INCOME TAXES

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The Company’s effective tax rate for 2023, 2022 and 2021 was 20.9%, 21.2%, and 23.3%, respectively. The decrease from 2022 to 2023 is primarily due to an increase in certain tax credits.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company regularly reviews its deferred tax assets for recoverability and would establish a valuation allowance if it believed that such assets may not be recovered, taking into consideration historical operating results, expectations of future earnings, changes in its operations and the expected timing of the reversals of existing temporary differences.

The Company considers the undistributed earnings of certain non-U.S. subsidiaries to be indefinitely reinvested outside of the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs. However, due to prevailing economic conditions of increased interest rates and subsequent borrowing costs, the Company remitted approximately $18,000 from its Belgium subsidiary and has incurred an income tax expense of approximately $20. The remittance was used to pay down U.S. debt. The Company had unremitted foreign earnings of approximately $109,000 and $94,000 for the years ended December 31, 2023 and 2022, respectively. The determination of the unrecognized deferred tax liability on those undistributed earnings is not practicable due to its legal entity structure and the complexity of U.S. and local country tax laws. If the Company decides to change its assertion on its remaining undistributed foreign earnings, it will need to recognize the income tax effects in the period it changes its assertion.

Income tax expense consists of the following:

	2023		2022		2021
Current:
Federal	$	27,306	$	26,423	$	25,019
Foreign	7,634		7,103		7,553
State	4,403		3,964		3,664
Deferred:
Federal	(7,737)		(7,532)		(3,709)
Foreign	(2,285)		(215)		(3,038)
State	(603)		(1,361)		(360)
Total income tax provision	$	28,718	$	28,382	$	29,129

The provision for income taxes differs from the amount computed by applying the Federal statutory rate of 21% for 2023, 2022, and 2021 to earnings before income tax expense due to the following:

	2023		2022		2021
Income tax at Federal statutory rate	$	28,825	$	28,087	$	26,299
State income taxes, net of Federal income taxes	2,513		1,862		2,406
Stock Options	(1,004)		(676)		(924)
Foreign-derived intangible income (FDII)	(1,752)		(1,778)		(1,540)
Foreign rate differential	946		2,066		1,188
Other	(810)		(1,179)		1,700
Total income tax provision	$	28,718	$	28,382	$	29,129

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2023 and 2022 were as follows:

	2023		2022
Deferred tax assets:
Inventories	$	1,049	$	1,038
Restricted stock and stock options	5,565		3,932
Lease liabilities	4,812		5,439
Research and development	12,653		4,134
Other	3,874		3,717
Total deferred tax assets	27,953		18,260
Deferred tax liabilities:
Amortization	$	(42,351)	$	(46,688)
Depreciation	(28,937)		(25,097)
Prepaid expenses	(421)		(462)
Foreign currency and interest rate swaps	(647)		(1,456)
Right of use assets	(4,574)		(5,324)
Other	(3,047)		(1,995)
Total deferred tax liabilities	(79,977)		(81,022)
Valuation allowance	(22)		(22)
Net deferred tax liability	$	(52,046)	$	(62,784)

As of December 31, 2023, the Company has state income tax net operating loss (NOL) carryforwards of $348. The state NOL carryforwards will expire between 2026 and 2035. The Company believes that the benefit from the state NOL carryforwards will not be realized, therefore, a valuation allowance has been established in the amount of $22.

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:

	2023		2022		2021
Balance at beginning of period	$	5,815	$	5,881	$	5,335
Increases for tax positions of prior years	1,353		2,194		806
Decreases for tax positions of prior years	(2,518)		(2,260)		(260)
Balance at end of period	$	4,650	$	5,815	$	5,881

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

The Company recognizes both interest and penalties as part of the income tax provision. During the years ended December 31, 2023 and 2022, these amounts were reduced by $322 and $371, respectively. During the year ended December 31, 2021, this amounted to $262. As of December 31, 2023 and 2022, accrued interest and penalties were $1,413 and $1,735, respectively.

Balchem files income tax returns in the U.S. and in various states and foreign countries. In the major jurisdictions where the Company operates, it is generally no longer subject to income tax examinations by tax authorities for years before 2019 and management does not anticipate any material change in the total amount of unrecognized tax benefits to occur within the next twelve months.

The European Union (“EU”) member states formally adopted the EU’s Pillar Two Directive, which was established by the Organization for Economic Co-operation and Development. Pillar Two generally provides for a 15 percent minimum effective tax rate for the jurisdictions where multinational enterprises operate. While the Company does not anticipate that this will have a

material impact on its tax provision or effective tax rate, the Company continues to monitor evolving tax legislation in the jurisdictions in which it operates.