Exhibit 99(a)
Culp Announces Third Quarter Fiscal 2005 Results
HIGH POINT, N.C.--(BUSINESS WIRE)--Feb. 23, 2005--Culp, Inc.
(NYSE: CFI) today reported financial and operating results for the
third quarter and nine months ended January 30, 2005.
Overview
For the three months ended January 30, 2005, net sales were $69.1
million, compared with net sales of $76.6 million a year ago. The
company reported a net loss of $4.9 million, or $0.42 per diluted
share, for the third quarter of fiscal 2005, compared with net income
of $752,000, or $0.06 per diluted share, for the third quarter of
fiscal 2004. The financial results for the third quarter of fiscal
2005 include after-tax restructuring and related charges of $3.4
million, or $0.29 per diluted share. Excluding these charges, net loss
for the third fiscal quarter was $1.5 million, or $0.13 per diluted
share. The results for the third fiscal quarter of fiscal 2004 include
a one-time after-tax charge of $1.1 million, or $0.10 per diluted
share, related to the prepayment of debt. Excluding this charge for
the early extinguishment of debt, net income for the third fiscal
quarter of fiscal 2004 was $1.9 million, or $0.16 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 nine months ended January 30, 2005, the company reported
net sales of $212.3 million compared with $233.0 million for the same
period a year ago. Net loss for the first nine months of fiscal 2005
was $10.1 million, or $0.88 per diluted share, compared with net
income of $3.5 million, or $0.30 per diluted share, for the same
period of fiscal 2004. Excluding restructuring and related charges and
goodwill impairment, net loss for the first nine months of fiscal 2005
was $2.1 million, or $0.18 per diluted share. Excluding the $1.1
million charge for the early extinguishment of debt, net income for
the first nine months of fiscal 2004 was $4.6 million, or $0.39 per
diluted share. The year-to-date period for fiscal 2005 included 39
weeks versus 40 weeks for the same period of fiscal 2004.
"Our results for the third quarter primarily reflect continued
soft demand for domestically produced upholstery fabrics and, to a
lesser extent, pricing pressures for mattress ticking and higher raw
material costs," remarked Robert G. Culp, III, chief executive officer
of Culp, Inc. "Additionally, because of scheduled holiday plant
closings, the third fiscal quarter is typically a slower period of the
year for our business. Our expectation of this seasonal softness in
sales put an even greater emphasis on efficiently managing our
operations and controlling expenses during the quarter. Overall, we
are pleased with the progress we have made with respect to our
strategic plan to reconfigure Culp's manufacturing operations and
believe we are taking the right steps to move the company forward in
today's global marketplace."
Mattress Fabrics Segment
Mattress fabric (known as mattress ticking) sales were $25.6
million compared with $25.1 million for the third quarter of fiscal
2004. Operating income for this segment was $1.6 million, or 6.2
percent of sales, compared with $3.0 million, or 12.1 percent of
sales, for the prior-year period. Operating margins in this segment
were affected by industry-wide pricing pressures, as well as higher
raw material costs and manufacturing variances related to the
relocation of mattress ticking looms.
"We are pleased to report year-over-year improvement in our
mattress ticking sales and believe we have a strong competitive
position with key customers," noted Culp. "While sales for the quarter
were up approximately two percent in absolute dollars, we actually
sold close to nine percent more yards of ticking than we did a year
ago. However, we have continued to face challenges in achieving our
target operating margins. To partially offset higher raw material
costs, we are implementing a price increase of approximately three
percent in this segment during the fourth quarter of this fiscal year.
As previously announced in October of 2004, we have identified
opportunities to reduce our operating costs by consolidating our
mattress ticking operations. This $7.0 million capital project
involves relocation of ticking looms from an upholstery fabric plant
to existing mattress ticking facilities in the U.S. and Canada and the
purchase of new weaving machines that are faster and more efficient
than the equipment they will replace. This transition is well underway
and is expected to be completed as planned by August 2005. More
importantly, the expected $4.5 million in savings will allow us to
compete more effectively and sustain our leadership position."
Upholstery Fabrics Segment
Sales for this segment were $43.5 million, a 15.5 percent decline
compared with $51.4 million in the third quarter of fiscal 2004.
Overall, sales reflect continued soft demand industry-wide for U.S.
produced upholstery fabrics resulting primarily from the current
consumer preference for leather and suede furniture as well as
customer selection of other imported fabrics. Operating loss for this
segment was $2.0 million, compared with operating income of $2.3
million, or 4.4 percent of sales, for the same period a year ago. The
continued underutilization of U.S. capacity, higher raw material
prices and manufacturing variances related to restructuring activities
affected profit margins for the upholstery fabrics segment.
