-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WiqDDzDv9qEppoJwUw4Vy2ftxkyp4hYDy711cUM96772qpD0pQNlz9/zTlm8z8G4 q2Wa6BXL5QFORK5vsT+Pvw== 0000914317-03-002424.txt : 20030814 0000914317-03-002424.hdr.sgml : 20030814 20030814084042 ACCESSION NUMBER: 0000914317-03-002424 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BALCHEM CORP CENTRAL INDEX KEY: 0000009326 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 132578432 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13648 FILM NUMBER: 03843405 BUSINESS ADDRESS: STREET 1: P O BOX 175 CITY: SLATE HILL STATE: NY ZIP: 10973 BUSINESS PHONE: 9143555345 MAIL ADDRESS: STREET 1: P O BOX 175 CITY: SLATE HILL STATE: NY ZIP: 10973 10-Q 1 form10q-53558_balchem.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) Quarterly Report Pursuant to Section 13 or 15 (d) of |X| The Securities Exchange Act of 1934 For The Quarterly Period Ended June 30, 2003 or Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____________ to ____________ Commission File Number 1-13648 BALCHEM CORPORATION (Exact name of registrant as specified in its charter) Maryland 13-2578432 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) P.O. Box 600 New Hampton, New York 10958 (Address of principal executive offices) (Zip Code) 845-326-5600 Registrant's telephone number, including area code: Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes |X| No |_| As of August 11, 2003 the registrant had 4,817,364 shares of its Common Stock, $.06 2/3 par value, outstanding. Part I. Financial Information Item 1. Financial Statements BALCHEM CORPORATION Condensed Consolidated Balance Sheets (Dollars in thousands, except per share data)
June 30, 2003 December 31, 2002 ------------- ----------------- Unaudited Current assets: Cash and cash equivalents $ 2,467 $ 1,731 Accounts receivable 6,829 7,159 Inventories 7,561 7,238 Prepaid expenses and other current assets 1,264 2,280 Deferred income taxes 396 403 ------------- ----------------- Total current assets 18,517 18,811 ------------- ----------------- Property, plant and equipment, net 25,980 25,852 Excess of cost over net assets acquired 6,368 6,398 Intangibles and other assets, net 1,783 2,237 ------------- ----------------- Total assets $52,648 $53,298 ============= =================
2 See accompanying notes to condensed consolidated financial statements. BALCHEM CORPORATION Condensed Consolidated Balance Sheets, continued (Dollars in thousands, except per share data)
June 30, 2003 December 31, 2002 ------------- ----------------- Unaudited Liabilities and Stockholders' Equity ------------------------------------ Current liabilities: Current portion of long-term debt $ 1,742 $ 1,742 Trade accounts payable and other accrued expenses 2,002 4,049 Accrued compensation and other benefits 407 1,754 Dividends payable -- 382 ----------- ---------- Total current liabilities 4,151 7,927 ----------- ---------- Long-term debt 8,710 9,581 Deferred income taxes 1,669 1,557 Other long-term obligations 966 964 ----------- ---------- Total liabilities 15,496 20,029 ----------- ---------- Stockholders' equity: Preferred stock, $25 par value. Authorized 2,000,000 shares; none issued and outstanding Common stock, $.0667 par value. Authorized 10,000,000 shares; 4,903,238 shares issued and 4,809,452 shares outstanding at June 30, 2003 and 4,903,238 shares issued and 4,775,684 shares outstanding at December 31, 2002 327 327 Additional paid-in capital 3,710 3,546 Retained earnings 34,181 30,807 Treasury stock, at cost: 93,786 and 127,554 shares at June 30, 2003 and December 31, 2002, respectively (1,066) (1,411) ----------- ---------- Total stockholders' equity 37,152 33,269 ----------- ---------- Total liabilities and stockholders' equity $ 52,648 $ 53,298 =========== ==========
3 See accompanying notes to condensed consolidated financial statements. BALCHEM CORPORATION Condensed Consolidated Statements of Earnings (In thousands, except per share data) (unaudited)
Three Months Ended Six Months Ended June 30, June 30, -------------------------- -------------------------- 2003 2002 2003 2002 -------- -------- -------- -------- Net sales $ 14,860 $ 15,668 $ 29,676 $ 30,057 Cost of sales 9,372 9,104 18,537 18,199 -------- -------- -------- -------- Gross profit 5,488 6,564 11,139 11,858 Operating expenses: Selling expenses 1,312 1,400 2,717 2,806 Research and development expenses 500 515 1,025 1,009 General and administrative expenses 913 985 1,877 1,953 -------- -------- -------- -------- 2,725 2,900 5,619 5,768 -------- -------- -------- -------- Earnings from operations 2,763 3,664 5,520 6,090 Other expenses (income): Interest (income) (1) (7) (2) (26) Interest expense 72 100 146 205 -------- -------- -------- -------- Earnings before income tax expense 2,692 3,571 5,376 5,911 Income tax expense 1,001 1,366 2,002 2,268 -------- -------- -------- -------- Net earnings $ 1,691 $ 2,205 $ 3,374 $ 3,643 ======== ======== ======== ======== Net earnings per common share - basic $ 0.35 $ 0.46 $ 0.70 $ 0.77 ======== ======== ======== ======== Net earnings per common share - diluted $ 0.34 $ 0.45 $ 0.68 $ 0.74 ======== ======== ======== ========
4 See accompanying notes to condensed consolidated financial statements. BALCHEM CORPORATION Condensed Consolidated Statements of Cash Flows (In thousands)
Six Months Ended June 30, 2003 2002 ------- ------- Unaudited --------- Cash flows from operating activities: Net earnings $ 3,374 $ 3,643 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 1,704 1,375 Shares issued under employee benefit plans 165 143 Deferred income taxes 119 104 Provision for doubtful accounts 40 40 Changes in assets and liabilities net of effects of acquisition: Accounts receivable 290 (1,216) Inventories (323) 338 Prepaid expenses 1,016 558 Accounts payable and accrued expenses (3,394) (168) Other long-term obligations 9 (19) ------- ------- Net cash provided by operating activities 3,000 4,798 ------- ------- Cash flows from investing activities: Capital expenditures (1,332) (4,306) Proceeds from sale of property, plant & equipment 41 209 Cash paid for intangibles assets acquired (57) (81) ------- ------- Net cash used in investing activities (1,348) (4,178) ------- ------- Cash flows from financing activities: Principal payments on long-term debt (871) (871) Proceeds from stock options and warrants exercised 344 284 Dividends paid (382) (305) Other financing activities (7) 0 ------- ------- Net cash used in financing activities (916) (892) ------- ------- Increase (Decrease) in cash and cash equivalents 736 (272) Cash and cash equivalents beginning of period 1,731 3,120 ------- ------- Cash and cash equivalents end of period $ 2,467 $ 2,848 ======= =======
5 See accompanying notes to condensed consolidated financial statements. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (All dollar amounts in thousands, except per share data) NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The condensed consolidated financial statements presented herein have been prepared by the Company in accordance with the accounting policies described in its December 31, 2002 Annual Report on Form 10-K, and should be read in conjunction with the consolidated financial statements and notes, which appear in that report. References in this Report to the Company mean Balchem and/or its subsidiary BCP Ingredients, Inc., as the context requires. In the opinion of management, the unaudited condensed consolidated financial statements furnished in this Form 10-Q include all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. All such adjustments are of a normal recurring nature. The condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include some information and notes necessary to conform with annual reporting requirements. The results of operations for the three and six months ended June 30, 2003 are not necessarily indicative of the operating results expected for the full year. NOTE 2 - STOCK OPTION PLAN At June 30, 2003, the Company has stock based employee compensation plans. The Company accounts for its stock option plans in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. As such, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. No stock based employee compensation cost is reflected in net earnings, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The Company has adopted the disclosure standards of Statement of Financial Accounts Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation", which requires the Company to provide pro forma net earnings and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value based method of accounting for stock options as defined in SFAS No. 123 has been applied. The following table illustrates the effect on net earnings and per share amounts if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock based employee compensation: 6
- --------------------------------------------------------------------------------------------------------------------- Three Months Ended Six Months Ended June 30, June 30, 2003 2002 2003 2002 - --------------------------------------------------------------------------------- --------------------------- Net Earnings Net earnings, as reported $ 1,691 $ 2,205 $ 3,374 $ 3,643 Deduct: Total stock-based employee compensation expense determined under fair value based method, net of related tax effects (183) (113) (333) (226) --------- --------- --------- --------- Net earnings as adjusted $ 1,508 $ 2,092 $ 3,041 $ 3,417 ========= ========= ========= ========= Earnings per share: Basic EPS as reported $ .35 $ .46 $ .70 $ .77 Basic EPS as adjusted $ .31 $ .44 $ .63 $ .72 Diluted EPS as reported $ .34 $ .45 $ .68 $ .74 Diluted EPS as adjusted $ .30 $ .42 $ .61 $ .69 - ---------------------------------------------------------------------------------------------------------------------
