富美實 (FMC) 2010 Q4 法說會逐字稿

Good morning, and welcome to the fourth quarter 2010 earnings release conference call for FMC Corporation. Phone lines will be placed on listen-only mode throughout the conference. After the speakers' presentation, 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 2010 conference call and webcast. Pierre Brondeau, President, Chief Executive Officer, and Chairman, will begin the call with a review of our fourth-quarter performance. Pierre will then turn the call over to Mark Douglas, President, Industrial Chemicals Group, for an in-depth review of the performance and prospects for our soda ash, global peroxygens, and other businesses that comprise Industrial Chemicals.

Following Mark, Kim Foster, Executive Vice President and Chief Financial Officer, will report on our financial position; and Pierre will then provide our outlook for 2011. We'll complete the call by taking your questions. Joining Pierre, Kim, and Mark for the Q&A session will be Milton Steele, President, Agricultural Products; and Michael Wilson, President, Specialty Chemicals.

A reminder that our discussion today will include certain statements that are forward-looking, subject to various risks and uncertainties concerning specific factors that are summarized in FMC's 2009 Form 10-K, our most recent Form 10-Q, and other SEC filings. This information represents our best judgment, based on today's information. Actual results may vary based upon these risks and uncertainties. During the conference call, we will refer to certain non-GAAP financial terms. On the FMC website, available at www.fmc.com, you will find the definition of these terms under the heading entitled Glossary of Financial Terms.

We have also provided our 2011 outlook, a schedule recasting 2009 and 2010 adjusted earnings for pensions, and a reconciliation to GAAP of the non-GAAP figures we will use today. It's now my pleasure to turn the call over to Pierre Brondeau. Pierre.

Thank you, Brennen, and good morning, everyone. As you saw in our earnings release, our fourth-quarter results provided a strong finish to a record year for FMC. 2010 was a year of significant accomplishments for us. During the year, we completed the strategic review of all our businesses, and developed a robust strategic plan for the Company that culminated in the articulation of a five-year vision for FMC -- as we term it, Vision 2015.

We moved from the highly decentralized organizational model to one more balanced with key functional teams put in place, including global procurement, from which we expect to extract significant cost savings over the next five years. We increased our focus on capturing market opportunities in rapidly developing economies, by leveraging our already strong market position. Today, over 40% of FMC's sales are derived from the rapidly developing economies in Asia, Latin America, Central and Eastern Europe, and Middle East and Africa. This percentage excludes sales in developed countries such as Japan, Australia, and others.

In 2010, compared to 2009, North American sales grew 10% and EMEA sales declined 5%, while much higher growth was achieved in Latin America, up 18%, and in Asia, up 28%. Significant steps were taken to strategically realign our Industrial Chemicals business, to achieve higher margin, greater earnings stability, and superior return on net assets, while reducing our exposure to GDP cycles. Mark will review these in more depth later in our call.

And while we were taking these major actions during the year, we did not lose focus on operating performance, as we achieved sales growth of 10% and EPS growth of 17%. Our performance was rewarded by the equity market. Our shareholders realized a total return of 44%, placing us in the top quartile of our peers. 2010 indeed was a good year for us. We are confident that 2011 will deliver another record year for FMC.

I would like now to move on to our fourth-quarter 2010 results. Sales of $811 million were 12% higher than [year's] fourth quarter, and earnings before restructuring and other income and charges of $1.07 per diluted share increased 14% versus the year-ago quarter. In Agricultural Products, sales of $335 million increased 24%, and segment earnings of $62 million increased 32% versus the year-ago quarter, driven mainly by sales gains in Latin America. In Specialty Chemicals, sales of $205 million were up 6%, while earnings of $46 million increased 15% versus the year ago, driven largely by the strong volume recovery in lithium.

In Industrial Chemicals, sales of $273 million increased 5%; and as expected, earnings of $29 million were 13% lower than the year-ago quarter. The sales gain was more than offset by planned maintenance outages we discussed in the last quarter's call, including the successful completion of the boiler repair at our Wyoming soda ash facility early in the fourth quarter. On a GAAP basis, we reported net loss of $53.5 million, or $0.74 per diluted share. GAAP earnings in the current quarter included a net charge of $131.4 million after tax, or $1.81 per diluted share, versus a net charge of $6.8 million after tax, or $0.09 per diluted share, in the prior-year quarter. With that reconciliation, our non-GAAP earnings were $1.07 per diluted share in the current quarter, an increase of $0.14, versus $0.94 per diluted share in the fourth quarter of 2009.

Let's now take a more detailed look at the performance of each of our operating segments in the quarter. First, starting with Agricultural Products. Fourth-quarter sales of $334.5 million increased 24% versus the year-ago quarter, driven by sales gain in all major product lines and most key markets. In Latin America, sales increased significantly, driven by strong demand in key market segments, especially cotton and sugarcane, as well as growth in planted acres. In Asia, sales gain were driven by strong insecticide demand and good weather conditions in India, as well as higher sales in Pakistan, due to weather-related shifts from the third quarter.

As expected, sales in Europe declined as a result of the ongoing re-registration process for bifenthrin, during which time the product may not be sold. In North America, sales increased due to better weather conditions than a year ago and higher late-seeding herbicide sales. Segment earnings of $62 million increased 33% versus the year-ago quarter, as a result of the sales growth and favorable product mix, partially offset by higher spending on growth initiatives.

Now, moving to Specialty Chemicals. Revenue of $205.1 million was 6% higher than the prior-year quarter, driven by a robust demand recovery in lithium and favorable commercial performance in BioPolymer, partially offset by reduced selling prices in lithium primaries. Segment earnings of $46.1 million increased 15% versus the prior year, driven by the sales gains and operating cost reductions in lithium, partially offset by higher raw material costs in BioPolymer.

In BioPolymer, sales increased modestly, as higher selling price in food ingredients and volume growth in pharmaceuticals were partially offset by lower selling prices in pharmaceutical and unfavorable currency impacts. BioPolymer earnings improved over prior year as a result of higher sales and favorable mix, partially offset by higher raw material costs and spending on growth initiatives.

