===================================================================
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) February 9, 1996
CULP, INC.
(Exact name of registrant as specified in its charter)
North Carolina 0-12781 56-1001967
(State or other jurisdiction of (Commission File No.) (IRS Employer Identification
incorporation) No.)
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)
===================================================================
Item 5. Other Events
See Press Release (attached) dated February 9, 1996 related to third quarter
earnings for the period ended January 28, 1996.
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: February 9, 1996
-2-
(CULP Letterhead)
FOR IMMEDIATE RELEASE
CULP REPORTS 15% HIGHER THIRD QUARTER NET INCOME
--------------------
NINE-MONTHS RESULTS REFLECT INCREASED SALES AND EARNINGS
HIGH POINT, North Carolina (February 9, 1996) - Culp, Inc. (Nasdaq/NM:CULP)
today reported higher sales and earnings for the third fiscal quarter ended
January 28, 1996.
Net sales for the quarter increased 11% to $86.5 million compared with
$77.8 million a year ago. Net income for the quarter rose 15% to $2.4 million,
or $0.22 per share, compared with $2.1 million, or $0.19 per share, in the third
quarter of fiscal 1995.
The gains for the third quarter brought net sales for the first nine
months to $249.5 million, up 12% from $222.6 million in the first nine months of
fiscal 1995. Net income for the first nine months rose 9% to $6.9 million, or
$0.62 per share, up from $6.4 million, or $0.57 per share, in the year-earlier
period.
Commenting on the results, Robert G. Culp, III, Chief Executive
Officer, said, "The growth reflected in Culp's results for the third quarter
clearly indicate the value of our strategic initiatives to broaden the company's
customer base. In particular, the success of our accelerated marketing plan to
increase exports complemented the moderate growth we have experienced thus far
this fiscal year in demand from U.S.-based manufacturers of home furnishings. As
in the first half, a contribution from Rayonese Textile, which was acquired
during the fourth quarter of fiscal 1995, helped our overall corporate results
during the third quarter."
Culp remarked, "Based on the trends at mid-year, we had expected to
face a tough environment for growth during the third and fourth quarters.
Continuing uncertainty about the outlook for consumer spending remains a factor
affecting our business because of the caution with which retailers and
manufacturers are controlling inventories. The current level of interest rates
certainly presents an encouraging sign regarding purchases of furniture over
-MORE-
CULP Reports Third Quarter Results
Page 2
February 9, 1996
- ------------------------------------------------------------------------------
the next several quarters, but the more important factors driving demand will be
consumer sentiment and confidence in the economy."
"Our ability to capture an increasing share of business from overseas
customers reflects the appeal of our designs as well as the cost competitiveness
of our fabrics. European manufacturers account for the largest share of Culp's
exports, but we are experiencing rapid growth in shipments to other geographic
areas including the Middle East and Asia. We are finding increasing interest
from manufacturers outside the United States in our entire product line, but
shipments of upholstery fabrics to overseas accounts have been the primary
factor accounting for our growth in exports this fiscal year."
