What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-24 compared with 2022-02-24 · 304 added, 273 removed, 1020 unchanged (36% of the section changed)

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Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded Kechu BidCo AS and its subsidiaries (Kappa) and Cardinal Associates, Inc.

(Bergstrom) from its assessment of internal control over financial reporting as of December 31, 2022, because they were acquired by the Company in purchase business combinations in the second and third quarters, respectively, of 2022.

We have also excluded Kappa and Bergstrom from our audit of internal control over financial reporting.

Kappa and Bergstrom are wholly owned subsidiaries whose total assets and net sales collectively represent approximately 24.5 percent and 2.4 percent, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2022.

Basis for Opinions

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(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

and (3) provide

reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of customer relationships, technology and contingent consideration related to acquisitions

As described in Note 2 to the financial statements, the Company completed two acquisitions during the year, acquiring Kechu BidCo AS and its subsidiaries (collectively, Kappa) in June 2022 and Cardinal Associates Inc.

and its Bergstrom Nutrition business (collectively, Bergstrom) in August 2022.

The total consideration on acquisition date for Kappa amounted to $307 million, which included an estimated acquisition-date fair value contingent consideration of $4 million.

The total consideration on acquisition date for Bergstrom amounted to $78 million, which included an estimated acquisition-date fair value contingent consideration of $8 million.

The respective contingent consideration may be paid if certain targets are achieved in 2023.

The acquisition-date fair values of the contingent consideration liabilities were estimated using a scenario-based approach, estimating the expected payments based on the likelihood of achieving the respective targets.

In connection with the acquisitions of Kappa and Bergstrom, the Company acquired customer relationships with acquisition-date fair values of $89 million and $30 million, respectively, and technology with acquisition-date fair values of $16 million and $5 million, respectively.

For both acquisitions, management used the multi-period excess earnings method, a form of the income valuation approach, to determine the respective fair values of the customer relationships acquired and the relief from royalty method to determine the respective fair values of the technology acquired.

In estimating the acquisition-date fair values of the contingent consideration, customer relationships and technology, management was required to make significant judgments in formulating the significant estimates and assumptions about future sales and operating expenses, probability of certain financial forecast scenarios, attrition rates, obsolescence curves, growth rates, royalty rates, and discount rates when utilizing the aforementioned valuation methods.

We identified the Company’s valuation of the contingent consideration, customer relationships, and technology related to the acquisitions of Kappa and Bergstrom as a critical audit matter due to the high degree of auditor judgment, subjectivity, and audit effort, including the use of our fair value specialists, involved in performing procedures and evaluating audit evidence related to significant estimates and assumptions utilized by management, including sales, operating expenses, attrition rates, obsolescence curves, growth rates, royalty rates, and discount rates, when calculating the fair values of the contingent consideration, customer relationships, and technology.

Our audit procedures related to the Company’s valuation of the contingent consideration, customer relationships, and technology in connection with the aforementioned acquisitions included the following, among others:

• We obtained an understanding of the relevant controls related to the valuation of the contingent consideration, customer relationships, and technology and tested such controls for design and operating effectiveness, including management review controls related to the development of significant assumptions including future sales and operating expenses, attrition rates, obsolescence curves, growth rates, royalty rates and discount rates.

• We evaluated the reasonableness of management’s forecasts of sales and operating expense growth rates and attrition rates by comparing the forecasts to (1) the historical results (2) internal communications to management and the Board of Directors, and (3) external communications made by management to analysts and investors, as applicable.

• We evaluated the reasonableness of management’s determination of useful lives.

• With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rates, royalty rates, and the probability of certain financial forecast scenarios, and tested the relevance and reliability of source information underlying the determination of the discount rates and royalty rates, and developed a range of independent estimates, which we compared to the discount rates, royalty rates and the contingent consideration fair value arrived at by management.

Valuation of Reporting Units for Goodwill Impairment Testing

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When determining the fair value of each reporting unit, management makes significant estimates and assumptions related to a number of factors.

The Company considers the impact of factors that are specific to each of the reporting units such as industry and economic changes as well as projected revenue and expense growth rates based upon annual budgets and longer-range strategic plans, which are highly sensitive to changes in domestic and foreign economic conditions, and the selection of appropriate discount rates.

The Company considers the impact of factors that are specific to each of the reporting units such as industry and economic changes as well as projected sales and expense growth rates based upon annual budgets and longer-range strategic plans, which are highly sensitive to changes in domestic and foreign economic conditions, and the selection of appropriate discount rates.

Given the significant estimates and assumptions management makes to determine the fair value of the reporting units and the sensitivity of the operations to changes in U.S.

and foreign economic conditions, we identified management’s assumptions related to the revenue and expense growth rates, the discount rates, and the terminal value calculation utilized in the valuation of the reporting units utilized in the Company’s goodwill impairment tests as a critical audit matter.

and foreign economic conditions, we identified management’s assumptions related to the sales and expense growth rates, the discount rates, and the terminal value calculation utilized in the valuation of the reporting units within the Company’s goodwill impairment tests as a critical audit matter.

Auditing the reasonableness of management’s estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

Our audit procedures related to revenue and expense growth rates, discount rates, and the terminal value calculation utilized in the valuation of the Company’s reporting units included the following, among others:

• We obtained an understanding of the relevant controls related to the valuation of the Company’s reporting units and tested such controls for design and operating effectiveness, including management review controls related to revenue and expense growth rates and the selection of appropriate discount rates.

• We evaluated the reasonableness of management’s forecasted revenue and expense growth rates by comparing actual results to management’s historical forecasts.

• Due to the uncertain U.S and foreign economic growth, we evaluated the reasonableness of management’s forecasts of revenue and expense growth rates by comparing the forecasts to (1) the historical results, (2) internal communications to management and the Board of Directors, and (3) external communications made by management to analysts and investors.

• We evaluated changes in the regulatory environment using industry reports containing analysis of the Company’s markets and assessed whether these changes were reflected in management’s forecasts of revenue and expense growth rates.

Our audit procedures related to sales and expense growth rates, discount rates, and the terminal value calculation utilized in the valuation of the Company’s reporting units included the following, among others:

• We obtained an understanding of the relevant controls related to the valuation of the Company’s reporting units and tested such controls for design and operating effectiveness, including management review controls related to sales and expense growth rates and the selection of appropriate discount rates.

• We evaluated the reasonableness of management’s forecasted sales and expense growth rates by comparing actual results to management’s historical forecasts.

• We evaluated the reasonableness of management’s forecasts of sales and expense growth rates by comparing the forecasts to (1) the historical results, (2) internal communications to management and the Board of Directors, and (3) external communications made by management to analysts and investors, as applicable

• With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rates and tested the relevance and reliability of source information underlying the determination of the discount rates, tested the mathematical accuracy of the calculation, and developed a range of independent estimates and compared those to the discount rates selected by management.

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Prepaid expenses 4,903 6,116

Prepaid income taxes — 3,447

Derivative assets 5,993 —

Other current assets 7,101 4,411

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Retained earnings 814,487 732,138

Accumulated other comprehensive (loss)/income ( 4,993 ) 4,173

Accumulated other comprehensive loss ( 7,154 ) ( 4,993 )

Total stockholders’ equity 938,284 877,015

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Net earnings 84,623 84,623 — — — —

Other comprehensive (loss) ( 1,962 ) — ( 1,962 ) — — —

Other comprehensive income 9,737 — 9,737 — — —

Dividends ($ .58 per share)

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Net earnings 96,104 96,104 — — — —

Other comprehensive income 9,737 — 9,737 — — —

Other comprehensive (loss) ( 9,166 ) — ( 9,166 ) — — —

Dividends ($ .64 per share)

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Repurchases of common stock ( 35,239 ) — — ( 249,848 ) ( 17 ) ( 35,222 )

Shares and options issued (canceled) under stock plans 22,473 — — 307,333 21 22,452

Shares and options issued under stock plans 17,789 — — 164,377 11 17,778

Balance - December 31, 2021 877,015 732,138 ( 4,993 ) 32,287,150 2,154 147,716

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Provision for doubtful accounts 401 180 140

Unrealized (gain)/loss on foreign currency transactions and deferred compensation ( 384 ) 173 72

Unrealized loss/(gain) on foreign currency transactions and deferred compensation 914 ( 384 ) 173

Asset impairment charge 23 1,675 1,915

(Gain)/loss on disposal of assets ( 1,728 ) 153 ( 3,134 )

Loss/(gain) on disposal of assets 343 ( 1,728 ) 153

Changes in assets and liabilities, net of acquired balances

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Cash flows from investing activities:

Capital expenditures and intangible assets acquired ( 37,449 ) ( 33,828 ) ( 28,413 )

Cash paid for acquisitions, net of cash acquired ( 365,780 ) — —

Proceeds from sale of business and assets 318 87 11,523

Capital expenditures and intangible assets acquired ( 50,290 ) ( 37,449 ) ( 33,828 )

Proceeds from sale of assets 206 318 87

Proceeds from insurance — 1,831 —

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Principal payments on revolving loan ( 103,000 ) ( 60,000 ) ( 95,000 )

Principal payments on finance lease ( 159 ) ( 151 ) —

Principal payment on acquired debt ( 30,988 ) — —

Cash paid for financing costs ( 1,232 ) — —

Principal payments on finance lease ( 177 ) ( 159 ) ( 151 )

Proceeds from stock options exercised 3,212 6,943 14,155

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Repurchases of common stock ( 35,423 ) ( 35,239 ) ( 13,463 )

Net cash (used in) provided by financing activities ( 102,178 ) ( 101,164 ) 43,385

Net cash provided by (used in) financing activities 246,679 ( 102,178 ) ( 101,164 )

Effect of exchange rate changes on cash ( 5,880 ) ( 4,368 ) 4,160

Increase in cash and cash equivalents 18,668 18,899 11,404

(Decrease) increase in cash and cash equivalents ( 36,679 ) 18,668 18,899

Cash and cash equivalents beginning of period 103,239 84,571 65,672

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The Company has funds in its cash accounts that are with third party financial institutions, primarily in certificates of deposit and money market funds.

