Frank Fitzpatrick - Chief Financial Officer Dino Rossi - Chairman, President, and Chief Executive Officer

Jonathan Leichter - Sidoti & Company Jerry Hefferdin - Lord Abbott & Company Greg Garner - Singular Research Kevin Sonich - R.K. Capital partners Lawrence Goldstein - Santa Monica Partners [Ted Gorance] - Salem Investment Counselors [Brian Armendraw] - Comstock Valuation Advisors

Thank you for joining our conference call this afternoon to discuss the results of Balchem Corporation for the period ending March 31st, 2008. 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 statements. This release does contain or likely will contain forward-looking statements, which reflect Balchem's expectations or beliefs concerning future events that involve risks and uncertainties.

We can give no assurance that the expectations reflected in forward-looking statements will prove correct and various factors could cause results to differ materially from our expectation 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 9:30 a.m. Eastern Time.

As reported in our press release and effective with the quarter ending March 31st 2008, we have realigned the business segment reporting structure to more appropriately reflect the internal management of the businesses, largely due to the impact of the recent acquisitions of 2007. We will continue to report three segments and they are ARC Specialty Products; Food, Pharma and Nutrition; and Animal Nutrition and Health.

The specific changes are one Chelated minerals and specialty nutritional products for the animal health industry, previously reported as a part of the Encapsulated/Nutritional Products segment now are combined with the Choline business formerly BCP Ingredients into a consolidated Animal Nutrition and Health segment. Two, the Encapsulated/Nutritional Products segment has been renamed Food, Pharma and Nutrition, that is focussed especially on human health.

The ARC Specialty Products segment remains unchanged. I'll now turn the call over to Dino A.

Rossi, our Chairman, President and CEO.

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

We are pleased to report that the consolidated revenue of the fourth quarter was again a new quarterly record for the company at $56.9 million. This level was approximately 106% ahead of the 27.6 million result in the prior year comparable quarter, and approximately 6% ahead sequentially of the fourth quarter result of 2007.

All three segments achieved new first quarter record revenue results, with the Animal Nutrition and Health segment extremely strong, due to the performance of the previously announced Akzo and Chinook businesses, and strong organic growth out of the core basic choline and specific Animal Nutrition and Health products. The Food, Pharma and Nutrition business posted near 32% organic growth with particular strength in international choline and pharma calcium and we realized typical growth level in the ARC Specialty Products segment.

The acquisitions contributed 25 million in the first quarter, and the balance of the core businesses grew 15% over the prior year quarter. Consolidated net income closed the quarter at $4.6 million, up from approximately $3.4 million in the prior year quarter, or an increase of approximately 35%.

This result also reflects net interest expense of 298,000, an increase of 259,000 over the prior year quarter, which was being incurred with the initial 39 million borrowed to complete the mentioned acquisitions. This quarterly net income translated into diluted earnings per share of $0.25, or 32% increase from the $0.19 we posted in the comparable quarter of 2007.

In the quarter, we incurred approximately 734,000 of amortization expense related to the Chinook acquisition, which will continue for the ten year life of the amortizable assets acquired. Tax affected on a non-GAAP basis, this non-cash item alone is equal to $2.5 per share per quarter, at today's outstanding share level.

Our consolidated gross margins of $15.5 million were 38% ahead of the prior year quarter in dollars and equal to 24% of sales in the quarter. This level of profitability continues to reflect the impact of the acquisitions in the animal-grade choline business, which carries lower gross margins, but it did improve sequentially over the fourth quarter of 2007 results.

We also realized increased raw material costs in the first quarter that are largely petroleum derivative. These raw material costs continued to rise at a very swift pace in the quarter and while some were passed on to customers, additional price increases were implemented beginning in the second quarter as our businesses are likely to remain effected by these higher costs.

But petrochemically oriented, but not directly aligned, are the higher costs of key coding materials such as cotton, soy and palm oil, which are being unfavorably impacted by the higher consumption of acreage into corn production versus other crops for ethanol. We continue to work on integration efficiencies which should increase the results of this segment by a couple of percentage points when completed.

At the consolidated operating expense level, you will note a 38% increase to 6.1 million for the quarter. This $1.7 million increase was due primarily to 732,000 of additional amortization, plus sales and technical personnel expense associated with the Chinook and Akzo acquisition.

