Making the World a
Healthier Place
2023
Annual Report
A B O U T B A L C H E M
Balchem is committed to making the world a healthier place by delivering trusted, innovative, and
science-based solutions for the health and nutritional needs of the world. Balchem employs approximately
1,300 employees worldwide who provide the service, quality, and technology that enables our customers
to win with their customers. We have built a reputation for delivering results to all of our stakeholders.
Founded in 1967, Balchem, a Maryland corporation, became a publicly-traded company in 1970 and is
listed on Nasdaq under the symbol “BCPC.” Our corporate headquarters is located in Montvale, New
Jersey, and we have a broad network of sales offices, manufacturing sites, and R&D centers, primarily
located in the U.S. and Europe.
The Company consists of three business segments: Human Nutrition and Health, Animal Nutrition and
Health, and Specialty Products.
Balchem solves today, shapes tomorrow.
Human Nutrition and Health
Balchem Human Nutrition and Health is a global leader in the essential nutrient
choline, vitamin K2, chelated minerals, and microencapsulation technologies with
strong positions in powder, flavor and cereal system formulation. Food or beverage,
supplement or pharmaceutical, our Human Nutrition and Health business segment
provides ready-made and custom nutrients, vitamins, ingredients, systems, and
products that enable our customers to create better finished goods that improve
all aspects of life. As the human nutrition space continues to evolve, our capabilities
grow, allowing us to deliver scientifically proven health benefits and fantastic taste
in applications from infant formulas to performance shakes and functional foods.
Animal Nutrition and Health
Balchem Animal Nutrition and Health is a global leader in choline production,
nutrient encapsulation, chelated minerals, and functional ingredients. With a
growing portfolio of products and a dedication to innovation and industry
sustainability, Balchem Animal Nutrition and Health is leading the charge to meet
the nutritional needs of ruminants, swine, poultry, and companion animals.
Specialty Products
Our Specialty Products business segment specializes in re-packaging and
worldwide distribution of performance gases, for use in the sterilization of medical
devices, fumigation of nuts and spices, refrigeration, metal hardening, and other
industrial applications. We have the packaging and distribution know-how to
ensure the safe delivery of these products in returnable, reusable, environmentally
safe containers. Our Plant Nutrition business unit, included in Specialty Products,
provides highly bioavailable foliar applied chelated minerals and other specialty
micronutrients under the trade name Metalosate® to the agricultural market.
L E T T E R T O S H A R E H O L D E R S
Dear Fellow Shareholders:
2023 was another strong year for Balchem and as I reflect
back on the Company’s performance and progress in 2023,
we once again have much to be proud of relative to Balchem’s
accomplishments. I would like to begin by thanking our
approximately 1,300 employees who played such a critical role in
our success. Together, we continued to deliver solid financial
results while making significant progress on our strategic growth
initiatives.
In 2023, after delivering revenue growth of 14% and 18% in 2021 and 2022 respectively, our revenues declined
2% due in large part to the macro-economic environment and the general de-stocking that occurred in our
market. Despite this revenue decline, we delivered record earnings from operations of $159.2 million dollars,
an increase of 9.6 percent, and record adjusted EBITDA of $231 million dollars, an increase of 7.1 percent from
the prior year, and we fully restored our margin profile to more normalized levels following the inflationary
pressures we experienced in previous years. And, we also generated record free cash flow, allowing us to
further pay down our debt and reduce our leverage ratio on a net debt basis to 1.1 times our 2023 Adjusted
EBITDA.
In 2023 we fully integrated the Kappa Bioscience and Bergstrom Nutrition acquisitions made in the second
half of 2022. The addition of vitamin K2 and methyl-sulfonyl-methane, or MSM, to our product portfolio is
starting to play out as we expected with our now broader portfolio indeed enhancing our ability to provide
a broader array of innovative solutions for the health and nutritional needs of our customers and the world
at large.
We have shared with you over the course of the year a number of exciting new studies that support the
supplementation of our portfolio of minerals, nutrients, and vitamins, for both human and animal nutrition.
These studies augment existing science and bring new science to light, and they ultimately will support and
strengthen our efforts to drive increased awareness and market penetration.
I am particularly pleased with the progress we made in 2023 to more effectively market, communicate, and
promote the positive results from these studies to both our customers as well as the end consumers. We
have clearly enhanced our marketing capabilities to leverage the strong science behind our products so that
we can build awareness and ultimately drive penetration. While there is clearly more work to be done here,
we are making good progress.
Overall, we are very excited about the opportunities that exist with our portfolio of products, and we believe
that as the library of science keeps growing, and our marketing capabilities continue to be enhanced, the
market opportunity for our unique portfolio of products and technologies will grow as well.
L E T T E R T O S H A R E H O L D E R S ( C O N T I N U E D )
Additionally, we made important investments in plant and equipment in 2023. Of particular note, was the
completion of our expanded manufacturing facility for VitaCholine®, Balchem’s market leading brand of
human choline. The expansion and upgrade will increase output by approximately fifty percent and will allow
the company to better meet the rising demand for this essential nutrient, well known in the supplement
industry in relation to cognitive, liver, and overall health.
We also made significant progress in 2023 relating to the Company’s corporate social responsibilities.
Balchem released its fifth Sustainability Report in 2023, in which we provided an update on our progress
toward our 2030 goals to reduce both greenhouse gas emissions and water usage by 25 percent. And we were
extremely pleased to report that we are already tracking ahead of our 2030 goal on greenhouse gas emissions
reductions! Balchem’s approach remains unchanged as we continue to focus on our two main objectives:
providing innovative solutions for the health and nutritional needs of the world, and operating with excellence
as strong stewards of our stakeholders. As a result of our efforts, Balchem was once again named one of
America’s Most Responsible Companies by Newsweek magazine for the fourth consecutive year.
Additionally, in December, we announced another increase to our annual dividend, taking the dividend from
71 to 79 cents per share, an 11 percent increase year over year. This most recent increase marked the fifteenth
consecutive year of double-digit growth of our dividend which once again reinforced our commitment to our
long-standing dividend strategy.
All in all, another strong year for Balchem!
Lastly, I would like to take this opportunity to express my sincere thanks and gratitude to Dr. Televantos and
Mr. Premdas, both of whom retired from our Board at the end of their terms in June. Dr. Televantos served
on our Board for over 17 years and as our Lead Director for over 12 years. Mr. Premdas served on our Board
for over 14 years, including as Chair of our Audit Committee for 10 years. They provided oversight and
expertise through Balchem’s growth and have each left an indelible mark on our Board. On behalf of the
Company and the Board, I would like to thank them for their guidance and dedicated service over many
years and wish them all the best. With the retirements of Dr. Televantos and Mr. Premdas, we were pleased
to welcome two new independent directors to our Board. Olivier Rigaud, Chief Executive Officer of Corbion
N.V., a global food and biochemicals company based in the Netherlands, and Monica Vicente, Senior Vice
President and Chief Financial Officer of Fresh Del Monte Produce Inc., a global agricultural and fresh food
produce company based in the U.S., each bring added diversity, relevant market expertise, and strong global
business acumen to the Board.
As I look forward to 2024 and beyond, I believe we are well positioned to drive continued growth and
progress on our strategic growth initiatives. Thank you again to all of our stakeholders for your contributions
and continued support.
Sincerely,
Theodore L. “Ted” Harris
Chairman, President and Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2023
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
(State or other jurisdiction of incorporation or organization)
13-2578432
(I.R.S. Employer Identification Number)
5 Paragon Drive, Montvale, NJ 07645
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (845) 326-5600
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $.06-2/3 per share
Trading symbol
BCPC
Name of each exchange on which registered
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☑ No ☐
Indicate by check mark whether the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☑
Indicate by 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 such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit such files).
Yes ☑ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer ☑
Non-accelerated filer ☐
Accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))
by the registered public accounting firm that prepared or issued its audit report. ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-
based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to
§240.10D-1(b). ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☑
The aggregate market value of the common stock, par value $.06-2/3 per share (the “Common Stock”), issued and outstanding
and held by non-affiliates of the Registrant, based upon the closing price for the Common Stock on the NASDAQ Stock Market
LLC on June 30, 2023 was approximately $4,321,000,000. For purposes of this calculation, shares of the Registrant held by
directors and officers of the Registrant and under the Registrant’s 401(k)/profit sharing plan have been excluded.
The number of shares outstanding of Common Stock was 32,266,941 as of February 2, 2024.
DOCUMENTS INCORPORATED BY REFERENCE
Selected portions of the Registrant’s proxy statement for its 2024 Annual Meeting of Shareholders (the “2024 Proxy Statement”)
to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after Registrant’s fiscal
year-end of December 31, 2023 are incorporated by reference in Part III of this Annual Report on Form 10-K to the extent stated
therein.
Cautionary Statement Regarding Forward-Looking Statements
Certain statements in this Annual Report on Form 10-K, other than purely historical information, are “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not statements of
historical facts, but rather reflect our current expectations or beliefs concerning future events and results. We generally use the
words “believe,” “expect,” “intend,” “plan,” “anticipate,” “likely,” “will,” “would,” “will be,” “will continue,” “will likely
result,” “estimate,” “project,” “forecast,” “outlook,” “strategy,” “future,” “opportunity,” “may,” “should,” or the negative
thereof or variations thereon or similar expressions generally intended to identify forward-looking statements. Such forward-
looking statements, including those concerning our expectations, involve risks, uncertainties and other factors, some of which
are beyond our control, which may cause our actual results, performance or achievements, or industry results, to be materially
different from any future results, performance or achievements expressed or implied by such forward-looking statements. The
risks, uncertainties and factors that could cause our results to differ materially from our expectations and beliefs include, but are
not limited to, those factors set forth in this Annual Report on Form 10-K under “Item 1A. - Risk Factors.” You should read that
information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in
Item 7 of this report and our Consolidated Financial Statements and related notes in Item 8 of this report. We undertake no
obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or
otherwise.
BALCHEM CORPORATION
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Page Numbers
PART I
Item 1.
Item 1A.
Item 1B.
Item 1C.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Business
Risk Factors
Unresolved Staff Comments
Cybersecurity
Properties
Legal Proceedings
Mine Safety Disclosures
Information about Our Executive Officers
Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases
of Equity Securities
[Reserved]
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement schedules
SIGNATURE PAGE
1
7
14
15
16
16
16
17
18
20
21
27
28
68
68
69
70
70
70
70
70
71
74
PART I
Item 1.
Business (All amounts in thousands, except share and per share data)
General
Balchem Corporation (“Balchem,” the “Company,” “we” or “us”), was incorporated in the State of Maryland in 1967. We
develop, manufacture, distribute and market specialty performance ingredients and products for the nutritional, food,
pharmaceutical, animal health, medical device sterilization, plant nutrition and industrial markets. Our three reportable segments
are strategic businesses that offer products and services to different markets: Human Nutrition and Health, Animal Nutrition and
Health, and Specialty Products. Sales and production of products outside of our reportable segments and other minor business
activities are included in "Other and Unallocated".
We sell our products through our own sales force, independent distributors and sales agents. Financial information concerning our
business, business segments and geographic information appears in Management’s Discussion and Analysis of Financial
Condition and Results of Operations under Item 7 below and in the Notes to our Consolidated Financial Statements included
under Item 8 below, which information is incorporated herein by reference.
Human Nutrition and Health
The Human Nutrition and Health ("HNH") segment provides human grade choline nutrients and mineral amino acid chelated
products through this segment for nutrition and health applications. Choline is recognized to play a key role in the development
and structural integrity of brain cell membranes in infants, processing dietary fat, reproductive development and neural functions,
such as memory and muscle function. The Company's mineral amino acid chelates, specialized mineral salts, and mineral
complexes are used as raw materials for inclusion in premier human nutrition products; proprietary technologies have been
combined to create an organic molecule in a form the body can readily assimilate. Sales growth for human nutrition applications
is reliant on differentiation from lower-cost competitive products through scientific data, intellectual property and customers'
appreciation of brand value. Consequently, the Company makes investments in such activities for long-term value differentiation.
This segment also manufactures specialty vitamin K2, which plays a crucial role in the human body for bone health, heart health
and immunity, and methylsulfonylmethane ("MSM"), which is a widely used nutritional ingredient that helps provide benefits for
joint health, sports nutrition, skin and beauty, and healthy aging. This segment also serves the food and beverage industry for
beverage, bakery, dairy, confectionary, and savory manufacturers. The Company partners with its customers from ideation
through commercialization to bring on-trend beverages, baked goods, confections, dairy and meat products to market. The
Company has expertise in trends analysis and product development. With its strong manufacturing capabilities in customized
spray dried and emulsified powders, extrusion and agglomeration, blended lipid systems, liquid flavor delivery systems, juice and
dairy bases, chocolate systems, ice cream bases and variegates, the Company is a one-stop solutions provider for beverage and
dairy product development needs. Additionally, this segment provides microencapsulation solutions to a variety of applications in
food, pharmaceutical and nutritional ingredients to enhance performance of nutritional fortification, processing, mixing, and
packaging applications and shelf-life. Major product applications are baked goods, refrigerated and frozen dough systems,
processed meats, seasoning blends, confections, sports and protein bars, dietary plans, and nutritional supplements. The Company
also creates cereal systems for ready-to-eat cereals, grain-based snacks, and cereal based ingredients.
Animal Nutrition and Health
The Company’s Animal Nutrition and Health ("ANH") segment provides nutritional products derived from its microencapsulation
and chelation technologies in addition to the essential nutrient choline chloride. For ruminant animals, the Company’s
microencapsulated products boost health and milk production by delivering nutrient supplements that are biologically available,
providing required nutritional levels. The Company’s proprietary chelation technology provides enhanced nutrient absorption for
various species of production and companion animals and is marketed for use in animal feed throughout the world. ANH also
manufactures and supplies choline chloride, an essential nutrient for monogastric animal health, predominantly to the poultry, pet
and swine industries. Choline, which is manufactured and sold in both dry and aqueous forms, plays a vital role in the metabolism
of fat. In poultry, choline deficiency can result in reduced growth rates and perosis in young birds, while in swine production
choline is a necessary and required component of gestating and lactating sow diets for both liver health and prevention of leg
deformity. This segment also manufactures MSM, which is a widely used nutritional ingredient that provides benefits for pet
health.
1 Sales of value-added encapsulated products are highly dependent on overall industry economics as well as the Company's ability
to leverage the results of university and field research on the animal health and production benefits of our products. Management
believes that success in the commodity-oriented choline chloride marketplace is highly dependent on the Company’s ability to
maintain its strong reputation for excellent product quality and customer service. The Company continues to drive production
efficiencies in order to maintain its competitive-cost position to effectively compete in a competitive global marketplace.
Specialty Products
The Company re-packages and distributes a number of performance gases and chemicals for various uses by its customers,
notably ethylene oxide, propylene oxide, and ammonia. Ethylene oxide is sold as a sterilant gas, primarily for use in the health
care industry. It is used to sterilize a wide range of medical devices because of its versatility and effectiveness in treating hard or
soft surfaces, composites, metals, tubing and different types of plastics without negatively impacting the performance of the
device being sterilized. Contract sterilizers and medical device manufacturers are principal customers for this product. Propylene
oxide is marketed and sold as a fumigant to aid in the control of insects and microbiological spoilage, to reduce bacterial and mold
contamination in certain shelled and processed nut meats, processed spices, cacao beans, cocoa powder, raisins, figs and prunes,
and for various chemical synthesis applications, such as increasing paint durability and manufacturing specialty starches and
textile coatings. Ammonia is used primarily as a refrigerant, for heat treatment of metals and various chemical synthesis
applications, and is distributed in reusable and recyclable drum and cylinder packaging approved for use in the countries these
products are shipped to.
The Company’s performance gases and chemicals are distributed worldwide in specially designed, reusable and recyclable drum
and cylinder packaging, to assure compliance with safety, quality and environmental standards as outlined by the applicable
regulatory agencies in the countries our products are shipped to. The Company’s inventory of these specially built drums and
cylinders, along with its five filling facilities, represents a significant capital investment. The Company also sells single use
canisters for use in sterilizing re-usable devices typically processed in autoclave units in hospitals.
The Company’s micronutrient agricultural nutrition business sells chelated minerals primarily to producers of high value crops.
The Company has a unique and patented two-step approach to solving mineral deficiency in plants to optimize health, yield and
shelf-life. First, the Company determines optimal mineral balance for plant health. The Company then has a foliar applied
Metalosate® product range, utilizing patented amino acid chelate technology. Its products quickly and efficiently deliver mineral
nutrients. As a result, the farmer/grower gets healthier crops that are more resistant to disease and pests, larger yields and healthier
food for the consumer with extended shelf life for produce being shipped long distances.
Acquisitions
On August 30, 2022, the Company's wholly-owned subsidiary Albion Laboratories, Inc. ("Albion") entered into a Stock Purchase
Agreement, and closed on such transaction with Cardinal Associates Inc. ("Cardinal"), a corporation organized under the laws of
the State of Washington, pursuant to which Albion acquired Cardinal and its Bergstrom Nutrition business (collectively,
"Bergstrom"). Bergstrom is a leading science-based manufacturer of MSM, based in Vancouver, Washington. Details related to
the Bergstrom acquisition are disclosed in Note 2, Significant Acquisitions. The addition of OptiMSM®, Bergstrom Nutrition's
MSM brand, to the Company's portfolio within the Human Nutrition and Health and Animal Nutrition and Health segments
provides a synergistic scientific advantage in Balchem's key strategic therapeutic focus areas such as longevity and performance
and is a strong fit with Balchem's specialty, science-backed mineral products.
On June 21, 2022, the Company and its wholly-owned subsidiary, Balchem B.V., completed the acquisition of Kechu BidCo AS
and its subsidiary companies, including Kappa Bioscience AS, a leading science-based manufacturer of specialty vitamin K2 for
the human nutrition industry, headquartered in Oslo, Norway (all acquired companies collectively referred to as “Kappa”). Details
related to the Kappa acquisition are disclosed in Note 2, Significant Acquisitions. The acquisition strengthens the Company's
scientific and technical expertise, geographic reach, and marketplace leadership, which should ultimately lead to accelerated
growth for the Company's portfolios within the Human Nutrition and Health segment.
Raw Materials
The raw materials utilized by us in the manufacture of our products are sourced from suppliers both domestically and
internationally. Such raw materials include materials derived from petrochemicals, minerals, metals, agricultural commodities and
other readily available commodities and are subject to price fluctuations due to market conditions. In 2023, supply reliability
improved due to a weaker macroeconomic (demand) environment though we experienced some difficulties in procuring certain
materials due to the challenging geopolitical environment impacting some supply lanes. In a year of mixed inflationary and
2 deflationary trends across key categories we source, we were able to secure most necessary materials from our suppliers and
continued to strive to ensure a sustainable supply chain to support our growing business operations.
Intellectual Property
We currently hold over 130 patents and over 400 trademarks in the United States and overseas. We also use know-how, trade
secrets, formulae, and manufacturing techniques that assist in maintaining competitive positions of certain of our products.
Formulae and know-how are of particular importance in the manufacture of a number of our proprietary products. We believe that
our patents, in the aggregate, are advantageous to our business. However, we do not believe we are materially dependent on any
particular patent or any particular group of patents. We believe that our sales and competitive position are dependent primarily
upon the quality of our products, technical sales efforts and market conditions, rather than on patent protection.
Seasonality
While in general, the businesses of our segments are not seasonal to any material extent, the plant nutrition business within
Specialty Products is a seasonal business with the vast majority of sales occurring in the first half of the year, based on the
planting season in the northern hemisphere.
Backlog
At December 31, 2023, we had a total backlog of $42,957 (comprised of $32,418 for the HNH segment; $7,639 for the ANH
segment; $2,678 for the Specialty Products segment, and $222 for other), as compared to a total backlog of $47,022 at
December 31, 2022 (comprised of $31,550 for the HNH segment; $11,983 for the ANH segment; $2,980 for the Specialty
Products segment and $509 for other). It has generally been our policy and practice to maintain an inventory of finished products
and/or component materials for our segments to enable us to ship products within two months after receipt of a product order. All
orders in the current backlog are expected to be filled in the 2024 fiscal year.
Competition
Our competitors include many large and small companies, some of which have greater financial, research and development,
production and other resources than us. Competition in the supplement, food and beverage markets we serve are based primarily
on product performance, customer support, quality, service and price. The development of new and improved products is
important to our success. This competitive environment requires substantial investments in product and manufacturing process
research and development. In addition, the winning and retention of customer acceptance of our food and nutrition products
involve substantial expenditures for application testing, either internally or at customer/prospect sites, and sales efforts. Our
competition in this market includes a variety of ingredient and nutritional supplement companies, many of which are privately-
held. Therefore, it is difficult to assess the size of all of our segment competitors or where we rank in comparison to such
privately-held competitors.
Competition in the animal feed and industrial markets we serve is based primarily on product performance, customer support,
quality, service and price. The markets for our products are subject to competitive risks because these markets are highly price
competitive. Our competition in this market includes a variety of animal nutrition and health ingredient companies, along with
certain industrial companies, many of which are privately-held. Therefore, we are unable to assess the size of all of our
competitors or where we rank in comparison to such privately-held competitors.
In the Specialty Products segment, competition within Performance Gases is based primarily on service, reliability, quality, and
price. Our competitors in this market vary globally, many of which are regional privately-held companies. We also face
competition from alternate technologies or substitute products. In our plant nutrition business, competition is based primarily on
product performance, customer support, quality, and price. The development of new and improved products is also important to
our ability to compete. Our competition in this market is primarily regional privately-held companies.
Research and Development
During the years ended December 31, 2023, 2022 and 2021, we incurred research and development expenses of approximately
$15,049, $12,191, and $13,524, respectively, on Company-sponsored research and development for new products, improvements
to existing products, and manufacturing processes. We have historically funded our research and development programs with
3 funds available from current operations with the intent of recovering those costs from profits derived from future sales of products
resulting from, or enhanced by, the research and development effort.
We prioritize our product development activities in an effort to allocate resources to those product candidates that, we believe,
have the greatest commercial potential. Factors we consider in determining the products to pursue include projected markets and
needs, status of our proprietary rights, technical feasibility, expected and known product attributes, and estimated costs to bring
the product to market.
Capital Projects
We continue to invest in projects across all production facilities and capital expenditures were approximately $37,274, $49,086,
and $36,142 for 2023, 2022 and 2021, respectively. In 2023, we invested $20,720 on projects expected to provide favorable
returns on investment, including expanded capacity in key product lines in the HNH segment. In addition, we invested $6,900 for
environmental, health, safety, and security upgrades to our facilities. In 2022, we invested $29,759 on projects expected to
provide favorable returns on investment, including expanded capacity in key product lines in the HNH segment. In addition, we
invested $6,020 for environmental, health, safety, and security upgrades to our facilities and $3,024 in automation projects that
improved quality and efficiency of our operations. In 2021, we invested $20,544 on projects expected to provide favorable returns
on investment, including expanded capacity in key product lines in the HNH segment. In addition, we invested $3,138 for
environmental, health, safety, and security upgrades to our facilities, $2,330 in automation projects that improved quality and
efficiency of our operations, and $2,222 in research and development projects. Capital expenditures are projected to range from
$35,000 to $40,000 for 2024, including our continued efforts to invest in energy and water saving projects, while exploring
additional renewable energy opportunities in support of the company's sustainability efforts.
Environmental and Regulatory Matters
The Federal Insecticide, Fungicide and Rodenticide Act (“FIFRA”), a health and safety statute, requires that certain products
within our Specialty Products segment must be registered with the U.S. Environmental Protection Agency ("EPA") because they
are considered pesticides. As part of the registration review process, the EPA assesses a wide variety of studies to determine the
likelihood of risk to human health and the environment from exposure associated with use of the product. We hold EPA
registrations permitting us to sell ethylene oxide as a medical device sterilant and spice fumigant and propylene oxide as a
fumigant of nuts and spices.
In April 2008, the EPA issued a RED (“Re-registration Eligibility Decision”) for ethylene oxide which permitted the continued
use of ethylene oxide “to sterilize medical or laboratory equipment, pharmaceuticals, and aseptic packaging, or to reduce
microbial load on musical instruments, cosmetics, whole and ground spices and other seasoning materials and artifacts, archival
material or library objects”. In 2013, the EPA initiated a new registration review of ethylene oxide, in line with and as part of the
registration review scheduled for a large number of other pesticides. When the Final Work Plan was issued in March 2014, the
EPA anticipated that this registration review process would take approximately seven years. In December 2016, the EPA issued
its Integrated Risk Information System (“IRIS”) assessment of ethylene oxide (the "IRIS Assessment"), another aspect of the
EPA’s safety review of ethylene oxide. In November 2020, the EPA issued a Draft Human Health Risk Assessment for Ethylene
Oxide (“Draft HHRA”). In this Draft HHRA, the EPA presented multiple perspectives on risk extrapolation, including the IRIS
Assessment. While acknowledging the necessity of maintaining the critical uses of ethylene oxide, based on the range of unit risk
provided in this qualitative assessment, the EPA stated that there should be further mitigation measures implemented. In April
2023, the EPA released a Proposed Interim Decision and Draft Human Health Risk Assessment addendum which included certain
proposed mitigation measures. We believe that the EPA intends to reregister ethylene oxide for the sterilization of medical or
laboratory equipment, pharmaceuticals, aseptic packaging, and the reduction of microbes on spices/seasonings, with the proposed
mitigation measures potentially impacting such users, including our customers. The product, when used as a sterilant for certain
medical devices, has no known equally effective substitute. In October 2019, the U.S. Food and Drug Administration in a public
statement said, "Although medical devices can be sterilized by several methods, ethylene oxide is the most common method of
sterilization of medical devices in the U.S. and is a well-established and scientifically-proven method of preventing harmful
microorganisms from reproducing and causing infections." Management believes the lack of availability of this product could not
be reasonably tolerated by various medical device manufacturers or the health care industry due to the resultant infection
potential.
Similarly, the EPA issued a RED for propylene oxide in August 2006. At that time, the EPA “determined that products containing
the active ingredient propylene oxide ("PPO") are eligible for re-registration provided that…risk mitigation measures…are
adopted.” In 2013, the EPA initiated a new registration review of propylene oxide, in line with and as part of the registration
review scheduled for a large number of other pesticides. A Final Work Plan was issued in March 2014, and the EPA anticipated
that this review process would take approximately seven years. In October 2020, the EPA issued both the Proposed Interim
4 Decision and Draft Risk Assessment for propylene oxide. In July 2021, the EPA issued the Interim Decision. Based on these
documents, the use of propylene oxide to treat nuts and spices will continue to be permitted with minimal changes to the current
approved usage. We submitted those changes and expect the EPA to review and approve them in the coming months during 2024.
