美盛公司 (MOS) 2003 Q2 法說會逐字稿

Good morning and welcome to the IMC Global second-quarter 2003 earnings conference call. All participants will be able to listen-only until the question-and-answer session of the conference. The conference is being recorded. If you have any objections you may disconnect at this time. I would like to introduce your conference leader for today, Mr. David Prichard, Vice President of Investor Relations.

Thank you, and good morning to everyone. We're pleased to have you with us this morning. I am David Prichard, your moderator for our conference call regarding IMC Global's 2003 second-quarter and first-half results 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 Qualls, our Vice President and Controller. If you have not yet received or seen our results press release and financial tables, you can call my assistant Vicki Bunker at 847-739-1817, and the materials will be sent to you right away.

As you know, the information is also available on First Call and through our website at IMC Global.com. Finally, this conference call will be accessible on a replay format through next Friday evening, August 1st, by calling 402-998-0569 or, as an audio webcast, accessible through the IMC Global website. As is our custom, we planned some opening comments before turning to your questions. First, Reid Porter who will discuss our financial results for the quarter and the half. 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.

Thanks, and good morning, everyone. Earlier today IMC Global reported earnings from continuing operations of $22.1 million or 19 cents per diluted share for the second quarter of 2003. This compared to earnings from continuing ops of 6.7 million or six cents per diluted share last year. The Company recorded a loss from discontinued operations in the quarter of 29 million or 25 cents per diluted share. This predominantly reflects a non-cash charge that reduced expected proceeds from the sale of the remaining IMC chemicals assets to a minimal amount in view of the non-binding letter of intent.

Including losses from discontinued operations, IMC reported a net loss of 6.9 million or 6 cents per diluted share in the second quarter of 2003, compared with a net loss of $47.4 million or 41 cents per diluted share a year ago. I would like to review several items that impacted the quarter's results. We recorded a pre-tax gain of $52 million or 41 cents per share from two transactions in June with Compass Minerals Group. IMC Global sold its salt and Great Salt Lake businesses to Compass in November of 2001. The transactions consisted of a pre-tax gain of 16.5 million reported in operating earnings that related to the sale of our sulfate of Potash or SOP business line in Carlsbad, New Mexico, and a pre-tax gain of 35.5 million on the sale of about 15 percent of our 19.9 percent minority economic interest in Compass.

Partially offsetting this gain was a non-cash pre-tax loss from the unfavorable impact of the stronger Canadian dollar on IMC Potash's U.S. dollar-denominated receivables of $28.8 million or 17 cents per diluted share. In the year ago quarter, this same impact was 7.7 million or 5 cents per share. Our lower operating segment results, which were in line with prior guidance stem predominantly from our PhosFeed business, greatly increased ammonia, sulfur and natural gas input costs and higher idle plant costs for our June 1 total Louisiana phosphate capacity shutdown and a one month rock (ph) mine shutdown in April more than offset a strong $23 per short ton improvement in average DAP prices to $158, our best quarter realization in some four years.

Second quarter revenues of $538 million decreased 8 percent compared to 2002 due to reduced phosphate and Potash volumes from a disappointing U.S. spring planting season and lower Chinese DAP volumes from the absence of Sinochem contract. The higher DAP prices partially offset the volume shortfall. In reviewing our results, I will first cover our business segments in some detail, then discuss our consolidated income statement, and conclude with comments on our balance sheet and cash flow statements.

Turning first to IMC PhosFeed its second-quarter net sales of 318.6 million decreased 12 percent compared with last year due to lower shipments, partially offset by higher prices. Total concentrated phosphate shipments of about 1.3 million short tons were 26 percent below the prior year level of about 1.7 million. Domestically, volumes fell 24 percent versus prior year due to the poor U.S. spring season coupled with some loss of market share as IMC strongly supported market price increases.

Export volumes fell 28 percent on lower Chinese volumes that I mentioned earlier. Compared to 2002, the Company realized a $23 increase in the average price per DAP to $158 per short ton, which also represented a $15 per ton sequential increase from the first-quarter. Domestic and export DAP realizations rose in 17 and 14 percent respectively in the second quarter. Second quarter gross margin losses of $13.4 million for PhosFeed declined from gross margins of 14.5 million a year ago due to 60 percent increases in both ammonia and sulfur raw material costs and higher idle plant costs that I referred to earlier. This is partially offset by higher phosphate pricing.

