- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
-------------
Date of Report (Date of earliest event reported) February 24, 2004
CULP, INC.
(Exact name of registrant as specified in its charter)
North Carolina 0-12781 56-1001967
(State or other jurisdiction of (Commission File No.) (IRS Employer
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)
- --------------------------------------------------------------------------------
INDEX
Page
Item 7 - Exhibits 3
Item 12 - Results of Operations and Financial Condition 3
Signature 4
Exhibits
Item 7 -- Exhibits
99(a) News Release dated February 24, 2004
99(b) Financial Information Release dated February 24, 2004
Item 12 -- Results of Operations and Financial Condition
On February 24, 2004, Culp, Inc. (the "Registrant") issued a news release to
announce its financial results for the quarter ended February 1, 2004. The news
release is attached hereto as Exhibit 99(a).
Also on February 24, 2004, the Registrant released a Financial Information
Release containing additional financial information and disclosures about the
Registrant's third quarter ended February 1, 2004. The news release and
financial information release contain disclosures about free cash flow, a
non-GAAP performance measure, that management believes provides useful
information to investors because it measures the company's available cash flow
for potential debt repayment, stock repurchases and additions to cash, cash
equivalents and short-term investments. In addition, the news release and
financial information release contain proforma income statements which reconcile
the reported income statements with proforma results, which exclude
restructuring and related charges, one-time expenses related to early
extinguishment of debt, and cumulative effect of accounting change. The company
has included this proforma information in order to show operational performance
excluding the effects of restructuring charges and expenses related to early
debt repayment that are not expected to occur on a regular basis.
Forward Looking Information. This Report and the exhibits attached hereto
contain statements that may be deemed "forward-looking statements" within the
meaning of the federal securities laws, including the Private Securities
Litigation Reform Act of 1995 (Section 27A of the Securities Act of 1933 and
Section 27A of the Securities and Exchange Act of 1934). Such statements are
inherently subject to risks and uncertainties. Further, forward looking
statements are intended to speak only as of the date on which they are made.
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 but not always characterized by
qualifying words such as "expect," "believe," "estimate," "plan" and "project"
and their derivatives, and include but are not limited to statements about
expectations for the company's future sales, gross profit margins, SG&A or other
expenses, and earnings, as well as any statements regarding the company's view
of estimates of the company's future results by analysts. 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, 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. Also, economic and political
instability in international areas could affect the company's operations or
sources of goods in those areas, as well as demand for the company's products in
international markets. Finally, unanticipated delays or costs in executing
restructuring actions could cause the cumulative effect of restructuring actions
to fail to meet the objectives set forth by management. Other factors that could
affect the matters discussed in forward looking statements are included in the
company's periodic reports filed with the Securities and Exchange Commission.
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: Franklin N. Saxon
------------------
Executive Vice President and
Chief Financial Officer
Dated: February 24, 2004
Exhibit 99(a)
NEWS RELEASE
Investor Contact: Kathy J. Hardy Media Contact: Kenneth M. Ludwig
Corporate Secretary Senior Vice President,
336-888-6209 Human Resources
336-889-5161
CULP ANNOUNCES THIRD QUARTER FISCAL 2004 RESULTS
HIGH POINT, N.C. (February 24, 2004) - Culp, Inc. (NYSE: CFI) today reported
financial and operating results for the third quarter and nine months ended
February 1, 2004. The highlights for the quarter include:
o Net income of $0.16 per diluted share, excluding a charge for the early
extinguishment of debt
o Gross profit margin of 18.9%, driven by continued improvement in the
upholstery fabrics segment
o Prepayment of $25 million of the company's $75 million of outstanding
senior notes
o Debt to capital ratio reduced to 33.9%, the lowest level for Culp since
fiscal 1993
o Earnings expectation for the fourth quarter of fiscal 2004 is $0.31 to
$0.35 per diluted share.
For the three months ended February 1, 2004, net sales were $76.6 million,
compared with $79.5 million a year ago. The company reported net income of
$752,000, or $0.06 per diluted share, for the third quarter of fiscal 2004. The
results for the third fiscal quarter include a one-time charge of $1.7 million,
or $0.10 per diluted share, related to the previously announced $25 million
prepayment of the company's $75 million of outstanding senior notes. Excluding
this charge for the early extinguishment of debt, net income for the third
fiscal quarter was $1.9 million, or $0.16 per diluted share. The company
reported net income of $1.7 million, or $0.14 per diluted share, including
restructuring and related charges for the third quarter of fiscal 2003. The
financial results for the third quarter of fiscal 2003 include a total of
$397,000 in restructuring and related charges. Excluding these charges, net
income for the third fiscal quarter of 2003 was $1.9 million, or $0.16 per
diluted share. (A reconciliation to the net income and earnings per share
calculations has been set forth on Page 5.)
For the nine months ended February 1, 2004, the company reported net sales
of $233.0 million compared with $249.2 million for the same period a year ago.
Net income for the first nine months of fiscal 2004 was $3.5 million, or $0.30
per diluted share, compared with a net loss of $28.2 million, or $2.46 per
diluted share, including restructuring charges and the cumulative effect of
accounting change, for the first nine months of fiscal 2003. Excluding the
$1.7 million charge for the early extinguishment of debt described above, net
income for the first nine months of fiscal 2004 was $4.6 million, or $0.39 per
diluted share. Excluding restructuring and related charges and the cumulative
effect of accounting change, net income for the first nine months of fiscal 2003
was $5.1 million, or $0.43 per diluted share. The year-to-date period for fiscal
2004 included 40 weeks versus 39 weeks for the same period of fiscal 2003.
"Our results for the third fiscal quarter of 2004 reflect continued
productivity improvement and solid profitability in spite of a modest decline in
sales," remarked Robert G. Culp, III, chief executive officer of Culp, Inc.
"Mattress ticking sales continued to gain momentum with a 6.9% increase over the
prior year period, and a 5.8% increase for the fiscal year to date. This growth
trend is particularly meaningful in light of the bedding industry's ongoing
transition to selling predominantly one-sided mattresses, which utilize about
one-third less fabric. Upholstery fabric sales declined 8.1% over the same
period last year, primarily related to consumer preference for leather furniture
and competition from imported fabrics and cut and sewn kits. However, our gross
profit margin for the quarter was 18.9%, the highest in sixteen years for the
company's third quarter. This improved profitability reflects gains in operating
efficiencies within the upholstery fabrics segment. Our ability to drive higher
gross profit margins in this segment confirms the value of our strategic
initiatives over the past year to streamline our operations and focus on
improving the profitability of our sales mix.
