Innophos Holdings Inc. Q4 2007 Earnings Call Transcript

Innophos Holdings Inc. (IPHS)

Q4 2007 Earnings Call

February 20, 2008 10:00 am ET

Executives

Bill Farran - Vice President and General Counsel

Randy Gress - Chief Executive Officer

Richard Heyse - Chief Financial Officer

Analysts

Scott Burk - Bear Stearns

Sandy Klugman - Credit Suisse

Christopher Butler - Sidoti & Company

Chris Shaw - UBS

Michael Gengrinovich - Loeb Partners

Bo Hunt - Banc of America Securities

Presentation

Operator

Good day ladies and gentleman, and welcome to the Innophos Inc. Fourth Quarter and Full Year 2007 Earnings Call. My name is Michelle, and I will be your coordinator for today.

At this time all participants are in a listen-only mood. We will be facilitating a question-and-answer session towards the end of today's conference. (Operator Instructions). And I would now like to turn the presentation over to your host for today's call Mr. Bill Farran, Vice President and General Counsel of Innophos. Please proceed.

Bill Farran

Thanks for joining us today for the Innophos's Holdings Inc. conference call to discuss fourth quarter and full year 2007 results. Conducting the call today are Randy Gress, Chief Executive Officer; Richard Heyse, Chief Financial Officer, and myself, Bill Farran, General Counsel.

During the course of this call, management may reiterate forward-looking statements made in our February 19 press release, regarding financial performance and future events. We will attempt to identify these statements by use of words such as expect, believe, anticipate, intend, and other words that denote future events.

These forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. We caution you to consider the important risk factors that could cause actual results to differ from those in the forward-looking statements, as contained in this conference call and our earnings reports and filings we make with the SEC.

We will make a replay of this conference call available for a limited time over the telephone at the number set forth in our press release, and via a webcast available on the company website.

In addition, please note that the date of this conference call is February 20, 2008.

Any forward-looking statements we may make today are based upon assumptions that we believe to be reasonable as of this date, and we undertake no obligation to update these statements as a result of future events.

We also note that our release of financial business and forward looking information in this call should not be construed as an offer to sell or solicitation of an offer to buy any securities of Innophos.

Lastly, this conference call is the property of Innophos, and any recording, reproduction or rebroadcast of this conference call without the express written permission of Innophos is strictly prohibited.

Now I would like to turn the call over to Randy Gress, CEO of Innophos. Randy?

Randy Gress

Good morning everyone. I would like to speak with you today about some of the trends that we have seen developing during the quarter and the past year, and discuss our response to these trends and our outlook for 2008. Then Richard Heyse will discuss the highlights of the quarter. Following him Bill Farran will provide an update on current legal matters. Finally after some closing remarks, we will take your questions

Currently the overall supply-demand balance and commercial conditions are quite strong in the specialty phosphate business. The tightening of supply was already apparent in the U.S. specialty phosphate market during the fourth quarter. It appears that during Q4, imports from overseas competitors have dropped by roughly 40% from previous levels due to European and Asian supply significantly reducing exports to the U.S. market.

This reduction is only partially explained by the successful anti-dumping actions and the resulting Sodium Hexametaphosphate, SHMP duties levied on Chinese producers. Bill will touch on this briefly in a few minutes. Also, globally there are a number of suppliers experiencing difficulty with supply for various reasons. What we are hearing in this quarter is that customers are focused on securing supply and therefore have been willing to pay higher prices for the reliability and supply chain capability that Innophos offers.

On the flipside, however, the demand for raw materials from the fertilizer industry has continued to grow to levels that we have not seen in the past. The drivers strong grain demand and prices, international demand for higher food crop yields and for bio-fuels, and continuing strong demand for metals remain in place and they are creating a pricing environment that is truly dynamic.

As far as the direct impact on Innophos of these trends, we currently estimate that our annual raw material cost will increase by approximately 30% of the 2007 annual sales throughout 2008 and into early 2009. Historically, we have successfully recovered raw material, energy and other cost increases through price increases. We have already implemented a number of price increases in all of our product lines during the fourth quarter 2007, most of which became effective January 1, 2008, and are not yet reflected in our results.

We have also implemented additional price increases through February. We estimate that these price increases will be sufficient to recover the currently estimated increases in our raw material cost. We also expect our price increases will be achieved at or ahead of realized cost increases and market acceptance of our most recent price increases has been high. For those of you who have followed us from the beginning, you'll know that Innophos has already successfully raised prices and improved margins inarguably more difficult times.

