美盛公司 (MOS) 2005 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2005 The Mosaic Company earning's conference call.

My name is Jackie and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of this conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's conference. Mr. Doug Hoadley. You may go ahead, sir.

Thank you, and again welcome to Mosaic fiscal fourth-quarter 2005 conference call. I am Doug Hoadley, Head of Investor Relations for Mosaic.

Also, representing the Company today are Fritz Corrigan, our President and CEO, and Larry Stranghoener, the Executive Vice President and Chief Financial Officer. Before I turn the call over to Fritz for opening remarks, I'll read the Safe Harbor Statement. Statements made during this conference call contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Such statements include but are not limited to statements about future financial and operating results. The predictability of fertilizer markets subject to competitive market pressures, changes in foreign currency and exchange rates, international trade risks, including but not limited to changes in policies by foreign governments. Such statements are based on the current beliefs and expectations of the Mosaic Company managements and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statement.

I would like to point that the remarks made during the conference call are based on information and understanding that are believed to be accurate as of today's date, July 27, 2005.

Because of the time sensitive nature of this information, it is The Mosaic Company's policy to limit the archive replay of the conference call for a period of 30 days. This call is the property of Mosaic. Any distribution, transmission broadcast, or rebroadcast in any form, without the express written consent of the Company is prohibited.

Please note for this call, we will generally talk about the comparison with year-ago results based on the pro forma estimates for the combination of two Companies, as though our merger had already occurred, as of the beginning of fiscal 2004. The date in the press release tables show actual results for total Mosaic going forward from the merger date of October 22nd, with all of the results prior to that date coming only from Cargill Crop Nutrition. The deemed required for accounting purposes in the translation which created Mosaic. Also, we are reporting our volume in prices in metric tonnes instead of short tonnes, as we have in the past. Thank you and now I'll turn it over to Fritz.

Thank you, Doug, and good morning to everybody.

We're pleased to share our progress with you this morning. And this quarter shows that we're starting to hit our stride with marked improvement in our phosphate's performance.

We continue to focus on execution, especially merger integration and synergy capture towards a goal of achieve being our on full potential, paying down our debt, and becoming investment grade and growing.

A brief review of our results follows here. Net sales for the fourth quarter were $1.45 billion compared to $1.21 billion pro forma results for the two combined Companies a year ago. This increase is mostly the result of higher prices in both potash and phosphates. Net earnings for the fourth quarter were $94.1 million, versus 74.6 pro forma for a year ago, at which is an increase of 26%.

We continue to show strong momentum in the potash market. Potash operating earnings totaled $119 million for the fourth quarter and $228 million for fiscal 2005. Please note that the fiscal 2005 potash earnings are only for seven months and on a pro forma basis are estimated at $360 million for the full fiscal year.

Potash prices increased by $43. compared with a year ago, to $135 per metric tonne and we're $17 higher in the fourth quarter than the previous third quarter. Inventories remain at historically low levels because of continued high demand, especially for the export market.

As we expected in our last quarterly call, the phosphate's business improved significantly during the quarter. As with potash, the export market has been the main driver for improved phosphate prices driven in part by strong demand from India and Pakistan. Our average DAP selling price increased $18 per tonne, compared with last year, to $218 per metric tonne. This increase in DAP prices was partially offset by higher raw material costs.

Our investments in non-consolidated subsidiaries contributed $11.3 million for the quarter. An increase of 8%, compared with a year ago. These equity interests in key markets such as Brazil and China and in the nitrogen market through Saskferco are of great strategic and financial value.

Before I turn the call over to Larry for a detailed review of our financial results, I would like to spend some time talking about cost synergies, and current market conditions. First, cost synergies.

I am pleased to report that synergy capture is well ahead of schedule, and that is the end -- as of the end of the fiscal year, we've reached an estimated $62 million on an annual run-rate basis compared with our goal of $45 million for the stub-year.

