American Vanguard Corp (AVD) 2008 Q4 法說會逐字稿

Good day, everyone. And welcome to the American Vanguard's fourth quarter and full-year 2008 financial results conference call. At this time, I would like to inform you that this conference is being recorded. (Operator Instructions)

I will now turn the conference over to Bill Kuser, Director of Investor Relations. Please go ahead, sir.

Thank you very much, Brandy. Welcome everyone to American Vanguard's fourth quarter and full-year 2008 earnings review. Our speakers today will be Mr. Eric Wintemute, President and CEO of American Vanguard; Mr. Trevor Thorley, our Chief Operating Officer; and Mr. David Johnson, the Company's Chief Financial Officer.

Before beginning, let's take a moment for our usual cautionary reminder. In today's call, the Company may discuss forward-looking information. Such information and statements are based on estimates and assumptions by the Company's management and are subject to various risks and uncertainties that may cause actual results to differ from management's current expectations. Such factors can include weather conditions, changes in regulatory policy, competitive pressures, and various 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 and such information will not necessarily be updated by the Company. With that said, I'll turn the call over to Eric.

Thank you, Bill. And good day, everyone. And thank you for joining us as we review our recent performance. We are pleased to report a continuation of the steady improvement that has characterized our business over most of its history, and particularly during the last two years.

I am pleased to have with me today, Trevor Thorley, our new Chief Operating Officer, who joined us recently from Valent USA Corporation, a subsidiary of Japan's Sumitomo Chemical Company. Trevor has a distinguished career in the agricultural chemical sector. And we are confident that his talent, energy and experience will contribute to American Vanguard's continued success. Trevor will tell you a bit more about his extensive background during this call and of course, will participate in answering your questions after our prepared remarks.

As David Johnson, our CFO, will highlight, quarterly sales, operating profit and earnings per share all increased modestly over the fourth quarter of 2007. And our full-year 2008 performance resulted in record revenue, record net income and earnings of $0.73 per share. This was accomplished despite some significant obstacles in the form of higher raw material costs, increased logistics expenses and weather-related difficulties experienced during the corn planting season. Our 2008 gross profit margin of 43% is a reflection of our branded product portfolio, our focus on specialties, specialized niche markets and our ability to price our differentiated offerings for the value that they provide in enhancing grower productivity and ensuring grower quality.

I will now turn the call over to David. And when he is done, Trevor and I will comment on recent projects, our market segments and some views regarding our industry and our Company's prospects, as we see them in the first quarter of 2009. David?

Thank you, Eric. Good morning and good afternoon to everyone. My comments today will deal with the highlights of the fourth quarter, the full-year 2008 and some topical issues for consideration as you analyze our future prospects. We will be filing our 2008 10-K report with the SEC by the end of this week. That document will contain considerable additional details on many of the topics that I will touch on today. For the quarter ended December 31, 2008, our sales were up 3%. Eric has already briefed you on the details but I will add a couple of points. Sales of our new product lines continue to perform very well.

Furthermore, our international sales are also well ahead of last year. We recorded good sales performances in the quarter for IMPACT, which was ahead of last year. Our insecticides, Phorate and Counter, were strongly ahead. Our fumigant products also sold very strongly in the quarter. The offset was primarily sales of our corn insecticide Aztec and our cotton insecticide Bidrin, were both somewhat lower than in Q4 of 2007.

Raw material price pressure on commodities in basic chemicals eased somewhat in Q4, so this will take some time to move through the supply chain. Overhead manufacturing costs have increased compared to the comparison quarter in 2007, mainly as a result of adding Hannibal and Marsing to our portfolio of manufacturing assets. Gross margin for the quarter is at 44% in 2008, compared to 45% in 2007, demonstrating the robustness of our business model in turbulent times.

Operating expenses were down 25% of sales, compared to 26% of sales in Q4 of 2007. Costs associated with expanded product portfolio, including intangible amortization, product defense, and product development all increased. This was offset by a better performance on distribution, down from 9% to 8% of sales; and lower selling expenses, as a result of cost reduction actions; and some mix effect on program expenses. Our overall interest expense is in line with last year. Our higher average borrowings level, fueling our growing business, compensated by a reduced LIBOR rate.

