Balchem Corp (BCPC) 2010 Q4 法說會逐字稿

Greetings, and welcome to the Balchem Corporation fourth-quarter 2010 earnings call. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Frank Fitzpatrick, CFO for Balchem Corporation. Thank you, Mr. Fitzpatrick. You may begin.

Ladies and gentlemen, thank you for joining our conference call this afternoon to discuss the results of Balchem Corporation for the period ending December 31, 2010. My name is Frank Fitzpatrick, Chief Financial Officer, and hosting this call with me is Dino Rossi, our Chairman, President, and CEO.

Following the advice of our Counsel, auditors, and the SEC, at this time I would like to read our forward-looking statement. This release does contain or likely will contain forward-looking statements which reflect Balchem's expectation or belief concerning future events that involve risks and uncertainties. We can give no assurances that the expectations reflected in forward-looking statements will prove correct, and various factors could cause results to differ materially from our expectations, including risks and factors identified in Balchem's Form 10-K.

Forward-looking statements are qualified in their entirety by this cautionary statement. The financial information that is referenced in this meeting was disclosed this morning in our quarterly press release at 930 AM Eastern time.

I will now turn the call over to Dino A. Rossi, our President, Chairman, and CEO.

Thanks, Frank. Good morning, ladies and gentlemen, and welcome to our conference call.

We're pleased to report record net earnings of $9.4 million on record consolidated sales of $69.8 million for the quarter ended December 31, 2010. These outstanding results bring to a close a record year for Balchem, where we saw our net sales increased 16.2% to $255 million versus $219 million in 2009.

Our full-year 2010 earnings were also a Balchem record, increasing 24% to $33.3 million, generating $1.12 per diluted share, versus net earnings of $26.8 million, or $0.93 per diluted share, in the prior year. These outstanding results translate to earnings-per-share improvement of 20.4% for all of 2010, and during this period of time we saw our shareholders rewarded as publicly noted with our market cap hovering near $1 billion at the end of 2010 from $628 million at the end of 2009.

Focusing back on the record fourth-quarter results, sales of $69.8 million were approximately 18% greater than the $59.2 million result of the prior-year comparable quarter. Disciplined management of our businesses enabled us to improve operating margins and deliver strong profitability and cash flow.

All three segments achieved double-digit revenue growth this quarter, with the Animal Nutrition & Health segment up 17.5% due to growth from our basic choline and industrial products, which were up 15.3%, and strong specialty ANH sales, which were up 28.3%. The Food, Pharma, & Nutrition business posted 14.7% growth, resulting in record quarterly sales of $10.7 million with particular strength, again, in the domestic food market. The ARC Specialty Products segment generated record quarterly sales of $11.5 million, a 23.2% improvement over the prior-year quarter, principally a result of increases in sales volumes of packaged ethylene oxide and propylene oxide in the quarter.

As previously noted, consolidated net income closed the quarter at a record $9.4 million, up from approximately $7 million in the prior-year quarter, or an increase of approximately 35%. This quarterly net income translated into diluted earnings per share of $0.31, a 29% increase from the $0.24 we posted in the comparable quarter of 2009.

Looking between the top and bottom line, you will see there our consolidated gross profits of $21.3 million were equal to 30.5% of sales in the quarter. This level is a 1.8% improvement as a percent of sales from the prior-year quarter, reflecting improved sales volumes, product mix, and plant efficiencies. We did, however, on a sequential basis, realize higher cost levels of certain key raw materials. These raw material increases particularly affected unfavorably our ANH and ARC Specialty Products segments.

At the consolidated operating expense level, you will note a $1.3 million increase to $7.5 million for the quarter, which equaled 10.7% of sales versus the prior year, which was approximately 10.5% of sales. As noted in our press release, this spending level reflects some increased expenses related to an increase of employee headcount, other payroll-related expenses, recruiting and consultancy fees. While only slightly higher sequentially from Q3, we continue to leverage off of our existing infrastructure and exercise tight control over all controllable operating expenses.

Overall, it was another strong quarter. We again are particularly pleased with the results of our human food and choline product lines that generated the margin improvement previously discussed largely due to increased sales volumes, product mix, production, and logistic efficiencies.

Operating margin percentages also remained strong for both ANH and ARC Specialty Products segments. Consolidated earnings from operations finished at 19.8% of sales, or $13.8 million for the quarter, as compared to 18.2% in the prior-year quarter.

