BALCHEM CORP 10-K

Item 8. Financial Statements and Supplementary Data Index to Financial Statements and Supplementary Data: Page Numbers Report of Independent Registered Public Accounting Firm (PCAOB ID: 49 ) 30 Consolidated Balance Sheets as of December 31, 20 2 4 and 20 2 3 32 Consolidated Statements of Earnings for the years ended December 31, 20 2 4 , 20 2 3 and 20 2 2 33 Consolidated Statements of Comprehensive Income for the years ended December 31, 20 2 4 , 20 2 3 and 20 2 2 34 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 20 2 4 , 20 2 3 and 20 2 2 35 Consolidated Statements of Cash Flows for the years ended December 31, 20 2 4 , 20 2 3 and 20 2 2 36 Notes to Consolidated Financial Statements 37 Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 20 2 4 , 20 2 3 and 20 2 2 70 29 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Balchem Corporation Opinions on the Financial Statements and Internal Control Over Financial Reporting We have audited the accompanying consolidated balance sheets of Balchem Corporation and subsidiaries (the Company) as of December 31, 2024 and 2023, and the related consolidated statements of earnings, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes and schedule (collectively, the financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Basis for Opinions The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 30 Table of Contents Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Valuation of Reporting Units for Goodwill Impairment Testing As described in Notes 1 and 6 to the financial statements, the Company’s goodwill balance was $780 million as of December 31, 2024. The Company performed an annual goodwill impairment test as of October 1, 2024, using a quantitative evaluation for each of its reporting units. The Company determines the fair value of its reporting units using the income approach, based on a discounted cash flow valuation model. To test for goodwill impairment, the Company compares the fair value of each reporting unit to its carrying value. When determining the fair value of each reporting unit, management makes significant estimates and assumptions related to a number of factors. The Company considers the impact of factors that are specific to each of the reporting units such as industry and economic changes as well as projected sales and expense growth rates based upon annual budgets and longer-range strategic plans, which are highly sensitive to changes in domestic and foreign economic conditions, and the selection of appropriate discount rates. Given the significant estimates and assumptions management makes to determine the fair value of the reporting units we identified management’s assumptions related to the sales growth rates, projected gross margin rates and certain components of the discount rates utilized in the valuation of the reporting units within the Company’s goodwill impairment tests as a critical audit matter. Auditing the reasonableness of management’s estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists. Our audit procedures related to sales and expense growth rates, discount rates, and the terminal value calculation utilized in the valuation of the Company’s reporting units included the following, among others: • We obtained an understanding of the relevant controls related to the valuation of the Company’s reporting units and tested such controls for design and operating effectiveness, including management review controls over significant assumptions. • We evaluated the reasonableness of management’s forecasts of sales growth rates and projected gross margin rates by comparing the forecasts to: (1) the historical results, (2) internal communications to management and the Board of Directors, and (3) external communications made by management to analysts and investors, as applicable. • With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rates and tested the relevance and reliability of source information underlying the determination of the discount rates, tested the mathematical accuracy of the calculation, and developed a range of independent estimates and compared those to the discount rates selected by management. /s/ RSM US LLP We have served as the Company's auditor since 2004. New York, New York February 21, 2025 31 Table of Contents BALCHEM CORPORATION Consolidated Balance Sheets December 31, 2024 and 2023 (Dollars in thousands, except share and per share data) 2024 2023 Current assets: Cash and cash equivalents $ 49,515 $ 64,447 Accounts receivable, net of allowance for credit losses of $ 909 and $ 908 at December 31, 2024 and 2023, respectively 119,662 125,284 Inventories, net 130,802 109,521 Prepaid expenses 8,054 7,798 Other current assets 5,737 7,192 Total current assets 313,770 314,242 Property, plant and equipment, net 282,154 276,039 Goodwill 780,030 778,907 Intangible assets with finite lives, net 165,050 191,212 Right of use assets - operating leases 15,320 17,763 Right of use assets - finance lease 1,730 2,101 Other non-current assets 17,317 16,947 Total assets $ 1,575,371 $ 1,597,211 Liabilities and Stockholders’ Equity Current liabilities: Trade accounts payable $ 54,745 $ 55,503 Accrued expenses 43,750 40,855 Accrued compensation and other benefits 22,886 17,228 Dividends payable 28,510 25,717 Income tax payable 4,466 4,967 Operating lease liabilities - current 3,134 3,949 Finance lease liabilities - current 194 272 Total current liabilities 157,685 148,491 Revolving loan 190,000 309,569 Deferred income taxes 43,722 52,046 Operating lease liabilities - non-current 12,967 14,601 Finance lease liabilities - non-current 1,749 1,943 Other long-term obligations 19,335 16,577 Total liabilities 425,458 543,227 Commitments and contingencies (Note 16) Stockholders’ equity: Preferred stock, $ 25 par value. Authorized 2,000,000 shares; no ne issued and outstanding — — Common stock, $ .0667 par value. Authorized 120,000,000 shares; 32,527,244 shares issued and outstanding at December 31, 2024 and 32,254,728 shares issued and outstanding at December 31, 2023, respectively 2,170 2,152 Additional paid-in capital 173,997 145,653 Retained earnings 997,493 897,488 Accumulated other comprehensive (loss) income ( 23,747 ) 8,691 Total stockholders’ equity 1,149,913 1,053,984 Total liabilities and stockholders’ equity $ 1,575,371 $ 1,597,211 See accompanying notes to consolidated financial statements. 32 Table of Contents BALCHEM CORPORATION Consolidated Statements of Earnings Years Ended December 31, 2024, 2023 and 2022 (In thousands, except per share data) 2024 2023 2022 Net sales $ 953,684 $ 922,439 $ 942,358 Cost of sales 617,478 620,383 661,907 Gross margin 336,206 302,056 280,451 Operating expenses: Selling expenses 68,916 74,397 67,409 Research and development expenses 16,793 15,049 12,191 General and administrative expenses 67,588 53,417 55,665 153,297 142,863 135,265 Earnings from operations 182,909 159,193 145,186 Other expenses: Interest expense, net 16,528 22,613 10,268 Other (income) expense, net ( 72 ) ( 681 ) 1,169 16,456 21,932 11,437 Earnings before income tax expense 166,453 137,261 133,749 Income tax expense 37,978 28,718 28,382 Net earnings $ 128,475 $ 108,543 $ 105,367 Basic net earnings per common share $ 3.97 $ 3.38 $ 3.29 Diluted net earnings per common share $ 3.93 $ 3.35 $ 3.25 See accompanying notes to consolidated financial statements. 33 Table of Contents BALCHEM CORPORATION Consolidated Statements of Comprehensive Income Years Ended December 31, 2024, 2023 and 2022 (In thousands) 2024 2023 2022 Net earnings $ 128,475 $ 108,543 $ 105,367 Other comprehensive (loss) income, net of tax: Net foreign currency translation adjustment ( 32,590 ) 16,809 ( 4,799 ) Unrealized (loss) gain on cash flow hedge, net of taxes of $ 341 , and $ 868 at December 31, 2023, and 2022, respectively — ( 1,065 ) 2,696 Net change in postretirement benefit plan, net of taxes of $ 44 , $ 39 , and $ 24 at December 31, 2024, 2023 and 2022, respectively 152 101 ( 58 ) Other comprehensive (loss) income, net of tax ( 32,438 ) 15,845 ( 2,161 ) Comprehensive income $ 96,037 $ 124,388 $ 103,206 See accompanying notes to consolidated financial statements. 34 Table of Contents BALCHEM CORPORATION Consolidated Statements of Stockholders’ Equity Years Ended December 31, 2024, 2023 and 2022 (Dollars in thousands, except share and per share data) Total Stockholders' Equity Retained Earnings Accumulated Other Comprehensive (Loss) Income Common Stock Additional Paid-in Capital Shares Amount Balance - December 31, 2021 $ 877,015 $ 732,138 $ ( 4,993 ) 32,287,150 $ 2,154 $ 147,716 Net earnings 105,367 105,367 — — — — Other comprehensive loss ( 2,161 ) — ( 2,161 ) — — — Dividends ($ .71 per share) ( 23,018 ) ( 23,018 ) — — — — Repurchases of common stock ( 35,423 ) — — ( 252,304 ) ( 16 ) ( 35,407 ) Shares and options issued under stock plans 16,504 — — 117,941 7 16,497 Balance - December 31, 2022 938,284 814,487 ( 7,154 ) 32,152,787 2,145 128,806 Net earnings 108,543 108,543 — — — — Other comprehensive income 15,845 — 15,845 — — — Dividends ($ .79 per share) ( 25,542 ) ( 25,542 ) — — — — Repurchases of common stock, including excise tax ( 4,514 ) — — ( 32,558 ) ( 2 ) ( 4,512 ) Shares and options issued under stock plans 21,368 — — 134,499 9 21,359 Balance - December 31, 2023 1,053,984 897,488 8,691 32,254,728 2,152 145,653 Net earnings 128,475 128,475 — — — — Other comprehensive loss ( 32,438 ) — ( 32,438 ) — — — Dividends ($ .87 per share) ( 28,470 ) ( 28,470 ) — — — — Repurchases of common stock ( 5,682 ) — — ( 38,922 ) ( 3 ) ( 5,679 ) Shares and options issued under stock plans 34,044 — — 311,438 21 34,023 Balance - December 31, 2024 $ 1,149,913 $ 997,493 $ ( 23,747 ) 32,527,244 $ 2,170 $ 173,997 See accompanying notes to consolidated financial statements. 35 Table of Contents BALCHEM CORPORATION Consolidated Statements of Cash Flows Years Ended December 31, 2024, 2023 and 2022 (In thousands) 2024 2023 2022 Cash flows from operating activities: Net earnings $ 128,475 $ 108,543 $ 105,367 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 47,973 54,935 51,848 Stock compensation expense 16,675 16,052 13,224 Deferred income taxes ( 6,779 ) ( 10,814 ) ( 8,362 ) Provision for credit losses 299 37 401 Unrealized (gain) loss on foreign currency transactions and deferred compensation ( 100 ) ( 733 ) 914 Asset impairment charge and loss on disposal of assets 1,664 7,031 366 Change in fair value of contingent consideration liability ( 91 ) ( 11,300 ) — Changes in assets and liabilities, net of acquired balances Accounts receivable 5,582 6,969 ( 3,618 ) Inventories ( 22,791 ) 10,530 ( 7,804 ) Prepaid expenses and other current assets 225 ( 3,540 ) 1,870 Accounts payable and accrued expenses 9,065 3,552 ( 15,543 ) Income taxes ( 583 ) 2,194 296 Other 2,385 305 ( 423 ) Net cash provided by operating activities 181,999 183,761 138,536 Cash flows from investing activities: Cash paid for acquisitions, net of cash acquired ( 24,164 ) ( 1,252 ) ( 365,780 ) Capital expenditures and intangible assets acquired ( 35,661 ) ( 37,892 ) ( 49,945 ) Proceeds from sale of assets 359 1,881 206 Proceeds from settlement of net investment hedge — 2,740 — Investment in affiliates ( 270 ) ( 290 ) ( 495 ) Net cash used in investing activities ( 59,736 ) ( 34,813 ) ( 416,014 ) Cash flows from financing activities: Proceeds from revolving loan 26,000 18,000 435,000 Principal payments on revolving debt ( 145,569 ) ( 149,000 ) ( 103,000 ) Principal payments on acquired debt — — ( 30,988 ) Cash paid for financing costs — — ( 1,232 ) Principal payments on finance lease ( 216 ) ( 222 ) ( 177 ) Proceeds from stock options exercised 17,228 5,242 3,212 Dividends paid ( 25,576 ) ( 22,872 ) ( 20,713 ) Repurchases of common stock ( 5,682 ) ( 4,469 ) ( 35,423 ) Net cash (used in) provided by financing activities ( 133,815 ) ( 153,321 ) 246,679 Effect of exchange rate changes on cash ( 3,380 ) 2,260 ( 5,880 ) Decrease in cash and cash equivalents ( 14,932 ) ( 2,113 ) ( 36,679 ) Cash and cash equivalents beginning of period 64,447 66,560 103,239 Cash and cash equivalents end of period $ 49,515 $ 64,447 $ 66,560 Supplemental Cash Flow Information - see Note 13 See accompanying notes to consolidated financial statements. 