- --------------------------------------------------------------------------------
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 18, 1998
CULP, INC.
(Exact name of registrant as specified in its charter)
North Carolina 0-12781 56-1001967
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
101 South Main Street
High Point, North Carolina 27260
(Address of principal executive offices)
(336) 889-5161
(Registrant's telephone number, including area code)
(Former name or former address, if changed since last report)
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-MORE-
FOR IMMEDIATE RELEASE
CULP REPORTS THIRD QUARTER GAINS
NET INCOME INCREASES 33% TO NEW THIRD-QUARTER RECORD
HIGH POINT, N. C. (Feb. 18, 1998) - Culp, Inc. (NYSE:CFI) today reported
higher sales and earnings for the third fiscal quarter ended February 1, 1998.
For the three months ended February 1, 1998, Culp reported that net
sales increased 22% to $118.5 million compared with $97.5 million a year ago.
Net income for the quarter increased 33% to $4.0 million compared with $3.0
million. Earnings per share increased 19% to $0.32 on 12.7 million average
shares outstanding versus $0.27 on 11.3 million average shares outstanding in
the year-earlier period.
The gain for the third quarter brought net sales for the first nine
months to $340.9 million, up 16% from $293.2 million in the first nine months
of fiscal 1997. Net income for the first nine months increased 27% to $11.4
million versus $8.9 million. Earnings per share increased 14% to $0.90 on
12.7 million average shares outstanding versus $0.79 on 11.3 million average
shares outstanding in the year-earlier period.
The increase of 12% in the average number of shares outstanding for the
third quarter and first nine months was due principally to the Company's
secondary stock offering completed in February 1997.
The Company noted that $11.2 million of the increase in net sales for
the third quarter was attributable to the Phillips Mills acquisition that was
completed in August 1997. The Company's effective tax rate for the third
quarter was 22% compared with 38% a year ago. The lower rate was due
principally to increased tax benefits related to the Company's international
sales. The reduced tax rate also reflected a higher proportion of earnings
from the Company's Canadian subsidiary that is taxed at a lower effective rate.
CULP Reports Third Quarter Gains
Page 4
Feb. 18, 1998
"We have now achieved record earnings in 21 consecutive quarters versus
the comparable year-earlier period," said Robert G. Culp, III, chief executive
officer. "One of the strategic initiatives that has contributed to that
consistency is the use of Culp's strong financial position to complement our
ongoing internal progress with the acquisition of complementary businesses.
The gains in sales for the third quarter and first nine months were aided by
the contribution of Phillips Mills which we acquired earlier this year. We
also completed the acquisition of the Wetumpka Yarn operations during the
third quarter and earlier this month completed the previously announced
acquisition of Artee Industries. Transactions such as the purchase of
Phillips Mills have enabled us to broaden our product line and customer base,
while the Wetumpka and Artee Industries acquisitions extended our vertical
integration into the manufacturing and marketing of spun and chenille yarns.
The trend toward consolidation continues at all levels within the home
furnishings industry, and our intent is to capitalize on other opportunities
as they may occur over the longer term."
Culp added, "Industry-wide demand for certain categories of upholstery
fabrics from U.S.-based residential furniture customers has not been
especially strong in the current fiscal year. We achieved higher sales for
the third quarter, aided principally by the incremental contribution from
acquisitions, further growth in international shipments and continuing gains
in sales of mattress ticking. The positive momentum in shipments of mattress
ticking by our Home Fashions business unit reflects the successful
introduction of new textures and patterns as well as our investment in
increased capacity to meet customers' needs.
"We are continuing to realize strong growth in our international business.
Shipments to customers outside the United States were up 45% for the third
quarter and are expected to set a new record for fiscal 1998 as a whole. Our
competitive position is benefiting from the introduction of more patterns
designed for the preferences of specific markets. The addition of new customers
is expanding our marketing coverage, and we are also being aided by the capital
investment made in printed flock fabrics that are especially popular in a number
of international areas."
Culp added, "We have already begun integrating the resources of Wetumpka
Yarn and Artee Industries into the design functions of our business units. Our
entry into the spun and chenille yarn business offers an exciting opportunity to
accelerate our design activities. Our staff of designers and support personnel
has never been more experienced, and we have the physical resources to support
their design and development of proprietary patterns and styles. We have now
moved most of our design personnel into the new Design Center in Burlington,
North Carolina. This facility will encourage the sharing of design ideas among
business units and provide a unique environment for customers to participate in
the development of new patterns. Our focus on design is directly related to our
goal of superior customer service which includes the need to provide distinctive
fabrics to our worldwide base of customers."
Culp concluded, "During the fourth fiscal quarter, we expect to
strengthen our capital structure with the closing of a private placement of
$75 million of senior unsecured notes. The notes are expected to have a fixed
coupon rate of 6.76% and an average term of 10 years. The proceeds will be
used to repay borrowings under the Company's bank credit facility, thereby
enhancing our financial flexibility."
