FORM 10-Q



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
☑    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    
For The Quarterly Period Endedthe quarterly period ended September 30, 2017
or2020
    OR
☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    
For the transition period from ________________ to ____________
____
Commission File Numberfile number: 1-13648

BALCHEM CORPORATIONBalchem Corporation
(Exact name of registrantRegistrant as specified in its charter)

Maryland13-2578432
Maryland13-2578432
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
Number)


52 Sunrise Park Road, New Hampton, NY 10958
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (845) 326-5600

Securities registered pursuant to Section 12(b) of the Act:
52 Sunrise Park Road, New Hampton, New York10958
(AddressTitle of principal executive offices)each classTrading symbol(Zip Code)
845-326-5600Name of each exchange on which registered
Registrant’s telephone number, including area code:Common Stock, par value $.06-2/3 per shareBCPCNasdaq Global Market

Indicate by a check mark whether the registrantRegistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrantRegistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Yes  ☑
No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑  No ☐

Yes  ☑
No  ☐


Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

(Check one):Large accelerated filer☑
☑
Accelerated filer☐☐
Non-accelerated filer☐
☐
Smaller reporting company☐
☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☑

As of November 1, 2017October 21, 2020, the registrant had 32,004,23732,351,112 shares of its Common Stock, $.06 2/3 par value, outstanding.


Table of Contents
BALCHEM CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Part I.
Page No.
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Table of Contents
Part I.    Financial Information

Item 1.
Item 1.    Financial Statements

BALCHEM CORPORATION
Condensed Consolidated Balance Sheets
(Dollars in thousands, except share and per share data)

Assets
 
September 30, 2017
(unaudited)
  
December 31,
2016
 AssetsSeptember 30, 2020 (unaudited)December 31, 2019
Current assets:      Current assets:  
Cash and cash equivalents $34,741  $38,643 Cash and cash equivalents$78,967 $65,672 
Accounts receivable, net of allowance for doubtful accounts of $427 and $489 at September 30, 2017 and December 31, 2016, respectively  86,715   83,252 
Accounts receivable, net of allowance for doubtful accounts of $2,201 and $2,080 at September 30, 2020 and December 31, 2019 respectivelyAccounts receivable, net of allowance for doubtful accounts of $2,201 and $2,080 at September 30, 2020 and December 31, 2019 respectively98,709 93,444 
Inventories  59,624   57,245 Inventories77,430 83,893 
Prepaid expenses  3,230   4,110 Prepaid expenses5,021 4,385 
Prepaid income taxes  5,375   - Prepaid income taxes7,185 5,098 
Deferred income taxes  -   712 
Other current assets  3,924   4,480 Other current assets2,810 2,454 
Total current assets  193,609   188,442 Total current assets270,122 254,946 
        
Property, plant and equipment, net  184,246   165,754 Property, plant and equipment, net219,554 216,859 
        
Goodwill  441,259   439,811 Goodwill526,257 523,998 
Intangible assets with finite lives, net  134,511   147,484 Intangible assets with finite lives, net126,182 143,924 
Right of use assetsRight of use assets8,188 7,338 
Other assets  5,213   7,135 Other assets11,038 8,617 
Total assets $958,838  $948,626 Total assets$1,161,341 $1,155,682 
        
Liabilities and Stockholders' Equity
        Liabilities and Stockholders' Equity
Current liabilities:        Current liabilities:
Trade accounts payable $24,952  $32,514 Trade accounts payable$23,329 $37,267 
Accrued expenses  23,286   14,758 Accrued expenses28,991 24,604 
Accrued compensation and other benefits  6,529   6,648 Accrued compensation and other benefits14,083 11,057 
Dividends payable  19   12,088 Dividends payable136 16,855 
Current portion of long-term debt  35,000   35,000 
Lease liabilities - currentLease liabilities - current1,874 2,475 
Total current liabilities  89,786   101,008 Total current liabilities68,413 92,258 
        
Long-term debt  200,600   226,490 
Revolving loan - long-term  -   19,000 
Revolving loanRevolving loan193,569 248,569 
Deferred income taxes  77,096   74,199 Deferred income taxes57,082 56,431 
Lease liabilities - non-currentLease liabilities - non-current6,026 4,827 
Derivative liabilitiesDerivative liabilities7,004 2,103 
Other long-term obligations  5,417   6,896 Other long-term obligations9,804 7,827 
Total liabilities  372,899   427,593 Total liabilities341,898 412,015 
        
Commitments and contingencies (note 15)        
Commitments and contingencies (Note 16)Commitments and contingencies (Note 16)
        
Stockholders' equity:        Stockholders' equity:
Preferred stock, $25 par value. Authorized 2,000,000 shares; none issued and outstanding  -   - 
Common stock, $.0667 par value. Authorized 120,000,000 shares; 31,997,587 shares issued and outstanding at September 30, 2017 and 31,757,861 shares issued and outstanding at December 31, 2016  2,133   2,117 
Preferred stock, $25 par value. Authorized 2,000,000 shares; 0ne issued and outstandingPreferred stock, $25 par value. Authorized 2,000,000 shares; 0ne issued and outstanding0 0 
Common stock, $0.0667 par value. Authorized 120,000,000 shares; 32,451,415 shares issued and 32,342,602 shares outstanding at September 30, 2020 and 32,405,796 shares issued and 32,201,917 outstanding at December 31, 2019, respectivelyCommon stock, $0.0667 par value. Authorized 120,000,000 shares; 32,451,415 shares issued and 32,342,602 shares outstanding at September 30, 2020 and 32,405,796 shares issued and 32,201,917 outstanding at December 31, 2019, respectively2,164 2,161 
Additional paid-in capital  149,699   137,676 Additional paid-in capital175,160 174,218 
Retained earnings  436,185   388,089 Retained earnings653,382 590,921 
Accumulated other comprehensive loss  (2,078)  (6,849)Accumulated other comprehensive loss(1,217)(5,564)
Treasury stock, at cost: 108,813 and 203,879 shares at September 30, 2020 and December 31, 2019, respectivelyTreasury stock, at cost: 108,813 and 203,879 shares at September 30, 2020 and December 31, 2019, respectively(10,046)(18,069)
Total stockholders' equity  585,939   521,033 Total stockholders' equity819,443 743,667 
        
Total liabilities and stockholders' equity $958,838  $948,626 Total liabilities and stockholders' equity$1,161,341 $1,155,682 
See accompanying notes to condensed consolidated financial statements.
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BALCHEM CORPORATION
Condensed Consolidated Statements of Earnings
(Dollars in thousands, except per share data)
(unaudited)

 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  Three Months Ended
September 30,		Nine Months Ended
September 30,
 2017  2016  2017  2016  2020201920202019
            
Net sales $150,716  $138,509  $435,526  $412,444 Net sales$175,140 $158,595 $522,931 $477,178 
                
Cost of sales  104,535   93,853   298,155   278,515 Cost of sales118,772 104,587 355,852 320,157 
                
Gross margin  46,181   44,656   137,371   133,929 Gross margin56,368 54,008 167,079 157,021 
                
Operating expenses:                Operating expenses:
Selling expenses  13,656   13,601   40,937   41,182 Selling expenses14,224 15,227 43,490 44,847 
Research and development expenses  2,712   1,681   6,807   5,543 Research and development expenses2,692 2,699 7,961 8,446 
General and administrative expenses  6,758   6,428   19,038   20,957 General and administrative expenses10,424 10,052 33,405 24,816 
  23,126   21,710   66,782   67,682  27,340 27,978 84,856 78,109 
                
Earnings from operations  23,055   22,946   70,589   66,247 Earnings from operations29,028 26,030 82,223 78,912 
                
Other expenses (income):                
Interest income  (2)  (2)  (5)  (7)
Interest expense  2,012   1,790   5,702   5,538 
Other expenses:Other expenses:
Interest expense, netInterest expense, net953 1,672 3,609 4,749 
Other, net  348   387   926   581 Other, net168 (78)244 53 
1,121 1,594 3,853 4,802 
                
Earnings before income tax expense  20,697   20,771   63,966   60,135 Earnings before income tax expense27,907 24,436 78,370 74,110 
                
Income tax expense  4,654   6,759   15,870   20,087 Income tax expense6,339 3,760 15,909 14,822 
                
Net earnings $16,043  $14,012  $48,096  $40,048 Net earnings$21,568 $20,676 $62,461 $59,288 
                
Net earnings per common share - basic $0.50  $0.44  $1.51  $1.27 Net earnings per common share - basic$0.67 $0.64 $1.94 $1.84 
                
Net earnings per common share - diluted $0.50  $0.44  $1.49  $1.26 Net earnings per common share - diluted$0.66 $0.64 $1.92 $1.82 

See accompanying notes to condensed consolidated financial statements.

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BALCHEM CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(Dollars in thousands)
(unaudited)

  
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
  2017  2016  2017  2016 
             
Net earnings $16,043  $14,012  $48,096  $40,048 
                 
Other comprehensive income, net of tax:                
                 
Net foreign currency translation adjustment  1,502   302   4,740   850 
                 
Net change in postretirement benefit plan, net of taxes of $(5) and $(4) for the three months ended September 30, 2017 and 2016, and $(14) and $(9) for the nine months ended September 30, 2017 and 2016.  10   9   31   (421)
                 
Other comprehensive income  1,512   311   4,771   429 
                 
Comprehensive income $17,555  $14,323  $52,867  $40,477 

 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2020201920202019
Net earnings$21,568 $20,676 $62,461 $59,288 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment4,313 (2,209)7,440 (3,513)
Unrealized gain (loss) on cash flow hedge227 (657)(2,659)(1,956)
Change in postretirement benefit plans137 5 (434)16 
Other comprehensive gain (loss)4,677 (2,861)4,347 (5,453)
Comprehensive income$26,245 $17,815 $66,808 $53,835 

See accompanying notes to condensed consolidated financial statements.

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BALCHEM CORPORATION
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the three and nine months ended September 30, 2020 and 2019
(Dollars in thousands, except share and per share data)
Total
Stockholders'
Equity		Retained
Earnings		Accumulated
Other
Comprehensive
(Loss) Income		Common StockTreasury StockAdditional
Paid-in
Capital
SharesAmountSharesAmount
Balance - December 31, 2019$743,667 $590,921 $(5,564)32,405,796 $2,161 (203,879)$(18,069)$174,218 
Net earnings19,768 19,768 — — — — — — 
Other comprehensive (loss)(2,905)— (2,905)— — — — — 
Treasury shares purchased(891)— — — — (8,224)(891)— 
Shares and options issued under stock plans6,632 — — 41,619 3 81,530 7,266 (637)
Balance - March 31, 2020766,271 610,689 (8,469)32,447,415 2,164 (130,573)(11,694)173,581 
Net earnings21,125 21,125 — — — — — — 
Other comprehensive income2,575 — 2,575 — — — — — 
Treasury shares purchased(2,134)— — — — (24,281)(2,134)— 
Shares and options issued under stock plans4,686 — — 4,000 — 44,935 4,194 492 
Balance - June 30, 2020792,523 631,814 (5,894)32,451,415 2,164 (109,919)(9,634)174,073 
Net earnings21,568 21,568 — — — — — — 
Other comprehensive income4,677 — 4,677 — — — — — 
Treasury shares purchased(2,957)— — — — (31,224)(2,957)— 
Shares and options issued under stock plans3,632 — — — — 32,330 2,545 1,087 
Balance - September 30, 2020$819,443 $653,382 $(1,217)32,451,415 $2,164 (108,813)$(10,046)$175,160 

See accompanying notes to condensed consolidated financial statements.


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Condensed Consolidated Statements of Changes in Stockholders’ Equity (continued)
For the three and nine months ended September 30, 2020 and 2019
(Dollars in thousands, except share and per share data)
Total
Stockholders'
Equity		Retained
Earnings		Accumulated
Other
Comprehensive
(Loss) Income		Common StockTreasury StockAdditional
Paid-in
Capital
SharesAmountSharesAmount
Balance - December 31, 2018$691,618 $528,027 $(3,602)32,256,915 $2,151 (706)$(56)$165,098 
Net earnings18,783 18,783 — — — — — — 
Other comprehensive (loss)(1,084)— (1,084)— — — — — 
Treasury shares purchased(727)— — — — (8,496)(727)— 
Shares and options issued under stock plans1,919 — — 79,313 5 3,006 250 1,664 
Balance - March 31, 2019710,509 546,810 (4,686)32,336,228 2,156 (6,196)(533)166,762 
Net earnings19,829 19,829 — — — — — — 
Other comprehensive (loss)(1,508)— (1,508)— — — — — 
Shares and options issued under stock plans3,515 — — 19,068 1 6,196 533 2,981 
Balance - June 30, 2019732,345 566,639 (6,194)32,355,296 2,157 0 0 169,743 
Net earnings20,676 20,676 — — — — — — 
Other comprehensive (loss)(2,861)— (2,861)— — — — — 
Treasury shares purchased(20,594)— — — — (232,499)(20,594)— 
Shares and options issued under stock plans4,020 — — 46,290 3 — — 4,017 
Balance - September 30, 2019$733,586 $587,315 $(9,055)32,401,586 $2,160 (232,499)$(20,594)$173,760 

See accompanying notes to condensed consolidated financial statements.
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BALCHEM CORPORATION
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(unaudited)

 Nine Months Ended
September 30,
 20202019
Cash flows from operating activities:  
Net earnings$62,461 $59,288 
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization38,349 33,485 
Stock compensation expense6,755 5,717 
Deferred income taxes532 (198)
Provision for doubtful accounts250 896 
Foreign currency transaction loss153 21 
Asset impairment charge1,915 114 
Loss/(gain) on disposal of assets57 (3,220)
Changes in assets and liabilities
Accounts receivable(4,979)8,340 
Inventories6,802 (6,017)
Prepaid expenses and other current assets(844)(784)
Accounts payable and accrued expenses(6,978)(145)
Income taxes(1,957)(5,955)
Other24 (48)
Net cash provided by operating activities102,540 91,494 
Cash flows from investing activities:
Cash paid for acquisition, net of cash acquired0 (94,690)
Capital expenditures and intangible assets acquired(20,552)(21,669)
Proceeds from insurance0 2,727 
Proceeds from sale of assets22 11,523 
Purchase of convertible notes(850)(1,000)
Net cash used in investing activities(21,380)(103,109)
Cash flows from financing activities:
Proceeds from revolving loan10,000 123,569 
Principal payments on revolving loan(65,000)(61,000)
Principal payments on finance lease(112)0 
Principal payments on acquired debt0 (12,222)
Proceeds from stock options exercised8,179 3,734 
Dividends paid(16,704)(15,135)
Purchase of treasury stock(5,982)(21,321)
Net cash (used in) provided by financing activities(69,619)17,625 
Effect of exchange rate changes on cash1,754 (874)
Increase in cash and cash equivalents13,295 5,136 
Cash and cash equivalents beginning of period65,672 54,268 
Cash and cash equivalents end of period$78,967 $59,404 
  
Nine Months Ended
September 30,
 
  2017  2016 
       
Cash flows from operating activities:      
Net earnings $48,096  $40,048 
         
Adjustments to reconcile net earnings to net cash provided by operating activities:        
Depreciation and amortization  33,170   34,383 
Stock compensation expense  4,348   5,646 
Deferred income taxes  (59)  656 
Provision for doubtful accounts  42   160 
Foreign currency transaction loss  304   43 
Loss on disposal of assets  239   319 
Changes in assets and liabilities        
Accounts receivable  485   (522)
Inventories  682   5,502 
Prepaid expenses and other current assets  (398)  1,996 
Accounts payable and accrued expenses  (3,499)  2,404 
Income taxes  (4,373)  (10,118)
Other  417   (700)
Net cash provided by operating activities  79,454   79,817 
         
Cash flows from investing activities:        
Cash paid for acquisitions, net of cash acquired  (17,393)  (110,601)
Capital expenditures  (17,676)  (18,801)
Proceeds from insurance  2,000   1,000 
Intangible assets acquired  (408)  (765)
Net cash used in investing activities  (33,477)  (129,167)
         
Cash flows from financing activities:        
Proceeds from revolving loan  22,000   65,000 
Principal payments on revolving loan  (41,000)  (37,000)
Principal payments on long-term debt  (26,250)  (26,250)
Principal payment on acquired debt  (2,384)  (884)
Proceeds from stock options exercised  9,524   5,985 
Excess tax benefits from stock compensation  -   1,935 
Dividends paid  (12,069)  (10,727)
Purchase of treasury stock  (1,833)  (1,478)
Net cash used in financing activities  (52,012)  (3,419)
         
Effect of exchange rate changes on cash  2,133   507 
         
Decrease in cash and cash equivalents  (3,902)  (52,262)
         
Cash and cash equivalents beginning of period  38,643   84,795 
Cash and cash equivalents end of period $34,741  $32,533 
Supplemental Cash Flow Information - see Note 12
See accompanying notes to condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)
(All dollar amounts in thousands, except share and per share data)


NOTE 1 – CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The condensed consolidated financial statements presented herein have been prepared by the Company in accordance with the accounting policies described in its December 31, 20162019 consolidated financial statements, and should be read in conjunction with the consolidated financial statements and notes, which appear in the Annual Report on Form 10-K for the year ended December 31, 2016. References in this report to2019. The condensed consolidated financial statements reflect the “Company” mean either Balchem Corporation oroperations of Balchem Corporation and its subsidiaries including SensoryEffects, Inc., SensoryEffects Cereal Systems, Inc., Albion Laboratories, Inc. (formerly known as Albion International, Inc.(the "Company"), BCP Ingredients, Inc., Aberco, Inc., Balchem BV, Balchem Italia Srl, Innovative Food Processors, Inc.,. All intercompany balances and Balchem LTD, on a consolidated basis, as the context requires.

transactions have been eliminated in consolidation.
In the opinion of management, the unaudited condensed consolidated financial statements furnished in this Form 10-Q include all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. All such adjustments are of a normal recurring nature. The condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“(“U.S. GAAP” or “GAAP”) governing interim financial statements and the instructions to Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934 (the "Exchange Act") and therefore do not include some information and notes necessary to conform to annual reporting requirements. Certain prior year amounts have been reclassified to conform to current year presentation. The results of operations for the three and nine months ended September 30, 20172020 are not necessarily indicative of the operating results expected for the full year or any interim period.

