--------------------------------------------------------------------------------
UNITED STATES
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) June 16, 2004
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)
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INDEX
-------
Page
Item 7 - Exhibits 3
Item 12 - Results of Operations and Financial Condition 3
Signature 4
Exhibits
Item 7 -- Exhibits
99(a) News Release dated June 16, 2004
99(b) Financial Information Release dated June 16, 2004
Item 12 -- Results of Operations and Financial Condition
On June 16, 2004, Culp, Inc. (the "Registrant" or the "company") issued a
news release to announce its financial results for the fourth quarter and fiscal
year ended May 2, 2004. The news release is attached hereto as Exhibit 99(a).
Also on June 16, 2004, the Registrant released a Financial Information
Release containing additional financial information and disclosures about the
Registrant's fiscal year May 2, 2004. The Financial Information Release is
attached hereto as Exhibit 99(b).
The news release and Financial Information Release contain disclosures about
free cash flow, a non-GAAP performance measure, that management believes
provides useful information to investors because it measures the company's
available cash flow for potential debt repayment, stock repurchases and
additions to cash, cash equivalents and short-term investments. In addition, the
news release and Financial Information Release contain proforma income
statements which reconcile the reported income statements with proforma results,
which exclude restructuring and related charges and credits, expenses related to
early extinguishment of debt, and cumulative effect of accounting change. The
company has included this proforma information in order to show operational
performance excluding the effects of restructuring charges and credits,
accounting rule changes and expenses related to early debt repayment that are
not expected to occur on a regular basis. Management believes this presentation
aids in the comparison of financial results among comparable financial periods.
Forward Looking Information. This Report and the exhibits attached hereto
contain 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 (Section 27A of the Securities Act of 1933 and
Section 27A of the Securities and Exchange Act of 1934). Such statements are
inherently subject to risks and uncertainties. Further, forward looking
statements are intended to speak only as of the date on which they are made.
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 but not always characterized by
qualifying words such as "expect," "believe," "estimate," "plan" and "project"
and their derivatives, and include but are not limited to statements about
expectations for the company's future sales, gross profit margins, SG&A or other
expenses, and earnings, as well as any statements regarding the company's view
of estimates of the company's future results by analysts. 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. In addition, 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. Also, economic and political
instability in international areas could affect the company's operations or
sources of goods in those areas, as well as demand for the company's products in
international markets. Finally, unanticipated delays or costs in executing
restructuring actions could cause the cumulative effect of restructuring actions
to fail to meet the objectives set forth by management. Other factors that could
affect the matters discussed in forward looking statements are included in the
company's periodic reports filed with the Securities and Exchange Commission.
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
----------------------------
President and Chief Operating
Officer
Dated: June 16, 2004
CULP ANNOUNCES YEAR-END FISCAL 2004 RESULTS
HIGH POINT, N.C. (June 16, 2004) - Culp, Inc. (NYSE: CFI) today reported
financial and operating results for the fourth quarter and fiscal year ended May
2, 2004. The highlights for the quarter and fiscal year include:
o Gross profit margin of 18.4% for the quarter and 18.3% for the fiscal year
o Mattress ticking sales up 9.4% for the quarter and nearly 7.0% for the
fiscal year
o Debt-to-capital ratio reduced to 33.0%, the lowest level for Culp since
fiscal 1993
o Free cash flow of $15.4 million for the fiscal year
For the three months ended May 2, 2004, net sales were $85.1 million, a
5.8% decrease compared with $90.4 million a year ago. The company reported net
income of $3.7 million, or $0.32 per diluted share, for the fourth quarter of
fiscal 2004. The results for the fourth quarter of fiscal 2004 include a credit
of $1.0 million, or $0.06 per diluted share, related to the company's
restructuring reserves. Excluding this amount, net income for the fourth fiscal
quarter of fiscal 2004 was $0.26 per diluted share. The company reported net
income of $3.3 million, or $0.28 per diluted share, including restructuring and
related charges for the fourth quarter of fiscal 2003. The financial results for
the fourth quarter of fiscal 2003 include a total of $1.0 million in
restructuring and related charges included in cost of sales. Excluding these
charges, net income for the fourth fiscal quarter of 2003 was $3.9 million, or
$0.33 per diluted share. (A reconciliation to the net income and earnings per
share calculations and free cash flow has been set forth on Page 5.)
For the fiscal year ended May 2, 2004, the company reported net sales of
$318.1 million, a 6.3% decrease compared with $339.6 million for the same period
a year ago. Net income for fiscal 2004 was $7.2 million, or $0.61 per diluted
share, compared with a net loss of $24.9 million, or $2.17 per diluted share,
including restructuring charges and the cumulative effect of accounting change,
for fiscal 2003. Excluding the credit for the company's restructuring reserves
described above, and a charge of $1.7 million, or $0.10 per diluted share, in
the third fiscal quarter related to the early extinguishment of debt, net income
for fiscal 2004 was $7.6 million, or $0.65 per diluted share. Excluding
restructuring and related charges and the cumulative effect of accounting
change, net income for fiscal 2003 was $9.0 million, or $0.77 per diluted share.
"As previously announced, our fourth quarter performance reflects
lower-than-expected sales of upholstery fabrics," remarked Robert G. Culp, III,
chief executive officer of Culp, Inc. "This segment continues to face demand
pressure from both the current consumer preference for leather furniture as well
as competition from imported fabrics, including cut and sewn kits. Given the
lower sales volume, gross profit margin for this segment declined to 16.8% in
the fourth quarter compared with 18.3% in the prior year period, excluding
restructuring related charges. To enhance our competitive position, we are
aggressively pursuing offshore sourcing initiatives, including the development
of our China operations. As a result, we are significantly increasing sales of
upholstery fabrics produced outside of the company's U.S. manufacturing plants.
"Our mattress ticking business has continued to gain momentum throughout
fiscal 2004. Sales in this segment were up 9.4% for the fourth quarter and
nearly 7.0% for the fiscal year, due to better industry demand and continued
gains with key customers. These gains reflect Culp's design leadership,
exceptional customer service and low cost operations. This growth trend is
particularly meaningful in light of the bedding industry's ongoing transition to
selling predominantly one-sided mattresses, which utilize about one-third less
fabric. We expect that the mattress ticking business will account for an
increasing percentage of the company's overall sales and profitability in fiscal
2005.
