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Form 10-Q BALCHEM CORP For: Mar 31

April 29, 2022 3:27 PM EDT

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bcpc-20220331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the quarterly period ended March 31, 2022
    OR
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the transition period from ____ to ____
Commission file number: 1-13648
_______________________________________________________________________________________________________________
Balchem Corporation
(Exact name of Registrant as specified in its charter)
Maryland 13-2578432
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)

52 Sunrise Park Road, New Hampton, NY 10958
(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 classTrading symbolName of each exchange on which registered
Common Stock, par value $.06-2/3 per shareBCPCNasdaq Global Market
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, or a smaller reporting 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 filerAccelerated filer 
 Non-accelerated filerSmaller reporting companyEmerging 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of April 21, 2022, the registrant had 32,116,459 shares of its Common Stock, $.06 2/3 par value, outstanding.



BALCHEM CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Page No.



Part I.    Financial Information

Item 1.    Financial Statements
BALCHEM CORPORATION
Condensed Consolidated Balance Sheets
(Dollars in thousands, except share and per share data)
AssetsMarch 31, 2022 (unaudited)December 31, 2021
Current assets:  
Cash and cash equivalents$64,466 $103,239 
Accounts receivable, net of allowance for doubtful accounts of $1,164 and $928 at March 31, 2022 and December 31, 2021 respectively
136,974 117,408 
Inventories, net108,411 91,058 
Prepaid expenses5,383 6,116 
Other current assets4,570 4,411 
Total current assets319,804 322,232 
Property, plant and equipment, net240,419 237,517 
Goodwill522,587 523,949 
Intangible assets with finite lives, net88,525 94,665 
Right of use assets - operating leases6,901 6,929 
Right of use assets - finance lease2,308 2,359 
Derivative assets882  
Other assets13,482 11,674 
Total assets$1,194,908 $1,199,325 
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable$46,819 $56,243 
Accrued expenses53,957 43,411 
Accrued compensation and other benefits10,325 19,567 
Dividends payable129 20,886 
Income taxes payable9,936 1,334 
Operating lease liabilities - current2,194 2,194 
Finance lease liabilities - current 169 167 
Total current liabilities123,529 143,802 
Revolving loan128,569 108,569 
Deferred income taxes47,033 46,455 
Operating lease liabilities - non-current4,730 4,811 
Finance lease liabilities - non-current2,260 2,303 
Derivative liabilities 2,658 
Other long-term obligations15,105 13,712 
Total liabilities321,226 322,310 
Commitments and contingencies (Note 15)
Stockholders' equity:
Preferred stock, $25 par value. Authorized 2,000,000 shares; none issued and outstanding
  
Common stock, $0.0667 par value. Authorized 120,000,000 shares; 32,116,069 shares issued and outstanding at March 31, 2022 and 32,287,150 shares issued and outstanding at December 31, 2021, respectively
2,142 2,154 
Additional paid-in capital116,771 147,716 
Retained earnings761,058 732,138 
Accumulated other comprehensive loss(6,289)(4,993)
Total stockholders' equity873,682 877,015 
Total liabilities and stockholders' equity$1,194,908 $1,199,325 
See accompanying notes to condensed consolidated financial statements.
3

BALCHEM CORPORATION
Condensed Consolidated Statements of Earnings
(Dollars in thousands, except per share data)
(unaudited)
 Three Months Ended
March 31,
 20222021
Net sales$228,867 $185,656 
Cost of sales157,361 126,929 
Gross margin71,506 58,727 
Operating expenses:
Selling expenses16,985 14,924 
Research and development expenses3,231 2,749 
General and administrative expenses12,954 10,479 
 33,170 28,152 
Earnings from operations38,336 30,575 
Other expenses:
Interest expense, net545 725 
Other expense (income), net161 (133)
706 592 
Earnings before income tax expense37,630 29,983 
Income tax expense8,700 6,572 
Net earnings$28,930 $23,411 
Net earnings per common share - basic$0.90 $0.73 
Net earnings per common share - diluted$0.89 $0.72 

See accompanying notes to condensed consolidated financial statements.