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)
Three Months Ended
January 28, January 29,
1996 1995
Net sales $ 86,476,000 $ 77,791,000
Net income 2,415,000 2,100,000
Earnings per share $ 0.22 $ 0.19
Nine Months Ended
January 28, January 29,
1996 1995
Net sales $ 249,505,000 $ 222,585,000
Net income 6,930,000 6,350,000
Earnings per share $ 0.62 $ 0.57
-END-
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED INCOME STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED JANUARY 28, 1996 AND JANUARY 29, 1995
(Amounts in Thousands, Except for Per Share Data)
THREE MONTHS ENDED (UNAUDITED)
--------------------------------------------------------------------------------------------
Amounts Percent of Sales
----------------------------------- -----------------------------------------
January 28, January 29, % Over
1996 1995 (Under) 1996 1995
--------------- ------------------ ---------------- ---------------- ---------------
Net sales 86,476 77,791 11.2 % 100.0 % 100.0 %
Cost of sales 71,447 64,785 10.3 % 82.6 % 83.3 %
--------------- ------------------ ---------------- ---------------- ---------------
Gross profit 15,029 13,006 15.6 % 17.4 % 16.7 %
Selling, general and
administrative expenses 9,639 8,295 16.2 % 11.1 % 10.7 %
--------------- ------------------ ---------------- ---------------- ---------------
Income from operations 5,390 4,711 14.4 % 6.2 % 6.1 %
Interest expense 1,279 1,120 14.2 % 1.5 % 1.4 %
Interest income 0 (14) (100.0) % 0.0 % (0.0) %
Other expense (income), net 266 245 8.6 % 0.3 % 0.3 %
--------------- ------------------ ---------------- ---------------- ---------------
Income before income taxes 3,845 3,360 14.4 % 4.4 % 4.3 %
Income taxes * 1,430 1,260 13.5 % 37.2 % 37.5 %
--------------- ------------------ ---------------- ---------------- ---------------
Net income 2,415 2,100 15.0 % 2.8 % 2.7 %
=============== ================== ================ ================ ===============
Average shares outstanding 11,232 11,205 0.2 %
Net income per share $0.22 $0.19 15.8 %
Dividends per share $0.0275 $0.025 10.0 %
NINE MONTHS ENDED (UNAUDITED)
--------------------------------------------------------------------------------------------
Amounts Percent of Sales
----------------------------------- --------------------------------------
January 28, January 29, % Over
1996 1995 (Under) 1996 1995
--------------- ------------------ ---------------- ---------------- ----------------
Net sales 249,505 222,585 12.1 % 100.0 % 100.0 %
Cost of sales 206,171 184,306 11.9 % 82.6 % 82.8 %
--------------- ------------------ ---------------- ---------------- ----------------
Gross profit 43,334 38,279 13.2 % 17.4 % 17.2 %
Selling, general and
administrative expenses 27,768 24,227 14.6 % 11.1 % 10.9 %
--------------- ------------------ ---------------- ---------------- ----------------
Income from operations 15,566 14,052 10.8 % 6.2 % 6.3 %
Interest expense 3,964 3,341 18.6 % 1.6 % 1.5 %
Interest income 0 (61) (100.0) % 0.0 % (0.0) %
Other expense (income), net 592 612 (3.3) % 0.2 % 0.3 %
--------------- ------------------ ---------------- ---------------- ----------------
Income before income taxes 11,010 10,160 8.4 % 4.4 % 4.6 %
Income taxes * 4,080 3,810 7.1 % 37.1 % 37.5 %
--------------- ------------------ ---------------- ---------------- ----------------
Net income 6,930 6,350 9.1 % 2.8 % 2.9 %
=============== ================== ================ ================ ================
Average shares 11,218 11,203 0.1 %
Net income per share $0.62 $0.57 8.8 %
Dividends per share $0.0825 $0.075 10.0 %
*Percent of sales column is calculated as a % of income before income taxes.
