UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 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 Identification No.)
incorporation or organization)
P.O. Box 175, Slate Hill, New York 10973
---------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (914)355-5300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par value $.06-2/3 American Stock Exchange
- -------------------------------- -----------------------
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by 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 such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 1, 2000 was approximately $39,922,785.*
<PAGE>
* For purposes of this calculation, shares of the registrant held by
directors and officers of the registrant and under the registrant's
401(k)/profit sharing plan have been excluded.
On March 1, 2000 there were 4,770,294 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III: Portions of the registrant's proxy statement for its 2000 annual
meeting of stockholders are incorporated by reference in this report.
2
<PAGE>
Part I
Item 1. Business
General:
Balchem Corporation, incorporated in the State of Maryland in 1967,
is engaged in the development, manufacture and marketing of specialty
performance ingredients for the food, feed and medical sterilization industries.
The Company has a currently inactive Canadian subsidiary, Balchem, Ltd.
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). The Company sells its products through its own
sales force, independent distributors and sales agents. Financial information
concerning the Company's business and business segments appears in the
Consolidated Financial Statements included under Item 8 herein, which
information is incorporated herein by reference.
Encapsulated Products
---------------------
The encapsulated products segment encapsulates performance
ingredients for use throughout the food and animal health industries to enhance
nutritional fortification, processing, mixing, packaging applications and
shelf-life improvement. Major product applications are baked goods, refrigerated
and frozen dough systems, processed meats, seasoning blends and confections.
Microencapsulated choline is marketed to the animal health industry offering key
nutrients to ruminant animals.
This segment also includes a line of endothermic blowing and
nucleating agents that are marketed to the foamed plastics industry exclusively
through a marketing partner.
Specialty Products
------------------
The specialty products segment consists of the following specialty
gases: ethylene oxide, blends of ethylene oxide, propylene oxide and methyl
chloride.
Ethylene oxide is used as a chemical sterilant gas, primarily in the
health care industry. It is used to sterilize medical devices ranging from
syringes and catheters to scalpels, gauze, bandages and surgical kits, because
of its versatility in treating hard or soft surfaces, composites, metals, tubing
and different types of plastics without negatively impacting the performance or
appearance of the device being sterilized. The Company's 100% ethylene oxide
product is distributed by the Company in reusable double-walled shipping drums
to assure compliance with safety, quality and environmental standards as
outlined by the U.S. Environmental Protection Agency (the "EPA") and the U.S.
Department of Transportation. The Company's inventory of these specially-built
drums,
3
<PAGE>
along with the Company's two filling facilities, represent a significant capital
investment. Contract sterilizers, medical device manufacturers, medical gas
distributors and hospitals are the Company's principal customers for this
product.
Propylene oxide is used for bacteria reduction in spice treatment
and in the chemical synthesis market. It is also utilized in manufacturing
operations to make paints more durable, for manufacturing specialty starches and
textile coatings. Methyl chloride is used as a raw material in specialty
herbicides, fertilizers and pharmaceuticals, as well as in malt and wine
preservers. Propylene oxide and methyl chloride are sold principally to
customers seeking smaller (as opposed to bulk) quantities whose requirements
include timely delivery and safe handling.
In 1994, the Company purchased certain tangible and intangible
assets for its ethylene oxide business for $1,500,000 in cash and, as detailed
in the purchase agreement, the Company was required to pay additional 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 ingredient. In 1998, the Company elected to exercise the
early payment option under the agreement resulting in the Company making a final
payment of $3,700,000 to the seller. The Company has no further purchase price
obligation under the agreement.
Due to consolidation of customer businesses in the contract
sterilizer industry, the Company has one customer, Griffith Micro Science, Inc.,
which accounted for approximately 15.6% of the Company's net sales in 1999. The
loss of such customer could have a material adverse effect on the Company.
New product status:
- ------------------
In late 1999, the Company's animal nutrition staff launched
Reashure(TM), its encapsulated choline for ruminant animals having successfully
completed university and field trials. Commercial sales are currently targeted
to the dairy industry where Reashure(TM), in a cost-efficient manner, allows
nutrient supplements to pass through the rumen and deliver required levels to
dairy cows during the weeks preceding and following calving, commonly referred
to as the "transition period" of the animal.
The Company has also introduced new products that are being sold
commercially for enhancement of shelf-life and fortification in segments of the
food industry and has several new products for the food market in test
production or test marketing status.
Raw materials:
- -------------
The raw materials utilized by the Company in the manufacture of its
products are generally available from a number of commercial sources. The
Company is not experiencing any current difficulties in procuring such materials
and does not anticipate any such problems.
4
<PAGE>
Patents/Licensing:
- -----------------
The Company currently holds a number of patents and uses certain
tradenames and trademarks. It also uses know-how, trade secrets, formulae and
manufacturing techniques that assist in maintaining the competitive positions of
certain of its products. Formulae and know-how are of particular importance in
the manufacture of a number of the Company's products. The Company believes that
certain of its patents, in the aggregate, are advantageous to its business.
However, it is believed that no single patent or related group of patents is
material to the Company as a whole and, accordingly, that the expiration or
termination thereof would not materially affect its business. The Company
believes that its sales and competitive position are dependent primarily upon
the quality of its products, its technical sales efforts and market conditions,
rather than on any patent protection.
As discussed below under "Environmental Matters" the Company's
ability to sell ethylene oxide is dependent upon maintaining registration with
the EPA as a medical device sterilant and spice fumigant.
Seasonality:
- -----------
In general, the business of the Company's segments is not seasonal
to any material extent.
Backlog:
- -------
At December 31, 1999, the Company had a total backlog of $798,000
(including $420,000 for the encapsulated products segment and $378,000 for the
specialty products segment) as compared to a total backlog of $718,000 at
December 31, 1998 (including $304,000 for the encapsulated products segment and
$414,000 for the specialty products segment). It has been the Company's policy
and practice to maintain an inventory of finished products or component
materials for its segments to enable it to ship products within a short time
after receipt of a product order.
5
<PAGE>
Competition:
- -----------
The Company's competitors include many large and small companies,
some of which have greater financial, research and development, production and
other resources than the Company. Competition in the encapsulation markets
served by the Company is based primarily on performance, customer support,
quality, service and price. The development of new and improved products is
important to the Company's success. This competitive environment requires
substantial investments in product and manufacturing process research and
improvement. In addition, the winning and retention of customer acceptance of
the Company's encapsulated products involve substantial expenditures for
applications testing and sales efforts. The Company also engages various
universities to assist in research and provide independent third-party data. In
the specialty products business, the Company faces competition from alternative
sterilizing technologies and products. Companies offering such competitive
alternatives tend to be larger in size with greater financial resources than the
Company.
Research & Development:
- ----------------------
During the years ended December 31, 1999, 1998 and 1997, the Company
incurred research and development expense of approximately $1.3 million, $1.0
million and $1.1 million, respectively, on Company-sponsored research and
development for new products and improvements to existing products and
manufacturing processes, principally in the encapsulated products segment.
During the year ended December 31, 1999, an average of 10 employees were devoted
full time to research and development activities. The Company has historically
funded its R&D programs with funds available from current operations with the
intent of recovering those costs from profits derived from future sales of
products resulting from, or enhanced by, the research and development effort.
The Company continually reviews its product development activities
in an effort to allocate its resources to those product candidates that the
Company believes have the greatest commercial potential. Factors considered by
the Company in determining the products to pursue include projected markets and
needs, status of its proprietary rights, technical feasibility, expected and
known product attributes, and estimated costs to bring the product to market.
