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) June 3, 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)
- -------------------------------------------------------------------------------
Item 5. Other Events
See attached Press Release (3 pages) and Financial Information Release (12
pages), both dated June 3, 1998, related to the fourth quarter and year ended
May 3, 1998.
Forward Looking Information. This Report 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.
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: Phillip W. Wilson
Director of Finance
Dated: June 3, 1998
-MORE-
FOR IMMEDIATE RELEASE
CULP REPORTS RECORD SALES AND EARNINGS FOR FISCAL 1998
----------
FOURTH QUARTER REFLECTS PRESSURE ON MARGINS
HIGH POINT, N. C. (June 3, 1998) - Culp, Inc. (NYSE:CFI) today reported higher
sales and earnings for the fiscal year ended May 3, 1998. Although the
company reported lower earnings for the fourth fiscal quarter, the results for
the full year marked the ninth consecutive year of record earnings for Culp.
For the 1998 fiscal year, net sales totaled $476.7 million, up 20% from
$398.9 million in fiscal 1997. Net income for the year rose 13% to $15.5
million, or $1.19 per share diluted, up from $13.8 million, or $1.15 per share
diluted, in fiscal 1997.
Net sales for the quarter increased 29% to $135.8 million compared with
$105.7 million a year ago. Net income for the quarter totaled $4.2 million,
or $0.31 per share diluted, compared with $4.8 million, or $0.38 per share
diluted, in the fourth quarter of fiscal 1997.
The Company's effective tax rate for fiscal 1998 was 29% compared with
36% 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.
"Net sales, net income and earnings per share each set new records for
fiscal 1998 as a whole," said Robert G. Culp, III, chief executive officer.
"Culp's financial performance for the full year marks an extension of our
long-term record of growth. At the same time, several factors contributed to
some pressure on profitability that was reflected in our fourth-quarter
results. One of the most significant developments related to the $95 million
that we invested during fiscal 1998 to support Culp's progress through the
acquisition of additional complementary business units and various capital
projects intended to expand, modernize and vertically integrate our
operations. Although assimilation of the acquisitions and completion of the
capital projects have generally proceeded as planned, we have experienced
production inefficiencies related to the start-up of several of these
initiatives. We believe these variances will prove temporary and are
confident about realizing a sound long-term return from these investments."
Culp Reports Record Earnings For Fiscal 1998
Page 3
June 3, 1998
Culp added, "Incoming orders for our upholstery fabrics and mattress
ticking are generally favorable at present. One product category where demand
has decidedly slowed, however, is printed flock upholstery fabrics. This has
been one of our fastest-growing product groups, stimulated by significant
growth in demand from international markets; notably, portions of Eastern
Europe and Asia. We accordingly focused a meaningful part of our expansion on
additional capacity for these fabrics. Although we believe the longer term
outlook is good for increasing shipments of these fabrics, the economic
difficulties that many of these regions are experiencing at present are having
an understandably adverse impact on demand for home furnishings and our
fabrics. We are re-directing our marketing activities to other geographic
areas and expect to realize improved results as fiscal 1999 develops."
"As we start fiscal 1999, we are encouraged about the momentum that Culp
has established in the development of new patterns and textures for our
upholstery fabrics and mattress ticking. Our completion of the Howard L.
Dunn, Jr. design center during fiscal 1998 epitomized the key role that design
has in our business. We have been fortunate to add a number of talented
designers with solid reputations and a willingness to test new concepts. The
design teams now have a truly state-of-the-art facility, and we are pleased
with their accomplishments to date. The backdrop of high consumer confidence
and stable mortgage rates presents a favorable environment for spending on
home furnishings in the United States. We are thus optimistic about Culp's
prospects for continued progress in fiscal 1999 as a whole. We recognize that
the first half of the year will be challenging and believe that the
year-to-year improvement will be more likely to occur during the second half."
Culp concluded, "Purchases of existing operations and other physical
assets have been an integral component of our growth for more than a decade.
Although we expect to maintain an active capital investment program during
fiscal 1999, the planned spending of $15 million will be less than half the
$36 million spend in fiscal 1998. Our primary focus will be the maturation of
the projects that have either been or are nearing completion. Culp's
profitability has enabled us to support these investments while maintaining a
solid financial position. Our funded debt/capital ratio totaled 54% at the
close of fiscal 1998 with borrowings of $30 million against our $100 million
line of credit. During the fourth quarter, we enhanced our financial
flexibility further by closing a private placement of $75 million in senior
unsecured notes with a fixed rate of 6.76% for 10 years."
