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| CFI > SEC Filings for CFI > Form 10-K on 16-Jul-2009 | All Recent SEC Filings |
16-Jul-2009
Annual Report
The following analysis of the financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes attached thereto.
Overview
Our fiscal year is the 52 or 53 week period ending on the Sunday closest to April 30. The year ended May 3, 2009 included 53 weeks. The years ended and April 27, 2008 and April 29, 2007, each included 52 weeks. Our operations are classified into two business segments: mattress fabrics and upholstery fabrics. The mattress fabrics segment primarily manufactures, sources, and sells fabrics to bedding manufacturers. The upholstery fabrics segment sources, manufacturers and sells fabrics primarily to residential and commercial (contract) furniture manufacturers.
We evaluate the operating performance of our segments based upon income (loss) from operations before restructuring and related charges, certain unallocated corporate expenses, and other non-recurring items. Cost of sales in both segments include costs to 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 compensation and benefits for certain executive officers and all costs related to being a public company. Segment assets include assets used in the operation 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 current and non-current assets purchased during fiscal 2007 from the International Textile Group, Inc. (ITG) related to its mattress product line and purchased in fiscal 2009 from Bodet & Horst USA, LP and Bodet & Horst GMBH & Co. KG (Bodet & Horst) related to its knitted mattress fabric operation. The upholstery fabrics segment also includes assets held for sale in segment assets.
For fiscal 2009, our overall net sales decreased 20% to $203.9 million, compared with $254.0 million for fiscal 2008. This sales decrease reflects unprecedented weak consumer demand in both the bedding and furniture industries and the planned discontinuance of certain products in both segments. The company reported a pre-tax loss of $6.9 million, which includes restructuring and related charges of $13.1 million, for fiscal 2009. We reported pre-tax income of $4.8 million, which includes restructuring and related charges of $2.9 million in fiscal 2008. The change in the our pre-tax results primarily results from an increase in restructuring and related charges in the upholstery fabrics segment of $13.1 million in fiscal 2009 compared with $2.9 million, in fiscal 2008. Of the $13.1 million restructuring and related charges in fiscal 2009, $11.5 million and $1.6 million represent non-cash and cash charges, respectively. Of the $2.9 million restructuring and related charges in fiscal 2008, $1.5 million and $1.4 million represent non-cash and cash charges, respectively.
We reported a net loss of $38.8 million in fiscal 2009, or $3.07 per diluted share, compared with net income of $5.4 million, or $0.42 per diluted share, for fiscal 2008. The net loss for fiscal 2009 included a $27.2 million non-cash charge, or $2.15 per diluted share, for the establishment of a valuation allowance against substantially all of our net deferred tax assets, and $13.1 million, or $1.03 per diluted share, in restructuring and related charges noted above.
At the segment level, mattress fabrics reported sales of $115.4 million in fiscal 2009 compared with $138.1 million for fiscal 2008. Operating income was $13.2 million in fiscal 2009 compared with $14.1 million in fiscal 2008. Operating margins improved to 11.5% in fiscal 2009 compared with 10.2% in fiscal 2008. Despite lower sales, operating margins increased due to operational improvements made possible by capital projects and the acquisition of the knitted mattress fabrics operation of Bodet & Horst. For upholstery fabrics, net sales were $88.5 million in fiscal 2009 compared with $115.9 million for fiscal 2008. Operating loss for fiscal 2009 was $1.5 million compared with operating income of $1.2 million in fiscal 2008. This decrease in earnings reflects the continued soft demand industry wide for upholstery fabrics. Although the segment experienced an operating loss for fiscal 2009, substantial improvement was achieved in the second half of fiscal 2009, leading to an approximate $700,000 operating profit in the third and fourth quarters.
