美盛公司 (MOS) 2002 Q3 法說會逐字稿

Good morning. Welcome to the IMC earnings call. All participants will be in a listen-only mode until the question-and-answers session. At the request of IMC Global this call is being recorded. If there are any objections, you may disconnect at this time. I would now like to turn the meeting over to David Prichard. You may begin when ready.

Thank you, and good morning to over everyone. We're pleased to have you with us. I'm David Prichard, Vice President of Investor Relations for IMC Global. I'll be acting as the moderator this morning regarding the company's 2002 3rd quarter nine-month results issued earlier today. I'm joined by Doug Pertz, Chairman and Chief Executive Officer; Reid Porter, Executive Vice President and Chief Financial Officer; and Bob Quales, Vice President and Controller. If you have not seen our results this morning by press release in the financial the financial tables, call my assistant Vicki Bunker at 847-739-1817 and the materials will be sent to you right away. The information is also available on first call and the IMC Global website at www.imcglobal.com. Finally, this conference call will be accessible on a replay format through Friday, November 1, and that phone number is 402-998-0786 or as an audio web cast accessible again through IMC Global's website.

As is our custom, we plan some opening comments before we turn to your questions. First, Reid Porter, who will discuss our financial results and highlights for the quarter; and he will be followed by Douglas 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 and good morning. Earlier today we reported net income from continuing operations of 7 cents per share for the 3rd quarter of 2002. This compared with a loss of 17 cents for the same period last year, excluding special charges. The earnings improvement versus the prior year was primarily in our PhosFeed business as improving market conditions resulted in sharply higher DAP prices, lower phosphate idle-plant costs and a favorable prior year price adjustment. Results were also improved by the favorable impact of noncash foreign currency translation.

Looking at our business segments, IMC PhosFeed reported net sales of 335 million with gross margins of 31 million; this was a 37 million improvement from a loss of 6 million in 2001. The improvement was primarily driven by significantly higher DAP prices. Reduced plant shutdown costs and a favorable settlement of a disputed price escalator relating to 2001 sales also contributed to the increase. These improvements were partially offset by increased phosphate operating costs due to inefficiencies from a previously disclosed sulfur shortage. Raw material costs were higher for the previous year, while purchased ammonia averaged 120 per short ton versus $131 per ton last year, sulfur prices averaged averaged $55 per long ton or about $25 per long ton higher than the 3rd quarter of 2001. That price has continued their upward trend on a sequential quarter basis. In the 3rd quarter of 2002, prices averaged 145 per short ton. This price reflects a $26 improved from the 3rd quarter of the prior year and a $10 per ton increase from the most recent quarter. The $145 average price represented the fourth consecutive sequential quarterly increase in DAP pricing.

Turning to our other core business, IMC potash reported net sales of 178 million and gross margins of 39 million; sales volumes of 1.8 million short tons improved 9% versus 2001. In the North American market we experienced increased demand of 6%, while sales in the export market increased 16% compared to the prior year. Potash prices at $73 per short ton fell $1 per ton from last year level due to lower export pricing. Although lower than last year's 3rd quarter, it was at its highest level so far this year. Potash gross margins in the quarter were 15% ahead of prior year as the increased sales volume combined with significantly reduced production costs and lower natural gas costs more than offset the slightly reduced potash selling price. Douglas Pertz will go into greater detail on both the performance and outlook for both our PhosFeed and potash businesses. I would like to comment on our consolidated results and various corporate items. Net sales for the 3rd quarter were 490 million and gross margins were 66 million. We generated operating earnings of 47 million, a significant improvement from last year's operating loss. SG&A expense was reduced 7% versus last year. Interest expense for the quarter was 44 million, an increase of about 2 million compared with prior year.

Other income and expense which netted to income of 7 million primarily reflected the noncash impact of favorable foreign exchange translation due to the strengthening of the U.S. dollar versus the Canadian dollar during the quarter. The 3rd quarter gain in essence reversed foreign exchange losses incurred in the first two quarters of this year. Other income and expense also benefited for the first time from the inclusion of IMC's share of earnings in gulf sulfur services, the sulfur transportation joint venture that was established in June of this year. Turning to the balance sheet, working capital continued to be well-controlled. Net receivables were 30 million lower than prior year, and inventories were down 60 million versus the 3rd quarter of last year. Potash inventories were down about 10 million, reflecting our continued efforts to balance supply with demand. PhosFeed inventories were down approximately 50 million, reflecting improved market fundamentals versus a year ago.