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED BALANCE SHEETS
JANUARY 28, 1996, JANUARY 29, 1995 AND APRIL 30, 1995
- -------------------------------------------------------------------------------
(Unaudited, Amounts in Thousands)
Increase
- -------------------------------------------------------------------------------------------------------------------------------
January 28, January 29, (Decrease) * April 30,
---------------------------------------
1996 1995 Dollars Percent 1995
------------------ ----------------- ------------ ------------ ----------
Current assets
Cash and cash investments 1,841 317 1,524 480.8 % 1,393
Accounts receivable 43,642 40,547 3,095 7.6 % 44,252
Inventories 49,960 44,314 5,646 12.7 % 45,771
Other current assets 3,436 2,920 516 17.7 % 3,194
------------------ ----------------- ------------ ------------ ----------
Total current assets 98,879 88,098 10,781 12.2 % 94,610
Restricted investments 0 1,602 (1,602) (100.0) % 795
Property, plant & equipment, net 73,356 69,373 3,983 5.7 % 75,805
Goodwill 23,037 18,850 4,187 22.2 % 22,600
Other assets 2,432 1,215 1,217 100.2 % 1,189
------------------ ----------------- ------------ ------------ ----------
Total assets 197,704 179,138 18,566 10.4 % 194,999
================== ================= ============ ============ ==========
Current Liabilities
Current maturities of long-term debt 11,555 6,100 5,455 89.4 % 11,555
Accounts payable 22,516 24,126 (1,610) (6.7) % 32,250
Accrued expenses 11,181 10,082 1,099 10.9 % 11,532
Income taxes payable 1,336 1,391 (55) (4.0) % 661
------------------ ----------------- ------------ ------------ ----------
Total current liabilities 46,588 41,699 4,889 11.7 % 55,998
Long-term debt 68,112 65,711 2,401 3.7 % 62,187
Deferred income taxes 5,381 3,477 1,904 54.8 % 5,418
------------------ ----------------- ------------ ------------ ----------
Total liabilities 120,081 110,887 9,194 8.3 % 123,603
Shareholders' equity 77,623 68,251 9,372 13.7 % 71,396
------------------ ----------------- ------------ ------------ ----------
Total liabilities and
stockholders' equity 197,704 179,138 18,566 10.4 % 194,999
================== ================= ============ ============ ==========
Shares outstanding 11,265 11,205 60 0.5 % 11,205
================== ================= ============ ============ ==========
*Derived from audited financial statements.
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JANUARY 28, 1996 AND JANUARY 29, 1995
(Unaudited, Amounts in Thousands)
NINE MONTHS ENDED
-----------------------
Amounts
---------------------
January 28, January 29,
1996 1995
------- -------
Cash flows from operating activities:
Net income 6,930 6,350
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation 9,278 8,237
Amortization of intangible assets 544 458
Provision for deferred income taxes (37) (272)
Changes in assets and liabilities:
Accounts receivable 610 (3,804)
Inventories (4,189) (7,718)
Other current assets (242) (421)
Other assets (1,343) (761)
Accounts payable (9,734) (4,340)
Accrued expenses (351) 1,924
Income taxes payable 675 755
------- -------
Net cash provided by (used in) operating activities 2,141 408
------- -------
Cash flows from investing activities:
Capital expenditures (7,710) (13,606)
Purchases of restricted investments 0 (60)
Proceeds from sale of restricted investments 795 1,381
Business acquired 0 0
------- -------
Net cash provided by (used in) investing activities (6,915) (12,285)
------- -------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 10,500 20,000
Principal payments on long-term debt (4,575) (9,751)
Net increase (decrease) in bank overdrafts 0 0
Dividends paid (926) (840)
Proceeds from sale of common stock 223 92
------- -------
Net cash provided by (used in) financing activities 5,222 9,501
------- -------
Increase (decrease) in cash and cash investments 448 (2,376)
Cash and cash investments at beginning of period 1,393 2,693
------- -------
Cash and cash investments at end of period 1,841 317
======= =======
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL ANALYSIS
JANUARY 28, 1996
FISCAL 95 FISCAL 96
----------------- ---------------------------------------------------------------------------
Q3 Q1 Q2 Q3 Q4
----------------- ---------------------------------------------------------------------------
