American Vanguard Corp (AVD) 2007 Q4 法說會逐字稿

Good day, everyone, and welcome to American Vanguard's fourth-quarter financial results conference call. At this time, I would like to inform you that this conference is being recorded and that all participants are currently in a listen-only mode. I will now turn the conference over to Mr. Bill Kuser, director of investor relations. Mr. Kuser, please go ahead.

Thank you very much and 2elcome everyone to the fourth-quarter and full-year 2007 American Vanguard earnings review. The principal speaker today will be Mr. Eric Wintemute, President and CEO of the Company, and Mr. James Barry, our CFO, who'll contribute on financial matters. Before beginning we should touch on our usual cautionary reminder that in today's call the Company may discuss forward-looking information. Such information and statements are estimates by the Company's management and are subject to various risks and uncertainties that may cause the results to differ from management's current expectations. Such factors can include weather conditions, changes in regulatory policy, and other risks as detailed in the Company's SEC reports and filings. All forward-looking statements represent the Company's best judgment as of the date of this call.

With that said, let's turn the call over to Eric.

Good morning, everyone. Thank you all for joining us today to discuss American Vanguard's fourth-quarter and full-year 2007 performance. We are pleased to be reporting results that clearly demonstrate considerable improvement over 2006. More importantly, we want to elaborate on a number of important developments that give us considerable optimism as we proceed in 2008. First an overview of our financial performance with additional detail provided in a moment by our CFO, Jim Barry.

As highlighted in our earnings press release, our fourth-quarter and full-year 2007 financial matrix all improved substantially. A 26% sales increase in the fourth quarter contributed to our full-year revenue improvement of nearly 12%. Similarly, operating income, net income and earnings were all significantly higher in the current periods relative to last year. Our gross profit margin improved in the quarter to nearly 45% and finished the full year at just over 44%, reflecting our highly-specialized premium product mix and our efforts to pass through rising raw material input costs. We did experience an elevated level of operating expense in the fourth quarter, largely attributable to sales, rebate programs and increased shipping expense driven by higher fuel costs. For the full year, however, total operating expenses as a percentage of sales remained steady with 2006 levels at about 27.5%.

I will now ask Jim to elaborate on some more specifics. Jim?

Thank you very much, Eric. Good day to everyone. As our earnings release announced, and Eric underscored, net sales for the fourth quarter increased 26% to $69.1 million as compared to $55.1 million in the fourth quarter of 2006. Gross profit margins improved to 45% nor the fourth quarter of 2007 as compared to 44% in 2006, due in large part to changes in the sales mix of the Company's products. Operating expenses as a percent of sales were 26% for 2007 as compared to 24% in 2006. Operating expenses increased by $4.7 million in 2007 to $18.1 million for the -- from $13.4 million, while our operating income improved to $12.8 million from $10.7 million.

I will now highlight some of the differences in operating expenses by specific departmental costs and they are as follows: increased selling expenses represented 51% of the increase in the operating expenses, due to increases in programs and related costs, advertising, promotion, and marketing costs, as well as increases in outside professional fees and other variable selling expenses related both to the increased sales levels and the product mix of our sales. An increase in general and administrative expenses represented an 18% increase of the overall increase, due to the increase in amortization of our intangibles that were directly related to the Company's recently-acquired products, as well as experiencing increases in legal expenses, other outside professional fees and increases in payroll and payroll-related costs. Our research product development -- and product development costs served to offset part of the increase in overall operating expenses and we experienced a $581,000 decline in the fourth quarter of 2007, due primarily to lower costs incurred to generate our scientific data related to the registration of our Company's products.

An increase in freight and delivery warehousing -- and warehousing costs represented 43% of the overall increase in operating expenses, due to increased sales levels, the higher fuel costs and a product mix of the Company's sales. The Company's interest costs, before capitalized interest and interest income, were $900,000 for the fourth quarter of 2007 as compared to $1 million in the same period of 2006, and that reduction was due in large part to the lower overall debt levels. Income tax expense increased slightly to $71,000; however, the Company's effective tax rate was 37.1% for the fourth quarter of 2007 as compared to 44.7% in 2006. Our net income improved to $7.6 million in the fourth quarter as compared to $5.4 million in the same period in 2006.

For our year-ended December 31, 2007 our net sales rose 12% to $216.7 million compared to $193.8 million in 2006. Our gross profit margins improved to 44% in 2007 as compared to a 43% gross profit margin in 2006, also due in large part to the changes in the sales mix over our Company's products. Operating expenses as a percentage of sales were 28% in 2007 compared to 27% in 2006, and our net income was $18.7 million in 2007 compared to $15.4 million in 2006. With respect to our balance sheet disclosure, while we were hopeful to be in a position to discuss specific line items, we've been guided by our independent public accounting firm not to do that and not to discuss specific line items at this time, given the fact that they are still in the process of completing their audit field work. All that being said, as of December 31, 2007 the Company had approximately $74 million -- that's $74 million in working capital, stockholders equity of $139 million and total debt of $60 million.

