UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (date of earliest event reported): February 6, 2006
Balchem Corporation
(Exact name of registrant as specified in its charter)
Maryland 1-13648 13-257-8432
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation) Identification No.)
P.O. Box 600, New Hampton, NY 10958
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (845) 326-5600
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[_] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 2.01 Completion of Acquisition of Assets
Balchem Corporation (the "Company") previously filed a Current Report on
Form 8-K on February 9, 2006 to announce completion of the acquisition of all of
the outstanding capital stock of Chelated Minerals Corporation ("CMC"), a
privately held, Utah corporation for a purchase price of $17,350,000, subject to
adjustment based upon CMC's actual working capital and other adjustments (the
"Acquisition"). The Company indicated on the Form 8-K that it would file
financial information required under Item 9.01 below no later than 71 days after
the date on which the initial report on Form 8-K was required to be filed. This
Amendment No. 1 is filed to provide the required financial information.
Pursuant to Item 9.01 of Form 8-K, set forth below are the Financial
Statements and Pro Forma Financial Information relating to the Acquisition. Such
information should be read in conjunction with the Company's Current Reports on
Form 8-K filed on February 9, 2006, January 10, 2006 and November 7, 2005,
relating to the Acquisition.
Item 9.01 Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired
Independent Auditor's Report on Consolidated Balance Sheet, Statement of
Operations, Stockholders' Equity and Cash Flows.
Consolidated Balance Sheet as of February 28, 2005 and Consolidated
Statements of Operations, Stockholders' Equity, and Cash Flows for the
year ended February 28, 2005.
(b) Unaudited Pro Forma Financial Information
Unaudited Pro Forma combined Balance Sheet as of December 31, 2005, and
Pro Forma combined Statements of Operations for the year ended December
31, 2005.
2
Item 9.01(a) Financial Statements of Businesses Acquired
To the Board of Directors
Chelated Minerals Corporation and Subsidiary
Salt Lake City, Utah
We have audited the accompanying consolidated balance sheet of Chelated Minerals
Corporation and Subsidiary (Company) as of February 28, 2005, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statements presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material aspects, the financial position of Chelated Minerals
Corporation and Subsidiary as of February 28, 2005, and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
/s/ McGladrey & Pullen, LLP
New York, New York
January 6, 2006
3
Chelated Minerals Corporation and Subsidiary
Consolidated Balance Sheet
February 28, 2005
Assets
Current Assets:
Cash and cash equivalents $ 57,401
Accounts receivable 799,717
Inventory 456,086
Prepaid and other current assets 56,171
----------
Total current assets 1,369,375
----------
Property, plant and equipment, at cost less accumulated
depreciation of $1,312,657 2,022,523
----------
Other Assets:
Notes receivable, related parties 307,267
Security deposits 5,000
----------
Total other assets 312,267
----------
$3,704,165
==========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 148,466
Accrued expenses and other 120,609
Income taxes 334,015
----------
Total current liabilities 603,090
----------
Deferred income taxes 97,474
----------
Stockholders' Equity:
Common stock, $1 par value, 300,000 shares authorized,
243,496 shares issued and outstanding 243,496
Additional paid-in capital 355,448
Retained earnings 2,404,657
----------
Total stockholders' equity 3,003,601
----------
$3,704,165
==========
See Notes to Consolidated Financial Statements.
