Exhibit 99(b) Page 1 of 13
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE THREE MONTHS AND SIX MONTHS ENDED OCTOBER 31, 2004 AND NOVEMBER 2, 2003
(UNAUDITED)
(Amounts in Thousands, Except for Per Share Data)
THREE MONTHS ENDED
-------------------------------------------------------------
Amounts Percent of Sales
------------------------ -------------------------
October 31, November 2, % Over October 31, November 2,
2004 2003 (Under) 2004 2003
----------- ----------- --------- ---------- -----------
Net sales $ 75,406 82,731 (8.9)% 100.0 % 100.0 %
Cost of sales 65,839 65,993 (0.2)% 87.3 % 79.8 %
----------- ----------- --------- ---------- -----------
Gross profit 9,567 16,738 (42.8)% 12.7 % 20.2 %
Selling, general and
administrative expenses 8,838 10,296 (14.2)% 11.7 % 12.4 %
Goodwill impairment 5,126 0 100.0 % 6.8 % 0.0 %
Restructuring expense 1,292 0 100.0 % 1.7 % 0.0 %
----------- ----------- --------- ---------- -----------
Income (loss) from operations (5,689) 6,442 (188.3)% (7.5)% 7.8 %
Interest expense 937 1,509 (37.9)% 1.2 % 1.8 %
Interest income (29) (121) (76.0)% (0.0)% (0.1)%
Other expense 173 62 179.0 % 0.2 % 0.1 %
----------- ----------- --------- ---------- -----------
Income (loss) before income taxes (6,770) 4,992 (235.6)% (9.0)% 6.0 %
Income taxes* (2,577) 1,846 (239.6)% 38.1 % 37.0 %
----------- ----------- --------- ---------- -----------
Net income (loss) $ (4,193) 3,146 (233.3)% (5.6)% 3.8 %
=========== =========== ========= ========== ===========
Net income (loss) per share-basic ($0.36) $ 0.27 (233.3)%
Net income (loss) per share-diluted ($0.36) $ 0.27 (233.3)%
Net income per share, diluted,
excluding restructuring and related
charges and goodwill impairment (see
proforma statement on page 7) $ 0.04 $ 0.27 (85.2)%
Average shares outstanding-basic 11,549 11,524 0.2 %
Average shares outstanding-diluted 11,549 11,774 (1.9)%
SIX MONTHS ENDED
-------------------------------------------------------------
Amounts Percent of Sales
------------------------ -------------------------
October 31, November 2, % Over October 31, November 2,
2004 2003 (Under) 2004 2003
----------- ----------- --------- ---------- -----------
Net sales $ 143,255 156,407 (8.4)% 100.0 % 100.0 %
Cost of sales 125,013 128,191 (2.5)% 87.3 % 82.0 %
----------- ----------- --------- ---------- -----------
Gross profit 18,242 28,216 (35.3)% 12.7 % 18.0 %
Selling, general and administrative
expenses 18,118 20,812 (12.9)% 12.6 % 13.3 %
Goodwill impairment 5,126 0 100.0 % 3.6 % 0.0 %
Restructuring expense 1,154 0 100.0 % 0.8 % 0.0 %
----------- ----------- --------- ---------- -----------
Income (loss) from operations (6,156) 7,404 (183.1)% (4.3)% 4.7 %
Interest expense 1,877 3,006 (37.6)% 1.3 % 1.9 %
Interest income (56) (243) (77.0)% (0.0)% (0.2)%
Other expense 387 301 28.6 % 0.3 % 0.2 %
----------- ----------- --------- ---------- -----------
Income (loss) before income taxes (8,364) 4,340 (292.7)% (5.8)% 2.8 %
Income taxes* (3,119) 1,605 (294.3)% 37.3 % 37.0 %
----------- ----------- --------- ---------- -----------
Net income (loss) $ (5,245) 2,735 (291.8)% (3.7)% 1.7 %
=========== =========== ========= ========== ===========
Net income (loss) per share-basic ($0.45) $ 0.24 (287.5)%
Net income (loss) per share-diluted ($0.45) $ 0.23 (295.7)%
Net income (loss) per share, diluted,
excluding restructuring and related
charges and goodwill impairment (see
proforma statement on page 8) ($0.05) $ 0.23 (121.7)%
Average shares outstanding-basic 11,548 11,519 0.3 %
Average shares outstanding-diluted 11,548 11,718 (1.5)%
* Percent of sales column for income taxes is calculated as a % of income (loss)
before income taxes.
