FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One) Quarterly Report Pursuant to Section 13 or 15 (d) of
[ X ] The Securities Exchange Act of 1934
For The Quarterly Period Ended March 31, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from ____________ to ____________
Commission File Number 1-13648
BALCHEM CORPORATION
(Exact name of registrant as specified in its charter)
Maryland 13-2578432
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
P.O. Box 175 Slate Hill, New York 10973
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
914-355-5300
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code:
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.
Yes [ X ] No [ ]
As of May 1, 2000, the registrant had 4,765,565 shares of its Common Stock, $.06
2/3 par value, outstanding.
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
<TABLE>
<CAPTION>
BALCHEM CORPORATION
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
Unaudited
---------
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,941 $ 1,699
Trade accounts receivable 3,842 3,981
Inventories 2,373 2,748
Prepaid expenses 480 501
Deferred income taxes 188 188
------- -------
Total current assets 8,824 9,117
------- -------
Property, plant and equipment, net of accumulated depreciation 7,909 7,786
Intangible assets, net of accumulated amortization 4,862 5,127
------- -------
Total assets $21,595 $22,030
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
BALCHEM CORPORATION
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
Unaudited
---------
March 31, December 31,
Liabilities and Stockholders' Equity 2000 1999
------------------------------------ -------- --------
<S> <C> <C>
Current liabilities:
Trade accounts payable $ 427 $ 565
Accrued compensation and other benefits 198 829
Other accrued expenses 599 429
Dividends payable -- 245
Income taxes payable 431 131
Current portion of long-term debt 600 600
Current portion of other long-term obligations 36 36
-------- --------
Total current liabilities 2,291 2,835
-------- --------
Long-term debt 150 650
Deferred income taxes 360 381
Deferred compensation 104 108
Other long-term obligations 99 117
-------- --------
Total liabilities 3,004 4,091
-------- --------
Stockholders' equity:
Preferred stock, $25 par value. Authorized 2,000,000
shares; none issued and outstanding
Common stock, $.06 2/3 par value. Authorized 10,000,000
shares; 4,903,238 shares issued and 4,765,446 shares outstanding at March 31, 2000
and 4,903,238 shares issued and 4,781,358 shares outstanding at December 31, 1999 327 327
Additional paid-in capital 2,987 2,994
Retained earnings 16,325 15,516
Treasury stock, at cost: 137,792 and 121,880 shares, respectively (1,048) (898)
-------- --------
Total stockholders' equity 18,591 17,939
-------- --------
Total liabilities and stockholders' equity $ 21,595 $ 22,030
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
BALCHEM CORPORATION
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
Unaudited
---------
Three Months Ended
March 31,
2000 1999
------- -------
<S> <C> <C>
Net sales $ 7,751 $ 7,047
Cost of sales 4,638 4,207
------- -------
Gross margin 3,113 2,840
Operating expenses:
Selling expenses 879 641
Research and development expenses 238 289
General and administrative expenses 702 704
------- -------
Total operating expenses 1,819 1,634
------- -------
Income from operations 1,294 1,206
Interest (income) expense - net (2) 43
------- -------
Earnings before income taxes 1,296 1,163
Income taxes 487 413
------- -------
Net earnings $ 809 $ 750
======= =======
Basic net earnings per common share (note 3) $ 0.17 $ 0.15
======= =======
Diluted net earnings per common share (note 3) $ 0.17 $ 0.15
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
BALCHEM CORPORATION
Condensed Consolidated Statements of Cash Flows
(In thousands)
Unaudited
---------
Three Months Ended
March 31,
2000 1999
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 809 $ 750
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 508 509
Non-employee stock compensation -- 22
Shares issued under
employee benefit plans 62 49
Deferred income tax benefit (21) (38)
Changes in assets and liabilities:
Accounts receivable 139 (133)
Inventories 375 (46)
Prepaid expenses 21 345
Accounts payable and accrued expenses (599) (31)
Income taxes payable 300 235
Deferred compensation payable (4) (15)
------- -------
Net cash flows provided by operating activities 1,590 1,647
------- -------
Cash flows from investing activities:
Capital expenditures (352) (137)
Investments in intangibles and other assets (14) (2)
------- -------
Net cash flows used in investing activities (366) (139)
------- -------
Cash flows from financing activities:
Principal payments on long-term debt (500) (1,000)
Stock options and warrants exercised 24 7
Dividends paid (245) (160)
Treasury stock at cost (243) --
Other financing activities (18) (14)
------- -------
Net cash flows used in financing activities (982) (1,167)
------- -------
Increase in cash and cash equivalents 242 341
Cash and cash equivalents beginning of year 1,699 1,348
------- -------
Cash and cash equivalents end of period $ 1,941 $ 1,689
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except share and per share data)
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------------
The condensed consolidated financial statements presented herein have been
prepared by the Company in accordance with the accounting policies described in
its December 31, 1999 Annual Report on Form 10-K and should be read in
conjunction with the notes to consolidated financial statements, which appear in
that report.
