SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) August 11, 1995 CULP, INC. (Exact name of registrant as specified in its charter) 101 South Main Street High Point, North Carolina 27260 (Address of principal executive offices) (910) 889-5161 (Registrant's telephone number, including area code) (Former name or former address, if changed since last report)
North Carolina 0-12781 56-1001967 (State or other jurisdiction of (Commission File No.) (IRS Employer Identification incorporation) No.) Item 5. Other Events See Press Release related to first quarter earnings dated August 11, 1995 (attached). See Financial Information Release (attached). SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. CULP, INC. (Registrant) By: Franklin N. Saxon Franklin N. Saxon Vice President and Chief Financial Officer By: Stephen T. Hancock Stephen T. Hancock General Accounting Manager Dated: August 11, 1995 -2- FOR IMMEDIATE RELEASE CULP REPORTS HIGHER FIRST QUARTER SALES AND PROFITS REFLECTING BENEFIT FROM RAYONESE ACQUISITION HIGH POINT, North Carolina (August 11, 1995) - Culp, Inc. today reported higher sales and earnings for the first quarter of its 1996 fiscal year. For the three months ended July 30, 1995, Culp reported net sales of $72.4 million compared with $66.3 million a year ago. Net income for the quarter totaled $1,515,000, or $0.14 per share, compared with $1,450,000, or $0.13 per share, in the first quarter of fiscal 1995. Commenting on the results, Robert G. Culp, III, chief executive officer, said, "We are pleased to report sales and profit gains for our first fiscal quarter in spite of the significant sales weakness in the U.S. furniture industry during the quarter and the raw material price increases we have received over the last year. We were aided in the first quarter by strong growth in mattress ticking and exports and by the inclusion of Rayonese Textile which was acquired during the fourth quarter of last year. As we had anticipated, however, the overall trend in incoming orders for our domestic upholstery fabrics did slow during the period. This pattern, which initially became evident toward the close of our fiscal 1995 year, appeared to reflect caution by furniture manufacturers about the outlook for consumer spending." Culp commented, "We are encouraged that the pace of demand has accelerated somewhat in recent weeks, perhaps reflecting the easing in interest rates and generally stronger prevailing forecasts for the economy. We would expect to benefit from a continuation of this strengthening, but our primary managerial focus continues to be enhancing Culp's fundamental position as one of the largest suppliers of fabrics for the home furnishings industry. One clear measure of this commitment is the considerable investment Culp has made in recent years in modernizing and expanding manufacturing capacity. Including the record capital spending of $18 million in fiscal 1995, we have spent $70 million over the past five years principally for production equipment and facility modernization. The -MORE- CULP Reports First Quarter Results Page 2 August 11, 1995 magnitude of the decision to maintain efficient manufacturing facilities is evident by considering that our capital base at the close of fiscal 1995 was $144 million. For fiscal 1996, we expect a lower level of spending because of the completion of several modernization programs during the past year." Culp said, "This investment program is a vital part of our overall objective of delivering superior value and service to customers. Although industry conditions will remain a factor influencing our short-term performance, our emphasis is building a market position which will yield an above-average record of long-term progress." Culp, Inc. is a leading manufacturer and marketer of fabrics for the furniture, bedding, and institutional furnishings markets. The company's common shares are traded on The Nasdaq Stock Market (National Market) under the symbol CULP. CULP, INC. Condensed Financial Highlights (Unaudited) -END-
Three Months Ended July 30, July 31, 1995 1994 Net sales $ 72,357,000 $ 66,349,000 Net income $ 1,515,000 $ 1,450,000 Earnings per share $ 0.14 $ 0.13 Average shares outstanding 11,207,000 11,198,000 (Page 1 of 8) CULP, INC. FINANCIAL INFORMATION RELEASE CONSOLIDATED INCOME STATEMENTS FOR THE THREE MONTHS ENDED JULY 30, 1995 AND JULY 31, 1994 (Amounts in Thousands, Except for Per Share Data) * Percent of sales column is calculated as a % of income before income taxes.