In lithium, robust volume growth across the business drove higher sales, especially in lithium primaries serving energy storage markets and in Asia. Reduced selling prices in lithium primaries put in place in the fourth quarter of 2009 partially offset the sales gain. Lithium earnings improved significantly versus a year ago, driven by sales gains and operating cost reductions.

Now, moving on to corporate items. Corporate expense was $20.2 million, as compared to $12.2 million a year ago. Interest expense, net, was $10.3 million, versus $7.3 million in the prior-year quarter. On December 31, 2010, gross consolidated debt was $637.9 million; and debt, net of cash, was $476.4 million. For the quarter, depreciation and amortization was $34.6 million, and capital expenditures were $47 million. I'll now turn the call over to Mark Douglas for an in-depth review of our Industrial Chemicals segment. Mark?

Thank you, Pierre, and good morning, everyone. It's a pleasure to be with you today to highlight our Industrial Chemicals segment, review our fourth-quarter performance, and provide you with our 2011 outlook. As we shared with you at our Investor Day in December, our Industrial Chemicals segment took significant steps in the fourth quarter to realign and transform its businesses, to deliver higher performance going forward. Higher performance in the form of less sensitivity to economic cycles, sustained higher margins, greater earnings stability, stronger cash generation, and superior return on assets.

In the quarter, we took the following actions. We completed the reorganization of our peroxygens businesses into one global business, to better leverage the strengths of our franchise and accelerate the shift of its product line to derive greater than 50% of its revenue from specialty applications. We exited the phosphates business with the closure of our Huelva, Spain facility on December 31, 2010. By doing so, we have positioned Industrial Chemicals to achieve greater earnings stability going forward. And we announced our intent to restart by mid-year our Granger, Wyoming soda ash facility to take full advantage of the robust export demand for the world's lowest-cost soda ash.

Our Industrial Chemicals segment now has three realigned businesses -- Alkali Chemicals, or our soda ash business; Global Peroxygens, which is comprised of hydrogen peroxide and several specialty peroxygen product lines; and Foret, now a focused silicates and zeolites business. While we have strategically realigned the businesses, most of you on the call are already familiar with them. Therefore, I'm going to forego a detailed overview of each, and instead, move straight to a discussion of our fourth-quarter 2010 performance and the 2011 outlook for Industrial Chemicals, touching on the key issues and opportunities that each of our businesses have before them.

For the fourth quarter 2010, sales of $273.1 million increased 5% from the year-ago quarter, driven by volume growth in soda ash, particularly for exports, and across global peroxygens product lines. Partially offsetting the growth was the absence of sales from Foret's sulfur derivatives business, which ceased operations in the second quarter of last year. As expected, segment earnings of $28.6 million declined 13%, as the sales gain was more than offset by planned maintenance outages that we discussed in our third-quarter conference call, including the successful completion of the boiler repair at our Wyoming soda ash facility early in the fourth quarter.

In soda ash, volumes remained firm throughout the fourth quarter. We benefited from higher ANSAC prices in the quarter, as tighter than anticipated market conditions for soda ash in Asia created a rising price environment. These tight market conditions were driven primarily by government energy restrictions in China, which reduced competitors' supply availability. In global peroxygens, earnings improvements in the fourth quarter were driven by volume growth in all product lines, especially hydrogen peroxide, as well as by specialty growth initiatives focused on environmental, energy, and antimicrobial markets.

While pricing dampened the quarter's results, the impact was significantly less than prior quarters in 2010, as price increases announced in the third quarter gained traction, and growth in specialities resulted in an improved revenue mix. And as I discussed, Foret successfully shut down its phosphorus business, completed the handoff of its peroxygens business to a global organization, and took significant organizational steps to refocus as a zeolites and silicates business.

With that summary of fourth quarter 2010 completed, I'll now shift to our 2011 outlook for Industrial Chemicals. In a sentence, we're anticipating a strong year. On a full-year basis, we expect earnings to increase in the mid-20% range, driven by volume growth and higher selling prices across most businesses, augmented by the benefit of cost-reduction initiatives. Before commenting specifically on each business, allow me first to summarize at the segment level the impacts of the three major drivers of profitability for the segment -- volumes, selling prices, and input costs.

We are experiencing increased demand across businesses, particularly in soda ash export markets. We also anticipate volume growth in our global peroxygens businesses from specialty peroxygens serving environmental, food, and aseptic packaging applications. Overall, across the segment, we expect aggregate net volumes to positively impact earnings by approximately $3 million in 2011.

Regarding pricing impacts in 2011, as many of you know, the significant majority of this segment's business has tended to be on annual contracts rather than on a spot basis. Though this will remain true for domestic soda ash and global peroxygens in 2011, our export soda ash business, as it did last year, will once again have a high component of quarterly contracts -- greater than 50%, in fact. Overall, we expect aggregate net price tailwinds of approximately $25 million for the segment in 2011. And in aggregate, raw material, energy, soda ash, royalty payments, and other input costs for the segment in 2011, will be essentially level as 2010.

Let's now review each business in more detail, starting with soda ash. As we begin 2011, the global soda ash market remains healthy. Demand is expected to reach an all-time high in 2011, growing to 4% to 5%, and exceeding the demand level experienced in 2008, prior to the global financial crisis. Despite this record demand, the world will remain oversupplied, with an excess of high-cost synthetic soda ash capacity.

In 2011, we expect the overall global capacity utilization rate to be in the low 80% range. However, we fully expect US natural producers to remain highly utilized, due to their low-cost competitive advantage. In the US market, demand recovery continues at a solid pace; although it lags the growth in other parts of the world, where demand is more robust. We expect US demand in 2011 to grow by 3% to 4%, with demand for flat glass and chemicals continuing to recover modestly. Soda ash demand for glass containers is expected to remain relatively stable in 2011.

