tax effects of these two items. With those reconciliations, non-GAAP earnings again were $1.35 per diluted share as compared to $1.14 a year ago.

Moving more to the segments; Industrial Chemical sales of $221 million increased 10% verses the prior year. Our soda ash business accounted for the majority of the increase due to significant improvements in both domestic and export selling prices. Foret also benefited from higher selling prices as well as favorable currency translation. Segment earnings of $24.5 million increased substantially over the $11 million earned last year. As expected, given the very tight global soda ash supply-demand situation, our soda ash subsidiary, FMC Wyoming of which we own 87.5%, realized substantially higher domestic and export selling prices verses the second quarter of 2004. The business however continues to experience higher energy and transportation costs which offset a portion of our price increases.

The Granger restart is proceeding as planned, with production at a 250,000 ton annual rate expected to be achieved in this quarter. Start-up costs associated with Granger had a relatively minor impact in the second quarter, with a majority of those costs now to be incurred in the third. We also signed a new five-year agreement with our FMC Wyoming union employees effective June 30.

Foret, our wholly-owned European Industrial Chemical subsidiary, delivered solid profit growth as higher selling pricing across most product lines more than offset raw material cost increases.

Peroxygen earnings were essentially flat as higher prices were offset by higher raw material, energy and transportation costs.

In Astaris; our 50-50 joint venture with Solutia, it continued its strong profit turn around, driven by higher selling prices in most business segments and a favorable product mix verses last year. As we announced on an 8-K filing in the second quarter, FMC and Solutia have entered into negotiations for an asset-based sale of Astaris. Those negotiations are ongoing.

Moving to our Ag Products segment; sales in the quarter of $196 million grew 2% over last year, consistent with our expectations. Europe experienced strong revenue growth as a result of higher herbicide sales. Asian sales also contributed to the revenue growth, but profit margins are generally lower in that region. And as expected North American revenues declined, reflecting the impact of generic bifenthrin competition. Ag Products earnings declined slightly to $44.6 million in the quarter from $48 million a year ago, which I’ll remind everybody was a very strong quarter. The impact of generic competition in North America more than offset the strong performance in Europe and Asia.

Our plan entering into 2005 was for the global strength of our Ag business to more than offset the North American profit impact of generic competition. That’s precisely what we are doing. Ag Products is on track to deliver 10% earnings growth this year.

Moving to our third segment Specialty Chemicals; sales grew 5% and earnings increased by 6. Let me now turn the call over to Ted Butz, who will provide an insight into the businesses that comprise our Specialty Chemicals group, discuss the second-quarter results, and provide our outlook for this segment in 2005.

Thanks Bill and hello everyone. I’m please to have a chance to review the performance and discuss the outlook for Specialty Chemicals. Before I do that however, let me provide a brief overview of our businesses.

Specialty Chemicals is comprised of two businesses- BioPolymer and Lithium, which serve a variety of attractive end markets, products that are supported by substantial levels of technical customer support. In both business areas we have leading market positions that provide excellent customer access, critical scale in operations that result in competitive cost positions in each of our core product lines; spending on technology and new growth-initiatives accounts for about 4% of sales to focus primarily on pharmaceuticals, food ingredients and energy-storage applications.

Specialty Chemicals also operates in a global environment with over 60% of segment sales derived from outside of the United States. Fast-growing markets in Asia and other emerging markets continue to help drive our top-line growth. A series of 13 plants, 7 labs on 4 continents, allows us to meet the needs of local customers while at the same time providing global scale of manufacturing supply-chain logistics.

Our largest business, FMC BioPolymer, comprises approximately 70% of the group’s revenue and a larger share of earnings. BioPolymer is a leader in pharmaceutical excipients, which are the inert ingredients used in formulating drugs and in food ingredients it provides unique textures to many foods and beverages. We have leading positions in both markets which should experience attractive, stable growth.

BioPolymer’s largest product line is Microcrystalline Cellulose or MCC, it’s derived from specialty wood pulp. MCC, along with other specialty cellulose products account for about half of the BioPolymer sales. Key applications for MCC includes tablet bindings in oral-dose form pharmaceuticals, and is a unique texture agent in food and beverages. FMC is the leading producer of MCC with over a 50% share of the global market.