Certain reclassifications have been made to prior period amounts to conform with the current period's presentation.
Recent Accounting Pronouncements

Recently Issued Accounting Standards

In May 2014,March 2020, the Financial Accounting Standards Board (“FASB”)FASB issued Accounting Standards Update (“ASU”("ASU") No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), with amendments issued in 2016, which addresses revenue recognition issues and, upon its effective date, replaces almost all existing revenue recognition guidance, including industry-specific guidance, in current U.S. GAAP. This standard is effective, with either a full retrospective approach or a modified retrospective approach, for annual and interim periods beginning after December 15, 2017. We are assessing the impact2020-04, "Reference Rate Reform (Topic 848): Facilitation of the guidanceEffects of Reference Rate Reform on our current accounting practices to identify differences that would result from applying the new requirements to our revenue contracts. We continue to make significant progress on our contract reviews and are also still in the process of evaluating the impact, if any, on changes to our business processes, systems, and controls to support recognition and disclosure under the new guidance. Based on our findings so far, we do not currently expect thisFinancial Reporting." This ASU provides temporary optional guidance to have a material impact on our financial statements. We are continuing our implementation plan and currently expect to adoptease the potential burden in accounting for reference rate reform. The new guidance beginningprovides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The ASU is intended to help stakeholders during the global market-wide reference rate transition period. Therefore, this standards update is in 2018 using the modified retrospective approach.
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In February 2016, the FASB issued ASU No. 2016-02, “Leases” (“ASU 2016-02”), which addresses the recognition of assets and liabilities that ariseeffect from all leases. The guidance requires lessees to recognize right-to-use assets and lease liabilities for most leases in the Consolidated Balance Sheets. The guidance is effective for annual and interim periods beginning afterMarch 12, 2020 through December 15, 2018 and early adoption is permitted.31, 2022. The Company is currently evaluating the impact of this pronouncement on the new guidance.

consolidated financial statements and disclosures.
In January 2017,December 2019, the FASB issued ASU No. 2017-01, “Clarifying2019-12, "Income Taxes (Topic 740): Simplifying the DefinitionAccounting for Income Taxes." The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of a Business” (“ASU 2017-01”), which addresses the definitionand simplify GAAP for other areas of what constitutes a businessTopic 740 by providing clarificationclarifying and amending existing guidance. The effective date of the three elements that constitute a business. The guidancethis update is effective for annual and interim periodsfiscal years beginning after December 15, 2017. Although, early2020, and interim periods within those fiscal years. Early adoption is permitted,permitted. The standard may be adopted either using the prospective or retrospective transition approach and could also be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company has electedis currently evaluating the impact of this pronouncement on the Company’s consolidated financial statements and disclosures.
In August 2018, the FASB issued ASU 2018-14, “Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans,” which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement benefit plans.  The guidance removes disclosures that are no longer considered cost beneficial, clarifies the specific requirements of disclosures and adds disclosure requirements identified as relevant.  This update should be applied on a retrospective basis to all periods presented and is effective for fiscal years ending after December 31, 2020.  Early adoption is permitted.  The Company expects this new guidance will not have a significant impact on its financial reporting.
Recently Adopted Accounting Standards
In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.”  The guidance requires implementation costs incurred by customers in cloud computing arrangements to adopt early asbe deferred over the noncancelable term of the cloud computing arrangements plus any optional renewal periods (1) that are reasonably certain to be exercised by the customer or (2) for which exercise of the renewal option is controlled by the cloud service provider.  The effective date of this ASU willpronouncement is for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.  The standard may be adopted either using the prospective or retrospective transition approach.  The Company adopted the new standard on January 1, 2020. The standard update did not have a significant impact on the Company’s consolidated financial statements.statements and disclosures.

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In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The guidance was issued with the objective of improving the financial reporting of hedging relationships to better portray the economic results of companies' risk management activities in its financial statements, as well as simplifying the application of hedge accounting guidance especially in the area of assessment of effectiveness of the hedge. In April 2019, the FASB issued ASU 2019-04, "Codification Improvements to Topic 815, Derivative and Hedging", which further clarified ASU 2017-12. The amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company adopted the new standards in the second quarter of 2019, upon entering into derivative transactions. Refer to Note 20, "Derivative Instruments and Hedging Activities."
In January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”)(ASU 2017-04), which addresses changes to the testing for goodwill impairment by eliminating Step 2 of the process. The guidance is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Although, early adoption is permitted,The Company adopted the Company has elected not to adopt early as thisnew standard on January 1, 2020. This ASU willdid not have a significant impact on the Company’s consolidated financial statements.

Recently Adopted Accounting Standards

In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory” (“ASU 2015-11”), which requires inventory to be measured at the lower of cost and net realizable value. The Company adopted ASU 2015-11 on January 1, 2017 prospectively (prior periods have not been restated). There was no impact on the Company’s consolidated financial statements.

In November 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”), to simplify the presentation of deferred income taxes. The ASU requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The Company adopted ASU 2015-17 on January 1, 2017 prospectively (prior periods have not been restated). There was no significant impact to the consolidated financial statements other than the decrease of current assets and long-term liabilities.

In MarchJune 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”)2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which addressesrequires that credit losses be reported based on expected losses instead of the incurred loss model. The update made several consequential amendments to the codification which requires the accounting for share-based payment transactions, includingavailable-for-sale debt securities to be individually assessed for credit losses when fair value is less than the income tax consequences, classificationamortized cost basis. The FASB subsequently issued ASU 2019-04, ASU 2019-05, and ASU 2019-11, all of awards as either equity or liabilities, and classification on the statement of cash flows. which further clarified ASU 2016-13. The Company adopted ASU 2016-09the new standard and related updates on January 1, 2017 prospectively (prior periods2020. The adoption did not have not been restated).  The primary impact of adoption was the recognition during the three and nine months ended September 30, 2017, of excess tax benefits of approximately $813 and $2,552, respectively, as a reduction to the provision for income taxes and the classification of these excess tax benefits in operating activities in the consolidated statement of cash flows instead of financing activities.  The presentation requirements for cash flows related to employee taxes paid for withheld shares had no impact to any of the periods presented in the consolidated statement of cash flows, since such cash flows have historically been
7
presented in financing activities. The Company also elected to continue estimating forfeitures when determining the amount of stock-based compensation costs to be recognized in each period. No other provisions of ASU 2016-09 had a materialsignificant impact on the Company’sconsolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases” (“ASU 2016-02”), which was clarified by ASU 2018-11 and addresses the recognition of assets and liabilities that arise from all leases. The guidance requires lessees to recognize right-of-use ("ROU") assets and lease liabilities for most leases in the Consolidated Balance Sheets and is effective for annual and interim periods beginning after December 15, 2018. The Company adopted the new standard on January 1, 2019 and has elected the optional transition method to account for the impact of the adoption with a cumulative-effect adjustment in the period of adoption. The new standard provides a number of optional practical expedients in transition. The Company has elected the “package of practical expedients”, which permits it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company has not elected the use-of-hindsight or the practical expedient pertaining to land easements, the latter not being applicable to the Company. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company has elected the short-term lease recognition exemption for all leases that qualify, which means for those leases that qualify, the Company will not recognize ROU assets or lease liabilities. The Company has also elected the practical expedient to not separate lease and non-lease components for all of its leases. In March 2019, the FASB issued ASU 2019-01, "Leases (Topic 842): Codification Improvements," which further clarifies the determination of fair value of leases and modifies transition disclosure requirements for changes in accounting principles. The effective date of the amendments is for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The ASU was adopted by the Company on January 1, 2020 and did not have a significant impact on its consolidated financial statements orand disclosures. Refer to Note 19, "Leases."

NOTE 2—2 – SIGNIFICANT ACQUISITIONS

Acquisition of Albion Laboratories, Inc. (formerly known as Albion International, Inc.),

On February 1, 2016,December 13, 2019, the Company completed the acquisition of Zumbro River Brand, Inc. ("Zumbro"). The Company made payments of $51,842 on the acquisition date, amounting to $46,497 to the former shareholders and $5,345 to Zumbro's lenders to pay Zumbro debt. Considering the cash acquired of $686, net payments made to the former shareholders were $45,811. In May 2020, the Company received an adjustment for working capital acquired of $561.
The estimated goodwill of $18,505 arising from the acquisition consists largely of expected synergies, including the combined entities' experience and technical problem-solving capabilities, and acquired workforce. The goodwill is assigned to Human Nutrition & Health ("HNH") and $4,723 is deductible for income taxes.
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The following table summarizes the estimated fair values of the assets acquired and liabilities assumed:
Cash and cash equivalents$686 
Accounts receivable3,314 
Inventories4,052 
Prepaid & other current assets521 
Property, plant and equipment15,245 
Right of use assets3,181 
Customer relationships8,200 
Developed technology4,400 
Trade name2,300 
Other non-current assets10 
Accounts payable & accrued expenses(1,651)
Lease liabilities(3,181)
Debt(5,345)
Deferred income taxes(3,740)
Goodwill18,505 
Amount paid to shareholders46,497 
Zumbro debt paid on purchase date5,345 
Total amount paid on acquisition date$51,842 
The estimated valuation of the fair value of tangible and intangible assets acquired and liabilities assumed are based on management's estimates and assumptions that are subject to change. In preparing our fair value estimates of the intangible assets and certain tangible assets acquired, management, among other things, consulted an independent advisor. Valuation methods utilized included cost and market approaches for property, plant and equipment, excess earnings method for customer relationships and the relief from royalty method for other intangible assets.
Customer relationships are amortized over a 15-year period utilizing an accelerated method based on the estimated average customer attrition rate. Trade name and developed technology are amortized over 10 years and 12 years, respectively, utilizing the straight-line method as the consumption pattern of the related economic benefits cannot be reliably determined.
The Company is indemnified for tax liabilities prior to the acquisition date. Indemnified tax liabilities will create an indemnification asset (receivable). An indemnification asset balance has not been established.
On May 27, 2019, the Company acquired 100 percent of the outstanding common shares of Albion Laboratories, Inc. (formerly known as Albion International, Inc.), (“Albion” or the “Albion Acquisition”), a privately held manufacturer of mineral amino acid chelates, specialized mineral saltsChemogas Holdings, NV and mineral complexes, headquartered in Clearfield, Utah.its subsidiary companies (collectively, "Chemogas"). The Company made payments of approximately $116,400€99,503 (translated to $111,324) on the acquisition date, amounting to approximately $110,600€88,579 (translated to $99,102) to the former shareholders adjustments for working capitaland approximately €10,924 (translated to $12,222) to Chemogas' lender to pay Chemogas bank debt. Considering the cash acquired of $4,900,€3,943 (translated to $4,412), net payments made to the former shareholders were €84,636 (translated to $94,690).
The goodwill of $59,319 that arose on the acquisition date consists largely of expected synergies, including the combined entities' experience and approximately $900technical problem-solving capabilities, and acquired workforce. The goodwill is assigned to Albion’s lenders to pay off all Albion bank debt.  Albion has been a world leader and innovator in the manufacture of superior organic mineral compounds for over sixty years and leverages scientific expertise in the areas of human and micronutrient agricultural nutrition.  Albion’s products are renowned in the supplement industry for technologically advanced, unparalleled bioavailability.  The acquisition of Albion continues to expand the Company’s science based human health and wellness solutions and immediately increased our product offerings in the nutritional ingredient market.  Additionally, the Company benefits from a broader geographic footprint and a stronger position as a technological leader in spray-drying and ingredient delivery solutions.  Albion’s human nutrition business has become a part of the Human Nutrition & Health reportable segment and the micronutrient agricultural business has become a part of the Specialty Products reportable segment.segment and is not tax deductible for income tax purposes.

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

Cash and cash equivalents $4,949 
Accounts receivable  7,671 
Inventories  15,989 
Property, plant and equipment  7,217 
Customer relationships  18,443 
Developed technology  9,060 
Trade name  7,224 
Licensing agreements  6,658 
Other assets  1,200 
Trade accounts payable  (1,104)
Accrued expenses  (2,788)
Bank debt  (884)
Deferred income taxes  (13,990)
Goodwill  55,905 
Amount paid to shareholders  115,550 
Albion bank debt paid on purchase date  884 
Total amount paid on acquisition date $116,434 
Cash and cash equivalents$4,412 
Accounts receivable4,176 
Inventories957 
Property, plant and equipment15,972 
Customer relationships39,158 
Developed technology2,461 
Trade name1,119 
Other assets1,491 
Accounts payable(3,261)
Bank debt(12,222)
Other liabilities(1,030)
Pension obligations (net)(594)
Deferred income taxes(12,856)
Goodwill59,319 
Amount paid to shareholders99,102 
Chemogas bank debt paid on purchase date12,222 
Total amount paid on acquisition date$111,324 
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The goodwill of $55,905 arising from the Albion Acquisition consists largely of expected synergies, including the combined entities’ experience and technical problem solving capabilities, and acquired workforce. Goodwill of $40,403 and $15,502 is assigned to the Human Nutrition & Health and Specialty Products segments, respectively, and approximately $2,020 is tax deductible for income tax purposes.


The valuation of the fair value of tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions. In preparing our fair value estimates of the intangible assets and certain tangible assets acquired, management, among other things, consulted an independent advisor.

Valuation methods utilized included cost and market approaches for property, plant and equipment, excess earnings method for customer relationships and the relief from royalty method for other intangible assets.
Customer relationships are amortized over a 10-year20-year period utilizing an accelerated method based on the estimated average customer attrition rate. Trade name licensing agreements, and developed technology are amortized over 17 years, 82 years and 510 years, respectively, utilizing the straight-line method as the consumption pattern of the related economic benefits cannot be reliably determined.

Transaction and integration related costs included in general and administrative expenses for the nine months ended September 30, 2017 and 2016 are $8 and $1,484, respectively.

The following unaudited pro forma information has been prepared as if the Albion Acquisition had occurred on January 1, 2015.

  
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
             
  Net Sales  Net Earnings  Net Sales  Net Earnings 
2017 Albion actual results included in the Company’s consolidated income statement $13,143  $1,441  $45,376  $7,351 
                 
2017 Supplemental pro forma combined financial information $150,716  $16,148  $435,526  $48,105 
                 
Basic earnings per share     $0.51      $1.51 
Diluted earnings per share     $0.50      $1.49 
                 
2016 Albion actual results included in the Company’s consolidated income statement from February 1, 2016 through September 30, 2016 $11,816  $639  $37,915  $801 
                 
2016 Supplemental pro forma combined financial information $138,509  $14,276  $417,024  $44,911 
                 
Basic earnings per share     $0.45      $1.43 
Diluted earnings per share     $0.45      $1.41 
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2017 supplemental pro forma earnings for the nine months ended September 30, 2017 exclude a working capital adjustment refund of $162 and acquisition-related costs incurred of $170. 2016 supplemental pro forma earnings for the nine months ended September 30, 2016 exclude $26,203 of acquisition-related costs incurred and $5,363 of non-recurring expenses related to the fair value adjustment to acquisition-date inventory. The pro forma information presented does not purport to be indicative of the results that actually would have been attained if the Albion acquisition had occurred at the beginning of the periods presented and is not intended to be a projection of future results.

Acquisition of Chol-Mix Kft

On March 24, 2017, the Company, through its European subsidiary Balchem Italia SRL, entered into an agreement to purchase certain assets of Chol-Mix Kft (“Chol-Mix), a privately held manufacturer of dry choline chloride, with knowledge and technical know-how supporting the application of liquids on carriers, located in Hungary, for a purchase price of €1,500. As of September 30, 2017, approximately €1,150, translated to approximately $1,230, has been paid to Chol-Mix Kft with the remaining balance of approximately €350, translated to approximately $415, due at the end of a related manufacturing agreement. The acquisition of Chol-Mix’s assets will provide our Animal Nutrition & Health segment with additional dry choline chloride capacity in Europe, geographical expansion opportunities in Eastern Europe, and technical knowledge supporting the application of liquids on carriers.

Management has completed its accounting for the acquisition. As a result, the fair values of the assets acquired have been determined and goodwill of $404 has been recorded.

Transaction related costs included in general and administrative expenses for the nine months ended September 30, 2017 are $79.

Acquisition of Innovative Food Processors, Inc.

On June 1, 2017, the Company acquired 100 percent of the outstanding common shares of  Innovative Food Processors, Inc. (“IFP”), a privately held manufacturer of agglomerated and microencapsulated food and nutrition ingredients, headquartered in Faribault, Minnesota. The Company made payments of approximately $22,975 on the acquisition date and $635 in September to true-up working capital, amounting to approximately $16,161 to the former shareholders, adjustments for working capital acquired of $5,065, and $2,384 to IFP’s lenders to pay off all IFP bank debt. The acquisition of IFP expands the Company’s Human Nutrition & Health segment’s processing technology and market reach, while bringing innovative and value-added systems to food, beverage, and nutrition customers.

Management has completed its preliminary initial accounting for the acquisition. As a result, the estimated fair values of the assets acquired and liabilities assumed have been determined and $1,045 of estimated goodwill has been recorded.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed.
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Cash and cash equivalents $5,065 
Accounts receivable  2,860 
Inventories  2,537 
Prepaid expenses  186 
Property, plant and equipment  12,219 
Customer relationships  2,942 
Developed technology  1,078 
Trademark & trade name  1,388 
Covenant not to compete  126 
Goodwill  1,045 
Trade accounts payable  (844)
Accrued expenses  (1,416)
Bank debt  (2,384)
Deferred income taxes  (3,576)
Amount paid to shareholders  21,226 
IFP bank debt paid on purchase date  
2,384
 
Total amount paid on acquisition date $23,610 

The goodwill of $1,045 arising from the IFP Acquisition 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 & Health segment, and is not tax deductible for income tax purposes.

The estimated valuation of the fair value of tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions that are subject to change. In preparing our preliminary fair value estimates of the intangible assets and certain tangible assets acquired, management, among other things, consulted an independent advisor. The purchase price and related allocation to assets acquired and liabilities assumed is preliminary pending finalizing of actual working capital acquired as of the acquisition date. Additionally, certain intangible assets are not tax deductible and the related deferred tax liabilities are preliminary pending management’s final review.

Customer relationships are amortized over a 10-year period utilizing an accelerated method based on the estimated average customer attrition rate. Trademark & trade name, covenant not to compete, and developed technology are amortized over 17 years, 3 years, and 5 years, respectively, utilizing the straight-line method as the consumption pattern of the related economic benefits cannot be reliably determined.
The Company is indemnified for tax liabilities prior to the acquisition date. Indemnified tax liabilities will create an indemnification asset (receivable). At this time, anAn indemnification asset (receivable) balance has not been established.