THREE MONTHS ENDED (UNAUDITED) Amounts Percent of Sales July 30, July 31, % Over 1995 1994 (Under) 1996 1995 Net sales 72,357 66,349 9.1 % 100.0 % 100.0 % Cost of sales 60,159 55,249 8.9 % 83.1 % 83.3 % Gross profit 12,198 11,100 9.9 % 16.9 % 16.7 % Selling, general and administrative expenses 8,454 7,569 11.7 % 11.7 % 11.4 % Income from operations 3,744 3,531 6.0 % 5.2 % 5.3 % Interest expense 1,297 1,077 20.4 % 1.8 % 1.6 % Interest income 0 (23) (100.0)% 0.0 % (0.0)% Other expense (income), net 107 177 (39.5)% 0.1 % 0.3 % Income before income taxes 2,340 2,300 1.7 % 3.2 % 3.5 % Income taxes * 825 850 (2.9)% 35.3 % 37.0 % Net income 1,515 1,450 4.5 % 2.1 % 2.2 % Average shares outstanding 11,207 11,198 0.1 % Net income per share $0.14 $0.13 7.7 % Dividends per share $0.0275 $0.025 10.0 % (Page 2 of 8) CULP, INC. FINANCIAL INFORMATION RELEASE CONSOLIDATED BALANCE SHEETS JULY 30, 1995, JULY 31, 1994 AND APRIL 30, 1995 (Unaudited, Amounts in Thousands) * Derived from audited financial statements.
Amounts Increase July 30, July 31, (Decrease) * April 3 1995 1994 Dollars Percent 1995 Current assets Cash and cash investments 988 380 608 160.0 % 1,393 Accounts receivable 38,243 33,173 5,070 15.3 % 44,252 Inventories 49,363 40,229 9,134 22.7 % 45,771 Other current assets 3,553 2,391 1,162 48.6 % 3,194 Total current assets 92,147 76,173 15,974 21.0 % 94,610 Restricted investments 0 2,202 (2,202) (100.0)% 795 Property, plant & equipment, net 75,744 66,535 9,209 13.8 % 75,805 Goodwill 22,391 18,588 3,803 20.5 % 22,600 Other assets 2,443 1,087 1,356 124.7 % 1,189 Total assets 192,725 164,585 28,140 17.1 % 194,999 Current Liabilities Current maturities of long-term debt 11,555 4,508 7,047 156.3 % 11,555 Accounts payable 25,864 19,772 6,092 30.8 % 32,250 Accrued expenses 8,520 7,505 1,015 13.5 % 11,532 Income taxes payable 1,139 1,224 (85) (6.9)% 661 Total current liabilities 47,078 33,009 14,069 42.6 % 55,998 Long-term debt 67,662 64,187 3,475 5.4 % 62,187 Deferred income taxes 5,361 3,477 1,884 54.2 % 5,418 Total liabilities 120,101 100,673 19,428 19.3 % 123,603 Shareholders' equity 72,624 63,912 8,712 13.6 % 71,396 Total liabilities and stockholders' equity 192,725 164,585 28,140 17.1 % 194,999 Shares outstanding 11,210 11,205 5 0.0 % 11,205 (Page 3 of 8) CULP, INC. FINANCIAL INFORMATION RELEASE CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED JULY 30, 1995 AND JULY 31, 1994 (Unaudited, Amounts in Thousands)
THREE MONTHS ENDED Amounts July 30, July 31, 1995 1994 Cash flows from operating activities: Net income 1,515 1,450 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 3,067 2,622 Amortization of intangible assets 148 136 Provision for deferred income taxes (57) 0 Changes in assets and liabilities: Accounts receivable 6,009 3,570 Inventories (3,592) (3,633) Other current assets (359) (164) Other assets (1,276) (49) Accounts payable (6,386) (10,535) Accrued expenses (3,012) (653) Income taxes payable 478 588 Net cash provided by (used in) operating activities (3,465) (6,668) Cash flows from investing activities: Capital expenditures (3,006) (5,153) Purchases