Eric Wintemute, Chairman and CEO and David T. Johnson, CFO, conducted a conference call focusing on the financial results for the 2011 second quarter ended June 30, 2011 at 12:00 pm ET / 9:00 am PT on Thursday, August 4, 2011.
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MANAGEMENT DISCUSSION SECTION
Operator: Greetings and welcome to the American Vanguard Corporation Second Quarter 2011 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.
[Operator Instructions]. As a reminder, the conference is being recorded.
It is now my pleasure to introduce your host, Bill Kuser, Director of Investor Relations.
Thank you Mr. Kuser. You may now begin.
William A. Kuser, Director-Investor Relations
Thank you very much, Shea, and welcome, everyone, to American Vanguard’s second quarter and mid-year earnings review. Our speakers today will be Eric Wintemute, Chairman and CEO of American Vanguard and Mr. David Johnson, the Company’s Chief Financial Officer.
Before beginning, let’s take a moment for the usual cautionary reminder. In today’s call, the company may discuss forward-looking information. Such information and statements are based on estimates and assumptions by the company’s management and are subject to various risks and uncertainties that may cause actual results to differ from management’s current expectations.
Such factors can include weather conditions, changes in regulatory policy, competitive pressures, and various other risks as detailed in the company’s SEC reports and filings. All forward-looking statements represent the company’s best judgment as of the date of this call and such information will not necessarily be updated by the company.
With that said, I’ll turn the call over to Eric.
Eric G. Wintemute, President and Chief Executive Officer
Thank you, Bill. Good morning everyone and welcome. Thank you for joining us as we report on a very successful second quarter of 2011. David and I welcome this opportunity to tell you more about the trends in our business and the prospects that we see for the rest of the year. As reported in our earnings release this morning, our second quarter sales revenues increased over the prior year by 54%, an increase of $28 million. At over $80 million, this is an outstanding second quarter performance for the company. Approximately 40% of this gain came as a result of increased sales of our existing products. The other 60% came as a result of our 2010 acquisitions from Bayer CropScience, of four key products; Def, Mocap, Nemacur and Aztec 2.1. Our traditional U.S. agricultural business has benefited from strong end-use demand this year and our international business expansion is progressing well.
As you’ll see in the MD&A section of our 10-Q, which will be filed with the SEC tomorrow, we achieved very strong sales in herbicides, and soil insecticides: solid increase in soil fumigants; somewhat lower drought influenced sales in our non soil insecticides and, as we expected, a sharp decline in fungicides due to the continued limitation on PCNB.
In the insecticide category, our existing granular soil insecticides collectively showed an 83% increase. Thimet sales doubled largely due to continued sales of this product as the preferred alternative for another traditional insecticide that has been withdrawn from the market. Counter gained over 10% continuing market penetration in the sugar beet and increasing use as in the nematicide in corn. Aztec sales were considerably lower this quarter since this year’s demand for Aztec was fulfilled during the first quarter.
This drop was countered balanced by a healthy increase in our smart choice product which is a rotational alternative to Aztec. Our newly purchased nematicides, Mocap and Nemacur sold well on a variety of different crops in both the domestic and international markets despite some continuing production and supply difficulties.
Our sales of non-granular insecticide products declined by 29% as we reduced emphasis on our generic product lines and experienced a drop in our Dibrom mosquito control business due to channel inventories. Sales of Bidrin our premier cotton foliar insecticide grew slightly in the quarter and despite that negative impact of the drought, significant spraying is currently underway to deal with this year’s ongoing sting bug infestation. Dibrom applications have also accelerated in recent weeks and we anticipate a fairly solid annual performance of this high margin product.
Our metam soil fumigant performed well achieving a 20% increase over the prior year period. We are a leader in the domestic fumigant market and work hard to maintain that position through excellent service and product stewardship initiatives. We experience a 58% surge in sales of our post emerging herbicide impact as a wet mid-west weather conditions at planting time cause lighter use of pre-emergent herbicide and accentuated demand for post-emergent products like Impact. We noted this possibility in our last conference call to you in May and that prediction was borne out in the market place.
In fungicides, we continue to experience low sales activity of our popular and effective PCNB product line as a result of the EPA stop sale order that was issued in August of 2010. While we’ve have been unable to serve the cotton, potato, and other vegetable markets, which began seasonal purchasing during the first quarter, we remain optimistic that the stop-sale order will be lifted in time for the critical autumn selling season for turf and golf course applications.
