- --------------------------------------------------------------------------------
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) November 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)
- --------------------------------------------------------------------------------
Item 5. Other Events
See attached Press Release (2 pages) and Financial Information Release (10
pages), both dated November 18, 1998, related to the fiscal 1999 second
quarter ended November 1, 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 affect the Company
adversely. In addition, the value of the U. S. dollar relative to other
currencies can affect the ompetitiveness of the Company's products in
international markets. Economic and political instability in the
international area could also affect the demand for the Company's products.
SIGNATURE
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: Phillip W. Wilson
Vice President and
Chief Financial Officer
Dated: November 18, 1998
CULP Reports Second Quarter Earnings
Page 1
Nov. 18, 1998
-MORE-
FOR IMMEDIATE RELEASE
CULP REPORTS SECOND QUARTER EARNINGS
RESULTS SIGNAL IMPROVEMENT COMPARED WITH FIRST PERIOD
HIGH POINT, N.C. (Nov. 18, 1998) Culp, Inc. (NYSE: CFI) today reported net sales
and net income for the second quarter of its 1999 fiscal year.
For the three months ended November 1, 1998, Culp reported that net sales
increased 4.3% to $128.2 million compared with $122.9 million a year ago. Net
income for the quarter was $1.3 million, or $0.10 per share diluted, compared
with $4.5 million, or $0.35 per share diluted, a year ago.
Net sales for the first half of fiscal 1999 totaled $238.8 million, up 7.4%
from $222.4 million in the first six months of fiscal 1998. The company reported
a loss for the first half of $1.3 million, or $0.10 per share, compared with net
income of $7.4 million, or $0.57 per share diluted, in the year-earlier period.
"The net income for the second quarter represents a gratifying improvement
compared with our corporate performance in the first period," said Robert G.
Culp, III, chief executive officer. "We are encouraged by the progress realized
to date through the actions taken to restore Culp's profitability. Our focus has
included reducing costs and lowering manufacturing capacity, especially related
to our international business, to match the lower level of demand that has
persisted this year. We did achieve higher sales for the second quarter and
first half; but those gains were due to the contributions from acquired
operations.
"Our goal is to realize further progress over the remainder of this fiscal
year, but we do not expect the full impact of the changes we have made to become
apparent until during fiscal 2000. During the second quarter, we restructured
the sales organizations for two of our four business units, Culp Decorative
Fabrics and Culp Velvets/Prints. This realignment in marketing personnel was a
logical extension of the corporate reorganization that was implemented earlier
this year to reflect the expanded size of our business units and to support the
company's planned future expansion. The response within our organization has
been very supportive of these moves, and that commitment further supports our
fundamental confidence about Culp's prospects."
Culp added, "Some forecasts have emerged that suggest concern about an
overall economic slowdown over the next several quarters. The latest trends in
factors such as consumer confidence, employment levels and mortgage rates,
however, suggest a favorable outlook for overall consumer spending on home
furnishings. We are very pleased with the response to the new patterns and
textures that Culp introduced to retailers at the recent trade conference.
Enhancing the value of our fabrics to manufacturers of furniture and bedding
remains our mission, and the continued integration of our expanded design
resources with the company's broad manufacturing capabilities is a vital
component in our strategy."
Culp, Inc. is the world's largest manufacturer and marketer of upholstery
fabrics for furniture and is a leading producer of mattress ticking for bedding.
The Company's fabrics are used primarily in the production of residential and
commercial furniture and bedding products.
CULP, INC.
