富美實 (FMC) 2007 Q1 法說會逐字稿

Welcome to the first quarter 2007 earnings release conference call for FMC Corporation. All lines will be placed on listen-only mode throughout the conference. After the speakers' presentation, there will be a question and answer period. (OPERATOR INSTRUCTIONS) Thank you, I will now turn the conference over to Mr. Brennen Arndt. Mr. Arndt, you may begin, sir.

Thank you, and welcome, everyone, to FMC's first quarter 2007 conference call and Webcast. Bill Walter, our Chairman, President and Chief Executive Officer, will begin the call with a review of the first quarter's performance. Bill will then turn the call over to Kim Foster, Senior Vice President and Chief Financial Officer, who will report on our financial position. Bill will then complete the call with a discussion of our outlook for the balance of 2007 and will take your questions. Our discussion today will include certain statements that are forward-looking and subject to various risks and uncertainties concerning specific factors that are summarized in FMC's 2006 Form 10-K, our 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 on these risks and uncertainties. During the conference call, we will refer to certain non-GAAP financial terms on the FMC Website available at fmc.com. You will find a definition of these terms under the heading entitled "Glossary of Financial Terms." We have also provided a reconciliation to GAAP of the non-GAAP figures that will be used on the call this morning, as well as I've provided you our 2007 outlook statement. It's now my pleasure to turn the call over to Bill Walter. Bill?

Thanks, Brennen. Good morning, everyone. As you saw in our earnings release, we got off to a great start in 2007, with stronger than anticipated first quarter performance. Let me summarize our results. Sales of $674.1 million were up 13% versus the first quarter of 2006. Earnings before restructuring and other income and charges of $1.83 a share increased 5% over last year's first quarter of $1.74 per diluted share and were significantly above our first quarter guidance of $1.60 to $1.70 a share.

Ag products had an outstanding quarter with earnings of $70.8 million, up 29% versus a year ago, driven by higher sales across all regions and product lines as well, as the benefit of new product introductions and a low-cost supply chain strategy. Specialty chemicals earnings of $35.6 million increased 13% versus the year-ago quarter, as a result of strong global demand and higher selling prices for lithium and good sales growth in the food ingredients and pharmaceutical markets in biopolymer. Industrial chemicals earnings of $17.5 million declined as expected and were down 40% versus the year ago quarter, as higher energy costs across the group and lower electricity selling prices in Spain more than offset the benefit of higher selling prices and continued volume growth in soda ash.

Energy and raw material costs were higher than a year ago across the Company versus the prior year. Energy and raw material costs unfavorably impacted earnings by $0.25 a share in the first quarter. While currency translation had only a modest favorable impact of $0.01 per share in the quarter.

On a GAAP basis, we reported net income of $45.8 million or $1.17 per diluted share. GAAP earnings for the quarter included a $0.24 per share charge related to discontinued Ops and a $0.42 current per share charge for restructuring and charges, including tax effects, which was primarily related to the settlement of a lawsuit with Solutia. With those reconciliations, our non-GAAP earnings, as I said earlier, were $1.83 per diluted share versus $1.74 a year ago.

Moving on to a more detailed review by segment. First, Ag products. Sales of $248.3 million increased 20% across the prior year. Sales growth was realized across all geographic regions and product lines but was particularly strong in Brazil as we benefited from increased planted acres in cotton and sugar cane and from the new products we introduced last year. Sales in Europe increased as a result of a stronger early season demand and more normal weather conditions than we experienced a year ago and also by growth in key crops driven by demand for biofuels.

Sales growth in North America was driven by new product introductions, stronger early season demand and increased sales in the robust corn market. And in Asia, top line growth was realized as a result of increased sales into the rice and sugar cane markets in China and a shift in sales in Indonesia due to more favorable weather conditions than we experienced in the fourth quarter of last year. Segment earnings in the quarter were $70.8 million, up 29% versus last year's quarter due to the strong sales growth and the benefit of a low-cost supply chain strategy, mitigated somewhat by increased spending on our growth and innovation initiatives.

