BALCHEM CORP
10-Ks and 10-Qs
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UNITED
STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM
10-K
(Mark
One)
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þ
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the
fiscal year ended December 31, 2009
OR
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
transition period from
______
to
____
_
.
Commission
file number: 1-13648
Balchem
Corporation
(Exact
name of Registrant as specified in its charter)
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Maryland
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13-2578432
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification Number)
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52
Sunrise Park Road, New Hampton, NY 10958
(Address
of principal executive offices) (Zip Code)
Registrant’s
telephone number, including area code: (845) 326-5600
Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each class
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Name
of each exchange on which registered
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Common
Stock, par value $.06-2/3 per share
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Nasdaq
Global Market
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Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark whether the Registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act. Yes
o
No
þ
Indicate
by check mark whether the Registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes
o
No
þ
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 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
þ
No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
þ
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
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(Check
one):
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Large
accelerated filer
o
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Accelerated
filer
þ
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||
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Non-accelerated
filer
o
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Smaller
reporting company
o
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Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o
No
þ
The
aggregate market value of the common stock issued and outstanding and held by
non-affiliates of the Registrant, based upon the closing price for the common
stock on the NASDAQ Global Market on June 30, 2009 was approximately
$443,346,000. For purposes of this calculation, shares of the Registrant held by
directors and officers of the Registrant and under the Registrant's
401(k)/profit sharing plan have been excluded.
The
number of shares outstanding of the Registrant's common stock was 28,174,224 as
of March 3, 2010.
DOCUMENTS INCORPORATED BY
REFERENCE
Selected
portions of the Registrant’s proxy statement for its 2010 Annual Meeting of
Stockholders (the “2010 Proxy Statement”) to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days after
Registrant’s fiscal year-end of December 31, 2009 are incorporated by reference
in Part III of this Report.
Cautionary Statement
Regarding Forward-Looking Statements
This
Annual Report on Form 10-K contains “forward-looking statements” within the
meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. Forward-looking statements are not statements of historical
facts, but rather reflect our current expectations or beliefs concerning future
events and results. We generally use the words "believes," "expects," "intends,"
"plans," "anticipates," "likely," "will" and similar expressions to identify
forward-looking statements. Such forward-looking statements, including those
concerning our expectations, involve risks, uncertainties and other factors,
some of which are beyond our control, which may cause our actual results,
performance or achievements, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. The risks, uncertainties and factors that could
cause our results to differ materially from our expectations and beliefs
include, but are not limited to, those factors set forth in this Annual Report
on Form 10-K under "Item 1A. - Risk Factors" below, including the
following:
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changes
in laws or regulations affecting our
operations;
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changes
in our business tactics or
strategies;
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acquisitions
of new or complementary operations;
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sales
of any of our existing operations;
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changing
market forces or contingencies that necessitate, in our judgment, changes
in our plans, strategy or tactics;
and
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fluctuations
in the investment markets or interest rates, which might materially affect
our operations or financial
condition.
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We cannot
assure you that the expectations or beliefs reflected in these forward-looking
statements will prove correct. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. You are cautioned not to unduly rely on such
forward-looking statements when evaluating the information presented in this
Annual Report on Form 10-K and all subsequent written and oral forward-looking
statements made by us or persons acting on our behalf are expressly qualified in
their entirety by the cautionary statements contained herein.
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Item
1.
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Business
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General:
Balchem
Corporation (“Balchem,” the “Company,” “we” or “us”), incorporated in the State
of Maryland in 1967, is engaged in the development, manufacture and marketing of
specialty performance ingredients and products for the food, nutritional, feed,
pharmaceutical and medical sterilization industries. Our reportable
segments are strategic businesses that offer products and services to different
markets. We presently have three reportable segments: Specialty Products; Food,
Pharma & Nutrition; and Animal Nutrition & Health.
The
Company sells its products through its own sales force, independent distributors
and sales agents. Financial information concerning the Company's
business, business segments and geographic information appears in the Notes to
our Consolidated Financial Statements included under Item 8 below, which
information is incorporated herein by reference.
The
Company operates four domestic subsidiaries, all of which are wholly-owned: BCP
Ingredients, Inc. (“BCP”), Balchem Minerals Corporation (“BMC”), BCP Saint
Gabriel, Inc. (“BCP St. Gabriel”), each a Delaware corporation, and Chelated
Minerals Corporation (“CMC”), a Utah corporation. We also operate
three wholly-owned subsidiaries in Europe: Balchem BV and Balchem
Trading BV, both
1
Dutch
limited liability companies, and Balchem Italia Srl, an Italian limited
liability company. Unless otherwise stated to the contrary, or unless
the context otherwise requires, references to the Company in this report
includes Balchem Corporation and its subsidiaries.
Food, Pharma &
Nutrition
The Food,
Pharma & Nutrition (“FP&N”) segment provides microencapsulation,
granulation and agglomeration solutions to a variety of applications in food,
pharmaceutical and nutritional ingredients to enhance performance of nutritional
fortification, processing, mixing, and packaging applications and shelf-life.
Major product applications are baked goods, refrigerated and frozen dough
systems, processed meats, seasoning blends, confections, and nutritional
supplements. We also market human grade choline nutrient products through this
segment for wellness applications. Choline is recognized to play a key role in
the development and structural integrity of brain cell membranes in infants,
processing dietary fat, reproductive development and neural functions, such as
memory and muscle function. The FP&N portfolio also includes granulated
calcium carbonate products, primarily used in, or in conjunction with, novel
over-the-counter and prescription pharmaceuticals for the treatment of
osteoporosis, gastric disorders and calcium deficiencies in the United
States.
Specialty
Products
Our
Specialty Products segment operates in industry as ARC Specialty
Products.
Ethylene
oxide, at the 100% level, is sold as a sterilant gas, primarily for use in the
health care industry. It is used to sterilize a wide range of medical devices
because of its versatility and effectiveness in treating hard or soft surfaces,
composites, metals, tubing and different types of plastics without negatively
impacting the performance of the device being sterilized. Our 100% ethylene
oxide product is distributed in uniquely designed, recyclable, 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. Our inventory of
these specially built drums, along with our two filling facilities, represents a
significant capital investment. Contract sterilizers, medical device
manufacturers, and medical gas distributors are our principal customers for this
product. In addition, we also sell single use canisters with 100% ethylene oxide
for use in medical device sterilization. As a fumigant, ethylene oxide blends
are highly effective in killing bacteria, fungi, and insects in spices and other
seasoning materials.
We also
sell propylene oxide principally to customers seeking smaller (as opposed to
bulk) quantities and whose requirements include timely delivery and safe
handling. Propylene oxide uses can include fumigation in spice treatment,
various chemical synthesis applications, to make paints more durable, and for
manufacturing specialty starches and textile coatings.
Animal Nutrition &
Health
Our
Animal Nutrition & Health (“AN&H”) segment provides the animal nutrition
market with nutritional products derived from our encapsulation and chelation
technologies in addition to basic choline chloride. Commercial sales
of REASHURE
®
Choline, an encapsulated choline product, NITROSHURE
TM
, an
encapsulated urea supplement, and NIASHURE
TM
, our
microencapsulated niacin product for dairy cows, boosts health and milk
production in transition and lactating dairy cows, delivering nutrient
supplements that survive the rumen and are biologically available, providing
required nutritional levels. We also market chelated mineral supplements for use
in animal feed throughout the world, as our proprietary chelation technology
provides enhanced nutrient absorption for various species of production and
companion animals. In 2008, we introduced the first proven
rumen-protected lysine for use in dairy rations, AMINOSHURE
TM
-L,
which gives nutritionists and dairy producers a precise and consistent source of
rumen-protected lysine. AN&H also manufactures and supplies basic choline
chloride, an essential nutrient for animal health, predominantly to the poultry
and swine industries. Choline, which is manufactured and sold in both dry and
aqueous forms, plays a vital role in the metabolism of fat. Choline deficiency
can result in reduced growth and perosis in poultry; fatty liver, kidney
necrosis and general poor
2
health
condition in swine. Certain derivatives of choline chloride are also
manufactured and sold into industrial applications. The AN&H segment also
includes the manufacture and sale of methylamines. Methylamines are a primary
building block for the manufacture of choline products and are also used in a
wide range of industrial applications.
Raw
Materials
The raw
materials utilized by the Company in the manufacture of its products are
generally available from a number of commercial sources. Such raw materials
include materials derived from petrochemicals, minerals, metals and other
readily available commodities and are subject to price fluctuations due to
market conditions. 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.
Intellectual
Property
The
Company currently holds 17 patents in the United States and overseas and uses
certain trade-names and trademarks. It also uses know-how, trade
secrets, formulae, and manufacturing techniques that assist in maintaining
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 currently so material to the
Company that the expiration or termination of any single patent or group of
patents would materially affect its business.
Our U.S. patents will
expire between 2011 and 2024
. 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.
Seasonality
In
general, the businesses of our segments are not seasonal to any material
extent.
Backlog
At
December 31, 2009, the Company had a total backlog of $6,525,000 (including
$4,100,000 for the AN&H segment; $1,622,000 for the FP&N segment and
$803,000 for Specialty Products segment), as compared to a total backlog of
$6,384,000 at December 31, 2008 (including $4,434,000 for the AN&H segment;
$1,280,000 for the FP&N segment and $670,000 for Specialty Products
segment). It has generally been the Company’s policy and practice to maintain an
inventory of finished products and/or component materials for its segments to
enable it to ship products within two months after receipt of a product order.
All orders in the current backlog are expected to be filled in the 2010 fiscal
year.
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 product 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 development. In
addition, the winning and retention of customer acceptance of the Company’s food
and nutrition products involve substantial expenditures for application testing
and sales efforts. The Company also engages various universities to assist in
research and provide independent third-party analysis. Our competition in this
market includes a variety of ingredient and nutritional supplement companies
many of which are privately-held. Therefore, we are unable to assess
the size of all of our competitors or where we rank in comparison to such
privately-held competitors.
3
In the
specialty products business, the Company faces competition from alternative
sterilizing technologies and products. Competition in this marketplace is based
primarily on product performance, customer support, quality, service and price.
Our competition in this market includes sterilization companies a number of
which are privately-held. Therefore, we are unable to assess the size
of all of our competitors or where we rank in comparison to such privately-held
competitors.
Competition
in the animal feed markets served by the Company is based primarily on service
and price. The markets for our products are subject to competitive
risks because these markets are highly price competitive. Our global competitors
have competed in the past by lowering prices on certain products. If they do so
again, we may be forced to respond by lowering our prices. This would reduce
sales and possibly profits. Our competition in this market includes a variety of
animal nutrition and health ingredient and nutritional companies many of which
are privately-held. Therefore, we are unable to assess the size of
all of our competitors or where we rank in comparison to such privately-held
competitors.
Research &
Development
During
the years ended December 31, 2009, 2008 and 2007, the Company incurred research
and development expense of approximately $3.3 million, $2.9 million and $2.5
million, respectively, on Company-sponsored research and development for new
products and improvements to existing products and manufacturing processes,
principally in the FP&N and AN&H segments. During
the year ended December 31, 2009, an average of 17 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 prioritizes 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.
Acquisitions, Dispositions,
and Capital Projects
In 2007,
we made two significant acquisitions.
In April
2007, pursuant to an asset purchase agreement dated March 30, 2007, we acquired
the methylamines and choline chloride business and manufacturing facilities of
Akzo Nobel Chemicals S.p.A., located in Marano Ticino, Italy, through our
affiliate, Balchem BV. Balchem BV subsequently assigned this asset
purchase agreement to its wholly-owned subsidiary, Balchem Italia Srl. In this
Annual Report on Form 10-K, we refer to this acquisition as the “Akzo Nobel
Acquisition”.
In March
2007, BCP acquired certain choline chloride business assets of Chinook Global
Limited ("Chinook"), a privately held Ontario corporation. In this Annual Report
on Form 10-K, we refer to this acquisition as the “Chinook
Acquisition”.
Capital
expenditures were approximately $3.4 million for 2009, as compared to $5.1
million in 2008. Capital expenditures are projected to range from
$7.5 million to $8.5 million for 2010.
Environmental / Regulatory
Matters
The
Federal Insecticide, Fungicide and Rodenticide Act, as amended (“FIFRA”), a
health and safety statute, requires that certain products within our specialty
products segment must be registered with the EPA because they are considered
pesticides. 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. We hold an EPA registration
permitting us to sell ethylene oxide as a medical device sterilant and spice
fumigant.
4
We are in
the process of reregistering this product’s use in compliance with FIFRA
re-registration requirements for pesticide products. With respect to the
treatment of spices, the EPA prohibited the use of ethylene oxide to treat
basil, effective August 1, 2007, but allows the continuing use of ethylene oxide
to treat all other spices, provided a mandated treatment method is used
beginning August 1, 2008. During 2009, the EPA mandated that a toxicity study be
performed on ethylene chlorohydrins, which is a “residue of concern”, according
to the EPA. This study is being financed by an industry trade association of
which we are a member. The study is not expected to be completed until late 2011
or 2012. At this time, we do not anticipate there will be a further impact on
the use of ethylene oxide to treat spices.
Another
area of the EPA’s re-registration effort resulted in the April 16, 2008 issuance
of the RED (Re-registration Eligibility Decision) for ethylene oxide which
permits the continued use of ethylene oxide “to sterilize medical or laboratory
equipment, pharmaceuticals, and aseptic packaging, or to reduce microbial load
on musical instruments, cosmetics, whole and ground spices and other seasoning
materials and artifacts, archival material or library objects.” Given that
“the database to support re-registration is substantially complete,” our
re-registration effort is similarly substantially completed, which will continue
to authorize our ethylene oxide product sales for medical device
sterilization. While the EPA may request additional testing, we believe
that the use of ethylene oxide will continue to be permitted. The product, when
used as a sterilant for certain medical devices, has 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.
The State
of California lists 100% ethylene oxide, when used as a sterilant or fumigant,
as a carcinogen and reproductive toxin under California's Proposition 65 (Safe
Drinking Water and Toxic Enforcement Act of 1986). 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 provide such warning would result in
liability of up to $2,500 per day per person exposed.
The
Company’s facility in Verona, Missouri, 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 for contamination for certain organic chemicals. No ground water or
surface water treatment has been required. In 1998, the EPA certified the
work on the contaminated soils to be complete. In February 2000, after the
conclusion of 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 that executed 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 the ethylene oxide operations.
The
Company believes it is in compliance in all material respects with federal,
state, local and international 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. In 1982, the Company discovered
and
5
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 remediated the area and removed soil
from the drum burial site. This proceeding has been substantially completed (see
Item 3).
The
Channahon, Illinois manufacturing facility manufactures a calcium carbonate line
of pharmaceutical grade ingredients. This facility is registered with
the United States Food and Drug Administration (“FDA”) as a drug manufacturing
facility. These products must be manufactured in conformity with current
Good Manufacturing Practice (cGMP) regulations as interpreted and enforced by
the FDA. Modifications, enhancements or changes in manufacturing
facilities or procedures of our pharmaceutical products are, in many
circumstances, subject to FDA approval, which may be subject to a lengthy
application process or which we may be unable to obtain. The Channahon, Illinois
facility, as well as those of any third-party cGMP manufacturers that we may
use, are periodically subject to inspection by the FDA and other governmental
agencies, and operations at these facilities could be interrupted or halted if
the results of these inspections are unsatisfactory.
Employees
As of
March 1, 2010, the Company employed approximately 337
persons. Approximately 75 employees at our Marano, Ticino, Italy
facility are covered by a national collective bargaining agreement, which
expires in 2010. Approximately 51 employees at the Company’s Verona, Missouri
facility are covered by a collective bargaining agreement, which expires in
2012.
Available
Information
The
Company’s headquarters is located at 52 Sunrise Park Road, New Hampton, NY
10958. The Company’s telephone number is (845) 326-5600 and its
Internet website address is www.balchem.com. The Company makes available through
its website, free of charge, its Annual Reports on Form 10-K, Quarterly Reports
on Form 10-Q and Current Reports on Form 8-K, and amendments to such reports, as
soon as reasonably practicable after they have been electronically filed with
the Securities and Exchange Commission. Such reports are available
via a link from the Investor Information page on the Company’s website to a list
of the Company’s reports on the Securities and Exchange Commission’s EDGAR
website.
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Item
1A.
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Risk
Factors
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Our
business involves a high degree of risk and uncertainty, including the following
risks and uncertainties:
Our
operating results may be adversely impacted by macro-economic uncertainties and
fears.
Recently,
general worldwide economic conditions have experienced a significant downturn
due to the credit conditions impacted by factors such as the subprime-mortgage
turmoil, slower economic activity, concerns about inflation and deflation,
decreased consumer confidence, reduced corporate profits and capital spending,
adverse business conditions and liquidity and the impact of natural disasters.
These conditions make it extremely difficult for our customers, our vendors and
us to accurately forecast and plan future business activities, and they could
cause U.S. and foreign businesses to slow spending on our products which would
reduce our revenues and profitability. Furthermore, during challenging economic
times our customers may face issues gaining timely access to sufficient credit,
which could result in an impairment of their ability to make timely payments to
us. If that were to occur, we may be required to increase our allowance for
doubtful accounts and our days sales outstanding would be negatively impacted.
We cannot predict the timing, depth or duration of any economic slowdown or
subsequent economic recovery, worldwide, or in the markets in which we
operate.
6
Increased
competition could hurt our business and financial results.
We face
competition in our markets from a number of large and small companies, some of
which have greater financial, research and development, production and other
resources than we do. Our competitive position is based principally on
performance, quality, customer support, service, breadth of product line,
manufacturing or packaging technology and the selling prices of our products.
Our competitors might be expected to improve the design and performance of their
products and to introduce new products with competitive price and performance
characteristics. We expect to do the same to maintain our current competitive
position and market share.
The
loss of governmental permits and approvals would materially harm some of our
businesses.
Pursuant
to applicable environmental and safety laws and regulations, we are required to
obtain and maintain certain governmental permits and approvals, including an EPA
registration for our ethylene oxide sterilant product. We maintain an EPA
registration of ethylene oxide as a medical device sterilant and fumicide. We
are in the process of re-registering this product in accordance with
FIFRA. The EPA may not allow re-registration of ethylene oxide for
the uses mentioned above. The failure of the EPA to allow
re-registration of ethylene oxide would have a material adverse effect on our
business and financial results.
The
Channahon, Illinois facility manufactures a calcium carbonate line of
pharmaceutical ingredients. This facility is registered with the FDA as a
drug manufacturing facility. These products must be manufactured in
conformity with cGMP regulations as interpreted and enforced by the FDA.
Modifications, enhancements or changes in manufacturing facilities or procedures
of our pharmaceutical products are, in many circumstances, subject to FDA
approval, which may be subject to a lengthy application process or which we may
be unable to obtain. Our Channahon, Illinois facility, as well as those of any
third-party cGMP manufacturers that we may use, are periodically subject to
inspection by the FDA and other governmental agencies, and operations at these
facilities could be interrupted or halted if the results of these inspections
are unsatisfactory.
Failure to comply with the FDA or other governmental regulations can result in
fines, unanticipated compliance expenditures, recall or seizure of products,
total or partial suspension of production, enforcement actions, injunctions and
criminal prosecution, which could have a material adverse effect on our business
and financial results.
Permits
and approvals may be subject to revocation, modification or denial under certain
circumstances. Our operations or activities (including the status of compliance
by the prior owner of the Verona, Missouri facility under Superfund remediation)
could result in administrative or private actions, revocation of required
permits or licenses, or fines, penalties or damages, which could have an adverse
effect on us. In addition, we cannot predict the extent to which any legislation
or regulation may affect the market for our products or our cost of doing
business.
Raw
material shortages or price increases could adversely affect our business and
financial results.
The
principal raw materials that we use in the manufacture of our products can be
subject to price fluctuations due to market conditions. Such raw materials
include materials derived from petrochemicals, minerals, metals and other
commodities. While the selling prices of our products tend to increase or
decrease over time with the cost of raw materials, these changes may not occur
simultaneously or to the same degree. At times, we may be unable to pass
increases in raw material costs through to our customers due to certain
contractual obligations. Such increases in the price of raw materials, if not
offset by product price increases, or substitute raw materials, would have an
adverse impact on our profitability. We believe we have reliable sources of
supply for our raw materials under normal market conditions. We cannot, however,
predict the likelihood or impact of any future raw material shortages. Any
shortages could have a material adverse impact on our results of
operations.
7
Our
financial success depends in part on the reliability and sufficiency of our
manufacturing facilities.
Our
revenues depend on the effective operation of our manufacturing, packaging, and
processing facilities. The operation of our 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, failure to achieve or maintain safety or quality standards, work
stoppages, supply or logistical outages, 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,
could adversely affect our profitability during the period of such operational
difficulties.
Our
business exposes us to potential product liability claims and recalls, which
could adversely impact our financial condition and performance.
Our
development, manufacture and sales of food ingredient, pharmaceutical and
nutritional supplement products involve an inherent risk of exposure to product
liability claims, product recalls, product seizures and related adverse
publicity. A product liability judgment against us could also result in
substantial and unexpected expenditures, affect consumer confidence in our
products, and divert management’s attention from other
responsibilities. Although we maintain product liability insurance
coverage in amounts customary within the industry, there can be no assurance
that this level of coverage is adequate or that we will be able to continue to
maintain our existing insurance or obtain comparable insurance at a reasonable
cost, if at all. A product recall or a partially or completely
uninsured judgment against us could have a material adverse effect on results of
operations and financial condition.
We
face risks associated with our sales to customers and manufacturing operations
outside the United States.
For the
year ended December 31, 2009, approximately 34% of our net sales consisted of
sales outside the United States. In addition, we conduct a portion of
our manufacturing outside the United States. International sales are subject to
inherent risks. The majority of our foreign sales occur through our foreign
subsidiaries and the remainder of our foreign sales result from exports to
foreign distributors, resellers and customers. Our foreign sales and operations
are subject to a number of risks, including: longer accounts receivable
collection periods; the impact of recessions and other economic conditions in
economies outside the United States; export duties and quotas; unexpected
changes in regulatory requirements; certification requirements; environmental
regulations; reduced protection for intellectual property rights in some
countries; potentially adverse tax consequences; political and economic
instability; and preference for locally produced products. These factors could
have a material adverse impact on our ability to increase or maintain our
international sales.