Condensed Financial Highlights
(Unaudited)
Three Months Ended
November 1, November 2,
1998 1997
Net sales $ 128,159,000 $ 122,926,000
Net income $ 1,307,000 $ 4,505,000
Net income per share:
Basic $ 0.10 $ 0.36
Diluted $ 0.10 $ 0.35
Average shares outstanding:
Basic 12,995,000 12,668,000
Diluted 13,120,000 12,980,000
Six Months Ended
November 1, November 2,
1998 1997
Net sales $ 238,826,000 $ 222,424,000
Net income (loss) $ (1,333,000) $ 7,355,000
Net income (loss) per share:
Basic $ (0.10) $ 0.58
Diluted $ (0.10) $ 0.57
Average shares outstanding:
Basic 12,998,000 12,649,000
Diluted 13,175,000 12,953,000
This release contains statements that could be deemed "forward-looking
statements," within the meaning of the federal securities laws. Such 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 affect the
company adversely. Because of the increasing percentage of the company's sales
derived by international shipments, strengthening of the U.S. dollar against
other currencies could make the company's products less competitive on the basis
of price in markets outside the United States. Additionally, economic and
political instability in international areas could affect the demand for the
company's products.
-END-
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE THREE MONTHS AND SIX MONTHS ENDED NOVEMBER 1, 1998 AND NOVEMBER 2, 1997
(Amounts in Thousands, Except for Per Share Data)
THREE MONTHS ENDED (UNAUDITED)
---------------------------------------------------------------------------------
Amounts Percent of Sales
------------------------------- -----------------------------
November 1, November 2, % Over
1998 1997 (Under) 1999 1998
-------------- --------------- ------------- -------------- -------------
Net sales $ 128,159 122,926 4.3 % 100.0 % 100.0 %
Cost of sales 107,685 100,191 7.5 % 84.0 % 81.5 %
-------------- --------------- ------------- -------------- -------------
Gross profit 20,474 22,735 (9.9) % 16.0 % 18.5 %
Selling, general and
administrative expenses 15,474 13,632 13.5 % 12.1 % 11.1 %
-------------- --------------- ------------- -------------- -------------
Income from operations 5,000 9,103 (45.1) % 3.9 % 7.4 %
Interest expense 2,464 1,820 35.4 % 1.9 % 1.5 %
Interest income (19) (72) (73.6) % (0.0) % (0.1) %
Other expense (income), net 604 425 42.1 % 0.5 % 0.3 %
-------------- --------------- ------------- -------------- -------------
Income before income taxes 1,951 6,930 (71.8) % 1.5 % 5.6 %
Income taxes * 644 2,425 (73.4) % 33.0 % 35.0 %
-------------- --------------- ------------- -------------- -------------
Net income $ 1,307 4,505 (71.0) % 1.0 % 3.7 %
============== =============== ============= ============== =============
Net income per share $0.10 $0.36 (72.2) %
Net income per share, assuming dilution $0.10 $0.35 (71.4) %
Dividends per share $0.035 $0.035 0.0 %
Average shares outstanding 12,995 12,668 2.6 %
Average shares outstanding, assuming dilution 13,120 12,980 1.1 %
SIX MONTHS ENDED (UNAUDITED)
---------------------------------------------------------------------------------
Amounts Percent of Sales
------------------------------- -----------------------------
November 1, November 2, % Over
1998 1997 (Under) 1999 1998
-------------- --------------- ------------- -------------- ----------
Net sales $ 238,826 222,424 7.4 % 100.0 % 100.0 %
Cost of sales 204,741 182,956 11.9 % 85.7 % 82.3 %
-------------- --------------- ------------- -------------- ------------
Gross profit 34,085 39,468 (13.6) % 14.3 % 17.7 %
Selling, general and
administrative expenses 29,947 24,548 22.0 % 12.5 % 11.0 %
-------------- --------------- ------------- -------------- ------------
Income from operations 4,138 14,920 (72.3) % 1.7 % 6.7 %
Interest expense 4,825 3,100 55.6 % 2.0 % 1.4 %
Interest income (72) (162) (55.6) % (0.0) % (0.1) %
Other expense (income), net 1,374 667 106.0 % 0.6 % 0.3 %
-------------- --------------- ------------- -------------- ------------
Income (loss) before income taxes (1,989) 11,315 (117.6) % (0.8) % 5.1 %
Income taxes * (656) 3,960 (116.6) % 33.0 % 35.0 %
-------------- --------------- ------------- -------------- ------------
Net income (loss) $ (1,333) 7,355 (118.1) % (0.6) % 3.3 %
============== =============== ============= ============== ============
Net income (loss) per share ($0.10) $0.58 (117.2) %
Net income (loss) per share, assuming dilution ($0.10) $0.57 (117.5) %
Dividends per share $0.07 $0.07 0.0 %
Average shares outstanding 12,998 12,649 2.8 %
Average shares outstanding, assuming dilution 13,175 12,953 1.7 %
* Percent of sales column is calculated as a % of income (loss) before income
taxes.