INVENTORIES
Inventory turns 6.0 5.1 6.0 5.7
RECEIVABLES
Days sales in receivables 44 45 47 43
Percent current &
less than 30
days past due
(Trade only) 98.9% 97.0% 98.2% 99.0%
WORKING CAPITAL
Current ratio 2.1 2.0 1.9 2.1
Working capital 5.5 5.4 5.4 5.3
turnover
Working capital $46,399 $45,069 $46,373 $52,266
Working capital as a % of sales 14.9% 15.6% 12.8% 15.1%
PROPERTY, PLANT & EQUIPMENT
Depreciation rate 9.2% 8.9% 8.9% 8.9%
Percent property, plant &
equipment are depreciated 45.0% 44.9% 46.7% 48.0%
Capital expenditures $18,058 (1) $3,006 $2,084 $2,620
PROFITABILITY
Net profit margin 2.7% 2.1% 3.3% 2.8%
Gross profit margin 16.7% 16.9% 17.8% 17.4%
Operating income margin 6.1% 5.2% 7.1% 6.2%
SG & A expenses/net sales 10.7% 11.7% 10.7% 11.1%
Return on beginning
capital employed 6.9% 4.2% 8.3% 6.7%
Return on beginning equity 13.4% 8.5% 16.8% 13.5%
Earnings per share $0.19 $0.14 $0.27 $0.22
LEVERAGE (3)
Interest & dividend coverage 3.2 2.3 3.7 3.2
Total liabilities/equity 160.1% 165.4% 166.0% 154.7%
Long-term debt/equity 93.9% 93.2% 86.4% 87.7%
Funded debt/equity 102.9% 109.1% 101.8% 102.6%
Funded debt/capital employed 50.7% 52.2% 50.4% 50.6%
Funded debt $70,209 $79,217 $76,692 $79,667
Funded debt/EBITDA (LTM) 2.26 2.42 2.27 2.29
OTHER
Book value per share $6.09 $6.48 $6.72 $6.89
Employees at quarter end 2,656 2,773 2,847 2,886
Sales per employee (annualized) $118,000 $105,000 $129,000 $121,000
Capital employed (3) $138,460 $151,841 $152,043 $157,290
Effective income tax rate 37.5% 35.3% 37.8% 37.2%
EBITDA (2) $7,523 $6,852 $9,494 $8,450
EBITDA/net sales 9.8% 9.5% 10.5% 9.8%
(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.
CULP, INC. FINANCIAL INFORMATION RELEASE
SALES BY BUSINESS UNIT
FOR THREE MONTHS AND NINE MONTHS ENDED JANUARY 28, 1996
AND JANUARY 29, 1995
(AMOUNTS IN THOUSANDS)
THREE MONTHS ENDED (UNAUDITED)
-----------------------------------------------------------------------------------------------
Amounts Percent of Total Sales
---------------------------------- ------------------------------------------
JANUARY 28, January 29, % Over
Business Units 1996 1995 (Under) 1996 1995
- ------------------------------------ ---------------- ---------------- ----------------------------------------------------------
Upholstery Fabrics
Flat Wovens
Existing Culp 20,685 20,940 (1.2) % 23.9 % 26.9 %
Rossville/Chromatex 18,567 16,397 13.2 % 21.5 % 21.1 %
---------------- ---------------- ---------------- ---------------- ----------------
39,252 37,337 5.1 % 45.4 % 48.0 %
Velvets/Prints 31,836 28,307 12.5 % 36.8 % 36.4 %
---------------- ---------------- ---------------- ---------------- ----------------
71,088 65,644 8.3 % 82.2 % 84.4 %
Mattress Ticking 15,388 * 12,147 26.7 % 17.8 % 15.6 %
---------------- ---------------- ---------------- ---------------- ---------------
86,476 77,791 11.2 % 100.0 % 100.0 %
================ ================ ================ ================ ================
NINE MONTHS ENDED (UNAUDITED)
-----------------------------------------------------------------------------------------------
Amounts Percent of Total Sales
---------------------------------- ------------------------------------------
JANUARY 28, January 29, % Over
Business Units 1996 1995 (Under) 1996 1995
- ------------------------------------ ---------------- ---------------- ----------------------------------------------------------
Upholstery Fabrics
Flat Wovens
Existing Culp 60,984 63,387 (3.8) % 24.4 % 28.5 %
Rossville/Chromatex 51,885 47,295 9.7 % 20.8 % 21.2 %
---------------- ---------------- ---------------- ---------------- ----------------
112,869 110,682 2.0 % 45.2 % 49.7 %
Velvets/Prints 87,440 75,390 16.0 % 35.0 % 33.9 %
---------------- ---------------- ---------------- ---------------- ----------------
200,309 186,072 7.7 % 80.3 % 83.6 %
Mattress Ticking 49,196 * 36,513 34.7 % 19.7 % 16.4 %
---------------- ---------------- ---------------- ---------------- ----------------
249,505 222,585 12.1 % 100.0 % 100.0 %
================ ================ ================ ================ ================
* Includes Rayonese shipments of $1,910 for the three months and $5,732 for the
nine months. The percent increase in sales without rayonese was 11.0% for
the three months and 19.1% for the nine months.