4

BALCHEM CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(Dollars in thousands)
(unaudited)
 Three Months Ended
March 31,
 20222021
Net earnings$28,930 $23,411 
Other comprehensive loss, net of tax:
Foreign currency translation adjustment(2,842)(6,143)
Unrealized gain on cash flow hedge1,573 512 
Change in postretirement benefit plans(27)7 
Other comprehensive loss(1,296)(5,624)
Comprehensive income$27,634 $17,787 

See accompanying notes to condensed consolidated financial statements.

5

BALCHEM CORPORATION
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the three months ended March 31, 2022 and 2021
(Dollars in thousands, except share and per share data)
Total
Stockholders'
Equity
Retained
Earnings
Accumulated
Other
Comprehensive
(Loss) Income
Common StockAdditional
Paid-in
Capital
SharesAmount
Balance - December 31, 2021$877,015 $732,138 $(4,993)32,287,150 $2,154 $147,716 
Net earnings28,930 28,930 — — — — 
Other comprehensive loss(1,296)— (1,296)— — — 
Repurchases of common stock(34,599)— — (245,685)(16)(34,583)
Dividends(10)(10)— — — — 
Shares and options issued under stock plans3,642 — — 74,604 4 3,638 
Balance - March 31, 2022$873,682 $761,058 $(6,289)32,116,069 $2,142 $116,771 
Balance - December 31, 2020$828,233 $656,740 $4,173 32,372,621 $2,160 $165,160 
Net earnings23,411 23,411 — — — — 
Other comprehensive loss(5,624)— (5,624)— — — 
Repurchases of common stock(1,596)— — (13,475)(1)(1,595)
Shares and options issued under stock plans5,068 — — 92,784 6 5,062 
Balance - March 31, 2021$849,492 $680,151 $(1,451)32,451,930 $2,165 $168,627 

See accompanying notes to condensed consolidated financial statements.

6

BALCHEM CORPORATION
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(unaudited)
 Three Months Ended
March 31,
 20222021
Cash flows from operating activities:  
Net earnings$28,930 $23,411 
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization11,928 12,364 
Stock compensation expense3,077 2,622 
Provision for doubtful accounts328 69 
Unrealized loss (gain) on foreign currency transactions and deferred compensation37 (229)
Gain on disposal of assets(29)(1)
Changes in assets and liabilities
Accounts receivable(20,405)(9,610)
Inventories(17,598)(6,702)
Prepaid expenses and other current assets487 1,000 
Accounts payable and accrued expenses(7,708)10,344 
Income taxes8,522 7,043 
Other(548)296 
Net cash provided by operating activities7,021 40,607 
Cash flows from investing activities:
Capital expenditures and intangible assets acquired(10,256)(6,312)
Proceeds from sale of assets184 86 
Net cash used in investing activities(10,072)(6,226)
Cash flows from financing activities:
Proceeds from revolving loan20,000 5,000 
Principal payments on revolving loan (15,000)
Principal payments on finance lease(41)(39)
Proceeds from stock options exercised498 2,402 
Dividends paid(20,703)(18,700)
Repurchase of common stock(34,599)(1,596)
Net cash used in financing activities(34,845)(27,933)
Effect of exchange rate changes on cash(877)(2,484)
(Decrease) increase in cash and cash equivalents(38,773)3,964 
Cash and cash equivalents beginning of period103,239 84,571 
Cash and cash equivalents end of period$64,466 $88,535 
See accompanying notes to condensed consolidated financial statements.
7

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(All dollar amounts in thousands, except share and per share data)