"Strengthening our balance sheet has been an important focus for Culp in
fiscal 2004," Culp continued. "With the $25.0 million prepayment on $75.0
million of outstanding senior notes in the third fiscal quarter, our long-term
debt now stands at $50.5 million compared with $76.0 million a year ago.
Notably, we have reduced our long-term debt by a total of $86.0 million over the
past four years. As a result, our long-term debt-to-capital ratio improved to
33.0% at the end of fiscal 2004, compared with 44.4% a year ago. As such, we
have considerably improved our financial position and have greater financial
flexibility to pursue our strategic initiatives."
Commenting on the business outlook, Culp added, "The first quarter of our
fiscal year, which includes the summer months, is typically the slowest period
for Culp and the furniture industry due in part to scheduled plant vacation
shutdowns. In addition, in fiscal 2005, our first fiscal quarter will be 13
weeks versus 14 weeks last year. We are seeing a definite slowdown in orders
reflecting weaker retail activity throughout the furniture industry. Given these
factors, we expect our consolidated sales for the first quarter will show a
greater year-over-year decline than we experienced this past quarter. We believe
the upholstery fabrics segment will continue to be affected by competitive
factors and expect sales in this segment to decline by a greater amount than the
fourth quarter decline of 11.6%. Sales in our mattress ticking segment are
expected to approximate sales for the prior year quarter.
Based on these sales expectations and lower gross profit in the upholstery
fabrics segment, and considering the seasonal slowdown and industry conditions,
we expect to report a net loss of $0.08 to $0.13 per share diluted for the first
fiscal quarter of 2005. The actual results will depend primarily upon the level
of demand throughout the quarter. We remain optimistic that upholstery fabric
sales will start to pick up in the fall, as is seasonally typical in the
furniture industry. However, if sales continue to be under pressure in the
upholstery fabrics segment, we are prepared to take the necessary actions to
adjust our cost structure and capacity, as we have demonstrated in recent years.
We believe the continued strength in our mattress ticking business, our focused
efforts to develop offshore sourcing initiatives, and our proven ability to
generate free cash flow are fundamental competitive advantages for Culp as we
enter fiscal 2005."
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 (Section 27A of the Securities
Act of 1933 and Section 27A of the Securities and Exchange Act of 1934). Such
statements are inherently subject to risks and uncertainties. Further,
forward-looking statements are intended to speak only as of the date on which
they are made. 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 but not always
characterized by qualifying words such as "expect," "believe," "estimate,"
"plan" and "project" and their derivatives, and include but are not limited to
statements about expectations for the company's future sales, gross profit
margins, SG&A or other expenses, and earnings, as well as any statements
regarding the company's view of estimates of the company's future results by
analysts. 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. In addition,
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. Also, economic and political instability in international areas
could affect the company's operations or sources of goods in those areas, as
well as demand for the company's products in international markets. Finally,
unanticipated delays or costs in executing restructuring actions could cause the
cumulative effect of restructuring actions to fail to meet the objectives set
forth by management. Other factors that could affect the matters discussed in
forward-looking statements are included in the company's periodic reports filed
with the Securities and Exchange Commission.
CULP, INC.
Condensed Financial Highlights
(Unaudited)
Three Months Ended
------------------------
May 2, April 27,
2004 2003
------------ -------------
Net sales $ 85,148,000 $ 90,406,000
============ =============
Net income $ 3,733,000 $ 3,272,000
Net income per share:
Basic $ 0.32 $ 0.28
Diluted $ 0.32 $ 0.28
Net income per share, diluted, excluding
restructuring and related charges and credits
and early extinguishment of debt* $ 0.26 $ 0.33
Average shares outstanding:
Basic 11,531,000 11,496,000
Diluted 11,815,000 11,616,000
Fiscal Year Ended
--------------------------
May 2, April 27,
2004 2003
------------ -------------
Net sales $318,116,000 $339,646,000
============ =============
Income (loss) before cumulative effect of
accounting change $ 7,220,000 $ (736,000)
Cumulative effect of accounting change, net of
income taxes -- (24,151,000)
------------ --------------
Net income (loss) $ 7,220,000 $(24,887,000)
============ ==============
Basic income (loss) per share:
Income (loss) before cumulative effect of
accounting change $ 0.63 $ (0.06)
Cumulative effect of accounting change 0.00 (2.11)
------------ --------------
Net income (loss) $ 0.63 $ (2.17)
============ ==============
Diluted income (loss) per share:
Income (loss) before cumulative effect of
accounting change $ 0.61 $ (0.06)
Cumulative effect of accounting change 0.00 (2.11)
------------ --------------
Net income (loss) $ 0.61 $ (2.17)
============ ==============
Net income per share, diluted, excluding restructuring
and related charges and credits, early
extinguishment of debt and cumulative effect
of accounting change** $ 0.65 $ 0.77
Average shares outstanding:
Basic 11,525,000 11,462,000
Diluted 11,777,000 11,462,000
* Excludes credit for restructuring reserves of $1.0 million ($701,000, or
$0.06 per diluted share, after taxes) for the fourth quarter of fiscal
2004. Excludes restructuring and related charges of $1.0 million ($601,000,
or $0.05 per diluted share, after taxes) for the fourth quarter of fiscal
2003.
** Excludes credit for restructuring reserves of $1.0 million ($701,000, or
$0.06 per diluted share, after taxes) for fiscal 2004. Excludes charge for
early extinguishment of debt of $1.7 million ($1.1 million, or $0.10 per
diluted share, after taxes) for fiscal 2004. Excludes cumulative effect of
accounting change, net of income taxes, of $24.2 million ($2.11 per
diluted share) for fiscal 2003. Excludes restructuring and related charges
of $15.9 million ($9.7 million, or $0.85 per diluted share, after taxes)
for fiscal 2003.
CULP, INC.
