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| CFI > SEC Filings for CFI > Form 10-Q on 12-Dec-2008 | All Recent SEC Filings |
12-Dec-2008
Quarterly Report
Results of Operations
The following analysis of financial condition and results of operations should be read in conjunction with the Financial Statements and Notes and other exhibits included elsewhere in this report.
Overview
The company's fiscal year is the 52 or 53 week period ending on the Sunday closest to April 30. The company's six months ended November 2, 2008, and October 28, 2007, represent 27 and 26 week periods, respectively. The company has operations classified into two business segments: mattress fabrics and upholstery fabrics. The mattress fabrics segment primarily manufacturers, sources and sells fabrics to bedding manufacturers. The upholstery fabrics segment sources, manufactures and sells fabrics primarily to residential and commercial (contract) furniture manufacturers. We believe that Culp is the largest marketer of mattress fabrics in North America, and one of the largest marketers of upholstery fabrics for furniture in North America, both measured by total sales.
The company evaluates the operating performance of its segments based upon income (loss) from operations before restructuring and related charges or credits and certain unallocated corporate expenses. Unallocated corporate expenses represent primarily compensation and benefits for certain executive officers and all costs related to being a public company. Segment assets include assets used in operations of each segment and primarily consist of accounts receivable, inventories, and property, plant, and equipment. The mattress fabrics segment also includes in segment assets, assets held for sale, goodwill and other non-current assets associated with the ITG and Bodet & Horst acquisitions. The upholstery fabrics segment also includes assets held for sale in its segment assets.
The following tables set forth the net sales, gross profit, selling, general and administrative expenses and operating income (loss) by segment for the three months and six months ended November 2, 2008, and October 28, 2007.
CULP, INC.
SALES, GROSS PROFIT AND OPERATING INCOME (LOSS) BY SEGMENT
FOR THE THREE MONTHS ENDED NOVEMBER 2, 2008 AND OCTOBER 28, 2007
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
------------------------------------------------------------------------------------
Amounts Percent of Total Sales
------------------------------- --------------------------------
November 2, October 28, % Over November 2, October 28,
Net Sales by Segment 2008 2007 (Under) 2008 2007
------------------------------------------ -------------- ------------- ------------- --------------- -------------
Mattress Fabrics $ 28,048 36,010 (22.1)% 53.7 % 56.0 %
Upholstery Fabrics 24,215 28,326 (14.5)% 46.3 % 44.0 %
-------------- ------------- ------------- ------------- -------------
Net Sales $ 52,263 64,336 (18.8)% 100.0 % 100.0 %
============== ============= ============= ============= =============
Gross Profit by Segment Gross Profit Margin
------------------------------------------ --------------------------------
Mattress Fabrics $ 5,084 6,038 (15.8)% 18.1 % 16.8 %
Upholstery Fabrics 1,277 2,975 (57.1)% 5.3 % 10.5 %
-------------- ------------- ------------- ------------- -------------
Subtotal 6,361 9,013 (29.4)% 12.2 % 14.0 %
Restructuring related charges (3,213)(1) (591) (3) N.M. (6.1)% (0.9)%
-------------- ------------- ------------- ------------- -------------
Gross Profit $ 3,148 8,422 (62.6)% 6.0 % 13.1 %
