BALCHEM CORP - Annual Report: 2016 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

☑	ANNUAL REPORT PURSUANT TO SECTION 13 OR SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _____ .

Commission file number: 1-13648

Balchem Corporation

(Exact name of Registrant as specified in its charter)

Maryland		13-2578432
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification 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:

Title of each class		Name of each exchange on which registered
Common Stock, par value $.06-2/3 per share		Nasdaq Global Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐

Indicate by check mark whether the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑

Indicate by check mark whether the Registrant (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 such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 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 ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☑

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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

(Check one):	Large accelerated filer ☑	Accelerated filer ☐
	Non-accelerated filer ☐	Smaller reporting company o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

The aggregate market value of the common stock, par value $.06-2/3 per share (the “Common Stock”), issued and outstanding and held by non-affiliates of the Registrant, based upon the closing price for the Common Stock on the NASDAQ Global Market on June 30, 2016 was approximately $1,867,000,000. For purposes of this calculation, shares of the Registrant held by directors and officers of the Registrant and under the Registrant's 401(k)/profit sharing plan have been excluded.

The number of shares outstanding of the Registrant's Common Stock was 31,770,824 as of February 21, 2017.

DOCUMENTS INCORPORATED BY REFERENCE

Selected portions of the Registrant’s proxy statement for its 2017 Annual Meeting of Stockholders (the “2017 Proxy Statement”) to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after Registrant’s fiscal year-end of December 31, 2016 are incorporated by reference in Part III of this Annual Report on Form 10-K to the extent stated therein.

Cautionary Statement Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not statements of historical facts, but rather reflect our current expectations or beliefs concerning future events and results. We generally use the words “believes,” “expects,” “intends,” “plans,” “anticipates,” “likely,” “will,” “estimates,” “project” and similar expressions to identify forward-looking statements. Such forward-looking statements, including those concerning our expectations, involve risks, uncertainties and other factors, some of which are beyond our control, which may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The risks, uncertainties and factors that could cause our results to differ materially from our expectations and beliefs include, but are not limited to, those factors set forth in this Annual Report on Form 10-K under “Item 1A. - Risk Factors” below, including the following:

changes in laws or regulations affecting our operations;

changes in our business tactics or strategies;

acquisitions of new or complementary operations;

sales of any of our existing operations;

changing market forces or contingencies that necessitate, in our judgment, changes in our plans, strategy or tactics; and

fluctuations in the investment markets or interest rates, which might materially affect our operations or financial condition.

We cannot assure you that the expectations or beliefs reflected in these forward-looking statements will prove correct. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this Annual Report on Form 10-K and all subsequent written and oral forward-looking statements made by us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained herein.

PART I

Item 1.

Business

General:

Balchem Corporation (“Balchem,” the “Company,” “we” or “us”), incorporated in the State of Maryland in 1967, is engaged in the development, manufacture and marketing of specialty performance ingredients and products for the food, nutritional, feed, pharmaceutical, medical sterilization and industrial markets. Our reportable segments are strategic businesses that offer products and services to different markets. We presently have four reportable segments: Human Nutrition & Health (formerly SensoryEffects); Animal Nutrition & Health; Specialty Products; and Industrial Products.

The Company sells its products through its own sales force, independent distributors and sales agents. Financial information concerning the Company's business, business segments and geographic information appears in Management’s Discussion and Analysis of Financial Condition and Results of Operations under Item 7 below and in the Notes to our Consolidated Financial Statements included under Item 8 below, which information is incorporated herein by reference.

The Company operates five wholly-owned domestic subsidiaries: SensoryEffects, Inc. (“SE”), a Delaware corporation, SensoryEffects Cereal Systems, Inc. (“SECS”), a Delaware corporation, Albion International, Inc. (“Albion”), a Nevada corporation, BCP Ingredients, Inc. (“BCP”), a Delaware corporation, and Aberco,

Inc. (“Aberco”), a Maryland corporation. We operate two wholly-owned subsidiaries in Europe: Balchem BV, a Dutch limited liability company and Balchem Italia Srl, an Italian limited liability company. We also operate one wholly-owned subsidiary in Canada: Balchem LTD, a Canadian corporation. Unless otherwise stated to the contrary, or unless the context otherwise requires, references to the Company in this report includes Balchem Corporation and its subsidiaries.

Human Nutrition & Health (formerly SensoryEffects)

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, 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. Proprietary technology have been combined to create an organic molecule 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 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. 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 increase production efficiencies in order to maintain its competitive-cost position to effectively compete in a global marketplace.

Specialty Products

medical device manufacturers are principal customers for this product. 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.

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.

Acquisition of Albion International, Inc.

On February 1, 2016, the Company acquired 100 percent of the outstanding common shares of Albion International, Inc. (“Albion” or the “Acquisition”), a privately held manufacturer of mineral amino acid chelates, specialized mineral salts and mineral complexes, headquartered in Clearfield, Utah. The Company made payments of approximately $116.4 million on the acquisition date, amounting to approximately $110.6 million to the former shareholders, adjustments for working capital acquired of $4.9 million, and approximately $0.9 million 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 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 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.

Raw Materials

The raw materials utilized by the Company in the manufacture of its products are sourced from suppliers both domestically and internationally. Such raw materials include materials derived from petrochemicals, minerals, metals, agricultural commodities and other readily available commodities and are subject to price fluctuations due to market conditions. The Company is not experiencing any current difficulties in procuring such materials and does not anticipate any such problems; however, we cannot assure that will always be the case.

Intellectual Property

The Company currently holds 109 patents in the United States and overseas and uses certain trade-names and trademarks. It also uses know-how, trade secrets, formulae, and manufacturing techniques that assist in maintaining competitive positions of certain of its products. Formulae and know-how are of particular importance in the manufacture of a number of the Company’s proprietary products. The Company believes that certain of its patents, in the aggregate, are advantageous to its business. However, it is believed that no single patent or related group of patents is currently so material to the Company that the expiration or termination of any single patent or group of patents would materially affect its business. Our U.S. patents expire between 2017 and 2034. The Company believes that its sales and competitive position are dependent primarily upon the quality of its products, technical sales efforts and market conditions, rather than on patent protection.

Seasonality

In general, the businesses of our segments are not seasonal to any material extent.

Backlog

At December 31, 2016, the Company had a total backlog of $26,203,000 (including $18,496,000 for the HNH segment; $6,120,000 for the ANH segment; $1,066,000 for the Specialty Products segment and $521,000 for the Industrial Products segment), as compared to a total backlog of $30,448,000 at December 31, 2015 (including $20,947,000 for the HNH segment; $7,705,000 for the ANH segment; $753,000 for the Specialty Products segment and $1,043,000 for the Industrial Products segment). It has generally been the Company’s policy and practice to maintain an inventory of finished products and/or component materials for its segments to enable it to ship products within two months after receipt of a product order. All orders in the current backlog are expected to be filled in the 2017 fiscal year.

Competition

Our competitors include many large and small companies, some of which have greater financial, research and development, production and other resources than the Company. Competition in the food and ingredient markets served by the Company is based primarily on product performance, customer support, quality, service and price. The development of new and improved products is important to the Company’s success. This competitive environment requires substantial investments in product and manufacturing process research and development. In addition, the winning and retention of customer acceptance of the Company’s food and nutrition products involve substantial expenditures for application testing, either internally or at customer/prospect sites, and sales efforts. Our competition in this market includes a variety of ingredient and nutritional supplement companies many of which are privately-held. Therefore, it is difficult to assess the size of all of our segment competitors or where we rank in comparison to such privately-held competitors.

Competition in the animal feed and industrial markets served by the Company is based primarily on quality, service and price. The markets for our products are subject to competitive risks because these markets are highly price competitive. Our competition in this market includes a variety of animal nutrition and health ingredient companies, along with certain industrial companies, many of which are privately-held. Therefore,

we are unable to assess the size of all of our competitors or where we rank in comparison to such privately-held competitors.

In the Specialty Products segment, the Company’s products face competition from alternative sterilizing technologies and products. Competition in this marketplace is based primarily on medical device compositions, product performance, customer support, quality, service and price. Our competition in this market includes sterilization companies, a number of which are privately-held. Therefore, we are unable to assess the size of all of our competitors or where we rank in comparison to such privately-held competitors. We are focused on the North American market due to EPA, United States Food and Drug Administration (“FDA”) and DOT regulations that are not yet required globally.

Research & Development

During the years ended December 31, 2016, 2015 and 2014, the Company incurred research and development expenses of approximately $7.3 million, $6.0 million and $4.8 million, respectively, on Company-sponsored research and development for new products and improvements to existing products and manufacturing processes. At December 31, 2016, approximately 40 employees were devoted full time to research and development activities. The Company has historically funded its research and development programs with funds available from current operations with the intent of recovering those costs from profits derived from future sales of products resulting from, or enhanced by, the research and development effort.

The Company prioritizes its product development activities in an effort to allocate resources to those product candidates that, the Company believes, have the greatest commercial potential. Factors considered by the Company in determining the products to pursue include projected markets and needs, status of its proprietary rights, technical feasibility, expected and known product attributes, and estimated costs to bring the product to market.

Capital Projects

The Company continues to invest in projects across all production facilities and capital expenditures were approximately $23.0 million, $41.3 million and $13.2 million for 2016, 2015 and 2014, respectively. In 2016, 2015 and 2014, respectively, capital expenditures of $1.8 million, $11.5 million, and $4.8 million were related to expanding the Company’s Animal Nutrition & Health capacity in the manufacturing facility located in Verona, Missouri. Additionally, the Company invested $6.8 million and $10.4 million in agglomeration production equipment during 2016 and 2015, respectively. Capital expenditures are projected to range from $25.0 million to $35.0 million for 2017.

Environmental / Regulatory Matters

The Federal Insecticide, Fungicide and Rodenticide Act (“FIFRA”), a health and safety statute, requires that certain products within our specialty products segment must be registered with the EPA because they are considered pesticides. In order to obtain a registration, an applicant typically must demonstrate, through extensive test data, that its product will not cause unreasonable adverse effects on human health or the environment. We hold EPA registrations permitting us to sell ethylene oxide as a medical device sterilant and spice fumigant, and propylene oxide as a fumigant of nuts and spices.

With respect to the treatment of spices with ethylene oxide, the EPA allows the use of EO on the vast majority of spices. However, EPA prohibited its use for the treatment of basil, effective August 1, 2007, but allows the continuing use of ethylene oxide to treat all other spices, provided specific treatment parameters are used. During 2009, the EPA mandated that a toxicity study be performed on ethylene chlorohydrin, which is a “residue of concern”, according to the EPA. This study was financed by an industry trade association of which we are a member, and was submitted to the EPA in March 2012. In October 2016, the EPA issued a Data Evaluation Record accepting the ethylene chlorohydrin study.

In April 2008, the EPA issued a RED (“Reregistration Eligibility Decision”) for ethylene oxide which permitted the continued use of ethylene oxide “to sterilize medical or laboratory equipment, pharmaceuticals, and aseptic packaging, or to reduce microbial load on musical instruments, cosmetics, whole and ground spices and other seasoning materials and artifacts, archival material or library objects”. Currently, the EPA has initiated a new registration review of ethylene oxide, in line with and part of the registration review scheduled for a large number of other pesticides. A Final Work Plan was issued in March 2014. The EPA anticipates this registration review process will take approximately seven years. In December 2016, the EPA issued its Integrated Risk Information System (“IRIS”) assessment of EO, another aspect of EPA’s safety review of EO. To date, we have no indication that this IRIS assessment will have any discernable impact on the registration review process. In addition, EPA has identified several potential additional testing requirements. The EPA and the registrants are in discussions regarding the additional testing. While some additional testing will be necessary, we believe that the use of ethylene oxide will continue to be permitted. The product, when used as a sterilant for certain medical devices, has no known equally effective substitute. Management believes the lack of availability of this product could not be easily tolerated by various medical device manufacturers or the health care industry due to the resultant infection potential.

Similarly, the EPA issued a RED for propylene oxide in August 2006. At that time, the EPA “determined that products containing the active ingredient PPO [propylene oxide] are eligible for reregistration provided that…risk mitigation measures…are adopted.” Our product label was amended as required to reflect these mitigation measures and also to show that propylene oxide has been reclassified as a restricted use pesticide. Currently, the EPA has initiated a new registration review of propylene oxide, in line with and part of the registration review scheduled for a large number of other pesticides. A Final Work Plan was issued in March 2014. The EPA anticipates this review process will take approximately seven years. As part of the process, the EPA has identified several potential additional testing requirements. The Company has completed two of the required studies and they have been submitted to the EPA for evaluation. Another study has been completed and the final report is expected to be ready for submission to EPA shortly. The Company has committed to conducting two additional studies, which are scheduled to begin during the first quarter of 2017. The Company is currently in discussions with the EPA regarding other studies. While it is possible that we will be required to perform additional testing, we believe that the use of propylene oxide to treat nuts and spices will continue to be permitted.

The Company’s facility in Verona, Missouri, while held by a prior owner, was designated by the EPA as a Superfund site and placed on the National Priorities List in 1983, because of dioxin contamination on portions of the site. Remediation 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 for contamination for certain organic chemicals. No ground water or surface water treatment has been required. In 1998, the EPA certified the work on the contaminated soils to be complete. In February 2000, after the conclusion of two years of monitoring groundwater and surface water, the former owner submitted a draft third party risk assessment report to the EPA and MDNR recommending no further action. The prior owner is awaiting the response of the EPA and MDNR to the draft risk assessment.

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 facility for potential liabilities associated with the Superfund site and one of the sellers, in turn, has the benefit of certain contractual indemnification by the prior owner that executed the above-described Superfund remedy.

In connection with normal operations at its plant facilities, the Company is required to maintain environmental and other permits, including those relating to the ethylene oxide operations.

The Company believes it is in compliance in all material respects with federal, state, local and international provisions that have been enacted or adopted regulating the discharge of materials into the environment or otherwise relating to the protection of the environment. Such compliance includes the maintenance of required permits under air pollution regulations and compliance with requirements of the Occupational Safety and Health Administration. The cost of such compliance has not had a material effect upon the results of operations or financial condition of the Company. 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 remediated the area and removed soil from the drum burial site. This proceeding has been substantially completed (see Item 3).

In June 2011, we terminated our lease and ceased operations at a manufacturing facility in Channahon, Illinois, which had previously served as our pharmaceutical grade ingredient manufacturing facility, which was registered with the FDA as a drug manufacturing facility. We will continue to produce products which are required to be manufactured in conformity with current Good Manufacturing Practice (“cGMP”) regulations as interpreted and enforced by the FDA, but will do so through third party contract arrangement. Modifications, enhancements or changes in contracted manufacturing facilities or procedures relating to our pharmaceutical products are, in many circumstances, subject to FDA approval, which may be subject to a lengthy application process or which we may be unable to obtain. Any contracted manufacturing facilities that manufacture our pharmaceutical products are periodically subject to inspection by the FDA and other governmental agencies, and operations at these facilities could be interrupted or halted if the results of these inspections are unsatisfactory.

Employees

As of January 31, 2016, the Company employed approximately 1,060 persons. Approximately 95 employees at our Marano, Ticino, Italy facility are covered by a national collective bargaining agreement, which expires in 2017. Approximately 70 employees at the Company’s Verona, Missouri facility are covered by a collective bargaining agreement, which expires in 2018.

Available Information

The Company’s headquarters is located at 52 Sunrise Park Road, New Hampton, NY 10958. The Company’s telephone number is (845) 326-5600 and its Internet website address is www.balchem.com. The Company makes available through its website, free of charge, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to such reports, as soon as reasonably practicable after they have been electronically filed with the Securities and Exchange Commission. Such reports are available via a link from the Investor Relations page on the Company’s website to a list of the Company’s reports on the Securities and Exchange Commission’s EDGAR website.

