- --------------------------------------------------------------------------------
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) August 26, 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
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Page
Item 2.02 - Results of Operations and Financial 3
Condition
Item 9.01(c) - Exhibits 3
Signature 4
Exhibits
Item 2.02 - Results of Operations and Financial Condition
On August 26, 2004, Culp, Inc. (the "Registrant" or the "company") issued a news
release to announce its financial results for the first quarter ended August 1,
2004. The news release is attached hereto as Exhibit 99(a).
Also on August 26, 2004, the Registrant released a Financial Information Release
containing additional financial information and disclosures about the
Registrant's first quarter ended August 1, 2004. The Financial Information
Release is attached hereto as Exhibit 99(b).
The news release and Financial Information Release contain disclosures about
proforma income statement information, which reconciles the reported income
statement information with proforma results, which exclude restructuring and
related charges and credits. The company has included this proforma
information in order to show operational performance excluding the effects of
restructuring and related charges and credits that are not expected to occur
on a regular basis. Management believes this presentation aids in the
comparison of financial results among comparable financial periods.
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 and operating income
margins, SG&A or other expenses and earnings. 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.
Item 9.01 (c) -- Exhibits
99(a) News Release dated August 26, 2004
99(b) Financial Information Release dated August 26, 2004
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
------------------
President and Chief Operating Officer
By: Kenneth R. Bowling
-------------------
Vice President-Finance, Treasurer
Dated: August 26, 2004
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 FIRST QUARTER FISCAL 2005 RESULTS
HIGH POINT, N.C. (August 26, 2004) - Culp, Inc. (NYSE: CFI) today reported
financial and operating results for the first quarter of fiscal 2005 ended
August 1, 2004. The highlights include:
o Mattress fabrics segment average weekly sales up 2.7 percent during
period of transition to one-sided mattresses.
o Aggressive expansion of offshore sourcing capabilities, resulting in
sales of sourced upholstery fabrics more than doubling over the same
period last year.
o Long-term debt-to-capital ratio of 33.3 percent compared with 44.5
percent a year ago.
o Earnings expectation for the second quarter of fiscal 2005 is net income
of $0.13 to $0.17 per diluted share.
Overview
For the three months ended August 1, 2004, net sales were $67.8 million compared
with $73.7 million a year ago, a 7.9 percent decline. The first quarter of
fiscal 2005 included 13 weeks versus 14 weeks for the same quarter of fiscal
2004. The company reported a net loss of $1,052,000, or $0.09 per diluted share,
for the first quarter of fiscal 2005 compared with a net loss of $411,000, or
$0.04 per diluted share, for the first quarter of fiscal 2004. Excluding
restructuring and related charges and credits of approximately $42,000, net of
income taxes, the net loss for the first quarter of fiscal 2005 was $1,094,000,
or $0.09 per diluted share.
"Considering one less week's sales, our average weekly sales for the first
fiscal quarter of 2005 were $5.2 million compared with $5.3 million in the
prior-year period, a decrease of less than 1.0 percent," commented Robert G.
Culp, III, chairman of the board and chief executive officer of Culp, Inc. "The
first quarter of our fiscal year is typically the slowest period for Culp and
the furniture industry with scheduled plant vacation shutdowns. The seasonal
slowdown, combined with the continued weakness in consumer demand for furniture
throughout the summer, accounted for this modest drop. We believe our
competitive position is strong and we are excited about the growth opportunities
in our mattress ticking business and our offshore sourcing strategy."
Mattress Fabrics Segment
Mattress fabric (known as mattress ticking) sales were $26.0 million compared
with $27.2 million for the first quarter of fiscal 2004, a 4.7 percent decline.
As noted, these results reflect a 13-week period versus a 14-week period last
year. Average weekly sales for the first quarter of fiscal 2005 were $2.0
million compared with $1.9 million in the prior-year period, an increase of 2.7
percent. This increase is especially noteworthy considering our customers'
recent transition to one-sided mattresses, which utilize one-third less fabric.
Operating income for this segment was $2.9 million, or 11.2 percent of sales,
compared with $4.1 million, or 15.2 percent of sales, for the prior-year period.
Operating income was primarily affected by one week's less sales for the quarter
and inventory markdowns related to certain customer programs. These factors are
expected to have significantly less impact on the segment's second quarter
results.