Now, I want to provide some perspective on our full-year 2008 performance. As Eric said in his opening remarks, we are pleased to be able to report that sales revenues rose 10% from last year's $217 million, to a level of $238 million in 2008, which has been achieved despite this extraordinary period for our country's economy. This is a record level of annual revenues for American Vanguard, driven by gains in crop and noncrop products, including our new product acquisitions and our international sales expansion in Canada and Latin America. Our 10-K will provide you with additional details.

We have reported on our sales dynamics during the various quarter conference calls. But to give the big picture summary for the year, we've had a great year with our mosquito adulticide product, Dibrom. Our fumigant product line continues to grow strongly. Our Phorate and Counter product lines, acquired in the last couple of years, have been very stable. Our Mexican business continues to grow nicely. And we have now added a business in Costa Rica, modeled on that Mexican structure. Our new product line acquisitions have beaten first-year expectations.

As we have reported through the year, we have had some challenges, with regard to our key herbicide, IMPACT. While our field reports suggests that product on the ground in 2008 has been good and we did see stronger sales in Q4 of 2008, this was not sufficient to reach full-year 2007 levels. We are anticipating improved sales in 2009, as distribution inventories are estimated to be lower than that -- than at the same time of last year. Our corn soil insecticides had a pretty tough year, mainly associated with adverse weather conditions during the Midwest corn planting season.

Our key raw materials, particularly those based on sulphur, phosphorous, petroleum and other base chemical commodities have been on a roller coaster ride in 2008. We have responded to these movements with inventory purchase decisions, long-term purchase agreements and sometimes product selling price increases. Despite all of these moving parts, our gross profit has remained stable at 43%, compared to 44% last year. This is within our normal range of year to year movements over the last several years. Overall, our operating costs for 2008 ended at 27% of sales, compared to 28% of sales in 2007. This is the result of a great deal of effort to control costs in this turbulent period, while maintaining high standards in product stewardship and at the same time, delivering great customer service.

Within operating costs, we have; increased field support for our patented delivery systems; increased advertising; increased our product line stewardship costs, including intangible amortization, product defense and product development; added to our resources, particularly in finance, supporting the control side of our growing business. Our interest costs have been significantly lower in 2008 than in 2007. Although we have increased our average borrowings by $8 million, the offset has been a much lower LIBOR rate, which drives all of our interest rate. Overall cost savings, about $1.4 million. During the year, we have also spent time looking closely at our tax positions. And as a result, have been able to reduce our effective tax rate.

As reported in the earnings announcement, net income is up 7% to $20 million. And EPS is up 7% to $0.73 per share. This strong continued earnings performance during 2008 allowed the Board of Directors to approve dividend payments of $0.08 per share during the year. The Board has continued that performance with the announcement today of a first dividend in 2009 of $0.05 per share.

At the last conference call, I made some comments about our relationship with our banking syndicate. I want to reiterate those comments here again today. Since our last conference call, I can report that the Company and the Bank of the West have continued regular face to face meetings. These meetings are a longstanding activity for the Company and are focused on maintaining an open dialogue between us. The Company believes that this is a critical relationship for the Company, never more so than in -- than during these times. We believe that the Bank and its syndicate partners remain highly supportive of the Company.

Furthermore, in recent period, the Company has expanded its disclosure in our published financial statements, regarding it debt structure and credit facility. We understand how important this is, given all of the discussion about credit trench issues affecting the economy today. You will find quite a lot of information in the 10-K. However in summary, our debt structure is as follows. There is a $52 million term debt, with repayment scheduled through the end of the term in December of 2013. We have a working capital revolver debt with a balance, at December 31, 2008, of $24.5 million. The capacity on this line is up to $75 million and it runs through December of 2011. We have an additional facility, amounting to $30 million, for special product acquisition purposes.

You will see in the 10-K that our total borrowings at December 2008 was $84 million. This is compared to $60 million at the end of December 2007. There are several important drivers of this increase. Our capital spending has been slightly higher than in prior years. This includes; at Axis where we have invested in a new Metam facility; upgraded some complex control equipment; improved our waste stream handling; and put in place the capability to manufacture molecules, as part of our tolling activities.

