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) May 30, 1996 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 No.) incorporation) Item 5. Other Events See Press Release (attached) dated May 30, 1996 related to year-end earnings for the period ended April 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 Vice President and Chief Financial Officer By: Stephen T. Hancock Stephen T. Hancock General Accounting Manager Dated: May 30, 1996 (CULP LOGO APPEARS HERE) NEWS RELEASE Contact: Frank Saxon Vice President Chief Financial Officer FOR IMMEDIATE RELEASE CULP REPORTS RECORD SALES AND EARNINGS FOR FISCAL 1996 -------------------- EARNINGS UP FOR SEVENTH CONSECUTIVE YEAR HIGH POINT, North Carolina (May __, 1996) - Culp, Inc. (Nasdaq/NM:CULP) today reported record sales and earnings for the fourth quarter and fiscal year ended April 28, 1996. Net sales for the quarter increased 19.6% to $102.2 million compared with $85.4 million a year ago. Net income for the quarter rose 18.2% to $4.1 million, or $0.36 per share, compared with $3.4 million, or $0.31 per share, in the fourth quarter of fiscal 1995. For the 1996 fiscal year, net sales totaled $351.7 million, up 14.2% from $308.0 million in fiscal 1995. Net income for the year rose 12.3% to $11.0 million, or $0.98 per share, up from $9.8 million, or $0.87 per share, in fiscal 1995. "Fiscal 1996 marked the seventh consecutive year in which Culp has attained higher net income," said Robert G. Culp, III, chief executive officer. "Each quarter during the year included record sales and earnings compared with the respective year-earlier periods and the fourth quarter represented the fourteenth consecutive quarter of record earnings. Although we received some benefit during fiscal 1996 from the full-year inclusion of Rayonese Textile, the gains in both net sales and net income for the year principally reflected growth in our existing business units." Culp continued, "Higher sales of both upholstery fabrics and mattress ticking contributed to the 14.2% gain in net sales for the year. For fiscal 1996, international shipments accounted for $80.9 million, or 23.0 %, of net sales, up from 18% in fiscal 1995. Culp's international sales have risen more than tenfold since fiscal 1990. Without that incremental business, we would still have compiled a well above-average record and would rank as one of the top marketers of upholstery fabrics in the United States. However, the contribution from increased sales to customers outside the United States has markedly accelerated our progress and enabled us to achieve a stronger competitive posture on a worldwide basis. -MORE- CULP Reports 1996 Records Page 2 May 30, 1996 - -------------------------------------------------------------------------------- "Aided by a growing presence in the Middle East, Asia and the Far East, we shipped fabrics to more than 50 countries during fiscal 1996. We are continuing to add new customers, are considering establishing sales offices in selected areas and plan to introduce new products as part of an aggressive plan to capitalize on this momentum. Our success in building Culp's global presence relates directly to our continuous quality improvement process that remains a cornerstone of our growth initiatives. The tangible returns realized thus far from this effort have reinforced the teamwork throughout the Culp organization and confirmed the importance of delivering consistently high levels of service to each customer. The company's ongoing progress is also attributable to our stepped-up investment in personnel and equipment for the development of innovative and fashionable designs. Having computer-aided flexibility to generate new designs has increasingly become an integral asset to our overall marketing programs." Culp concluded, "In the fourth quarter, we achieved the milestone of surpassing $100 million in net sales for the first time ever for a three-month period. Although there are conflicting projections about the trend in the economy and interest rates over the next several quarters, the sentiment among manufacturers and retailers of home furnishings seems generally optimistic at this time. The current pace of our incoming orders and production schedules casts a positive outlook about the company's near-term prospects, but our primary focus remains on extending Culp's long-term record of progress." Culp, Inc. is a leading manufacturer and marketer of fabrics for the furniture, bedding and institutional furnishings markets. CULP, INC. Condensed Financial Highlights -END-
Three Months Ended April 28, April 30, 1996 1995 Net sales $ 102,162,000 $ 85,441,000 Net income 4,050,000 3,425,000 Earnings per share $ 0.36 $ 0.31 Fiscal Year Ended April 28, April 30, 1996 1995 Net sales $ 351,667,000 $ 308,026,000 Net income 10,980,000 9,775,000 Earnings per share $ 0.98 $ 0.87 CULP, INC. FINANCIAL INFORMATION RELEASE CONSOLIDATED INCOME STATEMENTS FOR THE THREE AND TWELVE MONTHS ENDED APRIL 28, 1996 AND APRIL 30, 1995 (Amounts in Thousands, Except for Per Share Data) * Percent of sales column is calculated as a % of income before income taxes. ** Measurement is not meaningful.
