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 12, 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 IDENTIFICATION NO.)
INCORPORATION)
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 August 12, 1997 related to the first quarter
ended August 3, 1997.
See Financial Information Release (attached).
Forward Looking Information. The discussion in this Form 8-K may contain
statements that could be deemed forward-looking statements, which are inherently
subject to risks and uncertainties. Factors that could influence the matters
discussed include the level of housing starts and sales of existing homes,
consumer confidence, trends in disposable income, and general economic
conditions. Decreases in these economic indicators could have a negative effect
on the company's business and prospects. Likewise, increases in interest rates,
particularly home mortgage rates, and increases in consumer debt or the general
rate of inflation, could adversely affect the company.
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: August 12, 1997
FOR IMMEDIATE RELEASE
CULP REPORTS INCREASED FIRST QUARTER SALES AND EARNINGS
EARNINGS PER SHARE UP 15% ON 12% MORE SHARES
HIGH POINT, North Carolina (August 12, 1997) Culp, Inc. today reported higher
net sales and earnings for the first quarter of its 1998 fiscal year.
For the three months ended August 3, 1997, Culp reported that net sales
increased 9.9% to $99.5 million compared with $90.5 million a year ago. Net
income for the quarter increased 29% to $2.9 million compared with $2.2 million.
Earnings per share increased 15% to $0.23 per share on 12.6 million average
shares outstanding versus $0.20 per share on 11.3 million average shares
outstanding.
The increase of 12% in the average number of shares outstanding for the
first quarter was due principally to the Company's secondary offering completed
in February 1997.
"Fiscal 1998 has started on a constructive note with higher net sales
and income compared with a year ago," said Robert G. Culp, III, chief executive
officer. "Although we experienced some slowing in the growth in certain product
categories, we were able to achieve an overall gain for the quarter. This marks
the 19th consecutive quarter of record earnings versus the comparable
year-earlier period."
Culp continued, "We had expected that fiscal 1998 would present a
challenging period for us to sustain the rate of growth that Culp has achieved
over the past several years. Business within the United States has not been as
strong as a year ago, but we still achieved a 5.5% gain in sales to U.S.-based
accounts. The key factor contributing to this expansion was the success of our
Home Fashions business unit, which has established outstanding momentum as
reflected by significantly higher shipments of mattress ticking. We had
identified a sound opportunity to build Culp's competitive position in this area
and are gratified with the positive response to the new designs and fabric
constructions we have developed."
-MORE-
Culp added, "An important component of our growth strategy remains
increasing Culp's international shipments. These rose 26% for the first quarter
and accounted for 25% of net sales. Much of the incremental capacity we are
adding this year is focused on product categories such as wet printed flocks
that have proven especially popular internationally. Although the growth in
sales of wet printed flocks has slowed this year, we have continued to record
increased shipments in this product category. We are also committing more
resources to develop patterns and textures specifically designed for these
markets outside the United States.
"The gains in mattress ticking and international sales for the first
quarter highlight the strength of Culp's broad array of products and markets.
Our extensive manufacturing capabilities and increasing vertical integration
have enhanced our ability to penetrate virtually every major end-market of the
furniture and bedding industry. The acquisition of Phillips Mills earlier this
month augments our competitive advantages. We have added efficient capacity in
jacquards and have acquired a much stronger presence in casual living fabric
styles which are popular on motion furniture. Culp remains intent on achieving
sound progress through internal growth, but we continue to pursue opportunities
such as Phillips Mills where we can use our strong capital position to benefit
from the ongoing consolidation within the home furnishing industry."
Culp, Inc. is the world's largest manufacturer and marketer of
upholstery fabrics for furniture and is a leading producer of mattress ticking
for bedding. The Company's fabrics are used primarily in the production of
residential and commercial furniture and bedding products.
CULP, INC.
