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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
-------------
Date of Report (Date of earliest event reported) August 22, 2001
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)
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Item 5. Other Events
See attached Press Release (2 pages) and Financial Information Release (9
pages), both dated August 22, 2001, related to the fiscal 2002 first quarter
ended July 29, 2001.
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: August 22, 2001
FOR IMMEDIATE RELEASE
CULP REPORTS FIRST QUARTER RESULTS INCLUDING RESTRUCTURING CHARGE
----------------------
CONTINUES TO EXPECT FULL-YEAR PROFIT
EXCLUDING RESTRUCTURING AND RELATED CHARGES
HIGH POINT, N. C. (Aug. 22, 2001) -- As anticipated, Culp, Inc. (NYSE: CFI)
today reported a loss for its first quarter of fiscal 2002 due to the
industry-wide slowdown in demand in the home furnishings industry and charges
from the company's announced actions to reduce costs and increase efficiency.
The company indicated that excluding restructuring and related charges, the
loss for the first quarter of fiscal 2002 was $1.4 million, or $0.12 per share
diluted, compared with a year-earlier loss of $1.8 million, or $0.16 per
share. Culp indicated that it continues to expect to operate profitably for
fiscal 2002 as a whole, excluding restructuring and related charges.
For the three months ended July 29, 2001, Culp reported net sales of
$86.5 million compared with $101.9 million a year ago. Including
restructuring costs, the company reported a net loss for the first quarter of
fiscal 2002 of $2.9 million, or $0.26 per share diluted.
Robert G. Culp, III, chief executive officer, commented, "As we had
earlier indicated, sales for the first fiscal quarter, which is not a
seasonally strong period for our business, were below the year-earlier level
of $101.9 million. We are benefiting from the restructuring plan and other
actions we have taken to reduce costs and were able to reduce our loss for the
quarter, excluding restructuring and related charges, versus a year ago in
spite of the 15.1% decline in sales. Based on current trends, we expect to
report higher earnings in the second quarter versus the $0.03 per share
diluted in the year-earlier period and remain optimistic about operating
profitably for fiscal 2002 as a whole, excluding restructuring and related
charges.
"The basic goals of the restructuring initiative that is nearing
completion are to increase manufacturing utilization, raise productivity and
lower operating expenses. The restructuring plan involves phasing out certain
fabric manufacturing facilities, closing one of our four yarn manufacturing
plants and reducing selling, general and administrative expenses. Our target
is now to achieve annualized cost reductions of at least $14 million when the
benefits of this program are fully realized. Culp now has a sound footprint
of efficient, world-class facilities utilizing state-of-the-art equipment that
positions us well to meet the demands by manufacturers for even shorter lead
times, consistently reliable delivery schedules and appealing designs."
Culp added, "We are encouraged by the positive momentum in market share
that is being generated by the successful new designs that we are
introducing. Placements of our fabrics by U.S. manufacturers of residential
furniture over the last several markets have been gratifying; and as a result,
we are seeing a firming in incoming orders from this portion of our business
as well as in mattress ticking. Some of this improvement is being offset,
however, by continued weakness in our international sales. The high value of
the dollar relative to other currencies is making it very difficult for Culp
and other U.S.-based manufacturers to compete profitably in the major markets
outside the United States and Canada.
"We generated $4.4 million in cash from operations during the first
quarter that allowed us to continue strengthening our balance sheet. Our debt
of $110.7 million at the close of the quarter was down $26.2 million, or 19%,
from a year ago; and our debt/capital ratio of 48% was at its lowest level
since July 1997. Our capital expenditures for fiscal 2002 remain targeted at
approximately $4 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
--------------------------------
July 29, July 30,
2001 2000
--------------- --------------
Net sales $ 86,463,000 $ 101,878,000
Net (loss) $ (2,882,000) $ (1,756,000)
Net (loss) per share:
Basic $ (0.26) $ (0.16)
Diluted $ (0.26) $ (0.16)
Net (loss) per diluted share, excluding
restructuring and related charges* $ (0.12) $ (0.16)
Average shares outstanding:
Basic 11,221,000 11,209,000
Diluted 11,221,000 11,209,000
* Excludes restructuring and related charges for the three months ended July
29, 2001 of $2.3 million ($1.5 million, or $0.14 per share diluted after
taxes).
