富美實 (FMC) 2008 Q4 法說會逐字稿

Good morning and welcome to the fourth quarter 2008 release earnings conference for FMC Corporation. Phone lines will be placed on listen only mode, throughout the conference. After the speakers' presentations there will be a question and answer period. (Operator Instructions) Thank you.

I will now turn the conference over to Mr. Brennen Arndt. Mr. Arndt, you may begin.

Thank you and welcome, everyone, to FMC's fourth quarter 2008 conference call and webcast. Bill Walter, our Chairman, President and Chief Executive Officer will begin the call by reviewing our fourth quarter performance. Bill will then turn the call over to Michael Wilson, Vice President and General Manager of our Industrial Chemicals Group, who will provide us an in-depth review of the performance and outlook for industrial chemicals. Following Michael, Kim Foster, Senior Vice President and Chief Financial Officer, will report on our financial position. Bill Walter will then provide our Company's outlook for the first quarter and the full year of 2009 and we'll complete the call by taking your questions.

A reminder that our discussion today will include certain statements that are forward-looking and subject to various risks and uncertainties concerning specific factors that are summarized in FMC's 2007 form 10-K, our most recent form 10-Q and other SEC filings. This information represents our best judgment based on today's information and actual results may vary based on these risks and uncertainties.

During the conference call, we will refer to certain non-GAAP financial terms on the FMC website available at FMC.com. You will find a definition of these terms under the heading entitled, glossary of financial terms. We have also provided our 2009 outlook statement and a reconciliation to GAAP of the non-GAAP figures that we will use today.

It's now my pleasure to turn the call over to Bill Walter.

Thanks Brennen and good morning everyone. As you saw in our earnings release we had a strong fourth quarter, completing our fifth straight year of record sales and earnings. Summarizing our fourth quarter results I would say that they came in largely as we expected.

Specifically, sales were $737.7 million, an increase of 9% versus the fourth quarter at 2007. Earnings before restructuring and other income and charges of $1.02 per diluted share, an increase of $0.73 versus the fourth quarter of last year. Our fourth quarter results were aided by a favorable catchup in our year-to-date book tax rate. Excluding this we earned $0.95 in the quarter.

In ag products, sales of $240.8 million increased 5% and earnings of $33.6 million also increased 5% versus a year ago driven by higher sales in both Latin America and North America. In specialty chemicals, sales of $190.3 million were 18% higher and earnings of $35.1 million increased 3% versus the year-ago quarter.

Higher selling prices in BioPolymer, the full quarter inclusion of the ISP acquisition, and volume growth in lithium primaries drove the top line gains. Industrial chemical sales of $308 million were 8% higher and earnings of $53.3 million increased 85% versus the year-ago quarter driven primarily by higher selling prices across the segment.

Our record fourth quarter results were achieved despite higher raw material costs and to a lesser extent higher energy costs. Versus the prior year, combined raw material and energy costs unfavorably impacted earnings by $0.43 per share in the current quarter. Currency translation, however, had only a minor impact in the quarter, negatively affecting earnings by $0.01.

On a GAAP basis, we reported net income of $46.3 million or $0.63 per diluted share. GAAP earnings in the current quarter included a net charge of $29.1 million after tax or $0.39 per share, versus a net charge of $4.3 million after tax or $0.06 per share in the prior year quarter. With that reconciliation, our non-GAAP earnings were $1.02 per diluted share in the fourth quarter of '08, an increase of 73% versus the same quarter a year ago.

With that as a summary, let me now take a more detailed look at the performance of each of our operating segments in the quarter. First, in ag products. Fourth quarter sales of $240 million as I said were up 5% compared with a prior year quarter driven by sales increases in both Latin and North America.

In Latin America, which for us is primarily Brazil, the increase reflected the success of several new product introductions and the implementation of price increases. In North America, sales also benefited from new product introductions, a strong California rice market, as well as a favorable shipped of certain sales from the third quarter of '08.

Segment earnings in the quarter of $33.6 million increased 5% reflecting both the sales growth and favorable product mix shipped in the Americas. Mostly offset by higher raw material and distribution costs. As expected and as discussed in our third quarter conference call, manufacturing-related costs in our agricultural products segment were $15 million higher this quarter compared with the same quarter last year. This includes a $4 million of one-time sourcing costs due to an explosion in a key supplier's plant.

Moving to specialty chemicals. Revenue of $190 million increased 18% over the prior year quarter. Strong commercial performance in BioPolymer, the full quarter inclusion of ISP acquisition, and volume growth in lithium primaries were the primary drivers of our top line growth. Segment earnings of $35.1 million increased only 3% over the prior year, as the higher sales in this segment were largely offset by higher raw material and energy costs primarily in BioPolymer, as well as export taxes in Argentina in lithium. Taxes which were put in place in December of 2007.

BioPolymer achieved strong top line growth. Higher sales were realized across all of BioPolymer's businesses, but were particularly strong in food and personal care. BioPolymer earnings also increased driven by the sales gains and improved product mix, continued productivity improvements and reduced selling expenses. However, higher raw material costs, particularly for seaweed and wood pulp and higher energy costs partially offset our sales gains.

The integrations of ISP and CoLiving acquisitions continued on track in the fourth quarter. The acquisitions had a favorable impact on our sales growth and were slightly accretive to earnings in their first full quarter within BioPolymer.

In lithium, increased volumes in primary compounds and specialty organics were the main drivers of our top line growth. However, earnings declined modestly compared to a year ago as the sales gains were more than offset by higher raw materials costs in the export taxes in Argentina, that I just mentioned.

Moving to corporate items, corporate expense was $12.3 million, down from $12.8 million a year ago. Interest expense net was $7.4 million as compared to $7.9 million in the prior year quarter. On December 31, 2008, gross consolidated debt was $623.6 million and debt net of cash was $571.2 million. For the quarter, depreciation and amortization was $29.9 million and capital expenditures were $48.9 million.