CONDENSED FINANCIAL HIGHLIGHTS
(Unaudited)
THREE MONTHS ENDED
AUGUST 3, JULY 28,
1997 1996
--------------------------------------
(14 weeks) (13 weeks)
Net sales $ 99,498,000 $ 90,529,000
Net income $ 2,850,000 $ 2,210,000
Earnings per share $ 0.23 $ 0.20
Average shares outstanding 12,631,000 11,297,000
-END-
(Page 2 of 11)
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 3, 1997 AND JULY 28, 1996
(Amounts in Thousands, Except for Per Share Data)
THREE MONTHS ENDED (UNAUDITED)
---------------------------------------------------------------------
Amounts Percent of Sales
----------------------------- -----------------------
August 3, July 28, % Over
1997 1996 (Under) 1997 1996
-------------------------------------------- -----------------------
Net sales $ 99,498 90,529 9.9% 100.0% 100.0%
Cost of sales 82,765 74,609 10.9% 83. % 82. %
------------ ------------ ----------- ---------- ---------
Gross profit 16,733 15,920 5.1% 16. % 17. %
Selling, general and
administrative expenses 10,916 10,864 0.5% 11. % 12. %
------------ ------------ ----------- ---------- ---------
Income from operations 5,817 5,056 15.1% 5. % 5. %
Interest expense 1,280 1,182 8.3% 1. % 1. %
Interest income (90) (57) **% (0.%) (0.%)
Other expense (income), net 242 395 (38.7%) 0.% 0.%
------------ ------------ ----------- ---------- ---------
Income before income taxes 4,385 3,536 24.0% 4.% 3.%
Income taxes * 1,535 1,326 15.8% 35.% 37.%
------------ ------------ ----------- ---------- ---------
Net income $ 2,850 2,210 29.0% 2.% 2.%
============ ============ =========== ========== =========
Average shares outstanding 12.631 11,297 12.0%
Net income per share $0.23 $0.20 15.0%
Dividends per share $0.0350 $0.0325 7.7%
* Percent of sales column is calculated as a % of income before income taxes.
** Measurement is not meaningful.
(Page 2 of 11)
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED BALANCE SHEETS
AUGUST 3, 1997, JULY 28, 1996 AND APRIL 27, 1997
(Amounts in Thousands)
Amounts Increase
-----------------------
August 3, July 28, (Decrease) * April 27,
---------------------
1997 1996 Dollars Percent 1997
----------- ------------------- ---------- ----------
Current assets
Cash and cash investments $ 1,843 1,709 134 7.8% 830
Accounts receivable 54,086 42,262 11,824 28.0% 56,691
Inventories 60,715 51,676 9,039 17.5% 53,463
Other current assets 6,126 3,911 2,215 56.6% 5,450
---------- ---------- --------- ----------- ---------
Total current assets 122,770 99,558 23,212 23.3% 116,434
Restricted investments 8,186 5,244 2,942 56.1% 11,018
Property, plant & equipment, net 97,128 78,292 18,836 24.1% 91,231
Goodwill 22,111 22,720 (609) (2.7%) 22,262
Other assets 3,124 2,469 655 26.5% 3,007
---------- ---------- --------- ----------- ---------
Total assets $ 253,319 208,283 45,036 21.6% 243,952
========== ========== ========= ========== ==========
Current Liabilities
Current maturities of long-term debt $ 100 7,100 (7,000) (98.6%) 100
Accounts payable 20,154 24,233 (4,079) (16.8%) 29,903
Accrued expenses 11,972 13,295 (1,323) (10.0%) 15,074
Income taxes payable 1,575 1,295 280 21.6% 1,580
---------- ---------- --------- ---------- ---------
Total current liabilities 33,801 45,923 (12,122) (26.4%) 46,657
Long-term debt 96,016 70,916 25,100 35.4% 76,541
Deferred income taxes 9,965 8,088 1,877 23.2% 9,965
---------- ---------- --------- ---------- ---------
Total liabilities 139,782 124,927 14,855 11.9% 133,163
Shareholders' equity 113,537 83,356 30,181 36.2% 110,789
---------- ---------- --------- ---------- ---------
Total liabilities and
shareholders' equity $ 253,319 208,283 45,036 21.6% 243,952
========== ========== ========= ========== =========
Shares outstanding 12,650 11,303 1,347 11.9% 12,609
========== ========== ========= ========== =========
* Derived from audited financial statements.
