SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
Commission file number 1-13648
BALCHEM CORPORATION
(Exact name of Registrant as specified in its charter)
Maryland 13-2578432
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
P.O. Box 175, Slate Hill, New York 10973
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (914) 355-5300
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- ---------------------
Common Stock, par value $.06-2/3 per share American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act;
None
(Title of Class)
<PAGE>
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained to the best of Registrant's knowledge in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. ________
State Registrant's revenues for its most recent fiscal year.
$24,991,630.
State the aggregate market value of the voting stock held by
non-affiliates of Registrant computed by reference to the price at which the
stock was sold, or the average bid and asked prices of such stock, as of a
specified date within the past 60 days.
$24,583,880 is the aggregate market value of the voting stock held by
non-affiliates of Registrant as of March 1, 1996.
State the number of shares outstanding of each of Registrant's classes
of common equity as of the latest practicable date.
3,142,176 shares of common stock, par value $.06-2/3 per share ("Common
stock"), were outstanding as of March 1, 1996.
The proxy statement for the Annual Meeting to be held June 21, 1996, is
incorporated by reference in Part III.
Check whether Registrant (1) has filed all reports required to be filed
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past
12 months (or for such shorter period that Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [ X ] No [ ]
<PAGE>
PART I
Item 1. Business
(a) Registrant, incorporated in the State of Maryland in 1967,
is principally engaged in the packaged specialty performance ingredients
business. As of December 31, 1995, Registrant has one inactive subsidiary,
formed in July 1991, Balchem, Ltd., a New Brunswick (Canada) corporation which
was organized in order for Registrant to comply with Canadian regulations so
that it would continue selling Registrant's medical device sterilant in Canada.
(b) (i) Registrant has one major business segment packaged
specialty performance ingredients. Please refer to the financial statements
attached hereto. As of December 31, 1995, Registrant's specialty performance
ingredients were being used in the following industries: food, agricultural and
aquacultural feeds, sterilization, fumigation, and synthesis, among many others.
Registrant also utilized its existing capabilities to provide custom synthesis
of certain organic chemicals--this latter activity was shut down on December 31,
1995 and did not constitute a material portion of Registrant's business.
Export sales for the last three fiscal years
aggregated approximately $7,866,294 and were made to the European Common Market,
Canada, Central and South America, Mexico and Southeast Asia. Export sales were
approximately $3,092,579 for the fiscal year ended December 31, 1995,
approximately $2,365,985 for the fiscal year ended December 31, 1994, and
approximately $2,407,730 for fiscal year ended December 31, 1993.
(b) (ii) Registrant sells packaged specialty performance
ingredients through its own salesforce and through independent distributors and
contractors.
In 1994 Registrant obtained the right to use
the list from AlliedSignal in respect of its packaged medical device sterilant.
A complex formula has been negotiated that will generate an annual consulting
fee, and delayed purchase price to AlliedSignal. The amount of monies to be paid
will vary dependent upon market conditions. The payment is based on gross margin
dollars less delivery costs at 7% for the period July 1994 through June 1996
increasing to 11% for the remainder of the agreement (i.e. through June 2004).
The cost for the first 12 month period was $459,275.55. In no case will duration
of such payments exceed ten (10) years. The formula calls for quarterly payments
in excess of amounts allocated to the consulting agreement that will be
capitalized as costs of the customer list. Costs will be amortized ratably over
the ten year period.
(b) (iii) Registrant has six major competitors, who are
substantially larger in size and resources than Registrant.
(b) (iv) The raw materials utilized by Registrant in the
manufacture of its products are available from a number of commercial sources.
Registrant is not experiencing any current difficulties in procuring such
materials and does not anticipate any such problems.
<PAGE>
(b) (v) Registrant's diversity of customers expanded
sufficiently during 1995 so that no customer accounted for more than 8% of
Registrant's revenues. The aggregate revenues from its two largest customers is
less than 12%. The loss of any such customer would not have a material effect on
Registrant's operating results. Registrant is the sole source of supply for
certain products used by its customers.
(b) (vi) Registrant currently holds six patents relating to
its business. Registrant believes that these and any other patents obtained are
advantageous to its business. However, Registrant believes that its sales and
position are dependent primarily upon the quality of its products, its sales
efforts and market conditions, rather than on any patent protection. Registrant
obtained a license in mid-1986 under United States Patent 4,511,584 from the SCM
Corporation to manufacture and market a specialty chemical food ingredient. Such
license permitted Registrant to utilize its technology in certain applications
that have supplementary business potential.
(b) (vii) On February 27, 1988, California's Proposition 65
(Safe Drinking Water and Toxic Enforcement Act of 1986) went into effect. A
sterilant/fumigant, ethylene oxide, distributed by Registrant is listed by the
State of California as a carcinogen and reproductive toxin. As a result,
Registrant is required to provide a clear and reasonable warning to any person
in California who may be exposed to this product; failure to do so will result
in liability of up to $2,500 per day per person exposed. Registrant provides
such warnings on its EPA approved labels which serve as a warning to its
customers; however, as Registrant has no control over its customers' usage,
legal entanglements could result which might compel Registrant to stop selling
some or all of this product in the State of California. Also see (b)(viii) and
(b)(x) below.
(b) (viii) Since the passage of the California Birth Defect
Law of 1984, Registrant has requested an exemption for its sterilant and
fumigant gas as it is used in confined chambers to sterilize and fumigate and is
highly regulated as to its usage by the Environmental Protection Agency (EPA)
and Occupational Safety and Health Administration ("OSHA"), as compared to
agricultural pesticides which are used in open fields. Such gas is broadly
categorized as a pesticide because it kills bacteria and insects. In addition,
the State of California has set forth certain tests for each pesticide and if
the manufacturer is not willing to run such tests, the State will do so and then
assess the cost to the manufacturer. Registrant has once again requested an
exemption on the basis of the confined usage, as well as Registrant's belief
that sufficient tests have been run on the sterilant gas, and that such tests,
while not precisely what the State is seeking, are close enough to suffice. The
State has turned down Registrant's request on the basis that Registrant's former
competitor in this field has agreed to conduct such tests. Since such tests will
now be required by the EPA as a result of a congressional edict to register all
pesticides under the Federal Insecticide, Fungicide and Rodenticide Act,
Registrant has joined with its former competitor in agreeing to run such tests
at a shared cost. Such costs will be passed along to users of the sterilant who
are relying upon Registrant as their primary Registrant (there are five such
users involved). In addition, the EPA will require broader testing for
re-registration, and Registrant and its former competitor will conduct such
tests and share costs; it is estimated that the cost to each will be $100,000
per year, over a three year period. Registrant intends similarly to pass along
most of such testing costs. Also see (b)(vii) above and (b)(x) below.
<PAGE>
(b) (ix) During the years ended December 31, 1995 and December
31, 1994, Registrant spent approximately $744,718 and $603,709, respectively, on
company-sponsored research and develop ment of new and existing products. During
the year ended December 31, 1995 an average of 11 employees devoted their full
time to research and development activities.
(b) (x) Registrant holds an EPA Registration number, which
permits it to sell its medical device sterilant and spice fumigant. As a result
of a congressional enactment during 1990 of a requirement to re-register all
pesticides, the Registrant and its former competitor have been conducting animal
testing under the direction of the EPA. Such testing has cost the Registrant
approximately $100,000 a year, for the past three years, and will continue in
that order of magnitude for at least the next three years. The cost of
re-registration is to be recouped in the selling price of the sterilant.
There are a vast number of items sterilized
with ethylene oxide, for which there is no substitute. Absence of availability
would cause chaos in the medical industry because of the resultant infection
potential. Re-registration is a negotiated process between the EPA and the
primary EO Registrants of which the Registrant is one of two. A series of
additional testing is being conducted at mutually-approved laboratories to fill
data gaps resulting from the negotiations. As animal tests require time, the
process is slow. This more recent re-registration commenced during 1990 and is
expected to continue through 1997.
Other than as set forth in the foregoing
para graphs, to the best of Registrant's knowledge, it is in compliance with all
federal, state and local provisions which have been enacted or adopted
regulating the discharge of materials into the environment or otherwise relating
to the protection of the environment. Such compliance has not had a material
effect upon the capital expenditures, earnings and competitive position of
Registrant. Compliance with the environmental provisions cost approximately
$196,939 in 1995, and $258,581 in 1994.
(b) (xi) As of March 1, 1996, Registrant employed
approximately 117 persons.
