富美實 (FMC) 2009 Q3 法說會逐字稿

Welcome to the third quarter 2009 earnings release conference call for FMC Corporation. The phone lines have been placed on a listen only mode throughout the conference. After the speakers' presentation, there will be a question-and-answer period. (Operator Instructions) I will now turn the call over to Mr. Brennen Arndt. You may begin your conference, sir.

Thank you, and welcome, everyone, to FMC's third quarter 2009 conference call and webcast. I want to apologize for the delay in beginning the call. We're about ten minutes behind. For that, again, I apologize. Bill Walter, our Chairman, President and Chief Executive Officer, will begin the call with a review of our third quarter performance. Bill will then turn the call over to Kim Foster, Senior Vice President and Chief Financial Officer, for an in-depth review of the performance and prospects for our global Agricultural Products segment, as Milton Steele is overseas today, as well as a report on our Company's financial position. Bill will then provide our outlook for the balance of 2009 and we'll complete the call by taking your questions.

A reminder that our discussion today will include certain statements that are forward-locking and subject to various risks and uncertainties concerning specific factors that are summarized in FMC's 2008 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 the find the definition of these terms under the heading entitled "Glossary of Financial Terms." We have also provided our 2009 outlook statement and a reconciliation to GAAP of the non-GAAP figures that we will use today.

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

Thanks, Brennen, and good morning, everyone. As you saw in our earnings press release, our third quarter results were consistent with our expectations. We realized strong performance in our businesses that serve end markets less sensitive to the broader economy, particularly Agricultural Products and BioPolymer. In our businesses serving end markets more sensitive to the economy, though volumes were lower than a year ago, demand in each improved on a sequential basis relative to the second quarter with further improvement expected in the fourth.

Summarizing our third quarter results, sales of $713.3 million were 13% lower than last year's third quarter. Earnings before restructuring and other income charges of $0.89 per diluted share were 21% lower than the year ago quarter. In Ag Products, sales of $268 million increased 2%, while segment earnings of $59.2 million increased $34% versus the year-ago quarter as a result of improved market conditions in Brazil and lower raw material costs. In Specialty Chemicals, sales of $192 million were down 3%, while earnings of $40.9 million increased 14% versus the year-ago quarter, as strong commercial performance in BioPolymer was partially offset by lower lithium volumes. In Industrial Chemicals, sales of $254 million declined 29% and earnings of $20.7 million were 69% lower than the year-ago quarter as a result of lower volumes across the segment and reduced phosphate selling prices.

On a GAAP basis, we reported net income of $28 million, or $0.38 per diluted share. GAAP earnings in the current quarter included a net charge of $37.3 million after tax, or $0.51 per diluted share, versus a net charge of $5.6 million after tax, or $0.08 per diluted share in the prior year quarter. A significant portion of the current quarter's charge reflects the resolution of a regulatory matter in our Industrial Chemicals segment. With that reconciliation, our non-GAAP earnings were $0.89 per diluted share in the current quarter, a 21% decrease versus the $1.13 per diluted share in the third quarter of 2008.

Let me take a more detailed look at the performance of each of our operating segments in the quarter. First in Specialty Chemicals. Revenues of $192 million were 3% lower than the prior year quarter. Strong commercial performance and the benefit of acquisitions in BioPolymer were more than offset by lower lithium volume. Segment earnings of $40.9 million, however, increase 14% versus the prior year as revenue gains in Biopolymer were only partially offset by lower lithium volumes. In our lithium business, while volumes and revenues were lower than the prior year quarter due to reduced demand across a number of end markets, they did improve sequentially over the second quarter of this year. Lithium earnings were lower than a year ago due to the revenue decline, partially offset by the favorable outcome of a tax dispute in Argentina.

In BioPolymer, third quarter revenues increased as a result of strong commercial performance in food ingredients and pharmaceutical markets, and to a lesser extent the inclusion of the ISP acquisition that closed in the third quarter of 2008. Partially offsetting the revenue gain was unfavorable currency translation. In our decision earlier this year to selectively drop lower margin volumes in both food ingredients and pharmaceutical excipients to support our pricing initiatives and to optimize our production capacity. BioPolymer earnings improved significantly over the prior year, driven by the revenue gains, improved mix and the benefit of last years' acquisitions.

