-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WbDsnR0NMT6zMdqTfcJE+SqjhxVg7zmQxqdcS5r4LSgqsowtaA64EsYEh6JVnIzZ hGMmblW0o5oUS2/ZxouhyA== 0000723603-98-000006.txt : 19980219 0000723603-98-000006.hdr.sgml : 19980219 ACCESSION NUMBER: 0000723603-98-000006 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980201 ITEM INFORMATION: FILED AS OF DATE: 19980218 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CULP INC CENTRAL INDEX KEY: 0000723603 STANDARD INDUSTRIAL CLASSIFICATION: BROADWOVEN FABRIC MILLS, COTTON [2211] IRS NUMBER: 561001967 STATE OF INCORPORATION: NC FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-12597 FILM NUMBER: 98545025 BUSINESS ADDRESS: STREET 1: 101 S MAIN ST STREET 2: 101 S MAIN ST CITY: HIGH POINT STATE: NC ZIP: 27261-2686 BUSINESS PHONE: 9108895161 MAIL ADDRESS: STREET 1: P O BOX 2686 STREET 2: 101 S MAIN ST CITY: HIGH POINT STATE: NC ZIP: 27261 8-K 1 CULP, INC. 8-K - -------------------------------------------------------------------------------- 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 18, 1998 CULP, INC. (Exact name of registrant as specified in its charter) North Carolina 0-12781 56-1001967 (State or other jurisdiction (Commission File No.) (IRS Employer of incorporation) Identification No.) 101 South Main Street High Point, North Carolina 27260 (Address of principal executive offices) (336) 889-5161 (Registrant's telephone number, including area code) (Former name or former address, if changed since last report) - -------------------------------------------------------------------------------- -MORE- FOR IMMEDIATE RELEASE CULP REPORTS THIRD QUARTER GAINS NET INCOME INCREASES 33% TO NEW THIRD-QUARTER RECORD HIGH POINT, N. C. (Feb. 18, 1998) - Culp, Inc. (NYSE:CFI) today reported higher sales and earnings for the third fiscal quarter ended February 1, 1998. For the three months ended February 1, 1998, Culp reported that net sales increased 22% to $118.5 million compared with $97.5 million a year ago. Net income for the quarter increased 33% to $4.0 million compared with $3.0 million. Earnings per share increased 19% to $0.32 on 12.7 million average shares outstanding versus $0.27 on 11.3 million average shares outstanding in the year-earlier period. The gain for the third quarter brought net sales for the first nine months to $340.9 million, up 16% from $293.2 million in the first nine months of fiscal 1997. Net income for the first nine months increased 27% to $11.4 million versus $8.9 million. Earnings per share increased 14% to $0.90 on 12.7 million average shares outstanding versus $0.79 on 11.3 million average shares outstanding in the year-earlier period. The increase of 12% in the average number of shares outstanding for the third quarter and first nine months was due principally to the Company's secondary stock offering completed in February 1997. The Company noted that $11.2 million of the increase in net sales for the third quarter was attributable to the Phillips Mills acquisition that was completed in August 1997. The Company's effective tax rate for the third quarter was 22% compared with 38% a year ago. The lower rate was due principally to increased tax benefits related to the Company's international sales. The reduced tax rate also reflected a higher proportion of earnings from the Company's Canadian subsidiary that is taxed at a lower effective rate. CULP Reports Third Quarter Gains Page 4 Feb. 18, 1998 "We have now achieved record earnings in 21 consecutive quarters versus the comparable year-earlier period," said Robert G. Culp, III, chief executive officer. "One of the strategic initiatives that has contributed to that consistency is the use of Culp's strong financial position to complement our ongoing internal progress with the acquisition of complementary businesses. The gains in sales for the third quarter and first nine months were aided by the contribution of Phillips Mills which we acquired earlier this year. We also completed the acquisition of the Wetumpka Yarn operations during the third quarter and earlier this month completed the previously announced acquisition of Artee Industries. Transactions such as the purchase of Phillips Mills have enabled us to broaden our product line and customer base, while the Wetumpka and Artee Industries acquisitions extended our vertical integration into the manufacturing and marketing of spun and chenille yarns. The trend toward consolidation continues at all levels within the home furnishings industry, and our intent is to capitalize on other opportunities as they may occur over the longer term." Culp added, "Industry-wide demand for certain categories of upholstery fabrics from U.S.-based residential furniture customers has not been especially strong in the current fiscal year. We achieved higher sales for the third quarter, aided principally by the incremental contribution from acquisitions, further growth in international shipments and continuing gains in sales of mattress ticking. The positive momentum in shipments of mattress ticking by our Home Fashions business unit reflects the successful introduction of new textures and patterns as well as our investment in increased capacity to meet customers' needs. "We are continuing to realize strong growth in our international business. Shipments to customers outside the United States were up 45% for the third quarter and are expected to set a new record for fiscal 1998 as a whole. Our competitive position is benefiting from the introduction of more patterns designed for the preferences of specific markets. The addition of new customers is expanding our marketing coverage, and we are also being aided by the capital investment made in printed flock fabrics that are especially popular in a number of international areas." Culp added, "We have already begun integrating the resources of Wetumpka Yarn and Artee Industries into the design functions of our business units. Our entry into the spun and chenille yarn business offers an exciting opportunity to accelerate our design activities. Our staff of designers and support personnel has never been more experienced, and we have the physical resources to support their design and development of proprietary patterns and styles. We have now moved most of our design personnel into the new Design Center in Burlington, North Carolina. This facility will encourage the sharing of design ideas among business units and provide a unique environment for customers to participate in the development of new patterns. Our focus on design is directly related to our goal of superior customer service which includes the need to provide distinctive fabrics to our worldwide base of customers." Culp concluded, "During the fourth fiscal