In our others product category, the sale of our cotton foliant, Folex, increased dramatically as a result of increased planted acreage, early season product availability, and incremental business added to our books by the acquisition of the Def defoliant business last July. As a result of this second quarter surge and the impact of recent drought conditions on cotton, we expect somewhat reduced sales for Folex in the third quarter.
With that overview, we generated this excellent performance. I will now turn the call over to David, who will cover the financial and operating details of the quarter. I will then return with additional comments on several important developments and reiterate some of the key drivers that will influence our full year performance. David?
David T. Johnson, Chief Financial Officer and Vice President
Thank you, Eric. As Eric has already mentioned and as you read in our earnings announcement, sales for the second quarter of 2011 increased by 54% to $80 million as compared to $52 million in the same quarter 2010. Within this number, our crop sales were up 61% and total non-crop sales were up 7% or $420,000. In our 10-Q filing scheduled for tomorrow, you will see a detailed description of sales by product groups and Eric has already given you the highlights. However in summary:
Insecticides recorded sales of $6.6 million or 24%. This group includes the newly acquired products, Mocap, Nemacur and Aztec 2.1. Our herbicides were up $5.3 million or 37% with strong performances from our herbicides and fumigants offsetting reduced sales of PCNB. Within crop, our other sales were up $16 million which represents a substantial increase versus last year primarily driven by our cotton defoliant product Folex. Our non-crop sales were up mainly as a result of an increase in sales of our industrial Tribufos product.
I am pleased to report that in addition to growth for new product acquisitions, organic sales from our long established brands increased by $11 million which amounted to a 21% increase over and above the sales recorded this time last year. Our cost of sales for Q2 was 60% of net sales as compared to 63% of net sales for 2010. This is essentially a sales mix effect coupled with close attention to margin performance.
In particular, 22% of our sales were newly acquired products that generated overall a better than average gross margin percentage. As a matter of interest, you will see we have included a new table in the 10-Q giving the breakout between domestic and export sales. In that table you would see that export sales have increased by 34% in comparison to this time last year.
We experienced a dramatic increase in our Thimet product sales primarily because of the withdrawal of the competitive product. Our Counter product also performed extremely well as the market recognized its value as a leading the nematicide. Our Impact product line experience 58% higher demand as conditions in the field were suited to that products. On our generic product line, as previously reported, we’ve not placed emphasis on gaining volume, but rather have focused on opportunities to sell it to customers who value a particular products attributes more highly. The second quarter is usually a strong manufacturing quarter for the company, and this year and late last year, we achieved a very high overhead recovery performance.
As a result of these factors, our gross margins ended up 40% this quarter versus 37% for the same period last year. Operating expense increased about 36% as compared to last year supporting the 54% increase in sales mentioned a few moments ago. Included in this cost increase, we have increased amortization expenses associated with the newly acquired products, higher product defense cost. We have focused on further expanding our field based product stewardship activities. We have added some new people primarily to sales and technical service to improve resources focused on building both organic sales and sales of new products.
We’ve increased freight cost in absolute terms, however, as a percentage of sale, these costs have come down from about 6% to 5%. This improvement is mainly driven by two factors, the mix of sales this quarter and secondly better coverage of the fixed portion of our logistics costs across the substantially increased reported sales.
Increased incentive compensation expense is reflecting the substantially improved financial performance. The key metric we track is operating expenses as a percentage of sales. I’m pleased to report continued improvement to 27% of sales as compared to 30% for the same period last year. The net result of these dynamics is operating income up $7 million at $10.6 million. Our interest expense as a percentage of average debt was flat with last year 4.8%.
The executive team spends time focused on working capital drivers, which include inventory, receivable terms and collection performance and payables. We have continued to perform well in this area of our business and coupled with a very strong trading performance year-to-date, we have managed our cash position very well. Indeed as you have seen in the financial statements attached to the earnings announcement, as of June 30, 2011 we have a cash position of $10 million. This has been achieved despite the significantly increased accounts receivable position determined primarily by sales in the quarter just closed. This condition has continued on through to the end of July.
