UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended January 27, 2019February 2, 2020
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No. 1-12597
CULP, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA | 56-1001967 | ||||
(State or other jurisdiction of | |||||
incorporation or other organization) | (I.R.S. Employer Identification No.) | ||||
1823 Eastchester Drive | |||||
High Point, North Carolina | 27265-1402 | ||||
(Address of principal executive offices) | (zip code) |
(336) 889-5161
(Registrant'sRegistrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol(s) | Name of Each Exchange On Which Registered | ||
Common Stock, par value $0.05/Share | CULP | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to thesuch filing requirements for at least the past 90 days. ☒ YES NO ☐ NO
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period after the registrant was required to submit and post such files). ☒ YES NO ☐ NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer, large accelerated filer, smaller” “smaller reporting company,” and emerging“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☒ | |||
Non-accelerated filer |
☐ | Smaller Reporting Company | ☐ | ||||
Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ YES NO ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Common shares outstanding at January 27, 2019: 12,368,413
Par Value: $0.05 per share
For the period ended January 27, 2019
Page | ||||||
Part I - Financial Statements | ||||||
I-1 | ||||||
Consolidated Statements of Net (Loss) Income | I-1 | |||||
Consolidated Statements of Comprehensive (Loss) Income | I-2 | |||||
I-3 | ||||||
Consolidated Statements of Cash Flows — Nine Months Ended February 2, 2020 and January 27, 2019 | I-4 | |||||
February 2, 2020 | I-5 | |||||
January 27, 2010 | I-6 | |||||
I-7 | ||||||
I-30 | ||||||
I-31 | ||||||
I-46 | ||||||
I-47 | ||||||
Part II - Other Information | ||||||
II-1 | ||||||
II-1 | ||||||
II-1 | ||||||
II-2 | ||||||
II-4 |
Item1: |
CULP, INC.
CONSOLIDATED STATEMENTS OF NET (LOSS) INCOME
FOR THE THREE AND NINE MONTHS ENDED FEBRUARY 2, 2020 AND JANUARY 27, 2019
UNAUDITED
(Amounts in Thousands, Except for Per Share Data)
|
| THREE MONTHS ENDED |
| |||||
|
| February 2, 2020 |
|
| January 27, 2019 |
| ||
Net sales |
| $ | 71,998 |
|
| $ | 77,226 |
|
Cost of sales |
|
| 59,614 |
|
|
| 63,103 |
|
Gross profit |
|
| 12,384 |
|
|
| 14,123 |
|
Selling, general and administrative expenses |
|
| 9,952 |
|
|
| 10,038 |
|
Asset impairments |
|
| 13,639 |
|
|
| — |
|
Reversal of contingent consideration - earn-out obligation |
|
| (6,081 | ) |
|
| — |
|
Restructuring credit |
|
| (35 | ) |
|
| (214 | ) |
(Loss) income from operations |
|
| (5,091 | ) |
|
| 4,299 |
|
Interest expense |
|
| 8 |
|
|
| — |
|
Interest income |
|
| (242 | ) |
|
| (251 | ) |
Other expense |
|
| 267 |
|
|
| 288 |
|
(Loss) income before income taxes |
|
| (5,124 | ) |
|
| 4,262 |
|
Income tax (benefit) expense |
|
| (973 | ) |
|
| 1,225 |
|
Loss (income) from investment in unconsolidated joint venture |
|
| 56 |
|
|
| (23 | ) |
Net (loss) income |
| $ | (4,207 | ) |
| $ | 3,060 |
|
Net loss attributable to non-controlling interest |
|
| 4,149 |
|
|
| 94 |
|
Net (loss) income attributable to Culp, Inc. common shareholders |
| $ | (58 | ) |
| $ | 3,154 |
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Culp Inc. common shareholders per share - basic |
| $ | 0.00 |
|
| $ | 0.25 |
|
Net (loss) income attributable to Culp Inc. common shareholders per share - diluted |
| $ | 0.00 |
|
| $ | 0.25 |
|
Average shares outstanding, basic |
|
| 12,409 |
|
|
| 12,438 |
|
Average shares outstanding, diluted |
|
| 12,409 |
|
|
| 12,465 |
|
THREE MONTHS ENDED | ||||||||
January 27, | January 28, | |||||||
2019 | 2018 | |||||||
Net sales | $ | 77,226 | 85,310 | |||||
Cost of sales | 63,103 | 67,707 | ||||||
Gross profit | 14,123 | 17,603 | ||||||
Selling, general and | ||||||||
administrative expenses | 10,038 | 9,959 | ||||||
Restructuring credit | (214 | ) | - | |||||
Income from operations | 4,299 | 7,644 | ||||||
Interest expense | - | 31 | ||||||
Interest income | (251 | ) | (132 | ) | ||||
Other expense | 288 | 229 | ||||||
Income before income taxes | 4,262 | 7,516 | ||||||
Income taxes | 1,225 | 8,208 | ||||||
(Income) loss from investment in unconsolidated joint venture | (23 | ) | 56 | |||||
Net income (loss) | $ | 3,060 | (748 | ) | ||||
Plus: Net loss attributable to non-controlling interest | 94 | - | ||||||
Net income (loss) attributable to Culp, Inc. common shareholders | $ | 3,154 | (748 | ) | ||||
Net income (loss) attributable to Culp Inc. common shareholders per share - basic | $ | 0.25 | (0.06 | ) | ||||
Net income (loss) attributable to Culp Inc. common shareholders per share - diluted | $ | 0.25 | (0.06 | ) | ||||
Average shares outstanding, basic | 12,438 | 12,436 | ||||||
Average shares outstanding, diluted | 12,465 | 12,436 | ||||||
NINE MONTHS ENDED | ||||||||
January 27, | January 28, | |||||||
2019 | 2018 | |||||||
Net sales | $ | 225,705 | 245,541 | |||||
Cost of sales | 187,697 | 195,668 | ||||||
Gross profit | 38,008 | 49,873 | ||||||
Selling, general and | ||||||||
administrative expenses | 28,174 | 28,876 | ||||||
Restructuring credit | (825 | ) | - | |||||
Income from operations | 10,659 | 20,997 | ||||||
Interest expense | 38 | 69 | ||||||
Interest income | (552 | ) | (391 | ) | ||||
Other expense | 688 | 903 | ||||||
Income before income taxes | 10,485 | 20,416 | ||||||
Income taxes | 3,407 | 11,956 | ||||||
Loss from investment in unconsolidated joint venture | 109 | 249 | ||||||
Net income | $ | 6,969 | 8,211 | |||||
Plus: Net loss attributable to non-controlling interest | 75 | - | ||||||
Net income attributable to Culp, Inc. common shareholders | $ | 7,044 | 8,211 | |||||
Net income attributable to Culp Inc. common shareholders per share - basic | $ | 0.56 | 0.66 | |||||
Net income attributable to Culp Inc. common shareholders per share - diluted | $ | 0.56 | 0.65 | |||||
Average shares outstanding, basic | 12,488 | 12,425 | ||||||
Average shares outstanding, diluted | 12,593 | 12,626 | ||||||
See accompanying notes to consolidated financial statements. |
|
| NINE MONTHS ENDED |
| |||||
|
| February 2, 2020 |
|
| January 27, 2019 |
| ||
Net sales |
| $ | 219,465 |
|
| $ | 225,705 |
|
Cost of sales |
|
| 179,612 |
|
|
| 187,697 |
|
Gross profit |
|
| 39,853 |
|
|
| 38,008 |
|
Selling, general and administrative expenses |
|
| 30,783 |
|
|
| 28,174 |
|
Asset impairments |
|
| 13,639 |
|
|
| — |
|
Reversal of contingent consideration - earn-out obligation |
|
| (6,081 | ) |
|
| — |
|
Restructuring credit |
|
| (70 | ) |
|
| (825 | ) |
Income from operations |
|
| 1,582 |
|
|
| 10,659 |
|
Interest expense |
|
| 47 |
|
|
| 38 |
|
Interest income |
|
| (732 | ) |
|
| (552 | ) |
Other expense |
|
| 441 |
|
|
| 688 |
|
Income before income taxes |
|
| 1,826 |
|
|
| 10,485 |
|
Income tax expense |
|
| 2,607 |
|
|
| 3,407 |
|
Loss from investment in unconsolidated joint venture |
|
| 60 |
|
|
| 109 |
|
Net (loss) income |
| $ | (841 | ) |
| $ | 6,969 |
|
Net loss attributable to non-controlling interest |
|
| 4,421 |
|
|
| 75 |
|
Net income attributable to Culp, Inc. common shareholders |
| $ | 3,580 |
|
| $ | 7,044 |
|
|
|
|
|
|
|
|
|
|
Net income attributable to Culp Inc. common shareholders per share - basic |
| $ | 0.29 |
|
| $ | 0.56 |
|
Net income attributable to Culp Inc. common shareholders per share - diluted |
| $ | 0.29 |
|
| $ | 0.56 |
|
Average shares outstanding, basic |
|
| 12,405 |
|
|
| 12,488 |
|
Average shares outstanding, diluted |
|
| 12,421 |
|
|
| 12,593 |
|
See accompanying notes to consolidated financial statements.
I-1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
FOR THE THREE AND NINE MONTHS ENDED FEBRUARY 2, 2020 AND JANUARY 27, 2019
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
|
| THREE MONTHS ENDED |
| |||||
|
| February 2, 2020 |
|
| January 27, 2019 |
| ||
Net (loss) income |
| $ | (4,207 | ) |
| $ | 3,060 |
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) on investments, net of tax |
|
| 49 |
|
|
| (75 | ) |
Reclassification adjustment for realized loss on investments |
|
| — |
|
|
| 22 |
|
Total other comprehensive income (loss) |
|
| 49 |
|
|
| (53 | ) |
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income |
| $ | (4,158 | ) |
| $ | 3,007 |
|
Comprehensive loss attributable to non-controlling interest |
|
| 4,149 |
|
|
| 94 |
|
Comprehensive (loss) income attributable to Culp, Inc. common shareholders |
| $ | (9 | ) |
| $ | 3,101 |
|
|
| NINE MONTHS ENDED |
| |||||
|
| February 2, 2020 |
|
| January 27, 2019 |
| ||
Net (loss) income |
| $ | (841 | ) |
| $ | 6,969 |
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on investments, net of tax |
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) on investments |
|
| 64 |
|
|
| (78 | ) |
Reclassification adjustment for realized loss on investments |
|
| — |
|
|
| 116 |
|
Total unrealized gain on investments |
|
| 64 |
|
|
| 38 |
|
|
|
|
|
|
|
|
|
|
Unrealized gain on foreign currency cash flow hedge, net of tax |
|
|
|
|
|
|
|
|
Unrealized holding loss on foreign currency cash flow hedge |
|
| — |
|
|
| (8 | ) |
Reclassification adjustment for realized loss on foreign currency cash flow hedge |
|
| — |
|
|
| 64 |
|
Total unrealized gain on foreign currency cash flow hedge |
|
| — |
|
|
| 56 |
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income |
|
| 64 |
|
|
| 94 |
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income |
| $ | (777 | ) |
| $ | 7,063 |
|
Comprehensive loss income attributable to non-controlling interest |
|
| 4,421 |
|
|
| 75 |
|
Comprehensive income attributable to Culp, Inc. common shareholders |
| $ | 3,644 |
|
| $ | 7,138 |
|
See accompanying notes to consolidated financial statements.
I-2
FEBRUARY 2, 2020, JANUARY 27, 2019, AND APRIL 28, 2019
UNAUDITED
(Amounts in Thousands)
|
| February 2, 2020 |
|
| January 27, 2019 |
|
| * April 28, 2019 |
| |||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 21,872 |
|
|
| 26,418 |
|
|
| 40,008 |
|
Short-term investments - Held-To-Maturity |
|
| 3,171 |
|
|
| 13,544 |
|
|
| 5,001 |
|
Short-term investments - Available for Sale |
|
| 7,580 |
|
|
| — |
|
|
| — |
|
Accounts receivable, net |
|
| 26,614 |
|
|
| 26,142 |
|
|
| 23,751 |
|
Inventories |
|
| 57,575 |
|
|
| 55,415 |
|
|
| 50,860 |
|
Current income taxes receivable |
|
| 776 |
|
|
| — |
|
|
| 776 |
|
Assets held for sale |
|
| 67 |
|
|
| — |
|
|
| — |
|
Other current assets |
|
| 3,219 |
|
|
| 2,954 |
|
|
| 2,849 |
|
Total current assets |
|
| 120,874 |
|
|
| 124,473 |
|
|
| 123,245 |
|
Property, plant and equipment, net |
|
| 46,380 |
|
|
| 50,129 |
|
|
| 48,389 |
|
Goodwill |
|
| 16,011 |
|
|
| 27,222 |
|
|
| 27,222 |
|
Intangible assets |
|
| 7,738 |
|
|
| 10,542 |
|
|
| 10,448 |
|
Long-term investments - Rabbi Trust |
|
| 7,804 |
|
|
| 6,834 |
|
|
| 7,081 |
|
Long-term investments - Held-To-Maturity |
|
| 2,224 |
|
|
| — |
|
|
| — |
|
Right of use asset |
|
| 5,524 |
|
|
| — |
|
|
| — |
|
Noncurrent income taxes receivable |
|
| 733 |
|
|
| — |
|
|
| 733 |
|
Deferred income taxes |
|
| 920 |
|
|
| 3,224 |
|
|
| 457 |
|
Investment in unconsolidated joint venture |
|
| 1,668 |
|
|
| 1,512 |
|
|
| 1,508 |
|
Other assets |
|
| 464 |
|
|
| 972 |
|
|
| 643 |
|
Total assets |
| $ | 210,340 |
|
| $ | 224,908 |
|
| $ | 219,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable-trade |
| $ | 21,835 |
|
|
| 28,401 |
|
|
| 24,377 |
|
Accounts payable - capital expenditures |
|
| 177 |
|
|
| 91 |
|
|
| 78 |
|
Operating lease liability - current |
|
| 2,227 |
|
|
| — |
|
|
| — |
|
Deferred revenue |
|
| 398 |
|
|
| 492 |
|
|
| 399 |
|
Accrued expenses |
|
| 7,742 |
|
|
| 9,740 |
|
|
| 9,192 |
|
Accrued restructuring costs |
|
| — |
|
|
| 228 |
|
|
| 124 |
|
Income taxes payable - current |
|
| 455 |
|
|
| 642 |
|
|
| 1,022 |
|
Total current liabilities |
|
| 32,834 |
|
|
| 39,594 |
|
|
| 35,192 |
|
Accrued expenses - long-term |
|
| 233 |
|
|
| — |
|
|
| 333 |
|
Subordinated loan payable |
|
| 925 |
|
|
| — |
|
|
| 675 |
|
Operating lease liability - noncurrent |
|
| 3,160 |
|
|
| — |
|
|
| — |
|
Contingent consideration - earn-out obligation |
|
| — |
|
|
| 5,781 |
|
|
| 5,856 |
|
Income taxes payable - long-term |
|
| 3,442 |
|
|
| 3,294 |
|
|
| 3,249 |
|
Deferred income taxes |
|
| 2,013 |
|
|
| 2,225 |
|
|
| 3,176 |
|
Deferred compensation |
|
| 7,637 |
|
|
| 6,782 |
|
|
| 6,998 |
|
Total liabilities |
|
| 50,244 |
|
|
| 57,676 |
|
|
| 55,479 |
|
Commitments and Contingencies (Notes 12, 19 and 20) |
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.05 par value, authorized 10,000,000 |
|
| — |
|
|
| — |
|
|
| — |
|
Common stock, $0.05 par value, authorized 40,000,000 shares, issued and outstanding 12,361,180 at February 2, 2020; 12,368,413 at January 27, 2019; and 12,391,160 at April 28, 2019 |
|
| 618 |
|
|
| 619 |
|
|
| 620 |
|
Capital contributed in excess of par value |
|
| 43,748 |
|
|
| 43,961 |
|
|
| 43,694 |
|
Accumulated earnings |
|
| 115,373 |
|
|
| 118,186 |
|
|
| 115,579 |
|
Accumulated other comprehensive income |
|
| 104 |
|
|
| 9 |
|
|
| 40 |
|
Total shareholders’ equity attributable to Culp Inc. |
|
| 159,843 |
|
|
| 162,775 |
|
|
| 159,933 |
|
Non-controlling interest |
|
| 253 |
|
|
| 4,457 |
|
|
| 4,314 |
|
Total equity |
|
| 160,096 |
|
|
| 167,232 |
|
|
| 164,247 |
|
Total liabilities and shareholders’ equity |
| $ | 210,340 |
|
| $ | 224,908 |
|
| $ | 219,726 |
|
CULP, INC. | ||||||||
FOR THE THREE AND NINE MONTHS ENDED JANUARY 27, 2019 AND JANUARY 28, 2018 | ||||||||
(UNAUDITED) | ||||||||
(AMOUNTS IN THOUSANDS) | ||||||||
THREE MONTHS ENDED | ||||||||
January 27, | January 28, | |||||||
2019 | 2018 | |||||||
Net income (loss) | $ | 3,060 | $ | (748 | ) | |||
Other comprehensive loss | ||||||||
Unrealized holding losses on investments, net of tax | (75 | ) | (4 | ) | ||||
Reclassification adjustment for realized loss on investments | 22 | - | ||||||
Total other comprehensive loss | (53 | ) | (4 | ) | ||||
Comprehensive income (loss) | $ | 3,007 | $ | (752 | ) | |||
Plus: Comprehensive loss attributable to non-controlling interest | 94 | - | ||||||
Comprehensive income (loss) attributable to Culp, Inc. common shareholders | $ | 3,101 | $ | (752 | ) | |||
NINE MONTHS ENDED | ||||||||
January 27, | January 28, | |||||||
2019 | 2018 | |||||||
Net income | $ | 6,969 | $ | 8,211 | ||||
Other comprehensive income | ||||||||
Unrealized gain on investments, net of tax | ||||||||
Unrealized holding (losses) gains on investments | (78 | ) | 60 | |||||
Reclassification adjustment for realized loss on investments | 116 | - | ||||||
Total unrealized gain on investments | 38 | 60 | ||||||
Unrealized gain on foreign currency cash flow hedge, net of tax | ||||||||
Unrealized holding loss on foreign currency cash flow hedge | (8 | ) | - | |||||
Reclassification adjustment for realized loss on foreign currency cash flow hedge | 64 | - | ||||||
Total unrealized gain on foreign currency cash flow hedge | 56 | - | ||||||
Total other comprehensive income | 94 | 60 | ||||||
Comprehensive income | $ | 7,063 | $ | 8,271 | ||||
Plus: Comprehensive loss attributable to non-controlling interest | 75 | - | ||||||
Comprehensive income attributable to Culp, Inc. common shareholders | $ | 7,138 | $ | 8,271 | ||||
See accompanying notes to consolidated financial statements. |
CULP, INC. | ||||||||||||
JANUARY 27, 2019, JANUARY 28, 2018 AND APRIL 29, 2018 | ||||||||||||
UNAUDITED | ||||||||||||
(Amounts in Thousands) | ||||||||||||
January 27, | January 28, | *April 29, | ||||||||||
2019 | 2018 | 2018 | ||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | $ | 26,418 | 22,428 | 21,228 | ||||||||
Short-term investments - Available for Sale | - | 2,472 | 2,451 | |||||||||
Short-term investments - Held-To-Maturity | 13,544 | 17,206 | 25,759 | |||||||||
Accounts receivable, net | 26,142 | 26,097 | 26,307 | |||||||||
Inventories | 55,415 | 55,651 | 53,454 | |||||||||
Other current assets | 2,954 | 3,114 | 2,870 | |||||||||
Total current assets | 124,473 | 126,968 | 132,069 | |||||||||
Property, plant and equipment, net | 50,129 | 51,838 | 51,794 | |||||||||
Goodwill | 27,222 | 11,462 | 13,569 | |||||||||
Intangible assets | 10,542 | 1,397 | 4,275 | |||||||||
Deferred income taxes | 3,224 | 1,942 | 1,458 | |||||||||
Long-term investments - Held-To-Maturity | - | 13,625 | 5,035 | |||||||||
Long-term investments - Rabbi Trust | 6,834 | 7,176 | 7,326 | |||||||||
Investment in unconsolidated joint venture | 1,512 | 1,518 | 1,501 | |||||||||
Other assets | 972 | 918 | 957 | |||||||||
Total assets | $ | 224,908 | 216,844 | 217,984 | ||||||||
Current liabilities: | ||||||||||||
Accounts payable-trade | $ | 28,401 | 32,434 | 27,237 | ||||||||
Accounts payable - capital expenditures | 91 | 1,554 | 1,776 | |||||||||
Deferred revenue | 492 | - | 809 | |||||||||
Accrued expenses | 9,740 | 8,842 | 9,325 | |||||||||
Accrued restructuring costs | 228 | - | - | |||||||||
Income taxes payable - current | 642 | 1,580 | 1,437 | |||||||||
Total current liabilities | 39,594 | 44,410 | 40,584 | |||||||||
Accrued expenses - long-term | - | - | 763 | |||||||||
Contingent consideration - earn-out obligation | 5,781 | - | - | |||||||||
Income taxes payable - long-term | 3,294 | 10,940 | 3,758 | |||||||||
Deferred income taxes | 2,225 | 2,096 | 2,150 | |||||||||
Deferred compensation | 6,782 | 7,216 | 7,353 | |||||||||
Total liabilities | 57,676 | 64,662 | 54,608 | |||||||||
Commitments and Contingencies (Notes 13 and 22) | ||||||||||||
Shareholders' equity | ||||||||||||
Preferred stock, $0.05 par value, authorized | ||||||||||||
10,000,000 | - | - | - | |||||||||
Common stock, $0.05 par value, authorized | ||||||||||||
40,000,000 shares, issued and outstanding | ||||||||||||
12,368,413 at January 27, 2019; 12,450,276 | ||||||||||||
at January 28, 2018; and 12,450,276 at | ||||||||||||
April 29, 2018 | 619 | 623 | 623 | |||||||||
Capital contributed in excess of par value | 43,961 | 48,413 | 48,203 | |||||||||
Accumulated earnings | 118,186 | 103,090 | 114,635 | |||||||||
Accumulated other comprehensive income (loss) | 9 | 56 | (85 | ) | ||||||||
Total shareholders' equity attributable to Culp Inc. | 162,775 | 152,182 | 163,376 | |||||||||
Non-controlling interest | 4,457 | - | - | |||||||||
Total equity | 167,232 | 152,182 | 163,376 | |||||||||
Total liabilities and shareholders' equity | $ | 224,908 | 216,844 | 217,984 | ||||||||
* Derived from audited financial statements. | ||||||||||||
See accompanying notes to consolidated financial statements. |
CULP, INC. | ||||||||
FOR THE NINE MONTHS ENDED JANUARY 27, 2019 AND JANUARY 28, 2018 | ||||||||
UNAUDITED | ||||||||
(Amounts in Thousands) | ||||||||
NINE MONTHS ENDED | ||||||||
January 27, | January 28, | |||||||
2019 | 2018 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 6,969 | 8,211 | |||||
Adjustments to reconcile net income to net cash | ||||||||
provided by operating activities: | ||||||||
Depreciation | 6,087 | 5,679 | ||||||
Amortization | 592 | 248 | ||||||
Stock-based compensation | 373 | 2,422 | ||||||
Deferred income taxes | (1,691 | ) | (3,020 | ) | ||||
Realized loss on sale of short-term investments (Available for Sale) | 94 | - | ||||||
Gain on sale of property, plant, and equipment | (1,456 | ) | - | |||||
Loss from investment in unconsolidated joint venture | 109 | 249 | ||||||
Foreign currency exchange loss | 12 | 133 | ||||||
Changes in assets and liabilities, net of effects of acquisition of businesses | ||||||||
Accounts receivable | (38 | ) | (923 | ) | ||||
Inventories | (658 | ) | (3,275 | ) | ||||
Other current assets | (43 | ) | (27 | ) | ||||
Other assets | 6 | (37 | ) | |||||
Accounts payable - trade | 486 | 1,715 | ||||||
Deferred revenue | (317 | ) | - | |||||
Accrued expenses and deferred compensation | (1,513 | ) | (1,608 | ) | ||||
Accrued restructuring costs | 228 | - | ||||||
Income taxes | (1,155 | ) | 11,702 | |||||
Net cash provided by operating activities | 8,085 | 21,469 | ||||||
Cash flows from investing activities | ||||||||
Net cash paid for acquisition of businesses | (12,096 | ) | - | |||||
Capital expenditures | (2,954 | ) | (6,657 | ) | ||||
Proceeds from the sale of property, plant, and equipment | 1,894 | 6 | ||||||
Investment in unconsolidated joint venture | (120 | ) | (661 | ) | ||||
Proceeds from the sale of short-term investments (Held to Maturity) | 17,150 | - | ||||||
Proceeds from the sale of short-term investments (Available for Sale) | 2,458 | - | ||||||
Purchase of short-term investments (Available for Sale) | (10 | ) | (37 | ) | ||||
Proceeds from the sale of long-term investments (Rabbi Trust) | 1,233 | 57 | ||||||
Purchase of long-term investments (Rabbi Trust) | (795 | ) | (1,699 | ) | ||||
Premium payment on life insurance policy | - | (18 | ) | |||||
Net cash provided by (used in) investing activities | 6,760 | (9,009 | ) | |||||
Cash flows from financing activities: | ||||||||
Proceeds from line of credit | 12,000 | 10,000 | ||||||
Payments on line of credit | (12,000 | ) | (10,000 | ) | ||||
Payments on vendor-financed capital expenditures | (1,412 | ) | (3,750 | ) | ||||
Dividends paid | (3,493 | ) | (5,722 | ) | ||||
Common stock surrendered for withholding taxes payable | (1,303 | ) | (1,530 | ) | ||||
Common stock repurchased | (3,316 | ) | - | |||||
Payments of debt issuance costs | (50 | ) | - | |||||
Proceeds from common stock issued | - | 111 | ||||||
Net cash used in financing activities | (9,574 | ) | (10,891 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | (81 | ) | 64 | |||||
Increase in cash and cash equivalents | 5,190 | 1,633 | ||||||
Cash and cash equivalents at beginning of period | 21,228 | 20,795 | ||||||
Cash and cash equivalents at end of period | $ | 26,418 | 22,428 | |||||
See accompanying notes to consolidated financial statements. |
CULP, INC. | ||||||||||||||||||||||||||||||||
NINE MONTHS ENDED JANUARY 27, 2019 | ||||||||||||||||||||||||||||||||
UNAUDITED | ||||||||||||||||||||||||||||||||
(Dollars in thousands, except share data) | ||||||||||||||||||||||||||||||||
Shareholders' equity attributable to Culp Inc. | ||||||||||||||||||||||||||||||||
Capital | Accumulated | |||||||||||||||||||||||||||||||
Contributed | Other | Non- | ||||||||||||||||||||||||||||||
Common Stock | in Excess | Accumulated | Comprehensive | Controlling | Total | |||||||||||||||||||||||||||
Shares | Amount | of Par Value | Earnings | (Loss) Income | Total | Interest | Equity | |||||||||||||||||||||||||
Balance, April 29, 2018 * | 12,450,276 | $ | 623 | 48,203 | 114,635 | (85 | ) | $ | 163,376 | $ | - | $ | 163,376 | |||||||||||||||||||
Net income | - | - | - | 957 | - | 957 | 8 | 965 | ||||||||||||||||||||||||
Acquisition of subsidiary with non-controlling interest | - | - | - | - | - | - | 4,532 | 4,532 | ||||||||||||||||||||||||
Stock-based compensation | - | - | (501 | ) | - | - | (501 | ) | - | (501 | ) | |||||||||||||||||||||
Unrealized gain on foreign currency cash flow hedge | - | - | - | - | 15 | 15 | - | 15 | ||||||||||||||||||||||||
Unrealized gain on investments | - | - | - | - | 134 | 134 | - | 134 | ||||||||||||||||||||||||
Common stock issued in connection with vesting | ||||||||||||||||||||||||||||||||
of performance based restricted stock units | 115,917 | 6 | (6 | ) | - | - | - | - | - | |||||||||||||||||||||||
Common stock issued in connection with vesting | ||||||||||||||||||||||||||||||||
of time- based restricted stock units | 1,200 | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Common stock surrendered for withholding | ||||||||||||||||||||||||||||||||
taxes payable | (42,157 | ) | (2 | ) | (1,290 | ) | - | - | (1,292 | ) | - | (1,292 | ) | |||||||||||||||||||
Common stock repurchased | (2,990 | ) | - | (72 | ) | - | - | (72 | ) | - | (72 | ) | ||||||||||||||||||||
Dividends paid | - | - | - | (1,127 | ) | - | (1,127 | ) | - | (1,127 | ) | |||||||||||||||||||||
Balance, July 29, 2018 | 12,522,246 | 627 | 46,334 | 114,465 | 64 | 161,490 | 4,540 | 166,030 | ||||||||||||||||||||||||
Net income | - | - | - | 2,933 | - | 2,933 | 11 | 2,944 | ||||||||||||||||||||||||
Stock-based compensation | - | - | 395 | - | - | 395 | - | 395 | ||||||||||||||||||||||||
Unrealized gain on foreign currency cash flow hedge | - | - | - | - | 41 | 41 | - | 41 | ||||||||||||||||||||||||
Unrealized loss on investments | - | - | - | - | (43 | ) | (43 | ) | - | (43 | ) | |||||||||||||||||||||
Fully vested common stock award | 3,600 | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Common stock repurchased | (33,890 | ) | (2 | ) | (770 | ) | - | - | (772 | ) | - | (772 | ) | |||||||||||||||||||
Dividends paid | - | - | - | (1,126 | ) | - | (1,126 | ) | - | (1,126 | ) | |||||||||||||||||||||
Balance, October 28, 2018 | 12,491,956 | $ | 625 | 45,959 | 116,272 | 62 | $ | 162,918 | $ | 4,551 | $ | 167,469 | ||||||||||||||||||||
Net income | - | - | - | 3,154 | - | 3,154 | (94 | ) | 3,060 | |||||||||||||||||||||||
Stock-based compensation | - | - | 479 | - | - | 479 | - | 479 | ||||||||||||||||||||||||
Unrealized loss on investments | - | - | - | - | (53 | ) | (53 | ) | - | (53 | ) | |||||||||||||||||||||
Common stock surrendered for withholding | ||||||||||||||||||||||||||||||||
taxes payable | - | - | (11 | ) | - | - | (11 | ) | - | (11 | ) | |||||||||||||||||||||
Common stock repurchased | (123,543 | ) | (6 | ) | (2,466 | ) | - | - | (2,472 | ) | - | (2,472 | ) | |||||||||||||||||||
Dividends paid | - | (1,240 | ) | - | (1,240 | ) | (1,240 | ) | ||||||||||||||||||||||||
Balance, January 27, 2019 | 12,368,413 | $ | 619 | $ | 43,961 | $ | 118,186 | $ | 9 | $ | 162,775 | $ | 4,457 | $ | 167,232 | |||||||||||||||||
* Derived from audited financial statements. | ||||||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements. |
* | |
Derived from audited financial statements. |
See accompanying notes to consolidated financial statements.