Item 2. Properties
The executive offices, and certain manufacturing facilities
of Registrant, are presently housed in three concrete buildings located,
together with an 14,900 square foot steel warehouse, on a four acre parcel of
land in Slate Hill, New York. Registrant purchased a 1,500 square foot building
with contiguous property (1 acre) to its facility to house one of its marketing
groups. Registrant also owns a nearby vacant 8-1/2 acre parcel, which it uses
under permit for industrial waste disposal, and an additional two acres of land
giving it direct access to the disposal field.
The buildings at Slate Hill, New York, used by Registrant have
an aggregate area of approximately 58,000 square feet. The largest building,
covering approximately 33,000 usable square feet, contains a steam generating
plant, two low pressure boilers, both of which were purchased during 1987, six
encapsulation production units and two pilot units for microencapsulation.
Registrant also has blending equipment.
<PAGE>
Registrant owns a facility located on a 96 acre parcel of land
in Green Pond, South Carolina. The plant consists of an office building, a
maintenance building, a utilities building, two manufacturing buildings,
chemical drumming facilities and warehouse having an aggregate area of
approximately 55,000 square feet. The equipment located at such manufacturing
facility consists of high pressure steam boilers and several reaction vessels.
Registrant uses the facility as a terminus and warehouse, as a drum filling
station for three of its specialty ingredients, and formerly manufactured
specialty chemicals on a toll basis for other manufacturers until December 29,
1995. The Registrant will attempt to sell off the portion of the plant and
facility that was associated with this last activity. The Registrant constructed
its third state-of-the-art drumming facility during 1994, and it became
operative in January 1995, as a result of the purchase from AlliedSignal of its
EO-drums, inventory in drums and use of its customer list. A railroad spur from
the mainline was part of the construction to permit the acceptance of tankcars
of raw materials at the new Green Pond drumming station.
Item 3. Legal Proceedings.
In the course of construction work carried out in early 1982
at Registrant's headquarters in Slate Hill, New York, a number of drums
containing unidentified waste material were discovered buried in the ground. The
presence of these drums was unknown to the present management of Registrant,
which took immediate steps to unearth all drums and repackage those that had
become corroded. The unearthed drums were transported to Registrant's plant at
Green Pond, South Carolina for proper disposal. Registrant notified the
Department of Environmental Conservation of the State of New York (NYDEC) and
requested its assistance in determining what further steps Registrant should
take.
Four years after the discovery and removal of the drums,
Registrant and NYDEC entered into a Consent Decree to evaluate the drum site as
it relates to both soil and groundwater to determine if the remedial action of
1982 was sufficient to delist the site as a potential hazardous site.
Over the ensuing years, reports were written and soil
contaminants were removed. During a widening of the excavation site, additional
drums were uncovered and disposed of, as well as accumulated water from the
site. Registrant agreed to perform a focused Remedial Investigation/Feasibility
Study (RI/FS).
After negotiations with NYDEC, a new RI/FS submitted on
January 27, 1994 was approved by NYDEC in February. As required by New York
State law, a Citizen's Participation meeting was held by NYDEC officials on
February 2, 1994 to explain the history of the site and the expanded work plan
detailed in the new RI/FS.
The new remedial program involved surveying the site by means
of monitoring wells and piezometers to assess potential pathways by which water
from the former drum burial site could travel to the surface areas directly
outside the site. And surface water was collected and analyzed. Other monitoring
wells and piezometers were installed on Registrant's property, but further from
the burial site, in order to determine if site activities have impacted on the
surface water system of the surrounding area. Air monitoring was conducted
during all phases of the work.
<PAGE>
Work began on the new remedial plan in the spring of 1994 and
was completed on schedule. A draft of the feasibility study was submitted to
NYDEC on October 31, 1994. The final study report was completed in April 1995
and was reviewed by the State. On October 2, 1995, a public meeting was held by
the NYDEC officials to discuss the status of the site and the final feasibility
study report. Based on the State requirements and comments made by the public at
this meeting, Registrant will have to clean the area by the railroad and remove
additional soil from the drum burial site. The cost for this clean-up and the
related reports is estimated to be approximately $150,000. Clean-up is expected
to start and be completed in Spring 1996.
Several years ago, at the Green Pond, South Carolina facility,
Registrant closed four above-ground process tanks that were no longer needed.
These tanks were believed to be empty. During November 1994, these tanks were
opened and inspected to determine if they could be sold or used by Registrant
for new product lines. Residues were discovered in each of the tanks.
Registrant arranged for sampling and analysis of the residues.
While residues from two of the tanks were found to be non-hazardous, residues
from the other two tanks were found to contain lead and, therefore, are
considered hazardous waste. Registrant promptly notified SCDHEC and was advised
to arrange for cleaning of the tanks and proper disposal of the hazardous waste.
Preliminary estimates of the costs involved in clean-up and waste disposal range
from $50,000 to $60,000, which monies have been accrued. Registrant contracted
with an environmental disposal firm who removed the hazardous waste from the
tanks and arranged for its disposal in accordance with environmental standards.
Cost of the waste clean-up and disposal was $24,184.43.
In October of 1991, Registrant was joined as a defendant in
the case of Walter Mixon Allen, Jr. and Mattie Gayle Allen v. Pennco Engineering
Company, et al. in the United States District Court for the Middle District of
Louisiana. The plaintiff's suit alleged that Mr. Allen contracted brain cancer
as a result of exposure to ethylene oxide. Mr. Allen alleged that, as a mainte
nance worker in the Baton Rouge General Hospital for twenty years, he was
exposed to ethylene oxide in the sterilizer room where he inspected the
sterilizer machines on a frequent basis and occasionally was required to change
ethylene oxide tanks. Plaintiffs alleged that the defendants failed to
adequately warn that ethylene oxide is a carcinogen. Registrant's drums were
properly labelled with adequate health warnings. One of Registrant's customers
(another defendant), who blends Registrant's drummed ethylene oxide with a
chlorofluorocarbon to render it non-flammable, sold its packaged blend to the
hospital.
Counsel for Registrant filed a Motion for Summary Judgement in
1994. The motion alleged in part that State law failure to warn claims are
pre-empted by the Federal law regulating Registrant's warning labels. As a
result, eight of the plaintiffs nine claims had been dismissed. With regard to
the remaining claim, Registrants counsel prepared a new motion which was
submitted to the court. This new motion was granted in November 1995.
Subsequently, the case against the Registrant has been dismissed.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during
the fourth quarter of 1995.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
(a) Market Information.
Commencing March 3, 1995, the common stock was listed on the
American Stock Exchange. The high and low sales for the common stock as recorded
in The Wall Street Journal for 1994 and from the American Stock Exchange Market
Statistical Reports for 1995, for each quarterly period during the past two
years were as follows (adjusted for 3 for 2 stock split in September 1994):
<TABLE>
<CAPTION>
Quarterly Period High Sales Low Sales
- ---------------- ---------- ---------
<S> <C> <C>
Ending March 31, 1994 ........................... 7.67 3.58
Ending June 30, 1994 ............................ 6.83 4.58
Ending September 30, 1994 ....................... 6.00 5.17
Ending December 31, 1994 ........................ 6.78 5.50
Ending March 31, 1995 ........................... 6.13 5.25
Ending June 30, 1995 ............................ 8.25 5.50
Ending September 30, 1995 ....................... 11.00 7.75
Ending December 31, 1995 ........................ 10.63 8.56
</TABLE>
It should be noted that such market quotations reflect
interdealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions and have been adjusted for stock
dividends or splits.
(b) Holders.
As of March 1, 1996, the approximate number of
holders of record of the equity securities of Registrant (excluding
nontransferable options) was as follows:
Title of Class Number of Record Holders
-------------- ------------------------
Common Stock, $.06--2/3 par value 362*
* An unknown number of shareholders have stock in street names; The total number
of shareholders is estimated to be 872.
(c) Dividends.
Registrant declared a dividend of $0.035 per share
on the common stock during its fiscal year ended December 31, 1995. Registrant
declared a dividend of $0.0275 per share on the common stock during its fiscal
year ended December 31, 1994.
<PAGE>
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operation
1995 Compared to 1994
Total revenues for 1995 were $24,991,630 compared to
$18,896,631 in 1994, an increase of 32.3% or $6,094,999. The increased revenues
in 1995 are attributed to increased volumes from existing customer base for
specialty ingredients, additional revenues generated through international sales
to the European and South-East Asia markets and the full absorption of the
AlliedSignal purchase made in July 1994 of assets and customer list.