Turning to pricing. In North America, soda ash prices increased for 2011 varied by customer, depending on contract provisions. In some cases, our opportunity was limited by competitive caps and the fact that we were able to increase our domestic prices in 2010, despite downward market price pressure. Nevertheless, we realized an average increase in the domestic market that was in line with our expectations. In our export markets, ANSAC expects, on average, to realize increased prices in 2011, while maintaining their share in these markets.

During 2010, ANSAC demonstrated its ability to maintain its global market share, while increasing prices as the cost of synthetic production increased. A good example of this was the decline of Chinese export volume in 2010, to 1.6 million tons, a low level not seen since 2004. The price increases for export volume are expected to be materially higher than our domestic increases. Given the high utilization rate of US producers, Latin American customers' primary concern during the 2011 contract negotiations began to shift from price to security of supply.

In Asia, as we start 2011, we have, as expected, seen a price softening from the peak prices in Q4 2010. However, despite the softening average price in Asia, prices will be markedly higher than 2010. Over the longer term, we fully expect prices to continue to rise in Asia, as the cost of synthetic production from China continues to escalate, driven by higher input costs for energy, raw materials, labor, and currency. We do expect in the near future that export pricing will trend towards the historical relationship of export prices that are at or above the domestic US price, creating upward price pressure in the domestic market beyond 2011. The net result of domestic and export pricing actions is an expected dollar per ton increase in global average pricing in the mid- to high-single digits.

Given our world-class, low-cost position in natural soda ash and the projections for continuing demand growth, we recently announced our intent to restart our Granger facility. You will recall, we temporarily suspended production at the Granger operation in 2009, due to reduced export demand caused by the global economic downturn. To satisfy current and future demand for US soda ash exports, we intend to restart Granger, with an expect -- which we expect to produce at a rate of 300,000 to 500,000 tons a year during the ramp-up period beginning July 1, 2011.

We will evaluate further production increases at Granger as the year progresses. As was the case in the capacity increases at Granger in the past, start-up expenses are incurred prior to and during start-up. Although we will benefit from the enhanced profit contribution of Granger in the second half of the year, more material profit contribution is expected in 2012, as this year's profit contribution will be largely offset by the start-up costs incurred during the year. In summary, our soda ash business will once again deliver significant earnings growth in 2011. Let me note, however, as we do each year, that we own 87.5% of the earnings stream of our soda ash business. The balance is owned by our two Japanese partners.

Moving now to global peroxygens. 2011 begins a new chapter for peroxygens with its globalization, following the combination of our European, North American, and Asian JV operating units announced at our last conference call. The integration provides for the achievement of significant synergies in technology, marketing, supply chain, and market access.

In our core markets, hydrogen peroxide and persulfate demand is expected to grow modestly, by 1% to 2% in 2011, driven by general economic improvements. In specialty markets, many of which we do not compete with, like in-kind technologies, we see robust growth, particularly in environmental, food safety, electronics, and oilfield, where our products offer customers unique quality, performance and/or technology with an incremental benefit of meeting sustainability goals of being green in nature for end uses.

Prices in 2011 are expected to be higher across peroxygens product lines, driven by more balanced supply demand dynamics. We expect to benefit further from continued manufacturing cost reductions, and realignment projects across our plant network. As a focused silicates and zeolite business, Foret continues to successfully advance a series of new applications, serving drinking water, NOx reduction, agricultural, and soil remediation markets.

In light of this detailed outlook for the businesses that comprise Industrial Chemicals, let me summarize our aggregate view for the segment in 2011. We expect full-year 2011 revenue to be approximately 5% lower, as growth in soda ash and peroxygens is offset by the absence of revenue from the exited businesses in Foret, shut down at the end of 2010. Despite this reduced revenue, we expect full-year 2011 earnings to be up in the mid-20% range, driven by higher selling prices and volume growth, augmented by the benefit of cost-reduction initiatives. If we adjust our 2010 sales to exclude our phosphates revenue, the year-on-year sales growth would be 6%. The earnings increase needs not be adjusted, as the phosphates business was essentially breakeven last year.

For the first quarter, we expect segment earnings to be up approximately 10%, also driven by higher selling prices and volume growth across the segment. Clearly, we expect another strong year for performance in Industrial Chemicals. With that, I look forward to taking your questions during the Q&A period, and would like to turn the call over to Kim Foster. Kim?

Thanks, Mark, and good morning, everyone. Let me start with a review of 2010 items. As Pierre noted in his remarks, FMC reported in the fourth quarter a loss of $53.5 million, or negative $0.74 of earnings per share, which included restructuring and other income and deductions of $131.3 million after tax, or $1.81 of EPS, predominantly for the costs to shut down our Foret phosphate business in Huelva, Spain, which we announced in December.

The pre-tax charge for the shutdown was $110 million, of which $41 million was for a non-cash write-off of assets in the business. The cash costs are expected to be $69 million for severance, plant cleanup, and demolition, site remediation and other exit costs. The severance arrangements are currently being negotiated with the unions and the government authorities in Spain. Additionally, we're taking a valuation allowance of approximately $40 million to recognize that the tax losses in the Spanish legal entity, predominantly due to the Huelva shutdown, are not expected to be fully recoverable in future years from the earnings of the remaining businesses in this entity. Excluding these items, the Company earned a net income of $77.9 million, or $1.07 per diluted share, in the quarter.

Let me now make a few comments about 2010 corporate staff expense. Corporate staff expense for 2010 was approximately $63 million, up $19 million from 2009. As I explained on previous conference calls, the primary reason for the increase are higher consulting expenses, both for our procurement project and the Vision 2015 strategic review, higher incentive compensation expenses, and the overlapping expenses of both Bill Walter and Pierre during the year. Of course, we also had modestly higher costs in other areas, as we began to invest for growth. As regards the quarterly timing of expenses, incentive compensation expenses were slightly higher in the fourth quarter, partially due to the performance-based component, which is a function of our stock price. Also, the timing of the procurement project spending was more heavily weighted to the fourth quarter.

