CULP INC Income Taxes Disclosure
12. INCOME TAXES
The components of loss before income taxes are as follows:
(dollars in thousands) |
|
2026 |
|
|
2025 |
|
|
2024 |
|
|||
United States |
|
$ |
(15,081 |
) |
|
$ |
(18,395 |
) |
|
$ |
(18,614 |
) |
Foreign |
|
|
6,796 |
|
|
|
(316 |
) |
|
|
7,844 |
|
|
|
$ |
(8,285 |
) |
|
$ |
(18,711 |
) |
|
$ |
(10,770 |
) |
Income tax expense consists of:
(dollars in thousands) |
|
2026 |
|
|
2025 |
|
|
2024 |
|
|||
Current income tax expense (benefit) |
|
|
|
|
|
|
|
|
|
|||
U.S. federal |
|
$ |
2 |
|
|
$ |
(579 |
) |
|
$ |
42 |
|
U.S. state |
|
|
5 |
|
|
|
4 |
|
|
|
— |
|
Foreign |
|
|
2,056 |
|
|
|
2,310 |
|
|
|
2,620 |
|
Total current income tax expense |
|
|
2,063 |
|
|
|
1,735 |
|
|
|
2,662 |
|
Deferred income tax expense (benefit) |
|
|
|
|
|
|
|
|
|
|||
U.S. federal |
|
|
1,642 |
|
|
|
3,872 |
|
|
|
4,505 |
|
U.S. federal loss carryforwards and credits |
|
|
(1,642 |
) |
|
|
(3,872 |
) |
|
|
(4,505 |
) |
U.S. state |
|
|
(12 |
) |
|
|
258 |
|
|
|
229 |
|
U.S. state carryforwards |
|
|
12 |
|
|
|
(258 |
) |
|
|
(229 |
) |
Foreign |
|
|
(137 |
) |
|
|
(1,343 |
) |
|
|
387 |
|
Total deferred income tax (benefit) expense |
|
$ |
(137 |
) |
|
$ |
(1,343 |
) |
|
$ |
387 |
|
Total income tax expense (benefit) |
|
|
|
|
|
|
|
|
|
|||
U.S. federal |
|
$ |
1,644 |
|
|
$ |
3,293 |
|
|
$ |
4,547 |
|
U.S. federal loss carryforwards and credits |
|
|
(1,642 |
) |
|
|
(3,872 |
) |
|
|
(4,505 |
) |
U.S. state |
|
|
(7 |
) |
|
|
262 |
|
|
|
229 |
|
U.S. federal & state carryforwards and credits |
|
|
12 |
|
|
|
(258 |
) |
|
|
(229 |
) |
Foreign |
|
|
1,919 |
|
|
|
967 |
|
|
|
3,007 |
|
Total income tax expense |
|
$ |
1,926 |
|
|
$ |
392 |
|
|
$ |
3,049 |
|
The entire amount of income tax expense of $1.9 million, $392,000, and $3.0 million during fiscal 2026, 2025, and 2024, respectively, was allocated to loss from continuing operations.
Disaggregating Income Tax Disclosures
On December 14, 2023, the FASB issued ASU 2023-09 which applies to all entities subject to income taxes. This standard requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. This
standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions.
The following table reconciles the U.S. federal statutory income tax rate to the company's effective income tax rate. This reconciliation is based on the retrospective adoption of ASU 2023-09, which requires reconciling items to be presented on a quantitative basis in dollars and percentages, as well as reconciling items exceeding the disclosure threshold of 5% of the expected statutory rate presented separately.