Moving to specialty chemicals. Sales of $166.2 million increased 16% versus the prior year quarter, as a result of broad-based growth across both of our biopolymer and lithium businesses. In biopolymer, sales under the food ingredients and personal care markets increased significantly versus a year ago. Higher sales were realized across all major products that serve this market, specifically carrageenan, alginates and microcrystalline cellulose, all contributed to the top line growth. Sales in our core pharmaceutical excipients business also increased, particularly in the disintegrant and alginate product lines.

And finally, our health care ventures business area experienced higher sales and continues to make good progress toward major development milestones. In lithium, the sales increase was driven in part by continued strong global demand and tight supply conditions for primary lithium compounds. But we also saw good demand growth and increased pricing in our polymer and synthesis markets. Segment earnings in specialty of $35.6 million increased 13% versus the year ago quarter, as a result of the strong, top line performance I just described, offset in part by less favorable product mix, higher raw material and energy costs, and increased spending on strategic growth initiatives.

Moving on industrial chemicals. Sales of $260.6 million increased 6% versus the prior year quarter, driven by higher selling prices and continued volume growth in soda ash. During last quarter's conference call, we said that we expected average domestic soda ash pricing would be up year over year by approximately $10 per ton. That's what happened in the first quarter.

We also commented that we expected ANSAC pricing to be down slightly for the year. And while that was also the case in the first quarter, we remain optimistic that tightening supply conditions during the course of the year may provide ANSAC the opportunity for some midyear price actions. As expected, segment earnings of $17.5 million decreased 40% versus the year-ago quarter, as higher energy costs across the group and lower electricity selling prices in Spain more than offset the benefit of higher selling prices and volume growth in soda ash.

Regarding the impact on earnings of the energy situation in Spain, electrical selling -- electricity selling prices in the first quarter of 2007 did move up from the December 2006 lows but still remained well below prices realized in the first quarter of 2006. It is our expectation that the second quarter 2007 electricity selling prices will rise above those of the first quarter, as well as compare more favorably to the prior year quarter. And as the year progresses, we expect electricity prices to become favorable versus the year earlier comparisons.

Turning to corporate. Corporate expenses were $13.1 million, as compared to $11.3 a year ago. Interest expense net was $8.4 million, level to the prior year period. At quarter end, gross consolidated debt was $617.7 million. And debt net of cash was $568.5 million. For the quarter, depreciation and amortization was $34.5 million. And capital expenditures were $20.4 million. With that review of the segments, I'll now turn the call over to Kim Foster to report on our financial position. Kim?

Thanks, Bill. And good morning, all. In last quarter's call, I projected 2007 free cash flow to be approximately $200 million. Based on the recent Solutia settlement, I'm now projecting 2007's free cash flow to be approximately $180 million. On April 2, 2007, we reached a settlement with Solutia, whereby FMC will pay Solutia $22.5 million. And both parties will release each other from all claims related to the case. This settlement is contingent upon bankruptcy court approval and the payment could occur as early as the second quarter.

An item not included in our $180 million free cash flow projection is the proceeds from the sale of our Princeton, New Jersey, property. We still anticipate the sale to close in early 2008, with a modest upside that the sale could occur late 2007. Proceeds from the sale are estimated to be approximately $60 million.

Next, a comment on our tax rate. Our book tax rate is a combination of US federal and state tax rate of 38% and generally lower tax rates from numerous foreign jurisdictions. Over the past few years, our tax rate has been increasing as the percentage of overall profits derived from US-sourced income has been increasing. Last quarter, we projected an effective tax rate on earnings before restructuring and other income and charges of 27.5% for 2007.

Based on our revised outlook, we are increasing the tax rate to 28.5% to recognize that a majority of the improvement in our results will be earned domestically. Let me remind you, however, that we pay minimal US taxes due to our net operating losses carry-forwards and consequently, this change has no impact on free cash flow. Regarding the intended uses of our free cash flow, our dividend program will use approximately $30 million, including the recently announced plan by our Board to increase our regular quarterly dividend from $0.18 per share to $0.21 cents per share, beginning with the July payment.

During the first quarter of 2007, we repurchased 268,000 shares of FMC's stock at a cost of $20 million under the then-existing $150 million program. Since authorized by the Board in February of 2006, we've repurchased 1.68 million shares at a cost of $110 million in this program. Last Tuesday, our Board authorized a new $250 million share repurchase program to replace the $150 million program. Similar to the previous program, the new program does not include a specific timetable or price targets and may be suspended or terminated at any time.

