Executives
Stephen C. Forsyth - EVP, CFO, and Treasurer
Robert L. Wood - Chairman and CEO
Analysts
Robert Koort - Goldman Sachs
Paul Hunt - Banc of America Securities
Steven Schwartz - First Analysis Corporation
Saul Ludwig - KeyBanc
Michael Judd - Greenwich Consultants
David Begleiter - Deutsche Bank
Jonathan Grassi - Longbow Research
Robert Felice - Gabelli & Co
Edward Yang - Oppenheimer & Co
Amy Chan - Goldman Sachs & Co
Chemtura Corporation (CEM) Q4 FY07 Earnings Call February 15, 2008 9:00 AM ET
Operator
Please standby. We are about to being. Good morning, ladies and gentlemen and welcome to the Chemtura's Fourth Quarter Earnings Conference Call. Today's conference is being recorded. Please be aware that there will be a question-and-answer session after the main presentation.
At this time, I would like to turn the call over to Mr. Stephen Forsyth, Chief Financial Officer and Treasurer. Please go ahead sir.
Stephen C. Forsyth - Executive Vice President, Chief Financial Officer, and Treasurer
Thank you very much. Well, welcome everybody to Chemtura's fourth quarter and full year 2007 investor conference call.
With me today is Bob Wood, Chairman and CEO of Chemtura.
To complement our press release issued last night, as usual, we have provided additional quarterly information that can be found in the Investor Relations section of Chemtura's website.
Now, let me revisit our usual cautionary reminder. Today's conference call and webcast commentary may include certain forward-looking statements, which by their nature involve risks and uncertainties. Further information about such risks and uncertainties can be found in the Company's filings with the Securities and Exchange Commission. Such statements reflect Chemtura's best estimates and assumptions, based on the currently available information and actual results may differ significantly from any prospective results discussed today. Forward-looking information is intended to reflect opinions as of the date of this call and such information will not necessarily be updated by the Company.
Well, before discussing the fourth quarter results, let me briefly discuss the form of our press release last night. As we noted in the release, we have not yet completed our tax counting as of December 31, 2007. We therefore concluded that we should issue this preannouncement so that we might discuss with investors the Company’s performance and that of its business segments for the fourth quarter and full year of 2007 on a pretax GAAP and non-GAAP basis. We trust that investors will find this information and the preannouncement will permit them to obtain a good grasp of our fourth quarter performance.
As we have not finalized our tax accounting, the preannouncement does not include the customary balance sheet or statement of cash flows. We have provided certain selected disclosures on total debt, cash and cash equivalents, and the value of receivables under our securitization facilities as of December 31, 2007.
Although, we would suggest that investors should also review our full balance sheet and statement of cash flows at such time we issue those complete financial statements for the fourth quarter and full year of 2007 to obtain a comprehensive view of the conditional liquidity of the Company. We will issue those statements as soon as they have been finalized.
Well, with said, let me turn the call over to Bob.
Robert L. Wood - Chairman and Chief Executive Officer
Thank you Steven and good morning everyone. Thank you for joining us today. As you will conclude as you analyze our pretax results, the fourth quarter was the first quarter in some time when we have been able to exceed expectations. We all expected to exceed expectations in the fourth quarter of 2006. The question was by how much. Not everything went exactly the way we planned this quarter as we will discus, but despite some headwinds we continue to make progress on our improvement initiatives.
In our comments, Steven will cover the financial details and I will discuss the trends in our businesses in performance as well as the strategic positioning of our Company. We will answer questions after our prepared remarks.
I will divide my comments into three major areas. First, trends that impacted the fourth quarter; second, progress on our restructuring initiative, including updates on our global manufacturing footprint and ongoing cost reduction efforts; and lastly, continuing progress on our portfolio refinement.
First, let me discuss the fourth quarter, which demonstrated clear year-over-year progress with revenue growth of 10% and non-GAAP operating income up 162% compared to the fourth quarter of 2006. Having done the math, you will conclude based upon our non-GAAP pretax earnings, diluted earnings per share on a non-GAAP basis will exceed both the loss of $0.01 last year and the FirstCall consensus for the quarter by a significant amount. We will provide the detailed GAAP and non-GAAP EPS numbers when we issue our completed financial statements for the quarter.
Gross profit expanded, up 170 basis points from the fourth quarter of last year to 23.6% compared to 21.9%. They also improved sequentially from the third quarter 2007 result of 22.4%. Three of our four business units continued to demonstrate the year-over-year improvement trend that we've seen for much of 2007. Performance specialties and crop protection showed strong growth in revenues, operating income, and operating income margins. Consumer product sales were a little weaker than last year and what is normally a seasonally slow quarter, but still expanded operating income and operating income margins.
Polymer Additives results did not reflect the progress we made, despite a recovery in demand in electronics markets compared to the third quarter of 2007 and a continuation of the trend of higher sales from PVC Additive applications versus 2006. These gains were offset by weaker demand in the quarter from oil and gas applications for clear brine fluids. But the biggest challenge continued to be higher raw material and energy costs and the lag in recovering those costs with price increases of our own. We are gaining momentum there and expect by year-end to at least keep up with additional raw material increases.
After the electronics market de-stocking cycle hit bottom in the third quarter of 2007. The pickup in orders we saw in September and October continued throughout the quarter. Sales of tetrabrom were up 11% from the third quarter, and while at comparable level to the fourth quarter 2006. While encouraged by the recovery in demand, I have to note that this is not as strong a recovery from cyclical inventory correction as we've seen during past cycles. With the recovery remaining sluggish in January, we interpret these trends to reflect broader economic uncertainties and their effects on the electronics industry.
Book-to-bill ratios for printed wiring boards paint a similar picture and slightly over one. From an operating margin, operating income perspective, the gains for improved electronic market conditions in the quarter were offset by lower demand for clear brine fluids.
Lower gas production in the Gulf of Mexico has impacted the demand for drilling fluids. While the return to some normal seasonal patterns has been slow to develop, we see signs that the second quarter may be better.
Building in construction markets remained weak in the quarter, but are not evidenced any significant new decline. Meanwhile, our PVC Additives products continue to reflect the higher sales volumes compared to 2006 that we have seen from much of 2007. This quarter’s revenues were up 21% year-over-year, due to the increased volume and price, as well as the weaker U.S. Dollar. The real issue for these products for much of the year has been raw material cost increases, particularly tin. Tin, which averaged $8,500 a ton during the third quarter of 2006 has risen all year and been around $16,000 a ton in the fourth quarter. Tin is used in the production of our heat stabilizer products. We have worked to pass on these cost increases to our customers and made further progress this quarter and in soft demand conditions not all of those increases have stuck.
