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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 28, 2018

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		(I.R.S. Employer Identification No.)
	incorporation or other organization)
	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)

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 the filing requirements for at least the past 90 days.        ☒ YES      NO ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period after the registrant was required to submit and post such files).   ☒YES      NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “accelerated filer, large accelerated filer, smaller reporting company, and emerging growth company” in Rule 12b-2 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 January 28, 2018:  12,450,276

Par Value: $0.05 per share

 

 

 

 

		Page
	Part I - Financial Statements
Item 1.	Financial Statements: (Unaudited)
	Consolidated Statements of Net (Loss) Income — Three and Nine Months
	Ended January 28, 2018 and January 29, 2017	I-1
	Consolidated Statements of Comprehensive (Loss) Income – Three and Nine
	Months Ended January 28, 2018 and January 29, 2017	I-2
	Consolidated Balance Sheets — January 28, 2018, January 29, 2017, and
	April 30, 2017	I-3
	Consolidated Statements of Cash Flows — Nine Months Ended January 28,	I-4
	2018 and January 29, 2017
	Consolidated Statements of Shareholders’ Equity	I-5
	Notes to Consolidated Financial Statements	I-6
	Cautionary Statement Concerning Forward-Looking Information	I-30
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of
	Operations	I-31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	I-50
Item 4.	Controls and Procedures	I-50
	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

 

 

CULP, INC.

CONSOLIDATED STATEMENTS OF NET (LOSS) INCOME

FOR THE THREE AND NINE MONTHS ENDED JANUARY 28, 2018 AND JANUARY 29, 2017

UNAUDITED

(Amounts in Thousands, Except for Per Share Data)

 

	THREE MONTHS ENDED
	January 28,				January 29,
	2018				2017
Net sales		$	85,310				76,169
Cost of sales			67,707				59,410
Gross profit			17,603				16,759
Selling, general and
administrative expenses			9,959				9,824
Income from operations			7,644				6,935
Interest expense			31				-
Interest income			(132	)			(124	)
Other expense			229				69
Income before income taxes			7,516				6,990
Income taxes			8,208				643
Loss from investment in unconsolidated joint venture			56				-
Net (loss) income		$	(748	)			6,347
Net (loss) income per share, basic		$	(0.06	)			0.52
Net (loss) income per share, diluted		$	(0.06	)			0.51
Average shares outstanding, basic			12,436				12,313
Average shares outstanding, diluted			12,436				12,544
	NINE MONTHS ENDED
			January 28,				January 29,
			2018				2017
Net sales		$	245,541				232,194
Cost of sales			195,668				180,115
Gross profit			49,873				52,079
Selling, general and
administrative expenses			28,876				29,171
Income from operations			20,997				22,908
Interest expense			69				-
Interest income			(391	)			(164	)
Other expense			903				376
Income before income taxes			20,416				22,696
Income taxes			11,956				6,560
Loss from investment in unconsolidated joint venture			249				-
Net income		$	8,211				16,136
Net income per share, basic		$	0.66				1.31
Net income per share, diluted		$	0.65				1.29
Average shares outstanding, basic			12,425				12,302
Average shares outstanding, diluted			12,626				12,517
See accompanying notes to consolidated financial statements.

 

 

CULP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

FOR THE THREE AND NINE MONTHS ENDED JANUARY 28, 2018 AND JANUARY 29, 2017

(UNAUDITED)

(AMOUNTS IN THOUSANDS)

 

	THREE MONTHS ENDED
	January 28,					January 29,
	2018					2017
Net (loss) income		$	(748	)		$	6,347
Other comprehensive loss
Unrealized holding loss on investments			(4	)			(13	)
Total other comprehensive loss			(4	)			(13	)
Comprehensive (loss) income		$	(752	)		$	6,334
	NINE MONTHS ENDED
		January 28,				January 29,
			2018				2017
Net income		$	8,211			$	16,136
Other comprehensive income
Unrealized gains on investments
Unrealized holding gains on investments			60				75
Reclassification adjustment for realized loss included in net income			-				12
Total other comprehensive income			60				87
Comprehensive income		$	8,271			$	16,223
See accompanying notes to consolidated financial statements.

