Culp announces results for second quarter fiscal 2021
High point, n.c.--(business wire)--culp, inc. (nyse: culp) today reported financial and operating results for the second quarter ended november 1, 2020. fiscal 2021 second quarter financial summary(1) net sales were $76.9 million, up 10.5 percent over the prior-year period, with mattress fabric sales up 12.2 percent and upholstery fabric sales up 8.7 percent compared with the second quarter of last year. pre-tax income from continuing operations improved sequentially to $3.9 million, which included $680,000 in other expense relating mostly to foreign exchange rate fluctuations associated with china, compared with pre-tax income from continuing operations of $4.5 million for the prior-year period, which included $99,000 in other expense. net income from continuing operations was $2.4 million, or $0.19 per diluted share, compared with net income from continuing operations of $2.2 million, or $0.18 per diluted share, for the prior-year period. the company’s financial position reflected increased total cash and investments of $56.5 million and no outstanding borrowings as of november 1, 2020. this compares with a net cash position of $38.7 million as of the end of the fourth quarter of fiscal 2020. (see summary of cash and investments table on page 9.) cash flow from operations and free cash flow for the first six months of fiscal 2021 were $22.7 million and $20.5 million, respectively, compared with cash flow from operations and free cash flow of $8.2 million and $5.6 million, respectively, for the prior-year period. (see reconciliation table on page 11.) the company announced a five percent increase in its quarterly cash dividend to $0.11 per share, commencing in the third quarter of fiscal 2021. at an annual indicated dividend of $0.44 per share, the yield is 3.03%, based upon yesterday’s closing stock price of $14.50 per share. notably, this is the company’s eighth straight year of increasing its annual dividend. (1) during the fourth quarter of fiscal 2020, the company sold its majority ownership interest in eluxury, llc, resulting in the elimination of its home accessories segment. accordingly, the financial results for this segment are excluded from the reported financial performance of the company’s continuing operations and are presented as a discontinued operation in the company’s consolidated financial statements. financial outlook due to the continued economic impact of the covid-19 pandemic and the lack of visibility as to its duration, the company is providing only limited financial guidance for fiscal 2021 at this time. although subject to unforeseen changes that may arise in connection with the pandemic, the company is encouraged by the ongoing execution of its product-driven strategy and continued strength in demand for home furnishing products, as well as its opportunities for market share growth. the company expects sales and operating income for the third quarter of fiscal 2021 to be comparable to the prior-year period, with the mattress fabrics segment continuing its strong rebound and the upholstery fabrics segment facing ongoing headwinds relating to foreign exchange rate fluctuations associated with its operations located in china, customer supply chain constraints, and sales mix. the company also expects sales and operating income for the fourth quarter of fiscal 2021 to be dramatically improved for both segments as compared to the fourth quarter of fiscal 2020. commenting on the results, iv culp, president and chief executive officer of culp, inc., said, “we are pleased with our strong performance for the second quarter of fiscal 2021, which reflects the tireless efforts of our associates around the world and the strength and resilience of our global platform. our dedicated team has done an outstanding job in following the protocols we have put in place to operate safely, while also meeting the rapid surge in demand with the high level of service and product quality that our customers know and expect from us. as we continue to navigate our way through these uncertain times, our top priority remains the health and safety of our employees, customers, suppliers, and the communities we serve. we are incredibly proud of our team’s continued drive to deliver innovative products and satisfy the evolving needs of our customers, while also integrating enhanced safety practices and new ways of working virtually throughout our business. “overall, we are very pleased with the top line performance for both our mattress fabrics and upholstery fabrics segments. this faster-than-expected recovery indicates an increased consumer focus on the home environment, as well as our