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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | 6 Months Ended
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Jun. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The Company is exposed to market fluctuations in interest rates as well as variability in foreign exchange rates. In May 2019, the Company entered into an interest rate swap (cash flow hedge) with JP Morgan Chase, N.A. (the "Swap Counterparty") and a cross-currency swap (net investment hedge) with JP Morgan Chase, N.A. (the "Bank Counterparty"). The Company's primary objective for holding derivative financial instruments was to manage interest rate risk and foreign currency risk. On May 28, 2019, the Company entered into a pay-fixed (2.05%), receive-floating interest rate swap with a notional amount of $108,569 and a maturity date of June 27, 2023. The receive-floating interest rate was based on the London Interbank Offered Rate ("LIBOR") in the original trade agreement. Due to the discontinuation of LIBOR, the Company modified its existing interest rate swap to reference 1-month CME Term SOFR (CME Group Benchmark Administration Limited as administrator of the forward-looking term Secured Overnight Financing Rate) in the amended trade terms in the third quarter of 2022. This modification was made under the relief provided for in ASC 848, "Reference Rate Reform" and therefore the derivative continued to qualify for hedge accounting. The Company's risk management objective and strategy with respect to the interest rate swap was to protect the Company against adverse fluctuations in interest rates by reducing its exposure to variability in cash flows relating to interest payments on a portion of its outstanding debt. The Company met its objective since changes in the cash flows of the interest rate offset the changes in the cash flows attributable to fluctuations in the contractually specified interest rate on the interest payments associated with the 2022 Credit Agreement. The net interest income related to the interest rate swap contract was $834 and $1,518 for the three and six months ended June 30, 2023, respectively, and the net interest expense related to the interest rate swap contract was $364 and $877 for the three and six months ended June 30, 2022, respectively. The net interest income and expense were recorded in the condensed consolidated statements of earnings under "Interest expense, net." On May 28, 2019, the Company also entered into a pay-fixed (0.00%), receive-fixed (2.05%) cross-currency swap to manage foreign exchange risk related to the Company's net investment in Chemogas. The derivative had a notional amount of $108,569, an effective date of May 28, 2019, and a maturity date of June 27, 2023. The interest income related to the cross-currency swap contract was $569 and $1,119 for the three and six months ended June 30, 2023, respectively, and $563 and $1,113 for the three and six months ended June 30, 2022, respectively. The net interest income was recorded in the condensed consolidated statements of earnings under "Interest expense, net." The derivative instruments were with a single counterparty and were subject to a contractual agreement that provided for the net settlement of all contracts through a single payment in a single currency in the event of default on or termination of any one contract. As such, the derivative instruments were categorized as a master netting arrangement and presented as a net "Derivative asset" or "Derivative liability" on the condensed consolidated balance sheets. The Company settled its derivative instruments on their maturity date of June 27, 2023 and had no other derivatives outstanding as of June 30, 2023. The proceeds from the settlement of the cross-currency swap in the amount of $2,740 were classified as investing activities in the Consolidated Statements of Cash Flows. As of December 31, 2022, the fair value of the derivative instruments is presented as follows in the Company's condensed consolidated balance sheets:
Derivative assets |  | December 31, 2022
Interest rate swap |  | $ | 1,406 |
Cross-currency swap |  | 4,587 |
Derivative assets |  | $ | 5,993 |
On a quarterly basis, the Company assessed whether the hedging relationship related to the interest rate swap was highly effective at achieving offsetting changes in cash flow attributable to the risk being hedged based on the following factors: (1) the key features and terms as enumerated above for the interest rate swap and hedged transactions matched during the period (2) it was probable that the Swap Counterparty would not default on its obligations under the swap, and (3) the Company performed a qualitative review each quarter to assess whether the relationship qualified for hedge accounting. In addition, on a quarterly basis the Company assessed whether the hedging relationship related to the cross-currency swap was highly effective based on the following evaluations: (1) the Company would always have a sufficient amount of non-functional currency (EUR) net investment balance to at least meet the cross-currency notional amount until the maturity date of the hedge (2) it was probable that the Swap Counterparty would not default on its obligations under the swap, and (3) the Company performed a qualitative review each quarter to assess whether the relationship qualified for hedge accounting. No mismatches arose for either the interest rate swap or cross-currency swap; the hedged transactions were determined to be highly effective; hedge accounting continued through the settlement date; and all changes in fair values of the derivative instruments were recorded in accumulated other comprehensive income through June 30, 2023. Losses and gains on our hedging instruments were recognized in accumulated other comprehensive income (loss) and categorized as follows for the three and six months ended June 30, 2023 and 2022:
|  | Location within Statements of Comprehensive Income |  | Three Months Ended June 30, |  | Six Months Ended June 30,
|  |  | 2023 |  | 2022 |  | 2023 |  | 2022
Cash flow hedge (interest rate swap), net of tax |  | Unrealized (loss) gain on cash flow hedge, net |  | $ | (554) |  |  | $ | 850 |  |  | $ | (1,065) |  |  | $ | 2,423 |
Net investment hedge (cross-currency swap), net of tax |  | Net foreign currency translation adjustment |  | (434) |  |  | 3,963 |  |  | (1,455) |  |  | 5,086 |
Total |  |  |  | $ | (988) |  |  | $ | 4,813 |  |  | $ | (2,520) |  |  | $ | 7,509 |
On June 21, 2022, the Company completed the acquisition of Kappa (as defined in Note 2, Significant Acquisitions). In the process of acquiring Kappa, the Company entered into four short-term foreign currency exchange forward contracts with JP Morgan Chase, N.A. to manage fluctuations in foreign currency exchange rates related to the acquisition. The Company did not designate these contracts as hedged transactions under the applicable sections of ASC Topic 815, "Derivatives and Hedging". For the six months ended June 30, 2022, the net gains on these forward contracts of $512 were recorded in other income or loss in the condensed consolidated statements of earnings. As of June 30, 2023, the Company did not maintain any open foreign currency exchange forward contracts as all four contracts expired before June 30, 2022. The following table summarizes the key terms of the four forward exchange contracts:
Date entered into |  | Date expired on |  | Balchem to sell |  | Balchem to buy
June 15, 2022 |  | June 21, 2022 |  | USD |  | 294,555 |  |  | NOK |  | 2,924,553 |
June 15, 2022 |  | June 17, 2022 |  | USD |  | 6,436 |  |  | EUR |  | 6,180 |
June 15, 2022 |  | June 21, 2022 |  | USD |  | 16,640 |  |  | EUR |  | 15,972 |
June 15, 2022 |  | June 21, 2022 |  | EUR |  | 15,972 |  |  | NOK |  | 165,210 |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
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