I-3
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED FEBRUARY 2, 2020 AND JANUARY 27, 2019
UNAUDITED
(Amounts in Thousands)
|
| NINE MONTHS ENDED |
| |||||
|
| February 2, 2020 |
|
| January 27, 2019 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net (loss) income |
| $ | (841 | ) |
| $ | 6,969 |
|
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
| 5,880 |
|
|
| 6,087 |
|
Amortization |
|
| 530 |
|
|
| 592 |
|
Stock-based compensation |
|
| 831 |
|
|
| 373 |
|
Asset impairments |
|
| 13,639 |
|
|
| — |
|
Reversal of contingent consideration - earn-out obligation |
|
| (6,081 | ) |
|
| — |
|
Deferred income taxes |
|
| (1,626 | ) |
|
| (1,691 | ) |
Realized loss on sale of short-term investments (Available for Sale) |
|
| — |
|
|
| 94 |
|
Gain on sale of equipment |
|
| (276 | ) |
|
| (1,456 | ) |
Loss from investment in unconsolidated joint venture |
|
| 60 |
|
|
| 109 |
|
Foreign currency exchange (gain) loss |
|
| (15 | ) |
|
| 12 |
|
Changes in assets and liabilities, net of effects of acquisition of business: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (2,885 | ) |
|
| (38 | ) |
Inventories |
|
| (7,016 | ) |
|
| (658 | ) |
Other current assets |
|
| (527 | ) |
|
| (43 | ) |
Other assets |
|
| 159 |
|
|
| 6 |
|
Accounts payable - trade |
|
| (2,475 | ) |
|
| 486 |
|
Deferred revenue |
|
| (1 | ) |
|
| (317 | ) |
Accrued expenses and deferred compensation |
|
| 542 |
|
|
| (1,513 | ) |
Accrued restructuring costs |
|
| (124 | ) |
|
| 228 |
|
Income taxes |
|
| (293 | ) |
|
| (1,155 | ) |
Net cash (used in) provided by operating activities |
|
| (519 | ) |
|
| 8,085 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Net cash paid for acquisition of businesses |
|
| — |
|
|
| (12,096 | ) |
Capital expenditures |
|
| (4,072 | ) |
|
| (2,954 | ) |
Proceeds from the sale of property, plant, and equipment |
|
| 672 |
|
|
| 1,894 |
|
Investment in unconsolidated joint venture |
|
| — |
|
|
| (120 | ) |
Proceeds from the sale of short-term investments (Held to Maturity) |
|
| 5,000 |
|
|
| 17,150 |
|
Purchase of short-term and long-term investments (Held to Maturity) |
|
| (5,397 | ) |
|
| — |
|
Proceeds from the sale of short-term investments (Available for Sale) |
|
| — |
|
|
| 2,458 |
|
Purchase of short-term investments (Available for Sale) |
|
| (7,532 | ) |
|
| (10 | ) |
Proceeds from the sale of long-term investments (Rabbi Trust) |
|
| — |
|
|
| 1,233 |
|
Purchase of long-term investments (Rabbi Trust) |
|
| (707 | ) |
|
| (795 | ) |
Net cash (used in) provided by investing activities |
|
| (12,036 | ) |
|
| 6,760 |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from line of credit |
|
| — |
|
|
| 12,000 |
|
Payments on line of credit |
|
| — |
|
|
| (12,000 | ) |
Payments on vendor-financed capital expenditures |
|
| — |
|
|
| (1,412 | ) |
Proceeds from subordinated loan payable |
|
| 250 |
|
|
| — |
|
Cash paid for acquisition of business |
|
| (1,532 | ) |
|
| — |
|
Dividends paid |
|
| (3,786 | ) |
|
| (3,493 | ) |
Common stock surrendered for withholding taxes payable |
|
| (51 | ) |
|
| (1,303 | ) |
Capital contribution from non-controlling interest |
|
| 360 |
|
|
| — |
|
Common stock repurchased |
|
| (728 | ) |
|
| (3,316 | ) |
Payments of debt issuance costs |
|
| — |
|
|
| (50 | ) |
Net cash used in financing activities |
|
| (5,487 | ) |
|
| (9,574 | ) |
Effect of exchange rate changes on cash and cash equivalents |
|
| (94 | ) |
|
| (81 | ) |
(Decrease) increase in cash and cash equivalents |
|
| (18,136 | ) |
|
| 5,190 |
|
Cash and cash equivalents at beginning of period |
|
| 40,008 |
|
|
| 21,228 |
|
Cash and cash equivalents at end of period |
| $ | 21,872 |
|
| $ | 26,418 |
|
Capital | Accumulated | |||||||||||||||||||||||
Contributed | Other | Total | ||||||||||||||||||||||
Common Stock | in Excess | Accumulated | Comprehensive | Shareholders’ | ||||||||||||||||||||
Shares | Amount | of Par Value | Earnings | (Loss) Income | Equity | |||||||||||||||||||
Balance, April 30, 2017 * | 12,356,631 | $ | 618 | 47,415 | 100,601 | (4 | ) | $ | 148,630 | |||||||||||||||
Net income | - | - | - | 4,984 | - | 4,984 | ||||||||||||||||||
Stock-based compensation | - | - | 757 | - | - | 757 | ||||||||||||||||||
Unrealized gain on investments | - | - | - | - | 44 | 44 | ||||||||||||||||||
Common stock issued in connection with vesting | ||||||||||||||||||||||||
of performance based restricted stock units | 118,845 | 6 | (6 | ) | - | - | - | |||||||||||||||||
Common stock issued in connection | ||||||||||||||||||||||||
with exercise of stock options | 600 | - | 5 | - | - | 5 | ||||||||||||||||||
Common stock surrendered for withholding | ||||||||||||||||||||||||
taxes payable | (34,915 | ) | (2 | ) | (1,133 | ) | - | - | (1,135 | ) | ||||||||||||||
Dividends paid | - | - | - | (3,608 | ) | - | (3,608 | ) | ||||||||||||||||
Balance, July 30, 2017 | 12,441,161 | 622 | 47,038 | 101,977 | 40 | 149,677 | ||||||||||||||||||
Net income | - | - | - | 3,976 | - | 3,976 | ||||||||||||||||||
Stock-based compensation | - | - | 801 | - | - | 801 | ||||||||||||||||||
Unrealized gain on investments | - | - | - | - | 20 | 20 | ||||||||||||||||||
Fully vested common stock award | 4,800 | - | - | - | - | - | ||||||||||||||||||
Common stock issued in connection with vesting | ||||||||||||||||||||||||
of time- based restricted stock units | 1,200 | - | - | - | - | - | ||||||||||||||||||
Common stock surrendered for withholding | ||||||||||||||||||||||||
taxes payable | (11,885 | ) | - | (398 | ) | - | - | (398 | ) | |||||||||||||||
Dividends paid | - | - | - | (996 | ) | - | (996 | ) | ||||||||||||||||
Balance, October 29, 2017 | 12,435,276 | $ | 622 | 47,441 | 104,957 | 60 | $ | 153,080 | ||||||||||||||||
Net loss | - | - | - | (748 | ) | - | (748 | ) | ||||||||||||||||
Stock-based compensation | - | - | 867 | - | - | 867 | ||||||||||||||||||
Unrealized loss on investments | - | - | - | - | (4 | ) | (4 | ) | ||||||||||||||||
Common stock issued in connection with exercise | ||||||||||||||||||||||||
of stock options | 15,000 | 1 | 105 | - | - | 106 | ||||||||||||||||||
Dividends paid | - | (1,119 | ) | - | (1,119 | ) | ||||||||||||||||||
Balance, January 28, 2018 | 12,450,276 | $ | 623 | $ | 48,413 | $ | 103,090 | $ | 56 | $ | 152,182 | |||||||||||||
* Derived from audited financial statements. | ||||||||||||||||||||||||
See accompanying notes to consolidated financial statements. |
See accompanying notes to consolidated financial statements.
I-4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
NINE-MONTH PERIOD ENDED FEBRUARY 2, 2020
UNAUDITED
(Dollars in thousands, except share data)
|
| Shareholders’ equity attributable to Culp Inc. |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Capital |
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
| Contributed |
|
|
|
|
|
| Other |
|
|
|
|
|
| Non- |
|
|
|
|
| |||
|
| Common Stock |
|
| in Excess |
|
| Accumulated |
|
| Comprehensive |
|
|
|
|
|
| Controlling |
|
| Total |
| ||||||||||
|
| Shares |
|
| Amount |
|
| of Par Value |
|
| Earnings |
|
| Income |
|
| Total |
|
| Interest |
|
| Equity |
| ||||||||
Balance, April 28, 2019 * |
|
| 12,391,160 |
|
| $ | 620 |
|
| $ | 43,694 |
|
| $ | 115,579 |
|
| $ | 40 |
|
| $ | 159,933 |
|
| $ | 4,314 |
|
| $ | 164,247 |
|
Net income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,338 |
|
|
| — |
|
|
| 1,338 |
|
|
| (164 | ) |
|
| 1,174 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 154 |
|
|
| — |
|
|
| — |
|
|
| 154 |
|
|
| — |
|
|
| 154 |
|
Unrealized gain on investments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
|
| 6 |
|
|
| — |
|
|
| 6 |
|
Common stock issued in connection with vesting of performance based restricted stock units |
|
| 12,776 |
|
|
| 1 |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Fully vested common stock award |
|
| 3,659 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Common stock surrendered for withholding taxes payable |
|
| (2,581 | ) |
|
| — |
|
|
| (44 | ) |
|
| — |
|
|
| — |
|
|
| (44 | ) |
|
| — |
|
|
| (44 | ) |
Dividends paid |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,241 | ) |
|
| — |
|
|
| (1,241 | ) |
|
| — |
|
|
| (1,241 | ) |
Capital contribution from non-controlling interest |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 40 |
|
|
| 40 |
|
Balance, August 4, 2019 |
|
| 12,405,014 |
|
|
| 621 |
|
|
| 43,803 |
|
|
| 115,676 |
|
|
| 46 |
|
|
| 160,146 |
|
|
| 4,190 |
|
|
| 164,336 |
|
Net income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,300 |
|
|
| — |
|
|
| 2,300 |
|
|
| (108 | ) |
|
| 2,192 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 313 |
|
|
| — |
|
|
| — |
|
|
| 313 |
|
|
| — |
|
|
| 313 |
|
Unrealized gain on investments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9 |
|
|
| 9 |
|
|
| — |
|
|
| 9 |
|
Common stock issued in connection with vesting of performance based restricted stock units |
|
| 2,862 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Fully vested common stock award |
|
| 4,520 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Common stock surrendered for withholding taxes payable |
|
| (439 | ) |
|
| — |
|
|
| (7 | ) |
|
| — |
|
|
| — |
|
|
| (7 | ) |
|
| — |
|
|
| (7 | ) |
Dividends paid |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,241 | ) |
|
| — |
|
|
| (1,241 | ) |
|
| — |
|
|
| (1,241 | ) |
Capital contributions from non-controlling interest |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 320 |
|
|
| 320 |
|
Balance, November 3, 2019 |
|
| 12,411,957 |
|
|
| 621 |
|
|
| 44,109 |
|
|
| 116,735 |
|
|
| 55 |
|
|
| 161,520 |
|
|
| 4,402 |
|
|
| 165,922 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (58 | ) |
|
| — |
|
|
| (58 | ) |
|
| (4,149 | ) |
|
| (4,207 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 364 |
|
|
| — |
|
|
| — |
|
|
| 364 |
|
|
| — |
|
|
| 364 |
|
Unrealized gain on investments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 49 |
|
|
| 49 |
|
|
| — |
|
|
| 49 |
|
Fully vested common stock award |
|
| 4,973 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Common stock repurchased |
|
| (55,750 | ) |
|
| (3 | ) |
|
| (725 | ) |
|
| — |
|
|
| — |
|
|
| (728 | ) |
|
| — |
|
|
| (728 | ) |
Dividends paid |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,304 | ) |
|
| — |
|
|
| (1,304 | ) |
|
| — |
|
|
| (1,304 | ) |
Balance, February 2, 2020 |
|
| 12,361,180 |
|
| $ | 618 |
|
| $ | 43,748 |
|
| $ | 115,373 |
|
| $ | 104 |
|
| $ | 159,843 |
|
| $ | 253 |
|
| $ | 160,096 |
|
* | Derived from audited financial statements. |
See accompanying notes to consolidated financial statements.
I-5
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
NINE-MONTH PERIOD ENDED JANUARY 27, 2019
UNAUDITED
(Dollars in thousands, except share data)
|
| Shareholders’ equity attributable to Culp Inc. |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Capital |
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
| Contributed |
|
|
|
|
|
| Other |
|
|
|
|
|
| Non- |
|
|
|
|
| |||
|
| Common Stock |
|
| in Excess |
|
| Accumulated |
|
| Comprehensive |
|
|
|
|
|
| Controlling |
|
| Total |
| ||||||||||
|
| Shares |
|
| Amount |
|
| of Par Value |
|
| Earnings |
|
| (Loss) Income |
|
| Total |
|
| Interest |
|
| Equity |
| ||||||||
Balance, April 29, 2018 * |
|
| 12,450,276 |
|
| $ | 623 |
|
| $ | 48,203 |
|
| $ | 114,635 |
|
| $ | (85 | ) |
| $ | 163,376 |
|
| $ | — |
|
| $ | 163,376 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 957 |
|
|
| — |
|
|
| 957 |
|
|
| 8 |
|
|
| 965 |
|
Acquisition of subsidiary with non- controlling interest |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,532 |
|
|
| 4,532 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| (501 | ) |
|
| — |
|
|
| — |
|
|
| (501 | ) |
|
| — |
|
|
| (501 | ) |
Unrealized gain on foreign currency cash flow hedge |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15 |
|
|
| 15 |
|
|
| — |
|
|
| 15 |
|
Unrealized gain on investments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 134 |
|
|
| 134 |
|
|
| — |
|
|
| 134 |
|
Common stock issued in connection with vesting of performance based restricted stock units |
|
| 115,917 |
|
|
| 6 |
|
|
| (6 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Common stock issued in connection with vesting of time-based restricted stock units |
|
| 1,200 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Common stock surrendered for withholding taxes payable |
|
| (42,157 | ) |
|
| (2 | ) |
|
| (1,290 | ) |
|
| — |
|
|
| — |
|
|
| (1,292 | ) |
|
| — |
|
|
| (1,292 | ) |
Common stock repurchased |
|
| (2,990 | ) |
|
| — |
|
|
| (72 | ) |
|
| — |
|
|
| — |
|
|
| (72 | ) |
|
| — |
|
|
| (72 | ) |
Dividends paid |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,127 | ) |
|
| — |
|
|
| (1,127 | ) |
|
| — |
|
|
| (1,127 | ) |
Balance, July 29, 2018 |
|
| 12,522,246 |
|
|
| 627 |
|
|
| 46,334 |
|
|
| 114,465 |
|
|
| 64 |
|
|
| 161,490 |
|
|
| 4,540 |
|
|
| 166,030 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,933 |
|
|
| — |
|
|
| 2,933 |
|
|
| 11 |
|
|
| 2,944 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 395 |
|
|
| — |
|
|
| — |
|
|
| 395 |
|
|
| — |
|
|
| 395 |
|
Unrealized gain on foreign currency cash flow hedge |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 41 |
|
|
| 41 |
|
|
| — |
|
|
| 41 |
|
Unrealized loss on investments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (43 | ) |
|
| (43 | ) |
|
| — |
|
|
| (43 | ) |
Fully vested common stock award |
|
| 3,600 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Common stock repurchased |
|
| (33,890 | ) |
|
| (2 | ) |
|
| (770 | ) |
|
| — |
|
|
| — |
|
|
| (772 | ) |
|
| — |
|
|
| (772 | ) |
Dividends paid |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,126 | ) |
|
| — |
|
|
| (1,126 | ) |
|
| — |
|
|
| (1,126 | ) |
Balance, October 28, 2018 |
|
| 12,491,956 |
|
|
| 625 |
|
|
| 45,959 |
|
|
| 116,272 |
|
|
| 62 |
|
|
| 162,918 |
|
|
| 4,551 |
|
|
| 167,469 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,154 |
|
|
| — |
|
|
| 3,154 |
|
|
| (94 | ) |
|
| 3,060 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 479 |
|
|
| — |
|
|
| — |
|
|
| 479 |
|
|
| — |
|
|
| 479 |
|
Unrealized loss on investments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (53 | ) |
|
| (53 | ) |
|
| — |
|
|
| (53 | ) |
Common stock surrendered for withholding taxes payable |
|
| — |
|
|
| — |
|
|
| (11 | ) |
|
| — |
|
|
| — |
|
|
| (11 | ) |
|
| — |
|
|
| (11 | ) |
Common stock repurchased |
|
| (123,543 | ) |
|
| (6 | ) |
|
| (2,466 | ) |
|
| — |
|
|
| — |
|
|
| (2,472 | ) |
|
| — |
|
|
| (2,472 | ) |
Dividends paid |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,240 | ) |
|
| — |
|
|
| (1,240 | ) |
|
| — |
|
|
| (1,240 | ) |
Balance, January 27, 2019 |
|
| 12,368,413 |
|
| $ | 619 |
|
| $ | 43,961 |
|
| $ | 118,186 |
|
| $ | 9 |
|
| $ | 162,775 |
|
| $ | 4,457 |
|
| $ | 167,232 |
|
* | Derived from audited financial statements. |
See accompanying notes to consolidated financial statements.
I-6
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of Culp, Inc. and its majority-owned subsidiaries (the “company”) include all adjustments, which are, in the opinion of management, necessary for fair presentation of the results of operations and financial position. All of these adjustments are of a normal recurring nature. Results of operations for interim periods may not be indicative of future results. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements, which are included in the company’s annual report on Form 10-K filed with the Securities and Exchange Commission on July 13, 2018,12, 2019, for the fiscal year ended April 29, 2018.
The company’s nine-months ended February 2, 2020, and January 27, 2019, represent 40-week and January 28, 2018, represent 39-week periods, respectively.
2. Significant Accounting Policies
As of January 27, 2019,February 2, 2020, there were no changes in the nature of our significant accounting policies or the application of those policies from those reported in our annual report on Form 10-K for the year then ended April 29, 2018.
Recently Adopted Accounting Pronouncements
Leases
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842),
whichTopic 842 allows the election of several practical expedients as part of adopting this new standard. We elected the “package of practical expedients” which permits us not to reassess, under Topic 842, our previous conclusions regarding lease identification and classification. We did not elect the use of hindsight with respect to determining the lease term. Also, Topic 842 provides practical expedients after adopting the new standard. We elected the short-term lease exemption, and therefore, we will not recognize ROU assets or lease liabilities for leases shorter than twelve months. We did not elect the practical expedient to combine lease and non-lease components for any class of assets and will account for lease components separately from non-lease components.
The adoption rather thanof Topic 842 had a material effect on our Consolidated Balance Sheets and increased the earliestrequired disclosures in our notes to the consolidated financial statements (see note 19 for further details). The most significant effect related to the recognition of ROU assets totaling $7.2 million that were mostly offset by the recognition of lease liabilities totaling $7.1 million in our Consolidated Balance Sheets. The adoption of Topic 842 did not have a material impact on our Consolidated Statements of Net (Loss) Income or our Consolidated Statement of Cash Flows.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which requires entities to use a forward looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The FASB has subsequently issued updates to the standard to provide additional clarification on specific topics. Topic 326 is effective for fiscal years, presented.
There are no other new accounting pronouncements that are expected to have a significant impact on our consolidated financial statements. We do expect this guidance to have a material impact on our financial position due to the requirement to recognize right-of-use assets and lease liabilities on our Consolidated Balance Sheets and the disclosures required in our notes to the consolidated financial statements.
3. Business Combinations
(dollars in thousands) | Fair Value | |||
Customer relationships | $ | 2,247 | ||
Goodwill | 2,107 | |||
Inventory | 1,128 | |||
Accounts receivable | 897 | |||
Tradename | 683 | |||
Property, plant & equipment | 379 | |||
Other assets | 35 | |||
Deferred revenue | (903 | ) | ||
Accounts payable | (719 | ) | ||
Accrued expenses | (174 | ) | ||
$ | 5,680 |
eLuxury, LLC (eLuxury)
Overview
Effective June 22, 2018, we entered into an Equity Purchase Agreement (Equity Agreement) in, pursuant to which we acquired an initial 80% ownership interest in eLuxury, a company that offers bedding accessories and home goods directly to consumers. eLuxury’s primary products include a line of mattress pads manufactured at eLuxury’s facility located in Evansville, Indiana. eLuxury also offers handmade platform beds, cotton bed sheets, as well asand other bedding items. Theiritems sourced from other suppliers. Its products are available on eLuxury’s own branded website, eLuxury.com, as well as Amazon and other leading online retailers for specialty home goods.
I-7
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We believe thisThis acquisition will provide a new sales channel for eLuxury’s bedding accessories and will expand our opportunity to participate in the e-commerce direct-to-consumer space. This business combination bringsbrought together eLuxury’s experience in e-commerce, online brand building, and direct-to-consumer shopping and fulfillment expertise with our global production, sourcing, and distribution capabilities. We also have an opportunity to market our new line of bedding accessories, and home products, as well as other finished products that we may develop, through this e-commerce platform.
The estimated consideration given for the initial 80% ownership interest in eLuxury totaled $18.1 million, of which $12.5 million representsrepresented the estimated purchase price and $5.6 million representsrepresented the fair value for contingent consideration associated with an earn-out obligation (see below for further details). Of the $12.5 million estimated purchase price, $11.6 million was paid at closing on June 22, 2018, $185,000 was paid in August 2018, and $749,000 is to bewas paid in September 2019, subject to certain conditions as defined in the Equity Agreement.
Assets Acquired and Liabilities Assumed
The following table presents the final allocation of the acquisition cost to the assets acquired and liabilities assumed based on their fair values.
(dollars in thousands) |
| Fair Value |
| |
Goodwill |
| $ | 13,653 |
|
Tradename |
|
| 6,549 |
|
Equipment |
|
| 2,179 |
|
Inventory |
|
| 1,804 |
|
Accounts receivable and other current assets |
|
| 108 |
|
Accounts payable |
|
| (1,336 | ) |
Accrued expenses |
|
| (295 | ) |
Non-controlling interest in eLuxury |
|
| (4,532 | ) |
|
| $ | 18,130 |
|
(dollars in thousands) | Fair Value | |||
Goodwill | $ | 13,653 | ||
Tradename | 6,549 | |||
Equipment | 2,179 | |||
Inventory | 1,804 | |||
Accounts receivable and other current assets | 108 | |||
Accounts payable | (1,336 | ) | ||
Accrued expenses | (295 | ) | ||
Non-controlling interest in eLuxury | (4,532 | ) | ||
$ | 18,130 |
We recorded the tradename at fair market value based on the relief from royalty method. This tradename was determined to have an indefinite useful life and, therefore, is not being amortized. Equipment will be depreciated on a straight-line basis over useful lives ranging from five to ten years.
The goodwill related to this acquisition is attributable to eLuxury’s reputation with the products they offerit offers and management’s experience in e-commerce, online brand building, and direct-to-consumer shopping and fulfillment expertise. Goodwill is deductible for income tax purposes over the statutory period of fifteen years.
During the third quarter of fiscal 2020, this goodwill was assessed for impairment as we believed indicators of impairment existed during this reporting period. See note 8 located in the notes to consolidated financial statements for further details.
Contingent Consideration
As mentioned above, the Equity Agreement contains a contingent consideration arrangement that requires us to pay the seller, who is also the owner of the noncontrolling interest, an earn-out payment based on a multiple of adjusted EBITDA, as defined in the Equity Agreement, for the twelve-month period ending August 31, 2021, less $12.0 million.million We recorded a contingent liability at the acquisition date for this earn-out obligation at its fair value totaling $5.6 million based on the Black Scholes pricing model.
We are required to assess the fair value of this earn-out obligation each quarterly reporting period. Based on management’s assessment as of February 2, 2020, we determined it was necessary to adjust forecasted EBITDA as it relates to this earn-out obligation. This determination was based on the future outlook of our home accessories segment and its slower than expected business improvement, as well as updated assumptions on economic conditions in the e-commerce space, combined with the upcoming timeframe for determining the amount associated with this contingent consideration arrangement. As a result of these factors, we recorded a reversal of $6.1 million for the full amount of our earn-out obligation during the third quarter of fiscal 2020.
Non-Controlling Interest
The Equity Agreement contains substantive profit-sharing arrangement provisions in which it explicitly statesstate the ownership interests at the effective date of this business combination and the allocation of net income or loss between the company, as the controlling interest (Culp)holder, and the noncontrolling interest.interest holder. The Equity Agreement states that at the effective date of this acquisition (June 22, 2018), we acquired an 80% ownership interest in eLuxury, with the seller retaining a 20% noncontrolling interest. Additionally, the Equity Agreement states that eLuxury’s net income or loss, future capital contributions, and equity distributions will be allocated at a percentage of 70% and 30% to the company and the noncontrolling interest holder, respectively.
I-8
Culp, Inc. common shareholders.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Based on the terms of the Equity Agreement, we believe the related risks associated with the ownership interests are aligned and therefore, the total consideration of $18.1 million for the 80% controlling interest provides information for the equity value of eLuxury as a whole, and therefore, is useful in estimating the fair value of the 20% noncontrolling interest. In order to determine the carrying value of ourthe noncontrolling interest in eLuxury, we applied the Hypothetical-Liquidation-At-Book-Value method (HLBV). HLBV is an approach that is used in practice to determine the carrying value of a noncontrolling interest if it is consistent with an existing profit-sharing arrangement such as the Equity Agreement. Therefore, the carrying amount of the noncontrolling interest of $4.5 million$253,000 at February 2, 2020, mostly represents the $4.5its $4.6 million fair value determined at the acquisition date, plusminus its allocation of net loss totaling $75,000 subsequent tolosses which includes a charge for asset impairments of $4.1 million incurred during the acquisition date and through the end of our third quarter of fiscal 2019.
Other
Acquisition costs totaling $270,000 were included in selling, general, and administrative expenses in our Consolidated Statement of Net Income for the nine-month period ending January 27, 2019.