quarter, we expect to strengthen our capital structure with the closing of a private placement of $75 million of senior unsecured notes. The notes are expected to have a fixed coupon rate of 6.76% and an average term of 10 years. The proceeds will be used to repay borrowings under the Company's bank credit facility, thereby enhancing our financial flexibility." Culp, Inc. is the world's largest manufacturer and marketer of upholstery fabrics for furniture and is a leading producer of mattress ticking for bedding. The Company's fabrics are used primarily in the production of residential and commercial furniture and bedding products. This Release contains statements that could be deemed "forward-looking statements" within the meaning of the federal securities laws, which statements are inherently subject to risks and uncertainties. Forward-looking statements are statements that include projections, expectations or beliefs about future events or results or otherwise are not statements of historical fact. Such statements are often characterized by qualifying words such as "expect," "believe," "estimate," "plan" and "project" and their derivatives. Factors that could influence the matters discussed in such statements include the level of housing starts and sales of existing homes, consumer confidence, trends in disposable income, and general economic conditions. Decreases in these economic indicators could have a negative effect on the Company's business and prospects. Likewise, increases in interest rates, particularly home mortgage rates, and increases in consumer debt or the general rate of inflation, could adversely affect the Company. In addition, the value of the U.S. dollar relative to other currencies can affect the competitiveness of the Company's products in international markets. CULP, INC. Condensed Financial Highlights (Unaudited) Three Months Ended February 1, January 26, 1998 1997 ------------ ----------- Net sales $118,457,000 $97,468,000 Net income 4,002,000 3,010,000 Earnings per share Basic $ 0.32 $ 0.27 Diluted $ 0.31 $ 0.26 Average shares outstanding Basic 12,692,000 11,342,000 Diluted 12,986,000 11,653,000 Nine Months Ended February 1, January 26, 1998 1997 ------------ ------------ Net sales $340,881,000 $293,201,000 Net income 11,357,000 8,930,000 Earnings per share Basic $ 0.90 $ 0.79 Diluted $ 0.88 $ 0.77 Average shares outstanding Basic 12,663,000 11,317,000 Diluted 12,964,000 11,618,000 -END- Item 5. Other Events See attached Press Release (4 pages) and Financial Information Release (12 pages), both dated February 18, 1998, related to the quarter ended February 1, 1998. Forward Looking Information. The discussion in this Form 8-K may contain statements that could be deemed forward-looking statements, which are inherently subject to risks and uncertainties. These statements are often characterized by qualifying words such as "expect," "believe," "estimate," "plan" and "project" and their derivatives. Factors that could influence the matters discussed include the level of housing starts and sales of existing homes, consumer confidence, trends in disposable income, and general economic conditions. Decreases in these economic indicators could have a negative effect on the company's business and prospects. Likewise, increases in interest rates, particularly home mortgage rates, and increases in consumer debt or the general rate of inflation, could adversely affect the company. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. CULP, INC. (Registrant) By: Franklin N. Saxon Senior Vice President and Chief Financial Officer By: Stephen T. Hancock Stephen T. Hancock General Accounting Manager Dated: February 18, 1998 > CULP, INC. FINANCIAL INFORMATION RELEASE CONSOLIDATED INCOME STATEMENTS FOR THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 1, 1998 AND JANUARY 26, 1997 (Amounts in Thousands, Except for Per Share Data)
THREE MONTHS ENDED (UNAUDITED) -------------------------------------------------------- Amounts Percent of Sales --------------------- -------------------- February January % Over 1, 26, 1998 1997 (Under) 1998 1997 ---------- ---------- --------- --------- --------- Net sales $ 118,457 97,468 21.5 % 100.0 % 100.0 % Cost of sales 97,554 80,317 21.5 % 82.4 % 82.4 % ---------- ---------- --------- --------- --------- Gross profit 20,903 17,151 21.9 % 17.6 % 17.6 % Selling, general and administrative expenses 13,162 10,760 22.3 % 11.1 % 11.0 % ---------- ---------- --------- --------- --------- Income from operations 7,741 6,391 21.1 % 6.5 % 6.6 % Interest expense 2,180 1,228 77.5 % 1.8 % 1.3 % Interest income (73) (73) 0.0 % (0.1) % (0.1) % Other expense (income), net 492 421 16.9 % 0.4 % 0.4 % ---------- ---------- --------- --------- --------- Income before income taxes 5,142 4,815 6.8 % 4.3 % 4.9 % Income taxes * 1,140 1,805 (36.8) % 22.2 % 37.5 % ---------- ---------- --------- --------- --------- Net income $ 4,002 3,010 33.0 % 3.4 % 3.1 % ========== ========== ========= ========= ========= Net income per share $0.32 $0.27 18.5 % Net income per share (assuming dilution) $0.31 $0.26 19.2 % Dividends per share $0.0350 $0.0325 7.7 % Average shares outstanding 12,692 11,342 11.9 % Average shares outstanding (assuming dilution) 12,986 11,653 11.4 % NINE MONTHS ENDED (UNAUDITED) -------------------------------------------------------- Amounts Percent of Sales --------------------- -------------------- February January % Over 1, 26, 1998 1997 (Under) 1998 1997 ---------- ---------- --------- --------- --------- Net sales $ 340,881 293,201 16.3 % 100.0 % 100.0 % Cost of sales 280,510 241,008 16.4 % 82.3 % 82.2 % ---------- ---------- --------- --------- --------- Gross profit 60,371 52,193 15.7 % 17.7 % 17.8 % Selling, general and administrative expenses 37,710 33,328 13.1 % 11.1 % 11.4 % ---------- ---------- --------- --------- --------- Income from operations 22,661 18,865 20.1 % 6.6 % 6.4 % Interest expense 5,280 3,652 44.6 % 1.5 % 1.2 % Interest income (235) (190) 23.7 % (0.1) % (0.1) % Other expense (income), net 1,159 1,117 3.8 % 0.3 % 0.4 % ---------- ---------- --------- --------- --------- Income before income taxes 16,457 14,286 15.2 % 4.8 % 4.9 % Income taxes * 5,100 5,356 (4.8) % 31.0 % 37.5 % ---------- ---------- --------- --------- --------- Net income $ 11,357 8,930 27.2 % 3.3 % 3.0 % ========== ========== ========= ========= ========= Net income per share $0.90 $0.79 13.9 % Net income per share (assuming dilution) $0.88 $0.77 14.3 % Dividends per share $0.1050 $0.0975 7.7 % Average shares outstanding 12,663 11,317 11.9 % Average shares outstanding (assuming dilution) 12,964 11,618 11.6 % * Percent of sales column is calculated as a % of income before income taxes.