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED BALANCE SHEETS
NOVEMBER 1, 1998, NOVEMBER 2, 1997 AND MAY 3, 1998
Unaudited
(Amounts in Thousands)
Amounts
--------------------------------- Increase (Decrease) * May 3,
November 1, November 2, --------------------------------
1998 1997 Dollars Percent 1998
---------------- --------------- ---------------- ------------- ------------
Current assets
Cash and cash investments $ 1,177 1,209 (32) (2.6) % 2,312
Accounts receivable 72,998 74,314 (1,316) (1.8) % 73,773
Inventories 72,392 70,192 2,200 3.1 % 78,594
Other current assets 7,230 6,136 1,094 17.8 % 7,808
------------ --------------- ---------------- ------------- ------------
Total current assets 153,797 151,851 1,946 1.3 % 162,487
Restricted investments 3,409 8,258 (4,849) (58.7) % 4,021
Property, plant & equipment, net 126,050 107,377 18,673 17.4 % 128,805
Goodwill 54,433 49,778 4,655 9.4 % 55,162
Other assets 4,333 3,715 618 16.6 % 4,340
------------ --------------- ---------------- ------------- ------------
Total assets $ 342,022 320,979 21,043 6.6 % 354,815
============ =============== ================ ============= ============
Current liabilities
Current maturities of long-term debt $ 1,678 100 1,578 1,578.0 % 3,325
Accounts payable 32,640 36,709 (4,069) (11.1) % 37,214
Accrued expenses 17,143 15,175 1,968 13.0 % 17,936
Income taxes payable 0 1,034 (1,034) (100.0) % 1,282
------------ --------------- ---------------- ------------- ------------
Total current liabilities 51,461 53,018 (1,557) (2.9) % 59,757
Long-term debt 150,210 139,991 10,219 7.3 % 152,312
Deferred income taxes 11,227 9,965 1,262 12.7 % 11,227
------------ --------------- ---------------- ------------- ------------
Total liabilities 212,898 202,974 9,924 4.9 % 223,296
Shareholders' equity 129,124 118,005 11,119 9.4 % 131,519
------------ --------------- ---------------- ------------- ------------
Total liabilities and
shareholders' equity $ 342,022 320,979 21,043 6.6 % 354,815
============ =============== ================ ============= ============
Shares outstanding 12,995 12,687 308 2.4 % 13,007
============ =============== ================ ============= ============
* Derived from audited financial statements.