36 Table of Contents BALCHEM CORPORATION Notes to Consolidated Financial Statements (All amounts in thousands, except share and per share data) NOTE 1 - BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Description Balchem Corporation (“Balchem” or the “Company”), including, unless the context otherwise requires, its wholly-owned subsidiaries, incorporated in the State of Maryland in 1967, is engaged in the development, manufacture and marketing of specialty performance ingredients and products for the food, nutritional, feed, pharmaceutical, agricultural, and medical device sterilization industries. Principles of Consolidation The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Revenue Recognition Revenue for each of the Company’s business segments is recognized when control of the promised goods is transferred to our customers, in an amount that reflects the consideration we expect to realize in exchange for those goods. The Company reports amounts billed to customers related to shipping and handling as revenue and includes costs incurred for shipping and handling in cost of sales. Amounts received for unshipped merchandise are not recognized as revenue but rather they are recorded as customer deposits and are included in current liabilities. In instances of shipments made on consignment, revenue is recognized when control is transferred to the customer. In accordance with Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers , revenue-generating contracts are assessed to identify distinct performance obligations, allocating transaction prices to those performance obligations, and criteria for satisfaction of a performance obligation. The standard allows for recognition of revenue only when we have satisfied a performance obligation through transferring control of the promised good or service to a customer. Control, in this instance, may mean the ability to prevent other entities from directing the use of, and receiving benefit from, a good or service. The standard indicates that an entity must determine at contract inception whether it will transfer control of a promised good or service over time or satisfy the performance obligation at a point in time through analysis of the following criteria: (i) the entity has a present right to payment, (ii) the customer has legal title, (iii) the customer has physical possession, (iv) the customer has the significant risks and rewards of ownership and (v) the customer has accepted the asset. The Company assesses collectability based primarily on the customer’s payment history and on the creditworthiness of the customer. Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents. The Company has funds in its cash accounts that are with third party financial institutions, primarily in certificates of deposit and money market funds. The Company's balances of cash and cash equivalents in the U.S. and other countries exceed the insurance limits of the Federal Deposit Insurance Corporation (“FDIC”) and other relevant insurance limits in other countries. Accounts Receivable Credit terms are granted in the normal course of business to the Company’s customers and on-going credit evaluations are performed on the Company’s customers. In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which requires that credit losses be reported based on expected losses instead of the incurred loss model. Based on this ASU, customers' credit limits are adjusted based upon their reasonably expected credit worthiness which is determined through review of their payment history, their current credit information, and any foreseeable future events. Collections and payments from customers are continuously monitored and allowances for credit losses for estimated losses resulting from the inability of the Company’s customers to make required payments are maintained. Estimated losses are based on historical experience, any specific customer collection issues identified, and any reasonably expected future adverse events. If the financial condition of our customers were to deteriorate resulting in an impairment of their ability to make payments, additional allowances and related bad debt expense may be required. 37 Table of Contents Inventories Inventories are valued at the lower of cost (first in, first out) or net realizable value and have been reduced by an allowance for excess or obsolete inventories. Cost elements include material, labor and manufacturing overhead. Property, Plant and Equipment and Depreciation Property, plant and equipment are stated at cost. Depreciation of plant and equipment is calculated using the straight-line method over the estimated useful lives of the assets as follows: Buildings 15 - 25 years Equipment 2 - 28 years Expenditures for repairs and maintenance are charged to expense. Alterations and major overhauls that extend the lives or increase the capacity of plant assets are capitalized. When assets are retired or otherwise disposed of, the cost of the assets and the related accumulated depreciation are removed from the accounts and any resultant gain or loss is included in earnings from operations. Business Concentrations Financial instruments that subject the Company to credit risk consist primarily of accounts receivable and money market investments. Investments are managed within established guidelines to mitigate risks. Accounts receivable subject the Company to credit risk partially due to the concentration of amounts due from customers. The Company extends credit to its customers based upon an evaluation of the customers’ financial condition and credit histories. In 2024, 2023 and 2022, no customer accounted for more than 10% of total net sales or accounts receivable. Post-employment Benefits We provide life insurance, health care benefits, and defined benefit pension plan payments for certain eligible retirees and health care benefits for certain retirees’ eligible survivors. The costs and obligations related to these benefits reflect our assumptions as to health care cost trends and key economic conditions including discount rates, expected rate of return on plan assets, and expected salary increases. The cost of providing plan benefits also depends on demographic assumptions including retirements, mortality, turnover, and plan participation. If actual experience differs from these assumptions, the cost of providing these benefits could increase or decrease. In accordance with ASC 715, “Compensation-Retirement Benefits,” we are required to recognize the overfunded or underfunded status of a defined benefit post retirement plan (other than a multiemployer plan) as an asset or liability in our statement of financial position, and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. Goodwill and Acquired Intangible Assets Goodwill represents the excess of purchase price over the fair value of net assets acquired in accordance with ASC 805, "Business Combinations". Goodwill and intangible assets acquired in a business combination that have indefinite useful lives are not amortized but are instead assessed for impairment annually and more frequently if events and circumstances indicate that the assets might be impaired, in accordance with the provisions of ASC 350, "Intangibles-Goodwill and Other". The Company performed its annual test as of October 1. ASC 350 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment if events and circumstances indicate that the assets might be impaired. In January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”), which addresses changes to the testing for goodwill impairment by eliminating Step 2 of the process. In accordance with this update, a goodwill impairment test will be performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. As of October 1, 2024 and 2023, the Company opted to bypass the qualitative assessment and proceeded directly to performing the quantitative goodwill impairment test. The Company assessed the fair values of its reporting units by utilizing the income approach, based on a discounted cash flow valuation model as the basis for its conclusions. The Company's estimates of future cash flows included significant management assumptions such as revenue growth rates, operating margins, certain components of 38 Table of Contents the discount rates, estimated terminal values and future economic and market conditions. The Company's assessment concluded that the fair values of the reporting units exceeded their carrying amounts, including goodwill. Accordingly, the goodwill of the reporting units was not considered impaired as of October 1, 2024 and 2023. The Company may resume performing the qualitative assessment in subsequent periods. The following intangible assets with finite lives are stated at cost and are amortized either on an accelerated basis or on a straight-line basis over the following estimated useful lives: Amortization Period (in years) Customer relationships and lists 10 - 20 Trademarks and trade names 2 - 17 Developed technology 5 - 12 Regulatory registration costs 5 - 10 Patents and trade secrets 15 - 17 Other 2 - 18 Intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. 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. The useful life of an intangible asset is based on our assumptions regarding expected use of the asset; the relationship of the intangible asset to another asset or group of assets; any legal, regulatory or contractual provisions that may limit the useful life of the asset or that enable renewal or extension of the asset’s legal or contractual life without substantial cost; the effects of obsolescence, demand, competition and other economic factors; and the level of maintenance expenditures required to obtain the expected future cash flows from the asset and their related impact on the asset’s useful life. If events or circumstances indicate that the life of an intangible asset has changed, it could result in higher future amortization charges or recognition of an impairment loss. For the year ended December 31, 2024, there were no triggering events which required intangible asset impairment reviews. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the fiscal year in which those temporary differences are expected to be recovered or settled. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. In evaluating our ability to recover our deferred tax assets, in full or in part, we consider all available positive and negative evidence, including our past operating results, our forecast of future market growth, forecasted earnings, future taxable income, and prudent and feasible tax planning strategies. The assumptions utilized in determining future taxable income require judgment and are consistent with the plans and estimates we are using to manage the underlying businesses. We recognize uncertain income tax positions taken on income tax returns at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a fifty percent likelihood of being sustained. Our policy for recording interest and penalties associated with uncertain tax positions is to record such items as a component of our income tax provision. Use of Estimates Management is required to make certain estimates and assumptions during the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and revenues and expenses during the reporting period. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Actual results could differ from those estimates. Fair Value of Financial Instruments The Company has a number of financial instruments, none of which are held for trading purposes. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. 39 Table of Contents Considerable judgment is required in interpreting market data to develop the estimates of fair value, and, accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The carrying value of debt approximates fair value as the interest rate is based on market and the Company’s consolidated leverage ratio. The Company’s financial instruments also include cash equivalents, accounts receivable, accounts payable and accrued liabilities, and are carried at cost which approximates fair value due to the short-term maturity of these instruments. In addition, non-current assets includes 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." Cost of Sales Cost of sales are primarily comprised of raw materials consumed in the manufacture of product, as well as manufacturing labor, maintenance labor, depreciation expense, and overhead expense necessary to convert purchased materials and supplies into finished product. Cost of sales also includes inbound freight costs, outbound freight costs for shipping products to customers, warehousing costs, quality control and obsolescence expense. Selling, General and Administrative Expenses Selling expenses consist primarily of compensation and benefit costs, amortization of customer relationships and lists, trade promotions, advertising, commissions and other marketing costs. General and administrative expenses consist primarily of payroll and benefit costs, occupancy and operating costs of corporate offices, depreciation and amortization expense on non-manufacturing assets, information systems costs and other miscellaneous administrative costs. Research and Development Research and development costs are associated directly with the Company's efforts to develop, design, and enhance its products, services, technologies, or processes. Such costs are expensed as incurred. Net Earnings Per Common Share Basic net earnings per common share is calculated by dividing net earnings by the weighted average number of common shares outstanding during the period. Diluted net earnings per common share is calculated in a manner consistent with basic net earnings per common share except that the weighted average number of common shares outstanding also includes the dilutive effect of stock options outstanding, unvested restricted stock, and unvested performance shares (using the treasury stock method). Stock-based Compensation The Company has stock-based employee compensation plans, which are described more fully in Note 3, Stockholders' Equity . The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation-Stock Compensation,” which requires all share-based payments, including grants of stock options, to be recognized in the statement of earnings as an operating expense, based on their fair values. The Company estimates the fair value of each option award on the date of grant using either the Black-Scholes model or the Binomial model, whichever is deemed to be most appropriate. Estimates of and assumptions about forfeiture rates, terms, volatility, interest rates and dividend yields are used to calculate stock-based compensation. A significant change to these estimates could materially affect the Company’s operating results. Impairment of Long-lived Assets Long-lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset, which is generally based on discounted cash flows. Derivative Instruments and Hedging Activities The Company is exposed to market fluctuations in interest rates as well as variability in foreign exchange rates. In May 2019, the Company entered into an interest rate swap with JP Morgan Chase, N.A. (the "Swap Counterparty") and a cross-currency swap with JP Morgan Chase, N.A. (the "Bank Counterparty"). The Company's primary objective for holding derivative financial instruments was to manage interest rate risk and foreign currency risk. The Company does not enter into derivative financial instruments for trading or speculative purposes. 