About 30 percent of our Louisiana concentrated phosphate output continued to be idle in April and May before total shutdown was implemented in June. Turning to our other business segments, IMC Potash second-quarter sales fell 4 percent to 239 million versus last year as reduced domestic shipments from the soft U.S. spring season more than offset a slight price improvement. Total shipments of 2.4 million short tons increased 3 percent. A 3 percent improvement in export volumes was more than offset by a 6 percent decline in domestic shipments.

The average selling price, including all phosphate products, was a blended $74 per short ton compared to last year $73 per short ton. About $3 of the February and March domestic MOP price increase was achieved in the second quarter. A $10 per ton MOP domestic price increase has been posted effective July 15.

Second quarter gross margins for Potash of 62.7 million fell 5 percent versus prior year due to overall higher production costs, primarily related to natural gas. Doug will provide additional analysis and perspective on both the second-quarter performance and the outlook for our PhosFeed and Potash businesses in the second half. I would now like to run down the income statement and comment further on our consolidated results and various corporate items.

SG&A expenses of 22 million, while up 16 percent versus last year, were actually flat on an operating basis as virtually all of the year-over-year increase related to a reversal of reserves in 2002 that were no longer deemed necessary as a result of a legal settlement with Freeport last June that occurred at the same time we formed Gulf (ph) Sulfur Services. The 7 percent increase in interest expense year-over-year stems from higher financing costs. The $6.2 million favorable swing in other income expense primarily reflects distribution income from Compass Minerals for the unencumbered common shares that IMC still retains and, to a lesser extent, earnings from our fifty percent interest in the Gulf Sulfur Services.

As discussed earlier, foreign currency translation resulted in a non-cash loss of $28.8 million, nearly 22 million pre-tax swing from prior year. This was due to the Canadian dollar strengthening 9 percent in the quarter against the U.S. dollar. As noted in the first quarter, we continue to successfully hedge our currency exposure from Canadian dollar expenses in order to limit our cash exposure. This is recorded in IMC Potash's cost of goods sold pursuant to FAS 133 and has been favorable. However, IMC does not hedge monetary assets where translation gains or losses have no cash impact. In this case, IMC Potash carries U.S. dollar receivables due to U.S. dollar-denominated sales in their company balances. A change in exchange rate creates a loss or gain reflected in the foreign currency translation line on the consolidated income statement when these IMC Potash dollar receivables, U.S. dollar receivables are translated into Canadian dollars. These exact same receivables are then translated back to U.S. dollars and IMC's consolidated balance sheet, with this offsetting translation gain is booked directly to stockholders equity instead of the income statement.

Continuing operations reflects an income tax benefit of 8.1 million. While we continue to apply an effective tax rate of 32 percent to operations, we use a lower effective tax rate on the Compass transaction due to available capital loss carryforwards that will offset much of the gain. These lost carryforwards have not been reflected on our balance sheet previously, due to the uncertainty of their realization.

Turning briefly to discontinued operations, we have signed a non-binding letter of intent to dispose of the final IMC chemicals potash and boron assets which we expect to achieve by year end 2003. In connection with this we have recorded a largely non-cash charge to reflect reduced proceeds expectations to a nominal amount. There are two other important cash generation activities that I wish to mention. The two Compass transactions which I have mentioned earlier, amounted to a total cash consideration of $60.5 million, of which $57 million in cash has been received. The balance, $3.5 million note and another estimated $5 million that will be dependent on SOP inventories, is expected to be received in the fourth quarter. We are pleased to be receiving what could eventually be approximately $65 million in cash on these transactions.

Second, as most of you know, the expected second-quarter sales of our Port Sutton (ph) marine terminal in Tampa for approximately $23 million did not occur, and it is targeted to close in the second half of the year. Regarding the balance sheet, cash of $185 million, while below prior year, is significantly improved from just $11 million at the end of March. This reflects the Compass transactions, as well as a $133 million of net proceeds from our offering of 2.75 million mandatory convertible preferred shares in late June, both of which greatly enhanced liquidity and enabled us to restore full availability net of letters of credit, on our Maine Bank facility of 210 million. With about 80 million in letters of credit outstanding, the dollar availability was $130 million at June 30 versus $85 million at the end of the first quarter.

