What changed in this filing

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Item 1. Financial Statements

2023-07-28 compared with 2023-04-28 · 229 added, 165 removed, 654 unchanged (38% of the section changed)

3 unchanged sentences

(Dollars in thousands, except share and per share data)

Assets March 31, 2023 (unaudited) December 31, 2022

Assets June 30, 2023 (unaudited) December 31, 2022

Current assets:

Cash and cash equivalents $ 66,856 $ 66,560

Accounts receivable, net of allowance for doubtful accounts of $ 1,260 and $ 1,226 at March 31, 2023 and December 31, 2022 respectively

Accounts receivable, net of allowance for doubtful accounts of $ 1,354 and $ 1,226 at

June 30, 2023 and December 31, 2022 respectively

125,109 131,578

1 unchanged sentence

Prepaid expenses 8,829 4,903

Prepaid income taxes 3,550 —

Derivative assets — 5,993

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Authorized 120,000,000 shares;

32,225,627 and 32,152,787 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

32,239,202 and

32,152,787 shares issued and outstanding at June 30, 2023 and December 31, 2022,

Additional paid-in capital 137,254 128,806

8 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Net sales $ 231,252 $ 236,693 $ 463,792 $ 465,560

9 unchanged sentences

Interest expense, net 5,163 960 10,728 1,505

Other (income) expense, net ( 276 ) 161

Other income, net ( 727 ) ( 298 ) ( 1,003 ) ( 137 )

4,436 662 9,725 1,368

Earnings before income tax expense 38,400 39,258 67,519 76,888

8 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Net earnings $ 30,110 $ 29,782 $ 52,820 $ 58,712

8 unchanged sentences

Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the Three Months Ended March 31, 2023 and 2022

For the Three and Six Months Ended June 30, 2023 and 2022

(Dollars in thousands, except share and per share data)

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Balance - March 31, 2023 973,416 837,197 1,859 32,225,627 2,150 132,210

Net earnings 30,110 30,110 — — — —

Other comprehensive loss ( 1,668 ) — ( 1,668 ) — — —

Repurchases of common stock ( 75 ) — — ( 567 ) — ( 75 )

Shares and options issued under stock plans 5,120 — — 14,142 1 5,119

Balance - June 30, 2023 $ 1,006,903 $ 867,307 $ 191 32,239,202 $ 2,151 $ 137,254

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

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Balance - March 31, 2022 873,682 761,058 ( 6,289 ) 32,116,069 2,142 116,771

Net earnings 29,782 29,782 — — — —

Other comprehensive loss ( 6,135 ) — ( 6,135 ) — — —

Repurchases of common stock ( 600 ) — — ( 4,976 ) — ( 600 )

Shares and options issued under stock plans 4,641 — — 9,500 1 4,640

Balance - June 30, 2022 $ 901,370 $ 790,840 $ ( 12,424 ) 32,120,593 $ 2,143 $ 120,811

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(Dollars in thousands)

Three Months Ended

Six Months Ended

Cash flows from operating activities:

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Provision for doubtful accounts 133 380

Unrealized (gains) loss on foreign currency transactions and deferred compensation ( 349 ) 37

Gain on disposal of assets ( 968 ) ( 29 )

Unrealized (gain) loss on foreign currency transactions and deferred compensation ( 1,010 ) 188

Asset impairment and loss on disposal of assets 5,203 226

Change in fair value of contingent consideration liability ( 6,400 ) —

11 unchanged sentences

Proceeds from sale of assets 1,881 197

Proceeds from settlement of net investment hedge 2,740 —

Investment in affiliates — ( 150 )

Net cash used in investing activities ( 13,672 ) ( 316,412 )

2 unchanged sentences

Principal payments on revolving loan ( 48,000 ) ( 40,000 )

Principal payments on acquired debt — ( 30,648 )

Principal payments on finance lease ( 110 ) ( 83 )

2 unchanged sentences

Purchase of common stock ( 3,924 ) ( 35,199 )

Net cash used in financing activities ( 33,318 ) ( 34,845 )

Net cash (used in) provided by financing activities ( 58,077 ) 239,694

Effect of exchange rate changes on cash 2,216 ( 5,599 )

Decrease in cash and cash equivalents ( 6,361 ) ( 38,773 )

Increase (decrease) in cash and cash equivalents 296 ( 27,056 )

Cash and cash equivalents beginning of period 66,560 103,239

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GAAP” or “GAAP”) governing interim financial statements and the instructions to Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934 (the "Exchange Act") and therefore do not include some information and notes necessary to conform to annual reporting requirements.

The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the operating results expected for the full year or any interim period.

The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the operating results expected for the full year or any interim period.

Recently Adopted Accounting Pronouncements

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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 the second quarter of 2024 if certain financial performance targets and other metrics are met, and therefore, the Company recorded a contingent consideration liability, which was valued at $ 13,000 as of March 31, 2023.

As a result, total payments related to the transaction are expected to be $ 76,233 , comprised of the upfront cash consideration of $ 70,892 , a working capital adjustment of $ 341 , and the fair value of the earn-out payment of $ 5,000 .

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Total consideration on acquisition date and working capital adjustment 78,862

Increase to contingent consideration liability 5,165

Net decrease to contingent consideration liability ( 2,835 )

Total expected consideration 76,027

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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 $ 290 for the three months ended March 31, 2023.

There was no such amount related to this acquisition for three months ended March 31, 2022.

Transaction and integration costs related to the Bergstrom acquisition are included in general and administrative expenses and were $( 7,769 ) and $( 5,880 ) for the three and six months ended June 30, 2023, respectively.

These amounts included favorable adjustments to transaction costs of $ 8,000 and $ 6,400 for the three and six months ended June 30, 2023, respectively.

Transaction and integration costs related to the Bergstrom acquisition were $ 75 for the three and six months ended June 30, 2022.

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

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

There was no contingent consideration liability recorded as of March 31, 2023.

There was no contingent consideration liability recorded as of June 30, 2023.

The goodwill of $ 216,383 that arose on the acquisition date consists largely of expected synergies, including the combined entities' experience and technical problem-solving capabilities, and acquired workforce.

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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 estimated fair value of tangible and intangible assets acquired and liabilities assumed is based on management’s estimates and assumptions.