Moving on to Industrial Chemicals. Sales of $254 million declined 29% from a year ago quarter reflecting lower volumes across the segment and reduced phosphate selling prices. The majority of the year-over-year sales decline was attributable to Foret which delivered exceptionally strong performance in the third quarter of 2008. Segment earnings of $20.7 million were 69% lower as reduced volumes and lower phosphate prices more than offset selling price improvements in other product lines and lower energy and raw material costs. Versus our prior outlook, earnings were impacted by an unplanned operational outage at our Green River soda ash facility. The effects of the outage fortunately were confined to the third quarter.

In soda ash, higher domestic selling prices continued to benefit earnings in the quarter, while export prices declined sequentially as ANSAC successfully regained market share. Year to date we realized an overall soda ash price level but is approximately $10 per ton higher than the comparable period in 2008. During the quarter, Chinese exporters continued to sell at or below their delivered cost. However, Chinese prices appear to have now stabilized as their cash costs have bottomed. In fact, market prices for some of the Chinese key inputs have begun to move upward, most notable coke. Soda ash volumes, while below their year ago level, were also up sequentially in the third quarter driven by higher export sales. ANSAC has now successfully implemented their share gain strategy and we expect their fourth quarter 2009 sales to approach their 2008 full year run rate. As a result, we continue to believe that the US soda ash industry will enter 2010 with assets running at or very near full utilization.

Moving to North American peroxygens. Industry trends experienced in the first half continued into the third quarter. As price increases have held and volumes continue to improve a sequentially quarter to quarter. Nevertheless, versus the prior year quarter, higher selling price benefits were more than offset by volume decline impacts particularly in the pulp and paper market. We continued to make good progress in the quarter in expanding our specialty peroxygens business. We again saw marked volume improvement In specialty applications serving soil and water treatment, food biocide, and aseptic packaging markets.

Moving on to Foret, our wholly owned European subsidiary, revenue declined significantly as a result of lower volumes, reduced phosphate selling prices, and unfavorable currency translation. Foret's results were sequentially higher but significantly lower than the prior year quarter due to the revenue decline which was unfortunately only partially offset by lower energy and raw material costs, particularly phosphate rock. Hydrogen peroxide volumes in Foret in the quarter remained below the prior year level but improved sequentially relative to the second quarter. Pricing and margins did improve. In phosphates, prices and volumes across the product line were lower than their peak in the third quarter of 2008 as a result of lower demand, product reformulation, and product substitution. Both prices and volumes for phosphates appear now to be at or very near bottom. Meanwhile, Foret's margin and competitive position in phosphates are improving as phosphate rock and other input prices have declined to a level below those of a year ago.

Moving on to corporate items. Corporate expense was $10.3 million, down from $12.5 million a year ago. Interest expense net was $6.2 million as compared to $7.5 million in the prior year quarter. On September 30, gross consolidated debt was $613.6 million, and our debt net of cash was $553.7 million. For the quarter, depreciation and amortization was $32.3 million, and our capex was $35 million.

For a discussion on Ag Products I'll now turn the call over to Kim Foster. Kim?

Thanks, Bill, and greetings everyone. Today I'll begin with a review of Ag Products 2009 third quarter and year-to-date financial performance. In addition, I'll share our perspective on recent trends in the crop protection market, provide an update on FMC's ag product strategy and highlight some of the opportunities we foresee taking advantage of to sustain our profitable growth.

First, our third quarter financial performance. Third quarter sales of $268 million were up 2% compared with the prior year quarter. We realized sales increases in Brazil in our non crop businesses, which were partially offset by lower sales in Europe and the North American crop markets. In Latin America, which is primarily Brazil, sales increased 7%, reflecting a positive start to the 2009, 2010 crop season, and an improvement in market conditions compared with the first half of 2009, and growth in planted acres for a number of our key crops. In our non crop business, sales increased significantly reflecting the successful integration of the CB product line acquisition made in the first quarter of this year.