We
may, from time to time, experience problems in our labor relations.
In North
America, approximately 51 employees, or 20% of our North American workforce, as
of December 31, 2009, are represented by a union under a single collective
bargaining agreement. This agreement expires in 2012. In
Europe, approximately 75 employees are covered by a collective bargaining
agreement. This agreement expires in 2010. We believe that
our present labor relations with all of our unionized employees are
satisfactory, however, our failure to renew these agreements on reasonable terms
could result in labor disruptions and increased labor costs, which could
adversely affect our financial performance. Similarly, if our
relations with the unionized portion of our workforce do not remain positive,
such employees could initiate a strike, work stoppage or slowdown in the future.
In the event of such an action, we may not be able to adequately meet the needs
of our customers using our remaining workforce and our operations and financial
condition could be adversely affected.
8
Our
international operations subject us to currency translation risk and currency
transaction risk which could cause our results to fluctuate from period to
period
The
financial condition and results of operations of our foreign subsidiaries are
reported in Euros and then translated into U.S. dollars at the applicable
currency exchange rate for inclusion in our consolidated financial statements.
Exchange rates between these currencies in recent years have fluctuated
significantly and may do so in the future. In the past year, as a result of the
strength of the Euro compared to the U.S. dollar, our operating results in U.S.
dollars were positively affected upon translation. The positive impact of a
strengthening Euro may not continue in the future and may even reverse if the
Euro declines in value compared to the U.S. dollar. Furthermore, we
incur currency transaction risk whenever we enter into either a purchase or a
sales transaction using a currency different than the functional currency. Given
the volatility of exchange rates, we may not be able to effectively manage our
currency transactions and/or translation risks. Volatility in currency exchange
rates could impact our business and financial results.
|
Item
1B.
|
Unresolved
Staff Comments
|
None.
|
Item
2.
|
Properties
|
In
February 2002, the Company entered into a ten (10) year lease for approximately
20,000 square feet of office space in New Hampton, New York. The office space is
serving as the Company’s general offices and as laboratory facilities for the
Company’s encapsulated / nutritional products business.
Manufacturing
facilities owned by the Company for its encapsulated products business and a
blending, drumming and terminal facility for the Company’s ethylene oxide
business, are presently housed in three buildings located in Slate Hill, New
York comprising a total of approximately 51,000 square feet.
The Company owns a total
of approximately 16 acres of land on two parcels in this community.
The
Company owns a facility located on an approximately 24 acre parcel of land in
Green Pond, South Carolina. The site consists of a drumming facility, a canister
filling facility, a maintenance building and an office building comprising a
total of approximately 34,000 square feet. The Company uses this site for
repackaging products in its specialty products segment.
The
Company’s Verona, Missouri site, which is located on approximately 100 acres,
consists of manufacturing facilities relating to animal feed grade choline,
human choline nutrients, a drumming facility for the Company’s ethylene oxide
business, together with buildings utilized for warehousing such products. The
Verona operation buildings comprise a total of approximately 151,000 square
feet. The facility, while under prior ownership, was designated by the EPA as a
Superfund site (see Item 1 – “Business - Environmental / Regulatory
Matters”).
The
Company leases production and warehouse space in Channahon, Illinois. The
Company uses this facility for production related to the Company’s calcium
carbonate line of business. The initial term of the lease is effective through
September 30, 2010, subject to earlier termination by Balchem upon sixty days
notice, or by the landlord upon sixty days notice. The Company’s
leased space in Channahon, Illinois totals approximately 26,000 square
feet.
CMC owns
a manufacturing facility and warehouse, comprising approximately 16,500 square
feet, located on approximately 5 acres of land in Salt Lake City,
Utah. The Company manufactures and distributes its chelated mineral
nutrients for animal feed products at this location.
BCP owns
a manufacturing facility located upon approximately 11 acres of leased realty in
St. Gabriel, Louisiana. The Company manufactures and distributes animal feed
grade choline chloride at this location.
9
Balchem
Italia Srl owns a facility located on an approximately 30 acre parcel of land in
Marano Ticino, Italy. The Company manufactures and distributes methylamines,
animal feed grade choline and human choline nutrients at this
location.
|
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 remediated the
area and removed soil from the drum burial site. Clean-up was completed in 1996,
and NYDEC required the Company to monitor the site through 1999. The Company
continues to be involved in discussions with NYDEC to evaluate monitoring
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.
The
Company is also involved in other legal proceedings through the normal course of
business. Management believes that any unfavorable outcome related to these
proceedings will not have a material effect on the Company’s financial position,
results of operations or liquidity.
|
Item
4.
|
Reserved.
|
|
Item
5.
|
Market
for the Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
|
|
(a)
|
Market
Information.
|
On
December 11, 2009, the Board of Directors of the Company approved a
three-for-two split of the Company’s common stock to be effected in the form of
a stock dividend to shareholders of record on December 30, 2009. Such
stock dividend was made on January 20, 2010. The stock split was
recognized by reclassifying the par value of the additional shares resulting
from the split, from additional paid-in capital to common stock. The
stock split was applied retroactively to all periods presented.
The high
and low closing prices for the common stock as recorded for each quarterly
period during the years ended December 31, 2009 and 2008 were as
follows:
|
Quarterly
Period
|
High
|
Low
|
||||||
|
Ended
March 31, 2009
|
$ | 16.75 | $ | 12.60 | ||||
|
Ended
June 30, 2009
|
16.95 | 15.36 | ||||||
|
Ended
September 30, 2009
|
18.50 | 15.67 | ||||||
|
Ended
December 31, 2009
|
22.86 | 17.57 | ||||||
|
Quarterly
Period
|
High
|
Low
|
||||||
|
Ended
March 31, 2008
|
$ | 15.56 | $ | 12.70 | ||||
|
Ended
June 30, 2008
|
17.63 | 14.77 | ||||||
|
Ended
September 30, 2008
|
19.67 | 16.11 | ||||||
|
Ended
December 31, 2008
|
17.91 | 14.11 | ||||||
On March
3, 2010 the closing price for the common stock on the Nasdaq Global Market was
$22.98.
10
(b) Record
Holders.
As of
March 3, 2010, the approximate number of holders of record of the Company’s
common stock was 175. Such number does not include stockholders who
hold their stock in street name. As of March 3, 2010, the total
number of beneficial owners of the Company's common stock is estimated to be
approximately 13,700.
(c) Dividends.
The
Company declared cash dividends of $0.11 and $0.07 per share on its common stock
during its fiscal years ended December 31, 2009 and 2008, respectively (after
giving effect to the December 2009 three-for-two stock split).
(d) Securities
Authorized for Issuance Under Equity Compensation Plans.
For
information concerning prior stockholder approval of and other matters relating
to our equity incentive plans, see Item 12 in this Annual Report on Form
10-K.
(e) Performance
Graph.
The graph
below sets forth the cumulative total stockholder return on the Company's Common
Stock (referred to in the table as "BCPC") for the five years ended December 31,
2009, the overall stock market return during such period for shares comprising
the Russell 2000® Index (which the Company believes includes companies with
market capitalization similar to that of the Company), and the overall stock
market return during such period for shares comprising the Standard & Poor's
500 Food Group Index, in each case assuming a comparable initial investment of
$100 on December 31, 2004 and the subsequent reinvestment of dividends.
The Russell 2000® Index measures the performance of the shares of the 2000
smallest companies included in the Russell 3000® Index. In light of the
Company's industry segments, the Company does not believe that published
industry-specific indices are necessarily representative of stocks comparable to
the Company. Nevertheless, the Company considers the Standard & Poor's
500 Food Group Index to be potentially useful as a peer group index with respect
to the Company in light of the Company's Food, Pharma & Nutrition segment.
The performance of the Company's Common Stock shown on the graph below is
historical only and not indicative of future performance.
11
|
Item
6.
|
Selected
Financial Data
|
The
selected statements of operations data set forth below for the three years in
the period ended December 31, 2009 and the selected balance sheet data as
of December 31, 2009 and 2008 have been derived from our Consolidated
Financial Statements included elsewhere herein. The selected financial data as
of December 31, 2007, 2006 and 2005 and for the years ended
December 31, 2006 and 2005 have been derived from audited Consolidated
Financial Statements not included herein, but which were previously filed with
the SEC. The following information should be read in conjunction with
Item 7 — “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and the Consolidated Financial Statements and notes
thereto included elsewhere herein.
Earnings
per share and dividend amounts have been adjusted for the December 2009, 2006
and 2005 three-for-two stock splits (effected by means of stock
dividends).
(In
thousands, except per share data)
|
Year
ended December 31,
|
2009
(1)(2)(3)(4)
|
2008
(1)(2)(3)(4)
|
2007
(1)(2)(3)(4)
|
2006
(1)(2)
|
2005
(1)
|
|||||||||||||||
|
Statement of Operations
Data
|
||||||||||||||||||||
|
Net
sales
|
$ | 219,438 | $ | 232,050 | $ | 176,201 | $ | 100,905 | $ | 83,095 | ||||||||||
|
Earnings
before income
tax
expense
|
40,602 | 28,431 | 24,829 | 19,101 | 17,191 | |||||||||||||||
|
Income
tax expense
|
13,817 | 9,381 | 8,711 | 6,823 | 6,237 | |||||||||||||||
|
Net
earnings
|
26,785 | 19,050 | 16,118 | 12,278 | 10,954 | |||||||||||||||
|
Basic
net earnings per
common
share
|
$ | .98 | $ | .71 | $ | .61 | $ | .47 | $ | .42 | ||||||||||
|
Diluted
net earnings per
common
share
|
$ | .93 | $ | .67 | $ | .58 | $ | .45 | $ | .41 | ||||||||||
|
At
December 31,
|
2009
|
2008
|
2007
|
2006
|
2005
|
|||||||||||||||
|
Balance Sheet Data
|
||||||||||||||||||||
|
Total
assets
|
$ | 187,813 | $ | 154,474 | $ | 154,424 | $ | 92,333 | $ | 75,141 | ||||||||||
|
Long-term
debt (including
current
portion)
|
6,783 | 9,531 | 24,777 | - | - | |||||||||||||||
|
Other
long-term
obligations
|
1,825 | 1,609 | 1,529 | 784 | 1,043 | |||||||||||||||
|
Total
stockholders’ equity
|
147,143 | 114,506 | 93,080 | 75,362 | 60,933 | |||||||||||||||
|
Dividends
per common share
|
$ | .11 | $ | .07 | $ | .07 | $ | .06 | $ | .04 | ||||||||||
|
|
(1)
|
Includes
the operating results, cash flows, and assets relating to the Loders
Croklaan Acquisition from the date of acquisition (July 1, 2005)
forward.
|
|
|
(2)
|
Includes
the operating results, cash flows, and assets relating to the CMC
Acquisition from the date of acquisition (February 8, 2006)
forward.
|
|
|
(3)
|
Includes
the operating results, cash flows, and assets relating to the Chinook
Acquisition from the date of acquisition (March 19, 2007)
forward.
|
|
|
(4)
|
Includes
the operating results, cash flows, and assets relating to the Akzo Nobel
Acquisition from the date of acquisition (May 1, 2007)
forward.
|
|
Item
7.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
FASB
Codification
We follow
accounting standards set by the Financial Accounting Standards Board, commonly
referred to as the “FASB.” The FASB sets U.S. generally accepted accounting
principles (“U.S. GAAP” or “GAAP”) that we follow to ensure we consistently
report our financial condition, results of operations, and cash flows. Over the
years, the FASB and other designated GAAP-setting bodies, have issued standards
in
12
the form
of FASB Statements, Interpretations, FASB Staff Positions, EITF consensuses,
AICPA Statements of Position, etc.
The FASB
recognized the complexity of its standard-setting process and embarked on a
revised process in 2004 that culminated in the release on July 1, 2009, of the
FASB Accounting Standards Codification, sometimes referred to as the
“Codification” or “ASC”. The Codification does not change how the Company
accounts for its transactions or the nature of related disclosures made.
However, when referring to guidance issued by the FASB, the Company refers to
topics in the ASC rather than Statements, etc. The above change was made
effective by the FASB for periods ending on or after September 15, 2009. We have
updated references to GAAP in this Annual Report on Form 10-K to reflect the
guidance in the Codification.
Overview
We
develop, manufacture, distribute and market specialty performance ingredients
and products for the food, nutritional, pharmaceutical, animal health and
medical device sterilization industries. Our reportable segments are strategic
businesses that offer products and services to different markets. We presently
have three reportable segments: Specialty Products; Food, Pharma &
Nutrition; and Animal Nutrition & Health.
The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with Item 6
—
“Selected Financial
Data” and our Consolidated Financial Statements and the related notes included
in this report. Those statements in the following discussion that are not
historical in nature should be considered to be forward-looking statements that
are inherently uncertain. See “Cautionary Statement Regarding Forward-Looking
Statements”.
Specialty
Products
Our
Specialty Products segment operates in industry as ARC Specialty
Products.
Ethylene
oxide, at the 100% level, is sold as a sterilant gas, primarily for use in the
health care industry. It is used to sterilize a wide range of medical devices
because of its versatility and effectiveness in treating hard or soft surfaces,
composites, metals, tubing and different types of plastics without negatively
impacting the performance of the device being sterilized. Our 100% ethylene
oxide product is distributed in uniquely designed, recyclable, 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. Our inventory of
these specially built drums, along with our two filling facilities, represents a
significant capital investment. Contract sterilizers, medical device
manufacturers, and medical gas distributors are our principal customers for this
product. In addition, we also sell single use canisters with 100% ethylene oxide
for use in medical device sterilization. As a fumigant, ethylene oxide blends
are highly effective in killing bacteria, fungi, and insects in spices and other
seasoning materials.
We also
sell propylene oxide principally to customers seeking smaller (as opposed to
bulk) quantities and whose requirements include timely delivery and safe
handling. Propylene oxide uses can include fumigation in spice treatment,
various chemical synthesis applications, making paints more durable, and for
manufacturing specialty starches and textile coatings.
Management
believes that future success in this segment is highly dependent on the
Company’s ability to maintain its strong reputation for excellent quality,
safety and customer service.
Food, Pharma &
Nutrition
The Food,
Pharma & Nutrition (“FP&N”) segment provides microencapsulation,
granulation and agglomeration solutions to a variety of applications in food,
pharmaceutical and nutritional ingredients to enhance performance of nutritional
fortification, processing, mixing, and packaging applications and
shelf-
13
life.
Major product applications are baked goods, refrigerated and frozen dough
systems, processed meats, seasoning blends, confections, and nutritional
supplements. We also market human grade choline nutrient products through this
segment for wellness applications. Choline is recognized to play a key role in
the development and structural integrity of brain cell membranes in infants,
processing dietary fat, reproductive development and neural functions, such as
memory and muscle function. The FP&N portfolio also includes granulated
calcium carbonate products, primarily used in, or in conjunction with, novel
over-the-counter and prescription pharmaceuticals for the treatment of
osteoporosis, gastric disorders and calcium deficiencies in the United
States.
Management
believes this segment’s key strengths are its proprietary technology and
end-product application capabilities. The success of the Company’s efforts to
increase revenue in this segment is highly dependent on the timing of marketing
launches of new products in the U.S. and international food and nutrition
markets by the Company’s customers and prospects. The Company, through its
innovative proprietary technology and applications expertise, continues to
develop new products designed to solve and respond to customer problems and
innovative needs.
Animal Nutrition &
Health
Our
Animal Nutrition & Health (“AN&H”) segment provides the animal nutrition
market with nutritional products derived from our encapsulation and chelation
technologies in addition to basic choline chloride. Commercial sales
of REASHURE® Choline, an encapsulated choline product, NITROSHURE
TM
, an
encapsulated urea supplement, and NIASHURE
TM
, our
microencapsulated niacin product for dairy cows, boosts health and milk
production in transition and lactating dairy cows, delivering nutrient
supplements that survive the rumen and are biologically available, providing
required nutritional levels. We also market chelated mineral supplements for use
in animal feed throughout the world, as our proprietary chelation technology
provides enhanced nutrient absorption for various species of production and
companion animals. In October 2008, we introduced the first proven
rumen-protected lysine for use in dairy rations, AMINOSHURE
TM
-L,
which gives nutritionists and dairy producers a precise and consistent source of
rumen-protected lysine. AN&H also manufactures and supplies basic choline
chloride, an essential nutrient for animal health, predominantly to the poultry
and swine industries. Choline, which is manufactured and sold in both dry and
aqueous forms, plays a vital role in the metabolism of fat. Choline deficiency
can result in reduced growth and perosis in poultry; fatty liver, kidney
necrosis and general poor health condition in swine. Certain derivatives of
choline chloride are also manufactured and sold into industrial applications.
The AN&H segment also includes the manufacture and sale of methylamines.
Methylamines are a primary building block for the manufacture of choline
products and are also used in a wide range of industrial
applications.
Sales of
specialty products for the animal nutrition and health industry are highly
dependent on dairy industry economics as well as the ability of the Company to
leverage the results of existing successful university research on the animal
health benefits of the Company’s products. Management believes that success in
the commodity-oriented basic choline chloride marketplace is highly dependent on
the Company’s ability to maintain its strong reputation for excellent product
quality and customer service. In addition, the Company must continue to increase
production efficiencies in order to maintain its low-cost position to
effectively compete in a highly competitive global marketplace.
The
Company sells products for all three segments through its own sales force,
independent distributors, and sales agents.
14
The
following tables summarize consolidated net sales by segment and business
segment earnings from operations for the three years ended December 31, 2009,
2008 and 2007 (in thousands):
Business
Segment Net Sales:
|
2009
|
2008
|
2007
|
||||||||||
|
Specialty
Products
|
$ | 36,368 | $ | 35,835 | $ | 33,057 | ||||||
|
Food,
Pharma & Nutrition
|
35,407 | 35,702 | 32,052 | |||||||||
|
Animal
Nutrition & Health
|
147,663 | 160,513 | 111,092 | |||||||||
|
Total
|
$ | 219,438 | $ | 232,050 | $ | 176,201 | ||||||
Business
Segment Earnings From Operations:
|
2009
|
2008
|
2007
|
||||||||||
|
Specialty
Products
|
$ | 14,250 | $ | 12,545 | $ | 11,824 | ||||||
|
Food,
Pharma & Nutrition
|
5,029 | 5,469 | 4,144 | |||||||||
|
Animal
Nutrition & Health
|
21,380 | 11,334 | 9,938 | |||||||||
|
Total
|
$ | 40,659 | $ | 29,348 | $ | 25,906 | ||||||
Fiscal
Year 2009 compared to Fiscal Year 2008
(All
amounts in thousands, except share and per share data)
Net
Sales
Net sales
for 2009 were $219,438, as compared with $232,050 for 2008, a decrease of
$12,612 or 5.4%. Net sales for the specialty products segment were $36,368 for
2009, as compared with $35,835 for 2008, an increase of $533 or 1.5%. This
increase in sales was derived principally from increases in the average selling
prices of certain ethylene oxide products for medical device sterilization
adopted to help offset rising raw material costs during 2008. This increase was
partially offset by a decline in volumes sold of propylene oxide for starch
modification. Net sales for the Food, Pharma & Nutrition segment were
$35,407 for 2009, as compared with $35,702 for 2008, a decrease of $295 or
0.8%. This result was driven principally by aggressive inventory
management by customers along with volume declines in the human-grade choline
and calcium products for the supplement market, which has been negatively
impacted by the worldwide economic downturn. These declines were
partially offset by a favorable product mix sold in the domestic food market,
including the growth of choline into new food applications as well as growth in
the bakery, tortilla and preservation markets. Also offsetting the
declines were increased sales of Vitashure® products for nutritional
enhancement. Net sales of $147,663 were realized in 2009 for the Animal
Nutrition & Health segment, as compared with $160,513 for 2008, a decrease
of $12,850 or 8.0%. Feed and industrial grade choline product sales
and derivatives decreased 10% or $13,628 over the prior year period, principally
from well-publicized softness in the U.S. poultry and swine markets. There were
also lower export sales from our North American choline plants, largely due to
the stronger U.S. dollar in 2009 versus 2008 and international political factors
affecting poultry exports. This U.S. volume decline was partially
offset by increased volumes of choline products sourced from our Italian
operation into the European and international poultry markets. This geographic
mix lowered consolidated feed grade prices in the period, as did lower pricing
linked to the decline in raw material costs. Sales of industrial derivatives
(both choline and methylamines) were impacted by softness in the industrial
sector, principally caused by the general economic downturn. Sales of our
specialty animal nutrition and health products, targeted for ruminant production
animals and companion animals, increased 3.3% or $778 from the prior year
comparable period as some late year improvement in dairy economics created
greater demand for certain products, particularly chelates and rumen protected
lysine. Partially offsetting this increase were declines in certain other
specialty animal nutrition and health products, targeted for ruminant production
animals and companion animals largely due to due to weak dairy economics in 2009
which resulted in lower demand for these products.
15
Gross
Margin
Gross
margin for 2009 increased to $66,958 compared to $52,578 for 2008, an increase
of 27.3%. Gross margin percentage for 2009 was 30.5%, as compared to
22.7%, for 2008, as our margin percentage was favorably affected by product mix,
lower raw material and energy costs
and
price increases implemented in early 2009. Gross margin percentage
for the specialty products segment increased by 6.7% primarily due to price
increases implemented in early 2009. Gross margin percentage in the
encapsulated / nutritional products segment decreased 3.2% as margins were
unfavorably affected by the aforementioned aggressive inventory management by
customers and volume declines in the human-grade choline and calcium products
for the supplement market. Gross margin percentage in Animal
Nutrition and Health increased 9.9% principally from reductions in the cost of
certain petro-chemical raw materials and improved production/supply chain
efficiencies in both the U.S. and Europe.
