FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 1998 COMMSSION FILE NO. 1-13648
BALCHEM CORPORATION
MARYLAND 13-2578432
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(STATE OF OTHER JURISDICTION OF (I.R.S EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
PO BOX 175 SLATE HILL, NY 10973
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE: (914) 355-5300
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INDICATE BY CHECK MARK WHETHER THE REGISTRANT(1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES [ X ] NO [ ]
As of May 12, 1998 , Registrant had 3,203,274 shares of its Common Stock, $.06
2/3 par value, outstanding.
Part I Financial Information
BALCHEM CORPORATION
Consolidated Balance Sheets
(In thousands, except share and per share data)
Unaudited
Assets March 31, December 31,
1998 1997
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Current assets:
Cash and cash equivalents ................................ $ 568 $ 736
Trade accounts receivable, less allowance for doubtful
accounts ........................................... 3,972 3,061
Inventories .............................................. 3,242 2,507
Prepaid expenses ......................................... 319 513
Deferred income taxes .................................... 337 305
Other current assets ..................................... -- 165
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Total current assets .................................. 8,438 7,287
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Property, plant and equipment, net of accumulated depreciation 7,253 7,345
Intangible assets, net of accumulated amortization ........... 3,117 2,925
Other assets ................................................. 29 36
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Total assets ..................................... $18,837 $17,593
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See accompanying notes to consolidated financial statements.
BALCHEM CORPORATION
Consolidated Balance Sheets
(In thousands, except share and per share data)
Unaudited
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March 31, December 31,
1998 1997
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Liabilities and Stockholders' Equity
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Current liabilities:
Accounts payable and accrued expenses ...................... $ 3,199 $ 2,657
Dividends payable .......................................... -- 160
Income taxes payable ....................................... 341 --
Current portion of long-term debt ......................... 600 700
Current portion of other long-term obligations ............. 50 50
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Total current liabilities ............................... 4,190 3,567
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Long-term debt .................................................. 550 800
Deferred income taxes ........................................... 465 481
Deferred compensation .......................................... 135 143
Other long-term obligations ..................................... 253 266
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1,403 1,690
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Total liabilities ................................... 5,593 5,257
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Stockholders' equity:
Preferred stock, $25 par value. Authorized 2,000,000
shares; none issued and outstanding
Common stock, $.06 2/3 par value. Authorized 10,000,000
shares; issued and outstanding 4,803,821 shares at
March 31, 1998 and 4,793,163 shares at December 31,1997 320 320
Additional paid-in capital .................................. 2,221 2,144
Retained earnings ........................................... 10,703 9,872
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Total stockholders' equity ............................... 13,244 12,336
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Commitments and contingencies
Total liabilities & stockholders' equity ............ $18,837 $17,593
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See accompanying notes to consolidated financial statements.
BALCHEM CORPORATION
Consolidated Statements of Operations
(In thousands, except per share data)
Unaudited
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Three Months Ended
March 31, December 31,
1998 1997
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Net sales .......................................... $7,735 $6,835
Cost of sales ...................................... 4,405 3,765
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Gross margin ....................................... 3,330 3,070
Operating expenses:
Selling expenses ............................. 852 814
Research and development expenses ............ 284 255
General and administrative expenses .......... 882 807
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Total operating expenses ................. 2,018 1,876
Income from operations ............................. 1,312 1,194
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Other expenses - net:
Interest expense ............................. 28 43
Other expense - net .......................... 13 22
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Total other expenses - net ............... 41 65
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Earnings before income taxes ....................... 1,271 1,129
Income taxes ................................. 440 412
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Net earnings ....................................... $ 831 $ 717
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Basic net earnings per common share (Notes 3 and 4) $ 0.17 $ 0.15
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Diluted net earnings per common share (Notes 3 and 4) $ 0.17 $ 0.15
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See accompanying notes to consolidated financial statements.