CULP, INC. FINANCIAL
INFORMATION RELEASE
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED NOVEMBER 1, 1998 AND NOVEMBER 2, 1997
Unaudited
(Amounts in Thousands)
SIX MONTHS ENDED
----------------------------------
Amounts
--------------------------------
November 1, November 2,
1998 1997
--------------- ---------------
Cash flows from operating activities:
Net income (loss) $ (1,333) 7,355
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 9,198 6,869
Amortization of intangible assets 829 533
Changes in assets and liabilities:
Accounts receivable 775 (17,623)
Inventories 6,202 (11,813)
Other current assets 578 (686)
Other assets (93) (188)
Accounts payable (2,395) 10,668
Accrued expenses (793) 295
Income taxes payable (1,282) (546)
--------------- ---------------
Net cash provided by (used in) operating activities 11,686 (5,136)
--------------- ---------------
Cash flows from investing activities:
Capital expenditures (6,443) (19,216)
Purchases of restricted investments (66) (8,662)
Purchase of investments to fund deferred compensation liability 0 (581)
Sale of restricted investments 678 11,422
Business acquired 0 (36,628)
--------------- ---------------
Net cash used in investing activities (5,831) (53,665)
--------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 2,535 63,500
Principal payments on long-term debt (6,284) (50)
Change in accounts payable-capital expenditures (2,179) (3,862)
Dividends paid (910) (889)
Common stock issued (purchased) (152) 481
--------------- ---------------
Net cash provided by (used in) financing activities (6,990) 59,180
--------------- ---------------
Increase (decrease) in cash and cash investments (1,135) 379
Cash and cash investments at beginning of period 2,312 830
--------------- ---------------
Cash and cash investments at end of period $ 1,177 1,209
=============== ===============
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL ANALYSIS
NOVEMBER 1, 1998
FISCAL 98 FISCAL 99
------------- --------------------------------------------------------- ---------------
Q2 Q1 Q2 Q3 Q4 LTM
------------- --------------------------------------------------------- ---------------
INVENTORIES
Inventory turns 6.1 4.9 5.7
RECEIVABLES
Days sales in receivables 55 48 52
Percent current & less than 30
days past due 97.8% 93.8% 94.9%
WORKING CAPITAL
Current ratio 2.9 3.1 3.0
Working capital turnover (4) 4.8 4.5 4.4
Operating working capital (4) $107,797 $111,481 $112,750
PROPERTY, PLANT & EQUIPMENT
Depreciation rate 7.4% 7.7% 8.4%
Percent property,
plant & equipment are depreciated 45.3% 43.8% 45.0%
Capital expenditures $35,879 (1) $2,858 $3,585
PROFITABILITY
Return on average total capital 10.0% (1.6%) 4.2% 4.8%
Return on average equity 15.6% (8.1%) 4.1% 5.4%
Net income (loss) per share $0.36 ($0.20) $0.10 $0.53
Net income (loss) per share (diluted) $0.35 ($0.20) $0.10 $0.52
LEVERAGE (3)
Total liabilities/equity 172.0% 167.2% 164.9%
Funded debt/equity 111.7% 119.7% 115.0%
Funded debt/capital employed 52.8% 54.5% 53.5%
Funded debt $131,833 $153,559 $148,479
Funded debt/EBITDA (LTM) (6) 3.1 3.75 3.95
EBITDA/Interest expense, net (LTM) 8.5 4.9 4.2
OTHER
Book value per share $9.30 $9.87 $9.94
Employees at quarter end 3,554 4,230 4,014
Sales per employee (annualized) $146,000 $103,000 $124,000
Capital employed (3) $249,838 $281,831 $277,603
Effective income tax rate 35.0% 33.0% 33.0%
EBITDA (2) $12,643 $3,142 $9,649 $35,977
EBITDA/net sales 10.3% 2.8% 7.5% 7.3%
(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 capitalized interest and pro forma amounts for Wetumpka
and Artee acquisitions.