The fair value of each stock option granted during the year is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: ================================================================================ 2003 2002 - -------------------------------------------------------------------------------- Expected life (years) 3 5 Expected volatility 32% 32% Expected dividend yield .38% .40% Risk-free interest rate 1.9% 3.7% Weighted average fair value of options granted during the year $3.33 $9.47 - -------------------------------------------------------------------------------- NOTE 3 - INVENTORIES Inventories at June 30, 2003 and December 31, 2002 consist of the following: ================================================================================ June 30, 2003 December 31, 2002 - -------------------------------------------------------------------------------- Raw materials $ 1,627 $ 2,042 Finished goods 5,934 5,196 - -------------------------------------------------------------------------------- Total inventories $ 7,561 $ 7,238 ================================================================================ NOTE 4 - INTANGIBLE ASSETS Goodwill represents the excess of costs over fair value of assets of businesses acquired. The Company adopted the provisions of SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets, as of January 1, 2002. These standards require the use of the purchase method of business combination and define 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 7 instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 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 in accordance with SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets. All of the Company's goodwill arose from the June 2001 acquisition described in Note 10. As required by SFAS No. 142, 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, 2002, the Company also performed an impairment test of its goodwill balances. As of such date 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 plans to perform its impairment test each December 31 in the future. The Company had unamortized goodwill in the amount of $6,368 and $6,398 at June 30, 2003 and December 31, 2002, respectively, subject to the provisions of SFAS Nos. 141 and 142. As of June 30, 2003 and December 31, 2002 the Company had identifiable intangible assets with a gross carrying value of approximately $7,834, and $7,751, respectively, less accumulated amortization of $6,051 and $5,514, respectively. Intangible assets at June 30, 2003 consist of the following: ================================================================================ Amortization Gross period Carrying Accumulated (in years) Amount Amortization - -------------------------------------------------------------------------------- Customer lists 10 $6,760 $5,626 Re-registration costs 10 356 325 Patents 17 463 70 Trademarks 17 201 20 Other 5 54 10 - -------------------------------------------------------------------------------- $7,834 $6,051 ================================================================================ Amortization of identifiable intangible assets was approximately $541 for the first six months of 2003. Assuming no change in the gross carrying value of identifiable intangible assets, the estimated amortization expense for the twelve months ended December 31, 2003 is approximately $1,082, approximately $687 in the second succeeding year, and approximately $41 in each of the third and fourth succeeding years. At June 30, 2003, there were no identifiable intangible assets with indefinite useful lives as defined by SFAS No. 142. Identifiable intangible assets are reflected in "Intangibles and other assets" in the Company's consolidated balance sheets. There were no changes to the useful lives of intangible assets subject to amortization during the six months ended June 30, 2003. 8 NOTE 5 - NET EARNINGS PER SHARE The following presents a reconciliation of the earnings and shares used in calculating basic and diluted net earnings per share:
============================================================================================================= Income Number of Shares Per Share Three months ended June 30, 2003 (Numerator) (Denominator) Amount - ------------------------------------------------------------------------------------------------------------- Basic EPS - Net earnings and weighted average common shares outstanding $1,691 4,801,710 $.35 Effect of dilutive securities - stock options 183,270 ------------ Diluted EPS - Net earnings and weighted average common shares outstanding and effect of stock options $1,691 4,984,980 $.34 ============================================================================================================= ============================================================================================================= Income Number of Shares Per Share Three months ended June 30, 2002 (Numerator) (Denominator) Amount - ------------------------------------------------------------------------------------------------------------- Basic EPS - Net earnings and weighted average common shares outstanding $2,205 4,744,512 $.46 Effect of dilutive securities - stock options 209,864 ------------ Diluted EPS - Net earnings and weighted average common shares outstanding and effect of stock options $2,205 4,954,376 $.45 ============================================================================================================= ============================================================================================================= Income Number of Shares Per Share Six months ended June 30, 2003 (Numerator) (Denominator) Amount - ------------------------------------------------------------------------------------------------------------- Basic EPS - Net earnings and weighted average common shares outstanding $3,374 4,797,200 $.70 Effect of dilutive securities - stock options 179,545 ----------- Diluted EPS - Net earnings and weighted average common shares outstanding and effect of stock options $3,374 4,976,745 $.68 =============================================================================================================
9
============================================================================================================= Income Number of Shares Per Share Six months ended June 30, 2002 (Numerator) (Denominator) Amount - ------------------------------------------------------------------------------------------------------------- Basic EPS - Net earnings and weighted average common shares outstanding $3,643 4,732,007 $.77 Effect of dilutive securities - stock options 204,205 ------------ Diluted EPS - Net earnings and weighted average common shares outstanding and effect of stock options $3,643 4,936,212 $.74 =============================================================================================================
At June 30, 2003, the Company had 103,150 stock options outstanding that could potentially dilute basic earnings per share in future periods that were not included in diluted earnings per share because their effect on the period presented was anti-dilutive. NOTE 6 - SEGMENT INFORMATION The Company's reportable segments are strategic businesses that offer products and services to different markets. Presently, the Company has three segments, specialty products, encapsulated / nutritional products and unencapsulated feed supplements. Business Segment Net Sales:
====================================================================================================================== Three Months Ended Six Months Ended June 30, June 30, 2003 2002 2003 2002 - ---------------------------------------------------------------------------------------------------------------------- Specialty Products $ 6,384 $ 5,474 $ 12,322 $ 10,819 Encapsulated/Nutritional Products 5,761 7,750 11,904 14,113 Unencapsulated Feed Supplements 2,715 2,444 5,450 5,125 - ---------------------------------------------------------------------------------------------------------------------- Total $ 14,860 $ 15,668 $ 29,676 $ 30,057 ====================================================================================================================== Business Segment Earnings (Loss): ====================================================================================================================== Three Months Ended Six Months Ended June 30, June 30, 2003 2002 2003 2002 - ---------------------------------------------------------------------------------------------------------------------- Specialty Products $ 2,399 $ 1,905 $ 4,448 $ 3,623 Encapsulated/Nutritional Products 227 1,770 776 2,676 Unencapsulated Feed Supplements 137 (11) 296 (209) Interest and other income (expense) (71) (93) (144) (179) - ---------------------------------------------------------------------------------------------------------------------- Earnings before income taxes $ 2,692 $ 3,571 $ 5,376 $ 5,911 ======================================================================================================================
10 NOTE 7- SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the six months ended June 30, 2003 and 2002 for income taxes and interest is as follows: ============================================================= Six Months Ended June 30, 2003 2002 - ------------------------------------------------------------- Income taxes $ 1,158 $ 1,805 Interest $ 146 $ 205 - ------------------------------------------------------------- NOTE 8 - COMMON STOCK In June 1999, the board of directors authorized the repurchase of up to 1,000,000 shares of the Company's outstanding common stock over a two-year period commencing July 2, 1999, which was subsequently extended. Through June 30, 2003, the Company has repurchased 343,316 shares at an average cost of $9.26 per share of which 93,786 remain in treasury at June 30, 2003. In June 2003, the board of directors authorized an extension to the stock repurchase program for up to an additional 600,000 shares that is, over and above those repurchased to date under the program, through June 30, 2004. NOTE 9 - LONG TERM DEBT On June 1, 2001, the Company and its principal bank entered into a Loan Agreement (the "Loan Agreement") providing for a term loan of $13,500 (the "Term Loan"), the proceeds of which were used to fund the aforementioned acquisition of certain assets of DCV, Inc. and its affiliate Ducoa L.P. The Term Loan is payable in equal monthly installments of principal beginning October 1, 2001 of approximately $145, together with accrued interest, and has a maturity date of May 31, 2009. Borrowing under the Term Loan bears interest at LIBOR plus 1.25% (2.57% and 3.09% at June 30, 2003 and 2002, respectively). Certain provisions of the term loan require maintenance of certain financial ratios, limit future borrowings and impose certain other requirements as contained in the agreement. At June 30, 2003, the Company was in compliance with all restrictive covenants contained in the Loan Agreement. The Loan Agreement also provides for a short-term revolving credit facility of $3,000 (the "Revolving Facility"). Borrowings under the Revolving Facility bear interest at LIBOR plus 1.00% (2.32% and 2.84% at June 30, 2003 and 2002, respectively). No amounts have been drawn on the Revolving Facility as of the date hereof. The Revolving Facility expires on May 31, 2004. The Company intends to seek renewal of such facility. Indebtedness under the Loan Agreement is secured by substantially all of the assets of the Company other than real properties. NOTE 10 - COMMITMENTS & CONTINGENCIES As previously reported in June, 2001, pursuant to a certain Asset Purchase Agreement, dated as of May 21, 2001, BCP Ingredients, Inc. ("Buyer"), a wholly owned subsidiary of Balchem Corporation, acquired certain assets