- --------------------------------------------------------------------------------
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 18, 1999
CULP, INC.
(Exact name of registrant as specified in its charter)
North Carolina 0-12781 56-1001967
(State or other jurisdiction of (Commission File No.) (IRS Employer
incorporation) Identification No.)
101 South Main Street
High Point, North Carolina 27260
(Address of principal executive offices)
(336) 889-5161
(Registrant's telephone number, including area code)
(Former name or former address, if changed since last report)
- --------------------------------------------------------------------------------
<PAGE>
Item 5. Other Events
See attached Press Release (2 pages) and Financial Information Release (10
pages), both dated August 18, 1999, related to the fiscal 2000 first quarter
ended August 1, 1999.
Forward Looking Information. This Report contains statements that could be
deemed "forward-looking statements" within the meaning of the federal securities
laws. Such 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 affect the Company adversely. Because of the
significant percentage of the Company's sales derived from international
shipments, strengthening of the U. S. dollar against other currencies could make
the Company's products less competitive on the basis of price in markets outside
the United States. Additionally, economic and political instability in
international areas could affect the demand for the Company's products.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CULP, INC.
(Registrant)
By: Phillip W. Wilson
Vice President and
Chief Financial Officer
Dated: August 18, 1999
<PAGE>
FOR IMMEDIATE RELEASE
CULP REPORTS FIRST QUARTER NET INCOME
HIGH POINT, N. C. (Aug. 18, 1999) - Culp, Inc. (NYSE: CFI) today reported net
income of $1.6 million for the first quarter of its 2000 fiscal year.
For the three months ended August 1, 1999, Culp reported net sales increased to
$115.9 million compared with $110.7 million a year ago. The company reported net
income for the quarter of $1.6 million, or $0.13 per share diluted, compared
with a net loss of $2.6 million, or $0.20 per share diluted, in the year-earlier
quarter.
"The favorable year-to-year comparisons for the first quarter extend the
positive momentum that we achieved as fiscal 1999 progressed," said Robert G.
Culp, III, chief executive officer. "A primary goal for us in fiscal 2000 is to
sustain this pattern of improvement. We are pleased with the recovery to date
and are confident about realizing further gains in our level of profitability."
Culp noted, "The first fiscal quarter is historically not the strongest period
for our industry due to planned vacations and seasonal plant closings. That
makes it difficult to gauge the underlying trend in demand. The backdrop of
consumer spending on home furnishings still appears favorable, and we are
optimistic about the success of the new patterns and textures that will be
introduced to retailers this fall. Much of the improvement in our results
relates directly to the changes we made in our management structure a year ago.
We are continuing to refine our new organizational framework and believe that
this realignment has strengthened our ability to capitalize on the trends within
the home furnishings industry. Probably the most significant change is the
ongoing consolidation at all levels within the supply chain linking
manufacturers with consumers. Culp's vertical integration and broad product line
equip us to develop strong working relationships with these larger companies
that are seeking true corporate partners. Our objective is to provide not only
the volume of fabrics and mattress ticking that these accounts need but also
consistently high product quality and customer service."
Culp indicated that the company is maintaining its stock repurchase program. He
said, "During the first quarter, we invested an additional $393,000 to
repurchase our shares. We currently have authorization from the Board of
Directors to invest an additional $4.1 million in this program. Culp's financial
position is enabling us to execute this program and still make the appropriate
investments to expand and modernize our capacity. We believe that the repurchase
of our shares at attractive market levels will prove to be a sound investment of
the company's capital."
<PAGE>
Culp, Inc. is one of the world's largest marketers of upholstery fabrics for
furniture and is a leading marketer of mattress ticking for bedding. The
Company's fabrics are used principally in the production of residential and
commercial furniture and bedding products.
CULP, INC.
Condensed Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------
August 1, August 2,
1999 1998
------------------- --------------------
<S> <C> <C>
Net sales $ 115,937,000 $ 110,667,000
Net income (loss) $ 1,597,000 $ (2,640,000)
Net income (loss) per share:
Basic $ 0.13 $ (0.20)
Diluted $ 0.13 $ (0.20)
Average shares outstanding:
Basic 12,063,000 13,000,000
Diluted 12,219,000 13,203,000
</TABLE>
This release contains statements that could be deemed "forward-looking
statements" within the meaning of the federal securities laws. Such 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 affect the
company adversely. Because of the significant percentage of the company's sales
derived from international shipments, strengthening of the U.S. dollar against
other currencies could make the company's products less competitive on the basis
of price in markets outside the United States. Additionally, economic and
political instability in international areas could affect the demand for the
company's products.