We still expect to reach our goal of $145 million by the end of fiscal 2007.

Our synergy expectations for the end of fiscal 2006 are somewhere between 90 and $110 million, and we're off to a good start for fiscal 2006, and the middle September close of our Kingsford phosphate rock mine will help us achieve these synergy goals.

This mine is high cost. It's the end of its operating life, and will be replaced with lower cost production reducing our average rock mining cost.

Now shifting over to the market outlook. Prices for nearly all of the main fertilizer products have combined to record levels this year, as you all know. Higher raw material costs have no doubt pushed up prices but impressive demand growth is also pulling prices up hard.

For example, since 2000, world nutrient use has increased almost 13%, or more than 17 million metric tonnes of nutrient, the active ingredient in the fertilizer we supply. This is according to statistics publish this month by the International Fertilizer Association.

I realize some analyst yawn or sort of roll your eyes when the industry talks about the old and worn story of population and income growth, and how that translates into fertilizer demand growth. But it's a compelling story, that we have to tell again and again.

Strong and instead economic growth in countries such as China and India, with their large populations, is driving impressive increases in food demand, and ultimately in nutrient use worldwide.

The International Fertilizer Industry Association held its annual meeting in Kuala Lumpar last month. Now, you know I'm not a research analyst but I can report that the restaurants in this vibrant city were full of young people talking on their cell phones and eating lots of meat. A good illustration.

Let me now turn to the potash market outlook, about which we're quite excited. The potash market has seen the emergence of Asia. Total Canadian potash exports up 18%.

Asia has accounted for 90% of this increase and has more than offset a decline in potash exports to Brazil. For calendar year 2005, the potash market will still need increased production to meet a more moderate demand growth, compared with the past three years. The industry drew down inventories last year to meet the growth in demand, and stocks are now at record low levels.

North American potash production is expected to increase 3% over the next year in order to meet the continued growth in the export market.

Therefore, stocks are expected to remain at near record low levels.

Potash prices are at record high levels and will be announced a $13 per short tonne increase in June for the U.S. market and are already sold out at this higher price through September.

In addition, we have sold approximately 200,000 tonnes on a pre-pay program, money in our hands at this point. At this higher price and for delivery not until October and November.

We've, also, previously announced a modest expansion of 360,000 metric tonnes at our mine, which will come on stream fully by mid-calendar year 2006. We are considering additional potash capacity expansions but any decision on these expansions will be based on market-demand growth.

The outlook for the potash business is for continued strong performance. For fiscal 2006, we expect potash sales to be 8.3 to 8.7 million metric tonnes, which means our potash operations will be producing at or near capacity.

Potash inventories are likely to remain near or at record lows during the continued strong demand, especially from the export market.

The average sales price of our first quarter is expected to rise by more than $5 per tonne compared to the fourth quarter.

Shifting to phosphates. The phosphate market is also quite exciting right now with DAP prices around $260 per metric tonne fob Tampa, which is the highest level we've seen in over 20 years. The most recent weekly DAP margin, after accounting for ammonia and sulfur cost, or the DAP market margin before rock, was over $140 per tonne, which matches the highest level seen since the mid 90's.

Our focus is to capture these higher prices in our operating margins by reducing mining and processing costs. Although, world phosphate import demand is expected to be uncharged in 2005, we expect DAP imports to increase 6%, offset by a decline in MAP trade. Imports by Brazil continue to be lower than expected.

But this has been more than offset by a large increase in India's imports. We expect India to import nearly 2 million tonnes of DAP and MAP this year, compared with about 600,000 metric tonnes a year ago.

India's appetite for imported DAP, coupled with a strong interest by Pakistan, have been the main drivers for higher phosphate prices. Combined imports by India and Pakistan are expected to exceed 3 million tonnes this year, the highest level since 1999.

We are forecasting U.S. phosphate exports to increase about 3 to 4% in calendar year 2005, with DAP exports expected to increase 14%. For calendar 2006, U.S. phosphate exports may decline slightly and the recovery in Brazilian imports is a key factor to watch.

