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, 1997
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)
office )
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. X
State Registrant's revenues for its most recent fiscal year.
$28,619,000.
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.
$42,246,245 is the aggregate market value of the voting stock held by
non-affiliates of Registrant as of March 1, 1998.
State the number of shares outstanding of each of Registrant's classes
of common equity as of the latest practicable date.
3,197,362 shares of common stock, par value $.06-2/3 per share ("Common
stock"), were outstanding as of March 1, 1998.
The proxy statement for the Annual Meeting to be held June 19,
1998, 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.
On June 16,1994, the Registrant purchased certain tangible and
intangible assets for one of its packaged specialty ingredients for $1.5 million
in cash. As detailed in the agreement, as amended, the Registrant is also
required to pay contingent amounts to compensate the seller for the purchase of
the seller's customer list. The amount payable to the seller is based on the
profits derived from the sale of the specialty packaged ingredient. Amounts
allocated to the customer list are being amortized on a straight-line basis over
its remaining estimated useful life through 2004. Additional amounts paid under
the agreement and capitalized during the years ended December 31, 1997 and 1996
aggregated $1.22 million and $1.12 million, respectively.
(b) (i) Registrant has one major business segment - packaged specialty
performance ingredients. Please refer to the financial statements attached
hereto. As of December 31, 1997, Registrant's specialty performance ingredients
were being used in the following industries: food, animal nutrition and
aquacultural feeds, sterilization, fumigation, and synthesis, among many others.
Export sales for the last three fiscal years aggregated approximately
$8.88 million and were made to the European Common Market, Canada, South
America, Mexico and Southeast Asia. Export sales were approximately $2.79
million for the fiscal year ended December 31, 1997, approximately $2.99 million
for the fiscal year ended December 31, 1996, and approximately $3.09 million for
the fiscal year ended December 31, 1995.
(b) (ii) Registrant sells packaged specialty performance ingredients through its
own sales force and through independent distributors and contractors.
(b)(iii) In 1997, the Registrant launched its first industry-wide product, rumen
protected choline chloride, which was introduced into the animal nutrition
market.
(b) (iv) Registrant has six major competitors, each of which is substantially
larger in size and has greater resources than Registrant.
(b) (v) 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.
(b) (vi) Due to consolidation of customer businesses, Registrant has one
customer that accounted for approximately 13% and 11% of Registrant's revenues
in 1997 and 1996, respectively. The aggregate revenues from its two largest
customers was less than 22% in 1997 and less than 18% in 1996. Registrant is the
sole source of supply for certain products used by its customers.
<PAGE>
(b) (vii) 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. That
license permits Registrant to utilize its technology in certain applications
that have supplementary business potential.
(b) (viii) 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
and does provide a clear and reasonable warning to any person in California who
may be exposed to this product; failure to do so would result in liability of up
to $2,500 per day per person exposed.
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. The Registrant has provided the State
of California with all necessary data, which in the Registrant's opinion,
responds to all issues raised by the state.
Registrant holds an EPA registration number, which permits it
to sell its medical device sterilant and spice fumigant. The Registrant 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 1988 requiring the re-registration of this
product and all other products that are used as pesticides. The Company, in
conjunction with one other company, has been conducting the required testing
under the direction of the EPA. Testing has concluded and the EPA has stated
that it anticipates completing re-registration for this product in year 2000.
The cost of re-registration is intended to be recouped in the selling price of
the sterilant.
(b)(ix) The Registrant's management believes it will be successful in obtaining
re-registration for the product as it has met the 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 easily
tolerated by the medical device manufacturers and the health care industry due
to the resultant infection potential if the product were unavailable.
(b) (x) During the years ended December 31, 1997 and December 31, 1996,
Registrant spent approximately $1.07 million and $0.93 million, respectively, on
company-sponsored research and development of new and existing products. During
the year ended December 31, 1997 an average of 10 employees devoted their full
time to research and development activities. The Registrant funds its R&D
programs with funds made available from current operations with the intent of
recovering those costs from profits derived from future sales of products
developed from the research and development effort.
<PAGE>
(b)(xi) Other than as set forth in the foregoing paragraphs, to the best of
Registrant's knowledge, it is in compliance with all federal, state and local
provisions that have been enacted or adopted regulating the discharge of
materials into the environment or otherwise relating to the protection of the
environment. The cost of such compliance totaled approximately $93 thousand in
1997 and has not had a material effect upon the capital expenditures, earnings
or competitive position of Registrant.
(b)(xii) As of March 1, 1998, Registrant employed approximately 131 persons.
Item 2. Properties
The executive, sales, marketing, R & D offices and certain
manufacturing facilities of Registrant, are presently housed in four buildings
located together with a 14,900 square foot steel warehouse, on a five acre
parcel of land in Slate Hill, New York. 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.
Registrant owns a facility located on an approximately 24 acre
parcel of land in Green Pond, South Carolina, registrant having sold the balance
of its formerly 81 acre facility in 1997. The facility now consists of a
state-of-the-art drumming facility, a maintenance building and an office
building. Registrant uses the facility as a terminus, warehouse and drum filling
station for three of its specialty ingredients.
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.
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. Registrant
agreed to perform a focused Remedial Investigation/Feasibility Study ("RI/FS").
A new RI/FS submitted on January 27, 1994 was approved by NYDEC in February
1994.
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. 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 had to clean the area and remove additional soil from
the drum burial site. The cost for this clean-up and the related reports was
approximately $164 thousand. Clean-up was completed in 1996, but NYDEC has
requested that the site be monitored for three years. It is estimated that the
total cost of monitoring will be $50 thousand for this period.