Operating
Expenses
Operating
expenses for 2009 were $26,299, as compared to $23,230 for 2008, an increase of
$3,069 or 13.2%. This increase was due primarily to increased payroll expenses,
an increase to some accounts receivable reserves for international accounts and
non-cash stock-based compensation recognition. With these increases, operating
expenses were 12.0% of sales or 2.0 percentage points greater than the operating
expenses as a percent of sales incurred in 2008. During 2009 and
2008, the Company spent $3,298 and $2,877, respectively, on research and
development, substantially all of which pertained to the Food, Pharma &
Nutrition, and Animal Nutrition & Health segments.
Business Segment Earnings
From Operations
Earnings
from operations for 2009 increased to $40,659 compared to $29,348 for 2008, an
increase of $11,311 or 38.5%. This increase was primarily driven by cost
reductions of certain petro-chemical raw materials over the prior year, a
favorable product mix, and plant and logistics efficiencies. Earnings
from operations as a percentage of sales (“operating margin”) for 2009 increased
to 18.5% compared to 12.6% for 2008, principally a result of the aforementioned
cost reductions of certain petro-chemical raw materials over the prior year
comparable period, a favorable product mix, and plant and logistics
efficiencies. Earnings from operations for the Specialty Products segment were
$14,250, an increase of $1,705 or 13.6%, primarily due to reductions in the cost
of certain petro-chemical raw materials and increases in average selling prices.
Earnings from operations for Food, Pharma & Nutrition were $5,029, a
decrease of $440 or 8.0%, due largely to the aforementioned aggressive inventory
management by customers and volume declines in the human-grade choline and
calcium products for the supplement market. Earnings from operations
for Animal Nutrition & Health increased by $10,046 to $21,380, an 88.6%
increase from the prior year, resulting principally from reductions in the cost
of certain petro-chemical raw materials and improved production/supply chain
efficiencies in both the U.S. and Europe.
Other Expenses
(Income)
Interest
income totaled $107 in each of 2009 and 2008. Interest expense, net
of capitalized interest, was $209 for 2009 compared to $963 for
2008. This decrease is primarily attributable to the decrease in
average current and long-term debt resulting from both normal recurring
principal payments as well as accelerated payments of the Term Loan (as defined
below in the Financing Activities section of Liquidity and Capital
Resources). Other income of $45 for 2009 is primarily the result of
favorable fluctuations in foreign currency exchange rates between the U.S.
dollar (the reporting currency) and functional foreign currencies.
Income Tax
Expense
The
Company’s effective tax rate in 2009 and 2008 was 34.0% and 33.0%,
respectively. This increase in the effective tax rate is primarily
attributable to a change in apportionment relating to state income taxes, as
well as a change in the income proportion towards jurisdictions with higher tax
rates.
16
Net
Earnings
Primarily
as a result of the above-noted cost reductions of certain petro-chemical raw
materials, the favorable product mix, and plant and logistics efficiencies, net
earnings were $26,785 for 2009, as compared with $19,050 for 2008, an increase
of 40.6%.
Fiscal
Year 2008 compared to Fiscal Year 2007
(All
amounts in thousands, except share and per share data)
Net
Sales
Net sales
for 2008 were $232,050, as compared with $176,201 for 2007, an increase of
$55,849 or 31.7%. Net sales for the specialty products segment were $35,835 for
2008, as compared with $33,057 for 2007, an increase of $2,778 or 8.4%. This
increase was due principally to greater sales volumes of ethylene oxide for
medical device sterilization and propylene oxide for starch modification as well
as a modest price increase adopted to help offset rising raw material costs
during 2008. Net sales for the Food, Pharma & Nutrition segment
were $35,702 for 2008, as compared with $32,052 for 2007, an increase of $3,650
or 11.4%. This result was driven principally by increased sales of
calcium and nutritional products, as well as increased product sales in both the
domestic and international food markets. Net sales of $160,513 were
realized in 2008 for the Animal Nutrition & Health segment, as compared with
$111,092 for 2007, an increase of $49,421 or 44.5%. This result
reflects incremental sales of approximately $40,000 from the customer list
acquisition of Chinook Group Limited (“Chinook”) and from the Akzo Nobel
Acquisition. For the twelve months ending December 31, 2008, sales of our
specialty animal nutrition and health products, targeted for ruminant production
animals and companion animals, increased 32.9% or approximately 12% of the
overall AN&H growth.
Gross
Margin
Gross
margin for 2008 increased to $52,578 compared to $46,930 for 2007, an increase
of 12.0%, due largely to the above-noted increase in sales. Gross
margin percentage for 2008 was 22.7%, as compared to 26.6% for 2007, as our
margin percentage was unfavorably affected by product mix and higher raw
material and energy costs. Gross margin percentage for the specialty
products segment decreased slightly primarily due to rising raw material
costs. Gross margin percentage in the encapsulated / nutritional
products segment increased 0.3% as margins were favorably affected by increased
production, a result of greater sales volume as described
above. Gross margin percentage in Animal Nutrition and Health
increased 15.3% and was favorably affected by increased production volumes of
choline chloride and specialty derivative products. This favorable
impact was partially offset by higher raw material and energy
costs.
Operating
Expenses
Operating
expenses for 2008 were $23,230, as compared to $21,024 for 2007, an increase of
$2,206 or 10.5%. This increase was due primarily to $736 of additional
amortization expense, plus sales and technical personnel expense associated with
the Chinook and Akzo Nobel acquisitions, as well as higher expenses relating to
accounting, tax services, and non-cash stock-based compensation recognition.
With these increases, operating expenses were 10.0% of sales or 1.9 percentage
points less than the operating expenses as a percent of sales incurred in
2007. During 2008 and 2007, the Company spent $2,877 and $2,514,
respectively, on research and development, substantially all of which pertained
to the Food, Pharma & Nutrition, and Animal Nutrition & Health
segments.
Business Segment Earnings
From Operations
Earnings
from operations for 2008 increased to $29,348 compared to $25,906 for 2007, an
increase of $3,442 or 13.3%, due largely to the above-noted increase in sales.
Earnings from operations as a percentage of sales (“operating margin”) for 2008
decreased to 12.6% compared to 14.7% for 2007, principally a result of the
previously-noted acquisition-related sales which carry a lower profit margin
than
17
the
Company’s other business segments. In addition, despite the implementation of
price increases, we were not able to fully recover cost increases in certain
petro-chemical raw materials, which continued or trended up within the year. We
did begin to see a reduction in certain raw material costs late in the third
quarter of 2008. The Company is continuing to focus on implementing price
increases, productivity improvements, and, most importantly, growth through new
product development which should result in improved operating margins. Earnings
from operations for the Specialty Products segment were $12,545, an increase of
$721 or 6.1%, a result of increases in sales volume and modest sales price
increases offset by higher raw material costs and the previously-noted increased
expenses relating to accounting, tax services, and non-cash stock-based
compensation recognition. Earnings from operations for Food, Pharma
& Nutrition were $5,469, an increase of $1,325 or 32.0%, due largely to
increased sales of calcium and nutritional products. Earnings from
operations for Animal Nutrition & Health, while unfavorably impacted by the
noted petro-chemical raw material cost increases, improved to $11,334, an
increase of $1,396 or 14.0%, and were favorably affected by organic growth and
the previously-noted increased sales volumes derived from the
acquisitions.
Other Expenses
(Income)
Interest
income for 2008 totaled $107 as compared to $166 for 2007. Interest
expense, net of capitalized interest, was $963 for 2008 compared to $1,562 for
2007. This decrease is primarily attributable to lower interest rates
and the decrease in average current and long-term debt resulting from both
normal recurring principal payments as well as accelerated payments of the term
loan used to fund the Chinook Acquisition. Other expense of $61 for
2008 is primarily the result of unfavorable fluctuations in foreign currency
exchange rates between the U.S. dollar (the reporting currency) and functional
foreign currencies.
Income Tax
Expense
The
Company’s effective tax rate in 2008 and 2007 was 33.0% and 35.1%,
respectively. This decrease in the effective tax rate is primarily
attributable to a change in apportionment relating to state income taxes, as
well as a change in the income proportion towards jurisdictions with lower tax
rates.
Net
Earnings
Primarily
as a result of the above-noted increase in sales and the noted raw material and
operating expense increases, net earnings were $19,050 for 2008, as compared
with $16,118 for 2007, an increase of 18.2%.
Contractual
Obligations
The
Company's contractual obligations and debt obligations, excluding revolver
borrowings, as of December 31, 2009, are summarized in the table
below:
|
Payments
due by period
|
||||||||||||||||||||
|
Contractual
Obligations
|
Total
|
Less
than
1
year
|
1-3
years
|
3-5
years
|
More
than
5
years
|
|||||||||||||||
|
Long-term
debt obligations
|
$ | 6,783 | $ | 6,783 | $ | - | $ | - | $ | - | ||||||||||
|
Interest
payment obligations (1)
|
224 | 89 | 111 | 24 | - | |||||||||||||||
|
Operating
lease obligations (2)
|
2,640 | 988 | 1,045 | 301 | 306 | |||||||||||||||
|
Purchase
obligations (3)
|
9,671 | 9,671 | - | - | - | |||||||||||||||
|
Total
|
$ | 19,318 | $ | 17,531 | $ | 1,156 | $ | 325 | $ | 306 | ||||||||||
|
(1)
|
Includes
interest payments on long-term debt obligations based on interest and
foreign currency rates at December 31, 2009. It is assumed that
the European Term Loan (as defined in Financing
Activities
|
18
|
|
below)
will be refinanced with similar terms and that there will be no
prepayments of principal.
|
|
(2)
|
Principally
includes obligations associated with future minimum non-cancelable
operating lease obligations (including the headquarters office space
entered into in 2002).
|
|
|
|
(3)
|
Principally
includes open purchase orders with vendors for inventory not yet received
or recorded on our balance sheet.
|
The table
above excludes a $726 liability for uncertain tax positions, including the
related interest and penalties, recorded in accordance with ASC 740-10
(incorporating former FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes — an interpretation of FAS Statement No. 109”) as we are
unable to reasonably estimate the timing of settlement, if any.
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 and necessary capital investments. The Company
is actively pursuing additional acquisition candidates. The Company could seek
additional bank loans or access to financial markets to fund such acquisitions,
its operations, working capital, necessary capital investments or other cash
requirements should it deem it necessary to do so.
Acquisitions and
Dispositions
Effective
April 30, 2007, pursuant to an asset purchase agreement dated March 30, 2007
(the “Akzo Nobel Asset Purchase Agreement”), the Company, through its European
subsidiary, Balchem B.V., completed an acquisition of the methylamines and
choline chloride business and manufacturing facilities of Akzo Nobel Chemicals
S.p.A., located in Marano Ticino, Italy (the “Akzo Nobel Acquisition”) for a
purchase price, including acquisition costs, of approximately
$8,000.
On March
16, 2007, the Company, through BCP, entered into an asset purchase agreement
(the "Asset Purchase Agreement") with Chinook Global Limited ("Chinook"), a
privately held Ontario corporation, pursuant to which BCP acquired certain of
Chinook's choline chloride business assets (the “Chinook Acquisition”) for a
purchase price, including acquisition costs, of approximately
$33,000. The Chinook Acquisition closed effective the same
date.
Cash
Cash and
cash equivalents increased to $46,432 at December 31, 2009 from $3,422 at
December 31, 2008 primarily resulting from the activity detailed
below. Working capital amounted to $59,197 at December 31, 2009 as
compared to $29,566 at December 31, 2008, an increase of $29,631.
Operating
Activities
Cash
flows from operating activities provided $48,072 for 2009 compared to $22,897
for 2008. The increase in cash flows from operating activities was
primarily due to an increase in net earnings, depreciation and amortization,
stock compensation, accounts payable and accrued expenses and decreases in
inventories, accounts receivable and a reduction in prepaid expenses and other
current assets. The aforementioned increase in cash flows was partially offset
by a decrease in deferred income tax.
Investing
Activities
Capital
expenditures were $3,429 for 2009 compared $5,080 for 2008. Assets
acquired in 2007 totaled $40,744, which was principally related to the Chinook
Acquisition and the Akzo Nobel Acquisition.
19
Financing
Activities
The
Company has an approved stock repurchase program. The total authorization under
this program is 3,763,038 shares. Since the inception of the program, a total of
1,961,800 shares have been purchased, none of which remained in treasury at
December 31, 2009 or 2008. During 2009, no additional shares were
purchased. 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 on its
assessment of corporate cash flow, market conditions and other
factors.
On April
30, 2007, the Company, and its principal bank entered into a Loan Agreement (the
“European Loan Agreement”) providing for an unsecured term loan of €7,500,
translated to approximately $10,750 as of December 31, 2009 (the “European Term
Loan”), the proceeds of which were used to fund the Akzo Nobel Acquisition (see
Note 5) and initial working capital requirements. The European Term Loan is
payable in equal monthly installments of principal, each equal to 1/84th of the
principal of the European Term Loan, together with accrued interest, with
remaining principal and interest payable at maturity. The European Term Loan has
a maturity date of May 1, 2010 and is subject to a monthly interest rate equal
to EURIBOR plus 1%. At December 31, 2009, this interest rate was 1.47%. At
December 31, 2009, the European Term Loan had an outstanding balance of €4,732
translated to $6,783. The European Loan Agreement also provides for a short-term
revolving credit facility of €3,000, translated to $4,300 as of December 31,
2009 (the "European Revolving Facility"). The European Revolving Facility has
been renewed for a period of one year as of May 1, 2009. The current European
Revolving Facility is subject to an amended monthly interest rate equal to
EURIBOR plus 1.45%, and accrued interest is payable monthly. No amounts are
outstanding on the European Revolving Facility as of the date hereof. Management
believes that such facility will be renewed in the normal course of
business.
On March
16, 2007, the Company and its principal bank entered into a Loan Agreement (the
“Loan Agreement”) providing for an unsecured term loan of $29,000 (the “Term
Loan”), the proceeds of which were used to fund the Chinook Acquisition (see
Note 5). As of December 31, 2009, the Company had paid the Term Loan
in full. The Loan Agreement also provides for a short-term revolving credit
facility of $6,000 (the "Revolving Facility"). The Revolving Facility is subject
to a monthly interest rate equal to LIBOR plus 1%, and accrued interest is
payable monthly. No amounts are outstanding on the Revolving Facility as of the
date hereof. The Revolving Facility has a maturity date of May 31,
2010. Management believes that such facility will be renewed in the
normal course of business.
At
December 31, 2009, the Company had a total of $6,783 of debt outstanding, as
compared to a total of $11,575 debt outstanding at December 31, 2008.
Indebtedness under the Company’s loan agreements are secured by assets of the
Company.
Significant
financial covenants in our loan agreements include maintaining at certain levels
our Current Ratio, Funded Debt Ratio, and a Fixed Charge Coverage Ratio. We were
in compliance with all material covenants related to our loan agreements as of
December 31, 2009 and we expect to be in compliance with all material covenants
during fiscal 2010. Our loan agreements require compliance with all of the
covenants defined in the agreement. If we were out of compliance with any debt
covenant required by our loan agreements following the applicable cure period,
our lender could terminate its commitment, unless we successfully negotiate a
covenant waiver.
Proceeds
from stock options exercised totaled $2,988 and $1,050 for 2009 and 2008,
respectively. Dividend payments were $2,008 and $1,975 for 2009 and 2008,
respectively.
20
Other Matters Impacting
Liquidity
The
Company currently provides postretirement benefits in the form of a retirement
medical plan under a collective bargaining agreement covering eligible retired
employees of its Verona, Missouri facility. The amount recorded on the Company’s
balance sheet as of December 31, 2009 for this obligation is $888. The
postretirement plan is not funded. Historical cash payments made under such plan
have approximated $50 per year.
Critical Accounting
Policies
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.
The
Company’s "critical accounting policies" are 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 that may change in subsequent periods. Management considers the
following accounting policies to be critical.
Revenue
Recognition
Revenue
is recognized upon product shipment, passage of title and risk of loss, and when
collection is reasonably assured. The Company reports amounts billed
to customers related to shipping and handling as revenue and includes costs
incurred for shipping and handling in cost of sales. Amounts received for
unshipped merchandise are principally not recognized as revenue but rather they
are recorded as customer deposits and are included in current liabilities.
In addition, the Company
follows the provisions of ASC Topic 605, “Revenue Recognition” (incorporating
the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin (SAB)
No. 104, “Revenue Recognition”) which sets forth guidelines on the timing of
revenue recognition based upon factors such as passage of title, installation,
payments and customer acceptance.
Inventories
Inventories
are valued at the lower of cost (first in, first out or average) or market value
and have been reduced by an allowance for excess or obsolete
inventories. Inventory reserves are generally recorded when the
inventory for a product exceeds twelve months of demand for that product and/or
when individual products have been in inventory for greater than six
months.
Long-lived
assets
Long-lived
assets, such as property, plant, and equipment and intangible assets with finite
lives, 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 estimated undiscounted
future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of
the asset exceeds the fair value of the asset, which is generally based on
discounted cash flows.
Goodwill,
which is not subject to amortization, is tested annually for impairment, and
more frequently if events and circumstances indicate that the asset might be
impaired. If an indicator of impairment exists, the Company
determines the amount of impairment based on a comparison of the implied fair
value of its goodwill to its carrying value.
21
Accounts
Receivable
We market
our products to a diverse customer base, principally throughout the United
States, Europe, China and Japan. We grant credit terms in the normal course of
business to our customers. We perform on-going credit evaluations of our
customers and adjust credit limits based upon payment history and the customer's
current credit worthiness, as determined through review of their current credit
information. We continuously monitor collections and payments from customers and
maintain allowances for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments. Estimated losses are
based on historical experience and any specific customer collection issues
identified. If the financial condition of our customers were to deteriorate
resulting in an impairment of their ability to make payments, additional
allowances and related bad debt expense may be required.
Post-employment
Benefits
The
Company provides life insurance and health care benefits for eligible retirees
and health care benefits for retirees’ eligible survivors. The costs
and obligations related to these benefits reflect the Company’s assumptions as
to general economic conditions and health care cost trends. The cost
of providing plan benefits also depends on demographic assumptions including
retirements, mortality, turnover, and plan participation. If actual
experience differs from these assumptions, the cost of providing these benefits
could increase or decrease.
In
accordance with ASC 715, “Compensation—Retirement Benefits” (incorporating
former SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and
Other Postretirement Plans”), the Company is required to recognize the over
funded or under funded status of a defined benefit post retirement plan (other
than a multiemployer plan) as an asset or liability in its statement of
financial position, and to recognize changes in that funded status in the year
in which the changes occur through comprehensive income.
Intangible Assets with
Finite Lives
The
useful life of an intangible asset is based on the Company’s assumptions
regarding expected use of the asset; the relationship of the intangible asset to
another asset or group of assets; any legal, regulatory or contractual
provisions that may limit the useful life of the asset or that enable renewal or
extension of the asset’s legal or contractual life without substantial cost; the
effects of obsolescence, demand, competition and other economic factors; and the
level of maintenance expenditures required to obtain the expected future cash
flows from the asset and their related impact on the asset’s useful
life. If events or circumstances indicate that the life of an
intangible asset has changed, it could result in higher future amortization
charges or recognition of an impairment loss.
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 earnings in the period that includes the enactment
date.
The Company
regularly reviews its deferred tax assets for recoverability and would establish
a valuation allowance if it believed that such assets may not be recovered,
taking into consideration historical operating results, expectations of future
earnings, changes in its operations and the expected timing of the reversals of
existing temporary differences.
Beginning
in fiscal 2007, we account for uncertainty in income taxes utilizing ASC 740-10
(incorporating former FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes — an interpretation of FAS Statement No. 109”). ASC
740-10 clarifies whether or not to recognize assets or liabilities for tax
positions taken that may be challenged by a tax authority. It prescribes a
recognition
22
threshold
and measurement attribute for financial statement disclosure of tax positions
taken or expected to be taken. This interpretation also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, and disclosures. The application of ASC 740-10 requires judgment
related to the uncertainty in income taxes and could impact our effective tax
rate.
Stock-based
Compensation
We
account for stock-based compensation in accordance with the provisions of ASC
718, “Compensation-Stock Compensation” (incorporating former Statement of
Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share Based
Payment”). Under the fair value recognition provisions of this statement,
share-based compensation cost is measured at the grant date based on the value
of the award and is recognized as expense over the vesting
period. Determining the fair
value of share-based awards at the grant date requires judgment, including
estimating our stock price volatility, employee stock option exercise behaviors
and employee option forfeiture rates. Expected volatilities are based
on historical volatility of the Company’s stock. The expected term of
the options is based on the Company’s historical experience of employees’
exercise behavior. As stock-based compensation expense recognized in
the Consolidated Statement of Earnings is based on awards ultimately expected to
vest, the amount of expense has been reduced for estimated
forfeitures. ASC 718 requires forfeitures to be estimated at the time
of grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates. Forfeitures were estimated based on
historical experience. If factors change and we employ different
assumptions in the application of ASC 718, the compensation expense that we
record in future periods may differ significantly from what we have recorded in
the current period. See Note 2 to the Consolidated Financial
Statements for additional information.
New
Accounting Pronouncements:
In
February 2010, the FASB issued
Accounting Standards
Update (“ASU”) No.
2010-09,
“Subsequent
Events (Topic 855) Amendments to Certain
Recognition and Disclosure Requirements” ("ASU 2010-09"). ASU 2010-09
amends disclosure requirements within Subtopic 855-10. An entity that is an SEC
filer is not required to disclose the date through which
subsequent
events have been evaluated. This change
alleviates potential conflicts between Subtopic 855-10 and the SEC's
requirements. ASU 2010-09 is effective for interim and annual periods
ending after June 15, 2010.
The Company does not
expect the adoption of this ASU to be significant to its consolidated financial
statements.
