FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One) Quarterly Report Pursuant to Section 13 or 15 (d) of
[ X ] The Securities Exchange Act of 1934
For The Quarterly Period Ended March 31, 2001
or
Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from ____________ to ____________
Commission File Number 1-13648
BALCHEM CORPORATION
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 13-2578432
- -------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
P.O. Box 175 Slate Hill, New York 10973
- ----------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
845-355-5300
------------
Registrant's telephone number, including area code:
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.
Yes [ X ] No [ ]
As of May 14, 2001 the registrant had 4,633,256 shares of its Common Stock, $.06
2/3 par value, outstanding.
Part I. Financial Information
Item 1. Financial Statements
BALCHEM CORPORATION
Condensed Consolidated Balance Sheets
(Dollars in thousands, except per share data)
March 31, December 31,
2001 2000
Unaudited
--------- ------------
Current assets:
Cash and cash equivalents $ 4,722 $ 3,068
Accounts receivable 4,264 5,044
Inventories 2,816 2,554
Prepaid expenses 377 502
Deferred income taxes 203 200
------- -------
Total current assets 12,382 11,368
------- -------
Property, plant and equipment, net 7,997 7,765
Intangibles and other assets, net 3,837 4,089
------- -------
Total assets $24,216 $23,222
======= =======
See accompanying notes to condensed consolidated financial statements.
2
BALCHEM CORPORATION
Condensed Consolidated Balance Sheets, continued
(Dollars in thousands, except per share data)
March 31,
2001 December 31,
Unaudited 2000
--------- ---------
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Trade accounts payable $ 1,378 $ 970
Accrued compensation and other benefits 356 1,135
Other accrued expenses 651 654
Dividends payable -- 277
Income taxes payable 686 208
Current portion of other long-term obligations 36 36
-------- --------
Total current liabilities 3,107 3,280
-------- --------
Deferred income taxes 200 225
Deferred compensation 86 91
Other long-term obligations 28 46
-------- --------
Total liabilities 3,421 3,642
-------- --------
Stockholders' equity:
Preferred stock, $25 par value. Authorized 2,000,000
shares; none issued and outstanding
Common stock, $.0667 par value. Authorized 10,000,000 shares; 4,903,238 shares
issued and 4,624,866 shares outstanding at March 31, 2001 and
4,903,238 shares issued and 4,616,170 shares outstanding at December 31, 2000 327 327
Additional paid-in capital 3,127 3,082
Retained earnings 20,081 18,968
Treasury stock, at cost: 278,372 and 287,068 shares at March 31, 2001 and
December 31, 2000, respectively (2,740) (2,797)
-------- --------
Total stockholders' equity 20,795 19,580
-------- --------
Total liabilities and stockholders' equity $ 24,216 $ 23,222
======== ========
See accompanying notes to consolidated financial statements
3
BALCHEM CORPORATION
Condensed Consolidated Statements of Earnings
(In thousands, except earnings per share data)
March 31,
2001 2000
------- ------
Unaudited
Net sales $8,024 $7,751
Cost of sales 4,482 4,638
------ ------
Gross profit 3,542 3,113
Operating expenses:
Selling expenses 988 879
Research and development expenses 386 238
General and administrative expenses 751 702
------ ------
Earnings from operations 1,417 1,294
Other income (expense):
Interest income - net 39 2
Other income - net 324 --
------ ------
Earnings before income tax expense 1,780 1,296
Income tax expense 667 487
------ ------
Net earnings $1,113 $ 809
====== ======
Net earnings per common share - basic $ 0.24 $ 0.17
====== ======
Net earnings per common share - diluted $ 0.23 $ 0.17
====== ======
See accompanying notes to condensed financial statements.