Environmental Matters:
- ---------------------
The Federal Insecticide, Fungicide and Rodenticide Act, as amended,
a health and safety statute, requires that certain products within the Company's
specialty products segment must be registered with the EPA. In order to obtain a
registration, an applicant typically must demonstrate through extensive test
data that its product will not cause unreasonable adverse effects on the
environment. The Company holds an EPA registration to permit it to sell packaged
100% ethylene oxide as a medical device
6
<PAGE>
sterilant and spice fumigant. The Company is in the process of re-registering
this product use. The re-registration requirement is a result of a congressional
enactment during 1988 requiring the re-registration of this product and all
products that are used as pesticides. The Company, in conjunction with one other
company, has conducted the required testing under the direction of the EPA.
Testing has concluded and the EPA has indicated that it now anticipates
completing its review of the re-registration process for this product in 2001 as
opposed to 2000 as previously reported. The Company hopes to recover the cost of
re-registration in the selling price of the sterilant.
The Company's management continues to believe it will be successful
in obtaining re-registration for this product as it has met the EPA's
requirements thus far. Additionally, the product is used as a sterilant with
certain qualities and no known, equally effective substitute. Management
believes absence of availability of this product could not be easily tolerated
by various medical device manufacturers and the health care industry due to the
resultant infection potential if the product were unavailable.
On February 27, 1988, California's Proposition 65 (Safe Drinking
Water and Toxic Enforcement Act of 1986) went into effect. 100% ethylene oxide,
a sterilant/fumigant distributed by the Company, is listed by the State of
California as a carcinogen and reproductive toxin. As a result, the Company is
required to provide a prescribed 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.
The California Birth Defect Law of 1984 requires the California
Department of Food and Agriculture ("CDFA") to identify chemicals in "widespread
use" for which significant data gaps exist, and requires registrants for those
products to submit the data or pay an assessment to the CDFA to fund independent
development of the data. The CDFA determined that data gaps existed for ethylene
oxide. After initially requesting an exemption, the Company, along with another
registrant, agreed to submit information to close the data gaps. The registrants
have provided requested data, and, to the Company's knowledge, fulfilled the
data submission obligations to the CDFA.
The Company believes it is in compliance in all material respects
with 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. Such compliance includes the maintenance
of required permits under air pollution regulations and with requirements of the
Occupational Safety and Health Administration. The cost of such compliance has
not had a material effect upon the results of operations or financial condition
of the Company. The proceeding referred to in Item 3 below has been
substantially completed.
Employees:
- ---------
As of March 1, 2000, the Company employed approximately 116 persons.
No employees are covered by any collective bargaining agreement.
7
<PAGE>
Certain Factors Affecting Future Operating Results:
- ---------------------------------------------------
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 Company can give no assurances that the expectations
reflected in forward-looking statements will prove correct and various factors
could cause results to differ materially from the Company's expectations.
Certain factors that might cause such a difference include, without limitation;
(1) changes in the laws or regulations affecting the operations of the Company;
(2) changes in the business tactics or strategies of the Company; (3)
acquisition(s) of assets or of new or complementary operations, or divestiture
of any segment of the existing operations of the Company; (4) changing market
forces or contingencies that necessitate, in management's judgment, changes in
plans, strategy or tactics of the Company; and (5) fluctuations in the
investment markets or interest rates, which might materially affect the
operations or financial condition of the Company, as well as the following
matters, and all forward-looking statements are qualified in their entirety by
these cautionary statements:
Competition. The Company faces competition in its markets from a number of large
and small companies, some of which have greater financial, research and
development, production and other resources than the Company. Various of the
Company's products also face competition from products or technologies that may
be used as an alternative therefor. The Company's competitive position is based
principally on performance, quality, customer support, service, breadth of
product line, manufacturing technology and the selling prices of its products.
The Company's competitors can be expected to improve the design and performance
of their products and to introduce new products with competitive price and
performance characteristics. There can be no assurance that the Company will
have sufficient resources to maintain its current competitive position or market
share.
Environmental and Regulatory Matters. Pursuant to applicable environmental and
safety laws and regulations, the Company is required to obtain and maintain
certain governmental permits and approvals, including an EPA registration for
its ethylene oxide sterilant product. Permits and approvals may be subject to
revocation, modification or denial under certain circumstances. While the
Company believes it is in compliance in all material respects with environmental
laws, there can be no assurance that operations or activities of the Company
will not result in administrative or private actions, revocation of required
permits or licenses, or fines, penalties or damages, which could have an adverse
effect on the Company. In addition, the Company cannot predict the extent to
which any legislation or regulation may affect the market for the Company's
products or its cost of doing business.
Raw Material Price Volatility. The principal raw materials used by the Company
in the manufacture of its products can be subject to price fluctuations. While
the selling prices
8
<PAGE>
of the Company's products tend to increase or decrease over time with the cost
of raw materials, such changes may not occur simultaneously or to the same
degree. There can be no assurance that the Company will be able to pass
increases in raw material costs through to its customers in the form of price
increases. Increases in the price of raw materials, if not offset by product
price increases, could have an adverse impact upon the profitability of the
Company.
Reliance on Continued Operation and Sufficiency of Facilities and on Unpatented
Trade Secrets. The Company's revenues are dependent on the continued operation
of its manufacturing, packaging and processing facilities. The operation of the
Company's facilities involves risks, including the breakdown, failure or
substandard performance of equipment, power outages, the improper installation
or operation of equipment, explosions, fires, natural disasters and the need to
comply with environmental and other directives of governmental agencies. The
occurrence of material operational problems, including but not limited to the
above events, may adversely affect the profitability of the Company during the
period of such operational difficulties. The Company's competitive position is
also dependent upon unpatented trade secrets. There can be no assurance that
others will not independently develop substantially equivalent proprietary
information.
Risks Associated with Foreign Sales. For the year ended December 31, 1999,
approximately 9% of the Company's net sales consisted of sales outside the
United States, predominately to Europe and South America. Changes in the
relative values of currencies take place from time to time and could in the
future adversely affect prices for the Company's products. In addition,
international sales are subject to other inherent risks, including possible
labor unrest, political instability and export duties and quotas. There can be
no assurance that these factors will not have a material adverse impact on the
Company's ability to increase or maintain its international sales.
Dependence on Key Personnel. The Company's operations are dependent on the
continued efforts of its senior executives. The loss of the services of any of
them could have a material adverse effect on the Company.
Item 2. Properties
The executive, sales, marketing, research & development offices and
manufacturing facilities of the Company's encapsulated products segment and a
drumming facility for the Company's ethylene oxide business, are presently
housed in four buildings located, together with a 14,900 square foot steel
warehouse, in Slate Hill, New York. The Company owns a total of 15-1/2 acres of
land on several parcels in such community.
The Company also owns a facility located on an approximately 24 acre
parcel of land in Green Pond, South Carolina. The Company sold the balance of
its formerly 81 acre site in Green Pond in 1997. The facility now consists of a
drumming facility, a maintenance building and an office building. The Company
uses the facility as a
9
<PAGE>
terminus, warehouse and drum filling station for its products in its specialty
products segment.
Item 3. Legal Proceedings
In 1982 the Company discovered and thereafter removed a number of
buried drums containing unidentified waste material from the Company's site in
Slate Hill, New York. The Company thereafter entered into a Consent Decree to
evaluate the drum site with the New York Department of Environmental
Conservation ("NYDEC") and performed a Remedial Investigation/Feasibility Study
that was approved by NYDEC in February 1994. Based on NYDEC requirements, the
Company cleaned the area and removed additional soil from the drum burial site.
