美盛公司 (MOS) 2002 Q1 法說會逐字稿

Thank you and welcome to IMC Global earnings conference call. Our lines will be in listen mode only until the question and answer session of the call. At the request of IMC, this call is being recorded. I would now like to turn the conference over to Mr. Dave . Sir, you may begin.

Thank you, operator. Good morning to everyone. We are pleased to have you with us this morning. I am Dave Prichard with IMC Global, your moderator for this morning's conference call regarding IMC Global's 2002 1Q results, which were issued earlier this morning. I am joined today by Doug Pertz, our Chairman and Chief Executive Officer, Reid Porter, Executive Vice President and Chief Financial Officer and Bob Thalls, our Vice President and Comptroller. If you have not received our results this morning, the press release and the tables, you should feel free to call my assistant Vicky at 847-739-1817 right away, and she will give the information to you. It is also available, at the first , off course, and on the IMC Global website at www.imcglobal.com. Now finally, this conference call will be accessible and a replay format

through Friday May 3, and that phone number is 402-530-7626 or as in audio web cast again accessible through IMCs Global website. As is our custom, we have planned some opening comments before turning to your questions.

First, Reid Porter will discuss our financial results and highlight for the quarter. He will be followed by Doug Pertz, who will discuss operating highlights, key corporate developments and the overall outlook. As a reminder, this conference call will contain forward-looking statements that involve risks and uncertainties. Those statements are based on current expectations and actual results may differ materially. At this time I am pleased to turn the call over to our Executive Vice President and Chief Financial Officer, Reid Porter.

Reid.

Thanks Dave and good morning.

Earlier today, we recorded net income from continuing operations of $0.04 per share for 1Q 2002. This compared with earnings before special charges of $0.13 for the same period last year. Deterioration in earrings versus the prior year was primarily the result of lowered potash and phosphate prices and significantly increased interest expense.

Turing to IMC phosphates, day before net sales of $313 million with margins of $18 million, a margin improvement of 50 percent versus last year was primarily driven by significantly reduced plant shutdown cost lowered production costs, namely purchased raw materials, partially offset by lower phosphate prices.

Purchased ammonia prices averaged $110 per short ton vs. $209 per ton last year. Likewise sulphur prices averaged $19 per ton, lower than the 1Q 2001. We have lowered raw material costs more than offset and increased in phosphate rock production cost, which resulted primarily from reduced rock production volume caused by poor mining conditions 1Q.

DAP prices continued their upward trend on a sequential quarter basis. For the 1Q 2002, they averaged $134 per short ton.

However, this price was $5.00 per short ton lower than the average 1Q price for the prior year. Phosphate sale volumes increased 7 percent versus the prior year.

An increase in international sales more than offset a from the domestic market, which followed a very strong domestic volume in 4Q 2001.

Turning to IMC potash, it reported net potash sales of $205 million and gross margins of $55 million. Lowered sales volume and price negatively impacted sales and margins, when compared with last year. In North American market, we experienced lower demand as a result of the slow start of the spring season, while sales in the export market were approximately equal to the prior year.

Now, I would like to comment on our consolidated results and several corporate items.

Net sales for the 1Q were $498 million and gross margins were $69 million. We generated operated earnings of $49 million, which reflected SG&A savings of 15 percent compared with last year. Interest expense for the quarter was $44 million; significantly increase over the prior year. The increase reflected the impact of refinancing activities last year.

Other income and expenses, which netted to an expense of $2 million primarily, reflect amortization. The increase of $3 million when compared with the prior year is primarily due to less than favorable foreign exchange than was recognized in the prior year.

Our provision for income taxes at $2 million reflects and effective tax rate of 32 percent compared with a rate of 38 last year. Our tax rate has benefited from structural revisions made during 2001. We expect to continue to see this 32 percent rate in the future.

