Culp Announces Second Quarter Fiscal 2006 Results.HIGH POINT, N.C. -- Culp, Inc. (NYSE NYSE See: New York Stock Exchange :CFI CFI abbr. cost, freight, and insurance ) today reported financial and operating results for the fiscal 2006 second quarter and six months ended October October: see month. 30, 2005. Overview For the three months ended October 30, 2005, 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 $67.0 million compared with $75.4 million a year ago. The company reported a net loss of $4.2 million, or $0.36 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 second quarter of fiscal 2006 compared with a net loss of $4.2 million, or $0.36 per diluted share, for the second quarter of fiscal 2005. The financial results for the second quarter of fiscal 2006 include $3.8 million, or $0.33 per diluted share, 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, after taxes. Excluding these charges, net loss for the second fiscal quarter was $332,000, or $0.03 per diluted share. The results for the second quarter of fiscal 2005 include restructuring and related charges and 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. of $4.7 million, or $0.41 per diluted share, after taxes. Excluding these charges, net income for the second fiscal quarter of 2005 was $505,000, or $0.04 per diluted share. (A reconciliation of the net income (loss) and net income (loss) per share calculations has been set forth on Page 6.) For the six months ended October 30, 2005, the company reported net sales of $129.3 million compared with $143.3 million for the same period a year ago. Net loss for the first six months of fiscal 2006 was $8.1 million, or $0.70 per diluted share, compared with a net loss of $5.2 million, or $0.45 per diluted share, for the same period last year. Excluding restructuring and related charges, net loss for the first six months of fiscal 2006 was $960,000, or $0.08 per diluted share. Excluding restructuring and related charges and goodwill impairment, net loss for the first six months of fiscal 2005 was $589,000, or $0.05 per diluted share. 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, chairman of the board and chief executive officer of Culp, Inc., said, "During the first six months of fiscal 2006, we have been implementing ambitious strategic plans in our operating segments - 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. and 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. We are pleased with how much we have accomplished this year with respect to these operational initiatives. While we are not yet profitable in the upholstery fabrics segment, it is gratifying grat·i·fy tr.v. grat·i·fied, grat·i·fy·ing, grat·i·fies 1. To please or satisfy: His achievement gratified his father. See Synonyms at please. 2. to see the improvement in this segment's operating results for the first six months on a year-over-year basis. Although the transition to a leaner and more agile business model is affecting our reported financial results, we believe we are taking the right steps to be competitive and position the company for growth over the long term in today's global marketplace. "Like others in our industry, our company's second quarter was affected by a shortage of polyurethane foam Noun 1. polyurethane foam - a foam made by adding water to polyurethane plastics polyfoam polyurethan, polyurethane - any of various polymers containing the urethane radical; a wide variety of synthetic forms are made and used as adhesives or plastics or used in furniture and bedding and by surcharges for raw materials, both of which factors are related to disruptions from the hurricane hurricane, tropical cyclone in which winds attain speeds greater than 74 mi (119 km) per hr. Wind speeds reach over 190 mi (289 km) per hr in some hurricanes. activity on the Gulf Coast. In response, we implemented surcharges in October to our customers in both operating segments. We expect that these factors will continue to affect our business over the next quarter, although to a diminishing di·min·ish v. di·min·ished, di·min·ish·ing, di·min·ish·es v.tr. 1. a. To make smaller or less or to cause to appear so. b. extent. Mattress Fabrics Segment Mattress fabric (known as mattress ticking) sales for the second quarter were $24.0 million compared with $26.9 million for the second quarter of fiscal 2005. On a unit volume basis, total yards sold declined by 2.3 percent over the second quarter of fiscal 2005. The average selling price The average sales price of goods or commodities. Especially used in the retail sector and technology distribution. for mattress ticking declined by 8.1 percent for the second quarter compared with the same period last year, primarily related to prices for the damask product line. This pricing trend reflects the ongoing shift mattress manufacturers are making to less expensive common border ticking, which is the fabric that goes on the side of mattresses and box springs. Sales in this segment were also affected by the industry-wide shortage of polyurethane foam used by mattress manufacturers. 