What changed in this filing

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Item 1. Business

2024-02-16 compared with 2023-02-24 · 60 added, 55 removed, 149 unchanged (44% of the section changed)

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Consequently, the Company makes investments in such activities for long-term value differentiation.

This segment also manufactures specialty vitamin K2, which plays a crucial role in the human body for bone health, heart health and immunity, and methylsulfonylmethane ("MSM"), which is a widely used nutritional ingredient that helps provide benefits for joint health, sports nutrition, skin and beauty, and healthy aging.

This segment also serves the food and beverage industry for beverage, bakery, dairy, confectionary, and savory manufacturers.

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The Company also creates cereal systems for ready-to-eat cereals, grain-based snacks, and cereal based ingredients.

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 methylsulfonylmethane ("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

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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 methylsulfonylmethane ("MSM"), which is a widely used nutritional ingredient that provides benefits for pet health.

This segment also manufactures MSM, which is a widely used nutritional ingredient that provides benefits for pet health.

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

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Contract sterilizers and medical device manufacturers are principal customers for this product.

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

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.

Propylene oxide is marketed and sold as a fumigant to aid in the control of insects and microbiological spoilage, to reduce bacterial and mold contamination in certain shelled and processed nut meats, processed spices, cacao beans, cocoa powder, raisins, figs and prunes, and for various chemical synthesis applications, such as increasing paint durability and manufacturing specialty starches and textile coatings.

Ammonia is used primarily as a refrigerant, for heat treatment of metals and various chemical synthesis applications, and is distributed in reusable and recyclable drum and cylinder packaging approved for use in the countries these products are shipped to.

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

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As a result, the farmer/grower gets healthier crops that are more resistant to disease and pests, larger yields and healthier food for the consumer with extended shelf life for produce being shipped long distances.

On August 30, 2022, our wholly-owned subsidiary Albion Laboratories, Inc.

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

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

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

Bergstrom is a leading science-based manufacturer of methylsulfonylmethane ("MSM"), based in Vancouver, Washington.

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

Details related to the Bergstrom acquisition are disclosed in Note 2, Significant Acquisitions .

The acquisition provides a synergistic scientific advantage in the Company's key strategic therapeutic focus areas such as longevity and performance and is a strong fit with the Company's specialty, science-backed mineral products, which should ultimately lead to growth for the Company's portfolios within the Human Nutrition and Health and Animal Nutrition and Health segments.

On June 21, 2022, we and our 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”).

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

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

Details related to the Kappa acquisition are disclosed in Note 2, Significant Acquisitions .

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

Raw Materials

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Such raw materials include materials derived from petrochemicals, minerals, metals, agricultural commodities and other readily available commodities and are subject to price fluctuations due to market conditions.

In 2022, we continued to experience some difficulties in procuring certain materials due to the challenging macroeconomic environment with global supply chain disruptions because of the COVID-19 pandemic as well as significant inflation on raw materials.

However, we were able to secure most necessary materials from our suppliers and will strive to ensure a sustainable supply chain to support our growing business operations.

In 2023, supply reliability improved due to a weaker macroeconomic (demand) environment though we experienced some difficulties in procuring certain materials due to the challenging geopolitical environment impacting some supply lanes.

In a year of mixed inflationary and

deflationary trends across key categories we source, we were able to secure most necessary materials from our suppliers and continued to strive to ensure a sustainable supply chain to support our growing business operations.

Intellectual Property

We currently hold over 150 patents in the United States and overseas and use certain trade-names and trademarks.

We currently hold over 130 patents and over 400 trademarks in the United States and overseas.

We also use know-how, trade secrets, formulae, and manufacturing techniques that assist in maintaining competitive positions of certain of our products.

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It has generally been our policy and practice to maintain an inventory of finished products and/or component materials for our segments to enable us to ship products within two months after receipt of a product order.

This was more difficult in 2021 given the macroeconomic and supply chain challenges we experienced, but those challenges eased in the second half of 2022 and all orders in the current backlog are expected to be filled in the 2023 fiscal year.

All orders in the current backlog are expected to be filled in the 2024 fiscal year.

Our competitors include many large and small companies, some of which have greater financial, research and development, production and other resources than us.

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Therefore, it is difficult to assess the size of all of our segment competitors or where we rank in comparison to such privately-held competitors.

Competition in the animal feed and industrial markets we serve are based primarily on product performance, customer support, quality, service and price.

Competition in the animal feed and industrial markets we serve is based primarily on product performance, customer support, quality, service and price.

The markets for our products are subject to competitive risks because these markets are highly price competitive.