THREE MONTHS ENDED (UNAUDITED) Amounts Percent of Sales April 28, April 30, % Over 1996 1995 (Under) 1996 1995 Net sales $ 102,162 85,441 19.6 % 100.0 % 100.0 % Cost of sales 82,957 69,039 20.2 % 81.2 % 80.8 % Gross profit 19,205 16,402 17.1 % 18.8 % 19.2 % Selling, general and administrative expenses 11,300 9,205 22.8 % 11.1 % 10.8 % Income from operations 7,905 7,197 9.8 % 7.7 % 8.4 % Interest expense 1,352 1,374 (1.6)% 1.3 % 1.6 % Interest income (92) (3) ** % (0.1)% (0.0)% Other expense (income), net 365 470 (22.3)% 0.4 % 0.6 % Income before income taxes 6,280 5,356 17.3 % 6.1 % 6.3 % Income taxes * 2,230 1,931 15.5 % 35.5 % 36.1 % Net income $ 4,050 3,425 18.2 % 4.0 % 4.0 % Average shares outstanding 11,284 11,205 0.7 % Net income per share $0.36 $0.31 16.1 % Dividends per share $0.0275 $0.025 10.0 % TWELVE MONTHS ENDED (AUDITED) Amounts Percent of Sales April 28, April 30, % Over 1996 1995 (Under) 1996 1995 Net sales $ 351,667 308,026 14.2 % 100.0 % 100.0 % Cost of sales 289,129 253,345 14.1 % 82.2 % 82.2 % Gross profit 62,538 54,681 14.4 % 17.8 % 17.8 % Selling, general and administrative expenses 39,068 33,432 16.9 % 11.1 % 10.9 % Income from operations 23,470 21,249 10.5 % 6.7 % 6.9 % Interest expense 5,316 4,715 12.7 % 1.5 % 1.5 % Interest income (92) (64) 43.8 % (0.0)% (0.0)% Other expense (income), net 956 1,082 (11.6)% 0.3 % 0.4 % Income before income taxes 17,290 15,516 11.4 % 4.9 % 5.0 % Income taxes * 6,310 5,741 9.9 % 36.5 % 37.0 % Net income $ 10,980 9,775 12.3 % 3.1 % 3.2 % Average shares 11,234 11,203 0.3 % Net income per share $0.98 $0.87 12.6 % Dividends per share $0.11 $0.10 10.0 % CULP, INC. FINANCIAL INFORMATION RELEASE CONSOLIDATED BALANCE SHEETS APRIL 28, 1996, AND APRIL 30, 1995 (Audited, Amounts in Thousands)
Amounts Increase April 28, April 30, (Decrease) 1996 1995 Dollars Percent Current assets Cash and cash investments $ 498 1,393 (895) (64.2)% Accounts receivable 52,038 44,252 7,786 17.6 % Inventories 47,395 45,771 1,624 3.5 % Other current assets 4,191 3,194 997 31.2 % Total current assets 104,122 94,610 9,512 10.1 % Restricted investments 5,250 795 4,455 560.4 % Property, plant & equipment, net 76,961 75,805 1,156 1.5 % Goodwill 22,871 22,600 271 1.2 % Other assets 2,440 1,189 1,251 105.2 % Total assets $ 211,644 194,999 16,645 8.5 % Current Liabilities Current maturities of long-term debt $ 7,100 11,555 (4,455) (38.6)% Accounts payable 27,308 32,250 (4,942) (15.3)% Accrued expenses 12,564 11,532 1,032 8.9 % Income taxes payable 197 661 (464) (70.2)% Total current liabilities 47,169 55,998 (8,829) (15.8)% Long-term debt 74,941 62,187 12,754 20.5 % Deferred income taxes 8,088 5,418 2,670 49.3 % Total liabilities 130,198 123,603 6,595 5.3 % Shareholders' equity 81,446 71,396 10,050 14.1 % Total liabilities and stockholders' equity $ 211,644 194,999 16,645 8.5 % Shares outstanding 11,290 11,205 85 0.8 % CULP, INC. FINANCIAL INFORMATION RELEASE CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE TWELVE INE MONTHS ENDED APRIL 28, 1996 AND APRIL 29, 1995 (Audited, Amounts in Thousands)