-END-
<PAGE>
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THREE MONTHS ENDED AUGUST 1, 1999 AND AUGUST 2, 1998
<TABLE>
<CAPTION>
(Amounts in Thousands, Except for Per Share Data)
THREE MONTHS ENDED (UNAUDITED)
----------------------------------------------------------------------------------
Amounts Percent of Sales
------------------------------ ------------------------------
August 1, August 2, % Over
1999 1998 (Under) 2000 1999
-------------- -------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales $ 115,937 110,667 4.8 % 100.0 % 100.0 %
Cost of sales 95,525 97,056 (1.6)% 82.4 % 87.7 %
-------------- -------------- ------------- -------------- --------------
Gross profit 20,412 13,611 50.0 % 17.6 % 12.3 %
Selling, general and
administrative expenses 15,038 14,473 3.9 % 13.0 % 13.1 %
-------------- -------------- ------------- -------------- --------------
Income (loss) from operations 5,374 (862) 723.4 % 4.6 % (0.8)%
Interest expense 2,416 2,361 2.3 % 2.1 % 2.1 %
Interest income (17) (53) (67.9)% (0.0)% (0.0)%
Other expense (income), net 555 770 (27.9)% 0.5 % 0.7 %
-------------- -------------- ------------- -------------- --------------
Income (loss) before income taxes 2,420 (3,940) 161.4 % 2.1 % (3.6)%
Income taxes * 823 (1,300) 163.3 % 34.0 % 33.0 %
-------------- -------------- ------------- -------------- --------------
Net income (loss) $ 1,597 (2,640) 160.5 % 1.4 % (2.4)%
============== ============== ============= ============== ==============
Net income (loss) per share $0.13 ($0.20) 165.0 %
Net income (loss) per share, assuming dilution $0.13 ($0.20) 165.0 %
Dividends per share $0.035 $0.035 0.0 %
Average shares outstanding 12,063 13,000 (7.2)%
Average shares outstanding, assuming dilution 12,219 13,203 (7.5)%
</TABLE>
* Percent of sales column is calculated as a % of income (loss) before income
taxes.
<PAGE>
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED BALANCE SHEETS
AUGUST 1, 1999, AUGUST 2, 1998 AND MAY 2, 1999
Unaudited
(Amounts in Thousands)
<TABLE>
<CAPTION>
Amounts Increase
----------------------------------- (Decrease)
August 1, August 2, -------------------------------- * May 2,
1999 1998 Dollars Percent 1999
----------------- --------------- ---------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Current assets
Cash and cash investments $ 1,097 1,520 (423) (27.8)% 509
Accounts receivable 61,984 63,833 (1,849) (2.9)% 70,503
Inventories 75,337 79,358 (4,021) (5.1)% 67,070
Other current assets 10,860 7,511 3,349 44.6 % 9,633
----------------- --------------- ---------------- ------------- ------------
Total current assets 149,278 152,222 (2,944) (1.9)% 147,715
Restricted investments 1,684 4,074 (2,390) (58.7)% 3,340
Property, plant & equipment, net 120,971 127,287 (6,316) (5.0)% 123,310
Goodwill 50,920 54,798 (3,878) (7.1)% 51,269
Other assets 4,969 4,317 652 15.1 % 4,978
----------------- --------------- ---------------- ------------- ------------
Total assets $ 327,822 342,698 (14,876) (4.3)% 330,612
================= =============== ================ ============= ============
Current liabilities
Current maturities of long-term debt $ 1,678 3,250 (1,572) (48.4)% 1,678
Accounts payable 26,099 31,710 (5,611) (17.7)% 25,687
Accrued expenses 20,309 13,856 6,453 46.6 % 21,026
Income taxes payable 798 0 798 100.0 % 0
----------------- --------------- ---------------- ------------- ------------
Total current liabilities 48,884 48,816 68 0.1 % 48,391
Long-term debt 136,228 154,383 (18,155) (11.8)% 140,312
Deferred income taxes 14,583 11,227 3,356 29.9 % 14,583
----------------- --------------- ---------------- ------------- ------------
Total liabilities 199,695 214,426 (14,731) (6.9)% 203,286
Shareholders' equity 128,127 128,272 (145) (0.1)% 127,326
----------------- --------------- ---------------- ------------- ------------
Total liabilities and
shareholders' equity $ 327,822 342,698 (14,876) (4.3)% 330,612
================= =============== ================ ============= ============
Shares outstanding 12,040 12,995 (955) (7.3)% 12,079
================= =============== ================ ============= ============
* Derived from audited financial statements.