Transaction relatedIn connection with the Chemogas and Zumbro acquisitions, the Company incurred transaction and integration costs included in generalof $51 and administrative expenses$1,395 for the three and nine months ended SepemberSeptember 30, 20172020, respectively, and $316 and $1,178 for the three and nine months ended September 30, 2019, respectively.
Total transaction and integration costs related to recent acquisitions, including the Chemogas and Zumbro acquisitions described above, are $55recorded in general and $2,020, respectively.administrative expenses. These costs amounted to $61 and $1,885 for the three and nine months ended September 30, 2020, respectively, and $354 and $1,451 for the three and nine months ended September 30, 2019.


The Company has elected not to show pro forma information as this acquisition was immaterial to the overall financial results of the Company.
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NOTE 3 – STOCKHOLDERS’ EQUITY

STOCK-BASED COMPENSATION

The Company’s results for the three and nine months ended September 30, 20172020 and 20162019 reflected the following stock-based compensation cost, and such compensation cost had the following effects on net earnings:
Increase/(Decrease) for theIncrease/(Decrease) for the
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Cost of sales$320 $288 $895 $864 
Operating expenses1,935 1,807 5,860 4,853 
Net earnings(1,718)(1,610)(5,137)(4,401)
  
Increase/(Decrease) for the
Three Months Ended September 30,
 
  2017  2016 
Cost of sales $174  $260 
Operating expenses  1,288   1,436 
Net earnings  (944)  (1,114)

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Increase/(Decrease) for the
Nine Months Ended September 30,
 
  2017  2016 
Cost of sales $318  $780 
Operating expenses  4,028   4,867 
Net earnings  (2,775)  (3,587)

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

The Company’s stock incentive plans allow for the granting of stock awards and options to purchase common stock. Both incentive stock options and nonqualified stock options can be awarded under the plans. No option will be exercisable for longer than ten years after the date of grant. The Company has approved and reserved a number of shares to be issued upon exercise of the outstanding options that is adequate to cover all exercises. As of September 30, 2017,2020, the plans had 1,600,000904,516 shares available for future awards. Compensation expense for stock options and stock awards is recognized on a straight-line basis over the vesting period, generally three years for stock options, three to four years for employee restricted stock awards, three years for employee performance share awards, andthree to four years for non-employee director restricted stock awards. Certain awards provide for accelerated vesting if there is a change in control (as defined in the plans) or other qualifying events.

Option activity for the nine months ended September 30, 20172020 and 20162019 is summarized below:below:
For the nine months ended
September 30, 2020		Shares (000s)Weighted
Average
Exercise
Price		Aggregate
Intrinsic
Value		Weighted
Average
Remaining
Contractual
Term
Outstanding as of December 31, 2019951 $68.18 $31,814 
Granted150 111.51 
Exercised(159)51.51 
Forfeited(10)94.27 
Canceled0 0 
Outstanding as of September 30, 2020932 $77.72 $20,638 6.5
Exercisable as of September 30, 2020589 $67.66 $17,644 5.2
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For the nine months ended
September 30, 2017
 Shares (000s)  
Weighted
Average
Exercise
Price
  
Aggregate
Intrinsic
Value
  
Weighted
Average
Remaining
Contractual
Term
 
Outstanding as of December 31, 2016  1,066  
$
45.32  
$
41,161    
Granted  220   85.23        
Exercised  (256)  37.16        
Forfeited  (47)  71.81        
Cancelled  (22)  57.48        
Outstanding as of September 30, 2017  961  
$
55.06  
$
25,995   
6.8
 
Exercisable as of September 30, 2017  
504
  
$
40.45  
$
20,592   
5.1
 

For the nine months ended September 30, 2016 Shares (000s)  
Weighted
Average
Exercise
Price
  
Aggregate
Intrinsic
Value
  
Weighted
Average
Remaining
Contractual
Term
 
Outstanding as of December 31, 2015  1,017  
$
37.29  
$
23,927    
Granted  338   60.78        
Exercised  (198)  31.03        
Forfeited  -   -        
Outstanding as of September 30, 2016  1,157  
$
45.22  
$
37,435   
6.6
 
Exercisable as of September 30, 2016  
644
  
$
34.29  
$
27,857   
4.9
 

For the nine months ended
September 30, 2019		Shares (000s)Weighted
Average
Exercise
Price		Aggregate
Intrinsic
Value		Weighted
Average
Remaining
Contractual
Term
Outstanding as of December 31, 2018887 $61.59 $16,192 
Granted187 84.29 
Exercised(82)45.44 
Forfeited(11)80.38 
Canceled(4)70.90 
Outstanding as of September 30, 2019977 $67.06 $31,356 6.5
Exercisable as of September 30, 2019608 $58.25 $24,904 5.1
ASC 718 requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions: dividend yields of 0.5% and 0.5%0.6%; expected volatilities of 30%26% and 34%24%; risk-free interest rates of 1.8%1.4% and 1.2%2.5%; and expected lives of 4.63.8 years and 5.04.0 years, in each case for the nine months ended September 30, 20172020 and 2016,2019, respectively.
The Company used a projected expected life for each award granted based on historical experience of employees’ exercise behavior. Expected volatility is based on the Company’s historical volatility levels. Dividend yields are based on the Company’s historical dividend yields. Risk-free interest rates are based on the implied yields currently available on U.S. Treasury zero couponzero-coupon issues with a remaining term equal to the expected life.
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Other information pertaining to option activity during the three and nine months ended September 30, 20172020 and 20162019 was as follows:

Three Months
Ended
September 30,
  
Nine Months
Ended
September 30,
  Three Months Ended
September 30,		Nine Months Ended
September 30,
2017 2016  2017  2016  2020201920202019
Weighted-average fair value of options granted $-  $-  $23.21  $18.45 Weighted-average fair value of options granted$28.59 $0 $23.24 $18.27 
Total intrinsic value of stock options exercised ($000s) $3,566  $4,423  $11,163  $6,680 Total intrinsic value of stock options exercised ($000s)$1,517 $3,021 $7,888 $4,320 
Non-vested restricted stock activity for the nine months ended September 30, 20172020 and 20162019 is summarized below:

Nine Months Ended September 30,
20202019
Shares (000s)Weighted
Average Grant
Date Fair
Value		Shares (000s)Weighted
Average Grant
Date Fair
Value
Non-vested balance as of December 31138 $80.03 79 $72.75 
Granted38 109.95 67 84.44 
Vested(21)67.60 (8)58.52 
Forfeited(4)93.35 (5)85.49 
Non-vested balance as of September 30151 $89.45 133 $79.07 
 
 
 
Nine months ended September 30, 2017
 
Shares (000s)
  
Weighted
Average Grant
Date Fair
Value
 
Non-vested balance as of December 31, 2016  102  $54.18 
Granted  9   85.40 
Vested  (43)  50.30 
Forfeited  (4)  55.45 
Non-vested balance as of September 30, 2017  64  $61.29 
 
 
 
Nine months ended September 30, 2016
 
Shares (000s)
  
Weighted
Average Grant
Date Fair
Value
 
Non-vested balance as of December 31, 2015  150  $47.46 
Granted  18   60.85 
Vested  (52)  42.36 
Forfeited  -   - 
Non-vested balance as of September 30, 2016  116  $51.83 


Non-vested performance share activity for the nine months ended September 30, 20172020 and 20162019 is summarized below:

Nine months ended September 30, 2017
 
Shares (000s)
  
Weighted
Average Grant
Date Fair
Value
 
Non-vested balance as of December 31, 2016  34  $61.06 
Nine Months Ended September 30,
20202019
Shares (000s)Weighted
Average Grant
Date Fair
Value		Shares (000s)Weighted
Average Grant
Date Fair
Value
Non-vested balance as of December 31Non-vested balance as of December 3170 $81.26 53$75.61 
Granted  16   93.85 Granted20 126.46 3381.79 
Vested  -   - Vested(8)104.15 (9)65.64 
Forfeited  (11)  69.25 Forfeited(11)82.71 (7)60.85 
Non-vested balance as of September 30, 2017  39  $72.62 
Non-vested balance as of September 30Non-vested balance as of September 3071 $91.99 70$81.26 
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Nine months ended September 30, 2016 Shares (000s)  
Weighted
Average Grant
Date Fair
Value
 
Non-vested balance as of December 31, 2015  20  $58.77 
Granted  21   63.15 
Vested  -   - 
Forfeited  (4)  60.87 
Non-vested balance as of September 30, 2016  37  $61.04 


The performance share (“PS”) awards provide the recipients the right to receive a certain number of shares of the Company’s common stock in the future, subject to an (1) EBITDA performance hurdle, where vesting is dependent upon the Company achieving a certain EBITDA percentage growth over the performance period, and (2) relative total shareholder return (TSR) where vesting is dependent upon the Company’s TSR performance over the performance period relative to a comparator group consisting of the Russell 2000 index constituents. Expense is measured based on the fair value at the date of grant utilizing a Black-Scholes methodology to produce a Monte-Carlo simulation model which allows for the incorporation of the performance hurdles that must be met before the PS vests. The assumptions used in the fair value determination were risk free interest rates of 1.5%1.4% and 0.88%2.5%; dividend yields of 0.6%0.5% and 0.6%0.5%; volatilities of 32%24% and 32%24%; and initial TSR’s of 8.2%10.9% and -6.6%-5.9%, in each case for the nine months ended September 30, 20172020 and 2016,2019, respectively. Expense is estimated 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 PS will cliff vest 100% at the end of the third year following the grant in accordance with the performance metrics set forth.

As of September 30, 20172020 and 2016,2019, there was $8,732$14,876 and $10,423,$13,001, respectively, of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plans. As of September 30, 2017,2020, the
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unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately 1.51.6 years. The Company estimates that share-based compensation expense for the year ended December 31, 20172020 will be approximately $5,900.

$9,200.
REPURCHASE OF COMMON STOCK

The Company has an approved stock repurchase program. The total authorization under this program is 3,763,038 shares. Since the inception of the program in June 1999, a total of 2,173,1352,495,496 shares have been purchased, of which no108,813 shares remained in treasury at September 30, 2017. During2020. The Company repurchases shares from employees in connection with settlement of transactions under the nine months ended September 30, 2017 and 2016, a total of 22,300 and 23,651 shares, respectively, have been purchased at an average cost of $82.21 and $62.51 per share, respectively.Company's equity incentive plans. The Company also intends to acquire shares from time to time at prevailing market prices if and to the extent it deems it advisable to do so based on its assessment of corporate cash flow, market conditions and other factors. During the nine months ended September 30, 2020 and 2019, the Company purchased 63,729 and 240,995 shares, respectively, from employees on a net-settlement basis to provide cash to employees to cover the associated employee payroll taxes and from open market purchases. These shares were purchased at an average cost of $93.87 and $88.47, respectively.

15
NOTE 4 – INVENTORIES

Inventories at September 30, 20172020 and December 31, 20162019 consisted of the following:

September 30, 2020December 31, 2019
Raw materials$28,802 $26,783 
Work in progress2,430 2,758 
Finished goods46,198 54,352 
Total inventories$77,430 $83,893 
  
September 30,
2017
  
December 31,
2016
 
Raw materials $20,694  $20,751 
Work in progress  3,646   3,225 
Finished goods  35,284   33,269 
Total inventories $59,624  $57,245 


NOTE 5 – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at September 30, 20172020 and December 31, 20162019 are summarized as follows:
 September 30, 2020December 31, 2019
Land$11,697 $11,588 
Building85,812 79,261 
Equipment244,030 237,898 
Construction in progress21,921 14,594 
 363,460 343,341 
Less: accumulated depreciation143,906 126,482 
Property, plant and equipment, net$219,554 $216,859 
  
September 30,
2017
  
December 31,
2016
 
Land $7,246  $4,208 
Building  58,322   45,735 
Equipment  192,926   177,841 
Construction in progress  17,122   17,357 
   275,616   245,141 
Less: accumulated depreciation  91,370   79,387 
Property, plant and equipment, net $184,246  $165,754 


NOTE 6 – INTANGIBLE ASSETS

The Company had goodwill in the amount of $441,259$526,257 and $439,811$523,998 as of September 30, 20172020 and December 31, 2016,2019, respectively, subject to the provisions of ASC 350, “Intangibles-Goodwill and Other.”

Goodwill at January 1, 2017 $439,811 
Goodwill as a result of the Acquisitions – see Note 2  
1,448
 
Goodwill at September 30, 2017 $441,259 

There was a $1,405 The increase in the carrying amount of goodwill during the three months ended September 30, 2017, as a result of changesis primarily due to foreign exchange translation adjustments and an adjustment related to the fair valueZumbro acquisition, partially offset by an impairment of assets acquired and liabilities assumed (See Note 2).

  
September 30,
2017
  
December 31,
2016
 
Human Nutrition & Health $405,232  $404,187 
Animal Nutrition & Health  12,137   11,734 
Specialty Products  22,662   22,662 
Industrial Products  1,228   1,228 
Total $441,259  $439,811 
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$1,228 related to business formerly included in the Industrial Products segment.
Identifiable intangible assets with finite lives at September 30, 20172020 and December 31, 20162019 are summarized as follows:

 Amortization
Period
(in years)		Gross Carrying Amount at
9/30/2020		Accumulated Amortization at
9/30/2020		Gross Carrying Amount at
12/31/2019		Accumulated Amortization at
12/31/2019
Customer relationships & lists10-20$241,505 $153,361 $239,578 $139,863 
Trademarks & trade names2-1743,154 23,821 43,102 20,477 
Developed technology5-1221,394 13,011 20,206 11,008 
Other3-1821,231 10,909 20,962 8,576 
 $327,284 $201,102 $323,848 $179,924 
  
Amortization
Period
(in years)
  
Gross
Carrying
Amount at
9/30/17
  
Accumulated
Amortization
at 9/30/17
  
Gross
Carrying
Amount
at 12/31/16
  
Accumulated
Amortization
at 12/31/16
 
Customer relationships & lists  10  $190,044  $100,868  $185,885  $86,338 
Trademarks & trade names  17   40,630   11,978   39,241   9,260 
Developed technology  5   13,338   5,269   12,260   3,358 
Other  5-17   13,278   4,664   12,713   3,659 
      $257,290  $122,779  $250,099  $102,615 

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Amortization of identifiable intangible assets was approximately $20,145$6,911 and $20,875 for the three and nine months ended September 30, 2017.2020, respectively, and $6,753 and $18,723 for the three and nine months ended September 30, 2019, respectively. Assuming no change in the gross carrying value of identifiable intangible assets, the estimated amortization expense is $6,911 for the remainder of 2017 is $6,910, approximately $24,575 for 2018, $22,460 for 2019, $20,440 for 2020, $17,215$24,216 for 2021, $22,266 for 2022, $19,351 for 2023, $10,658 for 2024 and $15,675$6,412 for 2022.2025. At September 30, 2017,2020 and 2019, there were no0 identifiable intangible assets with indefinite useful lives as defined by ASC 350. Identifiable intangible assets are reflected in “Intangible assets with finite lives, net” in the Company’s condensed consolidated balance sheets. There were no changes to the useful lives of intangible assets subject to amortization during the nine months ended September 30, 2017.2020 and 2019.


NOTE 7 – EQUITY-METHOD INVESTMENT

In 2013, the Company and Eastman Chemical Company (formerly Taminco Corporation) formed a joint venture (66.66% / 33.34% ownership), St. Gabriel CC Company, LLC, to design, develop, and construct an expansion of the Company’s St. Gabriel aqueous choline chloride plant.  The Company contributed the St. Gabriel plant, at cost, and all continued expansion will beand 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 will receivereceives up to 2/3 of the production offtake capacity and absorbs operating expenses approximately proportional to the actual percentage of offtake. The joint venture is accounted for under the equity method of accounting since the Company is not the primary beneficiary as we dothe 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 $138$143 and $132$423 for the three months ended September 30, 2017 and 2016, respectively, and a loss of $408 and $132 for the nine months ended September 30, 20172020, respectively, and 2016,$84 and $266 for the three and nine months ended September 30, 2019, respectively, relating to its portion of the joint venture’sventure's expenses in other expense. The carrying value of the joint venture at September 30, 20172020 and December 31, 20162019 is $4,942$4,913 and $4,553,$4,513, respectively, and is recorded in other assets.

NOTE 8 – LONG-TERM DEBT

REVOLVING LOAN
On May 7, 2014,June 27, 2018, the Company and a bank syndicate entered into a loancredit agreement providing(the "Credit Agreement"), which replaced the existing credit facility that had provided for a senior secured term loan of $350,000 and a revolving loan of $100,000
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(collectively$100,000.  The Credit Agreement, which expires on June 27, 2023, provides for revolving loans up to $500,000 (collectively referred to as the “loans”).  On February 1, 2016, $65,000The loans may be used for working capital, letters of credit, and other corporate purposes and may be drawn upon at the revolving loan wasCompany’s discretion.  The initial proceeds from the Credit Agreement were used to fundrepay the Albion International, Inc. acquisition (see Note 2). In addition,outstanding balance of $210,750 on June 1, 2017, $20,000its senior secured term loan, which was due May 2019. As of the revolving loan was used to fund the Innovative Food Processors, Inc. acquisition (see Note 2). At September 30, 2017,2020 and December 31, 2019, the Company had a total of $236,250 of debt outstanding. The term loan is payable in quarterly installments of $8,750 commencing on September 30, 2014, with thebalance outstanding principal due on the maturity date. The Company may drawCredit Agreement amounted to $193,569 and $248,569, respectively. There are 0 installment payments required on the revolving loan at its discretion. The revolving loan does not have installments and all outstanding amounts are due on the maturity date. The loansloans; they may be voluntarily prepaid in whole or in part without premium or penalty, and have aall outstanding amounts are due on the maturity date of May 7, 2019. The loansdate. 
Amounts outstanding under the Credit Agreement are subject to an interest rate equal to LIBOR or a fluctuating rate as defined by the loan agreement, at the Company’s discretion,Credit Agreement plus an applicable rate.  The applicable rate is based upon the Company’s consolidated net leverage ratio, as defined in the loan agreement,Credit Agreement, and the interest rate was 2.74%1.270% at September 30, 2017.2020.  The Company has $100,000 of undrawn revolving loan at September 30, 2017 that is subjectalso required to pay a commitment fee on the unused portion of the revolving loan, which is based on the Company’s consolidated net leverage ratio as defined in the Credit Agreement and ranges from 0.15% to 0.275% (0.175% at September 30, 2020).  The unused portion of the revolving loan agreement.amounted to $306,431 at September 30, 2020.  The loan agreementCompany is also required to pay, as applicable, letter of credit fees, administrative agent fees, and other fees to the arrangers and lenders.
Costs associated with the issuance of the revolving loans are capitalized and amortized on a straight-line basis over the term of the Credit Agreement, which is not materially different than the effective interest method.  Costs associated with the issuance of the extinguished debt instrument were capitalized and amortized over the term of the respective financing arrangement using the effective interest method. Capitalized costs net of accumulated amortization totaled $774 and $986 at September 30, 2020 and December 31, 2019, respectively, and are included in other assets on the condensed consolidated balance sheets. Amortization expense pertaining to these costs totaled $71 and $212, for both the three and nine months ended September 30, 2020 and 2019, and are included in interest expense in the accompanying condensed consolidated statements of earnings.
The Credit Agreement contains quarterly covenants requiring the consolidated leverage ratio to be less than a certain maximum ratio and the consolidated fixed chargeinterest coverage ratio to exceed a certain minimum ratio.  At September 30, 2017,2020, the Company was in compliance with these covenants.  Indebtedness under the Company’s loan agreements are secured by assets of the company.Company.