TWELVE MONTHS ENDED Amounts January 28, January 29, 1996 1995 Cash flows from operating activities: Net income $10,890 9,775 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 12,348 11,257 Amortization of intangible assets 748 628 Provision for deferred income taxes 2,210 1,373 Changes in assets and liabilities: Accounts receivable (7,786) (5,515) Inventories (1,624) (7,281) Other current assets (537) (310) Other assets (103) (518) Accounts payable (1,077) 159 Accrued expenses 1,032 2,180 Income taxes payable (464) 25 Net cash provided by (used in) operating activities 15,727 11,773 Cash flows from investing activities: Capital expenditures (14,385) (18,058) Purchases of restricted investments (6,019) (57) Purchase of investment to fund deferred compensation liability (1,286) 0 Proceeds from sale of restricted investments 1,564 2,185 Business acquired 0 (10,455) Net cash provided by (used in) investing activities (20,126) (26,385) Cash flows from financing activities: Proceeds from issuance of long-term debt 19,854 23,455 Principal payments on long-term debt (11,555) (11,275) Change in accounts payable-capital expenditures (3,865) 2,160 Dividends paid (1,236) (1,120) Proceeds from sale of common stock 306 92 Net cash provided by (used in) financing activities 3,504 13,312 Increase (decrease) in cash and cash investments (895) (1,300) Cash and cash investments at beginning of period 1,393 2,693 Cash and cash investments at end of period $ 498 1,393 CULP, INC. FINANCIAL INFORMATION RELEASE FINANCIAL ANALYSIS APRIL 28, 1996 (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 ------------------ ------------------------------------------------------- Q4 Q1 Q2 Q3 Q4 ------------------ ------------------------------------------------------- INVENTORIES Inventory turns 6.1 5.1 6.0 5.7 6.8 RECEIVABLES Days sales in receivables 47 45 47 43 46 Percent current & less than 30 days past due 98.7% 97.0% 98.2% 99.0% 99.0% WORKING CAPITAL Current ratio 1.7 2.0 1.9 2.1 2.2 Working capital turnover 5.6 5.4 5.4 5.3 5.3 Working capital $38,612 $45,069 $46,373 $52,266 $56,953 Working capital as a % of sales 11.3% 15.6% 12.8% 15.1% 13.9% PROPERTY, PLANT & EQUIPMENT Depreciation rate 9.0% 8.9% 8.9% 8.9% 8.3% Percent property, plant & equipment are depreciated 43.6% 44.9% 46.7% 48.0% 47.7% Capital expenditures $18,058 (1) $3,006 $2,084 $2,620 $6,675 PROFITABILITY Net profit margin 4.0% 2.1% 3.3% 2.8% 4.0% Gross profit margin 19.2% 16.9% 17.8% 17.4% 18.8% Operating income margin 8.4% 5.2% 7.1% 6.2% 7.7% SG & A expenses/net sales 10.8% 11.7% 10.7% 11.1% 11.1% Return on beginning capital employed 11.3% 4.2% 8.3% 6.7% 11.2% Return on beginning equity 21.9% 8.5% 16.8% 13.5% 22.7% Earnings per share $0.31 $0.14 $0.27 $0.22 $0.36 LEVERAGE (3) Interest & dividend coverage 4.1 2.3 3.7 3.2 4.6 Total liabilities/equity 172.0% 165.4% 166.0% 154.7% 153.4% Long-term debt/equity 86.0% 93.2% 86.4% 87.7% 92.0% Funded debt/equity 102.2% 109.1% 101.8% 102.6% 