From a balance sheet perspective, in spite of the unprecedented weak consumer demand in the bedding and furniture industries and the resulting net loss, our financial position strengthened in fiscal 2009. Our cash and cash equivalents were $11.8 million at May 3, 2009 compared with $4.9 million at April 27, 2008. This increase in cash and cash equivalents reflects cash flow from operations in fiscal 2009 of $22.8 million compared with $16.4 million in fiscal 2008. The increase in cash flow from operations is due to consistent profitability in the mattress fabrics segment and working capital reductions in both segments. We repaid $16.1 million in long-term debt in fiscal 2009, of which $4.6 million related to principal payments due in March and June 2010. Our long-term debt balance was $16.4 million and $21.4 million at May 3, 2009 and April 27, 2008, respectively. The long-term debt balance of $16.4 million includes an $11.0 million unsecured term loan added in the second quarter of fiscal 2009 to finance the purchase of the knitted mattress fabrics operation of Bodet & Horst. Also, our long-term debt balance of $16.4 million is unsecured, with scheduled principal payments of $4.7 million, $168,000, and $2.4 million in fiscal 2010, 2011, and 2012, respectively.
Results of Operations
The following table sets forth certain items in the company's consolidated statements of net (loss) income as a percentage of net sales.
2009 2008 2007
Net sales 100.0 % 100.0 % 100.0 %
Cost of sales 87.9 86.9 87.5
Gross profit 12.1 13.1 12.5
Selling, general and administrative expenses 9.7 9.4 10.8
Restructuring expense 4.6 0.3 1.4
(Loss) income from operations (2.2 ) 3.3 0.3
Interest expense, net 1.2 1.1 1.4
Other expense 0.0 0.3 0.0
(Loss) income before income taxes (3.4 ) 1.9 (1.2 )
Income taxes * (464.3 ) (11.2 ) 56.1
Net (loss) income (19.0 )% 2.1 % (0.5 )%
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* Calculated as a percentage of (loss) income before income taxes.
The following tables set forth the company's statements of operations by segment for the fiscal years ended May 3, 2009, April 27, 2008, and April 29, 2007.
YEARS ENDED
Amounts Percent of Total Sales
May 3, April 27, % Over May 3, April 27,
Net Sales by Segment 2009 2008 (Under) 2009 2008
Mattress Fabrics $ 115,396 138,064 (16.4 ) % 56.6 % 54.3 %
Upholstery Fabrics 88,542 115,982 (23.7 ) % 43.4 % 45.7 %
Net Sales $ 203,938 254,046 (19.7 ) % 100.0 % 100.0 %
Gross Profit by Segment Gross Profit Margin
Mattress Fabrics $ 20,996 22,576 (7.0 ) % 18.2 % 16.4 %
Upholstery Fabrics 7,253 12,829 (43.5 ) % 8.2 % 11.1 %
Subtotal 28,249 35,405 (20.2 ) % 13.9 % 13.9 %
Loss on impairment of
equipment - (289 ) (2 ) (100.0 ) % 0.0 % (0.1 ) %
Restructuring related
charges (3,597 ) (1 ) (1,957 ) (1 ) 83.8 % (1.8 ) % (0.8 ) %
Gross Profit $ 24,652 33,159 (25.7 ) % 12.1 % 13.1 %
Selling, General and
Administrative
expenses by Segment Percent of Sales
Mattress Fabrics $ 7,749 8,457 (8.4 ) % 6.7 % 6.1 %
Upholstery Fabrics 8,756 11,650 (24.8 ) % 9.9 % 10.0 %
Unallocated Corporate 3,225 3,797 (15.1 ) % 1.6 % 1.5 %
Subtotal 19,730 23,904 (17.5 ) % 9.7 % 9.4 %
Restructuring related
charges 21 (1 ) 69 (1 ) (69.6 ) % 0.0 % 0.0 %
Selling, General and
Administrative expenses $ 19,751 23,973 (17.6 ) % 9.7 % 9.4 %
Operating Income
(loss) by Segment Operating Income (Loss) Margin
Mattress Fabrics $ 13,247 14,118 (6.2 ) % 11.5 % 10.2 %
Upholstery Fabrics (1,503 ) 1,180 N.M. (1.7 ) % 1.0 %
Unallocated Corporate (3,225 ) (3,797 ) (15.1 ) % (1.6 ) % (1.5 ) %
Subtotal 8,519 11,501 (25.9 ) % 4.2 % 4.5 %
Loss on impairment of
equipment - (289 ) (2 ) (100.0 ) % 0.0 % (0.1 ) %
Restructuring expense and
restructuring related
charges (13,089 ) (1 ) (2,912 ) (1 ) N.M. (6.4 ) % (1.1 ) %
Operating (loss)
income $ (4,570 ) 8,300 N.M. (2.2 ) % 3.3 %
Depreciation by Segment
Mattress Fabrics $ 3,542 3,443 2.9 %
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Notes:
(1) See restructuring and related charges section of Management's Discussion and Analysis for detailed explanation of charges.