Net receivables and net inventories continue to be held in check, with both totaling $490 million, essentially unchanged from the prior year. Despite the weak spring, inventories were reduced $26 million in the first six months. Stockholders equity while up slightly from prior year has increased nearly 200 million from March 31, primarily due to the convertible preferred stock net proceeds of $133 million, and the recording of the non-cash foreign currency translation impact to other comprehensive income. Doug will discuss in more detail our important debt financing activities that are now just concluding with the completion of cash tenders for about 400 million of our total 205 debt maturities of 450 million.

We have refinanced most of the tenders with the completion last Friday of a $400 million offering of ten-year 10.875 percent Senior Notes, plus some cash to cover premiums and fees. We are very pleased to have proactively dealt with our large 205 debt maturities now rather than later and eliminate any marketplace concerns about the issue of any potential acceleration of our 2006 bank debt maturities. As a result of our activities, we have nominal 2005 debt maturities of under $50 million yet to retire, and have no new public debt maturing until July of 2007, four years from now.

As a result of new FCC guidance, the company will no longer provide operating performance, EBITDA as previously defined by the company. However, the company will continue to provide operating earnings and depreciation accretion and amortization for use in your analysis. Cash flow reported to our bank group for use in calculating our leverage ratio was $79 million for the quarter. Tight spending controls also remained in place on gross capital expenditures. They were $24.9 million and were down $9 million from $33.8 million the prior year, and well below second-quarter DD&A of 43.1 million. First-half capital spending is down about 17 million versus first-half of 2002, and we expect to finish the year below our budgeted CAPEX target of 140 million. DD&A for the year is still estimated to be about 175 million. With those comments, I now turn the discussion over to Doug.

Thank you, Reid, and good morning. Our second-quarter was a particularly eventful and important three months, not only from an operating and asset sales standpoint, as Reid has mentioned, but because we are just a few days away from formally completing a comprehensive financing program that is significantly strengthened our balance sheet and boosted liquidity. We have thoroughly reviewed our overall and individual segment results, as well as our key financial results, but I would like to elaborate on some items and other and provide additional other contexts. While disappointing, our second-quarter operating results were essentially in line with our guidance. Virtually all of our shortfall in year-over-year results came from our PhosFeed segment, which similar to the first quarter reflected much improved DAP price realizations that were more than offset by the negative impact of very significant increases in ammonia, sulfur, and natural gas costs compared to a year ago.

The U.S. spring planting season did indeed turn out to be a disappointment with regard to PhosFeed and Potash demand, compared with the optimism the industry and analysts shared going into the second quarter. Reduced planting corn acres of some 2 million acres, (technical difficulty) with a spiking cost of nitrogen fertilizer that negatively affected farmer's spending on other cash input resulted in lower P&K demand. In addition, IMC focused on increasing P&K pricing at the expense of marketshare during the second quarter.

In response to the reduced sales levels, which left IMC with higher-than-expected phosphate inventories, along with the delay in negotiating the signing of Chinese DAP contract, we responded with a total shutdown of our Louisiana phosphate production around June 1. DAP prices have (indiscernible) firmed to current levels of over $180 per metric ton and inventories are now at very low levels. As a result of recent unanticipated increases in sales to India, which is positive, and a strong summer fill, current phosphate supply demand is tight, even without Sinochem in the summer market. And both India and Pakistan are expected to be heavily back in the market in coming months.

Despite the overall results in the quarter, we are pleased by the improving DAP pricing and pleased that these higher prices, higher pricing levels are being sustained. Our price realization of $158 per short ton is the best in some four years and is $23 per ton higher than a year ago, and $15 per ton higher than our sequential first-quarter. These higher market prices have now been sustained, which is important for an extended period of time, allowing our realized prices to also increase, unlike the prior two quarters. With the current tight market and expected continued demand, the stage is set for continued higher year-over-year realization for the second half.

However, as expected, we again felt the sting of a much higher year-over-year input cost, particularly ammonia and sulfur, which were both up over 62 percent each versus last year, or combined impact for DAP cost per ton of an increase of over $28 per ton. As well as natural gas being up, which was up over 50 percent. Spiking raw material cost alone with higher idle plant costs in Louisiana and our Four Corners rock mine more than offset the price improvement.

The improved IMC DAP price realization in this first-half should not be masked by our operating losses, which were primarily driven by our higher raw material cost, especially as these prices have been sustained with a continued tight market. In Potash, our second-quarter results were a blend of slightly lower sales, reduced production volumes, and higher gas cost, offset by improving pricing from continued gains in the domestic market. The weaker than expected U.S. spring season caused our domestic volumes to fall 6 percent, which is only partially offset by export shipments. However, in the first-half, volumes are ahead 2 percent, primarily in the strength of improvements in the export (ph) market.

