美盛公司 (MOS) 2004 Q1 法說會逐字稿

Good morning, and thank you all for holding. All participants will be able to listen only until today's question and answer session. Should you wish to ask a question today during the question and answer session, please press star 1 on your touchtone phone.

This conference is being recorded. Should you have any objections, please disconnect at this time. I am now turning the call over to Mr. David Prichard. Sir, you may begin.

Thank you, operator, and good morning to everyone. We are pleased to have you with us.

I'm Dave Prichard, with IMC Global, and I will be your moderator for this morning's conference call, and this is regarding our 2004 first quarter results issued earlier today.

I'm joined by Doug Pertz, our Chairman and CEO; Reid Porter, Executive Vice President and Chief Financial Officer; Steve Hoffman, Senior Vice President and President of IMC Sales and Marketing; and Bob Qualls, our Vice President and Controller.

If you haven't received or seen our results press release and the tables, you can call my assistant, Vickie Buncker, at 847-739-1817, and the materials will be sent to you right away. As you know, they are also available on First Call and at our website, imcglobal.com.

Finally, this conference call will be accessible on a replay format through Friday evening, May 14, and that phone number is 402-220-3903. That's 402-220-3903. It's also available, of course, as an audio webcast accessible through our Company's website.

As is our custom, we plan some opening comments before turning to your questions. First Reid Porter, who will discuss our financial results for the quarter. He will be followed by Doug Pertz, who will discuss operating highlights, key corporate developments in 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.

This communication is not a solicitation of a proxy from any security holder of IMC Global Inc., Cargill Incorporate or Phosphate Resource Partners, Limited Partnership.

Global Nutrition Solutions, Inc. has filed a registration statement on form S-4 with the SEC that contains a preliminary proxy statement that contains a preliminary proxy statement prospectus regarding the proposed transaction between IMC and Cargill, and IMC Global has filed a registration statement on form S-4 with the SEC. that contains a preliminary proxy statement and prospectus regarding the proposed transaction between IMC and PLT.

Stockholders and PLT unit holders are urged to read the applicable definitive proxy statement prospectus when it becomes available, because it will contain important information.

Stockholders and PLC unit holders will be able to obtain a free copy of the applicable definitive proxy statement prospectus, as well as other filings containing information about Cargill, IMC and PLT without charge at the SEC's Internet site at www.sec.gov.

For a complete version of the nonsolicitation language, please refer to the IMC first quarter earnings release that was distributed this morning. At this time, I am pleased to turn the call over to our Executive Vice President and CFO, Reid Porter. Reid?

Thanks, Dave, for the cautionary information -- and good morning, everyone.

As usual, I'll first comment on consolidated results, then discuss our PhosFeed and Potash business segment performances, then turn to the balance sheet and end with brief comments on transaction we have recently completed or that are under way.

Driven by strong crop nutrient prices, IMC Global earlier today reported significantly improved earnings from continuing operations of 11.6 million, or 8 cents per diluted share, for the quarter ended March 31, 2004, compared to a loss from continuing operations of 31.7 million or 28 cents per diluted share in the prior year.

Including a loss from discontinued operations of 2.4 million or 2 cents per diluted share in this year's first quarter, the Company reported first quarter net earnings of 9.2 million, or 6 cents per diluted share, versus a net loss in the first quarter of 2003 after the cumulative effect of a change in accounting principle of 32 cents per share.

This year's first quarter earnings per share includes the impact of 2.6 million, or 2 cents per share, associated with dividends from the Company's mandatory convertible preferred shares.

Simply put, earnings per share on our two primary GAAP measures increased 36 cents and 38 cents per share on a year over year basis. Gross margins more than doubled to 78.8 million in the quarter, while operating earnings more than quadrupled to 62 million, reflecting solid performances from our core crop nutrient businesses.

Our stronger first quarter results from continuing operations were driven by much improved phosphate prices, as well as potash prices, partially impacted some year over year increases in ammonia, natural gas and sulfur raw materials costs.

Revenues increased 6% versus the prior year quarter to 584 million, phosphate prices jumped 31% and potash prices increased 4%. Potash volumes improved 6%, offset by a 16% decline in phosphate shipments.

Florida ammonia, Louisiana natural gas and sulphur costs increased 49, 32 and 11%, respectively, versus the prior year. However, the headline event of the quarter clearly was the major improvement in average diammonium phosphate realizations of $45 per short ton -- again, up 31%.

SG&A expenses of 16.8 million decreased 8% versus the prior year, primarily due to the absence of spending in 2003 relating to the Company's organizational restructuring program. Below the operating earnings line, the quarter's results reflect a noncash pretax gain of 4.6 million, or 2 cents per share, from a weaker Canadian dollar.

It also includes an after-tax or an after-minority interest and after tax loss of 700,000, or 1 cent per diluted share, from a provision for the proposed settlement of two Pensacola, Florida class action lawsuits and an after-tax loss of 1 million or 1 cent a share for expenses incurred in connection with the proposed combination of IMC Global and Cargill crops nutrition.

A brief reminder about the foreign currency item. As previously stated, the Company fully hedges Canadian dollar cash transactions, and hedged gains and losses are recorded in IMC Potash's gross margin; but IMC Global does not hedge against noncash U.S. dollar denominated receivable translation risks in the Potash business.