Culp remarked, "We are seeing positive trends in our mattress ticking business
and continue to make gains with key customers. Consumer trends and the
attractiveness of this product category for retailers favor further growth in
bedding demand, and we believe that Culp is well positioned to benefit from this
growth as a leading provider of mattress ticking. Additionally, unlike
upholstery fabrics, the mattress fabric business is not being threatened by
Asian imports because of the relatively low average price points and labor
content and the just-in-time delivery requirements of this business. Further,
Asian imports of finished mattresses have been limited to less than four percent
of the U.S. market because of high shipping costs as well as the customized
product lines and strong brand name recognition associated with mattresses. With
our leadership in product design, superior customer service and delivery
performance, and a globally competitive cost structure, we expect that the
mattress ticking business will account for an increasing percentage of Culp's
overall sales and profitability in fiscal 2005."
Upholstery Fabrics Segment
Sales for this segment were $41.9 million, a 9.8 percent decline compared with
$46.5 million in the first quarter of fiscal 2004. Average weekly sales for the
first quarter of fiscal 2005 were $3.2 million compared with $3.3 million in the
prior year period, a decrease of 2.9 percent. Sales of upholstery fabrics
reflect soft demand by furniture retailers during the summer months. Additional
factors affecting the demand for upholstery fabrics are the current consumer
preference for leather furniture and increased competition from imported
fabrics, including cut and sewn kits, primarily from Asia.
"It has become increasingly evident that competitive forces in the global
marketplace are significantly changing the face of the furniture and the
upholstery fabrics industries," added Culp. "However, we believe that Culp has
made significant progress in adapting our business model to take advantage of
this transition and position ourselves more effectively in this environment.
First, we have significantly adjusted our cost structure and domestic
manufacturing capacity over the past several years. Second, we have focused on
design creativity and product development to provide breadth and innovation in
the fabrics offered to our customers to meet changing consumer preferences.
Third, we have implemented a dual strategy to aggressively develop offshore
sourcing capabilities for Culp. In fiscal 2003 we put in place the necessary
resources to begin sourcing from Asia certain upholstery fabrics that we do not
manufacture, and we have continued to expand these resources. The other
component of Culp's offshore sourcing strategy is our China operation, where we
are now well underway with our manufacturing operations and our fabric shipments
to customers. Sales of upholstery fabrics produced outside of our U.S.
manufacturing plants, which include the popular micro-denier suedes and fabrics
produced at our China facility, accounted for approximately $5.5 million, or
13.1 percent, of upholstery fabric sales for the quarter. Sourced fabrics
accounted for approximately $2.1 million, or 4.5 percent of upholstery fabric
sales for the same period last year."
Operating loss for the upholstery fabrics segment was $2.6 million, or 6.1
percent of sales, compared with a loss of $1.7 million, or 3.7 percent of sales,
for the same period last year. The segment loss in each period was primarily due
to underutilization of the company's U.S. manufacturing capacity. Culp noted,
"If sales continue to be under pressure in the upholstery fabrics segment, we
are prepared to take the necessary actions to further adjust our cost structure
and U.S. capacity, as we have demonstrated in recent years."
Balance Sheet
"One of our key financial objectives for fiscal 2005 is to continue to
capitalize on the strength of our balance sheet," added Culp. "At the end of the
first fiscal quarter, our balance sheet reflects approximately $12.0 million in
cash and cash equivalents. Long-term debt now stands at $51.1 million compared
with $76.6 million a year ago. As a result, our long-term debt-to-capital ratio
is now 33.3 percent compared with 44.5 percent a year ago. Our balance sheet is
sound with significantly lower debt, excellent liquidity and the financial
flexibility to pursue our strategic initiatives."
Outlook
Commenting on the business outlook, Culp said, "Mattress ticking sales have
already picked up during the early part of our second quarter. For the current
quarter, we expect sales in this segment to be moderately ahead of second
quarter sales last year and expect that operating income will approximate last
year's level. With respect to the upholstery fabrics segment, the outlook
remains uncertain for a sustained recovery in retail furniture business
conditions. We are optimistic that upholstery fabric sales will also pick up in
the fall, as is seasonally typical in the furniture industry. For the second
quarter, upholstery fabrics segment sales are expected to decrease less than the
first quarter decline of 9.8 percent. While we do expect to be profitable in the
upholstery fabrics segment, operating income will be down considerably from last
year's second quarter. At this time, we expect to report net income in the range
of $0.13 to $0.17 per share diluted, with the actual results depending primarily
on the level of demand throughout the quarter. We believe the excellence in our
design creativity, the strength in our mattress ticking business, the aggressive
expansion of our offshore sourcing capabilities and our sound balance sheet
effectively position Culp in today's marketplace."
Culp, Inc. is one of the world's largest marketers of mattress fabrics for
bedding and upholstery fabrics for furniture. The company's fabrics are used
principally in the production of bedding products and residential and commercial
upholstered furniture.