The Company's balances of cash and cash equivalents in the U.S., Italy, Belgium, Malaysia, Australia, Philippines, and Singapore exceed the Federal Deposit Insurance Corporation (“FDIC”), Fondo Interbancario di Tutela dei Depositi (“FITD”), Financial Services and Markets Authority ("FSMA"), Perbadanan Insurans Deposit Malaysia ("PIDM"), Australian Prudential Regulation Authority ("APRA"), Philippine Deposit Insurance Corporation ("PDIC"), and Singapore Deposit Insurance Corporation ("SDIC") insurance limits, respectively.

The Company's balances of cash and cash equivalents in the U.S.

and other countries exceed the insurance limits of the Federal Deposit Insurance Corporation (“FDIC”) and other relevant insurance limits in other countries.

Accounts Receivable

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Collections and payments from customers are continuously monitored and allowances for doubtful accounts for estimated losses resulting from the inability of the Company’s customers to make required payments are maintained.

Estimated losses are based on historical experience, any specific customer collection issues identified,

and any reasonably expected future adverse events.

Estimated losses are based on historical experience, any specific customer collection issues identified, and any reasonably expected future adverse events.

If the financial condition of our customers were to deteriorate resulting in an impairment of their ability to make payments, additional allowances and related bad debt expense may be required.

Inventories are valued at the lower of cost (first in, first out or average) or net realizable value and have been reduced by an allowance for excess or obsolete inventories.

Inventories are valued at the lower of cost (first in, first out) or net realizable value and have been reduced by an allowance for excess or obsolete inventories.

Cost elements include material, labor and manufacturing overhead.

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Goodwill and Acquired Intangible Assets

Goodwill represents the excess of costs over fair value of assets of businesses acquired.

ASC 350, “Intangibles-Goodwill and Other,” requires the use of the acquisition method of accounting for a business combination and defines an intangible asset.

Goodwill and intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized but are instead assessed for impairment annually and more frequently if events and circumstances indicate that the asset might be impaired, in accordance with the provisions of ASC 350.

Goodwill represents the excess of purchase price over the fair value of net assets acquired in accordance with ASC 805, "Business Combinations".

The Company performed its annual test as of October 1.

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An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value.

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.

As of October 1, 2022 and 2021, the Company opted to bypass the qualitative assessment and proceeded directly to performing the quantitative goodwill impairment test.

The Company assessed the fair values of its reporting units by utilizing the income approach, based on a discounted cash flow valuation model as the basis for its conclusions.

The Company assessed the fair values of its reporting units by utilizing the income

approach, based on a discounted cash flow valuation model as the basis for its conclusions.

The Company's estimates of future cash flows included significant management assumptions such as revenue growth rates, operating margins, discount rates, estimated terminal values and future economic and market conditions.

The Company's assessment concluded that the fair values of the reporting units exceeded their carrying amounts, including goodwill.

Accordingly, the goodwill of the reporting units was not considered impaired as of October 1, 2021.

However, during the second quarter of 2020, the Company recorded a goodwill impairment charge of $ 1,228 related to business formerly included in the Industrial Products segment.

Accordingly, the goodwill of the reporting units was not considered impaired as of October 1, 2022 and 2021.

The Company may resume performing the qualitative assessment in subsequent periods.

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Goodwill at December 31, 2020 $ 529,463

Goodwill as a result of Zumbro Acquisition 432

Goodwill impairment ( 1,228 )

Impact due to change in foreign exchange rates ( 5,514 )

Goodwill at December 31, 2021 523,949

Goodwill as a result of the Kappa acquisition 216,295

Goodwill as a result of the Bergstrom acquisition 31,209

Impact due to change in foreign exchange rates ( 1,944 )

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Customer relationships and lists 10 - 20

Trademarks & trade names 2 - 17

Trademarks and trade names 2 - 17

Developed technology 5 - 12

Regulatory registration costs 5 - 10

Patents & trade secrets 15 - 17

Patents and trade secrets 15 - 17

Intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

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and the level of maintenance expenditures required to obtain the expected future cash flows from the asset and their related impact on the asset’s useful life.

If events or circumstances indicate that the life of an

intangible asset has changed, it could result in higher future amortization charges or recognition of an impairment loss.

If events or circumstances indicate that the life of an intangible asset has changed, it could result in higher future amortization charges or recognition of an impairment loss.

For the year ended December 31, 2022, there were no triggering events which required intangible asset impairment reviews.

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Use of Estimates

Management of the Company is required to make certain estimates and assumptions during the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America.

Management is required to make certain estimates and assumptions during the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America.

These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and revenues and expenses during the reporting period.

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The money market and rabbi trust funds are valued using level one inputs, as defined by ASC 820, "Fair Value Measurement."

The Company also has derivative financial instruments, consisting of a cross-currency swap and an interest rate swap, which are included in either derivative asset or derivative liability, in the consolidated balance sheets (see Note 20, "Derivative Instruments and Hedging Activities").

The Company also has derivative financial instruments, consisting of a cross-currency swap and an interest rate swap, which are included in derivative assets and derivative liabilities, in the consolidated balance sheets (see Note 20, Derivative Instruments and Hedging Activities).

The fair values of these derivative instruments are determined based on Level 2 inputs, using significant inputs that are observable either directly or indirectly, including interest rate curves and implied volatilities.

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Research and Development

Research and development costs are expensed as incurred.

Research and development costs are associated directly with the Company's efforts to develop, design, and enhance its products, services, technologies, or processes.

Such costs are expensed as incurred.

Net Earnings Per Common Share

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The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation-Stock Compensation,” which requires all share-based payments, including grants of stock options, to be recognized in the income statement as an operating expense, based on their fair values.

The Company estimates the fair value of each option award on the date of grant using a Black-Scholes based option-pricing model.

The Company estimates the fair value of each option award on the date of grant using either the Black-Scholes model or the Binomial model, whichever is deemed to be most appropriate.

Estimates of and assumptions about forfeiture rates, terms, volatility, interest rates and dividend yields are used to calculate stock-based compensation.

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Long-lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset.

If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset, which is generally based on discounted cash flows.

For the year ended December 31, 2019, we incurred impairment charges of $ 1,026 in connection with a restructuring in the HNH segment.

Derivative Instruments and Hedging Activities

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The Company does not enter into derivative financial instruments for trading or speculative purposes.

On May 28, 2019, the Company entered into a pay-fixed, receive-floating interest rate swap with a notional amount of $ 108,569 and a maturity date of June 27, 2023.

The Company's risk management objective and strategy with respect to the interest rate swap is to protect the Company against adverse fluctuations in interest rates by reducing its exposure to variability in cash flows relating to interest payments on a portion of its outstanding debt.

The Company is meeting its objective since changes in the cash flows of the interest rate swap are expected to exactly offset the changes in the cash flows attributable to fluctuations in the contractually specified interest rate on the interest payments associated with the Credit Agreement.

At the same time, the Company also entered into a cross-currency swap to manage foreign exchange risk related to the Company's net investment in Chemogas.

This derivative has a notional amount of $ 108,569 , an effective date of May 28, 2019, and a maturity date of June 27, 2023.

The derivative instruments are with the above single counterparty and are subject to a contractual agreement that provides for the net settlement of all contracts through a single payment in a single currency in the event of default on or termination of any one contract.

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As of December 31, 2022, we assessed the hedging relationships and determined them to be highly effective.

As such, the net change in fair values of the interest rate swap, that qualifies as a cash flow hedge, was recorded in accumulated other comprehensive income/(loss) and is subsequently reclassified

into interest expense as interest payments are made on our debt.