94.3% Funded debt/capital employed 50.5% 52.2% 50.4% 50.6% 48.5% Funded debt $72,947 $79,217 $76,692 $79,667 $76,791 Funded debt/EBITDA (LTM) 2.28 2.42 2.27 2.29 2.16 OTHER Book value per share $6.37 $6.48 $6.72 $6.89 $7.21 Employees at quarter end 2,762 2,773 2,847 2,886 2,966 Sales per employee (annualized) $126,000 $105,000 $129,000 $121,000 $140,000 Capital employed (3) $144,343 $151,841 $152,043 $157,290 $158,237 Effective income tax rate 36.1% 35.3% 37.8% 37.2% 35.5% EBITDA (2) $9,917 $6,852 $9,494 $8,450 $10,814 EBITDA/net sales 11.6% 9.5% 10.5% 9.8% 10.6% CULP, INC. FINANCIAL INFORMATION RELEASE SALES BY BUSINESS UNIT FOR THREE MONTHS AND TWELVE MONTHS ENDED APRIL 28, 1996 AND APRIL 30, 1995 (Amounts in thousands) * Includes Rayonese shipments of $1,976 and $1,351 for the three months of fiscal 1996 and fiscal 1995, respectively; and $7,708 and $1,351 for the twelve months of fiscal 1996 and fiscal 1995, respectively. The percent increase in sales without Rayonese was 19.1 % for the three months and 12.2 % for the twelve months. ** U.S. Domestic sales were $78,137 and $67,979 for the three months of fiscal 1996 and fiscal 1995, respectively; and $274,270 and $250,055 for the twelve months of fiscal 1996 and fiscal 1995, respectively. The percent increase in U.S. Domestic sales were 14.9% for the three months and 9.7% for the twelve months. (1) Formerly known as Culp Ticking
THREE MONTHS ENDED (UNAUDITED) Amounts Percent of Total Sales April 28, April 30, % Over Business Units 1996 1995 (Under) 1996 1995 Upholstery Fabrics Flat Wovens Culp Textures $ 23,400 21,738 7.6 % 22.9 % 25.4 % Rossville/Chromatex 22,318 16,470 35.5 % 21.8 % 19.3 % 45,718 38,208 19.7 % 44.8 % 44.7 % Velvets/Prints 38,280 31,413 21.9 % 37.5 % 36.8 % 83,998 69,621 20.7 % 82.2 % 81.5 % Mattress Ticking Culp Home Fashions (1) * 18,164 15,820 14.8 % 17.8 % 18.5 % ** $ 102,162 85,441 19.6 % 100.0 % 100.0 % TWELVE MONTHS ENDED (AUDITED) Amounts Percent of Total Sales April 28, April 30, % Over Business Units 1996 1995 (Under) 1996 1995 Upholstery Fabrics Flat Wovens Culp Textures $ 84,384 85,125 (0.9)% 24.0 % 27.6 % Rossville/Chromatex 74,203 63,765 16.4 % 21.1 % 20.7 % 158,587 148,890 6.5 % 45.1 % 48.3 % Velvets/Prints 125,701 106,803 17.7 % 35.7 % 34.7 % 284,288 255,693 11.2 % 80.8 % 83.0 % Mattress Ticking Culp Home Fashions (1) * 67,379 52,333 28.8 % 19.2 % 17.0 % ** $ 351,667 308,026 14.2 % 100.0 % 100.0 % CULP, INC. FINANCIAL INFORMATION RELEASE INTERNATIONAL SALES BY GEOGRAPHIC AREA FOR THREE MONTHS AND TWELVE MONTHS ENDED APRIL 28, 1996 AND APRIL 30, 1995 (Amounts in thousands) * Includes Rayonese shipments of $1,976 and $1,351 for the three months of fiscal 1996 and fiscal 1995, respectively; and $7,708 and $1,351 for the twelve months of fiscal 1996 and fiscal 1995, respectively. The percent increase in sales without Rayonese was 36.9 % for the three months and 23.1% for the twelve months. ** Certain amounts for fiscal 1995 have been reclassified to conform with the presentation for fiscal 1996.