We also incurred approximately 164,000 of commercial development expenses towards our pharmaceutical market initiatives in the quarter and higher G&A expenses due to increased audit, tax accounting, and non-cash stock based compensation recognition. With these increases, operating expenses were 10.7% of sales, or 5.2 percentage points less than the operating expenses incurred as a percentage of sales in last year's comparable quarter.

This level also favorably compares to the 10.8% of sales we incurred in the fourth quarter of 2007, as we continue to leverage off of our existing infrastructure going forward. Overall, it was a strong quarter, especially with the unfavorable escalating raw material cost incurred by all business segments.

We did realize approximately 9.3 million of EBITDA in the quarter, which translates into $0.49 per share. Including our non-cash stock-based compensation charge we incurred approximately 2.5 million of non-cash expense in the quarter.

Net interest expense, at 298,000, was a full 259,000 higher than the previous year quarter. This was in direct relationship to the long-term debt incurred to achieve the noted acquisition, and is equal to $0.01 per share on a tax effective basis.

Noting our strong EBITDA, the long-term debt, and the impact of interest expense on our quarterly results, we plan to continue to accelerate our debt reduction. During the past year, which nearly aligned with the acquisition debt borrowing we have aggressively reduced our acquisition-related borrowings of 39 million to 25.8 million at March 31, 2008 reflecting accelerated payments of $11 million.

We will continue to reduce our debt load more aggressively in the coming months and quarters, driving off of our strong cash flow, reducing interest expense, and improving earnings to generate even more accretive results from the recent acquisition. 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 the Animal Nutrition and Health segments.

The ARC Specialty product segment posted a new quarterly sales record of approximately 8.5 million or 4.8% over the prior year comparable quarter. This increase in sales was equally derived from improvement in volume sold and price increases of 100% packaged ethylene oxide.

Our quarterly business earnings, however, decreased 10.5% to 2.6 million, versus the prior year comparable quarter. This result reflects the impact of continued and quickly escalating petrochemical raw material increases in this first quarter especially ethylene oxide.

In this segment, we did increase prices, as noted to help offset a significant portion of the cost increases, but we do not keep up with the rapid raw material price increases. We continue to monitor the raw material escalation and as appropriate we will seek additional price increases.

We also continue working on a number of initiatives to broaden and build on the ARC business model. Next, I want to report on the Animal Nutrition and Health segment, which now is the segment that manufactures and markets specialty nutritional products, unencapsulated choline supplements and chelated minerals to the animal feed industry, as well as other choline derivative products.

As Mr. Rossi noted, this segment has been significantly impacted by acquisitions.

For the quarter, we set another new quarterly sales record of $39.1 million, up 217% over the prior-year quarter, and realized segment earnings of approximately $3.3 million, or 55% over the prior-year comparable quarter. These increases were driven particularly by sales volumes of the acquisitions, which contributed approximately 93% of the sales revenue increase, with an additional 15% organic growth in the base.

The Chinook acquisition contributed most significantly to this growth at $14.4 million, as we integrated their base of business into our Saint Gabriel, Louisiana and Verona, Missouri operations, helping to achieve plant operating efficiencies in both. The Balchem Italia BZ operation generated an additional 11 million in revenue as we continue our global growth strategy.

In this first quarter, the 2006 acquired choline chloride plant in Saint Gabriel, Louisiana, produced approximately 31 million pounds of product. This is approximately 88% of the plant's nameplate capacity.

The additional capacity of this operation gives us the opportunity to continue our growth plans for this business segment, domestically and especially on the international front. The integration of the Chinook and Akzo businesses highlight significant opportunities to synergize our operating plans, to drive costs out of logistics issues, and efficiencies into plant operations, which we expect to utilize to strengthen this commodity-oriented market for our customers and shareholders.

This is especially critical as we deal with the escalating key raw material cost previously mentioned. To be sure, these raw material costs increases referenced were very significant and not predictable by near history trends.

We have taken what we believe are appropriate price increases to the markets that help to fray the unfavorable effect on our results, remaining mindful of our end market customers. Numerous choline or choline derivative product opportunities for markets outside of animal nutrition are currently being worked on and look quite promising as well.

We are pleased with the immediate accretive impact on our financial results from both of the recent acquisitions, but do expect to post even better bottom line results going forward. In the specialty Animal Nutrition and Health sector, the core business recognized $5.6 million of revenue, up approximately 32% when compared to the previous year quarter.

The key product lines in this sector are Reashure, Nitroshure and our chelated minerals. Reashure has continued the uptrend seen in 2007, with the first quarter '08 up 16% over the previous year comparable quarter.