I'll now turn the call back over to Eric.

Thank you, Jim. And just to highlight a couple of balance sheet items that I think are notable, versus the year-end 2006, in 2007 our fourth-quarter revenue was up 26% as previously discussed, but our receivables are down 34%, our long-term debt is down 40% and our debt-to-equity ratio has decreased to 47% to a 0.43 ratio. So, I'm pleased with the direction that our balance sheet has taken us over this last year.

Now I'd like to spend a little time telling you about a number of accomplishments and the status of several important initiatives, which should allow us to achieve even better performance in the future. With regards to the viability of our business model, in late 2007 we continued our traditionally-successful business model of acquiring products from other companies and capitalizing on our ability to integrate them operationally and refresh their market position. In the fourth quarter we acquired a fungicide product line from Chemtura Corporation and the Orthene® product line from Balent Corporation. These established product lines are extremely well suited to our existed marketing and operating capabilities.

We already manufacture and market the PCMB fungicide products that we acquired from Chemtura and we expect to gain a stronger position in the turf and ornamental and international markets as a result of the purchase. In the Orthene® case, we will be strengthening our participation in tobacco, vegetable and specialty markets, and broadening our existing product offering in the cotton market in a way that may offset some of the declines we have seen as a result of acres shifting from cotton to corn. Both of these efforts demonstrate our ability to constantly strengthen and refresh our portfolio of high-value products designed to serve specialty niche products.

I would reference now our U.S. manufacturing. At the end of 2007 and in the beginning of 2008, we've expanded our domestic manufacturing capabilities in ways that should allow us to better serve regional U.S. markets and permit an optimization of product scheduling and logistics. As we previously announced, we are creating a metham fumigant production unit at our existing facility in Axis, Alabama to serve the demand for such products in the southeast region. This plant is expected to be operational by the end of the third quarter of this year. Second, we have taken the important step of acquiring from BASF the Hannibal, Missouri production unit of our important Counter and Thimet® insecticide lines. This location will also provide a better logistical platform for our increasing presence in the Midwest green markets.

Most recently, we announced the purchase of a Marsing, Idaho facility from Bayer, which will both enhance our capacity to formulate [flowable] products, as well as better serve the Pacific Northwest and western Canadian region. Given the increasing cost structures, price volatility and some times variable quality of some offshore suppliers, these facility initiatives reflect our conviction that the establishment of high,quality, environmentally-sound, well-positioned manufacturing capabilities will be a distinct advantage in remaining a premier supplier of crop protection chemicals in the years ahead.

I would like now to shift to a discussion about corn. Probably the most significant series of strategic developments for American Vanguard relates to our expanding participation in the dynamic U.S. corn market. In this arena we feel the circumstances are breaking in our direction. In herbicides, insecticides, resistance management and specialized application equipment we find ourself with the right solutions at the right time to fulfill grower needs. After years of reliance on glyphosate herbicide chemistry to provide a broad spectrum solution to weed infestation, a number of weeds and grasses are exhibiting resistance to glyphosate application. Several chemistries have been tried to address this issue and recently, our offering, Impact®, has emerged as one of the most comprehensive products for meeting this need to mitigate tough-to-control weeds and grasses. Indicative of this trend is the recent application by Monsanto Corporation to add Impact® as a complimentary herbicide to its Roundup® herbicide labels. As we've said before, Impact® is a product that can achieve significant additional growth over the next several years and we are accelerating our sales and marketing efforts to capitalize on this opportunity.

Second, with regard to insect-resistant management, as we've discussed before, the preservation of genetic plant defenses is predicated on keeping insects from developing adaptive resistance. An important element of this effort is the establishment of so-called refuge acres, where a portion of the pest population can survive to propagate future generations that remain susceptible to the genetic toxin incorporated into the seed and plant. As the acceptance of genetically-modified seeds spreads and becomes the predominant corn-growing approach, concerns have increased over possible resistance development that could jeopardize genetic trade technology. Consequently, both of the agricultural regulatory agencies and large genetic seed manufacturers are embarking on planting this planting season on a high-profile and more stringently-enforced campaign to respect the refuge.

American Vanguard is in an ideal position to capture this market. The use of our half dozen soil insecticides and our specialized application equipment provides growers safe, effective and economical control for this critical resistance management effort. There are efforts underway to moderate refuge requirements through the introduction of multiple motive action stack seed -- trait seeds. It is our believe that this will take years to implement. Further, there is no assurance EPA will buy into the concept and reduce refuge requirements. However, even if refuge were reduced from the current 20% requirement to a 5% requirement, the total amount of acreage in the refuge segment available to American Vanguard would be greater than our total current corn acre participation today.