(Page 3 of 11)
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED AUGUST 3, 1997 AND JULY 28, 1996
(Amounts in Thousands)
THREE MONTHS ENDED
----------------------
Amounts
----------------------
August 3, July 28,
1997 1996
-------- -----------
Cash flows from operating activities:
Net income $ 2,850 2,210
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation 3,256 3,144
Amortization of intangible assets 181 198
Provision for deferred income taxes 0
Changes in assets and liabilities:
Accounts receivable 2,605 9,776
Inventories (7,252) (4,281)
Other current assets (676) 280
Other assets (147) (76)
Accounts payable (5,852) 131
Accrued expenses (2,923) 731
Income taxes payable (5) 1,098
-------- -----------
Net cash provided by (used in) operating activities (7,963) 13,211
-------- -----------
Cash flows from investing activities:
Capital expenditures (9,153) (4,475)
Purchases of restricted investments (8,590) (53)
Purchase of investments to fund deferred compensation liability 0
Sale of restricted investments 11,422 59
-------- -----------
Net cash used in investing activities (6,321) (4,469)
-------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 19,500 0
Principal payments on long-term debt (25) (4,025)
Change in accounts payable-capital expenditures (3,897) (3,206)
Cash dividends paid (443) (368)
Proceeds from common stock issued 162 68
-------- -----------
Net cash provided by (used in) financing activities 15,297 (7,531)
-------- -----------
1,013 1,211
Cash and cash investments at beginning of period 830 498
-------- ----------
Cash and cash investments at end of period $ 1,843 1,709
========== ===========
(Page 4 of 12)
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL ANALYSIS
AUGUST 3, 1997
FISCAL 97 FISCAL 98
------------------ --------------------------------------
Q1 Q1 Q2 Q3 Q4 LTM
------------------ --------------------------------------
INVENTORIES
Inventory turns 6.0 5.8
RECEIVABLES
Days sales in receivables 43 50
Percent current & less than 30
days past due 99.3% 95.0%
WORKING CAPITAL
Current ratio 2.2 3.6
Working capital turnover 5.4 5.1
Working capital $53,635 $88,969
Working capital as a % of sales (4) 14.8% 23.8%
PROPERTY, PLANT & EQUIPMENT
Depreciation rate 8.3% 7.1%
Percent property, plant &
equipment are depreciated 48.2% 46.8%
Capital expenditures $23,958 (1) $9,153
PROFITABILITY
Net profit margin 2.4% 2.9% 3.5%
Gross profit margin 17.6% 16.8% 18.0%
Operating income margin 5.6% 5.8% 6.9%
SG & A expenses/net sales 12.0% 11.0% 11.1%
Return on average total capital 7.4% 7.6% 9.9%
Return on average equity 10.7% 10.2% 14.9%
Earnings per share $0.20 $0.23 $1.21
LEVERAGE (3)
Total liabilities/equity 143.6% 115.9%
Funded debt/equity 87.3% 77.4%
Funded debt/capital employed 46.6% 43.6%
Funded debt $72,772 $87,930
Funded debt/EBITDA (LTM) 1.98 2.18
EBITDA/Interest expense, net (LTM) 9.1
OTHER
Book value per share $7.37 $8.98
Employees at quarter end 3,020 3,180
Sales per employee (annualized) $120,000 $125,000
Capital employed (3) $156,128 $201,467
Effective income tax rate 37.5% 35.0%
EBITDA (2) $8,003 $9,012 $40,413
EBITDA/net sales 8.8% 9.1% 9.9%
(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.
(4) working capital for this calculation is
accounts receivable, inventories and accounts payable.
