- --------------------------------------------------------------------------------
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) November 12, 1997
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)
(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 attached Press Release (2 pages) and Financial Information Release (11
pages), both dated November 12, 1997, related to the quarter ended November 2,
1997.
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: November 12, 1997
<PAGE>
Culp Reports Second Quarter Gains
Page 2
November 12, 1997
FOR IMMEDIATE RELEASE
CULP REPORTS INCREASED SECOND QUARTER SALES AND EARNINGS
NET INCOME RISES 21% TO NEW SECOND-QUARTER RECORD
HIGH POINT, N.C. (November 12, 1997) Culp, Inc. (NYSE: CFI) today reported sales
and earnings for the second quarter and first half of its 1998 fiscal year.
For the three months ended November 2, 1997, Culp reported that net sales
increased 17% to $122.9 million compared with $105.2 million a year ago. Net
income for the quarter increased 21% to $4.5 million compared with $3.7 million.
Earnings per share increased 9% to $0.36 on 12.7 million average shares
outstanding versus $0.33 per share on 11.3 million average shares outstanding.
The gains for the second quarter brought net sales for the first half to $222.4
million, up 14% from $195.7 million in the first six months of fiscal 1997. Net
income for the first half increased to $7.4 million compared with $5.9 million.
Earnings per share rose 12% to $0.58 on 12.6 million average shares outstanding
versus $0.52 per share 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 second
quarter and first six months was due principally to the Company's secondary
offering completed in February 1997.
The Company noted that $10.7 million of the increase in net sales for the second
quarter is attributable to the Phillips Mills acquisition, which was completed
at the beginning of the second quarter.
"These results marked the 20th consecutive quarter of record earnings versus the
comparable year-earlier period," said Robert G. Culp, III, chief executive
officer. "We are particularly pleased with the higher net sales and earnings
considering the slower growth in demand that we have experienced thus far this
year, particularly for certain categories of upholstery fabrics from U.S.-based
residential furniture customers. We had not expected business to be as robust
this year, and our results appear generally to mirror industry-wide trends. We
did achieve a 10% gain in sales to U.S.-based accounts during the second
quarter, aided by continuing gains from our Home Fashions business unit, and the
incremental sales from the Phillips Mills acquisition. Our sales of mattress
ticking are up significantly from a year ago, reflecting the success of the
wider variety of new textures and patterns that we are introducing. Sales from
our Home Fashions group are also benefiting from Culp's ongoing capital
investment program and, in particular, projects that have substantially
increased our capacity for manufacturing wide jacquard unfinished goods. The
success we are having in expanding this portion of our business relates both to
the value of our new designs and a consistent ability to meet customers'
delivery schedules."
-MORE-
<PAGE>
Culp added, "The momentum in our international business remains positive.
Shipments to customers outside the United States increased 36% for the second
quarter and accounted for 29% of net sales. We are benefiting from a stronger
competitive presence in established markets such as Europe and the Middle East
and from greater penetration into faster growing regions such as Asia and the
Far East.
"A highlight of Culp's progress thus far in fiscal 1998 has been the results of
our ongoing initiative to pursue complementary acquisitions. The performance for
the second quarter includes the initial contribution from the assets we acquired
from Phillips Mills in August. The assimilation of these additional resources is
proceeding as planned. A main factor driving that transaction was the ability to
broaden our marketing base, especially in upholstery fabrics for motion and
other casual styles of furniture. The agreement signed last month to acquire
Artee Industries principally represents a means to further our vertical
integration. The addition of Artee's WrapSpun TM, open-end spun and chenille
yarns will also support the accelerated design initiatives of each of our
business units to produce fabrics that embody innovative textures and styles. An
important aspect of our strategic planning is maintaining the financial
resources that will enable us to consider future opportunities for other
acquisitions."
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.
CULP, INC.