Pro Forma Financial Information
The following unaudited pro forma consolidated results of operations for the three-month and nine-month periods ending February 2, 2020, and January 27, 2019, and January 28, 2018, have been prepared as if the acquisitionsacquisition of Read had occurred on May 2, 2016 and eLuxury had occurred on May 1, 2017.
|
| Three Months Ended |
| |||||
(dollars in thousands, except per share data) |
| February 2, 2020 |
|
| January 27, 2019 |
| ||
Net Sales |
| $ | 71,998 |
|
| $ | 77,226 |
|
(Loss) income from operations |
|
| (5,091 | ) |
|
| 4,299 |
|
Net (loss) income |
|
| (4,207 | ) |
|
| 3,060 |
|
Net loss - noncontrolling interest |
|
| 4,149 |
|
|
| 94 |
|
Net (loss) income – Culp Inc. common shareholders |
|
| (58 | ) |
|
| 3,154 |
|
Net (loss) income per share (basic) – Culp Inc. common shareholders |
|
| 0.00 |
|
|
| 0.25 |
|
Net (loss) income per share (diluted) – Culp Inc. common shareholders |
|
| 0.00 |
|
|
| 0.25 |
|
Three Months Ended | ||||||||
(dollars in thousands, except per share data) | January 27, 2019 | January 28, 2018 | ||||||
Net Sales | $ | 77,226 | $ | 93,451 | ||||
Income from operations | 4,299 | 7,257 | ||||||
Net income (loss) | 3,060 | (1,073 | ) | |||||
Net loss (income) - noncontrolling interest | 94 | (36 | ) | |||||
Net income (loss) – Culp Inc. common shareholders | 3,154 | (1,109 | ) | |||||
Net income (loss) per share (basic) – Culp Inc. common shareholders | 0.25 | (0.09 | ) | |||||
Net income (loss) per share (diluted) –Culp Inc. common shareholders | 0.25 | (0.09 | ) |
|
| Nine Months Ended |
| |||||
(dollars in thousands, except per share data) |
| February 2, 2020 |
|
| January 27, 2019 |
| ||
Net Sales |
| $ | 219,465 |
|
| $ | 228,830 |
|
Income from operations |
|
| 1,582 |
|
|
| 10,657 |
|
Net (loss) income |
|
| (841 | ) |
|
| 6,943 |
|
Net loss - noncontrolling interest |
|
| 4,421 |
|
|
| 83 |
|
Net income – Culp Inc. common shareholders |
|
| 3,580 |
|
|
| 7,026 |
|
Net income per share (basic) – Culp Inc. common shareholders |
|
| 0.29 |
|
|
| 0.56 |
|
Net income per share (diluted) – Culp Inc. common shareholders |
|
| 0.29 |
|
|
| 0.56 |
|
Nine Months Ended | ||||||||
(dollars in thousands, except per share data) | January 27, 2019 | January 28, 2018 | ||||||
Net Sales | $ | 228,830 | $ | 270,950 | ||||
Income from operations | 10,657 | 20,799 | ||||||
Net income | 6,943 | 7,901 | ||||||
Net loss (income) - noncontrolling interest | 83 | (27 | ) | |||||
Net income – Culp Inc. common shareholders | 7,026 | 7,874 | ||||||
Net income per share (basic) –Culp Inc. common shareholders | 0.56 | 0.63 | ||||||
Net income per share (diluted) –Culp Inc. common shareholders | 0.56 | 0.62 |
The unaudited pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that would actually would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of future results.
I-9
(dollars in thousands) | January 27, 2019 | January 28, 2018 | April 29, 2018 | |||||||||
Customers | $ | 26,748 | $ | 27,666 | $ | 28,097 | ||||||
Allowance - doubtful accounts | (388 | ) | (357 | ) | (357 | ) | ||||||
Allowance - cash discounts | (197 | ) | (222 | ) | (245 | ) | ||||||
Allowance - sales returns & allowances (1) | (21 | ) | (990 | ) | (1,188 | ) | ||||||
$ | 26,142 | $ | 26,097 | $ | 26,307 |
A summary of the activity in the allowance for doubtful accounts follows:
|
| Nine months ended |
| |||||
(dollars in thousands) |
| February 2, 2020 |
|
| Janauary 27, 2019 |
| ||
Beginning balance |
| $ | 393 |
|
| $ | 357 |
|
(Recovery) provision for bad debts |
|
| (16 | ) |
|
| 78 |
|
Net write-offs, net of recoveries |
|
| — |
|
|
| (47 | ) |
Ending balance |
| $ | 377 |
|
| $ | 388 |
|
Nine months ended | ||||||||
(dollars in thousands) | January 27, 2019 | January 28, 2018 | ||||||
Beginning balance | $ | (357 | ) | $ | (414 | ) | ||
Provision for bad debts | (78 | ) | 57 | |||||
Net write-offs, net of recoveries | 47 | - | ||||||
Ending balance | $ | (388 | ) | $ | (357 | ) |
Nine months ended | ||||||||
(dollars in thousands) | January 27, 2019 | January 28, 2018 | ||||||
Beginning balance | $ | (1,433 | ) | $ | (1,220 | ) | ||
Adoption of ASC Topic 606 (1) | 1,145 | - | ||||||
Provision for returns, allowances and discounts | (1,612 | ) | (2,332 | ) | ||||
Credits issued | 1,682 | 2,340 | ||||||
Ending balance | $ | (218 | ) | $ | (1,212 | ) |
5. Revenue
(dollars in thousands) | Balance at April 29, 2018 | Adjustments Due to ASC 606 Adoption (1) | Balance at April 30, 2018 | |||||||||
Balance Sheet Assets: | ||||||||||||
Accounts Receivable | $ | 26,307 | $ | 1,145 | $ | 27,452 | ||||||
Other Current Assets | 2,870 | 27 | 2,897 | |||||||||
Liabilities: | ||||||||||||
Accrued Expenses | 9,325 | 1,172 | 10,497 |
(dollars in thousands) | Three Months Ended January 27, 2019 | Adjustments Due to ASC 606 Adoption (1) | Balances Without ASC 606 Adoption | |||||||||
Statements of Net Income | ||||||||||||
Net Sales | $ | 77,226 | $ | 13 | $ | 77,239 | ||||||
Cost of Sales | 63,103 | 13 | 63,116 |
Nine Months Ended | Adjustments Due to | Balances Without | ||||||||||
(dollars in thousands) | January 27, 2019 | ASC 606 Adoption (1) | ASC 606 Adoption | |||||||||
Statements of Net Income | ||||||||||||
Net Sales | $ | 225,705 | $ | (17 | ) | $ | 225,688 | |||||
Cost of Sales | 187,697 | (17 | ) | 187,680 |
(dollars in thousands) | January 27, 2019 | Adjustments Due to ASC 606 Adoption (1) | Balances Without ASC 606 Adoption | |||||||||
Balance Sheet Assets: | ||||||||||||
Accounts Receivable | $ | 26,142 | $ | (1,092 | ) | $ | 25,050 | |||||
Other Current Assets | 2,954 | (17 | ) | 2,937 | ||||||||
Liabilities: | ||||||||||||
Accrued Expenses | $ | 9,740 | (1,109 | ) | $ | 8,631 |
Nature of Performance Obligations
Our operations are classified into three business segments: mattress fabrics, upholstery fabrics, and home accessories. The mattress fabrics segment manufactures, sources, and sells fabrics and mattress covers
primarily to bedding manufacturers. The upholstery fabrics segment develops, manufactures, sources,Our primary performance obligations include the sale of mattress fabrics, upholstery fabrics, and bedding and home accessories products, as well as the performance of customized fabrication and installation services of our own products associated with window treatments.
Contract Assets & Liabilities
Certain contracts, primarily those for customized fabrication and installation services, require upfront customer deposits that result in a contract liability which is recorded on the Consolidated Balance SheetSheets as deferred revenue. If upfront deposits or prepaymentprepayments are not required, customers may be granted credit terms which generally range from 15 – 45 days. Such terms are common within the industries in which we are associatedoperate and are not considered financing arrangements. There were no contract assets recognized as of February 2, 2020, January 27, 2019, and April 28, 2019.
A summary of the activity of deferred revenue for the three-month and nine-month periods ended February 2, 2020, and January 27, 2019, follows:
Three Months Ended | ||||
(dollars in thousands) | January 27, 2019 | |||
Balance as of October 28, 2018 | $ | 649 | ||
Revenue recognized on contract liabilities during the period | (637 | ) | ||
Payments received for services not yet rendered during the period | 480 | |||
Balance as of January 27, 2019 | $ | 492 |
|
| Nine months ended |
| |||||
(dollars in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
| ||
Beginning balance |
| $ | 399 |
|
| $ | 809 |
|
Revenue recognized on contract liabilities |
|
| (1,917 | ) |
|
| (2,171 | ) |
Payments received for services not yet rendered |
|
| 1,916 |
|
|
| 1,854 |
|
Ending balance |
| $ | 398 |
|
| $ | 492 |
|
Nine Months Ended | ||||
(dollars in thousands) | January 27, 2019 | |||
Balance as of April 29, 2018 | $ | 809 | ||
Revenue recognized on contract liabilities during the period | (2,171 | ) | ||
Payments received for services not yet rendered during the period | 1,854 | |||
Balance as of January 27, 2019 | $ | 492 |
Disaggregation of Revenue
The following table presents our disaggregated revenue by segment, timing of revenue recognition, and product sales versus services rendered for the three-month period ending February 2, 2020:
(dollars in thousands) |
| Mattress Fabrics |
|
| Upholstery Fabrics |
|
| Home Accessories |
|
| Total |
| ||||
Products transferred at a point in time |
| $ | 33,105 |
|
| $ | 32,044 |
|
| $ | 3,906 |
|
| $ | 69,055 |
|
Services transferred over time |
|
| — |
|
|
| 2,943 |
|
|
| — |
|
|
| 2,943 |
|
Total Net Sales |
| $ | 33,105 |
|
| $ | 34,987 |
|
| $ | 3,906 |
|
| $ | 71,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I-10
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents our disaggregated revenue by segment, timing of revenue recognition, and product sales versus services rendered for the nine-month period ending February 2, 2020:
(dollars in thousands) |
| Mattress Fabrics |
|
| Upholstery Fabrics |
|
| Home Accessories |
|
| Total |
| ||||
Products transferred at a point in time |
| $ | 107,250 |
|
| $ | 92,835 |
|
| $ | 11,485 |
|
| $ | 211,570 |
|
Services transferred over time |
|
| — |
|
|
| 7,895 |
|
|
| — |
|
|
| 7,895 |
|
Total Net Sales |
| $ | 107,250 |
|
| $ | 100,730 |
|
| $ | 11,485 |
|
| $ | 219,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents our disaggregated revenue by segment, timing of revenue recognition, and product sales versus services rendered for the three-month period ending January 27, 2019:
(dollars in thousands) |
| Mattress Fabrics |
|
| Upholstery Fabrics |
|
| Home Accessories |
|
| Total |
| ||||
Products transferred at a point in time |
| $ | 35,732 |
|
| $ | 34,730 |
|
| $ | 4,390 |
|
| $ | 74,852 |
|
Services transferred over time |
|
| — |
|
|
| 2,374 |
|
|
| — |
|
|
| 2,374 |
|
Total Net Sales |
| $ | 35,732 |
|
| $ | 37,104 |
|
| $ | 4,390 |
|
| $ | 77,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales | ||||||||||||||||
(dollars in thousands) | Mattress Fabrics | Upholstery Fabrics | Home Accessories | Total | ||||||||||||
Products transferred at a point in time | $ | 35,732 | $ | 34,730 | $ | 4,390 | $ | 74,852 | ||||||||
Services transferred over time | - | 2,374 | - | 2,374 | ||||||||||||
Total Net Sales | $ | 35,732 | $ | 37,104 | $ | 4,390 | $ | 77,226 |
The following table presents our disaggregated revenue by segment, timing of revenue recognition, and product sales versus services rendered for the nine-month period ending January 27, 2019:
(dollars in thousands) |
| Mattress Fabrics |
|
| Upholstery Fabrics |
|
| Home Accessories |
|
| Total |
| ||||
Products transferred at a point in time |
| $ | 107,335 |
|
| $ | 98,610 |
|
| $ | 11,759 |
|
| $ | 217,704 |
|
Services transferred over time |
|
| — |
|
|
| 8,001 |
|
|
| — |
|
|
| 8,001 |
|
Total Net Sales |
| $ | 107,335 |
|
| $ | 106,611 |
|
| $ | 11,759 |
|
| $ | 225,705 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales | ||||||||||||||||
(dollars in thousands) | Mattress Fabrics | Upholstery Fabrics | Home Accessories | Total | ||||||||||||
Products transferred at a point in time | $ | 107,335 | $ | 98,610 | $ | 11,759 | $ | 217,704 | ||||||||
Services transferred over time | - | 8,001 | - | 8,001 | ||||||||||||
Total Net Sales | $ | 107,335 | $ | 106,611 | $ | 11,759 | $ | 225,705 |
6. Inventories
Inventories are carried at the lower of cost or net realizable value. Cost is determined using the FIFO (first-in, first-out) method.
A summary of inventories follows:
(dollars in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
|
| April 28, 2019 |
| |||
Raw materials |
| $ | 7,607 |
|
| $ | 5,745 |
|
| $ | 5,617 |
|
Work-in-process |
|
| 2,537 |
|
|
| 2,610 |
|
|
| 2,289 |
|
Finished goods |
|
| 47,431 |
|
|
| 47,060 |
|
|
| 42,954 |
|
|
| $ | 57,575 |
|
| $ | 55,415 |
|
| $ | 50,860 |
|
(dollars in thousands) | January 27, 2019 | January 28, 2018 | April 29, 2018 | |||||||||
Raw materials | $ | 5,745 | $ | 6,654 | $ | 6,024 | ||||||
Work-in-process | 2,610 | 3,151 | 3,264 | |||||||||
Finished goods | 47,060 | 45,846 | 44,166 | |||||||||
$ | 55,415 | $ | 55,651 | $ | 53,454 | |||||||
7. Intangible Assets | ||||||||||||
A summary of intangible assets follows: | ||||||||||||
(dollars in thousands) | January 27, 2019 | January 28, 2018 | April 29, 2018 | |||||||||
Tradenames | $ | 7,232 | $ | - | $ | 683 | ||||||
Customer relationships, net | 2,613 | 625 | 2,839 | |||||||||
Non-compete agreement, net | 697 | 772 | 753 | |||||||||
$ | 10,542 | $ | 1,397 | $ | 4,275 |
7. Intangible Assets
A summary of intangible assets follows:
(dollars in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
|
| April 28, 2019 |
| |||
Tradenames |
| $ | 4,804 |
|
| $ | 7,232 |
|
| $ | 7,232 |
|
Customer relationships, net |
|
| 2,313 |
|
|
| 2,613 |
|
|
| 2,538 |
|
Non-compete agreement, net |
|
| 621 |
|
|
| 697 |
|
|
| 678 |
|
|
| $ | 7,738 |
|
| $ | 10,542 |
|
| $ | 10,448 |
|
I-11
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A summary of change in the carrying amount of our tradenames from our recent acquisitions (see Note 3) follow:follows:
|
| Nine months ended |
| |||||
(dollars in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
| ||
Beginning balance |
| $ | 7,232 |
|
| $ | 683 |
|
Acquisition of business (note 3) |
|
| — |
|
|
| 6,549 |
|
Impairment charge |
|
| (2,428 | ) |
|
| — |
|
Ending balance |
| $ | 4,804 |
|
| $ | 7,232 |
|
(dollars in thousands) | January 27, 2019 | January 28, 2018 | April 29, 2018 | |||||||||
Read | $ | 683 | $ | - | $ | 683 | ||||||
eLuxury | 6,549 | - | - | |||||||||
$ | 7,232 | $ | - | $ | 683 |
Our tradenames were recorded at their fair market values at the effective date of their acquisitions (see Note 3) and were based on the relief from royalty method. These tradenames were determined to have an indefinite useful life and therefore, are not being amortized. However, thesein accordance with ASC Topic 350 Intangibles – Goodwill and Other, our tradenames will be assessed annually for impairment.
Customer Relationships
A summary of the change in the carrying amount of our customer relationships follows:
Nine months ended | ||||||||
(dollars in thousands) | January 27, 2019 | January 28, 2018 | ||||||
Beginning balance | $ | 2,839 | $ | 664 | ||||
Amortization expense | (226 | ) | (39 | ) | ||||
Ending balance | $ | 2,613 | $ | 625 |
|
| Nine months ended |
| |||||
(dollars in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
| ||
Beginning balance |
| $ | 2,538 |
|
| $ | 2,839 |
|
Amortization expense |
|
| (225 | ) |
|
| (226 | ) |
Ending balance |
| $ | 2,313 |
|
| $ | 2,613 |
|
Our customer relationships at fair market value totaling $2.2 million based on a multi-period excess earnings valuation model. These customer relationships will beare amortized on a straight-line basis over their nine-year useful life.
The gross carrying amount of our customer relationships were $3.1 million, $868,000 andwas $3.1 million at February 2, 2020, January 27, 2019, January 28, 2018, and April 29, 2018,28, 2019, respectively. Accumulated amortization for these customer relationships werewas $802,000, $502,000 $243,000 and $276,000$577,000 at February 2, 2020, January 27, 2019, January 28, 2018, and April 29, 2018,28, 2019, respectively.
The remaining amortization expense for the next five fiscal years and thereafter follows: FY 2019 - $75,000; FY 2020 - $301,000;$76,000; FY 2021 - $301,000; FY 2022 - $301,000; FY 2023 - $301,000; FY 2024 - $301,000; and Thereafter - $1,334,000.
The weighted average amortization period for our customer relationships is 8.97.9 years as of January 27, 2019.
Non-Compete Agreement
A summary of the change in the carrying amount of our non-compete agreement follows:
Nine months ended | ||||||||
(dollars in thousands) | January 27, 2019 | January 28, 2018 | ||||||
Beginning balance | $ | 753 | $ | 828 | ||||
Amortization expense | (56 | ) | (56 | ) | ||||
Ending balance | $ | 697 | $ | 772 |
|
| Nine months ended |
| |||||
(dollars in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
| ||
Beginning balance |
| $ | 678 |
|
| $ | 753 |
|
Amortization expense |
|
| (57 | ) |
|
| (56 | ) |
Ending balance |
| $ | 621 |
| �� | $ | 697 |
|
Our non-compete agreement from a prior acquisition that is being amortized on a straight-line basis over the fifteen-year life of the agreement.
The gross carrying amount of thisour non-compete agreement was $2.0 million at February 2, 2020, January 27, 2019, January 28, 2018, and April 29, 2018,28, 2019, respectively. Accumulated amortization for thisour non-compete agreement was $1.4 million at February 2, 2020, $1.3 million at January 27, 2019, and April 29, 2018, and $1.2$1.4 million at JanuaryApril 28, 2018.
I-12
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The remaining amortization expense for the next five years and thereafter follows: FY 20192020 - $19,000; FY 2020 - $75,000; FY 2021 - $75,000; FY 2022 - $75,000; FY 2023 - $75,000; FY 2024 - $75,000, and Thereafter - $378,000.
The weighted average amortization period for the non-compete agreement is 9.38.3 years as of January 27, 2019.
8. Goodwill
A summary of the change in the carrying amount of goodwill follows:
|
| Nine months ended |
| |||||
(dollars in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
| ||
Beginning balance |
| $ | 27,222 |
|
| $ | 13,569 |
|
Acquisition of business (see note 3) |
|
| — |
|
|
| 13,653 |
|
Impairment charge |
|
| (11,211 | ) |
|
| — |
|
Ending balance |
| $ | 16,011 |
|
| $ | 27,222 |
|
Nine months ended | ||||||||
(dollars in thousands) | January 27, 2019 | January 28, 2018 | ||||||
Beginning balance | $ | 13,569 | $ | 11,462 | ||||
Acquisition of business (see note 3) | 13,653 | - | ||||||
Loss on impairment | - | - | ||||||
Ending balance | $ | 27,222 | $ | 11,462 |
In accordance with ASC Topic 350 Intangibles – Goodwill and Other, we assess goodwill for impairment annually or between annual test if we believe indicators of impairment exist. As of February 2, 2020, management determined that impairment indicators existed that pertained to the future outlook of our home accessories segment and its slower than expected business improvement, as well as current economic conditions within the e-commerce bedding space. As a result of the interim impairment assessment, we recorded an impairment charge of $11.2 million in Asset Impairments in the consolidated statements of net (loss) income for the three-month and nine-month periods ended February 2, 2020. There were no impairment charges for the three-month or nine-month periods ended January 27, 2019.
9. Investment in Unconsolidated Joint Venture
Culp International Holdings, Ltd. (Culp International), a wholly-owned subsidiary of the company, entered into a joint venture agreement pursuant to which Culp International owns fifty percent of Class International Holdings, Ltd. (CLIH). CLIH produces cut and sewn mattress covers, and its operations are located in a modern industrial park in northeastern Haiti, which borders the Dominican Republic. CLIH commenced production duringin the second quarter of fiscal 2018 (October 2017) and complements our mattress fabric operations with a mirroredreactive platform that enhances our ability to meet customer demand while adding a lower cost operation to our platform.
CLIH incurredreported a net loss totalingof $120,000 and $218,000 and $498,000 for the nine-month periods ending February 2, 2020, and January 27, 2019, and January 28, 2018, respectively. Our equity interest in CLIH’s net loss through the third quarter of fiscal 2018 included a significant amount of initial start-up operating expenses. Our equity interests in these net losses were $109,000 and $249,000 for the nine-month periods ending February 2, 2020 and January 27, 2019 was $60,000 and January 28, 2018,$109,000, respectively.
The following table summarizes information on assets, liabilities, and members’ equity of our equity method investment in CLIH:
(dollars in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
|
| April 28, 2019 |
| |||
Total assets |
| $ | 3,502 |
|
| $ | 3,255 |
|
| $ | 3,126 |
|
Total liabilities |
| $ | 167 |
|
| $ | 230 |
|
| $ | 111 |
|
Total members’ equity |
| $ | 3,335 |
|
| $ | 3,025 |
|
| $ | 3,015 |
|
(dollars in thousands) | January 27, 2019 | January 28, 2018 | April 29, 2018 | |||||||||
Total assets | $ | 3,255 | $ | 3,186 | $ | 3,130 | ||||||
Total liabilities | $ | 230 | $ | 150 | $ | 128 | ||||||
Total members’ equity | $ | 3,025 | $ | 3,036 | $ | 3,002 |
At February 2, 2020, January 27, 2019, January 28, 2018, and April 29, 2018,28, 2019, our investmentequity interest in CLIH totaled $1.7 million, $1.5 million, which represents the company’s fifty percent ownership interest in CLIH.
10. Accrued Expenses
A summary of accrued expenses follows:
(dollars in thousands) | January 27, 2019 | January 28, 2018 | April 29, 2018 | |||||||||
Compensation, commissions and related benefits | $ | 4,848 | $ | 6,288 | $ | 6,918 | ||||||
Interest | - | 5 | 20 | |||||||||
Other accrued expenses | 4,892 | 2,549 | 3,150 | |||||||||
$ | 9,740 | $ | 8,842 | $ | 10,088 |
(dollars in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
|
| April 28, 2019 |
| |||
Compensation, commissions and related benefits |
| $ | 4,230 |
|
| $ | 4,848 |
|
| $ | 4,229 |
|
Interest |
|
| 2 |
|
|
| — |
|
|
| 4 |
|
Other accrued expenses |
|
| 3,743 |
|
|
| 4,892 |
|
|
| 5,292 |
|
|
| $ | 7,975 |
|
| $ | 9,740 |
|
| $ | 9,525 |
|
I-13
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
At February 2, 2020, we had accrued expenses totaling $8.0 million, of which $7.7 million and $233,000 were classified as current accrued expenses and long-term accrued expenses, respectively, in the accompanying Consolidated Balance Sheets. At January 27, 2019, and January 28, 2018, we had accrued expenses totaling $9.7 million, and $8.8 million, respectively, all of which were classified as current accrued expenses in the accompanying Consolidated Balance Sheets. At April 29, 2018,28, 2019, we had accrued expenses totaling $10.1$9.5 million, of which $9.3$9.2 million and $763,000$333,000 were classified as current accrued expenses and long-term accrued expenses, respectively, in the accompanying Consolidated Balance Sheets.
11. Exit and Disposal Activity
On June 12, 2018, our board of directors announced the closure of our upholstery fabrics manufacturing facility located in Anderson, South Carolina. This closure was completed during the second quarter of fiscal 2019 and was due to a continued decline in demand for the products manufactured at this facility, reflecting a change in consumer style preferences.
The following summarizes our restructuring credit and restructuring related charges totaling $1.6 million that were associated with the above exit and disposal activity:
|
| Nine months ended |
| |||||
(dollars in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
| ||
Inventory markdowns |
| $ | — |
|
| $ | 1,564 |
|
Employee termination benefits |
|
| (70 | ) |
|
| 661 |
|
Other operational costs associated with a closed plant facility |
|
| — |
|
|
| 824 |
|
Gain on sale of equipment |
|
| — |
|
|
| (1,486 | ) |
Restructuring credit and restructuring related charges (1) (2) |
| $ | (70 | ) |
| $ | 1,563 |
|
(1) | The $70,000 credit was recorded to restructuring credit in the Consolidated Statements of Net (Loss) Income for the nine-month period ending February 2, 2020. |
Nine months ended | ||||
January 27, | ||||
(dollars in thousands) | 2019 | |||
Inventory markdowns | $ | 1,564 | ||
Other operating costs associated with a closed facility | 824 | |||
Employee termination benefits | 661 | |||
Gain on sale of property, plant, and equipment | (1,486 | ) | ||
$ | 1,563 |
(2) | Of the total net charge, a $2.3 million charge, a charge of $40,000, and a credit of $825,000 were recorded in cost of sales, selling, general and administrative expenses, and restructuring credit, respectively, in the Consolidated Statements of Net Income for the nine-month period ending January 27, 2019. |
The following summarizes the activity in theaccrued restructuring accrual:costs:
|
| Nine months ended |
| |||||
(dollars in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
| ||
Beginning balance |
| $ | 124 |
|
| $ | — |
|
Accrual established in fiscal 2019 |
|
| — |
|
|
| 451 |
|
Payments |
|
| (54 | ) |
|
| (434 | ) |
Adjustments |
|
| (70 | ) |
|
| 211 |
|
Ending balance |
| $ | — |
|
| $ | 228 |
|
Nine months ended | ||||
January 27, | ||||
(dollars in thousands) | 2019 | |||
Accrual established in fiscal 2019 | $ | 451 | ||
Paid in fiscal 2019 | (434 | ) | ||
Adjustments in fiscal 2019 | 211 | |||
$ | 228 |
The above restructuring accrual pertains to employee termination benefits that were associated with the above exit and disposal activity.
12. Assets Held for Sale
Revolving Credit Agreement – United States
Our Credit Agreement with Wells Fargo Bank, N.A. (“Wells Fargo”) provided forprovides a revolving loan commitment of $30 million. Effective August 13, 2018, we entered into a Fifth Amendment to our Credit Agreement which reduced the amount of our line of credit from $30 million to $25 million, reduced the amount of the Unencumbered Liquid Assets maintenance covenant from $20 millionis set to $15 million, and set the expiration date toexpire on August 15, 2020. Additionally, this amendment reduced the limit of outstanding2020, and allows us to issue letters of credit not to $1.0 million, which includes the $250,000 workers compensation letter of credit noted below.
Interest wasis charged at a rate (applicable interest rate of 3.95%3.11%, 3.02%3.95%, and 3.36%3.93% at February 2, 2020, January 27, 2019, January 28, 2018, and April 29, 2018,28, 2019, respectively) as a variable spread over LIBOR based on our ratio of debt to EBITDA.
I-14
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Outstanding borrowings are secured by a pledge of 65% of the common stock of Culp International Holdings Ltd. (our subsidiary located in the Cayman Islands), as required by the Credit Agreement. There were no borrowings outstanding under the Credit Agreement at February 2, 2020, January 27, 2019, January 28, 2018, and April 29, 2018,28, 2019, respectively.
At February 2, 2020, January 27, 2019, January 28, 2018, and April 29, 2018,28, 2019, there were $250,000 in outstanding letters of credit (all of which related to workers compensation) provided by the Credit Agreement.
Revolving Credit Agreement – China
We have an unsecured credit agreement associated with our operations in China that provides for a line of credit up to 40 million RMB ($6.05.8 million USD at January 27, 2019) and was set to expire on MarchFebruary 2, 2019.2020). This agreement has an interest rate determined by the Chinese government and thereis set to expire on December 4, 2020. There were no outstanding borrowings as of February 2, 2020, January 27, 2019, January 28, 2018, and April 29, 2018. 28, 2019.
Subordinated Loan Payable
On January 31,February 7, 2019, we renewed this unsecuredeLuxury entered into a subordinated credit agreement with the owner of its noncontrolling interest which provides a revolving loan commitment of $1.0 million that expires on June 22, 2023. Interest is charged at a rate (applicable interest rate of 3.36% at February 2, 2020) as a variable spread over LIBOR based on Culp’s ratio of debt to extend the expiration date to January 31, 2020.