We expect that the program will be accomplished over the next two years. Let me remind you that our earnings guidance does not assume that we will repurchase any shares under the share repurchase program in future quarters. The decision by our Board of Directors to authorize the repurchase of up to $250 million of the Company's stock does not signal a change in strategy. We remain committed to growing our specialty and agricultural products business. We continue to evaluate attractive growth opportunities outside the Company such as product acquisitions, end licensing deals or development ventures and agricultural products and bolt-on acquisitions in specialty chemical.

The decision does, however, underscore our continued confidence in FMC's free cash flow generating capabilities. As we have said over the past year, we will balance the cash requirements of our growth initiatives with the alternative of returning cash to shareholders. With that, I will now turn the call back to you, Bill.

Thanks, Kim. Clearly, we're off to a good start to the year with our strong, first quarter performance. While we continue to be challenged by the energy situation in Spain, we remain confident of delivering another year of record earnings, driven by strong growth in agriculture products, specialty chemicals and soda ash. Specifically, regarding our outlook for the full-year 2007, we expect earnings before restructuring and other income and charges of $6 to $6.20 per diluted share, which at the midpoint this range represents an 11% increase above 2006.

In Ag products, we expect full-year revenue growth of approximately 10%, as a result of a healthy global agricultural global economy, our new product introductions and continued label expansions. full-year segment earnings in Ag are expected to be up 20% to 25%, as a result of the strong sales growth and further supply chain productivity improvements, offset in part by increased spending on our growth initiatives. In the specialty chemicals segment, we expect full-year revenue growth of approximately 10%, driven by higher volumes and selling prices in both lithium and biopolymer.

Full-year segment earnings are expected to be up 10% to 15% as the benefit of the strong top-line growth and our productivity initiatives are mitigated somewhat by less favorable product mix and higher energy and raw material costs. And finally, in industrial chemicals, we expect full-year revenue growth in the low teens as a result of higher soda ash volumes and selling prices and volume growth within Foret. Full-year segment earnings are expected to be level to prior year, as aggregate price and volume benefits are offset by higher energy costs across the group and lower average electricity selling prices in Spain.

But more importantly, we're confident that industrial chemicals will be back on track, building considerable earnings momentum by midyear and delivering strong earnings growth in the second half of 2007 and on into 2008. Moving more near term to our outlook for the second quarter. We expect earning before restructuring and other income and charges of $1.60 to $1.70 per diluted share. Driven by the continued growth in Ag products, specialty chemicals and soda ash, partially offset by the higher energy costs and lower electricity selling prices in Spain.

In Ag product, second quarter segment earnings are now expected to be up 15% to 20% as a result of improved market conditions in both Europe and North America, partially offset by, again, continued spending on our growth and innovation initiatives. And in specialty chemicals, second quarter earnings, they're expected to be up 10% to 15% as a result of good commercial performance in both biopolymer and lithium and the benefit of productivity improvements, mitigated somewhat by higher energy and raw material costs.

Finally in industrial chemicals, we expect second quarter earning to be down approximately 10%, as aggregate price and volume benefits are offset by higher energy costs across the group and slightly lower electricity selling prices in Spain. With that, I want to thank you for your time and attention, and we'll now be happy to take your questions. Operator?

Thank you, Mr. Walter. (OPERATOR INSTRUCTIONS) Your first question is from the line of Kevin McCarthy.

Yes, good morning, Bill, Kim. Bill, you sounded more optimistic about potential to raise prices in soda ash via ANSAC. Can you talk a little bit about the source of that optimism?

Yes. First of all, Kevin, good morning to you, as well. I think the optimism is consistent what Michael Wilson tried to share with you when he was on the conference call last quarter. We see global demand for soda ash continuing to increase and the supply situation coming out of China becoming increasingly tighter. In fact, our internal model has Chinese exports actually declining year over year. And if that's true, we're going to create a situation in Asia later this year where the market should be at least willing to accept price increases even if they don't want to.

How common is it, if we look at history, for ANSAC to be able to achieve prices increases intra-year?