Pre-tax earnings for 1995 were $2,427,885 as compared to
$1,275,692 for 1994, an increase of 90.3%, or $1,152,193, a direct correlation
to the business conditions as described above.
Net earnings after (current and deferred) taxes were
$1,585,304 during 1995 compared to $845,502 during 1994, an increase of 87.5%,
or $739,802. The increase in net earnings relates to increased revenues in
addition to tax savings on increased export sales realized during 1995.
Total corporate debt at December 31, 1995, net of deferred
taxes, was $6,200,189 compared to $5,847,705 at December 31, 1994. The increase
in debt was a result of higher balances in accounts payable for raw materials,
services and general operating expenditures in correlation to revenues realized
in 1995.
Capital expenditures for 1995 were $1,115,197 compared to
$2,819,487 for 1994, a decrease of $1,704,290. The expenditures were for
additional production equipment and for extending the life of existing
equipment. The higher figure for 1994 covered the installation of a new drumming
station for the South Carolina plant and the purchase of certain assets from
AlliedSignal.
Environmental clean-up expenses for 1995 were $196,939
compared to $258,581 during 1994 a decrease of $61,642. $72,000 was spent on the
soil remediation project at the Slate Hill facility. The balance, $164,000, has
been accrued to complete this project.
Significant fluctuations (i.e. +/- 10%) in other significant
items in the statement of operations of Registrant were as follows:
(1) Production salaries and related payroll taxes increased
33.4%, or $299,801, as a result of full year expense for production shifts added
during the second half of 1995 at the Slate Hill and Green Pond facilities and
additional personnel hired for increased production at the Slate Hill facility.
(2) Quality control salaries and related payroll taxes
increased greater than 100%, or $135,334, as a result of replacement of
consultant with corporate employee at the Green Pond facility and the addition
of professional at the Slate Hill facility.
<PAGE>
(3) Repairs and maintenance-buildings and grounds increased
34%, or $22,800, as a result of needed maintenance to plant and office buildings
and the general upkeep of grounds at both facilities.
(4) Repairs and maintenance - equipment increased 52.4%, or
$41,686, as a result of maintenance program and the increase in the
capitalization threshold.
(5) Plant and quality control supplies increased 44.6%, or
$96,755, in direct correlation with increased production and staff additions in
the quality control department.
(6) Maintenance salaries and related payroll taxes increased
17.8%, or $37,248, as a result of personnel additions to maintenance department
with minimum capitalization for labor on in-house capital projects.
(7) Real estate taxes decreased 12.4%, or $9,260, as a result
of adjustment to taxable rate at the South Carolina facility and refund of taxes
from prior year.
(8) Depreciation-buildings and equipment increased 17.9%, or
$104,984, as a result of depreciation expense for the new drumming station and
equipment at the Green Pond facility.
(9) Delivery salaries and related payroll taxes increased
24.0%, or $73,127, as a result of hiring of professional drivers required for
the increase in the corporate fleet at the South Carolina facility.
(10) Outside selling services increased greater than 100%, or
$16,634, as a result of commissions payable to outside representatives for sale
of products.
(11) Sales consulting increased 74.8%, or $143,197, as a
result of full year of expense of consulting payments to AlliedSignal (vs. six
months in 1994) and the addition of European representative with related
expenses.
(12) Travel and promotion increased 49.6%, or $197,637, as a
result of increased travel to international markets by additional personnel,
travel by senior management to conduct stock awareness seminars, and additional
travel to accounts as a result of more accounts plus the former AlliedSignal
customers (versus 6 months 1994).
(13) Advertising expense increased 35.1%, or $31,011 as a
result of additional paid space advertising and expansion of sample program
during 1995.
(14) Freight out expenses increased 40.6%, or $399,978, as a
result of the change from FOB pricing policy to delivered status initiated in
1994 and addition of three trucks at South Carolina facility.
(15) Depreciation-vehicles decreased 13.2%, or $2,954, as
a percentage of delivery vehicles became fully depreciated.
(16) Research salaries and related payroll taxes
increased 15.6%, or $74,187, as a result of professional hiring.
(17) Outside research expenses increased 60.9%, or $57,371, as
a result of outside lab tests conducted in various fields of activity.
<PAGE>
(18) Research and development supplies increased 28.7%, or
$9,451, in direct correlation with increased staff and requirements of same.
(19) Management and office salaries and related payroll taxes
increased 36.6%, or $544,476, as a result of reclassification of certain
personnel to management salaries, increased adjustments for senior management
personnel, hiring of professional and support personnel and merit raises for
office personnel.
(20) Retirement plans contributions increased 25.5%, or
$41,065, as a result of additional personnel eligible for the pension plan and
increased enrollment for the 401K.
(21) Office expenses increased 73.7%, or $114,422, as a result
of the increased cost associated with computer equipment and normal purchases
required to equip new personnel.
(22) Consulting services increased greater than 100%, or
$93,416, as a result of contractual agreements with consultants in various
disciplines to analyze systems and assist in other areas as required.
(23) Capital stock expenses increased 84.2%, or $40,263, as a
result of the move to American Stock Exchange (one time fee) and initiation of
stock awareness program with related expenses (mailings, printing of materials,
etc.)
(24) Employee recruiting and moving expenses increased greater
than 100%, or $222,400, as a result of recruitment and relocation expenses
associated with hiring of professionals.
(25) Miscellaneous expenses increased 43.4%, or $107,174, as a
result of increased participation by employees in training seminars, increase in
director fees and overall rise in expenses due to higher number of employees.
(26) Depreciation and amortization increased 35.7%, or
$32,160, as a result of AlliedSignal customer list and consulting fees and
depreciation of purchases not expensed.
(27) Telephone expenses increased 39%, or $47,503, as a result
of increased customer base in domestic and international markets, upgrade to
systems at Slate Hill and Green Pond facilities and increase in total employees.
(28) Health insurance increased 27.1%, or $69,615, as a result
of increase in total employees and cost for coverage of same.
(29) Supplemental insurance decreased 17%, or $6,537, as a
result of retirement of key employee reducing annual expense.
(30) Professional fees and litigation costs decreased 19.7%,
or $36,076, as a result of reduction in outside legal services with no expense
incurred for lawsuit litigation in 1995.
<PAGE>
1994 Compared to 1993
Total revenues for 1994 were $18,896,631 compared to
$14,696,878 during 1993, an increase of 28.6% or $4,199,753. The increase in
1994 resulted from the purchase from AlliedSignal of certain assets and the use
of AlliedSignal's customer list for a specialty chemical, in the sale of which
Registrant was already involved, and from revenues resulting from the growth in
core accounts and conversions of prospects.
Pre-tax earnings for 1994 were $1,275,692 compared to $842,176
for 1993, an increase of 51.5%, or $433,516. The increased earnings are
attributed to business conditions as described above.
Net earnings after (current and deferred) taxes were $845,502
during 1994 compared to $603,884 during 1993, an increase of 40.05%, or
$241,618. The increased net earnings are in direct correlation with increased
revenues, tax savings realized on export sales and research and development
credits.
Total corporate debt at December 31, 1994, net of deferred
taxes, was $5,847,705 compared to $3,653,273 at December 31, 1993. The increase
in debt was a result of borrowing for the purchase of assets from AlliedSignal
and the construction of additional drumming station.
Capital expenditures for 1994 were $2,819,487 compared to
$1,271,627, an increase of $1,547,860. The major causes of such increased
expenditures for 1994 were the purchase of certain assets from AlliedSignal and
the installation of a new drumming station for the specialty chemical involved.
Environmental clean-up expenses for 1994 were $258,581
compared to $75,044 during 1993 an increase of $183,537. The increased expenses
represent additional remediation clean-up required by the State at the Slate
Hill facility initiated in 1992. $90,000 more has been accrued for 1995, which
should be sufficient to complete the project.
Significant fluctuations (i.e. +/- 10%) in other significant
items in the statement of operations of Registrant were as follows:
(1) Production salaries and related payroll taxes increased
18.5%, or $140,005, as a result of an additional production shift at both plant
locations to meet increased demand for expanding core products as well as the
increased production of the packaged specialty chemical involving the use of
AlliedSignal's customer list.
(2) Quality control salaries and related payroll taxes
increased 11.6%, or $10,719, as a result of an increase in personnel required
for the production shift added during 1994.
(3) Utilities increased 21.8%, or $34,228, as a result of
increased production of all products.
(4) Repairs and maintenance-buildings and grounds increased
41.7%, or $19,746, as a result of required maintenance and upgrade of buildings,
a portion of which, due to classifications of expense were not capitalizable
(i.e., blacktopping, painting).