|
|
2026 |
|
2025 |
|
2024 |
|
||||||||||||
|
|
Amounts |
|
Rate |
|
Amounts |
|
Rate |
|
Amounts |
|
Rate |
|
||||||
U.S. federal statutory income tax rate |
|
$ |
(1,740 |
) |
|
21.0 |
% |
$ |
(3,929 |
) |
|
21.0 |
% |
$ |
(2,262 |
) |
|
21.0 |
% |
Domestic Federal |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Change in valuation allowance |
|
|
2,356 |
|
|
(28.4 |
) |
|
3,990 |
|
|
(21.3 |
) |
|
3,157 |
|
|
(29.3 |
) |
Stock-Based compensation |
|
|
25 |
|
|
(0.3 |
) |
|
59 |
|
|
(0.3 |
) |
|
190 |
|
|
(1.8 |
) |
Nontaxable and nondeductible items |
|
|
127 |
|
|
(1.5 |
) |
|
(2 |
) |
|
(0.1 |
) |
|
102 |
|
|
(0.9 |
) |
Effect of Cross-border tax laws |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Global intangible low-taxed income (GILTI) |
|
|
340 |
|
|
(4.1 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Deemed intercompany charge |
|
|
261 |
|
|
(3.2 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Other |
|
|
62 |
|
|
(0.7 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Domestic state income taxes, net of federal effect (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Change in valuation allowance |
|
|
21 |
|
|
(0.3 |
) |
|
309 |
|
|
(1.7 |
) |
|
172 |
|
|
(1.6 |
) |
Statutory income tax rate differential |
|
|
(16 |
) |
|
0.2 |
|
|
(305 |
) |
|
1.6 |
|
|
(172 |
) |
|
1.6 |
|
Foreign tax effects |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
China |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income tax effects of local currency foreign |
|
|
(540 |
) |
|
6.5 |
|
|
97 |
|
|
(0.5 |
) |
|
386 |
|
|
(3.6 |
) |
Statutory income tax rate differential |
|
|
134 |
|
|
(1.6 |
) |
|
223 |
|
|
(1.2 |
) |
|
246 |
|
|
(2.3 |
) |
Withholding taxes |
|
|
114 |
|
|
(1.4 |
) |
|
477 |
|
|
(2.5 |
) |
|
711 |
|
|
(6.6 |
) |
Other |
|
|
(1 |
) |
|
— |
|
|
— |
|
|
— |
|
|
(5 |
) |
|
0.1 |
|
Canada |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Statutory income tax rate differential |
|
|
250 |
|
|
(3.0 |
) |
|
(280 |
) |
|
1.5 |
|
|
50 |
|
|
(0.5 |
) |
Withholding taxes |
|
|
167 |
|
|
(2.0 |
) |
|
(152 |
) |
|
0.8 |
|
|
(10 |
) |
|
0.1 |
|
Other |
|
5 |
|
|
(0.1 |
) |
|
46 |
|
|
(0.2 |
) |
|
1 |
|
|
— |
|
|
Haiti |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Statutory income tax rate differential |
|
|
169 |
|
|
(2.0 |
) |
|
326 |
|
|
(1.7 |
) |
|
405 |
|
|
(3.8 |
) |
Other Foreign |
|
|
(1 |
) |
|
— |
|
|
1 |
|
|
— |
|
|
— |
|
|
— |
|
Worldwide changes in unrecognized income |
|
|
193 |
|
|
(2.3 |
) |
|
(468 |
) |
|
2.5 |
|
|
78 |
|
|
(0.7 |
) |
Reported income tax expense (2) (3) |
|
$ |
1,926 |
|
|
(23.2 |
)% |
$ |
392 |
|
|
(2.1 |
)% |
$ |
3,049 |
|
|
(28.3 |
)% |
One Big Beautiful Bill Act ("OBBBA")
On July 4, 2025, OBBBA was signed into law, making several provisions of the 2017 Tax Cuts and Jobs Act ("TCJA") permanent. Such provisions included: (i) no change to the standard corporate tax rate of 21.0%; (ii) increased depreciation allowances for certain property acquired after January 19, 2025; (iii) deduction of certain U.S. research and development expenditures; (iv) limitations on the deductibility of business interest expense; and (v) modifications to GILTI and foreign-derived intangible income. Topic 740 Income Taxes, requires the income tax effects of changes in tax laws or rates to be recognized at the date of enactment. Accordingly, we evaluated the provisions of OBBBA and determined OBBBA did not have an impact on our consolidated effective income tax rate, consolidated income tax expense, or our U.S. net deferred income tax assets during fiscal 2026 due to the application of a full valuation allowance against our U.S. net deferred income tax assets described in the below section titled - U.S. Valuation Allowance.