In
October 2009, the FASB issued ASU
No. 2009-13
,
“Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements—a
consensus of the FASB Emerging Issues Task Force.” This ASU provides amendments
to the criteria for separating consideration in multiple-deliverable
arrangements. The amendments in this ASU replace the term "fair value" in the
revenue allocation guidance with "selling price" to clarify that the allocation
of revenue is based on entity-specific assumptions rather than assumptions of a
marketplace participant, and they establish a selling price hierarchy for
determining the selling price of a deliverable. The amendments in this ASU will
eliminate the residual method of allocation and require that arrangement
consideration be allocated at the inception of the arrangement to all
deliverables using the relative selling price method, and they significantly
expand the required disclosures related to multiple-deliverable revenue
arrangements. The amendments in this ASU will be effective prospectively for
revenue arrangements entered into or materially modified in fiscal years
beginning after June 15, 2010.
The Company does not
expect the adoption of this ASU to be significant to its consolidated financial
statements.
In August
2009, the FASB issued ASU No. 2009-5, “Measuring Liabilities at Fair Value”
(“ASU 2009-05”). ASU 2009-05 amends ASC 820, “Fair Value Measurements and
Disclosures.” Specifically, ASU 2009-05 provides clarification that in
circumstances in which a quoted price in an active market for the identical
liability is not available, a reporting entity is required to measure fair value
using one or more of the following methods: 1) a valuation technique that
uses a) the quoted price of the identical liability when traded as an asset
or b) quoted prices for similar liabilities or similar liabilities when
traded as assets and/or 2) a valuation technique that is consistent with
the principles of ASC 820 (e.g. an income approach or market approach). ASU
2009-05 also clarifies that when estimating the fair value of a liability,
a
23
reporting
entity is not required to adjust to include inputs relating to the existence of
transfer restrictions on that liability. ASU 2009-05 was effective for the
Company on October 1, 2009. The adoption of this guidance was not significant to
the Company’s consolidated financial statements.
In June
2009, the FASB issued ASU 2009-01, “Topic 105-Generally Accepted Accounting
Principles amendments based on Statement of Financial Accounting Standards No.
168-The FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles” (incorporating former SFAS No. 168, “The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles – a Replacement of FASB Statement No. 162”), which
establishes the FASB Accounting Standards Codification as the single source of
authoritative U.S. generally accepted accounting principles recognized by FASB
to be applied by nongovernmental entities. Rules and interpretive releases of
the SEC under authority of federal securities laws are also sources of
authoritative U.S. GAAP for SEC registrants. ASU 2009-01 and the Codification
were effective for financial statements issued for interim and annual periods
ending after September 15, 2009. The Codification supersedes all existing
non-SEC accounting and reporting standards. No other nongrandfathered non-SEC
accounting literature not included in the Codification is authoritative.
Following ASU 2009-01, FASB will not issue new standards in the form of
Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts.
Instead, FASB will issue Accounting Standards Updates, which will serve only to:
(a) update the Codification; (b) provide background information about the
guidance; and (c) provide the bases for conclusions on the change(s) in the
Codification. Pursuant to the provisions of ASU 2009-01, the Company has updated
references to GAAP in its financial statements issued beginning with the period
ended September 30, 2009. The adoption of ASU 2009-01 was not significant to the
Company’s consolidated financial statements.
In
June 2009, the FASB issued amended guidance (incorporating former SFAS No. 167,
“Amendments to FASB Interpretation No. 46(R)”) incorporated into ASC 810,
“Consolidation”. The amendments include: (1) the elimination of the exemption
for qualifying special purpose entities, (2) a new approach for determining who
should consolidate a variable-interest entity, and (3) changes to when it is
necessary to reassess who should consolidate a variable-interest entity. This
amended guidance is effective for the first annual reporting period beginning
after November 15, 2009 and for interim periods within that first annual
reporting period. The Company does not expect the adoption of this guidance to
be significant to its consolidated financial statements.
In
June 2009, the FASB issued ASC 860, “Transfers and Servicing”
(incorporating former SFAS No. 166, “Accounting for Transfers of Financial
Assets, an amendment to SFAS No. 140”.) This guidance eliminates the
concept of a “qualifying special-purpose entity,” changes the requirements for
derecognizing financial assets, and requires additional disclosures in order to
enhance information reported to users of financial statements by providing
greater transparency about transfers of financial assets, including
securitization transactions, and an entity’s continuing involvement in and
exposure to the risks related to transferred financial assets. This guidance is
effective for fiscal years beginning after November 15, 2009. The
Company does not expect the adoption of this guidance to be significant to its
consolidated financial statements.
In May
2009, the FASB issued ASC 855, “Subsequent Events” (incorporating former SFAS
No. 165, “Subsequent Events”). ASC 855 establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued or are available to be issued.
Specifically, ASC 855 provides the period after the balance sheet date during
which management of a reporting entity should evaluate events or transactions
that may occur for potential recognition or disclosure in the financial
statements; the circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its financial statements;
and the disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. ASC 855 was effective for interim or
annual financial periods ending after June 15, 2009, and is to be applied
prospectively. The adoption of this guidance was not significant to the
Company’s consolidated financial statements.
24
In April
2009, the FASB issued amended guidance (incorporating former FASB Staff Position
(“FSP”) FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in
a Business Combination That Arise from Contingencies”) incorporated into ASC
805, “Business Combinations” (incorporating former FASB Statement No. 141
(Revised December 2007), “Business Combinations”). This amended guidance
requires assets acquired and liabilities assumed in a business combination that
arise from contingencies to be recognized at fair value if fair value can be
reasonably estimated. If fair value of such an asset or liability cannot be
reasonably estimated, the asset or liability would generally be recognized in
accordance with ASC 450, “Contingencies” (incorporating former SFAS No. 5,
“Accounting for Contingencies”; and FASB Interpretation (“FIN”) No. 14,
“Reasonable Estimation of the Amount of a Loss.”). Further, FASB decided to
carry forward without significant revision the subsequent accounting guidance
for assets and liabilities arising from contingencies as per SFAS No. 141,
“Business Combinations.” The amended guidance also eliminates the requirement to
disclose an estimate of the range of outcomes of recognized contingencies at the
acquisition date. For unrecognized contingencies, FASB decided to require that
entities include only the disclosures required by ASC 450 and that those
disclosures be included in the business combination footnote. This
amended guidance also requires that contingent consideration arrangements of an
acquiree assumed by the acquirer in a business combination be treated as
contingent consideration of the acquirer and should be initially and
subsequently measured at fair value in accordance with ASC 805. This amended
guidance is effective for assets or liabilities arising from contingencies in
business combinations for which the acquisition date is on or after
January 1, 2009. The Company will apply this amended guidance prospectively
to all business combinations subsequent to the effective date.
In April
2009, the FASB issued ASC 820, “Fair Value Measurements and Disclosures”
(incorporating former FSP FAS 157-4, “Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly”), and ASC 825, “Financial
Instruments” (incorporating former FSP FASB 107-1 and Accounting Principles
Board 28-1, “Interim Disclosures about Fair Value of Financial Instruments”).
The guidance relates to fair value measurements and related disclosures. The
FASB also issued ASC 320, “Investments-Debt and Equity Securities”
(incorporating former FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation
of Other-Than-Temporary Impairments”) relating to the accounting for impaired
debt securities. This guidance was effective for interim and annual periods
ending after June 15, 2009. The adoption of this guidance was not
significant to the Company’s consolidated financial statements.
In April
2008, the FASB issued ASC 350, “Intangibles-Goodwill and Other” (incorporating
former FSP 142-3, “Determining the Useful Life of Intangible Assets”). ASC 350
amends the factors to be considered in determining the useful life of intangible
assets. Its intent is to improve the consistency between the useful life of an
intangible asset and the period of expected cash flows used to measure its fair
value. This guidance was effective for fiscal years beginning after December 15,
2008. The adoption of this guidance was not significant to the Company’s
consolidated financial statements.
In
March 2008, the FASB issued ASC 815, “Derivatives and Hedging”
(incorporating former SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities — an amendment of FASB Statement
No. 133”). ASC 815 requires enhanced disclosures regarding derivatives and
hedging activities, including: (a) the manner in which an entity uses
derivative instruments; (b) the manner in which derivative instruments and
related hedged items are accounted for; and (c) the effect of derivative
instruments and related hedged items on an entity’s financial position,
financial performance, and cash flows. ASC 815 was effective for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008. The adoption of this guidance was not significant to the
Company’s consolidated financial statements.
In
December 2007, the FASB issued ASC 805, “Business Combinations” (incorporating
former SFAS No. 141 (revised 2007), “Business Combinations”). The purpose
of issuing this new guidance was to replace current guidance in SFAS No.
141 to better represent the economic value of a business combination
transaction. The changes to be effected with this new guidance from the current
guidance include, but are not limited to: (1) acquisition costs will be
recognized separately from the acquisition; (2) known contractual
contingencies at the time of the acquisition will be considered part of the
liabilities acquired
25
measured
at their fair value; all other contingencies will be part of the liabilities
acquired measured at their fair value only if it is more likely than not that
they meet the definition of a liability; (3) contingent consideration based
on the outcome of future events will be recognized and measured at the time of
the acquisition; (4) business combinations achieved in stages (step
acquisitions) will need to recognize the identifiable assets and liabilities, as
well as noncontrolling interests, in the acquiree, at the full amounts of their
fair values; and (5) a bargain purchase (defined as a business combination
in which the total acquisition-date fair value of the identifiable net assets
acquired exceeds the fair value of the consideration transferred plus any
noncontrolling interest in the acquiree) will require that excess to be
recognized as a gain attributable to the acquirer. ASC 805 is effective for any
business combinations that occur on or after January 1, 2009. The Company
will apply ASC 805 prospectively to all business combinations subsequent to the
effective date.
In
December 2007, the FASB issued ASC 810, “Consolidation” (incorporating former
SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements — an amendment of ARB No. 51”). The guidance was issued
partly to improve the relevance, comparability, and transparency of financial
information provided to investors by requiring all entities to report
noncontrolling (minority) interests in subsidiaries in the same way, that is, as
equity in the consolidated financial statements. Moreover, ASC 810 eliminates
the diversity that currently exists in accounting for transactions between an
entity and noncontrolling interests by requiring they be treated as equity
transactions. ASC 810 was effective January 1, 2009. The adoption of this
guidance was not significant to the Company’s consolidated financial
statements.
In
September 2006, the FASB issued ASC 820, "Fair Value Measurements and
Disclosures" (incorporating former SFAS No. 157, "Fair Value
Measurements”). ASC 820 defines fair value, establishes a framework for
measuring fair value in accordance with generally accepted accounting principles
and expands disclosures about fair value measurements. The Company adopted the
provisions of this standard for its financial assets and liabilities as of
January 1, 2008 and it did not have a material impact on its financial condition
or results of operations. As permitted by additional guidance (issued formerly
as FSP No. FAS 157-2, “Effective Date of FASB Statement No. 157”), the
Company elected to defer the adoption of ASC 820 for all nonfinancial assets and
nonfinancial liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis, until January 1,
2009. Effective January 1, 2009, the Company adopted the provision for
nonfinancial assets and liabilities that are not required or permitted to be
measured at fair value on a recurring basis, which include those measured at
fair value in impairment testing and those initially measured at fair value in a
business combination. The provisions of ASC 820 related to these items did not
have a significant impact on the Company’s consolidated financial
statements. Additional guidance (issued formerly as FSP No. 157-3,
“Determining the Fair Value of a Financial Asset When the Market for That Asset
is Not Active”) clarifies the application of ASC 820 in a market that is not
active and provides an example of key considerations in determining the fair
value of a financial asset when the market for that asset is not active. This
additional guidance was effective on October 10, 2008, including prior periods
for which financial statements have not been issued. Revisions resulting from a
change in the valuation technique or its application should be accounted for as
a change in accounting estimate following the guidance in ASC 250, "Accounting
Changes and Error Corrections" (incorporating former SFAS No. 154,
"Accounting Changes and Error Corrections"). The Company adopted the additional
guidance on October 10, 2008 and it did not have a material effect on its
consolidated financial statements.
Cash and
cash equivalents are invested primarily in money market accounts. 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. As of December 31, 2009, the Company’s borrowings were under a
bank term loan bearing interest at EURIBOR plus 1.00% and a revolving line of
credit bearing interest at EURIBOR plus 1.45%. A 100 basis point
increase or decrease in interest rates, applied to the Company’s borrowings at
December 31, 2009, would result in an increase or decrease in annual interest
expense and a corresponding reduction or increase in cash flow of approximately
$68. The Company is exposed to market risks for changes in foreign currency
rates and has
26
exposure
to commodity price risks, including prices of our primary raw materials. Our
objective is to seek a reduction in the potential negative earnings impact of
changes in foreign exchange rates and raw material pricing arising in our
business activities. The Company manages these financial exposures, where
possible, through pricing and operational means. Our practices may change as
economic conditions change.
27
|
Index
to Financial Statements and Supplementary Data:
|
Page
|
||
|
Report
of Independent Registered Public Accounting Firm
|
29
|
||
|
Consolidated
Balance Sheets as of
|
|||
|
December
31, 2009 and 2008
|
31
|
||
|
Consolidated
Statements of Earnings for the
|
|||
|
years
ended December 31, 2009, 2008 and 2007
|
32
|
||
|
Consolidated
Statements of Stockholders' Equity
|
|||
|
for
the years ended December 31, 2009, 2008 and 2007
|
33
|
||
|
Consolidated
Statements of Cash Flows
|
|
||
|
for
the years ended December 31, 2009, 2008 and 2007
|
34
|
||
|
Notes
to Consolidated Financial Statements
|
35
|
||
|
Schedule
II – Valuation and Qualifying
|
|||
|
Accounts
for the years ended December 31, 2009, 2008 and 2007
|
56
|
28
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To 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, 2009 and 2008, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 2009. Our audits also
included the financial statement schedule of Balchem Corporation listed in the
Index at Item 8. We also have audited Balchem Corporation’s internal
control over financial reporting as of December 31, 2009, based on criteria
established in
Internal
Control—Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Balchem Corporation's
management is responsible for these financial statements and financial statement
schedule, for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Management’s Report on Internal Control
Over Financial Reporting. Our responsibility is to express an opinion
on these financial statements and an opinion on the Company's internal control
over financial reporting based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that
(a)
pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company;
(b)
provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the
company; and
(c)
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company's assets that could
have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
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, 2009 and 2008, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2009, 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 the
information set forth therein. Also in our opinion, Balchem
Corporation maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2009, based on criteria established
in
Internal
29
Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
/s/
McGladrey & Pullen LLP
New York,
New York
March 12,
2010
30
BALCHEM
CORPORATION
December
31, 2009 and 2008
(Dollars
in thousands, except share and per share data)
|
Assets
|
2009
|
2008
|
||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 46,432 | $ | 3,422 | ||||
|
Accounts
receivable, net of allowance for doubtful accounts of $357 and $50
at
|
||||||||
|
December
31, 2009 and 2008, respectively
|
29,149 | 30,250 | ||||||
|
Inventories
|
13,965 | 16,618 | ||||||
|
Prepaid
expenses
|
2,046 | 2,581 | ||||||
|
Deferred
income taxes
|
891 | 649 | ||||||
|
Other
current assets
|
529 | 1,731 | ||||||
|
Total
current assets
|
93,012 | 55,251 | ||||||
|
Property,
plant and equipment, net
|
41,579 | 42,513 | ||||||
|
Goodwill
|
26,658 | 26,658 | ||||||
|
Intangible
assets with finite lives, net
|
26,504 | 29,993 | ||||||
|
Other
assets
|
60 | 59 | ||||||
|
Total
assets
|
$ | 187,813 | $ | 154,474 | ||||
|
Liabilities and Stockholders'
Equity
|
||||||||
|
Current
liabilities:
|
||||||||
|
Trade
accounts payable
|
$ | 10,876 | $ | 10,336 | ||||
|
Accrued
expenses
|
5,613 | 3,948 | ||||||
|
Accrued
compensation and other benefits
|
4,399 | 2,501 | ||||||
|
Dividends
payable
|
3,091 | 2,008 | ||||||
|
Income
taxes payable
|
3,053 | 1,988 | ||||||
|
Current
portion of long-term debt
|
6,783 | 2,860 | ||||||
|
Revolver
borrowings
|
- | 2,044 | ||||||
|
Total
current liabilities
|
33,815 | 25,685 | ||||||
|
Long-term
debt
|
- | 6,671 | ||||||
|
Deferred
income taxes
|
5,030 | 6,003 | ||||||
|
Other
long-term obligations
|
1,825 | 1,609 | ||||||
|
Total
liabilities
|
40,670 | 39,968 | ||||||
|
Commitments
and contingencies (note 11)
|
||||||||
|
Stockholders'
equity:
|
||||||||
|
Preferred
stock, $25 par value. Authorized 2,000,000
|
||||||||
|
shares;
none issued and outstanding
|
- | - | ||||||
|
Common
stock, $.0667 par value. Authorized 60,000,000 shares;
28,097,279
|
||||||||
|
shares
issued and outstanding at December 31, 2009 and 27,374,020
shares
|
||||||||
|
issued
and outstanding at December 31, 2008
|
1,873 | 1,824 | ||||||
|
Additional
paid-in capital
|
26,541 | 17,808 | ||||||
|
Retained
earnings
|
118,576 | 94,882 | ||||||
|
Accumulated
other comprehensive income (loss)
|
153 | (8 | ) | |||||
|
Total
stockholders' equity
|
147,143 | 114,506 | ||||||
|
Total
liabilities and stockholders' equity
|
$ | 187,813 | $ | 154,474 | ||||
See accompanying notes to consolidated financial statements
31
BALCHEM
CORPORATION
Years
Ended December 31, 2009, 2008 and 2007
(In
thousands, except per share data)
|
2009
|
2008
|
2007
|
||||||||||
|
|
|
|
||||||||||
|
Net
sales
|
$ | 219,438 | $ | 232,050 | $ | 176,201 | ||||||
|
Cost
of sales
|
152,480 | 179,472 | 129,271 | |||||||||
|
Gross
margin
|
66,958 | 52,578 | 46,930 | |||||||||
|
Operating
expenses:
|
||||||||||||
|
Selling
expenses
|
14,350 | 12,560 | 11,930 | |||||||||
|
Research
and development expenses
|
3,298 | 2,877 | 2,514 | |||||||||
|
General
and administrative expenses
|
8,651 | 7,793 | 6,580 | |||||||||
| 26,299 | 23,230 | 21,024 | ||||||||||
|
Earnings
from operations
|
40,659 | 29,348 | 25,906 | |||||||||
|
Other
expenses (income):
|
||||||||||||
|
Interest
income
|
(107 | ) | (107 | ) | (166 | ) | ||||||
|
Interest
expense
|
209 | 963 | 1,562 | |||||||||
|
Other,
net
|
(45 | ) | 61 | (319 | ) | |||||||
|
Earnings
before income tax expense
|
40,602 | 28,431 | 24,829 | |||||||||
|
Income
tax expense
|
13,817 | 9,381 | 8,711 | |||||||||
|
Net
earnings
|
$ | 26,785 | $ | 19,050 | $ | 16,118 | ||||||
|
Basic
net earnings per common share
|
$ | 0.98 | $ | 0.71 | $ | 0.61 | ||||||
|
Diluted
net earnings per common share
|
$ | 0.93 | $ | 0.67 | $ | 0.58 | ||||||
See accompanying notes to consolidated financial statements
32
BALCHEM
CORPORATION
Consolidated
Statements of Stockholders' Equity
Years
Ended December 31, 2009, 2008 and 2007
(Dollars
in thousands, except share and per share data)
|
Accumulated
|
||||||||||||||||||||||||||||
|
Total
|
Other
|
Additional
|
||||||||||||||||||||||||||
|
Stockholders'
|
Comprehensive
|
Retained
|
Comprehensive
|
Common
Stock
|
Paid-in
|
|||||||||||||||||||||||
|
Equity
|
Income
|
Earnings
|
Income
|
Shares
|
Amount
|
Capital
|
||||||||||||||||||||||
|
Balance
- December 31, 2006
|
$ | 75,362 | $ | 63,988 | $ | 193 | 26,600,773 | $ | 1,773 | $ | 9,408 | |||||||||||||||||
|
Comprehensive
Income:
|
||||||||||||||||||||||||||||
|
Net
earnings
|
16,118 | $ | 16,118 | 16,118 | - | - | - | - | ||||||||||||||||||||
|
Other
comprehensive income, net of tax:
|
||||||||||||||||||||||||||||
|
Net
change in pension asset/liability, net of taxes of $26
|
(43 | ) | (43 | ) | - | - | - | - | - | |||||||||||||||||||
|
Other
Comprehensive Income (Loss)
|
- | (43 | ) | - | (43 | ) | - | - | - | |||||||||||||||||||
|
Comprehensive
Income
|
- | $ | 16,075 | - | - | - | - | - | ||||||||||||||||||||
|
Dividends
($.07 per share)
|
(1,975 | ) | (1,975 | ) | - | - | - | - | ||||||||||||||||||||
|
Shares
issued under employee benefit plans and other
|
379 | - | - | 31,304 | 2 | 377 | ||||||||||||||||||||||
|
Shares
and options issued under stock option plans and
|
||||||||||||||||||||||||||||
|
an
income tax benefit of $677
|
3,530 | - | - | 336,952 | 22 | 3,508 | ||||||||||||||||||||||
|
Cumulative
effect of adjustment from adoption of FIN 48
|
(291 | ) | (291 | ) | - | - | - | - | ||||||||||||||||||||
|
Balance
- December 31, 2007
|
93,080 | 77,840 | 150 | 26,969,029 | 1,797 | 13,293 | ||||||||||||||||||||||
|
Comprehensive
Income:
|
||||||||||||||||||||||||||||
|
Net
earnings
|
19,050 | $ | 19,050 | 19,050 | - | - | - | - | ||||||||||||||||||||
|
Other
comprehensive income, net of tax:
|
||||||||||||||||||||||||||||
|
Net
change in pension asset/liability, net of taxes of $8
|
48 | 48 | - | - | - | - | - | |||||||||||||||||||||
|
Translation
adjustments
|
(206 | ) | (206 | ) | - | - | - | - | - | |||||||||||||||||||
|
Other
Comprehensive Income (Loss)
|
- | (158 | ) | - | (158 | ) | - | - | - | |||||||||||||||||||
|
Comprehensive
Income
|
- | $ | 18,892 | - | - | - | - | - | ||||||||||||||||||||
|
Dividends
($.07 per share)
|
(2,008 | ) | (2,008 | ) | - | - | - | - | ||||||||||||||||||||
|
Shares
issued under employee benefit plans and other
|
406 | - | - | 25,827 | 2 | 404 | ||||||||||||||||||||||
|
Shares
and options issued under stock option plans and
|
||||||||||||||||||||||||||||
|
an
income tax benefit of $672
|
4,136 | - | - | 379,164 | 25 | 4,111 | ||||||||||||||||||||||
|
Balance
- December 31, 2008
|
114,506 | 94,882 | (8 | ) | 27,374,020 | 1,824 | 17,808 | |||||||||||||||||||||
|
Comprehensive
Income:
|
||||||||||||||||||||||||||||
|
Net
earnings
|
26,785 | $ | 26,785 | 26,785 | - | - | - | - | ||||||||||||||||||||
|
Other
comprehensive income, net of tax:
|
||||||||||||||||||||||||||||
|
Net
change in pension asset/liability, net of taxes of $6
|
(15 | ) | (15 | ) | - | - | - | - | - | |||||||||||||||||||
|
Translation
adjustments
|
176 | 176 | - | - | - | - | - | |||||||||||||||||||||
|
Other
Comprehensive Income (Loss)
|
- | 161 | - | 161 | - | - | - | |||||||||||||||||||||
|
Comprehensive
Income
|
- | $ | 26,946 | - | - | - | - | - | ||||||||||||||||||||
|
Dividends
($.11 per share)
|
(3,091 | ) | (3,091 | ) | - | - | - | - | ||||||||||||||||||||
|
Shares
issued under employee benefit plans and other
|
430 | - | - | 24,413 | 2 | 428 | ||||||||||||||||||||||
|
Shares
and options issued under stock option plans and
|
||||||||||||||||||||||||||||
|
an
income tax benefit of $2,289
|
8,352 | - | - | 698,846 | 47 | 8,305 | ||||||||||||||||||||||
|
Balance
- December 31, 2009
|
$ | 147,143 | $ | 118,576 | $ | 153 | 28,097,279 | $ | 1,873 | $ | 26,541 | |||||||||||||||||
See accompanying notes to consolidated financial statements
33
Years
Ended December 31, 2009, 2008 and 2007
(In
thousands)
|
2009
|
2008
|
2007
|
||||||||||
|
|
|
|
||||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
earnings
|
$ | 26,785 | $ | 19,050 | $ | 16,118 | ||||||
|
Adjustments
to reconcile net earnings to
|
||||||||||||
|
net
cash provided by operating activities:
|
||||||||||||
|
Depreciation
and amortization
|
8,130 | 7,786 | 6,376 | |||||||||
|
Stock
compensation expense
|
3,076 | 2,414 | 1,636 | |||||||||
|
Shares
issued under employee benefit plans
|
430 | 406 | 379 | |||||||||
|
Deferred
income tax expense
|
(1,216 | ) | (238 | ) | (617 | ) | ||||||
|
Provision
for doubtful accounts
|
305 | - | - | |||||||||
|
Foreign
currency transaction (gain) loss
|
36 | 31 | (195 | ) | ||||||||
|
Other
|
(8 | ) | - | 15 | ||||||||
|
Changes
in assets and liabilities
|
||||||||||||
|
Accounts
receivable
|
862 | (1,058 | ) | (15,409 | ) | |||||||
|
Inventories
|
2,656 | (974 | ) | 481 | ||||||||
|
Prepaid
expenses and other current assets
|
1,776 | (17 | ) | (2,218 | ) | |||||||
|
Accounts
payable and accrued expenses
|
4,037 | (4,593 | ) | 7,634 | ||||||||
|
Income
taxes
|
1,009 | 6 | 1,803 | |||||||||
|
Customer
deposits and other deferred revenue
|
- | (42 | ) | (1,030 | ) | |||||||
|
Other
long-term obligations
|
194 | 126 | 664 | |||||||||
|
Net
cash provided by operating activities
|
48,072 | 22,897 | 15,637 | |||||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Capital
expenditures
|
(3,429 | ) | (5,080 | ) | (4,858 | ) | ||||||
|
Intangible
assets acquired
|
(215 | ) | (182 | ) | (172 | ) | ||||||
|
Acquisition
of assets
|
- | (296 | ) | (40,744 | ) | |||||||
|
Net
cash used in investing activities
|
(3,644 | ) | (5,558 | ) | (45,774 | ) | ||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Proceeds
from long-term debt
|
- | - | 38,946 | |||||||||
|
Principal
payments on long-term debt
|
(2,844 | ) | (14,876 | ) | (15,106 | ) | ||||||
|
Proceeds
from short-term obligations
|
701 | 3,516 | 3,684 | |||||||||
|
Repayments
of short-term obligations
|
(2,657 | ) | (4,507 | ) | (733 | ) | ||||||
|
Proceeds
from stock options exercised and restricted share
purchases
|
2,988 | 1,050 | 1,217 | |||||||||
|
Excess
tax benefits from stock compensation
|
2,289 | 672 | 677 | |||||||||
|
Dividends
paid
|
(2,008 | ) | (1,975 | ) | (1,596 | ) | ||||||
|
Net
cash (used in) provided by financing activities
|
(1,531 | ) | (16,120 | ) | 27,089 | |||||||
|
Effect
of exchange rate changes on cash
|
113 | (104 | ) | 166 | ||||||||
|
Increase
(decrease) in cash and cash equivalents
|
43,010 | 1,115 | (2,882 | ) | ||||||||
|
Cash
and cash equivalents beginning of year
|
3,422 | 2,307 | 5,189 | |||||||||
|
Cash
and cash equivalents end of year
|
$ | 46,432 | $ | 3,422 | $ | 2,307 | ||||||
See accompanying notes to consolidated financial statements
34
BALCHEM
CORPORATION
Notes
to Consolidated Financial Statements
(All
amounts in thousands, except share and per share data)
Business
Description
Balchem
Corporation (including, unless the context otherwise requires, its wholly-owned
subsidiaries, BCP Ingredients, Inc., Balchem Minerals Corporation, BCP St.