Here with all the commodity factors driving broad cost increases across the market, our experience and focus on the market allowed us to be ready and to execute quickly and efficiently that enhances our confidence and our team achieving price increases. We expect that the reduced supply to more North American markets caused by strong global competition with fertilizers for raw materials, the weakening U.S. dollar and other factors will keep the market tight even in an environment, where prices are rising at record rates.

The rising cost environment is not one in which Innophos is operating exclusively. And for our customers, who can work with us within this rapidly changing landscape, we are committed to maintaining our historical quality and reliability levels. Going forward for the vast majority of our customers, we believe that our pricing will be accepted and feedback we have received so far during the first quarter supports this.

Demand appears to be strong and supply constrained in the areas in which we operate. As I told you in our last conference call even when taken the current dynamic market conditions into account, I'm confident Innophos's operating margins in 2008 will expand relative to the strong margins, we achieved in 2007.

Now, I'd like to turn the floor over to Richard to give some highlights of the results.

Richard Heyse

Thanks Randy. Improved pricing in the fourth quarter helped to improve net sales in the U.S. and Canada. We have been focusing on improving our U.S. results and in addition to improved pricing; we are pleased to see demand strengthen in the U.S. as well. Our fourth quarter volumes in the U.S. were at the highest level in eight quarters. That said, we believe it is possible to further improve our U.S. segment's financial performance.

In Mexico, higher selling prices were significantly improved over the prior year and partially offset our planned and unplanned outages. The cost related to Mexico's sulfuric acid, phosphoric acid and salts plant maintenance outages were significant cost bearings in the quarter, as we had indicated in our third quarter conference call.

Terrorist attacks on Mexican Natural Gas pipelines ultimately affected our raw material supply forcing our outage duration to be longer than planned. This unplanned downtime had an impact upon our shipments in the fourth quarter. The total fourth quarter outage impacts both planned and forced up 10 million to $11 million on operating income, which is slightly above our previous expectation of 9 million to $10 million. The difference in the forecasted and actual amounts was primarily due to having more expensed and less capitalized maintenance than we had originally anticipated.

In addition to our major outage, we had additional downtime in Mexico related to the final cogeneration project tie-ins, production changeovers and severe weather resulting in additional $2 million negative impact to our fourth quarter operating income. Seasonality impact in the fourth quarter was typical what we have seen in past years.

I'd like to emphasize, as Randy stated that even with our higher prices, Mexican demand remained strong and additionally our cogeneration plant is mechanically complete, fully permitted and we expect all shakedown testing to be completed by March 1st. We still anticipate the $6 million impact in savings that we had discussed before due to increasing electricity rates in Mexico.

There were no unusual expense items in fourth quarters 2007s result. However included in 2006 fourth quarter results were $13.3 million of unusual expense items related primarily to the company's termination of a management advisory agreement with Bain Capital and our November 2006 initial public offering of equity and related debt retirement.

We did highlight in our press release response expenses relating to our Department of Justice STPP subpoena. We expect to significantly reduce the level of related legal expense in the first quarter of 2008 to fulfill the remainder of the subpoena response process. I will leave the rest of this discussion to Bill Farran.

Net interest expense including deferred financing amortization expense for the fourth quarter 2007 was $8.9 million, a decrease of $9.7 million compared to the $18.6 million for the comparable period in 2006. Fourth quarter of 2006 had $3.7 million in deferred financing expense charges versus $0.7 million in the fourth quarter of 2007.

Fourth quarter 2007 cash net interest expense is down $3.1 million due to the debt reduction and refinancing that has occurred over the last year. As far as our debt reduction targets, we are still targeting to make at least $25 million of voluntary debt repayments in 2008.

Now, I'll turn over the call to Bill Farran for an update on our legal matters.

Bill Farran

Thanks, Richard. I want to take a moment to summarize several important legal matters. But also to note the governance milestones, we have achieved this past year, just a year after our initial public offering.

We have transformed our board of directors to be majority independent. We reorganized our audit, compensation and nominating and governance committees to be 100% independent, and we've elected a lead independent director. As to key legal matters, on January 28 in response to anti-dumping petition we filed against Chinese producers of Sodium Hexametaphosphate or SHMP, the United States Commerce Department finalized it’s determination of anti-dumping duties up between 92% and 188%. The International Trade Commission is expected to issue its final ruling in March.