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 1997.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) Market Information.
The Registrant's common stock is traded on the American Stock
Exchange under the symbol BCP. Prior to March 3, 1995, the Registrant's common
stock was traded on the Nasdaq Stock Exchange under the symbol BCP. The high and
low closing prices for the common stock as recorded in the American Stock
Exchange Market Statistical Reports for 1997, for each quarterly period during
the past two years were as follows:
<TABLE>
<CAPTION>
Quarterly Period High Low
- ---------------- ---- ---
<S> <C> <C>
Ended March 31, 1996 $ 9.25 $ 8.38
Ended June 30, 1996 10.88 8.13
Ended September 30, 1996 9.38 8.00
Ended December 31, 1996 8.88 7.75
Quarterly Period High Low
- ---------------- ---- ---
<S> <C> <C>
Ended March 31, 1997 $ 9.38 $ 8.00
Ended June 30, 1997 11.25 8.25
Ended September 30, 1997 16.88 14.13
Ended December 31, 1997 20.25 15.38
</TABLE>
(b) Holders.
As of March 2, 1998, 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 325*
<PAGE>
*An unknown number of shareholders have stock in street names. The total number
of shareholders is estimated to be 1,210.
(c) Dividends.
Registrant declared a dividend of $0.05 per share on the
common stock during its fiscal year ended December 31, 1997. Registrant declared
a dividend of $0.045 per share on the common stock during its fiscal year ended
December 31, 1996.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(All dollar amounts in thousands)
Results of Operations:
Fiscal Year 1997 compared to 1996
Total revenues for 1997 were $28,619 as compared to $26,371 in 1996, an increase
of 8.5% or $ 2,248. The increase in revenue for 1997 is primarily attributable
to increased volumes for the specialty products business and the food
encapsulation business in domestic markets. Additional revenues were also
realized due to improved product mix.
Operating expenses increased in 1997 to $7,890 from $7,625 in 1996. The increase
in operating expenses is primarily the result of the establishment of a reserve
of approximately $187 in 1997 for an Asian receivable. The Registrant also
incurred other charges associated with a corporate reorganization totaling $302
and additional amortization expense associated with the purchase of a customer
list for the Registrant's ethylene oxide business totaling approximately $147.
An increase in revenues also contributed to the increase in operating expense.
These increases were partially offset by a decrease in recruiting and relocation
expense and a decrease in office and computer expenses associated with the 1996
development of a local area network.
Income from operations for 1997 was $4,350 as compared to $3,120 for 1996, an
increase of 39.4% or $1,230.
Net earnings after (current and deferred) taxes were $2,771 during 1997 compared
to $1,927 during 1996, an increase of 43.8%, or $844. Net interest expense for
1997 totaled $136 as compared to $255 in 1996. The decrease in interest expense
is the result of reduced debt and renegotiated loan terms during 1997.
Fiscal Year 1996 compared to 1995
Total revenues for 1996 were $26,371 compared to $24,733 in 1995, an increase of
6.6% or $1,638. Excluding the $1,244 in 1995 revenues associated with the custom
manufacturing portion, which was discontinued at the end of 1995, the increase
in revenue was 12.4%. The increased revenues in 1996 were attributed to
increased volumes from existing customer base for specialty ingredients and
additional revenues generated by the food encapsulation business in domestic and
international markets.
Operating expenses increased in 1996 to $7,625 from $6,375 in 1995. The increase
in operating expenses is primarily the result of increased retirement plan
contributions of $163, a result of a one-time charge the Registrant took in 1996
<PAGE>
to convert the accounting for its pension plan to the accrual basis, increased
office expenses of $172, primarily associated with the development of a local
area network, increased miscellaneous expenses of $105 a result of the adoption
of Statement of Financial Accounting Standards ("SFAS") No. 123 "Accounting for
Stock-Based Compensation" and an increase in amortization expense of $98
associated with the purchase of a customer list for the Registrant's ethylene
oxide business.
Income from operations for 1996 was $3,120 as compared to $2,759 for 1995, an
increase of 13.1%, or $361, a direct correlation to the business conditions as
described above.
Net earnings after (current and deferred) taxes were $1,927 during 1996 compared
to $1,585 during 1995, an increase of 21.5%, or $342. The increase in net
earnings relates to increased revenues in addition to interest expense savings
due to reduced debt and renegotiated loan terms during 1996.
Liquidity and Capital Resources
Cash flow from operating activities provided approximately $2,994 in 1997 as
compared to $3,612 in 1996 and $1,599 in 1995. The reduction in cash flow from
operating activities in 1997 is primarily the result of increases in working
capital, principally, inventories and accounts receivable. Over the last three
years, operating cash flow has totaled approximately $8,205. Improvements in
cash flow over this period of time have provided the Registrant with the ability
to reduce long-term debt and to meet both its operating and investment
objectives.
Capital expenditures were $1,115 in 1997 as compared with $975 in 1996 and
$1,115 in 1995. In 1997, the Registrant completed upgrades and new production
capabilities at both its New York and South Carolina locations, building state
of the art specialty product facilities. Capital expenditures are projected to
be approximately $1,100 for 1998.
The Registrant has capitalized approximately $1,216 in 1997 and $1,124 in 1996
in connection with the 1994 purchase of a customer list for the Registrant's
ethylene oxide business. The amount contingently payable to the seller involves
a complex formula based upon revenues generated by the specialty packaged
ingredient. Payments of similar magnitude are projected for 1998.The agreement
terminates in June 2004.
