Washington, D.C. 20549
(Mark One)
    For the quarterly period ended March 31, 2021
    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 22, 2021, the registrant had 32,435,692 shares of its Common Stock, $.06 2/3 par value, outstanding.

Table of Contents
Page No.

Table of Contents
Part I.    Financial Information

Item 1.    Financial Statements
Condensed Consolidated Balance Sheets
(Dollars in thousands, except share and per share data)
AssetsMarch 31, 2021 (unaudited)December 31, 2020
Current assets:  
Cash and cash equivalents$88,535 $84,571 
Accounts receivable, net of allowance for doubtful accounts of $2,158 and $2,092 at March 31, 2021 and December 31, 2020 respectively
106,806 98,214 
Inventories77,022 70,620 
Prepaid expenses4,995 6,598 
Prepaid income taxes 3,447 
Other current assets3,846 3,438 
Total current assets281,204 266,888 
Property, plant and equipment, net226,513 228,096 
Goodwill526,246 529,463 
Intangible assets with finite lives, net113,659 121,660 
Right of use assets8,708 8,410 
Other assets12,885 11,326 
Total assets$1,169,215 $1,165,843 
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable$33,765 $23,742 
Accrued expenses37,400 29,655 
Accrued compensation and other benefits11,474 19,753 
Dividends payable203 18,941 
Income taxes payable3,639  
Lease liabilities - current 2,282 2,337 
Total current liabilities88,763 94,428 
Revolving loan153,569 163,569 
Deferred income taxes51,865 51,359 
Lease liabilities - non-current6,423 6,079 
Derivative liabilities6,758 11,658 
Other long-term obligations12,345 10,517 
Total liabilities319,723 337,610 
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; 32,471,019 shares issued and 32,451,930 shares outstanding at March 31, 2021 and 32,448,705 shares issued and 32,372,621 outstanding at December 31, 2020, respectively
2,165 2,164 
Additional paid-in capital170,837 173,029 
Retained earnings680,151 656,740 
Accumulated other comprehensive (loss) income(1,451)4,173 
Treasury stock, at cost: 19,089 and 76,084 shares at March 31, 2021 and December 31, 2020, respectively
Total stockholders' equity849,492 828,233 
Total liabilities and stockholders' equity$1,169,215 $1,165,843 
See accompanying notes to condensed consolidated financial statements.

Table of Contents
Condensed Consolidated Statements of Earnings
(Dollars in thousands, except per share data)
 Three Months Ended
March 31,
Net sales$185,656 $174,436 
Cost of sales126,929 119,105 
Gross margin58,727 55,331 
Operating expenses:
Selling expenses14,924 15,430 
Research and development expenses2,749 2,700 
General and administrative expenses10,479 10,923 
 28,152 29,053 
Earnings from operations30,575 26,278 
Other expenses:
Interest expense, net725 1,696 
Other (income) expense, net(133)92 
592 1,788 
Earnings before income tax expense29,983 24,490 
Income tax expense6,572 4,722 
Net earnings$23,411 $19,768 
Net earnings per common share - basic$0.73 $0.62 
Net earnings per common share - diluted$0.72 $0.61 

See accompanying notes to condensed consolidated financial statements.


Table of Contents
Condensed Consolidated Statements of Comprehensive Income
(Dollars in thousands)

 Three Months Ended
March 31,
Net earnings$23,411 $19,768 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment(6,143)781 
Unrealized gain (loss) on cash flow hedge512 (3,107)
Change in postretirement benefit plans7 (579)
Other comprehensive loss(5,624)(2,905)
Comprehensive income$17,787 $16,863 

See accompanying notes to condensed consolidated financial statements.


