- ------------------------------------------------------------------
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 2, 1999
CULP, INC.
(Exact name of registrant as specified in its charter)
North Carolina 0-12781
(State or other jurisdiction (Commission File No.)
of incorporation)
56-1001967
(IRS Employer 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 June 2, 1999, related to the fiscal 1999 fourth quarter ended
May 2, 1999.
Forward Looking Information. This Report 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
significant 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.
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: June 2, 1999
FOR IMMEDIATE RELEASE
CULP REPORTS FISCAL 1999 EARNINGS
HIGH POINT, N. C. (June 2, 1999) -- Culp, Inc. (NYSE:CFI) today reported sales
and earnings for the fourth quarter and fiscal year ended May 2, 1999.
Net sales for the quarter totaled $132.2 million compared with $135.8 million a
year ago. Net income for the quarter was $2.9 million, or $0.23 per share
diluted, compared with $4.2 million, or $0.31 per share diluted, in the fourth
quarter of fiscal 1998.
For the year, net sales increased to $483.1 million compared with $476.7 million
in fiscal 1998. Net income for the year was $3.1 million, or $0.24 per share
diluted, compared with $15.5 million, or $1.19 per share diluted, in fiscal
1998.
"The results for the fourth quarter signal a solid continuation of the
improvement that began earlier this year as a result of our organizational
restructuring," said Robert G. Culp, III, chief executive officer. "Although
earnings for both the final period and full year were lower than a year ago, the
quarterly pattern for fiscal 1999 as a whole was encouraging. Strategic
acquisitions and a high level of capital expenditures over the past several
years significantly upgraded and expanded our marketing resources. During fiscal
1999 we took steps to capitalize on these assets more effectively. Aided by
managerial changes and a realignment of our operating units, we are successfully
building stronger working relationships with existing customers. We believe this
is a vital focus for Culp because of the continuing consolidation that is
occurring in the home furnishings industry. At the same time, we are pursuing
opportunities internationally to broaden our sales base. Economic difficulties
in several important export markets for our fabrics adversely affected our
results in fiscal 1999, but we believe that the longer term potential for Culp
internationally remains positive."
Commenting on the company's ongoing stock repurchase program, Culp noted, "Over
the past year, we have invested $5.5 million to repurchase the company's common
stock. We currently have authorization from the Board of Directors to invest an
additional $4.5 million in this program. We are pleased that Culp's financial
position is enabling us to execute this program and believe that the repurchase
of our shares at attractive market levels will prove to be a sound investment of
the company's capital."
Culp Reports Fiscal 1999 Earnings
Page 2
June 2, 1999
Culp concluded, "Initial indications are that the momentum from fiscal 1999 is
carrying over into the current year. The traditional economic factors that drive
demand for furniture and bedding, such as employment levels, mortgage rates and
consumer confidence, appear favorable. We believe this outlook favors Culp, but
recognize that our ability to maintain the improvement in our bottom-line
performance depends on the day-to-day delivery of consistently high customer
service."
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.
CULP, INC.