As such, the net change in fair values of the interest rate swap, that qualifies as a cash flow hedge, was recorded in accumulated other comprehensive income/(loss) and is subsequently reclassified into interest expense as interest payments are made on our debt.

For the cross-currency swap, the amounts that have not yet been recognized in earnings remained in the cumulative translation adjustment section of accumulated other comprehensive income until the hedged net investment is sold or liquidated in accordance with paragraphs 815-35-35-5A, "Derivatives and Hedging - Net Investment Hedges", and 830-30-40-1 through 40-1A, "Foreign Currency Matters - Derecognition".

Refer to Note 20, Derivative Instruments and Hedging Activities, for detailed information about our derivative financial instruments.

New Accounting Pronouncements

Recently Adopted Accounting Standards

Recently Adopted Accounting Pronouncements

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 new guidance provides optional expedients and exceptions for applying GAAP 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.

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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 this new Standard in 2021.

The Standard did not have a significant impact on the Company's consolidated financial statements and disclosures.

In December 2022, the FASB issued ASU 2022-06, "Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848." The amendments in this Update defer the sunset date of Topic 848 from December 31, 2022 to December 31, 2024 as the UK Financial Conduct Authority ("FCA") announced that the intended cessation date would be June 30, 2023, which is beyond the current sunset date of Topic 848.

The Company adopted the Standard Update in 2021.

Due to the discontinuation of LIBOR and under the relief provided by Topic 848, during the third quarter of 2022, the Company modified its existing interest rate swap and replaced LIBOR with 1-month CME Term SOFR (see Note 20, Derivative Instruments and Hedging Activities).

The modification of the agreement 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):

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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 Standard Update is for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

Early adoption is permitted.

The Standard Update 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 contained in this ASU 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.

This ASU became effective 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 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”, 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.

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.

NOTE 2 – SIGNIFICANT ACQUISITIONS AND DIVESTITURES

On December 13, 2019, the Company completed the acquisition of Zumbro.

The Company made payments of $ 52,403 on the acquisition date, amounting to $ 47,058 to the former shareholders and $ 5,345 to Zumbro's lenders to pay Zumbro debt.

Considering the cash acquired of $ 686 , net payments made to the former shareholders were $ 46,372 .

In May 2020, the Company received an adjustment for working capital acquired of $ 561 .

The goodwill of $ 18,505 arising from the acquisition consists largely of expected synergies, including the combined entities' experience and technical problem-solving capabilities, and acquired workforce.

The goodwill is assigned to Human Nutrition & Health ("HNH") and $ 4,723 is deductible for income taxes.

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 – SIGNIFICANT ACQUISITIONS

Cardinal Associates Inc.

("Bergstrom")

On August 30, 2022, the Company's wholly-owned subsidiary Albion Laboratories, Inc.

("Albion") entered into a Stock Purchase Agreement, and closed on such transaction with Cardinal Associates Inc.

("Cardinal"), a corporation organized under the laws of the State of Washington, pursuant to which Albion acquired 100 % of the voting equity interests of Cardinal and its Bergstrom Nutrition business (collectively, "Bergstrom").

Bergstrom Nutrition is a leading science-based manufacturer of MSM, based in Vancouver, Washington.

MSM is a widely used nutritional ingredient with strong scientific evidence supporting its benefits for joint health, sports nutrition, skin and beauty, healthy aging, and pet health.

The addition of OptiMSM ® , Bergstrom Nutrition's MSM brand, to the Company's portfolio within the Human Nutrition and Health and Animal Nutrition and Health segments provides a synergistic scientific advantage in Balchem's key strategic therapeutic focus areas such as longevity and performance and is a strong fit with Balchem's specialty, science-backed mineral products.

The Company made payments of $ 70,892 for the acquisition, amounting to $ 70,686 to the former shareholders or on behalf of the former shareholders and $ 206 to pay off Bergstrom's bank debt.

Net of cash acquired of $ 773 , total payments made to the former shareholders or on behalf of the former shareholders of Bergstrom were $ 69,913 .

The acquisition was primarily financed through the 2022 Credit Agreement (see Note 8, Revolving Loan).

In connection with this transaction, the former shareholders of Bergstrom have an opportunity to receive an additional payment in 2024 if certain financial performance targets and other metrics are met, and therefore the Company recorded a contingent consideration liability, which was valued at $ 11,400 as of December 31, 2022.

As a result, total payments related to the transaction are expected to be $ 82,292 , comprised of the upfront cash consideration of $ 70,892 and the fair value of the earn-out payment of $ 11,400 .

The goodwill of $ 31,209 that arose on the acquisition date consists largely of expected synergies, including the combined entities' experience and technical problem-solving capabilities, and acquired workforce.

80 % of the goodwill is assigned to the Human Nutrition and Health business segment and 20 % of the goodwill is assigned to the Animal Nutrition and Health business segment.

For tax purposes, a joint election under 338(h)(10) was made to treat the stock acquisition as a deemed asset acquisition, therefore generating tax amortizable goodwill.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed:

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Inventories 3,972

Prepaid & other current assets 521

Property, plant and equipment 2,243

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Developed technology 4,600

Trade name 2,300

Other non-current assets 10

Accounts payable & accrued expenses ( 1,651 )

Trademarks 2,300

Other assets 197

Accounts payable ( 699 )

Other current liabilities ( 462 )

Bank debt ( 206 )

Lease liabilities ( 871 )

Debt ( 5,345 )

Deferred income taxes ( 3,740 )

Goodwill 31,209

Amount paid to shareholders 46,497

Zumbro debt paid on purchase date 5,345

Total amount paid on acquisition date $ 51,842

The estimated valuation of the fair value of tangible and intangible assets acquired and liabilities assumed are based on management's estimates and assumptions that are subject to change.

In preparing our fair value estimates of the intangible assets and certain tangible assets acquired, management, among other things, consulted an independent advisor.

Valuation methods utilized included cost and market approaches for property, plant and equipment, excess earnings method for customer relationships and the relief from royalty method for other intangible assets.

Customer relationships are amortized over a 15-year period utilizing an accelerated method based on the estimated average customer attrition rate.

Trade name and developed technology are amortized over 10 years and 12 years, respectively, utilizing the straight-line method as the consumption pattern of the related economic benefits cannot be reliably determined.

The Company is indemnified for tax liabilities related to periods prior to the acquisition date.

Indemnified tax liabilities will create an indemnification asset (receivable).

An indemnification asset balance has not been established.

On May 27, 2019, the Company acquired 100 percent of the outstanding common shares of Chemogas.

The Company made payments of approximately € 99,503 (translated to $ 111,324 ) on the acquisition date, amounting to approximately € 88,579 (translated to $ 99,102 ) to the former shareholders and approximately € 10,924 (translated to $ 12,222 ) to Chemogas' lender to pay Chemogas bank debt.

Considering the cash acquired of € 3,943 (translated to $ 4,412 ), net payments made to the former shareholders were € 84,636 (translated to $ 94,690 ).

Total consideration on acquisition date 78,521

Increase to contingent consideration liability 3,565

Total expected consideration 82,086

To pay off bank debt 206

Total expected payments $ 82,292

The estimated fair value of tangible and intangible assets acquired and liabilities assumed is based on management’s estimates and assumptions, which are subject to change.

In preparing our preliminary fair value estimates of the intangible assets and certain tangible assets acquired, management, among other things, consulted an independent advisor.

Valuation methods utilized include net realizable value for inventory, multi-period excess earnings method for customer relationships, the relief from royalty method for other intangible assets, and a scenario-based approach for the contingent consideration.

The Company made certain measurement period adjustments based on changes in facts and circumstances as of the acquisition date, which resulted in an increase in the value of intangible assets of $ 3,300 and a decrease in property, plant and equipment and goodwill of $ 457 and $ 2,851 , respectively.

The purchase price and related allocation of assets acquired and liabilities assumed is preliminary pending final working capital true-up negotiations with the sellers.

Customer relationships are amortized over a 15-year period utilizing a percentage of excess earnings over economic life method.

The corporate trademark and product trademarks are amortized over 2 years and 10 years, respectively, and developed technology is amortized over 12 years, utilizing the straight-line method as the consumption pattern of the related economic benefits cannot be reliably determined.

Transaction and integration costs related to the Bergstrom acquisition are included in general and administrative expenses and were $ 1,039 for the year ended December 31, 2022.

There were no such amounts related to this acquisition for years ended December 31, 2021 and 2020.

Kechu BidCo AS and Its Subsidiary Companies ("Kappa")

On June 21, 2022, Balchem Corporation and its wholly-owned subsidiary, Balchem B.V., completed the acquisition of Kechu BidCo AS and its subsidiary companies, including Kappa Bioscience AS, a leading science-based manufacturer of specialty vitamin K2 for the human nutrition industry, headquartered in Oslo, Norway (all acquired companies collectively referred to as “Kappa”).