Condensed Financial Highlights
(Unaudited)
Three Months Ended
---------------------------------------------
November 2, October 27,
1997 1996
-------------------- -------------------
Net sales $ 122,926,000 $ 105,204,000
Net income $ 4,505,000 $ 3,710,000
Earnings per share $ 0.36 $ 0.33
Average shares outstanding 12,668,000 11,312,000
Six Months Ended
---------------------------------------------
November 2, October 27,
1997 1996
--------------------- ------------------
Net sales $ 222,424,000 $ 195,733,000
Net income $ 7,355,000 $ 5,920,000
Earnings per share $ 0.58 $ 0.52
Average shares outstanding 12,649,000 11,304,000
-END-
<PAGE>
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS ENDED NOVEMBER 2, 1997 AND OCTOBER 27, 1996
(Amounts in Thousands, Except for Per Share Data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED (UNAUDITED)
----------------------------------------------------------------------
Amounts Percent of Sales
-------------------------- --------------------------
November 2, October 27, % Over
1997 1996 (Under) 1998 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 122,926 105,204 16.8 % 100.0 % 100.0 %
Cost of sales 100,191 86,082 16.4 % 81.5 % 81.8 %
------------ ------------ ------------ ------------ ------------
Gross profit 22,735 19,122 18.9 % 18.5 % 18.2 %
Selling, general and
administrative expenses 13,632 11,704 16.5 % 11.1 % 11.1 %
------------ ------------ ------------ ------------ ------------
Income from operations 9,103 7,418 22.7 % 7.4 % 7.1 %
Interest expense 1,820 1,242 46.5 % 1.5 % 1.2 %
Interest income (72) (60) 20.0 % (0.1) % (0.1) %
Other expense (income), net 425 301 41.2 % 0.3 % 0.3 %
------------ ------------ ------------ ------------ ------------
Income before income taxes 6,930 5,935 16.8 % 5.6 % 5.6 %
Income taxes * 2,425 2,225 9.0 % 35.0 % 37.5 %
------------ ------------ ------------ ------------ ------------
Net income $ 4,505 3,710 21.4 % 3.7 % 3.5 %
============ ============ ============ ============ ============
Average shares outstanding 12,668 11,312 12.0 %
Net income per share $0.36 $0.33 9.1 %
Dividends per share $0.0350 $0.0325 7.7 %
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED (UNAUDITED)
----------------------------------------------------------------------
Amounts Percent of Sales
-------------------------- --------------------------
November 2, October 27, % Over
1997 1996 (Under) 1998 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 222,424 195,733 13.6 % 100.0 % 100.0 %
Cost of sales 182,956 160,691 13.9 % 82.3 % 82.1 %
------------ ------------ ------------ ------------ ------------
Gross profit 39,468 35,042 12.6 % 17.7 % 17.9 %
Selling, general and
administrative expenses 24,548 22,568 8.8 % 11.0 % 11.5 %
------------ ------------ ------------ ------------ ------------
Income from operations 14,920 12,474 19.6 % 6.7 % 6.4 %
Interest expense 3,100 2,424 27.9 % 1.4 % 1.2 %
Interest income (162) (117) 38.5 % (0.1) % (0.1) %
Other expense (income), net 667 696 (4.2) % 0.3 % 0.4 %
------------ ------------ ------------ ------------ ------------
Income before income taxes 11,315 9,471 19.5 % 5.1 % 4.8 %
Income taxes * 3,960 3,551 11.5 % 35.0 % 37.5 %
------------ ------------ ------------ ------------ ------------
Net income $ 7,355 5,920 24.2 % 3.3 % 3.0 %
============ ============ ============ ============ ============
Average shares outstanding 12,649 11,304 11.9 %
Net income per share $0.58 $0.52 11.5 %
Dividends per share $0.0700 $0.0650 7.7 %
* Percent of sales column is calculated as a % of income before income taxes.
