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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, 2001
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 No.)
P.O. Box 175, Slate Hill, New York 10973
- ---------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (845) 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
----
(Title of Class)
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. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 1, 2002 was approximately $96,339,949.*
* 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, 2002 there were 4,720,289 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III: Portions of the registrant's proxy statement for its 2002 annual
meeting of stockholders are incorporated by reference in this report.
2
Part I
Item 1. Business
General:
Balchem Corporation ("Balchem", or the "Company"), 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.
Effective as of June 1, 2001, pursuant to a certain Asset Purchase
Agreement, dated as of May 21, 2001 (the "Asset Purchase Agreement"), BCP
Ingredients, Inc. ("BCP"), a wholly owned subsidiary of Balchem, acquired
certain assets, excluding accounts receivable and inventories, relating to the
choline animal feed, human choline nutrient and encapsulated product lines of
DCV, Inc. and its affiliate, DuCoa L.P., including DuCoa's manufacturing
facility in Verona, Missouri.
Balchem has a currently inactive Canadian subsidiary, Balchem, Ltd.
References in this Report to the Company mean Balchem and/or its
subsidiary BCP as the context requires.
As a result of the acquisition described above, the Company currently
operates in three business segments, specialty products, encapsulated /
nutritional products and the unencapsulated feed supplements segment. Products
relating to choline animal feed for non-ruminant animals and associated
operations are primarily reported in the unencapsulated feed supplements
segment. Operations relating to human choline nutrient products and all
encapsulated products are reported in the encapsulated / nutritional 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 / Nutritional Products
- -----------------------------------
The encapsulated / nutritional 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. Human choline nutrient products are also marketed through this
industry segment. Choline is recognized to play a key role in the structural
integrity of cell membranes, processing dietary fat, reproductive development
and neural functions, such as memory and muscle function.
3
In late 1999, the Company 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), delivers nutrient supplements through the rumen providing required
levels to dairy cows during certain weeks preceding and following calving,
commonly referred to as the "transition period" of the animal.
In 2002, this segment also introduced several new products and product
applications that are being sold commercially for enhancement of shelf-life and
fortification in segments of the food industry. The Company also has several new
products and product applications for the food market in test production or test
marketing status.
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 repackages and distributes the following
specialty gases: ethylene oxide, blends of ethylene oxide, propylene oxide and
methyl chloride.
Ethylene oxide is sold as a chemical sterilant gas, primarily for use
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. As a fumigant,
ethylene oxide blends are highly effective in killing bacteria, fungi, and
insects in spice or other seasoning materials. The Company's 100% ethylene oxide
product is distributed by the Company in reusable double-walled stainless steel
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, 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.
Due to consolidation of customer businesses in the contract sterilizer
industry, the Company has one Specialty Products customer, IBA, which accounted
for approximately 11% of the Company's net sales in 2001. This customer
accounted for 11% and 10% of the Company's accounts receivable balance at
December 31, 2001 and 2000, respectively. The loss of such customer could have a
material adverse effect on the Company.
4
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.
Unencapsulated feed supplements
- -------------------------------
The unencapsulated feed supplements segment is in the business of
manufacturing and supplying choline chloride, an essential nutrient for animal
health, predominantly to the poultry and swine industries. Choline, a B-complex
vitamin, plays a vital role in the metabolism of fat and the building and
maintaining of cell structures. Choline deficiency can result in, among other
symptoms, reduced growth and perosis in chicks, and fatty liver, kidney necrosis
and general poor condition in baby pigs. In addition, certain derivatives of
choline chloride are also manufactured and sold into industrial applications.
Choline chloride is manufactured and sold in both an aqueous and dry
form and is sold through the Company's own sales force, independent distributors
and sales agents.
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; however, the Company cannot assure
that will always be the case.
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. In addition, certain of the
Company's encapsulated and choline products must meet state licensing
requirements prior to sales in such states.
5
Seasonality:
- ------------
In general, the business of the Company's segments is not seasonal to
any material extent.
Backlog:
- --------
At December 31, 2001, the Company had a total backlog of $936,000
(including $484,000 for the encapsulated / nutritional products segment,
$272,000 for the specialty products segment) and $180,000 for the unencapsulated
feed supplements segment, as compared to a total backlog of $597,000 at December
31, 2000 (including $226,000 for the encapsulated / nutritional products segment
and $371,000 for the specialty products segment). It has generally 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.
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. Competition in the animal feed markets served by the
Company is based primarily on service and price.
Research & Development:
- -----------------------
During the years ended December 31, 2001, 2000 and 1999, the Company
incurred research and development expense of approximately $1.6 million, $1.1
million and $1.3 million, respectively, on Company-sponsored research and
development for new products and improvements to existing products and
manufacturing processes, principally in the encapsulated / nutritional products
segment. During the year ended December 31, 2001, an average of 10 employees
were devoted full time to research and development activities. The Company has
historically funded its research and development 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.
6
The Company 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.
Capital Projects:
- -----------------
Capital expenditures were $1,950 for 2001. Capital expenditures are
projected to be approximately $8,000 for calendar year 2002. The Company is in
the process of expanding the manufacturing, processing and distribution
facilities at its recently acquired Verona, Missouri facility to enable it to
handle operations for its specialty products and encapsulated choline products
businesses.The Company has also entered into a lease for a new headquarters
office and laboratory facility and expects to effect capital improvements to the
premises.
Environmental / Regulatory 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 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 stated that, due to, a backlog of projects, it cannot anticipate a
date for completing the re-registration process for this product at this time.
The Company intends 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.
7
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's recently acquired Verona facility, while held by a prior
owner, was designated by the EPA as a Superfund site and placed on the National
Priorities List in 1983, because of dioxin contamination on portions of the
site. Remediation conducted by the prior owner under the oversight of the EPA
and the Missouri Department of Natural Resources ("MDNR") included removal of
dioxin contaminated soil and equipment, capping of areas of residual
contamination in four relatively small areas of the site separate from the
manufacturing facilities, and the installation of wells to monitor groundwater
and surface water contamination by organic chemicals. No ground water or surface
water treatment was required. The Company believes that remediation of the site
is complete. In 1998, the EPA certified the work on the contaminated soils to be
complete. In February 2000, after the conclusion of the two years of monitoring
groundwater and surface water, the former owner submitted a draft third party
risk assessment report to the EPA and MDNR recommending no further action. The
prior owner is awaiting the response of the EPA and MDNR to the draft risk
assessment.
While the Company must maintain the integrity of the capped areas in
the remediation areas on the site, the prior owner is responsible for completion
of any further Superfund remedy. The Company is indemnified by the sellers under
its May 2001 asset purchase agreement covering its acquisition of the Verona
facility for potential liabilities associated with the Superfund site and one of
the sellers, in turn, has the benefit of certain contractual indemnification by
the prior owner is implementing the above-described Superfund remedy.
In connection with normal operations at its plant facilities, the
Company is required to maintain environmental and other permits including those
relating to ethylene oxide operations. The Company is in the process of applying
for various permits in connection with the intended expansion of operations at
its Verona, Missouri facility.
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 compliance with
requirements of the Occupational Safety and Health Administration. The cost of
8
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, 2002, the Company employed approximately 203 persons.
Approximately 40 employees at the Company's Verona, Missouri facility are
covered by a collective bargaining agreement.
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
9
the Company (including the status of compliance by the prior owner of the Verona
facility under Superfund remediation) 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 Materials. The principal raw materials used by the Company in the
manufacture of its products can be subject to price fluctuations. While the
selling prices 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. In addition, the Company is not experiencing any current difficulties
in procuring such materials and does not anticipate any such problems however,
the Company cannot assure that will always be the case.
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,
2001, approximately 8% of the Company's net sales consisted of sales outside the
United States, predominately to Europe. Such sales are generally denominated in
U.S. Dollars at a specific price per unit. 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 a
number of senior executives could have a material adverse effect on the Company.
10
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 approximately 16
acres of land on several parcels in this community.
The Company has recently entered into a ten (10) year lease for
approximately 20,000 square feet of office space in Wawayanda, New York.
Following completion of construction, the office space is expected to serve as
the Company's general offices and as laboratory facilities for the Company's
encapsulated/nutritional products business.
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 terminus, warehouse and drum filling station for its
products in its specialty products segment.
The Verona facility site, which is approximately 100 acres in size,
consists of manufacturing facilities relating to the choline animal feed and
human choline nutrient product lines together with buildings utilized for
warehousing such products. The facility, while under prior ownership, was
designated by the EPA as a Superfund site and placed on the National Priorities
List in 1983, as a result of dioxin contamination discovered on portions of the
site and has been the subject of remediation efforts by the prior owner. See
discussion under Item 1 "Environmental/Regulatory Matters".
As noted above, the Company intends to expand manufacturing, processing and
distribution facilities at the Verona facility to cover specialty products and
encapsulated choline products.
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
11
site through 1999. The Company continues to be 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 recently been less than
$5,000 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 2001.