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In the Specialty Products segment, competition within Performance Gases is based primarily on service, reliability, quality, and price.

Our competition in this market varies globally, many of which are regional privately-held companies.

Our competitors in this market vary globally, many of which are regional privately-held companies.

We also face competition from alternate technologies or substitute products.

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During the years ended December 31, 2023, 2022 and 2021, we incurred research and development expenses of approximately $15,049, $12,191, and $13,524, respectively, on Company-sponsored research and development for new products, improvements to existing products, and manufacturing processes.

We have historically funded our research and development programs with funds available from current operations with the intent of recovering those costs from profits derived from future sales of products resulting from, or enhanced by, the research and development effort.

We have historically funded our research and development programs with

funds available from current operations with the intent of recovering those costs from profits derived from future sales of products resulting from, or enhanced by, the research and development effort.

We prioritize our product development activities in an effort to allocate resources to those product candidates that, we believe, have the greatest commercial potential.

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In 2023, we invested $20,720 on projects expected to provide favorable returns on investment, including expanded capacity in key product lines in the HNH segment.

In addition, we invested $6,900 for environmental, health, safety, and security upgrades to our facilities.

In 2022, we invested $29,759 on projects expected to provide favorable returns on investment, including expanded capacity in key product lines in the HNH segment.

In addition, we invested $6,020 for environmental, health, safety, and security upgrades to our facilities and $3,024 in automation projects that improved quality and efficiency of our operations.

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In addition, we invested $3,138 for environmental, health, safety, and security upgrades to our facilities, $2,330 in automation projects that improved quality and efficiency of our operations, and $2,222 in research and development projects.

In 2020, we invested $16,856 on projects expected to provide favorable returns on investment, including expanded capacity in key product lines in the HNH segment.

In addition, we invested $3,297 for environmental, health, safety, and security upgrades to our facilities as well as $3,252 in automation projects that improved safety and quality of our operations.

Capital expenditures are projected to range from $35,000 to $40,000 for 2024, including our continued efforts to invest in energy and water saving projects, while exploring additional renewable energy opportunities in support of the company's sustainability efforts.

Environmental and Regulatory Matters

The Federal Insecticide, Fungicide and Rodenticide Act (“FIFRA”), a health and safety statute, requires that certain products within our Specialty Products segment must be registered with the EPA because they are considered pesticides.

In order to obtain a registration, an applicant typically must demonstrate, through extensive test data, that its product will not cause unreasonable adverse effects on human health or the environment.

Environmental Protection Agency ("EPA") because they are considered pesticides.

As part of the registration review process, the EPA assesses a wide variety of studies to determine the likelihood of risk to human health and the environment from exposure associated with use of the product.

We hold EPA registrations permitting us to sell ethylene oxide as a medical device sterilant and spice fumigant and propylene oxide as a fumigant of nuts and spices.

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In this Draft HHRA, the EPA presented multiple perspectives on risk extrapolation, including the IRIS Assessment.

While acknowledging the necessity of maintaining the critical uses of ethylene oxide, based on the range of unit risk provided in this qualitative assessment, the EPA stated that there should be further mitigation measures implemented which will likely require some label changes.

Several mitigation measures are under consideration and the EPA is expected to issue a Proposed Interim Decision in early 2023.

We believe that the EPA intends to reregister ethylene oxide for the sterilization of medical or laboratory equipment, pharmaceuticals, and aseptic packaging, with the mitigation measures potentially impacting certain users, including Balchem and its customers.

In April 2023, the EPA released a Proposed Interim Decision and Draft Human Health Risk Assessment addendum which included certain proposed mitigation measures.

We believe that the EPA intends to reregister ethylene oxide for the sterilization of medical or laboratory equipment, pharmaceuticals, aseptic packaging, and the reduction of microbes on spices/seasonings, with the proposed mitigation measures potentially impacting such users, including our customers.

The product, when used as a sterilant for certain medical devices, has no known equally effective substitute.

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Food and Drug Administration in a public statement said, "Although medical devices can be sterilized by several methods, ethylene oxide is the most common method of sterilization of medical devices in the U.S.

and is a well-established and scientifically-proven method of preventing harmful microorganisms from reproducing and causing infections." Management believes the lack of availability of this product could not be easily tolerated by various medical device manufacturers or the health care industry due to the resultant infection potential.

and is a well-established and scientifically-proven method of preventing harmful microorganisms from reproducing and causing infections." Management believes the lack of availability of this product could not be reasonably tolerated by various medical device manufacturers or the health care industry due to the resultant infection potential.

Similarly, the EPA issued a RED for propylene oxide in August 2006.