CULP, INC. FINANCIAL INFORMATION RELEASE
SALES BY PRODUCT CATEGORY/BUSINESS UNIT
FOR THE THREE MONTHS AND SIX MONTHS ENDED NOVEMBER 1, 1998 AND NOVEMBER 2, 1997
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
--------------------------------------------------------------------------
Amounts Percent of Total Sales
-------------------------- ----------------------------
November 1, November 2, % Over
Product Category/Business Unit 1998 1997 (Under) 1999 1998
- ------------------------------------ ------------ ------------ --------------- ------------- ------------
Upholstery Fabrics
Culp Decorative Fabrics $ 59,573 56,781 4.9 % 46.5 % 46.2 %
Culp Velvets/Prints 38,728 43,928 (11.8) % 30.2 % 35.7 %
------------ ------------ --------------- ------------- ------------
98,301 100,709 (2.4) % 76.7 % 81.9 %
Mattress Ticking
Culp Home Fashions 23,491 22,217 5.7 % 18.3 % 18.1 %
Yarn
Culp Yarn 6,367 0 100.0 % 5.0 % 0.0 %
------------ ------------ --------------- ------------- ------------
* $ 128,159 122,926 4.3 % 100.0 % 100.0 %
============ ============ =============== ============= ============
SIX MONTHS ENDED (UNAUDITED)
--------------------------------------------------------------------------
Amounts Percent of Total Sales
-------------------------- ----------------------------
November 1, November 2, % Over
Product Category/Business Unit 1998 1997 (Under) 1999 1998
- ------------------------------------ ------------ ------------ --------------- ------------- ------------
Upholstery Fabrics
Culp Decorative Fabrics $ 111,018 96,595 14.9 % 46.5 % 43.4 %
Culp Velvets/Prints 68,722 82,325 (16.5) % 28.8 % 37.0 %
------------ ------------ --------------- ------------- ------------
179,740 178,920 0.5 % 75.3 % 80.4 %
Mattress Ticking
Culp Home Fashions 46,123 43,504 6.0 % 19.3 % 19.6 %
Yarn
Culp Yarn 12,963 0 100.0 % 5.4 % 0.0 %
------------ ------------ --------------- ------------- ------------
* $ 238,826 222,424 7.4 % 100.0 % 100.0 %
============ ============ =============== ============= ============
* U.S. sales were $94,472 and $87,622 for the second quarter of fiscal 1999 and
fiscal 1998, respectively; and $178,782 and $162,029 for the six months of
fiscal 1999 and fiscal 1998, respectively. The percentage increase in U.S. sales
was 7.8% for the second quarter and an increase of 10.3% for the six months.
CULP, INC. FINANCIAL INFORMATION RELEASE
INTERNATIONAL SALES BY GEOGRAPHIC AREA
FOR THE THREE MONTHS AND SIX MONTHS ENDED NOVEMBER 1, 1998 AND NOVEMBER 2, 1997
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
--------------------------------------------------------------------------------
Amounts Percent of Total Sales
------------------------------- ------------------------------
November 1, November 2, % Over
Geographic Area 1998 1997 (Under) 1999 1998
- ---------------------------------- --------------- -------------- -------------- ------------- ------------
North America (Excluding USA) $ 8,502 8,162 4.2 % 25.2 % 23.1 %
Europe 7,223 6,624 9.0 % 21.4 % 18.8 %
Middle East 10,060 7,439 35.2 % 29.9 % 21.1 %
Far East & Asia 5,435 9,720 (44.1) % 16.1 % 27.5 %
South America 1,238 1,216 1.8 % 3.7 % 3.4 %
All other areas 1,229 2,143 (42.7) % 3.6 % 6.1 %
--------------- -------------- -------------- ------------- ------------
$ 33,687 35,304 (4.6) % 100.0 % 100.0 %
=============== ============== ============== ============= ============
SIX MONTHS ENDED (UNAUDITED)
--------------------------------------------------------------------------------
Amounts Percent of Total Sales
------------------------------- ------------------------------
November 1, November 2, % Over
Geographic Area 1998 1997 (Under) 1999 1998
- ---------------------------------- --------------- -------------- -------------- ------------- ------------
North America (Excluding USA) $ 15,755 15,206 3.6 % 26.2 % 25.2 %
Europe 10,906 11,125 (2.0) % 18.2 % 18.4 %
Middle East 18,360 14,003 31.1 % 30.6 % 23.2 %
Far East & Asia 10,303 15,662 (34.2) % 17.2 % 25.9 %
South America 2,238 1,462 53.1 % 3.7 % 2.4 %
All other areas 2,482 2,937 (15.5) % 4.1 % 4.9 %
--------------- -------------- -------------- ------------- ------------
$ 60,044 60,395 (0.6) % 100.0 % 100.0 %
=============== ============== ============== ============= ============
International sales, and the percentage of total sales, for each of the last
seven fiscal years follows: fiscal 1992-$ 37,913 (20%); fiscal 1993-$ 41,471
(21%); 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 the second quarter represented 26.3% and 28.7% for 1999
and 1998, respectively. Year-to-date international sales represented 25.1% and
27.2% of total sales for 1999 and 1998, respectively.