ability to service this increase in demand through our strong global platform and stable supply chain. we are also benefitting from market share gains as our innovative products are resonating well with both new and existing customers. additionally, we delivered significant sequential improvement in operating income as compared to the first quarter, consistent with our expectations. “we further strengthened our balance sheet with increased liquidity, as total cash and investments reached $56.5 million. based on this strong financial performance, we are pleased to announce that our board of directors approved a five percent increase in our quarterly dividend, which marks the eighth consecutive year of increasing our annual dividend. this is consistent with our capital allocation strategy and our commitment to generate value for our shareholders. “looking ahead, our customers’ ability to meet their demand is being challenged by supply chain constraints related primarily to non-fabric components, as well as labor shortages, which could temporarily delay their scheduled delivery of fabric orders from both our mattress and upholstery fabrics segments. additionally, the ongoing impact and duration of the covid-19 pandemic remains unknown. we are prepared for a range of macroeconomic scenarios and are confident in our ability to weather these near-term headwinds. barring additional shutdowns, we are optimistic, based on current industry demand trends and market share opportunities, that we will deliver strong results in the second half of fiscal 2021. we are well positioned for continued growth and look forward to the opportunities ahead for our business in fiscal 2021,” added culp. segment update mattress fabrics segment sales for this segment were $40.0 million for the second quarter, up 12.2 percent compared with sales of $35.7 million in the second quarter of fiscal 2020. “we were especially encouraged by the strong growth in sales and operating income for the mattress fabric segment during the second quarter,” said sandy brown, president of culp’s mattress fabrics division. “the covid-19 pandemic has generated greater consumer awareness and appreciation for overall comfort and wellness within the home environment, leading to an increase in discretionary spending on home furnishing products, including mattresses. we built on the momentum generated during the last eight weeks of the first quarter by utilizing our product-driven strategy for both mattress fabrics and sewn covers, as well as our global supply chain and dedicated attention to our customers. the strength and flexibility of our global manufacturing and sourcing operations in the u.s., canada, haiti, asia, and turkey enabled us to support current demand and serve the needs of our mattress fabric and cover customers. “we remain pleased with the growth of our sewn mattress cover business, with demand trends for mattress covers exceeding pre-covid levels. this trend is driven by the ongoing growth in the boxed bedding space, and we continue to work collaboratively with new and existing customers to develop fresh, innovative products. “during this uncertain and rapidly evolving environment, we have managed our business with a firm focus on creative designs, innovative fabric and sewn cover products, and exceptional service. we are excited about ongoing developments in product innovation, including expanding our specialty finish options and virtual rendering services. we also expect that our increased capacity in north america resulting from our investment in additional equipment will be available during the fourth quarter of fiscal 2021. finally, we believe that the domestic mattress industry, and, in turn, our business, will benefit from the recent preliminary antidumping duties imposed by the u.s. department of commerce on mattress importers from seven countries. “barring additional shutdowns or significant disruption in our customers’ supply chain for raw materials other than fabric, we believe we are well positioned to execute our strategy and increase market share during the second half of fiscal 2021,” added brown. upholstery fabrics segment sales for this segment were $36.8 million for the second quarter, up 8.7 percent compared with sales of $33.9 million in the second quarter of fiscal 2020. “we were very pleased with the solid growth in our upholstery fabric sales for the second quarter,” said boyd chumbley, president of culp’s upholstery fabrics division. “our residential upholstery business saw a significant increase in sales compared to the prior-year period, driven primarily by the increased consumer focus on the at-home experience and overall comfort. through our