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. for this segment was $1.7 million, or 6.9 percent of sales, compared with $2.7 million, or 10.0 percent of sales, for the prior-year period. Operating income in this segment was affected by a customs assessment totaling $375,000 related to products imported in prior periods, which reduced operating margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: by approximately 160 basis points. Additionally, these results reflect higher raw material prices that were not fully offset by the company's customer surcharges and manufacturing variances related to the start-up Start-up The earliest stage of a new business venture. of the capital project. "Mattress ticking now accounts for over a third of Culp's overall business and we believe we have a strong competitive position in the marketplace," added Culp. "We are pleased to show improvement in our operating margins over the first quarter of fiscal 2006 as we have worked toward completing our capital project. During the second quarter, we began to ramp up Ramp Up To increase a company's operations in anticipation of increased demand. Notes: A company might 'ramp up' operations if they just signed a contract creating substantially more demand for their product. See also: Demand, Economies of Scale production at our new Stokesdale, North Carolina Stokesdale is a town in the northwestern corner of Guilford County, North Carolina, United States. The population was 3,267 at the 2000 census. Belews Lake is located nearby. Geography Stokesdale is located at (36.236371, -79. , weaving weaving, the art of forming a fabric by interlacing at right angles two or more sets of yarn or other material. It is one of the most ancient fundamental arts, as indicated by archaeological evidence. operation and made excellent progress. We expect to realize further productivity gains in this operation in the third quarter and reach our target productivity levels by the end of fiscal 2006. We believe we are well positioned to achieve improved operating results in the second half of this year compared with those of the prior year period. Upholstery Fabrics Segment Sales for this segment were $43.0 million, an 11.3 percent decline compared with $48.5 million in the second quarter of fiscal 2005. Total yards sold declined by 9.5 percent, while average selling prices were down 2.6 percent compared with the second quarter of fiscal 2005. Sales of upholstery fabrics reflect continued soft demand industrywide in·dus·try·wide adv. & adj. Throughout an entire industry: sales that have decreased industrywide; industrywide cooperation. for U.S. produced fabrics, driven by consumer preference for leather and suede furniture and other imported fabrics, including cut and sewn sewn v. A past participle of sew. sewn Verb a past participle of sew Adj. 1. kits. However, the lower sales of U.S. produced fabrics were partially offset by higher sales of Culp's offshore produced fabrics. The shortage of polyurethane foam used by furniture manufacturers also affected sales for the quarter. Operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. for the second quarter of fiscal 2006 was $69,000, compared with operating income of $216,000, for the same period a year ago. These results also reflect higher raw material prices that were not fully offset by the company's customer surcharges. For the first six months of fiscal 2006, operating losses were substantially reduced to $448,000 compared with $2.4 million in the prior year period. Culp said, "With respect to our U.S. upholstery fabric operations, through the first half of this year we have taken aggressive actions to substantially reduce our U.S. manufacturing costs and capacity and selling, general and administrative expenses. During this period we consolidated two velvet velvet, fabric having a soft, thick, short pile, usually of silk, and a plain twill or satin weave ground. The pile surface is formed by weaving an extra set of warp threads that are looped over wires as in Wilton carpet, the rods being withdrawn after the weft manufacturing operations Manufacturing operations concern the operation of a facility, as opposed to maintenance, supply and distribution, health, and safety, emergency response, human resources, security, information technology and other infrastructural support organizations. , consolidated our finished goods distribution and design centers, closed two yarn yarn, fibers or filaments formed into a continuous strand for use in weaving textiles or for the manufacture of thread. A staple fiber, such as cotton, linen, or wool, is made into yarn by carding, combing (for fine, long staples only), drawing out into roving, then manufacturing plants and announced a strategic alliance to outsource our decorative fabrics finishing operation. Additionally, we combined our sales, design and customer service activities for Culp Decorative Fabrics and Culp Velvets/Prints, the two divisions within the upholstery fabrics segment, resulting in a more unified approach for our customers. With the changes we have made since the beginning of fiscal 2006, we have reduced our selling, general and administrative expenses for upholstery fabrics by 33 percent compared with the first six months of fiscal 2005. "Once our outsourcing (1) Contracting with outside consultants, software houses or service bureaus to perform systems analysis, programming and datacenter operations. Contrast with insourcing. See netsourcing, ASP, SSP and facilities management. initiative for finishing services is completed, which is expected by the end of February February: see month. 