That's it for agricultural products, specialty chemicals and corporate. And now for a discussion of our industrial chemicals segment I'll turn the call over to Michael Wilson. Michael.

Thank you, Bill and good morning, everyone. It's a pleasure to be with you today to highlight our industrial chemical segment, review our fourth quarter and full year 2008 performance and provide you with our outlook for 2009.

Three businesses comprise our industrial chemicals segment. Our Alkali chemicals division or soda ash business, North American Peroxygens which consist of hydrogen peroxide but also include several specialty peroxygens, and Foret, our wholly owned Spanish subsidiary which manufactures peroxygens and phosphates as well as lesser quantities of other inorganic ingredients for powdered detergents.

As most of you on the call are already familiar with our businesses I'm going to forgo a detailed overview of each business and move straight to our fourth quarter and full-year 2008 performance. I'll then discuss our 2009 outlook for this segment. Touching on the key issues and opportunities that each of the three businesses have before them. If you need additional background information on any of the ICG businesses please contact Brennen after the call.

For the fourth quarter of 2008 revenue in industrial chemicals was $308 million, an increase of 8% from the prior year quarter driven by higher selling prices particularly in soda ash and phosphates. Segment earnings of $53.3 million increased 85% as a result of the broad based price gains and improved cogeneration performance in Foret.

Higher raw material costs, mostly for phosphate rock, and volume weakness in hydrogen peroxide and phosphates partially offset the gains. Demand for hydrogen peroxide for pulp bleaching weakened late in the quarter with many pulp mills initiating extended down time due to high pulp inventories. Global market pulp inventories peaked at 50 days supply in November up from 29 days a year earlier.

Phosphate volumes slipped to a lesser degree, due to weaker demand associated with the slowing global economy and detergent reformulation driven by the high cost of phosphates. In contrast, our soda ash prices and volumes remained firm throughout the quarter.

With this fourth quarter performance, the industrial chemicals segment delivered an exceptionally strong 2008. Specifically, segment revenue grew to $1.3 billion in 2008, an increase of 19% versus 2007. Significantly higher selling prices across the segment led by soda ash and phosphates and modest volume gains accounted for the increase. Segment earnings of $201.4 million more than doubled versus $92.5 million in 2007. Higher sales in every business, improved cogeneration operations at Foret, and currency translation; primarily the Euro, were the main drivers.

While full-year results were largely in line with our expectations at the outset of 2008 for soda ash and peroxygens, Foret's performance significantly exceeded expectations. Tighter than anticipated market conditions for phosphates through the first three quarters of the year created a rapidly rising price environment for most phosphorus derivatives which benefited Foret.

The tight market conditions were driven by strong fertilizer demand which then weakened considerably in the fourth quarter. Globally fertilizer demand consumes approximately 95% of the production of the C molecule.

With that summary of 2008 results, let me now shift to our 2009 outlook for the industrial chemicals segment. As you would expect, the biggest levers on profitability for these businesses will once again be selling prices, volumes and input costs. As many of you also know, the vast majority of our business tends to be on annual contract rather than spot basis.

Contract negotiations for the majority of our business particularly for soda ash, North American hydrogen peroxide, and sodium tripolyphosphate have been completed. As a result, we expect to realize significant price improvement in the segment in 2009 despite the headwind of a slowing global economy. We will see the most significant price gains in our domestic and export soda ash businesses though Foret and peroxygens will also realize gains.

Overall, we expect aggregate net price benefits to contribute approximately $75 million to earnings for the segment in 2009. Unfortunately it will not flow to the bottom line. In contrast to a robust 2008, we are experiencing reduced demand in some end markets as a result of global economic conditions, primary in pulp and paper and flat glass.

We also anticipate somewhat lower demand in phosphate based powder detergents due to the reformulation efforts of detergent producers who are focused on providing consumers lower priced alternatives in a weaker economy. Overall, we expect aggregate net volume impacts of approximately $35 million to partially offset the pricing benefits.

Finally, higher raw material, energy and other input costs as well as price driven soda ash royalty payments in total are expected to be approximately $50 million higher in 2009. Higher raw materials account for the majority of the cost increase while phosphate rock alone accounts for approximately half the increase.

Let me review each business in more detail starting with soda ash. As we begin 2009 the global soda ash market remains healthy. Though challenging global economic conditions are expected to reduce growth rates to some extent in nearly all regions, in absolute terms global soda ash demand is expected to increase by an estimated one million metric tons or approximately 2%.

For comparison, we estimate 2008 global soda ash demand grew by 2.2 million metric tons or nearly 5%. We expect domestic demand in 2009 to be essentially level to 2008 with softness in flat glass in the construction and automotive sectors being offset by demand from caustic conversion opportunities.

As long as caustic prices are above $400 per ton, the economics favor soda ash. Caustic prices today on average on more than twice this high and are projected to remain above the $400 per ton threshold for quite some time. Caustic users who have the facilities to use caustic or soda ash, have been denied the opportunity to use soda ash as a functional substitute due to soda ash market tightness over the last few years.

Soda ash demand for detergents in glass containers should remain relatively stable in 2009. Container glass is proven historically to be recession resistant, while soda ash is a beneficiary of some detergent reformulation efforts.

Regarding the export markets, given the low cost position of US producers ANSAC will be available to sell the available capacity of US producers thus maintaining the high utilization rates of recent years. ANSAC's primary competitors, Chinese synthetic soda ash producers, have faced a number of cost challenges in the last two years that have impacted their competitive position. They have seen a step change increase in synthetic production costs due to escalating coke, salt, coal and electricity costs.