-END-
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED STATEMENTS OF LOSS
FOR THE THREE MONTHS ENDED JULY 29, 2001 AND JULY 30, 2000
(Amounts in Thousands, Except for Per Share Data)
THREE MONTHS ENDED (UNAUDITED)
--------------------------------------------------------------------
Amounts Percent of Sales
------------------------- -------------------------
July 29, July 30, % Over
2001 2000 (Under) 2002 2001
----------- ------------ ----------- ----------- ------------
Net sales $ 86,463 101,878 (15.1)% 100.0 % 100.0 %
Cost of sales 75,674 87,704 (13.7)% 87.5 % 86.1 %
----------- ------------ ----------- ----------- ------------
Gross profit 10,789 14,174 (23.9)% 12.5 % 13.9 %
Selling, general and
administrative expenses 11,235 13,778 (18.5)% 13.0 % 13.5 %
Restructuring expense 1,303 0 100.0 % 1.5 % 0.0 %
----------- ------------ ----------- ----------- ------------
Income (loss) from operations (1,749) 396 (541.7)% (2.0)% 0.4 %
Interest expense 2,068 2,323 (11.0)% 2.4 % 2.3 %
Interest income (23) (7) 228.6 % (0.0)% (0.0)%
Other expense (income), net 572 741 (22.8)% 0.7 % 0.7 %
----------- ------------ ----------- ----------- ------------
Loss before income taxes (4,366) (2,661) (64.1)% (5.0)% (2.6)%
Income taxes * (1,484) (905) (64.0)% 34.0 % 34.0 %
----------- ------------ ----------- ----------- ------------
Net loss $ (2,882) (1,756) (64.1)% (3.3)% (1.7)%
=========== ============ =========== =========== ============
Net loss per share ($0.26) ($0.16) (62.5)%
Net loss per share, assuming dilution ($0.26) ($0.16) (62.5)%
Net loss per share, excluding restructuring
and related charges ** ($0.12) ($0.16) 25.0 %
Dividends per share $0.0 $0.035 (100.0)%
Average shares outstanding 11,221 11,209 0.1 %
Average shares outstanding, assuming dilution 11,221 11,209 0.1 %
* Percent of sales column is calculated as a % of loss before income taxes.
** Excludes restructuring and related charges in 2002 of $2.3 million ($1.5
million or $0.14 per share diluted, after taxes)
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED BALANCE SHEETS
JULY 29, 2001, JULY 30, 2000, AND APRIL 29, 2001
Unaudited
(Amounts in Thousands)
Amounts Increase
--------------------------------- (Decrease)
July 29, July 30, ---------------------------- *April 29,
2001 2000 Dollars Percent 2001
---------------- ------------- ------------- ----------- ---------
Current assets
Cash and cash investments $ 549 1,654 (1,105) (66.8) % 1,207
Accounts receivable 52,353 58,851 (6,498) (11.0) % 57,849
Inventories 59,006 74,600 (15,594) (20.9) % 59,997
Other current assets 9,893 11,565 (1,672) (14.5) % 7,856
---------------- ------------- ------------- ----------- ---------
Total current assets 121,801 146,670 (24,869) (17.0) % 126,909
Property, plant & equipment, net 109,417 123,636 (14,219) (11.5) % 112,322
Goodwill 48,129 49,525 (1,396) (2.8) % 48,478
Other assets 1,711 6,652 (4,941) (74.3) % 1,871
---------------- ------------- ------------- ----------- ---------
Total assets $ 281,058 326,483 (45,425) (13.9) % 289,580
================ ============= ============= =========== =========
Current liabilities
Current maturities of long-term debt $ 2,130 1,678 452 26.9 % 2,488
Accounts payable 24,773 24,942 (169) (0.7) % 27,371
Accrued expenses 16,494 19,762 (3,268) (16.5) % 17,153
Income taxes payable 0 0 0 0.0 % 1,268
---------------- ------------- ------------- ----------- ---------
Total current liabilities 43,397 46,382 (2,985) (6.4) % 48,280
Long-term debt 108,522 135,150 (26,628) (19.7) % 109,168
Deferred income taxes 10,330 17,459 (7,129) (40.8) % 10,330
---------------- ------------- ------------- ----------- ---------
Total liabilities 162,249 198,991 (36,742) (18.5) % 167,778
Shareholders' equity 118,809 127,492 (8,683) (6.8) % 121,802
---------------- ------------- ------------- ----------- ---------
Total liabilities and
shareholders' equity $ 281,058 326,483 (45,425) (13.9) % 289,580
================ ============= ============= =========== =========
Shares outstanding 11,221 11,209 12 0.1 % 11,221
================ ============= ============= =========== =========
* Derived from audited financial statements.