CULP, INC. FINANCIAL INFORMATION RELEASE CONSOLIDATED BALANCE SHEETS FEBRUARY 1, 1998, JANUARY 26, 1997 AND APRIL 27, 1997 (Unaudited, Amounts in Thousands)
Amounts Increase ----------------------- February 1, January (Decrease) * 26, April 27, -------------------- 1998 1997 Dollars Percent 1997 ------------ --------- --------- -------- ------- Current assets Cash and cash investments $ 348 406 (58) (14.3)% 830 Accounts receivable 73,109 50,157 22,952 45.8 % 56,691 Inventories 75,032 50,755 24,277 47.8 % 53,463 Other current assets 7,202 3,701 3,501 94.6 % 5,450 ------------ --------- --------- -------- ------- Total current assets 155,691 105,019 50,672 48.3 % 116,434 Restricted investments 3,976 11,778 (7,802) (66.2)% 11,018 Property, plant & equipment, net 113,658 86,146 27,512 31.9 % 91,231 Goodwill 48,558 22,413 26,145 116.7 % 22,262 Other assets 5,439 2,906 2,533 87.2 % 3,007 ------------ --------- --------- -------- ------- Total assets $ 327,322 228,262 99,060 43.4 % 243,952 ============ ========= ========= ======== ======= Current liabilities Current maturities of long-term debt $ 1,120 6,100 (4,980) (81.6)% 100 Accounts payable 35,921 20,833 15,088 72.4 % 29,903 Accrued expenses 12,683 15,644 (2,961) (18.9)% 15,074 Income taxes payable 1,941 1,753 188 10.7 % 1,580 ------------ --------- --------- -------- ------- Total current liabilities 51,665 44,330 7,335 16.5 % 46,657 Long-term debt 144,079 86,266 57,813 67.0 % 76,541 Deferred income taxes 9,965 8,088 1,877 23.2 % 9,965 ------------ --------- --------- -------- ------- Total liabilities 205,709 138,684 67,025 48.3 % 133,163 Shareholders' equity 121,613 89,578 32,035 35.8 % 110,789 ------------ --------- --------- -------- ------- Total liabilities and shareholders' equity $ 327,322 228,262 99,060 43.4 % 243,952 ============ ========= ========= ======== ======= Shares outstanding 12,700 11,352 1,348 11.9 % 12,609 ============ ========= ========= ======== ======= * Derived from audited financial statements.
