--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
-------------
Date of Report (Date of earliest event reported) February 19, 2002
CULP, INC.
(Exact name of registrant as specified in its charter)
North Carolina 0-12781 56-1001967
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
101 South Main Street
High Point, North Carolina 27260
(Address of principal executive offices)
(336) 889-5161
(Registrant's telephone number, including area code)
-------------------------------------------------------------
(Former name or former address, if changed since last report)
--------------------------------------------------------------------------------
Item 5. Other Events
See attached Press Release (3 pages) and Financial Information Release (9
pages), both dated February 19, 2002, related to the fiscal 2002 third quarter
ended January 27, 2002.
Forward Looking Information. This Report contains statements that may be
deemed "forward-looking statements" within the meaning of the federal
securities laws, including the Private Securities Litigation Reform Act of
1995. 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: Franklin N. Saxon
----------------------------
Executive Vice President and
Chief Financial Officer
Dated: February 19, 2002
-----------------
FOR IMMEDIATE RELEASE
CULP REPORTS CONTINUED EARNINGS RECOVERY IN THIRD QUARTER
----------------------
CASH POSITION UP FROM A YEAR AGO DUE TO RESTRUCTURING ACTIONS
AND BALANCE SHEET MANAGEMENT
HIGH POINT, N. C. (Feb. 19, 2002) -- Culp, Inc. (NYSE: CFI) today reported net
income for the third quarter of its fiscal 2002 year compared with a
significant loss a year ago and indicated that it has achieved a further
strengthening in its financial position.
For the three months ended January 27, 2002, Culp reported net sales of
$90.6 million compared with $95.9 million a year ago. Net income for the
third quarter of fiscal 2002 totaled $170,000, or $0.02 per share diluted. In
the year-earlier period, the Company reported a net loss of $5.5 million, or
$0.49 per share diluted. Excluding restructuring and related charges, the net
loss in the year-earlier period was $3.4 million, or $0.30 per share diluted.
Culp indicated that bad debt expense for the third quarter of fiscal 2002
totaled $703,000 ($0.04 per share after taxes) versus $32,000 in the
year-earlier period.
Net sales for the first nine months of fiscal 2002 totaled $273.5
million compared with $308.7 million in the year-earlier period. The Company
reported a net loss for the first nine months of $1.9 million, or $0.17 per
share diluted, compared with a net loss of $6.9 million, or $0.61 per share
diluted, in the year-earlier period. Excluding restructuring and related
charges, the company reported a net loss of $205,000, or $0.02 per share
diluted, for the first nine months of fiscal 2002 and a net loss of $4.7
million, or $0.42 per share diluted, for the year-earlier period. The company
indicated that bad debt expense for the first nine months of fiscal 2002
totaled $2.9 million ($0.17 per share after taxes) versus $189,000 in the
year-earlier period.
"We are pleased with the outstanding year-to-year improvement represented
by our third quarter results," remarked Robert G. Culp, III, chief executive
officer. "Culp's ability to achieve a profit during the most recent quarter was
due to operational improvements, especially from our mattress ticking group, and
to the restructuring actions and other steps we have taken to reduce costs.
Because of scheduled holiday plant closings, the third fiscal quarter is not
usually the strongest period of the year for our business. Our expectation of
this seasonal softness in sales put an even greater emphasis on containing
expenses during the quarter and presents the profit for the three months in an
even stronger light. The performance for the third quarter reinforces our
optimism about meeting our previously stated target of reporting a profit for
fiscal 2002 as a whole, excluding restructuring charges, that will provide a
solid platform for further improvement in fiscal 2003.
Culp added, "The relative strength of the dollar continues to impact demand
for our fabrics and ticking outside the United States. International sales were
down $7.4 million, or 40%, from a year ago and represented only 12% of our total
sales for the third quarter, down from 19% in the year-earlier period. Fabric
shipments to customers within the United States ran counter to this trend and
were up $3.5 million, or 5%, from a year ago during the third quarter. We are
very encouraged by that year-to-year comparison that clearly evidences our
success in gaining market share. An important aspect of our restructuring
actions has been to streamline our operations and provide customers with
improved service. Manufacturers of upholstered furniture and bedding are under
mounting pressure to lower costs, and we believe that Culp has never been in a
stronger position in terms of operating efficiency and successful product
offerings to meet their needs."
Culp added, "One of our important financial goals is to maximize cash flow.