The following table summarizes the future minimum debt payments:
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Year Term loan  
Revolving
loan
  Total 
October 1, 2017 to December 31, 2017 $8,750  $-  $8,750 
2018  35,000   -   35,000 
2019  192,500   -   192,500 
Future principal payments  236,250   -   236,250 
Less unamortized debt financing costs  650   -   650 
Less current portion of long-term debt  35,000   -   35,000 
Total long-term debt $200,600  $-  $200,600 

Costs associated with the issuanceTable of debt instruments are capitalized as debt discount and amortized over the terms of the respective financing arrangements using the effective interest method. If debt is retired early, the related unamortized costs are expensed in the period the debt is retired. Capitalized costs net of accumulated amortization total $650 at September 30, 2017 and are shown net against outstanding principal, as required by ASU 2015-03, on the accompanying balance sheet. Amortization expense pertaining to these costs totaled $117 and $130 for the three months ended September 30, 2017 and 2016 and $360 and $398 for the nine months ended September 30, 2017 and 2016, and is included in interest expense in the accompanying condensed consolidated statements of earnings.Contents

NOTE 9 – NET EARNINGS PER SHARE

The following presents a reconciliation of the net earnings and shares used in calculating basic and diluted net earnings per share:
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Three months ended September 30, 2017 
Net
Earnings
(Numerator)
  
Number of
Shares
(Denominator)
  
Per Share
Amount
 
Basic EPS – Net earnings and weighted average common shares outstanding $16,043   
31,906,629
  $.50 
             
Effect of dilutive securities – stock options, restricted stock, and performance shares      334,827     
             
Diluted EPS – Net earnings and weighted average common shares outstanding and effect of stock options, restricted stock, and performance shares $16,043   
32,241,456
  $.50 

Three months ended September 30, 2016 
Net
Earnings
(Numerator)
  
Number of
Shares
(Denominator)
  
Per Share
Amount
 
Basic EPS – Net earnings and weighted average common shares outstanding $14,012   
31,566,067
  $.44 
             
Effect of dilutive securities – stock options, restricted stock, and performance shares      412,736     
             
Diluted EPS – Net earnings and weighted average common shares outstanding and effect of stock options, restricted stock, and performance shares $14,012   
31,978,803
  $.44 
 
 
Nine months ended September 30, 2017
 
Net
Earnings
(Numerator)
  
Number of
Shares
(Denominator)
  
Per Share
Amount
 
Basic EPS – Net earnings and weighted average common shares outstanding $48,096   
31,803,869
  $1.51 
             
Effect of dilutive securities – stock options, restricted stock, and performance shares      399,617     
             
Diluted EPS – Net earnings and weighted average common shares outstanding and effect of stock options, restricted stock, and performance shares $48,096   
32,203,486
  $1.49 
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Nine months ended September 30, 2016 
Net
Earnings
(Numerator)
  
Number of
Shares
(Denominator)
  
Per Share
Amount
 
Basic EPS – Net earnings and weighted average common shares outstanding $40,048   
31,483,053
  $1.27 
             
Effect of dilutive securities – stock options, restricted stock, and performance shares      404,209     
             
Diluted EPS – Net earnings and weighted average common shares outstanding and effect of stock options, restricted stock, and performance shares $40,048   
31,887,262
  $1.26 

Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
Net Earnings - Basic and Diluted$21,568 $20,676 $62,461 $59,288 
Shares (000s)
Weighted Average Common Shares - Basic32,206 32,094 32,174 32,164 
Effect of Dilutive Securities – Stock Options, Restricted Stock, and Performance Shares310 361 326 350 
Weighted Average Common Shares - Diluted32,516 32,455 32,500 32,514 
Net Earnings Per Share - Basic$0.67 $0.64 $1.94 $1.84 
Net Earnings Per Share - Diluted$0.66 $0.64 $1.92 $1.82 
The Company had stock options covering 200,610number of anti-dilutive shares were 172,122 and 332,560 shares at215,271 for the three and nine months ended September 30, 20172020, respectively, and 2016, respectively, that183,822 and 196,382 for the three and nine months ended September 30, 2019, respectively. Anti-dilutive shares could potentially dilute basic earnings per share in future periods thatand therefore, were not included in diluted earnings per share because their effect on the period presented was anti-dilutive.

The Company has some share-based payment awards that have non-forfeitable dividend rights. These awards are restricted shares and they participate on a one-for-one basis with holders of common stock. These awards have an immaterial impact as participating securities with regard to the calculation using the two-class method for determining earnings per share.


NOTE 10 – INCOME TAXES

The Company’s effective tax rate for the three months ended September 30, 2020 and 2019, was 22.7% and 15.4%, and 20.3% and 20.0% for the nine months ended September 30, 2020 and 2019, respectively. The increase in the effective tax rate for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019 was mainly attributable to a reduction in certain tax credits and lower tax benefits from stock-based compensation, partially offset by lower enacted state tax rates.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law making several significant changes to the Internal Revenue Code. The Company has reviewed the change in law and determined that the law change has no significant impact on the Company's tax provision or financial statements. In addition, Balchem will continue to evaluate and analyze the impact of the U.S. Tax Cuts and Jobs Act that was enacted on December 22, 2017 and the additional guidance that has been issued, and may be issued, by the U.S. Department of Treasury, the Securities and Exchange Commission, or the Financial Accounting Standards Board regarding this act.
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company regularly reviews its deferred tax assets for recoverability and would establish a valuation allowance if it believed that such assets may not be recovered, taking into consideration historical operating results, expectations of future earnings, changes in its operations and the expected timing of the reversals of existing temporary differences.
The Company accounts for uncertainty in income taxes in accordance withutilizing ASC 740-10, “Accounting for Uncertainty in Income Taxes.”"Income Taxes". ASC 740-10 clarifies whether or not to recognize assets or liabilities for tax positions taken that may be challenged by a tax authority. AllIt prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, and disclosures. The application of ASC 740-10 requires judgment related to the unrecognized tax benefits, if recognizeduncertainty in future periods, wouldincome taxes and could impact the Company’sour effective tax rate.
The Company files income tax returns in the U.S. and in various states and foreign countries. As of September 30, 2017,2020, in the major jurisdictions where the Company operates, it is generally no longer subject to income tax examinations by tax authorities for years before 2013.2015. As of September 30, 20172020 and December 31, 2016,2019, the Company had approximately $4,810$5,192 and $6,637,$4,762, respectively, of unrecognized tax benefits, which are included in other long-term obligations on the Company’s condensed
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consolidated balance sheets. During the nine months ended September 30, 2017 the decrease in the amount of unrecognized tax benefits was related to certain statutes of limitation expiring, and the filing of certain voluntary disclosures.  During the nine months ended September 30, 2016, the increase in the amount of unrecognized tax benefits was primarily related to the acquisition of Performance Chemicals & Ingredients Company (d/b/a SensoryEffects). The Company includes interest expense or income as well as potential penalties on unrecognized tax positions as a component of income tax expense in the condensed consolidated statements of earnings. The total amount of accrued interest and penalties related to uncertain tax positions at September 30, 20172020 and December 31, 20162019 was approximately $1,897$1,787 and $2,486,$1,612, respectively, and is included in other long-term obligations.

20
The Company’s effective tax rate for the three months ended September 30, 2017 and 2016 was 22.5% and 32.5%, respectively and 24.8% and 33.4%, respectively, for the nine months ended September 30, 2017 and 2016.  The company’s effective tax rate for the three and nine months ended September 30, 2017 is lower primarily due to excess tax benefits from stock-based compensation being recognized as a reduction to the provision for income taxes, resulting from the adoption of ASU 2016-09, a purchase price reduction related to the SensoryEffects acquisition, along with reduced taxes and reduced tax rates in certain jurisdictions.

NOTE 11 – SEGMENT INFORMATION

Previously, the Company's 4 reportable segments were: Human Nutrition and Health, Animal Nutrition and Health, Specialty Products, and Industrial Products. However, effective in the first quarter of 2020, in order to align with the Company's strategic focus on health and nutrition, allocation of resources, and evaluation of operating performance, and given the 2019 reduction in portfolio scale of Industrial Products, the Company has revised its reporting segment structure to 3 reportable segments: Human Nutrition and Health, Animal Nutrition and Health, and Specialty Products. These reportable segments are strategic businesses that offer products and services to different markets. This realignment has been retrospectively applied. Sales and production of products outside of our reportable segments and other minor business activities are included in "Other and Unallocated" and applied retroactively to 2019. There was no change to the Consolidated Financial Statements as a result of the change to the reportable segments. The Company expects that the new reportable segment structure will provide investors greater understanding of and alignment with the Company’s strategic focus. In order to ensure appropriate transparency and visibility into the financial performance of the Company, sufficient detail will continue to be provided relative to Other and Unallocated, including material contributions from oil and gas and other industrial market activities.
Human Nutrition & Health

OurThe Human Nutrition & Health ("HNH") segment supplies ingredientsprovides human grade choline nutrients and mineral amino acid chelated products through this segment for nutrition and health applications. Choline is recognized to play a key role in the development and structural integrity of brain cell membranes in infants, processing dietary fat, reproductive development and neural functions, such as memory and muscle function. The Company's mineral amino acid chelates, specialized mineral salts, and mineral complexes are used as raw materials for inclusion in premier human nutrition products. Proprietary technology has been combined to create an organic molecule in a form the body can readily assimilate. Sales growth for human nutrition applications is reliant on differentiation from lower-cost competitive products through scientific data, intellectual property and customers' appreciation of brand value. Consequently, the Company makes investments in such activities for long-term value differentiation. This segment also serves the food and beverage industry providingfor beverage, bakery, dairy, confectionary, and savory manufacturers. The Company partners with its customers from ideation through commercialization to bring on-trend beverages, baked goods, confections, dairy and meat products to market. The Company has expertise in trends analysis and product development. When combined with its strong manufacturing capabilities in customized solutions in powder, solidspray dried and emulsified powders, extrusion and agglomeration, blended lipid systems, liquid flavor delivery systems, spray dried emulsified powder systems,juice and cereal systems.  Our products include creamer systems, dairy replacers, powdered fats, nutritional beverage bases, beverages, juice & dairy bases, chocolate systems, as well as ice cream bases &and variegates, ready-to-eat cereals, grain based snacks,the Company is a one-stop solutions provider for beverage and cereal based ingredients.dairy product development needs. Additionally, we providethis 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. WeThe Company also producecreates cereal systems for ready-to-eat cereals, grain-based snacks, and market human grade choline nutrients and mineral amino acid chelated products through this segment for wellness 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. Our mineral amino acid chelates, specialized mineral salts, and mineral complexes are used as raw materials for inclusion in premier human nutrition products. Science and patented technology have been combined to create an organic molecule in a form the body can readily assimilate.cereal based ingredients.

Animal Nutrition & Health

OurThe Company’s Animal Nutrition & Health (“ANH”("ANH") segment provides nutritional products derived from ourits microencapsulation and chelation technologies in addition to basic choline chloride. For ruminant animals, ourthe Company’s microencapsulated products boost health and milk production, delivering nutrient supplements that are biologically available, providing required nutritional levels. OurThe 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. CholineIn poultry, choline deficiency can result in reduced growth rates and perosis in poultry,young birds, while in swine production choline is a necessary and fattyrequired component of gestating and lactating sow diets for both liver kidney necrosishealth and general poor health condition in swine.
21
prevention of leg deformity.
Sales of specialtyvalue-added encapsulated products for the animal nutrition and health industry are highly dependent on dairyoverall industry economics as well as the Company's ability of the Company to leverage the results of university and field research on the animal health and production benefits of the Company’sour products. Management believes that success in the commodity-oriented basic choline chloride marketplace is highly dependent on the Company’s ability to maintain its strong reputation for excellent product quality and customer service. The Company continues to increasedrive production efficiencies in order to maintain its competitive-cost position to effectively compete in a competitive global marketplace.

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Specialty Products

Ethylene oxide, at the 100% level and blended with carbon dioxide, is sold as a sterilant gas, primarily for use in the health care industry. It is used to sterilize a wide range of medical devices because of its versatility and effectiveness in treating hard or soft surfaces, composites, metals, tubing and different types of plastics without negatively impacting the performance of the device being sterilized. OurThe Company’s 100% ethylene oxide product isand blends are distributed worldwide in uniquelyspecially designed, reusable and recyclable double-walled, stainless steel drumsdrum and cylinder packaging, to assure compliance with safety, quality and environmental standards as outlined by the EPA andapplicable regulatory agencies in the DOT. Ourcountries our products are shipped to. The Company’s inventory of these specially built drums and cylinders, along with our twoits 5 filling facilities, represents a significant capital investment. Contract sterilizers and medical device manufacturers are principal customers for this product. WeThe Company also sellsells single use canisters with 100% ethylene oxide for use in sterilizing re-usable devices typically processed in autoclave units in hospitals. As a fumigant, ethylene oxide blends are highly effective in killing bacteria, fungi, and insects in spices and other seasoning materials.

The Company also distributes a number of other gases for various uses, most notably propylene oxide and ammonia. Propylene oxide is marketed and sold in the U.S. as a fumigant to aid in the control of insects and microbiological spoilage; and to reduce bacterial and mold contamination in certain shell and processed nut meats, processed spices, cacao beans, cocoa powder, raisins, figs and prunes. We distribute ourThe Company distributes its propylene oxide product in the U.S. primarily in recyclable, single-walled, carbon steel cylinders according to standards outlined by the EPA and the DOT. Our inventory of these cylinders also represents a significant capital investment. Propylene oxide is also sold worldwide to customers seeking smaller (as opposed to bulk) quantitiesin approved reusable and whose requirements include utilization inrecyclable drum and cylinder packaging for various chemical synthesis applications, such as increasing paint durability and manufacturing specialty starches and textile coatings. Ammonia is used primarily as a refrigerant, and also for heat treatment of metals and various chemical synthesis applications, and is distributed in reusable and recyclable drum and cylinder drum and cylinder packaging approved for use in the countries these products are shipped to. The Company's inventory of cylinders for these products also represents a significant capital investment.

OurThe Company’s micronutrient agricultural nutrition business sells chelated minerals primarily into high value crops. We haveThe Company has a unique and patented two-step approach to solving mineral deficiency in plants to optimize health, yield and shelf-life.  First, we determinethe Company determines optimal mineral balance for plant health. WeThe Company then havehas a foliar applied Metalosate product range, utilizing patented amino acid chelate technology. OurIts products quickly and efficiently deliver mineral nutrients. As a result, the farmer/grower gets healthier crops that are more resistant to disease and pests, larger yields and healthier food for the consumer with extended shelf life for produce being shipped long distances.

The segment information is summarized as follows:
Industrial Products
Business Segment AssetsSeptember 30,
2020		December 31,
2019
Human Nutrition & Health$734,586 $737,951 
Animal Nutrition & Health143,600 140,806 
Specialty Products181,454 181,904 
Other and Unallocated (1)
101,701 95,021 
Total$1,161,341 $1,155,682 


Certain derivatives of choline chloride are manufactured and sold into industrial applications predominately as a component for hydraulic fracturing of shale natural gas wells. Our products offer an attractive, effective and more environmentally responsible
Business Segment Net SalesThree Months Ended
September 30,		Nine Months Ended
September 30,
 2020201920202019
Human Nutrition & Health$103,589 $86,142 $296,525 $257,163 
Animal Nutrition & Health46,354 42,286 141,339 129,127 
Specialty Products23,003 24,888 79,193 68,219 
Other and Unallocated (2)
2,194 5,279 5,874 22,669 
Total$175,140 $158,595 $522,931 $477,178 
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alternative than other clay stabilizers. Industrial grade choline bicarbonate
Business Segment Earnings Before Income TaxesThree Months Ended
September 30,		Nine Months Ended
September 30,
 2020201920202019
Human Nutrition & Health$17,499 $13,193 $45,131 $39,234 
Animal Nutrition & Health7,011 6,122 21,485 16,423 
Specialty Products5,348 6,699 21,342 22,275 
Other and Unallocated (2)
(830)16 (5,735)980 
Interest and other expense(1,121)(1,594)(3,853)(4,802)
Total$27,907 $24,436 $78,370 $74,110 

Depreciation/AmortizationThree Months Ended
September 30,		Nine Months Ended
September 30,
 2020201920202019
Human Nutrition & Health$8,188 $7,411 $24,047 $22,880 
Animal Nutrition & Health1,842 1,646 5,390 4,847 
Specialty Products2,461 2,372 7,225 4,983 
Other and Unallocated (2)
564 324 1,687 775 
Total$13,055 $11,753 $38,349 $33,485 

Capital ExpendituresNine Months Ended
September 30,
 20202019
Human Nutrition & Health$13,481 $14,136 
Animal Nutrition & Health3,958 2,788 
Specialty Products1,542 2,050 
Other and Unallocated (2)
298 583 
Total$19,279 $19,557 

(1) Other and Unallocated assets consist of certain cash, capitalized loan issuance costs, other assets, investments, and income taxes, which the Company does not allocate to its individual business segments. It also includes assets associated with a few minor businesses which individually do not meet the quantitative thresholds for separate presentation.
(2) Other and Unallocated consists of a few minor businesses which individually do not meet the quantitative thresholds for separate presentation and corporate expenses that have not been allocated to a segment. Unallocated corporate expenses consist of: (i) Transaction and integration costs, ERP implementation costs, and unallocated legal fees totaling $161 and $2,179 for the three and nine months ended September 30, 2020, respectively, and $688 and $2,253 for the three and nine months ended September 30, 2019, respectively, and (ii) Unallocated amortization expense of $399 and $1,205 for the three and nine months ended September 30, 2020, respectively, and $138 and $157 for the three and nine months ended September 30, 2019, respectively, related to an intangible asset in connection with a company-wide ERP system implementation.