In Europe, sales declined 9%, due to less favorable market conditions, reflecting extremely dry conditions in most of Europe, which, coupled with weak pest pressures. In addition, unfavorable currency impacts contributed to the lower sales in the quarter. In our North American crop business sales fell 15% due to weak pest pressures compared with the heavy aphid infestations experienced last year. As expected, segment earnings in the quarter of $59 million increased $15 million, or 34%, driven by improving market conditions in Brazil, lower raw material costs, primarily chemical intermediates, the recovery of certain indirect taxes in Brazil, and the favorable currency comparisons versus prior year quarter.

Turning to our year-to-date performance. Sales declined approximately 4% to $782 million, due mostly to the first half performance in Brazil. Earnings, however, of $242 million improved 15%, reflecting higher selling prices in many regions, new product introductions from our innovation pipeline, and significantly lower raw material costs. Given this year's industry dynamics, including poor weather and pest conditions in major markets, low commodity prices, and a very difficult first half in Brazil, we've a had a truly exceptional year-to-date performance.

Looking to the fourth quarter, we believe that fourth quarter earnings will improve approximately 35% to 40% due to continued rebound in Brazil, lower raw material costs, further manufacturing productivity improvements, and the absence of one-time costs associated with a 2008 incident at a supplier's plant in West Virginia. Based on our outlook for the fourth quarter, we look to our sixth consecutive record full yearly EBIT performance in 2009.

Undoubtedly 2009 has been a challenging year for the global chemical crop protection market. It's been very different from 2008 when the global market grew by approximately 20% to $40 billion. In 2009, severe competitive conditions in the global (inaudible) herbicide market, a depressed global economy, coupled with tight credit markets, poor weather conditions in many geographies, the lack of significant disease or insect pressure in certain key markets, and increased regulatory pressures all contributed to a perfect storm for our industry. I hope you'll agree that FMC's Ag Products has managed to weather the storm better than most, and this is certainly a function of our strategy and our focus.

Let me provide an overview of our industry and the trends that are impacting our business. As Milton mentioned during last year's third quarter call, the crop protection industry will continue to benefit from favorable long term macro trends, which should provide opportunities for growth. The first of these positive trends facing our industry is demographics. The world's population is growing at approximately 1.7% per year, while planted acreage is static or declining in many countries. Therefore we expect higher demand for food to be produced on a relatively fixed amount of arable land.

Second, there is an increasing demand for protein which is being driven by rising global per capita income in the world's most populated regions. And third we'll continue to see growth in biofuels which competes with food, fiber and feed for land and other resources. Given the long term outlook for energy costs, biofuel should remain politically as well as economically attractive. As such, we expect from increasing demand for biofuels from relatively scarce agricultural resources to continue for many years to come.

As a case in point, the US ethanol industry appears to be quickly reviving from the challenges faced last year, and we expect Brazil's ethanol market, which is produced from sugarcane, to be buoyant as we head into 2010. Record sugar prices should further spur sugarcane growth in Brazil. Together these three trends are likely to driving strong ag commodity prices and simultaneously the demand for products and technologies that increase farm productivity and yields. While we may not reach the record commodity prices of mid-2008 soon, current ag commodity prices still remain significantly above the 10-year average. Naturally we expect the markets we serve to be cyclical, but the long-term trend is clear. Strong and increasing demand by global farmers for products and technologies that enable yield increases.

Additionally while demand is high for crop protection products, there are forces in our industry that require us to stay agile and focused. These forces include, first, ongoing consolidation and vigorous competition in the ag chem industry. Second product competition from Ag biotech. Since 1996, this technology has grown into an approximately $9 billion market. Third, a demanding regulatory environment is increasing the cost to introduce new products and keep existing products registered. This year was no exception as we experienced regulatory challenges to maintain our Carbofuran registration in the US and our Bifenturan registration in Europe.

We do not foresee any material financial impact from either regulatory challenge in 2009, or 2010. However, these are highly relevant examples of increasing challenges and higher cost on the regulatory front.

Fourth, last year Milton spoke about the significant cost increases that FMC's Ag Products had to offset in order to grow its 2008 EBIT. What a difference a year makes. This year, we experienced the opposite effect, as oil prices declined and depressed global economic conditions contributed to a deflationary environment regarding raw material costs. In other words, there can be significant volatility to our business, therefore, the ability to rapidly adapt to unexpected and challenging circumstances is a key success factor in this industry. So far FMC's Ag Products business has adapted better than most in this challenging environment. Through the first three quarters of 2009, we recovered a significant portion of last year's raw material cost increases, and what we did not recover, we have offset with higher selling prices, which were implemented towards the end of 2008 and during the first part of this year.