4
Chelated Minerals Corporation and Subsidiary
Consolidated Statement of Operations
Year Ended February 28, 2005
Net Sales $6,339,581
Cost of Goods Sold 2,689,724
----------
Gross profit 3,649,857
Selling, general and administrative expenses 2,513,859
----------
Income from operations 1,135,998
----------
Other Income:
Management fees 113,732
Rental income 15,600
Interest and other 35,811
----------
165,143
----------
Income before income taxes 1,301,141
Provision for income taxes 522,576
----------
Net income $ 778,565
==========
See Notes to Consolidated Financial Statements
5
Chelated Minerals Corporation and Subsidiary
Consolidated Statement of Stockholders' Equity
Year Ended February 28, 2005
Common Paid-in Retained
Stock Capital Earnings Total
-------------------------------------------------------------------------------
Balance, beginning $ 240,996 $ 328,723 $ 2,741,548 $ 3,311,267
Cash Dividends -- -- (1,115,456) (1,115,456)
Stock Options Exercised 2,500 26,725 -- 29,225
Net Income -- -- 778,565 778,565
----------- ----------- ----------- -----------
Balance, ending $ 243,496 $ 355,448 $ 2,404,657 $ 3,003,601
=========== =========== =========== ===========
See Notes to Consolidated Financial Statements.
6
Chelated Minerals Corporation and Subsidiary
Consolidated Statement of Cash Flows
Year Ended February 28, 2005
--------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net Income $ 778,565
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for bad debts 16,025
Depreciation and amortization 197,252
Loss on disposal of assets 3,208
Deferred income taxes 30,598
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (174,200)
Inventory (65,093)
Prepaid and other current assets (2,251)
Increase (decrease) in:
Accounts payable (64,174)
Accrued expenses and other (9,971)
Income taxes 432,932
-----------
Net cash provided by operating activities 1,142,891
-----------
Cash Flows From Investing Activities:
Capital expenditures (314,572)
Notes receivable, related parties 228,710
Security deposits (5,000)
-----------
Net cash (used in) investing activities (90,862)
-----------
Cash Flows From Financing Activities:
Proceeds from stock options exercised 29,225
Distributions to stockholders (1,115,456)
Repayment of long-term debt (91,356)
-----------
Net cash (used in) financing activities (1,177,587)
-----------
Net (decrease) in cash and cash equivalents (125,558)
Cash and Cash Equivalents:
Beginning 182,959
-----------
Ending $ 57,401
===========
Supplemental Disclosures of Cash Flow Information:
Cash payment for:
Income taxes $ 113,018
===========
Interest $ 2,632
===========
See Notes to Consolidated Financial Statements.
7
Chelated Minerals Corporation and Subsidiary
Notes to Combined Consolidated Financial Statements
February 28, 2005
Note 1. Summary of Significant Accounting Policies and Business
Description of Business:
------------------------
Chelated Minerals Corporation ("CMC") is a manufacturer of mineral dietary
supplements and feed supplements, located in Salt Lake City, Utah. The Company's
customers are primarily food and feed manufacturers and distributors located
both domestically and internationally.
CMC Sales Corporation ("Subsidiary") is a wholly-owned inactive subsidiary of
CMC.
Principles of Consolidation:
----------------------------
The consolidated financial statements include the accounts of CMC and CMC Sales
Corporation (collectively, the "Company"). All significant intercompany accounts
and transactions have been eliminated in the consolidated financial statements.
Revenue Recognition:
--------------------
CMC recognizes revenue generally as good are shipped, title transfers, risk of
loss passes to the buyer and collection is probable. Discounts and allowances
are provided for in the period the related revenue is recorded.
Cash and Cash Equivalents:
--------------------------
The Company considers all short-term, highly-liquid investments with an original
maturity of three months or less to be cash equivalents. The Company deposits
its temporary cash with financial institutions, at times, such balances may
exceed FDIC insured limits.
Accounts Receivable:
--------------------
Accounts receivable are carried at original invoice amount less an estimate made
for doubtful receivables based on a review of all outstanding amounts on a
monthly basis. Management determines the allowance for doubtful accounts by
regularly evaluating individual customer receivables and considering a
customer's financial condition, credit history, and current economic conditions.
Accounts receivables are written off when deemed uncollectible. Recoveries of
accounts receivables previously written off are recorded when received. At
February 28, 2005, management determined that no allowance was required.