Condensed Financial Highlights
Three Months Ended Fiscal Year Ended
-------------------------------- ---------------------------------
May 2, 1999 May 3, 1998 May 2, 1999 May 3, 1998
-------------- -------------- ------------- -------------
Net sales $ 132,165,000 $ 135,834,000 $ 483,084,000 $ 476,715,000
Net income 2,896,000 4,156,000 3,102,000 15,513,000
Net income per share
Basic $ 0.23 $ 0.32 $ 0.24 $ 1.22
Diluted $ 0.23 $ 0.31 $ 0.24 $ 1.19
Average shares outstanding
Basic 12,645,000 12,993,000 12,909,000 12,744,000
Diluted 12,742,000 13,284,000 13,064,000 13,042,000
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 significant 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
FOR THE THREE MONTHS AND TWELVE MONTHS ENDED MAY 2, 1999 AND MAY 3, 1998
(Amounts in Thousands, Except for Per Share Data)
THREE MONTHS ENDED (UNAUDITED)
-------------------------------------------------------------------------------
Amounts Percent of Sales
------------------------------- -----------------------------
May 2, 1999 May 3, 1998 % Over (Under) 1999 1998
-------------- --------------- ------------- -------------- -------------
Net sales $ 132,165 135,834 (2.7) % 100.0 % 100.0 %
Cost of sales 109,324 112,644 (2.9) % 82.7 % 82.9 %
-------------- --------------- ------------- -------------- -------------
Gross profit 22,841 23,190 (1.5) % 17.3 % 17.1 %
Selling, general and
administrative expenses 15,921 15,277 4.2 % 12.0 % 11.2 %
-------------- --------------- ------------- -------------- -------------
Income from operations 6,920 7,913 (12.5) % 5.2 % 5.8 %
Interest expense 2,482 1,837 35.1 % 1.9 % 1.4 %
Interest income (113) (69) 63.8 % (0.1)% (0.1)%
Other expense (income), net 546 753 (27.5) % 0.4 % 0.6 %
-------------- --------------- ------------- -------------- -------------
Income before income taxes 4,005 5,392 (25.7) % 3.0 % 4.0 %
Income taxes * 1,109 1,236 (10.3) % 27.7 % 22.9 %
-------------- --------------- ------------- -------------- -------------
Net income $ 2,896 4,156 (30.3) % 2.2 % 3.1 %
============== =============== ============= ============== =============
Net income per share $0.23 $0.32 (28.1) %
Net income per share, assuming dilution $0.23 $0.31 (25.8) %
Dividends per share $0.035 $0.035 0.0 %
Average shares outstanding 12,645 12,993 (2.7) %
Average shares outstanding, assuming dilution 12,742 13,284 (4.1) %
TWELVE MONTHS ENDED
---------------------------------------------------------------------------------
Amounts Percent of Sales
------------------------------- -----------------------------
May 2, 1999 May 3, 1998 % Over (Under) 1999 1998
-------------- --------------- ------------- -------------- -------------
Net sales $ 483,084 476,715 1.3 % 100.0 % 100.0 %
Cost of sales 406,976 393,154 3.5 % 84.2 % 82.5 %
-------------- --------------- ------------- -------------- -------------
Gross profit 76,108 83,561 (8.9)% 15.8 % 17.5 %
Selling, general and
administrative expenses 59,968 52,987 13.2 % 12.4 % 11.1 %
-------------- --------------- ------------- -------------- -------------
Income from operations 16,140 30,574 (47.2)% 3.3 % 6.4 %
Interest expense 9,615 7,117 35.1 % 2.0 % 1.5 %
Interest income (195) (304) (35.9)% (0.0)% (0.1)%
Other expense (income), net 2,412 1,912 26.2 % 0.5 % 0.4 %
-------------- --------------- ------------- -------------- -------------
Income before income taxes 4,308 21,849 (80.3)% 0.9 % 4.6 %
Income taxes * 1,206 6,336 (81.0)% 28.0 % 29.0 %
-------------- --------------- ------------- -------------- -------------
Net income $ 3,102 15,513 (80.0)% 0.6 % 3.3 %
============== =============== ============= ============== =============
Net income per share $0.24 $1.22 (80.3)%
Net income per share, assuming dilution $0.24 $1.19 (79.8)%
Dividends per share $0.14 $0.14 0.0 %
Average shares outstanding 12,909 12,744 1.3 %
Average shares outstanding, assuming dilution 13,064 13,042 0.2 %
* Percent of sales column is calculated as a % of income before income taxes.