Item 1A.

Risk Factors

Our business is subject to a high degree of risk and uncertainty, including the following risks and uncertainties, which could adversely affect our business, financial condition, results of operation, cash flows and the trading price of our Common Stock:

Global economic conditions may adversely affect our business, operating results and financial condition.

Unfavorable changes in economic conditions, including inflation, recession, or other changes in economic conditions, may adversely impact the markets in which we operate. These conditions may make it extremely difficult for our customers, our vendors and us to accurately forecast and plan future business activities, and they could cause U.S. and foreign businesses to slow spending on our products which would reduce our

revenues and profitability. Furthermore, during challenging economic times our customers may face issues gaining timely access to sufficient credit, which could result in an impairment of their ability to make timely payments to us. If that were to occur, we may be required to increase our allowance for doubtful accounts and cash flow would be negatively impacted. We cannot predict the timing, depth or duration of any economic slowdown or subsequent economic recovery, worldwide, or in the markets in which we operate. Also, at any point in time we have funds in our cash accounts that are with third party financial institutions. These balances in the U.S. and Italy exceed the Federal Deposit Insurance Corporation (“FDIC”) and Fondo Interbancario di Tutela dei Depositi (“FITD”) insurance limits, respectively. While we monitor the cash balances in our accounts, these balances could be impacted if the underlying financial institutions fail or could be subject to other adverse conditions in the financial markets.

Increased competition could hurt our business and financial results.

We face competition in our markets from a number of large and small companies, some of which have greater financial, research and development, production and other resources than we do. Our competitive position is based principally on performance, quality, customer support, service, breadth of product line, manufacturing or packaging technology and the selling prices of our products. Our competitors may improve the design and performance of their products and introduce new products with competitive price and performance characteristics. We expect to do the same to maintain our current competitive position and market share.

The loss of governmental permits and approvals would materially harm some of our businesses.

Pursuant to applicable environmental and safety laws and regulations, we are required to obtain and maintain certain governmental permits and approvals, including EPA registrations under FIFRA for two of our products. We maintain EPA FIFRA registrations for ethylene oxide as a medical device sterilant and spice fumigant and for propylene oxide as a fumigant of nuts and spices. The EPA has issued Reregistration Eligibility Decisions for both products in recent years and these uses have been approved for the time being. The EPA may re-examine the registrations in the future in accordance with the provisions of FIFRA. Any future failure of the EPA to allow reregistration of ethylene oxide or propylene oxide would have a material adverse effect on our business and financial results.

Commercial supply of pharmaceutical products that we may develop, subject to cGMP manufacturing regulations, will be performed by third-party cGMP manufacturers. Modifications, enhancements or changes in third-party manufacturing facilities or procedures of our pharmaceutical products are, in many circumstances, subject to FDA approval, which may be subject to a lengthy application process or which we may be unable to obtain. Any third-party cGMP manufacturers that we may use are periodically subject to inspection by the FDA and other governmental agencies, and operations at these facilities could be interrupted or halted if the results of these inspections are unsatisfactory. Failure to comply with the FDA or other governmental regulations can result in fines, unanticipated compliance expenditures, recall or seizure of products, total or partial suspension of production, enforcement actions, injunctions and criminal prosecution, which could have a material adverse effect on our business and financial results.

Permits and approvals may be subject to revocation, modification or denial under certain circumstances. Our operations or activities (including the status of compliance by the prior owner of the Verona, Missouri facility under Superfund remediation) could result in administrative or private actions, revocation of required permits or licenses, or fines, penalties or damages, which could have an adverse effect on us. In addition, we cannot predict the extent to which any legislation or regulation may affect the market for our products or our cost of doing business.

Raw material shortages or price increases could adversely affect our business and financial results.

The principal raw materials that we use in the manufacture of our products can be subject to price fluctuations due to market conditions. Such raw materials include materials derived from petrochemicals, minerals, metals, agricultural commodities and other commodities. While the selling prices of our products tend to

increase or decrease over time with the cost of raw materials, these changes may not occur simultaneously or to the same degree. At times, we may be unable to pass increases in raw material costs through to our customers due to certain contractual obligations. Such increases in the price of raw materials, if not offset by product price increases, or substitute raw materials, would have an adverse impact on our profitability. We believe we have reliable sources of supply for our raw materials under normal market conditions. We cannot, however, predict the likelihood or impact of any future raw material shortages. Any shortages could have a material adverse impact on our results of operations.

Our financial success depends in part on the reliability and sufficiency of our manufacturing facilities.

Our revenues depend on the effective operation of our manufacturing, packaging, and processing facilities. The operation of our facilities involves risks, including the breakdown, failure, or substandard performance of equipment, power outages, the improper installation or operation of equipment, explosions, fires, natural disasters, failure to achieve or maintain safety or quality standards, work stoppages, supply or logistical outages, and the need to comply with environmental and other directives of governmental agencies. The occurrence of material operational problems, including, but not limited to, the above events, could adversely affect our profitability during the period of such operational difficulties.

Our business exposes us to potential product liability claims and recalls, which could adversely impact our financial condition and performance.

Our development, manufacture and sales of food ingredient, pharmaceutical and nutritional supplement products involve an inherent risk of exposure to product liability claims, product recalls, product seizures and related adverse publicity. A product liability judgment against us could also result in substantial and unexpected expenditures, affect consumer confidence in our products, and divert management’s attention from other responsibilities. Although we maintain product liability insurance coverage in amounts we believe are customary within the industry, there can be no assurance that this level of coverage is adequate or that we will be able to continue to maintain our existing insurance or obtain comparable insurance at a reasonable cost, if at all. A product recall or a partially or completely uninsured judgment against us could have a material adverse effect on results of operations and financial condition.

We face risks associated with our sales to customers and manufacturing operations outside the United States.

For the year ended December 31, 2016, approximately 25% of our net sales consisted of sales outside the United States. In addition, we conduct a portion of our manufacturing outside the United States. International sales are subject to inherent risks. The majority of our foreign sales occur through our foreign subsidiaries and the remainder of our foreign sales result from exports to foreign distributors, resellers and customers. Our foreign sales and operations are subject to a number of risks, including: longer accounts receivable collection periods; the impact of recessions and other economic conditions in economies outside the United States; export duties and quotas; unexpected changes in regulatory requirements; certification requirements; environmental regulations; reduced protection for intellectual property rights in some countries; potentially adverse tax consequences; political and economic instability; and preference for locally produced products. These factors could have a material adverse impact on our ability to increase or maintain our international sales.

We may, from time to time, experience problems in our labor relations.

In North America, approximately 75 employees, or 8% of our North American workforce, as of December 31, 2016, are represented by a union under a single collective bargaining agreement, which was re-negotiated and is effective as of July 9, 2012. It will expire in 2017. In Europe, approximately 95 employees are covered by a collective bargaining agreement that will also expire in 2018. We believe that our present labor relations with all of our union employees are satisfactory, however, our failure to renew these agreements on reasonable terms could result in labor disruptions and increased labor costs, which could adversely affect our financial performance. Similarly, if our relations with the union portion of our workforce do not remain

positive, such employees could initiate a strike, work stoppage or slowdown in the future. In the event of such an action, we may not be able to adequately meet the needs of our customers using our remaining workforce and our operations and financial condition could be adversely affected.

Our international operations subject us to currency translation risk and currency transaction risk which could cause our results to fluctuate from period to period.

The financial condition and results of operations of our foreign subsidiaries are reported in Euros and Canadian Dollars and then translated into U.S. dollars at the applicable currency exchange rate for inclusion in our consolidated financial statements. Exchange rates between these currencies in recent years have fluctuated and may do so in the future. Furthermore, we incur currency transaction risk whenever we enter into either a purchase or a sales transaction using a currency different than the functional currency. Given the volatility of exchange rates, we may not be able to effectively manage our currency transactions and/or translation risks. Volatility in currency exchange rates could impact our business and financial results.

Our debt instruments impose operating and financial restrictions which could have an adverse impact on our business and results of operations.

Our recent incurrence of indebtedness could have negative consequences to us, including the following:

•

limiting our ability to borrow additional monies for our working capital, capital expenditures, acquisitions; debt service requirements or other general corporate purposes;

•

limiting our flexibility in planning for, or reacting to, changes in our operations, our business or the industries in which we compete;

•

our leverage may place us at a competitive disadvantage by limiting our ability to invest in the business or in further research and development;

•

making us more vulnerable to downturns in our business or the economy; and

•

there would be a material adverse effect on our business and financial condition if we were unable to service our indebtedness or obtain additional financing, as needed.

Our ability to make payments on our indebtedness depends on our ability to generate cash in the future. If we do not generate sufficient cash flow to meet our debt service and working capital requirements, we may need to seek additional financing or sell assets. This may make it more difficult for us to obtain financing on terms that are acceptable to us, or at all. Without any such financing, we could be forced to sell assets to make up for any shortfall in our payment obligations under unfavorable circumstances.

Interest payable in accordance with our credit agreement is based on LIBOR. In light of potential fluctuations, we are exposed to risk resulting from adverse changes in interest rates.

Adverse publicity or consumer concern regarding the safety or quality of food products containing our products, or health concerns, whether with our products, products in the same general class as our products or for food products containing our products, may result in the loss of sales. Also, consumer preferences for products containing our products may change.

We are dependent upon consumers' perception of the safety, quality and possible dietary benefits of products containing our food ingredient products. As a result, substantial negative publicity concerning our products or other foods and beverages in which our products are used could lead to a loss of consumer confidence in those products, removal of those products from retailers' shelves and reduced sales and prices of our products. Product quality issues, actual or perceived, or allegations of product contamination, even when false or unfounded, could hurt the image of our products or of brands of products containing our products, and cause consumers to choose other products. Further, any product recall, whether our own or by a third party, whether due to real or unfounded allegations, could impact demand on food products containing our products or even our products. Any of these events could have a material adverse effect on our business, results of operations and financial condition. Consumer preferences, as well as trends, within the food industries change often

and our failure to anticipate, identify or react to changes in these preferences and trends could, among other things, lead to reduced demand and price reductions, and could have an adverse effect on our business, results of operations and financial condition. While we continue to diversify our product offerings, developing new products entails risks and we cannot be certain that demand for our products and products containing our products will continue at current levels or increase in the future.

Demand for certain of our products is dependent on the levels of productivity by the oil and gas industry, particularly as it relates to shale gas fracturing. A substantial or an extended decline in oil and gas prices could result in lower expenditures by the oil and gas industry, which could have an adverse effect on our results of operations.

The oil and gas industry historically experiences periodic downturns. Demand for certain of our products depends on the level of expenditures by the oil and gas industry for the exploration, development and production of oil and natural gas reserves. These expenditures are generally dependent on the industry’s view of future oil and natural gas prices and are sensitive to the industry’s view of future economic growth and the resulting impact on demand for oil and natural gas. Declines in oil and gas prices could result in significant downturn in the oil and gas industry and thereby result in a reduction in demand for oilfield services and related products, which could lead to reduced demand for our products and downward pressure on the prices we charge. These effects could have an adverse effect on our results of operations and cash flows.

We may not be able to successfully consummate and manage acquisition, joint venture and divestiture activities which could have an impact on our results.

From time to time, we may acquire other businesses, enter into joint ventures and, based on an evaluation of our business portfolio, divest existing businesses. These acquisitions, joint ventures and divestitures may present financial, managerial and operational challenges, including diversion of management attention from existing businesses, difficulty with integrating or separating personnel and financial and other systems, increased expenses, assumption of unknown liabilities and indemnities, and potential disputes with the buyers or sellers. In addition, we may be required to incur asset impairment charges (including charges related to tangible assets, goodwill and other intangible assets) in connection with acquired businesses which may reduce our profitability. If we are unable to consummate such transactions, or successfully integrate and grow acquisitions and achieve contemplated revenue synergies and cost savings, our financial results could be adversely affected. Additionally, joint ventures inherently involve a lesser degree of control over business operations, thereby potentially increasing the financial, legal, operational and/or compliance risks.

Technology failures or cyber security breaches could have an adverse effect on the Company’s operations.

The Company relies on information technology systems to process, transmit, store, and protect electronic information. For example, a significant portion of the communications between the Company’s personnel, customers, and suppliers depends on information technology. Information technology systems of the Company may be vulnerable to a variety of interruptions due to events beyond its control including, but not limited to, natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers, and other security issues. The Company has technology and information security processes and disaster recovery plans in place to mitigate its risk to these vulnerabilities; however, these measures may not be adequate to ensure that its operations will not be disrupted, should such an event occur.

Item 1B.

Unresolved Staff Comments

None.

Item 2.

Properties

We and our affiliates own or lease several manufacturing facilities and sales offices throughout the United States, and we own a single manufacturing facility in Europe. The following table sets forth a list of our principal offices, production and other facilities throughout the world as of December 31, 2016.

Site	Leased/Owned	Sq. Footage	Products/Functions
Corporate Offices
New Hampton, NY	Leased	20,000	Corporate headquarters
St. Louis, MO	Leased (SensoryEffects)	9,161	Administrative offices SensoryEffects
Layton, UT	Leased (Albion)	10,472	Administrative offices Albion
Manufacturing Facilities
Verona, MO	Owned (BCP)	151,000	aqueous and dry choline chloride, animal feed products, human choline nutrients, repackaging for Specialty Products, and warehousing
Slate Hill, NY	Owned	51,000	encapsulated products, blending and repackaging for Specialty Products, and warehousing
Green Pond, SC	Owned	34,000	repackaging for Specialty Products and warehousing
Salt Lake City, UT	Owned	16,500	chelated mineral nutrients and warehousing
Covington, VA	Owned	70,000	encapsulated animal feed products and warehousing
Marano Ticino, Italy	Owned (Balchem Italia)	342,734	methylamines, metam sodium, animal, human and industrial grade choline, and warehousing
Sleepy Eye, MN	Owned (SensoryEffects)	32,000	spray drying of dairy creamers and cocoa blends, and warehousing
Bridgeton, MO	Owned (SensoryEffects)	84,000	creamer products, cocoa powders, liquid and solid flavor inclusions, and warehousing
Marshfield, WI	Owned (SensoryEffects)	70,000	spray drying of lipid based powders, blending, and warehousing
Reading, PA	Owned (SensoryEffects)	39,750	spray drying of human nutritional products and warehousing
Defiance, OH	Owned (SensoryEffects)	140,700	spray drying of creamer products, solid flavor inclusions for baking, blending and warehousing
Lincoln, NE	Leased (SensoryEffects)	87,650	cereal products and warehousing
Morrisburg, Canada	Owned (Balchem LTD)	4,500	dry choline chloride and warehousing
Roy, UT	Leased (Albion)	6,510	quality control lab
Ogden, UT	Leased (Albion)	25,515	human mineral spray drying and packaging
Ogden, UT	Leased (Albion)	38,274	warehousing
Ogden, UT	Leased (Albion)	16,434	warehousing

Ogden, UT		Owned (Albion)		13,744		plant mineral liquid production and packaging
Whittemore, IA		Leased (Albion)		45,288		plant and animal spray drying and packaging

Item 3.

Legal Proceedings

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 remediated the area and removed soil from the drum burial site. Clean-up was completed in 1996, and NYDEC required the Company to monitor the site through 1999. The Company continues to be involved in discussions with NYDEC to evaluate monitoring 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 recently been less than $5,000 per year.

The Company is also involved in other legal proceedings through the normal course of business. Management believes that any unfavorable outcome related to these proceedings will not have a material effect on the Company’s financial position, results of operations or liquidity.

