NewMarket Corporation (NEU) Q4 2007 Earnings Report, Transcript and Summary

Welcome to the NewMarket Corporation 2007 earnings conference. (Operator Instructions) As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Mr. David Fiorenza, Principal Financial Officer for NewMarket Corporation. Thank you, Sir. You may begin.

Thank you. Thank you for joining me to discuss our fourth-quarter in total year performance. With me today is Teddy Gottwald, our CEO. I have a few planned comments after which we will open the lines for any of your questions. As a reminder some of the comments we will make today are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We believe we base our statements on reasonable expectations and assumptions within the balance of what we know about our business and operations. However, we offer no assurance that actual results will not differ materially from our expectations, due to uncertainties of factors that are difficult to predict and beyond our control. A full discussion of these factors can be found in our 2006 10-K and the update in our 10-Q. We released earnings last night after the market close. The highlights include recurring 2007 earnings up 42%, recurring fourth quarter 2007 earnings up 64% over fourth quarter last year. We've reported record petroleum additives earnings in 2007. During '07 we repurchased $83 million of our stock without any borrowing. We began the construction on our office complex for MeadWestvaco and in October the board significantly increased the dividend. Obviously we are very pleased with these results. Our earnings do contain a few unusual items that make the report a little more involved. So I'll take some time to cover those. You may recall that when we terminated the marketing agreements with Innospec early last year, we stopped reporting our TEL activities as a reportable segment. This decision meant we had to recap all of the previous earnings under those agreements as discontinued operations. Our results included the benefit of some one time tax events this year and quarter. Majority of my comments will focus on our earnings from continuing operations before those one time favorable affects so you can better understand how our underlying and continuing business is performing. Earnings from continuing operations excluding special items in the fourth quarter improved to $15.4 million or $0.96 a share which is a 64% increase over last year's performance for the same quarter. Including all items net income for the fourth quarter of '07 was $27 million or $1.68 per share compared to net income in '06 of $4.5 million or $0.26 a share. Earnings from continuing operations for the total year '07 excluding special items improved to $69 million or $4.07 a share, an increase of 42% over earnings on the same basis last year of $48.5 million or $2.78 a share. Including all items net income for the year was $95.3 million or $5.62 a share compared to net income last of $57.5 million. Net income for the fourth quarter and year '07 and '06 included significant special items. The 2007 special items include the gain of $16.8 million associated with the termination of the TEL marketing agreement with Innospec. It also includes a tax benefit of $9.5 million primarily associated with the adjustment of taxes previously provided on the undistributed earnings of certain of our foreign subsidiaries. We have been providing for the taxes we would have incurred when earnings from subsidiaries that have lower tax rates in the United States were dividended back to us. We determined that certain of our subsidiaries would not be able to make those payments as the funds had been reinvested in the local businesses. This allowed us to unwind the provisions for taxes that have been built up over several years. This is a non-cash benefit in the sense that no extra funds will be coming to us. We've also determined that those subsidiaries will not be in a position to dividend future earnings back to the United States, if they satisfy their capital needs from their earnings. This determination means that we will not providing additional taxes as their lower tax earnings are included in our results. This will have the effect of lowering our effective tax rate on a go forward basis. We anticipate that the full year 2008 tax rate will be around 33%. As I mentioned earlier, our primary focus is earnings from continuing operations excluding special items. We believe this is a most meaningful measure of how our business is performing. This is also the primary metric that our management team is [measure]. As a reminder that comparison has us earnings $4.07 a share this year and $2.78 a share last year. The Petroleum Additives operations continued its excellent performance in 2007, with sales increasing to $1.4 billion an increase of 9% over last year sales of $1.3 billion. When we split the sales about 50% came from changes in prices and currency and the reminder from volume and mix improvements. Operating profit for '07 was $129.4 million, which is 29% higher than last year's performance. Petroleum Additives operating profit for the fourth quarter of this year was $28.7 million, which represents an increase of 46% over last years fourth quarter. The fourth quarter results did show a drop in operating profit margin about 200 basis points, when comparing the fourth quarter to the third quarter. There are quite a few items that contribute to that margin drop. The major favorable item was the impact of foreign exchange on comparative results. The unfavorable factors were rising raw material costs and increased spending in the plants in GS&A in this comparison. The non-raw material cost changes are simply timing and the spending was