If we look at the total Polymer Additives business year-on-year price increases contributed $10 million to sales and gross profit margin in the quarter, but raw material and energy costs increased by $21 million. Raw material cost increases have impacted a number of our product lines, but it is in the PVC Additive product line where we have found it hardest to pass on these increases to our customers. We have made progress over the last three quarters in eliminating fixed price contracts and minimizing inventory, so that there is less lag between increases in raw material costs and our selling prices, allowing us to implement a just in time sales model.
While this will continue to be a challenge, we are working hard to implement further improvements. As a whole, Polymer Additives revenue grew by 5% or $21 million compared to the fourth quarter of 2006. Increased prices contributed $10 million to revenue growth, foreign exchange contributed $7 million, and sales volume $4 million.
Crop protection was the star performer in the quarter. Revenues were up 27% compared to the fourth quarter of 2006, primarily due to increased global demand for insecticide products and greater agricultural demand across Europe. Operating income rose 382% in the fourth quarter as compared with the same quarter of 2006, led by improvements in product mix, favorable foreign exchange translation, and lower bad debt provisions attributable to Latin America versus 2006. Intense focus on our channel strength and registration skills to serve niche markets globally continues to be rewarded… continues to reward us with excellent returns.
Performance Specialties also had a strong quarter. Sales were up $70 million or 43% over the fourth quarter 2006, $50 million or 31% came from the Kaufman acquisition, $13 million or 8% came from organic growth in our traditional product lines, and the balance from price and foreign translation. Both petroleum additives and urethane contributed to this sales growth. With the benefit of a strong sales mix, synergies from the Kaufman transaction and cost reductions, operating margins expanded from 16.1% in the fourth quarter 2006 to 17.1% this quarter. Petroleum additives and urethane products increased selling prices recovering most of the increases in raw material cost.
With both the fluorine and optical monomers businesses has now moved to discontinued operations, the other business segments did not contribute to performance in the quarter. Overall, most of our businesses are continuing to show growth with the ability to expand profit margins as evidenced in recent quarters. In the next few quarters, our Polymer Additives business will start to demonstrate improvement as well.
Next, I will provide an update on the progress we have made with our restructuring initiatives. There are three pillars to our performance improvement initiatives. Turning around the performance of our Polymer Additives business is most intensely focused on our traditional plastic additives products, but include attention on our products based on bromine has progressed according to plan, reducing SG&A, improving pricing disciplines, reducing SKUs, as well as reducing our manufacturing footprints.
In April, we announced the programs to reduce costs that would result in reduction of over 600 positions, primarily in SGA&R areas. Reductions as of the end of 2007 were just under 600 with additional reductions in process for the first half of 2008. The $1 million reduction SGA&R compared to the fourth quarter of 2006 understates our progress.
Spending for the quarter was down 10% from a year ago before reflecting the increase the SGA&R from the Kaufman acquisition, the net impact of non-recurring items and foreign currency translation due to the weaker U.S. Dollar. SGA&R was 11.6% of sales in the quarter compared to 12.9% of sales in the fourth quarter of 2006. Our target continues to be less than 11%, so we progressed, but there is still more to do.
We have also continued our actions in the rationalization of our manufacturing footprint, which we believe represents the significant opportunity for improving operating efficiency, reducing cost and improving cash flow. Our actions to close two plants in Italy that we announced in June are today virtually complete, delivering the anticipated reductions in cost and headcount.
Our Canadian program proceeds on plan and is targeted for completion later in 2008. And as of December 31, 2007, the Company employed 5,144 people, a further 5% reduction in the fourth quarter. Additional reductions are expected as the Company completes its divestiture and other actions.
Finally, I would like to discuss our ongoing portfolio rationalization activity. Fixing the portfolio has been one of our highest priorities in fixing the Company and giving ourselves the platform for consistently growing earnings. We have now nearly completed our portfolio rationalization program. Thus far, we have sold seven businesses, with one transaction pending. At the end of October, we completed the sales of our optical monomers business and our Ravenna, Italy facility.
At the end of January 2008, we completed the sale of our Fluorine Chemicals business. Our focus now is on optimizing our Polymer Additives business. In January, we announced our plan to sell our oleochemicals business, which represents about 10% of the revenues of Polymer Additives business. This sale is a part of a process to focus on those elements of this business where we have the greatest potential for growth and margin expansion. We will have more to say on that in the near future.
Now, I will turn the call over to Steven, who will discuss the third quarter financial results. Steven?
Stephen C. Forsyth - Executive Vice President, Chief Financial Officer, and Treasurer
Thank you, Bob. Well, let me start with the review of each businesses non-GAAP results. As always more detailed financials on our segment statements in our release.
First Polymer Additives, where revenues grew $21 million or 5%, driven by a $10 million increase in selling prices, $4 million sales volume, and $7 million favorable foreign currency translation due to the weaker U.S. Dollar.
Volume growth came from surfactants, PVC additives, polymerization additives and initiators, offset in part by lower volumes, manned oxidants, and clear brine fluids. The operating income declined by $2 million due to a $21 million year-on-year increase in raw material and energy costs, which could only be partly offset by $10 million in price increases and $8 million of other net improvements.
Performance specialties as Bob noted grew by $ 70 million or 43%, driven by the Kaufman acquisition contributing $50 million, $13 million in organic growth, $3 million increase in selling prices and $4 million from favorable foreign currency translation. Both petroleum additives and urethanes contributed to the organic growth in revenues in the quarter.
Operating for the business... operating income for the business grew by $13 million or 45% in the quarter. $9 million came from the former Kaufman product lines and the balance came from the benefit of higher sales volume and cost reductions.
Raw material costs were partly offset by selling price increases. With the sales growth, improved mix and synergies from the Kaufman activities, operating margins increased by a 100 basis points from last year to 17.1% this quarter. This is the first quarter this year where post Kaufman transaction we have been showing increases year-on-year in operating margins.
The consumer product business revenues were down $5 million or 4% in the quarter, reflecting the focus on the quality of our earnings. The decline in sales is due to product mix, partially offset by higher selling prices and payable foreign exchange. Operating income increased by $1 million despite the lower revenues, reflecting the benefit of price increases and improved sales mix.
Crop protection that was the star for the quarter. Revenues grew by $19 million or 27%, driven by a $17 million increase in sales volume, due to increased global demand for insecticide products and greater agricultural demand across Europe. Their operating income grew by $18 million or 382%. The improvements was primarily driven by the results of the higher sales volume, lower bad debt expense related to Latin America, and of course, the benefit of our sale of the product line.