Other income of $157,000 compares favorably to the $49,000 of income incurred in the previous-year comparable quarter. This increase is principally related to a nonrecurring net gain of approximately $73,000 related to the sale of our calcium carbonate product line, favorable fluctuations in foreign currency exchange rates, and interest income earned in the quarter.

Net income of $9.4 million translated to $0.31 per diluted common share, or an increase of 29% over the comparative prior-year quarter, generating approximately $16 million of EBITDA in the quarter, which translates into $0.54 per diluted share. And when including our non-cash stock-based compensation charge, we generated $17 million of EBITDA in the quarter, equaling approximately 24% of sales.

At December 31, 2010, our outstanding borrowings were approximately $5 million, but zero net of our cash balance of approximately $77 million. We continued to aggressively manage all areas of working capital, driving strong cash flow, which also resulted in improved earnings, to generate even more accretive results from our core businesses.

In an effort to detail our consolidated results better for our shareholders, I'm now going to have Frank Fitzpatrick discuss the ARC Specialty Products and Food, Pharma & Nutrition segments.

The ARC Specialty Products segment posted record quarterly sales of approximately $11.5 million, or a 23% increase over the prior-year comparable quarter.

This increase was principally the result of strong sales of ethylene oxide for medical device sterilization and increased volumes of propylene oxide in support of the recent acquisition of Aberco, Inc., which targets nut meat and spice fumigation. Excluding approximately $1.2 million of sales associated with the Aberco transaction, ARC's quarterly sales would've been up 10.4% compared to the prior year.

ARC quarterly business earnings increased 33% to $4.6 million versus the prior-year comparable quarter. This increase is largely a result of the aforementioned increased sales of propylene oxide and, as previously reported, higher average selling prices on certain ethylene oxide products. These increased selling prices were implemented midyear to help offset key raw material increases.

However, these improvements were partially offset by increased expenses related to development work on our ERC technology for repackaging, distribution, and delivery of a product for the food ripening industry and certain costs related to the aforementioned Aberco acquisition. We continue working on initiatives to broaden and build on the ARC business model with particular application development work on the ERC technology.

As we have reported to you in the previous quarter, we are disappointed at the slow pace with which fruit producers and wholesalers are moving to this new technology. Trials with large fruit producers and wholesalers have continued to take place with positive results. We are working closely with the produce industry on this project, developing marketing and product launch strategies that should result in notable commercial sales in 2011.

The Food, Pharma & Nutrition segment realized a 14.7% sales increase to a quarterly record $10.7 million versus the prior-year comparable quarter. Business segment earnings of $2.5 million were 70% greater than the prior-year quarter.

As stated in this morning's press release, the domestic food sector was significantly up again this quarter as we continue to see solid double-digit growth of encapsulated ingredients for baking, preservation, prepared meals, and the confection markets. Although we did not see substantial growth over the prior-year quarter in sales of our human choline product, this fourth quarter was still quite strong and was up approximately 8% on a sequential basis as we continued to target new food and beverage applications and experience the continued rebound of sales into the supplement marketplace.

In 2009, we have seen many customers aggressively managing inventory levels down by delaying orders in response to certain retail product line slowness and, in large retail chains, the elimination of multiple SKUs that had previously included choline. We continue to focus on building consumer awareness of the benefits of choline; hence choline inclusion in more foods such as Gerber baby food and fortified beverages.

Additional independent research on the benefits of choline has been completed, recently published, and is available through our choline webpage. We continue to position choline with nutritional and pharmaceutical companies as an essential ingredient with excellent therapeutic benefits for all ages.

Switching over to our calcium product line, as reported in the prior quarters, we have been actively evaluating strategic alternatives for this underperforming sector. Late in the fourth quarter of 2010, we did successfully close on the sale of this business line and we plan to exit our leased facility by the end of the second quarter in 2011. Exiting this business line and facility will result in improved operating income for the FP&N segment in 2011.

Our pharmaceutical drug delivery commercial development efforts continue. In the quarter, we did not generate any R&D milestone payments. However, as previously reported, a licensee of our technology continues to conduct a Phase III clinical trial utilizing our technology. We are cautiously optimistic that these efforts will yield good end results, but in the near term this sector remains a net expense to the business segment.