The cost for this clean-up and the related reports was approximately $164,000.
Clean-up was completed in 1996, but NYDEC required the Company to monitor the
site through 1999. The Company is currently involved in discussions with NYDEC
to evaluate test results and determine what, if any, additional actions will be
required on the part of the Company to close out the remediation of this site.
Additional actions, if any, would likely require the Company to continue
monitoring the site. The cost of such monitoring has historically been less than
$10,000 per year.
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 1999.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
(a) Market Information.
The Company's common stock is traded on the American 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 1999 and
1998, for each quarterly period during the past two years, adjusted for the May
1998 three-for-two stock split (effected by means of a stock dividend), were as
follows:
- --------------------------------------------------------------------------------
Quarterly Period High Low
- --------------------------------------------------------------------------------
Ended March 31, 1999 $ 7.75 $ 5.06
Ended June 30, 1999 6.50 5.00
Ended September 30, 1999 7.25 5.69
Ended December 31, 1999 8.75 5.88
- --------------------------------------------------------------------------------
10
<PAGE>
- --------------------------------------------------------------------------------
Quarterly Period High Low
- --------------------------------------------------------------------------------
Ended March 31, 1998 $ 11.67 $ 9.25
Ended June 30, 1998 15.88 11.25
Ended September 30, 1998 13.38 8.88
Ended December 31, 1998 8.63 4.94
- --------------------------------------------------------------------------------
(b) Record Holders.
As of March 1, 2000, the approximate number of holders of record of
the Company's common stock was as follows:
Title of Class Number of Record Holders
-------------- ------------------------
Common Stock, $.06-2/3 par value 283*
*An unknown number of stockholders hold stock in street name. The total number
of beneficial owners of the Company's common stock is estimated to be
approximately 1,380.
(c) Dividends.
The Company declared a dividend of $0.05 per share on the common
stock during its fiscal year ended December 31, 1999.
11
<PAGE>
Item 6. Selected Financial Data
Earnings per share and dividend amounts have been adjusted for the May 1998
three-for-two stock split (effected by means of a stock dividend).
<TABLE>
<CAPTION>
(In thousands, except per share data)
- --------------------------------------------------------------------------------------
Year ended December 31, 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
- ----------------------------
Net sales $29,682 $28,721 $28,619 $26,371 $24,733
Earnings before income
taxes 4,905 4,628 4,227 2,917 2,428
Income taxes 1,811 1,673 1,456 990 843
Net earnings 3,094 2,955 2,771 1,927 1,585
Basic earnings per
common share .64 .61 .58 .41 .34
Diluted earnings per
common share .63 .60 .57 .40 .33
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
December 31, 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
- ------------------
Total assets $22,030 $22,648 $17,593 $15,140 $14,332
Long-term debt 1,250 3,750 1,500 2,100 3,082
Other long-term
obligations 606 841 890 794 835
Total stockholders' equity 17,939 15,775 12,336 9,387 7,447
Dividends per share $ .05 $ .033 $ .033 $ .030 $ .023
- --------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
Item 7. 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 that might cause differences from the forward-looking
statements include those referred to or identified in Item 1 above. Reference
should be made to such factors and all forward-looking statements are qualified
in their entirety by the above cautionary statements.
(All dollar amounts in thousands)
Results of Operations:
Fiscal Year 1999 compared to Fiscal Year 1998
Net sales for 1999 were $29,682 as compared to $28,721 for 1998, an
increase of $961 or 3%. Net sales for the specialty products segment were
$19,843 for 1999 as compared to $19,434 for 1998, an increase of $409 or 2%.
This increase was attributable primarily to an increase in volumes sold of the
Company's ethylene oxide product partially offset by a decline in volumes sold
of the Company's methyl chloride product. Net sales for the encapsulated
products segment were $9,839 for 1999 as compared to $9,287 for 1998 an increase
of $552 or 6%. This increase was primarily the result of increased sales in the
domestic food markets partially offset by decreased sales in the international
food and animal nutrition markets. With successful university and field trials
conducted in 1999, targeted at the dairy industry and in particular the
transition period of the dairy cow, the Company launched Reashure(TM), its
encapsulated choline for animal feed in the fourth quarter of 1999.
Cost of sales as a percent of sales for 1999 as compared to 1998
decreased one percentage point. Margins for the specialty products segment were
affected favorably by increased volumes sold of ethylene oxide and improved
production efficiencies of blended ethylene oxide products, a result of the
Company's decision to blend internally rather than use third party blenders.
These margin improvements were partially offset by declines in volumes produced
and sold of the Company's methyl chloride product and 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. Margins in the
encapsulated products division declined two percentage points in 1999 as
compared to 1998, principally as a result of the mix of products sold into the
international food market.
13
<PAGE>
Operating expenses for 1999 increased to $7,111 from $6,616 for
1998, an increase of $495 or 7%. The increase in operating expenses was
primarily the result of increased payroll expense in the area of selling and
applications research and development, increased advertising costs and increased
R&D consulting expenses in the encapsulated products segment. These increases
were partially offset by a decrease in consulting fees in the specialty products
segment and other payroll related expenses. During 1999 and 1998, the Company
spent $1,264 and $1,017, respectively, on research and development programs
substantially all of which pertained to the Company's encapsulated products
segment for both food and animal feed applications. The Company incurred
considerable development expenses in the gathering of data for Reashure(TM) from
university and veterinarian studies as well as field trials to accelerate the
marketing effort for this product.
Income from operations for 1999 was $5,013 as compared to $4,807 for
1998. Income from operations for the specialty products segment for 1999 was
$5,613 as compared to $4,631 for 1998. Loss from operations for the encapsulated
products segment for 1999 was $600, a result of lower margins and increased
research and development expenses as described above, as compared to income of
$176 for 1998.
Net interest expense for 1999 totaled $111 as compared to $164 for
1998. Long-term debt was reduced to $1,250 in 1999 from $3,750 in 1998, a
reduction of $2,500 resulting in lower interest expense.
The Company's effective income tax rate increased in 1999 as
compared to 1998 due principally to the effects of the Company's utilization of
net operating loss carry-forwards for state income tax purposes in 1998.
Net earnings were $3,094 for 1999 as compared to $2,955 for 1998.
Fiscal Year 1998 compared to Fiscal Year 1997
Net sales for 1998 were $28,721 as compared to $28,619 for 1997, an
increase of $102. Net sales for the specialty products segment were $19,434 in
1998 as compared to $19,650 in 1997, a decrease of 1% or $216. This decline was
attributable primarily to a decrease in volumes sold of the Company's propylene
oxide product to a customer that converted to purchasing the product in a bulk
format not offered by the Company. Net sales for the encapsulated products
segment increased 4% or $318. This increase was primarily the result of
increased volumes sold of products in the domestic and international food
markets and increased volumes sold in the animal nutrition markets. These
increases were partially offset by declines in sales to the aquaculture industry
due to Asian economic issues.
Cost of sales increased 2 percentage points as a percent of sales
for 1998 as compared to 1997. The increase was primarily attributable to higher
costs related to the
14
<PAGE>
mix of products sold during 1998 in the encapsulated products segment and
additional amortization expense associated with the early buy-out election
relating to the specialty products business as more fully described in Liquidity
and Capital Resources below.