Inventory:
----------
Inventory is stated at the lower of cost or market, with cost generally
determined on a first-in, first-out basis, and have been reduced by an allowance
for excess or obsolete inventory. Cost elements include: material, labor and
manufacturing overhead. At February 28, 2005 inventory consists of finished
goods and raw materials of $253,882 and $202,204, respectively.
Property, Plant and Equipment:
------------------------------
Property, plant and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation is computed using straight-line and accelerated
methods over the estimated useful lives of the assets which range from three to
twenty years.
Income Taxes:
--------------
Deferred taxes are provided on the liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences which are principally attributable to depreciation
methods. Temporary differences are the differences between the reported amounts
of assets and liabilities and their tax bases. Deferred tax assets are reduced
by a valuation
8
Chelated Minerals Corporation and Subsidiary
Notes to Combined Consolidated Financial Statements
February 28, 2005
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment.
Note 1. Summary of Significant Accounting Policies and Business (Continued)
Stock-Based Compensation:
--------------------------
The Company accounts for its employee stock option plans using the intrinsic
value approach in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. As permitted, the Company adopted the disclosure-only
requirements of SFAS No. 123, "Accounting for Stock-Based Compensation," which
allows entities to continue to apply the provisions of APB Opinion No. 25 for
transactions with employees and provide pro forma net income disclosures for
employee stock options as if the fair value method of accounting in SFAS No. 123
had been applied to these transactions. In 2005, pro forma stock-based
compensation determined under the fair value based method for all awards was
immaterial.
Detailed information for activity in the Company's stock plan and the
assumptions used in the fair value based method depicted above can be found in
Note 7.
Effects of Recently Issued Accounting Standards:
------------------------------------------------
In December of 2004, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment
("SFAS 123R"). Under SFAS 123R, share-based payment awards result in a cost that
should be measured at fair value on the awards' grant dates, based on the
estimated number of awards expected to vest. SFAS 123R requires this cost to be
recognized through earnings over that expected vesting period. The provisions of
SFAS 123R will become effective for the Company beginning March 1, 2007. SFAS
123R allows private companies to apply this standard prospectively. Under the
prospective application, the provisions of SFAS 123R are applied to new awards.
Use of Estimates:
-----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Although these estimates are based on
management's knowledge of current events and actions it may undertake in the
future, they may ultimately differ from actual results.
Advertising:
------------
Advertising is expensed as incurred and amounted to approximately $75,200 in
2005.
Note 2. Property, Plant and Equipment
At February 28, 2005, property, equipment and improvements consist of:
9
Chelated Minerals Corporation and Subsidiary
Notes to Combined Consolidated Financial Statements
February 28, 2005
Land and improvements $ 253,172
Building and improvements 1,532,967
Machinery furniture and equipment 1,549,041
----------
3,335,180
Less: Accumulated depreciation and amortization 1,312,657
----------
$2,022,523
==========
Subsequent to February 28, 2005, the Company sold a condominium with a net book
value of approximately $125,000 for an amount in excess of net book value. In
addition, it also distributed equipment with a net book value of approximately
$63,000 to a stockholder.
Note 3. Notes Payable and Long-Term Debt
The Company has a revolving line of credit ("the line") totaling $500,000. As of
February 28, 2005, the Company had no outstanding borrowings under the line. The
line, which expires July 10, 2006, bears interest at the bank's prime lending
rate plus .5% (4.5% as of February 28, 2005).
Note 4. Related Party Transactions
The Company leases one of its buildings to a party related by common ownership.
The leasing arrangement provides for minimum monthly rent of $1,500 through
August 1, 2012. In 2005, rental income under the agreement totaled $15,600. The
Company also received management fees from this related party of approximately
$114,000 and paid the related party approximately $147,500 for production
services. At February 28, 2005, the Company had a $226,267 demand note due from
this party. The note bears interest at a rate of 1.7% per annum.