of DCV, Inc. and its affiliate, DuCoa L.P.. The agreement provided for the payment of up to an additional $2,750 of contingent 11 purchase price based upon the sales of specified product lines achieving certain gross margin levels (in excess of specified thresholds) over the three year period ending June 2004, with no more than $1,000 payable for any particular yearly period. Additionally, in certain circumstances, as defined in the agreement, a reimbursement of a part of the purchase price could be due the Company for the first year of such calculation. Based upon the results of the calculation for the first one year period ended June 2002, a reimbursement of $30 was received by the Company in 2003. Such reimbursement was recorded as a reduction of the cost of the acquired product lines. The Company could potentially pay $2,000 of remaining contingent purchase price for the remaining two years of calculations under the terms of the agreement. No contingent consideration has been earned or paid for the second one year period. Any future contingent consideration will be recorded as an additional cost of the acquired product lines. NOTE 11 - NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"). SFAS No. 143 requires the Company to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. The Company also records a corresponding asset which is depreciated over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation will be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The Company was required to adopt SFAS No. 143 on January 1, 2003. The adoption of SFAS No. 143 did not have a material effect on the Company's financial position or results of operations. In June 2002, the FASB issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." Statement No. 146 is different from EITF Issue No. 94-3 in that Statement No. 146 requires that a liability be recognized for a cost associated with an exit or disposal activity only when the liability is incurred, that is when it meets the definition of a liability in the FASB's conceptual framework. Statement No. 146 also establishes fair value as the objective for initial measurement of liabilities related to exit or disposal activities. In contrast, under EITF Issue 94-3, a company recognized a liability for an exit cost when it committed to an exit plan. Statement No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of Statement No. 146 can be expected to impact the timing of liability recognition associated with any future exit activities. In November 2002, the FASB issued FASB Interpretation No. 45 (FIN45), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others." This interpretation elaborates on the disclosures to be made by a guarantor in interim and annual financial statements about its obligations under guarantees issued. FIN 45 also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The Company was required to adopt FIN 45 on December 31, 2002. The adoption of FIN 45 12 did not have a material effect on the Company's financial position or results of operations. In May 2003, the FASB issued SFAS 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a freestanding financial instrument that is within its scope as a liability (or an asset in some circumstances). The adoption of SFAS 150 will not have an impact on the Company's consolidated financial position, results of operations or cash flows. 13 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations (All dollar amounts in thousands) This Report contains forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, which reflect the Company's expectation or belief concerning future events that involve risks and uncertainties. The actions and performance of the Company could differ materially from what is contemplated by the forward-looking statements contained in this Report. Factors that might cause differences from the forward-looking statements include those referred to or identified in Item 1 of the Company's Annual Report on Form 10-K for the year ended December 31, 2002 and other factors that may be identified elsewhere in this Report. Reference should be made to such factors and all forward-looking statements are qualified in their entirety by the above cautionary statements. The Company is engaged in the development, manufacture and marketing of specialty performance ingredients and products for the food, feed and medical sterilization industries. Presently, the Company has three segments, specialty products, encapsulated / nutritional products and unencapsulated feed supplements. Results of Operations: Three months ended June 30, 2003 as compared with three months ended June 30, 2002 Net sales for the three months ended June 30, 2003 were $14,860 as compared with $15,668 for the three months ended June 30, 2002, a decrease of $808 or 5.2%. Net sales for the specialty products segment were $6,384 for the three months ended June 30, 2003 as compared with $5,474 for the three months ended June 30, 2002, an increase of $910 or 16.6%. This increase was due principally to greater sales volumes (12.0% over the prior comparable quarter) of ethylene oxide products during the quarter ended June 30, 2003. Net sales for the encapsulated / nutritional products segment were $5,761 for the three months ended June 30, 2003 as compared with $7,750 for the three months ended June 30, 2002, a decrease of $1,989 or 25.7%. The decrease was primarily a result of a volume decline (31.1% less than the prior comparable quarter) in sales to the domestic food and animal health and nutrition markets. The U.S. dairy industry continued to operate at very low milk prices. Sales of our Reashure product for the animal health and nutrition industry felt the effect of this poor economic environment, posting a decline from the prior year comparable quarter. This decline was partially offset by an increase in sales to the international food market. Net sales of $2,715 were realized for the three months ended June 30, 2003 in the unencapsulated feed supplements segment, which markets choline additives for the poultry and swine industries as well as industrial choline derivative products, as compared with $2,444 for the three months ended June 30, 2002, an increase of $271 or 11.1%. The increase was primarily a result of increased volumes sold (13.0% over the prior comparable quarter) in the aqueous choline, dry choline, and specialty markets. 14 Gross margin percentage for the three months ended June 30, 2003 was 36.9% as compared to 41.9% for the three months ended June 30, 2002. Margins for the specialty products segment were favorably affected by increased production volumes of the Company's products utilizing ethylene oxide. Margins in the encapsulated / nutritional products segment were unfavorably affected by a decline in sales volume. During 2002, the Company expanded the manufacturing, processing and distribution facilities at its Verona, Missouri facility to enable it to handle operations for its encapsulated choline products business. As noted above, sales volume declined during the quarter resulting in the Company manufacturing less than expected volumes of Reashure and products for the domestic food markets. As a result, the Company realized unfavorable manufacturing variances in the quarter, which contributed to the gross margin decline. Unfavorable product mix also negatively impacted margins for the encapsulated / nutritional products segment for the three months ended June 30, 2003. Margins for the unencapsulated feed supplements segment were favorably affected by increased production volumes of aqueous choline, dry choline, and specialty products. Operating expenses for the three months ended June 30, 2003 decreased to $2,725 from $2,900 for the three months ended June 30, 2002, a decrease of $175 or 6.0%. Total operating expenses as a percentage of sales were 18.3% for the three months ended June 30, 2003 as compared to 18.5% for the three months ended June 30, 2002. During the three months ended June 30, 2003 and the three months ended June 30, 2002, the Company spent $500 and $515, respectively, on Company-sponsored research and development programs, substantially all of which pertained to the Company's encapsulated / nutritional products segment for both food and animal feed applications. As a result of the foregoing, earnings from operations for the three months ended June 30, 2003 were $2,763 as compared to $3,664 for the three months ended June 30, 2002. Earnings from operations for the specialty products segment for the three months ended June 30, 2003 were $2,399 as compared to $1,905 for the three months ended June 30, 2002. Earnings from operations for the encapsulated / nutritional products segment for the three months ended June 30, 2003 were $227 as compared to $1,770 for the three months ended June 30, 2002. Earnings from the unencapsulated feed supplements segment for the three months ended June 30, 2003 were $137 compared to a loss of $11 for the three months ended June 30, 2002. Interest income for the three months ended June 30, 2003 totaled $1 as compared to $7 for the three months ended June 30, 2002. Interest expense for the three months ended June 30, 2003 totaled $72 as compared to $100 for the three months ended June 30, 2002, a decrease of $28. This decrease is the result of lower average outstanding borrowings during the period combined with lower average interest rates. The Company records its interim tax provision based upon its estimated effective tax rate for the year, which is presently expected to be approximately 37.2%. As a result of the foregoing, net earnings were $1,691 for the three months ended June 30, 2003 as compared with $2,205 for the three months ended June 30, 2002. 