Culp noted, "The purpose of our restructuring plan in the
upholstery fabrics segment, announced in October 2004, is to
consolidate our decorative fabrics weaving and yarn operations, reduce
manufacturing complexities and lower costs, and significantly reduce
selling, general and administrative expenses. The restructuring is
moving ahead as planned and we believe that the steps we are taking
today will place Culp in a stronger position in terms of both
operating efficiency and higher asset utilization. However, we are
continuing to evaluate our costs and manufacturing capacity throughout
our U.S. operations and remain committed to adjusting our domestic
cost structure as necessary to keep it in line with expected demand
for U.S. produced products. Additionally, to partially offset higher
raw material prices, we have recently announced a price increase of
approximately three to four percent on our domestically produced
upholstery fabrics.
We are enthusiastic about the momentum in our offshore
manufacturing and sourcing programs which significantly enhance our
ability to meet the changing demands of our customers as they continue
to source an increasing amount of fabrics and cut-and-sewn kits from
Asia. Sales of upholstery fabrics produced outside of our U.S.
manufacturing plants, which include the popular micro-denier suedes as
well as fabrics produced at our China facility, were up 92 percent
over the same period last year and accounted for almost 20 percent of
Culp's overall upholstery fabric sales during the quarter.
Balance Sheet
"One of our important financial goals is to maintain a sound
balance sheet," added Culp. "Our cash position was $13.0 million at
the close of the third quarter of fiscal 2005, compared with $14.6
million at the end of fiscal 2004. Long-term debt stands at $50.6
million and our long-term debt-to-capital ratio is 35.1 percent.
Outlook
Commenting on the outlook for the remainder of the fiscal year
ending May 1, 2005, Culp continued, "Given current market conditions,
we expect to see a year-over-year decline in our overall sales
performance for the fourth quarter that is slightly higher than the
sales decrease in our third fiscal quarter of 9.8 percent. However, we
are encouraged by the recent trends in our mattress ticking business
and we expect mattress ticking sales will show a modest gain over
fourth quarter sales last year. Operating income margin in this
segment is expected to improve from the third quarter and approximate
the margin of 10.0 percent reported for the second quarter of this
year. With respect to the upholstery fabrics segment, while we expect
continued growth in sales of fabrics sourced outside the U.S., the
outlook remains uncertain for any recovery in demand for domestically
produced upholstery fabrics. For the fourth quarter, upholstery
fabrics segment sales are expected to decrease somewhat more than the
third quarter decline of 15.5 percent. We believe the continued
softness in demand for domestically produced upholstery fabrics and
the related underutilization of U.S. capacity, combined with the raw
material price increases we are experiencing, will result in an
operating loss, although smaller than that reported in the third
fiscal quarter for this segment. In light of these factors, we expect
to report a net loss of $0.03 to $0.08 per diluted share in the fourth
fiscal quarter, excluding previously announced restructuring and
related charges, with the actual results depending primarily on the
level of demand throughout the quarter."
The company estimates that restructuring and related charges of
approximately $4.0 million, net of taxes, or $0.35 per diluted share,
will be incurred during the fourth fiscal quarter. Including the
restructuring and related charges, the company expects to report a net
loss for the fourth fiscal quarter of $0.38 to $0.43 per diluted
share. (A reconciliation of the projected net loss per share
calculation has been set forth on page 6.)
Culp added, "We clearly recognize the challenges facing our
domestic upholstery fabric business and we will continue to adapt our
strategy to meet these challenges head on. As we enter the final
quarter of fiscal 2005 and look forward to fiscal 2006, we are excited
about our growth prospects and leadership position with respect to our
mattress fabric and offshore upholstery fabric businesses. In
addition, we will remain focused on reducing costs and increasing
asset utilization in our U.S. upholstery fabric operations and
improving profitability in this part of our business."