The company’s internal forecast on borrowing needs developed as part of the renegotiation of our credit facility at the start of this year, proved so far to be conservative. Having a substantial cash balances an unusual experience for the company. We anticipate some cash utilization during the balance of this quarter, as a result of timing on accounts receivable due date, in addition we are preparing detailed cash flow forecast for the short and mid-term, before making a final determination about how best to you this cash position. Consideration is being given to loan pay down, dividend payments, potential funding for future acquisitions and other corporate purposes.
Income before tax improved from 2.7 million to 9.7 million an increase of 262%, I expect tax rate improved by half of 1%. This resulted in much improved net income performance, which ended $6 million of $0.22 as compared to $1.6 million of $0.06 cents per share last year.
Now, I would like to turn my attention to a brief review of the financial performance for the first six months. Year-to-date our sales were 49% or $148 million versus $99 million this time last year. Of this 49% growth, 30% is related to acquisitions concluded in 2010 and 19% is organic growth of our established brands. Our manufacturing performance in the first six months was improved with 30% improved recovery of our factory expenses, which combined with the overall improved volumes has resulted in 2% improvement in gross profit performance.
Our operating expenses have increased but as a percentage of sales have reduced from 31% to 27%. Interest expense is slightly reduced and income before taxes improved from $5.7 million to $17.6 million. Our income tax rate is also improved from 39% to 37.4%, which reflects the effects of R&D credits and state apportionment elections. Net income is much improved at $11 million or $0.40 cents per share as compared to $3.5 million of $0.13 cents per share this time year.
I am also pleased to be able report, given all the factors I have detailed, our liquidity is looking very strong and with the most restricted bank covenants we could currently borrow up to the limits of our evolving line, in other words $75 million. The additional cash on hand increases the liquidity position to $85 million at the balance sheet date. Looking forward to the second half, our latest sales forecast indicates continued reasonable overall sales performance, but probably not quite to the degree of improvement we had so far reported.
There are a few key drivers that I’d like to comment on, as we look at the rest of the year. Dibrom, our mosquito adulticide, is extremely weather dependent. If we have a lot of precipitation in some of the Southern states, then sales can increase dramatically in a short period. On PCNB, as you will read in our thank you legal section, our discussions with the EPA are proceeding in a positive manner, but to date the stop sale, use and removal order has not been lifted.
Timing is critical for the turf season. We have had some initial supply issues with the newly acquired product lines and that will likely impact our Q3 sales performance. With respect to our cotton product like Bidrin, sales were shaping up to have an incredible year, but the intense drought affecting key growing regions in the Southern states is likely to affect second half sales.
With that, I’ll pass it back to Eric.
Eric G. Wintemute, President, Chief Executive Officer and Director
Thank you, David. In our first quarter conference call, we talked about two of our main top markets, cotton and corn. And I’d like to give you an update on the status of each. As you recall, after a steady decline to less than 9 million acres in 2009, U.S. cotton acreage rose to nearly 11 million acres in 2010 and grew again to 13 million plus acres in 2011.
The driver for these recent increases comes from worldwide cotton inventory depletion, strong demand and continuing global supply shortages. That has strain production, and lifted cotton commodity prices to record heights. This demand for additional cotton production appears to be a continuing need - not just a cyclical phase.
Amvac benefits from this trend, with its strong product offering in cotton insecticide and harvest aid deploying. Our specialized insecticide Bidrin, Orthene and Discipline, are well positioned to comeback further infestation and our Folex cotton defoliant product line has seen and will continue to see strong demand prior to each cotton harvest.
As I have indicated our sales of Folex at this quarter were significantly higher than prior year. And in our last quarterly conference call we acknowledge that Bidrin sales had exceeded our first quarter expectation as cotton growers purchase significant quantities in anticipation of the larger planted acreage.
As you know, we have experienced extensive drought conditions throughout the southeastern states and Texas in recent months which has had a severe impact on this year’s U.S. cotton crop. Current estimate indicate that as many as 3 million acres may not be harvested. As a result, our late season third quarter Bidrin sales are now expected to be somewhat below earlier estimates. And additional third quarter Folex sales will be influenced by the drought impact and our extensive second quarter sales.