THREE MONTHS ENDED (UNAUDITED) Amounts Percent of Total Sales April 28, April 30, % Over Geographic Area 1996 1995** (Under) 1996 1995 North America (Excluding USA $6,660 4,775 39.5 % 27.7 % 27.3 % Europe 5,774 6,240 (7.5)% 24.0 % 35.7 % Middle East 5,969 1,575 279.0 % 24.8 % 9.0 % Far East & Asia 3,834 2,628 45.9 % 16.0 % 15.1 % South America 778 1,222 (36.3)% 3.2 % 7.0 % All other areas 1,010 1,022 (1.2)% 4.2 % 5.9 % * $2,4025 17,462 37.6 % 100.0 % 100.0 % TWELVE MONTHS ENDED (AUDITED) Amounts Percent of Total Sales April 28, April 30, % Over Geographic Area 1996 1995** (Under) 1996 1995 North America (Excluding USA$ $ 23,528 16,707 40.8 % 30.4 % 28.8 % Europe 18,927 19,177 (1.3)% 24.5 % 33.1 % Middle East 15,609 6,081 156.7 % 20.2 % 10.5 % Far East & Asia 12,124 8,969 35.2 % 15.7 % 15.5 % South America 2,753 3,749 (26.6)% 3.6 % 6.5 % All other areas 4,456 3,288 35.5 % 5.8 % 5.7 % * $7,7397 57,971 33.5 % 100.0 % 100.0 % Culp, Inc. SALES BY BUSINESS UNIT - TREND ANALYSIS 1994 vs 1995 vs 1996 (Amounts in thousands) (1) Formerly known as Culp Ticking
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 23,400 84,384 Rossville/Chromatex 0 0 14,330 16,717 31,047 15,140 15,758 16,397 16,470 63,765 15,358 17,960 18,567 22,318 74,203 17,444 20,073 34,003 37,844109,364 34,753 38,592 37,337 38,208 148,890 32,942 40,675 39,252 45,718 158,587 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 38,280 125,720 38,332 44,591 57,717 65,760206,400 55,397 65,031 65,644 69,621 255,693 56,465 72,756 71,088 83,998 284,307 Mattress Ticking Culp Home Fashions 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 18,164 67,360 46,583 53,986 67,248 77,232245,049 66,349 78,445 77,791 85,441 308,026 72,357 90,672 86,476 102,162 351,667 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) 7.6 (0.9) Rossville/Chromatex 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 35.5 16.4 (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 19.7 6.5 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 21.9 17.7 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 20.7 11.2 Mattress Ticking Culp Home Fashions 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 14.8 28.7 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 19.6 14.2 CULP, INC. FINANCIAL INFORMATION RELEASE FINANCIAL NARRATIVE for the three and twelve month periods ended April 28, 1996 INCOME STATEMENT COMMENTS o GENERAL - The company is pleased to report that sales increased 19.6% and net income increased 18.2% for the fourth quarter. This performance marks the fourteenth consecutive quarter of record earnings and the twelfth consecutive quarter of record sales. For the year, sales increased 14.2% and net income increased 12.3%. The year's performance marks the seventh consecutive year of increased earnings and the sixth year of higher sales. The fourth quarter and year's results are especially noteworthy because they were achieved in spite of significant sales weakness in the U.S. retail furniture and bedding markets and moderate increases in raw material prices over the prior year. For the last five years, the company has achieved a compound annual growth rate from net earnings and net sales of 30.5% and 15.1%, respectively. Additionally, the company achieved a return on beginning shareholders' equity of 15.4% for the year, the third consecutive year above 14.0%. The return on average total capital was 9.5% for the year, which was the third consecutive year above 9.0% The company attributes this record to, among other things, three key growth strategies: (1) a focus on markets other than U.S. Residential Furniture, such as Bedding, Export, Contract, Juvenile and Home Textiles, in order to reduce dependency on one cyclical and geographical area; (2) the investment in the creative aspect 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 two years; and (3) investment in highly selective and accretive acquisitions in businesses we know and understand and that strengthen existing marketing positions. o NET SALES - Upholstery fabric sales increased 20.7% to $84.0 million and mattress ticking sales increased 14.8% to $18.2 million for the quarter. For the year, upholstery fabric sales increased 11.2% to $284.3 million and mattress ticking sales increased 28.8% to $67.4 million. (See Sales by Business Unit schedule on page 5 and Sales by Business Unit - Trend Analysis on page 7.) All four business units reported substantial sales gains for the quarter: Mattress Ticking - up 14.8%; Velvets/Prints - up 21.9%; Rossville/Chromatex up 35.5%, and Culp Textures - up 7.6%. Comments on current backlogs and incoming order rates versus