Culp 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 principally 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
Three Months Ended
May 3, April 27,
1998 1997
Net sales $135,834,000 $105,678,000
Net income 4,156,000 4,840,000
Earnings per share
Basic $ 0.32 $ 0.39
Diluted $ 0.31 $ 0.38
Average shares outstanding
Basic 12,993,000 12,546,000
Diluted 13,284,000 12,856,000
Fiscal Year Ended
May 3, April 27,
1998 1997
Net sales $476,715,000 $398,879,000
Net income 15,513,000 13,770,000
Earnings per share
Basic $ 1.22 $ 1.18
Diluted $ 1.19 $ 1.15
Average shares outstanding
Basic 12,744,000 11,624,000
Diluted 13,042,000 11,929,000
-END-
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED INCOME STATEMENTS
FOR THREE MONTHS AND TWELVE MONTHS ENDED MAY 3, 1998 AND APRIL 27, 1997
(Amounts in Thousands, Except for Per Share Data)
THREE MONTHS ENDED (UNAUDITED)
--------------------------------------------------------
Amounts Percent of Sales
--------------------- --------------------
May 3, April 27, % Over
1998 1997 (Under) 1998 1997
---------- ---------- --------- --------- ---------
Net sales $ 135,834 105,678 28.5 % 100.0 % 100.0 %
Cost of sales 112,644 85,386 31.9 % 82.9 % 80.8 %
---------- ---------- --------- --------- ---------
Gross profit 23,190 20,292 14.3 % 17.1 % 19.2 %
Selling, general and
administrative expenses 15,277 11,730 30.2 % 11.2 % 11.1 %
---------- ---------- --------- --------- ---------
Income from operations 7,913 8,562 (7.6) % 5.8 % 8.1 %
Interest expense 1,837 1,019 80.3 % 1.4 % 1.0 %
Interest income (69) (90) (23.3) % (0.1) % (0.1) %
Other expense (income), net 753 404 86.4 % 0.6 % 0.4 %
---------- ---------- --------- --------- ---------
Income before income taxes 5,392 7,229 (25.4) % 4.0 % 6.8 %
Income taxes * 1,236 2,389 (48.3) % 22.9 % 33.0 %
---------- ---------- --------- --------- ---------
Net income $ 4,156 4,840 (14.1) % 3.1 % 4.6 %
========== ========== ========= ========= =========
Net income per share $0.32 $0.39 (17.9) %
Net income per share
(assuming dilution) $0.31 $0.38 (18.4) %
Dividends per share $0.0350 $0.0325 7.7 %
Average shares outstanding 12,993 12,546 3.6 %
Average shares outstanding
(assuming dilution) 13,284 12,856 3.3 %
TWELVE MONTHS ENDED
--------------------------------------------------------
Amounts Percent of Sales
--------------------- --------------------
May 3, April 27, % Over
1998 1997 (Under) 1998 1997
---------- ---------- --------- --------- ---------
Net sales $ 476,715 398,879 19.5 % 100.0 % 100.0 %
Cost of sales 393,154 326,394 20.5 % 82.5 % 81.8 %
---------- ---------- --------- --------- ---------
Gross profit 83,561 72,485 15.3 % 17.5 % 18.2 %
Selling, general and
administrative expenses 52,987 45,058 17.6 % 11.1 % 11.3 %
---------- ---------- --------- --------- ---------
Income from operations 30,574 27,427 11.5 % 6.4 % 6.9 %
Interest expense 7,117 4,671 52.4 % 1.5 % 1.2 %
Interest income (304) (280) 8.6 % (0.1) % (0.1) %
Other expense (income), net 1,912 1,521 25.7 % 0.4 % 0.4 %
---------- ---------- --------- --------- ---------
Income before income taxes 21,849 21,515 1.6 % 4.6 % 5.4 %
Income taxes * 6,336 7,745 (18.2) % 29.0 % 36.0 %
---------- ---------- --------- --------- ---------
Net income $ 15,513 13,770 12.7 % 3.3 % 3.5 %
========== ========== ========= ========= =========
Net income per share $1.22 $1.18 3.4 %
Net income per share
(assuming dilution) $1.19 $1.15 3.5 %
Dividends per share $0.14 $0.13 7.7 %
Average shares outstanding 12,744 11,624 9.6 %
Average shares outstanding
(assuming dilution) 13,042 11,929 9.3 %
* Percent of sales column is calculated as a % of income before income taxes.