In mid 2007, Chinese exporters lost a 13% export VAT rebate they had historically received. This tax rebate on soda ash has not been reinstituted as it has for some other basic materials. And Chinese soda ash producers have also faced increasing environmental pressures, tightening credit and lending practices and the continuing revaluation of the Yuan which has appreciated almost 20% versus the US Dollar.

The growth rate of Chinese domestic demand has softened in the last few months. Similar to other regions, a portion of the decline has been due to slower economic growth and a portion due to inventory reductions throughout the supply chain. As you would expect in an over supplied market, Chinese domestic prices have fallen to the cash cost of the high cost producers.

To put this in context, Chinese domestic prices have fallen by more than $100 per metric ton in an industry with more than 20 million metric tons of capacity. The loss of what would equate to $2 billion worth of value on an annualized basis has triggered expected capacity rationalization.

There have been a significant number of production curtailments at higher cost facilities coupled with the deferrals and cancellation of new capacity. During this period, Chinese exports have also declined. In the past, exports have typically increased as domestic demand softened. We believe this change of behavior is the result of the step change increase in their production costs, as well as the increase in private ownership versus historically 100% state owned enterprises.

At the same time regional pricing in Asia has also moved toward the Chinese delivered cash cost and appears to have plateaued at this level. This has created a contract price floor in Asia at attractive margins for US producers. In Latin America ANSAC's other key export region growth in 2008 was restricted by supply limitations. In 2009 we expect demand to be essentially flat year over year.

Against this guess domestic and export back drop our pricing actions for 2009 contract season were once again successful. In North America soda ash price increases varied by customer depending upon contract provisions, timing and the amount of increase previously accepted. In some cases our opportunity was limited by competitive caps. Nevertheless, we realized an average increase that was in line with our expectations.

ANSAC's contract negotiations for 2009 were even more successful. Their favorable results are attributable to the supply demand conditions in Asia, resulting from the Chinese situation I just described and their advantage cost position in Latin America. Across both domestic and export volumes, we expect to realize an average net soda ash price increase in the mid-teens per short ton.

Soda ash volumes should be on par with 2008 levels while the business will see some higher costs related to raw materials, energy and higher price driven royalty payments. As a result, our soda ash business will once again deliver significant earnings growth in 2009.

Let me note, however, as I do each year, that we own 85 -- 87.5% of the earnings of our soda ash business. The balance is owned by our two Japanese partners.

Finally, a comment on our capacity plans. As planned, we brought on an additional 100,000 tons of soda ash capacity during the course of 2008. We also remain committed to restarting the balance of our capacity at Granger by 2012. We will only do so if export market conditions warrant additional supply. Until then, we will keep the project spending on hold with the expansion shovel ready.

Moving now to North America peroxygens. The largest component of this business is hydrogen peroxide. While hydrogen peroxide is consumed in a wide variety of applications, the single largest use is as a bleaching agent for pulp and paper, which accounts for about two-thirds of North American hydrogen peroxide demand.

In the fourth quarter paper demand declined approximately 20% and pulp shipments were down in excess of 10%. We expect early 2009 North American hydrogen peroxide demand to be impacted by these end market conditions until the destocking of global market pulp inventories is completed.

Pulp market demand weakness will be partially offset by continued growth in specialty peroxygen applications. Our efforts to diversify our market exposure in peroxygens, to lessen our dependence on the pulp market, remains on track. We have made significant process in this regard during the course of 2008 and remain excited about the potential of emerging opportunities particularly in environmental and sterile applications. Specialty applications now constitute approximately 30% of peroxygens revenues.

Overall, our expectation in 2009 is for a market volume decline of approximately 5% in peroxygens with demand gradually improving after a weak first quarter driven by improving pulp market fundamentals and further growth in specialty applications. Despite current demand softness in contract negotiations we were successful in passing through modest price increases across our peroxygens businesses. Increases which will partially mitigate the impact of lower demand. Overall North American peroxygens earnings are forecast to be marginally lower versus 2008 with price gains more than offset by weaker volumes and higher raw material costs.

Turning to our European hydrogen peroxide business at Foret. In Western Europe, hydrogen peroxide demand also saw a sharp downturn in the fourth quarter due to weakness in the pulp and paper sector. Year over year fourth quarter demand fell more than 12%. For 2009, we expect a similar demand pattern to emerge for hydrogen peroxide in Europe as in North America, a weak first quarter on par with the fourth quarter of 2008 followed by gradually improving fundamentals. Overall, we are forecasting a demand decline of approximately 1% to 3% in 2009.

Also similar to North America, successful contracting efforts should result in marginally higher hydrogen peroxide selling prices in 2009. Coupled with a decline in natural gas costs, we expect to see approximately flat earnings year to year in our European hydrogen peroxide business.

Foret's phosphorus chemicals products, its other major business, are used in a range of applications including detergent, feed and industrial purposes. Demand growth for phosphorus chemicals in these applications tends to mirror GDP.

The major product in the phosphorus chemicals line is sodium tripolyphosphate or STPP, a key builder for powdered detergents. Selling prices for STPP rose dramatically through the third quarter of 2008. The major driver was the cost of the primary raw material, phosphate rock.

Phosphate rock prices rose ten fold from around $50 per metric ton to a peak of over $500 per metric ton from the first quarter through the third quarter of 2008. The escalation in phosphate rock prices was driven by tight supply conditions due to strong global demand for fertilizers and the Moroccan government's resolve to get higher value for a key natural resource for which they control 50% of global exports.

In this rising price environment, Foret moved to largely quarterly and spot price commitments with its customers in 2008. A departure from its historical annual contracting approach. Consequently, Foret was well positioned and very successfully recovered the raw material cost increases in the form of higher pricing.