BALCHEM CORPORATION
Consolidated Statements of Cash Flows
(In thousands)
Unaudited
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Three Months Ended
March 31,
1998 1997
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Cash flows from operating activities:
Net earnings.................................................. $ 831 $ 717
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ........................... 333 225
Non-employee stock option compensation .................. 29 24
Provision for deferred income taxes ..................... (48) (43)
Non-cash compensation ................................... 54
Loss on sale of equipment................................ 19
Changes in assets and liabilities:
Accounts receivable ................................ (911) (531)
Inventories ........................................ (735) (182)
Prepaid expenses and other ......................... 359 200
Accounts payable and accrued expenses .............. 521 (154)
Income taxes payable .............................. 341 327
Deferred compensation payable ...................... (8) 84
Other long-term obligations ........................ (10) (3)
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Net cash flows provided by operating activities 775 664
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Cash flows from investing activities:
Proceeds from sale of property, plant and equipment .......... 15
Capital expenditures ......................................... (156) (310)
Investments in other assets ................................. (312) (268)
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Net cash flows used in investing activities... (453) (578)
Cash flows from financing activities:
Principal payments on long-term debt.......................... (350)
Stock options and warrants exercised ......................... 22 2
Dividends paid ............................................... (159) (142)
Other financing activities ................................... (3) (3)
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Net cash flows used in financing activities ... (490) (143)
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Decrease in cash and cash equivalents ............................. (168) (57)
Cash and cash equivalents beginning of year ....................... 736 89
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Cash and cash equivalents end of year ............................. $ 568 $ 31
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See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except share and per share data)
NOTE 1 - CONSOLIDATED FINANCIAL STATEMENTS
The Consolidated Financial Statements presented herein have been prepared by the
Company in accordance with the accounting policies described in its December 31,
1997 Annual Report on Form 10-KSB and should be read in conjunction with the
notes to consolidated financial statements which appear in that report.
In the opinion of management, the unaudited 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 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, 1998 are not necessarily
indicative of the operating results expected for the full year.
NOTE 2 - INVENTORIES
Inventories at March 31, 1998 and December 31, 1997 consist of the following:
March 31, December 31,
1998 1997
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Raw Materials $ 1,360 $ 836
Finished Goods 1,882 1,671
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$ 3,242 $ 2,507
NOTE 3 - NET EARNINGS PER SHARE
Net earnings per share are calculated in accordance with SFAS No.128 "Earnings
Per Share". The following presents a reconciliation of the numerator and
denominator used in calculating basic and diluted net earnings per share:
Number of
Income Shares Per Share
Three months ended March 31, 1998 (Numerator) (Denominator) Amount
- --------------------------------- ----------- ------------- ------
Basic EPS - Net earnings and weighted average common
shares outstanding ................................. $ 831 4,798,180 $ .17
Effect of dilutive securities - stock options ...... 82,509
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Diluted EPS - Net earnings and weighted
average common shares outstanding and
effect of stock options ............................ $ 831 4,880,689 $ .17
Number of
Income Shares Per Share
Three months ended March 31, 1997 (Numerator) (Denominator) Amount
- --------------------------------- ----------- ------------- ------
Basic EPS - Net earnings and weighted average common
shares outstanding ................................. $ 717 4,729,706 $ .15
Effect of dilutive securities - stock options ...... 39,484
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Diluted EPS - Net earnings and weighted
average common shares outstanding and
effect of stock options ............................ $ 717 4,769,190 $ .15
NOTE 4 - SUBSEQUENT EVENT
On May 2, 1998, the Board of Directors of the Company approved a three-for-two
split of the Company's common stock to be distributed in the form of a stock
dividend to shareholders of record on May 15, 1998. Such distribution will be
made on June 3, 1998. Accordingly, the stock split has been recognized by
reclassifying $106, the par value of the additional shares resulting from the
split, from additional paid-in capital to common stock. All references to number
of common shares and per share amounts except shares authorized in the
accompanying consolidated financial statements have been retroactively adjusted
to reflect the effect of the stock split.
Management's Discussion and Analysis
(All dollar amounts in thousands)
Results of Operations:
Three months ended March 31, 1998 as compared with three months ended March 31,
1997
Total revenues for the three months ended March 31, 1998 were $7,735 as compared
to $6,835 for the three months ended March 31, 1997, an increase of 13% or $900.