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED BALANCE SHEETS
MAY 3, 1998 AND APRIL 27, 1997
(Amounts in Thousands)
Amounts Increase
---------------------------
May 3, April 27, (Decrease)
----------------------
1998 1997 Dollars Percent
-------------- ----------- ---------- --------
Current assets
Cash and cash investments $ 2,312 830 1,482 178.6 %
Accounts receivable 73,773 56,691 17,082 30.1 %
Inventories 78,594 53,463 25,131 47.0 %
Other current assets 7,808 5,450 2,358 43.3 %
-------------- ----------- ---------- --------
Total current assets 162,487 116,434 46,053 39.6 %
Restricted investments 4,021 11,018 (6,997) (63.5)%
Property, plant & equipment, net 128,805 91,231 37,574 41.2 %
Goodwill 55,162 22,262 32,900 147.8 %
Other assets 4,340 3,007 1,333 44.3 %
-------------- ----------- ---------- --------
Total assets $ 354,815 243,952 110,863 45.4 %
============== =========== ========== ========
Current liabilities
Current maturities of long-term debt $ 3,325 100 3,225 3,225.0%
Accounts payable 37,214 29,903 7,311 24.4 %
Accrued expenses 17,936 15,074 2,862 19.0 %
Income taxes payable 1,282 1,580 (298) (18.9)%
-------------- ----------- ---------- --------
Total current 59,757 46,657 13,100 28.1 %
liabilities
Long-term debt 152,312 76,541 75,771 99.0 %
Deferred income taxes 11,227 9,965 1,262 12.7 %
-------------- ----------- ---------- --------
Total liabilities 223,296 133,163 90,133 67.7 %
Shareholders' equity 131,519 110,789 20,730 18.7 %
-------------- ----------- ---------- --------
Total liabilities and
shareholders' equity $ 354,815 243,952 110,863 45.4 %
============== =========== ========== ========
Shares outstanding 13,007 12,609 398 3.2 %
============== =========== ========== ========
CULP, INC.
FINANCIAL INFORMATION RELEASE
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 3, 1998 AND APRIL 27, 1997
(Amounts in Thousands)
TWELVE MONTHS ENDED
----------------------
Amounts
----------------------
May 3, April 27,
1998 1997
----------- ----------
Cash flows from operating activities:
Net income $ 15,513 13,770
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 14,808 12,688
Amortization of intangible assets 1,371 810
Provision for deferred income taxes 1,416 966
Changes in assets and liabilities, net of
effects of payments for businesses acquired:
Accounts receivable (13,207) (4,653)
Inventories (17,684) (6,068)
Other current assets (660) (348)
Other assets (380) (205)
Accounts payable 6,477 2,586
Accrued expenses 1,506 2,510
Income taxes payable (298) 1,383
----------- ----------
Net cash provided by operating activities 8,862 23,439
----------- ----------
Cash flows from investing activities:
Capital expenditures (35,879) (26,958)
Purchases of restricted investments (8,770) (9,770)
Purchase of investments to fund deferred
compensation liability (581) (563)
Sale of restricted investments 15,767 4,002
Payments for businesses acquired (42,966) 0
----------- ----------
Net cash used in investing activities (72,429) (33,289)
----------- ----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 86,246 54,500
Principal payments on long-term debt (17,100) (59,900)
Change in accounts payable-capital expenditures (2,873) 9
Dividends paid (1,786) (1,513)
Proceeds from common stock issued 562 17,086
----------- ----------
Net cash provided by financing activities 65,049 10,182
----------- ----------
Increase in cash and cash investments 1,482 332
Cash and cash investments at beginning of period 830 498
----------- ----------
Cash and cash investments at end of period $ 2,312 830
=========== ==========
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL ANALYSIS
MAY 3, 1998
FISCAL 97 FISCAL 98
-------- --------------------------------------- ---------
Q4 Q1 Q2 Q3 Q4 LTM
-------- --------------------------------------- ---------
INVENTORIES
Inventory turns 6.6 5.8 6.1 5.4 5.9
RECEIVABLES
Days sales in receivables 49 50 55 52 49
Percent current & less
than 30 days past due 99.1% 95.0% 97.8% 94.1% 96.6%
WORKING CAPITAL
Current ratio 2.5 3.6 2.9 3.0 2.7
Working capital turnover (4) 5.3 5.1 4.8 4.7 4.7
Operating working capital (4) $80,251 $94,647 $107,797 $112,220 $115,153
PROPERTY, PLANT & EQUIPMENT
Depreciation rate 7.5% 7.1% 7.4% 7.4% 7.4%
Percent property, plant &
equipment are depreciated 47.4% 46.8% 45.3% 44.8% 42.6%
Capital expenditures $26,958 (1) $9,153 $10,063 $8,967 $7,696
PROFITABILITY
Return on average total capital 11.7% 7.6% 10.0% 8.3% 7.7% 8.4%
Return on average equity 20.9% 10.2% 15.6% 13.4% 13.1% 13.0%
Net income per share $0.39 $0.23 $0.36 $0.32 $0.32 $1.22
Net income per share (diluted) $0.38 $0.22 $0.35 $0.31 $0.31 $1.19
LEVERAGE (3)
Total liabilities/equity 120.2% 123.1% 172.0% 169.2% 169.8%
Funded debt/equity 59.2% 77.4% 111.7% 116.1% 115.3%
Funded debt/capital employed 37.2% 43.6% 52.8% 53.7% 53.5%
Funded debt $65,623 $87,930 $131,833 $141,223 $151,616
Funded debt/EBITDA (LTM) (6) 1.67 2.18 2.83 2.95 3.21
EBITDA/Interest expense,net(LTM) 9.0 9.1 8.5 7.5 6.6
OTHER
Book value per share $8.79 $8.98 $9.30 $9.58 $10.11
Employees at quarter end 3,146 3,180 3,554 3,771 4,334
Sales per employee (annualized)$134,000 $125,000 $146,000 $129,000 $134,000
Capital employed (3) $176,412 $201,467 $249,838 $262,836 $283,135
Effective income tax rate 33.0% 35.0% 35.0% 22.2% 22.9%
EBITDA (2) $11,582 $9,012 $12,643 $11,390 $11,796 $44,841
EBITDA/net sales 11.0% 9.1% 10.3% 9.6% 8.7% 9.4%
(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, Wetumpka and Artee
acquisitions in Qtr 2, Qtr 3 and Qtr 4 of fiscal 1998.