Historically, Chinese producers have been key competitors and the industry's price setter. Despite their independence from western rock sources, Chinese export prices of STPP escalated with the rest of the market for most of 2008. Similar to soda ash, Chinese exporters of STPP lost their export rebate status in mid 2007. In addition, Chinese producers incurred production-related issues in the first half of the 2008 related to poor weather and the massive earthquake in the Sichuan Province, a key phosphates producing region.

By the fourth quarter of 2008, however, with global phosphates demand having softened significantly and their production issues behind them, Chinese export prices of STPP began to drop steeply, pressuring global spot prices. This development has made it challenging for Foret to achieve its price gains in 2009 sufficient to offset input costs that on average are expected to be significantly higher in 2009 than 2008 despite recent declines in rock prices.

In addition, economic weakness in detergent reformulation, precipitated by the higher costs of phosphates, are expected to drive volume losses year over year. Therefore in comparison to its very strong performance in 2008, Foret will experience a substantial decline in earnings in 2009 as higher selling prices across its product lines will be more than offset by lower volumes and higher raw material costs.

With that outlook for the primary levers of group profitability let me summarize our overall view for industrial chemical segment for 2009. We expect full year 2009 earnings to be flat to down 10% as higher selling prices across the segment are more than offset by lower volumes, higher raw material and other input costs. We expect demand in the first quarter to be particularly weak due to ongoing destocking. First quarter 2009 segment earnings therefore are expected to be down 10% to 20%.

From a year to year comparison standpoint, we should realize a benefit from declines in phosphate rock prices beginning at some point in the third quarter of the year. With this benefit, coupled with the expectation of improving demand in the second half of the year, we expect to deliver sequentially stronger earnings as we move throughout the year.

With that, I look forward to taking your questions during the Q&A period. And would now like to turn the call over to Kim Foster. Kim?

Thanks, Michael, and good morning, everyone. This morning I'll review our net debt and liquidity positions. In addition I'll address FMC's approach to managing debt and liquidity in these uncertain times.

Our net debt at the end of December was $571 million. As I've said over the past several years, we are targeting net debt between $500 million and $600 million. We ended 2008 at the higher end of the range for two primary reasons. First, and as I foreshadowed during our third quarter conference call, should FMC stock remain depressed during the fourth quarter of 2008 we would increase our share repurchases.

Accordingly, for the fourth quarter we repurchased 1.6 million shares at an average price of approximately $38 per share representing a value of approximately $60 million. Taking advantage of the depressed stock price to accelerate our share repurchase program.

For the full year 2008, we repurchased 3.5 million shares at an average price of approximately $53 per share and an aggregate value of approximately $185 million. At the end of 2008, we have approximately 220 million remaining under our recently authorized share buyback program.

As I do each quarter, I'll remind you that our share repurchase program does not include a specific timetable or a price target and may be suspended at any time. And our guidance for 2009 assumes that we do not repurchase any shares.

The second reason for the higher debt levels was slightly higher inventories and capital spending during the fourth quarter than we anticipated. The higher inventories were a result of late quarter softening of demand for some of our products and the higher capital was partially a result of a pull forward between 2008 and 2009.

While our net debt levels are slightly higher at the end of 2008 than 2007, so is our EBITDA. In fact, our leverage ratio which compares net debt to last 12 months EBITDA, is 0.9 for 2008, unchanged from 2007. So as you can see, we have maintained our very strong credit statistics.

Our liquidity profile is similarly strong. At the beginning of 2009 we have available funds under our committed credit agreements of $395 million and cash on hand of $52 million. In addition, we have no significant maturities until late 2010.

As we all know, 2008 was a difficult year for investors. The 2008 investment performance in our US defined benefit pension plan was significantly below our historical returns and will require higher levels of funding over the next few years. Under the pension protection act we are not required to make a minimum funding level -- minimum level of funding during 2009. However, in order to reduce future funding volatility, we anticipate contributing $75 million to our US pension plan. After accounting for the higher pension funding levels, we still expect a free cash flow in 2009 in excess of $200 million.

Despite the market uncertainties, we enter 2009 with the financial strength to execute our strategies. Specifically, we will continue to look for opportunities to grow the Company through a combination of internal and external investments. However, we will retain a strong balance sheet and maintain a strong liquidity position. We will err on the side of financial prudence.

With that, I will now turn the call back to you, Bill.

Thanks, Kim. Looking ahead we are confident delivering another year of strong performance. Specifically regarding our outlook for the full year 2009, we expect earnings before restructuring and other income and charges of $4.60 to $5 per diluted share. And for the first quarter of 2009 we expect earnings on the same basis to be between $1.15 and $1.30 per diluted share.

By segment, in industrial products we looked for the first quarter earnings growth of 5% to 10% driven by higher sales and continued global supply chain productivity improvements partially offset by spending on growth initiatives. I'm sorry. That was in ag. My apologies.

And in specialty chemicals we expect earnings flat to up 5% driven by strong commercial performance in BioPolymer and the inclusion of the ISP and CoLiving acquisitions, partially offset by higher raw material costs.

And industrial chemicals as Michael has just said, we expect earnings to be down 10% to 20% as the higher prices are more than offset by lower volumes and higher raw material and other input costs.

With that, I thank you for your time and attention and I'll be happy to take your questions. Operator?

(Operator instructions). Your first question comes from the line of Kevin McCarthy from Banc of America.

Yes, good morning. Would you elaborate on the soda ash price realizations in the US versus international markets? And I was wondering specifically in Asia if you were able to achieve increases there and how far into 2009 you might have visibility on the pricing? Thanks.

Hi, Kevin, this is Michael Wilson. I guess as in the past I really don't want to delineate between the domestic and ANSAC pricing. Typically we have just given the overall number for competitive and commercial reasons. Having said that, clearly the export pricing move was much higher, substantially more than what we realized domestically.