The Company records in its other business segment the results of the Company’s non-core businesses. As I noted last quarter, we expect it to shrink as we move forward with our portfolio realignment. This quarter, we started treating the optical monomers business and fluorine chemicals businesses as discontinued operations and now exclude them from this segment.
The decline in revenues, evident year-over-year in this segment is primarily due now to the divestiture of our rubber chemicals Celogen foaming agent product line in the second quarter. You will recall that we started treating our former EPDM business as a discontinued operation in the second quarter of 2007.
So, with most of our original portfolio alignment goals completed, this segment will now be a minor contributor going forward. As a result, there was no operating income for this segment compared to a loss of $7 million a year ago. However, pretax earnings from discontinued operations in the quarter reflect now all the contribution of the fluorine and optical monomers business and that contribution of $6 million up pretax income to the fourth quarter of 2007.
Let me turn to our consolidated performance. Bob has already commented on revenues and growth and operating profit margins. Let me give you some additional details. Fourth quarter revenues of $891 million were up 10% over the fourth quarter of 2006. Operating income of $55 million was up 162% over the same period. Interest expense was down $1 million and $20 million for the quarter, reflecting the progress made in reducing debt.
Non-GAAP pretax earnings from continuing operations were $33 million in the quarter and non-GAAP earnings from discontinued operations were $6 million. So, total pretax earnings for the quarter were $39 million. SGA&R of 11.6% for the fourth quarter was down from 12.9% in the prior year quarter. This quarter showed further progress in our cost reduction actions. The $1 million reduction in SGA&R compared to the fourth quarter of 2006, as Bob has noted understates the progress with underlying reductions in the order of 10%.
Corporate expense for the quarter was $30 million, which included $10 million of amortization relates to intangibles. The fourth quarter also showed a significant improvement over the third quarter expense of $40 million, which also included $11 million of amortization expense. Corporate expenses in the fourth quarter 2007 were at a comparable level to the fourth quarter of 2006, which also included amortization of $10 million.
As we now look forward to 2008, we expect the year of improvement. The normal seasonal weakness of the first quarter will likely result in performance levels comparable to 2007, but will improve thereafter.
Our portfolio restructuring is primarily focused on completing the transformation of our Polymer Additives business. We are making good progress in recovering the cost of rising raw material through price increases and cost reduction actions are starting to take hold. The diversity of our business portfolio and our restructuring programs will serve us well in 2008 to mitigate any possible impact to the slowing economy. So, 2008 will be a year of transformation and our focus on execution.
But before handing the call back to Bob, let me briefly touch on a few of our selected liquidity measures. The total debt was down at $1.63 billion as of December 31, down about $48 million from the same period in 2006 and down about $37 million compared to September… sorry... cash and cash equivalents reduced in September 30 by $37 million to $77 million and reduced about $18 million from where they were as of December 31, 2006. Our accounts receivable securitization as of December 31 was $239 million, down $64 million from September 30, and down $40 million from where we were at December 31, 2006.
Well, let me turn the call back to Bob for a few closing remarks before we take your questions.
Robert L. Wood - Chairman and Chief Executive Officer
Thank you, Stephen. After a very long uphill struggle, we can see the top of the hill. As Stephen said earlier, despite the fact that the first quarter will be very similar to last year’s first quarter, we expect solid improvement in 2008. Reflecting on our progress, as I said during the call, we've taken out costs by reducing headcount and adjusting our manufacturing footprint and divesting seven businesses that are better off in someone else’s hands than ours. We've improved plant operations and commercial discipline. We're placing an intense focus on execution, and we're taking advantage of growth opportunities.
Finally, we achieved these fourth quarter results even with our largest business performing at an unacceptable level. We're not at the top of the mountain yet. We still have a little climbing to do, but it is in sight and we expect to get there soon.
Now, Stephen and I would be happy to take your questions. Steve?
Question and Answer
Operator
Thank you, Mr. Wood. [Operator Instructions].
And our first question of the morning, we will go to Robert Koort at Goldman Sachs. Please go ahead, sir.
Robert Koort - Goldman Sachs
Thanks. Good morning guys.
Robert L. Wood - Chairman and Chief Executive Officer
Good morning Bob.
Robert Koort - Goldman Sachs
A couple of things. First, in the Polymer Additive areas, Stephen, I think you said you had $22 million of year-on-year raw material inflation. Given the path of raw material increases during 2007, is there at some point where you think you might actually get to a neutral environment there or what is the outlook sort of sequentially through the year?
Stephen C. Forsyth - Executive Vice President, Chief Financial Officer and Treasurer
Our goal by the end of the year is to be neutral in 2008 or 2008 price increases. It would be great if we could also recover what we gave up in 2007 that would be what I would term to be a stretch goal. But if that opportunity arose, we would certainly pursue it. But in 2008, our focus will be on getting neutrality in terms of cost change. The challenge in 2008 is different. In 2007, we had some much more focused courses of price increases like the increase in the cost of tin. The pressures on input costs are more broad in 2008 and I think, most companies in the industry are responding in a comparable manner and there is an expectation that is the petrochemical derivatives increased in cost those have to be passed through, and we see momentum in the actions that we take to pass those costs on.
Robert L. Wood - Chairman and Chief Executive Officer
Bob, let me just add to that, that one of the most volatile of our areas of price increase in where we're seeing a significant amount is in the surfactants business that is our Memphis facility. We expect to close that transaction in the near future and that will have a positive impact on raw material costs as well.
Robert Koort - Goldman Sachs
So, maybe I think I didn’t ask clearly enough. What are you expecting on the raw materials? I recognize, you want to get the prices to sort of accommodate the raw material inflation. But what are you expecting on raw material?
Stephen C. Forsyth - Executive Vice President, Chief Financial Officer and Treasurer
Well, it's a moving target. It will certainly be in the tens of millions of dollars. What we've focused on and Bob touched on in his comments, is to create the nimbleness of flexibility and how we respond both in our manufacturing environment turns our focus in just in time and in terms of how we construct pricing with our customers and how we measure on a real time basis, changes in input cost, so we can reflect that in our pricing. And so our focus is to have the nimbleness to be able to react on a timely basis and avoid lags where the possible change in costs and changing price.
Robert L. Wood - Chairman and Chief Executive Officer
Bob, we have also worked very hard to eliminate any sort of fixed price contracts that handcuff us a little bit in getting prices up. I would say that most of the marketplace has done that, although, we see isolated instances of fixed price contracts, so we have to respond to it much better than it was a year ago.