CULP, INC.
FINANCIAL INFORMATION RELEASE
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JULY 29, 2001 AND JULY 30, 2000
Unaudited
(Amounts in Thousands)
THREE MONTHS ENDED
-------------------------
Amounts
-------------------------
July 29, July 30,
2001 2000
------------ ------------
Cash flows from operating activities:
Net loss $ (2,882) (1,756)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 4,473 5,060
Amortization of intangible assets 393 399
Amortization of deferred compensation (13) 63
Restructuring expense 1,303 0
Changes in assets and liabilities:
Accounts receivable 5,496 16,372
Inventories 991 (129)
Other current assets (1,987) (1,216)
Other assets (3) 147
Accounts payable (123) (6,886)
Accrued expenses (1,957) (2,409)
Income taxes payable (1,268) 0
------------ ------------
Net cash provided by operating activities 4,423 9,645
------------ ------------
Cash flows from investing activities:
Capital expenditures (1,602) (2,289)
Purchase of investments to fund deferred compensation liability 0 (200)
------------ ------------
Net cash used in investing activities (1,602) (2,489)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 16 0
Principal payments on long-term debt (1,020) (658)
Change in accounts payable-capital expenditures (2,475) (5,459)
Dividends paid 0 (392)
------------ ------------
Net cash used in financing activities (3,479) (6,509)
------------ ------------
Increase (decrease) in cash and cash investments (658) 647
Cash and cash investments at beginning of period 1,207 1,007
------------ ------------
Cash and cash investments at end of period $ 549 1,654
============ ============
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL ANALYSIS
JULY 29, 2001
FISCAL 01 FISCAL 02
------------- ------------------------------------------------------- --------------
Q1 Q1 Q2 Q3 Q4 LTM (4)
------------- ------------------------------------------------------- --------------
INVENTORIES
Inventory turns 4.7 5.1
RECEIVABLES
Days sales in receivables 49 51
Percent current & less
than 30 days past due 91.5% 91.9%
WORKING CAPITAL
Current ratio 3.2 2.8
Working capital turnover (3) 4.3 4.1
Operating working capital (3) $108,509 $86,586
PROPERTY, PLANT & EQUIPMENT
Depreciation rate 8.0% 7.2%
Percent property, plant &
equipment are depreciated 51.1% 56.2%
Capital expenditures $8,050 (1) $1,602
PROFITABILITY
Return on average total capital (0.3%) (2.7%) (1.5%)
Return on average equity (5.5%) (9.6%) (7.6%)
Net loss per share ($0.16) ($0.26) ($0.84)
Net loss per share (diluted) ($0.16) ($0.26) ($0.84)
Net loss per share, excluding
restructuring and related charges (6) ($0.16) ($0.12) ($0.27)
LEVERAGE
Total liabilities/equity 156.1% 136.6%
Funded debt/equity 107.3% 93.1%
Funded debt/capital employed 51.8% 48.2%
Funded debt $136,828 $110,652
Funded debt/EBITDA (LTM) (5) 3.44 4.26
OTHER
Book value per share $11.37 $10.59
Employees at quarter end 3,722 3,018
Sales per employee (annualized) $108,000 $113,000
Capital employed $264,320 $229,461
Effective income tax rate 34.0% 34.0%
EBITDA (2) $5,177 $4,814 $25,135
EBITDA/net sales (2) 5.1% 5.6% 6.4%
(1) Expenditures for entire year.