At Hannibal, we have updated our manufacturing control systems, which was critical to improve quality and safety. At LA -- at our Los Angeles facility, we have invested in improved safety systems and some other essential items. We have expanded our product portfolio at the start of the year. And later in the year, we have solidified our positions in other product lines with key bolt-on investments. We have opened a selling office in Costa Rica and started to build up that business, following the tested model used in Mexico. Having said that, it is also important to acknowledge that our inventory levels have increased compared to last year. Some of that increase is associated with new or expanded product lines. Some related to new tolling agreements. But we also accept that inventory management is a key management focus going forward.

Looking forward, I think there are several items that investors need to consider. We are working hard on our inventory levels. However, as all ag companies experience, inventories tend to go up at the start of the year, ahead of the spring planting season. Our international sales in ag are growing. We have had a good performance on receivables, historically. And we are working hard to monitor the quality of our entire exposure to receivables. We expect that normal capital spending going forward will be somewhat higher than historical levels, which relates to now having four manufacturing plants.

As Eric will describe, we will continue to explore product acquisitions and regional expansion opportunities, that are at the core of our successful business model. Costs associated with these activities are now required to be expensed in the period in which they occurred -- they are incurred. So you may see occasional variations in quarterly financial performance, as a result of this change. I will now hand back to Eric.

Thank you, David. Now, let me comment on a number of topics that will give you some flavor for what we have been working on to continue our success. As previously announced, we recently completed the construction of a Metam sodium production unit at our Axis, Alabama facility. This project has experienced a smooth start-up and we have been shipping product to our customers since November. It gives us an expanded operational platform to service our larger product lines of VAPAM and K-PAM soil fumigant products, in the southeast United States. Where demand is expected to increase in the coming years.

In August of 2008, we introduced a pest control product called Nuvan Prostrips, which allows professional pest control operators to extend the effectiveness of their standard treatment services. By positioning these devices within the confines of the treated area, pest control is maintained for several additional months, negating the necessity of an expensive full-scale retreatment. In December of 2008, we received our registration for bed bug control. This is the significant, in that bed bugs and their control is an emerging opportunity for the hospitality, multi-unit, residential and single-family residential market segments.

Efficacy data for Nuvan Prostrips clearly demonstrate 100% effectiveness against both susceptible and nonsuceptible strains of bed bugs and their eggs. AMVAC is well positioned to obtain its share of this market, valued at $4 million in 2007, which grew to $6 million in 2008. That may not sound like a large market but the service level revenue generated from this in 2007 was $180 million, which grew to $300 million in 2008. Customer response to this introduction has been excellent and we expect this product to grow into a significant part of our noncrop product portfolio over the next few years.

We have taken full advantage of the market opportunities for the two newest products that we acquired around the beginning of 2008. With the PCNB Terraclor line, which we procured from Chemtura, we have been able to penetrate new markets, introduce a new formulation, and expand internationally, and price our entire product line to reflect the value that these fungicides offer to users. With the Orthene line, acquired from Valent, we have broadened our insecticide offerings in cotton.

As mentioned in previous conversations, our international sales and marketing efforts are continuing to enjoy great success. As our 10-K filing will illustrate, Canada, Mexico and several Central American markets contributed to a 25% growth over last year's excellent results in the international market. As we have indicated in prior conference calls, our intention is to continue this expansion with additional resources of our own and/or in conjunction with other companies that are positioned in various international markets and interested in mutually beneficial collaboration. Now let me ask Trevor to take a moment to give you a little background on his experience in our industry and make a few comments on the state of the market segments that we participate in. Trevor?

Thank you, Eric. First, it is a pleasure to have this opportunity to introduce myself to all of you who are interested in American Vanguard. I've been involved in agriculture my entire life. I've been grown up on a family farm in England and having pursued academic studies focused on this industry. Much of my early career was spent with Bayer, where I had increasing management assignments, including Midwest Regional Manager, leading Bayer's noncrop business and becoming Senior Vice President of Sales and Marketing from 1998 to 2002.