Our second-largest product line, Carrageenan, is derived from red seaweed. It is used in a variety of food products and oral-care applications. [Inaudible] with a market share that is roughly twice our closest competitor.

Alginates, another seaweed product derived from brown seaweed, are key ingredients in pharmaceutical, food and industrial applications. We are a close number two in overall market share, but we believe we have the leading position as a higher-value added gelling alginate.

Recent trend-line growth rates for the BioPolymer market has averaged about 3 to 4% food ingredients, 4 to 6% in pharmaceutical excipients.

In our second business, Lithium, FMC is the leader in the $400 million global market. End markets for our lithium products include specialty polymers, pharmaceutical and other fine chemical synthesis, energy storage and a variety of industrial end uses. It has built strong positions in higher-value-added segments for technology, customer presence [ph], and manufacturing capabilities give us a competitive advantage.

Market growth rate for Lithium is attractive, driven by high single-digit growth in pharmaceuticals, low double-digit growth in energy storage, and GDP-type growth in polymers and industrial applications.

In order to supplement the expected market growth in our businesses, we have continually invested in new technology platforms. Key opportunities are focused on commercializing new pharmaceutical businesses in oral-dose form delivery, wound-care management and especially organic chemistries for new drug development.

In addition we are working on new-generation battery technologies that could significantly enhance the life and efficiency of rechargeable or secondary batteries. As I mentioned earlier, we are investing nearly 4% of sales in technology and new initiatives. With these investments we believe we have an attractive pipeline of opportunities that will provide substantial growth over the next 3 to 5 years.

In addition to our internal growth effort, we’ve evaluated a number of acquisition opportunities that would have substantially increased the size and profitability of the Specialty Chemicals segment. Recent acquisition multiples however have ranged from 10 to over 13 times EBITDA. We have chosen to stay on the sidelines for several deals and we will continue to look selectively at opportunities but we will not venture from our disciplined approach in order just to consummate a deal.

Let me now turn to Specialty Chemicals group performance. Second-quarter revenue increased 5% to $148.7 million as compared to $141.6 million in the prior year. Sales of BioPolymer products grew modestly, primarily due to stronger demand in the food-ingredients market. Lithium revenue benefited from higher sales in Europe due to the timing of campaigns in the polymer and pharmaceutical synthesis market. Segment earnings increased 6% to $32 million, driven by higher selling prices, favorable foreign currency translation, was partially offset by increased raw material and energy costs.

During the first-quarter conference call we discussed our intention to close our plant in Copenhagen Denmark later this year. As part of this strategy to driving productivity we have been successful in reorganizing our global supply-chain network in Carrageenan to significantly reduce our costs to serve these markets. Expected benefits of implementing this strategy are improved earnings, reduced working capital, and lower ongoing capital expenditures. Restructuring charges of $21 million related to this closure have been taken in the second quarter.

For the full-year 2005 we expect mid single-digit revenue growth driven by growth in both BioPolymer and Lithium businesses. Full-year earnings growth of about 10% is expected driven by volume, leverage, higher selling prices, and continued productivity improvements.

The long-term outlook for Specialty Chemicals remains very positive. We expect sales growth over the next couple of years to continue in the mid single-digit range with earnings growth slightly above this trend. I believe we have the right mix to succeed. Our leading positions with key customers teamed with an attractive portfolio of new growth initiatives and world-class manufacturing built [ph] should result in a vibrant business model for the foreseeable future. With that I’d like to now turn over the discussion to Kim Foster for his review of our financial position. I’ll be happy to answer any questions that you may have at the end of this call. Kim?

Thanks, Ted and hello everyone. As Bill said earlier, FMC has made significant progress in strengthening its financial position since our last conference call. Specifically in the last three months we executed a new, unsecured $850 million credit agreement which replaced a $600 million secured credit agreement. This five-year credit agreement provides for a $600 million revolving credit facility and a $250 million term loan.

In addition to being unsecured, the new credit agreement delivers more favorable pricing and greater financial flexibility than the previous secured credit agreement. Upon execution of this agreement, Moody’s raised all of our existing senior unsecured debt ratings to BAA-3 stable outlook. Standard and Poor’s affirmed our rating of BBB-. As a result of these actions, FMC regained a full investment grade credit profile.