Turning to cash flow, EBITDA was 97 million for the 3rd quarter, an improvement of 59 million versus the same period last year. For the first ninth months, EBITDA was 279 million, up 36% versus prior year. We continued with our cash spending controls on capital spending, as well. Net capital expenditures from continuing operations of 84 million for the nine months ended September were essentially unchanged from last year. As previously indicated, we expect net capital expenditures for 2002 to increase only slightly over 2001. Regarding liquidity, our revolver was basically undrawn at the end of the quarter. Also during the quarter, and in the first week of October, approximately 100 million of the total of 200 million in notes due in August of 2003 were purchased on the open market. This resulted in a slight extraordinary charge of $300,000. Net cash at the end of the quarter was 90 million, about 30 million of this cash was used to settle outstanding bond purchases in early October. I'd like to turn the discussion over to Doug.

Thanks and good morning. Our 3rd quarter results of 7 cents per diluted share continues our sequential improvement in 2002 and, specifically, in profitability of our PhosFeed segment. The quarter provides the clearest confirmation of the industry as -- as yet of the industry consultant's forecast that the global phosphate market is in the early stages of a multi-year recovery and, as well, demonstrates the first meaningful significant quarterly jump in DAP pricing of $10 per ton, which offers yet another indication of the tremendous upside leverage IMC has ahead of it. It also starkly contrasts with last year's 3rd quarter, the bottom of the phosphate cycle, where DAP prices averaged only $119 per ton. And when we posted phosphate operating losses, compared with 2002 3rd quarter, average DAP prices were $145 per ton, and the year-over-year change in operating income was $37 million. Similar to the 2nd quarter, the 3rd quarter was characterized by strong earnings leverage. Revenues increased 21% in operating earnings sprung from the bottom of the cycle break-even last year to $47 million this year.

In the PhosFeed segment it, gross margins of $30.9 million were more than doubled versus the $14.5 million in the sequential 2nd quarter and were up $37 million from a year ago. We experienced significantly increased sulfur costs in the quarter, which nearly doubled from the level of a year ago, when costs were at all times low, albeit unsustainable at that point. This was the primary factor contributing to slightly higher DAP production costs which were only partially helped by slightly lower ammonia costs in the quarter. Despite continued inflationary pressures, rock costs were lower versus a year ago and versus the first half of this year and expected to be lower in the 4th quarter, as well.

Our Louisana plants continue to operate at a reduced rate with with part of phostina granulation all of our capped DAP plants still idle, a total of 1.2 million of tons concentrate capacity remaining idle. We expect to continue to incur idle plant costs of about $10 million a year for these Louisana plants as we reiterate our intention to keep them idle well into 2003 at the continuation of our supply management in phosphates. The story of price and volume side of phosphates was very encouraging. DAP price improvement was strong: 14% domestically and 27% internationally year-over-year with 5% and 9% increases respectively versus the 2nd quarter. Our volume improvement was led by a 32% advance in North America and 5% increase in exports. North American market share was up year-to-date versus last year at over 33%. China continued on a path to import at least, and likely more, than 4 million metric tons of DAP in 2002. It is important to note that this volume improvement came with very limited global demands from India and decline in our sales to Brazil. Phosphate price and volume accounted for approximately $30 million in gross margin improvement over last year.

Favorable reduced idle plant costs partially offset by unfavorable raw material increases accounted for most of the balance of $37 million gross margin improvement. We mentioned that the impact of the sulfur supply shortage in July, which cost us about 100,000 tons of lost damp mat productions, associated margins and unabsorbtion of cost, was approximately offset by the PhosFeed price adjustment. Not to be lost in the shuffle, it is a continued steady performance of our animal feed ingrediants business which is part of the PhosFeed reporting segment. Its results for the quarter were relatively stable year-over-year with tons sold up 5% and gross margins continuing to run at nearly 15% of sales. We continue to be very pleased with this solid performance of this part of our business.