NOTE 1 – CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements presented herein have been prepared in accordance with the accounting policies described in the December 31, 2021 consolidated financial statements, and should be read in conjunction with the consolidated financial statements and notes, which appear in the Annual Report on Form 10-K for the year ended December 31, 2021. The condensed consolidated financial statements reflect the operations of Balchem Corporation and its subsidiaries (the "Company"). All intercompany balances and transactions have been eliminated in consolidation.
In the opinion of management, the unaudited condensed consolidated financial statements furnished in this Form 10-Q include all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. All such adjustments are of a normal recurring nature. The condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP” or “GAAP”) governing interim financial statements and the instructions to Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934 (the "Exchange Act") and therefore do not include some information and notes necessary to conform to annual reporting requirements. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the operating results expected for the full year or any interim period.
Certain reclassifications have been made to prior period amounts to conform with the current period's presentation.
Recent Accounting Pronouncements
Recently Adopted Accounting Standards
In March 2020, the FASB issued Accounting Standards Update ("ASU") 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The ASU is intended to help stakeholders during the global market-wide reference rate transition period. Therefore, this Standard Update is in effect from March 12, 2020 through December 31, 2022. In January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848): Scope." ASU 2021-01 clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. The Company adopted the Standard Update in 2021. The adoption of the Standard update did not have a significant impact on the Company's consolidated financial statements and disclosures.
In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 became effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company adopted ASU 2019-12 on January 1, 2021. The adoption of ASU 2019-12 did not have a significant impact on the Company's consolidated financial statements and disclosures.

NOTE 2 – STOCKHOLDERS’ EQUITY
STOCK-BASED COMPENSATION
The Company’s results for the three months ended March 31, 2022 and 2021 reflected the following stock-based compensation cost, and such compensation cost had the following effects on net earnings:
Increase/(Decrease) for the
Three Months Ended March 31,
20222021
Cost of sales$399 $299 
Operating expenses2,678 2,323 
Net earnings(2,379)(2,022)
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As allowed by ASC 718, "Compensation-Stock Compensation", 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 incentive plans allow for the granting of stock awards and options to purchase common stock. Both incentive stock options and nonqualified stock options can be awarded under the plans. No option will be exercisable for longer than ten years after the date of grant. The Company has approved and reserved a number of shares to be issued upon exercise of the outstanding options that is adequate to cover all exercises. As of March 31, 2022, the plans had 526,760 shares available for future awards. Compensation expense for stock options and stock awards is recognized on a straight-line basis over the vesting period, generally three years for stock options, three to four years for employee restricted stock awards, three years for employee performance share awards, and three years for non-employee director restricted stock awards. Certain awards provide for accelerated vesting if there is a change in control (as defined in the plans) or other qualifying events.
Option activity for the three months ended March 31, 2022 and 2021 is summarized below:
For the three months ended
March 31, 2022
Shares (000s)Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value
Weighted
Average
Remaining
Contractual
Term
Outstanding as of December 31, 2021867 $88.19 $69,711 
Granted109 138.07 
Exercised(8)63.52 
Forfeited  
Canceled  
Outstanding as of March 31, 2022968 $94.01 $41,483 6.6
Exercisable as of March 31, 2022676 $81.06 $37,594 5.6
For the three months ended
March 31, 2021
Shares (000s)Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value
Weighted
Average
Remaining
Contractual
Term
Outstanding as of December 31, 2020858 $80.58 $29,735 
Granted129 119.11 
Exercised(34)70.53 
Forfeited(2)101.38 
Canceled(1)74.57 
Outstanding as of March 31, 2021950 $86.11 $37,322 7.0
Exercisable as of March 31, 2021604 $73.11 $31,603 5.8
ASC 718 requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions: dividend yields of 0.5% and 0.5%; expected volatilities of 31% and 33%; risk-free interest rates of 2.0% and 0.5%; and expected lives of 4.9 years and 4.9 years, in each case for the three months ended March 31, 2022 and 2021, respectively.
The Company used a projected expected life for each award granted based on historical experience of employees’ exercise behavior. Expected volatility is based on the Company’s historical volatility levels. 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.
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Other information pertaining to option activity during the three months ended March 31, 2022 and 2021 was as follows:
 Three Months Ended
March 31,
 20222021
Weighted-average fair value of options granted$40.26 $33.10 
Total intrinsic value of stock options exercised ($000s)$654 $1,917 
Non-vested restricted stock activity for the three months ended March 31, 2022 and 2021 is summarized below:
Three Months Ended March 31,
20222021
Shares (000s)Weighted
Average Grant
Date Fair
Value
Shares (000s)Weighted
Average Grant
Date Fair
Value
Non-vested balance as of December 31166 $99.70 159 $90.71 
Granted32 138.07 36 119.11 
Vested(76)80.65 (10)85.37 
Forfeited  (2)86.69 
Non-vested balance as of March 31122 $121.56 183 $96.70 