of restricted investments 0 (22) Proceeds from sale of restricted investments 795 743 Business acquired 83 0 Net cash provided by (used in) investing activities (2,128) (4,432) Cash flows from financing activities: Proceeds from issuance of long-term debt 7,000 7,200 Principal payments on long-term debt (1,525) (67) Net increase (decrease) in bank overdrafts 0 1,841 Dividends paid (308) (280) Proceeds from sale of common stock 21 93 Net cash provided by (used in) financing activities 5,188 8,787 Increase (decrease) in cash and cash investments (405) (2,313) Cash and cash investments at beginning of period 1,393 2,693 Cash and cash investments at end of period 988 380 (Page 4 of 8) CULP, INC. FINANCIAL INFORMATION RELEASE FINANCIAL ANALYSIS JULY 30, 1995 (1) Expenditures for entire year (2) Earnings before interest, income taxes, and depreciation & amortization. (3) Total liabilities, long-term debt, funded debt and capital employed are all net of restricted investments.
FISCAL 95 FISCAL 96 Q1 Q1 Q2 Q3 Q4 INVENTORIES Inventory turns 5.8 5.1 RECEIVABLES Days sales in receivables 42 45 Percent current & less than 30 days past due (Trade only) 98.5% 97.0% WORKING CAPITAL Current ratio 2.3 2.0 Working capital turnover 5.7 5.4 Working capital $43,164 $45,069 Working capital as a % of sales 16.3% 15.6% PROPERTY, PLANT & EQUIPMENT Depreciation rate 8.9% 8.9% Percent property, plant & equipment are depreciated 43.6% 44.9% Capital expenditures $18,058 (1 $3,006 PROFITABILITY Net profit margin 2.2% 2.1% Gross profit margin 16.7% 16.9% Operating income margin 5.3% 5.2% SG & A expenses/net sales 11.4% 11.7% Return on beginning capital employed 4.8% 4.2% Return on beginning equity 9.3% 8.5% Earnings per share $0.13 $0.14 LEVERAGE (3) Interest & dividend coverage 2.5 2.3 Total liabilities/equity 154.1% 165.4% Long-term debt/equity 97.0% 93.2% Funded debt/equity 104.0% 109.1% Funded debt/capital employed 51.0% 52.2% Funded debt $66,493 $79,217 Funded debt/EBITDA (LTM) 2.55 2.42 OTHER Book value per share $5.70 $6.48 Employees at quarter end 2,579 2,773 Sales per employee (annualized) $104,000 $105,000 Capital employed (3) $130,405 $151,841 Effective income tax rate 37.0% 35.3% EBITDA (2) $6,112 $6,852 EBITDA/net sales 9.2% 9.5% (Page 5 to 8) CULP, INC. FINANCIAL INFORMATION RELEASE SALES BY BUSINESS UNIT FOR THREE MONTHS ENDED JULY 30, 1995 AND JULY 31, 1994 (Amounts in thousands) * Includes Rayonese Shipments of $1,769.
THREE MONTHS ENDED (UNAUDITED) Amounts Percent of Total Sales July 30, July 31, % Over Business Units 1995 1994 (Under) 1996 1995 Upholstery Fabrics Flat Wovens Existing Culp 17,584 19,613 (10.3)% 24.3 % 29.6 % Rossville/Chromatex 15,358 15,140 1.4 % 21.2 % 22.8 % 32,942 34,753 (5.2)% 45.5 % 52.4 % Velvets/Prints 23,523 20,644 13.9 % 32.5 % 31.1 % 56,465 55,397 1.9 % 78.0 % 83.5 % Mattress Ticking 15,892 * 10,952 45.1 % 22.0 % 16.5 % 72,357 66,349 9.1 % 100.0 % 100.0 % CULP, INC. FINANCIAL INFORMATION RELEASE EXPORT AND FOREIGN SALES BY GEOGRAPHIC AREA FOR THREE MONTHS ENDED JULY 30, 1995 AND JULY 31, 1994 * Includes Rayonese shipments of $1,769.
