UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2002
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 15[d] OF THE SECURITIES
EXCHANGE ACT OF 1934
For transition period from __________ to ___________
Commission file number 1-13648
A. Full title of the plan and the address of the plan, if different from that of
the issuer named below:
Balchem Corporation 401(k)/Profit Sharing Plan
B. Name of the issuer of the securities held pursuant to the plan and the
address of its principal executive office:
Balchem Corporation
52 Sunrise Park Road
PO Box 600
New Hampton, NY 10958
REQUIRED INFORMATION
Financial Statements:
4. In lieu of requirements of Items 1-3, audited statements and schedules
prepared in accordance with the requirements of ERISA for the plan's fiscal year
ended December 31, 2002 are presented herein.
Exhibits:
Consent of KPMG LLP, independent auditors
BALCHEM CORPORATION
401(k)/PROFIT SHARING PLAN
Table of Contents
Page
Independent Auditors' Report 1
Statements of Net Assets Available for Plan Benefits -
December 31, 2002 and 2001 2
Statements of Changes in Net Assets Available for Plan Benefits -
Years ended December 31, 2002 and 2001 3
Notes to Financial Statements 4
Supplemental Schedule
Schedule H, Part IV, Line 4(i) - Schedule of Assets Held at End of Year 10
Independent Auditors' Report
Plan Administrator
Balchem Corporation 401(k)/Profit Sharing Plan:
We have audited the accompanying statements of net assets available for plan
benefits of Balchem Corporation 401(k)/Profit Sharing Plan (the Plan) as of
December 31, 2002 and 2001, and the related statements of changes in net assets
available for plan benefits for the years then ended. These financial statements
are the responsibility of the Plan's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits 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 statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits of the Plan as
of December 31, 2002 and 2001, and the changes in net assets available for plan
benefits for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets held
at end of year as of December 31, 2002 is presented for the purpose of
additional analysis and is not a required part of the basic financial
statements, but is supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. This supplemental schedule is the
responsibility of the Plan's management. The supplemental schedule has been
subjected to the auditing procedures applied in our audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
June 6, 2003
BALCHEM CORPORATION
401(k)/PROFIT SHARING PLAN
Statements of Net Assets Available for Plan Benefits
December 31, 2002 and 2001
2002 2001
---------- ----------
Assets:
Investments (note 3) $6,619,535 5,886,820
Participant loans 140,716 104,691
Receivables:
Employer contribution 333,882 274,806
Participant contributions 38,247 35,880
Interest 1,055 657
---------- ----------
Total assets $7,133,435 6,302,854
========== ==========
See accompanying notes to financial statements.
2
BALCHEM CORPORATION
401(k)/PROFIT SHARING PLAN
Statements of Changes in Net Assets Available for Plan Benefits
Years ended December 31, 2002 and 2001
2002 2001
----------- -----------
Addition to net assets attributed to:
Investment income (loss):
Interest $ 75,455 57,412
Dividends 4,427 3,512
Net (depreciation) appreciation in fair value of investments
(note 3) (490,904) 107,259
----------- -----------
(411,022) 168,183
----------- -----------
Contributions:
Participant 894,705 863,038
Employer 563,354 464,298
----------- -----------
1,458,059 1,327,336
----------- -----------
Total additions 1,047,037 1,495,519
----------- -----------
Deductions from net assets attributed to:
Benefits paid to participants (193,604) (365,943)
Fees (3,344) (2,345)
Other, net (19,508) (28,928)
----------- -----------
Total deductions (216,456) (397,216)
----------- -----------
Net increase in net assets available for plan benefits 830,581 1,098,303
Net assets available for plan benefits at beginning of year 6,302,854 5,204,551
----------- -----------
Net assets available for plan benefits at end of year $ 7,133,435 6,302,854
=========== ===========
See accompanying notes to financial statements.