Reconciliation of Net Income (Loss) as Reported to Pro Forma Net Income
(Unaudited)
Three Months Ended Fiscal Year Ended
------------------------- --------------------------
May 2, April 27, May 2, April 27,
2004 2003 2004 2003
------------ ------------ ------------ -------------
Net income (loss), as reported $ 3,733,000 $ 3,272,000 $ 7,220,000 $(24,887,000)
Cumulative effect of
accounting change, net of
income taxes -- -- -- 24,151,000
Restructuring and related charges
(credits), net of income taxes (701,000) 601,000 (701,000) 9,714,000
Early extinguishment of debt,
net of income taxes -- -- 1,120,000 --
------------ ------------ ------------ -------------
Pro forma net income $ 3,032,000 $ 3,873,000 $ 7,639,000 $ 8,978,000
============ ============ ============ =============
Reconciliation of Net Income (Loss) Per Share as Reported
to Pro Forma Net Income Per Share
(Unaudited)
Diluted net income (loss) per
share $ 0.32 $ 0.28 $ 0.61 $ (2.17)
Cumulative effect of
accounting change, net of
income taxes -- -- -- 2.11
Restructuring and related charges
(credits), net of income taxes (0.06) 0.05 (0.06) 0.85
Early extinguishment of debt,
net of income taxes -- -- 0.10 --
Effect of dilutive stock options -- -- 0.00 (0.02)
------------ ------------ ------------ -------------
Diluted net income
per share, adjusted $ 0.26 $ 0.33 $ 0.65 $ 0.77
============ ============ ============ =============
Reconciliation of Cash Flow from Operations to Free Cash Flow
(Unaudited)
Fiscal Year Ended
-------------------------
May 2, April 27,
2004 2003
------------ ------------
Cash flow from operations $25,352,000 $31,129,000
Capital expenditures (5,976,000) (6,830,000)
Change in accounts payable-capital expenditures (3,932,000) (1,294,000)
------------ ------------
Free cash flow $15,444,000 $23,005,000
============ ============
Exhibit 99(b)
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE THREE MONTHS AND TWELVE MONTHS ENDED MAY 2, 2004 AND APRIL 27, 2003
(Amounts in Thousands, Except for Per Share Data)
THREE MONTHS ENDED (UNAUDITED)
-------------------------------------------------------------------------------
Amounts Percent of Sales
--------------------------- ------------------------------
May 2, April 27, % Over May 2, April 27,
2004 2003 (Under) 2004 2003
------------- ------------ --------------- ------------- --------------
Net sales $ 85,148 90,406 (5.8)% 100.0 % 100.0 %
Cost of sales 69,510 74,218 (6.3)% 81.6 % 82.1 %
------------- ------------ -------------- -------------- --------------
Gross profit 15,638 16,188 (3.4)% 18.4 % 17.9 %
Selling, general and
administrative expenses 9,925 10,324 (3.9)% 11.7 % 11.4 %
Restructuring credit (1,047) (25) N/A (1.2)% (0.0)%
------------- ------------ -------------- -------------- --------------
Income from operations 6,760 5,889 14.8 % 7.9 % 6.5 %
Interest expense 988 1,392 (29.0)% 1.2 % 1.5 %
Interest income (20) (182) (89.0)% (0.0)% (0.2)%
Other expense 220 160 37.5 % 0.3 % 0.2 %
------------- ------------ -------------- -------------- --------------
Income before income taxes 5,572 4,519 23.3 % 6.5 % 5.0 %
Income taxes* 1,839 1,247 47.5 % 33.0 % 27.6 %
------------- ------------ -------------- -------------- --------------
Net income $ 3,733 3,272 14.1 % 4.4 % 3.6 %
============= ============ ============== ============== ==============
Net income per share-basic $0.32 $0.28 14.3 %
Net income per share-diluted $0.32 $0.28 14.3 %
Net income per share, diluted,
excluding restructuring and related $0.26 $0.33 (21.2)%
charges (see proforma statement on page 6)
Average shares outstanding-basic 11,531 11,496 0.3 %
Average shares outstanding-diluted 11,815 11,616 1.7 %
TWELVE MONTHS ENDED (UNAUDITED)
-----------------------------------------------------------------------------
Amounts Percent of Sales
--------------------------- ------------------------------
May 2, April 27, % Over May 2, April 27,
2004 2003 (Under) 2004 2003
------------- ------------ --------------- -------------- -------------
Net sales $ 318,116 339,646 (6.3) % 100.0 % 100.0 %
Cost of sales 259,794 282,073 (7.9) % 81.7 % 83.0 %
------------- ------------ ----------- --- -------------- -------------
Gross profit 58,322 57,573 1.3 % 18.3 % 17.0 %
Selling, general and
administrative expenses 41,019 40,040 2.4 % 12.9 % 11.8 %
Restructuring (credit) expense (1,047) 12,981 (108.1) % (0.3)% 3.8 %
------------- ------------ ----------- --- -------------- -------------
Income from operations 18,350 4,552 303.1 % 5.8 % 1.3 %
Interest expense 5,528 6,636 (16.7) % 1.7 % 2.0 %
Interest income (376) (596) (36.9) % (0.1)% (0.2)%
Early extinguishment of debt 1,672 0 100.0 % 0.5 % 0.0 %
Other expense 750 805 (6.8) % 0.2 % 0.2 %
------------- ------------ ----------- --- -------------- -------------
Income (loss) before income taxes 10,776 (2,293) 570.0 % 3.4 % (0.7)%
Income taxes* 3,556 (1,557) 328.4 % 33.0 % 67.9 %
------------- ------------ ----------- --- -------------- -------------
Income (loss) before cumulative effect of
accounting change 7,220 (736) 1,081.0 % 2.3 % (0.2)%
============= ===========
Cumulative effect of accounting change, net of
income taxes 0 (24,151)
------------- ------------
Net income (loss) $ 7,220 (24,887)
============= ============
Basic income (loss) per share:
Income (loss) before cumulative effect of
accounting change $ 0.63 (0.06) 1,075.6 %
Cumulative effect of accounting change 0.00 (2.11) 100.0 %
------------- ------------ -----------
Net income (loss) $ 0.63 (2.17) 128.9 %
============= ============ ===========
Diluted income (loss) per share:
Income (loss) before cumulative effect of
accounting change $ 0.61 (0.06) 1,054.7 %
Cumulative effect of accounting change 0.00 (2.11) 100.0 %
------------- ------------ -----------
Net income (loss) $ 0.61 (2.17) 128.2 %
============= ============ ===========
Net income per share, diluted, excluding
restructuring and related charges and credits, $0.65 $0.77 (15.6) %
early extinguishment of debt and cumulative
effect of accounting change (see proforma
statement on page 7)
Average shares outstanding-basic 11,525 11,462 0.5 %
Average shares outstanding-diluted 11,777 11,462 2.7 %
* Percent of sales column for income taxes is calculated as a % of income (loss) before income taxes.