Our third initiative is the dual technology approach to yield enhancement, which we have labeled "the best of both worlds." As you may know, we recently announced very impressive results from a series of experimental field trials using granular soil insecticides (inaudible) the insect protection provided by genetically-modified seeds and plants. In a series of 17 major university-sanctioned experiment field trials conducted across the corn region, our granular soil insecticides applied at low concentrations using effective, SmartBox application equipment significantly enhanced harvest of corn yield by an average of 12-bushels per acre above the yield levels achieved with the use of genetically-remodified trait corn alone. Our corn soil insecticides are particularly beneficial because in addition to reinforcing genetically-modified adult rootworm defenses our products handled the additional threats posed by secondary pests, such as wire worm, grubs and nematoes.

They also contribute to managing the development of resistant rootworm biotypes by controlling rootworm larvae from prior to the insect's ability to fee on the plant root. Given the high commodity value of this incremental output and the modest $15 per acre additional input cost, the return on investment for using this convenient dual approach is substantial. In certain portions of the corn acreage, which experience higher-than-normal insect pressures, the benefits experienced may exceed the demonstrated results in these early trials. We are hopeful that further university experimentation, expanded 2008 trials conducted by American Vanguard and others, plus the superior results achieved by early adopters of this methodology will make "the best of both worlds" insect management and enhancement approach an industry standard beginning in 2009.

So wrapping up our corn and our role as a compliment to trait corn, with Impact® we have one of the best available glyphosate adjuvunct herbicides to filling the gap that exists for tough-to-control weeds. With an array of corn soil insecticides and our specialized application equipment, we have the best regime for managing the near-term increase in refuge acre demand. And when it comes to maximizing corn output, we have a demonstrated method for enhancing corn yield on genetically-modified acres by adding selectively-applied corn soil insecticides to GMOCs, a dual technology approach that can substantially boost productivity. When it comes to addressing the critical needs of corn growers increasingly distributors, retailers and growers themselves are beginning to appreciate that American Vanguard has the right solution for their problems. For more information on these initiatives, I suggest you pull up our latest website addition for specific details.

For the other segments of our business, as mentioned in our press release we are experiencing solid performance in many of our other market segments. In potatoes, vegetables, fruits and the specialty turf, ornamental and consumer markets, sales continue to improve and our market leadership position remain sound. In cotton we continue to suffer from the decline in acreage, but our Bidrin sales and our new Orthene® product additions should maintain our strong presence and strong market share for the longer term. 2006 and 2007 saw relatively dry Gulf Coast weather patterns, which hampered our mosquito control franchise. We hope that more normal rainfall will permit some recovery in that segment in 2008. International sales continue to expand each quarter and we will be pushing very hard in 2008 to extend our reach in the Central and South American region.

In conclusion I want to reiterate how well positioned I believe we are in the dynamic world of crop protection. From our niche products to our array of corn solutions, from our high-quality manufacturing capabilities to our on going international expansion, American Vanguard should be able to fully participate in the growth of the agricultural and specialty sectors. We will continue to inform you of our progress on these many programs. And at this time, I would be happy to respond to any questions that you may have. Operator?

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Mark Gulley of Soleil Securities.

Good morning, guys. I've got a couple of questions regarding the emerging corn franchise you're developing, Eric. The question I've got is this, it seems to me like you've got a solution for -- for corn farmers on all their acres. On the BT acres you're going after the tertiary and secondary insects, and on the refuge acres you're going after primary, so you've got a message to all corn farmers for all corn acres. Do you see it that way or are the ways you apply the product, the timing, the products you actually would use so different that you think it as two different opportunities?

Well, you're saying refuge and yield enhancement is two different opportunities?

Yes, refuge and what I'll call the BT acres, so that's something for the 80% acres and something for the 20% acres?

So they are different approaches and we're targeting in different manners, but obviously, the two go hand and foot. What we would see is ideal is a grower with a SmartBox system putting full rates down in his refuge acre and putting maybe less than full rates on the rest of his acres in order to get a yield enhancement boost there.

Secondly, with respect to pricing, it sounds like promotional expenses will have to ramp up some more this year, combined with raw material costs, what kind of price increases do you expect to see this year to fund both of those areas of cost pressure?

Well, the corn soil insecticides we did increase pricing on those. I don't have an exact percentage of it averaged, but I think we were somewhere in the 10% range. Impact® I think we kept relatively close. We had a modest increase, I think it was,less than 5%, as I recall. We did have -- last year we had some pretty strong increases, at least for us, in advertising. We ran our 25,000 radio ads with Impact® in order to get awareness across. We are certainly moving the budget up a little bit this year as we're trying to push the initiative for -- for the enhancement yield. But we have -- we have other companies or seed companies that are really pushing the refuge message, which we see us benefiting from.