<PAGE>
(5) Repairs and maintenance - equipment increased 49.3%, or
$26,254, as a result of keeping more equipment in prime condition at both
facilities.
(6) Plant and quality control supplies increased 33.3%, or
$54,263, as a result of increased plant production in both facilities and the
initial expense of start-up supplies for the packaged specialty chemical at the
South Carolina facility.
(7) Insurance increased 21.2%, or $114,172, as a result of
increased premiums due to rate increases, workers compensation covering
additional personnel and increased coverages of the number and quantity of
products.
(8) Maintenance salaries and related payroll taxes increased
15.3%, or $27,739, as a result of department addition and the reduction in the
current year of capitalized salaries for in-house projects.
(9) Real estate taxes increased 23.2%, or $14,087, as a result
of increased property values and rates at the South Carolina facility.
(10) Depreciation-buildings and equipment increased 26.7%, or
$123,945, as a result of expense associated with core operations and the
depreciation of assets acquired in July 1994 from AlliedSignal.
(11) Selling salaries and related payroll taxes increased
15.8%, or $116,131, because additional personnel were required for the growth of
the business.
(12) Outside selling services decreased 91.2%, or $612, as a
result of reduction in commissions payable to distributors of products.
(13) Sales consulting increased greater than 100%, or
$133,967, as a result of quarterly consulting payments per agreement negotiated
with AlliedSignal for the use of customer list and other consulting services.
(14) Royalties decreased 19.4%, or $5,165, as a result of the
phasing out of external sales' representations.
(15) Advertising expense decreased 16.8%, or $17,807, as a
result of reduction of international paid space advertising during 1994 vs.
1993.
(16) Auto expenses increased 39.3%, or $40,243, as a result of
additional personnel associated with the increase in business.
(17) Freight out expenses increased 85.8%, or $454,475, as a
result of increased business generated from the agreement with AlliedSignal
during July 1994 and the shift from FOB pricing to delivered pricing for certain
packaged specialty chemicals.
(18) Depreciation-vehicles decreased 22.1%, or $6,342, as a
percentage of delivery vehicles became fully depreciated.
(19) Research salaries and related payroll taxes increased
20.4%, or $80,910, as a result of personnel additions at both facilities to meet
demands of expanding business.
<PAGE>
(20) Outside research expenses increase 29.9%, or $19,994, the
majority of which relates to testing at outside facilities in the agri-animal
field.
(21) Research and development supplies increased 30.0%, or
$7,597, in direct correlation with increased staff and requirements of same.
(22) Management and office salaries and related payroll taxes
increased 18.7%, or $234,171, as a result of the addition of a senior management
position (Chief Operating Officer), support personnel for expanding core
products as well as the AlliedSignal asset purchase that commenced in July 1994.
(23) Retirement plans contributions increased 18.3%, or
$24,943, as additional personnel attained eligibility for participation in the
pension plan and new employees enrolled in the 401k plan.
(24) Office expenses increased 23.0%, or $29,051, as a result
of additional personnel being hired during 1994 and increasing the overall usage
of supplies.
(25) Consulting services decreased 58.1%, or $45,787, as a
result of the capitalization of the professional engineer's consulting fee into
the cost of the drumming station project at the South Carolina facility.
(26) Capital stock expenses increased 33.4%, or $11,962, as a
result of additional mailings relating to corporate releases of information and
expenses associated with stockholder relations.
(27) Employee recruiting and moving expenses increased 27.4%,
or $11,370, as a result of management and support personnel recruitment
expenses.
(28) Miscellaneous expenses increased 76.5%, or $107,012, a
large percentage of which related to increased directors fees and travel
expenses with the balance relating to increased costs in continuing education,
dues and subscriptions and general miscellaneous expenses.
(29) Depreciation and amortization increased 62.1%, or
$34,550, as a result of a new computer system, office equipment and furniture
and the amortization of re-registration costs (as of January 1994) of a packaged
specialty chemical and the amortization of patents and trademarks.
Factors Causing Increased Revenues (1995):
Revenues increased 32.3% for the year 1995 which is attributed
to increased business from Registrant's packaged specialty ingredient business
in domestic and international markets and the full absorption of AlliedSignal
purchase of assets and customer list in July 1994.
Liquidation and Capital Resources:
(1) Liquidity - Registrant knows of no demands, commitments,
events or uncertainties for its liquid assets, other than those programmed that
will materially affect its liquidity. Registrant currently has $2,000,000 in
committed, but unutilized credit available to it by its principal bank (which
funds are being reserved for future working capital needs and undefined business
opportunities).
<PAGE>
(2) Capital Resources - Most of the committed capital
resources are for expanded production capacity (warehousing and equipment), for
the Slate Hill and Green Pond facilities. An office building was purchased to
house certain sales and marketing groups for Slate Hill. 100% of such commitment
was paid out of operational cash flow in 1995.
Item 7. Financial Statements and Supplementary Data
Listed below are all financial statements and supplementary
financial information filed as part of this report:
(a) Financial Statements
Reference is made to the Year End Financial
Statements and Schedules contained in the Year End Financial Statements of
Registrant attached hereto.
(b) Supplementary Financial Information
Reference is made to the Year End Financial
Statements and Schedules contained in the Year End Financial Statements of
Registrant attached hereto.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Registrant has not changed accountants during Registrant's two
most recent fiscal years or any subsequent interim period.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons of Registrant; Compliance with Section 16(a) of
the Exchange Act
(a) Directors of the Company.
The required information is set forth in Registrant's Proxy Statement
for the Annual Meeting of Shareholders to be held on June 21, 1996 ("Proxy
Statement") under the caption "Directors and Executive Officers", which
information is hereby incorporated herein by reference.
(b) Executive Officers of the Company.
The required information is set forth in the Proxy Statement under the
caption "Directors and Executive Officers", which information is hereby
incorporated herein by reference.
(c) Compliance with Section 16(a) of the Exchange Act.
The required information is set forth in the Proxy statement under the
caption "Compliance with Section 16(a) of the Securities Exchange Act of 1934",
which information is hereby incorporated herein by reference.
<PAGE>
Item 10. Executive Compensation
The information required by this Item is set forth in the Proxy
Statement under the caption "Directors and Executive Officers", which
information is hereby incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The information required by this Item is set forth in the Proxy
Statement under the caption "Directors and Executive Officers", which
information is hereby incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions
The information required by this Item is set forth in the Proxy
Statement under the caption "Directors and Executive Officers", which
information is hereby incorporated herein by reference.
Item 13. Exhibits, List and Reports on Form 8-K
(a) Listed below are all financial statements and exhibits
filed as a part of this report:
Financial Statements. Reference is made to the Financial
Statements contained in the financial statements attached hereto.
(b) No reports on Form 8-K were filed during the last quarter
of the year ended December 31, 1995.
In accordance with Section 13 or 15(d) of the Exchange Act,
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BALCHEM CORPORATION
By: /s/Herbert D. Weiss
------------------------------
Herbert D. Weiss, President,
Chief Executive Officer and
Treasurer (Principal executive
officer, financial officer and
accounting officer)
Date: March 28, 1996
<PAGE>
In accordance with the Exchange Act, this report has been
signed by the following persons on behalf of Registrant and in the capacities
and on the dates indicated.
By: /s/Herbert D. Weiss
----------------------------------
Herbert D. Weiss, President,
Chief Executive Officer,
Treasurer and Director
Date:
By: /s/Carl Pacifico
----------------------------------
Carl Pacifico, Director
Date:
By: /s/Leonard J. Zweifler
----------------------------------
Leonard J. Zweifler, Director
Date:
By: /s/John E. Beebe
----------------------------------
John E. Beebe, Director
Date:
By: /s/Donald E. Alguire
----------------------------------
Donald E. Alguire, Director
Date:
By: /s/Israel Sheinberg
----------------------------------
Israel Sheinberg, Director
Date:
By: /s/Francis X. McDermott
----------------------------------
Francis X. McDermott, Director
Date:
By: /s/Kenneth P. Mitchell
----------------------------------
Kenneth P. Mitchell, Director
Date:
By: /s/Paul Mosher
----------------------------------
Paul Mosher, Director
Date:
<PAGE>
BALCHEM CORPORATION
FINANCIAL STATEMENTS
Years Ended December 31, 1995, 1994 & 1993
<PAGE>
- --------------------------------------------------------------------------------
[GRAPHIC -- COMPANY LOGO]
Judelson, Giordano and Siegel, P.C.
