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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, 1998
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
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
P.O. Box 175, Slate Hill, New York 10973
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (914)355-5300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
Common Stock, par value $.06-2/3 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
(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. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 1, 1999 was approximately $26,933,056 million.*
* For purposes of this calculation, shares of the registrant held by
directors and officers of the registrant and under the registrant's 401(k)
plan have been excluded.
On March 1, 1999 there were 4,879,840 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III: Portions of the registrant's proxy statement for its 1999 annual
meeting of stockholders are incorporated by reference in this report.
Part I
Item 1. Business
General:
Balchem Corporation, incorporated in the State of Maryland in 1967, is
engaged in the development, manufacture and marketing of specialty performance
ingredients for the food, feed and medical sterilization industries. The Company
has a currently inactive Canadian subsidiary, Balchem, Ltd.
The Company operates in two business segments, the micro-encapsulation
of performance ingredients (the "encapsulated products" segment) and the
repackaging and marketing of high quality specialty gases (the "specialty
products" segment). The Company sells its products through its own sales force,
independent distributors and sales agents. Financial information concerning the
Company's business and business segments appears in the Consolidated Financial
Statements included under Item 8 herein, which information is incorporated
herein by reference.
Encapsulated Products
The encapsulated products segment encapsulates performance ingredients
for use throughout the food and animal feed industries to enhance processing,
mixing, packaging applications, fortification and shelf-life improvement. Major
product applications are baked goods, refrigerated and frozen dough systems,
processed meats, seasoning blends and confections. Vitamin C is also
microencapsulated and sold globally primarily in the aquaculture industry. This
product provides a stable and economic source of vitamin C in pelleted feeds
used to formulate diets principally for shrimp and farmed fish, as well as for
other species, including guinea pigs, horses and primates. Microencapsulated
choline chloride is marketed to the animal feed industry offering encapsulated
nutrients to ruminant animals.
This segment also includes a line of endothermic blowing and nucleating
agents that are marketed to the foamed plastics industry exclusively through a
marketing partner.
Specialty Products
The specialty products segment consists of three specialty gases:
ethylene oxide, propylene oxide and methyl chloride.
Ethylene oxide is used as a chemical sterilant gas, primarily in the
health care industry. It is used to sterilize medical devices ranging from
syringes and catheters to scalpels, gauze, bandages and surgical kits, because
of its versatility in treating hard or soft surfaces, composites, metals, tubing
and different types of plastics without negatively impacting the performance or
appearance of the device being sterilized. The Company's 100% ethylene oxide
product is distributed by the Company in reusable double-walled shipping drums
to assure compliance with safety, quality and environmental standards. 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 and hospitals are the Company's
principal customers for this product.
Propylene oxide is used for bacteria reduction in spice treatment and in
the chemical synthesis market. It is also utilized in manufacturing operations
to make paint more durable, for specialty starches and in textile coatings.
Methyl chloride is used as a raw material in specialty herbicides, fertilizers
and pharmaceuticals, as well as in malt and wine preservers. Propylene oxide and
methyl chloride are sold principally to customers seeking smaller (as opposed to
bulk) quantities whose requirements include timely delivery and safe handling.
In 1994, the Company purchased certain tangible and intangible assets
for its ethylene oxide business for $1,500,000 in cash and, as detailed in the
purchase agreement, the Company was required to pay additional contingent
amounts to compensate the seller for the purchase of the seller's customer list,
in accordance with a formula based on profits derived from sales of the
specialty-packaged ingredient. During 1998, the Company elected to exercise the
early payment option under the agreement resulting in the Company making a final
payment of $3,700,000 to the seller. The Company has no further purchase price
obligation under the agreement.
Due to consolidation of customer businesses in the contract sterilizer
industry, the Company has one customer, Griffith Microsciences, Inc., which
accounted for approximately 14.8% of the Company's net sales in 1998. The loss
of such customer could have a material adverse effect on the Company.
New product status:
The Company's microencapsulation staff continues to gather test data on
its encapsulated choline chloride for animal feed from university studies,
commercial field trials and customers, for the purpose of accelerating the
marketing effort of this product. Such testing is geared principally to
analyzing the ability of rumen stable ingredients to resist degradation by rumen
bacteria. This ability allows the nutrient to pass through to the animal's
stomach and be released in the small intestine so that it can provide the
measured nutrient supplement in a cost-efficient manner.
The Company has also introduced new products that are being tested for
enhancement of shelf-life and fortification in segments of the food industry
that the Company has not heretofore pursued.
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.
Patents/Licensing:
The Company currently holds numerous patents and uses certain tradenames
and trademarks. It also uses know-how, trade secrets, formulae and manufacturing
techniques which 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
United States Environmental Protection Agency as a medical device sterilant and
spice fumigant.
Seasonality:
In general, the business of the Company's segments is not seasonal to
any material extent.
Backlog:
At December 31, 1998, the Company had a total backlog of $718,000
(including $304,000 for the encapsulated products segment and $414,000 for the
specialty products segment) as compared to a total backlog of $793,000 at
December 31, 1997 (including $476,000 for the encapsulated products segment and
$317,000 for the specialty products segment). It has been the Company's policy
and practice to maintain an inventory of finished products or component
materials for its segments to enable it to ship products within a short time
after receipt of a product order.
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. In the specialty products business, the Company faces
competition from alternative sterilizing technologies and products. Companies
offering such competitive alternatives tend to be larger in size with greater
financial resources than the Company.
Research & Development:
During the years ended December 31, 1998, 1997 and 1996, the Company
spent approximately $1.0 million, $1.1 million and $0.9 million, respectively,
on Company-sponsored research and development for new products and improvements
to existing products and manufacturing processes, principally in the
encapsulated products segment. During the year ended December 31, 1998, an
average of 10 employees devoted full time to research and development
activities. The Company funds its R&D programs with funds available from current
operations with the intent of recovering those costs from profits derived from
future sales of products resulting from or enhanced by the research and
development effort.
The Company continually reviews its product development activities in an
effort to allocate its resources to those product candidates that the Company
believes have the greatest commercial potential. Factors considered by the
Company in determining the products to pursue include projected markets and
needs, status of its proprietary rights, technical feasibility, expected and
known product attributes, and estimated costs to bring the product to market.
Environmental Matters:
The Federal Insecticide, Fungicide and Rodenticide Act, as amended
("FIFRA"), a health and safety statute, requires that certain products within
the Company's specialty products segment must be registered with the U.S.
Environmental Protection Agency (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 been conducting the required testing
under the direction of the EPA. Testing has concluded and the EPA has indicated
that it anticipates completing its review of the re-registration process for
this product in year 2000. The Company hopes to recover the cost of
re-registration in the selling price of the sterilant.
The Company's management believes 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 clear and reasonable warning to any person in California
who may be exposed to this product; failure to do so would result in liability
of up to $2,500 per day per person exposed.
The California Birth Defect Law of 1984 requires the California
Department of Food and Agriculture ("CDFA") to identify chemicals in "widespread
use" for which significant data gaps exist, and requires registrants for those
products to submit the data or pay an assessment to the CDFA to fund independent
development of the data. The CDFA determined that data gaps existed for ethylene
oxide. After initially requesting an exemption, the Company, along with another
registrant, agreed to submit information to close the data gaps. The registrants
have provided requested data, and, to the Company's knowledge, fulfilled the
data submission obligations to the CDFA.
The Company believes it is in compliance in all material respects with
federal, state and local provisions that have been enacted or adopted regulating
the discharge of materials into the environment or otherwise relating to the
protection of the environment. Such compliance includes the maintenance of
required permits under air pollution regulations and with requirements of the
Occupational Safety and Health Administration ("OSHA"). The cost of such
compliance has not had a material effect upon the results of operations or
financial condition of the Company. The proceeding referred to in Item 3 below
has been substantially completed.
Employees:
As of February 11, 1999, the Company employed approximately 107 persons.