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.
This Release contains statements that could be deemed "forward-looking
statements" within the meaning of the federal securities laws, which
statements are inherently subject to risks and uncertainties. Forward-looking
statements are statements that include projections, expectations or beliefs
about future events or results or otherwise are not statements of historical
fact. Such statements are often characterized by qualifying words such as
"expect," "believe," "estimate," "plan" and "project" and their derivatives.
Factors that could influence the matters discussed in such statements 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. In addition, the value of the
U.S. dollar relative to other currencies can affect the competitiveness of the
Company's products in international markets.
CULP, INC.
Condensed Financial Highlights
(Unaudited)
Three Months Ended
February 1, January 26,
1998 1997
------------ -----------
Net sales $118,457,000 $97,468,000
Net income 4,002,000 3,010,000
Earnings per share
Basic $ 0.32 $ 0.27
Diluted $ 0.31 $ 0.26
Average shares outstanding
Basic 12,692,000 11,342,000
Diluted 12,986,000 11,653,000
Nine Months Ended
February 1, January 26,
1998 1997
------------ ------------
Net sales $340,881,000 $293,201,000
Net income 11,357,000 8,930,000
Earnings per share
Basic $ 0.90 $ 0.79
Diluted $ 0.88 $ 0.77
Average shares outstanding
Basic 12,663,000 11,317,000
Diluted 12,964,000 11,618,000
-END-
Item 5. Other Events
See attached Press Release (4 pages) and Financial Information Release (12
pages), both dated February 18, 1998, related to the quarter ended February 1,
1998.
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. These statements are often
characterized by qualifying words such as "expect," "believe," "estimate,"
"plan" and "project" and their derivatives. 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: February 18, 1998
>
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED INCOME STATEMENTS
FOR THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 1, 1998 AND JANUARY 26, 1997
(Amounts in Thousands, Except for Per Share Data)
THREE MONTHS ENDED (UNAUDITED)
--------------------------------------------------------
Amounts Percent of Sales
--------------------- --------------------
February January % Over
1, 26,
1998 1997 (Under) 1998 1997
---------- ---------- --------- --------- ---------
Net sales $ 118,457 97,468 21.5 % 100.0 % 100.0 %
Cost of sales 97,554 80,317 21.5 % 82.4 % 82.4 %
---------- ---------- --------- --------- ---------
Gross profit 20,903 17,151 21.9 % 17.6 % 17.6 %
Selling, general and
administrative expenses 13,162 10,760 22.3 % 11.1 % 11.0 %
---------- ---------- --------- --------- ---------
Income from operations 7,741 6,391 21.1 % 6.5 % 6.6 %
Interest expense 2,180 1,228 77.5 % 1.8 % 1.3 %
Interest income (73) (73) 0.0 % (0.1) % (0.1) %
Other expense (income), net 492 421 16.9 % 0.4 % 0.4 %
---------- ---------- --------- --------- ---------
Income before income taxes 5,142 4,815 6.8 % 4.3 % 4.9 %
Income taxes * 1,140 1,805 (36.8) % 22.2 % 37.5 %
---------- ---------- --------- --------- ---------
Net income $ 4,002 3,010 33.0 % 3.4 % 3.1 %
========== ========== ========= ========= =========
Net income per share $0.32 $0.27 18.5 %
Net income per share
(assuming dilution) $0.31 $0.26 19.2 %
Dividends per share $0.0350 $0.0325 7.7 %
Average shares outstanding 12,692 11,342 11.9 %
Average shares outstanding
(assuming dilution) 12,986 11,653 11.4 %
NINE MONTHS ENDED (UNAUDITED)
--------------------------------------------------------
Amounts Percent of Sales
--------------------- --------------------
February January % Over
1, 26,
1998 1997 (Under) 1998 1997
---------- ---------- --------- --------- ---------
Net sales $ 340,881 293,201 16.3 % 100.0 % 100.0 %
Cost of sales 280,510 241,008 16.4 % 82.3 % 82.2 %
---------- ---------- --------- --------- ---------
Gross profit 60,371 52,193 15.7 % 17.7 % 17.8 %
Selling, general and
administrative expenses 37,710 33,328 13.1 % 11.1 % 11.4 %
---------- ---------- --------- --------- ---------
Income from operations 22,661 18,865 20.1 % 6.6 % 6.4 %
Interest expense 5,280 3,652 44.6 % 1.5 % 1.2 %
Interest income (235) (190) 23.7 % (0.1) % (0.1) %
Other expense (income), net 1,159 1,117 3.8 % 0.3 % 0.4 %
---------- ---------- --------- --------- ---------
Income before income taxes 16,457 14,286 15.2 % 4.8 % 4.9 %
Income taxes * 5,100 5,356 (4.8) % 31.0 % 37.5 %
---------- ---------- --------- --------- ---------
Net income $ 11,357 8,930 27.2 % 3.3 % 3.0 %
========== ========== ========= ========= =========
Net income per share $0.90 $0.79 13.9 %
Net income per share
(assuming dilution) $0.88 $0.77 14.3 %
Dividends per share $0.1050 $0.0975 7.7 %
Average shares outstanding 12,663 11,317 11.9 %
Average shares outstanding
(assuming dilution) 12,964 11,618 11.6 %
* Percent of sales column is calculated as a % of income before income taxes.