Robert Koort - Goldman Sachs
Is your inference about the sale or divestiture of oleochemicals that the volatility of your margins in PA should be reduced then?
Stephen C. Forsyth - Executive Vice President, Chief Financial Officer, and Treasurer
It will reduce the volatility coming from the raw material prices because that’s the business that uses natural oils and fats that is being very much on the whole of the ethanol rollercoaster. It is also a business that as you can imagine is one of the lower contributors to margins. And so, when you take out $175 million of annual sales that’s at a lower margin, it’s going to help lift the total margin profile of the business.
Robert Koort - Goldman Sachs
And then lastly if I may. You talked about volume mix improving in PVC Additives, it seems like more broadly the PVC industry falling apart a bit. Can you explain the developments there?
Robert L. Wood - Chairman and Chief Executive Officer
Well, we have been on a mission to capture customers that we lost during the ’06 period when we had some pretty aggressive price increases. We have been able to do that I think largely because of the quality of our products and some of the applications that they are used in and we expect to see that continue, although, at a lower rate as we go forward. The problem there, of course, is the ability to get pricing in a relatively soft market. So, we were able to gain volume at higher prices actually, but the margins in that business still are pretty anemic given the rising raw materials and the inability to execute all the price increases that we have tried to.
Robert Koort - Goldman Sachs
Great. Thanks.
Stephen C. Forsyth - Executive Vice President, Chief Financial Officer, and Treasurer
Thanks Bob.
Operator
And we will go next to Paul Hunt of Banc of America Securities. Please go ahead.
Paul Hunt - Banc of America Securities
Hey, guys. How are you doing? Sorry, I hate to ask this, but could you give us an update of the strategic review initiatives?
Robert L. Wood - Chairman and Chief Executive Officer
Why do you hate to ask about it?
Paul Hunt - Banc of America Securities
I think I know what you're going to answer.
Robert L. Wood - Chairman and Chief Executive Officer
It’s an ongoing process. We announced at the end of the year that we were going to evaluate all the options available to us. Everybody seems to be focused on a sale, but there are a number of options that we could exercise. We believe that the value of the stock… that the stock is undervalued, and we think there are some things in addition to improving the overall performance of the business that might help capture some of that value. So, nothing new to report right now. It’s an ongoing process. As soon as we have something to report we will, but I would just say it’s an ongoing process, and we expect to complete as quickly as we can. But there is nothing new to announce right now.
Paul Hunt - Banc of America Securities
Okay. Great. On the crop protection side, I just wondering, why do you think that this business didn’t exhibit the typical seasonal trend? You commented on the way you saw the strength, but more... I would love to know sort of why?
Robert L. Wood - Chairman and Chief Executive Officer
Well, crop is a … our crop business is an excellent business under new leadership, Greg McDaniel has refocused a bit of the activity in that business to capture some more export business the markets that we participate in have been particularly strong. So, we had a good volume impact from additional sales that we didn’t have during the ’06 period. Also we have gotten much more discipline in our Latin American business having a lot lower reserve for bad debt down there in the quarter. But generally, it’s a very good business. It’s a niche business focused on areas where we have competitive advantage, and we are distinct and we may now have a growth mindset that I think will allow us to see that business continue to prosper. It’s off to a great start in the first quarter, and we anticipate that improved results for the year.
Paul Hunt - Banc of America Securities
Okay. I got you. And then also looking at the crop protection slide in your slide deck, there is a line item called other, that looks like you drove about $5 million operating income increase. I was hoping you could comment on that a little.
Robert L. Wood - Chairman and Chief Executive Officer
Well, if you look both in the commentary to the left and also the press release, we had a $4 million loan recurring gain in the quarter.
Paul Hunt - Banc of America Securities
Okay. That’s where that’s reflected?
Robert L. Wood - Chairman and Chief Executive Officer
I think so.
Paul Hunt - Banc of America Securities
Great. Thank you. And one last thing. Do you have an approximate EBITDA contribution from Kaufman for the full year 2007? I know you normally break D&A down by business, but just sort of an area what we should look at?
Robert L. Wood - Chairman and Chief Executive Officer
I don’t have number to give you I am afraid.
Paul Hunt - Banc of America Securities
Okay. Thank you.
Operator
And we will go next to Steve Schwartz of First Analysis. Please go ahead.
Steven Schwartz - First Analysis Corporation
Hi. Good morning.
Robert L. Wood - Chairman and Chief Executive Officer
Good morning Steve.
Stephen C. Forsyth - Executive Vice President, Chief Financial Officer, and Treasurer
Good morning.
Steven Schwartz - First Analysis Corporation
In Performance Specialties, if you look at your sequential operating margins from the third quarter and then look at the improvement you had in the fourth quarter, it looks like that 300 basis point improvement added about $8 million. I am trying to determine how much of that actually came from Kaufman synergies versus the impact of all the other things that you stated. How much is improvement... given the third quarter I think the lack of Kaufman synergies was what hurt you?
Robert L. Wood - Chairman and Chief Executive Officer
Well, if you go back to the second quarter, Kaufman was a private business that had lower margins than we did. And so, when we put the two together, it diluted us. We have made sequential progress. It’s not that we had no synergies in the third quarter. We have had synergies in the third quarter and synergies in the fourth. But in terms of the total increase in the fourth quarter, the Kaufman synergies is the less a part to the sequential growth. We had a great mix of products, so we had growth in the fourth quarter from our core businesses, traditional businesses and both petroleum additives and in urethanes. And that's the major driver. Kaufman continues to increase its contribution to us is delivering on all the prospects that we expected. But don’t think of it suddenly having surged and that’s why earnings went up this quarter.
Steven Schwartz - First Analysis Corporation
Okay. And then carrying that over into the consolidated SG&A, it was down year-over-year by $1 million, but you said it was really down more like 10% or $9 million if it weren’t for Kaufman, is that right? And if so--?
Robert L. Wood - Chairman and Chief Executive Officer
... Of the non-recurring items I think are the words we put in the release. As we are going towards transformation, there are various costs that we absorb that’s don’t necessarily get categorizes as restructuring and other things. So, I wanted to give you a flavor that that if we go as weaken... as we disaggregate all the data, as people left the organization as we realign the organization through SG&A costs are declining. If you look at year-on-year basis, Kaufman on its own is maybe... something I think in the order of $4 million of incremental SG&A compare to the fourth quarter of 2006. But some other non-recurring items embedded in this quarter’s number. But we are feeling good about our trending costs and I trust it will be more visible now in subsequent quarters.
Steven Schwartz - First Analysis Corporation
Okay. And my last question, just going back to the tax rate. Is it just one thing, maybe one country that you are trying to reconcile, or is it a broader issue related to determining your tax, what’s going on there?