Our facility in Verona, Missouri facility, while held by a prior owner, Syntex Agribusiness, Inc. (“Syntex”), was designated by the
EPA as a Superfund site and placed on the National Priorities List in 1983 because of dioxin contamination on portions of the site.
Remediation was conducted by Syntex under the oversight of the EPA and the Missouri Department of Natural Resources. We are
indemnified by the sellers under our May 2001 asset purchase agreement covering our acquisition of the Verona, Missouri facility
for potential liabilities associated with the Superfund site, and one of the sellers, in turn, has the benefit of certain contractual
indemnification by Syntex in relation to the implementation of the above-described Superfund remedy. In June 2023, in response
to a Special Notice Letter received from the EPA in 2022, BCP Ingredients, Inc. ("BCP"), the Company's subsidiary that operates
the site, Syntex, EPA, and the State of Missouri entered into an Administrative Settlement Agreement and Order on Consent
(“ASAOC”) for a focused remedial investigation/feasibility study ("RI/FS") under which (a) BCP will conduct a source
investigation of potential source(s) of releases of 1,4-dioxane and chlorobenzene at a portion of the site and (b) BCP and Syntex
will complete a RI/FS to determine a potential remedy, if any is required. Activities under the ASAOC are underway and are
expected to continue for some period of time.
In connection with normal operations at our plant facilities, we are required to maintain environmental and other permits,
including those relating to the use of ethylene oxide. From time to time, our manufacturing sites may be subject to inspections by
the EPA and other agencies. To the extent any consent orders or other agreements are entered into as a result of findings from
such inspections, the Company is committed to ensuring compliance with such orders or agreements. For a further discussion of
our potential environmental liabilities, see Note 16, Commitments and Contingencies, to our Consolidated Financial Statements.
We believe we are in compliance in all material respects with applicable laws and regulations that have been enacted or adopted
regulating the discharge of materials into the environment or otherwise relating to the protection of the environment. Such
compliance includes the maintenance of required permits under air pollution regulations and compliance with requirements of the
Occupational Safety and Health Administration. The cost of such compliance has not had a material effect upon the results of our
operations or our financial condition.
We produce products which are required to be manufactured in conformity with current Good Manufacturing Practice (“cGMP”)
regulations as interpreted and enforced by the FDA, through third party contract arrangement. Modifications, enhancements or
changes in contracted manufacturing facilities or procedures relating to our pharmaceutical products are, in many circumstances,
subject to FDA approval, which may be subject to a lengthy application process or which we may be unable to obtain. Any
contracted manufacturing facilities that manufacture our pharmaceutical products are periodically subject to inspection by the
FDA and other governmental agencies, and operations at these facilities could be interrupted or halted if the results of these
inspections are unsatisfactory.
Human Capital
Our employees are our most valued asset and fundamental to our success. As of December 31, 2023, we employed approximately
1,302 full-time employees worldwide, with approximately 18% covered by collective bargaining agreements. We are seeing some
modest improvement in most relevant labor markets and we believe that we have been successful in attracting skilled and
experienced personnel in a competitive environment and that our human capital resources are adequate to perform all business
functions. In addition, we continue to enhance technology to further optimize productivity and performance.
Health and Safety
Protecting the workplace environment and the health and safety of our employees, contractors, visitors, and neighbors is our top
priority. Our recordable injury rate, which is defined as recordable injuries per 200,000 hours worked, was 1.39 and 1.17 in 2023
and 2022, respectively. The injuries were primarily the result of manual material handling and cultural/behavioral factors that
influence outcome. We are adjusting our 2024 environmental, health, safety, and security management system to include an even
greater emphasis on hazard identification/correction and cultural/behavioral aspects of personal safety. In addition, we continually
upgrade our facilities to reduce health and safety risks and establish procedures with appropriate personnel protection for the
safety of our employees.
Diversity and Inclusion
We recognize that our best performance is achieved when our teams are diverse, and accordingly, diversity and inclusion are
important elements of Balchem's Human Resources strategy. We strive to promote inclusion through the implementation of
inclusive leadership training across the Company and are committed to increasing representation of minorities throughout the
organization. In 2023, our total workforce consisted of 74% male and 26% female among all employees and 47% male and 53%
5 female when excluding supply chain and operations functions. In 2022, our total workforce consisted of 75% male and 25%
female among all employees and 50% male and 50% female when excluding supply chain and operations functions. With the
support of our Board of Directors, we continue to explore additional diversity and inclusion initiatives.
Training and Well-Being Programs
We strive to develop employee skills and knowledge, which includes training for job-specific technical knowledge, regulatory
requirements, and company policies, through our internal learning and development platform. The topics of trainings include the
Company's Code of Conduct, anti-harassment and discrimination, foreign corrupt practices, antitrust, cyber security, and various
other compliance subjects. Our sponsored employee continuing learning program offers a broad base of assistance for employees,
including learning and development courses. We also deployed unconscious bias and inclusive leadership training to our
management team. Employees have access to healthy lifestyle discounts through our Wellness Center, as well as debt, legal, and
financial counseling. Leadership programs, peak performance training and multiple online services and courses enable our
employees to choose their own learning paths and work towards achieving their goals for education, finances, and overall well-
being.
Performance Review, Compensation and Benefits
Our annual performance review process is an important, objective-based dialogue to foster continuous growth and development
by providing an opportunity to establish goals and deliver feedback relative to each employee's performance. Balchem's annual
review process is closely aligned with a formal succession planning and talent review process designed to identify and develop the
next generation of leaders.
We are dedicated to providing full-time employees with a competitive compensation package that includes medical, dental,
vision, and prescription benefits in addition to a 401(k) matching program. Balchem also provides financial support for health and
wellness programs such as online financial wellness content, sponsored weight loss programs and subsidized gym memberships.
We also provide generous time off and leave benefits, which are important to help ensure employees can enjoy a healthy balance
between work and family time.
For the years ended December 31, 2023 and 2022, our turnover rate was 11% and 15%, respectively, for salaried employees with
an average length of service of over 9 years for both years. For the years ended December 31, 2023 and 2022, our turnover rate
was 29% and 36%, respectively, for hourly employees with an average length of service of about 7 years for both years. We are
continuing to improve employee retention with effective employment engagement efforts, a productive performance review
process, and competitive compensation.
Sustainability
We operate as strong stewards of our shareholders, customers, suppliers, employees, and the communities in which we operate.
We are working to make our workforce more inclusive, our business more sustainable, and our communities more engaged by
maintaining strong environmental, social and governance practices.
In 2023, we published our 2022 Sustainability Report. This report provides detailed information regarding our Corporate
Responsibility strategy, focus areas and governance structure. We are committed to reducing our greenhouse gas emissions by
implementing new technologies, improving operational efficiencies, and expanding green energy usages. In addition, we are
committed to reducing our global water use by reducing and recycling water usage and investing new technologies to improve
water efficiency. For more information on our approach to sustainability management, refer to our 2022 Sustainability Report,
which is available on our website at https://balchem.com/our-company/corporate-social-responsibility/sustainability. The
information contained on, or that may be accessed through, the Company’s website is not incorporated by reference into, and is
not part of, this Annual Report on Form 10-K.
In December 2023, Balchem was named on Newsweek's 2024 list of America's Most Responsible Companies and has earned a
ranking amongst this prestigious list of companies for the fourth consecutive year. This prestigious list, compiled by Newsweek in
partnership with Statista Inc., recognizes the most responsible companies in the U.S. across a variety of industries, and is based on
their assessment of publicly available corporate responsibility data. We are pleased to be recognized by Newsweek and Statista
for our leadership in corporate responsibility.
Available Information
Our headquarters is located at 5 Paragon Drive, Montvale, NJ 07645. Our telephone number is (845) 326-5600 and our Internet
website address is www.balchem.com. We make available through our website, free of charge, our Annual Reports on Form 10-
6 K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to such reports, as soon as reasonably
practicable after they have been electronically filed with the Securities and Exchange Commission (the "SEC"). Such reports are
available via a link from the Investor Relations page on our website to a list of our reports on the SEC’s EDGAR website. The
address of the SEC's website is www.sec.gov.
Item 1A. Risk Factors
We discuss our expectations regarding future performance, events and outcomes in this Form 10-K, quarterly and annual reports,
press releases and other written and oral communications. All statements except for historical and present factual information are
“forward-looking statements” and are based on financial data and business plans available only as of the time the statements are
made, which may become outdated or incomplete. Forward-looking statements are inherently uncertain, and investors must
recognize that events could significantly differ from our expectations. You should carefully consider the risk factors discussed
below, together with all the other information included in this Form 10-K, in evaluating us and our ordinary shares. If any of the
risks below actually occurs, our business, financial condition, results of operations and cash flows could be materially and
adversely affected. Any such adverse effect may cause the trading price of our ordinary shares to decline, and as a result, you
could lose all or part of your investment in us. Our business may also be adversely affected by risks and uncertainties not known
to us or risks that we currently believe to be immaterial. We assume no obligation to update any forward-looking statements as a
result of new information, future events or other factors.
Operational Risks
We face risks associated with our sales to customers and manufacturing operations outside the United States.
Our net sales consist of sales both within and outside the United States. In addition, we conduct a portion of our manufacturing
outside the United States. The majority of our foreign sales occur through our foreign subsidiaries and the remainder of our
foreign sales result from exports to foreign distributors, resellers and customers. Our foreign sales and operations are subject to a
number of risks, including: longer accounts receivable collection periods; the impact of recessions and other economic conditions
in economies outside the United States; export duties and quotas; imposition of, or changes in, tariffs, sanctions, trade restrictions,
and trade relations including but not limited to those associated with the United States-Mexico-Canada Agreement ("USMCA")
which replaced the North American Free Trade Agreement ("NAFTA"), other free trade agreements, and the exit of the United
Kingdom from the European Union; unexpected changes in regulatory requirements; certification requirements; environmental
regulations; reduced protection for intellectual property rights in some countries; potentially adverse tax consequences; political
and economic instability; and preference for locally produced products. These factors could have a material adverse impact on our
ability to increase or maintain our international sales.
Our sales and operations may be adversely affected by supply chain disruptions due to political unrest, terrorist acts, and
national and international conflicts.
Our sales and operations are subject to a number of risks, including political and economic instability, which could have a
material adverse impact on our ability to increase or maintain our international sales and operations. National and international
conflicts such as war, border closures, civil disturbances and terrorist acts, including Russia's invasion of Ukraine and the ongoing
conflict between Israel and Hamas, may increase the likelihood of already strained supply interruptions and further hinder our
ability to access the materials and energy we need to manufacture our products. Additional supply chain disruptions will make it
harder for us to find favorable pricing and reliable sources for the materials we need. As a result, such disruptions will put upward
pressure on our costs and increase the risk that we may be unable to acquire the materials and services we need to continue to
make certain products, in particular at our manufacturing facilities in Europe.
Our financial success depends in part on the reliability and sufficiency of our manufacturing facilities.
Our revenues depend on the effective operation of our manufacturing, packaging, and processing facilities. The operation of our
facilities involves risks, including the breakdown, failure, or substandard performance of equipment, power outages, the improper
installation or operation of equipment, explosions, fires, natural disasters, failure to achieve or maintain safety or quality
standards, work stoppages, supply or logistical outages, and the need to comply with environmental and other directives of
governmental agencies. The occurrence of material operational problems, including, but not limited to, the above events, could
adversely affect our profitability during the period of such operational difficulties.
Our ability to successfully grow and expand our business depends on our ability to recruit and retain a highly qualified and
diverse workforce.
7 Our ability to successfully grow and expand our business is dependent upon our ability to recruit and retain a workforce with the
skills necessary to develop, manufacture and deliver the products and services desired by our customers. We need highly skilled
and qualified personnel in multiple areas, including research and development, engineering, sales, manufacturing, information
technology, cybersecurity, accounting, regulatory, and management. We must therefore continue to effectively recruit, retain and
motivate highly qualified, skilled and diverse personnel to maintain our current business and support our projected growth. A
shortage of these employees for various reasons, including intense competition for skilled employees, labor shortages, increased
labor costs, candidates’ preference to work remotely, changes in laws and policies regarding immigration and work authorizations
in jurisdictions where we have operations, or any government mandates that may result in workforce attrition and difficulty with
recruiting, may jeopardize our ability to grow and expand our business.
We may, from time to time, experience problems in our labor relations.
A portion of our North American workforce is represented by a union under a single collective bargaining agreement. In Europe,
employees at our Marano, Ticino, Italy facility and Bertinoro, Italy facility are covered by a national collective bargaining
agreement, respectively. We believe that our present labor relations with all our union employees are satisfactory, however, our
failure to renew these agreements on reasonable terms could result in labor disruptions and increased labor costs, which could
adversely affect our financial performance. Similarly, if our relations with the union portion of our workforce do not remain
positive, such employees could initiate a strike, work stoppage or slowdown in the future. In the event of such an action, we may
not be able to adequately meet the needs of our customers using our remaining workforce and our operations and financial
condition could be adversely affected. Additionally, other portions of our workforce could become subject to union campaigns.
The effects of global climate change or other unexpected events, including global health crises, may disrupt our operations
and have a negative impact on our business.
The effects of global climate change, such as extreme weather conditions and natural disasters occurring more frequently or with
more intense effects, or the occurrence of unexpected events including wildfires, tornadoes, hurricanes, earthquakes, floods,
tsunamis and other severe hazards or global health crises, such as the outbreak of Ebola or the global COVID-19 pandemic, or
other actual or threatened epidemic, pandemic, outbreak and spread of a communicable disease or virus, in the countries where we
operate or sell products and provide services, could adversely affect our operations and financial performance. Extreme weather,
natural disasters, power outages, global health crises or other unexpected events could disrupt our operations by impacting the
availability and cost of materials needed for manufacturing, causing physical damage and partial or complete closure of our
manufacturing sites or distribution centers, loss of human capital, temporary or long-term disruption in the manufacturing and
supply of products and services and disruption in our ability to deliver products and services to customers. These events and
disruptions could also adversely affect our customers’ and suppliers’ financial condition or ability to operate, resulting in reduced
customer demand, delays in payments received or supply chain disruptions. Further, these events and disruptions could increase
insurance and other operating costs, including impacting our decisions regarding construction of new facilities to select areas less
prone to climate change risks and natural disasters, which could result in indirect financial risks passed through the supply chain
or other price modifications to our products and services.
We may be subject to risks relating to our information technology and operational technology systems.
We rely extensively on information technology and operational technology systems, networks and services including hardware,
software, firmware and technological applications and platforms (collectively, "IT Systems") to manage and operate our business
from end-to-end, including ordering and managing materials from suppliers, design and development, manufacturing, marketing,
selling and shipping to customers, invoicing and billing, managing our banking and cash liquidity systems, managing our
enterprise resource planning and other accounting and financial systems and complying with regulatory, legal and tax
requirements. We have invested and will continue to invest in improving our IT Systems. Some of these investments are
significant and impact many important operational processes and procedures. There is no assurance that newly implemented IT
Systems will improve our current systems, improve our operations or yield the expected returns on the investments. In addition,
the implementation of new IT Systems may be more difficult, costly or time consuming than expected and cause disruptions in
our operations and, if not properly implemented and maintained, negatively impact our business. If our IT Systems cease to
function properly or if these systems do not provide the anticipated benefits, our ability to manage our operations could be
impaired.
We currently rely on third-party service providers for many of the critical elements of our global information and operational
technology infrastructure and their failure to provide effective support for such infrastructure could negatively impact our
business and financial results.
We have outsourced many of the critical elements of our global information and operational technology infrastructure to third-
party service providers in order to achieve efficiencies. If such service providers do not perform or do not perform effectively, we
may not be able to achieve the expected efficiencies and may have to incur additional costs to address failures in providing service
8 by the service providers. Depending on the function involved, such non-performance, ineffective performance or failures of
service may lead to business disruptions, processing inefficiencies or security breaches.
Disruptions or breaches of our information systems could adversely affect us.
Despite our implementation of cybersecurity measures which have focused on prevention (including a robust cybersecurity
employee education program to train our employees on email and password security, recognizing phishing and related topics on a
regular basis), mitigation, resilience and recovery, our network and products, including access solutions, may be vulnerable to
cybersecurity attacks, computer viruses, malicious codes, malware, ransomware, phishing, social engineering, denial of service,
hacking, break-ins and similar disruptions, including through use of new artificial intelligence tools or methods. Cybersecurity
attacks and intrusion efforts are continuous and evolving, and in certain cases they have been successful at the most robust
institutions. The scope and severity of risks that cyber threats present have increased dramatically and include, but are not limited
to, malicious software, attempts to gain unauthorized access to data or premises, exploiting weaknesses related to vendors or other
third parties that could be exploited to attack our systems, denials of service and other electronic security breaches that could lead
to disruptions in systems, unauthorized release of confidential or otherwise protected information and corruption of data. Any
such event could have a material adverse effect on our business, operating results and financial condition, as we face regulatory,
reputational and litigation risks resulting from potential cyber incidents, as well as the potential of incurring significant
remediation costs. Further, while we maintain insurance coverage that may, subject to policy terms and exclusions, cover certain
aspects of our cyber risks, such insurance coverage may be insufficient to cover our losses or all types of claims that may arise in
the continually evolving area of cyber risk.
We also face increasing and evolving disclosure obligations related to cybersecurity events. Despite rigorous processes, we may
not adequately meet all our existing or future disclosure obligations and/or having our disclosures misinterpreted. Determining
whether a cybersecurity incident is notifiable or reportable may not be straightforward and any such mandatory disclosures could
lead to negative publicity, loss of customer confidence in the effectiveness of our security measures, diversion of management's
attention and governmental investigations.
Our daily business operations also require us to collect and/or retain sensitive data such as intellectual property, proprietary
business information and data related to customers, employees, suppliers and business partners within our networking
infrastructure including data from individuals subject to the European Union's General Data Protection Regulation, that is subject
to privacy and security laws, regulations and/or customer-imposed controls. Despite our efforts to protect such data, the loss or
breach of such data due to various causes including material security breaches, catastrophic events, extreme weather, natural
disasters, power outages, system failures, computer viruses, improper data handling, programming errors, unauthorized access and
employee error or malfeasance could result in wide reaching negative impacts to our business, and as such, the ongoing
maintenance and security of this information is pertinent to the success of our business operations and our strategic goals.
Our networking infrastructure and related assets may be subject to unauthorized access by hackers, employee error or malfeasance
or other unforeseen activities. Such issues could result in the disruption of business processes, network degradation and system
downtime, along with the potential that a third party will exploit our critical assets such as intellectual property, proprietary
business information and data related to our customers, suppliers and business partners. To the extent that such disruptions occur
and our business continuity plans do not effectively address these disruptions in a timely manner, they may cause delays in the
manufacture or shipment of our products and the cancellation of customer orders and, as a result, our business, operating results
and financial condition could be materially and adversely affected, resulting in a possible loss of business or brand reputation.
Business and Financial Risks
Increased competition could adversely affect our business and financial results.
We face competition in our markets from a number of large and small companies, some of which have greater financial, research
and development, production and other resources than we do. Our competitive position is based principally on performance,
quality, customer support, service, breadth of product line, manufacturing or packaging technology and the selling prices of our
products. We may be unable to effectively compete on all these bases. Further, our competitors may improve the design and
performance of their products and introduce new products with competitive price and performance characteristics. While we
expect to do the same to maintain our current competitive position and market share, if we are unable to anticipate evolving trends
in the market or the timing and scale of our competitors’ activities and initiatives, the demand for our products and services could
be negatively impacted.
Global economic conditions may adversely affect our business, operating results and financial condition.
Unfavorable changes in economic conditions, including inflation, recession, changes in tariffs and trade relations amongst
international trading partners, or other changes in economic conditions, may adversely impact the markets in which we operate.
9 These conditions may make it extremely difficult for our customers, our vendors and us to accurately forecast and plan future
business activities, and they could cause U.S. and foreign businesses to slow spending on our products which would reduce our
revenues and profitability. If inflation in costs such as raw materials, packaging, freight, labor and energy prices increase beyond
our ability to control for them through measures such as implementing operating efficiencies, we may not be able to increase
prices to sufficiently offset the effect of various costs increases without negatively impacting customer demand, thereby
negatively impacting our margin performance and results of operations.
Furthermore, during challenging economic times our customers may face issues gaining timely access to sufficient credit, which
could result in an impairment of their ability to make timely payments to us. If that were to occur, we may be required to increase
our allowance for doubtful accounts and cash flow would be negatively impacted. We cannot predict the timing, depth or duration
of any economic slowdown or subsequent economic recovery, worldwide, or in the markets in which we operate. Also, at any
point in time we have funds in our cash accounts that are with third party financial institutions. These balances in the U.S. and
other countries could exceed the Federal Deposit Insurance Corporation (“FDIC”) and other relevant insurance limits,
respectively. While we monitor the cash balances in our accounts, these balances could be impacted if the underlying financial
institutions fail or could be subject to other adverse conditions in the financial markets. Additionally, our future results of
operations could be adversely affected by changes in the effective tax rate as a result of a change in the mix of earnings in
jurisdictions with differing statutory tax rates, changes in tax laws, regulations and judicial rulings or changes in the interpretation
thereof.
Raw material shortages or price increases could adversely affect our business and financial results.
The principal raw materials that we use in the manufacture of our products can be subject to price fluctuations due to market
conditions and factors beyond our control, including the COVID-19 pandemic and inflationary pressures, both of which have
impacted our business over the past several years and are likely to continue for some time. Such raw materials include materials
derived from petrochemicals, minerals, metals, agricultural commodities and other commodities. While the selling prices of our
products tend to increase or decrease over time with the cost of raw materials, these changes may not occur simultaneously or to
the same degree. At times, including during periods of rapidly increasing raw material prices, we may be unable to pass increases
in raw material costs through to our customers due to certain contractual obligations. Such increases in the price of raw materials,
if not offset by product price increases, or substitute raw materials, would have an adverse impact on our profitability. We believe
we have reliable sources of supply for our raw materials under normal market conditions. We cannot, however, predict the
likelihood or impact of any future raw material shortages. Any shortages or unforeseen price increases could have a material
adverse impact on our results of operations.
Our international operations subject us to currency translation risk and currency transaction risk which could cause our
results to fluctuate from period to period.
The financial condition and results of operations of our foreign subsidiaries are reported in local currencies and then translated
into U.S. dollars at the applicable currency exchange rate for inclusion in our consolidated financial statements. Exchange rates
between these currencies in recent years have fluctuated and may do so in the future. Furthermore, we incur currency transaction
risk whenever we enter into either a purchase or a sales transaction using a currency different than the functional currency. Given
the volatility of exchange rates, we may not be able to effectively manage our currency transactions and/or translation risks.
Volatility in currency exchange rates could impact our business and financial results.
Although we utilize risk management tools, such as derivative instruments, to mitigate market fluctuations in foreign currencies,
any changes in strategy in regard to risk management tools can also affect revenue, expenses and results of operations and there
can be no assurance that such measures will result in cost savings or that all market fluctuation exposure will be eliminated.
Our debt instruments are subject to interest rate risks and impose operating and financial restrictions which could have an
adverse impact on our business and results of operations.
Our incurrence of indebtedness could have negative consequences to us, including limiting our ability to borrow additional
monies for our working capital, capital expenditures, acquisitions, debt service requirements or other general corporate purposes;
limiting our flexibility in planning for, or reacting to, changes in our operations, our business or the industries in which we
compete; our leverage may place us at a competitive disadvantage by limiting our ability to invest in the business or in further
research and development; making us more vulnerable to downturns in our business or the economy; and there would be a
material adverse effect on our business and financial condition if we were unable to service our indebtedness or obtain additional
financing, as needed.
Our ability to make payments on our indebtedness depends on our ability to generate cash in the future. If we do not generate
sufficient cash flow to meet our debt service and working capital requirements, we may need to seek additional financing or sell
assets. This may make it more difficult for us to obtain financing on terms that are acceptable to us, or at all. Without any such
10 financing, we could be forced to sell assets to make up for any shortfall in our payment obligations under unfavorable
circumstances.
Interest payable in accordance with our five-year senior secured revolving credit agreement (the "Credit Agreement") is based on
a fluctuating rate. In light of potential fluctuations, including interest rate increases which may continue, we are exposed to risk
resulting from adverse changes in interest rates.
Further, due to the cessation of the London Interbank Offered Rate (“LIBOR”), we have entered into financial transactions such
as credit agreements that use the Secured Overnight Financing Rate (“SOFR”) as interest rate benchmarks. SOFR is calculated
differently from LIBOR and has inherent differences which could give rise to uncertainties, including the limited historical data
and volatility in the benchmark rates. The full effects of the transition to SOFR or other rates remain uncertain.
We may not be able to successfully consummate and manage acquisition, joint venture and divestiture activities which could
have an impact on our results.
From time to time, we may acquire other businesses, enter into joint ventures and, based on an evaluation of our business
portfolio, divest existing businesses. These acquisitions, joint ventures and divestitures may present financial, managerial and
operational challenges, including diversion of management attention from existing businesses, difficulty with integrating or
separating personnel and financial and other systems, increased expenses, difficulties in realizing synergies expected to result
from acquisitions, potential loss of key employees, key contractual relationships or key customers of acquired companies or of us,
difficulties in integrating financial reporting systems and implementing controls, procedures and policies, including disclosure
controls and procedures and internal control over financial reporting, appropriate for public companies of our size at companies
that, prior to the acquisition, had lacked such controls, procedures and policies, assumption of unknown liabilities and
indemnities, and potential disputes with the buyers or sellers. In addition, we may be required to incur asset impairment charges
(including charges related to tangible assets, goodwill and other intangible assets) in connection with acquired businesses which
may reduce our profitability. If we are unable to consummate such transactions, or successfully integrate and grow acquisitions
and achieve contemplated revenue synergies and cost savings, our financial results could be adversely affected. Additionally, joint
ventures inherently involve a lesser degree of control over business operations, thereby potentially increasing the financial, legal,
operational and/or compliance risks.
We may not be able to effectively manage and implement restructuring initiatives or other organizational changes.
We may, from time to time, restructure or make other adjustments to our workforce and manufacturing footprint in response to
market or product changes, performance issues, changes in strategy, acquisitions and/or other internal and external considerations.