Gabriel, Inc., Chelated Minerals Corporation, Balchem BV, Balchem Trading BV,
and Balchem Italia Srl (“Balchem” or the “Company”)), incorporated in the State
of Maryland in 1967, is engaged in the development, manufacture and marketing of
specialty performance ingredients and products for the food, nutritional, feed,
pharmaceutical 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, and when
collection is reasonably assured. The Company reports amounts billed
to customers related to shipping and handling as revenue and includes costs
incurred for shipping and handling in cost of sales. Amounts received for
unshipped merchandise are principally not recognized as revenue but rather they
are recorded as customer deposits and are included in current liabilities.
In addition, the Company
follows the provisions of ASC Topic 605, “Revenue Recognition” (incorporating
the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin (SAB)
No. 104, “Revenue Recognition”) which sets forth guidelines on the timing of
revenue recognition based upon factors such as passage of title, installation,
payments and customer acceptance.
Cash and Cash
Equivalents
The
Company considers all highly liquid investments 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, and have been reduced by an allowance for excess or
obsolete inventories. Cost elements include material, labor and
manufacturing overhead.
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. The Company capitalized
interest costs of $17, $158 and $150 in 2009, 2008 and 2007,
respectively.
35
Business
Concentrations
Financial
instruments that subject the Company to credit risk consist primarily of money
market investments and accounts receivable. Investments are managed within
established guidelines to mitigate risks. Accounts receivable subject the
Company to credit risk partially due to the concentration of amounts due from
customers. 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. In 2009,
2008 and 2007, no customer accounted for more than 10% of total net
sales.
Goodwill and Acquired
Intangible Assets
Goodwill
represents the excess of costs over fair value of assets of businesses acquired.
The Company adopted the provisions of ASC 350, “Intangibles-Goodwill and Other”
(incorporating former SFAS No. 141, “Business Combinations”; and SFAS No. 142,
“Goodwill and Other Intangible Assets”), as of January 1,
2002. This standard requires the use of the purchase method of
accounting for a business combination and defines an intangible
asset. Goodwill and intangible assets acquired in a purchase business
combination and determined to have an indefinite useful life are not amortized,
but are instead tested for impairment at least annually in accordance with the
provisions of ASC 350. ASC 350 also requires that intangible assets with
estimable useful lives be amortized over their respective estimated useful lives
to their estimated residual values, and reviewed for impairment.
As
required by ASC 350, the Company performed an assessment of whether there was an
indication that goodwill was impaired at the date of adoption. In connection
therewith, the Company determined that its operations consisted of three
reporting units and determined each reporting units’ fair value and compared it
to the reporting unit’s net book value. Since the fair value of each
reporting unit exceeded its carrying amount, there was no indication of
impairment and no further transitional impairment testing was
required. As of December 31, 2009 and 2008, the Company also
performed an impairment test of its goodwill balance. As of such dates the
Company’s reporting units’ fair value exceeded their carrying amounts, and
therefore there was no indication that goodwill was impaired. Accordingly, the
Company was not required to perform any further impairment tests. The Company
performs its impairment test each December 31.
The
Company had unamortized goodwill in the amount of $26,658 at December 31, 2009
and 2008, subject to the provisions of ASC 350. Unamortized goodwill
is allocated to the Company’s reportable segments as follows:
|
2009
|
2008
|
|||||||
|
Specialty
Products
|
$ | 5,089 | $ | 5,089 | ||||
|
Food,
Pharma and Nutrition
|
8,607 | 8,607 | ||||||
|
Animal
Nutrition and Health
|
12,962 | 12,962 | ||||||
|
Total
|
$ | 26,658 | $ | 26,658 | ||||
The
following intangible assets with finite lives are stated at cost and are
amortized on a straight-line basis over the following estimated useful
lives:
|
Amortization
period
(in
years)
|
|
|
Customer
lists
|
10
|
|
Regulatory
re-registration costs
|
10
|
|
Patents
& trade secrets
|
15
- 17
|
|
Trademarks
& trade names
|
17
|
|
Other
|
5 -
10
|
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
36
credit
carry-forwards. 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 and revenues and expenses during the reporting
period. 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.
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, 2009 and 2008 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. The Company’s
financial instruments, principally cash equivalents, accounts receivable,
accounts payable and accrued liabilities, are carried at cost which approximates
fair value due to the short-term maturity of these instruments. The fair value
of the Company’s obligations under its long-term debt and credit agreements
approximates their carrying value as the stated interest rates of these
instruments are variable and reflect rates which are otherwise currently
available to the Company.
Cost of
Sales
Cost of
sales are primarily comprised of raw materials and supplies consumed in the
manufacture of product, as well as manufacturing labor, maintenance labor,
depreciation expense, and direct overhead expense necessary to convert purchased
materials and supplies into finished product. Cost of sales also includes
inbound freight costs, outbound freight costs for shipping products to
customers, warehousing costs, quality control and obsolescence
expense.
Selling, General and
Administrative Expenses
Selling
expenses consist primarily of compensation and benefit costs, trade promotions,
advertising, commissions and other marketing costs. General and administrative
expenses consist primarily of payroll and benefit costs, occupancy and operating
costs of corporate offices, depreciation and amortization expense on
non-manufacturing assets, information systems costs and other miscellaneous
administrative costs.
Research and
Development
Research
and development costs are expensed as incurred.
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 and unvested restricted stock (using the treasury stock
method).
37
Stock-based
Compensation
The
Company has stock-based employee compensation plans, which are described more
fully in Note 2. On January 1, 2006, the Company was required to
adopt ASC 718, “Compensation-Stock Compensation” (incorporating former Statement
of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share Based
Payment”), which requires all share-based payments, including grants of stock
options, to be recognized in the income statement as an operating expense, based
on their fair values. The Company estimates the fair value of each option award
on the date of grant using a Black-Scholes based option-pricing
model.
Prior to
adopting ASC 718, the Company accounted for stock-based compensation under
Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to
Employees”, as permitted by SFAS No. 123, “Accounting for Stock-Based
Compensation. The modified prospective method was applied in adopting ASC 718
and, accordingly, periods prior to adoption have not been restated.
The
implementation of ASC 718 has had no adverse effect on the Company’s balance
sheet or total cash flows, but it does impact cash flows from operations, cash
flows from financing activities, cost of sales, gross profit, operating
expenses, net income and earnings per share. Because periods prior to adoption
have not been restated, comparability between periods has been affected.
Additionally, estimates of and assumptions about forfeiture rates, terms,
volatility, interest rates and dividend yields are used to calculate stock-based
compensation. A significant change to these estimates could materially affect
the Company’s operating results.
Impairment of Long-lived
Assets
Long-lived
assets, such as property, plant, and equipment, and purchased intangibles
subject to amortization, 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 estimated undiscounted future
cash flows expected to be generated by the asset. If the carrying amount of an
asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds the
fair value of the asset, which is generally based on discounted cash
flows.
New Accounting
Pronouncements
In
February 2010, the FASB issued
Accounting Standards
Update (“ASU”) No.
2010-09, “Subsequent Events (Topic 855) Amendments to
Certain Recognition and Disclosure Requirements” ("ASU 2010-09"). ASU
2010-09 amends disclosure requirements within Subtopic 855-10. An entity that is
an SEC filer is not required to disclose the date through which subsequent
events have been evaluated. This change alleviates potential conflicts between
Subtopic 855-10 and the SEC's requirements. ASU 2010-09 is effective for
interim and annual periods ending after June 15, 2010.
The Company does not
expect the adoption of this ASU to be significant to its consolidated financial
statements.
In
October 2009, the FASB issued
Accounting Standards
Update (“ASU”) No. 2009-13
, “Revenue Recognition (Topic 605):
Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging
Issues Task Force.” This ASU provides amendments to the criteria for separating
consideration in multiple-deliverable arrangements. The amendments in this ASU
replace the term "fair value" in the revenue allocation guidance with "selling
price" to clarify that the allocation of revenue is based on entity-specific
assumptions rather than assumptions of a marketplace participant, and they
establish a selling price hierarchy for determining the selling price of a
deliverable. The amendments in this ASU will eliminate the residual method of
allocation and require that arrangement consideration be allocated at the
inception of the arrangement to all deliverables using the relative selling
price method, and they significantly expand the required disclosures related to
multiple-deliverable revenue arrangements. The amendments in this ASU will be
effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning after June 15, 2010.
The Company does not
expect the adoption of this ASU to be significant to its consolidated financial
statements.
In August
2009, the FASB issued ASU No. 2009-5, “Measuring Liabilities at Fair Value”
(“ASU 2009-05”). ASU 2009-05 amends ASC 820, “Fair Value Measurements and
Disclosures.” Specifically, ASU
38
2009-05
provides clarification that in circumstances in which a quoted price in an
active market for the identical liability is not available, a reporting entity
is required to measure fair value using one or more of the following methods:
1) a valuation technique that uses a) the quoted price of the
identical liability when traded as an asset or b) quoted prices for similar
liabilities or similar liabilities when traded as assets and/or 2) a
valuation technique that is consistent with the principles of ASC 820 (e.g. an
income approach or market approach). ASU 2009-05 also clarifies that when
estimating the fair value of a liability, a reporting entity is not required to
adjust to include inputs relating to the existence of transfer restrictions on
that liability. ASU 2009-05 was effective for the Company on October 1, 2009.
The adoption of this guidance was not significant to the Company’s consolidated
financial statements.
In June
2009, the FASB issued ASU 2009-01, “Topic 105-Generally Accepted Accounting
Principles amendments based on Statement of Financial Accounting Standards No.
168-The FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles” (incorporating former SFAS No. 168, “The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles – a Replacement of FASB Statement No. 162”), which
establishes the FASB Accounting Standards Codification as the single source of
authoritative U.S. generally accepted accounting principles recognized by FASB
to be applied by nongovernmental entities. Rules and interpretive releases of
the SEC under authority of federal securities laws are also sources of
authoritative U.S. GAAP for SEC registrants. ASU 2009-01 and the Codification
were effective for financial statements issued for interim and annual periods
ending after September 15, 2009. The Codification supersedes all existing
non-SEC accounting and reporting standards. No other nongrandfathered non-SEC
accounting literature not included in the Codification is authoritative.
Following ASU 2009-01, FASB will not issue new standards in the form of
Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts.
Instead, FASB will issue Accounting Standards Updates, which will serve only to:
(a) update the Codification; (b) provide background information about the
guidance; and (c) provide the bases for conclusions on the change(s) in the
Codification. Pursuant to the provisions of ASU 2009-01, the Company has updated
references to GAAP in its financial statements issued beginning with the period
ended September 30, 2009. The adoption of ASU 2009-01 was not significant to the
Company’s consolidated financial statements.
In June
2009, the FASB issued amended guidance (incorporating former SFAS No. 167,
“Amendments to FASB Interpretation No. 46(R)”) incorporated into ASC 810,
“Consolidation”. The amendments include: (1) the elimination of the exemption
for qualifying special purpose entities, (2) a new approach for determining who
should consolidate a variable-interest entity, and (3) changes to when it is
necessary to reassess who should consolidate a variable-interest entity. This
amended guidance is effective for the first annual reporting period beginning
after November 15, 2009 and for interim periods within that first annual
reporting period. The Company does not expect the adoption of this guidance to
be significant to its consolidated financial statements.
In
June 2009, the FASB issued ASC 860, “Transfers and Servicing”
(incorporating former SFAS No. 166, “Accounting for Transfers of Financial
Assets, an amendment to SFAS No. 140”.) This guidance eliminates the
concept of a “qualifying special-purpose entity,” changes the requirements for
derecognizing financial assets, and requires additional disclosures in order to
enhance information reported to users of financial statements by providing
greater transparency about transfers of financial assets, including
securitization transactions, and an entity’s continuing involvement in and
exposure to the risks related to transferred financial assets. This guidance is
effective for fiscal years beginning after November 15, 2009. The
Company does not expect the adoption of this guidance to be significant to its
consolidated financial statements.
In May
2009, the FASB issued ASC 855, “Subsequent Events” (incorporating former SFAS
No. 165, “Subsequent Events”). ASC 855 establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued or are available to be issued.
Specifically, ASC 855 provides the period after the balance sheet date during
which management of a reporting entity should evaluate events or transactions
that may occur for potential recognition or disclosure in the financial
statements; the circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its financial statements;
and the disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. ASC 855 was effective for interim or
annual financial periods ending after June 15, 2009, and is to be applied
prospectively. The adoption of this guidance was not significant to the
Company’s consolidated financial statements.
39
In April
2009, the FASB issued amended guidance (incorporating former FASB Staff Position
(“FSP”) FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in
a Business Combination That Arise from Contingencies”) incorporated into ASC
805, “Business Combinations” (incorporating former FASB Statement No. 141
(Revised December 2007), “Business Combinations”). This amended guidance
requires assets acquired and liabilities assumed in a business combination that
arise from contingencies to be recognized at fair value if fair value can be
reasonably estimated. If fair value of such an asset or liability cannot be
reasonably estimated, the asset or liability would generally be recognized in
accordance with ASC 450, “Contingencies” (incorporating former SFAS No. 5,
“Accounting for Contingencies”; and FASB Interpretation (“FIN”) No. 14,
“Reasonable Estimation of the Amount of a Loss.”). Further, FASB decided to
carry forward without significant revision the subsequent accounting guidance
for assets and liabilities arising from contingencies as per SFAS No. 141,
“Business Combinations.” The amended guidance also eliminates the requirement to
disclose an estimate of the range of outcomes of recognized contingencies at the
acquisition date. For unrecognized contingencies, FASB decided to require that
entities include only the disclosures required by ASC 450 and that those
disclosures be included in the business combination footnote. This
amended guidance also requires that contingent consideration arrangements of an
acquiree assumed by the acquirer in a business combination be treated as
contingent consideration of the acquirer and should be initially and
subsequently measured at fair value in accordance with ASC 805. This amended
guidance is effective for assets or liabilities arising from contingencies in
business combinations for which the acquisition date is on or after
January 1, 2009. The Company will apply this amended guidance prospectively
to all business combinations subsequent to the effective date.
In April
2009, the FASB issued ASC 820, “Fair Value Measurements and Disclosures”
(incorporating former FSP FAS 157-4, “Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly”), and ASC 825, “Financial
Instruments” (incorporating former FSP FASB 107-1 and Accounting Principles
Board 28-1, “Interim Disclosures about Fair Value of Financial Instruments”).
The guidance relates to fair value measurements and related disclosures. The
FASB also issued ASC 320, “Investments-Debt and Equity Securities”
(incorporating former FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation
of Other-Than-Temporary Impairments”) relating to the accounting for impaired
debt securities. This guidance was effective for interim and annual periods
ending after June 15, 2009. The adoption of this guidance was not
significant to the Company’s consolidated financial statements.
In April
2008, the FASB issued ASC 350, “Intangibles-Goodwill and Other” (incorporating
former FSP 142-3, “Determining the Useful Life of Intangible Assets”). ASC 350
amends the factors to be considered in determining the useful life of intangible
assets. Its intent is to improve the consistency between the useful life of an
intangible asset and the period of expected cash flows used to measure its fair
value. This guidance was effective for fiscal years beginning after December 15,
2008. The adoption of this guidance was not significant to the Company’s
consolidated financial statements.
In
March 2008, the FASB issued ASC 815, “Derivatives and Hedging”
(incorporating former SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities — an amendment of FASB Statement
No. 133”). ASC 815 requires enhanced disclosures regarding derivatives and
hedging activities, including: (a) the manner in which an entity uses
derivative instruments; (b) the manner in which derivative instruments and
related hedged items are accounted for; and (c) the effect of derivative
instruments and related hedged items on an entity’s financial position,
financial performance, and cash flows. ASC 815 was effective for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008. The adoption of this guidance was not significant to the
Company’s consolidated financial statements.