To provide a bit of color, if you think about the export markets and think of that regionally, we saw the highest increases in Latin America. Particularly because Latin American pricing due to prior contracts had lagged the rest of the world regionally. And then ultimately Asian prices were impacted by the slowdown of the economy in the fourth quarter and then also the situation in China with capacity there and falling prices that I talked about in my prepared remarks.

Follow-up there briefly on the volume side, I think you mentioned that you would anticipate some increases derived from traditional users of caustic soda. What is the magnitude of volume you think you can pick up there? In other words, when you say volume might be flat in '09, what would it be underlying and how much could you pick up to offset?

Well, domestically the market volume opportunity is about 250,000 tons. In terms of just how much of that we will get, we will have to see as we proceed. It is something that we are actively working on. There will also be opportunities outside the US.

Okay. And then finally, with regard to costs. I think you mentioned for the segment, I believe, you anticipate $50 million of incremental costs, half of which is phosphate rock. What is in the other half? What sorts of input costs are inflating on you at this point and how much might royalties be up, that sort of thing?

Without getting into a lot of specifics, the other input costs are energy, which are in some cases are higher. We also have raw material costs in other businesses. For example, the Foret business in addition to phosphate rock, buys soda ash. It also buys caustic soda.

We buy other commodity products in our specialty peroxygens line. So we have supply costs that impact us in soda ash. And then, of course I did mention the royalty payments that are a function of higher prices.

Thank you very much. I'll get back in the queue.

You're next question comes from the line of Mike Judd from Greenwich Consultants.

Yes, good morning. A couple of questions on -- let's see. Starting off with your other income expense estimate for the full year 2009 of $18 million expense. I take it that the uptick in that is mostly pension related and also some foreign exchange?

That's correct.

Okay. And then on the cash flow side, would you anticipate making any voluntary pension contributions?

Yes, Mike, this is Kim again. As I mentioned in my prepared remarks, we are planning on making voluntary pension contributes to the US plan of approximately $75 million in 2009.

Okay. And then in terms of the share buybacks, the last couple of quarters they have been around $60 million'ish each quarter. Are you -- do you anticipate, that level throughout the year or what do you anticipate?

Mike, as I -- and I'm assuming you mean in the year 2009?

Yes.

And as I mentioned in my prepared remarks, we see the purchases in both the third quarter and the fourth quarter as an acceleration of our stock buyback program. So I would not expect those to continue at that level.

Okay. So the first quarter and second quarter level were more around $25 million per quarter. Is this then a more reasonable expectation?

Mike, this is Kim again. As I mentioned, we are not giving specific guidance on that. But when you think of my comment of an acceleration then you could also anticipate that it would be at that level or slightly less.

Okay. And then I think you mentioned that you'd be spending around $170 million on CapEx. Can you provide just a little bit of a breakdown on where that capital is being spent, please?

Yes. As I think most of you know that we sold our Princeton research facility a couple of years ago and we have been leasing that facility. We are in the process of actually spending some capital and we expect to relocate our Princeton R&D employees to a nearby site in 2009. So we are spending some capital associated with that.

In addition, and this is associated with the recent acquisitions and the BioPolymer business in our alginate product line, as we recently announced we are going to be going through some restructuring, which over the long haul will substantially improve the profitability of that business and there will be some capital spending associated with that.

Thank you.

Your next question comes from Frank Mitsch from BB&T Capital Markets.

Terrific. Good morning and nice result, guys. Just on a CapEx side, anything with respect to potential investments in the lithium side of the business?

Frank, Bill. I remember the wager that we had --

I wasn't going to go there.

I was hoping you would raise that. No. We have not pulled the trigger on lithium expansion yet, Frank. And I'm -- given the current market uncertainty and the softness in the primary end of the business, it's not clear to me exactly when we will be pulling that trigger either.

And just staying with that topic, there was an article in the Times this week about Bolivia becoming a -- possibly becoming a big lithium exporter. How do your lithium folks feel about Bolivia impacting the market in '09, 2010, 2011?

Oh, it's -- well first of all, Frank, a little history. Before we decided to invest in Argentina, we pursued the Bolivian reserve. And it is of a quality that is slightly better than what we have in Argentina. But we could never see eye to eye with the Bolivian government. And if you go back almost 20 years ago when we were doing that, the Bolivian government was probably a little friendlier and a little more stable than what is in place today.

Given that, my view is that it is highly unlikely, and I emphasize the "highly" that there will be any investment in Bolivia in the next three to five years. And even if there is, even if I'm wrong on that, it's going to take them a good three to five years to develop the reserve, the infrastructure, and have product on the market in any meaningful way.

All right. Terrific. I appreciate that. And, Mike, in discussing the pricing you mentioned export or ANSAC pricing probably being higher than the domestic price realizations for 2009. And we have news that, I guess, at year's end one of the members of ANSAC will be leaving. Can you talk about your expectation for the change in the competitive dynamics with one less member of ANSAC? Is that an area that we should be concerned about?

Yes, Frank, I guess first of all for others on the call, you're referring to Solvay's departure from ANSAC. And the first thing I would emphasize is that really is a 2011 issues. Per the terms of ANSAC, there is a two-year exit provision which Solvay will participate in and continue to be a member.

Certainly no issues before 2011. I think after 2011, I still don't think there won't be significant issues caused by that. As you probably know Solvay is a global competitor today and from their other operations from around the world, ANSAC competes with them today.

So no big changes on that front. At the same time the remaining members of ANSAC all remain committed to staying in ANSAC and in fact have made a minimum five year commitment to ANSAC at this point.

All right. Terrific. Thanks a lot, guys.

Your next question comes from the line of Rosemarie Morbelli from Ingalls & Snyder.

Good morning, all. Could you give us a feel as to why you expect a demand on the pulp and paper side to improve after the first quarter of this year? What makes you think that there will be an improvement?

Rosemary, this is Michael. And our outlook is really based upon the feedback that we get from our customers. And clearly, there is still poor fundamentals for pulp and paper. I think particularly in North America.