Page 2 of 13
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 2004, NOVEMBER 2, 2003 AND MAY 2, 2004
Unaudited
(Amounts in Thousands)
Amounts Increase
------------------------ (Decrease)
October 31, November 2, --------------------- * May 2,
2004 2003 Dollars Percent 2004
----------- ----------- --------- --------- ---------
Current Assets
Cash and cash equivalents $ 16,505 16,623 (118) (0.7)% 14,568
Short-term investments 0 15,134 (15,134) (100.0)% 0
Accounts receivable 26,590 31,342 (4,752) (15.2)% 30,719
Inventories 48,528 53,848 (5,320) (9.9)% 49,045
Deferred income taxes 4,980 12,303 (7,323) (59.5)% 9,256
Other current assets 3,100 3,211 (111) (3.5)% 1,634
----------- ----------- --------- --------- ---------
Total current assets 99,703 132,461 (32,758) (24.7)% 105,222
Property, plant & equipment, net 76,062 81,219 (5,157) (6.3)% 77,770
Goodwill 4,114 9,240 (5,126) (55.5)% 9,240
Deferred income taxes 834 0 834 100.0 % 0
Other assets 1,327 1,892 (565) (29.9)% 1,496
----------- ----------- --------- --------- ---------
Total assets $ 182,040 224,812 (42,772) (19.0)% 193,728
=========== =========== ========= ========= =========
Current liabilities
Current maturities of long-term
debt $ 594 539 55 10.2 % 528
Accounts payable 15,192 23,928 (8,736) (36.5)% 15,323
Accrued expenses 11,962 13,522 (1,560) (11.5)% 13,028
Accrued restructuring 5,458 6,712 (1,254) (18.7)% 4,968
Income taxes payable 0 1,578 (1,578) (100.0)% 1,850
----------- ----------- --------- --------- ---------
Total current liabilities 33,206 46,279 (13,073) (28.2)% 35,697
Long-term debt, less current
maturities 50,569 76,077 (25,508) (33.5)% 50,502
Deferred income taxes 0 3,851 (3,851) (100.0)% 4,138
----------- ----------- --------- --------- ---------
Total liabilities 83,775 126,207 (42,432) (33.6)% 90,337
Shareholders' equity 98,265 98,605 (340) (0.3)% 103,391
----------- ----------- --------- --------- ---------
Total liabilities and
shareholders' equity $ 182,040 224,812 (42,772) (19.0)% 193,728
=========== =========== ========= ========= =========
Shares outstanding 11,550 11,529 21 0.2 % 11,547
=========== =========== ========= ========= =========
* Derived from audited financial statements
Page 3 of 13
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED OCTOBER 31, 2004 AND NOVEMBER 2, 2003
Unaudited
(Amounts in Thousands)
SIX MONTHS ENDED
-------------------------
Amounts
-------------------------
October 31, November 2,
2004 2003
----------- -----------
Cash flows from operating activities:
Net income (loss) $ (5,245) 2,735
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 6,900 6,883
Amortization of other assets 70 91
Stock-based compensation 104 105
Goodwill impairment 5,126 0
Deferred income taxes (696) 0
Restructuring expense 1,154 0
Changes in assets and liabilities:
Accounts receivable 4,129 917
Inventories 517 (4,296)
Other current assets (1,466) (7)
Other assets 153 252
Accounts payable 1,228 5,121
Accrued expenses (1,066) (549)
Accrued restructuring (440) (1,031)
Income taxes payable (1,850) 1,229
----------- -----------
Net cash provided by operating activities 8,618 11,450
----------- -----------
Cash flows from investing activities:
Capital expenditures (5,556) (2,954)
Purchases of short-term investments 0 (5,147)
----------- -----------
Net cash used in investing activities (5,556) (8,101)
----------- -----------
Cash flows from financing activities:
Payments on vendor-financed capital expenditures (1,273) (1,254)
Proceeds from issuance of long-term debt 133 116
Proceeds from common stock issued 15 57
----------- -----------
Net cash used in financing activities (1,125) (1,081)
----------- -----------
Increase in cash and cash equivalents 1,937 2,268
Cash and cash equivalents at beginning of period 14,568 14,355
----------- -----------
Cash and cash equivalents at end of period $ 16,505 16,623
=========== ===========
Free Cash Flow (1) $ 1,789 7,242
=========== ===========
- --------------------------------------------------------------------------------------------------------------
(1) Free Cash Flow reconciliation is as follows: 2nd Qtr 2nd Qtr
FY 2005 FY 2004
-------------------------
A) Net cash provided by operating activities 8,618 11,450
B) Minus: Capital Expenditures (5,556) (2,954)
C) Minus: Payments on vendor-financed capital expenditures (1,273) (1,254)
---------- -----------
1,789 7,242
========== ===========
- --------------------------------------------------------------------------------------------------------------
Page 4 of 13
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL ANALYSIS
OCTOBER 31, 2004
FISCAL 04 FISCAL 05
--------- -----------------------------------------
Q2 Q1 Q2 Q3 Q4
--------- -----------------------------------------
INVENTORIES
Inventory turns 5.1 4.7 5.2
RECEIVABLES
Days sales in receivables 34 30 32
WORKING CAPITAL
Current ratio 2.9 3.1 3.0
Operating working capital turnover (1) 5.3 5.1 4.9
Operating working capital (1) $ 61,262 $ 61,468 $ 59,926
PROPERTY, PLANT & EQUIPMENT
Depreciation rate 6.3% 6.1% 6.1%(4)
Percent property, plant &
equipment are depreciated 62.9% 64.2% 64.9%(4)
Capital expenditures $ 6,747(2) $ 4,543 $ 1,008
LEVERAGE
Total liabilities/equity 128.0% 84.2% 85.3%
Long-term debt/equity 77.7% 49.9% 52.1%
Long-term debt/capital employed (3) 43.7% 33.3% 34.1%
Long-term debt $ 76,616 $ 51,064 $ 51,163
OTHER
Book value per share $ 8.55 $ 8.87 $ 8.51
Employees at quarter end 2,373 2,235 2,165
Sales per employee (annualized) $139,161 $119,190 $137,102
Capital employed (3) $175,221 $153,462 $149,428
(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 of long- term
debt.