Operating expenses for 1998 decreased to $6,616 from $7,564 for
1997, a decrease of $948 or 13%. The decrease in operating expenses was
primarily the result of the encapsulated products segment having established a
reserve in 1997 of approximately $187 for an Asian receivable, which was
collected in full in 1998. In addition, the Company incurred other charges in
1997 associated with a corporate reorganization totaling $302. Operating
expenses without these unusual items would have been $6,803 and $7,075 in 1998
and 1997, respectively, a decrease in 1998 of $272 or 4%. This decrease is
predominantly the result of a decrease in consulting fees in the specialty
products segment and salary reduction, a result of the 1997 internal
reorganization. These decreases were partially offset by an increase in costs
associated with the Company's medical plan and increases in recruiting and
relocation expenses for both of the Company's business segments.
Pre-tax profit for the specialty products segment for 1998 was
$4,631 as compared to $4,234 for 1997. The increase in pre-tax profit was the
direct result of the ongoing cost containment efforts in the selling and general
and administrative areas implemented by management in 1997. Pre-tax profit for
the encapsulated products segment for 1998 was $176 as compared to $116 for
1997. During the years ended December 31, 1998 and 1997, the Company spent
$1,017 and $1,065, respectively, on Company-sponsored research and development
programs substantially all of which pertained to the Company's encapsulated
products segment for both food and animal feed applications.
Income from operations for 1998 was $4,807 as compared to $4,350 for
1997, an increase of 11% or $457.
Net interest expense for 1998 totaled $164 as compared to $136 for
1997. The increase in interest expense was the result of a higher average debt
balance for 1998 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.
Net earnings were $2,955 for 1998 as compared to $2,771 for 1997.
Liquidity and Capital Resources
Cash flow from operating activities provided approximately $4,682
for 1999 as compared to $3,893 for 1998. Improvements in cash flow for this
period of time were due primarily to increased earnings before depreciation and
amortization, reductions in inventory balances and a smaller decrease in current
liabilities partially offset by a larger increase in accounts receivable.
15
<PAGE>
Capital expenditures were $602 for 1999. Capital expenditures are
projected to be approximately $840 for 2000.
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 December 31, 1999, 128,400 shares were
repurchased under the program at a total cost of $943. The Company intends to
acquire shares from time to time at prevailing market prices if and to the
extent it deems it advisable to do so based, among other factors, on its
assessment 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 products 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 packaged
specialty 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. In 1998, the Company capitalized approximately $3,982 in
connection with this acquisition.
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 $1,250 at December 31,
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.
There were no outstanding borrowings under this line of credit on December 31,
1999 or 1998.
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 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 7A. Quantitative and Qualitative Disclosures About Market Risk
(All dollar amounts in thousands)
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
16
<PAGE>
the potential change in the fair value of debt instruments resulting from an
adverse movement in interest rates. As of December 31, 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 December 31, 1999, would result in an increase in annual interest expense and
a corresponding reduction in cash flow of approximately $13. 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.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements and Supplementary Financial Data: Page
Independent Auditors' Report 18
Consolidated Balance Sheets as of
December 31, 1999 and 1998 19
Consolidated Statements of Operations for the
years ended December 31, 1999, 1998 and 1997 21
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1999, 1998 and 1997 22
Consolidated Statements of Cash Flows
for the years ended December 31, 1999, 1998 and 1997 23
Notes to Consolidated Financial Statements
for the years ended December 31, 1999, 1998 and 1997 24
17
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Balchem Corporation:
We have audited the accompanying consolidated balance sheets of Balchem
Corporation and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1999. 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 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Balchem Corporation
and subsidiaries as of December 31, 1999 and 1998 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
------------
KPMG LLP
Short Hills, New Jersey
February 4, 2000
<PAGE>
<TABLE>
<CAPTION>
BALCHEM CORPORATION
Consolidated Balance Sheets
December 31, 1999 and 1998
(In thousands, except share and per share data)
Assets 1999 1998
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,699 $ 1,348
Trade accounts receivable (note 5) 3,981 3,283
Inventories (notes 2 and 5) 2,748 2,875
Prepaid expenses 501 476
Deferred income taxes (note 6) 188 219
Other current assets -- 198
------- -------
Total current assets 9,117 8,399
------- -------
Property, plant and equipment, net of accumulated depreciation (notes 3 and 5) 7,786 8,103
Intangible assets, net of accumulated amortization (note 4) 5,127 6,139
Other assets -- 7
------- -------
Total assets $22,030 $22,648
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
<TABLE>
<CAPTION>
BALCHEM CORPORATION
Consolidated Balance Sheets
December 31, 1999 and 1998
(In thousands, except share and per share data)
Liabilities and Stockholders' Equity
------------------------------------
1999 1998
-------- --------
<S> <C> <C>
Current liabilities:
Trade accounts payable $ 565 $ 1,058
Accrued compensation and other benefits 829 601
Other accrued expenses 429 420
Dividends payable 245 160
Income taxes payable 131 --
Current portion of long-term debt (note 5) 600 1,200
Current portion of other long-term obligations (note 4) 36 43
-------- --------
Total current liabilities 2,835 3,482
-------- --------
Long-term debt (note 5) 650 2,550
Deferred income taxes (note 6) 381 525
Deferred compensation 108 135
Other long-term obligations (note 4) 117 181
-------- --------
Total liabilities 4,091 6,873
-------- --------
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; 4,903,238 shares issued and 4,781,358 shares outstanding at December 31,
1999 and 4,875,914 shares issued and outstanding at December 31, 1998 327 325
Additional paid-in capital 2,994 2,783
Retained earnings 15,516 12,667
Treasury stock, at cost: 121,880 shares (898) --
-------- --------
Total stockholders' equity 17,939 15,775
-------- --------
Total liabilities and stockholders' equity $ 22,030 $ 22,648
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
BALCHEM CORPORATION
Consolidated Statements of Operations
Years Ended December 31, 1999, 1998 and 1997
(In thousands, except per share data)
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales $ 29,682 $ 28,721 $ 28,619
Cost of sales 17,558 17,298 16,705
-------- -------- --------
Gross margin 12,124 11,423 11,914
Operating expenses:
Selling expenses 3,082 2,584 2,969
Research and development expenses 1,264 1,017 1,065
General and administrative expenses 2,765 3,015 3,530
-------- -------- --------
Total operating expenses 7,111 6,616 7,564
-------- -------- --------
Income from operations 5,013 4,807 4,350
Other expenses (income):
Interest expense - net 111 164 136
Other (income) expense - net (3) 15 (13)
-------- -------- --------
Total other expenses - net 108 179 123
-------- -------- --------
Earnings before income taxes 4,905 4,628 4,227
Income taxes (note 6) 1,811 1,673 1,456
-------- -------- --------
Net earnings $ 3,094 $ 2,955 $ 2,771
======== ======== ========
Basic net earnings per common share (note 8) $ 0.64 $ 0.61 $ 0.58
======== ======== ========
Diluted net earnings per common share (note 8) $ 0.63 $ 0.60 $ 0.57
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
<TABLE>
<CAPTION>
BALCHEM CORPORATION
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1999, 1998 and 1997
(In thousands, except share and per share data)
Additional Total
Common Stock Paid-in Retained Treasury Stock Stockholders'
Shares Amount Capital Earnings Shares Amount Equity
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1997 4,729,545 315 1,811 7,261 -- -- 9,387
Net earnings -- -- -- 2,771 -- -- 2,771
Dividends ($.033 per share) -- -- -- (160) -- -- (160)
Grants of non-employee stock options -- -- 110 -- -- -- 110
Shares issued under employee stock
option plans 63,618 4 224 -- -- -- 228
--------- --------- --------- --------- --------- --------- ---------
Balance - December 31, 1997 4,793,163 319 2,145 9,872 -- -- 12,336
Net earnings -- -- -- 2,955 -- -- 2,955
Dividends ($.033 per share) -- -- -- (160) -- -- (160)
Employee stock option compensation 17,144 1 263 -- -- -- 264
Grants of non-employee stock options -- -- 52 -- -- -- 52
Shares issued under employee stock
option plans 65,607 5 323 -- -- -- 328