NOTE 12 – REVENUE
Revenue Recognition
Revenues are recognized when control of the promised goods is completely chloride freetransferred to customers, in an amount that reflects the consideration the Company expects to realize in exchange for those goods.
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The following table presents revenues disaggregated by revenue source. Sales and our choline chloride reducesusage-based taxes are excluded from revenues.
Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
Product Sales$164,254 $149,862 $494,857 $449,878 
Co-manufacturing8,427 5,911 21,803 19,112 
Bill and Hold763 1,056 1,158 3,182 
Consignment602 688 1,916 1,770 
Product Sales Revenue174,046 157,517 519,734 473,942 
Royalty Revenue1,094 1,078 3,197 3,236 
Total Revenue$175,140 $158,595 $522,931 $477,178 
The following table presents revenues disaggregated by geography, based on the amountshipping addresses of chlorides released intocustomers:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
United States$131,305 $112,811 $380,450 $353,111 
Foreign Countries43,835 45,784 142,481 124,067 
Total Revenue$175,140 $158,595 $522,931 $477,178 

Product Sales Revenues
The Company’s primary operation is the environment up to 75% when compared to potassium chloride. The Industrial Products segment also includes the manufacturemanufacturing and sale of methylamines. Methylamineshealth and nutrition ingredient products, in which the Company receives an order from a customer and fulfills that order. The Company’s product sales are a primary building blockconsidered point-in-time revenue and consist of 4 sub-streams: product sales, co-manufacturing, bill and hold, and consignment.

Under the co-manufacturing agreements, the Company is responsible for the manufacture of choline productsa finished good where the customer provides the majority of the raw materials.  The Company controls the manufacturing process and the ultimate end-product before it is shipped to the customer.  Based on these factors, the Company has determined that it is the principal in these agreements and therefore revenue is recognized in the gross amount of consideration the Company expects to be entitled for the goods provided.
Royalty Revenues

Royalty revenue consists of agreements with customers to use the Company’s intellectual property in exchange for a sales-based royalty. Royalties are considered over time revenue and are produced at our Italian operationrecorded 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 sold for a wide rangelocation of industrial applications in Europe.
Business Segment Assets:
  
September 30,
2017
  
December 31,
2016
 
Human Nutrition & Health $719,880  $709,337 
Animal Nutrition & Health  115,942   121,860 
Specialty Products  63,178   64,030 
Industrial Products  14,749   10,477 
Other Unallocated  45,089   42,922 
Total $958,838  $948,626 

Depreciation/Amortization:
  
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
  2017  2016  2017  2016 
Human Nutrition & Health $8,462  $8,578  $24,773  $25,172 
Animal Nutrition & Health  1,296    1,837   4,330   5,515 
Specialty Products  1,028   982   3,067   2,777 
Industrial Products  187   186   640   521 
Total $10,973  $11,583  $32,810  $33,985 

Capital Expenditures:
  
Nine Months Ended
September 30,
 
  2017  2016 
Human Nutrition & Health $13,290  $11,780 
Animal Nutrition & Health  2,585   5,442 
Specialty Products  852   1,060 
Industrial Products  949   519 
Total $17,676  $18,801 

Business Segment Net Sales:
   
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
  2017  2016  2017  2016 
Human Nutrition & Health $81,365  $74,926  $232,523  $221,281 
Animal Nutrition & Health  38,010   40,935   113,136   118,579 
Specialty Products  17,264   16,477   56,813   53,919 
Industrial Products  14,077   6,171   33,054   18,665 
Total $150,716   138,509  $435,526  $412,444 
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Business Segment Earnings Before Income Taxes:
  
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
  2017  2016  2017  2016 
Human Nutrition & Health $10,426  $10,460  $31,942  $27,856 
Animal Nutrition & Health  5,154   6,784   14,219   20,623 
Specialty Products  5,607   5,237   20,125   17,541 
Industrial Products  2,096   527   4,397   1,019 
Transaction, integration costs, and legal settlement  (228)  (62)  (2,181)  (792)
Indemnification settlement  -   -   2,087   - 
Interest and other income (expense)  (2,358)  (2,175)  (6,623)  (6,112)
Total $20,697  $20,771  $63,966  $60,135 

Transactioncustomers and integration costs were primarily relatedthe 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 aforementioned definitive agreements (see Note 2).customer.

Practical Expedients and Exemptions
Indemnification settlement is related to the acquisition of Performance Chemicals & Ingredients Company (d/b/a SensoryEffects).


The following table summarizes domestic (U.S.)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 foreign salesmarketing 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 three and nine months ended September 30, 2017 and 2016:Company recognizes revenue at the amount to which it has the right to invoice for products shipped.


   
Three Months Ended
Sepember 30,
    
Nine Months Ended
September 30,
  
  2017  2016  2017  2016 
Domestic $116,771  $105,093  $336,298  $314,644 
Foreign  33,945   33,416   99,228   97,800 
Total $150,716  $138,509  $435,526  $412,444 

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NOTE 1213 – SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid during the nine months ended September 30, 20172020 and 20162019 for income taxes and interest is as follows:

Nine Months Ended
September 30,
  Nine Months Ended
September 30,
 2017  2016 20202019
Income taxes $21,024  $25,644 Income taxes$15,167 $18,226 
Interest $5,331  $5,107 Interest$4,069 $4,567 

NOTE 1314 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The changes in accumulated other comprehensive incomeincome/(loss) were as follows:
 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2020201920202019
Net foreign currency translation adjustment$4,313 $(2,209)$7,440 $(3,513)
Net change of cash flow hedge (see Note 20 for further information)
Unrealized gain (loss) on cash flow hedge299 (769)(3,585)(2,475)
Tax(72)112 926 519 
Net of tax227 (657)(2,659)(1,956)
Net change in postretirement benefit plan (see Note 15 for further information)
Amortization of prior service cost18 19 56 55 
Amortization of gain(12)(12)(38)(34)
Total before tax6 7 18 21 
Tax2 (2)3 (5)
Adjustment (1)
129 0 (455)0 
Net of tax and adjustment137 5 (434)16 
Total other comprehensive income (loss)$4,677 $(2,861)$4,347 $(5,453)
(1) One-time adjustment to the postretirement account.
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Three Months Ended
September 30,
 
  2017  2016 
Net foreign currency translation adjustment $1,502  $302 
Net change in postretirement benefit plan (see Note 14 for further information)        
Amortization of prior service cost  19   16 
Amortization of gain  (4)  (3)
Total before tax  15   13 
Tax  (5)  (4)
Net of tax  10   9 
         
Total other comprehensive income $1,512  $311 

  
Nine Months Ended
September 30,
 
  2017  2016 
Net foreign currency translation adjustment $4,740  $850 
Net change in postretirement benefit plan (see Note 14 for further information)        
Initial adoption of new plan  -   (444)
Amortization of prior service cost  57   40 
Amortization of gain  (12)  (8)
Total before tax  45   (412)
Tax  (14)  (9)
Net of tax  31   (421)
         
Total other comprehensive income $4,771  $429 

Included in "Net foreign currency translation adjustment" were losses of $3,891 and $986, related to a net investment hedge, which were net of taxes of $1,244 and $330 for the three and nine months ended September 30, 2020, respectively. Included in "Net foreign currency translation adjustment" were gains of $4,626 and $1,715, related to a net investment hedge, which were net of taxes of $456 for both the three and nine months ended September 30, 2019. See Note 20, "Derivative Instruments and Hedging Activities."
Accumulated other comprehensive lossincome/(loss) at September 30, 20172020 and December 31, 20162019 consisted of the following:

 Foreign currency
translation
adjustment		Cash flow hedgePostretirement
benefit plan		Total
Balance December 31, 2019$(5,176)$(1,399)$1,011 $(5,564)
Other comprehensive income/(loss)7,440 (2,659)(434)4,347 
Balance September 30, 2020$2,264 $(4,058)$577 $(1,217)
  
Foreign currency
translation
adjustment
  
Postretirement
benefit plan
  Total 
Balance December 31, 2016 $(6,707) $(142) $(6,849)
Other comprehensive income  4,740   31   4,771 
Balance September 30, 2017 $(1,967) $(111) $(2,078)


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NOTE 1415 – EMPLOYEE BENEFIT PLANPLANS

Defined Contribution Plans
The Company sponsored 2 401(k) savings plans for eligible employees. The plans allow participants to make pretax contributions and the Company matches certain percentages of those pretax contributions. One of the plans has a discretionary profit sharing portion and matches 401(k) contributions with shares of the Company’s Common Stock. All amounts contributed to the plans are deposited into a trust fund administered by independent trustees.
Postretirement Medical Plans
The Company provides postretirement benefits in the form of two2 unfunded postretirement medical plans; one that is under a collective bargaining agreement and covers eligible retired employees of the Verona facility and a plan for Named Executive Officers.
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those named as executive officers in the Company’s proxy statement.
Net periodic benefit costs for such retirement medical plans were as follows:

  
Nine Months Ended
September 30,
   Nine Months Ended
September 30,
 2017  2016  20202019
Service cost $50  $48 Service cost$51 $47 
Interest cost  35   33 Interest cost19 29 
Amortization of prior service cost  55   40 Amortization of prior service cost56 55 
Amortization of gain  (11)  (8)Amortization of gain(38)(34)
Net periodic benefit cost $129  $113 Net periodic benefit cost$88 $97 
The amount recorded for these obligations on the Company’s balance sheetsheets as of September 30, 20172020 and December 31, 2016 is $1,4962019 were $1,146 and $1,411,$1,076, respectively, and isare included in other long-term obligations. These plans are unfunded and approved claims are paid from Company funds. Historical cash payments made under such plans have typically been less than $100 per year.

Deferred Compensation Plan
On June 1, 2018, the Company established an unfunded, nonqualified deferred compensation plan maintained for the benefit of a select group of management or highly compensated employees.  Assets of the plan are held in a rabbi trust, which are subject to additional risk of loss in the event of bankruptcy or insolvency of the Company.  The deferred compensation liability was $3,314 and $1,982 as of September 30, 2020 and December 31, 2019, respectively, and was included in other long-term obligations on the Company’s consolidated balance sheets. The related rabbi trust assets were $3,314 and $1,982 as of September 30, 2020 and December 31, 2019, respectively, and were included in other non-current assets on the Company's consolidated balance sheets.
Defined Benefit Pension Plans
On May 27, 2019, the Company acquired Chemogas, which has an unfunded defined benefit pension plan. The plan provides for the payment of a lump sum at retirement or payments in case of death of the covered employees. The amount recorded for these obligations on the Company's consolidated balance sheet as of September 30, 2020 and December 31, 2019 were $623 and $596, respectively, and were included in other long-term obligations.

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NOTE 1516 – COMMITMENTS AND CONTINGENCIES

Rent expense charged to operations under lease agreements for the nine months ended September 30, 2017 and 2016 aggregated approximately $2,496 and $2,347, respectively. Aggregate future minimum rental payments required under all non-cancelable operating leases at September 30, 20172020 are as follows:

Year   
October 1, 2017 to December 31, 2017 $1,362 
2018  2,500 
2019  2,118 
2020  1,777 
2021  1,204 
2022  1,319 
Thereafter  5,943 
Total minimum lease payments $16,223 

In 1982, the Company discovered and thereafter removed a number of buried drums containing unidentified waste material from the Company’s site in Slate Hill, New York. The Company thereafter entered into a Consent Decree to evaluate the drum site with the New York Department of Environmental Conservation (“NYDEC”) and performed a Remedial Investigation/Feasibility Study that was approved by NYDEC in February 1994. Based on NYDEC requirements, the Company cleaned the area and removed soil from the drum burial site, which was completed in 1996. The Company continues to be involved in discussions with NYDEC to evaluate test results and determine what, if any, additional actions will be required on the part of the Company to close out the remediation of this site. Additional actions, if any, would likely require the Company to continue monitoring the site. The cost of such monitoring has been less than $5 per year for the period 2004 to date.
Year 
October 1, 2020 to December 31, 2020$775 
20212,672 
20222,100 
20231,692 
2024932 
2025527 
Thereafter2,688 
Total minimum lease payments$11,386 
The Company’s Verona, Missouri facility, while held by a prior owner, was designated by the EPA as a Superfund site and placed on the National Priorities List in 1983, because of
26
dioxin contamination on portions of the site. Remediation was conducted by the prior owner under the oversight of the EPA and the Missouri Department of Natural Resources (“MDNR”) included removal of dioxin contaminated soil and equipment, capping of areas of residual contamination in four relatively small areas of the site separate from the manufacturing facilities, and the installation of wells to monitor groundwater and surface water contamination by organic chemicals. Cleanup activities are finished. Monitoring is ongoing. EPA selected a remedy of “no further action” for groundwater at the site; contamination is within health-based standards. Monitoring is ongoing.

Resources. While the Company must maintain the integrity of the capped areas in the remediation areas on the site, the prior owner is responsible for completion of any further Superfund remedy. The Company is indemnified by the sellers under its May 2001 asset purchase agreement covering its acquisition of the Verona, Missouri facility for potential liabilities associated with the Superfund site. In September 2020, BCP Ingredients, Inc. "(BCP"), the Company subsidiary that operates the site received a General Notice Letter from the EPA regarding BCP's potential liability for 1,4 dioxane contamination at the site. BCP currently believes that the 1,4 dioxane contamination is associated with the former owner’s operations and one ofhas engaged experts to study site conditions and hydrogeology in connection with preparing its response to the sellers, in turn, has the benefit of certain contractual indemnification by the prior owner that is implementing the above-described Superfund remedy.

notice.
From time to time, the Company is a party to various litigation, claims and assessments.  Management believes that the ultimate outcome of such matters will not have a material effect on the Company’s consolidated financial position, results of operations, or liquidity.


NOTE 1617 – FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company has a number of financial instruments, noneNaN of which are held for trading purposes. The Company estimates that the fair value of all financial instruments at September 30, 20172020 and December 31, 20162019 does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying condensed consolidated balance sheets. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. 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 approximatesapproximate fair value due to the short-term maturity of these instruments. Cash and cash equivalents at September 30, 20172020 and December 31, 20162019 includes $780$815 and $776$808 in money market funds, respectively.
Non-current assets at September 30, 2020 and December 31, 2019 includes $3,314 and $1,982, respectively, of rabbi trust funds related to the Company's deferred compensation plan. The money market and rabbi trust funds are valued using level one inputs, as defined by ASC 820, “Fair Value Measurement.”

The Company also has derivative financial instruments, consisting of a cross-currency swap and an interest rate swap, which are included in derivative assets or derivative liabilities, in the consolidated balance sheets (see Note 20, "Derivative Instruments and Hedging Activities"). The fair values of these derivative instruments are determined based on Level 2 inputs, using significant inputs that are observable either directly or indirectly, including interest rate curves and implied volatilities.

NOTE 1718 – RELATED PARTY TRANSACTIONS

The Company provides services on 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. In return,These raw materials are used in the production of
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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 provides choline chloride finished goods. in this scenario lacks economic substance and therefore the Company does not include them in net sales within the consolidated statements of earnings.
The services the Company provided amounted to $846$834 and $859, respectively,$2,544 for the three months ended September 30, 2017 and 2016, and $2,568 and $859, respectively for the nine months ended September 30, 20172020, respectively, and 2016. The raw materials sold amounted to $5,976$955 and $3,735,
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repectively,$2,910 for the three months ended September 30, 2017 and 2016, and $15,858 and $3,735, respectively, for the nine months ended September 30, 20172019, respectively. The raw materials purchased and 2016.subsequently sold amounted to $2,716 and $10,330 for the three and nine months ended September 30, 2020, respectively, and $5,893 and $19,039 for the three and nine months ended September 30, 2019, respectively. These services and raw materials are primarily recorded in cost of goods sold net of the finished goods received from St. Gabriel CC Company, LLC of $5,090$2,382 and $4,064, respectively,$9,123 for the three months ended September 30, 2017 and 2016 and $14,272 and $4,064, repectively, for the nine months ended September 30, 2017.2020, respectively, and $4,538 and $14,308 for the three and nine months ended September 30, 2019, respectively. At September 30, 2017,2020 and December 31, 2019, the Company had a receivablereceivables of $2,449,$2,508 and $4,840, respectively, recorded in accounts receivable from St. Gabriel CC Company, LLC for services rendered and raw materials sold and a payablepayables of $1,887$1,790 and $3,230, respectively, for finished goods received recorded in accrued expenses. In addition, the Company had a payablereceivables in the amount of $306$159, related to non-contractual monies owed from St. Gabriel CC Company, LLC, recorded in receivables as of September 30, 2020. There was 0 such receivable as of December 31, 2019. The Company had payables in the amount of $296 and $366, respectively, related to non-contractual monies owed to St. Gabriel CC Company, LLC, recorded in accrued expenses.expenses as of September 30, 2020 and December 31, 2019, respectively.

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 ROU asset and corresponding liability when the payments are stated in the lease with (a) fixed or in-substance fixed amounts, or (b) a variable payment based on an index or rate. 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 September 30, 2020. In addition, the Company has historically not been exercising purchase options with equipment leases as it does not make economic sense to buy the equipment. Instead, the Company has historically replaced the equipment with a new lease. 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 4 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 upon implementation: (1) 1-2 years, 3.45% (2) 3-4 years, 4.04% (3) 5-9 years, 4.38% and (4) 10+ years, 5.10%.
In connection with the acquisition of Zumbro, the Company assumed the finance lease commitment for a warehouse, with an expiration date of March 31, 2033. The warehouse can be purchased at a pre-determined price beginning in 2023. At September 30, 2020, the Company had a finance lease liability of $2,682, which was recorded under lease liabilities (current and non-current) in the consolidated balance sheet.
ROU assets and lease liabilities at September 30, 2020 and December 31, 2019 are summarized as follows:
Right of use assetsSeptember 30, 2020December 31, 2019
Operating leases$5,546 $7,338 
Finance leases2,642 0 
Total$8,188 $7,338 


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Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations (All dollar amounts in thousands)
Lease liabilities - currentSeptember 30, 2020December 31, 2019
Operating leases$1,718 $2,475 
Finance leases156 0 
Total$1,874 $2,475 


Lease liabilities - non-currentSeptember 30, 2020December 31, 2019
Operating leases$3,500 $4,827 
Finance leases2,526 0 
Total$6,026 $4,827 
For the three and nine months ended September 30, 2020 and 2019, 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:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
Lease Cost
Operating lease cost$702 $817 $2,179 $2,381 
Finance Lease cost
Amortization of ROU asset157 0 157 0 
Interest on lease liabilities104 0 104 0 
Total lease cost$963 $817 $2,440 $2,381 
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases$710 $823 $2,193 $2,395 
Operating cash flows from finance leases104 0 104 0 
Financing cash flows from finance leases112 0 112 0 
$926 $823 $2,409 $2,395 
ROU assets obtained in exchange for new operating lease liabilities, net of ROU assets disposals$0 $(240)$(98)$8,485 
ROU assets obtained in exchange for new finance lease liabilities, net of ROU assets disposals$2,782 $0 $2,782 $0 
Weighted-average remaining lease term - operating leases5.11 years4.97 years5.11 years4.97 years
Weighted-average remaining lease term - finance leases12.50 yearsn/a12.50 yearsn/a
Weighted-average discount rate - operating leases4.7 %4.6 %4.7 %4.6 %
Weighted-average discount rate - finance leases5.1 %n/a5.1 %n/a
Rent expense charged to operations under operating lease agreements for the three and nine months ended September 30, 2020 aggregated to approximately $702 and $2,179, respectively, and $817 and $2,381 for the three and nine months ended September 30, 2019, respectively.