</TABLE>
<PAGE>
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED AUGUST 1, 1999 AND AUGUST 2, 1998
Unaudited
(Amounts in Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------
Amounts
--------------------------------
August 1, August 2,
1999 1998
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,597 (2,640)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 4,759 4,376
Amortization of intangible assets 399 398
Changes in assets and liabilities:
Accounts receivable 8,519 9,940
Inventories (8,267) (764)
Other current assets (1,227) 297
Other assets (41) (11)
Accounts payable 270 (3,017)
Accrued expenses (717) (4,080)
Income taxes payable 798 (1,282)
--------------- ---------------
Net cash provided by operating activities 6,090 3,217
--------------- ---------------
Cash flows from investing activities:
Capital expenditures (2,420) (2,858)
Purchases of restricted investments (15) (53)
Sale of restricted investments 1,671 0
--------------- ---------------
Net cash used in investing activities (764) (2,911)
--------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 3,333 2,071
Principal payments on long-term debt (7,417) (75)
Change in accounts payable-capital expenditures 142 (2,487)
Dividends paid (423) (455)
Payments to acquire common stock (393) (160)
Proceeds from common stock issued 20 8
--------------- ---------------
Net cash used in financing activities (4,738) (1,098)
--------------- ---------------
Increase (decrease) in cash and cash investments 588 (792)
Cash and cash investments at beginning of period 509 2,312
--------------- ---------------
Cash and cash investments at end of period $ 1,097 1,520
=============== ===============
</TABLE>
<PAGE>
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL ANALYSIS
AUGUST 1, 1999
<TABLE>
<CAPTION>
FISCAL 99 FISCAL 00
------------- --------------------------------------------------------- ---------------
Q1 Q1 Q2 Q3 Q4 LTM
------------- --------------------------------------------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
INVENTORIES
Inventory turns 4.9 5.4
RECEIVABLES
Days sales in receivables 48 45
Percent current & less than 30
days past due 93.8% 93.2%
WORKING CAPITAL
Current ratio 3.1 3.1
Working capital turnover (4) 4.5 4.4
Operating working capital (4) $111,481 $111,222
PROPERTY, PLANT & EQUIPMENT
Depreciation rate 7.7% 8.0%
Percent property,
plant & equipment are depreciated 43.8% 49.0%
Capital expenditures $10,689 (1) $2,420
PROFITABILITY
Return on average total capital (1.6%) 4.8% 5.1%
Return on average equity (8.1%) 5.0% 5.7%
Net income (loss) per share ($0.20) $0.13 $0.58
Net income (loss) per share (diluted) ($0.20) $0.13 $0.58
LEVERAGE (3)
Total liabilities/equity 167.2% 155.9%
Funded debt/equity 119.7% 106.3%
Funded debt/capital employed 54.5% 51.5%
Funded debt $153,559 $136,222
Funded debt/EBITDA (LTM) (6) 3.75 3.33
EBITDA/Interest expense, net (LTM) 4.9 4.3
OTHER
Book value per share $9.87 $10.64
Employees at quarter end 4,230 4,050
Sales per employee (annualized) $103,000 $116,000
Capital employed (3) $281,831 $264,349
Effective income tax rate 33.0% 34.0%
EBITDA (2) $3,142 $9,977 $40,682
EBITDA/net sales 2.8% 8.6% 8.3%
(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 capitalized interest and pro forma amounts for
acquisitions.
</TABLE>
<PAGE>
CULP, INC. FINANCIAL INFORMATION RELEASE
SALES BY SEGMENT/DIVISION
FOR THREE MONTHS ENDED AUGUST 1, 1999 AND AUGUST 2, 1998
<TABLE>
<CAPTION>
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
--------------------------------------------------------------------------
Amounts Percent of Total Sales
-------------------------- ----------------------------
August 1, August 2, % Over
Segment/Division 1999 1998 (Under) 2000 1999
- ------------------------------------ ------------ ------------ --------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Upholstery Fabrics
Culp Decorative Fabrics $ 50,516 51,445 (1.8)% 43.6 % 46.5 %
Culp Velvets/Prints 36,209 29,994 20.7 % 31.2 % 27.1 %
Culp Yarn 4,129 6,596 (37.4)% 3.6 % 6.0 %
------------ ------------ --------------- ------------- ------------
90,854 88,035 3.2 % 78.4 % 79.5 %
Mattress Ticking
Culp Home Fashions 25,083 22,632 10.8 % 21.6 % 20.5 %
------------ ------------ --------------- ------------- ------------
* $ 115,937 110,667 4.8 % 100.0 % 100.0 %
============ ============ =============== ============= ============
</TABLE>
* U.S. sales were $92,124 and $84,310 for the three months of fiscal 2000 and
fiscal 1999, respectively.The percentage increase in U.S. sales was 9.3% for the
three months.