Item 4.

Mine Safety Disclosures

None.

PART II

Item 5.

Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

(a)

Market Information.

Our Common Stock is listed on the Nasdaq Global Market under the symbol “BCPC.”

The high and low closing prices for the Common Stock as recorded for each quarterly period during the years ended December 31, 2016 and 2015 were as follows:

Quarterly Period	High		Low
Ended March 31, 2016	$	65.07	$	53.34
Ended June 30, 2016		64.35		57.31
Ended September 30, 2016		77.53		59.54
Ended December 31, 2016		87.56		68.53

Quarterly Period	High		Low
Ended March 31, 2015	$	64.18	$	52.80
Ended June 30, 2015		64.00		52.42
Ended September 30, 2015		62.00		53.49
Ended December 31, 2015		69.65		60.34

On February 21, 2017, the closing price for the Common Stock on the Nasdaq Global Market was $85.40.

(b)

Record Holders.

As of February 21, 2017, the approximate number of holders of record of the Company’s Common Stock was 95. Such number does not include stockholders who hold their stock in street name. As of February 21, 2017, the total number of beneficial owners of the Company's Common Stock is estimated to be approximately 21,667.

(c)

Dividends.

The Company declared cash dividends of $0.38 and $0.34 per share on its Common Stock during its fiscal years ended December 31, 2016 and 2015, respectively.

(d)

Securities Authorized for Issuance Under Equity Compensation Plans.

For information concerning prior stockholder approval of and other matters relating to our equity incentive plans, see Item 12 in this Annual Report on Form 10-K.

(e)

Performance Graph.

The graph below sets forth the cumulative total stockholder return on the Company's Common Stock (referred to in the table as “BCPC”) for the five years ended December 31, 2016, the overall stock market return during such period for shares comprising the Russell 2000® Index (which the Company believes includes companies with market capitalization similar to that of the Company), and the overall stock market return during such period for shares comprising the Dow Jones U.S. Specialty Chemicals Index, in each case assuming a comparable initial investment of $100 on December 31, 2011 and the subsequent reinvestment of dividends. The Russell 2000® Index measures the performance of the shares of the 2000 smallest companies included in the Russell 3000® Index. In light of the Company's industry segments, the Company does not believe that published industry-specific indices are necessarily representative of stocks comparable to the Company. Nevertheless, the Company considers the Dow Jones U.S. Specialty Chemicals Index to be potentially useful as a peer group index with respect to the Company. The performance of the Company's Common Stock shown on the graph below is historical only and not necessarily indicative of future performance.

Item 6.

Selected Financial Data

The selected statements of operations data set forth below for the years ended December 31, 2016, 2015, and 2014 and the selected balance sheet data as of December 31, 2016 and 2015 have been derived from our Consolidated Financial Statements included elsewhere herein. The selected financial data as of December 31, 2014, 2013 and 2012 and for the years ended December 31, 2013 and 2012 have been derived from audited Consolidated Financial Statements not included herein, but which were previously filed with the SEC. The following information should be read in conjunction with Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and notes thereto included elsewhere herein.

(In thousands, except per share data)

Year ended December 31,	2016		2015		2014		2013		2012
Statement of Operations Data
Net sales	$	553,204	$	552,492	$	541,383	$	337,173	$	310,393
Earnings before income tax expense		82,934		87,063		77,052		65,818		59,844
Income tax expense		26,962		27,341		24,226		20,944		19,839
Net earnings		55,972		59,722		52,826		44,874		40,005
Basic net earnings per common share	$	1.78	$	1.92	$	1.74	$	1.51	$	1.38
Diluted net earnings per common share	$	1.75	$	1.89	$	1.69	$	1.45	$	1.32

At December 31,	2016		2015		2014		2013		2012
Balance Sheet Data
Total assets	$	948,626	$	879,686	$	861,531	$	376,872	$	312,545
Long-term debt (including current portion)		280,490		295,963		332,500		-		-
Other long-term obligations		6,896		6,683		5,950		3,877		3,431
Total stockholders’ equity		521,033		463,705		391,898		331,358		273,012
Dividends per common share	$	.38	$	.34	$	.30	$	.26	$	.22

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with Item 6 — “Selected Financial Data” and our Consolidated Financial Statements and the related notes included in this report. Those statements in the following discussion that are not historical in nature should be considered to be forward-looking statements that are inherently uncertain. See “Cautionary Statement Regarding Forward-Looking Statements.”

Overview

We develop, manufacture, distribute and market specialty performance ingredients and products for the food, nutritional, pharmaceutical, animal health, medical device sterilization and industrial markets. Our four reportable segments are strategic businesses that offer products and services to different markets: Human Nutrition & Health, Animal Nutrition & Health, Specialty Products, and Industrial Products.

Acquisition of Albion International, Inc.

On February 1, 2016, the Company acquired 100 percent of the outstanding common shares of Albion International, Inc. (Albion), a privately held manufacturer of mineral amino acid chelates, specialized mineral salts and mineral complexes, headquartered in Clearfield, Utah. The Company made payments of approximately $116.4 million on the acquisition date, amounting to approximately $110.6 million to the former shareholders, adjustments for working capital acquired of $4.9 million, and approximately $0.9 million 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 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 will become a part of the Human Nutrition & Health reportable segment and the plant nutrition business will become a part of the Specialty Products reportable segment.

Human Nutrition & Health (formerly SensoryEffects)

Animal Nutrition & Health

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 outlined by the EPA and the DOT. Our inventory 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. 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.

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.

Industrial Products

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

The following tables summarize consolidated net sales by segment and business segment earnings from operations for the three years ended December 31, 2016, 2015 and 2014 (in thousands):

Business Segment Net Sales:

	2016		2015		2014
Human Nutrition & Health	$	297,134	$	278,288	$	206,101
Animal Nutrition & Health		161,119		165,763		176,477
Specialty Products		70,126		54,236		54,053
Industrial Products		24,825		54,205		104,752
Total	$	553,204	$	552,492	$	541,383

Business Segment Earnings From Operations:

	2016		2015		2014
Human Nutrition & Health	$	38,156	$	38,302	$	21,260
Animal Nutrition & Health		28,686		27,851		23,687
Specialty Products		22,862		23,995		21,316
Industrial Products		1,949		5,594		16,532
Total	$	91,653	$	95,742	$	82,795

Fiscal Year 2016 compared to Fiscal Year 2015

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

Net Sales

Net sales for 2016 were $553,204 as compared with $552,492 for 2015, an increase of $712 or 0.1%. Net sales for the Human Nutrition & Health segment were $297,134, compared with $278,288, for the year ended December 31, 2015, an increase of $18,846 or 6.8%. Net sales from the acquired Albion business contributed $34,484 to the overall increase. This increase was partially offset by the Powder & Flavor Systems and Cereal Systems product lines decreases of $12,128 and $1,668, respectively. Net sales for the Animal Nutrition & Health segment were $161,119 for 2016 compared with $165,763 for the prior year, a decrease of $4,644 or 2.8%. Sales of products targeted for ruminant animal feed markets realized a sales increase of 5.6% or $2,848 from the prior period. The increase was primarily the result of higher sales volumes of Reashure®, partially offset by decreased sales of Aminoshure® and Nitroshure^TMproducts due to weaker dairy economics, particularly in international markets as well as increased competition. Global feed grade choline product sales decreased $9,025 or 8.4% primarily due to lower average selling prices and the weakened Euro, which was partially offset by higher sales volumes of 4.0%. Specialty Products segment sales for 2016 were $70,126 compared to sales of $54,236 for 2015, an increase of $15,890 or 29.3%. Net sales from the acquired Albion business contributed $15,124 to the overall increase. The Company experienced Industrial Product segment sales decline of $29,380 or 54.2% over the prior year predominately due to volume decreases of various choline and choline derivatives used in shale fracking applications, consistent with the end market activity decline.

Gross Margin

Gross margin for 2016 increased to $180,861 compared to $168,097 for 2015, an increase of $12,764 or 7.6% and was principally a result of the acquired Albion product lines being partially offset by lower volumes. Gross margin as a percentage of sales for 2016 increased to 32.7% from 30.4% in the prior year comparative period. Gross margin percentage for the Human Nutrition & Health segment increased 1.0% in 2016 as compared to 2015, due to the acquired Albion product lines having a higher gross margin, as well as reduced raw material costs in 2016, being partially offset by valuation of acquired inventory to fair value. Gross margin percentage for the Animal Nutrition & Health segment increased 2.2% compared to 2015, due to a favorable product mix and decreases in certain petrochemical raw material costs. Gross margin percentage for the Specialty Products segment decreased 5.4% due primarily to acquisition accounting around the fair value of acquired inventory and amortization of intangibles. Gross margins for the Industrial Products

segment were flat primarily due to reduced volumes contributing to unfavorable manufacturing efficiencies, along with lower average selling prices, being offset by favorable petrochemical raw material costs.

Operating Expenses

Operating expenses for 2016 were $90,023 or 16.3% of net sales as compared to $74,141 or 13.4% of net sales for 2015. The increase was primarily due to increased expenses associated with the acquired Albion business, including higher intangible asset amortization of $3,736. The Company incurred transaction and integration costs of $1,515 and $324, in 2016 and 2015, respectively. Additionally, the Company recognized a one-time equity compensation charge of $1,462 during 2015. During 2016 and 2015, the Company spent $7,325 and $5,990 respectively, on research and development programs, most of which pertained to the Company’s Human Nutrition & Health and Animal Nutrition & Health segments.

Earnings From Operations

Principally as a result of the above-noted details, earnings from operations for 2016 were $90,838 as compared to $93,956 for 2015, a decrease of $3,118 or 3.3%. Earnings from operations as a percentage of sales (“operating margin”) for 2016 was 16.4% decreasing from 17.0% in 2015 primarily due to the aforementioned impact of the valuation of the acquired inventory, transaction and integration expenses, greater amortization expense, and lower volumes. This decrease was partially offset by a favorable product mix, lower raw material costs, a favorable legal settlement, and the one-time equity compensation charge in 2015. The Company is continuing to focus on leveraging its plant capabilities, driving efficiencies from core volume growth, and broadening product applications of human and animal health specialty ingredients into both the domestic and international markets. Earnings from operations for the Human Nutrition & Health segment were $38,156, a decrease of $146 or 0.4% primarily due to the addition of Albion product lines being offset by the valuation of acquired inventory to fair value and lower sales volumes of Powder & Flavor systems. Animal Nutrition & Health segment earnings from operations were $28,686, an increase of $835 or 3.0%, primarily due to a more favorable product mix and decreases in certain petrochemical raw material costs. Earnings from operations for the Specialty Products segment were $22,862, a decrease of $1,133 or 4.7%, primarily the result of valuation of acquired inventory to fair value and certain higher operating expenses, partially offset by the addition of Albion product lines. Industrial Products segment earnings from operations declined $3,645 or 65.2%; primarily due to volume decreases.

Other Expenses (Income)

Interest expense for 2016 and 2015 was $7,265 and $6,593, respectively, and is primarily related to the loans entered into on May 7, 2014. Interest income was $9 for 2016 and 2015. The Company has invested available cash primarily in money market investments that have been classified as cash equivalents due to the short maturities of these investments. Other expense was $648 and $309 for 2016 and 2015, respectively.

Income Tax Expense

The Company’s effective tax rate for 2016 and 2015 was 32.5% and 31.4%, respectively. The increase is primarily related to discreet events.

Net Earnings

Principally as a result of the above-noted details, net earnings were $55,972 for 2016, as compared with $59,722 for 2015, a decrease of 6.3%.

Fiscal Year 2015 compared to Fiscal Year 2014

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

Net Sales

Net sales for 2015 were $552,492 as compared with $541,383 for 2014, an increase of $11,109 or 2.1%. Net sales for the Human Nutrition & Health segment were $278,288, compared with $206,101, for the year ended December 31, 2014, an increase of $72,187 or 35.0%. Net sales from the acquired SensoryEffects business contributed $69,829 to the overall increase. The Powder & Flavor Systems and Cereal Systems product lines comprised $56,509 and $10,240 of the increase, respectively. Also contributing to the higher sales was a $3,070 or 11.1% increase in encapsulated ingredients used for baking and food preservation; primarily due to greater volume. Net sales for the Animal Nutrition & Health segment were $165,763 for 2015 compared with $176,477 for the prior year, a decrease of $10,714 or 6.1%. Sales of products targeted for ruminant animal feed markets realized a sales decline of 1.6% or $812 from the prior period. The decline was primarily the result of lower sales volumes of Aminoshure® and Nitroshure^TM products due to weaker dairy economics, particularly in international markets as well as increased competition, partially offset by increased sales of Reashure®. Global feed grade choline product sales decreased $9,471 or 8.1% primarily due to lower average selling prices and the weakened Euro, which was partially offset by higher volume. Specialty Products segment sales were flat compared to prior year. The Company experienced Industrial Product segment sales decline of $50,547 or 48.3% over the prior year predominately due to volume decreases of various choline and choline derivatives used in shale fracking applications, consistent with the end market activity decline.

Gross Margin

Gross margin for 2015 increased to $168,097 compared to $144,172 for 2014, an increase of $23,925 or 16.6% and was principally a result of lower raw material costs and a favorable product mix. Gross margin as a percentage of sales for 2015 increased to 30.4% from 26.6% in the prior year comparative period. Gross margins for the Human Nutrition & Health segment increased 4.1% in 2015 as compared to 2014, due to the valuation of acquired inventory to fair value, which increased cost of sales by $4,735 in 2014, as well as reduced raw material costs in 2015. Gross margin percentage for the Animal Nutrition and Health segment increased 3.2% compared to 2014, due to a favorable product mix and decreases in certain petrochemical raw material costs. Gross margin percentage for the Specialty Products segment increased 4.9% due to lower raw material costs. Gross margins for the Industrial Products segment declined 3.7% primarily due to reduced volumes contributing to unfavorable manufacturing efficiencies, lower average selling price, and increased supply chain costs. These increased costs were partially offset by favorable petrochemical raw material costs.

Operating Expenses

Operating expenses for 2015 were $74,141 or 13.4% of net sales as compared to $62,029 or 11.5% of net sales for 2014. The increase was primarily due to increased expenses associated with the acquired SensoryEffects business, including higher intangible asset amortization of $6,768; partially offset by a reduction of transaction and integration costs. The Company incurred transaction and integration costs of $324 and $3,652, in 2015 and 2014, respectively. Additionally, the Company recognized a one-time equity compensation charge of $1,462 during 2015. Partially offsetting 2014 operating expenses is a $2.9 million favorable net legal settlement. During 2015 and 2014, the Company spent $5,990 and $4,810 respectively, on research and development programs, most of which pertained to the Company’s Human Nutrition & Health and Animal Nutrition & Health segments.

Earnings from Operations

Principally as a result of the above-noted details, earnings from operations for 2015 were $93,956 as compared to $82,143 for 2014, an increase of $11,813 or 14.4%. Earnings from operations as a percentage of sales (“operating margin”) for 2015 was 17.0% increasing from 15.2% in 2014 primarily due to the

aforementioned impact of the valuation of the acquired inventory, transaction and integration expenses, favorable product mix and lower raw material costs. Greater amortization expense, the one-time equity compensation charge and higher supply chain costs partially offset the improvement in earnings from operations. The Company is continuing to focus on leveraging its plant capabilities, driving efficiencies from core volume growth, broadening product applications of human and animal health specialty products into both the domestic and international markets, as well as capitalizing logistically on the Company’s varied choline production capabilities. Earnings from operations for Human Nutrition & Health were $38,302, an increase of $17,042 or 80.2% primarily due to a full year of sales from the acquisition of SensoryEffects partially offset by increased amortization expense. Animal Nutrition & Health segment earnings from operations were $27,851, an increase of $4,164 or 17.6%, primarily due to a more favorable product mix and decreases in certain petrochemical raw material costs. Earnings from operations for the Specialty Products segment were $23,995, an increase of $2,679 or 12.6%, primarily from lower raw material costs. Industrial Products segment earnings from operations declined $10,938 or 66.2%, primarily due to volume decreases.