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

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

The purchase price and related allocation of assets acquired and liabilities assumed is preliminary pending management's final review of fair value calculations and 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 were $ 275 for the three months ended March 31, 2023.

There was no such amount related to this acquisition for the three months ended March 31, 2022.

Transaction and integration costs related to the Kappa acquisition are included in general and administrative expenses and were $ 204 and $ 479 for the three and six months ended June 30, 2023, respectively, and $ 451 for both the three and six months ended June 30, 2022.

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

Three Months Ended March 31,

Net Sales Net (Loss)/Earnings

Kappa & Bergstrom actual results included in the Company's consolidated income statement in three months ended March 31, 2023 $ 14,130 $ ( 3,909 )

Three Months Ended June 30, Six Months Ended June 30,

Net Sales Net Earnings Net Sales Net (Loss)/Earnings

Kappa & Bergstrom actual results included in the Company's consolidated income statement in three and six months ended June 30, 2023 $ 13,615 $ 1,094 $ 27,745 $ ( 1,215 )

2023 Supplemental pro forma combined financial $ 231,252 $ 31,890 $ 463,792 $ 57,218

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Stock-Based Compensation

The Company’s results for the three months ended March 31, 2023 and 2022 reflected the following stock-based compensation cost, and such compensation cost had the following effects on net earnings:

Increase/(Decrease) for the

Three Months Ended March 31,

The Company’s results for the three and six months ended June 30, 2023 and 2022 reflected the following stock-based compensation cost, and such compensation cost had the following effects on net earnings:

Increase/(Decrease) for the Increase/(Decrease) for the

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

Cost of sales $ 545 $ 277 $ 959 $ 676

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As allowed by ASC 718, the Company has made an estimate of expected forfeitures based on its historical experience and is recognizing compensation cost only for those stock-based compensation awards expected to vest.

The Company’s stock incentive plans allow for the granting of stock awards and options to purchase common stock.

Both incentive stock options and nonqualified stock options can be awarded under the plans.

The Company's omnibus incentive plan allows for the granting of stock awards and options to purchase common stock.

Both incentive stock options and nonqualified stock options can be awarded under the plan.

No option will be exercisable for longer than ten years after the date of grant.

The Company has approved and reserved a number of shares to be issued upon exercise of the outstanding options that is adequate to cover all exercises.

As of March 31, 2023, the plans had 224,755 shares available for future awards.

As of June 30, 2023, the plan had 1,034,630 shares available for future awards, which included an additional 800,000 shares approved by the Company's shareholders during its annual meeting of shareholders held on June 22, 2023.

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.

Certain awards provide for accelerated vesting if there is a change in control (as defined in the plans) or other qualifying events.

Option activity for the three months ended March 31, 2023 and 2022 is summarized below:

For the Three Months Ended March 31, 2023 Shares (000s) Weighted

Option activity for the six months ended June 30, 2023 and 2022 is summarized below:

For the Six Months Ended June 30, 2023 Shares (000s) Weighted

Price Aggregate

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Forfeited ( 11 ) 131.79

Outstanding as of March 31, 2023 1,120 $ 104.04 $ 29,327 6.5

Exercisable as of March 31, 2023 743 $ 88.07 $ 28,781 5.2

For the Three Months Ended March 31, 2022 Shares (000s) Weighted

Canceled ( 1 ) 138.07

Outstanding as of June 30, 2023 1,096 $ 103.96 $ 35,430 6.2

Exercisable as of June 30, 2023 728 $ 87.95 $ 34,170 4.8

For the Six Months Ended June 30, 2022 Shares (000s) Weighted

Price Aggregate

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Forfeited ( 6 ) 120.36

Outstanding as of March 31, 2022 968 $ 94.01 $ 41,483 6.6

Exercisable as of March 31, 2022 676 $ 81.06 $ 37,594 5.6

Outstanding as of June 30, 2022 952 $ 93.99 $ 34,907 6.4

Exercisable as of June 30, 2022 666 $ 81.11 $ 32,409 5.4

ASC 718 requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award.

The weighted average fair values of the stock options granted under the Plans were calculated using either the Black-Scholes model or the Binomial model, whichever was deemed to be most appropriate.

For the three months ended March 31, 2023, the fair value of each option grant was estimated on the date of the grant using the following weighted average assumptions:

For the six months ended June 30, 2023, the fair value of each option grant was estimated on the date of the grant using the following weighted average assumptions:

dividend yields of 0.5 %;

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and expected lives of 4.8 years.

For three months ended March 31, 2022, the fair value of each option grant was estimated on the date of the grant using the following weighted average assumptions:

For the six months ended June 30, 2022, the fair value of each option grant was estimated on the date of the grant using the following weighted average assumptions:

dividend yields of 0.5 %;

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Treasury zero-coupon issues with a remaining term equal to the expected life.

Other information pertaining to option activity during the three months ended March 31, 2023 and 2022 is as follows:

Other information pertaining to option activity during the three and six months ended June 30, 2023 and 2022 is as follows:

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Weighted-average fair value of options granted $ — $ — $ 40.91 $ 40.26

Total intrinsic value of stock options exercised ($000s) $ 597 $ 495 $ 2,181 $ 1,149

Non-vested restricted stock activity for the three months ended March 31, 2023 and 2022 is summarized below:

Three Months Ended March 31,

Non-vested restricted stock activity for the six months ended June 30, 2023 and 2022 is summarized below:

Six Months Ended June 30,

Shares (000s) Weighted

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Forfeited ( 4 ) 128.06 ( 3 ) 116.73

Non-vested balance as of March 31 128 $ 131.41 122 $ 121.56

Non-vested performance share activity for the three months ended March 31, 2023 and 2022 is summarized below:

Three Months Ended March 31,

Non-vested balance as of June 30 125 $ 131.76 120 $ 122.03

Non-vested performance share activity for the six months ended June 30, 2023 and 2022 is summarized below:

Six Months Ended June 30,

Shares (000s) Weighted

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Forfeited — — ( 3 ) 84.09

Non-vested balance as of March 31 76 $ 135.25 70 $ 127.69

Non-vested balance as of June 30 76 $ 135.25 70 $ 127.69

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

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volatilities of 32 % and 32 %;

and initial TSR’s of 4.2 % and - 15.7 %, in each case for the three months ended March 31, 2023 and 2022, respectively.

and initial TSR’s of 4.2 % and - 15.7 %, in each case for the six months ended June 30, 2023 and 2022, respectively.