"Strengthening our balance sheet has been an important focus for our
company," added Culp. "During the third fiscal quarter, we elected to make a
$25.0 million prepayment on $75.0 million of outstanding senior notes. Including
this prepayment, we have generated sufficient free cash flow to reduce our
long-term debt by a total of $86.0 million over the past three and a half years.
By taking this opportunity to further reduce our debt on favorable terms, our
long-term debt now stands at $51.1 million. As a result, our long-term
debt-to-capital ratio improved to 33.9% at the end of the third fiscal quarter
of 2004, compared with 51.1% a year ago. We will realize annualized savings of
approximately $1.7 million, or $0.09 per share, in net interest expense in each
of the next two years, and a declining amount over the remainder of the notes'
term until 2010."
Culp added, "While the home furnishings retail environment appears to be
improving, we anticipate our consolidated sales for the fourth fiscal quarter
will decrease slightly over last year's level. Mattress ticking segment sales
are expected to continue to increase over the prior year and we believe the gain
will be significantly higher than the 6.9 percent increase this quarter.
Upholstery fabrics segment sales are expected to decline at about the same rate
we experienced this quarter. Based on these sales expectations and the current
industry outlook, we expect to report net income in the range of $0.31 to $0.35
per share diluted for the fourth fiscal quarter, with the actual results
depending primarily upon the level of demand throughout the quarter. Culp's
results to date demonstrate the strength of our operations and our ability to
execute our strategy, and we look forward to building on this momentum for the
remainder of fiscal 2004."
Culp, Inc. is one of the world's largest marketers of upholstery fabrics
for furniture and is a leading marketer 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 may be deemed "forward-looking
statements" within the meaning of the federal securities laws, including the
Private Securities Litigation Reform Act of 1995 (Section 27A of the Securities
Act of 1933 and Section 27A of the Securities and Exchange Act of 1934). Such
statements are inherently subject to risks and uncertainties. Further,
forward-looking statements are intended to speak only as of the date on which
they are made. 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 but not always
characterized by qualifying words such as "expect," "believe," "estimate,"
"plan" and "project" and their derivatives, and include but are not limited to
statements about expectations for the company's future sales, gross profit
margins, SG&A or other expenses, and earnings, as well as any statements
regarding the company's view of estimates of the company's future results by
analysts. 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,
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. Also, economic and political instability in international areas
could affect the company's operations or sources of goods in those areas, as
well as demand for the company's products in international markets. Finally,
unanticipated delays or costs in executing restructuring actions could cause the
cumulative effect of restructuring actions to fail to meet the objectives set
forth by management. Other factors that could affect the matters discussed in
forward-looking statements are included in the company's periodic reports filed
with the Securities and Exchange Commission.
CULP, INC.
Condensed Financial Highlights
(Unaudited)
Three Months Ended
-------------------------------
February 1, January 26,
2004 2003
------------- --------------
Net sales $ 76,561,000 $ 79,492,000
Net income $ 752,000 $ 1,667,000
Net income per share:
Basic $ 0.07 $ 0.15
Diluted $ 0.06 $ 0.14
Net income per share, diluted, excluding restructuring
and related charges and early extinguishment of debt* $ 0.16 $ 0.16
Average shares outstanding:
Basic 11,529,000 11,485,000
Diluted 11,859,000 11,714,000
Nine Months Ended
-------------------------------
February 1, January 26,
2004 2003
------------- --------------
Net sales $ 232,968,000 $ 249,240,000
============= ==============
Income (loss) before cumulative effect of accounting change $ 3,487,000 $ (4,008,000)
Cumulative effect of accounting change, net of income taxes -0- (24,151,000)
------------- --------------
Net income (loss) $ 3,487,000 $ (28,159,000)
============= ==============
Basic and diluted income (loss) per share:
Income (loss) before cumulative effect of accounting change $ 0.30 $ (0.35)
Cumulative effect of accounting change 0.00 (2.11)
------------- --------------
Net income (loss) per share $ 0.30 $ (2.46)
============= ==============
Net income per share, diluted, excluding restructuring
and related charges, early extinguishment of debt and
cumulative effect of accounting change** $ 0.39 $ 0.43
Average shares outstanding:
Basic 11,522,000 11,450,000
Diluted 11,764,000 11,450,000
* Excludes charge for early extinguishment of debt of $1.7 million, or $0.10 per
diluted share, for the third quarter of fiscal 2004. Excludes restructuring
and related charges of $397,000 ($240,000, or $0.02 per diluted share, after
taxes) for the third quarter of fiscal 2003.
** Excludes charge for early extinguishment of debt of $1.7 million, or $0.10
per diluted share, for the first nine months of fiscal 2004. Excludes
cumulative effect of accounting change, net of income taxes, of $24.2
million ($2.11 per diluted share) for the first nine months of fiscal 2003.
Excludes restructuring and related charges of $14.9 million ($9.1 million,
or $0.80 per share diluted, after taxes) for the first nine months of fiscal
2003.
CULP, INC.