The Company has employment agreements with two officers of the Company. In
addition to minimum annual compensation, the officers' agreements provide for
additional compensation based on commissions and administrative fees equal to 3%
of net sales. In 2005, these commissions and fees amounted to approximately,
$380,000. At February 28, 2005, the Company also, has demand notes due from
these officers totaling $51,500. The notes bear interest at a rate of 1.81% per
annum.
The Company also has a $29,500 demand note due from a third officer. The note
bears interest at a rate of 1.81% per annum.
All of these obligations are classified as other assets at February 28, 2005.
Note 5. Concentration of Credit Risk
Sales to one customer aggregated 15% in 2005. Approximately 38% of accounts
receivable were due from three other customers at February 28, 2005.
10
Chelated Minerals Corporation and Subsidiary
Notes to Combined Consolidated Financial Statements
February 28, 2005
Note 6. Retirement Plan
The Company has a SEP IRA plan, whereby eligible employees can contribute up to
20% of their compensation into the plan. Company contributions to this plan are
discretionary as determined by the Company's management. The Company contributed
approximately $74,000 to the plan for the year ended February 28, 2005.
Note 7. Stock Options
The Company has a stock option plan (the "Plan"). The Plan provides for the
grant to employees of the Company of incentive stock options to purchase shares
of the Company's common stock. The Plan also provides for the grant to certain
employees, officers, directors and consultants of the Company of nonqualified
options to purchase shares of the Company's common stock. The Plan is
administered by the Board of Directors which determines the terms of the options
granted, including the exercise price, the number of shares subject to option,
and the option vesting period.
For the year ended February 28, 2005, all stock options were issued with
exercise prices that approximated the fair value of the Company's common stock
at the date of grant. In accordance with Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees", the Company did not record any
compensation expense. Such options vest immediately and are exercisable for a
period of 5-7 years from the date of grant. The fair value assumptions utilized
in determining pro forma compensation expense for 2005 assumed 18% dividends,
risk-free weighted average interest rate of 5% and a weighted average expected
option life of 5 years for options granted under the Plan. The volatility factor
of the expected market price of the Company's common shares was assumed to be
zero for 2005.
The weighted average fair value calculated under SFAS No. 123 for stock options
granted during 2005 was insignificant.
A summary of the Company's stock option activity under the Plan is summarized as
follows:
Options Outstanding
-------------------
Weighted
Average
Number Price Per
of Shares Share
--------- ---------
Balance at March 4, 2004 47,500 $ 16.92
Granted 5,000 22.10
Exercised (2,500) 11.69
--------- ---------
Balance at February 28, 2005 50,000 $ 17.45
========= =========
11
Chelated Minerals Corporation and Subsidiary
Notes to Combined Consolidated Financial Statements
February 28, 2005
Note 8. Income Taxes
Deferred income taxes amounting to $97,474 arises primarily from Property, plant
and equipment. Accordingly, the entire amount has been classified as a
non-current liability in the accompanying balance sheet as of February 28, 2005.
The provision for income taxes charged to operations for the year ended February
28, 2005 consist of the following:
Current $491,978
Deferred 30,598
--------
$522,576
========
Note 9. Subsequent Event - Stock Purchase Agreement
In November 2005, the Company and its stockholders signed a stock purchase
agreement to sell the all of the outstanding shares of the Company to an
unrelated party for $17,350,000. The agreement, which was to expire in January
6, 2006, has been extended until February 15, 2006. The purchase price is
subject to adjustment based on the Company's working capital at the time of
closing.