No employees are covered by any 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 which 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 which may
be used as an alternative therefor. The Company's competitive position is based
principally on performance, quality, customer support, service, breadth of
product line, manufacturing technology and the selling prices of its products.
The Company's competitors can be expected to improve the design and performance
of their products and to introduce new products with competitive price and
performance characteristics. There can be no assurance that the Company will
have sufficient resources to maintain its current competitive position or market
share.
Environmental and Regulatory Matters. Pursuant to applicable environmental and
safety laws and regulations, the Company is required to obtain and maintain
certain governmental permits and approvals, including an EPA registration for
its ethylene oxide sterilant product. Permits and approvals may be subject to
revocation, modification or denial under certain circumstances. While the
Company believes it is in compliance in all material respects with environmental
laws, there can be no assurance that operations or activities of the Company
will not result in administrative or private actions, revocation of required
permits or licenses, or fines, penalties or damages, which could have an adverse
effect on the Company. In addition, the Company cannot predict the extent to
which any legislation or regulation may affect the market for the Company's
products or its cost of doing business.
Raw Material Price Volatility. The principal raw materials used by the Company
in the manufacture of its products can be subject to price fluctuations. While
the selling prices of the Company's products tend to increase or decrease over
time with the cost of raw materials, such changes may not occur simultaneously
or to the same degree. There can be no assurance that the Company will be able
to pass increases in raw material costs through to its customers in the form of
price increases. Increases in the price of raw materials, if not offset by
product price increases, could have an adverse impact upon the profitability of
the Company.
Reliance on Continued Operation and Sufficiency of Facilities and on Unpatented
Trade Secrets. The Company's revenues are dependent on the continued operation
of its manufacturing, packaging and processing facilities. The operation of the
Company's facilities involves risks, including the breakdown, failure or
substandard performance of equipment, power outages, the improper installation
or operation of equipment, explosions, fires, natural disasters and the need to
comply with environmental and other directives of governmental agencies. The
occurrence of material operational problems, including but not limited to the
above events, may adversely affect the profitability of the Company during the
period of such operational difficulties. The Company's competitive position is
also dependent upon unpatented trade secrets. There can be no assurance that
others will not independently develop substantially equivalent proprietary
information.
Risks Associated with Foreign Sales. For the year ended December 31, 1998,
approximately 10% of the Company's net sales consisted of sales outside the
United States, predominately to the Far East and Europe. Changes in the relative
values of currencies take place from time to time and could in the future
adversely affect prices for the Company's products. In addition, international
sales are subject to other inherent risks, including possible labor unrest,
political instability and export duties and quotas. There can be no assurance
that these factors will not have a material adverse impact on the Company's
ability to increase or maintain its international sales.
Dependence on Key Personnel. The Company's operations are dependent on the
continued efforts of its senior executives. The loss of the services of any of
them could have a material adverse effect on the Company.
Year 2000 Compliance. The failure to correct or to adequately address Year 2000
issues (as described in more detail under Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations", of this Report under
the heading "Year 2000 Issues") could result in an interruption in, or failure
of, certain normal business activities or operations. The inability of the
Company to correct a Year 2000 problem could arise due to actions or inaction of
third parties not controlled by the Company. In addition, the Year 2000 issue
could have a material adverse impact on the operations of the Company due to the
unavailability of qualified personnel and other information technology
resources, the inability to identify and remediate all date-sensitive lines of
computer code or to replace embedded computer chips in affected systems or
equipment and the inability of third parties to effect Year 2000 compliance on a
timely basis. Due to the general uncertainty inherent in the Year 2000 problem,
resulting in part from the uncertainty of the Year 2000 readiness of the
Company's suppliers, other third-party providers and/or customers, the Company
is unable to determine at this time whether the consequences of any Year 2000
problems will have a material impact on the Company's results of operations,
liquidity or financial condition.
Item 2. Properties
The executive, sales, marketing, research & development offices and
manufacturing facilities of the Company's encapsulated products segment and a
drumming facility for the Company's ethylene oxide business, are presently
housed in four buildings located, together with a 14,900 square foot steel
warehouse, in Slate Hill, New York. The Company owns a total of 15-1/2 acres of
land on several parcels in such community.
The Company also owns a facility located on an approximately 24 acre
parcel of land in Green Pond, South Carolina. The Company sold the balance of
its formerly 81 acre site in Green Pond in 1997. The facility now consists of a
drumming facility, a maintenance building and an office building. The Company
uses the facility as a terminus, warehouse and drum filling station for its
products in its specialty products segment.
Item 3. Legal Proceedings
In 1982 the Company discovered and thereafter removed a number of buried
drums containing unidentified waste material from the Company's site in Slate
Hill, New York. The Company thereafter entered into a Consent Decree to evaluate
the drum site with the New York Department of Environmental Conservation
("NYDEC") and performed a Remedial Investigation/Feasibility Study that was
approved by NYDEC in February 1994. Based on NYDEC requirements, the Company
cleaned the area and removed additional soil from the drum burial site. The cost
for this clean-up and the related reports was approximately $164,000. Clean-up
was completed in 1996, but NYDEC required the Company to monitor the site
through 1999. It is estimated that the total cost of such monitoring will be
$50,000.
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 1998.
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 1998 and
1997, for each quarterly period during the past two years, adjusted for the May
1998 three-for-two stock split (effected by means of a stock dividend) were as
follows:
Quarterly Period High Low
- ---------------- ---- ---
Ended March 31, 1998 $ 11.67 $ 9.25
Ended June 30, 1998 15.88 11.25
Ended September 30, 1998 13.38 8.88
Ended December 31, 1998 8.63 4.94
Quarterly Period High Low
- ---------------- ---- ---
Ended March 31, 1997 $ 6.25 $ 5.33
Ended June 30, 1997 7.50 5.50
Ended September 30, 1997 11.25 7.08
Ended December 31, 1997 13.50 10.25
(b) Record Holders.
As of March 1, 1999, the approximate number of holders of record of the
Company's common stock was as follows:
Title of Class Number of Record Holders
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Common Stock, $.06-2/3 par value 309*
*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 1,480.
(c) Dividends.
The Company declared a dividend of $0.033 per share on the common stock
during its fiscal year ended December 31, 1998. The Company's agreement with its
lending bank places restrictions on the payment of dividends.
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, 1998 1997 1996 1995 1994
- ----------------------- ----------- ----------- ----------- ------------- -----------
Statement of Operations
Net sales $ 28,721 $ 28,619 $ 26,371 $ 24,733 $ 18,667
Earnings before income
taxes 4,628 4,227 2,917 2,428 1,276
Income taxes 1,673 1,456 990 843 430
Net earnings 2,955 2,771 1,927 1,585 846
Basic earnings per
common share .61 .58 .41 .34 .18
Diluted earnings per
common share .60 .57 .40 .33 .18
December 31, 1998 1997 1996 1995 1994
- ------------ ----------- ----------- ----------- ------------- -----------
Balance Sheet Data
Total assets $ 22,648 $ 17,593 $ 15,140 $ 14,332 $ 12,342
Long-term-debt 3,750 1,500 2,100 3,082 2,717
Other-long-term
obligations 841 890 794 835 715
Total stockholders equity 15,775 12,336 9,387 7,447 5,920
Dividends per share $ .033 $ .033 $ .030 $ .023 $ .018
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 which might cause differences from the forward-looking
statements include those referred to or identified in Item 1 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1998. Reference
should be made to such factors and all forward-looking statements are qualified
in their entirety by the above cautionary statements.