We then completed the redemption of the entire $355 million principle amount of 10.25 Senior Notes due in 2009. The prepayment premium associated with the early redemption was $44 million. This amount, along with a write off of unamortized financing costs will result in a recognition of debt extinguishment expense of approximately $56 million in the third quarter.

As a result of the new credit agreement and the redemption of the 2009 notes, interest expense for 2005 will be reduced from $68 million to approximately $60 million.

Let me now discuss the first half from a cash-flow and debt perspective. Capital spending of $36.6 million was slightly higher than the $30.8 million a year ago, but still well-below D&A. I will reiterate as I have on many previous conference calls 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 several factors including- significant mothballed capacity in Industrial Chemicals, outsourcing strategy in Ag Products, and de-bottlenecking initiatives in our Specialty Chemicals business.

At quarter end we had reduced net debt to $612 million, clearly we are about to meet the net debt target of $600 million that we had established for 2006, approximately 18 months ahead of schedule. As Bill mentioned we expect to reduce net debt to approximately $520 million by the end of this year.

Going forward we have additional opportunities to strengthen our balance sheet. Specifically, the American Jobs Creation Act provides for a limited window for tax advantage to repatriation of foreign cash. We expect to have over $200 million of cash overseas at the end of 2005. We’re currently evaluating several options to repatriate the cash and as required by the Act we will recommend a specific plan to our Board for approval before year end.

And finally given our strength in balance sheet and strong free cash-flow forecast we now enjoy the strategic and financial flexibility to invest in growth. We will continue to actively manage the business portfolio to create value and to return capital to shareholders in the most efficient manner. With that, I will now turn it back to you Bill.

Thanks Kim. In summary, we had an excellent first half and we fully expect the second half of 2005 to be a period of continued delivery verses our objectives.

Let me expand a little bit on our expected performance for the balance of the year. With our strong first-half performance we have raised our full-year outlook for earnings before restructuring and other income and charges to $4.30 to $4.40 per diluted share. This implies an outlook for the remainder of 2005 that is largely unchanged from our previous outlook but which represents an increase of $1.10 to $1.20 per diluted share verses 2004, a 36% year-over-year increase if you take the midpoint of the range.

A few details; in Ag Products we expect modest growth in full-year 2005 sales as the benefits of new products and labels and continued growth in South America and Europe more than offset the impact of lower North American bifenthrin selling prices. Full-year earnings, as I’ve said before is expected to be about 10% higher than last year, reflecting the higher sales and lower manufacturing costs partially offset by lower bifenthrin pricing.

Our outlook, as I need to caution everybody and I do each time, assumes normal depressed [ph] pressures in North America in the third quarter and a continued moderately healthy Brazilian Ag economy in the second half.

As Ted just discussed, for the full-year 2005 we expect mid single-digit revenue growth in Specialty Chemicals driven by growth in both BioPolymer and Lithium businesses. Full-year earnings growth is expected in this segment to be approximately 10% driven by higher volume leverage, increased selling prices, and continued productivity improvements.

In Industrial Chemicals we expect high single-digit revenue growth driven by higher selling prices across most businesses but in particular soda ash. Full-year earnings growth is expected to be approximately 60% higher, driven by higher selling prices partially offset by higher energy, raw material and transportation costs.

At the corporate level, with the partial-year effect of the reduction in interest expense resulting from our refinancing; and as Kim has just said we now expect interest expense for the year to be $60 million. As Kim also mentioned, with our net debt of $612 million as of June 30, 2005; we are on coarse to reduce net debt to approximately $520 million at the end of this year.

Finally, with strong earnings growth, ahead of schedule debt reduction, and low capital expenditures our returns have steadily improved since 2003, rising from 8.4% in 2003 to our expectation of over 11% this year. We fully expect to meet or exceed our return-on-investment capital target of 12% by 2006.

For the third quarter of 2005 we expect earnings before restructuring and other income and charges of between $0.80 and $0.90 per diluted share. The primary driver of earnings are expected to be higher domestic export selling prices in soda ash, and the benefit of the reduced interest expense; partially offset by costs associated with the start-up of our Granger Wyoming soda ash facility and planned maintenance shut downs at several Specialty Chemical and Industrial Chemical facilities.