40 Table of Contents The derivative instruments were with the above 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 consolidated balance sheet. The Company settled its derivative instruments on their maturity date of June 27, 2023 and had no other derivatives outstanding as of December 31, 2024 and 2023. On a quarterly basis through their maturity, we assessed the effectiveness of the hedging relationships for the interest rate swap and cross-currency swap by reviewing the critical terms indicated in the applicable agreement. The hedging relationships were determined to be highly effective. As such, the net change in fair values of the interest rate swap, that qualified as a cash flow hedge, was recorded in accumulated other comprehensive income/(loss) and subsequently reclassified into interest expense as interest payments were made on our debt. For the cross-currency swap, the amounts that have not yet been recognized in earnings remain in the cumulative translation adjustment section of accumulated other comprehensive income until the hedged net investment is sold or liquidated in accordance with paragraphs 815-35-35-5A, "Derivatives and Hedging - Net Investment Hedges", and 830-30-40-1 through 40-1A, "Foreign Currency Matters - Derecognition". Refer to Note 20, Derivative Instruments and Hedging Activities , for detailed information about our derivative financial instruments. Recently Issued Accounting Pronouncements In November 2024, the FASB issued ASU 2024-03, "Income Statement - Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40)." The new guidance is intended to enhance transparency and disclosures by requiring public entities to provide disaggregated disclosures of certain categories of expenses on an annual and interim basis. The ASU is effective for fiscal years beginning after December 15, 2026 and interim periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact that the adoption of ASU 2024-03 will have on the consolidated financial statements and related disclosures. In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740) - Improvements to Income Tax Disclosures." The new guidance is intended to enhance the transparency and decision usefulness of income tax disclosures by requiring disaggregated information about a reporting entity's effective tax rate reconciliation and information on income taxes paid. The amendment is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The amendment in this Update should be applied on a prospective basis, with retrospective application permitted. The Company is currently evaluating the impact that the adoption of ASU 2023-09 will have on the consolidated financial statements and related disclosures. Recently Adopted Accounting Pronouncements In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures." The ASU expands reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of a segment's profit or loss. The ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment's profit or loss in assessing segment performance and deciding how to allocate resources. Additionally, ASU 2023-07 requires all segment profit or loss and assets disclosures to be provided on an annual and interim basis. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning December 15, 2024. The Company adopted this accounting guidance on December 31, 2024, and applied it retrospectively to all prior periods presented in our consolidated financial statements. Refer to Note 11, Segment Information for the expanded disclosures. In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting", and in December 2022 subsequently issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848.” These ASU’s provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The Standards Updates provide optional expedients and exceptions for applying accounting principles generally accepted in the United States to contract modifications and hedging relationships that reference LIBOR or another reference rate that are expected to be discontinued. The Standards Updates were effective upon issuance and can generally be applied through December 31, 2024. Due to the discontinuation of LIBOR and under the relief provided by Topic 848, during the third quarter of 2022, the Company modified its interest rate swap and replaced LIBOR with 1-month CME Term SOFR. The modification of the agreement did not have a significant impact on the Company's consolidated financial statements and disclosures. The interest rate swap matured on June 27, 2023. 41 Table of Contents NOTE 2 – SIGNIFICANT ACQUISITIONS Cardinal Associates Inc. ("Bergstrom") On August 30, 2022, the Company's wholly-owned subsidiary Albion Laboratories, Inc. ("Albion") entered into a Stock Purchase Agreement, and closed on such transaction with Cardinal Associates Inc. ("Cardinal"), a corporation organized under the laws of the State of Washington, pursuant to which Albion acquired Cardinal and its Bergstrom Nutrition business (collectively, "Bergstrom"). Bergstrom Nutrition is a leading science-based manufacturer of MSM, based in Vancouver, Washington. MSM is a widely used nutritional ingredient with strong scientific evidence supporting its benefits for joint health, sports nutrition, skin and beauty, healthy aging, and pet health. The addition of OptiMSM ® , Bergstrom Nutrition's MSM brand, to the Company's portfolio within the Human Nutrition and Health and Animal Nutrition and Health segments provides a synergistic scientific advantage in Balchem's key strategic therapeutic focus areas such as longevity and performance and is a strong fit with Balchem's specialty, science-backed mineral products. The Company made payments of $ 72,143 for the acquisition, amounting to $ 71,937 to the former shareholders or on behalf of the former shareholders and $ 206 to pay off Bergstrom's bank debt. Net of cash acquired of $ 773 , total payments made to the former shareholders or on behalf of the former shareholders of Bergstrom were $ 71,164 . 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 had an opportunity to receive an additional payment in 2024 if certain financial performance targets and other metrics were met. The earn-out payment of $ 9 was paid out in 2024. Therefore, there was no contingent consideration liability at December 31, 2024. The Company also made an additional post-closing payment of $ 910 in the third quarter of 2023 that was negotiated as a deduction of the cash consideration at closing. As a result, total payments related to the transaction were $ 72,152 , comprised of the upfront cash consideration of $ 70,892 , a working capital adjustment of $ 341 , an additional post-closing payment of $ 910 , and the fair value of the earn-out payment of $ 9 . The goodwill of $ 31,550 that arose on the acquisition date consists largely of expected synergies, including the combined entities' experience and technical problem-solving capabilities, and acquired workforce. 80 % of the goodwill is assigned to the Human Nutrition and Health business segment and 20 % of the goodwill is assigned to the Animal Nutrition and Health business segment. For tax purposes, a joint election under 338(h)(10) was made to treat the stock acquisition as a deemed asset acquisition, therefore generating tax amortizable goodwill. 42 Table of Contents The following table summarizes the fair values of the assets acquired and liabilities assumed: Cash and cash equivalents $ 773 Accounts receivable 4,699 Inventories 3,972 Property, plant and equipment 2,243 Right of use assets 866 Customer relationships 29,900 Developed technology 4,600 Trademarks 2,300 Other assets 197 Accounts payable ( 699 ) Bank debt ( 206 ) Lease liabilities ( 871 ) Other liabilities ( 462 ) Goodwill 31,550 Total consideration on acquisition date and working capital adjustment 78,862 Net decrease to contingent consideration liability and other post-closing payments ( 6,916 ) Total consideration 71,946 To pay off bank debt 206 Total payments $ 72,152 The 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. Customer relationships are amortized over a 15-year period utilizing a percentage of excess earnings over economic life method. The corporate trademark and product trademarks are amortized over 2 years and 10 years, respectively, and developed technology is amortized over 12 years, utilizing the straight-line method as the consumption pattern of the related economic benefits cannot be reliably determined. Transaction and integration costs related to the Bergstrom acquisition are included in general and administrative expenses and were $( 91 ), $( 10,614 ) and $ 4,604 for the years ended December 31, 2024, 2023, and 2022, respectively. These amounts included favorable adjustments to transaction costs of $ 91 and $ 11,300 for the years ended December 31, 2024 and 2023 and an unfavorable adjustment to transaction costs of $ 3,565 for the year ended December 31, 2022. Kechu BidCo AS and Its Subsidiary Companies ("Kappa") On June 21, 2022, Balchem Corporation and its wholly-owned subsidiary, Balchem B.V., completed the acquisition of Kechu BidCo AS and its subsidiary companies, including Kappa Bioscience AS, a leading science-based manufacturer of specialty vitamin K2 for the human nutrition industry, headquartered in Oslo, Norway (all acquired companies collectively referred to as “Kappa”). Kappa manufactures specialty vitamin K2, which plays a crucial role in the human body for bone health, heart health and immunity. Primarily, vitamin K2 supports the transport and distribution of calcium in the body. Vitamin K2 is important at all life stages, from pregnancy and early life to healthy aging. The acquisition strengthens the Company's scientific and technical expertise, geographic reach, and marketplace leadership, which should ultimately lead to accelerated growth for the Company's portfolios within the Human Nutrition and Health segment. 43 Table of Contents The Company made payments of approximately kr 3,305,653 ("kr" indicates the Norwegian krone), amounting to approximately kr 3,001,981 to the former shareholders and approximately kr 303,672 to Kappa's lenders to pay off all Kappa bank debt. Net of cash acquired of kr 63,064 , total payments to the former shareholders were kr 2,938,917 . Net of gains on foreign currency forward contracts of $ 512 (see Note 20, Derivative Instruments and Hedging Activities ), these payments translated to approximately $ 333,112 , amounting to approximately $ 302,464 paid to the former shareholders and approximately $ 30,648 to Kappa's lenders. Net of cash acquired of $ 6,365 , total payments made to the former shareholders of Kappa were approximately $ 296,099 . The acquisition was primarily financed through the 2018 Credit Agreement. In connection with this transaction, the former shareholders of Kappa had an opportunity to receive an additional payment in 2024 if certain financial performance targets and other metrics were met. There was no contingent consideration paid in connection with this acquisition. 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. The goodwill is assigned to the Human Nutrition and Health business segment and is not deductible for income tax purposes. The following table summarizes the fair values of the assets acquired and liabilities assumed. The transactions were completed in Norwegian kroner ("NOK") and the amounts were translated to U.S. dollars ("USD") using the foreign currency exchange rate as of June 21, 2022. Cash and cash equivalents $ 6,365 Accounts receivable 8,036 Inventories 17,600 Property, plant and equipment 9,854 Right of use assets 3,349 Customer relationships 88,813 Developed technology 15,643 Trademarks 5,046 Other assets 2,399 Accounts payable ( 3,301 ) Bank debt ( 30,648 ) Lease liabilities ( 3,349 ) Other liabilities ( 4,461 ) Deferred income taxes, net ( 24,716 ) Goodwill 216,383 Total consideration on acquisition date 307,013 Decrease to contingent consideration liability ( 4,037 ) Net gain on foreign currency exchange forward contracts ( 512 ) Total consideration 302,464 Kappa bank debt paid on acquisition date 30,648 Total payments $ 333,112 The 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. Customer relationships are amortized over a 15-year period utilizing a percentage of excess earnings over economic life method. The corporate trademark and product trademarks are amortized over 2 years and 10 years, respectively, and developed technology is amortized over 12 years, utilizing the straight-line method as the consumption pattern of the related economic benefits cannot be reliably determined. Transaction and integration costs related to the Kappa acquisition are included in general and administrative expenses and were $ 688 , $ 533 and $( 2,306 ) for the years ended December 31, 2024, 2023, and 2022, respectively. The amount included a favorable adjustment to transaction costs of $ 4,037 for the year ended December 31, 2022. 