Reconciliation of Net Income (Loss) as Reported to Pro Forma Net Income
(Unaudited)
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
February 1, January 26, February 1, January 26,
2004 2003 2004 2003
------------- ------------- ------------- ------------
Net income (loss), as reported $ 752,000 $ 1,667,000 $ 3,487,000 $(28,159,000)
Cumulative effect of
accounting change, net of
income taxes -- -- -- 24,151,000
Restructuring and related
charges, net of income taxes -- 240,000 -- 9,114,000
Early extinguishment of debt,
net of income taxes 1,120,000 -- 1,120,000 --
------------- ------------- ------------- ------------
Pro forma net income (loss) $ 1,872,000 $ 1,907,000 $ 4,607,000 $ 5,106,000
============= ============= ============= ============
Reconciliation of Net Income (Loss) Per Share as Reported
to Pro Forma Net Income Per Share
(Unaudited)
Diluted net income (loss) per
share $ 0.06 $ 0.14 $ 0.30 $ (2.46)
Cumulative effect of
accounting change, net of
income taxes -- -- -- 2.11
Restructuring and related
charges, net of income taxes -- 0.02 -- 0.80
Early extinguishment of debt,
net of income taxes 0.10 -- 0.10 --
Effect of dilutive stock options -- -- (0.01) (0.02)
------------ ------------ ------------ ------------
Diluted net income
per share, adjusted $ 0.16 $ 0.16 $ 0.39 $ 0.43
============ ============ ============ ============
Reconciliation of Cash Flow from Operations to Free Cash Flow
(Unaudited)
Nine Months Ended
-----------------------------
February 1, January 26,
2004 2003
------------- ------------
Cash flow from operations $ 16,782,000 $ 23,864,000
Capital expenditures (4,097,000) (5,224,000)
Change in accounts payable-capital expenditures (2,772,000) (778,000)
------------- ------------
Free cash flow $ 9,913,000 $ 17,862,000
============= ============
Exhibit 99(b)
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 1, 2004 AND JANUARY 26, 2003
(UNAUDITED)
(Amounts in Thousands, Except for Per Share Data)
THREE MONTHS ENDED
----------------------------------------------------------------------------
Amounts Percent of Sales
--------------------------- ------------------------------
February 1, January 26, % Over February 1, January 26,
2004 2003 (Under) 2004 2003
------------- ----------- ------------ -------------- -------------
Net sales $ 76,561 79,492 (3.7) % 100.0 % 100.0 %
Cost of sales 62,093 65,704 (5.5) % 81.1 % 82.7 %
------------- ----------- ----------- -------------- -------------
Gross profit 14,468 13,788 4.9 % 18.9 % 17.3 %
Selling, general and
administrative expenses 10,282 9,798 4.9 % 13.4 % 12.3 %
Restructuring expense 0 (354) (100.0) % 0.0 % (0.4)%
------------- ----------- ----------- -------------- -------------
Income from operations 4,186 4,344 3.6 % 5.5 % 5.5 %
Interest expense 1,534 1,665 (7.9) % 2.0 % 2.1 %
Interest income (113) (143) (21.0) % (0.1)% (0.2)%
Early extinguishment of debt 1,672 0 100.0 % 2.2 % 0.0 %
Other expense (income), net 229 192 19.3 % 0.3 % 0.2 %
------------- ----------- ----------- -------------- -------------
Income before income taxes 864 2,630 (67.1) % 1.1 % 3.3 %
Income taxes* 112 963 (88.4) % 13.0 % 36.6 %
------------- ----------- ----------- -------------- -------------
Net income $ 752 1,667 54.9 % 1.0 % 2.1 %
============= =========== =========== ============== =============
Net income per share-basic $0.07 $0.15 (53.3) %
Net income per share-diluted $0.06 $0.14 (57.1) %
Net income per share, diluted, excluding $0.16 $0.16 0.0 %
restructuring and related charges and early
extinguishment of debt (see proforma statement
on page 6)
Average shares outstanding-basic 11,529 11,485 0.4 %
Average shares outstanding-diluted 11,859 11,714 1.2 %
NINE MONTHS ENDED
----------------------------------------------------------------------------
Amounts Percent of Sales
--------------------------- ------------------------------
February 1, January 26, % Over February 1, January 26,
2004 2003 (Under) 2004 2003
------------- ----------- ------------ -------------- -------------
Net sales $ 232,968 249,240 (6.5) % 100.0 % 100.0 %
Cost of sales 190,283 207,855 (8.5) % 81.7 % 83.4 %
------------- ----------- ----------- -------------- -------------
Gross profit 42,685 41,385 3.1 % 18.3 % 16.6 %
Selling, general and
administrative expenses 31,089 29,716 4.6 % 13.3 % 11.9 %
Restructuring expense 0 13,006 (100.0) % 0.0 % 5.2 %
------------- ----------- ----------- -------------- -------------
Income (loss) from operations 11,596 (1,337) 967.3 % 5.0 % (0.5)%
Interest expense 4,540 5,244 (13.4) % 1.9 % 2.1 %
Interest income (356) (414) (14.0) % (0.2)% (0.2)%
Early extinguishment of debt 1,672 0 100.0 % 0.7 % 0.0 %
Other expense (income), net 536 645 (16.9) % 0.2 % 0.3 %
------------- ----------- ----------- -------------- -------------
Income (loss) before income taxes 5,204 (6,812) 176.4 % 2.2 % (2.7)%
Income taxes* 1,717 (2,804) 161.2 % 33.0 % 41.2 %
------------- ----------- ----------- -------------- -------------
Income (loss) before cumulative effect of 3,487 (4,008) 187.0 % 1.5 % (1.6)%
accounting change =========== ==========
Cumulative effect of accounting change, net of
income taxes 0 (24,151)
------------- -----------
Net income (loss) $ 3,487 (28,159)
============= ===========
Basic income (loss) per share:
Income (loss) before cumulative effect of
accounting change $ 0.30 (0.35) 186.5 %
Cumulative effect of accounting change 0.00 (2.11) 100.0 %
------------- ----------- --------
Net income (loss) $ 0.30 (2.46) 112.3 %
============= =========== ========
Diluted income (loss) per share:
Income (loss) before cumulative effect of
accounting change $ 0.30 (0.35) 184.7 %
Cumulative effect of accounting change 0.00 (2.11) 100.0 %
------------- ----------- --------
Net income (loss) $ 0.30 (2.46) 112.1 %
============= =========== ========
Net income per share, diluted, excluding $0.39 $0.43 (9.3) %
restructuring and related charges, early
extinguishment of debt and cumulative
effect of accounting change (see proforma
statement on page 7)
Average shares outstanding-basic 11,522 11,450 0.6 %
Average shares outstanding-diluted 11,764 11,450 2.7 %
* Percent of sales column for income taxes is calculated as a % of income (loss) before income
taxes.