The higher natural gas cost of about $1.30 for one million MBTUs was a key contributor to increased production cost in the quarter. Successful Canadian dollar hedging activities fully offset higher operating costs resulting from the strengthening Canadian dollar. Importantly, we continue to see steady, sequential improvements in domestic price realizations of MOP. Domestic MOP prices improved more than three dollars per ton in the second quarter versus the prior year and close to four dollars per ton versus the beginning of the year.

Export prices for the quarter in first-half are down roughly 3 percent versus the prior year periods, largely reflecting our inability to totally offset higher freight rates. However, year-to-date improved demand, particularly in Brazil and recent price increases, including another five dollars per ton in July for a total of more than $10 a ton in Brazil, should offset rate increases in the second half.

Now, let's turn to our outlook for the second half of 2003. In the second half of 2003, and into 2004, we see better phosphate margins principally from firming and sustained higher DAP prices. The (indiscernible) export price of $181 per metric ton, a normal spot price of nearing $180 per short ton, and a central Florida spot price in the low $160 per short ton are all set in our view to be sustained and move higher in the weeks ahead, perhaps surpassing their highs earlier this year. Export demand, which often falls off in the late summer and September/October period, should remain strong. India and Pakistan each are expected to be in the market for another half a million tons of DAP based upon orders todate and underlying demand, with shipments into the early October timeframe.

The large Indian plant, Oslo, continues to be shut down, as it has been since April, supporting Indian imports of over one million tons this year. Up from approximately 350,000 tons last year. The export market should remain tight, even without the Chinese orders from Sinochem this summer. However, Chinese DAP inventories are getting low and demand is expected to be strong in the fourth quarter, further tightening phosphate supply and demand later this year and into 2004. Phoschem (ph) has continued to negotiate with Sinochem and is optimistic that a contract will be reached for solid fourth quarter and next year volumes.

Similar to the pattern in the fourth quarter of 2001 and full year 2002, we believe China will return to the market in the fourth-quarter and low inventories coupled with stable underlying Chinese demand will return 2004 to normal import levels in the high $3 million it $4 million ton range. Earlier this week, IMC Global increased its central Florida and (indiscernible) or river DAP map list pricing to reflect the markets firming pricing and our belief of strong fall demand due to the need to replace nutrient levels and load producers and dealer inventories. Our new central Florida list price is now $173 per short ton and on the river it stands at $185 per short ton, levels we haven't achieved since 1998. In fact, the green markets industry publication commented on the tightness of the domestic river market recently, with the following quote -- "with almost no supplies coming from any of the Gulf Coast producers and IMC's continued shutdown of it's Louisiana phosphate production facility, DAP barges are as hard to find as weapons of mass destruction in Iraq. They may be there, but it will take a lot of work to find them."

We expect second half DAP realizations to be better than first-half average of $149 per short ton and note that we are already beginning the third quarter with domestic price net (indiscernible) nearing $160 per short domestically. We also see improved phosphate volumes in the second half versus the first, primarily in the basis of increased fourth-quarter Chinese demand and an anticipated strong domestic fall season which are already started with a good summer fill. On the raw material cost fund, ammonia, sulfur, and natural gas prices remain higher than we previously expected, and they are an impediment to expanding margins. Though we do not expect to see the kind of spikes in these raw materials like we saw in the first and second quarters, we have hedges in place for about 55 percent of our natural gas usage for the balance of this year at an all new price of about $4.48 per MMBTU. We will look to do more hedges when appropriate in the coming weeks, especially as gas prices have now declined below five dollars per MMBTU.

In addition we do not expect any higher idle plant costs from Rock Mine shutdowns or another adjustment to Louisiana output for the balance of the year. However, the Louisiana shut down in the third quarter will negatively impact margins by $4 million per month in idle plant costs, plus the lost sales margins as well. WE are pleased to have achieved a $4 per ton reduction in third-quarter sulfur contract prices, the first sequential decrease since early in 2002 and an indication, we believe, that sulfur prices will be abating in the next several years as supply begins to significantly outstrip demand.