When you add it all up, our strong first-half performance has taken us one step further toward unlocking value for our shareholders. And our 2005 year-to-date stock performance certainly reflects that. But in my opinion I think it’s fair to say that we’re only part of the way to realizing the full value for you, our shareholders. With that, I’ll be happy to take any questions, Operator?

Thank you Mr. Walter. [Operator Instructions] Our first question comes from Mike Judd with Greenwich Consultants.

Yes, good morning and congratulations on a good quarter. My question is, now that you’ve—the balance sheet is in pretty good shape – is there going to be a Board meeting any time soon maybe to consider either the payment of a dividend or potentially a share repurchase program? And I have a follow-up question, please.

Sure Mike, Bill – first thanks for the congratulations. We do have an August, October and December Board Meeting. We have six a year. I think as I had mentioned at the last quarter conference call, we will be engaging the Board in a process through the balance of this year to evaluate the alternatives that are available to us right now. I think as I’ve always said -- that our first choice would be to find a way to continue to grow the Company. Currently from my perspective at least we are fully investing in all of the internal growth opportunities that we have. And as Ted mentioned, we have looked at and continue to look at external growth opportunities in the Specialty Chemical business. And finally we look to product acquisitions potentially in Ag as well to strengthen our position there.

Where all of this sorts out Mike is still premature to say. And I simply ask that you have a little more patience with us, but we ought to have an answer for you before year end.

Terrific. And then secondly you mentioned that there’s an asset-based—potentially an asset-based sale of Astaris. Could you provide a little bit more detail on that please?

Yes Mike, we announced through an 8-K in the second quarter that Solutia and FMC were engaged in a process of attempting to sell our respective interests in Astaris. That process has resulted in a negotiation which remains underway. And I think it would be inappropriate given the fact that it’s still underway for me to comment any further on it.

Okay, and then lastly for Kim, thank you for providing an update on the lower interest expense, that’s very helpful. Is there sort of a blended interest rate that we should be thinking about? I come up with I think something like 6% is kind of the right number in order to get the number to come out to $60 million for the year. Is that the right type of number we should be thinking about for ’06 also?

Yes Mike, this is Kim. That is certainly directionally the right number to think about in ’06. I’d like to remind you of the seasonality of our cash flow which means that there are certain times in the year where we do draw on our revolver and when we have a net cash position like we do today. So directionally, that’s right, just consider as you make those projections what the impact on the seasonal basis would be.

Okay, and then just lastly the maintenance shutdowns; it sounds to me – I wasn’t clear from your release whether those maintenance shut downs were going to occur in the third quarter or fourth quarter. But your comments today sort of indicate that a lot of that will happen in the third quarter; is that right?

Mike, that’s right.

Okay, very good. Thank you.

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

Good morning, it’s actually Marshall Reed filling in for Kevin this morning. I had a question on soda ash royalties. I understand the US House passed a cut on royalties. When does this potentially take effect and how much did FMC pay in royalties in ’04 and what effect would it have on cost of goods?

Yes Marshall, first of all Congress—both Houses of Congress have not passed royalty relief. We have it passed in the House and are trying to get it through in the Senate right now. We remain optimistic that we’ll be successful, but not until after Congress returns from summer recess. I don’t know that I can Marshall quantify the dollar value of it. We currently are paying a 6% royalty and the legislation would provide for a 2% royalty. This applies obviously only to that soda ash produced from federal leases and none of the private or state leases that we hold our there. So it affects less than half of our total soda ash business. But again Marshall unfortunately I just can’t quantify it for you, it’s a couple million dollars a year.

Okay, that’s helpful. Sort of a related subject; I understand that the current administration is considering doing away with US cotton subsidies. What effect could that potentially have on your Ag Products business and would you expect demand to potentially diminish in the US and potentially increase in countries like Brazil if that were to occur?

There was a big qualifier at the end of your question Marshall and that is – if it would occur. But assuming it does, I don’t think there is any question that you would see diminished cotton acreage in the US. Where that cotton acreage would move to – primarily Latin America, primarily Brazil; and I would say as a result of that given our relative positions in North American cotton and Brazilian cotton, it would be a net-net benefit to us.

