|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
Commission File No.
(Exact name of registrant as specified in its charter)
|
|
|
|
(State or other jurisdiction of incorporation or other organization) |
(I.R.S. Employer Identification No.) |
|
|
|
|
|
|
|
(Address of principal executive offices) |
(zip code) |
(
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|
|
|
|
|
Name of Each Exchange |
|
Title of Each Class |
|
Trading Symbol(s) |
|
On Which Registered |
|
|
|
|
|
|
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 such filing requirements for the past 90 days.
☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer |
|
☐ |
|
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
as of December 6, 2024:
Par Value: $0.05 per share
INDEX TO FORM 10-Q
For the period ended October 27, 2024
|
|
|
Part I - Financial Statements |
|
Page |
|
|
|
|
|
|
|
Item 1. |
|
|
I- 1 |
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Net Loss — Three Months Ended October 27, 2024, and October 29, 2023 |
|
I- 1 |
|
|
|
|
|
|
|
|
|
Consolidated Statements of Net Loss — Six Months Ended October 27, 2024, and October 29, 2023 |
|
I- 2 |
|
|
|
|
|
|
|
|
|
|
I- 3 |
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheets — October 27, 2024, October 29 2023, and April 28, 2024 |
|
I- 4 |
|
|
|
|
|
|
|
|
|
Consolidated Statements of Cash Flows — Six Months Ended October 27, 2024, and October 29, 2023 |
|
I- 5 |
|
|
|
|
|
|
|
|
|
Consolidated Statements of Shareholders’ Equity – Six Months Ended October 27, 2024 |
|
I- 6 |
|
|
|
|
|
|
|
|
|
Consolidated Statements of Shareholders’ Equity – Six Months Ended October 29, 2023 |
|
I- 7 |
|
|
|
|
|
|
|
|
|
|
I- 8 |
|
|
|
|
|
|
|
|
|
|
|
I- 33 |
|
|
|
|
|
|
|
|
Item 2. |
|
Management's Discussion and Analysis of Financial Condition and Results of Operations |
|
I- 34 |
|
|
|
|
|
|
|
Item 3. |
|
|
I- 51 |
|
|
|
|
|
|
|
|
Item 4. |
|
|
I- 51 |
|
|
|
|
|
|
|
|
|
|
Part II - Other Information |
|
|
|
|
|
|
|
|
|
Item 1. |
|
|
II- 1 |
|
|
|
|
|
|
|
|
Item 1A. |
|
|
II- 1 |
|
|
|
|
|
|
|
|
Item 2. |
|
|
II- 1 |
|
|
|
|
|
|
|
|
Item 5. |
|
|
II- 1 |
|
|
|
|
|
|
|
|
Item 6. |
|
|
II- 2 |
|
|
|
|
|
|
|
|
|
II- 3 |
|||
Item 1: Financ ial Statements
CULP, INC.
CONSOLIDATED STATEM ENTS OF NET LOSS
FOR THE THREE MONTHS ENDED OCTOBER 27, 2024, AND OCTOBER 29, 2023
UNAUDITED
(Amounts in Thousands, Except for Per Share Data)
|
|
|
THREE MONTHS ENDED |
|
|||||
|
|
|
October 27, |
|
|
October 29, |
|
||
|
|
|
2024 |
|
|
2023 |
|
||
|
Net sales |
|
$ |
|
|
|
$ |
|
|
|
Cost of sales |
|
|
(
|
) |
|
|
(
|
) |
|
Gross profit |
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
(
|
) |
|
|
(
|
) |
|
Restructuring expense |
|
|
(
|
) |
|
|
(
|
) |
|
Loss from operations |
|
|
(
|
) |
|
|
(
|
) |
|
Interest expense |
|
|
(
|
) |
|
|
— |
|
|
Interest income |
|
|
|
|
|
|
|
|
|
Other (expense) income |
|
|
(
|
) |
|
|
|
|
|
Loss before income taxes |
|
|
(
|
) |
|
|
(
|
) |
|
Income tax benefit (expense) |
|
|
|
|
|
|
(
|
) |
|
Net loss |
|
|
(
|
) |
|
$ |
(
|
) |
|
|
|
|
|
|
|
|
||
|
Net loss per share - basic |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
Net loss per share - diluted |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
Average shares outstanding, basic |
|
|
|
|
|
|
|
|
|
Average shares outstanding, diluted |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
I- 1
CULP, INC.
CONSOLIDATED STAT EMENTS OF NET LOSS
FOR THE SIX MONTHS ENDED OCTOBER 27, 2024, AND OCTOBER 29, 2023
UNAUDITED
(Amounts in Thousands, Except for Per Share Data)
|
|
|
SIX MONTHS ENDED |
|
|||||
|
|
|
October 27, |
|
|
October 29, |
|
||
|
|
|
2024 |
|
|
2023 |
|
||
|
Net sales |
|
$ |
|
|
|
$ |
|
|
|
Cost of sales |
|
|
(
|
) |
|
|
(
|
) |
|
Gross profit |
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
(
|
) |
|
|
(
|
) |
|
Restructuring expense |
|
|
(
|
) |
|
|
(
|
) |
|
Loss from operations |
|
|
(
|
) |
|
|
(
|
) |
|
Interest expense |
|
|
(
|
) |
|
|
— |
|
|
Interest income |
|
|
|
|
|
|
|
|
|
Other (expense) income |
|
|
(
|
) |
|
|
|
|
|
Loss before income taxes |
|
|
(
|
) |
|
|
(
|
) |
|
Income tax expense |
|
|
(
|
) |
|
|
(
|
) |
|
Net loss |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
|
|
|
|
|
|
|
||
|
Net loss per share - basic |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
Net loss per share - diluted |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
Average shares outstanding, basic |
|
|
|
|
|
|
|
|
|
Average shares outstanding, diluted |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
I- 2
CULP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE THREE AND SIX MONTHS ENDED OCTOBER 27, 2024, AND OCTOBER 29, 2023
UNAUDITED
(Amounts in Thousands)
|
|
|
THREE MONTHS ENDED |
|
|||||
|
|
|
October 27, |
|
|
October 29, |
|
||
|
|
|
2024 |
|
|
2023 |
|
||
|
Net loss |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
Unrealized holding gain (loss) on investments, net of tax |
|
|
|
|
|
|
(
|
) |
|
Comprehensive loss |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
|
|
SIX MONTHS ENDED |
|
|||||
|
|
|
October 27, |
|
|
October 29, |
|
||
|
|
|
2024 |
|
|
2023 |
|
||
|
Net loss |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
Unrealized holding gain (loss) on investments, net of tax |
|
|
|
|
|
|
(
|
) |
|
Comprehensive loss |
|
$ |
(
|
) |
|
$ |
(
|
) |
See accompanying notes to consolidated financial statements .
I- 3
CULP, INC.
CONSOLIDATED B ALANCE SHEETS
OCTOBER 27, 2024, OCTOBER 29, 2023, AND APRIL 28, 2024
UNAUDITED
(Amounts in Thousands)
|
|
|
October 27, |
|
|
October 29, |
|
|
April 28, |
|
|||
|
|
|
2024 |
|
|
2023 |
|
|
2024* |
|
|||
|
Current assets: |
|
|
|
|
|
|
|
|
|
|||
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Short-term investments - rabbi trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories |
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term note receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current income taxes receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
Other current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Property, plant and equipment, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
Right of use assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments - rabbi trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term note receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|||
|
Line of credit - China |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
Accounts payable - trade |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable - capital expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease liability - current |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation - current |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued restructuring |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
Income taxes payable - current |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Operating lease liability - long-term |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes payable - long-term |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation - long-term |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Shareholders' equity |
|
|
|
|
|
|
|
|
|
|||
|
Preferred stock, $
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contributed in excess of par value |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
Total shareholders' equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
*
See accompanying notes to consolidated financial statements .
I- 4
CULP, INC.
CONSOLIDATED STATEM ENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED OCTOBER 27, 2024, AND OCTOBER 29, 2023
UNAUDITED
(Amounts in Thousands)
|
|
|
SIX MONTHS ENDED |
|
|||||
|
|
|
October 27, |
|
|
October 29, |
|
||
|
|
|
2024 |
|
|
2023 |
|
||
|
Cash flows from operating activities: |
|
|
|
|
|
|
||
|
Net loss |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
Adjustments to reconcile net loss to net cash used in
|
|
|
|
|
|
|
||
|
Depreciation |
|
|
|
|
|
|
|
|
|
Non-cash inventory credit |
|
|
(
|
) |
|
|
(
|
) |
|
Amortization |
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
|
|
|
|
(
|
) |
|
Gain on sale of equipment |
|
|
(
|
) |
|
|
(
|
) |
|
Non-cash restructuring expenses |
|
|
|
|
|
|
|
|
|
Foreign currency exchange loss (gain) |
|
|
|
|
|
|
(
|
) |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
||
|
Accounts receivable |
|
|
(
|
) |
|
|
|
|
|
Inventories |
|
|
|
|
|
|
|
|
|
Other current assets |
|
|
|
|
|
|
(
|
) |
|
Other assets |
|
|
|
|
|
|
(
|
) |
|
Accounts payable – trade |
|
|
|
|
|
|
(
|
) |
|
Deferred revenue |
|
|
(
|
) |
|
|
(
|
) |
|
Accrued restructuring |
|
|
|
|
|
|
— |
|
|
Accrued expenses and deferred compensation |
|
|
(
|
) |
|
|
(
|
) |
|
Income taxes |
|
|
(
|
) |
|
|
(
|
) |
|
Net cash used in operating activities |
|
|
(
|
) |
|
|
(
|
) |
|
Cash flows from investing activities: |
|
|
|
|
|
|
||
|
Capital expenditures |
|
|
(
|
) |
|
|
(
|
) |
|
Proceeds from the sale of equipment |
|
|
|
|
|
|
|
|
|
Proceeds from note receivable |
|
|
|
|
|
|
|
|
|
Proceeds from the sale of investments (rabbi trust) |
|
|
|
|
|
|
|
|
|
Purchase of investments (rabbi trust) |
|
|
(
|
) |
|
|
(
|
) |
|
Net cash used in investing activities |
|
|
(
|
) |
|
|
(
|
) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
||
|
Procceds from line credit - China |
|
|
|
|
|
|
— |
|
|
Common stock surrendered for withholding taxes payable |
|
|
(
|
) |
|
|
(
|
) |
|
Net cash provided by (used in) financing activities |
|
|
|
|
|
|
(
|
) |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(
|
) |
|
|
(
|
) |
|
Increase (decrease) in cash and cash equivalents |
|
|
|
|
|
|
(
|
) |
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
|
|
See accompanying notes to consolidated financial statements.
I- 5
CULP, INC.
FOR THE SIX MONTHS ENDED OCTOBER 27, 2024
UNAUDITED
(Dollars in thousands, except share data)
|
|
|
|
|
|||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
Contributed |
|
|
|
|
|
|
|
Other |
|
|
|
Total |
|
|||||||||||
|
|
|
Common Stock |
|
|
|
in Excess |
|
|
|
Accumulated |
|
|
|
Comprehensive |
|
|
|
Shareholders' |
|
|||||||||||||||
|
|
|
Shares |
|
|
|
Amount |
|
|
|
of Par Value |
|
|
|
Earnings |
|
|
|
Income |
|
|
|
Equity |
|
|||||||||||
|
Balance, April 28, 2024 * |
|
|
|
|
|
|
$ |
|
|
|
|
$ |
|
|
|
|
$ |
|
|
|
|
$ |
|
|
|
|
$ |
|
|
|||||
|
Net loss |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(
|
) |
|
|
|
— |
|
|
|
|
(
|
) |
|||||
|
Stock-based compensation |
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|||||
|
Unrealized gain on investments |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Balance, July 28, 2024 |
|
|
|
|
|
|
$ |
|
|
|
|
$ |
|
|
|
|
$ |
|
|
|
|
$ |
|
|
|
|
$ |
|
|
|||||
|
Net loss |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(
|
) |
|
|
|
— |
|
|
|
|
(
|
) |
|||||
|
Stock-based compensation |
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|||||
|
Unrealized gain on investments |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Common stock issued in connection with the
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|||||
|
Common stock surrendered in connection with
|
|
|
(
|
) |
|
|
|
(
|
) |
|
|
|
(
|
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(
|
) |
|||||
|
Balance, October 27, 2024 |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
*
See accompanying notes to consolidated financial statements.
I- 6
CULP, INC.
FOR THE SIX MONTHS ENDED OCTOBER 29, 2023
UNAUDITED
(Dollars in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
Capital |
|
|
|
|
|
Accumulated |
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
Contributed |
|
|
|
|
|
Other |
|
|
Total |
|
||||||
|
|
|
Common Stock |
|
|
in Excess |
|
|
Accumulated |
|
|
Comprehensive |
|
|
Shareholders' |
|
|||||||||
|
|
|
Shares |
|
|
Amount |
|
|
of Par Value |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Equity |
|
||||||
|
Balance, April 30, 2023 * |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Unrealized gain on investments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Immediately vested common stock award |
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Balance, July 30, 2023 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Unrealized loss on investments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
(
|
) |
|
Common stock issued in connection with the
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Common stock surrendered in connection with
|
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
Balance, October 29, 2023 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
*
See accompanying notes to consolidated financial statements .
I- 7
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Culp, Inc. and its majority-owned subsidiaries (the “company”) include all adjustments that are, in the opinion of management, necessary for fair presentation of the results of operations and financial position. All these adjustments are of a normal recurring nature. Results of operations for interim periods may not be indicative of future results. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements that are included in the company’s annual report on Form 10-K filed with the Securities and Exchange Commission on July 12, 2024, for the fiscal year ended April 28, 2024.
The company's six-months ended October 27, 2024, and October 29, 2023, each represent 26-week periods.
2. Significant Accounting Policies
As of October 27, 2024, 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 28, 2024.
Recently Adopted Accounting Pronouncements
There were no recently adopted accounting pronouncements through the second quarter of fiscal 2025.
Recently Issued Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2023-07 ("ASU 2023-07") Improvements to Reportable Segment Disclosures which enhances disclosure requirements to segment reporting including (i) significant segment expenses that are regularly provided to the Chief Operating Decision Maker (CODM) that are included within each measure of segment profit or loss, (ii) other segment items by reportable segment as defined by ASU 2023-07, and (iii) the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of each segment's profit or loss in assessing segment performance and deciding how to allocate resources. ASU 2023-07 is effective for public entities starting in annual periods beginning after December 15, 2023 (i.e., our fiscal 2025 annual report) and interim periods beginning after December 15, 2024 (i.e., first quarter of fiscal 2026 interim report). The company expects that the adoption ASU 2023-07 will not have an impact on our results of operations and financial condition, but will have a material impact on the disclosures required in the notes to the consolidated financial statements, which are disclosed in Note 14.
In December 2023, the FASB issued ASU 2023-09 Improvements to Income Tax Disclosures, which is an update to Topic 740, Income Taxes ("ASU 2023-09"). The amendments in this update relate to improvements regarding the transparency of income tax disclosures by requiring consistent categories and greater disaggregation by jurisdiction of information included in the effective income tax rate reconciliation and for income taxes paid. Also, the amendments allow investors to better assess an entity's (i) capital allocation decisions, (ii) worldwide operations, and (iii) related tax risks, tax planning, and operational opportunities that affect the effective income tax rate and prospects for future cash flows. The other amendments in this update improve the effectiveness and comparability of disclosures relating to pretax income (or loss) and income tax expense (or benefit) and remove disclosures that are no longer considered cost beneficial or relevant. ASU 2023-09 is effective for public entities starting in annual periods beginning after December 15, 2024 (i.e., our fiscal 2026 annual report). Early adoption is permitted. The company expects that the adoption ASU 2023-09 will not have an impact on our results of operations and financial condition, but will have a material impact on the disclosures required in the notes to the consolidated financial statements, which are disclosed in Note 15.