Non-vested performance share activity for the three months ended March 31, 2022 and 2021 is summarized below:
Three Months Ended March 31,
20222021
Shares (000s)Weighted
Average Grant
Date Fair
Value
Shares (000s)Weighted
Average Grant
Date Fair
Value
Non-vested balance as of December 3169 $110.72 71$91.99 
Granted39 114.22 36108.74 
Vested(35)53.17 (24)70.64 
Forfeited(3)84.09 (11)74.57 
Non-vested balance as of March 3170 $127.69 72$110.22 

The performance share (“PS”) awards provide the recipients the right to receive a certain number of shares of the Company’s common stock in the future, subject to an EBITDA performance hurdle, where vesting is dependent upon the Company achieving a certain EBITDA percentage growth over the performance period, and relative total shareholder return (TSR), where vesting is dependent upon the Company’s TSR performance over the performance period relative to a comparator group consisting of the Russell 2000 index constituents. 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 PS vests. The assumptions used in the fair value determination were risk free interest rates of 1.8% and 0.2%; dividend yields of 0.5% and 0.6%; volatilities of 32% and 33%; and initial TSR’s of -15.7% and 11.7%, in each case for the three months ended March 31, 2022 and 2021, respectively. Expense is estimated based on the 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 PS will cliff vest 100% at the end of the third year following the grant in accordance with the performance metrics set forth.
As of March 31, 2022 and 2021, there was $23,131 and $23,009, respectively, of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plans. As of March 31, 2022, the unrecognized
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compensation cost is expected to be recognized over a weighted-average period of approximately 1.9 years. The Company estimates that share-based compensation expense for the year ended December 31, 2022 will be approximately $12,350.
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 3,063,929 shares have been purchased. The Company’s prior presentation of reflecting treasury stock separately within stockholders’ equity has been adjusted to conform to the presentation prescribed by the State of Maryland, where the Company is incorporated. In connection therewith, adjustments to balances previously reflected as treasury stock of $2,210 and $7,873 as of March 31, 2021 and December 31, 2020, respectively, were made to the condensed consolidated statements of stockholders’ equity and prior references to “Treasury shares purchased” were updated to “Repurchases of common stock”, accordingly. There was no impact to total stockholders’ equity in any of the years presented as a result of these updates. 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. The Company also repurchases shares from employees in connection with settlement of transactions under the Company's equity incentive plans. During the three months ended March 31, 2022 and 2021, the Company purchased 245,685 and 13,475 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 $140.83 and $118.41, respectively.

NOTE 3 – INVENTORIES
Inventories, net of reserves at March 31, 2022 and December 31, 2021 consisted of the following:
March 31, 2022December 31, 2021
Raw materials$24,128 $28,639 
Work in progress21,964 10,563 
Finished goods62,319 51,856 
Total inventories$108,411 $91,058 

NOTE 4 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at March 31, 2022 and December 31, 2021 are summarized as follows:
 March 31, 2022December 31, 2021
Land$11,570 $11,692 
Building90,015 89,602 
Equipment258,758 253,995 
Construction in progress55,897 52,930 
 416,240 408,219 
Less: accumulated depreciation175,821 170,702 
Property, plant and equipment, net$240,419 $237,517 