CULP, INC. FINANCIAL INFORMATION RELEASE
EXPORT AND FOREIGN SALES BY GEOGRAPHIC AREA
FOR THREE MONTHS AND NINE MONTHS ENDED JANUARY 28, 1996
AND JANUARY 29, 1995
(AMOUNTS IN THOUSANDS)
THREE MONTHS ENDED (UNAUDITED)
------------------------------------------------------------------------------------------------
Amounts Percent of Total Sales
---------------------------------- -------------------------------------------
JANUARY 28, January 29, % Over
Geographic Area 1996 1995 (Under) 1996 1995
- ----------------------------------- ---------------- ---------------- -----------------------------------------------------------
North America (Excluding USA) 5,488 3,412 60.8 % 28.9 % 23.0 %
Europe 5,590 6,047 (7.6) % 29.5 % 40.8 %
Middle East 2,383 1,738 37.1 % 12.6 % 11.7 %
Far East & Asia 2,738 2,008 36.4 % 14.4 % 13.6 %
South America 320 490 (34.7) % 1.7 % 3.3 %
All other areas 2,451 1,123 118.3 % 12.9 % 7.6 %
---------------- ---------------- ---------------- ---------------- -----------------
18,970 * 14,818 28.0 % 100.0 % 100.0 %
================ ================ ================ ================ =================
NINE MONTHS ENDED (UNAUDITED)
------------------------------------------------------------------------------------------------
Amounts Percent of Total Sales
---------------------------------- -------------------------------------------
JANUARY 28, January 29, % Over
Geographic Area 1996 1995 (Under) 1996 1995
- ----------------------------------- ---------------- ---------------- -----------------------------------------------------------
North America (Excluding USA) 16,275 11,204 45.3 % 30.7 % 27.7 %
Europe 13,072 12,937 1.0 % 24.7 % 31.9 %
Middle East 7,933 4,506 76.1 % 15.0 % 11.1 %
Far East & Asia 7,578 6,139 23.4 % 14.3 % 15.2 %
South America 1,163 1,674 (30.5) % 2.2 % 4.1 %
All other areas 6,941 4,049 71.4 % 13.1 % 10.0 %
---------------- ---------------- ---------------- ---------------- ----------------
52,962 * 40,509 30.7 % 100.0 % 100.0 %
================ ================ ================ ================ =================
* Includes Rayonese shipments of $1,910 for the three months and $5,732 for
the nine months. The percent increase in sales without rayonese was 15.1% for
the three months and 16.6% for the nine months.
Culp, Inc.