12
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 2001 and
2000, for each quarterly period during the past two years were as follows:
- ---------------------------------------------------------------------
Quarterly Period High Low
- ------------------------------------- -------------- ----------------
Ended March 31, 2001 $ 15.85 $ 13.40
Ended June 30, 2001 19.00 13.90
Ended September 30, 2001 22.45 17.30
Ended December 31, 2001 22.10 19.55
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Quarterly Period High Low
- ------------------------------------- -------------- ----------------
Ended March 31, 2000 $ 9.25 $ 7.50
Ended June 30, 2000 11.75 8.25
Ended September 30, 2000 12.38 11.00
Ended December 31, 2000 13.43 10.32
- ----------------------------------------------------------------------
(b) Record Holders.
As of March 1, 2002, 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 241*
*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 1,213.
(c) Dividends.
The Company declared a dividend of $0.065 per share on the common stock
during its fiscal year ended December 31, 2001.
13
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).
(In thousands, except per share data)
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2001(1) 2000 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Statement of Operations Data
- ----------------------------
Net sales $ 46,142 $ 33,198 $ 29,682 $ 28,721 $ 28,619
Earnings before income
tax expense 8,369 5,996 4,905 4,628 4,227
Income tax expense 3,259 2,267 1,811 1,673 1,456
Net earnings 5,110 3,729 3,094 2,955 2,771
Basic net earnings per
common share 1.10 .80 .64 .61 .58
Diluted net earnings per
common share 1.05 .78 .63 .60 .57
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
At December 31, 2001 2000 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data
- -------------------
Total assets $ 44,477 $ 23,222 $ 22,030 $ 22,648 $ 17,593
Long-term debt 11,323 - 1,250 3,750 1,500
Other long-term
obligations 1,345 362 606 841 890
Total stockholders' equity 25,332 19,580 17,939 15,775 12,336
Dividends per share $ .065 $ .06 $ .05 $ .033 $ .033
- ---------------------------------------------------------------------------------------------------------------------------
(1) The Selected Financial Data at December 31, 2001 and for the year
then ended include the operating results, cash flows, assets and liabilities
relating to the acquisition of certain assets and product lines of DCV, Inc. and
its affiliate DuCoa L.P. from the date of acquisition (June 1, 2001) to December
31, 2001.
14
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.
(Dollars in thousands, except share data)
Results of Operations:
Fiscal Year 2001 compared to Fiscal Year 2000
Net sales for 2001 were $46,142 as compared with $33,198 for 2000, an
increase of $12,944 or 39%. Net sales for the specialty products segment were
$21,130 for 2001 as compared with $20,113 for 2000, an increase of $1,017 or 5%.
Such increase is the result of favorable product mix of ethylene oxide related
products and increased volumes sold of ethylene oxide related products during
2001. Net sales for the encapsulated / nutritional products segment were $18,312
for 2001 as compared with $13,085 for 2000, an increase of $5,227 or 40%. This
increase was due principally to sales of human choline nutrients, a product line
acquired as part of the June 1, 2001 acquisition of certain assets relating to
the choline animal feed, human choline nutrient, and encapsulated product lines
of DCV, Inc. and its affiliate, DuCoa L.P. Increased volumes sold into the
domestic food and animal nutrition (Reashure(TM)) markets contributed
significantly as well. Sales of Reashure(TM) continued to strengthen through
growth from existing customers and from the addition of new customers and added
distribution channels globally. The increases noted above were partially offset
by a decline in sales to the specialty industrial market. The unencapsulated
feed supplements segment sales, realized as a result of the above noted
acquisition, were $6,700 for 2001.
Gross margin percentage for 2001 was 39% as compared to 42% for 2000.
Margins were affected by sales of lower margin feed products to the poultry and
swine markets in the unencapsulated feed supplements segment. Margins for the
specialty products segment were favorably affected by increased volumes sold of
ethylene oxide related products and a more favorable mix of ethylene oxide and
propylene oxide products sold. Margins improved in the encapsulated /
nutritional products segment, a result of efficiencies realized from increased
production and the mix of products sold during 2001.
Operating expenses for 2001 increased to $9,771 from $8,103 for 2000,
an increase of $1,668 or 21%. Total operating expenses as a percentage of sales
15
were 21% for 2001 as compared to 24% for 2000. The increase in operating
expenses was primarily the result of increased personnel in the area of sales,
marketing, and research and development for the encapsulated / nutritional
products segment. Total payroll expenses related to these and other
administrative areas increased approximately $869 in 2001. In particular,
additional sales personnel were added to support the animal nutrition business,
additional research and application personnel have been added to support a more
expansive research and development program for both human and animal markets and
additional selling expenses were incurred as a result of the June 1, 2001
acquisition. During 2001 and 2000, the Company spent $1,631 and $1,069,
respectively, on Company-sponsored research and development programs,
substantially all of which pertained to the Company's encapsulated / nutritional
products segment for both food and animal feed applications. General and
administrative expenses increased primarily due to an increase in costs
associated with the Company's medical plan of approximately $213 and recruiting
and relocation expenses of approximately $206, a result of the increases in
personnel noted above.
As a result of the foregoing, earnings from operations for 2001 were
$8,155 as compared to $5,938 for 2000. Earnings from operations for the
specialty products segment for 2001 were $6,612 as compared to $5,605 for 2000.
Earnings from operations for the encapsulated / nutritional products segment for
2001 were $1,582 as compared to $333 for 2000. Earnings from operations of the
unencapsulated feed supplements segment for 2001 was a slight loss of $39.
Interest income for 2001 totaled $110 as compared to $106 for 2000.
Interest expense for 2001 totaled $387 as compared to $48 for 2000, an increase
of $339. Long-term debt, including the current portion, totaled $13,065 at
December 31, 2001 as compared to no long-term debt at December 31, 2000,
resulting in greater interest expense.
Other income of $491 for 2001 represents proceeds received from the
settlement of a class-action claim related to vitamin product antitrust
litigation.
The Company's effective tax rate increased from 38% to 39% in 2001
primarily due to additional state tax associated with the Verona Missouri based
acquisition of certain assets and product lines.
As a result of the foregoing, net earnings were $5,110 for 2001 as
compared with $3,729 for 2000.
Fiscal Year 2000 compared to Fiscal Year 1999
Net sales for 2000 were $33,198 as compared to $29,682 for 1999, an
increase of $3,516 or 12%. Net sales for the specialty products segment were
$20,113 for 2000 as compared to $19,843 for 1999, an increase of $270 or 1%.
This increase was attributable primarily to increased volumes sold of ethylene
oxide related products. Net sales for the encapsulated products segment were
16
$13,085 for 2000 as compared to $9,839 for 1999, an increase of $3,246 or 33%.
This increase was due principally to greater sales to the animal nutrition,
specialty industrial and domestic food markets. The growth in sales to the food
market is the result of increased volumes sold of higher margin products which
can be attributed principally to new products and new applications, combined
with additional sales representation. In late 1999, the Company launched
Reashure(TM), its encapsulated choline for ruminant animals, after having
successfully completed university and field trials. Commercial sales are
currently targeted to the dairy industry where Reashure(TM) delivers nutrient
supplements through the rumen providing required levels to dairy cows during
certain weeks preceding and following calving, commonly referred to as the
"transition period" of the animal. Sales of Reashure(TM) continued to develop
through growth from existing customers and with the addition of new customers
primarily in the East and Midwest.
Gross profit as a percent of sales for 2000 was 42.3% as compared to
40.8% for 1999. Margins for the specialty products segment were favorably
affected primarily by increased volumes sold and improved production
efficiencies of blended ethylene oxide products which the Company now sells for
non-medical sterilization. Margins also improved in the encapsulated products
division, a result of efficiencies realized from increased production and the
mix of products sold during 2000.
Operating expenses for 2000 increased to $8,103 from $7,111 for 1999,
an increase of $992 or 14%. The increase in operating expenses was primarily the
result of an increase in advertising expense of approximately $207, an increase
in travel related expenses of approximately $100 and an increase in payroll
expense in the area of sales and marketing for the encapsulated products segment
of approximately $450. In particular, additional sales personnel have been added
to support the animal nutrition business. The Company expended $1,069 and $1,264
in 2000 and 1999, 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. The decline in
these research and development expenses is a result of the Company having
completed the gathering of data for Reashure(TM) from university studies,
commercial field trials and veterinarians in 1999.
As a result of the foregoing, earnings from operations for 2000 were
$5,938 as compared to $5,013 for 1999. Earnings from operations for the
specialty products segment for 2000 was $5,605 as compared to $5,613 for 1999.
Earnings from operations for the encapsulated products segment for 2000 was $333
as compared to a loss of $600 for 1999.
Interest income for 2000 totaled $106 as compared to $68 for 1999.
Interest expense for 2000 totaled $48 as compared to $179 for 1999, a decrease
of $131. Long-term debt was eliminated in 2000 from $1,250 in 1999 resulting in
lower interest expense.
17
The Company's effective income tax rate was 38% for 2000 as compared
with 37% for 1999 due principally to the effects of the Company's utilization of
net operating loss carry-forwards for state income tax purposes in the second
quarter of 1999.
As a result of the foregoing, net earnings were $3,729 for 2000 as
compared to $3,094 for 1999.