last year are as follows: Culp Home Fashions (formerly Culp Ticking) - up slightly; Culp Textures - up moderately overall, with strength in the dobby line; Rossville/Chromatex - up significantly, with strength in both its dobby and jacquard product lines; and Velvets/Prints - up significantly, with strength in the wet prints, tufted velvets and heat- transfer prints product lines. The results of the Velvets/Prints business unit were substantially improved from the fourth quarter of last year, as well as for the full year. The company's sales growth in the United States was especially noteworthy, with a 14.9% growth rate for the fourth quarter and a 9.7% growth rate for the year. International sales, including sales from Rayonese of $2.0 million, were up 37.6% for the quarter, with particular strength in the Middle East and the Far East and Asia regions. For the year, these sales increased 33.5%, including sales from Rayonese of $7.7 million. (See International Sales by Geographic Area schedule on page 6.) The majority of the international growth is being produced by the Culp Textures and Rossville/Chromatex business units, with strength in the jacquard product lines of both units and the dobby line of Rossville/Chromatex. The company is realizing increasing success in marketing its upholstery fabric products internationally, with shipments to over fifty countries during fiscal 1996. We are encouraged by the growing geographical balance of our customer base throughout the world, as well as the increasing percentage that our Culp Textures and Rossville/Chromatex product lines represent of our total export shipments. CULP, INC. FINANCIAL INFORMATION RELEASE (page 9 of 10) FINANCIAL NARRATIVE - continued for the three and twelve month periods ended April 28, 1996 The U.S. bedding and home textiles (particularly "top of the bed") markets have remained relatively weak since early August. This retail weakness has resulted in a slower rate of growth in our Culp Home Fashions business unit, which includes Rayonese. The company is hopeful that this softness is temporary and that business conditions will turn more positive as the year progresses. o GROSS PROFIT - The gross profit increase of 17.1% for the quarter reflects significant gains in Velvets/Prints and Rossville/Chromatex and moderate gains in Culp Textures and Culp Home Fashions. The profit improvement resulted primarily from a higher volume of yards sold in all business units. For the year, the gross profit increase reflects significant gains in Velvets/Prints and Culp Home Fashions, and essentially flat results in Culp Textures and Rossville/Chromatex. A large portion of the gain in Culp Home Fashions was due to the contribution from Rayonese, which was acquired in March 1995. The company's gross profit margins in all business units were significantly affected by price increases in raw materials over the prior year. The company has been unable to pass along much of the cost increases it has received. During the last month, the company has begun to realize lower raw material prices in some areas. The company believes there has been downward pressure over the last several months on prices for many of the raw materials used by the company. Because raw material costs are so significant to the company, management has been actively exploring ways to lower these costs through several key strategies: 1) global sourcing of certain commodity-type items; 2) further vertical integration of certain large-volume raw material components; 3) working closely with existing suppliers to ensure that the company is receiving the best possible combination of value and price; and 4) increasing the utilization of the company's various raw material manufacturing capabilities. For the near term (first quarter), trends are toward solid profit gains in the three upholstery fabric business units, with significant increases in Velvets/Prints and Rossville/Chromatex. With respect to the Culp Home Fashions business unit, the company believes gross profit may be down slightly from the first quarter of last year. o S,G & A EXPENSES - S,G&A expenses for the quarter were up as a percentage of sales to 11.1% from 10.8%. For the year, these expenses were up to 11.1% of sales from 10.9%. These increases are due primarily to higher selling and design expenses. The increase in selling expenses is due primarily to higher sales commissions related to international sales. The increase in design expenses is due to more designers, outside artwork purchased, and additional costs related to our CAD systems. o INTEREST EXPENSE - The decrease for the quarter of 1.6% is