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, operating income,
gross profit margins, SG&A or other expenses, and earnings. 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
-------------------------
August 1, August 3,
2004 2003
------------ ------------
Net sales $67,849,000 $73,676,000
============ ============
Net loss $(1,052,000) $ (411,000)
============ ============
Basic and diluted net loss per share:
Basic $ (0.09) $ (0.04)
Diluted $ (0.09) $ (0.04)
============ ============
Average shares outstanding:
Basic 11,547,000 11,515,000
Diluted 11,547,000 11,515,000
Reconciliation of Net Loss as Reported to Pro Forma Net Loss
(Unaudited)
Three Months Ended
-------------------------
August 1, August 3,
2004 2003
------------ ------------
Net loss, as reported $(1,052,000) $ (411,000)
Restructuring and related charges (credits),
net of income taxes (42,000) -0-
------------ ------------
Pro forma net loss $(1,094,000) $ (411,000)
============ ============
Reconciliation of Net Loss Per Share as Reported to Pro Forma Net Loss Per Share
(Unaudited)
Three Months Ended
-------------------------
August 1, August 3,
2004 2003
------------ ------------
Net loss per share, as reported $ (0.09) $ (0.04)
Restructuring and related charges (credits),
net of income taxes -0- -0-
------------ ------------
Pro forma net loss per share $ (0.09) $ (0.04)
=========== ============
-END-
Exhibit 99(b)
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED STATEMENTS OF LOSS
FOR THE THREE MONTHS ENDED August 1, 2004 AND August 3, 2003
(Amounts in Thousands, Except for Per Share Data)
THREE MONTHS ENDED (UNAUDITED)
-----------------------------------------------------------------------------
Amounts Percent of Sales
-------------------------- -------------------------------
August 1, August 3, % Over August 1, August 3,
2004 2003 (Under) 2004 2003
------------ ------------ ------------- -------------- ---------------
Net sales $ 67,849 73,676 (7.9) % 100.0 % 100.0 %
Cost of sales (1) 59,174 62,198 (4.9) % 87.2 % 84.4 %
------------ ------------ ------------- -------------- ---------------
Gross profit 8,675 11,478 (24.4) % 12.8 % 15.6 %
Selling, general and
administrative expenses 9,280 10,516 (11.8) % 13.7 % 14.3 %
Restructuring credit (138) 0 100.0 % (0.2)% 0.0 %
------------ ------------ ---------- -------------- ---------------
Income (loss) from operations (467) 962 (148.5) % (0.7)% 1.3 %
Interest expense 940 1,497 (37.2) % 1.4 % 2.0 %
Interest income (27) (122) (77.9) % (0.0)% (0.2)%
Other expense 214 239 (10.5) % 0.3 % 0.3 %
------------ ------------ ------------- -------------- ---------------
Loss before income taxes (1,594) (652) (144.5) % (2.3)% (0.9)%
Income taxes* (542) (241) 124.9 % 34.0 % 37.0 %
------------ ------------ ------------- -------------- ---------------
Net loss $ (1,052) (411) (156.0) % (1.6)% (0.6)%
============ ============ ============= ============== ===============
Net loss per share-basic $ (0.09) (0.04) (125.0) %
Net loss per share-diluted $ (0.09) (0.04) (125.0) %
Net loss per share, diluted, excluding
restructuring and related charges and
credits (2) $ (0.09) (0.04) (125.0) %
Average shares outstanding-basic 11,547 11,515 0.3 %
Average shares outstanding-diluted 11,547 11,515 0.3 %
* Percent of sales column for income taxes is calculated as a % of loss before
income taxes.
(1) Cost of sales includes $75.0 of restructuring related charges for the
three months ended August 1, 2004.
(2) Reconciliation of net loss as reported to pro forma net loss:
THREE MONTHS ENDED (UNAUDITED)
--------------------------------------------------------------------------
Amounts Percent of Sales
-------------------------- -------------------------------
August 1, August 3, % Over August 1, August 3,
2004 2003 (Under) 2004 2003
------------ ------------ ---------- -------------- ---------------
Net loss, as reported $ (1,052) (411) (156.0)% (1.6) % (0.6) %
Restructuring and related charges
(credits), net of taxes (a) (42) 0 100.0 % (0.1) % 0.0 %
------------ ------------ ---------- -------------- ---------------
Proforma net loss (1,094) (411) (166.2)% (1.6) % (0.6) %
Pro forma net loss per share-basic $ (0.09) (0.04) (125.0)%
Pro forma net loss per share-diluted $ (0.09) (0.04) (125.0)%
(a) Represents the $138.0 restructuring credit, offset by the $75.0 in
restructuring related charges, net of taxes to arrive at $42.0.