Robert L. Wood - Chairman and Chief Executive Officer
Well, I think it’s two components. The Company had not had a good track record in terms of its tax accounting, as anyone who will follow the sort of a public reporting. And so, first of all, we reached the conclusion, we don’t want to issue a tax provision until it’s correct. To give you a sense of why does that take so much time, we are a global business built through acquisition and we literally have hundreds of subsidiaries. And so, the computation of an accurate tax provision takes time. And so, it’s not one issue, it’s really the complexity that this takes the time. But we determine to get it right, and get it right first time. So, took this more conservative stance in how we handle the reporting this quarter.
Steven Schwartz - First Analysis Corporation
Great. Thanks. Nice quarter guys.
Robert L. Wood - Chairman and Chief Executive Officer
Thank you.
Operator
And next we will go to Saul Ludwig at KeyBanc. Please go ahead.
Saul Ludwig - KeyBanc
Hey, good morning guys.
Robert L. Wood - Chairman and Chief Executive Officer
Good morning.
Stephen C. Forsyth - Executive Vice President, Chief Financial Officer, and Treasurer
Good morning.
Saul Ludwig - KeyBanc
Nice progress on the operating front. But it’s another quarter where you have a lot of... below the line special items and when you get finished with it that all, companies don’t make any money. When do you think we are going to be done with all of this below the line adjustments and we will begin have clean numbers reflecting true earnings of the Company without the extra baggage?
Stephen C. Forsyth - Executive Vice President, Chief Financial Officer, and Treasurer
Well, the extra baggage really is come from three broad groupings areas. There is the restructuring related expenditures. We obviously still have some actions in motion, but they are declining in magnitude. You only saw $2 million of P&L expense this quarter. Secondly, you have divestiture related impacts, all that’s accelerated depreciation and gains or losses and divestitures and things. And that’s a function of the transactions that we do. So, you have seen us get through a bunch of those transactions, but we've obviously announced. We still have the oleochemicals one ahead of us this quarter and we got an account in the first quarter for the flooring. So we are not there yet, but we are getting through that agenda and compare to the list of things that we said we will look at, we are fairly well advanced.
And then the last piece is some of the sort of the antitrust related matters and those if you look over recent quarters that have been declining. So, what I would... the way to answer your question is, I can’t give you a hard date when all of this drops out. But I think you all are going to see a continuing trend of these GAAP and non-GAAP adjustments diminish in magnitude over time.
Robert L. Wood - Chairman and Chief Executive Officer
So I, I just add that... I am not sure we’ve done a very good job of creating transparency around the depth of the issues that we have faced here with all the acquisitions that have taken place over the years and with the acquisition of Great Lakes, the number of things that had to be cleaned up and integrated. We have made great progress on that... on that front. Going through the process, I would say that we are getting close to the end. We would expect both performance from an operating point of view as well as from a clarity and transparency point of view to improve as go through 2008, having closing out this latest divestiture will help us as Steven said. And we would expect to begin to get [Technical Difficulty] you include antitrust, you include plant closures and restructuring and all of those things gave an impact. But it’s all sort of transforming the Company and we think we are coming through the end of that.
Saul Ludwig - KeyBanc
Great. Next question. In the oleochemicals business, relative to your total earnings in Polymer Additives for the year, did they breakeven? Did they have a loss in others? Does getting rid of them besides getting interest savings on the cash proceeds? Did they lose money?
Robert L. Wood - Chairman and Chief Executive Officer
They didn’t lose money but it's a marginal contributor.
Saul Ludwig - KeyBanc
But they made a few million dollars.
Robert L. Wood - Chairman and Chief Executive Officer
Yes. But not very much.
Saul Ludwig - KeyBanc
Okay. And then when you… can you tell me about the first quarter, it kind of surprised me. You mentioned the strength and the crop is continuing strong, which would imply an uptick in crop earnings in the first quarter. And consumer last year was a disaster, where you made no money. We think that should be better. You're having a good momentum in the Performance Specialty Group, which you did a good job of articulating. Is it the Polymer Additive that’s going to be somewhat of a huge offset to the gains in most of your other business segments that makes you feel you're first quarter is going to be relatively flat?
Robert L. Wood - Chairman and Chief Executive Officer
Well I think, first of all, if you're looking at year-on-year comparisons.
Saul Ludwig - KeyBanc
Right.
Robert L. Wood - Chairman and Chief Executive Officer
This business is that when you look back at what we reported in the first quarter of 2007 are no longer with us. So, not all the businesses that we've sold, that means few of the businesses that we sold have lost money. So, things like fluorine and EPDM and all of those other things dropping out has an impact. So, if you were to do a true comparison, you can restate the 2006… 2007 base that you're comparing against. Secondly, all of our businesses, your crop will do well in the first quarter, whether it does as well as it did a year ago, which is a very strong quarter, we've got to see. As you've noted, this is the softest quarter of all for the consumer business. It’s a quarter where neither in the Southern Hemisphere or the Northern Hemisphere are customers buying very much and the cool season is pretty much over in the Southern Hemisphere but the Northern Hemisphere hasn't started.
Saul Ludwig - KeyBanc
Last year, you made $1 million and the year before you made $12 million. So--?
Stephen C. Forsyth - Executive Vice President, Chief Financial Officer and Treasurer
I'm not familiar with what happened two years ago. But last year you saw is pretty anemic.
Robert L. Wood - Chairman and Chief Executive Officer
And then for Polymer Additives, yes. We’ll continue to make progress, but we can't promise anything too soon. And I think, Saul, on the pool piece. It's very difficult to make year-over-year comparisons on a quarter by quarter basis. If you look at it for the year or even for the first half of the year. That’s a better way to look at that business than first quarter or fourth quarter, just because customers’ inventories effect where we are. Weather effects where we are. But the first quarter in that business is going to be weak. I'd say the same is true for the crop business. What you do first quarter versus second quarter depends a lot on who pre buys and how much they pre buy. So, business fluctuates back and forth between those two quarters. So, looking at our first quarter, it's our expectation that momentum will build through the quarter but it may not be as strong on a first quarter only basis. If you look at the first half of the year, we're very optimistic that, that’s going to be better than it was last year.
Saul Ludwig - KeyBanc
Are you surprised that the Arch in their fourth quarter had a very, very strong gain better than 10% growth in revenues and their pool business and a fairly strong profit performance. Anything going on in the competitive world that where they may be gaining a little wider share and you may be losing because the revenue numbers were remarkably different in direction.