 

 

CULP, INC.
CONSOLIDATED BALANCE SHEETS
JANUARY 28, 2018, JANUARY 29, 2017 AND APRIL 30, 2017
UNAUDITED
(Amounts in Thousands)
		January 28,				January 29,				* April 30,
		2018				2017				2017
Current assets:
Cash and cash equivalents		$	22,428				15,659				20,795
Short-term investments - Available for Sale			2,472				2,410				2,443
Short-term investments - Held-To-Maturity			17,206				-				-
Accounts receivable, net			26,097				22,726				24,577
Inventories			55,651				46,193				51,482
Other current assets			3,114				2,514				2,894
Total current assets			126,968				89,502				102,191
Property, plant and equipment, net			51,838				50,333				51,651
Goodwill			11,462				11,462				11,462
Deferred income taxes			1,942				422				419
Long-term investments - Held-To-Maturity			13,625				30,832				30,945
Long-term investments - Rabbi Trust			7,176				5,488				5,466
Investment in unconsolidated joint venture			1,518				600				1,106
Other assets			2,315				2,417				2,394
Total assets		$	216,844				191,056				205,634
Current liabilities:
Accounts payable-trade		$	32,434				22,352				29,101
Accounts payable - capital expenditures			1,554				4,886				4,767
Accrued expenses			8,842				10,511				11,947
Income taxes payable - current			1,580				217				287
Total current liabilities			44,410				37,966				46,102
Accounts payable - capital expenditures			-				708				1,322
Income taxes payable - long-term			10,940				1,817				467
Deferred income taxes			2,096				2,924				3,593
Deferred compensation			7,216				5,327				5,520
Total liabilities			64,662				48,742				57,004
Commitments and Contingencies (Note 15)
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
12,450,276 at January 28, 2018; 12,314,756
at January 29, 2017; and 12,356,631 at
April 30, 2017			623				615				618
Capital contributed in excess of par value			48,413				46,365				47,415
Accumulated earnings			103,090				95,391				100,601
Accumulated other comprehensive income (loss)			56				(57	)			(4	)
Total shareholders' equity			152,182				142,314				148,630
Total liabilities and shareholders' equity		$	216,844				191,056				205,634
* Derived from audited financial statements.
See accompanying notes to consolidated financial statements.

 

CULP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JANUARY 28, 2018 AND JANUARY 29, 2017
UNAUDITED
(Amounts in Thousands)
		NINE MONTHS ENDED
		January 28,				January 29,
		2018				2017
Cash flows from operating activities:
Net income		$	8,211				16,136
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation			5,679				5,304
Amortization of assets			248				162
Stock-based compensation			2,422				2,619
Deferred income taxes			(3,020	)			3,533
Realized loss on sale of short-term investments (Available for Sale)			-				12
Gain on sale of equipment			-				(71	)
Loss from investment in unconsolidated joint venture			249				-
Foreign currency exchange loss (gain)			133				(18	)
Changes in assets and liabilities:
Accounts receivable			(923	)			340
Inventories			(3,275	)			(137	)
Other current assets			(27	)			90
Other assets			(37	)			51
Accounts payable - trade			1,715				(946	)
Accrued expenses and deferred compensation			(1,608	)			(668	)
Income taxes			11,702				(1,695	)
Net cash provided by operating activities			21,469				24,712
Cash flows from investing activities:
Capital expenditures			(6,657	)			(9,253	)
Investment in unconsolidated joint venture			(661	)			(600	)
Proceeds from the sale of equipment			6				80
Proceeds from the sale of short-term investments  (Available for Sale)			-				2,000
Purchase of short-term investments  (Available for Sale)			(37	)			(8	)
Purchase of long-term investments (Held-To-Maturity)			-				(31,050	)
Proceeds from the sale of long-term investments (Rabbi Trust)			57				-
Purchase of long-term investments (Rabbi Trust)			(1,699	)			(1,431	)
Premium payment on life insurance policy			(18	)			(18	)
Net cash used in investing activities			(9,009	)			(40,280	)
Cash flows from financing activities:
Proceeds from line of credit			10,000				7,000
Payments on line of credit			(10,000	)			(7,000	)
Payments on vendor-financed capital expenditures			(3,750	)			(1,050	)
Dividends paid			(5,722	)			(5,292	)
Common stock surrendered for withholding taxes payable			(1,530	)			(280	)
Payments on debt issuance costs			-				(2	)
Proceeds from common stock issued			111				37
Net cash used in financing activities			(10,891	)			(6,587	)
Effect of exchange rate changes on cash and cash equivalents			64				27
Decrease in cash and cash equivalents			1,633				(22,128	)
Cash and cash equivalents at beginning of period			20,795				37,787
Cash and cash equivalents at end of period		$	22,428				15,659
See accompanying notes to consolidated financial statements.