(All dollar amounts in thousands)
Results of Operations:
Fiscal Year 1998 compared to 1997
Net sales for 1998 were $28,721 as compared to $28,619 for 1997, an
increase of $102. Net sales for the specialty products segment were $19,434 in
1998 as compared to $19,650 in 1997, a decrease of 1% or $216. This decline was
attributable primarily to a decrease in volumes sold of the Company's propylene
oxide product due primarily to a customer having converted to purchasing the
product in a bulk format not offered by the Company. Net sales for the
encapsulated products segment increased 4% or $318. This increase was primarily
the result of increased volumes sold of products in the domestic and
international food markets and increased volumes sold in the animal nutrition
markets. These increases were partially offset by declines in sales to the
aquaculture industry due to Asian economic issues.
Cost of sales increased 2 percentage points as a percent of sales for
1998 as compared to 1997. The increase was primarily attributable to higher
costs related to the mix of products sold during 1998 in the encapsulated
products segment and additional amortization expense associated with the early
buy-out election relating to the specialty products business as more fully
described in Liquidity and Capital Resources below.
Operating expenses for 1998 decreased to $6,616 from $7,564 for 1997, a
decrease of $948 or 13%. The decrease in operating expenses was primarily the
result of the encapsulated products segment having established a reserve in 1997
of approximately $187 for an Asian receivable, which was collected in full in
1998. In addition, the Company incurred other charges in 1997 associated with a
corporate reorganization totaling $302. Operating expenses without these unusual
items would have been $6,803 and $7,075 in 1998 and 1997, respectively, a
decrease in 1998 of $272 or 4%. This decrease is predominantly the result of a
decrease in consulting fees in the specialty products segment and salary
reduction, a result of the 1997 internal reorganization. These decreases were
partially offset by an increase in costs associated with the Company's medical
plan and increases in recruiting and relocation expenses for both of the
Company's business segments.
Pre-tax profit for the specialty products segment for 1998 was $4,631 as
compared to $4,234 for 1997. The increase in pre-tax profit was the direct
result of the ongoing cost containment efforts in the selling and general and
administrative areas implemented by management in 1997. Pre-tax profit for the
encapsulated products segment for 1998 was $176 as compared to $116 for 1997.
During the years ended December 31, 1998 and 1997, the Company spent $1,017 and
$1,065, respectively, on Company-sponsored research and development programs
substantially all of which pertained to the Company's encapsulated products
segment. In particular, the Company continues to incur considerable development
expenses in the gathering of data for its encapsulated choline chloride product
for animal feed from university studies, commercial field trials and customers,
with the intent of accelerating the marketing effort of this product.
Income from operations for 1998 was $4,807 as compared to $4,350 for
1997, an increase of 11% or $457.
Net earnings were $2,955 for 1998 as compared to $2,771 for 1997. Net
interest expense for 1998 totaled $164 as compared to $136 for 1997. The
increase in interest expense was the result of a higher average debt balance for
1998 due to the exercise of the early purchase price buy-out option under the
agreement pertaining to the 1994 acquisition by the specialty products segment.
Fiscal Year 1997 compared to 1996
Net sales for 1997 were $28,619 as compared to $26,371 in 1996, an
increase of 9% or $ 2,248. The increase in revenue for 1997 was attributable
primarily to increased volumes for the specialty products business and the food
product encapsulation business in domestic markets. Additional revenues were
also realized due to improved product mix in the encapsulated products segment.
Cost of sales decreased 2 percentage points as a percent of sales for
1997 as compared to 1996. The decrease in cost of sales as a percentage of sales
was primarily the result of volume efficiencies and a change in the mix of
products sold during the period. These favorable factors were partially offset
by the reclassification of certain employees as well as employee benefit costs
previously classified as general and administrative to various production
departments and additional amortization expense associated with the purchase of
a customer list for the Company's specialty products business of $147.
Operating expenses increased in 1997 to $7,564 from $7,470 in 1996. The
increase in operating expenses was primarily the result of the establishment of
a reserve of approximately $187 in 1997 for an Asian receivable in the Company's
encapsulated products segment. The Company also incurred other charges
associated with an internal reorganization totaling $302 in 1997. An increase in
revenues also contributed to the increase in operating expenses. These increases
were partially offset by a decrease in recruiting and relocation expenses and a
decrease in office and computer expenses associated with the 1996 development of
a local area network.
Pre-tax profit for the specialty products segment for 1997 was $4,234 as
compared to $4,098 for 1996. The increase in pre-tax profit was primarily the
result of the cost containment efforts in the selling and general and
administrative areas implemented by management. Pre-tax profit for the
encapsulated products segment for 1997 was $116 as compared to a loss of $978
for 1996. During 1996, the segment realized a substantial loss on the sale of
fixed assets used in its custom manufacturing process. In addition, the segment
incurred charges associated with the converting of Company's pension plan to the
accrual basis. During the years ended December 31, 1997 and 1996, the Company
spent $1,065 and $929, respectively, on Company-sponsored research and
development programs substantially all of which pertained to the Company's
encapsulated products segment. In particular, the Company incurred considerable
development expenses in 1997 in the gathering of data for its encapsulated
choline chloride product for animal feed from university studies, commercial
field trials and customers, with the intent of accelerating the marketing effort
of this product.
Income from operations for 1997 was $4,350 as compared to $3,120 for
1996, an increase of 39% or $1,230.
Net earnings were $2,771 in 1997 compared to $1,927 in 1996, an increase
of 44%, or $844. Net interest expense for 1997 totaled $136 as compared to $255
in 1996. The decrease in interest expense is the result of reduced debt and
renegotiated loan terms during 1997.
Liquidity and Capital Resources
Cash flow from operating activities provided approximately $3,893 for
1998 as compared to $2,994 for 1997. Over the last three years, operating cash
flow has totaled approximately $10,499. Improvements in cash flow over this
period of time have provided the Company with the ability to meet its current
operating and investment budgets.
Capital expenditures were $1,637 for 1998. The Company had undertaken a
plant expansion for its encapsulation product line in 1998 and the increased
capacity is presently on-line. Capital expenditures are projected to be
approximately $700 for 1999.
On June 16, 1994, the Company purchased certain tangible and intangible
assets for one of its packaged specialty ingredients for $1,500 in cash. Under
the agreement, the Company was also required to pay contingent amounts to
compensate the seller for the purchase of the seller's customer list in
accordance with a formula based on profits derived from sales of the specialty
packaged ingredient. On June 25, 1998, the Company elected to exercise the early
payment option under the agreement resulting in a final Company payment of
$3,700 to the seller. The Company has no further purchase price obligation under
the agreement. The Company has capitalized approximately $3,982 for 1998 in
connection with this acquisition.
In connection with the exercise of the early payment option described
above, the Company borrowed an additional $3,000 during 1998. Long-term debt,
including the current portion, totaled $3,750 at December 31, 1998.
The Company knows of no current or pending demands on or commitments for
its liquid assets that will materially affect its liquidity. The Company
currently has approval for a $2,000 line of credit from its principal bank.
Year 2000 Issue
The Company has conducted a comprehensive review of its operations to
identify those systems that could be affected by the "Year 2000" issue. The
review covered information systems, mainframe and personal computers, the
Company's product research and development facilities and its manufacturing
operations. The Year 2000 issue is the general term used to describe various
problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery, as a result of
computer programs being written using two digits rather than four to define the
applicable year. Any of the Company's computer programs or any hardware that has
date-sensitive software or embedded chips may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, production difficulties, or an inability to process transactions, send
invoices, or engage in similar normal business activities.
Management presently believes that the Company has substantially
completed its Year 2000 planning for its internal systems and facilities
utilizing both internal and external resources. The Company has implemented a
new computer network throughout the organization and is currently implementing a
Year 2000 compliant version of its core business software. It is anticipated
that Year 2000 compliance efforts will be completed by mid-1999, allowing time
for testing. The Company's information systems include sales, production,
administrative and financial applications. In the event one of these systems
were to fail, the Company's ability to capture, schedule and fulfill customer
demands might be impaired.
The cost of the Company's Year 2000 project is expected to range between
$75 and $140. Approximately $60 of this amount was incurred through 1998. The
remainder of the estimated cost of the project is expected to be incurred
throughout 1999. All costs of the Year 2000 project have been recognized as
incurred.