strong platform in asia, including our expanded cut and sew capabilities in vietnam and our stable, long-term supplier relationships, we were able to respond quickly to meet the upsurge in demand from our customers and increase our market share. we have also generated a historically strong backlog in our residential upholstery business, reflecting the ongoing favorable demand trends for this business. “our line of highly durable, stain-resistant livesmart® performance fabrics, as well as our line of livesmart evolve® performance plus sustainability fabrics, continued to experience favorable demand trends. we also recently launched livesmart ultra™, which features a new antimicrobial finish as the next step in our livesmart performance brand evolution. these livesmart performance fabrics are important drivers of growth in our residential business. “our hospitality business remained under pressure by the ongoing covid-19 disruption that continued to affect the travel and leisure industries. these lingering pressures also affected read window products, our window treatment and installation business, during the quarter. while sales for our hospitality business remained relatively stable as compared to the first quarter, we expect that the disruption in hospitality and leisure will continue to affect this business in the near-term. “additionally, while we saw a material sequential improvement in our operating income as compared to the first quarter of fiscal 2021, our second quarter results compared to the prior-year period were materially affected by unfavorable china foreign exchange rate fluctuations, as well as sales mix. we expect these factors will continue to affect our operating income during the third quarter. despite these pressures, we were encouraged by our solid operating margin for the second quarter. “we are encouraged by the strong backlog in our residential upholstery business and are confident in our ability to meet this demand. we expect the strong performance in our residential upholstery business to continue, absent additional pandemic-related shutdowns or material disruption in our customers’ supply chain,” added chumbley. balance sheet “as the ongoing impact of the covid-19 pandemic remains uncertain, maintaining a strong financial position remains one of culp’s top priorities for fiscal 2021,” added ken bowling, executive vice president and chief financial officer of culp, inc. “as of november 1, 2020, we reported $56.5 million in total cash and investments and no outstanding borrowings, up from our $38.7 million net cash position as of the end of the fourth quarter of fiscal 2020. for the first six months of fiscal 2021, we incurred $2.0 million in capital expenditures and spent $2.6 million on regular dividends. we also generated cash flow from operations of $22.7 million and free cash flow from operations of $20.5 million for the first half of fiscal 2021, compared with cash flow from operations of $8.2 million and free cash flow of $5.6 million for the prior-year period. (see reconciliation table on page 11.) this year-over-year improvement reflects a focused attention on working capital management during the first half of the year. while we are extremely pleased with our strong cash position and fortified balance sheet going into the second half of the year, it is important to note that our cash position will be affected by our strategic investments in working capital and planned capital expenditures during this period.” dividends and share repurchases the company announced that its board of directors has approved a five percent increase in the company’s quarterly cash dividend to 11 cents per share, marking the eighth straight year of increasing the annual dividend. at an annual indicated dividend of $0.44 per share, the yield is 3.03%, based upon yesterday’s closing stock price of $14.50 per share. the next quarterly payment will be made on or about january 18, 2021, to shareholders of record as of january 8, 2021. the board will continue to evaluate the appropriateness of the current dividend rate considering economic conditions and the company’s performance in upcoming quarters. the company did not repurchase any shares during the second quarter of fiscal 2021, leaving the full $5.0 million available under the share repurchase program approved by the board in march 2020. as previously disclosed, the company has temporarily suspended its share repurchases given the economic uncertainty related to covid-19. about the company culp, inc. is one of the world's largest marketers of mattress fabrics for bedding and upholstery fabrics for residential and commercial furniture. the company markets a variety of fabrics