FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One) Quarterly Report Pursuant To Section 13 Or 15 (d) of
[ X ] The Securities Exchange Act of 1934
For The Quarterly Period Ended June 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from ____________ to ____________
Commission File Number 1-13648
BALCHEM CORPORATION
(Exact name of registrant as specified in its charter)
Maryland 13-2578432
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
P.O. Box 175 Slate Hill, New York 10973
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(Address of principal executive offices) Zip Code
914-355-5300
Registrant's telephone number, including area code:
Indicate by a check mark whether the 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 preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.
Yes [ X ] No [ ]
As of July 16, 1999, the registrant had 4,892,527 shares of its Common Stock,
$.06 2/3 par value, outstanding.
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
BALCHEM CORPORATION
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Unaudited
---------
Assets June 30, December 31,
------ 1999 1998
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,392 $ 1,348
Trade accounts receivable, less allowance for doubtful accounts 3,198 3,283
Inventories 2,652 2,875
Prepaid expenses 344 476
Income taxes receivable 123 198
Deferred income taxes 206 219
------------- ------------
Total current assets 7,915 8,399
------------- ------------
Property, plant and equipment, net of accumulated depreciation 7,886 8,103
Intangible assets, net of accumulated amortization 5,620 6,139
Other assets 1 7
============= ============
Total assets $ 21,422 $ 22,648
============= ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
BALCHEM CORPORATION
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity June 30, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $ 1,070 $ 1,478
Accrued compensation and other benefits 480 601
Dividends payable - 160
Current portion of long-term debt 600 1,200
Current portion of other long-term obligations 36 43
-------------- --------------
Total current liabilities 2,186 3,482
-------------- --------------
Long-term debt 1,150 2,550
Deferred income taxes 441 525
Deferred compensation 116 135
Other long-term obligations 153 181
-------------- --------------
1,860 3,391
-------------- --------------
-------------- --------------
Total liabilities 4,046 6,873
-------------- --------------
Stockholders' equity:
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 4,892,527 shares at
June 30, 1999 and 4,875,914 shares at December 31, 1998 326 325
Additional paid-in capital 2,878 2,783
Retained earnings 14,172 12,667
-------------- --------------
Total stockholders' equity 17,376 15,775
-------------- --------------
Total liabilities & stockholders' equity $21,422 $22,648
============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
BALCHEM CORPORATION
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Unaudited Unaudited
--------- ---------
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 7,270 $ 7,220 $ 14,316 $ 14,953
Cost of sales 4,330 4,313 8,536 8,832
------- ------- -------- --------
Gross margin 2,940 2,907 5,780 6,121
Operating expenses:
Selling expenses 650 669 1,291 1,406
Research and development expenses 360 240 649 524
General and administrative expenses 728 799 1,432 1,681
------- ------- -------- --------
Total operating expenses 1,738 1,708 3,372 3,611
------- ------- -------- --------
Income from operations 1,202 1,199 2,408 2,510
Other expenses - net:
Interest expense - net 30 17 73 38
Other (income)/expense - net (3) (1) (3) 19
------- ------- -------- --------
Total other expenses - net 27 16 70 57
------- ------- -------- --------
Earnings before income taxes 1,175 1,183 2,338 2,453
Income taxes 420 430 833 869
------- ------- -------- --------
Net earnings $ 755 $ 753 $ 1,505 $ 1,584
------- ------- -------- --------
Basic net earnings per common share (note 3) $ 0.15 $ 0.16 $ 0.31 $ 0.33
------- ------- -------- --------
Diluted net earnings per common share (note 3) $ 0.15 $ 0.15 $ 0.31 $ 0.32
------- ------- -------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
BALCHEM CORPORATION
Condensed Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Unaudited
Six Months Ended
June 30,
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,505 $ 1,584
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 1,021 675
Non-employee stock compensation 38 48
Employee non-cash compensation 89 190
Deferred income tax benefit (71) (41)
Loss on sale of equipment - 19
Changes in assets and liabilities:
Accounts receivable 85 (123)
Inventories 223 (504)
Prepaid expenses 132 369
Accounts payable and accrued expenses (559) (633)
Income taxes receivable 74 (115)
Deferred compensation payable (19) (11)
---------- ----------
Net cash flows provided by operating activities 2,518 1,458
---------- ----------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment - 15
Capital expenditures (249) (771)
Investments in other assets (37) (4,008)
---------- ----------
Net cash flows used in investing activities (286) (4,764)
---------- ----------
Cash flows from financing activities:
Net borrowings under short-term revolver - 125
Proceeds from long-term debt - 3,000
Principal payments on long-term debt (2,000) (550)
Stock options and warrants exercised 7 240
Dividends paid (160) (160)
Other financing activities (35) (27)
---------- ----------
Net cash flows (used for) provided by financing activities (2,188) 2,628
---------- ----------
Increase (decrease) in cash and cash equivalents 44 (678)
Cash and cash equivalents beginning of year 1,348 736
---------- ----------
Cash and cash equivalents end of period $ 1,392 $ 58
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except share and per share data)
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements presented herein have been
prepared by the Company in accordance with the accounting policies described in
its December 31, 1998 Annual Report on Form 10-K and should be read in
conjunction with the notes to consolidated financial statements which appear in
that report.