(4) Property, plant & equipment ratios are calculated excluding accelerated
depreciation of approximately $215,000.
Page 5 of 13
CULP, INC. FINANCIAL INFORMATION RELEASE
SALES, GROSS PROFIT AND OPERATING INCOME (LOSS) BY SEGMENT/DIVISION
FOR THE THREE MONTHS ENDED OCTOBER 31, 2004 AND NOVEMBER 2, 2003
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
----------------------------------------------------------------
Amounts Percent of Total Sales
------------------------- -------------------------
October 31, November 2, % Over October 31, November 2,
Net Sales by Segment 2004 2003 (Under) 2004 2003
- ---------------------------------- ----------- ----------- -------- ----------- -----------
Mattress Fabrics
Culp Home Fashions $ 26,886 26,788 0.4 % 35.7 % 32.4 %
----------- ----------- -------- ----------- -----------
Upholstery Fabrics
Culp Decorative Fabrics 27,278 32,459 (16.0)% 36.2 % 39.2 %
Culp Velvets/Prints 21,242 23,484 (9.5)% 28.2 % 28.4 %
----------- ----------- -------- ----------- -----------
48,520 55,943 (13.3)% 64.3 % 67.6 %
----------- ----------- -------- ----------- -----------
Net Sales $ 75,406 82,731 (8.9)% 100.0 % 100.0 %
=========== =========== ======== =========== ===========
Gross Profit by Segment Gross Profit Margin
- ---------------------------------- -------------------------
Mattress Fabrics $ 4,461 6,329 (29.5)% 16.6 % 23.6 %
Upholstery Fabrics 6,230 10,409 (40.1)% 12.8 % 18.6 %
Restructuring related charges(1) (1,124) 0 100.0 % (2.3)% 0.0 %
----------- ----------- -------- ----------- -----------
Gross Profit $ 9,567 16,738 (42.8)% 12.7 % 20.2 %
=========== =========== ======== =========== ===========
Operating Income (loss) by Segment Operating Income (Loss) Margin
- ---------------------------------- ------------------------------
Mattress Fabrics $ 2,676 4,247 (37.0)% 10.0 % 15.9 %
Upholstery Fabrics 216 3,452 (93.7)% 0.4 % 6.2 %
Unallocated corporate expenses (1,039) (1,257) (17.3)% (1.4)% (1.5)%
Goodwill impairment (5,126) 0 (100.0)% (6.8)% 0.0 %
Restructuring and related charges
and credits (1) (2,416) 0 (100.0)% (5.0)% 0.0 %
----------- ----------- -------- ----------- -----------
Operating income (loss) $ (5,689) 6,442 (188.3)% (7.5)% 7.8 %
=========== =========== ======== =========== ===========
Depreciation by Segment
- ----------------------------------
Mattress Fabrics $ 915(2) 942 (2.9)%
Upholstery Fabrics 2,408(2) 2,498 (3.6)%
----------- ----------- --------
Total Depreciation $ 3,323 3,440 (3.4)%
=========== =========== ========
(1) The $1.1 million represents restructuring related charges for inventory
markdowns and accelerated depreciation. The $2.4 million represents the
$1.1 million restructuring related charges plus $1.3 million in
restructuring charges for fixed asset write-downs and accrued termination
benefits.
(2) Excludes accelerated depreciation of approximately $215,000 associated with
plant and equipment scheduled to be disposed of over the next six months.