Expense is estimated based on the number of shares expected to vest, assuming the requisite service period is rendered and the probable outcome of the performance condition is achieved.

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

As of March 31, 2023 and 2022, there were $ 30,507 and $ 23,131 , respectively, of total unrecognized compensation costs related to non-vested share-based compensation arrangements granted under the plans.

As of March 31, 2023, the unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately 2.3 years.

As of June 30, 2023 and 2022, there were $ 26,244 and $ 19,988 , respectively, of total unrecognized compensation costs related to non-vested share-based compensation arrangements granted under the plans.

As of June 30, 2023, the unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately 2.1 years.

The Company estimates that share-based compensation expense for the year ended December 31, 2023 will be approximately $ 16,000 .

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The Company intends to acquire shares from time to time at prevailing market prices if and to the extent it deems it is advisable to do so based on its assessment of corporate cash flow, market conditions and other factors.

The Company also repurchases shares from employees in connection with settlement of transactions under the Company's equity incentive plans.

During the three months ended March 31, 2023 and 2022, the Company purchased 28,109 and 245,685 shares, respectively, from open market purchases and from employees on a net-settlement basis to provide cash to employees to cover the associated employee payroll taxes.

Open market repurchases of common stock could be made pursuant to trading plan established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, which would permit common stock to be repurchased at a time that the Company might otherwise be precluded from doing so under insider trading laws or self-imposed trading restrictions.

The Company also repurchases (withholds) shares from employees in connection with the tax settlement of vested shares and/or exercised stock options under the Company's omnibus incentive plan.

Such repurchases of shares from employees are funded with existing cash on hand.

During the six months ended June 30, 2023, the Company purchased 28,676 shares from employees in connection with the tax settlement of vested shares and/or exercised stock options under the Company's omnibus incentive plan.

During the six months ended June 30, 2022, the Company purchased 250,661 shares from open market purchases and from employees in connection with the tax settlement of vested shares and/or exercised stock options under the Company's omnibus incentive plan.

These shares were purchased at an average cost of $ 136.85 and $ 140.42 , respectively.

NOTE 4 – INVENTORIES

Inventories, net of reserves at March 31, 2023 and December 31, 2022 consisted of the following:

March 31, 2023 December 31, 2022

Inventories, net of reserves at June 30, 2023 and December 31, 2022 consisted of the following:

June 30, 2023 December 31, 2022

Raw materials $ 39,780 $ 44,477

3 unchanged sentences

NOTE 5 – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at March 31, 2023 and December 31, 2022 are summarized as follows:

March 31, 2023 December 31, 2022

Property, plant and equipment at June 30, 2023 and December 31, 2022 are summarized as follows:

June 30, 2023 December 31, 2022

Land $ 11,901 $ 11,415

5 unchanged sentences

Property, plant and equipment, net $ 271,471 $ 271,355

In accordance with Topic 360, the Company reviews long-lived assets for impairment on an annual basis and also whenever events indicate that the carrying amount of the assets may not be fully recoverable.

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

Included in “General and administrative expenses” were $ 6,146 of restructuring-related impairment and asset disposal charges for the three and six months ended June 30, 2023.

There were no such charges for the three and six months ended June 30, 2022.

NOTE 6 - INTANGIBLE ASSETS

The Company had goodwill in the amount of $ 774,361 and $ 769,509 as of March 31, 2023 and December 31, 2022, respectively, subject to the provisions of ASC 350, “Intangibles-Goodwill and Other.” The increase in goodwill is due to foreign currency translation adjustments and an insignificant amount of additional consideration paid related to finalization of the Bergstrom acquired working capital.

Identifiable intangible assets with finite lives at March 31, 2023 and December 31, 2022 are summarized as follows:

(in years) Gross Carrying Amount at March 31, 2023 Accumulated Amortization at March 31, 2023 Gross Carrying Amount at December 31, 2022 Accumulated Amortization at December 31, 2022

The Company had goodwill in the amount of $ 773,913 and $ 769,509 as of June 30, 2023 and December 31, 2022, respectively, subject to the provisions of ASC 350, “Intangibles-Goodwill and Other.” The increase in goodwill is primarily due to foreign currency translation adjustments and an insignificant amount of additional consideration paid related to finalization of the Bergstrom acquired working capital.

Identifiable intangible assets with finite lives at June 30, 2023 and December 31, 2022 are summarized as follows:

(in years) Gross Carrying Amount at June 30, 2023 Accumulated Amortization at June 30, 2023 Gross Carrying Amount at December 31, 2022 Accumulated Amortization at December 31, 2022

Customer relationships & lists 10 - 20

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$ 476,730 $ 273,746 $ 472,703 $ 259,408

Amortization of identifiable intangible assets was $ 7,293 and $ 5,911 for the three months ended March 31, 2023 and 2022, respectively.

Amortization of identifiable intangible assets was approximately $ 6,892 and $ 14,185 for the three and six months ended June 30, 2023, respectively, and $ 5,850 and $ 11,761 for the three and six months ended June 30, 2022, respectively.

Assuming no change in the gross carrying value of identifiable intangible assets, estimated amortization expense is $ 13,876 for the remainder of 2023, $ 18,965 for 2024, $ 15,512 for 2025, $ 15,343 for 2026, $ 14,854 for 2027 and $ 14,457 for 2028.

At March 31, 2023 and 2022, there were no identifiable intangible assets with indefinite useful lives as defined by ASC 350.

At June 30, 2023 and December 31, 2022, there were no identifiable intangible assets with indefinite useful lives as defined by ASC 350.

Identifiable intangible assets are reflected in “Intangible assets with finite lives, net” in the Company’s condensed consolidated balance sheets.

There were no changes to the useful lives of intangible assets subject to amortization during the three months ended March 31, 2023 and 2022.

There were no changes to the useful lives of intangible assets subject to amortization during the six months ended June 30, 2023 and 2022.