Now let’s move on to corn. As you know AMVAC is a major player in U.S. corn with a half a dozen insecticide products that customers can choose from and a number of closed delivery systems to safely and efficiently dispense these products. We are without question the most capable corn soil insecticide supplier in the United States. Most of our 2011 planting soil insecticide business was completed in the first quarter with modest second quarter sales meeting our estimates. In corn, we also provide one of the most effective post-emergent herbicides for glyphosate resistant weeds and grasses with our product, Impact.
As mentioned earlier, given the wet Midwest weather planting this past spring, use of the pre-emergent herbicide tended to be lighter than normal and the need for subsequent post-emergent application increased. This allowed us to sell a significantly larger volume of Impact during the second quarter. We have achieved steady market penetration with this product, since its introduction in 2006.
And as we indicated in our last conference call to you, we have been exploring opportunities to expand its use. As a result on June 21st, we announced that Amvac was entered into an agreement with Monsanto Company to co-market Impact as part of the Roundup Ready Plus corn management platform. Under this multiyear agreement, Impact will be listed as an endorsed product in the Monsanto program and promoted by the sales and marketing forces of both companies. This collaborative engagement provides us with the opportunity for expanding future sales of Impact. It provides Monsanto with more comprehensive herbicide control for its market leading Roundup brand. And most importantly, it positions the partnership to provide a more complete and cost effective herbicide solution. As a result, the demand for Impact should expand over the next few years, and we’re very excited about this.
Now, let’s discuss our commercial and consumer pest management opportunities. Over the course of the last several years, we have been building a growing franchise in general pest management. For commercial pest control operators we have marketed the Nuvan pest strip as a residual deterrent to the treatments that they apply to commercial and residential buildings in response to infestation. This business continues to grow and we plan on introducing additional products that will broaden our current offering.
We have also expanded the market for our Nuvan product line with a new initiative to sell these highly effective pest control devices to our agricultural distribution and retail channels. We are offering a special packaged version of the product branded the AMVAC Insect Shield for use in numerous on-farm applications, such as barns, storage enclosures, equipment shelves etcetera. This product line extension has been introduced over the last two months; has enjoyed an enthusiastic reception from our vast retail customers and we believe that this market niche could result in several million dollars of incremental sales per year, as it builds momentum. All components of this system are made in the United States and as with many of our product lines proudly display the Made in America symbol. This is another example of the entrepreneurial spirit of American Vanguard.
We have spoken before about the bed-bug epidemic that continues in the United States, with no clearly efficient economical solution readily available. We continue to explore a number of consumer and professional opportunities involving bed-bug remediation now that our pest strips have secured a consumer bed-bug registration.
AMVAC has been working with universities and the EPA to develop several aerosol formulation as an expedient, inexpensive highly effective solution. Additionally, fields trials are currently underway to validate the efficacy and safety of this new method for using our pest strips with heat and air circulation that could result in a fast, safe, easy and economical remedy for the persistent bed bug problem. The results should be determined in the coming months and a modification of our existing registration incorporating this new method of application could be issued in the near future.
Let me conclude by reiterating the drivers that we feel would be keys to our success during the second half of 2011.
First, we need to continue the integration of recent product acquisitions, a process successfully begun both domestically and internationally and a focus of constant managerial attention. Securing adequate product supply remains our biggest challenge.
Second, we need to capitalize on our market leadership in Metam soil fumigants - our premium products which are traditionally sold during the pre-winter months ahead. We are confident in our ability to achieve this objective.
Third, we need to optimize the utilization of our manufacturing facilities with additional production throughput and improved operational processes.
Fourth, we must continue to maintain or expand profitability through skillful raw material purchasing, efficient operations, operating expense control, and where appropriate price increases for our valuable crop protection and public health products.
Fifth, we need to continue to exploit market place opportunities such as capturing additional business by using our Thimet to replace a competitive offering that has been withdrawn from the market; being well-positioned with proven products like our Counter, Mocap, and Nemacur to combat the growing pressures of nematodes and other secondary insects; and expanding products like pest strips in our new on-farm market application.
Finally we need to regain market access for our PCNB fungicide to provide the crop and turf protection that our customers require.
We are working tirelessly to secure this call. We have produced excellent results in the first half without the benefit of PCNB and despite the product supply difficulties that we have experienced with some of our newly acquired products. Strong demand should allow us to continue ramping up production volumes and improve our manufacturing efficiencies. We also continue to enhance our organizational effectiveness and we will maintain the financial discipline that had strengthened our balance sheet over the last two years.