Certified Public Accountants
633 Route 211 East, P.O. Box 819
Middletown, New York 10940
Tel: 914-692-9500
Fax: 914-692-7522
Report of Independent Accountants
To the Stockholders and Board of Directors
Balchem Corporation
We have audited the accompanying balance sheets of Balchem
Corporation as of December 31, 1995 and 1994 and the related statements of
operations, changes in stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly the financial position of Balchem Corporation at December 31,
1995 and 1994, and the results of its operations, changes in stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1995, in conformity with generally accepted accounting principles. The
supplemental information contained in schedules 1-5 is presented for purposes of
additional analysis and is not a required part of the basic financial
statements. Such information has been subjected to the auditing procedures
applied in the audit of basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
/s/ Judelson, Giordano & Siegel, P.C.
February 27, 1996
<PAGE>
BALCHEM CORPORATION
BALANCE SHEETS
DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994
---------- ----------
ASSETS
<S> <C> <C>
CURRENT ASSETS :
Cash ........................................... 150,679 40,445
Accounts Receivable (Note 2) .................. 3,145,492 2,588,277
Inventories (Notes 1 & 3) .................... 1,872,838 1,301,874
Prepaid Expenses ............................... 545,592 439,926
Deferred Income Taxes (Note 6) ................ 127,838 74,498
---------- ----------
Total Current Assets ......................... 5,842,439 4,445,020
PROPERTY, PLANT & EQUIPMENT: (Note 1)
Land ........................................... 84,710 53,648
Buildings ...................................... 4,160,793 3,531,978
Equipment ...................................... 9,697,876 9,291,739
---------- ----------
Total ........................................ 13,943,379 12,877,365
Less: Accumulated Depreciation ................. 6,128,586 5,392,957
---------- ----------
Net Property, Plant & Equipment .......... 7,814,793 7,484,408
OTHER ASSETS: (Note 4)
Intangible Assets .............................. 623,507 373,675
Other .......................................... 50,810 38,462
---------- ----------
Total Other Assets ........................ 674,317 412,137
TOTAL ASSETS ..................................... 14,331,549 12,341,565
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
BALCHEM CORPORATION
BALANCE SHEETS
DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses (Note 11) ... 2,495,117 2,073,228
Dividends Payable ................................... 109,976 85,802
Income Taxes Payable ................................ 7,673 90,220
Short-Term Borrowings (Note 5) .................... 353,768 741,655
Current Portion of Long-Term Debt (Note 5) ........ 467,474 457,503
---------- ----------
Total Current Liabilities ........................ 3,434,008 3,448,408
LONG-TERM LIABILITIES:
Long-Term Debt (Note 5) ............................ 2,660,519 2,315,493
Deferred Income Taxes (Note 6) ..................... 683,467 574,213
Deferred Compensation (Note 8) ..................... 105,662 83,804
---------- ----------
Long-Term Liabilities, Net of Current Portion .... 3,449,648 2,973,510
TOTAL LIABILITIES ..................................... 6,883,656 6,421,918
COMMITMENTS & CONTINGENCIES (Notes 10 & 11)
STOCKHOLDERS' EQUITY: (Notes 7 & 12)
Preferred Stock, $25 Par Value, Authorized 2,000,000
Shares, -0- Shares Issued & Outstanding ......... 0 0
Common Stock, $.06 2/3 Par Value, Authorized
10,000,000 Shares, 3,142,176 Shares issued and
outstanding in 1995 and 3,120,059 Shares in 1994 . 209,478 208,004
Capital Contributed in Excess of Par Value ......... 1,762,296 1,710,852
Retained Earnings .................................. 5,476,119 4,000,791
---------- ----------
Total Stockholders' Equity ....................... 7,447,893 5,919,647
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY .............. 14,331,549 12,341,565
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
BALCHEM CORPORATION
STATEMENTS OF OPERATIONS
FOR YEARS ENDED
DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
NET SALES ......................... 24,981,821 18,890,002 14,696,878
Cost of Products Sold (Sch. 1) .... 13,460,129 10,879,044 8,496,813
---------- ---------- ----------
GROSS MARGIN ...................... 11,521,692 8,010,958 6,200,065
OPERATING EXPENSES:
Selling Expenses (Sch. 3) ...... 3,874,863 3,006,705 2,280,683
Research & Development
Expenses (Sch. 4) ........... 744,718 603,709 495,208
General & Administrative
Expenses (Sch. 5) ........... 4,143,538 2,873,657 2,432,994
---------- ---------- ----------
Total Operating Expenses ... 8,763,119 6,484,071 5,208,885
INCOME FROM OPERATIONS ............ 2,758,573 1,526,887 991,180
OTHER EXPENSES (INCOME):
Miscellaneous income ........... (9,809) (6,629) (21,466)
Interest Expense ............... 340,497 257,824 170,470
---------- ---------- ----------
Total Other Expenses ........ 330,688 251,195 149,004
EARNINGS BEFORE INCOME TAXES ...... 2,427,885 1,275,692 842,176
Income Taxes (Notes l & 6) ..... 842,581 430,190 238,292
---------- ---------- ----------
NET EARNINGS ...................... 1,585,304 845,502 603,884
========== ========== ==========
NET EARNINGS PER COMMON
SHARE (Notes l & ll) ........... $0.50 $0.27 $0.19
===== ===== =====
</TABLE>
See accompanying notes to financial statements.
<PAGE>
BALCHEM CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR YEARS ENDED DECEMBER 31, 1995, 1994 & 1993
<TABLE>
<CAPTION>
Capital
Common Stock Contributed
---------------------------- In Excess of Retained
Shares Amount Par Value Earnings
--------- ------- --------- ---------
<S> <C> <C> <C> <C>
BALANCE-January 1, 1993 ........ 2,047,384 136,492 1,702,913 2,706,136
Net Earnings - 1993 ......... 603,884
Dividends ($0.0335 per Share) (68,929)
Stock Options Exercised ..... 11,183 746 27,456
--------- ------- --------- ---------
BALANCE-December 31, 1993 ...... 2,058,567 137,238 1,730,369 3,241,091
Net Earnings - 1994 ......... 845,502
Dividends ($.0275 per share,
after 3-for-2 split) ...... (85,802)
Stock Options Exercised ..... 31,429 2,095 49,736
Three-For-Two Stock Split ... 1,030,063 68,671 (69,253)
--------- ------- --------- ---------
BALANCE-December 31, 1994 ...... 3,120,059 208,004 1,710,852 4,000,791
Net Earnings - 1995 ......... 1,585,304
Dividends ($.035 per Share) . (109,976)
Stock Options Exercised ..... 22,117 1,474 51,444
--------- ------- --------- ---------
BALANCE-December 31, 1995 ...... 3,142,176 209,478 1,762,296 5,476,119
========= ======= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
BALCHEM CORPORATION
STATEMENTS OF CASH FLOWS
FOR YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES :
Net Earnings ............................................ 1,585,304 845,502 603,884
Adjustments to Reconcile Net Earnings
to Net Cash Provided by Operating
Activities:
Depreciation & Amortization ......................... 834,748 700,558 548,404
Provision for Deferred Income Taxes ................. 55,914 94,954 20,566
(Gain) Loss on Sale of Equipment .................... (3,845) (5,000) 1,824
Changes in Assets & Liabilities:
Accounts Receivable ................................. (557,215) (380,778) (1,037,724)
Inventories ......................................... (570,964) (301,667) (90,194)
Prepaid Expenses .................................... (105,666) (163,506) 254,432
Accounts Payable .................................... 421,889 1,072,720 (60,419)
Income Taxes Payable ................................ (82,547) (8,917) 245,332
Deferred Compensation Payable ....................... 21,858 7,017 60,540
---------- ---------- ----------
Total Adjustments ................................. 14,172 1,015,381 (57,239)
Net Cash Provided by Operating Activities ......... 1,599,476 1,860,883 546,645
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Property,
Plant & Equipment ..................................... 11,550 5,000 300
Capital Expenditures .................................... (1,115,197) (2,819,487) (1,271,627)
Investment in Other Assets .............................. (319,821) (142,168) (42,285)
---------- ---------- ----------
Net Cash Used in Investing Activities ............. (1,423,468) (2,956,655) (1,313,612)
CASH FLOWS FROM FINANCING ACTIVITIES :
Financing Costs ......................................... 0 (12,500) (10,000)
Decrease (Increase) in Short-Term Borrowings ............ (387,887) (118,345) 308,082
Proceeds from Long-Term Borrowings ...................... 812,500 1,700,000 1,000,000
Principal Payments on Long-Term Debt .................... (457,503) (536,027) (481,666)
Stock Options & Warrants Exercised ...................... 52,918 51,831 28,202
Dividends Paid .......................................... (85,802) (68,929) 0
Cash in Lieu of Fractional Shares - Stock Split ......... 0 (582) 0