(5) LTM represents "Latest Twelve Months"
(Page 5 of 11)
CULP, INC. FINANCIAL INFORMATION RELEASE
SALES BY PRODUCT CATEGORY/BUSINESS UNIT
FOR THREE MONTHS ENDED AUGUST 3, 1997 AND JULY 28, 1996
(AMOUNTS IN THOUSANDS)
THREE MONTHS ENDED (UNAUDITED)
-----------------------------------------------------
Amounts Percent of Total Sales
---------------------- ---------------------
AUGUST 3, July 28, % Over
Product Category/Business Unit 1997 1996 (Under) 1997 1996
- ------------------------------------------- ----------- --------- -------- --------------------
Upholstery Fabrics
Culp Textures $ 21,693 20,801 4.3% 21.8% 23.0%
Rossville/Chromatex 18,121 18,165 (0.2%) 18.2% 20.1%
--------- --------- ------- ---------------------
39,814 38,966 2.2% 40.0% 43.0%
Velvets/Prints 38,397 34,867 10.1% 38.6% 38.5%
--------- --------- ------- ---------------------
78,211 73,833 5.9% 78.6% 81.6%
Mattress Ticking
Culp Home Fashions 21,287 16,696 27.5% 21.4% 18.4%
--------- --------- ------- ---------------------
* $ 99,498 90,529 9.9% 100.0% 100.0%
========= ========= ======= =====================
*U.S. sales were $74,407 and $70,556 for the three months of fiscal 1998 and
fiscal 1997, respectively;
The percentage increase in U.S. sales was 5.5 % for the three months.
(Page 6 of 11)
CULP, INC. FINANCIAL INFORMATION RELEASE
INTERNATIONAL SALES BY GEOGRAPHIC AREA
FOR THREE MONTHS ENDED AUGUST 3, 1997 AND JULY 28, 1996
(AMOUNTS IN THOUSANDS)
THREE MONTHS ENDED (UNAUDITED)
------------------------------------------------------
Amounts Percent of Total Sales
------------------- -------------------------
AUGUST 3, July 28, % Over
Geographic Area 1997 1996 (Under) 1997 1996
- ------------------------------------------ ------ ----- -------- -------- -------------
North America (Excluding USA) $ 7,044 6,056 16.3% 28.1% 30.3%
Europe 6,919 6,120 46.5% 27.6% 30.6%
Middle East 6,564 4,196 56.4% 26.2% 21.0%
Far East & Asia 3,524 2,627 (4.6%) 14.0% 13.2%
South America 339 431 (7.4%) 1.4% 2.2%
All other areas 701 543 (25.2%) 2.8% 2.7%
------- ------- ---------- ------- -------------
$ 25,091 19,973 25.6% 100.0% 100.0%
======= ======== ======== ======== =============
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-
$57,971 (19%); fiscal 1996-$ 77,397 (22%); and fiscal 1997-$ 101,571 (25%).
Year-to-date international sales represented 25% and 22% of total sales for 1998
and 1997 respectively.
Certain amounts for fiscal year 1997 have been reclassified to conform with the
fiscal year 1998 presentation.
(Page 7 of 11)
CULP, INC.
SALES BY BUSINESS UNIT - TREND ANALYSIS
1996 VS 1997 VS 1998
(AMOUNTS IN THOUSANDS)
Fiscal 1996 Fiscal 1997 FISCAL 1998
------------------------------------------- --------------------------------- ---------------
Product Category/
Business Units Q1 Q2 Q3 Q4 TOTAL Q1 Q2 Q3 Q4 TOTAL Q1 Q2 Q3 Q4
-- -- -- -- ----- -- -- -- -- ----- -- -- -- --
Upholstery Fabrics
Culp Textures 17,584 22,715 20,685 23,400 84,384 20,801 24,001 20,389 23,027 88,218 21,693
Rossville/Chromatex 15,358 17,960 18,567 22,318 74,203 18,165 21,722 18,953 20,672 79,512 18,121
------------------------------------------- ------------------------------------------- ----------------
32,942 40,675 39,252 45,718 158,587 38,966 45,723 39,342 43,699 167,730 39,814
Velvets/Prints 23,523 32,081 31,836 38,261 125,701 34,867 40,233 40,387 40,980 156,467 38,397
------------------------------------------- ------------------------------------------- ----------------
56,465 72,756 71,088 83,979 284,288 73,833 85,956 79,729 84,679 324,197 78,211
Mattress Ticking
Culp Home Fashions 15,892 17,916 15,388 18,183 67,379 16,696 19,248 17,739 20,999 74,682 21,287
------------------------------------------- ------------------------------------------- ----------------
72,357 90,672 86,476 102,162 351,667 90,529 105,204 97,468 105,678 398,879 99,498
========================================= =========================================== ================
PERCENT INCREASE(DECREASE)
FROM PRIOR YEAR:
Product Category/
Business Units
Upholstery Fabrics
Culp Textures (10.3) (0.5) (1.2) 7.6 (0.9) 18.3 5.7 (1.4) (1.6) 4.5 4.3
