Balchem Achieves Record Net Sales

01/11/06 Balchem Corporation has reported record net sales of $25.1 million for the quarter ended September 30, 2006. This is an increase of 18.8% above the $21.1 million result of the prior year comparable quarter. Record net earnings for the third quarter were $3.2 million, an increase of $0.1 million, or 4.2% as compared with the same period last year. This result includes $0.2 million of expense to recognize the impact of SFAS 123R (equity based compensation), which the Company adopted on January 1, 2006, and $0.2 million of expenses to support our recent pharmaceutical initiative. The $3.2 million in net earnings resulted in an increase in diluted net earnings of 4.0% to $0.26 per share for the third quarter of 2006 versus $0.25 per share for the comparable quarter of the prior year. Excluding the impact of the SFAS 123R charges, net earnings increased 11.0% quarter-over-quarter to $3.4 million, or $0.28 per diluted share. These results are comparable to net earnings of $3.0 million, or $0.25 per diluted share, for the previously reported third quarter of 2005, which did not require recognition of SFAS 123R charges.

In the third quarter of 2006, sales of the Encapsulated/Nutritional Products segment were $10.3 million, an increase of 21.7% from the prior year comparable quarter. This includes $1.2 million of sales from the Chelated Minerals Corporation (CMC) acquisition. Additional organic growth was derived principally from strength in sales of food, nutritional and human choline products, which grew 9.0% over the prior year comparable period. Earnings from operations for this segment improved 8.7% to $1.0 million in the current period as compared to $0.94 million in the comparable quarter of the prior year. The ARC Specialty Products segment generated earnings from operations of $2.9 million on quarterly sales of $8.0 million, which were 8.4% higher than the prior year comparable quarter, principally a result of increased sales of ethylene oxide products. Earnings from operations for this segment were 0.6% higher than the prior year quarter, primarily a result of the increased sales being partially offset by higher raw material costs and the inclusion of $0.12 million for the aforementioned SFAS 123R expense. The BCP Ingredients segment achieved quarterly sales of $6.8 million, increasing 28.7% over the prior year comparable quarter, with continued strong sales volumes in dry and aqueous choline products for the poultry and swine industries. The overall increase in sales volume drove earnings from operations for this segment, improving 16.0% to $1.1 million, as compared to $0.94 million in the prior year comparable quarter. The positive impact of the increased sales volume was partially offset by higher raw material costs in this segment also.

Consolidated gross profit for the quarter ended September 30, 2006 was $8.7 million, or an increase of 13.4% compared to $7.6 million for the prior year comparable period, primarily due to the above noted increase in sales. Operating (Selling, R&D, and Administrative) expenses increased 26.5% to $3.7 million, as compared to $2.9 million for the prior year comparable quarter, equaling 14.7% of net sales. This was an increase from the 13.8% of the prior year, and was primarily due to the inclusion of $0.24 million of the SFAS 123R expense, additional amortization and selling expense resulting principally from the CMC acquisition and expenditures in support of our new pharmaceutical initiative.

For the nine months ended September 30, 2006, net sales have increased 24.8% to $74.8 million compared to $60.0 million in the comparable prior year period. Excluding the acquisition of CMC, as well as the acquisition of certain assets of Loders Croklaan, we have realized growth in the core segments of 16.4%, year-over-year. Net earnings increased 8.9% to $9.1 million or $0.75 per diluted share, from $8.3 million, or $0.69 per diluted share in the prior year comparable period. Results for the nine months ended September 30, 2006 includes SFAS 123R expense of $0.66 million, in this initial year of adoption. Excluding the impact of the SFAS 123R charges, net earnings increased 16.9% year-over-year to $9.7 million, or $0.80 per diluted share. These results are comparable to net income of $8.3 million, or $0.69 per diluted share, for the previously reported nine months ended September 30, 2005, which did not require recognition of SFAS 123R charges.

Balance sheet ratios and our cash flow continue to be strong. Early in the first quarter, we borrowed $10 million, the proceeds of which were used to complete the funding of the CMC acquisition. On September 30, 2006, net cash and investments were $2.7 million, reflecting third quarter payments of $1.5 million of the previously noted borrowings, resulting in no outstanding debt at the end of the quarter.

Commenting on 2006, Dino A. Rossi, President and CEO of Balchem, said "We are pleased with the overall performance of the business, and especially with our sequentially sustained level of profitability. We have successfully implemented price increases in select markets to deal with the persistent, elevated costs of raw materials, and we continue to position the company to grow solidly going forward. Our recent acquisitions are integrated, and while some areas of their cost structures are challenged, they are contributing consistently to our strategic direction. Outside acquisition funding has been completely retired, and we have initiated a number of cost reduction capital projects at our plant facilities to improve our cost position going forward. As noted in the last few earnings press releases, we do expect to deliver double digit growth in sales and earnings over 2005."