Liquidity and Capital Resources
Cash flows from operating activities provided $3,222 for 2001 as
compared with $5,953 for 2000. The decrease in cash flows from operating
activities was due primarily to increased accounts receivable and increased
inventory balances, a result of the Company having to invest working capital in
its recently acquired business as more fully described above. The foregoing was
partially offset by increased net earnings.
Capital expenditures were $1,950 for 2001. Capital expenditures are
projected to be approximately $8,000 for all of calendar year 2002. The Company
is in the process of expanding the manufacturing, processing and distribution
facilities at its recently acquired Verona, Missouri facility to enable it to
handle operations for its specialty products and encapsulated choline products
businesses. In addition, the Company has recently entered into a ten (10) year
lease for approximately 20,000 square feet of office space. Following completion
of construction, the office space is expected to serve as the Company's general
offices and as laboratory facilities for the Company's encapsulated/nutritional
products business. The costs of certain improvements to the Company's office
space, up to $630, are to be funded by the landlord.
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. In June 2001, the board of directors authorized
an extension to the stock repurchase program for up to an additional 600,000
shares through June 30, 2002. As of December 31, 2001, 343,316 shares had been
repurchased under the program at a total cost of $3,179 of which 139,244 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 factors on its assessment of corporate cash flow and
market conditions.
On June 1, 2001, the Company and its principal bank entered into a Loan
Agreement providing for a term loan of $13,500, the proceeds of which were used
to fund the Verona, Missouri based acquisition. The term loan is payable in
equal monthly installments beginning October 1, 2001 of principal totaling
approximately $145, together with accrued interest, and has a maturity date of
May 31, 2009. Borrowing under the term loan bears interest at LIBOR plus 1.25%
(3.39% at December 31, 2001). Provisions of the term loan require maintenance of
18
certain financial ratios, limit future borrowings and impose certain other
requirements as contained in the agreement. At December 31, 2001, the Company
was in compliance with all restrictive covenants contained in the Loan
Agreement. The Loan Agreement also provides for a short-term revolving credit
facility of $3,000 (the "Revolving Facility"). Borrowings under the Revolving
Facility bear interest at LIBOR plus 1.00% (3.14% at December 31, 2001). No
amounts have been drawn on the Revolving Facility as of the date hereof. The
revolving credit facility expires on May 31, 2002. Management expects the
facility to be renewed in the normal course of business.
Indebtedness under the Loan Agreement is secured by substantially all
of the assets of the Company other than real properties.
As part of the June 1, 2001 acquisition of certain assets relating to the
choline animal feed, human choline nutrient, and encapsulated product lines of
DCV, Inc. and its affiliate, DuCoa L.P., the asset purchase agreement calls for
the payment of up to an additional $2,750 based upon the sales of specified
product lines achieving certain gross margin levels (in excess of specified
thresholds) over the three year period following the closing, with no more than
$1,000 payable for any particular yearly period. No such contingent
consideration has been earned or paid as of December 31, 2001. The first period
to which such contingent consideration could be applicable is the twelve months
ended June 30,2002.
The Company also currently provides postretirement benefits in the form of
a retirement medical plan under a collective bargaining agreement covering
eligible retired employees of the Verona facility. The amount recorded on the
Company's balance sheet as of December 31,2001 for this obligation is $861. The
postretirement plan is not funded.
The Company's aggregate commitments under its Loan Agreement and
noncancelable operating lease agreements (including the office space lease
entered into in 2002 as described above) are as follows:
- -----------------------------------------------------------------------------------
Loan Operating Total
Agreement Leases Commitment
- -----------------------------------------------------------------------------------
2002 $ 1,742 $ 315 $ 2,057
2003 1,742 392 2,134
2004 1,742 319 2,061
2005 1,742 245 1,987
2006 1,742 245 1,987
Thereafter 4,355 852 5,207
- -----------------------------------------------------------------------------------
The Company knows of no current or pending demands on or commitments for
its liquid assets that will materially affect its liquidity.The Company expects
its operations to continue generating sufficient cash flow to fund working
capital requirements, necessary capital investments and the current portion of
debt obligations; however, the Company would seek further bank loans or access
to financial markets to fund operations, working capital, necessary capital
investments or other cash requirements should it deem it necessary to do so.
19
Recently Issued Statements of Financial Accounting Standards:
In July 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, "Business Combinations," and SFAS No. 142, Goodwill and Other
Intangible Assets." SFAS No. 141 requires that the purchase method of accounting
be used for all business combinations completed after June 30, 2001. SFAS No.
142 requires that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead be tested for impairment at least annually in
accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that
intangible assets with definite useful lives be amortized over their respective
estimated useful lives to their estimated residual value, and reviewed for
impairment in accordance with SFAS No. 144, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The Company adopted the provisions of SFAS No. 141 immediately and
adopted SFAS No. 142 effective January 1, 2002.
Goodwill and intangible assets acquired in business combinations
completed before July 1, 2001 were amortized through the end of 2001.
In connection with the transitional impairment evaluation, SFAS No. 142
will require the Company to perform an assessment of whether there is an
indication that goodwill and other intangible assets are impaired as of January
1, 2002. Because of the extensive effort needed to comply with the adoption of
SFAS No. 142, further evaluation is still needed to complete the transitional
goodwill impairment test provisions, however preliminary indicators are that
adoption of the new standards should not have a material effect on the
consolidated financial statements. The assessment process will be completed no
later than June 30, 2002 and the recording of any impairment loss will be
completed as soon as possible but no later than the end of 2002. Any
transitional impairment loss, if any, will be recognized as a cumulative effect
of a change in accounting principle in the Company's statement of earnings.
As of December 31, 2001, the Company has unamortized goodwill in the amount
of $6,404 and unamortized identifiable intangible assets in the amount of
approximately $3,145, all of which will be subject to the transition provisions
of SFAS Nos. 141 and 142. Amortization expenses related to goodwill was $170 and
$0 for years ended December 31, 2001 and 2000, respectively. In connection with
the adoption of SFAS No. 142, managment has evaluated the Company's intangible
assets and determined that the Company has no indefinite useful life
intangibles. The Company has also evaluated the remaining useful lives of its
intangible assets that will continue to be amortized and has determined that no
revision to the useful lives will be required. Beginning January 1, 2002, in
accordance with SFAS No. 142, the Company is no longer recording amortization
expense related to goodwill. Although goodwill will no longer be systematically
amortized, periodic reviews will need to be conducted to assess whether or not
the carrying amount of goodwill may be impaired. Such reviews could result in
future write-downs of goodwill which would be reflected as a charge against
operating income.
20
In August 2001 the FASB issued SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. However, SFAS 144 retains the fundamental
provisions of SFAS 121 for (a) recognition and measurement of the impairment of
long-lived assets to be held and used and (b) measurement of long-lived assets
to be disposed of by sale. SFAS 144 supersedes the accounting and reporting
provisions of APB Opinion No. 30, Reporting the Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions, for the disposal of a
segment of a business. However, SFAS 144 retains the requirement of Opinion 30
to report discontinued operations separately from continuing operations and
extends that reporting to a component of an entity that either has been disposed
of (by sale, by abandonment, or in distribution to owners) or is classified as
held for sale. SFAS 144 also amends ARB No. 51, Consolidated Financial
Statements, to eliminate the exception to consolidation for a temporarily
controlled subsidiary. The Company is required to adopt SFAS 144 effective
January 1, 2002. The Company does not expect the adoption of SFAS 144 for
long-lived assets held for sale to have a material impact on its consolidated
financial statements because the impairment assessment under SFAS 144 is largely
unchanged from SFAS 121. The provisions of this statement for assets held for
sale or other disposal generally are required to be applied prospectively after
the adoption date to newly initiated disposal activities and therefore, will
depend on future actions initiated by management. As a result, the Company
cannot determine the potential effects that adoption of SFAS 144 will have on
its financial statements with respect to future disposal decisions, if any.
Critical Accounting Policies:
The Securities and Exchange Commission ("SEC") recently issued
disclosure guidance for "critical accounting policies." The SEC defines
"critical accounting policies" as those that require application of management's
most difficult, subjective or complex judgments, often as a result of the need
to make estimates about the effect of matters that are inherently uncertain and
may change in subsequent periods.
The Company's significant accounting policies are described in Note 1
of the Notes to Consolidated Financial Statements. Not all of these significant
accounting policies require management to make difficult, subjective or complex
judgments or estimates. However, the following policies could be deemed to be
critical within the SEC definition.
21
Use of Estimates
- ----------------
Management of the Company is required to make certain estimates and
assumptions during the preparation of consolidated financial statements in
accordance with accounting principles generally accepted in the United States of
America. These estimates and assumptions impact the reported amount of assets
and liabilities and disclosures of contingent assets and liabilities as of the
date of the consolidated financial statements. Estimates and assumptions are
reviewed periodically and the effects of revisions are reflected in the
consolidated financial statements in the period they are determined to be
necessary. Actual results could differ from those estimates.