With the integration of the chelated minerals product line, combined sales efforts, and favorable field trial results, we expect to achieve better penetration in various species for all Animal Nutrition and Health products both domestic and abroad. I'll now turn the call over to Mr.

Rossi for him to discuss the Food, Pharma and Nutrition segment.

Thanks Frank. For the quarter, the Food, Pharma and Nutrition segment realized a 29% sales improvement to $9.3 million over the prior-year comparable quarter.

Business segment earnings of 1.5 million is an improvement of 369% over the same period of last year, improving to approximately 16.5% of sales, up significantly from the 4.5% level in the prior-year comparable quarter. This first quarter result saw improvement in most sectors of the core FP&N business over the previous comparable quarter, and sequentially in most sectors from the fourth quarter.

Most notably, the consolidated human choline nutrient products were up 27% over the prior year quarter. We continue to see increased consumer recognition of the benefits of choline, hence choline inclusion in more supplements and fortified drinks.

A number of new independent research studies on the benefits of choline have been completed and recently published. We continue to position choline with nutritional and pharmaceutical companies as an essential ingredient with excellent therapeutic benefits for all ages, leveraging off of the baby infant formula requirements.

The international food market was very strong in the first quarter, up 170% over the prior year quarter. We also saw continued improvement in our calcium line, which improved 183% over the previous comparable quarter and improved 30% on a quarterly sequential basis.

More importantly, however, it generated profits of approximately 400,000 after posting a $600,000 loss in 2007. A number of new product developments have been introduced into the nutritional supplement marketplace using our calcium platforms, and we expect to see new product launches beginning the second quarter of 2008.

Our pharmaceutical delivery systems commercial development efforts continues; but as previously noted, it is a long process. We did generate 50,000 of R&D milestone revenue in the quarter.

We are confident that these efforts will yield good end results, but in the near term, this sector is still a net expense to the business segment. We incurred 225,000 of net expense in the quarter for these pharma efforts.

Sequentially from the fourth quarter, this entire segment was up approximately $300,000 or 3% in sales. We continue to see some fluctuating results in this growth segment due to product mix and customer order patterns, but overall steady growth.

Although we still have some rollercoaster effect, quarter-to-quarter, in the various market sectors, we are very pleased with the overall volume and revenue growth in all segments. Adding the acquired Akzo products, European customer base, and technology, we have strengthened 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, to market.

Our business portfolio continues to create nice balance, yielding continued growth through the various challenges of any single product line. Overall, we continue to build the financial strength of the company, as noted earlier.

We will continue to manage the asset base aggressively, which will also assist in yielding improved financial results. Near term, we remain focused on completing the integration of our recent strategic acquisitions.

However, we 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.

Hi. Do you see any large milestone payments later in the year or they remain in the same range here?

No, I think certainly we expect to see order of magnitude more or like what we saw on the fourth quarter, which was about a quarter of a million dollars per quarter. We have got a number of, as I mentioned before, there is a number of deals signed out and we are getting close to the point where either certain amount of work is done or moving into phase two if some of this will trigger the next payment on a number of deals.

Okay. And overall on the price increases, I guess, where are you in terms of price increases in each of the segments?

Well, I think sort of each one of them is slightly different. I would tell you in the basic choline business our average price increases were probably, I would say anywhere between 8 and 12% on average and maybe that’s 10% on a average, if you want to take average of averages.

On ARC Specialty products business, the increase was probably about 6% and on the specialty business in the animal part of the business, it was probably closer to about 6% and on the food, Pharma, nutrition and again remember you are looking at different product mixes here for sure. It was probably closer to about 11%.

Okay. Thank you.

And again those -- Jonathan just to understand when I talk about those increases, it doesn't mean every product was increased that much, but where we found it appropriate to increase prices that’s where they were ranging.

And could you see any additional increases later this year or…?

I think if raw materials continue to move up, then we'll continue to pursue price increases, absolutely.

Okay. Thank you.

Okay.

Good afternoon gentlemen and thank you so much for the information that you provided here.

Sure.

In regards to the new business segments and understanding that with $120 oil normal is pretty tough word to grasp these days?

Yeah.

Where would you foresee a longer term normalized margin in these segments? I am trying to get a feel for, when you are sitting back and trying to set strategy for the company in a long-term, where are you targeting as saying when running properly and a more normal raw cost situation?