In November 2024, the FASB issued ASU 2024 - 03 Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (“ASU 2024 - 03” ) which is an update to Topic 220, Income Statement - Reporting Comprehensive Income. ASU 2024-03 enhances transparency and decision-usefulness of expense disclosures in response to investors' requests for more detailed, disaggregated expense information, enabling a clearer understanding of a public business entity's performance and cost structure. The amendments improve disclosure requirements in financial statement notes for specific expense categories including: (a) purchases of inventory, (b) employee compensation, (c) depreciation, (d) intangible asset amortization, (e) certain amounts that are already required to be disclosed under current generally accepted accounting principles in the same disclosure as other disaggregation requirements, (f) qualitative description of amounts remaining in relevant expense captions that are not
I- 8
necessarily disaggregated quantitatively, as well as (g) the total amount of selling expenses, and in annual reporting periods, the entity's definition of selling expense. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, (i.e., our fiscal 2028 annual report) and interim reporting periods beginning after December 15, 2027 (i.e., first quarter of fiscal 2029 interim report). Early adoption is permitted. The company is currently evaluating ASU 2024-03 to determine the impact it will have on its consolidated financial statements and related disclosures.
3. Allowance for Doubtful Accounts
A summary of the activity in the allowance for doubtful accounts follows:
|
|
|
Six months ended |
|
|||||
|
(dollars in thousands) |
|
October 27, 2024 |
|
|
October 29, 2023 |
|
||
|
Beginning balance |
|
$ |
|
|
|
$ |
|
|
|
Provision for bad debts |
|
|
|
|
|
|
|
|
|
Write-offs, net of recoveries |
|
|
— |
|
|
|
(
|
) |
|
Ending balance |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
||
During the six-month periods ended October 27, 2024, and October 29, 2023, we assessed the credit risk of our customers within our accounts receivable portfolio. Our risk assessment includes the respective customers’ (i) financial position; (ii) past payment history; (iii) management’s general ability; and (iv) historical loss experience; as well as (v) any other ongoing economic conditions. After our risk assessment was completed, we assigned credit grades to our customers, which in turn, were used to determine our allowance for doubtful accounts totaling $
4 . Revenue from Contracts with Customers
Nature of Performance Obligations
Our operations are classified into
Our primary performance obligations include the sale of mattress fabrics and upholstery fabrics, as well as the performance of customized fabrication and installation services for Read’s products associated with window treatments.
Contract Assets & Liabilities
Certain contracts, primarily those for customized fabrication and installation services associated with Read, require payments in advance in the form of
customer deposits that result in a contract liability which is recorded in the Consolidated Balance Sheets as deferred revenue. If payments in advance are not required, customers may be granted terms which generally range from
A summary of the activity associated with deferred revenue follows:
|
|
|
Six months ended |
|
|||||
|
(dollars in thousands) |
|
October 27, 2024 |
|
|
October 29, 2023 |
|
||
|
Beginning balance |
|
$ |
|
|
|
$ |
|
|
|
Revenue recognized on contract liabilities |
|
|
(
|
) |
|
|
(
|
) |
|
Payments received for services not yet rendered |
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
|
|
|
$ |
|
|
I- 9
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 October 27, 2024:
|
|
|
Mattress |
|
|
Upholstery |
|
|
|
|
|||
|
(dollars in thousands) |
|
Fabrics |
|
|
Fabrics |
|
|
Total |
|
|||
|
Products transferred at a point in time |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Services transferred over time |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Total Net Sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The following table presents our disaggregated revenue by segment, timing of revenue recognition, and product sales versus services rendered for the six-month period ending October 27, 2024:
|
|
|
Mattress |
|
|
Upholstery |
|
|
|
|
|||
|
(dollars in thousands) |
|
Fabrics |
|
|
Fabrics |
|
|
Total |
|
|||
|
Products transferred at a point in time |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Services transferred over time |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Total Net Sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
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 October 29, 2023:
|
|
|
Mattress |
|
|
Upholstery |
|
|
|
|
|||
|
(dollars in thousands) |
|
Fabrics |
|
|
Fabrics |
|
|
Total |
|
|||
|
Products transferred at a point in time |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Services transferred over time |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Total Net Sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The following table presents our disaggregated revenue by segment, timing of revenue recognition, and product sales versus services rendered for the six-month period ending October 29, 2023:
|
|
|
Mattress |
|
|
Upholstery |
|
|
|
|
|||
|
(dollars in thousands) |
|
Fabrics |
|
|
Fabrics |
|
|
Total |
|
|||
|
Products transferred at a point in time |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Services transferred over time |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Total Net Sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
5. 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) |
|
October 27,
|
|
|
October 29,
|
|
|
April 28,
|
|
|||
|
Raw materials |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Work-in-process |
|
|
|
|
|
|
|
|
|
|
|
|
|
Finished goods |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Measurement of Inventory to Net Realizable Value
I- 10
We recorded a non-cash inventory credit of $(
We recorded a non-cash inventory credit of $(
Assessment
As of October 27, 2024, we reviewed our mattress fabrics and upholstery fabrics inventories to determine if any additional write-downs, in excess of the amount recorded based on our policy for aged inventory, were necessary. Based on our assessment, no additional write-downs of inventories to their net realizable value were recorded for the six months ended October 27, 2024, other than the markdowns of inventory associated with our restructuring activities described in Note 10 of the consolidated financial statements.
Based on the current unfavorable macroeconomic conditions, it is possible that estimates used by management to determine the write down of inventory to its net realizable value could be materially different from the actual amounts or our results. These differences could result in higher than expected inventory provisions, which could adversely affect the company’s results of operations and financial condition in the near term.
6. Intangible Assets
A summary of intangible assets follows:
|
(dollars in thousands) |
|
October 27,
|
|
|
October 29,
|
|
|
April 28,
|
|
|||
|
Tradename |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Customer relationships, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-compete agreement, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Tradename
Our tradename pertains to Read, a separate reporting unit within the upholstery fabrics segment. This tradename was determined to have an indefinite useful life at the time of its acquisition, and therefore is not being amortized. However, we are required to assess this tradename annually or between annual tests if we believe indicators of impairment exist. Based on our assessment as of October 27, 2024, no indicators of impairment existed, and therefore we did
Customer Relationships
A summary of the change in the carrying amount of our customer relationships follows:
|
|
|
Six months ended |
|
|||||
|
(dollars in thousands) |
|
October 27, 2024 |
|
|
October 29, 2023 |
|
||
|
Beginning balance |
|
$ |
|
|
|
$ |
|
|
|
Amortization expense |
|
|
(
|
) |
|
|
(
|
) |
|
Ending balance |
|
$ |
|
|
|
$ |
|
|
I- 11
Our customer relationships are amortized on a straight-line basis over useful lives ranging from
to
The gross carrying amount of our customer relationships was $
The remaining amortization expense for the next five fiscal years and thereafter are as follows: FY 2025
- $
The weighted average amortization period for our customer relationships was
Non-Compete Agreement
A summary of the change in the carrying amount of our non-compete agreement follows:
|
|
|
Six months ended |
|
|||||
|
(dollars in thousands) |
|
October 27, 2024 |
|
|
October 29, 2023 |
|
||
|
Beginning balance |
|
$ |
|
|
|
$ |
|
|
|
Amortization expense |
|
|
(
|
) |
|
|
(
|
) |
|
Ending balance |
|
$ |
|
|
|
$ |
|
|
Our non-compete agreement is associated with a prior acquisition by our mattress fabrics segment and is amortized on a straight-line basis over the
The gross carrying amount of our non-compete agreement was $
The remaining amortization expense for the next
five years and thereafter follows: FY 2025 - $
The weighted average amortization period for the non-compete agreement was
Impairment of Definite Lived Assets - Mattress Fabrics Segment
As of October 27, 2024, management reviewed the long-lived assets associated with our mattress fabrics segment, which consisted of property, plant, and equipment, right of use assets, and definite-lived intangible assets (collectively known as the "Mattress Asset Group"), for impairment, as events and changes in circumstances occurred that indicated the carrying amount of the Mattress Asset Group may not be recoverable. The mattress fabrics segment experienced a significant cumulative operating loss totaling $
Based on the above evidence, we were required to determine the recoverability of the Mattress Asset Group, which is classified as held and used, by comparing the carrying amount of the Mattress Asset Group to the sum of the future undiscounted cash flows expected to result from its use and eventual disposition. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized for the excess of the carrying amount over the fair value of the asset group. The carrying amount of the Mattress Asset Group totaled $
7. Note Receivables
I- 12
Culp Upholstery Fabrics Haiti, Ltd. ("CUF Haiti")
In connection with the restructuring activity of our upholstery fabrics cut and sew operation located in Ouanaminthe, Haiti, effective January 24, 2023, CUF Haiti entered into an agreement to terminate a lease of a facility (“Termination Agreement”). See Note 10 of the consolidated financial statements for further details regarding this restructuring activity.
Pursuant to the terms of the original lease agreement (the “Original Lease”), CUF Haiti was required to pay in advance $
As of the end of our third quarter of fiscal 2023, the carrying amount of the note receivable totaling $
Effective May 1, 2024, CUF Haiti formally assigned the $
The following table represents the remaining future principal payments as of October 27, 2024 :
|
(dollars in thousands) |
|
|
|
|
|
2025 |
|
$ |
|
|
|
2026 |
|
|
|
|
|
2027 |
|
|
|
|
|
2028 |
|
|
|
|
|
2029 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Undiscounted value of note receivable |
|
$ |
|
|
|
Less: unearned interest income |
|
|
(
|
) |
|
Present value of note receivable |
|
$ |
|
|
As of October 27, 2024, this note receivable totaled $
We classified amortization of unearned interest income totaling $
As of October 27, 2024, we believe there is no expected credit loss related to the collectability of this note receivable, as the Lessee has made all of the required principal payments stated in the Termination Agreement. We will continue to evaluate the facts and circumstances at the end of each reporting period to determine if an expected credit loss is deemed necessary .
Culp Home Fashions Haiti, Ltd. ("CHF Haiti")
I- 13
Effective August 2, 2024, CHF Haiti entered into an agreement to terminate a lease of a facility (“CHF Termination Agreement”). Pursuant to the terms of the CHF Termination Agreement, CHF Haiti is entitled to a payment of $
As of October 27, 2024, we believe there is no expected credit loss related to the collectability of this note receivable. We will continue to evaluate the facts and circumstances at the end of each reporting period to determine if an expected credit loss is deemed necessary .
8. Assets Held for Sale
A summary of assets held for sale follows:
|
(dollars in thousands) |
|
October 27,
|
|
|
October 29,
|
|
|
April 28,
|
|
|||
|
Mattress Fabrics Segment - U.S. |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
Mattress Fabrics Segment - Canada |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
The carrying values of these assets held for sale totaling $
During the second quarter of fiscal 2025, we determined that the carrying value of the assets classified as held for sale were less than or equal to their fair value. The fair value used in the determination was based on quoted market prices and from third party buyer sales offers which are either directly or indirectly observable, and therefore we believe are classified as Level 2 within the fair value hierarchy (see Note 12 for further explanation of the fair value hierarchy). Consequently, we did not have to record an impairment loss on these assets.
9. Accrued Expenses
A summary of accrued expenses follows:
|
(dollars in thousands) |
|
October 27,
|
|
|
October 29,
|
|
|
April 28,
|
|
|||
|
Compensation, commissions and related benefits |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Other accrued expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
10. Restructuring Activities
Mattress Fabrics Segment, Upholstery Fabrics Segment, and Unallocated Corporate
Fiscal 2025 Restructuring Plan
On April 29, 2024 (first quarter of fiscal 2025), our board of directors made a decision to (1) consolidate the company's North American mattress fabrics operations, including a gradual discontinuation of operations and sale of the company's manufacturing facility located in Quebec, Canada; (2) move a portion of the knitting and finishing capacity from the company's manufacturing facility located in Quebec, Canada to the company's manufacturing facility located in Stokesdale, NC; (3) transition the mattress fabrics segment's weaving operation to a strategic sourcing model through the company's long standing supply partners; (4) consolidate the company's two leased facilities related to the sewn mattress cover operation located in Ouanaminthe, Haiti, and reduce other operating expenses at this location; as well as (5) reduce unallocated corporate expenses and shared service expenses.
I- 14
We expect the gradual discontinuance of operations and the closure of the facility located in Quebec, Canada will be completed by the end of the third quarter of fiscal 2025. The consolidation activity associated with the sewn mattress cover operation located in Haiti was completed during the first quarter of fiscal 2025. During fiscal 2025, these actions are expected to result in restructuring and restructuring related charges of approximately $
The $
Based on changes in business and current industry economic conditions, it is possible that the above estimates provided by management to determine restructuring and restructuring related charges incurred during fiscal 2025, and proceeds generated from the sale of the manufacturing facility located in Quebec, Canada, could be materially different from our actual results, and therefore could adversely affect the success of this restructuring plan.
The following summarizes accrued restructuring costs for the six-month period ending October 27, 2024:
|
|
|
Employee |
|
|
Other |
|
|
|
|
|||
|
|
|
Termination |
|
|
Associated |
|
|
|
|
|||
|
(dollars in thousands) |
|
Benefits |
|
|
Costs |
|
|
Total |
|
|||
|
Beginning balance |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Expenses incurred |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in estimate adjustments |
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Payments |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Foreign currency exchange remeasurement |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Ending Balance |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The following summarizes restructuring and restructuring related charges for the three-month and six-month periods ending October 27, 2024:
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||
|
(dollars in thousands) |
|
October 27, 2024 |
|
|
October 27, 2024 |
|
||
|
Additional depreciation expense for shortened useful lives of equipment |
|
$ |
|
|
|
$ |
|
|
|
Employee termination benefits |
|
|
|
|
|
|
|
|
|
Other Associated Costs |
|
|
|
|
|
|
|
|
|
Loss on disposal and markdowns of inventory |
|
|
|
|
|
|
|
|
|
Lease termination costs |
|
|
|
|
|
|
|
|
|
Net gain on disposal of equipment |
|
|
(
|
) |
|
|
(
|
) |
|
Restructuring expense and restructuring related charges (1) (2) |
|
$ |
|
|
|
$ |
|
|
(1)
(2)
I- 15
Upholstery Fabrics Segment
Shanghai, China
Upholstery Fabrics Finishing Operation
During the fourth quarter of fiscal 2024, we closed our upholstery fabrics finishing operation to align with current demand trends and will continue to leverage our strategic supply relationships to meet customer finishing needs in China. This restructuring activity was completed during the first quarter of fiscal 2025 and resulted in cumulative restructuring and restructuring related charges totaling $
The following summarizes the activity in accrued restructuring costs for the six-month period ending October 27, 2024:
|
(dollars in thousands) |
Total |
|
|
|
Beginning balance (1) |
$ |
|
|
|
Expenses incurred (2) |
|
|
|
|
Payments |
|
(
|
) |
|
Ending balance |
$ |
— |
|
(1)
(2)
Ouanaminthe, Haiti
Cut and Sew Upholstery Fabrics Operation
During the third quarter of fiscal 2023, Culp Upholstery Fabrics Haiti, Ltd. ("CUF Haiti") entered into an agreement to terminate a lease associated with a facility, and in turn moved the production of upholstery cut and sewn kits to an existing facility leased by Culp Home Fashions Haiti, Ltd. ("CHF Haiti") during the fourth quarter of fiscal 2023. Both CUF Haiti and CHF Haiti are indirectly wholly-owned subsidiaries of the company. During the first quarter of fiscal 2024, demand for upholstery cut and sewn kits declined more than previously anticipated, resulting in the strategic action to discontinue the production of upholstery cut and sew kits in Haiti.
The following summarizes our restructuring expense and restructuring related charges (credits) for the three months and six months ending October 29, 2023:
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||
|
(dollars in thousands) |
|
October 29, 2023 |
|
|
October 29, 2023 |
|
||
|
Employee termination benefits |
|
$ |
|
|
|
$ |
|
|
|
Impairment loss - equipment |
|
|
|
|
|
|
|
|
|
(Gain) loss on disposal and markdowns of inventory |
|
|
(
|
) |
|
|
|
|
|
Restructuring expense and restructuring related (credits) charges (1) (2) |
|
$ |
|
|
|
$ |
|
|
(1)
(2)
This restructuring activity was completed during the third quarter of fiscal 2024 and resulted in cumulative restructuring and restructuring related charges of $
I- 16
11. Lines of Credit
Revolving Credit Agreement – United States
Culp, Inc., as borrower (the “borrower”), and Read, as guarantor (the “Guarantor”), are parties to an agreement (the "ABL Credit Agreement") by and among the borrower, the Guarantor and Wells Fargo Bank, National Association, as the lender (the “Lender”), to establish an asset-based revolving credit facility (the “ABL Facility”). The proceeds from the ABL Facility may be used to pay fees and expenses related to the ABL Facility and provide funding for ongoing working capital and general corporate purposes.