Page 6 of 13
CULP, INC. FINANCIAL INFORMATION RELEASE
SALES, GROSS PROFIT AND OPERATING INCOME (LOSS) BY SEGMENT/DIVISION
FOR THE SIX MONTHS ENDED OCTOBER 31, 2004 AND NOVEMBER 2, 2003
(Amounts in thousands)
SIX MONTHS ENDED (UNAUDITED)
----------------------------------------------------------------
Amounts Percent of Total Sales
------------------------- -------------------------
October 31, November 2, % Over October 31, November 2,
Net Sales by Segment 2004 2003 (Under) 2004 2003
- ---------------------------------- ----------- ----------- -------- ----------- -----------
Mattress Fabrics
Culp Home Fashions $ 52,839 54,008 (2.2)% 36.9 % 34.5 %
----------- ----------- -------- ----------- -----------
Upholstery Fabrics
Culp Decorative Fabrics 51,197 62,076 (17.5)% 35.7 % 39.7 %
Culp Velvets/Prints 39,219 40,323 (2.7)% 27.4 % 25.8 %
----------- ----------- -------- ----------- -----------
90,416 102,399 (11.7)% 63.1 % 65.5 %
----------- ----------- -------- ----------- -----------
Net Sales $ 143,255 156,407 (8.4)% 100.0 % 100.0 %
=========== =========== ======== =========== ===========
Gross Profit by Segment Gross Profit Margin
- ---------------------------------- -------------------------
Mattress Fabrics $ 9,255 12,401 (25.4)% 17.5 % 23.0 %
Upholstery Fabrics 10,186 15,815 (35.6)% 11.3 % 15.4 %
Restructuring related charges(1) (1,199) 0 100.0 % (1.3)% 0.0 %
----------- ----------- -------- ----------- -----------
Gross Profit $ 18,242 28,216 (35.3)% 12.7 % 18.0 %
=========== =========== ======== =========== ===========
Operating Income (loss) by Segment Operating Income (Loss) Margin
- ---------------------------------- ------------------------------
Mattress Fabrics $ 5,575 8,391 (33.6)% 10.6 % 15.5 %
Upholstery Fabrics (2,403) 1,733 (238.7)% (2.7)% 1.7 %
Unallocated corporate expenses (1,849) (2,720) (32.0)% (1.3)% (1.7)%
Goodwill impairment (5,126) 0 (100.0)% (3.6)% 0.0 %
Restructuring and related charges
and credits (1) (2,353) 0 (100.0)% (2.6)% 0.0 %
----------- ----------- -------- ----------- -----------
Operating income (loss) $ (6,156) 7,404 (183.1)% (4.3)% 4.7 %
=========== =========== ======== =========== ===========
Depreciation by Segment
- ----------------------------------
Mattress Fabrics $ 1,844(2) 1,886 (2.2)%
Upholstery Fabrics 4,841(2) 4,997 (3.1)%
----------- ----------- --------
Total Depreciation $ 6,685 6,883 (2.9)%
=========== =========== ========
(1) The $1.2 million represents restructuring related charges for inventory
markdowns and accelerated depreciation. The $2.4 million represents the
$1.2 million restructuring related charges plus $1.2 million in
restructuring charges for fixed asset write-downs and accrued termination
benefits.
(2) Excludes accelerated depreciation of approximately $215,000 associated with
plant and equipment scheduled to be disposed of over the next six months.
Page 7 of 13
CULP, INC.
PROFORMA CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE THREE MONTHS ENDED OCTOBER 31, 2004 AND NOVEMBER 2, 2003
(Amounts in Thousands, Except for Per Share Data)
THREE MONTHS ENDED
----------------------------------------------------------------------------------------------------------------
October 31, November 2,
2004 2003
As Proforma As Proforma
Reported Net of Reported Net of Proforma
October % of Adjust- % of Adjust- % of November % of Adjust- % of Adjust- % of % Over
31, 2004 Sales ments Sales ments Sales 2, 2003 Sales ments Sales ments Sales (Under)
----------------- --------------- ------------------ ---------------- -------------- ------------------ --------
Net sales $ 75,406 100.0% 0 75,406 100.0% 82,731 100.0% 0 82,731 100.0% -8.9%
Cost of sales 65,839 87.3% (1,124) -1.5%(1) 64,715 85.8% 65,993 79.8% 0 0.0% 65,993 79.8% -1.9%
----------------- --------------- ------------------ ---------------- -------------- ------------------ --------
Gross profit 9,567 12.7% (1,124) -1.5% 10,691 14.2% 16,738 20.2% 0 0.0% 16,738 20.2% -36.1%
Selling, general
and administrative
expenses 8,838 11.7% 0 0.0% 8,838 11.7% 10,296 12.4% 0 0.0% 10,296 12.4% -14.2%
Goodwill impairment 5,126 6.8% (5,126) 0.0%(3) 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0.0%
Restructuring
expense 1,292 1.7% (1,292) -1.7%(2) 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0.0%
----------------- --------------- ------------------ ---------------- -------------- ------------------ --------
Income (loss)
from operations (5,689) -7.5% (7,542) -10.0% 1,853 2.5% 6,442 7.8% 0 0.0% 6,442 7.8% -71.2%
Interest expense 937 1.2% 0 0.0% 937 1.2% 1,509 1.8% 0 0.0% 1,509 1.8% -37.9%
Interest income (29) 0.0% 0 0.0% (29) 0.0% (121) -0.1% 0 0.0% (121) -0.1% -76.0%
Other expense 173 0.2% 0 0.0% 173 0.2% 62 0.1% 0 0.0% 62 0.1% 179.0%
----------------- --------------- ------------------ ---------------- -------------- ------------------ --------
Income (loss)
before income
taxes (6,770) -9.0% (7,542) -10.0% 772 1.0% 4,992 6.0% 0 0.0% 4,992 6.0% -84.5%
Income taxes (2,577) 38.1% (2,844) 37.7%(4) 267 34.6% 1,846 37.0% 0 0.0% 1,846 37.0% -85.5%
----------------- --------------- ------------------ ---------------- -------------- ------------------ --------
Net income (loss) $ (4,193) -5.6% (4,698) -6.2% 505 0.7% 3,146 3.8% 0 0.0% 3,146 3.8% -84.0%
================= =============== ================== ================ ============== ================== ========
Net income (loss)
per share-basic ($0.36) ($0.41) $0.04 $0.27 $0.00 $0.27
Net income (loss)
per share-diluted ($0.36) ($0.41) $0.04 $0.27 $0.00 $0.27
Average shares
outstanding-basic 11,549 11,549 11,549 11,524 11,524 11,524
Average shares
outstanding-diluted 11,549 11,549 11,722 11,774 11,774 11,774
Notes:
(1) The $1.1 million represents restructuring related charges for inventory
markdowns and accelerated depreciation.