</TABLE>
<PAGE>
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED BALANCE SHEETS
NOVEMBER 2, 1997, OCTOBER 27, 1996 AND APRIL 27, 1997
(Unaudited, Amounts in Thousands)
<TABLE>
<CAPTION>
Amounts Increase
----------------------------
November 2, October 27, (Decrease) * April 27,
------------------------
1997 1996 Dollars Percent 1997
-------------- ----------- ----------- --------- --------
Current assets
<S> <C> <C> <C> <C> <C>
Cash and cash investments $ 1,209 744 465 62.5 % 830
Accounts receivable 74,314 52,202 22,112 42.4 % 56,691
Inventories 70,192 52,300 17,892 34.2 % 53,463
Other current assets 6,136 3,697 2,439 66.0 % 5,450
-------------- ----------- ----------- --------- --------
Total current assets 151,851 108,943 42,908 39.4 % 116,434
Restricted investments 8,258 5,379 2,879 53.5 % 11,018
Property, plant & equipment, net 107,377 80,316 27,061 33.7 % 91,231
Goodwill 49,778 22,568 27,210 120.6 % 22,262
Other assets 3,715 2,321 1,394 60.1 % 3,007
-------------- ----------- ----------- --------- --------
Total assets $ 320,979 219,527 101,452 46.2 % 243,952
============== =========== =========== ========= ========
Current Liabilities
Current maturities of long-term dept $ 100 7,100 (7,000) (98.6)% 100
Accounts payable 36,709 26,936 9,773 36.3 % 29,903
Accrued expenses 15,175 16,841 (1,666) (9.9) % 15,074
Income taxes payable 1,034 836 198 23.7 % 1,580
-------------- ----------- ----------- --------- --------
Total current liabilities 53,018 51,713 1,305 2.5 % 46,657
Long-term debt 139,991 72,891 67,100 92.1 % 76,541
Deferred income taxes 9,965 8,088 1,877 23.2 % 9,965
-------------- ----------- ----------- --------- --------
Total liabilities 202,974 132,692 70,282 53.0 % 133,163
Shareholders' equity 118,005 86,835 31,170 35.9 % 110,789
-------------- ----------- ----------- --------- --------
Total liabilities and
shareholders' equity $ 320,979 219,527 101,452 46.2 % 243,952
============== =========== =========== ========= ========
Shares outstanding 12,687 11,339 1,348 11.9 % 12,609
============== =========== =========== ========= ========
</TABLE>
* Derived from audited financial
statements.
<PAGE>
CULP, INC.
FINANCIAL INFORMATION RELEASE
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED NOVEMBER 2, 1997 AND OCTOBER 27, 1996
(Unaudited, Amounts in Thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
Amounts
-------------------------
November 2, October 27,
1997 1996
----------- ------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 7,355 5,920
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation 6,869 6,321
Amortization of intangible assets 533 444
Provision for deferred income taxes 0 0
Changes in assets and liabilities, net of the effects
business acquired:
Accounts receivable (17,623) (164)
Inventories (11,813) (4,905)
Other current assets (686) 470
Other assets (188) (22)
Accounts payable 10,668 3,220
Accrued expenses 295 4,277
Income taxes payable (546) 639
----------- -----------
Net cash provided by (used in)operating activities (5,136) 16,200
----------- ------------
Cash flows from investing activities:
Capital expenditures (19,216) (9,676)
Purchases of restricted investments (8,662) (107)
Purchase of investments to fund deferred compensation liability (581) 0
Sale of restricted investments 11,422 2
Business acquired (36,628) 0
----------- ------------
Net cash used in investing activities (53,665) (9,781)
----------- ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 63,500 1,000
Principal payments on long-term debt (50) (3,050)
Change in accounts payable-capital expenditures (3,862) (3,592)
Dividends paid (889) (735)
Proceeds from common stock issued 481 204
----------- ------------
Net cash provided by (used in) financing activities 59,180 (6,173)
----------- ------------
Increase in cash and cash investments 379 246
Cash and cash investments at beginning of period 830 498
----------- ------------
Cash and cash investments at end of period $ 1,209 744
=========== ============
</TABLE>
<PAGE>
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL ANALYSIS
NOVEMBER 2, 1997
<TABLE>
<CAPTION>
FISCAL 97 FISCAL 98
------------- ---------------------------------------------------------- --------------