In summary, a competitive, challenging, and dynamic industry, but one children we believe has opportunities for business, and is well suited to our strategy.

Given this industry context, let me now provide an overview of our business and strategy. We're a focused competitor in the $40 billion globule agricultural chemical crop protection market. Over the last 12 months, our sales totaled just over $1 billion, which is approximately 53% in insecticides, 42% herbicide, and the remaining 5% predominantly fungicides. During this same period, our EBIT totaled $275 million compared with $243 million for the 12-month period ending September 30th, 2008. An increase of approximately 13%.

In 2009, we expect to achieve our sixth consecutive year record profits, when it appear that a majority of our competitors will struggle to show even modest earnings growth. It's important to note that we have achieved these record financial results without any major acquisitions and without being a major player in glyphosate or the Brazil serving fungicide markets, two of the highest growth crop protection chemical products groups over the past few years. FMC Ag Products competes competes globally and enjoys relatively strong niche positions in agricultural and non agricultural markets in North and South America, Europe, and Asia. Our success in growing our profits and strengthening our competitive positions is related to a number of factors which include a virtual manufacturing operation with a variable structure of approximately 95%. We are globally cost competitive and fairly immune to large swings in volume. Investment in internal and external innovation that result in a fairly consistent stream of new product opportunities for our business. A focus on life cycle management, and accessing new products and premix partners to expand and/or extend our offerings in focused markets, and leveraging our strategic alliances, for example our EU and Eastern European access alliance.

Focusing on key customers, markets, crops, and products. Given our relative size, focus has been and remains a key element of our strategy. And finally, developing a superb organization that is empowered and structured to execute on these initiatives with agility and speed.

So where is our future growth going to come from? The strategies that have helped us achieve profitable growth over the past five years will continue to drive EBIT growth. So let me expand on these strategies and how they relate to future profit growth. First our global supply chain. We're now sourcing most of our products from a low cost virtual manufacturing operation. In addition, we continuously find opportunities for productivity improvements both for our own molecules and recently for our partners' products. This year, for example, we*achieved a very significant cost breakthrough for a partner's chemistry that has resulted in significant new profit growth opportunities for us. We've also identified approximately $20 million to $40 million of additional productivity enhancing and/or cost reduction opportunities that we expect to realize over the next three to five years.

Second, we've redirected our R&D spending from the discovery of new active ingredients to focusing on shorter term innovation opportunities. We're now focusing on developing technology platforms that will enable us to differentiate existing and specifically off patent chemistries. We have a robust innovation pipeline with more than 100 potential technologies identified and several of these are now in the proof or concept and early development stages. We expect to apply for registration of four to six new products using these technologies within the next 12 months. For sure not all of these technologies identified will make it to full commercialization, but we're confident that inherent in our innovation efforts are commercial opportunities that have the potential to generate $100 million to $250 million in new sales within the next four to five years.

Another source of growth is acquisitions. Earlier this year, we were successful in making two acquisitions. One a non crop product line, in Associated Technologies, and the other an agricultural fungicide, Benalaxyl We spent approximately $34 million on these two acquisitions and project that they will together generate approximately $12 million of EBITDA by 2012. We'll continue to look for similar bolt on acquisitions that are consistent with our focus and our strategy. In fact, given our expectation of further consolidation within the industry, we expect there will be several of these types of acquisitions in the years to come.

The third element of growth lies in expanding our existing product lines to offer full solutions in our focused markets, including launching of cold formulations and premixes. Many of these combinations are complementary to biotech crops. As we continue to develop these skills, we expect the potential growth opportunities will expand for us. Currently we have more than 100 new product combinations in development across our global organization that have the potential to generate up to another $300 million in new sales within the next five years. As testimony to our success and innovation, approximately 20% of 2009's gross profit will be earned on products that were introduced in the past three years.

The fourth key element of our future growth is alliances. This entails finding and realizing a number or strategic opportunities aimed at increasing Ag Products' long term profitability and strengthening our strategic positions in key markets. We are currently pursuing a number of alliances, all of which are aimed at aggressively growing our share in our target markets. Additionally, based on the projected industry dynamics I described earlier, we believe there should be a number of acquisition and/or alliance opportunities over the foreseeable future.

