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Executives

Brennen Arndt - Director of Investor Relations

D. Wilson - President of Specialty Chemicals Group

W. Foster - Chief Financial Officer and Senior Vice President

Milton Steele - President of the Agricultural Products Group

Mark Douglas - President of Industrial Chemicals Group

Pierre Brondeau - Chairman, Chief Executive Officer, President and Member of Executive Committee

Analysts

Douglas Chudy - KeyBanc Capital Markets Inc.

Peter Butler - Glen Hill Investments

Rosemarie Morbelli - Ingalls & Snyder LLC

John McNulty - Crédit Suisse AG

Michael Harrison - First Analysis

Frank Mitsch - BB&T Capital Markets

Kevin McCarthy

Dmitry Silversteyn - Longbow Research LLC

FMC (FMC) Q4 2010 Earnings Call February 8, 2011 11:00 AM ET

Operator

Good morning, and welcome to the Fourth Quarter 2010 Earnings Release Conference Call for FMC Corporation. [Operator Instructions] Thank you. I would now turn the conference over to Mr. Brennen Arndt. Mr. Arndt, you may begin.

Brennen Arndt

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 Peter, Kim and Mark for the Q&A session will be Milton Steele, President in 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'll 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?

Pierre Brondeau

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 accomplishment for us. During the year, we completed a 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 termed it Vision 2015.

We moved from the highly centralized 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 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 gains were driven by strong insecticide demand and good weather conditions in India, as well as higher sales in Pakistan due to weather-related shift 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-season herbicide sales. Segment earnings of $62 million increased 33% versus the year ago quarter as a result of 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 cost 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 initiative.

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 gain 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 were $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?

Mark Douglas

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 strength 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 intents to restart by midyear, 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: Akali 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 forgo 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 export 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 specialties resulted in an improved revenue mix. And as I discussed, Foret successfully shut down its Phosphorus business, completed the hand-off 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 business, 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 an increased demand across businesses, particularly in soda ash export markets. We also anticipate volume growth in our Global Peroxygens business 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 is 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 leveled to 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 U.S. natural producers to remain highly utilized due to the low-cost competitive advantage.

In the U.S. 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 U.S. 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 upon 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 U.S. 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 U.S. 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 over 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 U.S. soda ash exports, we intend to restart Granger, which we expect to produce at a rate of 300,000 tons 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 the past, startup expenses are incurred prior to and during startup. 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 startup 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 1/2% 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-and-kind technologies, we see robust growth, particularly in environmental, food safety, electronics and oil field, 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 users.

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. I would like to turn the call over to Kim Foster. Kim?

W. Foster

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 pretax charge for the shutdown was $110 million, of which $41 million was for a non-cash writeoff 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 Union 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 cost in other areas as we began to invest for growth.

As regards the quarterly timing of expenses instead of 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 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 and 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.

Other areas, elements that make up the pension expense for U.S. GAAP reporting. The service cost and planned 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 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 and 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, 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 a return cash to shareholders strategy and should be able to make some announcements over the next month.

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

Pierre Brondeau

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 year.

Recall that in last year's first quarter, we proactively put our bifenthrin inventory by March well in advance over the mid line as required by the re-registration process.

The heavy sales of bifenthrin in last year's first quarter as compared to our expectation of no 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 2011. In Agricultural Products, we look for first quarter earnings to be leveled to the prior-year quarter as lowered bifenthrin volumes Europe due to the ongoing re-registration process and higher spending on growth initiatives of said 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 reduction 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?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of John McNulty from Crédit Suisse.

John McNulty - Crédit Suisse AG

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?

D. Wilson

John, this is Michael Wilson. First of all, in terms of the cost cutting, as 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 recall, for most of the year in 2010, we saw lower prices on the primaries side. But all that pricing was put in 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. Lithium, lithium carbonate, I think downstream of lithium carbonate, on the other hand, we expect to see higher prices as we go throughout the year.

John McNulty - Crédit Suisse AG

And then just with regard to the Soda Ash business, can you quantify what the ramp-up costs for Granger are going to be? Because I believe you've said your raw material and overall costs will 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 a midyear ramp up?

Pierre Brondeau

In term of cost, I mean, we are staying very much within the range of the numbers we had before in some startups. So the costs actually to start up Granger is in the few million dollars single-digit, and is very much balanced by the profits, which will be made in the second half of the year. So very balanced, with no contribution from 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 term 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 he have to be to push beyond the 500,000 run rate before the end of 2012.