The ABL Facility may be used for revolving credit loans and letters of credit from time to time up to a maximum principal amount of $
In each case, the net-orderly-liquidation value is calculated based on the lower of (i) a first-in first-out basis and (ii) market value, and is (A) net of intercompany profits, (B) net of write-ups and write-downs in value with respect to foreign currency exchange rates and (C) consistent with most recent appraisals received and acceptable to Lender.
minus
The ABL Facility ma
tures on
I- 17
The borrower’s obligations under the ABL Facility (and certain related obligations) are guaranteed by the Guarantor. In addition, the ABL Credit Agreement requires that the borrower's future domestic subsidiaries guarantee the ABL Facility on a senior secured basis (such future domestic subsidiaries, together with the Guarantor and the borrower, the "Loan Parties"). The borrower's obligations under the ABL Facility are secured by first priority liens and other security interests on all assets of the Loan Parties, subject to certain exceptions and permitted liens.
Cash Dominion
. Under the terms of the ABL Facility, if (i) an event of default has occurred or (ii) excess borrowing availability under the ABL Facility (based on the lesser of $
Financial Covenants
. The ABL Facility contains a springing covenant requiring that the company’s fixed charge coverage ratio be no less than
Affirmative and Restrictive Covenants . The ABL Credit Agreement governing the ABL Facility contains customary representations and warranties, affirmative and negative covenants (subject, in each case, to exceptions and qualifications), and events of defaults, including covenants that limit the company’s ability to, among other things:
Overall
Interest is charged at a rate (applicable interest rate of
There were $
There were
As of October 27, 2024, ou
r available borrowings calculated under the provisions of the ABL Credit Agreement totaled $
Denominated in Chinese Yuan Renminbi (“RMB”)
Agricultural Bank of China - 29.0 Million RMB Unsecured Credit Agreement
Effective on March 20, 2024, we entered into an unsecured credit agreement denominated in RMB, that provides for a line of credit up to
I- 18
As of October 27, 2024, the amount outstanding was
Bank of China -
On November 5, 2024 (third quarter fiscal 2025), we entered into a credit agreement (“Agreement”) denominated in RMB that provides borrowing capacity up to
Overall
Our loan agreements require, among other things, that we maintain compliance with certain financial covenants. As of October 27, 2024, we were in compliance with our financial covenants.
12. Fair Value
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; and
Level 3 – Unobservable inputs developed using the company’s estimates and assumptions, which reflect those that market participants would use.
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.
I- 19
Recurring Basis
The following tables present information about assets measured at fair value on a recurring basis:
|
|
|
Fair value measurements as of October 27, 2024, using: |
|
|||||||||
|
|
|
Quoted prices |
|
|
Significant |
|
|
|
|
|
||
|
|
|
in active |
|
|
other |
|
Significant |
|
|
|
||
|
|
|
markets for |
|
|
observable |
|
unobservable |
|
|
|
||
|
|
|
identical assets |
|
|
inputs |
|
inputs |
|
|
|
||
|
(amounts in thousands) |
|
Level 1 |
|
|
Level 2 |
|
Level 3 |
|
Total |
|
||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
||
|
U.S. Government Money Market Fund |
|
$ |
|
|
|
N/A |
|
N/A |
|
$ |
|
|
|
Growth Allocation Mutual Funds |
|
|
|
|
|
N/A |
|
N/A |
|
|
|
|
|
S&P 500 Index Fund |
|
|
|
|
|
N/A |
|
N/A |
|
|
|
|
|
Moderate Allocation Mutual Fund |
|
|
|
|
|
N/A |
|
N/A |
|
|
|
|
|
Other |
|
|
|
|
|
N/A |
|
N/A |
|
|
|
|
|
|
|
Fair value measurements as of October 29, 2023, using: |
|
|||||||||
|
|
|
Quoted prices |
|
|
Significant |
|
|
|
|
|
||
|
|
|
in active |
|
|
other |
|
Significant |
|
|
|
||
|
|
|
markets for |
|
|
observable |
|
unobservable |
|
|
|
||
|
|
|
identical assets |
|
|
inputs |
|
inputs |
|
|
|
||
|
(amounts in thousands) |
|
Level 1 |
|
|
Level 2 |
|
Level 3 |
|
Total |
|
||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
||
|
U.S. Government Money Market Fund |
|
$ |
|
|
|
N/A |
|
N/A |
|
$ |
|
|
|
Growth Allocation Mutual Funds |
|
|
|
|
|
N/A |
|
N/A |
|
|
|
|
|
S&P 500 Index Fund |
|
|
|
|
|
N/A |
|
N/A |
|
|
|
|
|
Moderate Allocation Mutual Fund |
|
|
|
|
|
N/A |
|
N/A |
|
|
|
|
|
Other |
|
|
|
|
|
N/A |
|
N/A |
|
|
|
|
|
|
|
Fair value measurements as of April 28, 2024, using: |
|
|||||||||
|
|
|
Quoted prices |
|
|
Significant |
|
|
|
|
|
||
|
|
|
in active |
|
|
other |
|
Significant |
|
|
|
||
|
|
|
markets for |
|
|
observable |
|
unobservable |
|
|
|
||
|
|
|
identical assets |
|
|
inputs |
|
inputs |
|
|
|
||
|
(amounts in thousands) |
|
Level 1 |
|
|
Level 2 |
|
Level 3 |
|
Total |
|
||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
||
|
U.S. Government Money Market Fund |
|
$ |
|
|
|
N/A |
|
N/A |
|
$ |
|
|
|
Growth Allocation Mutual Funds |
|
|
|
|
|
N/A |
|
N/A |
|
|
|
|
|
S&P 500 Index Fund |
|
|
|
|
|
N/A |
|
N/A |
|
|
|
|
|
Moderate Allocation Mutual Fund |
|
|
|
|
|
N/A |
|
N/A |
|
|
|
|
|
Other |
|
|
|
|
|
N/A |
|
N/A |
|
|
|
|
Investments - Rabbi Trust
We have a rabbi trust (the “Trust”) for the participants of our deferred compensation plan (the “Plan”), that enables participants to direct their contributions to various investment options under the Plan. The investments associated with the Trust consist of a money market fund and various mutual funds that are classified as available-for-sale.
As of October 27, 2024, our investments associated with the Trust totaled $
The fair value of our long-term investments associated with the Trust approximates their cost basis.
Other
The carrying amount of our cash and cash equivalents, accounts receivable, other current assets, accounts payable, and accrued expenses approximated their fair value because of the short maturity of these financial instruments.
I- 20
13. Net Loss Per Share
Basic net loss per share is computed using the weighted-average number of shares outstanding during the period. Diluted net 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 per share were
Shares of unvested common stock that were not included in the computation of diluted net loss per share consist of the following:
|
|
|
Three Months Ended |
|
|||||
|
(in thousands) |
|
October 27, 2024 |
|
|
October 29, 2023 |
|
||
|
Antidilutive effect from decrease in the price per share of our common stock |
|
- |
|
|
|
|
||
|
Antidilutive effect from net loss incurred during the fiscal quarter |
|
|
|
|
|
|
||
|
Total unvested shares of common stock not included in |
|
|
|
|
|
|
||
|
computation of diluted net loss per share |
|
|
|
|
|
|
|
|
Weighted average shares used in the computation of basic and diluted net loss per share were
Shares of unvested common stock that were not included in the computation of diluted net loss per share consist of the following :
|
|
|
Six months ended |
|
|||||
|
(in thousands) |
|
October 27, 2024 |
|
|
October 29, 2023 |
|
||
|
antidilutive effect from decrease in the price per share of our common stock |
|
|
|
|
|
|
||
|
antidilutive effect from net loss incurred during the fiscal year |
|
|
|
|
|
|
||
|
total unvested shares of common stock not included in |
|
|
|
|
|
|
||
|
computation of diluted net loss per share |
|
|
|
|
|
|
|
|
14. Segment Information
Overall
Our operations are classified into
Mattress Fabrics
The mattress fabrics segment manufactures, sources, and sells fabrics and mattress covers primarily to bedding manufacturers.
Upholstery Fabrics
The upholstery fabrics segment develops, manufactures, sources, and sells fabrics to customers in the residential, commercial, and hospitality industries. In addition, this segment includes Read, which provides window treatments and sourcing of upholstery fabrics and other products, as well as measuring and installation services for Read’s products, to customers in the hospitality and commercial industries. Read also supplies soft goods such as decorative top sheets, coverlets, duvet covers, bed skirts, bolsters, and pillows.
Financial Information
We evaluate the operating performance of our business segments based upon (loss) income from operations before certain unallocated corporate expenses and other items that are not expected to occur on a regular basis. Cost of sales for each segment includes costs to develop, manufacture, 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
I- 21
compensation
and benefits for certain executives and their support staff, all costs associated with being a public company, amortization of intangible assets, and other miscellaneous expenses. Segment assets include assets used in the operations of each segment and consist of accounts receivable, inventories, property, plant, and equipment, and right of use assets. The mattress fabrics segment also includes assets held for sale associated with a right of use asset and equipment related to the fiscal 2025 restructuring plan announced on April 29, 2024 (see Note 10 to the consolidated financial statements for further details regarding this restructuring plan).
Statements of operations for our operating segments are as follows:
|
|
|
Three months ended |
|
|||||
|
|
|
October 27, 2024 |
|
|
October 29, 2023 |
|
||
|
Net sales by segment: |
|
|
|
|
|
|
||
|
Mattress fabrics |
|
$ |
|
|
|
$ |
|
|
|
Upholstery fabrics |
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
|
|
|
$ |
|
|
|
Gross profit: |
|
|
|
|
|
|
||
|
Mattress fabrics |
|
$ |
|
|
|
$ |
|
|
|
Upholstery fabrics |
|
|
|
|
|
|
|
|
|
Segment gross profit |
|
|
|
|
|
|
|
|
|
Restructuring related (charge) credit (1)(2) |
|
|
(
|
) |
|
|
|
|
|
Gross profit |
|
$ |
|
|
|
$ |
|
|
|
Selling, general, and administrative expenses by segment: |
|
|
|
|
|
|
||
|
Mattress fabrics |
|
$ |
|
|
|
$ |
|
|
|
Upholstery fabrics |
|
|
|
|
|
|
|
|
|
Unallocated corporate expenses |
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses |
|
$ |
|
|
|
$ |
|
|
|
(Loss) income from operations by segment: |
|
|
|
|
|
|
||
|
Mattress fabrics |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
Upholstery fabrics |
|
|
|
|
|
|
|
|
|
Unallocated corporate expenses |
|
|
(
|
) |
|
|
(
|
) |
|
Total segment loss from operations |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
Restructuring related (charge) credit (1) (2) |
|
|
(
|
) |
|
|
|
|
|
Restructuring expense (3)(4) |
|
|
(
|
) |
|
|
(
|
) |
|
Loss from operations |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
Interest expense |
|
|
(
|
) |
|
|
— |
|
|
Interest income |
|
|
|
|
|
|
|
|
|
Other (expense) income |
|
|
(
|
) |
|
|
|
|
|
Loss before income taxes |
|
$ |
(
|
) |
|
$ |
(
|
) |
(1)
(2)
(3)
I- 22
certain
equipment from our upholstery fabrics operation located in Knoxville, Tennessee to our upholstery fabrics distribution center located in Burlington, N.C.; and (iv) $
(4)
|
|
|
Six months ended |
|
|||||
|
|
|
October 27, 2024 |
|
|
October 29, 2023 |
|
||
|
Net sales by segment: |
|
|
|
|
|
|
||
|
Mattress fabrics |
|
$ |
|
|
|
$ |
|
|
|
Upholstery fabrics |
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
|
|
|
$ |
|
|
|
Gross profit: |
|
|
|
|
|
|
||
|
Mattress fabrics |
|
$ |
|
|
|
$ |
|
|
|
Upholstery fabrics |
|
|
|
|
|
|
|
|
|
Total segment gross profit |
|
$ |
|
|
|
$ |
|
|
|
Restructuring related charge (1) (2) |
|
|
(
|
) |
|
|
(
|
) |
|
Gross profit |
|
$ |
|
|
|
$ |
|
|
|
Selling, general, and administrative expenses by segment: |
|
|
|
|
|
|
||
|
Mattress fabrics |
|
$ |
|
|
|
$ |
|
|
|
Upholstery fabrics |
|
|
|
|
|
|
|
|
|
Unallocated corporate expenses |
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses |
|
$ |
|
|
|
$ |
|
|
|
(Loss) income from operations by segment: |
|
|
|
|
|
|
||
|
Mattress fabrics |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
Upholstery fabrics |
|
|
|
|
|
|
|
|
|
Unallocated corporate expenses |
|
|
(
|
) |
|
|
(
|
) |
|
Total segment loss from operations |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
Restructuring related charge (1) (2) |
|
|
(
|
) |
|
|
(
|
) |
|
Restructuring expense (3) (4) |
|
|
(
|
) |
|
|
(
|
) |
|
Loss from operations |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
Interest expense |
|
|
(
|
) |
|
|
— |
|
|
Interest income |
|
|
|
|
|
|
|
|
|
Other (expense) income |
|
|
(
|
) |
|
|
|
|
|
Loss before income taxes |
|
$ |
(
|
) |
|
$ |
(
|
) |
(1)
(2)
(3)
I- 23
of
$
(4)
Balance sheet information for our operating segments follows :
|
(dollars in thousands) |
|
October 27, 2024 |
|
|
October 29, 2023 |
|
|
April 28, 2024 |
|
|||
|
Segment assets: |
|
|
|
|
|
|
|
|
|
|||
|
Mattress Fabrics: |
|
|
|
|
|
|
|
|
|
|||
|
Accounts receivable |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Inventory |
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Right of use assets (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale (3) |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
Total mattress fabrics assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Upholstery Fabrics: |
|
|
|
|
|
|
|
|
|
|||
|
Accounts receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory |
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Right of use assets (5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total upholstery fabrics assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-segment assets: |
|
|
|
|
|
|
|
|
|
|||
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments - rabbi trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term note receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current income taxes receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term note receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment (6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Right of use assets (7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments - rabbi trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
I- 24
Information about capital expenditures and depreciation expense for our operating segments follows:
|
|
|
Six months ended |
|
|||||
|
(dollars in thousands) |
|
October 27, 2024 |
|
|
October 29, 2023 |
|
||
|
Capital expenditures (1): |
|
|
|
|
|
|
||
|
Mattress Fabrics |
|
$ |
|
|
|
$ |
|
|
|
Upholstery Fabrics |
|
|
|
|
|
|
|
|
|
Unallocated Corporate |
|
|
|
|
|
|
|
|
|
Total capital expenditures |
|
$ |
|
|
|
$ |
|
|
|
Depreciation expense: |
|
|
|
|
|
|
||
|
Mattress Fabrics (2) |
|
$ |
|
|
|
$ |
|
|
|
Upholstery Fabrics |
|
|
|
|
|
|
|
|
|
Total depreciation expense |
|
$ |
|
|
|
$ |
|
|
I- 25
15. Income Taxes
Effective Income Tax Rate
We recorded income tax expense of $
Our effective income tax rates for the six-month periods ended October 27, 2024, and October 29, 2023, were based upon the estimated effective income tax rate applicable for the full year after giving effect to any significant items related specifically to interim periods. When calculating the annual estimated effective income tax rates for the six-month periods ended October 27, 2024, and October 29, 2023, we were subject to loss limitation rules. These loss limitation rules require any taxable loss associated with our U.S. or foreign operations to be excluded from the annual estimated effective income tax rate calculation if it was determined that no income tax benefit could be recognized during the current fiscal year. The effective income tax rate can be affected over the fiscal year by the mix and timing of actual earnings from our U.S. operations and foreign subsidiaries located in China, Canada, Haiti, and Vietnam versus annual projections, as well as changes in foreign currency exchange rates in relation to the U.S. dollar.