And then finally, given the importance of corn to your growth, can you give us an idea of how much your corn-related product sales increased this year -- I'm sorry, '07, and then how much it might increase in the current year, '08?

Probably won't give you that much detail, Mark but it is a nice question. Let me -- let me give you a little bit, though. Let me see here. If you will hold on for just one second. I had -- I think corn's probably up about 50% for us in '07, to early to tell on '08. Of course some of the sales that we have in '07 reflect '08 season, so I'm talking about calendar sales versus actual year. But we're pushing the -- and we obviously have others that are pushing the refuge message.

We're kind of pushing the corn soil insecticides over the top of genetic corn. There's some researchers and university people and advisors that are doing that, but as far as companies I don't know that any other company is promoting that, and as you know, we're the smallest player in that arena. But I think we demonstrated our ability to penetrate the market well with Impact®, and this was -- these are two initiatives that we talked about a year ago. We've made better progress than I would have thought at this point, and we'll see how this year plays out. We still have a great number of corn growers that are sitting in snow that have not made their decision as to what they're -- what they're going to do when they come to plant in a month or so.

Okay, thanks, I'll get back in queue.

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

Morning . I apologize if this question was already asked, but on the acquired businesses, the fungicide and the insecticide businesses, for modeling purposes how should we be thinking about those, either in terms of revenue or margin potential?

We haven't provided the details. Traditionally, we -- our purchase price is some percentage of sales or EBITDA. We tend -- we tend to have a pretty quick turn around on our return on our investment, and I think if you just -- you could look at some of the historic levels of purchases of acquisitions that we've had and model from there. There was nothing overly unusual. I think with the PCMB from Chemtura the advantage there is this is a product we've been manufacturing since 1991. We knew the market very well. Chemtura happened to be the other half of the marketing arm for that molecule, so it was business that we knew well. They had some labels in countries that we didn't have not. They also had some brand recognition that added -- added to it, so I think that's going to turn out to be a very good acquisition for us.

With regards to Orthene®, they had -- predominantly, this is a market where there is a good deal of generic pressure. They had focused (inaudible) on more of the non -- I'll call it the nongeneric pressure business, the generic pressure business being more highly concentrated in cotton. We are -- we have a pretty good presence in cotton and we think this is a good add-on to our existing product and we're seeing where supply sources of this product, coming from Asia historically, are beginning to see some -- some significant price increases and we're hopeful that this market in cotton will be more lucrative and one that we'd like to participate in. I know that's not answering your question at all, but --

Well, I wonder if I could add a follow up to that. I appreciate your comments about how I could go back and basically look at previous acquisitions, and you guys have made a lot of acquisitions over the year, but I am new to covering your Company so I admit that and I don't have a lot of that data. So perhaps in the back of your mind you might have some relative statistics in terms of how big similar types of acquisitions have been? I'm not so much interested in knowing all the exact details, as much as for modeling purposes I don't have anything really to -- to apply to '08. Are there revenue and/or -- is it reasonable to think there is really any profit from those -- these lines this year is a better assumption that essentially first year there is no profit? Again I apologize for being new to covering your Company.

All right. And each one has little -- has some different details. Some are -- some we acquire with cash up front, some are payments over time, but I might suggest, if you're looking to,build a little bit more, is to call Bill Kuser, who will be available later today -- or he can call you back -- and maybe walk you through some of the background information.

Okay. All right. And you mentioned that you've increased capacity, and I'm just wondering if you could talk about, in any way you feel comfortable, either volume perspective or whatever, what do you think that year-over-year comparisons could look like, maybe on just an apples -- assuming this year -- maybe if you wanted to assume that there's no change in the number of acres of corn or whatever. I realize that it's more likely that corn acres will be down modestly this year, but any way you would feel comfortable discussing the increment of capacity? In other words, is it a 10% increase in capacity across the board or how should we think about that?

When we acquired these plants, they have equipment that is specialized to certain chemistries. And so when we talk about capacity expansion, typically we're buying these facile facilities and they are not running at capacity, but we'e buying them because they're making something that we're currently utilizing and -- or that we've acquired. And with the case of Idaho we have not -- we've not ever been able flowables, which is a liquid formulation that mixes well. We can do emulsifiable concentrates, but we haven't been able to do in flowable, so it's something that we have had other companies do for us. So, it just expands our formulation capabilities. We do have additional -- when we say additional capacities it means that we could expand our existing products and not have to add-on additional capital requires to do that. And in the case of the Hannibal facility, that's been making Counter and Thimet® for years, it's not running any where near capacity. There are a number of other chemicals that use the same starting materials that those do. One of those is the product Orthene®, which has not been made there historically, but it's something that we potentially could do if we saw fit.