I was able to assume considerable general management responsibility with my move to Valent USA, where from 2002 to 2009, I was President and COO of Valent USA, responsible for North and Latin America business. We accomplished significant growth of sales, profit and dividend contribution to our parent company Sumitomo Chemical. I also had the opportunity to become the first non-Japanese executive officer for the Tokyo-based multibillion dollar corporation, Sumitomo Chemical.

I have gained a great deal of insight as a member of our industry trade associations, such as CropLife America. Participation, which affords one an understanding of this industry's complex regulatory environment. Involved for many years. In the '90's involved with [Ryes] the noncrop segment and recently, on main Executive Board, as Vice Chairman. We have a great industry, that feeds the world as a result of our products. We need to be involved with our industry association to reinforce the positive messages with all stakeholders, visits to the capital, in D.C. last week, are one recent example.

Finally, I'm often asked to describe my reasons to coming for American Vanguard. My main reason for joining AMVAC is a belief is the Company's business model, its strategic direction, the leadership on the Board of Directors and in management. And most importantly, on the growth opportunities I see in this industry for AMVAC to capitalize on the in the future.

Now regarding some of the main areas of interest, corn. In 2009, we anticipate 85 or more million acres of corn will be planted in the United States, largely using genetically modified seeds. We believe that this market will still require several years of 5 plus million acres of resistant management refuge practices, which demand use of corn soil insecticides. We also presume that there will be a gradually multiyear decline in the need for such set aside acres, with the introduction of multimode ACTION, SmartBox and optimum GMO seeds.

More importantly for American Vanguard, we expect to see steadily increasing use of granular soil insecticides, alongside GMO seeds. Two years of independent university work and field trial evaluation, shows that significant yield enhancement can result. This is particularly true in the 15 to 20 million acres of US planted corn that suffer from moderate to high soil infestations. In many of these areas in eastern Iowa and Illinois, this use of dual technology is gradually becoming a proven practice. Our IMPACT, post emergent corn herbicide, had a strong 2008, with good field and excellent crop safety compared to many competitors. We see this trend continuing in 2009 and beyond.

Cotton, in 2009, will likely experience a modest additional decline from last year's roughly 9 million acres. Nevertheless, we are well positioned with our branded insecticides Bidrin and Orthene and Folex herbicide. In our other market segments, vegetables, fruits et cetera, a variety of influences exist. As usual, commodity prices will dictate some planting allocations and weather may complicate portions of the growing cycle. Some regional issues, such as the potential water shortage in the Central Valley of California, may cause temporary softness in the production of certain crops. And therefore, use of some crop protection products. While peanut growers need to recover from recent quality product problems, our market position insecticides, in that segment is very strong.

In general, assessing the pluses and minuses, our prospects in these many diverse markets remains quite solid. I will now return the call to Eric.

Thank you, Trevor. In this time of financial market uncertainty, many people wonder whether changes in farm sector credit policies and government subsidy programs may negatively influence grower economics and psychology over the next few years. It certainly could. And we hope that the compelling worldwide need for greater agricultural output will influence and persuade legislatures to enact programs that encourage, not discourage, expanded farm production. Likewise, the regulatory climate in the EU and the United States is a constant challenge as chemical reregistration requirements continue. And sometimes, the crop protection tools that farmers need to fight infestation and enhance productivity are put into jeopardy. At American Vanguard, we became accustomed to dealing with these variables. And I have -- and I think that our product platform, our manufacturing control and our marketing expertise are well suited to cope with requirements of this industry.

Let me leave you with some final points that summarize 2008 and serve as an investment rationale going forward. American Vanguard's performance is the result of several important factors. First, we have diverse participation in many different segments of the North American crop protection business, in corn, cotton and numerous fruits and vegetables. Second, we have the ability to transfer our technology and expertise outside North America, as we continue to expand internationally, particularly in Latin America. Third, we have participation in a number of important and growing noncrop applications, where our products offer unique solutions for a variety of pest control challenges.

And finally, we have the organizational capability necessary to handle all of the elements required for such a business model to succeed. The knowledge required to assess and acquire new product lines to complement our existing portfolio. The veteran sales and marketing expertise to reposition, rejuvenate, promote and capture sales and opportunities in numerous sectors. The operational experience needed to manufacture high quality products and deliver them to customers in an efficient cost effective and timely manner. The reputation earned for successfully handling the complexities inherent in complying with many regulatory registration requirements, in several different jurisdictions, for many different crops.

