-----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, RBmRAQZiYDIB56uIUcpKwtOir2SzlCFcXl5OFw9UtqWZH5c0XMWAOhpdUMF4ZmOw 9BC9QT5Sy3mjFf0ChvXAag== 0000914317-04-001956.txt : 20040510 0000914317-04-001956.hdr.sgml : 20040510 20040510135240 ACCESSION NUMBER: 0000914317-04-001956 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040510 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: 04792165 BUSINESS ADDRESS: STREET 1: P O BOX 600 CITY: NEW HAMPTON STATE: NY ZIP: 10958 BUSINESS PHONE: 8453265632 MAIL ADDRESS: STREET 1: P O BOX 600 CITY: NEW HAMPTON STATE: NY ZIP: 10958 10-Q 1 form10q-60301.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 March 31, 2004 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 Identification Number) incorporation or organization) 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 Exchange Act). Yes |X| No |_| As of May 1, 2004 the registrant had 4,973,143 shares of its Common Stock, $.06 2/3 par value, outstanding. Part I. Financial Information Item 1. Financial Statements BALCHEM CORPORATION Condensed Consolidated Balance Sheets (Dollars in thousands, except per share data) March 31, December 31, 2004 2003 --------- ------------ Unaudited Current assets: Cash and cash equivalents $12,658 $ 9,239 Accounts receivable 6,436 7,233 Inventories 6,354 5,961 Prepaid expenses and other current assets 1,046 723 Deferred income taxes 459 474 ------- ------- Total current assets 26,953 23,630 ------- ------- Property, plant and equipment, net 25,210 25,636 Excess of cost over net assets acquired 6,368 6,368 Intangibles assets, net 1,020 1,272 ------- ------- Total assets $59,551 $56,906 ======= ======= See accompanying notes to consolidated financial statements 2 BALCHEM CORPORATION Condensed Consolidated Balance Sheets, continued (Dollars in thousands, except per share data)
March 31, December 31, 2004 2003 --------- ------------ Unaudited Liabilities and Stockholders' Equity Current liabilities: Trade accounts payable $ 1,357 $ 1,254 Accrued expenses 1,305 1,508 Accrued compensation and other benefits 421 1,182 Dividends payable -- 389 Current portion of long-term debt 1,742 1,742 Income taxes payable 1,092 -- ------- -------- Total current liabilities 5,917 6,075 ------- -------- Long-term debt 7,403 7,839 Deferred income taxes 2,221 2,226 Other long-term obligations 997 985 ------- -------- Total liabilities 16,538 17,125 ------- -------- 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; 4,972,623 shares issued and outstanding at March 31, 2004 and 4,903,238 shares issued and 4,860,078 shares outstanding at December 31, 2003 331 327 Additional paid-in capital 4,809 3,902 Retained earnings 37,873 36,056 Treasury stock, at cost: 0 shares at March 31, 2004 and 43,160 shares at December 31, 2003 -- (504) ------- -------- Total stockholders' equity 43,013 39,781 ------- -------- Total liabilities and stockholders' equity $59,551 $ 56,906 ======= ========
See accompanying notes to consolidated financial statements 3 BALCHEM CORPORATION Condensed Consolidated Statements of Earnings (In thousands, except per share data) (unaudited) Three Months Ended March 31, 2004 2003 -------- -------- Net sales $ 15,644 $ 14,816 Cost of sales 10,031 9,165 -------- -------- Gross profit 5,613 5,651 Operating expenses: Selling expenses 1,182 1,405 Research and development expenses 422 525 General and administrative expenses 1,081 964 -------- -------- 2,685 2,894 -------- -------- Earnings from operations 2,928 2,757 Other expenses (income): Interest (income) (12) (1) Interest expense 39 74 -------- -------- Earnings before income tax expense 2,901 2,684 Income tax expense 1,085 1,001 -------- -------- Net earnings $ 1,816 $ 1,683 ======== ======== Net earnings per common share - basic $ 0.37 $ 0.35 ======== ======== Net earnings per common share - diluted $ 0.36 $ 0.34 ======== ======== See accompanying notes to consolidated financial statements 4 BALCHEM CORPORATION Condensed Consolidated Statements of Cash Flows (In thousands)
Three Months Ended March 31, 2004 2003 -------- ------- Unaudited Cash flows from operating activities: Net earnings $ 1,816 $ 1,683 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 914 830 Shares issued under employee benefit plans 82 104 Deferred income taxes 10 46 Gain on sale of assets (12) -- Changes in assets and liabilities net of effects of acquisition: Accounts receivable 797 (136) Inventories (393) 241 Prepaid expenses and other current assets (323) 1,220 Accounts payable and accrued expenses (861) (2,355) Other long-term obligations 15 9 -------- ------- Net cash provided by operating activities 3,137 1,642 -------- ------- Cash flows from investing activities: Capital expenditures (296) (895) Proceeds from sale of property, plant & equipment 90 41 Cash paid for intangibles assets acquired (18) (14) -------- ------- Net cash used in investing activities (224) (868) -------- ------- Cash flows from financing activities: Principal payments on long-term debt (436) (436) Proceeds from stock options and warrants exercised 1,334 128 Dividends paid (389) (382) Other financing activities (3) (3) -------- ------- Net cash provided by (used in) financing activities 506 (693) -------- ------- Increase in cash and cash equivalents 3,419 81 Cash and cash equivalents beginning of period 9,239 1,731 -------- ------- Cash and cash equivalents end of period $ 12,658 $ 1,812 ======== =======
See accompanying notes to consolidated financial statements 5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (All dollar amounts in thousands, except per share data) NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The condensed consolidated financial statements presented herein have been prepared by the Company in accordance with the accounting policies described in its December 31, 2003 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 to annual reporting requirements. The results of operations for the three months ended March 31, 2004 are not necessarily indicative of the operating results expected for the full year. NOTE 2 - STOCK OPTION PLAN At March 31, 2004, 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 Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation" and SFAS 148, "Accounting for Stock-Based Compensation - Transition and Disclosure an amendment of FASB Statement 123," which requires the Company to provide pro forma net earnings and pro forma earnings per share disclosures for employee and director stock option grants made 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 March 31, 2004 2003 - ----------------------------------------------------------------------------- Net Earnings Net earnings, as reported $ 1,816 $ 1,683 Deduct: Total stock-based employee compensation expense determined under fair value based method, net of related tax effects (194) (150) ----------- ----------- Net earnings as adjusted $ 1,622 $ 1,533 =========== =========== Earnings per share: Basic EPS as reported $ .37 $ $ .35 Basic EPS as adjusted $ .33 $ $ .32 Diluted EPS as reported $ .36 $ $ .34 Diluted EPS as adjusted $ .32 $ $ .31 - ----------------------------------------------------------------------------- The fair value of each stock option granted during the three months ended March 31, 2004 and 2003 is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: ============================================================================= 2004 2003 - ----------------------------------------------------------------------------- Expected life (years) 3 3 Expected volatility 32% 30% Expected dividend yield .35% .38% Risk-free interest rate 1.65% 1.9% Weighted average fair value of options granted $7.17 $3.06 ============================================================================= NOTE 3 - INVENTORIES Inventories at March 31, 2004 and December 31, 2003 consist of the following: ============================================================================= March 31, December 31, 2004 2003 - ----------------------------------------------------------------------------- Raw materials $ 1,819 $ 1,914 Finished goods 4,535 4,047 - ----------------------------------------------------------------------------- Total inventories $ 6,354 $ 5,961 ============================================================================= 7 NOTE 4 - INTANGIBLE ASSETS Goodwill represents the excess of costs over fair value of assets of businesses acquired. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. Intangible assets with estimable useful lives are 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 11. As of December 31, 2003, the Company performed its annual impairment test of its goodwill balance. 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 at March 31, 2004 and December 31, 2003. As of March 31, 2004 and December 31, 2003 the Company had identifiable intangible assets with a gross carrying value of approximately $7,880, and $7,862, respectively, less accumulated amortization of $6,860 and $6,590, respectively. Intangible assets at March 31, 2004 consist of the following: =============================================================================== Gross Amortization period Carrying Accumulated (in years) Amount Amortization - ------------------------------------------------------------------------------- Customer lists 10 $ 6,760 $ 6,374 Re-registration costs 10 356 356 Patents 17 503 87 Trademarks 17 207 28 Other 5 54 15 - ------------------------------------------------------------------------------- $ 7,880 $ 6,860 =============================================================================== Amortization of identifiable intangible assets was approximately $270 for the first three months of 2004. Assuming no change in the gross carrying value of identifiable intangible assets, the estimated amortization expense for the twelve months ended December 31, 2004 is approximately $685, approximately $41 in the second succeeding year, and approximately $41 in each of the third and fourth succeeding years. At March 31, 2004, there were no identifiable intangible assets with indefinite useful lives as defined by SFAS No. 142. Identifiable intangible assets are reflected in "Intangibles assets, net" in the Company's consolidated balance sheets. There were no changes to the useful lives of intangible assets subject to amortization during the three months ended March 31, 2004. 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:
============================================================================================================= Number of Income Shares Per Share Three months ended March 31, 2004 (Numerator) (Denominator) Amount - ------------------------------------------------------------------------------------------------------------- Basic EPS - Net earnings and weighted average common shares outstanding $1,816 4,956,117 $.37 Effect of dilutive securities - stock options 157,442 --------- Diluted EPS - Net earnings and weighted average common shares outstanding and effect of stock options $1,816 5,113,559 $.36 ============================================================================================================= ============================================================================================================= Number of Income Shares Per Share Three months ended March 31, 2003 (Numerator) (Denominator) Amount - ------------------------------------------------------------------------------------------------------------- Basic EPS - Net earnings and weighted average common shares outstanding $1,683 4,792,690 $.35 Effect of dilutive securities - stock options 175,820 --------- Diluted EPS - Net earnings and weighted average common shares outstanding and effect of stock options $1,683 4,968,510 $.34 =============================================================================================================
At March 31, 2004, the Company had stock options covering 1,000 shares 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 BCP Ingredients, its unencapsulated feed supplements segment. 9 Business Segment Net Sales: ========================================================================= Three Months Ended March 31, 2004 2003 - ------------------------------------------------------------------------- Specialty Products $ 7,028 $ 5,938 Encapsulated/Nutritional Products 5,646 6,143 BCP Ingredients 2,970 2,735 - ------------------------------------------------------------------------- Total $ 15,644 $ 14,816 ========================================================================= Business Segment Earnings: ========================================================================= Three Months Ended March 31, 2004 2003 - ------------------------------------------------------------------------- Specialty Products $ 2,576 $ 2,048 Encapsulated/Nutritional Products 84 550 BCP Ingredients 268 159 Interest and other expense (27) (73) - ------------------------------------------------------------------------- Earnings before income taxes $ 2,901 $ 2,684 ========================================================================= NOTE 7- SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the three months ended March 31, 2004 and 2003 for income taxes and interest is as follows: =========================================================== Three Months Ended March 31, 2004 2003 - ----------------------------------------------------------- Income taxes $ -- $ 152 Interest $ 58 $ 74 =========================================================== 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 March 31, 2004, the Company has repurchased 343,316 shares at an average cost of $9.26 per share of which no shares remain in treasury at March 31, 2004. 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. 10 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 acquisition of certain assets of DCV, Inc. and its affiliate Ducoa L.P. (as described in Note 11). 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% (2.35% and 2.59% at March 31, 2004 and 2003, 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 March 31, 2004, 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% (2.10% and 2.34% at March 31, 2004 and 2003, respectively). No amounts have been drawn on the Revolving Facility as of the date hereof. The Revolving Facility expires on May 31, 2004. Management believes that such facility will be renewed in the normal course of business. Indebtedness under the Loan Agreement is secured by substantially all of the assets of the Company other than real properties. NOTE 10 - EMPLOYEE BENEFIT PLANS The Company currently provides postretirement benefits in the form of an unfunded retirement medical plan under a collective bargaining agreement covering eligible retired employees of its Verona facility. Net periodic benefit cost for the three months ended March 31 was as follows: ========================================================================= 2004 2003 - ------------------------------------------------------------------------- Service Cost 9 8 Interest Cost 18 16 Expected return on plan assets -- -- Amortization of transition obligation -- -- Amortization of prior service cost -- -- Amortization of (gain) or loss -- -- - ------------------------------------------------------------------------- Net periodic benefit cost $ 27 $ 24 ========================================================================= The plan is unfunded and approved claims are paid from Company funds. Historical cash payments made under such plan appoximated $50 per year. The Company has elected to defer accounting for the economic effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act). In accordance with FSP FAS 106-1, any measures of the accumulated postretirement plan benefit obligation or net periodic postretirement plan benefit cost in the consolidated financial statements or accompanying notes