Rossville/Chromatex 1.4 14.0 13.2 35.5 16.4 18.3 20.9 2.1 (7.4) 7.2 (0.2)
---------------------------------------- ----------------------------------------- ---------------
(5.2) 5.4 5.1 19.7 6.5 18.3 12.4 0.2 (4.4) 5.8 2.2
Velvets/Prints 13.9 21.3 12.5 21.8 17.7 48.2 25.4 26.9 7.1 24.5 10.1
---------------------------------------- ----------------------------------------- ---------------
1.9 11.9 8.3 20.6 11.2 30.8 18.1 12.2 0.8 14.0 5.9
Mattress Ticking
Culp Home Fashions 45.1 33.6 26.7 14.9 28.8 5.1 7.4 15.3 15.5 10.8 27.5
---------------------------------------- ----------------------------------------- ---------------
9.1 15.6 11.2 19.6 14.2 25.1 16.0 12.7 3.4 13.4 9.9
======================================== ========================================= ===============
Overall Growth Rate
Internal (without
acquistions) 6.4 13.0 8.7 19.6 12.3 25.1 16.0 12.7 3.4 13.4 9.9
External 2.7 2.6 2.5 - 1.9 - - - - - -
------------------------------------------ ----------------------------------------- -------------
9.1 15.6 11.2 19.6 14.2 25.1 16.0 12.7 3.4 13.4 9.9
========================================== ========================================= =============
(PAGE 8 OF 11)
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
FOR THE THREE MONTH PERIODS ENDED AUGUST 3, 1997 AND JULY 28, 1996
INCOME STATEMENT COMMENTS
GENERAL - Net sales increased 9.9% to $99.5 million and net income
increased 29.0% to $2.9 million for the first quarter, as compared with the
first quarter of last year. This performance marks the nineteenth consecutive
quarter of record earnings and the seventeenth consecutive quarter of record
sales (based on comparable year-earlier periods). The company's net profit
margin increased to 2.9% from 2.4% for the quarter. Also, the company achieved
a return on average shareholder's equity of 10.2% for the first quarter. The
first quarter included 14 weeks and the first quarter of last year included 13
weeks.
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 and juvenile furniture; sales to these other markets
accounted for approximately 51% of net sales during the first quarter;
additionally, no one customer accounted for more than 7% of sales during
the first quarter of fiscal 1998;
(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
(BULLET)ABILITY TO INTEGRATE ACQUISITIONS - investing in selective, accretive
acquisitions in complementary businesses which we know and understand, and
that strengthen existing marketing positions.
NET SALES - Compared with the first quarter of last year, upholstery
fabric sales increased 5.9% to $78.2 million and mattress ticking sales
increased 27.5% to $21.3 million for the quarter (See Sales by Business Unit
schedule on Page 5 and Sales by Business Unit - Trend Analysis on Page 7). The
growth in upholstery fabric sales for the first quarter reflects the following
changes: Velvets/Prints - up 10.1%; Rossville/Chromatex - down 0.2%; and Culp
Textures up 4.3%. The growth in demand in some product categories and to U.S.
manufacturers of residential furniture as a group began slowing during the
second half of fiscal 1997. That pattern has continued thus far into fiscal
1998. Business with U.S.-based customers increased 6% from a year ago while
sales to customers outside the United States rose 26% for the quarter. The
company has continued to benefit from increased international sales, but the
strength in the U.S. dollar relative to other international currencies has
affected demand somewhat. Sales of wet printed flock upholstery fabrics, which
remain one of the company's growing product categories internationally,
increased 14% from a year ago. The increased sales by Culp Home Fashions during
the first quarter reflects a positive response to the new designs and fabric
constructions, notably in printed jacquard ticking. The growth in Culp Home
Fashions has been aided by the company's investment in additional capacity,
particularly in manufacturing jacquard greige, or unfinished, goods that are
then printed to produce mattress ticking.