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED BALANCE SHEETS
FEBRUARY 1, 2004, JANUARY 26, 2003 AND APRIL 27, 2003
UNAUDITED
(Amounts in Thousands)
Amounts Increase
----------------------- (Decrease)
February 1, January 26, ------------------- *April 27,
2004 2003 Dollars Percent 2003
----------- ----------- -------- ---------- ---------
Current assets
Cash and cash equivalents $ 8,932 38,480 (29,548) (76.8)% 14,355
Short-term investments 0 0 0 0.0 % 10,043
Accounts receivable 28,282 32,427 (4,145) (12.8)% 32,259
Inventories 52,000 53,560 (1,560) (2.9)% 49,552
Deferred income taxes 12,303 9,447 2,856 30.2 % 12,303
Other current assets 2,610 5,892 (3,282) (55.7)% 3,204
----------- ----------- -------- ---------- ---------
Total current assets 104,127 139,806 (35,679) (25.5)% 121,716
Property, plant & equipment, net 78,909 85,396 (6,487) (7.6)% 84,962
Goodwill 9,240 9,240 0 0.0 % 9,240
Other assets 1,577 2,311 (734) (31.8)% 2,235
----------- ----------- -------- ---------- ---------
Total assets $ 193,853 236,753 (42,900) (18.1)% 218,153
=========== =========== ======== ========== =========
Current liabilities
Current maturities of
long-term debt $ 544 13,133 (12,589) (95.9)% 500
Accounts payable 17,790 21,924 (4,134) (18.9)% 19,874
Accrued expenses 12,901 14,646 (1,745) (11.9)% 14,071
Accrued restructuring 6,353 8,465 (2,112) (24.9)% 7,743
Income taxes payable 2,428 0 2,428 100.0 % 349
----------- ----------- -------- ------- ---------
Total current liabilities 40,016 58,168 (18,152) (31.2)% 42,537
Long-term debt 50,519 83,008 (32,489) (39.1)% 76,000
Deferred income taxes 3,851 3,502 349 10.0 % 3,851
----------- ----------- -------- ---------- ---------
Total liabilities 94,386 144,678 (50,292) (34.8)% 122,388
Shareholders' equity 99,467 92,075 7,392 8.0 % 95,765
----------- ----------- -------- ---------- ---------
Total liabilities and
shareholders' equity $ 193,853 236,753 (42,900) (18.1)% 218,153
=========== =========== ======== ========== =========
Shares outstanding 11,529 11,487 42 0.4 % 11,515
=========== =========== ======== ========== =========
* Derived from audited financial statements
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED FEBRUARY 1, 2004 AND JANUARY 26, 2003
Unaudited
(Amounts in Thousands)
NINE MONTHS ENDED
--------------------------
Amounts
--------------------------
February 1, January 26,
2004 2003
------------ ------------
Cash flows from operating activities:
Net income (loss) $ 3,487 (28,159)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Cumulative effect of accounting change, net of income taxes 0 24,151
Depreciation 10,294 10,554
Amortization of other assets 136 286
Stock-based compensation 157 158
Restructuring expense 0 13,006
Changes in assets and liabilities:
Accounts receivable 3,977 10,939
Inventories (2,448) 4,339
Other current assets 594 (1,885)
Other assets 522 295
Accounts payable 544 (5,477)
Accrued expenses (1,170) (1,551)
Accrued restructuring (1,390) (2,792)
Income taxes payable 2,079 0
------------ ------------
Net cash provided by operating activities 16,782 23,864
------------ ------------
Cash flows from investing activities:
Capital expenditures (4,097) (5,224)
Proceeds from the sale of short-term investments 10,043 0
------------ ------------
Net cash provided by (used) in investing activities 5,946 (5,224)
------------ ------------
Cash flows from financing activities:
Payments on vendor-financed capital expenditures (2,772) (778)
Principal payments of long-term debt (25,437) (12,343)
Proceeds from common stock issued 58 968
------------ ------------
Net cash used in financing activities (28,151) (12,153)
------------ ------------
Increase (decrease) in cash and cash equivalents (5,423) 6,487
Cash and cash equivalents at beginning of period 14,355 31,993
------------ ------------
Cash and cash equivalents at end of period $ 8,932 38,480
============ ============
Free Cash Flow (1) $ 9,913 17,862
============ ============
- --------------------------------------------------------------------------------------------------
(1) Free Cash Flow reconciliation is as follows: 3rd QTR 3rd QTR
FY 2004 FY 2003
-----------------------------
A) Net cash provided by operating activities 16,782 23,864
B) Minus: Capital Expenditures (4,097) (5,224)
C) Minus: Payments on vendor-financed capital expenditures (2,772) (778)
------------ ------------
9,913 17,862
============ ============
- --------------------------------------------------------------------------------------------------
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL ANALYSIS
FEBRUARY 1, 2004
FISCAL 03 FISCAL 04
-------------- ---------------------------------------------------------
Q3 Q1 Q2 Q3 Q4
-------------- ---------------------------------------------------------
INVENTORIES
Inventory turns 4.8 5.0 5.1 4.7
RECEIVABLES
Days sales in receivables 34 32 34 31
WORKING CAPITAL
Current ratio 3.1 3.1 2.9 2.6
Operating working capital turnover (1) 4.9 5.1 5.3 5.3
Operating working capital (1) $64,063 $54,854 $61,262 $62,492
PROPERTY, PLANT & EQUIPMENT
Depreciation rate 6.2% 6.2% 6.3% 6.2%
Percent property, plant &
equipment are depreciated 61.0% 62.3% 62.9% 64.0%
Capital expenditures $12,229 (2) $1,781 $1,360 $1,101
LEVERAGE
Total liabilities/equity 157.1% 124.7% 128.0% 94.9%
Long-term debt/equity 104.4% 80.3% 77.7% 51.3%
Long-term debt/capital employed 51.1% 44.5% 43.7% 33.9%(3)
Long-term debt $96,141 $76,551 $76,616 $51,063
OTHER
Book value per share $8.02 $8.28 $8.55 $8.63
Employees at quarter end 2,534 2,383 2,373 2,350
Sales per employee (annualized) $124,306 $121,628 $139,161 $129,682