We expect phosphate imports by India and China to be lower in 2006. For Mosaic fourth quarter phosphate results, we're seasonally strong, and we are optimistic about our first quarter of 2006.

DAP prices have continued to increase from fourth-quarter levels and prices, as I said earlier, are at their highest levels in about 20 years. Mosaic sold 3.1 million metric tonnes of dry phosphate fertilizer product and about 300,000 tonnes of feed phosphate products during the fourth quarter.

We expect 2006 phosphate sales --, fiscal 2006 phosphate sales volumes to be about 10.2 to 10.6 million metric tonnes and phosphate feed sales to be around 1 million tonnes. Mosaic's critical phosphate challenges are to continue to reduce our mining costs, to treat and release the excess rainfall from the three hurricanes of last summer and a particularly wet spring in 2005, to capture cost synergies and to do this while operating our mines and plants in response to demand.

I'll now turn the call over to Larry for a more detailed review of our financial results and the outlook for our key drivers.

Thank you, Fritz. Good morning, everybody.

I will review our overall financial results for the fourth quarter and by business segment, as well as results for fiscal 2005.

Our balance sheet will be filed with the 10-K in early August, but I will provide some highlights in my comments this morning.

As Fritz already noted, our fourth-quarter net sales were $1.4 billion, and we had net earnings of $94.1 million. Fourth quarter operating earnings of $177 million were up strongly compared to third quarter and year ago levels.

Selling, general and administrative expenses, including in operating earnings were $65.8 million for the fourth quarter, an increase of $22.7 million, compared with the pro forma cost from the prior year. This increase related primarily to significant merger related expenses. Including headquarters transition cost, some duplicate employee costs, synergy capture costs, and costs related to the kickoff of a new enterprise resource planning systems initiative.

In fiscal 2006, quarterly SG&A costs are expected to be in the low $60 million range. One of our primary objectives is to reduce overall costs, including SG&A expenses.

Mosaic's effective tax rate for the quarter was 39%, with Mosaic's strong income leading to a lower rate than seen in prior quarters. We expect the tax rate to be 40 to 45% going forward, but this will be highly dependent on the mix of earnings and, particularly, on continued recovery in the phosphate's business segment.

Capital expenditures were $119 million in the fourth quarter, which is higher than normal, due to the start of several projects, including the potash expansion and the new ERP system already mentioned. For fiscal 2006, we expect capital expenditures to be in the 350 to $400 million range.

Interest expense charges for this quarter were $43.7 million, and quarterly interest charges going forward should be around $40 million. Please note that our quarterly interest charges include a favorable on-going valuation amortization credit of about $12 million. In coming quarters, we'll continue our work on reducing and where possible restructuring our debt portfolio. We bear a high-interest expense burden; hence, we're anxious to pay down debt.

Accordingly, we have a strong focus on cash generation. In addition, we intend to achieve investment great status, as soon as possible, so we have more financial flexibility and more growth opportunities.

Finally, I'll note we had foreign currency transaction gains of $8 million in the fourth quarter. This was mainly due to a weakening of the Canadian dollar during the quarter and is a non-cash event.

Turning now to our business segments. As Fritz has already noted, we continue to show strong momentum in potash. The avenue sales price was $135 per tonne in the fourth quarter, an increase of $43 per tonne compared with last year, and sales volume was 2.5 million tonnes, down slightly compared was a year ago. The decline in volume was mostly due to tight product availability, as inventories are at or near record- low levels. Potash operating earnings for the fourth quarter were $119 million.

As expected, Mosaic's phosphate business showed significantly improved results in this quarter. With operating earnings of $68.8 million, the average DAP realization was $218 per tonne about $18 per tonne higher than a year ago. This was partially offset by higher raw material costs. Mosaic's average ammonia price, for example, delivered to central Florida, continued to be high during the fourth quarter, at around $300 per tonne, compared with $245 per tonne a year ago, which resulted in higher DAP costs on a per tonne basis of about $12.