Significant estimates underlying the accompanying consolidated
financial statements include inventory valuation, allowance for doubtful
accounts, useful lives of tangible and intangibles assets, fair market value
estimates in purchase accounting and various other operating allowances and
accruals.
Related Party Transactions:
The Company is not engaged and has not engaged in related party
transactions. All transactions of the Company have been at arms length.
Item 7A. 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 December 31, 2001,
the Company's only borrowings were under a bank term loan, which bears interest
at LIBOR plus 1.25%. A 100 basis point increase in interest rates, applied to
the Company's borrowings at December 31, 2001, would result in an increase in
annual interest expense and a corresponding reduction in cash flow of
approximately $131. 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 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.
22
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements and Supplementary Financial Data: Page
Independent Auditors' Report 24
Consolidated Balance Sheets as of
December 31, 2001 and 2000 25
Consolidated Statements of Earnings for the
years ended December 31, 2001, 2000 and 1999 27
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 2001, 2000 and 1999 28
Consolidated Statements of Cash Flows
for the years ended December 31, 2001, 2000 and 1999 29
Notes to Consolidated Financial Statements
for the years ended December 31, 2001, 2000 and 1999 30
Supplementary Financial Information (unaudited)
for the years ended December 31, 2001 and 2000 48
Financial Statement Schedule - Valuation and Qualifying
Accounts for the years ended December 31, 2001, 2000 and 1999 49
23
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, 2001 and 2000, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 2001. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule on valuation and qualifying
accounts for the three year period ended December 31, 2001. These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, 2001 and 2000 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
/s/KPMG LLP
- -----------
KPMG LLP
Short Hills, New Jersey
February 14, 2002
24
BALCHEM CORPORATION
Consolidated Balance Sheets
December 31, 2001 and 2000
(Dollars in thousands, except share and per share data)
Assets 2001 2000
------ ------- -------
Current assets:
Cash and cash equivalents $ 3,120 $ 3,068
Accounts receivable, net of allowance for doubtful
accounts of $50 and $48 at
December 31, 2001 and 2000, respectively 7,130 5,044
Inventories 5,575 2,554
Prepaid expenses 985 502
Deferred income taxes 214 200
------- -------
Total current assets 17,024 11,368
------- -------
Property, plant and equipment, net 17,904 7,765
Intangibles assets, net 9,549 4,089
------- -------
Total assets $44,477 $23,222
======= =======
25
BALCHEM CORPORATION
Consolidated Balance Sheets, continued
December 31, 2001 and 2000
(Dollars in thousands, except share and per share data)
Liabilities and Stockholders' Equity 2001 2000
------------------------------------ ---- ----
Current liabilities:
Trade accounts payable $ 2,885 $ 970
Accrued compensation and other benefits 1,542 1,135
Other accrued expenses -- 654
Dividends payable 305 277
Income taxes payable -- 208
Current portion of long-term debt 1,742 --
Current portion of other long-term obligations 3 36
-------- --------
Total current liabilities 6,477 3,280
-------- --------
Long-term debt 11,323 --
Deferred income taxes 351 225
Other long-term obligations 994 137
-------- --------
Total liabilities 19,145 3,642
-------- --------
Stockholders' equity:
Preferred stock, $25 par value. Authorized 2,000,000
shares; none issued and outstanding -- --
Common stock, $.0667 par value. Authorized 10,000,000 shares; 4,903,238
shares issued and 4,699,166 shares outstanding at December 31, 2001 and
4,903,238 shares issued and 4,616,170 shares outstanding at December 31, 2000 327 327
Additional paid-in capital 3,387 3,082
Retained earnings 23,773 18,968
Treasury stock, at cost: 204,072 and 287,068 shares at December 31, 2001
and 2000, respectively (2,155) (2,797)
-------- --------
Total stockholders' equity 25,332 19,580
-------- --------
Commitments and contingencies (note 12)
Total liabilities and stockholders' equity $ 44,477 $ 23,222
======== ========
See accompanying notes to consolidated financial statements.
26
BALCHEM CORPORATION
Consolidated Statements of Earnings
Years Ended December 31, 2001, 2000 and 1999
(In thousands, except per share data)
2001 2000 1999
-------- -------- --------
Net sales $ 46,142 $ 33,198 $ 29,682
Cost of sales 28,216 19,157 17,558
-------- -------- --------
Gross profit 17,926 14,041 12,124
Operating expenses:
Selling expenses 4,380 3,914 3,082
Research and development expenses 1,631 1,069 1,264
General and administrative expenses 3,760 3,120 2,765
-------- -------- --------
9,771 8,103 7,111
Earnings from operations 8,155 5,938 5,013
Other expenses (income):
Interest (income) (110) (106) (68)
Interest expense 387 48 179
Other (income) expense - net (491) -- (3)
-------- -------- --------
Earnings before income tax expense 8,369 5,996 4,905
Income tax expense 3,259 2,267 1,811
-------- -------- --------
Net earnings $ 5,110 $ 3,729 $ 3,094
======== ======== ========
Basic net earnings per common share $ 1.10 $ 0.80 $ 0.64
======== ======== ========
Diluted net earnings per common share $ 1.05 $ 0.78 $ 0.63
======== ======== ========
See accompanying notes to consolidated financial statements.
27
BALCHEM CORPORATION
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 2001, 2000 and 1999
(Dollars 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
--------- --------- --------- --------- ------- -------- ---------
Balance - December 31, 1998 4,875,914 $ 325 $ 2,783 $ 12,667 -- $ -- $ 15,775
Net earnings -- -- -- 3,094 -- -- 3,094
Dividends ($.05 per share) -- -- -- (245) -- -- (245)
Treasury shares purchased -- -- -- -- (128,400) (943) (943)
Shares issued under employee benefit
plans 19,927 2 124 -- 4,420 30 156
Grants of non-employee stock options -- -- 60 -- -- -- 60
Shares issued under employee stock
option plans 7,397 -- 27 -- 2,100 15 42
--------- --------- --------- --------- --------- --------- ----------
Balance - December 31, 1999 4,903,238 327 2,994 15,516 (121,880) (898) 17,939
Net earnings -- -- -- 3,729 -- -- 3,729
Dividends ($.06 per share) -- -- -- (277) -- -- (277)
Treasury shares purchased -- -- -- -- (214,916) (2,236) (2,236)
Shares issued under employee benefit
plans -- -- 58 -- 17,095 116 174
Shares issued under stock option plans net of
an income tax benefit of $77 -- -- 30 -- 32,633 221 251
--------- --------- --------- --------- --------- --------- ----------
Balance - December 31, 2000 4,903,238 327 3,082 18,968 (287,068) (2,797) 19,580
Net earnings -- -- -- 5,110 -- -- 5,110
Dividends ($.065 per share) -- -- -- (305) -- -- (305)
Shares issued under employee benefit
plans -- -- 116 -- 11,669 85 201
Shares issued under stock option plans net of
an income tax benefit of $235 -- -- 189 -- 71,327 557 746
--------- --------- --------- --------- --------- --------- ----------
Balance - December 31, 2001 4,903,238 $ 327 $ 3,387 $ 23,773 (204,072) $ (2,155) $ 25,332
========= ========= ========= ========= ========= ========= ==========
See accompanying notes to consolidated financial statements.
28
BALCHEM CORPORATION
Consolidated Statements of Cash Flows
Years Ended December 31, 2001, 2000 and 1999
(In thousands, except per share data)
2001 2000 1999
-------- -------- --------
Cash flows from operating activities:
Net earnings $ 5,110 $ 3,729 $ 3,094
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 2,621 2,015 2,028
Non-employee stock compensation -- -- 60
Income tax benefit from stock options exercised 235 77 --
Shares issued under employee benefit plans 201 174 156
Deferred income tax (benefit) expense 112 (168) (113)
Provision for doubtful accounts 65 48 --
Changes in assets and liabilities net of effects of acquisition:
Accounts receivable (2,149) (1,111) (698)
Inventories (3,021) 194 127
Prepaid expenses (452) (1) (25)
Accounts payable and accrued expenses 637 936 (249)
Income taxes payable (208) 77 329
Other long-term obligations 71 (17) (27)
-------- -------- --------
Net cash provided by operating activities 3,222 5,953 4,682
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (1,950) (881) (602)
Cash paid for product lines acquired (14,259) -- --
Cash paid for intangibles assets acquired (137) (75) (97)
-------- -------- --------
Net cash used in investing activities (16,346) (956) (699)
-------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt 13,500 -- --
Principal payments on long-term debt (435) (1,250) (2,500)
Proceeds from stock options and warrants exercised 511 174 42
Dividends paid (277) (245) (160)
Purchase of treasury stock -- (2,236) (943)
Other financing activities (123) (71) (71)
-------- -------- --------
Net cash provided by (used in) financing activities 13,176 (3,628) (3,632)
-------- -------- --------
Increase in cash and cash equivalents 52 1,369 351
Cash and cash equivalents beginning of year 3,068 1,699 1,348
-------- -------- --------
Cash and cash equivalents end of year $ 3,120 $ 3,068 $ 1,699
======== ======== ========
See accompanying notes to consolidated financial statements.
29
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 ("Balchem", or the "Company"), 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.