Okay, great. And then finally just on soda ash; have you guys seen a return of Chinese producers to the export market? And sort of what is your expectation of the role of Chinese producers in ’06? And how could that potentially impact your pricing plan there for the export market?

Marshall we have seen, actually only in the month of June any significant change in the amount of Chinese exports. To date Chinese exports are running at about the level that they were at a year ago and consistent with our expectations. Chinese producers continue to be burdened by inconsistent energy delivery, high energy prices and high salt prices. As a result of all of that we do not expect to see any significant change in the amount of Chinese exports. Our view of the Asian soda-ash market has always been one of continued growth in Chinese exports, albeit at a significantly lower rate than what we have seen in the early part of this decade. And I think that what the result will be is a sharing of that regional growth between the Chinese and the US producers.

Okay, great, thanks Bill.

Your next question comes from Bob Goldberg with Scopist Asset Management.

Good morning. Bill, could you quantify the amount of maintenance and start-up costs that you expect to see in the third quarter?

Yes. Bob, we don’t get that granular. But let me tell you what happened, and this is what happened vis-à-vis our expectations when we provided guidance at the first-quarter conference call for the second quarter. It’s largely around our soda-ash operations. We had anticipated an outage in the second quarter which was deferred to the third as a result of – we had labor contract negotiations going on in the second quarter and simply didn’t want to disrupt those with an outage. Second, in preparation for a potential labor-work stoppage there we built significant trona [ph] inventory, in-process raw material inventory that we’ve got to work down which will have a slightly unfavorable impact quarter-to-quarter on a sequential basis.

But to quantify, no I’m not going to go there. But if you think about it Bob, as largely – not exclusively but largely – the difference between our second-quarter actual results and the guidance we had provided for the second quarter, I think you could get an approximation of the effect.

Okay, well I think you had said previously that the start-up costs for Granger were supposed to be in the $5 million range plus or minus; is that right?

That’s correct. And that was the other thing I should have added Bob. That was the third thing in our soda-ash operation in that we had anticipated spending virtually all of the $5 million by the end of the first half; and again in preparation for a possible work stoppage we slowed down the work on that restart in order to get ready for a work stoppage. And the result of that has been a deferral of some of those costs into the third quarter which again previously we had expected to be booked in the second.

Okay, so is it fair to say that the majority of the start-up costs are now in the third quarter verses the second?

That’s correct.

Okay. I also was wondering; Kim mentioned the American Jobs Creation Act and possibly trying to find a way to repatriate the overseas cash. I forget the rules on that. Are you allowed to use that cash to return that cash to shareholders? Or what uses would you have for that cash and is there a linkage between your consideration of how to return cash to shareholders and this American Jobs Creation Act?

Bob, this is Kim. I don’t have all the restrictions as to the use of the cash off the top of my head but you cannot use the cash to return to shareholders in the Act. But the Act does give you a number of different avenues, for example paying down debt or making investments which would create jobs of course. So we’re looking at – given our current situation and considering the strategy that Bill outlined earlier, we’re looking at a number of options to bring that cash back and it has to be brought back by the end of the year and there’s a nominal 5% tax placed on that cash that is brought back.

I guess the other way to ask the question is, if you were to bring that cash in would that make you feel any differently about what to do with other strategies or means to return cash to shareholders. Does it make you more flexible in terms of your financials?

Kim Foster. This is Kim again Bob. We have the flexibility today to do what we need to do.

Okay. And while you’re on Kim, interest expense – I come to about a $12 million interest for the fourth quarter when you’ve got the full benefit of the refinancing. Is that in the ballpark, on a quarterly basis I mean?

Yes Bob, it is.

Okay. And then just lastly on the Ag side, some of your peers in the Ag industry have talked about Brazil and the tough market conditions and the agricultural economy in 2005 verse 2004. You’ve done very well there, bucking the trend so to speak. I was just wondering – could you just comment on your outlook for the fourth quarter which I think is pretty important with Ag season in Brazil and what you’re expecting in Brazil for the balance of this year?