As you know, during the 4Q 2001, we completed the sales of IMC salt, Ogden and IMC Chemicals Enwright, which monetized over 80 percent of our discontinued businesses. We are actively pursuing the sale of the remaining parts of IMC Chemical with the objective of maximizing shareholder value.

As we have stated we remain committed to strengthening our balance sheet. At the end of the quarter, we had $200 million in cash earmarked to pay down debt and we had full revolver availability. Earning to cash flow EBITDA was $90 million in 1Q, essentially the same as last year. We continue to generate strong operating cash flows.

Lastly, I would like to update you on this status of our acquisition activities. I am sure you have all seen the announcements we released earlier this month indicating the signing of a definitive agreement to apply the assets to Freeport Sulphur to a 50-50 joint venture with Savage Industry. The process in moving along very well and we expect to close this transaction in the current quarter. The joint venture is expected to be financed with non debt. We are pleased with the strategic transaction, as it will provide IMC with a more direct, less costly delivery of a key raw material for our phosphate production. In addition, it resolves our remaining legal differences with Freeport.

Now, I would like to turn it over to Doug Pertz, our Chairman and CEO, for additional comments.

Doug.

Thank you Reid and good morning.

We believe our 1Q results of 4 cents per share, which was slightly ahead of consensus estimate of 3 cents per share, and up from the 10 cents loss in 4Q 2001. It confirms that IMC is headed towards significant earnings and cash flow improvement in 2002. Even, with late, and has been robust start to the domestic spring season which negatively impacted both and pricing. We showed strong earnings in that reach with revenues down 4 percent, our operating earnings increased by 7 percent to almost 59 dollars.

Really the highlight of the quarter was a strong 50 percent jump in PhosFeed gross margin year over year, and even more sequentially, following in number of quarters of tough results including losses at the bottom of the cycle. In fact, PhosFeed gross margins of 18 million dollars represents the best level in the year and a half since the 2Q of 2000. Reflecting in both export and domestic markets, our average DAP price of 134 dollars per short ton, continued the upward momentum we have seen, and we have been seeing since last fall of bottom of the cycle. DAP pricing was up 11 dollars per ton from the 4Q and up 15 dollars from the bottom of the 3Q last year.

At the beginning they (Inducible) and even surpassed the levels of year ago, when pricing began to slide in April. According to the price recovery, we saw increased and total US shipments to China, while our domestic volumes were roughly in line with last year, following a strong 2001 4Q in which sales were up 40 percent versus the prior year.

Better performance on the cost side of business. Primarily from raw materials and reduce that to plant cost.

We greatly reduced our plant cost, which was evidenced in the 1Q to the tune of about 13 million dollars. In the 1Q, operated at a reduced rate as they since late, since last August 1. We expect to operate with in our planned current reduced rate with over a million tons of capacities still for the balance of 2002, which will mean a continuation of (indiscernible) of either plant cost for the final three-quarters of this year.

Due to lower production volumes and unfavorable matrix conditions our cost increased in the 1Q versus the prior year, as a partial offset to pay raw material out of plant costs.

We keep , higher future volumes projected and better volume ahead of us, we believe our for the balance of 2002.

Rock potash sales volumes and pricing started to be slower than expected. Potash cost improved significantly around 10 percent on slightly down production volume. Versus the prior year, shipments were lowered domestically due to wet and cold weather, this slowed the pace of the US season and our drive to .

Export shipments were also lowered due to the late shipments under the contract with China.

Domestic potash sales have increased dramatically in April in line with spring-season expectations. Even if late and export sales for the year should exceed last year with the finalizing of the China contract and strong demand from Brazil. We were pleased with export shipment of our , which more than offset a slight reduction in potash volumes due to timing. Poor weather conditions and increased competition resulted in a less than one dollar per ton of potash price increase sticking in 1Q of this year. As a result of prices were down almost four dollars per ton year over year in the 1Q, negatively impacting earnings, but prices have been stable and gradually increasing since the of last summer.