Other Expenses (Income)

Interest expense for 2015 and 2014 was $6,593 and $5,145, respectively, and is primarily related to the loans entered into on May 7, 2014 to finance the acquisition of SensoryEffects. Interest income was $9 and $64 for 2015 and 2014, respectively. The Company has invested available cash primarily in certificates of deposit and money market investments that have been classified as cash equivalents due to the short maturities of these investments. Other expense was $309 and $10 for 2015 and 2014, respectively and is primarily the result of unfavorable fluctuations in foreign currency exchange rates between the US Dollar (the reporting currency) and foreign functional currencies.

Income Tax Expense

The Company’s effective tax rate for 2015 and 2014 was 31.4%.

Net Earnings

Principally as a result of the above-noted details, net earnings were $59,722 for 2015, as compared with $52,826 for 2014, an increase of 13.1%.

LIQUIDITY AND CAPITAL RESOURCES

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

Contractual Obligations

The Company's contractual obligations as of December 31, 2016, are summarized in the table below:

	Payments due by period
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Operating lease obligations (1)	$	17,510	$	2,436	$	3,713	$	2,609	$	8,752
Purchase obligations (2)		20,267		20,267		-		-		-
Debt (3)		281,500		35,000		246,500		-		-
Total	$	319,277	$	57,703	$	250,213	$	2,609	$	8,752

(1)	Principally includes obligations associated with future minimum non-cancelable operating lease obligations.

(2)	Principally includes open purchase orders with vendors for inventory not yet received or recorded on our balance sheet.

(3)	Consists of $262,500 senior secured term loan and $19,000 revolving loan.

The table above excludes a $6,637 liability for uncertain tax positions, including the related interest and penalties, recorded in accordance with ASC 740-10, as we are unable to reasonably estimate the timing of settlement, if any.

The Company knows of no current or pending demands on, or commitments for, its liquid assets that will materially affect its liquidity.

The Company expects its operations to continue generating sufficient cash flow to fund working capital requirements and necessary capital investments. The Company is actively pursuing additional acquisition candidates. The Company could seek additional bank loans or access to financial markets to fund such acquisitions, its operations, working capital, necessary capital investments or other cash requirements should it deem it necessary to do so.

Cash

Cash and cash equivalents decreased to $38,643 at December 31, 2016 from $84,795 at December 31, 2015 primarily resulting from the acquisition of Albion. At December 31, 2016, the Company had $17,223 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. taxes to repatriate these funds. Working capital was $87,434 at December 31, 2016 as compared to $117,172 at December 31, 2015, a decrease of $29,738.

Operating Activities

Cash flows from operating activities provided $107,612 as of December 31, 2016 as compared to $103,826 as of December 31, 2015. The increase in cash flows from operating activities was primarily due to improved inventories, and accounts payable and accrued expenses, along with higher depreciation and amortization expense, partially offset by lower net earnings and unfavorable accounts receivable and income taxes.

Investing Activities

As previously noted, on February 1, 2016 the Company acquired Albion for a purchase price of approximately $111,500, amounting to approximately $110,600 to the former shareholders, including adjustments for working capital acquired, and approximately $900 to Albion’s lenders to pay off all of Albion’s bank debt. The Company continues to invest in projects across all production facilities and capital expenditures were $23,034 as of December 31, 2016. The Company spent approximately $6.8 million towards its agglomeration production equipment initiative. In addition, capital expenditures of approximately $1.8 million were related to expanding the Company’s Animal, Nutrition & Health capacity in our manufacturing facility located in Verona, Missouri.

Financing Activities

As previously noted, the Company borrowed $65,000 from the available revolving loan to finance the acquisition of Albion International, Inc. The Company made debt payments of $35,000 related to the senior

secured term loan and net payments of $46,000 related to the revolving loan during 2016. The Company has $81,000 available under its revolving loan agreement.

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 2,150,835 shares have been purchased, none of which remained in treasury at December 31, 2016. The Company 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.

Proceeds from stock options exercised were $7,192 and $12,605 as of December 31, 2016 and 2015, respectively. Dividend payments were $10,720 and $9,251 as of December 31, 2016 and 2015, respectively.

Other Matters Impacting Liquidity

The Company currently provides postretirement benefits in the form of two retirement medical plans. The liability recorded in other long-term liabilities on the consolidated balance sheet as of December 31, 2016 is $1,411 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 adopted plan.

Related Party Transactions

The Company was engaged in related party transactions with St. Gabriel CC Company, LLC as of December 31, 2016. See Note 18.

Critical Accounting Policies

Management of the Company is required to make certain estimates and assumptions during the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Actual results could differ from those estimates.

The Company’s “critical accounting policies” are those that require application of management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. Management considers the following accounting policies to be critical.

Revenue Recognition

Revenue for each of our business segments is recognized upon product shipment, passage of title and risk of loss, and when collection is reasonably assured. The Company reports amounts billed to customers related to shipping and handling as revenue and includes costs incurred for shipping and handling in cost of sales. Amounts received for unshipped merchandise are not recognized as revenue but rather they are recorded as customer deposits and are included in current liabilities. In instances of shipments made on consignment, revenue is deferred until a customer indicates to the Company that it has used the Company’s products. The Company does not charge its customers rental fees on cylinders or drums used to ship its products.

Inventories

Inventories are valued at the lower of cost (first in, first out or average) or market value and have been reduced by an allowance for excess or obsolete inventories. The write-down of potentially obsolete or slow-moving inventory is recorded based on management’s assumptions about future demand and market conditions.

Long-lived assets

Long-lived assets, such as property, plant, and equipment and intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset, which is generally based on discounted cash flows. For the year ended December 31, 2016, there were no triggering events which required asset impairment reviews.

Goodwill represents the excess of costs over fair value of assets of businesses acquired. ASC 350, “Intangibles-Goodwill and Other,” requires the use of the acquisition method of accounting for a business combination and defines an intangible asset. Goodwill and intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized, but are instead assessed for impairment annually and more frequently if events and circumstances indicate that the asset might be impaired, in accordance with the provisions of ASC 350. The Company performed its annual test as of October 1. ASC 350 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment if events and circumstances indicate that the asset might be impaired.

In accordance with ASU No. 2011-08, “Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment” (“ASU 2011-08”), the Company first assesses qualitative factors to determine whether it is “more likely than not” (i.e. a likelihood of more than 50%) that the fair values of our reporting units are less than their respective carrying amounts, including goodwill, as a basis for determining whether it is necessary to perform the two step goodwill impairment test. If determined to be necessary, the two step impairment test shall be used to identify potential goodwill impairment and measure the amount of a goodwill impairment loss to be recognized (if any). The Company has an unconditional option to bypass the qualitative assessment and proceed directly to performing the first step of the goodwill impairment test.

As of October 1, 2016, 2015 and 2014, the Company opted to bypass the qualitative assessment and proceeded directly to performing the first step of the goodwill impairment test. We assessed the fair values of our reporting units by utilizing the income approach, based on a discounted cash flow valuation model as the basis for our conclusions, as well as the market approach and cost approach. Our estimates of future cash flows included significant management assumptions such as revenue growth rates, operating margins, discount rates, estimated terminal values and future economic and market conditions. Our assessment concluded that the fair values of the reporting units exceeded their carrying amounts, including goodwill. Accordingly, the goodwill of the reporting units was not considered impaired. The Company may perform the qualitative assessment in subsequent periods.

Accounts Receivable

We market our products worldwide to a diverse customer base, principally throughout the Americas, Europe, and Asia. We grant credit terms in the normal course of business to our customers. We perform on-going credit evaluations of our customers and adjust credit limits based upon payment history and the customer's current credit worthiness, as determined through review of their current credit information. We continuously monitor collections and payments from customers and maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Estimated losses

are based on historical experience and any specific customer collection issues identified. If the financial condition of our customers were to deteriorate resulting in an impairment of their ability to make payments, additional allowances and related bad debt expense may be required.

Post-employment Benefits

The Company provides life insurance and health care benefits for certain eligible retirees and health care benefits for certain retirees’ eligible survivors. The costs and obligations related to these benefits reflect the Company’s assumptions as to general economic conditions and health care cost trends. The cost of providing plan benefits also depends on demographic assumptions including retirements, mortality, turnover, and plan participation. If actual experience differs from these assumptions, the cost of providing these benefits could increase or decrease.

In accordance with ASC 715, “Compensation—Retirement Benefits,” the Company is required to recognize the over funded or underfunded status of a defined benefit post retirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position, and to recognize changes in that funded status in the year in which the changes occur through comprehensive income.

Intangible Assets with Finite Lives

The useful life of an intangible asset is based on the Company’s assumptions regarding expected use of the asset; the relationship of the intangible asset to another asset or group of assets; any legal, regulatory or contractual provisions that may limit the useful life of the asset or that enable renewal or extension of the asset’s legal or contractual life without substantial cost; the effects of obsolescence, demand, competition and other economic factors; and the level of maintenance expenditures required to obtain the expected future cash flows from the asset and their related impact on the asset’s useful life. If events or circumstances indicate that the life of an intangible asset has changed, it could result in higher future amortization charges or recognition of an impairment loss.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings 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.

We account for uncertainty in income taxes utilizing ASC 740-10. ASC 740-10 clarifies whether or not to recognize assets or liabilities for tax positions taken that may be challenged by a tax authority. It 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 uncertainty in income taxes and could impact our effective tax rate.

Stock-based Compensation

We account for stock-based compensation in accordance with the provisions of ASC 718, “Compensation-Stock Compensation.” Under the fair value recognition provisions of this statement, share-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense

over the vesting period. Determining the fair value of share-based awards at the grant date requires judgment, including estimating our stock price volatility, employee stock option exercise behaviors and employee option forfeiture rates. Expected volatilities are based on historical volatility of the Company’s stock. The expected term of the options is based on the Company’s historical experience of employees’ exercise behavior. As stock-based compensation expense recognized in the Consolidated Statements of Earnings is based on awards ultimately expected to vest, the amount of expense has been reduced for estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience. If factors change and we employ different assumptions in the application of ASC 718, the compensation expense that we record in future periods may differ significantly from what we have recorded in the current period. See Note 3 in Notes to Consolidated Financial Statements for additional information.

New Accounting Pronouncements

See Note 1 in Notes to Consolidated Financial Statements regarding recent accounting pronouncements.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

Cash and cash equivalents are held primarily in money market investment funds. The Company has no derivative financial instruments or derivative commodity instruments, nor does the Company have any financial instruments entered into for trading or hedging purposes. As of December 31, 2016, the Company had borrowings of $281,500. The Company is 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 manages these financial exposures, where possible, through pricing and operational means. Our practices may change as economic conditions change.

Item 8.

Financial Statements and Supplementary Data

	Index to Financial Statements and Supplementary Data:	Page

	Report of Independent Registered Public Accounting Firm	28

	Consolidated Balance Sheets as of December 31, 2016 and 2015	30

	Consolidated Statements of Earnings for the years ended December 31, 2016, 2015 and 2014	31

	Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2015 and 2014	32

	Consolidated Statements of Stockholders' Equity for the years ended December 31, 2016, 2015 and 2014	33

	Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014	34

	Notes to Consolidated Financial Statements	35

	Schedule II – Valuation and Qualifying
	Accounts for the years ended December 31, 2016, 2015 and 2014	59

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Balchem Corporation

We have audited the accompanying consolidated balance sheets of Balchem Corporation and Subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of earnings, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2016, and the financial statement schedule of Balchem Corporation listed in the Index at Item 8. We also have audited Balchem Corporation’s internal control over financial reporting as of December 31, 2016 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Balchem Corporation's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and schedule and an opinion on the Company's internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Balchem Corporation and Subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America, and, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth

therein. Also in our opinion, Balchem Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

/s/ RSM US LLP

New York, New York

February 28, 2017

BALCHEM CORPORATION

Consolidated Balance Sheets

December 31, 2016 and 2015

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

	2016			2015

Current assets:
Cash and cash equivalents	$	38,643		$	84,795
Accounts receivable, net of allowance for doubtful accounts of $489 and $235 at December 31, 2016 and 2015, respectively		83,252			60,485
Inventories		57,245			46,085
Prepaid expenses		4,110			3,208
Deferred income taxes		712			810
Other current assets		4,480			2,909
Total current assets		188,442			198,292

Property, plant and equipment, net		165,754			158,515

Goodwill		439,811			383,906
Intangible assets with finite lives, net		147,484			134,911
Other assets		7,135			4,062
Total assets	$	948,626		$	879,686

Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable	$	32,514		$	14,708
Accrued expenses		14,758			12,829
Accrued compensation and other benefits		6,648			5,128
Dividends payable		12,088			10,727
Income taxes payable		-			2,728
Current portion of long-term debt		35,000			35,000
Total current liabilities		101,008			81,120

Long-term debt		226,490			260,963
Revolver loan - long-term		19,000			-
Deferred income taxes		74,199			67,215
Other long-term obligations		6,896			6,683
Total liabilities		427,593			415,981

Commitments and contingencies (note 12)

Stockholders' equity:
Preferred stock, $25 par value. Authorized 2,000,000shares; none issued and outstanding		-			-
Common stock, $.0667 par value. Authorized 120,000,000 shares; 31,757,861shares issued and outstanding at December 31, 2016 and 31,528,449 shares issued and 31,527,360 outstanding at December 31, 2015		2,117			2,102
Additional paid-in capital		137,676			122,594
Retained earnings		388,089			344,197
Accumulated other comprehensive loss		(6,849	)		(5,114	)
Treasury stock, at cost: 0 and 1,089 shares at December 31, 2016and 2015, respectively		-			(74	)
Total stockholders' equity		521,033			463,705

Total liabilities and stockholders' equity	$	948,626		$	879,686

See accompanying notes to consolidated financial statements.

BALCHEM CORPORATION

Consolidated Statements of Earnings

Years Ended December 31, 2016, 2015 and 2014

(In thousands, except per share data)

	2016			2015			2014

Net sales	$	553,204		$	552,492		$	541,383

Cost of sales		372,343			384,395			397,211

Gross margin		180,861			168,097			144,172

Operating expenses:
Selling expenses		55,172			46,255			35,758
Research and development expenses		7,325			5,990			4,810
General and administrative expenses		27,526			21,896			21,461
		90,023			74,141			62,029

Earnings from operations		90,838			93,956			82,143

Other expenses (income):

Interest income		(9	)		(9	)		(64	)
Interest expense		7,265			6,593			5,145
Other, net		648			309			10

Earnings before income tax expense		82,934			87,063			77,052

Income tax expense		26,962			27,341			24,226

Net earnings	$	55,972		$	59,722		$	52,826

Basic net earnings per common share	$	1.78		$	1.92		$	1.74

Diluted net earnings per common share	$	1.75		$	1.89		$	1.69

See accompanying notes to consolidated financial statements.

BALCHEM CORPORATION

Consolidated Statements of Comprehensive Income

Years Ended December 31, 2016, 2015 and 2014

(In thousands)

	2016			2015			2014

Net earnings	$	55,972		$	59,722		$	52,826

Other comprehensive loss, net of tax:

Net foreign currency translation adjustment		(1,390	)		(2,615	)		(2,972	)

Net change in postretirement benefit plan, net of taxes of $49,$72, and $56 at December 31, 2016, 2015, and 2014, respectively		(345	)		152			123

Other comprehensive loss		(1,735	)		(2,463	)		(2,849	)

Comprehensive income	$	54,237		$	57,259		$	49,977

See accompanying notes to consolidated financial statements.