On the potash business, it turned in good performance in the 3rd quarter with revenues and gross margins improving 6 and 15% respectively. Shipments improved 9% overall including 6% domestically and a strong 16% in the export market. Our GMROII market share in potash was just over 48%, which is slightly down from a year ago. Pricing was relatively stable, only down about $1 versus a year ago, with most of the climb in export pricing. Just as important, 3rd quarter pricing was flat with a 73 ton. Domestic prices fell only slightly during the generally slow summer period, a good sign, while international pricing strengthened in markets such as Brazil. A $4 per ton domestic price increase was announced in the second half of September, and is aggressively being implemented with very favorable results to date. Favorable double-digit cost improvements also contributed to our improved potash profitability. We continue our potash supply management in the quarter with -- under understood. Through the first nine months, our mine week shutdowns are two weeks higher than last year at about 29 weeks. All in all, we continue to expect our potash business to post slightly better operating results in 2002 versus 2001 as higher volumes and lower costs should more than offset somewhat softer but improving pricing.

Before moving on to our 4th quarter outlook and some general comments about 2003, I want to highlight our improved cash flow performance. EBITDA of 97.3 million in the quarter was up 2-1/2 times the level of a year ago and was also $6 million better than the much seasonally stronger 2nd quarter. Largely on the strength of our strong PhosFeed results. Our EBITDA of $279 million for the first nine months was up 36% versus 2001. And of note, already higher than 2001's full year levels of $264 million. As Reid mentioned on the expense and spending side, we think our cost discipline and containment is evident again in the results this year. SG&A expenses fell 7% in the quarter and were down 9% year-to-date. Capital expenditures declined about $4 million in the quarter versus last year, and is up only a few million dollars through the nine months at $100 million.

Let's turn to the outlook for the 4th quarter and some general comments about 2003. Our 4th quarter to date is unfortunately experiencing challenges from unexpected seasonal softness and damp pricing predominately in export market and higher than expected increases in ammonia and sulfur costs. The expected seasonal DAP price decline was aggravated in mid- to late September with the dampening news of a competitors' announcement to restart idle DAP capacity on January 1, and was further exasperated several weeks ago by spot sales into Pakistan and Latin America due to unanticipated inventory liquidation by Farmland Hedro ahead of the planned sale of its Florida plant. The current DAP export spot price of $153 per metric ton is down from a high of $170 that we saw in the 3rd quarter. It's important to remember that we experienced a similar kind of seasonal slide in the SMOT price back in April and early May when pricing moved down from $158 to $143 before strongly strengthening quickly in the late spring and throughout the summer to $170 per metric ton. With significant Chinese DAP shipments in place for Phoseam and other U.S. producers in November and December and U.S. and new export demand emerging in markets as Australia, we believe the DAP price has likely hit close to bottom and will begin to show some recovery later the quarter.

PhosCem remains sold out of damp mat for the rest of the year given its contract shipments. In addition, assuming weather cooperation, there are prospects for a good fall season for domestic phosphate demand ahead of improving fundamentals in next spring's U.S. crop, which should see more corn and wheat acreage. A confluence of factors, including a series of Carribean plant turn-arounds, one right after another, and earlier Venezualean ammonia plant outage, higher Russian ammonia prices and higher natural gas costs led to a more rapid increase in Gulf ammonia prices than originally expected, putting more pressure on phosphate margins. Unlike the long-term upward DAP trend, and, as forecast by most analysts, we do not believe this reflects any long-term change in the generally favorable supply/demand balance for gulf ammonia buyers; rather, we believe it's a short-term situation that could turn more favorable in a quarter or so. Both consultants concur the DAP ammonia price of $165 per metric ton is about at its peak.

Heavy Russion spot ammonia shipments into the Gulf in November, on top of the usual contract deliveries from Uznik and Trinidad, should combine to make the market long and put pressure again on ammonia prices. Unlike DAP prices, ammonia prices have demonstrated significant volatility, both up and down, within short periods of time. As a result of the current DAP prices -- softness and rising raw material costs, so far in the quarter, we project that our full year EPS, from continuing operations, will likely be in the 18 to 22 cent range. Actual results will depend on the rate at which DAP selling prices and ammonia costs move in the balance of the quarter as well as how favorable weather conditions are in the U.S. to help generate expected strong field activity. Nonetheless, even this reduced 2002 outlook is still a significant rebound from last year's loss of 10 cents per share and positions us to deliver dramatic year-over-year earnings growth that leads our sector.