I will now turn the call over to Mr. Rossi for him to discuss the Animal Nutrition & Health segment.

Thanks, Frank.

In the Animal Nutrition & Health segment, we realized sales of $47.5 million, an increase of $7.1 million, or 17.5%, as compared to the prior-year comparable quarter. Within this segment, specialty ANH product sales realized 23% growth from the prior-year comparable quarter as improvement in dairy economics created greater demand for our products. These increases are principally the result of improved sales volumes of Reashure, chelated minerals, and Aminoshure-L, our rumen protected lysine. We continue to be pleased with the progress we have made with Aminoshure-L launch as more prospective customers trialing the product are realizing positive experiences.

These overall increases clearly coincide with a dairy economy that is improved over the past several months. However, we are monitoring this very closely as higher feed prices will pressure milk producer economics.

In addition, improving output for cows is expected to maintain or boost milk production in 2011. The increased output per cow is expected to more than offset the targeted reduction of herbicides this year, resulting in more milk, which may act to keep prices from rising much in 2011.

As noted in our press release, our global feed grade choline product sales were up modestly from the prior-year quarter. However, we did experience a 9.2% increase on a sequential quarterly basis. Exports of liquid and dry choline from all plants declined slightly due to currency issues in combination with global competition, which resulted in our declining to pursue certain international business in the quarter. We continue to evaluate these export sales opportunities, and in the coming quarters may elect to be more aggressive in seeking to win this business, depending upon the then-current costs and market conditions.

Data from USDA's Broiler Hatchery report does point toward continued gains in broiler production as broiler type egg sets and chicks are placed -- both forecasted higher earning into 2011, although less than originally thought due to the sharp increases in feed grade prices. Comparative sales statistics in this segment were also negatively impacted by approximately 1.9% due to correlated foreign currency fluctuation associated with the European operation.

Sales of industrial derivatives had another very strong quarter. Sales of methylamines and other industrial products, including a [toll] produced methylamine derivative from our Italian operations specifically for Europe, continued strong despite the general poor economic climate in Europe. We again saw exceptionally strong sales of choline, choline derivatives, and intermediate industrial products being sold for various industrial applications in North America and Europe.

We continue to evaluate these growing industrial opportunities to determine how we will derive the most positive value. This strong performance has continued into the early part of the first quarter, and we remain fairly confident that this upward trend will continue throughout 2011, driving increases in sales and profitability.

Earnings from operations for this entire segment improved to a record $6.8 million, as compared to $5.9 million in the prior-year comparable quarter, largely due to improved volumes sold, product mix, and certain favorable production and logistic efficiencies. The improved dollar profitability of the ANH segment was achieved with a constant reevaluation of global raw material cost, product reformulation, currency review, and our ultimate ability to meet market needs from our various global facilities and transload sites. The opportunity to capitalize in this fashion is a direct result of our effective integration of acquisitions, growth strategies, and the ability to drive costs out of our business model.

At the recent international poultry exhibition, we announced our plans to expand production capabilities of feed grade choline and a new encapsulation technology targeted to the ruminant animal market. These investments are focused on supporting our targeted markets with new and novel products to enhance our ability to better serve these markets. These production capabilities should be online commercially in Q2 of this year.

With the bulk of the feed grade choline predominantly going to the poultry and swine markets, we are very sensitive to the continued economic pressures on the large production animal integrators. Feed ration costs have corrected near term, but retail poultry and swine prices remain low, keeping significant downward pressure on profitability for this global end market. We continue to closely monitor raw material costs for all segments of our business and implement cost passthroughs as appropriate.

As noted in previous calls, we continue to see a revenue rollercoaster effect quarter to quarter in various products or market sectors, but we are very pleased with this overall quarterly consolidated earnings result. We continue to strengthen our global growth platform and are confident that more business will be generated based on the unique platform of products that we offer or soon will offer the markets we serve.

Our business portfolio continues to create good balance, yielding profitable growth opportunity through the various challenges of any single segment or product line. We continued to deliver solid revenue and operating income growth by staying focused on helping our customers save and make money in this tough economy while maintaining our own operating discipline.

Overall, we continue to build the financial strength of the Company, managing the asset base aggressively, reducing debt and interest expense, which also assists in yielding improved financial results. Near term, we remain focused on implementing operational and logistic improvements, new product development, and new product marketing. We'll also continue to explore alliances, acquisitions, and/or joint ventures to continue building and leveraging our technology and strong human asset base.