44 Table of Contents The following selected unaudited pro forma information presents the consolidated results of operations as if the business combinations in 2022 had occurred as of January 1, 2021. Twelve Months ended December 31, Net Sales Net Earnings Kappa & Bergstrom actual results included in the Company's consolidated income statement in 2023 $ 59,532 $ 5,487 Kappa & Bergstrom actual results included in the Company's consolidated income statement in 2022 $ 22,158 $ ( 5,359 ) 2023 Supplemental pro forma combined financial $ 922,439 $ 116,317 2022 Supplemental pro forma combined financial $ 982,021 $ 110,181 2021 Supplemental pro forma combined financial $ 859,252 $ 90,672 The above selected unaudited pro forma information includes the following acquisition-related adjustments: (1) additional amortization of intangible assets and depreciation of fixed assets; (2) adjustments related to the fair value of the acquired inventory, (3) adjustments to interest expense on borrowings at rates in effect during the related period, factoring in estimated payments based on free cash flow, and (4) other one-time adjustments. The pro forma information presented does not purport to be indicative of the results that actually would have been attained if these acquisitions had occurred at the beginning of the periods presented and is not intended to be a projection of future results. NOTE 3 - STOCKHOLDERS’ EQUITY Stock-Based Compensation All share-based payments, including grants of stock options, are recognized in the statements of earnings as operating expenses, based on their fair values. 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 results for the years ended December 31, 2024, 2023 and 2022 reflected the following compensation cost and such compensation cost had the following effects on net earnings: Increase/(Decrease) for the Year Ended December 31, 2024 2023 2022 Cost of sales $ 1,716 $ 1,900 $ 1,302 Operating expenses 14,960 14,152 11,922 Net earnings ( 12,865 ) ( 12,375 ) ( 10,214 ) On December 31, 2024, the Company had one share-based compensation plan under which awards may be granted, which is described below. In June 2017, the Company’s shareholders approved the Balchem Corporation 2017 Omnibus Incentive Plan (“2017 Plan”) for officers, employees and directors of the Company and its subsidiaries. The 2017 Plan replaced the 1999 Stock Plan and amendments and restatements thereto (collectively to be referred to as the “1999 Plan"), which expired in April 2018. No further awards will be made under the 1999 Plan, and the shares that remained available for grant under the 1999 Plan will only be used to settle outstanding awards granted under the 1999 Plan and will not become available under the 2017 Plan. On June 22, 2023, the Company’s shareholders approved an amendment and restatement of the 2017 Plan (the “Amended 2017 Plan”). The 45 Table of Contents Amended 2017 Plan is administered by the Compensation Committee of the Board of Directors of the Company. The Amended 2017 Plan provides as follows: (i) for a termination date of June 22, 2033; (ii) the authorization of 2,400,000 shares for future grants (which represents an increase of 800,000 shares from the amount approved under the 2017 Plan); (iii) for the making of grants of stock options, stock appreciation rights, restricted stock awards, restricted stock units, and other stock-based awards, as well as for the making of cash performance awards; (iv) except as provided by the Compensation Committee or in an employment agreement as in effect on the effective date of the Amended 2017 Plan, no automatic acceleration of outstanding awards upon the occurrence of a change in control of the Company; (v) certain annual limits on the number of shares and amount of cash that may be granted; (vi) for dividends or dividend equivalents otherwise payable on an unvested award to accrue and be paid only at such time as the vesting conditions applicable to the underlying award have been satisfied; (vii) for incentive compensation recovery if the Company is required to prepare an accounting restatement of its financial statements, in accordance with any compensation recovery policy adopted by the Company, applicable law, government regulations or national securities exchange requirements, or in the discretion of the Compensation Committee in the event of a restatement due to the Company’s material noncompliance with any financial reporting requirements under the securities laws; and (viii) for compliance with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code” or the “Code”). No option will be exercisable for longer than ten years after the date of grant. The shares to be issued upon exercise of the outstanding options have been approved, reserved and are adequate to cover all exercises. As of December 31, 2024, the Amended 2017 Plan had 836,521 shares available for future awards. The Company has Restricted Stock Grant Agreements with the Company's non–employee directors and certain employees. Under the Restricted Stock Grant Agreements, certain shares of the Common Stock have been granted, ranging from 70 shares to 54,000 shares, to its non-employee directors and certain employees, subject to time-based vesting requirements. The Company also has performance share (“PS”) awards, which provide the recipients the right to receive a certain number of shares of the Common Stock in the future, subject to an (1) EBITDA performance hurdle, where vesting is dependent upon the Company achieving a certain EBITDA percentage growth over the performance period, and (2) relative total shareholder return (“TSR”) market condition where vesting is dependent upon the Company’s TSR performance over the performance period (typically three years ) relative to a comparator group consisting of the Russell 2000 index constituents. The fair value of each option award issued under the Company’s stock plans is estimated on the date of grant using either the Black-Scholes model or the Binomial model, whichever is deemed to be most appropriate. For the years ended December 31, 2024, 2023, and 2022, the fair value of each option grant uses the assumptions noted in the following table. Expected volatilities are based on historical volatility of the Company’s stock. The expected term of the options is based on the Company’s historical experience of employees’ exercise behavior. Dividend yields are based on the Company’s historical dividend yields. Risk-free interest rates are based on the implied yields currently available on U.S. Treasury zero coupon issues with a remaining term equal to the expected life. Year Ended December 31, Weighted Average Assumptions: 2024 2023 2022 Expected Volatility 28.4 % 28.1 % 30.3 % Expected Term (in years) 5.0 4.8 7.3 Risk-Free Interest Rate 4.1 % 3.9 % 2.8 % Dividend Yield 0.6 % 0.5 % 0.5 % The value of the restricted shares is based on the fair value of the award at the date of grant. Performance Share expense is measured based on the fair value at the date of grant utilizing a Black-Scholes methodology to produce a Monte-Carlo simulation model which allows for the incorporation of the performance hurdles that must be met before the Performance Share vests. The assumptions used in the fair value determination were risk free interest rates of 4.2 %, 4.2 %, and 1.8 %; dividend yields of 0.0 %, 0.5 %, and 0.5 %; volatilities of 25 %, 32 %, and 32 %; and initial TSR’s of 10.3 %, 4.2 %, and - 15.7 % in each case for the years ended December 31, 2024, 2023, and 2022, respectively. Expense is based on the estimated number of shares expected to vest, assuming the requisite service period is rendered and the probable outcome of the performance condition is achieved. The estimate is revised if subsequent information indicates that the actual number of shares likely to vest differs from previous estimates. Expense is ultimately adjusted based on the actual achievement of service and performance targets. The Performance Shares will cliff vest 100 % at the end of the third year following the grant in accordance with the performance metrics set forth. 46 Table of Contents Compensation expense for stock options and stock awards is recognized on a straight-line basis over the vesting period, generally three to five years for stock options, three years for employee restricted stock awards, three years for employee performance share awards, and three years for non-employee director restricted stock awards. A summary of stock option plan activity for 2024, 2023, and 2022 for all plans is as follows: 2024 2023 2022 # of Shares (000s) Weighted Average Exercise Price # of Shares (000s) Weighted Average Exercise Price # of Shares (000s) Weighted Average Exercise Price Outstanding at beginning of year 1,078 $ 104.38 1,045 $ 99.82 867 $ 88.19 Granted 113 143.43 109 138.09 239 139.04 Exercised ( 221 ) 77.81 ( 64 ) 81.98 ( 44 ) 73.58 Forfeited ( 8 ) 139.64 ( 11 ) 131.79 ( 17 ) 124.89 Cancelled — — ( 1 ) 138.07 — — Outstanding at end of year 962 $ 114.81 1,078 $ 104.38 1,045 $ 99.82 Exercisable at end of year 603 $ 99.59 720 $ 88.49 654 $ 81.95 The aggregate intrinsic value for outstanding stock options was $ 46,346 , $ 47,889 and $ 27,221 at December 31, 2024, 2023 and 2022, respectively, with a weighted average remaining contractual term of 5.8 years at December 31, 2024. Exercisable stock options at December 31, 2024 had an aggregate intrinsic value of $ 38,221 with a weighted average remaining contractual term of 4.4 years. Other information pertaining to option activity during the years ended December 31, 2024, 2023 and 2022 is as follows: Years Ended December 31, 2024 2023 2022 Weighted-average fair value of options granted $ 44.52 $ 40.91 $ 44.77 Total intrinsic value of stock options exercised ($000s) $ 18,631 $ 3,241 $ 2,713 Additional information related to stock options outstanding under all plans at December 31, 2024 is as follows: Options Outstanding Options Exercisable Range of Exercise Prices Shares Outstanding (000s) Weighted Average Remaining Contractual Term Weighted Average Exercise Price Number Exercisable (000s) Weighted Average Exercise Price $ 58.52 - $ 85.33 222 3.1 $ 76.14 222 $ 76.14 $ 85.40 - $ 118.60 212 4.0 101.92 212 101.92 $ 118.96 - $ 150.85 528 7.6 136.24 169 127.47 962 5.8 $ 114.81 603 $ 99.59 47 Table of Contents Non-vested restricted stock activity for the years ended December 31, 2024, 2023 and 2022 is summarized below: 2024 2023 2022 Shares (000s) Weighted Average Grant Date Fair Value Shares (000s) Weighted Average Grant Date Fair Value Shares (000s) Weighted Average Grant Date Fair Value Non-vested balance at beginning of year 116 $ 133.06 122 $ 124.42 166 $ 99.70 Granted 51 147.98 40 137.20 46 137.17 Vested ( 39 ) 124.63 ( 42 ) 112.30 ( 82 ) 82.15 Forfeited ( 6 ) 140.70 ( 4 ) 128.06 ( 8 ) 118.07 Non-vested balance at end of year 122 $ 141.62 116 $ 133.06 122 $ 124.42 Non-vested performance share activity for the years ended December 31, 2024, 2023 and 2022 is summarized below: 2024 2023 2022 Shares (000s) Weighted Average Grant Date Fair Value Shares (000s) Weighted Average Grant Date Fair Value Shares (000s) Weighted Average Grant Date Fair Value Non-vested balance at beginning of year 76 $ 135.25 70 $ 127.69 69 $ 110.72 Granted 47 152.28 42 139.66 39 114.22 Vested ( 44 ) 106.57 ( 36 ) 98.84 ( 35 ) 53.17 Forfeited — — — — ( 3 ) 84.09 Non-vested balance at end of year 79 $ 150.73 76 $ 135.25 70 $ 127.69 As of December 31, 2024, 2023 and 2022, there was $ 20,035 , $ 18,817 and $ 20,791 , respectively, of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plans. As of December 31, 2024, the unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately 1.5 years. We estimate that share-based compensation expense for the year ended December 31, 2025 will be approximately $ 16,900 . Repurchase of Common Stock The Company's Board of Directors has approved a stock repurchase program. The total authorization under this program is 3,763,038 shares. Since the inception of the program in June 1999, a total of 3,142,028 shares have been purchased. 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. 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 2024, 2023, and 2022, the Company purchased 38,922 , 32,558 , and 252,304 shares, respectively, from open market purchases and from employees on a net-settlement basis to provide cash to employees to cover the associated employee payroll taxes. These shares were purchased at an average cost of $ 145.99 , $ 137.29 , and $ 140.40 per share, respectively. 