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED BALANCE SHEETS
FEBRUARY 1, 1998, JANUARY 26, 1997 AND APRIL 27, 1997
(Unaudited, Amounts in Thousands)
Amounts Increase
-----------------------
February 1, January (Decrease) *
26, April
27,
--------------------
1998 1997 Dollars Percent 1997
------------ --------- --------- -------- -------
Current assets
Cash and cash investments $ 348 406 (58) (14.3)% 830
Accounts receivable 73,109 50,157 22,952 45.8 % 56,691
Inventories 75,032 50,755 24,277 47.8 % 53,463
Other current assets 7,202 3,701 3,501 94.6 % 5,450
------------ --------- --------- -------- -------
Total current assets 155,691 105,019 50,672 48.3 % 116,434
Restricted investments 3,976 11,778 (7,802) (66.2)% 11,018
Property, plant & equipment, net 113,658 86,146 27,512 31.9 % 91,231
Goodwill 48,558 22,413 26,145 116.7 % 22,262
Other assets 5,439 2,906 2,533 87.2 % 3,007
------------ --------- --------- -------- -------
Total assets $ 327,322 228,262 99,060 43.4 % 243,952
============ ========= ========= ======== =======
Current liabilities
Current maturities of
long-term debt $ 1,120 6,100 (4,980) (81.6)% 100
Accounts payable 35,921 20,833 15,088 72.4 % 29,903
Accrued expenses 12,683 15,644 (2,961) (18.9)% 15,074
Income taxes payable 1,941 1,753 188 10.7 % 1,580
------------ --------- --------- -------- -------
Total current liabilities 51,665 44,330 7,335 16.5 % 46,657
Long-term debt 144,079 86,266 57,813 67.0 % 76,541
Deferred income taxes 9,965 8,088 1,877 23.2 % 9,965
------------ --------- --------- -------- -------
Total liabilities 205,709 138,684 67,025 48.3 % 133,163
Shareholders' equity 121,613 89,578 32,035 35.8 % 110,789
------------ --------- --------- -------- -------
Total liabilities and
shareholders' equity $ 327,322 228,262 99,060 43.4 % 243,952
============ ========= ========= ======== =======
Shares outstanding 12,700 11,352 1,348 11.9 % 12,609
============ ========= ========= ======== =======
* Derived from audited financial statements.
CULP, INC.
FINANCIAL INFORMATION RELEASE
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED FEBRUARY 1, 1998 AND JANUARY 26, 1997
(Unaudited, Amounts in Thousands)
NINE MONTHS ENDED
----------------------
Amounts
--------------------
February 1, January 26,
1998 1997
----------- -----------
Cash flows from operating activities:
Net income $ 11,357 8,930
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation 10,660 9,440
Amortization of intangible assets 883 634
Changes in assets and liabilities, net of
effects of businesses acquired:
Accounts receivable (16,418) 1,881
Inventories (16,330) (3,360)
Other current assets (1,752) 466
Other assets (1,942) (642)
Accounts payable 8,783 (2,213)
Accrued expenses (2,175) 3,080
Income taxes payable 361 1,556
--------- ---------
Net cash provided by (used in)
operating activities (6,573) 19,772
--------- ---------
Cash flows from investing activities:
Capital expenditures (28,183) (18,625)
Purchases of restricted investments (8,724) (9,681)
Purchase of investments to fund deferred (581) 0
compensation liability
Sale of restricted investments 15,766 3,177
Businesses acquired (37,156) 0
--------- ---------
Net cash used in investing activities (58,878) (25,129)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 77,600 15,900
Principal payments on long-term debt (9,042) (5,575)
Change in accounts payable-capital expenditures (2,765) (4,262)
Dividends paid (1,333) (1,103)
Proceeds from common stock issued 509 305
--------- ---------
Net cash provided by financing activities 64,969 5,265
--------- ---------
Decrease in cash and cash investments (482) (92)
Cash and cash investments at beginning of period 830 498
--------- ---------
Cash and cash investments at end of period $ 348 406
========= =========
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL ANALYSIS
FEBRUARY 1, 1998
FISCAL 97 FISCAL 98
------------- --------------------------------------------------------- ---------------
Q3 Q1 Q2 Q3 Q4 LTM
------------- --------------------------------------------------------- ---------------
INVENTORIES
Inventory turns 6.2 5.8 6.1 5.4
RECEIVABLES
Days sales in receivables 47 50 55 52
Percent current & less than 30
days past due 99.8% 95.0% 97.8% 94.1%
WORKING CAPITAL
