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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 31, 2021

Commission File No. 1-12597

CULP, INC.

(Exact name of registrant as specified in its charter)

 

NORTH CAROLINA

56-1001967

(State or other jurisdiction of

incorporation or other organization)

(I.R.S. Employer

Identification No.)

 

1823 Eastchester Drive

 

High Point, North Carolina

27265-1402

(Address of principal executive offices)

(zip code)

 

(336) 889-5161

(Registrant'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

Common Stock, par value $.05/ Share

 

CULP

 

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES NO

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). YES NO

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

 

 

 

 

 

Non-accelerated filer

 

 

Smaller Reporting Company

 

 

 

 

 

 

 

 

 

Emerging Growth Company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES NO

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common shares outstanding at March 10, 2021: 12,308,357

Par Value: $0.05 per share

 

 

 

 


 

INDEX TO FORM 10-Q

 

For the period ended November 1, 2020

 

 

 

Part I - Financial Statements

 

Page

 

 

 

 

 

Item 1.

 

Financial Statements: (Unaudited)

 

I-1

 

 

 

 

 

 

 

Consolidated Statements of Net Income (Loss) — Three and Nine Months Ended January 31, 2021, and February 2, 2020

 

I-1

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) – Three and Nine Months Ended January 31, 2021, and February 2, 2020

 

I-2

 

 

 

 

 

 

 

Consolidated Balance Sheets — January 31, 2021, February 2, 2020 and May 3, 2020

 

I-3

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows — Nine Months Ended January 31, 2021, and February 2, 2020

 

I-4

 

 

 

 

 

 

 

Consolidated Statements of Shareholders’ Equity – Nine Months Ended January 31, 2021

 

I-5

 

 

 

 

 

 

 

Consolidated Statements of Shareholders’ Equity – Nine Months Ended February 2, 2020

 

I-6

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

I-7

 

 

 

 

 

 

 

Cautionary Statement Concerning Forward-Looking Information

 

I-36

 

 

 

 

 

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

I-37

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

I-52

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

I-52

 

 

 

 

 

 

 

Part II - Other Information

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

II-1

 

 

 

 

 

Item 1A.

 

Risk Factors

 

II-1

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

II-1

 

 

 

 

 

Item 6.

 

Exhibits

 

II-2

 

 

 

 

 

Signatures

 

II-3

 

 

 

 


 

Item 1: Financial Statements

CULP, INC.

CONSOLIDATED STATEMENTS OF NET INCOME (LOSS)

FOR THE THREE AND NINE MONTHS ENDED JANUARY 31, 2021 AND FEBRUARY 2, 2020

UNAUDITED

(Amounts in Thousands, Except for Per Share Data)

 

 

 

THREE MONTHS ENDED

 

 

 

January 31

 

 

February 2,

 

 

 

2021

 

 

2020

 

Net sales

 

$

79,341

 

 

$

68,518

 

Cost of sales

 

 

(65,469

)

 

 

(56,998

)

Gross profit from continuing operations

 

 

13,872

 

 

 

11,520

 

Selling, general and administrative expenses

 

 

(9,835

)

 

 

(8,831

)

Restructuring credit

 

 

 

 

 

35

 

Income from continuing operations

 

 

4,037

 

 

 

2,724

 

Interest income

 

 

90

 

 

 

258

 

Other expense

 

 

(1,010

)

 

 

(282

)

Income before income taxes from continuing operations

 

 

3,117

 

 

 

2,700

 

Income tax expense

 

 

(899

)

 

 

(1,619

)

Loss from investment in unconsolidated joint venture

 

 

(136

)

 

 

(56

)

Net income from continuing operations

 

 

2,082

 

 

 

1,025

 

Loss before income taxes from discontinued operation

 

 

 

 

 

(7,824

)

Income tax benefit

 

 

 

 

 

2,592

 

Net loss from discontinued operation

 

 

 

 

 

(5,232

)