(Amounts in thousands) THREE MONTHS ENDED (UNAUDITED) Amounts Percent of Total Sales July 30, July 31, % Over Geographic Area 1995 1994 (Under) 1996 1995 North America (Excluding USA) 4,544 * 3,609 25.9 % 31.5 % 32.5 Europe 2,875 2,798 2.8 % 19.9 % 25.2 Middle East 2,112 863 144.7 % 14.7 % 7.8 Far East & Asia 1,639 1,876 (12.6)% 11.4 % 16.9 South America 445 308 44.5 % 3.1 % 2.8 All other areas 2,797 1,655 69.0 % 19.4 % 14.9 14,412 11,109 29.7 % 100.0 % 100.0 (Page 7 of 8) CULP, INC. FINANCIAL INFORMATION RELEASE FINANCIAL NARRATIVE for the three month period ended July 30, 1995 INCOME STATEMENT COMMENTS (Bullet) GENERAL - The company is pleased to report sales and profit gains for its first fiscal quarter in spite of the significant sales weakness in the U. S. furniture industry during the last three months and the raw material prices the company has received over the last year. This quarter makes the eleventh (11th) consecutive quarter of record earnings and the ninth (9th) consecutive quarter of record sales. The company attributes this successful record to, among other things, two key growth strategies: (1) a focus on related markets, such as the Bedding, Export, Contract and Home Textiles markets, other than the U.S. residential furniture industry in order to reduce our dependency on one cyclical and geographic area; and (2) investment in the creative side of our business -- the company has significantly increased the resources (both designers and CAD systems) dedicated to the design and product development areas in each business unit over the last eighteen (18) months. (Bullet) NET SALES - Upholstery fabric sales increased 1.9% to $56.5 million and mattress ticking sales increased 45.2% to $15.9 million for the quarter. The Mattress Ticking and Velvets/Prints business units reported substantial sales gains for the quarter - Mattress Ticking up 45.3% and Velvets/Prints up 13.9%, while our two other business units reported weak results - Flat Wovens down 10.3% and Rossville/Chromatex up 1.4%. Comments on current backlogs and incoming order rates versus last year are as follows: Mattress Ticking - - up significantly; Flat Wovens - up slightly overall, with recent strength in the jacquard product line and weakness in the dobby line; and Rossville/Chromatex - up slightly with strength in its dobby product line and weakness in its jacquard product line; and in Velvets/Prints - - up moderately, with strength in the wet prints and heat-transfer prints product lines. The results of the Velvets/Prints business unit were much improved from the first quarter of last year. The company has institutes a small "across-the-board" price increase of approximately 2%, generally effective for shipments after October 1, 1995. Export and foreign sales, including sales from Rayonese of $1.8 million, were up 29.7% for the quarter, with particular strength in the Middle East. Sales into Europe were up 2.8% for the quarter, a continuation of the positive trend that began in the second quarter of fiscal 1995. The majority of the export growth is coming from the Flat Wovens and Rossville/Chromatex business units, with particular strength in the jacquard product lines. The outlook for export sales gains remains good. The U.S. residential and contract furniture industries have softened considerably during the last several months, which has finally affected our U.S. upholstery fabric business, particularly in the Flat Wovens and Rossville/Chromatex business units. The company believes this softening is temporary and that business conditions are trending more positive, beginning with our second fiscal quarter. The trend of interest rates has turned downward, with mortgage rates becoming more attractive. (Bullet) GROSS PROFIT - The gross profit increase of 9.9% for the quarter reflects significant gains in Mattress Ticking and Velvets/Prints, which were partially offset by significant decreases in Flat Wovens and Rossville/Chromatex. Additionally, during the quarter, the company recorded a $150,000 credit related to the successful resolution of a North Carolina sales tax