NOTE 5 – INTANGIBLE ASSETS
The Company had goodwill in the amount of $522,587 and $523,949 as of March 31, 2022 and December 31, 2021, respectively, subject to the provisions of ASC 350, “Intangibles-Goodwill and Other.” The decrease in goodwill is due to foreign exchange translation adjustments.
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Identifiable intangible assets with finite lives at March 31, 2022 and December 31, 2021 are summarized as follows:
 Amortization
Period
(in years)
Gross Carrying Amount at
3/31/2022
Accumulated Amortization at
3/31/2022
Gross Carrying Amount at
12/31/2021
Accumulated Amortization at
12/31/2021
Customer relationships & lists
10-20
$239,194 $177,108 $240,059 $173,489 
Trademarks & trade names
2-17
42,695 29,978 43,116 28,985 
Developed technology
5-12
20,184 14,809 20,234 14,607 
Other
2-18
24,771 16,424 23,921 15,584 
 $326,844 $238,319 $327,330 $232,665 
Amortization of identifiable intangible assets was $5,911 and $6,484 for the three months ended March 31, 2022 and 2021, respectively. Assuming no change in the gross carrying value of identifiable intangible assets, the estimated amortization expense is $17,594 for the remainder of 2022, $19,393 for 2023, $10,516 for 2024, $6,260 for 2025, $4,938 for 2026 and $4,375 for 2027. At March 31, 2022 and 2021, 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 during the three months ended March 31, 2022 and 2021.

NOTE 6 – EQUITY-METHOD INVESTMENT
In 2013, the Company and Eastman Chemical Company (formerly Taminco Corporation) 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 $140 and $144 for the three months ended March 31, 2022 and 2021, respectively, relating to its portion of the joint venture's expenses in other expense. During the first quarter of 2022 and 2021, the Company made capital contributions to the investment totaling $58 and $13, respectively. The carrying value of the joint venture at March 31, 2022 and December 31, 2021 is $4,417 and $4,499, respectively, and is recorded in other assets.

NOTE 7 – REVOLVING LOAN
On June 27, 2018, the Company and a bank syndicate entered into the Credit Agreement, which replaced the credit facility that had provided for a senior secured term loan of $350,000 and a revolving loan of $100,000.  The Credit Agreement, which expires on June 27, 2023, provides for revolving loans up to $500,000 (collectively referred to as the “loans”).  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 initial borrowing under the Credit Agreement was used to pay the outstanding balance of $210,750 on the Company's senior secured term loan under its former credit facility, which was due May 2019. As of March 31, 2022 and December 31, 2021, the total balance outstanding on the Credit Agreement amounted to $128,569 and $108,569, 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 Credit Agreement are subject to an interest rate equal to a fluctuating rate as defined by the Credit Agreement plus an applicable rate.  The applicable rate is based upon the Company’s consolidated net leverage ratio, as defined in the Credit Agreement, and the interest rate was 1.447% at March 31, 2022.  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 Credit Agreement and ranges from 0.15% to 0.275% (0.150% at March 31, 2022).  The unused portion of the revolving loan amounted to $371,431 at March 31, 2022.  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 Credit Agreement.  Costs associated with the issuance of the extinguished senior secured loan were capitalized and amortized
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over the term of the respective financing arrangement using the effective interest method. Capitalized costs net of accumulated amortization totaled $350 and $421 at March 31, 2022 and December 31, 2021, respectively, and are included in other assets on the condensed consolidated balance sheets. Amortization expense pertaining to these costs totaled $71 for both the three months ended March 31, 2022 and 2021, and are included in interest expense in the accompanying consolidated statements of earnings.
The 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 March 31, 2022, the Company was in compliance with these covenants.  Indebtedness under the Company’s loan agreements is secured by assets of the Company.

NOTE 8 – NET EARNINGS PER SHARE
The following presents a reconciliation of the net earnings and shares used in calculating basic and diluted net earnings per common share:
Three Months Ended
March 31,
20222021
Net Earnings - Basic and Diluted$28,930 $23,411 
Share (000s)
Weighted Average Common Shares - Basic32,041 32,255 
Effect of Dilutive Securities – Stock Options, Restricted Stock, and Performance Shares434 402 
Weighted Average Common Shares - Diluted32,475 32,657 
Net Earnings Per Share - Basic$0.90 $0.73 
Net Earnings Per Share - Diluted$0.89 $0.72 
The number of anti-dilutive shares were 113,029 and 311,030 for the three months ended March 31, 2022 and 2021, respectively. Anti-dilutive shares could potentially dilute basic earnings per share in future periods and therefore, were not included in diluted earnings per share.