BALCHEM CORPORATION

Consolidated Statements of Stockholders' Equity

Years Ended December 31, 2016, 2015 and 2014

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

							Accumulated
	Total						Other													Additional
	Stockholders'			Retained			Comprehensive			Common Stock				Treasury Stock						Paid-in
	Equity			Earnings			Income (Loss)			Shares		Amount		Shares			Amount			Capital

Balance - December 31, 2013	$	331,358		$	251,627		$	198			30,225,763	$	2,016		-		$	-		$	77,517

Net earnings		52,826			52,826			-			-		-		-			-			-
Other comprehensive loss		(2,849	)		-			(2,849	)		-		-		-			-			-
Dividends ($.30 per share)		(9,251	)		(9,251	)		-			-		-		-			-			-
Treasury shares purchased		(1,068	)		-			-			-		-		(17,497	)		(1,068	)		-
Shares and options issued under stock plans and an income tax benefit of $7,220		20,882			-			-			619,823		42		17,497			1,068			19,772

Balance - December 31, 2014		391,898			295,202			(2,651	)		30,845,586		2,058		-			-			97,289

Net earnings		59,722			59,722			-			-		-		-			-			-
Other comprehensive loss		(2,463	)		-			(2,463	)		-		-		-			-			-
Dividends ($.34 per share)		(10,727	)		(10,727	)		-			-		-		-			-			-
Treasury shares purchased		(1,205	)		-			-			-		-		(20,692	)		(1,205	)		-
Shares and options issued under stock plans and an income tax benefit of $7,009		26,480			-			-			682,863		44		19,603			1,131			25,305

Balance - December 31, 2015		463,705			344,197			(5,114	)		31,528,449		2,102		(1,089	)		(74	)		122,594

Net earnings		55,972			55,972			-			-		-		-			-			-
Other comprehensive loss		(1,735	)		-			(1,735	)		-		-		-			-			-
Dividends ($.38 per share)		(12,080	)		(12,080	)		-			-		-		-			-			-
Treasury shares purchased		(1,588	)		-			-			-		-		(24,912	)		(1,588	)		-
Shares and options issued under stock plans and an income tax benefit of $2,546		16,759			-			-			229,412		15		26,001			1,662			15,082

Balance - December 31, 2016	$	521,033		$	388,089		$	(6,849	)		31,757,861	$	2,117		-		$	-		$	137,676

See accompanying notes to consolidated financial statements.

BALCHEM CORPORATION

Consolidated Statements of Cash Flows

Years Ended December 31, 2016, 2015 and 2014

(In thousands)

	2016			2015			2014

Cash flows from operating activities:
Net earnings	$	55,972		$	59,722		$	52,826

Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		46,202			39,964			30,524
Stock compensation expense		7,024			6,829			4,557
Deferred income taxes		(6,881	)		(2,857	)		(11,259	)
Provision for doubtful accounts		258			(53	)		238
Foreign currency transaction loss		(16	)		25			105
Loss on disposal of assets		320			301			150
Changes in assets and liabilities, net of acquired balances
Accounts receivable		(15,659	)		10,809			(8,395	)
Inventories		4,745			3,126			6,698
Prepaid expenses and other current assets		240			1,233			(848	)
Accounts payable and accrued expenses		17,841			(15,718	)		7,747
Income taxes		(2,765	)		633			3,370
Other		331			(188	)		(363	)
Net cash provided by operating activities		107,612			103,826			85,350

Cash flows from investing activities:
Capital expenditures		(23,034	)		(41,300	)		(13,199	)
Cash paid for acquisition, net of cash acquired		(110,601	)		-			(491,057	)
Proceeds from sale of property, plant and equipment		4			34			1
Proceeds from insurance		1,000			-			-
Intangible assets acquired		(963	)		(1,011	)		(169	)
Net cash used in investing activities		(133,594	)		(42,277	)		(504,424	)

Cash flows from financing activities:
Proceeds from long-term debt		-			-			350,000
Principal payments on long-term debt		(35,000	)		(35,000	)		(17,500	)
Proceeds from revolving loan		72,500			-			50,000
Principal payments on revolving loan		(53,500	)		-			(50,000	)
Principal payment on acquired debt		(884	)		-			(75,550	)
Cash paid for financing costs		-			-			(2,593	)
Repayments of short-term obligations		-			-			(89	)
Proceeds from stock options exercised		7,192			12,605			9,106
Excess tax benefits from stock compensation		2,546			7,009			7,220
Dividends paid		(10,720	)		(9,251	)		(7,856	)
Purchase of treasury stock		(1,588	)		(1,205	)		(1,068	)
Net cash (used in)/provided by financing activities		(19,454	)		(25,842	)		261,670

Effect of exchange rate changes on cash		(716	)		(1,199	)		(1,056	)

(Decrease)/Increase in cash and cash equivalents		(46,152	)		34,508			(158,460	)

Cash and cash equivalents beginning of period		84,795			50,287			208,747
Cash and cash equivalents end of period	$	38,643		$	84,795		$	50,287

Supplemental Cash Flow Information - see Note 16

See accompanying notes to consolidated financial statements.

BALCHEM CORPORATION

Notes to Consolidated Financial Statements

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

NOTE 1 - BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business Description

Balchem Corporation (including, unless the context otherwise requires, its wholly-owned subsidiaries, SensoryEffects, Inc., SensoryEffects Cereal Systems, Inc., Albion International, Inc., BCP Ingredients, Inc., Aberco, Inc., Balchem BV, Balchem Italia Srl, and Balchem LTD (“Balchem” or the “Company”)), incorporated in the State of Maryland in 1967, is engaged in the development, manufacture and marketing of specialty performance ingredients and products for the food, nutritional, feed, pharmaceutical, agricultural, and medical sterilization industries.

Principles of Consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Revenue Recognition

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents. The Company has funds in its cash accounts that are with third party financial institutions, primarily in money market funds. The Company’s U.S. and Italy cash balances at these financial institutions exceed the Federal Deposit Insurance Corporation (“FDIC”) and Fondo Interbancario di Tutela dei Depositi (“FITD”) insurance limits.

Accounts Receivable

Credit terms are granted in the normal course of business to our customers. On-going credit evaluations are performed on our customers and credit limits are adjusted based upon payment history and the customer's current credit worthiness, as determined through review of their current credit information. Collections and payments from customers are continuously monitored and allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments are maintained. Estimated losses are based on historical experience and any specific customer collection issues identified.

Inventories

Inventories are valued at the lower of cost (first in, first out or average) or market value and have been reduced by an allowance for excess or obsolete inventories. Cost elements include material, labor and manufacturing overhead.

Property, Plant and Equipment and Depreciation

Property, plant and equipment are stated at cost. Depreciation of plant and equipment is calculated using the straight-line method over the estimated useful lives of the assets as follows:

Buildings	15-25 years
Equipment	2-28 years

Expenditures for repairs and maintenance are charged to expense. Alterations and major overhauls that extend the lives or increase the capacity of plant assets are capitalized. When assets are retired or otherwise disposed of, the cost of the assets and the related accumulated depreciation are removed from the accounts and any resultant gain or loss is included in earnings.

Business Concentrations

Financial instruments that subject the Company to credit risk consist primarily of accounts receivable and money market investments. Investments are managed within established guidelines to mitigate risks. Accounts receivable subject the Company to credit risk partially due to the concentration of amounts due from customers. The Company extends credit to its customers based upon an evaluation of the customers’ financial condition and credit histories. The majority of the Company’s customers are major national or international corporations. In 2016, 2015 and 2014, no customer accounted for more than 10% of total net sales.

Goodwill and Acquired Intangible Assets

Goodwill represents the excess of costs over fair value of assets of businesses acquired. ASC 350, “Intangibles-Goodwill and Other,” requires the use of the acquisition method of accounting for a business combination and defines an intangible asset. Goodwill and intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized, but are instead assessed for impairment annually and more frequently if events and circumstances indicate that the asset might be impaired, in accordance with the provisions of ASC 350. The Company performs its annual test as of October 1. ASC 350 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment if events and circumstances indicate that the asset might be impaired.

In accordance with ASU No. 2011-08, “Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment” (“ASU 2011-08”) the Company first assesses qualitative factors to determine whether it is “more likely than not” (i.e. a likelihood of more than 50%) that the fair values of our reporting units are less than their respective carrying amounts, including goodwill, as a basis for determining whether it is necessary to perform the two step goodwill impairment test. If determined to be necessary, the two step impairment test shall be used to identify potential goodwill impairment and measure the amount of a goodwill impairment loss to be recognized (if any). The Company has an unconditional option to bypass the qualitative assessment and proceed directly to performing the first step of the goodwill impairment test.

As of October 1, 2016 and 2015, the Company opted to bypass the qualitative assessment and proceeded directly to performing the first step of the goodwill impairment test. We assessed the fair values of our reporting units by utilizing the income approach, based on a discounted cash flow valuation model as the basis for our conclusions, as well as market approaches for certain reporting units. Our estimates of future cash flows included significant management assumptions such as revenue growth rates, operating margins, discount rates, estimated terminal values and future economic and market conditions. Our assessment concluded that the fair values of the reporting units exceeded their carrying amounts, including goodwill. Accordingly, the goodwill of the reporting units is not considered impaired. The Company may resume performing the qualitative assessment in subsequent periods.

The Company had goodwill in the amount of $439,811 and $383,906 as of December 31, 2016 and December 31, 2015, respectively, subject to the provisions of ASC 350, “Intangibles-Goodwill and Other.”

Goodwill at January 1, 2016	$	383,906
Goodwill as a result of the Acquisition of Albion International, Inc. – see Note 2		55,905
Goodwill at December 31, 2016	$	439,811

There was a $4,272 reduction in the carrying amount of goodwill during the three months ended December 31, 2016, as a result of changes to the fair value of assets acquired and liabilities assumed (See Note 2).

	December 31, 2016		December 31, 2015
Human Nutrition & Health	$	404,187	$	363,784
Animal Nutrition & Health		11,734		11,734
Specialty Products		22,662		7,160
Industrial Products		1,228		1,228
Total	$	439,811	$	383,906

The following intangible assets with finite lives are stated at cost and are amortized either on an accelerated basis or on a straight-line basis over the following estimated useful lives:

	Amortization Period (in years)
Customer relationships and lists		10
Trademarks & trade names		17
Developed technology		5
Regulatory registration costs		5 - 10
Patents & trade secrets		15 - 17
Other		5 - 10

For the year ended December 31, 2016, there were no triggering events which required intangible asset impairment reviews.

Income Taxes

Use of Estimates

Management of the Company is required to make certain estimates and assumptions during the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and revenues and expenses during the reporting period. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The Company has a number of financial instruments, none of which are held for trading purposes. The Company estimates that the fair value of all financial instruments at December 31, 2016 and 2015 does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying consolidated balance sheets. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessarily required in interpreting market data to develop the estimates of fair value, and, accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The carrying value of debt approximates fair value as the interest rate is based on market and the Company’s consolidated leverage ratio. The Company’s financial instruments also include cash equivalents, accounts receivable, accounts payable and accrued liabilities, and are carried at cost which approximates fair value due to the short-term maturity of these instruments.

Cost of Sales

Cost of sales are primarily comprised of raw materials and supplies consumed in the manufacture of product, as well as manufacturing labor, maintenance labor, depreciation expense, and direct overhead expense necessary to convert purchased materials and supplies into finished product. Cost of sales also includes inbound freight costs, outbound freight costs for shipping products to customers, warehousing costs, quality control and obsolescence expense.

Selling, General and Administrative Expenses

Selling expenses consist primarily of compensation and benefit costs, amortization of customer relationships and lists, trade promotions, advertising, commissions and other marketing costs. General and administrative expenses consist primarily of payroll and benefit costs, occupancy and operating costs of corporate offices, depreciation and amortization expense on non-manufacturing assets, information systems costs and other miscellaneous administrative costs.

Research and Development

Research and development costs are expensed as incurred.

Net Earnings Per Common Share

Basic net earnings per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net earnings per common share is calculated in a manner consistent with basic net earnings per common share except that the weighted average number of common shares outstanding also includes the dilutive effect of stock options outstanding, unvested restricted stock, and unvested performance shares (using the treasury stock method).

Stock-based Compensation

The Company has stock-based employee compensation plans, which are described more fully in Note 3. The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation-Stock Compensation,” which requires all share-based payments, including grants of stock options, to be recognized in the income statement as an operating expense, based on their fair values. The Company estimates the fair value of each option award on the date of grant using a Black-Scholes based option-pricing model. Estimates of and assumptions about forfeiture rates, terms, volatility, interest rates and dividend yields are used to calculate stock-based compensation. A significant change to these estimates could materially affect the Company’s operating results.

Impairment of Long-lived Assets

Long-lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset, which is generally based on discounted cash flows.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 impact of the guidance 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 this guidance to have a material impact on our financial statements. We are continuing our implementation plan and currently expect to adopt the new guidance beginning in 2018 using the modified retrospective approach.

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. This standard is effective prospectively for annual and interim periods beginning after December 15, 2016. Although, early adoption is permitted, the Company has elected not to adopt early as this ASU will not have a significant 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. This standard is effective prospectively for annual and interim periods beginning after December 15, 2016. Although, early adoption is permitted, the Company has elected not to adopt early as this ASU will not have a significant impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases” (“ASU 2016-02”), which addresses the recognition of assets and liabilities that arise 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 after December 15, 2018 and early adoption is permitted. The Company is currently evaluating the impact of the new guidance.

In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”), which addresses the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance is effective for annual and interim periods beginning after December 15, 2016. Although, early adoption is permitted, the Company has elected not to adopt early. We expect that the adoption of this new guidance in 2017 will reduce our reported income taxes and will increase cash flows from operating activities; however, the amounts of that reduction/increase is dependent upon the underlying vesting or exercise activity and related future stock prices.

In January 2017, the FASB issued ASU No. 2017-01, “Clarifying the Definition of a Business” (“ASU 2017-01”), which addresses the definition of what constitutes a business by providing clarification of the three

elements that constitutes a business. The guidance is effective for annual and interim periods beginning after December 15, 2017. Although, early adoption is permitted, the Company has elected not to adopt early as this ASU will not have a significant impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”), which addresses changes to the testing for goodwill impairment by eliminating Step 2 of the process. 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 has elected not to adopt early as this ASU will not have a significant impact on the Company’s consolidated financial statements.

Reclassifications

Certain reclassifications have been made to the prior years’ financial statements to conform to the current year’s presentation with no impact on net earnings or stockholders’ equity.

NOTE 2 – ACQUISITIONS

Acquisition of Albion International, Inc.

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

The goodwill of $55,905 arising from the 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 of the intangible assets and certain tangible assets acquired, management, among other things, consulted an independent advisor.

Customer relationships are amortized over a 10-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, 8 years, and 5 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 selling, and general and administrative expenses for the year ended December 31, 2016 are $1,499.

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

	Year Ended December 31, 2016				Year Ended December 31, 2015

	Net Sales		Net Earnings		Net Sales		Net Earnings
Albion’s actual results included in the Company’s consolidated income statement	$	$49,608	$	$ 2,938	$	-	$	-

Supplemental pro forma combined financial information	$	$557,784	$	$ 60,840	$	$ 605,273	$	$ 56,109

Basic earnings per share			$	$ 1.93			$	$ 1.80
Diluted earnings per share			$	$ 1.91			$	$ 1.77

2016 supplemental pro forma earnings for the year ended December 31, 2016 exclude $26,210 of acquisition-related costs incurred and $5,363 of nonrecurring 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.