2006, Culp will have three U.S. manufacturing facilities operating in the upholstery fabrics segment - one for velvet fabrics, one for decorative fabrics and one for specialty yarns. As a result of these past restructuring actions, the book value of our U.S. based upholstery fabrics fixed assets fixed assets npl → activo sg fijo fixed assets npl → immobilisations fpl fixed assets fix npl → is projected to be about $15 million by the end of the third quarter of fiscal 2006, compared with approximately $52 million at the end of fiscal 2004. Our objective is to attain a sustainable and profitable business model in the U.S. that, in conjunction with our offshore operations, will support our customers' fabric requirements. "Our non-U non-U adj. Chiefly British Not characteristic of the upper class, especially in language usage. [non- + U2. .S. operations continue to report favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. growth trends," Culp continued. "Sales of upholstery fabrics produced outside our U.S. manufacturing plants, including fabrics produced at our China facility, were up 79 percent year-over-year, and accounted for 29 percent of Culp's upholstery fabric sales for the quarter. We are enthusiastic about the innovative products we are now offering our customers and believe our non-U.S. produced business represents a significant growth opportunity for Culp." Balance Sheet "We have continued to focus on improving our balance sheet through this period of transition," Culp noted. "As previously announced, the company's $8.0 million unsecured Unsecured A loan or equity interest that is given without any guarantee of payment, performance, satisfaction or opportunity for return from the recipient. No property, interest or security is used as collateral in either a guarantee or a pledge. credit facility was extended by one year in August. At the end of the second quarter, we closed on a long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. mortgage on our corporate headquarters for $4.3 million. Our balance sheet reflects $12.9 million in cash and cash equivalents compared with $5.1 million at the end of fiscal 2005. Additionally, we have continued to closely manage our inventories and have reduced them by $8.7 million, or 17 percent, since the end of the first quarter of fiscal 2006, primarily in our upholstery fabrics segment." Outlook Commenting on the business outlook, Culp remarked, "The third fiscal quarter is typically a slower period for our industry due to holiday 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. schedules. Additionally, we expect the polyurethane foam shortage and surcharges for raw materials will continue to affect our business, although at a diminishing rate as the quarter progresses. Overall, we anticipate a larger year-over-year decline in sales than the decline of 11 percent in the second quarter. With respect to our mattress ticking segment, we expect sales will show a decline over the third quarter a year ago, but to a slightly lesser extent than the decline in the second quarter. Operating income and margins in this segment are expected to improve over the same period last year due to the benefits from our capital project. In the upholstery fabrics segment, we expect continued growth in sales of fabrics produced outside the U.S. However, we believe sales of domestically produced upholstery fabrics will continue to reflect weak demand, resulting in a larger overall segment year-over-year decline than we had in the second quarter. Even with lower sales, we believe this segment's operating results will show year-over-year improvement with an operating loss for our third quarter that is less severe than the operating loss of $2.0 million for the same period of 2005. "Considering these factors, we expect the company to report a loss in the third quarter in the range of $0.07 to $0.12 per diluted share, excluding restructuring and related charges. This is management's best estimate at present, recognizing that future financial results are difficult to predict because the upholstery fabrics industry is undergoing a dramatic transition and many internal changes are still underway within the company. The actual results will depend primarily upon the level of demand throughout the quarter, the company's progress with respect to restructuring activities for our domestic upholstery fabrics operations and the impact of raw material costs." "The company estimates that restructuring and related charges of approximately $900,000 ($600,000, net of taxes, or $0.05 per diluted share) will be incurred during the third fiscal quarter. Including the restructuring and related charges, the company expects to report a net loss for the third fiscal quarter of $0.12 to $0.17 per diluted share." (A reconciliation of the projected net loss per share calculation has been set forth on Page 6.) In