In the opinion of management, the unaudited condensed consolidated financial
statements furnished in this Form 10-Q include all adjustments necessary for a
fair presentation of the financial position, results of operations and cash
flows for the interim periods presented. All such adjustments are of a normal
recurring nature. The condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore do not
include some information and notes necessary to conform with annual reporting
requirements. The results of operations for the three and six months ended June
30, 1999 are not necessarily indicative of the operating results expected for
the full year.
NOTE 2 - INVENTORIES
Inventories at June 30, 1999 and December 31, 1998 consist of the following:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Raw Materials $ 1,068 $ 1,025
Finished Goods 1,584 1,850
- ------------------------------------------------------------------
$ 2,652 $ 2,875
- ------------------------------------------------------------------
</TABLE>
NOTE 3 - 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
Income Shares Per Share
Three months ended June 30, 1999 (Numerator) (Denominator) Amount
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS - Net earnings and weighted
average common shares outstanding $ 755 4,890,556 $.15
Effect of dilutive securities - stock options 17,154
---------
Diluted EPS - Net earnings and weighted
average common shares outstanding and
effect of stock options $ 755 4,907,710 $.15
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number of
Income Shares Per Share
Three months ended June 30, 1998 (Numerator) (Denominator) Amount
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS Net earnings and weighted
average common shares outstanding $ 753 4,826,696 $.16
Effect of dilutive securities - stock options 114,762
-------
Diluted EPS - Net earnings and weighted
average common shares outstanding and
effect of stock options $ 753 4,941,458 $.15
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Number of
Income Shares Per Share
Six months ended June 30, 1999 (Numerator) (Denominator) Amount
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS - Net earnings and weighted
average common shares outstanding $ 1,505 4,885,724 $.31
Effect of dilutive securities - stock options 21,343
------
Diluted EPS - Net earnings and weighted
average common shares outstanding and
effect of stock options $ 1,505 4,907,067 $.31
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Number of
Income Shares Per Share
Six months ended June 30, 1998 (Numerator) (Denominator) Amount
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS - Net earnings and weighted
average common shares outstanding $ 1,584 4,812,438 $.33
Effect of dilutive securities - stock options 98,635
---------
Diluted EPS - Net earnings and weighted
average common shares outstanding and
effect of stock options $ 1,584 4,911,073 $.32
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 4 - SEGMENT INFORMATION
- ----------------------------
The Company's reportable segments are strategic businesses that offer different
products and services. Presently, the Company has two reportable segments,
specialty products and encapsulated products.
7
<PAGE>
<TABLE>
<CAPTION>
Business Segment Net Revenues:
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Specialty Products $ 5,003 $ 5,165 $ 9,839 $ 10,081
Encapsulated Products 2,267 2,055 4,477 4,872
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 7,270 $ 7,220 $ 14,316 $ 14,953
- ------------------------------------------------------------------------------------------------------------------------------------
Business Segment Profit (Loss):
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Specialty Products $ 1,436 $ 1,433 $ 2,734 $ 2,458
Encapsulated Products (234) (234) (326) 52
Interest expense and other income (expense) (27) (16) (70) (57)
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes $ 1,175 $ 1,183 $ 2,338 $ 2,453
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 5 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the six months ended June 30, 1999 and 1998 for income taxes
and interest is as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Income taxes $ 811 $ 925
Interest $ 102 $ 54
- ------------------------------------------------------------------------
</TABLE>
NOTE 6 - COMMON STOCK
In June 1999, the board of directors authorized the repurchase of up to
1,000,000 shares of the Company's outstanding common stock over a two-year
period commencing July 2, 1999. As of June 30, 1999, no shares were repurchased
under the program.