IMC led a four dollars per ton price increase in mid-April, which also appears to be holding. Potash production for 1Q was down 1 percent from a year ago quarter and we took 6 shutdown weeks versus 2 weeks a year ago. As we mentioned our debt refinancing completed mid last year resulted in a 50 percent increase in interest expense or almost 15 million dollar increase equivalent to about 9 cents per diluted share. SG and A expenses continued to be reduced by another 15 percent year over year or about 3.5 million dollars versus prior year. Our cost control initiatives were once again in capital spending which was about 25.7 million dollars, essentially flat with last years 26 million dollars. We continue to expect capital expenditures to increase from 20 million dollars in 2002 to approximately 125 million dollars this year, which is consistent with our belief that a level 1-10 to a 130 million dollar range can be sustained over the next several years.

With our operating earnings of 7 percent in the quarter, thanks to improving performance in our phosphate business, we are able to deliver EBITDA cash flow of a solid 90 million dollars, the same as a year ago. It was a good start for improved EBITDA cash flow and free cash flow in 2002.

Now lets turn to the outlook. There was not pick market whether in the 10 core corn belt in Midwest region has been much more favorable April than it was in March and even late February, and the taste of field activity is picking up as fast as our phosphate and potash as shipments. As of late Friday, as of last Friday, the USDA with required planning progress report showed 13 percent of corn planted to date, but these percentages will begin to jump as much as 10-20 percent per week well into May and now that the season is in full swing. There is general consensus is that planting corn will increase by as much as 4 percent to nearly 79 main acres this spring, which in turn is good news for P&K demand.

As our much lower nitrates and fertilizer prices last year this time. This Friday unexpected and seasonal weakening in DAP export prices, domestic prices are holding relatively firm as we start to see the product pushed out of the warehouse system. Domestic Phosphate sales are today running ahead of last year and should continue to see seasonal pickup. Our domestic product price, our domestic potash price increase of 4 dollars as per ton is certainly being tested right now in the marketplace. We believe that we can realize most of it in the weeks ahead as potash volumes are now moving briskly. In the export market there have been some reasons but expected slippage in DAP pricing to below the 150 dollars per metric ton price . After DAP prices feet you know 156 to 158 ramps in February. The slippage resulted from late domestic demand coinciding with the gap in export orders once the China spring shipments were completed. With domestic demand increasing and new and encouraging in China, along with contract shipments as well as new demands are emerging from both Pakistan and India, we believe DAP prices will stabilize and begin to move back of this spring and throughout the summer months. This is the viewpoint cheered by a number of industry consultants and publications including Micheal and . We indicate prices will climb to above the 160 dollars per metric ton range. In contrast it will this time last year that the DAP pricing began to decline following Chinese unexpected and unrealistic import announcements.

We are at a point now with DAP spot pricing is equivalent to and increasing above pricing last year at this time. And from standpoint as is being the case since the fourth quarter of last year the export association is essentially sold out based on current member nominations. I would like to take a moment to clarify some confusions and responds to questions that have been asked regarding China. The Chinese government agencies ACPC has issued the 5.67 million TAMs a quarter for 2002 in line with the terms of TRQ agreement. The government pseudified for authorize at least 3.5 million tons as usable to quota holders. However it is in (indiscernible) similar to last year added quota likely will be and authorized to these holders as the year progresses. In addition the shipments in the fourth quarter of this year for next year's spring season will be imported under next year's quarter. As was the case last year, strong fourth quarter shipments will be added to the 3.5 million authorized quarter level supporting 2002 shipments in the 4 million ton range. As a result of the special release of quarter in mid April inquiries from Chinese importers have dramatically increased in the past week and a half. In fact more vessels were 220,000 tons with CNA and PGC as add on times to the annual contract for June through August shipments. This is for the Chinese fall season.

Two additional vessels were also confirmed in the last week as well through other importers sourced from the US producers for the fall season. During the last weeks seven importers were inclined for over nine additional vessels that 450,000 additional tons for fall shipments, and another actually for summer shipments for fall usage. Another eight vessels were approximately 400,000 tons for fourth quarter shipments or next spring season.