in line with our plans. The increases in raw materials are the result of continued escalations of petroleum based materials. Crude oils and other key feed stocks ended 2007 at record high. We've been in the marketplace raising prices to offset this increase as well as the increase in certain other costs. We believe we have been successful in this effort. The result of this effort should show in the first and second quarter results. As the price increases become effective throughout the quarter. We'll also see the continued rise of raw materials in this period. As all the raw material increases did not happen in the fourth quarter. The overall year was successful due to the fact as we previously discussed. Focused efforts to deliver the goods and services to our customers and our customer's needs to succeed in their marketplace, the introduction of more effective formulations, better mix of products and price increases to restore margin from raising raw materials. Of course if the raw materials continue to rise, we will be repeating this process again. Contract manufacturing another for the quarter was a loss of $2.3 million. We continue to believe at this portion of our business will be in the negative to positive $1 million on an annual basis. Higher loss for this quarter relates to the adjustment of certain reserves associated with some old manufacturing sites. The year and the fourth quarter continue to benefit from our debt restructuring that we completed in December of 2006. The benefit of the lower gas cost was about $3.5 million before taxes for the year. The company repurchased $83.2 million of its common stock during 2007, which was 1.7 million shares at an average of $47.82 a share. At year end we had 15.6 million shares of stock outstanding. 622,000 [bartered] at 96 shares were repurchased at the cost of $33 million during the fourth quarter. The average price purchased in that time frame was $53.31. The purchases were accomplished with no additional borrowings. At year end we had $17 million remaining on our repurchase authorization. On the cash flow side of our business, we ended the year with $72 million of cash compared to $60 million last year in '06. We were able to build the additional cash from capital expenditures of $31 million for our business excluding Foundry Park, paid dividends of $6.6 million, repurchased $83 million of stock and contributed $7 million to Foundry Park. The year benefited from the cash we generated in our business and the proceeds we received when we terminated the TEL marketing agreement. The changes in our working capital on a year-to-year basis were small. We expect to spend about $35 million to $40 million on capital expenditures in 2008 excluding Foundry Park. These funds will be used to fund our on going normal needs to satisfy environmental maintenance de-bottlenecking in systems and facility upgrades. In October of '07 the board declared the dividend in the amount of $0.20 a share. That dividend represented an increase of $0.075 a share or 60% over the previously paid dividend. Also during '07 our holding on subsidiary Foundry Park I LLC began the construction phase of the multi-story office building for MeadWestvaco. The project is proceeding well and is on plan and schedule. Our project financing is in place which will allow us to borrow about 85% of the cost of the project. The development is projected to be completed by the end of '09 and begin making a positive contribution to our earnings at that time. During '08 we expect to have total outlays of $60 million with $6 million being contributed by NewMarket and the remainder being borrowed under the construction loan facility. The year '07 was an outstanding one for our business. As we communicated in the past we intend to leverage our financial strength to increase shareholder value by growing the business with acquisitions being an area of primary interest. Our primary focus in the acquisition area remains in the petroleum additives industry. A desired view to this industry will provide the greatest opportunity for a good return on our investment while minimizing risk. We remain focused on this strategy and will evaluate any future opportunity. Nevertheless we are patient in this pursuit and intend to make the right acquisition for our company when the opportunity arises. Meanwhile we believe we have many internal opportunities for growth in the near-term, both from geographical and product line extension. Until an acquisition materializes we'll build cash on our balance sheet and will continue to evaluate all alternative uses of that cash to enhance shareholder value. In the Petroleum Additives segment we're beginning 2008 with a lot of momentum and expect to be able to benefit from the many gains of '07. We have a solid business base, a good technical product offering and an excellent team who is dedicated to our customers and our business. Nonetheless, like in any industry the petroleum additives market continues to face many challenges. Raw material prices are once again rising and there is uncertainty in product demand should a recession in the United States or other parts of our marketplace become a reality. We continue to monitor the raw material situation closely and are committed to attempting to recover any margin erosion caused by increasing raw materials. Except for the possible impact from an economic slowdown, we except that the petroleum additives segment will perform better in 2008 then in 2007. It is our plan to file our 10-K during the last week of February. I encourage you to read it to get a full explanation of several of the topics that I've highlighted today. Thank you and now we'll open the lines for any questions.