Long-term debt has been reduced by approximately $600 and $1,000 in 1997 and
1996, respectively.
The Registrant knows of no demands, commitments, events or uncertainties for its
liquid assets that will materially affect its liquidity. The Registrant
currently has $2,000 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).
Impact of Recent Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information."
<PAGE>
SFAS 130 establishes standards for the reporting and display of comprehensive
income in the financial statements. Comprehensive income is the total of net
income and all other non-owner changes in equity. SFAS 131 requires that
companies disclose segment data based on how management makes decisions about
allocating resources to segments and measuring their performance. SFAS 130 and
131 are effective for 1998. Adoption of these standards is expected to result in
additional disclosures but will not have an effect on the Registrant's financial
position or results of operations.
<PAGE>
Item 7. Financial Statements
Index to Financial Statements:
Independent Auditors' Reports
Consolidated Balance Sheets as of
December 31, 1997 and 1996
Consolidated Statements of Operations for the
years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows
for the years ended December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Balchem Corporation:
We have audited the accompanying consolidated balance sheet of Balchem
Corporation and subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1997 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Balchem
Corporation and subsidiaries as of December 31, 1997, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Short Hills, New Jersey
February 9, 1998
<PAGE>
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, 1996 and 1995 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, 1996. 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, 1996 and
1995, 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, 1996, in
conformity with generally accepted accounting principles.
/s/Judelson, Giordano, Siegel
-----------------------------
Judelson, Giordano, Siegel, CPA, PC
Middletown, New York
February 7, 1997
<PAGE>
<TABLE>
<CAPTION>
BALCHEM CORPORATION
Consolidated Balance Sheets
December 31, 1997 and 1996
(In thousands, except share and per share data)
Assets
1997 1996
------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................................ $ 736 $ 89
Trade accounts receivable, less allowance for doubtful
accounts of $187 in 1997 and $0 in 1996 (note 5) ................... 3,061 2,970
Inventories (notes 2 and 5) .............................................. 2,507 1,862
Prepaid expenses ......................................................... 513 519
Deferred income taxes (note 6) ........................................... 305 152
Other current assets ..................................................... 165 --
------- -------
Total current assets ................................................. 7,287 5,592
------- -------
Property, plant and equipment, net of accumulated depreciation (notes 3 and 5) 7,345 7,529
Intangible assets, net of accumulated amortization (notes 4 and 12) .......... 2,925 1,956
Other assets ................................................................. 36 63
------- -------
Total assets ..................................................... $17,593 $15,140
======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BALCHEM CORPORATION
Consolidated Balance Sheets (continued)
December 31, 1997 and 1996
(In thousands, except share and per share data)
Liabilities and Stockholders' Equity 1997 1996
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses .......................... $ 2,657 $ 2,538
Dividends payable .............................................. 160 142
Income taxes payable ........................................... -- 110
Current portion of long-term debt (note 5) .................... 700 700
Current portion of other long-term obligations ................. 50 47
------- -------
Total current liabilities ................................... 3,567 3,537
------- -------
Long-term debt (note 5) ............................................. 800 1,400
Deferred income taxes (note 6) ...................................... 481 535
Deferred compensation .............................................. 143 93
Other long-term obligations ......................................... 266 188
------- -------
1,690 2,216
------- -------
------- -------
Total liabilities ....................................... 5,257 5,753
------- -------
Stockholders' equity: (note 7)
Preferred stock, $25 par value. Authorized 2,000,000
shares; none issued and outstanding
Common stock, $.06 2/3 par value. Authorized 10,000,000
shares; issued and outstanding 3,195,442 shares in 1997 and
3,153,030 shares in 1996 .................................. 213 210
Additional paid-in capital ...................................... 2,251 1,916
Retained earnings ............................................... 9,872 7,261
------- -------
Total stockholders' equity ................................... 12,336 9,387
------- -------
Commitments and contingencies (note 12)
Total liabilities & stockholders' equity ................ $17,593 $15,140
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
BALCHEM CORPORATION
Consolidated Statements of Operations
Years Ended December 31, 1997, 1996 and 1995
(In thousands, except per share data)
1997 1996 1995
<S> <C> <C> <C>
Net sales .................................... $ 28,619 $ 26,371 $ 24,733
Cost of sales ................................ 16,379 15,626 15,599
-------- -------- --------
Gross margin ................................. 12,240 10,745 9,134
Operating expenses:
Selling expenses ....................... 3,295 3,071 2,657
Research and development expenses ...... 1,065 929 740
General and administrative expenses .... 3,530 3,625 2,978
-------- -------- --------
Total operating expenses ........... 7,890 7,625 6,375
-------- -------- --------
Income from operations ....................... 4,350 3,120 2,759
Other expenses (income):
Interest expense ....................... 136 255 341
Other income ........................... (13) (52) (10)
-------- -------- --------
Total other expenses - net ......... 123 203 331
-------- -------- --------
Earnings before income taxes ................. 4,227 2,917 2,428
Income taxes (note 6) .................. 1,456 990 843
-------- -------- --------
Net earnings ................................. $ 2,771 $ 1,927 $ 1,585
======== ======== ========
Basic net earnings per common share (note 8) . $ 0.88 $ 0.61 $ 0.51
======== ======== ========
Diluted net earnings per common share (note 8) $ 0.86 $ 0.60 $ 0.50
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
BALCHEM CORPORATION
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1997, 1996 and 1995
(In thousands, except share and per share data)
Additional Total
Common Stock Paid-in Retained Stockholders'
