INCOME TAXES |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Apr. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INCOME TAXES |
9.
INCOME TAXES
Income Tax Expense and Effective Income Tax Rate
Total income tax expense was allocated as follows:
Income tax expense attributable to income from operations
consists of:
Income (loss) before income taxes related to our foreign and U.S.
operations consists of:
The following schedule summarizes the principal differences between
the income tax expense at the federal income tax rate and the
effective income tax rate reflected in the consolidated financial
statements:
Deferred Income Taxes
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities
consist of the following:
(1) Pertains to the company’s operations located
in China.
(2) Pertains to the company’s operations located
in the U.S. and Canada.
Federal and state net operating loss carryforwards were
approximately $9.0 million with related future tax benefits of $3.8
million at April 30, 2017. These carryforwards principally expire
in 9-18 years, fiscal 2027 through fiscal 2035. Our U.S. foreign
income tax credits of $1.4 million expire in 9 years, fiscal 2026.
Our alternative minimum tax credit carryforward of approximately
$1.4 million for federal income tax purposes does not expire.
At April 30, 2017, our non-current deferred income tax asset of
$419,000 pertained to our operations located in China. At May 1,
2016, our non-current deferred income tax asset of $2.3 million
represents
$1.7 million and $572,000 from our operations located in the U.S.
and China, respectively.
At April 30, 2017, our non-current deferred income tax liability of
$3.6 million represents $2.1 million and $1.5 million from our
operations located in Canada and the U.S., respectively. At May 1,
2016, our non-current deferred income tax liability of $1.5 million
pertained to our operations located in Canada.
Deferred Income Taxes – Valuation Allowance
Summary
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 April 30, 2017, we
recorded a partial valuation allowance of $536,000, of which
$464,000 pertained to certain U.S. state net operating loss
carryforwards and credits and $72,000 pertained to loss
carryforwards associated with our Culp Europe operation located in
Poland. Based on our assessment at May 1, 2016, we recorded a
partial valuation allowance of $590,000, of which $518,000
pertained to certain U.S. state net operating loss carryforwards
and credits and $72,000 pertained to loss carryforwards 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 April 30, 2017 and May 1, 2016, respectively.
United States
Our partial valuation allowance against our U.S. net deferred
assets totaled $464,000 and $518,000 at April 30, 2017, and May 1,
2016, respectively. These valuation allowances pertain to U.S.
state net operating loss carryforwards and credits in which it is
“more likely than not” that these U.S. state net
operating loss carryforwards and credits would not be realized
prior to their respective expiration dates. We recorded income tax
benefits of $54,000, $43,000, and $105,000 that reduced our
valuation allowance against our U.S. net deferred tax assets in
fiscal years 2017, 2016, and 2015, respectively. These income tax
benefits pertain to a change in estimate of the recoverability of
our U.S. state net loss operating carryforwards at the end of the
respective prior fiscal year.
Poland
Our partial valuation allowance against our loss carryforwards
associated with our Culp Europe operation located in Poland totaled
$72,000 at April 30, 2017 and May 1, 2016. These valuation
allowances pertain to net operating loss carryforwards in which it
is “more likely than not” that these net operating loss
carryforwards would not be realized prior to their respective
expiration dates.
During fiscal 2016, we recorded an income tax benefit of $289,000
for a change in estimate of the recoverability of our net loss
operating carryforwards at the end of the respective prior fiscal
year. During fiscal 2015 we recorded an income tax charge of
$50,000 for an increase in the full valuation allowance against our
net deferred tax assets associated with our Culp Europe
operation.
Deferred Income Taxes – Undistributed Earnings from Foreign
Subsidiaries
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.
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 April 30, 2017, we had accumulated earnings and profits from our
foreign subsidiaries totaling $146.9 million. At the same date, the
deferred tax liability associated with our undistributed earnings
from our foreign subsidiaries totaled $497,000, which included U.S.
income and foreign withholding taxes totaling $44.0 million, offset
by U.S. foreign income tax credits of $43.5 million.
At May 1, 2016, we had accumulated earnings and profits from our
foreign subsidiaries totaling $129.6 million. At the same date, the
deferred tax liability associated with our undistributed earnings
from our foreign subsidiaries totaled $604,000, which included U.S.
income and foreign withholding taxes totaling $38.5 million, offset
by U.S. foreign income tax credits of $37.9 million.
Uncertainty in Income Taxes
The following table sets forth the change in the company’s
unrecognized tax benefit:
** Amount includes a reduction to unrecognized tax benefits of
$3,431 resulting from a lapse of the applicable statute of
limitations.
At April 30, 2017, we had $12.2 million of total gross unrecognized
tax benefits, of which $467,000 would favorably affect the income
tax rate in future periods. At May 1, 2016, we had $14.9 million of
total gross unrecognized tax benefits, of which $3.8 million would
favorably affect the income tax rate in future periods.
At April 30, 2017, we had $12.2 million of total gross unrecognized
tax benefits, of which $11.8 million and $467,000 were classified
as net non-current deferred income taxes and income taxes
payable-long- term, respectively, in the accompanying consolidated
balance sheets. As of May 1, 2016, we had $14.9 million of total
gross unrecognized tax benefits, of which $11.1 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 elected to classify interest and penalties as part of income tax
expense. At April 30, 2017 and May 1, 2016, the gross amount of
interest and penalties due to unrecognized tax benefits was $50,000
and
$978,000, respectively.
Our gross unrecognized income tax benefit of $12.2 million at April
30, 2017, relates to tax positions for which significant change is
reasonably possible within the next year. This amount primarily
relates to double taxation under applicable income tax treaties
with foreign tax jurisdictions. United States federal and state
income tax returns filed by us remain subject to examination for
income tax years 2005 and subsequent due to loss carryforwards.
Canadian federal and provincial (Quebec) returns filed by us remain
subject to examination for income tax years 2013 and subsequent.
Income tax returns associated with our operations located in China
are subject to examination for income tax year 2012 and
subsequent.
Currently, the Internal Revenue Service is examining our U.S.
Federal income tax returns for fiscal years 2014 through 2016, and
no adjustments have been proposed at this time. We currently expect
this examination to be completed during fiscal 2018. During the
third quarter of fiscal 2017, Revenue Quebec commenced an
examination of our Canadian provincial (Quebec) income tax returns
for fiscal years 2013 through 2015, and no adjustments have been
proposed at this time. We currently expect this examination to be
completed during fiscal 2018.
In accordance with ASC Topic 740, an unrecognized income tax
benefit for an uncertain income tax position can be recognized in
the first interim period if the more-likely-than-not recognition
threshold is met by the reporting period, or is effectively settled
through examination, negotiation, or litigation, or the statute of
limitations for the relevant taxing authority to examine and
challenge the tax position has expired. If it is determined that
any of the above conditions occur regarding our uncertain income
tax positions, an adjustment to our unrecognized income tax benefit
will be recorded at that time.
During the fiscal 2017, we recognized an income tax benefit of $3.4
million for the reversal of an uncertain income tax position
associated with certain foreign jurisdictions in which the statute
of limitations expired. Accordingly, of this $3.4 million income
tax benefit, $2.1 million and $1.3 million were treated as discrete
events in which the full income tax effects of these adjustments
were recorded in the third and fourth quarters,
respectively.
Income Taxes Paid
Income tax payments, net of income tax refunds, were $5.5 million
in fiscal 2017, $6.7 million in 2016, and $4.8 million in
2015.
|