Kappa manufactures specialty vitamin K2, a fast-growing specialty vitamin that plays a crucial role in the human body for bone health, heart health and immunity.

Primarily, vitamin K2 supports the transport and distribution of calcium in the body.

Vitamin K2 is important at all life stages, from pregnancy and early life to healthy aging.

The acquisition strengthens the Company's scientific and technical expertise, geographic reach, and marketplace leadership, which should ultimately lead to accelerated growth for the Company's portfolios within the Human Nutrition and Health segment.

The Company made payments of approximately kr 3,305,653 ("kr" indicates the Norwegian krone), amounting to approximately kr 3,001,981 to the former shareholders and approximately kr 303,672 to Kappa's lenders to pay off all Kappa bank debt.

Net of cash acquired of kr 63,064 , total payments to the former shareholders were kr 2,938,917 .

Net of gains on foreign currency forward contracts of $ 512 (see Note 20, Derivative Instruments and Hedging Activities), these payments translated to approximately $ 333,112 , amounting to approximately $ 302,464 paid to the former shareholders and approximately $ 30,648 to Kappa's lenders.

Net of cash acquired of $ 6,365 , total payments made to the former shareholders of Kappa were approximately $ 296,099 .

The acquisition was primarily financed through the 2018 Credit Agreement (see Note 8, Revolving Loan).

In connection with this transaction, the former shareholders of Kappa have an opportunity to receive an additional payment in 2024 if certain financial performance targets and other metrics are met.

There was no contingent consideration liability recorded as of December 31, 2022.

The goodwill of $ 216,295 that arose on the acquisition date consists largely of expected synergies, including the combined entities' experience and technical problem-solving capabilities, and acquired workforce.

The goodwill is assigned to the Specialty Products segment and is not tax deductible for income tax purposes.

The goodwill is assigned to the Human Nutrition and Health business segment and is not deductible for income tax purposes.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed.

The transactions were completed in Norwegian kroner ("NOK") and the amounts were translated to U.S.

dollars ("USD") using the foreign currency exchange rate as of June 21, 2022.

Cash and cash equivalents $ 6,365

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Property, plant and equipment 9,854

Right of use assets 3,349

Customer relationships 88,813

Developed technology 15,643

Trade name 1,119

Trademarks 5,046

Other assets 2,399

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Bank debt ( 30,648 )

Lease liabilities ( 3,349 )

Other liabilities ( 4,373 )

Pension obligation (net) ( 594 )

Deferred income taxes ( 12,856 )

Deferred income taxes, net ( 24,716 )

Goodwill 216,295

Amount paid to shareholders 99,102

Chemogas bank debt paid on purchase date 12,222

Total amount paid on acquisition date $ 111,324

The valuation of the fair value of tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions.

In preparing our fair value estimates of the intangible assets and certain tangible assets acquired, management, among other things, consulted an independent advisor.

Customer relationships are amortized over a 20 -year period utilizing an accelerated method based on the estimated average customer attrition rate.

Trade name and developed technology are amortized over 2 years and 10 years, respectively, utilizing the straight-line method as the consumption pattern of the related economic benefits cannot be reliably determined.

The Company is indemnified for tax liabilities related to periods prior to the acquisition date.

Indemnified tax liabilities will create an indemnification asset (receivable).

An indemnification asset balance has not been established.

In connection with Chemogas and Zumbro acquisitions, the Company incurred transaction and integration costs of $ 26 , $ 1,480 , and $ 1,947 for the years ended December 31, 2021, 2020 and 2019, respectively.

Total transaction and integration costs related to recent acquisitions, including the Chemogas and Zumbro acquisitions described above, are recorded in general and administrative expenses.

These costs amounted to $ 448 , $ 2,011 , and $ 2,273 for the years ended December 31, 2021, 2020 and 2019, respectively.

On September 6, 2019, the Company sold an insignificant portion of its business.

As a result of the transaction, the Company recorded a gain on sale, which was immaterial to the consolidated financial statements and included in general and administrative

Operating results for the portion of the business sold were insignificant relative to the Company’s consolidated financial results for year ended December 31, 2019.

Total consideration on acquisition date 307,013

Decrease to contingent consideration liability ( 4,037 )

Net gain on foreign currency exchange forward contracts ( 512 )

Total expected consideration 302,464

Kappa bank debt paid on acquisition date 30,648

Total expected payments $ 333,112

The estimated fair value of tangible and intangible assets acquired and liabilities assumed is based on management’s estimates and assumptions, which are subject to change.

In preparing our preliminary fair value estimates of the intangible assets and certain tangible assets acquired, management, among other things, consulted an independent advisor.

The Company made certain measurement period adjustments based on changes in facts and circumstances as of the acquisition date, which resulted in a decrease in the value of intangible assets, contingent consideration, and deferred income tax liabilities of $ 28,264 , $ 20,250 , and $ 4,411 , respectively, and an increase in goodwill of $ 3,704 .

The purchase price and related allocation of assets acquired and liabilities assumed is preliminary pending management's final review of deferred tax liabilities related to certain non-deductible assets.

Customer relationships are amortized over a 15-year period utilizing a percentage of excess earnings over economic life method.

Transaction and integration costs related to the Kappa acquisition are included in general and administrative expenses and was $ 1,731 for year ended December 31, 2022.

There were no such amounts related to this acquisition for year ended December 31, 2021 and 2020.

The following selected unaudited pro forma information presents the consolidated results of operations as if the business combinations in 2022 had occurred as of January 1, 2021.

Twelve Months ended December 31,

Net Sales Net Earnings

Kappa & Bergstrom actual results included in the Company's consolidated income statement in 2022 $ 22,158 $ ( 5,359 )

2022 Supplemental pro forma combined financial $ 982,021 $ 110,181

2021 Supplemental pro forma combined financial $ 859,252 $ 90,672

The above selected unaudited pro forma information includes the following acquisition-related adjustments:

(1) additional amortization of intangible assets and depreciation of fixed assets;

(2) adjustments related to the fair value of the acquired inventory, (3) adjustments to interest expense on borrowings at rates in effect during the related period, factoring in estimated payments based on free cash flow, and (4) other one-time adjustments.

The pro forma information presented does not purport to be indicative of the results that actually would have been attained if these acquisitions had occurred at the beginning of the periods presented and is not intended to be a projection of future results.

NOTE 3 - STOCKHOLDERS’ EQUITY

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(v) certain annual limits on the number of shares and amount of cash that may be granted;

(vii) for dividends or dividend equivalents otherwise payable on an unvested award to accrue and be paid only at such time as the vesting conditions applicable to the underlying award have been satisfied;

(vii) for dividends or dividend equivalents otherwise payable on an unvested award to accrue and be paid only at such time as the vesting conditions applicable to the underlying award have been

(vii) for certain discretionary compensation recovery if the Company is required to prepare an accounting restatement of its financial statements due to the Company’s material noncompliance with any financial reporting requirements under the securities laws;

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Under the Restricted Stock Grant Agreements, certain shares of the Common Stock have been granted, ranging from 70 shares to 54,000 shares, to its non-employee directors and certain employees, subject to time-based vesting requirements.

The Company also has performance share (“PS”) awards, which provide the recipients the right to receive a certain number of shares of the Common Stock in the future, subject to an (1) EBITDA performance hurdle, where vesting is dependent upon the Company achieving a certain EBITDA percentage growth over the performance period, and (2) relative total shareholder return (“TSR”) where vesting is dependent upon the Company’s TSR performance over the performance period (typically three years ) relative to a comparator group consisting of the Russell 2000 index constituents.

The fair value of each option award issued under the Company’s stock plans is estimated on the date of grant using a Black-Scholes based option-pricing model that uses the assumptions noted in the following table.

The Company also has performance share (“PS”) awards, which provide the recipients the right to receive a certain number of shares of the Common Stock in the future, subject to an (1) EBITDA performance hurdle, where vesting is dependent upon the Company achieving a certain EBITDA percentage growth over the performance period, and (2) relative total shareholder return (“TSR”) market condition where vesting is dependent upon the Company’s TSR performance over the performance period (typically three years ) relative to a comparator group consisting of the Russell 2000 index constituents.

The fair value of each option award issued under the Company’s stock plans is estimated on the date of grant using either the Black-Scholes model or the Binomial model, whichever is deemed to be most appropriate.

For the years ended December 31, 2022, 2021, and 2020, the fair value of each option grant uses the assumptions noted in the following table.

Expected volatilities are based on historical volatility of the Company’s stock.

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The Performance Shares will cliff vest 100 % at the end of the third year following the grant in accordance with the performance metrics set forth.

Compensation expense for stock options and stock awards is recognized on a straight-line basis over the vesting period, generally three 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.

Compensation expense for stock options and stock awards is recognized on a straight-line basis over the vesting period, generally three to five years for stock options, three years for employee restricted stock awards, three years for employee performance share awards, and three years for non-employee director restricted stock awards.