(2) The $289 represents an impairment loss on older and existing equipment that is being replaced by newer and more efficient equipment. This impairment loss pertains to the mattress fabrics segment.
YEARS ENDED
Amounts Percent of Total Sales
April 27, April 29, % Over April 27, April 29,
Net Sales by Segment 2008 2007 (Under) 2008 2007
Mattress Fabrics $ 138,064 107,797 28.1 % 54.3 % 43.0 %
Upholstery Fabrics 115,982 142,736 (18.7 ) % 45.7 % 57.0 %
Net Sales $ 254,046 250,533 1.4 % 100.0 % 100.0 %
Gross Profit by Segment Gross Profit Margin
Mattress Fabrics $ 22,576 18,610 21.3 % 16.4 % 17.3 %
Upholstery Fabrics 12,829 17,397 (26.3 ) % 11.1 % 12.2 %
Subtotal 35,405 36,007 (1.7 ) % 13.9 % 14.4 %
Loss on impairment of
equipment (289 ) (2 ) - (100.0 ) % (0.1 ) % 0.0 %
Restructuring related
charges (1,957 ) (1 ) (4,802 ) (1 ) (59.2 ) % (0.8 ) % (1.9 ) %
Gross Profit $ 33,159 31,205 6.3 % 13.1 % 12.5 %
Selling, General and
Administrative
expenses by Segment Percent of Sales
Mattress Fabrics $ 8,457 7,856 7.7 % 6.1 % 7.3 %
Upholstery Fabrics 11,650 15,065 (22.7 ) % 10.0 % 10.6 %
Unallocated Corporate
expenses 3,797 4,051 (6.3 ) % 1.5 % 1.6 %
Subtotal 23,904 26,972 (11.4 ) % 9.4 % 10.8 %
Restructuring related
charges 69 (1 ) 58 (1 ) 19.0 % 0.0 % 0.0 %
Selling, General and
Administrative expenses $ 23,973 27,030 (11.3 ) % 9.4 % 10.8 %
Operating Income
(loss) by Segment Operating Income (Loss) Margin
Mattress Fabrics $ 14,118 10,754 31.3 % 10.2 % 10.0 %
Upholstery Fabrics 1,180 2,332 (49.4 ) % 1.0 % 1.6 %
Unallocated corporate
expenses (3,797 ) (4,051 ) (6.3 ) % (1.5 ) % (1.6 ) %
Subtotal 11,501 9,035 27.3 % 4.5 % 3.6 %
Loss on impairment of
equipment (289 ) (2 ) - (100.0 ) % (0.1 ) % 0.0 %
Restructuring expense
and restructuring
related charges (2,912 ) (1 ) (8,394 ) (1 ) (65.3 ) % (1.1 ) % (3.4 ) %
Operating income $ 8,300 641 N.M. 3.3 % 0.3 %
Depreciation by Segment
Mattress Fabrics $ 3,443 3,679 (6.4 ) %
Upholstery Fabrics 2,105 2,923 (28.0 ) %
Subtotal 5,548 6,602 (16.0 ) %
Accelerated Depreciation - 1,247 (100.0 ) %
Total Depreciation $ 5,548 7,849 (29.3 ) %
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