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 4, 1997
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
incorporation) Identification 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 4, 1997 related to third quarter
earnings for the period ended January 26, 1997.
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
Senior Vice President and
Chief Financial Officer
By: Stephen T. Hancock
Stephen T. Hancock
General Accounting Manager
Dated: February 4, 1997
-2-
DRAFT #4
02/04/97 11:44 AM
FOR IMMEDIATE RELEASE
CULP REPORTS RECORD THIRD QUARTER SALES AND EARNINGS
EARNINGS PER SHARE INCREASE 23%
HIGH POINT, North Carolina (February__, 1997) Culp, Inc. (NYSE:CFI) today
reported higher sales and earnings for the third fiscal quarter ended January
26, 1997.
For the three months ended January 26, 1997, Culp reported that net
sales increased 13% to $97.5 million compared with $86.5 million a year ago. Net
income for the quarter increased 25% to $3.0 million, or $0.27 per share,
compared with $2.4 million, or $0.22 per share, in the third quarter of fiscal
1996.
The gains for the third quarter brought net sales for the first nine
months to $293.2 million, up 18% from $249.5 million in the first nine months of
fiscal 1996. Net income for the first nine months was $8.9 million, or $0.79 per
share, up 29% from $6.9 million, or $0.62 per share, in the year-earlier period.
"This marks the 17th consecutive quarter in which we have reported
higher earnings versus the comparable year-earlier period," remarked Robert G.
Culp, III, Chief Executive Officer. The 13% gain in sales for the quarter was
somewhat less than in the first half, but we continued to advance in our plan
to increase Culp's profitability. Our shipments to customers within the United
States rose during the quarter from a year ago, and we realized further
strong growth in international sales. For the first nine months of fiscal 1997,
sales to international customers were up 37%, reflecting the ongoing expansion
of our marketing organization as well as the underlying growth in demand in many
of these markets."
Culp noted, "Our focus remains on increasing the Company's market
share, raising productivity and investing the capital necessary to expand
capacity and enhance the level of service to customers. Accomplishing these
objectives involves our entire organization, and the tangible evidence of their
achievements is reflected in our growth over the past several years."
-MORE-
CULP Reports Third Quarter Gains
Page 2
February , 1997
"The completion of our offering of common stock last week has added
approximately $16.3 million in equity capital to the Company. This offering not
only strengthened our financial position but also served importantly to expand
our base of stockholders. Aided by these additional funds, we expect to invest a
total of approximately $31 million in capital sending during fiscal 1997, a new
annual high for Culp. A major initiative underway involves projects related to
supporting the continued expansion in shipments of wet-printed flock fabrics,
one of our fastest-growing product categories. Using equipment
installed during the third quarter, we are currently starting to produce our
own unprinted flocked greige goods. We also purchased a facility in
Lumberton, North Carolina during the period and are currently planning to
initiate production of wet-printed flocked fabrics there by July, 1997."
Culp is the largest manufacturer and marketer of upholstery fabrics in
the world and is a leading producer of mattress ticking. The company's fabrics
are used principally in the production of residential and commercial furniture
and bedding products.
CULP, INC.