Yes Bob. First of all the observation about Brazil being a tougher market this year than it’s been for the last 18 is certainly a correct one with the strengthening currency and weaker commodity prices than what had existed back in 2004. Farm income in Brazil has declined. Having said that, acreage continues to grow and the demand for inputs will continue to grow. I think the effect for us or the risk if I may for us, is going to be in potentially extended payment terms as opposed to lower demand. Remembering Bob that our portfolio in Brazil is largely an insecticide one and through last year growing season which ended March 31, insecticide demand in Brazil continued to grow. The real weakness there has been in herbicides and to a lesser extent—I mean the real weakness was in fungicides and to a lesser extent herbicides. And we are a non player in fungicides and a relatively smaller player in herbicides. That’s a long-winded way of answering the question. Our outlook for Brazil in the fourth quarter and for the second half is for a year for us that is equal to last year. That may be conservative, if in fact planted acreage does grow; but we think it’s the appropriate basis upon which to plan the rest of our year.

Great, okay, thanks for the help.

Your next question comes from John [Goats] with [Sena].

Hi, actually my question has been answered, thank you.

Your next question comes from Kevin [Wray] with Longbow Research.

Good morning, gentlemen.

Good morning.

Yes I had a question about your peroxide business. You said that it was pretty much flat as the [inaudible] mostly offset by the raw material prices. I’m actually wondering – what kind of a price realization are you seeing in that market? And is it as strong as the soda ash market?

Kevin I think as we said – and I may be wrong here – in the first-quarter conference call that we’d expected about a 5% year-over-year increase in North American peroxide pricing. Obviously that is significantly less than what we said we realized in soda ash. So the pricing environment in peroxygens is not as strong as it is in soda ash.

And is there any volume growth expected in the market or is it pretty much – because I know it’s pretty much operating at the sold-out conditions so I’m wondering if there is any possibility of any volume improvements there.

Kevin, I think the answer is yes. I think it will come in two ways, one seasonally and one cyclically. There has historically been, and we would expect again this year to be the seasonal up tick for hydrogen peroxide. Demand in the third quarter in preparation for the back-to-school and the holiday seasons. And so that is really yet in front of us. There continues to be – maybe cyclical maybe secular is more appropriate growth – in the use of hydrogen peroxide in the pulping operation of a pulp plant; largely as a result of a move to higher brightness in paper. So the long-term secular demand growth is probably 2 to 3% a year, the seasonal growth here in the third quarter could be as much as 5%.

Excellent. Alright, great, thank you very much for your answer and congratulations on the great quarter.

Thanks, Kevin.

Your next question is from Tony [Delserone] with Federated Investors. Mr. Delserone your line is open, sir.

Tony, are you there?

His question has been withdrawn sir. Your next question is comes from John Roberts with Buckingham.

Good morning guys.

Good morning, John. John, we’ve lost you. John? Operator?

Yes sir, his question has been withdrawn. And you do have a follow up with Mike Judd with Greenwich Consultants.

Yes, a follow-up question on Ag. I think that you had mentioned over the last couple of years in the third quarter that there hasn’t been – it’s been sort of below normal in terms of pest pressure. Now that we’re sort of into the early part of August do you have any sense as to how the insecticide business is going to look in the third quarter of this year?

Mike, it’s too early to comment on how the business is going to role out for the entire third quarter. I can comment on pest pressures in North America. And I would characterize those right now as being moderate. Moderate is an improvement over the last two years where we saw low pest pressure. There still exists an opportunity for significantly greater pest pressure, but at least through the third or second of August it’s only moderate.

Okay, and then also in the soda ash area, can you give us some sense of what’s going on currently with export prices and what is the demand? The sense I’m getting is that it looks like in the third quarter demand is picking up in general. Are you seeing greater demand in the international market sequentially third quarter verse second quarter?

Yes, Mike the export demand continues to grow. I’m not sure it’s growing sequentially but it’s certainly growing year-over-year. Unfortunately that demand is going in a large part un-served right now because the US producers are in a sold-out state. That should change in the third quarter as we’re able to bring Granger up to full production levels. I guess as I talk out loud with you here, I would expect to see sequential improvement in the supply of US-produced soda ash to the export market but simply as a result of the additional capacity that we have.

Do you have – I guess I’m not quite sure if I’m clear on when the Granger, when the new capacity from Granger will actually be available.

Again, as I said earlier to a question, we delayed intentionally the start-up of Granger just because we didn’t have enough resources to do everything we needed to do in preparation for the potential labor stoppage here. We have delayed into the third quarter. The plant is producing today, has been and in fact was in the month of July, and is expected to reach the full annual production rate of 250,000 tons in the quarter.