For 2011, we're projecting corporate expenses of approximately $60 million. Lower consulting expenses are largely offset by spending on growth initiatives -- for example, investments to support growth in rapidly developing economies, and mergers and acquisitions. Certain expenses for Bill Walter will carry forward into 2011, but will be finished near the end of the year.

Regarding our tax rate, within the adjusted net income of $77.9 million, or diluted earnings per share of $1.07 per share, FMC reported a tax rate of 28.9%. Throughout 2010, FMC had projected a full-year tax rate of 30%. The tax rate is favorable to guidance, partially due to the 2010 R&D tax credit, which was included in the year-end 2010 tax relief bill, but primarily due to a higher proportion of the full year's profits being earned in foreign tax jurisdictions, which are -- generally have lower tax rates than the United States. The lower tax rate favorably impacted earnings per share by $0.07 per share, when compared to previous guidance of 30%. We expect to sustain the 29% tax rate for the year 2011.

Moving to free cash flow. For 2010, free cash flow was $258 million. This compares favorably to the previous guidance of $200 million for the year. The favorable performance was primarily due to lower year-end working capital. Regarding share repurchases, during the quarter we repurchased approximately 1.3 million shares, representing a total dollar amount of approximately $100 million. The remaining dollar value of shares that may yet be purchased under the currently announced repurchase program is approximately $55 million. As a reminder, the repurchase program does not include a specific timetable or a price target, and may be suspended or terminated at any time.

Now, turning to a change in the way we are going to present pension expense in our income statement, beginning in 2011. Starting this year, we're going to make an adjustment to our guidance and reporting of earnings before restructuring and other income and charges, for the amortization of certain pension and other post-employment benefits. Similar to a number of other Company announcements in the fourth quarter, we're going to adjust our earnings to exclude the amortization of past gains and losses in our defined-benefit plans, which are predominantly in the United States. We are making this change, as we believe that removing the impact of the amortizations provides a better understanding of the underlying profitability of our business, and provides a more relevant basis for assessing underlying earnings trends.

Of the various elements that make up the pension expense for US GAAP reporting, the service cost and plan amendments amortization will continue to be reported in our pro forma earnings. These elements reflect the current-year costs to our businesses for the employment benefits provided. Excluded from future earnings before restructuring or other income or expense will be those costs that reflect the adjustments of accumulated obligations and returns on investments. Such costs can vary significantly from period to period, based on actuarial assumptions used and the asset returns on the balance sheet date.

The impact of these changes, both positive and negative, are currently smooth through future earnings, such that any charges may continue to be taken well after the event that created them. Each year, a new layer of amortizations may be added on top of those already existing, adding to the difficulty of assessing their impact on true underlying business performance. Please see our Investor Relations page on fmc.com, under the heading Non-GAAP Terms, for a more detailed analysis of the historic elements of our pension costs and the period-over-period adjustments as a result of this charge and reporting adjusted earnings. Had we adopted this practice in 2010, our adjusted EPS would have been higher by $0.11.

As you know, most of the pension expense items that we are excluding from earnings before restructuring and other income and charges have historically been included in the other income expense item in our segment reporting data. Excluding these pension charges, the largest remaining item include LIFO expense and the long-term incentive compensation for leaders of our business segments. For 2011, we estimate that other income and expense will be an expense of $25 million.

Turning now to 2011 free cash flow. For 2011, we're estimating free cash flow to be approximately $300 million. This estimate includes approximately $40 million to $50 million in cash spending at Foret, to address the restructuring of our phosphate business. This projection also includes $160 million in capital spending. The capital spending estimate includes approximately $60 million in expansion capital, primarily to increase capacity in BioPolymer, lithium, and soda ash. While the capital spending is higher than our depreciation and amortization, or D&A, the near-term need for capacity expansion must be addressed in order to continue on our growth path.

The free cash flow estimate is consistent with our Vision 2015 projections. The free cash flow projection for 2011 does not include funds for acquisitions. However, we have an active M&A pipeline, and should have more concrete plans to discuss in future conference calls. I would also like to remind you that our projections in 2011 do not include a forecast of share repurchases. We are currently evaluating our return cash to shareholder strategy, and should be able to make some announcements over the next month. With that, I will turn the call back to you, Pierre.

Thank you, Kim. Regarding our outlook for the full year 2011, we expect adjusted earnings of $5.35 to $5.75 per diluted share. The midpoint of this range implies growth of 15% above last year's reported earnings of $4.84 per diluted share, or 12% above the adjusted 2010 EPS, which includes the pension accounting change. For the first quarter of 2011, we expect adjusted earnings of $1.35 to $1.50 per diluted share. Our first-quarter performance is expected to result in the lowest quarter-on-quarter growth rate of the year, mainly due to Agricultural Products earnings outlook. The outlook is for earnings in the first quarter of 2011 to equal those of the first quarter of 2010, driven by the comparison of European bifenthrin sales this year versus last.

Recall that in last year's first quarter, we proactively depleted our bifenthrin inventory by March, well in advance of the May deadline, as required by the re-registration process. The heavy sales of bifenthrin in last year's first quarter, as compared to our expectation of new sale in this year's first quarter during re-registration, is the primary reason that Agricultural Products earnings are expected to be level quarter-on-quarter. We fully expect Agricultural Products to return to double-digit earnings growth across the balance of 2011.

So, to summarize our segment outlook for the first quarter 2011, in Agricultural Products, we'll look for first-quarter earnings to be level to the prior-year quarter, as lower bifenthrin volumes in Europe, due to the ongoing re-registration process and higher spending on growth initiatives, offset growth in other regions. In Specialty Chemicals, we expect earnings to be up in the low teens, driven by favorable commercial performance in BioPolymer, and operating cost reductions in lithium. As Mark mentioned, in Industrial Chemicals, earnings are expected to be up approximately 10%, driven by volume growth and higher selling prices across the segment. With that, I want to thank you for your time and attention. I'll be happy to take your questions. Operator, please?