This now concludes the formal portion of the conference. At this point, I will open the conference call for questions.

(Operator Instructions). Daniel Rizzo, Sidoti & Company.

Could you give me industrial choline sales for the year, what the number was?

I'm going to let Frank kind of search for that here for a second. I don't know that we have the year number right at our fingertips right now.

What's the quarterly number, then?

For the year, it was about $44 million, and about $12.4 million in the quarter.

Okay. And then, are you guys at capacity for choline production?

Not quite, but we're -- I'd say any given day, we might be bumping our head, but we're not really there yet. And certainly one of the expansions that we talked about was bringing more capacity online of choline here in Q2.

And that expansion is going to be completed when?

It should be completed in May.

Okay, and then one other question. On raw material costs, I mean, I assume you see that they are rising for you guys, correct?

Yes.

Is there anything in particular that's costly or more so than others?

I think -- the key raw materials are definitely petrochemical derivatives, so I think at a certain moment they are all suspect to what's going to happen with a barrel of oil in an equivalency pricing basis.

So, I'd say we are seeing things nudge up. I would say I think we have very decent contract protection, to some degree, on the raw materials, so we're not completely exposed to what's going on there. But certainly net net, we'll see some increases.

Tim Ramey, D.A. Davidson & Co..

Congratulations. Curious on the sales of choline to the fracking market in the U.S.. I know that was thought to be a pretty good growth opportunity. Can you flesh out how that played out in the fourth quarter?

I think, as Frank just said, the entire industrial sales were about $12 million for the quarter, and -- so I think it's probably pretty much on track with where we thought it was going to be, and certainly continue to see good uptake of the product into the fracking industry.

And all indications from the field are that the product is working, actually working quite well, and expectations are that that number should continue to grow.

Unfortunately, what I can't tell you is how much it's going to grow or at what rate. I think, again, it's -- my sense is it's still in early adoption stages, but certainly I think it's being pulled into more and more of these well developments.

And I think you mentioned that mix was positive, so I assume that the mix -- margin mix on that business was reasonably positive as well.

Well, it's positive. I'd say it's kind of comparable to the sales of the commodity choline that goes into the poultry and swine industry. And so, I'd say kind of consistent with that kind of margin range.

And I don't know what you can say about acquisitions, probably not much, but the cash balance is impressive and certainly indicates untapped potential in your balance sheet. Are you bullish on the idea of putting some of that cash to work in 2011 or is it still kind of an uncertain thing?

I think -- yes, we're pretty bullish. We've identified, I'm going to say, two or three targets that are of good interest to us. Conversations have taken place. You know, deals are never done until they're done. But certainly the intent is to continue to grow through acquisition, and I would expect that in 2011 you'll see at least one of those.

Terrific, thank you.

Lawrence Goldstein, Santa Monica Partners.

On the subject of choline/mud, you talk about fracking, but I thought in the past you were talking about use at wells of all kinds. No? Yes?

No. Our focus really today, Larry, has been for fracking. There is different muds that are used for other well applications, but the keen focus right now to date has definitely been on fracking.

Okay. Would you comment on -- you cited twice in the press release currency translation. I'm not going to guess what currency, but I guess the euro is important, and the euro during the quarter only ended slightly higher with a big upward move during the quarter. So, I'm just wondering how you translated that as a negative.

And then, would you comment for an hour each on fruit ripener -- bananas, avocados, on the autism cure mark, on salt reduction, the use of choline as a substitute, and on the expansion of -- expanded use, which you touched on, you said go to your website, on the use of microencapsulated probiotics and also pharmaceuticals?

Well, I don't think we'll expend an hour on each, for sure. And I don't recall really drilling down on probiotics much any time recently.

Right, that's why I'm asking.

I'd say it's been moved to the back burner at best. We do a little bit, but certainly not very much, and that's not really a keen focus for us, that is probiotics, right now, anyway. So, I'm going to pause for a second and maybe let Frank answer your question about foreign currency.

Sure. Larry, the impact of currency -- and I just have it on our top line here, it's probably about -- close to $1 million. So, yes, it certainly had a reasonably meaningful impact on our numbers for the quarter.