(2) The $1.3 million restructuring charge represents fixed asset write-downs
and accrued termination benefits.
(3) The $5.1 million represents a goodwill impairment charge related to the
Culp Decorative Fabrics division.
(4) The percent of net sales column for income taxes is calculated as a % of
income (loss) before income taxes.
Page 8 of 13
CULP, INC.
PROFORMA CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE SIX MONTHS ENDED OCTOBER 31, 2004 AND NOVEMBER 2, 2003
(Amounts in Thousands, Except for Per Share Data)
SIX MONTHS ENDED
----------------------------------------------------------------------------------------------------------------
October 31, November 2,
2004 2003
As Proforma As Proforma
Reported Net of Reported Net of Proforma
October % of Adjust- % of Adjust- % of November % of Adjust- % of Adjust- % of % Over
31, 2004 Sales ments Sales ments Sales 2, 2003 Sales ments Sales ments Sales (Under)
----------------- --------------- ------------------ ---------------- -------------- ------------------ --------
Net sales $ 143,255 100.0% 0 143,255 100.0% 156,407 100.0% 0 156,407 100.0% -8.4%
Cost of sales 125,013 87.3% (1,199) -0.8%(1) 123,814 86.4% 128,191 82.0% 0 0.0% 128,191 82.0% -3.4%
----------------- --------------- ------------------ ---------------- -------------- ------------------ --------
Gross profit 18,242 12.7% (1,199) -0.8% 19,441 13.6% 28,216 18.0% 0 0.0% 28,216 18.0% -31.1%
Selling, general
and administrative
expenses 18,118 12.6% 0 0.0% 18,118 12.6% 20,812 13.3% 0 0.0% 20,812 13.3% -12.9%
Goodwill impairment 5,126 3.6% (5,126) 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0.0%
Restructuring
expense 1,154 0.8% (1,154) -0.8%(2) 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0.0%
----------------- --------------- ------------------ ---------------- -------------- ------------------ --------
Income (loss)
from operations (6,156) -4.3% (7,479) -5.2% 1,323 0.9% 7,404 4.7% 0 0.0% 7,404 4.7% -82.1%
Interest expense 1,877 1.3% 0 0.0% 1,877 1.3% 3,006 1.9% 0 0.0% 3,006 1.9% -37.6%
Interest income (56) 0.0% 0 0.0% (56) 0.0% (243) -0.2% 0 0.0% (243) -0.2% -77.0%
Other expense 387 0.3% 0 0.0% 387 0.3% 301 0.2% 0 0.0% 301 0.2% 28.6%
----------------- --------------- ------------------ ---------------- -------------- ------------------ --------
Income (loss)
before income
taxes (8,364) -5.8% (7,479) -5.2% (885) -0.6% 4,340 2.8% 0 0.0% 4,340 2.8% -120.4%
Income taxes (3,119) 37.3% (2,823) 37.7%(4) (296) 33.5% 1,605 37.0% 0 0.0% 1,605 37.0% -118.5%
----------------- --------------- ------------------ ---------------- -------------- ------------------ --------
Net income (loss) $ (5,245) -3.7% (4,656) -3.3% (589) -0.4% 2,735 1.7% 0 0.0% 2,735 1.7% -121.5%
================= =============== ================== ================ ============== ================== ========
Net income (loss)
per share-basic ($0.45) ($0.40) ($0.05) $0.24 $0.00 $0.24
Net income (loss)
per share-diluted ($0.45) ($0.40) ($0.05) $0.23 $0.00 $0.23
Average shares
outstanding-basic 11,548 11,548 11,548 11,519 11,519 11,524
Average shares
outstanding-diluted 11,548 11,548 11,548 11,718 11,718 11,774
Notes:
(1) The $1.2 million represents restructuring related charges for inventory
markdowns and accelerated depreciation.
(2) The $1.2 million restructuring charge represents fixed asset write-downs
and accrued termination benefits.
(3) The $5.1 million represents a goodwill impairment charge related to the
Culp Decorative Fabrics division.
(4) The percent of net sales column for income taxes is calculated as a % of
income (loss) before income taxes.