 

CULP, INC.

										Capital								Accumulated
										Contributed								Other				Total
		Common Stock								in Excess				Accumulated				Comprehensive				Shareholders’
		Shares				Amount				of Par Value				Earnings				(Loss) Income				Equity
Balance,  May 1, 2016			12,265,489			$	614				43,795				84,547				(144	)		$	128,812
Net income			-				-				-				22,334				-				22,334
Stock-based compensation			-				-				3,358				-				-				3,358
Unrealized gain on investments			-				-				-				-				140				140
Excess tax benefit related to stock
based compensation			-				-				657				-				-				657
Common stock issued in connection with vesting
of performance based restricted stock units			49,192				2				(2	)			-				-				-
Fully vested common stock award			4,800				-				-				-				-				-
Common stock issued in connection with exercise																			.
of stock options			68,000				3				585				-				-				588
Common stock surrendered for the cost of stock option
excercises and withholding taxes payable			(30,850	)			(1	)			(978	)			-				-				(979	)
Dividends paid			-				-				-				(6,280	)			-				(6,280	)
Balance,  April 30, 2017  *			12,356,631				618				47,415				100,601				(4	)			148,630
Net income			-				-				-				8,211				-				8,211
Stock-based compensation			-				-				2,422				-				-				2,422
Unrealized gain on investments			-				-				-				-				60				60
Common stock issued in connection with vesting
of performance based restricted stock units			118,845				6				(6	)			-				-				-
Fully vested common stock award			4,800				-				-				-				-				-
Common stock issued in connection with vesting
of time- based restricted stock unit			1,200				-				-				-				-				-
Common stock issued in connection with exercise
of stock options			15,600				1				110				-				-				111
Common stock surrendered for
withholding taxes payable			(46,800	)			(2	)			(1,528	)			-				-				(1,530	)
Dividends paid			-				-				-				(5,722	)			-				(5,722	)
Balance,  January 28, 2018			12,450,276			$	623				48,413				103,090				56			$	152,182
* Derived from audited financial statements.
See accompanying notes to consolidated financial statements.

 

 

1.  Basis of Presentation

The accompanying unaudited consolidated financial statements of Culp, Inc. and subsidiaries (the “company”) include all adjustments, which are, in the opinion of management, necessary for fair presentation of the results of operations and financial position.  All of these adjustments are of a normal recurring nature, with the exception of our assessments made and provisional amounts recorded with regard to the 2017 Tax Cuts and Jobs Act (see Note 13 for further details). Results of operations for interim periods may not be indicative of future results.  The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements, which are included in the company’s annual report on Form 10-K filed with the Securities and Exchange Commission on July 14, 2017, for the fiscal year ended April 30, 2017.

The company’s nine months ended January 28, 2018, and January 29, 2017, represent 39 week periods, respectively.

2. Significant Accounting Policies

As of January 28, 2018, there were no changes in the nature of our significant accounting policies or the application of those policies from those reported in our annual report on Form 10-K for the year then ended April 30, 2017, with the exception of our assessments made and provisional amounts recorded with regard to the 2017 Tax Cuts and Jobs Act (see Note 13 for further details).

