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 8, 1996
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)
(910) 889-5161
(Registrant's telephone number, including area code)
(Former name or former address, if changed since last report)
<PAGE>
Item 5. Other Events
See Press Release (attached) dated August 8, 1996 related to first-quarter
earnings for the period ended July 28, 1996.
See Financial Information Release (attached).
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: August 8, 1996
-2-
<PAGE>
(CULP LOGO)
CULP
NEWS RELEASE Contact:
Franklin N. Saxon
Senior Vice President &
Chief Financial Offer
FOR IMMEDIATE RELEASE
CULP REPORTS RECORD FIRST QUARTER SALES AND EARNINGS
EARNINGS PER SHARE UP 43%
HIGH POINT, North Carolina (August 8, 1996) A Culp, Inc. today reported higher
net sales and earnings for the first quarter of its 1997 fiscal year.
For the three months ended July 28, 1996, Culp reported that net sales
increased 25.1% to $90.5 million compared with $72.4 million a year ago. Net
income for the quarter increased 45.9% to $2.2 million or $0.20 per share,
compared with $1.5 million, or $0.14 per share, in the first quarter of fiscal
1996.
Commenting on the results, Robert G. Culp, III, chief executive
officer, said, "The gains for the first quarter represent a strong start for
Culp in the current fiscal year. Increased shipments of upholstery fabrics
provided the majority of the gain in sales for the period, but we also achieved
higher sales of mattress ticking. These results mark the highest first quarter
net sales and earnings ever in a period which historically has not been the
strongest quarter for our business because of seasonal factors. We have now
achieved 15 consecutive quarters of record earnings compared with the comparable
year-earlier results. We are gratified by that accomplishment but recognize the
inherent cyclicality of demand for home furnishings. We continue to be focused
on the same programs and initiatives which have successfully enabled us to
capture an increasing share of the worldwide market for upholstery fabrics and
mattress ticking."
Culp noted, "A hallmark of our continuing progress remains the growth
in international sales. Shipments to customers outside the United States
increased 49% during the first quarter and represented 24% of net sales. At the
same time, U. S. shipments rose 19%. We are steadily broadening the scope of the
company's international sales. Canada and Mexico combined
-MORE-
Culp, Inc. (Box) P.O. Box 2686 (Box) 101 S. Main Street (Box) High Point, NC
27261-2686 (Box) 910-888-6266 (Box) Fax 910-887-7089
<PAGE>
CULP Reports First Quarter Gains
Page 2
August 8, 1996
represent the largest international market for our products, but Europe is now a
major area as well. We are also establishing a rapidly growing presence in the
Middle East, Asia and the Far East. We fully intend to broaden that geographical
diversity further. We are continuing to add new distributors and expect to
introduce new products as part of an aggressive plan to sustain this positive
momentum.
"We are continuing to maintain a strong financial position which is
allowing us to invest the capital necessary to support Culp's ongoing progress.
Our debt/capital ratio of 47% at the close of the first quarter was the lowest
for the company in two years. Based on our current plans to invest at least
$16.5 million in new equipment during fiscal 1997, we will have spent a record
$78 million over the past five years to modernize and expand our manufacturing
resources. Our capital expenditures are focused not only on increasing our
production capacity but also on being able to meet customers' needs better.
Current initiatives include projects intended to raise efficiency, lower
manufacturing costs and enhance Culp's flexibility to adapt quickly to changes
in the markets for upholstery fabrics and mattress ticking."
Culp, Inc. is a leading manufacturer and marketer of fabrics for the
furniture, bedding and institutional furnishings markets.
CULP, INC.