3
BALCHEM CORPORATION
401(k)/PROFIT SHARING PLAN
Notes to Financial Statements
December 31, 2002 and 2001
(1) Description of the Plan
The following description of the Balchem Corporation 401(k)/Profit Sharing
Plan (the Plan) provides only general information. Participants should
refer to the Plan agreement for a more complete description of the Plan's
provisions.
General
The Plan is principally a participant-directed, defined contribution plan
covering all active employees of Balchem Corporation (the Company) who have
60 days of service, as defined, and are 18 years of age or older. The Plan
is subject to the provisions of the Employee Retirement Income Security Act
of 1974 (ERISA).
The Company pays administrative and record-keeping fees for the Plan. Plan
participants are required to pay fees for participant loans and certain
brokerage fees for transactions pertaining to investments in Balchem
Corporation Common Stock.
Contributions
Each year, participants may contribute up to 75% of pretax annual
compensation, as defined in the Plan. Such amounts may be limited by the
maximum amounts allowed under Internal Revenue Service regulations.
Participants may also contribute amounts representing distributions from
other qualified defined benefit or defined contribution plans. Participants
direct the investment of their contributions into various investment
options offered by the Plan. The employer matching contributions equal 35%
of each participant's elected contribution and the Company may make
discretionary company profit-sharing contributions at the option of the
Company's Board of Directors. Matching contributions are made in company
stock on a monthly basis based upon the closing price of the stock on the
last trading day of each month and are subject to the vesting schedule
described below. Included in employers' contribution receivable as of
December 31, 2002 and 2001 were discretionary company profit-sharing
contributions made in January 2003 and 2002 for the 2002 and 2001 plan
years totaling $322,106 and $263,202, respectively.
Participant Accounts
Each participant's account is credited with the participant's contribution
and allocations of the Company's matching contributions and plan earnings
or losses. Allocations are based on participant account balances, as
defined. The benefit to which a participant is entitled is the benefit that
can be provided from the participant's vested account.
Vesting
Participants are 100% vested in their contributions plus actual earnings or
losses thereon. Vesting in the Company contribution portion of their
accounts plus actual earnings or losses thereon is based on years of
continuous service, as defined. A participant becomes 100% vested after two
years of service, except for employees hired as part of the Company's June
1, 2001 acquisition of certain assets of DCV, Inc. and its affiliate, DuCoa
L.P., whose prior credited service is used in determining the vested
portion of such matching contributions.
(Continued)
4
Investment Options
Upon enrollment in the Plan, participants may direct employee contributions
to any of the following options, administered by Connecticut General Life
Insurance Company (CIGNA). Employer matching and discretionary
contributions are made in company stock and are directed to the Balchem
Corporation Common Stock Fund:
Guaranteed Income Fund - A fixed income fund that seeks to provide
competitive yields relative to comparable guaranteed fixed income
investment funds. The fund offers predictability of investment return. The
fund invests primarily in intermediate-term bonds and commercial mortgages
within Connecticut General Life Insurance Company's general account.
Janus Adviser Balanced Account - A mutual fund which seeks long-term
capital growth consistent with preservation of capital and balanced by
current income, by investing in a combination of equity and fixed income
securities.
CIGNA Lifetime Funds - Lifetime funds are a family of funds comprised of
five distinct, multi-manager investment portfolios, based on the lifecycle
approach to investing - that different bond/stock mixes are appropriate for
individuals at different stages of their life. The objective of the funds
varies in keeping with the investment timeline, which uses the
participant's age as indicator of time remaining to retirement.
Large Cap Growth/Morgan Stanley Fund - A mutual fund, managed by Morgan
Stanley Dean Witter, whose investment strategy seeks to provide capital
appreciation with minimal focus on income. The performance objective is to
outperform the S&P 500 Index over full market cycles.
S&P 500 Index Fund - This fund is constructed to reflect the composition of
the S&P 500 Index. It seeks to provide long-term growth of capital and
income.