We have great confidence in our ability to identify and position ourselves to capitalize on many growth-oriented strategic possibilities. We hope that you share that confidence and benefit from our continued success.
We’ll now be happy to entertain any questions you may have.
QUESTION AND ANSWER SECTION
Operator: Thank you. We’ll now be conducting a question and answer session. [Operator Instructions]. Our first question comes from Daniel Rizzo from Sidoti and Company.
<Q – Daniel Rizzo>: Hi, guys. You did multiple achievements to get operating expenses to drop so low, is this sustainable, I mean going forward at around 27%?
<A>: And we work tirelessly to ensure that.
<Q>: So, there is no seasonality or anything in that, it’s just that where you are looking for?
<A>: We have been dropping down below the 30% last few quarters, so that’s the aim. It depends, lot of those costs are fixed effects. So, if the sale volume falls back, it will have an immediate effect but that’s the driving ambition.
<Q>: Okay. And then you indicated that part of your growth strategy is price increases. How does that work with facilities to the contractors?
<A>: So, what do you mean by contractors?.
<Q>: I mean you sell into the market and just sell it at higher prices or is it something that is negotiated.
<A>: The product managers are reviewing the position. Obviously we look at where raw materials are as well, where the value is, what competition does also, but we look at the value and return on investment to our customers, and if there is opportunity, we are certainly going to take advantage of that.
<Q>: Thank you.
Operator: Thank you. Our next question comes from Jay Harris from Goldsmith & Harris.
<Q>: It’s been a long time since we had a great quarter.
<A>: Thank you, Jay.
<Q>: The three labels that you acquired back in December, how are the revenues being produced by those products going relative that those products did in the first six months of last year?
<A>: So I think you’re asking how did the previous owner perform in the first six month last year versus how we did?
<Q>: I want to know whether it was flat, or up or whatever.
<A>: I would say they’re down some because of supply position on Aztec, that had already been produced and effectively that was an inventory transfer. We sold virtually all of that in the first quarter. With Nemacur and Mocap, we did acquire some small – well, we acquired some inventory of Nemacur but Mocap had been pretty well drained as far as inventory. And we frankly have not been able to acquire as much inventory or as much product as we have liked. So, I would say those were not meeting our expectations in the first half of the year.
<Q>: Are the expectations on those products in the last half similar to what you produced in the first half?
<A>: I think that’s probably reasonable. I think production is relatively steady at this point. So I would say that’s probably accurate.
<Q>: And then, would you hope to do better next year with better supply?
<A>: We certainly do. We are working with the supplier to try to improve that position and also looking at opportunities within our own facilities for manufacturing.
<Q>: Now, switching to Impact, did the alliance with Monsanto reflect itself in any volume in the June quarter or in the current quarter?
<Q>: So that will be a significant plus for next year?
<A>: Certainly over the next period of time, we are excited about it. We see I think as you know we have had discussions on expansion in this regard for a while and I think that Monsanto choosing Impact as its post-emergent partner will do well for us in the next coming years.
<Q>: And as your hesitancy have to do with crop acreage or some other factor?
<A>: We are looking at kind of long lead time in supply and so we are currently forecasting significant increases whether or not we’ll have that supply in place for the 2012 new season or not remains to be same.
<Q>: The comments you have made about a looking forward to continued growth that are more moderate or more modest pace in the last half of the year, what should we be thinking of, revenue gains closer to 10% or half declines of revenue gains we’ve seen in the first six months, can you provide some color to that?
<A>: Well, as far as absolute numbers, I think we’ve got a long relationship, Jay. So, I think you know the answer on that one. I think we’ve kind of reiterated what some of the key drivers are. I mean we’re looking for PCNB to be back in sales in this quarter. We need to have the availability prior to the snowfall and I think customers this last year have experienced significant damage to their golf course turf despite trying all alternatives. So, there is certainly a lot of pressure there from consumer users to get that back going as well.