CULP, INC. FINANCIAL INFORMATION RELEASE
SALES BY PRODUCT CATEGORY/BUSINESS UNIT
FOR THREE MONTHS AND TWELVE MONTHS ENDED MAY 3, 1998 AND APRIL 27, 1997
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
---------------------------------------------------
Amounts Percent of Total
Sales
------------------ -------------------
May 3, April 27, % Over
1998 1997 (Under) 1998 1997
Product Category/Business Unit
- ------------------------- -------- -------- ---------- -------- ---------
Upholstery Fabrics
Culp Textures $ 25,521 23,027 10.8 % 18.8 % 21.8 %
Rossville/Chromatex 23,897 20,672 15.6 % 17.6 % 19.6 %
-------- -------- ---------- -------- ---------
49,418 43,699 13.1 % 36.4 % 41.4 %
Velvets/Prints 45,044 40,980 9.9 % 33.2 % 38.8 %
Phillips 10,737 0 100.0 % 7.9 % 0.0 %
-------- -------- ---------- -------- ---------
105,199 84,679 24.2 % 77.4 % 80.1 %
Mattress Ticking
Culp Home Fashions 23,520 20,999 12.0 % 17.3 % 19.9 %
Yarn
Artee 7,115 0 100.0 % 5.2 % 0.0 %
-------- -------- ---------- -------- ---------
* $ 135,834 105,678 28.5 % 100.0% 100.0 %
======== ======== ========== ======== =========
TWELVE MONTHS ENDED
---------------------------------------------------
Amounts Percent of Total
Sales
------------------ -------------------
May 3, April 27, % Over
1998 1997 (Under) 1998 1997
Product Category/Business Unit
- ------------------------- -------- -------- ---------- -------- ---------
Upholstery Fabrics
Culp Textures $ 92,727 88,218 5.1 % 19.5 % 22.1 %
Rossville/Chromatex 84,740 79,512 6.6 % 17.8 % 19.9 %
-------- -------- ---------- -------- ---------
177,467 167,730 5.8 % 37.2 % 42.1 %
Velvets/ Prints 171,389 156,467 9.5 % 36.0 % 39.2 %
Phillips 32,698 0 100.0 % 6.9 % 0.0 %
-------- -------- ---------- -------- ---------
381,554 324,197 17.7 % 80.0 % 81.3 %
Mattress Ticking
Culp Home Fashions 87,285 74,682 16.9 % 18.3 % 18.7 %
Yarn
Artee 7,876 0 100.0 % 1.7 % 0.0 %
-------- -------- ---------- -------- ---------
* $ 476,715 398,879 19.5 % 100.0% 100.0 %
======== ======== ========== ======== =========
*U.S. sales were $97,383 and $76,517 for the current quarter of fiscal 1998 and
fiscal 1997, respectively; and $339,492 and $297,308 for the twelve months of
fiscal 1998 and fiscal 1997, respectively. The percentage increase in U.S. sales
was 27% for the current quarter and an increase of 14% for the twelve months.