--------- --------- --------- --------- --------- --------- ---------
Balance - December 31, 1998 4,875,914 325 2,783 12,667 -- -- 15,775
Net earnings -- -- -- 3,094 -- -- 3,094
Dividends ($.05 per share) -- -- -- (245) -- -- (245)
Treasury shares purchased -- -- -- -- (128,400) (943) (943)
Shares issued under employee benefit --
plans 19,927 2 124 -- 4,420 30 156
Grants of non-employee stock options -- -- 60 -- -- -- 60
Shares issued under employee stock
option plans 7,397 -- 27 -- 2,100 15 42
--------- --------- --------- --------- --------- --------- ---------
Balance - December 31, 1999 4,903,238 327 2,994 15,516 (121,880) (898) 17,939
========= ========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
<TABLE>
<CAPTION>
BALCHEM CORPORATION
Consolidated Statements of Cash Flows
Years Ended December 31, 1999, 1998 and 1997
(In thousands, except per share data)
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,094 $ 2,955 $ 2,771
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,028 1,654 1,126
Grants of non-employee stock options 60 52 110
Shares issued under employee benefit plan 156 264 --
Deferred income tax (benefit) expense (113) 92 (207)
Provision for doubtful accounts -- (187) 187
Loss on sale of equipment -- 19 4
Changes in assets and liabilities:
Accounts receivable (698) (35) (278)
Inventories 127 (368) (645)
Prepaid expenses (25) 5 (159)
Accounts payable and accrued expenses (249) (550) 146
Income taxes payable 329 -- (110)
Deferred compensation payable (27) (8) 49
------- ------- -------
Net cash flows provided by operating activities 4,682 3,893 2,994
------- ------- -------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment -- 15 538
Capital expenditures (602) (1,637) (1,115)
Investments in intangibles and other assets (97) (4,063) (1,243)
------- ------- -------
Net cash flows used in investing activities (699) (5,685) (1,820)
------- ------- -------
Cash flows from financing activities:
Proceeds from long-term debt -- 3,000 --
Principal payments on long-term debt (2,500) (750) (600)
Stock options and warrants exercised 42 328 228
Dividends paid (160) (160) (142)
Treasury stock at cost (943) -- --
Other financing activities (71) (14) (13)
------- ------- -------
Net cash flows (used for) provided by financing activities (3,632) 2,404 (527)
------- ------- -------
Increase in cash and cash equivalents 351 612 647
Cash and cash equivalents beginning of year 1,348 736 89
------- ------- -------
Cash and cash equivalents end of year $ 1,699 $ 1,348 $ 736
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
23
<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
24
<PAGE>
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 6-10 years
Re-registration costs 10 years
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, 1999 and 1998 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.
25
<PAGE>
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 South America.
Stock-based Compensation
- ------------------------
Stock-based compensation for employees 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
non-employees, stock-based compensation is recognized in accordance with
Statement of Financial Accounting Standards ("SFAS") No.123 "Accounting for
Stock-Based Compensation." For disclosure purposes, pro forma net earnings data
included in note 7 are provided in accordance with SFAS No.123 as if the fair
value-based method applied.
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
- ----------------------
Basic net earnings per share is calculated by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
net earnings per share is 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).
NOTE 2-INVENTORIES
- ------------------
Inventories at December 31, 1999 and 1998 consist of the following:
<TABLE>
<CAPTION>
1999 1998
------ ------
- --------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $1,340 $1,025
Finished goods 1,408 1,850
- --------------------------------------------------------------------------------
Total inventories $2,748 $2,875
- --------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
NOTE 3- PROPERTY, PLANT AND EQUIPMENT
- -------------------------------------
Property, plant and equipment at December 31, 1999 and 1998 are summarized as
follows:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Land $ 60 $ 60
Building 4,331 4,321
Equipment 10,350 9,758
- --------------------------------------------------------------------------------
14,741 14,139
Less: Accumulated depreciation 6,955 6,036
- --------------------------------------------------------------------------------
Net property, plant and equipment $ 7,786 $ 8,103
- --------------------------------------------------------------------------------
</TABLE>
NOTE 4- INTANGIBLE ASSETS
Intangible assets at December 31, 1999 and 1998 consist of the following:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Customer lists $6,760 $6,760
Re-registration costs 356 356
Covenants not to compete 295 295
Other 264 167
- --------------------------------------------------------------------------------
7,675 7,578
Less: Accumulated amortization 2,548 1,439
- --------------------------------------------------------------------------------
Net intangible assets $5,127 $6,139
- --------------------------------------------------------------------------------
</TABLE>
In 1994, the Company purchased certain tangible and intangible assets for one of
its packaged specialty products for $1,500 in cash and the Company was required
to pay additional 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 ingredient. In 1998, the Company
elected to exercise the early payment option under the agreement and made a
final payment of $3,700 to the seller in settlement of its remaining purchase
price obligation under the terms of the agreement. Amounts allocated to the
customer list are being amortized over its remaining estimated useful life on a
straight-line basis through 2004.
In 1997, the Company 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, which end in
2002.
<PAGE>
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
27
<PAGE>
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 2001.
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 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 term loan agreements with a bank of $1,250 and
$750 at December 31, 1999 and 1998, respectively. Borrowings at December 31,
1999 fell under a term loan, which matures on January 15, 2004, bears interest
at LIBOR plus 1% (7.0% at December 31, 1999) and is 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. Borrowings at December
31, 1998 included $750 due under a term loan that was paid in full during 1999
and $3,000 due under a short-term agreement with a bank. Borrowings under both
the term loan and the short-term loan agreements had an interest rate of LIBOR
plus 1%. On January 15, 1999, the Company and its lending bank entered into an
amended and restated term loan agreement which replaced the $3,000 short-term
agreement in place at December 31, 1998 with the term loan facility described
above.
As of December 31, 1999, long-term debt matures as follows:
- -------------------------------------------------
2000 $ 600
2001 600
2002 50
- -------------------------------------------------
Total $ 1,250
- -------------------------------------------------
The Company also has approval for a $2,000 short-term line of credit from a
bank. There were no outstanding borrowings under the line of credit on December
31, 1999 or 1998. The approval expires on June 30, 2000. The Company intends to
seek renewal of such approval in 2000.
28
<PAGE>
NOTE 6 - INCOME TAXES
- ---------------------
Income tax expense (benefit) attributable to earnings before income taxes
consists of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 1,598 $ 1,402 $ 1,476
State 326 179 187
Deferred:
Federal (102) 85 (186)
State (11) 7 (21)
- --------------------------------------------------------------------------------
Total income tax provision $ 1,811 $ 1,673 $ 1,456
- --------------------------------------------------------------------------------
</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>
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax at Federal
Statutory rate $ 1,668 $ 1,574 $ 1,437
State income taxes, net of
Federal income tax benefit 208 123 109
Other (65) (24) (90)
- --------------------------------------------------------------------------------
Total income tax provision $ 1,811 $ 1,673 $ 1,456
- --------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1999 and
1998 are as follows:
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Amortization $340 $172
Inventory valuation - uniform capitalization 158 177
Deferred compensation 48 70
Non-employee stock options 99 76
Self insurance 28 24
Other 56 38
- --------------------------------------------------------------------------------
Total deferred tax assets 729 557
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation 922 863
- --------------------------------------------------------------------------------
Total deferred tax liabilities 922 863
- --------------------------------------------------------------------------------
Net deferred tax liability $193 $306
- --------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
There is no valuation allowance for deferred tax assets at December 31, 1999 and
1998. 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.