Culp, Inc.
SALES BY BUSINESS UNIT - TREND ANALYSIS
1997 vs 1998 vs 1999
Unaudited
(Amounts in thousands)
Fiscal 1997 Fiscal 1998
--------------------------------------------------- --------------------------------------------------
Product Category/Business Q1 Q2 Q3 Q4 TOTAL Q1 Q2 Q3 Q4 TOTAL
Units
- -----------------------------
Upholstery Fabrics
Culp Decorative Fabrics 38,966 45,723 39,342 43,699 167,730 39,814 56,781 53,415 60,155 210,165
Culp Velvets/Prints 34,867 40,233 40,387 40,980 156,467 38,397 43,928 44,020 45,044 171,389
--------------------------------------------------- --------------------------------------------------
73,833 85,956 79,729 84,679 324,197 78,211 100,709 97,435 105,199 381,554
Mattress Ticking
Culp Home Fashions 16,696 19,248 17,739 20,999 74,682 21,287 22,217 20,261 23,520 87,285
Yarn
Culp Yarn - - - - - - - 761 7,115 7,876
--------------------------------------------------- --------------------------------------------------
90,529 105,204 97,468 105,678 398,879 99,498 122,926 118,457 135,834 476,715
=================================================== ==================================================
Percent increase(decrease) from prior year:
Product Category/Business Units
- -------------------------------------------------------------------------------- --------------------------------------------------
Upholstery Fabrics
Culp Decorative Fabrics 18.3 12.4 0.2 (4.4) 5.8 2.2 24.2 35.8 37.7 25.3
Culp Velvets/Prints 48.2 25.4 26.9 7.1 24.5 10.1 9.2 9.0 9.9 9.5
--------------------------------------------------- --------------------------------------------------
30.8 18.1 12.2 0.8 14.0 5.9 17.2 22.2 24.2 17.7
Mattress Ticking
Culp Home Fashions 5.1 7.4 15.3 15.5 10.8 27.5 15.4 14.2 12.0 16.9
Yarn
Culp Yarn - - - - - - - 100.0 100.0 100.0
--------------------------------------------------- --------------------------------------------------
25.1 16.0 12.7 3.4 13.4 9.9 16.8 21.5 28.5 19.5
=================================================== ==================================================
Overall Growth Rate
Internal (without acquisitions) 25.1 16.0 12.7 3.4 13.4 9.9 6.6 9.2 11.6 9.3
External - - - - - - 10.2 12.3 16.9 10.2
--------------------------------------------------- --------------------------------------------------
25.1 16.0 12.7 3.4 13.4 9.9 16.8 21.5 28.5 19.5
=================================================== ==================================================
Culp, Inc.