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 risk of loss.
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid debt instruments with a maturity of
three months or less to be cash equivalents.
Inventories
- -----------
Inventories are stated at the lower of cost or market, with cost generally
determined on a first-in, first-out basis.
Property, Plant and Equipment and Depreciation
- ----------------------------------------------
Property, plant and equipment are stated at cost. Depreciation of plant and
equipment is calculated using the straight-line method over the estimated useful
lives of the assets as follows:
Buildings 15-25 years
Equipment 3-12 years
Expenditures for repairs and maintenance are charged to expense. Alterations and
major overhauls that extend the lives or increase the capacity of plant assets
are capitalized. When assets are retired or otherwise disposed of, the cost of
the assets and the related accumulated depreciation are removed from the
30
accounts and any resultant gain or loss is included in earnings.
Goodwill and Other Intangible Assets
- ------------------------------------
Goodwill is amortized on a straight line basis over a 20 year period. Other
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
- ----------------
Management of the Company is required to make certain estimates and assumptions
during the preparation of consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America. These
estimates and assumptions impact the reported amount of assets and liabilities
and disclosures of contingent assets and liabilities as of the date of the
consolidated financial statements. Estimates and assumptions are reviewed
periodically and the effects of revisions are reflected in the consolidated
financial statements in the period they are determined to be necessary. Actual
results could differ from those estimates.
Significant estimates underlying the accompanying consolidated financial
statements include inventory valuation, allowance for doubtful accounts, useful
lives and recoverability of tangible and intangibles assets, fair market value
estimates in purchase accounting and various other operating allowances and
accruals.
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, 2001 and 2000 does not differ materially from the
aggregate carrying values of its financial instruments recorded in the
accompanying consolidated balance sheets. The estimated fair value amounts have
been determined by the Company using available market information and
31
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.
Accounting for Derivative Instruments and Hedging Activities
- ------------------------------------------------------------
Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended, ("SFAS 133") which
requires that all derivative financial instruments be reported on the balance
sheet at fair value and establishes criteria for designation and effectiveness
of transactions entered into for hedging purposes.
The implementation of this standard did not have a material effect on the
Company's consolidated financial statements because the Company did not have any
financial instruments entered into for trading or hedging purposes during the
year-ended December 31, 2001, nor does the Company currently have any derivative
financial instruments or derivative commodity instruments outstanding at
December 31, 2001 and 2000.
Research and Development
- ------------------------
Research and development costs are expensed as incurred.
Stock Option Plan
- -----------------
The Company applies the intrinsic value-based method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations including FASB Interpretation No. 44,
"Accounting for Certain Transactions involving Stock Compensation and
interpretation of APB Opinion No. 25" issued in March 2000, to account for its
fixed plan stock options. Under this method, compensation expense is recorded on
the date of grant only if the current market price of the underlying stock
exceeded the exercise price. SFAS No. 123, "Accounting for Stock-Based
Compensation," established accounting and disclosure requirements using a fair
value-based method of accounting for stock-based employee compensation plans. As
allowed by SFAS No. 123, the Company has elected to continue to apply the
intrinsic value-based method of accounting described above, and has adopted the
disclosure requirements of SFAS No. 123.
32
Impairment of Long-lived Assets
- -------------------------------
Long-lived assets, including goodwill and other intangible 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 Common Share
- -----------------------------
Basic net earnings per common share is calculated by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
net earnings per common share is calculated in a manner consistent with basic
net earnings per common 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, 2001 and 2000 consist of the following:
- -----------------------------------------------------------
2001 2000
- -----------------------------------------------------------
Raw materials $ 2,152 $ 1,147
Finished goods 3,423 1,407
- -----------------------------------------------------------
Total inventories $ 5,575 $ 2,554
- -----------------------------------------------------------
NOTE 3- PROPERTY, PLANT AND EQUIPMENT
- -------------------------------------
Property, plant and equipment at December 31, 2001 and 2000 are summarized as
follows:
- --------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------
Land $ 290 $ 60
Building 7,094 4,551
Equipment 18,804 10,913
Construction in Progress 902 98
- --------------------------------------------------------------------------------
27,090 15,622
Less: Accumulated depreciation 9,186 7,857
- --------------------------------------------------------------------------------
Net property, plant and equipment $ 17,904 $ 7,765
- --------------------------------------------------------------------------------
33
NOTE 4 - ACQUISITION OF ASSETS
- ------------------------------
Effective as of June 1, 2001, pursuant to a certain Asset Purchase Agreement,
dated as of May 21, 2001 (the "Asset Purchase Agreement"), BCP Ingredients, Inc.
("Buyer"), a wholly owned subsidiary of Balchem Corporation, acquired certain
assets, excluding accounts receivable and inventories, relating to the choline
animal feed, human choline nutrient and encapsulated product lines of DCV, Inc.
and its affiliate, DuCoa L.P., including DuCoa's manufacturing facility in
Verona, Missouri, for a purchase price, including acquisition costs, of
approximately $15,290, of which approximately $14,259 was paid in cash, with the
balance reflecting the assumption by the Buyer of certain liabilities. The Buyer
also assumed certain obligations of DuCoa for retiree medical benefits under the
collective bargaining agreement covering various employees at the Verona
facility. The acquisition was financed with a $13,500 term loan and
approximately $759 in existing cash. The Asset Purchase Agreement also called
for the payment of up to an additional $2,750 based upon the sales of specified
product lines achieving certain gross margin levels (in excess of specified
thresholds) over the three year period following the closing, with no more than
$1,000 payable for any particular yearly period. Such contingent consideration
will be recorded as an additional cost of the acquired product lines. No such
contingent consideration has been earned or paid as of December 31, 2001. Cost
in excess of net assets acquired (goodwill) of approximately $6,562 is being
amortized over 20 years and is included in intangible assets. The allocation of
the purchase price of the acquisition has been assigned to the net assets
acquired as follows:
- ----------------------------------------------------------------
Fair Value Recorded
in Purchase Accounting
- ----------------------------------------- ----------------------
Property, plant and equipment $ 9,518
Retiree Medical Obligation (821)
Other Receivable 31
- ----------------------------------------------------------------
Goodwill 6,562
- ----------------------------------------------------------------
Total Purchase Price $ 15,290
Current Liabilities Assumed (1,031)
- ----------------------------------------------------------------
Total Cash Paid $ 14,259
- ----------------------------------------------------------------
The above acquisition has been accounted for using the purchase method of
accounting and, the purchase price of the acquisition has been assigned to the
net assets acquired based on the fair value of such assets and liabilities at
the date of acquisition. The consolidated financial statements include the
results of operations of the acquired product lines from the date of purchase.
34
Pro Forma Summary of Operations:
The following unaudited pro forma information has been prepared as if the
aforementioned acquisition had occurred on January 1, 2000 and does not include
cost savings expected from the transaction. In addition to including the results
of operations, the pro forma information gives effect primarily to interest on
borrowings to finance the acquisition and changes in depreciation and
amortization of tangible and intangible assets resulting from the acquisition.
The pro forma information presented does not purport to be indicative of the
results that actually would have been attained if the aforementioned
acquisition, and related financing transactions had occurred at the beginning of
the periods presented and is not intended to be a projection of future results.
- --------------------------------------------------------------------------
Pro-Forma
Twelve Months Ended
December 31,
2001 2000
- --------------------------------------------------------------------------
Net sales $ 54,866 $ 52,431
Net earnings 4,482 3,253
Basic EPS .96 .69
Diluted EPS .92 .68
NOTE 5- INTANGIBLE ASSETS
- -------------------------
Intangible assets at December 31, 2001 and 2000 consist of the following:
- ----------------------------------------------------------------------------
2001 2000
- ----------------------------------------------------------------------------
Customer lists $ 6,760 $ 6,760
Goodwill 6,574 12
Re-registration costs 356 356
Covenants not to compete 295 295
Patents 293 215
Trademarks 148 90
Other 76 23
- ----------------------------------------------------------------------------
14,503 7,751
- ----------------------------------------------------------------------------
Less: Accumulated amortization 4,954 3,662
- ----------------------------------------------------------------------------
Net intangible assets $ 9,549 $ 4,089
- ----------------------------------------------------------------------------
The Company has classified as goodwill the cost in excess of net assets acquired
of acquired assets described in note 4 above. Goodwill is being amortized on a
straight-line basis over twenty years.
35
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.
The Company is in the process of re-registering a product it sells for
sterilization of medical devices and other uses. The re-registration requirement
is a result of a congressional enactment during 1988 requiring the
re-registration of this product and all other products that are used as
pesticides. The Company, in conjunction with one other company, has been
conducting the required testing under the direction of the Environmental
Protection Agency ("EPA"). Testing has concluded and the EPA has stated that,
due to a backlog of projects, it cannot anticipate a date for completing the
re-registration process for this product at this time. 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 6 - LONG-TERM DEBT & CREDIT AGREEMENTS
- -------------------------------------------
On June 1, 2001, the Company and its principal bank entered into a Loan
Agreement (the "Loan Agreement") providing for a term loan of $13,500 (the "Term
Loan"), the proceeds of which were used to fund the aforementioned acquisition
of certain assets of DCV, Inc. and its affiliate Ducoa L.P. The Term Loan is
payable, beginning October 1, 2001, in equal monthly installments of principal
totaling approximately $145, together with accrued interest, and has a maturity
date of June 1, 2009. Borrowing under the Term Loan bears interest at LIBOR plus
1.25% (3.39% at December 31, 2001). Certain provisions of the Term Loan require
maintenance of certain financial ratios, limit future borrowings and impose
certain other requirements as contained in the agreement. At December 31, 2001,
the Company was in compliance with all restrictive covenants contained in the
Loan Agreement.