NOTE 7 - STOCKHOLDERS' EQUITY
- -----------------------------
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. Since inception of its repurchase authorization,
through December 31, 1999, the Company had repurchased 128,400 shares at an
average cost of $7.34 per share.
On May 2, 1998, the Board of Directors of the Company approved a three-for-two
split of the Company's common stock distributed in the form of a stock dividend
to shareholders of record on May 15, 1998. Such distribution was made on June 3,
1998. Accordingly, the stock split was recognized by reclassifying $105, the par
value of the additional shares resulting from the split, from additional paid-in
capital to common stock.
In 1999, the Company adopted the Balchem Corporation 1999 Stock Plan (the "1999
Stock Plan") for officers, directors, directors emeritus and employees of and
consultants to the Company and its subsidiaries and in June 1999, the 1999 Stock
Plan was approved by stockholders. The 1999 Stock Plan is administered by the
Compensation Committee of the Board of Directors of the Company. Under the plan,
options and rights to purchase shares of the Company's common stock are granted
at prices established at the time of grant. Option grants are either fully
exercisable on the date of grant or become exercisable thereafter in such
installments as the Committee may specify. The 1999 Stock Plan reserves an
aggregate of 600,000 shares of common stock for issuance under the Plan. The
1999 Stock Plan replaces the Company's incentive stock option plan (the "ISO
Plan") and its non-qualified stock option plan (the "Non-Qualified Plan"), both
of which expired on June 24, 1999. Unexercised options granted under the ISO
Plan and the Non-Qualified Plan prior to such termination are exercisable in
accordance with their terms. Options granted under the ISO Plan generally become
exercisable 20% after 1 year, 60% after 2 years and 100% after 3 years from the
date of grant, and expire ten years from the date of grant. Options granted
under the Non-Qualified Plan, generally vested on the date of grant, and expire
ten years from the date of grant.
30
<PAGE>
The Company applies APB Opinion No. 25 in accounting for employee stock options
and, accordingly, no compensation cost has been recognized for such stock
options in the financial statements. Had the Company determined compensation
cost based on the fair value at the grant dates for such stock options under
SFAS No. 123, the Company's net earnings would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Earnings
As Reported $ 3,094 $ 2,955 $ 2,771
- --------------------------------------------------------------------------------
Pro forma 2,971 2,805 2,611
Earnings per share
As Reported - Basic $ .64 $ .61 $ .58
- -------------------------------------------------------------------------------
Pro forma - Basic .61 .58 .55
- -------------------------------------------------------------------------------
As Reported - Diluted .63 .60 .57
- -------------------------------------------------------------------------------
Pro forma - Diluted .61 .57 .54
- -------------------------------------------------------------------------------
</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 1999, 1998 and 1997, respectively: dividend yield
of .46%, .40% and .44%; expected volatility of 48%, 46% and 32%; risk-free
interest rates of 6.3%, 4.8% and 6.5%; and expected life of six years for all
years. The weighted average fair values of options granted during the years
1999, 1998 and 1997 were $4.66, $1.81 and $5.19, respectively. Pro forma net
earnings reflects only options granted since January 1, 1995. Therefore, the
full impact of calculating compensation cost for employee 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 periods
and compensation cost for options granted prior to January 1, 1995 has not been
considered.
In accordance with SFAS No.123 a charge to income and corresponding increase to
paid-in capital of approximately $60, $52 and $110 was recorded for options
granted in 1999, 1998 and 1997, 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 1999, 1998
and 1997, respectively: dividend yield of .46%, .40% and .44%; expected
volatility of 48%, 46% and 32%; risk-free interest rates of 6.3%, 4.6% and 6.5%;
and expected lives of three years, six years, and six years. The weighted
average fair values of options granted during the years 1999, 1998 and 1997 were
$2.92, $2.65 and $4.82, respectively.
31
<PAGE>
A summary of stock option plan transactions for 1999, 1998 and 1997 for all
plans is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
# of Weighted Average
---- ----------------
1999 Shares Exercise Price
<S> <C> <C>
Outstanding at beginning of year 363,972 $ 8.09
- ------------------------------------------------------------------------
Granted 89,100 6.79
- ------------------------------------------------------------------------
Exercised (9,497) 4.42
- ------------------------------------------------------------------------
Terminated or expired (16,253) 7.62
- ------------------------------------------------------------------------
Outstanding at end of year 427,322 $ 7.92
- ------------------------------------------------------------------------
Exercisable at end of year 272,252 $ 7.78
- ------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------
# of Weighted Average
---- ----------------
1998 Shares Exercise Price
<S> <C> <C>
- ------------------------------------------------------------------------
Outstanding at beginning of year 325,717 $ 7.09
- ------------------------------------------------------------------------
Granted 119,627 8.81
- ------------------------------------------------------------------------
Exercised (65,607) 4.37
- ------------------------------------------------------------------------
Terminated or expired (15,765) 8.20
- ------------------------------------------------------------------------
Outstanding at end of year 363,972 $ 8.09
- ------------------------------------------------------------------------
Exercisable at end of year 181,247 $ 6.51
- ------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------
# of Weighted Average
---- ----------------
1997 Shares Exercise Price
- ------------------------------------------------------------------------
<S> <C> <C>
Outstanding at beginning of year 250,600 $ 4.15
- ------------------------------------------------------------------------
Granted 143,520 10.61
- ------------------------------------------------------------------------
Exercised (63,618) 3.59
- ------------------------------------------------------------------------
Terminated or expired (4,785) 5.72
- ------------------------------------------------------------------------
Outstanding at end of year 325,717 $ 7.09
- ------------------------------------------------------------------------
Exercisable at end of year 205,216 $ 5.86
- ------------------------------------------------------------------------
</TABLE>
Information related to stock options outstanding under all plans at December 31,
1999 is as follows:
32
<PAGE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------- ----------------------
Weighted
Average Weighted
Remaining Weighted Average
Range of Exercise Shares Contractual Average Number Exercise
Prices Outstanding Life Price Exercisable Price
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
$ 2.45 - $ 5.92 98,377 6.0 years $ 4.40 98,377 $ 4.40
- ------------------------------------------------------------------------------------------------------
6.00 - 9.00 171,950 8.5 years 7.03 61,280 7.33
- ------------------------------------------------------------------------------------------------------
10.75 - 11.77 156,995 8.0 years 11.10 112,595 10.97
- ------------------------------------------------------------------------------------------------------
427,322 7.7 years $ 7.92 272,252 $ 7.78
- ------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 8 - NET 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
1999 (Numerator) (Denominator) Amount
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS - Net earnings and weighted
average common shares outstanding $ 3,094 4,856,782 $ .64
Effect of dilutive securities - stock options 30,049
---------
Diluted EPS - Net earnings and weighted
average common shares outstanding and
effect of stock options $ 3,094 4,886,831 $ .63
- --------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------
Number of
Income Shares Per Share
1998 (Numerator) (Denominator) Amount
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS - Net earnings and weighted
average common shares outstanding $ 2,955 4,841,300 $ .61
Effect of dilutive securities - stock options 69,038
Diluted EPS - Net earnings and weighted
average common shares outstanding and
effect of stock options $ 2,955 4,910,338 $ .60
- --------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Number of
Income Shares Per Share
1997 (Numerator) (Denominator) Amount
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS - Net earnings and weighted
average common shares outstanding $2,771 4,742,754 $.58
Effect of dilutive securities - stock options 95,401
---------
Diluted EPS - Net earnings and weighted
average common shares outstanding and
effect of stock options $2,771 4,838,155 $.57
- --------------------------------------------------------------------------------------
</TABLE>
NOTE 9 - EMPLOYEE BENEFIT PLANS
- -------------------------------
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. The plan allows participants to make pretax contributions and the
Company matches certain percentages of those pretax contributions with shares of
the Company's common stock. The profit sharing portion of the plan is
discretionary and non-contributory. All amounts contributed to the plan are
deposited into a trust fund administered by independent trustees. The Company
provided for profit sharing contributions and matching 401(k) savings plan
contributions of $186 and $156 in 1999 and $178 and $172 in 1998, respectively.