48 Table of Contents NOTE 4 - INVENTORIES Inventories, net of reserves at December 31, 2024 and 2023 consisted of the following: 2024 2023 Raw materials $ 45,319 $ 39,517 Work in progress 4,510 3,960 Finished goods 80,973 66,044 Total inventories $ 130,802 $ 109,521 On a regular basis, the Company evaluates its inventory balances for excess quantities and obsolescence by analyzing demand, inventory on hand, sales levels and other information. Based on these evaluations, inventory balances are reserved, if necessary. The reserve for inventory was $ 4,207 and $ 2,463 at December 31, 2024 and 2023, respectively. NOTE 5 - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at December 31, 2024 and 2023 are summarized as follows: 2024 2023 Land $ 11,690 $ 11,787 Building 106,954 104,363 Equipment 315,001 312,704 Construction in progress 77,508 59,981 511,153 488,835 Less: Accumulated depreciation 228,999 212,796 Property, plant and equipment, net $ 282,154 $ 276,039 Geographic Area Data - Long-Lived Assets (excluding intangible assets): 2024 2023 United States $ 204,397 $ 203,692 Foreign Countries 77,757 72,347 Total $ 282,154 $ 276,039 Depreciation expense was $ 28,211 , $ 26,373 and $ 24,033 for the years ended December 31, 2024, 2023 and 2022, respectively. 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" was $ 521 of restructuring-related impairment charges related to an asset that was held for sale for the year ended December 31, 2024. Included in “General and administrative expenses” were restructuring-related impairment and asset disposal charges of $ 7,764 related to building, equipment, and construction in progress mainly in the Human Nutrition and Health and the Animal Nutrition and Health segments for the year ended December 31, 2023. Such expenses were not material for the year ended December 31, 2022. NOTE 6 - INTANGIBLE ASSETS The Company had goodwill in the amount of $ 780,030 and $ 778,907 as of December 31, 2024 and 2023, respectively, subject to the provisions of ASC 350, “Intangibles-Goodwill and Other.” The increase in goodwill is primarily due to an acquisition, partially offset by foreign currency translation adjustments. 49 Table of Contents Goodwill at December 31, 2022 $ 769,509 Goodwill as a result of an acquisition 341 Impact due to change in foreign exchange rates 9,057 Goodwill at December 31, 2023 778,907 Goodwill as a result of an acquisition 19,376 Impact due to change in foreign exchange rates ( 18,253 ) Goodwill at December 31, 2024 $ 780,030 December 31, 2024 December 31, 2023 HNH $ 678,275 $ 673,207 ANH 23,974 24,469 Specialty Products 77,732 81,175 Other and Unallocated 49 56 Total $ 780,030 $ 778,907 As of December 31, 2024 and 2023, the Company had identifiable intangible assets as follows: 2024 2023 Amortization Period (In years) Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Customer relationships and lists 10 - 20 $ 354,051 $ 221,567 $ 362,032 $ 209,651 Trademarks and trade names 2 - 17 50,971 41,417 50,286 37,773 Developed technology 5 - 12 40,074 20,362 41,184 17,516 Other 2 - 18 25,154 21,854 25,733 23,083 $ 470,250 $ 305,200 $ 479,235 $ 288,023 Amortization of identifiable intangible assets was $ 19,244 , $ 28,035 and $ 27,271 for 2024, 2023 and 2022, respectively. Assuming no change in the gross carrying value of identifiable intangible assets, the estimated amortization expense is approximately $ 16,417 in 2025, $ 16,334 in 2026, $ 15,816 in 2027, $ 15,419 in 2028, and $ 15,017 in 2029. At December 31, 2024 and 2023, there were no identifiable intangible assets with indefinite useful lives as defined by ASC 350, “Intangibles-Goodwill and Other.” Identifiable intangible assets are reflected in the Company’s consolidated balance sheets under Intangible assets with finite lives, net. There were no changes to the useful lives of intangible assets subject to amortization in 2024 and 2023. 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 U.S. Environmental Protection Agency (the "EPA") because they are considered pesticides. Costs of such registrations are included in other in the table above. 50 Table of Contents NOTE 7 – EQUITY-METHOD INVESTMENT In 2013, the Company and Eastman Chemical Company formed a joint venture ( 66.66 % / 33.34 % ownership), St. Gabriel CC Company, LLC, to design, develop, and construct an expansion of the Company’s St. Gabriel aqueous choline chloride plant. The Company contributed the St. Gabriel plant, at cost, and all continued expansion and improvements are funded by the owners. The joint venture became operational as of July 1, 2016. St. Gabriel CC Company, LLC is a Variable Interest Entity ("VIE") because the total equity at risk is not sufficient to permit the joint venture to finance its own activities without additional subordinated financial support. Additionally, voting rights ( 2 votes each) are not proportionate to the owners’ obligation to absorb expected losses or receive the expected residual returns of the joint venture. The Company generally receives up to 2/3 of the production offtake capacity, which (percentage of offtake) may be adjusted from time to time to the extent the owners agree as such, and absorbs operating expenses approximately proportional to the actual percentage of offtake. The joint venture is accounted for under the equity method of accounting since the Company is not the primary beneficiary as the Company does not have the power to direct the activities of the joint venture that most significantly impact its economic performance. The Company recognized a loss of $ 489 , $ 509 , and $ 559 for the years ended December 31, 2024, 2023, and 2022, respectively, relating to its portion of the joint venture’s expenses in other expense. The Company made capital contributions to the investment totaling $ 269 , $ 290 , and $ 355 for the years ended December 31, 2024, 2023, and 2022 respectively. The carrying value of the joint venture at December 31, 2024 and 2023 was $ 3,856 and $ 4,076 , respectively, and is recorded in "Other non-current assets" on the consolidated balance sheets. NOTE 8 – REVOLVING LOAN On July 27, 2022, the Company entered into an Amended and Restated Credit Agreement (the "2022 Credit Agreement") with certain lenders in the form of a senior secured revolving credit facility, due on July 27, 2027. The 2022 Credit Agreement allows for up to $ 550,000 of borrowing. The loans may be used for working capital, letters of credit, and other corporate purposes and may be drawn upon at the Company's discretion. As of December 31, 2024 and 2023, the total balance outstanding on the 2022 Credit Agreement amounted to $ 190,000 and $ 309,569 , respectively. There are no installment payments required on the revolving loans; they may be voluntarily prepaid in whole or in part without premium or penalty, and all outstanding amounts are due on the maturity date. Amounts outstanding under the 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 5.438 % at December 31, 2024. 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 % ( 0.150 % at December 31, 2024). The unused portion of the revolving loan amounted to $ 360,000 at December 31, 2024. 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. Capitalized costs net of accumulated amortization totaled $ 743 and $ 1,030 at December 31, 2024 and 2023, respectively, and are included in "Other non-current assets" on the consolidated balance sheets. Amortization expense pertaining to these costs totaled $ 287 , $ 287 , and $ 335 for the years ended December 31, 2024, 2023, and 2022, respectively, and are included in "Interest expense" in the accompanying 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 December 31, 2024, the Company was in compliance with these covenants. Indebtedness under the Company’s loan agreements is secured by assets of the Company. 51 Table of Contents NOTE 9 - NET EARNINGS PER COMMON SHARE The following presents a reconciliation of the net earnings and shares used in calculating basic and diluted net earnings per common share: Year Ended December 31, 2024 2023 2022 Net Earnings - Basic and Diluted $ 128,475 $ 108,543 $ 105,367 Share (000s) Weighted Average Common Shares - Basic 32,332 32,108 32,019 Effect of Dilutive Securities – Stock Options, Restricted Stock, and Performance Shares 386 340 374 Weighted Average Common Shares - Diluted 32,718 32,448 32,393 Net Earnings Per Share - Basic $ 3.97 $ 3.38 $ 3.29 Net Earnings Per Share - Diluted $ 3.93 $ 3.35 $ 3.25 The number of anti-dilutive shares were 230,302 , 354,619 , and 371,513 for the years ended December 31, 2024, 2023, and 2022. 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 2024, 2023 and 2022 was 22.8 %, 20.9 % , and 21.2 %, respectively . The increase from 2023 to 2024 is primarily due to an increase in certain foreign taxes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company regularly reviews its deferred tax assets for recoverability and would establish a valuation allowance if it believed that such assets may not be recovered, taking into consideration historical operating results, expectations of future earnings, changes in its operations and the expected timing of the reversals of existing temporary differences. The Company considers the undistributed earnings of certain non-U.S. subsidiaries to be indefinitely reinvested outside of the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and the Company's specific plans for reinvestment of those subsidiary earnings. In 2023, due to prevailing economic conditions of increased interest rates and subsequent borrowing costs, the Company remitted approximately $ 18,000 from its Belgium subsidiary and incurred an income tax expense of approximately $ 20 in the year ended December 31, 2023. The remittance was used to pay down U.S. debt. There was no such remittance during the year ended December 31, 2024. The Company projects that its foreign earnings will be utilized offshore for working capital and future foreign growth. The determination of the unrecognized deferred tax liability on those undistributed earnings is not practicable due to its legal entity structure and the complexity of U.S. and local country tax laws. If the Company decides to change its assertion on its remaining undistributed foreign earnings, it will need to recognize the income tax effects in the period it changes its assertion. 52 Table of Contents Income tax expense consists of the following: 2024 2023 2022 Current: Federal $ 30,208 $ 27,306 $ 26,423 Foreign 10,376 7,634 7,103 State 4,173 4,403 3,964 Deferred: Federal ( 2,442 ) ( 7,737 ) ( 7,532 ) Foreign ( 3,192 ) ( 2,285 ) ( 215 ) State ( 1,145 ) ( 603 ) ( 1,361 ) Total income tax provision $ 37,978 $ 28,718 $ 28,382 The provision for income taxes differs from the amount computed by applying the Federal statutory rate of 21% for 2024, 2023, and 2022 to earnings before income tax expense due to the following: 2024 2023 2022 Income tax at Federal statutory rate $ 34,955 $ 28,825 $ 28,087 State income taxes, net of Federal income taxes 2,284 2,513 1,862 Change in foreign tax reserves 2,146 — — Stock options ( 1,904 ) ( 1,004 ) ( 676 ) Foreign-derived intangible income (FDII) ( 1,562 ) ( 1,752 ) ( 1,778 ) Foreign rate differential 1,024 946 2,066 Other 1,035 ( 810 ) ( 1,179 ) Total income tax provision $ 37,978 $ 28,718 $ 28,382 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2024 and 2023 were as follows: 2024 2023 Deferred tax assets: Inventories $ 2,437 $ 1,049 Share-based compensation 4,476 5,565 Lease liabilities 4,296 4,812 Research and development 12,838 12,653 Other 5,658 3,874 Total deferred tax assets 29,705 27,953 Deferred tax liabilities: Amortization $ ( 38,532 ) $ ( 42,351 ) Depreciation ( 26,234 ) ( 28,937 ) Prepaid expenses ( 306 ) ( 421 ) Foreign currency and interest rate swaps ( 642 ) ( 647 ) Right of use assets ( 4,032 ) ( 4,574 ) Other ( 3,656 ) ( 3,047 ) Total deferred tax liabilities ( 73,402 ) ( 79,977 ) Valuation allowance ( 25 ) ( 22 ) Net deferred tax liability $ ( 43,722 ) $ ( 52,046 ) 53 Table of Contents As of December 31, 2024, the Company has state income tax net operating loss (NOL) carryforwards of $ 314 . The state NOL carryforwards will expire between 2026 and 2035. The Company believes that the benefit from the state NOL carryforwards will not be realized, therefore, a valuation allowance has been established in the amount of $ 25 . Provisions of ASC 740-10 clarify whether or not to recognize assets or liabilities for tax positions taken that may be challenged by a tax authority. A reconciliation of the beginning and ending amount of unrecognized tax benefits, which is included in other long-term obligations on the Company’s consolidated balance sheets, is as follows: 2024 2023 2022 Balance at beginning of period $ 4,650 $ 5,815 $ 5,881 Increases for tax positions of prior years 3,211 1,353 2,194 Decreases for tax positions of prior years ( 1,141 ) ( 2,518 ) ( 2,260 ) Balance at end of period $ 6,720 $ 4,650 $ 5,815 All of Balchem's unrecognized tax benefits, if recognized in future periods, would impact the Company's effective tax rate in such future periods. The Company recognizes both interest and penalties as part of the income tax provision. During the years ended December 31, 2024, 2023 and 2022, these amounts were increased by $ 939 and reduced by $ 322 , and $ 371 , respectively. As of December 31, 2024 and 2023, accrued interest and penalties were $ 2,352 and $ 1,413 , respectively. Balchem files income tax returns in the U.S. and in various states and foreign countries. In