We achieved sufficient cash from operations through the first nine months to
increase our cash position to $10.4 million at the close of the third quarter,
up significantly from $1.2 million at the end of fiscal 2001. Our efforts to
build liquidity include tight management of working capital. Through the first
nine months, we have achieved a meaningful decline in accounts receivable, not
only in absolute dollars but also in terms of average days outstanding. Our debt
of $110.1 million at the close of the quarter was down $11.3 million from a year
ago. Our capital expenditures for fiscal 2002 remain targeted at approximately
$4.5 million, compared with $8.1 million in fiscal 2001."
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.
This release contains statements that may be deemed "forward-looking
statements" within the meaning of the federal securities laws, including the
Private Securities Litigation Reform Act of 1995. 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.
CULP, INC.
Condensed Financial Highlights
(Unaudited)
Three Months Ended
-------------------------------------------------------------------------------
January 27, January 28,
2002 2001
-------------- --------------
Net sales $ 90,618,000 $ 95,880,000
Net income (loss) $ 170,000 $ (5,470,000)
Net income (loss) per share:
Basic $ 0.02 $ (0.49)
Diluted $ 0.02 $ (0.49)
Net income (loss) per diluted share, excluding
restructuring and related charges* $ 0.02 $ (0.30)
Average shares outstanding:
Basic 11,211,000 11,211,000
Diluted 11,304,000 11,211,000
Nine Months Ended
--------------------------------------------------------------------------------
January 27, January 28,
2002 2001
--------------- ---------------
Net sales $ 273,481,000 $ 308,739,000
Net (loss) $ (1,855,000) $ (6,884,000)
Net (loss) per share:
Basic $ (0.17) $ (0.61)
Diluted $ (0.17) $ (0.61)
Net (loss) per diluted share, excluding
restructuring and related charges* $ (0.02) $ (0.42)
Average shares outstanding:
Basic 11,221,000 11,209,000
Diluted 11,221,000 11,209,000
* Excludes restructuring and related charges of $2.5 million ($1.6 million or
$0.15 per share diluted, after taxes) for the first nine months of 2002 and
$3.2 million ($2.1 million or $0.19 per share diluted, after taxes) for the
third quarter and first nine months of fiscal 2001.
-END-
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE THREE MONTHS AND NINE MONTHS ENDED JANUARY 27, 2002 AND JANUARY 28, 2001
(Amounts in Thousands, Except for Per Share Data)
THREE MONTHS ENDED (UNAUDITED)
--------------------------------------------------------------------------------
Amounts Percent of Sales
------------------------------ -----------------------------
January 27, January 28, % Over
2002 2001 (Under) 2002 2001
-------------- -------------- -------------- -------------- -------------
Net sales $ 90,618 95,880 (5.5)% 100.0 % 100.0 %
Cost of sales 77,110 86,047 (10.4)% 85.1 % 89.7 %
-------------- -------------- -------------- -------------- -------------
Gross profit 13,508 9,833 37.4 % 14.9 % 10.3 %
Selling, general and
administrative expenses (1) 11,038 12,480 (11.6)% 12.2 % 13.0 %
Restructuring expense 0 2,504 0.0 % 0.0 % 2.6 %
-------------- -------------- -------------- -------------- -------------
Income from operations 2,470 (5,151) 148.0 % 2.7 % (5.4)%
Interest expense 1,820 2,222 (18.1)% 2.0 % 2.3 %
Interest income (42) (18) 133.3 % (0.0)% (0.0)%
Other expense (income), net 435 811 (46.4)% 0.5 % 0.8 %
-------------- -------------- -------------- -------------- -------------
Income (loss) before income taxes 257 (8,166) 103.1 % 0.3 % (8.5)%
Income taxes (2) 87 (2,696) 103.2 % 34.0 % 33.0 %
-------------- -------------- -------------- -------------- -------------
Net income (loss) $ 170 (5,470) 103.1 % 0.2 % (5.7)%
============== ============== ============== ============== =============
Net income per share $0.02 ($0.49) 104.1 %
Net income per share, assuming dilution $0.02 ($0.49) 104.1 %
Net income per share, excluding restructuring
and related charges (3) $0.02 ($0.30) 106.7 %
Average shares outstanding 11,221 11,211 0.1 %
Average shares outstanding, assuming dilution 11,304 11,211 0.8 %
NINE MONTHS ENDED (UNAUDITED)
--------------------------------------------------------------------------------
Amounts Percent of Sales
------------------------------ -----------------------------
January 27, January 28, % Over