Overall
Our loan agreements require, among other things, that we maintain compliance with certain financial covenants. As of January 27, 2019, weWe were in compliance with these financial covenants.
13. Fair Value of Financial Instruments
ASC Topic 820 establishes a fair value hierarchy that distinguishes between assumptions based on market data (observable inputs) and the company’s assumptions (unobservable inputs). Determining where an asset or liability falls within that hierarchy depends on the lowest level input that is significant to the fair value measurement as a whole. An adjustment to the pricing method used within either level 1 or level 2 inputs could generate a fair value measurement that effectively falls in a lower level in the hierarchy. The hierarchy consists of three broad levels as follows:
Level 1 – Quoted market prices in active markets for identical assets or liabilities;
Level 2 – Inputs other than level 1 inputs that are either directly or indirectly observable,observable; and
Level 3 – Unobservable inputs developed using the company’s estimates and assumptions, which reflect those that market participants would use.
Recurring Basis
The following table presents information about assets measured at fair value on a recurring basis:
|
| Fair value measurements at February 2, 2020 using: |
| |||||||||
|
| Quoted prices in active markets for identical assets |
|
| Significant other observable inputs |
| Significant unobservable inputs |
|
|
|
| |
(amounts in thousands) |
| Level 1 |
|
| Level 2 |
| Level 3 |
| Total |
| ||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Premier Money Market Fund |
| $ | 6,334 |
|
| N/A |
| N/A |
| $ | 6,334 |
|
Short Term Bond Funds |
|
| 4,743 |
|
| N/A |
| N/A |
|
| 4,743 |
|
Inflation Protected Bond Funds |
|
| 2,837 |
|
| N/A |
| N/A |
|
| 2,837 |
|
Strategic Income Fund |
|
| 1,001 |
|
| N/A |
| N/A |
|
| 1,001 |
|
Growth Allocation Fund |
|
| 239 |
|
| N/A |
| N/A |
|
| 239 |
|
Moderate Allocation Fund |
|
| 138 |
|
| N/A |
| N/A |
|
| 138 |
|
Other |
|
| 92 |
|
| N/A |
| N/A |
|
| 92 |
|
Fair value measurements at January 27, 2019 using: | ||||||||||||||||
Quoted prices in active markets for identical assets | Significant other observable inputs | Significant unobservable inputs | ||||||||||||||
(amounts in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Premier Money Market Fund | $ | 6,433 | N/A | N/A | $ | 6,433 | ||||||||||
Growth Allocation Fund | 184 | N/A | N/A | 184 | ||||||||||||
Moderate Allocation Fund | 119 | N/A | N/A | 119 | ||||||||||||
Other | 98 | N/A | N/A | 98 |
Fair value measurements at January 28, 2018 using: | ||||||||||||||||
Quoted prices in active markets for identical assets | Significant other observable inputs | Significant unobservable inputs | ||||||||||||||
(amounts in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Premier Money Market Fund | $ | 6,287 | N/A | N/A | $ | 6,287 | ||||||||||
Low Duration Bond Fund | 1,085 | N/A | N/A | 1,085 | ||||||||||||
Intermediate Term Bond Fund | 759 | N/A | N/A | 759 | ||||||||||||
Strategic Income Fund | 628 | N/A | N/A | 628 | ||||||||||||
Large Blend Fund | 431 | N/A | N/A | 431 | ||||||||||||
Growth Allocation Fund | 171 | N/A | N/A | 171 | ||||||||||||
Moderate Allocation Fund | 114 | N/A | N/A | 114 | ||||||||||||
Other | 173 | N/A | N/A | 173 |
I-15
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
| Fair value measurements at January 27, 2019 using: |
| |||||||||
|
| Quoted prices in active markets for identical assets |
|
| Significant other observable inputs |
| Significant unobservable inputs |
|
|
|
| |
(amounts in thousands) |
| Level 1 |
|
| Level 2 |
| Level 3 |
| Total |
| ||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Premier Money Market Fund |
| $ | 6,433 |
|
| N/A |
| N/A |
| $ | 6,433 |
|
Growth Allocation Fund |
|
| 184 |
|
| N/A |
| N/A |
|
| 184 |
|
Moderate Allocation Fund |
|
| 119 |
|
| N/A |
| N/A |
|
| 119 |
|
Other |
|
| 98 |
|
| N/A |
| N/A |
|
| 98 |
|
|
| Fair value measurements at April 28, 2019 using: |
| |||||||||
|
| Quoted prices in active markets for identical assets |
|
| Significant other observable inputs |
| Significant unobservable inputs |
|
|
|
| |
(amounts in thousands) |
| Level 1 |
|
| Level 2 |
| Level 3 |
| Total |
| ||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Premier Money Market Fund |
| $ | 6,639 |
|
| N/A |
| N/A |
| $ | 6,639 |
|
Growth Allocation Fund |
|
| 203 |
|
| N/A |
| N/A |
|
| 203 |
|
Moderate Allocation Fund |
|
| 127 |
|
| N/A |
| N/A |
|
| 127 |
|
Other |
|
| 112 |
|
| N/A |
| N/A |
|
| 112 |
|
Fair value measurements at April 29, 2018 using: | ||||||||||||||||
Quoted prices in active markets for identical assets | Significant other observable inputs | Significant unobservable inputs | ||||||||||||||
(amounts in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Premier Money Market Fund | $ | 6,492 | N/A | N/A | $ | 6,492 | ||||||||||
Low Duration Bond Fund | 1,085 | N/A | N/A | 1,085 | ||||||||||||
Intermediate Term Bond Fund | 747 | N/A | N/A | 747 | ||||||||||||
Strategic Income Fund | 619 | N/A | N/A | 619 | ||||||||||||
Large Blend Fund | 402 | N/A | N/A | 402 | ||||||||||||
Growth Allocation Fund | 169 | N/A | N/A | 169 | ||||||||||||
Moderate Allocation Fund | 113 | N/A | N/A | 113 | ||||||||||||
Other | 150 | N/A | N/A | 150 | ||||||||||||
Liabilities: | ||||||||||||||||
EURO Foreign Currency | ||||||||||||||||
Cash Flow Hedge | N/A | $ | 55 | N/A | $ | 55 |
The determination of where an asset or liability falls in the hierarchy requires significant judgment. We evaluate our hierarchy disclosures each quarter based on various factors and it is possible that an asset or liability may be classified differently from quarter to quarter. However, we expect that changes in classifications between different levels will be rare.
Short-Term and Long-Term Investments - Held-To-Maturity
Currently, our investments classified as held-to-maturity consist of investment grade U.S. corporate bonds, foreign bonds, and government bonds with remaining maturities that ranged from 1 to 3 years. These investments were classified as held-to-maturity, as we have the positive intent and ability to hold these investments until maturity. Our held-to-maturity investments were recorded as either current or noncurrent in our Consolidated Balance Sheets, based on the contractual maturity date in relation to the respective reporting period, and were recorded at amortized cost.
At February 2, 2020, January 27, 2019, and April 28, 2019, our held-to-maturity investments recorded at amortized cost totaled $5.4 million, $13.5 million, and $5.0 million, respectively. The fair value of our held-to-maturity investments at February 2, 2020, January 27, 2019, and April 28, 2019, totaled $5.4 million, $13.5 million and $5.0 million, respectively.
Our bond investments were classified as level 2, as they were traded over the counter within a broker network and not on an active market. The fair value of our bonds was determined based on a published source that provided an average bid price. The average bid price was based on various broker prices that were determined based on market conditions, interest rates, and the rating of the bond.
Short-Term Investments – Available for Sale
At January 28, 2018 and April 29, 2018,February 2, 2020, our short-term investments classified as available for sale totaled $2.5$7.6 million and consisted of short-term bond funds. Since these short-term bond funds were classified as available for sale, these investments were recorded at their fair market value and their unrealized gains or losses are included in other comprehensive income (loss). Our short-term bond investmentsfunds had an accumulated unrealized lossgain totaling $57,000 and $91,000 at January 28, 2018, and April 29, 2018, respectively.$48,000. At January 28, 2018, and April 29, 2018,February 2, 2020, the fair value of our short-term bond funds approximated its cost basis.
There were no short-term investments classified as available for sale held at January 27, 2019 and April 28, 2019.
I-16
We have a Rabbi Trust to set aside funds for participants of our deferred compensation plan (the “Plan”), which enables the participants to credit their contributions to various investment options of the Plan. The investments associated with the Rabbi Trust consist of a money market fund and various mutual funds that are classified as available for sale.
These long-term investments are recorded at their fair values of $7.8 million, $6.8 million, $7.2and $7.1 million and $7.3 million at February 2, 2020, January 27, 2019, January 28, 2018, and April 29, 2018,28, 2019, respectively. Our long-term investments had an accumulated unrealized gain of $56,000, $9,000, $113,000, and $61,000$40,000 at February 2, 2020, January 27, 2019, January 28, 2018, and April 29, 2018,28, 2019, respectively. The fair value of our long-term investments associated with our Rabbi Trust approximates itstheir cost basis.
Other
The carrying amount of our cash and cash equivalents, accounts receivable, other current assets, accounts payable, and accrued expenses approximates fair value because of the short maturity of these financial instruments.
Nonrecurring Basis
As of February 2, 2020, we had certain assets and a contingent consideration – earn-out obligation that were required to be measured at fair value on a nonrecurring basis.
|
| Fair value measurements at February 2, 2020 using: |
| |||||||||
|
| Quoted prices in active markets for identical assets |
| Significant other observable inputs |
| Significant unobservable inputs |
|
|
|
|
| |
(amounts in thousands) |
| Level 1 |
| Level 2 |
| Level 3 |
|
| Total |
| ||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill (note 8) |
| N/A |
| N/A |
| $ | 2,442 |
|
| $ | 2,442 |
|
Tradename (note 7) |
| N/A |
| N/A |
|
| 4,121 |
|
|
| 4,121 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Contingent Consideration – Earn-Out Obligation (note 3) |
| N/A |
| N/A |
| $ | — |
|
| $ | — |
|
The goodwill was recorded at fair market value using the discounted cash flow method that used significant unobservable inputs and was classified as level 3. The tradename was recorded at fair market value using the royalty from relief method that used significant unobservable inputs and was classified as level 3.
As of January 27, 2019, we had no assets that were required to be measured at fair value on a nonrecurring basis other than thecertain assets acquired fromand liabilities assumed in connection with the eLuxury business combination on June 22, 2018 (see note 3) that were acquired at fair value:.
|
| Fair value measurements at January 27, 2019 using: |
| |||||||||
|
| Quoted prices in active markets for identical assets |
| Significant other observable inputs |
| Significant unobservable inputs |
|
|
|
|
| |
(amounts in thousands) |
| Level 1 |
| Level 2 |
| Level 3 |
|
| Total |
| ||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
| N/A |
| N/A |
| $ | 13,653 |
|
| $ | 13,653 |
|
Tradename |
| N/A |
| N/A |
|
| 6,549 |
|
|
| 6,549 |
|
Equipment |
| N/A |
| N/A |
|
| 2,179 |
|
|
| 2,179 |
|
Inventory |
| N/A |
| N/A |
|
| 1,804 |
|
|
| 1,804 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Contingent Consideration – Earn-Out Obligation |
| N/A |
| N/A |
| $ | 5,600 |
|
| $ | 5,600 |
|
Fair value measurements at January 27, 2019 using: | ||||||||||||||||
Quoted prices in active markets for identical assets | Significant other observable inputs | Significant unobservable inputs | ||||||||||||||
(amounts in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Goodwill | N/A | N/A | $ | 13,653 | $ | 13,653 | ||||||||||
Tradename | N/A | N/A | 6,549 | 6,549 | ||||||||||||
Equipment | N/A | N/A | 2,179 | 2,179 | ||||||||||||
Inventory | N/A | N/A | 1,804 | 1,804 | ||||||||||||
Liabilities: | ||||||||||||||||
Contingent Consideration – | ||||||||||||||||
Earn-Out Obligation | N/A | N/A | $ | 5,781 | $ | 5,781 | ||||||||||
The tradename was recorded at fair market value using the royalty from relief method that used significant unobservable inputs and werewas classified as level 3. The contingent consideration – earn-out obligation was recorded at fair market value using the Black SholesScholes pricing model.
I-17
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Additionally, we acquired certain current assets, such as accounts receivable and prepaid expenses, and assumed certain liabilities, such as accounts payable and accrued expenses. Based on the nature of these items and their short maturity, the carrying amount of these items approximated their fair values. See note 3 for the final allocation of the acquisition cost to the assets acquired and liabilities assumed based on their fair values.
Fair value measurements at April 29, 2018 using: | ||||||||||||||||
Quoted prices in active markets for identical assets | Significant other observable inputs | Significant unobservable inputs | ||||||||||||||
(amounts in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Customer Relationships | N/A | N/A | $ | 2,247 | $ | 2,247 | ||||||||||
Goodwill | N/A | N/A | 2,107 | 2,107 | ||||||||||||
Inventory | N/A | N/A | 1,128 | 1,128 | ||||||||||||
Tradename | N/A | N/A | 683 | 683 | ||||||||||||
Equipment | N/A | N/A | 379 | 379 | ||||||||||||
Liabilities: | ||||||||||||||||
None | N/A | N/A | N/A | N/A | ||||||||||||
Derivatives in ASC Topic 815 Net Investment Hedging Relationships | Amt of Gain (Loss) (net of tax) Recognized in OCI on Derivative (Effective Portion) and recorded in Accrued Expenses at Fair Value | Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) | Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) | Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) | Amount of Gain (loss) (net of tax) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) | |||||||||||||||||||||||||
Nine Months Ended January 27, 2019 | Nine Months Ended January 28, 2018 | Nine Months Ended January 27, 2019 | Nine Months Ended January 28, 2018 | Nine Months Ended January 27, 2019 | Nine Months Ended January 28, 2018 | |||||||||||||||||||||||||
EURO Foreign Exchange Contract | $ | 56 | $ | - | Other Expense | $ | (64 | ) | $ | - | Other Expense | $ | - | $ | - |
14. Cash Flow Information
Interest and income taxes paid are as follows:
|
| Nine months ended |
| |||||
(dollars in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
| ||
Interest |
| $ | 48 |
|
| $ | 54 |
|
Income taxes |
|
| 4,500 |
|
|
| 6,226 |
|
Nine months ended | ||||||||
(dollars in thousands) | January 27, 2019 | January 28, 2018 | ||||||
Interest | $ | 54 | $ | 181 | ||||
Income taxes | 6,226 | 3,426 |
15. Net (Loss) Income (Loss) Per Share
Basic net (loss) income (loss) per share is computed using the weighted-average number of shares outstanding during the period. Diluted net (loss) income (loss) per share uses the weighted-average number of shares outstanding during the period plus the dilutive effect of stock-based compensation calculated using the treasury stock method.
Weighted average shares used in the computation of basic and diluted net (loss) income (loss) per share follows:
|
| Three months ended |
| |||||
(amounts in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
| ||
Weighted average common shares outstanding, basic |
|
| 12,409 |
|
|
| 12,438 |
|
Dilutive effect of stock-based compensation |
|
| — |
|
|
| 27 |
|
Weighted average common shares outstanding, diluted |
|
| 12,409 |
|
|
| 12,465 |
|
Three months ended | ||||||||
(amounts in thousands) | January 27, 2019 | January 28, 2018 | ||||||
Weighted average common shares outstanding, basic | 12,438 | 12,436 | ||||||
Dilutive effect of stock-based compensation | 27 | - | ||||||
Weighted average common shares outstanding, diluted | 12,465 | 12,436 |
During the three-months ended February 2, 2020, 10,793 shares of our common stock outstanding. Therefore, options to purchase shares of ourunvested common stock were not included in the computation of diluted earnings per share, as we incurred a net incomeloss for that reporting period. During the three-months endingended January 27, 2019. Stock-based compensation awards totaling 160,7432019, 723 shares of unvested common stock were not included in the computation of diluted net lossearnings per share foras their effect would be antidilutive.
|
| Nine months ended |
| |||||
(amounts in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
| ||
Weighted average common shares outstanding, basic |
|
| 12,405 |
|
|
| 12,488 |
|
Dilutive effect of stock-based compensation |
|
| 16 |
|
|
| 105 |
|
Weighted average common shares outstanding, diluted |
|
| 12,421 |
|
|
| 12,593 |
|
During the three-months ending January 28, 2018, as we incurred a net loss for that reporting period.
Nine months ended | ||||||||
(amounts in thousands) | January 27, 2019 | January 28, 2018 | ||||||
Weighted average common shares outstanding, basic | 12,488 | 12,425 | ||||||
Dilutive effect of stock-based compensation | 105 | 201 | ||||||
Weighted average common shares outstanding, diluted | 12,593 | 12,626 |
16. Segment Information
Our operations are classified into three business segments: mattress fabrics, upholstery fabrics, and home accessories. The mattress fabrics segment manufactures, sources, and sells fabrics and mattress covers
primarily to bedding manufacturers. The upholstery fabrics segment develops, manufactures, sources,We evaluate the operating performance of our segments based upon income (loss) from operations before certain unallocated corporate expenses, restructuring expense (credit)credit and restructuring related charges, impairment charges, and other non-recurring items. Cost of sales infor all of our segments include costs to develop, manufacture, develop, or source our products, including costs such as raw material and finished goods purchases, direct and indirect labor, overhead, and incoming freight charges. Unallocated corporate expenses primarily represent compensation and benefits for certain executive officers, all costs associated with being a public company, and other miscellaneous expenses. Segment assets
I-18
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
include assets used in the operations of each segment and primarily consist of accounts receivable, inventories, and property, plant and equipment.equipment, and right of use assets (see note 19 for further details). The mattress fabrics segment also includes in segment assets their assets held for sale and investment in an unconsolidated joint venture. During fiscal 2019, we elected to no longer include goodwillGoodwill and intangible assets are not included in segment assets, as these assets are not used by the Chief Operating Decision Maker to evaluate the respective segment’s operating performance, to allocate resources to the individual segments, or determine executive compensation.
Financial information for the company’s operating segments follows:
|
| Three months ended |
| |||||
|
| February 2, 2020 |
|
| January 27, 2019 |
| ||
Net sales: |
|
|
|
|
|
|
|
|
Mattress Fabrics |
| $ | 33,105 |
|
| $ | 35,732 |
|
Upholstery Fabrics |
|
| 34,987 |
|
|
| 37,104 |
|
Home Accessories |
|
| 3,906 |
|
|
| 4,390 |
|
|
| $ | 71,998 |
|
| $ | 77,226 |
|
Gross profit: |
|
|
|
|
|
|
|
|
Mattress Fabrics |
| $ | 4,614 |
|
| $ | 5,963 |
|
Upholstery Fabrics |
|
| 6,906 |
|
|
| 7,624 |
|
Home Accessories |
|
| 864 |
|
|
| 1,050 |
|
Total segment gross profit |
| $ | 12,384 |
|
| $ | 14,637 |
|
Restructuring related charges |
|
| — |
| (4) |
| (514 | ) |
|
| $ | 12,384 |
|
| $ | 14,123 |
|
Selling, general, and administrative expenses |
|
|
|
|
|
|
|
|
Mattress Fabrics |
| $ | 2,836 |
|
| $ | 2,755 |
|
Upholstery Fabrics |
|
| 3,876 |
|
|
| 3,825 |
|
Home Accessories |
|
| 1,046 |
|
|
| 1,361 |
|
Unallocated corporate expenses |
|
| 2,194 |
|
|
| 1,628 |
|
Total segment selling, general, and administrative expenses |
| $ | 9,952 |
|
| $ | 9,569 |
|
Other non-recurring charges |
|
| — |
| (5) |
| 429 |
|
Restructuring related charges |
|
| — |
| (5) |
| 40 |
|
|
| $ | 9,952 |
|
| $ | 10,038 |
|
Income (loss) from operations: |
|
|
|
|
|
|
|
|
Mattress Fabrics |
| $ | 1,777 |
|
| $ | 3,208 |
|
Upholstery Fabrics |
|
| 3,030 |
|
|
| 3,799 |
|
Home Accessories |
|
| (181 | ) |
|
| (311 | ) |
Unallocated corporate expenses |
|
| (2,194 | ) |
|
| (1,628 | ) |
Total segment income from operations |
|
| 2,432 |
|
|
| 5,068 |
|
Asset impairments | (1) |
| (13,639 | ) |
|
| — |
|
Reversal of contingent consideration - earn-out obligation | (2) |
| 6,081 |
|
|
| — |
|
Restructuring credit and restructuring related charges | (3) |
| 35 |
| (6) |
| (340 | ) |
Other non-recurring charges |
|
| — |
| (5) |
| (429 | ) |
Total (loss) income from operations |
|
| (5,091 | ) |
|
| 4,299 |
|
Interest expense |
|
| (8 | ) |
|
| — |
|
Interest income |
|
| 242 |
|
|
| 251 |
|
Other expense |
|
| (267 | ) |
|
| (288 | ) |
(Loss) income before income taxes |
| $ | (5,124 | ) |
| $ | 4,262 |
|
(1) | Our home accessories segment incurred asset impairment charges totaling $13.6 million, of which $11.2 million and $2.4 million pertained to this segment’s goodwill and tradename, respectively. |
Three months ended | ||||||||
January 27, 2019 | January 28, 2018 | |||||||
Net sales: Mattress Fabrics | $ | 35,732 | $ | 49,042 | ||||
Upholstery Fabrics | 37,104 | 36,268 | ||||||
Home Accessories | 4,390 | - | ||||||
$ | 77,226 | $ | 85,310 | |||||
Gross profit: | ||||||||
Mattress Fabrics | $ | 5,963 | $ | 10,146 | ||||
Upholstery Fabrics | 7,624 | 7,457 | ||||||
Home Accessories | 1,050 | - | ||||||
Total segment gross profit | $ | 14,637 | $ | 17,603 | ||||
Restructuring related charges (1) | (514 | ) | - | |||||
$ | 14,123 | $ | 17,603 | |||||
Selling, general, and administrative expenses | ||||||||
Mattress Fabrics | $ | 2,755 | $ | 3,309 | ||||
Upholstery Fabrics | 3,825 | 3,947 | ||||||
Home Accessories | 1,361 | - | ||||||
Unallocated corporate expenses | 1,628 | 2,703 | ||||||
Total segment selling, general, and administrative expenses | 9,569 | 9,959 | ||||||
Other non-recurring charges (2) | 429 | - | ||||||
Restructuring related charges (2) | 40 | - | ||||||
$ | 10,038 | $ | 9,959 | |||||
Income (loss) from operations: | ||||||||
Mattress Fabrics | $ | 3,208 | $ | 6,837 | ||||
Upholstery Fabrics | 3,799 | 3,510 | ||||||
Home Accessories | (311 | ) | - | |||||
Unallocated corporate expenses | (1,628 | ) | (2,703 | ) | ||||
Total segment income from operations | 5,068 | 7,644 | ||||||
Other non-recurring charges (2) | (429 | ) | - | |||||
Restructuring credit and related charges (2) (3) | (340 | ) | - | |||||
Total income from operations | 4,299 | 7,644 | ||||||
Interest expense | - | (31 | ) | |||||
Interest income | 251 | 132 | ||||||
Other expense | (288 | ) | (229 | ) | ||||
Income before income taxes | $ | 4,262 | $ | 7,516 |
(2) | We recorded a reversal of $6.1 million that pertained to a contingent earn-out obligation associated with the purchase of our 80% ownership interest in eLuxury, LLC. |
(3) | The $35 restructuring credit pertains to employee termination benefits associated with our closed Anderson, SC upholstery fabrics facility. |
(4) | Cost of sales for the three-month period ending January 27, 2019, includes a $514 restructuring related charge for operating costs associated with our closed upholstery fabrics facility located in Anderson, SC. |
I-19
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(6) | The $340 represents restructuring related charges totaling $554 disclosed in notes 4 and 5 above, partially offset by a restructuring credit of $214. The $214 restructuring credit represents a $362 gain on the sale of the building and land associated with our Anderson, SC upholstery fabrics facility, partially offset by a charge of $148 for employee termination benefits. |
|
| Nine months ended |
| |||||
|
| February 2, 2020 |
|
| January 27, 2019 |
| ||
Net sales: |
|
|
|
|
|
|
|
|
Mattress Fabrics |
| $ | 107,250 |
|
| $ | 107,335 |
|
Upholstery Fabrics |
|
| 100,730 |
|
|
| 106,611 |
|
Home Accessories |
|
| 11,485 |
|
|
| 11,759 |
|
|
| $ | 219,465 |
|
| $ | 225,705 |
|
Gross profit: |
|
|
|
|
|
|
|
|
Mattress Fabrics |
| $ | 16,553 |
|
| $ | 17,050 |
|
Upholstery Fabrics |
|
| 20,905 |
|
|
| 20,031 |
|
Home Accessories |
|
| 2,395 |
|
|
| 3,435 |
|
Total segment gross profit |
| $ | 39,853 |
|
| $ | 40,516 |
|
Other non-recurring charges |
|
| — |
| (8) |
| (159 | ) |
Restructuring related charges |
|
| — |
| (9) |
| (2,349 | ) |
|
| $ | 39,853 |
|
| $ | 38,008 |
|
Selling, general, and administrative expenses |
|
|
|
|
|
|
|
|
Mattress Fabrics |
| $ | 8,860 |
|
| $ | 8,141 |
|
Upholstery Fabrics |
|
| 11,528 |
|
|
| 10,985 |
|
Home Accessories |
|
| 3,462 |
|
|
| 3,690 |
|
Unallocated corporate expenses |
|
| 6,933 |
|
|
| 4,800 |
|
Total segment selling, general, and administrative expenses |
| $ | 30,783 |
|
| $ | 27,616 |
|
Other non-recurring charges |
|
| — |
| (10) |
| 518 |
|
Restructuring related charges |
|
| — |
| (5) |
| 40 |
|
|
| $ | 30,783 |
|
| $ | 28,174 |
|
Income (loss) from operations: |
|
|
|
|
|
|
|
|
Mattress Fabrics |
| $ | 7,693 |
|
| $ | 8,910 |
|
Upholstery Fabrics |
|
| 9,378 |
|
|
| 9,044 |
|
Home Accessories |
|
| (1,068 | ) |
|
| (254 | ) |
Unallocated corporate expenses |
|
| (6,933 | ) |
|
| (4,800 | ) |
Total segment income from operations |
|
| 9,070 |
|
|
| 12,900 |
|
Asset impairments | (1) |
| (13,639 | ) |
|
| — |
|
Reversal of contingent consideration - earn-out obligation | (2) |
| 6,081 |
|
|
| — |
|
Restructuring credit and restructuring related charges | (7) |
| 70 |
| (11) |
| (1,563 | ) |
Other non-recurring charges |
|
| — |
| (12) |
| (678 | ) |
Total income from operations |
|
| 1,582 |
|
|
| 10,659 |
|
Interest expense |
|
| (47 | ) |
|
| (38 | ) |
Interest income |
|
| 732 |
|
|
| 552 |
|
Other expense |
|
| (441 | ) |
|
| (688 | ) |
Income before income taxes |
| $ | 1,826 |
|
| $ | 10,485 |
|
(7) | The $70 restructuring credit pertains to employee termination benefits associated with our closed Anderson, SC upholstery fabrics facility. |
(8) | The $159 represents a non-recurring charge regarding employee termination benefits and other operational reorganization costs associated with our mattress fabrics segment. |
(9) | The $2.4 million consists of restructuring related charges of $1.6 million for inventory markdowns and $784 for other operating costs associated with our closed upholstery fabrics facility located in Anderson, SC. |
(10) | The $518 represents non-recurring charges of $429 for the accelerated vesting of a stock-based compensation agreement associated with unallocated corporate expenses and $89 for employee termination benefits and operational reorganization costs associated with our mattress fabrics segment. |
Nine months ended | ||||||||
January 27, 2019 | January 28, 2018 | |||||||
Net sales: Mattress Fabrics | $ | 107,335 | $ | 146,072 | ||||
Upholstery Fabrics | 106,611 | 99,469 | ||||||
Home Accessories | 11,759 | - | ||||||
$ | 225,705 | $ | 245,541 | |||||
Gross profit: | ||||||||
Mattress Fabrics | $ | 17,050 | $ | 29,641 | ||||
Upholstery Fabrics | 20,031 | 20,232 | ||||||
Home Accessories | 3,435 | - | ||||||
Total segment gross profit | $ | 40,516 | $ | 49,873 | ||||
Other non-recurring charges (4) | (159 | ) | - | |||||
Restructuring related charges (5) | (2,349 | ) | - | |||||
$ | 38,008 | $ | 49,873 | |||||
Selling, general, and administrative expenses | ||||||||
Mattress Fabrics | $ | 8,141 | $ | 9,868 | ||||
Upholstery Fabrics | 10,985 | 11,458 | ||||||
Home Accessories | 3,690 | - | ||||||
Unallocated corporate expenses | 4,800 | 7,550 | ||||||
Total segment selling, general, and administrative expenses | 27,616 | 28,876 | ||||||