Turning to Potash in the first-half, the results will be seasonally -- turning to Potash in the second half while results will be seasonally lower in the third quarter as a result of our normal summer vacation and maintenance shutdowns, which should be about a 17 weeks in the quarter, we see good prospects for continuation of higher prices, especially in the domestic market. On top of the domestic MOP price increases achieved in the second quarter of 2003, we have announced a $10 per short ton increase effective July 15. This has already spurred strong summer fill ordering activity. This increase is needed to help offset the impact of a higher Canadian dollar versus U.S. dollar in Canadian operations.

Before discussing our financing activities, I want to emphasize our continued strong drive to achieve lower costs overall and offset inflationary costs in the future. Earlier this year we announced several significant new cost initiatives started at controlling costs in all areas of our operation that we can control. The first was an organizational restructuring program which was implemented in March and included the elimination of over 100 positions and related overhead expenses. Net, of our first and second-quarter charges for severance cost, annualized savings are expected to reach $7 million this year or three cents per share, and more than $10 million or about five cents per share in 2004 and beyond.

The second program called Operational Excellence is a multi year for business reengineering program initiative led by IMC's president and CEO, John Fergus and his team and should result in increased efficiencies, reduced costs, and revenue enhancements. We are in the early stage of this multi year program targeted in areas such as maintenance, repair costs, transportation logistics, asset utilization, and customer segmentation and net back improvement. Operational excellence is targeted to generate annualized pretax savings of $70 million by 2005.

(indiscernible) we continue to expand our Six Sigma workout and other lean process team programs, the foundation of our continuous improvement program system and culture. We are looking for Six Sigma and workout to again deliver annual savings of as much as $12 million in 2003, on top of the 8 million dollars in savings realized in 2002, again helping to offset the inevitable inflationary cost pressures. In late June and early July, IMC implemented a comprehensive financing program, which along with cash proceeds from our two Compass minerals transactions on June 23rd, have significantly strengthened our balance sheet by pushing out debt maturity dates, boosted our cash reserves, and restored full buying capacity from our bank revolver. We have enhanced our liquidity position and strengthened our balance sheet by raising about $190 million in cash in late June. About $133 million in net proceeds from our offering of 2.75 million shares of mandatory convertible preferred stock and the balance about $57 million, as Reid mentioned, was received through the Compass Minerals transactions.

As a result, we have been able to return to full bank revolver availability, less LCs. In addition, we have a cash position of about $150 million. We have improved our balance sheet and debt ratios, reduced our net debt to under $2 billion, and dramatically increased liquidity. We are in the process of completing a cash tender offer, which is up sized last Friday of over $400 million of our total $450 million in 2005 debt maturities.

Also last Friday we completed a new offering of $400 million 10.78 Senior Notes, the proceeds of which are being used to finance the cash tender offer. A portion of the convertible proceeds will also be used to pay for 2005 bonds tendered over the $400 million level, plus tender premiums and fees, leaving less than $50 million in 2005 bonds to be retired with our cash bank revolver or other operating cash flow.

We chose to act now rather than later to resolve these balance sheet issues of liquidity and near-term debt maturities, which we believe is in the best interests of both our shareholders and our debt holders. As a result of these financing activities, IMC, as Reid mentioned, has no scheduled public debt maturing until four years from now, July, 2007. With a firmer financial reporting now in place for IMC over the next several years, we are now fully focused on ensuring that we remain the leader in phosphates and Potash and are strongly positioned to realize upside leverage from our recovering phosphate and fertilizer market in the months and years ahead. With these comments, let me turn it back to Dave for questions and answers.

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

Thank you, sir. (CALLER INSTRUCTIONS) Fred Siemer with Fred Siemer and Co.

Again, another disappointing quarter. I looked -- by my reckoning, you lost something like 20 cents a share, and DAP prices are very favorable and you got decent Potash prices. I would suggest there is something seriously wrong with your business model, and one of the things is natural gas, obviously, and I wondered what steps you are taking to mitigate the costs of natural gas outside of the hedging?

I think one of the things we obviously used to mention outside of the hedging, one of the things I think is key is to make sure that we have a stable supply and pricing of natural gas through a regular hedging program, and that is one of the things that we have continued to make sure that we have in place so we don't have the spikes. I think it is really the spikes that have occurred in the recent years that have caused the biggest amount of the problems, both for us but probably as important in the ammonia industry. So it is a combination of assuring that we have the more consistent natural gas pricing, which again we are about 56 percent hedged for the rest of this year. Through the rolling 12 months, we are about the same hedged at very similar dollar levels as well as we mentioned earlier today. So we will continue a process similar to that.