============== ============= ============= ============= =============
Selling, General and Administrative
expenses by Segment Percent of Sales
------------------------------------------ --------------------------------
Mattress Fabrics $ 1,833 2,166 (15.4)% 6.5 % 6.0 %
Upholstery Fabrics 2,081 2,774 (25.0)% 8.6 % 9.8 %
Unallocated Corporate expenses 523 873 (40.1)% 1.0 % 1.4 %
-------------- ------------- ------------- ------------- -------------
Subtotal 4,437 5,813 (23.7)% 8.5 % 9.0 %
Restructuring related charges 2 (1) 25 (3) (92.0)% 0.0 % 0.0 %
-------------- ------------- ------------- ------------- -------------
Selling, General and Administrative
expenses $ 4,439 5,838 (24.0)% 8.5 % 9.1 %
============== ============= ============= ============= =============
Operating Income (loss) by Segment Operating Income (Loss) Margin
------------------------------------------ --------------------------------
Mattress Fabrics $ 3,251 3,872 (16.0)% 11.6 % 10.8 %
Upholstery Fabrics (804) 201 N.M. (3.3)% 0.7 %
Unallocated corporate expenses (523) (873) (40.1)% (1.0)% (1.4)%
-------------- ------------- ------------- ------------- -------------
Subtotal 1,924 3,200 (39.9)% 3.7 % 5.0 %
Restructuring expense and restructuring
related charges (11,849)(2) (532) (4) N.M. (22.7)% (0.8)%
-------------- ------------- ------------- ------------- -------------
Operating (loss) income $ (9,925) 2,668 N.M. (19.0)% 4.1 %
============== ============= ============= ============= =============
Depreciation by Segment
------------------------------------------
Mattress Fabrics $ 935 898 4.1 %
Upholstery Fabrics 439 547 (19.7)%
-------------- ------------- -------------
Subtotal 1,374 1,445 (4.9)%
Accelerated depreciation 2,090 - 100.0 %
-------------- ------------- -------------
Total Depreciation 3,464 1,445 139.7 %
============== ============= =============
|
Notes:
(1) The $3.2 million restructuring related charge represents $2.1 million for
accelerated depreciation, $1.1 million for inventory markdowns, and $15 for
other operating costs associated with closed plant facilities. The $2
restructuring related charge represents other operating costs associated
with closed plant facilities.
(2) The $11.8 million represents $7.8 million for write-downs of a building and
equipment, $2.1 million for accelerated depreciation, $1.1 million for
inventory markdowns, $460 for lease termination and other exit costs, $362
for employee termination benefits, and $17 for other operating costs
associated with closed plant facilities. Of this total charge, $3.2
million, $2, and $8.6 million was recorded in cost of sales,
selling,general, and administrative expenses, and restructurintg expense,
respectively.
(3) The $591 restructuring related charge represents $348 for inventory
markdowns and $243 for other operating costs associated with closed plant
facilities. The $25 restructuring related charge represents other operating
costs associated with closed plant facilities.
(4) The $532 represents $348 for inventory markdowns, $268 for other operatings
costs associated with closed plant facilities, $179 for lease termination
and other exit costs, $73 for asset movement costs, $27 for write-downs of
a building and equipment, a credit of $114 for proceeds received on
equipment with no carrying value, and a credit of $249 for employee
termination benefits. Of this total charge, $591 was recorded in cost of
sales, $25 was recorded in selling, general, and administrative expenses,
and a credit of $84 was recorded in restructuring expense.
CULP, INC.