Current ratio 2.4 3.6 2.9 3.0
Working capital turnover (4) 5.3 5.1 4.8 4.7
Working capital $60,689 $88,969 $98,833 $104,026
Working capital as a % of sales (4) 15.6% 23.8% 21.9% 23.7%
PROPERTY, PLANT & EQUIPMENT
Depreciation rate 7.5% 7.1% 7.4% 7.4%
Percent property, plant &
equipment are depreciated 47.9% 46.8% 45.3% 44.8%
Capital expenditures $26,958 (1) $9,153 $10,063 $8,967
PROFITABILITY
Return on average total capital 7.5% 7.6% 10.0% 8.3% 9.3%
Return on average equity 14.1% 10.2% 15.6% 13.4% 14.6%
Net income per share $0.27 $0.23 $0.36 $0.32 $1.28
Net income per share (diluted)(7) $0.26 $0.22 $0.35 $0.31 $1.25
LEVERAGE (3)
Total liabilities/equity 154.8% 123.1% 172.0% 169.2%
Funded debt/equity 90.0% 77.4% 111.7% 116.1%
Funded debt/capital employed 47.4% 43.6% 52.8% 53.7%
Funded debt $80,588 $87,930 $131,833 $141,223
Funded debt/EBITDA (LTM) (6) 2.09 2.18 2.83 2.95
EBITDA/Interest expense, net (LTM) 8.8 9.1 8.5 7.5
OTHER
Book value per share $7.89 $8.98 $9.30 $9.58
Employees at quarter end 3,143 3,180 3,554 3,771
Sales per employee (annualized) $125,000 $125,000 $146,000 $129,000 $134,000
Capital employed (3) $170,166 $201,467 $249,838 $262,836
Effective income tax rate 37.5% 35.0% 35.0% 22.2%
EBITDA (2) $9,279 $9,012 $12,643 $11,390 $44,627
EBITDA/net sales 9.5% 9.1% 10.3% 9.6% 10.0%
(1) Expenditures for entire year
(2) Earnings before interest, income taxes, and depreciation & amortization.
(3) 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"
(6) EBITDA includes pro forma amounts for Phillips and Wetumpka acquisitions
in Qtr 2 and Qtr 3 of fiscal 1998.
(7) Net income per share (diluted) represents the potential dilution that
could occur if securities to issue common stock were exercised or
converted into common stock as required by Statement of Financial
Accounting Standards No.128 which was adopted during Qtr 3 of fiscal 1998.
CULP, INC. FINANCIAL INFORMATION RELEASE
SALES BY PRODUCT CATEGORY/BUSINESS UNIT
FOR THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 1, 1998 AND JANUARY 26, 1997
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
---------------------------------------------------
Amounts Percent of Total
Sales
------------------ -------------------
February January % Over
1, 26,
Product 1998 1997 (Under) 1998 1997
Category/Business Unit
- ------------------------- -------- -------- ---------- -------- ---------
Upholstery Fabrics
Culp Textures $ 21,059 20,389 3.3 % 17.8 % 20.9 %
Rossville/Chromatex 21,120 18,953 11.4 % 17.8 % 19.4 %
-------- -------- ---------- -------- ---------
42,179 39,342 7.2 % 35.6 % 40.4 %
Velvets/Prints 44,020 40,387 9.0 % 37.2 % 41.4 %
Phillips 11,236 0 100.0 % 9.5 % 0.0 %
-------- -------- ---------- -------- ---------
97,435 79,729 22.2 % 82.3 % 81.8 %
Mattress Ticking
Culp Home Fashions 20,261 17,739 14.2 % 17.1 % 18.2 %
Yarn
Artee 761 0 100.0 % 0.6 % 0.0 %
-------- -------- ---------- -------- ---------
* $ 118,457 97,468 21.5 % 100.0% 100.0 %
======== ======== ========== ======== =========
NINE MONTHS ENDED (UNAUDITED)
---------------------------------------------------
Amounts Percent of Total
Sales
------------------ -------------------
February January % Over
1, 26,
Product 1998 1997 (Under) 1998 1997
Category/Business Unit
- ------------------------- -------- -------- ---------- -------- ---------
Upholstery Fabrics
Culp Textures $ 67,206 65,191 3.1 % 19.7 % 22.2 %
Rossville/Chromatex 60,843 58,840 3.4 % 17.8 % 20.1 %
-------- -------- ---------- -------- ---------
128,049 124,031 3.2 % 37.6 % 42.3 %
Velvets/ Prints 126,345 115,487 9.4 % 37.1 % 39.4 %
Phillips 21,961 0 100.0 % 6.4 % 0.0 %
-------- -------- ---------- -------- ---------
276,355 239,518 15.4 % 81.1 % 81.7 %
Mattress Ticking
Culp Home Fashions 63,765 53,683 18.8 % 18.7 % 18.3 %
Yarn
Artee 761 0 100.0 % 0.2 % 0.0 %
-------- -------- ---------- -------- ---------
* $ 340,881 293,201 16.3 % 100.0% 100.0 %
======== ======== ========== ======== =========
*U.S. sales were $ 79,873 and $70,931 for the current quarter of fiscal 1998 and
fiscal 1997, respectively; and $242,123 and $220,791 for the year to date of
fiscal 1998 and fiscal 1997, respectively. The percentage increase in U.S. sales
was 13% for the current quarter and an increase of 10% for the year to date.