We have a normalized earnings of what level here?

Yeah, well, you mean by segments?

Yeah, by the three segments, particularly since the segments maybe a little bit new to some people?

Well, I think the ARC business obviously is off a little bit this quarter. And I think its fair to say that on an more normalized basis, you are probably looking at an extra 3% ballpark.

That becomes a more "normalized rate" if you will. On the food, Pharma look you are seeing about 16% margin there currently, and that's probably the best it has been last quarter, this quarter for a long time.

We continue to expect to see some increase there and certainly if we achieve milestone payments that's a significant increase over that. But I think its fair to say that 16, 16.5% that you are seeing now on a more normalized basis will be closer to 20.

And then on the animal nutrition and health, this is going to be a little bit more interesting, because I think the bulk of the growth will come into a dollars, that's going to come out of the specialty part of the business, which obviously carries a higher margin for sure. I mean today, we are at little over -- about 8.4% in the look that you have there.

We have been certainly lower than that the last couple of quarters. On a normalized basis, if you went back to when it was BCP prior to the acquisition we were running about 15, 16 points there.

I want sit here and pretend that we will get back there, but I think you could be looking at another 4 points if we got to a normalized state for sure.

So on the animal nutrition and health another 4 points from where we are now?

Yes.

Okay. That's a great helpful.

Hey in regards to interest expense and the fact that you are aggressively paying down the outstanding balance. If you could help save me the time of going through the filed reports.

Where is your interest rate going given Fed rate cuts and the pay down? I don't know if your interest rate goes down based no an outstanding balance and what the spread is and thing likes that?

No, it’s a LIBOR based rate and so we are at LIBOR plus 1.

Okay. The only change in interest expense is then going based upon the outstanding balance?

It would be on the balance and any change in LIBOR?

Right.

Right.

Okay. Where there any foreign currency affects in the net sales line?

Could you give us any feel for FX affects on the total net sales?

It impacted us to the positive of about $80,000 this quarter.

Just $80,000, I guess so a rather immaterial amount?

Yes.

Okay. That’s it from me right now.

I will go back in queue. Thank you.

Thanks Jay.

Yeah, thank you. Yeah good quarter you guys.

The question is about the choline business here. You mentioned the choline's gross margin was up sequentially.

And does this mean for the animal nutrition and health that it was at 8.4% that gross margin -- I am just trying tie in what the answer for the last question was and what you are…?

Yeah, the operating income level was 8.4%, for that entire sector.

And what was it then for as the segments position today, would that have been for the fourth quarter, when you mention there was a sequential increase. I just want to get a sense for how like that improved?

It was about 4.9%.

That’s quite a bit.

Yeah, I think certainly in the fourth quarter I don't know if you remember or not, but we were stung pretty hard based on methanol cost increases in particular in Italy. And that is one key raw material that has begun to decline late in the first quarter.

So we really had the opportunity to at least to crawl back a little bit and pick up some of those points. But in the fourth quarter that methanol spike if you will costs us about 1.4 million pre-tax.

Okay.

Yeah.

And, it was mentioned in the prepared comments about a couple of percentage points increase in this operating margin, I am just trying to get the new name not the BCP, but the animal…?

Animal nutrition and health.

Animal nutrition and health?

Yes.

Is that above this 8.4 to the 12, 12.4, is that what you are….?

Yes.

Okay. And just another comment that was mentioned about leveraging the business model in specialty products.

Could you comment more about that broaden and build on that model?

You mean on ARC specialty products.

Yes.

Yeah, we've got a couple of projects that we are working on right now that certainly I think our products that logically fit into this space i.e., buying in bulk and repackaging for distribution. There is one product in particular that -- I am not going to tell you exactly what it is yet, because we are in a throes of negotiating a contract here, a license agreement on the technology where in all probability we will be the exclusive distributor and seller of the product here assuming we get this done and likely to be announced maybe in the second quarter.

Upside opportunity, I don't know that I will blue sky a number here right now. But it’s a know product into the industry.

We're basically changing the repackaging to make it more effective as a product used in the industry today. And it’s a product that’s sold into actually into food industry.

So that’s one that we're probably most excited about right now and working pretty aggressively to try and get this launched certainly this year.

And so there could be some news in the course of the next quarter then about that?

I certainly hope so, yeah.

Okay. And just one final clarification.

I don't think, I quite heard this, in the food and pharma segment it was a human component that was up 27%, is that right?