36
As of December 31, 2001, long-term debt matures as follows:
- ---------------------------
2002 $ 1,742
2003 1,742
2004 1,742
2005 1,742
2006 1,742
2007 1,742
2008 1,742
2009 871
- ---------------------------
Total $ 13,065
- ---------------------------
The Loan Agreement also provides for a short-term revolving credit facility of
$3,000 (the "Revolving Facility"). Borrowings under the Revolving Facility bear
interest at LIBOR plus 1.00% (3.14% at December 31, 2001). No amounts have been
drawn on the Revolving Facility as of the date hereof. The revolving credit
facility expires on May 31, 2002. Management expects the facility to be renewed
in the normal course of business into 2003.
Indebtedness under the Loan Agreement is secured by substantially all of the
assets of the Company other than real properties.
There was no long-term debt outstanding at December 31, 2000.
NOTE 7 - INCOME TAXES
- ---------------------
Income tax expense (benefit) attributable to earnings before income tax expense
consists of the following:
- --------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------
Current:
Federal $ 2,515 $ 2,018 $ 1,598
State 632 417 326
Deferred:
Federal 99 (149) (102)
State 13 (19) (11)
- --------------------------------------------------------------------------------
Total income tax provision $ 3,259 $ 2,267 $ 1,811
- --------------------------------------------------------------------------------
The provision for income taxes differs from the amount computed by applying the
Federal statutory rate of 34% to earnings before income tax expense in 2001,
2000 and 1999 due to the following :
- --------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------
Income tax at Federal
Statutory rate $ 2,846 $ 2,039 $ 1,668
State income taxes, net of
Federal income tax benefit 426 263 208
Other (13) (35) (65)
- --------------------------------------------------------------------------------
Total income tax provision $ 3,259 $ 2,267 $ 1,811
- --------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 2001 and
20008 are as follows:
37
- --------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------
Deferred tax assets:
Amortization $ 667 $ 504
Inventories 122 121
Deferred compensation 35 41
Non-employee stock options 99 99
Other 99 92
- --------------------------------------------------------------------------------
Total deferred tax assets 1,022 857
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation 1,159 882
- --------------------------------------------------------------------------------
Total deferred tax liabilities 1,159 882
- --------------------------------------------------------------------------------
Net deferred tax liability $ 137 $ 25
- --------------------------------------------------------------------------------
There is no valuation allowance for deferred tax assets at December 31, 2001 and
2000. 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.
NOTE 8 - 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. In June 2001, the board of directors authorized
an extension to the stock repurchase program for up to an additional 600,000
shares through June 30, 2002. Since inception of its repurchase authorization,
38
through December 31, 2001, the Company had repurchased 343,316 shares at an
average cost of $9.26 per share for a total value of $3,179.
In June 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. 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 generally become exercisable 20% after 1 year, 60% after 2 years and 100%
after 3 years from the date of grant for employees and are fully exercisable on
the date of grant for directors. Other 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 replaced 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 remain 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.
The Company applies APB Opinion No. 25 in accounting for employee and director
stock options and, accordingly, when the exercise price of the options is equal
to or greater than the fair value of the stock on date of grant, no compensation
cost is recognized in the consolidated 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 as
set forth below for the years ended December 31:
- ----------------------------------------------------------------------------
2001 2000 1999
- ----------------------------------------------------------------------------
Net Earnings
As Reported $ 5,110 $ 3,729 $ 3,094
Pro forma 4,814 3,465 2,971
Earnings per share
As Reported - Basic $ 1.10 $ .80 $ .64
Pro forma - Basic 1.03 .74 .61
As Reported - Diluted 1.05 .78 .63
Pro forma - Diluted .99 .73 .61
- ----------------------------------------------------------------------------
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 2001, 2000 and 1999, respectively: dividend yield
of .50%, .52% and .46%; expected volatility of 49%, 54% and 48%; risk-free
39
interest rates of 4.4%, 4.9% and 6.3%; and expected life of five years for 2001
and 2000 and six years for 1999, respectively. The weighted average fair values
of options granted during the years 2001, 2000 and 1999 were $10.94, $7.23 and
$4.66, respectively.
A charge to earnings and corresponding increase to additional paid-in capital of
approximately $60 was recorded for options granted in 1999 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: dividend yield of .46%; expected volatility of 48%; risk-free
interest rates of 6.3%; and expected life of three years. The weighted average
fair values of options granted during 1999 was $2.92.
A summary of stock option plan activity for 2001, 2000 and 1999 for all plans is
as follows:
- --------------------------------------------------------------------------------
# of Weighted Average
2001 Shares Exercise Price
- ------------------------------------------ --------------- ---------------------
Outstanding at beginning of year 441,797 $ 8.55
Granted 179,662 18.96
Exercised 71,327 7.15
Terminated or expired 5,760 8.49
- --------------------------------------------------------------------------------
Outstanding at end of year 544,372 $12.17
- --------------------------------------------------------------------------------
Exercisable at end of year 326,972 $ 9.68
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
# of Weighted Average
2000 Shares Exercise Price
- --------------------------------------------------------------------------------
Outstanding at beginning of year 427,322 $ 7.92
Granted 103,711 11.42
Exercised (32,621) 5.32
Terminated or expired (56,615) 10.87
- --------------------------------------------------------------------------------
Outstanding at end of year 441,797 $ 8.55
- --------------------------------------------------------------------------------
Exercisable at end of year 314,627 $ 8.51
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
# of Weighted Average
1999 Shares Exercise Price
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
40
Information related to stock options outstanding under all plans at December 31,
2001 is as follows:
- ------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
------------------------------ -----------------------------
Weighted Average
Remaining Weighted Weighted
Contractual Average Average
Range of Exercise Shares Life Exercise Number Exercise
Prices Outstanding Price Exercisable Price
- -------------------------- ----------------- ------------------ --------------- ---------------- ----------------
$ 2.45 - $ 9.00 177,130 6.4 years $ 6.45 155,650 $ 6.45
9.50 - 14.39 232,580 7.7 years 11.69 146,060 11.17
15.10 - 21.35 134,662 9.8 years 20.52 25,262 20.96
- -----------------------------------------------------------------------------------------------------------------
544,372 7.8 years $ 12.17 326,972 $ 9.68
- -----------------------------------------------------------------------------------------------------------------
NOTE 9 - NET EARNINGS PER SHARE
- -------------------------------
The following presents a reconciliation of the numerator and denominator used in
calculating basic and diluted net earnings per share:
- ------------------------------------------------------------------------------------------------------------------
Number of
Earnings Shares Per Share
2001 (Numerator) (Denominator) Amount
- ------------------------------------------------------------------------------------------------------------------
Basic EPS - Net earnings and weighted average common
shares outstanding $5,110 4,660,922 $1.10
Effect of dilutive securities - stock options 186,555
---------
Diluted EPS - Net earnings and weighted average common
shares outstanding and effect of stock options
$5,110 4,847,477 $1.05
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Number of
Earnings Shares Per Share
2000 (Numerator) (Denominator) Amount
- ------------------------------------------------------------------------------------------------------------------
Basic EPS - Net earnings and weighted average common
shares outstanding $3,729 4,683,355 $.80
Effect of dilutive securities - stock options 89,423
---------
Diluted EPS - Net earnings and weighted average common
shares outstanding and effect of stock options
$3,729 4,772,778 $.78
- ------------------------------------------------------------------------------------------------------------------
41
Number of
Earnings Shares Per Share
1999 (Numerator) (Denominator) Amount
- ------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------
At December 31, 2001, the Company had 103,562 stock options outstanding that
could potentially dilute basic earnings per share in future periods that were
not included in diluted earnings per share because their effect on the period
presented was anti-dilutive.
NOTE 10 - EMPLOYEE BENEFIT PLANS
- --------------------------------
The Company sponsors a 401(k) savings plan for eligible employees. 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 $263 and
$201 in 2001, $208 and $174 in 2000 and $186 and $156 in 1999, respectively.
The Company also currently provides postretirement benefits in the form of a
retirement medical plan under a collective bargaining agreement covering
eligible retired employees of the Verona facility.
