Centuri Holdings, Inc.CTRI
Centuri Holdings, Inc. Income Taxes Disclosure
Income Taxes
During fiscal year 2025, the Company deconsolidated from Southwest Gas Holdings for state and federal income tax purposes. As a result, in the second and third fiscal quarters of 2025, certain deferred tax assets previously recorded under the separate return method were removed from the balance sheet through an adjustment to additional paid-in capital, and the Company was allocated $55.4 million in estimated deferred tax assets (primarily net operating losses) as part of income tax deconsolidation. Subsequent to income tax deconsolidation and the Company ceasing to be a subsidiary of Southwest Gas Holdings, the estimate of deferred tax assets allocable to Centuri increased by $23.7 million, recognized as an income tax benefit increase in the consolidated statement of operations. Refer to “Note 2 — Basis of Presentation and Summary of Significant Accounting Policies — Income Taxes” for additional details.
The following is a summary of income (loss) before income taxes (in thousands):
| Fiscal Years Ended | |||||||||||||||||
| December 28, 2025 | December 29, 2024 | December 31, 2023 | |||||||||||||||
| Domestic | $ | (17,670) | $ | (20,479) | $ | (195,505) | |||||||||||
| Foreign | 32,257 | 17,123 | 20,529 | ||||||||||||||
| Total income (loss) before income taxes | $ | 14,587 | $ | (3,356) | $ | (174,976) | |||||||||||
Income tax expense (benefit) consisted of the following (in thousands):
| Fiscal Years Ended | |||||||||||||||||
| December 28, 2025 | December 29, 2024 | December 31, 2023 | |||||||||||||||
| Current income tax expense: | |||||||||||||||||
| Federal | $ | 3,681 | $ | 12,155 | $ | 6,057 | |||||||||||
| State | 3,677 | 2,338 | 6,579 | ||||||||||||||
| Foreign | (823) | 8,141 | 6,566 | ||||||||||||||
| Total current income tax expense | 6,535 | 22,634 | 19,202 | ||||||||||||||
| Deferred income tax (benefit) expense: | |||||||||||||||||
| Federal | (21,731) | (12,752) | (4,204) | ||||||||||||||
| State | (2,252) | (2,801) | (4,375) | ||||||||||||||
| Foreign | 9,385 | (3,615) | (1,093) | ||||||||||||||
| Total deferred income tax benefit | (14,598) | (19,168) | (9,672) | ||||||||||||||
| Total income tax (benefit) expense | $ | (8,063) | $ | 3,466 | $ | 9,530 | |||||||||||
The following is a reconciliation of the federal statutory rate to the consolidated effective tax rate for fiscal year 2025 pursuant to the requirements of ASU 2023-09. which has been applied prospectively:
| Fiscal Year Ended | |||||||||||
| December 28, 2025 | |||||||||||
| $ | % | ||||||||||
| U.S. Federal statutory income tax rate | $ | 3,063 | 21.0 | % | |||||||
State income tax, net (1) | 1,132 | 7.8 | % | ||||||||
| Foreign Tax Effects - Canada | |||||||||||
| Statutory differences between Canada and United States | 1,754 | 12.0 | % | ||||||||
| Other | 34 | 0.2 | % | ||||||||
| Effect of Cross-Border Tax Laws - Canada (GILTI) | 1,986 | 13.6 | % | ||||||||
| Nontaxable or Nondeductible Items | |||||||||||
| Meals and entertainment expenses | 3,820 | 26.2 | % | ||||||||
| Company-owned life insurance | (764) | (5.2 | %) | ||||||||
| Executive compensation limitations | 934 | 6.4 | % | ||||||||
| Stock-based compensation | 170 | 1.2 | % | ||||||||
| Transaction costs | 424 | 2.9 | % | ||||||||
| Other nontaxable or nondeductible items | 244 | 1.7 | % | ||||||||
| Changes in Uncertain Tax Positions | (510) | (3.5 | %) | ||||||||
| Other Adjustments | |||||||||||
| Allocation of tax assets from Southwest Gas Holdings | (20,861) | (143.0 | %) | ||||||||
| Southwest Gas Holdings settlement true-up | 180 | 1.2 | % | ||||||||
| Return to provision | 278 | 1.9 | % | ||||||||
| Other | 53 | 0.3 | % | ||||||||
| Consolidated effective income tax rate | $ | (8,063) | (55.3 | %) | |||||||
(1)State taxes in Pennsylvania and Illinois made up the majority (greater than 50%) of the tax expense effect in this category.