Okay, will you comment on fruit ripener on autism? (Multiple speakers) reduction?

Yes, all of those, I think, Larry, are projects that are in the pipeline. On the fruit ripening, we're continuing to run trials. Not really generated much in the way of commercial business yet, but certainly that's not because the product doesn't work. I think it's just been slow to adopt, and even here in Q4, going into early this year, there's actually been a banana shortage because of floods and weather conditions that actually has truly led to a shortness of bananas on the shelves.

So, people were reluctant to move things too far ahead there just because they didn't have a lot of bananas to work with. But continue to move down that path, and definitely we know it works. We'll see how the adoption rate goes.

Jumping over to CureMark, again no new news for us to report, anyway. We're the producer here.

Have you heard from them?

Well, what we've heard is that the trials are continuing well. They have filled out the clients that needed to be in the clinical, and with an expectation of hearing something back hopefully in Q3 this year that will probably give us a better indication of how it's going to go from there. But by Q3, our sense is the trial should be completed and data should be available.

And choline as a salt reduction and substitute?

Yes. We actually have moved it into a couple of small applications to date, I would say. But definitely there still continues to be a major interest, if you will, in sodium reduction, and I think choline definitely can play a role in there.

Will it be large and broad-based? I'm going to say probably not, just because there's some flavor profiles that some people don't seem to like, which is understandable. But we're continuing to move it forward and do things that will carve out a bit of a niche role going forward here.

By the way, is the $44 million entirely what you -- you call it industrial. Is that entirely the fracking use?

No. That's all of our industrial sales.

So what's the new use? The fracking? What is that volume amounting to?

We'll probably have to drill down and dig that number out for you, Larry.

Okay, and four months ago, you said you hired this fellow from the oil industry.

Right.

So, what's going on for him? What's his days, weeks look like? Is he getting in new customer, close? Does it take a long time to close a deal, to get them to try it? What's going on with him?

No, no, no. He's hit the ground running, quite honestly, and he's opened up doors very quickly, clearly having relationships in this industry.

We have, in fact, put on a number of new accounts in the choline space for fracking, and -- which has led to certainly some of the growth that we've talked about here, as well as exploring some other end-cap opportunities in industrial/oilfield opportunities as well.

So, is -- do you expect him to land multiple new accounts that will immediately start to purchase the mud substitute, or it takes time, or (multiple speakers)

I think it's like any new product into the industry. It needs to be tested and proven, and retested and proven, if you will, to get -- I'm going to say broad adoption rates, but certainly I would say we didn't -- we wouldn't have hired him if we didn't think he could significantly add to the base of the business.

Right, well, I'm just -- obviously, you always hire people because you hope they're going to do good stuff (multiple speakers)

Yes, we're pretty confident he is going to help us win.

Lastly, the end of the press release, you made a comment typical of the ones you always make. And I'm just trying to find it, about the future in line with your plans or -- our strategic organic growth objectives for the year you expect to meet. So, what are the strategic organic growth objectives for the year?

I'm not going to identify numbers. As you know, I don't give guidance, but I think our confidence level is up that we'll be in double-digit growth again, and I'd rather just leave it right there, Larry.

So you have a budget that you've put together, working with people in the various divisions and dealing with the various customers, marketing. You build your budget in presumably a very professional, sophisticated way, and that leads you to conclude what you just said, and what you wrote.

That's correct. Yes.

(Operator Instructions). [Jack Balsam], private investor.

I'm interested in the long-term obligations on your balance sheet. It went up approximately $5 million year to year. What is the cost of carrying those?

The reason that the -- there is a reclassification is that our term loan or our term -- or our deal with the bank was set to expire at the end of last year. So, therefore, the entire amount had to be put into current liabilities.

We have since renewed our obligation with them -- or our debt agreement with them. And so, now, we are free to reclassify it back into long term. And the cost of carrying that, it's principally a European term loan and it's based on Euribor, so it's very inexpensive at this time to carry.

All right, because I was wondering, with a $31 million increase in your cash position, why you didn't pay that off.

Right, it's -- because I'd have to pull a -- it has to do with foreign currency intercompany balances and so forth that we would have to carry, and then you're running foreign currency exchange rates and gains through the P&L. So we thought it would be better to just leave it there on the Italian P&L and let them (multiple speakers)

Yes, I would agree -- I agree with that, especially if the current interest rates, the cost of carrying those loans, are really negligible. Next question. Has any consideration been given to a stock split?