Condensed Financial Highlights
(Unaudited)
Three Months Ended
July 28, July 30,
1996 1995
-------------------- ------------
Net sales $ 90,529,000 $ 72,357,000
Net income $ 2,210,000 $ 1,515,000
Earnings per share $ 0.20 $ 0.14
Average shares outstanding 11,297,000 11,207,000
-END-
<PAGE>
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED JULY 28, 1996 AND JULY 30, 1995 (Page 1 of 10)
(Amounts in Thousands, Except for Per Share Data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED (UNAUDITED)
-----------------------------------------------------------------------------
Amounts Percent of Sales
------------------------------ ------------------------
July 28, July 30, % Over
1996 1995 (Under) 1997 1996
-------------- ------------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Net sales $ 90,529 72,357 25.1% 100.0% 100.0%
Cost of sales 74,609 60,159 24.0% 82.4% 83.1%
-------- -------- ---- ------- ----
Gross profit 15,920 12,198 30.5% 17.6% 16.9%
Selling, general and
administrative expenses 10,864 8,454 28.5% 12.0% 11.7%
-------- -------- ----- ------- ----
Income from operations 5,056 3,744 35.0% 5.6% 5.2%
Interest expense 1,182 1,297 (8.9%) 1.3% 1.8%
Interest income (57) 0 ** % (0.1%) 0.0%
Other expense (income), net 395 107 269.2% 0.4% 0.1%
-------- ------- ----- ------- ----
Income before income taxes 3,536 2,340 51.1% 3.9% 3.2%
Income taxes * 1,326 825 60.7% 37.5% 35.3%
-------- ------- ----- ------- ----
Net income $ 2,210 1,515 45.9% 2.4% 2.1%
======== ======= ===== ======= ====
Average shares outstanding 11,297 11,207 0.8%
Net income per share $ 0.20 $ 0.14 42.9%
Dividends per share $0.0325 $0.0275 18.2%
</TABLE>
<PAGE>
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED BALANCE SHEETS
JULY 28, 1996, JULY 30, 1995 AND APRIL 28, 1996 (Page 2 of 10)
(Unaudited, Amounts in Thousands)
<TABLE>
<CAPTION>
Amounts
------------------------ Increase
(Decrease)
July 28, July 30, -------------------------- * April 28,
1996 1995 Dollars Percent 1996
------------ ------------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C>
Current assets
Cash and cash investments $ 1,709 988 721 73.0% 498
Accounts receivable 42,262 38,243 4,019 10.5% 52,038
Inventories 51,676 49,363 2,313 4.7% 47,395
Other current assets 3,911 3,553 358 10.1% 4,191
-------- -------- -------- ------- --------
Total current assets 99,558 92,147 7,411 8.0% 104,122
Restricted investments 5,244 0 5,244 5,250
Property, plant & equipment, net 78,292 75,744 2,548 3.4% 76,961
Goodwill 22,720 22,391 329 1.5% 22,871
Other assets 2,469 2,443 26 1.1% 2,440
-------- -------- -------- ------- --------
Total assets $208,283 192,725 15,558 8.1% 211,644
======== ======== ======== ======= ========
Current Liabilities
Current maturities of long-term debt $ 7,100 11,555 (4,455) (38.6%) 7,100
Accounts payable 24,233 25,864 (1,631) (6.3%) 27,308
Accrued expenses 13,295 8,520 4,775 56.0% 12,564
Income taxes payable 1,295 1,139 156 13.7% 197
-------- -------- -------- ------- --------
Total current liabilities 45,923 47,078 (1,155) (2.5%) 47,169
Long-term debt 70,916 67,662 3,254 4.8% 74,941
Deferred income taxes 8,088 5,361 2,727 50.9% 8,088
-------- -------- -------- ------- --------
Total liabilities 124,927 120,101 4,826 4.0% 130,198
Shareholders' equity 83,356 72,624 10,732 14.8% 81,446
-------- -------- -------- ------- --------
Total liabilities and
shareholders' equity $208,283 192,725 15,558 8.1% 211,644
======== ======== ======== ======= ========
Shares outstanding 11,303 11,210 93 0.8% 11,290
======== ======== ======== ======= ========
</TABLE>
* Derived from audited financial statements.