As we have been predicting and as many industry consultants continue to forecast. Based on contracts in place added confirmed business, and increased enquiries, China imports will be up approximately a million ton in 2002 to over 4 million tons in total. This increased level is now supported by quotas helped by initial reports of a good spring season demand in China and push is now even higher with stronger and earlier enquiries during the fall times than expected.

Products exports are expected increase over last year's level with improved imports from both China and Brazil, the two largest customers of . Our new contract with China and flat pricing versus last year along with a Russian contract with China at higher prices will help the shares stable export pricing and perhaps provide the chance for spot price increases in certain markets.

On the cost and production side we will continue to see reduced idle PhosFeed plant cost to 2002 as it start a bit earlier down from the level of 58 million dollars in 2001 to a projected 10 million dollars this year. We do not expect to increase Louisiana output from current level this year and we believe reduced production and supply side management helped introduce their support pricing resulting in a faster return to a more balanced supplied demand level. Following strong inventory control for control measures in December we have our rock inventories at very comfortable levels and do not see any need to make further adjustments as we go through 2002.

Despite some increase in ammonia price in recent week due to the natural price run outs and strong seasonal demand. We think ammonia raw material cost will be favorable this year versus last year. In addition our natural gas hedge position is much improved with the expiration of the most of the higher cost hedges in the first quarter. Approximately 60 percent of our natural gas usage for last week quarters of this year is hedged at approximately 3 dollars and 15 cents per main BTU. Our total gas usage to be expected to be in excessive 30 million BTU this year.

In summary we were up to a good start with our first quarter result. We certainly expect to see improvement in earnings and cash flow in 2002 largely driven by our recoveries in the phosphate markets. Better potash performance greatly reduced at

plant cost and lower natural gas cost with ammonia cost. As expected we experienced higher interest expense from a full year effect of debt refinancing and will be aggressive targeting our cost reductions in and labor related cost. In addition the IMC continuous improvement culture and our expanding 6 Sigma projects will continue to provide cost reductions full of this year and in the future.

We believe the second quarter will be the start of stronger and going year over year improvements in earnings per share and cash flow. As we stated in the earnings release today, second quarter earnings per share should more than double the 4 cents per share earned last year and this quarter? Though the improvements will greatly depend on the strength of this spring season, which is finally off to a good start. We currently believe our full year earnings will be in the range of 30-40 cents per share. An increase in earnings beyond this range will be dependent on the stronger spring season and phosphate price market improvement at a greater in current expectations. As we stated IMC highly leverage to the improving phosphate cycle recovery and we are well positioned to retrieve these earnings benefits both this year and next.

With that I will turn it back Dave for Q and A session.

Thank you Doug and Reid. With that we will now begin our Q and A session. I will again my quarterly plea to all of you to try

to limit yourself for 1 question at the start, so that everyone who wants to ask a question have a chance to do so and then we come back to you if you do have follow up questions. So operator with that you may now commence the question and answer session please.

Thank you we will now ready for your question using our Q and A following feature. If you have a question please press star one on your telephone touch pad. To cancel your question press stars two. Once again that is star one if you have a question and star two to cancel. One moment while the question register.

There is a question from David Driscoll - Salomon Smith Barney

Hi good morning. Wanted to ask you a little bit earnings guidance, first of just like to say I very much appreciate the fact you guess are issuing guidance again. It is very helpful. I think the distribution on first call was extremely wide and this will go a long way in helping people understand the business. The question in terms of your second quarter numbers, you know it would seem at least from where I was that the second quarter guidance is reflecting perhaps higher ammonia cost and lower domestic phosphate prices that may reduce margins a bit from where margins were in the first quarter on phosphate products. Could you comment that how do you guys see that the second quarter turning out in terms of really domestically, as really I am trying to focus on the here on the phosphate market? Thank you.