Consideration, yes. I think normally you would -- probably if you look back at history, you would find that we had split the stock typically at the end of the year when we declare our annual dividend. We looked at it and in fact increased the cash piece of it without splitting the stock.

As you well know, we can split the stock, really, any time. But we're just studying exactly maybe what's going to be the best way to go about that, maybe as a likely split that should happen, if it should happen. But I'd say that it's on the radar screen, just haven't taken a decision (multiple speakers)

Because I know -- all previous years, whenever the stock went above 30, we saw a three-for-two split. So I was wondering whether something like that would be forthcoming.

Last question. How about consideration to putting the dividend on a quarterly basis, rather than an annual?

That discussion comes up every now and again, to be sure, and I think we've kind of just historically left it as an annual because it's still yet a relatively small number.

We've been increasing it, but just felt that the easier thing would still yet leave it on the annual. I think if we get to the point where we significantly were to increase that number, it might mean something more to somebody on a quarter, we'd probably look at that, but right now we're just going to leave it on an annual.

Okay, thank you very much. And again, congratulations on a great quarter and a great year.

Brian Rafn, Morgan Dempsey Capital Management.

Question for you on -- you had mentioned, I think, about your ability to raise prices to offset some of these commodity feedstock in places, specifically in the petrochemical area. Can you give us a sense, range-wise, what you've been able to increase across your product lines on a pricing basis?

Yes, I mean, we talked a lot about the volume increases that certainly contributed significantly to the growth that took place. On a counterbalance, it really comes down to price, but it's also a function of mix because that has changed.

But I would say, probably on average, it's been 2% to 3% on price that's been kind of passthroughs. But that's probably not even true for any given segment -- I mean, any single one segment because we have different products going through those segments, but ballpark on an average, consolidated, it's probably in that 2% to 3% range.

Okay. Sounds good. You talked certainly about the human choline and the applications, and you mentioned supplements and fortified beverages and that. What is the difference relative to choline's application to food in the U.S. versus, say, Europe or in foreign markets?

I think if you were to -- as we look at those markets, certainly our largest position is still yet is in the U.S. market, and in fact we're the only U.S. producer of human-grade choline, and so we see that as a very, very solid market.

I think the European market, we're one of two producers over there today. So we end up, if you will, quote-unquote, sharing that market, and then we are selling into the Asian market, as well, choline, in particular for the supplement applications over there. So we see that as a growing opportunity as well.

But I think to try and say one will grow quicker than the others, kind of difficult. We are -- we continue to bring more science to the market or food companies to try and get them to get it included in their actual end product. We continue to do, I'm going to say, health benefit research in the background in support of why people should want choline in their diet and continue to pursue structured function claims that are critical in many of these markets, for sure. Not only the U.S., but certainly Europe in particular, let alone Asia, really require these structured function claims.

So your sense, then, is the attention or receptivity of U.S. food -- packaged-food OEMs versus foreign is just about the same. You don't see any more application or first-mover usage geographically.

You know, the product has been out there for a number of years, so it's not as if it's new.

I think the key is kind of really improving, I'm going to say, the scientific intelligence that's out there, getting people on board with the product. Do I see one or the other looking to move quicker, if you will? Certainly not without the structured function claim information. So that's why we're working on that, and I think -- once again, I think if we're successful there, you're going to get adoption broadly because it will play across the different global marketplaces.

If you look at your plans, kind of give me a sense capacity utilization. How many shifts are you guys running? Do you see any capacity bottlenecks across any new product lines?

Yes, I think the only one -- I mean, a number of our plants are running 24/7. It doesn't mean that you can't run at higher rates even in a 24/7, but we're definitely running 24/7 probably in four of our six plants right now.

And you know, so maybe short of one of those where we are probably running at a solid 95% to 97% of capacity, the others are probably running in that 85% to 90% range. And that -- and again, too, I mentioned we are looking to do some debottlenecking and some new technology investments there that should come online in Q2, but we're always looking to bottleneck our plants, and I think those opportunities are always there. So those are always fresh ideas on those weekly.

Sure. From that standpoint, do you see 2011, Dino, as more of staying with your fixed manufacturing footprint versus actually expanding brick and mortar?