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED BALANCE SHEETS
MAY 2, 2004 AND APRIL 27, 2003
(unaudited)
(Amounts in Thousands)
Amounts Increase
------------------------------------ (Decrease)
May 2, 2004 April 27, 2003 --------------------------
2004 2003 Dollars Percent
---------------- ------------------ ---------- --------------
Current assets
Cash and cash equivalents $ 14,568 14,355 213 1.5 %
Short-term investments 0 10,043 (10,043) (100.0)%
Accounts receivable 30,719 32,259 (1,540) (4.8)%
Inventories 49,045 49,552 (507) (1.0)%
Deferred income taxes 9,256 12,303 (3,047) (24.8)%
Other current assets 1,634 3,204 (1,570) (49.0)%
---------------- ------------------ ---------- --------------
Total current assets 105,222 121,716 (16,494) (13.6)%
Property, plant & equipment, net 77,770 84,962 (7,192) (8.5)%
Goodwill 9,240 9,240 0 0.0 %
Other assets 1,496 2,235 (739) (33.1)%
---------------- ------------------ ---------- --------------
Total assets $ 193,728 218,153 (24,425) (11.2)%
================ ================== ========== ==============
Current liabilities
Current maturities of long-term debt $ 528 500 28 5.6 %
Accounts payable 15,323 19,874 (4,551) (22.9)%
Accrued expenses 13,028 14,071 (1,043) (7.4)%
Accrued restructuring 4,968 7,743 (2,775) (35.8)%
Income taxes payable 1,850 349 1,501 100.0 %
---------------- ------------------ ---------- ----------
Total current liabilities 35,697 42,537 (6,840) (16.1)%
Long-term debt 50,502 76,000 (25,498) (33.6)%
Deferred income taxes 4,138 3,851 287 7.5 %
---------------- ------------------ ---------- --------------
Total liabilities 90,337 122,388 (32,051) (26.2)%
Shareholders' equity 103,391 95,765 7,626 8.0 %
---------------- ------------------ ---------- --------------
Total liabilities and
shareholders' equity $ 193,728 218,153 (24,425) (11.2)%
================ ================== ========== ==============
Shares outstanding 11,547 11,515 32 0.3 %
================ ================== ========== ==============
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWELVE MONTHS ENDED MAY 2, 2004 AND APRIL 27, 2003
(unaudited)
(Amounts in Thousands)
TWELVE MONTHS ENDED
--------------------------
Amounts
--------------------------
May 2, April 27,
2004 2003
------------ ------------
Cash flows from operating activities:
Net income (loss) $ 7,220 (24,887)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Cumulative effect of accounting change, net of income taxes 0 24,151
Depreciation 13,642 13,990
Amortization of other assets 173 457
Stock-based compensation 210 210
Provision for deferred income taxes 3,334 (2,507)
Restructuring (credit) expense (1,047) 12,981
Changes in assets and liabilities:
Accounts receivable 1,540 11,107
Inventories 507 8,347
Other current assets 1,570 763
Other assets 607 366
Accounts payable (951) (8,558)
Accrued expenses (1,043) (2,126)
Accrued restructuring (1,911) (3,514)
Income taxes payable 1,501 349
------------ ------------
Net cash provided by operating activities 25,352 31,129
------------ ------------
Cash flows from investing activities:
Capital expenditures (5,976) (6,830)
Purchases of short-term investments 0 (10,043)
Proceeds from the sale of short-term investments 10,043 0
------------ ------------
Net cash provided by (used in) investing activities 4,067 (16,873)
------------ ------------
Cash flows from financing activities:
Payments on vendor-financed capital expenditures (3,932) (1,294)
Principal payments of long-term debt (25,470) (31,984)
Proceeds from common stock issued 196 1,384
------------ ------------
Net cash used in financing activities (29,206) (31,894)
------------ ------------
Increase (decrease) in cash and cash equivalents 213 (17,638)
Cash and cash equivalents at beginning of year 14,355 31,993
------------ ------------
Cash and cash equivalents at end of year $ 14,568 14,355
============ ============
Free Cash Flow (1) $ 15,444 23,005
============ ============
--------------------------------------------------------------------------------------------------
(1) Free Cash Flow reconciliation is as follows:
FY 2004 FY 2003
------------ ------------
A) Net cash provided by operating activities 25,352 31,129
B) Minus: Capital Expenditures (5,976) (6,830)
C) Minus: Payments on vendor-financed capital expenditures (3,932) (1,294)
------------ ------------
15,444 23,005
============ ============
--------------------------------------------------------------------------------------------------
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL ANALYSIS
MAY 2, 2004
FISCAL 03 FISCAL 04
-------------- ------------------------------------------------------------------------
Q4 Q1 Q2 Q3 Q4
-------------- ------------------------------------------------------------------------
INVENTORIES
Inventory turns 5.7 5.0 5.1 4.7 5.5
RECEIVABLES
Days sales in receivables 33 32 34 31 33
WORKING CAPITAL
Current ratio 2.9 3.1 2.9 2.6 2.9
Operating working capital turnover (1) 5.0 5.1 5.3 5.3 5.2
Operating working capital (1) $61,937 $54,854 $61,262 $62,492 $64,439
PROPERTY, PLANT & EQUIPMENT
Depreciation rate 6.3% 6.2% 6.3% 6.2% 6.1%
Percent property, plant &
equipment are depreciated 61.3% 62.3% 62.9% 64.0% 64.4%
Capital expenditures $12,229 (2) $1,781 $1,360 $1,101 $1,734
LEVERAGE
Total liabilities/equity 127.8% 124.7% 128.0% 94.9% 87.4%
Long-term debt/equity 79.9% 80.3% 77.7% 51.3% 49.4%
Long-term debt/capital employed (3) 44.4% 44.5% 43.7% 33.9% 33.0%
Long-term debt $76,500 $76,551 $76,616 $51,063 $51,030
OTHER
Book value per share $8.33 $8.28 $8.55 $8.63 $8.95
Employees at quarter end 2,463 2,383 2,373 2,350 2,319
Sales per employee (annualized) $144,421 $121,628 $139,161 $129,682 $145,895
Capital employed (3) $172,265 $171,891 $175,221 $150,530 $154,421
(1) Working capital for this calculation is accounts receivable, inventories and accounts payable
(2) Expenditures for entire year
(3) Capital employed represents long-term debt plus stockholders equity; Long-term debt is long-term debt plus current
maturities of long-term debt.