I think, Kevin, as we've described in the past, ANSAC's business is not contracted as tightly and precisely as the domestic business is, ie. tied to a calendar. I'm not sure exactly what the average term of one of their contracts is but it's probably not more than six months, at least in Asia, which provides them opportunities to raise prices. They have done it historically in the past. My best recollection here was in 2005, they let a large, midyear price increase that largely stuck. My expectation would be that if market conditions do develop as we currently expect that they will, if ANSAC tries to move prices forward, they will be successful.

Okay. That's helpful. And then finally if I may, on Ag, two questions. Really remarkable quarter, first of all. But I was wondering if there were any timing shifts either favorable or unfavorable that would have had a significant impact on first quarter sales or profitability? And then second part, Bill, you highlighted some of the spending on growth and innovation initiatives. Can you remind us what some of the key efforts are there, please?

Sure. There were two relatively small timing issues, Kevin, in the quarter. One was the early shipment of tender in Africa. And second was a delay from the fourth quarter into the first in Indonesia, which was weather related. The two of those together probably didn't have but a $1 million or $2 million impact on earnings in the quarter. And again, it was from fourth quarter of '06 on the one hand, and from the second quarter of '07 in the other. But those are the only timing things that I'm aware of.

In terms of; What are we doing? Last year, we changed the fundamental innovation model of the business from a small molecule discovery to something that we hope is a much shorter term model. That model involves our end-licensing, joint venturing, acquiring or otherwise getting access to other people's chemistries and technologies. A la what we did with ISK here in the last couple of years but to do it across a much broader base of our business.

We've very focused, however. This is not a shotgun approach to our trying to grow the business. It's focused specifically in certain crops. It's focused very specifically in certain geographies. We have underway discussions with any number of people with respect to their technologies. It would be premature for me here on the call today to talk specifically about any of those, let alone predict when they're going to come to fruition.

Okay. Thank you very much.

Your next question is from the line of Robert Felice.

Hi, guys. Just a couple of quick questions. I wanted to focus for a minute on the industrial side. Namely, peroxygens. If I remember correctly, a couple of months ago, you thought that there was potential to get incremental pricing as the year unfolded. Perhaps by midyear, if things tightened up enough, I was hoping you can characterize the external environment there? How things are unfolding and the likelihood of any additional pricing as you see it now?

Sure, Rob. You're challenging my memory. I don't recall Michael in last quarter's conference call talking about intra-year opportunity for peroxygens, at least in hydrogen peroxide. Similar to our soda ash business, the majority of our hydrogen peroxide contracts in North America are on an annual calendar year basis. And therefore, don't provide us an opportunity for price movement in either direction inside the calendar year. So to the extent we did communicate something different, our apologies, and let me correct it here. I don't see an opportunity in either our North American or European hydrogen peroxide business for any significant price changes during 2007.

Okay. Fair enough. On the peroxygen side, just getting down to a little of the detail, what was the change year-over-year in earnings from that business?

Rob, as you know, we don't get that granular. I think as Michael did say, though, that we had anticipated earnings to be down year over year. He didn't provide discreet guidance in the first quarter, before the first quarter. But I think it's safe to say that their first quarter results were consistent with the overall guidance Mike health given for the year.

Okay. What I'm trying to do is really parse through the performance there, soda ash versus peroxygen versus Foret and really get a sense for the relative performance of each. So, either qualitatively or quantitatively if you can just delve into that a little bit?

Sure. I understand what you're trying to do, and that's what you get paid for. Our job is to make your job difficult. No. Let me talk about it qualitatively, Rob, first, it being the first quarter in industrial. And I think it's safe to say that the quarter turned out pretty much as we'd expected. I think we had guided in the first quarter that earnings within the alkali chemical division would be up year over year on the basis of stronger domestic pricing and volumes, offsetting increases in raw material and energy costs.

Okay.

Well, let me go on. I think I just commented about peroxygens. And then in Foret, if alkali turned out the way we had thought it would and peroxygens turned out the way we thought it would and the segment turned out as we thought it would; therefore, Foret had to have turned out essentially what we thought it would be. With the exception of electricity selling prices in Spain in the quarter, ie. the first quarter of 2007, were lower than we had expected them to be. Albeit higher than they were in the fourth quarter of '06. That's about as granular as I can get with you, Rob. Sorry.