I think certainly there will be some brick and mortar in Q2 here that I mentioned earlier in those two plants, and then I think if there is going to be expansion, brick and mortar-wise, it likely would come through either an acquisition or a JV.

Sounds good. On the dairy herd, the expectation to be down slightly. Your sense, anecdotally, the mix between using the Reashure/Niashure supplements to expand milk production per dairy cow. What's that offset versus having the tremendous feedstock cost rises? Is it a flat market? Do you see the feedstocks crowding out some of your supplements for the dairy herds?

I don't think -- when you say feedstocks, you're talking about commodity feedstocks?

Yes, I'm talking about grains and meal and that type of feed versus the supplements you guys provide.

Yes, I think certainly with corn and grain in general going up, there will be pressure, I think -- but there's always pressure, especially when milk prices are good.

You're going to find they produce more milk every which way that they can. So, at $16, $17 milk, you know Class III fluid milk, the guys are making money still yet, and I think that they have learned a fair bit along the way about buying and hedging a bit better. So, we're still pretty optimistic.

I do think that there will be some culling of the herd, which will be helpful. Whether or not it's going to be truly strong enough to really make a difference, I don't know. But at least it will help to, I'm going to say, preserve a level there that should still warrant very decent milk prices.

Okay, sounds good. You also talked, and I -- you accentuated a little on the whole fruit ripening. I would assume that the producers that you guys are doing trials with would be some of the larger OEMs. These aren't small little mom-and-pops. These are the Doles and the Chiquitas of the world.

Yes, there's three major players, and we're talking to them all.

Okay. Is it your understanding that this industry specifically has been slow to adopt, maybe, new technologies, or is it an issue of just the weak economies?

I think it's more that they've just generally, historically, been slow to adopt new technology.

At least that's what we're hearing pretty consistently, because when you do good trials and you see good results and then you see still yet slowness in adoption, we challenge that kind of thought process, I guess you could say, because it's a little frustrating on our part. And yet I think that there is just a slowness to adopt, and we are starting to hear that a little bit more, and I think what will help convert that is, as volumes continue to grow of these fruits, then they will too run into brick-and-mortar issues in terms of their ability to effectively ripen these fruits, and we become, if you will, the logical answer in lieu of bricks and mortar.

What -- refresh for me some of the fruits that you guys -- you certainly talked about bananas, but what other types of fruits can this technology be used to ripen?

Avocados, tomatoes, cucumbers.

Relative to CapEx, what was the CapEx spending spend in 2010, if you have that, Frank?

I do. Hang on one second. CapEx was about $7.6 million.

Okay. And your budgets for 2011, you guys avail yourself of the accelerated depreciation schedules?

We do. And our budget for 2011 is about $8.3 million.

How much of that would be maintenance, Frank?

Probably about half.

Superb job. We've been a shareholder for nine years. You guys continue to just pound the ball out of the park, so great job.

Tony Polak, Maxim Group.

In terms of the new plant or plants, can you give us an idea of what type of production can come out of them, and whether you expect to get at capacity or near capacity by the end of the year on those?

I think the one -- and again, we've kind of identified where we're going with this -- definitely one of the expansions is in the choline area.

We expect that minimally to be about 30% of that one particular facility, which should translate to probably, I'm going to say, somewhere between 30 million pounds and 40 million pounds straightaway.

Do I think we'll be sold out by the end of the year? I don't think -- it would be nice, but I don't think. But it's certainly one of the plants where we are bumping our head in terms of servicing that market.

The other is a -- actually kind of a new technology, definitely, that we're bringing to the market. It has to do with encapsulated ingredients, in particular for the specialty animal health space. And this is really -- our sense is that this will definitely be a new and improved version of at least one, if not two, of the products that we are currently marketing in an effort to try and being a better cost point into the dairy industry.

Could you tell me what the 30 million or 40 million pounds, what does that entail in dollars?

$20 million to $25 million, probably.

The calcium line that you're selling, did that lose money last year?

Yes, it did.

Any idea of approximately how much?

About $1.8 million.

And what do you expect to get for that?

What we did -- that's what -- the line has been sold. So, it's gone already.

There's still -- we still have the facility in Chicago. We're still producing some product out of it. We have an obligation to run it at least through halfway through the year. So, I would say we're really not going to catch major improvement out of that situation until the second half of the year.