(Operator Instructions). Your first question comes from the line of John McNulty from Credit Suisse.

Yes, good morning. Just a few questions. First of all, with regard to your lithium business, can you walk us through the types of cost cutting that you're actually doing and what you're initiating there? Also, if you can give us some color as to what you're seeing with regard to pricing, particularly on the commodity end.

Hi, John, this is Michael Wilson. First of all, in terms of the cost cutting is, in all of our businesses, we have a whole program of cost-improvement initiatives. So, there are a lot of small projects that have been carried out throughout the course of 2010 in lithium that reduced cost. But the other and probably bigger driver is just with the significant volume recovery we saw in lithium, the fixed cost absorption across that volume provided substantially lower costs.

On the pricing side in lithium, as we look at the marketplace -- as you'll recall, for most of the year in 2010, we saw lower prices on the primary side. But all that pricing was put into place in the fourth quarter of 2009, and we've actually seen pretty good price stability throughout each of the quarters of 2010. So, as we go into 2011, we expect to have continued stability there. We see good demand growth, but we still have a little bit of slackness in supply. So, I don't think we'll see, necessarily, higher prices, at least in lithium carbonate. I think downstream of lithium carbonate, on the other hand, we expect to see higher prices as we go throughout the year.

Okay. Great. Thanks for the color on that. And then, just with regard to the -- in the soda ash business, can you quantify what the ramp-up costs for Granger are going to be? Because I believe you had said your raw material and overall costs would be flat year-over-year. So, I guess I'm wondering what the cost impact might be there. And then, second on that, in terms of demand, what would you need to see to ramp up Granger, maybe more than what you've already outlined for kind of the mid-year ramp-up?

John, in terms of costs, I mean, we're staying very much within the range of the numbers we had before, in terms of start-ups. So, it's -- the cost, actually, to start up Granger is in the few million dollars, single digit, and is very much balanced by the profit, which will be made in the second half of the year. So, a very balanced view, no contribution from the Granger production into this year, with profit coming on the back end of the year and cost more on the front end.

At this stage, with a run rate of about 500,000 tons, we are covered in terms of capacity increase for the next, I'd say, through 2011 and 2012. Decision is to be made in 2012, depending upon growth in the demand, and most likely driven by what will be happening on the export market from a volume standpoint and from a price standpoint, depending upon what's going on in the Chinese market. But I would not expect us to be in a situation where we have to push beyond the 500,000 run rate before the end of 2012.

Okay. Great. Thanks very much.

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

Good morning, gentlemen. I just, on the change in the pension accounting, are you going to be giving us in each quarter what that number is, so if we -- so we can look at it on an apples-to-apples basis over prior years?

Yes, Frank, this is Kim. Yes, in fact, we will be posting that so that you see by quarter what the adjustment would be in 2010, and plus annually, to the extent that you would look back into 2009. Brennen just mentioned to me that those numbers are already posted on our website.

All right. Terrific. And then, as I look at the first-quarter results, it's readily apparent as to why Ag and Industrial Chemicals are going to have lower growth in the first quarter, versus what you're expecting for the full year. You're also calling for a little bit lower growth in Specialty Chemicals versus the full year. And I'm wondering what the factors are that's driving that.

On the Specialty -- I mean, Ag, I think Ag was pretty clear, and it's purely the event linked to the bifenthrin. On Specialty, Frank, we are today in a situation where our capacity is bumping against demand. Demand is very healthy, and whether it's in lithium or in BioPolymers, we could have stronger sales than what we will be posting next year. In lithium, we are operating at 100% capacity. As you know, 30% capacity expansion is only coming on-board on the fourth quarter next year, so we will not see much of a benefit -- this year, sorry, 2011. We will not see much of a benefit in 2011. Most of the benefit will be in 2012. So, we will be increasing sales and earnings purely based on price and mix for lithium, and not on volume.

On BioPolymers, we are still working through some of the issues of integration of the ASP process. Those are almost done. But we are running out of capacity to supply the market. The good news is the demand is very healthy. We could sell much more in both of those markets -- lithium and BioPolymers. The bad news is we need to speed up our capacity. We are currently committing capital investments in BioPolymers to increase our ability to supply more, to satisfy the demand. But it will not show until the end of the first quarter, when the first capacity we'll be making will come in place. Maybe, Michael, you can -- a couple of words around the -- what we do to unlock capacity in BioPolymers.

Sure, Pierre. Frank, this is Michael Wilson. And we do have two capacity expansions underway in BioPolymers. The first is in our MCC product line, at our Cork, Ireland facility. And we're completing now the second stage of a two-stage expansion, which increases our MCC capacity by about 20%. So, we'll begin to see and realize that capacity as we get into the second quarter. And then, the other place where we're tight on capacity is in the alginates product line. And we have an approved project that we're now in the process of implementing that won't be completed until the end of this year. So it will be available in January of 2012. And that's going to increase our capacity in alginates by about 15%.

All right.

And Frank, last, around the alkali business, the Industrial Chemical business, and the first quarter versus the rest, I think your soda ash business will be pretty much stable, except with the start-up of Granger across the year. So, with an impact on the second half. And then you have peroxygen, where the Specialty applications are growing fast and growing through the year, late in the first quarter.

All right. Terrific. Thank you.

Your next question comes from the line of Kevin McCarthy from Bank of America-Merrill Lynch.

Yes, good morning. A question for Milton on crop protection. You've guided revenue for 2011 to be up in the high-single-digit range. Would you maybe walk us across the portfolio, touching on insecticides, herbicides, and fungicides, and give us your view of what volume and price might do in each of those areas?

Hi, Kevin. I'm not sure if I can give you price, volume by each of our products, but let me try and walk you through where I think this growth is coming from. Predominantly volume, at the moment. In most of our markets, as you -- as everyone is very well aware of, we have very high commodity prices, which augur well in nearly every one of our markets. We're seeing a very good start to the year in Brazil. We expect significant volume growth in that part of the world.