In the opinion of management, the unaudited condensed consolidated financial
statements furnished in this Form 10-Q include all adjustments necessary for a
fair presentation of the financial position, results of operations and cash
flows for the interim periods presented. All such adjustments are of a normal
recurring nature. The condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore do not
include some information and notes necessary to conform with annual reporting
requirements. The results of operations for the three months ended March 31,
2000 are not necessarily indicative of the operating results expected for the
full year.
NOTE 2 - INVENTORIES
- --------------------
Inventories at March 31, 2000 and December 31, 1999 consist of the following:
- --------------------------------------------------------------------------------
March 31, 2000 December 31, 1999
- --------------------------------------------------------------------------------
Raw materials $ 906 $1,340
Finished goods 1,467 1,408
- --------------------------------------------------------------------------------
Total inventories $2,373 $2,748
================================================================================
NOTE 3 - NET EARNINGS PER SHARE
- -------------------------------
Net earnings per share are calculated in accordance with Statement of Financial
Accounting Standards No.128, "Earnings Per Share." The following presents a
reconciliation of the numerator and denominator used in calculating basic and
diluted net earnings per share:
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Number of
Income Shares Per Share
Three months ended March 31, 2000 (Numerator) (Denominator) Amount
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS - Net earnings and weighted
average common shares outstanding $809 4,767,825 $.17
Effect of dilutive securities - stock options 61,685
---------
Diluted EPS - Net earnings and weighted
average common shares outstanding and
effect of stock options $809 4,829,510 $.17
- -----------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Number of
Income Shares Per Share
Three months ended March 31, 1999 (Numerator) (Denominator) Amount
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS - Net earnings and weighted
average common shares outstanding $750 4,880,892 $.15
Effect of dilutive securities - stock options 25,532
---------
Diluted EPS - Net earnings and weighted
average common shares outstanding and
effect of stock options $750 4,906,424 $.15
- ------------------------------------------------------------------------------------------------
</TABLE>
NOTE 4 - SEGMENT INFORMATION
- ----------------------------
The Company's reportable segments are strategic businesses that offer different
products and services. Presently, the Company has two reportable segments,
specialty products and encapsulated products.
Business Segment Net Revenues:
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
2000 1999
- --------------------------------------------------------------------------------
Specialty Products $ 5,082 $ 4,837
Encapsulated Products 2,669 2,210
- --------------------------------------------------------------------------------
Total $ 7,751 $ 7,047
================================================================================
Business Segment Profit (Loss):
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
2000 1999
- --------------------------------------------------------------------------------
Specialty Products $ 1,410 $ 1,298
Encapsulated Products (116) (92)
- --------------------------------------------------------------------------------
Interest (income) expense - net (2) 43
- --------------------------------------------------------------------------------
Earnings before income taxes $ 1,296 $ 1,163
================================================================================
7
<PAGE>
NOTE 5 - SUPPLEMENTAL CASH FLOW INFORMATION
- -------------------------------------------
Cash paid during the three months ended March 31, 2000 and 1999 for income taxes
and interest is as follows:
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
2000 1999
- --------------------------------------------------------------------------------
Income taxes $ 208 $ 18
Interest $ 22 $ 54
- -------------------------------------------------------------------------------
NOTE 6 - COMMON STOCK
- ---------------------
In June 1999, the board of directors authorized the repurchase of up to
1,000,000 shares of the Company's outstanding common stock over a two-year
period commencing July 2, 1999. Since inception of its repurchase authorization,
through March 31, 2000, the Company has repurchased 157,816 shares at an average
cost of $7.52 per share.
8
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Report contains forward-looking statements, within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended, which reflect
the Company's expectation or belief concerning future events that involve risks
and uncertainties. The actions and performance of the Company could differ
materially from what is contemplated by the forward-looking statements contained
in this Report. Factors that might cause differences from the forward-looking
statements include those referred to or identified in Item 1 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1999 and other
factors that may be identified elsewhere in this Report. Reference should be
made to such factors and all forward-looking statements are qualified in their
entirety by the above cautionary statements.
Balchem Corporation is engaged in the development, manufacture and
marketing of specialty performance ingredients and products for the food, feed
and medical sterilization industries. The Company operates in two business
segments, the micro-encapsulation of performance ingredients (the "encapsulated
products" segment) and the repackaging and marketing of high quality specialty
gases (the "specialty products" segment).