Q2 Q1 Q2 Q3 Q4 LTM
------------- ---------------------------------------------------------- --------------
INVENTORIES
<S> <C> <C> <C>
Inventory turns 6.6 5.8 6.1
RECEIVABLES
Days sales in receivables 45 50 55
Percent current & less than 30
days past due 99.9% 95.0% 97.8%
WORKING CAPITAL
Current ratio 2.1 3.6 2.9
Working capital turnover 5.4 5.1 4.8
Working capital $57,230 $88,969 $98,833
Working capital as a % of sales (4) 18.4% 23.8% 21.9%
PROPERTY, PLANT & EQUIPMENT
Depreciation rate 8.1% 7.1% 7.4%
Percent property, plant &
equipment are depreciated 48.6% 46.8% 45.3%
Capital expenditures $26,958 (1) $9,153 $10,063
PROFITABILITY
Net profit margin 3.5% 2.9% 3.7% 3.6%
Gross profit margin 18.2% 16.8% 18.5% 18.1%
Operating income margin 7.1% 5.8% 7.4% 7.0%
SG & A expenses/net sales 11.1% 11.0% 11.1% 11.1%
Return on average total capital 9.3% 7.6% 10.0% 9.6%
Return on average equity 17.4% 10.2% 15.6% 14.7%
Earnings per share $0.33 $0.23 $0.36 $1.23
LEVERAGE (3)
Total liabilities/equity 152.8% 123.1% 172.0%
Funded debt/equity 85.9% 77.4% 111.7%
Funded debt/capital employed 46.2% 43.6% 52.8%
Funded debt $74,612 $87,930 $131,833
Funded debt/EBITDA (LTM) 1.97 2.18 3.10
EBITDA/Interest expense, net (LTM) 8.5
OTHER
Book value per share $7.66 $8.98 $9.30
Employees at quarter end 3,098 3,180 3,554
Sales per employee (annualized) $138,000 $125,000 $146,000
Capital employed (3) $161,447 $201,467 $249,838
Effective income tax rate 37.5% 35.0% 35.0%
EBITDA (2) $10,540 $9,012 $12,643 $42,516
EBITDA/net sales 10.0% 9.1% 10.3% 10.0%
</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.
(4) Working capital for this calculation is accounts receivable,
inventories and accounts payable.
(5) LTM represents "Latest Twelve
Months"
<PAGE>
CULP, INC. FINANCIAL INFORMATION RELEASE
SALES BY PRODUCT CATEGORY/BUSINESS UNIT
FOR THREE MONTHS AND SIX MONTHS ENDED NOVEMBER 2, 1997 AND OCTOBER 27, 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED (UNAUDITED)
------------------------------------------------------------
Amounts Percent of Total Sales
-------------------- -----------------------
November 2, October 27, % Over
Product Category/Business Unit 1997 1996 (Under) 1998 1997
- ------------------------------ --------- --------- ------------ ---------- ----------
Upholstery Fabrics
<S> <C> <C> <C> <C> <C>
Culp Textures $ 24,454 24,001 1.9 % 19.9 % 22.8 %
Rossville/Chromatex 21,602 21,722 (0.6) % 17.6 % 20.6 %
--------- --------- ------------ ---------- ----------
46,056 45,723 0.7 % 37.5 % 43.5 %
Velvets/Prints 43,928 40,233 9.2 % 35.7 % 38.2 %
Phillips 10,725 0 100.0 % 8.7 % 0.0 %
--------- --------- ------------ ---------- ----------
100,709 85,956 17.2 % 81.9 % 81.7 %
Mattress Ticking
Culp Home Fashions 22,217 19,248 15.4 % 18.1 % 18.3 %
--------- --------- ------------ ---------- ----------
* $ 122,926 105,204 16.8 % 100.0 % 100.0 %
========= ========= ============ ========== ==========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED (UNAUDITED)
------------------------------------------------------------
Amounts Percent of Total Sales
-------------------- -----------------------
November 2, October 27, % Over
Product Category/Business Unit 1997 1996 (Under) 1998 1997
- ------------------------------ --------- --------- ------------ ---------- ----------
Upholstery Fabrics
<S> <C> <C> <C> <C> <C>
Culp Textures $ 46,147 44,802 3.0 % 20.7 % 22.9 %
Rossville/Chromatex 39,723 39,887 (0.4)% 17.9 % 20.4 %
--------- --------- ------------ ---------- ----------
85,870 84,689 1.4 % 38.6 % 43.3 %
Velvets/ Prints 82,325 75,100 9.6 % 37.0 % 38.4 %
Phillips 10,725 0 100.0 % 4.8 % 0.0 %
--------- --------- ------------ ---------- ----------
178,920 159,789 12.0 % 80.4 % 81.6 %
Matress Ticking
Culp Home Fashions 43,504 35,944 21.0 % 19.6 % 18.4 %
--------- --------- ------------ ---------- ----------
* $ 222,424 195,733 13.6 % 100.0 % 100.0 %
========= ========= ============ ========== ==========
</TABLE>
*U.S. sales were $87,622 and $79,304 for the three months of
fiscal 1998 and fiscal 1997, respectively;
and $162,029 and $149,860 for the six months of fiscal 1998 and
fiscal 1997, respectively.