Shares Amount Capital Earnings Equity
------ ------ ------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1995 . 3,120,059 $ 208 $ 1,711 $ 4,001 $ 5,920
Net earnings .............. 1,585 1,585
Dividends ($.035 per share) (110) (110)
Stock options exercised ... 22,117 1 51 52
--------- ---------- ---------- ---------- ----------
Balance - December 31, 1995 3,142,176 209 1,762 5,476 7,447
Net earnings .............. 1,927 1,927
Dividends ($.045 per share) (142) (142)
Non-employee stock options 106 106
Stock options exercised ... 10,854 1 48 49
--------- ---------- ---------- ---------- ----------
Balance - December 31, 1996 3,153,030 210 1,916 7,261 9,387
Net earnings .............. 2,771 2,771
Dividends ($.05 per share) (160) (160)
Non-employee stock options 110 110
Stock options exercised ... 42,412 3 225 228
--------- ---------- ---------- ---------- ----------
Balance - December 31, 1997 3,195,442 $ 213 $ 2,251 $ 9,872 $ 12,336
========= ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
BALCHEM CORPORATION
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
(In thousands)
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings ................................................. $ 2,771 $ 1,927 $ 1,585
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ........................... 1,126 1,414 835
Non-employee stock option compensation .................. 110 106 --
Provision for deferred income taxes ..................... (207) (173) 56
Gain on sale of equipment ............................... 4 (9) (4)
Provision for doubtful accounts ......................... 187 -- --
Changes in assets and liabilities:
Accounts receivable ................................ (278) 176 (557)
Inventories ........................................ (645) 11 (571)
Prepaid expenses and other ......................... (159) 27 (106)
Accounts payable and accrued expenses .............. 146 12 422
Income taxes payable .............................. (110) 102 (83)
Deferred compensation payable ...................... 49 19 22
------- ------- -------
Net cash flows provided by operating activities 2,994 3,612 1,599
------- ------- -------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment .......... 538 10 12
Capital expenditures ......................................... (1,115) (975) (1,115)
Investments in other assets ................................. (1,243) (1,300) (320)
------- ------- -------
Net cash flows used in investing activities ... (1,820) (2,265) (1,423)
------- ------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
BALCHEM CORPORATION
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
(In thousands)
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Cash flows from financing activities:
Decrease in short-term borrowings ............................ -- (354) (388)
Proceeds from long-term borrowings ........................... -- -- 813
Principal payments on long-term debt ......................... (600) (982) (447)
Stock options and warrants exercised ......................... 228 48 53
Dividends paid ............................................... (142) (110) (86)
Other financing activities ................................... (13) (11) (10)
------- ------- -------
Net cash flows used in financing activities ... (527) (1,409) (65)
Increase (decrease) in cash and cash equivalents .................. 647 (62) 111
Cash and cash equivalents beginning of year ....................... 89 151 40
------- ------- -------
Cash and cash equivalents end of year ............................. $ 736 $ 89 $ 151
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BALCHEM CORPORATION
Notes to Consolidated Financial Statements
(All amounts in thousands, except share and per share data)
Note 1- Business Description and Summary Of Significant Accounting Policies
Business Description
Balchem Corporation (the "Company") is engaged in the development, manufacture
and marketing of specialty performance ingredients for the food, feed and
medical sterilization industries.
Principles of Consolidation
The consolidated financial statements include the financial statements of the
Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Revenue Recognition
Revenue is recognized upon product shipment, passage of title and when all
significant obligations of the Company have been satisfied.
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 and Equipment and Depreciation
Property, plant and equipment are stated at cost. Depreciation of plant and
equipment is calculated using the straight-line method over the estimated useful
lives of the assets as follows:
Buildings 15-25 Years
Equipment 3-12 Years
Expenditures for repairs and maintenance are charged to expense. Alterations and
major overhauls that extend the lives or increase the capacity of plant assets
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 and any resultant gain or loss is included in earnings.
Intangible Assets
Intangible assets are stated at cost and are amortized on a straight-line basis
over the following estimated useful lives:
Customer lists 10 years
Re-registration costs 10 years
<PAGE>
BALCHEM CORPORATION
Notes to Consolidated Financial Statements
(All amounts in thousands, except share and per share data)
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Use of Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues, and expenses.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company has a number of financial instruments, none of which are held for
trading purposes. The Company estimates that the fair value of all financial
instruments at December 31, 1997 and 1996 does not differ materially from the
aggregate carrying values of its financial instruments recorded in the
accompanying balance sheets. The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. Considerable judgment is necessarily required in
interpreting market data to develop the estimates of fair value, and,
accordingly, the estimates are not necessarily indicative of the amounts that
the Company could realize in a current market exchange.
Research and Development
Research and development costs are expensed as incurred.
Credit Risk
Trade receivables potentially subject the Company to credit risk. The Company
extends credit to its customers based upon an evaluation of the customers'
financial condition and credit histories. The majority of the Company's
customers are major national or international corporations. International sales
are mostly to companies in Europe and the Far East.
Stock-based Compensation
Stock-based compensation is recognized using the intrinsic value method in
accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees" and related interpretations. For disclosure
purposes, pro forma net earnings data included in note 7 are provided in
accordance with Statement of Financial Accounting Standards ("SFAS") No.123
"Accounting for Stock-Based Compensation," as if the fair value based method
applied.