That's fine. And then finally, stepping back 30,000 feet, Bill, you've long said that you're patient. And sometime has gone on now. And I was hoping you could take a second to update us on your thoughts, the value of the Company? I know the stock has moved up a little bit today but just update us on your patience level and the options at your disposal at this point?

Rob, I'm going to disappoint you with my answer. You're looking for something far clearer than what I'm going to say here. You haven't exhausted my patience. "You"You" being the Street. But as I've said to you and many others, I don't have infinite patience. I continue to believe the Company is undervalued. I haven't paid any attention to what's happened with the stock price today. I don't look at it daily. But by any metric that I can apply to the Company, we are undervalued relative to our peers. What we do about that, we're going to have to see play out.

Okay. Fair enough.

And your next question is from the line of Mike Judd.

Yes, congratulations on a good quarter.

Thanks, Mike.

Just wondering if in Ag you could give us some thoughts about what do you think Brazil is going to look like in the fall?

Sure. Mike, you're asking me to look into probably the muddiest crystal ball we have. But having said that, our expectations and embedded in the guidance we have given for Ag for the year and therefore, the Corporation is for continued strong Brazil farm economy in the '07/'08 season. Whether the strength of that will be as great as it has been in the '06/'07 season is yet to be seen. Commodity crop prices are good but the Real is at 2 to $1 right now, which is straining the Brazilian farmer a bit. Again, I'm going to not answer the question as clearly as you had hoped I would. But we expect continued growth but not at the pace that we've seen in the last year.

Okay. And then secondly, looking at your been sheet, I thought I saw the receivables number had jumped up by a noticeable amount for the March quarter. Is there anything we should be paying attention to there or is it just normal seasonal activities?

Hi, Mike, this is Kim Foster. And you correctly assessed what it was. It's the seasonal activities largely associated with Ag and once again, largely associated with Brazil. But on a performance basis, these are -- the growth in the receivables are in line with our expectations.

Thanks a lot for the help.

At this time, you have no further questions, sir.

All right. Well, thank you, operator. And let me thank all of you for joining our call today. We obviously had a very good quarter. All of the businesses performed at or above our expectations. I was most pleased at the rate of top line growth. As a result, we've raised our guidance for the year. Ag expects the balance of the year to remain strong, albeit not at the same rate as we experienced in Q1. Specialty anticipates the full-year to look similar to the first quarter. And in industrial, we expect improving results as the year progresses. Embedded in our guidance for industrial is a very strong year-over-year earnings improvement in the second half.

Let me stop here. I was just handed a note that said there was somebody else on the call. And we might as well take it before I sign off here. Dmitry?

I was afraid somehow I got lost in the shuffle there.

We were told by the operator there wasn't anybody else on. So, my apologies.

That's all right. I heard that, that's when I panicked. But I'm glad you got to me. A couple of questions. A lot of them have been answered and you were very good at providing a lot of the information that we were looking for. A couple of things. On the health care ventures that you mentioned as part of the specialty chemicals business, can you take us a little bit through that as far as what that involves and how big this relative size is and where exactly this business is going?

First of all, it's in an embryonic form today. While I commented on the sales in that area being up, you'd probably lose it in the rounding of FMC.

Okay.

So I wouldn't assign any real significance to it in the current period results. Where is it going? We're investing in three new product/technology platforms, which if they're successful, if we're successful, could have a significant and meaningful impact on FMC's results out five years from now. But it is out five years from now. It's not near term. I think Ted Butz has in previous conference calls described a little bit about it. We call the technology general and magenta and something else. We will either, Dmitry, if you're really interested get you in here to talk to Ted about it or we'll feature Ted and have him talk about it on one of the future conference calls.

Sounds good, Bill. Thank you. A second question. On the Spanish electricity issue, you talked about pricing going up sequentially, still being below your expectations at the end of the first quarter. We're talking about just market forces taking the prices up. We're not talking any kind of deregulation or re-regulation of the market that perhaps you were expecting to result in a little bit sooner in price increases. Is that correct?

That's a great question. I'm not sure how best to characterize it. The situation that Spain finds itself in right now is the result of a regulatory move that the Spanish government took, ie. to deregulate the price of natural gas and at the same time capping the price of electricity. We had expected two things to happen. One would be a government action, which would bring stability back to the electricity pool, as well as market forces working to drive pricing up.