The following schedule summarizes the principal differences between income tax expense at the U.S. federal income tax rate and the effective income tax rate reflected in the consolidated financial statements for the six-month periods ending October 27, 2024, and October 29, 2023:
|
|
|
October 27, |
|
|
October 29, |
|
||
|
|
|
2024 |
|
|
2023 |
|
||
|
U.S. federal income tax rate |
|
|
|
% |
|
|
|
% |
|
U.S. valuation allowance |
|
|
(
|
) |
|
|
(
|
) |
|
Tax effects of local currency foreign exchange (losses) gains |
|
|
(
|
) |
|
|
|
|
|
Uncertain income tax positions |
|
|
|
|
|
|
(
|
) |
|
Withholding taxes associated with foreign jurisdictions |
|
|
(
|
) |
|
|
(
|
) |
|
Foreign income tax rate differential |
|
|
— |
|
|
|
(
|
) |
|
Stock-based compensation |
|
|
(
|
) |
|
|
(
|
) |
|
Other |
|
|
(
|
) |
|
|
(
|
) |
|
|
|
(
|
|
|
(
|
|
||
Our consolidated effective income tax rates for the first half of fiscal 2025 and the first half of fiscal 2024 were both adversely affected by the mix of earnings between our U.S. operations and foreign subsidiaries, as our taxable income stems mostly from our operations located in China, which has a higher income tax rate than the U.S. In addition, during the first half of fiscal 2025 and the first half of 2024, we incurred pre-tax losses associated with our U.S. operations, for which an income tax benefit was not recorded due to a full valuation allowance applied against our U.S. net deferred income tax assets. The income tax charge associated with the full valuation allowance applied against our U.S. net deferred income tax assets was higher during the first half of fiscal 2025 compared with the first half of fiscal 2024, as our $(
During the first half of fiscal 2025, we incurred a greater consolidated pre-tax loss totaling $(
U.S. Valuation Allowance
We evaluate the realizability of our U.S. net deferred income tax assets to determine if a valuation allowance is required. We assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more-likely-than-not” standard, with significant weight being given to evidence that can be objectively verified. Since the company operates in multiple jurisdictions, we assess the need for a valuation allowance on a jurisdiction-by-jurisdiction basis, considering the effects of local tax law.
I- 26
As of October 27, 2024, we evaluated the realizability of our U.S. net deferred income tax assets to determine if a full valuation allowance was required. Based on our assessment, we determined we still have a recent history of significant cumulative U.S. pre-tax losses, in that we experienced U.S. pre-tax losses during each of the last three fiscal years from 2022 through 2024, and we are currently expecting significant U.S. pre-tax losses to continue during fiscal 2025. As a result of the significant weight of this negative evidence, we believe it is more likely than not that our U.S. net deferred income tax assets will not be fully realizable, and therefore we provided for a full valuation allowance against our U.S. net deferred income tax assets.
Based on our assessments as of October 27, 2024, October 29, 2023, and April 28, 2024, valuation allowances against our net deferred income tax assets pertain to the following:
|
(dollars in thousands) |
|
October 27, 2024 |
|
|
October 29, 2023 |
|
|
April 28, 2024 |
|
|||
|
U.S. federal and state net deferred income tax assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
U.S. capital loss carryforward |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Undistributed Earnings
We assess whether the undistributed earnings from our foreign subsidiaries will be reinvested indefinitely or eventually distributed to our U.S. parent company and whether we are required to record a deferred income tax liability for those undistributed earnings from foreign subsidiaries that will not be reinvested indefinitely. As of October 27, 2024, we assessed the liquidity requirements of our U.S. parent company and determined that our undistributed earnings and profits from our foreign subsidiaries would not be reinvested indefinitely and would eventually be distributed to our U.S. parent company. The conclusion reached from this assessment was consistent with prior reporting periods.
As a result of the 2017 Tax Cuts and Jobs Act, a U.S. corporation is allowed a
Uncertain Income Tax Positions
An unrecognized income tax benefit for an uncertain income tax position can be recognized in the first interim period if the more-likely-than-not recognition threshold is met by the end of the reporting period, or is effectively settled through examination, negotiation, or litigation, or the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired. If it is determined that any of the above conditions occur regarding our uncertain income tax positions, an adjustment to our unrecognized income tax benefit will be recorded at that time.
As of October 27, 2024, October 29
, 2023, and April 28, 2024 we had a $
Our gross unrecognized income tax benefit of $
I- 27
Income Taxes Paid
The following table sets forth taxes paid by jurisdiction:
|
|
|
Six Months |
|
|
Six Months |
|
||
|
|
|
Ended |
|
|
Ended |
|
||
|
|
|
October 27, |
|
|
October 29, |
|
||
|
(dollars in thousands) |
|
2024 |
|
|
2023 |
|
||
|
United States Transition Tax Payment |
|
|
|
|
|
|
|
|
|
China Income Taxes, Net of Refunds |
|
|
|
|
|
|
|
|
|
Canada - Income Taxes, Net of Refunds |
|
|
— |
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
16. Stock-Based Compensation
Equity Incentive Plan Description
On September 16, 2015, our shareholders approved an equity incentive plan titled the Culp, Inc. 2015 Equity Incentive Plan (the “2015 Plan”). 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-based units, and other equity and cash related awards as determined by the Compensation Committee of our board of directors. An aggregate of
As of October 27, 2024, there were
Performance-Based Restricted Stock Units
We grant performance-based restricted stock units to 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 award agreements. The number of shares of common stock that are earned based on performance targets that have been achieved may be adjusted based on a market-based total shareholder return component as defined in the related restricted stock unit award agreements.
Our performance-based restricted stock units granted to senior executives were measured based on their fair market value on the date of grant. The fair market value per share was 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 total shareholder return component using the Monte Carlo simulation model on our outstanding performance-based restricted stock units granted to senior executives on August 8, 2024, January 8, 2024, September 28, 2023, and August 10, 2022:
|
|
|
August 8, |
|
|
January 8, |
|
|
September 28, |
|
|
August 10, |
|
|
||||
|
|
|
|
2024 |
|
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
|||
|
Closing price of our common stock |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
Expected volatility of our common stock |
|
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
Expected volatility of peer companies |
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
|
Risk-free interest rate |
|
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
Dividend yield |
|
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
Correlation coefficient of peer companies |
|
(
|
|
|
|
|
|
|
|
|
|
|
|
||||
I- 28
The following table summarizes information related to our grants of performance-based restricted stock units associated with senior executives that were unvested as of October 27, 2024:
|
|
|
(2) |
|
|
(3) |
|
|
|
|
|
|
|
|||
|
|
|
Performance-Based |
|
|
Restricted Stock |
|
|
|
|
|
|
|
|||
|
|
|
Restricted Stock |
|
|
Units Expected |
|
|
|
|
|
|
|
|||
|
Date of Grant |
|
Units Awarded |
|
|
to Vest |
|
|
Price Per Share |
|
|
|
Vesting Period |
|||
|
August 8, 2024 (1) |
|
|
|
|
|
|
|
|
|
$ |
|
|
(4) |
|
|
|
January 8, 2024 (1) |
|
|
|
|
|
|
|
|
|
$ |
|
|
(5) |
|
|
|
September 28, 2023 (1) |
|
|
|
|
|
|
— |
|
|
$ |
|
|
(6) |
|
|
|
August 10, 2022 (1) |
|
|
|
|
|
|
— |
|
|
$ |
|
|
(7) |
|
|
There were
We recor
ded compensation expense of $
As of October 27, 2024, the remaining unrecognized compensation expense related to our performance-based restricted stock units was $
I- 29
Time-Based Restricted Stock Units
The following table summarizes information related to our grants of time-based restricted stock unit awards associated with senior executives, key employees, and outside directors that were unvested as of October 27, 2024:
|
|
|
Time-Based |
|
|
|
|
|
|
|
||
|
|
|
Restricted Stock |
|
|
(1) |
|
|
|
|
||
|
Date of Grant |
|
Units Awarded |
|
|
Price Per Share |
|
Vesting Period |
||||
|
September 26, 2024 (2) |
|
|
|
|
|
$ |
|
|
|
|
|
|
August 8, 2024 (3) |
|
|
|
|
|
$ |
|
|
|
|
|
|
January 8, 2024 (3) |
|
|
|
|
|
$ |
|
|
|
|
|
|
September 28, 2023 (3) |
|
|
|
|
|
$ |
|
|
|
|
|
|
September 6, 2022 (3) |
|
|
|
|
|
$ |
|
|
|
|
|
|
August 10, 2022 (3) |
|
|
|
|
|
$ |
|
|
|
|
|
During the six-month period ending October 27, 2024, time-based restricted stock units totaling
We recor
ded compensation expense of $
As of October 27, 2024, the remaining unrecognized compensation expense related to our time-based restricted stock units was $
Immediately Vested Common Stock Awards
We granted a total of
We recorded $
17. Leases
Overview
We lease manufacturing facilities, showroom and office space, distribution centers, and equipment under operating lease arrangements. Our operating leases have remaining lease terms of
to
Balance Sheet
The right of use assets and lease liabilities associated with our operating leases as of October 27, 2024, October 29, 2023, and April 28, 2024, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|||
|
(dollars in thousands) |
|
October 27,
|
|
|
October 29,
|
|
|
April 28,
|
|
|||
|
Right of use assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Operating lease liability - current |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease liability – noncurrent |
|
|
|
|
|
|
|
|
|
|
|
|
I- 30
Supplemental Cash Flow Information
|
|
|
Six Months
|
|
|
Six Months
|
|
||
|
(dollars in thousands) |
|
October 27, 2024 |
|
|
October 29, 2023 |
|
||
|
Operating lease liability payments |
|
$ |
|
|
|
$ |
|
|
|
Right of use assets exchanged for lease liabilities |
|
|
— |
|
|
|
|
|
Operating lease expense for the three-month periods ended October 27, 2024, and October 29, 2023, was $
Other Information
Maturity of our operating lease liabilities for the remainder of fiscal 2025, the subsequent next four fiscal years, and thereafter follows:
|
(dollars in thousands) |
|
|
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
2027 |
|
|
|
|
|
2028 |
|
|
|
|
|
2029 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
$ |
|
|
|
Less: interest |
|
|
(
|
) |
|
Present value of lease liabilities |
|
$ |
|
|
As of October 27, 2024, the weighted average remaining lease term and discount rate for our operating leases follows:
|
|
|
October 27, 2024 |
|
|
|
Weighted average lease term (in years) |
|
|
|
|
|
Weighted average discount rate |
|
|
|
% |
Subsequent Lease Activity
The lease for our corporate offices and shared service departments located in High Point, North Carolina expires on
18. 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 consolidated financial position, consolidated results of operations, or consolidated cash flows of the company.
Accounts Payable – Capital Expenditures
As of October 27, 2024, October 29, 2023, and April 28, 2024, we had amounts due regarding capital expenditures totaling
$
Purchase Commitments – Capital Expenditures
As of October 27, 2024, we had open purchase commitments to acquire equipment for our mattress fabrics segment totaling $
I- 31
19. Statutory Reserves
Our subsidiary located in China was required to transfer
The transfer to this reserve must be made before distributions of any dividend to shareholders. As of October 27, 2024, the company’s statutory surplus reserve was $
The company’s subsidiary located in China can transfer funds to the parent company, except for the statutory surplus reserve of $
20. Common Stock Repurchase Program
In March 2020, our board of directors approved an authorization for us to acquire up to $
We did
As of October 27
, 2024, $
I- 32
CAUTIONARY STATEMENT CONCERNI NG FORWARD-LOOKING INFORMATION
This report contains “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. 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,” “will,” “may,” “should,” “could,” “potential,” “continue,” “target,” “predict”, “seek,” “anticipate,” “estimate,” “intend,” “plan,” “project,” and their derivatives, and include but are not limited to statements about expectations, projections, or trends for our future operations, strategic initiatives and plans, restructuring actions, production levels, new product launches, sales, profit margins, profitability, operating (loss) income, capital expenditures, working capital levels, cost savings (including, without limitation, anticipated cost savings from restructuring actions), income taxes, SG&A or other expenses, pre-tax (loss) income, earnings, cash flow, and other performance or liquidity measures, as well as any statements regarding dividends, share repurchases, liquidity, use of cash and cash requirements, ending cash balances and cash positions, borrowing capacity, investments, potential acquisitions, cash and non-cash restructuring and restructuring-related charges, expenses, and/or credits, net proceeds from restructuring-related asset dispositions, future economic or industry trends, public health epidemics, or future developments. There can be no assurance that we will realize these expectations or meet our 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, including changes in U.S. trade enforcement priorities, 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 strengthening of currencies in Canada and China can have a negative impact on our sales of products produced in those places. In addition, because our foreign operations use the U.S. dollar as their functional currency, changes in the exchange rate between the local currency of those operations and the U.S dollar can affect our reported profits from those foreign operations. Also, economic or 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, customers, suppliers, and the global economy, such as the recent coronavirus pandemic, could also adversely affect our operations and financial performance. In addition, the impact of potential asset impairments, including impairments of property, plant, and equipment, inventory, or intangible assets, as well as the impact of valuation allowances applied against our net deferred income tax assets, could affect our financial results. Increases in freight costs, labor costs, and raw material prices, including increases in market prices for petrochemical products, can also significantly affect the prices we pay for shipping, labor, and raw materials, respectively, and in turn, increase our operating costs and decrease our profitability. Also, our success in diversifying our supply chain with reliable partners to effectively service our global platform could affect our operations and adversely affect our financial results. Finally, the future performance of our business also depends on our ability to successfully restructure our mattress fabric operations and return the segment to 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, is included in Item 1A “Risk Factors” in our most recent Form 10-K and Form 10-Q reports filed with the Securities and Exchange Commission.
Many of these factors are macroeconomic in nature and are, therefore, beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from those described in this report as anticipated, believed, estimated, expected, intended, planned or projected. The forward-looking statements included in this report are made only as of the date of of this report. Unless required by United States federal securities laws, we neither intend nor assume any obligation to update these forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations. A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. Additional risks and uncertainties that we do not presently know about or that we currently consider to be immaterial may also affect our business operations or financial results.
I- 33
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis of financial condition and results of operations should be read in conjunction with the consolidated 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 six months ended October 27, 2024, and October 29, 2023, both represent 26-week periods.
Our operations are classified into two business segments: mattress fabrics and upholstery fabrics.
Mattress Fabrics
The mattress fabrics segment manufactures, sources, and sells fabrics and mattress covers primarily to bedding manufacturers. Currently, we have mattress fabric manufacturing operations located in Stokesdale, North Carolina, and Quebec, Canada. We also have a mattress cover operation located in Ouanaminthe, Haiti.
On April 29, 2024 (the first quarter of fiscal 2025), our board of directors made a decision to (1) consolidate the company's North American mattress fabrics operations, including a gradual discontinuation of operations and sale of the company's manufacturing facility located in Quebec, Canada; (2) move a portion of the knitting and finishing capacity from the company's manufacturing facility located in Quebec, Canada to the company's manufacturing facility located in Stokesdale, North Carolina; (3) transition the mattress fabrics segment's weaving operation to a strategic sourcing model through the company's long standing supply partners; and (4) consolidate the company's sewn mattress cover operation located in Ouanaminthe, Haiti, from two leased facilities into one building and reduce other operating expenses at this location. See Note 10 of the consolidated financial statements for further details regarding our restructuring activities.
Upholstery Fabrics
The upholstery fabrics segment develops, sources, manufactures, and sells fabrics primarily to residential, commercial, and hospitality furniture manufacturers. We have upholstery fabric operations located in Shanghai, China, and Burlington, North Carolina. During the fourth quarter of fiscal 2024, we established a wholly owned subsidiary, Culp Fabrics Vietnam Limited, with an administrative office located in Ho Chi Minh City, Vietnam, for the purpose of enhancing our strategic sourcing opportunities and to further diversify our supply chain in Asia.