(PAGE 9 OF 11)
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
FOR THE THREE MONTH PERIODS ENDED AUGUST 3, 1997 AND JULY 28, 1996
International sales were up 25.6% for the quarter, with strength in
all major regions, and accounted for 25% of net sales for the quarter. (See
International Sales by Geographic Area schedule on page 6.) All business units
reported gains in international sales for the quarter. The vast majority of
international sales are denominated in U.S. dollars.
GROSS PROFIT - The gross profit increase of 5.1% for the quarter
versus the same quarter of last year reflects a substantial gain in the Culp
Home Fashions business unit, a slight increase in Rossville/Chromatex and lower
results in Culp Textures and Velvets/Prints. The overall gross profit margin
decreased to 16.8% for the quarter from 17.6% in the same quarter of last
year. Factors which affected the company's profitability during the quarter
included the slower growth in demand for certain fabric categories and from U.S.
manufacturers of residential furniture as a group and start-up costs related to
expansion projects. These factors were offset in part by the increased
absorption of fixed costs as a result of the growth in sales as well as the
benefit from the Company's ongoing capital investment in equipment designed to
lower manufacturing costs and raise productivity.
S,G&A EXPENSES - S,G&A expenses for the quarter were down as a
percentage of sales to 11.0% from 12.0% for the same period of last year. The
slight increase in absolute dollars is principally due to higher sales
commissions related to international sales and significant investments in
additional design resources, which were offset by lower accruals for
incentive-based compensation plans.
INTEREST EXPENSE - The increase for the quarter of 8.3% over the same
quarter of last year is primarily due to higher average borrowings outstanding,
which resulted from the company's capital expenditure and working capital
investments that were made in the first quarter of this year.
.
INTEREST INCOME - Interest income increased for the quarter due to the
higher level of unspent IRB borrowings which are reported as Restricted
Investments on the balance sheet.
OTHER EXPENSE (INCOME), NET - In the first quarter, other expense
(income) decreased to $242,000 from $395,000 in the same quarter of last year,
due primarily to last year's first quarter including a non-recurring charge for
certain fixed assets that amounted to $ 150,000.
INCOME TAXES - The effective tax rate for the quarter was 35.0%,
compared with 36.0% for fiscal 1997, due to the lower tax rate related to an
estimated higher amount of Canadian income and tax benefits related to an
estimated higher level of international sales.
EBITDA - EBITDA for the quarter increased 12.6% to $9.0 million from
last year's first quarter and represented 9.1% of net sales compared with 8.8%
of net sales for the same period of last year.
(PAGE 10 OF 11)
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
FOR THE THREE MONTH PERIODS ENDED AUGUST 3, 1997 AND JULY 28, 1996
BALANCE SHEET COMMENTS
WORKING CAPITAL - Accounts receivable increased 28.0% from July 28,
1996, while sales increased 9.9% for the first quarter. Days sales outstanding
represented 50 days, up from 43 days at July 28, 1996 and 49 days at April 27,
1997. Accounts receivable increased at a faster rate than sales because of the
increasing mix of international sales and mattress ticking sales, which carry
longer payment terms than U.S. upholstery fabric sales. Additionally, the aging
of accounts receivable was with 95.0% current and less than 30 days past due
versus 99.3% at July 28, 1996. Inventories increased 17.5% from July 28, 1996,
and inventory turns were 5.8 versus 6.0 for last year's first quarter. The
inventory increase relates mostly to raw materials (up 21%) over the first
quarter of last year, and is largely attributable to a build up of jacquard and
flocked greige goods. Operating working capital (comprised of accounts
receivable, inventory and accounts payable) increased significantly to $94.6
million at August 3, 1997, for the reasons mentioned above, from $69.7 million
at July 28, 1996 and $80.3 million at April 27, 1997.