We expect volume growth in Asia and in North America. We've expanded our product line significantly in the herbicide area. We've added some fungicides, and our insecticide line is robust. And so, it's coming across the world for the most part. Obviously, the fact that we don't have bifenthrin in 2011 in Europe, we've already talked about the impact of that in the Q1. So, in summary, buoyant agricultural conditions, volume growth, predominantly. And hopefully, we'll get some price increases.

With regard to bifenthrin, Milton, are the costs to re-register that molecule in Europe significant? How would you characterize those?

You know, Kevin, we spent most of those costs already in 2010. So, I don't think that that's going to be a big impact for us at all, going forward.

Okay. And last question, if I may. Is there any update on Carbofuran, with regard to the US EPA efforts to regulate that more closely?

No, there's not an update. We continue to try and get the EPA to give us a hearing. We expect our tolerances -- import tolerances to be reinstated. But other than that, no further update, Kevin.

Okay. Thank you.

Your next question comes from the line of Mike Harrison from First Analysis.

Hi, good morning. Was hoping to ask a question on the BioPolymers business. You noted again -- I think, second quarter in a row here, you've noted raw material pressure. And then, also talking about bumping up against your capacity limitations. At the same time, it sounded to me like you said food -- pricing on the food side was up, and pricing on the pharma side was lower year-on-year. Was wondering if you could just help me understand sort of what's going on with pricing; and why, in a rising raw material environment and when you're bumping up against capacity utilization, that you wouldn't see pricing up a little bit stronger?

Mike, thanks. Let me tell you a couple of words, and then Michael will give more detail. Yes, there is raw material cost increase, and consequently, we do have, in place, price increase. But as always, the situation between facing some of the raw material cost increase, where we do have very short contracts against the type of contract we have with our customers, especially in the food business, cannot have the price increase implemented as quickly as we've seen the cost rising.

And usually, you know, in this kind of situation, it's detrimental at the beginning. There is a gap where our price increase come after the cost increase. And we recover that at the tail end of the process, where usually our price increase sticks a little bit further, when cost of raw materials start to go down. But it's purely a contract situation. Michael, you want to give a little more detail?

I think Pierre's covered it pretty well. But just to reiterate, through the course of the year, we expect to have margin improvement in the business from managing price and mix and cost, despite the raw material headwinds that we have.

All right. And then, on the lithium side of that business, you know, you talked about cost savings a little bit. It sounds like you guys are taking out some downstream capacity, and maybe relocating that to focus a little bit more on the Asia side of that market. How do you feel like you guys are positioned now on the downstream side of lithium, in terms of capacity? And can you give us any sense of what kind of margin impact we could be seeing from the cost savings?

Mike, this is Michael Wilson again. First of all, as it relates to capacity in the lithium business, I would say that the excess capacity that exists in the industry today is really upstream, and as far upstream at carbonate. Once you get beyond carbonate, things are tighter. And certainly in the downstream, I think capacity utilization is a fairly high level -- specifically, for example, for butyllithium, which is our key organolithium. There's not a situation there where we need to take capacity offline. We actually see favorable market conditions there that should allow for price improvement during the course of 2011.

And then, finally, on this patent deal with Umicore, just quickly, is that going to be called out as a one-time item? And can you maybe give us a sense of the magnitude of how much one-time benefit you're getting from the sale of that patent?

Mike, this is Michael Wilson again. It's actually fairly small. I mean, it's -- I don't want to get too quantified on it, but it's well less than $5 million, in terms of the one-time benefit that we're going to get from that. There is, I believe, an ongoing royalty or licensing fee that we'll get, that doesn't go on forever. But I think it goes on for the first two or three years of that licensing agreement. And, just for everybody else's edification, this is some old technology that we developed around cathodic materials for lithium-ion batteries. I believe the patents themselves are seven to eight years old.

All right. Thanks for the color, Michael.

Let me use your question, just to -- maybe to make a general comment around our view on our Specialty business. I'd like to make sure that we all understand, despite the fact that it's maybe the lowest top-line growth of the business this year, it's a very, very good story. The lithium business is going to be significantly improving its margin, because we're going to be able this year, where we're at 100% capacity utilization, to push price and mix in a much more favorable way, to be ready when new capacity comes on-board. This capacity will be sold in no time, with the business very strongly positioned from a margin standpoint at that time. On BioPolymers, price increase will come to cover our cost increase; but most important, the demand is very healthy.

So, we have no technology quality problems, which are such that we have a limitation. It's a good story. It's a matter for us to speed up, as fast as we can, capacity increase. And the volume is going to come, the demand is here. So, all the fundamentals of these businesses are right. The only issue may be, of course, of our own doing. But the fact that we are a bit behind where we should be to take full advantage of the growth by having the right capacity. But we're on it.

Thanks very much, Pierre.

Your next question comes from the line of Peter Butler from Glen Hill Investments.

Good morning. Good morning. I note from a previous press release that Mark Douglas has a new assignment, in Industrial Chemicals, and you brought somebody in from the outside to be Vice President of Global Procurement. At your analyst meeting, Mr. Douglas, I think he talked about $80 million in cost savings possible. But I'm hearing that he now sees more potential than that. And related, what are the credentials of the newcomer, and how much more cost-reduction potential is there if you're seeing more to the possibilities now that you're getting into it?

Thanks, Peter. I think, a couple of words, maybe, give me an opportunity. And Kim touched on that. We believe we have strength in our organization today, with key talents in 2010. I think Mark came with a huge expertise in procurement in his previous life with Rohm and Haas -- has run businesses with Rohm and Haas, specialty and industrial businesses; and has been the President of Rohm and Haas Asia. So he is bringing all of this experience to help us, going forward.

Also, we brought a very experienced -- and we are seeing the benefit of that today, with Karen -- a new Vice President of Procurement, who is really a professional procurement, will still report to Mark. Mark keep accountability for the procurement numbers he has been announcing, and as you say, maybe more. We also brought in a new President to run our Asian region, an experienced Chinese executive who is going to help us growing. So, we believe we are strengthened our organization in a significant way.

