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.
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.
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.
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.
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.
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
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
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.
Item 2.
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.
Item 3. Legal Proceedings
In 1982 the Company discovered and thereafter removed a number of buried drums containing unidentified waste material from the Company's site in Slate Hill, New York. The Company thereafter entered into a Consent Decree to evaluate the drum site with the New York Department of Environmental Conservation ("NYDEC") and performed a Remedial Investigation/Feasibility Study that was approved by NYDEC in February 1994. Based on NYDEC requirements, the Company cleaned the area and removed additional soil from the drum burial site. The cost for this clean-up and the related reports was approximately $164,000. Clean-up was completed in 1996, but NYDEC required the Company to monitor the
site through 1999. The Company 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.
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.
PART II
Item 5.
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.
Item 6.
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).
(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.
Item 7.
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
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
$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.
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
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:
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.
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.
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.
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.
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.
Item 8.
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
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
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
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
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
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.
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 - --------------------------------------------------------------------------------
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.
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.
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.
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:
- -------------------------------------------------------------------------------- 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,
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
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 - --------------------------------------------------------------------------------
Information related to stock options outstanding under all plans at December 31, 2001 is as follows:
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:
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: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------
Amounts recognized in consolidated balance sheet: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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
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
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.
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.
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.
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.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
(a) represents write-offs.
PART III
Item 10.
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.
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.
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.
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.
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).
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.
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
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
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).
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.