So in terms of planning purposes again getting back to the question, do you have an expectation based on the new capacity that you have for additional volume on a percentage basis, or again, any way that you would care to help us?

When we acquire the facilities basically we pencil them out as if -- as status quo and it doesn't make sense if we don't make an improvement. And then to the extent that we do improve -- and we've done some through the growth of the products that we are making there. In addition to, we have done tolling manufacturing for other companies. So other companies that maybe had their product made some place else, we compete for that opportunity. The margins for those are, obviously, smaller than they would be for products that we're making on our own behalf, but it does utilize, and obviously, the more we utilize a plant the more efficient we are and the more we spread the overhead, the lower cost we have on the rest of our products that we're manufacturing there.

So that's kind of the strategy is to -- when we transfer over and make sure that we're able to maintain the volume from the existing products there, then look at what we do with our acquisitions anyway is to figure out how are we going to expand the market for those products, and then we look at other products that we can manufacture, either products that we might go and acquire, or in the case of Orthene®, a product that we could fit in there, or we look to other companies and say, you've got similar chemistry, how about if we made this for you for X, does that fit into your plan?

So I just want to make sure I understand. I understand the strategic rational that you're giving us, but when you're doing your planning and you're building capacity and you're acquiring capacity or whatever you're doing, is everything that -- do you approach it in such a [loosey-goosey] way or do you have an idea in your mind, let's say, for '08 versus '07 that overall you'd like to see volumes up 10% or whatever number that you would care to disclose to us. What is that percentage number or anything again on an absolute basis? After all, our job is to try to model what your earnings are likely to look like and that's what I'm trying to get at.

So I guess, what I was referring to is that what we're willing to pay for the facility and what we think it costs to operate, we make the acquisition on the basis that if nothing changed, this makes sense for us. So in other words, we can make the decision, are we better off buying these products in the future in the foreign market or are we better off taking control of this facility that exists and running model just at that point. Because frankly, we all have -- when we go to acquire products we try to build what we think is reasonable expectations, but what we have for sales growth and in our budget is probably different than what we've done for the purposes of acquiring the facility.

So we're probably a little more conservative when we acquire facilities or products, but then once we have them, we say, okay, here is what we think the upsides are and what we can go forward with. So I guess what I 'm trying to say is that if we maintain status quo then these are probably break-even concepts for us on manufacturing. To the extent that we can grow the market we'll lower our cost of manufacturing. To the extent that we add other products to it we'll lower our cost of manufacturing. And to the extent that we can bring in products from others and increase the output of the facility, those are all incremental add-ons where the Company benefits.

So when we bring them on we have ideas and directions. This is what we would like to do. It is about plant utilization. We'd like to run every plant at 95% of capacity and have all the new plants to expand available to us at -- to acquire with without making huge investments. One thing with that is that it is very difficult to build a grass roots plant in the U.S. today considering the cost of construction, and outside the U.S. or Europe, in Asia for instance. But if we can acquire the facilities without making a significant advancement -- or investment, then we're looking at the cost of operating here versus the cost of operating overseas, and our approach has been that the upside of maintaining control of manufacturing in the United States on a long-term basis is a very viable approach for this Company.

Okay. But it sounds like, given the -- of the way you frame this out that we should assume that volumes are essentially flat. Is that correct? Because it sounds like you're sort of hedging, but at the same time there's a lot of opportunities, but it doesn't sound like you're willing to commit to any volume number, so should we assume that volumes are essentially flat for 2008?

With regards to the plants that we are acquiring?

That and also the expansions that -- I think you -- didn't you indicate that you had expanding capacity?

When we buy these facilities and they're not being utilized to their fullest we have expanding capacity.

Okay. So I think that what you're telling me -- and I don't want to beat this to death -- but that basically volumes should be flat?

Volume in what, the products that we acquired?

Just overall volumes year over year?

No. No, we do expect growth in 2008 in a wide variety of our product.

Great. Now what I'm trying to understand is what is that percentage increase in volume year to year, that's what I have been asking.

Okay. So we -- yes, we haven't given any guidance for what sales or revenue or earnings growth in 2008 will be. Let me just say this on that behalf though, we for years have talked about double-digit growth, both top and bottom line, and we did so for seven consecutive years and we missed in 2006. 2007 we were back in double-digit growth for both and I would say on an on-going basis, that is a goal for our Company and something that we would like to try and achieve.

That's great, because that's something I can hang my hat on. Thank you very much.

Okay.

Your next question comes from the line of Jim Bartlett with Bartlett Advisors.

Eric, give us an idea of the CSI increase this year?

Corn soil insecticide increase for the 2008 year or for 2007 versus 2006?

It's 2007.

So 2007, from -- on the ground usage versus 2006?

Yes.

