STOCKHOLDERS' EQUITY

12 Months Ended

Dec. 31, 2018

Stockholders' Equity Note [Abstract]

STOCKHOLDERS' EQUITY

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.

The Company’s results for the years ended December 31, 2018, 2017 and 2016 reflected the following compensation cost and such compensation cost had the following effects on net earnings:

	Increase/(Decrease) for the Years Ended December 31,
	2018			2017			2016
Cost of sales	$	973		$	524		$	1,040
Operating expenses	5,440			5,736			5,984
Net earnings	(4,965		)	(3,990		)	(4,473		)

On December 31, 2018, the Company had one share-based compensation plan under which awards may be granted, which is described below (the “2017 Plan”).

In June 2017, the Company adopted the Balchem Corporation 2017 Omnibus Incentive Plan (“2017 Plan”) for officers, employees and directors of the Company and its subsidiaries. The 2017 Plan replaced the 1999 Stock Plan and amendments and restatements thereto (collectively to be referred to as the “1999 Plan’), which expired on April 9, 2018. No further awards will be made under the 1999 Plan, and the shares that remained available for grant under the 1999 Plan will only be used to settle outstanding awards granted under the 1999 Plan and will not become available under the 2017 Plan. The 2017 Plan is administered by the Compensation Committee of the Board of Directors of the Company. The 2017 Plan provides as follows: i) for a termination date of June 13, 2027; (ii) to authorize 1,600,000 shares reserved for future grants, a reduction from the 6,000,000 shares authorized for grant under the 1999 Plan; (iii) for the making of grants of stock options, stock appreciation rights, restricted stock awards, restricted stock units, and other stock-based awards, as well as for the making of cash performance awards; (iv) except as provided in an employment agreement as in effect on the effective date of the 2017 Plan, no automatic acceleration of outstanding awards upon the occurrence of a change in control of the Company; (v) certain annual limits on the number of shares and amount of cash that may be granted; (vii) for dividends or dividend equivalents otherwise payable on an unvested award to accrue and be paid only at such time as the vesting conditions applicable to the underlying award have been satisfied; (vii) for certain discretionary compensation recovery if the Company is required to prepare an accounting restatement of its financial statements due to the Company’s material noncompliance with any financial reporting requirements under the securities laws; and (viii) for compliance with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code” or the “Code”). No option will be exercisable for longer than ten years after the date of grant.

The shares to be issued upon exercise of the outstanding options have been approved, reserved and are adequate to cover all exercises. As of December 31, 2018, the 2017 Plan had 1,377,544 shares available for future awards.

The Company has Restricted Stock Grant Agreements with the Company's non–employee directors and certain employees. Under the Restricted Stock Grant Agreements, certain shares of the Company’s Common Stock have been granted, ranging from 70 shares to 54,000 shares, to its non-employee directors and certain employees, subject to time-based vesting requirements.

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

	Year Ended December 31,
Weighted Average Assumptions:	2018		2017		2016
Expected Volatility	26.8	%	30.1	%	34.4	%
Expected Term (in years)	4.4		4.6		5.0
Risk-Free Interest Rate	2.6	%	1.8	%	1.2	%
Dividend Yield	0.6	%	0.5	%	0.5	%

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

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 2.4%, 1.5%, and 0.88%; dividend yields of 0.5%, 0.6%, and 0.6%; volatilities of 27%, 32%, 32%; and initial TSR’s of -10.5%, 8.2%, and -6.6% in each case for the years ended December 31, 2018, 2017, and 2016, 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, three to 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 2018, 2017, and 2016 for all plans is as follows:

2018	# of Shares (000s)		Weighted Average Exercise Price
Outstanding at beginning of year	946		$	55.44
Granted	148		74.57
Exercised	(198	)	41.71
Forfeited	(6	)	74.90
Cancelled	(3	)	48.54
Outstanding at end of year	887		$	61.59
Exercisable at end of year	490		$	50.50

2017	# of Shares (000s)		Weighted Average Exercise Price
Outstanding at beginning of year	1,066		$	45.32
Granted	222		85.22
Exercised	(268	)	36.36
Forfeited	(52	)	72.29
Cancelled	(22	)	57.48
Outstanding at end of year	946		$	55.44
Exercisable at end of year	493		$	41.01

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

The aggregate intrinsic value for outstanding stock options was $16,192, $24,714 and $41,161 at December 31, 2018, 2017 and 2016, respectively, with a weighted average remaining contractual term of 6.3 years at December 31, 2018. Exercisable stock options at December 31, 2018 had an aggregate intrinsic value of $13,887 with a weighted average remaining contractual term of 5.0 years.

Other information pertaining to option activity during the years ended December 31, 2018, 2017 and 2016 is as follows:

	Years Ended December 31,
	2018		2017		2016
Weighted-average fair value of options granted	$	18.62	$	23.20	$	18.48
Total intrinsic value of stock options exercised ($000s)	$	10,456	$	11,900	$	8,609

Additional information related to stock options outstanding under all plans at December 31, 2018 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	134	2.0 years	$	28.03	134	$	28.03
$38.10 - $59.95	195	5.2 years	52.51		191	52.39
$60.01 - $85.40	558	7.7 years	72.82		165	66.61
	887	6.3 years	$	61.59	490	$	50.50

Non-vested restricted stock activity for the years ended December 31, 2018, 2017 and 2016 is summarized below:

	Shares (000s)		Weighted Average Grant Date Fair Value
Non-vested balance as of December 31, 2017	66		$	65.66
Granted	42		77.50
Vested	(27	)	62.74
Forfeited	(2	)	74.57
Non-vested balance as of December 31, 2018	79		$	72.75

	Shares (000s)		Weighted Average Grant Date Fair Value
Non-vested balance as of December 31, 2016	102		$	54.18
Granted	21		83.43
Vested	(53	)	51.39
Forfeited	(4	)	55.45
Non-vested balance as of December 31, 2017	66		$	65.66

	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

Non-vested performance share activity for the years ended December 31, 2018, 2017 and 2016 is summarized below:

	Shares (000s)		Weighted Average Grant Date Fair Value
Non-vested balance as of December 31, 2017	39		$	72.62
Granted	32		71.27
Vested	(15	)	58.78
Forfeited	(3	)	72.55
Non-vested balance as of December 31, 2018	53		$	75.61

	Shares (000s)		Weighted Average Grant Date Fair Value
Non-vested balance as of December 31, 2016	34		$	61.06
Granted	16		93.85
Vested	—		—
Forfeited	(11	)	69.25
Non-vested balance as of December 31, 2017	39		$	72.62

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

As of December 31, 2018, 2017 and 2016, there was $8,565, $7,742 and $8,260, respectively, of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plans. As of December 31, 2018, the unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately 1.6 years. We estimate that share-based compensation expense for the year ended December 31, 2019 will be approximately $7,700.

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 2,190,772 shares have been purchased, of which 706 shares remained in treasury at December 31, 2018. No shares remained in treasury at December 31, 2017. During 2018 and 2017, a total of 16,755 and 23,182 shares, respectively, have been purchased at an average cost of $83.08 and $82.19 per share, respectively. 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. The Company also repurchases shares from employees in connection with settlement of transactions under the Company’s equity incentive plans.