It’s the human piece that’s up. Yeah almost 30%.

And that was – and that’s obviously all organic growth?

Yes, correct.

Okay. Great, thank you, very good.

I will get back in the queue. Thank you.

Okay, thanks.

Just snuck in there. My question is about margins.

Just looking at the blended operating margin of the whole business, we saw partly, apparently because of the acquisitions early last year, but we've seen declines for a few quarters in a row and this is the first quarter where I think we saw an uptick. It sounds like we've got two opposing forces right now.

We've got raw material cost still that rose throughout the first quarter overall, but some price increases that are going to effect. As we sit here today where the raw materials are currently priced, do you think we've troughed from a margin perspective?

I wish, I had a crystal ball. I mean, I think certainly at the last quarterly conference call, I felt pretty confident for instance that ethylene and ethylene oxide had kind of hit its peak and at least loss has not begun to decline.

Well in fact that has not happened in the first quarter. But on the flip-side of the coin, we have seen, as I mentioned earlier, the methanol number began to decline late in the first quarter so we are picking up some benefits there.

Net-net, I would say that it is hard for me to point right now and say that we have seen much, if any significant decline in our raw material cost base. We have pushed through the price increases that we felt appropriate at the beginning of this quarter, only to see the numbers continue to move up.

So we did pick up some benefit there from those price increases coming through. I would like to think that the margins are at the trough.

We are going to be as aggressive as we can with price increases assuming raw materials do continue to increase. But I don't have a crystal ball for you on that, Kevin.

I think we are going to continue to try and push the numbers up is what I will say. And whether that is volumes and efficiencies through operations and/or passing on price increases based on raw materials and/or continuing to leverage off of our SG&A, we are going to do all of those things.

How about the trends during the quarter, if you could just touch on the impacts of those moving pieces, the commodity cost increases and the price increases being implemented a little bit later in the quarter. How does the business trend from a margin perspective over the first few months of the year?

Well, I think in the quarter, would tell you our Specialty Products business obviously trended down. I mean down in terms of margin percentage and even though we had pushed through price increases early on, EO moved up every month on us anywhere from $0.03 a month and the latest nomination I would say was $0.05 to $0.06, here for May.

Whether or not that will stick, I'm not really sure, but we've seen it move up $0.02 to $0.03 a month, every month. I can tell you we did not raise our prices $0.02 to $0.03 a month.

So, obviously….

So, $0.02 to $0.03 each month net in May or in May we are looking at nickel increase?

A nickel -- $0.05 to $0.06 is what they are nominating on ethylene and then we pay, it gets factored down in the process of manufacturing ethylene oxide. So, maybe net-net that might say -- if the 5 to 6 holds, we might be looking at $0.03 to $0.04 again.

I see, okay.

Yeah. So, I mean that's a challenge for me to try and exactly predict.

And it is very difficult to go to the market every month with a price increase for sure even though the commodity guys are doing that today. It is still very difficult for us to do that in this stage.

As it relates to the other parts of the businesses, I mentioned, menthol has come down as it relates to choline, ethylene oxide going up as I just alluded to. Those dynamics on EO was the same, whether it's choline and/or the ARC Specialty Products business.

So, we are getting a little bit of an offset there by virtue of the fact that the methanol number has come down. If I had to hedge a little bit, natural gas prices are going up, might give the methanol guys an avenue to raise their number back.

I don't think the order of magnitude anywhere near where it was. But it may give them some strength before it hits the level, the low levels that it was at perhaps in the third quarter of last year.

And then when we come over to the human side, I would say the real key issue here is the coding materials. Soy numbers have gone up and that’s really happened because more corn is being planted, less soy, even though, if you read the newspaper you will hear a little bit more shift over to soy, but at the end of the day order of magnitude is not enough to really make a difference in total soy supply.

So that continues to remain quite firm. We have passed on price increases to handle that.

And I think, again, you are seeing part of that margin in those numbers, but your product mix in that sector, any given quarter, could move it a little bit. It is not necessarily indicative of just the raw material aspect.

Okay. And just one more if I could.

Could you just touch on, given the you know, we reclassified the segments, as well as the fact that the commodity choline business is very large now. Can you just touch on the seasonal trends in the different segments as they are classified today, in a particular times of year where you would expect to see from an industry perspective a little more strength or a little bit more weakness?

Well, what I would say was, just from a pure seasonality standpoint, we really had never felt that seasonality play much of a role in our business. I mean maybe a little bit on any given quarter, but not enough to sit here and say yeah, this quarter is going to be 5% better than the last one because of seasonality.