We don't think we're ammonia experts, and we are not going to really comment on what we think the ammonia or ammonia product, nitrogen product markets going to be going both second quarter beyond. So we do feel that obviously there is being an increase from first quarter the ammonia prices and we have that for what our results will be or our cost would be in DAP in the second quarter. Clearly there is some increase there about we think there is still going to be moderate and tempered especially versus for a year. We think that probably some of what you are seeing in terms of projections during the second quarter if based on the phosphate side may be a tempering in DAP pricing for the quarter. We project as we said before industry projections and are DAP price will begin to see increased specially going out of the second quarter and driven by export demand that we think is starting to built up fairly dramatically.

As I mentioned China demand and enquiries are very strong and we have now seen India come back into the market with of 200,00 tons. Pakistan is there in the market with several vendor now and Vietnam, and other countries are also in the market. So pricing has certainly got to the point in the requirements where the season in the other point where we see a lot of demand in the marketplace and we will see pricing come back up, but what we are seeing that it is impacting the phosphate market for the domestic season is may be a little bit lower than was anticipated based on where it had risen to the 1Q. I think it is probably a bigger impact for the 2Q than anything else especially ammonia or natural gas prices.

Do you find that domestic price decline a bit unusual given the fact that really in the heart of the spring season right now here in North America. Generally you'd expect pricing to increase at this point of season rather than decline.

The decline is very slight. We say more of a decline in international pricing than domestic pricing. Domestic pricing is down $1 to 2 and has risen extremely nicely over the quarter. So I think we have seen is that because of the international price we find that customers domestically are waiting and they have not jumped into the marketplace and nearly it is that. The combination of the slow weather seasonality's the low spring season as well as decline international prices at short term on the part of farmers who are buying in. But the decline in prices is felt very minimal.

Okay I will get back in the queue for the remainder of my questions. Thank you.

There is a question from Dudley Fisher .

Two questions.

First if you could talk a little bit about the split in price and volume in feed business? and second I guess from the clarification Did you say that there was an improvement of 10% in cost side of potash? and if so how that came about?

Potash volume was basically flat year over year. What we thought was an improvement in natural gas costs as well as improvement in the electrical cost and input costs on the potash side but as important is the improvement in productivity in all operations, and probably more in Carlsbad. Our cost per ton increased approximately. 10 percent range. We generally do not give the exact in that range.

And in feed business?

Feed movement over 1Q02 is very small. The volume compared to last year 1Q was down slightly and the margin side as well down somewhat.

So you had to give up a little price there?

Yes. Our market shares date about the same, but less than double digit down on the price mentioned. So mid single digits.

Okay thank you Thalls.

I am not quite sure Don if you are mixing both but let me address both. In we did see a strong 4Q of last year, which probably did not reduce sale in 1Q of this year. That was not the case in products domestically. What we have seen year to date as the season has started to take off and really in April. Phosphate sales are now above last year level on a year to date basis. So that is a positive sign on the phosphate side which means that we started to see the season to take off and we probably did take some shipments from the 1Q into the last year. The positive is we shipping over to foreign and that could provide good increases there. Let me finish off with phosphate and I will get time for potash.

The enquiry is coming from China which again has in a last week and a half or so with the couple of component vessels already now away from , but also from several other exporters. All are for shipments this summer and we will be for the Chinese. The additional enquiries, which I mentioned I think, we are on other eight vessels on top of that for enquiring our force shipment again this summer and for the call season and then there are additional enquiries without confirmations of the business additional orders yet. On top of that we have bought the similar number of vessels for next spring, which would be for 4Q of this year shipment. So I hope that I addresses that obviously we missed anything for the spring in China.

On the potash side the 4Q of last year was not stronger than the prior year so that was really, what we did not view before head of potash there from this spring season and fire sales were still relatively light in the 1Q of this year as we stated because of late start because of weather in the spring season. However again since the end of the 1Q we have seen sales really take off for finance sales and we think that right now it looks like April will be above expectation suggesting a strong pick up domestically for that season.