15 Six months ended June 30, 2003 as compared with six months ended June 30, 2002 Net sales for the six months ended June 30, 2003 were $29,676 as compared with $30,057 for the six months ended June 30, 2002, a decrease of $381 or 1.3%. Net sales for the specialty products segment were $12,322 for the six months ended June 30, 2003 as compared with $10,819 for the six months ended June 30, 2002, an increase of $1,503 or 13.9%. This increase was due principally to greater sales volumes (10.2% over the prior comparable period) of ethylene oxide products and propylene oxide products during the six months ended June 30, 2003. Net sales for the encapsulated / nutritional products segment were $11,904 for the six months ended June 30, 2003 as compared with $14,113 for the six months ended June 30, 2002, a decrease of $2,209 or 15.7%. The decrease was primarily a result of a volume decline (23.8% less than the prior comparable period) in sales to the domestic food market and animal health and nutrition markets. This decline was partially offset by an increase in sales to the international food market. Net sales of $5,450 were realized for the six months ended June 30, 2003 in the unencapsulated feed supplements segment, which markets choline additives for the poultry and swine industries as well as industrial choline derivative products, as compared with $5,125 for the six months ended June 30, 2002, an increase of $325 or 6.3%. The increase was primarily a result of increased volumes sold (12.1% over the prior comparable period) in the aqueous choline, dry choline, and specialty markets. Gross margin percentage for the six months ended June 30, 2003 was 37.5% as compared to 39.5% for the six months ended June 30, 2002. Margins for the specialty products segment were favorably affected by increased production volumes of the Company's products utilizing ethylene oxide. Margins in the encapsulated / nutritional products segment were unfavorably affected by a decline in sales volume. During 2002, the Company expanded the manufacturing, processing and distribution facilities at its Verona, Missouri facility to enable it to handle operations for its encapsulated choline products business. As noted above, sales volume declined during the period resulting in the Company manufacturing less than expected volumes of Reashure and products for the domestic food markets. As a result, the Company realized unfavorable manufacturing variances in the period, which contributed to the gross margin decline. Unfavorable product mix also negatively impacted margins for the encapsulated / nutritional products segment for the six months ended June 30, 2003. Margins for the unencapsulated feed supplements segment were favorably affected by increased production volumes of aqueous choline, dry choline, and specialty products. Operating expenses for the six months ended June 30, 2003 decreased to $5,619 from $5,768 for the six months ended June 30, 2002, a decrease of $149 or 2.6%. Total operating expenses as a percentage of sales were 18.9% for the six months ended June 30, 2003 as compared to 19.2% for the six months ended June 30, 2002. During the six months ended June 30, 2003 and the six months ended June 30, 2002, the Company spent $1,025 and $1,009, respectively, on Company-sponsored research and development programs, substantially all of which pertained to the Company's encapsulated / nutritional products segment for both food and animal feed applications. As a result of the foregoing, earnings from operations for the six months ended June 30, 2003 were $5,520 as compared to $6,090 for the six months ended June 30, 2002. Earnings from operations for the specialty products segment for the six months ended June 30, 2003 were $4,448 as compared to $3,623 for the six months ended June 30, 2002. Earnings from operations for the encapsulated / nutritional products segment 16 for the six months ended June 30, 2003 were $776 as compared to $2,676 for the six months ended June 30, 2002. Earnings from the unencapsulated feed supplements segment for the six months ended June 30, 2003 were $296 compared to a loss of $209 for the six months ended June 30, 2002. Interest income for the six months ended June 30, 2003 totaled $2 as compared to $26 for the six months ended June 30, 2002. Interest expense for the six months ended June 30, 2003 totaled $146 as compared to $205 for the six months ended June 30, 2002, a decrease of $59. This decrease is the result of lower average outstanding borrowings during the period combined with lower average interest rates. The Company records its interim tax provision based upon its estimated effective tax rate for the year, which is presently expected to be approximately 37.2%. As a result of the foregoing, net earnings were $3,374 for the six months ended June 30, 2003 as compared with $3,643 for the six months ended June 30, 2002. Liquidity and Capital Resources Working capital amounted to $14,366 at June 30, 2003 as compared to $10,884 at December 31, 2002, an increase of $3,482. Cash flows from operating activities provided $3,000 for the six months ended June 30, 2003 as compared with $4,798 for the six months ended June 30, 2002. The decrease in cash flows from operating activities was due primarily to a decrease in net earnings and accounts payable and accrued expenses and an increase in inventory. The foregoing was partially offset by an increase in depreciation and a decrease in accounts receivable and prepaid expenses. Capital expenditures were $1,332 for the six months ended June 30, 2003. Capital expenditures are projected to be approximately $2,400 for all of calendar year 2003. In 2002, the Company expanded the manufacturing, processing and distribution facilities at its Verona, Missouri facility to enable it to handle operations for its specialty products and encapsulated choline products businesses. In addition, the Company entered into a ten (10) year lease for approximately 20,000 square feet of office space, which serves as the Company's general offices and as a laboratory facility. The costs of certain leasehold improvements to the Company's office space, up to $630, were funded by the landlord. In June 1999, the board of directors authorized the repurchase of up to 1,000,000 shares of the Company's outstanding common stock over a two-year period commencing July 2, 1999. In June 2003, the board of directors authorized an extension to the stock repurchase program for up to an additional 600,000 shares through June 30, 2004. As of June 30, 2003, 343,316 shares had been repurchased under the program at a total cost of $3,179 of which 249,530 shares have been issued by the Company under employee benefit plans and for the exercise of stock options. The Company intends to acquire shares from time to time at prevailing market prices if and to the extent it deems it advisable to do so based among other factors on its assessment of corporate cash flow and market conditions. 17 On June 1, 2001, the Company and its principal bank entered into a Loan Agreement (the "Loan Agreement") providing for a term loan of $13,500 (the "Term Loan"), the proceeds of which were used to fund the aforementioned acquisition of certain assets of DCV, Inc. and its affiliate Ducoa L.P. The Term Loan is payable in equal monthly installments of principal beginning October 1, 2002 of approximately $145, together with accrued interest, and has a maturity date of May 31, 2009. Borrowing under the Term Loan bears interest at LIBOR plus 1.25% (2.57% and 3.09% at June 30, 2003 and 2002, respectively). Certain provisions of the term loan require maintenance of certain financial ratios, limit future borrowings and impose certain other requirements as contained in the agreement. At June 30, 2003, the Company was in compliance with all restrictive covenants contained in the Loan Agreement. The Loan Agreement also provides for a short-term revolving credit facility of $3,000 (the "Revolving Facility"). Borrowings under the Revolving Facility bear interest at LIBOR plus 1.00% (2.32% and 2.84% at June 30, 2003 and 2002, respectively). No amounts have been drawn on the Revolving Facility as of the date hereof. The Revolving Facility expires on May 31, 2004. The Company intends to seek renewal of such facility. Indebtedness under the Loan Agreement is secured by substantially all of the assets of the Company other than real properties. As previously reported in June, 2001, pursuant to a certain Asset Purchase Agreement, dated as of May 21, 2001, BCP Ingredients, Inc. ("Buyer"), a wholly owned subsidiary of Balchem Corporation, acquired certain assets of DCV, Inc. and its affiliate, DuCoa L.P.. The agreement provided for the payment of up to an additional $2,750 of contingent purchase price based upon the sales of specified product lines achieving certain gross margin levels (in excess of specified thresholds) over the three year period ending June 2004, with no more than $1,000 payable for any particular yearly period. Additionally, in certain circumstances, as defined in the agreement, a reimbursement of a part of the purchase price could be due the Company for the first year of such calculation. Based upon the results of the calculation for the first one year period ended June 2002, a reimbursement of $30 was received by the Company in 2003. Such reimbursement was recorded as a reduction of the cost of the acquired product lines. The Company could potentially pay $2,000 of remaining contingent purchase price for the remaining two years of calculations under the terms of the agreement. No contingent consideration has been earned or paid for the second one year period. Any future contingent consideration will be recorded as an additional cost of the acquired product lines. The Company also currently provides postretirement benefits in the form of a retirement medical plan under a collective bargaining agreement covering eligible retired employees of the Verona facility. The amount recorded on the Company's balance sheet as of June 30, 2003 for this obligation is $869. The postretirement plan is not funded. The Company's aggregate commitments under its Loan Agreement and noncancelable operating lease agreements (including the office space lease entered into in 2003 as described above) are as follows: 18 ================================================================================ Loan Operating Total Agreement Leases Commitment - -------------------------------------------------------------------------------- 2003 $ 871 $ 208 $ 1,079 2003 1,742 356 2,098 2004 1,742 280 2,022 2005 1,742 248 1,990 2006 1,742 245 1,987 Thereafter 2,613 608 3,221 - -------------------------------------------------------------------------------- The Company knows of no current or pending demands on or commitments for its liquid assets that will materially affect its liquidity. The Company expects its operations to continue generating sufficient cash flow to fund working capital requirements, necessary capital investments and the current portion of debt obligations; however, the Company would seek further bank loans or access to financial markets to fund operations, working capital, necessary capital investments or other cash requirements should it deem it necessary to do so. Critical Accounting Policies There were no changes to the Company's Critical Accounting Policies, as described in its December 31, 2002 Annual Report on Form 10-K, during the six months ended June 30, 2003. Related Party Transactions The Company is not engaged and has not engaged in related party transactions during the six months ended June 30, 2003. Transactions of the Company during this period were at arms length. New Accounting Pronouncements In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"). SFAS No. 143 requires the Company to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. The Company also records a corresponding asset which is depreciated over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation will be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The Company was required to adopt SFAS No. 143 on January 1, 2003. The adoption of SFAS No. 143 did not have a material effect on the Company's financial position or results of operations. 