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED BALANCE SHEETS
AUGUST 1, 2004, AUGUST 3, 2003 AND MAY 2, 2004
Unaudited
(Amounts in Thousands)
Amounts Increase
--------------------------- (Decrease)
August 1, August 3, ------------------------- * May 2,
2004 2003 Dollars Percent 2004
------------- ------------ ----------- ------------- -----------
Current assets
Cash and cash equivalents $ 11,946 15,094 (3,148) (20.9)% 14,568
Short-term investments 0 15,014 (15,014) (100.0)% 0
Accounts receivable 24,242 24,227 15 0.1 % 30,719
Inventories 52,083 49,275 2,808 5.7 % 49,045
Deferred income taxes 9,256 12,303 (3,047) (24.8)% 9,256
Other current assets 1,645 4,001 (2,356) (58.9)% 1,634
------------- ------------ ----------- ------------- -----------
Total current assets 99,172 119,914 (20,742) (17.3)% 105,222
Property, plant & equipment, net 78,880 83,299 (4,419) (5.3)% 77,770
Goodwill 9,240 9,240 0 0.0 % 9,240
Other assets 1,307 1,934 (627) (32.4)% 1,496
------------- ------------ ----------- ------------- -----------
Total assets $ 188,599 214,387 (25,788) (12.0)% 193,728
============= ============ =========== ============= ===========
Current liabilities
Current maturities of long-term debt $ 545 517 28 5.4 % 528
Accounts payable 14,857 18,648 (3,791) (20.3)% 15,323
Accrued expenses 10,880 12,856 (1,976) (15.4)% 13,028
Accrued restructuring 4,656 7,141 (2,485) (34.8)% 4,968
Income taxes payable 606 0 606 100.0 % 1,850
------------- ------------ ----------- ---------- -----------
Total current liabilities 31,544 39,162 (7,618) (19.5)% 35,697
Long-term debt , less current maturities 50,519 76,034 (25,515) (33.6)% 50,502
Deferred income taxes 4,138 3,851 287 7.5 % 4,138
------------- ------------ ----------- ------------- -----------
Total liabilities 86,201 119,047 (32,846) (27.6)% 90,337
Shareholders' equity 102,398 95,340 7,058 7.4 % 103,391
------------- ------------ ----------- ------------- -----------
Total liabilities and
shareholders' equity $ 188,599 214,387 (25,788) (12.0)% 193,728
============= ============ =========== ============= ===========
Shares outstanding 11,548 11,515 33 0.3 % 11,547
============= ============ =========== ============= ===========
* Derived from audited financial statements
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED AUGUST 1, 2004 AND AUGUST 3, 2003
Unaudited
(Amounts in Thousands)
THREE MONTHS ENDED
--------------------------
Amounts
--------------------------
August 1, August 3,
2004 2003
------------ ------------
Cash flows from operating activities:
Net loss $ (1,052) (411)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 3,362 3,444
Amortization of other assets 37 45
Stock-based compensation 52 53
Restructuring credit (138) 0
Changes in assets and liabilities:
Accounts receivable 6,477 8,032
Inventories (3,038) 277
Other current assets (11) (797)
Other assets 206 256
Accounts payable 112 (845)
Accrued expenses (2,148) (1,215)
Accrued restructuring (228) (602)
Income taxes payable (1,244) (349)
------------ ------------
Net cash provided by operating activities 2,387 7,888
------------ ------------
Cash flows from investing activities:
Capital expenditures (4,375) (1,875)
Purchases of short-term investments 0 (5,038)
------------ ------------
Net cash used in investing activities (4,375) (6,913)
------------ ------------
Cash flows from financing activities:
Payments on vendor-financed capital expenditures (675) (287)
Proceeds from issuance of long-term debt 34 51
Proceeds from common stock issued 7 0
------------ ------------
Net cash used in financing activities (634) (236)
------------ ------------
Increase (decrease) in cash and cash equivalents (2,622) 739
Cash and cash equivalents at beginning of period 14,568 14,355
------------ ------------
Cash and cash equivalents at end of period $ 11,946 15,094
============ ============
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL ANALYSIS
August 1, 2004