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED BALANCE SHEETS
MAY 2, 1999 AND MAY 3, 1998
(Amounts in Thousands)
Amounts Increase (Decrease)
----------------------------------
May 2, May 3, ---------------------------------
1999 1998 Dollars Percent
--------------- --------------- --------------- -------------
Current assets
Cash and cash investments $ 509 2,312 (1,803) (78.0) %
Accounts receivable 70,503 73,773 (3,270) (4.4) %
Inventories 67,070 78,594 (11,524) (14.7) %
Other current assets 9,633 7,808 1,825 23.4 %
--------------- --------------- --------------- -------------
Total current assets 147,715 162,487 (14,772) (9.1) %
Restricted investments 3,340 4,021 (681) (16.9) %
Property, plant & equipment, net 123,310 128,805 (5,495) (4.3) %
Goodwill 51,269 55,162 (3,893) (7.1) %
Other assets 4,978 4,340 638 14.7 %
--------------- --------------- --------------- -------------
Total assets $ 330,612 354,815 (24,203) (6.8) %
=============== =============== =============== =============
Current liabilities
Current maturities of long-term debt $ 1,678 3,325 (1,647) (49.5) %
Accounts payable 25,687 37,214 (11,527) (31.0) %
Accrued expenses 21,026 17,936 3,090 17.2 %
Income taxes payable 0 1,282 (1,282) (100.0) %
--------------- --------------- --------------- -------------
Total current liabilities 48,391 59,757 (11,366) (19.0) %
Long-term debt 140,312 152,312 (12,000) (7.9) %
Deferred income taxes 14,583 11,227 3,356 29.9 %
--------------- --------------- --------------- -------------
Total liabilities 203,286 223,296 (20,010) (9.0) %
Shareholders' equity 127,326 131,519 (4,193) (3.2) %
--------------- --------------- --------------- -------------
Total liabilities and
shareholders' equity $ 330,612 354,815 (24,203) (6.8) %
=============== =============== =============== =============
Shares outstanding 12,079 13,007 (928) (7.1) %
=============== =============== =============== =============
CULP, INC. FINANCIAL
INFORMATION RELEASE
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWELVE MONTHS ENDED MAY 2, 1999 AND MAY 3, 1998
(Amounts in Thousands)
TWELVE MONTHS ENDED
----------------------------------
Amounts
--------------------------------
May 2, 1999 May 3, 1998
--------------- ---------------
Cash flows from operating activities:
Net income $ 3,102 15,513
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 18,549 14,808
Amortization of intangible assets 1,570 1,371
Provision for deferred income taxes 1,064 1,416
Changes in assets and liabilities, net of effects of
businesses acquired:
Accounts receivable 3,133 (13,207)
Inventories 12,124 (17,684)
Other current assets 522 (660)
Other assets (106) (380)
Accounts payable (8,893) 6,477
Accrued expenses 2,736 1,506
Income taxes payable (1,282) (298)
--------------- ---------------
Net cash provided by operating activities 32,519 8,862
--------------- ---------------
Cash flows from investing activities:
Capital expenditures (10,689) (35,879)
Purchases of restricted investments (119) (8,770)
Purchase of investments to fund deferred compensation liability (735) (581)
Sale of restricted investments 800 15,767
Payments for businesses acquired 0 (42,966)
--------------- ---------------
Net cash used in investing activities (10,743) (72,429)
--------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 2,637 86,246
Principal payments on long-term debt (16,284) (17,100)
Change in accounts payable-capital expenditures (2,637) (2,873)
Dividends paid (1,788) (1,786)
Payments to acquire common stock (5,542) 0
Proceeds from common stock issued 35 562
--------------- ---------------
Net cash provided by (used in) financing activities (23,579) 65,049
--------------- ---------------
Increase (decrease) in cash and cash investments (1,803) 1,482
Cash and cash investments at beginning of period 2,312 830
--------------- ---------------
Cash and cash investments at end of period $ 509 2,312
=============== ===============
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL ANALYSIS
MAY 2, 1999
FISCAL 98 FISCAL 99
------------- --------------------------------------------------------- ---------------
Q4 Q1 Q2 Q3 Q4 LTM