CULP, INC. FINANCIAL INFORMATION RELEASE
INTERNATIONAL SALES BY GEOGRAPHIC AREA
FOR THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 1, 1998 AND JANUARY 26, 1997
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
-----------------------------------------------------
Amounts Percent of Total
Sales
--------------------- -------------------
February January % Over
1, 26,
Geographic Area 1998 1997 (Under) 1998 1997
- ----------------------- ---------- --------- --------- --------- -------
North America $ 7,562 6,482 16.7 % 19.6 % 24.4 %
(Excluding USA)
Europe 11,581 7,213 60.6 % 30.0 % 27.2 %
Middle East 9,326 4,580 103.6% 24.2 % 17.3 %
Far East & Asia 7,957 6,862 16.0 % 20.6 % 25.9 %
South America 1,230 855 43.9 % 3.2 % 3.2 %
All other areas 928 545 70.3 % 2.4 % 2.1 %
---------- --------- --------- --------- -------
$ 38,584 26,537 45.4 % 100.0 % 100.0 %
========== ========= ========= ========= =======
NINE MONTHS ENDED (UNAUDITED)
-----------------------------------------------------
Amounts Percent of Total
Sales
--------------------- -------------------
February January % Over
1, 26,
Geographic Area 1998 1997 (Under) 1998 1997
- ----------------------- ---------- --------- --------- --------- -------
North America $ 22,574 20,555 9.8 % 22.9 % 28.4 %
(Excluding USA)
Europe 22,811 17,573 29.8 % 23.1 % 24.3 %
Middle East 23,452 13,736 70.7 % 23.7 % 19.0 %
Far East & Asia 23,951 15,893 50.7 % 24.3 % 21.9 %
South America 3,487 2,464 41.5 % 3.5 % 3.4 %
All other areas 2,483 2,189 13.4 % 2.5 % 3.0 %
---------- --------- --------- --------- -------
$ 98,758 72,410 36.4 % 100.0 % 100.0 %
========== ========= ========= ========= =======
International sales, and the percentage of total sales, for each of the last six
years follows: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%). International sales for the current quarter
represented 33% and 27% for 1998 and 1997, respectively. Year-to-date
international sales represented 29% and 25% 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. Additionally, certain amounts were reclassified
from the fiscal year 1998 second quarter presentation.
Culp, Inc.
SALES BY BUSINESS UNIT - TREND ANALYSIS
1996 vs 1997 vs 1998
(Amounts in thousands)
Fiscal 1996 Fiscal 1997 Fiscal 1998
------------------------------------ -------------------------------------
Product Q1 Q2 Q3 Q4 TOTAL Q1 Q2 Q3 Q4 TOTAL
Category/Business Units
- ------------------------
Upholstery Fabrics
Culp Textures 17,584 22,715 20,685 23,400 84,384 20,801 24,001 20,389 23,027 88,218
Rossville/Chromatex 15,358 17,960 18,567 22,318 74,203 18,165 21,722 18,953 20,672 79,512
------------------------------------ ---------------------------------------
32,942 40,675 39,252 45,718 158,587 38,966 45,723 39,342 43,699 167,730
Velvets/Prints 23,523 32,081 31,836 38,261 125,701 34,867 40,233 40,387 40,980 156,467
Phillips - - - - - - - - - -
------------------------------------ ---------------------------------------
56,465 72,756 71,088 83,979 284,288 73,833 85,956 79,729 84,679 324,197
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
Yarn
Artee - - - - - - - - - -
------------------------------------ --------------------------------------
72,357 90,672 86,476 102,162 351,667 90,529 105,204 97,468 105,678 398,879
==================================== ======================================
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
Rossville/Chromatex 1.4 14.0 13.2 35.5 16.4 18.3 20.9 2.1 (7.4) 7.2
------------------------------------ -------------------------------------
(5.2) 5.4 5.1 19.7 6.5 18.3 12.4 0.2 (4.4) 5.8
Velvets/Prints 13.9 21.3 12.5 21.8 17.7 48.2 25.4 26.9 7.1 24.5
Phillips - - - - - - - - - -
------------------------------------ -------------------------------------
1.9 11.9 8.3 20.6 11.2 30.8 18.1 12.2 0.8 14.0
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
Yarn
Artee - - - - - - - - - -
------------------------------------ -------------------------------------
9.1 15.6 11.2 19.6 14.2 25.1 16.0 12.7 3.4 13.4
==================================== =====================================
Overall Growth Rate
Internal(without 6.4 13.0 8.7 19.6 12.3 25.1 16.0 12.7 3.4 13.4
acquistions)
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
==================================== =====================================
Culp, Inc.