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Report contains forward-looking statements, within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended, which
reflect the Company's expectation or belief concerning future events that
involve risks and uncertainties. The actions and performance of the Company
could differ materially from what is contemplated by the forward-looking
statements contained in this Report. Factors which might cause differences from
the forward-looking statements include those referred to or identified in Item 1
of the Company's Annual Report on Form 10-K for the year ended December 31, 1998
and other factors which may be identified elsewhere in this Report. Reference
should be made to such factors and all forward-looking statements are qualified
in their entirety by the above cautionary statements.
Balchem Corporation is engaged in the development, manufacture
and marketing of specialty performance ingredients for the food, feed and
medical sterilization industries. The Company operates in two business segments,
the micro-encapsulation of performance ingredients (the "encapsulated products"
segment) and the repackaging and marketing of high quality specialty gases (the
"specialty products" segment).
(All dollar amounts in thousands)
Results of Operations:
Three months ended June 30, 1999 as compared with three months ended June 30,
1998
Net sales for the three months ended June 30, 1999 were $7,270 as
compared to $7,220 for the three months ended June 30, 1998, an increase of $50
or 1%. Net sales for the specialty products segment were $5,003 for the three
months ended June 30, 1999 as compared to $5,165 for the three months ended June
30, 1998, a decrease of $162 or 3%. This decline was attributable primarily to a
decrease in volumes sold of the Company's propylene oxide product. Net sales for
the encapsulated products segment were $2,267 for the three months ended June
30, 1999 as compared to $2,055 for the three months ended June 30, 1998 an
increase of $212 or 10%. This increase was primarily the result of increased
sales in the domestic food markets.
Cost of sales as a percent of sales for the three months ended
June 30, 1999 as compared to the three months ended June 30, 1998 varied
slightly. Margins improved in the encapsulated products division, a result of
the mix of products sold during the three months ended June 30, 1999. Margins
for the specialty products segment were negatively affected by approximately
$149 by additional amortization expense associated with the early purchase price
buy-out option under the agreement pertaining to the 1994 acquisition by the
specialty products segment as more fully described in Liquidity and Capital
Resources below.
Operating expenses for the three months ended June 30, 1999
increased to $1,738 from $1,708 for the three months ended June 30, 1998, an
increase of $30 or 2%. The increase in operating expenses was primarily the
result of increased payroll expense in the area of applications research and
development in the encapsulated products segment and increased R&D
<PAGE>
consulting expenses for the animal nutrition project. These increases were
partially offset by lower costs in the selling, general and administrative
areas, a result of the ongoing cost containment efforts implemented by
management.
Income from operations for the three months ended June 30, 1999
was $1,202 as compared to $1,199 for the three months ended June 30, 1998.
Income from operations for the specialty products segment for the three months
ended June 30, 1999 was $1,436 as compared to $1,433 for the three months ended
June 30, 1998. The modest increase in income from operations despite lower sales
for the quarter was the direct result of the ongoing cost containment efforts in
the selling, general and administrative areas implemented by management. Income
(loss) from operations for the encapsulated products segment was a $234 loss for
each of the three months ended June 30, 1999 and 1998. During the three months
ended June 30, 1999 and the three months ended June 30, 1998, the Company spent
$360 and $240, respectively, on Company-sponsored research and development
programs substantially all of which pertained to the Company's encapsulated
products segment. In particular, the Company continues to incur considerable
development expenses in the gathering of data for its encapsulated choline
chloride product for animal nutrition from university studies, commercial field
trials and veterinarians, to accelerate the marketing effort for this product.