A summary of stock option plan activity for 2022, 2021, and 2020 for all plans is as follows:

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Since the inception of the program in June 1999, a total of 3,070,548 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, $ 7,873 of previously acquired treasury stock has been offset against additional paid-in capital and common stock in the consolidated balance sheet as of December 31, 2020.

Corresponding adjustments to balances previously reflected as treasury stock of $ 7,873 and $ 18,069 for the years ended December 31, 2020 and 2019 were made to the consolidated statements of stockholders’ equity and prior references to “Treasury shares purchased” were updated to “Repurchases of common stock”, accordingly.

The Company’s prior presentation of reflecting treasury stock separately within stockholders’ equity has been adjusted to conform to the presentation adopted in 2021 as prescribed by the State of Maryland, where the Company is incorporated.

In connection therewith, adjustments to balances previously reflected as treasury stock of $ 7,873 and $ 18,069 for the years ended December 31, 2020 and 2019 were made to the 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.

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NOTE 6 - INTANGIBLE ASSETS

The Company had goodwill in the amount of $ 523,949 and $ 529,463 as of December 31, 2021 and 2020, respectively, subject to the provisions of ASC 350, “Intangibles-Goodwill and Other.” The decrease in goodwill is due to foreign exchange translation adjustments.

The Company had goodwill in the amount of $ 769,509 and $ 523,949 as of December 31, 2022 and 2021, respectively, subject to the provisions of ASC 350, “Intangibles-Goodwill and Other.” The increase in goodwill is the result of the acquisitions of Kappa and Bergstrom, partially offset by foreign exchange translation adjustments.

As of December 31, 2022 and 2021, the Company had identifiable intangible assets as follows:

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Amortization Gross

Customer relationships & lists 10 - 20

Customer relationships and lists 10 - 20

$ 357,131 $ 190,576 $ 240,059 $ 173,489

Trademarks & trade names 2 - 17

Trademarks and trade names 2 - 17

50,058 33,416 43,116 28,985

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The Company recognized a loss of $ 559 , $ 557 , and $ 575 for the years ended December 31, 2022, 2021, and 2020, respectively, relating to its portion of the joint venture’s expenses in other expense.

The Company made capital contributions to the investment totaling $ 355 , $ 85 , and $ 366 for the years ended December 31, 2022, 2021, and 2020 respectively.

The carrying value of the joint venture at December 31, 2022 and 2021 was $ 4,295 and $ 4,499 , respectively, and is recorded in other assets.

NOTE 8 – REVOLVING LOAN

On June 27, 2018, the Company and a bank syndicate entered into 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”).

On June 27, 2018, the Company and a bank syndicate entered into a credit agreement (the "2018 Credit Agreement"), which provided for revolving loans up to $ 500,000 , due on June 27, 2023.

During the second quarter of 2022, the Company borrowed $ 345,000 under the 2018 Credit Agreement to fund the Kappa acquisition (see Note 2,Significant Acquisitions).

On July 27, 2022, the Company entered into an Amended and Restated Credit Agreement (the "2022 Credit Agreement") with certain lenders in the form of a senior secured revolving credit facility, due on July 27, 2027.

The 2022 Credit Agreement allows for up to $ 550,000 of borrowing.

The loans may be used for working capital, letters of credit, and other corporate purposes and may be drawn upon at the Company’s discretion.

The 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.

On May 23, 2019, the Company drew down $ 108,569 to fund the Chemogas acquisition.

In connection with these additional borrowings, the Company entered into an interest rate swap to protect against adverse fluctuations in interest rates (see Note 20, "Derivative Instruments and Hedging Activities").

On December 13, 2019, the Company drew down $ 45,000 to fund the Zumbro acquisition.

As of December 31, 2021, the total balance outstanding on the

Credit Agreement amounted to $ 108,569 .

The Company used initial proceeds from the 2022 Credit Agreement to repay the outstanding balance of $ 433,569 due in June 2023 under the 2018 Credit Agreement.

During the third quarter of 2022, the Company borrowed another $ 70,000 to fund the Bergstrom acquisition (see Note 2, Significant Acquisitions).

As of December 31, 2022, the total balance outstanding on the 2022 Credit Agreement amounted to $ 440,569 .

As of December 31, 2021, the total balance outstanding on the 2018 Credit Agreement amounted to $ 108,569 .

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.

In connection with entering into the Amended and Restated Credit Agreement, the Company also modified its existing interest rate swap under the relief provided for in ASC 848, "Reference Rate Reform" (see Note 20 Derivative Instruments and Hedging Activities).

Amounts outstanding under the 2022 Credit Agreement are subject to an interest rate equal to a fluctuating rate as defined by the 2022 Credit Agreement plus an applicable rate.

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Costs associated with the issuance of the revolving loans are capitalized and amortized on a straight-line basis over the term of the 2022 Credit Agreement.

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 $ 421 and $ 703 at December 31, 2021 and 2020, respectively, and are included in other assets on the consolidated balance sheets.

Amortization expense pertaining to these costs totaled $ 282 for each of the years ended December 31, 2021, 2020, and 2019, and is included in interest expense in the accompanying consolidated statements of earnings.

Capitalized costs net of accumulated amortization totaled $ 1,317 and $ 421 at December 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 $ 335 , $ 282 , and $ 282 for the years ended December 31, 2022, 2021, and 2020, respectively, and are included in "Interest expense" in the accompanying condensed consolidated statements of earnings.

The 2022 Credit Agreement contains quarterly covenants requiring the consolidated leverage ratio to be less than a certain maximum ratio and the consolidated interest coverage ratio to exceed a certain minimum ratio.

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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 has some share-based payment awards that have non-forfeitable dividend rights.

These awards are restricted shares and they participate on a one -for-one basis with holders of Common Stock.

These awards have an immaterial impact as participating securities with regard to the calculation using the two-class method for determining earnings per share.

NOTE 10 - INCOME TAXES

The Company’s effective tax rate for 2022, 2021 and 2020 was 21.2 %, 23.3 % , and 20.5 %, respectively.

The increase from 2020 to 2021 is primarily due to a reduction in certain tax credits, lower tax benefits from stock-based compensation, and higher enacted state tax rates.

The decrease from 2021 to 2022 is primarily due to an increase in certain tax credits and deductions and certain lower state taxes.

On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act, and on December 31, 2020, Congress passed an additional round of COVID relief legislation as part of the Bipartisan-Bicameral Omnibus COVID Relief Deal.

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In addition, Balchem will continue to evaluate and analyze the impact of the U.S.

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.

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.

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Stock Options ( 676 ) ( 924 ) ( 1,529 )

GILTI — — 2,507

FDII ( 1,778 ) ( 1,540 ) ( 1,400 )

Patent Box Decree (related to prior years) — — ( 1,948 )

Foreign Tax Credits — — ( 1,125 )

Foreign rate differential 2,066 1,188 413

Other ( 1,179 ) 1,700 ( 326 )

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Lease liabilities 5,439 1,807

Currency and interest rate swap 649 2,831

Foreign currency and interest rate swaps — 649

Research and development 4,134 —

Other 3,717 3,657

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Prepaid expenses ( 462 ) ( 733 )

Foreign currency and interest rate swaps ( 1,456 ) —

Right of use assets ( 5,324 ) ( 1,769 )

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The state NOL carryforwards will expire between 2026 and 2035.

The Company believes that the benefit from the state NOL carryforwards will be realized, therefore a valuation allowance is not required to be established on these assets.

The Company also acquired an insignificant amount of NOL carryforwards with the acquisition of Chemogas.

The Company considers the undistributed earnings of certain non-U.S.

subsidiaries to be indefinitely reinvested outside of the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and specific plans for reinvestment of those subsidiary earnings.

The Company projects that foreign earnings will be utilized offshore for working capital and future foreign growth.

The determination of the unrecognized deferred tax liability on those undistributed earnings is not practicable due to the Company's legal entity structure and the complexity of U.S.

and local country tax laws.

If Balchem decides to repatriate the undistributed foreign earnings, the income tax effects will need to be recognized in the period the Company changes its assertion on indefinite reinvestment.

The Company believes that the benefit from the state NOL carryforwards will not be realized, therefore a valuation allowance has been established in the amount of $ 22 .

The Company also acquired an insignificant amount of NOL carryforwards with the acquisition of Chemogas Holding NV, a privately held specialty gases company headquartered in Grimbergen, Belgium ("Chemogas").

Provisions of ASC 740-10 clarify whether or not to recognize assets or liabilities for tax positions taken that may be challenged by a tax authority.

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The Company recognizes both interest and penalties as part of the income tax provision.

During the years ended December 31, 2021, 2020 and 2019, these amounted to approximate ly $ 262 , $ 232 and $ 132 , respectively.

During the year ended December 31, 2022, these amounts were reduced by $ 371 .