Recently Adopted Accounting Pronouncements

In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory”, which changed the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value. ASU No. 2015-11 was effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2016. As a result, we adopted ASU No. 2015-11 in the first quarter of fiscal 2018 and the adoption of this guidance did not have a significant impact on our consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting". ASU No. 2016-09 was effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2016. Accordingly, we adopted this guidance during the first quarter of fiscal 2018. ASU No. 2016-09 aims to simplify several aspects of accounting and financial reporting for share-based payment transactions. One provision within this pronouncement requires that excess income tax benefits and deficiencies related to share-based payments be recognized within income tax expense as a discrete event in the period in which they occur, rather than within additional paid-in capital on our Consolidated Balance Sheet on a prospective basis. The impact to our results of operations related to this provision through the third quarter of fiscal 2018 was a reduction to income tax expense of $500,000. The impact of this provision on our future results of operations will depend in part on the market prices for the shares of our common stock on the dates there are taxable events related to the share-based awards, and therefore, the impact is difficult to predict. In connection with another provision within ASU No. 2016-09, we have elected to account for forfeitures of share-based awards as an estimate of the number of awards that are expected to vest, which is consistent with our accounting policy prior to adoption.

 

 

Also, we adopted the provisions of ASU No. 2016-09 related to changes on the Consolidated Statements of Cash Flows on a retrospective basis. As a result, we no longer classify excess income tax benefits as a financing activity, which increased net cash provided by operating activities and reduced net cash provided by financing activities by $195,000 for the nine months ended January 29, 2017. Additionally, we no longer classify payments for employee taxes when common stock shares are withheld to satisfy the employer’s statutory income tax withholding obligation as an operating activity, which increased net cash provided by operating activities and reduced net cash provided by financing activities by $280,000 for the nine months ended January 29, 2017.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, as amended, Revenue from Contracts with Customers. The amendments in this ASU are intended to enhance the comparability of revenue recognition practices and will be applied to all contracts with customers. Improved disclosures related to the nature, amount, timing, and uncertainty of revenue that is recognized are requirements under the amended guidance. The new revenue standard will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. We are therefore required to apply the new revenue guidance in our fiscal 2019 interim and annual financial statements. This ASU can be adopted either retrospectively or as a cumulative-effect adjustment as of the date of adoption. Currently, we do not expect that this guidance will have a material impact on our results of operations and financial position, but we do expect this guidance to have a material impact on the disclosures required in our notes to the consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which increases transparency and comparability among companies accounting for lease transactions. The most significant change of this update will require the recognition of lease assets and liabilities on the balance sheet for operating lease arrangements with lease terms greater than twelve months for lessees. This update will require a modified retrospective application which includes a number of optional practical expedients related to the identification and classification of leases commenced before the effective date. This ASU is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2018. We are therefore required to apply this guidance in our fiscal 2020 interim and annual financial statements. We are currently assessing the impact that this guidance will have on our consolidated financial statements, but we expect this guidance to have a material impact on our financial position as a result of the requirement to recognize right-of-use assets and lease liabilities on our consolidated balance sheets.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, to address the diversity in how certain cash receipts and cash payments are presented in the statement of cash flows. This new guidance provides clarity around the cash flow classification for eight specific issues in an effort to reduce the current and potential future diversity in practice. This standard, which is to be applied retrospectively, will be effective for the first interim period within annual reporting periods beginning after December 15, 2017, and early adoption is permitted. We are therefore required to apply this new guidance in our fiscal 2019 interim and annual financial statements. We are currently assessing the impact that this guidance will have on our consolidated financial statements.

 

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, to reduce the diversity in practice and complexity associated with accounting for the income tax consequences of intra-entity transfers of assets other than inventory. Current GAAP prohibits recognition of deferred income taxes for an intra-entity transfer until the asset has been sold to an outside party. The new pronouncement stipulates that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This new guidance will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods, with early adoption permitted in the first interim period only. We are therefore required to apply this new guidance in our fiscal 2019 interim and annual financial statements. The amendments are to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. We are currently assessing the impact that this guidance will have on our consolidated financial statements.

There are no other new accounting pronouncements that are expected to have a significant impact on our consolidated financial statements.