NOTE 3 - STOCKHOLDERS’ EQUITY

STOCK-BASED COMPENSATION

All share-based payments, including grants of stock options, are recognized in the income statement as an operating expense, based on their fair values.

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

Additionally, excess tax benefits related to stock compensation are presented as a cash inflow from financing activities. The change had the effect of decreasing cash flows from operating activities and increasing cash flows from financing activities by $2,546, $7,009, and $7,220 for the years ended December 31, 2016, 2015 and 2014, respectively.

The Company’s results for the years ended December 31, 2016, 2015 and 2014 reflected the following compensation cost and such compensation cost had the following effects on net earnings:

	Increase/(Decrease) for the Years Ended December 31,
	2016			2015			2014
Cost of sales	$	1,040		$	854		$	593
Operating expenses		5,984			5,975			3,964
Net earnings		(4,473	)		(4,395	)		(2,926	)

On December 31, 2016, the Company had one share-based compensation plan, which is described below (the “1999 Stock Plan”).

In June 1999, the Company adopted the Balchem Corporation 1999 Stock Plan for officers, directors, directors emeritus and employees of and consultants to the Company and its subsidiaries. The 1999 Stock Plan is administered by the Compensation Committee of the Board of Directors of the Company. Under the plan, options and rights to purchase shares of the Company’s Common Stock are granted at prices established at the time of grant. Option grants generally become exercisable 20% after 1 year, 60% after 2 years and 100% after 3 years from the date of grant for employees and are fully exercisable on the date of grant for directors. Other option grants are either fully exercisable on the date of grant or become exercisable thereafter in such installments as the Committee may specify. Options granted under the 1999 Stock Plan expire ten years from the date of grant. The 1999 Stock Plan initially reserved an aggregate of 600,000 shares (unadjusted for the stock splits) of Common Stock for issuance under the Plan. In April 2003, the Board of Directors of the Company adopted and stockholders subsequently approved, the Amended and Restated 1999 Stock Plan (the “Amended Plan”) which amended the 1999 Stock Plan by: (i) increasing the number of shares of Common Stock reserved for issuance under the 1999 Stock Plan by 600,000 shares (unadjusted for the stock splits), to a total of 1,200,000 shares (unadjusted for the stock splits) of Common Stock; and (ii) confirming the right of the Company to grant awards of Common Stock (“Awards”) in addition to the other Stock Rights available under the 1999 Stock Plan, and providing certain language changes relating thereto. The Amended Plan was scheduled to expire in April 2009. In April 2008, the Board of Directors of the Company adopted and stockholders subsequently approved, the adoption of an amendment and restatement of the Amended Plan (collectively to be referred to as the “Second Amended Plan”), which provides as follows: (i) for a termination date of April 9, 2018; (ii) to authorize 6,000,000 shares reserved for future grants under the Second Amended Plan; (iii) for the making of grants of stock appreciation rights, restricted stock and performance awards; (iv) for immediate acceleration of vesting of awards issued under the plan in the event of a change in control of the Company; and (v) for compliance with the requirements of Sections 409A and 162(m) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code” or the “Code”). The 1999 Stock Plan replaced the Company's incentive stock option plan (the “ISO Plan”) and its non-qualified stock option plan (the “Non-Qualified Plan”), both of which expired on June 24, 1999. Unexercised options granted under the ISO Plan and the Non-Qualified Plan prior to such termination remained exercisable in accordance with their terms and expired ten years from the date of grant.

The shares to be issued upon exercise of the outstanding options have been approved, reserved and are adequate to cover all exercises. As of December 31, 2016, the plans had 3,476,571 shares available for future awards.

The Company has Restricted Stock Purchase Agreements (the “RSP Agreements”) with its non-employee directors and certain employees of the Company to purchase the Company’s Common Stock pursuant to the Company’s 1999 Stock Plan. Under the RSP Agreements, certain shares have been purchased, ranging from 1,000 shares to 20,250 shares, of the Company’s Common Stock at purchase prices ranging from approximately $.02 per share to $.07 per share. The purchased stock is subject to a repurchase option in favor of the Company and to restrictions on transfer until it vests in accordance with the provisions of the RSP Agreements. In 2011, the Company discontinued the use of RSP Agreements and replaced them with Restricted Stock Grant Agreements for the Company’s non-employee directors and certain employees. Under the Restricted Stock Grant Agreements, certain shares of the Company’s Common Stock have been granted,

ranging from 500 shares to 54,000 shares, to its non-employee directors and certain employees, subject to time-based vesting requirements.

The Company also has performance share (“PS”) awards, which provide the recipients the right to receive a certain number of shares of the 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.

The fair value of each option award issued under the 1999 Stock Plan is estimated on the date of grant using a Black-Scholes based option-pricing model that uses the assumptions noted in the following table. Expected volatilities are based on historical volatility of the Company’s stock. The expected term of the options is based on the Company’s historical experience of employees’ exercise behavior. Dividend yields are based on the Company’s historical dividend yields. Risk-free interest rates are based on the implied yields currently available on U.S. Treasury zero coupon issues with a remaining term equal to the expected life.

Weighted Average Assumptions:	2016			Years Ended December 31, 2015			2014
Expected Volatility		34.4	%		33.2	%		33.7	%
Expected Term (in years)		5.0			5.5			5.6
Risk-Free Interest Rate		1.2	%		1.7	%		1.8	%
Dividend Yield		0.5	%		0.6	%		0.5	%

The value of the restricted shares is based on the fair value of the award at the date of grant.

PS 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 0.88% and 1.00%; dividend yields of 0.6% and 0.5%; volatilities of 32% and 34%; and initial TSR’s of -6.6% and -6.9%, in each case for the years ended December 31, 2016 and 2015, respectively. Expense is based on the estimated number of shares expected to vest, assuming the requisite service period is rendered and the probable outcome of the performance condition is achieved. The estimate is revised if subsequent information indicates that the actual number of shares likely to vest differs from previous estimates. Expense is ultimately adjusted based on the actual achievement of service and performance targets. The PS will cliff vest 100% at the end of the third year following the grant in accordance with the performance metrics set forth.

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

A summary of stock option plan activity for 2016, 2015, and 2014 for all plans is as follows:

2016	# of Shares (000s)			Weighted Average Exercise Price
Outstanding at beginning of year		1,017		$	37.29
Granted		341			60.92
Exercised		(236	)		30.44
Forfeited		(56	)		58.23
Outstanding at end of year		1,066		$	45.32
Exercisable at end of year		604		$	34.77

2015	# of Shares (000s)			Weighted Average Exercise Price
Outstanding at beginning of year		1,470		$	27.35
Granted		209			58.34
Exercised		(627	)		20.16
Forfeited		(35	)		52.97
Outstanding at end of year		1,017		$	37.29
Exercisable at end of year		667		$	29.19

2014	# of Shares (000s)			Weighted Average Exercise Price
Outstanding at beginning of year		1,893		$	20.94
Granted		313			53.38
Exercised		(610	)		14.92
Forfeited		(126	)		56.03
Outstanding at end of year		1,470		$	27.35
Exercisable at end of year		1,066		$	21.52

The aggregate intrinsic value for outstanding stock options was $41,161, $23,927 and $57,742 at December 31, 2016, 2015 and 2014, respectively, with a weighted average remaining contractual term of 6.2 years at December 31, 2016. Exercisable stock options at December 31, 2016 had an aggregate intrinsic value of $29,680 with a weighted average remaining contractual term of 4.6 years.

Other information pertaining to option activity during the years ended December 31, 2016, 2015 and 2014 was as follows:

	Years Ended December 31,
	2016			2015			2014
Weighted-average fair value of options granted		$	18.48		$	18.35		$	17.36
Total intrinsic value of stock options exercised ($000s)		$	8,609		$	24,047		$	25,224

Additional information related to stock options outstanding under all plans at December 31, 2016 is as follows:

				Options Outstanding			Options Exercisable
Range of Exercise Prices		Shares Outstanding (000s)		Weighted Average Remaining Contractual Term	Weighted Average Exercise Price		Number Exercisable (000s)		Weighted Average Exercise Price
$	13.61 - $34.81		356	3.5 years	$	25.40		356	$	25.40
	38.10 - 59.95		406	6.6 years		51.03		224		46.89
	60.01 - 80.26		304	9.0 years		61.00		24		60.84
			1,066	6.2 years	$	45.32		604	$	34.77

Non-vested restricted stock activity for the years ended December 31, 2016, 2015 and 2014 is summarized below:

	Shares (000s)			Weighted Average Grant Date Fair Value
Non-vested balance as of December 31, 2015		150		$	47.46
Granted		19			61.22
Vested		(66	)		40.96
Forfeited		(1	)		56.77
Non-vested balance as of December 31, 2016		102		$	54.18

	Shares (000s)			Weighted Average Grant Date Fair Value
Non-vested balance as of December 31, 2014		134		$	38.13
Granted		77			55.77
Vested		(61	)		37.35
Forfeited		-			-
Non-vested balance as of December 31, 2015		150		$	47.46

	Shares (000s)			Weighted Average Grant Date Fair Value
Non-vested balance as of December 31, 2013		172		$	33.69
Granted		33			54.86
Vested		(65	)		34.19
Forfeited		(6	)		45.32
Non-vested balance as of December 31, 2014		134		$	38.13

Non-vested performance share activity for the years ended December 31, 2016, 2015 and 2014 is summarized below:

	Shares (000s)			Weighted Average Grant Date Fair Value
Non-vested balance as of December 31, 2015		20		$	58.77
Granted		22			63.15
Vested		-			-
Forfeited		(8	)		60.88
Non-vested balance as of December 31, 2016		34		$	61.06

	Shares (000s)			Weighted Average Grant Date Fair Value
Non-vested balance as of December 31, 2014		-		$	-
Granted		29			58.77
Vested		-			-
Forfeited		(9	)		58.77
Non-vested balance as of December 31, 2015		20		$	58.77

	Shares (000s)		Weighted Average Grant Date Fair Value
Non-vested balance as of December 31, 2013		-	$	-
Granted		-		-
Vested		-		-
Forfeited		-		-
Non-vested balance as of December 31, 2014		-	$	-

As of December 31, 2016, 2015 and 2014, there was $8,260, $7,705 and $5,981, respectively, of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plans. As of December 31, 2016, the unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately 1.4 years. We estimate that share-based compensation expense for the year ended December 31, 2017 will be approximately $6,900.

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 2,150,835 shares have been purchased, of which -0- and 1,089 remained in treasury at December 31, 2016 and 2015, respectively. During 2016, a total of 24,912 shares have been purchased at an average cost of $63.76 per share. The Company 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.

NOTE 4 - INVENTORIES

Inventories at December 31, 2016 and 2015 consisted of the following:

	2016		2015
Raw materials	$	20,751	$	16,786
Work in progress		3,225		1,807
Finished goods		33,269		27,492
Total inventories	$	57,245	$	46,085

On a regular basis, the Company evaluates its inventory balances for excess quantities and obsolescence by analyzing demand, inventory on hand, sales levels and other information. Based on these evaluations, inventory balances are reduced, if necessary. The reserve for inventory was $2,546 and $1,823 at December 31, 2016 and 2015, respectively.

NOTE 5 - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at December 31, 2016 and 2015 are summarized as follows:

	2016		2015
Land	$	4,208	$	3,247
Building		45,735		33,051
Equipment		177,841		153,682
Construction in progress		17,357		39,525
		245,141		229,505
Less: Accumulated depreciation		79,387		70,990
Property, plant and equipment, net	$	165,754	$	158,515

Depreciation expense was $15,907, $12,895 and $10,599 for the years ended December 31, 2016, 2015 and 2014, respectively.

NOTE 6 - INTANGIBLE ASSETS

The Company had goodwill in the amount of $439,811 and $383,906 as of December 31, 2016 and 2015 subject to the provisions of ASC 350, “Intangibles-Goodwill and Other.”

As of December 31, 2016 and 2015, the Company had identifiable intangible assets as follows:

	Amortization Period (In years)		2016 Gross Carrying Amount		2016 Accumulated Amortization		2015 Gross Carrying Amount		2015 Accumulated Amortization
Customer relationships & lists		10	$	185,885	$	86,338	$	167,442	$	63,578
Trademarks & trade names		17		39,241		9,260		32,014		5,704
Developed technology		5		12,260		3,358		3,200		1,057
Other		5-17		12,713		3,659		5,102		2,508
			$	250,099	$	102,615	$	207,758	$	72,847

Amortization of identifiable intangible assets was $29,768, $26,467 and $19,468 for 2016, 2015 and 2014, respectively. Assuming no change in the gross carrying value of identifiable intangible assets, the estimated amortization expense is approximately $26,160 in 2017, $23,641 in 2018, $21,604 in 2019, $19,634 in 2020 and $16,472 in 2021. At December 31, 2016 and 2015, there were no identifiable intangible assets with indefinite useful lives as defined by ASC 350, “Intangibles-Goodwill and Other.” Identifiable intangible assets are reflected in the Company’s consolidated balance sheets under Intangible assets with finite lives, net. There were no changes to the useful lives of intangible assets subject to amortization in 2016 and 2015.

The Federal Insecticide, Fungicide and Rodenticide Act, (“FIFRA”), a health and safety statute, requires that certain products within our specialty products segment must be registered with the U.S. Environmental Protection Agency (“EPA”) because they are considered pesticides. Costs of such registration are included as other in the table above.

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 expansion will be 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 receive 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 do 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 $293 relating to its portion of the joint venture’s expenses in other expense. The carrying value of the joint venture at December 31, 2016 is $4,553 and is recorded in other assets.

NOTE 8 – LONG TERM DEBT

On May 7, 2014, the Company and a bank syndicate entered into a loan agreement providing for a senior secured term loan of $350,000 and revolving loan of $100,000 (collectively referred to as the “loans”). On February 1, 2016, $65,000 of the revolving loan was used to fund the Albion International, Inc. acquisition (see Note 2). At December 31, 2016, the Company had a total of $281,500 of debt outstanding. The term loan is payable in quarterly installments of $8,750 commencing on September 30, 2014, with the outstanding principal due on the maturity date. The Company may draw 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 loans

may be voluntarily prepaid in whole or in part without premium or penalty and have a maturity date of May 7, 2019. The loans are subject to an interest rate equal to LIBOR or a fluctuating rate as defined by the loan agreement, at the Company’s discretion, plus an applicable rate. The applicable rate is based upon the Company’s consolidated leverage ratio, as defined in the loan agreement, and the interest rate was 2.27% at December 31, 2016. The Company has $81,000 of undrawn revolving loan at December 31, 2016 that is subject to a commitment fee, which is based on the Company’s consolidated leverage ratio as defined in the loan agreement. The loan agreement contains quarterly covenants requiring the consolidated leverage ratio to be less than a certain maximum ratio and the consolidated fixed charge coverage ratio to exceed a certain minimum ratio. At December 31, 2016, the Company was in compliance with these covenants. Indebtedness under the Company’s loan agreements are secured by assets of the company.

The following table summarizes the future minimum debt payments as of December 31, 2016:

Year	Term loan		Revolving loan		Total
2017	$	35,000	$	-	$	35,000
2018		35,000		-		35,000
2019		192,500		19,000		211,500
Future principle payments		262,500		19,000		281,500
Less unamortized debt financing costs		1,010		-		1,010
Less current portion of long-term debt		35,000		-		35,000
Total long-term debt	$	226,490	$	19,000	$	245,490

Costs associated with the issuance 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 $1,010 at December 31, 2016 and are shown net against outstanding principle on the accompanying balance sheet. Amortization expense pertaining to these costs totaled $526 and $603 for the years ended December 31, 2016 and 2015, respectively, and is included in interest expense in the accompanying condensed consolidated statements of earnings.