And finally the fifth element of our growth revolves our organization. It's vital we continue to invest in people development and that we maintain and even enhance the speed with which we realize new growth opportunities. Accordingly, we have and will continue to devote significant resources to insuring organizational effectiveness and competitiveness. This year was no exception. Despite adverse economic and market conditions, we implemented a wide variety of people and organizational development programs, and in several instances, we restructured to enhance our customer intimacy in key markets.

In summary, we have an aggressive growth strategy for FMC's Ag Products business. We recognize that not all of the opportunities we pursue will materialize, and undoubtedly there will be bumps and detours along the way. However, when we consider all of the upsides versus the downsides, we're confident that FMC's Ag Products has many years of profitable growth in front of it.

Now let me move from Ag to discussing FM C's overall financial position. I'll review our balance sheet, liquidity profile, and cash flow forecast, update you on our share repurchase program, and provide more detail in some of the non operating items on our income statement that we include each quarter in our outlook statement. As Bill said, our net debt at the end of September was $554 million. In the middle of our target range for net debt of between $500 million and $600 million. Our liquidity profile remains strong. As of September 30th, 2009, we had available funds under committed credit agreements of $481 million and cash on hand of $60 million. In addition, we have no significant maturities until late 2010.

We're currently finalizing plans to address upcoming maturities, including our EURO 220 million facility, which comes due in December 2010. As part of this effort, we recently completed a review with Standard and Poor's. It was satisfying to see the confidence in our Company expressed by S&P and their announcement on October 22, raising FMC's corporate credit to triple B plus from triple B flat. We believe that our credit rating and the strength of the capital markets would make an FMC bond issue particularly well-received. Although well this would have a minimal impact in in the fourth quarter, terming out our maturities would increase 2010's interest expense.

We expect free cash flow this year to be approximately $60 million. Down $15 million from last quarter's guidance. Regarding our share repurchase program, in the third quarter we repurchased approximately 387,000 shares at a cost of $20 million. As we begin the fourth quarter, we had $190 million remaining under our existing share repurchase authorization. As I do each quarter, I'll remind you that our repurchase program does not include a specific timetable or a price target and may be suspended at any time. And our 2009 guidance assumes we do not repurchase any additional shares.

Each quarter prior to the conference call, we post the FMC outlook statement on our web site. The bottom portion of the statement addresses corporate and other financial items. Let me make a few explanatory comments to address a few of these disclosures. 2009 capital spending is projected to be $150 million, which is above our projected depreciation and amortization of $125 million. In 2010, we expect that capital spending will drop closer to our D&A expense. Other income and expenses projected to be a an expense of $30 million for 2009. There are two components of this charge, FIFO and pension expense, that are likely to be very different in 2010 versus 2009. First, as I mentioned during last quarter's conference call, LIFO expense is up significantly in 2009, reflecting the increase in manufacturing costs that we experienced in late 2008 and earlier this year. As manufacturing input costs have been falling this year, we expect to see much of this expense reversed in 2010. LIFO is a noncash charge other than the effect it has on our taxes.

Second, our pension expense could increase significantly in 2010 versus 2009. The amortization of the 2008 asset losses will increase in 2010. And pension expense next year could also increase from a potential reduction in interest rates for year-end 2009, compared to year-end 2008. Average diluted shares outstanding for 2009 should be 73 million, down from an average of 76 million in 2008 due to our share repurchase program.

To summarize our view, we remain in a strong financial position with full flexibility to execute our strategies. We will continue to look for opportunities to grow the Company through a combination of internal and external investments. However, we will preserve our strong balance sheet and maintain our solid liquidity profile.

With that, I'll now turn the call back to you, Bill.

Thanks, Kim. Regarding our outlook for the full year at 2009, we've narrowed our expectation for earnings before restructuring and other income and charges to $4.05 to $4.15 per diluted share. The mid-point of this range is unchanged from that given at our last conference call. For the fourth quarter of 2009, we expect earnings before restructuring and other income and charges of $0.85 to $0.95 per diluted share. As compared to last year's fourth quarter, as Kim mentioned, Ag Products, we look for fourth quarter earnings to be up 35% to 40%, driven by improved market conditions in Brazil, lower raw material costs, and further manufacturing productivity improvements. In Specialty Chemicals, we expect earnings to be up 20% driven by continued strong performance in BioPolymer. And in Industrial Chemicals, we expect earnings to decline 30% to 40% as reduced selling prices in phosphates and modestly lower volumes across the segment more than offset favorable raw material costs.