(All dollar amounts in thousands)
Results of Operations:
Three months ended March 31, 2000 as compared with three months ended March 31,
- --------------------------------------------------------------------------------
1999
- --------------------------------------------------------------------------------
Net sales for the three months ended March 31, 2000 were $7,751 as
compared to $7,047 for the three months ended March 31, 1999, an increase of
$704 or 10%. Net sales for the specialty products segment were $5,082 for the
three months ended March 31, 2000 as compared to $4,837 for the three months
ended March 31, 1999, an increase of $245 or 5%. This increase was attributable
primarily to increased volumes sold of the Company's ethylene oxide product. Net
sales for the encapsulated products segment were $2,669 for the three months
ended March 31, 2000 as compared to $2,210 for the three months ended March 31,
1999 an increase of $459 or 21%. This increase was due principally to increased
sales to the animal nutrition and domestic and international food markets. 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. During the first quarter of 2000, sales of
Reashure(TM) grew and are beginning to favorably impact overall sales of the
encapsulated products segment. Additional sales personnel have been added to
support the growth in this market.
Cost of sales as a percent of sales for the three months ended March
31, 2000 as compared to the three months ended March 31, 1999 was essentially
unchanged.
9
<PAGE>
Operating expenses for the three months ended March 31, 2000
increased to $1,819 from $1,634 for the three months ended March 31, 1999, an
increase of $185 or 11%. The increase in operating expenses was primarily the
result of increased advertising expense and increased payroll expense in the
area of sales and marketing for the encapsulated products segment. In
particular, additional sales personnel have been added to support the growth in
the Animal nutrition business. During the three months ended March 31, 2000 and
the three months ended March 31, 1999, the Company spent $238 and $289,
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 the three months ended March 31, 2000 was
$1,294 as compared with $1,206 for the three months ended March 31, 1999. Income
from operations for the specialty products segment for the three months ended
March 31, 2000 was $1,410 as compared with $1,298 for the three months ended
March 31, 1999. Loss from operations for the encapsulated products segment was
$116 for the three months ended March 31, 2000, primarily a result of increased
selling and marketing costs as described above, as compared with $92 for the
three months ended March 31, 1999.
Interest (income) expense - net for the three months ended March 31,
2000 totaled income of $2 as compared to expense of $43 for the three months
ended March 31, 1999. Long-term debt, including the current portion, was reduced
to $750 at March 31, 2000 from $2,750 at March 31, 1999, a reduction of $2,000
resulting in lower interest expense.
The Company's effective income tax rate is 37.6% for the three
months ended March 31, 2000 as compared with 35.5% for the three months ended
March 31, 1999 due principally to the effects of the Company's utilization of
net operating loss carry-forwards for state income tax purposes in the first
quarter of 1999.
Net earnings were $809 for the three months ended March 31, 2000 as
compared with $750 for the three months ended March 31, 1999.
Liquidity and Capital Resources
Cash flows from operating activities provided $1,591 for the three
months ended March 31, 2000 as compared with $1,647 for the three months ended
March 31, 1999. The small decline in cash flows from operating activities was
due primarily to a decline in accounts payable and other accrued expense
balances as a result of timing of payments made to vendors and other service
providers offset by reduced inventory levels.
Capital expenditures were $352 for the three months ended March 31,
2000. Capital expenditures are projected to be approximately $840 for all of
calendar year 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
10
<PAGE>
July 2, 1999. As of March 31, 2000, 157,816 shares had been repurchased under
the program at a total cost of $1,187 of which 20,024 shares have been issued by
the Company under employee benefit plans and for the exercise of stock options.
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
matters 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 $750 at March 31, 2000.
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 March 31,
2000.
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 3. Quantitative and Qualitative Disclosures about Market Risk
In the normal course of operations, the Company is exposed to market
risks arising from adverse changes in interest rates. Market risk is defined for
these purposes as the potential change in the fair value of debt instruments
resulting from an adverse movement in interest rates. As of March 31, 2000, 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 March 31, 2000, would result in an increase in annual
interest expense and a corresponding reduction in cash flow of approximately $8.
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.
11
<PAGE>
The Company has no derivative financial instruments or derivative
commodity instruments, nor does the Company 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.
12
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
27 Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
No Reports on Form 8-K were filed during the quarter
ended March 31, 2000.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BALCHEM CORPORATION
-------------------
By:/s/ Dino A. Rossi
--------------------
Dino A. Rossi, President,
Chief Executive Officer and
Principal Financial Officer
Date: May 15, 2000
------------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,941
<SECURITIES> 0
<RECEIVABLES> 3,842
<ALLOWANCES> 0
<INVENTORY> 2,373
<CURRENT-ASSETS> 8,824
<PP&E> 15,093
<DEPRECIATION> 7,184
<TOTAL-ASSETS> 21,595
<CURRENT-LIABILITIES> 2,291
<BONDS> 0
0
0
<COMMON> 327
<OTHER-SE> 18,264
<TOTAL-LIABILITY-AND-EQUITY> 21,595
<SALES> 7,751
<TOTAL-REVENUES> 7,751
<CGS> 4,638
<TOTAL-COSTS> 6,457
<OTHER-EXPENSES> (2)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,296
<INCOME-TAX> 487
<INCOME-CONTINUING> 809
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 809
<EPS-BASIC> 0.17
<EPS-DILUTED> 0.17
</TABLE>