NOTE 20 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company is exposed to market fluctuations in interest rates as well as variability in foreign exchange rates. In May 2019, the Company entered into an interest rate swap (cash flow hedge) with the Swap Counterparty and a cross-currency swap (net
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investment hedge) with the Bank Counterparty. The Company's primary objective for holding derivative financial instruments is to manage interest rate risk and foreign currency risk.
On May 28, 2019, the Company entered into a pay-fixed (2.05%), receive-floating interest rate swap with a notional amount of $108,569 and a maturity date of June 27, 2023. The Company's risk management objective and strategy with respect to the interest rate swap is to protect the Company against adverse fluctuations in interest rates by reducing its exposure to variability in cash flows relating to interest payments on a portion of its outstanding debt. The Company is meeting its objective since changes in the cash flows of the interest rate swap are expected to exactly offset the changes in the cash flows attributable to fluctuations in the contractually specified interest rate on the interest payments associated with the Credit Agreement. The net interest expense related to the interest rate swap contract was $515 and $1,066, respectively, for the three and nine months ended September 30, 2020, and the net interest income related to the interest rate swap contract was $60 and $94, respectively, for the three and nine months ended September 30, 2019, which were recorded in the condensed consolidated statements of operations under interest expense, net.
At the same time, the Company also entered into a pay-fixed (0.00%), receive-fixed (2.05%) cross-currency swap to manage foreign exchange risk related to the Company's net investment in Chemogas. The derivative has a notional amount of $108,569, an effective date of May 28, 2019, and a maturity date of June 27, 2023. The interest income related to the cross-currency swap contract was $562 and $1,706, respectively, for the three and nine months ended September 30, 2020, and $569 and $754, respectively, for the three and nine months ended September 30, 2019, which were recorded in the condensed consolidated statements of operations under interest expense, net.
The derivative instruments are with a single counterparty and are subject to a contractual agreement that provides for the net settlement of all contracts through a single payment in a single currency in the event of default on or termination of any one contract. As such, the derivative instruments are categorized as a master netting arrangement and presented as a net derivative asset or derivative liability on the consolidated balance sheets.
As of September 30, 2020 and December 31, 2019, the fair value of the derivative instruments is presented as follows in the Company's condensed consolidated balance sheets:
Derivative assets (liabilities)September 30, 2020December 31, 2019
Interest rate swap$(5,356)$(1,771)
Cross-currency swap(1,648)(332)
Derivative liabilities$(7,004)$(2,103)
On a quarterly basis, the Company assesses whether the hedging relationship related to the interest rate swap is highly effective at achieving offsetting changes in cash flow attributable to the risk being hedged based on the following factors: (1) the key features and terms as enumerated above for the interest rate swap and hedged transactions match during the period (2) it is probable that the Swap Counterparty will not default on its obligations under the swap, and (3) the Company performs a qualitative review each quarter to assess whether the relationship qualifies for hedge accounting.
In addition, on a quarterly basis the Company assesses whether the hedging relationship related to the cross-currency swap is highly effective based on the following evaluations: (1) the Company will always have a sufficient amount of non-functional currency (EUR) net investment balance to at least meet the cross-currency notional amount until the maturity date of the hedge (2) it is probable that the Swap Counterparty will not default on its obligations under the swap, and (3) the Company performs a qualitative review each quarter to assess whether the relationship qualifies for hedge accounting.
If any mismatches arise for either the interest rate swap or cross-currency swap, the Company will perform a regression analysis to determine if the hedged transaction is highly effective. If determined not to be highly effective, the Company will discontinue hedge accounting.
As of September 30, 2020, the Company assessed the hedging relationships for the interest rate swap and cross-currency swap and determined them to be highly effective. As such, the net change in fair values of the derivative instruments was recorded in accumulated other comprehensive income.
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Table of Contents
Losses and gains on our hedging instruments are recognized in accumulated other comprehensive income (loss) and categorized as follows for the three and nine months ended September 30, 2020 and 2019:
Location within Statements of Comprehensive IncomeThree Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
Cash flow hedge (interest rate swap), net of taxUnrealized gain/(loss) on cash flow hedge, net$227 $(657)$(2,659)$(1,956)
Net investment hedge (cross-currency swap), net of taxNet foreign currency translation adjustment(3,891)4,626 (986)1,715 
Total$(3,664)$3,969 $(3,645)$(241)

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations (All amounts in thousands, except share and per share data)
This Reportreport contains forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act, of 1934, as amended, which reflect our expectation or belief concerning future events that involve risks and uncertainties. Our actionsActions and performance could differ materially from what is contemplated by the forward-looking statements contained in this Report.report. Factors that might cause differences from the forward-looking statements include those referred to or identified in Item 1A of ourthe Annual Report on Form 10-K for the year ended December 31, 20162019 and other factors that may be identified elsewhere in this Report.report. Reference should be made to such factors and all forward-looking statements are qualified in their entirety by the above cautionary statements.


Overview

Overview
We develop, manufacture, distribute and market specialty performance ingredients and products for the nutritional, food, nutritional, pharmaceutical, animal health, plant, industrial and medical device sterilization, industries.

Acquisitionplant nutrition and industrial markets. Previously, our four reportable segments were: Human Nutrition and Health, Animal Nutrition and Health, Specialty Products, and Industrial Products. However, effective in the first quarter of Albion Laboratories, Inc. (formerly known2020, in order to align with our strategic focus on health and nutrition, allocation of resources, and evaluation of operating performance, and given the 2019 reduction in portfolio scale of Industrial Products, we have revised our reporting segment structure to three reportable segments: Human Nutrition and Health, Animal Nutrition and Health, and Specialty Products. These reportable segments are strategic businesses that offer products and services to different markets. This realignment has been retrospectively applied. Sales and production of products outside of our reportable segments and other minor business activities are included in "Other and Unallocated" and applied retroactively to 2019. There was no change to the Consolidated Financial Statements as Albion International, Inc.),

On February 1, 2016,a result of the change to the reportable segments. We expect that the new reportable segment structure will provide investors greater understanding of and alignment with our strategic focus. In order to ensure appropriate transparency and visibility into the financial performance of the Company, acquired 100 percent of the outstanding common shares of Albion Laboratories, Inc. (formerly known as Albion International, Inc.), (Albion), a privately held manufacturer of mineral amino acid chelates, specialized mineral saltssufficient detail will continue to be provided relative to Other and mineral complexes, headquartered in Clearfield, Utah.  The Company made payments of approximately $116,400 on the acquisition date, amounting to approximately $110,600 to the former shareholders, adjustments for working capital acquired of $4,900,Unallocated, including material contributions from oil and approximately $900 to Albion’s lenders to pay off all Albion bank debt.  Albion has been a world leadergas and innovator in the manufacture of superior organic mineral compounds for sixty years and leverages scientific expertise in the areas of human and plant nutrition.  Albion’s products are renowned in the supplement industry for technologically advanced, unparalleled bioavailability.  The acquisition of Albion continues to expand the Company’s science based human health and wellness solutions and will immediately increase our product offerings in the nutritional ingredient market.  Additionally, the Company will also benefit from a broader geographic footprint and a stronger position as a technological leader in spray-drying and ingredient delivery solutions.  Albion’s human nutrition business has become a part of the Human Nutrition & Health reportable segment and the micronutrient agricultural business has become a part of the Specialty Products reportable segment.other industrial market activities.

Acquisition of Chol-Mix Kft

On March 24, 2017, the Company, through its European subsidiary Balchem Italia SRL, entered into an agreement to purchase certain assets of Chol-Mix Kft, a privately held manufacturer of dry choline chloride, with knowledge and technical know-how supporting the application of liquids on carriers, located in Hungary, for a purchase price of €1,500. As of September 30, 2017,2020, we had approximately €1,150, translated to approximately $1,230, has been paid to Chol-Mix Kft with the remaining balance of approximately €350, translated to approximately $415, due at the end of a related manufacturing agreement. The
29
acquisition of Chol-Mix’s assets will provide our Animal Nutrition & Health segment with additional dry choline chloride capacity in Europe, geographical expansion opportunities in Eastern Europe, and technical knowledge supporting the application of liquids on carriers.
Acquisition of Innovative Food Processors, Inc.

On June 1, 2017, the Company acquired 100 percent of the outstanding common shares of  Innovative Food Processors, Inc. (“IFP”), a privately held manufacturer of agglomerated and microencapsulated food and nutrition ingredients, headquartered in Faribault, Minnesota. The Company made payments of approximately $22,975 on the acquisition date and subsequently $635 in September to true-up the opening balance of working capital, amounting to approximately $16,161 to the former shareholders, adjustments for working capital acquired of $5,065, and $2,384 to IFP’s lenders to pay off all IFP bank debt. The acquisition of IFP expands the Company’s Human Nutrition & Health segment’s processing technology and market reach, while bringing innovative and value-added systems to food, beverage, and nutrition customers.

Human Nutrition & Health

Our Human Nutrition & Health segment supplies ingredients in the food and beverage industry, providing customized solutions in powder, solid and liquid flavor delivery systems, spray dried emulsified powder systems, and cereal systems.  Our products include creamer systems, dairy replacers, powdered fats, nutritional beverage bases, beverages, juice & dairy bases, chocolate systems, ice cream bases & variegates, ready-to-eat cereals, grain based snacks, and cereal based ingredients. Additionally,1,341 full time employees worldwide. We believe that we provide 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, and nutritional supplements. We also produce and market human grade choline nutrients and mineral amino acid chelated products through this segment for wellness 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. Our mineral amino acid chelates, specialized mineral salts, and mineral complexes are used as raw materials for inclusion in premier human nutrition products. Science and patented technology have been combined to create an organic moleculesuccessful in attracting skilled and experienced personnel in a form the body can readily assimilate.

Animal Nutrition & Health

Our Animal Nutrition & Health (“ANH”) segment provides nutritional products derived from our microencapsulation and chelation technologies in addition to basic choline chloride. For ruminant animals, our microencapsulated products boost health and milk production, delivering nutrient supplements that are biologically available, providing required nutritional levels. Our 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
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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. Choline deficiency can result in reduced growth and perosis in poultry, and fatty liver, kidney necrosis and general poor health condition in swine.
Sales of specialty products for the animal nutrition and health industry are highly dependent on dairy industry economics as well as the ability of the Company to leverage the results of university and field research on the animal health benefits of the Company’s products.competitive environment. Management believes that successour human capital resources are adequate to perform all business functions.
COVID-19 Response
The COVID-19 response effort has been a primary focus for us since early in the commodity-oriented basic choline chloride marketplace is highly dependentfirst quarter. Our focus has been on employee safety first, keeping our manufacturing sites operational, satisfying customer needs, preserving cash and ensuring strong liquidity, and responding to changes in this dynamic market environment as appropriate. To date, all of our manufacturing sites are operating at near normal conditions enabling us to supply our customers with the important products and services they need, our research and development teams are advancing our innovation efforts, and all of our other employees are effectively carrying on their responsibilities and functions remotely.
While impact on demand in the first three quarters was not material to our Company, we are continuing to watch the markets that we serve closely. We have stress tested our balance sheet under various significant downturn scenarios and, given our relatively low net debt position, cash on hand, access to our undrawn revolving credit facility, and expected free cash flows, we are pleased with the strength of our balance sheet as we continue through this uncertain market environment. Despite this relative strength, we are continuing to take actions to reduce capital expenditures and non-critical cash expenses wherever possible to preserve cash.
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After a short pause in implementation of our new ERP system across the company due to the pandemic, we successfully resumed our implementation efforts this quarter, adding three additional sites onto the new system. We now have approximately 75% of our revenue on the Company’s ability to maintain its strong reputation for excellent product qualitynew system and customer service. The Company continues to increase production efficiencies in order to maintain its competitive-cost position to effectively compete in a global marketplace.

Specialty Products

Ethylene oxide, at the 100% level, 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. Our 100% ethylene oxide product is distributed in uniquely designed, recyclable, double-walled, stainless steel drums to assure compliance with safety, quality and environmental standards as outlinedexpect full conversion by the EPA and the DOT. Our inventorymiddle of these specially built drums, along with our two filling facilities, represents a significant capital investment. Contract sterilizers and medical device manufacturers are principal customers for this product. next year.
Segment Results
We also sell single use canisters with 100% ethylene oxide for use in sterilizing re-usable devices typically processed in autoclave units in hospitals. As a fumigant, ethylene oxide blends are highly effective in killing bacteria, fungi, and insects in spices and other seasoning materials.

Propylene oxide is marketed and sold as a fumigant to aid in the control of insects and microbiological spoilage; and to reduce bacterial and mold contamination in certain shell and processed nut meats, processed spices, cacao beans, cocoa powder, raisins, figs and prunes. We distribute our propylene oxide product primarily in recyclable, single-walled, carbon steel cylinders according to standards outlined by the EPA and the DOT. Our inventory of these cylinders also represents a significant capital investment. Propylene oxide is also sold to customers seeking smaller (as opposed to bulk) quantities and whose requirements include utilization in various chemical synthesis applications, such as increasing paint durability and manufacturing specialty starches and textile coatings.

Our micronutrient agricultural nutrition business sells chelated minerals primarily into high value crops. We have a unique and patented two-step approach to solving mineral deficiency in plants to optimize health, yield and shelf-life.  First, we determine optimal mineral balance for plant health. We then have a foliar applied Metalosate product range, utilizing patented amino acid chelate technology. Our 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.
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Industrial Products

Certain derivatives of choline chloride are manufactured and sold into industrial applications predominately as a component for hydraulic fracturing of shale natural gas wells. Our products offer an attractive, effective and more environmentally responsible alternative than other clay stabilizers. Industrial grade choline bicarbonate is completely chloride free and our choline chloride reduces the amount of chlorides released into the environment up to 75% when compared to potassium chloride. The Industrial Products segment also includes the manufacture and sale of methylamines. Methylamines are a primary building block for the manufacture of choline products and are produced at our Italian operation and sold for a wide range of industrial applications in Europe.

The Company sells products for all fourthree segments through itsour own sales force, independent distributors, and sales agents.

The following tables summarize consolidated business segment net sales by segment and business segment earnings from operations for the three and nine months ended September 30, 20172020 and 2016:2019:

Business Segment Net SalesThree Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
Human Nutrition & Health$103,589 $86,142 $296,525 $257,163 
Animal Nutrition & Health46,354 42,286 141,339 129,127 
Specialty Products23,003 24,888 79,193 68,219 
Other and Unallocated (1)
2,194 5,279 5,874 22,669 
Total$175,140 $158,595 $522,931 $477,178 
Business Segment Net Sales:

 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
Business Segment Earnings From OperationsBusiness Segment Earnings From OperationsThree Months Ended
September 30,		Nine Months Ended
September 30,
 2017  2016  2017  2016 2020201920202019
Human Nutrition & Health $81,365  $74,926  $232,523  $221,281 Human Nutrition & Health$17,499 $13,193 $45,131 $39,234 
Animal Nutrition & Health  38,010   40,935   113,136   118,579 Animal Nutrition & Health7,011 6,122 21,485 16,423 
Specialty Products  17,264   16,477   56,813   53,919 Specialty Products5,348 6,699 21,342 22,275 
Industrial Products  14,077   6,171   33,054   18,665 
Other and Unallocated (1)
Other and Unallocated (1)
(830)16 (5,735)980 
Total $150,716  $138,509  $435,526  $412,444 Total$29,028 $26,030 $82,223 $78,912 
Business Segment Earnings From Operations:

  
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
  2017  2016  2017  2016 
Human Nutrition & Health $10,426  $10,460  $31,942  $27,856 
Animal Nutrition & Health  5,154   6,784   14,219   20,623 
Specialty Products  5,607   5,237   20,125   17,541 
Industrial Products  2,096   527   4,397   1,019 
Transaction, integration costs, and legal settlement  (228)  (62)  (2,181)  (792)
Indemnification settlement  -   -   2,087   - 
Total $23,055  $22,946  $70,589  $66,247 
(1) Other and Unallocated consists of a few minor businesses which individually do not meet the quantitative thresholds for separate presentation and corporate expenses that have not been allocated to a segment. Unallocated corporate expenses consist of: (i) Transaction and integration costs, ERP implementation costs, and unallocated legal fees totaling $161 and $2,179 for the three and nine months ended September 30, 2020, respectively, and $688 and $2,253 for the three and nine months ended September 30, 2019, respectively, and (ii) Unallocated amortization expense of $399 and $1,205 for the three and nine months ended September 30, 2020, respectively, and $138 and $157 for the three and nine months ended September 30, 2019, respectively, related to an intangible asset in connection with a company-wide ERP system implementation.
32Acquisitions
RESULTS OF OPERATIONS

Three months ended September 30, 2017 compared to three months ended September 30, 2016.