These restructuring activities and other organizational changes may result in increased restructuring costs, diversion of
management’s time and attention from daily operations and temporarily reduced productivity. If we are unable to successfully
manage and implement restructuring and other organizational changes, we may not achieve or sustain the expected growth or cost
savings benefits of these activities or do so within the expected timeframe. These effects could recur in connection with future
acquisitions and other organizational changes and our results of operations could be negatively affected.
Changes in our relationships with our vendors, changes in tax or trade policy, interruptions in our operations or supply chain
or increased commodity or supply chain costs could adversely affect our results of operations.
We are dependent on our vendors, including common carriers, to supply raw materials to our manufacturing facilities. As we
continue to add capabilities to quickly move the appropriate amount of inventory at optimal operational costs through our entire
supply chain, operating our fulfillment network becomes more complex and challenging. If our fulfillment network does not
operate properly, if a vendor fails to deliver on its commitments, or if common carriers have difficulty providing capacity to meet
demands for their services, we could experience inventory shortages, delivery delays or increased delivery costs, which could lead
to lost sales and decreased guest confidence, and adversely affect our results of operations.
A large portion of our raw materials are sourced, directly or indirectly, from outside the U.S. Any major changes in tax or trade
policy, such as the imposition of additional tariffs or duties on imported products, between the U.S. and countries from which we
source raw materials could require us to take certain actions, including for example raising prices on products we sell and seeking
alternative sources of supply from vendors in other countries with whom we have less familiarity, which could adversely affect
our reputation, sales, and our results of operations.
Political or financial instability, currency fluctuations, the outbreak of pandemics or other illnesses (such as the COVID-19
pandemic), labor unrest, transport capacity and costs, port security, weather conditions, natural disasters, or other events that
could alter or suspend our operations, slow or disrupt port activities, or affect foreign trade are beyond our control and could
materially disrupt our supply of raw materials, increase our costs, and/or adversely affect our results of operations. There have
been periodic labor disputes impacting the U.S. ports that have caused us to make alternative arrangements to continue the flow of
11 inventory, and if these types of disputes recur, worsen, or occur in other countries through which we source products, it may have
a material impact on our costs or inventory supply. Changes in the costs of procuring commodities used in our products or the
costs related to our supply chain, could adversely affect our results of operations.
Adverse publicity or consumer concern regarding the safety or quality of food products containing our products, or health
concerns, whether with our products, products in the same general class as our products or for food products containing our
products, may result in the loss of sales. Also, consumer preferences for products containing our products may change.
We are dependent upon consumers’ perception of the safety, quality and possible dietary benefits of products containing our food
ingredient products. As a result, substantial negative publicity concerning our products or other foods and beverages in which our
products are used could lead to a loss of consumer confidence in those products, removal of those products from retailers’ shelves
and reduced sales and prices of our products. Product quality issues, actual or perceived, or allegations of product contamination,
even when false or unfounded, could hurt the image of our products or of brands of products containing our products, and cause
consumers to choose other products. Further, any product recall, whether our own or by a third party, whether due to real or
unfounded allegations, could impact demand on food products containing our products or even our products. Any of these events
could have a material adverse effect on our business, results of operations and financial condition. Consumer preferences, as well
as trends, within the food industries change often and our failure to anticipate, identify or react to changes in these preferences and
trends could, among other things, lead to reduced demand and price reductions, and could have an adverse effect on our business,
results of operations and financial condition. While we continue to diversify our product offerings, developing new products
entails risks and we cannot be certain that demand for our products and products containing our products will continue at current
levels or increase in the future.
Legal, Regulatory and Compliance Risks
Material adverse legal judgments, fines, penalties or settlements could adversely affect our business.
We may from time to time become involved in legal proceedings and disputes incidental to the operation of our business. Our
business may be adversely affected by the outcome of these proceedings and other contingencies (including, without limitation,
product liability, tort, environmental, intellectual property, antitrust, data protection, privacy, and labor and employment matters)
that cannot be predicted with certainty. As required by GAAP, if applicable, we establish reserves based on our assessment of
contingencies. Subsequent developments in legal proceedings and other contingencies may affect our assessment and estimates of
the loss contingency recorded as a reserve, and we may be required to make additional material payments.
Our business exposes us to potential product liability claims and recalls, which could adversely impact our financial condition
and performance.
Our development, manufacture and sales of food ingredient, pharmaceutical and nutritional supplement products involve an
inherent risk of exposure to product liability claims, product recalls, product seizures and related adverse publicity. A product
liability judgment against us could also result in substantial and unexpected expenditures, affect consumer confidence in our
products, and divert management’s attention from other responsibilities. Although we maintain product liability insurance
coverage in amounts we believe are customary within the industry, there can be no assurance that this level of coverage is
adequate or that we will be able to continue to maintain our existing insurance or obtain comparable insurance at a reasonable
cost, if at all. A product recall or a partially or completely uninsured judgment against us could have a material adverse effect on
results of operations and financial condition.
Our brands are important assets of our businesses, and violation of our trademark rights by imitators could negatively impact
revenues and brand reputation.
Our brands and trademarks enjoy a reputation for quality and value and are important to our success and competitive position.
Unauthorized use of our trademarks may not only erode sales of our products but may also cause significant damage to our brand
name and reputation, interfere with relationships with our customers and increase litigation costs. There can be no assurance that
our on-going effort to protect our brand and trademark rights will prevent all violations.
Allegations that we have infringed the intellectual property rights of third parties could negatively affect us.
We may be subject to claims of infringement of intellectual property rights by third parties. In general, if it is determined that one
or more of our technologies, products or services infringes the intellectual property rights owned by others, we may be required to
cease marketing those products or services, to obtain licenses from the holders of the intellectual property at a material cost or to
take other actions to avoid infringing such intellectual property rights. The litigation process is costly and subject to inherent
uncertainties, and we may not prevail in litigation matters regardless of the merits of our position. Adverse intellectual property
12 litigation or claims of infringement against us may become extremely disruptive if the plaintiffs succeed in blocking the trade of
our products and services and may have a material adverse effect on our business.
We are subject to risks related to corporate social responsibility and reputational matters.
Our reputation and the reputation of our brands, including the perception held by our customers, end-users, business partners,
investors, other key stakeholders and the communities in which we do business are influenced by various factors. There is an
increased focus from our stakeholders on Environmental, Social and Governance (“ESG”) practices and disclosure – and if we
fail, or are perceived to have failed, in any number of ESG matters, such as environmental stewardship, goals regarding our
intended reduction of carbon emissions and water usage, inclusion and diversity, workplace conduct and support for local
communities, or to effectively respond to changes in, or new, legal or regulatory requirements concerning climate change or other
sustainability concerns, our reputation or the reputation of our brands may suffer. Such damage to our reputation and the
reputation of our brands may negatively impact our business, financial condition and results of operations. Further, there are an
increasing number of anti-ESG legislative initiatives that may conflict with other regulatory requirements or our stakeholders'
expectations.
In addition, negative or inaccurate postings or comments on social media or networking websites about the Company or our
brands could generate adverse publicity that could damage our reputation or the reputation of our brands. If we are unable to
effectively manage real or perceived issues, including concerns about product quality, safety, corporate social responsibility or
other matters, sentiments toward the Company or our products could be negatively impacted, and our financial results could
suffer.
Our reputation, ability to do business and results of operations could be impaired by adverse publicity or improper conduct by
any of our employees, agents or business partners.
We are subject to regulation under a variety of U.S. federal and state and non-U.S. laws, regulations and policies including laws
related to anti-corruption, export and import compliance, anti-trust and money laundering due to our global operations. We cannot
provide assurance that our internal controls will always protect us from the improper conduct of our employees, agents and
business partners. Any improper conduct could damage our reputation and subject us to, among other things, civil and criminal
penalties, material fines, equitable remedies (including profit disgorgement and injunctions on future conduct), securities litigation
and a general loss of investor confidence.
Our operations are subject to regulatory risks and the loss of governmental permits and approvals would materially and
adversely affect some of our businesses.
Our U.S. and non-U.S. operations are subject to a number of laws and regulations, including environmental, health and safety
standards. We have incurred, and will be required to continue to incur, significant expenditures to comply with these laws and
regulations. Changes to, or changes in interpretations of, current laws and regulations, including climate change legislation or
other environmental mandates, could require us to increase our compliance expenditures, cause us to significantly alter or
discontinue offering existing products and services or cause us to develop new products and services. Altering current products
and services or developing new products and services to comply with changes in the applicable laws and regulations could require
significant research and development investments, increase the cost of providing the products and services and adversely affect
the demand for our products and services, including shifting demand to competitors in countries where laws and regulations may
be less stringent.
In the event a regulatory authority concludes that we are not or have not at all times been in full compliance with these laws or
regulations, we could be fined, criminally charged or otherwise sanctioned. Certain environmental laws assess liability on current
or previous owners of real property or operators of manufacturing facilities for the costs of investigation, removal or remediation
of hazardous substances or materials at such properties or at properties at which parties have disposed of hazardous substances.
Liability for investigative, removal and remedial costs under certain U.S. federal and state laws and certain non-U.S. laws are
retroactive, strict and joint and several. In addition to cleanup actions brought by governmental authorities, private parties could
bring personal injury or other claims due to the presence of, or exposure to, hazardous substances. For more information, see
"Item 1. Business – Environmental and Regulatory Matters" of this report.
While we have planned for future capital and operating expenditures to maintain compliance with environmental laws, our costs
of compliance may exceed our estimates. We may also be subject to environmental claims for personal injury, liabilities arising
from past, present or future releases of, or exposures to, hazardous substances, or cost recovery actions for remediation of
facilities in the future based on our past, present or future business activities.
Further, pursuant to applicable environmental and safety laws and regulations, we are required to obtain and maintain certain
governmental permits and approvals, including EPA registrations under FIFRA for some of our products. We maintain EPA
13 FIFRA registrations for ethylene oxide as a medical device sterilant and spice fumigant and for propylene oxide as a fumigant of
nuts and spices. These products are progressing through a multi-year FIFRA re-registration review process. Recent draft
documents indicate that the EPA intends to continue the registrations for both ethylene oxide and propylene oxide with certain
additional mitigation measures. The EPA may re-examine the registrations in the future in accordance with the provisions of
FIFRA. Any future determination by the EPA to discontinue permitted use of ethylene oxide or propylene oxide would have a
material adverse effect on our business and financial results.
Commercial supply of pharmaceutical products that we may develop, subject to cGMP manufacturing regulations, would be
performed by third-party cGMP manufacturers. Modifications, enhancements or changes in third-party manufacturing facilities or
procedures of our pharmaceutical products are, in many circumstances, subject to FDA approval, which may be subject to a
lengthy application process or which we may be unable to obtain. Any third-party cGMP manufacturers that we may use are
periodically subject to inspection by the FDA and other governmental agencies, and operations at these facilities could be
interrupted or halted if the results of these inspections are unsatisfactory. Failure to comply with the FDA or other governmental
regulations can result in fines, unanticipated compliance expenditures, recall or seizure of products, total or partial suspension of
production, enforcement actions, injunctions and criminal prosecution, which could have a material adverse effect on our business
and financial results.
Permits and approvals may be subject to revocation, modification or denial under certain circumstances. Our operations or
activities could result in administrative or private actions, revocation of required permits or licenses, or fines, penalties or
damages, which could have an adverse effect on us. In addition, we cannot predict the extent to which any legislation or
regulation may affect the market for our products or our cost of doing business.
Concerns about ethylene oxide emissions have resulted in certain state actions against certain of our customers that are
currently impacting these customers’ ability to use the ethylene oxide process to sterilize medical devices, which may, in turn,
affect sales to these customers.
There is increased focus on the use and emissions of ethylene oxide by the EPA and state environmental agencies. Certain of the
Company’s customers who use ethylene oxide in the U.S. for the sterilization of medical devices have received ongoing state and
local scrutiny for environmental concerns at their facilities. This scrutiny is associated with the IRIS Assessment described in
“Item 1. Business – Environmental and Regulatory Matters” of this report, which deemed exposure to ethylene oxide as unsafe at
levels far below those found in the environment. The EPA began using the IRIS Assessment in 2020 to regulate change to
existing permissible emissions limits at facilities that produce or use ethylene oxide in non-sterilization processes, and
subsequently proposed rules for ethylene oxide sterilization facilities as well. These rules have yet to be finalized. Additionally,
some state and local regulators have drawn their own conclusions from the IRIS Assessment, which has resulted in certain state
actions against our customers that continue to impact these customers’ ability to use the ethylene oxide process to sterilize
medical devices. Due to these regulatory actions, many customers have taken or are expected to take some voluntary downtime to
install new abatement equipment. The installation of the new abatement equipment is being done ahead of what is expected to be
changes in the EPA regulations. The Company remains confident that the sterilization industry will be able to install abatement
equipment to satisfy the new forthcoming EPA requirements. The Company is working with various stakeholders to ensure the
EPA considers all available assessments to appropriately quantify ethylene oxide's risks. While the Company believes that EPA
will, as it has in the past, ultimately regulate to lower emissions levels based on a combined consideration of the various
assessments available and that industry will then adopt practices and procedures to ensure compliance with these new regulations,
there is no assurance that this will be the case. Further, additional regulatory requirements associated with the use and emission of
ethylene oxide may be imposed in the future, both within and outside of the U.S. Such increased regulation could require our
customers and/or the Company to temporarily suspend operations to install additional fugitive emissions control technology, limit
the use of ethylene oxide or take other actions which could impact our business, financial condition or results of operations.
Item 1B.
Unresolved Staff Comments
None.
14 Item 1C. Cybersecurity
Cybersecurity is a critical part of our enterprise risk management. The Board, through its Audit Committee, oversees enterprise
risk management, including cybersecurity. To more effectively address cybersecurity threats, we have numerous security layers
within our least privilege network approach which is managed by our Information Technology Department. Our cybersecurity
programs align with numerous standards and continues to grow and develop as new technologies emerge. Further, we have
regular user awareness testing and trainings in place which helps keep all end users and executive leadership up-to-date on the
most current threats. The global head of Information Security, possessing credentials in both information technology (“IT”) and
cybersecurity, provides regular updates to senior management. Additionally, they provide at least an annual update, or more
frequently if necessary, to both the Audit Committee and the full Board regarding the current threat landscape at Balchem,
cybersecurity technologies, mitigation strategies, industry trends and best practices that we follow, major cybersecurity incidents
(if any), and other areas of importance. The global head of Information Security has responsibility over cybersecurity
management globally and reports directly to the Chief Financial Officer. Additional activities to maintain and enhance
information security are discussed below.
•
Reliable, Scalable Systems and Infrastructure
Our information security systems, infrastructure, and processes are built on and follow the U.S. National Institute of
Standards and Technology ("NIST") framework for information security, which is a set of guidelines, accepted
standards, and best practices for mitigating organization cybersecurity risks published by NIST. We continue to make
significant investments in industry-leading and advanced technologies as part of our strategy to strengthen our security
posture, business continuity capabilities, and ability to protect and safeguard systems and stakeholder data. Our
Information Security Program and systems are tested and assessed annually by an independent third party.
•
Automation and Artificial Intelligence
We have implemented automated systems to proactively test attack vectors by emulating inside and outside threats
resulting in the validation of our ability to detect and defend against a cyber attack. Artificial intelligence is used as part
of early warning systems designed to detect, alert, and respond to potential cyber threats.
•
Training
Recognizing that information security, stakeholder data, and privacy principles involve more than just systems and
infrastructure, we provide semi-annual cybersecurity education and training to all users with access to IT systems,
devices, or applications. Internal social engineering phishing campaigns are conducted regularly with the goal of building
a culture of cybersecurity, as well as raising awareness and reinforcing best practices across the organization.
Third parties also play a role in our cybersecurity. We engage third-party services to conduct evaluations of our security controls,
whether through penetration testing, independent audits or consulting on best practices to address new challenges. These
evaluations include testing both the design and operational effectiveness of security controls.
We apply a risk-based approach to mitigate cybersecurity risks associated with our use of third-party service providers and
cybersecurity considerations affect the selection and oversight of these third-party service providers. We perform due diligence on
third parties that have access to our most critical systems, data or facilities that house such systems or data.
While we have experienced cybersecurity threats in the past in the normal course of business and expect to continue to experience
such threats from time to time, to date, none have had a material adverse effect on our business, financial condition, results of
operations or cash flows. Even with the extensive approach we take to cybersecurity, we may not be successful in preventing or
mitigating a cybersecurity incident that could have a material adverse effect on us. See Item 1A. “Risk Factors - Operational Risks
- Disruptions or breaches of our information systems could adversely affect us” for a discussion of cybersecurity risks.
In the event of a possible cybersecurity incident, we would immediately implement our crisis management plan, which includes
the following steps:
(1) Internal reporting and review of the incident or development
(2) Gathering and assessing information
(3) Developing and implementing a communications strategy
(4) Monitoring and evaluating a response
15 (5) Debrief and recovery
As part of the gathering and assessment of information in step 2, we will consider various factors to make a materiality
determination of the incident, including business impact, potential costs, impacted data, scope of the incident, possible litigation
or regulatory implications, and reputational damage.
Item 2.
Properties
Our corporate headquarters is located in Montvale, New Jersey. Our operations are conducted at our owned and leased facilities
throughout the U.S. and other foreign countries. These facilities house manufacturing and warehousing operations, as well as
administrative offices. We have a total of 38 locations across the world and some of these manufacturing and warehousing
locations serve multiple segments.
The following is a summary of our principal properties:
Segment
Location
Corporate
5 U.S. cities
HNH
ANH
17 U.S. cities and 6 foreign countries
9 U.S. cities and 3 foreign countries
Specialty Products
6 U.S. cities and 6 foreign countries
Other
2 U.S. cities and 1 foreign country
Administrative Manufacturing Warehousing
—
—
5
1
—
2
—
16
10
8
3
6
2
2
—
We believe that our production facilities and related machinery and equipment are well maintained, suitable for their purpose, and
adequate to support our businesses.
Item 3.
Legal Proceedings
In the normal course of business, we are involved in a variety of lawsuits, claims and legal proceedings, from time to time,
including commercial and contract disputes, labor and employment matters, product liability claims, environmental liabilities,
trade regulation matters, intellectual property disputes and tax-related matters. Further, in connection with normal operations at
our plant facilities, our manufacturing sites may, from time to time, be subject to inspections or inquiries by the EPA and other
agencies. To the extent any consent orders or other agreements are entered into as a result of findings from such inspections or
inquiries, the Company is committed to ensuring compliance with such orders or agreements.
Information with respect to certain legal proceedings is included in Note 16, Commitments and Contingencies, to our
Consolidated Financial Statements for the year ended December 31, 2023 contained in this Annual Report on Form 10-K, and is
incorporated herein by reference.
In our opinion, we do not expect pending legal matters to have a material adverse effect on our consolidated financial position,
results of operations, liquidity or cash flows.
Item 4.
Mine Safety Disclosures
Not applicable.
16 INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The following is a list of executive officers of the Company as of February 16, 2024.
Theodore L. Harris, age 58, has served as our Chairman, President and Chief Executive Officer since 2017.
C. Martin Bengtsson, age 46, has served as our Executive Vice President and Chief Financial Officer since February 2019.
Hatsuki Miyata, age 48, has served as our Executive Vice President, General Counsel and Secretary since July 2022. Ms. Miyata
previously served as Deputy General Counsel and Corporate Secretary at Allegion plc, a global manufacturing company in
seamless access and security products, from October 2018 to July 2022.
Frederic Boned, age 46, has served as our Senior Vice President and General Manager, Human Nutrition and Health, since
November 2022. Prior to that, he served as Regional Vice President, Health Nutrition and Care – North America from January
2022 to November 2022, and Vice President, Human Nutrition and Health – North America from September 2018 to January
2022, each at DSM, a Dutch multinational corporation in the fields of health and nutrition.
Jonathan H. Griffin, age 48, has served as our Senior Vice President and General Manager, Animal Nutrition and Health, since
September 2022. Prior to that, he led that business segment as our Vice President and General Manager, Animal Nutrition and
Health from 2016 to September 2022.
Martin L. Reid, age 57, has served as our Senior Vice President and Chief Supply Chain Officer since September 2022. Prior to
that, he served as Vice President and Chief Supply Chain Officer from January 2021 to September 2022. Mr. Reid served as Chief
Supply Chain Officer at Godiva Chocolate from May 2019 to December 2020, and as Vice President, Supply Chain – North
America Manufacturing at The Estee Lauder Companies, Inc., a multinational cosmetics company, prior to that.
Michael R. Sestrick, Ph.D., age 60, has served as our Senior Vice President and Chief Technology Officer since September 2022.
Prior to that he served as our Vice President and Chief Technology officer from April 2017 to September 2022.
M. Brent Tignor, age 46, has served as our Senior Vice President and Chief Human Resources Officer since September 2022.
Prior to that, he led the Human Resources department as our Vice President and Chief Human Resources Officer from February
2022 to September 2022 and as our Vice President, Human Resources from 2016 to February 2022.
Job L. van Gunsteren, age 48, has served as our Senior Vice President and General Manager, Specialty Products, since September
2022. Prior to that, he served as our Vice President and General Manager, Special Products from August 2019 to September 2022
and as our Director for Animal Nutrition and Health – EMEA from 2013 to 2019.
William A. Backus, age 57, has served as our Vice President and Chief Accounting Officer since October 2017. He also served as
interim Chief Financial Officer from October 2018 to February 2019.
All above-listed officers except for Ms. Miyata, Mr. Boned, and Mr. Reid have been employed by the Company for more than the
past five years. No family relationship exists between any of the above-listed executive officers of the Company. All officers are
elected to hold office for one year or until their successors are elected and qualified or their earlier death, resignation or removal
from office by the Board of Directors of the Company.
17 PART II
Item 5.
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information
The Common Stock is listed on the Nasdaq Stock Market LLC under the symbol “BCPC.”
On February 2, 2024, the closing price for the Common Stock on the Nasdaq Stock Market LLC was $143.14.
Record Holders
As of February 2, 2024, the approximate number of holders of record of Common Stock was 64. Such number does not include
stockholders who hold their stock in street name.
18 Performance Graph
The graph below sets forth the cumulative total stockholder return on the Common Stock (referred to in the table as “BCPC”) for
the five years ended December 31, 2023, the overall stock market return during such period for shares comprising the Russell
2000® Index (which we believe includes companies with market capitalization similar to that of us), and the overall stock market
return during such period for shares comprising the Dow Jones U.S. Specialty Chemicals Index, in each case assuming a
comparable initial investment of $100 on December 31, 2018 and the subsequent reinvestment of dividends. The Russell 2000®
Index measures the performance of the shares of the 2000 smallest companies included in the Russell 3000® Index. In light of our
industry segments, we do not believe that published industry-specific indices are necessarily representative of stocks comparable
to us. Nevertheless, we consider the Dow Jones U.S. Specialty Chemicals Index to be potentially useful as a peer group index
with respect to us. The performance of the Common Stock shown on the graph below is historical only and not necessarily
indicative of future performance.
DOLLARS ($)Balchem Corp (BCPC)Russell 2000 Index (RTY)Dow Jones US Specialty Chemical index (DJUSCX)12/31/201812/31/201912/31/202012/31/202112/31/202212/31/20237510012515017520022519 Issuer Purchase of Equity Securities
The following table summarizes the share repurchase activity for the year ended December 31, 2023:
Total Number of
Shares
Purchased (1)
Average Price Paid Per
Share
Total Number of
Shares
Purchased as
Part of Publicly
Announced
Programs(2)
January 1-31, 2023
February 1-28, 2023
March 1-31, 2023
First Quarter
April 1-30, 2023
May 1-31, 2023
June 1-30, 2023
Second Quarter
July 1-31, 2023
August 1-31, 2023
September 1-30, 2023
Third Quarter
October 1-31, 2023
November 1-30, 2023
December 1-31, 2023
Fourth Quarter
Total
130.96
137.24
—
—
132.26
134.81
128.54
—
134.00
—
119.51
144.94
1,343 $
26,766 $
— $
28,109
— $
504 $
63 $
567
482 $
— $
293 $
775
— $
241 $
2,866 $
3,107
32,558
Approximate Dollar
Value of Shares that
May Yet Be
Purchased Under the
Plans or Programs(2)(3)
90,512,611
91,178,224
91,178,224
1,343 $
26,766 $
— $
28,109
— $
504 $
63 $
567
482 $
— $
293 $
775
— $
241 $
2,866 $
3,107
32,558
91,178,224
87,807,402
89,488,765
85,264,695
85,264,695
88,847,226
88,847,226
79,211,236
95,651,484
(1) The Company repurchased (withheld) shares from employees solely in connection with the tax settlement of vested shares
and/or exercised stock options under the Company's omnibus incentive plan.
(2) Our Board of Directors has approved a stock repurchase program. The total authorization under this program is 3,763,038
shares. Since the inception of the program in June 1999, a total of 3,103,106 shares have been repurchased. Other than shares
withheld for tax purposes, as described in footnote 1 above, no share repurchases were made under the Company's stock
repurchase program during the year ended December 31, 2023. There is no expiration for this program.
(3) Dollar amounts in this column equal the number of shares remaining available for repurchase under the stock repurchase
program as of the last date of the applicable month multiplied by the monthly average price paid per share.
Item 6.
[Reserved]
20
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(All amounts in thousands, except share and per share data)
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our
Consolidated Financial Statements and the related notes included in this report. Refer to Part II, Item 7 in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2022 (filed with the SEC on February 24, 2023) for additional discussion of
our financial condition and results of operations for the year ended December 31, 2021. In addition, discussion of year-to-year
comparisons between 2022 and 2021 are not included in this Annual Report on Form 10-K, and can be found in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on
Form 10-K for the year ended December 31, 2022. Those statements in the following discussion that are not historical in nature
should be considered to be forward-looking statements that are inherently uncertain. See “Cautionary Statement Regarding
Forward-Looking Statements.”
Overview
We develop, manufacture, distribute and market specialty performance ingredients and products for the nutritional, food,
pharmaceutical, animal health, medical device sterilization, plant nutrition and industrial markets. Our three reportable segments
are strategic businesses that offer products and services to different markets: Human Nutrition and Health, Animal Nutrition and
Health, and Specialty Products, as more fully described in Note 11, Segment Information, of the consolidated financial statements.
Sales and production of products outside of our reportable segments and other minor business activities are included in "Other and
Unallocated".
Segment Results
We sell products for all three segments through our own sales force, independent distributors, and sales agents.