Robert L. Wood - Chairman and Chief Executive Officer
We're not losing share. We're confident of that as we look at our mix Arch has a lot bigger business in the Southern Hemisphere than we do and I think, they have a particularly strong year down in South Africa in particular and that’s in our view the biggest difference there.
Saul Ludwig - KeyBanc
And finally, what's cap spending and interest expense that you estimate for 2008 there Stephen?
Stephen C. Forsyth - Executive Vice President, Chief Financial Officer and Treasurer
On Cap spending, we expect it to be a little higher than it was in 2007 and..
Saul Ludwig - KeyBanc
Which was?
Stephen C. Forsyth - Executive Vice President, Chief Financial Officer and Treasurer
2007 you've got a $117 million, I believe, is the…was the level of spending that we had this year, we’ll finalize that when we issue the balance sheet and cash flow. You'll will see reference in the press release to our new initiative to get all of our systems on one instance of SAP. There's some incremental cost that will be invested to do that, modest, but so will list out total spending. We've also got some investment growth projects that we’ll be funding in 2008. So, I think, that will push us a bit up in capital spending. But we will come out with some specific guidance on that in due course.
Saul Ludwig - KeyBanc
Do you think it's somewhere in the 125, 130 what that field, at this stage? You may change that later?
Stephen C. Forsyth - Executive Vice President, Chief Financial Officer and Treasurer
Maybe a little higher than that.
Saul Ludwig - KeyBanc
Okay. And what about interest expense?
Stephen C. Forsyth - Executive Vice President, Chief Financial Officer and Treasurer
Interest expense, I think, you got a good proxy looking at the fourth quarter, we're down to $20 million in the quarter.
Saul Ludwig - KeyBanc
Around $80 million?
Stephen C. Forsyth - Executive Vice President, Chief Financial Officer and Treasurer
That’s probably a good place to start. As we do better in operating cash flows. The first job is to find a way to actually find debt we can repay. We don’t have any floating rate debt at this moment.
Saul Ludwig - KeyBanc
And when you talk about SAP investment, I always think about the upfront costs of… or the arduous task of implementing that. Is that going to result in corporate expenses showing a little uptick?
Stephen C. Forsyth - Executive Vice President, Chief Financial Officer and Treasurer
I don’t think so. Ultimately by getting ourselves all on one system, it will make us more efficient. To put things in perspective, this isn’t like having to go do SAP from a start. About 70% of our revenues are on SAP already, the issue is on two instances, the former Great Lakes one, the former Crompton one. Bringing those two systems together on a single instance will remove a lot of inefficiencies in our business processes, but everybody is used to using SAPs, just agreeing on a common standard. But we will then move on and try to start to sweep up that remaining 30% of that revenues that has been outside the systems and as you move to only having one platform to work with, you don’t have all that costs associated with keeping this other older platforms alive, so will also help the efficiency of our IT spending.
Saul Ludwig - KeyBanc
Great. Thank you very much guys.
Robert L. Wood - Chairman and Chief Executive Officer
Thanks.
Operator
And we will go next to Mike Judd at Greenwich Consultants. Please go ahead.
Michael Judd - Greenwich Consultants
Congratulations on a better quarter.
Robert L. Wood - Chairman and Chief Executive Officer
Thank you.
Stephen C. Forsyth - Executive Vice President, Chief Financial Officer, and Treasurer
Thanks.
Michael Judd - Greenwich Consultants
On the corporate line there has been a little bit of a nice decline there in the December quarter. Could you talk a little bit about how you expect that to play out during this year, please.
Stephen C. Forsyth - Executive Vice President, Chief Financial Officer, and Treasurer
I think be it total SG&A or be it corporate we would expect it to be lower in 2008 than in 2007 because of the cost reductions. We… this has been discussed on sort of previous conference calls, we are interested in making sure that as much of the cost that is really identifiable to the businesses as reported in the businesses, and so you may see it move between the two groupings in addition to the reduction in the totals as we try to make sure we got real realignment. Our businesses reflecting all the costs that are directly attributable to them, but the overall trend should be down.
Michael Judd - Greenwich Consultants
But the fourth quarter of $34 million. Is that sort of a good run rate going into the first quarter or was there anything unusual in the fourth quarter that led that…?
Stephen C. Forsyth - Executive Vice President, Chief Financial Officer, and Treasurer
It can be a little bit lower between quarters, but it is certainly indicative of where we want to be heading?
Michael Judd - Greenwich Consultants
Okay. And then the crop protection area you mentioned higher demand in area in the fourth quarter. Are there any issues similar to the pool business where basically things can get pushed from one quarter… into… from the fourth quarter into the first quarter or vice versa?
Robert L. Wood - Chairman and Chief Executive Officer
That’s not what drove the improvement in performance for us. It was some additional business that we have been pursuing for a while and we were able to get. We would expect that to be recurring. Those facts… you look back at our commentary on prior quarters, Europe’s been up pretty much all year and Europe today is Western and Eastern Europe and the market for some of the materials that we make has continued to grow.
Michael Judd - Greenwich Consultants
And based on, what’s going on the Ag business and the changes that you have made. Do you have sort of goal for Ag in terms of what you think the potentiality is given the EBITDA type of goal or anything little bit more firm than it will be better than last year.
Stephen C. Forsyth - Executive Vice President, Chief Financial Officer, and Treasurer
Not specifically Mike. I would just say that that business if you look at it on both revenue growth basis and on an operating income to sales basis that it has fairly significant upside potential as I said in my remarks. We have taken a little bit different approach in the business than we have taken historically about where we participate and how we participate, that’s globally. And we would expect to see that continue as we go through ’08. I can maybe update you a little bit more as we get into the year, but we just say that we didn’t expect to see solid revenue growth and solid improvement in operating income in that business.
Michael Judd - Greenwich Consultants
Thanks for the help.
Stephen C. Forsyth - Executive Vice President, Chief Financial Officer, and Treasurer
Thanks.
Operator
And we will go next to David Begleiter at Deutsche Bank. Please go ahead.
David Begleiter - Deutsche Bank
Thank you and good morning.
Robert L. Wood - Chairman and Chief Executive Officer
Good morning.
David Begleiter - Deutsche Bank
Bob, can you discuss tetrabrom pricing both sequentially and year-over-year?
Robert L. Wood - Chairman and Chief Executive Officer
Year-over-year it is up slightly. Sequentially it is down a bit, because demand was down and whenever demand is down there are Chinese exports that impact that business. We are focused on getting the price back in tetrabrom and we will be fairly aggressive in doing that. It’s largely demand driven though David so to the degree that demand picks up as we expect that it will... we will be able to recapture some price.