Large Cap Value/John A. Levin & Co. Fund - This fund seeks to consistently
achieve capital appreciation, capture high rates of return and avoid major
losses while remaining fully invested in the market. To achieve this, the
investment style emphasizes the preservation of capital, avoidance of risk
and control of volatility.
Aim Value Account - A mutual fund that seeks to provide long-term growth of
capital by investing primarily in equity securities judged by the portfolio
managers to be undervalued. The generation of income is secondary.
INVESCO Dynamics - A mutual fund which seeks to provide capital
appreciation. To minimize risk, the portfolio managers invest in a
multitude of companies in a variety of industries.
Small Cap Growth/Times Square Fund - A mutual fund that seeks to achieve
long-term capital appreciation by investing primarily in the common and
preferred stock of growing US Companies involved in new product development
and technological breakthroughs.
(Continued)
5
Janus Adviser Worldwide Growth Account - A fund which seeks long-term
growth of capital in a manner consistent with the preservation by investing
in foreign as well as domestic securities.
Balchem Corporation Common Stock - Contributions may be invested in common
stock of Balchem Corporation. Investments in this fund are limited to 10%
of a participant's contribution.
Participant Loans
Participants may borrow from their fund accounts a minimum of $1,000 up to
a maximum equal to the lesser of $50,000 or 50% of their vested account
balances. Loan terms extend up to five years or in excess of five years for
the purchase of a primary residence. The loans are secured by the balance
in the participants' accounts and bear interest at 10%.
Payment of Benefits
On termination of service, a participant may receive a lump-sum amount
equal to the vested value of his or her account, or upon death, disability
or retirement, the participant may elect to receive annual installments
over a period not to exceed the participant's lifetime, or the joint
lifetime of the participant and the participant's spouse, or an annuity
contract.
Income (Loss) Allocations
Investment income (loss) for an accounting period shall be allocated to
participants' accounts in proportion to the total of their respective
account balances at the beginning of such accounting period plus any
contributions or loan repayments credited to the account during the period.
Forfeited Accounts
Forfeited balances of terminated participants' nonvested accounts are
allocated to all active participant accounts as of the last day of the plan
year. Forfeited nonvested accounts totaled $2,793 and $10,786 at December
31, 2002 and 2001, respectively.
(2) Summary of Accounting Policies
Basis of Accounting
The financial statements of the Plan are presented on the accrual basis of
accounting.
Risks and Uncertainties
The assets of the Plan at December 31, 2002 and 2001 are primarily
financial instruments which are monetary in nature. Accordingly, interest
rates and market fluctuations have a more significant impact on the Plan's
performance than the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or in the same magnitude as
the prices of goods and services as measured by the consumer price index.
The investments are subject to risk conditions of the individual
investments' objectives, the stock market, interest rates, economic
conditions and world affairs.
(Continued)
6
Investment Valuation and Income Recognition
Investment securities held in the Plan's funds are stated at fair value
determined from publicly quoted market prices. Participant loans are valued
at cost, which approximates fair value. Purchases and sales of securities
are recorded on a trade-date basis. Interest income is recorded on the
accrual basis. Dividends are recorded on the ex-dividend date.
Payment of Benefits
Benefits are recorded when paid.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires the
plan administrator to make estimates and assumptions that could affect the
reported amounts of net assets at the date of the financial statements and
the reported amounts of changes in net assets available for plan benefits
during the reporting period. Actual results could differ from those
estimates.