<PAGE>
BALCHEM CORPORATION
Notes to Consolidated Financial Statements
(All amounts in thousands, except share and per share data)
Impairment of Long-lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.
Net Earnings Per Share
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128 "Earnings Per Share." SFAS 128 established standards for computing and
presenting earnings per share and is effective for financial statements for both
interim and annual periods ending after December 15, 1997. Accordingly, the
accompanying net earnings per share information has been calculated and
presented in accordance with the provisions of SFAS 128 and all prior periods
have been restated.
Under SFAS 128, primary earnings per share is replaced by a new measure called
basic net earnings per share, which excludes common stock equivalents. Basic net
earnings per share, was calculated by dividing net income by the weighted
average number of common shares outstanding during the period. Diluted net
earnings per share was calculated in a manner consistent with basic net earnings
per share except that the weighted average number of common shares outstanding
also includes the dilutive effect of stock options outstanding (using the
treasury stock method).
Reclassifications
Certain reclassifications have been made to the prior years' financial
statements to conform to the current year's presentation.
NOTE 2-INVENTORIES
Inventories at December 31, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Raw Materials $ 836 $ 670
Finished Goods 1,671 1,192
------ ------
$2,507 $1,862
------ ------
</TABLE>
<PAGE>
BALCHEM CORPORATION
Notes to Consolidated Financial Statements
(All amounts in thousands, except share and per share data)
NOTE 3- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1997 and 1996 are summarized as
follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Land ......................... $ 60 $ 90
Building ..................... 3,947 4,399
Equipment .................... 8,553 10,240
------- -------
12,560 14,729
Less: Accumulated depreciation 5,215 7,200
------- -------
$ 7,345 $ 7,529
------- -------
</TABLE>
During 1997, the Company sold the fixed assets formerly used in a custom
manufacturing process for approximately $538. In 1996, the Company had reduced
the carrying values of these fixed assets from approximately $970 to their
expected net realizable value of $540.The resulting loss of approximately $430
is included in depreciation expense for the year ended December 31, 1996.
NOTE 4- INTANGIBLE ASSETS
Intangible assets at December 31, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Customer lists (note 12) ...... $2,778 $1,562
Re-registration costs (note 12) 356 329
Covenants not to compete ...... 295 200
Other ......................... 126 127
------ ------
3,555 2,218
Less: Accumulated amortization 630 262
------ ------
$2,925 $1,956
------ ------
</TABLE>
<PAGE>
BALCHEM CORPORATION
Notes to Consolidated Financial Statements
(All amounts in thousands, except share and per share data)
The Company has entered into non-compete agreements with two former officers of
the Company. The Company has recorded the present value of the future monthly
payments under these agreements as a deferred charge and is amortizing such
amount over the terms of the respective agreements.
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 1988 requiring the
re-registration of this product and all other products that are used as
pesticides. The Company, in conjunction with one other company, has been
conducting the required testing under the direction of the Environmental
Protection Agency ("EPA"). Testing has concluded and the EPA has stated that it
anticipates completing re-registration for this product in 2000. The Company's
management believes it will be successful in obtaining re-registration for the
product as it has met the EPA's requirements thus far although, no assurance can
be given. Additionally, the product is used as a sterilant with no known
substitute. Management believes absence of availability of this product could
not be easily tolerated by the medical device manufacturers and the health care
industry due to the resultant infection potential if the product were
unavailable.
NOTE 5 - LONG-TERM DEBT & CREDIT AGREEMENTS
The Company has borrowings under a term loan agreement with a bank of $1,500 and
$2,100 at December 31, 1997 and 1996, respectively. Borrowings under the term
loan, which matures on December 31, 2000, bear interest at LIBOR plus 0.5%
(6.31% at December 31, 1997) and are secured by accounts receivable,
inventories, equipment and all personal property of the Company. Certain
provisions of the term loan limit the payment of dividends, require
maintenance of certain financial ratios, limit future borrowings and impose
certain other conditions as contained in the agreement.
As of December 31, 1997, long-term debt matures as follows:
1998 $ 700
1999 600
2000 200
------
Total $1,500
------
The Company also has a $2,000 short-term line of credit with a bank that bears
interest at prime (8.5% at December 31, 1997). There were no outstanding
borrowings under the line of credit on December 31, 1997 or 1996. The line of
credit expires on June 30, 1998 and is secured by a blanket lien on the
Company's assets. The Company intends to renew the line of credit in 1998.
<PAGE>
BALCHEM CORPORATION
Notes to Consolidated Financial Statements
(All amounts in thousands, except share and per share data)
NOTE 6 - INCOME TAXES
Income tax expense (benefit) attributable to earnings before income taxes
consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Current:
Federal ............. $ 1,476 $ 1,076 $ 743
State ............... 187 87 44
Deferred:
Federal ............. (186) (186) 42
State ............... (21) 13 14
------- ------- -------
Total income tax provision $ 1,456 $ 990 $ 843
------- ------- -------
</TABLE>
The provision for income taxes differs from the amount computed by applying the
Federal statutory rate of 34% to income before income taxes for the following
reasons:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Income tax at Federal
Statutory rate ........... $ 1,437 $ 992 $ 825
State income taxes, net of
Federal income tax benefit 109 66 38
Other ......................... (90) (68) (21)
------- ------- -------
Total income tax provision .... $ 1,456 $ 990 $ 842
------- ------- -------
</TABLE>
<PAGE>
BALCHEM CORPORATION
Notes to Consolidated Financial Statements
(All amounts in thousands, except share and per share data)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Amortization ............................... $ 62 $ 21
Inventory valuation - uniform capitalization 177 118
Deferred compensation ...................... 136 58
Non-employee stock options ................. 80 39
Allowance for doubtful accounts ............ 71 --
Other ...................................... 38 27
---- ----
Total deferred tax assets ............. 564 263
---- ----
Deferred tax liabilities:
Depreciation ............................... 740 646
---- ----
Total deferred tax liabilities ........ 740 646
---- ----
Net deferred tax liability ........... $176 $383
---- ----
</TABLE>
There is no allowance for deferred tax assets at December 31, 1997 and 1996. In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods in which the deferred tax assets are deductible, management believes it
is more likely than not the Company will realize the benefits of these
deductible differences. The amounts of the deferred tax assets considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.