SALES BY BUSINESS UNIT - TREND ANALYSIS
1996 vs 1997 vs 1998
(Amounts in thousands)
Fiscal 1998
--------------------------------------
Product Q1 Q2 Q3 Q4 TOTAL
Category/Business Units
- ------------------------
Upholstery Fabrics
Culp Textures 21,693 24,454 21,059 67,206
18,121 21,602 21,120 60,843
Rossville/Chromatex
--------------------------------------
39,814 46,056 42,179 128,049
Velvets/Prints 38,397 43,928 44,020 126,345
Phillips - 10,725 11,236 21,961
--------------------------------------
78,211 100,709 97,435 276,355
Mattress Ticking
Culp Home Fashions 21,287 22,217 20,261 63,765
Yarn
Artee - - 761 761
--------------------------------------
99,498 122,926 118,457 340,881
======================================
Upholstery Fabrics
Culp Textures 4.3 1.9 3.3 3.1
(0.2) (0.6) 11.4 3.4
Rossville/Chromatex
--------------------------------------
2.2 0.7 7.2 3.2
Velvets/Prints 10.1 9.2 9.0 9.4
Phillips - 100.0 100.0 100.0
--------------------------------------
5.9 17.2 22.2 15.4
Mattress Ticking
Culp Home Fashions 27.5 15.4 14.2 18.8
Yarn
Artee - - 100.0 100.0
--------------------------------------
9.9 16.8 21.5 16.3
======================================
Overall Growth Rate
Internal(without 9.9 6.6 9.2 8.5
acquistions)
External 7.8
- 10.2 12.3
======================================
9.9 16.8 21.5 16.3
======================================
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three and nine month periods ended February 1, 1998 and January 26, 1997
INCOME STATEMENT COMMENTS
GENERAL - Net sales increased 21.5% to $118.5 million and net income
increased 33.0% to $4.0 million for the third quarter, as compared with the same
quarter of last year. This performance marks the 21st consecutive quarter of
record earnings and the 19th consecutive quarter of record sales (based on
comparable year-earlier periods). Net sales for the quarter excluding the
acquisitions of Phillips Mills and Wetumpka Yarn increased 9.2% versus the same
quarter of last year. The company's net profit margin increased slightly to 3.4%
for the quarter from 3.1% a year ago. Also, the company has achieved a return on
average shareholders' equity of 14.6% for the latest twelve month period. The
company acquired Phillips Mills on August 5, 1997 and Wetumpka Yarn on December
30, 1997; the results of these companies are included since their respective
acquisition dates.
The company attributes its consistent record to several key competitive
strengths:
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 47% of net sales during the third quarter;
additionally, no one customer accounted for more than 7% of sales during the
quarter;
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, product
development, CAD and support staff now includes over 90 people. Additionally,
the company opened its state-of-the-art Design Center in Burlington, North
Carolina during January 1998. This facility now brings together most of the
company's design resources in one location and utilizes advanced CAD systems and
technology;
Vertical Integration - realizing additional manufacturing integration by
producing various raw material components that are used in the manufacture of
its products; and
Ability to Identify and Integrate Acquisitions - investing in selective,
accretive acquisitions in complementary businesses which we know and understand,
and that strengthen existing marketing positions or add strategic vertical
manufacturing capabilities.
NET SALES - Compared with the third quarter of last year, upholstery fabric
sales increased 22.2% to $97.4 million and mattress ticking sales increased
14.2% to $20.3 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 third quarter reflects the incremental sales
from the Phillips acquisition of $11.2 million and gains in Velvets/Prints - up
9.0%; Rossville/Chromatex - up 11.4%; and Culp Textures - up 3.3%. The growth in
demand for upholstery fabrics from U.S. manufacturers of residential furniture
as a group began slowing during the second half of fiscal 1997 and continued
through calendar 1997. The company believes the financial difficulties of
several significant furniture retailers, including the summer 1997 bankruptcies
of Levitz and Montgomery Wards, significantly contributed to the slower rate of
growth. Sales to U.S.-based residential furniture customers excluding sales from
Phillips Mills decreased 3% for the quarter. Including Phillips, sales to this
customer segment increased 9%. Sales of wet printed flock upholstery fabrics,
which remain one of the company's faster growing product lines internationally,
increased 69% from the same quarter a year ago. The increased sales by Culp Home
Fashions during the third quarter (up 14.2%) reflect the continued positive
response to new designs and fabric constructions, notably in printed jacquard
ticking. The growth in Culp Home Fashions has been significantly aided by the
company's investment in additional weaving capacity to manufacture wide jacquard
greige, or unfinished, goods at the company's Rayonese facility in Canada. These
greige goods are then further processed at other facilities by printing, dyeing
and other finishing steps to produce mattress ticking.