PROPERTY, PLANT AND EQUIPMENT - The company has maintained a
significant program of capital expenditures designed to expand capacity to
support sales growth, increase vertical integration to lower product costs and
control more of its supply of raw maaterials, and enhance manufacturing
efficiencies through modernization. The company is currently planning capital
spending of approximately $27 million during fiscal 1998, which includes about
$7.7 million for expansion projects (28%); $10.7 million for vertical
integration projects (40%); and $8.6 million for modernization projects (32%).
The principal expansion project includes the completion of the various items
related to the Lumberton, N.C. printing facility. The key vertical integration
projects include the yarn extrusion expansion and additional weaving capacity
for jacquard greige goods at Rayonese. The modernization projects encompass a
number of smaller projects throughout the company's operations. Depreciation
expense for fiscal 1998 is estimated at approximately $15.6 million.
LONG-TERM DEBT - The company's funded debt-to-capital ratio was
43.6% at August 3, 1997, down from 46.6% at July 28, 1996, and up from 37.2%
at April 27, 1997. Funded debt was $87.9 million at August 3, 1997, up from
$72.8 million at July 28, 1996 and up from $65.6 million at April 1997. (Funded
debt equals long-term debt, including current maturities, less restricted
investments, which represent unspent IRB funds). The increase in funded debt
from April 1997 resulted from capital expenditures of $9.1 million, an operating
cash flow deficit of $8.0 million, and a decrease in accounts payable related to
capital expenditures of $3.9 million. The sources of financing used to close the
Phillips acquisition are the company's revolving credit facility in the amount
of $31 million and the seller's non-compete of $5 million (on a present value
basis).
PHILLIPS ACQUISITION -- On August 5, 1997, the company completed the
acquisition of the business and certain assets relating to the upholstery fabric
businesses operating as Phillips Weaving Mills, Phillips Velvet Mills, Phillips
Printing and Phillips Mills. These operating units were purchased from Phillips
Industries, Inc., a privately-owned corporation also based in High Point, N.C.
Based on the terms of the definitive asset purchase agreement, the transaction
is valued for accounting and reporting purposes (under generally accepted
accounting principles) at approximately $36 million, which includes cash,
seller debt retired, and a non-compete agreement. The consideration for the
acquisition also included stock options and an agreement for contingent payments
to the selling companies within the three years following closing that could
range from $0 to $5,500,000, depending upon the future financial performance of
certain of the businesses purchased. See attached schedule (page 11) containing
supplemental information regarding the key financial terms of the acquisition.
Culp, Inc.
PHILLIPS ACQUISITION -- KEY TRANSACTION TERMS
8-Aug-97
TRANSACTION VALUE
a) Cash paid to (and on behalf of) selling companies on $30,590,035
the closing date (8/5/97)
b) Non-compete agreement (the $4.9 million represents the
present value of 5 annual payments of $1.2 million, which
totals $6.0 million, beginning one year from the closing date) 4,920,000
---------
TRANSACTION VALUE (this is the amount recorded on Culp's
balance sheet on the closing date) $35,510,035
-----------
OTHER CONSIDERATION AND LIABILITY ASSUMPTIONS
a) Present value discount of the non-compete agreement
($6.0 million less $4.92 million) $ 1,080,000
b) Contingent additional consideration of up to $5.5 million
to the selling companies, depending upon the financial
performance of certain of the businesses purchased ; 5,500,000
c) Stock options in the amount of 100,000 shares were granted at
$17.75 per share, with a 6 year option term ; value estimated based
upon the Black-Scholes stock option
pricing methodology 700,000
d) Culp assumed specified contractual obligations of the selling
companies, principally including real estate and equipment leases,
certain factoring service-related commitments that could total up
to approximately $3.5 million over five years, and purchase
orders for raw materials. 3,500,000
OTHER CONSIDERATION AND LIABILITY ASSUMPTIONS $10,780,000
TRANSACTION VALUE PLUS OTHER CONSIDERATION
AND LIABILITY ASSUMPTIONS $46,290,035