In
December 2007, the FASB issued ASC 805, “Business Combinations” (incorporating
former SFAS No. 141 (revised 2007), “Business Combinations”). The purpose
of issuing this new guidance was to replace current guidance in SFAS No.
141 to better represent the economic value of a business combination
transaction. The changes to be effected with this new guidance from the current
guidance include, but are not limited to: (1) acquisition costs will be
recognized separately from the acquisition; (2) known contractual
contingencies at the time of the acquisition will be considered part of the
liabilities acquired measured at their fair value; all other contingencies will
be part of the liabilities acquired measured at their fair value only if it is
more likely than not that they meet the definition of a liability;
(3) contingent consideration based on the outcome of future events will be
recognized and measured at the time of the acquisition; (4) business
combinations achieved in stages (step acquisitions) will need to recognize the
identifiable assets and liabilities, as well as noncontrolling interests, in the
acquiree, at the full amounts of
40
their
fair values; and (5) a bargain purchase (defined as a business combination
in which the total acquisition-date fair value of the identifiable net assets
acquired exceeds the fair value of the consideration transferred plus any
noncontrolling interest in the acquiree) will require that excess to be
recognized as a gain attributable to the acquirer. ASC 805 is effective for any
business combinations that occur on or after January 1, 2009. The Company
will apply ASC 805 prospectively to all business combinations subsequent to the
effective date.
In
December 2007, the FASB issued ASC 810, “Consolidation” (incorporating former
SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements — an amendment of ARB No. 51”). The guidance was issued
partly to improve the relevance, comparability, and transparency of financial
information provided to investors by requiring all entities to report
noncontrolling (minority) interests in subsidiaries in the same way, that is, as
equity in the consolidated financial statements. Moreover, ASC 810 eliminates
the diversity that currently exists in accounting for transactions between an
entity and noncontrolling interests by requiring they be treated as equity
transactions. ASC 810 was effective January 1, 2009. The adoption of this
guidance was not significant to the Company’s consolidated financial
statements.
In
September 2006, the FASB issued ASC 820, "Fair Value Measurements and
Disclosures" (incorporating former SFAS No. 157, "Fair Value
Measurements”). ASC 820 defines fair value, establishes a framework for
measuring fair value in accordance with generally accepted accounting principles
and expands disclosures about fair value measurements. The Company adopted the
provisions of this standard for its financial assets and liabilities as of
January 1, 2008 and it did not have a material impact on its financial condition
or results of operations. As permitted by additional guidance (issued formerly
as FSP No. FAS 157-2, “Effective Date of FASB Statement No. 157”), the
Company elected to defer the adoption of ASC 820 for all nonfinancial assets and
nonfinancial liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis, until January 1,
2009. Effective January 1, 2009, the Company adopted the provision for
nonfinancial assets and liabilities that are not required or permitted to be
measured at fair value on a recurring basis, which include those measured at
fair value in impairment testing and those initially measured at fair value in a
business combination. The provisions of ASC 820 related to these items did not
have a significant impact on the Company’s consolidated financial
statements. Additional guidance (issued formerly as FSP No. 157-3,
“Determining the Fair Value of a Financial Asset When the Market for That Asset
is Not Active”) clarifies the application of ASC 820 in a market that is not
active and provides an example of key considerations in determining the fair
value of a financial asset when the market for that asset is not active. This
additional guidance was effective on October 10, 2008, including prior periods
for which financial statements have not been issued. Revisions resulting from a
change in the valuation technique or its application should be accounted for as
a change in accounting estimate following the guidance in ASC 250, "Accounting
Changes and Error Corrections" (incorporating former SFAS No. 154,
"Accounting Changes and Error Corrections"). The Company adopted the additional
guidance on October 10, 2008 and it did not have a material effect on its
consolidated financial statements.
Reclassifications
Certain
reclassifications have been made to the prior years’ financial statements to
conform to the current year’s presentation with no impact on net earnings or
stockholders’ equity.
STOCK-BASED
COMPENSATION
On
January 1, 2006, the Company adopted ASC 718, which requires all share-based
payments, including grants of stock options, to be recognized in the income
statement as an operating expense, based on their fair values.
Prior to
adopting ASC 718, the Company accounted for stock-based compensation under
Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to
Employees” (“Opinion 25”), as permitted by SFAS No. 123, “Accounting for
Stock-Based Compensation”. The Company has applied the modified prospective
method in adopting ASC 718. Accordingly, periods prior to adoption have not been
restated. Under the modified prospective method, compensation cost recognized in
the years ended December 31, 2009, 2008 and 2007 include (a) compensation cost
for all share-based payments granted
41
prior to,
but not yet vested as of January 1, 2006, based on the grant date fair value
estimated in accordance with the original provisions of SFAS 123, and (b)
compensation cost for all share-based payments granted subsequent to January 1,
2006, based on the grant-date fair value estimated in accordance with the
provisions of ASC 718.
As
required by ASC 718, the Company has made an estimate of expected forfeitures,
based on its historical experience, and is recognizing compensation cost only
for those stock-based compensation awards expected to vest.
Additionally,
since adoption of ASC 718, excess tax benefits related to stock compensation are
presented as a cash inflow from financing activities. This change had the effect
of decreasing cash flows from operating activities and increasing cash flows
from financing activities by $2,289, $672 and $677 for the years ended December
31, 2009, 2008 and 2007, respectively.
The
Company’s results for the years ended December 31, 2009, 2008 and 2007 reflected
the following compensation cost as a result of adopting ASC 718 and such
compensation cost had the following effects on net earnings and basic and
diluted earnings per share:
|
Year
Ended
|
||||||||||||
|
December
31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Cost
of sales
|
$ | 365 | $ | 273 | $ | 187 | ||||||
|
Operating
expenses
|
2,711 | 2,141 | 1,449 | |||||||||
|
Net
earnings
|
1,963 | 1,614 | 1,118 | |||||||||
|
Basic
EPS
|
.07 | .06 | .04 | |||||||||
|
Diluted
EPS
|
$ | .07 | $ | .06 | $ | .04 | ||||||
On
December 31, 2009, the Company had one share-based compensation plan, which is
described below (the “1999 Stock Plan”).
In June
1999, the Company adopted the Balchem Corporation 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.
Options granted under the 1999 Stock Plan expire ten years from the date of the
grant. The 1999 Stock Plan initially reserved an aggregate of 600,000 shares
(unadjusted for the stock splits) of common stock for issuance under the Plan.
In April 2003, the Board of Directors of the Company adopted and stockholders
subsequently approved, the Amended and Restated 1999 Stock Plan (the “Amended
Plan”) which amended the 1999 Stock Plan by: (i) increasing the
number of shares of common stock reserved for issuance under the 1999 Stock Plan
by 600,000 shares (unadjusted for the stock splits), to a total of 1,200,000
shares (unadjusted for the stock splits) of common stock; and (ii) confirming
the right of the Company to grant awards of common stock (“Awards”) in addition
to the other Stock Rights available under the 1999 Stock Plan, and providing
certain language changes relating thereto. The Amended Plan was
scheduled to expire in April, 2009. In April, 2008, the Board of Directors of
the Company adopted and stockholders subsequently approved, the adoption of an
amendment and restatement of the Amended Plan (collectively to be referred
to as the “Second Amended Plan”), which provides as follows: (i) for a
termination date of April 9, 2018; (ii) to authorize 6,000,000 shares reserved
for future grants under the Second Amended Plan; (iii) for the making of grants
of stock appreciation rights, restricted stock and performance awards; (iv) for
immediate acceleration of vesting of awards issued under the plan in the event
of a change in control of the Company; and (v) for compliance with the
requirements of Sections 409A and 162(m) of the Internal Revenue Code of 1986,
as amended (the “Internal Revenue Code” or the “Code”).
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
42
under the
Non-Qualified Plan generally vested on the date of grant, and expire ten years
from the date of grant.
The
shares to be issued upon exercise of the outstanding options have been approved,
reserved and are adequate to cover all exercises. As of December 31,
2009, the plans had 5,091,180 shares available for future awards.
The
Company has Restricted Stock Purchase Agreements (the “RSP Agreements”) with its
non-employee directors and certain employees of the Company to purchase the
Company’s common stock pursuant to the Company’s 1999 Stock Plan. Under the RSP
Agreements, certain shares have been purchased, ranging from 1,000 shares to
20,250 shares, of the Company’s common stock at purchase prices ranging from
approximately $.02 per share to $.07 per share. The purchased stock is subject
to a repurchase option in favor of the Company and to restrictions on transfer
until it vests in accordance with the provisions of the Agreements.
The fair
value of each option award issued under the 1999 Stock Plan is estimated on the
date of grant using a Black-Scholes based option-pricing model that uses the
assumptions noted in the following table. Expected volatilities are based on
historical volatility of the Company’s stock. The expected term of the options
is based on the Company’s historical experience of employees’ exercise
behavior. Dividend yields are based on the Company’s historical
dividend yields. Risk-free interest rates are based on the implied
yields currently available on U.S. Treasury zero coupon issues with a
remaining term equal to the expected life.
|
Year
Ended
|
||||||||||||
|
Weighted
Average Assumptions:
|
December
31,
2009
|
December
31,
2008
|
December
31,
2007
|
|||||||||
|
Expected
Volatility
|
46.9 | % | 44.5 | % | 35.2 | % | ||||||
|
Expected
Term (in years)
|
3.8 | 3.3 | 4.5 | |||||||||
|
Risk-Free
Interest Rate
|
1.8 | % | 2.0 | % | 4.7 | % | ||||||
|
Dividend
Yield
|
0.5 | % | 0.6 | % | 0.4 | % | ||||||
The value
of the restricted shares is based on the intrinsic value of the award at the
date of grant.
Compensation
expense for stock options and restricted stock awards is recognized on a
straight-line basis over the vesting period, generally three years for stock
options, four years for employee restricted stock awards, and four to seven
years for non-employee director restricted stock awards.
A summary
of stock option plan activity for 2009, 2008, and 2007 for all plans is as
follows:
|
2009
|
#
of
Shares
(000s)
|
Weighted
Average
Exercise
Price
|
||||||
|
Outstanding
at beginning of year
|
3,594 | $ | 9.21 | |||||
|
Granted
|
339 | 21.38 | ||||||
|
Exercised
|
(628 | ) | 4.79 | |||||
|
Cancelled
|
(19 | ) | 14.10 | |||||
|
Outstanding
at end of year
|
3,286 | $ | 11.28 | |||||
|
Exercisable
at end of year
|
2,255 | $ | 8.52 | |||||
|
2008
|
#
of
Shares
(000s)
|
Weighted
Average
Exercise
Price
|
||||||
|
Outstanding
at beginning of year
|
2,916 | $ | 7.10 | |||||
|
Granted
|
876 | 15.35 | ||||||
|
Exercised
|
(196 | ) | 5.31 | |||||
|
Cancelled
|
(2 | ) | 13.61 | |||||
|
Outstanding
at end of year
|
3,594 | $ | 9.21 | |||||
|
Exercisable
at end of year
|
2,530 | $ | 6.89 | |||||
43
|
2007
|
#
of
Shares
(000s)
|
Weighted
Average
Exercise
Price
|
||||||
|
Outstanding
at beginning of year
|
3,255 | $ | 6.76 | |||||
|
Granted
|
14 | 12.00 | ||||||
|
Exercised
|
(329 | ) | 3.70 | |||||
|
Cancelled
|
(24 | ) | 9.56 | |||||
|
Outstanding
at end of year
|
2,916 | $ | 7.10 | |||||
|
Exercisable
at end of year
|
2,232 | $ | 6.06 | |||||
The
aggregate intrinsic value for outstanding stock options was $36,342, $26,873 and
$22,786 at December 31, 2009, 2008 and 2007, respectively, with a weighted
average remaining contractual term of 6.6 years at December 31,
2009. Exercisable stock options at December 31, 2009 had an aggregate
intrinsic value of $31,179 with a weighted average remaining contractual term of
5.5 years.
Other
information pertaining to option activity during the years ended December 31,
2009, 2008 and 2007 was as follows:
|
Year
Ended
December
31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Weighted-average
fair value of options granted
|
$ | 7.74 | $ | 4.98 | $ | 4.30 | ||||||
|
Total
intrinsic value of stock options exercised ($000s)
|
$ | 7,425 | $ | 2,023 | $ | 2,721 | ||||||
Additional
information related to stock options outstanding under all plans at December 31,
2009 is as follows:
|
Options
Outstanding
|
Options
Exercisable
|
||||||||||||||||||
|
Range
of Exercise
Prices
|
Shares
Outstanding
(000s)
|
Weighted
Average
Remaining
Contractual
Term
|
Weighted
Average
Exercise
Price
|
Number
Exercisable
(000s)
|
Weighted
Average
Exercise
Price
|
||||||||||||||
| $ 2.20 - $ 8.79 | 1,025 |
4.3
years
|
$ | 5.54 | 1,025 | $ | 5.54 | ||||||||||||
| 9.21 - 13.71 | 1,512 |
6.8
years
|
11.28 | 1,148 | 10.55 | ||||||||||||||
| 16.57 - 21.39 | 749 |
9.4
years
|
19.14 | 82 | 17.28 | ||||||||||||||
| 3,286 |
6.6
years
|
$ | 11.28 | 2,255 | $ | 8.52 | |||||||||||||
Non-vested
restricted stock activity for the years ended December 31, 2009, 2008 and 2007
is summarized below:
|
Shares
(000s)
|
Weighted
Average
Grant
Date
Fair
Value
|
|||||||
|
Non-vested
balance as of December 31, 2008
|
347 | $ | 13.39 | |||||
|
Granted
|
71 | 21.34 | ||||||
|
Vested
|
- | - | ||||||
|
Forfeited
|
- | - | ||||||
|
Non-vested
balance as of December 31, 2009
|
418 | $ | 14.56 | |||||
44
|
Shares
(000s)
|
Weighted
Average
Grant
Date
Fair
Value
|
|||||||
|
Non-vested
balance as of December 31, 2007
|
176 | $ | 11.00 | |||||
|
Granted
|
198 | 15.29 | ||||||
|
Vested
|
(27 | ) | 11.36 | |||||
|
Forfeited
|
- | - | ||||||
|
Non-vested
balance as of December 31, 2008
|
347 | $ | 13.39 | |||||
|
Shares
(000s)
|
Weighted
Average
Grant
Date
Fair
Value
|
|||||||
|
Non-vested
balance as of December 31, 2006
|
169 | $ | 10.93 | |||||
|
Granted
|
7 | 12.41 | ||||||
|
Vested
|
- | - | ||||||
|
Forfeited
|
- | - | ||||||
|
Non-vested
balance as of December 31, 2007
|
176 | $ | 11.00 | |||||
As of
December 31, 2009, 2008 and 2007, there was $8,291, $7,248 and $2,586,
respectively, of total unrecognized compensation cost related to non-vested
share-based compensation arrangements granted under the plans. As of December
31, 2009, the unrecognized compensation cost is expected to be recognized over a
weighted-average period of 2 years. We estimate that share-based compensation
expense for the year ended December 31, 2010 will be approximately
$3,900.
STOCK
SPLITS AND REPURCHASE OF COMMON STOCK
On
December 11, 2009, the Board of Directors of the Company approved a
three-for-two split of the Company’s common stock to be effected in the form of
a stock dividend to shareholders of record on December 30, 2009. Such
stock dividend was made on January 20, 2010. The stock split was
recognized by reclassifying the par value of the additional shares resulting
from the split, from additional paid-in capital to common stock. The
stock split was applied retroactively to all periods presented.
The
Company has an approved stock repurchase program. The total authorization under
this program is 3,763,038 shares. Since the inception of the program, a total of
1,961,800 shares have been purchased, none of which remained in treasury at
December 31, 2009 or 2008. During 2009, no additional shares were
purchased. 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 on its
assessment of corporate cash flow, market conditions and other
factors.
Inventories
at December 31, 2009 and 2008 consisted of the following:
|
2009
|
2008
|
|||||||
|
Raw
materials
|
$ | 5,799 | $ | 5,931 | ||||
|
Work
in progress
|
793 | 540 | ||||||
|
Finished
goods
|
7,373 | 10,147 | ||||||
|
Total
inventories
|
$ | 13,965 | $ | 16,618 | ||||
On a
regular basis, the Company evaluates its inventory balances for excess
quantities and obsolescence by analyzing demand, inventory on hand, sales levels
and other information. Based on these evaluations, inventory balances are
reduced, if necessary. The reserve for inventory was $799 and $94 at December
31, 2009 and 2008, respectively.
45
Property,
plant and equipment at December 31, 2009 and 2008 are summarized as
follows:
|
2009
|
2008
|
|||||||
|
Land
|
$ | 2,112 | $ | 2,088 | ||||
|
Building
|
15,593 | 15,426 | ||||||
|
Equipment
|
54,068 | 50,719 | ||||||
|
Construction
in progress
|
2,676 | 2,654 | ||||||
| 74,449 | 70,887 | |||||||
|
Less:
Accumulated depreciation
|
32,870 | 28,374 | ||||||
|
Property,
plant and equipment, net
|
$ | 41,579 | $ | 42,513 | ||||
Depreciation
expense was $4,480, $4,144 and $3,466 for the years ended December 31, 2009,
2008 and 2007, respectively.
Akzo Nobel
Acquisition
Effective
April 30, 2007, pursuant to an asset purchase agreement dated March 30, 2007,
the Company, through its European subsidiary, Balchem B.V., completed an
acquisition of the methylamines and choline chloride business and manufacturing
facilities of Akzo Nobel Chemicals S.p.A., located in Marano Ticino, Italy (the
“Akzo Nobel Acquisition”) for a purchase price, including acquisition costs, of
approximately $8,000. The intent of the Akzo Nobel Acquisition was to provide a
direct platform for the Company to meet the growing market needs of
methylamines, choline chloride and derivative products for customers via
improved global sourcing, regulatory support, marketing and distribution
capabilities.
The Akzo
Nobel 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 at the date of acquisition. The
allocation of the total purchase price, including acquisition costs, was based
on the estimated fair values as of April 30, 2007. The purchase price including
certain working capital acquired has been allocated as follows:
|
Fair
Value Recorded
in
Purchase Accounting
|
||||
|
Property
plant & equipment
|
$ | 7,994 | ||
|
Short-term
receivable
|
2,462 | |||
|
Inventories
|
4,323 | |||
|
Goodwill
|
1,383 | |||
|
Other
|
83 | |||
|
Accounts
payable and accrued expenses
|
(8,213 | ) | ||
|
Total
|
$ | 8,032 | ||
The
consolidated financial statements include the results of operations of the Akzo
Nobel Acquisition from the date of purchase. Pro forma results for the years
ended December 31, 2007 and 2006 are not materially different from the results
reported herein.
Chinook
Acquisition
On March
16, 2007, the Company, through its wholly-owned subsidiary BCP Ingredients, Inc.
("BCP"), entered into an asset purchase agreement with Chinook Global Limited
("Chinook"), a privately held Ontario corporation, pursuant to which BCP
acquired certain of Chinook's choline chloride business assets (the “Chinook
Acquisition”) for a purchase price, including acquisition costs, of
approximately $33,000. The acquisition closed effective the same date. The
intent of the Chinook Acquisition was to gain scale in order for the Company to
more effectively and economically produce and distribute choline chloride
worldwide.
46
The
Chinook 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 at the date of
acquisition. The allocation of the total purchase price, including acquisition
costs, was based on the estimated fair values as of March 16, 2007. The purchase
price has been allocated as follows:
|
Fair
Value Recorded
in
Purchase Accounting
|
||||
|
Customer
list
|
$ | 29,262 | ||
|
Inventories
|
1,840 | |||
|
Short-term
receivable
|
1,850 | |||
|
Other
|
73 | |||
|
Total
|
$ | 33,025 | ||
The
short-term receivable was included in other current assets.
Pro
Forma Summary of Operations
The
following unaudited pro forma information has been prepared as if the Chinook
Acquisition had occurred on January 1, 2007 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 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 Chinook Acquisition had occurred
at the beginning of the periods presented and is not intended to be a projection
of future results.
|
Pro
Forma
Year
Ended
|
||||
|
December
31,
|
||||
|
2007
|
||||
|
Net
sales
|
$ | 185,188 | ||
|
Net
earnings
|
16,595 | |||
|
Basic
EPS
|
.62 | |||
|
Diluted
EPS
|
$ | .59 | ||
As of
December 31, 2009 and 2008, the Company had identifiable intangible assets as
follows:
|
Amortization
Period
(In
years)
|
2009
Gross
Carrying
Amount
|
2009
Accumulated
Amortization
|
2008
Gross
Carrying
Amount
|
2008
Accumulated
Amortization
|
||||||||||||||||
|
Customer
lists
|
10 | $ | 34,150 | $ | 10,011 | $ | 34,150 | $ | 6,595 | |||||||||||
|
Regulatory
re-registration costs
|
10 | 93 | 11 | 85 | 3 | |||||||||||||||
|
Patents
& trade secrets
|
15-17 | 1,683 | 504 | 1,673 | 406 | |||||||||||||||
|
Trademarks
& trade names
|
17 | 911 | 251 | 904 | 198 | |||||||||||||||
|
Other
|
5-10 | 755 | 311 | 619 | 236 | |||||||||||||||
|
|
$ | 37,592 | $ | 11,088 | $ | 37,431 | $ | 7,438 | ||||||||||||
Amortization
of identifiable intangible assets was approximately $3,650, $3,642 and $2,910
for 2009, 2008 and 2007, respectively. Assuming no change in the gross carrying
value of identifiable intangible assets, the estimated amortization expense is
approximately $3,600 per annum for 2010 through 2014. At December 31, 2009 and
2008, there were no identifiable intangible assets with indefinite useful lives
as defined by ASC 350, “Intangibles-Goodwill and Other” (incorporating former
SFAS No. 141, “Business Combinations”; and SFAS No. 142, “Goodwill and Other
Intangible Assets”). Identifiable intangible assets are reflected in
the Company’s consolidated balance sheets under Intangible assets,
net. There were no changes to the useful lives of intangible assets
subject to amortization in 2009 and 2008.