<PAGE>
CULP, INC. FINANCIAL INFORMATION RELEASE
INTERNATIONAL SALES BY GEOGRAPHIC AREA
FOR THREE MONTHS ENDED AUGUST 1, 1999 AND AUGUST 2, 1998
(Amounts in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED (UNAUDITED)
--------------------------------------------------------------------------------
Amounts Percent of Total Sales
------------------------------- ------------------------------
August 1, August 2, % Over
Geographic Area 1999 1998 (Under) 2000 1999
- ---------------------------------- --------------- -------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
North America (Excluding USA) $ 7,676 7,253 5.8 % 32.2 % 27.5 %
Europe 2,929 3,683 (20.5)% 12.3 % 14.0 %
Middle East 6,992 8,300 (15.8)% 29.4 % 31.5 %
Far East & Asia 4,309 4,868 (11.5)% 18.1 % 18.5 %
South America 620 1,000 (38.0)% 2.6 % 3.8 %
All other areas 1,287 1,253 2.7 % 5.4 % 4.8 %
--------------- -------------- -------------- ------------- ------------
$ 23,813 26,357 (9.7)% 100.0 % 100.0 %
=============== ============== ============== ============= ============
</TABLE>
International sales, and the percentage of total sales, for each of the last
five fiscal years follows: fiscal 1995-$57,971 (19%); fiscal 1996-$77,397 (22%);
fiscal 1997-$101,571 (25%); fiscal 1998-$137,223 (29%); and fiscal 1999-$113,354
(23%). International sales for the first quarter represented 20.5% and 23.8% for
2000 and 1999, respectively.
<PAGE>
Culp, Inc.
SALES BY SEGMENT/DIVISION - TREND ANALYSIS
1998 vs 1999 vs 2000
Unaudited
(Amounts in thousands)
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1999
---------------------------------------------- ----------------------------------------------
Segment/Division Q1 Q2 Q3 Q4 TOTAL Q1 Q2 Q3 Q4 TOTAL
- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Upholstery Fabrics
Culp Decorative Fabrics 39,814 56,781 53,415 60,155 210,165 51,445 59,573 50,520 60,520 222,058
Culp Velvets/Prints 38,397 43,928 44,020 45,044 171,389 29,994 38,728 34,949 40,402 144,073
Culp Yarn - - 761 7,115 7,876 6,596 6,367 4,088 4,462 21,513
---------------------------------------------- ----------------------------------------------
78,211 100,709 98,196 112,314 389,430 88,035 104,668 89,557 105,384 387,644
Mattress Ticking
Culp Home Fashions 21,287 22,217 20,261 23,520 87,285 22,632 23,491 22,536 26,781 95,440
---------------------------------------------- ----------------------------------------------
99,498 122,926 118,457 135,834 476,715 110,667 128,159 112,093 132,165 483,084
============================================== ==============================================
Percent increase(decrease) from prior year:
Segment/Division
- -------------------------
Upholstery Fabrics
Culp Decorative Fabrics 2.2 24.2 35.8 37.7 25.3 29.2 4.9 (5.4) 0.6 5.7
Culp Velvets/Prints 10.1 9.2 9.0 9.9 9.5 (21.9) (11.8) (20.6) (10.3) (15.9)
Culp Yarn - - 100.0 100.0 100.0 100.0 100.0 437.2 (37.3) 173.1
---------------------------------------------- ----------------------------------------------
5.9 17.2 23.2 32.6 20.1 12.6 3.9 (8.8) (6.2) (0.5)
Mattress Ticking
Culp Home Fashions 27.5 15.4 14.2 12.0 16.9 6.3 5.7 11.2 13.9 9.3
---------------------------------------------- ----------------------------------------------
9.9 16.8 21.5 28.5 19.5 11.2 4.3 (5.4) (2.7) 1.3
============================================== ==============================================
Overall Growth Rate
Internal (without acquisitions) 9.9 6.6 9.2 11.6 9.3 (4.6) (0.9) (8.5) (2.7) (4.1)
External
- 10.2 12.3 16.9 10.2 15.8 5.2 3.1 - 5.4
---------------------------------------------- ----------------------------------------------
9.9 16.8 21.5 28.5 19.5 11.2 4.3 (5.4) (2.7) 1.3
============================================== ==============================================
</TABLE>
<PAGE>
Culp, Inc.