(Operator Instructions) Our first question comes from the line of Saul Ludwig with KeyBanc.

Good morning, David.

Good morning.

Could you give us the components, your revenues were up 18.7%? What was the split between volume price and OpEx?

For the year?

For the quarter?

For the year…

And then for the year?

I have the year. And then do that split in the quarter. For the year it's roughly 50:50 price and volume mix and then on the price side about half of that was currency and half of that was price. The 25 currency, 25 price, 50% volume.

But was your volume actually up for the year?

No, such …

Your volume was down 10%, and the first quarter was down 6% and the second quarter up only 6%, and the third quarter see we were sort of that a negative cumulative for nine months. Do you have any idea what your volume was in the fourth quarter?

Yeah. We know what the volume was, is good mix is what it really was down to, you just look at everything.…

So, may be price mix is one component, but what was the volume?

The volume component is on a high level, but the units were flat. But that's not a good comparison in our business.

I understand. And that's for the fourth quarter?

Yes.

So those are flat volumes for the fourth quarter?

For the third quarter, yes.

For the fourth quarter?

Yes.

Okay. And then price mix, and how much was currency?

In which period do you ask?

In the fourth quarter your revenues were up, you're up a 19%. How much of that 19% was currency?

Hold on a second. Currency for the quarter-to-quarter was about $3.5 million. I don’t know the percent?

That's on FX?

Yes.

Okay. $3.5 million and the so the difference volume was, so $3.5 million would be, on a base of $300 million about 1.1%, 1.2%. So it would seem like pricing mix with a bit up like 18% or something that like a pretty big number.

Yeah.

Okay, and then on the cost side of the equation do you have any idea what your unit raw material cost may have increased?

Percentage wise?

Yeah.

I don’t have the right average, but I know that when you look at December and you compare it to our October, you can look at that.

The December compared to September maybe?

End of October to the end of the year. So what happened in the fourth quarter basically? Base oil was 13%, PIB was up 10%, crude oil finished the year at record highs. So our whole raw material basket was going up in the end of the year and we're seeing that follow through in the first quarter of this year.

Do you think that that when we look at your margins in the first quarter, do you think, which in the fourth quarter your margin was 7.9% and you appropriately explained why it was less than the 9.4% that you had in the third quarter, because of the raw material costs. From the first quarter, you've got to be comparing against the margin of 9.4%. You think we're going to see that margin soak up, soak down versus the 94, do you think we're going to see it, see about the same?

I think it would be about the same.

Which means you'll do better than the margin in the fourth quarter.

Unless raw materials keep going up after we hang up the [sum].

Well, just as you see it today you know we all appreciate that no ones got the perfect [crisp] of all.

That’s correct statement, exactly.

The other more high level question I had, a year ago you talked about the growth opportunities for the business and now when we look back on 2007 those opportunities to the extent that they were achieved were more in the mix, because the volume was relatively benign. When you talk about the growth opportunities for 2008, you're talking about resumption of unit volume growth and if so where is those opportunities going to come from or are those opportunities again related more to mix and that we would not expect to see much in the way of volume?

So I think that we'll probably continue to see more or the same, just as a reminder you can't look and add through the volume levels in our business and draw a direct conclusion from that, because of the reformulations that are constantly going on in our product lines. That often means less volumes same results. We're operating flat out in our plants right now. I think most of the industry probably is we don't have big volume growth ambitions, but we will continue to extend geographically, continue to expand our product lines in to new areas and continue to look to get the most out of the balance that we do so.