NOTE 9 - INCOME TAXES

Income tax expense consists of the following:

	2016			2015			2014
Current:
Federal	$	28,765		$	29,638		$	25,937
Foreign		2,670			3,021			2,141
State		2,483			2,982			2,412
Deferred:
Federal		(7,114	)		(6,815	)		(5,772	)
Foreign		52			58			85
State		106			(1,543	)		(577	)
Total income tax provision	$	26,962		$	27,341		$	24,226

The provision for income taxes differs from the amount computed by applying the Federal statutory rate of 35% to earnings before income tax expense due to the following:

	2016			2015			2014
Income tax at Federal statutory rate	$	29,027		$	30,471			26,968
State income taxes, net of Federal income taxes		1,510			556			1,182
Domestic production activities deduction		(3,299	)		(2,709	)		(2,567	)
Other		(276	)		(977	)		(1,357	)
Total income tax provision	$	26,962		$	27,341			24,226

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2016 and 2015 were as follows:

	2016		2015
Deferred tax assets:
Inventories	$	2,378	$	1,432
Restricted stock and stock options		5,100		4,956
Other		2,629		807
Total deferred tax assets		10,107		7,195
Deferred tax liabilities:
Amortization	$	56,111	$	49,726
Depreciation		27,435		22,464
Prepaid expense		-		658
Other		48		752
Total deferred tax liabilities		83,594		73,600
Net deferred tax liability	$	73,487	$	66,405

There is no valuation allowance for deferred tax assets at December 31, 2016 and 2015. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences. The amount of deferred tax asset realizable, however, could change if management’s estimate of future taxable income should change.

Provisions of ASC 740-10 clarify whether or not to recognize assets or liabilities for tax positions taken that may be challenged by a tax authority. A reconciliation of the beginning and ending amount of unrecognized tax benefits, which is included in other long-term obligations on the Company’s consolidated balance sheets, is as follows:

	2016			2015			2014
Balance at beginning of period	$	6,570		$	5,205		$	3,076
Increases for tax positions of prior years		332			943			1,922
Decreases for tax positions of prior years		(406	)		(120	)		(417	)
Increases for tax positions related to current year		141			542			624
Balance at end of period	$	6,637		$	6,570		$	5,205

All of the Company’s unrecognized tax benefits, if recognized in future periods, would impact the Company’s effective tax rate in such future periods.

The Company recognizes both interest and penalties as part of the income tax provision. During the years ended December 31, 2016, 2015 and 2014, the Company recognized approximately $94, $138 and $37 in

interest and penalties, respectively. As of December 31, 2016 and 2015, accrued interest and penalties were $2,486 and 2,405, respectively.

The Company files income tax returns in the U.S. and in various states and foreign countries. In the major jurisdictions where the Company operates, it is generally no longer subject to income tax examinations by tax authorities for years before 2012. The Company does not anticipate any material change in the total amount of unrecognized tax benefits to occur within the next twelve months.

NOTE 10 - NET EARNINGS PER COMMON SHARE

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

2016	Earnings (Numerator)		Number of Shares (Denominator)		Per Share Amount
Basic EPS – Net earnings and weighted average common shares outstanding	$	55,972		31,521,667	$	1.78

Effect of dilutive securities – stock options, restricted stock, and performance shares				400,971

Diluted EPS – Net earnings and weighted average common shares outstanding and effect of stock options and restricted stock	$	55,972		31,922,638	$	1.75

2015	Earnings (Numerator)		Number of Shares (Denominator)		Per Share Amount
Basic EPS – Net earnings and weighted average common shares outstanding	$	59,722		31,158,142	$	1.92

Effect of dilutive securities – stock options, restricted stock, and performance shares				477,496

Diluted EPS – Net earnings and weighted average common shares outstanding and effect of stock options and restricted stock	$	59,722		31,635,638	$	1.89

2014	Earnings (Numerator)		Number of Shares (Denominator)		Per Share Amount
Basic EPS – Net earnings and weighted average common shares outstanding	$	52,826		30,381,310	$	1.74

Effect of dilutive securities – stock options and restricted stock				790,412

Diluted EPS – Net earnings and weighted average common shares outstanding and effect of stock options and restricted stock	$	52,826		31,171,722	$	1.69

The Company had 2,500, 194,372, and 56,500 stock options outstanding at December 31, 2016, 2015 and 2014, respectively that could potentially dilute basic earnings per share in future periods that 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 11 - EMPLOYEE BENEFIT PLANS

During 2016, the Company sponsored two 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. The plans have a discretionary profit sharing portion and one of the plans matches 401k 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. These plans were merged in January 2017. The merged plan allows participants to make pretax contributions and the Company matches certain percentages of those contributions which is made with shares of the Company’s stock. Additionally, this plan has a discretionary profit sharing portion. The Company provided for profit sharing contributions and matching 401(k) savings plan contributions of $712 and $2,248 in 2016, $738 and $1,886 in 2015, and $938 and $804 in 2014, respectively.

The Company also provides postretirement benefits in the form of an unfunded retirement medical plan under a collective bargaining agreement covering eligible retired employees of the Verona facility. The Company uses a December 31 measurement date for its postretirement medical plan. In accordance with ASC 715, “Compensation—Retirement Benefits,” the Company is required to recognize the over funded or underfunded status of a defined benefit post retirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position, and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. In addition, during 2016 the Company adopted an unfunded postretirement medical plan for Named Executive Officers.

The actuarial recorded liabilities for such unfunded postretirement benefits are as follows:

Change in benefit obligation:

	2016			2015
Benefit obligation at beginning of year	$	958		$	1,111
Initial adoption of new plan		444			-
Service cost with interest to end of year		66			54
Interest cost		48			36
Participant contributions		5			5
Benefits paid		(9	)		(6	)
Actuarial gain		(101	)		(242	)
Benefit obligation at end of year	$	1,411		$	958

Change in plan assets:

	2016			2015
Fair value of plan assets at beginning of year	$	-		$	-
Employer (reimbursement)/contributions		4			1
Participant contributions		5			5
Benefits paid		(9	)		(6	)
Fair value of plan assets at end of year	$	-		$	-

Amounts recognized in consolidated balance sheet:

	2016			2015
Accumulated postretirement benefit obligation	$	(1,411	)	$	(958	)
Fair value of plan assets		-			-
Funded status		(1,411	)		(958	)
Unrecognized prior service cost		N/A			N/A
Unrecognized net (gain)/loss		N/A			N/A
Net amount recognized in consolidated balance sheet (after ASC 715) (included in other long-term obligations)	$	1,411		$	958
Accrued postretirement benefit cost (included in other long-term obligations)	$	N/A		$	N/A

Components of net periodic benefit cost:

	2016			2015			2014
Service cost with interest to end of year	$	66		$	54		$	57
Interest cost		48			36			48
Amortization of prior service credit/(cost)		57			(18	)		(18	)
Amortization of (gain)/loss		(10	)		-			6
Total net periodic benefit cost	$	161		$	72		$	93

Estimated future employer contributions and benefit payments are as follows:

Year
2017	$	88
2018		106
2019		96
2012		90
2021		88
Years 2022-2026		581

Assumed health care cost trend rates have been used in the valuation of postretirement health insurance benefits. The trend rate is 7.07% in 2016 declining to 4.50% in 2038 and thereafter. A one percentage point increase in health care cost trend rates in each year would increase the accumulated postretirement benefit obligation as of December 31, 2016 by $125 and the net periodic postretirement benefit cost for 2016 by $15. A one percentage point decrease in health care cost trend rates in each year would decrease the accumulated postretirement benefit obligation as of December 31, 2016 by $110 and the net periodic postretirement benefit cost for 2016 by $13. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 3.40% in 2016 and 3.70% in 2015.

The Company contributes to one multiemployer defined benefit plan under the terms of a collective-bargaining agreement covering its union-represented employees of the Verona facility. The risks of participation in this multiemployer plan are different from single-employer plans in the following aspects: (a) assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers, (b) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers, and (c) if the Company chooses to stop participating in its multiemployer plan, the Company will be required to pay that plan an amount based on the underfunded status of the plan, referred to as the withdrawal liability.

The Company’s participation in this plan for the annual period ended December 31, 2016 is outlined in the table below. The “EIN/Pension Plan Number” column provides the Employee Identification Number (EIN). The zone status is based on information that the Company received from the plan and is certified by the plan’s actuary. Among other factors, plans in the red zone are generally less than 65 percent funded, plans in the

yellow zone are less than 80 percent funded, and plans in the green zone are at least 80 percent funded. The “FIP/RP Status Pending/Implemented” column indicates plans for which a financial improvement plan (FIP) or a rehabilitation plan (RP) is either pending or has been implemented. The last column lists the expiration date of the collective-bargaining agreement to which the plan is subject. Finally, the period-to-period comparability of the contributions for 2016 and 2015 was affected by a 4.0% increase in the 2016 contribution rate. There have been no other significant changes that affect the comparability of 2016 and 2015 contributions. The Company does not represent more than 5% of the contributions to this pension fund.

Pension Fund	EIN/Pension Plan Number		Pension Plan Protection Act Zone Status		FIP/RP Status Pending/ Implemented	Contributions of Balchem Corporation									Surcharge Imposed	Expiration Date of Collective- Bargaining Agreement
			2016	2015		2016			2015			2014
Central States, Southeast and Southwest Areas Pension Fund		36-6044243	Red as of 1/1/2016	Red as of 1/1/2015	Implemented		$	576		$	515		$	498	No	5/31/2017

NOTE 12 - COMMITMENTS AND CONTINGENCIES

In 2012, the Company entered into a six (6) year lease extension for approximately 20,000 square feet of office space. The office space serves as the Company’s general offices and as a laboratory facility. The Company leases most of its vehicles and office equipment under non-cancelable operating leases, which expire at various times through 2029. Rent expense charged to operations under such lease agreements for 2016, 2015 and 2014 aggregated approximately $3,134, $2,414 and $1,595, respectively. Aggregate future minimum rental payments required under non-cancelable operating leases at December 31, 2016 are as follows:

Year
2017	$	2,436
2018		2,011
2019		1,702
2020		1,364
2021		1,245
Thereafter		8,752
Total minimum lease payments	$	17,510

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.

The Company’s Verona, Missouri facility, while held by a prior owner, was designated by the EPA as a Superfund site and placed on the National Priorities List in 1983, because of dioxin contamination on portions of the site. Remediation 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. No ground water or surface water treatment was required. The Company believes that remediation of the site is complete. In 1998, the EPA certified the work on the contaminated soils to be complete. In February 2000, after the conclusion of two years of monitoring groundwater and surface water, the former owner submitted a draft third party risk assessment report to the EPA and MDNR

recommending no further action. The prior owner is awaiting the response of the EPA and MDNR to the draft risk assessment.

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 and one of the sellers, in turn, has the benefit of certain contractual indemnification by the prior owner that is implementing the above-described Superfund remedy.

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 13 – FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company has a number of financial instruments, none of which are held for trading purposes. The Company estimates that the fair value of all financial instruments at December 31, 2016 and December 31, 2015 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 approximates fair value due to the short-term maturity of these instruments. Cash and cash equivalents at December 31, 2016 and 2015 includes $776 and $773 in money market funds. The money market funds are valued using level one inputs, as defined by ASC 820, “Fair Value Measurement.”

NOTE 14 – ACCUMULATED OTHER COMPREHENSIVE INCOME

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

	2016			Years Ended December 31, 2015			2014
Net foreign currency translation adjustment	$	(1,390	)	$	(2,615	)	$	(2,972	)

Net change in postretirement benefit plan (see Note 10 for further information)
Initial adoption of new plan		(444	)		-			-
Net gain arising during the period		101			242			191
Amortization of prior service credit/(cost)		57			(18	)		(18	)
Amortization of (gain)/loss		(10	)		-			6
Total before tax		(296	)		224			179
Tax		(49	)		(72	)		(56	)
Net of tax		(345	)		152			123
Total other comprehensive income (loss)	$	(1,735	)	$	(2,463	)	$	(2,849	)

Accumulated other comprehensive income/(loss) at December 31, 2016 consisted of the following:

	Foreign currency translation adjustment			Postretirement benefit plan			Total
Balance December 31, 2015	$	(5,317	)	$	203		$	(5,114	)
Other comprehensive (loss)/gain		(1,390	)		(345	)		(1,735	)
Balance December 31, 2016	$	(6,707	)	$	(142	)	$	(6,849	)

NOTE 15 - SEGMENT INFORMATION

Human Nutrition & Health (formerly SensoryEffects)

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, 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 molecule in a form the body can readily assimilate.

Animal Nutrition & Health

Specialty Products

along with our two filling facilities, represents a significant capital investment. Contract sterilizers and medical device manufacturers are principal customers for this product. 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.

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.

Industrial Products

Business Segment Net Sales:

	2016		2015		2014
Human Nutrition & Health	$	297,134	$	278,288	$	206,101
Animal Nutrition & Health		161,119		165,763		176,477
Specialty Products		70,126		54,236		54,053
Industrial Products		24,825		54,205		104,752
Total	$	553,204	$	552,492	$	541,383

Business Segment Earnings Before Income Taxes:

	2016			2015			2014
Human Nutrition & Health	$	38,156		$	38,302		$	21,260
Animal Nutrition & Health		28,686			27,851			23,687
Specialty Products		22,862			23,995			21,316
Industrial Products		1,949			5,594			16,532
Unallocated equity compensation		-			(1,462	)		-
Transaction costs, integration costs and legal settlement		(815	)		(324	)		(652	)
Interest and other income, net		(7,904	)		(6,893	)		(5,091	)
Total	$	82,934		$	87,063		$	77,052

Unallocated equity compensation expense was related to the accelerated vesting of previously-granted unvested options to purchase Company common stock, and removal of the restrictions on previously-granted Restricted Stock.

Transaction and integration costs were primarily related to the definitive agreement to acquire Albion International, Inc. in 2016 and 2015, and Performance Chemicals & Ingredients Company (d/b/a SensoryEffects) in 2015 and 2014. See Note 2.

Depreciation/Amortization:

	2016		2015		2014
Human Nutrition & Health	$	33,796	$	30,537	$	20,873
Animal Nutrition & Health		7,243		6,573		6,026
Specialty Products		3,787		1,225		1,385
Industrial Products		850		1,027		1,783
Total	$	45,676	$	39,362	$	30,067

Business Segment Assets:

	2016		2015		2014
Human Nutrition & Health	$	709,337	$	642,929	$	656,130
Animal Nutrition & Health		121,860		107,459		90,650
Specialty Products		64,030		24,769		24,913
Industrial Products		10,477		16,191		32,330
Other Unallocated		42,922		88,338		57,508
Total	$	948,626	$	879,686	$	861,531

Other unallocated assets consist of certain cash, receivables, prepaid expenses, equipment and leasehold improvements, net of accumulated depreciation, and deferred income taxes, which the Company does not allocate to its individual business segments.