4
BALCHEM CORPORATION
Condensed Consolidated Statements of Cash Flows
(In thousands)
Unaudited
Three Months Ended
March 31,
2001 2000
------- -------
Cash flows from operating activities:
Net earnings $ 1,113 $ 809
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation and amortization 492 508
Shares issued under employee benefit plans 70 62
Deferred income tax (benefit) expense (28) (21)
Changes in assets and liabilities:
Accounts receivable 780 139
Inventories (262) 375
Prepaid expenses 125 21
Accounts payable and accrued expenses (374) (599)
Income taxes payable 478 300
Deferred compensation (5) (4)
------- -------
Net cash provided by operating activities 2,389 1,590
------- -------
Cash flows from investing activities:
Capital expenditures (443) (352)
Increase in intangibles assets (29) (14)
------- -------
Net cash used in investing activities (472) (366)
------- -------
Cash flows from financing activities:
Principal payments on long-term debt -- (500)
Proceeds from stock options and warrants exercised 32 24
Dividends paid (277) (245)
Purchase of treasury stock -- (243)
Other financing activities (18) (18)
------- -------
Net cash used in financing activities (263) (982)
------- -------
Net increase in cash and cash equivalents 1,654 242
Cash and cash equivalents beginning of period 3,068 1,699
------- -------
Cash and cash equivalents end of period $ 4,722 $ 1,941
======= =======
See accompanying notes to condensed consolidated financial statements.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, except per share data)
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements presented herein have been
prepared by the Company in accordance with the accounting policies described in
its December 31, 2000 Annual Report on Form 10-K, and should be read in
conjunction with the consolidated financial statements and notes, which appear
in that report.
In the opinion of management, the unaudited condensed consolidated financial
statements furnished in this Form 10-Q include all adjustments necessary for a
fair presentation of the financial position, results of operations and cash
flows for the interim periods presented. All such adjustments are of a normal
recurring nature. The condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore do not
include some information and notes necessary to conform with annual reporting
requirements. The results of operations for the three months ended March 31,
2001 are not necessarily indicative of the operating results expected for the
full year.
NOTE 2 - INVENTORIES
Inventories at March 31, 2001 and December 31, 2000 consist of the following:
- -------------------------------------------------------------------------------
March 31, 2001 December 31, 2000
- -------------------------------------------------------------------------------
Raw materials $ 954 $ 1,147
Finished goods 1,862 1,407
- -------------------------------------------------------------------------------
Total inventories $ 2,816 $ 2,554
- -------------------------------------------------------------------------------
NOTE 3 - NET EARNINGS PER SHARE
The following presents a reconciliation of the earnings and shares used in
calculating basic and diluted net earnings per share:
- ----------------------------------------------------------------------------------------------
Number of Shares
Income (Denominator) Per Share Amount
Three months ended March 31, 2001 (Numerator)
- ----------------------------------------------------------------------------------------------
Basic EPS - Net earnings and weighted
average common shares outstanding $1,113 4,621,518 $.24
Effect of dilutive securities - stock options 154,244
----------
Diluted EPS - Net earnings and weighted
average common shares outstanding and
effect of stock options $1,113 4,775,762 $.23
- ----------------------------------------------------------------------------------------------
6
- -------------------------------------------------------------------------------------------
Number of
Income Shares Per Share
Three months ended March 31, 2000 (Numerator) (Denominator) Amount
- -------------------------------------------------------------------------------------------
Basic EPS - Net earnings and weighted
average common shares outstanding $809 4,767,825 $.17
Effect of dilutive securities - stock options 61,685
------
Diluted EPS - Net earnings and weighted
average common shares outstanding and
effect of stock options $809 4,829,510 $.17
NOTE 4 - SEGMENT INFORMATION
The Company's reportable segments are strategic businesses that offer different
products and services. Presently, the Company has two reportable segments,
specialty products and encapsulated products.