This is a skill set that is proven, a business model that is proven and a record of financial success that is proven. We intend to continue proving ourselves in the marketplace, expanding our footprint in this industry and earning the returns that our investors expect and deserve. We'll be happy now to take any of your questions.

(Operator Instructions). Our first question comes from Mark Gulley with Soleil.

Good afternoon. I have three questions if I may. First is Eric, can you kind of size the overall participation in corn this year amongst IMPACT, Counter, other products? And maybe Trevor can comment on how much that could grow in '09?

By size, you're looking for --?

Sales.

Sales. Which we typically don't give by product line. But for our -- and part of this is, our Counter gets used in sugar beets and sugar cane, as well. But let's say, let's see, we've got -- we're somewhere in the 20 million range, as opposed to the previous year where we were probably more in the 27 to 28 range.

Now, is that corn overall or just for Counter?

No, this is corn -- this is corn insecticide.

Right.

The IMPACT would be on top of that.

And how much could that be? I'm trying to get the idea of both the herbicide side and the insecticide side.

For the year.

So IMPACT, again, was down some, mainly because, I think, we saw the actual pounds on the ground grew.

Slightly.

Yes. But just because of the positioning, when we positioned in third quarter, fourth quarter last year versus what we positioned into the market this year; we were down probably 25%. But that's mainly a positioning issue. Trevor, I don't know your thoughts on going forward and our new Smart Choice?

Smart Choice, yes. This is Trevor. The soil insecticide market, we're seeing a change here. I was at the Commodity Classic in Dallas two weeks ago talking with several leading corn growers. We're getting some traction on our positioning of these products for yield, as opposed to the, I should say the old positioning to do with corn root. So that's good. A lot of interest in nematodes, used particularly on some of our products.

So, there's a change going on. We are launching a new corn soil insecticide side called Smart Choice. It is a limited launch, what I call a prelaunch this year, for significant growth in the market next year. So, we're just starting with that literally in the last two weeks. I have been working a lot with our product management on the positioning and getting more definition of these products in the marketplace. We're losing a little bit in sugar beet with the new technology there. But I think we're gaining in some areas with this yield message and use on the nematodes. So, that's soil insecticides.

The IMPACT, I believe we lost some sales last year with the weather conditions, at planting time, just after planting time. So I'd like to -- if we get normal weather conditions and who knows what that means, there should be a solid on the ground performance. We are seeing some reordering at the moment because inventories are lower in the channel. So that's a positive sign. And we're seeing a broader uptake in new geographies, partly linked to some changes we've made in the sales organizations, a new regional manager that really knows the herbicide market in corn. So, these are some things that we're working on heavily in the Midwest at the moment.

And then second question is, would you expect cotton to be down 1 million acres from about 9 to 8 million acres from '08 to '09?

Yes, this is Trevor again.

And that would pressure your Bidrin, quite a bit, I would think.

Yes, California is definitely going to be down but that was not a big market for us. I see a little bit of softness there with one of our insecticides. The jury is still out in the mid South. It's talking again with corn growers about a week ago. It looks like some of that may come back, there's a lot of discussion on it. It's going to be interesting to see what happens with the peanut acres in Georgia. We may see a little bit of a spring back on some cotton there. And the commodity prices, at the moment, have got a lot of growers that are making their final decisions on planting, on some of this at the moment. So I still think it is going to be down 1 million, which is the official number. It may not be quite as much as that as we go forward here.

And then finally, a housekeeping item. Can you comment on the impact of acquisitions on your sales growth, either for the year or for the quarter?

Okay. So I think they were certainly a good part. I think we were -- let me just see here. Certainly, -- so Orthene and PCNB were probably combined, responsible for probably 50% of our of our growth in the year.

Thanks, Eric.

Our next question comes from Jay Harris with Goldsmith & Harris.

Good morning.

Good morning, Jay.

How much should we think of cash coming out of inventories during the course of 2009? In other words --?

That's a Herb Kraft question.

Well, he's my mentor.