2002 2001 (Under) 2002 2001
-------------- -------------- -------------- -------------- -------------
Net sales $ 273,481 308,739 (11.4)% 100.0 % 100.0 %
Cost of sales 233,642 267,845 (12.8)% 85.4 % 86.8 %
-------------- -------------- -------------- -------------- -------------
Gross profit 39,839 40,894 (2.6)% 14.6 % 13.2 %
Selling, general and
administrative expenses (1) 33,823 39,749 (14.9)% 12.4 % 12.9 %
Restructuring expense 1,303 2,504 (48.0)% 0.5 % 0.8 %
-------------- -------------- -------------- -------------- -------------
4,713 (1,359) (446.8)% 1.7 % (0.4)%
Interest expense 5,851 6,830 (14.3)% 2.1 % 2.2 %
Interest income (99) (40) 147.5 % (0.0)% (0.0)%
Other expense (income), net 1,772 2,127 (16.7)% 0.6 % 0.7 %
-------------- -------------- -------------- -------------- -------------
(2,811) (10,276) 72.6 % (1.0)% (3.3)%
Income taxes (2) (956) (3,392) 71.8 % 34.0 % 33.0 %
-------------- -------------- -------------- -------------- -------------
Net loss $ (1,855) (6,884) 73.1 % (0.7)% (2.2)%
============== ============== ============== ============== =============
Net loss per share ($0.17) ($0.61) 72.1 %
Net loss per share, assuming dilution ($0.17) ($0.61) 72.1 %
Net loss per share, excluding restructuring
and related charges (3) ($0.02) ($0.42) 95.2 %
Average shares outstanding 11,221 11,209 0.1 %
Average shares outstanding, assuming dilution 11,221 11,209 0.1 %
(1) Includes bad debt expense of $703,000 ($464,000 or $0.04 per share diluted, after taxes) and $31,600 for the third
quarter of fiscal 2002 and fiscal 2001, respectively; and $2,928,000 ($1,932,000 or $0.17 per share diluted, after
taxes) and $188,700 for the nine months of fiscal 2002 and 2001, respectively.
(2) Percent of sales column is calculated as a % of income (loss) before income taxes.
(3) Excludes restructuring and related charges of $0 and $3.2 million ($2.1 million or $.19 per share
diluted, after taxes) for the third quarter of fiscal 2002 and fiscal 2001, respectively; and $2.5 million
($1.6 million or $.15 per share diluted, after taxes) and $3.2 million ($2.1 million or $.19 per share
diluted, after taxes) for the nine months of fiscal 2002 and 2001, respectively.
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED BALANCE SHEETS
JANUARY 27, 2002, JANUARY 28, 2001, APRIL 29, 2001
Unaudited
(Amounts in Thousands)
Amounts Increase
--------------------------------- (Decrease)
January 27, January 28, --------------------------------- * April 29,
2002 2001 Amount Percent 2001
--------------- --------------- --------------- ------------- ------------
Current assets
Cash and cash investments $ 10,359 292 10,067 3,447.6 % 1,207
Accounts receivable 46,171 54,474 (8,303) (15.2)% 57,849
Inventories 59,398 67,156 (7,758) (11.6)% 59,997
Other current assets 9,323 13,706 (4,383) (32.0)% 7,856
--------------- --------------- --------------- ------------- ------------
Total current assets 125,251 135,628 (10,377) (7.7)% 126,909
Property, plant & equipment, net 102,457 116,207 (13,750) (11.8)% 112,322
Goodwill 47,432 48,827 (1,395) (2.9)% 48,478
Other assets 1,641 2,256 (615) (27.3)% 1,871
--------------- --------------- --------------- ------------- ------------
Total assets $ 276,781 302,918 (26,137) (8.6)% 289,580
=============== =============== =============== ============= ============
Current liabilities
Current maturities of long-term debt $ 3,127 2,159 968 44.8 % 2,488
Accounts payable 21,336 27,084 (5,748) (21.2)% 27,371
Accrued expenses 15,015 15,417 (402) (2.6)% 17,153
Income taxes payable 0 0 0 0.0 % 1,268
--------------- --------------- --------------- ------------- ------------
Total current liabilities 39,478 44,660 (5,182) (11.6)% 48,280
Long-term debt 106,960 119,213 (12,253) (10.3)% 109,168
Deferred income taxes 10,330 17,459 (7,129) (40.8)% 10,330
--------------- --------------- --------------- ------------- ------------
Total liabilities 156,768 181,332 (24,564) (13.5)% 167,778
Shareholders' equity 120,013 121,586 (1,573) (1.3)% 121,802
--------------- --------------- --------------- ------------- ------------
Total liabilities and
shareholders' equity $ 276,781 302,918 (26,137) (8.6)% 289,580
=============== =============== =============== ============= ============
Shares outstanding 11,221 11,211 10 0.1 % 11,221
=============== =============== =============== ============= ============
* Derived from audited financial statements.