During the years ended December 31, 2021 and 2020, total interest and penalties amounted to approximate ly $ 262 and $ 232 , respectively.

As of December 31, 2022 and 2021, accrued interest and penalties were $ 1,735 and $ 2,106 , respectivel y.

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NOTE 11 - SEGMENT INFORMATION

The Company currently reports three reportable segments:

Balchem Corporation reports three reportable segments:

Human Nutrition and Health, Animal Nutrition and Health, and Specialty Products.

Previously, the Company's four reportable segments were:

Human Nutrition and Health, Animal Nutrition and Health, Specialty Products, and Industrial Products.

However, effective in the first quarter of 2020, in order to align with the Company's strategic focus on health and nutrition, allocation of resources, and evaluation of operating performance, and given the 2019 reduction in portfolio scale of Industrial Products, the Company revised its reporting segment structure to three reportable segments stated above.

These reportable segments are strategic businesses that offer products and services to different markets.

This realignment has been retrospectively applied.

Sales and production of products outside of our reportable segments and other minor business activities are included in "Other and Unallocated" and applied retroactively to 2019.

There were no changes to the Consolidated Financial Statements as a result of the change to the reportable segments.

The Company expects that the new reportable segment structure will provide investors greater understanding of and alignment with the Company’s strategic focus.

In order to ensure appropriate transparency and visibility into the financial performance of the Company, sufficient detail will continue to be provided relative to Other and Unallocated, including material contributions from oil and gas and other industrial market activities.

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.

Sales and production of products outside of our reportable segments and other minor business activities are included in "Other and Unallocated."

Human Nutrition and Health

The Human Nutrition and Health ("HNH") segment provides human grade choline nutrients and mineral amino acid chelated products through this segment for nutrition and health applications.

Choline is recognized to play a key role in the development and structural integrity of brain cell membranes in infants, processing dietary fat, reproductive development and neural functions, such as memory and muscle function.

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.

The Company's mineral amino acid chelates, specialized mineral salts, and mineral complexes are used as raw materials for inclusion in premier human nutrition products;

proprietary technologies have been combined to create an organic molecule in a form the body can readily assimilate.

Sales growth for human nutrition applications is reliant on differentiation from lower-cost competitive products through scientific data, intellectual property and customers' appreciation of brand value.

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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.

With its strong manufacturing capabilities in customized spray dried and emulsified powders, extrusion and agglomeration, blended lipid systems, liquid flavor delivery systems, juice and dairy bases, chocolate systems, ice cream bases and variegates, the Company is a one-stop solutions provider for beverage and dairy product development needs.

Additionally, this segment provides microencapsulation solutions to a variety of applications in food, pharmaceutical and nutritional ingredients to enhance performance of nutritional fortification, processing, mixing, and packaging applications and shelf-life.

Major product applications are baked goods, refrigerated and frozen dough systems, processed meats, seasoning blends, confections, sports and protein bars,

dietary plans, and nutritional supplements.

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, ANH’s microencapsulated products boost health and milk production, delivering nutrient supplements that are biologically available, providing required nutritional levels.

Through the Kappa and Bergstrom acquisitions, respectively, this segment recently began manufacturing specialty vitamin K2, which is a fast-growing specialty vitamin that plays a crucial role in the human body for bone health, heart health and immunity, and MSM, which is a widely used nutritional ingredient that provides benefits for joint health, sports nutrition, skin and beauty, and healthy aging.

Animal Nutrition and Health

The Company’s Animal Nutrition and Health ("ANH") segment provides nutritional products derived from its microencapsulation and chelation technologies in addition to the essential nutrient choline chloride.

For ruminant animals, the Company’s microencapsulated products boost health and milk production by delivering nutrient supplements that are biologically available, providing required nutritional levels.

The Company’s proprietary chelation technology provides enhanced nutrient absorption for various species of production and companion animals and is marketed for use in animal feed throughout the world.

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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.

Through the Bergstrom acquisition, this segment recently began manufacturing MSM, which is a widely used nutritional ingredient that provides benefits for pet health.

Sales of value-added encapsulated products are highly dependent on overall industry economics as well as the Company's ability to leverage the results of university and field research on the animal health and production benefits of our products.

Management believes that success in the commodity-oriented 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 global marketplace.

Management believes that success in the commodity-oriented choline chloride marketplace is highly dependent on the Company’s ability to maintain its strong reputation for excellent product quality and customer service.

The Company continues to drive production efficiencies in order to maintain its competitive-cost position to effectively compete in a competitive global marketplace.

Specialty Products

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.

The Company re-packages and distributes a number of performance gases and chemicals for various uses by its customers, notably ethylene oxide, propylene oxide, and ammonia.

Ethylene oxide is sold as a sterilant gas, primarily for use in the health care industry.

It is used to sterilize a wide range of medical devices because of its versatility and effectiveness in treating hard or soft surfaces, composites, metals, tubing and different types of plastics without negatively impacting the performance of the device being sterilized.

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.

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.

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 packaging, which are 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.

Propylene oxide is marketed and sold as a fumigant to aid in the control of insects and microbiological spoilage;

and to reduce bacterial and mold contamination in certain shelled and processed nut meats, processed spices, cacao beans, cocoa powder, raisins, figs and prunes, and for various chemical synthesis applications, such as increasing paint durability and manufacturing specialty starches and textile coatings Ammonia is used primarily as a refrigerant, and also for heat treatment of metals and various chemical synthesis applications, and is distributed in reusable and recyclable drum and cylinder packaging approved for use in the countries these products are shipped to.

The Company’s performance gases and chemicals are distributed worldwide in specially designed, reusable and recyclable drum and cylinder packaging, to assure compliance with safety, quality and environmental standards as outlined by the applicable regulatory agencies in the countries our products are shipped to.

The Company’s inventory of these specially built drums and cylinders, along with its five filling facilities, represents a significant capital investment.

The Company also sells single use canisters for use in sterilizing re-usable devices typically processed in autoclave units in hospitals.

The Company’s micronutrient agricultural nutrition business sells chelated minerals primarily to producers of high value crops.

The Company has a unique and patented two-step approach to solving mineral deficiency in plants to optimize health, yield and shelf-life.

5 unchanged sentences

Business Segment Assets

Human Nutrition & Health $ 727,131 $ 717,232

Animal Nutrition & Health 158,971 157,454

Human Nutrition and Health $ 1,170,238 $ 727,131

Animal Nutrition and Health 175,972 158,971

Specialty Products 177,187 184,628

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2022 2021 2020

Human Nutrition & Health $ 442,733 $ 400,330 $ 347,433

Animal Nutrition & Health 226,776 192,191 177,557

Human Nutrition and Health $ 527,131 $ 442,733 $ 400,330

Animal Nutrition and Health 262,297 226,776 192,191

Specialty Products 131,438 117,020 103,566

4 unchanged sentences

2022 2021 2020

Human Nutrition & Health $ 76,031 $ 61,397 $ 48,429

Animal Nutrition & Health 26,179 29,979 25,868

Human Nutrition and Health $ 82,125 $ 76,031 $ 61,397

Animal Nutrition and Health 36,056 26,179 29,979

Specialty Products 32,789 30,020 26,801

5 unchanged sentences

2022 2021 2020

Human Nutrition & Health $ 30,012 $ 32,117 $ 30,558

Animal Nutrition & Health 7,414 7,187 6,552

Human Nutrition and Health $ 33,728 $ 30,012 $ 32,117

Animal Nutrition and Health 6,685 7,414 7,187

Specialty Products 7,507 8,332 9,699

4 unchanged sentences

2022 2021 2020

Human Nutrition & Health $ 23,714 $ 22,758 $ 18,159

Animal Nutrition & Health 8,100 6,039 3,921

Human Nutrition and Health $ 33,668 $ 23,714 $ 22,758

Animal Nutrition and Health 10,809 8,100 6,039

Specialty Products 4,004 3,804 2,860

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Unallocated corporate expenses consist of:

(i) Transaction and integration costs, ERP implementation costs, and unallocated legal fees totaling $ 1,264 , $ 2,410 and $ 3,436 for years ended December 31, 2021, 2020 and 2019, respectively, and (ii) Unallocated amortization expense of $ 2,792 , $ 1,888 , and $ 833 for years ended December 31, 2021, 2020, and 2019, 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.

(i) Transaction and integration costs, ERP implementation costs, and unallocated legal fees totaling $ 3,581 , $ 1,264 and $ 2,410 for years ended December 31, 2022 , 2021 and 2020, respectively, and (ii) Unallocated amortization expense of $ 2,951 , $ 2,510 , and $ 1,606 for years ended December 31, 2022 , 2021 , and 2020, respectively, related to an intangible asset in connection with a company-wide ERP system implementation.