David Begleiter - Deutsche Bank
Have you seen any other two large competitors at least maintain or try to maintain prices?
Robert L. Wood - Chairman and Chief Executive Officer
We are seeing a little bit of activity in the marketplace that’s unsettling, but for the most part I would say that business continues to be pretty disciplined.
David Begleiter - Deutsche Bank
On the clear brine side could you comment on the actual… qualify as a decline year-over-year and expectations for when the recovery… I think you mentioned Q2?
Robert L. Wood - Chairman and Chief Executive Officer
Yes. I don’t have the specific year-over-year decline in clear Brine specifically. It’s not a huge decline, but we didn’t get some of the business that we expected simply because there wasn’t that much drilling going on in the Gulf of Mexico right now, but there are signs that it will pick up in the second quarter. To what degree it’s still a little bit too early to tell, but there are positive signs.
David Begleiter - Deutsche Bank
And Bob I know you don’t like giving too much guidance given the early stage of the year, but Polymer Additive. What kind of business earned… this segment earned in its restructured format, margin wise or absolute dollar in 2008?
Robert L. Wood - Chairman and Chief Executive Officer
Well, we are continuing the restructuring of the business, as you know David. So, there is going to be lower revenue in that business than there was last year for a competitive purpose. And if you look at the business today being in the 4% to 5% range of operating income, I would say our expectation is to get it to high single digits by the end of the year. I wouldn’t tell you today what’s that going to be.... that’s for the whole year, but by the end of year, I think we are going to be in the 8% to 9% range with a bit more momentum than we have today.
David Begleiter - Deutsche Bank
That’s very helping thank you.
Operator
And we will go next to Dmitry Silversteyn at Longbow Research. Please go ahead.
Jonathan Grassi - Longbow Research
Hello, this is Jonathan Grassi for Dmitry. I have question on the crop protection business. Can you talk about pricing and your ability to get any price increases and its impact on volume? Is it varying at all by region?
Robert L. Wood - Chairman and Chief Executive Officer
Yes, it’s a very difficult question to answer, because of the mix of products that we sell and where we sell products. So, it maybe that you see a decline in the overall price that doesn’t reflect any specific price reductions in any particular segment of the business, it may be the quality of the business that we have. We would normally look at crop as a business that’s going to not have very much impact from raw materials and energy. And the degree to which we are able to move the average price depends on what the mix is and that mix can change from quarter-to-quarter and year-to-year. I would just say that we would expect to see continued revenue growth and that’s more important than any pricing changes, because the pricing changes fundamentally are driven by mix, not any thing else.
Jonathan Grassi - Longbow Research
Okay. Thank you. And on the consumer products, you get you get your sales down year-over-year and you are going to get I guess pretty easy comp. Can you characterize little more about why that ... why that occurred?
Robert L. Wood - Chairman and Chief Executive Officer
Simply as I said before, when you look at the pool business and the crop business, there’s a fair amount of movement of product between the fourth quarter and the first quarter, first quarter and second quarter. So, looking at it on, surely a sequential basis, I think could be misleading. We are very happy with the quality of business and consumer. They improve their operating margins despite having lower sales. We continue to make changes in the channel and mix of products in the channel, the distribution business is the lowest into that business. We continue to make decisions to pare our participation there. The strength of our BioGuard business and the Dealer Direct business, and the mass channel is very strong. And if we broke those values we see that those businesses continue to perform very well. So, small declines in revenue that don’t bother us as much as making sure that we are improving operating income and that has to do with the channel that we select and how much product we move through those channels particularly distribution.
Jonathan Grassi - Longbow Research
Okay. Thank you.
Operator
And we will go next to Robert Felice of Gabelli. Please go ahead.
Robert Felice - Gabelli & Co
Hi guys. Just a couple of quick questions, I guess first a clarification to an earlier question on polymer additives. Steven, you mentioned trying to maintain a neutral price cost gap through the year. I was wondering, is that on absolute basis? Do you think you will be able to recoup any margin pressure from incremental cost?
Stephen C. Forsyth - Executive Vice President, Chief Financial Officer, and Treasurer
At this point it is on absolute basis. If we could expand margins to… of course we will try to do it. But looking at where we have come from I think the goal of neutrality on an absolute basis is probably the place to leave the goal for the moment.
Robert Felice - Gabelli & Co
Okay. And then, Bob if I remember correctly last quarter you had mentioned you have some more definitive information on consolidating the operating systems. So, glad to see some progress on that front. Do have a couple of questions around it. Over the next 18 months what is that going to cost you and what’s the timing of these incremental costs and then additionally as you look out what kind of incremental savings can we expect from that?
Robert L. Wood - Chairman and Chief Executive Officer
Most of the costs relate to this SAP initiative. It is capital cost rather than P&L cost and looking at something it will take us by eighteen months to complete it in total. You are looking at something in the sort of $13 million order, we wouldn’t spend all of that this year. In terms of what savings will ultimately roll from it, probably a little premature to talk about that, but it would give us the ability to be much more seamless in working with our customers, much more effective in managing our businesses processes, should ultimately benefit things like receivables and inventory because you can manage your working capital and your supply chain better. So, it will be a myriad of benefits as we roll forward, but there was a sort of ’09 and beyond and sort of premature to talk about it at this point.
Robert Felice - Gabelli & Co
Okay. But if I look at some of the similar initiatives that competitors have implemented in the past, we have seen benefits in the magnitude of 100 basis points, 200 basis points, 300 basis points over a several year period, do you think that there is that kind of opportunity?
Robert L. Wood - Chairman and Chief Executive Officer
I think that’s a little high because you are probably looking at people who have come from being on legacy systems to SAP for the first time and we already have about 70% of our revenues on SAP. We think we can be much more effective in how we use that tool but we already recognize some of the benefits that people would report going to SAP for the first time.
Robert Felice - Gabelli & Co
Okay. And then flipping gears to petroleum additives look alike you made some good progress on Kaufman. Just wondering… how some of those cross selling opportunities are progressing and as we look at over the next 18, 24 months what a good normalized growth rate is?
Robert L. Wood - Chairman and Chief Executive Officer
We haven’t seen the kick in of the real growth that underpinned our belief that Kaufman was a good business, that’s in the refrigeration lubricants business we expect to see that begin to kick in late this year. On an ongoing basis we see the petroleum additives business growing at mid to high single digits.
Robert Felice - Gabelli & Co
Okay. In terms of Kaufman’s margins, where do you stand in terms of getting those margins to a level commensurate with the rest of the segment?