CULP, INC. FINANCIAL INFORMATION RELEASE
INTERNATIONAL SALES BY GEOGRAPHIC AREA
FOR THREE MONTHS AND TWELVE MONTHS ENDED MAY 3, 1998 AND APRIL 27, 1997
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
-------------------------------------------------------
Amounts Percent of Total
Sales
--------------------- ---------------------
May 3, April 27, % Over
Geographic Area 1998 1997 (Under) 1998 1997
- ----------------------- ---------- --------- --------- --------- ---------
North America(Excluding USA)$ 8,459 6,924 22.2 % 22.0 % 23.7 %
Europe 7,964 7,672 3.8 % 20.7 % 26.3 %
Middle East 10,960 9,769 12.2 % 28.5 % 33.5 %
Far East & Asia 8,542 3,753 127.6 % 22.2 % 12.9 %
South America 1,687 140 1,105.0 % 4.4 % 0.5 %
All other areas 839 903 (7.1)% 2.2 % 3.1 %
---------- --------- --------- --------- ---------
$ 38,451 29,161 31.9 % 100.0 % 100.0 %
========== ========= ========= ========= =========
TWELVE MONTHS ENDED
-------------------------------------------------------
Amounts Percent of Total
Sales
--------------------- ---------------------
May 3, April 27, % Over
Geographic Area 1998 1997 (Under) 1998 1997
- ----------------------- ---------- --------- --------- --------- ---------
North America
(Excluding USA) $ 31,160 27,479 13.4 % 22.7 % 27.1 %
Europe 30,775 25,245 21.9 % 22.4 % 24.9 %
Middle East 34,412 23,505 46.4 % 25.1 % 23.1 %
Far East & Asia 32,344 19,646 64.6 % 23.6 % 19.3 %
South America 5,158 2,604 98.1 % 3.8 % 2.6 %
All other areas 3,374 3,092 9.1 % 2.5 % 3.0 %
---------- --------- --------- --------- ---------
$ 137,223 101,571 35.1 % 100.0 % 100.0 %
========== ========= ========= ========= =========
International sales, and the percentage of total sales, for each of the last
seven fiscal 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%); fiscal 1997-$ 101,571 (25%); and fiscal 1998-$ 137,223 (29%).
International sales for for the curent quarter represented 28.3% and 27.6% for
1998 and 1997, respectively.
Culp, Inc.
SALES BY BUSINESS UNIT - TREND ANALYSIS
1996 vs 1997 vs 1998
(Amounts in thousands)
Fiscal 1996 Fiscal 1997
-------------------------------------- -------------------------------------
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
====================================== ========================================
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 25,521 92,727
Rossville/Chromatex 18,121 21,602 21,120 23,897 84,740
----------------------------------------
39,814 46,056 42,179 49,418 177,467
Velvets/Prints 38,397 43,928 44,020 45,044 171,389
Phillips - 10,725 11,236 10,737 32,698
----------------------------------------
78,211 100,709 97,435 105,199 381,554
Mattress Ticking
Culp Home Fashions 21,287 22,217 20,261 23,520 87,285
Yarn
Artee - - 761 7,115 7,876
----------------------------------------
99,498 122,926 118,457 135,834 476,715
========================================
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
acquistions) 6.4 13.0 8.7 19.6 12.3 25.1 16.0 12.7 3.4 13.4
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
====================================== =====================================
Percent increase(decrease) from prior year:
Product Category/Business Units
- -------------------------------------------------------------------------------------------------------------
Upholstery Fabrics
Culp Textures 4.3 1.9 3.3 10.8 5.1
Rossville/Chromatex (0.2) (0.6) 11.4 15.6 6.6
---------------------------------------
2.2 0.7 7.2 13.1 5.8
Velvets/Prints 10.1 9.2 9.0 9.9 9.5
Phillips
- 100.0 100.0 100.0 100.0
---------------------------------------
5.9 17.2 22.2 24.2 17.7
Mattress Ticking
Culp Home Fashions 27.5 15.4 14.2 12.0 16.9
Yarn
Artee - - 100.0 100.0 100.0
---------------------------------------
9.9 16.8 21.5 28.5 19.5
=======================================
Overall Growth Rate
Internal (without
acquistions) 9.9 6.6 9.2 11.6 9.3
External - 10.2 12.3 16.9 10.2
--------------------------------------
9.9 16.8 21.5 28.5 19.5
=======================================
(Page 8 of 12)
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three and twelve month periods ended May 3, 1998 and April 27, 1997
INCOME STATEMENT COMMENTS
GENERAL - Net sales increased 28.5% to $135.8 million and net income decreased
14.1% to $4.2 million for the fourth quarter, as compared with the same quarter
of last year. Net sales for the quarter excluding the operations acquired during
fiscal 1998 increased 11.6% versus the same quarter of last year. The company's
net profit margin decreased to 3.1% for the quarter from 4.6% a year ago. Also,
the company achieved a return on average shareholders' equity of 13.0% for
fiscal 1998. The company acquired Phillips Mills on August 5, 1997, Wetumpka
Yarn on December 30, 1997, and Artee Industries on February 2, 1998. The
acquisitions were accounted for as purchases. The results of these companies are
therefore included in Culp's results since their respective acquisition dates.