And then, I don't know Frank, you want to tell him about the…..

Yeah, Kevin, I am going to have a schedule put up on our website that recaps the segments as we are now reporting them for 2007. So, there will be a link right up on front page of our website hopefully sometime this afternoon that will give the historical look.

Okay. So if I think about the year-to-year growth rates that we are seeing in the segments, understanding that they may or may not be sustainable, one can deduce that the quarterly growth rates should just be some fraction, you know, a forth of those year-to-year growth rate.

In other words, there is not necessarily more strength as we get towards the back half of the year as compared to the period as we move to the first half?

Well, I think that – I am going to say generally that's probably very fair, certainly worth of the ARC Specialty Products business and on the Animal Nutrition and Health sector because the choline business is so significant. A piece of that segment that those percentage growth numbers are probably pretty good, because our expected growth in terms of real high percentage growth is going to come out of this Specialty Animal Nutrition and health products which still yet is probably -- yet a small piece of that total number maybe about somewhere between 15 and 18% is the specialty piece, which we expect to continue to run out at somewhere between 20 and 30% growth.

On the human side, certainly I think we expect it to continue to grow at the rates that you see. I mentioned some new calcium products being introduced into the market here, some launches here in the second quarter.

That business has turned around very nicely for us. We expect that to continue.

New product launches in there should certainly help and then obviously too, if we get the milestone payments that we expect on the pure pharmaceutical work again, we'll see nice uptick in those percentages as well.

Okay. And just going back to the seasonality though, I think I remember last year maybe late in the summer, August or September, you hadn't had the international choline business for all that long.

But I recall we were a little surprised that the business fell of at some point overseas and I know it bounced back pretty quickly. But is that something that we should expect again this year?

Yeah, I think that the growth -- the decline that you saw there in the third quarter typically last year, there is a little bit of seasonality on the choline business here domestically because its hotter month. And so there tends to be a little bit less choline consumed just because of the heat stress issue.

In Europe in particular, it was because there was a period where all of a sudden the Chinese got pretty aggressive with their pricing into the European marketplace. I wouldn't necessarily call that a seasonal thing as much as just, you know, them getting very aggressive.

I will say they then backed off in the fourth quarter because the methanol numbers spiked and in fact they walked away from pieces of business just because of the raw material increases. But I won't necessarily call that seasonality.

Okay. Thank you very much.

Sure.

Hi

Hi, Lawrence.

Hi, I just counted up in the interim 32 times in the last ten years, when you made similar comments about raw material prices and you are raising them and there is a time lag. So I don’t think is anything new and different this time?

Well, certainly the severity of the increase is significant. And the continued ability to pass it on into the market and the fact that our business modal certainly is changed.

There is little bit more flavor to the -- I call it the commodity side with the pure choline business that makes it a little bit more difficult to recapture those increases. But I think from a philosophical standpoint, we are going to continue to try and maintain or grow margins that we have in this business, as of specialty business.

So I didn't know, if I answer your question.

So tell me, under what circumstances can you see the bottom line declining?

I think there is lot of unknowns that could happen, I mean if raw materials escalated even more rapidly than they have, and as I said earlier that I wouldn’t have expected them to be where they are today.

Nobody in the world has predicted it.

Yeah.

But the assumption should be they are going to continue to escalate.

Yeah, well with that said, I think again we've got to be very cognizant of -- I don’t want say something that will insult people. But we do have a very good business.

We have good margins. I think trying to preserve that percentage number at times considered to be challenged within this environment.

And I think we -- our business model because it has changed and where we are in "number one position" I think we just had to be cognizant of how aggressive we get there.

Are you suggesting that you have some Wal-Mart like client who is going to tell you what you have to charge and its not going to be understanding your costs are going up like everybody else is?

I wouldn't tell you that we have a client, but anything in this certain moment, we have and industry. I think you have been -- you have probably read a lot about what's going on with people like Tyson's and Pilgrim Pride and taking profit hits, and it is not necessarily because of our product, but it is because of the entire feed cost structure that’s happening today, it's putting tremendous pressure and I think its more an industry issue than it’s the particular customer with us.

Well lets take Reashure specific, is it the idea of Reashure to get more milk out of the cow.

Absolutely.

And is the price of milk is escalate beyond the price of gasoline in these parts?