do not reflect the effects of the Act on the plan. Specific authoritative guidance on the accounting for the federal subsidy is pending and 11 that guidance, when issued, could require the Company to change previously reported information. NOTE 11 - 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 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, pursuant to 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. No contingent consideration has been earned or paid for the second one year period ended June 2003. Any future contingent consideration would be recorded as an additional cost of the acquired product lines. NOTE 12 - NEW ACCOUNTING PRONOUNCEMENTS On December 24, 2003, the Financial Accounting Standards Board ("FASB") issued Financial Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities (FIN 46R), which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. The Interpretation replaces Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46), which was issued on January 17, 2003. The effective date of FIN 46R depends on whether the reporting enterprise is a public or nonpublic company and on the nature of the entity in which the reporting entity has a variable interest. The initial adoption of this accounting pronouncement will not have a material effect on the Company's consolidated financial statements. 12 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, 2003 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. RESULTS OF OPERATIONS Overview The Company develops, manufactures and markets specialty performance ingredients and products for the food, feed and medical sterilization industries. The Company's reportable segments are strategic businesses that offer products and services to different markets. The Company presently has three reportable segments, specialty products, encapsulated / nutritional products and BCP Ingredients. Specialty Products Segment The specialty products segment repackages and distributes the following specialty gases: ethylene oxide, blends of ethylene oxide, propylene oxide and methyl chloride. Ethylene oxide, at the 100% level, is sold as a chemical sterilant gas, primarily for use in the health care industry and is used to sterilize medical devices. Contract sterilizers, medical device manufacturers and medical gas distributors are the Company's principal customers for this product. Blends of ethylene oxide are sold as fumigants and are highly effective in killing bacteria, fungi, and insects in spices and other seasoning materials. In addition, the Company also sells single use canisters with 100% ethylene oxide for use in medical device sterilization. Propylene oxide and methyl chloride, are sold principally to customers seeking smaller (as opposed to bulk) quantities. Management believes that future success in this segment is highly dependent on the Company's ability to maintain its EPA regulatory permit and strong reputation for excellent quality, safety and customer service. Encapsulated / Nutritional Products The encapsulated / nutritional products segment predominantly encapsulates food and nutritional ingredients for use throughout the food and animal health industries to enhance performance of nutritional fortification, processing, mixing, packaging applications and shelf-life 13 improvement. Major end product applications are baked goods, refrigerated and frozen dough systems, processed meats, seasoning blends, confections and animal nutrition. Management believes this segment's key strengths are its proprietary technology and end-product application capabilities. The success of the Company's efforts to increase revenue in this segment is highly dependent on the timing of marketing launches of new products in the U.S. and International food market by the Company's customers and prospects. Increased competition, economic slowness and less than expected market launches and or acceptance of end-products in both the Domestic and International food markets has, during the past year, resulted in lower volumes sold and lower average selling prices which have had an impact on profit margins. To counter this, the Company, through its innovative proprietary technology and applications expertise, continues to develop new microencapsulation products designed to solve and respond to customer problems and needs. Sales of our Reashure(TM) product for the animal nutrition and health industry are highly dependent on dairy industry economics as well as the ability of the Company to leverage the results of existing successful university research on the animal health benefits of this product. BCP Ingredients BCP Ingredients manufactures and supplies choline chloride, an essential nutrient for animal health, to the poultry and swine industries. In addition, certain derivatives of choline chloride are also marketed into industrial applications. Management believes that success in this commodity-oriented marketplace is highly dependent on the Company's ability to maintain its strong reputation for excellent quality and customer service. In addition, the Company must continue to increase production efficiencies in order to maintain its low-cost position to effectively compete for market share in a highly competitive marketplace. The Company sells products for all segments through its own sales force, independent distributors, and sales agents. The following tables summarize consolidated net sales by segment and business segment earnings (loss) for the three months ended March 31, (in thousands): Business Segment Net Sales: ========================================================================== Three Months Ended March 31, 2004 2003 - -------------------------------------------------------------------------- Specialty Products $ 7,028 $ 5,938 Encapsulated/Nutritional Products 5,646 6,143 BCP Ingredients 2,970 2,735 - -------------------------------------------------------------------------- Total $ 15,644 $ 14,816 ========================================================================== 14 Business Segment Earnings: ============================================================================ Three Months Ended March 31, 2004 2003 - ---------------------------------------------------------------------------- Specialty Products $ 2,576 $ 2,048 Encapsulated/Nutritional Products 84 550 BCP Ingredients 268 159 Interest and other income (expense) (27) (73) - ---------------------------------------------------------------------------- Earnings before income taxes $ 2,901 $ 2,684 ============================================================================ Three months ended March 31, 2004 compared to three months ended March 31, 2003 Net Sales Net sales for the three months ended March 31, 2004 were $15,644 as compared with $14,816 for the three months ended March 31, 2003, an increase of $828 or 5.6%. Net sales for the specialty products segment were $7,028 for the three months ended March 31, 2004 as compared with $5,938 for the three months ended March 31, 2003, an increase of $1,090 or 18.4%. This increase was due principally to greater sales volumes (6.7% over the prior comparable period) of ethylene oxide for medical device sterilization and single use ethylene oxide canisters for use in sterilization equipment. Net sales for the encapsulated / nutritional products segment were $5,646 for the three months ended March 31, 2004 as compared with $6,143 for the three months ended March 31, 2003, a decrease of $497 or 8.1%. Particular weakness was experienced in the International food market and the unencapsulated human choline product line. International sales declined $326 and the unencapsulated human choline product line declined $235 largely due to purchasing patterns. These declines were partially offset by increased sales in the Domestic food market and of feed-stable Reashure(TM) . Reashure(TM) sales volume increased 30% over the prior year first quarter. Net sales of $2,970 were realized for the three months ended March 31, 2004 in the BCP Ingredients (unencapsulated feed supplements) segment, which markets choline additives for the poultry and swine industries as well as industrial choline derivative products, as compared with $2,735 for the three months ended March 31, 2003, an increase of $235 or 8.6%. This increase was due to increased volumes sold in the dry choline product lines, along with some very modest price increases in both the liquid and dry choline product lines. Gross Margin Gross margin percentage for the three months ended March 31, 2004 was 35.9% as compared to 38.1% for the three months ended March 31, 2003. 