SALES, GROSS PROFIT AND OPERATING INCOME (LOSS) BY SEGMENT
FOR THE SIX MONTHS ENDED NOVEMBER 2, 2008 AND OCTOBER 28, 2007
(Amounts in thousands)
SIX MONTHS ENDED (UNAUDITED)
-----------------------------------------------------------------------------
Amounts Percent of Total Sales
----------------------------- -------------------------------
November 2, October 28, % Over November 2, October 28,
Net Sales by Segment 2008 2007 (Under) 2008 2007
-------------------------------------------------- ------------- ------------ ------------ -------------- --------------
Mattress Fabrics $ 63,610 72,546 (12.3)% 57.0 % 56.0 %
Upholstery Fabrics 47,975 57,020 (15.9)% 43.0 % 44.0 %
------------- ------------ ------------ -------------- --------------
Net Sales $ 111,585 129,566 (13.9)% 100.0 % 100.0 %
============= ============ ============ ============== ==============
Gross Profit by Segment Gross Profit Margin
-------------------------------------------------- -------------------------------
Mattress Fabrics $ 11,428 11,843 (3.5)% 18.0 % 16.3 %
Upholstery Fabrics 2,347 6,742 (65.2)% 4.9 % 11.8 %
------------- ------------ ------------ -------------- --------------
Subtotal 13,775 18,585 (25.9)% 12.3 % 14.3 %
Restructuring related charges (3,225)(1) (1,107)(3) 191.3 % (2.9)% (0.9)%
------------- ------------ ------------ -------------- --------------
Gross Profit $ 10,550 17,478 (39.6)% 9.5 % 13.5 %
============= ============ ============ ============== ==============
Selling, General and Administrative expenses by Segment Percent of Sales
------------------------------------------------------- -------------------------------
Mattress Fabrics $ 3,961 4,208 (5.9)% 6.2 % 5.8 %
Upholstery Fabrics 4,565 6,092 (25.1)% 9.5 % 10.7 %
Unallocated Corporate expenses 1,293 1,808 (28.5)% 1.2 % 1.4 %
------------- ------------ ------------ -------------- --------------
Subtotal 9,819 12,108 (18.9)% 8.8 % 9.3 %
Restructuring related charges 4 (1) 51 (3) (92.2)% 0.0 % 0.0 %
------------- ------------ ------------ -------------- --------------
Selling, General and Administrative expenses $ 9,823 12,159 (19.2)% 8.8 % 9.4 %
============= ============ ============ ============== ==============
Operating Income (loss) by Segment Operating Income (Loss) Margin
-------------------------------------------------- -------------------------------
Mattress Fabrics $ 7,467 7,635 (2.2)% 11.7 % 10.5 %
Upholstery Fabrics (2,218) 650 (441.2)% (4.6)% 1.1 %
Unallocated corporate expenses (1,293) (1,808) (28.5)% (1.2)% (1.4)%
------------- ------------ ------------ -------------- --------------
Subtotal 3,956 6,477 (38.9)% 3.5 % 5.0 %
Restructuring expense and restructuring
related charges (12,265)(2) (1,506)(4) N.M. (11.0)% (1.2)%
------------- ------------ ------------ -------------- --------------
Operating (loss) income $ (8,309) 4,971 N.M. (7.4)% 3.8 %
============= ============ ============ ============== ==============
Depreciation by Segment
--------------------------------------------------
Mattress Fabrics $ 1,693 1,795 (5.7)%
Upholstery Fabrics 940 1,097 (14.3)%
------------- ------------ ------------
Subtotal 2,633 2,892 (9.0)%
Accelerated depreciation 2,090 - 100.0 %
------------- ------------ ------------
Total depreciation 4,723 2,892 63.3 %
============= ============ ============
|
Notes:
(1) The $3.2 million represents restructuring related charges of $2.1 million
for accelerated depreciation, $1.1 million for inventory markdowns, and
$27 for other operating costs associated with closed plant facilities.
The $4 represents restructuring related charges for other operating costs
associated with closed plant facilities.
(2) The $12.3 million represents $7.8 million for write-downs of a building
and equipment, $2.1 million for accelerated depreciation, $1.1 million
for inventory markdowns, $776 for employee termination benefits, $447 for
lease termination and other exit costs, and $31 for other operating costs
associated with closed plant facilities. Of this total charge, $3.2
million, $4, and $9.0 million were recorded in cost of sales, selling,
general, and administrative expenses, and restructuring expense,
respectively.
(3) The $1.1 million represents restructuring related charges of $703 for
other operating costs associated with closed plant facilities and $404
for inventory markdowns. The $51 restructuring related charge represents
other operating costs associated with closed plant facilities.