------------- --------------------------------------------------------- ---------------
INVENTORIES
Inventory turns 5.9 4.9 5.7 5.2 6.4
RECEIVABLES
Days sales in receivables 49 48 52 47 49
Percent current & less than 30
days past due 96.6% 93.8% 94.9% 94.1% 96.1%
WORKING CAPITAL
Current ratio 2.7 3.1 3.0 3.1 3.1
Working capital turnover (4) 4.7 4.5 4.4 4.4 4.3
Operating working capital (4) $115,153 $111,481 $112,750 $106,492 $111,886
PROPERTY, PLANT & EQUIPMENT
Depreciation rate 7.4% 7.7% 8.4% 7.9% 8.1%
Percent property,plant &
equipment are depreciated 42.6% 43.8% 45.0% 46.1% 47.6%
Capital expenditures $35,879 (1) $2,858 $3,585 $2,057 $2,189
PROFITABILITY
Return on average total capital 7.7% (1.6%) 4.2% 4.5% 6.8% 3.4%
Return on average equity 13.1% (8.1%) 4.1% 4.7% 9.0% 2.4%
Net income (loss) per share $0.32 ($0.20) $0.10 $0.12 $0.23 $0.24
Net income (loss) per share (diluted) $0.31 ($0.20) $0.10 $0.12 $0.23 $0.24
LEVERAGE (3)
Total liabilities/equity 169.8% 167.2% 164.9% 150.7% 159.7%
Funded debt/equity 115.3% 119.7% 115.0% 106.3% 108.9%
Funded debt/capital employed 53.5% 54.5% 53.5% 51.5% 52.1%
Funded debt $151,616 $153,559 $148,479 $138,472 $138,650
Funded debt/EBITDA (LTM) (6) 3.21 3.75 3.95 3.91 4.02
EBITDA/Interest expense, net (LTM) 6.6 4.9 4.2 3.9 3.6
OTHER
Book value per share $10.11 $9.87 $9.94 $10.02 $10.54
Employees at quarter end 4,334 4,230 4,014 3,949 3,973
Sales per employee (annualized) $134,000 $103,000 $124,000 $113,000 $133,000
Capital employed (3) $283,135 $281,831 $277,603 $268,680 $265,976
Effective income tax rate 22.9% 33.0% 33.0% 32.9% 27.7%
EBITDA (2) $11,796 $3,142 $9,649 $9,522 $11,534 $33,847
EBITDA/net sales 8.7% 2.8% 7.5% 8.5% 8.7% 7.0%
(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 capitalized interest and pro forma amounts for
acquisitions.
CULP, INC. FINANCIAL INFORMATION RELEASE
SALES BY PRODUCT CATEGORY/BUSINESS UNIT
FOR THE THREE MONTHS AND TWELVE MONTHS ENDED MAY 2, 1999 AND MAY 3, 1998
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
--------------------------------------------------------------------------
Amounts Percent of Total Sales
-------------------------- ----------------------------
Product Category/Business Unit May 2, 1999 May 3, 1998 % Over (Under) 1999 1998
- ------------------------------------ ------------ ------------ --------------- ------------- ------------
Upholstery Fabrics
Culp Decorative Fabrics $ 60,520 60,155 0.6 % 45.8 % 44.3 %
Culp Velvets/Prints 40,402 45,044 (10.3)% 30.6 % 33.2 %
------------ ------------ --------------- ------------- ------------
100,922 105,199 (4.1)% 76.4 % 77.4 %
Mattress Ticking
Culp Home Fashions 26,781 23,520 13.9 % 20.3 % 17.3 %
Yarn
Culp Yarn 4,462 7,115 (37.3)% 3.4 % 5.2 %
------------ ------------ --------------- ------------- ------------
* $ 132,165 135,834 (2.7) % 100.0 % 100.0 %
============ ============ =============== ============= ============
TWELVE MONTHS ENDED
--------------------------------------------------------------------------
Amounts Percent of Total Sales
-------------------------- ----------------------------
Product Category/Business Unit May 2, 1999 May 3, 1998 % Over (Under) 1999 1998
- ------------------------------------ ------------ ------------ --------------- ------------- ------------
Upholstery Fabrics
Culp Decorative Fabrics $ 222,058 210,165 5.7 % 46.0 % 44.1 %
Culp Velvets/Prints 144,073 171,389 (15.9)% 29.8 % 36.0 %
------------ ------------ --------------- ------------- ------------
366,131 381,554 (4.0)% 75.8 % 80.0 %
Mattress Ticking
Culp Home Fashions 95,440 87,285 9.3 % 19.8 % 18.3 %
Yarn
Culp Yarn 21,513 7,876 173.1 % 4.5 % 1.7 %
------------ ------------ --------------- ------------- ------------
* $ 483,084 476,715 1.3 % 100.0 % 100.0 %
============ ============ =============== ============= ============
* U.S. sales were $102,796 and $97,383 for the fourth quarter of fiscal 1999 and
fiscal 1998, respectively; and $369,730 and $339,492 for the twelve months of
fiscal 1999 and fiscal 1998, respectively. The percentage increase in U.S. sales
was 5.6% for the fourth quarter and an increase of 8.9% for the twelve months.
