Income Taxes |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 01, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes |
13. Income
Taxes
Effective Income Tax Rate
We
recorded income tax expense of $5.1 million, or 37.5% of income
before income tax expense, for the six month period ended November
1, 2015, compared to income tax expense of $4.0 million or 38.7% of
income before income tax expense, for the six month period ended
November 2, 2014. Our effective income tax rates for the six month
periods ended November 1, 2015 and November 2, 2014, were based
upon the estimated effective income tax rate applicable for the
full year after giving effect to any significant items related
specifically to interim periods. The effective income tax rate can
be affected over the fiscal year by the mix and timing of actual
earnings from our U.S. operations and foreign sources versus annual
projections and changes in foreign currencies in relation to the
U.S. dollar.
The following schedule summarizes the principal differences between
income tax expense at the federal income tax rate and the effective
income tax rate reflected in the consolidated financial
statements:
Deferred Income Taxes
Valuation Allowance
In
accordance with ASC Topic 740, we evaluate our deferred income
taxes to determine if a valuation allowance is required. ASC Topic
740 requires that companies assess whether a valuation allowance
should be established based on the consideration of all available
evidence using a “more likely than not” standard, with
significant weight being given to evidence that can be objectively
verified. Since the company operates in multiple jurisdictions, we
assess the need for a valuation allowance on a
jurisdiction-by-jurisdiction basis, taking into account the effects
of local tax law. Based on our assessment at November 1,
2015, we recorded a partial valuation allowance of $938,000, of
which $561,000 pertained to certain U.S. state net operating loss
carryforwards and credits and $377,000 pertained to loss
carryfowards associated with our Culp Europe operation located in
Poland. Based on our assessment at November 2, 2014, we recorded a
partial valuation allowance of $1.1 million, of
which $666,000 pertained to certain U.S. state net
operating loss carryforwards and credits and $456,000 pertained to
loss carryfowards associated with our Culp Europe operation located
in Poland. Based on our assessment at May 3, 2015, we recorded a
partial valuation allowance of $922,000, of which $561,000
pertained to certain U.S. state net operating loss carryforwards
and credits and $361,000 pertained to loss carryfowards associated
with our Culp Europe operation located in Poland.
No
valuation allowance was recorded against our net deferred tax
assets associated with our operations located in China and Canada
at November 1, 2015, November 2, 2014, and May 3, 2015,
respectively.
The
recorded valuation allowance of $938,000 at November 1, 2015, has
no effect on our operations, loan covenant compliance, or the
possible realization of certain U.S. state net operating loss
carryforwards and credits and our loss carryforwards associated
with our Culp Europe operation located in Poland. If it is
determined that it is more-likely-than-not that we will realize any
of these deferred tax assets, an income tax benefit will be
recognized at that time.
Undistributed Earnings
In
accordance with ASC Topic 740, we assess whether the undistributed
earnings from our foreign subsidiaries will be reinvested
indefinitely or eventually distributed to our U.S. parent company.
ASC Topic 740 requires that a deferred tax liability should be
recorded for undistributed earnings from foreign subsidiaries that
will not be reinvested indefinitely. Based on our assessment as of
November 1, 2015, it is our intention not to permanently invest our
undistributed earnings from our foreign subsidiaries. Also,
we
assess the recognition of U.S. foreign income tax credits
associated with foreign withholding and income tax payments and
whether it is more-likely-than-not that our foreign income tax
credits will not be realized. If it is determined that any foreign
income tax credits need to be recognized or it is
more-likely-than-not our foreign income tax credits will not be
realized, an adjustment to our provision for income taxes will be
recognized at that time.
At
November 1, 2015, the net deferred tax liability associated with
our undistributed earnings from our foreign subsidiaries totaled
$2.4 million, which included U.S. income and foreign withholding
taxes totaling $35.7 million, offset by U.S. foreign income tax
credits of $33.3 million. At November 2, 2014, the net deferred tax
liability associated with our undistributed earnings from our
foreign subsidiaries totaled $2.2 million, which included U.S.
income and foreign withholding taxes totaling $30.6 million, offset
by U.S. foreign income tax credits of $28.4 million. At May 3,
2015, the net deferred tax liability associated with our
undistributed earnings from our foreign subsidiaries totaled $1.7
million, which included U.S. income and foreign withholding taxes
totaling $32.4 million, offset by U.S. foreign income tax credits
of $30.7 million.
We
had accumulated earnings from our foreign subsidiaries totaling
$93.2 million, $78.9 million, and $85.2
million at November 1, 2015, November 2, 2014, and May 3, 2015,
respectively.
Overall
At
November 1, 2015, the current deferred tax asset of $7.7 million
represents $7.2 million and $516,000 from our operations located in
the U.S. and China, respectively. At November 1, 2015, the
non-current deferred tax asset of $382,000 pertains to our
operations located in China. At November 1, 2015, the non-current
deferred tax liability of $5.9 million represents $4.7 million and
$1.2 million from our operations located in the U.S. and Canada,
respectively.
At
November 2, 2014, the current deferred tax asset of $6.2 million
represents $5.8 million and $428,000 from our operations located in
the U.S. and China, respectively. At November 2, 2014, the
non-current deferred tax asset of $508,000 pertained to our
operations located in China. At November 2, 2014, the non-current
deferred tax liability of $1.4 million represented $886,000 and
$509,000 from our operations located in Canada and the U.S.,
respectively.
At
May 3, 2015, the current deferred tax asset of $4.8 million
represents $4.4 million and $421,000 from our operations located in
the U.S. and China, respectively. At May 3, 2015, the non-current
deferred tax asset of $447,000 pertained to our operations located
in China. At May 3, 2015, the non-current deferred tax liability of
$1.1 million represents $896,000 and $154,000 from our operations
located in Canada and the U.S., respectively.
Uncertainty In Income Taxes
At
November 1, 2015, we had a $14.2 million total gross unrecognized
tax benefit, of which $3.7 million represents the amount of gross
unrecognized tax benefits that, if recognized, would favorably
affect the income tax rate in future periods. At November 2, 2014,
we had a $14.1 million total gross unrecognized tax benefit, of
which $4.0 million represents the amount of gross unrecognized tax
benefits that, if recognized, would favorably affect the income tax
rate in future periods. At May 3, 2015, we had a $14.1 million
total gross unrecognized tax benefit, of which $3.8 million
represents the amount of gross unrecognized tax benefits that, if
recognized, would favorably affect the income tax rate in future
periods.
At
November 1, 2015, we had a $14.2 million total gross unrecognized
tax benefit, of which $10.5 million and $3.7 million were
classified as net non-current deferred income taxes and income
taxes payable – long-term, respectively, in the accompanying
consolidated balance sheets. At November 2, 2014, we had a $14.1
million total gross unrecognized tax benefit, of which $10.1
million and $4.0 million were classified as net non-current
deferred income taxes and income taxes payable – long-term,
respectively, in the accompanying consolidated balance sheets. At
May 3, 2015, we had $14.1 million of total gross unrecognized tax
benefit, of which $10.3 million and $3.8 million were classified as
net non-current deferred income taxes and income taxes payable
– long-term, respectively, in the accompanying consolidated
balance sheets.
We
estimate that the amount of gross unrecognized tax benefits will
increase by approximately $846,000 for fiscal 2016. This increase
primarily relates to double taxation under applicable tax treaties
with foreign tax jurisdictions.
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