Prior to 1998, the Company had a defined contribution pension plan and a 40l(k)
savings plan that covered substantially all employees. Contributions to the
plans were $244 in 1997.
NOTE 10 - BUSINESS CONCENTRATIONS
- ---------------------------------
A Specialty Products customer accounted for 16%, 15% and 13% of the Company's
net sales for 1999, 1998 and 1997, respectively. This customer accounted for 16%
and 13% of the Company's accounts receivable balance at December 31, 1999 and
1998, respectively.
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 1999, 1998 and 1997
aggregated approximately $335, $345 and $334, respectively. Aggregate future
minimum rental payments required under noncancelable operating leases at
December 31, 1999 are as follows:
34
<PAGE>
Year
- -----------------------------------------------------------
2000 $ 247
- -----------------------------------------------------------
2001 158
- -----------------------------------------------------------
2002 78
- -----------------------------------------------------------
2003 27
- -----------------------------------------------------------
Total minimum lease payments $ 510
- -----------------------------------------------------------
NOTE 12 - 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. They are managed separately
because each business requires different technology and marketing strategies.
The Specialty Products segment consists of three specialties: ethylene oxide,
propylene oxide and methyl chloride. The Encapsulated Products segment is in the
business of encapsulating performance ingredients for use throughout the food
industry for processing, mixing, packaging applications and nutritional
fortification and for shelf-life improvement. The Company sells products for
both segments through its own sales force, independent distributors and sales
agents. The accounting policies of the segments are the same as those described
in the summary of significant accounting policies.
<TABLE>
<CAPTION>
Business Segment Net Revenues:
- ------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------
Specialty Products $ 19,843 $ 19,434 $ 19,650
Encapsulated Products 9,839 9,287 8,969
- ------------------------------------------------------------------------------------
Total $ 29,682 $ 28,721 $ 28,619
- ------------------------------------------------------------------------------------
<CAPTION>
Business Segment Profit (Loss)
- ------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Specialty Products $ 5,613 $ 4,631 $ 4,234
Encapsulated Products (600) 176 116
Interest expense and other income (expense) (108) (179) (123)
- ------------------------------------------------------------------------------------
Earnings before income taxes $ 4,905 $ 4,628 $ 4,227
- ------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Depreciation/Amortization:
- ------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Specialty Products $ 1,706 $ 1,412 $ 924
Encapsulated Products 322 242 202
- ------------------------------------------------------------------------------------
Total $ 2028 $ 1,654 $ 1,126
- ------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Business Segment Assets:
- ------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Specialty Products $ 12,680 $ 13,651 $ 10,254
Encapsulated Products 6,527 6,524 5,314
Other Unallocated 2,823 2,473 2,025
- ------------------------------------------------------------------------------------
Total $ 22,030 $ 22,648 $ 17,593
- ------------------------------------------------------------------------------------
</TABLE>
Other unallocated assets consist of cash, prepaid expenses, deferred income
taxes and other deferred charges, which the Company does not allocate to its
individual business segments.
<TABLE>
<CAPTION>
Expenditures for Segment Assets:
- ------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Specialty Products $ 256 $ 4,477 $ 1,826
- ------------------------------------------------------------------------------------
Encapsulated Products 443 1,183 532
- ------------------------------------------------------------------------------------
Total $ 699 $ 5,660 $ 2,358
- ------------------------------------------------------------------------------------
<CAPTION>
Geographic Revenue Information:
- ------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $ 26,970 $ 25,833 $ 25,825
- ------------------------------------------------------------------------------------
Foreign Countries 2,712 2,888 2,794
- ------------------------------------------------------------------------------------
Total $ 29,682 $ 28,721 $ 28,619
- ------------------------------------------------------------------------------------
</TABLE>
The Company has no foreign operations. Therefore, all long-lived assets are in
the United States and revenue from foreign countries is based on customer
ship-to address.
<PAGE>
Note 13 - SUPPLEMENTAL CASH FLOW INFORMATION
- --------------------------------------------
Cash paid during the year for:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes $1,607 $1,578 $1,868
Interest $ 174 $ 197 $ 164
- --------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
Supplementary Financial Information (unaudited):
- ------------------------------------------------
Earnings per share have been adjusted for the May 1998 three-for-two stock split
(effected by means of a stock dividend).
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
- ------------------------------------------------------------------------------------------------------------
1999 1998
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $7,047 $7,270 $7,229 $8,136 $7,733 $7,220 $6,583 $7,185
Gross margin 2,840 2,940 2,994 3,350 3,214 2,907 2,347 2,955
Earnings before
income taxes 1,163 1,175 1,063 1,612 1,270 1,183 905 1,270
Net earnings 750 755 661 928 831 753 595 776
Basic earnings per
common share $ .15 $ .15 $ .14 $ .20 $ .17 $ .16 $ .12 $ .16
Diluted earnings per
common share $ .15 $ .15 $ .14 $ .19 $ .17 $ .15 $ .12 $ .16
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
37
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
(a) Directors of the Company.
The required information is to be set forth in the Company's Proxy
Statement for the 2000 Annual Meeting of Stockholders ("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 to be set forth in the Proxy
Statement under the caption "Directors and Executive Officers," which
information is hereby incorporated herein by reference.
(c) Section 16(a) Beneficial Ownership Reporting Compliance.
The required information is to be set forth in the Proxy
Statement under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance," which information is hereby incorporated herein by reference.
Item 11. Executive Compensation.
The information required by this Item is to be set forth
in the Proxy Statement under the caption "Directors and Executive Officers,"
which information is hereby incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item is to be set forth
in the Proxy Statement under the caption "Security Ownership of Certain
Beneficial Owners and of Management," which information is hereby incorporated
herein by reference.
Item 13. 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 14. Exhibits and Reports on Form 8-K.
(a) Exhibits:
38
<PAGE>
3.1 Composite Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1999(the "1999 10-K")).
3.2 Composite By-laws of the Company (incorporated by reference to
Exhibit 3.2 to the 1999 10-K).