CULP, INC. FINANCIAL INFORMATION RELEASE CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED FEBRUARY 1, 1998 AND JANUARY 26, 1997 (Unaudited, Amounts in Thousands) NINE MONTHS ENDED ----------------------
Amounts -------------------- February 1, January 26, 1998 1997 ----------- ----------- Cash flows from operating activities: Net income $ 11,357 8,930 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 10,660 9,440 Amortization of intangible assets 883 634 Changes in assets and liabilities, net of effects of businesses acquired: Accounts receivable (16,418) 1,881 Inventories (16,330) (3,360) Other current assets (1,752) 466 Other assets (1,942) (642) Accounts payable 8,783 (2,213) Accrued expenses (2,175) 3,080 Income taxes payable 361 1,556 --------- --------- Net cash provided by (used in) operating activities (6,573) 19,772 --------- --------- Cash flows from investing activities: Capital expenditures (28,183) (18,625) Purchases of restricted investments (8,724) (9,681) Purchase of investments to fund deferred (581) 0 compensation liability Sale of restricted investments 15,766 3,177 Businesses acquired (37,156) 0 --------- --------- Net cash used in investing activities (58,878) (25,129) --------- --------- Cash flows from financing activities: Proceeds from issuance of long-term debt 77,600 15,900 Principal payments on long-term debt (9,042) (5,575) Change in accounts payable-capital expenditures (2,765) (4,262) Dividends paid (1,333) (1,103) Proceeds from common stock issued 509 305 --------- --------- Net cash provided by financing activities 64,969 5,265 --------- --------- Decrease in cash and cash investments (482) (92) Cash and cash investments at beginning of period 830 498 --------- --------- Cash and cash investments at end of period $ 348 406 ========= =========
CULP, INC. FINANCIAL INFORMATION RELEASE FINANCIAL ANALYSIS FEBRUARY 1, 1998
FISCAL 97 FISCAL 98 ------------- --------------------------------------------------------- --------------- Q3 Q1 Q2 Q3 Q4 LTM ------------- --------------------------------------------------------- --------------- INVENTORIES Inventory turns 6.2 5.8 6.1 5.4 RECEIVABLES Days sales in receivables 47 50 55 52 Percent current & less than 30 days past due 99.8% 95.0% 97.8% 94.1% WORKING CAPITAL Current ratio 2.4 3.6 2.9 3.0 Working capital turnover (4) 5.3 5.1 4.8 4.7 Working capital $60,689 $88,969 $98,833 $104,026 Working capital as a % of sales (4) 15.6% 23.8% 21.9% 23.7% PROPERTY, PLANT & EQUIPMENT Depreciation rate 7.5% 7.1% 7.4% 7.4% Percent property, plant & equipment are depreciated 47.9% 46.8% 45.3% 44.8% Capital expenditures $26,958 (1) $9,153 $10,063 $8,967 PROFITABILITY Return on average total capital 7.5% 7.6% 10.0% 8.3% 9.3% Return on average equity 14.1% 10.2% 15.6% 13.4% 14.6% Net income per share $0.27 $0.23 $0.36 $0.32 $1.28 Net income per share (diluted)(7) $0.26 $0.22 $0.35 $0.31 $1.25 LEVERAGE (3) Total liabilities/equity 154.8% 123.1% 172.0% 169.2% Funded debt/equity 90.0% 77.4% 111.7% 116.1% Funded debt/capital employed 47.4% 43.6% 52.8% 53.7% Funded debt $80,588 $87,930 $131,833 $141,223 Funded debt/EBITDA (LTM) (6) 2.09 2.18 2.83 2.95 EBITDA/Interest expense, net (LTM) 8.8 9.1 8.5 7.5 OTHER Book value per share $7.89 $8.98 $9.30 $9.58 Employees at quarter end 3,143 3,180 3,554 3,771 Sales per employee (annualized) $125,000 $125,000 $146,000 $129,000 $134,000 Capital employed (3) $170,166 $201,467 $249,838 $262,836 Effective income tax rate 37.5% 35.0% 35.0% 22.2% EBITDA (2) $9,279 $9,012 $12,643 $11,390 $44,627 EBITDA/net sales 9.5% 9.1% 10.3% 9.6% 10.0% (1) Expenditures for entire year (2) Earnings before interest, income taxes, and depreciation & amortization. (3) Long-term debt, funded debt and capital employed are all net of restricted investments. (4) Working capital for this calculation is accounts receivable, inventories and accounts payable. (5) LTM represents "Latest Twelve Months" (6) EBITDA includes pro forma amounts for Phillips and Wetumpka acquisitions in Qtr 2 and Qtr 3 of fiscal 1998. (7) Net income per share (diluted) represents the potential dilution that could occur if securities to issue common stock were exercised or converted into common stock as required by Statement of Financial Accounting Standards No.128 which was adopted during Qtr 3 of fiscal 1998.
CULP, INC. FINANCIAL INFORMATION RELEASE SALES BY PRODUCT CATEGORY/BUSINESS UNIT FOR THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 1, 1998 AND JANUARY 26, 1997 (Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED) --------------------------------------------------- Amounts Percent of Total Sales ------------------ ------------------- February January % Over 1, 26, Product 1998 1997 (Under) 1998 1997 Category/Business Unit - ------------------------- -------- -------- ---------- -------- --------- Upholstery Fabrics Culp Textures $ 21,059 20,389 3.3 % 17.8 % 20.9 % Rossville/Chromatex 21,120 18,953 11.4 % 17.8 % 19.4 % -------- -------- ---------- -------- --------- 42,179 39,342 7.2 % 35.6 % 40.4 % Velvets/Prints 44,020 40,387 9.0 % 37.2 % 41.4 % Phillips 11,236 0 100.0 % 9.5 % 0.0 % -------- -------- ---------- -------- --------- 97,435 79,729 22.2 % 82.3 % 81.8 % Mattress Ticking Culp Home Fashions 20,261 17,739 14.2 % 17.1 % 18.2 % Yarn Artee 761 0 100.0 % 0.6 % 0.0 % -------- -------- ---------- -------- --------- * $ 118,457 97,468 21.5 % 100.0% 100.0 % ======== ======== ========== ======== ========= NINE MONTHS ENDED (UNAUDITED) --------------------------------------------------- Amounts Percent of Total Sales ------------------ ------------------- February January % Over 1, 26, Product 1998 1997 (Under) 1998 1997 Category/Business Unit - ------------------------- -------- -------- ---------- -------- --------- Upholstery Fabrics Culp Textures $ 67,206 65,191 3.1 % 19.7 % 22.2 % Rossville/Chromatex 60,843 58,840 3.4 % 17.8 % 20.1 % -------- -------- ---------- -------- --------- 128,049 124,031 3.2 % 37.6 % 42.3 % Velvets/ Prints 126,345 115,487 9.4 % 37.1 % 39.4 % Phillips 21,961 0 100.0 % 6.4 % 0.0 % -------- -------- ---------- -------- --------- 276,355 239,518 15.4 % 81.1 % 81.7 % Mattress Ticking Culp Home Fashions 63,765 53,683 18.8 % 18.7 % 18.3 % Yarn Artee 761 0 100.0 % 0.2 % 0.0 % -------- -------- ---------- -------- --------- * $ 340,881 293,201 16.3 % 100.0% 100.0 % ======== ======== ========== ======== =========