(2) Earnings before interest, income taxes, depreciation, amortization and all
restructuring and related charges, non-cash or cash.
(3) Working capital for this calculation is accounts receivable,inventories
and accounts payable.
(4) LTM represents "Latest Twelve Months"
(5) EBITDA includes capitalized interest and certain cash and non-cash
charges, as defined by the company's credit agreement.
(6) Excludes restructuring and related charges in the first quarter of 2002 of
$2.3 million ($1.5 million or $0.14 per share diluted, after taxes)
and $9.7 million ($6.4 million or $0.57 per share diluted, after taxes)
for the last twelve months.
CULP, INC. FINANCIAL INFORMATION RELEASE
SALES BY SEGMENT/DIVISION
FOR THE THREE MONTHS ENDED JULY 29, 2001 AND JULY 30, 2000
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
-------------------------------------------------------------
Amounts Percent of Total Sales
--------------------- -----------------------
July 29, July 30, % Over
Segment/Division 2001 2000 (Under) 2002 2001
------------------------------ ---------- ---------- ------------ ---------- -----------
Upholstery Fabrics
Culp Decorative Fabrics $ 35,160 41,533 (15.3) % 40.7 % 40.8 %
Culp Velvets/Prints 25,520 30,074 (15.1) % 29.5 % 29.5 %
Culp Yarn 967 3,319 (70.9) % 1.1 % 3.3 %
---------- ---------- ------------ ---------- -----------
61,647 74,926 (17.7) % 71.3 % 73.5 %
Mattress Ticking
Culp Home Fashions 24,816 26,952 (7.9) % 28.7 % 26.5 %
---------- ---------- ------------ ---------- -----------
* $ 86,463 101,878 (15.1) % 100.0 % 100.0 %
========== ========== ============ ========== ===========
* U.S. sales were $71,800 and $82,290 for the first quarter of fiscal 2002 and
fiscal 2001, respectively. The percentage decrease in U.S. sales was 12.7% for
the first quarter.
CULP, INC. FINANCIAL INFORMATION RELEASE
INTERNATIONAL SALES BY GEOGRAPHIC AREA
FOR THE THREE MONTHS ENDED JULY 29, 2001 AND JULY 30, 2000
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
-------------------------------------------------------------------
Amounts Percent of Total Sales
-------------------------- -------------------------
July 29, July 30, % Over
Geographic Area 2001 2000 (Under) 2002 2001
---------------------------- ------------ ------------ ----------- ----------- ----------
North America (Excluding USA) $ 8,052 8,395 (4.1) % 54.9 % 42.9 %
Europe 705 1,452 (51.4) % 4.8 % 7.4 %
Middle East 2,903 5,043 (42.4) % 19.8 % 25.7 %
Far East & Asia 2,570 3,236 (20.6) % 17.5 % 16.5 %
South America 159 306 (48.0) % 1.1 % 1.6 %
All other areas 274 1,156 (76.3) % 1.9 % 5.9 %
------------ ------------ ----------- ----------- ----------
$ 14,663 19,588 (25.1) % 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 first quarter represented 17.0%
and 19.2% for 2002 and 2001, respectively.