SALES BY SEGMENT/DIVISION - TREND ANALYSIS
1998 vs 1999 vs 2000
Unaudited
(Amounts in thousands)
<TABLE>
<CAPTION>
Fiscal 2000
-----------------------------------------------
Segment/Division Q1 Q2 Q3 Q4 TOTAL
- -------------------------
<S> <C> <C>
Upholstery Fabrics
Culp Decorative Fabrics 50,516 50,516
Culp Velvets/Prints 36,209 36,209
Culp Yarn 4,129 4,129
-----------------------------------------------
90,854 90,854
Mattress Ticking
Culp Home Fashions 25,083 25,083
-----------------------------------------------
115,937 115,937
===============================================
Percent increase(decrease) from prior year:
Segment/Division
- -------------------------
Upholstery Fabrics
Culp Decorative Fabrics (1.8) (1.8)
Culp Velvets/Prints 20.7 20.7
Culp Yarn (37.4) (37.4)
-----------------------------------------------
3.2 3.2
Mattress Ticking
Culp Home Fashions 10.8 10.8
-----------------------------------------------
4.8 4.8
===============================================
Overall Growth Rate
Internal (without acquisitions) 4.8 4.8
External - -
===============================================
4.8 4.8
===============================================
</TABLE>
<PAGE>
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three month periods ended August 1, 1999 and August 2, 1998
INCOME STATEMENT COMMENTS
GENERAL - For the first quarter, net sales increased 4.8% to $115.9 million; and
net income amounted to $1.6 million, or $0.13 per share diluted, versus a net
loss a year ago of $2.6 million, or $0.20 per share diluted.
The company's strategic plan encompasses several competitive initiatives:
Broad Product Offering - continuing to market one of the broadest product lines
in upholstery fabrics and mattress ticking. Through its extensive manufacturing
capabilities, the company competes in every major category except leather;
Diverse Global Customer Base - increasing its penetration into other end-use
markets in addition to U.S. residential furniture, such as bedding,
international, commercial furniture and juvenile furniture. The company has
long-standing relationships with most major upholstery furniture manufacturers,
but is not reliant on a single customer or a small group of dominant customers.
No one customer accounted for more than 9% of net sales during the first quarter
of fiscal 2000;
Design Innovation - continuing to invest in the design of upholstery fabrics and
ticking with appealing patterns and textures. An integral component of the value
Culp provides to customers is supplying fabrics that are fashionable and meet
current consumer preferences. The company's principal design resources are
consolidated in a single facility that provides advanced CAD systems and
promotes a sharing of innovative designs among the divisions;
Vertical Integration - operating as a vertically integrated manufacturer and
taking advantage of economies that can be gained by producing the raw material
components that are used in the manufacture of its products; and
Additional Acquisitions - investing in selective acquisitions complementary to
existing segments/divisions.
NET SALES - Compared with the first quarter of last year, upholstery fabric
sales increased 3.2% to $90.8 million and mattress ticking sales increased 10.8%
to $25.1 million (See Sales by Segment/Division schedule on Page 5 and Sales by
Segment/Division - Trend Analysis on Page 7). International sales were down 9.7%
for the quarter compared to a year ago. The first fiscal quarter is historically
not the strongest period of the year for Culp due to planned vacations and
seasonal industry-wide plant closings.
During the first quarter of fiscal 1999, the company implemented a major
reorganization from six business units to four divisions. This new corporate
alignment grouped related operations together and was accompanied by several
changes in managerial positions. The company believes that this move is aiding
its growth through improved customer service, more effective use of design
resources and increased manufacturing efficiency. Results for the first quarter
of fiscal 2000 include a 3.2% increase in sales of upholstery fabrics,
reflecting higher sales of upholstery fabrics to U.S.-based customers that
offset some further softness in international sales. The trend of weakness in
international sales, which the company believes has also affected other
manufacturers of upholstery fabrics, has persisted since the close of fiscal
1998. During fiscal 1999, the company took steps to mitigate the impact of this
industry-wide trend by significantly curtailing production schedules for certain
international-targeted fabrics, introducing a new line of printed cotton
upholstery fabrics and shifting its marketing focus to geographic areas where
demand appears more favorable. The company has a diversified global base of
customers and is seeking to broaden that further to minimize exposure to
economic uncertainties in any geographic area.