From the target, we said it before, we booked about $15 million of EBIT impact in 2011. We expect to be at a run rate in the fourth quarter of 2011 of about $25 million, and we showed you a road map leading to the next four years to $80 million a year of cost saving from procurement. Could there be more opportunities with the talent we are bringing in and the experts? I'm almost convinced we're going to keep on working at it to find more opportunities, but those numbers, we feel very comfortable about announcing them. Now, the benefit of Mark running a business in procurement -- he will have a direct benefit from whatever work he does in procurement, so I'm expecting an even higher motivation.

Where is the woman that came in to report to Mark, where is she from and what is her background?

Hey, Peter, it's Mark here. Karen Totland came to us from Firmenich. Firmenich is a Swiss specialty chemical company, specializing in flavors and fragrance. She spent most of her career in Firmenich in procurement. She's a PhD chemist and procurement professional, so we have brought a lot of talent into the Company to help with that procurement initiative.

Well, she must be talented if she has a PhD. That's what I have in chemistry, too. Just joking. Okay. Hey, thank you very much for the help on the question, Pierre.

Thanks, Peter.

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

I guess we got into the afternoon, so good afternoon, gentlemen. And congratulations on finishing a year on a strong note. Couple of questions. First of all, on the SG&A spike that we saw in the fourth quarter, was that largely the corporate expenses that you were referring to? Because it sounds like the shutdown and the turnaround of the boiler should have been more of a gross margin impact, rather than SG&A impact.

Yes, Dmitry, this is Kim. You are correct in that assumption.

Okay. Secondly, when you talked about the Specialty Chemicals business, you talked about favorable conditions in BioPolymers, which helped you with sales. Can you be a little bit more specific about that? Is it just a mix shift of better growth in some of the higher-margin markets? Or what other favorable conditions were you referring to?

What I'm talking about, about Specialty at this stage, all I'm saying is that we are operating at very high capacity utilization. So, when I talk about favorable conditions, is the demand is there. We are not today limited in our growth by the demand. We are limited by our ability to supply and our capacity. As Michael said, we do have three major projects right now in Specialty Chemicals for capacity increase, and we do not have a concern about selling this increase of capacity. So, that's what I'm referring to.

Okay. And to follow up on that, there's been at least one more participant in the cellulosics market that's also run into a capacity constraint issue in 2010. It sounded like you were in the same boat. What was it about 2010 and the growth that you've seen that surprised you to the point where you are just now getting into CapEx projects to expand capacity, and in effect, losing sales, because you're not able to supply the market fully to the needs that are out there? I mean, was the growth a little bit faster than you expected? Were the CapEx projects just delayed because 2009 was a lousy year? Kind of what -- can you explain what happened? Because it doesn't sound like it's just limited to you.

No, Dmitry. This is Michael Wilson. And it really is higher than expected growth in food, and specifically on the colloidal products, cellulosics. We saw something like 20% demand increase, which we did not anticipate during the course of the year. So, that's really what got us behind the eight ball from a capacity standpoint, was the growth was just faster than we expected, and it was particularly strong in Asia.

And, you don't get the -- obviously, you don't expect it to continue to grow at 20%. So, was it just a post-recession recovery that saw that strong of a growth?

I don't know that it was necessarily post-recession. I think it's a transition in developing economies, and the types of foods and beverages that they consume. So, we do anticipate it being strong going forward. I don't think it's going to grow at 20% per year. But we did see surprisingly strong demand. And the other issue, and I don't know how it affects others, but these type of products, from a capacity standpoint, are a lower throughput rate. So, not only is the demand up, but the production -- it takes more capacity to produce the same amount of product than it does some of the others. Now, the positive side of that is, we get a much higher price, and it more than pays for itself in terms of the margin.

Got you. Got you. Okay. That's helpful. Thank you. Quick question -- a couple of questions, actually, on the Industrial part of the business. First of all, the zeolites and silicate business that are still part of Foret. How big is that business, within the Industrial?

The two business together are lower than $50 million.

Okay. And, are there long-term plans for this business? Is it a viable part of your portfolio? Do you need to get bigger in there, or is it a nice niche market where you are one of the larger players, even though it's a relatively smaller business overall?

Where we are today on this business, I'd have to say any business which is small in size is always looked at to decide what is the future of that business. Now, it's a business which by itself is profitable. It's a standalone business, and do offer some very interesting growth opportunities, especially on the environmental front for zeolites. So, at this stage, it is a business which is part of a portfolio which is profitable, offering interesting growth opportunities; and as such, we do not have an intent at this stage to divest the business. If some of the expectations we have prove to be wrong, then we will consider, it's not a major impact today on our portfolio. But certainly, an interesting niche business which fits well the environmental solutions strategy of Industrial Chemicals.

Okay. Okay. Makes sense. Thanks. And then, final question on soda ash and the pricing that you talked about. This is probably one of the more hazier -- not even guidances, but, I guess, explanations of what happened on the pricing front for 2011 that you guys have given. So let me see if I can reconstruct that.

You have 50% of your market that's under the North American contract business, which you have a $10 a ton price increase going into negotiations, let's say you have about half of that. The international market, which is the other 50%, we've seen pricing in Asia there move from less than $200 a ton at the beginning of the year, to north of $300 a ton by the end of the year. So, if the midpoint is $250, I'm not sure how you get from $250 to $300 and still only have a mid- to high-single-digit overall dollar a ton price increase for your business of international and domestic combined. What am I missing?

First, let's make sure, Dmitry, when you talk about price, we don't confuse FOB and delivered price, because there is no -- and Mark would correct me, but there is no place where half the planned pricing gets close to $300. I mean, there is none of those.

No, it's FOB -- it's FOB, Asian port.

Asian port. We do -- we have very, very few of those contracts that we have seen. I mean, I can't tell you, really, where we are today. We do have an expectation. If you blend the capacity we have of price increase in domestic contracts, where we had some limitation because of competitive situation, and because of the pricing on exports, and the positive we have on exports. We are expecting the price at this stage to be somewhere in between the mid-single-digit and the high-single-digit percent. That's where the blended average, we believe, will end up.