(3) Investments
Investments at December 31, 2002 and 2001 consisted of:
2002 2001
---------- ----------
Cash equivalents $1,683,800 1,048,856
Mutual funds 3,120,520 3,383,997
Common stock* 1,815,215 1,453,967
---------- ----------
$6,619,535 5,886,820
========== ==========
* A portion of the common stock is nonparticipant-directed
The following represents investments that represent 5% or more of the
Plan's net assets:
2002 2001
---------- ----------
Balchem Corporation Common Stock* $1,815,215 1,453,967
Guaranteed Income Fund 1,683,800 1,048,856
Janus Adviser Balanced Account 719,265 642,395
S&P 500 Index Fund 1,238,971 1,655,841
Janus Adviser Worldwide Growth Account -- 324,734
Cigna Lifetime 40 407,015 420,468
========== ==========
* A portion of the Balchem Corportation Common Stock is
nonparticipant-directed
(Continued)
7
During the years ended December 31, 2002 and 2001, the Plan's investments
(including gains and losses on investments bought and sold, as well as held
during the year) (depreciated) appreciated in value as follows:
2002 2001
--------- ---------
Mutual funds $(706,757) (422,541)
Common stock 215,853 529,800
--------- ---------
$(490,904) 107,259
========= =========
(4) Nonparticipant-directed Investments
Information about the net assets and the significant components of the
changes in net assets relating to the nonparticipant-directed investments
is as follows:
December 31
--------------------------
2002 2001
----------- -----------
Net assets - Balchem Corporation Common Stock $ 1,815,215 1,453,967
=========== ===========
Year ended December 31
--------------------------
2002 2001
----------- -----------
Change in net assets:
Contributions $ 298,611 241,747
Dividends 5,575 4,076
Net appreciation 215,853 529,800
Benefits paid to participants (27,742) (79,012)
Fees (941) (825)
Transfers to participant-directed investments (130,108) (17,396)
----------- -----------
Net increase 361,248 678,390
Net assets at beginning of year 1,453,967 775,577
----------- -----------
Net assets at end of year $ 1,815,215 1,453,967
=========== ===========
A portion of the Balchem Corporation Common Stock is participant-directed.
(Continued)
8
(5) Related-Party Transactions
As of December 31, 2002 and 2001, the Plan holds 74,700 and 68,101 shares
of Balchem Corporation common stock, respectively, with a market value of
$1,815,215 and $1,453,967 at December 31, 2002 and 2001, respectively.
Certain Plan investments are shares of various funds managed by CIGNA.
CIGNA is the trustee of the Plan and, therefore, these transactions are
considered related-party transactions.
(6) Plan Termination
Although it has not expressed any intent to do so, the Company has the
right under the Plan to discontinue its contributions at any time and to
terminate the Plan subject to the provisions of ERISA. In the event of plan
termination, participants will become 100% vested in their accounts.
(7) Income Tax Status
The Plan has received a favorable determination letter dated March 22, 1999
from the Internal Revenue Service ruling that it is a qualified plan
pursuant to the appropriate section of the Internal Revenue Code (IRC) and,
accordingly, the earnings of the underlying trust of the Plan are not
subject to tax under present income tax law. Once qualified, the Plan is
required to operate in conformity with the IRC to maintain its
qualifications. Although the Plan has been amended since receiving the
determination letter, the Plan administrator and the Plan's tax counsel
believe that the Plan is designed and is currently being operated in
compliance with the applicable requirements of the IRC.
(8) Withdrawn Participants
Amounts allocated to participants who are no longer employed with the
Company but have not elected to withdraw from the Plan were $952,489 and
$871,575 at December 31, 2002 and 2001, respectively.