Ammonia prices have recently declined by about $40 per tonne, which should help cash margins in the first quarter of 2006.

For the full fiscal 2006 year, we expect continued volatility in ammonia prices. Overall, we like our position in the phosphate industry and look forward to a good year, as we work through the industry challenges we face.

For our Offshore business. Net sales were $219.4 million, an increase of 4% compared with a year ago. Equity income from our Offshore joint venture investments, primarily in Brazil and China, totaled $6 million.

This equity income performance offsets an operating loss of $5.8 million from our distribution activities, which resulted mainly from the continued weak farm economy in Brazil. This includes drought conditions, low soybean prices, a stronger RI, and high industry inventory levels. We expect these conditions to persist for the next few months, which will result in weak first quarter result for Offshore, especially when compared with year ago results.

Despite the near term financial challenges, we view our Offshore business and especially our position in Brazil, as an important competitive differentiator for us, which provides critical distribution muscle, global market intelligence, seasonal balance, and attractive long-term financial returns.

The nitrogen business shows negative net sales of $22 million for the fourth quarter, due to a reclassification of fiscal 2005 sales from a gross to a net basis, which has no impact on earnings. The reclassification -- excuse me, the reclassification was made during the fourth quarter to reflect the Company's sales agency relationship with Saskferco.

Operating earnings for nitrogen increased to $3.5 million for the quarter. As a reminder, our nitrogen segment results include our North American distribution of Saskferco products, as well as results from our non-consolidated equity position in Saskferco.

Equity income from Saskferco was $7.3 million for the quarter, a great quarter to cap a strong year.

Total equity earnings from Mosaic's non-consolidated subsidiaries for the quarter, including the figures I've already cited by business segment, were $11.3 million, slightly higher than year-ago levels.

For fiscal 2006, we expect equity earnings to be 35 to $50 million.

For the quarter, EBITDA or earnings before interest, taxes and depreciation was $257 million. This includes $13.9 million for the amortization of out-of-market contracts.

Let me turn to a brief discussion of our full-year fiscal 2005 results. This discussion of pro forma results is based on estimated unaudited data, and is as if the combination of the two Companies had already taken place.

Net sales in 2005 would have been $5.5 billion on a pro forma basis, compared with $4.7 billion for the prior year or increase of 18%. Operating earnings would have been $348 million, compared with $265 million for the prior year or an increase of 31% on a pro forma basis.

Net earnings would have been $112 million, 30% more than the prior year. Most of the increase in net sales and earnings was due to higher prices for potash and to a lesser extent for phosphates.

There were two accounting changes we made of which I want to make you aware. First, we determine that the results of our South Fort Meade Mine, which we operate as a partnership, should be fully consolidated into Mosaic's books. And second, we will no longer treat foreign change and natural gas hedges as qualified accounting hedges. The impact of these two items roughly offset each other in the fourth quarter at the operating earnings line, with the hedges being a slight negative for net income.

Looking forward, the South Fort Meade consolidation will add modestly to operating income without impacting our bottom-line expectations, while marketing many of our hedges to marking each quarter may introduce some variability to our accounting results.

Balance sheet highlights include total debt of $2.7 billion, net debt cash of $2.4 billion, and a net debt to total capitalization ratio of 41.2%.

Now, I will turn back to Fritz for some closing comments.

Thanks, Larry. Before we turn to questions, I would like to outline Mosaic's strategy going forward, and to discuss very briefly Mosaic's fiscal year 2006 priorities.

Simply put, our vision is to become the global leader in nourishing crops by building a strong, balanced, well-diversified company. We are able to serve customers with all major nutrients, all over the world.

For potash, we will continue to operate our mines near capacity, while reviewing additional opportunities to expand capacity at these mines. However, any decision to expand further, of course, will be based on fundamentals in the business.