CULP, INC. FINANCIAL INFORMATION RELEASE
INTERNATIONAL SALES BY GEOGRAPHIC AREA
FOR THE THREE MONTHS AND TWELVE MONTHS ENDED MAY 2, 1999 AND MAY 3, 1998
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
--------------------------------------------------------------------------------
Amounts Percent of Total Sales
------------------------------- ------------------------------
Geographic Area May 2, 1999 May 3, 1998 % Over (Under) 1999 1998
- ---------------------------------- --------------- -------------- -------------- ------------- ------------
North America (Excluding USA) $ 8,067 8,459 (4.6) % 27.5 % 22.0 %
Europe 4,791 7,964 (39.8) % 16.3 % 20.7 %
Middle East 8,925 10,960 (18.6) % 30.4 % 28.5 %
Far East & Asia 6,075 8,542 (28.9) % 20.7 % 22.2 %
South America 691 1,687 (59.0) % 2.4 % 4.4 %
All other areas 820 839 (2.3) % 2.8 % 2.2 %
--------------- -------------- -------------- ------------- ------------
$ 29,369 38,451 (23.6) % 100.0 % 100.0 %
=============== ============== ============== ============= ============
TWELVE MONTHS ENDED
--------------------------------------------------------------------------------
Amounts Percent of Total Sales
------------------------------- ------------------------------
Geographic Area May 2, 1999 May 3, 1998 % Over (Under) 1999 1998
---------------------------------- --------------- -------------- -------------- ------------- ------------
North America (Excluding USA) $ 31,102 31,160 (0.2) % 27.4 % 22.7 %
Europe 19,578 30,775 (36.4) % 17.3 % 22.4 %
Middle East 33,996 34,412 (1.2) % 30.0 % 25.1 %
Far East & Asia 21,371 32,344 (33.9) % 18.9 % 23.6 %
South America 3,484 5,158 (32.5) % 3.1 % 3.8 %
All other areas 3,823 3,374 13.3 % 3.4 % 2.5 %
--------------- -------------- -------------- ------------- ------------
$ 113,354 137,223 (17.4) % 100.0 % 100.0 %
=============== ============== ============== ============= ============
International sales, and the percentage of total sales, for each of the last
five fiscal years follows: fiscal 1995-$57,971 (19%); fiscal 1996-$77,397 (22%);
fiscal 1997-$101,571 (25%); fiscal 1998-$137,223 (29%); and fiscal 1999-$113,354
(23%). International sales for the fourth quarter represented 22.2% and 28.3%
for 1999 and 1998, respectively.
Culp, Inc.