NOTE 7 - EQUITY METHOD INVESTMENT

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The joint venture is accounted for under the equity method of accounting since the Company is not the primary beneficiary as the Company does not have the power to direct the activities of the joint venture that most significantly impact its economic performance.

The Company recognized a loss of $ 139 and $ 140 for the three months ended March 31, 2023 and 2022 , respectively, relating to its portion of the joint venture's expenses in other expense.

During the first quarter of 2023 and 2022, the Company made capital contributions to the investment totaling $ 56 and $ 58 , respectively.

The carrying value of the joint venture at March 31, 2023 and December 31, 2022 was $ 4,212 and $ 4,295 , respectively, and is recorded in "Other assets".

The Company recognized a loss of $ 139 and $ 278 for the three and six months ended June 30, 2023, respectively, and $ 140 and $ 280 for the three and six months ended June 30, 2022, respectively, relating to its portion of the joint venture's expenses in other expense.

The Company made capital contributions to the investment totaling $ 16 and $ 72 for the three and six months ended June 30, 2023, respectively, and $ 75 and $ 133 for the three and six months ended June 30, 2022.

The carrying value of the joint venture at June 30, 2023 and December 31, 2022 was $ 4,089 and $ 4,295 , respectively, and is recorded in "Other assets".

NOTE 8 – REVOLVING LOAN

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

As of March 31, 2023 and December 31, 2022, the total balance outstanding on the 2022 Credit Agreement amounted to $ 431,569 and $ 440,569 .

As of June 30, 2023 and December 31, 2022, the total balance outstanding on the 2022 Credit Agreement amounted to $ 405,569 and $ 440,569 .

There are no installment payments required on the revolving loans;

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

The applicable rate is based upon the Company’s consolidated net leverage ratio, as defined in the 2022 Credit Agreement, and the interest rate was 6.066 % at March 31, 2023.

The Company is also required to pay a commitment fee on the unused portion of the revolving loan, which is based on the Company’s consolidated net leverage ratio as defined in the 2022 Credit Agreement and ranges from 0.150 % to 0.225 % ( 0.175 % at March 31, 2023).

The unused portion of the revolving loan amounted to $ 118,431 at March 31, 2023.

The applicable rate is based upon the Company’s consolidated net leverage ratio, as defined in the 2022 Credit Agreement, and the interest rate was 6.330 % at June 30, 2023.

The unused portion of the revolving loan amounted to $ 144,431 at June 30, 2023.

The Company is also required to pay, as applicable, letter of credit fees, administrative agent fees, and other fees to the arrangers and lenders.

Costs associated with the issuance of the revolving loans are capitalized and amortized on a straight-line basis over the term of the 2022 Credit Agreement, which is not materially different than the effective interest method.

Capitalized costs net of accumulated amortization were $ 1,246 and $ 1,317 at March 31, 2023 and December 31, 2022, respectively, and are included in "Other Assets" on the condensed consolidated balance sheets.

Amortization expense pertaining to these costs totaled $ 71 for both the three months ended March 31, 2023 and 2022, and are included in "Interest expense, net" in the accompanying condensed consolidated statements of earnings.

Capitalized costs net of accumulated amortization were $ 1,174 and $ 1,317 at June 30, 2023 and December 31, 2022, respectively, and are included in "Other Assets" on the condensed consolidated balance sheets.

Amortization expense pertaining to these costs totaled $ 73 and $ 144 for the three and six months ended June 30, 2023, respectively, and $ 70 and $ 141 for the three and six months ended June 30, 2022, respectively, and are included in "Interest expense, net" 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.

At March 31, 2023, the Company was in compliance with these covenants.

At June 30, 2023, the Company was in compliance with these covenants.

Indebtedness under the Company’s loan agreements is secured by assets of the Company.

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The following presents a reconciliation of the net earnings and shares used in calculating basic and diluted net earnings per share:

Three Months Ended March 31,

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Net Earnings - Basic and Diluted $ 30,110 $ 29,782 $ 52,820 $ 58,712

1 unchanged sentence

Weighted Average Common Shares - Basic 32,110 31,999 32,094 32,020

Effect of Dilutive Securities – Stock Options, Restricted Stock,

and Performance Shares 337 434

Effect of Dilutive Securities – Stock Options, Restricted Stock, and Performance Shares 324 315 330 375

Weighted Average Common Shares - Diluted 32,434 32,314 32,424 32,395

1 unchanged sentence

Net Earnings Per Share - Diluted $ 0.93 $ 0.92 $ 1.63 $ 1.81

The number of anti-dilutive shares were 509,785 and 113,029 for the three months ended March 31, 2023 and 2022, respectively.

The number of anti-dilutive shares were 352,759 and 391,269 for the three and six months ended June 30, 2023, respectively, and 294,568 and 237,453 for the three and six months ended June 30, 2022, respectively .

Anti-dilutive shares could potentially dilute basic earnings per share in future periods and therefore, were not included in diluted earnings per share.

NOTE 10 – INCOME TAXES

The Company’s effective tax rate for the three months ended March 31, 2023 and 2022, was 22.0 % and 23.1 %, respectively.

The decrease was primarily due to higher tax benefits from stock based compensation, an increase in certain tax credits and certain lower state taxes.

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

Tax Cuts and Jobs Act that was enacted on December 22, 2017 and the additional guidance that has been issued, and may be issued, by the U.S.

Department of Treasury, the Securities and Exchange Commission ("SEC"), and/or the Financial Accounting Standards Board ("FASB") regarding this act.

The Company’s effective tax rate for the three months ended June 30, 2023 and 2022, was 21.6 % and 24.1 %, respectively, and 21.8 % and 23.6 % for the six months ended June 30, 2023 and 2022, respectively.

The decrease was primarily due to certain lower state taxes and higher tax benefits from stock-based compensation.

Income taxes are accounted for under the asset and liability method.

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The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company regularly reviews its deferred tax assets for recoverability

and would establish a valuation allowance if it believed that such assets may not be recovered, taking into consideration historical operating results, expectations of future earnings, changes in its operations and the expected timing of the reversals of existing temporary differences.

The Company regularly reviews its deferred tax assets for recoverability and would establish a valuation allowance if it believed that such assets may not be recovered, taking into consideration historical operating results, expectations of future earnings, changes in its operations and the expected timing of the reversals of existing temporary differences.