I think we will see some improvement simply because right now we have both the fundamentals as well as the destocking that's going on. So once we at least get through the destocking, we will get to a base level of demand. In terms of when that base level of demand will then improve, that's a little bit more uncertain. But best guess and it probably is a guess at this point, is that that destocking won't be completed until at least the end of the first quarter and probably until sometime in the second quarter.

So, if it is not done until sometime in the second quarter, then I guess you would not expect any improvement until the third quarter. Is that correct?

Well, other than the fact that we won't have the destocking going on or as much of the destocking going on. So I think things will gradually improve.

But you're right, I mean, the overall outlook is not bright and if we can get fundamental demand improvement beginning in the second half of the year, that's probably a positive outlook at the moment.

Okay. And then if I may, your inventories are higher than they were at the end of last year. I am guessing that you have a lot of raw material cost increase in there. Do you have in this environment, do you have any goal of destocking yourself the way many of your customers are doing?

Rosemary, this is Kim. The higher inventories, as I mentioned in my prepared remarks, were because there was some demand slowdown of some of our product lines that was slightly higher than we anticipated. We will adjust that inventory back to the historic levels in 2009 and we will certainly be watchful of any potential further deterioration in volume as Michael talked about. But other than that, we don't anticipate any significant destocking.

So you don't even in this rather dismal environment, you don't think that you should take them down to lower than historical levels? Am I understanding that properly?

Rosemary, I think that's right because as you could tell from the other prepared remarks that we have, we don't see in our businesses a significant drop-off in demand. And to the extent that that outlook could change, we would revise -- we would take another look at that. But overall, we still expect a reasonable demand outlook for 2009.

Okay. Thanks.

Your next question comes from the line of Robert Felice from Gabelli.

Hi, guys, congrats on a very nice finish to the year. A couple of questions. I guess first, could you give us some clarity as to the magnitude of the decline in earnings we should expect from Foret in 2009? I'm just trying to gain a better sense of clarity as to how each of the businesses within industrial chemicals will perform.

Let me answer that, Rob. If you wade through everything that Michael said, I think you can conclude that most, if not all of the segment decline is in Foret.

Okay. So if I'm correct in 2008, that business rebounded by probably somewhere in the neighborhood of $20 million. And it sounds like it's going to decline by a substantial amount more than that. Is that the proper assumption?

No. There are errors in your math. Let me -- I'm just going to repeat what I said. I think if you wade through Michael's commentary, you can conclude that the entire decline in the segment in '09 versus '08 is majority, if not all is in Foret. It's your $20 million number.

Okay. Okay. And then you had mentioned that export prices were higher than -- the increase was higher than domestic prices. Can you give us some sense as to the average price increase?

Yes, Robert. I said it's in the mid-teens.

Mid-teens. Okay. And then I guess flipping to specialty, you're projecting a 5% to 10% earnings increase in that business, which is by all means respectable especially in this environment. But I'm a bit surprised it's not a little bit higher given the magnitude of the cost deflation you're likely seeing on wood pulp and seaweed and also given the acquisitions. So could you delve a little bit into the areas where perhaps you're seeing some weakness or the magnitude of that weakness? And just to help us build up a better picture of how you get to the 5% to 10%?

Yes, I think the disconnect, to the extent there is one, Rob, between our guidance and where your head sounds like it is is on raw material costs. We in fact expect to see year-over-year higher both seaweed and pulp costs. While we have seen a decline in cottony seaweed in the fourth quarter of '08, prices on average in '09 will remain above the average in '08.

We have seen cost escalation in other seaweed varieties. And on the pulp side, we buy a highly specialty grade of pulp with limited suppliers globally for it. And that's -- those specialty pulps have not -- prices have not been affected as commodity pulps have.

So again let me repeat that why you're not seeing what you might expect to see is the disconnect between your assumption on raw material costs and what we believe is actually going to happen.

Okay. That's helpful. And then I guess lastly on ag, do you have some sense as to whether or not the price increases you're putting through in North America are sticking at this point? Or is it too early yet?

Too early to tell, Rob. But as I think I said in -- or Milton said in the third quarter conference call, the first step in successfully implementing those price increases is to get them into the distributor price lists. And that's largely happened. But there still is some uncertainty as to whether or not it's going to work its way through retail and the grower here once the season starts.

And to what extent is realization of those price increases baked into your guidance?

We have assumed that we will be successful. Maybe not 100%, but that we will be successful in passing through some price increases.

Great. Thanks for taking my questions.

Your next question comes from the line of Dmitry Silversteyn from Longbow Research.

They had to do with the profitability expectations for 2009. I --

Dmitry, let me interrupt you. Somehow you were cut off, your first --

All I said was good morning and I said a lot of my questions have been answered. Obviously, they centered around the profitability of the various divisions. But I just want to come back on the Foret portion of the business. And given that this seems to be the culprit for your rather pessimistic outlook for profitability of the industrial segment.

Phosphate prices you talked about them starting to come down in the fourth quarter. My understanding is that they have come down even further as we talk in the first quarter as the fertilizer demand collapsed. You're going to start the year off slow and obviously still have a high year-over-year price in phosphate rock. Do you anticipate at any point in 2009 where your raw material for Foret, for phosphate business, is going to actually become a contributor to earnings rather than detractor?

Yes, Dmitry and I think that crossover point is going to happen sometime in the third quarter.

Okay. And then the second question I had on the price realization in soda ash. You talked about basically getting what you thought you were going to get domestically and getting significantly more in ANSAC but net, net it was only -- well I say only with tongue in cheek, but it was only mid-teens dollars per ton.