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 15 products segment were unfavorably affected by the decline in sales volume as described above. In addition, increased competition in both the Domestic and International food markets during the first quarter resulted in lower average selling prices and, in the case of the International food market, lower volumes sold which contributed to the decline in profit margins for this segment. Margins for BCP Ingredients were favorably affected by increased production volumes of choline chloride and specialty derivative products. Operating Expenses Operating expenses for the three months ended March 31, 2004 declined to $2,685 from $2,894 for the three months ended March 31, 2003, a decrease of $209 or 7.2%. Total operating expenses as a percentage of sales were 17.2% for the three months ended March 31, 2004 as compared to 19.5% for the three months ended March 31, 2003. This decline is a result of the Company having made several organizational and business model changes affecting the Encapsulated/Nutritional Products segment. Many of these changes were effected late in the fourth quarter of 2003 in an effort to refocus our commercial efforts, reduce operating expenses and improve the overall financial performance of this segment. During the three months ended March 31, 2004 and the three months ended March 31, 2003, the Company spent $422 and $525, 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. Earnings From Operations As a result of the foregoing, earnings from operations for the three months ended March 31, 2004 were $2,928 as compared to $2,757 for the three months ended March 31, 2003. Earnings from operations for the specialty products segment for the three months ended March 31, 2004 were $2,576 as compared to $2,048 for the three months ended March 31, 2003. Earnings from operations for the encapsulated / nutritional products segment for the three months ended March 31, 2004 was $84 as compared to earnings of $550 for the three months ended March 31, 2003. Earnings from operations from BCP Ingredients for the three months ended March 31, 2004 were $268 compared to a $159 for the three months ended March 31, 2003. Other expenses (income) Interest expense for the three months ended March 31, 2004 totaled $39 as compared to $74 for the three months ended March 31, 2003, a decrease of $35. This decrease is the result of lower average outstanding borrowings during the period combined with lower average interest rates. 16 Income Tax Expense The Company's effective tax rate for the three months ended March 31, 2004 was 37.4% compared to 37.3% in the three months ended March 31, 2003. Net earnings As a result of the foregoing, net earnings were $1,816 for the three months ended March 31, 2004 as compared with $1,683 for the three months ended March 31, 2003. FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES Contractual Obligations The Company's contractual obligations and commitments principally include obligations associated with its outstanding indebtedness under its Loan Agreement and future minimum noncancelable operating lease obligations These aggregate commitments are as follows: =============================================================================== Loan Operating Total Agreement Leases Commitment - ------------------------------------------------------------------------------- 2004 1,306 346 1,652 2005 1,742 449 2,191 2006 1,742 392 2,134 2007 1,742 351 2,093 2008 1,742 324 2,066 Thereafter 871 473 1,344 =============================================================================== 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 could 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. 17 Cash Cash and cash equivalents increased to $12,658 at March 31, 2004 from $9,239 at December 31, 2003. The $3,419 increase resulted primarily from an increase in net cash provided by operating activities and financing activities of $3,137 and $506, respectively, offset partially by net cash used in capital expenditure investing activities of $224. Working capital amounted to $21,036 at March 31, 2004 as compared to $17,555 at December 31, 2003, an increase of $3,481. Operating Activities Cash flows from operating activities provided $3,137 for the three months ended March 31, 2004 as compared to $1,642 for the three months ended March 31, 2003. The increase in cash flows from operating activities was due primarily to an increase in earnings, decreases in prepaid expenses and increases in depreciation. Reduction in prepaid expense is the result of a temporary change in the timing of payments related to the Company's insurance program. Increased depreciation expense is the result of 2003 capital expenditures currently being included in the depreciation calculation. The foregoing was partially offset by an increase in inventory balances. Investing Activities Capital expenditures were $296 for the three months ended March 31, 2004. In 2003, the Company completed construction of a 10,000 square foot, state-of-the-art canister filling operation at its Green Pond, South Carolina plant site. Capital expenditures are expected to be approximately $1,650 for all of calendar year 2004. Financing Activities 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 March 31, 2004, 343,316 shares had been repurchased under the program at a total cost of $3,179 of which 343,316 shares have been issued by the Company under employee benefit plans and for the exercise of stock options. The Company intends to acquire shares from time to time at prevailing market prices if and to the extent it deems it advisable to do so based among other factors on its assessment of corporate cash flow and market conditions. On June 1, 2001, the Company and its principal bank entered into a Loan Agreement (the "Loan Agreement") providing for a term loan of $13,500 (the "Term Loan"), the proceeds of which were used to fund the acquisition of certain assets of DCV, Inc. and its affiliate Ducoa L.P. (as described in Note 11). 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% (2.35% and 2.59% at March 31, 2004 and 2003, 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 March 31, 2004, the Company was in compliance with all 18 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% (2.10% and 2.34% at March 31, 2004 and 2003, 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. Management bellieves that such facility will be renewed in the normal course of business. Indebtedness under the Loan Agreement is secured by substantially all of the assets of the Company other than real properties. Proceeds from stock options and warrants exercised totaled $1,334 and $128 for the three months ended March 31, 2004 and 2003, respectively. Dividend payments were $389 and $382 for the three months ended March 31, 2004 and 2003, respectively. The overall effect of the foregoing was that cash flows provided by financing activities were $506 for the three months ended March 31, 2004 as compared to cash flows used in financing activities of $693 for the three months ended March 31, 2003. Other Matters Impacting Liquidity 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, pursuant to 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. No contingent consideration has been earned or paid for the second one year period ended June 2003. Any future contingent consideration would be recorded as an additional cost of the acquired product lines. The Company currently provides postretirement benefits in the form of a retirement medical plan under a collective bargaining agreement covering eligible retired employees of its Verona facility. The amount recorded on the Company's balance sheet as of March 31, 2004 for this obligation is $915. The postretirement plan is not funded. Historical cash payments made under such plan approximated $50 per year. The Company has elected to defer accounting for the economic effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act). In accordance with FSP FAS 106-1, any measures of the accumulated postretirement plan benefit obligation or net periodic postretirement plan benefit cost in the consolidated financial statements or accompanying notes do not reflect the effects of the Act on the plan. Specific authoritative guidance on the accounting for the federal subsidy is pending and that guidance, when issued, could require the Company to change previously reported information. 