Culp Announces Fiscal Year-end 2003 Results; Annual Earnings and Margin Improvement Reflect Benefits of Restructuring Actions and Balance Sheet Management.Business Editors HIGH POINT, N.C.--(BUSINESS WIRE)--June 9, 2003 Culp, Inc. (NYSE NYSE See: New York Stock Exchange : CFI CFI abbr. cost, freight, and insurance ) today reported financial and operating results for the fourth quarter and fiscal year ended April 27, 2003. The highlights include: -- Significant improvement in earnings and margins over the prior year (excluding cumulative effect of accounting change) -- Free cash flow of $23.0 million for fiscal 2003 -- Further balance sheet improvement with a $19.7 million prepayment Prepayment 1. The payment of a debt obligation prior to its due date. 2. The excess payment over a scheduled debt repayment amount. Notes: 1. Examples include deferred expenses such as rent and early loan repayments. 2. in long-term debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. in the fourth quarter -- Long-term debt of $76.5 million, down $32.0 million from $108.5 million at the end of fiscal 2002 For the three months ended April 27, 2003, net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight were $90.2 million compared with $108.4 million a year ago. The financial results for the fourth quarter include a total of $1.0 million in restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). and related charges, all of which reflect previously announced restructuring initiatives. Including restructuring and related charges in both periods, the company reported net income of $3.3 million, or $0.28 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, for the fourth quarter of fiscal 2003, compared with a net loss of $1.6 million, or $0.14 per share, in the fourth quarter of fiscal 2002. Excluding restructuring and related charges, the company reported net income of $3.9 million, or $0.33 per diluted share, versus net income of $4.4 million, or $0.38 per diluted share, in the fourth quarter of fiscal 2002, excluding restructuring and related charges, and goodwill amortization. (A reconciliation to the net income and earnings per share calculations is set forth on Page 5.) For the fiscal year ended April 27, 2003, the company reported net sales of $339.0 million, compared with $381.9 million for fiscal 2002. Including restructuring charges restructuring charge The expense of reorganizing a company's operations. A restructuring charge is an infrequent expense that generally results from asset writedowns or facility closings. and the cumulative effect of accounting change, the company reported a net loss for fiscal 2003 of $24.9 million, or $2.17 per diluted share, compared with a loss of $3.4 million, or $0.31 per diluted share, for fiscal 2002. 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. This compares with net income of $4.9 million, or $0.43 per diluted share, excluding restructuring and related charges, and goodwill amortization for the prior year. As previously announced, due to the adoption of a new accounting standard, "Goodwill and Other Intangible Assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. ," the company recorded a non-cash goodwill impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. charge, net of income taxes, of $24.2 million, or $2.11 per diluted share, in the first quarter of 2003 related to the goodwill associated with its Culp Decorative Fabrics ("CDF (1) (Central Distribution Frame) A connecting unit (typically a hub) that acts as a central distribution point to all the nodes in a zone or domain. See MDF. ") division. The charge, recorded as "cumulative effect of accounting change," has no effect on operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. or cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses . "Without question, the fourth fiscal quarter was a continuation continuation - continuation passing style of what has been an extremely challenging year for the furniture industry," remarked Robert Robert, Henry Martyn 1837-1923. American army engineer and parliamentary authority. He designed the defenses for Washington, D.C., during the Civil War and later wrote Robert's Rules of Order (1876). Noun 1. G. Culp, III, chief executive officer of Culp, Inc. "Our sales for the quarter reflect a marketplace that has been weighed down Adj. 1. weighed down - full of; bearing great weight; "trees heavy with fruit"; "vines weighed down with grapes" heavy full - containing as much or as many as is possible or normal; "a full glass"; "a sky full of stars"; "a full life"; "the auditorium was by the ongoing uncertainties in the economy, rising unemployment and distractions over the war in Iraq Iraq or Irak (both: ēräk`, ĭrăk`), officially Republic of Iraq, republic (2005 est. pop. 26,075,000), 167,924 sq mi (434,924 sq km), SW Asia. . Overall, net sales decreased 16.8% with sales in our two segments, upholstery upholstery, general term for household fittings, hangings, curtains, cushions, and covers. It refers to stuffed, padded, and spring-cushioned furniture, such as chairs and sofas, or to the usually decorative materials and fabrics that cover them. fabrics and mattress ticking ticking a coat color pigmentation pattern in which hairs of one color are distributed in small groups throughout the background