So, regarding Dibrom sales - that’s always a function of seasonal or weather issue. The more recent storms in Florida have had a fairly strong effect. I was down there a couple of weeks ago and one of the mosquito districts that we visited said that without the hurricane, the way the storms are hitting and thunderstorms, dropping large amounts of water in little spots here and there all over the place are leading into what he expects to be a record all time year. That’s not necessarily a reflection of all the districts that – one that I happen to visit and generally when I did. But, right now, they have been sprayed at fairly high rate for stink bug, the season will be longer than anticipated due to the fact they are way behind and so it will trail into September, so that’s still kind of a driver for us and I’ll say, those are maybe three, kind of, key unknowns or potential variables driving through the balance of the year.
<Q>: I presume Metam Sodium on potato acreage could be a plus.
<A>: Yeah, we expect to execute well on that Tim.
<Q>: And then I have one question for David. Unless I am reading the source and application of funds, which I thank you for including in the press release wrong. Well, it looks to me like cash provided from operations so forth of $1 million from capital expenditures and dividends. And so I’m reaching a conclusion, which maybe improper that you borrow $20 million on $10 million – $8.5 million net to in fact end up with more cash on the balance sheet. If that’s the case, what were you planning for? And if it’s the case, correct me.
<A>: Well, I think that as I said in my remarks, we made a conservative estimates of both the trading performance and our ability to manage our working capital. And, I think, we’ve done better than that. So, yeah, we’ve got a better cash position, we renegotiated our loans at the start of the year, and we’ve been managing cash very carefully since that time and as I said also in the remarks, we are looking at what we should do now, and including in those.....
<Q>: Why did you borrow $20 million instead of $10 million?
<A>: So, we basically we had a fixed amount, which at the renegotiation with the new term we expanded both the revolver capability.
<Q>: The size of the term loan has increased and...
<A>: Correct, yeah right.
<Q>: Understood. Thank you.
Operator: Thank you. Our next question from Brad Evans with Heartland Funds.
<Q – Brad Evans>: Well done gentlemen.
<A>: Thank you Brad.
<Q – Brad Evans>: Thanks for taking the question. The last year’s second half sales have been roughly 56% or 57% of annual sales is there any reason why that seasonality should change this year?
<A>: You know the comment that we made you know earlier on cotton I think that’s the only area and of course the PCNB I think those are the two pieces that could influence and of course.
<A>: And also...
<Q – Brad Evans>: Okay.
<A>: I think it’s true to say that our big go to products moved slightly earlier in the year. So, we’ve had very strong second quarter this time.
<Q – Brad Evans>: Can you just speak to the demand environment and your ability to raise prices to offset the raw material cost inflation?
<A>: Yeah I think...
<A>: We’ve see this in competitors where they have kind of proprietary positions certainly in the generic area that market I will say continues to slide within intense competition. But again we don’t participate much in that arena and as such again the proven brands that we have very strong value and as such we’ve been able to manage through our increases. One of the most significant was our metam sodium which did increase July 1st across the market. So that was an important for us.
<Q>: So do you generally feel like you are – maybe ahead either in line or ahead of cost inflation now with where your pricing is?
<A – Eric G. Wintemute>: I think we’ve – there are some key intermediates in phosphorus basic elements, Phosphorus and potassium, I think we are seeing increases but generally I think we are in pretty shape. We’ve got a system now where we got good forecasting with the key indexes, that being put out over the next several months and our not only management but product managers have access to that so they can see the effect or potential effect on their cost and therefore margins a little more prospectively than they have in the past. So I think it’s a discipline that will serve us well overtime.
<Q>: Okay, Eric, may I ask you this, your personal thoughts on this, there has been lot of varying opinions on the government statistics relative to the crop import for corn in terms of the quality and the health of the current crop, do you have any thoughts as to what you are hearing in terms of where stocks will end this – after this harvest and what it might imply for acreage planted next year?
<A>: Well, I think that the corn, I mean they’re certainly – I mean I went through the South recently and – unless there was irrigation, most of everything was dried. I mean again this is Florida and Southern part of Georgia and Alabama. Those have not been particularly great corn acreage to begin with, but it was amazing to see. I also went into the heartland into our plant in Missouri, and the corn there looked very strong and just couple of months earlier hadn’t been planted in, so it was amazing to see how tall it was. There is certain variability and you can see we’re normal as you might have corn looking pretty consistent across, it looks a little bit more like waves as some areas were so wet that maybe in response hasn’t been as strong in some parts of the field. But, I think corn acreage or corn yield overall, my guess would be down from last year a few bushels per acre. I think the outlook for the next several years is going to be probably strong, because I think the demand for all these crops is going to continue. I think there is going to be a shortage of land. The value of land in some areas has increased fourfold over the last couple of years. And so looking at peanut this last year, normally that’s contracted largely, certainly vastly over 50% by the time of plant and this time there is only 25% contracted. So, the actual peanut farmers that deliver are going to make a great deal of money. Looking at in the sugar side, there is a new variety of cane that’s been introduced that we’ll also look to try to build on ethanol. So, being there is a limited amount of acres and the demand I think is just going to continue to grow.