The Company accounts for uncertainty in income taxes utilizing ASC 740-10, "Income Taxes".

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and in various states and foreign countries.

As of March 31, 2023, in the major jurisdictions where the Company operates, it is generally no longer subject to income tax examinations by tax authorities for years before 2018.

The Company had approximately $ 5,815 of unrecognized tax benefits, which are included in "Other long-term obligations" on the Company’s condensed consolidated balance sheets, as of both March 31, 2023 and December 31, 2022.

As of June 30, 2023, in the major jurisdictions where the Company operates, it is generally no longer subject to income tax examinations by tax authorities for years before 2018.

The Company had approxim ately $ 4,586 and $ 5,815 of unrecognized tax benefits, which are included in "Other long-term obligations" on the Company’s condensed consolidated balance sheets, as of June 30, 2023 and December 31, 2022, respectively.

The Company includes interest expense or income as well as potential penalties on unrecognized tax positions as a component of "Income tax expense" in the condensed consolidated statements of earnings.

The total amounts of accrued interest and penalties related to uncertain tax positions at both March 31, 2023 and December 31, 2022 was approximately $ 1,735 and are included in "Other long-term obligations".

Total accrued interest and penalties related to uncertain tax positions at June 30, 2023 and December 31, 2022 was approximately $ 1,636 and $ 1,735 , respectively, and are included in "Other long-term obligations".

NOTE 11 – SEGMENT INFORMATION

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ANH also manufactures and supplies choline chloride, an essential nutrient for monogastric animal health, predominantly to the poultry, pet and swine industries.

Choline, which is manufactured and sold in both dry and aqueous forms, plays a vital role in the metabolism

Choline, which is manufactured and sold in both dry and aqueous forms, plays a vital role in the metabolism of fat.

In poultry, choline deficiency can result in reduced growth rates and perosis in young birds, while in swine production choline is a necessary and required component of gestating and lactating sow diets for both liver health and prevention of leg deformity.

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The segment information is summarized as follows:

Business Segment Assets March 31,

Business Segment Assets June 30,

2023 December 31,

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Total $ 1,619,231 $ 1,624,512

Business Segment Net Sales Three Months Ended March 31,

Business Segment Net Sales Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Human Nutrition and Health $ 135,669 $ 131,628 $ 268,322 $ 254,073

2 unchanged sentences

Other and Unallocated (2)

1,528 5,818 4,295 9,564

Total $ 231,252 $ 236,693 $ 463,792 $ 465,560

Business Segment Earnings Before Income Taxes Three Months Ended March 31,

Business Segment Earnings Before Income Taxes Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Human Nutrition and Health $ 27,499 $ 23,705 $ 45,934 $ 44,008

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Total $ 38,400 $ 39,258 $ 67,519 $ 76,888

Depreciation/Amortization Three Months Ended March 31,

Depreciation/Amortization Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Human Nutrition and Health $ 9,265 $ 7,392 $ 18,927 $ 14,747

2 unchanged sentences

Other and Unallocated (2)

229 974 770 1,954

Total $ 13,428 $ 11,933 $ 27,074 $ 23,861

Capital Expenditures Three Months Ended March 31,

Capital Expenditures Six Months Ended June 30,

Human Nutrition and Health $ 13,785 $ 11,006

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Unallocated corporate expenses consist of:

(i) Transaction and integration costs, ERP implementation costs, and unallocated legal fees totaling $ 565 and $ 304 for the three months ended March 31, 2023 and 2022, respectively, and (ii) Unallocated amortization expense of $ 312 and $ 738 for the three months ended March 31, 2023 and 2022, respectively, related to an intangible asset in connection with a company-wide ERP system implementation.

(i) Transaction and integration costs and unallocated legal fee s totaling $ 651 and $ 1,216 for th e three and six months ended June 30, 2023, respectively, and $ 872 and $ 1,176 for the three and six months ended June 30, 2022, respectively, and (ii) Unallocated amortization expense of $ 0 and $ 312 for the three and six months ended June 30, 2023, and $ 741 and $ 1,479 for the three and six months ended June 30, 2022, respectively, related to an intangible asset in connection with a company-wide ERP system implementation.

NOTE 12 – REVENUE

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Sales and usage-based taxes are excluded from revenues.

Three Months Ended March 31,

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Product Sales $ 219,567 $ 225,260 $ 442,740 $ 443,313

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

Three Months Ended March 31,

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

United States $ 171,450 $ 169,076 $ 338,334 $ 343,567

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NOTE 13 – SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid during the three months ended March 31, 2023 and 2022 for income taxes and interest is as follows:

Three Months Ended March 31,

Cash paid during the six months ended June 30, 2023 and 2022 for income taxes and interest is as follows:

Six Months Ended June 30,

Income taxes $ 20,471 $ 18,598

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The changes in accumulated other comprehensive (loss) income were as follows:

Three Months Ended March 31,

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Net foreign currency translation adjustment $ ( 1,116 ) $ ( 6,951 ) $ 8,308 $ ( 9,793 )

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Amortization of prior service cost — 2 — 4

Gain (loss) arising during the period and prior service credit 132 ( 32 )

Amortization of loss 2 — 4 —

Gain arising during the period and prior service credit — ( 9 ) 132 ( 41 )

Total before tax 2 ( 7 ) 136 ( 37 )

Tax — ( 27 ) ( 34 ) ( 24 )

Net of tax 2 ( 34 ) 102 ( 61 )

Total other comprehensive income (loss) $ ( 1,668 ) $ ( 6,135 ) $ 7,345 $ ( 7,431 )

Included in "Net foreign currency translation adjustment" was a loss of $ 1,021 related to a net investment hedge, which was net of tax benefit of $ 332 for the three months ended March 31, 2023.

Included in "Net foreign currency translation adjustment" was a gain of $ 1,123 related to a net investment hedge, which was net of tax expense of $ 333 for the three months ended March 31, 2022.

Included in "Net foreign currency translation adjustment" were losses of $ 434 and $ 1,455 related to a net investment hedge, which were net of tax benefit of $ 782 and $ 1,114 for the three and six months ended June 30, 2023, respectively.