Condensed Financial Highlights
(Unaudited)
Three Months Ended
January 26, January 28,
1997 1996
Net sales $ 97,468,000 $ 86,476,000
Net income 3,010,000 2,415,000
Earnings per share $ 0.27 $ 0.22
Nine Months Ended
January 26, January 28,
1997 1996
Net sales $ 293,201,000 $ 249,505,000
Net income 8,930,000 6,930,000
Earnings per share $ 0.79 $ 0.62
-END-
CULP, INC. FINANCIAL INFORMATION RELEASE (Page 1 of 12)
CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED JANUARY 26, 1997 AND JANUARY 28, 1996
(Amounts in Thousands, Except for Per Share Data)
THREE MONTHS ENDED (UNAUDITED)
Amounts Percent of Sales
January 26, January 28% Over
1997 1996 (Under) 1997 1996
Net sales $ 97,468 86,476 12.7 % 100.0 100.0 %
Cost of sales 80,317 71,447 12.4 % 82.4 82.6 %
Gross profit 17,151 15,029 14.1 % 17.6 17.4 %
Selling, general and
administrative expenses 10,760 9,639 11.6 % 11.0 11.1 %
Income from operations 6,391 5,390 18.6 % 6.6 6.2 %
Interest expense 1,228 1,279 (4.0)% 1.3 1.5 %
Interest income (73) 0 ** % (0.1) 0.0 %
Other expense (income), net 421 266 58.3 % 0.4 0.3 %
Income before income taxes 4,815 3,845 25.2 % 4.9 4.4 %
Income taxes * 1,805 1,430 26.2 % 37.5 37.2 %
Net income $ 3,010 2,415 24.6 % 3.1 2.8 %
Average shares outstanding 11,342 11,232 1.0 %
Net income per share $0.27 $0.22 22.7 %
Dividends per share $0.0325 $0.0275 18.2 %
NINE MONTHS ENDED (UNAUDITED)
Amounts Percent of Sales
January 26, January 28, % Over
1997 1996 (Under) 1997 1996
Net sales $ 293,201 249,505 17.5 % 100.0 100.0 %
Cost of sales 241,008 206,171 16.9 % 82.2 82.6 %
Gross profit 52,193 43,334 20.4 % 17.8 17.4 %
Selling, general and
administrative expenses 33,328 27,768 20.0 % 11.4 11.1 %
Income from operations 18,865 15,566 21.2 % 6.4 6.2 %
Interest expense 3,652 3,964 (7.9)% 1.2 1.6 %
Interest income (190) 0 ** % (0.1) 0.0 %
Other expense (income), net 1,117 592 88.7 % 0.4 0.2 %
Income before income taxes 14,286 11,010 29.8 % 4.9 4.4 %
Income taxes * 5,356 4,080 31.3 % 37.5 37.1 %
Net income $ 8,930 6,930 28.9 % 3.0 2.8 %
Average shares outstanding 11,317 11,218 0.9 %
Net income per share $0.79 $0.62 27.4 %
Dividends per share $0.0975 $0.0825 18.2 %
* Percent of sales column is calculated as a % of income before income taxes.
** Measurement is not meaningful.
CULP, INC. FINANCIAL INFORMATION RELEASE (Page 2 of 12)
CONSOLIDATED BALANCE SHEETS
JANUARY 26, 1997, JANUARY 28, 1996 AND APRIL 28, 1996
(Unaudited, Amounts in Thousands)
Amounts Increase
January 26, January 28, (Decrease) * April 28,
1997 1996 Dollars Percent 1996
Current assets
Cash and cash investments $ 406 1,841 (1,435) (77.9)% 498
Accounts receivable 50,157 43,642 6,515 14.9 % 52,038
Inventories 50,755 49,960 795 1.6 % 47,395
Other current assets 3,701 3,436 265 7.7 % 4,167
Total current assets 105,019 98,879 6,140 6.2 % 104,098
Restricted investments 11,778 0 11,778 5,274
Property, plant & equipment, net 86,146 73,356 12,790 17.4 % 76,961
Goodwill 22,413 23,037 (624) (2.7)% 22,871
Other assets 2,906 2,432 474 19.5 % 2,440
Total assets $ 228,262 197,704 30,558 15.5 % 211,644
Current Liabilities
Current maturities of long-term debt $ 6,100 11,555 (5,455) (47.2)% 7,100
Accounts payable 20,833 22,516 (1,683) (7.5)% 27,308
Accrued expenses 15,644 11,181 4,463 39.9 % 12,564
Income taxes payable 1,753 1,336 417 31.2 % 197
Total current liabilities 44,330 46,588 (2,258) (4.8)% 47,169
Long-term debt 86,266 68,112 18,154 26.7 % 74,941
Deferred income taxes 8,088 5,381 2,707 50.3 % 8,088
Total liabilities 138,684 120,081 18,603 15.5 % 130,198
Shareholders' equity 89,578 77,623 11,955 15.4 % 81,446
Total liabilities and
shareholders' equity $ 228,262 197,704 30,558 15.5 % 211,644
Shares outstanding 11,352 11,265 87 0.8 % 11,290
Derived from audited financial statements.