With regard to the Pensacola class action suit, the "other expense" line of 8.8 million includes a charge for the proposed Pensacola settlement, representing IMC's share of reported damages at a superfund site. This is a PLP item, as the case relates to a former agricul company fertilizer plant that is a PLP legacy asset.

Following treatment for the minority interest and net of legal reserves, the bottom line impact to IMC Global is about 1 cent per diluted share, as our recent 8K disclosed. IMC's effective tax rate for the quarter was 49 -- excuse me -- 39.7% versus an effective tax rate of 32% a year ago.

The increase in the effective rate reflects the impact of an IRS notice which has the effect of eliminating the Company's ability to utilize foreign tax credits beginning this year. While we believe there are structural changes available which could mitigate this adverse impact, we have suspended our study on the potential restructure in light of the proposed merger with Cargill..

Now turning to business segment performance. IMC Phosphate net sales of 363 million increased slightly compared to last year as higher selling prices more than offset lower volumes. Total concentrated phosphate shipments of about 1.4 million short tons decreased 16% versus the prior year level of about 1.6 million short tons.

Export revenue rose 21% versus 2003, primarily due to an increased sales in Australia, Thailand and China. Domestic revenues decreased 9%, as the Company chose not to participate in lower-priced winter fill programs. The average price realization for GAAP was $188 per short ton in the first quarter.

This was $45 or 31% higher than the prior year's level of 143, and was $29 per short ton or 18% greater than the fourth quarter of 2003. First quarter phosphate gross margins of 18.4 million increased steadily from gross margin losses of 14.8 million in 2003's first quarter, and from gross margins of 5.8 million in the fourth quarter of 2003.

The 33 million year over year gross margin improvement was mainly the result of price increases totaling 55 million for the quarter versus prior year, offset by ammonia, natural gas and sulfur cost increases totaling 23 million versus the prior year.

About 30% of our Louisiana concentrated phosphate output continued to be idled in the quarter, an operating rate expected to be maintained indefinitely until market conditions showed sufficient and sustained improvement.

Turning to Potash, first quarter net sales increased 12% to 239.6 million versus last year's 214.2 million, due to stronger sales volumes and selling prices. Total sales volumes of approximately 2.3 million short tons increased 6% versus approximately 2.2 million tons a year ago.

Domestic revenues improved 26%, as stronger prices spurred customer orders. Export revenues fell 17%, as higher prices were more than offset by increased freight rates and the unfavorable comparison to last year's first quarter, which included higher volume associated with a retroactive Tampa Tex [PHONETIC] allocation increase to 37%.

The average selling price, including all of our potash products, was $77 per short ton, the highest level since the second quarter of 2001, compared to $74 per short ton in the prior year.

A 14% increase in domestic prices, where IMC sells about 2/3 of its tons, more than offset a 10% decline in export pricing. While Phosphene primarily sells FOB, Tampa Tex sells CNF, and potash export net backs were hurt by higher ocean freight. As Doug will discuss, Tampa Tex has been raising prices, and we expect export net tax to recover. First quarter IMC gross margins -- IMC potash gross margins -- of 65.2 million, increased 18% versus prior year due, to the improved prices.

Production volumes rose 12% to meet strong customer demand Doug will provide additional analysis and perspective on both the first quarter performance and the outlook for our phosphate and potash businesses for the balance of '04.

Turning to the balance sheet, the Company ended the first quarter 2004 with its main bank revolver undrawn except for letters of credit, which left revolver availability at the end of the quarter at 130 million.

Additionally, we had borrowed only 5 million against our potash working capital facility, which remains largely undrawn. In March, the Company received unanimous bank approval for a recalibration of its financial covenant ratios to the balance of this year, and approval to repay the remaining 10 million January '05 notes at maturity.

The date to refinance the remaining 27 million in '05 notes was extended to March 2005. Working capital continued to be held in relatively tight check. Receivables were only slightly higher year over year, and day's receivables were in line with last year. 42 million year over year increase in inventories came from higher GAAP and phosphate rock inventories.

GAAP inventories remained well below five-year averages, but were 73,000 tons above prior year. Gross capital expenditures of 23.6 million in the first quarter of 2004 were unchanged from 23.7 million a year earlier. Depreciation, depletion and amortization expenses were 45.5 million for the quarter.

Finally, during the first quarter, I am pleased to report the Company finally completed the sale of its remaining discontinued IMC chemical operating entities, which included a soda ash and boron chemical operation in Searles Valley, California and a specialty boring plant in Italy. As previously disclosed, IMC Global has retained a 19.9% equity interest in these chemical entities.

With this transaction, IMC Global has completed the disposition of all remaining discontinued operations and can focus full attention on our core businesses. A loss of 2.4 million on disc-ops was recorded in the quarter, which largely represents poorer performance than planned by the sold entities between year end 2003 and the March 19th sale.

On March 19th, IMC and PLP announced the signing of a definitive agreement to merge PLP into a subsidiary of IMC. Pursuant to the merger, each publicly traded PLP unit would be converted into the right to receive .2 shares of IMC common stock.

Alpine Capital and the NT & Robert M. Bass Foundation, collectively the largest public holders of PLP units with 61% of the public float, have agreed to support such a transaction. We anticipate a summer 2004 closing of this transaction, which requires, among other things, necessary regulatory approvals and the approval by the partners of PLP.