<PAGE>
BALCHEM CORPORATION
Notes to Consolidated Financial Statements
(All amounts in thousands, except share and per share data)
NOTE 7 - STOCKHOLDERS' EQUITY
The Company has an incentive stock option plan (the "ISO Plan") under which
officers and certain key employees may be granted options to purchase shares of
common stock exercisable at prices equal to the fair market value at the date of
grant. Options generally become exercisable 20% after 1 year, 60% after 2 years
and 100% after 3 years from the date of grant. During 1996, the Company extended
the expiration period of the options from five years to ten years from the date
of grant. At December 31, 1997, 187,500 shares of common stock were reserved for
issuances under the plan.
A summary of incentive stock option plan transactions for 1997, 1996 and 1995
under this plan is as follows:
<TABLE>
<CAPTION>
# of Weighted Average
1997 Shares Exercise Price
---- ------ --------------
<S> <C> <C>
Outstanding at beginning of year 98,487 $ 6.50
Granted ........................ 72,950 $ 16.15
Exercised ...................... (42,412) $ 5.38
Terminated or expired .......... (3,190) $ 8.58
--------
Outstanding at end of year ..... 125,835 $ 12.42
--------
Exercisable at end of year ..... 53,001 $ 10.06
--------
<CAPTION>
# of Weighted Average
1996 Shares Exercise Price
---- ------ --------------
<S> <C> <C>
Outstanding at beginning of year 99,795 $ 5.73
Granted ........................ 24,000 $ 8.53
Exercised ...................... (10,854) $ 4.45
Terminated or expired .......... (14,454) $ 6.13
--------
Outstanding at end of year ..... 98,487 $ 6.50
--------
Exercisable at end of year ..... 46,437 $ 5.02
--------
</TABLE>
<PAGE>
BALCHEM CORPORATION
Notes to Consolidated Financial Statements
(All amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
# of Weighted Average
1995 Shares Exercise Price
---- ------ --------------
<S> <C> <C>
Outstanding at beginning of year 99,126 $ 4.66
Granted ........................ 22,125 $ 9.38
Exercised ...................... (17,345) $ 2.47
Terminated or expired .......... (4,111) $ 4.68
--------
Outstanding at end of year ..... 99,795 $ 5.73
--------
Exercisable at end of year ..... 43,435 $ 4.41
--------
</TABLE>
Information related to stock options outstanding under the ISO Plan at December
31, 1997 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------- ---------------------------
Weighted Average
Remaining Weighted Weighted
Contractual Average Average
Range of Exercise Shares Life Exercise Number Exercise
Prices Outstanding Price Price Exercisable Price
------ ----------- ----- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$ 3.75 - $ 4.83 12,327 5.0 years $ 4.12 12,327 $ 4.12
$ 6.00 - $ 9.38 40,558 8.1 years 8.24 20,674 7.73
$16.13 - $17.63 72,950 9.8 years 16.15 20,000 16.13
------- --------- -------- ------ --------
125,835 8.8 years $ 12.42 53,001 $ 10.06
------- --------- -------- ------ --------
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its ISO Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant dates for its stock options under SFAS No. 123, the
Company's net earnings would have been reduced to the pro forma amounts
indicated below:
<PAGE>
BALCHEM CORPORATION
Notes to Consolidated Financial Statements
(All amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net Earnings
As Reported ......... $ 2,771 $ 1,927 $ 1,585
Pro forma ........... $ 2,611 $ 1,916 $ 1,584
Earnings per share
As Reported - Basic . $ .88 $ .61 $ .51
Pro forma - Basic ... $ .83 $ .61 $ .51
As Reported - Diluted $ .86 $ .60 $ .50
Pro forma - Diluted . $ .81 $ .60 $ .50
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1997 ,1996 and 1995, respectively: dividend yield
of .44%,.37%, and .17%; expected volatility of 32%,14% and 27%; risk-free
interest rates of 6.5%, 6.0% and 6.0% and expected life of six years for all
years. The weighted average fair values of options granted during the years
1997, 1996 and 1995 were $7.78, $2.57 and $2.79, respectively. Pro forma net
earnings reflects only options granted since January 1, 1995. Therefore, the
full impact of calculating compensation cost for stock options under SFAS No.
123 is not reflected in the pro forma net earnings amounts presented above
because compensation cost is reflected over the options' vesting period of three
years and compensation cost for options granted prior to January 1, 1995 has not
been considered.
The Company has a non-statutory stock option plan (the "Plan") under which
directors of the Company may be granted options to purchase shares of common
stock exercisable at prices equal to the fair market value at the date of grant.