Deferred Income Taxes - Overall
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities consist of the following:
(dollars in thousands) |
|
May 3, |
|
|
April 27, |
|
||
Deferred tax assets: |
|
|
|
|
|
|
||
Accounts receivable |
|
$ |
218 |
|
|
$ |
305 |
|
Inventories |
|
|
2,424 |
|
|
|
2,128 |
|
Compensation |
|
|
1,630 |
|
|
|
1,767 |
|
Liabilities and other |
|
|
122 |
|
|
|
56 |
|
Intangible assets and goodwill |
|
|
484 |
|
|
|
455 |
|
Property, plant, and equipment |
|
|
183 |
|
|
|
178 |
|
Operating lease liability |
|
|
338 |
|
|
|
744 |
|
Foreign income tax credits - U.S. |
|
|
783 |
|
|
|
783 |
|
Loss carryforwards |
|
|
24,230 |
|
|
|
22,521 |
|
Valuation allowance - U.S. |
|
|
(28,680 |
) |
|
|
(26,303 |
) |
Total deferred tax assets |
|
$ |
1,732 |
|
|
$ |
2,634 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
||
Undistributed earnings on foreign subsidiaries |
|
$ |
(4,883 |
) |
|
$ |
(5,155 |
) |
Property, plant and equipment |
|
|
(645 |
) |
|
|
(1,010 |
) |
Right of use assets |
|
|
(564 |
) |
|
|
(920 |
) |
Other |
|
|
(20 |
) |
|
|
(67 |
) |
Total deferred tax liabilities |
|
|
(6,112 |
) |
|
|
(7,152 |
) |
Net deferred liabilities |
|
$ |
(4,380 |
) |
|
$ |
(4,518 |
) |
As of May 3, 2026, our U.S. federal net operating loss carryforward totaled $95.9 million, with related future income tax benefits of $20.1 million. In accordance with the TCJA, U.S. federal net operating loss carryforwards generated in fiscal 2019 and after do not expire. As of May 3, 2026, all of our unused U.S. federal net operating loss carryforwards were generated during fiscal 2019 and after, and therefore, do not expire in accordance with the TCJA. As of May 3, 2026, our U.S. state net operating loss carryforwards totaled $40.3 million, with related future income tax benefits of $1.6 million, and have expiration dates ranging from fiscal year 2027 through fiscal 2046, along with certain U.S. state net operating loss carryforwards that do not expire due to conformity with U.S. federal income tax regulations. Our U.S. foreign income tax credits of $783,000 expire in fiscal 2030, which represents 10 years from when the associated earnings and profits from our foreign subsidiaries were repatriated to the U.S.
Deferred Income Taxes – Valuation Allowance
Assessment
We evaluate the realizability of our deferred income taxes to determine if a valuation allowance is required. We 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, considering the effects of local tax law.
As of May 3, 2026, we evaluated the realizability of our U.S. net deferred income tax assets to determine if a full valuation allowance was still required. Based on our assessment, we determined we still have a recent history of significant cumulative U.S. pre-tax losses, in that we experienced U.S. pre-tax losses during each of the last three fiscal years. As a result of the significant weight of this negative evidence, we believe it is more-likely-than-not that our U.S net deferred income tax assets will not be fully realizable, and therefore we provided for a full valuation allowance against our U.S. net deferred income tax assets.
Based on our assessments as of May 3, 2026, and April 27, 2025, valuation allowances against our U.S. net deferred income tax assets pertain to the following:
(dollars in thousands) |
|
May 3, |
|
|
April 27, |
|
||
U.S. federal and state net deferred income tax assets |
|
$ |
26,350 |
|
|
$ |
23,973 |
|
U.S. capital loss carryforward |
|
|
2,330 |
|
|
|
2,330 |
|
|
|
$ |
28,680 |
|
|
$ |
26,303 |
|
A summary of the change in the valuation allowances against our U.S. net deferred income tax assets follows:
(dollars in thousands) |
|
2026 |
|
|
2025 |
|
|
2024 |
|
|||
Beginning balance |
|
$ |
26,303 |
|
|
$ |
22,004 |
|
|
$ |
18,675 |
|
Change in valuation allowance associated with current year earnings |
|
|
2,633 |
|
|
|
4,162 |
|
|
|
3,318 |
|
Change in estimate during current year |
|
|
(256 |
) |
|
|
137 |
|
|
|
11 |
|
Ending balance |
|
$ |
28,680 |
|
|
$ |
26,303 |
|
|
$ |
22,004 |
|
Deferred Income Taxes – Undistributed Earnings from Foreign Subsidiaries
We assess whether the undistributed earnings from our foreign subsidiaries will be reinvested indefinitely or eventually distributed to our U.S. parent company and whether we are required to record a deferred income tax liability for those undistributed earnings from our foreign subsidiaries that will not be reinvested indefinitely. As of May 3, 2026, we assessed the liquidity requirements of our U.S. parent company and determined that our undistributed earnings and profits from our foreign subsidiaries would not be reinvested indefinitely and would be eventually distributed to our U.S. parent company. The conclusion reached from this assessment has been consistent with prior years.