Page 9 of 13
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three and six months ended October 31 , 2004 and November 2, 2003
OVERVIEW
- --------
Highlights for the second quarter ended October 31, 2004, include:
o Announced strategic plan expected to realize over $14 million in annual
savings
o Restructuring initiatives underway to consolidate domestic capacity
o Continued expansion of offshore manufacturing and sourcing capabilities,
with sales of these upholstery fabrics up 143 percent over the same period
last year
o Long-term debt-to-capital ratio of 34.1 percent compared with 43.7 percent
a year ago
GENERAL -- The financial results for the second quarter reflect weak demand for
upholstery fabrics and industry wide pricing pressure impacting the mattress
fabrics segment. While the company anticipated the normal seasonal pick-up in
demand that occurs in the fall, sales in the upholstery segment were
approximately 13% lower than the same period last year. Overall, the retail
furniture business has not demonstrated signs of a meaningful recovery from the
summer slowdown. For the second quarter of fiscal 2005, consolidated net sales
decreased 8.9% to $75.4 million; and the company reported a net loss of $4.2
million, or $0.36 per share diluted, compared with net income of $3.1 million,
or $0.27 per diluted share, for the second quarter of fiscal 2004. The financial
results for this quarter reflect a total of $2.4 million in restructuring and
related charges, and $5.1 million in goodwill impairment. Excluding these
charges, net income for the second quarter of fiscal 2005 was $505,000, or $0.04
per share (see reconciliation on page 7). For the first six months of fiscal
2005, net sales decreased 8.4% to $143.3 million; and the company reported a net
loss of $5.2 million, or $0.45 per share diluted, compared with net income of
$2.7 million or $0.23 per share diluted, for the same period last year.
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 share diluted
(see reconciliation on page 8). Year-to-date for fiscal 2005 included 26 weeks
versus 27 weeks for the same period of fiscal 2004.
RESTRUCTURING AND RELATED CHARGES -- The financial results for the second
quarter include a total of $7.5 million in restructuring and related charges and
goodwill impairment. The charges are made up of the following: (1) $5.1 million
of goodwill impairment , which is the result of an evaluation of all of the
remaining goodwill associated with the upholstery fabrics segment; (2) $1.3
million in restructuring expenses related to the Culp Decorative Fabrics ("CDF")
and Culp Velvets/Prints ("CVP") divisions, which includes approximately $1.0
million in personnel costs and approximately $300,000 in write-downs of
equipment; and (3) $1.1 million of restructuring related costs for the CDF
division, which include inventory mark-downs and accelerated depreciation
associated with plant and equipment scheduled to be disposed of, either by sale
or by abandonment, over the next six months. As reflected in the financial
statements, restructuring and related expenses were recorded as $1.3 million in
the line item "restructuring expense" and $1.1 million in "cost of sales." The
goodwill impairment charge and restructuring and related expenses have reduced
net income per share by $0.41 for the second quarter of fiscal 2005. The
goodwill impairment was accounted for in accordance with SFAS 142, "Goodwill and
Other Intangible Assets." The write-down of equipment and accelerated
depreciation was accounted for in accordance with SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." Personnel costs were accounted
for in accordance with SFAS No. 112, "Accounting for Employers' Accounting for
Postemployment Benefits."
Upholstery Fabrics Segment
The restructuring and related charges for the upholstery fabrics segment reflect
the restructuring initiative announced in October 2004. The restructuring plan
is designed to reduce costs, increase asset utilization and improve
profitability within the upholstery fabrics segment. The company has made
substantial progress over the past several years with previous restructuring
initiatives. However, with continued pressure on demand in this segment,
management has decided to move forward with plans to further adjust the
company's cost structure and bring U.S. manufacturing capacity in line with
current and expected demand. The restructuring plan principally involves
consolidation of the company's decorative fabrics weaving operations by closing
Culp's facility in Pageland, South Carolina, and consolidating those operations
into the Graham, North Carolina facility. Additionally, the company will be
consolidating its yarn operations by integrating the production of the
Cherryville, North Carolina plant into the company's Shelby, North Carolina
facility. Another important element of the restructuring plan will be a
substantial reduction in certain raw material and finished goods stock keeping
units, or SKUs, to reduce manufacturing complexities and lower costs, with the
ongoing objective of identifying and eliminating products that are not
generating acceptable volumes or margins. Finally, the company is making
significant reductions in selling, general and administrative expenses. Overall,
these restructuring actions will reduce the number of associates by
approximately 250 people, representing approximately 14 percent of those in
Culp's upholstery fabrics segment. The implementation of these restructuring
initiatives has already begun and is expected to be completed by May 1, 2005,
the end of the current fiscal year. The company expects the restructuring
actions to result in total pre-tax charges of approximately $20 million ($13
million on an after-tax basis). Approximately $15 million of the pre-tax amount
is expected to be non-cash items, including $5.1 million for goodwill
impairment. As described above, of the total charges expected, $7.5 million
($4.7 million, net of taxes, or $0.41 per diluted share) was incurred in the
second fiscal quarter. The remaining charges are expected to be recorded in the
third and fourth quarters of fiscal 2005, as incurred.