to its global customer base of leading bedding and furniture companies, including fabrics produced at culp’s manufacturing facilities and fabrics sourced through other suppliers. culp has operations located in the united states, canada, china, and haiti. this release 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. further, forward looking statements are intended to speak only as of the date on which they are made, and we disclaim any duty to update such statements to reflect any changes in management’s expectations or any change in the assumptions or circumstances on which such statements are based, whether due to new information, future events, or otherwise. forward-looking statements are statements that include projections, expectations, or beliefs about future events or results or otherwise are not statements of historical fact. such statements are often but not always characterized by qualifying words such as “expect,” “believe,” “anticipate,” “estimate,” “intend,” “plan,” “project,” and their derivatives, and include but are not limited to statements about expectations for our future operations, production levels, new product launches, sales, profit margins, profitability, operating income, capital expenditures, working capital levels, income taxes, sg&a or other expenses, pre-tax income, earnings, cash flow, and other performance or liquidity measures, as well as any statements regarding potential acquisitions, future economic or industry trends, public health epidemics, or future developments. there can be no assurance that the company will realize these expectations, meet its guidance, or that these beliefs will prove correct. factors that could influence the matters discussed in such statements include the level of housing starts and sales of existing homes, consumer confidence, trends in disposable income, and general economic conditions. decreases in these economic indicators could have a negative effect on our business and prospects. likewise, increases in interest rates, particularly home mortgage rates, and increases in consumer debt or the general rate of inflation, could affect us adversely. the future performance of our business depends in part on our success in conducting and finalizing acquisition negotiations and integrating acquired businesses into our existing operations. changes in consumer tastes or preferences toward products not produced by us could erode demand for our products. changes in tariffs or trade policy, or changes in the value of the u.s. dollar versus other currencies, could affect our financial results because a significant portion of our operations are located outside the united states. strengthening of the u.s. dollar against other currencies could make our products less competitive on the basis of price in markets outside the united states, and strengthening of currencies in canada and china can have a negative impact on our sales of products produced in those places. also, economic and political instability in international areas could affect our operations or sources of goods in those areas, as well as demand for our products in international markets. the impact of public health epidemics on employees, customers, suppliers, and the global economy, such as the global coronavirus pandemic currently affecting countries around the world, could also adversely affect our operations and financial performance. in addition, the impact of potential goodwill or intangible asset impairments could affect our financial results. finally, increases in market prices for petrochemical products can significantly affect the prices we pay for raw materials, and in turn, increase our operating costs and decrease our profitability. further information about these factors, as well as other factors that could affect our future operations or financial results and the matters discussed in forward-looking statements, 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. 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. culp, inc. consolidated statements of net income for three months ended november 1, 2020, and november 3, 2019 unaudited (amounts in thousands, except for per share data) three months ended amount percent of sales november 1, november 3, % over november 1, november 3, 2020 2019 (under) 2020 2019 net sales $ 76,851 69,550 10.5 % 100.0 % 100.0 % cost of sales (62,590 ) (56,024 ) 11.7 % 81.4 % 80.6 % gross profit from continuing operations 14,261 13,526 5.4 % 18.6 % 19.4 % selling, general and administrative expenses (9,743 ) (9,117 ) 6.9 % 12.7 % 13.1 % income from continuing operations 4,518 4,409 2.5 % 5.9 % 6.3 % interest expense — (21 ) 100.0 % 0.0 % (0.0 )% interest income 59 258 (77.1 )% 0.1 % 0.4 % other expense (680 ) (99 ) 586.9 % 0.9 % 0.1 % income before income taxes from continuing operations 3,897 4,547 (14.3 )% 5.1 % 6.5 % income tax expense (1) (1,613 ) (2,279 ) (29.2 )% 41.4 % 50.1 % income (loss) from investment in unconsolidated joint venture 100 (16 ) n.m. 0.1 % (0.0 )% net income from continuing operations 2,384 2,252 5.9 % 3.1 % 3.2 % loss before income taxes from discontinued operation (2) — (441 ) (100.0 )% — (0.6 )% income tax benefit (2) (3) — 381 (100.0 )% — 86.4 % net loss from discontinued operation (2) — (60 ) (100.0 )% — (0.1 )% net income $ 2,384 2,192 8.8 % 3.1 % 3.2 % net income from continuing operations per share - basic $ 0.19 $ 0.18 6.8 % net income from continuing operations per share - diluted $ 0.19 $ 0.18 6.6 % net loss from discontinued operation per share - basic $ — $ (0.00 ) (100.0 )% net loss from discontinued operation per share - diluted $ — $ (0.00 ) (100.0 )% net income per share - basic $ 0.19 $ 0.18 9.7 % net income per share - diluted $ 0.19 $ 0.18 9.5 % average shares outstanding-basic 12,298 12,408 (0.9 )% average shares outstanding-diluted 12,324 12,408 (0.7 )% (1) percent of sales column for income tax expense is calculated as a % of income before income taxes from continuing operations. (2) effective march 31, 2020, we sold our entire ownership of eluxury, llc to its noncontrolling interest holder, resulting in the elimination of the home accessories segment at such time. (3) percent of sales column for income tax benefit is calculated as a % of loss before income taxes from discontinued operation. culp, inc. consolidated statements of net (loss) income for six months ended november 1, 2020, and november 3, 2019 unaudited (amounts in thousands, except for per share data) six months ended amount percent of sales (4) (4) november 1, november 3, % over november 1, november 3, 2020 2019 (under) 2020 2019 net sales $ 141,315 140,269 0.7 % 100.0 % 100.0 % cost of sales (117,153 ) (114,331 ) 2.5 % 82.9 % 81.5 % gross profit from continuing operations 24,162 25,938 (6.8 )% 17.1 % 18.5 % selling, general and administrative expenses (17,761 ) (18,266 ) (2.8 )% 12.6 % 13.0 % restructuring credit - 35 (100.0 )% (0.0 )% 0.0 % income from continuing operations 6,401 7,707 (16.9 )% 4.5 % 5.5 % interest expense (51 ) (21 ) 142.9 % 0.0 % 0.0 % interest income 117 518 (77.4 )% 0.1 % 0.4 % other expense (1,046 ) (194 ) 439.2 % 0.7 % 0.1 % income before income taxes from continuing operations 5,421 8,010 (32.3 )% 3.8 % 5.7 % income tax expense (1) (5,937 ) (3,971 ) 49.5 % 109.5 % 49.6 % income (loss) from investment in unconsolidated joint venture 167 (3 ) n.m. 0.1 % (0.0 )% net (loss) income from continuing operations (349 ) 4,036 (108.6 )% (0.2 )% 2.9 % loss before income taxes from discontinued operation (2) — (1,062 ) (100.0 )% 0.0 % (0.8 )% income tax benefit (2) (3) — 392 (100.0 )% 0.0 % 36.9 % net loss from discontinued operation (2) — (670 ) (100.0 )% 0.0 % (0.5 )% net (loss) income $ (349 ) 3,366 (110.4 )% (0.2 )% 2.4 % net (loss) income from continuing operations per share - basic $ (0.03 ) $ 0.33 (108.7 )% net (loss) income from continuing operations per share - diluted $ (0.03 ) $ 0.33 (108.7 )% net loss from discontinued operation per share - basic $ — $ (0.05 ) (100.0 )% net loss from discontinued operation per share - diluted $ — $ (0.05 ) (100.0 )% net (loss) income per share - basic $ (0.03 ) $ 0.27 (110.5 )% net (loss) income per share - diluted $ (0.03 ) $ 0.27 (110.5 )% average shares outstanding-basic 12,293 12,403 (0.9 )% average shares outstanding-diluted 12,293 12,413 (1.0 )% notes (1) percent of sales column for income tax expense is calculated as a % of income before income taxes from continuing operations. (2) effective march 31, 2020, we sold our entire ownership of eluxury, llc to its noncontrolling interest holder, resulting in the elimination of the home accessories segment at such time. (3) percent of sales column for income tax benefit is calculated as a % of loss before income taxes from discontinued operation. (4) see page 14 for our reconciliation of selected income statement information to adjusted results for the six-month periods ending november 1, 2020 and november 3, 2019, which includes certain adjustments to income tax expense from continuing operation. culp, inc. consolidated balance sheets november 1, 2020, november 3, 2019, and may 3, 2020 unaudited (amounts in thousands) amounts (condensed) (condensed) (condensed) november 1, november 3, increase (decrease) * may 3, 2020 2019 dollars percent 2020 current assets cash and cash equivalents $ 45,288 46,955 (1,667 ) (3.6 )% 69,790 short-term investments - held-to-maturity 5,005 — 5,005 100.0 % 4,271 short-term investments - available for sale 5,462 — 5,462 100.0 % 923 accounts receivable 32,960 23,890 9,070 38.0 % 25,093 inventories 47,726 51,443 (3,717 ) (7.2 )% 47,907 current income taxes receivable — 776 (776 ) (100.0 )% 1,585 current assets - discontinued operation — 4,760 (4,760 ) (100.0 )% — other current assets 3,509 2,745 764 27.8 % 2,116 total current assets 139,950 130,569 9,381 7.2 % 151,685 property, plant & equipment, net 41,599 45,221 (3,622 ) (8.0 )% 43,147 goodwill — 13,569 (13,569 ) (100.0 )% — intangible assets 3,192 3,711 (519 ) (14.0 )% 3,380 long-term investments - rabbi trust 8,060 7,575 485 6.4 % 7,834 long-term investments - held-to-maturity 759 — 759 100.0 % 2,076 right of use asset 6,165 4,883 1,282 26.3 % 3,903 noncurrent income taxes receivable — 733 (733 ) (100.0 )% — deferred income taxes 645 511 134 26.2 % 793 investment in unconsolidated joint venture 1,859 1,504 355 23.6 % 1,602 long-term note receivable affiliated with discontinued operation — 1,800 (1,800 ) (100.0 )% — noncurrent assets - discontinued operation — 22,950 (22,950 ) (100.0 )% — other assets 547 496 51 10.3 % 664 total assets $ 202,776 233,522 (30,746 ) (13.2 )% 215,084 current liabilities line of credit - china operations $ — — — — 1,015 paycheck protection program loan — — — — 7,606 accounts payable - trade 38,247 26,336 11,911 45.2 % 23,002 accounts payable - capital expenditures 68 398 (330 ) (82.9 )% 107 operating lease liability - current 2,316 2,090 226 10.8 % 1,805 deferred revenue 375 375 — — 502 accrued expenses 11,684 8,263 3,421 41.4 % 5,687 accrued restructuring costs — 35 (35 ) (100.0 )% — current liabilities - discontinued operation — 1,907 (1,907 ) (100.0 )% — income taxes payable - current 1,413 1,539 (126 ) (8.2 )% 395 total current liabilities 54,103 40,943 13,160 32.1 % 40,119 line of credit - u.s. operations — — — — 29,750 accrued expenses - long-term — 333 (333 ) (100.0 )% 167 operating lease liability - long-term 4,008 2,614 1,394 53.3 % 2,016 contingent consideration affiliated with discontinued operation — 6,006 (6,006 ) (100.0 )% — income taxes payable - long-term 3,325 3,442 (117 ) (3.4 )% 3,796 deferred income taxes 6,089 3,283 2,806 85.5 % 1,818 deferred compensation 8,000 7,429 571 7.7 % 7,720 noncurrent liabilities - discontinued operation — 3,550 (3,550 ) (100.0 )% — total liabilities 75,525 67,600 7,925 11.7 % 85,386 shareholders' equity shareholders' equity attributable to culp inc. 127,251 161,520 (34,269 ) (21.2 )% 129,698 non-controlling interest - discontinued operation - 4,402 (4,402 ) (100.0 )% — 127,251 165,922 (38,671 ) (23.3 )% 129,698 total liabilities and shareholders' equity $ 202,776 233,522 (30,746 ) (13.2 )% 215,084 shares outstanding 12,303 12,412 (109 ) (0.9 )% 12,285 * derived from audited financial statements. culp, inc. summary of cash, investments, and debt november 1, 2020, november 3, 2019, and may 3, 2020 unaudited (amounts in thousands) amounts (1) november 1, november 3 may 3, 2020 2019 2020* cash and investments cash and cash equivalents $ 45,288 $ 47,183 $ 69,790 short-term investments - available for sale 5,462 — 923 short-term investments - held-to-maturity 5,005 — 4,271 long-term investments - held-to-maturity 759 — 2,076 total cash and investments $ 56,514 $ 47,183 $ 77,060 debt line of credit - china operations $ — $ — $ 1,015 paycheck protection program loan — — 7,606 line of credit - u.s. operations — — 29,750 total debt $ — $ — $ 38,371 net cash position $ 56,514 $ 47,183 $ 38,689 * derived from audited financial statements. (1) as of november 3, 2019, cash and cash equivalents totaled $47.2 million, of which $47.0 million and $228,000 were classified as (i) cash and cash equivalents and (ii) within current assets – discontinued operation, respectively, in the accompanying consolidated balance sheets. culp, inc. consolidated statements of cash flows for the six months ended november 1, 2020, and november 3, 2019 unaudited (amounts in thousands) six months ended amounts november 1, november 3, 2020 2019 cash flows from operating activities: net (loss) income $ (349 ) $ 3,366 adjustments to reconcile net (loss) income to net cash provided by operating activities: depreciation 3,538 3,893 amortization 235 353 stock-based compensation 474 467 deferred income taxes 4,419 53 gain on sale of property, plant, and equipment — (93 ) realized loss on short-term investments available for sale 6 — (income) loss from investment in unconsolidated joint venture (167 ) 3 foreign currency exchange loss (gain) 723 (106 ) changes in assets and liabilities: accounts receivable (7,663 ) (835 ) inventories 602 (4,797 ) other current assets (1,175 ) (31 ) other assets (40 ) 133 