NOTE 9 – INCOME TAXES
The Company’s effective tax rate for the three months ended March 31, 2022 and 2021, was 23.1% and 21.9%, respectively. The increase in the effective tax rate for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to a reduction in certain tax credits and increased international income subject to higher foreign tax rates.
Balchem will continue to evaluate and analyze the impact of the U.S. Tax Cuts and Jobs Act that was enacted on December 22, 2017 and the additional guidance that has been issued, and may be issued, by the U.S. Department of Treasury, the SEC, and/or the Financial Accounting Standards Board ("FASB") regarding this act.
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 accounts for uncertainty in income taxes utilizing ASC 740-10, "Income Taxes". ASC 740-10 clarifies whether or not to recognize assets or liabilities for tax positions taken that may be challenged by a tax authority. It prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, and
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disclosures. The application of ASC 740-10 requires judgment related to the uncertainty in income taxes and could impact our effective tax rate.
The Company files income tax returns in the U.S. and in various states and foreign countries. As of March 31, 2022, in the major jurisdictions where the Company operates, it is generally no longer subject to income tax examinations by tax authorities for years before 2017. As of March 31, 2022 and December 31, 2021, the Company had approximately $5,880 and $5,881, respectively, of unrecognized tax benefits, which are included in other long-term obligations on the Company’s condensed consolidated balance sheets. The Company includes interest expense or income as well as potential penalties on unrecognized tax positions as a component of income tax expense in the condensed consolidated statements of earnings. The total amount of accrued interest and penalties related to uncertain tax positions at March 31, 2022 and December 31, 2021 was approximately $2,148 and $2,106, respectively, and is included in other long-term obligations.

NOTE 10 – SEGMENT INFORMATION
Balchem Corporation reports three business segments: Human Nutrition & Health, Animal Nutrition & 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 & Health
The Human Nutrition & 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. HNH's mineral amino acid chelates, specialized mineral salts, and mineral complexes are used as raw materials for inclusion in premier human nutrition products. Proprietary technology has 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, HNH makes investments in the foregoing for long-term value differentiation. HNH also serves the food and beverage industry for beverage, bakery, dairy, confectionary, and savory manufacturers. HNH partners with its customers from ideation through commercialization to bring on-trend beverages, baked goods, confections, dairy and meat products to market. HNH has expertise in trends analysis and product development. When what is combined 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, as well as ice cream bases and variegates, HNH is a one-stop solutions provider for beverage and dairy product development needs. Additionally, HNH 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. HNH also creates cereal systems for ready-to-eat cereals, grain-based snacks, and cereal based ingredients.
Animal Nutrition & Health
The Company’s Animal Nutrition & Health ("ANH") segment provides nutritional products derived from its microencapsulation and chelation technologies in addition to basic choline chloride. For ruminant animals, ANH's microencapsulated products boost health and milk production, delivering nutrient supplements that are biologically available, providing required nutritional levels. ANH’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 these animals. 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.
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 basic choline chloride marketplace is highly dependent on the Company’s ability
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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 global marketplace.
Specialty Products
Ethylene oxide, at the 100% level and blended with carbon dioxide, 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. Specialty Products' 100% ethylene oxide product and blends 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. Specialty Products’s inventory of these specially built drums and cylinders, along with its five filling facilities, represents a significant capital investment. Contract sterilizers and medical device manufacturers are principal customers for this product. Specialty Products also sells single use canisters with 100% ethylene oxide for use in sterilizing re-usable devices typically processed in autoclave units in hospitals. As a fumigant, ethylene oxide blends are highly effective in killing bacteria, fungi, and insects in spices and other seasoning materials.
Specialty Products also distributes a number of other gases for various uses, most notably propylene oxide and ammonia. Propylene oxide is marketed and sold in the U.S. as a fumigant to aid in the control of insects and microbiological spoilage; and to reduce bacterial and mold contamination in certain shell and processed nut meats, processed spices, cacao beans, cocoa powder, raisins, figs and prunes. Specialty Products distributes its propylene oxide product in the U.S. primarily in recyclable, single-walled, carbon steel cylinders according to standards outlined by the Environmental Protection Agency ("EPA") and the Department of Transportation ("DOT"). Propylene oxide is also sold worldwide to customers in approved reusable and recyclable drum and cylinder packaging for various chemical synthesis applications, such as increasing paint durability and manufacturing specialty starches and textile coatings. Ammonia is used primarily as a refrigerant, and also for heat treatment of metals and various chemical synthesis applications, and is distributed in reusable and recyclable drum and cylinder packaging, which are approved for use in the countries these products are shipped to. Specialty Products' inventory of cylinders for these products also represents a significant capital investment.
Specialty Products’ micronutrient agricultural nutrition business sells chelated minerals primarily into high value crops. Specialty Products has a unique and patented two-step approach to solving mineral deficiency in plants to optimize health, yield and shelf-life.  First, Specialty Products determines optimal mineral balance for plant health. Specialty Products then supplies a foliar applied Metalosate® product range, utilizing patented amino acid chelate technology in order to optimize mineral balance. These 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 AssetsMarch 31,
2022
December 31,
2021
Human Nutrition & Health$752,120 $727,131 
Animal Nutrition & Health165,627 158,971 
Specialty Products181,635 184,628 
Other and Unallocated (1)
95,526 128,595 
Total$1,194,908 $1,199,325 
Business Segment Net SalesThree Months Ended
March 31,
 20222021
Human Nutrition & Health$122,445 $104,516 
Animal Nutrition & Health69,342 51,148 
Specialty Products33,334 28,008 
Other and Unallocated (2)
3,746 1,984 
Total$228,867 $185,656 