*U.S. sales were $ 79,873 and $70,931 for the current quarter of fiscal 1998 and fiscal 1997, respectively; and $242,123 and $220,791 for the year to date of fiscal 1998 and fiscal 1997, respectively. The percentage increase in U.S. sales was 13% for the current quarter and an increase of 10% for the year to date. CULP, INC. FINANCIAL INFORMATION RELEASE INTERNATIONAL SALES BY GEOGRAPHIC AREA FOR THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 1, 1998 AND JANUARY 26, 1997 (Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED) ----------------------------------------------------- Amounts Percent of Total Sales --------------------- ------------------- February January % Over 1, 26, Geographic Area 1998 1997 (Under) 1998 1997 - ----------------------- ---------- --------- --------- --------- ------- North America $ 7,562 6,482 16.7 % 19.6 % 24.4 % (Excluding USA) Europe 11,581 7,213 60.6 % 30.0 % 27.2 % Middle East 9,326 4,580 103.6% 24.2 % 17.3 % Far East & Asia 7,957 6,862 16.0 % 20.6 % 25.9 % South America 1,230 855 43.9 % 3.2 % 3.2 % All other areas 928 545 70.3 % 2.4 % 2.1 % ---------- --------- --------- --------- ------- $ 38,584 26,537 45.4 % 100.0 % 100.0 % ========== ========= ========= ========= ======= NINE MONTHS ENDED (UNAUDITED) ----------------------------------------------------- Amounts Percent of Total Sales --------------------- ------------------- February January % Over 1, 26, Geographic Area 1998 1997 (Under) 1998 1997 - ----------------------- ---------- --------- --------- --------- ------- North America $ 22,574 20,555 9.8 % 22.9 % 28.4 % (Excluding USA) Europe 22,811 17,573 29.8 % 23.1 % 24.3 % Middle East 23,452 13,736 70.7 % 23.7 % 19.0 % Far East & Asia 23,951 15,893 50.7 % 24.3 % 21.9 % South America 3,487 2,464 41.5 % 3.5 % 3.4 % All other areas 2,483 2,189 13.4 % 2.5 % 3.0 % ---------- --------- --------- --------- ------- $ 98,758 72,410 36.4 % 100.0 % 100.0 % ========== ========= ========= ========= =======
International sales, and the percentage of total sales, for each of the last six years follows:fiscal 1992-$ 34,094 (18%); fiscal 1993-$ 40,729 (20%); fiscal 1994-$ 44,038 (18%); fiscal 1995-$ 57,971 (19%);fiscal 1996-$ 77,397 (22%); and fiscal 1997-$ 101,571 (25%). International sales for the current quarter represented 33% and 27% for 1998 and 1997, respectively. Year-to-date international sales represented 29% and 25% of total sales for 1998 and 1997, respectively. Certain amounts for fiscal year 1997 have been reclassified to conform with the fiscal year 1998 presentation. Additionally, certain amounts were reclassified from the fiscal year 1998 second quarter presentation. Culp, Inc. SALES BY BUSINESS UNIT - TREND ANALYSIS 1996 vs 1997 vs 1998 (Amounts in thousands)
Fiscal 1996 Fiscal 1997 Fiscal 1998 ------------------------------------ ------------------------------------- Product Q1 Q2 Q3 Q4 TOTAL Q1 Q2 Q3 Q4 TOTAL Category/Business Units - ------------------------ Upholstery Fabrics Culp Textures 17,584 22,715 20,685 23,400 84,384 20,801 24,001 20,389 23,027 88,218 Rossville/Chromatex 15,358 17,960 18,567 22,318 74,203 18,165 21,722 18,953 20,672 79,512 ------------------------------------ --------------------------------------- 32,942 40,675 39,252 45,718 158,587 38,966 45,723 39,342 43,699 167,730 Velvets/Prints 23,523 32,081 31,836 38,261 125,701 34,867 40,233 40,387 40,980 156,467 Phillips - - - - - - - - - - ------------------------------------ --------------------------------------- 56,465 72,756 71,088 83,979 284,288 73,833 85,956 79,729 84,679 324,197 Mattress Ticking Culp Home Fashions 15,892 17,916 15,388 18,183 67,379 16,696 19,248 17,739 20,999 74,682 Yarn Artee - - - - - - - - - - ------------------------------------ -------------------------------------- 72,357 90,672 86,476 102,162 351,667 90,529 105,204 97,468 105,678 398,879 ==================================== ====================================== Percent increase(decrease) from prior year: - ---------------------------------------------------------------------------------------------------- Product Category/Business Units - ----------------------- Upholstery Fabrics Culp Textures (10.3) (0.5) (1.2) 7.6 (0.9) 18.3 5.7 (1.4) (1.6) 4.5 Rossville/Chromatex 1.4 14.0 13.2 35.5 16.4 18.3 20.9 2.1 (7.4) 7.2 ------------------------------------ ------------------------------------- (5.2) 5.4 5.1 19.7 6.5 18.3 12.4 0.2 (4.4) 5.8 Velvets/Prints 13.9 21.3 12.5 21.8 17.7 48.2 25.4 26.9 7.1 24.5 Phillips - - - - - - - - - - ------------------------------------ ------------------------------------- 1.9 11.9 8.3 20.6 11.2 30.8 18.1 12.2 0.8 14.0 Mattress Ticking Culp Home Fashions 45.1 33.6 26.7 14.9 28.8 5.1 7.4 15.3 15.5 10.8 Yarn Artee - - - - - - - - - - ------------------------------------ ------------------------------------- 9.1 15.6 11.2 19.6 14.2 25.1 16.0 12.7 3.4 13.4 ==================================== ===================================== Overall Growth Rate Internal(without 6.4 13.0 8.7 19.6 12.3 25.1 16.0 12.7 3.4 13.4 acquistions) External 2.7 2.6 2.5 1.9 - - - - - - ------------------------------------ ------------------------------------- 9.1 15.6 11.2 19.6 14.2 25.1 16.0 12.7 3.4 13.4 ==================================== =====================================