FISCAL 04 FISCAL 05
----------------- --------------------------------------
Q1 Q1 Q2 Q3 Q4
----------------- --------------------------------------
INVENTORIES
Inventory turns 5.0 4.7
RECEIVABLES
Days sales in receivables 32 30
WORKING CAPITAL
Current ratio 3.1 3.1
Operating working capital turnover (1) 5.1 5.1
Operating working capital (1) $54,854 $61,468
PROPERTY, PLANT & EQUIPMENT
Depreciation rate 6.2% 6.1%
Percent property, plant &
equipment are depreciated 62.3% 64.2%
Capital expenditures $6,747 (2) $4,543
LEVERAGE
Total liabilities/equity 124.7% 84.2%
Long-term debt/equity 80.3% 49.9%
Long-term debt/capital employed (3) 44.5% 33.3%
Long-term debt $76,551 $51,064
OTHER
Book value per share $8.28 $8.87
Employees at quarter end 2,383 2,235
Sales per employee (annualized) $121,628 $119,190
Capital employed (3) $171,891 $153,462
(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 AND OPERATING INCOME (LOSS) BY SEGMENT/DIVISION
FOR THE THREE MONTHS ENDED AUGUST 1, 2004 AND AUGUST 3, 2003
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
------------------------------------------------------------------
Amounts Percent of Total Sales
--------------------- ------------------------------
August 1, August 3, % Over August 1, August 3,
Net Sales by Segment 2004 2003 (Under) 2004 2003
- --------------------------------------------- ---------- --------- ---------- ------------- ---------------
Mattress Fabrics
Culp Home Fashions $ 25,953 27,220 (4.7) % 38.3 % 36.9 %
---------- --------- ---------- ------------- ---------------
Upholstery Fabrics
Culp Decorative Fabrics 23,919 29,617 (19.2) % 35.3 % 40.2 %
Culp Velvets/Prints 17,977 16,839 6.8 % 26.5 % 22.9 %
---------- --------- ---------- ------------- ---------------
41,896 46,456 (9.8) % 61.7 % 63.1 %
---------- --------- ---------- ------------- ---------------
Net Sales $ 67,849 73,676 (7.9) % 100.0 % 100.0 %
========== ========= ========== ============= ===============
Gross Profit by Segment Gross Profit Margin
- --------------------------------------------- ------------------------------
Mattress Fabrics $ 4,794 6,072 (21.0) % 18.5 % 22.3 %
---------- --------- ---------- ------------- ---------------
Pro forma Upholstery Fabrics 3,956 5,406 (26.8) % 9.4 % 11.6 %
Restructuring related charges (1) 75 0 100.0 % 0.2 % 0.0 %
---------- --------- ---------- ------------- ---------------
Upholstery Fabrics gross profit 3,881 5,406 (28.2) % 9.3 % 11.6 %
---------- --------- ---------- ------------- ---------------
Gross Profit $ 8,675 11,478 (24.4) % 12.8 % 15.6 %
========== ========= ========== ============= ===============
Operating Income (loss) by Segment Operating Income (Loss) Margin
- --------------------------------------------- ------------------------------
Mattress Fabrics $ 2,899 4,144 (30.0) % 11.2 % 15.2 %
---------- --------- ---------- ------------- ---------------
Pro forma Upholstery Fabrics (2,619) (1,719) (52.4) % (6.3)% (3.7)%
Restructuring and related charges
and credits (1) 63 0 100.0 % 0.2 % 0.0 %
---------- --------- ---------- ------------- ---------------
Upholstery Fabrics operating loss (2,556) (1,719) (48.7) % (6.1)% (3.7)%
---------- --------- ---------- ------------- ---------------
Unallocated corporate expenses (810) (1,463) 44.6 % (1.2)% (2.0)%
---------- --------- ---------- ------------- ---------------
Operating income (loss) $ (467) 962 (148.5) % (0.7)% 1.3 %
========== ========= ========== ============= ===============
Depreciation by Segment
- ---------------------------------------------
Mattress Fabrics $ 916 944 (3.0) %
Upholstery Fabrics 2,446 2,499 (2.1) %
---------- --------- ----------
Total Depreciation $ 3,362 3,444 (2.4) %
========== ========= ==========
(1) Restructuring and related charges include a credit of $138.0 for the
reversal of certain accrued expenses, offset by $75.0 in equipment
dismantling charges; both related to the closing of the Lumberton
manufacturing facility.