We also continue to review opportunities to lower our cost, especially with respect to energy use. We expect our potash business to continue to show great results over the next year.

In our phosphate business segment, the main focus is on reducing costs. The close your of the Kingsford phosphate rock mine in mid-September will help, but we're working on other factors as well, including numerous synergy and best practice initiatives.

Water treatment costs in the Florida operations, remain a concern due to high rainfall levels in 2004 and so far in 2005, plus the early start of an active hurricane season. We still have a lot of work to do in our phosphate's business but remain excited about the opportunities there.

We believe our Offshore business segment is a key strategic differentiator for us, and we will tonne review growth opportunities.

For example, we're building single super-phosphate plant in Argentina at this moment. We're reviewing how we can leverage our position in the Saskferco partnership, in order to take advantage of opportunities as they arise in the nitrogen market.

Our goals for fiscal 2006 are focused on earnings and cash generation. In fact, we're developing an employee-training program to help strengthen our internal focus on net cash flow.

We'll continue to work towards improving our balance sheet in order to achieve an investment grade rating, which is a key financial goal for our Company. By paying down debt, and possibly restructuring some of it.

We're very excited about Mosaic's prospects, especially with the continued improvement in our phosphate's markets. We made excellent progress in this quarter, but realize it is just one step towards our full potential.

We started our new 2006 fiscal year by rolling out six key goals for the Mosaic management team. I would like to share them with you now.

They are, first, to achieve our operating and equity earnings, net cash flow objectives and our synergy targets. Number one, deliver on those commitments.

Secondly, we're focusing serious attention at SG&A cost reductions, serious work over the next 12 months will be taking place as we put the ERP system in place that Larry has referred to.

Our third goal is an absolutely essential one, and that has to do with our employee engagement. Keeping morale up despite heavy extra workload caused by our merger is an important challenge. We want to recognize the successes at each step of the way as our team executes on our priorities for the coming year.

Fourth goal is to improve our competitive position on ammonia supplies for the long pull. We're in a research project to do this right now. Looking for better competitive position for ammonia supplies for phosphates.

Our fifth is an overall strategy review, that we will present to our board in February, looking at where we take the Company once we have consolidated, integrated and completed all of the activities required by this merger. And our sixth priority is basically process work. We call it Project Cornerstone.

It's the implementation of the ERP system for Mosaic and compliance with SOX-404 rules. Our plan to be on time, on scope, on budget, and make sure the systems work.

Now I'll turn it back to Doug to wrap up.

Thank you, very much Fritz. Now the operator can you please open up the phone lines for questions.

(Operator Instructions) The first question comes from Bill Hoffman from UBS. You may go ahead, sir.

Good morning. I wonder if you could talk a little bit about your capacity expansions, plus the capacity expansions that were announced by a number of your competitors in the potash side over time, and just how you see that all of that capacity coming into the market and your ability to manage that versus the demand. And then the second question, is just when with look at the increase in demand from India and Pakistan this year, just want to get a sense from you, whether you think going into '06 that's a sustainable demand level or whether they were doing some inventory restocking as well?

Bill, the potash expansions, I said a couple of times in my prepared remarks, we're underway with one right now.

We're looking at the work required to do a second expansion, and perhaps a third, but as I said in my remarks, we're going to be pacing these expansions in response to how we perceive demand to be growing. We think it will continue to grow around the world.

We see China as a major growing demand source for potash, they don't have any of their own potash to speak of and they're going to be continuing importers, we believe, over the long pull.

We'll be continuing to grow, but we're going to do it very carefully in response to demand. We like the current market conditions in potash, and we want, hopefully, by managing supply, to meet that demand .We will be able to keep these markets the way they are, or actually improve them some.

As with respect to India and Pakistan, we think that the doubling of consumption, or imports rather, from 2004. We think the surge is behind us, but we see continuing interest coming along right now.

Some of the demand came from the fact that they had very, very low inventories and our replenishing them.