12
Item 9.01(b) Pro Forma Financial Information
1. Description of Transaction and Basis of Presentation
On February 8, 2006, the Company, through its wholly owned subsidiary Balchem
Minerals Corporation ("BMC"), completed an acquisition, (the "Acquisition") of
all of the outstanding capital stock of Chelated Minerals Corporation ("CMC"), a
privately held Utah corporation, for a purchase price of $17,350 subject to
adjustment based upon CMC's actual working capital and other adjustments. On
February 6, 2006, the Company and its principal bank entered into a new Loan
Agreement (the "New Loan Agreement") providing for an unsecured term loan of
$10,000 (the "Term Loan"), the proceeds of which were used to fund the
acquisition, in part. The remaining balance of the purchase price of the
Acquisition was funded through Balchem's cash on hand. The Term Loan is payable
in equal monthly installments of principal, together with accrued interest, and
has a maturity date of March 1, 2009. The Term Loan is subject to an interest
rate equal to LIBOR plus 1.00%.
Because these unaudited pro forma condensed combined financial statements have
been prepared based on preliminary estimates of fair values attributable to the
Acquisition, the actual amounts recorded for the Acquisition may differ from the
information presented in these unaudited pro forma condensed combined financial
statements. The total purchase price has been allocated on a preliminary basis
to assets acquired and liabilities assumed based on management's best estimates
of fair value, with the excess cost over net tangible and identifiable
intangible assets acquired being allocated to goodwill. We retained the services
of a third party valuation firm to assist in the preliminary valuation of the
intangible assets and certain tangible assets acquired. These allocations are
subject to change pending a final analysis of the fair value of the assets
acquired.
The pro forma information presented is for illustrative purposes only and is not
necessarily indicative of the operating results or financial position that would
have been achieved if the Acquisition had occurred at the beginning of each
period, nor is it indicative of future operating results or financial position.
The unaudited pro forma condensed combined financial statements do not reflect
any operating efficiencies and cost savings that we may achieve with respect to
the combined companies. The pro forma information should be read in conjunction
with the accompanying notes thereto, and in conjunction with the historical
consolidated financial statements and accompanying notes of Balchem Corporations
annual reports on Form 10-K. The pro forma adjustments are based upon available
information and certain assumptions that we believe are reasonable.
2. Purchase Price
Preliminary Purchase Price Allocation
The preliminary allocation of the total purchase price, including acquisition
costs, of CMC's net tangible and intangible assets was based on their estimated
fair values as of February 8, 2006. Adjustments to these estimates will be
included in the allocation of the purchase price of CMC upon settlement of any
working capital or other adjustments. The excess of the purchase price over the
identifiable intangible and net tangible assets was allocated to goodwill. The
preliminary purchase price has been allocated as follows (in thousands):
13
Assets acquired and liabilities assumed:
Accounts receivable
$ 884
Inventory
552
Property, plant and equipment 1,980
Current liabilities (388)
Goodwill 11,475
Other long-term liabilities (2,368)
Financing costs 49
Other intangible assets
5,285
--------
Total purchase price
$ 17,469
========
Other intangible assets
We have estimated the fair value of other intangible assets through the use of
an independent third-party valuation firm. These estimates are based on a
preliminary valuation and are subject to change upon management's review of the
final valuation. The following table sets forth the components of these other
intangible assets and their weighted average estimated useful lives at February
8, 2006 (dollars in thousands):
Weighted Average
Useful Life
(in years)
----------------
Customer relationships $ 3,538 10
Trade names 656 17
Technology and trade secrets 737 17
Non-compete agreements 354 10
-------
Total intangible assets $ 5,285
=======
Tangible assets acquired and liabilities assumed
The following table summarizes the estimated fair value of property, plant and
equipment acquired from CMC and their estimated useful lives at February 8, 2006
(dollars in thousands):
Useful Life
(in years)
---------------
Land $ 360 N/A
Buildings 558 25
Machinery, equipment and other 1,062 5-12
-------
Total assets $ 1,980
=======
14
Goodwill
Of the total estimated purchase price, $16.8 million has been allocated to
goodwill and intangible assets. Both goodwill and intangible assets will be
tested annually for impairment in accordance with SFAS No. 142.