Operator

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

Frank Mitsch - BB&T Capital Markets

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

W. Foster

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.

Frank Mitsch - BB&T Capital Markets

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.

Pierre Brondeau

On the Specialty Chem -- I think Ag was pretty clear it is 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 is in lithium or in BioPolymers, we could have the strongest sales than what we will be posting next year. In lithium, we are operating at 100% capacity. As you know, our 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, 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 ISP process. Those are almost done. But we are running out of capacity to supply the market. The good news is that demand is very healthy. We could sell much more in both of those market, 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 they were making will come in place. Maybe, Michael, you can give a couple of words around what we do to unlock capacity in BioPolymers.

D. Wilson

Sure, Pierre. Frank, this is Michael Wilson. And we do have two capacity expansions underway in BioPolymer. 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%.

Pierre Brondeau

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 startup of Granger across to Europe, 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, less in the first quarter.

Operator

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

Kevin McCarthy

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?

Milton Steele

Kevin, I'm not sure 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 everyone is very well aware of, we have very high commodity prices, which all go well in nearly every one of our markets. We're seeing 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 lines significantly in herbicide area. We've added some fungicides, and our insecticide line is robust. 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. But in summary, buoyant agricultural conditions, volume growth predominantly, and hopefully, we'll get some price increases.

Kevin McCarthy

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

Milton Steele

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.

Kevin McCarthy

Is there any update on carbofuran with regard to the U.S. EPA efforts to regulate that more closely?

Milton Steele

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

Operator

Your next question comes from the line of Mike Harrison from First Analysts (sic) [First Analysis].

Michael Harrison - First Analysis

I was hoping to ask a question on the BioPolymers business. You noted, again, I think, the 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. I was wondering if you could just help me understand through 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?

Pierre Brondeau

Let me tell you couple of words and then Michael will give more detail. But yes, there is raw material costs 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 contract against the type of contract we have with our customers, especially in the food business, cannot have 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 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 tick a little bit further when costs over material start to go down. But it's purely a contract situation. Michael, you want to give more detail?

D. Wilson

Yes, I think, Pierre has 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.

Michael Harrison - First Analysis

And then on the lithium side of that business, 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?

D. Wilson

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 existed in the industry today is really upstream. And it's far upstream as carbonate. Once you get beyond carbonate, things are tighter. And certainly, in the downstream, I think capacity utilization is at 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.

Michael Harrison - First Analysis

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?

D. Wilson

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 will 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, I mean, this is some old technology that we developed around cathodic materials for lithium ion batteries. I think the patents themselves are seven to eight years old.

Pierre Brondeau

Let me use your question just 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 might be 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 above this year where we had 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 maybe, 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.

Operator

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

Peter Butler - Glen Hill Investments

I noted from a previous press release that Mark Douglas has a new assignment, 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, you talked about $80 million in cost savings, possible, but I’m hearing that you now see 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?

Pierre Brondeau

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's bringing all of these experience to help us, going forward. Also, we brought a very experienced, and we are seeing the benefit of that today, with Karen, our new Vice President of Procurement, who's really a professional of procurement, who will still report to Mark. Mark keep accountability for the procurement number 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's going to help us growing. So we believe we have strengthened our organization in a significant way. From a target, we've 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 roadmap leading to the next four years to $80 million a year of cost savings 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 our business in procurement he will have a direct benefit from whatever work he does in procurement. So I'm expecting an even higher motivation.

Peter Butler - Glen Hill Investments

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

Mark Douglas

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.

Operator

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

Dmitry Silversteyn - Longbow Research LLC

First of all, on the SG&A spike that we saw in the fourth quarter, was that largely the corporate expenses that you're referring to? I mean, because it sounds like the shutdown and the turnaround of the boiler should have been more of the gross margin impact rather than an SG&A impact.

W. Foster

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

Dmitry Silversteyn - Longbow Research LLC

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?

Pierre Brondeau

What I'm talking 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 condition is the demand is there. We are not, today, limited in a growth by the demand. We are limited by our ability to supply in our capacity. As Michael said, we do have three major project 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.

Dmitry Silversteyn - Longbow Research LLC

And to follow up on that, there's been at least one more participant in the cellulosics market that's also run into capacity-constrain 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.