---------- ---------- ----------
Net Cash Provided by (Used in) Financing Activities (65,774) 1,015,448 844,618
NET INCREASE (DECREASE) IN CASH ................... 110,234 (80,324) 77,651
CASH - BEGINNING .................................. 40,445 120,769 43,118
---------- ---------- ----------
CASH - ENDING ..................................... 150,679 40,445 120,769
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
BALCHEM CORPORATION
SUPPLEMENTAL SCHEDULES
FOR YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
SCHEDULE 1 - COST OF PRODUCTS SOLD :
Inventory-Beginning (Notes 1 & 3) ....... 1,301,874 1,000,207 910,013
Purchases-Materials ..................... 9,892,638 7,736,681 5,900,815
Production Salaries & Related
Payroll Taxes ............. 1,197,115 897,314 757,309
Plant Overhead (Schedule 2) ............. 2,941,340 2,546,716 1,928,883
---------- ---------- ---------
Total ..................... 15,332,967 12,180,918 9,497,020
Inventory-Ending ........................ 1,872,838 1,301,874 1,000,207
---------- ---------- ---------
Total Cost of Products Sold 13,460,129 10,879,044 8,496,813
========== ========== =========
SCHEDULE 2 - PLANT OVERHEAD :
Shipping & Receiving Salaries &
Related Payroll Taxes ..... 102,068 106,925 97,782
Quality Control Salaries & Related
Payroll Taxes ............. 238,431 103,097 92,378
Utilities ............................... 200,054 190,878 156,650
Repairs & Maintenance-Buildings &
Grounds ................... 89,914 67,114 47,368
Repairs & Maintenance-Equipment ......... 121,210 79,524 53,270
Maintenance Salaries & Related
Payroll Taxes ............. 246,202 208,954 181,215
Plant & Quality Control Supplies ........ 313,756 217,001 162,738
Environmental Expenses .................. 196,939 258,581 75,044
Insurance ............................... 674,131 651,731 537,559
Real Estate Taxes ....................... 65,599 74,859 60,772
Depreciation-Buildings & Equipment ...... 693,036 588,052 464,107
---------- ---------- ---------
Total Plant Overhead ...... 2,941,340 2,546,716 1,928,883
========== ========== =========
SCHEDULE 3 - SELLING EXPENSES :
Selling Salaries & Related Payroll Taxes 849,627 852,032 735,901
Delivery Salaries & Related Payroll Taxes 378,422 305,295 297,519
Outside Selling Services ................ 16,693 59 671
Sales Consulting ........................ 334,744 191,547 57,580
Royalties ............................... 21,000 21,460 26,625
Advertising ............................. 119,237 88,226 106,033
Travel & Promotion ...................... 596,455 398,818 395,462
Auto Expenses ........................... 154,982 142,589 102,346
Freight Out ............................. 1,384,310 984,332 529,857
Depreciation-Vehicles ................... 19,393 22,347 28,689
---------- ---------- ---------
Total Selling Expenses .... 3,874,863 3,006,705 2,280,683
========== ========== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
BALCHEM CORPORATION
SUPPLEMENTAL SCHEDULES
FOR YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
SCHEDULE 4 - RESEARCH & DEVELOPMENT EXPENSES :
Research Salaries & Related
Payroll Taxes ............................. 550,774 476,587 395,677
Outside Research Expenses ...................... 151,572 94,201 74,207
Supplies ....................................... 42,372 32,921 25,324
--------- --------- ---------
Total Research & Development
Expenses ............................. 744,718 603,709 495,208
========= ========= =========
SCHEDULE 5 - GENERAL & ADMINISTRATIVE EXPENSES :
Management & Office Salaries &
Related Payroll Taxes ..................... 2,030,926 1,486,450 1,252,279
Telephone ...................................... 169,196 121,693 123,394
Health Insurance ............................... 326,367 256,752 235,713
Retirement Plan Contribution (Note 8) ......... 202,071 161,006 136,063
Supplemental Insurance Program
(Note 8) ................................. 31,831 38,368 35,714
Professional Fees and Litigation
Settlement Costs (Note 11) ............... 147,511 183,587 172,188
Office Expenses ................................ 269,575 155,153 126,102
Consulting Services ............................ 126,383 32,967 78,754
Capital Stock Expenses ......................... 88,063 47,800 35,838
Employee Recruiting & Moving Expenses .......... 275,278 52,878 41,508
Miscellaneous Expenses ......................... 354,018 246,844 139,832
Depreciation & Amortization .................... 122,319 90,159 55,609
--------- --------- ---------
Total General & Administrative
Expenses ............................. 4,143,538 2,873,657 2,432,994
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
BALCHEM CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 & 1993
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with
a maturity of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market, with
cost generally determined on a first-in, first-out basis.
Property, Plant & Equipment and Depreciation
Property, plant and equipment are recorded at cost. The
Company uses the straight-line method in computing depreciation for financial
statement purposes and accelerated methods with respect to certain assets for
income tax purposes.
Interest is capitalized in connection with the construction of
major facilities. The capitalized interest is recorded as part of the asset to
which it relates and is amortized over the assets estimated useful life. In 1995
and 1994, $ -0- and $ 2,663 of interest cost was capitalized.
Expenditures for repairs and maintenance are charged to
expense, and renewals and replacements are capitalized. When assets are retired
or otherwise disposed of, the cost of the assets and the related accumulated
depreciation are removed from the accounts.
Estimated useful lives for fixed assets are as follows :
Buildings 15-25 Years
Equipment 3-12 Years
Assets under capitalized leases were $61,106 at December 31,
1995 and 1994, with accumulated amortization of $18,354 and $6,111,
respectively. Amortization of assets under capitalized leases is shown as part
of depreciation expense.
Intangible Assets
Intangible assets are stated at cost and are amortized on a
straight-line basis over the following estimated useful lives:
Patent License (remaing term) 16 years
Deferred Financing Costs 5-7 years
Goodwill 40 years
Customer Lists 10 years
Patent 17 years
Re-Registration Costs 10 years
<PAGE>
Income Taxes
Deferred income taxes are provided for the temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities in accordance with Statement of Financial
Accounting Standards No. 109.
Investment and research tax credits are recorded under the
"flow-through" method, reducing income tax expense in the year the credits are
utilized.
Earnings Per Common Share
Earnings per common share are based on the weighted average
number of common shares outstanding during the period and the assumed exercise
of dilutive stock options less the number of treasury shares assumed to be
purchased from the proceeds.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires the use of management's
estimates.
Adoption of Recently Issued Accounting Pronouncements
Required adoption of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," effective for the Company during 1996 is
not expected to have a material impact on the financial statements of the
Company.
The Company intends to adopt Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation", effective for the
Company during 1996. In regard to employee stock options, the Company has chosen
to disclose the impact of stock-based compensation in its footnotes and will not
include such impact on its recorded earnings.
NOTE 2 - NATURE OF OPERATIONS AND CONCENTRATION OF CREDIT RISK
The Company is principally engaged in the packaged specialty
ingredient business. The Company's specialty ingredients are used in the
following industries: Food, aquaculture and animal feeds, sterilization of
medical devices, fumigation and synthesis, among many others. Credit is granted
to the Company's customers, most of whom are major national or international
corporations. International sales are mostly to companies in Europe and the Far
East.
<PAGE>
NOTE 3 - INVENTORIES
Inventories at December 31, 1995 and 1994 are as follows :
1995 1994
--------- ---------
Raw Materials 681,656 802,155
Finished Goods 1,191,182 499,719
--------- ---------
1,872,838 1,301,874
========= =========
NOTE 4 - OTHER ASSETS
Included in Other Assets at December 31, 1995 and 1994 are the
following :
A) Intangible assets:
1995 1994
------- -------
Patent License 30,000 30,000
Deferred Financing Costs 32,500 32,500
Goodwill 12,000 12,000
Customer Lists 438,386 135,663
Patent 61,748 61,748
Re-Registration Costs (Net) 165,658 160,908
------- -------
Total 740,292 432,819
Less: Accumulated Amortization 116,785 59,144
------- -------
Net Balance 623,507 373,675
======= =======
Amortization expense of these intangibles for 1995, 1994 and
1993 was $57,641, $31,721 and $9,863, respectively.