With that, I thank you for your time and attention, and I'll be happy to take your questions. Operator?

(Operator Instructions) Your first question comes from the line of Frank Mitsch from BB&T Capital Markets.

Good morning, gentlemen. Bill, your guidance for industrial chemicals down 30% to 40% for the fourth quarter implies a nice increase from third quarter results. How would you apportion the increase, looking at the three major areas of industrial chemicals, soda ash, Foret and peroxygens?

Good morning, Frank. Clearly the soda ash business is going to be stronger sequentially. ANSAC has successfully regained the market share that they lost. We'll operate in the fourth quarter completely sold out. Domestic pricing continues to remain firm. So, again, alkali, soda ash, sequentially will be stronger, and probably will represent the majority, but not all of the sequential improvement. Expectation is that hydrogen peroxide is going to be essentially flat, which then leaves Foret and we should see improved performance in that business. As volumes continually improve, pricing seems to have at least stabilized, and raw material input costs continue to improve.

So it sounds like as you enter into the negotiation period for 2010 soda ash pricing, you think you'll be entering into this from a position of strength?

Well, clearly. We are sold out. The industry, we expect to operate in Q4 somewhere between 97% and 103% of effective capacity. And as you know, Frank, historically, pricing is determined by the balance of the supply/demand equation, and as we enter 2010 and as we are currently in contract negotiations, that equation is fully balanced, if not tipped in favor of the producers. And let me go on. Somebody will ask the question, where are we in the contract negotiations for 2010? And it's too early to tell. It's going to be a late fourth quarter, very early first quarter next year before we finalize everything, but I can say that those contracts that we have settled to date, all prices domestically are up.

Terrific. Thank you.

Your next question comes from the line of Kevin McCarthy from Bank of America/Merrill Lynch.

Hi, everybody, this is [Alex Hughframa] for Kevin. I was wondering if you could comment on the pricing environment in crop protection, has there been any change since the second quarter?

Alex, there hasn't. The industry and FMC, I think you should know, were successful in putting through price increases in late 2008, 2009, and those prices, at least for us, have sustained themselves through the third quarter and I would expect the fourth quarter and into 2010.

Great. And a follow-up on the Green River outage. Could you quantify the impact?

Alex, we have not. It's in the order of $3 million, $4 million, $5 million impact in the quarter.

And is it cost, or lost sales? Did you lose any sales because of it, or did you have enough in inventory? We did not lose any sales. We did lose production, and then there were, in addition to the lost production, the overhead absorption on lost production. There were some not insignificant out of pocket costs to remediate the issue that we had. Okay. Great. And then quick one on LIFO expense. I assume higher other expense in third quarter is also LIFO similar to Q2. What is the magnitude of LIFO expense reversal in 2010, is it similar to Q2, 3Q?

This is Kim. I want to make sure I understood. You made a couple of comments. Is your question what is going to happen to LIFO in 2010 versus 2009?

Right.

It will significantly reverse itself.

So the amounts will be in the $6 million to $7 million per quarter range?

No, that's where I was afraid you were getting off track. On a full-year basis, the LIFO expense will reverse itself. We estimate what that LIFO expense is going to be, and we book a prorated portion of it each quarter.

Okay. Thank you.

Alex, let me provide a little more clarity of the guided $30 million of other expense for the full year, slightly more than half of that is LIFO. The balance is a whole bunch of other things, largely mark to market on our Shadow thrift plan. So if you think notionally of something in the order of $15 million, $15 million-plus charge in 2009, I think Kim just said a significant portion of that should reverse itself in 2010.

Got it. Thank you.

Your next question comes from the line of Dmitry Silversteyn from Longbow Research.

Good morning, gentlemen, just wanted to follow up on a few things you said in your prepared remarks. Number one, when you talked about settling the regulatory matter in Industrial Chemicals, can you talk a little bit more about that, what it involves. Did it have something to do with Foret or other businesses?