Net Sales

Net sales for the three months ended September 30, 2017 were $150,716, as compared with $138,509 for the three months ended September 30, 2016, an increaseOn December 13, 2019, we acquired Zumbro. We made payments of $12,207 or 8.8%.  Net sales for the Human Nutrition & Health segment were $81,365 for the three months ended September 30, 2017, compared with $74,926 for the three months ended September 30, 2016, an increase of $6,439 or 8.6%.  Powder System’s sales increased $4,117, as a result of higher sales from both the legacy business and$51,842 on the acquisition date, amounting to $46,497 to the former shareholders and $5,345 to Zumbro's lenders to pay Zumbro debt. Considering the cash acquired of IFP. Additionally, Encapsulates’ sales increased $2,142, as a result$686, net payments made to the former shareholders were $45,811. In May 2020, we received an adjustment for working capital acquired of $561. Zumbro is integrated within the HNH Segment.
On May 27, 2019, we acquired Chemogas. We made payments of approximately €99,503 (translated to $111,324) on the acquisition date, amounting to approximately €88,579 (translated to $99,102) to the former shareholders and approximately €10,924 (translated to $12,222) to Chemogas' lender to pay off all Chemogas bank debt. Considering the cash acquired of IFP. Net sales for€3,943 (translated to $4,412), net payments made to the Animal Nutrition & Health segmentformer shareholders were $38,010 for the three months ended September 30, 2017, as compared with $40,935 for the three months ended September 30, 2016, a decrease of $2,925 or 7.2%€84,636 (translated to $94,690). Sales of products targeted for ruminant animal feed markets decreased by $2,134 or 15.2% from the prior year comparable period.  The decline was the result of unfavorable dairy economics, along with lower sales volumes of ruminant encapsulates, due to order timing.  Total monogastric product sales decreased by $791 or 2.9% due to lower chelated mineral volumes, primarily due to lower exports and order timing. Net sales forChemogas is integrated within the Specialty Products segment were $17,264 for the three months ended September 30, 2017, as compared with $16,477 for the three months ended September 30, 2016, an increaseSegment.

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Table of $787 or 4.8%. The sales increase was primarily due to increased volume of sterilization gases and a stronger mix of chelated minerals for agricultural nutrition. Net sales for the Industrial Products segment were $14,077 for the three months ended September 30, 2017 as compared to $6,171 for the three months ended September 30, 2016, an increase of $7,906 or 128.1%.  The increase is principally due to higher sales of various choline and choline derivatives used in shale fracking applications.

Gross Margin

For the three months ended September 30, 2017, gross margin increased to $46,181 compared to $44,656 for the three months ended September 30, 2016.  Gross margin as a percentage of sales for the three months ended September 30, 2017 decreased to 30.6% from 32.2% in the prior year comparative period.  Gross margin percentage for the Human Nutrition & Health segment decreased 1.0% for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016, primarily due to product mix and increased raw material costs. Gross margin percentage decreased for Animal Nutrition & Health by 2.8% primarily due to decreased volumes of products targeting ruminant species animals and increases in raw material costs. Gross margin percentage for the Specialty Products segment was flat compared to the three month period ended September 30, 2016. Industrial Products gross margin percentage increased by 3.6% from the prior year comparative period, primarily due to improved cost structure and increased volumes.

Operating Expenses

Operating expenses for the three months ended September 30, 2017 were $23,126 or 15.3% of net sales as compared to $21,710 or 15.7% of net sales for the three months ended
September 30, 2016.  The increase was primarily due to IFP’s operating expenses and increased spending in research and development, partially offset by lower amortization cost.
Earnings from Operations

Principally as a result of the above-noted details, earnings from operations for the three months ended September 30, 2017 were $23,055 as compared to $22,946 for the three months ended September 30, 2016, an increase of $109 or 0.5%.  Earnings from operations as a percentage of sales (“operating margin”) for the three months ended September 30, 2017 were 15.3%, decreasing from 16.6% for the three months ended September 30, 2016. Earnings from the Human Nutrition & Health segment were $10,426, essentially flat compared to the three months ended September 30, 2016. Animal Nutrition & Health segment earnings from operations were $5,154, a decrease of $1,630 or 24.0%, primarily the result of decreased volumes of products targeting ruminant species animals and increases in raw material costs. Earnings from operations from the Specialty Products segment were $5,607, an increase of $370, or 7.1%, primarily due to the impact of valuation of the acquired Albion inventory in 2016 and sales increases in chelated minerals for agricultural nutrition. These increases were partially offset by higher raw material costs for sterilization gases and an unfavorable mix. Earnings from operations from the Industrial Products segment of $2,096 for the quarter ended September 30, 2017 increased $1,569 compared to the quarter ended September 30, 2016, primarily due to the aforementioned higher sales and stronger gross margins due to an improved cost structure.

Other Expenses (Income)

Interest expense for the three months ended September 30, 2017 and 2016 was $2,012 and $1,790, respectively, and is primarily related to the loans entered into on May 7, 2014.  Other expense was $348 for the three months ended September 30, 2017 and $387 for the three months ended September 30, 2016, respectively.

Income Tax Expense

The Company’s effective tax rate for the three months ended September 30, 2017 and 2016 was 22.5% and 32.5%, respectively.  The company’s effective tax rate for the three months ended September 30, 2017 is lower primarily due to excess tax benefits from stock-based compensation being recognized as a reduction to the provision for income taxes, resulting from the adoption of ASU 2016-09, a purchase price reduction related to the SensoryEffects acquisition, along with reduced taxes and reduced tax rates in certain jurisdictions.

Net Earnings

Principally as a result of the above-noted details, net earnings for the three months ended September 30, 2017 were $16,043 as compared with $14,012 for the three months ended September 30, 2016, an increase of $2,031 or 14.5%.
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Nine months ended September 30, 2017 compared to nine months ended September 30, 2016.

Net Sales

Net sales for the nine months ended September 30, 2017 were $435,526, as compared with $412,444 for the nine months ended September 30, 2016, an increase of $23,082 or 5.6%.  Net sales for the Human Nutrition & Health segment were $232,523 for the nine months ended September 30, 2017, compared with $221,281 for the nine months ended September 30, 2016, an increase of $11,242 or 5.1%.  Sales from Powder Systems were up $3,711 or 4.6% and Encapsulates’ sales were up $2,521 or $11.4%, with acquired IFP business contributing to both product lines’ increases. The sales from the acquired Albion business contributed $2,885 to the overall increase, as a result of having one additional month in 2017. Additionally, Cereal Systems’ sales increased $1,918 or 10.2% on a 24.2% volume increase. Net sales for the Animal Nutrition & Health segment were $113,136 for the nine months ended September 30, 2017, as compared with $118,579 for the nine months ended September 30, 2016, a decrease of $5,443 or 4.6%.  Sales of products targeted for ruminant animal feed markets decreased by $4,340 or 11.3% from the prior year comparable period.  The decline was primarily the result of lower sales volumes of Aminoshure®, due to an inventory correction at a significant customer. Chelated mineral products also contributed to the decline, particularly in international markets. Monogastric product sales declined by $1,103 or 1.4% primarily due to lower volumes of feed grade choline chloride. Net sales for the Specialty Products segment were $56,813 for the nine months ended September 30, 2017, as compared with $53,919 for the nine months ended September 30, 2016, an increase of $2,894 or 5.4%. The sales from the additional one month of the acquired Albion business contributed $775 to the overall increase. In addition, plant nutrition volumes increased both domestically and internationally. Net sales for the Industrial Products segment were $33,054 for the nine months ended September 30, 2017 as compared to $18,665 for the nine months ended September 30, 2016, an increase of $14,389 or 77.1%.  The increase is principally due to higher sales of various choline and choline derivatives used in shale fracking applications, partially offset by the prior year including sales to our St. Gabriel CC Company, LLC partner in advance of the joint venture becoming operational.

Gross Margin

For the nine months ended September 30, 2017, gross margin increased to $137,371 compared to $133,929 for the nine months ended September 30, 2016.  Gross margin as a percentage of sales for the nine months ended September 30, 2017 decreased to 31.5% from 32.5% in the prior year comparative period.  Gross margin percentage for the Human Nutrition & Health segment increased 0.4% for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, primarily due to the valuation of acquired Albion inventory to fair value in 2016, which increased cost of goods sold by $3,214, as it was sold during the nine months ended September 30, 2016. Gross margin percentage decreased for Animal Nutrition & Health by 4.6%, primarily due to decreased volumes of products targeting ruminant species animals, increases in raw material costs, and increased competition in monogastic species products. Gross margin percentage for the Specialty Products segment increased by 1.4% compared to the nine months ended
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September 30, 2016 primarily due to the valuation of acquired Albion inventory to fair value, which increased cost of goods sold by $1,832 in 2016, as it was sold during the nine months ended September 30, 2016. This was partially offset by increases in raw material prices for sterilization gases and an unfavorable mix. Industrial Products gross margin percentage increased by 5.0% from the prior year comparative period, primarily due to a more favorable customer mix, improved cost structure, and increased volumes
Operating Expenses

Operating expenses for the nine months ended September 30, 2017 were $66,782 or 15.3% of net sales as compared to $67,682 or 16.4% of net sales for the nine months ended September 30, 2016.  The decrease was primarily due to a favorable indemnification settlement of $2,087, partially offset by increased transaction and integration costs of $689 when compared to 2016 and a favorable legal settlement in 2016.

Earnings from Operations

Principally as a result of the above-noted details, earnings from operations for the nine months ended September 30, 2017 were $70,589 as compared to $66,247 for the nine months ended September 30, 2016, an increase of $4,342 or 6.6%.  Earnings from operations as a percentage of sales (“operating margin”) for the nine months ended September 30, 2017 were 16.2%, increasing from 16.1%, for the nine months ended September 30, 2016, primarily due to the aforementioned impact of the valuation of the acquired inventory in 2016 and a favorable indemnification settlement in 2017. These were partially offset by higher transaction and integration expenses in 2017 and a favorable legal settlement in 2016. Earnings from the Human Nutrition & Health segment were $31,942, an increase of $4,086 or 14.7%, primarily due to the aforementioned impact of valuation of the acquired Albion inventory in 2016. Animal Nutrition & Health segment earnings from operations were $14,219, a decrease of $6,404 or 31.1%, primarily the result of decreased volumes of products targeting ruminant species animals, increases in raw material costs, and increased competition in monogastic species products. Earnings from operations from the Specialty Products segment were $20,125, an increase of $2,584, or 14.7%, primarily the result of the aforementioned impact of the valuation of acquired Albion inventory in 2016 and sales increases in chelated minerals for agricultural nutrition, partially offset by raw material increases related to sterilization gases and an unfavorable mix. Earnings from operations from the Industrial Products segment of $4,397 for the nine months ended September 30, 2017 increased $3,378 compared to the nine months ended September 30, 2016, primarily due to the aforementioned higher sales and stronger gross margins due to a more favorable customer mix and improved cost structure.

Other Expenses (Income)

Interest expense for the nine months ended September 30, 2017 and 2016 was $5,702 and $5,538, respectively, and is primarily related to the loans entered into on May 7, 2014.  Other expense was $926 for the nine months ended September 30, 2017 and $581 for the nine months ended September 30, 2016, respectively.
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Income Tax Expense

The Company’s effective tax rate for the nine months ended September 30, 2017 and 2016 was 24.8% and 33.4%, respectively. The company’s effective tax rate for the nine months ended September 30, 2017 is lower primarily due to excess tax benefits from stock-based compensation being recognized as a reduction to the provision for income taxes, resulting from the adoption of ASU 2016-09, a purchase price reduction related to the SensoryEffects acquisition, along with reduced taxes and reduced tax rates in certain jurisdictions.

Net Earnings

Principally as a result of the above-noted details, net earnings for the nine months ended September 30, 2017 were $48,096 as compared with $40,048 for the nine months ended September 30, 2016, an increase of $8,048 or 20.1%.

FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCESRESULTS OF OPERATIONS
(All amounts in thousands, except share and per share data)

Three months ended September 30, 2020 compared to three months ended September 30, 2019.
Net Earnings
Three Months Ended September 30,Increase
(Decrease)
(in thousands)20202019% Change
Net sales$175,140 $158,595 $16,545 10.4 %
Gross margin56,368 54,008 2,360 4.4 %
Operating expenses27,340 27,978 (638)(2.3)%
Earnings from operations29,028 26,030 2,998 11.5 %
Other expenses1,121 1,594 (473)(29.7)%
Income tax expense6,339 3,760 2,579 68.6 %
Net earnings$21,568 $20,676 $892 4.3 %

Net Sales
Three Months Ended September 30,Increase
(Decrease)
(in thousands)20202019% Change
HNH$103,589 $86,142 $17,447 20.3 %
ANH46,354 42,286 4,068 9.6 %
Specialty Products23,003 24,888 (1,885)(7.6)%
Other2,194 5,279 (3,085)(58.4)%
Total$175,140 $158,595 $16,545 10.4 %

•The increase in net sales within the HNH segment for the three months ended September 30, 2020 as compared to 2019 was primarily driven by higher sales within food and beverage markets, strong sales growth of chelated minerals, and beneficial impact from the Zumbro acquisition we closed in December 2019, partially offset by lower sales to food service-related markets and the elimination of sales associated with the Reading, Pennsylvania manufacturing site that we divested in 2019.
•The increase in net sales within the ANH segment for the three months ended September 30, 2020 compared to 2019 was primarily the result of higher sales and volumes in the ruminant species markets.
•The decrease in Specialty Products segment sales for the three months ended September 30, 2020 compared to 2019 was primarily due to lower sales of ethylene oxide for the medical device sterilization market which has been negatively impacted by reduced elective surgical procedures during the pandemic.
•Sales relating to business formerly included in the Industrial Products segment decreased from the prior year due to a decline in shale fracking activity.

Gross Margin
Three Months Ended September 30,Increase
(Decrease)
(in thousands)20202019% Change
Gross margin$56,368 $54,008 $2,360 4.4 %
% of net sales32.2 %34.1 %

Gross margin as a percentage of sales decreased for the three months ended September 30, 2020 compared to 2019 primarily due to mix.

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Operating Expenses
Three Months Ended September 30,Increase
(Decrease)
(in thousands)20202019% Change
Operating expenses$27,340 $27,978 $(638)(2.3)%
% of net sales15.6 %17.6 %
The decrease in operating expenses was principally due to lower selling expenses driven by reduced travel and a decrease in bad debt expense, partially offset by certain higher compensation related costs.

Earnings from Operations
Three Months Ended September 30,Increase
(Decrease)
(in thousands)20202019% Change
HNH$17,499 $13,193 $4,306 32.6 %
ANH7,011 6,122 889 14.5 %
Specialty Products5,348 6,699 (1,351)(20.2)%
Other and unallocated(830)16 (846)(5287.5)%
Earnings from operations$29,028 $26,030 $2,998 11.5 %
% of net sales (operating margin)16.6 %16.4 %

•Earnings from operations for the HNH segment increased primarily due to the aforementioned higher sales and lower selling expenses, as a result of reduced travel and a decrease in bad debt expense.
•ANH segment earnings from operations increased primarily due to the aforementioned higher sales, certain lower raw material costs, and reduced travel, partially offset by an increase in certain compensation related costs.
•The decrease in earnings from operations for the Specialty Products segment was primarily due to the aforementioned lower sales.
•The decrease in other and unallocated was driven primarily by lower earnings from the business formerly reported in the Industrial Products segment, as well as increased unallocated amortization related to a company-wide ERP implementation.

Other Expenses (Income)
Three Months Ended September 30,Increase
(Decrease)
(in thousands)20202019% Change
Interest expense$953 $1,672 $(719)(43.0)%
Other, net168 (78)246 (315.4)%
$1,121 $1,594 $(473)(29.7)%
Interest expense for the three months ended September 30, 2020 and 2019 was primarily related to outstanding borrowings under our credit facility.  

Income Tax Expense
Three Months Ended September 30,Increase
(Decrease)
(in thousands)20202019% Change
Income tax expense$6,339 $3,760 $2,579 68.6 %
Effective tax rate22.7 %15.4 %
The effective tax rate increase was mainly attributable to a reduction in certain tax credits and lower tax benefits from stock-based compensation, partially offset by lower enacted state tax rates.
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Nine months ended September 30, 2020 compared to nine months ended September 30, 2019.
Net Earnings
Nine Months Ended September 30,Increase
(Decrease)
(in thousands)20202019% Change
Net sales$522,931 $477,178 $45,753 9.6 %
Gross margin167,079 157,021 10,058 6.4 %
Operating expenses84,856 78,109 6,747 8.6 %
Earnings from operations82,223 78,912 3,311 4.2 %
Other expenses3,853 4,802 (949)(19.8)%
Income tax expense15,909 14,822 1,087 7.3 %
Net earnings$62,461 $59,288 $3,173 5.4 %

Net Sales
Nine Months Ended September 30,Increase
(Decrease)
(in thousands)20202019% Change
HNH$296,525 $257,163 $39,362 15.3 %
ANH141,339 129,127 12,212 9.5 %
Specialty Products79,193 68,219 10,974 16.1 %
Other5,874 22,669 (16,795)(74.1)%
Total$522,931 $477,178 $45,753 9.6 %

•The increase in net sales within the HNH segment for the nine months ended September 30, 2020 as compared to 2019 was primarily driven by strong sales growth of chelated minerals and choline nutrients as well as increased sales into the food and beverage markets from both the legacy business and the Zumbro acquisition we closed in December 2019, partially offset by lower sales to food service-related markets and the elimination of sales associated with the Reading, PA manufacturing site that we divested in 2019.
•The increase in net sales within the ANH segment for the nine months ended September 30, 2020 compared to 2019 was primarily the result of higher volumes in both the ruminant species and monogastric species markets.
•The increase in Specialty Products segment sales for the nine months ended September 30, 2020 compared to 2019 was primarily driven by higher sales of ethylene oxide for the medical device sterilization market due to the incremental contribution of Chemogas and higher plant nutrition sales, partially offset by lower legacy ethylene oxides sales which were negatively impacted by reduced elective surgical procedures during the pandemic.
•Sales relating to business formerly included in the Industrial Products segment decreased from the prior year due to a decline in shale fracking activity.

Gross Margin
Nine Months Ended September 30,Increase
(Decrease)
(in thousands)20202019% Change
Gross margin$167,079 $157,021 $10,058 6.4 %
% of net sales32.0 %32.9 %
Gross margin as a percentage of sales decreased for the nine months ended September 30, 2020 compared to 2019 primarily due to mix, partially offset by certain lower raw material costs.

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Operating Expenses
Nine Months Ended September 30,Increase
(Decrease)
(in thousands)20202019% Change
Operating expenses$84,856 $78,109 $6,747 8.6 %
% of net sales16.2 %16.4 %
The increase in operating expenses was primarily due to incremental operating expenses related to the Chemogas and Zumbro acquisitions, the prior year benefiting from the timing of an insurance recovery, and a goodwill impairment charge related to business formerly included in the Industrial Products segment, partially offset by lower selling expenses driven by reduced travel and lower bad debt expenses.