The increase in revenue is primarily attributable to increased volumes for the
specialty products business and the food encapsulation business in domestic
markets.
Cost of sales increased 2 % as a percentage of sales for the three months ended
March 31, 1998 as compared to the three months ended March 31, 1997. The
increase in cost of sales as a percentage of sales is primarily attributable to
higher costs related to the increased volumes of certain products sold during
the three months ended March 31, 1998.
Operating expenses for the three months ended March 31, 1998 increased to $2,018
from $1,876 for the three months ended March 31, 1997. The increase in operating
expenses is primarily the result of an increase in costs associated with the
Company's medical plan and increased recruiting and relocation expense.
Income from operations for the three months ended March 31, 1998 was $1,312 as
compared to $1,194 for the three months ended March 31, 1997, an increase of 10%
or $118.
Net earnings were $831 for the three months ended March 31, 1998 as compared to
$717 for the three months ended March 31, 1997, an increase of 16%, or $114.
Interest expense for the three months ended March 31, 1998 totaled $28 as
compared to $43 for the three months ended March 31, 1997. The decrease in
interest expense is the result of reduced debt.
Liquidity and Capital Resources
Cash flow from operating activities provided approximately $775 for the three
months ended March 31, 1998 as compared to $664 for the three months ended March
31, 1997. Over the last three years, operating cash flow has totaled
approximately $9,038. Improvements in cash flow over this period of time have
provided the Company with the ability to reduce long-term debt and to meet both
its operating and investment objectives.
Capital expenditures were $156 for the three months ended March 31, 1998. The
Company has undertaken a plant expansion for its encapsulated choline chloride
product line. The increased capacity should be on-line early in the third
quarter, which will coincide with the expected increase in market requirements
at that time. Capital expenditures are projected to be approximately $1,300 for
1998.
The Company has capitalized approximately $316 for the three months ended March
31, 1998 and $1,216 in 1997 in connection with the 1994 purchase of a customer
list for the Company's ethylene oxide business. The amount contingently payable
to the seller involves a complex formula based upon revenues generated by a
specialty packaged ingredient. Payments of similar magnitude are projected for
each of the quarters for the remainder of 1998.The agreement terminates in June
2004.
Long-term debt has been reduced by approximately $350 during the three months
ended March 31, 1998.
The Company knows of no demands, commitments, events or uncertainties for its
liquid assets that will materially affect its liquidity. The Company currently
has $2,000 in committed, but unutilized credit available to it by its principal
bank (which funds are being reserved for future working capital needs and
undefined business opportunities).
Impact of Recent Accounting Standards
Effective January 1, 1998 the Company adopted Statement of Financial Accounting
Standards ("SFAS") No.131, "Disclosures About Segments of an Enterprise and
Related Information" and SFAS No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits". The Company is currently evaluating the
effect that SFAS 131 will have on segment reporting disclosures. These
statements address presentation and disclosure matters and will have no impact
on the Company's financial position or results of operations. As required by
Statement 131 and Statement 132, compliance with the respective reporting
disclosures will be reflected in the Company's 1998 Form 10-K.
In April 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". SOP 98-1 is effective for
financial statements for fiscal years beginning after December 15, 1998.
Adoption of this SOP is not expected to have a material effect on the Company's
financial position or results of operations.
Also in April 1998, the AICPA issued SOP 98-5 "Reporting on the Costs of
Start-up Activities". This SOP requires companies to expense certain costs such
as pre-operating expenses and organizational costs associated with the company's
start-up activities, and is effective years beginning after December 15, 1998.
Adoption of this SOP is not expected to have a material effect on the Company's
financial position or results of operations.
Part II Other Information:
Item 6. Exhibits and Reports on Form 8-K
(a) There were no exhibits.
(b) No reports on Form 8-K were filed during the
quarter ended March 31, 1998.
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
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Dino A. Rossi, President,
Chief Executive Officer
Date: May 15, 1998