(4) The $1.5 million represents $754 for other operating costs on closed
plant facilities, $546 for lease termination and other exit costs, $404
for inventory markdowns, $388 for write-downs of buildings and equipment,
$127 for asset movement costs, a credit of $315 for sales proceeds
received on equipment with no carrying value, and a credit of $398 for
employee termination benefits. Of this total charge, $1.1 million was
recorded in cost of sales, $51 was recorded in selling, general, and
administrative expenses, and $348 was recorded in restructuring expense.
Three and Six months ended November 2, 2008 compared with the Three and Six Months ended October 28, 2007
Overview
For the three months ended November 2, 2008, net sales decreased 19% to $52.3 million compared with $64.3 million for the second quarter of fiscal 2008. The company reported a net loss of $40.9 million, or $3.23 per diluted share, for the second quarter of fiscal 2009. The net loss of $40.9 million included a non-cash income tax charge of $31.2 million, or $0.76 per diluted share for the establishment of a valuation allowance against our net deferred tax assets regarding our U.S. and China operations. The company reported net income of $1.6 million or $0.12 per diluted share, for the second quarter of fiscal 2008. The company reported a loss before income taxes of $10.3 million, which includes restructuring and related charges of $11.8 million (of which $11.0 million and $839,000 represent non-cash and cash charges, respectively) for the second quarter of fiscal 2009. The company reported income before income taxes of $1.5 million, which includes restructuring and related charges of $532,000 (of which $158,000 and $374,000 represent cash and non-cash charges, respectively) for the second quarter of fiscal 2008.
For the six months ended November 2, 2008, net sales decreased 14% to $111.6 million compared with $129.6 million for the six months ended October 28, 2007. The company reported a net loss of $40.1 million, or $3.17 diluted share, for the six months ended November 2, 2008. The net loss of $40.1 million included a non-cash income tax charge of $31.2 million, or $0.78 per diluted share for the establishment of a valuation allowance against our net deferred tax assets regarding our U.S. and China operations. The company reported net income of $2.4 million, or $0.19 per diluted share, for the six months ended October 28, 2007. The company reported a loss before income taxes of $9.1 million, which includes restructuring and related charges of $12.3 million (of which $11.0 million and $1.3 million represent non-cash and cash charges, respectively) for the six months ended November 2, 2008. The company reported income before income taxes of $2.8 million, which includes restructuring and related charges of $1.5 million (of which $713,000 and $793,000 represent cash and non-cash charges, respectively) for the six months ended October 28, 2007.
Restructuring and Related Charges
September 2008 Upholstery Fabrics Restructuring Plan
On September 3, 2008, the board of directors approved changes to the upholstery fabric operations, including the consolidation of facilities in China and reduction of excess manufacturing capacity. Those actions were in response to the extremely challenging industry conditions for upholstery fabrics. Restructuring and related charges for this plan totaled $9.4 million, of which $6.6 million related to impairment charges on equipment, $2.1 million for accelerated depreciation, $437,000 for lease termination and other exit costs, $319,000 for inventory markdowns, $35,000 for employee termination benefits, and $3,000 for other operating costs associated with closed plant facilities. The plant closings associated with this restructuring plant were substantially completed by the end of the second quarter of fiscal 2009.
Three months ended November 2, 2008 compared with Three Months Ended October 28, 2007
During the second quarter of fiscal 2009, total restructuring and related charges were $11.8 million, of which $2.1 million related to accelerated depreciation in connection with the consolidation of plant facilities in China, $1.1 million for inventory markdowns related to further streamlining of the upholstery fabrics product line and raw material components, $460,000 for lease termination and other exit costs primarily related to the consolidation of plant facilities in China, $362,000 for employee termination benefits related to SG&A staffing reductions, and $17,000 for other operating costs associated with closed plant facilities.