Additionally, Read Window Products, LLC (“Read”), a wholly owned subsidiary with operations located in Knoxville, Tennessee, and Burlington, North Carolina (established during the first quarter of fiscal 2025 within an existing upholstery fabrics facility) provides window treatments and sourcing of upholstery fabrics and other products, as well as measuring and installation services for Read’s products, to customers in the hospitality and commercial industries. Read also supplies soft goods such as decorative top sheets, coverlets, duvet covers, bed skirts, bolsters, and pillows.
Executive Summary
We evaluate the operating performance of our business segments based upon (loss) income from operations before certain unallocated corporate expenses and other items that are not expected to occur on a regular basis. Cost of sales for each business segment includes costs to develop, manufacture, or source our products, including costs such as raw material and finished good purchases, direct and indirect labor, overhead, and incoming freight charges. Unallocated corporate expenses primarily represent compensation and benefits for certain executive officers and their support staff, all costs associated with being a public company, amortization of intangible assets, and other miscellaneous expenses.
I- 34
Results of Operations
|
|
|
Three Months Ended |
|
|
||||
|
(dollars in thousands) |
|
October 27,
|
|
October 29,
|
|
Change |
||
|
Net sales |
|
$ |
55,674 |
|
$ |
58,725 |
|
(5.2)% |
|
Gross profit |
|
|
5,990 |
|
|
7,950 |
|
(24.7)% |
|
Gross margin |
|
|
10.8 |
% |
|
13.5 |
% |
(270)bp |
|
Selling, general, and administrative expenses |
|
|
9,359 |
|
|
10,045 |
|
(6.8)% |
|
Restructuring expense |
|
|
2,031 |
|
|
144 |
|
N.M. |
|
Loss from operations |
|
|
(5,400 |
) |
|
(2,239 |
) |
141.2% |
|
Operating margin |
|
|
(9.7 |
)% |
|
(3.8 |
)% |
(590)bp |
|
Loss before income taxes |
|
|
(5,694 |
) |
|
(1,908 |
) |
198.4% |
|
Income tax benefit (expense) |
|
|
50 |
|
|
(516 |
) |
(109.7)% |
|
Net loss |
|
|
(5,644 |
) |
|
(2,424 |
) |
132.8% |
|
|
|
Six Months Ended |
|
|
||||
|
(dollars in thousands) |
|
October 27,
|
|
October 29,
|
|
Change |
||
|
Net sales |
|
$ |
112,211 |
|
$ |
115,387 |
|
(2.8)% |
|
Gross profit |
|
|
11,066 |
|
|
15,035 |
|
(26.4)% |
|
Gross margin |
|
|
9.9 |
% |
|
13.0 |
% |
(310)bp |
|
Selling, general, and administrative expenses |
|
|
18,655 |
|
|
19,874 |
|
(6.1)% |
|
Restructuring expense |
|
|
4,662 |
|
|
482 |
|
N.M. |
|
Loss from operations |
|
|
(12,251 |
) |
|
(5,321 |
) |
130.2% |
|
Operating margin |
|
|
(10.9 |
)% |
|
(4.6 |
)% |
(630)bp |
|
Loss before income taxes |
|
|
(12,715 |
) |
|
(4,549 |
) |
179.5% |
|
Income tax expense |
|
|
(190 |
) |
|
(1,217 |
) |
(84.4)% |
|
Net loss |
|
|
(12,905 |
) |
|
(5,766 |
) |
123.8% |
Net Sales
Overall, our consolidated net sales for the second quarter of fiscal 2025 decreased by 5.2% compared with the same period a year ago, with mattress fabrics sales decreasing 4.2% and upholstery fabrics sales decreasing 6.4%. Our consolidated net sales for the first half of fiscal 2025 decreased by 2.8% compared with the same period a year ago, with mattress fabrics sale decreasing 4.0% and upholstery fabrics sales decreasing 1.3%.
The decrease in net sales for our mattress fabrics segment for both the second quarter and the first half of fiscal 2025, as compared to the prior-year periods, reflects reduced demand as a result of weakness in the domestic mattress industry. The decrease in net sales for our upholstery fabrics segment for both the second quarter and the first half of fiscal 2025, as compared to the prior-year periods, reflects reduced demand for our residential upholstery fabric products due to weakness in the residential home furnishings industry.
See the Segment Analysis section below for further details.
Loss Before Income Taxes
Overall, our loss before income taxes for the second quarter of fiscal 2025 was $(5.7) million, compared with loss before income taxes of $(1.9) million for the prior-year period, while our loss before income taxes for the first six months of fiscal 2025 was $(12.7) million, compared with loss before income taxes of $(4.5) million for the prior-year period.
Operating performance for both the second quarter and the first half of fiscal 2025, as compared to the prior-year periods, was negatively affected by lower sales and by manufacturing inefficiencies primarily related to the significant restructuring activity underway in the mattress fabrics segment, along with restructuring and restructuring related charges during both periods ($2.8 million during the second quarter of fiscal 2025, as compared to $66,000 during the second quarter of fiscal 2024, and $5.5 million during the first half of fiscal 2025, as compared to $583,000 during the first half of fiscal 2024).
See the Segment Analysis section below for further details.
I- 35
Income Taxes
We recorded income tax expense of $190,000, or (1.5%) of loss before income taxes, for the six-month period ended October 27, 2024, compared with income tax expense of $1.2 million, or (26.8%) of loss before income taxes, for the six-month period ended October 29, 2023.
Our consolidated effective income tax rates for the first half of fiscal 2025 and the first half of fiscal 2024 were both adversely affected by the mix of earnings between our U.S. operations and foreign subsidiaries, as our taxable income stems mostly from our operations located in China, which has a higher income tax rate than the U.S. In addition, during the first half of fiscal 2025 and the first half of fiscal 2024, we incurred pre-tax losses associated with our U.S. operations, for which an income tax benefit was not recorded due to a full valuation allowance applied against our U.S. net deferred income tax assets. The income tax charge associated with the full valuation allowance applied against our U.S. net deferred income tax assets was higher during the first half of fiscal 2025 compared with the first half of fiscal 2024, as our $(12.4) million U.S. pre-tax loss incurred during the first half of fiscal 2025 was significantly greater than the $(5.8) million U.S. pre-tax loss incurred during the first half of fiscal 2024.
During the first half of fiscal 2025, we incurred a greater consolidated pre-tax loss totaling $(12.7) million, compared with $(4.5) million during the first half of fiscal 2024. As a result, the principal 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 were more pronounced during the first half of fiscal 2024, as compared with the first half of fiscal 2025.
Refer to Note 15 of the consolidated financial statements for further details regarding our provision for income taxes.
Liquidity
As of October 27, 2024, our cash and cash equivalents (collectively, “cash”) totaled $10.5 million, which represents a slight increase compared with cash of $10.0 million as of April 28, 2024. This increase was mostly due to $4.0 million in cash proceeds from borrowings on a line of credit associated with our operations located in China and 527,000 in cash proceeds from the sale of equipment associated with our restructuring activities, mostly offset by $1.6 million in capital expenditures and $2.6 million of net cash used in operating activities.
Our net cash used in operating activities was $2.6 million during the first half of fiscal 2025, a decrease of $1.9 million compared with net cash used in operating activities of $4.5 million during the first half of fiscal 2024. This trend mostly reflects (i) an increase in accounts payable due to an increase in inventory purchases with significant vendors who extended their terms during the first half of fiscal 2025 compared with fiscal 2024, partially offset by (ii) an increase in inventory purchases to maintain an appropriate level of inventory during the company's restructuring activities, as described below in the section titled “—Segment Analysis—Mattress Fabrics Segment—Restructuring Activities,” and (iii) an increase in accounts receivable primarily due to an increase in net sales during the second quarter of fiscal 2025, as compared with the fourth quarter of fiscal 2024.
As of October 27, 2024, we had outstanding borrowings totaling $4.1 million under a line of credit agreement associated with our operations located in China.
Segment Analysis
Mattress Fabrics Segment
|
|
|
Three Months Ended |
|
|
||||
|
(dollars in thousands) |
|
October 27,
|
|
October 29,
|
|
Change |
||
|
Net sales |
|
$ |
30,074 |
|
$ |
31,377 |
|
(4.2)% |
|
Gross profit |
|
|
2,444 |
|
|
2,483 |
|
(1.6)% |
|
Gross profit margin |
|
|
8.1 |
% |
|
7.9 |
% |
20bp |
|
Selling, general, and administrative expenses |
|
|
3,481 |
|
|
3,419 |
|
1.8% |
|
Restructuring expense |
|
|
2,002 |
|
|
— |
|
100.0% |
|
Loss from operations |
|
|
(1,037 |
) |
|
(936 |
) |
10.8% |
|
Operating margin |
|
|
(3.4 |
)% |
|
(3.0 |
)% |
(40)bp |
|
|
|
|
|
|
|
|
||
I- 36
|
|
|
Six Months Ended |
|
|
||||
|
(dollars in thousands) |
|
October 27,
|
|
October 29,
|
|
Change |
||
|
Net sales |
|
$ |
58,150 |
|
$ |
60,599 |
|
(4.0)% |
|
Gross profit |
|
|
2,118 |
|
|
4,477 |
|
(52.7)% |
|
Gross profit margin |
|
|
3.6 |
% |
|
7.4 |
% |
(380)bp |
|
Selling, general, and administrative expenses |
|
|
6,704 |
|
|
6,811 |
|
(1.6)% |
|
Restructuring expense |
|
|
4,501 |
|
|
— |
|
100.0% |
|
Loss from operations |
|
|
(4,586 |
) |
|
(2,334 |
) |
96.5% |
|
Operating margin |
|
|
(7.9 |
)% |
|
(3.9 |
)% |
(400)bp |
Net Sales
Mattress fabrics sales decreased 4.2% in the second quarter of fiscal 2025 compared to the prior-year period. Mattress fabrics sales decreased 4.0% in the first half of fiscal 2025 compared to the first half of fiscal 2024.
This decrease in net sales for our mattress fabrics segment for both the second quarter and the first half of fiscal 2025 reflects reduced demand due to weakness in the domestic mattress industry, driven by a challenging macroeconomic environment that has affected consumer discretionary spending and housing markets.
Based on demand trends and ongoing macroeconomic challenges, we took aggressive action during the first quarter of fiscal 2025 to bring our manufacturing costs and capacity in line with current and expected demand. We announced a major restructuring plan primarily focused on the mattress fabrics segment early in the first quarter of fiscal 2025, and we are making steady progress on the execution of this restructuring plan, which is expected to be mostly completed by the end of the third quarter of fiscal 2025. See “—Restructuring Activities” below for further details.
Looking ahead, we are diligently focused on winning new placements to increase revenue and margins. However, with no ascertainable catalysts that might be expected to drive recovery in the near term, we expect the current macroeconomic environment will continue to pressure consumer spending and housing market trends (and our net sales) for some time. In the face of these macro headwinds, we are working to manage the aspects of our business we can control, including the execution of our restructuring plan. We believe the strategic actions we are taking will position us for profitable growth opportunities, but greater macro-industry and end-consumer support will be needed to drive recovery in the mattress industry and support our future sales growth. Additionally, the potential ongoing geopolitical disruptions related to wars in Ukraine and the Middle East, as well as the potential impact of future tariffs, remain unknown and depend on factors beyond our knowledge or control. These situations could cause disruption to global markets or increased costs that could adversely affect our operations and financial performance.
Gross Profit, Selling, General & Administrative Expenses, and Loss from Operations
Loss from operations was $1.0 million for the second quarter of fiscal 2025, compared to loss from operations of $936,000 for the second quarter of fiscal 2024. Loss from operations was $4.6 million for the first half of fiscal 2025, compared to loss from operations of $2.3 million for the first half of fiscal 2024.
Operating performance for both the second quarter and the first half of fiscal 2025, as compared to the prior-year periods, was pressured by lower sales volumes and manufacturing inefficiencies primarily related to our significant restructuring initiatives to gradually wind down our Canadian operation and move certain knitting equipment to our Stokesdale, North Carolina, manufacturing facility, partially offset by lower fixed costs.
We expect manufacturing inefficiencies related our restructuring initiatives, as well as ongoing industry softness affecting sales volumes, will affect profitability through at least the third quarter of fiscal 2025, as we work to implement our restructuring plan to align capacity with current and expected demand. However, we expect these restructuring initiatives, once fully implemented, will enable the mattress fabrics segment to grow more efficiently and profitably with a lower level of fixed costs, even at currently depressed sales levels. See “—Restructuring Activities” below for further details. Importantly, these strategic steps do not limit our ability to grow the mattress fabrics business, but instead allow us to better optimize our global mix of manufacturing capabilities and long-term sourcing partners. We will also consider further adjustments to right-size and restructure our operations as necessary to align with current demand levels, as well as additional reasonable pricing actions as competitive conditions permit to further mitigate and manage inflation.
I- 37
Restructuring Activities
On April 29, 2024 (first quarter of fiscal 2025), our board of directors made a decision to (1) consolidate the company's North American mattress fabrics operations, including a gradual discontinuation of operations and sale of the company's manufacturing facility located in Quebec, Canada; (2) move a portion of the knitting and finishing capacity from the company's manufacturing facility located in Quebec, Canada to the company's manufacturing facility located in Stokesdale, North Carolina; (3) transition the mattress fabrics segment's weaving operation to a strategic sourcing model through the company's long standing supply partners; and (4) consolidate the company's two leased facilities related to the sewn mattress cover operation into one facility located in Ouanaminthe, Haiti, and reduce other operating expenses at this location.
We expect the gradual discontinuance of operations and the closure of the facility located in Quebec, Canada, will be completed by December 31, 2024. The consolidation activity associated with the sewn mattress cover operation located in Haiti was completed during the first quarter of fiscal 2025. These actions are expected to result in restructuring and restructuring related charges for the mattress segment of approximately $7.2 million during fiscal 2025, of which approximately $4.3 million is expected to be cash expenditures.
The $7.2 million of estimated restructuring and restructuring related charges associated with our mattress fabrics segment represents (i) other associated costs of $2.7 million mostly related to relocating equipment from our facility in Quebec, Canada to our facility in Stokesdale, NC, (ii) additional depreciation expense related to the shortening of useful lives of equipment associated with the gradual discontinuance of our operations located in Canada noted above totaling $1.3 million, (iii) employee termination benefits of $1.3 million, (iv) $1.1 million related to losses on disposal and valuation of inventory, and (v) lease termination costs of $860,000, (vi) partially offset by net gains on the disposal of equipment totaling $110,000. These restructuring and restructuring related charges exclude any expected gain on the sale of real estate associated with the closure of the Canadian facility, the amount of which is currently undetermined but which will ultimately reduce the amount of the restructuring charges incurred. Based on management's internal analysis we expect cash proceeds from the sale of real estate (net of all taxes and commissions) to exceed the amount of cash restructuring charges incurred.
Based on changes in business and current industry economic conditions, it is possible that the above estimates provided by management to determine restructuring and restructuring related charges incurred during fiscal 2025 and proceeds generated from the sale of the manufacturing facility located in Quebec, Canada, could be materially different from our actual results, and therefore could adversely affect the success of this restructuring plan.
The following summarizes the restructuring and restructuring related charges for the mattress fabrics segment for the three-month period ending October 27, 2024:
|
|
|
Three Months Ended |
|
Six Months Ended |
|
||
|
(dollars in thousands) |
|
October 27, 2024 |
|
October 27, 2024 |
|
||
|
Additional depreciation expense for shortened useful lives of equipment |
|
$ |
465 |
|
$ |
1,340 |
|
|
Employee termination benefits |
|
|
563 |
|
|
1,150 |
|
|
Lease termination costs |
|
|
179 |
|
|
849 |
|
|
Other Associated Costs |
|
|
900 |
|
|
1,172 |
|
|
Loss on disposal and markdowns of inventory |
|
|
769 |
|
|
885 |
|
|
Net gain on disposal of equipment |
|
|
(105 |
) |
|
(10 |
) |
|
Restructuring expense and restructuring related charges (1) (2) |
|
$ |
2,771 |
|
$ |
5,386 |
|
(1) Of the total $2.8 million restructuring and restructuring related charges, $2.0 million and $769,000 were classified within restructuring expense and cost of sales, respectively, in the Consolidated Statement of Net Loss for the three-month period ending October 27, 2024.