Page 10 of 13
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three and six months ended October 31 , 2004 and November 2, 2003
As a result of these plant consolidations and other cost-reduction initiatives,
the company expects to realize annual savings of approximately $9.5 million, of
which approximately $4.0 million will be in fixed manufacturing costs, an
estimated $2.0 million in variable manufacturing costs, and approximately $3.5
million in selling, general and administrative costs. Once these initiatives are
completed, the company will have seven manufacturing facilities operating in the
upholstery fabrics segment, including one facility in China. Management believes
this configuration will allow the company to utilize its domestic operations
more efficiently, especially for promotional, commercial fabric and
make-to-order businesses. At the same time, the company intends to continue
aggressively pursuing its strategy to source upholstery fabrics that are not
manufactured in the U.S. As described in more detail below, sales of upholstery
fabrics produced outside of the company's U.S. manufacturing plants are
accounting for an increasing percentage of the company's overall upholstery
fabric sales. Management believes that blending efficient domestic manufacturing
with an aggressive offshore manufacturing and sourcing strategy allows the
company to offer a compelling value proposition and better meet customer
demands.
Mattress Fabrics Segment
In order to reduce manufacturing costs, the company will be consolidating its
mattress fabric manufacturing into two plants located in Quebec, Canada, and
Stokesdale, North Carolina. This project will involve relocation of ticking
looms from an upholstery fabric plant and the purchase of new looms that are
faster and more efficient than the equipment they will replace. The capital
expenditure amount budgeted for this project is approximately $7.0 million over
the current and next fiscal year. This project will begin in November 2004 and
is expected to be completed by August 2005. The company anticipates
approximately $4.5 million in annualized savings to be achieved as a result of
this capital project.
STATEMENT OF OPERATIONS COMMENTS
- --------------------------------
MATTRESS FABRICS SEGMENT (See page 5 - Sales, Gross Profit and Operating Income
(Loss) by Segment)
Net Sales -- Mattress fabric (known as mattress ticking) sales of $26.9
million for the second quarter of fiscal 2005 were up slightly from the same
period a year ago. Mattress ticking yards sold during the second quarter of
fiscal 2005 were 11.3 million compared with 10.9 million yards in the second
quarter of last year, an increase of 3.7%. This increase in yards sold is
noteworthy because it occurred as the bedding industry nears the completion of
the transition to selling predominantly one-sided mattresses, which utilize
about one-third less mattress ticking. The average selling price was $2.35 per
yard for the second quarter, compared to $2.43 per yard in the same quarter last
year, a decrease of 3.3%.
Page 11 of 13
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three and six months ended October 31 , 2004 and November 2, 2003
Operating income -- For the second quarter of fiscal 2005, the mattress
fabrics segment reported operating income of $2.7 million, or 10.0% of sales,
compared with $4.2 million, or 15.9% of sales, for the prior year period.
Operating income was primarily impacted by industry wide pricing pressure and
inventory markdowns related to certain customer programs. Additionally,
operating income was negatively impacted by increased raw material costs due
primarily to the increased cost of petroleum based products. Also, mattress
manufacturers are currently incurring higher costs for other mattress
components, such as steel, as well as costs associated with flame retardant
requirements. As a result of these increased costs, mattress manufacturers are
placing additional pressure on mattress ticking prices, and in some instances
manufacturers are moving to lower priced ticking.
UPHOLSTERY FABRICS SEGMENT (See page 5-Sales, Gross Profit and Operating Income
(Loss) by Segment)
Net Sales -- Upholstery fabric sales for the second quarter of fiscal 2005
decreased 13.3% to $48.5 million when compared to the second quarter of fiscal
2004. The lower sales primarily reflect soft demand by furniture retailers, as
well as current consumer preference for leather furniture and increased
competition from imported fabrics, including cut and sewn kits, primarily from
Asia.
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 increased 143%
over the prior year period and accounted for approximately $7.0 million or 14.4%
of upholstery fabric sales for the quarter. Offshore sourced fabrics of $2.9
million accounted for approximately 5.1% of upholstery fabric sales for the same
period last year.
Upholstery fabric yards sold during the second quarter were 10.7 million
versus 13.1million in the second quarter of fiscal 2004, a decline of 18.3%.
Average selling price was $4.23 per yard for the second quarter compared with
$4.13 per yard in the same quarter of last year, an increase of 2.4 %, due to
higher average selling prices in both the CDF and CVP divisions.
Operating income (loss) -- Operating income for the second quarter of
fiscal 2005 was $216,000, or .4% of sales, compared with operating income of
$3.5 million, or 6.2% of sales, for the same period last year. The significant
decrease in segment income as compared to last year was primarily due to further
underutilization of the company's U.S. manufacturing capacity. Additionally, the
upholstery fabrics segment has been experiencing higher raw material costs due
mainly to the increase in cost of petroleum based products.
SG&A EXPENSES -- SG&A expenses of $8.8 million for the second quarter of
fiscal 2005 decreased approximately $1.5 million, or 14.2%, from the prior year
amount. As a percent of net sales, SG&A expenses decreased to 11.7% from 12.4%
the previous year, due mostly to lower incentive compensation expense and lower
professional fees.