19 In June 2002, the FASB issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." Statement No. 146 is different from EITF Issue No. 94-3 in that Statement No. 146 requires that a liability be recognized for a cost associated with an exit or disposal activity only when the liability is incurred, that is when it meets the definition of a liability in the FASB's conceptual framework. Statement No. 146 also establishes fair value as the objective for initial measurement of liabilities related to exit or disposal activities. In contrast, under EITF Issue 94-3, a company recognized a liability for an exit cost when it committed to an exit plan. Statement No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of Statement No. 146 can be expected to impact the timing of liability recognition associated with any future exit activities. In November 2002, the FASB issued FASB Interpretation No. 45 (FIN45), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others." This interpretation elaborates on the disclosures to be made by a guarantor in interim and annual financial statements about its obligations under guarantees issued. FIN 45 also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The Company was required to adopt FIN 45 on December 31, 2002. The adoption of FIN 45 did not have a material effect on the Company's financial position or results of operations. In May 2003, the FASB issued SFAS 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a freestanding financial instrument that is within its scope as a liability (or an asset in some circumstances). The adoption of SFAS 150 will not have an impact on the Company's consolidated financial position, results of operations or cash flows. Item 3. Quantitative and Qualitative Disclosures about Market Risk In the normal course of operations, the Company is exposed to market risks arising from adverse changes in interest rates. Market risk is defined for these purposes as the potential change in the fair value of debt instruments resulting from an adverse movement in interest rates. As of June 30, 2003, the Company's only borrowings were under a bank term loan, which bears interest at LIBOR plus 1.25%. A 100 basis point increase in interest rates, applied to the Company's borrowings at June 30, 2003, would result in an increase in annual interest expense and a corresponding reduction in cash flow of approximately $105. The Company's short-term working capital borrowings have historically borne interest based on the prime rate. The Company believes that its exposure to market risk relating to interest rate risk is not material. The Company has no derivative financial instruments or derivative commodity instruments, nor does the Company have any financial instruments entered into for trading or hedging purposes. Foreign sales are generally billed in U.S. dollars. The Company believes that its business operations are not exposed in any material respect to market risk relating to foreign currency exchange risk or commodity price risk. Item 4. Disclosure Controls and Procedures (a) The Company's management has evaluated, with the participation of the Company's Chief Executive Officer and Principal Financial Officer and its Corporate Controller and Treasurer, the effectiveness of the design and operation of the Company's 20 disclosure controls and procedures , and have concluded that, as of the end of the period covered by this Quarterly Report, the Company's disclosure controls and procedures as defined in Rule 13a-14(e) under the Securities Exchange Act of 1934, as amended, are effective for gathering, analyzing and disclosing information the Company is required to disclose in its periodic reports filed under such Act. (b) During the most recent fiscal quarter, there has been no change in the Company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 21 Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders An annual meeting of stockholders was held on June 20, 2003. The following directors were re-elected to serve until the annual meeting of stockholders in 2006 and until the election and qualification of their respective successors: Director For Withheld Kenneth P. Mitchell 3,768,427 113,274 Edward L. McMillan 3,717,839 163,862 The stockholders of the Company also voted to approve the amendments to the 1999 Stock Plan in accordance with the following vote: Broker For Against Abstain Non-Vote 1,733,889 321,292 49,962 1,776,558 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 10.3 Balchem 1999 Stock Plan, as amended Exhibit 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a). Exhibit 31.2 Certification of Corporate Controller pursuant to Rule 13a-14(a). Exhibit 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. Exhibit 32.2 Certification of Corporate Controller pursuant to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code. (b) Reports on Form 8-K On April 29, 2003, the Company furnished a Current Report on Form 8-K announcing its financial results for the quarter ended March 31, 2003. 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BALCHEM CORPORATION By: /s/ Dino A. Rossi ------------------------------ Dino A. Rossi, President, Chief Executive Officer and Principal Financial Officer Date: August 14, 2003 23 Exhibit Index Exhibit No. Description - ----------- ----------- Exhibit 10.3 Balchem 1999 Stock Plan, as amended Exhibit 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a). Exhibit 31.2 Certification of Corporate Controller pursuant to Rule 13a-14(a). Exhibit 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. Exhibit 32.2 Certification of Corporate Contoller pursuant to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code. 24 EX-10.3 3 ex10-3.txt Exhibit 10.3 BALCHEM CORPORATION 1999 STOCK PLAN, AS AMENDED 1. Purpose. The Balchem Corporation 1999 Stock Plan (the "Plan") is intended to provide Balchem Corporation, a Maryland corporation (the "Company"), with a means of attracting and retaining the services of key persons and to advance the interests of the Company and its stockholders by affording to certain persons, upon whose judgment, initiative and efforts the Company is largely dependent for the successful conduct of its business, an opportunity for investment in the Company and the incentive advantages inherent in stock ownership in the Company, by providing (a) to the officers and other employees of the Company and any present or future parent or subsidiaries of the Company (collectively, "Related Companies") opportunities to purchase stock in the Company pursuant to options granted hereunder which qualify as "incentive stock options" ("ISO" or "ISOs") under Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"); (b) to directors, officers, employees and directors emeritus of and consultants to the Company and Related Companies opportunities to purchase stock in the Company pursuant to options granted hereunder which do not qualify as ISOs ("Non-Qualified Option" or "Non-Qualified Options"); (c) to directors, officers, employees and directors emeritus of and consultants to the Company and Related Companies opportunities to make direct purchases of stock in the Company ("Purchases"); and (d) to directors, officers, employees, directors emeritus and consultants of the Company and Related Companies awards of stock in the Company ("Awards"). Both ISOs and Non-Qualified Options are referred to hereinafter individually as an "Option" and collectively as "Options". Options, authorizations to make Purchases and Awards are referred to hereafter collectively as "Stock Rights". As used herein, the terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary corporation", respectively, as those terms are defined in Section 424 of the Code. 2. Administration of the Plan. (a) Board or Committee Administration. The Plan shall be administered by the Board of Directors of the Company (the "Board"). The Board may appoint a Compensation Committee (the "Committee") to administer the Plan consisting of two or more persons. The Board, if it deems it advisable, may cause such Committee to consist solely of persons who qualify as both (i) "non-employee directors", within the meaning of Rule 16b-3 or any successor provision ("Rule 16b-3") promulgated under the Securities Exchange Act of 1934, as amended, and (ii) "outside directors", within the meaning of Section 162(m)(4)(C)(i) of the Code. To the extent required by Rule 16b-3, with respect to specific grants of Stock Rights, the Plan shall be administered in accordance with Rule 16b-3. Subject to ratification of the grant or authorization of each Stock Right by the Board (if so required by applicable state law), and subject to the terms of the Plan, the Committee shall have the authority to (i) determine the employees of the Company and Related Companies (from among the class of employees eligible under paragraph 3 to receive ISOs) to whom ISOs may be granted, and to determine (from among the class of individuals and entities eligible under paragraph 3 to receive Non-Qualified Options and 25 Awards and to make Purchases) to whom Non-Qualified Options, authorizations to make Purchases and Awards may be granted; (ii) determine the time or times at which Options or Awards may be granted or Purchases made; (iii) determine the option price of shares subject to each Option, which price, in the case of ISOs, shall not be less than the minimum price specified in paragraph 6, and the purchase price of shares subject to each Purchase; (iv) determine whether each Option granted shall be an ISO or a Non-Qualified Option; (v) determine (subject to paragraph 7) the time or times when each option shall become exercisable and the duration of the exercise period; (vi) determine whether restrictions such as vesting, forfeiture, rights of first refusal and repurchase options are to be imposed on shares subject to Stock Rights and the nature of such restrictions, if any, and (vii) interpret the Plan and prescribe and rescind rules and regulations relating to it. If the Committee determines to issue a Non-Qualified Option, it shall take whatever actions it deems necessary, under Section 422 of the Code and the regulations promulgated thereunder, to ensure that such Option is not treated as an ISO. The interpretation and construction by the Committee of any provisions of the Plan or of any Stock Right granted under it shall be final unless otherwise determined by the Board. The Committee may from time to time adopt such rules and regulations for carrying out the Plan as it may deem best. Nothing contained herein shall limit the right or authority of the Board to act on all matters as to which authority is or may be granted to the Committee. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Stock Right granted under it. (b) Committee Action. The Committee may select one of its members as its chairman, and shall hold meetings at such times and places as it may determine. Acts by a majority of the Committee, or acts reduced to or approved in writing by a majority of the members of the Committee, shall be the valid acts of the Committee. All references in the Plan to the Committee shall mean the Board if no Committee has been appointed or if the Board determines to act in lieu of the Committee. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies however caused, or remove all members of the Committee and thereafter directly administer the Plan. (c) Grant of Stock Rights to Board Members. Stock Rights may be granted to members of the Board consistent with the provisions of paragraph 2(a) above, if applicable. All grants of Stock Rights to members of the Board shall in all other respects be made in accordance with the provisions of the Plan applicable to other eligible persons. Consistent with the provisions of paragraph 2(a) above, members of the Board who are either (i) eligible for Stock Rights pursuant to the Plan or (ii) have been granted Stock Rights may vote on any matters affecting the administration of the Plan or the grant of any Stock Rights pursuant to the Plan, except that no such member shall act solely in his capacity as a member of the Committee and not as a member of the Board, upon the granting to him of Stock Rights, it being understood that, except as otherwise required by applicable law, such member may take part in a vote or action by the Board itself (rather than by the Committee if then constituted and acting), and that any such member who does not so act may nevertheless be counted in determining the existence of a quorum at any meeting of the Board during which action is taken, with respect to the granting to him of Stock Rights. 26 3. Eligible Employees and Others. ISOs may be granted to any employee of the Company or any Related Company. Those officers and directors of the Company who are not employees may not be granted ISOs under the Plan. Non-Qualified Options, authorizations to make Purchases and Awards may be granted to any director (whether or not an employee), officer, employee, or director emeritus of or consultant to the Company or any Related Company. The Committee may take into consideration a recipient's individual circumstances in determining whether to grant such individual a Stock Right. The granting of any Stock Right to any individual or entity shall neither entitle that individual or entity to, nor disqualify him from, participation in any other grant of Stock Rights. 4. Stock. The stock subject to Options, Purchases and Awards shall be authorized but unissued shares of Common Stock of the Company, par value six and two-thirds cents ($0.06 2/3) per share ("Common Stock"), or shares of Common Stock re-acquired by the Company in any manner. The aggregate number of shares which may be issued pursuant to the Plan is 1,200,000 shares, subject to adjustment as provided in paragraph 13. Any such shares may be issued as Awards or pursuant to exercises of ISOs or Non-Qualified Options, or to persons or entities making Purchases, so long as the number of shares so issued does not exceed such aggregate number, as adjusted or amended from time to time by a vote of stockholders or otherwise pursuant to paragraph 13. If any Option granted under the Plan shall expire or terminate for any reason without having been exercised in full or shall cease for any reason to be exercisable in whole or in part, the unpurchased shares subject to such Option shall again be available for grants of Stock Rights under the Plan. The maximum number of shares as to which Options may be granted to any particular individual in any calendar year shall be 150,000, subject to adjustment as provided in paragraph 13. 5. Granting of Stock Rights. (a) Stock Rights may be granted under the Plan at any time on or after April 9, 1999 and prior to April 8, 2009. The date of grant of a Stock Right under the Plan will be the date specified by the Committee at the time it grants the Stock Right; provided, however, that such date shall not be prior to the date on which the Committee acts to approve the grant. The Committee shall have the right, with the consent of the optionee, to convert an ISO granted under the Plan to a Non-Qualified Option pursuant to paragraph 16. (b) Anything in the Plan to the contrary notwithstanding, the effectiveness of the Plan and of the grant of all Stock Rights pursuant to the Plan are in all respects subject to approval of the Plan, and the Plan and such Stock Rights granted under it shall be of no force or effect unless and until, and no Stock Rights granted hereunder shall in any way vest or become exercisable in any respect unless and until, approval of the Plan is obtained, by the affirmative vote of the holders of a majority of the outstanding shares of Common Stock of the Company present in person or by proxy and entitled to vote at a meeting of stockholders at which the Plan is presented for approval, in form and substance satisfactory to counsel for the Company. In the event that such stockholder approval as aforesaid has not been received by the first anniversary of the date of adoption of the Plan by the Board, then in such event the Plan and any Stock Rights 27 granted under the Plan shall become null and void, and, upon the occurrence of such stockholder approval, the Plan and such Stock Rights shall become effective as of the date of the adoption by the Board of the Plan or the grant of such Stock Rights, as the case may be. 6. Minimum ISO Price; ISO Limitations. (a) Price for ISOs. The exercise price per share specified in the agreement relating to each ISO granted under the Plan shall not be less than the fair market value per share of Common Stock on the date of such grant. In the case of an ISO to be granted to an employee owning stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Related Company, the price per share specified in the agreement relating to such ISO shall not be less than one hundred ten percent (110%) of the fair market value per share of Common Stock on the date of grant. (b) $100,000 Annual Limitation on ISOs. Each eligible employee may be granted ISOs only to the extent that, in the aggregate under the Plan and all incentive stock option plans of the Company and any Related Company, such ISOs do not become exercisable for the first time by such employee during any calendar year in a manner which would entitle the employee to purchase, pursuant to the exercise of incentive stock options (that is, ISOs), more than $100,000 in fair market value (determined at the time the ISOs were granted) of Common Stock in that year. This provision is intended to impose the annual vesting limitation contained in Section 422(b)(7) of the Code and shall be interpreted consistently therewith. Any Options granted to an employee in excess of such amount will be treated as Non-Qualified Options. (c) Determination of Fair Market Value. If, at the time an Option is granted under the Plan, the Company's Common Stock is publicly traded, "fair market value" shall be determined as of the last business day for which the prices or quotes discussed in this sentence are available prior to the date such Option is granted and shall mean (i) the average (on that date) of the high and low prices of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if the Common Stock is then traded on a national securities exchange; or (ii) the last reported sale price (on that date) of the Common Stock on the NASDAQ National Market List, if the Common Stock is not then traded on a national securities exchange and is reported on the NASDAQ National Market List; or (iii) the average of the closing bid and asked prices last quoted (on that date) by an established quotation service for over-the-counter securities, if the Common Stock is not then traded on a national securities exchange and is not then reported on the NASDAQ National Market List. However, if the Common Stock is not publicly traded at the time an option is granted under the Plan, "fair market value" shall be deemed to be the fair value of the Common Stock as determined by the Committee after taking into consideration all factors which it deems appropriate, including, without limitation, recent sale and offer prices of the Common Stock in private transactions negotiated at arm's length. 7. Option Duration. Subject to earlier termination as provided in paragraphs 9 and 10, each Option shall expire on the date specified by the Committee, but not more than (i) ten years from the date of grant, and (ii) five years from the date of grant in the 28 case of ISOs granted to an employee owning stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Related Company. Subject to earlier termination as provided in paragraphs 9 and 10, the term of each ISO shall be the term set forth in the original instrument granting such ISO, except with respect to any part of such ISO that is converted into a Non-Qualified Option pursuant to paragraph 16. 8. Exercise of Option. Subject to the provisions of paragraphs 9 through 12, each option granted under the Plan shall be exercisable as follows: (a) Full Vesting or Partial Vesting. The Option shall either be fully exercisable on the date of grant or shall become exercisable thereafter in such installments as the Committee may specify. (b) Full Vesting of Installments. Once an installment becomes exercisable it shall remain exercisable until expiration or termination of the Option, unless otherwise specified by the Committee. (c) Partial Exercise. Each Option or installment may be exercised at any time or from time to time, in whole or in part, for up to the total number of shares with respect to which it is then exercisable. (d) Acceleration of Vesting. The Committee shall have the right to accelerate the date of exercise of any installment of any Option; provided that the Committee shall not accelerate the exercise date of any installment of any Option granted to any employee as an ISO (and not previously converted into a Non-Qualified Option pursuant to paragraph 16) if such acceleration would violate the annual vesting limitation contained in Section 422(b)(7) of the Code, as described in paragraph 6(b). 