(2) Of the total $5.4 million restructuring and restructuring related charges, $4.5 million and $885,000 were classified within restructuring expense and cost of sales, respectively, in the Consolidated Statement of Net Loss for the six-month period ending October 27, 2024.
Refer to Note 10 of the consolidated financial statements for further details.
I- 38
Segment assets
Segment assets consist of accounts receivable, inventory, property, plant, and equipment, right of use assets, and assets held for sale :
|
(dollars in thousands) |
|
October 27, 2024 |
|
October 29, 2023 |
|
April 28, 2024 |
|
|||
|
Accounts receivable |
|
$ |
10,352 |
|
$ |
11,303 |
|
$ |
10,003 |
|
|
Inventory |
|
|
29,253 |
|
|
27,195 |
|
|
27,671 |
|
|
Property, plant & equipment |
|
|
24,702 |
|
|
32,862 |
|
|
31,472 |
|
|
Right of use assets |
|
|
275 |
|
|
1,969 |
|
|
1,627 |
|
|
Assets held for sale |
|
|
3,301 |
|
|
— |
|
|
— |
|
|
|
|
$ |
67,883 |
|
$ |
73,329 |
|
$ |
70,773 |
|
|
|
|
|
|
|
|
|
|
|||
Refer to Note 14 of the consolidated financial statements for disclosures regarding determination of our segment assets.
Accounts Receivable
As of October 27, 2024, accounts receivable decreased by $951,000, or 8.4%, compared with October 29, 2023. This reflects the 4.2% decrease in net sales during the second quarter of fiscal 2025, as compared to the second quarter of fiscal 2024. In addition, the decrease in accounts receivable was due to improved payment trends with larger customers during the second quarter of fiscal 2025, compared with the second quarter of fiscal 2024. Accordingly, days’ sales outstanding decreased to 31 days for the second quarter of fiscal 2025, as compared to 33 days for the second quarter of fiscal 2024.
As of October 27, 2024, accounts receivable remained flat compared with April 28, 2024. This trend primarily reflects an increase in net sales for the second quarter of fiscal 2025, as compared to the fourth quarter of fiscal 2024, offset by faster cash collections, as we experienced improved payment trends with larger customers during the second quarter of fiscal 2025 compared to the second quarter of fiscal 2024. Net sales for the second quarter of fiscal 2025 were $30.1 million, an increase of 16.8%, compared with net sales of $25.8 million during the fourth quarter of fiscal 2024. Days’ sales outstanding decreased to 31 days for the first quarter of fiscal 2025, as compared to 35 days for the fourth quarter of fiscal 2024.
Inventory
As of October 27, 2024, inventory increased by $2.1 million, or 7.6%, compared with October 29, 2023. In connection with the restructuring activity described above in “Restructuring Activities,” this trend represents an increase in finished goods inventory to accommodate customers while the weaving operation is transitioned to a strategic sourcing model and knitting and finishing capacity is relocated from the manufacturing facility in Quebec, Canada, to our facility in Stokesdale, North Carolina. This increase in finished goods inventory was partially offset by lower raw material purchases related to the gradual discontinuation of operations of the company's manufacturing facility located in Quebec, Canada, as described above in “Restructuring Activities,” and also by the decrease in net sales described above.
As of October 27, 2024, inventory increased by $1.6 million, or 5.7%, compared with April 28, 2024. This increase in inventory represents an increase in net sales of $4.3 million, or 16.8%, during the second quarter of fiscal 2025, as compared with the fourth quarter of fiscal 2024. This trend is also due to the effect of the restructuring activity described in the preceding paragraph.
Inventory turns were 4.1 for the second quarter of fiscal 2025, as compared with 4.5 for the second quarter of fiscal 2024 and 3.6 for the fourth quarter of fiscal 2024.
Property, Plant, & Equipment
During fiscal 2024 and continuing through the second quarter of fiscal 2025, property, plant, and equipment has steadily decreased due to reduced capital spending stemming from current unfavorable macro-economic conditions within the home furnishings and bedding industries, as well as the actions taken as described above in “Restructuring Activities.”
The $24.7 million as of October 27, 2024, represents property, plant, and equipment of $22.2 million, $1.6 million, and $889,000 located in the U.S., Canada, and Haiti, respectively. The $32.9 million as of October 29, 2023, represents property, plant, and equipment of $22.2 million, $10.0 million, and $661,000 located in the U.S., Canada, and Haiti, respectively. The $31.5 million as of April 28, 2024, represents property, plant, and equipment of $21.5 million, $9.4 million, and $555,000 located in the U.S., Canada, and Haiti, respectively.
I- 39
Right of Use Assets
During fiscal 2024 and continuing through the second quarter of fiscal 2025, right of use assets have steadily decreased due to rent expense incurred over the terms of the existing lease agreements. In addition, in connection with the restructuring activity described above in “Restructuring Activities,” right of use assets (i) decreased due to the termination of an agreement to lease a facility located in Ouanaminthe, Haiti, and (ii) shortened the period of use associated with two leased facilities located in Quebec, Canada.
The $275,000 as of October 27, 2024, represents a right of use asset in Haiti. The $2.0 million as of October 29, 2023, represents right of use assets of $1.3 million and $663,000 located in Haiti, and Canada, respectively. The $1.6 million as of April 28, 2024, represents right of use assets of $1.1 million and $545,000 located in Haiti and Canada, respectively.
Assets Held for Sale
As of October 27, 2024, and in connection with actions described above in “Restructuring Activities,” we classified certain equipment relating to both our U.S. and Canadian operations and our building located in Quebec, Canada, as held for sale. The $3.3 million represents assets held for sale of $2.9 million and $358,000 located in Canada and the U.S., respectively. Refer to Note 8 of the consolidated financial statements for further details.
Upholstery Fabrics Segment
Net Sales
|
|
|
Three Months Ended |
|
|
|
|
||||||||||||
|
(dollars in thousands) |
|
October 27,
|
|
|
October 29,
|
|
|
% Change |
|
|||||||||
|
Non-U.S. Produced |
|
$ |
22,372 |
|
|
87 |
% |
|
$ |
24,129 |
|
|
88 |
% |
|
|
(7.3 |
)% |
|
U.S. Produced |
|
|
3,228 |
|
|
13 |
% |
|
|
3,219 |
|
|
12 |
% |
|
|
0.3 |
% |
|
Total |
|
$ |
25,600 |
|
|
100 |
% |
|
$ |
27,348 |
|
|
100 |
% |
|
|
(6.4 |
)% |
|
|
|
Six Months Ended |
|
|
|
|
||||||||||||
|
(dollars in thousands) |
|
October 27,
|
|
|
October 29,
|
|
|
% Change |
|
|||||||||
|
Non-U.S. Produced |
|
$ |
47,709 |
|
|
88 |
% |
|
$ |
48,762 |
|
|
89 |
% |
|
|
(2.2 |
)% |
|
U.S. Produced |
|
|
6,352 |
|
|
12 |
% |
|
|
6,026 |
|
|
11 |
% |
|
|
5.4 |
% |
|
Total |
|
$ |
54,061 |
|
|
100 |
% |
|
$ |
54,788 |
|
|
100 |
% |
|
|
(1.3 |
)% |
Upholstery fabrics sales decreased 6.4% in the second quarter of fiscal 2025 compared to the prior-year period. Upholstery fabrics sales decreased 1.3% in the first half of fiscal 2025 compared to the first half of fiscal 2024.
The decrease in net sales for our upholstery fabrics segment for both the second quarter and the first half of fiscal 2025 reflects reduced demand for our residential upholstery fabric products as compared to the prior-year periods. This reduced demand was driven primarily by ongoing weakness in the residential home furnishings industry, including increased weakness during the second quarter which resulted in lower order levels as many customers, including a significant customer, adjusted their inventory positions to align with industry softness. Net sales for our hospitality/contract fabrics for both the second quarter and the first half of fiscal 2025 were relatively flat compared to the prior-year periods.
Looking ahead, we expect the lower customer order levels noted above will pressure residential fabric sales during the third quarter of fiscal 2025 as some customers continue to adjust inventory positions. We also expect the soft industry demand backdrop for residential home furnishings may affect our residential business for some period of time. Despite these challenges, we believe our business is well positioned for the long term with our product-driven strategy and innovative product offerings, including our popular portfolio of LiveSmart® performance products, supported by our flexible Asian platform and our long-term supplier relationships. We also believe overall demand remains solid for our hospitality/commercial business.
Notably, the potential ongoing geopolitical disruptions related to wars in Ukraine and the Middle East, as well as the potential impact of future tariffs, remain unknown and depend on factors beyond our control. At this time, we cannot reasonably estimate the impact of these items on our upholstery fabrics segment, but we note that if conditions worsen in these situations, including shipping disruptions related to wars in the Middle East, or if new tariffs are imposed on our products, the impact on our operations, and/or on our suppliers, customers, consumers, and the global economy, could adversely affect our financial performance.
I- 40
Gross Profit, Selling, General & Administrative Expenses, and Income from Operations
|
|
|
Three Months Ended |
|
|
|
|||||
|
(dollars in thousands) |
|
October 27,
|
|
|
October 29,
|
|
|
Change |
||
|
Gross profit |
|
$ |
4,315 |
|
|
$ |
5,389 |
|
|
(19.9)% |
|
Gross margin |
|
|
16.9 |
% |
|
|
19.7 |
% |
|
(280)bp |
|
Selling, general, and administrative expenses |
|
|
3,700 |
|
|
|
3,998 |
|
|
(7.5)% |
|
Restructuring expense |
|
|
29 |
|
|
|
144 |
|
|
(79.9)% |
|
Income from operations |
|
|
615 |
|
|
|
1,391 |
|
|
(55.8)% |
|
Operating margin |
|
|
2.4 |
% |
|
|
5.1 |
% |
|
(270)bp |
|
|
|
|
|
|
|
|
|
|
||
|
|
|
Six Months Ended |
|
|
|
|||||
|
(dollars in thousands) |
|
October 27,
|
|
|
October 29,
|
|
|
Change |
||
|
Gross profit |
|
$ |
9,833 |
|
|
$ |
10,659 |
|
|
(7.7)% |
|
Gross margin |
|
|
18.2 |
% |
|
|
19.5 |
% |
|
(130)bp |
|
Selling, general, and administrative expenses |
|
|
7,506 |
|
|
|
7,939 |
|
|
(5.5)% |
|
Restructuring expense |
|
|
161 |
|
|
|
482 |
|
|
(66.6)% |
|
Income from operations |
|
|
2,327 |
|
|
|
2,720 |
|
|
(14.4)% |
|
Operating margin |
|
|
4.3 |
% |
|
|
5.0 |
% |
|
(70)bp |
Income from operations was $615,000 for the second quarter of fiscal 2025, compared to income from operations of $1.4 million for the second quarter of fiscal 2024. Income from operations was $2.3 million for the first half of fiscal 2025, compared to income from operations of $2.7 million for the first half of fiscal 2024.
The decrease in upholstery fabrics profitability for the second quarter and the first half of fiscal 2025, as compared to the prior-year periods, primarily reflects lower sales; higher inventory markdown expense during the second quarter (as compared with especially low inventory markdown expense during the prior-year period); a less favorable foreign exchange rate associated with this segment's operations in China; and higher freight costs. These factors were offset somewhat by lower SG&A expense and lower fixed costs during both periods.
Based on market dynamics, we took action during the fourth quarter of fiscal 2024 to restructure our upholstery fabrics finishing operation in China to align with current demand and further leverage our strategic supply relationships. We completed this restructuring initiative during the first quarter of fiscal 2025 (see “—Restructuring Activities—Shanghai, China—Upholstery Fabrics Finishing Operation” below). We believe this move is allowing us to reduce our operating costs while maintaining our ability to support our customers.
Looking ahead, the residential home furnishings industry remains under pressure due to shifting consumer spending trends, inflation, reduced home sales, and other macroeconomic conditions affecting discretionary consumer spending. As a result, we expect lower sales volumes in our residential business may affect our profitability until market conditions improve. However, for fiscal 2025, we expect to benefit from continued solid demand in our hospitality/commercial fabrics business; improvement in our Read business; and fixed cost savings from our strategic decision to rationalize our upholstery fabric finishing operation in China and further leverage our long-term supply relationships. We will also continue our ongoing cost reduction efforts and will consider further adjustments to rationalize our operations as necessary to align with current demand levels, while maintaining our ability to service our customers.
Restructuring Activities
Shanghai, China
Upholstery Fabrics Finishing Operation
During the fourth quarter of fiscal 2024, we rationalized our upholstery fabrics finishing operation in Shanghai, China, to align with current demand trends and further leverage our strategic supply relationships to meet customer finishing needs. This
I- 41
restructuring activity was completed during the first quarter of fiscal 2025 and resulted in cumulative restructuring and restructuring related charges totaling $218,000.
Ouanaminthe, Haiti
Cut and Sew Upholstery Fabrics Operation
During the third quarter of fiscal 2023, Culp Upholstery Fabrics Haiti, Ltd. ("CUF Haiti") entered into an agreement to terminate a lease associated with one facility, and in turn moved the production of upholstery cut and sewn kits to another existing facility leased by Culp Home Fashions Haiti, Ltd. ("CHF Haiti") during the fourth quarter of fiscal 2023. Both CUF Haiti and CHF Haiti are indirectly wholly owned subsidiaries of the company. During the first quarter of fiscal 2024, demand for upholstery cut and sewn kits declined more than previously anticipated, resulting in the strategic action to discontinue the production of upholstery cut and sewn kits in Haiti. This restructuring activity was completed during the third quarter of fiscal 2024 and resulted in cumulative restructuring and restructuring related charges of $1.3 million.
The following summarizes our restructuring expense and restructuring related charges for all restructuring activities for the upholstery fabrics segment for the three-months ending October 27, 2024, and October 29, 2023:
|
|
|
(1) |
|
|
(2) |
|
||
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
||
|
(dollars in thousands) |
|
October 27, 2024 |
|
|
October 29, 2023 |
|
||
|
Employee termination benefits |
|
$ |
— |
|
|
$ |
2 |
|
|
Impairment loss - equipment |
|
|
— |
|
|
|
142 |
|
|
Other associated costs |
|
|
29 |
|
|
|
— |
|
|
Gain on disposal and markdowns of inventory |
|
|
— |
|
|
|
(78 |
) |
|
Restructuring expense and restructuring related charges (3) (4) |
|
$ |
29 |
|
|
$ |
66 |
|
(1) The $29,000 affected our U.S. upholstery fabrics operations and related to cost reductions under the Fiscal 2025 Restructuring Plan, which are described in Note 10 of the consolidated financial statements.
(2) The total $66,000 related to the closure of our upholstery cut and sewn kits operation located in Ouanaminthe, Haiti, as described above.
(3) The total $29,000 was recorded within restructuring expense in the Consolidated Statement of Net Loss for the three-month period ending October 27, 2024.
(4) Of the $66,000 total, $144,000 and $(78,000) were recorded within restructuring expense and cost of sales, respectively, in the Consolidated Statement of Net Loss for the three-month period ending October 29, 2023.
The following summarizes our restructuring expense and restructuring related charges for all restructuring activities for the upholstery fabrics segment for the six-months ending October 27, 2024, and October 29, 2023:
|
|
|
(1) |
|
|
(2) |
|
||
|
|
|
Six Months Ended |
|
|
Six Months Ended |
|
||
|
(dollars in thousands) |
|
October 27, 2024 |
|
|
October 29, 2023 |
|
||
|
Employee termination benefits |
|
$ |
102 |
|
|
$ |
103 |
|
|
Impairment loss - equipment |
|
|
— |
|
|
|
379 |
|
|
Other associated costs |
|
|
59 |
|
|
|
— |
|
|
Loss on disposal and markdowns of inventory |
|
|
— |
|
|
|
101 |
|
|
Restructuring expense and restructuring related (credits) charges (3) (4) |
|
$ |
161 |
|
|
$ |
583 |
|
I- 42
(1) Of the $161,000, $147,000 affected our U.S. upholstery fabrics operations and related cost reductions under the Fiscal 2025 Restructuring Plan, which are described in Note 10 of the consolidated financial statements. In addition, the $161,000 includes $14,000 related to the rationalization of our upholstery fabrics finishing operation located in Shanghai, China, as described above.