The following tables summarize consolidated net sales by segment and business segment earnings from operations for the three
years ended December 31, 2023, 2022 and 2021 (in thousands):
Business Segment Net Sales
Human Nutrition and Health
Animal Nutrition and Health
Specialty Products
Other and Unallocated (1)
Total
Business Segment Earnings From Operations
Human Nutrition and Health
Animal Nutrition and Health
Specialty Products
Other and Unallocated (1)
Total
2023
2022
2021
550,751 $
527,131 $
238,326
125,965
7,397
922,439 $
262,297
131,438
21,492
942,358 $
2023
2022
2021
102,419 $
82,125 $
27,576
34,579
(5,381)
159,193 $
36,056
32,789
(5,784)
145,186 $
442,733
226,776
117,020
12,494
799,023
76,031
26,179
30,020
(4,728)
127,502
$
$
$
$
(1) Other and Unallocated consists of a few minor businesses which individually do not meet the quantitative thresholds for
separate presentation and corporate expenses that have not been allocated to a segment. Unallocated corporate expenses consist
of: (i) Transaction and integration costs, ERP implementation costs, and unallocated legal fees totaling $1,617, $3,581 and
$1,264 for years ended December 31, 2023, 2022 and 2021, respectively, and (ii) Unallocated amortization expense of $312,
$2,951, and $2,510 for years ended December 31, 2023, 2022, and 2021, respectively, related to an intangible asset in
connection with a company-wide ERP system implementation.
21
Acquisitions
On August 30, 2022, we completed the acquisition of Bergstrom, a leading science-based manufacturer of MSM, based in
Vancouver, Washington, and on June 21, 2022, we completed the acquisition of Kappa, a leading science-based manufacturer of
specialty vitamin K2 for the human nutrition industry, headquartered in Oslo, Norway. Details related to both acquisitions are
disclosed in Note 2, Significant Acquisitions, and the "Acquisitions" section in Item 1. Business.
Results of Operations - Fiscal Year 2023 compared to Fiscal Year 2022
Summary of Consolidated Statements of Earnings
(in thousands)
Net sales
Gross margin
Operating expenses
Earnings from operations
Interest and other expenses
Income tax expense
Net earnings
2023
2022
Increase
(Decrease)
% Change
$
922,439 $
942,358 $
(19,919)
302,056
142,863
159,193
21,932
28,718
280,451
135,265
145,186
11,437
28,382
$
108,543 $
105,367 $
21,605
7,598
14,007
10,495
336
3,176
(2.1) %
7.7 %
5.6 %
9.6 %
91.8 %
1.2 %
3.0 %
Management's discussion and analysis of the Consolidated Statements of Earnings is included below:
Net Sales
(in thousands)
2023
2022
Increase
(Decrease)
% Change
Human Nutrition and Health
$
550,751 $
527,131 $
Animal Nutrition and Health
Specialty Products
Other
Total
238,326
125,965
7,397
262,297
131,438
21,492
$
922,439 $
942,358 $
23,620
(23,971)
(5,473)
(14,095)
(19,919)
4.5 %
(9.1) %
(4.2) %
(65.6) %
(2.1) %
•
•
•
•
•
The increase in net sales within the Human Nutrition and Health segment for 2023 compared to 2022 was primarily driven by
the contribution from recent acquisitions, higher sales within the minerals and nutrients business, and a favorable impact
related to changes in foreign currency rates, partially offset by lower sales within food and beverage markets. Total sales for
this segment grew 4.5%, with average selling prices contributing 2.6%, volume and mix contributing 1.6%, and the change in
foreign currency exchange rates contributing 0.3%.
The decrease in net sales within the Animal Nutrition and Health segment for 2023 compared to 2022 was primarily driven
by lower sales in both the monogastric and ruminant species markets, partially offset by incremental sales related to the
Bergstrom acquisition, and a favorable impact related to changes in foreign currency exchange rates. Total sales for this
segment decreased by 9.1%, with volume and mix contributing -6.3%, average selling prices contributing -3.5%, and the
change in foreign currency exchange rates contributing 0.7%.
The decrease in Specialty Products segment sales for 2023 compared to 2022 was primarily due to lower sales in both the
plant nutrition and performance gases businesses, partially offset by a favorable impact related to changes in foreign currency
exchange rates. Total sales for this segment decreased by 4.2%, with volume and mix contributing -9.4%, the change in
foreign currency exchange rates contributing 0.7%, and average selling prices contributing 4.5%.
Sales relating to Other decreased from the prior year primarily due to lower demand.
Sales may fluctuate in future periods based on macroeconomic conditions, competitive dynamics, changes in customer
preferences, and our ability to successfully introduce new products to the market.
22
Gross Margin
(in thousands)
Gross margin
% of net sales
2023
2022
Increase
(Decrease)
% Change
$
302,056
$
280,451
$
21,605
7.7 %
32.7 %
29.8 %
Gross margin dollars increased for 2023 compared to 2022 due to a decrease in cost of goods sold of $41,524. The 6.3% decrease
in cost of goods sold was mainly driven by lower sales and certain lower manufacturing input costs.
Operating Expenses
(in thousands)
Operating expenses
% of net sales
2023
2022
Increase
(Decrease)
% Change
$
142,863
$
135,265
$
7,598
5.6 %
15.5 %
14.4 %
The increase in operating expenses was primarily due to restructuring-related impairment and asset disposal charges of $7,764,
incremental operating expenses related to the Kappa and Bergstrom acquisitions of $7,699, and higher compensation-related
expenses of $2,323, partially offset by favorable adjustments to transaction costs of $10,828.
Earnings From Operations
(in thousands)
2023
2022
Human Nutrition and Health
$
102,419
$
82,125
$
Animal Nutrition and Health
Specialty Products
Other and unallocated
27,576
34,579
(5,381)
36,056
32,789
(5,784)
Earnings from operations
$
159,193
$
145,186
$
Increase
(Decrease)
% Change
20,294
(8,480)
1,790
403
14,007
24.7 %
(23.5) %
5.5 %
7.0 %
9.6 %
% of net sales (operating margin)
17.3 %
15.4 %
•
•
•
•
Human Nutrition & Health segment earnings from operations increased $20,294 and the gross margin contribution was
$30,144. This was partially offset by an increase in operating expenses of $9,850, primarily due to the incremental operating
expenses related to the Kappa and Bergstrom acquisitions of $7,502, restructuring-related impairment and asset disposal
charges of $6,031, and an increase in amortization of $2,435, partially offset by favorable adjustments to transaction costs of
$7,855.
Animal Nutrition & Health segment earnings from operations decreased $8,480. Gross margin decreased $7,547 primarily
due to aforementioned lower sales.
Specialty Products segment earnings from operations increased $1,790, which was primarily driven by a 410 basis point
increase in gross margin as a percent of sales. The increase in gross margin was due to higher average selling prices and
decreases in certain manufacturing input costs. The increase was partially offset by an increase in operating expenses of $897,
primarily driven by higher compensation-related expenses of $1,586.
The increase in Other and unallocated was primarily driven by decreases of unallocated corporate expenses, partially offset
by the aforementioned lower sales.
23
Other Expenses (Income)
(in thousands)
Interest expense, net
Other, net
2023
2022
Increase
(Decrease)
% Change
$
$
22,613 $
(681)
21,932 $
10,268 $
1,169
11,437 $
12,345
(1,850)
10,495
120.2 %
(158.3) %
91.8 %
Interest expense for 2023 and 2022 was primarily related to outstanding borrowings under the 2022 Credit Agreement. The
increase in interest expense is due to the additional borrowings in connection with the acquisitions and higher interest rates.
Income Tax Expense
(in thousands)
Income tax expense
Effective tax rate
2023
2022
Increase
(Decrease)
% Change
$
28,718
$
28,382
$
336
1.2 %
20.9 %
21.2 %
The decrease in the effective tax rate was primarily due to an increase in certain tax credits.
Liquidity and Capital Resources
(All amounts in thousands, except share and per share data)
Contractual Obligations
Our short-term purchase obligations primarily include contractual arrangements in the form of purchase orders with suppliers. As
of December 31, 2023, such purchase obligations were $72,958. For debt obligations, see Note 8, Revolving Loan, and for
operating and finance lease obligations, see Note 19, Leases.
We know of no current or pending demands on, or commitments for, our liquid assets that will materially affect our liquidity.
There were no material changes during the year ended December 31, 2023 outside the ordinary course of business in the specified
contractual obligations set forth in our Annual Report on Form 10-K for the year ended December 31, 2022 other than the
reduction of the contingent consideration liabilities to $100.
We expect our operations to continue generating sufficient cash flow to fund working capital requirements and necessary capital
investments. We are actively pursuing additional acquisition candidates. We could seek additional bank loans or access to
financial markets to fund such acquisitions, our operations, working capital, necessary capital investments or other cash
requirements should we deem it necessary to do so.
Cash
Cash and cash equivalents decreased to $64,447 at December 31, 2023 from $66,560 at December 31, 2022. At December 31,
2023, we had $53,152 of cash and cash equivalents held by our foreign subsidiaries. We presently intend to permanently reinvest
these funds in foreign operations by continuing to make additional plant related investments, and potentially invest in partnerships
or acquisitions; therefore, we do not currently expect to repatriate these funds in order to fund U.S. operations or obligations.
However, if these funds are needed for U.S. operations, we could be required to pay additional withholding taxes to repatriate
these funds. Due to prevailing economic conditions of increased interest rates and subsequent borrowing costs, we remitted
approximately $18,000 from our Belgium subsidiary to pay down U.S. debt, resulting in income tax expense of $20. The
remittance was used to pay down U.S. debt. Working capital was $165,751 at December 31, 2023 as compared to $195,761 at
December 31, 2022, a decrease of $30,010. Significant cash payments during the year included net payments on the revolving
loan of $131,000, capital expenditures and intangible assets acquired of $37,892, and the payment of the 2022 declared dividend
in 2023 of $22,872.
24
(in thousands)
Cash flows provided by operating
activities
Cash flows used in investing activities
Cash flows (used in) provided by
financing activities
Operating Activities
2023
2022
Increase
(Decrease)
% Change
$
183,761 $
(34,813)
138,536 $
(416,014)
45,225
381,201
32.6 %
91.6 %
(153,321)
246,679
(400,000)
(162.2) %
The increase in cash flows from operating activities was primarily driven by the impact from changes in working capital.
Investing Activities
We continue to invest in corporate projects, improvements across all production facilities, and intangible assets. Total investments
in property, plant and equipment and intangible assets were $37,892 and $49,945 for the years ended December 31, 2023 and
2022, respectively. Capital expenditures are projected to be approximately $35,000 to $40,000 for 2024. As mentioned above, we
expect that our operations will continue to generate sufficient cash flow to fund the commitments for capital expenditures. These
capital expenditures are part of our continuous efforts to support our growing businesses.
In 2022, we completed the acquisitions of Kappa and Bergstrom. Cash paid for these acquisitions, net of cash acquired, amounted
to $1,252 and $365,780, for years ended December 31, 2023 and 2022, respectively.
Financing Activities
In 2023, we borrowed $18,000 to fund the payment of the 2022 dividend and made total loan payments of $149,000, resulting in
$240,431 available under the 2022 Credit Agreement (see Note 8, Revolving Loan) as of December 31, 2023.
We have an approved stock repurchase program. The total authorization under this program is 3,763,038 shares. Since the
inception of the program in June 1999, a total of 3,103,106 shares have been repurchased. We intend to acquire shares from time
to time at prevailing market prices if and to the extent we deem it is advisable to do so based on our assessment of corporate cash
flow, market conditions and other factors. Open market repurchases of common stock could be made pursuant to a trading plan
established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, which would permit common stock
to be repurchased at a time that we might otherwise be precluded from doing so under insider trading laws or self-imposed trading
restrictions. We also purchase (withhold) shares from employees in connection with the tax settlement of vested shares and/or
exercised stock options under the Company's omnibus incentive plan. Share repurchases are funded with existing cash on hand.
Proceeds from stock options exercised were $5,242 and $3,212 for the years ended December 31, 2023 and 2022, respectively.
Dividend payments were $22,872 and $20,713 during 2023 and 2022, respectively.
Other Matters Impacting Liquidity
We have a liability of $4,650 for uncertain tax positions, including the related interest and penalties, recorded in accordance with
ASC 740-10, for which we are unable to reasonably estimate the timing of settlement, if any.
We currently provide postretirement benefits in the form of two retirement medical plans, as discussed in Note 15, Employee
Benefit Plans. The liability recorded in other long-term liabilities on the consolidated balance sheets as of December 31, 2023 and
December 31, 2022 was $1,395 and $1,465, respectively, and the plans are not funded. Historical cash payments made under
these plans have typically been less than $200 per year. We do not anticipate any changes to the payments made in the current
year for the plans.
Balchem NV ("Chemogas") has an unfunded defined benefit plan. The plan provides for the payment of a lump sum at retirement
or payments in case of death of the covered employees. The amount recorded for these obligations on our balance sheet as of
December 31, 2023 and December 31, 2022 was $420 and $393, respectively, and was included in other long-term obligations.
We provide an unfunded, nonqualified deferred compensation plan maintained for the benefit of a select group of management or
highly compensated employees. Assets of the plan are held in a rabbi trust, which are included in "Other non-current assets" on
the consolidated balance sheet. They are subject to additional risk of loss in the event of bankruptcy or insolvency of the
Company. The deferred compensation liability as of December 31, 2023 and December 31, 2022 was $10,188 and $8,543,
respectively, and is included in "Other long-term obligations" on the consolidated balance sheets. The related rabbi trust assets
25
were $10,188 and $8,547 as of December 31, 2023 and December 31, 2022, respectively, and were included in "Other non-
current assets" on the consolidated balance sheets.
Related Party Transactions
We were engaged in related party transactions with St. Gabriel CC Company, LLC for the years ended December 31, 2023 and
December 31, 2022. Refer to Note 18, Related Party Transactions.
Critical Accounting Estimates
Critical accounting estimates are those estimates made in accordance with generally accepted accounting principles that involve a
significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial
condition or results of operations. Our management is required to make these critical accounting estimates and assumptions
during the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the
United States of America. These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of
contingent assets and liabilities as of the date of the consolidated financial statements. Estimates and assumptions are reviewed
periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to
be necessary. Actual results could differ from those estimates.
Our critical accounting estimates are those that require application of management's most difficult, subjective or complex
judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and that may
change in subsequent periods. Management considers the following to be critical accounting estimates.
Goodwill and Intangible Assets
The valuation methods and assumptions used in valuing goodwill and identified intangibles and assessing the impairment of
goodwill and identified intangibles involves a significant level of estimation uncertainty. In addition, the assumptions used in
determining the useful life of an intangible asset involves a significant level of estimation uncertainty. Refer to the Goodwill and
Acquired Intangible Assets section in Note 1, Business Description and Summary of Significant Accounting Policies, for details
related to the valuation and impairment process of both goodwill and intangible assets. Changes in market conditions, laws and
regulations, and key assumptions made in future quantitative assessments, including expected cash flows, competitive factors and
discount rates, could result in the recognition of an impairment charge, and in turn could have a material impact on our financial
condition or results of operations in subsequent periods.
Contingent Consideration Liabilities
In connection with recent acquisitions (see Note 2, Significant Acquisitions), the sellers of each of the acquired entities had an
opportunity to receive an additional payment if certain financial performance targets and other metrics were met, thereby
requiring us to record contingent consideration liabilities on our balance sheet. The valuation methods and assumptions used in
assessing the contingent consideration liabilities involve a significant level of estimation uncertainty, however, as of
December 31, 2023, the earn-out periods concluded and the Company recorded a contingent consideration liability of $100.
Income Taxes
The valuation methods and assumptions used in calculating income taxes, deferred tax assets and liabilities, and valuation
allowances involve a significant level of estimation uncertainty. Refer to the Income Taxes in Note 1, Business Description and
Summary of Significant Accounting Policies, for details. Changes in the assumptions such as our forecast of future market growth,
forecasted earnings, future taxable income, and prudent and feasible tax planning strategies could result in income taxes
adjustments, and in turn could have a material impact on our financial condition or results of operations in subsequent periods.
Significant Accounting Policies and Recent Accounting Pronouncements
See Note 1, Business Description and Summary of Significant Accounting Policies, in Notes to Consolidated Financial Statements
regarding significant accounting policies and recent accounting pronouncements.
26 Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our cash and cash equivalents are held primarily in checking accounts, certificates of deposit, and money market investment
funds. In 2019, we entered into an interest rate swap and cross-currency swap for hedging purposes. These derivatives settled on
their maturity date of June 27, 2023. Refer to details noted below (see Note 20, Derivative Instruments and Hedging Activities).
Additionally, as of December 31, 2023, our borrowings were under a revolving loan bearing interest at a fluctuating rate as
defined by the 2022 Credit Agreement plus an applicable rate (see Note 8, Revolving Loan). The applicable rate is based upon our
consolidated net leverage ratio, as defined in the 2022 Credit Agreement. A 100 basis point increase or decrease in interest rates,
applied to our borrowings at December 31, 2023, would result in an increase or decrease in annual interest expense and a
corresponding reduction or increase in cash flow of approximately $3,096. We are exposed to commodity price risks, including
prices of our primary raw materials. Our objective is to seek a reduction in the potential negative earnings impact of raw material
pricing arising in our business activities. We manage these financial exposures, where possible, through pricing and operational
means. Our practices may change as economic conditions change.
Interest Rate Risk
We have exposure to market risk for changes in interest rates, including the interest rate relating to the 2022 Credit Agreement. In
the second quarter of 2019, we began to manage our interest rate exposure through the use of derivative instruments. These
derivatives were utilized for risk management purposes, and were not used for trading or speculative purposes. We hedged a
portion of our floating interest rate exposure using an interest rate swap (see Note 20, Derivative Instruments and Hedging
Activities). This derivative settled on its maturity date of June 27, 2023.
Foreign Currency Exchange Risk
The financial condition and results of operations of our foreign subsidiaries are reported in local currencies and then translated
into U.S. dollars at the applicable currency exchange rate for inclusion in our consolidated financial statements. Therefore, we are
exposed to foreign currency exchange risk related to these currencies. In 2019, we entered into a cross-currency swap, with a
notional amount of $108,569, which we designated as a hedge of our net investment in Chemogas (see Note 20, Derivative
Instruments and Hedging Activities). This derivative settled on its maturity date of June 27, 2023.
27
Item 8.
Financial Statements and Supplementary Data
Index to Financial Statements and Supplementary Data:
Page Numbers
Report of Independent Registered Public Accounting Firm (PCAOB ID: 49)
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Earnings for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021
Notes to Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 2023, 2022 and 2021
29
31
32
33
34
35
36
67
28 Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Balchem Corporation
Opinions on the Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Balchem Corporation and its subsidiaries (the Company) as of
December 31, 2023 and 2022, and the related consolidated statements of earnings, comprehensive income, stockholders' equity
and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and schedule listed at
Item 8 (collectively, the financial statements). We also have audited the Company’s internal control over financial reporting as of
December 31, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission in 2013.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2023 and 2022, and the results of their operations and their cash flows for each of the three years in
the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of
America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission in 2013.
Basis for Opinions
The Company's management is responsible for these financial statements, for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's
financial statements and an opinion on the Company's internal control over financial reporting based on our audits. We are a
public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our
opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
29 Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the
accounts or disclosures to which it relates.
Valuation of Reporting Units for Goodwill Impairment Testing
As described in Notes 1 and 6 to the financial statements, the Company’s goodwill balance was $779 million as of December 31,
2023. The Company performed an annual goodwill impairment test as of October 1, 2023 using a quantitative evaluation for each
of its reporting units. The Company determines the fair value of its reporting units using the income approach, based on a
discounted cash flow valuation model. To test for goodwill impairment, the Company compares the fair value of each reporting
unit to its carrying value. When determining the fair value of each reporting unit, management makes significant estimates and
assumptions related to a number of factors. The Company considers the impact of factors that are specific to each of the reporting
units such as industry and economic changes as well as projected sales and expense growth rates based upon annual budgets and
longer-range strategic plans, which are highly sensitive to changes in domestic and foreign economic conditions, and the selection
of appropriate discount rates.
Given the significant estimates and assumptions management makes to determine the fair value of the reporting units and the
sensitivity of the operations to changes in U.S. and foreign economic conditions, we identified management’s assumptions related
to the sales and expense growth rates, the discount rates, and the terminal value calculation utilized in the valuation of the
reporting units within the Company’s goodwill impairment tests as a critical audit matter. Auditing the reasonableness of
management’s estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including
the need to involve our fair value specialists.
Our audit procedures related to sales and expense growth rates, discount rates, and the terminal value calculation utilized in the
valuation of the Company’s reporting units included the following, among others:
• We obtained an understanding of the relevant controls related to the valuation of the Company’s reporting units and
tested such controls for design and operating effectiveness, including management review controls related to sales and
expense growth rates and the selection of appropriate discount rates.
• We evaluated the reasonableness of management’s forecasts of sales and expense growth rates by comparing the
forecasts to (1) the historical results, (2) internal communications to management and the Board of Directors, and (3)
external communications made by management to analysts and investors, as applicable.
• We evaluated changes in the regulatory environment using industry reports containing analysis of the Company’s
markets and assessed whether these changes were reflected in management’s forecasts of sales and expense growth rates.
• With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rates and tested the
relevance and reliability of source information underlying the determination of the discount rates, tested the
mathematical accuracy of the calculation, and developed a range of independent estimates and compared those to the
discount rates selected by management.
• With the assistance of our fair value specialists, we evaluated the reasonableness and tested the mathematical accuracy of
the terminal value calculations.
/s/ RSM US LLP
We have served as the Company's auditor since 2004.
New York, New York
February 16, 2024
30 BALCHEM CORPORATION
Consolidated Balance Sheets
December 31, 2023 and 2022
(Dollars in thousands, except share and per share data)
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts of $908 and $1,226 at
December 31, 2023 and 2022, respectively
Inventories, net
Prepaid expenses
Derivative assets
Other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Intangible assets with finite lives, net
Right of use assets - operating leases
Right of use assets - finance lease
Other non-current assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Trade accounts payable
Accrued expenses
Accrued compensation and other benefits
Dividends payable
Income tax payable
Operating lease liabilities - current
Finance lease liabilities - current
Total current liabilities
Revolving loan
Deferred income taxes
Operating lease liabilities - non-current
Finance lease liabilities - non-current
Other long-term obligations
Total liabilities
Commitments and contingencies (Note 16)
Stockholders’ equity:
2023
2022
$
64,447 $
66,560
125,284
109,521
7,798
—
7,192
314,242
276,039
778,907
191,212
17,763
2,101
16,947
131,578
119,668
4,903
5,993
7,101
335,803
271,355
769,509
213,295
17,094
2,338
15,118
$ 1,597,211 $ 1,624,512
$
55,503 $
40,855
17,228
25,717
4,967
3,949
272
148,491
309,569
52,046
14,601
1,943
16,577
543,227
57,322
36,745
16,544
23,129
2,280
3,796
226
140,042
440,569
62,784
13,806
2,213
26,814
686,228
Preferred stock, $25 par value. Authorized 2,000,000 shares; none issued and outstanding
—
—
Common stock, $.0667 par value. Authorized 120,000,000 shares; 32,254,728 shares issued and
outstanding at December 31, 2023 and 32,152,787 shares issued and outstanding at
December 31, 2022, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Total stockholders’ equity
Total liabilities and stockholders’ equity
2,152
145,653
897,488
8,691
1,053,984
2,145
128,806
814,487
(7,154)
938,284
$ 1,597,211 $ 1,624,512
See accompanying notes to consolidated financial statements.
31
BALCHEM CORPORATION
Consolidated Statements of Earnings
Years Ended December 31, 2023, 2022 and 2021
(In thousands, except per share data)
Net sales
Cost of sales
Gross margin
Operating expenses:
Selling expenses
Research and development expenses
General and administrative expenses
Earnings from operations
Other expenses:
Interest expense, net
Other (income) expense, net
2023
2022
2021
$
922,439 $
942,358 $
799,023
620,383
661,907
555,849
302,056
280,451
243,174
74,397
15,049
53,417
142,863
67,409
12,191
55,665
135,265
60,413
13,524
41,735
115,672
159,193
145,186
127,502
22,613
(681)
21,932
10,268
1,169
11,437
2,456
(187)
2,269
Earnings before income tax expense
137,261
133,749
125,233
Income tax expense
Net earnings
Basic net earnings per common share
Diluted net earnings per common share
28,718
28,382
29,129
108,543 $
105,367 $
96,104
3.38 $
3.29 $
2.98
3.35 $
3.25 $
2.94
$
$
$
See accompanying notes to consolidated financial statements.
32
BALCHEM CORPORATION
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2023, 2022 and 2021
(In thousands)
2023
2022
2021
Net earnings
$
108,543 $
105,367 $
96,104
Other comprehensive income (loss), net of tax:
Net foreign currency translation adjustment
Unrealized (loss) gain on cash flow hedge, net of taxes of $341, $868, and
$654 at December 31, 2023, 2022, and 2021, respectively
Net change in postretirement benefit plan, net of taxes of $39, $24, and $13
at December 31, 2023, 2022 and 2021, respectively
Other comprehensive income (loss), net of tax
16,809
(4,799)
(11,255)
(1,065)
2,696
2,053
101
15,845
(58)
(2,161)
36
(9,166)
Comprehensive income
$
124,388 $
103,206 $
86,938
See accompanying notes to consolidated financial statements.
33
l
a
n
o
i
t
i
d
d
A
n
i
-
d
i
a
P
l
a
t
i
p
a
C
k
c
o
t
S
n
o
m
m
o
C
t
n
u
o
m
A
s
e
r
a
h
S
N
O
I
T
A
R
O
P
R
O
C
M
E
H
C
L
A
B
y
t
i
u
q
E
’
s
r
e
d
l
o
h
k
c
o
t
S
f
o
s
t
n
e
m
e
t
a
t
S
d
e
t
a
d
i
l
o
s
n
o
C
1
2
0
2
d
n
a
2
2
0
2
,
3
2
0
2
,
1
3
r
e
b
m
e
c
e
D
d
e
d
n
E
s
r
a
e
Y
)
a
t
a
d
e
r
a
h
s
r
e
p
d
n
a
e
r
a
h
s
t
p
e
c
x
e
,
s
d
n
a
s
u
o
h
t
n
i
s
r
a
l
l
o
D
(
d
e
t
a
l
u
m
u
c
c
A
r
e
h
t
O
e
v
i
s
n
e
h
e
r
p
m
o
C
)
s
s
o
L
(
e
m
o
c
n
I
d
e
n
i
a
t
e
R
i
s
g
n
n
r
a
E
l
a
t
o
T
'
s
r
e
d
l
o
h
k
c
o
t
S
y
t
i
u
q
E
0
6
1
,
5
6
1
$
0
6
1
,
2
$
1
2
6
,
2
7
3
,
2
3
3
7
1
,
4
$
0
4
7
,
6
5
6
$
3
3
2
,
8
2
8
$
0
2
0
2
,
1
3
r
e
b
m
e
c
e
D
-
e
c
n
a
l
a
B
—
—
—
)
2
2
2
,
5
3
(
8
7
7
,
7
1
—
—
—
)
7
1
(
1
1
—
—
—
)
8
4
8
,
9
4
2
(
7
7
3
,
4
6
1
—
—
—
—
)
6
6
1
,
9
(
—
—
—
4
0
1
,
6
9
)
6
0
7
,
0
2
(
4
0
1
,
6
9
)
6
6
1
,
9
(
)
6
0
7
,
0
2
(
)
9
3
2
,
5
3
(
9
8
7
,
7
1
s
n
a
l
p
k
c
o
t
s
r
e
d
n
u
d
e
u
s
s
i
s
n
o
i
t
p
o
d
n
a
s
e
r
a
h
S
k
c
o
t
s
n
o
m
m
o
c
f
o
s
e
s
a
h
c
r
u
p
e
R
s
s
o
l
e
v
i
s
n
e
h
e
r
p
m
o
c
r
e
h
t
O
)
e
r
a
h
s
r
e
p
4
6
.