Regarding the STPP subpoena from the United States Department of Justice that we received in September and previously discussed, Innophos completed to-date delivery of the greater part of the documents and information called for by the subpoena, and therefore anticipates significantly reduced level of related legal expense during the first quarter of 2008.

I will not be able to provide any details and answers to questions on this, but I can say that after review of voluminous documents and information responsive to the subpoena covering the four year period 2002 through 2005, management has determined in accordance with FASB 5 standards, that at this time there is no contingent liability, and therefore neither disclosure nor an accrual is necessary. And last week we announced that on February 12, New York State's highest court unanimously affirmed indemnification judgments which Innophos had previously won against Rhodia S.A. in two lower courts.

In the 7-0 ruling, the New York Court of Appeal upheld Innophos's position that pre-closing claims asserted by the Mexican National Waters Commission or CNA for water extraction were "taxes" for which Innophos was entitled to be fully indemnified under a 2004 acquisition agreement. That ruling is not subject to further appeals. The pending CNA claims originated during 1998 to 2002 period and totaled approximately $30 million plus interest and inflation charges since November 2004, when they were first lodged against Innophos's Mexican affiliate.

Those claims are on appeal to the Mexican Tax Court, and the timing of the decision which could be subject to further appeals in Mexico is unknown. The New York ruling establishes Rhodia's financial responsibility for the outcome of the Mexican proceedings.

Now I'll turn the floor over to Randy for his closing remarks.

Randy Gress

Thanks Bill. 2007 was the strong year for Innophos, our first full year as a publicly traded company. Following the first two quarters of 2007, we identified a number of actions we were planning to focus on and achieve. Four stand-out, first as Richard mentioned earlier, we completed our turnkey cogeneration project in Mexico on an aggressive time schedule and with in budget, an investment that will continue to deliver important savings to the bottom line.

Second, we said we were going to focus on an account-by-account basis in order to increase the value we offer our customers and we did just that. We strengthened our position in the market and based on our commercial actions, we have good momentum going into this year.

Third, we said we were going to improve supply chain execution and operational efficiency on our U.S. business. We made good progress in this area and we'll continue to focus to achieve even greater improved results in the U.S. From the perfect storm that weakened our Mexico, we have some lessons learned from a supply chain standpoint that will improve strength in our Mexican operations going forward as well.

Fourth, we promised to continue to expand the markets we serve through geographic expansion of our proprietary products and new products. We have grown our export business. We also in-source the global sales and marketing functions of our pharma business by terminating the Rhodia sales agency agreement, allowing us to drop closer to our pharmaceutical customers, and grow that business as well.

Overall, we continue to focus on our cost structure and leverage our network capability. During the year, we invested in projects that will make the company stronger. We refinanced the one issue of notes and lowered our interest expense. Cost savings projects addressing energy consumption, yields and efficiencies in Coatzacoalcos and the reorganization of our Mexican workforce are contributing to more efficient Mexican operations and will continue to do so in the future.

We expect these and other important decisions to yield continued improved results in 2008. A year in which we expect dynamic market conditions that we are prepared to handle with success. I will now like to open the floor up for questions. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Your first question comes from the line of Scott Burk of Bear Stearns. Please proceed.

Scott Burk - Bear Stearns

Hi, good morning guys. I had a question about the margin expansion that you expect for 2008. Is that going to be driven by the cogen plant savings or the $6 million savings from the cogen plant or is it something beyond that?

Richard Heyse

Sure. Hi Scott, if you look was we've said I think, we made it clear we're targeting pricing to offset raw material cost increases as we noted volume is strong and so the first -- first part of your question yes the cost reduction projects, costs structured project like cogen we expect to flow to the bottom line. We've got the $6 million, in fact, from cogen and others couple of million dollars of other projects that we've discussed before.

Also as Randy noted, demand is strong that continues to be the case and that will flow through the bottom line. And also, as we touched on we expect our price increases could be obtained in -- in parallel lesser or slightly ahead of cost increases so that could have a positive impact also. But again the timing of some of the cost increases we don't have exactly the precise of it.

Finally to note we don't have a turnaround this year and as we noted in our press release the impact of that turnaround on 2007s results was about 10 million to $11 million. So, if you look at the combination of all those you can get a pretty significant margin increase.