(2) The total $583,000 related to the closure of our upholstery cut and sewn kits operation located in Ouanaminthe, Haiti, as described above.
(3) The total $161,000 was recorded within restructuring expense in the Consolidated Statement of Net Loss for the six-month period ending October 27, 2024.
(4) Of the $583,000 total, $482,000 and $101,000 were recorded within restructuring expense and cost of sales, respectively, in the Consolidated Statement of Net Loss for the six-month period ending October 29, 2023.
Segment Assets
Segment assets consist of accounts receivable, inventory, property, plant, and equipment, and right of use assets:
|
(dollars in thousands) |
|
October 27, 2024 |
|
|
October 29, 2023 |
|
|
April 28, 2024 |
|
|||
|
Accounts receivable |
|
$ |
11,978 |
|
|
$ |
11,733 |
|
|
$ |
11,135 |
|
|
Inventory |
|
|
15,879 |
|
|
|
17,270 |
|
|
|
17,172 |
|
|
Property, plant & equipment |
|
|
1,188 |
|
|
|
1,175 |
|
|
|
1,125 |
|
|
Right of use assets |
|
|
1,120 |
|
|
|
1,992 |
|
|
|
1,952 |
|
|
|
|
$ |
30,165 |
|
|
$ |
32,170 |
|
|
$ |
31,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Refer to Note 14 of the consolidated financial statements for disclosures regarding determination of our segment assets.
Accounts Receivable
As of October 27, 2024, accounts receivable increased slightly as compared with October 29, 2023. This trend reflects slower cash collections due to an unfavorable mix of customers with longer payment cycles during the second quarter of fiscal 2025, as compared to the prior-year period. As a result, days’sales outstanding for this segment increased to 39 days for the second quarter of fiscal 2025, compared with 36 days for the second quarter of fiscal 2024. However, the increase in accounts receivable from slower cash collections was partially offset by a decrease in net sales of $1.7 million, or 6.4%, during the second quarter of fiscal 2025, as compared to the second quarter of fiscal 2024.
As of October 27, 2024, accounts receivable increased by $843,000, or 7.6%, compared with April 28, 2024. This trend reflects an increase in net sales of $1.8 million, or 7.7%, during the second quarter of fiscal 2025, as compared to the fourth quarter of fiscal 2024. Net sales for the second quarter of fiscal 2025 were $25.6 million, an increase of $1.8 million, or 7.7%, compared with net sales of $23.8 million for the fourth quarter of fiscal 2024. Also, the increase in accounts receivable was attributable to slower cash collections as noted in the preceding paragraph during the second quarter of fiscal 2025, as compared to the fourth quarter of fiscal 2024. As a result, days’sales outstanding for this segment increased to 39 days for the second quarter of fiscal 2025, compared with 37 days for the fourth quarter of fiscal 2024.
Inventory
As of October 27, 2024, inventory decreased by $1.4 million, or 8.1%, compared with October 29, 2023. This decrease in inventory primarily represents the decrease in net sales during the second quarter of fiscal 2025, compared with the prior-year period, as described in the above section titled "Segment Analysis-Upholstery Fabrics-Net Sales."
As of October 27, 2024, inventory decreased by $1.3 million, or 7.5%, compared with April 28, 2024. Although net sales for the second quarter of fiscal 2025 increased by $1.8 million, or 7.7%, compared with the fourth quarter of fiscal 2024, this decrease in inventory reflects management's ability to maintain appropriate levels of inventory, taking into account current and expected future demand trends and any changes in our global supply chain.
Inventory turns were 5.1 for the second quarter of fiscal 2025, compared with 4.6 for the second quarter of fiscal 2024 and 4.4 for the fourth quarter of fiscal 2024.
I- 43
Property, Plant, & Equipment
As of October 27, 2024, property, plant, and equipment remained relatively flat compared with October 29, 2023, and April 28, 2024, respectively. This trend is mainly due to a reduced level of capital spending commensurate with current unfavorable macro-economic conditions within the home furnishings industry.
The $1.2 million as of October 27, 2024, represents property, plant, and equipment of $1.1 million and $95,000 located in the U.S. and China, respectively. The $1.2 million as of October 29, 2023, represents property, plant, and equipment of $1.0 million and $140,000 located in the U.S. and China, respectively. The $1.1 million as of April 28, 2024, represents property, plant, and equipment of $1.0 million and $120,000 located in the U.S. and China, respectively.
Right of Use Assets
As of October 27, 2024, right of use assets steadily decreased compared with October 29, 2023, and April 28, 2024. This decrease mostly resulted from rent expense incurred over the terms of the existing respective lease agreements and the termination of our agreement to lease a building associated with our upholstery fabrics finishing operation located in Shanghai, China.
The $1.1 million as of October 27, 2024, represents right of use assets of $925,000 and $195,000 located in the U.S. and China, respectively. The $2.0 million as of October 29, 2023, represents right of use assets of $1.2 million and $818,000 located in China and the U.S., respectively. The $2.0 million as of April 28, 2024, represents right of use assets of $1.3 million and $709,000 located in China and the U.S., respectively.
Other Income Statement Categories
|
|
|
Three Months Ended |
|
|
|
|
||||||
|
(dollars in thousands) |
|
October 27, 2024 |
|
|
October 29, 2023 |
|
|
% Change |
|
|||
|
SG&A expenses |
|
$ |
9,359 |
|
|
$ |
10,045 |
|
|
|
(6.8 |
)% |
|
Interest expense |
|
|
30 |
|
|
|
— |
|
|
|
100.0 |
% |
|
Interest income |
|
|
244 |
|
|
|
282 |
|
|
|
(13.5 |
)% |
|
Other expense (income) |
|
|
508 |
|
|
|
(49 |
) |
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
Six Months Ended |
|
|
|
|
||||||
|
(dollars in thousands) |
|
October 27, 2024 |
|
|
October 29, 2023 |
|
|
% Change |
|
|||
|
SG&A expenses |
|
$ |
18,655 |
|
|
$ |
19,874 |
|
|
|
(6.1 |
)% |
|
Interest expense |
|
|
58 |
|
|
|
— |
|
|
|
100.0 |
% |
|
Interest income |
|
|
507 |
|
|
|
627 |
|
|
|
(19.1 |
)% |
|
Other expense (income) |
|
|
913 |
|
|
|
(145 |
) |
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Selling, General, and Administrative Expenses ("SG&A")
The decrease in selling, general, and administrative expenses during the second quarter and first half of fiscal 2025, as compared to the second quarter and first half of fiscal 2024, is primarily due to (i) lower incentive compensation that mostly relates to annual bonuses reflecting unfavorable financial results in relation to pre-established performance targets; (ii) lower employee compensation due to the company's restructuring activities described in the section titled "- Segment Analysis-Mattress Fabrics Segment-Restructuring Activities"; and (iii) lower professional and consulting fees.
Interest Expense
Interest expense represents our borrowings totaling $4.1 million under a line of credit agreement associated with our operations located in China.
Interest Income
The decreases in interest income are due to lower average cash balances during the first two quarters of fiscal 2025, as compared to the first two quarters of fiscal 2024.
Other (Expense) Income
I- 44
Management is required to assess certain economic factors to determine the currency of the primary economic environment in which our foreign subsidiaries operate. Based on our assessments, the U.S. dollar was determined to be the functional currency of our operations located in China, Canada, and Vietnam.
The change in other expense during the second quarter and first half of fiscal 2025, as compared to other income during the second quarter and first half of fiscal 2024, is due mostly to less favorable foreign currency exchange rates applied against our balance sheet accounts denominated in Chinese Renminbi to determine the corresponding U.S. dollar financial reporting amounts during the second quarter and first half of fiscal 2025, as compared to the prior-year periods. During the second quarter of fiscal 2025, we reported a foreign currency exchange loss associated with our operations located in China totaling $186,000, compared with a foreign currency exchange gain of $228,000 during the second quarter of fiscal 2024. During the first half of fiscal 2025, we reported a foreign currency exchange loss associated with our operations located in China totaling $231,000, compared with a foreign currency exchange gain of $679,000 during the first half of fiscal 2024.
The $231,000 foreign currency exchange loss related to our operations in China was mostly non-cash and was partially offset by $221,000 of income tax benefit, which will decrease our income tax payments and withholding tax payments associated with future earnings and profits repatriated from our operations located in China to the company's U.S. parent. The income tax benefit of $221,000 was associated with deductible foreign currency exchange losses based on less favorable foreign currency exchange rates applied against balance sheet accounts denominated in U.S. dollars to determine the corresponding Chinese Renminbi local currency amounts. The foreign currency exchange rate gains (losses) related to our U.S. dollar denominated balance sheet accounts associated with our operations located in China are considered taxable income or tax deductible, as we incur income tax expense (benefit) and pay income taxes in China's local currency.
Income Taxes
Effective Income Tax Rate
We recorded income tax expense of $190,000, or (1.5%) of loss before income taxes, for the six-month period ending October 27, 2024, compared with income tax expense of $1.2 million, or (26.8%) of loss before income taxes, for the six-month period ending October 29, 2023.
Our effective income tax rates for the six-month periods ended October 27, 2024, and October 29, 2023, were based upon the estimated effective income tax rate applicable for the full year after giving effect to any significant items related specifically to interim periods. When calculating the annual estimated effective income tax rates for the six-month periods ended October 27, 2024, and October 29, 2023, we were subject to loss limitation rules. These loss limitation rules require any taxable loss associated with our U.S. or foreign operations to be excluded from the annual estimated effective income tax rate calculation if it was determined that no income tax benefit could be recognized during the current fiscal year. The effective income tax rate can be affected over the fiscal year by the mix and timing of actual earnings from our U.S. operations and foreign subsidiaries located in China, Canada, Haiti, and Vietnam versus annual projections, as well as changes in foreign currency exchange rates in relation to the U.S. dollar.
The following schedule summarizes the principal differences between income tax expense at the U.S. federal income tax rate and the effective income tax rate reflected in the consolidated financial statements for the six-month periods ending October 27, 2024, and October 29, 2023:
|
|
|
October 27, |
|
|
October 29, |
|
||
|
|
|
2024 |
|
|
2023 |
|
||
|
U.S. federal income tax rate |
|
|
21.0 |
% |
|
|
21.0 |
% |
|
U.S. valuation allowance |
|
|
(18.8 |
) |
|
|
(32.8 |
) |
|
Tax effects of local currency foreign exchange (losses) gains |
|
|
(4.5 |
) |
|
|
5.1 |
|
|
Uncertain income tax positions |
|
|
2.6 |
|
|
|
(0.1 |
) |
|
Withholding taxes associated with foreign jurisdictions |
|
|
(0.7 |
) |
|
|
(9.9 |
) |
|
Foreign income tax rate differential |
|
|
— |
|
|
|
(5.7 |
) |
|
Stock-based compensation |
|
|
(0.4 |
) |
|
|
(4.2 |
) |
|
Other |
|
|
(0.7 |
) |
|
|
(0.2 |
) |
|
|
|
(1.5)% |
|
|
(26.8)% |
|
||
Our consolidated effective income tax rates for the first half of fiscal 2025 and the first half of fiscal 2024 were both adversely affected by the mix of earnings between our U.S. operations and foreign subsidiaries, as our taxable income stems mostly from our operations located in China, which has a higher income tax rate than the U.S. In addition, during the first half of fiscal 2025 and the first half of 2024, we incurred pre-tax losses associated with our U.S. operations, for which an income tax benefit was not recorded due to a full valuation allowance applied against our U.S. net deferred income tax assets. The income tax charge associated
I- 45
with the full valuation allowance applied against our U.S. net deferred income tax assets was higher during the first half of fiscal 2025 compared with the first half of fiscal 2024, as our $(12.4) million U.S. pre-tax loss incurred during the first half of fiscal 2025 was significantly greater than the $(5.8) million U.S. pre-tax loss incurred during the first half of fiscal 2024.
During the first half of fiscal 2025, we incurred a greater consolidated pre-tax loss totaling $(12.7) million, compared with $(4.5) million during the first half of fiscal 2024. As a result, the principal 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 were more pronounced during the first half of fiscal 2024, as compared with the first half of fiscal 2025.
U.S. Valuation Allowance
We evaluate the realizability of our U.S. net deferred income tax assets to determine if a valuation allowance is required. We assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more-likely-than-not” standard, with significant weight being given to evidence that can be objectively verified. Since the company operates in multiple jurisdictions, we assess the need for a valuation allowance on a jurisdiction-by-jurisdiction basis, considering the effects of local tax law.
As of October 27, 2024, we evaluated the realizability of our U.S. net deferred income tax assets to determine if a full valuation allowance was required. Based on our assessment, we determined we still have a recent history of significant cumulative U.S. pre-tax losses, in that we experienced U.S. pre-tax losses during each of the last three fiscal years from 2022 through 2024, and we are currently expecting significant U.S. pre-tax losses to continue during fiscal 2025. As a result of the significant weight of this negative evidence, we believe it is more likely than not that our U.S. deferred income tax assets will not be fully realizable, and therefore we provided for a full valuation allowance against our U.S. net deferred income tax assets.
Based on our assessments as of October 27, 2024, October 29, 2023, and April 28, 2024, valuation allowances against our net deferred income tax assets pertain to the following:
|
(dollars in thousands) |
|
October 27, 2024 |
|
|
October 29, 2023 |
|
|
April 28, 2024 |
|
|||
|
U.S. federal and state net deferred income tax assets |
|
$ |
22,060 |
|
|
$ |
17,839 |
|
|
$ |
19,674 |
|
|
U.S. capital loss carryforward |
|
|
2,330 |
|
|
|
2,330 |
|
|
|
2,330 |
|
|
|
|
$ |
24,390 |
|
|
$ |
20,169 |
|
|
$ |
22,004 |
|
Undistributed Earnings
We assess whether the undistributed earnings from our foreign subsidiaries will be reinvested indefinitely or eventually distributed to our U.S. parent company and whether we are required to record a deferred income tax liability for those undistributed earnings from foreign subsidiaries that will not be reinvested indefinitely. As of October 27, 2024, we assessed the liquidity requirements of our U.S. parent company and determined that our undistributed earnings and profits from our foreign subsidiaries would not be reinvested indefinitely and would eventually be distributed to our U.S. parent company. The conclusion reached from this assessment was consistent with prior reporting periods.
As a result of the 2017 Tax Cuts and Jobs Act, 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 income tax liability will be required only for unremitted withholding taxes associated with earnings and profits generated by our foreign subsidiaries that will ultimately be repatriated to the U.S. parent company. As a result, as of October 27, 2024, October 29, 2023, and April 28, 2024, we recorded a deferred income tax liability of $5.0 million, $4.6 million, and $4.8 million, respectively.
Uncertain Income Tax Positions
An unrecognized income tax benefit for an uncertain income tax position can be recognized in the first interim period if the more-likely-than-not recognition threshold is met by the end of the reporting period, or is effectively settled through examination, negotiation, or litigation, or the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired. If it is determined that any of the above conditions occur regarding our uncertain income tax positions, an adjustment to our unrecognized income tax benefit will be recorded at that time.
I- 46
As of October 27, 2024, October 29, 2023, and April 28, 2024, we had a $1.4 million, $1.2 million, and $1.3 million total of gross unrecognized income tax benefits, of which the entire amount was classified as income taxes payable – long-term in the accompanying Consolidated Balance Sheets. As of October 27, 2024, the unrecognized tax benefit would favorably affect income tax expense in future periods by $1.4 million.