47
At
December 31, 2009, the gross carrying amount included a customer list acquired
as part of the Chinook Acquisition in 2007, a customer list, trade name and
trade secrets acquired as part of the CMC Acquisition in 2006, as well as a
customer list and patent acquired as part of the Loders Croklaan Acquisition in
2005.
The
Federal Insecticide, Fungicide and Rodenticide Act, as amended (“FIFRA”), a
health and safety statute, requires that certain products within our specialty
products segment must be registered with the U.S. Environmental Protection
Agency (“EPA”) because they are considered pesticides. Costs of such
registration are included as regulatory re-registration costs in the table
above.
On April
30, 2007, the Company, and its principal bank entered into a Loan Agreement (the
“European Loan Agreement”) providing for an unsecured term loan of €7,500,
translated to approximately $10,750 as of December 31, 2009 (the “European Term
Loan”), the proceeds of which were used to fund the Akzo Nobel Acquisition (see
Note 5) and initial working capital requirements. The European Term Loan is
payable in equal monthly installments of principal, each equal to 1/84th of the
principal of the European Term Loan, together with accrued interest, with
remaining principal and interest payable at maturity. The European Term Loan has
a maturity date of May 1, 2010 and is subject to a monthly interest rate equal
to EURIBOR plus 1%. At December 31, 2009, this interest rate was 1.47%. At
December 31, 2009, the European Term Loan had an outstanding balance of €4,732
translated to $6,783. The European Loan Agreement also provides for a short-term
revolving credit facility of €3,000, translated to $4,300 as of December 31,
2009 (the "European Revolving Facility"). The European Revolving Facility has
been renewed for a period of one year as of May 1, 2009. The current European
Revolving Facility is subject to an amended monthly interest rate equal to
EURIBOR plus 1.45%, and accrued interest is payable monthly. No amounts are
outstanding on the European Revolving Facility as of the date hereof. Management
believes that such facility will be renewed in the normal course of
business.
On March
16, 2007, the Company and its principal bank entered into a Loan Agreement (the
“Loan Agreement”) providing for an unsecured term loan of $29,000 (the “Term
Loan”), the proceeds of which were used to fund the Chinook Acquisition (see
Note 5). As of December 31, 2009, the Company has paid the Term Loan
in full. The Loan Agreement also provides for a short-term revolving credit
facility of $6,000 (the "Revolving Facility"). The Revolving Facility is subject
to a monthly interest rate equal to LIBOR plus 1%, and accrued interest is
payable monthly. No amounts are outstanding on the Revolving Facility as of the
date hereof. The Revolving Facility has a maturity date of May 31,
2010. Management believes that such facility will be renewed in the
normal course of business.
At
December 31, 2009, we had a total of $6,783 of debt outstanding, as compared to
a total of $11,575 debt outstanding at December 31, 2008. Indebtedness under the
Company’s loan agreements are secured by assets of the Company.
The
Company's debt obligations, excluding revolver borrowings, as of
December 31, 2009, are summarized in the table below:
|
Payments
due by period
|
||||||||
|
Total
|
Year
1
|
|||||||
|
Long-term
debt obligations
|
$ | 6,783 | $ | 6,783 | ||||
48
Income
tax expense consists of the following:
|
2009
|
2008
|
2007
|
||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | 11,922 | $ | 8,849 | $ | 7,688 | ||||||
|
Foreign
|
1,700 | 908 | 295 | |||||||||
|
State
|
1,425 | 107 | 1,299 | |||||||||
|
Deferred:
|
||||||||||||
|
Federal
|
(1,181 | ) | (473 | ) | (320 | ) | ||||||
|
Foreign
|
53 | 31 | (100 | ) | ||||||||
|
State
|
( 102 | ) | ( 41 | ) | (151 | ) | ||||||
|
Total
income tax provision
|
$ | 13,817 | $ | 9,381 | $ | 8,711 | ||||||
The
provision for income taxes differs from the amount computed by applying the
Federal statutory rate of 35% to earnings before income tax expense due to the
following:
|
2009
|
2008
|
2007
|
||||||||||
|
Income
tax at Federal
statutory
rate
|
$ | 14,211 | $ | 9,951 | $ | 8,690 | ||||||
|
State
income taxes, net of
Federal
income tax benefit
|
766 | - | 603 | |||||||||
|
Other
|
(1,160 | ) | (570 | ) | (582 | ) | ||||||
|
Total
income tax provision
|
$ | 13,817 | $ | 9,381 | $ | 8,711 | ||||||
The tax
effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities at December 31, 2009 and 2008
were as follows:
|
2009
|
2008
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
Inventories
|
$ | 721 | $ | 474 | ||||
|
Restricted
stock and stock options
|
2,525 | 1,429 | ||||||
|
Other
|
683 | 505 | ||||||
|
Total
deferred tax assets
|
3,929 | 2,408 | ||||||
|
Deferred
tax liabilities:
|
||||||||
|
Customer
list and goodwill amortization
|
$ | 1,783 | $ | 1,851 | ||||
|
Depreciation
|
4,866 | 4,430 | ||||||
|
Prepaid
expense
|
618 | 765 | ||||||
|
Trade
names and trademarks
|
199 | 199 | ||||||
|
Technology
and trade secrets
|
224 | 224 | ||||||
|
Other
|
378 | 293 | ||||||
|
Total
deferred tax liabilities
|
8,068 | 7,762 | ||||||
|
Net
deferred tax liability
|
$ | 4,139 | $ | 5,354 | ||||
There is
no valuation allowance for deferred tax assets at December 31, 2009 and 2008. In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods in which the deferred tax assets are deductible, management believes it
is more likely than not the Company will realize the benefits of these
deductible differences. The amount of deferred tax asset realizable,
however, could change if management’s estimate of future taxable income should
change.
The
Company adopted the provisions of ASC 740-10 (incorporating former FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an
interpretation of FAS Statement No. 109”) on January 1,
2007. FIN 48 clarifies whether or not to recognize assets or
liabilities for tax positions taken that may be
49
challenged
by a tax authority. Upon adoption of ASC 740-10, the Company
recognized approximately a $291 decrease in its retained earnings balance.
A reconciliation of the beginning and ending amount of unrecognized tax
benefits is as follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Balance
at beginning of period
|
$ | 813 | $ | 733 | $ | 411 | ||||||
|
Increases
for tax positions of prior years
|
73 | - | 320 | |||||||||
|
Decreases
for tax positions of prior years
|
(131 | ) | (151 | ) | (225 | ) | ||||||
|
Increases
for tax positions related to current year
|
217 | 231 | 227 | |||||||||
|
Balance
at end of period
|
$ | 972 | $ | 813 | $ | 733 | ||||||
All of
the Company’s unrecognized tax benefits, if recognized in future periods, would
impact the Company’s effective tax rate in such future periods.
The
Company recognizes both interest and penalties as part of the income tax
provision. During the years ended December 31, 2009 and 2008, the Company
recognized approximately $110 and $22 in interest and penalties, respectively.
As of December 31, 2009 and 2008, accrued interest and penalties were $262
and $152, respectively.
The
Company files income tax returns in the U.S. and in various states and foreign
countries. In the major jurisdictions where the Company operates, it is
generally no longer subject to income tax examinations by tax authorities for
years before 2006. The Company does not anticipate any material change in the
total amount of unrecognized tax benefits to occur within the next twelve
months.
The
following presents a reconciliation of the numerator and denominator used in
calculating basic and diluted net earnings per common share:
|
2009
|
Earnings
(Numerator)
|
Number
of Shares
(Denominator)
|
Per
Share
Amount
|
|||||||||
|
Basic
EPS – Net earnings and weighted average common shares
outstanding
|
$ | 26,785 | 27,420,091 | $ | .98 | |||||||
|
Effect
of dilutive securities – stock options and restricted
stock
|
1,454,303 | |||||||||||
|
Diluted
EPS – Net earnings and weighted average common shares outstanding and
effect of stock options and restricted stock
|
$ | 26,785 | 28,874,394 | $ | .93 | |||||||
|
2008
|
Earnings
(Numerator)
|
Number
of Shares
(Denominator)
|
Per
Share
Amount
|
|||||||||
|
Basic
EPS – Net earnings and weighted average common shares
outstanding
|
$ | 19,050 | 26,950,249 | $ | .71 | |||||||
|
Effect
of dilutive securities – stock options and restricted
stock
|
1,570,986 | |||||||||||
|
Diluted
EPS – Net earnings and weighted average common shares outstanding and
effect of stock options and restricted stock
|
$ | 19,050 | 28,521,235 | $ | .67 | |||||||
50
|
2007
|
Earnings
(Numerator)
|
Number
of Shares
(Denominator)
|
Per
Share
Amount
|
|||||||||
|
Basic
EPS – Net earnings and weighted average common shares
outstanding
|
$ | 16,118 | 26,657,281 | $ | .61 | |||||||
|
Effect
of dilutive securities – stock options and restricted
stock
|
1,258,517 | |||||||||||
|
Diluted
EPS – Net earnings and weighted average common shares outstanding and
effect of stock options and restricted stock
|
$ | 16,118 | 27,915,798 | $ | .58 | |||||||
The
Company had 338,400, 415,350 and 13,650 stock options outstanding at December
31, 2009, 2008 and 2007, respectively 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.
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 $745 and
$430 in 2009, $624 and $406 in 2008 and $503 and $379 in 2007,
respectively.
The
Company also currently provides postretirement benefits in the form of an
unfunded retirement medical plan under a collective bargaining agreement
covering eligible retired employees of the Verona facility. The Company uses a
December 31 measurement date for its postretirement medical plan. In
accordance with ASC 715, “Compensation—Retirement Benefits” (incorporating
former SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and
Other Postretirement Plans”), the Company is required to recognize the over
funded or under funded status of a defined benefit post retirement plan (other
than a multiemployer plan) as an asset or liability in its statement of
financial position, and to recognize changes in that funded status in the year
in which the changes occur through comprehensive income.
The
actuarial recorded liabilities for such unfunded postretirement benefit is as
follows:
Change in
benefit obligation:
|
2009
|
2008
|
|||||||
|
Benefit
obligation at beginning of year
|
$ | 801 | $ | 805 | ||||
|
Service
cost with interest to end of year
|
33 | 28 | ||||||
|
Interest
cost
|
43 | 40 | ||||||
|
Participant
contributions
|
14 | 13 | ||||||
|
Benefits
paid
|
(45 | ) | (30 | ) | ||||
|
Actuarial
(gain) or loss
|
42 | (55 | ) | |||||
|
Benefit
obligation at end of year
|
$ | 888 | $ | 801 | ||||
Change in
plan assets:
|
2009
|
2008
|
|||||||
|
Fair
value of plan assets at beginning of year
|
$ | - | $ | - | ||||
|
Employer
contributions
|
31 | 17 | ||||||
|
Participant
contributions
|
14 | 13 | ||||||
|
Benefits
paid
|
(45 | ) | (30 | ) | ||||
|
Fair
value of plan assets at end of year
|
$ | - | $ | - | ||||
51
Amounts
recognized in consolidated balance sheet:
|
2009
|
2008
|
||||||||
|
Accumulated
postretirement benefit obligation
|
$ | (888 | ) | $ | (801 | ) | |||
|
Fair
value of plan assets
|
- | - | |||||||
|
Funded
status
|
(888 | ) | (801 | ) | |||||
|
Unrecognized
prior service cost
|
N/A | N/A | |||||||
|
Unrecognized
net (gain)/loss
|
N/A | N/A | |||||||
|
Net
amount recognized in consolidated balance sheet (after ASC
715)
(included
in other long-term obligations)
|
$ | 888 | $ | 801 | |||||
|
Accrued
postretirement benefit cost
(included
in other long-term obligations)
|
$ | N/A | $ | N/A | |||||
Components
of net periodic benefit cost:
|
2009
|
2008
|
2007
|
||||||||||
|
Service
cost with interest to end of year
|
$ | 33 | $ | 28 | $ | 29 | ||||||
|
Interest
cost
|
43 | 40 | 41 | |||||||||
|
Amortization
of prior service cost
|
(19 | ) | (18 | ) | (18 | ) | ||||||
|
Amortization
of gain
|
(3 | ) | (6 | ) | (3 | ) | ||||||
|
Total
net periodic benefit cost
|
$ | 54 | $ | 44 | $ | 49 | ||||||
Estimated
future employer contributions and benefit payments are as follows:
|
Year
|
||||
|
2010
|
$ | 34 | ||
|
2011
|
45 | |||
|
2012
|
38 | |||
|
2013
|
23 | |||
|
2014
|
26 | |||
|
Years
2015-2019
|
370 | |||
Assumed
health care cost trend rates have been used in the valuation of postretirement
health insurance benefits. The trend rate is 10 percent in 2010 declining to 4.5
percent in 2027 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, 2009 by $116 and the net periodic
postretirement benefit cost for 2009 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, 2009 by $101 and the net
periodic postretirement benefit cost for 2009 by $9. The weighted average
discount rate used in determining the accumulated postretirement benefit
obligation was 5.45% in 2009 and 5.50% in 2008.
In
February 2006, the Company entered into a lease agreement under which the
Company leases a portion of a Channahon, Illinois facility where it conducts
manufacturing and utilizes certain warehouse space. The term of the lease runs
through September 30, 2010, subject to earlier termination.
In
February 2002, the Company entered into a ten (10) year lease which became
cancelable in 2009 for approximately 20,000 square feet of office space. The
office space is now serving as the Company’s general offices and as a laboratory
facility. The Company leases most of its vehicles and office equipment under
non-cancelable operating leases, which primarily expire at various times through
2013. Rent expense charged to operations under such lease agreements for 2009,
2008 and 2007 aggregated approximately $1,183, $1,284 and $1,047, respectively.
Aggregate future minimum rental payments required under non-cancelable operating
leases at December 31, 2009 are as follows:
52
|
Year
|
||||
|
2010
|
$ | 988 | ||
|
2011
|
684 | |||
|
2012
|
361 | |||
|
2013
|
182 | |||
|
2014
|
119 | |||
|
Thereafter
|
306 | |||
|
Total
minimum lease payments
|
$ | 2,640 | ||
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, which was completed
in 1996. 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 been less than $5 per year
for the period 2004 – 2009.
The
Company’s Verona, Missouri 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 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,
Missouri 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 that is implementing the above-described
Superfund remedy.
From time
to time, the Company is a party to various litigation, claims and
assessments. Management believes that the ultimate outcome of such
matters will not have a material effect on the Company’s consolidated financial
position, results of operations, or liquidity.
The
Company’s reportable segments are strategic businesses that offer products and
services to different markets. Effective with the quarter ending March 31, 2008,
the Company has realigned its business segment reporting structure to more
appropriately reflect the internal management of the businesses, largely due to
the impact of acquisitions in 2007. The Company continues to report three
segments: Specialty Products; Food, Pharma & Nutrition; and Animal Nutrition
& Health. Changes to the reporting segments are as follows: chelated
minerals and specialty nutritional products for the animal health industry,
formerly reported as a part of the encapsulated/nutritional products segment,
are now combined with the choline business (formerly BCP Ingredients) into a
consolidated Animal Nutrition & Health segment. The encapsulated/nutritional
products segment has been renamed Food, Pharma & Nutrition, focusing on
human health. There are no changes to the Specialty Products segment. Business
segment net sales and earnings from operations have been reclassified for all
periods presented to reflect the segment changes.
The
Specialty Products segment consists of three specialty chemicals: ethylene
oxide, propylene oxide and methyl chloride. Human choline nutrient products,
pharmaceutical products and encapsulated products are
53
reported
in the Food, Pharma & Nutrition segment. This segment provides
microencapsulation, granulation and agglomeration solutions to a variety of
applications in food, pharmaceutical and nutritional ingredients to enhance
performance of nutritional fortification, processing, mixing, packaging
applications and shelf-life. The Animal Nutrition & Health 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 this segment. Chelated minerals and specialty
nutritional products for the animal health industry are also reported in this
segment. The Company sells products for all segments through its own sales
force, independent distributors, and sales agents. The accounting policies of
the segments are the same as those described in the summary of significant
accounting policies.
Business
Segment Net Sales:
|
2009
|
2008
|
2007
|
||||||||||
|
Specialty
Products
|
$ | 36,368 | $ | 35,835 | $ | 33,057 | ||||||
|
Food,
Pharma & Nutrition
|
35,407 | 35,702 | 32,052 | |||||||||
|
Animal
Nutrition & Health
|
147,663 | 160,513 | 111,092 | |||||||||
|
Total
|
$ | 219,438 | $ | 232,050 | $ | 176,201 | ||||||
Business
Segment Earnings Before Income Taxes:
|
2009
|
2008
|
2007
|
||||||||||
|
Specialty
Products
|
$ | 14,250 | $ | 12,545 | $ | 11,824 | ||||||
|
Food,
Pharma & Nutrition
|
5,029 | 5,469 | 4,144 | |||||||||
|
Animal
Nutrition & Health
|
21,380 | 11,334 | 9,938 | |||||||||
|
Interest
and other income (expense)
|
(57 | ) | (917 | ) | (1,077 | ) | ||||||
|
Total
|
$ | 40,602 | $ | 28,431 | $ | 24,829 | ||||||
Depreciation/Amortization:
|
2009
|
2008
|
2007
|
||||||||||
|
Specialty
Products
|
$ | 826 | $ | 913 | $ | 876 | ||||||
|
Food,
Pharma & Nutrition
|
1,489 | 1,316 | 1,206 | |||||||||
|
Animal
Nutrition & Health
|
5,815 | 5,557 | 4,294 | |||||||||
|
Total
|
$ | 8,130 | $ | 7,786 | $ | 6,376 | ||||||
Business
Segment Assets:
|
2009
|
2008
|
2007
|
||||||||||
|
Specialty
Products
|
$ | 19,235 | $ | 21,394 | $ | 18,583 | ||||||
|
Food,
Pharma & Nutrition
|
22,156 | 22,081 | 22,426 | |||||||||
|
Animal
Nutrition & Health
|
98,784 | 105,296 | 108,125 | |||||||||
|
Other
Unallocated
|
47,638 | 5,703 | 5,290 | |||||||||
|
Total
|
$ | 187,813 | $ | 154,474 | $ | 154,424 | ||||||
Other
unallocated assets consist of certain cash, receivables, prepaid expenses,
equipment and leasehold improvements, net of accumulated depreciation, and
deferred income taxes, which the Company does not allocate to its individual
business segments.
Capital
Expenditures:
|
2009
|
2008
|
2007
|
||||||||||
|
Specialty
Products
|
$ | 286 | $ | 612 | $ | 307 | ||||||
|
Food,
Pharma & Nutrition
|
639 | 955 | 776 | |||||||||
|
Animal
Nutrition & Health
|
2,504 | 3,513 | 3,786 | |||||||||
|
Total
|
$ | 3,429 | $ | 5,080 | $ | 4,869 | ||||||
Geographic
Revenue Information:
|
2009
|
2008
|
2007
|
||||||||||
|
United
States
|
$ | 145,226 | $ | 146,753 | $ | 132,632 | ||||||
|
Foreign
Countries
|
74,212 | 85,297 | 43,569 | |||||||||
|
Total
|
$ | 219,438 | $ | 232,050 | $ | 176,201 | ||||||
54
Cash paid
during the year for:
|
2009
|
2008
|
2007
|
||||||||||
|
Income
taxes
|
$ | 12,001 | $ | 9,379 | $ | 6,718 | ||||||
|
Interest
|
$ | 214 | $ | 958 | $ | 1,466 | ||||||
Cash paid
during the year for acquisition of assets:
|
2009
|
2008
|
2007
|
||||||||||
|
Assets
acquired
|
$ | - | $ | 296 | $ | 48,957 | ||||||
|
Less:
liabilities assumed
|
- | - | (8,213 | ) | ||||||||
|
Cash
paid for acquisitions
|
$ | - | $ | 296 | $ | 40,744 | ||||||
Non-cash
financing activities:
|
2009
|
2008
|
2007
|
||||||||||
|
Dividends
payable
|
$ | 3,091 | $ | 2,008 | $ | 1,975 | ||||||
(In
thousands, except per share data)
|
2009
|
2008
|
|||||||||||||||||||||||||||||||
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|||||||||||||||||||||||||
|
Net
sales
|
$ | 52,986 | $ | 52,976 | $ | 54,292 | $ | 59,184 | $ | 56,861 | $ | 62,901 | $ | 58,235 | $ | 54,053 | ||||||||||||||||
|
Gross
profit
|
16,298 | 17,304 | 16,399 | 16,957 | 13,483 | 12,951 | 12,712 | 13,432 | ||||||||||||||||||||||||
|
Earnings
before
income
taxes
|
9,166 | 10,303 | 10.323 | 10,810 | 7,191 | 7,001 | 6,936 | 7,303 | ||||||||||||||||||||||||
|
Net
earnings
|
6,098 | 6,869 | 6,852 | 6,966 | 4,641 | 4,724 | 4,793 | 4,892 | ||||||||||||||||||||||||
|
Basic
net earnings
per
common share
|
$ | .23 | $ | .25 | $ | .25 | $ | .25 | $ | .17 | $ | .18 | $ | .18 | $ | .18 | ||||||||||||||||
|
Diluted
net earnings
per
common share
|
$ | .21 | $ | .24 | $ | .24 | $ | .24 | $ | .16 | $ | .17 | $ | .17 | $ | .17 | ||||||||||||||||
55
Schedule II
BALCHEM
CORPORATION
Valuation
and Qualifying Accounts
Years
Ended December 31, 2009, 2008 and 2007
(In
thousands)
|
Additions
|
|||||||||||||||||||||
|
Description
|
Balance
at
Beginning
of
Year
|
Charges
to
Costs
and
Expenses
|
Charges
to
Other
Accounts
|
Deductions
|
Balance
at
End
of Year
|
||||||||||||||||
|
Year
ended December 31, 2009
|
|||||||||||||||||||||
|
Allowance
for doubtful accounts
|
$ | 50 | $ | 313 | $ | - | $ | (6 | ) |
(a)
|
$ | 357 | |||||||||
|
Inventory
reserve
|
94 | 924 | - | (219 | ) |
(a)
|
799 | ||||||||||||||
|
Year
ended December 31, 2008
|
|||||||||||||||||||||
|
Allowance
for doubtful accounts
|
$ | 50 | $ | - | $ | - | $ | - | $ | 50 | |||||||||||
|
Inventory
reserve
|
174 | 58 | - | (138 | ) |
(a)
|
94 | ||||||||||||||
|
Year
ended December 31, 2007
|
|||||||||||||||||||||
|
Allowance
for doubtful accounts
|
$ | 50 | $ | - | $ | - | $ | - | $ | 50 | |||||||||||
|
Inventory
reserve
|
147 | 20 | 7 | - | 174 | ||||||||||||||||
|
(a) represents
write-offs.
|
|||||||||||||||||||||
56
|
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
None.
|
Item
9A.
|
Controls
and Procedures
|
Disclosure
Controls and Procedures
The Company's management, with the
participation of the Company's Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the Company's disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended) as of the end of the period
covered by this Annual Report on Form 10-K. Based on such evaluation, the
Company's Chief Executive Officer and Chief Financial Officer have concluded
that, as of the end of such period, the Company's disclosure controls and
procedures are effective.