$
(
s
d
n
e
d
i
v
i
D
s
g
n
i
n
r
a
e
t
e
N
6
1
7
,
7
4
1
4
5
1
,
2
0
5
1
,
7
8
2
,
2
3
)
3
9
9
,
4
(
8
3
1
,
2
3
7
5
1
0
,
7
7
8
1
2
0
2
,
1
3
r
e
b
m
e
c
e
D
-
e
c
n
a
l
a
B
—
—
—
)
7
0
4
,
5
3
(
7
9
4
,
6
1
—
—
—
)
6
1
(
7
—
—
—
)
4
0
3
,
2
5
2
(
1
4
9
,
7
1
1
—
—
—
—
)
1
6
1
,
2
(
—
—
—
)
8
1
0
,
3
2
(
7
6
3
,
5
0
1
)
1
6
1
,
2
(
)
8
1
0
,
3
2
(
)
3
2
4
,
5
3
(
4
0
5
,
6
1
7
6
3
,
5
0
1
s
n
a
l
p
k
c
o
t
s
r
e
d
n
u
d
e
u
s
s
i
s
n
o
i
t
p
o
d
n
a
s
e
r
a
h
S
k
c
o
t
s
n
o
m
m
o
c
f
o
s
e
s
a
h
c
r
u
p
e
R
s
s
o
l
e
v
i
s
n
e
h
e
r
p
m
o
c
r
e
h
t
O
)
e
r
a
h
s
r
e
p
1
7
.
$
(
s
d
n
e
d
i
v
i
D
s
g
n
i
n
r
a
e
t
e
N
6
0
8
,
8
2
1
5
4
1
,
2
7
8
7
,
2
5
1
,
2
3
)
4
5
1
,
7
(
7
8
4
,
4
1
8
4
8
2
,
8
3
9
2
2
0
2
,
1
3
r
e
b
m
e
c
e
D
-
e
c
n
a
l
a
B
—
—
—
)
2
1
5
,
4
(
9
5
3
,
1
2
—
—
—
)
2
(
9
—
—
—
)
8
5
5
,
2
3
(
9
9
4
,
4
3
1
—
—
—
—
5
4
8
,
5
1
—
—
—
)
2
4
5
,
5
2
(
3
4
5
,
8
0
1
5
4
8
,
5
1
)
4
1
5
,
4
(
)
2
4
5
,
5
2
(
8
6
3
,
1
2
3
4
5
,
8
0
1
*
x
a
t
e
s
i
c
x
e
g
n
i
d
u
l
c
n
i
,
k
c
o
t
s
n
o
m
m
o
c
f
o
s
e
s
a
h
c
r
u
p
e
R
s
n
a
l
p
k
c
o
t
s
r
e
d
n
u
d
e
u
s
s
i
s
n
o
i
t
p
o
d
n
a
s
e
r
a
h
S
e
m
o
c
n
i
e
v
i
s
n
e
h
e
r
p
m
o
c
r
e
h
t
O
)
e
r
a
h
s
r
e
p
9
7
.
$
(
s
d
n
e
d
i
v
i
D
s
g
n
i
n
r
a
e
t
e
N
3
5
6
,
5
4
1
$
2
5
1
,
2
$
8
2
7
,
4
5
2
,
2
3
1
9
6
,
8
$
8
8
4
,
7
9
8
$
4
8
9
,
3
5
0
,
1
$
3
2
0
2
,
1
3
r
e
b
m
e
c
e
D
-
e
c
n
a
l
a
B
s
i
h
c
i
h
w
,
s
e
s
a
h
c
r
u
p
e
r
e
r
a
h
s
n
o
x
a
t
e
s
i
c
x
e
%
1
a
s
e
s
o
p
m
i
A
R
I
e
h
T
.
w
a
l
o
t
n
i
)
"
A
R
I
"
e
h
t
(
t
c
A
n
o
i
t
c
u
d
e
R
n
o
i
t
a
l
f
n
I
e
h
t
d
e
t
c
a
n
e
t
n
e
m
n
r
e
v
o
g
.
.
S
U
e
h
t
,
2
2
0
2
,
6
1
t
s
u
g
u
A
n
O
*
.
k
c
o
t
s
n
o
m
m
o
c
e
h
t
f
o
e
s
a
h
c
r
u
p
e
r
e
h
t
f
o
t
r
a
p
s
a
y
t
i
u
q
e
n
i
h
t
i
w
d
e
d
r
o
c
e
r
s
i
x
a
t
e
s
i
c
x
e
e
h
T
.
2
2
0
2
,
1
3
r
e
b
m
e
c
e
D
r
e
t
f
a
d
e
t
e
l
p
m
o
c
s
e
s
a
h
c
r
u
p
e
r
r
o
f
e
v
i
t
c
e
f
f
e
.
s
t
n
e
m
e
t
a
t
s
l
a
i
c
n
a
n
i
f
d
e
t
a
d
i
l
o
s
n
o
c
o
t
s
e
t
o
n
g
n
i
y
n
a
p
m
o
c
c
a
e
e
S
34
BALCHEM CORPORATION
Consolidated Statements of Cash Flows
Years Ended December 31, 2023, 2022 and 2021
(In thousands)
Cash flows from operating activities:
Net earnings
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization
Stock compensation expense
Deferred income taxes
Provision for doubtful accounts
Unrealized (gain) loss on foreign currency transactions and deferred
compensation
Asset impairment charge and (gain) loss on disposal of assets
Change in fair value of contingent consideration liability
Changes in assets and liabilities, net of acquired balances
Accounts receivable
Inventories
Prepaid expenses and other current assets
Accounts payable and accrued expenses
Income taxes
Other
Net cash provided by operating activities
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired
Capital expenditures and intangible assets acquired
Proceeds from sale of assets
Proceeds from settlement of net investment hedge
Proceeds from insurance
Investment in affiliates
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from revolving loan
Principal payments on revolving debt
Principal payment on acquired debt
Cash paid for financing costs
Principal payments on finance lease
Proceeds from stock options exercised
Dividends paid
Repurchases of common stock
Net cash (used in) provided by financing activities
2023
2022
2021
$
108,543 $
105,367 $
96,104
54,935
16,052
(10,814)
37
(733)
7,031
(11,300)
6,969
10,530
(3,540)
3,552
2,194
305
183,761
(1,252)
(37,892)
1,881
2,740
—
(290)
(34,813)
18,000
(149,000)
—
—
(222)
5,242
(22,872)
(4,469)
(153,321)
51,848
13,224
(8,362)
401
914
366
—
(3,618)
(7,804)
1,870
(15,543)
296
(423)
138,536
(365,780)
(49,945)
206
—
—
(495)
(416,014)
435,000
(103,000)
(30,988)
(1,232)
(177)
3,212
(20,713)
(35,423)
246,679
48,879
10,802
(5,944)
180
(384)
(53)
—
(20,700)
(21,023)
(881)
47,067
4,787
1,680
160,514
—
(37,363)
318
—
1,831
(86)
(35,300)
5,000
(60,000)
—
—
(159)
6,943
(18,723)
(35,239)
(102,178)
Effect of exchange rate changes on cash
2,260
(5,880)
(4,368)
(Decrease) increase in cash and cash equivalents
(2,113)
(36,679)
18,668
Cash and cash equivalents beginning of period
Cash and cash equivalents end of period
66,560
64,447 $
103,239
66,560 $
84,571
103,239
$
Supplemental Cash Flow Information - see Note 13
See accompanying notes to consolidated financial statements.
35
BALCHEM CORPORATION
Notes to Consolidated Financial Statements
(All amounts in thousands, except share and per share data)
NOTE 1 - BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Description
Balchem Corporation (“Balchem” or the “Company”), including, unless the context otherwise requires, its wholly-owned
subsidiaries, incorporated in the State of Maryland in 1967, is engaged in the development, manufacture and marketing of
specialty performance ingredients and products for the food, nutritional, feed, pharmaceutical, agricultural, and medical
sterilization industries.
Principles of Consolidation
The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior
period amounts to conform with the current period's presentation.
Revenue Recognition
Revenue for each of the Company’s business segments is recognized when control of the promised goods is transferred to our
customers, in an amount that reflects the consideration we expect to realize in exchange for those goods. The Company reports
amounts billed to customers related to shipping and handling as revenue and includes costs incurred for shipping and handling in
cost of sales. Amounts received for unshipped merchandise are not recognized as revenue but rather they are recorded as customer
deposits and are included in current liabilities. In instances of shipments made on consignment, revenue is recognized when
control is transferred to the customer.
In accordance with Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, revenue-
generating contracts are assessed to identify distinct performance obligations, allocating transaction prices to those performance
obligations, and criteria for satisfaction of a performance obligation. The standard allows for recognition of revenue only when we
have satisfied a performance obligation through transferring control of the promised good or service to a customer. Control, in this
instance, may mean the ability to prevent other entities from directing the use of, and receiving benefit from, a good or service.
The standard indicates that an entity must determine at contract inception whether it will transfer control of a promised good or
service over time or satisfy the performance obligation at a point in time through analysis of the following criteria: (i) the entity
has a present right to payment, (ii) the customer has legal title, (iii) the customer has physical possession, (iv) the customer has the
significant risks and rewards of ownership and (v) the customer has accepted the asset. The Company assesses collectability based
primarily on the customer’s payment history and on the creditworthiness of the customer.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents. The
Company has funds in its cash accounts that are with third party financial institutions, primarily in certificates of deposit and
money market funds. The Company's balances of cash and cash equivalents in the U.S. and other countries exceed the insurance
limits of the Federal Deposit Insurance Corporation (“FDIC”) and other relevant insurance limits in other countries.
Accounts Receivable
Credit terms are granted in the normal course of business to the Company’s customers and on-going credit evaluations are
performed on the Company’s customers. In June 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-13,
"Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which requires that
credit losses be reported based on expected losses instead of the incurred loss model. Based on this ASU, customers' credit limits
are adjusted based upon their reasonably expected credit worthiness which is determined through review of their payment history,
their current credit information, and any foreseeable future events. Collections and payments from customers are continuously
monitored and allowances for doubtful accounts for estimated losses resulting from the inability of the Company’s customers to
make required payments are maintained. Estimated losses are based on historical experience, any specific customer collection
issues identified, and any reasonably expected future adverse events. If the financial condition of our customers were to
deteriorate resulting in an impairment of their ability to make payments, additional allowances and related bad debt expense may
be required.
36 Inventories
Inventories are valued at the lower of cost (first in, first out) or net realizable value and have been reduced by an allowance for
excess or obsolete inventories. Cost elements include material, labor and manufacturing overhead.
Property, Plant and Equipment and Depreciation
Property, plant and equipment are stated at cost.
Depreciation of plant and equipment is calculated using the straight-line method over the estimated useful lives of the assets as
follows:
Buildings
Equipment
15-25 years
2-28 years
Expenditures for repairs and maintenance are charged to expense. Alterations and major overhauls that extend the lives or
increase the capacity of plant assets are capitalized. When assets are retired or otherwise disposed of, the cost of the assets and the
related accumulated depreciation are removed from the accounts and any resultant gain or loss is included in earnings from
operations.
Business Concentrations
Financial instruments that subject the Company to credit risk consist primarily of accounts receivable and money market
investments. Investments are managed within established guidelines to mitigate risks. Accounts receivable subject the Company
to credit risk partially due to the concentration of amounts due from customers. The Company extends credit to its customers
based upon an evaluation of the customers’ financial condition and credit histories. In 2023, 2022 and 2021, no customer
accounted for more than 10% of total net sales or accounts receivable.
Post-employment Benefits
We provide life insurance, health care benefits, and defined benefit pension plan payments for certain eligible retirees and health
care benefits for certain retirees’ eligible survivors. The costs and obligations related to these benefits reflect our assumptions as
to health care cost trends and key economic conditions including discount rates, expected rate of return on plan assets, and
expected salary increases. The cost of providing plan benefits also depends on demographic assumptions including retirements,
mortality, turnover, and plan participation. If actual experience differs from these assumptions, the cost of providing these benefits
could increase or decrease.
In accordance with ASC 715, “Compensation-Retirement Benefits,” we are required to recognize the overfunded or underfunded
status of a defined benefit post retirement plan (other than a multiemployer plan) as an asset or liability in our statement of
financial position, and to recognize changes in that funded status in the year in which the changes occur through comprehensive
income.
Goodwill and Acquired Intangible Assets
Goodwill represents the excess of purchase price over the fair value of net assets acquired in accordance with ASC 805, "Business
Combinations". Goodwill and intangible assets acquired in a business combination that have indefinite useful lives are not
amortized but are instead assessed for impairment annually and more frequently if events and circumstances indicate that the
assets might be impaired, in accordance with the provisions of ASC 350, "Intangibles-Goodwill and Other". The Company
performed its annual test as of October 1. ASC 350 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 if events and
circumstances indicate that the assets might be impaired.
In January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”), which
addresses changes to the testing for goodwill impairment by eliminating Step 2 of the process. In accordance with this update, a
goodwill impairment test will be performed by comparing the fair value of a reporting unit with its carrying amount. An
impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value.
37 As of October 1, 2023 and 2022, the Company opted to bypass the qualitative assessment and proceeded directly to performing
the quantitative goodwill impairment test. The Company assessed the fair values of its reporting units by utilizing the income
approach, based on a discounted cash flow valuation model as the basis for its conclusions. The Company's estimates of future
cash flows included significant management assumptions such as revenue growth rates, operating margins, discount rates,
estimated terminal values and future economic and market conditions. The Company's assessment concluded that the fair values
of the reporting units exceeded their carrying amounts, including goodwill. Accordingly, the goodwill of the reporting units was
not considered impaired as of October 1, 2023 and 2022. The Company may resume performing the qualitative assessment in
subsequent periods.
The Company had goodwill in the amount of $778,907 and $769,509 as of December 31, 2023 and 2022, respectively, subject to
the provisions of ASC 350, “Intangibles-Goodwill and Other.”
Goodwill at December 31, 2021
Goodwill as a result of the Kappa acquisition
Goodwill as a result of the Bergstrom acquisition
Impact due to change in foreign exchange rates
Goodwill at December 31, 2022
Goodwill as a result of the Bergstrom acquisition
Impact due to change in foreign exchange rates
Goodwill at December 31, 2023
HNH
ANH
Specialty Products
Other and Unallocated
Total
$
$
523,949
216,295
31,209
(1,944)
769,509
341
9,057
778,907
December 31,
2023
December 31,
2022
$
673,207 $
665,804
24,469
81,175
56
24,218
79,429
58
$
778,907 $
769,509
The following intangible assets with finite lives are stated at cost and are amortized either on an accelerated basis or on a straight-
line basis over the following estimated useful lives:
Customer relationships and lists
Trademarks and trade names
Developed technology
Regulatory registration costs
Patents and trade secrets
Other
Amortization Period
(in years)
10 - 20
2 - 17
5 - 12
5 - 10
15 - 17
2 - 18
Intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying
amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the
carrying amount of the asset exceeds the fair value of the asset, which is generally based on discounted cash flows. The useful life
of an intangible asset is based on our assumptions regarding expected use of the asset; the relationship of the intangible asset to
another asset or group of assets; any legal, regulatory or contractual provisions that may limit the useful life of the asset or that
enable renewal or extension of the asset’s legal or contractual life without substantial cost; the effects of obsolescence, demand,
competition and other economic factors; and the level of maintenance expenditures required to obtain the expected future cash
flows from the asset and their related impact on the asset’s useful life. If events or circumstances indicate that the life of an
intangible asset has changed, it could result in higher future amortization charges or recognition of an impairment loss. For the
year ended December 31, 2023, there were no triggering events which required intangible asset impairment reviews.
38
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are measured using enacted
tax rates in effect for the fiscal year in which those temporary differences are expected to be recovered or settled. Valuation
allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. In evaluating our
ability to recover our deferred tax assets, in full or in part, we consider all available positive and negative evidence, including our
past operating results, our forecast of future market growth, forecasted earnings, future taxable income, and prudent and feasible
tax planning strategies. The assumptions utilized in determining future taxable income require judgment and are consistent with
the plans and estimates we are using to manage the underlying businesses.
We recognize uncertain income tax positions taken on income tax returns at the largest amount that is more likely than not to be
sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a
fifty percent likelihood of being sustained.
Our policy for recording interest and penalties associated with uncertain tax positions is to record such items as a component of
our income tax provision.
Use of Estimates
Management is required to make certain estimates and assumptions during the preparation of consolidated financial statements in
accordance with accounting principles generally accepted in the United States of America. These estimates and assumptions
impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the
consolidated financial statements and revenues and expenses during the reporting period. Estimates and assumptions are reviewed
periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to
be necessary. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company has a number of financial instruments, none of which are held for trading purposes. The estimated fair value
amounts have been determined by the Company using available market information and appropriate valuation methodologies.
Considerable judgment is required in interpreting market data to develop the estimates of fair value, and, accordingly, the
estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The carrying
value of debt approximates fair value as the interest rate is based on market and the Company’s consolidated leverage ratio. The
Company’s financial instruments also include cash equivalents, accounts receivable, accounts payable and accrued liabilities, and
are carried at cost which approximates fair value due to the short-term maturity of these instruments.
In addition, non-current assets includes rabbi trust funds related to the Company's deferred compensation plan. The money market
and rabbi trust funds are valued using level one inputs, as defined by ASC 820, "Fair Value Measurement."
The Company also had derivative financial instruments, consisting of a cross-currency swap and an interest rate swap, which were
included in derivative assets and derivative liabilities, in the consolidated balance sheets (see Note 20, Derivative Instruments and
Hedging Activities). The fair values of these derivative instruments were determined based on Level 2 inputs, using significant
inputs that were observable either directly or indirectly, including interest rate curves and implied volatilities. These derivatives
were settled on their maturity date on June 27, 2023 and there were no other derivatives outstanding as of December 31, 2023.
Cost of Sales
Cost of sales are primarily comprised of raw materials and supplies consumed in the manufacture of product, as well as
manufacturing labor, maintenance labor, depreciation expense, and direct overhead expense necessary to convert purchased
materials and supplies into finished product. Cost of sales also includes inbound freight costs, outbound freight costs for shipping
products to customers, warehousing costs, quality control and obsolescence expense.
Selling, General and Administrative Expenses
Selling expenses consist primarily of compensation and benefit costs, amortization of customer relationships and lists, trade
promotions, advertising, commissions and other marketing costs. General and administrative expenses consist primarily of payroll
and benefit costs, occupancy and operating costs of corporate offices, depreciation and amortization expense on non-
manufacturing assets, information systems costs and other miscellaneous administrative costs.
39 Research and Development
Research and development costs are associated directly with the Company's efforts to develop, design, and enhance its products,
services, technologies, or processes. Such costs are expensed as incurred.
Net Earnings Per Common Share
Basic net earnings per common share is calculated by dividing net earnings by the weighted average number of common shares
outstanding during the period. Diluted net earnings per common share is calculated in a manner consistent with basic net earnings
per common share except that the weighted average number of common shares outstanding also includes the dilutive effect of
stock options outstanding, unvested restricted stock, and unvested performance shares (using the treasury stock method).
Stock-based Compensation
The Company has stock-based employee compensation plans, which are described more fully in Note 3, Stockholders' Equity.
The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation-Stock Compensation,” which
requires all share-based payments, including grants of stock options, to be recognized in the statement of earnings as an operating
expense, based on their fair values. The Company estimates the fair value of each option award on the date of grant using either
the Black-Scholes model or the Binomial model, whichever is deemed to be most appropriate. Estimates of and assumptions
about forfeiture rates, terms, volatility, interest rates and dividend yields are used to calculate stock-based compensation. A
significant change to these estimates could materially affect the Company’s operating results.
Impairment of Long-lived Assets
Long-lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to estimated
undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair
value of the asset, which is generally based on discounted cash flows.
Derivative Instruments and Hedging Activities
The Company is exposed to market fluctuations in interest rates as well as variability in foreign exchange rates. In May 2019, the
Company entered into an interest rate swap with JP Morgan Chase, N.A. (the "Swap Counterparty") and a cross-currency swap
with JP Morgan Chase, N.A. (the "Bank Counterparty"). The Company's primary objective for holding derivative financial
instruments was to manage interest rate risk and foreign currency risk. The Company does not enter into derivative financial
instruments for trading or speculative purposes.
The derivative instruments were with the above single counterparty and were subject to a contractual agreement that provided for
the net settlement of all contracts through a single payment in a single currency in the event of default on or termination of any
one contract. As such, the derivative instruments were categorized as a master netting arrangement and presented as a net
derivative asset or derivative liability on the consolidated balance sheet as of December 31, 2022. The Company settled its
derivative instruments on their maturity date of June 27, 2023 and had no other derivatives outstanding as of December 31, 2023.
On a quarterly basis through their maturity, we assessed the effectiveness of the hedging relationships for the interest rate swap
and cross-currency swap by reviewing the critical terms indicated in the applicable agreement. The hedging relationships were
determined to be highly effective. As such, the net change in fair values of the interest rate swap, that qualified as a cash flow
hedge, was recorded in accumulated other comprehensive income/(loss) and subsequently reclassified into interest expense as
interest payments were made on our debt. For the cross-currency swap, the amounts that have not yet been recognized in earnings
remain in the cumulative translation adjustment section of accumulated other comprehensive income until the hedged net
investment is sold or liquidated in accordance with paragraphs 815-35-35-5A, "Derivatives and Hedging - Net Investment
Hedges", and 830-30-40-1 through 40-1A, "Foreign Currency Matters - Derecognition". Refer to Note 20, Derivative Instruments
and Hedging Activities, for detailed information about our derivative financial instruments.
40
Recently Issued Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740) - Improvements to Income Tax Disclosures." The
new guidance is intended to enhance the transparency and decision usefulness of income tax disclosures by requiring
disaggregated information about a reporting entity's effective tax rate reconciliation and information on income taxes paid. The
amendment is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The amendment in this
Update should be applied on a prospective basis, with retrospective application permitted. The Company is in the process of
evaluating the impact that the adoption of ASU 2023-09 will have to the financial statements and related disclosures.
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280) - Improvements to Reportable Segment
Disclosures." The ASU expands reportable segment disclosure requirements by requiring disclosures of significant reportable
segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each
reported measure of a segment's profit or loss. The ASU also requires disclosure of the title and position of the individual
identified as the CODM and an explanation of how the CODM uses the reported measures of a segment's profit or loss in
assessing segment performance and deciding how to allocate resources. Additionally, ASU 2023-07 requires all segment profit or
loss and assets disclosures to be provided on an annual and interim basis. ASU 2023-07 is effective for fiscal years beginning
after December 15, 2023, and interim periods within fiscal years beginning December 15, 2024. Early adoption is permitted and
the amendments must be applied retrospectively to all prior periods presented. The adoption of this guidance will not affect the
Company's consolidated results of operations, financial position or cash flows. The Company is currently evaluating the effect the
guidance will have on its disclosures.
In August 2023, the FASB issued ASU 2023-05, "Business Combinations - Joint Venture Formations (Subtopic 805-60):
Recognition and Initial Measurement." The new guidance applies to the formation of a joint venture and requires a joint venture
to initially measure all contributions received upon its formation at fair value. The guidance is intended to reduce diversity in
practice and is applicable to joint venture entities with a formation date on or after January 1, 2025 on a prospective basis. While
ASU 2023-05 is not currently applicable to Balchem, the Company will apply this guidance in future reporting periods after the
guidance is effective to any future arrangements meeting the definition of a joint venture.
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference
Rate Reform on Financial Reporting", and in December 2022 subsequently issued ASU 2022-06, “Reference Rate Reform (Topic
848): Deferral of the Sunset Date of Topic 848.” These ASU’s provide temporary optional guidance to ease the potential burden
in accounting for reference rate reform. The Standards Updates provide optional expedients and exceptions for applying
accounting principles generally accepted in the United States to contract modifications and hedging relationships that reference
LIBOR or another reference rate that are expected to be discontinued. The Standards Updates were effective upon issuance and
can generally be applied through December 31, 2024. Due to the discontinuation of LIBOR and under the relief provided by
Topic 848, during the third quarter of 2022, the Company modified its interest rate swap and replaced LIBOR with 1-month CME
Term SOFR. The modification of the agreement did not have a significant impact on the Company's consolidated financial
statements and disclosures. The interest rate swap matured on June 27, 2023.
NOTE 2 – SIGNIFICANT ACQUISITIONS
Cardinal Associates Inc. ("Bergstrom")
On August 30, 2022, the Company's wholly-owned subsidiary Albion Laboratories, Inc. ("Albion") entered into a Stock Purchase
Agreement, and closed on such transaction with Cardinal Associates Inc. ("Cardinal"), a corporation organized under the laws of
the State of Washington, pursuant to which Albion acquired Cardinal and its Bergstrom Nutrition business (collectively,
"Bergstrom"). Bergstrom Nutrition is a leading science-based manufacturer of MSM, based in Vancouver, Washington. MSM is a
widely used nutritional ingredient with strong scientific evidence supporting its benefits for joint health, sports nutrition, skin and
beauty, healthy aging, and pet health. The addition of OptiMSM®, Bergstrom Nutrition's MSM brand, to the Company's portfolio
within the Human Nutrition and Health and Animal Nutrition and Health segments provides a synergistic scientific advantage in
Balchem's key strategic therapeutic focus areas such as longevity and performance and is a strong fit with Balchem's specialty,
science-backed mineral products.