Our gross unrecognized income tax benefit of $1.4 million as of October 27, 2024, relates to income tax positions for which significant change could occur within the next year if the statute of limitations for relevant taxing authorities to examine and challenge the tax position expires.
Income Taxes Paid
The following table sets forth taxes paid by jurisdiction:
|
|
|
Six Months |
|
|
Six Months |
|
||
|
|
|
Ended |
|
|
Ended |
|
||
|
|
|
October 27, |
|
|
October 29, |
|
||
|
(dollars in thousands) |
|
2024 |
|
|
2023 |
|
||
|
United States Transition Tax Payment |
|
|
665 |
|
|
|
499 |
|
|
China Income Taxes, Net of Refunds |
|
|
578 |
|
|
|
1,278 |
|
|
Canada - Income Taxes, Net of Refunds |
|
|
— |
|
|
|
336 |
|
|
|
|
$ |
1,243 |
|
|
$ |
2,113 |
|
Future Liquidity
Based on the restructuring plan approved by our board of directors on April 29, 2024, the timing and success of the closure of our Canadian operation, along with the sale of associated real estate (the timing and amount of which sales price is currently undetermined), could have a significant effect on (i) the amount and timing of when and if fiscal 2025 income tax payments will be required; (ii) the amount and timing of withholding tax payments to the Canadian government associated with the repatriation of earnings and profits to the U.S. parent; and (iii) the respective tax rates that will be applied on the sale of equipment. Accordingly, we believe we cannot provide a reasonable estimate of our fiscal 2025 income tax payments associated with our Canadian operation at this time.
Currently, we are projecting annual cash income tax payments of approximately $1.7 million associated with our operations located in China. This estimate is management's current projection only and can be affected by actual earnings versus annual projections, changes in the foreign exchange rates in relation to the U.S. dollar, and the timing of when we will repatriate earnings and profits from China to our U.S. parent.
Currently, we do not expect to incur any income taxes in the U.S. on a cash basis during fiscal 2025 due to (i) the accelerated expensing of U.S. capital expenditures and our existing U.S. federal net operating loss carryforwards totaling $69.6 million as of April 28, 2024. As of October 27, 2024, we will be required to pay a U.S. federal transition tax payment, in accordance with the 2017 Tax Cuts and Jobs Act of $831,000 by August 15, 2025.
Liquidity and Capital Resources
Liquidity
Overall
Currently, our sources of liquidity include cash and cash equivalents (collectively, "cash"), cash flow from operations, and amounts available under our revolving credit lines. As of October 27, 2024, we believe our cash of $10.5 million and the current availability under our revolving credit lines totaling $22.6 million will be sufficient to fund our foreseeable business needs, restructuring activities, capital expenditures, commitments, and contractual obligations. Refer to Note 11 of the consolidated financial statements for further information regarding our revolving credit lines.
As of October 27, 2024, our cash totaled $10.5 million, which represents a slight increase compared with cash of $10.0 million as of April 28, 2024. This increase was mostly due to $4.0 million in cash proceeds from borrowings on a line of credit associated with our operations located in China and $527,000 in cash proceeds from the sale of equipment associated with our restructuring activities, mostly offset by $1.6 million in capital expenditures and $2.6 million of net cash used in operating activities.
I- 47
Our net cash used in operating activities was $2.6 million during the first half of fiscal 2025, a decrease of $1.9 million compared with net cash used in operating activities of $4.5 million during the first half of fiscal 2024. This trend mostly reflects (i) an increase in accounts payable due to an increase in inventory purchases from significant vendors who extended their terms during the first half of fiscal 2025 compared with fiscal 2024, partially offset by (ii) an increase in inventory purchases to maintain an appropriate level of inventory during the company's recent restructuring activities, as described above in the section titled “—Segment Analysis—Mattress Fabrics Segment—Restructuring Activities,” and (iii) an increase in accounts receivable primarily due to an increase in net sales during the second quarter of fiscal 2025, as compared to the fourth quarter of fiscal 2024.
As of October 27, 2024, we had outstanding borrowings totaling $4.1 million under a line of credit agreement associated with our operations located in China.
The income taxes we pay also affect our liquidity. See the above section titled “ Income Taxes Paid ” for further detail.
Our cash balance may be adversely affected by factors beyond our control, such as (i) recent customer demand trends affecting net sales, (ii) supply chain disruptions, (iii) higher interest rates and inflation, (iv) world events (including wars in Ukraine and the Middle East), and (v) the continuing uncertainty associated with COVID-19. These factors could cause delays in receipt of payment on accounts receivable and could increase cash disbursements due to rising prices.
By Geographic Area
A summary of our cash by geographic area follows:
|
|
|
October 27, |
|
|
October 29, |
|
|
April 28, |
|
|||
|
(dollars in thousands) |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|||
|
United States |
|
$ |
1,189 |
|
|
$ |
5,047 |
|
|
$ |
2,912 |
|
|
China |
|
|
9,102 |
|
|
|
9,301 |
|
|
|
6,554 |
|
|
Canada |
|
|
49 |
|
|
|
482 |
|
|
|
371 |
|
|
Haiti |
|
|
142 |
|
|
|
375 |
|
|
|
86 |
|
|
Vietnam |
|
|
41 |
|
|
|
— |
|
|
|
81 |
|
|
Cayman Islands |
|
|
8 |
|
|
|
9 |
|
|
|
8 |
|
|
|
|
$ |
10,531 |
|
|
$ |
15,214 |
|
|
$ |
10,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Common Stock Repurchase Program
In March 2020, our board of directors approved an authorization for us 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 number of shares purchased and the timing of such purchases are based on working capital requirements, market and general business conditions, and other factors, including alternative investment opportunities.
We did not repurchase any shares of common stock during the six month periods ending October 27, 2024, or October 29, 2023, respectively.
As of October 27, 2024, $3.2 million is available for additional repurchases of our common stock.
Dividends
On June 29, 2022, our board of directors announced the decision to suspend the company’s quarterly cash dividend. We believed that preserving capital and managing our liquidity were in the company’s best interest to support future growth and the long-term interests of our shareholders. Accordingly, we did not make any dividend payments during the second quarter of fiscal 2025, fiscal 2024, and fiscal 2023.
Working Capital
Operating Working Capital
Operating working capital (the total of accounts receivable and inventories, less accounts payable-trade, less accounts payable-capital expenditures, and less deferred revenue) was $33.4 million as of October 27, 2024, compared with $38.4 million as of October 29, 2023, and $38.5 million as of April 28, 2024. Operating working capital turnover was 6.0 during the second quarter of fiscal 2025, compared with 5.5 during the second quarter of fiscal 2024 and 5.8 during the fourth quarter of fiscal 2024.
I- 48
Accounts Receivable
Accounts receivable was $22.3 million as of October 27, 2024, a decrease of $706,000, or 3.1%, compared with $23.0 million as of October 29, 2023. This trend was mostly due to a 5.2% decrease in consolidated nets sales during the second quarter of fiscal 2025, as compared to the second quarter of fiscal 2024. Days’ sales outstanding were 35 days for the second quarter of fiscal 2025, and were slightly higher compared with 34 days for the second quarter of fiscal 2024.
Accounts receivable as of October 27, 2024, increased $1.2 million, or 5.6%, compared with $21.1 million as of April 28, 2024. This trend was due to a 12.4% increase in net sales during the second quarter of fiscal 2025, as compared to the fourth quarter of fiscal 2024. However, this increase in accounts receivable was partially offset by faster cash collections stemming from improved payment trends with larger customers associated with our mattress fabrics segment during the second quarter of fiscal 2025, compared with the fourth quarter of fiscal 2024. As a result, days’ sales outstanding decreased to 35 days for the second quarter of fiscal 2025, compared with 36 days for the fourth quarter of fiscal 2024.
Inventory
Inventory was $45.1 million as of October 27, 2024, and was comparable to $44.5 million and $44.8 million as of October 29, 2023, and April 28, 2024, respectively. This trend represents management's ability to maintain an appropriate level of inventory during the company's recent restructuring plan as described above in the section titled “—Segment Analysis — Mattress Fabrics Segment — Restructuring Activities,” and taking into account current and expected future demand trends and any changes in our global supply chain.
Inventory turns were 4.5 for the second quarter of fiscal 2025, as compared with 4.6 for the second quarter of fiscal 2024 and 3.9 for the fourth quarter of fiscal 2024.
Accounts Payable - Trade
As of October 27, 2024, accounts payable - trade was $32.4 million, which represents a significant increase compared with $27.9 million and $25.6 million as of October 29, 2023, and April 28, 2024, respectively. This trend mostly represents an increase in inventory purchases from significant vendors who extended credit terms during the second quarter of fiscal 2025, as compared with the second quarter of fiscal 2024 and the fourth quarter of fiscal 2024.
Financing Arrangements
Currently, we have revolving credit agreements with banks for our U.S parent company and our operations located in China. As of October 27, 2024, we had outstanding borrowings totaling $4.1 million under a line of credit agreement associated with our operations located in China. Our loan agreements require, among other things, that we maintain compliance with certain financial covenants. As of October 27, 2024, we were in compliance with these financial covenants.
Refer to Note 11 of the consolidated financial statements for further disclosure regarding our revolving credit agreements.
Capital Expenditures and Depreciation
Overall
Capital expenditures on a cash basis during the first half of fiscal 2025 totaled $1.6 million, compared with $2.0 million during the first half of fiscal 2024. This level of capital spending reflects reduced capital spending during the current unfavorable macro-economic conditions within the home furnishings and bedding industries.
Depreciation expense was $4.4 million for the first half of fiscal 2025, compared with $3.3 million for the same period a year ago, and was mostly related to our mattress fabrics segment for both periods. In addition, for the first half of fiscal 2025, depreciation expense for the mattress fabrics segment included $1.3 million of additional depreciation expense related to the shortening of useful lives of equipment associated with our manufacturing facility located in Quebec, Canada. This $1.3 million of additional
I- 49
depreciation expense was classified as restructuring expense in the Consolidated Statement of Net Loss for the six-month period ending October 27, 2024.
For the remainder of fiscal 2025, our capital spending will be centered on our mattress fabrics segment, with a strategic focus on capital projects that will increase efficiencies and improve the quality of our products. Funding for capital expenditures is expected to be from cash provided by operating activities.
Accounts Payable – Capital Expenditures
As of October 27, 2024, we had amounts due regarding capital expenditures totaling $602,000 that pertained to outstanding vendor invoices, none of which were financed. The total amount outstanding of $602,000 is required to be paid based on normal credit terms.
Purchase Commitments – Capital Expenditures
As of October 27, 2024, we had open purchase commitments to acquire equipment for our mattress fabrics segment totaling $571,000.
Critical Accounting Policies and Recent Accounting Developments
As of October 27, 2024, there were no changes in 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 28, 2024.
Refer to Note 2 of the consolidated financial statements for recently adopted and issued accounting pronouncements, if any, since the filing of our Form 10-K for the year ended April 28, 2024.
Contractual Obligations
There were no significant or new contractual obligations since those reported in our annual report on Form 10-K for the year ended April 28, 2024.
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.
During fiscal 2024 and continuing through the second quarter of fiscal 2025, raw material costs started to decline due to slowing global demand; however, the cost of labor remained challenging during fiscal 2024 and continuing through the second quarter of fiscal 2025.
Inflationary pressures also affected consumer spending during fiscal 2024 and continuing through the second quarter of fiscal 2025, causing a slowdown in business in both the mattress industry and the residential home furnishings industry. This slowdown has caused reduced demand from producers of home furnishings for our mattress fabrics and residential upholstery fabrics products during fiscal 2024 and in the second quarter of fiscal 2025.
We are unable to predict how long these trends will last, or to what extent inflationary pressures may affect the economic and purchasing cycle for home furnishing products (and therefore affect demand for our products) over the short and long term.
I- 50
ITEM 3. QUANTITATIVE AND QUALITATI VE DISCLOSURES ABOUT MARKET RISK
Interest Rates
We are exposed to market risk from changes in interest rates on our revolving credit agreements.
Effective January 19, 2023, we entered into a second amended and restated U.S. revolving credit agreement (the "Amended Agreement") to establish an asset-based revolving credit facility that required interest to be charged at a rate calculated using an applicable margin over Federal Reserve Bank of New York's secured overnight fund rate (SOFR), as defined in the Amended Agreement. The interest rate under the Amended Agreement as of October 27, 2024, was 6.33%. As of October 27, 2024, there were no outstanding borrowings under the Amended Agreement.
Effective March 20, 2024, we entered into an unsecured credit agreement with a financial institution in China denominated in RMB that requires interest to be charged at a rate based on the Loan Prime Rate ("LPR") in China minus 50 basis points (2.60% as of October 27, 2024). There were outstanding borrowings under this agreement totaling $4.1 million as of October 27, 2024.
On November 5, 2024, we entered into an unsecured credit agreement with another financial institution in China denominated in RMB that requires interest to be charged at a rate based on the Loan Prime Rate ("LPR") in China minus 50 basis points (2.60% as of October 27, 2024). There were no outstanding borrowings under this agreement as of October 27, 2024.
Foreign Currency
We are exposed to market risk from changes in the value of foreign currencies for our subsidiaries domiciled in Canada, China, and Vietnam. 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, China, and Vietnam. However, there is no assurance that we will be able to continually maintain this natural hedge. Our foreign subsidiaries use the U.S. dollar as their functional currency. A substantial portion of the company’s imports purchased outside the U.S. are denominated in U.S. dollars. A 10% change in the above exchange rates as of October 27, 2024, would not have materially affected our results of operations or financial position.
ITEM 4. CONTROLS AND PROCEDURES
As of October 27, 2024, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective as of such date, in all material respects, to ensure that information required to be disclosed in the reports filed by us and submitted under the Exchange Act, is recorded, processed, summarized, and reported as and when required, and that these disclosure controls and procedures were effective as of such date 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 Chief Executive Officer and Chief Financial Officer, in a manner to allow timely decisions regarding the required disclosure.
During the quarter ended October 27, 2024, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
I- 51
Part II – Othe r Information
Item 1. Legal Proceedings
There have not been any material changes to our legal proceedings during the three months ended October 27, 2024. Our legal proceedings are disclosed in the company’s annual report on Form 10-K filed with the Securities and Exchange Commission on July 12, 2024, for the fiscal year ended April 28, 2024.
Item 1A. Ri sk Factors
There have not been any material changes to our risk factors during the three months ended October 27, 2024. Our risk factors are disclosed in Item 1A “Risk Factors” of the company’s annual report on Form 10-K filed with the Securities and Exchange Commission on July 12, 2024, for the fiscal year ended April 28, 2024.
Item 2. Unregistered Sales of Equi ty Securities and Use of Proceeds
ISSUER PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
|
(c) |
|
|
(d) |
|
||||
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Approximate |
|
||||
|
|
|
(a) |
|
|
|
|
|
Shares Purchased |
|
|
Dollar Value of |
|
||||
|
|
|
Total |
|
|
(b) |
|
|
as Part of |
|
|
Shares that May |
|
||||
|
|
|
Number |
|
|
Average |
|
|
Publicly |
|
|
Yet Be Purchased |
|
||||
|
|
|
of Shares |
|
|
Price Paid |
|
|
Announced Plans |
|
|
Under the Plans or |
|
||||
|
Period |
|
Purchased |
|
|
per Share |
|
|
or Programs |
|
|
Programs (1) |
|
||||
|
July 29, 2024 to September 1, 2024 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
3,248,094 |
|
|
September 2, 2024 to September 29, 2024 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
3,248,094 |
|
|
September 30, 2024 to October 27, 2024 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
3,248,094 |
|
|
Total |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
3,248,094 |
|
Item 5 . Other Information
During the three months ended October 27, 2024, none of the company's directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934)
II- 1
Item 6. E xhibits
The following exhibits are submitted as part of this report.
10.1 Form of Annual Incentive Award Agreement.
Amended and Restated Equity Incentive Plan.
31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a).
31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) .
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.
101.INS Inline XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
104 Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension
information contained in Exhibits 101).
II- 2
SIGNAT URES
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: December 6, 2024 |
|
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 and principal accounting officer) |
|
|
|
|
|
|
|
|
|
|
|
|
II- 3