Management also plans to review its external relationships to address
potential Year 2000 issues arising from relationships with significant
suppliers, service providers and customers and will determine whether it is
appropriate, in light of particular relationships and their size and
sophistication, to contact significant customers.
Contingency plans are being considered and to the extent practicable
will be put in place, as required, during 1999 in the event that the Company
determines that it is at significant risk in regard to suppliers, customers or
its own internal hardware and software. Contingency plans may include, but will
not be limited to, consideration of alternative sources of supply, customer
communication plans, manually performing certain functions and plant and
business response plans.
In general, the Company's plans are intended to provide a means of
managing risk, but cannot eliminate the potential for disruption due to third
party failure. The Company believes that due to the widespread nature of the
potential Year 2000 issues, its contingency planning is an ongoing process which
will require further consideration as the Company obtains additional information
. The Company has not yet developed specific contingency plans in the event of a
Year 2000 failure caused by a supplier or third-party, but intends to do so if a
specific problem is identified through the program described above. In some
cases, particularly with respect to its utility vendors, alternative suppliers
may not be available.
The failure to correct a material Year 2000 problem could, of course,
result in an interruption in, or failure of, certain normal business activities
or operations. Such failures could materially and adversely affect the Company.
Due to the general uncertainty inherent in the Year 2000 problem, resulting in
part from the uncertainty of the Year 2000 readiness of the Company's suppliers,
other third-party providers and customers, the Company is unable to determine at
this time whether the consequences of any Year 2000 failures will have a
material impact on the Company. The Company believes that, with the
implementation of new business systems and completion of the Company's Year 2000
modifications, the possibility of significant interruptions of normal operations
should be mitigated.
Impact of Recent Accounting Standards
In April 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." SOP 98-1 is
effective for financial statements for fiscal years beginning after December 15,
1998. Adoption of this SOP is not expected to have a material effect on the
Company's financial position or results of operations.
Also in April 1998, the AICPA issued SOP 98-5 "Reporting on the Costs of
Start-up Activities." This SOP requires companies to expense certain costs such
as pre-operating expenses and organizational costs associated with the Company's
start-up activities, and is effective for fiscal years beginning after December
15, 1998. Adoption of this SOP is not expected to have a material effect on the
Company's financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133 "Accounting for Derivative Instruments and Hedging Activities." It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. Adoption of this statement is not expected
to have a material effect on the Company's financial position or results of
operations in the year of adoption.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
(All dollar amounts in thousands)
In the normal course of operations, the Company is exposed to market
risks arising from adverse changes in interest rates. Market risk is defined for
these purposes as the potential change in the fair value resulting from an
adverse movement in interest rates. As of December 31, 1998, the Company's only
borrowings were under a bank term loan which bears interest at LIBOR plus 1%. A
100 basis point increase in interest rates, applied to the Company's borrowings
at December 31, 1998, would result in an increase in interest expense and a
corresponding reduction in cash-flow of approximately $38. The Company's short
term working capital borrowings have historically borne interest based on the
prime rate. The Company believes that its exposure to market risk relating to
interest rate risk is not material.
The Company has no derivative financial instruments or derivative
commodity instruments, nor does the Company generally have any financial
instruments entered into for trading or hedging purposes. All foreign sales are
billed in U.S. dollars. The Company believes that its business operations are
not exposed in any material respect to market risk relating to foreign currency
exchange risk or commodity price risk.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements and Supplementary Financial Data: Page
Independent Auditors' Reports 20
Consolidated Balance Sheets as of
December 31, 1998 and 1997 22
Consolidated Statements of Operations for the
years ended December 31, 1998, 1997 and 1996 24
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1998, 1997 and 1996 25
Consolidated Statements of Cash Flows
for the years ended December 31, 1998, 1997 and 1996 26
Notes to Consolidated Financial Statements
for the years ended December 31, 1998, 1997 and 1996 27
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, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the two-year period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Balchem Corporation
and subsidiaries as of December 31, 1998 and 1997 and the results of their
operations and their cash flows for each of the years in the two-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
------------
KPMG LLP
Short Hills, New Jersey February 5, 1999
Report of Independent Accountants
To the Stockholders and Board of Directors
Balchem Corporation
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Balchem Corporation and subsidiaries for
the year ended December 31, 1996. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly the results of operations and cash flows of Balchem Corporation and
subsidiaries for the year ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Judelson, Giordano, Siegel, CPA, PC
--------------------------------------
Judelson, Giordano, Siegel, CPA, PC
Middletown, New York
February 7, 1997
BALCHEM CORPORATION
Consolidated Balance Sheets
December 31, 1998 and 1997
(In thousands, except share and per share data)
Assets 1998 1997
------ -------- --------
Current assets:
Cash and cash equivalents $ 1,348 $ 736
Trade accounts receivable, less allowance for doubtful
accounts of $0 in 1998 and $187 in 1997 (note 5) 3,283 3,061
Inventories (notes 2 and 5) 2,875 2,507
Prepaid expenses 476 513
Deferred income taxes (note 6) 219 305
Other current assets 198 165
-------- --------
Total current assets 8,399 7,287
-------- --------
Property, plant and equipment, net of accumulated depreciation (notes 3 and 5) 8,103 7,345
Intangible assets, net of accumulated amortization (note 4) 6,139 2,925
0ther assets 7 36
-------- --------
Total assets $ 22,648 $ 17,593
======== ========
BALCHEM CORPORATION
Consolidated Balance Sheets
December 31, 1998 and 1997
(In thousands, except share and per share data)
Liabilities and Stockholders' Equity 1998 1997
------------------------------------ -------- --------
Current Liabilities:
Accounts Payable $ 1,058 $ 1,006
Accrued Compensation And Other Benefits 601 542
Other Accrued Expenses 420 1,109
Dividends Payable 160 160
Current Portion Of Longterm Debt (Note 5) 1,200 700
Current Portion Of Other Longterm Obligations (Note 4) 43 50
-------- --------
Total Current Liabilities 3,482 3,567
-------- --------
Longterm Debt (Note 5) 2,550 800
Deferred Income Taxes (Note 6) 525 481
Deferred Compensation 135 143
Other Longterm Obligations (Note 4) 181 266
-------- --------
3,391 1,690
-------- --------
-------- --------
Total Liabilities 6,873 5,257
-------- --------
Stockholders' Equity (Note 7):
Preferred Stock, $25 Par Value. Authorized 2,000,000
Shares; None Issued And Outstanding
Common Stock, $.06 2/3 Par Value. Authorized 10,000,000
Shares; Issued And Outstanding 4,875,914 Shares At
December 31, 1998 And 4,793,163 Shares At December 31,1997 325 319
Additional Paid-in Capital 2,783 2,145
Retained Earnings 12,667 9,872
-------- --------
Total Stockholders' Equity 15,775 12,336
-------- --------
-------- --------
Total Liabilities & Stockholders' Equity $ 22,648 $ 17,593
======== ========
BALCHEM CORPORATION
Consolidated Statements of Operations
Years Ended December 31, 1998, 1997 and 1996
(In thousands, except per share data)
1998 1997 1996
------- ------- -------
Net sales $28,721 $28,619 $26,371
Cost of sales 17,298 16,705 15,781
------- ------- -------
Gross margin 11,423 11,914 10,590
Operating expenses:
Selling expenses 2,584 2,969 2,916
Research and development expenses 1,017 1,065 929
General and administrative expenses 3,015 3,530 3,625
------- ------- -------
Total operating expenses 6,616 7,564 7,470
------- ------- -------
Income from operations 4,807 4,350 3,120
Other expenses (income):
Interest expense 164 136 255
Other (income) expense net 15 (13) (52)
------- ------- -------
Total other expenses net 179 123 203