Net income (loss)

 

$

2,082

 

 

$

(4,207

)

Net income from continuing operations per share - basic

 

$

0.17

 

 

$

0.08

 

Net income from continuing operations per share - diluted

 

$

0.17

 

 

$

0.08

 

Net loss from discontinued operation per share - basic

 

$

 

 

$

(0.42

)

Net loss from discontinued operation per share - diluted

 

$

 

 

$

(0.42

)

Net income (loss) per share - basic

 

$

0.17

 

 

$

(0.34

)

Net income (loss) per share - diluted

 

$

0.17

 

 

$

(0.34

)

Average shares outstanding, basic

 

 

12,305

 

 

 

12,409

 

Average shares outstanding, diluted

 

 

12,369

 

 

 

12,420

 

 

 

 

NINE MONTHS ENDED

 

 

 

January 31

 

 

February 2,

 

 

 

2021

 

 

2020

 

Net sales

 

$

220,656

 

 

$

208,787

 

Cost of sales

 

 

(182,621

)

 

 

(171,329

)

Gross profit from continuing operations

 

 

38,035

 

 

 

37,458

 

Selling, general and administrative expenses

 

 

(27,597

)

 

 

(27,097

)

Restructuring credit

 

 

 

 

 

70

 

Income from continuing operations

 

 

10,438

 

 

 

10,431

 

Interest expense

 

 

(51

)

 

 

(21

)

Interest income

 

 

208

 

 

 

776

 

Other expense

 

 

(2,057

)

 

 

(476

)

Income before income taxes from continuing operations

 

 

8,538

 

 

 

10,710

 

Income tax expense

 

 

(6,836

)

 

 

(5,590

)

Income (loss) from investment in unconsolidated joint venture

 

 

31

 

 

 

(59

)

Net income from continuing operations

 

 

1,733

 

 

 

5,061

 

Loss before income taxes from discontinued operation

 

 

 

 

 

(8,886

)

Income tax benefit

 

 

 

 

 

2,984

 

Net loss from discontinued operation

 

 

 

 

 

(5,902

)

Net income (loss)

 

$

1,733

 

 

$

(841

)

Net income from continuing operations per share - basic

 

$

0.14

 

 

$

0.41

 

Net income from continuing operations per share - diluted

 

$

0.14

 

 

$

0.41

 

Net loss from discontinued operation per share - basic

 

$

 

 

$

(0.48

)

Net loss from discontinued operation per share - diluted

 

$

 

 

$

(0.48

)

Net income (loss) per share - basic

 

$

0.14

 

 

$

(0.07

)

Net income (loss) per share - diluted

 

$

0.14

 

 

$

(0.07

)

Average shares outstanding, basic

 

 

12,297

 

 

 

12,405

 

Average shares outstanding, diluted

 

 

12,299

 

 

 

12,421

 

 

See accompanying notes to consolidated financial statements.

 

I-1

 


 

CULP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE THREE AND NINE MONTHS ENDED JANUARY 31, 2021 AND FEBRUARY 2, 2020

UNAUDITED

(Amounts in Thousands)

 

 

 

 

THREE MONTHS ENDED

 

 

 

January 31,

 

 

February 2,

 

 

 

2021

 

 

2020

 

Net income (loss)

 

$

2,082

 

 

$

(4,207

)

 

 

 

 

 

 

 

 

 

Unrealized holding gains on investments, net of tax

 

 

91

 

 

 

49

 

Comprehensive income (loss)

 

$

2,173

 

 

$

(4,158

)

Plus: Comprehensive loss attributable to noncontrolling

    interest associated with discontinued operation

 

 

 

 

 

4,149

 

Comprehensive income (loss) attributable to Culp, Inc.

   common shareholders

 

$

2,173

 

 

$

(9

)

 

 

 

 

NINE MONTHS ENDED

 

 

 

January 31,

 

 

February 2,

 

 

 

2021

 

 

2020

 