CULP, INC. FINANCIAL INFORMATION RELEASE (Page 3 of 12)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JANUARY 26, 1997 AND JANUARY 28, 1996
(Unaudited, Amounts in Thousands)
NINE MONTHS ENDED
-------------------------------
Amounts
------------------------------
January 26, January 28,
1997 1996
------------ ------------
Cash flows from operating activities:
Net income $ 8,930 6,930
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation 9,440 9,278
Amortization of intangible assets 634 544
Provision for deferred income taxes 0 (37)
Changes in assets and liabilities:
Accounts receivable 1,881 610
Inventories (3,360) (4,189)
Other current assets 466 (242)
Other assets (642) (57)
Accounts payable (2,213) (2,838)
Accrued expenses 3,080 (351)
Income taxes payable 1,556 675
-------- --------
Net cash provided by (used in) operating activities 19,772 10,323
-------- --------
Cash flows from investing activities:
Capital expenditures (18,625) (7,710)
Purchases of restricted investments (9,681) 0
Purchase of investments to fund deferred compensation liability 0 (1,286)
Proceeds from sale of restricted investments 3,177 795
-------- --------
Net cash provided by (used in) investing activities (25,129) (8,201)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 15,900 10,500
Principal payments on long-term debt (5,575) (4,575)
Change in accounts payable-capital expenditures (4,262) (6,896)
Dividends paid (1,103) (926)
Proceeds from sale of common stock 305 223
-------- --------
Net cash provided by (used in) financing activities 5,265 (1,674)
-------- --------
Increase (decrease) in cash and cash investments (92) 448
Cash and cash investments at beginning of period 498 1,393
-------- --------
Cash and cash investments at end of period $ 406 1,841
======== ========
CULP, INC. FINANCIAL INFORMATION RELEASE (Page 4 of 12)
FINANCIAL ANALYSIS
JANUARY 26, 1997
FISCAL 96 FISCAL 97
------------------ ------------------------------------------------
Q3 Q1 Q2 Q3 Q4
------------------ ------------------------------------------------
INVENTORIES
Inventory turns 5.7 6.0 6.6 6.2
RECEIVABLES
Days sales in receivables 43 43 45 47
Percent current & less than 30
days past due 99.0% 99.3% 99.9% 99.8%
WORKING CAPITAL
Current ratio 2.1 2.2 2.1 2.4
Working capital turnover 5.3 5.4 5.4 5.3
Working capital $ 52,266 $ 53,635 $ 57,230 $ 60,689
Working capital as a % of sales 15.1% 14.8% 13.6% 15.6%
PROPERTY, PLANT & EQUIPMENT
Depreciation rate 8.9% 8.3% 8.1% 7.5%
Percent property, plant &
equipment are depreciated 48.0% 48.2% 48.6% 47.9%