the major jurisdictions where the Company operates, it is generally no longer subject to income tax examinations by tax authorities for years before 2020 and management does not anticipate any material change in the total amount of unrecognized tax benefits to occur within the next twelve months. The European Union (“EU”) member states formally adopted the EU’s Pillar Two Directive, which was established by the Organization for Economic Co-operation and Development. Pillar Two generally provides for a 15 percent minimum effective tax rate for the jurisdictions where multinational enterprises operate. While the Company does not anticipate that this will have a material impact on its tax provision or effective tax rate, the Company continues to monitor evolving tax legislation in the jurisdictions in which it operates. NOTE 11 - SEGMENT INFORMATION Balchem Corporation reports three reportable segments: Human Nutrition and Health, Animal Nutrition and Health, and Specialty Products. The reportable segments are organized based on the end use of the products manufactured and sold. Sales and production of products outside of our reportable segments and other minor business activities are included in "Other and Unallocated." Human Nutrition and Health The Human Nutrition and Health ("HNH") segment provides human grade choline nutrients and mineral amino acid chelated products through this segment for nutrition and health applications. Choline is recognized to play a key role in the development and structural integrity of brain cell membranes in infants, processing dietary fat, reproductive development and neural functions, such as memory and muscle function. The Company's mineral amino acid chelates, specialized mineral salts, and mineral complexes are used as raw materials for inclusion in premier human nutrition products; proprietary technologies have been combined to create an organic molecule in a form the body can readily assimilate. Sales growth for human nutrition applications is reliant on differentiation from lower-cost competitive products through scientific data, intellectual property and customers' appreciation of brand value. 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. The Company partners with its customers from ideation through commercialization to bring on-trend beverages, baked goods, confections, dairy and meat products to market. The Company has expertise in trends analysis and product development. With its strong manufacturing capabilities in customized spray dried and emulsified powders, extrusion and agglomeration, blended lipid systems, liquid flavor delivery systems, juice and dairy bases, chocolate systems, ice cream bases and variegates, the Company is a one-stop solutions provider for beverage and 54 Table of Contents dairy product development needs. Additionally, this segment provides microencapsulation solutions to a variety of applications in food, pharmaceutical and nutritional ingredients to enhance performance of nutritional fortification, processing, mixing, and packaging applications and shelf-life. Major product applications are baked goods, refrigerated and frozen dough systems, processed meats, seasoning blends, confections, sports and protein bars, dietary plans, and nutritional supplements. The Company also creates cereal systems for ready-to-eat cereals, grain-based snacks, and cereal based ingredients. Animal Nutrition and Health The Animal Nutrition and Health ("ANH") segment provides nutritional products derived from its microencapsulation and chelation technologies in addition to the essential nutrient choline chloride. For ruminant animals, the Company’s microencapsulated products boost health and milk production by delivering nutrient supplements that are biologically available, providing required nutritional levels. The Company’s proprietary chelation technology provides enhanced nutrient absorption for various species of production and companion animals and is marketed for use in animal feed throughout the world. ANH also manufactures and supplies choline chloride, an essential nutrient for monogastric animal health, predominantly to the poultry, pet and swine industries. Choline, which is manufactured and sold in both dry and aqueous forms, plays a vital role in the metabolism of fat. In poultry, choline deficiency can result in reduced growth rates and perosis in young birds, while in swine production choline is a necessary and required component of gestating and lactating sow diets for both liver health and prevention of leg deformity. 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. Management believes that success in the commodity-oriented choline chloride marketplace is highly dependent on the Company’s ability to maintain its strong reputation for excellent product quality and customer service. The Company continues to drive production efficiencies in order to maintain its competitive-cost position to effectively compete in a competitive global marketplace. Specialty Products The Specialty Products segment ("SP") re-packages and distributes a number of performance gases and chemicals for various uses by its customers, notably ethylene oxide, propylene oxide, and ammonia. Ethylene oxide is sold as a sterilant gas, primarily for use in the health care industry. It is used to sterilize a wide range of medical devices because of its versatility and effectiveness in treating hard or soft surfaces, composites, metals, tubing and different types of plastics without negatively impacting the performance of the device being sterilized. 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, 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. The Company’s inventory of these specially built drums and cylinders, along with its five filling facilities, represents a significant capital investment. The Company also sells single use canisters for use in sterilizing re-usable devices typically processed in autoclave units in hospitals. The Company’s micronutrient agricultural nutrition business sells chelated minerals primarily to producers of high value crops. The Company has a unique and patented two-step approach to solving mineral deficiency in plants to optimize health, yield and shelf-life. First, the Company determines optimal mineral balance for plant health. The Company then has a foliar applied Metalosate ® product range, utilizing patented amino acid chelate technology. Its products quickly and efficiently deliver mineral nutrients. As a result, the farmer/grower gets healthier crops that are more resistant to disease and pests, larger yields and healthier food for the consumer with extended shelf life for produce being shipped long distances. The Company's CODM is the Chief Executive Officer. The CODM receives a profit and loss reporting package which provides segment information including revenue, cost of goods sold, gross margin, total operating expenses, and earnings from operations. The CODM utilizes this monthly profit and loss reporting package to analyze segment performance and appropriately allocate resources. 55 Table of Contents Pursuant to ASU 2023-07, "Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures", the significant segment information is summarized as follows: For the Year Ended December 31, 2024 HNH ANH SP Other and Unallocated Total Net sales $ 600,258 $ 214,710 $ 132,749 $ 5,967 $ 953,684 Cost of sales 378,411 (1) 171,409 (1) 59,449 (1) 8,209 (1) 617,478 Gross margin 221,847 43,301 73,300 ( 2,242 ) 336,206 Operating expenses 85,890 (2) 29,288 (3) 33,394 (4) 4,725 (5) 153,297 Earnings from operations 135,957 14,013 39,906 ( 6,967 ) 182,909 Other expenses: Interest expense, net 16,528 Other income ( 72 ) 16,456 Earnings before income tax expense 166,453 Income tax expense 37,978 Net earnings $ 128,475 (1) Cost of sales are primarily comprised of raw materials consumed in the manufacture of product, as well as manufacturing labor, maintenance labor, depreciation expense, and overhead expense necessary to convert purchased materials and supplies into finished product. Cost of sales also includes inbound freight costs, outbound freight costs for shipping products to customers, warehousing costs, quality control and obsolescence expense. (2) Operating expenses w ithin HNH are primarily comprised of compensation-related costs, professional services, including advertising and marketing costs, and amortization expense in connection with certain acquired intangible assets. (3) Operating expenses within ANH are primarily comprised of compensation-related costs and professional services, including advertising and marketing costs. (4) Operating expenses within SP are primarily comprised of compensation-related costs, professional services, and amortization expense in connection with certain acquired intangible assets. (5) Operating expenses within Other and Unallocated are primarily comprised of transaction and integration costs. For the Year Ended December 31, 2023 HNH ANH SP Other and Unallocated Total Net sales $ 550,751 $ 238,326 $ 125,965 $ 7,397 $ 922,439 Cost of sales 366,539 (6) 183,827 (6) 62,183 (6) 7,834 (6) 620,383 Gross margin 184,212 54,499 63,782 ( 437 ) 302,056 Operating expenses 81,793 (7) 26,923 (8) 29,203 (9) 4,944 (10) 142,863 Earnings from operations 102,419 27,576 34,579 ( 5,381 ) 159,193 Other expenses: Interest expense, net 22,613 Other income ( 681 ) 21,932 Earnings before income tax expense 137,261 Income tax expense 28,718 Net earnings $ 108,543 56 Table of Contents (6) Cost of sales are primarily comprised of raw materials consumed in the manufacture of product, as well as manufacturing labor, maintenance labor, depreciation expense, and overhead expense necessary to convert purchased materials and supplies into finished product. Cost of sales also includes inbound freight costs, outbound freight costs for shipping products to customers, warehousing costs, quality control and obsolescence expense. (7 Operating expenses w ithin HNH are primarily comprised of compensation-related costs, professional services, including advertising and marketing costs, and amortization expense in connection with certain acquired intangible assets. These expenses were partially offset by favorable adjustments to transaction costs. (8) Operating expenses within ANH are primarily comprised of compensation-related costs and professional services, including advertising and marketing costs. These expenses were partially offset by favorable adjustments to transaction costs. (9) Operating expenses within SP are primarily comprised of compensation-related costs, professional services, and amortization expense in connection with certain acquired intangible assets. (10) Operating expenses within Other and Unallocated are primarily comprised of transaction and integration costs and unallocated amortization expense related to an intangible asset in connection with a company-wide ERP system implementation. For the Year Ended December 31, 2022 HNH ANH SP Other and Unallocated Total Net sales $ 527,131 $ 262,297 $ 131,438 $ 21,492 $ 942,358 Cost of sales 373,063 (11) 200,252 (11) 70,343 (11) 18,249 (11) 661,907 Gross margin 154,068 62,045 61,095 3,243 280,451 Operating expenses 71,943 (12) 25,989 (13) 28,306 (14) 9,027 (15) 135,265 Earnings from operations 82,125 36,056 32,789 ( 5,784 ) 145,186 Other expenses: Interest expense, net 10,268 Other expense 1,169 11,437 Earnings before income tax expense 133,749 Income tax expense 28,382 Net earnings $ 105,367 (11) Cost of sales are primarily comprised of raw materials consumed in the manufacture of product, as well as manufacturing labor, maintenance labor, depreciation expense, and overhead expense necessary to convert purchased materials and supplies into finished product. Cost of sales also includes inbound freight costs, outbound freight costs for shipping products to customers, warehousing costs, quality control and obsolescence expense. (12) Operating expenses w ithin HNH are primarily comprised of compensation-related costs, professional services, including advertising and marketing costs, and amortization expense in connection with certain acquired intangible assets. (13) Operating expenses within ANH are primarily comprised of compensation-related costs and professional services, including advertising and marketing costs. (14) Operating expenses within SP are primarily comprised of compensation-related costs, professional services, and amortization expense in connection with certain acquired intangible assets. (15) Operating expenses within Other and Unallocated are primarily comprised of transaction and integration costs, unallocated legal fees, and unallocated amortization expense related to an intangible asset in connection with a company-wide ERP system implementation. 