We also very pleased, as you probably know as well the natural gas prices has come down as injection levels have gone up and inventory levels have gone up as well. We are in about 13, 14 percent now of five year average inventory levels as of last week. We will see what happens by the end of today, and natural gas prices now going forward in the $4.80 range today and through October. So those certainly are very favorable. The other thing we are looking at doing is assuring that we can purchase ammonia, which is a big raw material import obviously (indiscernible) at prices that are not necessarily directly tied to North American gas prices, and also looking at ways we can work with suppliers to purchase ammonia on a long-term either hedged or fixed cost basis that is favorable to the marketplace, especially when prices spike.

I would hope so. Most people think gas is going to continue at over $4 for the foreseeable future, and it looks to me like you are having trouble making money at $4.50 cent gas, so --

Last two quarters did not reflect $4.50 cent gas, nor did they reflect ammonia prices that were representative of those types of prices. They reflected gas prices that were spiking substantially higher than that and they reflected ammonia that were spiking as a result of substantially higher gas prices as well. At $4 gas and related ammonia prices, we have a model that works very well, especially as we see the pricing moving forward getting into the levels that they are.

So I think what we have seen, Fred, is spiking raw material cost not only natural gas but also the ammonia associated with that in the last couple of quarters without the price realizations that have come along. And that is why I wanted to stress that we not only see pricing come back, but it has been sustained for at least a reasonable period of time at these levels, which allowed our price realizations to catch up to those levels. We did not see our pricing realization catch-up in the first and second quarters. At the same time, we saw the spiking raw material costs. I think those are starting to come together now and I think that is what is going to make a big difference with our model and our earnings going forward.

Thank you. Look forward to the third quarter.

Duffy Fischer of Goldman Sachs.

A couple questions on China. Your volumes are certainly down because you haven't got the deal with Sinochem. What is the thought on volumes coming from your competitors, Cargill, the North Africans, are they up, down, going into China this year? And the second question would be what about internal volumes in China, the capacity there? Has that gone up this year? And the final question on China, what are you seeing as far as internal DAP prices within China? You mentioned that inventories are coming down, but is the corresponding price of internal DAP moving up in China?

I will go through each of those as best I can and feel free to come back and quiz me on the various areas. The business of our competitors, let's put it that way, our phosphate competitors going into China this year versus prior year are about flat. We anticipate -- I would rather not talk specific numbers, I guess, but both Cargill and the North Africans will be selling this year into China about the same level they did last year. If you recall, we have a contract, being Phoschem has a contract, that is up about 200,000 tons this year versus prior year with CMA and BGC, the other major Chinese buyer. That partially is because Cargill is not selling to them this year at all, and obviously the issue for us is that we have not gotten the Sinochem contract which we do think we're well-positioned to finalize latter part of this year and going into next year. So they are not up and there is not another party taking business, if that is the question, which then leaves the requirement that as they work off inventories, and I think what we have really seen is China went into this year with high inventory levels, high carryover, similar to again, to 2001/2002 timeframe. They are working those off, they have extremely low inventories going out of their spring season, obviously going into the fall season.

Your question about domestic pricing is a good one. Pricing has started to increase domestically for imported DAP in particular in between the spring and the fall season, and it is up versus where we ended the fall season or they ended the spring season, but we don't anticipate significantly higher price increases until they start going into the fall season. We would anticipate it would continue to rise as they go into their fall season, with the low inventory levels going into that season. That is positive and we think that will start helping to equalize the differences between export pricing and China.

We continue to see, and as expected and as industry analysts expected as well, domestic production particularly of higher analysis products in China, to increase. Principally only from existing plants, where they are de-bottlenecking, and refocusing on higher analysis products. That was all expected and it is about in line with expectations. We continue to expect that over the next several years, but we also expect to and as the industry analysts suggest, we will continue to be a gap in particularly the high analysis products requirements, even with the expansions in China, that we will come back and see as we suggested, like the 2001/2002 timeframe, the underlying demand is there. We will see a strong fourth quarter in demand going into a more normalized year next year even with the increased domestic production that was already projected and is about in line.

You may went to comment on the price gap between international pricing and domestic Chinese pricing is closing.

That is what I was going to say. If you look our export price I think you guys quoted is 181 coming out of Florida. I think transportation has got to be, say, low 30s, so that would put a landed cost in China of 210 to 215. Number one, does that sound like the right number? And then two, how big of a gap is that if that is a 210 to 215 relative to what folks are paying internally in China today?