I'm just trying to understand, your ANSAC business is FOB Asian plant. So and my understanding is that there was a significant decline in freight rates. So does that $15 which may be something -- and I'm using $15 as just a midpoint of mid-teens. Whatever it is $15, $16, does that include -- or is that net of the give back you had to do on the freight? I mean how does that work out? Or is that really apples to apples comparison? Or has there been some roll-ins of transportation surcharges or energy surcharges that are now part of the contract and this is $15 above that?

Dmitry, it's Michael. Let me just back up and give you a little bit more color. I said that for domestic prices they were generally in line with our expectations. I would say we were a little bit surprised that the level of competitive caps that were out there. We actually settled contracts domestically but it was pretty close to the number.

With respect to ANSAC pricing, particularly in Asia, our expectations did change from where they were, say September time frame to where we ended up at the end of the year, because of what happened to demand in China and with prices in China and export prices out of China. So from that standpoint, there was some disappointment as we progressed through the contract season.

Specifically, with respect to your comment on freight rates, spot freight rates did come down from their peak. They are actually now bouncing back up a little bit. But from an ANSAC standpoint, they really have a portfolio of layered contracts on freight. So you can't really follow ANSAC's freight cost by looking at the spot market. And I think for 2009 you really aren't going to see much benefit of that. Probably will begin to benefit if freight rates stay low in 2010.

Okay. Okay.

And Dmitry let me add to that the $15 that or the mid teen number that Michael quoted is a net, net, net back to the producers. And so it is comparable year over year and incorporates and reflects any increases or decreases in freight charges, fuel surcharges, or anything else.

Okay. Second question, again, on the profitability of the soda ash business. With the price increases you've gotten, there's some volume weakness, I'm assuming that operating at 100% utilization rates there were some manufacturing inefficiencies that you're probably glad to get rid of with slightly softer volume. Is the volume declines that you're expecting in that business a big contributor to your cautious profitability guidance or do you expect that the soda ash business to actually still be profitable on a year-over-year basis even with lower volumes and higher input costs?

Dmitry, as I said, soda ash will be a significant contributor to the increase in earnings in 2009. And from a volume perspective, we really don't see a big change in volume in that business year over year.

Okay. So you're going to stay at fairly full utilization rates here and --

Yes, that's our expectation.

Okay. And so when -- in your prepared remarks and in your press release when you talked about volume challenges in that business, that mainly had to do with Foret?

Peroxides, hydrogen peroxide in particular; particularly pulp and paper. And also in Foret.

Okay. All right, great. And my final question on the lithium business, you talked about fairly stable demand in BioPolymers and some pressure on profits from the seaweeds and wood pulp pricing. Have you started to see declines in the pace of growth of the lithium business because of the recession and the lower electronic spending and the rechargeable battery spending therefore?

Clearly Dmitry, we have seen it in two areas. One is in the batteries, rechargeable batteries. Demand growth there has gone from 15%, 20% a year to flat and in fact in December in certain markets it actually went negative, but we think that's entirely inventory destocking. The other place we have seen it is in the industrial oriented end use markets for lithium, greases, air-conditioning, polymers. There we have seen year-over-year declines in volume.

Okay. So your lithium expectations for next year or for this -- for the current year 2009, are significantly more subdued than the performance that you saw over the last couple of years? Just in terms of volumes? I'm not talking about pricing.

Correct.

And what is the pricing expectations? You talk about primary lithium market being somewhat soft and pricing there being soft. How is your specialty business doing? Are you getting any pressure from customers to start dropping prices with this decline in demand?

You're seeing it in the primary compounds in lithium but to date the industry at least has been able to successfully resist those pressures. I mean, when we talk about declining or softening demand. It's off of -- it's really relative to the high level of growth that we have seen, so --

Sure.

And then second, SQM is a producer with all the spare capacity or unused capacity. And they continue to be very, very disciplined in bringing that capacity to market. As such that at least to date we have seen no erosion in primary pricing and don't expect to see any as we go through 2009.

Okay. Okay. That's helpful. Thank you.

Your next question comes from Ethan Steinberg from Friess Associates.

Hi, guys. I might have missed it. Sorry but I just wanted to get a sense of what -- because it looked like you locked in prices at a good level for soda ash or at least ANSAC did. What is the spot market today for domestic and international relative to contract pricing?

That's not something that I guess we have really disclosed in terms of --

John, for all practical purposes there is no spot market domestically. As you'll recall, we sell 90% plus of our soda ash in North America under annual contracts. And the remaining 10% goes through distribution and distribution continues to pay list prices for soda ash.

And similarly in the export market, ANSAC contracts for quarterly, semiannual, annual and on a multiyear basis. And with -- as a result, very little spot pricing. Cutting through all of that, it typically says that spot pricing today, where there is any, is at contract pricing or at list pricing.

Okay. Thanks. And the other questions got answered. Appreciate it.

Your next question comes from the line of Kevin McCarthy from Banc of America.

Yes, thank you. In the agricultural segment you mentioned that you had $4 million of cost escalation related to sourcing. When would you expect that cost inflation to abate?

It has already, Kevin. We had a supplier that had a major upset in a facility and it was down the last four months of '08 but is now back online.

Okay. So that helps you sequentially 1Q versus 4Q then it sounds like?

Correct.

Okay. Broader question, Bill, I was wondering if you would comment on your appetite for bolt on acquisitions in this environment?

We continue to be interested and look at several different properties. I would have to say at the same time, Kevin, we are probably a little more cautious, a little more conservative in how we would value them. But we are still interested. We are still interested and continue to look both in the specialty chemicals group as well as in ag. If you ask me are you going do anything in '09, it's a tough question to answer. Let me just say I would like to.

Okay. Fair enough. And in specialties you issued a press release fairly recently outlining some plans to combine operations in Norway and the United Kingdom following the ISP alginate steel. What are the expected savings from doing that?