accounts payable 14,156 3,564 deferred revenue (127 ) (24 ) accrued expenses and deferred compensation 6,019 1,620 accrued restructuring costs — (89 ) income taxes 2,052 770 net cash provided by operating activities 22,703 8,247 cash flows from investing activities: capital expenditures (2,041 ) (2,410 ) proceeds from the sale of equipment 12 363 investment in unconsolidated joint venture (90 ) — proceeds from the sale of short-term investments (held to maturity) 1,800 5,000 purchase of short-term and long-term investments (held to maturity) (1,245 ) — purchase of short-term investments (available for sale) (5,010 ) — proceeds from the sale of short-term investments (available for sale) 455 — proceeds from the sale of long-term investments (rabbi trust) 77 — purchase of long-term investments (rabbi trust) (257 ) (479 ) net cash (used in) provided by investing activities (6,299 ) 2,474 cash flows from financing activities: payments associated with lines of credit (30,772 ) — payments associated with paycheck protection program loan (7,606 ) — proceeds from subordinated loan payable associated with the noncontrolling interest of discontinued operation — 250 cash paid for acquisition of business — (1,532 ) dividends paid (2,583 ) (2,482 ) common stock surrendered for withholding taxes payable (25 ) (51 ) capital contribution associated with the noncontrolling interest of discontinued operation — 360 payments of debt issuance costs (15 ) — net cash used in financing activities (41,001 ) (3,455 ) effect of exchange rate changes on cash and cash equivalents 95 (91 ) (decrease) increase in cash and cash equivalents (24,502 ) 7,175 cash and cash equivalents at beginning of year 69,790 40,008 cash and cash equivalents at end of period (1) $ 45,288 $ 47,183 free cash flow (2) $ 20,499 $ 5,630 notes (1) as of november 3, 2019, cash and cash equivalents totaled $47.2 million, of which $47.0 million and $228,000 were classified as (i) cash and cash equivalents and (ii) within current assets – discontinued operation, respectively, in the accompanying consolidated balance sheets. culp, inc. consolidated statements of cash flows for the six months ended november 1, 2020, and november 3, 2019 unaudited (amounts in thousands) (2) reconciliation of free cash flow: fy 2021 fy 2020 a) net cash provided by operating activities $ 22,703 8,247 b) minus: capital expenditures (2,041 ) (2,410 ) c) plus: proceeds from the sale of equipment 12 363 d) minus: investment in unconsolidated joint venture (90 ) — e) plus: proceeds from the sale of long-term investments (rabbi trust) 77 — f) minus: purchase of long-term investments (rabbi trust) (257 ) (479 ) g) effects of exchange rate changes on cash and cash equivalents 95 (91 ) free cash flow $ 20,499 5,630 culp, inc. statements of operations by segment for the three months ended november 1, 2020, and november 3, 2019 unaudited (amounts in thousands) three months ended amounts percent of total sales november 1, november 3, % over november 1, november 3, net sales by segment 2020 2019 (under) 2020 2019 mattress fabrics $ 40,030 35,666 12.2 % 52.1 % 51.3 % upholstery fabrics 36,821 33,884 8.7 % 47.9 % 48.7 % net sales $ 76,851 69,550 10.5 % 100.0 % 100.0 % gross profit from continuing operations by segment gross profit margin mattress fabrics $ 7,584 6,247 21.4 % 18.9 % 17.5 % upholstery fabrics 6,677 7,279 (8.3 )% 18.1 % 21.5 % gross profit from continuing operations $ 14,261 13,526 5.4 % 18.6 % 19.4 % selling, general and administrative expenses by segment percent of sales mattress fabrics $ 3,202 2,953 8.4 % 8.0 % 8.3 % upholstery fabrics 3,390 3,806 (10.9 )% 9.2 % 11.2 % unallocated corporate expenses 3,151 2,358 33.6 % 4.1 % 3.4 % selling, general and administrative expenses $ 9,743 9,117 6.9 % 12.7 % 13.1 % income from continuing operations by segment operating income margin mattress fabrics $ 4,382 3,294 33.0 % 10.9 % 9.2 % upholstery fabrics 3,287 3,473 (5.4 )% 8.9 % 10.2 % unallocated corporate expenses (3,151 ) (2,358 ) 33.6 % (4.1 )% (3.4 )% income from continuing operations $ 4,518 4,409 2.5 % 5.9 % 6.3 % depreciation expense by segment mattress fabrics $ 1,501 1,701 (11.8 )% upholstery fabrics 215 192 12.0 % discontinued operation - 95 (100.0 )% depreciation expense $ 1,716 1,988 (13.7 )% culp, inc. statements of operations by segment for the six months ended november 1, 2020, and november 3, 2019 unaudited (amounts in thousands) six months ended amounts percent of total sales november 1, november 3, % over november 1, november 3, net sales by segment 2020 2019 (under) 2020 2019 mattress fabrics $ 76,133 74,525 2.2 % 53.9 % 53.1 % upholstery fabrics 65,182 65,744 (0.9 )% 46.1 % 46.9 % net sales $ 141,315 