The Company made payments of $72,143 for the acquisition, amounting to $71,937 to the former shareholders or on behalf of the
former shareholders and $206 to pay off Bergstrom's bank debt. Net of cash acquired of $773, total payments made to the former
shareholders or on behalf of the former shareholders of Bergstrom were $71,164. The acquisition was primarily financed through
the 2022 Credit Agreement (see Note 8, Revolving Loan). In connection with this transaction, the former shareholders of
Bergstrom had an opportunity to receive an additional payment in 2024 if certain financial performance targets and other metrics
were met. As of December 31, 2023, the earn-out periods concluded and the Company recorded a contingent consideration
liability of $100 which was included in "Accrued expenses" on the consolidated balance sheets. The Company also made an
additional post-closing payment of $910 in the third quarter of 2023 that was negotiated as a deduction of the cash consideration
at closing. As a result, total payments related to the transaction are expected to be $72,243, comprised of the upfront cash
41 consideration of $70,892, a working capital adjustment of $341, an additional post-closing payment of $910, and the fair value of
the earn-out payment of $100.
The goodwill of $31,550 that arose on the acquisition date consists largely of expected synergies, including the combined entities'
experience and technical problem-solving capabilities, and acquired workforce. 80% of the goodwill is assigned to the Human
Nutrition and Health business segment and 20% of the goodwill is assigned to the Animal Nutrition and Health business segment.
For tax purposes, a joint election under 338(h)(10) was made to treat the stock acquisition as a deemed asset acquisition, therefore
generating tax amortizable goodwill.
The following table summarizes the fair values of the assets acquired and liabilities assumed:
Cash and cash equivalents
Accounts receivable
Inventories
Property, plant and equipment
Right of use assets
Customer relationships
Developed technology
Trademarks
Other assets
Accounts payable
Bank debt
Lease liabilities
Other liabilities
Goodwill
Total consideration on acquisition date and working capital adjustment
Net decrease to contingent consideration liability and other post-closing payments
Total expected consideration
To pay off bank debt
Total expected payments
$
$
773
4,699
3,972
2,243
866
29,900
4,600
2,300
197
(699)
(206)
(871)
(462)
31,550
78,862
(6,825)
72,037
206
72,243
The fair value of tangible and intangible assets acquired and liabilities assumed is based on management’s estimates and
assumptions. In preparing our fair value estimates of the intangible assets and certain tangible assets acquired, management,
among other things, consulted an independent advisor. Valuation methods utilized include net realizable value for inventory,
multi-period excess earnings method for customer relationships, the relief from royalty method for other intangible assets, and a
scenario-based approach for the contingent consideration.
Customer relationships are amortized over a 15-year period utilizing a percentage of excess earnings over economic life method.
The corporate trademark and product trademarks are amortized over 2 years and 10 years, respectively, and developed technology
is amortized over 12 years, utilizing the straight-line method as the consumption pattern of the related economic benefits cannot
be reliably determined.
Transaction and integration costs related to the Bergstrom acquisition are included in general and administrative expenses and
were $(10,614) and $4,604 for the years ended December 31, 2023 and 2022, respectively. There were no such amounts related to
this acquisition for the year ended December 31, 2021. These amounts included favorable adjustments to transaction costs of
$11,300 for the year ended December 31, 2023 and an unfavorable adjustment to transaction costs of $3,565 for the year ended
December 31, 2022.
42
Kechu BidCo AS and Its Subsidiary Companies ("Kappa")
On June 21, 2022, Balchem Corporation and its wholly-owned subsidiary, Balchem B.V., completed the acquisition of Kechu
BidCo AS and its subsidiary companies, including Kappa Bioscience AS, a leading science-based manufacturer of specialty
vitamin K2 for the human nutrition industry, headquartered in Oslo, Norway (all acquired companies collectively referred to as
“Kappa”). Kappa manufactures specialty vitamin K2, which plays a crucial role in the human body for bone health, heart health
and immunity. Primarily, vitamin K2 supports the transport and distribution of calcium in the body. Vitamin K2 is important at all
life stages, from pregnancy and early life to healthy aging. The acquisition strengthens the Company's scientific and technical
expertise, geographic reach, and marketplace leadership, which should ultimately lead to accelerated growth for the Company's
portfolios within the Human Nutrition and Health segment.
The Company made payments of approximately kr3,305,653 ("kr" indicates the Norwegian krone), amounting to approximately
kr3,001,981 to the former shareholders and approximately kr303,672 to Kappa's lenders to pay off all Kappa bank debt. Net of
cash acquired of kr63,064, total payments to the former shareholders were kr2,938,917. Net of gains on foreign currency forward
contracts of $512 (see Note 20, Derivative Instruments and Hedging Activities), these payments translated to approximately
$333,112, amounting to approximately $302,464 paid to the former shareholders and approximately $30,648 to Kappa's lenders.
Net of cash acquired of $6,365, total payments made to the former shareholders of Kappa were approximately $296,099. The
acquisition was primarily financed through the 2018 Credit Agreement (see Note 8, Revolving Loan). In connection with this
transaction, the former shareholders of Kappa had an opportunity to receive an additional payment in 2024 if certain financial
performance targets and other metrics were met. There was no contingent consideration liability recorded as of December 31,
2023.
The goodwill of $216,383 that arose on the acquisition date consists largely of expected synergies, including the combined
entities' experience and technical problem-solving capabilities, and acquired workforce. The goodwill is assigned to the Human
Nutrition and Health business segment and is not deductible for income tax purposes.
The following table summarizes the fair values of the assets acquired and liabilities assumed. The transactions were completed in
Norwegian kroner ("NOK") and the amounts were translated to U.S. dollars ("USD") using the foreign currency exchange rate as
of June 21, 2022.
Cash and cash equivalents
Accounts receivable
Inventories
Property, plant and equipment
Right of use assets
Customer relationships
Developed technology
Trademarks
Other assets
Accounts payable
Bank debt
Lease liabilities
Other liabilities
Deferred income taxes, net
Goodwill
Total consideration on acquisition date
Decrease to contingent consideration liability
Net gain on foreign currency exchange forward contracts
Total expected consideration
Kappa bank debt paid on acquisition date
Total expected payments
$
$
6,365
8,036
17,600
9,854
3,349
88,813
15,643
5,046
2,399
(3,301)
(30,648)
(3,349)
(4,461)
(24,716)
216,383
307,013
(4,037)
(512)
302,464
30,648
333,112
43
The fair value of tangible and intangible assets acquired and liabilities assumed is based on management’s estimates and
assumptions. In preparing our fair value estimates of the intangible assets and certain tangible assets acquired, management,
among other things, consulted an independent advisor. Valuation methods utilized include net realizable value for inventory,
multi-period excess earnings method for customer relationships, the relief from royalty method for other intangible assets, and a
scenario-based approach for the contingent consideration.
Customer relationships are amortized over a 15-year period utilizing a percentage of excess earnings over economic life method.
The corporate trademark and product trademarks are amortized over 2 years and 10 years, respectively, and developed technology
is amortized over 12 years, utilizing the straight-line method as the consumption pattern of the related economic benefits cannot
be reliably determined.
Transaction and integration costs related to the Kappa acquisition are included in general and administrative expenses and were
$533 and $(2,306) for the years ended December 31, 2023 and 2022, respectively. There were no such amounts related to this
acquisition for the year ended December 31, 2021. The amount included a favorable adjustment to transaction costs of $4,037 for
the year ended December 31, 2022.
The following selected unaudited pro forma information presents the consolidated results of operations as if the business
combinations in 2022 had occurred as of January 1, 2021.
Kappa & Bergstrom actual results included in the Company's consolidated
income statement in 2023
Kappa & Bergstrom actual results included in the Company's consolidated
income statement in 2022
2023 Supplemental pro forma combined financial
2022 Supplemental pro forma combined financial
2021 Supplemental pro forma combined financial
Twelve Months ended December 31,
Net Sales
Net Earnings
59,532 $
5,487
22,158 $
(5,359)
922,439 $
116,317
982,021 $
110,181
859,252 $
90,672
$
$
$
$
$
The above selected unaudited pro forma information includes the following acquisition-related adjustments: (1) additional
amortization of intangible assets and depreciation of fixed assets; (2) adjustments related to the fair value of the acquired
inventory, (3) adjustments to interest expense on borrowings at rates in effect during the related period, factoring in estimated
payments based on free cash flow, and (4) other one-time adjustments.
The pro forma information presented does not purport to be indicative of the results that actually would have been attained if these
acquisitions had occurred at the beginning of the periods presented and is not intended to be a projection of future results.
44 NOTE 3 - STOCKHOLDERS’ EQUITY
Stock-Based Compensation
All share-based payments, including grants of stock options, are recognized in the statements of earnings as operating expenses,
based on their fair values.
The Company has made an estimate of expected forfeitures, based on its historical experience, and is recognizing compensation
cost only for those stock-based compensation awards expected to vest.
The Company’s results for the years ended December 31, 2023, 2022 and 2021 reflected the following compensation cost and
such compensation cost had the following effects on net earnings:
Cost of sales
Operating expenses
Net earnings
Increase/(Decrease) for the
Year Ended December 31,
2022
2021
2023
$
1,900 $
14,152
(12,375)
1,302 $
11,922
(10,214)
845
9,957
(8,370)
On December 31, 2023, the Company had one share-based compensation plan under which awards may be granted, which is
described below.
In June 2017, the Company’s shareholders approved the Balchem Corporation 2017 Omnibus Incentive Plan (“2017 Plan”) for
officers, employees and directors of the Company and its subsidiaries. The 2017 Plan replaced the 1999 Stock Plan and
amendments and restatements thereto (collectively to be referred to as the “1999 Plan"), which expired in April 2018. No further
awards will be made under the 1999 Plan, and the shares that remained available for grant under the 1999 Plan will only be used
to settle outstanding awards granted under the 1999 Plan and will not become available under the 2017 Plan. On June 22, 2023,
the Company’s shareholders approved an amendment and restatement of the 2017 Plan (the “Amended 2017 Plan”). The
Amended 2017 Plan is administered by the Compensation Committee of the Board of Directors of the Company. The Amended
2017 Plan provides as follows: (i) for a termination date of June 22, 2033; (ii) the authorization of 2,400,000 shares for future
grants (which represents an increase of 800,000 shares from the amount approved under the 2017 Plan); (iii) for the making of
grants of stock options, stock appreciation rights, restricted stock awards, restricted stock units, and other stock-based awards, as
well as for the making of cash performance awards; (iv) except as provided by the Compensation Committee or in an employment
agreement as in effect on the effective date of the Amended 2017 Plan, no automatic acceleration of outstanding awards upon the
occurrence of a change in control of the Company; (v) certain annual limits on the number of shares and amount of cash that may
be granted; (vi) for dividends or dividend equivalents otherwise payable on an unvested award to accrue and be paid only at such
time as the vesting conditions applicable to the underlying award have been satisfied; (vii) for incentive compensation recovery if
the Company is required to prepare an accounting restatement of its financial statements, in accordance with any compensation
recovery policy adopted by the Company, applicable law, government regulations or national securities exchange requirements, or
in the discretion of the Compensation Committee in the event of a restatement due to the Company’s material noncompliance with
any financial reporting requirements under the securities laws; and (viii) for compliance with the requirements of Section 409A of
the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code” or the “Code”). No option will be exercisable for
longer than ten years after the date of grant.
The shares to be issued upon exercise of the outstanding options have been approved, reserved and are adequate to cover all
exercises. As of December 31, 2023, the Amended 2017 Plan had 1,034,260 shares available for future awards.
The Company has Restricted Stock Grant Agreements with the Company's non–employee directors and certain employees. Under
the Restricted Stock Grant Agreements, certain shares of the Common Stock have been granted, ranging from 70 shares to 54,000
shares, to its non-employee directors and certain employees, subject to time-based vesting requirements.
The Company also has performance share (“PS”) awards, which provide the recipients the right to receive a certain number of
shares of the Common Stock in the future, subject to an (1) EBITDA performance hurdle, where vesting is dependent upon the
Company achieving a certain EBITDA percentage growth over the performance period, and (2) relative total shareholder return
(“TSR”) market condition where vesting is dependent upon the Company’s TSR performance over the performance period
(typically three years) relative to a comparator group consisting of the Russell 2000 index constituents.
45
The fair value of each option award issued under the Company’s stock plans is estimated on the date of grant using either the
Black-Scholes model or the Binomial model, whichever is deemed to be most appropriate. For the years ended December 31,
2023, 2022, and 2021, the fair value of each option grant uses the assumptions noted in the following table. Expected volatilities
are based on historical volatility of the Company’s stock. The expected term of the options is based on the Company’s historical
experience of employees’ exercise behavior. Dividend yields are based on the Company’s historical dividend yields. Risk-free
interest rates are based on the implied yields currently available on U.S. Treasury zero coupon issues with a remaining term equal
to the expected life.
Weighted Average Assumptions:
Expected Volatility
Expected Term (in years)
Risk-Free Interest Rate
Dividend Yield
Year Ended December 31,
2022
2021
2023
28.1 %
4.8
3.9 %
0.5 %
30.3 %
7.3
2.8 %
0.5 %
32.9 %
4.9
0.5 %
0.5 %
The value of the restricted shares is based on the fair value of the award at the date of grant.
Performance Share expense is measured based on the fair value at the date of grant utilizing a Black-Scholes methodology to
produce a Monte-Carlo simulation model which allows for the incorporation of the performance hurdles that must be met before
the Performance Share vests. The assumptions used in the fair value determination were risk free interest rates of 4.2%, 1.8%, and
0.2%; dividend yields of 0.5%, 0.5%, and 0.6%; volatilities of 32%, 32%, and 33%; and initial TSR’s of 4.2%, -15.7%, and
11.7% in each case for the years ended December 31, 2023, 2022, and 2021, respectively. Expense is based on the estimated
number of shares expected to vest, assuming the requisite service period is rendered and the probable outcome of the performance
condition is achieved. The estimate is revised if subsequent information indicates that the actual number of shares likely to vest
differs from previous estimates. Expense is ultimately adjusted based on the actual achievement of service and performance
targets. The Performance Shares will cliff vest 100% at the end of the third year following the grant in accordance with the
performance metrics set forth.
Compensation expense for stock options and stock awards is recognized on a straight-line basis over the vesting period, generally
three to five years for stock options, three years for employee restricted stock awards, three years for employee performance share
awards, and three years for non-employee director restricted stock awards.
A summary of stock option plan activity for 2023, 2022, and 2021 for all plans is as follows:
2023
2022
2021
# of
Shares
(000s)
Weighted
Average
Exercise
Price
# of
Shares
(000s)
Weighted
Average
Exercise
Price
# of
Shares
(000s)
Weighted
Average
Exercise
Price
1,045 $
109
(64)
(11)
(1)
1,078 $
99.82
138.09
81.98
131.79
138.07
104.38
867 $
239
(44)
(17)
—
1,045 $
88.19
139.04
73.58
124.89
—
99.82
858 $
129
(109)
(10)
(1)
867 $
80.58
119.12
63.42
106.93
74.57
88.19
Outstanding at beginning of year
Granted
Exercised
Forfeited
Cancelled
Outstanding at end of year
Exercisable at end of year
720 $
88.49
654 $
81.95
538 $
75.51
The aggregate intrinsic value for outstanding stock options was $47,889, $27,221 and $69,711 at December 31, 2023, 2022 and
2021, respectively, with a weighted average remaining contractual term of 5.7 years at December 31, 2023. Exercisable stock
options at December 31, 2023 had an aggregate intrinsic value of $43,364 with a weighted average remaining contractual term of
4.4 years.
46
Other information pertaining to option activity during the years ended December 31, 2023, 2022 and 2021 is as follows:
Weighted-average fair value of options granted
Total intrinsic value of stock options exercised ($000s)
$
$
40.91 $
3,241 $
44.77 $
2,713 $
33.11
7,866
Additional information related to stock options outstanding under all plans at December 31, 2023 is as follows:
Years Ended December 31,
2022
2023
2021
Range of Exercise
Prices
$54.87 - $85.33
$85.40 - $118.60
$118.96 - $150.85
Options Outstanding
Options Exercisable
Shares
Outstanding
(000s)
Weighted
Average
Remaining
Contractual
Term
Weighted
Average
Exercise
Price
Number
Exercisable
(000s)
Weighted
Average
Exercise
Price
387
250
441
1,078
3.5 $
4.9
8.1
5.7 $
72.41
101.84
133.93
104.38
387 $
248
85
720 $
72.41
101.71
123.47
88.49
Non-vested restricted stock activity for the years ended December 31, 2023, 2022 and 2021 is summarized below:
2023
2022
2021
Weighted
Average
Grant
Date Fair
Value
Weighted
Average
Grant
Date Fair
Value
Weighted
Average
Grant
Date Fair
Value
Shares
(000s)
Shares
(000s)
Shares
(000s)
Non-vested balance at beginning
of year
Granted
Vested
Forfeited
Non-vested balance at end of year
122 $
40
(42)
(4)
116 $
124.42
137.20
112.30
128.06
133.06
166 $
46
(82)
(8)
122 $
99.7
137.17
82.15
118.07
124.42
159 $
42
(24)
(11)
166 $
90.71
123.58
85.83
90.49
99.7
Non-vested performance share activity for the years ended December 31, 2023, 2022 and 2021 is summarized below:
2023
2022
2021
Weighted
Average
Grant
Date Fair
Value
Weighted
Average
Grant
Date Fair
Value
Weighted
Average
Grant
Date Fair
Value
Shares
(000s)
Shares
(000s)
Shares
(000s)
Non-vested balance at beginning
of year
Granted
Vested
Forfeited
Non-vested balance at end of year
70 $
42
(36)
—
76 $
127.69
139.66
98.84
—
135.25
69 $
39
(35)
(3)
70 $
110.72
114.22
53.17
84.09
127.69
71 $
36
(24)
(14)
69 $
91.99
108.74
70.64
81.03
110.72
As of December 31, 2023, 2022 and 2021, there was $18,817, $20,791 and $13,980, respectively, of total unrecognized
compensation cost related to non-vested share-based compensation arrangements granted under the plans. As of December 31,
2023, the unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately 1.6
years. We estimate that share-based compensation expense for the year ended December 31, 2024 will be approximately $14,800.
47
Repurchase of Common Stock
The Company's Board of Directors has approved a stock repurchase program. The total authorization under this program is
3,763,038 shares. Since the inception of the program in June 1999, a total of 3,103,106 shares have been purchased. The
Company intends to acquire shares from time to time at prevailing market prices if and to the extent it deems it is advisable to do
so based on its assessment of corporate cash flow, market conditions and other factors. Open market repurchases of common
stock could be made pursuant to trading plan established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as
amended, which would permit common stock to be repurchased at a time that the Company might otherwise be precluded from
doing so under insider trading laws or self-imposed trading restrictions. The Company also repurchases (withholds) shares from
employees in connection with the tax settlement of vested shares and/or exercised stock options under the Company's omnibus
incentive plan. Such repurchases of shares from employees are funded with existing cash on hand. During 2023, 2022, and 2021,
the Company purchased 32,558, 252,304, and 249,848 shares, respectively, from open market purchases and from employees on a
net-settlement basis to provide cash to employees to cover the associated employee payroll taxes. These shares were purchased at
an average cost of $137.29, $140.40, and $141.04 per share, respectively.
NOTE 4 - INVENTORIES
Inventories, net of reserves at December 31, 2023 and 2022 consisted of the following:
Raw materials
Work in progress
Finished goods
Total inventories
2023
2022
39,517 $
3,960
66,044
44,477
3,143
72,048
109,521 $
119,668
$
$
On a regular basis, the Company evaluates its inventory balances for excess quantities and obsolescence by analyzing demand,
inventory on hand, sales levels and other information. Based on these evaluations, inventory balances are reserved, if necessary.
The reserve for inventory was $2,463 and $2,640 at December 31, 2023 and 2022, respectively.
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 2023 and 2022 are summarized as follows:
Land
Building
Equipment
Construction in progress
Less: Accumulated depreciation
Property, plant and equipment, net
Geographic Area Data - Long-Lived Assets (excluding intangible assets):
United States
Foreign Countries
Total
2023
2022
11,787 $
104,363
312,704
59,981
488,835
212,796
276,039 $
11,415
90,644
278,851
79,928
460,838
189,483
271,355
2023
2022
203,692 $
72,347
276,039 $
211,588
59,767
271,355
$
$
$
$
Depreciation expense was $26,373, $24,033 and $23,295 for the years ended December 31, 2023, 2022 and 2021, respectively.
48
In accordance with Topic 360, the Company reviews long-lived assets for impairment on an annual basis and also whenever
events indicate that the carrying amount of the assets may not be fully recoverable. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds
the fair value of the asset, which is generally based on discounted cash flows. Included in “General and administrative expenses”
were restructuring-related impairment and asset disposal charges of $7,764 related to building, equipment, and construction in
progress mainly in the Human Nutrition and Health and the Animal Nutrition and Health segments, for the year ended
December 31, 2023. Such expenses for the year ended December 31, 2022 were not material.
NOTE 6 - INTANGIBLE ASSETS
The Company had goodwill in the amount of $778,907 and $769,509 as of December 31, 2023 and 2022, respectively, subject to
the provisions of ASC 350, “Intangibles-Goodwill and Other.” The increase in goodwill is primarily due to foreign currency
translation adjustments.
As of December 31, 2023 and 2022, the Company had identifiable intangible assets as follows:
2023
2022
Amortization
Period
(In years)
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Customer relationships and lists
Trademarks and trade names
Developed technology
Other
10-20 $
2-17
5-12
2-18
$
362,032 $
209,651 $
50,286
41,184
25,733
479,235 $
37,773
17,516
23,083
288,023 $
Accumulated
Amortization
190,576
33,416
16,171
19,245
259,408
357,131 $
50,058
40,473
25,041
472,703 $
Amortization of identifiable intangible assets was $28,035, $27,271 and $25,092 for 2023, 2022 and 2021, respectively.
Assuming no change in the gross carrying value of identifiable intangible assets, the estimated amortization expense is
approximately $18,971 in 2024, $15,509 in 2025, $15,308 in 2026, $14,784 in 2027, and $14,387 in 2028. At December 31, 2023
and 2022, there were no identifiable intangible assets with indefinite useful lives as defined by ASC 350, “Intangibles-Goodwill
and Other.” Identifiable intangible assets are reflected in the Company’s consolidated balance sheets under Intangible assets with
finite lives, net. There were no changes to the useful lives of intangible assets subject to amortization in 2023 and 2022.
The Federal Insecticide, Fungicide and Rodenticide Act, (“FIFRA”), a health and safety statute, requires that certain products
within our specialty products segment must be registered with the U.S. Environmental Protection Agency (the "EPA") because
they are considered pesticides. Costs of such registrations are included as other in the table above.
NOTE 7 – EQUITY-METHOD INVESTMENT
In 2013, the Company and Eastman Chemical Company formed a joint venture (66.66% / 33.34% ownership), St. Gabriel CC
Company, LLC, to design, develop, and construct an expansion of the Company’s St. Gabriel aqueous choline chloride plant. The
Company contributed the St. Gabriel plant, at cost, and all continued expansion and improvements are funded by the owners. The
joint venture became operational as of July 1, 2016. St. Gabriel CC Company, LLC is a Variable Interest Entity ("VIE") because
the total equity at risk is not sufficient to permit the joint venture to finance its own activities without additional subordinated
financial support. Additionally, voting rights (2 votes each) are not proportionate to the owners’ obligation to absorb expected
losses or receive the expected residual returns of the joint venture. The Company will receive up to 2/3 of the production offtake
capacity and absorbs operating expenses approximately proportional to the actual percentage of offtake. The joint venture is
accounted for under the equity method of accounting since the Company is not the primary beneficiary as the Company does not
have the power to direct the activities of the joint venture that most significantly impact its economic performance. The Company
recognized a loss of $509, $559, and $557 for the years ended December 31, 2023, 2022, and 2021, respectively, relating to its
portion of the joint venture’s expenses in other expense. The Company made capital contributions to the investment totaling $290,
$355, and $85 for the years ended December 31, 2023, 2022, and 2021 respectively. The carrying value of the joint venture at
December 31, 2023 and 2022 was $4,076 and $4,295, respectively, and is recorded in "Other non-current assets" on the
consolidated balance sheets.
49
NOTE 8 – REVOLVING LOAN
On June 27, 2018, the Company and a bank syndicate entered into a credit agreement (the "2018 Credit Agreement"), which
provided for revolving loans up to $500,000, due on June 27, 2023. During the second quarter of 2022, the Company borrowed
$345,000 under the 2018 Credit Agreement to fund the Kappa acquisition (see Note 2, Significant Acquisitions). On July 27,
2022, the Company entered into an Amended and Restated Credit Agreement (the "2022 Credit Agreement") with certain lenders
in the form of a senior secured revolving credit facility, due on July 27, 2027. The 2022 Credit Agreement allows for up to
$550,000 of borrowing. The loans may be used for working capital, letters of credit, and other corporate purposes and may be
drawn upon at the Company’s discretion. The Company used initial proceeds from the 2022 Credit Agreement to repay the
outstanding balance of $433,569 due in June 2023 under the 2018 Credit Agreement. During the third quarter of 2022, the
Company borrowed another $70,000 to fund the Bergstrom acquisition (see Note 2, Significant Acquisitions). As of December 31,
2023 and 2022, the total balance outstanding on the 2022 Credit Agreement amounted to $309,569 and $440,569, respectively.
There are no installment payments required on the revolving loans; they may be voluntarily prepaid in whole or in part without
premium or penalty, and all outstanding amounts are due on the maturity date.
Amounts outstanding under the 2022 Credit Agreement are subject to an interest rate equal to a fluctuating rate as defined by the
2022 Credit Agreement plus an applicable rate. The applicable rate is based upon the Company’s consolidated net leverage ratio,
as defined in the 2022 Credit Agreement, and the interest rate was 6.580% at December 31, 2023. The Company is also required
to pay a commitment fee on the unused portion of the revolving loan, which is based on the Company’s consolidated net leverage
ratio as defined in the 2022 Credit Agreement and ranges from 0.150% to 0.225% (0.175% at December 31, 2023). The unused
portion of the revolving loan amounted to $240,431 at December 31, 2023. The Company is also required to pay, as applicable,
letter of credit fees, administrative agent fees, and other fees to the arrangers and lenders.