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three months ended July 29, 2001 and July 30, 2000
INCOME STATEMENT COMMENTS
GENERAL - For the first quarter, net sales decreased 15.1% to $86.5
million; and the company reported a net loss of $2.9 million, or $0.26 per share
diluted (based on 11,221,000 average shares outstanding) versus a net loss of
$1.8 million, or $0.16 per share diluted (based on 11,209,000 average shares
outstanding) in the first quarter of fiscal 2001. Without the restructuring and
related charges, the loss for the first quarter of fiscal 2002 would have been
$1.4 million, or $0.12 per share diluted. As described below in "SG&A EXPENSES,"
an additional significant factor affecting the first quarter loss was bad debt
expense of $800,000, or $.05 per share on an after-tax basis. This compares with
an expense of $45,000 for first quarter of 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, consistent with customer
demand. 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. One customer accounted for approximately 11%
of net sales during fiscal 2001. Culp is pursuing opportunities in other
end-use markets in addition to U.S. residential furniture, such as bedding,
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. The total charge from the restructuring, cost reduction and
inventory write-down initiatives is expected to total $10.0 million, about $3.6
million of which represents non-cash items. This includes an additional amount
of $1.3 million resulting from re-evaluating restructuring costs in the first
quarter of fiscal 2002, principally related to health care costs for terminated
personnel. The company recognized $7.4 million of restructuring and related
charges during fiscal 2001 and $2.3 million in the first quarter of fiscal 2002.
Management expects to record the remaining charges, estimated at $150,000,
during the second quarter of fiscal 2002. The company plans to realize
annualized cost reductions of at least $14 million when the full benefit of this
program is realized. For the first quarter, the restructuring and related
charges are recorded as follows: $1.3 million in the line item called
"Restructuring expense" and $1.0 million in Cost of sales. The costs reflected
in Cost of sales are principally related to the relocation of manufacturing
equipment.
Management believes the company now has a sound footprint of efficient,
world-class facilities utilizing state-of-the-art equipment that positions the
company well to meet the demands by manufacturers for even shorter lead times,
consistently reliable delivery schedules and appealing designs.
NET SALES - Compared with fiscal 2001, upholstery fabric sales for the
first quarter of fiscal 2002 decreased 17.7% to $61.6 million, and mattress
ticking sales decreased 7.9% to $24.8 million (See Sales by Segment/Division
schedule on Page 5). The upholstery fabric sales decrease reflects: (1) a sharp
reduction (24.9%, or $3.8 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 (70.9% or $2.4 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; (3) a
decrease in sales to contract furniture customers ($1.2 million), and (4) a more
moderate decrease (11.6% or $5.9 million) in sales to U.S. residential furniture
manufacturers. The company believes that it is improving its market share in the
U.S. residential market because of well-received fabric placements from the Culp
Decorative Fabrics and Culp Velvets/Prints divisions. The decline in sales in
this category is attributed to general market conditions, and the sales decrease
in mattress ticking also reflects an overall slowdown in industry-wide demand
for bedding in the U.S.
The company had previously announced that it did not expect to report a
profit for the first quarter, excluding restructuring and related charges. Key
factors influencing the year-to-year comparison were the sharp, persistent
weakness in consumer spending on home furnishings, especially in the promotional
price category, and the strength in the U.S. dollar that had an adverse impact
on exports.
Although industry conditions remain challenging, incoming orders early in
the second quarter for mattress ticking and from U.S. residential furniture
customers are showing some improvement. Based on this trend, Culp expects to
operate its manufacturing capacity at a higher level of output than in the first
quarter. Any increase in demand from U.S. manufacturers of residential furniture
will be offset in part by a continued decline in international and contract
orders.
GROSS PROFIT - Gross profit included restructuring related charges of $1.0
million. Excluding these charges, gross profit declined 17.0% for the first
quarter of fiscal 2002 compared with the year-earlier period and decreased as a
percentage of net sales from 13.9% to 13.6%. The decline in gross profit,
excluding restructuring related charges, of $2.4 million was attributable to the
Culp Decorative Fabrics ("CDF") division. The principal factors contributing to
the decrease were: (1) the decline in sales volume, and (2) lower manufacturing
productivity due to the consolidation activities within the division during the
quarter. The company has taken significant steps to improve productivity and
increase output in the CDF division over the last six months. Although the
company expects to see improving results from these restructuring steps in the
second quarter for CDF, it does not expect to realize the full benefit of these
actions until the second half of fiscal 2002. The company experienced gross
margin improvement in each of its other divisions, even while reporting lower
sales in those divisions.