Included in "Net foreign currency translation adjustment" were gains of $ 3,963 and $ 5,086 related to a net investment hedge, which were net of tax expense of $ 1,309 and $ 1,642 for the three and six months ended June 30, 2022, respectively.

The Company settled its derivative instruments on their maturity date of June 27, 2023.

See Note 20, Derivative Instruments and Hedging Activities .

Accumulated other comprehensive (loss) income at March 31, 2023 and December 31, 2022 consisted of the following:

Accumulated other comprehensive (loss) income at June 30, 2023 and December 31, 2022 consisted of the following:

Foreign currency

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Other comprehensive income (loss) 8,308 ( 1,065 ) 102 7,345

Balance March 31, 2023 $ 1,023 $ 554 $ 282 $ 1,859

Balance June 30, 2023 $ ( 93 ) $ — $ 284 $ 191

NOTE 15 – EMPLOYEE BENEFIT PLANS

Defined Contribution Plans

The Company sponsored two 401(k) savings plans for eligible employees, which were merged into one plan on January 1st, 2021.

The Company sponsored two 401(k) savings plans for eligible employees, which were merged into one plan on January 1, 2021.

The remaining plan allows participants to make pretax contributions and the Company matches certain percentages of those pretax contributions.

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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 was merged into the Company sponsored 401(k) savings plan on January 1st, 2023.

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

The Bergstrom plan was merged into the Company sponsored 401(k) savings plan on January 1, 2023.

Postretirement Medical Plans

The Company provides postretirement benefits in the form of two unfunded postretirement medical plans;

one that is under a collective bargaining agreement and covers eligible retired employees of the Verona facility and a plan for those named as executive officers in the Company’s proxy statement.

one that is under a collective bargaining agreement and covers eligible retired employees of the Verona facility and one for officers of the Company pursuant to the Balchem Corporation Officer Retiree Program.

Net periodic benefit costs for such retirement medical plans were as follows:

Three Months Ended March 31,

Six Months Ended June 30,

Service cost $ 54 $ 39

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Amortization of prior service cost — 4

Amortization of loss 4 —

Net periodic benefit cost $ 85 $ 56

T he amounts recorded for these obligations on the Company’s condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022 are $ 1,384 and $ 1,465 , respectively, and are included in "Other long-term obligations." These plans are unfunded and approved claims are paid from Company funds.

T he amounts recorded for these obligations on the Company’s condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022 are $ 1,419 and $ 1,465 , respectively, and are included in "Other long-term obligations." These plans are unfunded and approved claims are paid from Company funds.

Historical cash payments made under such plans have typically been less than $ 200 per year.

2 unchanged sentences

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

The amounts recorded for these obligations on the Company's condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022 were $ 395 and $ 393 , respectively, and were included in "Other long-term obligations".

The amounts recorded for these obligations on the Company's condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022 were $ 392 and $ 393 , respectively, and were included in "Other long-term obligations".

Net periodic benefit costs for such benefit pensions plans were as follows:

Three Months Ended March 31,

Six Months Ended June 30,

Service cost with interest to end of year $ 32 $ 29

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Deferred Compensation Plan

The Company provides an unfunded, nonquali fied deferred compensation plan maintained for the benefit of a select group of management or highly compensated employees.

The Company provides an unfunded, nonqualified deferred compensation plan maintained for the benefit of a select group of management or highly compensated employees.

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

The deferred compensation liability was $ 9,336 as of March 31, 2023, of which $ 9,320 was included in "Other long-term obligations" and $ 16 was included in "Accrued compensation and other benefits" on the Company's condensed consolidated balance sheets.

The deferred compensation liability was $ 9,634 as of June 30, 2023, of which $ 9,618 was included in "Other long-term obligations" and $ 16 was in cluded in "Accrued compensation and other benefits" on the Company's condensed consolidated balance sheets.

The deferred compensation liability was $ 8,543 as of December 31, 2022, of which $ 8,527 was included in "Other long-term obligations" and $ 16 was included in "Accrued compensation and other benefits" on the Company’s condensed consolidated balance sheets.

The related rabbi trust assets were $ 9,339 and $ 8,547 as of March 31, 2023 and December 31, 2022, respectively, and were included in "Other non-current assets" on the Company's condensed consolidated balance sheets.

The related rabbi trust assets were $ 9,635 and $ 8,547 as of June 30, 2023 and December 31, 2022, respectively, and were included in "Other non-current assets" on the Company's condensed consolidated balance sheets.

NOTE 16 – COMMITMENTS AND CONTINGENCIES

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

Aggregate future minimum rental payments required under these leases at March 31, 2023 are disclosed in Note 19, Leases .

Aggregate future minimum rental payments required under these leases at June 30, 2023 are disclosed in Note 19, Leases.

The Company’s Verona, Missouri facility, while held by a prior owner, was designated by the U.S.

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In February 2022, BCP Ingredients, Inc.

("BCP"), the Company's subsidiary that operates the site, received Special Notice Letter from the 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"), the Company's subsidiary that operates the site, received a Special Notice Letter from the 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.

1 unchanged sentence

Further, on January 18, 2023, BCP entered into an Amended AOC with the EPA whereby the parties agreed to the extension of certain timelines.

BCP is committed to ensuring continued compliance with the Amended AOC.

BCP has timely completed all requirements under the Amended AOC as of June 30, 2023.

In connection with the EPA’s inspection from June 2022, the Company believes that a loss in this matter is probable and reasonably estimable and has recorded a loss contingency in an amount that is not material to its financial performance or operations.

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

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The Company has a number of financial instruments, none of which are held for trading purposes.

The Company estimates that the fair value of all financial instruments at March 31, 2023 and December 31, 2022 does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying condensed consolidated balance sheets.

The Company estimates that the fair value of all financial instruments at June 30, 2023 and December 31, 2022 does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying condensed consolidated balance sheets.

The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies.

2 unchanged sentences

The Company’s financial instruments also include cash equivalents, accounts receivable, accounts payable, and accrued liabilities, which are carried at cost and approximate fair value due to the short-term maturity of these instruments.

Cash and cash equivalents at March 31, 2023 and December 31, 2022 includes $ 938 and $ 934 in money market funds, respectively.

Non-current assets at March 31, 2023 and December 31, 2022 includes $ 9,339 and $ 8,547 , respectively, of rabbi trust funds related to the Company's deferred compensation plan.