Net income (loss)

 

$

1,733

 

 

$

(841

)

 

 

 

 

 

 

 

 

 

Unrealized holding gains on investments, net of tax

 

 

121

 

 

 

64

 

Reclassification adjustment for realized loss on investments

 

 

6

 

 

 

 

Comprehensive income (loss)

 

$

1,860

 

 

$

(777

)

Plus: Comprehensive loss attributable to noncontrolling

    interest associated with discontinued operation

 

 

 

 

 

4,421

 

Comprehensive income attributable to Culp, Inc.

   common shareholders

 

$

1,860

 

 

$

3,644

 

 

See accompanying notes to consolidated financial statements.

 

I-2

 


 

CULP, INC.

CONSOLIDATED BALANCE SHEETS

JANUARY 31, 2021, FEBRURAY 2, 2020, AND MAY 3, 2020

UNAUDITED

(Amounts in Thousands)

 

 

 

January 31,

 

 

February 2,

 

 

* May 3,

 

 

 

2021

 

 

2020

 

 

2020

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

35,987

 

 

 

21,640

 

 

 

69,790

 

Short-term investments - held-to-maturity

 

 

9,785

 

 

 

3,171

 

 

 

4,271

 

Short-term investments - available for sale

 

 

5,548

 

 

 

7,580

 

 

 

923

 

Accounts receivable

 

 

36,397

 

 

 

25,848

 

 

 

25,093

 

Inventories

 

 

57,794

 

 

 

54,009

 

 

 

47,907

 

Current income taxes receivable

 

 

 

 

 

776

 

 

 

1,585

 

Current assets - discontinued operation

 

 

 

 

 

4,738

 

 

 

 

Other current assets

 

 

3,116

 

 

 

3,112

 

 

 

2,116

 

Total current assets

 

 

148,627

 

 

 

120,874

 

 

 

151,685

 

Property, plant and equipment, net

 

 

42,385

 

 

 

44,652

 

 

 

43,147

 

Goodwill

 

 

 

 

 

13,569

 

 

 

 

Intangible assets

 

 

3,098

 

 

 

3,617

 

 

 

3,380

 

Long-term investments - rabbi trust

 

 

8,232

 

 

 

7,804

 

 

 

7,834

 

Long-term investments - held-to-maturity

 

 

512

 

 

 

2,224

 

 

 

2,076

 

Right of use assets

 

 

6,206

 

 

 

4,574

 

 

 

3,903

 

Noncurrent income taxes receivable

 

 

 

 

 

733

 

 

 

 

Deferred income taxes

 

 

640

 

 

 

920

 

 

 

793

 

Investment in unconsolidated joint venture

 

 

1,723

 

 

 

1,668

 

 

 

1,602

 

Long-term note receivable affiliated with discontinued operation

 

 

 

 

 

1,800

 

 

 

 

Noncurrent assets - discontinued operation

 

 

 

 

 

9,241

 

 

 

 

Other assets

 

 

555

 

 

 

464

 

 

 

664

 

Total assets

 

$

211,978

 

 

 

212,140

 

 

 

215,084

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Line of credit - China operations

 

$

 

 

 

 

 

 

1,015

 

Paycheck Protection Program Loan

 

 

 

 

 

 

 

 

7,606

 

Accounts payable - trade

 

 

44,946

 

 

 

20,422

 

 

 

23,002

 

Accounts payable - capital expenditures

 

 

240

 

 

 

175

 

 

 

107

 

Operating lease liability - current

 

 

2,273

 

 

 

2,033

 

 

 

1,805

 

Deferred revenue

 

 

228

 

 

 

398

 

 

 

502

 

Accrued expenses

 

 

13,574

 

 

 

7,257

 

 

 

5,687

 

Current liabilities - Discontinued operation

 

 

 

 

 

2,094

 

 

 

 

Income taxes payable - current

 

 

1,129

 

 

 

455

 

 

 

395

 