Culp, Inc. SALES BY BUSINESS UNIT - TREND ANALYSIS 1996 vs 1997 vs 1998 (Amounts in thousands)
Fiscal 1998 -------------------------------------- Product Q1 Q2 Q3 Q4 TOTAL Category/Business Units - ------------------------ Upholstery Fabrics Culp Textures 21,693 24,454 21,059 67,206 18,121 21,602 21,120 60,843 Rossville/Chromatex -------------------------------------- 39,814 46,056 42,179 128,049 Velvets/Prints 38,397 43,928 44,020 126,345 Phillips - 10,725 11,236 21,961 -------------------------------------- 78,211 100,709 97,435 276,355 Mattress Ticking Culp Home Fashions 21,287 22,217 20,261 63,765 Yarn Artee - - 761 761 -------------------------------------- 99,498 122,926 118,457 340,881 ====================================== Upholstery Fabrics Culp Textures 4.3 1.9 3.3 3.1 (0.2) (0.6) 11.4 3.4 Rossville/Chromatex -------------------------------------- 2.2 0.7 7.2 3.2 Velvets/Prints 10.1 9.2 9.0 9.4 Phillips - 100.0 100.0 100.0 -------------------------------------- 5.9 17.2 22.2 15.4 Mattress Ticking Culp Home Fashions 27.5 15.4 14.2 18.8 Yarn Artee - - 100.0 100.0 -------------------------------------- 9.9 16.8 21.5 16.3 ====================================== Overall Growth Rate Internal(without 9.9 6.6 9.2 8.5 acquistions) External 7.8 - 10.2 12.3 ====================================== 9.9 16.8 21.5 16.3 ======================================
CULP, INC. FINANCIAL INFORMATION RELEASE FINANCIAL NARRATIVE for the three and nine month periods ended February 1, 1998 and January 26, 1997 INCOME STATEMENT COMMENTS GENERAL - Net sales increased 21.5% to $118.5 million and net income increased 33.0% to $4.0 million for the third quarter, as compared with the same quarter of last year. This performance marks the 21st consecutive quarter of record earnings and the 19th consecutive quarter of record sales (based on comparable year-earlier periods). Net sales for the quarter excluding the acquisitions of Phillips Mills and Wetumpka Yarn increased 9.2% versus the same quarter of last year. The company's net profit margin increased slightly to 3.4% for the quarter from 3.1% a year ago. Also, the company has achieved a return on average shareholders' equity of 14.6% for the latest twelve month period. The company acquired Phillips Mills on August 5, 1997 and Wetumpka Yarn on December 30, 1997; the results of these companies are included since their respective acquisition dates. The company attributes its consistent record to several key competitive strengths: Diverse Global Customer Base - penetrating other end-use markets in addition to U.S. residential furniture, such as bedding, international, commercial furniture and juvenile furniture; sales to these other markets accounted for approximately 47% of net sales during the third quarter; additionally, no one customer accounted for more than 7% of sales during the quarter; Design Innovation - investing in the creative aspect of our business - the company has significantly increased the resources (both designers and computer-aided design (CAD) systems) dedicated to the design and product development areas in each business unit; the company's in-house design, product development, CAD and support staff now includes over 90 people. Additionally, the company opened its state-of-the-art Design Center in Burlington, North Carolina during January 1998. This facility now brings together most of the company's design resources in one location and utilizes advanced CAD systems and technology; Vertical Integration - realizing additional manufacturing integration by producing various raw material components that are used in the manufacture of its products; and Ability to Identify and Integrate Acquisitions - investing in selective, accretive acquisitions in complementary businesses which we know and understand, and that strengthen existing marketing positions or add strategic vertical manufacturing capabilities. NET SALES - Compared with the third quarter of last year, upholstery fabric sales increased 22.2% to $97.4 million and mattress ticking sales increased 14.2% to $20.3 million for the quarter (See Sales by Business Unit schedule on Page 5 and Sales by Business Unit - Trend Analysis on Page 7). The growth in upholstery fabric sales for the third quarter reflects the incremental sales from the Phillips acquisition of $11.2 million and gains in Velvets/Prints - up 9.0%; Rossville/Chromatex - up 11.4%; and Culp Textures - up 3.3%. The growth in demand for upholstery fabrics from U.S. manufacturers of residential furniture as a group began slowing during the second half of fiscal 1997 and continued through calendar 1997. The company believes the financial difficulties of several significant furniture retailers, including the summer 1997 bankruptcies of Levitz and Montgomery Wards, significantly contributed to the slower rate of growth. Sales to U.S.-based residential furniture customers excluding sales from Phillips Mills decreased 3% for the quarter. Including Phillips, sales to this customer segment increased 9%. Sales of wet printed flock upholstery fabrics, which remain one of the company's faster growing product lines internationally, increased 69% from the same quarter a year ago. The increased sales by Culp Home Fashions during the third quarter (up 14.2%) reflect the continued positive response to new designs and fabric constructions, notably in printed jacquard ticking. The growth in Culp Home Fashions has been significantly aided by the company's investment in additional weaving capacity to manufacture wide jacquard greige, or unfinished, goods at the company's Rayonese facility in Canada. These greige goods are then further processed at other facilities by printing, dyeing and other finishing steps