Capital expenditures $14,385 (1) $ 4,475 $ 5,201 $ 8,949
PROFITABILITY
Net profit margin 2.8% 2.4% 3.5% 3.1%
Gross profit margin 17.4% 17.6% 18.2% 17.6%
Operating income margin 6.2% 5.6% 7.1% 6.6%
SG & A expenses/net sales 11.1% 12.0% 11.1% 11.0%
Return on average total capital 6.7% 5.7% 9.3% 7.5%
Return on average equity 13.5% 10.7% 17.4% 14.1%
Earnings per share $ 0.22 $ 0.20 $ 0.33 $ 0.27
LEVERAGE (3)
Total liabilities/equity 154.7% 149.9% 152.8% 154.8%
Long-term debt/equity 87.7% 85.1% 83.9% 96.3%
Funded debt/equity 102.6% 87.3% 85.9% 90.0%
Funded debt/capital employed 50.6% 46.6% 46.2% 47.4%
Funded debt $ 79,667 $ 72,772 $ 74,612 $ 80,588
Funded debt/EBITDA (LTM) 2.29 1.98 1.97 2.09
OTHER
Book value per share $ 6.89 $ 7.37 $ 7.66 $ 7.89
Employees at quarter end 2,886 3,020 3,098 3,143
Sales per employee (annualized) $ 121,000 $ 120,000 $ 138,000 $ 125,000
Capital employed (3) $ 157,290 $ 156,128 $ 161,447 $ 170,166
Effective income tax rate 37.2% 37.5% 37.5% 37.5%
EBITDA (2) $ 8,450 $ 8,003 $ 10,540 $ 9,279
EBITDA/net sales 9.8% 8.8% 10.0% 9.5%
(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 (Page 5 of 12)
SALES BY PRODUCT CATEGORY/BUSINESS UNIT
FOR THREE MONTHS AND NINE MONTHS ENDED JANUARY 26, 1997 AND JANUARY 28, 1996
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
Amounts Percent of Total Sales
January 26, January 28, % Over
Product Category/Business Unit 1997 1996 (Under) 1997 1996
Upholstery Fabrics
Culp Textures $ 20,389 20,685 (1.4)% 20.9 % 23.9 %
Rossville/Chromatex 18,953 18,567 2.1 % 19.4 % 21.5 %
39,342 39,252 0.2 % 40.4 % 45.4 %
Velvets/Prints 40,387 31,836 26.9 % 41.4 % 36.8 %
79,729 71,088 12.2 % 81.8 % 82.2 %
Mattress Ticking
Culp Home Fashions 17,739 15,388 15.3 % 18.2 % 17.8 %
* $ 97,468 86,476 12.7 % 100.0% 100.0%
NINE MONTHS ENDED (UNAUDITED)
Amounts Percent of Total Sales
January 26, January 28, % Over
Product Category/Business Unit 1997 1996 (Under) 1997 1996
Upholstery Fabrics
Culp Textures $ 65,191 60,984 6.9 % 22.2 % 24.4 %
Rossville/Chromatex 58,840 51,885 13.4 % 20.1 % 20.8 %
124,031 112,869 9.9 % 42.3 % 45.2 %
Velvets/Prints 115,487 87,440 32.1 % 39.4 % 35.0 %
239,518 200,309 19.6 % 81.7 % 80.3 %
Mattress Ticking
Culp Home Fashions 53,683 49,196 9.1 % 18.3 % 19.7 %
* $292,201 249,505 17.5 % 100.0% 100.0%
*US. sales were $70,931 and $67,506 for the three months of fiscal 1997 and
fiscal 1996, respectively; and $220,794 and $196,543 for the nine months of
fiscal 1997 and fiscal 1996, respectively. The percentage increases in U.S.
sales were 5.1% for the three months and 12.3% for the nine months.