Table of Contents
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the three months ended March 31, 2021 and 2020
(Dollars in thousands, except share and per share data)
(Loss) Income
Common StockTreasury StockAdditional
Balance - December 31, 2020$828,233 $656,740 $4,173 32,448,705 $2,164 (76,084)$(7,873)$173,029 
Net earnings23,411 23,411 — — — — — — 
Other comprehensive loss(5,624)— (5,624)— — — — — 
Treasury shares purchased(1,596)— — — — (13,475)(1,596)— 
Shares and options issued under stock plans5,068 — — 22,314 1 70,470 7,259 (2,192)
Balance - March 31, 2021$849,492 $680,151 $(1,451)32,471,019 $2,165 (19,089)$(2,210)$170,837 
Balance - December 31, 2019$743,667 $590,921 $(5,564)32,405,796 $2,161 (203,879)$(18,069)$174,218 
Net earnings19,768 19,768 — — — — — — 
Other comprehensive loss(2,905)— (2,905)— — — — — 
Treasury shares purchased(891)— — — — (8,224)(891)— 
Shares and options issued under stock plans6,632 — — 41,619 3 81,530 7,266 (637)
Balance - March 31, 2020$766,271 $610,689 $(8,469)32,447,415 $2,164 (130,573)$(11,694)$173,581 

See accompanying notes to condensed consolidated financial statements.


Table of Contents
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
 Three Months Ended
March 31,
Cash flows from operating activities:  
Net earnings$23,411 $19,768 
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization12,364 12,549 
Stock compensation expense2,622 2,181 
Deferred income taxes 135 
Provision for doubtful accounts69 522 
Unrealized gain on foreign currency transactions and deferred compensation(230)(23)
Changes in assets and liabilities
Accounts receivable(9,610)(13,516)
Prepaid expenses and other current assets1,000 (349)
Accounts payable and accrued expenses10,344 (3,098)
Income taxes7,043 4,523 
Other296 (655)
Net cash provided by operating activities40,607 22,565 
Cash flows from investing activities:
Capital expenditures and intangible assets acquired(6,312)(5,394)
Proceeds from sale of assets86  
Net cash used in investing activities(6,226)(5,394)
Cash flows from financing activities:
Proceeds from revolving loan5,000 10,000 
Principal payments on revolving loan(15,000)(5,000)
Principal payments on finance lease(39) 
Proceeds from stock options exercised2,402 4,435 
Dividends paid(18,700)(16,704)
Purchase of treasury stock(1,596)(891)
Net cash used in financing activities(27,933)(8,160)
Effect of exchange rate changes on cash(2,484)(724)
Increase in cash and cash equivalents3,964 8,287 
Cash and cash equivalents beginning of period84,571 65,672 
Cash and cash equivalents end of period$88,535 $73,959 
See accompanying notes to condensed consolidated financial statements.

Table of Contents
(All dollar amounts in thousands, except share and per share data)

The condensed consolidated financial statements presented herein have been prepared in accordance with the accounting policies described in its December 31, 2020 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, 2020. 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, 2021 are not necessarily indicative of the operating results expected for the full year or any interim period.
Recent Accounting Pronouncements
Recently Issued 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 standards update is in effect from March 12, 2020 through December 31, 2022. In January 2021, the FASB issued Accounting Standards Update ("ASU") 2021-01, "Reference Rate Reform (Topic 848): Scope." This ASU 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 is currently evaluating the impact of this pronouncement on the consolidated financial statements and disclosures.
Recently Adopted Accounting Standards
In December 2019, the FASB issued Accounting Standards Update ("ASU") 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." The amendments in this Update simplify 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. The effective date of this Update is for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Standard may be adopted either using the prospective or retrospective transition approach and could also be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company adopted the new standard on January 1, 2021. The standard did not have a significant impact on the Company's consolidated financial statements and disclosures.
In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.”  The guidance requires implementation costs incurred by customers in cloud computing arrangements to be deferred over the noncancelable term of the cloud computing arrangements plus any optional renewal periods (1) that are reasonably certain to be exercised by the customer or (2) for which exercise of the renewal option is controlled by the cloud service provider.  The effective date of this pronouncement is for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.  The standard may be adopted either using the prospective or retrospective transition approach.  The Company adopted the new standard on January 1, 2020. The standard update did not have a significant impact on the Company’s consolidated financial statements and disclosures.
In August 2018, the FASB issued ASU 2018-14, “Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans,” which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement benefit plans.  The guidance removes disclosures that are no longer considered cost beneficial, clarifies the specific