When we get running full out there, does that imply you said is selling everything you can in terms of the number of counts or gallons or however you measure it and since you didn't really have any growth in your units that you didn't really have anymore capacity and what you tried to do is say well we've limited capacity and we could only make about a 100 units this year versus 100 units last year, we want to make a 100 units more productive 100 units than the same units a year ago.

We could say that and be accurate. So we're pretty pleased with our growth in 2007.

For, this was on the mix side not so much on the volume side.

Well. Again you can't make that direct comparison because of the reformulations that are constantly going on.

Got you. Okay, great. Thanks Teddy.

Thank you.

Our next question comes from the line Ian Zaffino with Oppenheimer

Great, and thank you. Very good quarter here.

Thanks.

Couple of questions. The size of the price increases that you had implemented this past quarter. Can you give us an idea of what that was?

Ian price increases was sufficient to cover the raw material and other costs. There is no one number, I didn’t want to give you a range. Every customer is different, different circumstances, so leave it right there.

Okay. But can I guess if you say that your raw materials were up in the low single-digits to recoup that you'll have to range prices by kind of the high single-digits. Is that kind of ballpark, am I thinking of that right?

I think you might be a little high, but anyway single-digits.

Okay. And then the second question would be as you look for uses of your free cash flow, I know you said that look at things from acquisitions. What size acquisitions are you looking at doing or what's kind of the maximum you review or is that uses of comfortable ways and would it just be from a cash balance or if you to lever up. Can you give some detail on that?

Directionally we don't mind levering up for the right acquisitions. We've stated that our focus in the acquisition arena is almost exclusively on the petroleum additives industry and that remains the case today. We do look some outside the industry, but generally our interest and our efforts lie within petroleum additives. In that space the acquisition opportunities such as they are tend to be smaller rather than larger. But we are not afraid of debt if its to expand in an area that we know, where we can get a lot of synergy.

Okay. So it's the way I looked at it as I think there is a big opportunity in engine oil additives from an M&A standpoint. I was wondering how you talk about that?

I am sorry.

I said that there is an opportunity in the engine oil additives business, that is quiet a larger opportunity. I was wondering how you talk about that? And doing so DLOs $1.5 billion or $2 billion?

I am not aware of any large business that's for sale today.

Alright, thank you very much.

Thank you.

Our next question comes from the line of Robert Felice with Gabelli & Co. Robert Felice - Gabelli & Co: Hi, guys. Congrats on the very nice finish to the year. Couple of quick questions I guess if we look back historically 1Q of the following year is always a bit stronger than the fourth quarter of the previous year. I was wondering if there is any pull in to 4Q ahead of the price increases that you implemented such that I guess we wouldn't expect that trend to continue in to the first quarter. Or do you think that the historical pattern will hold and first quarter '08 revenues will be higher than the fourth quarter of this previous year?

I don't have any data that would tell me there was a pull forward of demand. So I can't think of anything fundamentally that would lead our expectations to be different from historical pattern. Robert Felice - Gabelli & Co: So we should expect then that first quarter revenues will be in excess of fourth quarter of this past year.

I think that's reasonably, yes. Robert Felice - Gabelli & Co: Okay fair enough. And then you know David you also mentioned that base oil costs are up 10-12% or so since the end of December and you've raised prices a bit. As we look to 2008, just curious to know where you stand relative to your price costs gap and if we assume that raw materials are flat hereon out through the year. Have you implemented enough price to maintain margin or will you need additional pricing?

We believe if raw materials stay where they are today our actions are sufficient.

We also believe it's unlikely that they will stay, because the rate of acceleration in the fourth quarter, the last couple of months has been troubling. Robert Felice - Gabelli & Co: So relative to that dynamics do you expect to feel, I guess on an overall basis margin compression through the year or do you think that relative to pricing you will be able to maintain margins.