As previously disclosed for the fiscal years ended December 29, 2024 and December 31, 2023, prior to the adoption of ASU 2023-09, the effective income tax rate differs from the statutory rate as follows:
| Fiscal Years Ended | |||||||||||
| December 29, 2024 | December 31, 2023 | ||||||||||
| Federal statutory income tax rate | 21.0 | % | 21.0 | % | |||||||
| Increases (decreases) resulting from: | |||||||||||
| State income tax, net | 13.3 | % | (0.6 | %) | |||||||
| Goodwill impairment | 0.0 | % | (23.4 | %) | |||||||
| Company-owned life insurance | 18.0 | % | 0.4 | % | |||||||
| Separation related costs | (16.3 | %) | 0.0 | % | |||||||
| Meals and entertainment expenses | (86.5 | %) | (1.9 | %) | |||||||
| Executive compensation limitations | (30.2 | %) | 0.0 | % | |||||||
| Canadian tax rate differences | (28.1 | %) | (0.6 | %) | |||||||
| Return to provision | 12.6 | % | (0.6 | %) | |||||||
| State rate impact of asset transfers | (10.4 | %) | 0.0 | % | |||||||
| Tax credits | 10.4 | % | 0.4 | % | |||||||
| Penalties | (3.2 | %) | (0.1 | %) | |||||||
| Stock-based compensation | (1.9 | %) | 0.0 | % | |||||||
| Uncertain tax positions | (1.1 | %) | 0.0 | % | |||||||
| Other | (0.9 | %) | 0.0 | % | |||||||
| Consolidated effective income tax rate | (103.3 | %) | (5.4 | %) | |||||||
The significant components of deferred tax assets and liabilities were as follows (in thousands):
| December 28, 2025 | December 29, 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Accrued expenses not currently deductible for tax | $ | 41,174 | $ | 36,693 | |||||||
| Operating lease obligations | 47,919 | 27,239 | |||||||||
| Net operating losses | 84,499 | 17,937 | |||||||||
| Interest expense carryforward | — | 30,483 | |||||||||
| Other | 1,332 | 2,136 | |||||||||
| Deferred tax assets | 174,924 | 114,488 | |||||||||
| Less: valuation allowance | (824) | (542) | |||||||||
| Deferred tax assets, net | 174,100 | 113,946 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Depreciation of property and equipment | 106,677 | 113,385 | |||||||||
| Right-of-use assets | 45,812 | 25,453 | |||||||||
| Goodwill and intangible assets | 91,807 | 83,097 | |||||||||
| Canadian contract assets, net | 8,169 | 7,125 | |||||||||
| Deferred tax liabilities | 252,465 | 229,060 | |||||||||
| Net deferred tax liabilities | $ | 78,365 | $ | 115,114 | |||||||
In addition to deferred income tax benefit, the net deferred tax liability balance decreased due to the allocation of tax assets from Southwest Gas Holdings, partially offset by the reversal of certain deferred tax assets recorded under the separate return method, and deferred tax liabilities added through the Connect acquisition.
The Company monitors on an ongoing basis the ability to utilize deferred tax assets and whether there is a need for a related valuation allowance. In evaluating the ability to recover deferred tax assets in the jurisdictions from which they arise, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies and recent results of operations. A reconciliation of the beginning and ending amount of the Company’s valuation allowance is as follows (in thousands):
| December 28, 2025 | December 29, 2024 | December 31, 2023 | |||||||||||||||
| Valuation allowances at beginning of the year | $ | 542 | $ | 1,986 | $ | 1,885 | |||||||||||
| Additions (charged to expense) | 270 | 187 | — | ||||||||||||||
| Changes due to change in rates | 12 | 25 | 101 | ||||||||||||||
| Write-offs | — | (1,656) | — | ||||||||||||||
| Valuation allowances at end of year | $ | 824 | $ | 542 | $ | 1,986 | |||||||||||
As of December 28, 2025, the Company has federal net operating loss carryforwards related to U.S. operations of $301.1 million, some of which begin to expire in fiscal 2029, and $14.7 million related to Canadian operations (net of valuation allowances), which begin to expire in fiscal 2044. As of December 28, 2025, the Company has $260.2 million of state net operating loss carryforwards (net of valuation allowances). An immaterial amount of the Company’s state net operating loss carryforwards expire between 2026 and 2035, while the majority begin to expire thereafter or do not expire at all.
Distributions of cash to the U.S. as dividends generally will not be subject to U.S. federal income tax. The Company has not provided foreign withholding or state income taxes on the undistributed earnings of its foreign subsidiaries, over which the Company will have sufficient influence to control the distribution of such earnings and has determined that substantially all such earnings have been reinvested indefinitely. These earnings could become subject to foreign withholding tax if they are remitted as dividends. As of December 28, 2025, the Company estimates that repatriation of these foreign earnings would generate withholding taxes and state income taxes of approximately $8.1 million.
In prior years, the Company has recorded a liability for unrecognized tax benefits related to tax positions taken on its various income tax returns. This balance is recorded in other long-term liabilities. If recognized, the entire amount of unrecognized tax benefits would favorably impact the effective tax rate that is reported in future periods. In the current
fiscal year, due to the income tax deconsolidation from Southwest, the Company no longer has any unrecognized tax benefits related to tax positions taken.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
| December 28, 2025 | December 29, 2024 | December 31, 2023 | |||||||||||||||
| Unrecognized tax benefits at beginning of year | $ | 510 | $ | 472 | $ | 427 | |||||||||||
| Gross increases – tax positions in prior period | — | 38 | 45 | ||||||||||||||
| Gross decreases – tax positions in prior period | (510) | — | — | ||||||||||||||
| Unrecognized tax benefits at end of year | $ | — | $ | 510 | $ | 472 | |||||||||||
With certain exceptions, the Company is no longer subject to U.S. federal, state, local, or Canadian examinations for years before fiscal 2018.
On July 4, 2025, the “One Big Beautiful Bill Act” (the “OBBBA”) was signed into law. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act and the restoration of favorable tax treatment for certain business provisions. The OBBBA has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The OBBBA did not have a material impact on the Company’s effective tax rate for fiscal year 2025. While further evaluation is ongoing, the OBBBA is not expected to have a material impact on the Company's financial position or results of operations.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Feb 26, 2025 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.