Costs associated with the issuance of the revolving loans are capitalized and amortized on a straight-line basis over the term of the
2022 Credit Agreement. Capitalized costs net of accumulated amortization totaled $1,030 and $1,317 at December 31, 2023 and
2022, respectively, and are included in "Other non-current assets" on the consolidated balance sheets. Amortization expense
pertaining to these costs totaled $287, $335, and $282 for the years ended December 31, 2023, 2022, and 2021, respectively, and
are included in "Interest expense" in the accompanying consolidated statements of earnings.
The 2022 Credit Agreement contains quarterly covenants requiring the consolidated leverage ratio to be less than a certain
maximum ratio and the consolidated interest coverage ratio to exceed a certain minimum ratio. At December 31, 2023, the
Company was in compliance with these covenants. Indebtedness under the Company’s loan agreements is secured by assets of the
Company.
NOTE 9 - NET EARNINGS PER COMMON SHARE
The following presents a reconciliation of the net earnings and shares used in calculating basic and diluted net earnings per
common share:
Year Ended December 31,
2022
2021
2023
Net Earnings - Basic and Diluted
$
108,543 $
105,367 $
96,104
Share (000s)
Weighted Average Common Shares - Basic
Effect of Dilutive Securities – Stock Options, Restricted Stock, and
Performance Shares
Weighted Average Common Shares - Diluted
32,108
340
32,448
32,019
374
32,393
Net Earnings Per Share - Basic
Net Earnings Per Share - Diluted
$
$
3.38 $
3.35 $
3.29 $
3.25 $
32,215
457
32,672
2.98
2.94
The number of anti-dilutive shares were 354,619, 371,513, and 155,294 for 2023, 2022, and 2021. Anti-dilutive shares could
potentially dilute basic earnings per share in future periods and therefore, were not included in diluted earnings per share.
50
NOTE 10 - INCOME TAXES
The Company’s effective tax rate for 2023, 2022 and 2021 was 20.9%, 21.2%, and 23.3%, respectively. The decrease from 2022
to 2023 is primarily due to an increase in certain tax credits.
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. The Company regularly reviews its deferred tax assets for recoverability
and would establish a valuation allowance if it believed that such assets may not be recovered, taking into consideration historical
operating results, expectations of future earnings, changes in its operations and the expected timing of the reversals of existing
temporary differences.
The Company considers the undistributed earnings of certain non-U.S. subsidiaries to be indefinitely reinvested outside of the
United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs.
However, due to prevailing economic conditions of increased interest rates and subsequent borrowing costs, the Company
remitted approximately $18,000 from its Belgium subsidiary and has incurred an income tax expense of approximately $20. The
remittance was used to pay down U.S. debt. The Company had unremitted foreign earnings of approximately $109,000 and
$94,000 for the years ended December 31, 2023 and 2022, respectively. The determination of the unrecognized deferred tax
liability on those undistributed earnings is not practicable due to its legal entity structure and the complexity of U.S. and local
country tax laws. If the Company decides to change its assertion on its remaining undistributed foreign earnings, it will need to
recognize the income tax effects in the period it changes its assertion.
Income tax expense consists of the following:
Current:
Federal
Foreign
State
Deferred:
Federal
Foreign
State
Total income tax provision
2023
2022
2021
$
$
27,306 $
7,634
4,403
(7,737)
(2,285)
(603)
28,718 $
26,423 $
7,103
3,964
(7,532)
(215)
(1,361)
28,382 $
25,019
7,553
3,664
(3,709)
(3,038)
(360)
29,129
The provision for income taxes differs from the amount computed by applying the Federal statutory rate of 21% for 2023, 2022,
and 2021 to earnings before income tax expense due to the following:
Income tax at Federal statutory rate
State income taxes, net of Federal income taxes
Stock Options
Foreign-derived intangible income (FDII)
Foreign rate differential
Other
Total income tax provision
2023
2022
2021
28,825 $
2,513
(1,004)
(1,752)
946
(810)
28,718 $
28,087 $
1,862
(676)
(1,778)
2,066
(1,179)
28,382 $
26,299
2,406
(924)
(1,540)
1,188
1,700
29,129
$
$
51
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities
at December 31, 2023 and 2022 were as follows:
Deferred tax assets:
Inventories
Restricted stock and stock options
Lease liabilities
Research and development
Other
Total deferred tax assets
Deferred tax liabilities:
Amortization
Depreciation
Prepaid expenses
Foreign currency and interest rate swaps
Right of use assets
Other
Total deferred tax liabilities
$
$
2023
2022
1,049 $
5,565
4,812
12,653
3,874
27,953
(42,351) $
(28,937)
(421)
(647)
(4,574)
(3,047)
(79,977)
1,038
3,932
5,439
4,134
3,717
18,260
(46,688)
(25,097)
(462)
(1,456)
(5,324)
(1,995)
(81,022)
Valuation allowance
(22)
(22)
Net deferred tax liability
$
(52,046) $
(62,784)
As of December 31, 2023, the Company has state income tax net operating loss (NOL) carryforwards of $348. The state NOL
carryforwards will expire between 2026 and 2035. The Company believes that the benefit from the state NOL carryforwards will
not be realized, therefore, a valuation allowance has been established in the amount of $22.
Provisions of ASC 740-10 clarify whether or not to recognize assets or liabilities for tax positions taken that may be challenged by
a tax authority. A reconciliation of the beginning and ending amount of unrecognized tax benefits, which is included in other
long-term obligations on the Company’s consolidated balance sheets, is as follows:
Balance at beginning of period
Increases for tax positions of prior years
Decreases for tax positions of prior years
Balance at end of period
2023
2022
2021
$
$
5,815 $
1,353
(2,518)
4,650 $
5,881 $
2,194
(2,260)
5,815 $
5,335
806
(260)
5,881
All of Balchem's unrecognized tax benefits, if recognized in future periods, would impact the Company's effective tax rate in such
future periods.
The Company recognizes both interest and penalties as part of the income tax provision. During the years ended December 31,
2023 and 2022, these amounts were reduced by $322 and $371, respectively. During the year ended December 31, 2021, this
amounted to $262. As of December 31, 2023 and 2022, accrued interest and penalties were $1,413 and $1,735, respectively.
Balchem files income tax returns in the U.S. and in various states and foreign countries. In the major jurisdictions where the
Company operates, it is generally no longer subject to income tax examinations by tax authorities for years before 2019 and
management does not anticipate any material change in the total amount of unrecognized tax benefits to occur within the next
twelve months.
The European Union (“EU”) member states formally adopted the EU’s Pillar Two Directive, which was established by the
Organization for Economic Co-operation and Development. Pillar Two generally provides for a 15 percent minimum effective tax
rate for the jurisdictions where multinational enterprises operate. While the Company does not anticipate that this will have a
52
material impact on its tax provision or effective tax rate, the Company continues to monitor evolving tax legislation in the
jurisdictions in which it operates.
NOTE 11 - SEGMENT INFORMATION
Balchem Corporation reports three reportable segments: Human Nutrition and Health, Animal Nutrition and Health, and Specialty
Products. Sales and production of products outside of our reportable segments and other minor business activities are included in
"Other and Unallocated."
Human Nutrition and Health
The Human Nutrition and Health ("HNH") segment provides human grade choline nutrients and mineral amino acid chelated
products through this segment for nutrition and health applications. Choline is recognized to play a key role in the development
and structural integrity of brain cell membranes in infants, processing dietary fat, reproductive development and neural functions,
such as memory and muscle function. The Company's mineral amino acid chelates, specialized mineral salts, and mineral
complexes are used as raw materials for inclusion in premier human nutrition products; proprietary technologies have been
combined to create an organic molecule in a form the body can readily assimilate. Sales growth for human nutrition applications
is reliant on differentiation from lower-cost competitive products through scientific data, intellectual property and customers'
appreciation of brand value. Consequently, the Company makes investments in such activities for long-term value differentiation.
This segment also manufactures specialty vitamin K2, which plays a crucial role in the human body for bone health, heart health
and immunity, and methylsulfonylmethane ("MSM"), which is a widely used nutritional ingredient that helps provide benefits for
joint health, sports nutrition, skin and beauty, and healthy aging. This segment also serves the food and beverage industry for
beverage, bakery, dairy, confectionary, and savory manufacturers. The Company partners with its customers from ideation
through commercialization to bring on-trend beverages, baked goods, confections, dairy and meat products to market. The
Company has expertise in trends analysis and product development. With its strong manufacturing capabilities in customized
spray dried and emulsified powders, extrusion and agglomeration, blended lipid systems, liquid flavor delivery systems, juice and
dairy bases, chocolate systems, ice cream bases and variegates, the Company is a one-stop solutions provider for beverage and
dairy product development needs. Additionally, this segment provides microencapsulation solutions to a variety of applications in
food, pharmaceutical and nutritional ingredients to enhance performance of nutritional fortification, processing, mixing, and
packaging applications and shelf-life. Major product applications are baked goods, refrigerated and frozen dough systems,
processed meats, seasoning blends, confections, sports and protein bars, dietary plans, and nutritional supplements. The Company
also creates cereal systems for ready-to-eat cereals, grain-based snacks, and cereal based ingredients.
Animal Nutrition and Health
The Company’s Animal Nutrition and Health ("ANH") segment provides nutritional products derived from its microencapsulation
and chelation technologies in addition to the essential nutrient choline chloride. For ruminant animals, the Company’s
microencapsulated products boost health and milk production by delivering nutrient supplements that are biologically available,
providing required nutritional levels. The Company’s proprietary chelation technology provides enhanced nutrient absorption for
various species of production and companion animals and is marketed for use in animal feed throughout the world. ANH also
manufactures and supplies choline chloride, an essential nutrient for monogastric animal health, predominantly to the poultry, pet
and swine industries. Choline, which is manufactured and sold in both dry and aqueous forms, plays a vital role in the metabolism
of fat. In poultry, choline deficiency can result in reduced growth rates and perosis in young birds, while in swine production
choline is a necessary and required component of gestating and lactating sow diets for both liver health and prevention of leg
deformity. This segment also manufactures MSM, which is a widely used nutritional ingredient that provides benefits for pet
health.
Sales of value-added encapsulated products are highly dependent on overall industry economics as well as the Company's ability
to leverage the results of university and field research on the animal health and production benefits of our products. Management
believes that success in the commodity-oriented choline chloride marketplace is highly dependent on the Company’s ability to
maintain its strong reputation for excellent product quality and customer service. The Company continues to drive production
efficiencies in order to maintain its competitive-cost position to effectively compete in a competitive global marketplace.
Specialty Products
The Company re-packages and distributes a number of performance gases and chemicals for various uses by its customers,
notably ethylene oxide, propylene oxide, and ammonia. Ethylene oxide is sold as a sterilant gas, primarily for use in the health
53 care industry. It is used to sterilize a wide range of medical devices because of its versatility and effectiveness in treating hard or
soft surfaces, composites, metals, tubing and different types of plastics without negatively impacting the performance of the
device being sterilized. Contract sterilizers and medical device manufacturers are principal customers for this product. Propylene
oxide is marketed and sold as a fumigant to aid in the control of insects and microbiological spoilage, to reduce bacterial and mold
contamination in certain shelled and processed nut meats, processed spices, cacao beans, cocoa powder, raisins, figs and prunes,
and for various chemical synthesis applications, such as increasing paint durability and manufacturing specialty starches and
textile coatings. Ammonia is used primarily as a refrigerant, for heat treatment of metals and various chemical synthesis
applications, and is distributed in reusable and recyclable drum and cylinder packaging approved for use in the countries these
products are shipped to.
The Company’s performance gases and chemicals are distributed worldwide in specially designed, reusable and recyclable drum
and cylinder packaging, to assure compliance with safety, quality and environmental standards as outlined by the applicable
regulatory agencies in the countries our products are shipped to. The Company’s inventory of these specially built drums and
cylinders, along with its five filling facilities, represents a significant capital investment. The Company also sells single use
canisters for use in sterilizing re-usable devices typically processed in autoclave units in hospitals.
The Company’s micronutrient agricultural nutrition business sells chelated minerals primarily to producers of high value crops.
The Company has a unique and patented two-step approach to solving mineral deficiency in plants to optimize health, yield and
shelf-life. First, the Company determines optimal mineral balance for plant health. The Company then has a foliar applied
Metalosate® product range, utilizing patented amino acid chelate technology. Its products quickly and efficiently deliver mineral
nutrients. As a result, the farmer/grower gets healthier crops that are more resistant to disease and pests, larger yields and healthier
food for the consumer with extended shelf life for produce being shipped long distances.
The segment information is summarized as follows:
Business Segment Assets
Human Nutrition and Health
Animal Nutrition and Health
Specialty Products
Other and Unallocated (1)
Total
Business Segment Net Sales
Human Nutrition and Health
Animal Nutrition and Health
Specialty Products
Other and Unallocated (2)
Total
Business Segment Earnings Before Income Taxes
Human Nutrition and Health
Animal Nutrition and Health
Specialty Products
Other and Unallocated (2)
Interest and other expense
Total
2023
2022
1,180,527 $
166,994
168,307
81,383
1,597,211 $
1,170,238
175,972
177,187
101,115
1,624,512
$
$
2023
2022
2021
$
550,751 $
527,131 $
238,326
125,965
7,397
262,297
131,438
21,492
$
922,439 $
942,358 $
442,733
226,776
117,020
12,494
799,023
2023
2022
2021
$
102,419 $
82,125 $
27,576
34,579
(5,381)
(21,932)
137,261 $
36,056
32,789
(5,784)
(11,437)
133,749 $
$
76,031
26,179
30,020
(4,728)
(2,269)
125,233
54
Depreciation/Amortization
Human Nutrition and Health
Animal Nutrition and Health
Specialty Products
Other and Unallocated (2)
Total
Capital Expenditures
Human Nutrition and Health
Animal Nutrition and Health
Specialty Products
Other and Unallocated (2)
Total
2023
2022
2021
38,568 $
7,876
7,278
1,213
54,935 $
33,728 $
6,685
7,507
3,928
51,848 $
30,012
7,414
8,332
3,121
48,879
2023
2022
2021
26,415 $
6,993
3,535
331
37,274 $
33,668 $
10,809
4,004
605
49,086 $
23,714
8,100
3,804
524
36,142
$
$
$
$
(1) Other and Unallocated assets consist of certain cash, capitalized loan issuance costs, other assets, investments, and income
taxes, which the Company does not allocate to its individual business segments. It also includes assets associated with a few
minor businesses which individually do not meet the quantitative thresholds for separate presentation.
(2) Other and Unallocated consists of a few minor businesses which individually do not meet the quantitative thresholds for
separate presentation and corporate expenses that have not been allocated to a segment. Unallocated corporate expenses consist
of: (i) Transaction and integration costs, ERP implementation costs, and unallocated legal fees totaling $1,617, $3,581 and
$1,264 for years ended December 31, 2023, 2022 and 2021, respectively, and (ii) Unallocated amortization expense of $312,
$2,951, and $2,510 for years ended December 31, 2023, 2022, and 2021, respectively, related to an intangible asset in
connection with a company-wide ERP system implementation.
NOTE 12 - REVENUE
Revenue Recognition
Revenues are recognized when control of the promised goods is transferred to customers, in an amount that reflects the
consideration we expect to realize in exchange for those goods.
The following table presents revenues disaggregated by revenue source. Sales and usage-based taxes are excluded from revenues:
Product Sales Revenue
Royalty Revenue
Total Revenue
2023
2022
2021
$
$
919,951 $
2,488
922,439 $
939,166 $
3,192
942,358 $
794,518
4,505
799,023
The following table presents revenues disaggregated by geography, based on customers' delivery addresses:
United States
Foreign Countries
Total
Product Sales Revenues
2023
2022
2021
$
$
689,601 $
232,838
922,439 $
682,238 $
260,120
942,358 $
584,661
214,362
799,023
55
The Company’s primary operation is the manufacturing and sale of health and wellness ingredient products, in which the
Company receives an order from a customer and fulfills that order. The Company’s product sales are considered point-in-time
revenue.
Royalty Revenues
Royalty revenue consists of agreements with customers to use the Company’s intellectual property in exchange for a sales-based
royalty. Royalties are considered over time revenue and are recorded in the HNH segment.
Contract Liabilities
The Company records contract liabilities when cash payments are received or due in advance of performance, including amounts
which are refundable.
The Company’s payment terms vary by the type and location of customers and the products offered. The term between invoicing
and when payment is due is not significant. For certain products or services and customer types, the Company requires payment
before the products are delivered to the customer.
Practical Expedients and Exemptions
The Company generally expenses sales commissions when incurred because the amortization period would have been one year or
less. These costs are recorded within selling and marketing expenses.
The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length
of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice
for products shipped.
NOTE 13 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes
Interest
Non-cash financing and investing activities:
Dividends payable
Contingent consideration liability
2023
2022
2021
35,725 $
25,933 $
33,016 $
11,879 $
25,355
4,547
2023
2022
2021
25,717 $
— $
23,129 $
11,872 $
20,886
—
$
$
$
$
56 NOTE 14 – ACCUMULATED OTHER COMPREHENSIVE INCOME
The changes in accumulated other comprehensive income (loss) were as follows:
Net foreign currency translation adjustment
$
16,809 $
(4,799) $
(11,255)
Years Ended December 31,
2022
2023
2021
Net change of cash flow hedge (see Note 20 for further
information)
Unrealized (loss) gain on cash flow hedge
Tax
Net of tax
Net change in postretirement benefit plan (see Note 15 for further
information)
Prior service loss (gain) arising during the period
Amortization of prior service gain
Amortization of loss (gain)
Total before tax
Tax
Net of tax
(1,406)
341
(1,065)
3,564
(868)
2,696
2,707
(654)
2,053
132
—
8
140
(39)
101
(41)
9
(2)
(34)
(24)
(58)
(4)
74
(21)
49
(13)
36
Total other comprehensive income/(loss)
$
15,845 $
(2,161) $
(9,166)
Included in "Net foreign currency translation adjustment" was loss of $1,455 related to a net investment hedge, which was net of
tax benefit of $471 for the year ended December 31, 2023, and gains of $3,851, and $4,766, related to a net investment hedge, net
of tax expenses of $1,236, and $1,527, for the years ended December 31, 2022 and 2021, respectively. See Note 20, Derivative
Instruments and Hedging Activities.
Accumulated other comprehensive loss at December 31, 2023 and 2022 consisted of the following:
Foreign currency
translation
adjustment
Cash flow hedge
Postretirement
benefit plan
Total
Balance December 31, 2022
Other comprehensive income (loss)
Balance December 31, 2023
$
$
(8,401) $
16,809
8,408 $
1,065 $
(1,065)
— $
182 $
101
283 $
(7,154)
15,845
8,691
NOTE 15 - EMPLOYEE BENEFIT PLANS
Defined Contribution Plans
The Company sponsors one 401(k) savings plan for eligible employees, which allows participants to make pretax or after tax
contributions and the Company matches certain percentages of those contributions. The plan also has a discretionary profit
sharing portion and matches 401(k) contributions with shares of the Company’s Common Stock. All amounts contributed to the
plan are deposited into a trust fund administered by independent trustees. On June 21, 2022, the Company completed the
acquisition of Kappa, which sponsors one defined contribution plan for its employees. In addition, on August 30, 2022, the
Company completed the acquisition of Bergstrom, which sponsored one defined contribution plan for its employees. The
Bergstrom plan merged into the Company sponsored 401(k) savings plan on January 1, 2023. The Company provided for
matching 401(k) savings plan contributions of $4,381, $4,363, and $4,142 in 2023, 2022 and 2021, respectively. Profit sharing
contributions in 2023, 2022, and 2021 were not material.
57
Postretirement Medical Plans
The Company provides postretirement benefits in the form of two unfunded postretirement medical plans; one that is under a
collective bargaining agreement and covers eligible retired employees of the Verona, Missouri facility and a plan for executive
officers of the Company who meet eligibility requirements as set forth in the Company's Officer Retiree Program. The Company
uses a December 31 measurement date for its postretirement medical plans. In accordance with ASC 715, “Compensation—
Retirement Benefits,” the Company is required to recognize the over funded or underfunded status of a defined benefit post
retirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position, and to recognize
changes in that funded status in the year in which the changes occur through comprehensive income.
The actuarial recorded liabilities for such unfunded postretirement benefits are as follows:
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost with interest to end of year
Interest cost
Participant contributions
Benefits paid
Actuarial (gain) loss
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Employer contributions
Participant contributions
Benefits paid
Fair value of plan assets at end of year
Amounts recognized in consolidated balance sheet:
Accumulated postretirement benefit obligation
Fair value of plan assets
Funded status
Unrecognized prior service cost
Unrecognized net loss (gain)
Net amount recognized in consolidated balance sheet (after ASC 715) (included in
"Other long-term obligations")
Accrued postretirement benefit cost (included in "Other long-term obligations")
$
$
$
$
$
2023
2022
1,465 $
108
62
23
(30)
(233)
1,395 $
2023
2022
— $
7
23
(30)
— $
2023
2022
(1,395) $
—
(1,395)
9
(2)
$
(1,395) $
N/A
Components of net periodic benefit cost:
Service cost with interest to end of year
Interest cost
Amortization of prior service cost
Amortization of loss (gain)
Total net periodic benefit cost
2023
2022
2021
$
$
108 $
62
—
8
178 $
79 $
26
9
(2)
112 $
1,293
79
26
27
(69)
109
1,465
—
42
27
(69)
—
(1,465)
—
(1,465)
74
(24)
(1,465)
N/A
87
23
74
(24)
160
58
Estimated future employer contributions and benefit payments are as follows:
Year
2024
2025
2026
2027
2028
Years 2029-2033
Assumptions to determine benefit obligations:
Discount rate
Assumptions to determine net cost:
Discount rate
Defined Benefit Pension Plans
$
131
132
99
101
85
615
2023
2022
4.15 %
4.40 %
2023
2022
2021
4.40 %
2.10 %
1.75 %
The Company contributes to one multi-employer defined benefit plan under the terms of a collective-bargaining agreement
covering its union-represented employees of the Verona, Missouri facility. The risks of participation in this multiemployer plan
are different from single-employer plans in the following aspects: (a) assets contributed to the multiemployer plan by one
employer may be used to provide benefits to employees of other participating employers, (b) if a participating employer stops
contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers, and (c) if
the Company was to stop participating in its multiemployer plan, the Company would be required to pay that plan an amount
based on the underfunded status of the plan, referred to as the withdrawal liability.
The Company’s participation in this plan for the annual period ended December 31, 2023 is outlined in the table below. The
“EIN/Pension Plan Number” column provides the Employee Identification Number (EIN). The zone status is based on
information that the Company received from the plan and is certified by the plan’s actuary. Among other factors, plans in the red
zone or critical and declining zone are generally less than 65 percent funded, plans in the yellow zone are less than 80 percent
funded, and plans in the green zone are at least 80 percent funded. The “FIP/RP Status Pending/Implemented” column indicates
plans for which a financial improvement plan (FIP) or a rehabilitation plan (RP) is either pending or has been implemented. The
last column lists the expiration date of the collective-bargaining agreement to which the plan is subject. Finally, the period-to-
period comparability of the contributions for 2023 and 2022 was affected by a 4.0% increase in the 2023 contribution rate. There
have been no other significant changes that affect the comparability of 2023 and 2022 contributions. The Company does not
represent more than 5% of the contributions to this pension fund.
EIN/
Pension
Plan
Number
Pension Plan Protection
Act Zone Status
2023
2022
FIP/RP
Status
Pending/
Implemented
Contributions of
Balchem Corporation
2023
2022
2021
Surcharge
Imposed
Expiration
Date of
Collective-
Bargaining
Agreement
Critical &
Declining
as of
1/1/23
Critical &
Declining
as of
1/1/22
36-6044243
Implemented
$1,020
$939
$816
No
7/12/2025
Pension
Fund
Central States,
Southeast and
Southwest
Areas
Pension Fund
The Company provides an unfunded defined benefit pension plan for employees working in Belgium. The plan provides for the
payment of a lump sum at retirement or payments in case of death of the covered employees.
59
The actuarial recorded liabilities for such unfunded defined benefit pension plan are as follows:
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost with interest to end of year
Interest cost
Participant contributions
Benefits paid
Actuarial loss (gain)
Exchange rate changes
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Participant contributions
Benefits paid
Exchange rate changes
Fair value of plan assets at end of year
Amounts recognized in consolidated balance sheet:
Benefit obligation
Fair value of plan assets
Funded status
Unrecognized prior service cost
Unrecognized net (gain)/loss
Net amount recognized in consolidated balance sheet (after ASC 715) (included in
other long-term obligations)
Accrued postretirement benefit cost (included in other long-term obligations)
$
$
$
$
$
$
2023
2022
1,589 $
65
65
—
(188)
80
49
1,660 $
2023
2022
1,196 $
56
138
—
(188)
38
1,240 $
2023
2022
(1,660) $
1,240
(420)
N/A
N/A
(420) $
N/A
Components of net periodic benefit cost:
Service cost with interest to end of year
Interest cost
Expected return on plan assets
Amortization of net loss
Total net periodic benefit cost
2023
2022
2021
$
$
65 $
65
(42)
—
88 $
44 $
17
(37)
—
24 $
1,859
44
17
27
(60)
(194)
(104)
1,589
1,175
26
94
27
(60)
(66)
1,196
(1,589)
1,196
(393)
N/A
N/A
(393)
N/A
67
14
(34)
3
50
60
Estimated future benefit payments are as follows:
Year
2024
2025
2026
2027
2028
Years 2029-2033
Assumptions to determine benefit obligations:
Discount rate
Assumptions to determine net cost:
Discount rate
Expected return on assets
Deferred Compensation Plan
$
1
52
1
1
1
1,096
2023
2022
3.45 %
4.00 %
2023
2022
2021
4.00 %
3.25 %
1.00 %
3.25 %
0.75 %
3.25 %
The Company maintains an unfunded, non-qualified deferred compensation plan for the benefit of a select group of management
or highly compensated employees. Assets of the plan are held in a rabbi trust, which are subject to additional risk of loss in the
event of bankruptcy or insolvency of the Company. The deferred compensation liability as of December 31, 2023 and 2022 was
$10,188 and $8,543, respectively, and was included in "Other long-term obligations" on the Company's balance sheet. The related
rabbi trust assets were $10,188 and $8,547 as of December 31, 2023 and 2022, respectively, and were included in "Other non-
current assets" on the Company's consolidated balance sheets.
NOTE 16 - COMMITMENTS AND CONTINGENCIES
The Company is obligated to make rental payments under non-cancelable operating and finance leases. Aggregate future
minimum rental payments required under these leases at December 31, 2023 are disclosed in Note 19, Leases.