No question, these countries, like many others, are seeing an increase demand for food and therefore, an increase demand for higher yields on their finite acreage in which they are growing crops. We think they will be continuing, but, perhaps, not quite as robustly in the coming year.

Thank you, and then, Larry, I was wonder if you could give us a quick update to the working capital requirements in the make order.

I will ask you, Bill, to stay tuned until we file the 10-K, which will, of course, include a full balance sheet and cash-flow statement. I would say, generally speaking, cash flow in the fourth quarter was strong. Working capital levels are still higher than we would like to see them be. And we have, as Fritz and I have both mentioned, we'll have strong efforts underway in fiscal 2006 to generate cash, at least in part, through reducing working capital.

Okay. Thanks, very much.

Your next question comes from David Silver from J.P. Morgan. You may go ahead, sir.

Hi, I'll apologize in advance. I was kind of connected a little bit late.

I had a question, Fritz, first off on the potash segment results. And this would have to do with the per tonne margins, let's say gross profit per tonne. And I guess I was wondering if you would speak to the sequential change in margin, which I have at about $4 or $5 a tonne from $46 in the fiscal third quarter of $50. And if you could relate that to the sequential change in selling price, which I think is more like $17.

I was interested in maybe why there was that gap between the change in price and the change in margin per tonne, going from the fiscal third to the fiscal fourth quarter?

All right,, I'm going to ask Larry to give me a hand to that.

Part of it is the lag between the announced price increases, and the actual shipments at the higher prices. But, Larry may have some other comments as well. The big factor, of course David, would be the resource tax, which eats up a good chunk of that higher price, and we certainly felt the effects of that from the third to the fourth quarter.

There was also a modest accounting change in the fourth quarter that affects results. It was simply a timing issue that we took in the quarter, and I don't have at my hand the production data. It's possible that we did not produce it quite the same rate in the fourth quarter than the third quarter, resulting in lower absorption of the fixed overhead expenses. We'd have to get back to you with more detail on that. But those would be the major elements.

Would it be possible for you to quantify your PRT or resource taxes for the fourth quarter and full year fiscal '05.?

I would prefer to do that offline to make sure that I've got all of the facts, David, so let's take that up separately.

Okay. One other question, if I might, and again I apologize, you may have covered this in your opening remarks. But you did mention some on going effect of storm cost and hurricane costs and treating the stacks and things like that.

Can you quantify that all? Or either r qualitatively or directly? What was the effect on your phosphate results in the May quarter from those ongoing activities?

This is Fritz. First of all, the impact of the hurricanes last summer was equivalent to about 40" of rain in seven weeks.

Normal rainfall is about 55" of rain for the entire year. We've got almost a full extra year of rain. We've have to treat and release water that falls on our concentrate plant property.

And that added cost I'm making -- I'm switching over to Larry, correct me if I am wrong, but in the order of $4 a tonne to our processing costs in the last quarter. David, it's hard to tell exactly what is due to excess rainfall and what is ongoing water treatment costs.

I think a broad estimate would be that we are bearing incremental cost of 10 to 15 million resulting from the hurricanes of last fall, and ongoing above-average rainfall.

Okay. So that cost in the 10 to $15 million range, that is a decline from the February quarter, is that correct?

I don't want to get too precise here, because, again, this is not an auditable number. It depends very much on basic assumptions you make about normal rainfall and so on and so forth.

I would say it is declining. Certainly, relative to what we're seeing early this year. I would also point out that rainfall in Florida continues to be well above average in this season. so these excess water treatment costs are not declining as rapidly as we had hoped or expected.

Okay. I appreciate that. I'll get back in queue. Thank you.

Thank you. Your next question comes from Bill Young from Credit Suisse First Boston. You may go ahead, sir.