<PAGE>
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three month periods ended August 1, 1999 and August 2, 1998
The company also benefited in the first quarter from increased sales by Culp
Home Fashions (primarily mattress ticking) which has experienced a longer-term
pattern of expansion. Culp's growth in mattress ticking continues to be driven
by the introduction of new designs and fabric constructions as well as the
advantages of the company's vertical integration. In particular, the ability to
manufacture the jacquard greige (or unfinished) goods that are then printed to
produce mattress ticking has aided Culp in meeting faster delivery schedules and
providing improved overall customer service.
GROSS PROFIT - Gross profit for the first quarter increased 50.0% to $20.4
million and increased as a percentage of net sales from 12.3% to 17.6%. The
increase was due principally to the actions that the company took during fiscal
1999, including a significant reduction in the capacity for manufacturing
printed flock fabrics and an intense effort to reduce operating expenses and
raise productivity.
S,G&A EXPENSES - S,G&A expenses for the first quarter declined as a percentage
of sales to 13.0% from 13.1% for the year-earlier period. The decrease reflects
improved economies of scale as a result of the increased net sales as well as
programs throughout the company to contain operating expenses.
INTEREST EXPENSE - Interest expense of $2.4 million for the first quarter was
unchanged from a year ago even though the company had lower average borrowings
outstanding. The lower level of borrowings were offset by lower capitalized
interest related to capital expenditures and higher average interest rates.
OTHER EXPENSE (INCOME), NET - Other expense (income) decreased to $555,000 for
the first quarter versus $770,000 a year ago. The prior year included a
non-recurring charge to write-off certain fixed assets.
INCOME TAXES - The effective tax rate for the quarter was 34.0%, up slightly
from 33.0% for the same quarter of last year.
EBITDA - Due principally to the increase in net income from a year ago, EBITDA
for the first quarter increased to $10.0 million compared with $3.1 million a
year ago.
BALANCE SHEET COMMENTS
WORKING CAPITAL - Accounts receivable as of August 1, 1999 decreased 2.9% from
the year-earlier level. Days sales outstanding decreased to 45 days at August 1,
1999 compared with 48 a year ago. Additionally, the aging of accounts receivable
was 93.2% current and less than 30 days past due versus 93.8% at August 2, 1998.
Inventories at the close of the first quarter decreased $4.0 million or 5.1%
from August 2, 1998. Inventory turns for the first quarter were 5.4 versus 4.9
for the first quarter of fiscal 1999. The reduction in inventories is
attributable to the increased focus management has placed on controlling the
level of inventories. Operating working capital (comprised of accounts
receivable, inventory and accounts payable) was $111.2 million at August 1,
1999, as compared with $111.5 million a year ago. The balance at May 2, 1999 was
$111.9 million.
<PAGE>
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three month periods ended August 1, 1999 and August 2, 1998
PROPERTY, PLANT AND EQUIPMENT - For fiscal 2000, the company's budgeted capital
spending is $20 million. The major projects planned for upholstery fabrics are
new dobby and velvet looms. The projects are intended to increase capacity for
the woven velvet product line and improve efficiencies for the dobby product
line as part of the company's continuing modernization effort. The major
projects for mattress ticking are for weaving expansions intended to increase
the capacity for jacquard greige goods. Depreciation expense for fiscal 2000 is
currently estimated to be approximately $20 million.
LONG-TERM DEBT - The company's funded debt-to-capital ratio was 51.5% at August
1, 1999, compared with 54.5% at August 2, 1998 and 52.1% at May 2, 1999. Funded
debt was $136.2 million at August 1, 1999, down from $153.6 million at August 2,
1998 and $138.7 million at May 2, 1999. Funded debt equals long-term debt,
including current maturities, less restricted investments, which represent
unspent IRB funds. The decrease in funded debt from May 2, 1999 resulted
primarily from an operating cash flow of $6.1 million, offset by capital
expenditures of $2.4 million, dividends paid of $423,000 and repurchases of
common stock of $393,000.
STOCK REPURCHASE
In separate authorizations in June 1998 and March 1999, the Board of Directors
authorized the use of a total of $10.0 million to repurchase the company's
common stock. During fiscal 1999, the company repurchased 938,600 shares at an
average price of $5.90 per share under these authorizations. During the first
quarter of fiscal 2000, the company repurchased 46,000 shares at an average
price of $8.55 per share.