Let us take it on a relative basis. They are approaching the $200 range today for imported DAP. But again, I don't think we will see much improvement in the domestic Chinese pricing until they go into their fall season above from where it is today. Also we have seen a reduction in freight rates that peaked at the 34, $35 range three to four months ago, down to the $30 range, like you said, today. So that is going to be a little bit of an issue as to where that goes, going up or down as well as where the domestic pricing goes into the fall season. A year ago, freight rates were in the $20 range, and so that has been a big piece of the differential that we have seen year-over-year as well.

Steve Byrne of Merrill Lynch.

It looks like your potash price sequentially was roughly flat. Is it fair to say that just for a year-over-year trends, that on a sequential basis, the export price of potash fell a couple of dollars and the domestic price increased a couple of dollars per ton? Is that sound right?

Well, I think as I mentioned, through the price increase domestically, we got approximately $4 a ton increase as a result of the price increase domestically. That was a price increase in the February/March timeframe. International pricing I think we mentioned was down about 3 percent.

But you say you got $4 how much of that was in the first-quarter versus the second?

It was a combination of it because it was a March/April/May timeframe most of that was gained.

Right, so at a couple dollar sequential improvement.

No, no. (multiple speakers) Steve, this is Dave (indiscernible). The domestic MOP realization in the first-quarter for our company compared to the second quarter, this is all three months domestic MOP realization did show a sequential increase of about $3 per short-term. During the season, it was even greater than that from before the price increase announcement.

All right, domestically -- (multiple speakers)

Year, as we mentioned as well, we were up 3 percent year-over-year (multiple speakers)

What is driving the sequential decline in export price given, you just commented to Duffy that freight rates have comeback down?

We're talking about specifically freight rates for China, and I think that it varies by the market, one of the big issues is that we are attempting to regain some of the freight costs on an export basis in markets such as South America. As an example, prices in South America to Brazil were just recently increased mid-July by $5, and pricing actually to Brazil is up somewhere in the 10 plus dollar range year-to-date, but freight rates are up fairly dramatically to Brazil as well.

But sequentially, you had an export MOP price decline, is that correct?

Yes, right. Up about three dollars.

About three dollars, and yet you are seeing some freight rates falling. So it seems that -- (multiple speakers)

Like in phosphate, we do not fix freight in potash. That comes out of Vancouver. China fixes their own freight, but the rest of the markets, as Doug mentioned, South America, predominantly Brazil, it is about 50-50. We -- Canpetex (ph ) (multiple speakers) some of its own freight. In some cases, the Brazilians do it. But China would not be a case where Canpetex (ph) is fixing the freight, just like in the case with PhosChem in phosphate.

Okay, similar question on DAP. You had a $15 sequential increase in the DAP price. How much of that was domestic versus export? How was the sequential trends in those two markets for DAP price?

The international price increase was less than (multiple speakers)--

But it was still pretty reasonable.

So that sharply higher domestic price increase, does that reflect a surge of sales in June? If you look at your -- say you had about 700,000 tons of domestic phosphate shipments. Was there a disproportionate amount of that in June versus historical trends?

I don't know the answer to that. We will have to get back to you versus historical trends. It was a decent June, but usually Junes aren't high numbers anyway, so even if it was a little bit higher, it wouldn't be probably overly significant.

And one last one, how about your phosphate rock costs? What are the trends like there?

In the second quarter, our phosphate rock cost was up versus a year ago and sequential, due to a number of items including the cost of electricity was a heavy component of that.

Sequentially up $1 on a ton?

In that range. And also weather negatively impacted. There was significant amounts of rain particularly in the June timeframe in Central Florida. They were very much onetime issues in the quarter. (multiple speakers) Weather not only caused weather problems in Mining, but also caused the tico (ph) electrical problems that were very unique for that timeframe.

David Silver (ph) of J.P. Morgan.

I guess I -- a couple of questions. A question for Reid in terms of additional sources of liquidity. With your asset sales largely done and whatnot, I was just wondering if you might be able to identify any other non-operating sources of funds that you could be expecting over the next year or two, maybe tax refunds, returns of deposits, or anything of a significant amount?