But in fact milk prices have began to decline. And in fact a lot of herd producers actually dumping milk out in California today.

So you know, milk pricing had come under pressure for reasons I can't explained to be honest with you, especially in the face of feed ration cost raising, you know, it's going in colliding directions here. And in fact, I will tell you nutritionist on West Cost are asking guys how can you give a diet that keeps the color healthy, but doesn’t produces the much milk.

And how is that for a crazy. But you know so there is no dynamics taking place today.

I see. Okay, thank you.

Okay.

Thank you. Good afternoon.

Great work.

Thanks.

I apologies Dino, I just want to get my arms around for a couple of things, the sales increase in the animal and nutrition was $25 million year-over-year from the acquisitions?

Correct.

So roughly 1.8 million internal growth and you all said, and I am presuming that the Reashure, Nitroshure and so forth was a part of animal nutrition and that’s up 31%?

Correct.

So its looks like that would be around $6 million last year 7.8 million or there about this year, we get the 31% growth?

The range of your numbers is about right. I think they are slightly different than that, but you are close.

Ballpark, major league, not little league?

Yes.

Yeah. And so what I am wondering is that’s just fantastic growth is that coming from volume or price?

Yes and yes. Definitely the volume numbers have continued to move up, volume even in the basic choline piece -- the basic choline business grew not huge, but it did grow probably up by about a half a million dollar and the balance came out of this specialties, which definitely was volume derived.

And you really -- obviously, you are clearly getting accepted among the farm community, could you give us an estimate on how many dairy cow you think sort of on the program and how big is the dairy cow business?

Well, we are selling Reashure now into Europe and actually a little bit into Asia today. So I think where we used talk about 9 million dairy cows in the US that doesn’t holds up.

I would tell you in the US where markets penetration is probably around 5 or 6%, so its still has a lot of opportunity upside wise. And obviously a very, very small percentage in these other markets.

But what we are starting to do with the sales force that we've picked up through the Akzo acquisition and this is basically right now three employees headquartered in Amsterdam. There are now starting to sell the specialties as well as the basic cholin business.

So we are starting to get some good uptick there. We've got them trained up after making quality calls and getting real good receptivity to those product.

Another product that’s doing extremely well right now beyond Reashure is actually Nitroshure, which is the encapsulated urea product. And again with soy prices up and this is kind of the level that I talk about soy prices going up in this effect soy coding materials that on the flip side encapsulated urea.

So very, very nicely into the space in soy. But it’s a product that’s doing very well and that’s one that’s was introduced a little over a year ago, a little bit uptick.

So if you use the food, pharma, nutrition category as a proxy and you look at the increase in operating profit of 1.2 million, you want to a sales increase of 2 million, which is a great contribution margin.

Yeah.

And I have sort of a similar organic growth in the specialty component inside the animal piece. We then also have of fairly large contribution margin in that as well?

In the animal piece?

Yeah.

Yes.

So when you look back at the acquisitions of Chinook and Akzo and you have that $700,000 amortization, is against you?

Yes.

That’s really where the raw materials are beating you down, because I am guessing that you are really now showing a great deal of operating profitability from that acquisition yet, and that’s where the four in-point contribution would come from as you sort of sink up with your selling prices in your raw material costs?

Yeah, I think for sure, I mean the key raw material increases we have talked about ethylene outside and methanol are two very, very key raw materials in terms of percentage of the finished product as it relates to raw choline. So your observation is right on.

I mean that’s where we are getting stung the most if you will from the raw material cost. The specialty we definitely maintaining our margin look maybe even increasing it a bit and obviously continuing to grow volume pretty nicely there.

And I apologies, there is just one last question. Could you talk about sort of the contractual relationships that you have in the EO business with -- for sterilization purposes?

Yeah, well I think basically the majority of our customers in that segment are under contract with us anywhere from 3 to 7 years contract. Most of the contract are written with some type of ability to raise prices in direct correlation if you will to what's going on with raw material.

They are not all the same. And that windows are not all the same either, in terms of when you can do that.

But that’s why maybe there is some timing differences that might come through because of those contracts.

Thank you very much for you time.

You bet. Thanks.

Congratulation guys.

Thanks Brad.

I think Ted and I must be in sink today. I wanted to ask you guys about the uptick of Niashure, Nitroshure compared to the uptick in Reashure and whether that’s enabled you to I guess push market share quickly in Nitroshure and also whether there is any developments on the beef cattle side for Reashure?