D. Wilson

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. The growth was just faster than we expected, and it was particularly strong in Asia.

Dmitry Silversteyn - Longbow Research LLC

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

D. Wilson

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 products than some of the others. The positive side of that is we get a much higher price and it more than pays for itself in terms of the margin.

Dmitry Silversteyn - Longbow Research LLC

A couple of questions, actually, on the Industrial part of a business. First of all, the zeolites and silicate business that are still part of Foret, how big is that business within the industrial?

Pierre Brondeau

The two business together are lower than $50 million.

Dmitry Silversteyn - Longbow Research LLC

And are there long-term plans for this business? I mean, 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 larger players, even though it's a relatively small business overall?

Pierre Brondeau

Where we are today on this business, I have to say, any business, which is small in size, is always looks at to decide what is the future of that business. Now if the business, which by itself is profitable, is a stand-alone business and do offer some very interesting growth opportunities, especially on the environmental front for zeolite. So at this stage, it is a business, which is part of 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 proved 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 solution strategy of Industrial Chemicals.

Dmitry Silversteyn - Longbow Research LLC

And final question on soda ash and the pricing that you talked about. This is probably one of the more hazier not even guidance but I guess, explanations on what happened on the pricing front for 2011 that you guys have given. So let me go see if I can reconstruct that. You've got 50% of your market that's under the North American contract business, which at a $10 a ton price increase, going into negotiations, let's say you got 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 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?

Pierre Brondeau

Well, 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 will correct me, but there is no place where off-the-plant pricing gets close to $300. I mean, there is none of those.

Dmitry Silversteyn - Longbow Research LLC

No, it's FOB Asian port.

Pierre Brondeau

Asian port, okay. We have very, very few of those contract 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 contract, 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 this 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, especially on 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.

Dmitry Silversteyn - Longbow Research LLC

So it's mid- to high single-digit percentage increase, not dollars-a-ton increase?

Pierre Brondeau

Dollars per ton, sorry. I told you it's percentage, it's dollars per ton. You can work the numbers in more detail with Brennen on the call but you will see the mix the way it unfolds toward anything beyond the 9%, it will be above the 5%. But it will be beyond the 9% as far as we can see the market with the blend of export and domestic today. That's where we're going to end up the year.

Operator

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

Douglas Chudy - KeyBanc Capital Markets Inc.

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?

W. Foster

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, and especially, 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 BioPolymer. I'll let Michael talk about that.

D. Wilson

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 2/3 of the raw material increase we'll see and seaweed's about 1/3. 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. 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 and permits certainly through cost reductions.

Operator

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

Rosemarie Morbelli - Ingalls & Snyder LLC

Pierre, I was wondering on the polymers, the imbalance in your contracts short-term for raw material and long term for customers. Is there anything that you can do to change that in order to have them better aligned?

D. Wilson

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 customers’ side. It's a portfolio of accounts. So for example we have some pulp raw materials that we buy on an annual contract. We have some that are on a multiyear contract. And the same goes on the customer side. If you look at the pharmaceutical side, often times, we'll have multiyear contracts. In the food ingredients markets, there are 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.

Pierre Brondeau

One last comment is that raw material costs 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's not a very high number. The biggest opportunity is more on the volume for us over time. Then I think the price yes, we can do better to align contracts for raw material with our supply contract. But it is not a dramatic gap on where we are today. Some improvement but it's not a dramatic gap.

Rosemarie Morbelli - Ingalls & Snyder LLC

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

Pierre Brondeau

So let me tell you a little bit what we're 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 the decision to step up our increase in the BioPolymers business and the Lithium business, getting into 2011. So you have an overlap 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 deliver the growth we can demonstrate with actually a quarter here overlapping for the two businesses.

Rosemarie Morbelli - Ingalls & Snyder LLC

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?

Pierre Brondeau

Yes.

Rosemarie Morbelli - Ingalls & Snyder LLC

Could you talk about your exposure in the Middle East, in Egypt in particular?

Pierre Brondeau

It's very small for us. We do have some Ag exposure. We have no Industrial exposure. I think very small in Specialty. 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.

Operator

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

Pierre Brondeau

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 further discussions with all of you. And thank you very much for your time.

Operator

Thank you. This concludes the FMC Corporation Fourth Quarter 2010 Earnings Release Conference Call.

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