57 Table of Contents Business Segment Assets 2024 2023 HNH $ 1,185,962 $ 1,180,527 ANH 161,243 166,994 SP 161,283 168,307 Other and Unallocated (16) 66,883 81,383 Total $ 1,575,371 $ 1,597,211 (16) Other and Unallocated assets consist of certain cash, capitalized loan issuance costs, other assets, investments, and income taxes, which the Company does not allocate to its individual business segments. It also includes assets associated with a few minor businesses which individually do not meet the quantitative thresholds for separate presentation. Depreciation/Amortization 2024 2023 2022 HNH $ 31,668 $ 38,568 $ 33,728 ANH 8,233 7,876 6,685 SP 7,044 7,278 7,507 Other and Unallocated 1,028 1,213 3,928 Total $ 47,973 $ 54,935 $ 51,848 Capital Expenditures 2024 2023 2022 HNH $ 17,570 $ 26,415 $ 33,668 ANH 13,201 6,993 10,809 SP 4,050 3,535 4,004 Other and Unallocated 327 331 605 Total $ 35,148 $ 37,274 $ 49,086 NOTE 12 - REVENUE Revenue Recognition Revenues are recognized when control of the promised goods is transferred to customers, in an amount that reflects the consideration we expect to realize in exchange for those goods. The following table presents revenues disaggregated by revenue source. Sales and usage-based taxes are excluded from revenues: 2024 2023 2022 Product Sales Revenue $ 951,947 $ 919,951 $ 939,166 Royalty Revenue 1,737 2,488 3,192 Total Revenue $ 953,684 $ 922,439 $ 942,358 The following table presents revenues disaggregated by geography, based on customers' delivery addresses: 2024 2023 2022 United States $ 723,300 $ 689,601 $ 682,238 Foreign Countries 230,384 232,838 260,120 Total $ 953,684 $ 922,439 $ 942,358 58 Table of Contents Product Sales Revenues The Company’s primary operation is the manufacturing and sale of health and wellness ingredient products, in which the Company receives an order from a customer and fulfills that order. The Company’s product sales are considered point-in-time revenue. Royalty Revenues Royalty revenue consists of agreements with customers to use the Company’s intellectual property in exchange for a sales-based royalty. Royalties are considered over time revenue and are recorded in the HNH segment. Contract Liabilities The Company records contract liabilities when cash payments are received or due in advance of performance, including amounts which are refundable. The Company’s payment terms vary by the type and location of customers and the products offered. The term between invoicing and when payment is due is not significant. For certain products or services and customer types, the Company requires payment before the products are delivered to the customer. Practical Expedients and Exemptions The Company generally expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling and marketing expenses. The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for products shipped. NOTE 13 - SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the year for: 2024 2023 2022 Income taxes $ 42,643 $ 35,725 $ 33,016 Interest $ 17,697 $ 25,933 $ 11,879 Non-cash financing and investing activities: 2024 2023 2022 Dividends payable $ 28,510 $ 25,717 $ 23,129 Contingent consideration liability $ — $ — $ 11,872 59 Table of Contents NOTE 14 – ACCUMULATED OTHER COMPREHENSIVE INCOME The changes in accumulated other comprehensive income (loss) were as follows: Years Ended December 31, 2024 2023 2022 Net foreign currency translation adjustment $ ( 32,590 ) $ 16,809 $ ( 4,799 ) Net change of cash flow hedge (see Note 20 for further information) Unrealized (loss) gain on cash flow hedge — ( 1,406 ) 3,564 Tax — 341 ( 868 ) Net of tax — ( 1,065 ) 2,696 Net change in postretirement benefit plan (see Note 15 for further information) Prior service loss (gain) arising during the period 206 132 ( 41 ) Amortization of prior service credit — — 9 Amortization of (gain) loss ( 10 ) 8 ( 2 ) Total before tax 196 140 ( 34 ) Tax ( 44 ) ( 39 ) ( 24 ) Net of tax 152 101 ( 58 ) Total other comprehensive (loss) income $ ( 32,438 ) $ 15,845 $ ( 2,161 ) Included in "Net foreign currency translation adjustment" was a loss of $ 1,455 related to a net investment hedge, net of tax benefits of $ 471 for the year ended December 31, 2023, and a gain of $ 3,851 related to a net investment hedge, net of tax expenses of $ 1,236 , for the year ended December 31, 2022. There were no such gains or losses for the year ended December 31, 2024. 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 at December 31, 2024 and 2023 consisted of the following: Foreign currency translation adjustment Cash flow hedge Postretirement benefit plan Total Balance December 31, 2023 $ 8,408 $ — $ 283 $ 8,691 Other comprehensive (loss) income ( 32,590 ) — 152 ( 32,438 ) Balance December 31, 2024 $ ( 24,182 ) $ — $ 435 $ ( 23,747 ) NOTE 15 - EMPLOYEE BENEFIT PLANS Defined Contribution Plans The Company sponsors one 401(k) savings plan for eligible employees, which allows participants to make pretax or after tax contributions and the Company matches certain percentages of those contributions. The plan also has a discretionary profit sharing portion and matches 401(k) contributions with shares of the Company’s Common Stock. All amounts contributed to the plan are deposited into a trust fund administered by independent trustees. 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 sponsored one defined contribution plan for its employees. The Bergstrom plan merged into the Company sponsored 401(k) savings plan on January 1, 2023. The Company provided for matching 401(k) savings plan contributions of $ 4,644 , $ 4,381 , and $ 4,363 in 2024, 2023 and 2022, respectively. There were no profit sharing contributions in 2024. Profit sharing contributions in 2023 and 2022 were not material. 60 Table of Contents 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, Missouri facility and a plan for executive officers of the Company who meet eligibility requirements as set forth in the Company's Officer Retiree Program. The Company uses a December 31 measurement date for its postretirement medical plans. In accordance with ASC 715, “Compensation—Retirement Benefits,” the Company is required to recognize the over funded or underfunded status of a defined benefit post retirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position, and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. The actuarial recorded liabilities for such unfunded postretirement benefits are as follows: Change in benefit obligation: 2024 2023 Benefit obligation at beginning of year $ 1,395 $ 1,465 Service cost with interest to end of year 113 108 Interest cost 55 62 Participant contributions 20 23 Benefits paid ( 32 ) ( 30 ) Actuarial gain ( 29 ) ( 233 ) Benefit obligation at end of year $ 1,522 $ 1,395 Change in plan assets: 2024 2023 Fair value of plan assets at beginning of year $ — $ — Employer contributions 12 7 Participant contributions 20 23 Benefits paid ( 32 ) ( 30 ) Fair value of plan assets at end of year $ — $ — Amounts recognized in consolidated balance sheet: 2024 2023 Accumulated postretirement benefit obligation $ ( 1,522 ) $ ( 1,395 ) Fair value of plan assets — — Funded status ( 1,522 ) ( 1,395 ) Unrecognized prior service cost — 9 Unrecognized net loss (gain) 8 ( 2 ) Net amount recognized in consolidated balance sheet (after ASC 715) (included in "Other long-term obligations") $ ( 1,522 ) $ ( 1,395 ) Accrued postretirement benefit cost (included in "Other long-term obligations") N/A N/A Components of net periodic benefit cost: 2024 2023 2022 Service cost with interest to end of year $ 113 $ 108 $ 79 Interest cost 55 62 26 Amortization of prior service cost — — 9 Amortization of (gain) loss ( 10 ) 8 ( 2 ) Total net periodic benefit cost $ 158 $ 178 $ 112 61 Table of Contents Estimated future employer contributions and benefit payments are as follows: Year 2025 $ 121 2026 106 2027 88 2028 95 2029 113 Years 2030-2034 741 Assumptions to determine benefit obligations: 2024 2023 Discount rate 4.85 % 4.15 % Assumptions to determine net cost: 2024 2023 2022 Discount rate 4.15 % 4.40 % 2.10 % Defined Benefit Pension Plans The Company contributes to one multi-employer defined benefit plan under the terms of a collective-bargaining agreement covering its union-represented employees of the Verona, Missouri facility. The risks of participation in this multiemployer plan are different from single-employer plans in the following aspects: (a) assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers, (b) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers, and (c) if the Company was to stop participating in its multiemployer plan, the Company would be required to pay that plan an amount based on the underfunded status of the plan, referred to as the withdrawal liability. The Company’s participation in this plan for the annual period ended December 31, 2024 is outlined in the table below. The “EIN/Pension Plan Number” column provides the Employee Identification Number (EIN). The zone status is based on information that the Company received from the plan and is certified by the plan’s actuary. Among other factors, plans in the red zone or critical and declining zone are generally less than 65 percent funded, plans in the yellow zone are less than 80 percent funded, and plans in the green zone are at least 80 percent funded. The “FIP/RP Status Pending/Implemented” column indicates plans for which a financial improvement plan (FIP) or a rehabilitation plan (RP) is either pending or has been implemented. The last column lists the expiration date of the collective-bargaining agreement to which the plan is subject. Finally, the period-to-period comparability of the contributions for 2024 and 2023 was affected by a 4.0 % increase in the 2024 contribution rate. There have been no other significant changes that affect the comparability of 2024 and 2023 contributions. The Company does not represent more than 5% of the contributions to this pension fund. Pension Fund EIN/Pension Plan Number Pension Plan Protection Act Zone Status FIP/RP Status Pending/ Implemented Contributions of Balchem Corporation Surcharge Imposed Expiration Date of Collective- Bargaining Agreement 2024 2023 2024 2023 2022 Central States, Southeast and Southwest Areas Pension Fund 36-6044243 Critical as of 1/1/24 Critical as of 1/1/23 Implemented $ 1,073 $ 1,020 $ 939 No 7/12/2025 The Company provides an unfunded defined benefit pension plan for employees working in Belgium. The plan provides for the payment of a lump sum at retirement or payments in case of death of the covered employees. 62 Table of Contents The actuarial recorded liabilities for such unfunded defined benefit pension plan are as follows: Change in benefit obligation: 2024 2023 Benefit obligation at beginning of year $ 1,660 $ 1,589 Service cost with interest to end of year 72 65 Interest cost 54 65 Benefits paid ( 42 ) ( 188 ) Actuarial loss 488 80 Exchange rate changes ( 98 ) 49 Benefit obligation at end of year $ 2,134 $ 1,660 Change in plan assets: 2024 2023 Fair value of plan assets at beginning of year $ 1,240 $ 1,196 Actual return on plan assets 216 56 Employer contributions 181 138 Benefits paid ( 42 ) ( 188 ) Exchange rate changes ( 74 ) 38 Fair value of plan assets at end of year $ 1,521 $ 1,240 Amounts recognized in consolidated balance sheet: 2024 2023 Benefit obligation $ ( 2,134 ) $ ( 1,660 ) Fair value of plan assets 1,521 1,240 Funded status ( 613 ) ( 420 ) Unrecognized prior service cost N/A N/A Unrecognized net (gain)/loss N/A N/A Net amount recognized in consolidated balance sheet (after ASC 715) (included in other long-term obligations) $ ( 613 ) $ ( 420 ) Accrued postretirement benefit cost (included in other long-term obligations) N/A N/A Components of net periodic benefit cost: 2024 2023 2022 Service cost with interest to end of year $ 72 $ 65 $ 44 Interest cost 54 65 17 Expected return on plan assets ( 40 ) ( 42 ) ( 37 ) Total net periodic benefit cost $ 86 $ 88 $ 24 63 Table of Contents Estimated future benefit payments are as follows: Year 2025 $ 1 2026 1 2027 1 2028 1 2029 1 Years 2030-2034 1,353 Assumptions to determine benefit obligations: 2024 2023 Discount rate 3.35 % 3.45 % Assumptions to determine net cost: 2024 2023 2022 Discount rate 3.45 % 4.00 % 1.00 % Expected return on assets 3.25 % 3.25 % 3.25 % Deferred Compensation Plan The Company maintains an unfunded, non-qualified deferred compensation plan for the benefit of a select group of management or highly compensated employees. Assets of the plan are held in a rabbi trust, which are subject to additional risk of loss in the event of bankruptcy or insolvency of the Company. The deferred compensation liability was $ 11,470 as of December 31, 2024, of which $ 11,449 was included in "Other long-term obligations" and $ 21 was included in "Accrued compensation and other benefits" on the Company's consolidated balance sheets. The deferred compensation liability was $ 10,188 as of December 31, 2023 and was included in "Other long-term obligations" on the Company’s consolidated balance sheets. The related assets of the irrevocable trust funds (also known as "rabbi trust funds") were $ 11,465 and $ 10,188 as of December 31, 2024 and 2023, respectively, and were included in "Other non-current assets" on the Company's 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 December 31, 2024 are disclosed in Note 19, Leases . The Company’s Verona, Missouri facility, while held by a prior owner, Syntex Agribusiness, Inc. (“Syntex”), was designated by the U.S. Environmental Protection Agency (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. The Company is indemnified by the sellers under its May 2001 asset purchase agreement covering its acquisition of the Verona, Missouri facility for potential liabilities associated with the Superfund site. 