CULP, INC. FINANCIAL INFORMATION RELEASE
SALES / GROSS PROFIT BY SEGMENT/DIVISION
FOR THE THREE AND TWELVE MONTHS ENDED MAY 2, 2004 AND APRIL 27, 2003
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
------------------------------------------------------------------------
Amounts Percent of Total Sales
-------------------- --------------------------------
May 2, April 27, % Over May 2, April 27,
Segment/Division Sales (1) 2004 2003 (Under) 2004 2003
------------------------------------------------- -------- --------- ----------- ------------- ---------------
Upholstery Fabrics
Culp Decorative Fabrics $ 31,511 37,006 (14.8) % 37.0 % 40.9 %
Culp Velvets/Prints 25,429 26,772 (5.0) % 29.9 % 29.6 %
Culp Yarn 1,008 1,757 (42.6) % 1.2 % 1.9 %
-------- --------- ----------- ------------- ---------------
57,948 65,535 (11.6) % 68.1 % 72.5 %
Mattress Ticking
Culp Home Fashions 27,200 24,871 9.4 % 31.9 % 27.5 %
-------- --------- ----------- ------------- ---------------
$ 85,148 90,406 (5.8) % 100.0 % 100.0 %
======== ========= =========== ============= ===============
Segment Gross Profit Gross Profit Margin
------------------------------------------------- --------------------------------
Upholstery Fabrics $ 9,755 10,999 (11.3) % 16.8 % 16.8 %
Restructuring related charges 0 1,008 (100.0) % 0.0 % 1.5 %
-------- --------- ----------- ------------- ---------------
Pro forma Upholstery Fabrics gross profit (2) 9,755 12,007 (18.8) % 16.8 % 18.3 %
Mattress Ticking 5,883 5,189 13.4 % 21.6 % 20.9 %
-------- --------- ----------- ------------- ---------------
Pro forma gross profit $ 15,638 17,196 (9.1) % 18.4 % 19.0 %
======== ========= =========== ============= ===============
TWELVE MONTHS ENDED (UNAUDITED)
------------------------------------------------------------------------
Amounts Percent of Total Sales
-------------------- --------------------------------
May 2, April 27, % Over May 2, April 27,
Segment/Division Sales (1) 2004 2003 (Under) 2004 2003
------------------------------------------------- -------- --------- ----------- ------------- ---------------
Upholstery Fabrics
Culp Decorative Fabrics $ 119,514 137,479 (13.1) % 37.6 % 40.5 %
Culp Velvets/Prints 87,522 96,049 (8.9) % 27.5 % 28.3 %
Culp Yarn 4,758 6,459 (26.3) % 1.5 % 1.9 %
-------- --------- ----------- ------------- ---------------
211,794 239,987 (11.7) % 66.6 % 70.7 %
Mattress Ticking
Culp Home Fashions 106,322 99,659 6.7 % 33.4 % 29.3 %
-------- --------- ----------- ------------- ---------------
$ 318,116 339,646 (6.3) % 100.0 % 100.0 %
======== ========= =========== ============= ===============
Segment Gross Profit Gross Profit Margin
------------------------------------------------- --------------------------------
Upholstery Fabrics $ 34,946 34,737 0.6 % 16.5 % 14.5 %
Restructuring related charges 0 2,918 (100.0) % 0.0 % 1.2 %
-------- --------- ----------- ------------- ---------------
Pro forma Upholstery Fabrics gross profit (2) 34,946 37,655 (7.2) % 16.5 % 15.7 %
Mattress Ticking 23,376 22,836 2.4 % 22.0 % 22.9 %
-------- --------- ----------- ------------- ---------------
Pro forma gross profit $ 58,322 60,491 (3.6) % 18.3 % 17.8 %
======== ========= =========== ============= ===============
(1) International Sales and portion of total sales is: Q4 - $9.3 million FY04 (11.0%) & $10.1 million FY03 (11.2%);
YTD - $35.4 million FY04 (11.1%) & $39.9 million FY03 (11.8%)
(2) Pro forma includes $1.0 and $2.9 million of restructuring related charges from the shut down of the Chattanooga operation
for the three and twelve month period of fiscal 2003, respectively.
CULP, INC.
PROFORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MAY 2, 2004 AND APRIL 27, 2003
(Amounts in Thousands, Except for Per Share Data)
THREE MONTHS ENDED
-------------------------------------------------------------------
As Reported May 2, 2004
May 2, % of % of Proforma Net % of
2004 Sales Adjustments Sales of Adjustments Sales
----------- -------- -------- ------- --------- --------
Net sales $ 85,148 100.0% 0 85,148 100.0%
Cost of sales 69,510 81.6% 0 0.0% 69,510 81.6%
----------- -------- -------- ------- --------- --------
Gross profit 15,638 18.4% 0 0.0% 15,638 18.4%
Selling, general and
administrative expenses 9,925 11.7% 0 0.0% 9,925 11.7%
Restructuring credit (1,047) -1.2% 1,047 1.2% (2) 0 0.0%
----------- -------- -------- ------- --------- --------
Income from operations 6,760 7.9% 1,047 1.2% 5,713 6.7%
Interest expense 988 1.2% 0 0.0% 988 1.2%
Interest income (20) 0.0% 0 0.0% (20) 0.0%
Other expense 220 0.3% 0 0.0% 220 0.3%
----------- -------- -------- ------- --------- --------
Income before income taxes 5,572 6.5% 1,047 1.2% 4,525 5.3%
Income taxes (1) 1,839 33.0% 346 33.0% 1,493 33.0%
----------- -------- -------- ------- --------- --------
Net income (loss) $ 3,733 4.4% 701 0.8% 3,032 3.6%
=========== ======== ======== ======= ========= ========
Net income (loss) per share-basic $0.32 $0.06 $0.26
Net income (loss) per share-diluted $0.32 $0.06 $0.26
Average shares outstanding-basic 11,531 11,531 11,531
Average shares outstanding-diluted 11,815 11,815 11,815
CULP, INC.
PROFORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MAY 2, 2004 AND APRIL 27, 2003
(Amounts in Thousands, Except for Per Share Data)
THREE MONTHS ENDED
-------------------------------------------------------------------------------------
As Reported April 27, 2003 Proforma
April 27, % of % of Proforma Net % of % Over
2003 Sales Adjustments Sales of Adjustments Sales (Under)
------------ -------- ------------- ------ --------------- ------- ---------
Net sales $ 90,406 100.0% 0 90,406 100.0% -5.8%
Cost of sales 74,218 82.1% (1,008) -1.1% (3) 73,210 81.0% -5.1%
------------ --------- ------------ ------ --------------- ------- ---------
Gross profit 16,188 17.9% (1,008) -1.1% 17,196 19.0% -9.1%
Selling, general and
administrative expenses 10,324 11.4% 0 0.0% 10,324 11.4% -3.9%
Restructuring credit (25) 0.0% 25 0.0% (4) 0 0.0% 0.0%
------------ ---------- ----------- ------ --------------- ------- ---------
Income from operations 5,889 6.5% (983) -1.1% 6,872 7.6% -16.9%
Interest expense 1,392 1.5% 0 0.0% 1,392 1.5% -29.0%
Interest income (182) -0.2% 0 0.0% (182) -0.2% -89.0%
Other expense 160 0.2% 0 0.0% 160 0.2% 37.5%
------------ ---------- ----------- ------ --------------- ------- ---------
Income before income taxes 4,519 5.0% (983) -1.1% 5,502 6.1% -17.8%
Income taxes (1) 1,247 27.6% (382) 38.9% 1,629 29.6% -8.3%
------------ ---------- ----------- ------ --------------- ------- ---------
Net income (loss) $ 3,272 3.6% (601) -0.7% 3,873 4.3% -21.7%
============ ========== =========== ====== =============== ======= =========
Net income (loss) per share-basic $0.28 ($0.05) $0.34
Net income (loss) per share-diluted $0.28 ($0.05) $0.33
Average shares outstanding-basic 11,496 11,496 11,496
Average shares outstanding-diluted 11,616 11,496 11,616
Notes:
(1) The percent of net sales column for income taxes is calculated as a % of income (loss) before income taxes.
(2) The $1.0 million restructuring credit represents adjustment of accrued employee benefit and other plant closing costs related
to the shutdown of the Chattanooga and Lumberton operations.
(3) The $1.0 million represents restructuring related charges for inventory markdowns and movement of equipment related to the
Chattanooga plant closing.
(4) The net $25,000 credit represents the sale of manufacturing equipment that was previously written off to restructuring due
to the Chattanooga plant closing.
CULP, INC.
PROFORMA CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE TWELVE MONTHS ENDED MAY 2, 2004 AND APRIL 27, 2003
(Amounts in Thousands, Except for Per Share Data)
TWELVE MONTHS ENDED (UNAUDITED)
-------------------------------------------------------------------------
As Reported May 2, 2004
May 2, % of % of Proforma Net % of
2004 Sales Adjustments Sales of Adjustments Sales
------------- -------- ---------- ------- -------------- --------
Net sales $ 318,116 100.0% 0 318,116 100.0%
Cost of sales 259,794 81.7% 0 0.0% 259,794 81.7%
------------- -------- ---------- ------- -------------- --------
Gross profit 58,322 18.3% 0 0.0% 58,322 18.3%
Selling, general and
administrative expenses 41,019 12.9% 0 0.0% 41,019 12.9%
Restructuring credit (1,047) -0.3% 1,047 0.3% (2) 0 0.0%
------------- -------- ---------- ------- -------------- --------
Income (loss) from operations 18,350 5.8% 1,047 0.3% 17,303 5.4%
Interest expense 5,528 1.7% 0 0.0% 5,528 1.7%
Interest income (376) -0.1% 0 0.0% (376) -0.1%
Early extinguishment of debt 1,672 0.5% (1,672) 0.0% (3) 0 0.0%
Other expense 750 0.2% 0 0.0% 750 0.2%
------------- -------- ---------- ------- -------------- --------
Income (loss) before income taxes 10,776 3.4% (625) -0.2% 11,401 3.6%
Income taxes (1) 3,556 33.0% (206) 33.0% 3,762 33.0%
------------- -------- ---------- ------- -------------- --------
Income (loss) before cumulative effect of
accounting change 7,220 2.3% (419) -0.1% 7,639 2.4%
------------- -------- ========== ======= ============== ========
Cumulative effect of accounting change,
net of income taxes 0 0
------------- ---------- --------------
Net income (loss) $ 7,220 (419) 7,639
============= ========== ==============
Basic income (loss) per share:
Income (loss) before cumulative effect
of accounting change $ 0.63 (0.04) 0.66
Cumulative effect of accounting change 0.00 0.00 0.00
------------- ---------- --------------
Net income (loss) 0.63 (0.04) 0.66
============= ========== ==============
Diluted income (loss) per share:
Income (loss) before cumulative effect
of accounting change $ 0.61 (0.04) 0.65
Cumulative effect of accounting change 0.00 0.00 0.00
------------- ---------- --------------
Net income (loss) 0.61 (0.04) 0.65
============= ========== ==============
Average shares outstanding-basic 11,525 11,525 11,525
Average shares outstanding-diluted 11,777 11,525 11,777
CULP, INC.