Table of Contents
requirements of disclosures and adds disclosure requirements identified as relevant.  This update should be applied on a retrospective basis to all periods presented and is effective for fiscal years ending after December 15, 2020.  Early adoption is permitted. The Company adopted the new standard on January 1, 2020. The standard update did not have a significant impact on the Company's consolidated financial statements and disclosures.
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. The guidance is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company adopted the new standard on January 1, 2020. This ASU did not have a significant impact on the Company’s consolidated financial statements.
In June 2016, the FASB issued 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. The update made several consequential amendments to the codification which requires the accounting for available-for-sale debt securities to be individually assessed for credit losses when fair value is less than the amortized cost basis. The FASB subsequently issued ASU 2019-04, ASU 2019-05, and ASU 2019-11, all of which further clarified ASU 2016-13. The Company adopted the new standard and related updates on January 1, 2020. The adoption did not have a significant impact on the consolidated financial statements.

The Company’s results for the three months ended March 31, 2021 and 2020 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,
Cost of sales$299 $266 
Operating expenses2,323 1,915 
Net earnings(2,022)(1,663)
As allowed by ASC 718, 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 stock 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, 2021, the plans had 688,727 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 to four 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.

Table of Contents
Option activity for the three months ended March 31, 2021 and 2020 is summarized below:
For the three months ended
March 31, 2021
Shares (000s)Weighted
Outstanding as of December 31, 2020858 $80.58 $29,735 
Granted129 119.11 
Outstanding as of March 31, 2021950 $86.11 $37,322 7.0
Exercisable as of March 31, 2021604 $73.11 $31,603 5.8

For the three months ended
March 31, 2020
Shares (000s)Weighted
Outstanding as of December 31, 2019951 $68.18 $31,814 
Granted145 111.94 
Outstanding as of March 31, 20201,010 $75.48 $25,399 6.7
Exercisable as of March 31, 2020664 $65.39 $22,131 5.4
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 33% and 26%; risk-free interest rates of 0.5% and 1.4%; and expected lives of 4.9 years and 3.7 years, in each case for the three months ended March 31, 2021 and 2020, 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.

Table of Contents
Other information pertaining to option activity during the three months ended March 31, 2021 and 2020 was as follows:
 Three Months Ended
March 31,
Weighted-average fair value of options granted$33.10 $23.05 
Total intrinsic value of stock options exercised ($000s)$1,917 $4,019 
Non-vested restricted stock activity for the three months ended March 31, 2021 and 2020 is summarized below:
Three Months Ended March 31,
Shares (000s)Weighted
Average Grant
Date Fair
Shares (000s)Weighted
Average Grant
Date Fair
Non-vested balance as of December 31159 $90.71 138 $80.03 
Granted36 119.11 34 111.44 
Vested(10)85.37 (20)67.43 
Forfeited(2)86.69 (1)86.82 
Non-vested balance as of March 31183 $96.70 151 $89.21 

Non-vested performance share activity for the three months ended March 31, 2021 and 2020 is summarized below:
Three Months Ended March 31,
Shares (000s)Weighted
Average Grant
Date Fair
Shares (000s)Weighted
Average Grant
Date Fair
Non-vested balance as of December 3171 $91.99 70$81.26 
Granted36 108.74 20126.46 
Vested(24)70.64 (8)104.15 
Forfeited(11)74.57 (11)82.71 
Non-vested balance as of March 3172 $110.22 71$91.99 

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 0.2% and 1.4%; dividend yields of 0.6% and 0.5%; volatilities of 33% and 24%; and initial TSR’s of 11.7% and 10.9%, in each case for the three months ended March 31, 2021 and 2020, 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, 2021 and 2020, there was $23,009 and $19,308, respectively, of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plans. As of March 31, 2021, the unrecognized

Table of Contents
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, 2021 will be approximately $11,400.
The Company has 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 2,581,871 shares have been purchased, of which 19,089 shares remained in treasury at March 31, 2021. The Company repurchases shares from employees in connection with settlement of transactions under the Company's equity incentive plans. The Company also intends to acquire shares from time to time at prevailing market prices if and to the extent it deems it advisable to do so based on its assessment of corporate cash flow, market conditions and other factors. During the three months ended March 31, 2021 and 2020, the Company purchased 13,475 and 8,224 shares, respectively, from employees on a net-settlement basis to provide cash to employees to cover the associated employee payroll taxes and from open market purchases. These shares were purchased at an average cost of $118.41 and $108.40, respectively.