SALES BY BUSINESS UNIT - TREND ANALYSIS
1997 vs 1998 vs 1999
Unaudited
(Amounts in thousands)
Fiscal 1999
Product Category/Business -------------------------------------------------------
Units Q1 Q2 Q3 Q4 TOTAL
- -------------------------------
Upholstery Fabrics
Culp Decorative Fabrics 51,445 59,573 111,018
Culp Velvets/Prints 29,994 38,728 68,722
-------------------------------------------------------
81,439 98,301 179,740
Mattress Ticking
Culp Home Fashions 22,632 23,491 46,123
Yarn
Culp Yarn 6,596 6,367 12,963
-------------------------------------------------------
110,667 128,159 238,826
=======================================================
Percent increase(decrease) from prior year:
Product Category/Business Units
Upholstery Fabrics
Culp Decorative Fabrics 29.2 4.9 14.9
Culp Velvets/Prints (21.9) (11.8) (16.5)
-------------------------------------------------------
4.1 (2.4) 0.5
Mattress Ticking
Culp Home Fashions 6.3 5.7 6.0
Yarn
Culp Yarn 100.0 100.0 100.0
-------------------------------------------------------
11.2 4.3 7.4
=======================================================
Overall Growth Rate
Internal (without acquisitions) (4.6) (0.9) (2.5)
External 15.8 5.2 9.9
=======================================================
11.2 4.3 7.4
=======================================================
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three and six month periods ended November 1, 1998 and November 2, 1997
INCOME STATEMENT COMMENTS
GENERAL - Net sales increased 4.3% to $128.2 million, and the company
reported net income of $1.3 million compared with net income of $4.5 million for
the second quarter of last year. Net sales for the quarter, excluding Artee
Industries, decreased .9% versus the same quarter of last year. Artee Industries
was acquired at the beginning of the fourth quarter of fiscal 1998. For the six
months ended November 1, 1998, the company reported a loss of $1.3 million, or
$0.10 per share, compared with net income of $7.4 million, or $0.57 per share
diluted, in the year-earlier period.
In building its business the company has emphasized 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 52% of net sales for the quarter. No one customer
accounted for more than 7% of net sales during the second quarter of fiscal
1999;
Design Innovation - investing in the design of new patterns and textures.
The company has significantly increased resources (both designers and
computer-aided design (CAD) systems) in the design and product development areas
in each business unit. In January 1998, the company opened its state-of-the-art
design center in Burlington, North Carolina. The facility enabled most of the
company's design resources to be consolidated into one facility which offers
advanced CAD systems for the design process;
Vertical Integration - realizing additional manufacturing integration by
developing or acquiring resources for producing an increasing proportion of the
raw material components that are used in the manufacture of its products; and
Ability to Integrate Acquisitions - investing in selective acquisitions
complementary to existing business units.
NET SALES - Compared with the second quarter of last year, upholstery
fabric sales decreased 2.4% to $98.3 million; mattress ticking sales increased
5.7% to $23.5 million; and yarn sales contributed $6.4 million for the quarter
(See Sales by Business Unit schedule on Page 5 and Sales by Business Unit -
Trend Analysis on Page 7). International sales were down 4.6% for the quarter. A
significant decline in sales to the Far East/Asia (principally Russia) was
offset by higher shipments to the Middle East.
The decline in sales of upholstery fabrics was due principally to a
pronounced slowdown in international sales of wet and heat-transfer printed
flock fabrics. This trend, which the company believes has also affected other
manufacturers of upholstery fabrics, became apparent after the close of fiscal
1998 and has been persistent thus far in fiscal 1999. A large percentage of the
company's sales of this product line were being shipped directly or indirectly
to customers in the emerging markets of Russia and other former Soviet
countries, India and Eastern Europe. All of these areas are generally
experiencing very weak economic conditions which, in turn, have affected demand
for furniture and other home furnishings. The company has significantly
curtailed production schedules for these fabrics and has shifted its marketing
focus for this product category to geographic areas where demand is more
favorable. The company is seeking to build a diversified geographic base of
customers internationally to minimize the exposure to economic uncertainties in
any single geographic area.
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three and six month periods ended November 1, 1998 and November 2, 1997
The increased sales by Culp Home Fashions during the second quarter marked
a continuation of the longer-term expansion that this business unit has
experienced. Culp's growth in sales has been driven by the introduction of new
designs and fabric constructions as well as the advantages of the company's
vertical integration. In particular, Culp's ability to manufacture the jacquard
greige, or unfinished, goods that are then printed to produce mattress ticking
has aided the company in meeting faster delivery schedules and providing
improved overall customer service.
GROSS PROFIT - Gross profit declined 9.9% for the quarter versus a year
ago. The decline was due principally to lower margins at the Culp Decorative
Fabrics and Culp Velvets/Prints units. Factors contributing to reduced
profitability of Culp Decorative Fabrics include lower-than-expected sales and
competitive pressure on pricing, especially in the jacquard product category.