PROFORMA CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE TWELVE MONTHS ENDED MAY 2, 2004 AND APRIL 27, 2003
(Amounts in Thousands, Except for Per Share Data)
TWELVE MONTHS ENDED (UNAUDITED)
------------------------------------------------------------------------------
As Reported April 27, 2003 Proforma
April 27, % of % of Proforma Net % of % Over
2003 Sales Adjustments Sales of Adjustments Sales (Under)
----------- -------- ------------- ------ -------------- ------- ---------
Net sales $ 339,646 100.0% 0 339,646 100.0% -6.3%
Cost of sales 282,073 83.0% (2,918) -0.9% (4) 279,155 82.2% -6.9%
----------- -------- ------------- ------ -------------- ------- ---------
Gross profit 57,573 17.0% (2,918) -0.9% 60,491 17.8% -3.6%
Selling, general and
administrative expenses 40,040 11.8% 0 0.0% 40,040 11.8% 2.4%
Restructuring expense 12,981 3.8% (12,981) -3.8% (5) 0 0.0% 0.0%
----------- -------- ------------- ------ -------------- ------- ---------
Income (loss) from operations 4,552 1.3% (15,899) -4.7% 20,451 6.0% -15.4%
Interest expense 6,636 2.0% 0 0.0% 6,636 2.0% -16.7%
Interest income (596) -0.2% 0 0.0% (596) -0.2% -36.9%
Early extinguishment of debt 0 0.0% 0 0.0% 0 0.0% 0.0%
Other expense 805 0.2% 0 0.0% 805 0.2% -6.8%
----------- -------- ------------- ------ -------------- ------- ---------
Income (loss) before income taxes (2,293) -0.7% (15,899) -4.7% 13,606 4.0% -16.2%
Income taxes (1) (1,557) 67.9% (6,185) 38.9% 4,628 34.0% -18.7%
----------- -------- ------------- ------ -------------- ------- ---------
Income (loss) before cumulative effect of
accounting change $ (736) -0.2% (9,714) -2.9% 8,978 2.6% -14.9%
----------- -------- ------------- ------ -------------- ------- ---------
Cumulative effect of accounting change,
net of income taxes (24,151) (24,151) 0
----------- ------------- --------------
Net income (loss) (24,887) (33,865) 8,978
=========== ============= ==============
Basic income (loss) per share:
Income (loss) before cumulative effect
of accounting change $ (0.06) ($0.85) 0.78
Cumulative effect of accounting change (2.11) 2.11 0.00
-----------
--------------
Net income (loss) (2.17) $0.78
=========== ==============
Diluted income (loss) per share:
Income (loss) before cumulative effect
of accounting change $ (0.06) (0.85) 0.77
Cumulative effect of accounting change (2.11) 2.11 0.00
-----------
Net income (loss) (2.17) $0.77
=========== ==============
Average shares outstanding-basic 11,462 11,462 11,462
Average shares outstanding-diluted 11,462 11,462 11,712
Notes:
(1) The percent of net sales column for income taxes is calculated as a % of income (loss) before income taxes.
(2) The $1.0 million restructuring credit represents adjustment of accrued employee benefit and other plant closing costs related
to the shutdown of the Chattanooga and Lumberton operations.
(3) The $1.7 million charge represents premium and fees paid to reduce the private placement loan balance.
(4) The $2.9 million represents restructuring related charges for inventory markdowns and movement of equipment relating to the
Chattanooga plant closing.
(5) The $13.0 million represents restructuring charges for the shut down of the Chattanooga operation, $12.1 million, and the
additional write-down of wet printed assets held for sale, $1.3 million, offset by a restructuring credit of $354,000 for
over accrued employee benefit and plant security costs.
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three and twelve months ended May 2, 2004 and April 27, 2003
OVERVIEW
Highlights for the fourth quarter and fiscal year ended May 2, 2004, include:
Gross profit margin of 18.4% for the quarter and 18.3% for the fiscal year
Mattress ticking sales up 9.4% for the quarter and nearly 7.0% for the
fiscal year
Debt-to-capital ratio reduced to 33.0%, the lowest level for Culp since
fiscal 1993
Free cash flow of $15.4 million for the fiscal year
GENERAL -- For the fourth quarter of fiscal 2004, net sales decreased 5.8% to
$85.1 million; and the company reported net income of $3.7 million, or $0.32 per
share diluted, compared with net income of $3.3 million, or $0.28 per share
diluted, in the fourth quarter of fiscal 2003. Excluding restructuring credits,
earnings for the fourth quarter of fiscal 2004 were $3.0 million, or $0.26 per
share diluted, versus net income of $3.9 million, or $0.33 per share diluted, in
the fourth quarter of fiscal 2003. For fiscal 2004 as a whole, net sales
decreased 6.3% to $318.1 million; and the company reported net income of $7.2
million, or $0.61 per share diluted, versus a net loss before cumulative effect
of accounting change of $736,000, or $0.06 per share diluted, a year ago.
Including the cumulative effect of accounting change, the company reported a
loss of $2.17 per share for fiscal 2003. Excluding restructuring credits and
charges for early extinguishment of debt, net income for fiscal 2004 was $7.6
million, or $0.65 per share diluted, versus $9.0 million, or $0.77 per share
diluted, for fiscal 2003.
INCOME STATEMENT COMMENTS
UPHOLSTERY FABRICS SEGMENT (See page 5 - Sales and Gross Profit by Segment)
Net Sales -- Upholstery fabric sales for the fourth quarter of fiscal 2004
decreased 11.6% to $57.9 million when compared to the fourth quarter of fiscal
2003, primarily reflecting a decline in orders in the Culp Decorative Fabrics
(CDF) division related to consumer preference for leather and competition from
imported fabrics, including cut and sewn kits.
With the company's offshore sourcing efforts, including the China platform, the
company is experiencing higher sales of upholstery fabric products produced
outside of the company's U.S. manufacturing plants. These sales, which include
microdenier suedes, accounted for approximately 10.7% of upholstery fabric sales
for the fourth quarter of fiscal 2004, more than double the percentage from the
year earlier quarter.
Upholstery fabric yards sold during the fourth quarter were 13.3 million versus
16.0 million in the fourth quarter of fiscal 2003, a decline of 16.9%. Average
selling price was $4.23 per yard for the fourth quarter compared with $3.98 per
yard in the same quarter of last year, an increase of 6.3%, due primarily to
higher average selling prices in the Culp Decorative Fabrics division.
Gross Profit -- Gross profit for the fourth quarter of fiscal 2004 was $9.8
million, or 16.8% margin, versus $11.0 million, or 16.8% margin, for the same
quarter of last year. Excluding restructuring related charges of $1.0 million,
which were included in cost of sales in last year's fourth quarter, gross profit
dollars and margins were $12.0 million and 18.3%, respectively. The decrease in
gross profit and margins primarily reflects lower sales volume within CDF,
coupled with lower capacity utilization.
China Operations -- During the fourth quarter of fiscal 2004, the company
began incoming fabric inspection and testing, and started shipping fabric to
customers. Finishing operations also began in the fourth quarter of this fiscal
year. As expected, the company experienced modest operating losses in its China
operation during the current fiscal year.
MATTRESS TICKING SEGMENT (See page 5 - Sales and Gross Profit by Segment)
Net Sales -- Mattress ticking sales for the fourth quarter of fiscal 2004
increased 9.4% to $27.2 million, due to better industry demand and continued
gains with key customers. The 6.7% fiscal year sales gain in this segment is
especially noteworthy because it occurred during the bedding industry's
transition to selling predominantly one-sided mattresses, which utilize about
one-third less mattress ticking. This transition at retail began in late
calendar year 2002 and is expected to continue through early calendar year 2005.