Hi, Fritz. One thing I'm a little concerned about is sticker shock. You know as you've highlighted, the cost of potash has gone up significantly. I realize that overall the cost of potash in the farmer's overall income state isn't all that large. But given high price and the fact that potash can remain in the soil, to some degree, you don't necessarily have to replenish it every year, what is the outlook if farmers will continue to apply potash at the same rate in the next year or two?

That's a really good question. The economics of fertilizer used by farmers, potash, phosphates, nitrogen are very, very positive and year-over-year we see a reasonably inelastic situation. The farmers know that they get very, very high returns from the use of nutrients each year when they apply to their soil, and they can see the impact when they don't apply any of the nutrients, or any one of the nutrients I should say.

We see demand being relatively inelastic, despite pretty high swings in price. That prices have jumped as high as they have in the face of -- you're seeing China, in particularly, increasing their take in the face of these high prices is really dramatic.

I think the contrast in Brazil that illustrates my point is that Brazilian farmers are responding to significantly reduced value of soybean production in their take. So they're tending to look at grain price in terms of what fertilizer they use. Rather than the economics of increase yield from application of fertilizer.

So you don't see much of an impact at least at this stage. You're just falling back on the inelasticity situation.

That's right. We're seeing continued demand growth even at these prices. That's the bottom line.

Okay, thanks a lot.

(Operator Instructions.) Your next question comes from Robert Goldberg from Scopus Asset Management. You may go ahead, sir.

Good morning. I was wondering if you could give us a little help on what you expect shipments to be from the May quarter to the August quarter in both potash and DAP? And also on the DAP business?

It looked like the cash margin, I don't think you could really calculate it, but I think it was in the 40 to $45 per tonne level in the May quarter. Can you give us some idea as to where we are today, versus where the margin was in the May quarter?

First of all, shipments of both potash and phosphates. We expect that shipments in potash will continue at the current pace right through the remainder of the calendar year. The calender year, the remaining through December.

And on the phosphate side of things, we see -- we'll produce about 4.5 million tonnes of phosphates between August and the end of December. And we have a vast majority of that tonnenage already sold. And I was talk with our people this morning about where we stand on sales, and they were reporting the biggest forward book they'd seen in several years. So through the remainder of our calendar year, 2005, we are feeling pretty good about expected shipments.

As the DAP cash margins comparison quarter-over-quarter, I don't have that data right in front of me, but margins have improved, because sales prices are up about 10 to $15 quarter-over-quarter, I believe, that's per metric tonne. And we've seen ammonia sell off as we reported some $40 a tonne. And we have seen sulphur for this quarter up $5. So net, there is a substantial improvement in the margins that we look at in the business.

So that would portray maybe a $20 increase or maybe a little bit more increase in margin from the May quarter, in that range?

It would be in that order of magnitude, but I've got to add that there's always a lag. We're selling 60 days in advance, generally speaking. So you'll see some lag as these price increases are felt on and come through on our bottom line.

I just wasn't quite clear on your answer on the DAP shipments. You did 3.1 to 3.2 million tonnes in the May quarter of dry phosphates.

So is it seasonally lower than that in the August quarter, or flattish, or I'm just trying to understand?

Our tonnage will be running -- we're running our plants basically at capacity and will continue to do so all quarter, and we expect we'll continue to do so through the rest of the calendar year, and demand is there.

What I'm trying to express is that demand is there and the sales are there on the books for that. So tonnage will be similar to what they were in fourth quarter to slightly higher.

Okay, great, thank you very much.

And you have a follow-up question with David Silver from J. P. Morgan. You may go ahead, sir.

Yes, hi, thanks. Larry, I was hoping you could just mention, I don't know if you mentioned this, but I was hoping to get the quarterly DD&A and the full year DD&A?

DD&A is expected to be in the 280 to $300 million range for the year. And fourth quarter was actually just slightly higher than that full year range about $80 million for the quarter.

So fourth quarter '05 was $80 million. And the 280 to 300 is that for fiscal '06?

That's our guidance for fiscal 2006.