As a result of the TCJA, a U.S. corporation is allowed a 100% dividend received deduction for earnings and profits received from a 10% or more owned foreign corporation. Therefore, a deferred income tax liability will be required only for unremitted withholding taxes associated with earnings and profits generated by our foreign subsidiaries that will ultimately be repatriated to the U.S. parent company. As a result, we recorded a deferred income tax liability of $4.9 million and $5.2 million as of May 3, 2026, and April 27, 2025, respectively.
Uncertainty in Income Taxes
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 end of the reporting period, or is effectively settled through examination, negotiation, or litigation, or if 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.
The following table sets forth the change in the company’s unrecognized income tax benefit:
(dollars in thousands) |
|
2026 |
|
|
2025 |
|
|
2024 |
|
|||
Beginning balance |
|
$ |
790 |
|
|
$ |
1,258 |
|
|
$ |
1,179 |
|
Increases from prior period tax positions |
|
|
193 |
|
|
|
224 |
|
|
|
197 |
|
Decreases from prior period tax positions |
|
|
— |
|
|
|
(76 |
) |
|
|
(118 |
) |
Lapse of applicable statute of limitations |
|
|
— |
|
|
|
(616 |
) |
|
|
— |
|
Ending balance |
|
$ |
983 |
|
|
$ |
790 |
|
|
$ |
1,258 |
|
As of May 3, 2026, and April 27, 2025, we had $983,000 and $790,000 of total gross unrecognized tax benefits, of which the entire amount was classified as income taxes payable - long-term in the accompanying Consolidated Balance Sheets. These unrecognized income tax benefits would favorably affect income tax expense in future periods by $983,000 and $790,000 as of May 3, 2026, and April 27, 2025, respectively.
We elected to classify interest and penalties as part of income tax expense. As of May 3, 2026, and April 27, 2025, the gross amount of interest and penalties due to unrecognized tax benefits was $255,000 and $191,000, respectively.
Our gross unrecognized income tax benefit of $983,000 as of May 3, 2026, relates to income tax positions for which significant change is currently not expected within the next year. This amount primarily relates to 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 2019 and subsequent. Canadian federal income tax returns filed by us remain subject to examination for income tax years 2022 and subsequent. Canadian provincial (Quebec) income tax returns filed by us remain subject to examination for income tax years 2022 and subsequent. Income tax returns associated with our operations located in China are subject to examination for income tax year 2021 and subsequent.
Income Taxes Paid
The following table sets forth income taxes paid (refunded) by jurisdiction:
(dollars in thousands) |
|
2026 |
|
|
2025 |
|
|
2024 |
|
|||
U.S. federal (1) |
|
$ |
831 |
|
|
$ |
665 |
|
|
$ |
499 |
|
U.S. state, income tax payments, net of refunds (2) |
|
|
(4 |
) |
|
|
— |
|
|
|
— |
|
Foreign |
|
|
|
|
|
|
|
|
|
|||
China |
|
|
1,143 |
|
|
|
1,785 |
|
|
|
2,317 |
|
Canada |
|
|
|
|
|
|
|
|
|
|||
Federal - income tax payments, net of refunds |
|
|
976 |
|
|
|
(148 |
) |
|
|
391 |
|
Quebec Province - income tax payments, net of refunds |
|
|
615 |
|
|
|
2 |
|
|
|
77 |
|
Total Foreign |
|
|
2,734 |
|
|
|
1,639 |
|
|
|
2,785 |
|
|
|
$ |
3,561 |
|
|
$ |
2,304 |
|
|
$ |
3,284 |
|
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2026 | Jul 17, 2026 | Showing above |
| 2025 | Jul 11, 2025 | |
| 2024 | Jul 12, 2024 | |
| 2023 | Jul 14, 2023 | |
| 2022 | Jul 15, 2022 | |
| 2021 | Jul 16, 2021 | |
| 2020 | Jul 17, 2020 | |
| 2019 | Jul 12, 2019 | |
| 2018 | Jul 13, 2018 | |
| 2017 | Jul 14, 2017 | |
| 2016 | Jul 15, 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.