I think it is too early to deal at this point. Again year to date our phosphate is above last year and that has been as a result of the pick up in the spring season starting in the 2Q. So I guess I would not say that yet and suggest that we could see something that people grew better and all the indication in terms of planted and the need in demand suggested that there should be some good pick up in the 2Q.

Just to see how prices in terms of your price expectation you will get some price increase in second half?

I think what we tried to lay out in the comments was that price increases that were announced in the 1Q in the industry, we did not get most of that and it was only about a dollar increase actually seen domestically. However mid April price increase is $4.

Just wondering for the benefit of anybody it might be newer to the story of listening if you could outline the leverage you have to pricing increases in the business?

Well. Certainly we have tremendous leverage and we are starting to see that leverage as we go through it. We lost 0.10 per share in the 4Q last year and we have seen a return of at least $0.4 this quarter with change in about $11. The upside the brief we projected about $60 million in cash flow $10 change in that pricing. Translates just into the $0.30 per share improvement on a full year basis and what we think we certainly have seen that leverage start and as we see pricing we will see in this recovery to get back to more reasonable mid cycle side pricing levels and we think that is much more in the range in the 175 to 180 range metric ton and even higher that we see historically that would suggest that we have tremendous leverage backup and our peak earnings are substantially higher than even where we should be earning at more realistic mid cycle type pricing.

We have that type of leverage of $0.30 per share on the upside. What people obviously are looking for is they want this quarter and next quarter. I think we are trying to lay is the scenario is that the cycle has turned to the 3Q last year was the bottom that we steady pricing improvements. It is not going to happen in lean quarter not going to be $10 a quarter each quarter in and out and I think we are right on track to see the driver drive in place in the cycle back and that is China and the rest of the market pulling that price that is demand up and then as a point to rise up. China is on track and we will see the many time increase year over year this year, which will continue to drive pricing.

Thanks I appreciate that. Thank you.

Can you explain the decrease cost in the delivery of sulphur and the impact of the Freeport deal?

We have had a long-term contract with Freeport for sulphur purchases and that contract was part of the value Freeport took out when it sold it's 50 percent interest to us. So, there was a significant premium on certain tons of sulphur to their contract that will be eliminated with settlement of our legal disputes with Freeport. We are currently taking them out as a middle man and renegotiating sulphur supply contracts directly with suppliers that will result in a more favorable overall pricing and efficient distribution system that will reduce cost to us.

Thank you very much.

There is a question from Kevin Bouffard

My name is Kevin Bouffard.

I was wondering it was mentioned earlier that the 1Q results were effected by poor mining conditions and I was wondering if you could elaborate on that and if you could also say whether or not you expect to shut down your Florida mining operations as you did last July and December?

We do not currently plan on shutting down our rock mines as we did last year. We started out this year with balanced inventory in our rock operations and last year we shut down our Louisiana concentrate operations for over seven months which took down the requirements for rock demand last year which was shut down. We anticipate that we will continue to operate the plants in Louisiana that we have today, still giving us more than 1m tons of additional capacity shut down. But, we will continue to operate those that are up today which we brought up last August for the balance of 2002 assuming that demand increases to levels that we anticipate. You are talking about Florida. What we see is mining conditions was poor in the areas that we were mining in 1Q02. We have now moved on to other mine areas, and we anticipate in the 2Q and balance of the year that will continue to grow in a existing mine area that we are mining in and therefore we will have better efficiencies and better return and yield on our mining operations.

There is a question from Terrance Schwartzman.

Thanks good morning.

Question is on you mentioned that you shut down your potash mines about six weeks in the 1Q this year. What is the estimated shutdown view for 2Q and can you break down the DAP shipments to China? Given the fact that this things will seek in the summer June 3Q versus the 2Q. I think that it is crucially issue and I think it will be helpful if you can throw some numbers.