Terrific. And then lastly, in terms of freight costs; what are you seeing in terms of the costs, whether it’s railroad and then shipping—what’s happening with shipping costs? In other words what I am trying to figure out is – is the export -- are the [net back] prices improving overall in addition just to the price increases?

First your questions about transportation; we continue to see increases in domestic freight costs, largely rail. It’s great to be a monopoly. Ocean-freight costs have tended to stabilize recently; in fact we’re beginning to see signs that there may be some softening in that. Having said all of that, one should not expect to see any significant changes in export pricing through the course of this year from where we are currently. There have been no further price increases announced by Amsact and I think you’ll largely just see the year play out as it currently is.

Fair enough, thank you.

[Operator Instructions] Your next question sir comes from Kevin McCarthy with Banc of America Security.

Just a follow up if I may; how much were bifenthrin sales in the second quarter and sort of what is the seasonality second quarter to third quarter and [inaudible]?

Kevin, we don’t get that granular. I give you credit. I think you’ve tried asking that question a half a dozen different ways over the course of the last year; but we just don’t get that granular with respect to sales. Seasonality; I’m not sure there’s a significant North American seasonal pattern for bifenthrin. It’s used both prophylactically and in a rescue market. Given what I know at the moment Kevin I would say there should be no seasonality to it.

Okay, that’s helpful. Thanks.

Your next question is from [Sul Linnott] with Longacre Management.

Hi, how are you guys- great quarter. I had a quick question just – what’s your perspective or what are you seeing in terms of the dynamics in the glass-container industry in the US especially and how that’s impacted your business. And I have one quick follow-up question.

Yes, Sul I’m not close enough to the glass-container industry itself to give you an insight as what’s going on between all of the players there. I can say however for in terms of soda-ash demand, the demand has remained fairly constant. In fact we’ve seen a marginal up tick in it this year. And then I was going to speculate with you as to what’s driving that, but it would only be speculation.

I would be curious to hear what your thoughts are.

Thoughts on what, Sul?

In terms of what your speculation is on why you’re seeing the up tick?

Well I think it’s more of the boutique beverages and some movement back to bottled beer as opposed to cans; and plastics have yet to make any significant in road into beer.

What do you think; if anything, could sort of negatively impact the strong price that you’re seeing in soda ash?

A global economic collapse reduces demand—and that’s the only thing Sul I can see sitting here. The other half of the equation that drives pricing, supply, I don’t see anything affecting that here near-term.

And one quick question on Astaris; what’s the net debt position on Astaris? I just want to [inaudible] evaluation on that.

$40 million as of June 30.

Great, thank you.

You have a follow up from John Roberts with Buckingham.

Can you hear me this time guys?

I can, John.

Okay, sorry for the drop off. What I was asking Bill is that you usually don’t refer to the soda-ash business as 87.5% owned FMC Wyoming. I didn’t know if you’re giving it making us focus on that other 12.5%; whether you get a chance to buy that out, or is there a reason why you used that terminology this quarter?

It’s not because we’re buying it out or selling out. As people build models John, they frequently forget that we only own 87.5% of the venture; and so it’s a reminder to whatever assumptions you’re making on pricing, don’t take 100% of it.

Got it. Secondly, did the paper strike in Finland have any impact on Foret peroxygens or would it in any way affect the chemical-grade pulp market for microcrystalline cellulose?

I’m not sure John that it had a direct impact on Foret. Although if you look at the peroxide demand statistics in Western Europe in the second quarter, you saw a significant growth in Western Europe x Scandinavia—I think it was close to 8% growth year-over-year. And to the extent that unusually high level of growth was driven in part by the Scandinavian strike, yes then probably Foret benefited a little bit.

In terms of effect on pulp pricing – absolutely not.

And since we have Ted on the call; Ted, could you maybe give us an update on the Lithium carbonate supply agreement – duration, whether the cost stays the same for an indefinite period, just give us an update there?

John thanks, lithium carbonate [inaudible] supply to carbonate business improved market this year for us with a fair amount of growth, tighter capacity and therefore we’ve been able to get better pricing on it. We still have that [inaudible] agreement money for awhile and we’re working on -- continuing looking at extending that option and other options with that. So the market in general for carbonate has improved this year over last year.