------- ------- -------
Earnings before income taxes 4,628 4,227 2,917
Income taxes (note 6) 1,673 1,456 990
------- ------- -------
Net earnings $ 2,955 $ 2,771 $ 1,927
======= ======= =======
Basic net earnings per common share (note 8) $ 0.61 $ 0.58 $ 0.41
======= ======= =======
Diluted net earnings per common share (note 8) $ 0.60 $ 0.57 $ 0.40
======= ======= =======
BALCHEM CORPORATION
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1998, 1997 and 1996
(In thousands, except share and per share data)
Additional Total
Common Stock Paidin Retained Stockholders'
Shares Amount Capital Earnings Equity
------------ ------ ----------- -------- -------------
Balance January 1, 1996 4,713,264 314 1,657 5,476 7,447
Net earnings 1,927 1,927
Dividends ($.030 per share) (142) (142)
Nonemployee stock options 106 106
Stock options exercised 16,281 1 48 49
--------- --------- --------- --------- ---------
Balance December 31, 1996 4,729,545 315 1,811 7,261 9,387
Net earnings 2,771 2,771
Dividends ($.033 per share) (160) (160)
Nonemployee stock options 110 110
Stock options exercised 63,618 4 224 228
--------- --------- --------- --------- ---------
Balance December 31, 1997 4,793,163 319 2,145 9,872 12,336
Net earnings 2,955 2,955
Dividends ($.033 per share) (160) (160)
Employee stock option compensation 17,144 1 263 264
Nonemployee stock options 52 52
Stock options exercised 65,607 5 323 328
--------- --------- --------- --------- ---------
Balance December 31, 1998 4,875,914 325 2,783 12,667 15,775
========= ========= ========= ========= =========
BALCHEM CORPORATION
Consolidated Statements of Cash Flows
Years Ended December 31, 1998,1997 and 1996
(In thousands, except per share data)
1998 1997 1996
------- ------- -------
Cash flows from operating activities:
Net earnings $ 2,955 $ 2,771 $ 1,927
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,654 1,126 1,414
Nonemployee stock compensation 52 110 106
Employee stock option compensation 264
Provision for deferred income taxes 92 (207) (173)
Provision for doubtful accounts (187) 187
Loss on sale of equipment 19 4 (9)
Changes in assets and liabilities:
Accounts receivable (35) (278) 176
Inventories (368) (645) 11
Prepaid expenses and other 5 (159) 27
Accounts payable and accrued expenses (550) 146 12
Income taxes payable (110) 102
Deferred compensation payable (8) 49 19
------- ------- -------
Net cash flows provided by operating activities 3,893 2,994 3,612
------- ------- -------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 15 538 10
Capital expenditures (1,637) (1,115) (975)
Investments in other assets (4,063) (1,243) (1,300)
------- ------- -------
Net cash flows used in investing activities (5,685) (1,820) (2,265)
------- ------- -------
Cash flows from financing activities:
Decrease in short-term borrowings (354)
Proceeds from long-term debt 3,000
Principal payments on long-term debt (750) (600) (982)
Stock options and warrants exercised 328 228 48
Dividends paid (160) (142) (110)
Other financing activities (14) (13) (11)
------- ------- -------
Net cash flows provided by (used in) financing activities 2,404 (527) (1,409)
------- ------- -------
Increase(decrease) in cash and cash equivalents 612 647 (62)
Cash and cash equivalents beginning of year 736 89 151
------- ------- -------
Cash and cash equivalents end of year $ 1,348 $ 736 $ 89
BALCHEM CORPORATION
Notes to Consolidated Financial Statements
(All amounts in thousands, except share and per share data)
Note 1- Business Description and Summary Of Significant Accounting Policies
Business Description
Balchem Corporation (the "Company") is engaged in the development, manufacture
and marketing of specialty performance ingredients for the food, feed and
medical sterilization industries.
Principles of Consolidation
The consolidated financial statements include the financial statements of the
Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Revenue Recognition
Revenue is recognized upon product shipment, passage of title and when all
significant obligations of the Company have been satisfied.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with a maturity of
three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market, with cost generally
determined on a first-in, first-out basis.
Property, Plant and Equipment and Depreciation
Property, plant and equipment are stated at cost. Depreciation of plant and
equipment is calculated using the straight-line method over the estimated useful
lives of the assets as follows:
Buildings 15-25 Years
Equipment 3-12 Years
Expenditures for repairs and maintenance are charged to expense. Alterations and
major overhauls that extend the lives or increase the capacity of plant assets
are capitalized. When assets are retired or otherwise disposed of, the cost of
the assets and the related accumulated depreciation are removed from the
accounts and any resultant gain or loss is included in earnings.
Intangible Assets
Intangible assets are stated at cost and are amortized on a straight-line basis
over the following estimated useful lives:
Customer lists 10 years
Re-registration costs 10 years
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Use of Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues, and expenses.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company has a number of financial instruments, none of which are held for
trading purposes. The Company estimates that the fair value of all financial
instruments at December 31, 1998 and 1997 does not differ materially from the
aggregate carrying values of its financial instruments recorded in the
accompanying balance sheets. The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. Considerable judgment is necessarily required in
interpreting market data to develop the estimates of fair value, and,
accordingly, the estimates are not necessarily indicative of the amounts that
the Company could realize in a current market exchange.
Research and Development
Research and development costs are expensed as incurred.
Credit Risk
Trade receivables potentially subject the Company to credit risk. The Company
extends credit to its customers based upon an evaluation of the customers'
financial condition and credit histories. The majority of the Company's
customers are major national or international corporations. International sales
are mostly to companies in Europe and the Far East.
Stock-based Compensation
Stock-based compensation for employees is recognized using the intrinsic value
method in accordance with Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations. For
non-employees, stock-based compensation is recognized in accordance with
Statement of Financial Accounting Standards ("SFAS") No.123 "Accounting for
Stock-Based Compensation." For disclosure purposes, pro forma net earnings data
included in note 7 are provided in accordance with SFAS No.123 as if the fair
value based method applied.
Impairment of Long-lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.
Recent Accounting Pronouncements
Effective January 1, 1998 the Company adopted SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information", which changes the way public
companies report information about operating segments. SFAS No. 131, which is
based on the management approach to segment reporting, establishes requirements
to report selected segment information quarterly and to report entity-wide
disclosures about products and services, major customers, and the material
countries in which the entity holds assets and reports revenue. This Statement
had no impact on the Company's consolidated financial position or results of
operations. As required by SFAS No. 131, disclosures have been reflected in the
Company's 1998 consolidated financial statements. Prior periods have been
restated to comply with the provisions of the statement.
Net Earnings Per Share
Basic net earnings per share is calculated by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
net earnings per share is calculated in a manner consistent with basic net
earnings per share except that the weighted average number of common shares
outstanding also includes the dilutive effect of stock options outstanding
(using the treasury stock method).
Reclassifications
Certain reclassifications have been made to the prior years' financial
statements to conform to the current year's presentation.
NOTE 2-INVENTORIES
Inventories at December 31, 1998 and 1997 consist of the following:
1998 1997
--------- ---------
Raw materials $ 1,025 $ 836
Finished goods 1,850 1,671
$ 2,875 $ 2,507
NOTE 3- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1998 and 1997 are summarized as
follows:
1998 1997
--------- ----------
Land $ 60 $ 60
Building 4,321 3,947
Equipment 9,758 8,553
14,139 12,560
Less: Accumulated depreciation 6,036 5,215
$ 8,103 $ 7,345
During 1997, the Company sold the fixed assets formerly used in a custom
manufacturing process for approximately $538. In 1996, the Company had reduced
the carrying values of these fixed assets from approximately $970 to their
expected net realizable value of $540. The resulting loss of approximately $430
was included in depreciation expense for the year ended December 31, 1996.