<PAGE>
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED STATEMENTS OF CASH FLOWS (Page 3 of 10)
FOR THE THREE MONTHS ENDED JULY 28, 1996 AND JULY 30, 1995
(Unaudited, Amounts in Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------
Amounts
-------------------------------------
July 28, July 30,
1996 1995
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,210 1,515
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation 3,144 3,067
Amortization of intangible assets 198 148
Provision for deferred income taxes 0 (57)
Changes in assets and liabilities:
Accounts receivable 9,776 6,009
Inventories (4,281) (3,592)
Other current assets 280 (359)
Other assets (76) 93
Accounts payable 131 (1,787)
Accrued expenses 731 (3,012)
Income taxes payable 1,098 478
----------------- -----------------
Net cash provided by (used in) operating activities 13,211 2,508
----------------- -----------------
Cash flows from investing activities:
Capital expenditures (4,475) (3,006)
Purchases of restricted investments (53) 0
Purchase of investments to fund deferred compensation liability 0 (1,286)
Proceeds from sale of restricted investments 59 795
----------------- -----------------
Net cash provided by (used in) investing activities (4,469) 3,497
----------------- -----------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 0 7,000
Principal payments on long-term debt (4,025) (1,525)
Change in accounts payable-capital expenditures (3,206) (4,599)
Dividends paid (368) (308)
Proceeds from sale of common stock 68 21
----------------- -----------------
Net cash provided by (used in) financing activities (7,531) 589
----------------- -----------------
Increase (decrease) in cash and cash investments 1,211 (405)
Cash and cash investments at beginning of period 498 1,393
----------------- -----------------
Cash and cash investments at end of period $ 1,709 988
================= =================
</TABLE>
<PAGE>
CULP, INC. FINANCIAL INFORMATION RELEASE (Page 4 of 10)
FINANCIAL ANALYSIS
JULY 28, 1996
<TABLE>
<CAPTION>
FISCAL 96 FISCAL 97
Q1 Q1 Q2 Q3 Q4
<S> <C> <C> <C> <C> <C>
INVENTORIES
Inventory turns 5.1 6.0
RECEIVABLES
Days sales in receivables 45 43
Percent current & less than 30
days past due 97.0% 99.3%
WORKING CAPITAL
Current ratio 2.0 2.2
Working capital turnover 5.4 5.4
Working capital $45,069 $53,635
Working capital as a % of sales 15.6% 14.8%
PROPERTY, PLANT & EQUIPMENT
Depreciation rate 8.9% 8.3%
Percent property, plant &
equipment are depreciated 44.9% 48.2%
Capital expenditures $14,385 (1) $4,475
PROFITABILITY
Net profit margin 2.1% 2.4%
Gross profit margin 16.9% 17.6%
Operating income margin 5.2% 5.6%
SG & A expenses/net sales 11.7% 12.0%
Return on average total capital 4.1% 5.7%
Return on average equity 8.4% 10.7%
Earnings per share $0.14 $0.20
LEVERAGE (3)
Total liabilities/equity 165.4% 149.9%
Long-term debt/equity 93.2% 85.1%
Funded debt/equity 109.1% 87.3%
Funded debt/capital employed 52.2% 46.6%
Funded debt $79,217 $72,772
Funded debt/EBITDA (LTM) 2.42 1.98
OTHER
Book value per share $6.48 $7.37
Employees at quarter end 2,773 3,020
Sales per employee (annualized) $105,000 $120,000
Capital employed (3) $151,841 $156,128
Effective income tax rate 35.3% 37.5%
EBITDA (2) $6,852 $8,003
EBITDA/net sales 9.5% 8.8%
</TABLE>
(1) Expenditures for entire year
(2) Earnings before interest, income taxes, and depreciation & amortization.
(3) Total liabilities, long-term debt, funded debt and capital employed are
all net of restricted investments.
<PAGE>
CULP, INC. FINANCIAL INFORMATION RELEASE
SALES BY BUSINESS UNIT (Page 5 of 10)
FOR THREE MONTHS MONTHS ENDED JULY 28, 1996 AND JULY 30, 1995
<TABLE>
<CAPTION>
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
-------------------------------------------------------------------
Amounts Percent of Total Sales
------------------------------- --------------------
July 28, July 30, % Over
Business Units 1996 1995 (Under) 1997 1996
- ------------------------------------------- ------------- ------------ ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Upholstery Fabrics
Culp Textures $20,801 17,584 18.% 23.% 24.%
Rossville/Chromatex 18,165 15,358 18.% 20.% 21.%
------- ------- ---- ----- -----
38,966 32,942 18.% 43.% 45.%
Velvets/Prints 34,867 23,523 48.% 38.% 32.%
------- ------- ---- ----- -----
73,833 56,465 30.% 81.% 78.%
Mattress Ticking
Culp Home Fashions (1) 16,696 15,892 5.% 18.% 22.%
------- ------- ---- ----- -----
* $ 90,529 72,357 25.% 100.% 100.%
======= ======= ==== ===== =====
</TABLE>
*US. Domestic sales were $69,001 and $57,945 for the three months of
fiscal 1997 and fiscal 1996, respectively.