The percentage increase in U.S. sales was 10 % for the three months and
an increase of 8 % for the six months.
<PAGE>
CULP, INC. FINANCIAL INFORMATION RELEASE
INTERNATIONAL SALES BY GEOGRAPHIC AREA
FOR THREE MONTHS AND SIX MONTHS ENDED NOVEMBER 2, 1997 AND OCTOBER 27, 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED (UNAUDITED)
------------------------------------------------------------------
Amounts Percent of Total Sales
------------------------- -------------------------
November 2, October 27, % Over
Geographic Area 1997 1996 (Under) 1998 1997
- ---------------------------- ------------ ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
North America (Excluding USA) $ 8,162 8,016 1.8 % 23.1 % 30.9 %
Europe 6,624 5,716 15.9 % 18.8 % 22.1 %
Middle East 7,439 5,079 46.5 % 21.1 % 19.6 %
Far East & Asia 9,720 5,019 93.7 % 27.5 % 19.4 %
South America 1,216 632 92.4 % 3.4 % 2.4 %
All other areas 2,143 1,438 49.0 % 6.1 % 5.6 %
------------ ----------- ------------ ----------- ----------
$ 35,304 25,900 36.3 % 100.0 % 100.0 %
============ =========== ============ =========== ==========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED (UNAUDITED)
------------------------------------------------------------------
Amounts Percent of Total Sales
------------------------- -------------------------
November 2, October 27, % Over
Geographic Area 1997 1996 (Under) 1998 1997
- ---------------------------- ------------ ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
North America (Excluding USA) $ 15,206 14,073 8.1 % 25.2 % 30.7 %
Europe 11,125 10,483 6.1 % 18.4 % 22.9 %
Middle East 14,003 9,156 52.9 % 23.2 % 20.0 %
Far East & Asia 15,662 8,815 77.7 % 25.9 % 19.2 %
South America 1,462 999 46.3 % 2.4 % 2.2 %
All other areas 2,937 2,347 25.1 % 4.9 % 5.1 %
------------ ----------- ------------ ----------- ----------
$ 60,395 45,873 31.7 % 100.0 % 100.0 %
============ =========== ============ =========== ==========
</TABLE>
International sales, and the percentage of total sales, for each of the last six
fiscal 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 second
quarter represented 29% and 25% for 1998 and 1997, respectively. Year-to-date
international sales represented 27% and 23% 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 first quarter presentation.
<PAGE>
Culp, Inc.
SALES BY BUSINESS UNIT - TREND ANALYSIS
1996 vs 1997 vs 1998
(Amounts in thousands)
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1997
----------------------------------------------- ----------------------------------------------
Product Category/Business Units Q1 Q2 Q3 Q4 TOTAL Q1 Q2 Q3 Q4 TOTAL
- ---------------------------
Upholstery Fabrics
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
----------------------------------------------- ----------------------------------------------
72,357 90,672 86,476 102,162 351,667 90,529 105,204 97,468 105,678 398,879
=============================================== ==============================================
</TABLE>
Culp, Inc.
SALES BY BUSINESS UNIT - TREND ANALYSIS
1996 vs 1997 vs 1998
(Amounts in thousands)
<TABLE>
<CAPTION>
Fiscal 1998
-----------------------------------------------
Product Category/Business Unit Q1 Q2 Q3 Q4 TOTAL
- ---------------------------
Upholstery Fabrics
<S> <C> <C> <C>
Culp Textures 21,693 24,454 46,147
Rossville/Chromatex 18,121 21,602 39,723
-----------------------------------------------
39,814 46,056 85,870
Velvets/Prints 38,397 43,928 82,325
Phillips 10,725 10,725
-
-----------------------------------------------
78,211 100,709 178,920
Mattress Ticking
Culp Home Fashions 21,287 22,217 43,504
-----------------------------------------------
99,498 122,926 222,424
===============================================
</TABLE>
<TABLE>
<CAPTION>
Culp, Inc.