NOTE 4- INTANGIBLE ASSETS
Intangible assets at December 31, 1998 and 1997 consist of the following:
1998 1997
---------- ----------
Customer lists $ 6,760 $ 2,778
Re-registration costs 356 356
Covenants not to compete 295 295
Other 167 126
7,578 3,555
Less: Accumulated amortization 1,439 630
$ 6,139 $ 2,925
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. During 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 it
anticipates completing re-registration for this product in 2000. The Company's
management believes it will be successful in obtaining re-registration for the
product as it has met the EPA's requirements thus far, although no assurance can
be given. Additionally, the product is used as a sterilant with no known
substitute. Management believes absence of availability of this product could
not be easily tolerated by medical device manufacturers and the health care
industry due to the resultant infection potential if the product were
unavailable.
NOTE 5 - LONG-TERM DEBT & CREDIT AGREEMENTS
The Company has borrowings under a term loan agreement with a bank of $750 and
$1,500 at December 31, 1998 and 1997, respectively. Borrowings under the term
loan, which matures on December 31, 2000, bear interest at LIBOR plus 1% (7.06%
at December 31, 1998) and are secured by accounts receivable, inventories,
equipment and all personal property of the Company. Certain provisions of the
term loan limit the payment of dividends, require maintenance of certain
financial ratios, limit future borrowings and impose certain other conditions as
contained in the agreement. In addition, the Company has additional borrowings
under a short-term agreement with a bank of $3,000. Borrowings under the
short-term agreement also bear interest at LIBOR plus 1%. On January 15, 1999,
the Company and bank entered into an amended and restated term loan agreement
whereby the bank agreed to make an additional term loan to the Company in the
amount of $3,000, replacing the short-term agreement in place at December 31,
1998. Borrowings under the amended and restated term loan, which matures on
January 15, 2004, bear interest at LIBOR plus 1% and are secured by accounts
receivable, inventories, equipment and all personal property of the Company.
Certain provisions of the term loan limit the payment of dividends, require
maintenance of certain financial ratios, limit future borrowings and impose
certain other conditions as contained in the agreement.
As of December 31, 1998, long-term debt matures as follows:
1999 $ 1,200
2000 750
2001 600
2002 600
2003 600
Total $ 3,750
The Company also has approval for a $2,000 short-term line of credit from a
bank. There were no outstanding borrowings under the line of credit on December
31, 1998 or 1997. The approval expires on June 30, 1999. The Company intends to
seek renewal of such approval in 1999.
NOTE 6 - INCOME TAXES
Income tax expense (benefit) attributable to earnings before income taxes
consists of the following:
1998 1997 1996
--------- --------- ---------
Current:
Federal $ 1,402 $ 1,476 $ 1,076
State 179 187 87
Deferred:
Federal 85 (186) (186)
State 7 (21) 13
Total income tax provision $ 1,673 $ 1,456 $ 990
The provision for income taxes differs from the amount computed by applying the
Federal statutory rate of 34% to income before income taxes for the following
reasons:
1998 1997 1996
--------- --------- ----------
Income tax at Federal
Statutory rate $ 1,574 $ 1,437 $ 992
State income taxes, net of
Federal income tax benefit 123 109 66
Other (24) (90) (68)
Total income tax provision $ 1,673 $ 1,456 $ 990
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1998 and
1997 are as follows:
1998 1997
-------- --------
Deferred tax assets:
Amortization $ 172 $ 62
Inventory valuation - uniform capitalization 177 177
Deferred compensation 70 136
Non-employee stock options 76 80
Self insurance 24 -
Allowance for doubtful accounts - 71
Other 38 38
Total deferred tax assets 557 564
Deferred tax liabilities:
Depreciation 863 740
Total deferred tax liabilities 863 740
Net deferred tax liability $ 306 $ 176
There is no valuation allowance for deferred tax assets at December 31, 1998 and
1997. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies in
making this assessment. Based upon the level of historical taxable income and
projections for future taxable income over the periods in which the deferred tax
assets are deductible, management believes it is more likely than not the
Company will realize the benefits of these deductible differences. The amounts
of the deferred tax assets considered realizable, however, could be reduced in
the near term if estimates of future taxable income during the carryforward
period are reduced.
NOTE 7 - STOCKHOLDERS' EQUITY
On May 2, 1998, the Board of Directors of the Company approved a three-for-two
split of the Company's common stock to be distributed in the form of a stock
dividend to shareholders of record on May 15, 1998. Such distribution was made
on June 3, 1998. Accordingly, the stock split was recognized by reclassifying
$105, the par value of the additional shares resulting from the split, from
additional paid-in capital to common stock. All references to number of common
shares and per share amounts except shares authorized in the accompanying
consolidated financial statements were retroactively adjusted to reflect the
effect of the stock split.
The Company has an incentive stock option plan (the "ISO Plan") under which
officers and certain key employees may be granted options to purchase shares of
common stock exercisable at prices equal to the fair market value at the date of
grant. Options generally become exercisable 20% after 1 year, 60% after 2 years
and 100% after 3 years from the date of grant. During 1996, the Company extended
the expiration period of future option grants from five years to ten years from
the date of grant. At December 31, 1998, 581,250 shares of common stock were
reserved for issuances under the plan.
A summary of incentive stock option plan transactions for 1998, 1997 and 1996
under this plan is as follows:
# of Weighted Average
1998 Shares Exercise Price
---- ------ --------------
Outstanding at beginning of year 188,753 $ 8.28
Granted 100,121 $ 9.48
Exercised (27,304) $ 3.40
Terminated or expired (15,765) $ 8.20
Outstanding at end of year 245,805 $ 9.31
Exercisable at end of year 70,580 $ 8.15
# of Weighted Average
1997 Shares Exercise Price
---- ------ --------------
Outstanding at beginning of year 147,731 $ 4.33
Granted 109,425 $ 10.77
Exercised (63,618) $ 3.59
Terminated or expired (4,785) $ 5.72
Outstanding at end of year 188,753 $ 8.28
Exercisable at end of year 79,502 $ 6.71
1996
----
Outstanding at beginning of year 149,693 $ 3.82
Granted 36,000 $ 5.69
Exercised (16,281) $ 2.97
Terminated or expired (21,681) $ 4.09
Outstanding at end of year 147,731 $ 4.33
Exercisable at end of year 69,656 $ 3.35
Information related to stock options outstanding under the ISO Plan at December
31, 1998 is as follows:
Options Outstanding Options Exercisable
---------------------------------- -----------------------------
Weighted
Average Weighted Weighted
Remainin Average Average
Range of Exercise Shares Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
----------------- ------------- ----------- --------- ------------- -------------
$ 4.00 - $ 5.92 29,330 5.9 years $ 5.21 20,570 $ 5.00
$ 6.25 - $ 9.00 69,550 8.1 years 7.44 14,625 6.25
$ 10.75 - $ 11.75 146,925 8.9 years 11.02 35,385 10.76
245,805 8.3 years $ 9.31 70,580 $ 8.15
The Company applies APB Opinion No. 25 in accounting for its ISO Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant dates for its stock options under SFAS No. 123, the
Company's net earnings would have been reduced to the pro forma amounts
indicated below:
1998 1997 1996
-------- -------- --------
Net Earnings
As Reported $ 2,955 $ 2,771 $ 1,927
Pro forma $ 2,805 $ 2,611 $ 1,916
Earnings per share
As Reported - Basic $ .61 $ 0.58 $ 0.41
Pro forma - Basic $ .58 $ 0.55 $ 0.41
As Reported - Diluted $ .60 $ 0.57 $ 0.40
Pro forma - Diluted $ .57 $ 0.54 $ 0.40
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 1998 ,1997 and 1996, respectively: dividend yield
of .40%, .44%, and .37%; expected volatility of 46% , 32% and 14%; risk-free
interest rates of 4.8%, 6.5% and 6.0% and expected life of six years for all
years. The weighted average fair values of options granted during the years
1998, 1997 and 1996 were $1.81, $5.19 and $1.71, respectively. Pro forma net
earnings reflects only options granted since January 1, 1995. Therefore, the
full impact of calculating compensation cost for stock options under SFAS No.