The actuarial and recorded liabilities for such unfunded postretirement benefit
is as follows:
Change in benefit obligation:
- --------------------------------------------------------------------------------
2001
- --------------------------------------------------------------------------------
Service Cost with Interest to End of Year $ 40
Interest Cost -
Expected Return on Assets -
Amortization of Transition Amount -
Amortization of Prior Service Cost -
Amortization of (Gain)/Loss -
- --------------------------------------------------------------------------------
Net Periodic Postretirement Benefit Cost $ 40
- --------------------------------------------------------------------------------
42
Amounts recognized in consolidated balance sheet:
- --------------------------------------------------------------------------------
2001
- --------------------------------------------------------------------------------
Accumulated Postretirement Benefit Obligation $ (950)
Fair Value of Plan Assets --
Funded Status (950)
Unrecognized Transition Obligation --
Unrecognized Prior Service Cost --
Unrecognized Net (Gain)/Loss 89
- --------------------------------------------------------------------------------
Accrued Postretirement Benefit Cost (included in other long-term
obligations) $ 861
- --------------------------------------------------------------------------------
Assumed health care cost trend rates have been used in the valuation of
postretirement health insurance benefits. The trend rate is 12 percent in 2001
declining to 5.5 percent in 2009 and thereafter. A one percentage point increase
in health care cost trend rates in each year would increase the accumulated
postretirement benefit obligation as of December 31, 2001 by $138 and the net
periodic postretirement benefit cost for 2001 by $11. A one percentage point
decrease in health care cost trend rates in each year would decrease the
accumulated postretirement benefit obligation as of December 31, 2001 by $129
and the net periodic postretirement benefit cost for 2001 by $10. The weighted
average discount rate used in determining the accumulated postretirement benefit
obligation was 7.25% for 2001.
NOTE 11 - BUSINESS CONCENTRATIONS
- ---------------------------------
A Specialty Products customer accounted for 11%, 13% and 16% of the Company's
consolidated net sales for 2001, 2000 and 1999, respectively. This customer
accounted for 11% and 10% of the Company's accounts receivable balance at
December 31, 2001 and 2000, respectively. Approximately 8%, 9% and 9% of the
Company's net sales consisted of sales outside the United States, predominately
to Europe, for 2001, 2000 and 1999, respectively.
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.
NOTE 12 - LEASES
- ----------------
The Company leases most of its vehicles and office equipment under noncancelable
operating leases, which expire at various times through 2004. Rent expense
charged to operations under such lease agreements for 2001, 2000 and 1999
aggregated approximately $310, $326 and $335, respectively. Aggregate future
minimum rental payments required under noncancelable operating leases at
43
December 31, 2001 are as follows:
- ---------------------------------------------
Year
- ---------------------------------------------
2002 $ 192
2003 147
2004 74
- ---------------------------------------------
Total minimum lease payments $ 413
- ---------------------------------------------
In February, 2002, the Company entered into a ten (10) year lease for
approximately 20,000 square feet of office space. Following completion of
construction, the office space is expected to serve as the Company's general
offices and as laboratory facilities for the Company's encapsulated/nutritional
products business. Aggregate future minimum rental payments required under this
and the above noted operating leases are as follows:
- ---------------------------------------------------
Year
- ---------------------------------------------------
2002 $ 315
2003 392
2004 319
2005 245
2006 245
Thereafter 852
- ---------------------------------------------------
Total minimum lease payments $ 2,368
- ---------------------------------------------------
NOTE 13 - SEGMENT INFORMATION
- -----------------------------
The Company's reportable segments are strategic businesses that offer products
and services to different markets. As a result of the aforementioned acquisition
of certain assets of DCV, Inc. and its affiliate, DuCoa L.P., the Company
presently has three segments, specialty products, encapsulated / nutritional
products and, the unencapsulated feed supplements segment. Products relating to
choline animal feed for non-ruminant animals are primarily reported in the
unencapsulated feed supplements segment. Human choline nutrient products and
encapsulated products are reported in the encapsulated / nutritional products
segment. 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 / nutritional products segment is in the business of encapsulating
performance ingredients for use throughout the food and animal health industries
for processing, mixing, packaging applications and nutritional fortification and
for shelf-life improvement. The unencapsulated feed supplements segment is in
the business of manufacturing and supplying choline chloride, an essential
nutrient for animal health, to the poultry and swine industries. In addition,
certain derivatives of choline chloride are also manufactured and sold into
44
industrial applications and are included in the encapsulated feed supplement
segment. The Company sells products for all 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.
Business Segment Net Sales:
- --------------------------------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------------------------------
Specialty Products $ 21,130 $ 20,113 $ 19,843
Encapsulated/Nutritional Products 18,312 13,085 9,839
Unencapsulated Feed Supplements 6,700 - -
- --------------------------------------------------------------------------------------------------------
Total $ 46,142 $ 33,198 $ 29,682
- --------------------------------------------------------------------------------------------------------
Business Segment Earnings (Loss):
- --------------------------------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------------------------------
Specialty Products $ 6,612 $ 5,605 $ 5,613
Encapsulated/Nutritional Products 1,582 333 (600)
Unencapsulated Feed Supplements (39) - -
Interest expense and other income (expense)
214 58 (108)
- --------------------------------------------------------------------------------------------------------
Earnings before income taxes $ 8,369 $ 5,996 $ 4,905
- --------------------------------------------------------------------------------------------------------
Depreciation/Amortization:
- --------------------------------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------------------------------
Specialty Products $ 1,587 $ 1,666 $ 1,706
Encapsulated/Nutritional Products 373 349 322
Unencapsulated Feed Supplements 661 - -
- --------------------------------------------------------------------------------------------------------
Total $ 2,621 $ 2,015 $ 2,028
- --------------------------------------------------------------------------------------------------------
Business Segment Assets:
- --------------------------------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------------------------------
Specialty Products $ 11,074 $ 11,679 $ 12,680
Encapsulated/Nutritional Products 10,798 7,442 6,527
Unencapsulated Feed Supplements 18,181 - -
Other Unallocated 4,424 4,101 2,823
- --------------------------------------------------------------------------------------------------------
Total $ 44,477 $ 23,222 $ 22,030
- --------------------------------------------------------------------------------------------------------
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.
45
Expenditures for Segment Assets:
- --------------------------------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------------------------------
Specialty Products $ 414 $ 516 $ 256
Encapsulated/Nutritional Products 1,175 365 346
Unencapsulated Feed Supplements 361 -- --
- --------------------------------------------------------------------------------------------------------
Total $ 1,950 $ 881 $ 602
- --------------------------------------------------------------------------------------------------------
Geographic Revenue Information:
- --------------------------------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------------------------------
United States $ 42,606 $ 30,187 $ 26,970
Foreign Countries 3,536 3,011 2,712
- --------------------------------------------------------------------------------------------------------
Total $ 46,142 $ 33,198 $ 29,682
- --------------------------------------------------------------------------------------------------------
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.
Note 14 - SUPPLEMENTAL CASH FLOW INFORMATION
- --------------------------------------------
Cash paid during the year for:
- ----------------------------------------------------------------------
2001 2000 1999
- ----------------------------------------------------------------------
Income taxes $ 3,220 $ 2,281 $ 1,607
Interest $ 387 $ 47 $ 174
- ----------------------------------------------------------------------
Non-cash financing activities:
- ----------------------------------------------------------------------
2001 2000 1999
- ----------------------------------------------------------------------
Dividends declared $ 305 $ 277 $ 245
- ----------------------------------------------------------------------
NOTE 15 - NEW ACCOUNTING PRONOUNCEMENTS
- ---------------------------------------
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, "Business Combinations," and SFAS No. 142, Goodwill and Other Intangible
Assets." SFAS No. 141 requires that the purchase method of accounting be used
for all business combinations completed after June 30, 2001. SFAS No. 142
requires that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead be tested for impairment at least annually in
accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that
intangible assets with definite useful lives be amortized over their respective
estimated useful lives to their estimated residual value, and reviewed for
impairment in accordance with SFAS No. 144, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The Company adopted the provisions of SFAS No. 141 immediately and adopted SFAS
No. 142 effective January 1, 2002.
Goodwill and intangible assets acquired in business combinations completed
before July 1, 2001 were amortized through the end of 2001.
46
In connection with the transitional impairment evaluation, SFAS No. 142 will
require the Company to perform an assessment of whether there is an indication
that goodwill and other intangible assets are impaired as of January 1, 2002.
Because of the extensive effort needed to comply with the adoption of SFAS No.
142, further evaluation is still needed to complete the transitional goodwill
impairment test provisions, however preliminary indicators are that adoption of
the new standards should not have a material effect on the consolidated
financial statements. The assessment process will be completed no later than
June 30, 2002 and the recording of any impairment loss will be completed as soon
as possible but no later than the end of 2002. Any transitional impairment loss,
if any, will be recognized as a cumulative effect of a change in accounting
principle in the Company's statement of earnings.
As of December 31, 2001, the Company has unamortized goodwill in the amount of
$6,404 and unamortized identifiable intangible assets in the amount of
approximately $3,145, all of which will be subject to the transition provisions
of SFAS Nos. 141 and 142. Amortization expenses related to goodwill was $170 and
$0 for years ended December 31, 2001 and 2000, respectively. In connection with
the adoption of SFAS No. 142, management has evaluated the company's intangible
assets and determined that management has no indefinite useful life intangibles.