The percentage increase in U.S. Domestic sales was 19.1% for the three
months.
(1) Formerly known as Culp Ticking
<PAGE>
CULP, INC. FINANCIAL INFORMATION RELEASE
INTERNATIONAL SALES BY GEOGRAPHIC AREA (Page 6 of 10)
FOR THREE MONTHS MONTHS ENDED JULY 28, 1996 AND JULY 30, 1995
<TABLE>
<CAPTION>
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
------------------------------------------------------------------------------
Amounts Percent of Total Sales
------------------------------ ------------------------
July 28, July 30, % Over
Geographic Area 1996 1995 (Under) 1997 1996
- ------------------------------------------- ------------ ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
North America (Excluding USA) $ 7,957 4,568 74.2% 37.0% 31.7%
Europe 4,723 3,185 48.3% 21.9% 22.1%
Middle East 4,196 2,112 98.7% 19.5% 14.7%
Far East & Asia 3,694 2,251 64.1% 17.2% 15.6%
South America 366 445 (17.8%) 1.7% 3.1%
All other areas 592 1,851 (68.0%) 2.7% 12.8%
------- ------- ------ ----- -----
$21,528 14,412 49.4% 100.0% 100.0%
======= ======= ====== ===== =====
</TABLE>
<PAGE>
Culp, Inc.
SALES BY BUSINESS UNIT - TREND ANALYSIS (Page 7 of 10)
1995 vs 1996 vs 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
Fiscal 1995
Product Category/Business Units Q1 Q2 Q3 Q4 TOTAL
<S> <C> <C> <C> <C> <C>
Upholstery Fabrics
Culp Textures 19,613 22,834 20,940 21,738 85,125
Rossville/Chromatex 15,140 15,758 16,397 16,470 63,765
---------------------------------------------------------
34,753 38,592 37,337 38,208 148,890
Velvets/Prints 20,644 26,439 28,307 31,413 106,803
---------------------------------------------------------
55,397 65,031 65,644 69,621 255,693
Mattress Ticking
Culp Home Fashions (1) 10,952 13,414 12,147 15,820 52,333
---------------------------------------------------------
66,349 78,445 77,791 85,441 308,026
=========================================================
Percent increase(decrease) from prior year:
Product Category/Business Units
Upholstery Fabrics
Culp Textures 12.4 13.8 6.4 2.9 8.7
Rossville/Chromatex 100.0 100.0 14.4 (1.5) 105.4
---------------------------------------------------------
99.2 92.3 9.8 1.0 36.1
Velvets/Prints (1.2) 7.8 19.4 12.5 10.1
---------------------------------------------------------
44.5 45.8 13.7 5.9 23.9
Mattress Ticking
Culp Home Fashions (1) 32.7 42.8 27.4 37.9 35.4
---------------------------------------------------------
42.4 45.3 15.7 10.6 25.7
==========================================================
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1997
Product Category/Business Units Q1 Q2 Q3 Q4 TOTAL Q1 Q2 Q3 Q4 TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Upholstery Fabrics
Culp Textures 17,584 22,715 20,685 23,400 84,384 20,801
Rossville/Chromatex 15,358 17,960 18,567 22,318 74,203 18,165
---------------------------------------------------
32,942 40,675 39,252 45,718 158,587 38,966
Velvets/Prints 23,523 32,081 31,836 38,280 125,720 34,867
---------------------------------------------------
56,465 72,756 71,088 83,998 284,307 73,833
Mattress Ticking
Culp Home Fashions (1) 15,892 17,916 15,388 18,164 67,360 16,696
---------------------------------------------------
72,357 90,672 86,476 102,162 351,667 90,529
===================================================
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
Rossville/Chromatex 1.4 14.0 13.2 35.5 16.4 18.3
---------------------------------------------------
(5.2) 5.4 5.1 19.7 6.5 18.3
Velvets/Prints 13.9 21.3 12.5 21.9 17.7 48.2
---------------------------------------------------
1.9 11.9 8.3 20.7 11.2 30.8
Mattress Ticking
Culp Home Fashions (1) 45.1 33.6 26.7 14.8 28.7 5.1
---------------------------------------------------
9.1 15.6 11.2 19.6 14.2 25.1
===================================================
</TABLE>
(1) Formerly known as Culp Ticking
<PAGE>
CULP, INC. FINANCIAL INFORMATION RELEASE (page 8 of 10)
FINANCIAL NARRATIVE
for the three month period ended July 28, 1996
INCOME STATEMENT COMMENTS
o GENERAL - The company is pleased to report that sales increased 25.1%, and net
income increased 45.9% for the first quarter. This performance marks the
fifteenth consecutive quarter of record earnings and the thirteenth consecutive
quarter of record sales. Also, the company's net profit margin increased to 2.4%
from 2.1% for the quarter. Additionally, the company achieved a return on
average shareholders' equity of 15.0% for the latest twelve months. For the last
five years, the company has achieved a compound annual growth rate from net
income and net sales of 30.5% and 15.1%, respectively.