SALES BY BUSINESS UNIT - TREND ANALYSIS
1997 vs 1998 vs 1999
(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
(Amounts in thousands)
Fiscal 1999
-----------------------------------------------
Product Category/Business Q1 Q2 Q3 Q4 TOTAL
Units
- ---------------------------
Upholstery Fabrics
Culp Decorative Fabrics 51,445 59,573 50,520 60,520 222,058
Culp Velvets/Prints 29,994 38,728 34,949 40,402 144,073
-----------------------------------------------
81,439 98,301 85,469 100,922 366,131
Mattress Ticking
Culp Home Fashions 22,632 23,491 22,536 26,781 95,440
Yarn
Culp Yarn 6,596 6,367 4,088 4,462 21,513
-----------------------------------------------
110,667 128,159 112,093 132,165 483,084
===============================================
Percent increase(decrease) from prior year:
Product Category/Business Units
- ---------------------------------------
Upholstery Fabrics
Culp Decorative Fabrics 29.2 4.9 (5.4) 0.6 5.7
Culp Velvets/Prints (21.9) (11.8) (20.6) (10.3) (15.9)
-----------------------------------------------
4.1 (2.4) (12.3) (4.1) (4.0)
Mattress Ticking
Culp Home Fashions 6.3 5.7 11.2 13.9 9.3
Yarn
Culp Yarn 100.0 100.0 437.2 (37.3) 173.1
-----------------------------------------------
11.2 4.3 (5.4) (2.7) 1.3
===============================================
Overall Growth Rate
Internal (without acquisitions) (4.6) (0.9) (8.5) (2.7) (4.1)
External 15.8 5.2 3.1 - 5.4
===============================================
11.2 4.3 (5.4) (2.7) 1.3
===============================================
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three and twelve month periods ended May 2, 1999 and May 3, 1998
INCOME STATEMENT COMMENTS
GENERAL - For the fourth quarter, net sales decreased 2.7% to $132.2 million and
net income decreased 30.3% to $2.9 million, or $0.23 per share diluted, versus
the year-earlier period. For the year ended May 2, 1999, net sales increased
1.3% compared with fiscal 1998 to $483.1 million, and net income decreased 80.0%
to $3.1 million, or $0.24 per share diluted.
The company's strategic plan encompasses several competitive initiatives:
Broad Product Offering - continuing to market 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 - increasing its penetration into other
end-use markets in addition to U.S. residential furniture, such as bedding,
international, commercial furniture and juvenile furniture. The company has
long-standing relationships with most major upholstery furniture
manufacturers, but is not reliant on a single customer or a small group of
dominant customers. No one customer accounted for more than 8% of net sales
during fiscal 1999;
Design Innovation - continuing to invest in the design of upholstery
fabrics and ticking with appealing patterns and textures. An integral
component of the value Culp provides to customers is supplying fabrics that
are fashionable and meet current consumer preferences. The company's
principal design resources are now consolidated in a single facility that
provides advanced CAD systems and promotes a sharing of innovative designs
among the business units;
Vertical Integration - operating as a vertically integrated manufacturer
and taking advantage of economies that can be gained by producing the raw
material components that are used in the manufacture of its products; and
Additional Acquisitions - investing in selective acquisitions complementary
to existing business units.
NET SALES - Compared with the fourth quarter of last year, upholstery
fabric sales decreased 4.1% to $100.9 million; mattress ticking sales
increased 13.9% to $26.8 million; and yarn sales contributed $4.5 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
23.6% for the quarter. For fiscal 1999, upholstery fabric sales decreased
4.0% to $366.1 million; mattress ticking sales increased 9.3% to $95.4
million; and yarn sales contributed $21.5 million.
The decline in sales of upholstery fabrics for the fourth quarter and
fiscal year was due principally to a pronounced slowdown in international
sales of wet print and heat-transfer printed flock fabrics. This trend,
which the company believes also affected other manufacturers of upholstery
fabrics, became apparent after the close of fiscal 1998 and persisted
throughout 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 consumer markets of Russia, other former Soviet countries and
Eastern Europe. All of these areas have encountered very weak economic
conditions which, in turn, have affected demand for furniture and other
home furnishings. During fiscal 1999, the company significantly curtailed
production schedules for these fabrics and has shifted its marketing focus
for this product category to geographic areas where demand appears more
favorable. The company has also introduced a line of printed cotton
upholstery fabrics utilizing some of the same manufacturing assets used to
produce wet print and heat-transfer printed flock fabrics. The company is
seeking to build a diversified global base of customers to minimize
exposure to economic uncertainties in any geographic area.
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three and twelve month periods ended May 2, 1999 and May 3, 1998
The increased sales by Culp Home Fashions (primarily mattress ticking) during
the fourth quarter and fiscal 1999 marked a continuation of the longer-term
expansion that this business unit has experienced. Culp's growth in mattress
ticking 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, the ability to manufacture the jacquard greige, or unfinished
goods that are then printed to produce mattress ticking has aided Culp in
meeting faster delivery schedules and providing improved overall customer
service.