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three and nine month periods ended February 1, 1998 and January 26, 1997
International sales were up 45.4% for the quarter compared with the third
quarter of fiscal 1997. International sales in all major regions and each
upholstery fabric business unit were strong, and accounted for 33% of net sales
for the quarter versus 27% for the same quarter of last year. The vast majority
of the international sales represent sales of upholstery fabrics to residential
furniture distributors and manufacturers. (See International Sales by Geographic
Area schedule on page 6.) Almost all of the company's international sales are
denominated in U.S. dollars.
GROSS PROFIT - The gross profit increase of 21.9% for the third quarter
versus the same quarter of last year reflects a substantial gain in the Culp
Home Fashions business unit, the incremental gross profit from the Phillips
Mills business unit, a moderate increase in Rossville/Chromatex, and lower
results in Velvets/Prints and Culp Textures. The overall gross profit margin of
17.6% remained the same for the quarter versus the same quarter of last year.
The company is benefiting significantly from its international sales growth and
the operation of its jacquard greige goods facility in Canada (Rayonese). The
company completed a major expansion of wide weaving capacity at Rayonese during
the third quarter. Factors which adversely affected the company's profitability
during the quarter included: (a) lower demand from U.S. manufacturers of
residential furniture, which affected all of the upholstery fabric business
units; and (b) lower profitability in the Velvets/Prints business unit that
resulted from decreases in sales in certain product lines (tufted and woven
velvets, and heat-transfer flock prints). The expansion projects in the
Velvets/Prints business unit (flock coating line, the new printing facility in
Lumberton, N.C. and the integration of the Phillips velvet products into Culp's
facilities) contributed positively during the quarter, although manufacturing
efficiencies have not reached the expected levels of performance.
S,G&A EXPENSES - S,G&A expenses for the third quarter were essentially flat
as a percentage of sales versus the same period of last year. The increase in
absolute dollars is principally due to incremental S,G&A expenses for Phillips,
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 third quarter of 77.5% over the
same quarter of last year is due to higher average borrowings outstanding, which
resulted from the company's acquisition of Phillips Mills that was made on the
first day of the second quarter, and from capital expenditure and working
capital investments that were made during the first nine months of this year.
INTEREST INCOME - Interest income remained the same for the quarter.
OTHER EXPENSE (INCOME), NET - Other expense (income) increased to $492,000
from $421,000 in the same quarter of last year, due primarily to the incremental
goodwill amortization related to Phillips.
INCOME TAXES - The effective tax rate for the third quarter was 22.2%,
compared with 37.5% for the same quarter of last year. The lower tax rate
resulted from higher than expected tax benefits (in the current period as well
as prior periods) related to the company's foreign sales corporation ("FSC"),
and higher estimated income in Canada which has a lower effective tax rate. The
company is estimating the effective tax rate for the full fiscal year at 31.0%,
which is down from the 35.0% estimate at the end of the second quarter.
EBITDA - EBITDA for the quarter increased 22.8% to $11.4 million from last
year's third quarter and represented 9.6% of net sales compared with 9.5% of net
sales for the same period of last year.
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three and nine month periods ended February 1, 1998 and January 26, 1997
BALANCE SHEET COMMENTS
WORKING CAPITAL - Accounts receivable increased 45.8% from January 1997,
due to the Phillips acquisition and increased sales for the second quarter. Days
sales outstanding represented 52 days, up 11% from 47 days at January 26, 1997
and 49 days at April 27, 1997. Accounts receivable continued to increase 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. Inventories increased 47.8% from January 26, 1997, due to the
Phillips acquisition, higher overall sales and a higher mix of international
sales which have required more finished goods inventory. Inventory turns
decreased 13% to 5.4 for the quarter versus 6.2 for the same quarter of last
year. Working capital increased significantly to $104.0 million at February 1,
1998, from $60.7 million at January 26, 1997 and $69.8 million at April 27,
1997, for the reasons mentioned above.
PROPERTY, PLANT AND EQUIPMENT - The company has maintained a significant
program of capital expenditures over the past several years designed to expand
capacity 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. The company is currently planning capital
spending of approximately $39 million during fiscal 1998, which includes about
$13.5 million for expansion projects (35%); $12.5 million for vertical
integration projects (32%); and $13.0 million for modernization projects (33%).