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" within the meaning of the federal
securities laws, including the Private Securities Litigation Reform
Act of 1995 (Section 27A of the Securities Act of 1933 and Section 27A
of the Securities and Exchange Act of 1934). Such statements are
inherently subject to risks and uncertainties. Further,
forward-looking statements are intended to speak only as of the date
on which they are made. Forward-looking statements are statements that
include projections, expectations or beliefs about future events or
results or otherwise are not statements of historical fact. Such
statements are often but not always characterized by qualifying words
such as "expect," "believe," "estimate," "plan" and "project" and
their derivatives, and include but are not limited to statements about
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, and general economic conditions. Decreases in these economic
indicators could have a negative effect on the company's business and
prospects. Likewise, increases in interest rates, particularly home
mortgage rates, and increases in consumer debt or the general rate of
inflation, could affect the company adversely. In addition,
strengthening of the U.S. dollar against other currencies could make
the company's products less competitive on the basis of price in
markets outside the United States. Also, economic and political
instability in international areas could affect the company's
operations or sources of goods in those areas, as well as demand for
the company's products in international markets. Finally,
unanticipated delays or costs in executing restructuring actions could
cause the cumulative effect of restructuring actions to fail to meet
the objectives set forth by management. Other factors that could
affect the matters discussed in forward-looking statements are
included in the company's periodic reports filed with the Securities
and Exchange Commission.
CULP, INC.
Condensed Financial Highlights
(Unaudited)
Three Months Ended Nine Months Ended
------------------------ --------------------------
January 30, February 1, January 30, February 1,
2005 2004 2005 2004
----------- ----------- ------------ ------------
Net sales $69,060,000 $76,561,000 $212,315,000 $232,968,000
Net income
(loss) $(4,877,000) $ 752,000 $(10,122,000) $ 3,487,000
Net income
(loss) per
share:
Basic $ (0.42) $ 0.07 $ (0.88) $ 0.30
Diluted $ (0.42) $ 0.06 $ (0.88) $ 0.30
Net income (loss)
per share, diluted,
excluding
restructuring and
related charges,
goodwill impairment
and early
extinguishment
of debt(a) $ (0.13) $ 0.16 $ (0.18) $ 0.39
Average shares
outstanding:
Basic 11,550,000 11,529,000 11,549,000 11,522,000
Diluted 11,550,000 11,859,000 11,549,000 11,764,000
(a) Excludes restructuring and related charges of $5.4 million ($3.4
million or $0.29 per diluted share, after taxes) for the third
quarter of fiscal 2005. Excludes restructuring and related
charges and goodwill impairment of $12.9 million ($8.0 million or
$0.70 per diluted share, after taxes) for the first nine months
of fiscal 2005. For the third quarter and nine months ended
February 1, 2004, excludes charge for early extinguishment of
debt of $1.7 million ($1.1 million, or $0.10 per diluted share,
after taxes).
CULP, INC.
Reconciliation of Net Income (Loss) as Reported
to Pro Forma Net Income
(Unaudited)
Three Months Ended Nine Months Ended
------------------------ --------------------------
January 30, February 1, January 30, February 1,
2005 2004 2005 2004
----------- ----------- ------------ ------------
Net income (loss),
as reported $(4,877,000) $ 752,000 $(10,122,000) $ 3,487,000
Restructuring and
related charges
and goodwill
impairment, net
of income taxes 3,387,000 -- 8,043,000 --
Early extinguishment
of debt, net of
income taxes -- 1,120,000 -- 1,120,000
----------- ----------- ------------ ------------
Pro forma net
income (loss) $(1,490,000) $ 1,872,000 $ (2,079,000) $ 4,607,000
=========== =========== ============ ============
Reconciliation of Net Income (Loss) Per Share as Reported
to Pro Forma Net Income Per Share
(Unaudited)
Three Months Ended Nine Months Ended
------------------------ --------------------------
January 30, February 1, January 30, February 1,
2005 2004 2005 2004
----------- ----------- ------------ ------------
Diluted net income
(loss) per share $ (0.42) $ 0.06 $ (0.88) $ 0.30
Restructuring and
related charges
and goodwill
impairment, net
of income taxes 0.29 -- 0.70 --
Early extinguishment
of debt, net of
income taxes -- 0.10 -- 0.10
Effect of dilutive
stock options -- -- -- (0.01)
----------- ----------- ------------ ------------
Diluted net income
per share,
adjusted $ (0.13) $ 0.16 $ (0.18) $ 0.39
=========== =========== ============ ============
Reconciliation of Projected Range of Net Loss Per Share to
Projected Range of Pro Forma Net Loss Per Share
(Unaudited)
Three Months
Ending
May 1,
2005
--------------
Projected range of net loss per diluted share $(0.38)-(0.43)
Projected restructuring and related charges,
net of income taxes 0.35
--------------
Projected range of pro forma net loss per diluted share $(0.03)-(0.08)
==============
CONTACT: Culp Inc., High Point
Investor:
Kathy J. Hardy, 336-888-6209
or
Media:
Kenneth M. Ludwig, 336-889-5161