Net earnings were $755 for the three months ended
June 30, 1999 as compared to $753 for the three months ended June 30, 1998. Net
interest expense for the three months ended June 30, 1999 totaled $30 as
compared to $17 for the three months ended June 30, 1998. The increase in
interest expense was the result of a higher average debt balance for the three
months ended June 30, 1999 due to the exercise of the early purchase price
buy-out option under the agreement pertaining to the 1994 acquisition by the
specialty products segment as more fully described in Liquidity and Capital
Resources below.
Six months ended June 30, 1999 as compared with six months ended June 30, 1998
Net sales for the six months ended June 30, 1999 were $14,316 as
compared to $14,953 for the six months ended June 30, 1998, a decrease of $637
or 4%. Net sales for the specialty products segment were $9,839 for the six
months ended June 30, 1999 as compared to $10,081 for the six months ended June
30, 1998, a decrease of $242 or 2%. This decline was attributable primarily to a
decrease in volumes sold of the Company's ethylene oxide and methyl chloride
products. Net sales for the encapsulated products segment were $4,477 for the
six months ended June 30, 1999 as compared to $4,872 for the six months ended
June 30, 1998 a decrease of $395 or 8%. This decrease was primarily the result
of decreased sales in the international food market and was partially offset by
increased sales in the domestic food markets.
Cost of sales as a percent of sales for the six months ended June
30, 1999 as compared to the six months ended June 30, 1998 increased 0.5%.
Margins in the encapsulated products division declined slightly for the six
months ended June 30, 1999 as compared to June 30, 1998, a result of lower
volumes sold and produced. Margins for the specialty products segment were
maintained while absorbing additional amortization expense of approximately $302
associated
<PAGE>
with the early purchase price buy-out option under the agreement pertaining to
the 1994 acquisition by the specialty products segment as more fully described
in Liquidity and Capital Resources below.
Operating expenses for the six months ended June 30, 1999
decreased to $3,372 from $3,611 for the six months ended June 30, 1998, a
decrease of $239 or 7%. The decrease in operating expenses was primarily the
result of a decrease in consulting fees in the specialty products segment and
other payroll related expenses. These decreases were partially offset by
increased payroll expense in the area of applications research and development
and increased R&D consulting expenses in the encapsulated products segment.
Income from operations for the six months ended June 30, 1999 was
$2,408 as compared to $2,510 for the six months ended June 30, 1998. Income from
operations for the specialty products segment for the six months ended June 30,
1999 was $2,734 as compared to $2,458 for the six months ended June 30, 1998.
The increase in income from operations despite lower sales for the six months
was the direct result of the ongoing cost containment efforts in the selling,
general and administrative areas implemented by management. Income (loss) from
operations for the encapsulated products segment for the six months ended June
30, 1999 was a $326 loss as compared to earnings of $52 for the six months ended
June 30, 1998. During the six months ended June 30, 1999 and the six months
ended June 30, 1998, the Company spent $649 and $524, respectively, on
Company-sponsored research and development programs substantially all of which
pertained to the Company's encapsulated products segment. In particular, the
Company continues to incur considerable development expenses in the gathering of
data for its encapsulated choline chloride product for animal nutrition from
university studies, commercial field trials and veterinarians, to accelerate the
marketing effort for this product.
Net earnings were $1,505 for the six months ended June 30, 1999
as compared to $1,584 for the six months ended June 30, 1998. Net interest
expense for the six months ended June 30, 1999 totaled $73 as compared to $38
for the six months ended June 30, 1998. The increase in interest expense was the
result of a higher average debt balance for the six months ended June 30, 1999
due to the exercise of the early purchase price buy-out option under the
agreement pertaining to the 1994 acquisition by the specialty products segment
as more fully described in Liquidity and Capital Resources below.
Liquidity and Capital Resources
Cash flow from operating activities provided approximately $2,518
for the six months ended June 30, 1999 as compared to $1,458 for the six months
ended June 30, 1998. Improvements in cash flow for this period of time were due
primarily to reductions in inventory and accounts receivable balances.
<PAGE>
Capital expenditures were $249 for the six months ended June 30,
1999. Capital expenditures are projected to be approximately $700 for all of
calendar year 1999.