So we still think of that as an evergreen agreement?

[inaudible]

Operator is there another question out there, or John, have you got more?

All set, thank you.

Your next question sir comes from [Dennis] Delafield, with Delafield Asset Management.

Thank you. I’m somewhat confused over the interest expense in the fourth quarter and then looking out into ’06. If interest in the fourth quarter will be $12 million which is derived from what you told us and if that by the end of the fourth quarter is down to 520 net, assuming you’ve been able to bring back some of the cash so that you don’t have too bad of an arbitrage situation; shouldn’t interest expense even with seasonal factors drop very much from $12 million per quarter in ’06? I guess that’s the question.

Dennis, this is Kim. I didn’t speculate on what the interest expense in ’06 was going to be. But the speculation that it would certainly be lower than that next year, I accept your point. But at this point in time we’re not going to provide guidance on ’06 interest expense.

Except for the issue of cash abroad and borrowing in this country, I think somebody suggested your interest costs might be 6% or something like that. Shouldn’t we be thinking in those terms with the seasonal adjustments for next year?

Yes Dennis, the way that I was interpreting the question is interest expense on the outstanding debt and not necessarily incorporating any interest income in to affect the spread.

Right.

You do have a follow up sir from Bob Goldberg with Scopist Asset Management.

Hi, Bill I was wondering if you could just talk a little bit about the pest pressure in North America. There has been some issue or some concern in the farm belt this season about aphids returning this season. And I’m just wondering how important aphids are in terms of the various pests and what’s your – I know it’s an early read but what you’re seeing in the market early in the third quarter?

Yes Bob, I think as I answered to Mike’s question earlier, we have seen moderate pest pressure in North America so far this year. We’re really only about 2 weeks into what is a 6 to 8 week rescue market for us. Aphids are important. Aphids in cotton are one of the two major rescue markets we have and again there pressure is moderate, not as good as historical averages but better than what it’s been for the last two years.

And I guess we’ll really see that towards the end of August or into early September?

Yes, it’s playing out Bob as we speak and should run for another 4 to 6 weeks.

Okay, and just a quick question about the Industrial Chemicals business; if you X-ed out the impact from the start-up costs swinging from 2Q to 3Q, seasonally would Industrial Chemicals be up in the third quarter from the second quarter just because of the peroxide business being stronger? Or am I thinking about that right?

Yes, I think that’s probably fair Bob if you do X-out the timing effects that we talked about between Q2 and Q3.

Okay, any other – in terms of just looking at the underlying business trends from the second quarter to the third quarter, Industrial Chemical’s—is peroxide the major factor from one quarter to the next in terms of seasonality?

Yes, it’s the only factor really in seasonality. Again if you X-out those timing effects that we talked about; there is no noticeable seasonal pattern to our soda-ash business or our phosphate business and the peroxide—I think as I commented earlier, is only about a 5% growth sequentially. And if we experience that this quarter, it will be positive sequentially but it’s not going to be a big number.

Okay, thanks.

Sir, you have no more questions.

Thank you operator and thank all of you for joining us on the call this morning. Our strong operating performance, coupled with our ratings upgrade and successful refinancing has put us in a good if not great position to have another outstanding year. With earnings growth year-over-year in the mid 30% range, net debt reduced by close to $200 million even with the $44 million premium we paid to call the notes, and a return on invested capital that I would expect is going to approach our 12% target in 2005. And as importantly to me, I believe that momentum is going to carry us well through 2006 and 2007.

I don’t see anything as I sit here today that would cause me to be concerned going forward other than the normal uncertainties and risks that might be associated with our Ag Business. The market; you guys have responded favorably with a stock price that is up about 27% year to date, based upon last night’s closing. And despite this and you’re probably getting tired of hearing me say this, by any comparison that you want to use on us, we remain significantly undervalued relative to our peers.

I remain committed to you to realizing the full value that is inherent in the Company. And we will. With that, we’re going to sign off. Thanks again for joining us. I look forward to seeing many of you in the months ahead. Take Care.

This concludes today’s 2005 second-quarter earnings release conference call for FMC Corporation. You may now disconnect.