Scott Burk - Bear Stearns

Okay. So, in terms of the price increases you said a lot of went into effect January 1 and they've been mostly accepted. What about the February, the next step February price increases, were those -- those going to effect immediately or when are those going to start? Are they going to effect first quarter, I guess is my question?

Richard Heyse

Yes Scott. The -- as far as the February increases we've some of them going in effect immediately and some will play out as contract terms allow. But we've seen some good success and acceptance so far.

Scott Burk - Bear Stearns

Okay. And then one question about the G&A expenses that came in a little bit higher then what you've expected even after you take out 2.4 million for the legal fees for the subpoena. You responded that subpoena was that just due to year end bonuses or is that going to be kind of the run rate going forward for G&A?

Randy Gress

Yeah Richard, do you want…

Richard Heyse

I think on the G&A we had some other miscellaneous legal expenses. But also we're finishing up the SOX 404 process. So, we've both the auditor and contractor costs in the fourth quarter SG&A. I would expect some modest reduction in run rate from those factors in 2008. But there are significant costs that you have to put in place, as Bill touched on, to put in proper governance and we've done that.

Operator

Ladies and gentlemen, your next question comes from the line of Sandy Klugman of Credit Suisse. Please proceed.

Sandy Klugman - Credit Suisse

Hi you know if you are looking at your agricultural phosphate market, I mean you see this huge demand for sulfur it's obviously driven the price up aside from plenty of one-off issues this quarter. I was wondering if you could discuss your sulfur supply arrangements how secure that is. In the event that we do see let's say some unplanned refining outages what is -- what's your current supply situation look like and how do expect I guess that the people providing sulfur to ration it out between all the different industries that are driving demand for it?

Randy Gress

Yes Sandy, thanks. Yes as far as our sulfur requirements, we buy sulfur down in Mexico and we've a long-term supply contract and relationship with Pemax down there. I think with that they have a number of different sourcing locations. But we're in close proximity to the supply and have a good sourcing relationship there in Mexico.

Richard Heyse

Okay, okay. Often not that Mexico is a net exporter of sulfur and Pemax's policy has been to supply domestic demand first and export the balance. So, even if they have a disruption their historical practice has been to reduce their exports and continue to supply domestic user. So, we feel pretty good about our sulfur supply and the physical location we're at and availability to answer your question.

Operator

(Operator Instructions). And your next question comes from the line of Christopher Butler of Sidoti & Company. Please proceed.

Christopher Butler - Sidoti & Company

Hi good morning guys.

Randy Gress

Good morning.

Richard Heyse

Good morning Chris.

Christopher Butler - Sidoti & Company

Question concerning sort of overall raw material costs, you had mentioned 30% increase in 2008 maybe even extending into 2009. Well it -- you seems to indicate on the conference call and in the press release that the majority of that has seems to have taken place already, is that true? I know you're expecting things to kind of flatten out as we go through the year?

Randy Gress

Yeah Richard, do you want to --

Richard Heyse

Let me clarify the disclosure. What -- the disclosure timeframe we're using is the near term or 12 months from today. So, those are our forecasted cost increases for rock sulfur and some other raw materials but primarily due to rock and sulfur prices till February of 2009. And to answer your question specifically have those all occurred immediately no. I think as -- as we've described before we've several long-term contracts that have different timing of price reset etcetera and several of the resets occurred just once a year on January 1st.

So, that 30% number includes the reset both of January 1, 2008 and January 1 of 2009, because we are measuring the increase in raw material cost starting from our fourth quarter 2007 base through starting 12-month out from today. So, the 30% of sales cost increase reflects our forecast based on today's known pricing of our raw material cost increases through February 2009. Does that answer your question? It is probably a little bit technical, but it's going to make sure I was clear on that.

Christopher Butler - Sidoti & Company

No, it does thank you.

Operator

Your next question comes from the line of Chris Shaw of UBS. Please proceed.

Chris Shaw - UBS

Hey, good morning guys.

Richard Heyse

Hi Chris.

Chris Shaw - UBS

Question on the margin outlook again, do you believe that your margins will be up in 2008 if you add-back the expenses for the outages, 10 million to 11 million profit.

Randy Gress

Correct, it's excluded. We are excluding the impact of the outrages, the margins, we think margins will expand. But our expectation is that margins will be expanding excluding any kind of add-back or treatment of the outage.

Chris Shaw - UBS

So, if the outages had never happened, you still expect margin expansion?

Randy Gress

Yes.