Stephen C. Forsyth - Executive Vice President, Chief Financial Officer, and Treasurer
Well, if you look at the release you can work out where they are. You got $9 million of earnings on $50 million of sales. So you have got a sense of where they are today.
Robert Felice - Gabelli & Co
Okay. So, they are getting pretty close.
Stephen C. Forsyth - Executive Vice President, Chief Financial Officer, and Treasurer
Yes. Exactly.
Robert Felice - Gabelli & Co
Okay. Thanks for the help.
Stephen C. Forsyth - Executive Vice President, Chief Financial Officer, and Treasurer
Right.
Operator
We will go next to Ed Yang of Oppenheimer. Please go ahead.
Edward Yang - Oppenheimer & Co
Hi. Good morning. Question on the tetrabrom. You noted the improvement there. How sustainable do you think that will be Best Buy this morning pre announced and said that traffic was very weak in their stores. Do you have a lot of different cross currents, but generally what’s the lag between what end demand for consumer electronics and order pattern for tetrabrom from your customers?
Stephen C. Forsyth - Executive Vice President, Chief Financial Officer, and Treasurer
Really depends on two things. One, how much inventory is in the system and two what new product introductions look like? How do you anticipate the new product part? Inventories we think are relatively low. We saw the pick up in the fourth quarter. We don’t see that being a sustained change at this particular point, but there a re signs that we could… that it could pick up as we go through the year.
Edward Yang - Oppenheimer & Co
And that would be not just a function of end demand?
Robert L. Wood - Chairman and Chief Executive Officer
Yes. Largely.
Edward Yang - Oppenheimer & Co
On the consumer side you noted that… on a quarter-to-quarter basis there are some fluctuations, but for all of 2007, the revenue growth and the operating income growth was flattish or in the mid single digits range. Is housing impacting that at all?
Robert L. Wood - Chairman and Chief Executive Officer
No, in fact PVC which is our largest exposure to housing has increased during the course of the year. It’s largely…
Edward Yang - Oppenheimer & Co
But on a pool business, would that… I am sorry?
Robert L. Wood - Chairman and Chief Executive Officer
I am sorry Ed. Housing does not make a big contribution to our pool business. Largely, it's a replenishment business versus new home build. So the installed base is really the most important part of what makes up our sales. Looking through where we've been in the past and how we would anticipate this business going forward, with all the concerns about the economy and what might happen. That’s a business that typically benefits when there is a slow down in the economy. So, we feel pretty good about the sustainability of that business in terms of growth and profitability.
Edward Yang - Oppenheimer & Co.
And that business benefits from a slow down in the economy because people are just want to spruce up their homes, just a cheaper way or--?
Robert L. Wood - Chairman and Chief Executive Officer
No. Largely because people… more people stay home instead of travel and use their pools more as vacation spots than going someplace else, which means that they typically will require more chemicals.
Edward Yang - Oppenheimer & Co.
Okay. Great. Thank you very much.
Robert L. Wood - Chairman and Chief Executive Officer
Thanks, Ed.
Operator
And we’ll go next to Amy Chan at Goldman Sachs. Please go ahead.
Amy Chan - Goldman Sachs & Co
Good morning. This is Amy sitting with Bob. I have two follow-up questions. The first one, consumer products and then if I look back on your history… margin history and operating margins have been volatile… has been pretty volatile since 2005, ranging from low single-digits to double-digit sales. I mean, I remember you used to talk about normalize operating margins instances in a range of a low teens to mid-teens. So, beyond the seasonality I was wondering what has been the driver for this margin volatility and also what you're expectation for this operating margin going forward.
Robert L. Wood - Chairman and Chief Executive Officer
Amy, if you look at the business on an annualized basis… on an annual basis versus on a quarter-to-quarter basis, I think, that will give you a little bit better picture and if you look at it on that basis, margins have improved during that time period largely driven by the fact that we're a lot less exposed to the distribution channel than we've been in the past. Today it's about 13%, 13.5% for the full year and if you look back, I think, you’d see that, there are not much… there’s not much disparity on a year-to-year basis but on a quarterly basis it is volatile and it's largely driven by just the seasonality of the business. We expect to continue to see that business improve and we think the mid-teens is the right place for an operating margin for the business.
One other thing Amy that you see in the full… when you look at the full consumer business versus the pool business is that one impact is that one impact is the household products portion of the business, which represents this $75 million or $80 million in revenue and that business has been a little bit more volatile than the pool chemicals business, just as products have been introduced and we've gained and lost distribution.
Amy Chan - Goldman Sachs & Co
Okay. Understood. And then, the second question, I think you were talking about to achieve high single-digit operating margins for the plastic additives business in 2008. I was wondering what your economic assumptions are? And then if we're heading to recession in the U.S. and then what will be the impact on your ongoing… ongoing restructuring efforts focused on the non-flame retardant plastic additive business?
Robert L. Wood - Chairman and Chief Executive Officer
Well the economy won't impact our restructuring efforts. We are anticipating that from where we are today our exposure to the economy is getting less and less impacted when you look at the crop business, which doesn’t have an economic impact when you look at the pool business and performance specialties, they all seem to have pretty positive exposure from an economic point of view. Polymer Additives is the most vulnerable and I'd say that our assumptions are that operating results could be plus or minus 10% or so, depending on how the economy goes. I'm not… I wouldn’t predict whether we're going to see a recession or not. Clearly the mindset is that there’s going to be a slowdown in the economy we've not seen yet, indications in our business that we've been affected significant by that. We’ll just continue to work very hard to keep costs low and continue to focus on our strategy of reducing our infrastructure.
Amy Chan - Goldman Sachs & Co
Okay. Thank you very much.
Robert L. Wood - Chairman and Chief Executive Officer
Thanks Amy.
Operator
And our final question will go to Robert Koort at Goldman Sachs. Mr. Koort, your line is open. Nope. It looks like he just dropped off. I think Amy might have handled his question for him.
Robert L. Wood - Chairman and Chief Executive Officer
Okay.
Operator
And so that does conclude the Q&A. At this time, I'd like to turn the call back to Mr. Wood for any closing comments.
Robert L. Wood - Chairman and Chief Executive Officer
Great. Thanks. Let me close by saying we enter 2008 with renewed confidence as a leadership team. We're feeling good about the outstanding efforts of our people despite some very difficult times over the last couple of years. I'm sure some of you and investors after several quarters of disappointing earnings there remains a show me mentality. I accept that challenge and that is what we expect to do. The actions that we've already taken from a solid foundation for the actions we will take in the improvements we will achieve from an operating point of view. Thanks very much for joining us.
Operator
Thank you. That does conclude the call. We do appreciate your participation. At this time you may disconnect.
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