Yes, it was in Foret, specifically it was in our animal feed phosphates business. 2009, the European Commission had initiated proceedings against FMC in that business based upon the leniency assertions of a couple of other producers. We're cooperating with the Commission in the investigation, and in the quarter we recorded a $21 million charge reflecting our best estimate of the expense that's likely to be incurred in the resolution of this matter.

Okay. Very good. Secondly, you talked about walking away from some lower margin business in the BioPolymers in both food ingredients and pharma. Can you give us an idea of what the magnitude of that volume impact was, and whether or not we're done with this, or you're still going through the weeding out process?

Let me answer the second half of the question first. Yes, I think we are done with that weeding out process. The effect in the quarter was in the order of magnitude of 4% to 5% volume decline.

Okay. So 4 to 5% of the volume decline was attributable to this voluntary give up?

No, volume declined 4% to 5% in BioPolymer in the quarter as a result of our actions to shed low margin business.

Okay. All right. And you are done with it. Great. And secondly, or lastly, I should say, the soda ash outage that you experienced, was that just a maintenance shutdown that didn't come back up as scheduled, or what was involved? And then to follow up on that, can you update us on your plans for Granger?

Yes, Dmitry, it was not a planned outage, it was a catastrophic failure of one of our mine hoists, an ore hoist, not a man hoist, so nobody was hurt in the incident, but it was a catastrophic failure. We were basically limited on our hoisting capacity for almost a month. We now have that fixed, back in operation, and so the effect of it will be limited to the third quarter of 2009. With respect to Granger, Granger remains down, as we speak. It will continue to remain down in order to improve the environment for further price increases. And will be brought back online when we, in our judgment, believe that demand warrants it and pricing is not at risk.

Okay. That sounds good. And then final question. Can you remind us when the Argentine export tax anniversaries as far as the impact it has on the profitability of the lithium business?

It already has. I can't remember exactly. Yes, fourth quarter of '08, it anniversaried itself.

Okay. So this whole year was comping against apples to apples?

Correct.

Okay. Thank you very much.

Your next question comes from the line of Douglas Chudy from KeyBanc Capital Markets.

Good morning. First question, do you feel the Ag business has now reached a new plateau in terms of operational margin potential here in 2009?

I think so, Doug. The business in 2008 was impacted by a significant and sudden run up in raw material costs, largely reflecting the price of oil. That run-up has largely receded at this point. As a result of that run up cost last year, we put through a number of price increases, which I commented earlier, have sustained themselves. So, yes, long-winded answer to your question, yes, given potential changes in mix, as we go forward, product and geographic mix, I think it is at a new plateau.

Okay. Thanks and then switching gears here, you have undertake a number of additional restructuring actions this year. Can you comment on what you see as the potential cost savings benefit coming from these actions?

Boy, Doug, I wish I could. I don't have that in my memory bank. I'm looking around the table, and I see a dozen people looking at their shoelaces, so I'm not getting much help from them either. Suffice it to say that each of those restructuring decisions has a very positive economic return to it with payout or paybacks in a couple of years, but I can't answer your question directly.

Okay. Is it fair to say that you should see some benefit beginning in 2010 in terms of your cost structure from actions that you've already undertaken?

Certainly.

Okay. And then just finally quickly on lithium. Any signs or concerns that the lithium pricing pressure could flow through to your down stream products following the price reduction by a competitor in the carbonate and lithium hydroxide?

Doug, very, very unlikely. The announcement by SQM affected lithium carbonate and lithium hydroxide only the first two molecules in the value chain, and those products sell for $5 a kilo. As you move down the value chain, first of all, I'll call it the concentration of carbonate in those downstream products is significantly lessened, and those downstream products will sell for $50 to $500, to $5,000 a kilo, and so any movement on the initial molecule should not, and at least historically has not, followed its way through the value chain.

All right. Thanks for taking my questions.

Your next question is from from [Aran Viswanasan] from UBS.

Hi, guys, thanks for taking my question here. Had a question on the soda ash business. How much lower or how much higher, how much different do you estimate the Chinese cash cost of production are at this point?

How often lower than - ?

What's the differential in cash cost of production from yours and Chinese imports?