The $11.8 million in restructuring and related charges also includes $7.8 million for fixed write-downs that consist of impairment charges of $2.2 million for fixed assets that were abandoned in connection with the consolidation of certain plant facilities in China and $795,000 for a reduction in selling price of the company's corporate headquarters to $4.0 million. This $4.0 million is recorded in assets held for sale in the 2009 consolidated balance sheet. In addition, during the course of the company's strategic review in the second quarter of its upholstery fabrics business, the company assessed the recoverability of the carrying value of its upholstery fabric fixed assets that were being held and used in operations. This strategic review resulted in impairment losses of $4.4 million and $456,000 for fixed assets located in China and the U.S., respectively. These losses reflect the amounts by which the carrying values of these fixed assets exceed their estimated fair values determined by their estimated future discounted cash flows and quoted market prices.
Of the total $11.8 million restructuring and related charges, $3.2 million was recorded in cost of sales, $2,000 was recorded in selling, general, and administrative expense, and $8.6 million was recorded in restructuring expense in the 2009 Consolidated Statement of Net Loss. Of the total $11.8 million restructuring and related charges, $9.4 million and $2.4 million pertained to the September 2008 Upholstery Fabrics and December 2006 Upholstery Fabrics restructuring plans.
During the second quarter of fiscal 2008, total restructuring and related charges were $532,000, of which $348,000 related to inventory markdowns, $268,000 for other operating costs associated with closed plant facilities, $179,000 for lease termination and other exit costs, $73,000 for asset movement costs, $27,000 for write-downs of a building and equipment, a credit of $114,000 for proceeds received on equipment with no carrying value, and a credit of $249,000 for employee termination benefits. Of this total charge, $591,000 was recorded in cost of sales, $25,000 was recorded in selling, general, and administrative expense, and a credit of $84,000 was recorded in restructuring expense in the 2008 Consolidated Statement of Net Income. These charges primarily relate to the December 2006 Upholstery Fabrics restructuring plan.
Six months ended November 2, 2008 compared with Six Months Ended October 28, 2007
During the six months ended November 2, 2008, total restructuring and related charges were $12.3 million, of which $7.8 million related to fixed asset impairments (see above paragraph for components of this impairment charge recorded in the second quarter of fiscal 2009), $2.1 million related to accelerated depreciation in connection with the consolidation of plant facilities in China, $1.1 million for inventory markdowns related to further streamlining of the upholstery fabrics product line and raw material components, $776,000 for employee termination benefits related to SG&A staffing reductions, $447,000 for lease termination and other exit costs primarily related to the consolidation of plant facilities in China, and $31,000 for other operating costs associated with closed plant facilities. Of the total $12.3 million restructuring and related charges, $3.2 million was recorded in cost of sales, $4,000 was recorded in selling, general, and administrative expense, and $9.0 million was recorded in restructuring expense in the 2009 Consolidated Statement of Net Loss. Of the total $12.3 million restructuring and related charges, $9.4 million and $2.9 million pertained to the September 2008 Upholstery Fabrics and December 2006 Upholstery Fabrics restructuring plans, respectively.
During the six months ended October 28, 2007, total restructuring and related charges were $1.5 million, of which $754,000 related to other operating costs associated with closed plant facilities, $546,000 for lease termination and other exit costs, $404,000 for inventory markdowns, $388,000 for write-downs of buildings and equipment, $127,000 for asset movement costs, a credit of $315,000 for sales proceeds received on equipment with no carrying value, and a credit of $398,000 for employee termination benefits. Of this total charge, $1.1 million was recorded in cost of sales, $51,000 was recorded in selling, general, and administrative expense, and $348,000 was recorded in restructuring expense in the 2008 Consolidated Statement of Net Income. These charges primarily relate to the December 2006 Upholstery Fabrics restructuring plan.
Mattress Fabrics Segment
Asset Acquisition
Pursuant to an Asset Purchase Agreement among the company, Bodet & Horst USA, LP and Bodet & Horst GMBH & Co. KG (collectively "Bodet & Horst") dated August 11, 2008, the company purchased certain assets and assumed certain liabilities of . . .
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