Other non-recurring charges (6) | 518 | - | ||||||
Restructuring related charges (2) | 40 | - | ||||||
$ | 28,174 | $ | 28,876 | |||||
Income (loss) from operations: | ||||||||
Mattress Fabrics | $ | 8,910 | $ | 19,774 | ||||
Upholstery Fabrics | 9,044 | 8,773 | ||||||
Home Accessories | (254 | ) | - | |||||
Unallocated corporate expenses | (4,800 | ) | (7,550 | ) | ||||
Total segment income from operations | 12,900 | 20,997 | ||||||
Other non-recurring charges (4) (6) | (678 | ) | - | |||||
Restructuring credit and related charges (7) | (1,563 | ) | - | |||||
Total income from operations | 10,659 | 20,997 | ||||||
Interest expense | (38 | ) | (69 | ) | ||||
Interest income | 552 | 391 | ||||||
Other expense | (688 | ) | (903 | ) | ||||
Income before income taxes | $ | 10,485 | $ | 20,416 |
I-20
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(12) | The $678 represents non-recurring charges of $429 for the accelerated vesting of a stock-based compensation agreement and $249 regarding employee termination benefits and other operational reorganization costs associated with our mattress fabrics segment. |
Balance sheet information for the company’s operating segments follows:
(dollars in thousands) | January 27, 2019 | January 28, 2018 | April 29, 2018 | |||||||||
Segment assets: | ||||||||||||
Mattress Fabrics Accounts receivable | $ | 12,373 | $ | 12,840 | $ | 15,195 | ||||||
Inventory | 26,243 | 29,355 | 28,740 | |||||||||
Property, plant and equipment (1) | 45,845 | 49,289 | 48,797 | |||||||||
Investment in unconsolidated joint venture | 1,512 | 1,518 | 1,501 | |||||||||
Total mattress fabrics assets | 85,973 | 93,002 | 94,233 | |||||||||
Upholstery Fabrics Accounts receivable | 13,367 | 13,257 | 11,112 | |||||||||
Inventory | 26,067 | 26,296 | 24,714 | |||||||||
Property, plant and equipment (2) | 1,957 | 2,101 | 2,445 | |||||||||
Total upholstery fabrics assets | 41,391 | 41,654 | 38,271 | |||||||||
Home Accessories | ||||||||||||
Accounts receivable | 402 | - | - | |||||||||
Inventory | 3,105 | - | - | |||||||||
Property, plant and equipment (3) | 1,985 | - | - | |||||||||
Total home accessories assets | 5,492 | - | - | |||||||||
Total segment assets | 132,856 | 134,656 | 132,504 | |||||||||
Non-segment assets: Cash and cash equivalents | 26,418 | 22,428 | 21,228 | |||||||||
Short-term investments (Available for Sale) | - | 2,472 | 2,451 | |||||||||
Short-term investments (Held-to-Maturity) | 13,544 | 17,206 | 25,759 | |||||||||
Other current assets | 2,954 | 3,114 | 2,870 | |||||||||
Deferred income taxes | 3,224 | 1,942 | 1,458 | |||||||||
Property, plant and equipment (4) | 342 | 448 | 552 | |||||||||
Goodwill | 27,222 | 11,462 | 13,569 | |||||||||
Intangible assets | 10,542 | 1,397 | 4,275 | |||||||||
Long-term investments (Held-to-Maturity) | - | 13,625 | 5,035 | |||||||||
Long-term investments (Rabbi Trust) | 6,834 | 7,176 | 7,326 | |||||||||
Other assets | 972 | 918 | 957 | |||||||||
Total assets | $ | 224,908 | $ | 216,844 | $ | 217,984 |
(dollars in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
|
| April 28, 2019 |
| |||
Segment assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Mattress Fabrics |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
| $ | 12,940 |
|
| $ | 12,373 |
|
| $ | 12,098 |
|
Inventory |
|
| 29,753 |
|
|
| 26,243 |
|
|
| 24,649 |
|
Assets held for sale |
|
| 67 |
|
|
| — |
|
|
| — |
|
Property, plant and equipment (1) |
|
| 42,368 |
|
|
| 45,845 |
|
|
| 44,266 |
|
Right of use assets (2) |
|
| 426 |
|
|
| — |
|
|
| — |
|
Investment in unconsolidated joint venture |
|
| 1,668 |
|
|
| 1,512 |
|
|
| 1,508 |
|
Total mattress fabrics assets |
|
| 87,222 |
|
|
| 85,973 |
|
|
| 82,521 |
|
Upholstery Fabrics |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| 12,908 |
|
|
| 13,367 |
|
|
| 11,274 |
|
Inventory |
|
| 24,256 |
|
|
| 26,067 |
|
|
| 22,915 |
|
Property, plant and equipment (3) |
|
| 1,675 |
|
|
| 1,957 |
|
|
| 1,795 |
|
Right of use assets (4) |
|
| 2,143 |
|
|
| — |
|
|
| — |
|
Total upholstery fabrics assets |
|
| 40,982 |
|
|
| 41,391 |
|
|
| 35,984 |
|
Home Accessories |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| 766 |
|
|
| 402 |
|
|
| 379 |
|
Inventory |
|
| 3,566 |
|
|
| 3,105 |
|
|
| 3,296 |
|
Property, plant and equipment (5) |
|
| 1,728 |
|
|
| 1,985 |
|
|
| 1,910 |
|
Right of use assets (6) |
|
| 949 |
|
|
| — |
|
|
| — |
|
Total home accessories assets |
|
| 7,009 |
|
|
| 5,492 |
|
|
| 5,585 |
|
Total segment assets |
|
| 135,213 |
|
|
| 132,856 |
|
|
| 124,090 |
|
Non-segment assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
| 21,872 |
|
|
| 26,418 |
|
|
| 40,008 |
|
Short-term investments (Held-to-Maturity) |
|
| 3,171 |
|
|
| 13,544 |
|
|
| 5,001 |
|
Short-term investments (Available for Sale) |
|
| 7,580 |
|
|
| — |
|
|
| — |
|
Current income taxes receivable |
|
| 776 |
|
|
| — |
|
|
| 776 |
|
Other current assets |
|
| 3,219 |
|
|
| 2,954 |
|
|
| 2,849 |
|
Deferred income taxes |
|
| 920 |
|
|
| 3,224 |
|
|
| 457 |
|
Property, plant and equipment (7) |
|
| 609 |
|
|
| 342 |
|
|
| 418 |
|
Right of use assets (8) |
|
| 2,006 |
|
|
| — |
|
|
| — |
|
Goodwill |
|
| 16,011 |
|
|
| 27,222 |
|
|
| 27,222 |
|
Intangible assets |
|
| 7,738 |
|
|
| 10,542 |
|
|
| 10,448 |
|
Long-term investments (Rabbi Trust) |
|
| 7,804 |
|
|
| 6,834 |
|
|
| 7,081 |
|
Long-term investments (Held-to-Maturity) |
|
| 2,224 |
|
|
| — |
|
|
| — |
|
Noncurrent income taxes receivable |
|
| 733 |
|
|
| — |
|
|
| 733 |
|
Other assets |
|
| 464 |
|
|
| 972 |
|
|
| 643 |
|
Total assets |
| $ | 210,340 |
|
| $ | 224,908 |
|
| $ | 219,726 |
|
I-21
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
| Nine months ended |
| |||||
(dollars in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
| ||
Capital expenditures (9): |
|
|
|
|
|
|
|
|
Mattress Fabrics |
| $ | 3,416 |
|
| $ | 2,342 |
|
Upholstery Fabrics |
|
| 253 |
|
|
| 294 |
|
Home Accessories |
|
| 104 |
|
|
| 33 |
|
Unallocated Corporate |
|
| 398 |
|
|
| 11 |
|
Total capital expenditures |
| $ | 4,171 |
|
| $ | 2,680 |
|
Depreciation expense: |
|
|
|
|
|
|
|
|
Mattress Fabrics |
| $ | 5,017 |
|
| $ | 5,265 |
|
Upholstery Fabrics |
|
| 577 |
|
|
| 595 |
|
Home Accessories |
|
| 286 |
|
|
| 227 |
|
Total depreciation expense |
| $ | 5,880 |
|
| $ | 6,087 |
|
Nine months ended | ||||||||
(dollars in thousands) | January 27, 2019 | January 28, 2018 | ||||||
Capital expenditures (5): | ||||||||
Mattress Fabrics | $ | 2,342 | $ | 5,445 | ||||
Upholstery Fabrics | 294 | 379 | ||||||
Home Accessories | 33 | - | ||||||
Unallocated Corporate | 11 | 47 | ||||||
Total capital expenditures | $ | 2,680 | $ | 5,871 | ||||
Depreciation expense: | ||||||||
Mattress Fabrics | $ | 5,265 | $ | 5,068 | ||||
Upholstery Fabrics | 595 | 611 | ||||||
Home Accessories | 227 | - | ||||||
Total depreciation expense | $ | 6,087 | $ | 5,679 |
(1) | The $42.4 million at February 2, 2020, represents property, plant, and equipment of $28.7 million and $13.7 million located in the U.S. and Canada, respectively. The $45.8 million at January 27, 2019, represents property, plant, and equipment of $33.5 million and $12.3 million located in the U.S. and Canada, respectively. The |
(2) | The |
(3) | The $1.7 million at |
The $2.0 million at January 27, 2019, represents property, plant, and equipment of $1.3 million and $615 located in the U.S. and China, respectively. The |
(4) | The |
(5) | The $1.7 million at February 2, 2020, $2.0 million at January 27, 2019, and $1.9 million at April 28, 2019, represents property, plant and equipment located in the U.S. |
(6) | The $949 million at February 2, 2020, represents right of use assets located in the U.S. |
(7) | The $609, $342, |
(8) | The $2.0 million at February 2, 2020, represents right of use assets located in the U.S. |
(9) | Capital expenditure amounts are stated on the accrual basis. See Consolidated Statements of Cash Flows for capital expenditure amounts on a cash basis. |
17. Income Taxes
Effective Income Tax Rate
We recorded income tax expense of $2.6 million, or 142.8% of income before income taxes, for the nine-month period ended February 2, 2020, compared with income tax expense of $3.4 million, or 32.5% of income before income taxes, for the nine- monthnine-month period ended January 27, 2019, compared to income tax expense of $12.0 million or 58.6% of income before income taxes, for the nine-month period ended January 28, 2018.2019. Our effective income tax rates for thesethe nine-month periods ended February 2, 2020, and January 27, 2019, 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 subsidiaries located in China and Canada versus annual projections, as well as changes in foreign currency exchange rates in relation to the U.S. dollar.
I-22
The following schedule summarizes the factors that contributed to the differenceprincipal differences between income tax expense at the U.S. federal income tax rate and the effective income tax rate reflected in the consolidated financial statements for the nine months of each fiscal year
statements:
|
| 2020 |
|
| 2019 |
| ||
U.S. federal income tax rate |
|
| 21.0 | % |
|
| 21.0 | % |
Global Intangible Low Taxed Income Tax (GILTI) |
| 58.2 |
|
|
| 2.6 |
| |
Foreign income tax rate differential |
|
| 35.7 |
|
|
| 10.1 |
|
Non-controlling interest income attributable to a consolidated partnership |
|
| 21.0 |
|
|
| - |
|
Tax effects of Chinese foreign exchange gains |
|
| 4.4 |
|
|
| 1.4 |
|
Change in estimate of U.S. valuation allowance |
| 2.5 |
|
|
| 1.0 |
| |
Stock-based compensation |
|
| 1.2 |
|
|
| 0.7 |
|
Tax effects of the 2017 Tax Cuts and Jobs Act |
|
| - |
|
|
| (5.7 | ) |
Other |
|
| (1.2 | ) |
|
| 1.4 |
|
|
|
| 142.8 | % |
|
| 32.5 | % |
2019 | 2018 | |||||||
Federal income tax rate | 21.0 | % | 30.4 | % | ||||
Tax effects of the 2017 Tax Cuts and Jobs Act | (5.7 | ) | 28.4 | |||||
Foreign income tax rate differential | 10.1 | 3.9 | ||||||
Global Intangible Low Taxed Income Tax (GILTI) | 2.6 | - | ||||||
Tax effects of Chinese foreign exchange gains (losses) | 1.4 | (2.9 | ) | |||||
Excess income tax deficiency (benefits) | ||||||||
related to stock-based compensation | 0.7 | (2.3 | ) | |||||
Other | 2.4 | 1.1 | ||||||
32.5 | % | 58.6 | % |
The key effects of the Tax Act onincrease in our financial statements during fiscal 2019 will include the reduction of our U.S federal statutoryeffective income tax rate reflects the significant decline in our projected annual consolidated taxable income, particularly in the U.S., and the mix of our consolidated taxable income that is earned by our foreign operations located in China and Canada that have higher income tax rates in relation to 21% compared with the blended statutoryU.S. This current mix of taxable income has led to a significant increase in our effective income tax rate of 30.4% during fiscal 2018 and the creation of thethat is associated with our Global Intangible Low TaxedTax Income Tax (GILTI).
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 assessments at February 2, 2020, January 27, 2019, January 28, 2018, and April 29, 2018,28, 2019, valuation allowances against our deferred income taxes pertain to the following jurisdictions:
(dollars in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
|
| April 28, 2019 |
| |||
U.S. state loss carryforwards and credits |
| $ | 711 |
|
|
| 903 |
|
|
| 666 |
|
U.S. foreign income tax credits |
|
| — |
|
|
| 4,550 |
|
|
| 82 |
|
|
| $ | 711 |
|
|
| 5,453 |
|
|
| 748 |
|
| January 27, | January 28, | April 29, | |||||||||
(dollars in thousands) | 2019 | 2018 | 2018 | |||||||||
U.S. foreign income tax credits | $ | 4,550 | 2,277 | 4,550 | ||||||||
U.S. state loss carryforwards and credits | 903 | 495 | 578 | |||||||||
Polish loss carryforwards | - | 73 | 76 | |||||||||
$ | 5,453 | 2,845 | 5,204 |
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 January 27, 2019,February 2, 2020, 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.
As a result of the 2017 Tax Cuts and beyond, the TaxJobs Act, allows a U.S. corporation is allowed a 100% dividend received deduction for earnings and profits received from a 10% owned foreign corporation. Therefore, a deferred tax liability will be required for withholding taxes that are incurred by our foreign subsidiaries at the time earnings and profits are distributed. As a result, at February 2, 2020, January 27, 2019, January 28, 2018, and April 29, 2018,28, 2019, we recorded a deferred income tax liability of $3.4 million, $3.1$3.4 million, and $4.3$3.5 million, respectively, for withholding taxes on undistributed earnings and profits from our foreign subsidiaries.
I-23
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 benefits will be recorded at that time.
At February 2, 2020, we had a $914,000 total gross unrecognized income tax benefit that was recorded to income taxes payable- long-term in the accompanying Consolidated Balance Sheets. At January 27, 2019, we had a $880,000 total gross unrecognized income tax benefit, of which $500,000 and $380,000 were classified as income taxes payable-payable – long-term and non-current deferred income taxes, respectively, in the accompanying Consolidated Balance Sheets. At JanuaryApril 28, 2018,2019, we had a $12.4 million$903,000 total gross unrecognized income tax benefit, of which $9.9 million and $2.5 million were classified as income taxes payable
At February 2, 2020, our $914,000 total gross unrecognized income tax benefit would favorably affect the income tax rate in future periods. At January 27, 2019, our $880,000 total gross unrecognized income tax benefit included $500,000 that, if recognized, would favorably affect the income tax rate in future periods. At JanuaryApril 28, 2018,2019, our $12.4 million$903,000 total gross unrecognized income tax benefit included $9.9 million$523,000 that, if recognized, would favorably affect the income tax rate in future periods. At April 29, 2018, our $844,000 total gross unrecognized income tax benefit included $464,000 that, if recognized, would favorably affect the income tax rate in future periods.
Our gross unrecognized income tax benefit of $880,000,$914,000 relates to income tax positions for which significant change is currently not expected within the next year. This amount primarily relates to double taxation under applicable income tax treaties with foreign tax jurisdictions.
18. Stock-Based Compensation
Equity Incentive Plan Description
On September 16, 2015, our shareholders approved an equity incentive plan entitled the Culp, Inc. 2015 Equity Incentive Plan (the “2015 Plan”). The 2015 Plan updated and replaced our 2007 Equity Incentive Plan (the “2007 Plan”) as the vehicle for granting new equity-based awards substantially similar to those authorized under the 2007 Plan. In general, the 2015 Plan authorizes the grant of stock options intended to qualify as incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, and other equity and cash related awards as determined by our Compensation Committee. An aggregate of 1,200,000 shares of common stock were authorized for issuance under the 2015 Plan, with certain sub-limits that would apply with respect to specific types of awards that may be issued as defined in the 2015 Plan. In connection with the approval of the 2015 Plan, no further awards will be granted under the 2007 Plan, but outstanding awards under the 2007 Plan will be settled in accordance with their terms.
At January 27, 2019,February 2, 2020, there were 969,406908,334 shares available for future equity-based grants under our 2015 plan.
Performance-Based Restricted Stock Units
Senior Executives
We grant performance-based restricted stock units to NEOscertain senior executives which could earn up to a certain number of shares of common stock if certain performance targets are met over a three-fiscal year performance period as defined in the related restricted stock unit agreements. The number of shares of common stock that are earned based on the performance targets that have been achieved will be adjusted based on a market-based total shareholder return component as defined in the related restricted stock unit agreements.
Compensation cost wasfor share-based awards is measured based at theon their fair market value on the date of grant (August 2, 2018 and July 13, 2017).grant. The fair market value per share wasis determined using the Monte Carlo simulation model for the market-based total shareholder return component and the closing price of our common stock for the performance-based component.
The following table provides assumptions used to determine the fair market value of the market-based shareholder return component of awards using the Monte Carlo simulation model onduring the date offiscal year the grants noted above:below were awarded:
|
| Fiscal 2020 |
|
| Fiscal 2019 |
|
| Fiscal 2018 |
| |||
Closing price of our common stock |
| $ | 18.49 |
|
| $ | 24.35 |
|
| $ | 32.50 |
|
Expected volatility of our common stock |
|
| 30.0 | % |
|
| 33.5 | % |
|
| 31.0 | % |
Expected volatility of peer companies (1) (2) |
| 29.9% - 82.3% |
|
|
| 16.0 | % |
|
| 16.5 | % | |
Risk-free interest rate |
|
| 1.73 | % |
|
| 2.74 | % |
|
| 1.56 | % |
Dividend yield |
|
| 2.10 | % |
|
| 1.35 | % |
|
| 1.66 | % |
Correlation coefficient of peer companies (1) (2) |
| 0.00 – 0.43 |
|
|
| 0.47 |
|
|
| 0.46 |
|
I-24
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(2) | The expected volatility and correlation coefficient of our peer companies for fiscal 2019 and 2018 were based on the Russell 2000 Index which was approved by the Compensation Committee of our board of directors as the benchmark for determining the market-based total shareholder return component. Since the Russell 2000 Index was the only benchmark for determining the market-based total shareholder return component, no ranges were disclosed for these assumptions. |
Fiscal 2019 | Fiscal 2018 | |||||||
Closing price of our common stock | $ | 24.35 | $ | 32.50 | ||||
Expected volatility of our common stock | 33.5 | % | 31.0 | % | ||||
Expected volatility of peer companies | 16.0 | % | 16.5 | % | ||||
Risk-free interest rate | 2.74 | % | 1.56 | % | ||||
Dividend yield | 1.35 | % | 1.66 | % | ||||
Correlation coefficient of peer companies | 0.47 | 0.46 |
Key Employees and a Non-Employee
We grantedgrant performance-based restricted stock units which could earn up to a certain number of shares of common stock if certain performance targets are met over a three-fiscal year performance period as defined in the related restricted stock unit agreements.
Our performance basedperformance-based restricted stock units granted to key employees were measured based on the fair market value (the closing price of our common stock) on the date of grant. No market-based total shareholder return component was included in these awards.
Our performance basedperformance-based restricted stock units granted to a non-employee, (fiscal 2017 only)which vested during the first quarter of fiscal 2020, were measured based on the fair market value (the closing price of our common stock) aton the earlier date of when the performance criteria are met or the end of the reporting period. No market-based total shareholder return component was included in these awards.
(3) | ||||||||||||
Restricted Stock | Price Per | Vesting | ||||||||||
Date of Grant | Units Awarded | Share | Period | |||||||||
August 2, 2018 (1) | 86,599 | $ | 18.51 | (4 | ) | 3 years | ||||||
August 2, 2018 (2) | 47,800 | $ | 24.35 | (6 | ) | 3 years | ||||||
July 13, 2017 (1) | 78,195 | $ | 31.85 | (5 | ) | 3 years | ||||||
July 13, 2017 (2) | 44,000 | $ | 32.50 | (6 | ) | 3 years | ||||||
July 14, 2016 (1) (2) | 107,880 | $ | 28.00 | (6 | ) | 3 years |
The following table summarizes information related to our grants of performance-based restricted stock units associated with a non-employeecertain senior executives and key employees that are currently unvested:
Date of Grant |
| (3) Restricted Stock Units Awarded |
|
| Price Per Share |
|
|
| Vesting Period | ||
July 18, 2019 (1) |
|
| 93,653 |
|
| $ | 19.04 |
| (4) |
| 3 years |
July 18, 2019 (2) |
|
| 30,426 |
|
| $ | 18.49 |
| (7) |
| 3 years |
August 2, 2018 (1) |
|
| 86,599 |
|
| $ | 18.51 |
| (5) |
| 3 years |
August 2, 2018 (2) |
|
| 47,800 |
|
| $ | 24.35 |
| (7) |
| 3 years |
July 13, 2017 (1) |
|
| 78,195 |
|
| $ | 31.85 |
| (6) |
| 3 years |
July 13, 2017 (2) |
|
| 44,000 |
|
| $ | 32.50 |
| (7) |
| 3 years |
(1) | Performance-based restricted stock units awarded to certain senior executives. |
(2) | ||||||
Performance-based restricted stock units awarded to key employees. |
(3) | Amounts represent the maximum number of common stock shares that could be earned if certain performance targets are met as defined in the related restricted stock unit agreements. |
(4) | Price per share represents the fair market value per share ($1.03 per $1 or an increase of $0.55 to the closing price of the common stock on the date of grant) determined using the Monte Carlo simulation model for the market-based total shareholder return component and the closing price of our common stock ($18.49) for the performance-based components of the performance-based restricted stock units granted to certain senior executives on July 18, 2019. |
(5) | Price per share represents the fair market value per share ($0.76 per $1 or a reduction of $5.84 to the closing price of the common stock on the date of grant) determined using the Monte Carlo simulation model for the market-based total shareholder return component and the closing price of our common stock ($24.35) for the performance-based components of the performance-based restricted stock units granted to certain senior executives on August 2, 2018. |
(6) | Price per share represents the fair market value per share ($0.98 per $1 or a reduction of $0.65 to the closing price of the common stock on the date of grant) determined using the Monte Carlo simulation model for the market-based total shareholder return component and the closing price of our common stock ($32.50) for the performance-based components of the performance-based restricted stock units granted to certain senior executives on July 13, 2017. |
(7) | Price per share represents the closing price of our common stock on the date of grant. |
I-25
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes information related to our performance basedperformance-based restricted stock units that vested during the nine-month periodsperiod ending January 27, 2019February 2, 2020 and Januarythe entire fiscal year ending April 28, 2018:2019:
Fiscal Year |
| Restricted Stock Units Vested |
|
| (3) Fair Value |
|
| Weighted Average Price Per Share |
|
| |||
Fiscal 2020 (1) |
|
| 9,489 |
|
| $ | 165 |
|
| $ | 17.36 |
| (4) |
Fiscal 2020 (2) |
|
| 4,148 |
|
| $ | 72 |
|
| $ | 17.36 |
| (4) |
Fiscal 2019 (1) |
|
| 128,632 |
|
| $ | 3,754 |
|
| $ | 29.19 |
| (4) |
Fiscal 2019 (2) |
|
| 10,364 |
|
| $ | 320 |
|
| $ | 30.90 |
| (4) |
(1) | Certain senior executives and key employees. |
(2) | Non-employee |
| Weighted Average | |||||||||||
Restricted Stock | (3) | Price | ||||||||||
Fiscal Year | Units Vested | Fair Value | Per Share | |||||||||
Fiscal 2019 (1) | 126,232 | $ | 3,707 | $ | 29.37 | (4) | ||||||
Fiscal 2019 (2) | 10,364 | $ | 320 | $ | 30.90 | (4) | ||||||
Fiscal 2018 (1) | 102,845 | $ | 3,342 | $ | 32.50 | (4) | ||||||
Fiscal 2018 (2) | 16,000 | $ | 520 | $ | 32.50 | (4) |
(3) | Dollar amounts are in thousands. |
(4) | The weighted average price per share is derived from the closing prices of our common stock on the dates the respective performance-based restricted stock units vested. |
Overall
We recorded compensation expense of $259,000$467,000 and $2.2 million$259,000 within selling, general, and administrative expenses for the nine-month periods ending February 2, 2020, and January 27, 2019, and January 28, 2018, respectively. Compensation cost is recorded based on an assessment each reporting period of the probability that certain performance goals will be met during the vesting period.period of outstanding awards. If performance goals are not probable of occurrence, compensation cost will not be recognizedrecorded and any previously recognized compensation cost would be reversed.
At January 27, 2019,February 2, 2020, the remaining unrecognized compensation cost related to our performance basedperformance-based restricted stock units was $760,000,$680,000, which is expected to be recognized over a weighted average vesting period of 2.01.9 years. At January 27, 2019,February 2, 2020, the performance basedperformance-based restricted stock units that were expected to vest had a fair value totaling $1.2 million.
Time-Based Restricted Stock Units
The following table summarizes information related to our grants of time-based restricted stock units associated with senior executives and key members of management that are currently unvested:
Date of Grant |
| Time Based Stock Units Awarded |
|
| Price Per Share |
|
|
| Vesting Period | ||
July 18, 2019 |
|
| 34,399 |
|
| $ | 18.49 |
| (1) |
| 3 years |
August 2, 2018 |
|
| 10,000 |
|
| $ | 24.35 |
| (1) |
| 5 years |
(1) | Price per share represents closing price of common stock on the date the respective award was granted |
The following table summarizes information related to certain key employees. These awards will vest over a period of 59 months and were measured at their fair market value, which was $24.35 per share, and represents the closing price of our common stock at the date of grant.
Fiscal Year |
| Restricted Stock Units Vested |
|
| (1) Fair Value |
|
| Weighted Average Price Per Share |
|
| |||
Fiscal 2020 |
|
| — |
|
| $ | — |
|
|
| — |
|
|
Fiscal 2019 |
|
| 1,200 |
|
| $ | 21 |
|
| $ | 17.36 |
| (2) |
(1) | Dollar amounts are in thousands. |
(2) | The weighted average price per share is derived from the closing prices of our common stock on the dates the respective time-based restricted stock units vested. |
I-26
We recorded compensation expense of $30,000$154,000 and $28,000$30,000 within selling, general, and administrative expense associated with our time vestedtime-based restricted stock unit awards for the nine-month periods ending February 2, 2020, and January 27, 2019, and January 28, 2018, respectively.
At January 27, 2019,February 2, 2020, the remaining unrecognized compensation cost related to our time vestedtime-based restricted stock units was $219,000,$688,000, which is expected to be recognized over a weighted average vesting period of 4.42.6 years. At January 27, 2019,February 2, 2020, the time vestedtime-based restricted stock awards that were expected to vest had a fair value totaling $185,000.
Common Stock Awards
Fiscal 2020
We granted a total of 3,6004,972, 4,519, and 4,8003,659 shares of common stock to our outside directors on January 2, 2020, October 1, 2018,2019, and October 2, 2017,July 1, 2019, respectively. These shares of common stock vested immediately and were valued based on themeasured at their fair market value on the date of grant. The fair value of these awards were $23.45was $14.08, $15.49, and $33.20$19.21 per share on January 2, 2020, October 1, 2018,2019, and October 2, 2017,July 1, 2019, respectively, which represents the closing price of our common stock on the date of grant.
Fiscal 2019
We granted a total of 2,948 and 3,600 shares of common stock to our outside directors on April 1, 2019 and October 1, 2018, respectively. These shares of common stock vested immediately and were measured at their fair value on the date of grant. The fair value of these awards was $19.18 and $23.45 per share on April 1, 2019 and October 1, 2018, respectively, which represents the closing price of our common stock on the date of grant.