140,269 0.7 % 100.0 % 100.0 % gross profit from continuing operations by segment gross profit margin mattress fabrics $ 12,191 11,938 2.1 % 16.0 % 16.0 % upholstery fabrics 11,971 14,000 (14.5 )% 18.4 % 21.3 % gross profit from continuing operations $ 24,162 25,938 (6.8 )% 17.1 % 18.5 % selling, general, and administrative expenses by segment percent of total sales mattress fabrics $ 5,964 6,025 (1.0 )% 7.8 % 8.1 % upholstery fabrics 6,570 7,652 (14.1 )% 10.1 % 11.6 % unallocated corporate expenses 5,227 4,589 13.9 % 3.7 % 3.3 % selling, general, and administrative expenses $ 17,761 $ 18,266 (2.8 )% 12.6 % 13.0 % (loss) income from continuing operating (loss) operations by segment income margin mattress fabrics $ 6,227 5,913 5.3 % 8.2 % 7.9 % upholstery fabrics 5,401 6,348 (14.9 )% 8.3 % 9.7 % unallocated corporate expenses (5,227 ) (4,589 ) 13.9 % (3.7 )% (3.3 )% subtotal $ 6,401 7,672 (16.6 )% 4.5 % 5.5 % restructuring credit — 35 (100.0 )% 0.0 % 0.0 % income from continuing operations $ 6,401 7,707 (16.9 )% 4.5 % 5.5 % depreciation expense by segment mattress fabrics $ 3,132 3,321 (5.7 )% upholstery fabrics 406 382 6.3 % discontinued operation — 190 (100.0 )% depreciation expense $ 3,538 3,893 (9.1 )% culp, inc. reconciliation of selected income statement information to adjusted results for the six months ended november 1, 2020, and november 3, 2019 six months ended (unaudited) as reported november 1, as reported november 3, november 1, adjusted november 3, adjusted 2020 adjustments results 2019 adjustments results income before income taxes from continuing operations $ 5,421 — 5,421 $ 8,010 — 8,010 income tax expense (1) (2) (5,937 ) 4,099 (1,838 ) (3,971 ) 1,017 (2,954 ) income (loss) from investment in unconsolidated joint venture 167 — 167 (3 ) — (3 ) net (loss) income from continuing operations $ (349 ) 4,099 3,750 $ 4,036 1,017 5,053 net (loss) income from continuing operations per share - basic $ (0.03 ) $ 0.31 $ 0.33 $ 0.41 net (loss) income from continuing operations per share - diluted $ (0.03 ) $ 0.30 $ 0.33 $ 0.41 average shares outstanding-basic 12,293 12,293 12,403 12,403 average shares outstanding-diluted 12,293 12,305 12,413 12,413 notes (1) the $4.1 million adjustment represents a $7.6 million non-cash income tax charge to record a full valuation allowance against the company’s u.s. net deferred income tax assets, partially offset by a $3.5 million non-cash income tax benefit resulting from the re-establishment of certain u.s. federal net operating loss carryforwards in connection with u.s. treasury regulations enacted during our first quarter regarding global intangible low taxed income (“gilti”) tax provisions of the tax cuts and jobs act of 2017. (2) the $1.0 million adjustment represents our estimated gilti tax incurred through our second quarter of fiscal 2020. culp, inc. consolidated statements of adjusted ebitda for the twelve months ended november 1, 2020, and november 3, 2019 unaudited (amounts in thousands) quarter ended quarter ended quarter ended quarter ended trailing 12 months february 2, may 3, august 2, november 1, november 1, 2020 2020 2020 2020 2020 net (loss) income $ (4,207 ) $ (27,825 ) $ (2,733 ) $ 2,384 $ (32,381 ) loss before income taxes from discontinued operation 7,824 8,698 - - 16,522 income tax (benefit) expense from continuing operations (973 ) 704 4,324 1,613 5,668 interest income, net (258 ) (37 ) (7 ) (59 ) (361 ) asset impairments from continuing operations — 13,712 — — 13,712 restructuring credit and related charges (35 ) — — — (35 ) depreciation expense - continuing operations 1,891 1,882 1,822 1,716 7,311 amortization expense - continuing operations 102 117 118 117 454 stock based compensation 364 (199 ) 126 348 639 adjusted ebitda $ 4,708 $ (2,948 ) $ 3,650 $ 6,119 $ 11,529 % net sales 6.9 % (6.2 )% 5.7 % 8.0 % 4.5 % quarter ended quarter ended quarter ended quarter ended trailing 12 months january 27 april 28, august 4, november 3, november 3, 2019 2019 2019 2019 2019 net income (loss) $ 3,060 $ (1,511 ) $ 1,174 $ 2,192 $ 4,915 loss before income taxes from discontinued operation 313 477 621 441 1,852 income tax expense from continuing operations 1,274 3,091 1,692 2,279 8,336 interest income, net (259 ) (221 ) (260 ) (237 ) (977 ) restructuring credit and related charges 340 — (35 ) — 305 other non-recurring charges 429 500 — — 929 depreciation expense - continuing operations 1,934 1,933 1,810 1,893 7,570 amortization expense - continuing operations 126 113 101 102 442 stock based compensation 479 (243 ) 154 313 703 adjusted ebitda $ 7,696 $ 4,139 $ 5,257 $ 6,983 $ 24,075 % net sales 10.5 % 6.2 % 7.4 % 10.0 % 8.6 % % over (under) (38.8 )% (171.2 )% (30.6 )% (12.4 )% (52.1 )%