I think we will be able to maintain margins as David said we're okay where we are on February 1st. It's rapidly changing, but I don't again see anything fundamental that would lead me to believe we can't recover the increases in our costs. Robert Felice - Gabelli & Co: Okay and then you had this really positive mix dynamic over the last couple of years to reformulate products and the best you can. I know it will probably be a little difficult to answer. I guess what inning in this process which you say we're in, I know it's an evolutionary process and it continues to change. Relative to the amount of your units you've seen kind of convert to this higher margin. How much is left to go?

I really wouldn't compare to, try to put it in this term. It's not simply reformulation it's I mean that's a big part of it and we will continue to be, it's also the result of many, many years of dedicated effort on our researches to expand our knowledge and to really strengthen our expertise in some of the more specialty areas. That's what we've seen over the last couple of years really payoff. Robert Felice - Gabelli & Co: And do you think that will likely continue over the next 18, 24 months to the same magnitude as that which we've seen over the last 18 to 24 months?

Yes, I think our commitment to research and development in this area and our spending in this area is certainly the same as its been. It's absolutely critical to our strategy that when our customers need solutions in these very high-tech areas that we have those solutions for not just for today but for their next generation of products. Robert Felice - Gabelli & Co: Okay. And then I guess lastly if I look back over the last couple of years petroleum additives has been able to expand EBITDA margins in excess of about a 100 basis points per annum. And as I looked to 2008, if we assume that you can maintain a margin relative to your price cost gap and then we overlay this mix factor in there. Is it fair to assume that you can achieve a similar kind of margin expansion or do you think they're relative to the raw material cost challenges that will be difficult?

The raw material question is just so unknown, I mean put that aside it is our stated goal to bring higher value, higher performing products to our customers which would have the impact of making our margins better. Robert Felice - Gabelli & Co: So it sounds like, given where we stand today if we don't see any dramatic rise in raw material cost a further rise relative to where they are today. You should be able to expand margins by a similar magnitude?

That's our goal, but we'll know together there is no way we can promise to deliver that. Robert Felice - Gabelli & Co: Fair enough. Thanks for taking my questions.

Certainly.

Our next question comes from the line of Ross Berner with Weintraub Capital Management.

Hi, guys. How are you?

Fine. Thanks.

Fine.

A couple of quick questions. When do you think you'll start to be able to give some indication of the economic impact of Foundry Park?

I think it's going to go on the balance sheet for all of '08 and '09.

And I am talking about the earnings stream is.

Yeah. I will be until early '09. We will be talking about that. It's going to be a small contributor earnings, as what we see today.

Okay. And Ted, you mentioned that the deals out there are small but large to the large most part, I am just curious if you've heard anything about the Infineon transaction if that is even out there?

We are aware it's Infineon's appearance have a strategic review in the going business on. We are not aware that review has been completed. And we certainly are not aware of the business being for sale.

Okay. Fair enough. And then can you just sort of talk about the seasonality drivers from Q4 to Q1 and how that historically is worked and why that happened?

Q1 and Q4 in lot of ways are very similar, if you want to talk about seasonality. And the second, third quarters tend to be slightly stronger than the first and fourth. And a lot of times first quarter turns out better than fourth quarter. Because despite lot of our efforts, fourth quarter tends to attract some cost that first quarter doesn't. So there is really no big difference from a demand from fourth and first. First is probably a little bit stronger than fourth historically, but not much.

And in terms of just the car park is one of the big driver obliviously for the additives market but as cars get new or more sophisticated, less need for additives, is that -- when will that register for you?

That's an evolutionary item and it's been that way for a long time. The newer engines tend to have smaller crank cases and use less oil. Drain intervals tend to get longer between them but the technology that goes into the newer oils is a lot more intense than in the past. So there's a lot of pushes and pulls on that that have been playing out over extended periods. I don't see anything to make a dramatic change in those factors looking out into the near-term. When there are changes in the new engine, it does take a number of years for that to ripple through the entire world car population, quite a number of years. I guess as we look at it, we see the demand for lubricants in North America is being relatively flat, demand in Western Europe being flat to maybe a little bit negative growth and the Asia Pacific region growing quite big. You put it all together and you're looking at very low single-digit in terms of growth. And that's pretty much our view, going forward.