The company attributes its longer term record of growth to several key
competitive strengths:
Broad Product Offering - marketing one of the broadest product lines in the
upholstery fabrics and mattress ticking industry. Through its extensive
manufacturing capabilities, the company competes in every major category of the
industry except leather.
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
54% of net sales during the fourth 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 most of its specialty raw material components that are used in the
manufacture of its products; and
Ability to Identify and Integrate Acquisitions - investing in selective
acquisitions in complementary businesses which we know and understand, and that
strengthen existing marketing positions or add strategic vertical manufacturing
capabilities.
NET SALES - All business units reported gains in sales for the fourth quarter
and full year. The overall increases for the quarter and year were principally
due to the incremental sales from acquisitions, international sales growth of
31.9% for the quarter and 35.1% for the year, and continued gains in sales of
mattress ticking of 12.0% for the quarter and 16.9% for the year. (See various
sales schedules included in this Form 8-K). International sales in all major
regions and each upholstery fabric business unit increased, and they accounted
for 28% of net sales for the quarter and 29% for the 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.
Incoming order trends for Phillips and Rossville/Chromatex are improving at
present due principally to increased international sales. Order trends for Culp
Home Fashions remain very positive. Late in the fourth quarter of fiscal 1997,
however, incoming orders for the company's wet and heat-transfer printed flock
product lines began to slow considerably. This trend, which the company believes
is also affecting the other major flock fabric competitors, continued through
May. As a result, the Velvets/Prints division has significantly curtailed
production schedules thus far in the first quarter of fiscal 1999. A large
percentage of the company's sales of this product line, and the industry in
general, were being shipped directly or indirectly to customers in the emerging
markets of Russia and other former Soviet countries, India and Eastern Europe.
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three and twelve month periods ended May 3, 1998 and April 27, 1997
All of these areas are generally experiencing very weak economic conditions
which, in turn, have affected demand for furniture and other home furnishiings.
The company is re-directing its marketing focus for this product category to
other geographic areas where demand remains favorable and believes the long-term
outlokk favors increasing demand for these fabrics internationally.
GROSS PROFIT - The gross profit increase of 14.3% for the fourth quarter versus
the same quarter of last year reflects a substantial gain in the Culp Home
Fashions and Culp Velvets/Prints business units, the incremental gross profit
from the Phillips and Artee business units, and moderate decreases in
Rossville/Chromatex and Culp Textures. Additionally, the year end credit
adjustment for LIFO for fiscal 1998 was significantly less than the credit
adjustment for LIFO in 1997. The overall gross profit margin of 17.1% decreased
for the fourth quarter from 19.2% in the same quarter of last year. Factors
which adversely affected the company's profitability and margins during the
quarter included: (a) incremental costs at Rossville/Chromatex associated with
the planned relocation of its Rossville dobby weaving facility to a new plant in
Chattanooga, TN, (b) lower profitability in the Culp Textures business unit that
resulted from decreases in profits of its jacquard product line and from the
fabric finishing expansion to bring in house the fabric finishing for Phillips
and (c) lower margins on certain international shipments from
Rossville/Chromatex and Culp Textures. These factors were offset in part by (a)
improving productivity related to various expansion projects in the
Velvets/Prints business unit as well as higher profitability in its velvet
product lines, (b) contributions from Phillips and Artee, and (c) the operation
of its jacquard greige goods facility in Canada (Rayonese) where a major
expansion of wide weaving capacity was completed during the third quarter of
fiscal 1998.
For the first quarter of fiscal 1999 and likely continuing into the second
quarter, the company's gross margins are expected to be under pressure
principally due to the substantial softness that has developed in demand for
printed flock fabrics. Other factors that may adversley affect margins include
(a) lower margins on certain international shipments of fabrics (b) competitive
pressures relating to demand for the company's jacquard product lines, and (c)
continuing costs associated with completion of the project to expand fabric
finishing to accommodate the Phillips finishing requirements. The company has
instituted several key initiatives to address these situations, including (a)
combining the Rossville/Chromatex and Culp Textures business units, which
manufacture and market woven upholstery fabrics to the residential and
commercial furniture markets, into one division under a single management team;
and (b) naming a new president for the Culp Velvets/Prints division as well as a
new VP of International Sales and Marketing with significant experience in the
printed flock fabric international market. The Company believes that it should
benefit during fiscal 1999 from further improvement in the productivity related
to the expansion projects and from a stronger contribution from the operations
acquired during fiscal 1998.
S,G&A EXPENSES - S,G&A expenses for the fourth 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
and Artee, higher sales commissions related to international sales, significant
investments in additional design resources, and higher accruals for
incentive-based compensation plans. The higher cost associated with incentive
compensation plans for the fourth quarter occurred primarily because of
differences in the timing of accruals in fiscal 1998 versus fiscal 1997.