CULP, INC. FINANCIAL INFORMATION RELEASE
SALES, GROSS PROFIT AND OPERATING INCOME (LOSS) BY SEGMENT
FOR THE FISCAL YEAR ENDED MAY 2, 2004
(UNAUDITED)
(Amounts in thousands)
Net Sales by Segment
- ----------------------------------
QTR 1 QTR 2 QTR 3 QTR 4
-------------------- ------------------- ------------------- -----------------
August 3, % of November 2, % of February 1, % of May 2, % of Fiscal % of
2003 Sales 2003 Sales 2004 Sales 2004 Sales 2004 Sales
---------- -------- ---------- ------- --------- -------- ------- -------- --------- -------
Mattress Fabrics
Culp Home Fashions $ 27,220 36.9% 26,788 32.4% 25,114 32.8% 27,200 31.9% 106,322 33.4%
---------- -------- ---------- ------- --------- -------- ------- -------- --------- -------
Upholstery Fabrics
Culp Decorative Fabrics 29,617 40.2% 32,459 39.2% 29,678 38.8% 32,519 38.2% 124,273 39.1%
Culp Velvets/Prints 16,839 22.9% 23,484 28.4% 21,769 28.4% 25,429 29.9% 87,521 27.5%
---------- -------- ---------- ------- --------- -------- -------- ------- --------- -------
46,456 63.1% 55,943 67.6% 51,447 67.2% 57,948 68.1% 211,794 66.6%
---------- -------- ---------- ------- --------- -------- ------- -------- --------- -------
Net Sales $ 73,676 100.0% 82,731 100.0% 76,561 100.0% 85,148 100.0% 318,116 100.0%
========== ======== ========== ======= ========= ======== ======= ======== ========= =======
Gross Profit by Segment
- ----------------------------------
Mattress Fabrics $ 6,072 22.3% 6,329 23.6% 5,093 20.3% 5,883 21.6% 23,377 22.0%
Upholstery Fabrics 5,406 11.6% 10,409 18.6% 9,375 18.2% 9,755 16.8% 34,945 16.5%
---------- -------- ---------- ------- --------- -------- ------- -------- --------- -------
Gross profit $ 11,478 15.6% 16,738 20.2% 14,468 18.9% 15,638 18.4% 58,322 18.3%
========== ======== ========== ======= ========= ======== ======= ======== ========= =======
Operating Income (loss) by Segment
- ----------------------------------
Mattress Fabrics $ 4,144 15.2% 4,247 15.9% 3,039 12.1% 3,555 13.1% 14,985 14.1%
---------- -------- ---------- ------- --------- -------- ------- -------- --------- -------
Pro forma Upholstery Fabrics (1,719) -3.7% 3,452 6.2% 2,260 4.4% 2,844 4.9% 6,837 3.2%
Restructuring credit 0 0.0% 0 0.0% 0 0.0% (1,047) -1.8% (1,047) -0.5%
---------- -------- ---------- ------- --------- -------- ------- -------- --------- -------
Upholstery Fabrics operating
income (loss) (1,719) -3.7% 3,452 6.2% 2,260 4.4% 3,891 6.7% 7,884 3.7%
---------- -------- ---------- ------- --------- -------- ------- -------- --------- -------
Unallocated corporate expenses (1,463) -2.0% (1,257) -1.5% (1,113) -1.5% (686) -0.8% (4,519) -1.4%
---------- -------- ---------- ------- --------- -------- ------- -------- --------- -------
Operating income $ 962 1.3% 6,442 7.8% 4,186 5.5% 6,760 7.9% 18,350 5.8%
========== ======== ========== ======= ========= ======== ======= ======== ========= =======
Depreciation by Segment
- ----------------------------------
Mattress Fabrics $ 944 942 937 930 3,753
Upholstery Fabrics 2,499 2,498 2,476 2,417 9,889
---------- ---------- --------- ------- ---------
Total Depreciation $ 3,444 3,439 3,412 3,348 13,642
========== ========== ========= ======= =========
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three months ended August 1, 2004 and August 3, 2003
OVERVIEW
Highlights for the first quarter ended August 1, 2004 , include:
o Mattress fabrics segment average weekly sales up 2.7 percent during
period of transition to one-sided mattresses.
o Aggressive expansion of offshore sourcing capabilities, resulting in
sales of sourced upholstery fabrics more than doubling over the same
period last year.
o Long-term debt-to-capital ratio of 33.3% compared with 44.5% a year ago.
o Earnings expectation for the second quarter of fiscal 2005 is net income
of $0.13 to $0.17 per diluted share.