Doug will comment on the status of the IMC Global and Cargill Crop Nutrition proposed combination, which we anticipate to close this summer as well. I will now turn the discussion over to Doug.

Thanks, Reid, and good morning to all. Our first quarter results provide IMC and the phosphate industry with a solid and promising start for a much stronger 2004.

As the overall agricultural industry continues to recover, supported by a cycle in high grain prices, there are strong and definitive signs that the fertilizer industry has rebounded from its lengthy down cycle. Even as the nitrogen market is tempering, demand in prices for IMC's nutrients, potash and phosphate, are experiencing continued strong improvements in their fundamentals.

As indicated by the significantly improved results in the first quarter, IMC is well positioned to capitalize on this expected cycle recovery with our large low-cost leverage in phosphates and our low-cost, market leading potash position.

Our earnings of 8 cents per share from continued operations was double the analysts's consensus estimate and the best operating results we have seen for many quarters, thanks to strong performances from both our core businesses.

Improved earnings were heavily driven by improved pricing, but results were also tempered by spiking ammonia raw material costs that have since dropped dramatically; and also by potash price realizations that were lower in the quarter than in pricing projected for the second quarter and the rest of this year.

Earnings from continuing operations in the quarter were positively impacted by 2 cents by noncash Canadian dollar FX gains, but negatively impacted by a total of 3 cents, due to a one-time litigation settlement expense, merger-related expenses and an increased tax rate versus expectations. We have thoroughly reviewed our overall and individual segment results, as well as other financial results.

As usual, I would like to offer some additional context. The quarter's main [INAUDIBLE], among many other notable results, was the strong year over year and sequential improvement in our phosphate or pricing realizations to $188 per short ton, the highest quarterly level in years. This was a $45 per ton improvement versus prior year and a $29 improvement versus 2003's fourth quarter.

Importantly, both domestic and export realizations increased by the same 31%, improving the global marketplace balance to support a continued recovery. Pricing has also remained withIn approximate 5% of its peak levels during the first four-months of this year, even with a dramatic reduction in ammonia raw material costs in the last 60 days.

Despite significantly higher raw material costs, predominantly ammonia, over the first quarter -- excuse me -- our first quarter performance was marked by a dramatic $33 million improvement in PhosFeed margins versus prior year, to a positive $18 million margin. This was a tripling of margins from the fourth quarter of 2003.

And this improvement was despite reduction in volumes, which we will touch on later. The strength we saw in GAAP pricing in the fourth quarter clearly remains throughout the first quarter. The debt to cap ex port spot price stayed in a narrow range of nearly 210 to $220 per metric ton for most of the quarter.

Ammonia costs rose to a peak in late January of $325 per metric ton, but then collapsed by more than $100 per ton or almost $20 per GAAP cost per ton by the end of the quarter, with further erosions of more than $35 per ton occurring in April down to the mid $180 per metric ton range.

The result was positive in improving phosphate margins, both cash and flow margins throughout the quarter, with strong momentum continuing into the second quarter. Our cash margins in the quarter were well within the range of analyst projections, varying primarily based on price realizations and a lag in raw material cost changes.

PhosFeed sales volume declined in quarter, was probably -- was primarily, excuse me. PhosFeed sales volume declined in the quarter was predominantly in the U.S, as the export reduction was primarily the result of [INAUDIBLE] allocations and the shipment timing.

In the U.S, strong fourth quarter demand resulted in lower first quarter sales, and IMC made the decision to not participate in normal industry winter fuel programs that offer fixed pricing well into the first quarter. As a result, domestic first quarter sales were below industry level, but pricing was maximized. In addition, some customers seeing the strengthening of gas prices in the quarter waited to buy, hoping to see pricing pull back.

While we are encouraged by the direction of phosphate profitability, raw materials continued to have a negative impact on our business in the quarter. Ammonia, sulfur and natural gas costs increased a combined $23.3 million in the first quarter versus the prior year, which obviously impeded PhosFeed from posting even better turn around results than the $33 million improvement.

Certainly improved raw material costs, as we are experiencing today, with stable pricing, will continue to support earnings improvements. Our manufactured ammonia costs in Louisiana, while versus the fourth quarter were actually down -- well, up versus the fourth quarter, was actually down 7% versus the prior year.

But this was more than offset by a 49% increase in average purchase Tampa ammonia prices, at prices equivalent to market prices of $292 per metric ton, and this was despite the large fall in that cost -- in the cost of ammonia -- as the first quarter progressed.

The current ammonia price of Tampa of $188 per metric ton, down from a January peak of $325 per metric ton, and a first quarter average of 292. This bodes well for our lower cost overall. We note that a new Trinidad ammonia plant, with an annual capacity of more than 600,000 tons, or about 80% of our annual purchases of Tampa, should start initial production this Fall.

In addition, shipping bottlenecks in the [INAUDIBLE] Straights have dramatically reduced increasing supply. Analysts suggested ammonia prices as seen in the first quarter should not be repeated in the rest of the year, and ammonia should trade in a 10 to $20 range from current levels. Our good potash business is fast becoming a great business, and IMC is reaping and will continue to reap the earnings benefits.