CULP, INC. FINANCIAL INFORMATION RELEASE (Page 6 of 12)
INTERNATIONAL SALES BY GEOGRAPHIC AREA
FOR THREE MONTHS AND NINE MONTHS ENDED JANUARY 26, 1997 AND JANUARY 28, 1996
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
Percent of the Company's
Amounts Total Sales
January 26, January 28, % Over
Geographic Area 1997 1996 (Under) 1997 1996
North America (Excluding USA) $ 6,482 5,488 18.1 % 6.7 % 6.5 %
Europe 7,213 5,590 29.0 % 7.4 % 6.6 %
Middle East 4,580 2,383 92.2 % 4.7 % 2.8 %
Far East & Asia 6,862 4,052 69.3 % 7.0 % 4.8 %
South America 855 703 21.6 % 0.9 % 0.8 %
All other areas 545 754 (27.7% 0.6 % 0.9 %
$ 26,537 18,970 39.9 % 27.2 % 22.4 %
0
NINE MONTHS ENDED (UNAUDITED)
Percent of the Company's
Amounts Total Sales
January 26, January 28, % Over
Geographic Area 1997 1996 (Under) 1997 1996
North America (Excluding USA) $ 20,555 16,275 26.3 % 7.0 % 5.6 %
Europe 17,573 13,072 34.4 % 6.0 % 4.5 %
Middle East 13,736 7,933 73.2 % 4.7 % 2.7 %
Far East & Asia 15,893 9,821 61.8 % 5.4 % 3.4 %
South America 2,464 2,297 7.3 % 0.8 % 0.8 %
All other areas 2,189 3,564 (38.6% 0.7 % 1.2 %
$ 72,410 52,962 36.7 % 24.7 % 18.3 %
International sales , and the percentage of total sales, for each of the last
seven fiscal years follows: fiscal 1991- $20,295 (12%); fiscal 1992-$ 34,094
(18%); fiscal 1993-$40,729 (20%); fiscal 1994-$44,038 (18%); fiscal 1995-
$57,971 (19%); and fiscal 1996-$77,397 (22%).
Culp, Inc. (Page 7 of 12)
SALES BY BUSINESS UNIT - TREND ANALYSIS
1995 vs 1996 vs 1997
(Amounts in thousands)
Fiscal 1995 Fiscal 1996
Product Category/Business Units Q1 Q2 Q3 Q4 TOTAL Q1 Q2 Q3 Q4 TOTAL
Upholstery Fabrics
Culp Textures 19,613 22,834 20,940 21,738 85,125 17,584 22,715 20,685 23,400 84,384
Rossville/Chromatex 15,140 15,758 16,397 16,470 63,765 15,358 17,960 18,567 22,318 74,203
34,753 38,592 37,337 38,208 148,890 32,942 40,675 39,252 45,718 158,587
Velvets/Prints 20,644 26,439 28,307 31,413 106,803 23,523 32,081 31,836 38,280 125,720
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 (1) 10,952 13,414 12,147 15,820 52,333 15,892 17,916 15,388 18,164 67,360
66,349 78,445 77,791 85,441 308,026 72,357 90,672 86,476 102,162 351,667
Fiscal 1997
Product Category/Business Units Q1 Q2 Q3 Q4 TOTAL
Upholstery Fabrics 20,801 24,001 20,389 65,191
Culp Textures 18,165 21,722 18,953 58,840
Rossville/Chromatex 38,966 45,723 39,342 124,031
34,867 40,233 40,387 115,487
Velvets/Prints 73,833 85,956 79,729 239,518
Mattress Ticking 16,696 19,248 17,739 53,683
Culp Home Fashions (1)
90,529 105,204 97,468 293,201
Percent increase(decrease) from prior year:
Product Category/Business Units
Upholstery Fabrics
Culp Textures 12.4 13.8 6.4 2.9 8.7 (10.3) (0.5) (1.2) 7.6 (0.9)
Rossville/Chromatex 100.0 100.0 14.4 (1.5) 105.4 1.4 14.0 13.2 35.5 16.4
99.2 92.3 9.8 1.0 36.1 (5.2) 5.4 5.1 19.7 6.5
Velvets/Prints (1.2) 7.8 19.4 12.5 10.1 13.9 21.3 12.5 21.9 17.7
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 (1) 32.7 42.8 27.4 37.9 35.4 45.1 33.6 26.7 14.8 28.7
42.4 45.3 15.7 10.6 25.7 9.1 15.6 11.2 19.6 14.2
Overall Growth Rate
Internal (without acquisitions) 9.9 16.1 15.7 8.8 12.5 6.4 13.0 8.7 19.6 12.3
External 32.5 29.2 - 1.8 13.2 2.7 2.6 2.5 - 1.9
42.4 45.3 15.7 10.6 25.7 9.1 15.6 11.2 19.6 14.2
Product Category/Business Units
Upholstery Fabrics 18.3 5.7 (1.4) 6.9
Culp Textures 18.3 20.9 2.1 13.4
Rossville/Chromatex 18.3 12.4 0.2 9.9
48.2 25.4 26.9 32.1
Velvets/Prints 30.8 18.1 12.2 19.6
Mattress Ticking 5.1 7.4 15.3 9.1
Culp Home Fashions (1)
25.1 16.0 12.7 17.5
Overall Growth Rate
Internal (without acquisitions) 25.1 16.0 12.7 17.5
External - - - -
25.1 16.0 12.7 17.5
(Page 8 of 12)