Earnings from Operations
Nine Months Ended September 30,Increase
(Decrease)
(in thousands)20202019% Change
HNH$45,131 $39,234 $5,897 15.0 %
ANH21,485 16,423 5,062 30.8 %
Specialty Products21,342 22,275 (933)(4.2)%
Other and unallocated(5,735)980 (6,715)(685.2)%
Earnings from operations$82,223 $78,912 $3,311 4.2 %
% of net sales (operating margin)15.7 %16.5 %

•Earnings from operations for the HNH segment increased primarily due to the aforementioned higher sales and lower selling expenses due to reduced travel and lower bad debt expenses, partially offset by higher general and administrative expenses resulting from the prior year benefiting from the timing of an insurance recovery.
•ANH segment earnings from operations increased primarily due to the aforementioned higher sales, certain lower raw material costs, and lower selling expenses due to reduced travel.
•The decrease in earnings from operations for the Specialty Products segment was primarily due to lower legacy ethylene oxide sales, mix, and higher operating expenses, primarily due to the acquisition of Chemogas.
•The decrease in other and unallocated was driven primarily by lower earnings from the business formerly reported in the industrial products segment, as well as increased unallocated amortization related to a company-wide ERP implementation.

Other Expenses (Income)
Nine Months Ended September 30,Increase
(Decrease)
(in thousands)20202019% Change
Interest expense$3,609 $4,749 $(1,140)(24.0)%
Other, net244 53 191 360.4 %
$3,853 $4,802 $(949)(19.8)%
Interest expense for the nine months ended September 30, 2020 and 2019 was primarily related to outstanding borrowings under our credit facility.  
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Income Tax Expense
Nine Months Ended September 30,Increase
(Decrease)
(in thousands)20202019% Change
Income tax expense$15,909 $14,822 $1,087 7.3 %
Effective tax rate20.3 %20.0 %
The effective tax rate increase was primarily attributable to a reduction in certain tax credits and lower tax benefits from stock-based compensation, partially offset by lower enacted state tax rates.

FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
(All amounts in thousands, except share and per share data)
We expect our operations to continue generating sufficient cash flow to fund working capital requirements and necessary capital investments. We are actively pursuing additional acquisition candidates. We could seek additional bank loans or access to financial markets to fund such acquisitions, our operations, working capital, necessary capital investments or other cash requirements should we deem it necessary to do so. During the nine months ended September 30, 2017,2020, there were no material changes outside the ordinary course of business in the specified contractual obligations set forth in our Annual Report on Form 10-K for the year ended December 31, 2016.  The Company expects its operations to continue generating sufficient cash flow to fund working capital requirements, capital investments and service future debt payments.  The Company continues to pursue additional acquisition candidates.  The Company could seek additional bank loans or access to financial markets to fund such acquisitions, its operations, working capital, capital investments, or other cash requirements2019, except as deemed necessary.follows:

Cash

Cash and cash equivalents decreasedincreased to $34,741$78,967 at September 30, 20172020 from $38,643$65,672 at December 31, 2016.2019. At September 30, 2017,2020, the Company had $24,948$49,012 of cash and cash equivalents held by our foreign subsidiaries.  It is our intention to permanently reinvest these funds in our foreign operations by continuing to make additional plant related investments, and potentially invest in partnerships or acquisitions; therefore, we do not currently expect to repatriate these funds in order to fund our U.S. operations or obligations. However, if these funds are needed for our U.S. operations, we could be required to pay additional U.S.withholding taxes to repatriate these funds.  Working capital was $103,823$201,709 at September 30, 20172020 as compared to $87,434$162,688 at December 31, 2016,2019, an increase of $16,389.$39,021. Working capital reflects the payment of the 2019 declared dividend in 2020 of $16,704, net payments on the revolving debt of $55,000, and capital expenditures and intangible assets acquired of $20,552.

Nine Months Ended September 30,Increase
(Decrease)
(in thousands)20202019% Change
Cash flows provided by operating activities$102,540 $91,494 $11,046 12.1 %
Cash flows used in investing activities(21,380)(103,109)81,729 79.3 %
Cash flows (used in) provided by financing activities(69,619)17,625 (87,244)495.0 %
Operating Activities

Cash flows from operating activities provided $79,454$102,540 for the nine months ended September 30, 20172020 as compared to $79,817$91,494 for the nine months ended September 30, 2016.2019.  The increase in cash flows from operating activities was primarily due to increased earnings.
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earnings, partially offset by less favorable decrease in inventory levels and reduced balances in accounts payable and accrued expenses.
Investing Activities

As previously noted, on March 24, 2017, the Company, through its European subsidiary Balchem Italia SRL, entered into an agreement to purchase certain assets of Chol-Mix Kft, a privately held manufacturer of dry choline chloride, with knowledge and technical know-how supporting the application of liquids on carriers, located in Hungary, for a purchase price of €1.5 million. As of September 30, 2017, approximately €1,150, translated to approximately $1,230, has been paid to Chol-Mix Kft with the remaining balance of approximately €350, translated to approximately $415, due at the end of a related manufacturing agreement. Additionally, on June 1, 2017, the Company acquired Innovative Food Processors, Inc. (“IFP”), for a purchase price of $17,910, amounting to approximately $15,526 to former shareholders, including adjustments for working capital acquired, and approximately $2,384 to IFP’s lenders to pay off all of IFP’s bank debt. Subsequently, $635 was paid to the former shareholders in September to true-up the opening balance of working capital.

The Company continuesWe continue to invest in corporate projects, improvements across all production facilities, and capital expendituresintangible assets. Total investments in property, plant and equipment and intangible assets were $17,676$20,552 and $18,801$21,669 for the nine months ended September 30, 20172020 and 2016,2019, respectively. In 2017,Cash paid for the Company spent approximately $8,288Chemogas acquisition, net of cash acquired, amounted to expand manufacting capacity at our AMT facility in Utah to accommodate production previous manufactured in Clearfield, UT prior to$94,690 for the site fire. In 2016,nine months ended September 30, 2019. There were no acquisitions during the Company spent approximately $6,519 towards its agglomeration production equipment initiative, as well as approximately $1,825 related to expanding the Company’s Animal Nutrition & Health capacity in our manufacturing facility located in Verona, Missouri.nine months ended September 30, 2020.

Financing Activities

As previously noted, the Company borrowed $20,000 from the available revolving loan to finance the acquisition of Innovative Food Processors, Inc. The Company made debtNet payments of $26,250 related to the senior secured term loan and $41,000 related toon the revolving loan amounted to $55,000 during 2017. The Company has $100,000the nine months ended September 30, 2020 and we have $306,431 available under its revolving loan agreement.the Credit Agreement as of September 30, 2020.

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The Company hasWe have an approved stock repurchase program. The total authorization under this program is 3,763,038 shares. Since the inception of the program in June 1999, a total of 2,173,1352,495,496 shares have been purchased, none of which remainedand we had 108,813 shares remaining in treasury at September 30, 2017.2020. The Company intendsrepurchases shares from employees in connection with settlement of transactions under the Company's equity incentive plans. We also intend to acquire shares from time to time at prevailing market prices if and to the extent we deem it deems itis advisable to do so based on itsour assessment of corporate cash flow, market conditions and other factors.

Proceeds from stock options exercised were $9,524$8,179 and $5,985$3,734 for the nine months ended September 30, 20172020 and 2016,2019, respectively. Dividend payments were $12,069$16,704 and $10,727$15,135 for the nine months ended September 30, 20172020 and 2016,2019, respectively.

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Other Matters Impacting Liquidity

The CompanyWe currently providesprovide postretirement benefits in the form of two retirement medical plans.plans, as discussed in Note 15 – Employee Benefit Plans.  The liability recorded in other long-term liabilities on the consolidated balance sheetsheets as of September 30, 2017 is $1,4962020 and December 31, 2019 was $1,146 and $1,076, respectively, and the plans are not funded.  Historical cash payments made under these plans have typically been less than $100 per year. We do not anticipate any changes to the payments made in the current year for the newly adoptedplans.
On June 1, 2018, we established an unfunded, nonqualified deferred compensation plan maintained for the benefit of a select group of management or highly compensated employees.  Assets of the plan are held in a rabbi trust, which are subject to additional risk of loss in the event of bankruptcy or insolvency of the Company.  The deferred compensation liability as of September 30, 2020 and December 31, 2019 was $3,314 and $1,982, respectively, and was included in other long-term obligations on our balance sheet. The related rabbi trust assets were $3,314 and $1,982 as of September 30, 2020 and December 31, 2019, respectively, and were included in other non-current assets on the balance sheets.
Chemogas has an unfunded defined benefit plan. The plan provides for the payment of a lump sum at retirement or payments in case of death of the covered employees. The amount recorded for these obligations on our balance sheets as of September 30, 2020 and December 31, 2019 were $623 and $596, respectively, and were included in other long-term obligations.


Critical Accounting Policies

There were no changes to the Company’sCompany's Critical Accounting Policies, as described in its December 31, 20162019 Annual Report on Form 10-K, during the nine months ended September 30, 2017.2020.


Related Party Transactions

The Company wasWe were engaged in related party transactions with St. Gabriel CC Company, LLC during the three and nine months ended September 30, 2017. See2020. Refer to Note 17.18, "Related Party Transactions".
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Item 3.
Item 3.    Quantitative and Qualitative Disclosures About Market Risk

CashOur cash and cash equivalents are held primarily in certificates of deposit and money market investment funds. The Company has no derivative financial instruments or derivative commodity instruments, nor doesIn the Company have any financial instrumentssecond quarter of 2019, we entered into an interest rate swap and cross-currency swap for trading or hedging purposes. AsRefer to details noted above (see Note 20). Additionally, as of September 30, 2017, the Company’s2020, our borrowings were under a bank term loan and revolving loan bearing interest at LIBOR or a fluctuating rate as defined by the loan agreement, at the Company’s discretion,Credit Agreement plus an applicable rate. The applicable rate is based upon the Company’sour consolidated net leverage ratio, as defined in the loan agreement.Credit Agreement. A 100 basis point increase or decrease in interest rates, applied to the Company’sour borrowings at September 30, 2017,2020, would result in an increase or decrease in annual interest expense and a corresponding reduction or increase in cash flow of approximately $2,363. The Company isapproximately $1,936. We are exposed to market risks for changes in foreign currency rates and has exposure to commodity price risks, including prices of our primary raw materials. Our objective is to seek a reduction in the potential negative earnings impact of changes in foreign exchange rates and raw material pricing arising in our business activities. The Company managesWe manage these financial exposures, where possible, through pricing and operational means. Our practices may change as economic conditions change. Additionally, as disclosed below in Item 1A, we are monitoring market risks related to the current COVID-19 pandemic very closely.

Interest Rate Risk
We have exposure to market risk for changes in interest rates, including the interest rate relating to the Credit Agreement dated June 27, 2018. In the second quarter of 2019, we began to manage our interest rate exposure through the use of derivative instruments. All of our derivative instruments are utilized for risk management purposes, and are not used for trading or speculative purposes. We have hedged a portion of our floating interest rate exposure using an interest rate swap (see Note 20 to
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our consolidated financial statements). As of September 30, 2020, the notional amount of our outstanding interest rate swap was $108,569.

Foreign Currency Exchange Risk
The financial condition and results of operations of our foreign subsidiaries are reported in Euros, Canadian Dollars, Malaysian Ringgits, Singapore Dollars, Australian Dollars, and Philippine Pesos and then translated into U.S. dollars at the applicable currency exchange rate for inclusion in our consolidated financial statements. Therefore, we are exposed to foreign currency exchange risk related to these currencies. Specifically, we are exposed to changes in exchange rates between the U.S. dollar and Euro. In the second quarter of 2019, we entered into a cross-currency swap, with a notional amount of $108,569, which we designated as a hedge of our net investment in Chemogas.

Item 4.
Item 4.    Controls and Procedures

(a)Evaluation of Disclosure Controls and Procedures
(a)Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15Prior to filing this report, we completed an evaluation under the Securities Exchange Actsupervision and with the participation of 1934 (the “Exchange Act”), we carried out an evaluationour management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) of the endExchange Act as of the period covered bySeptember 30, 2020. Based on this report on Form 10-Q. This evaluation, was carried out under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, managementOfficer concluded that our disclosure controls and procedures arewere effective to ensure that information required to be disclosedat the reasonable assurance level as of September 30, 2020.
(b)Changes in Internal Controls
There have been no changes in the reports that we file or submit under the Exchange Act is accumulated and communicated to management (including the chief executive officer and chief financial officer) to allow timely decisions regarding required disclosure and that our disclosureinternal controls and procedures are effective to give reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

(b)Changes in Internal Controls
During the most recent fiscal quarter, except with respect to the Innovative Food Processors, Inc. (IFP) acquisition described below, there has been no significant change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Act) during the fiscal quarter ended September 30, 2020, that hashave materially affected, or isare reasonably likely to materially affect, the Company’s internal control over financial reporting.


On June 1, 2017, we completed the acquisition of Innovative Food Processors, Inc. See Note 2 of the Notes to the Condensed Consolidated Financial Statements for additional information. We are integrating IFP into our internal control over financial reporting process and expect to include the business in our assessment of internal control over financial reporting as of December 31, 2017.  Total assets of the IFP business represented approximately 3% of our consolidated total assets as of September 30, 2017, and net sales related to the IFP business represented approximately 2% of our consolidated net sales for the nine months ended September 30, 2017.
PartII.    Other Information
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Part II.Other Information

Item 1A.
Item 1A.    Risk Factors

There have been no material changes in the Risk Factors identified in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2019, except as follows:

Our business, results of operations, financial condition, cash flows and stock price can be adversely affected by pandemics, epidemics or other public health emergencies, such as COVID-19.
Item 2C.Our business, results of operations, financial condition, cash flows and stock price can be adversely affected by pandemics, epidemics or other public health emergencies, such as COVID-19. In March 2020, the World Health Organization characterized COVID-19 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The outbreak has resulted in governments around the world implementing increasingly stringent measures to help control the spread of the virus, including quarantines, "shelter in place" and "stay at home" orders, travel restrictions, business curtailments, school closures, and other measures. In addition, government and central banks in several parts of the world have enacted fiscal and monetary stimulus measures to counteract the impacts of COVID-19.
Our businesses have been deemed "essential" under the orders issued by federal, state and local governments. Although we have continued to operate our facilities to date consistent with federal guidelines and state and local orders, the outbreak of COVID-19 or similar viruses and any preventive or protective actions taken by governmental authorities may have a material adverse effect on our operations, supply chain, customers, and transportation networks, including business shutdowns or disruptions. The extent to which viruses such as COVID-19 may adversely impact our business depends on future developments, which are highly uncertain and unpredictable, depending upon the severity and duration of the outbreak and the effectiveness of actions taken globally to contain or mitigate their effects. Any resulting financial impact cannot be estimated reasonably at this time, but may materially adversely affect our business, results of operations, financial condition and cash flows. Additionally, concerns over the economic impact of COVID-19 have caused extreme volatility in financial and other capital markets which has and may continue to adversely impact our stock price and may affect our ability to access capital markets. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in our 2019 Annual Report. We will continue to implement mitigation strategies as needed to protect the long-term sustainability of our company.

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Item 2C.     Issuer Purchase of Equity Securities

The following table summarizes the share repurchase activity for the three months ended September 30, 2017:2020:

  
Total Number of
Shares
Purchased(1)
  
Average
Price Paid
Per
Share(2)
  
Total Number of
Shares Purchased
as Part of Publicly
Announced
Programs(1)
  
Approximate
Dollar Value of
Shares that
May Yet Be
Purchased
Under the Plans
or Progams
 
July 1 – 31, 2017  -  $-   -  $129,134,000 
August 1 – 31, 2017  -  $-   -  $129,134,000 
September 1 – 30, 2017  1,201  $76.66   1,201  $121,882,000 
   1,201       1,201     

 
Total Number of Shares
Purchased (1)
Average Price Paid Per Share (2)
Total Number of Shares
Purchased as
Part of Publicly Announced
Programs (1)
Approximate Dollar Value of Shares that May Yet Be
Purchased Under the
Plans or Programs
July 1-31, 2020— $— — $116,619,193 
August 1-31, 2020— $— — $116,619,193 
September 1-30, 202031,224 $94.72 31,224 $120,063,231 
31,224  31,224  
(1) We have an approved stock repurchase program. The total authorization under this program is 3,763,038 shares. Since the inception of the program in June 1999, a total of 2,495,496 shares have been purchased, of which 108,813 shares remained in treasury at September 30, 2020. There is no expiration for this program.
(2) Average price paid per share includes costs associated with the repurchases
(1) The Company has an approved stock repurchase program. The total authorization under this program is 3,763,038 shares. Since the inception of the program in June 1999, a total of 2,173,135 shares have been purchased, of which no shares remained in treasury at September 30, 2017. There is no expiration for this program.

(2) Average price paid per share includes costs associated with the repurchases.

Item 5.Other Information

Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, companies are required, among other things, to disclose certain activities, transactions or dealings with the Government of Iran or entities controlled directly or indirectly by the Government of Iran. Disclosure is generally required even where such activities, transactions or dealings are de minimis. During the nine months ending September 30, 2017, we sold, in a single sales transaction, 765 twenty-five kilogram bags of ReaShure encapsulated choline, at a sales price of $82,238 to Imex Gulf, Inc., a privately held US corporation headquartered in Plano, Texas. Imex Gulf, Inc. exported this product to Pishgaman Taghzieh DTI Co. in Tehran, Iran, for subsequent sale and distribution in Iran. We conducted this product sale in compliance with applicable laws. The sale of ReaShure, an animal feed ingredient, is permissible pursuant to certain statutory and regulatory exemptions from U.S. sanctions applicable to food products.
Item 6.    Exhibits
Item 6.Exhibits

Exhibit NumberDescription
Exhibit 31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a).
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Exhibit 31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a).
Exhibit 32.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
Exhibit 32.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
101.INS
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CAL
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

BALCHEM CORPORATION
BALCHEM CORPORATION
By: /s/ Theodore L. Harris
Theodore L. Harris, Chairman, President and Chief Executive Officer
By: /s/ Mary Theresa Coelho
Martin Bengtsson
Mary Theresa Coelho,Martin Bengtsson, Chief Financial Officer and Treasurer
Date: November 7, 2017
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Exhibit Index
Exhibit No.
Description
Date: October 28, 2020
Exhibit 31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a).
Exhibit 31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a).
Exhibit 32.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
Exhibit 32.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document

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