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Business Segment Earnings Before Income TaxesThree Months Ended
March 31,
 20222021
Human Nutrition & Health$20,303 $19,690 
Animal Nutrition & Health11,321 5,056 
Specialty Products7,761 7,189 
Other and Unallocated (2)
(1,049)(1,360)
Interest and other expense(706)(592)
Total$37,630 $29,983 
Depreciation/AmortizationThree Months Ended
March 31,
 20222021
Human Nutrition & Health$7,355 $7,573 
Animal Nutrition & Health1,661 1,764 
Specialty Products1,932 2,269 
Other and Unallocated (2)
980 758 
Total$11,928 $12,364 
Capital ExpendituresThree Months Ended
March 31,
 20222021
Human Nutrition & Health$4,760 $3,967 
Animal Nutrition & Health3,688 1,631 
Specialty Products1,146 330 
Other and Unallocated (2)
115 23 
Total$9,709 $5,951 
(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 $304 and $234 for the first quarter of 2022 and 2021, respectively, and (ii) Unallocated amortization expense of $809 and $675 for the first quarter of 2022 and 2021, respectively, related to an intangible asset in connection with a company-wide ERP system implementation and capitalized loan issuance costs that was included in interest expense in Company's consolidated statement of earnings.

NOTE 11 – REVENUE
Revenue Recognition
Revenues are recognized when control of the promised goods is transferred to customers, in an amount that reflects the consideration the Company expects to realize in exchange for those goods.
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The following table presents revenues disaggregated by revenue source. Sales and usage-based taxes are excluded from revenues.
Three Months Ended
March 31,
20222021
Product Sales$218,053 $175,988 
Co-manufacturing8,307 7,278 
Consignment1,591 1,051 
Product Sales Revenue227,951 184,317 
Royalty Revenue916 1,339 
Total Revenue$228,867 $185,656 
The following table presents revenues disaggregated by geography, based on the shipping addresses of customers:
Three Months Ended
March 31,
20222021
United States$174,491 $137,851 
Foreign Countries54,376 47,805 
Total Revenue$228,867 $185,656 


Product Sales Revenues
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 and consist of four sub-streams: product sales, co-manufacturing, bill and hold, and consignment.

Under the co-manufacturing agreements, the Company is responsible for the manufacture of a finished good where the customer provides the majority of the raw materials.  The Company controls the manufacturing process and the ultimate end-product before it is shipped to the customer.  Based on these factors, the Company has determined that it is the principal in these agreements and therefore revenue is recognized in the gross amount of consideration the Company expects to be entitled for the goods provided.
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.