Chris Shaw - UBS

Okay, that's great thanks. Just, how much did you in percentage terms or even in general, how much was your phosphate rock cost for this year or for 2008?

Richard Heyse

We haven't broken that out separately. I think our choice on the disclosure is just to talk about the entire bundle of raw material and what we expect our near-term cost increase to be, and that's based on prevailing current rock prices

Chris Shaw - UBS

Okay. The way you are talking about then, cost ramping up or as you expect to increase throughout the year, that’s not rock, it's really - so you just negotiate the year-end rock prices and that's one price of the year.

Richard Heyse

Well that is rock and sulfur. As I mentioned in my answer to Chris, it's including based on current market prices the impact of the January 1, 2009 also -- reset. So its based on current known market prices, how our contracts will respond, and what do you expect the impact on our cost structure will be.

Chris Shaw - UBS

Right. Once you are in to the year though the rock's pretty much stable at point though once you get the contract settled right?

Richard Heyse

Historically yes,

Chris Shaw - UBS

Okay

Richard Heyse

And again as Randy touched on our -- we expect to realize price increases that offset our cost increases, equal or somewhat ahead. So part of our pricing strategy is to make sure we’re getting the pricing we need to procure the raw materials at market prices.

Chris Shaw - UBS

And then quickly, would do you expect, do you have an idea as to what CapEx might be this year?

Richard Heyse

Our base CapEx, we talked about this before is about 20 million, 20 million to 25 million. And if there’s any large project like a cogen or once they’re approved, we’ll call those out and explain the project and the benefit.

Chris Shaw - UBS

Okay, great. Thanks guys.

Operator

Your next question comes from the line of Michael Gengrinovich of Loeb Partners. Please proceed

Michael Gengrinovich - Loeb Partners

Good morning, I guess I will be repeating one of the questions that one of the guys asked. But from what I understand correctly, if I -- sort of pro forma what your sales are in 2008 given sort of the cost increase, you are looking at something like 700 million in sales, is that correct?

Richard Heyse

I think again that the price increases

Michael Gengrinovich - Loeb Partners

Right

Richard Heyse

Yeah, the period is through 2009.

Michael Gengrinovich - Loeb Partners

I see.

Richard Heyse

It’s probably -- again the price increases will be occurring throughout the year, so I don’t think you can just take 2007 sales times 30%

Michael Gengrinovich - Loeb Partners

Well I didn’t do that, I just took your cost of good sold, added 30% to get to the increase in cost of goods sold and I added that to the sales number?

Richard Heyse

Well again that cost of sales

Michael Gengrinovich - Loeb Partners

Includes SG&A, I understand.

Richard Heyse

Yeah that cost of goods sold increased as a percentage of sales of 30% and again that will be occurring through the year. Again to sit down and again specifically forecast revenue, I think a way to look at it is that our revenue increases will offset our cost increases, and as Randy said with the improvements we're making our expectation right now is that our margins will expand.

Michael Gengrinovich - Loeb Partners

I see. Okay. So if I look at your revenues and if I sort of try to understand – If I look at your revenues and so if I look at margins and given all the one-time items that you are adding, you should be looking at a way more than 125 million of EBITDA in 2008 is that math correct?

Richard Heyse

Well, I think yeah. If you walk through and we haven’t had any unusual items in the last two quarters, and we would hope we don’t have any unusual expense items in 2008 and if we maintain margins – base margins at 2000 or somewhat expand them in 2008 over 2007 level and then you add some of the cost structure projects and the fact that we don't have a turn around in 2008, all those factors are positive.

Michael Gengrinovich - Loeb Partners

I see. But then if we sort of -- if we just take the -- take the sort of possible EBITDA numbers, the possible CapEx and possible interest and it looks like you are talking somewhere in the neighborhood of let's say $90 million of EBITDA, less CapEx, less interest unless you have large -- large additional CapEx structures like you had in Mexico. Given your cash taxes of over 15 million shouldn't you be able to deleverage a lot more than $25 million. I mean, looking [about] call it $70 million of free cash flow at that point and your dividend payments are only about 15 million. So, you should be talking about probably closer to 50 million of debt pay-downs, not 25?

Richard Heyse

Well, now we said we're targeting at least 25 million of debt -- paid debts. They are voluntary debt repayments. So, as our outlook changes we'll update that number.

Operator

(Operator Instructions). And your next question comes from the line of Bo Hunt of Banc of America Securities. Please proceed.