NOTE 12 - REVENUE

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Total Revenue $ 942,358 $ 799,023 $ 703,644

The following table presents revenues disaggregated by geography, based on the billing addresses of customers:

The following table presents revenues disaggregated by geography, based on customers' delivery addresses:

2022 2021 2020

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Interest $ 11,879 $ 4,547 $ 4,666

Non-cash financing activities:

Non-cash financing and investing activities:

2022 2021 2020

Dividends payable $ 23,129 $ 20,886 $ 18,941

Contingent consideration liability $ 11,872 $ — $ —

NOTE 14 – ACCUMULATED OTHER COMPREHENSIVE INCOME

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Net change in postretirement benefit plan (see Note 15 for further information)

Prior service (credit)/cost and (gain)/loss arising during the period ( 4 ) ( 503 ) 199

Amortization of prior service credit/(cost) 74 74 74

Amortization of gain/(loss) ( 21 ) ( 50 ) ( 46 )

Prior service credit and gain arising during the period ( 41 ) ( 4 ) ( 503 )

Amortization of prior service credit 9 74 74

Amortization of loss ( 2 ) ( 21 ) ( 50 )

Total before tax ( 34 ) 49 ( 479 )

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(1) One-time adjustment to the postretirement account.

Included in "Net foreign currency translation adjustment" were $ 4,766 of gain, $ 4,882 of loss, and $ 262 of loss, related to a net investment hedge, net of taxes of $ 1,527 , $ 1,579 , and $ 70 , for the years ended December 31, 2021, 2020, and 2019, respectively.

Included in "Net foreign currency translation adjustment" were gains/(losses) of $ 3,851 , $ 4,766 , and $( 4,882 ), related to a net investment hedge, net of taxes of $( 1,236 ), $( 1,527 ), and $ 1,579 , for the years ended December 31, 2022, 2021, and 2020, respectively.

See Note 20, Derivative Instruments and Hedging Activities.

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All amounts contributed to the plan are deposited into a trust fund administered by independent trustees.

The Company provided for profit sharing contributions and matching 401(k) savings plan contributions of $ 1,459 and $ 4,142 in 2021, $ 1,022 and $ 3,751 in 2020, and $ 592 and $ 3,451 in 2019, respectively.

On June 21, 2022, the Company completed the acquisition of Kappa, which sponsors one defined contribution plan for its employees.

In addition, on August 30, 2022, the Company completed the acquisition of Bergstrom, which sponsors one defined contribution plan for its employees.

The plan allows participants to make pretax and after tax contributions.

Bergstrom matches certain percentages of those contributions.The Company provided for profit sharing contributions and matching 401(k) savings plan contributions of $ 1,151 and $ 4,363 in 2022, $ 1,459 and $ 4,142 in 2021, and $ 1,022 and $ 3,751 in 2020, respectively.

Postretirement Medical Plans

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Benefit obligation at beginning of year $ 1,293 $ 1,374

Initial adoption of new plan — —

Service cost with interest to end of year 79 87

2 unchanged sentences

Benefits paid ( 69 ) ( 426 )

Actuarial gain 207 208

Actuarial loss 109 207

Benefit obligation at end of year $ 1,465 $ 1,293

1 unchanged sentence

Fair value of plan assets at beginning of year $ — $ —

Employer (reimbursement)/contributions 398 4

Employer contributions 42 398

Participant contributions 27 28

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Years 2028-2032 622

Assumptions to determine benefit obligations:

Discount rate 4.40 % 2.10 %

Assumptions to determine net cost:

2022 2021 2020

Discount rate 2.10 % 1.75 % 2.50 %

Defined Benefit Pension Plans

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Pension Fund 36-6044243 Critical & Declining as of 1/1/22 Critical & Declining as of 1/1/21 Implemented $ 939 $ 816 $ 774 No 7/12/2025

On May 27, 2019, the Company acquired Chemogas, which has an unfunded defined benefit pension plan.

The Company provides an unfunded defined benefit pension plan for employees working in Belgium.

The plan provides for the payment of a lump sum at retirement or payments in case of death of the covered employees.

12 unchanged sentences

Actual return on plan assets 26 76

Employer (reimbursement)/contributions 73 57

Employer contributions 94 73

Participant contributions 27 24

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2022 2021 2020

Discount rate 0.75 % 1.00 % N/A

Expected return on assets 3.25 % 1.00 % N/A

Discount rate 1.00 % 0.75 % 1.00 %

Expected return on assets 3.25 % 3.25 % 1.00 %

Deferred Compensation Plan

On June 1, 2018, the Company established an unfunded, non-qualified deferred compensation plan maintained for the benefit of a select group of management or highly compensated employees.

The Company maintains an unfunded, non-qualified deferred compensation plan for the benefit of a select group of management or highly compensated employees.

Assets of the plan are held in a rabbi trust, which are subject to additional risk of loss in the event of bankruptcy or insolvency of the Company.

2 unchanged sentences

NOTE 16 - COMMITMENTS AND CONTINGENCIES

Aggregate future minimum rental payments required under non-cancelable operating and finance leases at December 31, 2021 are as follows:

Thereafter 2,428

Total minimum lease payments $ 11,124

The Company is obligated to make rental payments under non-cancelable operating and finance leases.

Aggregate future minimum rental payments required under these leases at December 31, 2022 are disclosed in Note 19, Leases.

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.

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.

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 contamination at the site and, in February 2022, received a Special Notice Letter from EPA for the performance of a focused remedial investigation/feasibility study at the site with regard to the presence of certain contaminants, including 1,4 dioxane,.

The Company has engaged experts to study site conditions and hydrogeology in connection with preparing its response to the notices.

The Company is indemnified by the sellers under its May 2001 asset purchase agreement covering its acquisition of the Verona, Missouri facility for potential liabilities associated with the Superfund site, and one of the sellers, in turn, has the benefit of certain contractual indemnification by the prior owner that executed the above-described Superfund remedy.

In February 2022, BCP Ingredients, Inc.

(“BCP”), the Company subsidiary that operates the site, received Special Notice Letter from EPA for the performance of a focused remedial investigation/feasibility study (“RI/FS”) at the site with regard to the presence of certain contaminants, including 1,4 dioxane.

BCP, along with the prior owner of the Verona facility submitted a joint response to the notice in November 2022.

From time to time, the Company is a party to various litigation, claims and assessments.

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The money market and rabbi trust funds are valued using level one inputs, as defined by ASC 820, “Fair Value Measurement.”

The contingent consideration liabilities included on the balance sheet at of December 31, 2022 amount to $ 11,400 and were valued using level three inputs, as defined by ASC 820, "Fair Value Measurement".

The Company also has derivative financial instruments, consisting of a cross-currency swap and an interest rate swap, which are included in derivative assets or derivative liabilities, in the consolidated balance sheets (see Note 20, Derivative Instruments and Hedging Activities).

The derivative liability related to the cross-currency swap was $ 500 and $ 6,793 at December 31, 2021 and 2020, respectively.

The derivative liability related to the interest rate swap was $ 2,158 and $ 4,865 at December 31, 2021 and 2020, respectively.

The derivative assets related to the cross-currency swap and the interest rate swap were $ 4,587 and $ 1,406 at December 31, 2022, respectively.

The derivative liabilities related to the cross-currency swap and the interest rate swap were $ 500 and $ 2,158 at December 31, 2021, respectively.

NOTE 18 – RELATED PARTY TRANSACTIONS

The Company provides services on a contractual agreement to St.

The Company provides services under a contractual agreement to St.

Gabriel CC Company, LLC.

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As such, the sale of these raw materials to St.

Gabriel CC Company, LLC in this scenario lacks economic substance and therefore the Company does not include them in net sales within the consolidated statements of earnings.

The services the Company provided amounted to $ 3,637 , $ 3,396 , and $ 3,883 , respectively, for the years ended December 31, 2021, 2020, and 2019.

Gabriel CC Company, LLC in this scenario lacks economic substance and therefore the Company does not include them in net sales within the condensed consolidated statements of earnings.

Payments for the services the Company provided amounted to $ 4,213 , $ 3,637 , and $ 3,396 , respectively, for the years ended December 31, 2022, 2021, and 2020.

The raw materials purchased and subsequently sold amounted to $ 39,853 , $ 27,915 , and $ 13,495 , respectively, for the years ended December 31, 2022, 2021, and 2020.

2 unchanged sentences

At December 31, 2022 and 2021, the Company had receivables of $ 8,820 and $ 10,504 , respectively, recorded in accounts receivable from St.

Gabriel CC Company, LLC for services rendered and raw materials sold and payables of $ 7,552 and $ 2,239 , respectively, for finished goods received recorded in accounts payable in 2021 and 2020.

In addition, the Company had receivables in the amount of $ 164 and $ 72 related to non-contractual monies owed from St.

Gabriel CC Company, LLC, recorded in receivables as of December 31, 2021 and 2020.

Company had payables in the amount of $ 296 related to non-contractual monies owed to St.

Gabriel CC Company, LLC for services rendered and raw materials sold.