3.  Stock-Based Compensation

Equity Incentive Plan Description

On September 16, 2015, our shareholders approved an equity incentive plan entitled the Culp, Inc. 2015 Equity Incentive Plan (the “2015 Plan”). The 2015 Plan updated and replaced our 2007 Equity Incentive Plan (the “2007 Plan”) as the vehicle for granting new equity based awards substantially similar to those authorized under the 2007 Plan. In general, the 2015 Plan authorizes the grant of stock options intended to qualify as incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, and other equity and cash related awards as determined by our Compensation Committee. An aggregate of 1,200,000 shares of common stock were authorized for issuance under the 2015 Plan, with certain sub-limits that would apply with respect to specific types of awards that may be issued as defined in the 2015 Plan. In connection with the approval of the 2015 Plan, no further awards will be granted under the 2007 Plan, but outstanding awards under the 2007 Plan will be settled in accordance with their terms.

At January 28, 2018, there were 892,580 shares available for future equity based grants under our 2015 plan.

Incentive Stock Option Awards

We did not grant any incentive stock option awards through the third quarter of fiscal 2018.

At January 28, 2018, there were no option shares of common stock outstanding and exercisable. Therefore, there was no unrecognized compensation cost related to incentive stock option awards at January 28, 2018. No compensation expense was recorded for incentive stock options for the nine months ended January 28, 2018 and January 29, 2017, respectively.

The aggregate intrinsic value for options exercised for the nine months ending January 28, 2018 and January 29, 2017, was $393,000 and $128,000, respectively.

Performance Based Restricted Stock Units

Executive Management

On July 13, 2017, we granted performance-based restricted stock units to members of executive management (NEOs) which could earn up to a certain number of shares of common stock if certain performance targets are met over a three-fiscal year performance period as defined in the related restricted stock unit agreements. The number of shares of common stock that are earned based on the performance targets that have been achieved will be adjusted based on a market-based total shareholder return component as defined in the related restricted stock unit agreements.

Compensation cost is measured based on the fair market value on the date of grant (July 13, 2017). The fair market value per share was determined using the Monte Carlo simulation model for the market-based total shareholder return component and the closing price of our common stock for the performance-based components.

The following table provides assumptions used to determine the fair market value of the market-based total shareholder return component using the Monte Carlo simulation model on the date of grant:

Closing price of our common stock		$	32.50
Expected volatility of our common stock			31.0	%
Expected volatility of peer companies			16.5	%
Risk-free interest rate			1.56	%
Dividend yield			1.66	%
Correlation coefficient of peer companies			0.46

 

On July 14, 2016 and July 15, 2015, we granted performance-based restricted stock units to NEOs which could earn up to a certain number of shares of common stock if certain performance targets were met over a three-fiscal year performance period as defined in the related restricted stock unit agreements. These awards were measured based on the fair market value (closing price of our common stock) on the date of grant. No market-based total shareholder return component was included in these awards.

Key Employees and a Non-Employee

We granted performance-based restricted stock units which could earn up to a certain number of shares of common stock if certain performance targets are met over a three-fiscal year performance period as defined in the related restricted stock unit agreements. Our performance based restricted stock units granted to key employees were measured based on the fair market value (the closing price of our common stock) on the date of grant. Our performance based restricted stock units granted to a non-employee were measured based on the fair market value (the closing price of our common stock) at the earlier date of when the performance criteria are met or the end of the reporting period. No market-based total shareholder return component was included in these awards.

Culp, Inc.

The following table summarizes information related to our grants of performance based restricted stock units associated with NEOs and key employees that are currently unvested:

			(3)
	Restricted Stock				Price Per						Vesting
Date of Grant	Units Awarded				Share						Period
July 13, 2017 (1)			78,195				$31.85(4)				3 years
July 13, 2017 (2)			44,000				$32.50(5)				3 years
July 14, 2016 (1) (2)			107,880				$28.00(5)				3 years
July 15, 2015 (1) (2)			107,554				$32.23(5)				3 years

(1) Performance-based restricted stock units awarded to NEOs.

(2) Performance-based restricted stock units awarded to key employees.

(3) Amounts represent the maximum number of common stock shares that could be earned if certain performance targets are met as defined in the related restricted stock unit agreements.

(4) Price per share represents the fair market value per share ($0.98 per $1 or a reduction of $0.65 to the closing price of the our common stock) determined using the Monte Carlo simulation model for the market-based total shareholder return component and the closing price of our common stock ($32.50) for the performance-based components of the performance-based restricted stock units granted to our NEOs on July 13, 2017.

