MIDDLEBY CorpMIDD
MIDDLEBY Corp Income Taxes Disclosure
INCOME TAXES
Earnings before taxes is summarized as follows (in thousands):
| 2021 | 2020 | 2019 | |||||||||||||||
| Domestic | $ | 453,357 | $ | 178,813 | $ | 336,688 | |||||||||||
| Foreign | 166,147 | 89,244 | 125,931 | ||||||||||||||
| Total | $ | 619,504 | $ | 268,057 | $ | 462,619 | |||||||||||
The provision for income taxes is summarized as follows (in thousands):
| 2021 | 2020 | 2019 | |||||||||||||||
| Federal | $ | 84,689 | $ | 36,908 | $ | 69,074 | |||||||||||
| State and local | 24,363 | 8,815 | 16,203 | ||||||||||||||
| Foreign | 21,960 | 15,040 | 25,102 | ||||||||||||||
| Total | $ | 131,012 | $ | 60,763 | $ | 110,379 | |||||||||||
| Current | $ | 124,149 | $ | 44,342 | $ | 88,167 | |||||||||||
| Deferred | 6,863 | 16,421 | 22,212 | ||||||||||||||
| Total | $ | 131,012 | $ | 60,763 | $ | 110,379 | |||||||||||
Reconciliation of the differences between income taxes computed at the federal statutory rate to the effective rate are as follows:
| 2021 | 2020 | 2019 | |||||||||||||||
| U.S. federal statutory tax rate | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||
| State taxes, net of federal benefit | 3.1 | 3.2 | 3.2 | ||||||||||||||
| Permanent differences | 0.5 | (0.4) | 0.6 | ||||||||||||||
| Foreign income tax rate at rates other than U.S. statutory | 0.2 | 0.5 | 0.2 | ||||||||||||||
| Deferred tax changes | (2.2) | (0.7) | — | ||||||||||||||
| Tax refunds | (0.7) | — | — | ||||||||||||||
Change in valuation allowances (1) | 0.4 | (0.1) | 0.1 | ||||||||||||||
| Tax on unremitted earnings | 0.4 | 1.2 | 0.3 | ||||||||||||||
| Other | (1.6) | (2.0) | (1.5) | ||||||||||||||
| Consolidated effective tax | 21.1 | % | 22.7 | % | 23.9 | % | |||||||||||
(1) Net of changes in related tax attributes.
The company’s effective tax rate for 2021 was 21.1% as compared to 22.7% in 2020. The effective tax rate for 2021 reflects favorable tax adjustments for deferred tax rate changes, tax refunds and adjustments for the finalization of 2020 tax returns. The effective tax rate is higher than the federal tax rate of 21.0% primarily due to state taxes and foreign tax rate differentials.
At January 1, 2022 and January 2, 2021, the company had recorded the following deferred tax assets and liabilities (in thousands):
| 2021 | 2020 | ||||||||||
| Deferred tax assets: | |||||||||||
| Compensation related | $ | 21,543 | $ | 12,328 | |||||||
| Pension and post-retirement benefits | 49,072 | 88,709 | |||||||||
| Inventory reserves | 14,453 | 14,732 | |||||||||
| Accrued liabilities and reserves | 17,088 | 22,049 | |||||||||
| Warranty reserves | 19,286 | 17,890 | |||||||||
| Operating lease liability | 18,643 | 16,180 | |||||||||
| Interest rate swaps | 4,573 | 12,997 | |||||||||
| Convertible debt | 37,034 | — | |||||||||
| Net operating loss carryforwards | 17,083 | 20,747 | |||||||||
| Other | 12,695 | 17,187 | |||||||||
| Gross deferred tax assets | 211,470 | 222,819 | |||||||||
| Valuation allowance | (10,222) | (11,731) | |||||||||
| Deferred tax assets | $ | 201,248 | $ | 211,088 | |||||||
| Deferred tax liabilities: | |||||||||||
| Intangible assets | $ | (273,974) | $ | (226,598) | |||||||
| Depreciable assets | (26,996) | (26,916) | |||||||||
| Basis difference on affiliates | (18,795) | — | |||||||||
| Operating lease right-of-use assets | (18,029) | (15,921) | |||||||||
| Other | (17,195) | (12,825) | |||||||||
| Deferred tax liabilities | $ | (354,989) | $ | (282,260) | |||||||
| Net deferred tax assets (liabilities) | $ | (153,741) | $ | (71,172) | |||||||
| Long-term deferred asset | 33,194 | 76,052 | |||||||||
| Long-term deferred liability | (186,935) | (147,224) | |||||||||
| Net deferred tax assets (liabilities) | $ | (153,741) | $ | (71,172) | |||||||
The company has recorded tax reserves on undistributed foreign earnings not permanently reinvested of $9.7 million and $7.5 million at January 1, 2022 and January 2, 2021, respectively. No further provisions were made for income taxes that may result from future remittances of undistributed earnings of foreign subsidiaries that are determined to be permanently reinvested, which were $538.0 million on January 1, 2022. Determination of the total amount of unrecognized deferred income taxes on undistributed earnings net of foreign subsidiaries is not practicable.