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JANUARY 27, 2002 AND JANUARY 28, 2001
Unaudited
(Amounts in Thousands)
NINE MONTHS ENDED
------------------------------
Amounts
------------------------------
January 27, January 28,
2002 2001
-------------- --------------
Cash flows from operating activities:
Net loss $ (1,855) (6,884)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 13,214 14,781
Amortization of intangible and other assets 1,177 1,196
Amortization of deferred compensation 92 303
Restructuring expense 1,303 2,504
Changes in assets and liabilities:
Accounts receivable 11,678 20,749
Inventories 599 7,315
Other current assets (1,453) (3,357)
Other assets (19) 226
Accounts payable (1,768) (4,536)
Accrued expenses (3,319) (8,076)
Income taxes payable (1,268) 0
-------------- --------------
Net cash provided by operating activities 18,381 24,221
-------------- --------------
Cash flows from investing activities:
Capital expenditures (3,393) (6,532)
Sales of investments related to deferred compensation plan 0 4,547
-------------- --------------
Net cash used in investing activities (3,393) (1,985)
-------------- --------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 0 564
Principal payments on long-term debt (1,569) (16,678)
Change in accounts payable-capital expenditures (4,267) (5,667)
Dividends paid 0 (1,177)
Proceeds from common stock issued 0 7
-------------- --------------
Net cash used in financing activities (5,836) (22,951)
-------------- --------------
Increase (decrease) in cash and cash investments 9,152 (715)
Cash and cash investments at beginning of period 1,207 1,007
-------------- --------------
Cash and cash investments at end of period $ 10,359 292
============== ==============
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL ANALYSIS
JANUARY 27, 2002
FISCAL 01 FISCAL 02
------------- ----------------------------------------------- -------------
Q3 Q1 Q2 Q3 Q4 LTM (3)
------------- ----------------------------------------------- -------------
INVENTORIES
Inventory turns 4.9 5.1 5.4 5.1
RECEIVABLES
Days sales in receivables 48 51 47 43
Percent current & less than 30
days past due 94.4% 91.9% 92.7% 96.0%
WORKING CAPITAL
Current ratio 3.0 2.8 2.8 3.2
Working capital turnover (2) 4.1 4.1 4.1 4.2
Operating working capital (2) $94,546 $86,586 $84,346 $84,233
PROPERTY, PLANT & EQUIPMENT
Depreciation rate 7.5% 7.2% 7.1% 7.1%
Percent property, plant &
equipment are depreciated 53.8% 56.2% 58.1% 59.0%
Capital expenditures $8,050 (1) $1,602 $686 $1,105
PROFITABILITY
Return on average total capital (6.4%) (2.7%) 3.7% 2.3% 0.8%
Return on average equity (17.6%) (9.6%) 2.9% 0.6% (2.7%)
Net income (loss) per share ($0.49) ($0.26) $0.08 $0.02 ($0.30)
Net income (loss) per share (diluted) ($0.49) ($0.26) $0.08 $0.02 ($0.30)
Net income (loss) per share, excluding
restructuring and related charges (5) ($0.30) ($0.12) $0.09 $0.02 $0.11
LEVERAGE
Total liabilities/equity 149.1% 136.6% 136.8% 129.6%
Funded debt/equity 99.8% 93.1% 92.3% 91.7%
Funded debt/capital employed 50.0% 48.2% 48.0% 47.8%
Funded debt $121,372 $110,652 $110,583 $110,087
Funded debt/EBITDA (LTM) (4) 4.28 4.26 4.26 3.64
OTHER
Book value per share $10.85 $10.59 $10.68 $10.62
Employees at quarter end 3,486 3,018 3,018 3,015
Sales per employee (annualized) $108,000 $113,000 $128,000 $120,523
Capital employed $242,958 $229,461 $230,421 $230,999
Effective income tax rate 33.0% 34.0% 34.0% 34.0%
EBITDA (4) $2,536 $4,731 $8,315 $6,859 $30,268
EBITDA/net sales (4) 2.6% 5.5% 8.6% 8.1% 8.1%
(1) Expenditures for entire year
(2) Working capital for this calculation is accounts receivable, inventories and accounts payable.