At that time, the EPA “determined that products containing the active ingredient propylene oxide ("PPO") are eligible for re-registration provided that…risk mitigation measures…are adopted.” Our product label was amended as required to reflect these mitigation measures and also to show that propylene oxide has been reclassified as a restricted use pesticide.

In 2013, the EPA initiated a new registration review of propylene oxide, in line with and as part of the registration review scheduled for a large number of other pesticides.

At that time, the EPA “determined that products containing the active ingredient propylene oxide ("PPO") are eligible for re-registration provided that…risk mitigation measures…are adopted.” In 2013, the EPA initiated a new registration review of propylene oxide, in line with and as part of the registration review scheduled for a large number of other pesticides.

A Final Work Plan was issued in March 2014, and the EPA anticipated that this review process would take approximately seven years.

In October 2020, the EPA issued both the Proposed Interim Registration Review Decision and Draft Risk Assessment for propylene oxide.

In July 2021, the EPA issued the Interim Registration Review Decision.

Based on these documents, the use of propylene oxide to treat nuts and spices will continue to be permitted with minimal changes to the current approved level.

In October 2020, the EPA issued both the Proposed Interim

Decision and Draft Risk Assessment for propylene oxide.

In July 2021, the EPA issued the Interim Decision.

Based on these documents, the use of propylene oxide to treat nuts and spices will continue to be permitted with minimal changes to the current approved usage.

We submitted those changes and expect the EPA to review and approve them in the coming months during 2024.

Our facility in Verona, Missouri, 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 (“MDNR”).

While we 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.

We are indemnified by the sellers under our May 2001 asset purchase agreement covering our acquisition of the Verona, Missouri facility for potential liabilities associated with the Superfund site, and one of the sellers, in turn, has the benefit of certain contractual indemnification by 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.

Our facility in Verona, Missouri facility, while held by a prior owner, Syntex Agribusiness, Inc.

(“Syntex”), was designated by the EPA as a Superfund site and placed on the National Priorities List in 1983 because of dioxin contamination on portions of the site.

Remediation was conducted by Syntex under the oversight of the EPA and the Missouri Department of Natural Resources.

We are indemnified by the sellers under our May 2001 asset purchase agreement covering our acquisition of the Verona, Missouri facility for potential liabilities associated with the Superfund site, and one of the sellers, in turn, has the benefit of certain contractual indemnification by Syntex in relation to the implementation of the above-described Superfund remedy.

In June 2023, in response to a Special Notice Letter received from the EPA in 2022, BCP Ingredients, Inc.

("BCP"), the Company's subsidiary that operates the site, Syntex, EPA, and the State of Missouri entered into an Administrative Settlement Agreement and Order on Consent (“ASAOC”) for a focused remedial investigation/feasibility study ("RI/FS") under which (a) BCP will conduct a source investigation of potential source(s) of releases of 1,4-dioxane and chlorobenzene at a portion of the site and (b) BCP and Syntex will complete a RI/FS to determine a potential remedy, if any is required.

Activities under the ASAOC are underway and are expected to continue for some period of time.

In connection with normal operations at our plant facilities, we are required to maintain environmental and other permits, including those relating to the use of ethylene oxide.

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To the extent any consent orders or other agreements are entered into as a result of findings from such inspections, the Company is committed to ensuring compliance with such orders or agreements.

We believe we are in compliance in all material respects with federal, state, local and international provisions that have been enacted or adopted regulating the discharge of materials into the environment or otherwise relating to the protection of the environment.

For a further discussion of our potential environmental liabilities, see Note 16, Commitments and Contingencies , to our Consolidated Financial Statements.

We believe we are in compliance in all material respects with applicable laws and regulations that have been enacted or adopted regulating the discharge of materials into the environment or otherwise relating to the protection of the environment.

Such compliance includes the maintenance of required permits under air pollution regulations and compliance with requirements of the Occupational Safety and Health Administration.

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As of December 31, 2023, we employed approximately 1,302 full-time employees worldwide, with approximately 18% covered by collective bargaining agreements.

As of December 31, 2021, we employed approximately 1,317 full-time employees worldwide, with approximately 17% covered by collective bargaining agreements.

Although we are facing challenging labor markets, we believe that we have been successful in attracting skilled and experienced personnel in a competitive environment and that our human capital resources are adequate to perform all business functions.

In addition, we continue to enhance technology in order to optimize productivity and performance.

We are seeing some modest improvement in most relevant labor markets and we believe that we have been successful in attracting skilled and experienced personnel in a competitive environment and that our human capital resources are adequate to perform all business functions.

In addition, we continue to enhance technology to further optimize productivity and performance.