Let me close with some general observations about the outlook for 2003 which should continue to still be quite positive. I want to emphasize that the current seasonal weakness in DAP prices and other near-term added supply pressures do not change our outlook -- do not change the outlook we and the industry consultants share for continuing improvement in phosphate market fundamentals for most of 2003 and beyond. However, these near term events probably will have the impact of delaying continued price recovery by at least a quarter or so until the psychological impact of the added PCS capacity and the one-time sale of excess farmland hedro product is offset by the expected increase demand from China and other international markets as well as increase domestic demand. A significant tightening of U.S. and world grain markets in recent months, which has led to generally higher crop prices, provides an even more favorable macrobackdrop to the outlook for higher consumption of phosphate and potash fertilizers in 2003 and beyond. World and U.S. stocks-to-use ratios are at very low historical levels. An example: U.S. corn stock may fall to their lowest levels in nearly four decades and under 8% of use. The expectation for higher planted corn and wheat acreage in the U.S. next spring, which are the two most fertalizer intensive crops, along with corn yield shortfalls suggest that we have even more than a one-year cycle now in place to restore grain inventories, which, in turn, means the need for stronger fertilizer demand.

In the phosphate area, U.S. exports of damp mat should increase in 2003 on the strength of higher demand in India, Argentina, Brazil, and probably China and other Pacific Rim markets. China should have another year of solid imports in the low to mid 4 million ton range with TRQs already approved for 5.95 million tons. At the same time, the much improved U.S. fertilizer fundamental suggested phosphate consumption could increase at least 3 to 4% or higher next year and not only because of higher corn plantings but because a significant percentage of U.S. farm soil has inadequate phosphate levels. We believe the increased DAP production from the restart of PCS's idle Florida plant in January will be absorbed from demand increases in both domestic and international markets. Phosphate operating rates will continue to be pushed up and allow for DAP prices to strengthen in 2003 at least another $10 or more per ton on average. On the finance side, we are optimistic about a better 2003 than even the improved performance we are seeing in 2002.

The same positive grain and crop price fundamentals will drive increased domestic and international potash demand next year. A better U.S. domestic market, with higher corn and wheat planted acres and the need to replenish below normal potash levels in the soils, will drive domestic demand as well at least 3 to 4% and even, again, possibly higher. With improved demand domestically and internationally, domestic potash pricing should recover some or all of the lost ground of 2002. 2003 should be a year of continued strong recovery for the fertilizer industry and especially for phosphates. While the temporary back slide we are experiencing in the 4th quarter is disappointing, it does not dampen our positive view of the recovery in the future and IMC's highly leveraged position for strong future earnings growth. I'd like to turn it back to Dave for questions.

Thanks to both Doug and Reid. With that, we will now turn to Q&A session. I will once again that all of you try to limit yourself to one question and one part so that everyone who wants to ask a question will have a chance to do so in the time remaining. Operator, you may now begin the question-and-answers session please.

Thank you. If you would like to ask a question, press star 1 on your touch-tone phone. Our first question comes from Bill Hoffman.

Good morning. The first question is with regards to the price adjustment that was made in the 3rd quarter, I just want to get a sense of what the dollar impact of that was on EBITDA and how that worked.

Which price adjustment are you referring to?

I think it was the PhosFeed price adjustment.

Are you talking about the out of period price adjustment we were talking about?

Exactly.

Okay. This was with one customer that we settled that we can't disclose, but I can tell you that that price adjustment was basically equivalent to the extra costs associated with the sulfur shortage.

So it's technically a margin take-up. Can you give me any indication of the volume that was before.

It's not a volume-related issue. The price adjustment was a previous, ongoing dispute over price escalator that we settled favorably, so there's no additional volume to the company associated with that, just getting more price escalation.

I was trying to get the dollar impact.

We can't disclose that. I'm sorry.

Okay. If I could just ask one other question then. As we look into the 4th quarter here, trying to get the dollar impact of the higher costs in general across the businesses between sulfur and ammonia costs that you think the seller impact might be in the 4th quarter?