(3) LTM represents "Latest Twelve Months"
(4) EBITDA includes earnings before interest, income taxes, depreciation, amortization, all restructuring and related
charges and certain non-cash charges, as defined by the company's credit agreement.
(5) Excludes restructuring and related charges of $6.7 million ($4.5 million or $.41 per share diluted, after taxes)
for the last twelve months.
CULP, INC. FINANCIAL INFORMATION RELEASE
SALES BY PRODUCT GROUP
FOR THE THREE MONTHS AND NINE MONTHS ENDED JANUARY 27, 2002 AND JANUARY 28, 2001
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
------------------------------------------------------------
Amounts Percent of Total Sales
-------------------- ----------------------
January 27, January 28, % Over
Product Group 2002 2001 (Under) 2002 2001
------------------------------ --------- --------- ------------ ---------- ----------
Upholstery Fabrics
Culp Decorative Fabrics $ 35,878 40,955 (12.4) % 39.6 % 42.7 %
Culp Velvets/Prints 28,648 28,631 0.1 % 31.6 % 29.9 %
Culp Yarn 1,318 2,711 (51.4) % 1.5 % 2.8 %
--------- --------- ------------ ---------- ----------
65,844 72,297 (8.9) % 72.7 % 75.4 %
Mattress Ticking
Culp Home Fashions 24,774 23,583 5.1 % 27.3 % 24.6 %
--------- --------- ------------ ---------- ----------
* $ 90,618 95,880 (5.5) % 100.0 % 100.0 %
========= ========= ============ ========== ==========
NINE MONTHS ENDED (UNAUDITED)
---------------------------------------------------------------
Amounts Percent of Total Sales
-------------------- -----------------------
January 27, January 28, % Over
Product Group 2002 2001 (Under) 2002 2001
------------------------------ --------- --------- ------------ ---------- ----------
Upholstery Fabrics
Culp Decorative Fabrics $ 109,531 129,280 (15.3) % 40.1 % 41.9 %
Culp Velvets/Prints 84,522 90,778 (6.9) % 30.8 % 29.4 %
Culp Yarn 3,816 10,164 (62.5) % 1.4 % 3.3 %
--------- --------- ------------ ---------- ----------
197,869 230,222 (14.1) % 72.4 % 74.6 %
Mattress Ticking
Culp Home Fashions 75,612 78,517 (3.7) % 27.6 % 25.4 %
--------- --------- ------------ ---------- ----------
* $ 273,481 308,739 (11.4) % 100.0 % 100.0 %
========= ========= ============ ========== ==========
* U.S. sales were $79,539 and $77,360 for the third quarter of fiscal 2002 and
fiscal 2001, respectively; and $233,617 and $246,672 for the nine months of
fiscal 2002 and 2001, respectively. The percentage increase in U.S. sales was
2.8% for the third quarter and a decrease of 5.3% for the nine months.