Bo Hunt - Banc of America Securities

Hey guys sorry to harp on raw materials here. I just have one last question. Your annual raw material contracts I believe you said they are annual right. Do they lock in pricing for the full year did they include periodic openers for example that allowed the price being renegotiated modestly on the quarterly or semiannual basis?

Richard Heyse

Randy, do you want me to take that. I think that our -- we've long term contracts. They are not annual contracts. They are multiyear contracts. In some cases they -- when they originally entered into there over a decade long and they are fairly complicated and have multiple terms. For example some of the terms reset annually. Some reset on a different period.

So, it's hard to give you a general answer and in our contrast in certain cases there are provisions for arbitration if either party feels that they will be insidiously harmed. So, generally while a large portion of resets are locked in once a year but not all of it. So, that's why instead of trying to get and allot them a new share probably to these contracts operates. We thought the best way was simply to give you management's estimate of how the -- the net impact in the next 12 months. And we could -- we've seen -- that seem to us to be the best way to address it then getting into the various maneuvership with different long-term supply contracts we've.

Bo Hunt - Banc of America Securities

Great that's very helpful. Thanks guys.

Operator

Your next question comes from the line of Christopher Butler of Sidoti & Company. Please proceed.

Christopher Butler - Sidoti & Company

Hi guys, thanks for letting me follow-up.

Richard Heyse

Sure.

Christopher Butler - Sidoti & Company

I was interested in the GTSP shipment that was pushed into October. Could you give us an idea of the size of that and may be what volumes in the Mexican segment would have been like without that?

Randy Gress

Yeah, Christopher that was worth 2 million in the fourth quarter.

Christopher Butler - Sidoti & Company

Thank you.

Operator

(Operator Instructions). Your next question comes from the line of Chris Shaw of UBS. Please proceed.

Chris Shaw - UBS

Hi guys, just a follow-up. I was looking at the pricing for MGA on potash side. It looks like it's been flat for the past couple of months relative to -- it's definitely relative to where DAP's has gone, such as weird data or I mean is there do you have any comment around there. I mean, what you guys see in terms of pricing for that product?

Randy Gress

I mean, as far as the MGA pricing out in the market that is going up. A lot of cases for MGA on a global basis is negotiated in the end of the first quarter, beginning of the second quarter for India and that establishes more of a global price. But as far as the fertilizer what we're seeing is increases in a number of the fertilizer products continuing here.

Chris Shaw - UBS

All right thanks guys. Do you have any data as to run the numbers for your 2007 in terms of how much of your total sales MGA was?

Randy Gress

I think the only price, where we buy MGA is for purification plants in Geismar then again that's under our long-term contract that has pricing mechanisms in it. Again in Mexico, we make a lot of MGA. We've an MGA production plant. So, again that's why we instead of getting the maneuvership of all of our contracts we simply said, here is the total impact of the contracts in total and that's including our expectation on how the MGA supply contract for our Geismar facility will behave.

Chris Shaw - UBS

I guess, I'm just trying -- I know what in 2006, 13% of your sales related to fertilizer stuff products. I'm just trying to figure what the number was in 2007, I'm sorry?

Randy Gress

We'll disclose that in our 10-K but it is, you can imagine, it will be increasing.

Chris Shaw - UBS

Okay, great, thanks.

Operator

And your next question comes from the line of Scott Burk from Bear Stearns. Please proceed.

Scott Burk - Bear Stearns

Hi, just one follow-up question here. You had mentioned in the press release some that you are set out to be able to respond to customer demand shift and just wondered what kind of demands you're seeing, are they incremental or kind of game changing for Innophos?

Randy Gress

Yes Scott, overall we're seeing pretty solid demand. I think if look at our results, some of the volume mix improvement we saw in 2007 and certainly in the fourth quarter was in our specialty salts and specialty acids business was some strength there. As far as our ability to make any shifts, we're not seeing anything significant, and just wanted to point out that we do have flexibility within our manufacturing capability to shift some of the capability and production around should there be any shifts.

Scott Burk - Bear Stearns

Okay, thanks

Operator

And that does conclude the question-and-answer session. I’ll now turn it back to management for closing remarks.

Bill Farran

Yeah again I would like to thank everyone for joining the call, and look forward following the first quarter to share the progress that we're making in our business area. So, thank you.

Operator

Ladies and gentlemen thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a good day.

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