In June 1999, the board of directors authorized the repurchase of
up to 1,000,000 shares of the Company's outstanding common stock over a two-year
period commencing July 2, 1999. As of June 30, 1999, no shares were repurchased
under the program. The corporation intends to acquire shares from time to time
at prevailing market prices, at a rate consistent with the combination of
corporate cash flow and market conditions.
On June 16, 1994, the Company purchased certain tangible and
intangible assets for one of its packaged specialty ingredients for $1,500 in
cash. Under the agreement, the Company was also required to pay contingent
amounts to compensate the seller for the purchase of the seller's customer list
in accordance with a formula based on profits derived from sales of the
specialty packaged product. On June 25, 1998, the Company elected to exercise
the early payment option under the agreement resulting in a final Company
payment of $3,700 to the seller. The Company has no further purchase price
obligation under the agreement. The Company capitalized approximately $3,982 in
connection with this acquisition in 1998.
In connection with the exercise of the early payment option
described above, the Company borrowed an additional $3,000 during 1998.
Long-term debt, including the current portion, totaled $1,750 at June 30, 1999.
The Company knows of no current or pending demands on or
commitments for its liquid assets that will materially affect its liquidity. The
Company currently has approval for a $2,000 line of credit from its principal
bank all of which was available at June 30, 1999.
Year 2000 Issue
The Company has conducted a comprehensive review of its
operations to identify those systems that could be affected by the "Year 2000"
issue. The review covered information systems, mainframe and personal computers,
the Company's product research and development facilities and its manufacturing
operations. The Year 2000 issue is the general term used to describe various
problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery, as a result of
computer programs being written using two digits rather than four to define the
applicable year. Any of the Company's computer programs or any hardware that has
date-sensitive software or embedded chips may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, production difficulties, or an inability to process transactions, send
invoices, or engage in similar normal business activities.
Management presently believes that the Company has substantially
completed its Year 2000 planning for its internal systems and facilities
utilizing both internal and external resources. The Company has implemented a
new computer network throughout the organization and is
<PAGE>
currently implementing a Year 2000 compliant version of its core business
software. The Company has conducted Year 2000 testing on the majority of
applications identified during its planning phase. Testing of the remaining
systems should be completed by the end of the third quarter of 1999. The
Company's information systems include sales, production, administrative and
financial applications. In the event one of these systems was to fail, the
Company's ability to capture, schedule and fulfill customer demands might be
impaired.
The cost of the Company's Year 2000 project is expected to be
less than $100. Approximately $75 of this amount was incurred through June 30,
1999. The remainder of the estimated cost of the project is expected to be
incurred throughout 1999. The foregoing costs do not include Company internal
costs, which are principally the payroll costs for those employees working on
Year 2000 related matters. Such employees are otherwise full-time employees of
the Company who have not been hired specifically for Year 2000 related matters
and accordingly, such costs have not been tracked. Costs of the Year 2000
project have been expensed as incurred.
The Company is currently reviewing its external relationships to
address potential Year 2000 issues arising from relationships with significant
suppliers, service providers and customers. The Company has mailed Year 2000
questionnaires to significant suppliers and service providers and is reviewing
responses to these questionnaires. Based on the responses received to date from
the suppliers and service providers, the Company does not anticipate any
material disruption to its operations as a result of year 2000 compliance
failure. The Company has also contacted several significant customers regarding
such customers' readiness. All such customers have responded that they do not
anticipate any material disruption to their operations as a result of year 2000
compliance failure.
To the extent practicable, contingency plans will be put in place
during 1999 in the event that the Company determines that it is at significant
risk in regard to suppliers, customers or its own internal hardware and
software. Contingency plans may include, but will not be limited to, stockpiling
raw materials, increasing finished goods inventory levels, consideration of
alternative sources of supply, customer communication plans, manually performing
certain functions and plant and business response plans.