The principal expansion project involves completion of various items related to
the Lumberton, N.C. printing facility. The key vertical integration projects
include 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 expected to be approximately $15.0 million. For fiscal 1999, the
company is planning to significantly reduce its capital spending to a range of
$10 to $15 million, and concentrate its efforts on improving the results of the
investments made during fiscal 1997 and fiscal 1998. The two largest projects
that are currently planned for fiscal 1999 are: (a) completion of the
polypropylene yarn extrusion expansion, which began in early fiscal 1998; and
(b) building expansions in the Culp Home Fashions business unit to accommodate
the significant growth in the company"s sales of mattress ticking over the last
several years. Depreciation for fiscal 1999 is currently estimated to be
approximately $19 million.
LONG-TERM DEBT - The company"s funded debt-to-capital ratio was 53.7% at
February 1, 1998, up from 47.4% at January 26, 1997, and up from 37.2% at April
27, 1997. Funded debt was $141.2 million at February 1, 1998, up from $80.6
million at January 26, 1997 and up from $ 65.6 million at April 27, 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 27, 1997 resulted from the Phillips and Wetumpka
acquisitions ($37.2 million), capital expenditures ($28.2 million), an operating
cash flow deficit ($6.6 million), and a decrease in accounts payable related to
capital expenditures ($2.8 million). During the fourth quarter of fiscal 1998,
the company is expecting to significantly strengthen its capital structure with
the closing of a private placement of $75 million of senior, unsecured notes.
The notes are expected to have a fixed coupon rate of 6.76% and an average term
of 10 years. Additionally, the principal financial covenants include a funded
debt to total capital ratio of 60% and a minimum shareholders" equity level. The
proceeds will be used to repay borrowings under the company"s bank credit
facility. (See Pro forma Capitalization Table on page 12 of 12.)
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three and nine month periods ended February 1, 1998 and January 26,
1997
PHILLIPS MILLS ACQUISITION - On August 5, 1997, the company acquired the
business and certain assets relating to the upholstery fabric businesses
operating as Phillips Mills. Based on the terms of the asset purchase agreement,
the transaction is valued at approximately $37 million, which included cash,
seller debt retired, a note payable to the seller and acquisition costs. The
consideration for the acquisition also included stock options and an agreement
for contingent payments to the selling companies within three years following
closing that could range from $0 to $5,500,000, depending upon the future sales
performance of the Phillips jacquard fabric product line. (See Form 8-K, dated
April 30, 1997, which provides additional information related to the
acquisition.)
ACQUISITION OF WETUMPKA YARN - On December 30, 1997, Culp completed the
acquisition of the business and certain assets related to the Wetumpka yarn
division of Dan River Inc. The transaction value at closing was $1.5 million.
(See press release, dated December 17, 1997, which provides additional
information about the acquisition.)
ACQUISITION OF ARTEE INDUSTRIES - On February 2, 1998, Culp completed the
acquisition of the business and substantially all assets and the assumption of
certain liabilities of Artee Industries, Incorporated ("Artee"), a yarn
manufacturer. The transaction value at closing is estimated at $18 million, and
included the issuance of 284,211 new shares of Culp common stock, $2.0 million
in cash and a $1.6 million note, as well as the repayment at closing of Artee's
interest-bearing debt. Also, there is an "earn-out" which provides the
opportunity for additional consideration of up to $7.6 million (60% in stock and
40% in cash), based upon the profitability of Artee during Culp's fiscal year
ending May 2, 1999. The acquisition will be accounted for as a purchase, and
therefore the results of Artee from the closing date will be included in Culp's
results. (See Form 8-K, dated October 15, 1997, which provides additional
information related to the acquisition.)
CULP, INC. FINANCIAL INFORMATION RELEASE
PRO FORMA CAPITALIZATION TABLE
FEBRUARY 1, 1998
(Dollars in thousands)
February 1, 1998
-------------------------------------------
Actual Adjustments Pro Forma
------------ ------------- -------------
FUNDED DEBT
Industrial Revenue Bonds
and other obligations 30,090 30,090
Syndicated $125 million 106,033 9,197 (a) 40,230
credit facility (75,000) (b)
Notes payable 5,100 1,600 (a) 6,700
Senior unsecured ---- 75,000 (b) 75,000
notes
------------ ------------- -------------
141,223 10,797 152,020
------------ ------------- -------------
SHAREHOLDERS' EQUITY 121,613 5,400 (a) 127,013
------------ ------------- -------------
TOTAL CAPITAL 262,836 16,197 279,033
============ ============= =============
FUNDED DEBT TO TOTAL CAPITAL 53.7% 54.5%
============ =============
(a) Reflects funding sources for Artee Industries acquisition which closed
February 2, 1998. On the acquisition date, the company issued 284,211
sharesof its common stock to the Artee Industries shareholders.
(b) Reflects planned issuance of a private placement of senior unsecured notes
with a coupon rate of 6.76% and average term of ten years. Estimated debt
issuance costs are $500,000.