The company has a deferred tax asset on net operating loss carryforwards totaling $17.1 million as of January 1, 2022. These net operating losses are available to reduce future taxable earnings of certain domestic and foreign subsidiaries. United States federal loss carryforwards total $29.0 million of which $5.6 million will expire through 2036 and $23.4 million have no expiration date. State loss carryforwards total $34.2 million and expire through 2040 and international loss carryforwards total $44.7 million and expire through 2038; however, some have no expiration date. Of these carryforwards, $33.4 million are subject to full valuation allowance.
As of January 1, 2022, the total amount of liability for unrecognized tax benefits related to federal, state and foreign taxes was approximately $36.2 million (of which $36.2 million would impact the effective tax rate if recognized) plus approximately $7.1 million of accrued interest and $6.0 million of penalties. The company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. Interest recognized in fiscal years 2021, 2020 and 2019 was $0.9 million, $0.8 million and $0.4 million, respectively. Penalties recognized in fiscal years 2021, 2020 and 2019 was $(1.0) million, $(0.2) million and $(0.9) million, respectively.
Although the company believes its tax returns are correct, the final determination of tax examinations may be different than what was reported on the tax returns. In the opinion of management, adequate tax provisions have been made for the years subject to examination.
The following table summarizes the activity related to the unrecognized tax benefits for the fiscal years ended December 28, 2019, January 2, 2021 and January 1, 2022 (in thousands):
| Balance at December 28, 2019 | $ | 31,559 | |||
| Increases to current year tax positions | 3,657 | ||||
| Increase to prior year tax positions | 183 | ||||
| Decrease to prior year tax positions | (53) | ||||
| Settlements | (533) | ||||
| Lapse of statute of limitations | (4,484) | ||||
| Balance at January 2, 2021 | $ | 30,329 | |||
| Increases to current year tax positions | 1,760 | ||||
| Increase to prior year tax positions | 6,796 | ||||
| Decrease to prior year tax positions | (576) | ||||
| Settlements | (1,180) | ||||
| Lapse of statute of limitations | (920) | ||||
| Balance as of January 1, 2022 | $ | 36,209 | |||
It is reasonably possible that the amounts of unrecognized tax benefits associated with state, federal and foreign tax positions may decrease over the next twelve months due to expiration of a statute or completion of an audit. The company believes that it is reasonably possible that $3.8 million of its remaining unrecognized tax benefits may be recognized by the end of 2022 as a result of settlements with taxing authorities or lapses of statutes of limitations.
In the normal course of business, income tax authorities in various income tax jurisdictions both in the United States and internationally conduct routine audits of our income tax returns filed in prior years. These audits are generally designed to determine if individual income tax authorities are in agreement with our interpretations of complex tax regulations regarding the allocation of income to the various income tax jurisdictions. Income tax years are open from 2017 through the current year for the United States federal jurisdiction. Income tax years open for our other major jurisdictions range from 2016 through the current year.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2022 | Mar 2, 2022 | Showing above |
| 2021 | Mar 3, 2021 | |
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.