That government action has not occurred yet. It is reported to be eminent but here it is, May 1, or whatever today's date is, and we've still not seen it. Eventually, though, the government is going to have to act. And eventually, the market has to be rational with respect to electricity pricing. There's some 300-plus co-gen generators in Spain, all of whom are losing money today on their co-generation operations. And that co-gen power that they produce is a critical and essential element to the total electricity supply in Spain. So again, it's an untenable situation that cannot sustain itself.

Let me repeat our assumption and again, it is still only an assumption. And that is that electricity prices will continue to recover through the balance of the year. Such that by the time we get to the second half of 2007, we will experience at worst, neutral, if not favorable comps to 2006.

Okay. Then let me follow this up, Bill. In your expectations for a robust second half recovery in earnings of the industrial chemicals segment, how much of that is driven by or dependent on the Spanish electricity? How much is dependent on expectations of a midyear price increase from ANSAC? And how much of it dependent on less negative or more positive comps in energy and raw material? In other words, what are the key drivers, among the ones that I mentioned, maybe there are some that I haven't, for the expectations of a strong second half in industrial chemicals?

Sure, Dmitry. You understand our industrial chemical business really well. Volumes and prices are largely set when a calendar rolls over to January 1 of each year. So, the improvement in second half has largely got to be coming from something else other than prices and volumes. The exception is we anticipate continue volume growth pretty much throughout our Foret business as the year goes on. We have not embedded into our guidance further ANSAC price improvement in the second half. We're talking about that as an upside.

Okay.

So when you get done with all of that, the implied year over year earnings improvement in the second half of '07 in industrial has got to be coming from energy in Spain. And it comes in two forms. One is favorable natural gas tops. Remember that the natural gas price deregulation hit us starting in the third -- late second quarter last year. So we get -- by the time we get into the third quarter, we've got that unfavorability behind us. And the second is electricity selling price. We -- well, period. Let me stop there. I think I've answered the question.

Yes, you did. Thank you very much. And then a final question. Actually, yes, let's make it a final question. Is there enough growth in the export market on the soda ash side for you to consider recommissioning another chunk of Granger plant, or is it too soon to talk about that at this time?

Is there enough growth? Demand growth on North American soda ash is probably 1% to 2% to, in a good year, 3% a year. So you're talking about 125,000 to 400,000 tons per year of demand growth. That's pretty much in the sweet spot of a next increment of capacity that we could bring on if we were going to do it. Having said that, absolutely no decision has been made with respect to the next increment, period.

Okay. Thank you very much.

Let me one more time ask if there are any more questions out there.

We do have a question from the line of Frank Mitsch.

Great. Thank you. Not sure why we were cut off but better late than never. Bill, for what it's worth, your stock is $83 as we speak. I know you hadn't looked at it yet today. And just to make sure I understand more what's going on in industrial chemicals in terms of your performance in the first quarter. You said I believe that peroxygens came in where you thought it would. You said that soda ash came in where you thought it would. And you said that the Foret came in roughly where you thought it would, although price increases in electricity were disappointing relative to your expectations. Which then, begs the question, that natural gas costs in Spain would have been below your expectation, as well. Can you comment on the other side of the coin, the raw materials side of the coin in the Spanish situation, where it is today, where it is relative to your expectations, and where is it going to?

Sure. Sure, Frank. First of all, lets me correct something that I think you said or inferred from our comments. And that is that our natural gas prices were below our expectations. If you said that, let me correct it to say that, natural gas prices in Spain were on our expectations, as we had essentially fully hedged that price through a contract.

Where are raw materials? Raw materials in Spain continue to increase. Whether you're talking about a phosphoric rock or caustic soda or soda ash, the industrial commodities in Europe remain very strong. And we are seeing raw material cost pressures across Foret. Having said that, those raw material cost pressures came in pretty much in line with what we'd expected. I'll repeat here, the industrial chemicals, as a segment, came in within the guidance that we had provided in the first quarter. Alkali as expected, peroxygens as expected, Foret as expected, with the exception of electricity selling prices.