matter. The company's margins are being affected by the significant price increase in its raw materials over the last year. The company has been unable to pass along all of the costs increases it has received. (Bullet) S,G & A EXPENSES - S,G&A expenses for the quarter were up as a percentage of sales to 11.7% from 11.4%, which reflects higher design expenses and export selling costs. (Bullet) INTEREST EXPENSE - The increase for the quarter is due to additional borrowings related to the Rayonese acquisition, capital expenditures and higher levels of working capital necessary to support sales growth. During April, May, and June 1995, the company entered into three interest rate swap agreements that effectively provide for (1) a fixed rate of 7.34% for five years on $15.0 million of its bank borrowings; CULP, INC. FINANCIAL INFORMATION RELEASE (page 8 of 8) FINANCIAL NARRATIVE - continued for the three month period ended July 30, 1995 (2) a fixed rate of 6.85% for seven years on $5.0 million of its bank borrowings; and (3) a fixed rate of 6.60% for seven years on $5.0 million of its bank borrowings. (Bullet) OTHER EXPENSE (INCOME), NET - This expense includes several items: amortization of goodwill and debt issue costs and other miscellaneous items. Additionally, the company recorded a credit of $100,000 related to the favorable settlement of an environmental dispute with the former owner of one of the company's facilities. (Bullet) INCOME TAXES - The effective tax rate for the quarter decreased primarily due to the income earned in Canada related to Rayonese, which carries a significantly lower effective tax rate of 31.0%. (Bullet) EBITDA - EBITDA for the quarter increased $0.7 million, or 12.1%, from last year's first quarter, and represented 9.5% of net sales compared with 9.2% of net sales last year. BALANCE SHEET COMMENTS (Bullet) WORKING CAPITAL - The increase in inventories over fiscal year end is attributable to higher raw material inventories, which are being reduced during the same fiscal quarter. The company has made excellent progress in reducing finished goods inventory in the last six months. The company has historically built finished goods inventory during its first fiscal quarter. (Bullet) PROPERTY, PLANT AND EQUIPMENT, NET - For fiscal 1996, the capital budget is $11.0 million. Of this total, $2.5 million of capital expenditures relates to Rayonese. Depreciation expense for fiscal 1996 is expected to approximate $13.5 million. The major weaving expansion at Rayonese is proceeding well and is expected to be completed and fully operational by the end of September 1995. (Bullet) LONG-TERM DEBT - At July 30, 1995, the company had $15.8 million in IRB borrowings, $17.0 million in borrowings under its revolving credit facility, $40.0 million in a term facility, $1.0 million in a subordinated note payable and $5.5 million in a convertible note payable. The current maturities of $11.6 includes $6.0 million repayment of the term loan, $100,000 repayment of IRBs and $5.5 million of the convertible note payable because the note is callable by the holder, beginning March 6, 1996. (Bullet) RAYONESE TEXTILE INC. PURCHASE - On March 6, 1995, the company completed the acquisition of Rayonese Textile Inc. ("Rayonese"). (See Form 8-K, dated December 23, 1994, for more detailed information about the purchase.) The transaction has a preliminary estimated value of approximately $10.5 million and includes the purchase of 100% of the Rayonese common stock and the assumption of Rayonese's funded debt. The acquisition has been accounted for as a purchase, and accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The preliminary estimated fair values of assets and retained liabilities acquired are summarized below: March 6, (dollars in thousands) 1995 Accounts receivable, net $ 2,207 Inventories 1,878 Other current assets 39 Property, plant and equipment 5,000 Goodwill 4,120 Accounts payable and accrued liabilities <2,782> $ 10,462 The operating results of this acquisition are included in the company's results of operations from the date of acquisition.