Capital employed $188,216 $171,891 $175,221 $150,530
(1) Working capital for this calculation is accounts receivable, inventories and accounts payable
(2) Expenditures for entire year
(3) Capital employed represents long-term debt plus stockholders equity; Long-term debt is long-term
debt plus current maturities of of long-term debt
CULP, INC. FINANCIAL INFORMATION RELEASE
SALES / GROSS PROFIT BY SEGMENT/DIVISION
FOR THE THREE AND NINE MONTHS ENDED FEBRUARY 1, 2004 AND JANUARY 26, 2003
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
------------------------------------------------------------------
Amounts Percent of Total Sales
--------------------- -------------------------------
February 1, January 26, % Over February 1, January 26,
Segment/Division Sales (1) 2004 2003 (Under) 2004 2003
- ------------------------------------------------------ ---------- --------- ---------- --------------- --------------
Upholstery Fabrics
Culp Decorative Fabrics $ 29,173 31,798 (8.3)% 38.1 % 40.0 %
Culp Velvets/Prints 21,769 22,841 (4.7)% 28.4 % 28.7 %
Culp Yarn 505 1,356 (62.8)% 0.7 % 1.7 %
---------- --------- ---------- --------------- --------------
51,447 55,995 (8.1)% 67.2 % 70.4 %
Mattress Ticking
Culp Home Fashions 25,114 23,497 6.9 % 32.8 % 29.6 %
---------- --------- ---------- --------------- --------------
$ 76,561 79,492 (3.7)% 100.0 % 100.0 %
========== ========= ========== =============== ==============
Segment Gross Profit Gross Profit Margin
- ------------------------------------------------------ -------------------------------
Upholstery Fabrics $ 9,375 8,088 15.9 % 18.2 % 14.4 %
Restructuring related charges 0 751 (100.0)% 0.0 % 1.3 %
---------- --------- ---------- --------------- --------------
Pro forma Upholstery Fabrics gross profit (2) 9,375 8,839 6.1 % 18.2 % 15.8 %
Mattress Ticking 5,093 5,700 (10.6)% 20.3 % 24.3 %
---------- --------- ---------- --------------- --------------
Pro forma gross profit $ 14,468 14,539 (0.5)% 18.9 % 18.3 %
========== ========= ========== =============== ==============
NINE MONTHS ENDED (UNAUDITED)
------------------------------------------------------------------
Amounts Percent of Total Sales
--------------------- -------------------------------
February 1, January 26, % Over February 1, January 26,
Segment/Division Sales (1) 2004 2003 (Under) 2004 2003
- ------------------------------------------------------ ---------- --------- ---------- --------------- --------------
Upholstery Fabrics
Culp Decorative Fabrics $ 88,002 100,473 (12.4)% 37.8 % 40.3 %
Culp Velvets/Prints 62,093 69,277 (10.4)% 26.7 % 27.8 %
Culp Yarn 3,751 4,702 (20.2)% 1.6 % 1.9 %
---------- --------- ---------- --------------- --------------
153,846 174,452 (11.8)% 66.0 % 70.0 %
Mattress Ticking
Culp Home Fashions 79,122 74,788 5.8 % 34.0 % 30.0 %
---------- --------- ---------- --------------- --------------
$ 232,968 249,240 (6.5)% 100.0 % 100.0 %
========== ========= ========== =============== ==============
Segment Gross Profit Gross Profit Margin
- ------------------------------------------------------ -------------------------------
Upholstery Fabrics $ 25,191 23,738 6.1 % 16.4 % 13.6 %
Restructuring related charges 0 1,911 (100.0)% 0.0 % 1.1 %
---------- --------- ---------- --------------- --------------
Pro forma Upholstery Fabrics gross profit (2) 25,191 25,649 (1.8)% 16.4 % 14.7 %
Mattress Ticking 17,494 17,647 (0.9)% 22.1 % 23.6 %
---------- --------- ---------- --------------- --------------
Pro forma gross profit $ 42,685 43,296 (1.4)% 18.3 % 17.4 %
========== ========= ========== =============== ==============
(1) International Sales and portion of total sales is: Q3 - $8.5 million FY04 (11.1%) & $8.2 million
FY03 (10.3%); YTD - $26.1 million FY04 (11.2%) & $29.8 million FY03 (12.0%)
(2) Pro forma includes $751,000 and $1.9 million of restructuring related charges from the shut down of the
Chattanooga operation for the three and nine month period of fiscal 2003, respectively.
CULP, INC.
PROFORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED FEBRUARY 1, 2004 AND JANUARY 26, 2003
(Amounts in Thousands, Except for Per Share Data)
THREE MONTHS ENDED
------------------------------------------------------------
As Reported February 1, 2004
February 1, % of % of Proforma Net % of
2004 Sales Adjustments Sales of Adjustments Sales
------------------ ----------------- ---------------------
Net sales $ 76,561 100.0% 0 0.0% 76,561 100.0%
Cost of sales 62,093 81.1% 0 0.0% 62,093 81.1%
------------------ ----------------- ---------------------
Gross profit 14,468 18.9% 0 0.0% 14,468 18.9%
Selling, general and
administrative expenses 10,282 13.4% 0 0.0% 10,282 13.4%
Restructuring expense 0 0.0% 0 0.0% 0 0.0%
------------------ ----------------- ---------------------
Income from operations 4,186 5.5% 0 0.0% 4,186 5.5%
Interest expense 1,534 2.0% 0 0.0% 1,534 2.0%
Interest income (113) -0.1% 0 0.0% (113) -0.1%
Early extinguishment of debt 1,672 2.7% (1,672) 0.0% (2) 0 0.0%
Other expense (income), net 229 0.3% 0 0.0% 229 0.3%
------------------ ----------------- ---------------------
Income before income taxes 864 1.1% 1,672 2.2% 2,536 3.3%
Income taxes (1) 112 13.0% 552 33.0% 664 26.2%
------------------ ----------------- ---------------------
Net income (loss) $ 752 1.0% 1,120 1.5% 1,872 2.4%
================== ================= =====================
Net income (loss) per share-basic $0.07 $0.10 $0.16
Net income (loss) per share-diluted $0.06 $0.10 $0.16
Average shares outstanding-basic 11,529 11,529 11,529
Average shares outstanding-diluted 11,859 11,529 11,859
CULP, INC.
PROFORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED FEBRUARY 1, 2004 AND JANUARY 26, 2003
(Amounts in Thousands, Except for Per Share Data)
THREE MONTHS ENDED
------------------------------------------------------------------------------------
As Reported January 26, 2003 Proforma
January 26, % of % of Proforma Net % of % Over
2003 Sales Adjustments Sales of Adjustments Sales (Under)
---------------- ------------------- --------------------- ---------
Net sales $ 79,492 100.0% 0 0.0% 79,492 100.0% -3.7%
Cost of sales 65,704 82.7% (751) -0.9% (3) 64,953 81.7% -4.4%
---------------- ------------------- --------------------- ---------
Gross profit 13,788 17.3% (751) -0.9% 14,539 18.3% -0.5%
Selling, general and
administrative expenses 9,798 12.3% 0 0.0% 9,798 12.3% 4.9%
Restructuring expense (354) -0.4% 354 0.4% (4) 0 0.0% 0.0%
---------------- ------------------- --------------------- ---------
Income from operations 4,344 5.5% (397) -0.5% 4,741 6.0% -11.7%
Interest expense 1,665 2.1% 0 0.0% 1,665 2.1% -7.9%
Interest income (143) -0.2% 0 0.0% (143) -0.2% -21.0%
Early extinguishment of debt 0 0.0% 0 0.0% 0 0.0% 0.0%
Other expense (income), net 192 0.2% 0 0.0% 192 0.2% 19.3%
---------------- ------------------- --------------------- ---------
Income before income taxes 2,630 3.3% (397) -0.5% 3,027 3.8% -16.2%
Income taxes (1) 963 36.6% (157) 39.5% 1,120 37.0% -40.7%
---------------- ------------------- --------------------- ---------
Net income (loss) $ 1,667 2.1% (240) -0.3% 1,907 2.4% -1.8%
================ =================== ===================== =========
Net income (loss) per share-basic $0.15 ($0.02) $0.17
Net income (loss) per share-diluted $0.14 ($0.02) $0.16
Average shares outstanding-basic 11,485 11,485 11,485
Average shares outstanding-diluted 11,714 11,485 11,714
Notes:
(1) Percent of net sales column for income taxes is calculated as a % of income (loss) before income taxes
(2) Premium and fees paid to reduce private placement loan balance
(3) The $751,000 represents restructuring related charges for inventory markdowns and movement of equipment related to
the Chattanooga plant closing
(4) The $354,000 restructuring credit represents the reversal of excess accrued employment benefit and plant security costs
associated with the shutdown of the wet printed flock operation
CULP, INC.
PROFORMA CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE NINE MONTHS ENDED FEBRUARY 1, 2004 AND JANUARY 26, 2003
(Amounts in Thousands, Except for Per Share Data)
NINE MONTHS ENDED
-------------------------------------------------------------------
As Reported February 1, 2004
February 1, % of % of Proforma Net % of
2004 Sales Adjustments Sales of Adjustments Sales
-------------------- ------------------- -----------------------
Net sales $ 232,968 100.0% 0 0.0% 232,968 100.0%
Cost of sales 190,283 81.7% 0 0.0% 190,283 81.7%
-------------------- ------------------- -----------------------
Gross profit 42,685 18.3% 0 0.0% 42,685 18.3%
Selling, general and
administrative expenses 31,089 13.3% 0 0.0% 31,089 13.3%
Restructuring expense 0 0.0% 0 0.0% 0 0.0%
-------------------- ------------------- -----------------------
Income (loss) from operations 11,596 5.0% 0 0.0% 11,596 5.0%
Interest expense 4,540 1.9% 0 0.0% 4,540 1.9%
Interest income (356) -0.2% 0 0.0% (356) -0.2%
Early extinguishment of debt 1,672 0.7% (1,672) 0.0% (2) 0 0.0%
Other expense (income), net 536 0.2% 0 0.0% 536 0.2%
-------------------- ------------------- -----------------------
Income (loss) before income taxes 5,204 2.2% 1,672 0.7% 6,876 3.0%
Income taxes (1) 1,717 33.0% 552 33.0% 2,269 33.0%
-------------------- ------------------- -----------------------
Income (loss) before cumulative effect of $ 3,487 1.5% 1,120 0.5% 4,607 2.0%
accounting change
-------------------- =================== =======================
Cumulative effect of accounting change, net 0 0
of income taxes
------------ ----------- -------------
Net income (loss) 3,487 1,120 4,607
============ =========== =============
Basic income (loss) per share:
Income (loss) before cumulative effect
of accounting change $ 0.30 0.10 0.40
Cumulative effect of accounting change 0.00 0.00 0.00
------------ ------------ -------------
Net income (loss) 0.30 0.10 0.40
============ ============ =============
Diluted income (loss) per share:
Income (loss) before cumulative effect
of accounting change $ 0.30 0.10 0.39
Cumulative effect of accounting change 0.00 0.00 0.00
------------ ------------ -------------
Net income (loss) 0.30 0.10 0.39
============ ============ =============
Average shares outstanding-basic 11,522 11,522 11,522
Average shares outstanding-diluted 11,764 11,522 11,764
CULP, INC.
PROFORMA CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE NINE MONTHS ENDED FEBRUARY 1, 2004 AND JANUARY 26, 2003
(Amounts in Thousands, Except for Per Share Data)
NINE MONTHS ENDED
------------------------------------------------------------------------------
As Reported January 26, 2003 Proforma
January 26, % of % of Proforma Net % of % Over
2003 Sales Adjustments Sales of Adjustments Sales (Under)
------------------- ------------------ --------------------- ---------
Net sales $ 249,240 100.0% 0 249,240 100.0% -6.5%
Cost of sales 207,855 83.4% (1,911) -0.8% (3) 205,944 82.6% -7.6%
------------------- ------------------ --------------------- ---------
Gross profit 41,385 16.6% (1,911) -0.8% 43,296 17.4% -1.4%
Selling, general and
administrative expenses 29,716 11.9% 0 0.0% 29,716 11.9% 4.6%
Restructuring expense 13,006 5.2% (13,006) -5.2% (4) 0 0.0% 0.0%
------------------- ------------------ --------------------- ---------
Income (loss) from operations (1,337) -0.5% (14,917) -6.0% 13,580 5.4% -14.6%
Interest expense 5,244 2.1% 0 0.0% 5,244 2.1% -13.4%
Interest income (414) -0.2% 0 0.0% (414) -0.2% -14.0%
Early extinguishment of debt 0 0.0% 0 0.0% 0 0.0% 0.0%
Other expense (income), net 645 0.3% 0 0.0% 645 0.3% -16.9%
------------------- ------------------ --------------------- ---------
Income (loss) before income taxes (6,812) -2.7% (14,917) -6.0% 8,105 3.3% -15.2%
Income taxes (1) (2,804) 41.2% (5,803) 38.9% 2,999 37.0% -24.3%
------------------- ------------------ --------------------- ---------
Income (loss) before cumulative effect of (4,008) -1.6% (9,114) -3.7% 5,106 2.0% -9.8%
accounting change
------------------- ------------------ --------------------- ---------
Cumulative effect of accounting change, net (24,151) 24,151 0
of income taxes
------------ ----------- -------------
Net income (loss) (28,159) 5,106
============ =============
Basic income (loss) per share:
Income (loss) before cumulative effect
of accounting change $ (0.35) ($0.80) 0.45
Cumulative effect of accounting change (2.11) 2.11 0.00
------------
-------------
Net income (loss) (2.46) $0.45
============ =============
Diluted income (loss) per share:
Income (loss) before cumulative effect
of accounting change $ (0.35) 0.80) 0.43
Cumulative effect of accounting change (2.11) 2.11 0.00
------------
-------------
Net income (loss) (2.46) $0.43
============ =============
Average shares outstanding-basic 11,450 11,450 11,450
Average shares outstanding-diluted 11,450 11,450 11,775
Notes:
(1) Percent of net sales column for income taxes is calculated as a % of income (loss) before income taxes
(2) Premium and fees paid to reduce private placement loan balance
(3) The $1.9 million represents restructuring related charges for inventory markdowns and movement of equipment
relating to the Chattanooga plant closing
(4) The $13.0 million represents restructuring charges for the shut down of the Chattanooga operation, $12.1 million, and the
additional write-down of wet printed assets held for sale, $1.3 million
offset by a restructuring credit of $354,000 for over accrued employee benefit and plant security costs
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three and nine months ended February 1, 2004 and January 26, 2003
OVERVIEW
Highlights for the third quarter ended February 1, 2004, include:
o Net income of $0.16 per diluted share, excluding a charge for early
extinguishment of debt;
o Gross profit margin of 18.9%, driven by continued improvement in the
upholstery fabrics segment;
o Prepayment of $25 million of the company's $75 million of outstanding
senior notes;
o Debt to capital ratio reduced to 33.9%, the lowest level for Culp since
fiscal 1993; and
o Earnings expectation for the fourth quarter of fiscal 2004 is $0.31 to
$0.35 per diluted share.