I think there are a number of independent projections, but we consume approximately 3 million tons of sulfur a year, and we purchased just under 1 million tons of ammonia a year, so I think you can go to any obviously periodicals and trade rags and extend the numbers.

Thank you.

Our next question comes from Dusty Fisher.

Good morning. This story has largely been one of -- as the cycle recovers -- you get cash flow -- you use cash flow to pay down debt. In this quarter, net debt looks like it actually rose. Arguably it's going to be the best quarter of the year, you know, as far as EBITDA generation goes, and there's a couple things that stick out on the cash flow statement: the continued high deferred income tax inventories look like they ate about $21 million this quarter, and then there's one in the investing activities that look like it ate a little over $11 million this quarter. Could you kind of just top-down run through how you start to get, say at these levels, the cash you need to start paying down debt and walk through each of those three specifics and talk about what those are and what we should expect in the future with those?

Let me start. This is Doug. Let me start with general overview comments about the EBITDA generation in the quarter, and then I'll let Reid take up once he's had a chance to take look at the two questions on the rest of it. Generally, on a seasonal basis throughout the year, the 3rd quarter is our lowest quarter in terms of earnings and cash flow generation, so we're pleased that we saw EBITDA cash flow generation in this quarter that was as high as it was and even higher than last quarter. So I think it's a very positive sign that helps suggest and support that the strong phosphate is pushing EBITDA cash flow generation up fairly dramatically even in what is generally considered, by far, the lowest cash flow generating quarter of the year. And I think if you look historically that would be definitely the case in our cash flow after taking into consideration a lot of the things that you talked about generally would be fairly low in the 3rd quarter. If you look at inventories, again, we generally have inventory builds and working capital builds in the 3rd quarter; however, this year we, year-over-year, are seeing strong inventory improvements; but it still is a quarter which we see the builds coming into the fall season.

As I mentioned in my talk, I think the more proper comparison, given the seasonality of our business, is not 2nd quarter to 3rd quarter, but year-over-year. Actually, our inventories's on a year-over-year basis are down 60 million and our receivables on a year-over-year basis are down 30 million. So I think that's the more valid comparison.

That's fine, and I agree that the EBITDA is certainly doing better in this quarter than -- it's just doing well. But just -- inventories I'll buy, but that other line and then the deferred income tax, how much longer does that deferred income tax remain that high, and then what is the component of that other line?

Part of the deferred income tax was -- came when we wrote down our disk ops, and we created deferred tax asset towards the loss --the anticipated loss when we actually sell the business. There is also a part of deferred tax that relates to ten NOLs we're in the U.S.; that's creating an additional deferred tax asset. With phosphates turning around we, particularly next year, expect to be able to start to use the NOLs which will generate additional cash flow for us.

Would you expect that deferred tax line next year to be a positive -- a cash generator as as opposed to a cash user?

It's probably more marginal next year in terms of our ability to use NOLs, but going forward in the next two to three years we expect it to be a major cash generator for us.

Fair enough. And then the other line?

Which line?

If you look in cash flow from investing activities, cap ex, JV and then there's an other line that was a negative 11.3 if you look just from Q2 to Q3.

What that was is we actually, regarding our salt sale last year, we had -- we actually took more cash out of the business before we sold it to Compass, and we had to have a true-up of a working capital adjustment regarding that sale, so that 11 million is basically a one-time adjustment to true-up our salt sale.

Okay, so that's said and done with now?

[Multiple speakers] Yeah.

Okay.

[INAUDIBLE] cash prior to that though.

Okay, thanks, fellas.

Our next question comes from John Moten.

Yes, a couple questions. The first is could you give me a sense of what your DAP system-wide utilization rates are for this industry; and the second question is in light of the competitive announcement of additional capacity, how much higher would prices have to go before you would decide -- or how much better would things have to get -- before you would decide that you wouldn't want to bring on incremental capacity?