On the long run, we see the price going up, but we do expect that there is a real chance -- and most likely, will be the case, to see a softening in Asia toward the back end of the year, which will create some downward pressure on our export pricing. So, that's about where we are. As far as we can see between the short-term contracts we have, Specialty and export, the long-term contract in domestic, somewhere between 5% and 9% of pricing increase is where we should be ending up the year as a blended number.

Oh, so, it's up -- so, it's mid- to high-single-digit percentage increase, not dollars a ton increase.

Dollars per ton. Sorry, I said percentage. Dollars per ton.

Dollars a ton. Okay. So it is dollars a ton. All right. Okay. Yes, I guess, I don't want to follow this up on the call, obviously, because you're not just talking to me, but maybe we could --

You can work the numbers in more detail with Brennen on the call, but you will see the mix. The mix, the way it unfolds, anything beyond the 9% -- it will be above the 5%, but it will not be beyond the 9%, as far as we can see the market, with the blend of export and the domestic today. That's where we're going to end up the year.

Okay. Okay.That makes sense. Thanks.Thanks a lot.

Thank you.

Your next question comes from the line of Douglas Chudy from KeyBanc Capital Markets.

Hi. Good afternoon. Just, I guess I'll keep it short here. Just one question on raw materials. What are your general expectations for raw material inflation in 2011? Maybe if you can give us a sense of what's assumed in the guidance range. And then, how much of that do you expect to offset during the year with pricing actions?

This is Kim. I'll take a first shot at that, because most of the raw material inflation that we're seeing is in our Specialty business. And more specifically, in specialty grades of wood pulp. But overall, and you heard what Pierre talked about as far as the procurement project savings. But on an overall basis, with the exception of what Michael will talk about in Specialty, we do not see much raw material cost inflation, nor do we see much energy inflation year-over-year. It will be very modest in all of the businesses, with the exception of BioPolymers. I'll let Michael talk about that.

Hi, Douglas. Yes, in BioPolymer we do see higher prices, both in specialty pulps and in seaweed, higher in the specialty pulp side than the seaweed. I would say that pulps will drive about two-thirds of the raw material increase we'll see, and seaweed is about one-third. To put it in some context for you, I expect the headwind to be about the same from '10 to '11 as it was from '09 to '10, and I would bracket that in the $10 million to $15 million range over the course of the year. And I just want to reiterate, however, that we fully expect that we will recover all of that raw material cost increase in the form of higher pricing, improved mix, and certainly, through cost reduction.

Thanks. That's helpful.

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

Good afternoon, all, and thank you for taking my question. Pierre, I was wondering, on the polymers, the imbalance in your contracts, short-term for raw materials and long-term for customers, is there anything that you can do to change that, in order to have them better aligned?

Rosemarie, this is Michael Wilson again. And I think there's always things that you could do to get them better aligned. But when you look at it, it's really both on the raw materials side and on the customer side, it's a portfolio of accounts. So, for example, we have some pulp accounts -- or pulp raw materials that we buy on an annual contract. We have some that are on a multi-year contract. And the same goes on the customer side.

If you look on the pharmaceutical side, oftentimes we'll have multi-year contracts. In the food ingredients markets, they're usually annual contracts. And then, we have a portion of our sales that are through distribution, which give us greater flexibility to pass along increases on an immediate basis. So, I think we have gotten out quickly, with the price increase announcement back in the fourth quarter of 2010. We announced, basically, across-the-board increases, both across our pharmaceutical product line and our food product line. And we will aggressively put those in place as the contract terms come up, and where we have immediate opportunity we're already putting it in place.

One last comment is that raw material cost increase, of course, is negative and detrimental to the performance of the business. But it is not a dramatic number which is reducing the profitability. I mean, we're talking single digits here. It is not a very high number. The biggest opportunity is more on the volume for us, over time. I think the price, yes, we can do better to align contracts for raw materials with our supply contracts, but it is not a dramatic gap on where we are today. Some improvement, but it is not a dramatic gap.

And that is helpful. And could you address your new -- your R&D, which was much higher in the fourth quarter than in previous quarters?Is that a new level, or was there something special in the fourth?

Let me tell you a little bit what we are doing in research and selling spending. We decided 2010 was a year where we decided to step up our commercial and R&D spend in Ag for growth opportunities, and I think it was a realignment of where we should be. And in Ag business, the cost increase will be modest next year. By the same token, we made a decision to step up our increase in the BioPolymers business and the lithium business, getting into 2011.

And so, you have another (inaudible) of the fourth quarter, of Ag having increased for the year and BioPolymers, lithium stepping up their expense. And you will see a step-up of expense in only that business -- so 2010 focused on Ag, 2011 focused on BioPolymers and lithium, to bring those business where more they should be, to develop the growth we can demonstrate with actually a quarter here overlapping for the two business.

Okay. So, when we look at next year, we could say that on a quarterly basis, it will be somewhere between the third and the fourth quarter?

Yes.

Okay. And then lastly, if I may. Could you talk about your exposure in the Middle East and in Egypt, in particular?

It's very small for us. We do have some Ag exposure. We have no Industrial exposure. I think very small in Specialty. So, it is not a -- it doesn't have an impact. And when we talk about also EMEA in general, I mean, understand that except for Ag, where we do have in Africa a significant business, it's mostly the European part of the EMEA, which is big for us. So, no real impact of the political situation on us.

Okay. Great. Thank you very much.

Thank you.

I would now like to turn the call back to Mr. Pierre Brondeau for closing remarks.

I want to thank you all very much. We believe we had a very strong performance in 2010. That's the good news. The bad news is 2010 is over, and we are on 2011. I think 2011 will also be a record year for FMC. So, we're looking forward to follow discussions with all of you. And thank you very much for your time.

Thank you. This concludes the FMC Corporation fourth-quarter 2010 earnings release conference call.