Inventories at March 31, 2021 and December 31, 2020 consisted of the following:
March 31, 2021December 31, 2020
Raw materials$28,900 $24,536 
Work in progress3,822 3,050 
Finished goods44,300 43,034 
Total inventories$77,022 $70,620 

Property, plant and equipment at March 31, 2021 and December 31, 2020 are summarized as follows:
 March 31, 2021December 31, 2020
Land$11,923 $12,215 
Building87,677 86,873 
Equipment248,326 247,884 
Construction in progress33,276 31,240 
 381,202 378,212 
Less: accumulated depreciation154,689 150,116 
Property, plant and equipment, net$226,513 $228,096 

The Company had goodwill in the amount of $526,246 and $529,463 as of March 31, 2021 and December 31, 2020, respectively, subject to the provisions of ASC 350, “Intangibles-Goodwill and Other.” The decrease in goodwill is due to foreign exchange translation adjustments.
Identifiable intangible assets with finite lives at March 31, 2021 and December 31, 2020 are summarized as follows:
(in years)
Gross Carrying Amount at
Accumulated Amortization at
Gross Carrying Amount at
Accumulated Amortization at
Customer relationships & lists
$241,516 $161,772 $243,557 $158,051 
Trademarks & trade names
43,154 26,084 43,208 24,974 
Developed technology
20,318 13,991 21,674 13,693 
23,145 12,627 21,624 11,685 
 $328,133 $214,474 $330,063 $208,403 

Table of Contents
Amortization of identifiable intangible assets was approximately $6,484 and $6,979 for the three months ended March 31, 2021 and 2020, respectively. Assuming no change in the gross carrying value of identifiable intangible assets, estimated amortization expense is $18,497 for the remainder of 2021, $23,044 for 2022, $19,447 for 2023, $10,611 for 2024, $6,348 for 2025 and $5,112 for 2026. At March 31, 2021 and 2020, there were no identifiable intangible assets with indefinite useful lives as defined by ASC 350. Identifiable intangible assets are reflected in “Intangible assets with finite lives, net” in the Company’s condensed consolidated balance sheets. There were no changes to the useful lives of intangible assets subject to amortization during the three months ended March 31, 2021 and 2020.

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 receives 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 $144 and $138 for the three months ended March 31, 2021 and 2020, respectively, relating to its portion of the joint venture's expenses in other expense. During first quarter of 2021 and 2020, the Company made capital contributions to the investment totaling $13 and $667, respectively. The carrying value of the joint venture at March 31, 2021 and December 31, 2020 is $4,840 and $4,971, respectively, and is recorded in other assets.

On June 27, 2018, the Company and a bank syndicate entered into a credit agreement (the "Credit Agreement"), which replaced the existing 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 proceeds from the Credit Agreement were used to repay the outstanding balance of $210,750 on its senior secured term loan, which was due May 2019. As of March 31, 2021 and December 31, 2020, the total balance outstanding on the Credit Agreement amounted to $153,569 and $163,569, 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 1.234% at March 31, 2021.  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, 2021).  The unused portion of the revolving loan amounted to $346,431 at March 31, 2021.  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, which is not materially different than the effective interest method.  Costs associated with the issuance of the extinguished debt instrument were capitalized and amortized over the term of the respective financing arrangement using the effective interest method. Capitalized costs net of accumulated amortization totaled $632 and $703 at March 31, 2021 and December 31, 2020, 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, 2021 and 2020, and are included in interest expense in the accompanying condensed 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, 2021, the Company was in compliance with these covenants.  Indebtedness under the Company’s loan agreements are secured by assets of the Company.