123 is not reflected in the pro forma net earnings amounts presented above
because compensation cost is reflected over the options' vesting period of three
years and compensation cost for options granted prior to January 1, 1995 has not
been considered.
The Company has a non-statutory stock option plan (the "Plan") under which
directors, directors emeritus, employees and consultants of the Company may be
granted options to purchase shares of common stock exercisable at prices equal
to the fair market value at the date of grant. The Company has reserved 678,000
shares of common stock for issuance under this Plan. During 1996, the Company
extended the expiration period for all future grants from five years to ten
years after the date of grant. A summary of these stock options for 1998, 1997
and 1996 is as follows:
# of Weighted Average
1998 Shares Exercise Price
---- -------- ----------------
Outstanding at beginning of year 136,964 $ 5.44
Granted 19,506 $ 5.38
Exercised (38,303) $ 5.07
Terminated or expired - -
Outstanding at end of year 118,167 $ 5.55
Exercisable at end of year 110,667 $ 5.47
# of Weighted Average
1997 Shares Exercise Price
---- -------- ----------------
Outstanding at beginning of year 102,869 $ 3.90
Granted 34,095 $10.10
Terminated or expired - -
Outstanding at end of year 136,964 $ 5.44
Exercisable at end of year 125,714 $ 5.32
1996
----
Outstanding at beginning of year 87,161 $ 3.58
Granted 15,708 $ 5.67
Terminated or expired - -
Outstanding at end of year 102,869 $ 3.90
Exercisable at end of year 99,119 $ 3.89
Information related to stock options outstanding under the Plan at December 31,
1998 is as follows:
Options Outstanding Options Exercisable
---------------------------------- -----------------------------
Weighted
Average Weighted Weighted
Remainin Average Average
Range of Exercise Shares Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
----------------- ------------- ----------- --------- ------------- -------------
$ 2.45 - $ 3.17 27,081 4.3 years $ 2.76 27,081 $ 2.76
$ 4.00 - $ 6.75 75,091 7.9 years 5.24 67,591 5.07
$11.77 15,995 9.0 years 11.77 15,995 11.77
118,167 7.3 years $ 5.55 110,667 $ 5.47
The Plan was amended in 1998 to cover option grants to consultants. The
information contained in the foregoing tables relating to the Plan includes
information as to options to purchase an aggregate of 45,000 shares of common
stock granted to a consultant pursuant to certain agreements with such
consultant.
In accordance with SFAS No.123 a charge to income and corresponding increase to
paid-in capital of approximately $52, $110 and $106 was recorded for options
granted in 1998, 1997 and 1996, respectively, to non-employees (including
directors) in exchange for their services. The fair value of each option grant
is estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions used for grants in 1998, 1997
and 1996, respectively: dividend yield of .40%, .44% and .37%; expected
volatility of 46%, 32% and 14%; risk-free interest rates of 4.6%, 6.5% and 6.0%;
and expected life of six years. The weighted average fair values of options
granted during the years 1998, 1997 and 1996 were $2.65, $4.82 and $6.74,
respectively.
NOTE 8 - NET EARNINGS PER SHARE
The following presents a reconciliation of the numerator and denominator used in
calculating basic and diluted net earnings per share:
Number of
Income Shares Per Share
1998 (Numerator) (Denominator) Amount
---- ----------- ------------- ---------
Basic EPS - Net earnings and weighted
average common shares outstanding $ 2,955 4,841,300 $.61
Effect of dilutive securities - stock options 69,038
------
Diluted EPS: - Net earnings and weighted average
common shares outstanding and effect of stock options $ 2,955 4,910,338 $.60
Number of
Income Shares Per Share
1997 (Numerator) (Denominator) Amount
---- ----------- ------------- ---------
Basic EPS - Net earnings and weighted
average common hares outstanding $ 2,771 4,742,754 $.58
Effect of dilutive securities - stock options 95,401
------
Diluted EPS: - Net earnings and weighted average
common shares outstanding and effect of stock options $ 2,771 4,838,155 $.57
Number of
Income Shares Per Share
1996 (Numerator) (Denominator) Amount
---- ----------- ------------- ---------
Basic EPS - Net earnings and weighted
average common shares outstanding $ 1,927 4,716,500 $.41
Effect of dilutive securities - stock options 71,606
------
Diluted EPS: - Net earnings and weighted average
common shares outstanding and effect of stock options $ 1,927 4,788,106 $.40
NOTE 9 - EMPLOYEE BENEFIT PLANS
Effective January 1, 1998, the Company terminated its defined contribution
pension plan and amended its 401(k) savings plan. Assets of the terminated
defined contribution pension plan were merged into an enhanced 401(k)/profit
sharing plan. The plan allows participants to make pretax contributions and the
Company matches certain percentages of those pretax contributions. 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 $178 and $172 in 1998,
respectively.
Prior to 1998, the Company had a defined contribution pension plan that covered
substantially all employees. Pension plan contributions for 1997 and 1996 were
$149 and $283, respectively. In 1996, the Company took a one-time charge to
earnings of $165 in order to convert the accounting for the pension plan to the
accrual basis.
Prior to 1998, the Company also had a 40l(k) savings plan that covered
substantially all employees. 401(k) savings plan contributions for 1997 and 1996
were $95 and $83, respectively.
NOTE 10 - BUSINESS CONCENTRATIONS
A customer accounted for 15%, 13% and 11% of the Company's net sales for 1998,
1997 and 1996, respectively. This customer accounted for 13% and 14% of the
Company's accounts receivable balance at December 31, 1998 and 1997,
respectively.
NOTE 11 - LEASES
The Company leases most of its vehicles and office equipment under noncancelable
operating leases, which expire at various times through 2003. Rent expense
charged to operations under such lease agreements for 1998, 1997 and 1996
aggregated approximately $345, $334 and $221, respectively. Aggregate future
minimum rental payments required under noncancelable operating leases at
December 31, 1998 are as follows:
Year
----
1999 $ 242
2000 217
2001 122
2002 57
2003 27
Total minimum lease
payments $ 665
NOTE 12 - SEGMENT INFORMATION
The Company's reportable segments are strategic businesses that offer different
products and services. Presently, the Company has two reportable segments,
Specialty Products and Encapsulated Products. They are managed separately
because each business requires different technology and marketing strategies.
The Specialty Products segment consists of three specialties: ethylene oxide,
propylene oxide and methyl chloride. The Encapsulated Products segment is in the
business of encapsulating performance ingredients for use throughout the food
industry for processing, mixing, packaging applications, fortification and for
shelf-life improvement. The Company sells products for both segments through its
own sales force, independent distributors and sales agents. The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies.
Business Segment Net Revenues:
1998 1997 1996
---------- ---------- ----------
Specialty Products $ 19,434 $ 19,650 $ 18,264
Encapsulated Products 9,287 8,969 8,107
Total $ 28,721 $ 28,619 $ 26,371
Business Segment Profit (Loss):
1998 1997 1996
---------- ---------- ----------
Specialty Products $ 4,631 $ 4,234 $ 4,098
Encapsulated Products 176 116 (978)
Interest expense and other income
(expense) (179) (123) (203)
Earnings before income taxes $ 4,628 $ 4,227 $ 2,917
Depreciation/Amortization:
1998 1997 1996
---------- ---------- ----------
Specialty Products $ 1,412 $ 924 $ 698
Encapsulated Products 242 202 716
Total $ 1,654 $ 1,126 $ 1,414
Business Segment Assets:
1998 1997 1996
---------- ---------- ----------
Specialty Products $ 13,651 $ 10,254 $ 6,755
Encapsulated Products 6,524 5,314 7,343
Other Unallocated 2,473 2,025 1,042
Total $ 22,648 $ 17,593 $ 15,140
During 1997, the Company sold the fixed assets formerly used in a custom
manufacturing process for approximately $538. In 1996, the Company had reduced
the carrying values of these fixed assets from approximately $970 to their
expected net realizable value of $540. The resulting loss of approximately $430
is included in depreciation expense for the year ended December 31, 1996. Such
fixed assets were included in the encapsulated products segment for 1996.