Cash and cash equivalents at June 30, 2023 and December 31, 2022 includes $ 31,421 and $ 934 in money market funds and other interest-bearing deposit accounts, respectively.

Non-current assets at June 30, 2023 and December 31, 2022 includes $ 9,635 and $ 8,547 , respectively, of rabbi trust funds related to the Company's deferred compensation plan.

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

The contingent consideration liabilities included on the balance sheet as of March 31, 2023 and December 31, 2022 amount to $ 13,000 and $ 11,400 , respectively, 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 Company's condensed 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.

The derivative assets related to the cross-currency swap and the interest rate swap were $ 3,234 and $ 730 at March 31, 2023, respectively.

The contingent consideration liabilities included on the balance sheet as of June 30, 2023 and December 31, 2022 amount to $ 5,000 and $ 11,400 , respectively, and were valued using level three inputs, as defined by ASC 820, "Fair Value Measurement".

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

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

The Company settled its cross-currency swap and interest rate swap on June 27, 2023 and had no other derivatives outstanding as of June 30, 2023.

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

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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 $ 1,172 and $ 975 for the three months ended March 31, 2023 and 2022, respectively.

The raw materials purchased and subsequently sold amounted to $ 10,013 and $ 9,311 for the three months ended March 31, 2023 and 2022, respectively.

Payments for the services the Company provided amounted to $ 1,028 and $ 2,200 for the three and six months ended June 30, 2023, respectively and $ 1,022 and $ 1,997 for the three and six months ended June 30, 2022, respectively.

The raw materials purchased and subsequently sold amounted to $ 9,782 and $ 19,795 for the three and six months ended June 30, 2023, respectively, and $ 10,910 and $ 20,221 for the three and six months ended June 30, 2022, respectively.

These services and raw materials are primarily recorded in cost of goods sold, net of the finished goods received from St.

Gabriel CC Company, LLC of $ 8,072 and $ 6,489 during the three months ended March 31, 2023 and 2022, respectively.

At March 31, 2023 and December 31, 2022, the Company had receivables of $ 11,209 and $ 8,820 , respectively, recorded in accounts receivable from St.

Gabriel CC Company, LLC o f $ 8,223 and $ 16,295 during t he three and six months ended June 30, 2023, respectively, and $ 8,233 and $ 14,722 for the three and six months ended June 30, 2022, respectively.

At June 30, 2023 and December 31, 2022, the Company had receivables of $ 6,615 and $ 8,820 , respectively, recorded in accounts receivable from St.

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

At March 31, 2023 and December 31, 2022, the Company had payables of $ 8,128 and $ 5,224 , respectively, recorded in accounts payable for finished goods received from St.

At June 30, 2023 and December 31, 2022, the Company had payables of $ 4,907 and $ 5,224 , respectively, recorded in accounts payable for finished goods received from St.

Gabriel CC Company, LLC.

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 at both March 31, 2023 and December 31, 2022.

Gabriel CC Company, LLC, recorded in accounts payable at both June 30, 2023 and December 31, 2022.

NOTE 19 – LEASES

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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 March 31, 2023.

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

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Based on this understanding, the Company elected to use a portfolio approach to discount rates, applying corporate rates to the tranches of leases based on lease terms.

Based on the Company's risk rating, the company applied the following discount rates for new leases entered into during the first quarter of 2023:

Based on the Company's risk rating, the Company applied the following discount rates for new leases entered into during the second quarter of 2023:

(1) 1 - 2 years, 6.24 % (2) 3 - 4 years, 6.83 % (3) 5 - 9 years, 7.17 % and (4) 10 + years, 7.89 %.

In connection with its December 2019 acquisition of Zumbro River Brand, Inc., the Company assumed the finance lease commitment for a warehouse, with an expiration date of March 31, 2033 and an option to purchase at a pre-determined price.

At March 31, 2023 and December 31, 2022, the Company had finance lease liabilities of $ 2,385 and $ 2,439 , respectively, which were recorded under "Lease liabilities" (current and non-current) on the condensed consolidated balance sheets.

Right of use assets and lease liabilities at March 31, 2023 and December 31, 2022 are summarized as follows:

Right of use assets March 31, 2023 December 31, 2022

At June 30, 2023 and December 31, 2022, the Company had finance lease liabilities of $ 2,329 and $ 2,439 , respectively, which were recorded under "Lease liabilities" (current and non-current) on the condensed consolidated balance sheets.

Right of use assets and lease liabilities at June 30, 2023 and December 31, 2022 are summarized as follows:

Right of use assets June 30, 2023 December 31, 2022

Operating leases $ 16,119 $ 17,094

1 unchanged sentence

Total $ 18,340 $ 19,432

Lease liabilities - current March 31, 2023 December 31, 2022

Lease liabilities - current June 30, 2023 December 31, 2022

Operating leases $ 3,859 $ 3,796

1 unchanged sentence

Total $ 4,091 $ 4,022

Lease liabilities - non-current March 31, 2023 December 31, 2022

Lease liabilities - non-current June 30, 2023 December 31, 2022

Operating leases $ 13,088 $ 13,806

1 unchanged sentence

Total $ 15,185 $ 16,019

For the three months ended March 31, 2023 and 2022, the Company's total lease costs were as follows, which included amounts recognized in earnings, amounts capitalized on the balance sheets, and the cash flows arising from lease transactions:

For the three and six months ended June 30, 2023 and 2022, the Company's total lease costs were as follows, which included amounts recognized in earnings, amounts capitalized on the balance sheets, and the cash flows arising from lease transactions:

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Operating lease cost $ 1,376 $ 811 $ 2,646 $ 1,592

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Right-of-use assets obtained in exchange for new operating lease liabilities, net of right-of-use assets disposed $ 2,148 $ 4,615 $ 2,605 $ 5,277

Weighted-average remaining lease term - operating leases 5.42 years 4.03 years

Weighted-average remaining lease term - finance leases 9.73 years 11.16 years

Weighted-average remaining lease term - operating leases 5.41 years 4.10 years 5.41 years 4.10 years

Weighted-average remaining lease term - finance leases 9.51 years 10.91 years 9.51 years 10.91 years

Weighted-average discount rate - operating leases 4.1 % 3.2 % 4.1 % 3.2 %

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

Rent expense charged to operations under operating lease agreements for the three months ended March 31, 2023 and 2022 aggregated to approximately $ 1,270 and $ 781 , respectively.