9
Schedule 1
BALCHEM CORPORATION
401(k)/PROFIT SHARING PLAN
Schedule H, Part IV, Line 4(i) - Schedule of Assets
Held at End of Year
December 31, 2002
Identity of issue, Description of investments including maturity date, Current
borrower, lessor or similar party rate of interest, collateral, par or maturity value value
----------------------------------------------- -------------------------------------------------------------------- -------------
Cigna Guaranteed Income Fund(1) Units of participation in Guaranteed Income Fund -
57,467 units, $29.30 per unit $ 1,683,800
Janus Adviser Balanced Account(1) Units of participation in Janus Adviser Balanced Account -
29,695 units, $24.22 per unit 719,265
Cigna Lifetime 60(1) Units of participation in CIGNA Lifetime 60 -
2,231 units, $11.97 per unit 26,702
Cigna Lifetime 50(1) Units of participation in CIGNA Lifetime 50 -
1,080 units, $11.06 per unit 11,939
Cigna Lifetime 40(1) Units of participation in CIGNA Lifetime 40 -
38,319 units, $10.62 per unit 407,015
Cigna Lifetime 30(1) Units of participation in CIGNA Lifetime 30 -
4,457 units, $10.62 per unit 47,346
Cigna Lifetime 20(1) Units of participation in CIGNA Lifetime 20
258 units, $10.24 per unit 2,641
John A. Levin & Co., Inc. Large Cap
Value/John A. Levin & Co. Fund(1) Units of participation in Large Cap Value/John A. Levin & Co. Fund -
13,360 units, $9.12 per unit 121,823
TimesSquare Capital Management, Inc.
S&P 500 Index Fund(1) Units of participation in S&P 500 Index Fund -
25,146 units, $49.27 per unit 1,238,971
Aim Value Account(1) Units of participation in AIM Value Account -
1,369 units, $33.00 per unit 45,214
Morgan Stanley Investment Management, Inc.
Large Cap Growth/Morgan Stanley Fund(1) Units of participation in Large Cap Growth/Morgan Stanley Fund -
6,144 units, $7.98 per unit 49,055
INVESCO Dynamics(1) Units of participation in INVESCO Dynamics -
6,063 units, $15.25 per unit 92,488
TimesSquare Capital Management, Inc.
Small Cap Growth/Times Square Fund(1) Units of participation in Small Cap Growth/Times Square Fund -
6,434 units, $12.97 per unit 83,466
Janus Adviser Worldwide Growth Account(1) Units of participation in Janus Adviser Worldwide Growth Account -
11,687 units, $23,50 per unit 274,595
Balchem Corporation Common Stock(1)(2) Units of participation in Balchem Common Stock -
74,700 units, $24.30 per unit 1,815,215
Participant loans(1) Interest rates range from 9.75% to 11.50% 140,716
-----------
Total $ 6,760,251
===========
(1) Parties-in-interest
(2) The cost basis of the Balchem Corporation Common Stock Fund at December 31,
2002 was $1,095,435.
10
PAGE>
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 Annual Report of the Balchem Corporation 401K/Profit
Sharing Plan (the "Plan") on Form 11-K for the period ended December 31, 2002 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Dino A. Rossi, President, Chief Executive Officer and Principal
Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350,
as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to my
knowledge:
(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 net assets available for plan benefits and changes in net assets
available for plan benefits.
/s/ Dino A. Rossi
--------------------------------------
Dino A. Rossi
President, Chief Executive Officer and
Principal Financial Officer
June 30, 2003
11
This certification accompanies the above-described Report on Form 11-K 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.
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 Annual Report of the Balchem Corporation 401(k)/Profit
Sharing Plan (the "Plan") on Form 11-K for the period ended December 31, 2002 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Francis J. Fitzpatrick, Corporate Controller 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 net assets available for plan benefits and changes in net assets
available for plan benefits.
/s/ Francis J. Fitzpatrick
--------------------------
Francis J. Fitzpatrick
Corporate Controller and
Treasurer
June 30, 2003
This certification accompanies the above-described Report on Form 11-K 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.
12
Independent Auditors' Consent
Plan Administrator
Balchem Corporation
401(k)/ Profit Sharing Plan:
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (No. 333-78355) of Balchem Corporation of our report dated June 6,
2003, relating to the statements of net assets available for plan benefits of
the Balchem Corporation 401(k)/Profit Sharing Plan as of December 31, 2002 and
2001, and the related statements of changes in net assets available for plan
benefits for the years then ended, and the related supplemental schedule,
included in this annual report on Form 11-K.
/s/ KPMG LLP
------------
KPMG LLP
Short Hills, New Jersey
June 30, 2003
13