IMC's potash double-digit sales gross margin improvements in the quarter, resulting in a $65 million gross margin or $81 million gross margin excluding provencial levies, reflect both strong volume growth and higher domestic prices. Domestic and world potash demand continues to grow dramatically, and supply demand continues to tighten. In strong -- in short, IMC's potash is off to a great and possibly record 2004.

Improved domestic volumes of 14% reflect improved U.S. farm income positions versus last year, and I believe the pricing will continue to increase increase, giving customers the impetus to order product and be ready for the planting season. Debt [INAUDIBLE] decline was slight, and primarily versus a 2003 period in which increased IMC Tampa Tex allocations were being adjusted.

In addition, Canadian rail issues negatively impacted export volumes in the first quarter. World potash demand continues to accelerate, and Tampa Tex is projecting another record year, with projected volumes up 20% to 7.5 million metric tons, led by higher Chinese, Brazilian and overall Asian demand.

The overall improved demand enabled IMC Potash to increase production by 12% in the quarter, helping plant operating performance and resulting in flat costs per ton year over year, despite the negative impact of the Canadian dollar.

Domestic pricing strength was a principal driver for improved potash results in the quarter, and should continue to be throughout the year. Last July, IMC Global raised domestic prices $10 per short ton, followed by another $7 per ton in late September, and then another $10 per short ton increase in mid-February of this year.

The successful cumulative effect of these price hikes has been evident, both year over year and sequentially, and report we have recently seen domestic realizations for MOP at levels not achieved by IMC Potash in many years, if ever. The current market suggests that we should see the full impact of the $10 per ton February increase in the second quarter.

Domestic demand continues to be strong as well, and our market share is up to just below 50% in North America. Export netbacks were negatively impacted in the quarter, as Reid suggested, as higher freight rates and CNF or Atlanta business continued to outpace price increases.

However, price increases are being implemented and accepted by customers, offsetting freight costs and more. Potash export netbacks, negatively impacted by higher shipping rates, are improving, and fell only 1% from the fourth quarter in the first quarter versus a 4% and a 6% decline in earlier quarters of 2003. Shipping rates have also begun to drop markedly over the last several weeks.

We were optimistic that continued strong global demand, aided by falling shipping rates, will enable Tampa Tex to continue to support higher prices and improved netbacks in the second quarter and beyond. The low inventories and strengthening in demand in markets such as China, India and Brazil, coupled with no new world supply, 2002 will be a great year for both potash price and volume.

As the largest producer, with excess capacity and the ability to market groves, and as a low cost producer, IMC is well positioned to benefit from this strong market. Let's turn now to the outlook for the balance of 2004 after IMC's encouraging first quarter. Worldwide agriculture and crop nutrition fundamentals remain encouraging and give cause for optimism ahead.

Crane inventories at a historical -- are at historical low levels, and the world's stock use ratio is at a near 30-year low, around 16%. We have all been witness to a rise in commodity prices, with corn touching $3 per barrel, per bushel, and beans flirting at times with as much as $10 per bushel.

These developments have sent strong signals to farmers to plant more acres and optimize their fertilizer application rates to maximize yields. In fact, a recent New York Times article of yesterday outlined China's drive to reduce that country's drop in grain production, citing China's importing of bean and wheat for the first time in five-years. All of these are added signals of a tight world grain market.

World crop nutrient demand, which increased by 3% in 2003, is forecasted by industry consultants to grow by another similar amount in 2004, which should underbid pricing strength and continue to contribute to enhanced margins for both phosphates and potash, as we saw indications of in the first quarter. IMC remains well positioned to benefit from an overall improvement in market -- in the market, and the outlook obviously is positive.

As I mentioned earlier, Tampa Tex spot prices have eased somewhat in recent weeks, but are still close to highs not seen in years, primarily due to tighter supply and demand. Improving phosphate fundamentals have boosted DAP [PHONETIC] margins significantly. However, these margins could be at cyclical higher levels if it were not for cycle high ammonia prices that we experienced in the first quarter.

We still expect China, with DAP imports of slightly under 3 million metric tons in 2003, down from 4.1 million tons in 2002, to be in the low 3 million ton range in 2004. Both season ending DAP inventories in China, lower shipping rates -- down over $10 in the last several weeks --and the need for increased domestic grain-planted acres will support imports at or above this level.

We are also confident that our two-year contract and long-term relationship with CNA MPGC, supporting strong strong distribution and product branding, will also support increased phosphium DAP sales into China. In India, significant domestic production shortfalls and increased demand due to a good monsoon season, have also resulted in very low inventory levels.

While in India imported about 800,000 tons in 2003, up from 350,000 tons in 2002, we think prospects are for like or even higher amounts of DAP imports in 2004. The only barrier to substantially higher imports are discriminatory India government subsidies, for which there is immediately no sense of relief at this point in time.

However, current falling shipping rates will also benefit export sales to India as well. As was the case last year, Brazil and South America overall continue to be strong markets, driven by higher soybean prices and planted acres. This was evidenced by the fact that Brazil was buying DAP and MAP over the winter months, unusual for them historically in an otherwise off season time of the year.

Overall, we agree with industry consultants that 2004 will be yet another year of higher year over year DAP prices, higher rural phosphate plants operating rates and improvements in U.S. imports of DAP. We reiterate our view, an even stronger performance for -- an even stronger performance from our potash business in 2004 after a great 2003.