We haven't identified any lazy (ph) or noncore assets other than the Port Sutton that we previous mentioned. Nothing else of significance. We expect to get very little in cash from Disc. Ops. We don't expect any significant tax refunds, but any earnings from operations in the U.S., we have very large NOLs and we will be able to retain 100 percent of the cashflow from phosphates as the phosphate business recovers. In addition, we do have significant excess land in Florida and we have the ability to accelerate some land sales, although we're regularly buying and selling land in Florida. But we should be on the positive side of that equation over the coming year.

Okay, and if I could maybe ask your philosophy on this, but this would be about your philosophy about bringing at least a portion of the Louisiana capacity back online. I guess if demand surges, it is an easy decision to restart it. If the buyers are reluctant, it is a tougher decision. Can you maybe outline for us what you think the strategy would be, what signals in the market you might look for? As you move towards the fall season here, you are expecting a large fall season. At some point, somebody is going to have to fill that gap, either yourselves or someone else. So I'm just trying to get a feel for when we might expect IMC to make a decision on that. Thank you.

Dave, I think you probably hit it on the head in terms of Louisiana is well-positioned for the domestic marketplace, and it is the primary plant that we would use for the fall season, so I think we have to look at the timing would be to ensure that we can provide our customers with the product they need for the fall season and at realistic pricing levels. And if you add to that the relatively strong demand without Sinochem in the third-quarter timeframe as a result of both Pakistan and probably more importantly India, which was not anticipated to be in the marketplace at the levels they are at this point in time, when we started the year. So we think that we will continue to see good underlying support in pricing and supply demand as a result of the stronger than anticipated export demand at this point in time. So we really need to be looking at least during this period of time at what happens and what the requirements are in the fall season and what we do to provide those supplies to our customers. Beyond that, really it's the Chinese demand.

Okay, so at this point, the Louisiana decision might be tied a little bit more closely to developments domestically as opposed to overseas.

Supported by overseas. I think the key piece here is that we see a period in which setting aside China, because it is not the critical factor at this point in time, when I say China the incremental China because we do have the baseload of China in the marketplace, as well as from Phoschem but supported by the fact that there is a relatively strong, stable supply and demand in the export market as well.

Bill Hoffman of UBS.

It's actually Peter Crowtay. Just trying to get a better sense of the current demand environment, what you are actually seeing right now and what a realistic volume growth assumption is for, say, the third-quarter?

You are talking about in phosphate and potash or just overall?

Overall.

I would suggest that if we take a look at historical type of numbers we see that we could that would be a very good base for what we see in the third quarter and the fourth quarter. Historically, obviously, our third quarter isn't our strongest quarter and the fourth quarter ends up being a very strong quarter. We would suggest that that support is again by on the phosphate side strong export demand, and we think there is a very high probability of the Chinese being aggressively in the marketplace in the fourth quarter, again similar to 2001 again.

And then just the last thing is on the remaining pieces of bonds that are outstanding, what is your strategy for those?

Well, we will have far less than 50 million, probably left after we take care of a combination of the tenders to be finalized in the next week or so. And we have in excess of, a pro forma we will have about 125, 100 plus million pro forma after taking care of expenses and tender costs and so forth. Cash, we will have our full available revolver and we will have ability to draw over the next year and a half effectively to take care of those. That is just small remaining stuff on operating cash flow as well. We think it is pretty much of a nonevent.

Okay, operator. I think we have time for one more question so we can let everyone hop to the next hourly call. Is there another question?

RJ Gallow of Federated Investors.

Good morning. On that same point that you just discussed, I wonder if it would be possible just to reiterate for us what the current revolver availability is and whether or not the expiration date on that revolver has been accelerated, due to the fact that a small piece of the 2005 debt remains outstanding? Or is the expiration date now in 2006 still?

There was no planned acceleration, and only in the end of the third-quarter of 04 would there potentially have been acceleration, and that was only if we would not have taken care of the 05 maturities to the satisfaction of the bank group. That is 1.5 years off, or is a year off, 1.25 off. We have taken care of 400 plus million of the 450. We don't think there is going to be an issue or any acceleration in any way, shape or form or that will be an issue at all. So what we have available today is the full amount of our bank revolver, less LCs. We also have some availability on our working capital revolver amount, and we have in excess on a pro forma basis after we take care of all of our tender fees and so forth, over $100 million in cash.

Okay, thank you very much.

Thank you very much operator and all of you who were on the call today. We appreciate your participation as always, and have a very good day. Thank you.

(CONFERENCE CALL CONCLUDED)