A fairly modest number of shutdowns in the 2Q, but we would expect higher level of shutdowns for the 3Q. 3Q equal to or less than last year. 1Q02, export shipments to China up by at least 1 vessel quarter over quarter, 2Q02 should be substantially greater than that due to increased demand and contract tonnage. Don't have numbers. In terms of the 4m tons, about 1m tons to China. 2Q probably is the lowest demand. 4Q and first two months of 1Q our shipments provide for their largest season. By March 1, nothing makes it before spring season, and that shipment drops off in China in the March and April timeframe they will start back up again in late May and early June-July timeframe. The schedule will then be the shipment that will be before starting in the 4Q for the next month.

Clearly what we are seeing is the resumption of more normal historical shipping decline is what we described. We are now in the peak season is coinciding through August and then even a bigger period November, December and January over traditional patterns that we are not for the last year particularly in 2Q is trying to begin substantial orders with the low quarter, but this year we are seeing a return back from more expected pattern. I think generally in the late 90s basically roughly 40 percent of the imported in the China occurred in the first six months of the year and 60 percent in second half. Generally the July and December would be 60 percent, January would be around 40 percent to bring it to the full year. five shipments in the 1Q rough slightly versus a year ago and we anticipate there will be another 40 plus percent versus in the 2Q versus our .

There is a question from Robby Kamet

I say you had a big tax payment 1Q, wondering what your expectation is for total cash tax for 2002 ? Secondly on the revenues, EBITDA, and CAPEX ?

We have about $50 million run rate on cash taxes. We did not have a payment of that high tax amount in the 1Q. I think you are seeing at an adjustment in deferred tax area and I will get back to you on that.

Hai how are you?Do you have a projection for DAP price domestically and offshore projection by end of year? Do you have a projection and if not you did not say what is it?

We do not project that pricing for the market that is obviously a major issue and nobody is going to be right especially up, but what we did lay out is in mid-year projection was not based on us, and the mid-year based on what two industries consultants project and other organization called the market project five mid-years for exports in $160 per metric ton.

Thank you there is a question from Mike Walco

Could you tell me what the cost of gas hedge 1Q and secondly how much debt reduction for regaining investment grade rating?

The cost of gas hedge was over $7 million in the 1Q, about $5 per million BTU. Regarding the second piece of the question which was debts and when will we return to investment grade. That is not a debt question that is a cash flow and EBITA question. It is a combination of those two. Frankly we don't expect to return to the investment grade this year and that is about regarding cash flow.

Cost of Gas hedge 1Q02? How much debt reduction for regaining investment grade rating?

I think Mike it is the combination of reduction in debt as well as an increase in our earnings in our cash flow and what we call this quarter with our cash flow has increased nicely up in the 90 plus range on EBITA cash flow and projected we continued to see strengthening of both cash flow will go into this year and recovery in the cycle. With the combination we will see in that improvement as well as the debt reduction.

Hai guys I think I will make it. It is your lucky day. Yeah it is.

In terms of the earnings guidance $0.30 to $0.40 for the full year. AUDIO PROBLEMS. You are anticipating that $4 domestic, price will carry through for the remainder of the year but not expecting a increase in the international market? May be if it did happen it would be upside as a number?

Yes in general that is the case. Actually I think of the strong pricing in the China contract that probably international pricing does have some upside and will be greater than expectations, so that is a realistic statement. The $4 I am not sure that all the $4 will hold, but clearly we think that combined with a little bit back into position that we should have been, but it would not for first half of the year. And so what we missed is that the increases as an industry hoped to get in the 1Q did not hold and we will not be slight improvement therefore the margin impact will for most of the first half of the year, but we will gain that back and should have been in the second half of the year.

Thank you.

Thank you and thanks to all of you who have been participating in our earnings and cash flow conference call this morning. Have a good day and we will be talking to you sooner. Thank you.

Thank you that concludes today's conference call. All lines may disconnect and have a good day.