Total current liabilities

 

 

62,390

 

 

 

32,834

 

 

 

40,119

 

Line of credit - U.S. operations

 

 

 

 

 

 

 

 

29,750

 

Accrued expenses - long-term

 

 

 

 

 

233

 

 

 

167

 

Operating lease liability - long-term

 

 

4,179

 

 

 

2,384

 

 

 

2,016

 

Income taxes payable - long-term

 

 

3,325

 

 

 

3,442

 

 

 

3,796

 

Deferred income taxes

 

 

5,543

 

 

 

2,013

 

 

 

1,818

 

Deferred compensation

 

 

8,179

 

 

 

7,637

 

 

 

7,720

 

Noncurrent liabilities - discontinued operation

 

 

 

 

 

3,501

 

 

 

 

Total liabilities

 

 

83,616

 

 

 

52,044

 

 

 

85,386

 

Commitments and Contingencies (Notes 11, 18 and 19)

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock, $0.05 par value, authorized 10,000,000

 

 

 

 

 

 

 

 

 

Common stock, $0.05 par value, authorized 40,000,000 shares, issued

   and outstanding 12,308,357 at January 31, 2021; 12,361,180 at February 2,

   2020; and 12,284,946 at May 3, 2020

 

 

615

 

 

 

618

 

 

 

615

 

Capital contributed in excess of par value

 

 

43,323

 

 

 

43,748

 

 

 

42,582

 

Accumulated earnings

 

 

84,307

 

 

 

115,373

 

 

 

86,511

 

Accumulated other comprehensive income (loss)

 

 

117

 

 

 

104

 

 

 

(10

)

Total shareholders' equity attributable to Culp, Inc.

 

 

128,362

 

 

 

159,843

 

 

 

129,698

 

Noncontrolling interest - discontinued operation

 

-

 

 

 

253

 

 

 

 

Total equity

 

 

128,362

 

 

 

160,096

 

 

 

129,698

 

Total liabilities and shareholders' equity

 

$

211,978

 

 

 

212,140

 

 

 

215,084

 

 

* Derived from audited financial statements.

See accompanying notes to consolidated financial statements.

 

 

I-3

 


 

CULP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED JANUARY 31, 2021 AND FEBRUARY 2, 2020

UNAUDITED

(Amounts in Thousands)

 

 

 

NINE MONTHS ENDED

 

 

 

January 31,

 

 

February 2,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

1,733

 

 

 

(841

)

Adjustments to reconcile net income (loss) to net cash provided by

     (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

5,203

 

 

 

5,880

 

Amortization

 

 

350

 

 

 

530

 

Stock-based compensation

 

 

766

 

 

 

831

 

Asset impairments

 

 

 

 

 

13,639

 

Reversal of contingent consideration associated with

     discontinued operation

 

 

 

 

 

(6,081

)

Deferred income taxes

 

 

3,878

 

 

 

(1,626

)

Gain on disposal of equipment

 

 

 

 

 

(275

)

Realized loss on short-term investments available for sale

 

 

6

 

 

 

 

(Income) loss from investment in unconsolidated joint venture

 

 

(31

)

 

 

59

 

Foreign currency exchange loss (gain)

 

 

1,554

 

 

 

(15

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(10,951

)

 

 

(2,885

)

Inventories

 

 

(9,067

)

 

 

(7,016

)

Other current assets

 

 

(709

)

 

 

(527

)

Other assets

 

 

(57

)

 

 

159

 

Accounts payable – trade

 

 

19,615

 

 

 

(2,475

)

Deferred revenue

 

 

(274

)

 

 

(1

)

Accrued expenses and deferred compensation

 

 

7,920

 

 

 

542

 

Accrued restructuring costs

 

 

 

 

 

(124

)

Income taxes

 

 

1,715

 

 

 

(293

)

Net cash provided by (used in) operating activities

 

 

21,651

 

 

 

(519

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(4,320

)