Okay, so that takes into account the inventories (inaudible), and I think we feel we were up slightly on pounds on the ground from 2006, but I don't know that it was -- maybe in that 10% range of pounds on the ground in 2007 versus '06.

And just in terms of calendar revenues?

Pardon me.

In terms of calendar revenues, 2007 versus 2006?

Okay, let me do that again. Let's see, that last one had -- and I had impact in it, so let me just pull that out. Okay. So calendar up about 11%.

How would you categorize corn for 2007?

I think I said we were up like 50%.

No, I'm sorry, cotton.

Oh, cotton. Let me see, that's in a group of product.s Let me -- these are going to be real rough numbers because, frankly, I don't -- some of the products get used in a variety of crops and I'm just going focus on a couple of products. Yes, we were down about 30%.

You had referred to the Impact® herbicide market as a $200 million market?

Correct.

What do you -- I guess that was 2006. What would you say it was this past year, 2007?

Well, it's a -- it is a little bit of a moving target, particularly with the amount of Roundup® -- or glyphosate that's being used out in the market, o we're really -- we were talking about post-emergence market, excluding glyphosate, and I would say it's probably still in the same arena.

So then you gained considerable market share?

Yes, we did.

And last year, I believe, didn't you put on -- had to hire some temporary sales people, as well as significant boost to your advertising budget?

We did, yes.

Would you -- what is your strategy this year on both items?

Yes, we have the -- we did actually bring on, I think, five new full-time employees. In addition we did -- we were real successful with the temp group that we had and have boosted their participation a little bit more in this year. And again, part of what we had them do was to do all the calibration of the SmartBox systems so that our full time people weren't going farm to farm handling the ramp ups for people, and so they've relieved our people of that burden. But in addition, they've done effective sales work and are positioning all of our -- all of our concepts in a refuge acre, going over the --over the top, trying to get Counter going in -- back in the corn market which it had virtually disappeared from, and we're having good results with that. On the advertising, again if you pull up the website, there's a, there is a refuge advitorial that Monsanto is running across the corn belt that we are mentioned, we actually have a SmartBox user who talks to about the value of SmartBox and refuge. There's a yield enhancement message that we have and then there's Impact® advertising.

Now those ads are all out currently across the corn belt. We'll be doing similar, maybe even up a little bit in our radio ads as we are pushing the yield enhancement message in radio ads that'll be starting next week -- or in the next couple of weeks and running for two or three weeks and then, we had very good success with -- or response from our radio ads on Impact®, and I think we'll continue with that kind of messaging, which will hit right about the time that the growers are in their combine -- or in their planters and the tractors and we'll again push that awareness for Impact®.

But we're very pleased that Monsanto sees the value of our product and they have a position where, until it's on their label they, as an individual company, will not go out and recommend it. They're expecting to have that label registration before the market starts and it's a little different having us talk about, because it is on our label and has been -- was last year that we have the Roundup products on there. But it's a little different between us having ten, 20 people in the corn market versus talking about the advantages of Impact® with Roundup versus having Monsanto with 600 people talking in that position, as well. So we're real pleased with that. It was something that we worked hard with Monsanto and we were very pleased that they saw that Impact® would be a good fit partner nor Roundup, because they're driving the bus. There's no doubt about it.

Just one other question. There was some recent statistics that came out -- I guess, commodity class just on the -- said, I think that one of the statements were that 60% of U.S. corn crop was glyphosate tolerant last year, as quoted this guy from Syngenta Anticipate that acreage will get about 90% plus in the next several years. Would you agree with those statements and the impact of those for you?

I do think it's definitely going in that direction, which is why we feel it's important for us to tie our product Impact® on to the glyphosate train, if you will. And so I think it's -- we do -- the opportunity for us will be the escapes from the glyphosate technology that occur with these hard-to-control weeds and that they'll need something to recommend to use with that product and every year there's a new glyphosate-resistant variety of weed that comes up.

Great. Thank you very much, Eric.

Sure.

Your next question comes from the line of [Austin Root] of DLH Capital.

Hi, guys. I wanted to just ask about organic growth for '07, excluding, I guess, in particular the -- I believe it was about R20 million or so in sales of the acquired businesses from Q4 of '06?

You want to exclude --

I guess my -- I'm trying to see if I'm thinking about organic growth right in that if you exclude that amount -- and I think it was around $20 million -- that organic growth was --?

Right.

Maybe a percent or so.

Right. And so you're saying if you took --

Is that right? Am I thinking about that right?

Well, there was some sales of Counter in the fourth quarter of '06, so you're number $20 million is higher than -- so the differential between the two is not that high. But if you -- so if you take that, that growth out and let's see --

Your next question comes from the line --

We're not quite through -- sorry, not quite through yet. So I think we had probably about 4% growth through the rest of the product line.