The Company’s Verona, Missouri facility, while held by a prior owner, Syntex Agribusiness, Inc. (“Syntex”), was designated by
the U.S. Environmental Protection Agency (the "EPA") as a Superfund site and placed on the National Priorities List in 1983
because of dioxin contamination on portions of the site. Remediation was conducted by Syntex under the oversight of the EPA
and the Missouri Department of Natural Resources. The Company is indemnified by the sellers under its May 2001 asset purchase
agreement covering its acquisition of the Verona, Missouri facility for potential liabilities associated with the Superfund site. One
of the sellers, in turn, has the benefit of certain contractual indemnification by Syntex in relation to the implementation of the
above-described Superfund remedy. In June 2023, in response to a Special Notice Letter received from the EPA in 2022, BCP
Ingredients, Inc. ("BCP"), the Company's subsidiary that operates the site, Syntex, EPA, and the State of Missouri entered into an
Administrative Settlement Agreement and Order on Consent (“ASAOC”) for a focused remedial investigation/feasibility study
("RI/FS") under which (a) BCP will conduct a source investigation of potential source(s) of releases of 1,4-dioxane and
chlorobenzene at a portion of the site and (b) BCP and Syntex will complete a RI/FS to determine a potential remedy, if any is
required. Activities under the ASAOC are underway and are expected to continue for some period of time.
Separately, in June 2022, the EPA conducted an inspection of BCP’s Verona, Missouri facility (“2022 EPA Inspection”) which
was followed by BCP entering into an Administrative Order for Compliance on Consent (“AOC”) with the EPA in relation to its
risk management program at the Verona facility. Further, in January 2023, BCP entered into an Amended AOC with the EPA
61
whereby the parties agreed to the extension of certain timelines. BCP timely completed all requirements under the Amended
AOC. In November 2023, BCP received a notice from the Environment and Natural Resources Division of the U.S Department of
Justice (“DOJ”) primarily related to the 2022 EPA Inspection, which extended the opportunity to discuss alleged violations of
Sections 112(r)(7) of the Clean Air Act and regulations in 40 C.F.R. Part 68, commonly known as the Risk Management Plan
Rule (“RMP Rule”). BCP intends to participate in such discussions in 2024. In connection with the 2022 EPA Inspection, the
Company believes that a loss contingency in this matter is probable and reasonably estimable and has recorded a loss contingency
in an amount that is not material to its financial performance or operations.
In addition to the above, from time to time, the Company is a party to various legal proceedings, litigation, claims and
assessments. While it is not possible to predict the ultimate disposition of each of these matters, management believes that the
ultimate outcome of such matters will not have a material effect on the Company's consolidated financial position, results of
operations, liquidity or cash flows.
NOTE 17 – FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held for trading purposes. The Company estimates that
the fair value of all financial instruments at December 31, 2023 and 2022 does not differ materially from the aggregate carrying
values of its financial instruments recorded in the accompanying consolidated balance sheets. The estimated fair value amounts
have been determined by the Company using available market information and appropriate valuation methodologies.
Considerable judgment is necessarily required in interpreting market data to develop the estimates of fair value, and, accordingly,
the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The
carrying value of debt approximates fair value as the interest rate is based on market and the Company’s consolidated leverage
ratio. The Company’s financial instruments also include cash equivalents, accounts receivable, accounts payable, and accrued
liabilities, which are carried at cost and approximate fair value due to the short-term maturity of these instruments. Cash and cash
equivalents at December 31, 2023 and 2022 included $959 and $934 in money market funds and other interest-bearing deposit
accounts, respectively.
Non-current assets at December 31, 2023 and 2022 included $10,188 and $8,547, respectively, of rabbi trust funds related to the
Company's deferred compensation plan. The money market and rabbi trust funds are valued using level one inputs, as defined by
ASC 820, “Fair Value Measurement.”
The contingent consideration liabilities included on the balance sheet at of December 31, 2023 and 2022 amount to $100 and
$11,400, respectively, and were valued using level three inputs, as defined by ASC 820, "Fair Value Measurement".
The Company also had derivative financial instruments, consisting of a cross-currency swap and an interest rate swap, which were
included in "Derivative assets" in the Company's consolidated balance sheets. The fair values of these derivative instruments were
determined based on Level 2 inputs, using significant inputs that are observable either directly or indirectly, including interest rate
curves and implied volatilities. The Company settled its cross-currency swap and interest rate swap on June 27, 2023 and had no
other derivatives outstanding as of December 31, 2023. The derivative assets related to the cross-currency swap and the interest
rate swap were $4,587 and $1,406 at December 31, 2022, respectively.
NOTE 18 – RELATED PARTY TRANSACTIONS
The Company provides services under a contractual agreement to St. Gabriel CC Company, LLC. These services include
accounting, information technology, quality control, and purchasing services, as well as operation of the St. Gabriel CC Company,
LLC plant. The Company also sells raw materials to St. Gabriel CC Company, LLC. These raw materials are used in the
production of finished goods that are, in turn, sold by Saint Gabriel CC Company, LLC to the Company for resale to unrelated
parties. As such, the sale of these raw materials to St. Gabriel CC Company, LLC in this scenario lacks economic substance and
therefore the Company does not include them in net sales within the consolidated statements of earnings.
Payments for the services the Company provided amounted to $4,363, $4,213, and $3,637, respectively, for the years ended
December 31, 2023, 2022, and 2021. The raw materials purchased and subsequently sold amounted to $34,219, $39,853, and
$27,915, respectively, for the years ended December 31, 2023, 2022, and 2021. These services and raw materials are primarily
recorded in cost of goods sold, net of the finished goods received from St. Gabriel CC Company, LLC of $28,099, $29,062, and
$22,043, respectively, for the years ended December 31, 2023, 2022, and 2021. At December 31, 2023 and 2022, the Company
had receivables of $8,314 and $8,820, respectively, recorded in accounts receivable from St. Gabriel CC Company, LLC for
services rendered and raw materials sold. At December 31, 2023 and 2022, the Company had payables of $6,050 and $5,224,
62 respectively, recorded in accounts payable for finished goods received from St. Gabriel CC Company, LLC. In addition, the
Company had payables in the amount of $329 and $296, respectively, related to non-contractual monies owed to St. Gabriel CC
Company, LLC, recorded in accounts payable as of December 31, 2023 and 2022.
NOTE 19 – LEASES
The Company has both real estate leases and equipment leases. The main types of equipment leases include forklifts, trailers,
printers and copiers, railcars, and trucks. Leases are categorized as both operating leases and finance leases. As a result of electing
the practical expedient within ASU 2016-02, variable lease payments are combined and recognized on the balance sheet in the
event that those charges and any related increases are explicitly stated in the lease. Such payments include common area
maintenance charges, property taxes, and insurance charges and are recorded in the right of use asset and corresponding liability
when the payments are stated in the lease with (a) fixed or in-substance fixed amounts, or (b) a variable payment based on an
index or rate. Due to the acquisitive nature of the Company and the potential for synergies upon integration of acquired entities,
the Company determined that the reasonably certain criterion could not be met for any renewal periods beginning two years from
December 31, 2023. In addition, the Company has historically not been exercising purchase options under the equipment leases as
it does not make economic sense to buy the equipment. Instead, the Company has historically replaced the equipment with new
leases. Therefore, the Company determined that the reasonably certain criterion could not be met as it relates to purchase options.
The Company has no residual value guarantees in lease transactions.
The Company did not identify any embedded leases. As indicated above, the Company elected the practical expedient to combine
lease and non-lease components and recognizes the combined amount on the consolidated balance sheet. Management determined
that since the Company has a centralized treasury function, the parent company would either fund or guarantee a subsidiary's loan
for borrowing over a similar term. As such, the Company's management determined it is appropriate to utilize a corporate based
borrowing rate for all locations. The Company developed four tranches of leases based on lease terms and these tranches reflect
the composition of the current lease portfolio. The Company's borrowing history shows that interest rates of a term loan or a line
of credit depend on the duration of the loan rather than the nature of the assets purchased by those funds. Based on this
understanding, the Company elected to use a portfolio approach to discount rates, applying corporate rates to the tranches of
leases based on lease terms. Based on the Company's risk rating, the company applied the following discount rates for new leases
entered into during 2023: (1) 1-2 years, 5.45%-6.72% (2) 3-4 years, 6.04%-7.31% (3) 5-9 years, 6.38%-7.65% and (4) 10+ years,
7.10%-8.37%.
Right of use assets and lease liabilities at December 31, 2023 and 2022 are summarized as follows:
Right of use assets
Operating leases
Finance lease
Total
Lease liabilities - current
Operating leases
Finance lease
Total
Lease liabilities - non-current
Operating leases
Finance lease
Total
2023
2022
17,763 $
2,101
19,864 $
17,094
2,338
19,432
2023
2022
3,949 $
272
4,221 $
3,796
226
4,022
2023
2022
14,601 $
1,943
16,544 $
13,806
2,213
16,019
$
$
$
$
$
$
63
For the years ended December 31, 2023, 2022, and 2021, the Company's total lease costs were as follows, which included both
amounts recognized in profits or losses during the period and amounts capitalized on the balance sheet, and the cash flows arising
from lease transactions:
Lease Cost
Operating lease cost
Finance Lease cost
Amortization of ROU asset
Interest on lease liabilities
Total finance lease
Total lease cost
Cash paid for amounts included in the measurement of lease
liabilities
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
ROU assets obtained in exchange for new operating lease
liabilities, net of ROU asset disposals
Year ended December 31,
2023
2022
2021
$
5,307
$
4,478
$
3,143
242
115
357
210
125
335
210
129
339
5,664
$
4,813
$
3,482
4,757
$
4,269
$
115
222
125
177
5,094
$
4,571
$
3,097
129
159
3,385
6,365
$
11,488
$
3,804
$
$
$
$
Weighted-average remaining lease term - operating leases
Weighted-average remaining lease term - finance leases
9.33 years
9.07 years
5.63 years
9.95 years
4.21 years
11.41 years
Weighted-average discount rate - operating leases
Weighted-average discount rate - finance leases
7.4 %
5.0 %
2.7 %
5.0 %
3.5 %
5.1 %
Rent expense charged to operations under operating lease agreements for 2023, 2022, and 2021 aggregated approximately $5,307,
$4,478, and $3,143, respectively.
Aggregate future minimum rental payments required under non-cancelable operating and finance leases at December 31, 2023 are
as follows:
Year
2024
2025
2026
2027
2028
Thereafter
Total minimum lease payments
$
$
5,407
4,219
3,638
2,736
2,219
7,717
25,936
64
NOTE 20 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
On May 28, 2019, the Company entered into a pay-fixed (2.05%), receive-floating interest rate swap with a notional amount of
$108,569 and a maturity date of June 27, 2023, which was designated as cash flow hedge. The net interest income related to the
interest rate swap contract were $1,518 and $400 for the years ended December 31, 2023 and 2022, respectively. The net interest
expense related to the interest rate swap contract was $2,144 for the year ended December 31, 2021. The net interest income and
expense were recorded in the consolidated statements of earnings under "Interest expense, net."
On May 28, 2019, the Company also entered into a pay-fixed (0.00%), receive-fixed (2.05%) cross-currency swap to manage
foreign exchange risk related to the Company's net investment in Chemogas, which was designated as net investment hedge. The
derivative has a notional amount of $108,569, an effective date of May 28, 2019, and a maturity date of June 27, 2023. The
interest income related to the cross-currency swap contract was $1,119, $2,250, and $2,257 for the years ended December 31,
2023, 2022, and 2021, respectively. The interest income was recorded in the consolidated statements of earnings under "Interest
expense, net."
The Company settled its derivative instruments on their maturity date of June 27, 2023 and had no other derivatives outstanding
as of December 31, 2023. The proceeds from the settlement of the cross-currency swap in the amount of $2,740 were classified as
investing activities in the Consolidated Statements of Cash Flows.
As of December 31, 2022, the fair value of the derivative instruments is presented as follows in the Company's consolidated
balance sheets:
Derivative assets
Interest rate swap
Cross-currency swap
Derivative assets
December 31, 2022
$
$
1,406
4,587
5,993
Gains and losses on our hedging instruments were recognized in accumulated other comprehensive income (loss) and categorized
as follows for the years ended December 31, 2023, 2022, and 2021:
Cash flow hedge (interest rate
swap), net of tax
Net investment hedge (cross-
currency swap), net of tax
Location within Statements of
Comprehensive Income
Unrealized (loss) gain on cash
flow hedge, net
Net foreign currency translation
adjustment
Year ended December 31,
2022
2023
2021
$
$
(1,065) $
2,696 $
(1,455)
(2,520) $
3,851
6,547 $
2,053
4,766
6,819
In connection with the Kappa acquisition (see Note 2, Significant Acquisitions), the Company entered into four short-term foreign
currency exchange forward contracts to manage fluctuations in foreign currency exchange rates. The Company did not designate
these contracts as hedged transactions under the applicable sections of ASC Topic 815, "Derivatives and Hedging". For the year
ended December 31, 2022, the net gains on these forward contracts of $512 were recorded in other income or loss in the
consolidated statements of earnings. As of December 31, 2023, the Company did not maintain any open foreign currency
exchange forward contracts as all four contracts expired during 2022.
65
9
3
6
,
8
6
6
7
7
,
5
2
6
0
4
,
1
2
7
6
.
0
6
6
.
0
2
2
0
2
3
2
0
2
h
t
r
u
o
F
r
e
t
r
a
u
Q
d
r
i
h
T
r
e
t
r
a
u
Q
d
n
o
c
e
S
r
e
t
r
a
u
Q
t
s
r
i
F
r
e
t
r
a
u
Q
h
t
r
u
o
F
r
e
t
r
a
u
Q
d
r
i
h
T
r
e
t
r
a
u
Q
d
n
o
c
e
S
r
e
t
r
a
u
Q
t
s
r
i
F
r
e
t
r
a
u
Q
1
3
5
,
2
3
2
$
7
6
2
,
4
4
2
$
3
9
6
,
6
3
2
$
7
6
8
,
8
2
2
$
9
9
6
,
8
2
2
$
8
4
9
,
9
2
2
$
2
5
2
,
1
3
2
$
0
4
5
,
2
3
2
$
0
3
4
,
8
6
5
8
0
,
1
3
9
4
2
,
5
2
6
7
8
,
1
7
8
5
2
,
9
3
2
8
7
,
9
2
6
0
5
,
1
7
0
3
6
,
7
3
0
3
9
,
8
2
3
9
9
,
4
7
7
6
2
,
3
3
8
4
6
,
6
2
4
4
5
,
6
7
5
7
4
,
6
3
5
7
0
,
9
2
9
4
3
,
7
7
0
0
4
,
8
3
0
1
1
,
0
3
0
7
1
,
3
7
9
1
1
,
9
2
0
1
7
,
2
2
s
e
x
a
t
e
m
o
c
n
i
e
r
o
f
e
b
s
g
n
i
n
r
a
E
s
g
n
i
n
r
a
e
t
e
N
n
i
g
r
a
m
s
s
o
r
G
s
e
l
a
s
t
e
N
$
$
9
7
.
0
8
7
.
0
$
$
3
9
.
0
2
9
.
0
$
$
0
9
.
0
9
8
.
0
$
$
3
8
.
0
2
8
.
0
$
$
1
9
.
0
0
9
.
0
$
$
4
9
.
0
3
9
.
0
$
$
1
7
.
0
0
7
.
0
$
$
e
r
a
h
s
n
o
m
m
o
c
r
e
p
s
g
n
i
n
r
a
e
t
e
n
d
e
t
u
l
i
D
e
r
a
h
s
n
o
m
m
o
c
r
e
p
s
g
n
i
n
r
a
e
t
e
n
c
i
s
a
B
)
D
E
T
I
D
U
A
N
U
(
N
O
I
T
A
M
R
O
F
N
I
L
A
I
C
N
A
N
I
F
Y
L
R
E
T
R
A
U
Q
-
1
2
E
T
O
N
)
a
t
a
d
e
r
a
h
s
r
e
p
t
p
e
c
x
e
,
s
d
n
a
s
u
o
h
t
n
I
(
66
BALCHEM CORPORATION
Valuation and Qualifying Accounts
Years Ended December 31, 2023, 2022 and 2021
(In thousands)
Balance - December 31, 2020
Additions charged to costs and expenses
Adjustments/deductions (a)
Balance - December 31, 2021
Additions charged to costs and expenses
Adjustments/deductions (a)
Balance - December 31, 2022
Additions charged to costs and expenses
Adjustments/deductions (a)
$
Allowance
for Doubtful
Accounts
Inventory
Reserve
2,092 $
180
(1,344)
928
401
(103)
1,226
37
(355)
2,782
7,312
(8,669)
1,425
6,786
(5,571)
2,640
2,450
(2,627)
Balance - December 31, 2023
$
908 $
2,463
(a) Represents write-offs and other adjustments
67
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports
that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified
in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In
designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures,
no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the
disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management
necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and
procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all
potential future conditions.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2023. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls
and procedures were effective.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal
control over financial reporting is a process designed under the supervision of our principal executive and principal financial
officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial
statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that
transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted
accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our
management and our directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition,
projections of any evaluation of controls effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
As of December 31, 2023, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in the 2013 Internal Control-Integrated Framework (New Framework) to conduct an assessment of the
effectiveness of our internal control over financial reporting. Based on this assessment, management has determined that our
internal control over financial reporting was effective as of December 31, 2023.
Attestation Report of Registered Public Accounting Firm
The independent registered public accounting firm of RSM US LLP has issued an attestation report on our internal control over
financial reporting, which is included herein.
Changes in Internal Control Over Financial Reporting
There has been no significant change in our internal control over financial reporting that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting. As of December 31, 2023, management's assessment of
and conclusion of the effectiveness of our internal controls over financial reporting of both Kappa and Bergstrom have been
68 completed. Therefore, management's assessment of and conclusion of the effectiveness of our internal control over financial
reporting also includes the internal controls over financial reporting of Kappa and Bergstrom.
Item 9B. Other Information
No directors or officers adopted, modified or terminated a Rule 10b5-1 trading arrangement during the fiscal quarter ended
December 31, 2023.
69 PART III
Item 10.
Directors, Executive Officers of the Registrant, and Corporate Governance.
The information regarding our executive officers is included in Part I of this report under the heading “Information about our
Executive Officers.”
The other information required by this item is incorporated by reference to the information contained under the headings
“Proposal 1. Election of Directors”, “Delinquent Section 16(a) Reports,” and “Corporate Governance” in our Proxy Statement for
the 2024 Annual Meeting of Shareholders which will be filed no later than 120 days after December 31, 2023 (the “2024 Proxy
Statement”).
Item 11.
Executive Compensation.
The information required by this item is incorporated by reference to the information contained under the headings “Executive
Compensation,” “Compensation Committee Report,” and “Compensation Committee Interlocks and Insider Participation” in our
2024 Proxy Statement.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this item is incorporated by reference to the information contained under the headings “Security
Ownership of Certain Beneficial Owners and of Management” and Equity Compensation Plan Information” in our 2024 Proxy
Statement.
Item 13.
Certain Relationships and Related Transactions and Director Independence.
The information required by this item is incorporated by reference to the information contained under the headings “Related Party
Transactions” and “Director Independence” in our 2024 Proxy Statement.
Item 14.
Principal Accountant Fees and Services.
The information required by this item is incorporated by reference to the information contained under the heading “Information
Relating to Proposal 2. Ratification of Appointment of Independent Registered Public Accounting Firm” of our 2024 Proxy
Statement.
70 PART IV
Item 15.
Exhibits and Financial Statement Schedules.
The following documents are filed as part of this Form 10-K:
1.
Financial Statements
Page Number
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Earnings for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, 2022
and 2021
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2023, 2022 and
2021
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021
Notes to Consolidated Financial Statements
2.
Financial Statement Schedules
Schedule II – Valuation and Qualifying Accounts for the years ended December 31, 2023, 2022 and
2021
Exhibits
29
31
32
33
34
35
36
67
3.
2.1
3.1
3.2
3.3
3.4
Share Purchase Agreement between Kechu MidCo AS as the Seller and Balchem Corporation and Balchem B.V. as
the Buyers regarding the sale and purchase of the shares in Kechu BidCo AS (incorporated by reference to Exhibit
2.1 of the Company's Current Report on Form 8-K filed on June 15, 2022).
Balchem Corporation Composite Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the
Company’s Annual Report on Form 10-K filed on March 16, 2006).
Balchem Corporation Articles of Amendment (incorporated by reference to Exhibit A to the Company’s definitive
proxy statement on Schedule 14A filed on April 25, 2008).
Balchem Corporation Articles of Amendment (incorporated by reference to Exhibit A to the Company’s definitive
proxy statement on Schedule 14A filed on April 28, 2011).
By-laws of the Company, as amended and restated as of December 5, 2022 (incorporated by reference to Exhibit 3.1
to the Company's Current Report on Form 8-K filed on December 7, 2022)
4.1
Description of Securities (filed herewith).
10.1
10.2
Balchem Corporation 401(k) Basic Plan Document #01, as amended by the Balchem Corporation 401(K) Plan
Amendment of January 1, 2023 (incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form
10-K filed on February 24, 2023).*
Balchem Corporation Second Amended and Restated 1999 Stock Plan, (incorporated by reference to the Company’s
Registration Statement on Form S-8, File No. 333-155655, filed on November 25, 2008, and to the Company's Proxy
Statement, filed on April 25, 2008).*
71
10.3
10.4
10.5
Amended and Restated Credit Agreement dated July 27, 2022 (the "Amended Credit Agreement") among Balchem
Corporation, the Domestic Guarantors (as defined in the Amended Credit Agreement), JPMorgan Chase Bank, N.A.,
as administrative agent, and the Lenders (as defined in the Amended Credit Agreement) (incorporated by reference
to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on August 1, 2022).
Security and Pledge Agreement dated July 27, 2022 among Balchem Corporation, the Obligors, and JPMorgan
Chase Bank, N.A., (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed on
August 1, 2022).
Balchem Corporation 2017 Omnibus Incentive Plan (incorporated by reference to the Company's Registration
Statement on Form S-8, File No. 333-219722, filed on August 4, 2017 and Appendix A to the Company's Proxy
Statement on Schedule 14A, filed on April 27, 2017).*
10.6
Amended and Restated Balchem Corporation 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit
10.1 of the Company's Current Report on Form 8-K filed on June 26, 2023).*
10.7
Form of Agreement, Balchem Corporation Restricted Stock Grant Agreement (filed herewith).*
10.8
Form of Agreement, Balchem Corporation Performance Share Unit Grant Agreement (filed herewith).*
10.9
Form of Agreement, Balchem Corporation Stock Option Grant Agreement (filed herewith).*
10.10
Balchem Corporation Officer Retiree Program (filed herewith).*
10.11
10.12
10.13
10.14
Balchem Corporation Director Retiree Program (incorporated by reference to Exhibit 10.8 to the Company's Annual
Report on Form 10-K filed on February 24, 2023).*
Employment Agreement, dated as of April 22, 2015, between the Company and Theodore L. Harris (incorporated by
reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on August 5, 2015).*
Offer Letter dated January 10, 2019 between the Company and C. Martin Bengtsson (incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 4, 2019).*
Theodore L. Harris Stock Option Grant Agreement, dated September 15, 2022 (incorporated by reference to Exhibit
10.1 to the Company’s Quarterly Report on Form 10-Q dated November 4, 2022).*
21.1
Subsidiaries of Registrant (filed herewith).
23.1
Consent of RSM US LLP, Independent Registered Public Accounting Firm (filed herewith).
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) (filed herewith).
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) (filed herewith).
32.1
32.2
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 (filed herewith).
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 (filed herewith).
97.1
Balchem Corporation Incentive-Based Compensation Recovery Policy (filed herewith).*
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
72
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* Each of the Exhibits noted by an asterisk is a management compensatory plan or arrangement.
73
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 16, 2024
BALCHEM CORPORATION
By:/s/ Theodore L. Harris
Theodore L. Harris, Chairman, President
and
and Chief Executive Officer
74
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURES
/s/ Theodore L. Harris
Theodore L. Harris, Chairman, President and
Chief Executive Officer
Date: February 16, 2024
/s/ C. Martin Bengtsson
C. Martin Bengtsson, Executive Vice President and
Chief Financial Officer
Date: February 16, 2024
/s/ William A. Backus
William A. Backus, Vice President and
Chief Accounting Officer
Date: February 16, 2024
/s/ David B. Fischer
David B. Fischer, Director
Date: February 16, 2024
/s/ Kathleen B. Fish
Kathleen B. Fish, Director
Date: February 16, 2024
/s/ Daniel E. Knutson
Daniel E. Knutson, Director
Date: February 16, 2024
/s/ Joyce J. Lee
Joyce J. Lee, Director
Date: February 16, 2024
/s/ Olivier Rigaud
Olivier Rigaud, Director
Date: February 16, 2024
/s/ Monica Vicente
Monica Vicente, Director
Date: February 16, 2024
/s/ Matthew D. Wineinger
Matthew D. Wineinger, Director
Date: February 16, 2024
75
[This page intentionally left blank]
[This page intentionally left blank]
[This page intentionally left blank]
C O M P A N Y I N F O R M A T I O N
BOARD OF DIRECTORS
CORPORATE OFFICERS
Theodore Harris
David Fischer
Kathleen Fish
Daniel Knutson
Joyce Lee
Olivier Rigaud
Monica Vicente
Matthew Wineinger
Theodore Harris
Chairman, President and
Chief Executive Officer
C. Martin Bengtsson
Executive Vice President and
Chief Financial Officer
Hatsuki Miyata
Executive Vice President,
General Counsel and Secretary
HEADQUARTERS
Balchem Corporation
5 Paragon Drive
Montvale, NJ 07645
845.326.5600
STOCK LISTING
NASDAQ Global Select Market
Symbol: BCPC
WEBSITE
www.balchem.com
INVESTOR RELATIONS
Jacqueline Yarmolowicz
845.326.5600
TRANSFER AGENT
Broadridge Corporate Issuer Solutions
1155 Long Island Ave.
Edgewood, NY 11717-8309
Attn: IWS
INDEPENDENT ACCOUNTANTS
RSM US LLP
151 West 42nd St., 19th Floor
New York, NY 10036
Balchem Corporation
5 Paragon Drive
Montvale, NJ 07645
Phone: (845) 326-5600
Fax: (845) 326-5702
Email: info@balchem.com
Web: www.balchem.com
BR057665-0424-10K