3.2.1 Amendment to By-laws of the Company.
10.1 Incentive Stock Option Plan of the Company, as amended,(incorporated
by reference to the Company's Registration Statement on Form S-8,
File No. 33-35910, dated October 25, 1996, and to Proxy Statement,
dated April 22, 1998, for the Company's 1998 Annual Meeting of
Stockholders (the "1998 Proxy Statement")).*
10.2 Stock Option Plan for Directors of the Company, as amended
(incorporated by reference to the Company's Registration Statement
on Form S-8, File No. 33-35912, dated October 25, 1996, and to the
1998 Proxy Statement).*
10.3 Balchem Corporation 1999 Stock Plan (incorporated by reference to
Exhibit A to Proxy Statement dated April 23, 1999 for the Company's
1999 Annual Meeting of Stockholders (the "1999 Proxy Statement")).*
10.4 Balchem Corporation 401(k)/Profit Sharing Plan, dated January 1,
1998 (incorporated by reference to Exhibit 4 to the Company's
Registration Statement on Form S-8, File No. 333-4448, dated
December 12, 1997).*
10.5 Employment Agreement, dated as of October 1, 1997, between the
Company and Dino A. Rossi(incorporated by reference to Exhibit 10.4
to the 1999 10-K).*
10.6 Agreements dated as of April 1, 1993, January 1, 1995 and April 25,
1997, as amended, between the Company and Dr. Charles McClelland
(incorporated by reference to Exhibit 10.5 to the 1999 10-K).*
10.7 Amended and Restated Term Loan Agreement, dated as of January 15,
1999, and related Security Agreement, between the Company and The
Chase Manhattan Bank (incorporated by reference to Exhibit 10.6 to
the 1999 10-K).
- ----------------------
* Each of the Exhibits noted by an asterisk is a management
compensatory plan or arrangement.
39
<PAGE>
21. Subsidiaries of Registrant.
23.1 Consent of KPMG LLP, Independent Auditors
27. Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the
year ended December 31, 1999.
40
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 27, 2000 BALCHEM CORPORATION
By:/s/ Dino A. Rossi
--------------------
Dino A. Rossi, President,
Chief Executive Officer
41
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
By:/s/ Dino A. Rossi
--------------------
Dino A. Rossi, President,
Chief Executive
Officer, Principal
Financial Officer and
Director
Date: March 27, 2000
By:/s/ Francis J. Fitzpatrick
-----------------------------
Francis J. Fitzpatrick, Controller
Date: March 27, 2000
By:/s/ Donald E. Alguire
------------------------
Donald E. Alguire, Director
Date: March 23, 2000
By:/s/ John E. Beebe
--------------------
John E. Beebe, Director
Date: March 23, 2000
By:/s/ Francis X. McDermott
---------------------------
Francis X. McDermott, Director
Date: March 27, 2000
By:/s/ Kenneth P. Mitchell
--------------------------
Kenneth P. Mitchell, Director
Date: March 27, 2000
By:/s/ Carl R. Pacifico
-----------------------
Carl R. Pacifico, Director
Date: March 27, 2000
By:/s/ Israel Sheinberg
-----------------------
Israel Sheinberg, Director
Date: March 27, 2000
By:/s/ Leonard J. Zweifler
--------------------------
Leonard J. Zweifler, Director
Date: March 22, 2000
42
<PAGE>
EXHIBIT INDEX
PAGE
NUMBER
- ------
3.1 Composite Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1999 (the "1999 10-K")).
45 3.2 Composite By-laws of the Company (incorporated by reference
to Exhibit 3.2 to the 1999 10-K).
3.2.1 Amendment to By-laws of the Company.
10.1 Incentive Stock Option Plan of the Company, as amended,
(incorporated by reference to the Company's Registration
Statement on Form S-8, File No. 33-35910, dated October 25,
1996, and to Proxy Statement, dated April 22, 1998, for the
Company's 1998 Annual Meeting of Stockholders (the "1998
Proxy Statement")).*
10.2 Stock Option Plan for Directors of the Company, as amended
(incorporated by reference to the Company's Registration
Statement on Form S-8, File No. 33-35912, dated October 25,
1996, and to the 1998 Proxy Statement).*
10.3 Balchem Corporation 1999 Stock Plan (incorporated by
reference to Exhibit A to Proxy Statement dated April 23,
1999 for the Company's 1999 Annual Meeting of Stockholders
(the "1999 Proxy Statement")). *
10.4 Balchem Corporation 401(k)/Profit Sharing Plan, dated
January 1, 1998 (incorporated by reference to Exhibit 4 to
the Company's Registration Statement on Form S-8, File No.
333-4448, dated December 12, 1997).*
10.5 Employment Agreement, dated as of October 1, 1997, between
the Company and Dino A. Rossi (incorporated by reference to
Exhibit 10.4 to the 1999 10-K).*
10.6 Agreements dated as of April 1, 1993, January 1, 1995 and
April 25, 1997, as amended, between the Company and Dr.
Charles McClelland (incorporated by reference to Exhibit
10.5 to the 1999 10-K).*
10.7 Amended and Restated Term Loan Agreement, dated as of
January 15, 1999, and related Security Agreement, between
the Company and The Chase Manhattan Bank (incorporated by
reference to Exhibit 10.6 to the 1999 10-K).
----------------------
* Each of the Exhibits noted by an asterisk is a management compensatory
plan or arrangement.
43
<PAGE>
EXHIBIT INDEX
PAGE
NUMBER
- ------
21. Subsidiaries of Registrant.
46 23.1 Consent of KPMG LLP, Independent Auditors
47 27 Financial Data Schedule.
44
Section 2 of Article III of the By-Laws of Balchem Corporation is annexed to
read in its entirety as follows:
Section 2. NUMBER, CLASSIFICATION, TENURE AND QUALIFICATIONS. The number of
directors of the Corporation shall be seven (7), effective immediately prior to
election of directors at the Year 2000 annual meeting of shareholders, and prior
thereto shall be eight (8). The Board of Directors are divided into three
classes, Class 1, Class 2 and Class 3, who have staggered three year terms.
Class 2, effective immediately prior to election of directors at said Year 2000
annual meeting of shareholders, shall consist of two directors, and prior
thereto shall consist of three (3) directors, Class 1 shall consist of two
directors, and Class 3 shall consist of three directors. The term of office of
each class of directors shall expire at the third succeeding annual meeting of
shareholders following their election.
45
Independent Auditors' Consent
The Board of Directors and Stockholders
Balchem Corporation:
We consent to the incorporation by reference in the registration statements (No.
333-78355, 333-44489, 33-35912 and 33-35910) on Form S-8 of Balchem Corporation
of our report dated February 4, 2000, relating to the consolidated balance
sheets of Balchem Corporation and subsidiaries as of December 31, 1999 and 1998
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1999, which report appears in the December 31, 1999 annual report on Form 10-K
of Balchem Corporation.
/s/ KPMG LLP
------------
KPMG LLP
Short Hills, New Jersey
March 27, 2000
46
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,699
<SECURITIES> 0
<RECEIVABLES> 3,981
<ALLOWANCES> 0
<INVENTORY> 2,748
<CURRENT-ASSETS> 9,117
<PP&E> 14,741
<DEPRECIATION> 6,955
<TOTAL-ASSETS> 22,030
<CURRENT-LIABILITIES> 2,835
<BONDS> 0
0
0
<COMMON> 327
<OTHER-SE> 17,612
<TOTAL-LIABILITY-AND-EQUITY> 22,030
<SALES> 29,682
<TOTAL-REVENUES> 29,682
<CGS> 17,558
<TOTAL-COSTS> 24,669
<OTHER-EXPENSES> 108
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,905
<INCOME-TAX> 1,811
<INCOME-CONTINUING> 3,094
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,094
<EPS-BASIC> 0.64
<EPS-DILUTED> 0.63
</TABLE>