Mattress ticking yards sold during the fourth quarter of fiscal 2004 were 11.6
million compared with 10.1 million yards in the fourth quarter of last year. The
average selling price was $2.33 per yard for the fourth quarter, compared to
$2.45 per yard in the same quarter last year.
Gross Profit -- For the fourth quarter of fiscal 2004, the mattress ticking
segment reported gross profit dollars and margins of $5.9 million and 21.6%,
respectively, compared with $5.2 million and 20.9% for the same period of last
year. The loss in margin due to a lower average selling price was more than
offset by improved operating efficiencies and lower fixed costs.
SG&A EXPENSES -- SG&A expenses of $9.9 million for the fourth quarter
decreased approximately $399,000, or 3.9%, from the prior year amount. As a
percent of net sales, SG&A expenses increased slightly to 11.7% from 11.4% the
previous year, due to higher professional fees and lower sales.
INTEREST EXPENSE AND INTEREST INCOME -- Interest expense for the fourth
quarter declined to $988,000 from $1.4 million the previous year due to lower
borrowings outstanding. Interest income decreased to $20,000 from $182,000 the
previous year due to lower interest rates earned in fiscal 2004 and lower
invested balances.
INCOME TAXES -- The effective tax rate (taxes as a percentage of pretax
income (loss)) for fiscal 2004 was 33.0% compared with 67.9% for fiscal 2003.
The higher rate for the prior period reflects the increased tax benefits related
to the company's loss in the U.S. resulting from the restructuring charges
recorded in the second quarter of fiscal 2003. Excluding the cumulative effect
of accounting change and restructuring and related charges, the effective tax
rate for fiscal 2003 was 34.0%.
BALANCE SHEET COMMENTS
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS - Cash, cash equivalents
and short-term investments as of May 2, 2004 decreased to $14.6 million from
$24.4 million at the end of fiscal 2003, reflecting free cash flow of $15.4
million for fiscal 2004, and the $25 million prepayment of the company's $75
million outstanding senior notes (see additional discussion of free cash flow
and debt below).
WORKING CAPITAL -- Accounts receivable as of May 2, 2004 decreased 4.8%
from the year-earlier level, principally due to lower sales volume. Days sales
outstanding totaled 33 days at May 2, 2004, the same as for the same period last
fiscal year. Inventories at the close of the fourth quarter decreased 1.0% from
a year ago. Inventory turns for the fourth quarter were 5.5 versus 5.7 for the
year-earlier period. Operating working capital (comprised of accounts
receivable, inventories and trade accounts payable) was $64.4 million at May 2,
2004, up from $61.9 million a year ago.
PROPERTY, PLANT AND EQUIPMENT -- Capital spending for fiscal 2004 was $6.7
million, including approximately $3.0 million for manufacturing equipment and
leasehold improvements related to the China operation. This compares with
capital spending of $12.2 million in fiscal 2003. Depreciation was $13.6 million
compared to $14.0 million for fiscal 2003. For fiscal 2005, the company
anticipates capital expenditures to be approximately $9.0 million, and expects
depreciation to be comparable to fiscal 2004.
INTANGIBLE ASSETS -- As of May 2, 2004, $9.2 million in goodwill is the
company's only intangible asset. As of April 29, 2002, the company adopted SFAS
No. 142 and recognized an impairment charge of $37.6 million ($24.2 million net
of taxes of $13.4 million) during the first quarter of fiscal 2003. The
remaining goodwill is comprised of $4.1 million related to the mattress ticking
segment, and $5.1 million related to CDF, which is part of the upholstery
fabrics segment.
LONG-TERM DEBT -- The company's long-term debt of $51.0 million is
unsecured and is comprised of $50.0 million in outstanding senior notes, with a
fixed interest rate of 7.76%, and a $1.0 million, non-interest bearing term loan
with the Canadian government. Additionally, the company has a $15.0 million
revolving credit line with a bank, of which no balance is outstanding at May 2,
2004. The bank agreement expires in August 2004. The first scheduled principal
payment on the $50 million term loan is due March 2006 in the amount of $7.5
million. The Canadian government loan is repaid in annual installments of
approximately $500,000 per year. The company was in compliance with all
financial covenants in its loan agreements as of May 2, 2004.
FREE CASH FLOW COMMENTS
Free cash flow (see reconciliation on page 3 of this release) was $15.4
million for fiscal 2004, compared with $23.0 million for the same period last
year. This decrease is primarily due to less cash flow generated from working
capital and higher payments on vendor-financed capital expenditures.
BUSINESS OUTLOOK
The first quarter of fiscal 2005 will include 13 weeks versus 14 weeks for
the same quarter last year. The first quarter of the company's fiscal year,
which includes the summer months, is typically the slowest period for Culp and
the furniture industry due to scheduled plant vacation shutdowns. The company is
experiencing a definite slowdown in orders as a result of weaker retail activity
throughout the furniture industry. Given these factors, the company expects that
first quarter consolidated sales, as compared to the same quarter last year,
will decrease more than the 5.8% experienced in the fourth quarter of fiscal
2004. Mattress ticking segment sales are expected to approximate the sales in
the same quarter of last year. Upholstery fabric segment sales are expected to
decline from the same quarter of last year more than the 11.6% experienced in
the fourth quarter of fiscal 2004, due primarily to softness in incoming orders
for CDF.
Based on these sales expectations and the lower gross profit in the upholstery
fabrics segment, and considering the seasonal slowdown and industry conditions,
the company expects to report a net loss in the range of $0.08 to $0.13 per
diluted share for the first quarter of fiscal 2005, with actual results
primarily depending upon the level of demand throughout the quarter.
Management remains optimistic that upholstery fabric sales will start to pick up
in the fall, as is seasonally typical in the furniture industry. However, if
sales continue to be under pressure in the upholstery fabrics segment,
management is prepared to take the necessary actions to adjust the company's
cost structure and rationalize capacity, as has been demonstrated in recent
years. Management believes that the continued strength in the mattress ticking
business, the focused efforts to develop offshore sourcing initiatives and
proven ability to generate free cash flow are fundamental competitive advantages
for Culp.