UFP INDUSTRIES INC Income Taxes Disclosure
J.INCOME TAXES
Income tax provisions for the years ended December 30, 2023, December 31, 2022, and December 25, 2021 are summarized as follows (in thousands):
| 2023 | 2022 |
| 2021 | |||||
Currently Payable: |
|
|
|
|
|
| |||
Federal | $ | 123,257 | $ | 181,029 | $ | 115,077 | |||
State and local |
| 28,580 |
| 44,646 |
| 30,441 | |||
Foreign |
| 10,808 |
| 17,336 |
| 21,095 | |||
| 162,645 |
| 243,011 |
| 166,613 | ||||
Net Deferred: |
|
|
|
|
|
| |||
Federal |
| (2,249) |
| (8,561) |
| 6,242 | |||
State and local |
| (3,223) |
| (3,657) |
| 118 | |||
Foreign |
| (389) |
| (941) |
| 999 | |||
| (5,861) |
| (13,159) |
| 7,359 | ||||
Total income tax expense | $ | 156,784 | $ | 229,852 | $ | 173,972 | |||
The components of earnings before income taxes consist of the following:
| 2023 |
| 2022 |
| 2021 | ||||
U.S. | $ | 633,816 | $ | 876,071 | $ | 645,316 | |||
Foreign |
| 37,425 |
| 58,745 |
| 81,020 | |||
Total | $ | 671,241 | $ | 934,816 | $ | 726,336 | |||
The effective income tax rates are different from the statutory federal income tax rates for the following reasons:
| 2023 |
| 2022 |
| 2021 |
| |
Statutory federal income tax rate |
| 21.0 | % | 21.0 | % | 21.0 | % |
State and local taxes (net of federal benefits) |
| 3.6 |
| 3.4 |
| 3.3 | |
Tax credits, including foreign tax credit |
| (0.9) |
| (0.8) |
| (0.6) | |
Change in uncertain tax positions reserve |
| 0.2 |
| (0.1) |
| (0.1) | |
Other permanent differences |
| 0.2 |
| 0.1 |
| (0.4) | |
Other, net |
| (0.7) |
| 1.0 |
| 0.7 | |
Effective income tax rate |
| 23.4 | % | 24.6 | % | 23.9 | % |
Temporary differences which give rise to deferred income tax assets and (liabilities) on December 30, 2023 and December 31, 2022 are as follows (in thousands):
| 2023 |
| 2022 | |||
Employee benefits | $ | 45,661 | $ | 37,893 | ||
Lease liability | 27,918 | 28,746 | ||||
Net operating loss carryforwards |
| 7,881 |
| 6,891 | ||
Foreign subsidiary capital loss carryforward |
| 935 |
| 500 | ||
Other tax credits |
| 31 |
| 102 | ||
Inventory |
| 2,397 |
| 3,732 | ||
Reserves on receivables |
| 2,203 |
| 3,273 | ||
Accrued expenses |
| 3,373 |
| 6,791 | ||
Capitalized research and development costs | 28,021 | 11,080 | ||||
Gross deferred income tax assets |
| 118,420 |
| 99,008 | ||
Valuation allowance |
| (6,014) |
| (4,618) | ||
Deferred income tax assets |
|
| 112,406 |
| 94,390 | |
Depreciation |
| (82,617) |
| (69,711) | ||
Intangibles |
| (43,455) |
| (43,643) | ||
Right of use assets | (26,870) | (27,849) | ||||
Other, net |
| (484) |
| (702) | ||
Deferred income tax liabilities |
| (153,426) |
| (141,905) | ||
Net deferred income tax liability | $ | (41,020) | $ | (47,515) | ||
As of December 30, 2023, we had federal, state and foreign net operating loss carryforwards of $7.9 million and state tax credit carryforwards of $0.1 million, which will expire at various dates.
The NOL and credit carryforwards expire as follows:
Net Operating Losses | Tax Credits | ||||||||||||||
| U.S. |
| State |
| Foreign |
| U.S. |
| State | ||||||
2024 - 2028 | $ | — | $ | 27 | $ | 206 | $ | — | $ | — | |||||
2029 - 2033 |
| — | 396 | 1,268 |
| — |
| — | |||||||
2034 - 2038 |
| — | 1,618 | 1,656 |
| — |
| 31 | |||||||
2039 - 2043 |
| 208 | 1,373 | — |
| — |
| — | |||||||
Thereafter |
| — | — | 570 |
| — |
| — | |||||||
Total | $ | 208 | $ | 3,414 | $ | 3,700 | $ | — | $ | 31 | |||||
As of December 30, 2023, we believe that it is more likely than not that the benefit from certain state and foreign NOL carryforwards will not be realized. In recognition of this risk, we have provided a valuation allowance of $5.5 million against the various NOLs. Furthermore, there is a valuation allowance of $0.5 million against a capital loss carryforward we have for a wholly-owned subsidiary, UFP Canada, Inc. Based upon the business activity and the nature of the assets of this subsidiary, our ability to realize a future benefit from this carryforward is doubtful. The capital loss has an unlimited carryforward and therefore will not expire unless there is a change in control of the subsidiary.
The Organization of Economic Cooperation and Development (“OECD”) reached an agreement among various countries to implement a minimum 15% tax rate on certain multinational enterprises, commonly referred to as Pillar Two. Many countries continue to announce changes in their tax laws, many of them effective for tax years beginning Jan 1, 2024. We continue to analyze the impacts of these legislative changes to our effective tax rate, consolidated financial statements, and related disclosures. As of Dec 30, 2023, we do not expect the impact of Pillar Two legislation to have a material impact on our tax expense.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2023 | Feb 28, 2024 | Showing above |
| 2022 | Mar 1, 2023 | |
| 2021 | Feb 23, 2022 | |
| 2020 | Mar 3, 2021 | |
| 2019 | Feb 26, 2020 | |
| 2018 | Feb 27, 2019 | |
| 2017 | Feb 28, 2018 | |
| 2016 | Mar 1, 2017 | |
| 2015 | Feb 24, 2016 | |
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.