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three and nine month periods ended January 26, 1997 and January 28, 1996
INCOME STATEMENT COMMENTS
GENERAL - The company is pleased to report that sales increased 12.7%
to $97.5 million and net income increased 24.6% to $3.0 million for its third
quarter, as compared with the third quarter of last year. This performance marks
the seventeenth consecutive quarter of record earnings and the fifteenth
consecutive quarter of record sales (based on the comparable year-earlier
periods) The company's net profit margin increased to 3.1% from 2.8% for the
quarter. For the nine months, sales increased 17.5% to $293.2 million and net
income increased 28.9% to $8.9 million. The company's net profit margin
increased to 3.0% from 2.8% for the nine months. Also, the company achieved a
return on average shareholders' equity of 15.5% for the latest twelve months.
For the last five years, the company has achieved a compound annual growth rate
in net income and net sales of 31% and 15%, respectively.
The company attributes this consistent record to several key
competitive strengths:
(Bullet) Diverse Global Customer Base - penetrating other end-use markets in
addition to U. S. residential furniture, such as bedding,
international, commercial furniture, juvenile furniture and home
textiles; sales to these other markets accounted for approximately
48% of net sales during the third quarter; additionally, no one
customer accounted for more than 8% during the first nine months of
1997;
(Bullet) Design Innovation - investing in the creative aspect of our business
- the company has significantly increased the resources (both
designers and computer-aided design (CAD) systems) dedicated to the
design and product development areas in each business unit; the
company's in-house design staff now includes over 50 people.
Additionally, the company is building a state-of-the-art design
center in North Carolina that will bring together most of its design
resources in one facility.
(Bullet) Vertical Integration - realizing additional manufacturing integration
by producing various raw material components that are used in the
manufacture of its products; and
(Bulle) Ability to Integrate Acquisitions - investing in selective, accretive
acquisitions in businesses which we know and understand and that
strengthen existing marketing positions.
NET SALES - compared with the third quarter of last year,
upholstery fabric sales increased 12.2% to $79.7 million and mattress ticking
sales increased 15.3 % to $17.7 million for the quarter (See Sales by Business
schedule on Page 5 and Sales by Business Unit - Trend Analysis on page 7). The
growth in upholstery fabric sales for the third quarter reflects the following
changes: Velvets/Prints - up 26.9%; Rossville/Chromatex - up 2.1%; and Culp
Textures down 1.4%. Within the Velvets/Prints business unit, sales of the
company's wet printed flock product line increased 80.2% versus the third
quarter of last year. Sales of printed jacquards increased 36.0% versus the same
quarter of last year. The company's sales growth in the United Sates was 5.1%.
International sales were up 39.9% for the quarter, with strength in all
major regions, including the Middle East, the Far East and Asia, and North
America (excluding the U.S). (See International Sales by Geographic Area
schedule on page 6.) All business units reported gains in international sales.
The company has shipped products to over 50 countries during the first nine
months of fiscal 1997. We are encouraged by the geographical balance of our
international customer base. The vast majority of international sales are
denominated in U.S. dollars.