The R&D that you're spending for the -- whether it's the [whats-issum] drug or anything else, what kind of expenses did you do that for last quarter or the last year?

Yes, I do. About $600,000 we spent in 2010.

Could you comment on China and choline competition?

Yes, definitely, I mean, there is some competition. There's been some issues in China as it relates to availability of raw materials, as it relates to availability of natural gas utility. And there's been an, I'm going to say, a small steady flow of some Chinese material in.

Our sense is it's definitely still suspect in terms of quality, but they have staked out, I'm going to say, a very, very small position here in North America. They still have a very, I'm going to say, significant position in Europe with dry choline, probably 70%, 75% market share there. Their market share here in the U.S. is less than 5%.

And I think that they'll -- my sense is they're going to continue to get better as time goes on. I think that their economy is going -- their local economy is going to start to absorb some of that capacity that's being exported today, unless, of course, they do some additional expansions. But right now, we see them here in North America as still yet a -- I'm going to say a small competitor, not to mean that they don't have a force, because they do, and that typically is about price, but continue to see them in existence and, I would say, looking to grow their position on a global basis.

But they have issues. And it revolves around available raw materials and utility over there. If you were to study that whole Chinese market and some things that have happened, there's a lot of pressure on those, I'm going to say, general chemical producers over there.

Tim Ramey, D.A. Davidson & Co..

Frank, tax rate went down about two percentage points in 2010. Is something in the 33.6% range kind of best guess for 2011 or do you see potential for further improvement there?

I wouldn't say further improvement. I think -- we took advantage of some opportunities over in the Italian business where there was some accelerated depreciation credits that were available to us. So, I think if you probably work with a 34% to 34.2% type number, you'll be safe.

Okay. And I think you just said it, so I apologize, but did you say that there was a -- that the business that was sold was a $5 million selling price?

No. No, I did (multiple speakers)

I'm sorry. Did you say what that was?

I did not. We didn't disclose that. It's not material.

Okay. And then, can you discuss what the percentage increase in capacity would be in the May period where you're adding these bricks-and-mortar types of additions?

I think in the May quarter, at best, it will probably -- well, it will translate maybe to one decent month, and again, at that one location it's going to -- it should translate to about a 30% increase in that plant location's capacity.

So hopefully, it will come up online and be effectively debottlenecked very quickly, but expect to see volume coming out of there mid-May into June.

Perfect, thanks.

Lawrence Goldstein, Santa Monica Partners.

Cash. Is the cash outside the Company becoming material? How much is it? And I want to offer a suggestion.

I'm sorry, Larry, cash outside of the Company?

Outside of the country.

Oh, I thought -- no, it's not at all outside of the country, no. It's a couple of million dollars, a couple of million euro.

Do you repatriate? Do you bring any of the dollars back (multiple speakers), or that's what's accumulated there because of expense (multiple speakers)

No, that's what's accumulated. That's what's there to serve their CapEx. That's what is their working capital and to serve the debt.

My suggestion, which I wish was worth a lot, is I don't see any purpose to increase the shares from 28.5 million to 43 million with another 3-for-2 split.

You now trade over 100,000 shares a day. What would it mean to trade 150,000? It wouldn't have a meaningful difference. And I think the higher the price goes, the more you keep sophisticated investors, and the more sophisticated investors, the better it is, I think, all the way around for proper valuation of the Company and the long-term success of shareholder investment.

I can see no purpose for splitting the stock. I know you've done it successfully for a million years. I was there where there were 1 million shares, and I don't -- I just don't see the purpose. It's just more costly to transact business nowadays, now that you're at the level where you trade enough shares.

And it hasn't prevented institutions from becoming shareholders. You've got a bunch of brand-name holders in Neuberger Berman, Vanguard, Blackrock. So, I wouldn't know what you'd be shooting for, and if you did decide to split the stock, I'd love to know what the purpose is. So, please don't.

Okay, thanks, Larry.

Thank you. There are no further questions at this time. I would like to turn the floor back to management for closing comments.

Okay. I'd like to thank everybody for listening in to the conference call and certainly for the questions.

We do think it was a very strong quarter for us, and hopefully the message is that we still feel pretty confident about the future and our ability to grow in this space. So, look forward to talking to you again next quarter. Thanks. Bye.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.