All right. That's fair. And then there had been some thought that perhaps by the second quarter we could get back get back to a break-even situation. And obviously, in the second half of the year, your comps are very easy with respect to the Spanish electricity situation. Would you need to see some government action in the very near future in order to see the situation in Spain get back to being neutral to earnings in the second quarter?

I think, Frank, if the government did we'd feel a lot better about it but I don't think it's a necessary precondition. There is a thinly traded forward market for electricity in Spain. And that forward market through '08 is already at or above our -- the assumed pricing that we've got embedded in our forecast.

All right. So then you would expect to see a neutral impact with the electricity situation in Spain in the second quarter and then turning positive in the second half of this year?

Slightly negative in the second quarter.

Okay. All right. With -- but potential upside if there was government action. And I'll have to monitor the situation there. Ag obviously, a very strong quarter and you mentioned several factors for why Ag was better. But one thing I did not hear you say was something with respect to higher insect pressures helping Ag. Was that a factor or not a factor?

It was not, Frank. Insect pressures tend to come later in the season. We were past that point in Brazil in the quarter. We're not to that point in the growing season in the northern hemisphere. So, it was really a nonevent for us in Q1.

All right. And then I think you mentioned that, from a timing standpoint, there was $2 million, some coming from the fourth quarter, some coming from the second quarter that helped Ag. But you also mentioned that the strong results mitigated the higher growth spending. And the growing spending, would you put that on the order of magnitude of more than $2 million or not?

I'm not going to get that granular with you, Frank, by segment. But if you look at our S&A spending for the Corporation, well, SAR, selling, administrative, and research is up $11 million over the first quarter of '06. We're not -- we haven't let the purse strings loose on anything but our growth initiatives.

That is very helpful. And then lastly, I know that you converted your 150 million share buyback program into a 250 million program. I think you had 40 million left on the first program, so in effect you've got 140 million left in total. You basically bought 110, what, in about three or four quarters. So it suggests the pace that you're at is much greater than the sort of two year timeframe that you gave yourself for this new program. Is that reflecting conservatism on your part, or is it reflecting some capital needs that may come up that would force you or make you slow down the pace of share repurchase?

There is no significant capital demand that is on the horizon right now that would lead us to provide the guidance that we did. I'll let you interpret whether or not, therefore, it's conservatism.

Terrific, thank you.

I'll try once again. Are there any further questions out the there?

You have a follow-up from line of Kevin McCarthy.

Yes. Thank you. Bill, we've heard a lot of anecdotal strength in the marketplace on lithium. And I was wondering if you could enlighten us as to how much of the $23 million sales gain in your specialty chemicals segment might have been attributable to lithium? And then secondly, where do lithium margins stand now versus the segment average?

Kevin we don't get that granular. My apologies. We just don't get there. Although I did talk about, I think, strong growth in both lithium and biopolymer. In terms of margins, the average margin within lithium still remains below the segment average.

How far below might it be?

Nice try.

I'm noticing a trend here. You don't get very granular.

You are listening.

I have a smile on my face as I say that. What is your outlook for lithium prices through the balance of the year?

I don't see any reason to anticipate any significant change one way or the other. Global demand remains very strong.

Okay, thank you, Bill.

I'm going to assume unless somebody jumps in that that's the end of the questions. Let me wrap this up and just repeat a little bit of what I started to say before. We remain bullish about the entire year and we remain bullish beyond '07.

With respect to this year, though, Ag, continued strong, albeit not quite as strong as we saw in the first quarter. Specialty, continued strong, as it was in the first. And industrial, as we've spent the last 10 minutes talking about, significantly improving results as the year goes on. Leading to a strong earnings growth in the second half and even further growth as we roll into 2008. As I said, all of that leaves us pretty bullish, not only about 2007 but the years ahead. I would expect that we should continue to see strong earnings growth and cash flow generation.

And as Kim has said, we're going to use that cash flow to fully fund all the attractive internal investment opportunities we can identify. And we're going to continue to pursue external investment opportunities in Ag products and specialty chemicals. And until that time comes that we're able to profitably put that cash to work in those investments, we will return cash to our shareholders via the increased dividend that the Board announced an intent to take, as well as the new share buyback program. With that, let me end and say thank you again for joining us. Appreciate it.

This concludes today's conference call. You may now disconnect.