(5) Price per share represents the closing price of our common stock on the date of grant.

The following table summarizes information related to our grants of performance-based restricted stock units associated with a non-employee that are currently unvested:

			(1)
	Restricted Stock				Price Per						Vesting
Date of Grant	Units Awarded				Share						Period
July 13, 2017			10,200				$31.35(2)				3 years
July 14, 2016			11,549				$31.35(2)				3 years
July 15, 2015			10,364				$31.35(2)				3 years

(1) Amounts represent the maximum number of common stock shares that could be earned if certain performance targets are met as defined in the related restricted stock unit agreements.

(2) The respective grant was unvested at the end of our reporting period. Accordingly, the price per share represents the closing price of our common stock on January 28, 2018, the end of our reporting period.

The following table summarizes information related to our performance based restricted stock units that vested during the nine month periods ending January 28, 2018 and January 29, 2017:

 

				(3)
	Common Stock	Weighted Average				Price
Fiscal Year	Shares Vested	Fair Value				Per Share
Fiscal 2018 (1)	102,845			$1,820				$17.70 (4)
Fiscal 2018 (2)	16,000			$520				$32.50 (5)
Fiscal 2017 (1)	37,192			$637				$17.12 (4)
Fiscal 2017 (2)	12,000			$345				$28.77 (5)

(1) NEOs and key employees.

(2) Non-employee

(3) Dollar amounts are in thousands.

(4) Price per share represents closing price of our common stock on the date of grant.

(5) The respective grant vested during the first quarter of fiscal 2018 or 2017, respectively. Accordingly, the price per share represents the closing price of our common stock on the date the award vested.

Overall

We recorded compensation expense of $2.2 million and $2.5 million within selling, general, and administrative expense associated with our performance based restricted stock units for the nine month periods ending January 28, 2018 and January 29, 2017, respectively. Compensation cost is recorded based on an assessment each reporting period of the probability that certain performance goals will be met during the vesting period. If performance goals are not probable of occurrence, no compensation cost will be recognized and any recognized compensation cost would be reversed.

At January 28, 2018, the remaining unrecognized compensation cost related to the performance based restricted stock units was $3.8 million, which is expected to be recognized over a weighted average vesting period of 1.8 years.

Common Stock Awards

We granted a total of 4,800 shares of common stock to our outside directors on October 2, 2017, and October 3, 2016, respectively. These shares of common stock vested immediately and were valued based on the fair market value on the date of grant. The fair value of these awards were $33.20 and $29.80 per share, on October 2, 2017, and October 3, 2016, which represents the closing price of our common stock on the date of grant.

We recorded $159,000 and $143,000 of compensation expense within selling, general, and administrative expense for these common stock awards for the nine month periods ending January 28, 2018 and January 29, 2017, respectively.

 

Time Vested Restricted Stock Units

On July 13, 2017, an employee was granted 1,200 shares of time vested restricted stock units which will vest over the requisite service period of 11 months. This award was measured at its fair market value, which was $32.50 per share, and represented the closing price of our common stock on the date of grant.

On July 14, 2016, an employee was granted 1,200 shares of time vested restricted stock units which vested over the requisite service period of 11 months. This award was measured at its fair market value, which was $28 per share, and represented the closing price of our common stock on the date of grant.

During the first quarter of fiscal 2018, 1,200 shares of common stock associated with this grant vested and had a weighted average fair value of $34,000 or $28 per share.

We recorded compensation expense of $28,000 and $20,000 within selling, general, and administrative expense associated with our time vested restricted stock unit awards for the nine month periods ending January 28, 2018 and January 29, 2017, respectively.

At January 28, 2018, the remaining unrecognized compensation cost related to unvested time vested restricted stock awards was $16,000, which is expected to be recognized over the next 4.5 months.