GROSS PROFIT - The gross profit increase of 14.1% for the quarter
versus the same quarter of last year reflects strong gains in Velvets/Prints and
Culp Home Fashions, flat results in Rossville/Chromatex and moderately lower
results in Culp Textures. The overall gross profit margin increased to 17.6% for
the quarter from 17.4% in the same quarter of last year.
During the last nine months, the company has begun to realize lower raw
material prices for many of its raw materials. Because raw materials represent
the largest cost element in the company's products (about 50% of
(Page 9 of 12)
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three and nine month periods ended January 26, 1997 and January 28, 1996
sales), management has been actively exploring ways to lower these costs through
several key strategies:
(Bullet) further vertical integration of certain large-volume raw material
components;
(Bullet) monitoring existing suppliers to ensure that the company is receiving
the best possible combination of value and price; and
(Bullet) increasing the utilization of the company's various raw material
manufacturing capabilities.
S,G&A EXPENSES - S,G&A expenses decreased as a percentage of sales to
11.0% for the quarter from 11.1% for the same quarter of last year.
INTEREST EXPENSE - The decrease for the quarter of 4.0% is primarily
due to lower average borrowings outstanding.
INTEREST INCOME - The increase is due to interest income earned from
the restricted investments related to new industrial revenue bonds issued.
OTHER EXPENSE (INCOME), NET - In the third quarter, other expense
(income) increased to $421,000 from $266,000 in the same quarter of last year.
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
Canadian income and the tax benefit related to international sales.
EBITDA - EBITDA for the quarter increased 9.8% from last year's third
quarter to $9.3 million, and represented 9.5% of net sales compared with 9.8% of
net sales last year.
BALANCE SHEET COMMENTS
WORKING CAPITAL - Accounts receivable increased 14.9% from January,
1996, while sales increased 12.7%. Days' sales outstanding represented 47 days,
up from 43 at January, 1996. Accounts receivable increased at a faster rate than
sales because of the increasing mix of international sales, which carry longer
payment terms than U.S. sales. The aging of accounts receivable remained
excellent, with 99.8% current and less than 30 days past
due. Inventories increased 1.6% from January, 1996 and inventory turns were 6.2
versus 5.7 for last year's third quarter. One of the company's key initiatives
for fiscal 1997 is to find ways to increase inventory turns. The company has
increased inventory turns in each of the three quarters of the current fiscal
year.
PROPERTY, PLANT AND EQUIPMENT - The company has maintained a
significant program of capital expenditures designed to expand capacity as
needed to support sales growth, increase vertical integration to lower product
costs and control more of its supply of raw materials, and enhance manufacturing
efficiencies through modernization. For fiscal 1997, the company is planning
capital spending of approximately $31 million. Major projects include the
following:
(Bullet) Expansion Projects - ($15.0 million or 48% of total)
-------------------
a) printing expansion for the wet printed flock product line
in the Velvets/Prints business unit; this project includes the
purchase of a new facility in Lumberton, North Carolina along
with new printing and finishing equipment ($9.5 million).
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CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three and nine month periods ended January 26, 1997 and January 28, 1996
b) weaving expansions for the dobby and jacquard product lines
in the Rossville/Chromatex business unit ($3.0 million); and
c) other smaller projects ($2.5 million)
(Bullet) Vertical Integration - ($13.0 million or 42% of total)
a) weaving expansion for jacquard greige goods (narrow and
wide-width) at the company's Rayonese facility in Canada,
which is part of Culp Home Fashions business unit ($5.5
million);
b) installation of the company's first flock coating line, which
will produce the unprinted flocked greige goods for the wet
printed flock product line ($4.0 million);
c) expansion of yarn extrusion capacity; during the third
quarter, the company began an $8.0 million project to
approximately double its polypropylene yarn extrusion capacity
over the next two years. About 20% of the capacity is expected
to be operational by May 1997, another 60% throughout fiscal
1998, and the balance in early fiscal 1999 ($2.0 million in
fiscal 1997; $5.0 million in fiscal 1998; and $1.0 million in
fiscal 1999).
d) various other vertical integration projects ($1.5 million).