SALES BY BUSINESS UNIT - TREND ANALYSIS
1994 vs 1995 vs 1996
(Amounts in thousands)
Fiscal 1994 Fiscal 1995 Fiscal 1996
Business Units Q1 Q2 Q3 Q4 TOTAL Q1 Q2 Q3 Q4 TOTAL Q1 Q2 Q3 Q4 TOTAL
Upholstery Fabrics
Flat Wovens
Culp Textures 17,444 20,073 19,673 21,127 78,317 19,613 22,834 20,940 21,738 85,125 17,584 22,715 20,685 60,984
Rossville/Chromatxt 0 0 14,330 16,717 31,047 15,140 15,758 16,397 16,470 63,765 15,358 17,960 18,567 51,885
17,444 20,073 34,003 37,844 109,364 34,753 38,592 37,337 38,208 148,890 32,942 40,675 39,252 112,869
Velvets/Prints 20,888 24,518 23,714 27,916 97,036 20,644 26,439 28,307 31,413 106,803 23,523 32,081 31,836 87,440
38,332 44,591 57,717 65,760 206,400 55,397 65,031 65,644 69,621 255,693 56,465 72,756 71,088 200,309
Mattress Ticking 8,251 9,395 9,531 11,472 38,649 10,952 13,414 12,147 15,820 52,333 15,892 17,916 15,388 49,195
46,583 53,986 67,248 77,232 245,049 66,349 78,445 77,791 85,441 308,026 72,357 90,672 86,476 249,505
Percent increase(decrease) from prior year:
Business Units
Upholstery Fabrics
Flat Wovens
Culp Textures (6.5) (5.2) 3.8 0.3 (1.9) 12.4 13.8 6.4 2.9 8.7 (10.3) (0.5) (1.2) (3.8)
Rossville/Chroma N/A N/A N/A N/A N/A 100.0 100.0 14.4 (1.5) 105.4 1.4 14.0 13.2 9.7
(6.5) (5.2) 79.4 79.7 37.0 99.2 92.3 9.8 1.0 36.1 (5.2) 5.4 5.1 2.0
Velvets/Prints 7.4 16.5 10.0 8.3 10.5 (1.2) 7.8 19.4 12.5 10.1 13.9 21.3 12.5 16.0
0.6 5.7 42.5 40.4 23.1 44.5 45.8 13.7 5.9 23.9 1.9 11.9 8.3 7.7
Mattress Ticking 7.5 10.4 27.6 21.2 16.7 32.7 42.8 27.4 37.9 35.4 45.1 33.6 26.7 34.7
1.7 6.4 40.2 37.2 22.0 42.4 45.3 15.7 10.6 25.7 9.1 15.6 11.2 12.1
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three and nine months period ended January 28, 1996
INCOME STATEMENT COMMENTS
o GENERAL - The company is pleased to report solid sales and profit gains for
its third fiscal quarter in spite of a) the continued significant sales weakness
in the U. S. retail furniture and bedding industries and b) the raw material
price increases which the company has received over the last year. This
quarter's performance marks the thirteenth consecutive quarter of record
earnings and the eleventh consecutive quarter of record sales. Additionally, for
the first nine months, the company achieved a return on shareholders' equity of
12.9%.
The company attributes this successful record to, among other things,
two key growth strategies: (1) a focus on markets, other than U.S. Residential
Furniture, such as Bedding, Export, Contract and Home Textiles, in order to
reduce our dependency on one cyclical and geographical 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 months.
o NET SALES - Upholstery fabric sales increased 8.3% to $71.1 million and
mattress ticking sales increased 26.7% to $15.4 million for the quarter in
comparison to the same quarter of last year. (See Sales by Business Unit
schedule on page 5 and Sales by Business Unit - Trend Analysis on page 7.) Three
of our four business units reported substantial sales gains for the quarter:
Mattress Ticking - up 26.7%; Velvets/Prints - up 12.5%; and Rossville/Chromatex
up 13.2%, while our Culp Textures business unit reported essentially flat
results. The percent of sales gain for Rossville/Chromatex and Culp Textures
represent sharp improvement over the first half's sales comparisons. Comments on
current backlogs and incoming order rates versus last year are as follows:
Mattress Ticking - up slightly; Culp Textures - flat, with strength in the
jacquard product line and weakness in the dobby line; Rossville/Chromatex - up
moderately with strength in both dobby and jacquard product lines; and
Velvets/Prints - up moderately, with strength in the wet prints, heat-transfer
prints and woven velvet product lines. The results of the Velvets/Prints
business unit were substantially improved from the third quarter and first nine
months of last year. The company instituted an "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 $1.9
million, were up 28.0% for the quarter, with particular strength in the Middle
East and the Far East and Asia. The majority of the export growth is coming from
the Culp Textures and Rossville/Chromatex business units, with particular
strength in the jacquard product lines. The company is enjoying increasing
success in marketing its upholstery fabric products internationally. We are
encouraged by our growing customer base throughout the world and the increasing
percentage that our Culp Textures and Rossville/Chromatex product lines
represent of our total export shipments. Offsetting somewhat these positive
trends, however, export shipments of mattress ticking are off considerably. The
weakness resulted principally from lower shipments to Mexico and Brazil. The
overall outlook for export sales gains remains good.