GROSS PROFIT - Gross profit declined 1.5% for the fourth quarter versus a year
ago, but increased as a percentage of net sales from 17.1% to 17.3%. The decline
was due principally to lower sales volume at the Culp Velvets/Prints unit, which
experienced a sharp decline in international sales during fiscal 1999. 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 fourth quarter. Gross profit for fiscal 1999 decreased
8.9% to $76.1 million.
To help offset the pressure on gross margins, the company instituted a number of
actions during fiscal 1999. 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. Subsequent steps to improve profitability that are related
to this realignment have included 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 fourth quarter rose as a percentage of
sales to 12.0% from 11.2% for the same period of last year. The increase is
principally related to higher marketing costs for new fabric designs and
severance agreements related to termination of an international sales agent,
partially offset by lower accruals for incentive-based compensation plans.
INTEREST EXPENSE - Interest expense increased 35.1% for the fourth quarter due
to lower capitalized interest related to capital expenditures. Interest expense
also increased 35.1% for the fiscal year due to higher average borrowings
outstanding. The increased borrowings related principally to the acquisitions
during 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 26.2% to $2.4
million for fiscal 1999 due primarily to the incremental goodwill amortization
related to acquired operations and loss on disposal of fixed assets.
INCOME TAXES - The effective tax rate for the quarter was 27.7%, compared with
22.9% for the same quarter of last year. The unusually low tax rate in the
fourth quarter of fiscal 1998 resulted from higher than expected tax benefits
related to the company's foreign sales corporation. The tax rate for fiscal 1999
was 28.0% compared with 29.0% for fiscal 1998.
EBITDA - Due principally to the decrease in net income for fiscal 1999, EBITDA
for the fourth quarter decreased 2.2% to $11.5 million from the year-earlier
period and represented 8.7% of net sales, which was comparable with the same
period of last year. EBITDA for fiscal 1999 decreased 24.5% to $33.8 million and
represented 7.0% of net sales compared with 9.4% of net sales for fiscal 1998.
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three and twelve month periods ended May 2, 1999 and May 3, 1998
BALANCE SHEET COMMENTS
WORKING CAPITAL - Accounts receivable as of May 2, 1999 decreased 4.4% from the
year-earlier level, due principally to the decrease in net sales in the fourth
quarter. Days sales outstanding represented 49 days at May 2, 1999, unchanged
from a year ago. Additionally, the aging of accounts receivable was 96.1%
current and less than 30 days past due versus 96.6% at May 3, 1998. Inventories
at the close of fiscal 1999 decreased $11.5 million or 14.7% from May 3, 1998.
Inventory turns for the fourth quarter were 6.4 versus 5.9 for the fourth
quarter of fiscal 1998. The reduction in inventories is attributable to the
increased focus management has placed on controlling the level of inventories.
Operating working capital (comprised of accounts receivable, inventory and
accounts payable) decreased to $111.9 million at May 2, 1999, for the reasons
mentioned above, from $115.2 million at May 3, 1998.
PROPERTY, PLANT AND EQUIPMENT - For fiscal 1999, the company reduced its capital
spending to $10.7 million as compared with $35.9 million spent in fiscal 1998.
During fiscal 1999, Culp focused on improving the results of the considerable
investments made during fiscal 1997 and fiscal 1998. The two largest projects
completed during fiscal 1999 were an additional expansion of polypropylene
extrusion capacity and facility expansion in the Culp Home Fashions business
unit. Depreciation expense for fiscal 1999 increased to $18.5 million versus
$14.8 million for fiscal 1998. Depreciation for fiscal 2000 is currently
estimated to be approximately $20 million.
LONG-TERM DEBT - The company's funded debt-to-capital ratio was 52.1% at May 2,
1999, down from 53.5% at May 3, 1998. Funded debt was $138.7 million at May 2,
1999, 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 $32.5 million, offset by capital
expenditures of $10.7 million, a decrease in accounts payable related to capital
expenditures of $2.6 million and repurchase of common stock of $5.5 million.
STOCK REPURCHASE
In separate authorizations in June 1998 and March 1999, the Board of Directors
authorized the use of a total of $10.0 million to repurchase the company's
common stock. During fiscal 1999, the company repurchased a total of 938,600
shares at an average price of $5.90 per share under these authorizations.