Kevin, I'm not sure we disclosed that. I'm looking around the table for somebody to say yes or no. And if we haven't there's a good reason why we haven't and therefore I'm not going to right now. My expectation is that whatever savings accrue from that consolidation realignment will not hit the P&L until 2010.

That's helpful. Last one for Kim, if I may, I heard the pension cash injection number. Did you also mention an expense number for '09 versus '08 related to pension?

Kevin, this is Kim. No, I didn't. But there was a question earlier about one of the line items in our P&L. Other income deductions up slightly and one of the contributing factors was the pension expense and that will be up slightly.

Okay. So for '09 versus '08, a small increase there? Is that correct?

That's correct.

Okay. Thank you very much.

Your next question comes from the line of Bob Goldberg from Scopus Asset Management.

Okay. We just made it past noon, so I'll say good afternoon. Just one follow-up on the raw material energy situation. You're still paying it sounds like higher prices across the Company for raw materials and for energy despite the fact that, obviously, we all see oil down to $40 and natural gas down to about $450.

Am I correct in assuming that this is just an opportunity that is ahead of you, that it's going to take some time for the benefit of lower oil and natural gas prices to flow through your income statement. And perhaps it's a 2010 event where you start to see that?

And I know you mentioned the phos rock. You'll start to see benefit from lower prices there in the second half. But aside from that there is a broader opportunity as we look out to next year? And again, I know the crystal ball is a little bit foggy right now in early '09. But just any thoughts as we look out into the future as to the opportunity to benefit from lower input and energy costs?

Yes, Bob, given the direction and trajectory of what we see across most of our purchases. I would expect that we are going to see some benefit certainly in 2010 and potentially late in 2009, as the existing contracts and the existing hedging policies that we follow roll off.

And just specifically on natural gas. Are you paying higher prices in '09 versus '08 because of the hedging policy?

Natural gas costs ought to be essentially flat year to year.

Okay. Although obviously the spot price is much lower so again that would -- I imagine you're locking that in now and will be locking in prices for the 2010 year as we go through '09. So you should start to see some incremental benefit there?

Correct.

Okay. Great. That's all I needed. Thanks.

Your next question comes from the loin of Mike Judd from Greenwich Consultants.

Yes. I'm going to beat this share buyback question to death here, if you don't mind. But, I'm just noticing in your corporate and other financial items in terms of your forecast, your shares outstanding is approximately 78 million. And that's pretty much where we ended the year. But I would assume that that estimate should actually be a lower number, if you are in fact going to be in the market purchasing shares. That's a reasonable assumption, right?

Mike, this is Kim. The guidance we provided for '09 is 74 million shares outstanding for the diluted share calculation. And of course it has come down during '08. The shares that are actually reported in the denominator; the earnings per share calculation, are an average. So as you buy it back, you do average down.

Okay. I see what you're saying. But you acknowledge we are ending the year the December quarter at 78 -- sorry -- at 74. So in order to basically come up with down earnings in industrial, you essentially almost have to have a lower share count in order to assume that. Just so you know.

Mike, this is Bill. I'm not sure I followed all of that. Let me restate what I think Kim has said. Whenever we give guidance, we assume no further share repurchases.

Okay. That's fair enough. Thanks a lot.

Your next question comes from Paul Christopherson from Guilford Securities.

Thank you. Hi, Bill, in the past you have ventured an expectation that the market for lithium in automobile batteries will take several years to develop. Do you have an update on that based on either the passage of time or the stimulus bill or the price of oil or the auto car companies' situation? Could you update us on when that market you see developing now?

Yes, Paul, I really don't have an update on my view. And anybody who claims that they know how rapidly the lithium batteries are going to find their way in automobiles worldwide is probably exaggerating their own knowledge. So no, I don't have an update on it, Paul. I think the fundamental issue and I've said this all along, is going to be consumer acceptance. There are two issues with automobiles that have a lithium battery in it. One is cost and it's going to be significantly more expensive, at least initially than internal combustion engines. And second is the issue of safety. Lithium as you know can be energetic in certain circumstances. And while the -- both the battery and automobile industries have made great progress in reducing that risk. There is still a risk there.

Thank you, Bill.

Your last question comes from the line of Eugene Fox from Cardinal Capital Management.

Got a couple of housekeeping questions, Kim. Tax rate, you've assumed for 2009?

32%.

Okay. Cash flow that you're assuming for discontinued operation or use?

Approximately $40 million.

And CapEx beyond 2009, do you expect it to come down?

Yes.

Can you put -- give some additional color as to sort of what more normalized levels might be?

Yes. I was just trying to be precise. But I mentioned in my prepared remarks also that there -- I mean, sorry in an earlier question, that there are two items in 2009 that won't repeat themselves going forward. And one was the Princeton land relocation and the other one was the restructuring associated with the alginate acquisition we did in the BioPolymer business.

Any idea ballpark Kim as to the dollars for those?

Yes. Eugene, some of those two are probably in the order of $40 million or $50 million in '08 -- current '09.

Great. Thank you, gentlemen. Excellent quarter.

Mr. Walter, I'll turn the call back over to you for any closing remarks.

Thank you, operator. Well at this point what more can I say? To characterize the global economic situation as challenging in the near term outlook as uncertain is certainly an understatement. I think we are all venturing into new territory here. And despite what I just said, I remain confident about the future of the Company. Not just longer term when this current crisis pass, but in 2009 as well. I think our global footprint; the end market diversity; our end market diversity with it's attendant low correlation to GDP cycles, the product alignment we have with several secular growth tends that are going on globally; a solid balance sheet; conservative liquidity profile and a strong cash flow, all combine to make me feel pretty confident and comfortable regarding our outlook for 2009.

With that, let me thank all of you for joining us today and thank you for your continued interest in FMC.

Thank you. This concludes the FMC Corporation's fourth quarter earnings release conference call. You may now disconnect.