SG&A EXPENSES - SG&A expenses for the first quarter declined 18.5% from the
prior year. Reflecting the impact of the company's actions to reduce expenses,
SG&A expenses declined from 13.5% to 13.0% as a percentage of sales. SG&A
expenses in the first quarter include bad debt expense of $800,000 compared with
$45,000 in the year-earlier period. The increase in bad debt expense from a year
ago reflects write-offs primarily of two residential furniture customers.
Without the additional bad debt expense, SG &A expenses were reduced by $3.3
million, or 23.9%, and were 12.1% of net sales.
INTEREST EXPENSE - Interest expense for the first quarter declined from
$2.3 million to $2.1 million due to significantly lower borrowings outstanding,
offset somewhat by a substantial increase in interest rates (see amended
interest rate matrix in the "LONG-TERM DEBT" paragraph on page 9).
OTHER EXPENSE (INCOME), NET - Other expense (income) for the first quarter
of fiscal 2002 totaled $572,000 compared with $741,000 in the prior year. The
decrease was principally due to the company's deferred compensation plan, which
was terminated in January 2001 as a part of the company's cost reduction
initiative.
INCOME TAXES - The effective tax rate for the first quarter of fiscal 2002
was 34.0%, unchanged from the prior year.
EBITDA - EBITDA for the first quarter of fiscal 2002 was $4.8 million
compared with $5.2 million in the prior year. EBITDA excludes interest, income
taxes, depreciation, amortization, and all restructuring and related charges,
non-cash or cash.
BALANCE SHEET COMMENTS
WORKING CAPITAL - Accounts receivable as of July 29, 2001 decreased 11.0%
from the year-earlier level, due principally to the decline in sales. Days sales
outstanding totaled 51 days at July 29, 2001 compared with 49 a year ago. The
aging of accounts receivable was 91.9% current and less than 30 days past due
versus 91.5% a year ago. Inventories at the close of the first quarter decreased
20.9% from a year ago. Inventory turns for the first quarter were 5.1 versus 4.7
for the year-earlier period. Operating working capital (comprised of accounts
receivable, inventory and accounts payable) was $86.6 million at July 29, 2001,
down from $108.5 million a year ago.
PROPERTY, PLANT AND EQUIPMENT - Capital spending for the first quarter of
fiscal 2002 declined to $1.6 million compared with $2.3 million in the
year-earlier period. The company's budget for capital spending for fiscal 2002
is $4.0 million, compared with $8.1 million in fiscal 2001. Depreciation for the
first quarter of fiscal 2002 totaled $4.5 million.
LONG-TERM DEBT - The company has reduced funded debt by $26.2 million or
19.1% from the first quarter of last year, and by $1.0 million from last fiscal
year end. Funded debt equals long-term debt plus current maturities. Funded debt
was $110.7 million at July 29, 2001, compared with $136.8 million a year ago and
$111.7 million at fiscal year end. Compared with 51.8% a year ago, the company's
funded debt-to-capital ratio was 48.2% at July 29, 2001, 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 from LIBOR plus 1.60% to LIBOR plus 4.00% and increase
the letter of credit fees on IRBs from 1.10% to 4.00%. The amended credit
facility lowered the amount of funds available under the facility from $88
million to $25 million. The company had outstanding borrowings of approximately
$1 million under the facility at the end of the first quarter of fiscal 2002.
The company was in compliance with its loan agreements as of July 29, 2001.
Other than the credit facility, required principal payments under the respective
loan agreements during fiscal 2002 and fiscal 2003 total $473,000 and $2.2
million, respectively.