Management's
Report on Internal Control Over Financial Reporting
Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting. The Company's internal control over financial
reporting is a process designed under the supervision of the Company's principal
executive and principal financial officers to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of the
Company's financial statements for external reporting purposes in accordance
with U.S. generally accepted accounting principles.
Our
internal control over financial reporting includes policies and procedures that
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect transactions and dispositions of assets; provide reasonable
assurances that transactions are recorded as necessary to permit preparation of
financial statements in accordance with U.S. generally accepted accounting
principles, and that receipts and expenditures are being made only in accordance
with authorizations of management and the directors of the Company; and provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company's assets that could have a
material effect on our financial statements.
A control
system, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in a cost-effective control
system, no evaluation of internal control over financial reporting can provide
absolute assurance that misstatements due to error or fraud will not occur or
that all control issues and instances of fraud, if any, within our Company have
been detected. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation. Management does not expect that the Company’s
disclosure controls and procedures or its internal control over financial
reporting will prevent or detect all errors and all fraud.
These
inherent limitations include the realities that judgments in decision-making can
be faulty and that breakdowns can occur because of simple error or mistake.
Controls can also be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the controls. The
design of any system of controls is based in part on certain assumptions about
the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions. Projections of any evaluation of controls effectiveness to future
periods are subject to risks. Over time, controls may become inadequate because
of changes in conditions or deterioration in the degree of compliance with
policies or procedures.
As of
December 31, 2009, management conducted an assessment of the effectiveness of
the Company's internal control over financial reporting based on the framework
established in Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). Based on this
assessment, management has determined that the Company's internal control over
financial reporting was effective as of December 31, 2009.
57
Attestation
Report of Registered Public Accounting Firm
The
independent registered public accounting firm of McGladrey & Pullen, LLP,
has issued an attestation report on the Company’s internal control over
financial reporting, which is included herein.
Changes
in Internal Control Over Financial Reporting
There has
been no change in our internal control over financial reporting in our most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
|
Item
9B.
|
Other
Information
|
None.
|
Item
10.
|
Directors,
Executive Officers of the Registrant, and Corporate
Governance.
|
|
(a)
|
Directors
of the Company.
|
The
required information is to be set forth in the Company's Proxy Statement for the
2009 Annual Meeting of Stockholders (the “2010 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 2010 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 2010 Proxy Statement under the
caption "Section 16(a) Beneficial Ownership Reporting Compliance," which
information is hereby incorporated herein by reference.
|
(d)
|
Code
of Ethics.
|
The
Company has adopted a Code of Ethics for Senior Financial Officers that applies
to its Chief Executive Officer (principal executive officer), Chief Financial
Officer (principal financial officer and principal accounting officer) and its
Treasurer. The Company’s Code of Ethics for Senior Financial Officers
is filed as Exhibit 14 to this Annual Report on Form 10-K.
|
(e)
|
Corporate
Governance.
|
The
required information is to be set forth in the 2010 Proxy Statement under the
caption “Corporate Governance,” which information is hereby incorporated herein
by reference.
|
Item
11.
|
Executive
Compensation.
|
The
information required by this Item is to be set forth in the 2010 Proxy Statement
under the caption "Directors and Executive Officers," which information is
hereby incorporated herein by reference.
58
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
|
The
information required by this Item is to be set forth in the 2010 Proxy Statement
under the caption "Security Ownership of Certain Beneficial Owners and of
Management” and the caption “Equity Compensation Plan Information,” all of which
information is hereby incorporated herein by reference.
|
Item
13.
|
Certain
Relationships and Related Transactions and Director
Independence.
|
The
information required by this Item is set forth in the 2010 Proxy Statement under
the caption "Directors and Executive Officers," which information is hereby
incorporated herein by reference.
|
Item
14.
|
Principal
Accountant Fees and Services.
|
The
information required by this Item is set forth in the 2010 Proxy Statement under
the caption “Independent Auditor Fees,” which information is hereby incorporated
herein by reference.
|
Item
15.
|
Exhibits
and Financial Statement Schedules.
|
The
following documents are filed as part of this Form 10-K:
|
Form
10-K
|
||
|
1.
|
Financial
Statements
|
Page
Number
|
|
Report
of Independent Registered Public Accounting Firm
|
29
|
|
|
Consolidated
Balance Sheets as of December 31, 2009 and 2008
|
31
|
|
|
Consolidated
Statements of Earnings for the
|
||
|
years
ended December 31, 2009, 2008 and 2007
|
32
|
|
|
Consolidated
Statements of Stockholders' Equity
|
||
|
for
the years ended December 31, 2009, 2008 and 2007
|
33
|
|
|
Consolidated
Statements of Cash Flows
|
||
|
for
the years ended December 31, 2009, 2008 and 2007
|
34
|
|
|
Notes
to Consolidated Financial Statements
|
35
|
|
|
2.
|
Financial
Statement Schedules
|
|
|
Schedule
II – Valuation and Qualifying
|
||
|
Accounts
for the years ended December 31, 2009, 2008 and 2007
|
56
|
|
|
3.
|
Exhibits
|
|
|
2.1
|
Sale
and Purchase Agreement dated March 30, 2007, by and between Balchem B.V.
and Akzo Nobel Chemicals S.p.A. (incorporated by reference to Exhibit
2.1 of the Company’s Current Report on Form 8-K dated March 30,
2007).
|
|
|
2.2
|
Asset
Purchase Agreement dated March 16, 2007, by and between BCP Ingredients,
Inc. and Chinook Global Limited (incorporated by reference to Exhibit
2.1 of the Company’s Current Report on Form 8-K dated March 16,
2007).
|
|
|
2.3
|
Stock
Purchase Agreement dated November 2, 2005, between Balchem Minerals
Corporation and Chelated Minerals Corporation (incorporated by reference
to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated November
7, 2005).
|
|
|
2.4
|
First
Amendment to Stock Purchase Agreement dated January 5, 2006, between
Balchem Minerals Corporation and Chelated Minerals Corporation
(incorporated by reference to Exhibit 10.1 of the Company’s Current Report
on Form 8-K dated January 10,
2006).
|
59
|
|
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 dated March 16,
2006 for the year ended December 31,
2005).
|
|
|
3.2
|
Balchem
Corporation Articles of Amendment (incorporated by reference to Exhibit A
to the Company’s definitive proxy statement on Schedule 14A filed with the
Commission on April 25, 2008)
|
|
|
3.3
|
Composite
By-laws of the Company (incorporated by reference to Exhibit 3.2 to the
Company’s Current Report on Form 8-K dated January 2,
2008).
|
|
|
10.1
|
Tolling
Agreement, dated March 16, 2007 between BCP Ingredients, Inc. and Chinook
Global Limited (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K dated March 16,
2007).
|
|
|
10.2
|
Non-Competition
Agreement, dated March 16, 2007 between BCP Ingredients, Inc. and Chinook
Global Limited; Chinook Services, LLC; Chinook, LLC; Dean R. Lacy; Ronald
Breen, and John N. Kennedy (incorporated by reference to Exhibit 10.2 to
the Company’s Current Report on Form 8-K dated March 16,
2007).
|
|
|
10.3
|
Loan
Agreement dated March 16, 2007 by and between Bank of America, N.A. and
Balchem Corporation (incorporated by reference to Exhibit 10.3 to the
Company’s Current Report on Form 8-K dated March 16,
2007).
|
|
|
10.4
|
Promissory
Note (Term Loan) dated March 16, 2007 from Balchem Corporation to Bank of
America, N.A (incorporated by reference to Exhibit 10.4 to the Company’s
Current Report on Form 8-K dated March 16,
2007).
|
|
|
10.5
|
Promissory
Note (Revolving Line of Credit) dated March 16, 2007 from Balchem
Corporation to Bank of America, N.A. (incorporated by reference to Exhibit
10.5 to the Company’s Current Report on Form 8-K dated March 16,
2007).
|
|
|
10.6
|
Guaranty
dated March 16, 2007 from BCP Ingredients, Inc. to Bank of America, N.A.
(incorporated by reference to Exhibit 10.6 to the Company’s Current Report
on Form 8-K dated March 16, 2007).
|
|
|
10.7
|
Guaranty
dated March 16, 2007 from Balchem Minerals Corporation to Bank of America,
N.A. (incorporated by reference to Exhibit 10.7 to the Company’s Current
Report on Form 8-K dated March 16,
2007).
|
|
|
10.8
|
Loan
Agreement dated February 6, 2006 by and between Bank of America, N.A. and
Balchem Corporation, Promissory Note dated February 6, 2006 from Balchem
Corporation to Bank of America, N.A., and Amended and Restated Promissory
Note (Revolving Line of Credit) dated February 6, 2006 from Balchem
Corporation to Bank of America, N.A. (incorporated by reference to
Exhibits 10.2, 10.3 and 10.4 to the Company’s Current Report on Form 8-K
dated February 9, 2006).
|
|
|
10.9
|
Amended
and Restated Guaranty dated February 6, 2006 from BCP Ingredients, Inc. to
Bank of America, N.A. (incorporated by reference to Exhibit 10.5 to the
Company’s Current Report on Form 8-K dated February 9,
2006).
|
|
|
10.10
|
Guaranty
dated February 6, 2006 from Balchem Minerals Corporation to Bank of
America, N.A. (incorporated by reference to Exhibit 10.6 to the Company’s
Current Report on Form 8-K dated February 9,
2006).
|
|
|
10.11
|
Incentive
Stock Option Plan of the Company, as amended, (incorporated by reference
to the Company’s Registration Statement on Form S-8, File No. 333-35910,
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”)).*
|
60
|
|
10.12
|
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.
333-35912, dated October 25, 1996, and to the 1998 Proxy
Statement).
|
|
|
10.13
|
Balchem
Corporation Amended and Restated 1999 Stock Plan (incorporated by
reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q
for the quarter ended June 30,
2003).*
|
|
|
10.14
|
Balchem
Corporation Second Amended and Restated 1999 Stock Plan, (incorporated by
reference to the Company’s Registration Statement on Form S-8, File No.
333-155655, dated November 25, 2008, and to Proxy Statement, dated April
25, 2008, for the Company's 2008 Annual Meeting of
Stockholders.*
|
|
|
10.15
|
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. 333-118291, dated August 17,
2004).*
|
|
|
10.16
|
Employment
Agreement, dated as of January 1, 2001, between the Company and Dino A.
Rossi (incorporated by reference to Exhibit 10.5 to the Company’s Annual
Report on Form 10-K for the year ended December 31, 2001 (the “2001
10-K”)). *
|
|
|
10.17
|
Lease
dated as of February 8, 2002 between Sunrise Park Realty, Inc. and Balchem
Corporation (incorporated by reference to Exhibit 10.7 to the 2001
10-K).
|
|
|
10.18
|
Form
of Restricted Stock Purchase Agreement for Directors (incorporated by
reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K
dated December 30, 2005).
|
|
|
14.
|
Code
of Ethics for Senior Financial Officers (incorporated by reference to
Exhibit 14 to the Company’s Annual Report on Form 10-K dated March 15,
2004 for the year ended December 31,
2003).
|
|
|
21.
|
Subsidiaries
of Registrant.
|
|
|
23.1
|
Consent
of McGladrey & Pullen, LLP, Independent Registered Public Accounting
Firm.
|
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to Rule
13a-14(a).
|
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Rule
13a-14(a).
|
|
|
32.1
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14(b) and Section 1350 of
Chapter 63 of Title 18 of the United States
Code.
|
|
|
32.2
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14(b) and Section 1350 of
Chapter 63 of Title 18 of the United States
Code.
|
*
Each
of the Exhibits noted by an asterisk is a management compensatory plan or
arrangement.
61
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 12, 2010
|
BALCHEM
CORPORATION
|
|
By:/s/ Dino A.
Rossi
|
|
|
Dino
A. Rossi, Chairman, President, and
|
|
|
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.
|
/s/ Dino A.
Rossi
|
|
|
Dino
A. Rossi, Chairman, President,
|
|
|
Chief
Executive Officer, and Director (Principal Executive
Officer)
|
|
|
Date:
March 12, 2010
|
|
|
/s/ Francis J.
Fitzpatrick
|
|
|
Francis
J. Fitzpatrick, Chief Financial
|
|
|
Officer
and Treasurer (Principal Financial and Principal Accounting
Officer)
|
|
|
Date:
March 12, 2010
|
|
|
/s/ Edward L.
McMillan
|
|
|
Edward
L. McMillan, Director
|
|
|
Date:
March 12, 2010
|
|
|
/s/ Kenneth P.
Mitchell
|
|
|
Kenneth
P. Mitchell, Director
|
|
|
Date:
March 12, 2010
|
|
|
/s/ Perry W.
Premdas
|
|
|
Perry
W. Premdas, Director
|
|
|
Date:
March 12, 2010
|
|
|
/s/ Dr. John
Televantos
|
|
|
Dr.
John Televantos, Director
|
|
|
Date:
March 12, 2010
|
|
|
/s/ Dr. Elaine
Wedral
|
|
|
Dr.
Elaine Wedral, Director
|
|
|
Date:
March 12, 2010
|
62
EXHIBIT
INDEX
|
Exhibit
|
|
|
Number
|
Description
|
|
|
|
|
2.1
|
Sale
and Purchase Agreement dated March 30, 2007, by and between Balchem B.V.
and Akzo Nobel Chemicals S.p.A. (incorporated by reference to Exhibit
2.1 of the Company’s Current Report on Form 8-K dated March 30,
2007).
|
|
|
2.2
|
Asset
Purchase Agreement dated March 16, 2007, by and between BCP Ingredients,
Inc. and Chinook Global Limited (incorporated by reference to Exhibit
2.1 of the Company’s Current Report on Form 8-K dated March 16,
2007).
|
|
|
2.3
|
Stock
Purchase Agreement dated November 2, 2005, between Balchem Minerals
Corporation and Chelated Minerals Corporation (incorporated by reference
to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated November
7, 2005).
|
|
|
2.4
|
First
Amendment to Stock Purchase Agreement dated January 5, 2006, between
Balchem Minerals Corporation and Chelated Minerals Corporation
(incorporated by reference to Exhibit 10.1 of the Company’s Current Report
on Form 8-K dated January 10,
2006).
|
|
|
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 dated March 16,
2006 for the year ended December 31,
2005).
|
|
|
3.2
|
Balchem
Corporation Articles of Amendment (incorporated by reference to Exhibit A
to the Company’s definitive proxy statement on Schedule 14A filed with the
Commission on April 25, 2008)
|
|
|
3.3
|
Composite
By-laws of the Company (incorporated by reference to Exhibit 3.2 to the
Company’s Current Report on Form 8-K dated January 2,
2008).
|
|
|
10.1
|
Tolling
Agreement, dated March 16, 2007 between BCP Ingredients, Inc. and Chinook
Global Limited (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K dated March 16,
2007).
|
|
|
10.2
|
Non-Competition
Agreement, dated March 16, 2007 between BCP Ingredients, Inc. and Chinook
Global Limited; Chinook Services, LLC; Chinook, LLC; Dean R. Lacy; Ronald
Breen, and John N. Kennedy (incorporated by reference to Exhibit 10.2 to
the Company’s Current Report on Form 8-K dated March 16,
2007).
|
|
|
10.3
|
Loan
Agreement dated March 16, 2007 by and between Bank of America, N.A. and
Balchem Corporation (incorporated by reference to Exhibit 10.3 to the
Company’s Current Report on Form 8-K dated March 16,
2007).
|
|
|
10.4
|
Promissory
Note (Term Loan) dated March 16, 2007 from Balchem Corporation to Bank of
America, N.A (incorporated by reference to Exhibit 10.4 to the Company’s
Current Report on Form 8-K dated March 16,
2007).
|
|
|
10.5
|
Promissory
Note (Revolving Line of Credit) dated March 16, 2007 from Balchem
Corporation to Bank of America, N.A. (incorporated by reference to Exhibit
10.5 to the Company’s Current Report on Form 8-K dated March 16,
2007).
|
|
|
10.6
|
Guaranty
dated March 16, 2007 from BCP Ingredients, Inc. to Bank of America, N.A.
(incorporated by reference to Exhibit 10.6 to the Company’s Current Report
on Form 8-K dated March 16, 2007).
|
|
|
10.7
|
Guaranty
dated March 16, 2007 from Balchem Minerals Corporation to Bank of America,
N.A. (incorporated by reference to Exhibit 10.7 to the Company’s Current
Report on Form 8-K dated March 16,
2007).
|
63
|
|
10.8
|
Loan
Agreement dated February 6, 2006 by and between Bank of America, N.A. and
Balchem Corporation, Promissory Note dated February 6, 2006 from Balchem
Corporation to Bank of America, N.A., and Amended and Restated Promissory
Note (Revolving Line of Credit) dated February 6, 2006 from Balchem
Corporation to Bank of America, N.A. (incorporated by reference to
Exhibits 10.2, 10.3 and 10.4 to the Company’s Current Report on Form 8-K
dated February 9, 2006).
|
|
|
10.9
|
Amended
and Restated Guaranty dated February 6, 2006 from BCP Ingredients, Inc. to
Bank of America, N.A. (incorporated by reference to Exhibit 10.5 to the
Company’s Current Report on Form 8-K dated February 9,
2006).
|
|
|
10.10
|
Guaranty
dated February 6, 2006 from Balchem Minerals Corporation to Bank of
America, N.A. (incorporated by reference to Exhibit 10.6 to the Company’s
Current Report on Form 8-K dated February 9,
2006).
|
|
|
10.11
|
Incentive
Stock Option Plan of the Company, as amended, (incorporated by reference
to the Company’s Registration Statement on Form S-8, File No. 333-35910,
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”)).*
|
|
|
10.12
|
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.
333-35912, dated October 25, 1996, and to the 1998 Proxy
Statement).
|
|
|
10.13
|
Balchem
Corporation Amended and Restated 1999 Stock Plan (incorporated by
reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q
for the quarter ended June 30,
2003).*
|
|
|
10.14
|
Balchem
Corporation Second Amended and Restated 1999 Stock Plan, (incorporated by
reference to the Company’s Registration Statement on Form S-8, File No.
No. 333-155655, dated November 25, 2008, and to Proxy Statement, dated
April 25, 2008, for the Company's 2008 Annual Meeting of
Stockholders.*
|
|
|
10.15
|
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. 333-118291, dated August 17,
2004).*
|
|
|
10.16
|
Employment
Agreement, dated as of January 1, 2001, between the Company and Dino A.
Rossi (incorporated by reference to Exhibit 10.5 to the Company’s Annual
Report on Form 10-K for the year ended December 31, 2001 (the “2001
10-K”)). *
|
|
|
10.17
|
Lease
dated as of February 8, 2002 between Sunrise Park Realty, Inc. and Balchem
Corporation (incorporated by reference to Exhibit 10.7 to the 2001
10-K).
|
|
|
10.18
|
Form
of Restricted Stock Purchase Agreement for Directors (incorporated by
reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K
dated December 30, 2005).
|
|
|
14.
|
Code
of Ethics for Senior Financial Officers (incorporated by reference to
Exhibit 14 to the Company’s Annual Report on Form 10-K dated March 15,
2004 for the year ended December 31,
2003).
|
|
|
21.
|
Subsidiaries
of Registrant.
|
|
|
23.1
|
Consent
of McGladrey & Pullen, LLP, Independent Registered Public Accounting
Firm.
|
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to Rule
13a-14(a).
|
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Rule
13a-14(a).
|
64
|
|
32.1
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14(b) and Section 1350 of
Chapter 63 of Title 18 of the United States
Code.
|
|
|
32.2
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14(b) and Section 1350 of
Chapter 63 of Title 18 of the United States
Code.
|
* Each
of the Exhibits noted by an asterisk is a management compensatory plan or
arrangement.
65
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. ReservedPart IIItem 5. Market For The Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management's Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataNote 1 - Business Description and Summary Of Significant Accounting PoliciesNote 2 - Stockholders EquityNote 3 - InventoriesNote 4 - Property, Plant and EquipmentNote 5 - AcquisitionsNote 6 - Intangible Assets with Finite LivesNote 7 - Long-term Debt & Credit AgreementsNote 8 - Income TaxesNote 9 - Net Earnings Per Common ShareNote 10 - Employee Benefit PlansNote 11 - Commitments and ContingenciesNote 12 - Segment InformationNote 13 - Supplemental Cash Flow InformationNote 14 - Quarterly Financial Information (unaudited):Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers Of The Registrant, and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions and Director IndependenceItem 14. Principal Accountant Fees and ServicesItem 15. Exhibits and Financial Statement Schedules