GENERAL - The first quarter of the fiscal year is typically the slowest period
for the company and the furniture industry due to scheduled plant vacation
shutdowns. The seasonal slowdown, combined with the continued weakness in
consumer demand for furniture throughout the summer, accounted for this modest
drop. In addition, the first quarter of fiscal 2005 included 13 weeks versus 14
weeks for the same period of fiscal 2004. For the first quarter of fiscal 2005,
net sales decreased 7.9% to $67.8 million. Average weekly sales for the first
quarter of fiscal 2005 were $5.2 million compared with $5.3 million in the prior
year period, a decrease of less than 1.0%. The company reported a net loss of
$1,052,000, or $0.09 per share diluted, compared with a net loss of $411,000, or
$0.04 per share diluted, in the first quarter of fiscal 2004. Excluding
restructuring and related charges and credits of approximately $42,000, net of
income taxes, the net loss for the quarter was $1,094,000. These results are in
line with the previously announced guidance of an expected loss of $0.08 to
$0.13 per share.
STATEMENT OF OPERATIONS COMMENTS
MATTRESS FABRICS SEGMENT (See page 5 - Sales, Gross Profit and Operating
Income (Loss) by Segment)
Net Sales -- Mattress fabric sales (known as mattress ticking) for the
first quarter of fiscal 2005 decreased 4.7% to $26.0 million compared with $27.2
million for the same period a year ago. As noted above, these results reflect a
13 week period versus a 14 week period last year. Average weekly sales for the
first quarter of fiscal 2005 were $2.0 million compared with $1.9 million in the
prior year period, an increase of 2.7%. While sales, on a comparable basis,
continue to be affected by the recent customers' transition to one-sided
mattresses, which utilize one-third less fabric, the mattress ticking segment
experienced higher sales, on an average weekly basis, by expanding business with
certain key accounts. Also, mattress manufacturers are currently incurring
higher costs for other mattress components, such as steel, as well as costs
associated with flame retardant requirements. As a result of these increased
costs, mattress manufacturers are placing additional pressure on mattress
ticking prices, and in some instances manufacturers are moving to lower priced
ticking.
Mattress ticking yards sold during the first quarter of fiscal 2005 were 10.8
million compared with 10.5 million yards in the first quarter of last year. The
average selling price was $2.38 per yard for the first quarter, compared to
$2.57 per yard in the same quarter last year, a decrease of 7.4%.
Operating income -- For the first quarter of fiscal 2005, the mattress
fabrics segment reported operating income of $2.9 million, or 11.2% of sales,
compared with $4.1 million, or 15.2% of sales, for the prior year period.
Operating income was primarily impacted by fewer sales weeks and inventory
markdowns related to certain customer programs. These factors are expected to
have significantly less impact on the segment's second quarter results.
UPHOLSTERY FABRICS SEGMENT (See page 5 - Sales, Gross Profit and Operating
Income (Loss) by Segment)
Net Sales -- Upholstery fabric sales for the first quarter of fiscal 2005
decreased 9.8% to $41.9 million when compared to the first quarter of fiscal
2004. Average weekly sales for the first quarter of fiscal 2005 were $3.2
million compared with $3.3 million in the prior year period, a decrease of 2.9%.
The lower sales primarily reflect soft demand by furniture retailers, as well as
current consumer preference for leather furniture and increased competition from
imported fabrics, including cut and sewn kits, primarily from Asia.
With the company's offshore sourcing efforts, including the China platform, the
company is experiencing higher sales of upholstery fabric products produced
outside of the company's U.S. manufacturing plants. These sales, which include
microdenier suedes and fabrics produced at the company's China plant, increased
162% over the prior year period and accounted for approximately $5.5 million, or
13.1% of upholstery fabric sales for the quarter. Offshore sourced fabrics of
$2.1 million accounted for approximately 4.5% of upholstery fabric sales for the
same period last year.
Upholstery fabric yards sold during the first quarter were 9.3 million versus
10.6 million in the first quarter of fiscal 2004, a decline of 12.3%. Average
selling price was $4.25 per yard for the first quarter compared with $4.13 per
yard in the same quarter of last year, an increase of 2.9%, due to higher
average selling prices in both the CDF and CVP divisions.
Operating income (loss) -- Operating loss for the first quarter of fiscal
2005 was $2.6 million, or 6.1% of sales, compared with a loss of $1.7 million,
or 3.7% of sales, for the same period last year. The segment loss in each period
was primarily due to underutilization of the company's U.S. manufacturing
capacity. If sales continue to be under pressure in the upholstery fabrics
segment, management is prepared to take the necessary actions to further adjust
the company's cost structure and U.S. capacity, as the company has demonstrated
in recent years.
SG&A EXPENSES -- SG&A expenses of $9.3 million for the first quarter of
fiscal 2005 decreased approximately $1.2 million, or 11.8%, from the prior year
amount. As a percent of net sales, SG&A expenses decreased to 13.7% from 14.3%
the previous year, due mostly to lower professional fees.