CULP, INC. FINANCIAL INFORMATION RELEASE
INTERNATIONAL SALES BY GEOGRAPHIC AREA
FOR THE THREE MONTHS AND NINE MONTHS ENDED JANUARY 27, 2002 AND JANUARY 28, 2001
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
-------------------------------------------------------------
Percent of Total
Amounts Sales
--------------------- --------------------
January 27, January 28, % Over
Geographic Area 2002 2001 (Under) 2002 2001
----------------------- ---------- --------- --------- --------- ---------
North America (Excluding USA) $ 6,613 8,226 (19.6)% 59.7 % 44.4 %
Europe 472 1,669 (71.7)% 4.3 % 9.0 %
Middle East 598 3,924 (84.8)% 5.4 % 21.2 %
Far East & Asia 2,924 4,277 (31.6)% 26.4 % 23.1 %
South America 155 147 5.6 % 1.4 % 0.8 %
All other areas 318 277 14.7 % 2.9 % 1.5 %
---------- --------- --------- --------- ---------
$ 11,079 18,520 (40.2)% 100.0 % 100.0 %
========== ========= ========= ========= =========
NINE MONTHS ENDED (UNAUDITED)
------------------------------------------------------
Percent of Total
Amounts Sales
--------------------- --------------------
January 27, January 28, % Over
Geographic Area 2002 2001 (Under) 2002 2001
----------------------- ---------- --------- --------- --------- ---------
North America (Excluding USA) $ 23,023 26,177 (12.0)% 57.9 % 42.2 %
Europe 2,115 4,928 (57.1)% 5.3 % 7.9 %
Middle East 4,804 14,456 (66.8)% 12.1 % 23.3 %
Far East & Asia 8,414 13,103 (35.8)% 21.1 % 21.1 %
South America 490 732 (33.1)% 1.2 % 1.2 %
All other areas 1,018 2,671 (61.9)% 2.6 % 4.3 %
---------- --------- --------- --------- ---------
$ 39,864 62,067 (35.8)% 100.0 % 100.0 %
========== ========= ========= ========= =========
International sales, and the percentage of total sales, for each of the last
five fiscal years follows: fiscal 1997-$101,571 (25%); fiscal 1998-$137,223
(29%); fiscal 1999-$113,354 (23%); fiscal 2000-$111,104 (23%); and fiscal
2001-$77,824 (19%). International sales for the third quarter represented 12.2%
and 19.3% for 2002 and 2001, respectively. Year-to-date international sales
represented 14.6% and 20.1% of total sales for 2002 and 2001, respectively.
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three and nine months ended January 27, 2002 and January 28, 2001
INCOME STATEMENT COMMENTS
GENERAL - For the third quarter, net sales decreased 5.5% to $90.6 million;
and the company reported net income of $170,000, or $0.02 per share diluted,
(based on 11,304,000 average shares outstanding) versus a net loss of $5.5
million, or $0.49 per share diluted, (based on 11,211,000 average shares
outstanding) in the third quarter of fiscal 2001. For the first nine months of
fiscal 2002, net sales decreased 11.4% to $273.5 million, and the company
reported a net loss $1.9 million, or $0.17 per share diluted (based on
11,221,000 average shares outstanding), versus a net loss of $6.9 million, or
$0.61 per share diluted (based on 11,209,000 average shares outstanding), a year
ago. As described below in "SG&A EXPENSES," a significant factor affecting the
third quarter and the first nine months of fiscal 2002 was bad debt expense of
$703,000 and $2.9 million, respectively ($0.04 and $0.17 per share,
respectively, on an after-tax basis). This compares with bad debt expense of
$31,600 and $188,700 for the third quarter and first nine months of 2001,
respectively. Excluding restructuring and related charges, earnings for the
third quarter of 2002 were $170,000, or $0.02 per share diluted, versus a net
loss of $3.4 million, or $0.30 per share diluted, for the third quarter of 2001.
Excluding restructuring and related charges, the net loss for the nine months
was $205,000, or $0.02 per share diluted, for 2002, and $4.7 million, or $0.42
per share diluted, for 2001.
The company's long-term, 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 most major categories
except leather;
Diverse Customer Base - maintaining a diverse customer base. The company
has long-standing relationships with most major upholstery furniture
manufacturers. Ownership of resources in the home furnishings industry is
becoming increasingly concentrated, and the company has successfully been
able to capitalize on its size and product breadth to supply more of the
needs of existing customers. Culp is continuing to pursue opportunities in
other end-use markets in addition to U.S. residential furniture and
bedding, such as international, commercial furniture and juvenile
furniture;
Design Innovation - supplying fabrics that are fashionable and match
current consumer preferences. The company's principal design resources are
consolidated in a single facility that has advanced computer-assisted
design systems and promotes sharing of innovative designs across product
lines. Culp encourages active customer involvement in the entire design
process; and
Vertical Integration - operating as a vertically integrated manufacturer
and taking advantage of economies, quality, supply availability and
efficiencies that can be gained by producing the raw material components
that are used in the manufacture of its products.