Health and Safety

Protecting the workplace environment and the health and safety of our employees, contractors, visitors, and neighbors is our top priority.

Our recordable injury rate, which was defined by recordable injuries per 200,000 hours worked, was 1.17 and 0.99 in 2022 and 2021, respectively.

We continually upgrade our facilities to reduce risks and establish procedures with appropriate personnel protection for the safety of our employees.

Our safety program is structured around five pillars:

process safety, personal safety, industrial hygiene, transportation safety and environmental safety, and focuses on driving higher ownership and engagement from employees and contractors.

Our recordable injury rate, which is defined as recordable injuries per 200,000 hours worked, was 1.39 and 1.17 in 2023 and 2022, respectively.

The injuries were primarily the result of manual material handling and cultural/behavioral factors that influence outcome.

We are adjusting our 2024 environmental, health, safety, and security management system to include an even greater emphasis on hazard identification/correction and cultural/behavioral aspects of personal safety.

In addition, we continually upgrade our facilities to reduce health and safety risks and establish procedures with appropriate personnel protection for the safety of our employees.

Diversity and Inclusion

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We strive to promote inclusion through the implementation of inclusive leadership training across the Company and are committed to increasing representation of minorities throughout the organization.

In 2022, our total workforce consisted of 75% male and 25% female among all employees and 50% male and 50% female when excluding supply chain and operations functions.

In 2023, our total workforce consisted of 74% male and 26% female among all employees and 47% male and 53%

female when excluding supply chain and operations functions.

In 2022, our total workforce consisted of 75% male and 25% female among all employees and 50% male and 50% female when excluding supply chain and operations functions.

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We also provide generous time off and leave benefits, which are important to help ensure employees can enjoy a healthy balance between work and family time.

For the year ended December 31, 2022 and 2021, our turnover rate was 15% and 13%, respectively, for salaried employees with an average length of service of over 9 years and 10 years, respectively.

For the years ended December 31, 2023 and 2022, our turnover rate was 11% and 15%, respectively, for salaried employees with an average length of service of over 9 years for both years.

For the years ended December 31, 2023 and 2022, our turnover rate was 29% and 36%, respectively, for hourly employees with an average length of service of about 7 years for both years.

We are continuing to improve employee retention with effective employment engagement efforts, a productive performance review process, and competitive compensation.

Environmental, Social and Governance

Sustainability

We operate as strong stewards of our shareholders, customers, suppliers, employees, and the communities in which we operate.

We are working to make our workforce more inclusive, our business more sustainable, and our communities more engaged by maintaining strong environmental, social and governance (“ESG”) practices.

In 2022, we published our 2021 Sustainability Report, prepared in accordance with the Global Reporting Initiative (“GRI”) Standards:

This report provides detailed information regarding our ESG strategy, focus areas and governance structure.

We are working to make our workforce more inclusive, our business more sustainable, and our communities more engaged by maintaining strong environmental, social and governance practices.

In 2023, we published our 2022 Sustainability Report.

This report provides detailed information regarding our Corporate Responsibility strategy, focus areas and governance structure.

We are committed to reducing our greenhouse gas emissions by implementing new technologies, improving operational efficiencies, and expanding green energy usages.

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The information contained on, or that may be accessed through, the Company’s website is not incorporated by reference into, and is not part of, this Annual Report on Form 10-K.

In January 2023, Balchem was named one of America's Most Responsible Companies by Newsweek magazine for the third consecutive year.

In December 2023, Balchem was named on Newsweek's 2024 list of America's Most Responsible Companies and has earned a ranking amongst this prestigious list of companies for the fourth consecutive year.

This prestigious list, compiled by Newsweek in partnership with Statista Inc., recognizes the most responsible companies in the U.S.

across a variety of industries, and is based on publicly available environmental, social and governance (ESG) data.

We are very proud of our ESG accomplishments to date and are pleased with the recognition by Newsweek.

across a variety of industries, and is based on their assessment of publicly available corporate responsibility data.

We are pleased to be recognized by Newsweek and Statista for our leadership in corporate responsibility.

Available Information

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Our telephone number is (845) 326-5600 and our Internet website address is www.balchem.com.

We make available through our website, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to such reports, as soon as reasonably practicable after they have been electronically filed with the Securities and Exchange Commission (the "SEC").

We make available through our website, free of charge, our Annual Reports on Form 10-

K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to such reports, as soon as reasonably practicable after they have been electronically filed with the Securities and Exchange Commission (the "SEC").

Such reports are available via a link from the Investor Relations page on our website to a list of our reports on the SEC’s EDGAR website.

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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 1. Business