Unallocated Corporate Expenses - The unallocated corporate expense category
includes certain items that have not been allocated to the company's segments
(see Page 5 - Sales and Gross Profit/Operating Income (Loss) by Segment). The
major components of unallocated corporate expenses include compensation and
benefits for certain executive officers and all costs related to being a public
company. For the first quarter of fiscal 2005, unallocated corporate expenses
totaled $810,000 compared with $1.5 million for the same period last year,
reflecting a substantial decrease in professional fees.
INTEREST EXPENSE AND INTEREST INCOME -- Interest expense for the first
quarter declined to $940,000 from $1.5 million the previous year due to lower
borrowings outstanding. Interest income decreased to $27,000 from $122,000 the
previous year due to lower invested balances in fiscal 2005.
INCOME TAXES -- The effective tax rate (taxes as a percentage of pretax
income (loss)) for the first quarter of fiscal 2005 was 34.0% compared with
37.0% for the same period last year.
BALANCE SHEET COMMENTS
- ----------------------
CASH AND CASH EQUIVALENTS - Cash and cash equivalents as of August 1, 2004
decreased to $11.9 million from $14.6 million at the end of fiscal 2004,
primarily reflecting cash flow from operations of $2.4 million and capital
expenditures and payments on vendor financed capital expenditures of $5.0
million.
WORKING CAPITAL -- Accounts receivable as of August 1, 2004 increased 0.1%
from the year-earlier level. Days sales outstanding totaled 30 days at August 1,
2004 compared with 32 days a year ago. Inventories at the close of the first
quarter increased 5.7% from a year ago. Inventory turns for the first quarter
were 4.7 versus 5.0 for the year-earlier period. Operating working capital
(comprised of accounts receivable and inventories, less trade accounts payable)
was $61.5 million at August 1, 2004, up from $54.9 million a year ago.
PROPERTY, PLANT AND EQUIPMENT -- Capital spending for the first quarter of
fiscal 2005 was $4.5 million, including approximately $3.9 million for the
purchase of a building that will serve as the company's new corporate offices
and as new space for the company's showrooms. The company expects the annual
operating costs of the new building to be significantly lower than the lease and
related costs associated with the current facilities. Depreciation for the first
quarter was $3.4 million, and is estimated at $13.5 million for the full fiscal
year. For fiscal 2005, the company anticipates capital expenditures to be
approximately $9.0 million, including the $5.7 million budgeted for the building
purchase and related renovations.
INTANGIBLE ASSETS -- As of August 1, 2004, $9.2 million in goodwill is the
company's only intangible asset. This goodwill is comprised of $4.1 million
related to the mattress fabrics segment, and $5.1 million related to the Culp
Decorative Fabrics division within the upholstery fabrics segment.
LONG-TERM DEBT -- The company's long-term debt of $51.1 million is
unsecured and is comprised of $50.0 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 August
1, 2004. The current bank agreement, which expires in August 2004, has been
extended to August 2005. The first scheduled principal payment on the $50.0
million senior notes 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 August 1, 2004.
CASH FLOW FROM OPERATIONS COMMENTS
- ----------------------------------
Cash flow from operations was $2.4 million for the first quarter of fiscal
2005, compared with $7.9 million for the same period last year. This decrease
was primarily due to higher inventory balances and lower cash generated from
accounts receivable balances. For the first quarter of fiscal 2005, cash flow
generated from operations, as well as a portion of existing cash on hand, was
used for capital expenditures, most of which relate to the building purchase
described above.
BUSINESS OUTLOOK
- ----------------
Mattress ticking sales have picked up during the early part of the company's
second quarter. For the current quarter, management expects sales in this
segment to be moderately ahead of second quarter sales last year and expects
that operating income will approximate last year's level. With respect to the
upholstery fabrics segments, the outlook remains uncertain for a sustained
recovery in retail furniture business conditions. Management is optimistic that
upholstery fabric sales will also pickup in the fall, as is seasonally typical
in the furniture industry. For the second quarter, upholstery fabrics segment
sales are expected to decrease less than the first quarter decline of 9.8%.
While management expects to be profitable in the upholstery fabrics segment,
operating income will be down considerably from last year's second quarter. At
this time, the company expects to report net income in the range of $0.13 to
$0.17 per share diluted, with the actual results depending primarily on the
level of demand throughout the quarter. Management believes that the excellence
in design creativity, the strength in the company's mattress ticking business,
the company's aggressive expansion of its' offshore sourcing capabilities and
the company's sound balance sheet effectively position Culp in today's
marketplace.