I will answer the last question. Beef opportunities - Reashure opportunities on the beef side, while we continue to work a little bit on the beef side, it's not huge.

Actually probably attractiveness on the beef side is chelate. And we have got some projects going on underway there.

It's still yet -- I mean, beef prices obviously are -- the window of time between you feeding it and harvesting it and drawing the direct correlations continues to be a challenge for the Reashure product. So I would tell you that we are not really focusing a whole lot, not to say, not zero, but not a whole lot on the beef side as much as we are on the dairy side.

I do think our position in the Reashure -- our position of Reashure in the dairy market today certainly has open the door a whole lot easier to introduce products like Niashure and Nitroshure for sure. Nitroshure is a relatively new product over the year-and-a-half with us that has ramped up very quickly, has good signs behind it.

And Niacin or Niashure product, the same way. I mean, Niacin is part of the ration up there today through some of the research we found have conducted and actually was recently reported on out -- at the Southwest Nutrition Conference in Phoenix a couple of months ago was that it's proven to be a great fighter of heat stress.

And especially as we go into these hotter months and from an export standpoint some of these countries where it's very hot a lot of times, we are seeing very good uptick of that product as well. So good science behind all of them absolutely and I think what I would tell you is credibility in the marketplace.

Even with the acquisitions, we now have a very very solid position. You are looking at a 120 to $140 million Animal Nutrition and Health business today, we do have credibility in the market.

And back to an earlier comment you made about normalized profit margin. 3% incremental in ARC, 4% incremental in Food, Pharma, and 3.5 give or take in Animal.

I am coming up with 2 million EBITDA on a quarterly basis increase on normalized basis. Is that?

Yeah, I think that that’s pretty good, maybe that’s even a little conservative. I do -- again, remember normalized and I am not sure when we are going to get back to normalized, but certainly based on history you can easily point to those kinds of numbers.

I appreciate. Thanks guys.

Thank you.

Question and a half. In the next 12 months, do you think it's likely or not likely to make another material acquisition?

We are probably going to try for sure. I think that there is a couple of things that we are looking at right now that we are very, very interested in and in the trough of some discussions based on, I would say, my understanding of now doing acquisitions and how quickly you can get them done, there is a chance, seriously chance for one and any others would be further than that.

And quite honestly, I think it's -- it might be deemed to be a little bit early, but for a number of different reasons, it also could happen this year. That's about as vague as I could be.

Okay. You have authorized repurchases of share sometime ago and you have never repurchased any.

Correct?

No, we have repurchased. We haven't done any repurchases lately though for sure.

Yeah, we did do some repurchases early in that program.

Okay. We haven’t done any in the last couple of years.

Yeah, that’s fair.

Yeah. And I presume you haven't done any this year?

No, correct.

So if you don’t buy anything that would be a good reason to do them. Don’t you think?

I think it's a good idea if you did them. But if you didn’t use monies to acquire anything?

Have you said about repurchasing shares?

Well, I think we will see what the price does for sure.

Let's assume the price just trends up like it has?

Then I think we will look at what's the best decision to do either to pay down the debt, increase the earnings and looking at versus reducing the number of shares with the idea of increasing our [revenue] as well.

How about a program just to offset the option exercise at the least? How about giving that real consideration?

We'll take a hard look at that. I hear your concern, we'll take a hard look at it.

Okay. Thank you.

Okay.

Hi guys. My question is in regards to the $700,000 charge that you referred to.

It is a non-cash charge in relation to the acquisition. Forgive me for being short on my accounting acumen, is that a number that is going to continue each quarter or is this something that is going to wind down over the course of the next year or two?

No it is an amortization charge having to do with the customer list that would have another life of just – just all of more than nine years now.

Okay. Thank you very much for your time guys.

Okay. Thank you.

Okay, well I want to thank everybody for joining the call today with lot of good questions, I think a lot of fair questions and I know maybe for everybody's model, it is a little bit confusing right now. As Frank said, he will have numbers up there by quarter for 2007 so everybody can kind of re-sync there model if you will.

I do think this is a much better look of how we are running the business and well again I appreciate the fact that it is a little bit confusing right now. It is certainly the way we are looking at the business and perhaps the way you all should be looking at it as well.

So, with that said, I do think it was a pretty good quarter even in light of the raw material increases that we had, I think we are focused on continuing to drive value and I appreciate you all listening in and all the questions. So, thanks and we'll talk to you next quarter back.