15
BALCHEM CORPORATION
Unaudited Pro Forma Combined Balance Sheet
December 31, 2005
(In thousands)
Historical
--------------------------
(actual) (unaudited)
Pro forma Pro Forma
Assets (1) Balchem (2) CMC Adjustments Combined
------ ----------- ----------- ----------- -----------
Current assets:
Cash and cash equivalents $ 12,996 $ 102 $ (7,571) (3) (7) $ 5,527
Accounts receivable 11,521 1,375 (491) (4) (7) 12,405
Inventories 8,540 628 (76) (4) (7) 9,092
Prepaid expenses 1,790 -- 1,790
Prepaid income taxes 143 -- 143
Deferred income taxes 276 -- 276
----------- ----------- ----------- -----------
Total current assets 35,266 2,105 (8,138) 29,233
----------- ----------- ----------- -----------
Property, plant and equipment, net 24,400 1,783 197 (4) (7) 26,380
Goodwill 13,327 -- 11,475 (4) 24,802
Intangibles and other assets, net 2,148 -- 5,285 (4) 7,433
Deferred financing costs 49 (5) 49
----------- ----------- ----------- -----------
Total assets $ 75,141 $ 3,888 $ 8,868 $ 87,897
=========== =========== =========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Trade accounts payable 2,562 143 245 (4) (7) $ 2,950
Accrued expenses 2,601 -- 2,601
Accrued compensation and other benefits 1,756 109 (109) (4) (7) 1,756
Customer deposits and other deferred revenue 1,186 -- 1,186
Dividends payable 1,045 -- 1,045
Current portion of long-term debt -- -- 2,000 (6) 2,000
----------- ----------- ----------- -----------
Total current liabilities 9,150 252 2,136 11,538
----------- ----------- ----------- -----------
Deferred income taxes 4,015 2,368 6,383
Long-term debt -- -- 8,000 (6) 8,000
Other long-term obligations 1,043 -- 1,043
----------- ----------- ----------- -----------
Total liabilities 14,208 252 12,504 26,964
----------- ----------- ----------- -----------
Stockholders' equity:
Common stock 776 286 (286) (7) 776
Additional paid-in capital 8,008 749 (749) (7) 8,008
Retained earnings 53,306 2,834 (2,834) (7) 53,306
Treasury stock (1,157) (233) 233 (7) (1,157)
----------- ----------- ----------- -----------
Total stockholders' equity 60,933 3,636 (3,636) 60,933
----------- ----------- ----------- -----------
Total liabilities and stockholders' equity $ 75,141 $ 3,888 $ 8,868 $ 87,897
=========== =========== =========== ===========
See accompanying notes to unaudited proforma combined financial statements
16
BALCHEM CORPORATION
Unaudited Pro Forma Combined Statement of Operations
Year ended December 31, 2005
(In thousands, except earnings per share data)
Historical
---------------------------
(actual) (unaudited)
Pro Forma Pro Forma
(8) Balchem (9) CMC Adjustments Combined
------------ ------------ ------------ ------------
Net sales $ 83,095 $ 6,022 $ 89,117
Cost of sales 54,415 2,598 (131) (10) (11) 56,882
------------ ------------ ------------ ------------
Gross profit 28,680 3,424 131 32,235
Operating expenses:
Selling expenses 4,739 986 438 (11) 6,163
Research and development expenses 2,053 133 2,186
General and administrative expenses 4,985 1,373 6,358
------------ ------------ ------------ ------------
Earnings from operations 16,903 932 (307) 17,528
Other income (expense):
Interest income (expense) - net 206 143 (452) (12) (103)
Other income - net 82 7 89
------------ ------------ ------------ ------------
Earnings before income tax expense 17,191 1,082 (759) 17,514
Income tax expense 6,237 615 (498) (13) 6,354
------------ ------------ ------------ ------------
Net earnings $ 10,954 $ 467 $ (261) $ 11,160
============ ============ ============ ============
Net earnings per common share - basic $ 0.95 $ 0.97
============ ============
Net earnings per common share - diluted $ 0.91 $ 0.93
============ ============
Weighted average shares outstanding - basic 11,560,756 11,560,756
============ ============
Weighted average shares outstanding - diluted 12,056,581 12,056,581
============ ============
See accompanying notes to unaudited proforma combined financial statements
17
Balchem Corporation
Notes to Unaudited Pro Forma Combined Financial Statements
Balance Sheet:
1) Represents the Company's historical consolidated balance sheet as of
December 31, 2005.
