Culp Announces Revised Expectations, Anticipated Non-Cash Intangible Asset Impairment Charges, for Third Quarter Fiscal 2020 - Seite 2

Additionally, in accordance with Accounting Standards Codification (ASC) Topic 350, the company is required to assess its goodwill and other indefinite-lived intangible assets for impairment at the end of each fiscal year or between annual tests if events or changes in circumstances indicate the carrying value of the asset may not be recovered. As a result of the slower pace of growth for the home accessories segment and changes in future growth assumptions for this business based on current economic conditions in the e-commerce space, management determined that impairment indicators existed. Accordingly, this determination required an interim assessment of the goodwill and other intangible assets for the home accessories segment. Based on the initial assessment conducted, the company expects to record non-cash impairment charges of approximately $13.6 million. The company is in the process of finalizing the impairment analysis and expects it to be completed in time for its third quarter earnings release. These impairment charges are adjustments that do not affect the company’s cash position, cash flow from operating activities, or debt covenants.

Commenting on the announcement, Iv Culp, chief executive officer of Culp, Inc., said, “The revised expectations for the third quarter of fiscal 2020 are due to lower than expected sales. For our upholstery fabrics segment, shipments slowed more than anticipated heading into the Chinese New Year shutdown period. Additionally, our mattress fabrics business, and specifically CLASS, was pressured more than expected by the holiday shutdowns in Haiti and China. Mattress covers have become an increasingly important part of the mattress fabrics business, and losing multiple productive weeks caused a greater than expected impact when combined with continued industry weakness in our legacy business. These factors, along with lower than anticipated domestic benefit thus far from the anti-dumping measures associated with mattress imports from China, affected our results for the third quarter.”

The company is also updating its outlook for the fourth quarter of fiscal 2020, with current expectations for overall sales and profitability for the quarter to be slightly better than the results achieved in the fourth quarter of fiscal 2019. This projected outlook for the fourth quarter is adjusted from the previously announced outlook for overall performance to be significantly better than the prior year period. The company now projects mattress fabrics sales for the fourth quarter of fiscal 2020 to be slightly lower than the prior-year period. However, expectations are still for all three business segments to have improved profitability in the fourth quarter of fiscal 2020 as compared to the fourth quarter of fiscal 2019, assuming the coronavirus outbreak in China does not have a greater than anticipated impact on the operations of the company, its suppliers, and the global economy. The updated expectations reflect an uncertain business environment associated with ongoing trade and health issues primarily related to Asia, which may affect each of the company’s divisions to varying levels. The potential impact of the coronavirus is difficult to estimate reasonably at this point given the fluidity in circumstances related to the disease and the actions being taken to contain its spread.