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NOTE 12 – SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the three months ended March 31, 2022 and 2021 for income taxes and interest is as follows:
Three Months Ended
March 31,
20222021
Income taxes$2 $2 
Interest$1,010 $1,363 

NOTE 13 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The changes in accumulated other comprehensive income/(loss) were as follows:
 Three Months Ended
March 31,
 20222021
Net foreign currency translation adjustment$(2,842)$(6,143)
Net change of cash flow hedge (see Note 19 for further information)
Unrealized gain on cash flow hedge2,084 677 
Tax(511)(165)
Net of tax1,573 512 
Net change in postretirement benefit plan (see Note 14 for further information)
Amortization of prior service cost2 18 
Amortization of gain (5)
Gain arising during the period and prior service credit(32)(4)
Total before tax(30)9 
Tax3 (2)
Net of tax and adjustment(27)7 
Total other comprehensive loss$(1,296)$(5,624)

Included in "Net foreign currency translation adjustment" were gains of $1,123 and $3,197, related to a net investment hedge, which were net of taxes of $333 and $1,026 for the three months ended March 31, 2022 and 2021, respectively. See Note 19, "Derivative Instruments and Hedging Activities."
Accumulated other comprehensive income (loss) at March 31, 2022 and December 31, 2021 consisted of the following:
 Foreign currency
translation
adjustment
Cash flow hedgePostretirement
benefit plan
Total
Balance December 31, 2021$(3,602)$(1,631)$240 $(4,993)
Other comprehensive (loss) income(2,842)1,573 (27)(1,296)
Balance March 31, 2022$(6,444)$(58)$213 $(6,289)

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NOTE 14 – EMPLOYEE BENEFIT PLANS
Defined Contribution Plans
The Company sponsored two 401(k) savings plans for eligible employees, which were merged into one plan on January 1st, 2021. The remaining plan allows participants to make pretax contributions and the Company matches certain percentages of those pretax contributions. The remaining 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.
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 facility and a plan for those named as executive officers in the Company’s proxy statement.
Net periodic benefit costs for such retirement medical plans were as follows:
 Three Months Ended
March 31,
 20222021
Service cost$20 $22 
Interest cost6 6 
Amortization of prior service cost2 18 
Amortization of gain (6)
Net periodic benefit cost$28 $40 
The amount recorded for these obligations on the Company’s balance sheets as of March 31, 2022 and December 31, 2021 were $1,197 and $1,293, respectively, and are included in other long-term obligations. These plans are unfunded and approved claims are paid from Company funds. Historical cash payments made under such plans have typically been less than $200 per year.
Defined Benefit Pension Plans
On May 27, 2019, the Company acquired Chemogas, which has an unfunded defined benefit pension 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 the Company's consolidated balance sheet as of March 31, 2022 and December 31, 2021 were $676 and $684, respectively, and were included in other long-term obligations.
Net periodic benefit costs for such benefit pension plans were as follows:
Three Months Ended
March 31,
 20222021
Service cost with interest to end of year$11 $17 
Interest cost5 4 
Expected return on plan assets(10)(9)
Amortization of gain 1 
Total net periodic benefit cost$6 $13 
Deferred Compensation Plan
On June 1, 2018, the Company established 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 subject to additional risk of loss in the event of bankruptcy or insolvency of the Company.  The deferred compensation liability was $8,206 and $6,270 as of March 31, 2022 and December 31, 2021, respectively, and was included in other long-term obligations on the Company’s consolidated balance sheets. The related rabbi trust assets were $8,208 and $6,267 as of March 31, 2022 and December 31, 2021, respectively, and were included in other non-current assets on the Company's consolidated balance sheets.


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NOTE 15 – COMMITMENTS AND CONTINGENCIES
Aggregate future minimum rental payments required under all non-cancelable operating and finance leases at March 31, 2022 are as follows:
Year 
April 1, 2022 to December 31, 2022$