Company: CULP
Filing Date: 2025-03-07
Form Type: 10-Q
Source: 0000950170-25-035191
Chunk: 63

Company: CULP INC
Filing Date: 2025-03-07
Form: 10-Q
Item: Item 1
Chunk 63
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 currency exchange gain associated with our operations located in China totaling $74,000, compared with a foreign currency exchange gain of $389,000 during the first nine months of fiscal 2024.

The $74,000 foreign currency exchange gain related to our operations in China was mostly non-cash and was partially offset by $23,000 of income tax expense, which will increase our income tax payments and withholding tax payments associated with future earnings and profits repatriated from our operations located in China to the company's U.S. parent. The income tax expense of $23,000 was associated with taxable foreign currency exchange gains based on more favorable foreign currency exchange rates applied against balance sheet accounts denominated in U.S. dollars to determine the corresponding Chinese Renminbi local currency amounts. The foreign currency exchange rate gains (losses) related to our U.S. dollar denominated balance sheet accounts associated with our operations located in China are considered taxable income or tax deductible, as we incur income tax expense (benefit)  and pay income taxes in China's local currency.

Income Taxes

Effective Income Tax Rate

We recorded income tax expense of $635,000, or (3.9%) of loss before income taxes, for the nine-month period ended January 26, 2025, compared with income tax expense of $2.2 million, or (33.4%) of loss before income taxes, for the nine-month period ended January 28, 2024. 

Our effective income tax rates for the nine-month periods ended January 26, 2025, and January 28, 2024, 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. When calculating the annual estimated effective income tax rates for the nine-month periods ended January 26, 2025, and January 28, 2024, we were subject to loss limitation rules. These loss limitation rules require any taxable loss associated with our U.S. or foreign operations to be excluded from the annual estimated effective income tax rate calculation if it was determined that no income tax benefit could be recognized during the current fiscal year. 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 subsidiaries located in China, Canada, Haiti, and Vietnam versus annual projections, as well as changes in foreign currency exchange rates in relation to the U.S. dollar.

The following schedule summarizes the principal differences between income tax