Business Segment Net Revenues:
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
2001 2000
- --------------------------------------------------------------------------------
Specialty Products $5,182 $5,082
Encapsulated Products 2,842 2,669
- --------------------------------------------------------------------------------
Total $8,024 $7,751
- --------------------------------------------------------------------------------
Business Segment Profit (Loss):
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
2001 2000
- --------------------------------------------------------------------------------
Specialty Products $ 1,481 $ 1,410
Encapsulated Products (64) (116)
Other income (expense) - net 363 2
- --------------------------------------------------------------------------------
Earnings before income taxes $ 1,780 $ 1,296
- --------------------------------------------------------------------------------
7
NOTE 5 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the three months ended March 31, 2001 and 2000 for income taxes
and interest is as follows:
- --------------------------------------------------------------
Three Months Ended
March 31,
2001 2000
- --------------------------------------------------------------
Income taxes $ 223 $ 208
Interest $ 8 $ 22
- --------------------------------------------------------------
NOTE 6 - COMMON STOCK
In June 1999, the board of directors authorized the repurchase of up to
1,000,000 shares of the Company's outstanding common stock over a two-year
period commencing July 2, 1999. Through March 31, 2001, the Company has
repurchased 343,316 shares at an average cost of $9.26 per share of which
278,372 remain in treasury at March 31, 2001.
NOTE 7 - OTHER INCOME
During the quarter ended March 31, 2001, the Company received proceeds of
approximately $324 from the settlement of a class-action claim related to
vitamin product antitrust litigation.
NOTE 8 - NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 137 and SFAS No. 138. This statement
requires the recognition of derivative financial instruments on the balance
sheet as assets or liabilities, at fair value. Gains or losses resulting from
changes in the value of derivatives are accounted for depending on the intended
use of the derivative and whether it qualifies for hedge accounting. 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 quarter
ended March 31, 2001, nor does the Company currently have any derivative
financial instruments or derivative commodity instruments outstanding at March
31, 2001.
8
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Report contains forward-looking statements, within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended, which
reflect the Company's expectation or belief concerning future events that
involve risks and uncertainties. The actions and performance of the Company
could differ materially from what is contemplated by the forward-looking
statements contained in this Report. Factors that might cause differences from
the forward-looking statements include those referred to or identified in Item 1
of the Company's Annual Report on Form 10-K for the year ended December 31, 2000
and other factors that may be identified elsewhere in this Report. Reference
should be made to such factors and all forward-looking statements are qualified
in their entirety by the above cautionary statements.
Balchem Corporation is engaged in the development, manufacture
and marketing of specialty performance ingredients and products for the food,
feed and medical sterilization industries. The Company operates in two business
segments, the micro-encapsulation of performance ingredients (the "encapsulated
products" segment) and the repackaging and marketing of high quality specialty
gases (the "specialty products" segment).
(All dollar amounts in thousands)
Results of Operations:
Three months ended March 31, 2001 as compared with three months ended
March 31, 2000
Net sales for the three months ended March 31, 2001 were $8,024
as compared with $7,751 for the three months ended March 31, 2000, an increase
of $273 or 4%. Net sales for the specialty products segment were $5,182 for the
three months ended March 31, 2001 as compared with $5,082 for the three months
ended March 31, 2000, an increase of $100 or 2%. Volume sold of ethylene oxide
products increased slightly in the quarter ended March 31, 2001. Such increases
were partially offset by decreased volume sold of propylene oxide. Net sales for
the encapsulated products segment were $2,842 for the three months ended March
31, 2001 as compared with $2,669 for the three months ended March 31, 2000, an
increase of $173 or 6.5%. This increase was due principally to greater sales to
the animal nutrition and domestic food markets. The growth in sales to the
domestic food market is the result of increased volumes sold of higher margin
products which can be attributed principally to new products and new
applications. Sales of Reashure(TM) continued to strengthen in the first quarter
through growth from existing customers and from the addition of new customers
and added distribution channels, primarily in the East and Midwest. Sales
representation was established for the western United States and the Company
also began selling Reashure(TM) into the Mexican dairy market through a local
distributor. The increases noted above were partially offset by a decline in
sales to the international food and specialty industrial markets. Ongoing meat
safety issues in Europe unfavorably impacted sales of ingredients for meat and
packaging applications.