9. Termination of Employment. If an ISO optionee ceases to be employed by the Company and all Related Companies other than by reason of death or disability as defined in paragraph 10, no further installments of his ISOs shall become exercisable, and his ISOs shall terminate after the passage of sixty (60) days from the date of termination of his employment, but in no event later than on their specified expiration dates, except to the extent that such ISOs (or unexercised installments thereof) have been converted into Non-Qualified Options pursuant to paragraph 16. Employment shall be considered as continuing uninterrupted during any bona fide leave of absence (such as those attributable to illness, military obligations or governmental service), provided that the period of such leave does not exceed ninety (90) days or, if longer, any period during which such optionee's right to reemployment is guaranteed by statute. A bona fide leave of absence with the written approval of the Committee shall not be considered an interruption of employment under the Plan, provided that such written approval contractually obligates the Company or any Related Company to continue the employment of the optionee after the approved period of absence. ISOs granted under the Plan shall not be affected by any change of employment within or among the Company and Related Companies, so long as the optionee continues to be an employee of the Company or any Related Company. No grant shall constitute an employment contract. Nothing in the Plan shall be deemed to give any grantee of any Stock Right the right to be retained in employment or other service by the Company or any Related 29 Company for the length of any vesting schedule or for any portion thereof or for any other period of time. 10. Death; Disability. (a) Death. If an ISO optionee ceases to be employed by the Company and all Related Companies by reason of his death, any ISO of his may be exercised, to the extent of the number of shares with respect to which he could have exercised it on the date of his death, by his estate, personal representative or beneficiary who has acquired the ISO by will or by the laws of descent and distribution, at any time prior to the earlier of the specified expiration date of the ISO or 180 days from the date of the optionee's death. (b) Disability. If an ISO optionee ceases to be employed by the Company and all Related Companies by reason of his disability, he shall have the right to exercise any ISO held by him on the date of termination of employment, to the extent of the number of shares with respect to which he could have exercised it on that date, at any time prior to the earlier of the specified expiration date of the ISO or 180 days from the date of the termination of the optionee's employment. For the purposes of the Plan, the term "disability" shall mean "permanent and total disability" as defined in Section 22(e)(3) of the Code or successor statute. 11. Transferability. The Committee may, in its discretion, authorize all or a portion of the Options to be granted to an optionee (other than any intended to qualify as ISOs) to be on terms which permit transfer by such optionee to Family Members of the optionee, provided that (i) any such transfer is not a transfer for value, (ii) the stock option agreement pursuant to which such Options are granted must be approved by the Committee, and must expressly provide for transferability in a manner consistent with this paragraph 11, (iii) the specific transfer must be approved by the Committee, and (iv) subsequent transfers of the transferred Options shall be prohibited (except for a transfer to a Family Member of the optionee from another Family Member of the optionee which otherwise complies with the foregoing requirements). For purposes hereof, a "Family Member" of an optionee includes any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, brother-in-law, or sister-in-law, of the optionee, including adoptive relationships, any person sharing the optionee's household (other than a tenant or employee of the optionee), a trust in which above-described Family Members have more than fifty percent of the beneficial interest, a foundation in which such above-described Family Members (or the optionee) control the management of assets, and any other entity in which such above-described Family Members (or the optionee) own more than fifty percent of the voting interests. The following transactions shall not be deemed transfers for value: (A) a transfer under a domestic relations order in settlement of marital property rights; and (B) a transfer to an entity in which more than fifty percent of the voting interests are owned by Family Members (or the optionee) in exchange for an interest in that entity. Except with respect to Options that shall be transferred in accordance with this paragraph 11, all Options shall be exercisable during the lifetime of the grantee only by him. Following a transfer, any such Options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that, for purposes of paragraph 16, the term "optionee" or "grantee" shall be deemed to refer to the transferee. The 30 events of termination of employment under paragraph 9 shall continue to be applied with respect to the original optionee, following which the Options shall be exercisable by the transferee only to the extent, and for the periods, specified in paragraph 9, and the Company shall have no obligation to provide notice to a transferee of any early termination of an Option on account of termination of the employment of the original optionee or otherwise. The original optionee shall remain subject to withholding taxes upon exercise. 12. Terms and Conditions. Options and other Stock Rights shall be evidenced by instruments (which need not be identical) in such forms as the Committee may from time to time approve. Such instruments shall conform to the terms and conditions set forth in paragraphs 5 through 11 hereof, as applicable, and may contain such other provisions as the Committee deems advisable which are not inconsistent with the Plan, including restrictions applicable to shares of Common Stock issuable upon exercise of Options or issued or otherwise acquired pursuant to other Stock Rights. Without limiting the foregoing, the Committee may provide in connection with the grant of a Stock Right for the termination and/or cancellation of such Stock Right if the grantee's employment shall be terminated for cause, and/or for the acceleration of vesting and/or termination of a Stock Right upon the occurrence of a "Change of Control" (as the same may be defined in any such grant instrument) . In granting any Non-Qualified Option, the Committee may specify that such Non-Qualified Option shall be subject to the restrictions set forth herein with respect to ISOs, and/or to such termination and cancellation provisions as the Committee may determine. The Committee may from time to time confer authority and responsibility on one or more of its own members and/or one or more officers of the Company to execute and deliver such instruments. The proper officers of the Company are authorized and directed to take any and all action necessary or advisable from time to time to carry out the terms of such instruments. 13. Adjustments. Upon the occurrence of any of the following events, an optionee's rights with respect to options granted to him under the Plan shall be adjusted as hereinafter provided, unless otherwise specifically provided in the written agreement between the optionee and the Company relating to such Option: (a) Stock Dividends and Stock Splits. If the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock, the number of shares of Common Stock deliverable upon the exercise of Options shall be appropriately increased or decreased proportionately, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination or stock dividend. (b) Consolidations or Mergers. If the Company is to be consolidated with or acquired by another entity in a merger, sale of all or substantially all of the Company's assets or otherwise (an "Acquisition"), the Committee or the board of directors of any entity assuming the obligations of the Company under the Plan (the "Successor Board"), shall, as to outstanding Options, take one or more of the following actions: (i) make appropriate provision for the continuation of such Options by substituting on an equitable basis for the shares then subject to such Options, or make provision for the exchange of such Options for, the consideration payable with respect to the outstanding shares of 31 Common Stock in connection with the Acquisition (less the exercise price thereof not paid); or (ii) make appropriate provision for the continuation of such Options by substituting on an equitable basis for the shares then subject to such Options any equity securities of the successor corporation; or (iii) upon written notice to the optionees, provide that all Options must be exercised, to the extent then exercisable, within a specified number of days from the date of such notice, at the end of which period the Options shall terminate; or (iv) terminate all Options in exchange for a cash payment equal to the excess of the fair market value (determined as of the date in question in a manner consistent with paragraph 6(c)) of the shares subject to such Options (to the extent then exercisable) over the exercise price thereof; or (v) accelerate the date of exercise of such Options or of any installment of any such Options; or (vi) terminate all Options in exchange on an equitable basis for the grant of similar stock options for the purchase of shares of capital stock of any successor corporation; or (vii) any combination of any of the foregoing referred to in clauses (i) through (vi) above. (c) Recapitalization or Reorganization. In the event of a recapitalization or reorganization of the Company (other than a transaction described in subparagraph (b) above) pursuant to which securities of the Company or of another corporation are issued with respect to the outstanding shares of Common Stock, an optionee upon exercising an Option shall be entitled to receive for the purchase price paid upon such exercise the securities he would have received if he had exercised his Option prior to such recapitalization or reorganization. (d) Modification of ISOs. Notwithstanding the foregoing, any adjustments made pursuant to subparagraphs (a), (b) or (c) with respect to ISOs shall be made only after the Committee, after consulting with counsel for the Company, determines whether such adjustments would constitute a "modification" of such ISOs (as that term is defined in Section 424 of the Code) or would cause any adverse tax consequences for the holders of such ISOs. If the Committee determines that such adjustments made with respect to ISOs would constitute a modification of such ISOs, it may refrain from making such adjustments. (e) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, each Option will terminate immediately prior to the consummation of such proposed action or at such other time and subject to such other conditions as shall be determined by the Committee. (f) Issuances of Securities. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares subject to Options. No adjustments shall be made for dividends paid in cash or in property other than securities of the Company. (g) Fractional Shares. No fractional shares shall be issued under the Plan and the optionee shall receive from the Company cash in lieu of such fractional shares. (h) Adjustments. Upon the happening of any of the foregoing events described in subparagraphs (a), (b) or (c) above, the class and aggregate number of shares set forth in paragraph 4 that are subject to Stock Rights which previously have been or 32 subsequently may be granted under the Plan, and the maximum number of shares as to which Options may be granted to any one individual, as provided in paragraph 4, shall also be appropriately adjusted to reflect the events described in such subparagraphs. The Committee or the Successor Board shall determine the specific adjustments to be made under this paragraph 13 and, subject to paragraph 2, its determination shall be conclusive. If any person or entity owning restricted Common Stock obtained by exercise of a Stock Right made under the Plan receives shares or securities or cash in connection with a corporate transaction described in subparagraphs (a), (b) or (c) above as a result of owning such restricted Common Stock, such shares or securities or cash shall be subject to all of the conditions and restrictions applicable to the restricted Common Stock with respect to which such shares or securities or cash were issued, unless otherwise determined by the Committee or the Successor Board. 14. Means of Exercising Stock Rights. A Stock Right (or any part or installment thereof) shall be exercised by giving written notice to the Company at its principal office address. Such notice shall identify the Stock Right being exercised and specify the number of shares as to which such Stock Right is being exercised, accompanied by full payment of the purchase price therefor either (a) in United States dollars in cash or by check, or (b) at the discretion of the Committee, through delivery of shares of Common Stock having a fair market value equal as of the date of the exercise (determined as of the date in question in a manner consistent with paragraph 6(c)) to the cash exercise price of the Stock Right, or (c) at the discretion of the Committee, by delivery of the grantee's personal recourse note bearing interest payable not less than annually at no less than 100% of the lowest Applicable Federal Rate, as defined in Section 1274(d) of the Code, or (d) in the discretion of the Committee, by delivery (including by telecopier) to the Company or its designated agent of an executed irrevocable option exercise form together with irrevocable instructions to a broker-dealer to sell (or margin) a sufficient portion of the shares and deliver the sale (or margin loan) proceeds directly to the Company to pay for the exercise price, or (e) at the discretion of the Committee, by any combination of (a), (b), (c) or (d) above. If the Committee exercises its discretion to permit payment of the exercise price of an ISO by means of the methods set forth in clauses (b), (c) or (d) of the preceding sentence, such discretion shall be exercised in writing at the time of the grant of the ISO in question. The holder of a Stock Right shall not have the rights of a stockholder with respect to the shares covered by his Stock Right until the date of issuance of a stock certificate to him for such shares. Except as expressly provided above in paragraph 13 with respect to changes in capitalization and stock dividends, no adjustment shall be made for dividends or similar rights for which the record date is before the date such stock certificate is issued. 15. Term and Amendment of Plan. The Plan shall expire on April 8, 2009 (except as to Options outstanding on that date). The Board may terminate or amend the Plan in any respect at any time, except that, without the approval of the stockholders obtained within 12 months before or after the Board adopts a resolution authorizing any of the following actions: (a) the total number of shares that may be issued under the Plan may not be increased (except by adjustment pursuant to paragraph 13); (b) the provisions of paragraph 3 regarding eligibility for grants of ISOs may not be modified; (c) the provisions of paragraph 6(a) regarding the exercise price at which shares may be offered pursuant to ISOs may not be modified (except by adjustment pursuant to paragraph 13); and (d) the expiration date of the Plan may not be extended. Except as otherwise 33 provided in this paragraph 15, in no event may action of the Board or stockholders amending the Plan alter or impair the rights of a grantee, without his consent, under any Stock Right previously granted to him. 16. Conversion of ISOs into Non-Qualified Options; Termination of ISOs. The Committee, at the written request of any optionee, may in its discretion take such actions as may be necessary to convert such optionee's ISOs (or any installments or portions of installments thereof) that have not been exercised on the date of conversion into Non-Qualified Options at any time prior to the expiration of such ISOs, regardless of whether the optionee is an employee of the Company or a Related Company at the time of such conversion. Such actions may include, but not be limited to, extending the exercise period or reducing the exercise price of the appropriate installments of such Options. At the time of such conversion, the Committee (with the consent of the optionee) may impose such conditions on the exercise of the resulting Non-Qualified Options as the Committee in its discretion may determine, provided that such conditions shall not be inconsistent with the Plan. Nothing in the Plan shall be deemed to give any optionee the right to have such optionee's ISOs converted into Non-Qualified Options, and no such conversion shall occur until and unless the Committee takes appropriate action. The Committee, with the consent of the optionee, may also terminate any portion of any ISO that has not been exercised at the time of such termination. 17. Application of Funds. The proceeds received by the Company from the sale of shares pursuant to Options granted and Purchases authorized under the Plan shall be used for general corporate purposes. 18. Governmental Regulation. The Company's obligation to sell and deliver shares of the Common Stock under this Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such shares. 19. Withholding of Income Taxes. Upon the exercise of a Non-Qualified Option, the making of a Purchase of Common Stock for less than its fair market value, the making of a Disqualifying Disposition (as defined in paragraph 20), the exercise of an Option transferred by the original optionee in accordance with paragraph 11, the Award of vested shares of Common Stock, or the vesting of restricted Common Stock acquired pursuant to a Stock Right under the Plan, the Company, may require the optionee, purchaser, grantee or original optionee to pay to the Company in cash an amount equal to all applicable withholding taxes in respect of the amount that is considered compensation includable in such person's gross income. The Committee in its discretion may condition (i) the exercise of an Option, (ii) the making of a Purchase of Common Stock for less than its fair market value, (iii) the Award of vested shares of Common Stock, (iv) the vesting of restricted Common Stock acquired pursuant to a Stock Right, or (v) the exercise of a transferred Option, on the grantee's payment of such amount. 20. Notice to Company of Disqualifying Disposition. Each employee who receives an ISO must agree to notify the Company in writing immediately after the employee makes a Disqualifying Disposition of any Common Stock acquired pursuant to the exercise of an ISO. A "Disqualifying Disposition" is any disposition (including any sale) of such Common Stock before the later of (a) two years after the date the employee 34 was granted the ISO, or (b) one year after the date the employee acquired Common Stock by exercising the ISO. If the employee has died before such stock is sold, these holding period requirements do not apply and no Disqualifying Disposition can occur thereafter. 21. Governing Law; Construction. The validity and construction of the Plan and the instruments evidencing Stock Rights shall be governed by the laws of the State of Maryland or the laws of any jurisdiction in which the Company or its successors in interest may be organized. In construing this Plan, the singular shall include the plural and the masculine gender shall include the feminine and neuter, unless the context otherwise requires. 35 EX-31.1 4 ex31-1.txt Exhibit 31.1 CERTIFICATIONS I, Dino A. Rossi, President, Chief Executive Officer and Principal Financial Officer of Balchem Corporation, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Balchem Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 14, 2003 /s/ Dino A. Rossi ----------------------------- Dino A. Rossi, President, Chief Executive Officer and Principal Financial Officer 36 EX-31.2 5 ex31-2.txt Exhibit 31.2 CERTIFICATIONS I, Francis Fitzpatrick, Corporate Controller and Treasurer of Balchem Corporation, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Balchem Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 14, 2003 /s/ Francis J. Fitzpatrick ---------------------------------- Francis J. Fitzpatrick, Corporate Controller and Treasurer 37 EX-32.1 6 ex32-1.txt Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Balchem Corporation (the "Company") on Form 10-Q for the period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Dino A. Rossi, President, Chief Executive Officer and Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (2) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Dino A. Rossi Dino A. Rossi President, Chief Executive Officer and Principal Financial Officer August 14, 2003 This certification accompanies the above-described Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. 38 EX-32.2 7 ex32-2.txt Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Balchem Corporation (the "Company") on Form 10-Q for the period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Francis J. Fitzpatrick, Corporate Controller and Treasurer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Francis J. Fitzpatrick Francis J. Fitzpatrick Corporate Controller and Treasurer August 14, 2003 This certification accompanies the above-described Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. 39 -----END PRIVACY-ENHANCED MESSAGE-----