4.  Accounts Receivable

A summary of accounts receivable follows:

(dollars in thousands)		January 28, 2018				January 29, 2017				April 30, 2017
Customers		$	27,666			$	24,339			$	26,211
Allowance for doubtful accounts			(357	)			(397	)			(414	)
Reserve for returns and allowances and discounts			(1,212	)			(1,216	)			(1,220	)
		$	26,097			$	22,726			$	24,577

A summary of the activity in the allowance for doubtful accounts follows:

		Nine months ended
(dollars in thousands)		January 28, 2018				January 29, 2017
Beginning balance		$	(414	)		$	(1,088	)
Provision for bad debts			57				239
Net write-offs, net of recoveries			-				452
Ending balance		$	(357	)		$	(397	)

 

A summary of the activity in the allowance for returns and allowances and discounts accounts follows:

		Nine months ended
(dollars in thousands)		January 28, 2018				January 29, 2017
Beginning balance		$	(1,220	)		$	(962	)
Provision for returns, allowances and discounts			(2,332	)			(2,357	)
Credits issued			2,340				2,103
Ending balance		$	(1,212	)		$	(1,216	)

 

5.  Inventories

Inventories are carried at the lower of cost or market.  Cost is determined using the FIFO (first-in, first-out) method.

A summary of inventories follows:

dollars in thousands)		January 28, 2018				January 29, 2017				April 30, 2017
Raw materials		$	6,654			$	6,977			$	6,456
Work-in-process			3,151				3,161				3,095
Finished goods			45,846				36,055				41,931
		$	55,651			$	46,193			$	51,482

 

6.  Other Noncurrent Assets

A summary of other noncurrent assets follows:

(dollars in thousands)		January 28, 2018				January 29, 2017				April 30, 2017
Cash surrender value – life insurance		$	394			$	376			$	376
Non-compete agreement, net			772				847				828
Customer relationships, net			625				677				664
Other			524				517				526
		$	2,315			$	2,417			$	2,394

 

Non-Compete Agreement

We recorded our non-compete agreement at its fair value based on a discounted cash flow valuation model. Our non-compete agreement is amortized on a straight-line basis over the fifteen year life of the respective agreement.

The gross carrying amount of our non-compete agreement was $2.0 million at January 28, 2018, January 29, 2017 and April 30, 2017, respectively. Accumulated amortization for our non-compete agreement was $1.2 million at January 28, 2018, January 29, 2017, and April 30, 2017, respectively.

Amortization expense for our non-compete agreement was $56,000 for the nine month periods ending January 28, 2018 and January 29, 2017. The remaining amortization expense for the next five fiscal years and thereafter follows: FY 2018 - $19,000; FY 2019 - $75,000; FY 2020 - $75,000; FY 2021 - $75,000; FY 2022 - $75,000 and Thereafter - $453,000.

 

 

The weighted average amortization period for our non-compete agreement is 10.3 years as of January 28, 2018.

Customer Relationships

We recorded our customer relationships at their fair value based on a multi-period excess earnings valuation model. Our customer relationships are amortized on a straight-line basis over its seventeen year useful life.

The gross carrying amount of our customer relationships was $868,000 at January 28, 2018, January 29, 2017, and April 30, 2017, respectively. Accumulated amortization for our customer relationships was $243,000, $191,000, and $204,000 at January 28, 2018, January 29, 2017, and April 30, 2017, respectively.

Amortization expense for our customer relationships was $38,000 for the nine months ended January 28, 2018 and January 29, 2017. The remaining amortization expense for the next five fiscal years and thereafter follows: FY 2018 - $12,000; FY 2019 - $51,000; FY 2020 - $51,000; FY 2021 - $51,000; FY 2022 - $51,000; and Thereafter - $409,000.

The weighted average amortization period for our customer relationships is 12.3 years as of January 28, 2018.

Cash Surrender Value – Life Insurance

At January 28, 2018, January 29, 2017, and April 30, 2017, we had one life insurance contract with a death benefit of $1.4 million.

Our cash surrender value – life insurance balances totaling $394,000, $376,000 and $376,000 at January 28, 2018, January 29, 2017, and April 30, 2017, respectively, are collectible upon death of the respective insured.

7.  Accrued Expenses

A summary of accrued expenses follows:

(dollars in thousands)		January 28, 2018				January 29, 2017				April 30, 2017
Compensation, commissions and related benefits		$	6,288			$	9,205			$	10,188
Advertising rebates			482				118				468
Interest			5				11				51
Other accrued expenses			2,067				1,177				1,240
		$	8,842			$	10,511			$	11,947