(Bullet) Modernization ($3.0 million or 10% of total)
Although final budgets for fiscal 1998 have not been determined, the
company is currently planning capital spending of approximately $20 million,
which includes about $2.5 million for expansion projects (13%); $13.5 million
for vertical integration projects (68%); and $4.0 million for modernization
projects. The key vertical integration projects include the yarn extrusion
expansion discussed above and additional weaving capacity for jacquard greige
goods at Rayonese.
Depreciation expense for fiscal 1997 is estimated at $13 million.
LONG-TERM DEBT - The company's funded debt-to-capital ratio was 47.4%
at January 26, 1997, down from 50.6% at January 28, 1996, and 48.5 % at April,
1996. Funded debt was $80.6 million at January 26, 1997 compared with $79.7
million at January 28, 1996 and $76.8 million last year end (see schedule on
page 12 of 12.). (Funded debt equals long-term debt, including current
maturities, less restricted investments, which represent unspent IRB funds).
During the third quarter, the company received "best efforts" commitments from
its principal bank lenders, Wachovia Bank of North Carolina, N.A. and First
Union National Bank of North Carolina, to refinance its $66 million term loan
and revolving line of credit with a syndicated, five-year $125 million
unsecured, multi-currency credit facility, which is expected to include several
leading institutional lending institutions. Terms of the proposed new facility
include reduced interest costs, less restrictive financial covenants and
significant additional borrowing capacity. On a pro forma basis, as of January
26, 1997 (assuming the stock offering and bank deal were completed as of January
26, 1997), the company's borrowing availability under the new bank credit
facility would be approximately $81 million. The company believes the new bank
facility will be completed by April 27, 1997 (fiscal year-end).
Also, during the third quarter, the company completed two new IRB's totaling
$9.5 million, which carry interest rates of approximately 55% of the prime rate.
SUBSEQUENT EVENT - SECONDARY STOCK OFFERING - On January 30, 1997 the
company completed the sale of 1,200,000 shares of newly issued common stock, and
640,000 shares of common stock from certain non-management selling shareholders
for $15.00 per share. Proceeds from the offering, net of underwriter's
commission and company issuance expenses, are approximately $16.3 million. The
key reasons for the offering were to fund the company's growth initiatives, and
provide the financial basis for possible acquisitions, and, to a
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CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three and nine month periods ended January 26, 1997 and January 28, 1996
lesser extent, enhance trading liquidity of its common stock by increasing the
"float." The schedule on page 12 shows the company's capital structure on an
actual basis as of January 26, 1997, and on a pro forma basis, as if the
offering were completed on that date.
(Page 12 of 12)
CULP, INC. FINANCIAL INFORMATION RELEASE
CAPITAL STRUCTURE
January 26, 1997
Actual Proforma (1)
Long-term debt, including:
Industrial revenue bonds and $31,666 $31,666
other obligations
Revolving credit facility 29,700 13,400
Term loan 31,000 31,000
Subtotal 92,366 76,066
Less: Restricted investments (2) (11,778) (11,778)
Funded debt $80,588 $64,288
Shareholders' equity:
Common stock $ 566 $ 626
Additional paid-in-capital 17,182 33,422
Retained earnings 71,830 71,830
Total shareholders' equity $89,578 $105,878
Funded debt to total capital 47.4% 37.8%
Funded debt to EBITDA(LTM) 2.09 1.66
(1) Assumes the net proceeds of $16.3 million from the stock offering were
received and applied against the company's revolving credit facility as of
January 26, 1997.
(2) Restricted investments were purchased with proceeds of industrial revenue
bond issues and are invested pending application of such proceeds to project
costs or repayment of the bonds.