Management has also evaluated the remaining useful lives of the company's
intangible assets that will continue to be amortized and have determined that no
revision to the useful lives will be required. Beginning January 1, 2002, in
accordance with SFAS No. 142, the Company is no longer recording amortization
expense related to goodwill. Although goodwill will no longer be systematically
amortized, periodic reviews will need to be conducted to assess whether or not
the carrying amount of goodwill may be impaired. Such reviews could result in
future write-downs of goodwill which would be reflected as a charge against
operating income.
In August 2001 the FASB issued SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. However, SFAS 144 retains the fundamental
provisions of SFAS 121 for (a) recognition and measurement of the impairment of
long-lived assets to be held and used and (b) measurement of long-lived assets
to be disposed of by sale. SFAS 144 supersedes the accounting and reporting
provisions of APB Opinion No. 30, Reporting the Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions, for the disposal of a
segment of a business. However, SFAS 144 retains the requirement of Opinion 30
to report discontinued operations separately from continuing operations and
extends that reporting to a component of an entity that either has been disposed
of (by sale, by abandonment, or in distribution to owners) or is classified as
held for sale. SFAS 144 also amends ARB No. 51, Consolidated Financial
Statements, to eliminate the exception to consolidation for a temporarily
controlled subsidiary. The Company is required to adopt SFAS 144 effective
January 1, 2002. The company does not expect the adoption of SFAS 144 for
long-lived assets held for sale to have a material impact on its consolidated
financial statements because the impairment assessment under SFAS 144 is largely
unchanged from SFAS 121. The provisions of this statement for assets held for
sale or other disposal generally are required to be applied prospectively after
the adoption date to newly initiated disposal activities and therefore, will
depend on future actions initiated by management. As a result, the Company
cannot determine the potential effects that adoption of SFAS 144 will have on
its financial statements with respect to future disposal decisions, if any.
47
Supplementary Financial Information (unaudited):
(In thousands, except per share data)
- -----------------------------------------------------------------------------------------------------------------------------
2001 2000
- -----------------------------------------------------------------------------------------------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------------------------------
Net sales $ 8,024 10,189 $ 13,849 $ 14,080 $ 7,751 $ 7,849 $ 8,450 $ 9,148
Gross profit 3,542 4,165 4,932 5,287 3,113 3,257 3,574 4,097
Earnings before
Income taxes 1,780 1,809 2,179 2,601 1,296 1,376 1,517 1,807
Net earnings 1,113 1,148 1,308 1,541 809 847 984 1,089
Basic net earnings per
Common share $ .24 $ .25 $ .28 $ .33 $ .17 $ .18 $ .21 $ .24
Diluted net earnings
per common share $ .23 $ .24 $ .27 $ .31 $ .17 $ .18 $ .21 $ .23
- -----------------------------------------------------------------------------------------------------------------------------
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
48
BALCHEM CORPORATION
Valuation and Qualifying Accounts
Years Ended December 31, 2001, 2000 and 1999
(In thousands)
Balance at Charges to Charges to
Beginning of Costs and Other Balance at
Description Year Expenses Accounts Deductins End of Year
----------- ---- -------- -------- --------- -----------
Allowance for doubtful accounts:
Year ended December 31, 2001 $ 48 $ 65 $ (63) (a) $ 50
Year ended December 31, 2000 - 48 - - 48
Year ended December 31, 1999 - - - - -
(a) represents write-offs.
49
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 2002 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.
Exhibits:
50
2.1 Asset Purchase Agreement, dated as of May 21, 2001, among BCP
Ingredients, Inc. and DuCoa L.P., DCV, Inc. and DCV GPH, Inc.
and certain related agreements (forms of which constitute
Exhibits to the Asset Purchase Agreement) as executed. (The
Disclosure Schedule identified throughout Asset Purchase
Agreement, Schedule A to the Obligations Undertaking (list of
contracts assumed by BCP Ingredients, Inc.) and the Power of
Attorney and Security Agreement (referred to in Section 2.6 of
the Asset Purchase Agreement) and Post-Closing Escrow
Agreement (referred to in Sections 3.2.2 and 3.3.3 of the
Asset Purchase Agreement), have been omitted. The Company
agrees to furnish a copy of these documents on a supplemental
basis to the Securities and Exchange Commission upon request.)
(incorporated by reference to exhibit 2.1 to the Company's
Current Report on Form 8-K, dated June, 2001(the "2001 8-K".))
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.
4.1 Loan Agreement dated June 1, 2001 by and between Fleet
National Bank and Balchem Corporation, Note dated June 1, 2001
from Balchem Corporation to Fleet National Bank, and
Promissory Note (Revolving Line of Credit) dated June 1, 2001
from Balchem Corporation to Fleet National Bank (incorporated
by reference to exhibit 4.1 to the 2001 8-K).
4.2 Guaranty dated June 1, 2001 from BCP Ingredients, Inc. to
Fleet National Bank (incorporated by reference to exhibit 4.2
to the 2001 8-K).
4.3 Security Agreement dated June 1, 2001 from Balchem Corporation
to Fleet National Bank (incorporated by reference to exhibit
4.3 to the 2001 8-K).
4.4 Security Agreement dated June 1, 2001 from BCP Ingredients,
Inc. to Fleet National Bank (incorporated by reference to
exhibit 4.4 to the 2001 8-K).
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").*
51
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 January 1, 2001, between the
Company and Dino A. Rossi. *
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 Lease dated as of February 8, 2002 between Sunrise Park
Realty, Inc. and Balchem Corporation.
21. Subsidiaries of Registrant.
23.1 Consent of KPMG LLP, Independent Auditors
27. Financial Data Schedule.
* Each of the Exhibits noted by an asterisk is a management
compensatory plan or arrangement.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the
year ended December 31, 2001.
52
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 28, 2002 BALCHEM CORPORATION
By:/s/ Dino A. Rossi
-----------------
Dino A. Rossi, President,
Chief Executive Officer
53
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 28, 2002
By:/s/ Francis J. Fitzpatrick
--------------------------
Francis J. Fitzpatrick, Controller
Date: March 28, 2002
By:/s/ John E. Beebe
-----------------
John E. Beebe, Director
Date: March 28, 2002
By:/s/ Francis X. McDermott
------------------------
Francis X. McDermott, Director
Date: March 28, 2002
By:/s/ Kenneth P. Mitchell
-----------------------
Kenneth P. Mitchell, Director
Date: March 28, 2002
By:/s/ Israel Sheinberg
--------------------
Israel Sheinberg, Director
Date: March 28, 2002
By:/s/ Hoyt Ammidon, Jr.
---------------------
Hoyt Ammidon, Jr., Director
Date: March 28, 2002
54
EXHIBIT INDEX
PAGE
NUMBER
Item 14. Exhibits and Reports on Form 8-K.
Exhibits:
2.1 Asset Purchase Agreement, dated as of May 21, 2001, among BCP
Ingredients, Inc. and DuCoa L.P., DCV, Inc. and DCV GPH, Inc.
and certain related agreements (forms of which constitute
Exhibits to the Asset Purchase Agreement) as executed. (The
Disclosure Schedule identified throughout Asset Purchase
Agreement, Schedule A to the Obligations Undertaking (list of
contracts assumed by BCP Ingredients, Inc.) and the Power of
Attorney and Security Agreement (referred to in Section 2.6 of
the Asset Purchase Agreement) and Post-Closing Escrow
Agreement (referred to in Sections 3.2.2 and 3.3.3 of the
Asset Purchase Agreement), have been omitted. The Company
agrees to furnish a copy of these documents on a supplemental
basis to the Securities and Exchange Commission upon request.)
(incorporated by reference to exhibit 2.1 to the Company's
Current Report on Form 8-K dated June, 2001(the "2001 8-K".))
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.
4.1 Loan Agreement dated June 1, 2001 by and between Fleet
National Bank and Balchem Corporation, Note dated June 1, 2001
from Balchem Corporation to Fleet National Bank, and
Promissory Note (Revolving Line of Credit) dated June 1, 2001
from Balchem Corporation to Fleet National Bank (incorporated
by reference to exhibit 4.1 to the 2001 8-K).
4.2 Guaranty dated June 1, 2001 from BCP Ingredients, Inc. to
Fleet National Bank (incorporated by reference to exhibit 4.2
to the 2001 8-K).
4.3 Security Agreement dated June 1, 2001 from Balchem Corporation
to Fleet National Bank (incorporated by reference to exhibit
4.3 to the 2001 8-K).
55
4.4 Security Agreement dated June 1, 2001 from BCP Ingredients,
Inc. to Fleet National Bank (incorporated by reference to
exhibit 4.4 to the 2001 8-K).
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 January 1, 2001, between the
Company and Dino A. Rossi. *
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 Lease dated as of February 8, 2002 between Sunrise Park
Realty, Inc. and Balchem Corporation.
21. Subsidiaries of Registrant.
23.1 Consent of KPMG LLP, Independent Auditors
27. Financial Data Schedule.
* Each of the Exhibits noted by an asterisk is a management
compensatory plan or arrangement.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last
quarter of the year ended December 31, 2001.
56