The Company has reserved 94,166 shares of common stock for issuance under this
Plan. During 1996, the Company extended the expiration period from five years to
ten years after the date of grant. A summary of these stock options for 1997,
1996 and 1995 is as follows:
<PAGE>
BALCHEM CORPORATION
Notes to Consolidated Financial Statements
(All amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
# of Weighted Average
1997 Shares Exercise Price
---- ------ --------------
<S> <C> <C>
Outstanding at beginning of year 46,079 $ 6.53
Granted ........................ 15,230 $ 17.63
Terminated or expired .......... -- --
--------
Outstanding at end of year ..... 61,309 $ 9.29
--------
Exercisable at end of year ..... 61,309 $ 9.29
--------
<CAPTION>
# of Weighted Average
1996 Shares Exercise Price
---- ------ --------------
<S> <C> <C>
Outstanding at beginning of year 35,607 $ 5.95
Granted ........................ 10,472 $ 8.50
Terminated or expired .......... -- --
--------
Outstanding at end of year ..... 46,079 $ 6.53
--------
Exercisable at end of year ..... 46,079 $ 6.53
<CAPTION>
# of Weighted Average
1995 Shares Exercise Price
---- ------ --------------
<S> <C> <C>
Outstanding at beginning of year 32,457 $ 4.65
Granted ........................ 7,922 $ 9.00
Terminated or expired .......... (4,772) $ 2.13
--------
Outstanding at end of year ..... 35,607 $ 5.95
--------
Exercisable at end of year ..... 35,607 $ 5.95
</TABLE>
<PAGE>
BALCHEM CORPORATION
Notes to Consolidated Financial Statements
(All amounts in thousands, except share and per share data)
Information related to stock options outstanding under the Plan at December 31,
1997 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------- -------------------------
Weighted Average Weighted Weighted
Remaining Average Average
Range of Exercise Shares Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
------ ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$ 3.67 - $ 6.00 27,685 5.9 years $ 5.08 27,685 $ 5.08
$ 8.50 - $ 9.00 18,394 8.6 years 8.72 18,394 8.72
$17.63 15,230 10.0 years 17.63 15,230 17.63
----------------- ------ ---------- -------- ------ --------
61,309 7.7 years $ 9.29 61,309 $ 9.29
</TABLE>
In addition, 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 30,000 shares of stock have been reserved under this agreement. At
December 31, 1997, a total of 22,500 shares were issued and exercisable under
this agreement.
The adoption of SFAS No.123 "Accounting for Stock-Based Compensation" has
resulted in a charge to income and corresponding increase to paid-in capital of
approximately $110 and $106 for options granted in 1997 and 1996, respectively,
to non-employees (including directors) in exchange for their services. The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1997 and 1996, respectively: dividend yield of
.44% and .37%; expected volatility of 32% and 14%; risk-free interest rates of
6.5% and 6.0%; and expected life of six and ten years. The weighted average fair
values of options granted during the years 1997 and 1996 were $7.23 and $10.11,
respectively.
NOTE 8 - NET EARNINGS PER SHARE
Net earnings per share are calculated in accordance with SFAS No.128 "Earnings
Per Share". The following presents a reconciliation of the numerator and
denominator used in calculating basic and diluted net earnings per share:
<TABLE>
<CAPTION>
Number of Shares
Income Shares Per Share
1997 (Numerator) (Denominator) Amount
---- ----------- ------------- ------
<S> <C> <C> <C>
Basic EPS - Net earnings and weighted average common
shares outstanding $ 2,771 3,161,836 $.88
Effect of dilutive securities - stock options 63,601
---------
Diluted EPS: - Net earnings and weighted average
common shares outstanding and effect of stock options $ 2,771 3,225,437 $.86
-------- --------- ----
</TABLE>
<PAGE>
BALCHEM CORPORATION
Notes to Consolidated Financial Statements
(All amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
Number of Shares
Income Shares Per Share
1996 (Numerator) (Denominator) Amount
---- ----------- ------------- ------
<S> <C> <C> <C>
Basic EPS - Net earnings and weighted average common
shares outstanding $ 1,927 3,144,333 $.61
Effect of dilutive securities - stock options 47,737
---------
Diluted EPS: - Net earnings and weighted average
common shares outstanding and effect of stock options $ 1,927 3,192,070 $.60
<CAPTION>
Number of Shares
Income Shares Per Share
1995 (Numerator) (Denominator) Amount
---- ----------- ------------- ------
<S> <C> <C> <C>
Basic EPS - Net earnings and weighted average common
shares outstanding $ 1,585 3,124,763 $.51
Effect of dilutive securities - stock options 46,476
---------
Diluted EPS: - Net earnings and weighted average
common shares outstanding and effect of stock options $ 1,585 3,171,239 $.50
</TABLE>
NOTE 9 - EMPLOYEE BENEFIT PLANS
The Company has a defined contribution pension plan that covers substantially
all employees. Pension plan contributions for 1997, 1996 and 1995 were $149,
$283 and $138, respectively. In 1996, the Company took a one-time charge to
earnings of $165 in order to convert the accounting for the pension plan to the
accrual basis.
The Company also has a 40l(k) savings plan that covers substantially all
employees. 401(k) savings plan contributions for 1997, 1996 and 1995 were $95,
$83 and $65, respectively.
Effective January 1, 1998, the Company terminated its defined contribution
pension plan and amended its 401(k) savings plan. Assets of the terminated
defined contribution pension plan were merged into an enhanced 401(k)/profit
sharing plan.