color, e.g. Australian cattle dog. Called also speckling. , down 17.2% and 15.5%, respectively. Recognizing there are many things in this environment we cannot control, our focus over the past year has been on identifying opportunities to operationally leverage our assets and become more efficient. We are already realizing the benefits of our CDF restructuring initiative with the reduction in fixed manufacturing costs as a result of plant consolidations and the improvement in our operating efficiencies. "As a result of our solid execution, Culp made significant progress in meeting our key financial objectives for fiscal 2003 - to strengthen our balance sheet, increase margins, improve the profitability of our sales mix sales mix See product mix. and generate free cash flow," added Culp. "Notably, we have reduced our long-term debt by $32 million this year, including the additional $20 million we pre-paid in the fourth quarter. Over the past three years we have reduced our debt by a total of $61 million, and have increased our cash position by $23 million. For the year, free cash flow from operations was $23 million. (A reconciliation to the free cash flow calculations is set forth on Page 5.) Over the past three years, we have generated over $79 million in free cash flow, further strengthening our balance sheet. Our financial position remains sound and as of April 27, 2003, our balance sheet reflects $24 million in cash and cash investments, significant decreases in leverage ratios, and only minimal principal payments on long-term debt for almost three years. Having a solid financial position during a difficult period for our industry not only provides a secure foundation, but also reinforces our confidence in Culp's future. "Our previously announced plans to establish operations in China are underway. We have recently relocated re·lo·cate v. re·lo·cat·ed, re·lo·cat·ing, re·lo·cates v.tr. To move to or establish in a new place: relocated the business. v.intr. a general manager to Shanghai Shanghai (shăng`hī`, shäng`hī`), city (1994 est. pop. 12,980,000), in, but independent of, Jiangsu prov., E China, on the Huangpu (Whangpoo) River where it flows into the Chang (Yangtze) estuary. , China, signed a lease on our facility, and are in the process of obtaining the required license approvals to move forward. Along with the installation of finishing equipment, we plan to begin doing business at the China facility during the second fiscal quarter of 2004, which is expected to include fabric inspection, testing and distribution. Limited fabric finishing operations are anticipated to begin during the third fiscal quarter of 2004." Commenting on the business outlook, Culp added, "The first quarter of our fiscal year, which includes the summer months, is the slowest period for Culp and the furniture industry due to scheduled plant vacation VACATION. That period of time between the end of one term and beginning of another. During vacation, rules and orders are made in such cases as are urgent, by a judge at his chambers. shutdowns. Historically, the furniture industry has rarely experienced any meaningful recovery in the summer months. Therefore, we expect the year-over-year decline in sales for the upholstery fabric segment to be somewhat greater than the decline in the fourth quarter of fiscal 2003. However, we have recently seen improving order rates for mattress ticking and expect that the decline in sales for this segment will be substantially less than in the fourth quarter of 2003. Overall, we expect the drop in consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: sales for the first quarter to be greater than the fourth quarter decline of 16.8%. With the considerable ongoing weakness in the furniture industry and the lack of visibility into the quarter to date, it is more difficult to predict the degree to which the company's profitability will decline. At this time we expect to report a net loss in the range of ($0.06) to ($0.13) per share, with the actual results depending upon the level of demand throughout the quarter. However, we are optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op that overall sales will start to pick up in the fall, as is seasonally typical in the furniture industry. With the restructuring initiatives over the past year, excellent designs and the continued progress in reducing costs and improving operating efficiencies, we believe Culp is well positioned to take advantage of our earnings leverage when furniture demand picks up and our sales regain momentum." 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 forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. " within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and 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 char·ac·ter·ize tr.v. character·ized, character·iz·ing, character·iz·es 1. To describe the qualities or peculiarities of: characterized the warden as ruthless. 