19 Critical Accounting Policies There were no changes to the Company's Critical Accounting Policies, as described in its December 31, 2003 Annual Report on Form 10-K, during the three months ended March 31, 2004. Related Party Transactions The Company is not engaged and has not engaged in related party transactions during the three months ended March 31, 2004. Transactions of the Company during this period were at arms length. New Accounting Pronouncements On December 24, 2003, the Financial Accounting Standards Board ("FASB") issued Financial Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities (FIN 46R), which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. The Interpretation replaces Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46), which was issued on January 17, 2003. The effective date of FIN 46R depends on whether the reporting enterprise is a public or nonpublic company and on the nature of the entity in which the reporting entity has a variable interest. The initial adoption of this accounting pronouncement will not have a material effect on the Company's consolidated financial statements. 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 March 31, 2004, 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 March 31, 2004, would result in an increase in annual interest expense and a corresponding reduction in cash flow of approximately $91. 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. 20 Item 4. Controls and Procedures (a) Based upon an evaluation, under the supervision and with the participation of the Company's Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q, they have concluded that the Company's disclosure controls and procedures as defined in Rule 13a-15(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 have been no significant changes 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 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 3.2 Composite By-laws of the Company. Exhibit 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a). Exhibit 31.2 Certification of Chief Financial Officer 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 Chief Financial Officer 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 February 12, 2004, the Company furnished a report on Form 8-K announcing financial results for the quarter ended December 31, 2003. On April 27, 2004, the Company furnished a Current Report on Form 8-K announcing its financial results for the quarter ended March 31, 2004. 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 Date: May 10, 2004 23 Exhibit Index Exhibit No. Description - ----------- ----------- Exhibit 3.2 Composite By-laws of the Company. Exhibit 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a). Exhibit 31.2 Certification of Chief Financial Officer 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 Chief Financial Officer pursuant to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code. 24 EX-3.2 2 ex_3-2.txt Exhibit 3.2 BALCHEM CORPORATION BY-LAWS ARTICLE I OFFICES Section 1. PRINCIPAL OFFICE. The principal office of the corporation in the State of Maryland shall be located at the 20th Floor, 10 Light Street, Baltimore, Maryland 21202. Section 2. OTHER OFFICES. The corporation may have offices at such other places within or without the State of Maryland as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF SHAREHOLDERS Section 1. PLACE. All meetings of shareholders shall be held at the principal office of the corporation, or at such other place within the United States as shall be stated in the notice of the meeting. Section 2. ANNUAL MEETING. The annual meeting of the shareholders shall be held on such day in June in each year as the Board of Directors may fix for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday, such meeting shall be held at the same time on the next succeeding business day. Section 3. SPECIAL MEETING. The president or Board of Directors may call special meetings of the shareholders during the interval between annual meetings. Special meetings of shareholders shall also be called by the secretary upon the written request of the holders of shares entitled to cast not less than 25% of all of the votes entitled to be cast at such meeting. Such request shall state the purpose or purposes of such meeting and the matters proposed to be acted on thereat. The secretary shall inform the shareholders making such request of the reasonably estimated cost of preparing and mailing such notice of the meeting, and upon payment to the corporation of such costs by the shareholders, the secretary shall give notice stating the purpose or purposes of the meeting to all shareholders entitled to vote at such meeting. No special meeting need be called upon the request of the holders of shares entitled to cast less than a majority of all votes entitled to be cast at such meeting, to consider any matter which is, in the opinion of the Board of Directors or of the Executive Committee, if there is one in being, substantially the same as a matter voted upon at any special meeting of the shareholders held during the preceding twelve months. Section 4. NOTICE. Not less than ten (10) nor more than ninety (90) days before the date of every shareholders meeting, the secretary shall give to each shareholder who may be entitled to vote at such meeting, and to each shareholder not entitled to vote who is entitled by statute to notice, written or printed notice stating the time and place of the meeting, and, in the case of a special meeting, or as otherwise may be required by statute, the purpose or purposes for which the meeting is called either by mail or by presenting it to him personally or by leaving it at his residence or usual place of business. If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the shareholder at his post office address as it appears on the records of the corporation, with postage thereon prepaid. Section 5. SCOPE OF NOTICE. No business shall be transacted at any special meeting of shareholders except that specifically designated in the notice. Any business of the corporation may be transacted at the annual meeting without being specifically designated in the notice, except such business as is required by statute to be stated in such notice. Section 6. QUORUM. At any meeting of shareholders the presence in person or by proxy of shareholders entitled to cast a majority of the votes thereat shall constitute a quorum; but this section shall not affect any statutory or charter requirement for the vote necessary for the adoption of any measure. If, however, such quorum shall not be present at any such meeting of shareholders, the shareholders entitled to vote thereat, present in person or by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until such quorum shall be present. At such adjourned meeting at which a quorum shall been present, any business may be transacted which might have been transacted at the meeting as originally notified. The shareholders present at a meeting which has been duly called and convened may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Section 7. VOTING. A majority of the votes cast at a meeting of shareholders duly called and at which a quorum is present, shall be sufficient to take or authorize action upon any matter which may properly come before the meeting, unless another method or number of votes is required by statute or by the charter of the corporation. Unless otherwise provided in these By-Laws or in the charter of the corporation, each outstanding voting share shall be entitled to one vote upon each matter submitted to vote at a meeting of shareholders. Section 8. PROXIES. At all meetings of shareholders a shareholder may vote by proxy executed in writing by the shareholder or by his duly authorized attorney-in-fact. Such proxy shall be filed with the secretary of the corporation before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy. Section 9. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the name of another corporation, domestic or foreign, when entitled to be voted, may be voted by the president or vice president or by proxy appointed by the president or a vice president of such other corporation, unless some other person who has been appointed to vote such shares pursuant to a by-law or a resolution of the Board of Directors of such other corporation presents a certified copy of such by-law or resolution, in which case such person may vote such shares. Any fiduciary may vote shares standing in his name as such fiduciary, either in person or by proxy. 2 Shares of its own stock belonging to this corporation shall not be voted, directly or indirectly, at any meeting and shall not be counted in determining the total number of outstanding shares at any given time, but shares of its own stock held by it in a fiduciary capacity may be voted by a committee consisting of all the directors of the corporation who shall vote all the shares in proportion to the vote of the directors, except in an election of directors, when all such shares shall be divided into an equal number of parts, which number of parts shall correspond to the number of directors being elected, and a part shall be voted for each director proposed by immediate past management, and shall be counted in determining the total number of outstanding shares at any given time. Section 10. INSPECTORS. At any meeting of shareholders the chairman of the meeting may, or upon request of any shareholder shall, appoint one or more persons as inspectors for such meeting. Such inspectors shall ascertain and report the number of shares represented at the meeting, based upon their determination of the validity and effect of proxies, count all votes and report the results and do such other acts as are proper to conduct the election and voting with impartiality and fairness to all the shareholders. Each report of an inspector shall be in writing and signed by him or by a majority of them if there be more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof. Section 11. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting if a consent in writing setting forth the action to be taken shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof. Section 12. VOTING BY BALLOT. Voting on any question or in any election may be viva voce unless the presiding officer shall order or any shareholder shall demand that voting be by ballot. ARTICLE III DIRECTORS Section 1. GENERAL POWERS. The business and affairs of the corporation shall be managed by its Board of Directors. Section 2. NUMBER, CLASSIFICATION, TENURE, AND QUALIFICATIONS. The number of directors of the Corporation shall be six (6). The Board of Directors shall be divided into three classes, Class 1, Class 2 and Class 3, which shall have staggered three year terms. Class 1 shall consist of two (2) directors, Class 2 shall consist of two (2) directors, and Class 3 shall consist of two (2) directors. The term of office of each class of directors shall expire at the third succeeding annual meeting of shareholders following their election, subject to Section 8 of Article III, if applicable. 3 Section 3. ANNUAL AND REGULAR MEETINGS. The annual meeting of the Board of Directors shall be held immediately after and at the same place as the annual meeting of shareholders, no notice other than this by-law being necessary. The Board of Directors may provide, by resolution, the time and place, either within or without the State of Maryland, for the holding of regular meetings of the Board of Directors without other notice than such resolution. Section 4. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by or at the request of the president or by a majority of the directors then in office. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of Maryland, as the place for holding any special meeting of the Board of Directors called by them. Section 5. NOTICE. Notice of any special meeting shall be given by written notice delivered personally, telegraphed or mailed to each director at his business or residence address. Personally delivered or telegram notices shall be given at least two (2) days prior to the meeting. Notice by mail shall be given at least five (5) days prior the meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail properly addressed, with postage thereon prepaid. If notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. Neither the business to be transacted at, nor the purpose of, any annual, regular or special meeting of the Board of Directors need be specified in the notice, unless specifically required by statute. Section 6. QUORUM. A majority of directors then in office shall constitute a quorum for transaction of business at any meeting of the Board of Directors, but in no event should less than one-third of the entire authorized Board of Directors or less than two directors be considered a quorum. Section 7. VOTING. The act of a majority of the directors present at a duly constituted meeting shall be the act of the Board of Directors. Section 8. VACANCIES. Any vacancy occurring in the Board of Directors by reason of the death, disability or resignation of any director may be filled by a majority of the remaining members of the Board of Directors although such majority is less than a quorum, as provided in the charter. A director elected by the Board of Directors to fill a vacancy shall be elected to hold office until the next Annual Meeting of Stockholders or until his successor is elected and qualifies. Section 9. INFORMAL ACTION BY DIRECTORS. Any action required to be taken at a meeting of the Board of Directors, or any other action which may be taken at a meeting of the Board of Directors, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors. Section 10. COMPENSATION. By resolution of the Board of Directors a fixed annual stipend may be paid to each director, or in lieu thereof a fixed annual sum may be allowed to directors for the attendance at such annual, regular and special meetings of the Board of Directors or any executive committee meeting thereof, and in addition expenses, if any, shall 4 be allowed to directors for attendance at such annual, regular and special meetings of the Board of Directors, or of any executive committee thereof; but nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Section 11. REMOVAL OF DIRECTORS. A director or directors may be removed from office with or without cause by an affirmative vote of a majority of all of the votes of shareholders entitled to be cast for the election of directors and any resulting vacancy for the unexpired term of the removed director shall be filled by action of the shareholders. Section 12. DIRECTOR EMERITUS. The Board of Directors may, with the consent of the person designated, designate a person who has theretofore served as a director for at least ten years, as a director emeritus, to hold such title at the pleasure of the Board of Directors. A director emeritus shall have the right, while holding such designation, to be present at meetings of the Board of Directors, but without any right of vote or consent, and shall be paid expenses of attendance and an attendance fee equal to that which is paid to a director. ARTICLE IV COMMITTEES NUMBER, TENURE AND QUALIFICATIONS. The Board of Directors may appoint from among its members an Executive Committee and other committees composed of three or more directors; such committee or committees to serve at the pleasure of the Board of Directors. ARTICLE V OFFICERS Section 1. POWERS AND DUTIES. The officers of the corporation shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as may be convenient. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. Election or appointment of an officer or agent shall not of itself create contract rights between the corporation and such officer or agent. Section 2. REMOVAL. Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interest of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Section 3. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification, creation of a new office or otherwise, may be filled by the Board of Directors for the unexpired portion of the term. 5 Section 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board of Directors shall be selected from among the directors and shall preside at all meetings of the Board of Directors. Section 4A. PRESIDENT. The president shall be the principal executive officer of the corporation and shall in general supervise and control all of the business and affairs of the corporation to the extent actually authorized by resolution of the Board of Directors. He shall preside at all meetings of the shareholders. The president shall be selected from among the directors. He may sign, with the secretary or any other proper officer of the corporation thereunto authorized by the Board of Directors pursuant to these By-Laws, any deeds, mortgages, bonds, contracts, or other instruments which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these By-laws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed; and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the Board of Directors from time to time. The president shall be ex officio a member of all committees that may, from time to time, be constituted by the Board of Directors. Section 5. VICE PRESIDENTS. In the absence of the president or in the event of his death, inability or refusal to act, the vice president (or in the event there be more than one vice president, the vice presidents in the order designated at the time of their election, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting shall have all the powers of and be subject to all the restrictions upon the president; and shall perform such other duties as from time to time may be assigned to him by the Board of Directors. Section 6. SECRETARY. The secretary shall:(a) keep the minutes of the shareholders and Board of Directors meetings in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these By-Laws or as required by law; (c) be custodian of the corporate records and of the seal of the corporation and see that the seal of the corporation is affixed to all certificates for shares prior to the issue thereof and to all documents, the execution of which on behalf of the corporation under its seal is duly authorized in accordance with the provisions of these By-Laws; (d) keep a register of the post office address of each shareholder which shall be furnished to the Secretary by such shareholder; (e) have general charge of the stock transfer books of the corporation; (f) in general perform all duties as from time to time may be assigned to him by the Board of Directors. Section 7. TREASURER. The treasurer shall have custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositaries as may be designated by the Board of Directors. He shall disburse the funds of the corporation as may be ordered by the Board, taking proper vouchers for such disbursements, and shall render to the president and directors, at 6 the regular meetings of the Board, or whenever they may require it, an account of all his transactions as treasurer and of the financial condition of the corporation. Section 8. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The assistant treasurers shall, if required by the Board of Directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the Board of Directors shall determine. The assistant treasurers and assistant secretaries, in general, shall perform such duties as shall be assigned to them by the treasurer or secretary, respectively, or by the president or the Board of Directors. Section 9. ANNUAL REPORT. The president or other officer of the corporation shall prepare or cause to be prepared annually a full and statement of the affairs of the corporation, including a balance sheet and a financial statement of operations for the preceding fiscal year, which shall be submitted at the annual meeting of shareholders and filed within twenty (20) days thereafter at the principal office of the corporation in the State of Maryland. Section 10. SALARIES. The salaries of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the corporation. Section 11. GIVING OF BOND. If required by the Board of Directors, any officer or other party shall give the corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of his duties and for the restoration to the corporation, in case of his death, resignation, retirement or removal from his office or other position, all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. ARTICLE VI CONTRACTS, LOANS, CHECKS AND DEPOSITS Section 1. CONTRACTS. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. Section 2. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. Section 3. DEPOSITS. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositaries as the Board of Directors may select. 7 ARTICLE VII SHARES OF STOCK Section 1. CERTIFICATES OF STOCK. Each shareholder shall be entitled to a certificate or certificates which shall represent and certify the number and kind and class of shares owed by him in the corporation. Each certificate shall be signed by the president or a vice president and countersigned by the secretary or an assistant secretary or the treasurer or an assistant treasurer and shall be sealed with the corporate seal. The signatures may be either manual or facsimile. Certificates shall be consecutively numbered; and if the corporation shall, from time to time, issue several classes of stock, each class may have its own number series. In case any officer who has signed any certificate ceases to be an officer of the corporation before the certificate is issued, the certificate may nevertheless be issued by the corporation with the same effect as if the officer had not ceased to be such officer as to the date of its issue. All certificates representing stock which is restricted or limited as to its transferability or voting powers or which is preferred or limited as to its dividends, or as to its share of the assets upon liquidation, or is redeemable at the option of the corporation, shall have a statement of such restriction, limitation, preference or redemption provision, or a summary thereof, plainly stated on the certificate. Section 2. TRANSFERS OF STOCK. Upon surrender to the corporation or the transfer agent of the corporation of a certificate of stock duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. The corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Maryland. Section 3. LOST CERTIFICATE. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the corporation alleged to have been stolen, lost or destroyed upon the making of an affidavit of that fact by the person claiming the certificate of stock to be stolen, lost or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion, and as a condition precedent to the issuance thereof, require the owner of such stolen, lost or destroyed certificate or his legal representative to advertise the same in such manner as it shall require and/or to give bond, with sufficient surety, to the corporation to indemnify it against any loss or claim which may arise by reason of the issuance of a new certificate. Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The Board of Directors may fix, in advance, a date as the record date for the purpose of determining shareholders entitled to notice of, or to vote at, any meeting of shareholders, or shareholders entitled to receive payment of any dividend or the allotment of any rights, or in order to make a determination of shareholders for any other proper purpose. Such date, in any 8 case, shall be not more than ninety (90) days, and in case of a meeting of shareholders not less than ten (10) days prior to the date on which the meeting or particular action requiring such determination of shareholders is to be held or taken. In lieu of fixing a record date, the Board of Directors may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, twenty (20) days. If the stock transfer books are closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least ten (10) days immediately preceding such meeting. If no record date is fixed and the stock transfer books are not closed for the determination of shareholders: (a) the record date for the determination of shareholders entitled to notice of, or to vote at, a meeting of shareholders shall be at the close of business on the day on which the notice of meeting is mailed, or the thirtieth (30th) day before the meeting, whichever is the closer date to the meeting; (b) the record date for the determination of shareholders entitled to receive payment of a dividend or an allotment of any rights shall be at the closed of business on the day on which the resolution of the Board of Directors, declaring the dividend or allotment of rights, is adopted. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof, except where the determination has been made through the closing of the stock transfer books and the stated period of closing has expired. ARTICLE VIII FISCAL YEAR The Board of Directors shall have the power, from time to time, to fix the fiscal year of the corporation by a duly adopted resolution. ARTICLE IX DIVIDENDS Section 1. DECLARATION. Dividends upon the capital stock of the corporation, subject to the provisions, if any, of the charter of the corporation, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the corporation, subject to the provisions of law and of the charter. Section 2. CONTINGENCIES. Before payment of any dividends, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors may from time to time, in its absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board shall determine to be in the best interest of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created. 9 ARTICLE X SEAL The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words, Incorporated Maryland. The Board of Directors may authorize one or more duplicate seals and provide for the custody thereof. ARTICLE XI INDEMNITY OF OFFICERS AND DIRECTORS The corporation shall indemnify and hold harmless each of its directors and officers against any and all expenses actually and necessarily incurred in connection with the defense of any action, suit or proceeding to which such director or officer is made a party by reason of his being, or having been, a director or officer of the corporation, except in relation to matters as to which he shall be adjudged in such action, suit or proceeding to be liable for gross negligence or misconduct in the performance of his duties as such director or officer. In the event of settlement of such action, suit or proceeding in the absence of such adjudication, indemnification shall include reimbursement of amounts paid in settlement and expenses actually and necessarily incurred by such director or officer in connection therewith, but such indemnification shall be provided only if this corporation is advised by its counsel that in his opinion such settlement is for the best interests of this corporation and the director or officer to be indemnified has not been guilty of gross negligence or misconduct in respect of any matter covered by such settlement. Such right of indemnification shall not be deemed exclusive of any other right, or rights, to which such director or officer may be entitled under any agreement, vote of shareholders or otherwise. ARTICLE XII WAIVER OF NOTICE Whenever any notice is required to be given under the provisions of these By-Laws or under the provisions of the charter of the corporation or under the provisions of the Maryland corporation law, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at, nor the purpose of any meeting need be set forth in the waiver of notice, unless specifically required by statute. The attendance of any person at any meeting shall constitute a waiver of notice of such meeting, except where such person attends a meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called or convened. ARTICLE XIII AMENDMENT OF BY-LAWS Section 1. BY DIRECTORS. The Board of Directors shall have the power, at any annual or regular meeting, or at any special meeting, if notice thereof be included in the notice of such special meeting, to alter or repeal any By-Laws of the corporation and to make 10 new By-Laws, except that the Board of Directors shall not alter or repeal this section or any By-Laws made by the shareholders. Section 2. BY SHAREHOLDERS. The shareholders entitled to vote shall have the power, at any annual meeting, or at any special meeting, if notice thereof be included in the notice of such special meeting, to alter or repeal any By-Laws of the corporation and to make new By-Laws. 11 EX-31.1 3 ex31-1.txt Exhibit 31.1 CERTIFICATIONS I, Dino A. Rossi, President and Chief Executive 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(s) 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 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 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(s) 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 functions): (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: May 10, 2004 /s/ Dino A. Rossi ----------------- Dino A. Rossi, President, Chief Executive Officer (Principal Executive Officer) 25 EX-31.2 4 ex31-2.txt Exhibit 31.2 CERTIFICATIONS I, Francis Fitzpatrick, Chief Financial Officer 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(s) 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 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 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(s) 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 functions): (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: May 10, 2004 /s/ Francis J. Fitzpatrick -------------------------- Francis J. Fitzpatrick, Chief Financial Officer and Treasurer (Principal Financial Officer) 26 EX-32.1 5 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 March 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Dino A. Rossi, President and Chief Executive 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 (Principal Executive Officer) May 10, 2004 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. 27 EX-32.2 6 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 March 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Francis J. Fitzpatrick, Chief Financial Officer 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 Chief Financial Officer and Treasurer (Principal Financial Officer) May 10, 2004 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. 28 -----END PRIVACY-ENHANCED MESSAGE-----