Okay. In terms of pricing -- and this is sort of hard to do, but in aggregate it helps think about it -- how much did pricing contribute to sales growth for '07?

We obviously had price increases. We were more -- I think we had more difficulty '07 than maybe we think -- there's price increases for glyphosate and so many products that dropped -- jumped so dramatically over the last, even 60 days to maybe 120 days. The pricing increases seem to -- obviously if the farmers are healthy they can absorb some of these costs that have not been able be passed on. So I -- and we did not -- I would say we didn't have 4% -- we didn't have 4% price increase across the board that made up that growth, so we definitely had volume growth, I don't know that I've quantified it, but obviously, some of that 4% we had some price increases, but we also had a couple of products that had some price erosion in a couple of the generic markets. So, some portion of that 4% it's not a big number, obviously -- was price increase and some portion -- the remaining amount was increase in volume.

Okay, that's helpful. Last question. Working capital was a nice source of cash for you guys in '07 after the use of cash in '06, it looks like, given the way you were able to pay down debt. How about '08? As we ramp up on some of the initiatives, do you have a look as to where your -- your working capital will land relative to where it's at now?

This is Jim. I think the working capital will be -- at this time next year will probably be status quo. We won't change. We'll generate the capital but we'll use it in the business.

Okay, great. Thank you.

Yes, one of the things that we did do, I mentioned earlier about our receivables being down with sales up. We did something different this year that we did have and I think we talked about it maybe at the last conference call, that growers that wanted to pay cash we had a program where some of the inputs that they were buying for '08 they can pay cash for, and to us it's an easy offering to do and something that I think we would -- we were very happy with the participation that we had and would continue to do so in upcoming years, and as long as growers remain healthy and want to prepay inputs, I think it makes sense for us. Okay. Operator?

Your next question coming from the line of Bruce Winter.

Particularly happy to see the debt down to $60 million, I'm looking forward to seeing the balance sheet and --

The comment I put in was for you, Bruce.

Good. Idaho, are you going to buy seed and then coat it with your's or somebody else's products and then sale seed or what's the thought there?

That's not on the board currently. The products -- some of the -- a number of flowable products get used for seed treatment, and so this would be products that, can be made there that would then be sold to people that would actually treat the seed.

Okay. Your products or other people's products that you -->

Well, we have some of our own, but predominantly right now there are products being run through there that -- for others that get used for seed treatment.

Okay, sounds good. And I would assume the CapEx for the Idaho plant plus the Missouri plant is relatively modest?

That's correct.

And what can you tell us about the access metam sodium line, as much as you can, like capacity and sales dollars per year and CapEx?

CapEx modest. The capacity is well beyond what --what would be needed in that area. So, the same as with our facility in Los Angeles, we operated a certain percentage, maybe 50% of the time, and metam is one of those high-volume items, the exact opposite of Impact®, where you're going out of a half-an-ounce to maybe three-quarters of an ounce per acre. Metam is 30 to 50-gallons an acre. So being close to the -- to the market is important. The market in Florida has been -- and the southeast has been growing steadily for us. We have a considerable market share in that arena, but methyl bromide, which is used strongly in Florida, is -- again continues to be phased out and the cost of using methyl bromide is higher and higher, and we think there'll be some good opportunities for growth in that region and we think it just makes sense for us to set up there.

And they import that product from foreign countries into Florida?

There are three current registrants of metam sodium, and so anybody looking to bring material in would have to -- would have to pay (inaudible) compensation to come in. We would probably look at this Florida facility as utilizing that for some of our export business, as well. We do participate in markets outside the United States and we ship material from our Los Angeles facility down to Mexico and South -- and central South America. We'll look at t logistics and freight and see does it make sense to ship from Alabama? We have an advantage in the Alabama facility in that it's a very low-cost of raws compared to -- compared to the other manufacturing facilities because the raw materials are made -- the biggest raw material is within a couple, three miles away from the access facility, and the other two raw materials that get used are also very, very close. So it's the lowest cost logistically of raw materials and so it just makes sense for us to produce it, meaning it should be our low-cost production area rather than producing in Los Angeles and shipping to Florida.

That makes sense.

(inaudible) having material being shi -- raw materials shipping from the southeast to Los Angeles being made and then shipping back, this just makes more sense to do it there.

Sounds terrific. Shifting gears, there was a lawsuit in Los Angeles that was announced in November concerning DBCP and DOW and (inaudible) were held liable. Were you in that lawsuit, and if you were, why were you successful?

Well, we happen to have Tim Donnelly, our DBCP in-house counsel guru sitting in here, so I will let him answer that question.