SALES BY BUSINESS UNIT - TREND ANALYSIS
1996 vs 1997 vs 1998
(Amounts in thousands)
Percent increase(decrease) from prior year:
Product Category/Business Units
- -------------------------------------------------------------------------------------------------------------------------------
Fiscal 1996 Fiscal 1997
----------------------------------------------- --------------------------------------------------
Upholstery Fabrics
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Culp Textures (10.3) (0.5) (1.2) 7.6 (0.9) 18.3 5.7 (1.4) (1.6) 4.5 3
Rossville/Chromatex 1.4 14.0 13.2 35.5 16.4 18.3 20.9 2.1 (7.4) 7.2 2)
----------------------------------------------- --------------------------------------------------
(5.2) 5.4 5.1 19.7 6.5 18.3 12.4 0.2 (4.4) 5.8 2
Velvets/Prints 13.9 21.3 12.5 21.8 17.7 48.2 25.4 26.9 7.1 24.5 1
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
----------------------------------------------- -------------------------------------------------
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 acquisitions) 6.4 13.0 8.7 19.6 12.3 25.1 16.0 12.7 3.4 13.4
External 2.7 2.6 2.5 1.9
- - - - - -
----------------------------------------------- -------------------------------------------------
=============================================== =================================================
</TABLE>
<TABLE>
<CAPTION>
Percent increase(decrease) from prior year:
Product Category/Business Units
- ----------------------------------------------------------------------------
Fiscal 1998
-----------------------------------------------
Upholstery Fabrics
<S> <C> <C> <C>
Culp Textures 4.3 1.9 3.0
Rossville/Chromatex (0.2) (0.6) (0.4)
-----------------------------------------------
2.2 0.7 1.4
Velvets/Prints 10.1 9.2 9.6
Phillips - -
-----------------------------------------------
5.9 17.2 12.0
Mattress Ticking
Culp Home Fashions 27.5 15.4 21.0
-----------------------------------------------
9.9 16.8 13.6
===============================================
Overall Growth Rate
Internal (without acquisitions) 9.9 6.6 8.1
External 10.2 5.5
-----------------------------------------------
===============================================
</TABLE>
(Page 8 of 11)
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three and six month periods ended November 2, 1997 and October 27, 1996
INCOME STATEMENT COMMENTS
GENERAL - Net sales increased 16.8 % to $122.9 million and net income increased
21.4% to $ 4.5 million for the second quarter, as compared with the same quarter
of last year. This performance marks the 20th consecutive quarter of record
earnings and the 18th consecutive quarter of record sales (based on comparable
year-earlier periods). Net sales for the quarter without including Phillips
Mills increased 6.7% versus the same quarter of last year. The company's net
profit margin increased slightly to 3.7 % from 3.5 % for the quarter. Also, the
company achieved a return on average shareholder's equity of 12.9 % for the
first six months. The company acquired Phillips Mills at the beginning of the
second quarter and the Phillips results are included beginning with the first
day of the quarter (August 4, 1997). The company attributes this 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 50% of net sales during the second quarter; additionally, no one
customer accounted for more than 7% of sales during the second quarter of fiscal
1998;
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 staff now
includes over 50 people. Additionally, the company is planning to open its
state-of-the-art design center in Burlington, North Carolina during January 1998
that will bring together most of its design resources in one facility and
utilize 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 second quarter of last year, upholstery fabric
sales increased 17.2% to $100.7 million and mattress ticking sales increased
15.4% to $22.2 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 second quarter primarily reflects the
incremental sales from the Phillips acquisition of $10.7 million and gains in
Velvets/Prints - up 9.2%; other changes by business unit were:
Rossville/Chromatex - down 0.6 %; and Culp Textures - up 1.9%. The growth in
demand in sales for upholstery fabrics from U.S. manufacturers of residential
furniture as a group began slowing during the second half of fiscal 1997. That
pattern has continued thus far into fiscal 1998. The company believes the
financial difficulties of a number of significant furniture retailers, including
the recent bankruptcies of Levitz and Montgomery Wards, have significantly
contributed to the slower rate of growth. Business with U.S.-based customers
increased 10% from a year ago while sales to customers outside the United States
rose 36% for the quarter. The sales gains in the U.S. relate to the bedding,
commercial and juvenile markets, while the sales gains outside of the U.S.
relate principally to the residential furniture market. Sales of wet printed
flock upholstery fabrics, which remain one of the company's growing product
categories internationally, increased 57.0% from the same quarter a year ago.
The increased sales by Culp Home Fashions during the second quarter (up 15.4%)
reflect the continued positive response to the 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.