I know. This is an area that with we have clear directive from the top to work on. And so we will -- as far as a target that I'm comfortable discussing, public form, I am not there, however, we expect to make strong progress this year. Part of this is a function of traditionally, we've wanted to make sure that we never left an opportunity hanging. And so we want to temper that with the idea of managing our inventory more prudently. And we are -- we have started different processes to do that. And I think, again with Trevor's help, as well and some more financial direction, I think we can get a handle on moving that down into a position where -- we'd like to turnover inventory more rapidly than we are.

But what was the capital spending in '08 and what do you think it will look like in '09?

It's $14.3 million in 2008 and we're anticipating something in the region of $10 million to $11 million in 2009.

Okay. I'll get back in line. Thank you.

Our next question comes from Nick Genova with B. Riley & Company.

Hi guys, a couple of questions on revenues, first. I looks like the revenue growth was a little bit more muted in Q4 versus Q3's year-over-year. I was wondering, can you quantify to some degree the effect of the Aztec weakness and Bidrin being lower?

Well, I think what we did see in fourth quarter, I think was a number of farmers kind of delaying to probably respond more in season. We kind of expect, over the next couple of weeks, things to go off at a pretty good clip. And as such, I think distribution had some concerns as well, as far as inventory positions. I think a number of people out there, not just distribution but also retailers, have some concerns with their fertilizer inventory. And again, fertilizers have come down dramatically, as have some of the key intermediates that we've talked about in the past. And as those have moved down, farmers have taken a; "Well, let's see how far things can go," approach. Chemicals seem relatively stable but then on the other hand, they didn't jump up dramatically in price to the farmers, such as fertilizer. But yes, I think we feel good about the position we're in. The fourth quarter, we basically let the chips fall where they may. And as you pointed out, it did not result in a significant increase in sales for the quarter. But our feeling is that the outlook going forward looks cautionedly optimistic.

Okay. And then, I know you don't give specific guidance. But looking ahead to Q1, can you go over what dynamics may be in play there? And to you point that you just made, as far as the people looking to make their purchases closer to the actual growing season, is that going to cause a delay again in Q1 or would you expect sales to be up in Q1?

It could. Again, it's going to be a function -- people were talking about March 15, the bell goes off and everybody is going to scrambling to figure out how to get materials logistically out there before planting and application times. But we'll see how that plays off. So it's -- we still have a couple of kind of key weeks in the quarter ahead of us.

Okay. And then, moving onto the revenue growth in the Metam product line. Is that primarily driven by -- or can you break down the drivers between price increases and what the revenue growth from that was versus volume increases?

I think we're about -- we were up in volume by maybe 5%. The rest is driven by the cost increases we received and the necessity to price -- to pass those cost increases through.

So overall, was that product up about 10%? Is that reasonable?

Yes, so for the year -- I'm sorry. Just give me one second. Yes, so overall, we were up about 25%.

Okay. And then the volume increases, just in rough terms, can you break that out? And was North America up as well -- or the United States or was it more driven by international growth?

Yes, it's -- the US was up. We did have some increases in Mexico as well but largely, US.

Okay. And final question. Is there any reason that those price increases won't stick or are you guys pretty comfortable with where you're at on that?

Well, we're, yes -- we haven't seen any erosion yet and are not expecting that erosion. I think the pricing in the marketplace today reflects the current raw material pricing.

Okay. Thanks.

Our next question comes from Jay Harris with Goldsmith & Harris.

Could we get a distribution of percentage of sales, noncrop percentage international, even though it overlaps the revenues from corn and the other principle crops?

I don't think we've got all of that broken out. But it's -- it will be in the 10-K.

Isn't that filed today?

It will be filed, I think we're talking about Wednesday.

Friday.

Friday, okay, Friday. So, noncrop percentage is about 19%.

And international?

International, I don't know that we've got that per se. Do we?

It was 80.

So yes, international, yes about 17% as well. And then, do you have a number for total revenues from corn activities?

I don't.

Some of the the corn insecticides go across multiple crops. So, that's the difficulty on that one.

I think I gave on an earlier question to Mark, kind of some parameters on that.

Are you going to make available at some point, an end-use profile of revenues?