The lower gross profit at Culp Velvets/Prints was due to the unexpectedly sharp
decline in international sales of printed flock fabrics. Although this business
unit has taken substantial steps to reduce operating expenses, it continued to
be affected by excess manufacturing capacity and lower absorption of fixed costs
during the second quarter.
To help offset the pressure on gross margins, the company has instituted a
number of actions. A major change involved a reorganization from six to four
business units during the first quarter. This new corporate alignment grouped
related operations together and was accompanied by several changes in managerial
positions. Steps underway to improve profitability that are related to this
realignment include a significant reduction in the capacity for manufacturing
printed flock fabrics, comprehensive programs to reduce inventories and an
intense effort to reduce operating expenses and raise productivity.
S,G&A EXPENSES - S,G&A expenses for the second quarter rose as a percentage
of sales to 12.1% from 11.1 % for the same period of last year. This increase
was due principally to the shortfall in sales from the volume that the company
had planned to support. The increase in absolute dollars from a year ago
resulted from the Artee acquisition, investment in additional design resources,
increased costs in sampling new product and higher costs for credit expenses.
INTEREST EXPENSE - Interest expense increased 35.4% compared with the
year-earlier quarter due to higher average borrowings outstanding. The increased
borrowings related principally to the acquisitions during fiscal 1998 of
Phillips Mills and Artee Industries and the relatively high level of capital
expenditures in fiscal 1998.
OTHER EXPENSE (INCOME), NET - Other expense (income) increased to $604,000
from $425,000 in the year-earlier quarter. A major factor contributing to the
increase was amortization of goodwill due to the acquisitions during fiscal
1998.
INCOME TAXES - The effective tax rate for the quarter was 33.0% compared
with 35.0% for the prior year.
EBITDA - EBITDA for the quarter decreased to $9.6 million from $12.6
million for last year's second quarter and represented 7.5% of net sales
compared with 10.3% of net sales for the same period of last year.
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three and six month periods ended November 1, 1998 and November 2, 1997
BALANCE SHEET COMMENTS
WORKING CAPITAL - Accounts receivable decreased 1.8% from November 2, 1997,
while sales increased 4.3% for the second quarter. Day's sales outstanding
represented 52 days, down from 55 days at November 2, 1997, and up from 49 days
at May 3, 1998. Additionally, the aging of accounts receivable was 94.9 %
current and less than 30 days past due versus 97.8% at November 2, 1997.
Inventories increased 3.1 % from November 2, 1997, and inventory turns were 5.7
versus 6.1 for last year's second quarter. The inventory increase is due to the
acquisition of Artee Industries, partially offset by a decrease in upholstery
fabric inventories. Operating working capital (comprised of accounts receivable,
inventory and accounts payable) increased to $112.7 million at November 1, 1998,
for the reasons mentioned above, from $107.8 million at November 2, 1997. The
balance at May 3, 1998 was $115.2 million.
PROPERTY, PLANT AND EQUIPMENT - For fiscal 1999, the company has
significantly reduced its planned capital spending to $10-$15 million as
compared with $35.9 million spent in fiscal 1998. Culp is focused instead on
improving the results of the investments made during fiscal 1997 and fiscal
1998. The two largest projects that are currently underway 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 continuing growth that is expected in the
company's sales of mattress ticking. 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
November 1, 1998, up from 52.8% at November 2, 1997, and even with 53.5% at May
3, 1998. Funded debt was $148.5 million at November 1, 1998, up from $131.8
million at November 2, 1997 and down from $151.6 million at May 3, 1998. (Funded
debt equals long-term debt, including current maturities, less restricted
investments, which represent unspent IRB funds). The decrease in funded debt
from May 3, 1998 resulted primarily from an operating cash flow of $11.7
million, offset by capital expenditures of $6.4 million and a decrease in
accounts payable related to capital expenditures of $2.2 million.