INTEREST EXPENSE - The increase for the fourth quarter of 80.3% over the same
quarter of last year is due to higher average borrowings outstanding, which
resulted from the company's fiscal 1998 acquisitions of Phillips and Artee, and
from capital expenditure and working capital investments that were made during
the year. Due to the significant capital expenditures for fiscal 1998, the
company began capitalizing interest expense related to major capital projects.
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three and twelve month periods ended May 3, 1998 and April 27, 1997
OTHER EXPENSE (INCOME), NET - Other expense (income) increased to $753,000 from
$404,000 in the same quarter of last year, due primarily to the incremental
goodwill amortization related to Phillips and Artee as well as to debt issue
costs associated with the company's debt agreements.
INCOME TAXES - The effective tax rate for the fourth quarter was 22.9%, compared
with 33.0 % for the same quarter of last year. The annual tax rate was 29.0% for
fiscal 1998 and 36.0% for fiscal 1997. The lower tax rate resulted from higher
than expected tax benefits (in fiscal 1998 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 federal tax benefit from the
FSC resulted in the overall effective tax rate decreasing to 29.0% from 35.4%.
The tax benefit reflected in fiscal 1998 included refunds related to fiscal 1995
through fiscal 1997, and amounted to approximately $658,000. Without these tax
refunds from prior years, the effective rate would have been 32.0%. The company
is estimating the effective tax rate for fiscal 1999 to be 34%.
EBITDA - EBITDA for the quarter increased 1.8% to $11.8 million from last year's
fourth quarter and represented 8.7% of net sales compared with 11.0% of net
sales for the same period of last year. EBITDA for fiscal 1998 increased 13.8%
to $44.8 million and represented 9.4% of net sales compared with 9.9% of net
sales for fiscal 1997.
OTHER ITEMS - In order to facilitate the understanding of (a) the company's
results (for the fourth quarter and full year) from its recent acquisitions and
(b) the comparisons to prior periods excluding the fiscal 1998 acquisitions, a
supplemental income statement schedule has been included (see page 12 of 12).
This schedule shows that the acquisitions were accretive during fiscal 1998 and
contributed $0.01 per share for the fourth quarter and $0.09 per share for the
year. These results were well below the expected levels of performance.
FOURTH QUARTER - Several non-operating items affected the year-to-year
comparison in net income for the fourth quarter. The effect of the favorable
items (capitalization of interest costs and the lower effective tax rate) was
essentially offset by the other items (lower credit for LIFO and the higher
expense for incentive compensation).
BALANCE SHEET COMMENTS
WORKING CAPITAL - Accounts receivable increased 30.1% from April 1997, due to
the Phillips, Wetumpka and Artee acquisitions and increased sales of 28.5% for
the fourth quarter. Days sales' outstanding represented 49 days at May 3, 1998
and April 27, 1997. Accounts receivable increased at a slightly 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 47.0% from April 1997, partly due to the Phillips,
Wetumpka and Artee acquisitions, higher overall sales and a higher mix of
international sales which have required more finished goods inventory. Inventory
turns decreased 11% to 5.9 for the quarter versus 6.6 for the same quarter of
last year. Working capital increased significantly to $102.7 million at May 3,
1998, from $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 specialty raw materials, and enhance
manufacturing efficiencies through modernization. The company had capital
spending of approximately $36 million during fiscal 1998, which included about
$12.5 million for expansion projects (35%); $10.5 million for vertical
integration projects (29%) and $13.0 million for modernization projects (36%).
The principal expansion project involved completion of various items related to
the Lumberton, N.C. printing facility. The key vertical integration projects
included yarn extrusion expansion, additional weaving capacity for jacquard
greige goods at Rayonese and fabric finishing for Phillips.. The modernization
projects encompass a number of smaller projects throughout the company's
operations.
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three and twelve month periods ended May 3, 1998 and April 27, 1997
Depreciation expense for fiscal 1998 was $14.8 million. For fiscal 1999, the
company is planning to significantly reduce its capital spending to
approximately $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 53.5% at May 3,
1998, up from 37.2% at April 27, 1997. Funded debt was $151.6 million at May 3,
1998, 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, Artee and Wetumpka acquisitions ($52.8 million), capital
expenditures ($35.9 million), a decrease in accounts payable related to capital
expenditures ($2.9 million) and was partially offset by an operating cash flow
increase of ($8.8 million). On April 2, 1998, the company significantly
strengthened its capital structure with the closing of a private placement of
$75 million of senior, unsecured notes. The notes have a fixed coupon rate of
6.76% and an average term of 10 years. Additionally, the principal financial
covenants include only balance sheet tests: (a) a funded debt to total capital
ratio of 60% and (b) a minimum shareholders' equity level. The proceeds were
used to repay borrowings under the company's bank credit facility.