to produce mattress ticking. CULP, INC. FINANCIAL INFORMATION RELEASE FINANCIAL NARRATIVE for the three and nine month periods ended February 1, 1998 and January 26, 1997 International sales were up 45.4% for the quarter compared with the third quarter of fiscal 1997. International sales in all major regions and each upholstery fabric business unit were strong, and accounted for 33% of net sales for the quarter versus 27% for the same quarter of last year. The vast majority of the international sales represent sales of upholstery fabrics to residential furniture distributors and manufacturers. (See International Sales by Geographic Area schedule on page 6.) Almost all of the company's international sales are denominated in U.S. dollars. GROSS PROFIT - The gross profit increase of 21.9% for the third quarter versus the same quarter of last year reflects a substantial gain in the Culp Home Fashions business unit, the incremental gross profit from the Phillips Mills business unit, a moderate increase in Rossville/Chromatex, and lower results in Velvets/Prints and Culp Textures. The overall gross profit margin of 17.6% remained the same for the quarter versus the same quarter of last year. The company is benefiting significantly from its international sales growth and the operation of its jacquard greige goods facility in Canada (Rayonese). The company completed a major expansion of wide weaving capacity at Rayonese during the third quarter. Factors which adversely affected the company's profitability during the quarter included: (a) lower demand from U.S. manufacturers of residential furniture, which affected all of the upholstery fabric business units; and (b) lower profitability in the Velvets/Prints business unit that resulted from decreases in sales in certain product lines (tufted and woven velvets, and heat-transfer flock prints). The expansion projects in the Velvets/Prints business unit (flock coating line, the new printing facility in Lumberton, N.C. and the integration of the Phillips velvet products into Culp's facilities) contributed positively during the quarter, although manufacturing efficiencies have not reached the expected levels of performance. S,G&A EXPENSES - S,G&A expenses for the third quarter were essentially flat as a percentage of sales versus the same period of last year. The increase in absolute dollars is principally due to incremental S,G&A expenses for Phillips, higher sales commissions related to international sales and significant investments in additional design resources, which were offset by lower accruals for incentive-based compensation plans. INTEREST EXPENSE - The increase for the third quarter of 77.5% over the same quarter of last year is due to higher average borrowings outstanding, which resulted from the company's acquisition of Phillips Mills that was made on the first day of the second quarter, and from capital expenditure and working capital investments that were made during the first nine months of this year. INTEREST INCOME - Interest income remained the same for the quarter. OTHER EXPENSE (INCOME), NET - Other expense (income) increased to $492,000 from $421,000 in the same quarter of last year, due primarily to the incremental goodwill amortization related to Phillips. INCOME TAXES - The effective tax rate for the third quarter was 22.2%, compared with 37.5% for the same quarter of last year. The lower tax rate resulted from higher than expected tax benefits (in the current period as well as prior periods) related to the company's foreign sales corporation ("FSC"), and higher estimated income in Canada which has a lower effective tax rate. The company is estimating the effective tax rate for the full fiscal year at 31.0%, which is down from the 35.0% estimate at the end of the second quarter. EBITDA - EBITDA for the quarter increased 22.8% to $11.4 million from last year's third quarter and represented 9.6% of net sales compared with 9.5% of net sales for the same period of last year. CULP, INC. FINANCIAL INFORMATION RELEASE FINANCIAL NARRATIVE for the three and nine month periods ended February 1, 1998 and January 26, 1997 BALANCE SHEET COMMENTS WORKING CAPITAL - Accounts receivable increased 45.8% from January 1997, due to the Phillips acquisition and increased sales for the second quarter. Days sales outstanding represented 52 days, up 11% from 47 days at January 26, 1997 and 49 days at April 27, 1997. Accounts receivable continued to increase at a faster rate than sales because of the increasing mix of international sales and mattress ticking sales, which carry longer payment terms than U.S. upholstery fabric sales. Inventories increased 47.8% from January 26, 1997, due to the Phillips acquisition, higher overall sales and a higher mix of international sales which have required more finished goods inventory. Inventory turns decreased 13% to 5.4 for the quarter versus 6.2 for the same quarter of last year. Working capital increased significantly to $104.0 million at February 1, 1998, from $60.7 million at January 26, 1997 and $69.8 million at April 27, 1997, for the reasons mentioned above. PROPERTY, PLANT AND EQUIPMENT - The company has maintained a significant program of capital expenditures over the past several years designed to expand capacity to support sales growth, increase vertical integration to lower product costs and control more of its supply of raw materials, and enhance manufacturing efficiencies through modernization. The company is currently planning capital spending of approximately $39 million during fiscal 1998, which includes about $13.5 million for expansion projects (35%); $12.5 million for vertical integration projects (32%); and $13.0 million for modernization projects (33%). The principal expansion project involves completion of