Good questions. We've consistently said, and even prior to the competitor bringing up additional capacity, we very clearly said, and we said this at the end of our 2nd quarter conference call as well, we have no intention of bringing up the idle capacity in Louisana, which is about 1.2 plus million tons of granulation capacity and the association acid with that. We have no intentions of bringing that well into 2003. We don't have a specific price level that we have targeted for that. We have said until we see stability in the price-demand balance, we have no intention of bringing that up. It's not just hitting a certain price level and then potentially seeing pricing fall back; it's try hitting a level in which we can see some sustained pricing at that level and potentially beyond.

Given the extended downtime that you've had at Phosfina, how much would it cost -- would the cost be more to bring that plant back up over time?

Yeah, it will be more over time, but it's in the several millions of dollar range rather than a substantial amount more than that. Our idle plant costs still are running at the 10 or so million dollar range on an annualized basis, and probably it will cost us a couple more million a year to bring that back up. And it might take an extra week or two to bring it back up, but it's not something in the total scheme of things is a major issue.

Thanks.

Our next question comes from David Silver.

Hi, Dave Silver with JP Morgan. I had a couple of questions I'd like to get your comments, I guess, relating to sulfur; so, apart from maybe this quarter cost, I guess there's some longer term issues involved particularly if you're planning on restarting some idle capacity down the road. Could you maybe discuss how comfortable you feel about the longer term, maybe over the next year or two, sulfur supply situation in the gulf, and, I guess, you could talk about progress on the Big Bend transfer project.

Thanks. Let me again reiterate that we have no near term plans for starting up additional capacity over the next several quarters. We want to see that well down into 2003 unless we see something to sustain price change in the marketplace, which we don't see today, so I don't think that's going to be an impact on sulfur going forward. You're probably alluding to sulfur may be being tighter as a result of announced additional capacity, and that may be part of the case [INAUDIBLE]. The longer term trend -- rather than a quarter or two out -- the longer term trend in sulfer clearly is one of some moderating in pricing, not down to the levels of a year ago, but certainly down to levels that are probably 10 - $15 at least below where they are today and potentially a little more than that. We're continuing to see a convergence of issues on the sulfur side, primarily driven by refiners; and it's the type of crude that they are using to -- for their processing that does not produce as much sulfur as they normally would put through. That plus turn arounds we're seeing in the short-term here -- and I'm saying short-term the rest of this quarter -- really are causing the near-term issues that we see. If you reach for industry consultants you would see expectations and projections of tempering in the downward movement in sulfur pricing more into the mid-40s range as we look further out. Reid?

We feel long-term world supply demand balance will continue to provide more recovered sulfur, and long-term, we think that's good. Right now, we are suffering some shortages in the Gulf through a number of turn arounds, and the price difference between sweet and sour crude is so close that people are using sweeter crudes and recovering less sulfur. We do feel, to ensure long-term good supply of sulfur, we need to have the capability to process solid sulfur as well as liquid sulfur, so we intend to go ahead with BBTC which Big Bend [INAUDIBLE] solid sulfur and ensure low prices.

The turn arounds we'll be seeing in the 4th quarter at some of the refiners are also on top of some of the unplanned outages that we're seeing [INAUDIBLE]

Okay, thanks a lot.

Thank you.

Our next question comes from Fran Brockwood.

Good morning. Fran Brodelage from Bear Stearns. I was wondering if you could give us a little color on -- a lot of the trade rags effectively reported that China's monitoring with the TRQs basically been protested by a lot of the suppliers. If you could just give us a little bit of color on that.

I think there are two issues going on with China and the TRQs. I'm not exactly sure what you're directly referring to, but I think there are two issues. One is the first year of implementation, which was this year, 2002, they've admitted it was not implemented as well as they should have and it should been; and they've commited to ensuring that next year's implementation is done in a more timely fashion and more expedient manner. Obviously we have yet to see if that happens, but that certainly has been their commitment the last several weeks. Their commited to going forward in terms of implementation of the TRQs and are in full support of the TRQ level. The second issue you're alluding to that may help drive some of that is that they have proposed some metal standards for phosphate rock and, therefore, for imported DAP for imports into China; and we as an industry group have been successful in delaying any implementation to those and delaying implementation until we can have significant additional discussions; so I think that's very positive. But even with the proposed implemetations levels that the Chinese have proposed and that we think will be somewhat modified if it is implemented all, it does not create a barrier for most U.S. producers of DAP.