9
Cost of sales as a percent of sales for the three months ended
March 31, 2001 improved to 56% as compared to 60% for the three months ended
March 31, 2000. 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 improved in the encapsulated products
division, a result of efficiencies realized from increased production and the
mix of products sold during the three months ended March 31, 2001.
Operating expenses for the three months ended March 31, 2001
increased to $2,125 from $1,819 for the three months ended March 31, 2000, an
increase of $306 or 17%. The increase in operating expenses was primarily the
result of increased personnel in the area of sales, marketing and research &
development for the encapsulated products segment. In particular, additional
sales personnel were added to support the animal nutrition business and
additional research and application personnel have been added to support a more
expansive research and development program for both human and animal markets.
During the three months ended March 31, 2001 and the three months ended March
31, 2000, the Company spent $386 and $238, 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. General and administrative expenses increased primarily due to an
increase in costs associated with the Company's medical plan.
As a result of the foregoing, earnings from operations for the
three months ended March 31, 2001 were $1,417 as compared to $1,294 for the
three months ended March 31, 2000. Earnings from operations for the specialty
products segment for the three months ended March 31, 2001 was $1,481 as
compared to $1,410 for the three months ended March 31, 2000. Earnings from
operations for the encapsulated products segment for the three months ended
March 31, 2001 was a loss of $64 as compared to a loss of $116 for the three
months ended March 31, 2000.
Other income of $324 for the three months ended March 31, 2001
represents proceeds received from the settlement of a class-action claim related
to vitamin product antitrust litigation.
The Company realized net interest income for the three months
ended March 31, 2001 of $39 as compared to income of $2 for the three months
ended March 31, 2000. Higher average cash balances during the three months ended
March 31, 2001 contributed to increased interest income. Long-term debt,
including the current portion, was eliminated during the quarter ended June 30,
2000 resulting in lower interest expense for the three months ended March 31,
2001.
As a result of the foregoing, net earnings were $1,113 for the
three months ended March 31, 2001 as compared with $809 for the three months
ended March 31, 2000.
Liquidity and Capital Resources
Cash flows from operating activities provided $2,389 for the
three months ended March 31, 2001 as compared with $1,590 for the three months
ended March 31, 2000. The increase in cash flows from operating activities was
due primarily to increased net earnings, decreases in accounts payable, income
10
taxes payable and other accrued expense payments, a result of timing of payments
made to vendors and other service providers and an increase in accounts
receivable collections, partially offset by an increase in inventory.
Capital expenditures were $443 for the three months ended March
31, 2001. Capital expenditures are budgeted to be approximately $1,800 for all
of calendar year 2001.
In June 1999, the board of directors authorized the repurchase of
up to 1,000,000 shares of the Company's outstanding common stock over a two-year
period commencing July 2, 1999. As of March 31, 2001, 343,316 shares had been
repurchased under the program at a total cost of $3,179 of which 64,944 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.
There was no long-term debt outstanding at March 31, 2001.
The Company knows of no current or pending demands on or
commitments for its liquid assets that will materially affect its liquidity. The
Company currently has approval for a $2,000 line of credit from its principal
bank. There were no outstanding borrowings under this line of credit on March
31, 2001.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
In the normal course of operations, the Company is exposed to
market risks arising from adverse changes in interest rates. Market risk is
defined for these purposes as the potential change in the fair value of debt
instruments resulting from an adverse movement in interest rates. 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.
11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the
quarter ended March 31, 2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BALCHEM CORPORATION
By: /s/ Dino A. Rossi
---------------------------
Dino A. Rossi,President,
Chief Executive Officer and
Principal Financial Officer
Date: May 14, 2001