Table of Contents
The following presents a reconciliation of the net earnings and shares used in calculating basic and diluted net earnings per share:
Three Months Ended
March 31,
Net Earnings - Basic and Diluted$23,411 $19,768 
Shares (000s)
Weighted Average Common Shares - Basic32,255 32,135 
Effect of Dilutive Securities – Stock Options, Restricted Stock, and Performance Shares402 382 
Weighted Average Common Shares - Diluted32,657 32,517 
Net Earnings Per Share - Basic$0.73 $0.62 
Net Earnings Per Share - Diluted$0.72 $0.61 
The number of anti-dilutive shares were 311,030 and 212,551 for the three months ended March 31, 2021 and 2020, respectively. Anti-dilutive shares could potentially dilute basic earnings per share in future periods and therefore, were not included in diluted earnings per share.

The Company’s effective tax rate for the three months ended March 31, 2021 and 2020, was 21.9% and 19.3%, respectively. The increase in the effective tax rate for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 was primarily due to a reduction in certain tax credits and higher enacted tax rates in several states within the United States.
On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act, and on December 27, 2020, Congress passed an additional round of COVID relief legislation as part of the Bipartisan-Bicameral Omnibus COVID Relief Deal. The Company has reviewed the change in law and determined that it does not have a significant impact on the Company’s tax provision or financial statements. In addition, 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 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, 2021, in the major jurisdictions where the Company operates, it is generally no longer subject to income tax examinations by tax authorities for years before 2016. As of March 31, 2021 and December 31, 2020, the Company had approximately $5,400 and $5,335, 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, 2021 and December 31, 2020 was approximately $1,908 and $1,845, respectively, and is included in other long-term obligations.

Table of Contents

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. 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 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, the Company makes investments in such activities for long-term value differentiation. 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. When 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, 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 & 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, the Company’s microencapsulated products boost health and milk production, 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.
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 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
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. The Company’s 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. The Company’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. The Company 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.

Table of Contents
The Company 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. The Company 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 drum and cylinder packaging approved for use in the countries these products are shipped to. The Company's inventory of cylinders for these products also represents a significant capital investment.
The Company’s micronutrient agricultural nutrition business sells chelated minerals primarily into 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 AssetsMarch 31,
December 31,
Human Nutrition & Health$727,869 $717,232 
Animal Nutrition & Health151,773 157,454 
Specialty Products182,092 190,449 
Other and Unallocated (1)
107,481 100,708 
Total$1,169,215 $1,165,843 

Business Segment Net SalesThree Months Ended
March 31,
Human Nutrition & Health$104,516 $95,508 
Animal Nutrition & Health51,148 48,641 
Specialty Products28,008 27,996 
Other and Unallocated (2)
1,984 2,291 
Total$185,656 $174,436 

Business Segment Earnings Before Income TaxesThree Months Ended
March 31,
Human Nutrition & Health$19,690 $12,135 
Animal Nutrition & Health5,056 8,044 
Specialty Products7,189 7,986 
Other and Unallocated (2)
Interest and other expense(592)(1,788)
Total$29,983 $24,490 


Table of Contents
Depreciation/AmortizationThree Months Ended
March 31,
Human Nutrition & Health$7,573 $7,844 
Animal Nutrition & Health1,764 1,755 
Specialty Products2,269 2,392 
Other and Unallocated (2)
758 558 
Total$12,364 $12,549 

Capital ExpendituresThree Months Ended
March 31,
Human Nutrition & Health$3,967 $3,507 
Animal Nutrition & Health1,631 1,092 
Specialty Products330 382 
Other and Unallocated (2)
23 8 
Total$5,951 $4,989 

(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 $234 and $1,272 for the first quarter of 2021 and 2020, respectively, and (ii) Unallocated amortization expense of $675 and $472 for the first quarter of 2021 and 2020, 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.