<Q>: Okay. Thank you very much. I appreciate it.
Operator: Thank you. Our next question comes from Steve Roberts, NorthPointe Capital.
<Q – Stephen Roberts>: Hi guys, great quarter.
<A>: Thank you.
<Q – Stephen Roberts>: Just wondering, you talked about the cotton and corn products and all these are the products that’s part of the variation here in the second-half of the year, what kind of dollar range, say, if a worst case or best case, type of revenue swing are we talking about?
<A>: I don’t know that we really fixed that, but PCNB could vary some $7 million maybe pushing upwards of close to $10 million - - combined may be in that range. Dibrom can range widely - we hve had hurricane years where volume is tripled in September and October. So that’s good push may be close to that but, hey, I think those are extreme swings.
<Q>: So the total revenue swing worst case to best case 30 million?
<A>: That’s probably a reasonable number.
<Q>: Okay, okay. Thank you.
Operator: Thank you. [Operator Instructions]. Our next question comes from James Bartlett of Bartlett Investors.
<Q>: Yes, if you mentioned that you might do the modification to your application, this in the application and that’s deliberate for bed-bugs, could you expand on that?
<A>: Sure, our current product is the pest strips which is registered for bed-bug use. What the University of Florida has come up with and looked at is how they could increase the application to improve the time of the pest strip use. As you know, I think one of the methods that has been used is heating the room to 140 degree for eight hours, which is very expensive and also can be very distortive to the room itself, wall paper room paint, etc. So by just using a space heater with a fan for circulation, they have been able to increase the effectiveness of our pest strips in a more timely manner. They are now doing more intensive studies and the results look fabulous, so it is the use instead specifically of taking the strip and also say kind of putting heat and air circulation, it doesn’t prohibit that use, but we would from a stewardship standpoint, we would like to just to focus on professional use and we would like to create a training video that would be used by professionals to make sure they are doing this correctly.
<Q>: Also could you just comment on what you see in terms of possible legislation on reducing ethanol subsidies?
<A>: I am not the expert on that, and I try to stay out of politics as best as I can. I think the demand – subsidies over a long period of time I think can be destructive to a market place so I am – I think that ethanol has a strong phase going forward with our energy supply, but I guess if you are asking me, do I see a decrease in corn prices or planting because of potential long support, most of the corn gets used as feed for livestock and poultry and that’s an area that I think will just continue to grow.
<Q>: Thank you.
Operator: Thank you. Our next question comes from Harvey Capital.
<Q>: Yes, Eric, in light of the improving cash position and fortunes of the company, can you spend a minute or two talking about company’s appetite for acquisitions and criteria for doing so and how you expect that to evolve over the next year or two?
<A>: While we continue to see opportunities, I think, kind of 2008-2009 timeframe, the opportunities we thought were didn’t hit our criteria and we do have criteria that want to payback the investment within a certain period of time. We are certainly wanted to be accretive and contribute to the profitability of the company. There are acquisitions that we continue to look at as part of our ongoing position, as David said, we are fairly conservative. We’ve got what we consider a lot of dry powder right now. But we are going to exercise discipline over acquisitions. We have a fair amount – on our plate right now is seem by the expansion that we have had, and we think that there is the opportunity to take our now existing portfolio and increase that fairly dramatically over a period. But, we will continue and we continue to get packages, take a look at them and assess their viability within our portfolio.
<Q>: Okay. Thank you.
Operator: Thank you. At this time, we have no further questions. I would like to turn the call back over to Mr. Kuser for any closing comments.
Thank you for joining us today. We appreciate your support and attendance and participation in this call. We look forward to updating you with further news as we go along and of course certainly we will talk you about our third quarter results in early November. Okay, thank you very much everyone.
Operator: Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.
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