Capital Expenditures:

	2016		2015		2014
Human Nutrition & Health	$	14,470	$	21,361	$	3,475
Animal Nutrition & Health		6,577		17,854		7,383
Specialty Products		1,286		940		896
Industrial Products		701		1,145		1,445
Total	$	23,034	$	41,300	$	13,199

Geographic Revenue Information:

	2016		2015		2014
United States	$	420,821	$	441,664	$	420,324
Foreign Countries		132,383		110,828		121,059
Total	$	553,204	$	552,492	$	541,383

Geographic Area Data – Long-Lived Assets (excluding intangible assets):

	2016		2015		2014
North America	$	154,007	$	148,209	$	121,090
Europe		11,747		10,306		10,498
Total	$	165,754	$	158,515	$	131,588

NOTE 16 - SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid during the year for:

	2016		2015		2014
Income taxes	$	30,741	$	19,551	$	25,304
Interest	$	6,669	$	5,987	$	4,685

Non-cash financing activities:

		2016				2015				2014
Dividends payable		$	12,088			$	10,727			$	9,251

NOTE 17 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

(In thousands, except per share data)

	2016								2015
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Net sales	$	135,141	$	138,794	$	138,509	$	140,760	$	144,862	$	134,773	$	140,128	$	132,729
Gross profit		42,824		46,449		44,656		46,932		43,130		41,867		43,174		39,926
Earnings before income taxes		17,981		21,383		20,771		22,799		23,085		22,167		21,189		20,623
Net earnings		11,886		14,150		14,012		15,924		15,172		14,916		13,976		15,659
Basic net earnings per common share	$	.38	$	.45	$	.44	$	.51	$	.49	$	.48	$	.45	$	.50
Diluted net earnings per common share	$	.37	$	.44	$	.44	$	.50	$	.48	$	.47	$	.44	$	.49

NOTE 18 – 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 sold raw materials to St. Gabriel CC Company, LLC. In return, St. Gabriel CC Company, LLC provides choline chloride finished goods. The services the Company provided and raw materials sold amounted to $1,837 and $7,480, respectively, for the year ended December 31, 2016, and are primarily recorded, net of the finished goods received from St. Gabriel CC Company, LLC of $8,619, in cost of goods sold. At December 31, 2016, the Company had a receivable of $9,317, recorded in accounts receivables from St. Gabriel CC Company, LLC for services rendered and raw materials sold and a payable of $8,619 for finished goods received. In addition, the Company had a receivable in the amount of $515 related to non-contractual monies owed from St. Gabriel CC Company, LLC, recorded in other current assets.

BALCHEM CORPORATION

Valuation and Qualifying Accounts

Years Ended December 31, 2016, 2015 and 2014

(In thousands)

Description	Balance at Beginning of Year		Additions Charged (Credited) to Costs and Expenses			Deductions				Balance at End of Year

Year ended December 31, 2016
Allowance for doubtful accounts	$	235	$	417		$	(163	)	(a)	$	489
Inventory reserve		1,823		905			(182	)	(a)		2,546

Year ended December 31, 2015
Allowance for doubtful accounts	$	288	$	(1	)	$	(52	)	(a)	$	235
Inventory reserve		1,682		369			(228	)	(a)		1,823

Year ended December 31, 2014
Allowance for doubtful accounts	$	115	$	238		$	(65	)	(a)	$	288
Inventory reserve		181		2,073			(572	)	(a)		1,682

(a) represents write-offs.

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.

Controls and Procedures

Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2016. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective.

Management's Report on Internal Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's internal control over financial reporting is a process designed under the supervision of the Company's principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.

Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on our financial statements.

A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our Company have been detected. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Management does not expect that the Company’s disclosure controls and procedures or its internal control over financial reporting will prevent or detect all errors and all fraud.

These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

As of December 31, 2016, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the 2013 Internal Control—Integrated Framework (New Framework) to conduct an assessment of the effectiveness of the Company's internal control over financial reporting. Based on this assessment, management has determined that the Company's internal control over financial reporting was effective as of December 31, 2016.

Attestation Report of Registered Public Accounting Firm

The independent registered public accounting firm of RSM US LLP has issued an attestation report on the Company’s internal control over financial reporting, which is included herein.

Changes in Internal Control Over Financial Reporting

During the most recent fiscal quarter, except with respect to the Albion International, Inc. acquisition described below, there has been no significant change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

On February 1, 2016, we completed the acquisition of the Albion International, Inc. business. See Note 2 of the Notes to the Condensed Consolidated Financial Statements for additional information. We have integrated Albion into our internal control over financial reporting process and have include the business in our assessment of internal control over financial reporting as of December 31, 2016.

Item 9B.

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 year ending December 31, 2016, we sold, in a single sales transaction, 400 twenty-five kilogram bags of ReaShure® encapsulated choline, at a sales price of $46,500 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.

PART III

Item 10.

Directors, Executive Officers of the Registrant, and Corporate Governance.

(a)	Directors of the Company.

The required information is to be set forth in the Company's Proxy Statement for the 2017 Annual Meeting of Stockholders (the “2017 Proxy Statement”) under the caption “Directors and Executive Officers,” which information is hereby incorporated herein by reference.

(b)	Executive Officers of the Company.

The required information is to be set forth in the 2017 Proxy Statement under the caption “Directors and Executive Officers,” which information is hereby incorporated herein by reference.

(c)	Section 16(a) Beneficial Ownership Reporting Compliance.

The required information is to be set forth in the 2017 Proxy Statement under the caption “Section 16(a) Beneficial Ownership Reporting Compliance,” which information is hereby incorporated herein by reference.

(d)	Code of Ethics.

The required information is to be set forth in the 2017 Proxy Statement under the caption “Code of Business Conduct and Ethics,” which information is hereby incorporated herein by reference. The Company’s Code of Ethics for Senior Financial Officers is available on the Corporate Governance page in the Investor Relations section of the Company’s website, www.balchem.com.

(e)	Corporate Governance.

The required information is to be set forth in the 2017 Proxy Statement under the caption “Nomination of Directors,” and “Committees of the Board of Directors,” which information is hereby incorporated herein by reference.

Item 11.

Executive Compensation.

The information required by this Item is to be set forth in the 2017 Proxy Statement under the caption “Executive Compensation,” “Compensation Committee Report,” and “Compensation Committee Interlocks and Insider Participation,” which information is hereby incorporated herein by reference.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this Item is to be set forth in the 2017 Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and of Management” and the caption “Equity Compensation Plan Information,” all of which information is hereby incorporated herein by reference.

Item 13.

Certain Relationships and Related Transactions and Director Independence.

The information required by this Item is set forth in the 2017 Proxy Statement under the caption “Related Party Transactions,” and “Director Independence,” which information is hereby incorporated herein by reference.

Item 14.

Principal Accountant Fees and Services.

The information required by this Item is set forth in the 2017 Proxy Statement under the caption “Proposal No. 2 – Ratification of Appointment of Independent Registered Public Accounting Firm,” which information is hereby incorporated herein by reference.

Item 15.

Exhibits and Financial Statement Schedules.

The following documents are filed as part of this Form 10-K:

		Form 10-K
1.	Financial Statements	Page Number

	Report of Independent Registered Public Accounting Firm	28

	Consolidated Balance Sheets as of December 31, 2016 and 2015	30

	Consolidated Statements of Earnings for the years ended December 31, 2016, 2015 and 2014	31

	Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2015 and 2014	32

	Consolidated Statements of Stockholders' Equity for the years ended December 31, 2016, 2015 and 2014	33

	Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014	34

	Notes to Consolidated Financial Statements	35

2.	Financial Statement Schedules

	Schedule II – Valuation and Qualifying Accounts for the years ended December 31, 2016, 2015 and 2014	59

3.	Exhibits

3.1	Composite Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K dated March 16, 2006 for the year ended December 31, 2005).

3.2	Balchem Corporation Articles of Amendment (incorporated by reference to Exhibit A to the Company’s definitive proxy statement on Schedule 14A filed with the Commission on April 25, 2008).

3.3	Balchem Corporation Articles of Amendment (incorporated by reference to Exhibit A to the Company’s definitive proxy statement on Schedule 14A filed with the Commission on April 28, 2011).

3.4	By-laws of the Company, as amended and restated as of February 21, 2017 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K dated February 22, 2017).

10.1	Incentive Stock Option Plan of the Company, as amended, (incorporated by reference to the Company’s Registration Statement on Form S-8, File No. 333-35910, dated October 25, 1996, and to Proxy Statement, dated April 22, 1998, for the Company's 1998 Annual Meeting of Stockholders (the “1998 Proxy Statement”)).*

10.2	Stock Option Plan for Directors of the Company, as amended (incorporated by reference to the Company’s Registration Statement on Form S-8, File No. 333-35912, dated October 25, 1996, and to the 1998 Proxy Statement).

10.3	Balchem Corporation Second Amended and Restated 1999 Stock Plan, (incorporated by reference to the Company’s Registration Statement on Form S-8, File No. No. 333-155655, dated November 25, 2008, and to Proxy Statement, dated April 25, 2008, for the Company's 2008 Annual Meeting of Stockholders).*

10.4	Balchem Corporation 401(k)/Profit Sharing Plan, dated January 1, 1998 (incorporated by reference to Exhibit 4 to the Company's Registration Statement on Form S-8, File No. 333-118291, dated August 17, 2004).*

	10.5	Employment Agreement, dated as of April 22, 2016, between the Company and Theodore L. Harris (incorporated by reference to Exhibit 10.1to the Company’s Quarterly Report on Form 10-Q for the For the Quarterly Period Ended June 30, 2016).*

	10.6	Form of Restricted Stock Grant Agreement and Stock Option Agreement (incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 (the “2011 10-K”)).

	10.7	Stock Purchase Agreement, dated as of February 1, 2016, among Albion International, Inc., a Nevada Corporation, and certain equity owners thereof, (incorporated by reference to the Company’s Current Report on Form 8-K dated February 4, 2016). (Pursuant to Item 601(b)(2) of Regulation S-K, the schedules to the Stock Purchase Agreement have been omitted and the Company agrees to furnish supplementally a copy of any such omitted schedule to the SEC upon request).

	10.8	Stock Purchase Agreement, dated as of March 31, 2014, among Performance Chemicals & Ingredients Company (d/b/a SensoryEffects), a Delaware corporation, certain equity owners thereof, the Company and, solely for the limited purposes described therein, Highlander Partners, L.P. (incorporated by reference to the Company’s Current Report on Form 8-K dated April 1, 2014). (Pursuant to Item 601(b)(2) of Regulation S-K, the schedules to the Stock Purchase Agreement have been omitted and the Company agrees to furnish supplementally a copy of any such omitted schedule to the SEC upon request).

	10.9	Credit Agreement dated May 7, 2014 among the Company, certain guarantors, lenders and Bank of America, N.A. (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated May 13, 2014).

	10.10	Security and Pledge Agreement dated May 7, 2014 among the Company, certain guarantors and Bank of America, N.A. (incorporated by reference to Exhibit 4.12 to the Company’s Current Report on Form 8-K dated May 13, 2014).

	21.	Subsidiaries of Registrant.

	23.1	Consent of RSM US LLP, Independent Registered Public Accounting Firm.

	31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a).

	31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a).

	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.

	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	XBRL Instance Document

	101.SCH	XBRL Taxonomy Extension Schema Document

	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

	101.LAB	XBRL Taxonomy Extension Label Linkbase Document

	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

Each of the Exhibits noted by an asterisk is a management compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Date: February 28, 2017	BALCHEM CORPORATION
		By:/s/ Theodore L. Harris
		Theodore L. Harris, President and
		Chief Executive Officer

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

	/s/ Theodore L. Harris
	Theodore L. Harris, President and
	Chief Executive Officer (Chairman)
	Date: February 28, 2017

	/s/ William A. Backus
	William A. Backus, Chief Financial Officer
	and Treasurer (Principal Financial and Principal Accounting Officer)
	Date: February 28, 2017

	/s/ Paul D. Coombs
	Paul D. Coombs, Director
	Date: February 28, 2017

	/s/ David B. Fischer
	David B. Fischer, Director
	Date: February 28, 2017

	/s/ Edward L. McMillan
	Edward L. McMillan, Director
	Date: February 28, 2017

	/s/ Perry W. Premdas
	Perry W. Premdas, Director
	Date: February 28, 2017

	/s/ Dr. John Televantos
	Dr. John Televantos, Director
	Date: February 28, 2017

	/s/ Matthew Wineinger
	Matthew Wineinger, Director
	Date: February 28, 2017

EXHIBIT INDEX

Exhibit Number	Description

3.1	Composite Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K dated March 16, 2006 for the year ended December 31, 2005).

3.2	Balchem Corporation Articles of Amendment (incorporated by reference to Exhibit A to the Company’s definitive proxy statement on Schedule 14A filed with the Commission on April 25, 2008).

3.3	Balchem Corporation Articles of Amendment (incorporated by reference to Exhibit A to the Company’s definitive proxy statement on Schedule 14A filed with the Commission on April 28, 2011).

3.4	By-laws of the Company, as amended and restated as of February 21, 2017 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K dated February 22, 2017).

10.1	Incentive Stock Option Plan of the Company, as amended, (incorporated by reference to the Company’s Registration Statement on Form S-8, File No. 333-35910, dated October 25, 1996, and to Proxy Statement, dated April 22, 1998, for the Company's 1998 Annual Meeting of Stockholders (the “1998 Proxy Statement”)).*

10.2	Stock Option Plan for Directors of the Company, as amended (incorporated by reference to the Company’s Registration Statement on Form S-8, File No. 333-35912, dated October 25, 1996, and to the 1998 Proxy Statement).

10.3	Balchem Corporation Second Amended and Restated 1999 Stock Plan, (incorporated by reference to the Company’s Registration Statement on Form S-8, File No. No. 333-155655, dated November 25, 2008, and to Proxy Statement, dated April 25, 2008, for the Company's 2008 Annual Meeting of Stockholders).*

10.4	Balchem Corporation 401(k)/Profit Sharing Plan, dated January 1, 1998 (incorporated by reference to Exhibit 4 to the Company's Registration Statement on Form S-8, File No. 333-118291, dated August 17, 2004).*

10.5	Employment Agreement, dated as of April 22, 2016, between the Company and Theodore L. Harris (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the For the Quarterly Period Ended June 30, 2016)).*

10.6	Form of Restricted Stock Grant Agreement and Stock Option Agreement (incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 (the “2011 10-K”)).

10.7	Stock Purchase Agreement, dated as of February 1, 2016, among Albion International, Inc., a Nevada Corporation, and certain equity owners thereof, (incorporated by reference to the Company’s Current Report on Form 8-K dated February 4, 2016). (Pursuant to Item 601(b)(2) of Regulation S-K, the schedules to the Stock Purchase Agreement have been omitted and the Company agrees to furnish supplementally a copy of any such omitted schedule to the SEC upon request).

10.8	Stock Purchase Agreement, dated as of March 31, 2014, among Performance Chemicals & Ingredients Company (d/b/a SensoryEffects), a Delaware corporation, certain equity owners thereof, the Company and, solely for the limited purposes described therein, Highlander Partners, L.P. (incorporated by reference to the Company’s Current Report on Form 8-K dated April 1, 2014). (Pursuant to Item 601(b)(2) of Regulation S-K, the schedules to the Stock Purchase Agreement have been omitted and the Company agrees to furnish supplementally a copy of any such omitted schedule to the SEC upon request).

10.9	Credit Agreement dated May 7, 2014 among the Company, certain guarantors, lenders and Bank of America, N.A. (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated May 13, 2014).

10.10	Security and Pledge Agreement dated May 7, 2014 among the Company, certain guarantors and Bank of America, N.A. (incorporated by reference to Exhibit 4.12 to the Company’s Current Report on Form 8-K dated May 13, 2014).

21.	Subsidiaries of Registrant.

23.1	Consent of RSM US LLP, Independent Registered Public Accounting Firm.

31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a).

31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a).

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.

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	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	XBRL Taxonomy Extension Label Linkbase Document

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

Each of the Exhibits noted by an asterisk is a management compensatory plan or arrangement.