closing, Culp remarked, "Our primary focus for fiscal 2006 is to restore Culp to profitability. As we continue to work through this important period of transition, we are encouraged by the positive results of the strategic changes we have made throughout our operations. The substantial cost and capacity reductions we have made in our U.S. upholstery fabric operations are moving us closer to our goal of being profitable in this segment. Our non-U.S. produced upholstery fabric business, including our China platform, continues to show favorable trends and we believe there are additional opportunities for extending our global market reach and capabilities. We have strengthened our cost-competitive position on a global basis in mattress ticking and look forward to realizing the full benefits of the capital project in this segment. Overall, we believe we will see continued progress during the second half of fiscal 2006 with improved operating results for both the upholstery fabrics and mattress ticking segments over the same period last year." About the Company Culp, Inc. is one of the world's largest marketers of mattress fabrics for bedding and upholstery fabrics for furniture. The company's fabrics are used principally in the production of bedding products and residential and commercial upholstered furniture. 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 the company's future operations, production levels, sales, SG&A or other expenses, margins, gross profit, operating income, earnings or other performance measures. 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. Changes in consumer tastes or preferences toward products not produced by the Company could erode Erode (ĕrōd`), city (1991 urban agglomeration pop. 361,755), Tamil Nadu state, S India, on the Kaveri River. The city is located in a cotton-growing region, and its industries include cotton ginning and the manufacture of transport equipment. demand for the Company's products. 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
(Unaudited)
Three Months Ended Six Months Ended
------------------------- ---------------------------
October 30, October 31, October 30, October 31,
2005 2004 2005 2004
------------ ------------ ------------- -------------
Net sales $67,006,000 $75,406,000 $129,348,000 $143,255,000
Net loss $(4,152,000) $(4,193,000) $ (8,093,000) $ (5,245,000)
Net loss per
share:
Basic $ (0.36) $ (0.36) $ (0.70) $ (0.45)
Diluted $ (0.36) $ (0.36) $ (0.70) $ (0.45)
Net income (loss)
per share, diluted,
excluding
restructuring and
related charges
and goodwill
impairment (a) $ (0.03) $ 0.04 $ (0.08) $ (0.05)
Average shares
outstanding:
Basic 11,559,000 11,549,000 11,555,000 11,548,000
Diluted 11,559,000 11,549,000 11,555,000 11,548,000
(a) Excludes restructuring and related charges of $6.2 million ($3.8
million, or $0.33 per diluted share, after taxes) for the second
quarter of fiscal 2006. Excludes restructuring and related charges of
$11.5 million ($7.1 million or $0.62 per diluted share, after taxes)
for the first six months of fiscal 2006.
Excludes restructuring and related charges and goodwill impairment of
$7.5 million ($4.7 million, or $0.41 per diluted share, after taxes)
for the second quarter of fiscal 2005. Excludes restructuring and
related charges and goodwill impairment of $7.5 million ($4.7 million
or $0.40 per diluted share, after taxes) for the first six months of
fiscal 2005.
Reconciliation of Net Loss as Reported to Pro Forma Net Income (Loss)
(Unaudited)
Three Months Ended Six Months Ended
------------------------- -------------------------
October 30, October 31, October 30, October 31,
2005 2004 2005 2004
------------ ------------ ------------ ------------
Net loss, as
reported $(4,152,000) $(4,193,000) $(8,093,000) $(5,245,000)
Restructuring and
related charges
and goodwill
impairment, net
of income taxes 3,820,000 4,698,000 7,133,000 4,656,000
------------ ------------ ------------ ------------
Pro forma net
(loss) income $ (332,000) $ 505,000 $ (960,000) $ (589,000)
============== ============ ============ ============
Reconciliation of Net Loss Per Share as Reported to
Pro Forma Net Income (Loss) Per Share
(Unaudited)
Three Months Ended Six Months Ended
------------------------- -------------------------
October 30, October 31, October 30, October 31,
2005 2004 2005 2004
------------ ------------ ------------ ------------
Net loss, as
reported $ (0.36) $ (0.36) $ (0.70) $ (0.45)
Restructuring and
related charges
and goodwill
impairment, net
of income taxes 0.33 0.41 0.62 0.40
Effect of rounding 0.00 (0.01) 0.00 0.00
------------ ------------ ------------ ------------
Pro forma net
(loss) income per
share $ (0.03) $ 0.04 $ (0.08) $ (0.05)
============ ============ ============ ============
Culp Inc.
Reconciliation of Projected Range of Net Loss Per Share
to Projected Range of Pro Forma Net Loss Per Share
(Unaudited)
Three Months
Ending
January 29,
2006
-----------------
Projected range of net loss
per diluted share $(0.12)-$(0.17)
Projected restructuring and
related charges, net of income taxes 0.05
-----------------
Projected range of pro forma net loss
per diluted share $(0.07)-$(0.12)
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