Okay. Well, thank you for that. And just lastly, really impressive use of your cash and cash flow to buyback stock, I mean it shows an amazing amount of confidence in your business and that is to be commended.

Thank you.

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

Hi, guys, good morning.

Good morning.

Good morning.

A question on the acquisition strategy, with the private equity guys somewhat out of the market these days and obviously, if you look at the stock market some prices have come down. Do you think that the environment for potentially adding and also there are some companies out there obviously looking to divest publicly. They have said they want to divest some of their product lines. Is the environment better today in terms of potentially getting something done?

It could be. It's better in certain ways as you pointed out and it also means that capital for us is more expensive but it is an area where there is a lot of change going on right now and it maybe a little early to tell. But we're certainly tracking it and if it continues in the direction it's going, it won't impact our strategy dramatically. Petroleum additives will still be our core focus, but it might lead us to expand our horizons a little bit. We haven't had any interest in competing with private equity firms paying huge multiples for businesses where we don't have an edge over them. So we'll see. But I think this is will continue to be on petroleum additives.

industry:

Not really from that perspective. The basic building blocks are essentially the same and we tend to work with our existing suppliers when we want to modify them.

Okay. And then lastly, I guess there was some discussion last year by one of your competitors that there was potentiality that at least at some point this year that there should some additional base oil capacity coming on which might help with the escalation in the underlying petroleum price inflation. What's the latest on that?

I am not fully saddling that Mike but I have to say directionally that's probably the case.

When do you think we get some relief is that more of a second half story or you think we could start to see some relief maybe in the first half?

Sorry, I can't answer that. But I am sure there is some published material on that topic.

Thanks for the help.

Our next question comes from the line of Bob Robotti with Robotti & Company. Bob Robotti - Robotti & Company: Hi, everybody. You have questions on long-term shareholder. I have to say, you guys have done a phenomenal job over the less number of years and congratulations on that.

Thank you. Bob Robotti - Robotti & Company: And of course, people have asked to mention Infinium, and of course you say that that you understand potentially they are doing a strategic review. And I guess one of the questions we're all kind of asking is if for some reason the decision was to put that on the block, obviously the size of that wouldn't in any ways deter you from evaluating it and potentially being a better, of course, depending on if it's the right price? That's right.

First of all, the parents announced that they're doing a strategic review that's not our understanding, that's what we've read. We've indicated our interest to grow in the petroleum additives field. The business is not for sale. If it did come up for sale, we would certainly take a look at it. Bob Robotti - Robotti & Company: Okay. Would there be anyway you would envision, if one of the sellers would decide to monetize their investment and the other not -- and I guess maybe it's too speculative to engage in, would you still consider some king of combination, although not fully as clean as a full acquisition?

I don't really think it's worthwhile to speculate. Bob Robotti - Robotti & Company: Okay. All right. Can you, of course, one of the strong factors in terms of fighting increasing raw material costs is the capacity situation of course, that's a big benefactor you've had in the last year, as you say, you're closed to full capacity. So what you've been doing is being more selective on the product and therefore, the combination of that and the money you spent on R&D in identifying new niche products have played together perfectly well it seems. So that you continue to make the same quantity, but of higher priced, more valuable higher margin products. And the driver there is industry capacity. Is there any spare capacity that's out there in the industry that potentially changes that dynamic and would affect the industry's ability for cost recovery? Was it a year or two years ago, you resolved to close that facility in the UK? So are there other facilities that -- there is spare capacity that could be brought online?