RESTRUCTURING ACTIONS - During fiscal 2001, the company initiated a
restructuring plan intended to lower operating expenses, increase manufacturing
utilization, raise productivity and position the company to operate profitably
within the current environment of reduced demand. The plan involved the
consolidation of certain fabric manufacturing capacity within the Culp
Decorative Fabrics division, closing one of the company's four yarn
manufacturing plants within Culp Yarn, and an extensive reduction in selling,
general and administrative expenses. The company also recognized certain
inventory write-downs related to the closed facilities as part of this
initiative. While the physical relocation and movement of machinery and
equipment involved in the restructuring has been essentially completed, and the
related fixed manufacturing cost savings achieved, the company still has much
improvement to make to reach targeted productivity and variance levels in the
Culp Decorative Fabrics division. The total charge from the restructuring, cost
reduction and inventory write-down initiatives was $9.9 million, about $3.6
million of which represented non-cash items. The company recognized $7.4 million
of restructuring and related charges during fiscal 2001, and $2.5 million in the
first nine months of fiscal 2002. No restructuring and related charges were
recorded in the third quarter of fiscal 2002. Restructuring and related charges
for fiscal 2002 were recorded as $1.3 million in the line item "Restructuring
expense" and $1.2 million in "Cost of sales." The costs reflected in "Cost of
sales" are principally related to the relocation of manufacturing equipment. The
company plans to realize annualized cost reductions of at least $14 million when
the full benefit of this program is realized. Management believes the company
now has a sound footprint of efficient, world-class facilities utilizing
state-of-the-art equipment that position Culp well to meet the demands by
manufacturers for shorter lead times, reliable delivery schedules and appealing
designs.
NET SALES - Compared with the year-earlier period, the company's net sales
declined only 5.5% for the third quarter of fiscal 2002, versus 13.1% for the
second quarter of fiscal 2002, 15.1% for the first quarter of fiscal 2002, and
21.9% for the fourth quarter of fiscal 2001. This quarterly trend indicates that
the sales decline bottomed in the fourth quarter of fiscal 2001. Based upon
current business conditions, the company is optimistic that this improving sales
trend can continue.
Compared with fiscal 2001, upholstery fabric sales for the third quarter of
fiscal 2002 decreased 8.9% to $65.8 million, and decreased 14.1% to $197.9
million for the first nine months of fiscal 2002 (See Sales by Product Group
schedule on Page 5). Reflecting a continuation of the trends identified in the
first and second quarter, the upholstery fabric sales decrease in the third
quarter represents: (1) a sharp reduction (42.1%, or $5.9 million) in
international sales, principally reflecting the high value of the U.S. dollar
relative to international currencies; (2) a decrease in external yarn sales
(51.4% or $1.4 million) due to the company's internal consumption of more of the
yarn division's output and exit from certain yarn businesses as part of the
restructuring plan; and (3) a decrease in sales to contract furniture customers
($1.1 million). A significant factor contributing to the decline in
international sales is the persistent weakness in demand for the company's wet
print flock fabrics, which has negatively impacted the profitability of the Culp
Velvets/Prints product group. Management continues to assess its plan for
addressing this underperforming product line. Sales to U.S. residential
furniture manufacturers in the third quarter of fiscal 2002 increased 3.9% or
$2.0 million compared with the third quarter of fiscal 2001. The company
believes that it is improving its market share in the U.S. residential market
because of well-received fabric placements in the Culp Decorative Fabrics and
Culp Velvets/Prints product groups.
Compared with fiscal 2001, mattress ticking sales for the third quarter of
fiscal 2002 increased 5.1% to $24.8 million, and decreased 3.7% to $75.6 million
for the first nine months of fiscal 2002. The year-to-date sales decline in
mattress ticking also reflects a strong decrease in international sales. Sales
to U.S. bedding manufacturers increased 14.1% to $21.8 million in the third
quarter of fiscal 2002, reversing a trend of sales decreases in the first two
quarters, and increased 1.8% to $66.0 million for the first nine months of
fiscal 2002. The company believes that it is gaining market share in the U.S.
bedding market because of well received ticking placements in the Culp Home
Fashions product group.
GROSS PROFIT - Gross profit increased 37.4% for the third quarter of fiscal
2002 compared with the year-earlier period and increased as a percentage of net
sales to 14.9% from 10.3%. The increase in gross profit percentage reflects the
benefit of the restructuring steps and other actions that have been taken to
reduce expenses. The company realized significant gross profit increases over
the third quarter of last year in Culp Home Fashions (mattress ticking), Culp
Velvets/Prints and Culp Yarn. During the quarter the company began to realize
lower variances and improved manufacturing productivity in the Culp Decorative
Fabrics product group, which achieved higher gross margins even on a sales
decline of 12.4%. The company expects this positive trend to continue in the
fourth quarter.