B) Other Assets:
Other assets primarily consist of the funded portion of the
non-qualified supplemental retirement agreement referred to in Note 8.
<PAGE>
NOTE 5 - LONG-TERM DEBT & CREDIT AGREEMENTS
<TABLE>
1995 1994
--------- ---------
<S> <C> <C>
Bank term loan payable in monthly installments
of $12,500, plus interest at 1% over prime,
maturing in December 1996 ........................... -0- 300,000
Bank term loan payable in monthly installments
of $16,667, plus interest at 1.25% over prime,
maturing in July 1998 ............................... -0- 716,667
Bank term loan payable in monthly installments
of $29,166 in January 1995, $38,000 February
1995 - January 1997, $44,000 February 1997 -
January 2000, $50,000 February 2000 - December
2001, plus interest at prime plus 1/2 percent.
Any unpaid principal and interest is due January
1, 2002. The loan is secured by the accounts
receivable, inventory, equipment and all
personal property of the Company. Certain
provisions of the agreement limit the payment of
dividends, require maintenance of certain
financial ratios, limit future borrowings and
impose certain other conditions as contained in
the agreement ........................................ 3,082,000 1,700,000
Capitalized lease payable in monthly
installments of $1,313 including interest at
10.5%. The lease terminates in June 1999 and is
secured by the equipment to which it pertains ........ 45,993 56,329
--------- ---------
Total ........................................... 3,127,993 2,772,996
========= =========
</TABLE>
As of December 31, 1995, long-term debt matures as follows:
1996 467,474
1997 534,737
1998 542,139
1999 535,643
2000 594,000
2001 and thereafter 454,000
---------
3,127,993
=========
The Company has a $2,000,000 short-term bank line of credit at
prime plus .25%, of which $-0- and $515,000 was outstanding on December 31, 1995
and 1994, respectively. The line of credit expires on June 30, 1996 and is
secured by a blanket lien on the Company's assets. Additionally, at December 31,
1995, the Company financed certain of its insurance premiums on a short-term
basis at 6.92% interest. The balances at December 31, 1995 and 1994 were
$353,768 and $226,655, respectively.
<PAGE>
NOTE 6 - INCOME TAXES
The Company provides for income taxes based on earnings
reported for financial statement purposes. The components of the provision for
income taxes for 1995, 1994, and 1993 are as follows :
<TABLE>
<CAPTION>
Per
Per Tax Financial
Returns Deferred Statements
-------- -------- ----------
<S> <C> <C> <C>
1995
----
Federal ........................... 760,381 41,608 801,989
Research Tax Credit ............... (17,240) 0 (17,240)
-------- -------- --------
743,141 41,608 784,749
State ............................. 83,949 38,639 122,588
Investment Tax Credit ............. (40,423) (24,333) (64,756)
-------- -------- --------
43,526 14,306 57,832
Total Income Taxes ................ 786,667 55,914 842,581
======== ======== ========
<CAPTION>
Per
Per Tax Financial
Returns Deferred Statements
-------- -------- ----------
<S> <C> <C> <C>
1994
----
Federal ........................... 331,633 101,436 433,069
Research Tax Credit ............... (34,572) 0 (34,572)
-------- -------- --------
297,061 101,436 398,497
State ............................. 49,600 (6,482) 43,118
Investment Tax Credit ............. (11,425) 0 (11,425)
-------- -------- --------
38,175 (6,482) 31,693
Total Income Taxes ................ 335,236 94,954 430,190
======== ======== ========
<PAGE>
<CAPTION>
Per
Per Tax Financial
Returns Deferred Statements
-------- -------- ----------
<S> <C> <C> <C>
1993
----
Federal ........................... 237,318 24,673 261,991
Research Tax Credit ............... (43,705) 0 (43,705)
-------- -------- --------
193,613 24,673 218,286
State ............................. 26,134 (4,107) 22,027
Investment Tax Credit ............. (2,021) 0 (2,021)
-------- -------- --------
24,113 (4,107) 20,006
Total Income Taxes ................ 217,726 20,566 238,292
======== ======== ========
</TABLE>
The tax effects of temporary differences that gave rise to
deferred income tax assets and liabilities at December 31, 1995 and 1994 were as
follows :
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Depreciation ............................... 720,062 601,810
Amortization ............................... (4,008) (527)
Inventory Valuation ........................ (121,416) (71,153)
Deferred Compensation ...................... (39,009) (30,415)
-------- -------
Net Deferred Income Taxes .................. 555,629 499,715
======== =======
</TABLE>
Deferred income tax provisions resulting from temporary
differences between accounting for financial statement purposes and accounting
for tax purposes, were as follows :
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Depreciation ......................... 118,252 94,720 55,351
Amortization ......................... (3,481) (527) 0
Inventory Valuation .................. (50,263) (29,314) (12,277)
Deferred Compensation ................ (8,594) (2,169) (22,508)
Alternative Minimum Tax Credit ....... 0 32,244 0
-------- -------- --------
Tax Effects of Temporary
Differences ..................... 55,914 94,954 20,566
======== ======== ========
</TABLE>
<PAGE>
A reconciliation of the statutory federal income tax rate and
the effective tax rate as a percentage of pretax income is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory Rate .......................... 34.0% 34.0% 34.0%
State Income Taxes, net of
Federal Benefit .................... 1.6 1.7 1.6
Research Tax Credit ..................... (0.7) (2.7) (3.4)
Foreign Sales Corporation
Tax Benefit ........................ (0.8) (1.3) (3.0)
Life Insurance, net ..................... 0.3 1.0 (1.6)
Meals & Entertainment
Disallowance ....................... 0.4 1.0 0.6
Other ................................... (0.1) 0.0 0.1
---- ---- ----
Effective Tax Rate ...................... 34.7% 33.7% 28.3%
==== ==== ====
</TABLE>
NOTE 7 - STOCK OPTIONS AND WARRANTS
In 1994 the Company updated its incentive stock option plans
which provide for the granting of incentive stock options, as defined under
current tax laws, to officers and key employees. The stock options are
exercisable at a price equal to the market value on the date of grant. For the
purpose of the plans, 187,500 shares of common stock were reserved for future
grant. Options may be exercised over a period of one to five years.
A summary of incentive stock option plan transactions for
1995, 1994 and 1993 under this plan is as follows:
<TABLE>
<CAPTION>
# of Option Price
1995 Shares Range Per Share
- ---- ------- ---------------
<S> <C> <C>
Outstanding at Beginning of Year ............ 99,126 1.35 to 6.00
Granted ..................................... 22,125 9.375
Exercised ................................... (17,345) 1.58 to 6.00
Terminated or Expired ....................... (4,111) 3.75 to 6.00
Outstanding at End of Year .................. 99,795 3.75 to 9.375
Exercisable at End of Year .................. 43,435 3.75 to 6.00
1994
- ----
Outstanding at Beginning of Year ............ 81,444 1.35 to 4.83
Granted ..................................... 42,304 4.67 to 6.00
Exercised ................................... (21,158) 1.35 to 4.83
Terminated or Expired ....................... (3,464) 1.35 to 6.00
Outstanding at End of Year .................. 99,126 1.35 to 6.00
Exercisable at End of Year .................. 42,208 1.58 to 6.00
<PAGE>
<CAPTION>
# of Option Price
1993 Shares Range Per Share
- ---- ------- ---------------
<S> <C> <C>
Outstanding at Beginning of Year ............ 82,748 1.35 to 4.83
Granted ..................................... 18,045 3.75
Exercised ................................... (16,775) 1.35 to 3.75
Terminated or Expired ....................... (2,574) 3.75 to 4.83
Outstanding at End of Year .................. 81,444 1.35 to 4.83
Exercisable at End of Year .................. 43,227 1.35 to 4.83
</TABLE>
In 1994 the Company updated its non-statutory stock option
plan for its directors. The Company has reserved 52,500 shares of common stock
for issuance under this plan. The options are exercisable immediately for up to
five years after the date of grant. Additionally, the Company has entered into
an agreement with a consultant to receive stock options in lieu of payment for
services rendered to the Company. A total of 22,500 shares of stock have been
reserved under this plan. A summary of these stock options for 1995, 1994 and
1993 is as follows:
<TABLE>
<CAPTION>
# of Option Price
1995 Shares Range Per Share
- ---- ------- ---------------
<S> <C> <C>
Outstanding at Beginning of Year ............ 47,457 2.125 to 6.00
Granted ..................................... 15,422 6.00 to 9.00
Exercised ................................... (4,772) 2.125
Outstanding at End of Year .................. 58,107 3.67 to 9.00
Exercisable at End of Year .................. 53,107 3.67 to 9.00
1994
- ----
Outstanding at Beginning of Year ............ 46,321 1.225 to 4.75
Granted ..................................... 12,253 6.00
Exercised ................................... (11,117) 1.225 to 4.75
Outstanding at End of Year .................. 47,457 2.125 to 6.00
Exercisable at End of Year .................. 47,457 2.125 to 6.00
1993
- ----
Outstanding at Beginning of Year ............ 30,020 1.225 to 4.75
Granted ..................................... 20,305 3.67
Terminated or Expired ....................... (4,004) 1.225 to 4.75
Outstanding at End of Year .................. 46,321 1.225 to 4.75
Exercisable at End of Year .................. 41,321 1.225 to 4.75
</TABLE>
<PAGE>
NOTE 8 - EMPLOYEE BENEFIT PLANS
The Company has a defined contribution pension plan which
covers substantially all employees. Pension plan contributions for 1995, 1994
and 1993 were $137,556, $111,741 and $88,381, respectively.