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. Separately, in June 2022, the EPA conducted an inspection of BCP’s Verona, Missouri facility (“2022 EPA Inspection”) which was followed by BCP entering into an Administrative Order for Compliance on Consent (“AOC”) with the EPA in relation to its risk management program at the Verona facility. Further, in January 2023, BCP entered into an Amended AOC with the EPA Table of Contents whereby the parties agreed to the extension of certain timelines. BCP timely completed all requirements under the Amended AOC. In November 2023, BCP received a notice from the Environment and Natural Resources Division of the U.S Department of Justice (“DOJ”) primarily related to the 2022 EPA Inspection, which extended the opportunity to discuss alleged violations of Sections 112(r)(7) of the Clean Air Act and regulations in 40 C.F.R. Part 68, commonly known as the Risk Management Plan Rule (“RMP Rule”). BCP participated in such discussions during 2024, and in December 2024, BCP reached a settlement with the EPA and DOJ to resolve these alleged violations. Pursuant to the settlement, which was entered into on January 31, 2025, BCP agreed to: (a) pay a $ 300 civil penalty; (b) invest in a new scrubber system; and (c) spend $ 350 to implement projects benefiting the surrounding community, such as emergency equipment for the local fire department and two vehicles to be used as mobile health clinics. The amount associated with this settlement was consistent with the amount previously accrued as a loss contingency. In addition to the above, from time to time, the Company is a party to various legal proceedings, litigation, claims and assessments. While it is not possible to predict the ultimate disposition of each of these matters, management believes that the ultimate outcome of such matters will not have a material effect on the Company's consolidated financial position, results of operations, liquidity or cash flows. NOTE 17 – FAIR VALUE OF FINANCIAL INSTRUMENTS 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 December 31, 2024 and 2023 does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying consolidated balance sheets. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessarily required in interpreting market data to develop the estimates of fair value, and, accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The carrying value of debt approximates fair value as the interest rate is based on market and the Company’s consolidated leverage ratio. 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 December 31, 2024 and 2023 included $ 1,040 and $ 959 in money market funds and other interest-bearing deposit accounts, respectively. Non-current assets at December 31, 2024 and 2023 included $ 11,465 and $ 10,188 , 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.” NOTE 18 – RELATED PARTY TRANSACTIONS The Company provides services under a contractual agreement to St. Gabriel CC Company, LLC. These services include accounting, information technology, quality control, and purchasing services, as well as operation of the St. Gabriel CC Company, LLC plant. The Company also sells raw materials to St. Gabriel CC Company, LLC. These raw materials are used in the production of finished goods that are, in turn, sold by Saint Gabriel CC Company, LLC to the Company for resale to unrelated parties. As such, the sale of these raw materials to St. Gabriel CC Company, LLC in this scenario lacks economic substance and therefore the Company does not include them in net sales within the consolidated statements of earnings. Payments for the services the Company provided amounted to $ 4,425 , $ 4,363 , and $ 4,213 , respectively, for the years ended December 31, 2024, 2023, and 2022. The raw materials purchased and subsequently sold amounted to $ 29,795 , $ 34,219 , and $ 39,853 , respectively, for the years ended December 31, 2024, 2023, and 2022. 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 $ 22,940 , $ 28,099 , and $ 29,062 , respectively, for the years ended December 31, 2024, 2023, and 2022. At December 31, 2024 and 2023, the Company had receivables of $ 3,893 and $ 8,314 , respectively, recorded in accounts receivable from St. Gabriel CC Company, LLC for services rendered and raw materials sold. At December 31, 2024 and 2023, the Company had payables of $ 2,831 and $ 6,050 , respectively, recorded in accounts payable for finished goods received from St. Gabriel CC Company, LLC. In addition, the Company had payables in the amount of $ 296 and $ 329 , respectively, related to non-contractual monies owed to St. Gabriel CC Company, LLC, recorded in accounts payable as of December 31, 2024 and 2023. 65 Table of Contents NOTE 19 – LEASES The Company has both real estate leases and equipment leases. The main types of equipment leases include forklifts, trailers, printers and copiers, railcars, and trucks. Leases are categorized as both operating leases and finance leases. As a result of electing the practical expedient within ASU 2016-02, variable lease payments are combined and recognized on the balance sheet in the event that those charges and any related increases are explicitly stated in the lease. Such payments include common area maintenance charges, property taxes, and insurance charges and are recorded in the right of use asset and corresponding liability when the payments are stated in the lease with (a) fixed or in-substance fixed amounts, or (b) a variable payment based on an index or rate. Due to the acquisitive nature of the Company and the potential for synergies upon integration of acquired entities, the Company determined that the reasonably certain criterion could not be met for any renewal periods beginning two years from December 31, 2024. In addition, the Company has historically not been exercising purchase options under the equipment leases as it does not make economic sense to buy the equipment. Instead, the Company has historically replaced the equipment with new leases. Therefore, the Company determined that the reasonably certain criterion could not be met as it relates to purchase options. The Company has no residual value guarantees in lease transactions. The Company did not identify any embedded leases. As indicated above, the Company elected the practical expedient to combine lease and non-lease components and recognizes the combined amount on the consolidated balance sheet. Management determined that since the Company has a centralized treasury function, the parent company would either fund or guarantee a subsidiary's loan for borrowing over a similar term. As such, the Company's management determined it is appropriate to utilize a corporate based borrowing rate for all locations. The Company developed four tranches of leases based on lease terms and these tranches reflect the composition of the current lease portfolio. The Company's borrowing history shows that interest rates of a term loan or a line of credit depend on the duration of the loan rather than the nature of the assets purchased by those funds. 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 2024: (1) 1 - 2 years, 6.76 %- 6.25 % (2) 3 - 4 years, 7.35 %- 6.84 % (3) 5 - 9 years, 7.69 %- 7.18 % and (4) 10 + years, 8.41 %- 7.90 %. Right of use assets and lease liabilities at December 31, 2024 and 2023 are summarized as follows: Right of use assets 2024 2023 Operating leases $ 15,320 $ 17,763 Finance lease 1,730 2,101 Total $ 17,050 $ 19,864 Lease liabilities - current 2024 2023 Operating leases $ 3,134 $ 3,949 Finance lease 194 272 Total $ 3,328 $ 4,221 Lease liabilities - non-current 2024 2023 Operating leases $ 12,967 $ 14,601 Finance lease 1,749 1,943 Total $ 14,716 $ 16,544 66 Table of Contents For the years ended December 31, 2024, 2023, and 2022, the Company's total lease costs were as follows, which included both amounts recognized in profits or losses during the period and amounts capitalized on the balance sheet, and the cash flows arising from lease transactions: Year ended December 31, 2024 2023 2022 Lease Cost Operating lease cost $ 5,456 $ 5,307 $ 4,478 Finance Lease cost Amortization of ROU asset 232 242 210 Interest on lease liabilities 105 115 125 Total finance lease 337 357 335 Total lease cost $ 5,793 $ 5,664 $ 4,813 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 5,454 $ 4,757 $ 4,269 Operating cash flows from finance leases 105 115 125 Financing cash flows from finance leases 216 222 177 $ 5,775 $ 5,094 $ 4,571 ROU assets obtained in exchange for new operating lease liabilities, net of ROU asset disposals $ 1,669 $ 6,365 $ 11,488 Weighted-average remaining lease term - operating leases 9.03 years 9.33 years 5.63 years Weighted-average remaining lease term - finance leases 8.37 years 9.07 years 9.95 years Weighted-average discount rate - operating leases 7.6 % 7.4 % 2.7 % Weighted-average discount rate - finance leases 5.1 % 5.0 % 5.0 % Rent expense charged to operations under operating lease agreements for 2024, 2023, and 2022 aggregated approximately $ 5,456 , $ 5,307 , and $ 4,478 , respectively. Aggregate future minimum rental payments required under non-cancelable operating and finance leases at December 31, 2024 are as follows: Year 2025 $ 5,008 2026 4,399 2027 3,155 2028 2,393 2029 1,937 Thereafter 5,819 Total minimum lease payments $ 22,711 67 Table of Contents NOTE 20 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES 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, which was designated as cash flow hedge. The net interest income related to the interest rate swap contract was $ 1,518 and $ 400 for the years ended December 31, 2023 and 2022, respectively. There was no such income or expense during the year ended December 31, 2024 as the interest rate swap was settled on its maturity date of June 27, 2023. The net interest income and expense were recorded in the 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, which was designated as net investment hedge. 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 $ 1,119 and $ 2,250 for the years ended December 31, 2023 and 2022, respectively. There was no such income or expense during the year ended December 31, 2024 as the cross-currency swap was settled on its maturity date of June 27, 2023. The interest income was recorded in the consolidated statements of earnings under "Interest expense, net." The Company settled its derivative instruments on their maturity date of June 27, 2023 and had no other derivatives outstanding as of December 31, 2024. 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 for the year ended December 31, 2023. There were no gains and losses on hedging instruments recognized in accumulated other comprehensive income (loss) for the year ended December 31, 2024 as the derivative instruments settled on their maturity date of June 27, 2023. Gains and losses on our hedging instruments for the years ended December 31, 2023, and 2022 were recognized in accumulated other comprehensive income (loss) and categorized as follows: Location within Statements of Comprehensive Income 2023 2022 Cash flow hedge (interest rate swap), net of tax Unrealized (loss) gain on cash flow hedge, net $ ( 1,065 ) $ 2,696 Net investment hedge (cross-currency swap), net of tax Net foreign currency translation adjustment ( 1,455 ) 3,851 $ ( 2,520 ) $ 6,547 In connection with the Kappa acquisition (see Note 2, Significant Acquisitions ), the Company entered into four short-term foreign currency exchange forward contracts to manage fluctuations in foreign currency exchange rates. The Company did not designate these contracts as hedged transactions under the applicable sections of ASC Topic 815, "Derivatives and Hedging". For the year ended December 31, 2022, the net gains on these forward contracts of $ 512 were recorded in other income or loss in the consolidated statements of earnings. As of December 31, 2024 and 2023, the Company did no t maintain any open foreign currency exchange forward contracts as all four contracts expired during 2022. 68 Table of Contents NOTE 21 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (In thousands, except per share data) 2024 2023 First Quarter Second Quarter Third Quarter Fourth Quarter First Quarter Second Quarter Third Quarter Fourth Quarter Net sales $ 239,659 $ 234,081 $ 239,940 $ 240,004 $ 232,540 $ 231,252 $ 229,948 $ 228,699 Gross margin 81,514 82,994 85,361 86,337 73,170 77,349 76,544 74,993 Earnings before income taxes 36,850 41,226 43,893 44,484 29,119 38,400 36,475 33,267 Net earnings 28,986 32,069 33,837 33,583 22,710 30,110 29,075 26,648 Basic net earnings per common share $ 0.90 $ 0.99 $ 1.05 $ 1.05 $ 0.71 $ 0.94 $ 0.91 $ 0.83 Diluted net earnings per common share $ 0.89 $ 0.98 $ 1.03 $ 1.03 $ 0.70 $ 0.93 $ 0.90 $ 0.82 69 Table of Contents BALCHEM CORPORATION Valuation and Qualifying Accounts Years Ended December 31, 2024, 2023 and 2022 (In thousands) Allowance for Credit Losses Inventory Reserve Balance - December 31, 2021 $ 928 $ 1,425 Additions charged to costs and expenses 401 6,786 Adjustments/deductions (a) ( 103 ) ( 5,571 ) Balance - December 31, 2022 1,226 2,640 Additions charged to costs and expenses 37 2,450 Adjustments/deductions (a) ( 355 ) ( 2,627 ) Balance - December 31, 2023 908 2,463 Additions charged to costs and expenses 299 4,123 Adjustments/deductions (a) ( 298 ) ( 2,379 ) Balance - December 31, 2024 $ 909 $ 4,207 (a) Represents write-offs and other adjustments 70 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.