Increasing domestic pricing, in some cases, now at levels not seen for six-years, and stronger domestic and worldwide volumes, with improving costs, should be a recipe for better profitability and cash flow, and possibly a record 2004.

As our first quarter suggest,s our $10 per short ton MOT domestic price increase in February is kicking in full as we move through the U.S. planting season. Worldwide demand for potash remains robust, with Tampa Tex projecting a 20% shipping increase, with higher prices.

We are seeing the rebound in the AG and fertilizer cycle and the beginning of a positive impact it will have on our earnings. We have indicated -- as we have indicated in the past earning calls, the strength of future performance improvement will obviously depend on the degree to which pricing and raw material costs change.

In the phosphate business, the first quarter clearly showed a potential impact of improving pricing, and these positive first quarter results were with record high ammonia costs. Our strong potash earnings in the quarter also provide a base for which higher prices and increased demand should build on a record year -- build for a record year.

IMC's position as the largest producer in both phosphates and potash nutrients, as well as our leading North American market share, positions us well for growth in these markets and in our earnings.

Our recent cost reduction efforts and our focus on continuous improvement, combined with our excess capacity in both nutrients, will allow us to further capitalize on these market trends. Let me switch focus to the merger.

We continue to believe that the improving markets of crop nutrient,s and especially the cycle recovery of the phosphates, remains a tremendous backdrop for our merger announcement. While we're encouraged by the macro agriculture crop nutrient and phosphate cycle direction, we think that the announced merger of IMC with Cargill's fertilizer business will dramatically add to future IMC shareholder value.

The combination creates a leading, publicly-traded global crop nutrient company, better positioned to deliver customer value and increase shareholder value. IMC's shareholders will gain -- will retain stock in a stronger public company to potential reap the increased value as global AG fundamentals improve, as the phosphate cycle recoveries improve and as synergies are achieved.

Like IMC, Cargill is highly leveraged to phosphates; in fact, more than IMC as a percent of total business, offering significant potential upside to shareholders in a cycle recovery. Shareholders will also continue to reap the benefits of IMC's leading low-cost potash business, with improving fundamentals and the benefit of our excess capacity. The transaction is expected to be accretive to IMC shareholders immediately and in to the future, on top of the expected benefit IMC would enjoy from the phosphate cycle recovery if we were to stand alone.

The combination should result in operational synergies of over 145 million on an annual run rate basis, with the prospects for additional ongoing costs and other synergies. Such operational synergies include G&A, duplication and elimination.

Phosphate operational improvements in mining and manufacturing will be significant, as both parties operate in central Florida, and purchasing legistics and other synergies. Synergy areas not included in the above operating synergies include balance sheet or interest cost reductions and revenue enhancements.

With Cargill contributing less than $15 million in debt, along with its assets and cash flow, the [INAUDIBLE] combined balance sheet and financial profile will be significantly stronger. The result will be improved credit ratings, improved financial ratio and greater financial and strategic flexibility.

IMC's strong domestic phosphate and potash business will be combined with Cargill's largely international franchise to form a stronger and broader global platform. It not only expands production in the United States, but also in Brazil Brazil and China. More importantly, Cargill offers significant distribution platforms throughout the world.

Combined global phosphoric acid capacity shares is about 14.4%, and concentrated phosphate production capacity is about 13 million short tons. The merger will create a global leader with LTM sales at the bottom of the cycle, with about 3.7 billion, the largest in North America.

Review and discussions with the Department of Justice are progressing nicely, and the parties continue to work cooperatively. We filed the merger more -- approximately three weeks ago under the SEC under the placeholder name of Global Nutrition Solutions, Inc.

We continue to believe the merger will close this summer, with all of us at IMC and Cargill actively engaged in integration planning to maximize value at NUCO from day one.

Our earnings release today, including market fundamentals and the pending merger with Cargill, we think positions IMC shareholders for significant current and future value creation unlike any other in the industry. So with those comments, I'd like to turn it back to Dave for questions.

Thanks very much, Doug and Reid. Operator, you can now begin the question and answer session, please.

Thank you, sir. Again, if you would like to ask a question at this time, please press star 1 on your touchtone phone. You will be announced prior to asking your question. The first question will come from Duffy Fisher. Your line is open.

Yes, good morning. A couple of questions around phosphates. The volume, very disappointing versus what I had expected for the quarter. Now, you said you had given up some, you know, sales in preference of price.

Can you talk about what, you know, kind of tons on the ground might have been in the U.S, you know, where you think volume in the U.S. will go for the year, and, then also talk about, you know, what that's done to inventory and DAP over the last three months?

Well, Duffy, I think I said in the comments, that it was a couple of factors that we saw. One is that we had strong sales, both in the fourth quarter, as the industry did, but we had strong sales in the fourth quarter, as well as actually in the third quarter of last year.

And if you look at the fertilizer year for phosphates, actually, the down turn that we saw as an industry flows with the full-year fertilizer industry numbers. So, that was one of the reasons for our down turn in the first quarter versus the fourth quarter. On top of that, as we stated as well, we made the conscious decision to not participate in winter fill programs that generally start taking place in the latter part of the fourth quarter and flow for shipments into the, primarily January, February and sometimes even later than that, time frame into the first quarter. And generally these shipments are done on a basis of committed tons and pricing that is committed from basically late fourth quarter pricing.