We recorded $84,000$210,000 and $159,000$84,000 of compensation expense within selling, general, and administrative expense for theseour common stock awards for the nine-months ending February 2, 2020 and January 27, 2019, respectively.
19. Leases
Overview
We lease manufacturing facilities, office space, distribution centers, and equipment under operating lease arrangements. We determine if an arrangement is a lease at its inception if it conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Operating leases with an initial term of 12 months or less are not recognized in our Consolidated Balance Sheets. We recognize a right of use asset and lease liability on the commencement date of a lease arrangement based on the present value of lease payments over the lease term.
Our operating leases have remaining lease terms of 1 to 6 years, with renewal options for additional periods ranging up to 10 years. A lease term may include renewal options if it is reasonably certain that the option to renew a lease period will be exercised. A renewal option is considered reasonably certain to be exercised if there is a significant economic incentive, as defined in Topic 842, to exercise the renewal option on the date a lease arrangement is commenced. Currently, renewal options are not included in the lease terms for any of our leases, as there is not a significant economic incentive for us to exercise any of our renewal options.
For these contracts, an estimated incremental borrowing rate (“IBR”) is utilized, based on information available at the inception of the lease. The IBR represents an estimate of the interest rate we would incur at the lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of the lease.
Balance Sheet
The right of use asset and lease liabilities associated with our operating leases as of February 2, 2020, and April 29, 2019, are as follows:
(dollars in thousands) |
| February 2, 2020 |
|
| (1) April 29, 2019 |
| ||
Right of use asset |
| $ | 5,524 |
|
| $ | 7,191 |
|
Operating lease liability - current |
|
| 2,227 |
|
|
| 2,629 |
|
Operating lease liability – noncurrent |
|
| 3,160 |
|
|
| 4,473 |
|
(1) | Represents adoption date of Topic 842. |
I-27
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Supplemental Cash Flow Information
(dollars in thousands) |
| Three Months Ended February 2, 2020 |
|
| Nine Months Ended February 2, 2020 |
| ||
Operating lease liability payments |
| $ | 671 |
|
| $ | 2,079 |
|
Right of use assets exchanged for lease liabilities |
|
| 322 |
|
|
| 344 |
|
Operating lease expense for the three-month and nine-month periods ending February 2, 2020, was $726,000 and $2.2 million, respectively. Short-term lease and variable lease expenses were immaterial for the three-month and nine-month periods ending February 2, 2020.
Other Information
Maturity of our operating lease liabilities for the remainder of fiscal 2020, the next subsequent four fiscal years, and thereafter follows:
(dollars in thousands) |
|
|
|
|
2020 |
| $ | 590 |
|
2021 |
|
| 2,161 |
|
2022 |
|
| 1,207 |
|
2023 |
|
| 767 |
|
2024 |
|
| 659 |
|
Thereafter |
|
| 347 |
|
|
| $ | 5,731 |
|
Less: interest |
|
| (344 | ) |
Present value of lease liabilities |
| $ | 5,387 |
|
As of February 2, 2020, the weighted average remaining lease term and discount rate for our operating leases follows:
Weighted average lease term | 3.4 years | |||
Weighted average discount rate | 3.76 | % |
20. Commitments and Contingencies
Litigation
The company is involved in legal proceedings and claims which have arisen in the ordinary course of business. Management has determined that it is not reasonably possible that these actions, when ultimately concluded and settled, will have a material adverse effect upon the financial position, results of operations, or cash flows of the company.
Accounts Payable – Capital Expenditures
At February 2, 2020, January 27, 2019, and JanuaryApril 28, 2018, respectively.
Purchase Commitments – Capital Expenditures
At February 2, 2020, we had open purchase commitments to acquire equipment for our mattress fabrics segment totaling $2.3 million.
21. Statutory Reserves
Our subsidiaries located in China are required to transfer 10% of their net income, as determined in accordance with the People’s Republic of China (PRC) accounting rules and regulations, to a statutory surplus reserve fund until such reserve balance reaches 50% of the company’s registered capital.
I-28
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The transfer to this reserve must be made before distributions of any dividend to shareholders. As of January 27, 2019,February 2, 2020, the company’s statutory surplus reserve was $4.3$4.2 million, representing 10% of accumulated earnings and profits determined in accordance with PRC accounting rules and regulations. The surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them provided that the remaining reserve balance after such issue is not less than 25% of the registered capital.
Our subsidiaries located in China can transfer funds to the parent company with the exception ofexcept for the statutory surplus reserve of $4.3$4.2 million to assist with debt repayment, capital expenditures, and other expenses of the company’s business.
On June 15, 2016,September 5, 2019, we announced that our board of directors approved an authorization for us to acquire up to $5.0 million of our common stock. During the nine-month period ending February 2, 2020, we purchased 55,750 shares of our common stock at a cost of $728,000 pursuant to this authorization, all of which was purchased during the third quarter. As a result, at February 2, 2020, we have $4.3 million available for future repurchases of our common stock associated with the $5.0 million repurchase program approved by our board of directors on September 5, 2019.
On March 4, 2020, we announced that our board of directors approved an authorization to acquire up to $5.0 million of our common stock.
Under the common stock repurchase program, shares may be purchased from time to time in open market transactions, block trades, through plans established under the Securities Exchange Act Rule 10b5-1, or otherwise. The amountnumber of shares that can be purchased and the timing of such purchases will be based on working capital requirements, market and general business conditions, and other factors, including alternative investment opportunities.
During the nine-month period ended January 27, 2019, we purchased 160,423 shares of our common stock at a cost of $3.3 million. During the nine-month period ended January 28, 2018, we did not purchase anyThe 160,423 shares were purchased pursuant to a prior authorization approved by our board of our common stock.
23. Dividend Program
On February 27, 2019,March 4, 2020, we announced that our board of directors approved a quarterly cash dividend of $0.10$0.105 per share. This paymentshare that will be madepaid on April 15, 2019,2020, to shareholders of record as of April 1, 2019.
During the nine monthsnine-months ended February 2, 2020, dividend payments totaled $3.8 million, which represented quarterly dividend payments ranging from $0.10 per share to $0.105 per share. During the nine-months ended January 27, 2019, dividend payments totaled $3.5 million, which represented quarterly dividend payments ranging from $0.09 per share to $0.10 per share. During the nine months ended January 28, 2018, dividend payments totaled $5.7 million, of which $2.6 million represented a special cash dividend payment of $0.21 per share, and $3.1 million represented quarterly dividend payments ranging from $0.08 per share to $0.09 per share.
Future dividend payments are subject to board approval and may be adjusted at the board’s discretion as business needs or market conditions change.
I-29
This report and the exhibits attached hereto contain “forward-looking statements” within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995 (Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934). Such statements are inherently subject to risks and uncertainties that may cause actual events and results to differ materially from such statements. Further, forward looking statements are intended to speak only as of the date on which they are made, and we disclaim any duty to update or alter such statements to reflect any changes in management’s expectations or any change in the assumptions or circumstances on which such statements are based, whether due to new information, future events, or otherwise. Forward-looking statements are statements that include projections, expectations, or beliefs about future events or results or otherwise are not statements of historical fact. Such statements are often but not always characterized by qualifying words such as “expect,” “believe,” “anticipate,” “estimate,” “intend,” “plan,” and “project,” and their derivatives, and include but are not limited to statements about expectations for our future operations, production levels, new product launches, sales, profit margins, profitability, operating income, capital expenditures, working capital levels, income taxes, SG&A or other expenses, pre-tax income, earnings, cash flow, and other performance or liquidity measures, as well as any statements regarding potential acquisitions, future economic or industry trends, public health epidemics, or future developments. There can be no assurance that the company will realize these expectations, meet its guidance, or that these beliefs will prove correct.
Factors that could influence the matters discussed in such statements include the level of housing starts and sales of existing homes, consumer confidence, trends in disposable income, and general economic conditions. Decreases in these economic indicators could have a negative effect on our business and prospects. Likewise, increases in interest rates, particularly home mortgage rates, and increases in consumer debt or the general rate of inflation, could affect us adversely. The future performance of our business depends in part on our success in conducting and finalizing acquisition negotiations and integrating acquired businesses into our existing operations. Changes in consumer tastes or preferences toward products not produced by us could erode demand for our products. Changes in tariffs or trade policy, or changes in the value of the U.S. dollar versus other currencies, could affect our financial results because a significant portion of our operations are located outside the United States. Strengthening of the U.S. dollar against other currencies could make our products less competitive on the basis of price in markets outside the United States, and the strengthening of currencies in Canada and China can have a negative impact on our sales of products produced in those places. Also, economic and political instability in international areas could affect our operations or sources of goods in those areas, as well as demand for our products in international markets. The impact of public health epidemics on employees, suppliers, and the global economy, such as the coronavirus outbreak currently affecting China and beyond, could also adversely affect our operations and financial performance. In addition, the impact of potential goodwill or intangible asset impairments could affect our financial results, including without limitation possible additional future write-downs with respect to our home accessories segment in accordance with our policy, as described herein. Finally, increases in market prices for petrochemical products can significantly affect the prices we pay for raw materials, and in turn, increase our operating costs and decrease our profitability. Further information about these factors, as well as other factors that could affect our future operations or financial results and the matters discussed in forward-looking statements, are included in Item 1A “Risk Factors” section in our Form 10-K filed with the Securities and Exchange Commission on July 13, 2018,12, 2019, for the fiscal year ended April 29, 2018,28, 2019, and our subsequent periodic reports filed with the Securities and Exchange Commission.
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The following analysis of financial condition and results of operations should be read in conjunction with the Financial Statements and Notes and other exhibits included elsewhere in this report.
General
Our fiscal year is the 52 or 53-week period ending on the Sunday closest to April 30. The nine-monthsnine months ended February 2, 2020, and January 27, 2019, represent 40-week and January 28, 2018, each represent 39-week periods.periods, respectively. Our operations are classified into three business segments: mattress fabrics, upholstery fabrics, and home accessories. The mattress fabrics segment manufactures, sources, and sells fabrics and mattress covers primarily to bedding manufacturers. We have wholly owned mattress fabric operations located in Stokesdale, NC, High Point, NC, and Quebec, Canada, andas well as a fifty-percent owned cut and sew mattress cover operation located in Haiti. The upholstery fabrics segment develops, sources, manufactures, and sells fabrics primarily to residential and commercial furniture manufacturers. We have wholly owned upholstery fabric operations located in Shanghai, China, and Burlington, NC. With the recent acquisition of Read Window Products, LLC (Read), late in fiscal 2018, we now have a wholly owned company located in Knoxville, TN, that provides window treatments and sourcing of upholstery fabrics and other products, measuring, as well as measuring and installation services of Read'sRead’s own products to customers in the hospitality and commercial industries. The company operated an upholstery fabrics plant facility in Anderson, SC, during the first quarter of fiscal 2019, which has since beenwas closed during the second quarter of fiscal 2019. The home accessories segment is the company’s new finished products business that manufactures, sources, and sells bedding accessories and home goods directly to consumers and businesses through global e-commerce and business-to-business sales channels. Through our June 22, 2018, investment in eLuxury, LLC (eLuxury), we now have a majority owned company located in Evansville, IN, which operates the global e-commerce platform for the home accessories segment.
We evaluate the operating performance of our segments based upon income (loss) from operations before certain unallocated corporate expenses, restructuring expense (credit) and related charges, impairment charges, and other non-recurring items. Cost of sales in each segment includes costs to develop, manufacture, develop, or source our products, including costs such as raw material costs and finished goods purchases, direct and indirect labor, overhead, and incoming freight charges. Unallocated corporate expenses primarily represent compensation and benefits for certain executive officers, all costs associated with being a public company, and other miscellaneous expenses.
Executive Summary
Results of Operations
|
| Three Months Ended |
|
|
|
|
| |||||
(dollars in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
|
| Change |
| |||
Net sales |
| $ | 71,998 |
|
| $ | 77,226 |
|
|
| (6.8 | )% |
Gross profit |
|
| 12,384 |
|
|
| 14,123 |
|
|
| (12.3 | )% |
Gross profit margin |
|
| 17.2 | % |
|
| 18.3 | % |
| (110)bp |
| |
SG&A expenses |
|
| 9,952 |
|
|
| 10,038 |
|
|
| (0.9 | )% |
Asset impairments |
|
| 13,639 |
|
|
| — |
|
|
| 100.0 | % |
Reversal of contingent consideration - earn-out obligation |
|
| 6,081 |
|
|
| — |
|
|
| 100.0 | % |
(Loss) income from operations |
|
| (5,091 | ) |
|
| 4,299 |
|
|
| (218.4 | )% |
Operating margin |
|
| (7.1 | )% |
|
| 5.6 | % |
| (1270)bp |
| |
(Loss) income before income taxes |
|
| (5,124 | ) |
|
| 4,262 |
|
|
| (220.2 | )% |
Income tax (benefit) expense |
|
| (973 | ) |
|
| 1,225 |
|
|
| (179.4 | )% |
Net (loss) income |
|
| (4,207 | ) |
|
| 3,060 |
|
|
| (237.5 | )% |
Net (loss) income attributable to Culp Inc common shareholders |
|
| (58 | ) |
|
| 3,154 |
|
|
| (101.8 | )% |
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|
| Nine Months Ended |
|
|
|
|
| |||||
(dollars in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
|
| Change |
| |||
Net sales |
| $ | 219,465 |
|
| $ | 225,705 |
|
|
| (2.8 | )% |
Gross profit |
|
| 39,853 |
|
|
| 38,008 |
|
|
| 4.9 | % |
Gross profit margin |
|
| 18.2 | % |
|
| 16.8 | % |
| 140bp |
| |
SG&A expenses |
|
| 30,783 |
|
|
| 28,174 |
|
|
| 9.3 | % |
Asset impairments |
|
| 13,639 |
|
|
| — |
|
|
| 100.0 | % |
Reversal of contingent consideration - earn-out obligation |
|
| 6,081 |
|
|
| — |
|
|
| 100.0 | % |
Income from operations |
|
| 1,582 |
|
|
| 10,659 |
|
|
| (85.2 | )% |
Operating margin |
|
| 0.7 | % |
|
| 4.7 | % |
| (400)bp |
| |
Income before income taxes |
|
| 1,826 |
|
|
| 10,485 |
|
|
| (82.6 | )% |
Income tax expense |
|
| 2,607 |
|
|
| 3,407 |
|
|
| (23.5 | )% |
Net (loss) income |
|
| (841 | ) |
|
| 6,969 |
|
|
| (112.1 | )% |
Net income attributable to Culp Inc common shareholders |
|
| 3,580 |
|
|
| 7,044 |
|
|
| (49.2 | )% |
Three Months Ended | ||||||||||||
(dollars in thousands) | January 27, 2019 | January 28, 2018 | Change | |||||||||
Net sales | $ | 77,226 | $ | 85,310 | (9.5 | )% | ||||||
Gross profit | 14,123 | 17,603 | (19.8 | )% | ||||||||
Gross profit margin | 18.3 | % | 20.6 | % | (230 | )bp | ||||||
SG&A expenses | 10,038 | 9,959 | 0.8 | % | ||||||||
Income from operations | 4,299 | 7,644 | (43.8 | )% | ||||||||
Operating margin | 5.6 | % | 9.0 | % | (340 | )bp | ||||||
Income before income taxes | 4,262 | 7,516 | (43.3 | )% | ||||||||
Income taxes | 1,225 | 8,208 | (85.1 | )% | ||||||||
Net income (loss) | 3,060 | (748 | ) | 509.1 | % | |||||||
Net income (loss) attributable to Culp Inc common shareholders | 3,154 | (748 | ) | 521.7 | % |
Nine Months Ended | ||||||||||||
(dollars in thousands) | January 27, 2019 | January 28, 2018 | Change | |||||||||
Net sales | $ | 225,705 | $ | 245,541 | (8.1 | )% | ||||||
Gross profit | 38,008 | 49,873 | (23.8 | )% | ||||||||
Gross profit margin | 16.8 | % | 20.3 | % | (350 | )bp | ||||||
SG&A expenses | 28,174 | 28,876 | (2.4 | )% | ||||||||
Income from operations | 10,659 | 20,997 | (49.2 | )% | ||||||||
Operating margin | 4.7 | % | 8.6 | % | (390 | )bp | ||||||
Income before income taxes | 10,485 | 20,416 | (48.6 | )% | ||||||||
Income taxes | 3,407 | 11,956 | (71.5 | )% | ||||||||
Net income | 6,969 | 8,211 | (15.1 | )% | ||||||||
Net income attributable to Culp Inc common shareholders | 7,044 | 8,211 | (14.2 | )% |
Net Sales
Overall, our net sales for the third quarter of fiscal 20192020 decreased by 9.5%6.8% compared with the same period a year ago, with mattress fabric sales declining 27.1%7.4%, upholstery fabric sales declining 5.7%, and upholstery fabrics increasing 2.3%. Net sales from our new home accessories segment were $4.4 million, with no comparable prior-year sales.
The decrease in mattress fabrics net sales reflectsfor the ongoingthird quarter and the first nine months of fiscal 2020 primarily relates to continued industry weakness resulting in softer demand trends for our legacy mattress fabrics customers. The anti-dumping measures enacted by the U.S. government relating to low-priced imports from China have not yet provided the relief expected for the domestic mattress industry. Third quarter sales for our CLASS sewn cover business were also affected by the holiday shutdowns in Haiti and China. Mattress covers have become an increasingly important part of the mattress fabrics business, and losing multiple productive weeks caused a more significant challenges facingimpact when combined with continued industry weakness in our legacy business.
The decrease in upholstery fabrics net sales for the bedding industry, primarily relatedthird quarter relates to a slowdown in shipments heading into the Chinese New Year. It is difficult to predict the impact of the holiday shutdown from year to year, and this year we experienced a greater than expected decline in January leading up to the continued high volume of low-priced imported mattresses from China. Delays resulting from the recent U.S. government shutdown affected the timing of expected punitive measures against Chinese importers, with a preliminary ruling now expected in May 2019.
The decrease in net sales associated with our closed facility located in Anderson, SC, and the timing of the Chinese New Year holiday.
See the Segment Analysis section below for further details.
Income Before Income Taxes
Overall, our income (loss) before income taxes for the third quarter of fiscal 2020 was $(5.1) million, compared with $4.3 million for the prior-year period, while income before income taxes decreasedfor the first nine months of fiscal 2020 was $1.8 million, compared with $10.5 million for the prior-year period. Income (loss) before income taxes for the third quarter and the first nine months of fiscal 2019, due primarily2020 included a reversal of a $6.1 million contingent earnout liability, non-cash impairment charges of $13.6 million related to the decreasehome accessories division, and a $35,000 restructuring credit associated with the closure of our Anderson, SC, upholstery fabrics facility, resulting in salesa non-cash net charge of mattress$7.5 million for the third quarter of fiscal 2020. In addition to the restructuring credit recorded in the third quarter of fiscal 2020, we recorded a restructuring credit of $35,000 during the first quarter of fiscal 2020 associated with the closure of our Anderson, SC, upholstery fabrics noted above.
In addition to the non-recurring charges noted above, income (loss) before income taxes for the third quarter and first nine months of fiscal 2020 was primarily affected by lower sales.
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Additionally, unallocated corporate SG&A expense was higher during the first nine months of fiscal 2020, as compared to the prior year, due primarily to adjustments that occurred in the first quarter of fiscal 2019 that lowered share-based compensation expense.
See the Segment Analysis section below for further details.
Income Taxes
The decreases in our income tax expense and effective income tax rate for the third quarter and the nine-month year-to-date period of fiscal 2019 are mostly2020 was 142.8% compared with 32.5% for the same period a year ago. The increase in our effective income tax rate reflects the significant decline in our projected annual consolidated taxable income, particularly in the U.S., and the mix of our consolidated taxable income that is earned by our foreign operations located in China and Canada that have higher income tax rates in relation to the U.S. This current mix of taxable income has led to a significant increase in our effective income tax rate that is associated with our Global Intangible Low Tax Income (GILTI) tax, which represents a U.S. income tax on foreign earnings. Additionally, our effective income tax rate significantly increased due to a provisionalthe income tax chargeeffects of $5.9 million, related to the 2017 Tax Cuts and Jobs Act (the “Tax Act”) that was recordedour asset impairments associated with our home accessories segment incurred during the third quarter and the nine-month year-to-date period of fiscal 2018. The $5.9 million provisional charge consists of $4.8 million for the one-time mandatory repatriation tax onthat were attributable to our undistributed earnings from our foreign subsidiaries and $1.1 million for the revaluation of our U.S. deferred income taxes and reduction in the U.S. Federal corporate income tax rate pursuant to the Tax Act.
Refer to Note 19note 17 located in the notes to the consolidated financial statements for further details regarding our provision for income taxes.
Liquidity
At January 27, 2019,February 2, 2020, our cash and investments (which comprise cash and cash equivalents, short-term investments (available for sale)(available-for-sale), and short-term and long-term investments (held-to-maturity)), totaled $40.0$34.8 million compared with $54.5$45.0 million at April 29, 2018. Additionally, we did not have any outstanding borrowings on our lines of credits as of January 27,28, 2019.
Our net cash provided byused in operating activities totaling $8.1 million and proceeds fromwas $519,000 for the salefirst nine months of property, plant, and equipment of $1.9 million associatedfiscal 2020, compared with our closed upholstery fabrics facility located in Anderson, SC.
At February 2, 2020, our borrowings totaling $925,000 related to our subordinated loan payable between eLuxury and its minority owner.
Dividend and Common Stock Repurchase Programs
On February 27, 2019,March 4, 2020, we announced that our board of directors approved a quarterly cash dividend of $0.10$0.105 per share. This paymentshare, that will be madepaid on April 15, 2019,2020, to shareholders of record as of April 1, 2019.
During the nine monthsnine-month period ended February 2, 2020, dividend payments totaled $3.8 million, which represented quarterly dividend payments ranging from $0.10 per share to $0.105 per share. During the nine-month period ended January 27, 2019, dividend payments totaled $3.5 million, which represented quarterly dividend payments ranging fromof $0.09 per share to $0.10 per share.
Common Stock Repurchase Program
On September 5, 2019, we announced that our board of directors approved an authorization for us to acquire up to $5.0 million of our common stock. During the nine monthsnine-month period ended January 28, 2018, dividend payments totaled $5.7February 2, 2020, we purchased 55,750 shares of common stock at a cost of $728,000 pursuant to this authorization, all of which was purchased during the third quarter. As a result, at February 2, 2020, we had $4.3 million available for future repurchases of our common stock associated with the $5.0 million repurchase program approved by our board of directors on September 5, 2019.
On March 4, 2020, we announced that our board of directors approved an authorization for us to acquire up to $5.0 million of which $2.6 million represented a special cash dividend payment of $0.21 per share, and $3.1 million represented quarterly dividend payments ranging from $0.08 per share to $0.09 per share.
During the nine-month period ended January 27, 2019, we purchased 160,423 shares of our common stock at a cost of $3.3 million. DuringThe 160,423 shares were purchased pursuant to a prior authorization approved by our board of directors on June 15, 2016.
Coronavirus Impact
Currently, we have not experienced significant impacts to our operations from the nine-month period ended January 28, 2018, we did not purchasecoronavirus outbreak in any shares of our common stock.
In our upholstery fabrics business, our Culp China location is operating at normal levels with virtually all employees reporting to work following the additional week of shutdowns required by the Chinese government after the Chinese New Year holiday. We have a stable, long-term supply base in China and have experienced minimal delays as most of our suppliers are back to near full output. We have also relocated a considerable amount of our cut and sew production to two facilities we work with in Vietnam.
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In both our mattress fabrics and home accessories business segments, we are not currently experiencing any significant delays in Asia, and we also have alternative locations for production as needed. This includes production or sourcing capabilities in the U.S., Canada, Haiti, Vietnam, and Turkey.
We are monitoring the situation daily and following the processes and procedures provided for in the company’s global pandemic disease contingency plan to protect our workforce. However, the potential impact of the coronavirus is difficult to estimate reasonably at this point given the fluidity in circumstances related to the disease and the actions being taken to control its spread. If conditions relating to the virus worsen, our operations and supply chain, particularly in China, could be disrupted, and consumer confidence could be negatively affected, which could adversely affect our financial results.
Segment Analysis
Mattress Fabrics Segment
|
| Three Months Ended |
|
|
|
|
| |||||
(dollars in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
|
| Change |
| |||
Net sales |
| $ | 33,105 |
|
| $ | 35,732 |
|
|
| (7.4 | )% |
Gross profit |
|
| 4,614 |
|
|
| 5,963 |
|
|
| (22.6 | )% |
Gross profit margin |
|
| 13.9 | % |
|
| 16.7 | % |
| (280)bp |
| |
SG&A expenses |
|
| 2,836 |
|
|
| 2,755 |
|
|
| 2.9 | % |
Income from operations |
|
| 1,777 |
|
|
| 3,208 |
|
|
| (44.6 | )% |
Operating margin |
|
| 5.4 | % |
|
| 9.0 | % |
| (360)bp |
|
|
| Nine Months Ended |
|
|
|
|
| |||||
(dollars in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
|
| Change |
| |||
Net sales |
| $ | 107,250 |
|
| $ | 107,335 |
|
|
| (0.1 | )% |
Gross profit |
|
| 16,553 |
|
|
| 17,050 |
|
|
| (2.9 | )% |
Gross profit margin |
|
| 15.4 | % |
|
| 15.9 | % |
| (50)bp |
| |
SG&A expenses |
|
| 8,860 |
|
|
| 8,141 |
|
|
| 8.8 | % |
Income from operations |
|
| 7,693 |
|
|
| 8,910 |
|
|
| (13.7 | )% |
Operating margin |
|
| 7.2 | % |
|
| 8.3 | % |
| (110)bp |
|
Three Months Ended | ||||||||||||
(dollars in thousands) | January 27, 2019 | January 28, 2018 | Change | |||||||||
Net sales | $ | 35,732 | $ | 49,042 | (27.1 | )% | ||||||
Gross profit | 5,963 | 10,146 | (41.2 | )% | ||||||||
Gross profit margin | 16.7 | % | 20.7 | % | (400 | )bp | ||||||
SG&A expenses | 2,755 | 3,309 | (16.7 | )% | ||||||||
Income from operations | 3,208 | 6,837 | (53.1 | )% | ||||||||
Operating margin | 9.0 | % | 13.9 | % | (490 | )bp |
Nine Months Ended | ||||||||||||
(dollars in thousands) | January 27, 2019 | January 28, 2018 | Change | |||||||||
Net sales | $ | 107,335 | $ | 146,072 | (26.5 | )% | ||||||
Gross profit | 17,050 | 29,641 | (42.5 | )% | ||||||||
Gross profit margin | 15.9 | % | 20.3 | % | (440 | )bp | ||||||
SG&A expenses | 8,141 | 9,868 | (17.5 | )% | ||||||||
Non-recurring charges | 248 | - | 100.0 | % | ||||||||
Income from operations | 8,910 | 19,774 | (54.9 | )% | ||||||||
Operating margin | 8.3 | % | 13.5 | % | (520 | )bp |
Net Sales
The decreasesdecrease in mattress fabrics net sales for the third quarter and the first nine months of fiscal 2019 reflect2020 reflects the impact of holiday shutdowns in Haiti and China on our CLASS sewn cover business, as well as continued challenges facingindustry weakness for our legacy mattress fabrics customers. Mattress covers have become an increasingly important part of our mattress fabrics business, and losing multiple productive weeks caused a more significant impact when combined with continued industry weakness in our legacy business. Also, the bedding industry related toanti-dumping measures enacted by the high volume of low-priced imported mattresses from China. Delays resulting from the recent U.S. government shutdown affectedrelating to low-priced imports from China have not yet provided the timingrelief expected for the domestic mattress industry. The first nine months of expected punitive measures against Chinese importers,fiscal 2020 had 40 weeks compared to 39 weeks for the first nine months of fiscal 2019.
While the holiday shutdowns disrupted our CLASS sewn cover operations in Haiti and China during the third quarter, this business experienced continued growth during the quarter. Demand trends for mattress covers remain favorable, especially for the growing boxed bedding space, and we continue to develop fresh products with both new and existing customers. Our production capabilities for sewn covers in the U.S., Haiti, and Asia support our diversification strategy and allow us to maximize our full supply chain potential from fabric to finished covers.
The domestic disruption from low-priced mattress imports from China appears to be continuing as a preliminary ruling now expected in late May 2019. Additionally, the increased influxresult of sources for many of these low-priced imports during late 2018 created excess inventory in the third quarter. As a result,moving to other countries, and we continued to experience reduced demand forexpect mattress fabric and sewn covers from our major customers. Third quarter sales were also affected by weather disruptions and the usual seasonal slowdown for the holidays, compounded by a weak retail and e-commerce sales environment.