The company attributes this record to, among other things, three key
growth strategies: (1) a focus on markets other than U.S. Residential Furniture,
such as Bedding, Export, Contract, Juvenile and Home Textiles, in order to
reduce dependency on one cyclical and geographical area; (2) the investment in
the creative aspect of our business -- the company has significantly increased
the resources (both designers and CAD systems) dedicated to the design and
product development areas in each business unit over the last two years; and (3)
investment in highly selective and accretive acquisitions in businesses we know
and understand and that strengthen existing marketing positions.
o NET SALES - Upholstery fabric sales increased 30.8% to $73.8 million and
mattress ticking sales increased 5.1% to $16.7 million for the quarter. . (See
Sales by Business Unit schedule on page 5 and Sales by Business Unit - Trend
Analysis on page 7.) All three upholstery fabrics business units reported
substantial sales gains for the quarter: Velvets/Prints - up 48.2%;
Rossville/Chromatex up 18.3%; and Culp Textures - up 18.3%. Comments on current
backlogs and incoming order rates versus last year are as follows: Culp Home
Fashions (formerly Culp Ticking) - up slightly; Culp Textures - up moderately;
Rossville/Chromatex - up significantly; and Velvets/Prints - up significantly,
with particular strength in the wet prints and tufted velvet product lines. The
results of the Velvets/Prints business unit were substantially improved from the
first quarter of last year, and continued the significant margin improvement
trend established early last fiscal year. The company's sales growth in the
United States was especially noteworthy, with a 19.1% growth rate for the first
quarter.
International sales were up 49.4% for the quarter, with strength in all
major regions, including the Middle East, the Far East and Asia, and North
America (excluding the U.S.). (See International Sales by Geographic Area
schedule on page 6.) An increasing portion of the international growth is being
produced by the Culp Textures and Rossville/Chromatex business units. The
company is realizing increasing success in marketing its upholstery fabric
products internationally, with shipments to over fifty countries during fiscal
1996. We continue to be encouraged by the growing geographical balance of our
customer base throughout the world, as well as the increasing percentage that
our Culp Textures and Rossville/Chromatex product lines represent of our total
international shipments.
<PAGE>
CULP, INC. FINANCIAL INFORMATION RELEASE (page 9 of 10)
FINANCIAL NARRATIVE - continued
for the three month period ended July 28, 1996
o GROSS PROFIT - The gross profit increase of 30.5% for the quarter reflects
significant gains in Velvets/Prints, Rossville/Chromatex and Culp Textures, and
a slight decrease in Culp Home Fashions. The profit improvement resulted
primarily from a higher volume of yards sold in the three upholstery fabrics
business units, where sales increased 30.8%.
During the last several months, the company has begun to realize lower
raw material prices for many of the raw materials used by the company. Because
raw material costs are so significant to the company, management has been
actively exploring ways to lower these costs through several key strategies: 1)
global sourcing of certain commodity-type items; 2) further vertical integration
of certain large-volume raw material components; 3) working closely with
existing suppliers to ensure that the company is receiving the best possible
combination of value and price; and 4) increasing the utilization of the
company's various raw material manufacturing capabilities.