Yes. So, you're talking about a wheel that shows cotton and corn and --?

Something like that.

Yes. So probably, would look to do something like that, in maybe investor presentation coming shortly.

All right. What -- we're, it looks to me -- and I don't know -- first off, I'll pose it as a question. Does it appear that the planting of corn this year would be more closer to historical seasonal than the delayed experience that we had in 2008?

It's Trevor. They started planting corn in Louisiana last week but the newest cold cell is going through the Midwest. So, this is going to be totally related to the weather conditions. Growers want to get back to the normal. That's certainly the clear intention. But we're going to be driven by these fronts that keep going through the Midwest and the middle part of the country at the moment.

Well, how -- let's assume that it goes back to normal. What will that do to your business activity? Will that mean more revenues in the March quarter and/or much more revenues in the June quarter?

I think it will be the second quarter.

The second quarter, okay. Thank you.

(Operator Instructions). Our next question comes from Bruce Winter, an Independent Investor.

Bruce, are you there?

Yes, can you hear me.

Slightly.

I'll try another phone. Just a second.

Okay.

Okay. Can you hear me now?

Yes, can hear you well.

Great. I want to drill down into soil fumigant, specifically volume only and not sales dollars. And specifically, the fourth quarter 2008 versus first quarter 2009. I know that you can pull volume between one or the other quarters because of weather conditions and promotional activities et cetera. I also know that you started up a plant in the southeast and you've also increased your sales in Mexico. Can you go through all of those factors and try to compare them with the previous first quarter versus fourth quarter comparables?

Yes. So historically, first quarter is -- the first and second quarters are our weakest quarters. There's really no movement from fourth quarter into first quarter. Fourth quarter really wraps up, largely driven by the potato acreage, getting fumigant down before before snows hit. So, there's really not a movement, positioning per se, usually in the fourth quarter for first quarter sales. There are markets, California and the Southeast markets are active in the first quarter. But as you imagine, in the northern part of the United States, it's cold and snow and they don't do any -- very, very limited applications of Metam. So with Mexico, we've participated in that market. We are, I think, cautious of credit and devaluation that's occurred there. So I think we have been prudent about what sales we are making, not only in Mexico but in a number of countries. And again, we've got a long record of not having bad debt positions and it's something we want to maintain.

What's the Mexico model that you referred to under the Costa Rica expansion discussion?

Well, I think it's -- we started slow in Mexico. We've built kind of a person at a time. We made sure that we didn't take unnecessary credit risks. We made sure that the companies we were selling to understood that they needed to pay on time. I would say we've kind of earned our percentage in the market through quality service. And so, I think that's the model we're following in Costa Rica. That we've got people on the ground there that we are looking at growing through, what I would call sustainable, strong stewardship, leadership that we would provide for our products. To make sure that the people that do our products apply them in the safe manner, in which they're intended.

But what portion of the accrued program costs of $16 million and change do you expect to amortize in 2009?

It's -- that's the assessed liability for program payments, as they relates to sales in 2008, that have not yet been paid. As we go through the year, we have a process of accruing programs and paying programs. Different product lines have different seasons, so the program payments come at different times of the year.

But how much of that $16 million and change do you expect to amortize in 2009.

Well, it will all be. It will all be paid out in 2009 and it will be replaced by accruals that relate to sales in 2009.

Okay. So, you'r accrued program costs really decreased quite a bit year to year, 2007 versus 2008?

There were a couple of main aspects so that. First of all, the particular sales that we have during the year, some are based on net payments and some are based on payments -- sales that involve programs. And there was a different mix of sales in the latter part of the year. That means that there's an entirely different sort of cross section of product lines represented in that $16 million. And the second one is that, we decided to make sure that we paid promptly in the latter part of 2008 and did not hold payments over to the start of 2009. And that was received very well by our major key customers.

Sounds good. I thought you guys did a very good job in managing costs, given your increased footprint. Thank you very much.

Thank you.

(Operator Instructions). There are no further questions. I will now turn the conference back to management.

Okay. Thank you very much, operator. And thank you all for joining us here today. We look forward to sharing additional developments as they occur. And again, thank you very much for participating. Good day.

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