Our expectations for the U.S. government will ultimately benefitfourth quarter and beyond assume the coronavirus outbreak does not have a greater than anticipated impact on the operations of our customers and our business.mattress fabrics segment. We are beginningnot currently experiencing any significant delays or disruption as a result of the virus, including with respect to see some positive developmentsour operations in China. We also have alternative locations for production and improvementsourcing as needed, including capabilities in sequential demand trends asthe U.S., Canada, Haiti, Vietnam, and Turkey. While we cannot predict whether the virus will have any negative impact on our design strengthsoperations or consumer confidence in the future, we believe our global platform supports our ability to manage disruption created by the
I-34
outbreak. However, the potential impact of the coronavirus is difficult to estimate, and efficient manufacturing platform are providing market share gainif conditions relating to the outbreak worsen, the impact on our employees, suppliers, consumers, and improved operating results. Nevertheless, it remains uncertain as to when demand trends will return to normal levels.
Gross Profit and Operating Income
Our operating profits declined in the third quarter and first nine months of fiscal 20192020 compared with the same periods a year ago, due primarily to the decrease in net sales noted above. In addition, we had a non-recurring charge of $248,000 relating to employee termination benefits and other operational reorganization costs that were recorded in the second quarter of fiscal 2019.
Segment assets
Segment assets consist of accounts receivable, inventory, assets held for sale, property, plant and equipment, right of use assets, and our investment in an unconsolidated joint venture.
(dollars in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
|
| April 28, 2019 |
| |||
Accounts receivable |
| $ | 12,940 |
|
| $ | 12,373 |
|
| $ | 12,098 |
|
Inventory |
|
| 29,753 |
|
|
| 26,243 |
|
|
| 24,649 |
|
Assets held for sale |
|
| 67 |
|
|
| — |
|
|
| — |
|
Property, plant & equipment |
|
| 42,368 |
|
|
| 45,845 |
|
|
| 44,266 |
|
Right of use assets |
|
| 426 |
|
|
| — |
|
|
| — |
|
Investment in unconsolidated joint venture |
|
| 1,668 |
|
|
| 1,512 |
|
|
| 1,508 |
|
|
| $ | 87,222 |
|
| $ | 85,973 |
|
| $ | 82,521 |
|
(dollars in thousands) | January 27, 2019 | January 28, 2018 | April 29, 2018 | |||||||||
Accounts receivable | $ | 12,373 | $ | 12,840 | $ | 15,195 | ||||||
Inventory | 26,243 | 29,355 | 28,740 | |||||||||
Property, plant & equipment | 45,845 | 49,289 | 48,797 | |||||||||
Investment in unconsolidated joint venture | 1,512 | 1,518 | 1,501 |
Refer to Note 18note 16 located in the notes to the consolidated financial statements for disclosures regarding determination of our segment assets.
Accounts Receivable
As of February 2, 2020, accounts receivable increased 4.6% compared with January 27, 2019, accounts receivable decreased by 3.6%and increased 7.0% compared with April 28, 2019. These increases resulted from a change in discount credit terms with key customers and fewer customers taking advantage of discounts during fiscal 2020 as compared with fiscal 2019.
Inventory
As of February 2, 2020, inventory increased $3.5 million, or 13.3%, compared with January 28, 2018. This decrease reflects the decrease in net sales of 27.1% for the third quarter of fiscal 2019 compared with the third quarter of fiscal 2018 as noted above, mostly offset by higher days’ sales outstanding of 32 days for the third quarter of fiscal 2019 compared with 24 days for the third quarter of fiscal 2018. The increase in days’ sales outstanding is primarily due to a significant increase in net sales at the end of third quarter of fiscal 2019 compared to the third quarter of fiscal 2018. Net sales in January 2019 increased 27.1% compared with December 2018, as opposed to net sales in January 2018 decreasing 8.3% compared with December 2017.
Property, Plant, & Equipment
As of January 27, 2019,February 2, 2020, property plant, and equipment decreased in comparison towith January 28, 2018,27, 2019, and April 29, 2018.28, 2019. This trend represents a decrease in capital expenditure requirements and a progression toward a more maintenance level of spending foron our machinery and equipment. Through
The $42.4 million at February 2, 2020, represents property, plant, and equipment of $28.7 million and $13.7 million located in the third quarter of fiscal 2019, our mattress fabrics segment reported $2.3 million of capital expenditures compared with $6.7 million during fiscal 2018U.S. and $17.7 million during fiscal 2017,Canada, respectively.
Right of Use Assets
As of February 2, 2020, our right of use assets balance mostly reflects the adoption of ASU No. 2016-02, Leases (Topic 842). See notes 2 and equipment of $35.4 million and $13.4 million19 located in the notes to the consolidated financial statements for further details. The $426,000 represents right of use assets located in the U.S. and Canada, respectively.
Investment in Unconsolidated Joint Venture
Our investment in unconsolidated joint venture represents our fifty percent ownership of Class International Holdings Ltd. (See Notenote 9 located in the notes to the consolidated financial statements for further details).
Net Sales
|
| Three Months Ended |
|
|
|
|
|
|
|
|
| |||||||||
(dollars in thousands) |
| February 2, 2020 |
|
|
|
|
|
| January 27, 2019 |
|
|
|
|
|
| % Change |
| |||
Non-U.S. Produced |
| $ | 31,980 |
|
|
| 91 | % |
| $ | 34,450 |
|
|
| 93 | % |
|
| (7.2 | )% |
U.S. Produced |
|
| 3,007 |
|
|
| 9 | % |
|
| 2,654 |
|
|
| 7 | % |
|
| 13.3 | % |
Total |
| $ | 34,987 |
|
|
| 100 | % |
| $ | 37,104 |
|
|
| 100 | % |
|
| (5.7 | )% |
|
| Nine Months Ended |
|
|
|
|
|
|
|
|
| |||||||||
(dollars in thousands) |
| February 2, 2020 |
|
|
|
|
|
| January 27, 2019 |
|
|
|
|
|
| % Change |
| |||
Non-U.S. Produced |
| $ | 92,525 |
|
|
| 92 | % |
| $ | 95,361 |
|
|
| 89 | % |
|
| (3.0 | )% |
U.S. Produced |
|
| 8,205 |
|
|
| 8 | % |
|
| 11,250 |
|
|
| 11 | % |
|
| (27.1 | )% |
Total |
| $ | 100,730 |
|
|
| 100 | % |
| $ | 106,611 |
|
|
| 100 | % |
|
| (5.5 | )% |
Three Months Ended | ||||||||||||||||||||
(dollars in thousands) | January 27, 2019 | January 28, 2018 | % Change | |||||||||||||||||
Non U.S. Produced | $ | 34,450 | 93 | % | $ | 34,282 | 95 | % | 0.5 | % | ||||||||||
U.S. Produced | 2,654 | 7 | % | 1,986 | 5 | % | 33.6 | % | ||||||||||||
Total | $ | 37,104 | 100 | % | $ | 36,268 | 100 | % | 2.3 | % |
Nine Months Ended | ||||||||||||||||||||
(dollars in thousands) | January 27, 2019 | January 28, 2018 | % Change | |||||||||||||||||
Non U.S. Produced | $ | 95,361 | 89 | % | $ | 93,806 | 94 | % | 1.7 | % | ||||||||||
U.S. Produced | 11,250 | 11 | % | 5,663 | 6 | % | 98.7 | % | ||||||||||||
Total | $ | 106,611 | 100 | % | $ | 99,469 | 100 | % | 7.2 | % |
Net sales in this segment increaseddecreased in the third quarter and the first nine months of fiscal 2019. These increases include2020 as compared to the contribution from Read, acquired on April 1, 2018, partially offset bysame period a year ago. The first nine months of fiscal 2020 had 40 weeks compared to 39 weeks for the declinefirst nine months of fiscal 2019.
The third quarter drop in net sales for this segment relates to a slowdown in shipments heading into the Chinese New Year. It is difficult to predict the impact of the holiday shutdown from year to year, and this year we experienced a greater than expected decline in January leading up to the holiday period. As a result, we showed a modest drop in sales for the third quarter of fiscal 2020 compared with a very strong sales performance in the prior-year period, which was positively affected by advance customer purchases in anticipation of additional tariffs.
The decrease in upholstery fabrics net sales for the first nine months of fiscal 2020 primarily relates to the slowdown in shipments noted for the third quarter, as well as the soft retail environment for residential furniture and ongoing issues surrounding international trade agreements and the associated withtariffs during the first half of the year. Additionally, the drop in U.S. produced sales for the first nine months of fiscal 2020 reflects the closure of our Anderson, SC, production facility that was completed during the second quarter of fiscal 2019, as net sales for the first six months of fiscal 2019 included sales from the Anderson facility, whereas there were no such sales in the first six months of fiscal 2020.
Despite these challenges, we have continued to execute our strategic focus of introducing new products and diversifying our customer base. We experienced continued growth in our hospitality business, as we have expanded our reach in this growing market. Read Window Products, our window treatment and installation services business, is a key driver of this strategy. Additionally, our line of LiveSmart® performance fabrics continues to be very popular with both existing and new residential furniture customers, and we have experienced favorable demand trends for LiveSmart Evolve™, our recently introduced line of sustainability fabrics featuring the timinguse of recycled fibers along with the same stain-resistant performance. This product line has received extensive placements for the upcoming April furniture market, and we expect to see continued growth as a product that can fulfill the desires of environmentally conscious consumers.
Our expectations for the fourth quarter and beyond assume the coronavirus outbreak does not have a greater than anticipated impact on the operations of our upholstery fabrics segment. We are not currently experiencing any significant delays or disruption as a result of the virus, and our Culp China location is operating at normal levels with virtually all employees reporting to work following the additional week of shutdowns required by the China government after the Chinese New Year holiday.
Gross Profit, Selling, General & Administrative Expenses, and Operating Income
|
| Three Months Ended |
|
|
|
|
| |||||
(dollars in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
|
| Change |
| |||
Gross profit |
| $ | 6,906 |
|
| $ | 7,624 |
|
|
| (9.4 | )% |
Gross profit margin |
|
| 19.7 | % |
|
| 20.5 | % |
| (80)bp |
| |
SG&A expenses |
|
| 3,876 |
|
|
| 3,825 |
|
|
| 1.3 | % |
Income from operations |
|
| 3,030 |
|
|
| 3,799 |
|
|
| (20.2 | )% |
Operating margin |
|
| 8.7 | % |
|
| 10.2 | % |
| (150)bp |
| |
Restructuring related charges |
|
| — |
|
|
| 554 |
|
|
| (100.0 | )% |
I-36
|
| Nine Months Ended |
|
|
|
|
| |||||
(dollars in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
|
| Change |
| |||
Gross profit |
| $ | 20,905 |
|
| $ | 20,031 |
|
|
| 4.4 | % |
Gross profit margin |
|
| 20.8 | % |
|
| 18.8 | % |
| 200bp |
| |
SG&A expenses |
|
| 11,528 |
|
|
| 10,985 |
|
|
| 4.9 | % |
Income from operations |
|
| 9,378 |
|
|
| 9,044 |
|
|
| 3.7 | % |
Operating margin |
|
| 9.3 | % |
|
| 8.5 | % |
| 80bp |
| |
Restructuring related charges |
|
| — |
|
|
| 2,388 |
|
|
| (100.0 | )% |
Three Months Ended | ||||||||||||
(dollars in thousands) | January 27, 2019 | January 28, 2019 | Change | |||||||||
Gross profit | $ | 7,624 | $ | 7,457 | 2.2 | % | ||||||
Gross profit margin | 20.5 | % | 20.6 | % | (10 | )bp | ||||||
SG&A expenses | 3,825 | 3,947 | (3.1 | )% | ||||||||
Income from operations | 3,799 | 3,510 | 8.2 | % | ||||||||
Operating margin | 10.2 | % | 9.7 | % | 50 | bp | ||||||
Restructuring related charges | 554 | - | 100 | % |
Nine Months Ended | ||||||||||||
(dollars in thousands) | January 27, 2019 | January 28, 2018 | Change | |||||||||
Gross profit | $ | 20,031 | $ | 20,232 | (1.0 | )% | ||||||
Gross profit margin | 18.8 | % | 20.3 | % | (150 | )bp | ||||||
SG&A expenses | 10,985 | 11,458 | (4.1 | )% | ||||||||
Income from operations | 9,044 | 8,773 | 3.1 | % | ||||||||
Operating margin | 8.5 | % | 8.8 | % | (30 | )bp | ||||||
Restructuring related charges | 2,388 | - | 100 | % |
Our gross profit and operating income both improved duringperformance declined in the third quarter of fiscal 20192020 compared with the same period a year ago. However, gross profit was lower andago due primarily to the decrease in net sales noted above.
Our improved operating income was higherperformance for the first nine months of fiscal 2019 compared2020 reflects a more profitable product mix and more favorable foreign currency exchange rates associated with our operations located in China, leading to the same period last year. Ourhigher gross profit and operating income reflected the increase in net sales noted above and operating margins reflect lower operating costs associated with fluctuations in foreign currency exchange rates in China. Additionally, with the closure of our Anderson, SC, production facility, we incurred restructuring and related charges of $554,000 and $2.3 million during the third quarter and year-to-date period of fiscal 2019.
Exit and Disposal Activity
On June 12, 2018, our board of directors announced the closure of our upholstery fabrics manufacturing facility located in Anderson, South Carolina.SC. This closure was completed during the second quarter of fiscal 2019 and was due to a continued decline in demand for the products manufactured at this facility, reflecting a change in consumer style preferences.
The following summarizes our restructuring credit and restructuring related charges totaling $340,000 during the third quarter that were associated with the above exit and disposal activity:
|
| Nine months ended |
| |||||
(dollars in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
| ||
Inventory markdowns |
| $ | — |
|
| $ | 1,564 |
|
Employee termination benefits |
|
| (70 | ) |
|
| 661 |
|
Other operational costs associated with a closed plant facility |
|
| — |
|
|
| 824 |
|
Gain on sale of equipment |
|
| — |
|
|
| (1,486 | ) |
Restructuring credit and restructuring related charges (1) (2) |
| $ | (70 | ) |
| $ | 1,563 |
|
|
|
|
|
|
|
|
|
|
(1) | The $70,000 credit was recorded to restructuring credit in the Consolidated Statements of Net Income for the nine-month period ending February 2, 2020. |
(2) | Of this total net charge, a $2.3 million charge, a charge of $40,000, and a credit of $825,000 were recorded to cost of sales, selling, general, and administrative expense, and restructuring credit, respectively, in the Consolidated Statements of Net Income for the nine-month period ending January 27, 2019. |
Three months ended | ||||
January 27, | ||||
(dollars in thousands) | 2019 | |||
Other operating costs associated with a closed facility | $ | 554 | ||
Employee termination benefits | 148 | |||
Gain on sale of building and land | (362 | ) | ||
$ | 340 |
The following summarizes ourthe activity in accrued restructuring credit and related charges totaling $1.6 million during the first nine months of fiscal 2019costs:
|
| Nine months ended |
| |||||
(dollars in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
| ||
Beginning balance |
| $ | 124 |
|
| $ | — |
|
Accrual established in fiscal 2019 |
|
| — |
|
|
| 451 |
|
Payments |
|
| (54 | ) |
|
| (434 | ) |
Adjustments |
|
| (70 | ) |
|
| 211 |
|
Ending balance |
| $ | — |
|
| $ | 228 |
|
The above restructuring accrual pertains to employee termination benefits that were associated with the above exit and disposal activity:
Nine months ended | ||||
January 27, | ||||
(dollars in thousands) | 2019 | |||
Inventory markdowns | $ | 1,564 | ||
Other operating costs associated with a closed facility | 824 | |||
Employee termination benefits | 661 | |||
Gain on sale of property, plant, and equipment | (1,486 | ) | ||
$ | 1,563 |
Segment Assets
Segment assets consist of accounts receivable, inventory, and property, plant, and equipment.equipment, and right of use assets.
I-37
(dollars in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
|
| April 28, 2019 |
| |||
Accounts receivable |
| $ | 12,908 |
|
| $ | 13,367 |
|
| $ | 11,274 |
|
Inventory |
|
| 24,256 |
|
|
| 26,067 |
|
|
| 22,915 |
|
Property, plant & equipment |
|
| 1,675 |
|
|
| 1,957 |
|
|
| 1,795 |
|
Right of use assets |
|
| 2,143 |
|
|
| — |
|
|
| — |
|
|
| $ | 40,982 |
|
| $ | 41,391 |
|
| $ | 35,984 |
|
(dollars in thousands) | January 27, 2019 | January 28, 2018 | April 29, 2018 | |||||||||
Accounts receivable | $ | 13,367 | $ | 13,257 | $ | 11,112 | ||||||
Inventory | 26,067 | 26,296 | 24,714 | |||||||||
Property, plant & equipment | 1,957 | 2,101 | 2,445 |
Refer to Note 18note 16 located in the notes to the consolidated financial statements for disclosures regarding determination of our segment assets.
Accounts Receivable
As of January 27, 2019,February 2, 2020, accounts receivable increased slightlydecreased by 3.4% compared with January 28, 2018, as27, 2019. This decrease primarily reflects the 5.7% decrease in net sales forduring the third quarter of fiscal 2019 were modestly higher2020 compared with the third quarter of fiscal 2018, as noted above.
As of January 27, 2019,February 2, 2020, accounts receivable increased by $2.3$1.6 million, or 20.3%14.5%, compared with April 29, 2018.28, 2019. This increase primarily reflects anthe increase in net sales during the third quarter of fiscal 20192020 compared with fourth quarter of fiscal 2018. Net sales were $37.1 million during the third quarter of fiscal 2019, an increase of $5.4 million or 17.2 percent, compared with $31.7 million during the fourth quarter of fiscal 2018. This increase in net sales was2019 due to the timing of the Chinese New Year Holiday. As a result, many of our customers shifted more of their purchases into January 2018, in advance of holiday plant shutdowns in order meet anticipated demand.
Inventory
As of February 2, 2020, inventory decreased $1.8 million, or 6.9%, compared with January 27, 2019. This decrease primarily reflects the 5.7% decrease in net sales during the third quarter of fiscal 2018, as noted above.
As of January 27, 2019,February 2, 2020, inventory increased by $1.4$1.3 million, or 5.5%5.9%, compared with April 29, 2018.28, 2019. This increase wasreflects higher inventory costs due to the increase in net sales relatedU.S. tariffs imposed on our inventory produced in China and sold to our customers located in the U.S., as well as the timing of the Chinese New Year.
Property, Plant, & Equipment
The $1.7 million at February 2, 2020, represents property, plant, and equipment of $1.2 million and $469,000 located in the U.S. and China, respectively. The $2.0 million at January 27, 2019, represents property, plant, and equipment of $1.3 million and $615,000 located in the U.S. and China, respectively. The $2.1$1.8 million at JanuaryApril 28, 2018,2019, represents property, plant, and equipment of $1.4$1.2 million and $711,000$591,000 located in the U.S. and China, respectively. The $2.4 million at April 29, 2018, represents property, plant,
Right of Use Assets
As of February 2, 2020, our right of use assets balance mostly reflects the adoption of ASU No. 2016-02, Leases (Topic 842). See notes 2 and equipment of $1.8 million and $661,00019 located in the U.S.notes to the consolidated financial statements for further details. The $2.1 million represents right of use assets of $1.1 million and $1.0 million located in China and the U.S., respectively.
Home Accessories Segment
|
| Three Months Ended |
|
|
|
|
| |||||
(dollars in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
|
| Change |
| |||
Net sales |
| $ | 3,906 |
|
| $ | 4,390 |
|
|
| (11.0 | )% |
Gross profit |
|
| 864 |
|
|
| 1,050 |
|
|
| (17.7 | )% |
Gross profit margin |
|
| 22.1 | % |
|
| 23.9 | % |
| (180)bp |
| |
SG&A expenses |
|
| 1,046 |
|
|
| 1,361 |
|
|
| (23.1 | )% |
Asset impairments |
|
| 13,639 |
|
|
| — |
|
|
| 100.0 | % |
Loss from operations |
|
| (181 | ) |
|
| (311 | ) |
|
| (41.8 | )% |
Operating margin |
|
| (4.6 | )% |
|
| (7.1 | )% |
| (250)bp |
|
I-38
|
| Nine Months Ended |
|
|
|
|
| |||||
(dollars in thousands) |
| February 2, 2020 (1) |
|
| January 27, 2019 (1) |
|
| Change |
| |||
Net sales |
| $ | 11,485 |
|
| $ | 11,759 |
|
|
| (2.3 | )% |
Gross profit |
|
| 2,395 |
|
|
| 3,435 |
|
|
| (30.3 | )% |
Gross profit margin |
|
| 20.9 | % |
|
| 29.2 | % |
| (830)bp |
| |
SG&A expenses |
|
| 3,462 |
|
|
| 3,690 |
|
|
| (6.2 | )% |
Asset impairments |
|
| 13,639 |
|
|
| — |
|
|
| 100.0 | % |
Loss from operations |
|
| (1,068 | ) |
|
| (254 | ) |
|
| 320.5 | % |
Operating margin |
|
| (9.3 | )% |
|
| (2.2 | )% |
| 710bp |
|
Three Months Ended | ||||||||
(dollars in thousands) | January 27, 2019 | January 28, 2018 | ||||||
Net sales | $ | 4,390 | $ | - | ||||
Gross profit | 1,050 | - | ||||||
Gross profit margin | 23.9 | % | - | |||||
SG&A expenses | 1,361 | - | ||||||
Loss from operations | (311 | ) | - | |||||
Operating margin | (7.1 | )% | - |
(1) | The first nine months of fiscal 2020 included 40 weeks, whereas the first nine months of fiscal 2019 included only 32 weeks as a result of the June 22, 2018, investment in eLuxury. |
Nine Months Ended | ||||||||
(dollars in thousands) | January 27, 2019 | January 28, 2018 | ||||||
Net sales | $ | 11,759 | $ | - | ||||
Gross profit | 3,435 | - | ||||||
Gross profit margin | 29.2 | % | - | |||||
SG&A expenses | 3,690 | - | ||||||
Loss from operations | (254 | ) | - | |||||
Operating margin | (2.2 | )% | - |
Net Sales, Gross Profit, and Operating (Loss) Income
This segment, which includes our June 2018 majority investment in eLuxury, represents our e-commerce and finished products business offering bedding accessories and home goods. The combined platform for this new segment supports sales of finished products to both consumers and businesses through global e-commerce and business-to-business sales channels.
For our home accessories segment, net sales for the third quarter of fiscal 2020 were $3.9 million, compared with $4.4 million for the prior year period. For this segment, the first nine months of fiscal 2020 had 40 weeks, compared to 32 weeks for the first nine months of fiscal 2019, as a result of the June 22, 2018, investment in eLuxury. Net sales for this segment for the first nine months of fiscal 2020 were $11.5 million, compared with $11.8 million for the 32-week period of fiscal 2019.
The decline in net sales for our home accessories segment were $4.4 millionreflects reduced demand for our bedding products on Amazon, a principal sales channel for this segment’s legacy e-commerce business. As noted in recent press reports, the Amazon marketplace and many of its trusted third-party sellers, including eLuxury, have been negatively affected by new sellers operating outside of Amazon’s normal terms of service.
The operating loss for our home accessories segment for the third quarter of fiscal 2019,2020, excluding the non-cash impairment charge associated with no comparable prior-year sales,this segment, showed meaningful sequential improvement as compared to the first and $11.8 million since the June 2018 investment date in eLuxury, with no comparable prior-year sales.
In accordance with ASC Topic 350, we assess goodwill and other indefinite-lived intangible assets for impairment at the end of each fiscal year or between annual tests if events or changes in circumstances indicate the carrying value of the asset may not be recovered. As a result of slower than expected growth on new e-commerce and business-to-business sales channels for this segment, and changes in future growth assumptions based on current economic conditions in the e-commerce space, management determined that impairment indicators existed for the third quarter of fiscal 2020. Accordingly, this determination required an interim assessment of the goodwill and other intangible assets for the home accessories segment. Based on this assessment, the company recorded a non-cash impairment charge of $11.2 million for goodwill and $2.4 million for certain indefinite-lived assets (trademarks and tradenames) associated with the home accessories segment. I - 55In accordance with ASC Topic 350, management will continue to assess whether impairment indicators exist each quarter, which could result in possible additional future write-downs in accordance with our policy.
Our strategic focus for the segment is to develop innovative bedding products and other home accessory items through our global manufacturing platform and in coordination with all of Culp’s other divisions. We have an arrayworked hard to refine our strategy and drive improved results for this business. While it is taking longer than we expected to reach our initial projections, we are encouraged by recent opportunities with new online marketplaces and business-to-business sales channels. We also remain dedicated to improving our performance on Amazon, a principal sales channel for our legacy e-commerce business, despite the challenging sales environment created primarily as a result of many new sellers operating on this platform in violation of Amazon’s normal terms of services. In tandem with these strategies, we are continuing to develop new products featuring Culp mattress fabrics and upholstery fabrics in inventory that we plan to market through this new sales channel.
Our expectations for the fourth quarter and beyond assume the coronavirus outbreak does not have a greater than anticipated impact on the operations of our home accessories segment. We are not currently experiencing any significant delays or disruption as a result of the virus, and we also have alternative locations for production and sourcing, as needed. However, the potential impact of the coronavirus is difficult to estimate, and if conditions relating to the outbreak worsen, the impact on our employees, suppliers, distribution channels, consumers, and the global economy could adversely affect our operations and financial performance.
I-39
Effective June 22, 2018, we entered into an Equity Purchase Agreement (Equity Agreement) pursuant to which we acquired an initial 80% ownership interest in eLuxury, a company that offers bedding accessories and home goods directly to consumers. eLuxury’s primary products include a line of mattress pads manufactured at eLuxury’s facility located in Evansville, Indiana. eLuxury also offers handmade platform beds, cotton bed sheets, as well asand other bedding items. Theiritems sourced from other suppliers. Its products are available on eLuxury’s own branded website, eLuxury.com, as well as Amazon and other leading online retailers for specialty home goods.
This acquisition bringsbrought together eLuxury'seLuxury’s experience in e-commerce, online brand building, and direct to consumerdirect-to-consumer shopping and fulfillment expertise with our global production, sourcing, and distribution capabilities.
The estimated consideration given for the initial 80% ownership interest in eLuxury totaled $18.1 million, of which $12.5 million representsrepresented the estimated purchase price and $5.6 million representsrepresented the fair value for contingent consideration associated with an earn-out obligation (see below for further details). Of the $12.5 million estimated purchase price, $11.6 million was paid at closing on June 22, 2018, $185,000 was paid in August 2018, and $749,000 is to bewas paid in September 2019, subject to certain conditions as defined
Assets Acquired and Liabilities Assumed
The following table presents the final allocation of the acquisition cost to the assets acquired and liabilities assumed based on their fair values.
(dollars in thousands) |
| Fair Value |
| |
Goodwill |
| $ | 13,653 |
|
Tradename |
|
| 6,549 |
|
Equipment |
|
| 2,179 |
|
Inventory |
|
| 1,804 |
|
Accounts receivable and other current assets |
|
| 108 |
|
Accounts payable |
|
| (1,336 | ) |
Accrued expenses |
|
| (295 | ) |
Non-controlling interest in eLuxury |
|
| (4,532 | ) |
|
| $ | 18,130 |
|
(dollars in thousands) | Fair Value | |||
Goodwill | $ | 13,653 | ||
Tradename | 6,549 | |||
Equipment | 2,179 | |||
Inventory | 1,804 | |||
Accounts receivable and other current assets | 108 | |||
Accounts payable | (1,336 | ) | ||
Accrued expenses | (295 | ) | ||
Non-controlling interest in eLuxury | (4,532 | ) | ||
$ | 18,130 |
We recorded the tradename at fair market value based on the relief from royalty method. This tradename was determined to have an indefinite useful life and, therefore, is not being amortized. Equipment will be depreciated on a straight-line basis over useful lives ranging from five to ten years.
The goodwill related to this acquisition is attributable to eLuxury’s reputation with the products it offers and management’s experience in e-commerce, online brand building, and direct-to-consumer shopping and fulfillment expertise. Goodwill is deductible for income tax purposes over the statutory period of fifteen years.
Contingent Consideration
As mentioned above, the Equity Agreement contains a contingent consideration arrangement that requires us to pay the seller, who is also the owner of the noncontrolling interest, an earn-out payment based on a multiple of adjusted EBITDA, as defined in the Equity Agreement, for the twelve-month period ending August 31, 2021, less $12.0 million. We recorded a contingent liability at the acquisition date for this earn-out obligation at its fair value totaling $5.6 million based on the Black Scholes pricing model.