GENERAL -- For the third quarter of fiscal 2004, net sales decreased 3.7%
to $76.6 million; and the company reported net income of $752,000, or $0.06 per
share diluted, compared with net income of $1.7 million, or $0.14 per share
diluted, in the third quarter of fiscal 2003. Included in the current quarter
results was a $1.7 million charge, or $0.10 per share diluted, associated with
the $25 million prepayment of the company's $75 million of outstanding senior
notes. Excluding this charge for the early extinguishment of debt, net earnings
for the third quarter of fiscal 2004 were $1.9 million or $0.16 per share
diluted. Excluding restructuring and related charges, net earnings for the third
quarter of fiscal 2003 were $1.9 million or $0.16 per share diluted (see
reconciliation on page 6). For the first nine months of fiscal 2004, net sales
decreased 6.5% to $233 million; and the company reported net income of $3.5
million, or $0.30 per share diluted, compared to a net loss of $28.2 million, or
$2.46 per share diluted, for the same period last year. Excluding the $1.7
million charge for the early extinguishment of debt, earnings for the first nine
months of fiscal 2004 were $4.6 million or $0.39 per share diluted, compared
with earnings for the same period last year of $5.1 million, or $0.43 per share
diluted, excluding restructuring and related charges and the cumulative effect
of accounting change (see reconciliation on page 7). The year-to-date period for
fiscal 2004 included 40 weeks versus 39 weeks for the same period of fiscal
2003.
INCOME STATEMENT COMMENTS
UPHOLSTERY FABRICS SEGMENT (See page 5 - Sales and Gross Profit by Segment)
Net Sales -- Upholstery fabric sales for the third quarter of fiscal 2004
decreased 8.1% to $51.4 million when compared to the third quarter of fiscal
2003, primarily reflecting a decline in orders in the Culp Decorative Fabrics
(CDF) division related to consumer preference for leather and competition from
imported fabrics, including cut and sewn kits. Although the 8.1% decline is
higher than the 4.3% decline experienced during the previous quarter, this
quarterly sales decline is a substantial improvement over the 22.5% decrease in
the first quarter of fiscal 2004 and the 17.2% decrease in the fourth quarter of
fiscal 2003.
With the company's offshore sourcing efforts, including the China platform, the
company is increasing significantly sales of upholstery fabric products produced
outside of the company's U.S. manufacturing plants. These sales, which include
micro denier suedes, accounted for approximately 8.5% of upholstery fabric sales
for the third quarter of fiscal 2004, almost double the percentage from the year
earlier quarter
Upholstery fabric yards sold during the third quarter were 11.8 million versus
13.2 million in the third quarter of fiscal 2003, a decline of 10.6%. Average
selling price was $4.28 for the third quarter compared with $4.11 in the same
quarter of last year, an increase of 4.1%, due primarily to higher average
selling prices in the Culp Decorative Fabrics division.
Gross Profit -- Gross profit for the third quarter of fiscal 2004 was $9.4
million, or 18.2%, versus $8.1 million, or 14.4%, for the same quarter of last
year. Excluding restructuring related charges of $751,000, which were included
in cost of sales in last year's third quarter, gross profit dollars and margins
were $8.8 million and 15.8%, respectively. The increase in gross profit and
margins primarily reflects significant gains in manufacturing operating
efficiencies within the CDF division.
China Operations -- The start up of the company's China operation is
generally proceeding in accordance with previously announced plans. During the
third quarter, the company completed the installation of manufacturing equipment
and began running some production trials. During the fourth quarter, the company
expects to begin incoming fabric inspection and testing, and to start shipping
fabric to customers. Limited finishing operations are also anticipated to begin
in the fourth quarter of this fiscal year. As expected, the company is
experiencing modest operating losses in its China operation during the start up
phase, which is expected to be completed by the end of this fiscal year,
although some level of operating losses from the China operation is expected to
continue until some time in fiscal 2005.
MATTRESS TICKING SEGMENT (See page 5 - Sales and Gross Profit by Segment)
Net Sales -- Mattress ticking sales for the third quarter of fiscal 2004
increased 6.9% to $25.1 million, due to better industry demand and continued
gains with key customers. The 5.8% fiscal year to date sales gain in this
segment is especially noteworthy because it continues to occur during the
bedding industry's transition to selling predominately one-sided mattresses,
which utilize about one-third less mattress ticking. This transition at retail
began in late calendar year 2002 and is expected to continue through early
calendar year 2005.
Mattress ticking yards sold during the third quarter of fiscal 2004 were 10.0
million compared with 9.0 million yards in the third quarter of last year. The
average selling price was $2.50 for the third quarter, compared to $2.59 in the
same quarter last year.