That is effectively what I was referring to. So you think that it wouldn't be that costly even if those things were to go into impacts basically next year sometime?

The original proposal was for it to go into effect in April of next year, but again, the levels that they proposed, and it was only specifically in a cadmium level, the levels that they proposed will have minimal impact on most suppliers if any impact on most suppliers out of the U.S. And I think you may have gone through this with another supplier as one of the reasons why PCS was bringing up -- one of the reasons, anyway, they were bringing up their White Springs operations to be able to meet those levels. Most metal levels in Florida are able to meet those levels or be lower than the level that China is proposing at this point.

Just kind of capping on that, how about the whole concept of like the government effectively monitoring the supply and demand, matching and allocating, I guess?

I think they'll always do that as long as they comply and implement the TRQs as they said they would and they have committed to doing that in a much more aggressive and meeting of the guidelines fashion next year, that's fine with us.

Thank you.

Thank you.

I think the biggest issue here is there is an underlying demand in China, regardless of how much the domestic producer can produce, that is at least in the range of requirements that we've seen this year and into the future.

Next question?

Our next question, Scott Mervez.

Question on -- you mentioned currency, how much has that helped? It did sound like it helped this quarter.

First of all, I'd like to remind you Scott that we had significant foreign currency losses last quarter and so on a year to date basis, we basically have broke even on foreign currency. But this quarter, it was 5 cents a share foreign currency gain.

Is that year-over-year or sequential?

That's just a pure gain. Year-over-year it was significantly less than that because we also had a gain in the prior year 3rd quarter. Year-over-year would be roughly half that.

That 5 cents was a gain just the way the currency moved some the 2nd quarter of '02?

Yes.

And I guess, based on what your saying, if you could explain a little bit more as -- it seemed like DAP prices were up and you had a 5% currency gain but earnings were flat pretty much sequentially. If you take out the currency gain, earnings were down, and you had better DAP prices. The DAP prices, the higher DAP prices were more than offset by the sulfur costs?

Generally the third of the year is our lowest earnings quarter of the year, lowest cash flow generating of the year, and if you look specifically at what changed on the potash side and the rest of our business, earnings are down fairly dramatically on a seasonal basis, and the 3rd quarter being the lowest for the year and 2nd quarter being one of the highest if not the highest in the year. The fact that we saw an improvement of more than doubling of our operating income in the PhosFeed business from the 2nd quarter -- sequentially from the 2nd quarter to the 3rd quarter -- again, 2nd quarter being the strongest quarter on a seasonal basis and 3rd quarter being one of the weakest, that's a tremendous improvement; and it did come through and show true. But if you were to place that on top of the strong potash performance that we generally get on a seasonal basis in the 2nd quarter, you'd see even better earnings that we saw, so Scott, you can't take it in isolation on a sequential basis without taking into consideration the seasonality of the business.

Thanks.

Look at the EBITDA generation that improved in the 3rd quarter versus 2nd quarter, and, on a seasonal basis, if you look back on prior years that's extremely strong.

Operator, next question.

Yes, sir, next question comes from Steve Myer.

I got a quick one here. Can you comment on the funding status of your pension fund?

Yes, I can. Basically as with everybody else, the market value of our pension funds have gone down considerably. At least the first glance with our actuaries now is that we've funded this year, we put in about 6 million. Next year we don't have any significant funding requirement, and in '04 and '05, our funding requirements will pick up. We will also -- we'll also be evaluating at year-end, and we'll probably take some charge to equity from an accounting point of view to true-up our pension liability. And that would be noncash, and it's really too early to say what exactly that is.

But you don't see any funding required for 2003?

No, no funding required for 2003.

And then a question with your DAP pricing forecast that's inherent in your 4th quarter guidance, do you expect DAP prices to regain up to being basically flat sequentially in the 4th quarter versus 3rd quarter?

If we did that, then we would have guidance that would be substantially higher than we have laid out. We were attempting to try and provide guidance based on where current market pricing is or at least in the range of current market pricing. What we suggest is that the 4th quarter will start, by the latter part of the quarter, to see prices that come back again as we see a convergence of additional international demand coming back into the 4th quarter, at the end of the 4th quarter as well as the fall season, counterbalancing the announcement of additional capacity coming on and the selling off of excess inventories. So our guidance is predicated more on the general range of where pricing is currently rather than where we see it ending the year and going into next year, or compared to where it was in the 3rd quarter. It would be clearly a different situation if what we were looking at is a sequential comparable pricing.