Aggregate future minimum rental payments required under all non-cancelable operating and finance leases at March 31, 2023 are as follows:

April 1, 2023 to December 31, 2023 $ 4,192

Rent expense charged to operations under operating lease agreements for the three and six months ended June 30, 2023 aggregated to approximately $ 1,376 and $ 2,646 , respectively, and $ 811 and $ 1,592 for the three and six months ended June 30, 2022, respectively.

Aggregate future minimum rental payments required under all non-cancelable operating and finance leases at June 30, 2023 are as follows:

July 1, 2023 to December 31, 2023 $ 3,016

Thereafter 4,851

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(the "Bank Counterparty").

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

The Company's primary objective for holding derivative financial instruments was 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.

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Due to the discontinuation of LIBOR, 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 in the third quarter of 2022.

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 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 2022 Credit Agreement.

The net interest income related to the interest rate swap contract was $ 684 for the three months ended March 31, 2023.

The net interest expense related to the interest rate swap contract was $ 513 for the three months ended March 31, 2022.

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

The Company's risk management objective and strategy with respect to the interest rate swap was 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 met its objective since changes in the cash flows of the interest rate offset the changes in the cash flows attributable to fluctuations in the contractually specified interest rate on the interest payments associated with the 2022 Credit Agreement.

The net interest income related to the interest rate swap contract was $ 834 and $ 1,518 for the three and six months ended June 30, 2023, respectively, and the net interest expense related to the interest rate swap contract was $ 364 and $ 877 for the three and six months ended June 30, 2022, respectively.

The net interest income and expense were recorded in the condensed consolidated statements of earnings under "Interest expense, net."

On May 28, 2019, the Company also entered into a pay-fixed ( 0.00 %), receive-fixed ( 2.05 %) cross-currency swap to manage foreign exchange risk related to the Company's net investment in Chemogas.

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

The interest income related to the cross-currency swap contract was $ 550 for each of the three months ended March 31, 2023 and 2022, and was recorded in the condensed consolidated statements of earnings under "Interest expense, net."

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 condensed consolidated balance sheets.

As of March 31, 2023 and December 31, 2022, the fair value of the derivative instruments is presented as follows in the Company's condensed consolidated balance sheets:

Derivative assets March 31, 2023 December 31, 2022

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

The interest income related to the cross-currency swap contract was $ 569 and $ 1,119 for the three and six months ended June 30, 2023, respectively, and $ 563 and $ 1,113 for the three and six months ended June 30, 2022, respectively.

The net interest income was recorded in the condensed consolidated statements of earnings under "Interest expense, net."

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

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

The Company settled its derivative instruments on their maturity date of June 27, 2023 and had no other derivatives outstanding as of June 30, 2023.

The proceeds from the settlement of the cross-currency swap in the amount of $ 2,740 were classified as investing activities in the Consolidated Statements of Cash Flows.

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

Derivative assets December 31, 2022

Interest rate swap $ 1,406

1 unchanged sentence

Derivative assets $ 5,993

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:

(1) the key features and terms as enumerated above for the interest rate swap and hedged transactions match during the period (2) it is probable that the Swap Counterparty will not default on its obligations under the swap, and (3) the Company performs a qualitative review each quarter to assess whether the relationship qualifies for hedge accounting.

In addition, on a quarterly basis the Company assesses whether the hedging relationship related to the cross-currency swap is highly effective based on the following evaluations:

(1) the Company will always have a sufficient amount of non-functional currency (EUR) net investment balance to at least meet the cross-currency notional amount until the maturity date of the hedge (2) it is probable that the Swap Counterparty will not default on its obligations under the swap, and (3) the Company performs a qualitative review each quarter to assess whether the relationship qualifies for hedge accounting.

If any mismatches arise for either the interest rate swap or cross-currency swap, the Company will perform a regression analysis to determine if the hedged transaction is highly effective.

If determined not to be highly effective, the Company will discontinue hedge accounting.

As of March 31, 2023, the Company assessed the hedging relationships for the interest rate swap and cross-currency swap and determined them to be highly effective.

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 three months ended March 31, 2023 and 2022:

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

(1) the key features and terms as enumerated above for the interest rate swap and hedged transactions matched during the period (2) it was probable that the Swap Counterparty would not default on its obligations under the swap, and (3) the Company performed a qualitative review each quarter to assess whether the relationship qualified for hedge accounting.

In addition, on a quarterly basis the Company assessed whether the hedging relationship related to the cross-currency swap was highly effective based on the following evaluations:

(1) the Company would always have a sufficient amount of non-functional currency (EUR) net investment balance to at least meet the cross-currency notional amount until the maturity date of the hedge (2) it was probable that the Swap Counterparty would not default on its obligations under the swap, and (3) the Company performed a qualitative review each quarter to assess whether the relationship qualified for hedge accounting.

No mismatches arose for either the interest rate swap or cross-currency swap;

the hedged transactions were determined to be highly effective;

hedge accounting continued through the settlement date;

and all changes in fair values of the derivative instruments were recorded in accumulated other comprehensive income through June 30, 2023.

Losses and gains on our hedging instruments were recognized in accumulated other comprehensive income (loss) and categorized as follows for the three and six months ended June 30, 2023 and 2022:

Location within Statements of Comprehensive Income Three Months Ended

Cash flow hedge (interest rate swap), net of tax Unrealized gain (loss) on cash flow hedge, net $ ( 511 ) $ 1,573

June 30, Six Months Ended

2023 2022 2023 2022

Cash flow hedge (interest rate swap), net of tax Unrealized (loss) gain on cash flow hedge, net $ ( 554 ) $ 850 $ ( 1,065 ) $ 2,423

Net investment hedge (cross-currency swap), net of tax Net foreign currency translation adjustment ( 434 ) 3,963 ( 1,455 ) 5,086

Total $ ( 988 ) $ 4,813 $ ( 2,520 ) $ 7,509

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 six months ended June 30, 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 June 30, 2023, 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

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-Q

Item 1. Financial Statements