Even with the recent easing of input costs that the Chinese have experienced, the most globally cost effective, cost competitive Chinese soda ash producer still has a cash cost of production of well more than two times that of the average US producer.

When did it actually become a problem, and do you see imports potentially threatening the environment again (inaudible)?

I don't see, certainly in my lifetime, and I would offer even in yours, that the Chinese will ever import material into this country. You start with the fundamental cost disadvantage they have, add freight and everything to it, they just can't compete here.

I guess you guys were saying you're competing in other regions. Would that be a problem in the future?

Oh, certainly. It is a problem today. It was the aggressive move by the Chinese in late fourth quarter 2008, early first quarter 2009, that caused the US industry to lose significant volume.

Okay. That is what you're saying.

That is correct. The US industry has successfully regained that share. The effect here by the Chinese now is going to be on pricing, and fortunately their input costs seem to be rising as we speak, which I believe is going to put some upward pressure on their export competitiveness, and, therefore, some upward opportunity or some opportunity for higher export prices by US producers.

Okay. Understood, thanks. Another question on the peroxygens business. You were talking about some volume pressure because of pulp and paper difficulties. Just wondering if you could give us a little detail on the end markets for that business and what else you see.

Sure. Hydrogen peroxide in North America and Europe is primarily used as a bleaching agent in the pulp and paper industry. Approximately 60% to 65% of the hydrogen peroxide demand in both continents is driven by pulp and paper Any of you who follow the pulps and paper industry, you know the troubles that they're having this year. Year-to-date, hydrogen peroxide demand for pulp and paper is down 20%, 25%. Fortunately, we have seen good growth in the non pulp and paper accounts. Our view is that pulp and paper market is going to improve slightly in 2010, but it's still going to remain at fairly depressed levels.

Okay. Thanks.

There are no further questions at this time. Mr. Walters, do you have any closing remarks?

Yes, thank you, Operator. Let me try to summarize for everybody our third quarter results, our guidance for the fourth quarter, and give you some early and clearly my qualitative views on 2010. While there were a few puts and takes in the third quarter, the quarter essentially turned out as we had expected with earnings at the mid-point of our prior guidance. Ag was right on, Specialty was slightly above, and Industrial was slightly down. Q4 is pretty much a continuation of Q3, but with some encouraging sequential developments. In Ag earnings should be up again, as Kim said, 35% to 40%. In Specialty, earnings are expected to grow 20% year-over-year. And industrial, while still down from a year ago, will be sequentially stronger than the third quarter, as we expect continued volume growth in almost all businesses. Improved margins in our European phosphates business, and the absence of the Q3 operating issues that I talked about earlier in our soda ash business. Interestingly, as you look not at earnings per share, but as segment earnings within Q4 segment earnings are projected to be flat with a year ago.

Looking ahead to next year, qualitatively, in the absence of commodity crop price collapse, and a return of the tight credit conditions that the world faced in the fourth quarter of last year and first quarter of this year, Ag's earnings should be up next year, year-over-year. Can Ag repeat 2009's high teens earnings growth? Probably not, but I would expect very strong performance there. In specialty, BioPolymer will continue its earnings growth trajectory almost regardless of what happens in the overall economy. And in lithium demand is already recovering with expectations that that recovery will continue through 2010. The outlook in Industrial while less certain is also encouraging. As I said, the soda ash industry is sold out, export prices probably bottomed out in Q3, and the early 2010 domestic contract settlements, the price is up. Peroxygen businesses will be challenged to hold earnings flat year-over-year, as improving demand will still leave the US and European hydrogen peroxide industry operating below 90% of capacity utilization. The up side there will be in the specialty applications for hydrogen peroxide, strong for sulphate demand, and a growing peracetic acid business.

Finally, Foret phosphates. Demand is improving. Phosphate rock costs should be favorable 2010 versus 2009, and STPP selling prices in the third quarter we think stabilize.

We do have a couple of headwinds next year, and Kim talked about them. Our pension costs will be up year-over-year, and assuming we do a bond offering later this year, our interest expense will increase next year, as well. Overall, I feel good about our third quarter performance, our outlook for Q4, and our prospects for 2010. With that, I thank you for joining us today, and your continued confidence in the Company. Thank you, operator.

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