ACQUISITIONS
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 $39.5 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 $1.4 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 was approximately $17.9 million,
and included the issuance of 284,211 new shares of Culp common stock, $2.0
million in cash and a $1.6 million short-term 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. (See Form 8-K, dated October 15, 1997, which
provides additional information related to the acquisition.)
CULP, INC. FINANCIAL INFORMATION RELEASE
SCHEDULE OF INCOME STATEMENTS WITH AND WITHOUT ACQUISITIONS
FOR THREE MONTHS AND TWELVE MONTHS ENDED MAY 3, 1998 AND APRIL 27, 1997
(Amounts in Thousands, Except
for Per Share Data) THREE MONTHS ENDED (UNAUDITED)
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
Percent of Sales
------------------------------------- ---------------------------
As Reported Restated Actual %Over(under) Restated Actual
Actual Less w/o Acquisitions Actual Restated vs w/o Acquisitions Actual
May 3, Acquisitions May 3, April 27, April 27, May 3, April 27,
1998 1998 1997 1997 1998 1997
----------- ----------- ------------------------------------- ------------ -----------
Net sales $ 135,834 17,852 117,982 105,678 11.6 % 100.0 % 100.0 %
Cost of sales 112,644 15,253 97,391 85,386 14.1 % 82.5 % 80.8 %
----------- ----------- ------------ ----------- ------------ ------------ -----------
Gross profit 23,190 2,599 20,591 20,292 1.5 % 17.5 % 19.2 %
Selling, general and
administrative expenses 15,277 1,261 14,016 11,730 19.5 % 11.9 % 11.1 %
----------- ----------- ------------ ----------- ------------ ------------ -----------
Income from operations 7,913 1,338 6,575 8,562 (23.2)% 5.6 % 8.1 %
Interest expense 1,837 801 1,036 1,019 1.7 % 0.9 % 1.0 %
Interest income (69) 0 (69) (90) (23.3)% (0.1)% (0.1)%
Other expense (income), net 753 290 463 404 14.6 % 0.4 % 0.4 %
----------- ----------- ------------ ----------- ------------ ------------ -----------
Income before income taxes 5,392 247 5,145 7,229 (28.8)% 4.4 % 6.8 %
Income taxes 1,236 97 1,139 2,389 (52.3)% 22.1 % 33.0 %
----------- ----------- ------------ ----------- ------------ ------------ -----------
Net income $ 4,156 150 4,006 4,840 (17.2)% 3.4 % 4.6 %
=========== =========== ============ =========== ============ ============ ===========
Net income per share $0.32 $0.01 $0.31 $0.39 (20.5)%
Net income per share (assuming
dilution) $0.31 $0.01 $0.30 $0.38 (21.1)%
TWELVE MONTHS ENDED
----------------------------------------------------------------------------------------------
Percent of Sales
------------------------------------- ---------------------------
As Reported Restated Actual %Over(under) Restated Actual
Actual Less w/o Acquisitions Actual Restated vs w/o Acquisitions Actual
May 3, Acquisitions May 3, April 27, April 27, May 3, April 27,
1998 1998 1997 1997 1998 1997
----------- ----------- ------------------------------------- ------------ -----------
Net sales $ 476,715 40,574 436,141 398,879 9.3 % 100.0 % 100.0 %
Cost of sales 393,154 33,086 360,068 326,394 10.3 % 82.6 % 81.8 %
----------- ----------- ------------ ----------- --------- ------------ -----------
Gross profit 83,561 7,488 76,073 72,485 4.9 % 17.4 % 18.2 %
Selling, general and
administrative expenses 52,987 3,166 49,821 45,058 10.6 % 11.4 % 11.3 %
----------- ----------- ------------ ----------- --------- ------------ -----------
Income from operations 30,574 4,322 26,252 27,427 (4.3)% 6.0 % 6.9 %
Interest expense 7,117 1,900 5,217 4,671 11.7 % 1.2 % 1.2 %
Interest income (304) 0 (304) (280) 8.6 % (0.1)% (0.1)%
Other expense (income), net 1,912 627 1,285 1,521 (15.5)% 0.3 % 0.4 %
----------- ----------- ------------ ----------- --------- ------------ -----------
Income before income taxes 21,849 1,795 20,054 21,515 (6.8)% 4.6 % 5.4 %
Income taxes 6,336 638 5,698 7,745 (26.4)% 28.4 % 36.0 %
----------- ----------- ------------ ----------- --------- ------------ -----------
Net income $ 15,513 1,157 14,356 13,770 4.3 % 3.3 % 3.5 %
=========== =========== ============ =========== ========= ============ ===========
Net income per share $1.22 $0.09 $1.13 $1.18 (4.2)%
Net income per share (assuming
dilution) $1.19 $0.09 $1.10 $1.15 (4.3)%