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.
The following table presents revenues disaggregated by revenue source. Sales and usage-based taxes are excluded from revenues.
Three Months Ended
March 31,
Product Sales$175,988 $167,565 
Co-manufacturing7,278 5,241 
Consignment1,051 619 
Product Sales Revenue184,317 173,425 
Royalty Revenue1,339 1,011 
Total Revenue$185,656 $174,436 

Table of Contents
The following table presents revenues disaggregated by geography, based on the shipping addresses of customers:
Three Months Ended
March 31,
United States$137,851 $126,909 
Foreign Countries47,805 47,527 
Total Revenue$185,656 $174,436 

Product Sales Revenues
The Company’s primary operation is the manufacturing and sale of health and nutrition 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.

Cash paid during the three months ended March 31, 2021 and 2020 for income taxes and interest is as follows:
Three Months Ended
March 31,
Income taxes$2 $8 
Interest$1,363 $1,619 


Table of Contents
The changes in accumulated other comprehensive income/(loss) were as follows:
 Three Months Ended
March 31,
Net foreign currency translation adjustment$(6,143)$781 
Net change of cash flow hedge (see Note 19 for further information)
Unrealized gain (loss) on cash flow hedge677 (3,933)
Net of tax512 (3,107)
Net change in postretirement benefit plan (see Note 14 for further information)
Amortization of prior service cost18 19 
Amortization of gain(5)(13)
Prior service credit(4) 
Total before tax9 6 
Adjustment (1)
Net of tax and adjustment7 (579)
Total other comprehensive loss$(5,624)$(2,905)
(1) One-time adjustment to the postretirement account.
Included in "Net foreign currency translation adjustment" were gains of $3,197 and $4,419, related to a net investment hedge, which were net of taxes of $1,026 and $1,174 for the three months ended March 31, 2021 and 2020, respectively. See Note 19, "Derivative Instruments and Hedging Activities."
Accumulated other comprehensive income (loss) at March 31, 2021 and December 31, 2020 consisted of the following:
 Foreign currency
Cash flow hedgePostretirement
benefit plan
Balance December 31, 2020$7,653 $(3,684)$204 $4,173 
Other comprehensive (loss) income(6,143)512 7 (5,624)
Balance March 31, 2021$1,510 $(3,172)$211 $(1,451)


Table of Contents
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,
Service cost$22 $17 
Interest cost6 6 
Amortization of prior service cost18 19 
Amortization of gain(6)(13)
Net periodic benefit cost$40 $29 
The amount recorded for these obligations on the Company’s balance sheets as of March 31, 2021 and December 31, 2020 were $1,402 and $1,374, 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 $100 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, 2021 and December 31, 2020 were $920 and $950, 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,
Service cost with interest to end of year$17 $26 
Interest cost4 5 
Expected return on plan assets(9)(4)
Amortization of gain1  
Total net periodic benefit cost$13 $27 
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 $5,420 and $3,581 as of March 31, 2021 and December 31, 2020, respectively, and was included in other long-term obligations on the Company’s consolidated balance sheets. The related rabbi trust assets were $5,319 and $3,581 as of March 31, 2021 and December 31, 2020, respectively, and were included in other non-current assets on the Company's consolidated balance sheets.


Table of Contents
Aggregate future minimum rental payments required under all non-cancelable operating and finance leases at March 31, 2021 are as follows:
April 1, 2021 to December 31, 2021$2,498 
Total minimum lease payments$11,661 

The Company’s Verona, Missouri facility, while held by a prior owner, 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 the prior owner under the oversight of the EPA and the Missouri Department of Natural Resources. While the Company must maintain the integrity of the capped areas in the remediation areas on the site, the prior owner is responsible for completion of any further Superfund remedy. The Company is indemnified by the sellers under its May 2001 asset purchase agreement covering its acquisition of the facility for potential liabilities associated with the Superfund site. In September 2020, BCP Ingredients, Inc. ("BCP"), the Company subsidiary that operates the site, received a General Notice Letter from the EPA regarding BCP's potential liability for 1,4 dioxane contamination at the site. BCP currently believes that the 1,4 dioxane contamination is associated with the former owner’s operations and has engaged experts to study site conditions and hydrogeology in connection with preparing its response to the notice.
From time to time, the Company is a party to various litigation, claims and assessments.  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, or liquidity.

NOTE 16 –