various items related to the Lumberton, N.C. printing facility. The key vertical integration projects include yarn extrusion expansion and additional weaving capacity for jacquard greige goods at Rayonese. The modernization projects encompass a number of smaller projects throughout the company"s operations. Depreciation expense for fiscal 1998 is expected to be approximately $15.0 million. For fiscal 1999, the company is planning to significantly reduce its capital spending to a range of $10 to $15 million, and concentrate its efforts on improving the results of the investments made during fiscal 1997 and fiscal 1998. The two largest projects that are currently planned for fiscal 1999 are: (a) completion of the polypropylene yarn extrusion expansion, which began in early fiscal 1998; and (b) building expansions in the Culp Home Fashions business unit to accommodate the significant growth in the company"s sales of mattress ticking over the last several years. Depreciation for fiscal 1999 is currently estimated to be approximately $19 million. LONG-TERM DEBT - The company"s funded debt-to-capital ratio was 53.7% at February 1, 1998, up from 47.4% at January 26, 1997, and up from 37.2% at April 27, 1997. Funded debt was $141.2 million at February 1, 1998, up from $80.6 million at January 26, 1997 and up from $ 65.6 million at April 27, 1997. (Funded debt equals long-term debt, including current maturities, less restricted investments, which represent unspent IRB funds.) The increase in funded debt from April 27, 1997 resulted from the Phillips and Wetumpka acquisitions ($37.2 million), capital expenditures ($28.2 million), an operating cash flow deficit ($6.6 million), and a decrease in accounts payable related to capital expenditures ($2.8 million). During the fourth quarter of fiscal 1998, the company is expecting to significantly strengthen its capital structure with the closing of a private placement of $75 million of senior, unsecured notes. The notes are expected to have a fixed coupon rate of 6.76% and an average term of 10 years. Additionally, the principal financial covenants include a funded debt to total capital ratio of 60% and a minimum shareholders" equity level. The proceeds will be used to repay borrowings under the company"s bank credit facility. (See Pro forma Capitalization Table on page 12 of 12.) CULP, INC. FINANCIAL INFORMATION RELEASE FINANCIAL NARRATIVE for the three and nine month periods ended February 1, 1998 and January 26, 1997 PHILLIPS MILLS ACQUISITION - On August 5, 1997, the company acquired the business and certain assets relating to the upholstery fabric businesses operating as Phillips Mills. Based on the terms of the asset purchase agreement, the transaction is valued at approximately $37 million, which included cash, seller debt retired, a note payable to the seller and acquisition costs. The consideration for the acquisition also included stock options and an agreement for contingent payments to the selling companies within three years following closing that could range from $0 to $5,500,000, depending upon the future sales performance of the Phillips jacquard fabric product line. (See Form 8-K, dated April 30, 1997, which provides additional information related to the acquisition.) ACQUISITION OF WETUMPKA YARN - On December 30, 1997, Culp completed the acquisition of the business and certain assets related to the Wetumpka yarn division of Dan River Inc. The transaction value at closing was $1.5 million. (See press release, dated December 17, 1997, which provides additional information about the acquisition.) ACQUISITION OF ARTEE INDUSTRIES - On February 2, 1998, Culp completed the acquisition of the business and substantially all assets and the assumption of certain liabilities of Artee Industries, Incorporated ("Artee"), a yarn manufacturer. The transaction value at closing is estimated at $18 million, and included the issuance of 284,211 new shares of Culp common stock, $2.0 million in cash and a $1.6 million note, as well as the repayment at closing of Artee's interest-bearing debt. Also, there is an "earn-out" which provides the opportunity for additional consideration of up to $7.6 million (60% in stock and 40% in cash), based upon the profitability of Artee during Culp's fiscal year ending May 2, 1999. The acquisition will be accounted for as a purchase, and therefore the results of Artee from the closing date will be included in Culp's results. (See Form 8-K, dated October 15, 1997, which provides additional information related to the acquisition.) CULP, INC. FINANCIAL INFORMATION RELEASE PRO FORMA CAPITALIZATION TABLE FEBRUARY 1, 1998 (Dollars in thousands)
February 1, 1998 ------------------------------------------- Actual Adjustments Pro Forma ------------ ------------- ------------- FUNDED DEBT Industrial Revenue Bonds and other obligations 30,090 30,090 Syndicated $125 million 106,033 9,197 (a) 40,230 credit facility (75,000) (b) Notes payable 5,100 1,600 (a) 6,700 Senior unsecured ---- 75,000 (b) 75,000 notes ------------ ------------- ------------- 141,223 10,797 152,020 ------------ ------------- ------------- SHAREHOLDERS' EQUITY 121,613 5,400 (a) 127,013 ------------ ------------- ------------- TOTAL CAPITAL 262,836 16,197 279,033 ============ ============= ============= FUNDED DEBT TO TOTAL CAPITAL 53.7% 54.5% ============ =============
(a) Reflects funding sources for Artee Industries acquisition which closed February 2, 1998. On the acquisition date, the company issued 284,211 sharesof its common stock to the Artee Industries shareholders. (b) Reflects planned issuance of a private placement of senior unsecured notes with a coupon rate of 6.76% and average term of ten years. Estimated debt issuance costs are $500,000. -----END PRIVACY-ENHANCED MESSAGE-----