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.
Expenditures for Segment Assets:
1998 1997 1996
---------- ---------- ----------
Specialty Products $ 4,477 $ 1,826 $ 1,858
Encapsulated Products 1,183 532 417
Total $ 5,660 $ 2,358 $ 2,275
Geographic Revenue Information:
1998 1997 1996
---------- ---------- ----------
United States $ 25,833 $ 25,825 $ 23,381
Foreign Countries 2,888 2,794 2,990
Total $ 28,721 $ 28,619 $ 26,371
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 13 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
1998 1997 1996
---------- --------- ---------
Income taxes $ 1,578 $ 1,868 $ 1,034
Interest $ 197 $ 164 $ 266
Supplementary Financial Information (unaudited):
Earnings per share been adjusted for the May 1998 three-for-two stock split
(effected by means of a stock dividend).
(In thousands, except per share data)
1998 1997
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- -------
Net sales $ 7,733 $ 7,220 $ 6,583 $ 7,185 $ 6,835 $ 7,308 $ 7,170 $ 7,306
Gross margin 3,214 2,907 2,347 2,955 3,070 3,182 3,033 2,629
Earnings before
Income taxes 1,270 1,183 905 1,270 1,129 1,252 1,194 652
Net earnings 831 753 595 776 717 862 768 424
Basic earnings per
Common share $ .17 $ .16 $ .12 $ .16 $ .15 $ .18 $ .16 $ .09
Diluted earnings per
Common share $ .17 $ .15 $ .12 $ .16 $ .15 $ .18 $ .16 $ .08
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On December 30, 1996, the Company advised the accounting firm of
Judelson, Giordano, Siegel, CPA, PC, the principal accountant previously engaged
to audit the Company's financial statements, that it was dismissing such
principal accountant for audits of years after December 31, 1996.
For the year ended 1996, the report issued by the former accountants on
the Company's financial statements did not contain an adverse opinion or a
disclaimer of opinion, nor was any such opinion qualified or modified as to
uncertainty, audit scope, or accounting principles.
The decision to change accountants was recommended by the Audit
Committee and approved by the Board of Directors. There were no disagreements
with the former accountant on any matter of accounting principles or practices,
financial statements disclosures or auditing scope or procedures.
The Company has engaged KPMG LLP as its independent accountants for
periods after December 31, 1996. The selection was the result of a competitive
search process initiated by the Company.
The above noted information was disclosed in the Company's Report on
Form 8-K dated January 9, 1997.
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 1999 Annual Meeting of Stockholders ("Proxy Statement") under
the caption "Directors and Executive Officers," which information is hereby
incorporated herein by reference.
(b) Executive Officers of the Company.
The required information is to be set forth in the Proxy Statement under
the caption "Directors and Executive Officers," which information is hereby
incorporated herein by reference.
(c) Section 16(a) Beneficial Ownership Reporting Compliance
The required information is to be set forth in the Proxy Statement under
the caption "Section 16(a) Beneficial Ownership Reporting Compliance," which
information is hereby incorporated herein by reference.
Item 11. Executive Compensation
The information required by this Item is to be set forth in the Proxy
Statement under the caption "Directors and Executive Officers," which
information is hereby incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is to be set forth in the Proxy
Statement under the caption "Security Ownership of Certain Beneficial Owners and
of Management," which information is hereby incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is set forth in the Proxy
Statement under the caption "Directors and Executive Officers," which
information is hereby incorporated herein by reference.
Item 14. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Composite Articles of Incorporation of the Company.
3.2 By-laws of the Company.
10.1 Incentive Stock Option Plan of the Company, as amended,
incorporated by reference to the Company's Registration Statement on Form S-8,
File No. 33-35910, dated October 25, 1996, and to Proxy Statement, dated April
22, 1998, for the Company's 1998 Annual Meeting of Stockholders (the "1998 Proxy
Statement").*
10.2 Stock Option Plan for Directors of the Company, as amended,
incorporated by reference to the Company's Registration Statement on Form S-8,
File No. 33-35912, dated October 25, 1996, and to the 1998 Proxy Statement.*
10.3 Balchem Corporation 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.*
10.4 Employment Agreement, dated as of October 1, 1997, between the
Company and Dino A. Rossi.*
10.5 Agreements dated as of April 1, 1993, January 1, 1995 and April
25, 1997, as amended, between the Company and Dr. Charles McClelland.*
10.6 Amended and Restated Term Loan Agreement, dated as of January 15,
1999, and related Security Agreement, between the Company and The Chase
Manhattan Bank.
16. Letter on change in certifying accountant (incorporated by
reference to Exhibit 16 to Form 10-KSB/A (Amendment No. 1) of the Company, dated
October 23, 1998).
21. Subsidiaries of Registrant.
23.1 Consent of KPMG LLP, Independent Auditors
23.2 Consent of Judelson, Giordano, Siegel, P.C.
27. Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the year
ended December 31, 1998.
- ----------------------
* Each of the Exhibits noted by an asterisk is a management
compensatory plan or arrangement.
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 17, 1999 BALCHEM CORPORATION
By:/s/ Dino A. Rossi
-------------------------
Dino A. Rossi, President,
Chief Executive Officer
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 17, 1999
By:/s/ Francis J. Fitzpatrick
----------------------------------
Francis J. Fitzpatrick, Controller
Date: March 17, 1999
By:/s/ Donald E. Alguire
----------------------------------
Donald E. Alguire, Director
Date: March 13, 1999
By:/s/ John E. Beebe
----------------------------------
John E. Beebe, Director
Date: March 15, 1999
By:/s/ Francis X. McDermott
----------------------------------
Francis X. McDermott, Director
Date: March 17, 1999
By:/s/ Kenneth P. Mitchell
----------------------------------
Kenneth P. Mitchell, Director
Date: March 17, 1999
By:/s/ Carl R. Pacifico
----------------------------------
Carl R. Pacifico, Director
Date: March 15, 1999
By:/s/ Israel Sheinberg
----------------------------------
Israel Sheinberg, Director
Date: March 17, 1999
By:/s/ Leonard J. Zweifler
----------------------------------
Leonard J. Zweifler, Director
Date: March 13, 1999
EXHIBIT INDEX
3.1 Composite Articles of Incorporation of the Company.
3.2 By-laws of the Company.
10.1 Incentive Stock Option Plan of the Company, as amended,
incorporated by reference to the Company's Registration Statement on Form S-8,
File No. 33-35910, dated October 25, 1996, and to Proxy Statement, dated April
22, 1998, for the Company's 1998 Annual Meeting of Stockholders (the "1998 Proxy
Statement").*
10.2 Stock Option Plan for Directors of the Company, as amended,
incorporated by reference to the Company's Registration Statement on Form S-8,
File No. 33-35912, dated October 25, 1996, and to the 1998 Proxy Statement.*
10.3 Balchem Corporation 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.*
10.4 Employment Agreement, dated as of October 1, 1997, between the
Company and Dino A. Rossi.*
10.5 Agreements dated as of April 1, 1993, January 1, 1995 and April
25, 1997, as amended, between the Company and Dr. Charles McClelland.*
10.6 Amended and Restated Term Loan Agreement, dated as of January 15,
1999, and related Security Agreement, between the Company and The Chase
Manhattan Bank.
16. Letter on change in certifying accountant (incorporated by
reference to Exhibit 16 to Form 10-KSB/A (Amendment No. 1) of the Company, dated
October 23, 1998).
21. Subsidiaries of Registrant.
23.1 Consent of KPMG LLP, Independent Auditors
23.2 Consent of Judelson, Giordano, Siegel, P.C.
27. Financial Data Schedule.