NOTE 10 - SALES INFORMATION AND BUSINESS CONCENTRATIONS
Export sales for 1997, 1996 and 1995 were $2,794, $2,990 and $3,093,
respectively. A customer accounted for 13%, 11% and 8% of the Company's net
sales for 1997, 1996 and 1995, respectively.
<PAGE>
BALCHEM CORPORATION
Notes to Consolidated Financial Statements
(All amounts in thousands, except share and per share data)
NOTE 11 - LEASES
The Company leases most of its vehicles and office equipment under noncancelable
operating leases, which expire at various times through 2003. Rent expense
charged to operations under such lease agreements for 1997, 1996 and 1995
aggregated approximately $334, $221 and $203, respectively. Aggregate future
minimum rental payments required under noncancelable operating leases at
December 31, 1997 are as follows:
Year
----
1998 $ 245
1999 225
2000 187
2001 111
2002 57
Thereafter 27
-----
Total minimum lease
payments $ 852
-----
NOTE 12 - COMMITMENTS
AND CONTINGENCIES
On June 16, 1994, the Company purchased certain tangible and intangible assets
for one of its packaged specialty ingredients for $1,500 in cash. As detailed in
the agreement as amended, the Company is also required to pay contingent amounts
to compensate the seller for the purchase of the seller's customer list. The
amount payable to the seller is based on the profits derived from the sale of
the specialty packaged ingredient. Amounts allocated to the customer list are
being amortized on a straight-line basis over its remaining estimated useful
life through 2004. Additional amounts paid under the agreement and capitalized
during the years ended December 31, 1997 and 1996 aggregated $1,216 and $1,124,
respectively.
NOTE 13 - SUPPLEMENTAL
CASH FLOW INFORMATION
Cash paid during the year for:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income taxes $ 1,868 $ 1,034 $ 896
Interest $ 164 $ 266 $ 342
</TABLE>
In connection with a non-compete agreement entered into with a former officer of
the Company, the Company recorded an intangible asset and increased other
liabilities in an amount of $95.
<PAGE>
BALCHEM CORPORATION
Notes to Consolidated Financial Statements
(All amounts in thousands, except share and per share data)
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, called for reductions
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 was $159.
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
The required information is set forth in Registrant's Form 8-K dated
January 9, 1997.
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 19, 1998
("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.
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 and Reports on Form 8-K
(a) Exhibits:
(3)(i) Articles of Amendment to Articles of Restatement (replacing
Articles of Incorporation of registrant, as previously filed), incorporated by
reference from the December 31, 1988 Form 10-K filed with the Commission.
<PAGE>
(3)(ii) By-laws of registrant, as amended on December 6, 1985,
incorporated by reference from the Form 10-K filed with the Commission on March
27, 1986.
(23)(i) Consent of KPMG Peat Marwick LLP, Independent Auditors
(23)(ii) Consent of Judelson, Giordano, Siegel, P.C.
(b) No reports on Form 8-K were filed during the last quarter of the
year ended December 31, 1997.
<PAGE>
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/ Dino A. Rossi
Dino A. Rossi, President,
Chief Executive Officer
Date: March 27, 1998
<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/ Dino A. Rossi
-----------------
Dino A. Rossi, President,
Chief Executive Officer and
Director
Date: March 27, 1998
By: /s/ Donald E. Alguire
---------------------
Donald E. Alguire, Director
Date:March 25, 1998
By: /s/ John E. Beebe
-----------------
John E. Beebe, Director
Date:March 19, 1998
By: /s/ Francis X. McDermott
------------------------
Francis X. McDermott, Director
Date: March 27, 1998
By: /s/ Kenneth P. Mitchell
-----------------------
Kenneth P. Mitchell, Director
Date: March 27, 1998
By: /s/ Paul F. Mosher
------------------
Paul F. Mosher, Director
Date: March 22, 1998
By: /s/ Carl R. Pacifico
--------------------
Carl R. Pacifico, Director
Date:March 18, 1998
By: /s/ Israel Sheinberg
--------------------
Israel Sheinberg, Director
Date: March 27, 1998
By: /s/ Leonard J. Zweifler
-----------------------
Leonard J. Zweifler, Director
Date:March 18, 1998
Exhibit 23 (i)
Independent Auditors' Consent
The Board of Directors and Stockholders
Balchem Corporation:
We consent to the incorporation by reference in the registration statement
(No.333-44489) on Form S-8 of Balchem Corporation of our report dated February
9, 1998, relating to the consolidated balance sheet of Balchem Corporation and
subsidiaries as of December 31, 1997 and the related consolidated statements of
operations, stockholders' equity and cash flows for the year ended December 31,
1997, which report appears in the December 31, 1997, annual report on Form
10-KSB of Balchem Corporation.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Short Hills, New Jersey
March 27, 1998
<PAGE>
Exhibit 23 (ii)
Independent Auditors' Consent
The Board of Directors and Stockholders
Balchem Corporation:
We consent to the incorporation by reference in the registration statement
(No.333-44489) on Form S-8 of Balchem Corporation of our report dated February
7, 1997, relating to the consolidated balance sheet of Balchem Corporation and
subsidiaries as of December 31, 1996 and 1995 and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 1996 and 1995, which report appears in the December 31, 1997,
annual report on Form 10-KSB of Balchem Corporation.
/s/Judelson, Giordano, Siegel
-----------------------------
Judelson, Giordano, Siegel, CPA, PC
Middletown, New York
March 30, 1998
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