Our inventories were very low. We saw pricing in phosphates, obviously on the uptick. We didn't have the tons to really take care of that, and we thought it was -- made the most sense in terms in terms of maximizing our margins.

So, effectively, our policy was very straightforward, which we wanted to maximize our margins and place our tons where we can best position them, and that's what we did. We think it was a good move and we think it's reflected in the strength in the marketplace that we saw in the first quarter and continue to see, as well as in our first quarter results.

Our inventories are up versus last year at the end of the first quarter, but they are below five-year averages, still relatively tight and very much in line. We have placed a lot of our inventory into our warehouses upriver, and we think they are well positioned to finalize, hopefully, this season.

So, if you look out Q2, Q3 this year, I mean, where would you expect volumes to end up on the fiscal year for this year as far as phosphates go?

You mean -- you mean the fertilizer year?

No, no, the year end, like, say, December, that'd be -- as we are looking at comps, you know, Q2, Q3, would you expect year over year volume numbers to be up or to be down this year?

You know, for the full year.

Duffy, this is Steve Hoffman. The full year -- the nine-month fertilizer year volumes to date are up about 7.3%.

Interestingly, potash is tracking in the same time frame at about 6.2% if you look at it over the nine-month period. So, I would expect some softening of that number in the second quarter, but still a plus year over year.

I might add to Doug's comments, as well, that we partially offset some of the product that we didn't put in the domestic market in the first quarter, because we wanted higher prices by additional volume in the export market where we were achieving higher prices.

So overall, we are going to see phosphate volumes up year over year year on a fertilizer year basis.

Okay. And then Steve, just your gut feel, we had a down tick in price in, you know, DAP over the last couple of weeks. You know, we're hearing some scuttle, but that inventories are high, kind of at the retail level.

You know, sales have not been robust. How do you handicap the probability that margin collapses, you know, say 10 to $20 over the next couple of months?

Well, I wouldn't put it in a collapsed category. I would say that seasonally, with typically lower shipments in the export arena, you know, to China, you would expect some softening. But I don't see a big move here.

Duffy, I think we have seen in the last week a $5 decrease in the low on DAP pricing; but as Doug mentioned, you know, we have seen basically $100 decrease in ammonia quarter to quarter.

So $100 decrease in ammonia is $20 in DAP. So on the whole, you know, what -- we would see some modest price erosion in DAP going forward, but not margin erosion.

All right. Thanks, fellas.

And if you look for the full calendar year, we are still suggesting phosphate sales to be up versus 2003.

The next question, operator?

David Silver. Your line is open. Go ahead, please. David Silver.

Dave, you there?

These complicated phones, I'm telling you. Actually, I was hoping to maybe hone in a little bit on your potash results.

So maybe you -- you made a comment that you thought that the first quarter reflected the full benefit of the Fall 2003 increase and a portion of the Sept. 15 increase, and I was wondering if you could maybe quantify where you think current domestic potash pricing is now currently versus, let's say, the first quarter average?

Dave, my comments were that the -- it was partial amount of the February increase, because the February increase wasn't put in until late February, and therefore we couldn't see the full impact of the increase on the tons in the first quarter.

The good news is that we have seen all of the February increase go into effect, be accepted by the marketplace, and we are very aggressively putting forward and sticking to that pricing going forward, and sales continue to be strong. And our pricing is up well in excess of $20 versus a year ago at this point in time.

So we are very confident that the full amount of the $10 February increase will be shown in the second quarter. You know, that's great news, and volume is still very strong.

Okay. No, I appreciate that. Now, also on the potash business on the cost side, I was wondering if you might be able to quantify the effect on your operating costs of the change in value of the Canadian dollar.

I know that you guys do some hedging. And do you have kind of a net number for what that might have done to your operating costs or bottom line during the quarter?

Well, let me start out, and as I mentioned, we do hedge the Canadian dollar. And in the first quarter, our effective hedge rate was about 1.41, which was significantly better than, you know, the quarter's average rate, and the end of the quarter rate of 1.30.

Now, as you know, the Canadian dollar has weakened to about 1.36 today. So basically, when we look at it, we are hedged for the rest of the year at 1.37; and, you know, we are pretty well locked into that, and I don't have the -- what that impact is year over year, but it's, you know, it's significantly less than the -- you know, the lower rates we have recently experienced in Canada.

But I think what your question really is, and what we've been able to offset is is that a year ago, we also hedged and our Canadian rate a year ago was probably about 1.50.

It was over 1.50.

Yeah, so if we pick a number, and we can give you the specific number, but let's say in the first quarter, we are at 1.52. This year we are at 1.41. It's that difference that we saw as the impact on the increase in cost in our Canadian operations.

All right, which is, is that it, is that the operation, it's about $10 million. Just a rough number. Does that sound about right?

Yes.

All right.

About $10 million, looks like it is year over year based on those two hedge positions year over year. And that's what we offset in our operating improvements through -- through absorption, cost reductions, etc.

I should emphasize the12% production increase is a huge benefit, because we have a high fixed cost up in our potash mines.

So we basically fully offset what was roughly a 10 million year over year foreign exchange deterioration hedge to hedge versus operating improvements.

I would like to compliment the guys on continuous improvement as well there that we continually see.

Sure.