Unallocated Corporate Expenses - The unallocated corporate expense category
includes certain items that have not been allocated to the company's segments
(see Page 5 - Sales and Gross Profit/Operating Income (Loss) by Segment). The
major components of unallocated corporate expenses include compensation and
benefits for certain executive officers and all costs related to being a public
company. For the second quarter of fiscal 2005, unallocated corporate expenses
totaled $1.0 million compared with $1.3 million for the same period last year,
reflecting a decrease in incentive compensation expense and professional fees.
INTEREST EXPENSE AND INTEREST INCOME -- Interest expense for the second
quarter declined to $937,000 from $1.5 million the previous year due to lower
borrowings outstanding. Interest income decreased to $29,000 from $121,000 the
previous year due to lower invested balances in fiscal 2005.
Page 12 of 13
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three and six months ended October 31 , 2004 and November 2, 2003
INCOME TAXES - The effective tax rate (taxes as a percentage of pretax
income (loss)) for the first six months of fiscal 2005 was 37.3% compared with
37.0% for the first six months of fiscal 2004. Excluding restructuring and
related charges and goodwill impairment, the effective tax rate for the first
half of fiscal 2005 was 33.5%
BALANCE SHEET COMMENTS
- ----------------------
CASH AND CASH EQUIVALENTS -- Cash and cash equivalents as of October 31,
2004 increased to $16.5 million from $14.6 million at the end of fiscal 2004,
primarily reflecting cash flow from operations of $8.6 million and capital
expenditures and payments on vendor financed capital expenditures of $6.9
million.
WORKING CAPITAL -- Accounts receivable as of October 31, 2004 decreased
15.2% from the year-earlier level. Days sales outstanding totaled 32 days at
October 31, 2004 compared with 34 days a year ago. Inventories at the close of
the second quarter decreased 9.9% from a year ago. Inventory turns for the
second quarter were 5.2 versus 5.1 for the year-earlier period. Operating
working capital (comprised of accounts receivable and inventories, less trade
accounts payable) was $59.9 million at October 31, 2004, down from $ 61.3
million a year ago.
PROPERTY, PLANT AND EQUIPMENT -- Capital spending for the first six months
of fiscal 2005 was $5.5 million, including approximately $4.3 million for the
purchase of a building that will serve as the company's new corporate offices
and as new space for the company's showrooms. The company expects the annual
operating costs of the new building to be significantly lower than the lease and
related costs associated with the current facilities. Depreciation for the
second quarter was $3.5 million, of which approximately $215,000 was related to
accelerated depreciation associated with plant and equipment scheduled to be
disposed of over the next six months. As part of the fiscal 2005 restructuring
plan, the company increased the capital budget by $6.1 million to approximately
$15.6 million, of which $4.9 million relates to the mattress ticking plant
consolidation.
INTANGIBLE ASSETS -- As of October 31, 2004, $4.1 million in goodwill,
which relates to the mattress fabrics segment, is the company's only intangible
asset. In the second quarter of fiscal 2005, the company's $5.1 million in
remaining goodwill associated with the upholstery fabrics segment was written
off based on an evaluation of this segment in accordance with SFAS 142,
"Goodwill and Other Intangible Assets."
LONG-TERM DEBT -- The company's long-term debt of $51.2 million is
unsecured and is comprised of $50.0 million in outstanding senior notes, with a
fixed interest rate of 7.76%, and a $1.2 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 October
31, 2004. The current bank agreement, which was due to expire in August 2004,
has been extended to August 2005. The first scheduled principal payment on the
$50.0 million senior notes 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 October 31, 2004.
Page 13 of 13
CULP, INC. FINANCIAL INFORMATION RELEASE
FINANCIAL NARRATIVE
for the three and six months ended October 31 , 2004 and November 2, 2003
CASH FLOW FROM OPERATIONS COMMENTS
- ----------------------------------
Cash flow from operations was $8.6 million for the first six months of
fiscal 2005, compared with $11.5 million for the same period last year. This
decrease was due primarily to lower profitability.
BUSINESS OUTLOOK
- ----------------
The third quarter is typically a slower period for the company's overall
business as a result of traditional holiday plant shutdowns. For the current
quarter, the company expects mattress ticking sales to approximate the third
quarter sales from last year and expects the operating income margin in this
segment to approximate the margin of 10.0 percent reported for the second
quarter of this year. With respect to the upholstery fabrics segment, the
outlook still remains uncertain for a recovery in demand for domestically
produced upholstery fabrics. For the third quarter, upholstery fabrics segment
sales are expected to decrease slightly more than the second quarter decline of
13.3 percent. The company expects this sales decline, combined with the raw
material price increases the company is currently experiencing, will result in
an operating loss for this segment. During the third fiscal quarter, the company
estimates that previously announced restructuring and related charges of
approximately $7.0 million ($4.4 million, net of taxes, or $0.38 per diluted
share) will be incurred. Including these charges, the company expects to report
a net loss in the range of $0.44 to $0.48 per share diluted. Excluding the
restructuring and related charges, the company expects to report a net loss for
the third fiscal quarter of $0.06 to $0.10 per diluted share, with the actual
results depending primarily on the level of demand throughout the quarter.