For the near term (second quarter), trends are toward solid profit
gains in all four business units, with a significant increase in Velvets/Prints
and moderate increases in Rossville/Chromatex, Culp Textures and Culp Home
Fashions.
o S,G & A EXPENSES - S,G&A expenses for the quarter were up as a percentage of
sales to 12.0% from 11.7%. This increase is due primarily to higher selling and
design expenses. The increase in selling expenses is due primarily to higher
sales commissions related to international sales. The increase in design
expenses is due to more designers, outside artwork purchased, and additional
costs related to our CAD systems.
Additionally, during the first quarter of the current year, the
Company's accrual for incentive plans was significantly higher than the first
quarter of last year.
o INTEREST EXPENSE - The decrease for the quarter of 8.9% is primarily due to
lower average borrowings outstanding.
o OTHER INCOME (EXPENSE), NET - The increase is principally due to a
non-recurring write-off of certain fixed assets totalling $175,000.
Additionally, in the first quarter of last year, the company recorded a $100,000
gain related to an environmental matter.
o INCOME TAXES - The company estimates that the effective tax rate for fiscal
1997 will again be about 36.5%, due to the lower tax rate related to the
Canadian income and the tax benefit related to international sales.
o EBITDA - EBITDA for the quarter increased 16.8% from last year's first quarter
to $8.0 million, and represented 8.8% of net sales compared with 9.5% of net
sales last year.
<PAGE>
CULP, INC. FINANCIAL INFORMATION RELEASE (page 10 of 10)
FINANCIAL NARRATIVE - continued
for the three month period ended July 28, 1996
BALANCE SHEET COMMENTS
o WORKING CAPITAL - Accounts receivable increased only 10.5% from July 1995,
while sales increased 25.1% Days' sales outstanding represented 43 days, down
from 45 at July 1995. The aging of accounts receivable remained excellent, with
99.3% current and less than 30 days past due. Inventories increased 4.7% from
July 1995 and inventory turns were 6.0 versus 5.1 for last year's first quarter.
One of the company's key initiatives for fiscal 1997 is to find ways to increase
inventory turns.
o PROPERTY, PLANT AND EQUIPMENT - For fiscal 1997, the company is planning
capital spending in the $16 to $19 million range. Major projects include weaving
expansions for dobby and jacquard product lines in the Rossville/Chromatex
business unit, and for jacquard greige goods at Rayonese, the company's facility
near Montreal, Canada. Also, the company is planning significant investments in
additional vertical integration opportunities. Further expansions of the CAD
system and related capabilities also are planned for fiscal 1997. Depreciation
expense for fiscal 1997 is expected to approximate $14.0 million.
While the absolute level of capital expenditures remains high from a
historical perspective, the percentage of capital expenditures to cash flow is
expected to be the second lowest year in over ten years. Capital expenditures as
a percentage of cash flow (net income plus depreciation, amortization and
deferred taxes), was 55% for fiscal 1996 and the company believes it will be in
the 60% to 70% range for fiscal 1997. This is especially encouraging because the
company is in a financial position to spend aggressively on high-return capital
projects and fund this level of capital expenditures from its
internally-generated cash flow.
o LONG-TERM DEBT - The company's funded debt to capital ratio was 46.6% at July
28, 1996, down from 52.2% at July 30, 1995, and the lowest in over 2-1/2 years.
At July 28, 1996, the company had $22.2 million in IRB borrowings, $20.8 million
in borrowings under its revolving credit facility (total commitment is $33.5
million), $34.0 million in a term facility and $1.0 million in a subordinated
note payable. At July 28, 1996, the company had $5.2 million in restricted
investments related to its new IRB, which represents the unexpended project
funds. Therefore, net funded debt was $72.8 million at July 28, 1996, compared
with $76.8 million last year end and $79.2 million at July 30, 1995. The current
maturities of $7.1 million include repayment of $6.0 million of the term loan,
$100,000 of the IRBs and $1.0 million of the subordinated note payable. With its
interest rate swap agreements totalling $25.0 million, the company has
effectively "fixed" the interest rate for 46% of its bank borrowings ($54.8
million) at a weighted average rate of 7.1%.