due to lower interest rates, even though average borrowings outstanding were somewhat higher. For the year, interest expense increased 12.7%, due principally to additional borrowings related to the Rayonese acquisition. o INCOME TAXES - The company estimates that the effective tax rate for fiscal 1997 will again be about 36.5%, due to the lower tax rate related to the Canadian income and the tax benefit related to international sales. CULP, INC. FINANCIAL INFORMATION RELEASE (page 10 of 10) FINANCIAL NARRATIVE - continued for the three and twelve month periods ended April 28, 1996 o EBITDA - EBITDA for the quarter increased 9.0% from last year's fourth quarter, and represented 10.6% of net sales compared with 11.6% of net sales last year. For the year, EBITDA increased $3.6 million or 11.1%, and represented 10.1% of net sales compared with 10.4% last year. BALANCE SHEET COMMENTS o WORKING CAPITAL - Accounts receivable increased 17.6% from last year end and represented 46 days' sales outstanding, down from 47 at April 1995. The aging of accounts receivable remained excellent, with 99.0% current and less than 30 days past due. The company experienced a relatively low level of bad debt write-offs again for the year, at $300,000, which represents just under 0.1% of net sales. The company continues to follow a conservative credit policy. The increase in inventories over last year end of 3.5% is attributable to higher raw material inventories. The company has made significant progress in reducing finished goods inventory, with a 15% decrease from last year end. For the quarter, inventory turns were 6.8 versus 6.1 for last year's fourth quarter. This is the first quarter in two years that inventory turns have exceeded the corresponding quarter of the prior year. One of the company's key initiatives for fiscal 1997 is to find ways to increase raw material inventory turns, principally with yarn inventories. o PROPERTY, PLANT AND EQUIPMENT - For fiscal 1996, the company's capital expenditures were $14.4 million. The major projects involved expanding jacquard weaving capacity at the company's Pageland, South Carolina plant, expanding wet print capacity and related support equipment at the company's Upholstery Prints plant in Burlington, North Carolina, and completing the expansion project at Rayonese related to the installation of thirty high-speed air-jet jacquard weaving machines for the manufacture of wide and narrow greige goods. For fiscal 1997, the company is planning capital spending in the $14 to $17 million range. Major projects include weaving expansions for dobby and jacquard product lines in the Rossville/Chromatex business unit, and for jacquard greige goods at Rayonese, the company's Montreal, Canada facility. Also, the company is planning investments in additional vertical integration opportunities. Further major expansions of the CAD system and related capabilities also are planned for fiscal 1997. Depreciation expense for fiscal 1997 is expected to approximate $14.0 million. o LONG-TERM DEBT - The company's funded debt to capital ratio was 48.5% at April 28, 1996, down from 50.5% at April 30, 1995, and the lowest in 2-1/2 years. At year end, the company had $22.2 million in IRB borrowings, $23.3 million in borrowings under its revolving credit facility (total commitment is $33.5 million), $35.5 million in a term facility and $1.0 million in a subordinated note payable. At April 28, 1996, the company had $5.3 million in restricted investments related to its new IRB, which represents the unexpended project funds. Therefore, net funded debt was $76.8 million at April 28, 1996, compared with $72.9 million last year end and $79.7 million at January 28, 1996. The current maturities of $7.1 million include repayment of $6.0 million of the term loan, $100,000 of the IRBs and $1.0 million of the subordinated note payable. With its interest rate swap agreements totalling $25.0 million, the company has effectively "fixed" the interest rate for 43% of its bank borrowings ($58.8 million) at a weighted average rate of 7.1%. During April 1996, the company amended its credit agreement with its two banks, with the following key provisions: a) all borrowings became unsecured; b) the commitment terms on the revolving credit facility and the bank letters of credit related to the IRBs were extended to five years from thirteen months; and c) certain financial covenants became less stringent. Additionally, during April 1996, the company entered into a new $6.0 million IRB that provides financing over the next three years for the weaving expansion at the Pageland, South Carolina plant.