I'm not aware of any out there because we brought online. But I'll just remind you that our capital spending in the last couple of years has been pretty high, higher than it's been and a lot of that is going towards the bottlenecking to do exactly what that word says to eliminate the choke points in our production processes. So we can get additional volumes to serve the market. I'm quite sure our competitors are doing the same thing. So it's a bit of a moving target. But I think when I look at worldwide demand where additives, and I look at what we can all accomplish through de-bottlenecking, I don't see the need for any significant new capacity I don't think there's any out there and I think de-bottlenecking is the way to go. Bob Robotti - Robotti & Company: Could you talk a little bit more and give us any color on the R&D? Because I guess as I think about it what you've done is spent time to identify products that have changed your mix, that clearly have better margins in them. And is there -- of course, the idea with that would be that you have identified a new product that's a differentiated product with a higher margin actually has good capacity or good volume capabilities. Are any of the R&D money spent on new products introduced in the last couple of years on products that really have significantly greater volume potentials to them. So could it -- what's the likelihood you could actually accelerate how much the niche product high value, high margin product you might be selling and change even more of the mix in terms of the total?

Most of these applications tend to be relatively small volumes. And I don't see a significant change in kind of the volume margin relationship of our development activity. Bob Robotti - Robotti & Company: Could you then give us some color on the continuing process and is the identification and introduction of new niche products, something that is so accelerating, is it decelerating? Is it staying constant? Can you give any color in aggregate as a portfolio than what the outlook might be for the next couples of year in that category?

I see it in a general sense being pretty much on par of with the kind of introductions we've had in the last couple of years. I don't see a significant change in either direction of our rate there. There is still a lot of opportunities out there for us on the development standpoint. There are still quite a number of niche areas where we have no products not just once that may not be very cost effective, this time where we just don't compete at all. So, we are excited about the range of possibilities that are out there. Often times some of these applications have a one-year or two-year field trial associated with bringing or entering the smaller areas. And nothing happens really quickly in this industry. I really expect to see kind of more of the same but we're not running out of opportunity. Bob Robotti - Robotti & Company: Okay. Thanks a lot.

Thank you. Bob Robotti - Robotti & Company: And congratulations on the last number of years and the job you have done?

Thank you

Our next question comes from the line of Robert Felice with Gabelli. Robert Felice - Gabelli & Co.: Hi, guys. Just a quick follow-up on your all of the category. I know its pretty small component, but David earlier you said, you expect that business in '08 to be a loss of $1million to gain of about $1million. And then if we take the midpoint of that breakeven and compare it to '07, you loss about $7million in that segments this year. And if my math is correct and I want to make sure to understand it's correct. It's about a $0.30 per share tailwind that you have coming to you in '08. Is that correct?

Yes. That's the arithmetic. Yes. Robert Felice - Gabelli & Co.: Okay. Just wanted to make sure I am understanding that. Thanks so much.

Our next questions comes from Saul Ludwig with KeyBanc

Hi, David. A little accounting clarification. I like that table you guys give to separate special items to get the continuing operations in them. Once you showed here is that you have $69 million of net income for the year and $54million in the fourth quarter. If this doesn't drive with what's was recorded in the nine months statements. There seems to be -- for nine months you reported a $3.96 share from continuing operations, diluted, ex specials. And then you add the $0.90 some odd cents from the fourth quarter, $0.96, we get a number less than before '07, it seems like there was some other adjustment to the tax provisions that was retroactively applied to somewhere in the first three quarters of the year. You know what I am talking about?

Yeah. Give me your address. We're going to send you the prize that -- we're wondering if anybody would catch that. Good job. It's a situation where…

That's not the…

When you have a buyback during the year, when you're retiring stock, you calculate your year's EPS on the weighted average for the year, which will not be the sum of the quarters.

I am talking about net income. Let's deal with net income.

You weren't talking about EPS?

I am talking about net income. For the nine months, you've said that the net income for ex-specials was $51.5 million, 51.5, and that as you add $15.4 million, which is the net income….

Right.

…for the fourth quarter, you would come up with $66.9 million. Could you say you got $69 million?

All right. I'll have to call you back, because I don't have that right here.

All right. That will be great. Thank you.

Sure.

Seeing as there are no further questions, I'd like to turn the call back to management for any concluding remarks.

That's it. Thank you very much for participating and look forward to our next call. Bye, bye

Ladies and Gentlemen, this concludes today's teleconference. Thank you all for your participation.