Okay. If I could just indulge you for one more question. I was wondering if Reid, you know, could comment, you know, on a couple of of things. First of,f whether the 39ish% tax rate that we saw in the first quarter, you know, should we kind of straight line that or use that as our number for the full year '04?

Yes. You know, frankly because we are not making structural changes to change that rate, in light of the Cargill merger.

So the 39.7% we would expect, you know, that is an annual effective rate in our mind.

Okay.

And when NUCO comes along, you know, we are going to a full structural analysis and tax rate analysis, and the tax rate certainly won't be the same. It's too early to view what it will be under a NUCO scenario.

Okay, and then just the last question. The minority interest number of 8.5 million.

If I just typically track, you know, your IMC PhosFeed gross margins for operating income and relate that historically to the minority interest, it looks like the number was a little bit larger than I would have guessed this quarter.

Can you comment on what might have fit in there between the gross margin from IMC PhosFeed and the minority interest calculation? Thanks.

Yes. You know, what, in fact, happened -- and frankly, the Pensacola settlement is a -- we have a confidentiality agreement and can't disclose the specific number.

But in the "other income" deducts, we took a charge to Pensacola, and that is a 50% interest on the PLP side -- or 40% interest. In addition, there was some income from a reversal of a legal reserve on our corporate books that is 100% IMC.

So it really relates to that 8.8 expense, other expense, having a higher minority interest portion than you would normally expect, Dave.

All right. Thanks very much.

Yes.

The good news is that that lawsuit was one of the last major legacy issues that we had outstanding, and we are actually very pleased to have been able to work with the other defendants on this and get this taken care of.

Yeah, I would just like to add to Doug's comments, that was the one litigation I was concerned about, just in terms of downside exposure if everything went wrong, and we are very pleased to have a tentative agreement.

Next?

James Garn, your line is open, sir.

Hi, got a couple of questions on on phosphates. Is it fair to assume that the -- your warehouses and the retailer channel was fairly full heading into Q1, given the second half of '03, your domestic shipments were up?

No. No, it's really not a fair statement. Our inventories were extremely extremely low going into the quarter, and most of our, our retailer warehouses were very low as well, and that's really what some of the first quarter fill programs do is fill that up.

And our warehouses were very low, actually through most of the quarter until the latter part of the first quarter.

But you did have a big Q4, so some of that domestic shipment in Q4 pulled from Q1?

Yeah, and when we said that before.

Okay.

If you look at our [SPEAKERS OVERLAPPING] inventories at the end of the year, you know, they are very low -- very low.

Yeah, well they were.

That's part of the reason why are looking at selling in the first quarter. Almost record lows, you know.

But the remarks about lower price winter fill. You are not implying that you had a competitor out there that was aggressively pricing product?

I'm implying -- I'm implying several things, you know, a little bit of what you are suggesting. But the biggest thing that I was implying is the industry practice to normally do winter fill programs -- and we have often done in the past, just as other competitors have done and continue to do. So I am not trying to point at anybody else in the industry.

What I am suggesting is, is we made the decision not to do that this year. Those winter fill programs generally consist of committing to several months worth of inventory at set prices that generally prices that are lower as you go out of the fourth quarter.

And clearly, that was the case here, as we saw prices ramp up fairly dramatically into the first quarter, and we were in a -- we were in a better position to not to have participated in that and get the benefit of it, but it also negatively impacted some of our sales in the quarter.

Right.

Not pick up those carryover sales from the fourth quarter winter fill programs.

And the retailers saw prices going up in the fourth quarter, so they were -- they were in the market maybe a little bit ahead of the winter fill season?

Well, it's very typical to have a winter fill program like that.

Okay. And then on the export side, you provided your estimate of U.S. shipments to China as being over 3 million tons. It looks like the -- the lineup over the next couple of months is a little light.

Does that forecast suggest fairly heavy back end loaded?

Steve, Steve Hoffman. Yes. China is seasonal.

They take heavy shipments, loading -- or toward the Spring season, beginning in November, December, January, February, it tapers off in March and April as they get into their Spring.

First half of May, it starts to pick up again, in the second half of May, June, July, early August, as they get ready for Fall and so on, so this is a relatively typical pattern.

Yeah, I think we are going in, Steve, with lower inventories in China as well, going out of the --

China has had a good Spring season, and inventories coming out of it will be low, and that bodes well for this May through July shipping period.

And [SPEAKERS OVERLAPPING] to see The New York Times article that I referenced that suggested that there's a major Chinese government push to push more grain production for farmers in China as well.

And with the freight rates now starting to decline from Florida to China, do you think that that might provoke the Chinese to step back in a little earlier than you expected, or might they expect you to lower prices accordingly?

No. I think that the Chinese will take product when they need to take product.

There might be some spot sales, but I think there's a shipping schedule laid out, certainly with our contract, and those folks will take it on the, on the schedule that they have.

It's probably also is premature to suggest there's going to be more jumping in outside of the seasonal type of buying. The next buying period would be the latter part of summer if somebody else is going to jump in out side of the contract buys.

Yeah, no, I agree. It is unlikely that people are going to bring DAP into China way early and then have it sit for months in a warehouse at the other end.

Yeah.

But like you said, June is usually a pretty big month and it doesn't appear that you have much lined up for June yet. Is that on concerns of high freight rates and that might pick up now, given that the freight rates have fallen?