We are required to assess the fair value of this earn-out obligation each quarterly reporting period. Based on management’s assessment as of February 2, 2020, we determined it was necessary to adjust forecasted EBITDA as it relates to this earn-out obligation. This determination was based on the future outlook of our home accessories segment and Non-Controlling Interest
Non-Controlling Interest
The Equity Agreement contains substantive profit-sharing arrangement provisions which explicitly state the ownership interests at the effective date of this business combination and the allocation of net income or loss between the company, as the controlling interest holder, and the noncontrolling interest holder. The Equity Agreement states that at the effective date of this acquisition (June 22, 2018), we acquired an 80% ownership interest in eLuxury, with the seller retaining a 20% noncontrolling interest. Additionally, the Equity Agreement states that eLuxury’s net income or loss, future capital contributions, and equity distributions will be allocated at a percentage of 70% and 30% to the company and the noncontrolling interest holder, respectively.
I-40
Based on the terms of the Equity Agreement, we believe the related risks associated with the ownership interests are aligned and therefore, the total consideration of $18.1 million for the 80% controlling interest we included allprovides information for the accountsequity value of eLuxury as a whole, and is useful in our consolidated financial statements and have eliminated all significant intercompany balances and transactions. Net income (loss) attributableestimating the fair value of the 20% noncontrolling interest. In order to determine the minoritycarrying value of the noncontrolling interest in eLuxury, we applied the Hypothetical-Liquidation-At-Book-Value method (HLBV). HLBV is excluded from total consolidatedan approach that is used in practice to determine the carrying value of a noncontrolling interest if it is consistent with an existing profit-sharing arrangement such as the Equity Agreement. Therefore, the carrying amount of the noncontrolling interest of $253,000 at February 2, 2020, mostly represents its $4.6 million fair value determined at the acquisition date, minus its allocation of net income (loss) to arrive at net income (loss) attributable to Culp Inc. common shareholders.
Other
Acquisition costs totaling $270,000 were included in selling, general, and administrative expenses in our Consolidated Statement of Net Income for the nine-month period ending January 27, 2019.
Segment Assets
Segment assets consist of accounts receivable, inventory, and property, plant, and equipment.equipment, and right of use assets.
(dollars in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
|
| April 28, 2019 |
| |||
Accounts receivable |
| $ | 766 |
|
| $ | 402 |
|
| $ | 379 |
|
Inventory |
|
| 3,566 |
|
|
| 3,105 |
|
|
| 3,296 |
|
Property, plant & equipment |
|
| 1,728 |
|
|
| 1,985 |
|
|
| 1,910 |
|
Right of use assets |
|
| 949 |
|
|
| — |
|
|
| — |
|
|
| $ | 7,009 |
|
| $ | 5,492 |
|
| $ | 5,585 |
|
(dollars in thousands) | January 29, 2017 | January 28, 2018 | April 29, 2018 | |||||||||
Accounts receivable | $ | 402 | $ | - | $ | - | ||||||
Inventory | 3,105 | - | - | |||||||||
Property, plant & equipment | 1,985 | - | - |
Refer to Note 18note 16 located in the notes to the consolidated financial statements for disclosures regarding determination of our segment assets.
Accounts Receivable
As of February 2, 2020, accounts receivable did not vary by a material amount from levels at January 27, 2019, and April 28, 2019.
Inventory
As of February 2, 2020, inventory did not vary by a material amount from levels at January 27, 2019 and April 28, 2019.
Property, Plant, & Equipment
The $1.7 million at February 2, 2020, $2.0 million at January 27, 2019, representsand $1.9 million at April 28, 2019, represent property, plant, and equipment located in the U.S.
Right of Use Assets
As of February 2, 2020, our right of use assets balance mostly reflects the adoption of ASU No. 2016-02, Leases (Topic 842). See notes 2 and 19 located in the notes to the consolidated financial statements for further details. The $949,000 represents right of use assets located in the U.S.
Other Income Statement Categories
|
| Three Months Ended |
|
|
|
|
| |||||
(dollars in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
|
| % Change |
| |||
SG&A expenses |
| $ | 9,952 |
|
| $ | 10,038 |
|
|
| (0.9 | )% |
Reversal of contingent consideration - earn-out obligation |
|
| 6,081 |
|
|
| — |
|
|
| 100.0 | % |
Interest expense |
|
| 8 |
|
|
| — |
|
|
| 100.0 | % |
Interest income |
|
| 242 |
|
|
| 251 |
|
|
| (3.6 | )% |
Other expense |
|
| 267 |
|
|
| 288 |
|
|
| (7.3 | )% |
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|
| Nine Months Ended |
|
|
|
|
| |||||
(dollars in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
|
| % Change |
| |||
SG&A expenses |
| $ | 30,783 |
|
| $ | 28,174 |
|
|
| 9.3 | % |
Reversal of contingent consideration - earn-out obligation |
|
| 6,081 |
|
|
| — |
|
|
| 100.0 | % |
Interest expense |
|
| 47 |
|
|
| 38 |
|
|
| 23.7 | % |
Interest income |
|
| 732 |
|
|
| 552 |
|
|
| 32.6 | % |
Other expense |
|
| 441 |
|
|
| 688 |
|
|
| (35.9 | )% |
Three Months Ended | ||||||||||||
(dollars in thousands) | January 27, 2019 | January 28, 2018 | % Change | |||||||||
SG&A expenses | $ | 10,038 | $ | 9,959 | 0.8 | % | ||||||
Interest expense | - | 31 | (100.0 | )% | ||||||||
Interest income | 251 | 132 | 90.2 | % | ||||||||
Other expense | 288 | 229 | 25.8 | % |
Nine Months Ended | ||||||||||||
(dollars in thousands) | January 27, 2019 | January 28, 2018 | % Change | |||||||||
SG&A expenses | $ | 28,174 | $ | 28,876 | (2.4 | )% | ||||||
Interest expense | 38 | 69 | (44.9 | )% | ||||||||
Interest income | 552 | 391 | 41.2 | % | ||||||||
Other expense | 688 | 903 | (23.8 | )% |
Selling, General and Administrative Expenses
The increase in selling, general, and administrative expenses during the third quarter and year-to-date periodfirst nine months of fiscal 2019 were comparable with the same periods a year ago. This trend is primarily due to increased selling expenses associated with our majority investment in eLuxury, offset by lower incentive compensation expense reflecting weaker financial results for the company in relation to pre-established targets, as well as lower professional fees.
Stock-based compensation expense was $831,000 during the first nine months of fiscal 2020, compared with $373,000 for the construction of qualifying fixed assets were capitalized for the nine-months ended January 27, 2019. Interest costs totaling $99,000 for the construction of qualifying fixed assets were capitalized for the nine-months ended January 28, 2018. These interest costs will be amortized over the related assets’ useful lives.
Higher selling expenses associated with our investment grade U.S. corporate bonds locatedCLASS mattress cover operation that mostly reflect an increase in net sales that occurred during fiscal 2020.
Interest Expense
Interest expense reflects our historically low amount of borrowings outstanding. At February 2, 2020, our borrowings totaled $925,000 and related to our subordinated loan payable between eLuxury and the Cayman Islands. owner of its non-controlling interest.
Interest Income
The increase in interest income reflects our current investment of excess cash held in U.S. money market funds, bond mutual funds, and investment grade U.S. corporate, foreign, and government bonds.
Other Expense
The decrease in other expense for the third quarter and nine-month year-to-date periodthe first nine months of fiscal 2019,2020, compared with the same periods a year ago, is primarily due to repatriated earnings and profits from our foreign subsidiaries that have been invested in U.S. money market funds at higher interest rates. Additionally, the increase is due to higher participant account balances held in our Rabbi Trust, that is associated with our deferred compensation plan, during fiscal 2019 compared with fiscal 2018.
Income Taxes
Effective Income Tax Rate
We recorded income tax expense of $2.6 million, or 142.8% of income before income taxes, for the nine-month period ended February 2, 2020, compared with income tax expense of $3.4 million, or 32.5% of income before income taxes, for the nine- monthnine-month period ended January 27, 2019, compared with income tax expense of $12.0 million, or 58.6% of income before income taxes, for the nine-month period ended January 28, 2018.2019. Our effective income tax rates for thesethe nine-month periods ended February 2, 2020, and January 27, 2019, respectively, 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 subsidiaries located in China and Canada versus annual projections, as well as changes in foreign currency exchange rates in relation to the U.S. dollar.
The following schedule summarizes the factors that contributed to the differenceprincipal differences between income tax expense at the U.S. federal income tax rate and the effective income tax rate reflected in the consolidated financial statements for the first nine months each fiscal year:
statements:
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|
| 2020 |
|
| 2019 |
| ||
U.S. federal income tax rate |
|
| 21.0 | % |
|
| 21.0 | % |
Global Intangible Low Taxed Income Tax (GILTI) |
|
| 58.2 |
|
|
| 2.6 |
|
Foreign income tax rate differential |
|
| 35.7 |
|
|
| 10.1 |
|
Non-controlling interest income attributable to a consolidated partnership |
|
| 21.0 |
|
|
| — |
|
Tax effects of Chinese foreign exchange gains |
|
| 4.4 |
|
|
| 1.4 |
|
Change in estimate of U.S. valuation allowance |
|
| 2.5 |
|
|
| 1.0 |
|
Stock-based compensation |
|
| 1.2 |
|
|
| 0.7 |
|
Tax effects of the 2017 Tax Cuts and Jobs Act |
|
| — |
|
|
| (5.7 | ) |
Other |
|
| (1.2 | ) |
|
| 1.4 |
|
|
|
| 142.8 | % |
|
| 32.5 | % |
2019 | 2018 | |||||||
Federal income tax rate | 21.0 | % | 30.4 | % | ||||
Tax effects of the 2017 Tax Cuts and Jobs Act | (5.7 | ) | 28.4 | |||||
Foreign income tax rate differential | 10.1 | 3.9 | ||||||
Global Intangible Low Taxed Income Tax (GILTI) | 2.6 | - | ||||||
Tax effects of Chinese foreign exchange gains (losses) | 1.4 | (2.9 | ) | |||||
Excess income tax deficiency (benefits) | ||||||||
related to stock-based compensation | 0.7 | (2.3 | ) | |||||
Other | 2.4 | 1.1 | ||||||
32.5 | % | 58.6 | % |
The key effects of the Tax Act onincrease in our financial statements during fiscal 2019 include the reduction of our U.S federal statutoryeffective income tax rate reflects the significant decline in our projected annual consolidated taxable income, particularly in the U.S., and the mix of our consolidated taxable income that is earned by our foreign corporations located in China and Canada that have higher income tax rates in relation to 21% compared with the blended statutoryU.S. This current mix of taxable income has led to a significant increase in our effective income tax rate of 30.4% during fiscal 2018 and the creation of thethat is associated with our Global Intangible Low TaxedTax Income Tax (GILTI).
The U.S. Treasury Department and Internal Revenue Service have issued newly proposed regulations that, if enacted, and if enacted as proposed, could provide us with some relief from the GILTI Tax under the proposed GILTI High-Tax exception, subject to the timing of fiscal 2019, totaledenactment. Additionally, if the U.S. Treasury Department and Internal Revenue Service decide that the GILTI High-Tax exception election will apply retroactively, this could provide us with additional relief beyond the currently proposed regulations. The proposed GILTI High-Tax exception election is not currently available, and any determination with respect to an income taxretroactivity will not be known, until the proposed regulations are finalized and effective. There is no guarantee that the proposed regulations will be enacted, or that there won’t be changes to the final regulations that would reduce or eliminate the relief we would otherwise benefit of $593,000, and represented a discrete event for whichfrom under the full income tax effects were recorded in the three-month and nine-month periods ending January 27, 2019. The $593,000 final provision adjustment represents $310,000 for the re-measurement of our U.S. deferred income taxes and $283,000 for the one-time mandatory repatriation tax on our undistributed earnings from our foreign subsidiaries.
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.
Refer to Note 19note 17 located in the notes to the consolidated financial statements for disclosures regarding our assessments of our recorded valuation allowance as of February 2, 2020, January 27, 2019, January 28, 2018, and April 29, 2018,28, 2019, respectively.
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. 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.
Refer to Note 19note 17 located in the Notesnotes to the Consolidated Financial Statementsconsolidated financial statements for disclosures regarding our assessments of our recorded deferred income tax liability balances associated with undistributed earnings from our foreign subsidiaries as of February 2, 2020, January 27, 2019, January 28, 2018, and April 29, 2018, respectively
Uncertain Income Tax Positions
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 benefits will be recorded at that time.
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Refer to Note 19note 17 located in the Notesnotes to the Consolidated Financial Statementsconsolidated financial statements for disclosures regarding our assessments of our uncertain income tax positions as of January 27, 2019, January 28, 2018, and April 29, 2018, respectively.
Income Taxes Paid
Our income tax payments totaled $4.5 million during the first nine months of fiscal 2020 compared with $6.2 million and $3.4 million forduring the same respective periods.period a year ago. Our income tax payments were mostly associated with our foreign subsidiaries located in Canada and China. These payments increased duringIncome taxes incurred in the U.S. on a cash basis for fiscal 2019 as compared with the same period a year ago, primarily2020 are expected to be minimal due to a withholding tax paymentthe projected utilization of $862,000 associated with an earnings and profit distribution from our Canadian subsidiary and the first installment of our mandatory repatriation tax payment of $500,000 made in our second quarter, and higher installment payments associated with our Canadian subsidiary during fiscal 2019 compared with fiscal 2018.
Liquidity and Capital Resources
Liquidity
Overall
Currently, our sources of liquidity include cash and cash equivalents, short-term investments (available-for-sale), cash flow from operations, and amounts available under our revolving credit lines. These sources have been adequate for day-to-day operations, capital expenditures, debt payments, common stock repurchases, and dividend payments. We believe our present cash and cash equivalents of $26.4and short-term investments (available-for-sale) totaling $29.5 million as of January 27, 2019,at February 2, 2020, cash flow from operations, and the current availability ($31.0 million)30.8 million at February 2, 2020) under our revolving credit lines will beare sufficient to fund our foreseeable business needs, contractual obligations, and potential acquisitions.
At January 27, 2019February 2, 2020, our cash and investments (which comprise cash and cash equivalents, short-term investments (available for sale)(available-for-sale), and short-term and long-term investments (held-to-maturity)), totaled $40.0$34.8 million, compared with $54.5$45.0 million at April 29, 2018. Additionally, we did not have any outstanding borrowings on our lines of credit as of January 27,28, 2019.
Our net cash provided byused in operating activities totaling $8.1 million and proceeds fromwas $519,000 for the salefirst nine months of property, plant, and equipment of $1.9 million associatedfiscal 2020, compared with our closed upholstery fabrics facility located in Anderson, SC.
At February 2, 2020, our borrowings totaling $925,000 related to our subordinated loan payable between eLuxury and the lower business volume noted above.
Our cash and cash equivalents and short-term investment (available for sale)investments (available-for-sale) balance may be adversely affected by factors beyond our control, such as lower net sales due to weakening industry demand and delays in receipt of payment on accounts receivable.
By Geographic Area
A summary of our cash and cash equivalents, short-term investments (available for sale)(available-for-sale), and short-term and long-term investments (held-to-maturity) by geographic area follows:
(dollars in thousands) |
| February 2, 2020 |
|
| January 27, 2019 |
|
| April 28, 2019 |
| |||
United States |
| $ | 28,030 |
|
| $ | 16,478 |
|
| $ | 33,079 |
|
China |
|
| 5,363 |
|
|
| 8,412 |
|
|
| 9,670 |
|
Canada |
|
| 1,412 |
|
|
| 1,456 |
|
|
| 2,196 |
|
Cayman Islands |
|
| 42 |
|
|
| 13,616 |
|
|
| 64 |
|
|
| $ | 34,847 |
|
| $ | 39,962 |
|
| $ | 45,009 |
|
(dollars in thousands) | January 27, 2019 | January 28, 2018 | April 29, 2018 | |||||||||
United States | $ | 16,478 | $ | 5,707 | $ | 9,221 | ||||||
Cayman Islands | 13,616 | 38,918 | 31,000 | |||||||||
China | 8,412 | 7,228 | 10,537 | |||||||||
Canada | 1,456 | 3,878 | 3,715 | |||||||||
$ | 39,962 | $ | 55,731 | $ | 54,473 |
During the third quarterand fourth quarters of fiscal 2019, we hadexperienced a significant increase in ourshift of cash and investments held in the Cayman Islands to the U.S. This
At October 28, 2018 (the end of April 29, 2018,our second quarter of the $31.0 million infiscal 2019), we had cash and investments held in the Cayman Islands, almost alltotaling $26.7 million that mostly pertained to investment grade U.S. corporate bonds.bonds that were held in the Cayman Islands. As our U.S. corporate bonds mature,matured, we have been repatriating most orrepatriated almost all ofour earnings and profits residing in the Cayman Islands to the U.S.our U.S parent company. DuringAs of the end of our first quarter of fiscal 2019, we received cash proceeds from the sale of2020, all our U.S. corporate bonds totaling $17.2 million, of which $13.2 million was received in the third quarter. In turn, we repatriated earnings and profits to our U.S. parent company totaling $17.6 million during fiscal 2019, of which $14.3 million pertained to the third quarter.
On June 15, 2016,September 5, 2019, we announced that our board of directors approved an authorization for us to acquire up to $5.0 million of our common stock. During the nine-month period ending February 2, 2020, we purchased 55,750 shares of our common stock at a cost of $728,000 pursuant to this authorization, all of which were purchased during the third quarter. As a result, at February 2, 2020, we had $4.3 million available for future repurchases of our common stock associated with the $5.0 million repurchase program approved by our board of directors on September 5, 2019.
On March 4, 2020, we announced that our board of directors approved an authorization to acquire up to $5.0 million of our common stock.
Under the common stock repurchase program, shares may be purchased from time to time in open market transactions, block trades, through plans established under the Securities Exchange Act Rule 10b5-1, or otherwise. The amountnumber of shares that can be purchased and the timing of such purchases will be based on working capital requirements, market and general business conditions, and other factors, including alternative investment opportunities.
During the nine-month period ended January 27, 2019, we purchased 160,423 shares of our common stock at a cost of $3.3 million. During the nine-month period ended January 28, 2018, we did not purchase anyThe 160,423 shares were purchased pursuant to a prior authorization approved by our board of our common stock.
Dividend Program
On February 27, 2019,March 4, 2020, we announced that our board of directors approved a quarterly cash dividend of $0.10$0.105 per share. This paymentshare that will be madepaid on April 15, 2019,2020, to shareholders of record as of April 1, 2019.
During the nine monthsnine-month period ended February 2, 2020, dividend payments totaled $3.8 million, which represented quarterly dividend payments of $0.10 per share to $0.105 per share. During the nine-month period ended January 27, 2019, dividend payments totaled $3.5 million, which represented quarterly dividend payments ranging fromof $0.09 per share to $0.10 per share. During the nine months ended January 28, 2018, dividend payments totaled $5.7 million, of which $2.6 million represented a special cash dividend payment of $0.21 per share, and $3.1 million represented quarterly dividend payments ranging from $0.08 per share to $0.09 per share.
Future dividend payments are subject to board approval and may be adjusted at the board’s discretion as business needs or market conditions change.
Working Capital
Operating Working Capital
Operating working capital (accounts receivable and inventories, less accounts payable-trade, accounts payable-capital expenditures, and deferred revenue) was $61.8 million at February 2, 2020, compared with $52.6 million at January 27, 2019, compared with $47.8 million at January 28, 2018.2019. Operating working capital turnover was 5.4 during the third quarter of fiscal 2020 compared with 6.0 during the third quarter of fiscal 20192019.
Accounts Receivable
As of February 2, 2020, accounts receivable totaled $26.6 million, compared with 7.4$26.1 million at January 27, 2019. Although our net sales declined 6.8% during our third quarter of fiscal 2020 compared with the third quarter of fiscal 2019, we experienced a slight increase in accounts receivable. This increase resulted from a change in discount credit terms with key customers and fewer customers taking advantage of discounts that were associated with our mattress fabrics segment during fiscal 2020 as compared with fiscal 2019.
Days’ sales outstanding were 33 days during the third quarter of fiscal 2018.
Inventory
Inventories as of February 2, 2020, totaling $57.6 million, increased $2.2 million, or 3.9%, compared with inventories totaling $55.4 million at January 27, 2019. This increase is mostly due to inventory purchases associated with our mattress fabrics segment that were in excess of actual demand trends, which were lower than anticipated, partially offset by a reduction in inventory associated with our upholstery fabrics segment reflecting a 5.7% decrease in the net sales for this segment during the third quarter of fiscal 2020 compared with the third quarter of fiscal 2019.
Inventory turns were 4.1 during the third quarter of fiscal 2020 compared with 4.6 for the third quarter of fiscal 2019.
Accounts Payable
Accounts payable - 63
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Currently, we have revolving credit agreements with banks for our U.S parent company and our operations located in China. The purposes of our revolving lines of credit are to support potential short-term cash needs in different jurisdictions, mitigate our risk associated with foreign currency exchange rate fluctuations, and ultimately repatriate earnings and profits from our foreign subsidiaries to the U.S. to take advantage of the Tax Act, which allows a U.S. corporation a 100% dividend received income tax deduction on earnings and profits repatriated to the U.S. from 10% owned foreign corporations.
Our revolving credit agreements require us to maintain compliance with certain financial covenants as defined in the respective agreements. At January 27, 2019,February 2, 2020, we were in compliance with all our financial covenants.
At February 2, 2020, we had borrowings totaling $925,000 related to our subordinated loan payable between eLuxury and its minority owner.
Refer to Note 13note 12 located in the notes to the consolidated financial statements for further details of our revolving credit agreements.
Capital Expenditures and Depreciation
Overall
Capital expenditures on a cash basis were $4.4$4.1 million (of which $1.4 million were vendor- financed) for the nine-month period ending January 27, 2019,February 2, 2020, compared with $10.4$4.4 million (of which $3.8$1.4 million were vendor-financed) for the same period a year ago. Capital expenditures mostly related to our mattress fabrics segment for both periods.
Depreciation expense was $6.1$5.9 million for the nine-month period ending January 27, 2019,February 2, 2020, compared with $5.7$6.1 million for the same period a year ago. Depreciation expense mostly related to our mattress fabrics segment for both periods.
For fiscal 2019,2020, we are projecting cash capital expenditures to be in the range of $6.0 million to $6.5 million. Depreciation expense is projected to be approximately $8.0 million in fiscal 2019.2020. The estimated capital expenditures and depreciation expense for fiscal 20192020 mostly relatesrelate to the mattress fabrics segment. These are management’s current expectations only, and changes in our business could cause changes in plans for capital expenditures and expectations related to depreciation expense.
Accounts Payable – Capital Expenditures
At January 27, 2019,February 2, 2020, we had total amounts due regarding capital expenditures totaling $91,000,$177,000, pertaining to outstanding vendor invoices, none of which were financed. The total amount outstanding of $91,000$177,000 is required to be paid based on normal credit terms.
Purchase Commitments – Capital Expenditures
At January 27, 2019,February 2, 2020, we had open purchase commitments to acquire equipment for our mattress fabrics segment totaling $632,000.
Critical Accounting Policies and Recent Accounting Developments
At January 27, 2019,February 2, 2020, there were no changes in the nature of our significant accounting policies or the application of those policies from those reported in our annual report on Form 10-K for the year ended April 29, 2018.
Refer to Notesnotes 2 and 519 located in the notes to the consolidated financial statements for recently adopted and issued accounting pronouncements since the filing of our Form 10-K for the year ended April 29, 2018.
Contractual Obligations
As of January 27, 2019,February 2, 2020, there were no significant or new contractual obligations from those reported in our annual report on Form 10-K for the year ended April 29, 2018.
Inflation
Any significant increase in our raw material costs, utility/energy costs, and general economic inflation could have a material adverse impact on the company, because competitive conditions have limited our ability to pass significant operating cost increases on to customers.
We are exposed to market risk from changes in interest rates on our revolving credit lines.
At January 27, 2019,February 2, 2020, our U.S. revolving credit agreement and subordinated loan payable requires interest to be charged at a rate (applicable interest rate of 3.95% at January 27, 2019) as a variable spread over LIBOR based on our ratio of debt to EBITDA as defined in the agreement.agreements. Our revolving credit line associated with our China subsidiaries
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subsidiary bears interest at a rate determined by the Chinese government. There were no borrowings outstanding under our revolving credit lines at January 27, 2019.
We are exposed to market risk from changes in the value of foreign currencies for our subsidiaries domiciled in Canada and China. We try to maintain a natural hedge by keeping a balance of our assets and liabilities denominated in the local currency of our subsidiaries domiciled in Canada and China, although there is no assurance that we will be able to continually maintain this natural hedge. Our foreign subsidiaries use the United States dollar as their functional currency. A substantial portion of the company’s imports purchased outside the United States are denominated in U.S. dollars. A 10% change in the above exchange rates at January 27, 2019,February 2, 2020, would not have had a significant impact on our results of operations or financial position.
We have conducted an evaluation of the effectiveness of our disclosure controls and procedures as of January 27, 2019,February 2, 2020, the end of the period covered by this report. This evaluation was conducted under the supervision and with the participation of management, including our Executive Chairman, Chief Executive Officer, and Chief Financial Officer. Based upon that evaluation, we have concluded that these disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports filed by us and submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported as and when required. Further, we concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in reports filed by us under the Exchange Act is accumulated and communicated to management, including our Executive Chairman, Chief Executive Officer, and Chief Financial Officer, in a manner to allow timely decisions regarding the required disclosures.
There has been no change in our internal control over financial reporting that occurred during the quarter ended January 27, 2019,February 2, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
There have not been any material changes to our legal proceedings during the three months ended January 27, 2019.February 2, 2020. Our legal proceedings are disclosed in the company’s annual report on Form 10-K filed with the Securities and Exchange Commission on July 13, 201812, 2019 for the fiscal year ended April 29, 2018.28, 2019.
A detailed discussion of our risk factors is included in Item 1A “Risk Factors” of our Annual Report on Form 10-K filed July 13, 201812, 2019 for the year ended April 29, 2018.28, 2019. The information presented below updates and should be read in conjunction with the risk factors and information disclosed in that Form 10-K.
Our business, financial condition, and results of operation may be adversely affected by increased tariffs or other changesglobal public health epidemics, including the recent coronavirus outbreak.
Our business, financial condition, and results of operations may be adversely affected if a global public health epidemic, including the recent coronavirus outbreak in U.S. policy related to imported products.
ISSUER PURCHASES OF EQUITY SECURITIES
|
|
| (a) Total Number of Shares Purchased |
|
| (b) Average Price Paid per Share |
|
| (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| (d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) |
| ||||
November 4, 2019 to December 8, 2019 |
|
|
| — |
|
|
| — |
|
|
| — |
|
| $ | 5,000,000 |
|
December 9, 2019 to January 5, 2020 |
|
|
| — |
|
|
| — |
|
|
| — |
|
| $ | 5,000,000 |
|
January 6, 2020 to February 2, 2020 |
|
|
| 55,750 |
|
|
| 13.05 |
|
|
| 55,750 |
|
| $ | 4,272,222 |
|
Total |
|
|
| 55,750 |
|
|
| 13.05 |
|
|
| 55,750 |
|
| $ | 4,272,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period | (a) Total Number of Shares Purchased | (b) Average Price Paid per Share | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | (d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) | ||||||||||||
October 29, 2018 to December 2, 2018 | 24,929 | 21.57 | 24,929 | $ | 3,618,954 | |||||||||||
December 3, 2018 to December 30, 2018 | 67,588 | 20.06 | 67,588 | $ | 2,262,961 | |||||||||||
December 31, 2018 to January 27, 2019 | 31,026 | 18.65 | 31,026 | $ | 1,684,362 | |||||||||||
Total | 123,543 | 20.01 | 123,543 | $ | 1,684,362 |
(1) | On |
The following exhibits are submitted as part of this report.
31.1 | |||
Certification of | |||
31.2 | Certification of | ||
31.3 | Certification of Principal Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002. | ||
32.1 | Certification of | ||
32.2 | Certification of | ||
32.3 | Certification of Principal Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002. | ||
101.INS | XBRL Instance Document | ||
101.SCH | XBRL Taxonomy Extension Schema Document | ||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | ||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | ||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | ||
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
II-2
Exhibit Number | Exhibit | |
31.1 | ||
31.2 | ||
31.3 | Certification of Principal Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002. | |
32.1 | ||
32.2 | ||
32.3 | Certification of Principal Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002. | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
II-3
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CULP, INC. | |||
(Registrant) | |||
Date: March | By: | /s/ Kenneth R. Bowling | |
Kenneth R. Bowling | |||
Executive Vice President and Chief Financial Officer | |||
(Authorized to sign on behalf of the registrant | |||
and also signing as principal financial officer) |
By: | /s/ Thomas B. Gallagher, Jr. | ||
Thomas B. Gallagher, Jr. | |||
Corporate Controller | |||
(Authorized to sign on behalf of the registrant | |||
and also signing as principal accounting officer) |
II-4