But you do expect an improvement through the quarter, and your volumes are biased towards the end of the quarter as well, right?

Yes, but we see -- projections are limited improvementt throughout the quarter. We're suggesting we're going to see more improvements next year again. Again if you look at projections from most industry analysts, they've softened pricing in the last quarter of this year and going into next year but then come back again or at least a $10 increase on year-over-year averages going forward.

Thank you

Our next question comes from David Driscoll.

Good morning. I wanted to talk about DAP again. The first question, we should be into the domestic fall season and I'd just like to hear a little bit of comment on how product is flowing. Also, could you remind us what the normal split is between domestic phosphate volumes and international phosphate volumes in the 4th quarter, just ballpark historically, and then lastly, I'd appreciate your comments on -- it sounds to me like you just answered half my question on DAP price expectations in the 4th quarter that you see it being relatively stable, where it right now. The question is in terms of the variability in the earnings for the 4th quarter, is that really to do with raw material costs, is that kind of where you see the most uncertainty, whether ammonia prices are where they are, whether they strengthened, whether they weakened, et cetera.

That's a lot. I'll try and pick up the last portion of it. Reduction in expectations for the 4th quarter were a combination of prices being down and continuing to put that in the equation, if you will, for rest of the quarter, like you were saying where they are today, as well as where raw material input prices are today. Probably it's about half and half versus prior expectations on the quarter of both raw materials and pricing based on that. So I hope that answers at least a piece of that. What we're saying is we anticipate pricing will continue to firm the latter part of the quarter based on the increase in demand from China and other export markets as well as -- as well as the domestic marketplace but really starting to see more of it into the 1st quarter of next year. As we've seen in the past, the 4th quarter is a heavy export quarter, particularly at the end of the quarter, primarily driven by heavy Chinese demand and beginning shipments for their spring season, which will last well into February of next year. And generally, based on what we already have cooked, we would probably be 2/3 export versus 1/3 in the marketplace. That's pretty much in place through the contracts that we have with China and other countries like as -- such as Australia. Did we cover our questions?

I'm also curious, given where crop prices have gone, there's an expectation of a strong fertilizer season. This fall season would be an indicater of that strength, or at least potentially an indicator, and I wanted to hear your comments as to what you're seeing here in terms of signs that yes, our basic thesis that drop inventories will drive fertilizer demand is showing up.

I think the real strength will be next spring. This is when you'll see the increased planted acreage, a lot of the other indicators and that is when they really have to put the fertilizer down versus the fall; spring is a nice time for having to put it down. I think that will be the real indicator. We have some potential upside, we think, this fall if things play out in a favorable fashion with weather and other things. I wouldn't bank on things until next spring. In terms of potash, is running well at this point in time, and I think we'll continue to see a decent end of the year on potash. Phosphates, we have limited inventory and limited supply so we're really more constrained by our availability as an IMC than anything else at this point in time and that will hopefully loosen up as we go into the 4th quarter, but we're heavily constrained based on that and very concerned about about our ending inventories going into the next year. I also think we may see, as we have in the past, that the buyers may wait and see what happens to phosphate pricing as it continues to go down -- similar to what they did on potash last spring.

Thanks.

Operator I think we have time for one more call here before we hit nearly the top of the hour.

Our final question comes form Dina Thar.

Good morning, this is Dina Thar from Lehman Brothers. Can you give us an update on the status of your surety bonding situation?

Why don't I have Paul Dunn, who is our treasurer, answer that question.

Happy to do so. At the moment, we're working with our primary provider, I think all indications are we'll be able to roll over existing bonds outstanding. We're probably going to have to collateralize those bonds with letters of credit, and we've got that factored into our overall liquidity planning, and it should not be a problem for us.

Thank you.

Okay I think that'll do it. We know a lot of you have other calls to get to so we'll close down our call today and thanks to all of you for participating from IMC Global's 3rd quarter conference call. We hope you have a good day.