I don't know what you are looking at in terms of what you think our lineup is, but we have a contract with CNA and PGC for steady shipments throughout the year that increase in the June and July period.

And it's in the three or four cargo range. I don't know offhand what it is.

In June.

Yes.

That's pretty significant.

Okay, thank you.

Okay, operator, next question?

Okay, Duffy Fisher, your line is open.

Yes. Jump to the potash side. If you look, Potash Corp, their combined pricing increase Q1 over Q1 was about $6 for potash.

You guys did about $3 better, which doesn't seem right to me, because your mix of U.S. business, which was much better than foreign business, is a lot higher.

So can you talk a little bit about you know, number one, why they might have been able to get more price and, two, to kind of jump back to Dave's question, you know, if you looked at the average price for Q1, realized price and the realized price you are getting for today, what is the Delta there?

I am not sure where your numbers were, but the -- we are just under $6 sequential quarter increases.

No, year over year, I was looking. So you guys were 77 this Q1, you were $74 last Q1.

Potash Corp raised their prices -- you know, their Delta was $6 on their potash prices. And since you guys had a better mix being in the U.S, I would have thought that your Delta was higher than theirs?

I don't know. We have several things, obviously, that make a difference. We have a much larger piece of our business which is industrial, that makes a difference when we are not seeing the same types of increases there as we are in the -- with a more contract.

So that's one thing. And the second thing is, we have K-Mag as well that's in that mix. If you look at -- let's bring it back down and look it to a sequential quarter. Are we getting the price increases that we've talked about from the September through the February price increases, and that's really what, you know, I think we are trying to focus on.

Our MOP only increase, from the fourth quarter to the first quarter, was just under $6 a ton, and I think that then bodes well in terms of a comparable comparison.

Okay.

You with me?

Yes, I am.

That's part of the difference. Now, if you include the other mix in there, then it gets to be closer to a little over $5, I think. Year over year. I think that's -- that's the number to focus on that is -- we are very comfortable and confident we are getting. And, on top of that, you know, the numbers we are getting in February are very similar as well.

The difference is having to strip out other things around that, such as the industrial and the K-Mag.

Okay. And then if we look at, you know, what it looks like, Q1 versus what we will end up with in Q2.

Again, just kind of using that $77, is it fair to think that you will get about a $3 price increase quarter over quarter into the second quarter ?

Well, you know, I think we are hesitant to make projections like that; but again, we think it will be in the additional 3 to $4 range of improvement.

Fair enough. Thanks, guys.

I hate to, you know, make predictions on that in the quarter. But we are getting the full amount of the price increase on the AG side, and the volumes are doing -- doing well.

Yes.

Duffy, i would just add, keep in mind mix -- or really talking AG prices here -- and as the AG season -- season tapers off, then our industrial becomes a bigger part of that mix, and so that changes prices month to month.

But, overall, prices are up very strongly out of that string of $27 worth of increases that Doug previously had mentioned. If you go back to mid year last year to this point today, it's up over $20 out of that 27. So probably a little more to go, but mix is a consideration.

Great, thanks, guys.

Operator, we have time for one more question so that we close this down in an hour. Do we have another question?

Yes, sir. David Silver, your line is open.

Okay. Thanks. I guess I was going to ask this question to Steve, maybe, following up on a couple of other questions.

But, in India, I guess, there's just been a settlement now of the big annual [INAUDIBLE] agreement. And I was wondering if Steve could give me his impression of what he -- how he views that in terms of the price agreed upon, the volumes and especially what he thinks about the impact of having an agreement in place on the overall, you know, balance or direction of the phosphate market. Thanks.

I don't -- let me address the last part first. Well, I will take the first part. It's up about 46 or $47 year over year. I think the final number is going to shake out to be 40275. There's some financing involved in it. It comes down from from 150 days to 120 days cash against dock, so some progress was made on that front.

In terms of total volume of acid, it's about the same as last year. It looks bigger, only because the privately-contracted tons were brought into the -- into the mix this year. But more or less, it's about the same year over year.

It remains to be seen how the government is going to establish DAP subsidies to equate to the new acid prices that the importers are going to pay -- and, obviously, ammonia and sulfur will play into this. As far as your question about what it means to the overall picture in the market, as Doug mentioned earlier, we are still expecting India to probably be in the 7 or 800,000 ton range, similar to last year. I think Doug mentioned 800.

However, quite frankly, what these guys are going to do is wait for the government to tell them what kind of subsidy they can have. Now, if you look at the India demand overall, we would expect about 6 million tons, somewhere in that range, with a decent monsoon -- or I would say a normal monsoon.

We are expecting that India should produce about 5.4 million tons from their own production, leaving about a 600,000 ton gap. So if they want to sort of replace the pipeline, they will buy at least as much as they did in the previous year, and that banks on Oswald producing about 700,00 tons, which in my mind is toss up.

And the other thing to consider here is that inventories in India are starting out pretty low. So I think, you know, the combination of all of those things would mean that at least as much as last year, you know, maybe a little bit more.

We'll see what the Indian government does with subsidies and how consumption goes based on the monsoon.

Thanks, that's a great overview.

Okay. I think with that we have reached our time time limit. We will close down our formal call today. And with that, all of us here thank you for taking part in our IMC conference call today.

Have a good day. Thanks again.