And for fiscal '05, including the $80 million, could you remind me of what that total is?

Fiscal '05 is, of course, a goofy year with the way we reported it. But as reported per GAPP, DD&A was $219 million. So that includes the Cargill crop nutrition numbers for the full year. And then adding IMC Global just for the seven months.

Great and then I had a question for Fritz just regarding India. So this might be a little bit of a follow-up..

There's obviously been some changes there in the structure of how the country is going about procuring it's DAP requirements, shift from more domestic production to greater imports.

Fritz, I was wondering if you could comment on how sustainable that switch has been in terms, you mentioned this is the highest import rate since 1999, and it has swung widely since then.

I was wondering if you could maybe talk about based on your people and country there and what market intelligence you have?

If you could talk about the changes in the market there and how sustainable you view this recent significant pickup in the import appetite for DAP in India. Thanks.

I'll try, David. It's a bit of a moving target as you can appreciate.

The by policy -- by government policy, the country has a bias incentive to import raw materials and make their own DAP at their production units in country.

And we, as an American fertilizer industry have lobbied long and hard that subsidy practice is discriminatory. And we've pointed out to the financial experts in the Indian Government that it's also very expensive for them, relative to importing DAP. And they seem to be responding a bit to try to balance or make the subsidy the difference between their import price and what they sell to farmers at, which is a set price by the government.

To have that be the same whether the product is imported or produced locally, and that level playing field gives us more opportunity, and gives importers greater chance to be profitable within India. We think that policy is gradually shifting, at least the subsidies are differential are narrowing and we have more opportunity to compete. We also feel it gives us more opportunity and gives importers greater chance to be profitable within India and we think that policy is gradually shifting, at least the subsidies are differential are narrowing and we have more opportunity to compete.

We also see the big swing plant, the Oswald plant that has received so much press over the last five years is continuing to have operating difficulty for a variety of reasons. When that plant doesn't perform, which it is not a really reliable operation at this point. When it doesn't perform, all of a sudden demand increases. So that's -- in terms of outlook, obviously, we hope to have a level playing field and to be able to continue to compete for farmers business in India.

We've built over the last few years and interesting distribution of our own in India and are able to compete with farmer demand there and understand what is going on in those markets. We think it gives us a small competitive advantage over other importers.

Okay, thank you very much for that. I added just a quick question.

I was hoping you could clarify about China, the market in China. We know there's been a significant tax on urea exports from that country. I was wondering if there are similar taxes or similar measures to bring in regional exports by Chinese phosphate producers? In other words, is there a tax or other limitations on phosphates out of China currently?

I can't confirm right now. I can get back to you with a firm answer on whether there's an export tax on phosphate production. I know they've been discouraging exports dramatically --aggressively on phosphates. They want to keep the tonnes at home.

They also have an import duty on phosphates and BAT that domestic produces and importers are supposed to pay, but our understanding from some experience over there is that the domestic producers sometimes doesn't pay that tax. And combined that's a -- those two taxes make a substantial advantage for the domestic producer. Ocean freight also protects that domestic industry within -- it has for the last year or so within China. But ocean freight rates are coming down.

The U.S. is becoming a more competitive supplier into China because of lower ocean freight cost. And the very, very modest changes in financial policies of China for the modest revaluation of the RB. If that's a trend. It's only one data point, but if it's a trend, this will be very, very helpful for U.S. exports, and won't help local production of BAT.

Thank you. I appreciate that. Thank you. Thank you Fritz. Thank you Larry.

Thanks Dave.

We do apologize. Due to time restraints, we have no further time for questions. So I will turn the call back over to Doug for closing comments.

Thank you very much. Thank you for listening in to our fourth quarter conference call. As mentioned earlier, the 10-K will be filed early in August, where our first-end report will be filed by late August, and our next earnings conference call is scheduled for October 4th. So listen in then. Thank you very much.

Thank you for your participation in today's conference. This concludes the presentation. Have a great day.