The Company also has a 401(k) savings plan which covers
substantially all employees. 401(k) savings plan contributions for 1995, 1994
and 1993 were $64,515, $49,265 and $47,682, respectively.
The Company has a non-qualified supplemental insurance program
for key employees. The Company has purchased life insurance on the lives of the
participants and is the sole owner and beneficiary of the policies. The plan
provides for deferred compensation payments to key employees over 10 years for
the cash value of the policy at the time of retirement or payments over 10 years
of the face value of the policy in case of death. Premiums of $31,831, $38,368
and $35,714 were paid in 1995, 1994and 1993, respectively. Cash values were
$205,362, $199,234 and $152,588 at December 31, 1995, 1994 and
1993,respectively. Amounts due participants at December 31, 1995 and 1994 under
this plan are $59,695 and $45,842, respectively.
The Company has a non-qualified supplemental retirement
agreement ("Top Hat" plan) which permits the President of the Company to defer a
portion of his compensation. The cumulative deferred compensation and interest
distributable after retirement or termination at December 31, 1995 and 1994 was
$50,398 and $37,962, respectively. The expense attributable to this agreement
for the years ended December 31, 1995, 1994 and 1993 was $12,436, $11,149 and
$10,566, respectively.
NOTE 9 - EXPORT SALES
Export sales for 1995, 1994 and 1993 were $3,092,579,
$2,365,985 and $2,407,730, respectively.
NOTE 10 - LEASES
The Company leases most of its vehicles under non-cancellable
operating leases which expire at various times through 2003.
Future minimum rental commitments at December 31, 1995 are as
follows:
1996 234,782
1997 151,287
1998 104,941
1999 102,592
2000 98,198
Thereafter 81,465
-------
773,265
=======
<PAGE>
Rental expense for operating lease was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Minimum rentals ................ 166,614 190,870 179,063
Contingent rentals ............. 36,412 28,564 28,606
------- ------- -------
Total ..................... 203,026 219,434 207,669
======= ======= =======
</TABLE>
Contingent rentals on trucking equipment are generally
calculated at a standard rate per mile. Base and contingent rentals on trucking
equipment may be adjusted annually for fluctuations in the consumer price index.
Generally, management expects that leases will be replaced upon expiration by
other leases in the normal course of business.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
During 1995, the Company was discharged from a case alleging
personal injury in connection with a product supplied by the Company. No other
claims are pending against the Company at December 31, 1995.
The Company is involved in remedial and voluntary clean up
expenditures associated with environmental matters. During 1995, 1994 and 1993,
the Company expensed $137,139, $217,591 and $52,000, respectively. The Company
believes it has provided for all of the foreseeable expected clean up costs at
December 31, 1995. Although it is very difficult to estimate the ultimate
aggregate cost to the Company of environmental clean up, management believes the
potential impact of compliance with environmental protection laws will not have
a material adverse effect on its future financial condition or results of
operations.
On June 16, 1994 the Company purchased certain assets and
consulting services for one of its packaged specialty ingredients. The terms of
the agreement were $1,500,000 at closing for the purchase of drums and
inventory. Additionally, to compensate the seller for its consulting services
and use of its customer list, the Company will make a quarterly payment of 7% of
this product's "Base Variable Margin" (as defined in the agreement) from July 1,
1994 through June 30, 1996 and 11% of such "Base Variable Margin" for the period
July 1, 1996 through June 30, 2004. The quarterly payments will be applied first
to the consulting agreement of $200,000 per annum terminating on June 30, 2004,
with the balance allocated to the right to use of the seller's customer list.
Any amounts allocated to the customer list will be amortized on a straight-line
basis over the remaining useful life of the customer list. The agreement also
contains certain "caps" on quarterly payments based on profitability and, at the
Company's election, an early lump-sum payment option at varying amounts over the
term of the agreement.
The Company is in the process of re-registering a product it
sells for sterilization of medical devices and other uses. The re-registration
requirement is a result of a congressional enactment during 1990 requiring the
re-registration of this product and all other products which are used as a
pesticide. The Company, in conjunction with one other company, has been
conducting testing under the direction of the Environmental Protection Agency
(EPA). Re-registration is a negotiated process between the two companies seeking
re-registration and the EPA. A series of additional tests is being conducted at
mutually-approved laboratories to fill data gaps resulting from the
negotiations. The test results and EPA's review thereof are expected during
1997. The Company's management believes it will be successful in obtaining
re-registration for the product as it has met EPA's requirements thus far.
Additionally, the product is used as a sterilant with no known substitute.
Management believes absence of availability of this product could not be
tolerated by the medical industry due to the resultant infection potential.
NOTE 12 - STOCKHOLDERS' EQUITY
The Company issued a 3 for 2 stock split, effected in the form
of a stock dividend, to shareholders of record on September 9, 1994. Balances at
December 31, 1994 reflect the split with an increase to common stock and
decrease to paid-in capital of $68,671. Cash payments in lieu of fractional
shares of $582 were also charged to paid-in capital. Stock option and per share
data have been retroactively adjusted to reflect the stock split.
The rights of preferred shares are not yet specified and will
be authorized by the Board of Directors prior to issuance.
NOTE 13- SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID FOR INCOME TAXES AND INTEREST WAS AS FOLLOWS:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Income Taxes Paid (Refunded) ........ 896,073 344,153 (27,606)
Interest Paid ....................... 342,135 240,558 176,368
</TABLE>
NON-CASH FINANCING ACTIVITY:
The Company acquired certain computer equipment in 1994 by
assuming a capitalized lease of $61,106.
NOTE 14 - OTHER MATTERS
In December 1995, the Company formalized plans to end its
relationship with a customer whose products were custom manufactured at its
Green Pond, South Carolina facility. The plans, implemented in early 1996, call
for reduction in the workforce, return of the customer's raw materials and
equipment, and preparation for the sale of certain fixed assets used in the
custom manufacturing process. The amount charged to operations in 1995 for the
costs associated with this transaction were $159,000.
Management has not yet obtained market data needed to estimate
the profit or loss it expects to realize on the ultimate disposition of certain
fixed assets with a net book value of approximately $1,000,000 used in the
custom manufacturing process. Management does not, however, expect the result to
have a material impact on the Company's financial position.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 150,679
<SECURITIES> 0
<RECEIVABLES> 3,145,492
<ALLOWANCES> 0
<INVENTORY> 1,872,838
<CURRENT-ASSETS> 5,842,439
<PP&E> 13,943,379
<DEPRECIATION> 6,128,586
<TOTAL-ASSETS> 14,331,549
<CURRENT-LIABILITIES> 3,434,008
<BONDS> 0
0
0
<COMMON> 209,478
<OTHER-SE> 7,238,415
<TOTAL-LIABILITY-AND-EQUITY> 14,331,549
<SALES> 24,981,821
<TOTAL-REVENUES> 24,991,630
<CGS> 13,460,129
<TOTAL-COSTS> 222,223,248
<OTHER-EXPENSES> 8,763,119
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 340,497
<INCOME-PRETAX> 2,427,885
<INCOME-TAX> 842,581
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,585,304
<EPS-PRIMARY> .773
<EPS-DILUTED> .504
</TABLE>