The Company also had payables of $ 5,224 and $ 7,552 , respectively, recorded in accounts payable for finished goods received from St.

Gabriel CC Company, LLC.

In addition, the Company had receivables in the amount of $ 164 related to non-contractual monies owed from St.

Gabriel CC Company, LLC, recorded in receivables as of December 31, 2021.

There were no such receivables as of December 31, 2022.

The Company had payables in the amount of $ 296 related to non-contractual monies owed to St.

Gabriel CC Company, LLC, recorded in accounts payable as of December 31, 2022 and 2021.

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As a result of electing the practical expedient within ASU 2016-02, variable lease payments are combined and recognized on the balance sheet in the event that those charges and any related increases are explicitly stated in the lease.

Such payments include common area maintenance charges, property taxes, and insurance charges and are recorded in the ROU asset and corresponding liability when the payments are stated in the lease with (a) fixed or in-substance fixed amounts, or (b) a variable payment based on an index or rate.

Such payments include common area maintenance charges, property taxes, and insurance charges and are recorded in the right of use asset and corresponding liability when the payments are stated in the lease with (a) fixed or in-substance fixed amounts, or (b) a variable payment based on an index or rate.

Due to the acquisitive nature of the Company and the potential for synergies upon integration of acquired entities, the Company determined that the reasonably certain criterion could not be met for any renewal periods beginning two years from December 31, 2022.

In addition, the Company has historically not been exercising purchase options with equipment leases as it does not make economic sense to buy the equipment.

Instead, the Company has historically replaced the equipment with a new lease.

In addition, the Company has historically not been exercising purchase options under the equipment leases as it does not make economic sense to buy the equipment.

Instead, the Company has historically replaced the equipment with new leases.

Therefore, the Company determined that the reasonably certain criterion could not be met as it relates to purchase options.

The Company has no residual value guarantees in lease transactions.

On June 22, 2022, the Company signed a ten-year real estate sublease for approximately 40,000 square feet of office space, which serves as the Company's new corporate headquarters and will also serve as a laboratory facility.

The sublease commenced in the fourth quarter of 2022 and the Company recognized a right of use asset and lease liability as of the commencement date in accordance with ASC 842, Lease Accounting.

The Company did not identify any embedded leases.

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(1) 1 - 2 years, 1.45 % (2) 3 - 4 years, 2.04 % (3) 5 - 9 years, 2.38 % and (4) 10 + years, 3.10 %.

In connection with the acquisition of Zumbro, the Company assumed a finance lease commitment for a warehouse, with an expiration date of March 31, 2033.

In connection with an acquisition in 2019, the Company assumed a finance lease commitment for a warehouse, with an expiration date of March 31, 2033.

The warehouse can be purchased at a pre-determined price beginning in 2023.

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Weighted-average remaining lease term - operating leases 5.63 years 4.21 years 4.15 years

Weighted-average remaining lease term - finance leases 11.41 years 12.25 years n/a

Weighted-average remaining lease term - finance leases 9.95 years 11.41 years 12.25 years

Weighted-average discount rate - operating leases 2.7 % 3.5 % 4.5 %

Weighted-average discount rate - finance leases 5.1 % 5.1 % n/a

Weighted-average discount rate - finance leases 5.0 % 5.1 % 5.1 %

Rent expense charged to operations under operating lease agreements for 2022, 2021, and 2020 aggregated approximately $ 4,478 , $ 3,143 , and $ 3,105 , respectively.

Aggregate future minimum rental payments required under non-cancelable operating and finance leases at December 31, 2022 are as follows:

Thereafter 6,880

Total minimum lease payments $ 24,567

NOTE 20 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company is exposed to market fluctuations in interest rates as well as variability in foreign exchange rates.

In May 2019, the Company entered into an interest rate swap (cash flow hedge) with the Swap Counterparty and a cross-currency swap (net investment hedge) with the Bank Counterparty.

In May 2019, the Company entered into an interest rate swap (cash flow hedge) with JP Morgan Chase, N.A.

(the "Swap Counterparty") and a cross-currency swap (net investment hedge) with JP Morgan Chase, N.A.

(the "Bank Counterparty").

The Company's primary objective for holding derivative financial instruments is to manage interest rate risk and foreign currency risk.

On May 28, 2019, the Company entered into a pay-fixed ( 2.05 %), receive-floating interest rate swap with a notional amount of $ 108,569 and a maturity date of June 27, 2023.

The receive-floating interest rate was based on the London Interbank Offered Rate ("LIBOR") in the original trade agreement.

Due to the discontinuation of LIBOR, in the third quarter of 2022, the Company modified its existing interest rate swap to reference 1-month CME Term SOFR (CME Group Benchmark Administration Limited as administrator of the forward-looking term Secured Overnight Financing Rate) in the amended trade terms.

This modification was made under the relief provided for in ASC 848, "Reference Rate Reform" and therefore the derivative continues to qualify for hedge accounting.

The net interest expense related to the interest rate swap contract were $ 2,144 and $ 1,593 for the year ended December 31, 2021 and 2020.

net interest income related to the interest rate swap contract was $ 40 for the year ended December 31, 2019.

The net interest income related to the interest rate swap contract was $ 400 for the year ended December 31, 2022.

The net interest expense related to the interest rate swap contract were $ 2,144 and $ 1,593 for the years ended December 31, 2021 and 2020, respectively.

These amounts were recorded in the consolidated statements of operations under interest expense, net.

3 unchanged sentences

The derivative instruments are with a single counterparty and are subject to a contractual agreement that provides for the net settlement of all contracts through a single payment in a single currency in the event of default on or termination of any one contract.

As such, the derivative instruments are categorized as a master netting arrangement and presented as a net derivative asset or derivative liability on the consolidated balance sheets.

As such, the derivative instruments are categorized as a master netting arrangement and presented as a net "Derivative asset" or "Derivative liability" on the condensed consolidated balance sheets.

As of December 31, 2022 and 2021, the fair value of the derivative instruments is presented as follows in the Company's consolidated balance sheets:

Derivative liabilities 2021 2020

Derivative assets (liabilities) 2022 2021

Interest rate swap $ 1,406 $ ( 2,158 )

Cross-currency swap 4,587 ( 500 )

Derivative liabilities $ 2,658 $ 11,658

Derivative assets (liabilities) $ 5,993 $ ( 2,658 )

On a quarterly basis, the Company assesses whether the hedging relationship related to the interest rate swap is highly effective at achieving offsetting changes in cash flow attributable to the risk being hedged based on the following factors:

6 unchanged sentences

As such, the net change in fair values of the derivative instruments was recorded in accumulated other comprehensive income.

Losses and gains on our hedging instruments are recognized in accumulated other comprehensive income (loss) and categorized as follows for the year ended December 31, 2021, 2020, and 2019:

Gains and losses on our hedging instruments are recognized in accumulated other comprehensive income (loss) and categorized as follows for the year ended December 31, 2022, 2021, and 2020:

Location within Statements of Comprehensive Income Year ended December 31

3 unchanged sentences

$ 6,547 $ 6,819 $ ( 7,167 )

On June 21, 2022, the Company completed the acquisition of Kappa (as defined in Note 2, Significant Acquisitions).

In the process of acquiring Kappa, the Company entered into four short-term foreign currency exchange forward contracts with JP Morgan Chase, N.A to manage fluctuations in foreign currency exchange rates related to the acquisition.

The Company did not designate these contracts as hedged transactions under the applicable sections of ASC Topic 815, "Derivatives and Hedging".

For the year ended December 31, 2022, the net gains on these forward contracts of $ 512 were recorded in other income or loss in the condensed consolidated statements of earnings.

As of December 31, 2022, the Company did not maintain any open foreign currency exchange forward contracts as all four contracts expired before June 30, 2022.

The following table summarizes the key terms of the four forward exchange contracts:

Date entered into Date expired on Balchem to sell Balchem to buy

June 15, 2022 June 21, 2022 USD 294,555 NOK 2,924,553

June 15, 2022 June 17, 2022 USD 6,436 EUR 6,180

June 15, 2022 June 21, 2022 USD 16,640 EUR 15,972

June 15, 2022 June 21, 2022 EUR 15,972 NOK 165,210

NOTE 21 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

19 unchanged sentences

Balance - December 31, 2019 $ 2,080 $ 4,281

Additions charged (credited) to costs and expenses 1,776 7,069

Additions charged to costs and expenses 140 5,964

Adjustments/deductions (a)

1 unchanged sentence

Balance - December 31, 2020 2,092 2,782

Additions charged (credited) to costs and expenses 140 5,964

Additions charged to costs and expenses 180 7,312

Adjustments/deductions (a)

1 unchanged sentence

Balance - December 31, 2021 928 1,425

Additions charged (credited) to costs and expenses 180 7,312

Additions charged to costs and expenses 401 6,786

Adjustments/deductions (a)

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data