<PAGE>
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three and six month periods ended November 2, 1997 and October 27, 1996
International sales were up 36.3% for the quarter. International sales in all
major regions and each business unit were strong, and accounted for 29% of net
sales for the quarter. (See International Sales by Geographic Area schedule on
page 6.) The vast majority of international sales are denominated in U.S.
dollars.
GROSS PROFIT - The gross profit increase of 18.9% for the second 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 business
unit, a moderate increase in Rossville/Chromatex, flat results in Velvets/Prints
and lower results in Culp Textures. The overall gross profit margin increased
slightly to 18.5% for the quarter versus 18.2% in 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), which
also will complete a major expansion of wide weaving capacity during the third
quarter. Factors which adversely affected the company's profitability during the
quarter included: (a) slower growth in demand from U.S. manufacturers of
residential furniture; and (b) start-up costs related to 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 new
facilities which resulted from the closing of the Phillips velvet plant in
August ). The company believes the majority of the start-up and transition
issues are now resolved.
S,G&A EXPENSES - S,G&A expenses for the second 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 and other factors.
INTEREST EXPENSE - The increase for the second quarter of 46.5 % 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 this quarter, and from capital expenditure and working capital
investments that were made during the first half of this year. . INTEREST INCOME
- - Interest income increased for the quarter due to the higher level of unspent
IRB borrowings which are reported as Restricted Investments on the balance
sheet.
OTHER EXPENSE (INCOME), NET - Other expense (income) increased to $425,000 from
$301,000 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 second quarter was 35.0%, compared
with 37.5 % for the same quarter of last year, due to the lower tax rate related
to an estimated higher amount of Canadian income and tax benefits related to an
estimated higher level of international sales.
EBITDA - EBITDA for the quarter increased 20.0 % to $12.6 million from last
year's second quarter and represented 10.3 % of net sales compared with 10.0 %
of net sales for the same period of last year.
<PAGE>
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three and six month periods ended November 2, 1997 and October 27, 1996
BALANCE SHEET COMMENTS
WORKING CAPITAL - Accounts receivable increased 42.4% from October 1996, due to
the Phillips acquisition and increased sales for the second quarter. Days sales
outstanding represented 55 days, up from 45 days at October 27, 1996 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 34.2% from October 27, 1996. inventory turns were
6.1 versus 6.6 for last year's second. Operating working capital (comprised of
accounts receivable, inventory and accounts payable) increased significantly to
$107.8 million at November 2, 1997, from $77.6 million at October 27, 1996 and
$80.3 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 $36 million during fiscal 1998, which includes about
$12.5 million for expansion projects (35%); $10.5 million for vertical
integration projects (29%); and $13.0 million for modernization projects (36%).
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.
LONG-TERM DEBT - The company's funded debt-to-capital ratio was 52.8 % at
November 2, 1997, up from 46.2% at October 27, 1996, and up from 37.2 % at April
27, 1997. Funded debt was $131.8 million at November 2, 1997, up from $ 74.6
million at October 27, 1996 and up from $ 65.6 million at April 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 1997 resulted from the Phillips acquisition ($36.6 million), capital
expenditures ($19.2 million), an operating cash flow deficit ($5.1 million), and
a decrease in accounts payable related to capital expenditures ($3.9 million).
The sources of financing used to fund the Phillips acquisition were borrowings
under the company's revolving credit facility in the amount of $31 million and a
note payable from the seller of $6 million.
PHILLIPS 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
.)
<PAGE>
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three and six month periods ended November 2, 1997 and October 27, 1996
PENDING ACQUISITION OF ARTEE INDUSTRIES - On October 14, 1997, Culp entered into
a definitive ASSET PURCHASE AGREEMENT to acquire the business and substantially
all assets and to assume certain liabilities of Artee Industries, Incorporated
("Artee"), a yarn manufacturer. The transaction value at closing is estimated at
$17.4 million, and includes the issuance of new shares of Culp common stock,
cash and a 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 $7.2 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. Closing of the
transaction is expected on May 4, 1998, or possibly earlier, if certain
profitability levels are reached. Conditions to closing are set forth in the
agreement and include, among other things, the satisfactory completion of Culp's
due diligence and a minimum net worth requirement. (See Form 8-K, dated October
15, 1997, which provides additional information related to the acquisition.)