SG&A EXPENSES - Reflecting the impact of the company's actions to reduce
expenses, SG&A expenses for the third quarter declined 11.6% from the prior
year. SG&A expenses for the third quarter included bad debt expense of $703,000
compared with $31,600 in the year-earlier period. Without the additional bad
debt expense, SG&A expenses were reduced by $2.1 million, or 17.2%, and were
11.4% of net sales. For the first nine months of fiscal 2002, bad debt expense
totaled $2.9 million. Without the additional bad debt expense, SG&A expenses for
the first nine months were reduced by $8.9 million, or 22.3%, and were 11.3% of
net sales. The increase in bad debt expense from a year ago reflects primarily
write-offs of one bedding and two residential furniture customers as well as an
increase in the bad debt reserve.
INTEREST EXPENSE - Interest expense for the third quarter declined 18.1%
from $2.2 million to $1.8 million due to significantly lower borrowings
outstanding, offset somewhat by a substantial increase in interest rates.
OTHER EXPENSE (INCOME), NET - Other expense (income) for the third quarter
of fiscal 2002 totaled $435,000 compared with $811,000 in the prior year. The
decrease reflects primarily the elimination of the nonqualified deferred
compensation plan terminated in January 2001 as a part of the company's cost
reduction initiatives.
INCOME TAXES - The effective tax rate for the first nine months of fiscal
2002 was 34.0% compared with 33.0% for the year-earlier period
EBITDA - EBITDA for the third quarter of fiscal 2002 increased to $6.9
million compared with $2.5 million for the third quarter of last year, and
increased to $19.9 million for the first nine months of fiscal 2002 compared
with $16.0 million in the year-earlier period. EBITDA includes earnings before
interest, income taxes, depreciation, amortization, all restructuring and
related charges and certain non-cash charges, as defined by the company's credit
agreement.
BALANCE SHEET COMMENTS
CASH AND CASH INVESTMENTS - Cash and cash investments as of January 27,
2002 increased to $10.4 million from $1.2 million at fiscal year end, reflecting
cash flow from operations of $18.4 million for the first nine months of fiscal
2002, which exceeded capital expenditures of $3.4 million and debt repayment of
$5.8 million.
WORKING CAPITAL - Accounts receivable as of January 27, 2002 decreased
15.2% from the year-earlier level, due principally to the decline in sales and
the company's focus on sustaining a liquid working capital position. Days sales
outstanding totaled 43 days at January 27, 2002 compared with 48 a year ago. The
aging of accounts receivable was 96.0% current and less than 30 days past due
versus 94.4% a year ago. Inventories at the close of the third quarter decreased
11.6% from a year ago. Inventory turns for the third quarter were 5.1 versus 4.9
for the year-earlier period. Operating working capital (comprised of accounts
receivable, inventory and accounts payable) was $84.2 million at January 27,
2002, down from $94.5 million a year ago.
PROPERTY, PLANT AND EQUIPMENT - Capital spending for the nine months of
fiscal 2002 decreased to $3.4 million, compared with $6.5 million in the
year-earlier period. The company's capital spending for fiscal 2002 is projected
to be $4.5 million, compared with $8.1 million in fiscal 2001. Depreciation for
the first nine months of fiscal 2002 totaled $13.2 million.
LONG-TERM DEBT - The company has reduced funded debt by $11.3 million or
9.3% from the end of the third quarter of last year. Funded debt equals
long-term debt plus current maturities. Funded debt was $110.1 million at
January 27, 2002, compared with $121.4 million a year ago and $111.7 million at
fiscal year end. Compared with 50.0% a year ago, the company's funded
debt-to-capital ratio was 47.8% at January 27, 2002, its lowest level since July
1997. During fiscal 2001, the company amended its credit facility to include
terms that restrict the payment of cash dividends and share repurchases at this
time, limit capital expenditures, increase the interest rate on its revolving
credit facility and increase the letter of credit fees on its industrial revenue
bonds. This amended credit facility provides for a loan commitment of $20
million. The company had outstanding borrowings of approximately $1.0 million
under the facility at the end of the third quarter of fiscal 2002. The company
was in compliance with its loan agreements as of January 27, 2002. Other than
the credit facility, required principal payments under the respective loan
agreements during the remainder of fiscal 2002 and during fiscal 2003 total $1.0
million and $2.2 million, respectively.