2. by qualifying words such as "expect," "believe," "estimate," "plan" and "project" and their derivatives derivatives In finance, contracts whose value is derived from another asset, which can include stocks, bonds, currencies, interest rates, commodities, and related indexes. Purchasers of derivatives are essentially wagering on the future performance of that asset. , and include but are not limited to statements about expectations for the company's future sales, gross profit margins Gross profit margin Gross profit divided by sales, which is equal to each sales dollar left over after paying for the cost of goods sold. gross profit margin A measure calculated by dividing gross profit by net sales. , 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 disposable income Portion of an individual's income over which the recipient has complete discretion. To assess disposable income, it is necessary to determine total income, including not only wages and salaries, interest and dividend payments, and business profits, but also , and general economic conditions. Decreases in these economic indicators Economic indicators The key statistics of the economy that reveal the direction the economy is heading in; for example, the unemployment rate and the inflation rate. 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 United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. . Also, economic and political instability instability /in·sta·bil·i·ty/ (-stah-bil´i-te) lack of steadiness or stability. detrusor 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
Three Months Ended
April 27, April 28,
2003 2002
------------- -------------
Net sales $ 90,227,000 $ 108,397,000
============= =============
Net income (loss) $ 3,272,000 $ (1,585,000)
Net income (loss) per share:
Basic $ 0.28 $ (0.14)
Diluted $ 0.28 $ (0.14)
Net income per share, diluted,
excluding restructuring and
related charges and
goodwill amortization(a) $ 0.33 $ 0.38
Average shares outstanding:
Basic 11,496,000 11,255,000
Diluted 11,616,000 11,255,000
Year Ended
-----------------------------
April 27, April 28,
2003 2002
------------- -------------
Net sales $ 338,980,000 $ 381,878,000
============= =============
Loss before cumulative effect of
accounting change $ (736,000) $ (3,440,000)
Cumulative effect of accounting change,
net of income taxes (24,151,000) 0
------------- -------------
Net loss $ (24,887,000) $ (3,440,000)
============= =============
Basic and diluted loss per share:
Loss before cumulative effect of
accounting change $ (0.06) $ (0.31)
Cumulative effect of accounting
change (2.11) 0.00
------------- -------------
Net loss $ (2.17) $ (0.31)
============= =============
Net income per share, diluted, excluding
restructuring and related charges,
goodwill amortization and cumulative
effect of accounting change(b) $ 0.77 $ 0.43
Average shares outstanding:
Basic 11,462,000 11,230,000
Diluted 11,462,000 11,230,000
(a) 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 restructuring charges
related to the exit of the wet print flock upholstery business of
$9.7 million ($5.8 million, or $0.51 per diluted share, after
taxes) and goodwill amortization of $350,000 ($231,000, or $0.02
per diluted share, after taxes) for the fourth quarter of fiscal
2002. The fiscal 2002 diluted net income per share uses average
shares outstanding of 11,564,000.
(b) 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. Excludes restructuring and related charges of $12.2
million ($7.4 million, or $0.66 per share diluted, after taxes)
and goodwill amortization of $1.4 million ($924,000, or $0.08 per
diluted share, after taxes) for fiscal 2002. The diluted net
income for fiscal 2003 and for fiscal 2002 uses average shares
outstanding of 11,712,000 and 11,457,000, respectively.
CULP, INC.
Reconciliation of Net Income (Loss) as Reported
to Pro Forma Net Income
Three Months Ended Year Ended
------------------------- --------------------------
April 27, April 28, April 27, April 28,
2003 2002 2003 2002
----------- ----------- ------------ ------------
Net income
(loss), as
reported $ 3,272,000 $(1,585,000) $(24,887,000) $ (3,440,000)
Cumulative
effect of
accounting
change,
net of
income
taxes -- -- 24,151,000 --
Restructuring
and
related
charges,
net of
income
taxes 601,000 5,779,000 9,714,000 7,435,000
Goodwill
amortization,
net of
income
taxes -- 231,000 -- 924,000
----------- ----------- ------------ ------------
Pro forma net
income $ 3,873,000 $ 4,425,000 $ 8,978,000 $ 4,919,000
=========== =========== ============ ============
Reconciliation of Net Income (Loss) Per Share as Reported
to Pro Forma Net Income Per Share
Diluted net
income
(loss) per
share, as
reported $ 0.28 $ (0.14) $ (2.17) $ (0.31)
Cumulative
effect of
accounting
change,
net of
income
taxes -- -- 2.11 --
Restructuring
and related
charges, net
of income
taxes 0.05 0.51 0.85 0.66
Goodwill
amortization,
net of
income
taxes -- 0.02 -- 0.08
Effect of
dilutive
stock
options -- (0.01) (0.02) --
----------- ----------- ------------ ------------
Pro forma
diluted net
income
per share $ 0.33 $ 0.38 $ 0.77 $ 0.43
=========== =========== ============ ============
Reconciliation of Cash Flow from Operations to Free Cash Flow
Year Ended
----------------------------------------
April 27, April 28, April 29, Three-Year
2003 2002 2001 Total
----------- ----------- ------------ ------------
Cash flow
from
operations $35,234,000 $38,135,000 $ 30,693,000 $104,062,000
Capital
expenditures (12,229,000) (4,729,000) (8,050,000) (25,008,000)
----------- ----------- ------------ ------------
Free cash flow $23,005,000 $33,406,000 $ 22,643,000 $ 79,054,000
=========== =========== ============ ============
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