2) Represents the historical consolidated balance sheet of CMC as of December
31, 2005.
The pro forma combined financial statements have been adjusted for the items set
forth below:
3) To record cash paid as if the acquisition took place on December 31, 2005
of $7,469 which includes $68 and $49 for acquisition costs and deferred
financing costs respectively, incurred in connection with borrowings
pursuant to the $10,000 term loan used to finance the acquisition.
4) The following reflects the preliminary allocation of the purchase price
based upon available information for the CMC stock acquisition. These
allocations may change based on actual working capital and other
adjustments.
Purchase price, including transaction costs $ 17,469
Net assets acquired (excluding liabilities assumed) 8,504
--------
Subtotal 8,965
Fair value adjustments:
Property, plant and equipment 197
Liabilities assumed (2,756)
Deferred financing costs 49
--------
Subtotal 2,510
--------
Excess of cost over fair value of net assets acquired (goodwill) $ 11,475
========
5) Reflects the deferred financing charges incurred in connection with
borrowings pursuant to the $10,000 term loan used to finance the
acquisition. Such costs will be amortized over 3 years, the term of the
related debt.
6) To record borrowings pursuant to the term loan of $10,000 to fund the
acquisition of the CMC stock acquisition. The Term Loan is payable in
equal monthly installments of principal totaling approximately $250,
together with accrued interest, and has a maturity date of March 1, 2009.
Borrowing under the term loan bears interest at LIBOR plus 1%.
7) To eliminate the historical assets, liabilities, and equity of CMC.
18
Balchem Corporation
Notes to Unaudited Pro Forma Combined Financial Statements
Statement of Operations:
8) Represents the Company's historical consolidated statement of operations
for the year ended December 31, 2005.
9) Represents CMC's historical consolidated statement of operations for the
year ended December 31, 2005.
10) Adjustment to decrease depreciation expense included in cost of sales by
$174 to reflect depreciation expense based on the estimated fair value of
property, plant and equipment acquired and to conform the estimated useful
lives (in years) of machinery and equipment used in such calculation for
the year ended December 31, 2005. The decrease in depreciation expense is
due to the Company's belief that the assets acquired will have an average
useful life longer than that originally determined by CMC.
11) Adjustment of $481 to reflect amortization expense of intangible assets
acquired for the year ended December 31, 2005. The Company amortizes its
intangible assets over periods ranging from 10 to 17 years. Of the $481 of
amortization expense, $43 is included in cost of sales and $438 is
included in selling, general and Administrative expenses.
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 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.
12) Adjustment to reflect the Company's pro forma interest expense associated
with additional borrowings for the acquisitions and amortization of
deferred debt issuance costs. Interest is calculated on the $10,000 Term
Loan (variable rate assumed at 5.64%) resulting in interest expense of
approximately $452 for the year ended December 31, 2005.
The effects of a 1/8% increase or decrease in interest rates would change
annual interest expense by approximately $6.
13) Adjustment to apply the Company's effective tax rate of 36.3% to the
pretax earnings/(loss) of the pro forma adjustments and to the
earnings/(loss) of CMC. The effective tax rate used by the Company is
higher than applicable statutory rates due to the inclusion of state
income taxes.
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SIGNATURE
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 hereunto duly authorized.
BALCHEM CORPORATION
By:/s/ Dino A. Rossi
---------------------------
Dino A. Rossi, President &
Chief Executive Officer
Dated: April 28, 2006
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