Yes, it's Bruce, right? The -- we were involved in that case and we ended up settling out of the case in advance of it going to trial and really we were settling out for a cost of defense, that in fact it would have turned out the be well less than cost of defense. So we think that the remaining co-defendants carried on a vigorous defense. Probably our presence there wouldn't have added much to the -- our involvement in that entire market of DBCP was comparatively very small, and as we understand it, the -- it's likely that the decisions going to be appealed by one or more of the co-defendants, [It's just the close of trial stuff right now, as I understand it,]

While I've got you on the line, do you have any comments on the [Sedow] lawsuit?

The only comment I would have is that at this stage in the game, the -- Sedow has sought a preliminary injunction against us and that the federal court seated in Atlanta denied that injunction, finding that there was not a substantial likelihood on the merits of any of their claims, so while that case remains pending, the disposition of that motion is certainly clear.

Thank you very much. Congratulations on a great year.

Thank you.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of Mark Gulley of Soleil Securities.

Eric, I want to see if you can comment on some competition that you're going to expect to see in the two key initiatives that you have talked about today. Let's start first with completing herbicides that could be in tank mixes with respect to the tough-to-control weeds, and then what other corn soil insecticides you think will give you a run for you run for your money, as you go after those two submarkets?

With regards to Impact®, you're saying what other products that might team up with Roundup as a tank med partner?

Yes. As I walked around the show floor in Nashville, the (inaudible) Classic, a lot of people had promotional literature and posters and stuff in their booths saying that they're also on the case when it comes to tough-to-control weeds. So as you take a look at Impact® and how it stacks up against products from FMC or perhaps even Syngenta, how do you think you stack up?

Yes, we -- with regard to Syngenta's product -- if you're talking about CALLISTO -- the advantage we have there is that we kill grasses and they're not effective on grasses. They do a good job on broad leaf. Bayer's launching their new product, [Laudis], which is in our review does have activity on grasses, although not to the level that we have, and also does a good job on broad leaf. We think we've positioned our product well, we're -- we're the ones that are getting listed on Roundup, and again, they're driving -- they're really driving that whole train. We're not naive enough to think that we're going to own this market, but we think we've held up very well. We've penetrated extremely well in the limited time we've been in this market ,and our customers seem very, very pleased and we seem to be gaining more strength with our customers against -- against competition. I think [BSF] status product is very strong. That's a, a mixture with dicamba. That seems to have been positioned fairly well. But I think if you've got a good product and it performs and your customers can make money and your ultimate customer sees a good return on investment and you're out there promoting it and you're doing the job, I'm confident that we're going to continue to penetrate and gain market share in that arena.

In the corn field insecticide, that's -- this is a market that took -- traditional corn field insecticide took a big hit. The bag business has dropped very dramatically. We haven't taken anywhere near that big of a hit in our SmartBox . In fact, our SmartBox sales -- our systems are up quite a bit this year over last year, so we think we've an got an on-going, long-term viable business here. So what's our advantage? Well, the other companies, I'm not really aware if anybody who has more than one insecticide that fits that market and we've got six. And so I think we're in a good position and all of the new planting equipment, the only equipment that will attach to that and allow granular application is SmartBox, with the exception of -- I think Syngenta has a liquid that can go on to the equipment, but traditionally growers have not been as accepting of liquid products and have found more efficacy with granular products.

So our biggest down side in the corn field insecticide market is if we can't show a return on adding, adding granular products to the seed. If the seed shows no problems going forward and they stack enough traits and it becomes the perfect thing there's no reason why somebody would add on the granular products if they can't see yield enhancement or they can't see [fetters]. But there have not been historically any genetic products that have not had some holdover time, and we think we're in an ideal position to capitalize on those holds and to really enhance the value of traits on a long-term basis.

Sounds good. You talked about a 30% decline in Bidrin, I think, or maybe cotton products overall for '07. What is your outlook on how much cotton acres will be down this year, '08, and therefore what kind of further decline might you see in BIdrin perhaps?

The -- I had said early on that cotton would be up because I thought that corn growers -- I mean the corn -- a lot of corn that was done down in the south did not get harvested and so I thought a lot of these guys would switch back, but with wheat and soybean prices where they are, and cotton has not increased to the price levels that would make a difference. If it gets up into the 90 -- it's still a moving target, but at this point I think cotton acres will probably be down maybe another 10%. I think there was was discussion around 10.5, 11 last year and there's -- saying it could be nine to ten this year. So will it have -- our early use or position of Bidrin seems strong. There does seem to be some shortages of products available. I think demand's going to be very strong across the board for insecticides and herbicides and there are a number of products that are showing up short, and we'll see. If that's case we may see stronger use for Bidrin '08 than we did in '07.

Okay. Thank you.

There are no further questions. I will now turn the conference back to management.

Okay. Well, again, thank you very much for participating with our conference call, and we'll look forward to updating you over the next quarter on any new directions that we go and then we'll see you at the next conference call, which will occur in May -- first part of May. Thank you very much.

Ladies and gentlemen, this concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.