Gross Profit -- For the third quarter of fiscal 2004, the mattress ticking
segment reported gross profit dollars and margins of $5.1 million and 20.3%,
respectively, compared with $5.7 million and 24.3% for the same period of last
year. The reduction in gross profit was due principally to lower selling
margins.
SG&A EXPENSES -- SG&A expenses of $10.3 million for the third quarter
increased approximately $500,000, or 4.9%, from the prior year amount. As a
percent of net sales, SG&A expenses increased to 13.4% from 12.3% the previous
year. This increase over the prior year was due primarily to a $435,000 credit
to bad debt expense in the third quarter of fiscal 2003 resulting from a net
reduction in the allowance for doubtful accounts, due to a decrease in past due
receivable balances. The company did not have any bad debt expense or credit to
bad debt expense in the third quarter of fiscal 2004.
INTEREST EXPENSE AND INTEREST INCOME -- Interest expense for the third
quarter declined to $1.5 million from $1.7 million the previous year due to
lower borrowings outstanding. Interest income decreased to $113,000 from
$143,000 the previous year due to lower interest rates earned in fiscal 2004 as
compared to the previous year.
EARLY EXTINGISHMENT OF DEBT - See LONG-TERM DEBT discussion below.
INCOME TAXES -- The effective tax rate (taxes as a percentage of pretax
income (loss)) for the first nine months of fiscal 2004 was 33.0% compared with
41.2% for the first nine months of fiscal 2003. The higher rate for the prior
period reflects the increased tax benefits related to the company's loss in the
U.S. resulting from the restructuring charges recorded in the second quarter.
Excluding the cumulative effect of accounting change and restructuring and
related charges, the effective tax rate for the first nine months of fiscal 2003
was 37.0%. The lower rate for fiscal 2004 also reflects the benefit from the
company's decrease in estimated accruals during the third quarter, which reduced
the annual effective rate from 37.0% to 33.0%, and increased earnings for the
quarter and year-to-date by $208,000, or $0.02 per diluted share.
BALANCE SHEET COMMENTS
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS - Cash, cash equivalents
and short-term investments as of February 1, 2004 decreased to $8.9 million from
$24.4 million at the end of fiscal 2003, reflecting free cash flow of $9.9
million for the first nine months of fiscal 2004, and the $25 million prepayment
of the company's $75 million outstanding senior notes (see additional discussion
of free cash flow and debt below).
WORKING CAPITAL -- Accounts receivable as of February 1, 2004 decreased
12.8% from the year-earlier level, principally due to an increase in the number
of customers taking the cash discount for shorter payment terms. Days sales
outstanding totaled 31 days at February 1, 2004, compared to 34 days for the
same period last fiscal year. Inventories at the close of the third quarter
decreased 2.9% from a year ago. Inventory turns for the third quarter were 4.7
versus 4.8 for the year-earlier period. Operating working capital (comprised of
accounts receivable, inventories and trade accounts payable) was $62.5 million
at February 1, 2004, down from $64.1 million a year ago.
PROPERTY, PLANT AND EQUIPMENT -- Capital spending for the first nine months
of fiscal 2004 was $4.2 million. Depreciation is estimated at $14.0 million for
the full fiscal year, which is unchanged from the previous year. For fiscal
2004, the company expects capital expenditures to be approximately $7.0 million,
of which approximately $3.5 million is related to the company's China
operations. The China investment includes manufacturing equipment and leasehold
improvements. For fiscal 2005, the company anticipates capital expenditures to
be approximately $8.0 million.
INTANGIBLE ASSETS -- As of February 1, 2004, $9.2 million in goodwill is
the company's only intangible asset.
LONG-TERM DEBT - During the third quarter of fiscal 2004, the company made
a $25.0 million prepayment on its $75.0 million of outstanding senior notes. As
part of the transaction, the company negotiated a five percent, or $1.25
million, premium to be paid to the current note holders for the prepayment of
this principal amount. This premium amount, along with other related transaction
costs, resulted in a charge of $1.7 million, or $0.10 per share, in the third
quarter of fiscal 2004. As a result of this prepayment, the company will realize
annualized savings of approximately $1.7 million, or $0.09 per share, in net
interest expense in each of the next two years, and a declining amount over the
reminder of the notes' term until 2010. In addition, the company's long-term
debt to capital ratio improved to 33.9% compared with 51.1% for the same period
last year. During the past three and one half years the company has generated
sufficient cash flow from operations to reduce long-term debt by $86.0 million,
or 62.0%.
The company's remaining $51.1 million in long-term debt is unsecured and is
comprised of $50 million in outstanding senior notes, with a fixed interest rate
of 7.76%, and a $1.1 million, non-interest bearing term loan with the Canadian
government. Additionally, the company has a $15.0 million revolving credit line
with a bank, of which no balance is outstanding at February 1, 2004. The bank
agreement expires in August 2004. The first scheduled principal payment on the
$50 million term loan is due March 2006 in the amount of $7.5 million. The
Canadian government loan is repaid in annual installments of approximately
$500,000 per year. The company was in compliance with all financial covenants in
its loan agreements as of February 1, 2004.
FREE CASH FLOW COMMENTS
Free cash flow (see reconciliation on page 3 of this release) was $9.9
million for the first nine months of fiscal 2004, compared with $17.9 million
for the same period last year. This decrease is primarily due to less cash flow
generated from working capital. For fiscal 2004, the company believes free cash
flow will be substantially less than fiscal 2003 primarily because the company
does not expect the continued significant reduction in working capital reflected
in each of the previous three years. In addition, the company will have higher
payments on vendor-financed capital expenditures ($3.7 million in fiscal 2004
compared with $1.3 million in fiscal 2003).
BUSINESS OUTLOOK
While the home furnishings retail environment appears to be improving, the
company expects that fourth quarter consolidated sales will decrease slightly
from the same quarter of last year. Mattress ticking segment sales are expected
to continue to increase in the fourth quarter at a significantly higher rate
than the 6.9% growth in the third quarter. Upholstery fabric segment sales are
expected to decline from the same quarter of last year at about the same rate of
8.1% experienced in the third quarter, due primarily to softness in incoming
orders for CDF. With these sales expectations and the current industry outlook,
the company expects to report net income in the range of $0.31 to $0.35 per
diluted share, with actual results primarily depending upon the level of demand
throughout the quarter.