The U.S. bedding and home textiles (particularly "top of the bed")
markets have softened significantly since early August. This retail weakness has
resulted in a somewhat slower rate of growth in our mattress ticking business
unit, which includes Rayonese. The company believes this softness is temporary
and that business conditions will turn more positive in early 1996.
CULP, INC. FINANCIAL INFORMATION RELEASE (page 9 of 9)
FINANCIAL NARRATIVE - continued
for the three and nine month periods ended January 28, 1996
o GROSS PROFIT - The gross profit increase of 15.6% for the quarter reflects a
significant gain in Velvets/Prints and a moderate gain in Culp Textures. These
increases were partially offset by a slight decrease in Rossville/Chromatex. The
company's margins, in all business units, are being affected by the significant
price increases in its raw materials over the last year. The company has been
unable to pass along all of the cost increases it has received. For the near
term (fourth quarter), the company is expecting gross profit gains in all of its
business units, with strongest gains in Velvets/Prints.
o S,G & A EXPENSES - S,G&A expenses for the quarter were up as a percentage of
sales to 11.1% from 10.7%. This increase is due to higher marketing and
design expenses during this quarter.
o 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.
o EBITDA - EBITDA for the quarter increased $927,000, or 12.3%, from last year's
third quarter, and represented 9.8% of net sales compared with 9.8% of net sales
last year.
BALANCE SHEET COMMENTS
o WORKING CAPITAL - The increase in inventories over fiscal year end is
attributable to higher raw material inventories, which are being reduced during
the balance of our fiscal year. The company has made excellent progress in
reducing finished goods inventory in the last three quarters, with a 5% decrease
from fiscal year end and a 10% decrease from third quarter of last year. This is
particularly noteworthy because the company has historically built finished
goods inventory during the first half of its fiscal year.
o PROPERTY, PLANT AND EQUIPMENT - For fiscal 1996, the company has increased its
capital spending plans from $11.0 million to $15.5 million due to accelerating
two projects previously scheduled for fiscal 1997. The projects, scheduled to be
completed during April and May 1996, involve expanding the company's production
capacity for its jacquard and wet prints product lines. These new projects will
have the capacity to generate an estimated $25.0 million in annual sales on a
full utilization basis. Depreciation expense for fiscal 1996 is expected to
approximate $13.5 million. For fiscal 1997, the company believes its capital
spending will be in the range of $10 to $13 million.
o LONG-TERM DEBT - At January 28, 1996, the company had $15.7 million in IRB
borrowings, $20.5 million in borrowings under its revolving credit facility,
$37.0 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
million includes: $6.0 million repayment of the term loan, $100,000 repayment of
IRBs and the entire amount of the convertible note payable because the note is
callable by the holder, beginning March 6, 1996. The convertible note has been
called and the company plans to repay the note during March 1996 with funds from
the company's bank credit facilities. With its interest rate swap agreements
totalling $25.0 million, the company has effectively "fixed" 43% of its bank
borrowings ($57.5 million) at a weighted average interest rate of 7.1%. The
company's funded debt to capital ratio was 50.6%, at January 28, 1996, down from
50.7% at January 29, 1995.