In general, the Company's plans are intended to provide a means
of managing risk, but cannot eliminate the potential for disruption due to third
party failure. The Company believes that due to the widespread nature of the
potential Year 2000 issues, its contingency planning is an ongoing process,
which will require further consideration, as the Company obtains additional
information. Although not currently anticipated, the Company believes that the
most reasonably likely worst case scenario resulting from Year 2000 problems
would be a slowdown or temporary cessation of manufacturing operations at one or
both of the Company's facilities due to one or more of the Company's specialty
product vendors' inability to supply material to the Company in a timely manner
and/or the unavailability of regularly used transportation sources for both
incoming and outgoing shipments of the Company's raw materials and finished
products. Manufacturing and shipping operations could also be adversely impacted
by a disruption in utility services. The Company has specific plans to have
increased quantities of raw material inventories for its specialty products
segment on hand at year-end. The Company has
<PAGE>
not yet developed any other specific contingency plans in the event of a Year
2000 failure caused by a supplier or third party, but would attempt to do so if
a specific problem is identified through the program described above. In some
cases, particularly with respect to its utility vendors, alternative suppliers
may not be available and effective contingency plans may not be feasible.
The failure to correct a material Year 2000 problem could, of
course, result in an interruption in, or failure of, certain normal business
activities or operations. Such failures could, and the scenario described in the
preceding paragraph would, materially and adversely affect the Company. Due to
the general uncertainty inherent in the Year 2000 problem, resulting largely
from the uncertainty of the Year 2000 readiness of the Company's suppliers,
other third-party providers and customers, the Company is unable to determine at
this time whether the consequences of Year 2000 failures will have a material
adverse impact on the Company.
Impact of Recent Accounting Standards
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, as amended, "Accounting for Derivative Instruments and
Hedging Activities." It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. This statement is now effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. Adoption of this
statement is not expected to have a material effect on the Company's financial
position or results of operations in the year of adoption.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
In the normal course of operations, the Company is exposed to
market risks arising from adverse changes in interest rates. Market risk is
defined for these purposes as the potential change in the fair value of debt
instruments resulting from an adverse movement in interest rates. As of June 30,
1999, the Company's only borrowings were under a bank term loan, which bears
interest at LIBOR plus 1%. A 100 basis point increase in interest rates, applied
to the Company's borrowings at June 30, 1999, would result in an increase in
annual interest expense and a corresponding reduction in cash flow of
approximately $18. The Company's short-term working capital borrowings have
historically borne interest based on the prime rate. The Company believes that
its exposure to market risk relating to interest rate risk is not material.
The Company has no derivative financial instruments or derivative
commodity instruments, nor does the Company generally have any financial
instruments entered into for trading or hedging purposes. Foreign sales are
generally billed in U.S. dollars. The Company believes that its business
operations are not exposed in any material respect to market risk relating to
foreign currency exchange risk or commodity price risk.
<PAGE>
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
An annual meeting of stockholders was held on June 25, 1999. The
following directors were re-elected to serve until the annual meeting of
stockholders in 2002 and until the election and qualification of their
respective successors:
<TABLE>
<CAPTION>
Director For Withheld
<S> <C> <C>
John E. Beebe 4,287,357 244,866
Francis X. McDermott 4,291,783 240,440
Leonard J. Zweifler 4,291,433 240,790
</TABLE>
The stockholders of the Company also voted to approve the 1999 Stock Plan in
accordance with the following vote:
<TABLE>
<CAPTION>
For Against Abstain Non-Vote
<S> <C> <C> <C>
2,639,182 257,911 45,336 1,589,794
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
27 Financial Data Schedule.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the
quarter ended June 30, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly 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 and
Principal Financial Officer
Date: August 6, 1999
--------------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,392
<SECURITIES> 0
<RECEIVABLES> 3,198
<ALLOWANCES> 0
<INVENTORY> 2,652
<CURRENT-ASSETS> 7,915
<PP&E> 14,388
<DEPRECIATION> 6,502
<TOTAL-ASSETS> 21,422
<CURRENT-LIABILITIES> 2,186
<BONDS> 0
0
0
<COMMON> 326
<OTHER-SE> 17,050
<TOTAL-LIABILITY-AND-EQUITY> 21,422
<SALES> 14,316
<TOTAL-REVENUES> 14,316
<CGS> 8,536
<TOTAL-COSTS> 9,152
<OTHER-EXPENSES> 70
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,338
<INCOME-TAX> 833
<INCOME-CONTINUING> 1,505
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,505
<EPS-BASIC> 0.31
<EPS-DILUTED> 0.31
</TABLE>
