Exhibit 99(a)
Culp Announces Third Quarter Fiscal 2007 Results
HIGH POINT, N.C.--(BUSINESS WIRE)--March 7, 2007--Culp, Inc.
(NYSE: CFI) today reported financial and operating results for the
fiscal 2007 third quarter and nine months ended January 28, 2007.
Overview
For the three months ended January 28, 2007, net sales were $55.7
million compared with $61.0 million a year ago. The company reported a
net loss of $2.2 million, or $0.19 per diluted share, for the third
quarter of fiscal 2007. Included in these results is a non-cash income
tax charge of $452,000, or $0.04 per diluted share, related to the
exercise of non-qualified stock options. The financial results for the
third quarter of fiscal 2007 also include $2.1 million, or $0.18 per
diluted share, in restructuring and related charges, after taxes.
Excluding these restructuring and related charges, net loss for the
third fiscal quarter was $99,000, or $0.01 per diluted share. The
company reported a net loss of $2.2 million, or $0.19 per diluted
share, for the third quarter of fiscal 2006. The financial results for
the third quarter of fiscal 2006 included $1.0 million, or $0.09 per
diluted share, in restructuring and related charges, after taxes.
Excluding these charges, net loss for the third fiscal quarter of
fiscal 2006 was $1.1 million, or $0.10 per diluted share. (A
reconciliation of the net loss and net loss per share calculations has
been set forth on Page 6.)
For the nine months ended January 28, 2007, the company reported
net sales of $177.3 million compared with $190.4 million for the same
period a year ago. Net loss for the first nine months of fiscal 2007
was $1.3 million, or $0.11 per diluted share, compared with a net loss
of $10.3 million, or $0.89 per diluted share, for the same period last
year. Excluding restructuring and related charges, net income for the
first nine months of fiscal 2007 was $2.1 million, or $0.18 per
diluted share. Excluding restructuring and related charges, net loss
for the first nine months of fiscal 2006 was $2.1 million, or $0.18
per diluted share.
Robert G. Culp, III, chairman of the board and chief executive
officer of Culp, Inc., said, "Our third quarter performance reflects
continued progress for Culp in fiscal 2007. We are pleased with our
execution as we continue to work through a number of important
operational changes in each of our operating segments. We believe we
are creating a sustainable upholstery fabrics business model that will
meet current customer demand. With the substantial investments we have
made in our mattress fabrics segment and the recent acquisition of
the mattress fabrics product line of International Textile Group,
Inc.'s Burlington House Division ("ITG"), we are firmly committed to
the future of the mattress fabrics business. We have a strong
competitive position and are excited about the significant
opportunities ahead for Culp in mattress fabrics. We continue to move
Culp forward and believe we are taking the right steps to extend the
leadership positions we enjoy in both of our operating segments."
Mattress Fabrics Segment
Mattress fabric (known as mattress ticking) sales for the third
quarter were $24.4 million, a 7.6 percent increase compared with $22.7
million for the third quarter of fiscal 2006. On a unit volume basis,
total yards sold increased by nine percent compared with the third
quarter of fiscal 2006. These results include $1.0 million in
incremental sales related to the company's acquisition of ITG's
mattress fabrics product line. This transaction closed on January 22,
2007. The average selling price for mattress fabrics was $2.32 per
yard for the third quarter compared with $2.35 per yard for same
period last year. Operating income for this segment was $2.5 million,
or 10.3 percent of sales, compared with $1.8 million, or 7.9 percent
of sales, for the prior-year period.
"Mattress fabric has become an increasingly important part of our
business and accounted for 44 percent of the company's sales in our
third fiscal quarter," added Frank Saxon, president of Culp. "We are
pleased with the performance in this segment with operating income up
nearly 40 percent over the same period last year and operating margins
over 10 percent for the second consecutive quarter. Our recently
announced acquisition of ITG's mattress fabrics business extends our
leadership position in the mattress fabrics industry. We believe this
transaction provides the opportunity to increase our annual sales in
mattress fabrics by approximately $30 to $40 million with only a
modest investment in fixed assets. We will be transitioning the ITG
production to Culp facilities and suppliers over the next several
months and we are pleased with the excellent cooperation from ITG
which is helping to ensure an orderly transition for our customers."
Upholstery Fabrics Segment
Sales for this segment were $31.3 million, an 18 percent decline
compared with $38.4 million in the third quarter of fiscal 2006. Total
yards sold declined by 17 percent, while average selling prices were
down one percent compared with the third quarter of fiscal 2006. Sales
of upholstery fabrics reflect continued soft demand industrywide for
U.S. produced fabrics, driven by consumer preference for leather and
suede furniture and other imported fabrics, including cut and sewn
kits. Sales of U.S. produced fabrics were $14.0 million, down 41
percent from the third quarter of fiscal 2006, while sales of non-U.S.
produced fabrics were $17.4 million, up 18 percent over the prior year
period. Operating loss for the upholstery fabrics segment for the
third quarter of fiscal 2007 was $496,000, a significant improvement
compared with an operating loss of $1.6 million for the same period a
year ago. These results reflect higher gross profit of non-U.S.
produced fabrics, but continued low gross profit levels related to
sales of U.S. produced fabrics.
"The results for our upholstery fabric segment continue to reflect
growth in sales of non-U.S. produced fabrics and very weak demand for
U.S. produced fabrics," added Saxon. "Sales of non-U.S. produced
fabrics represented 55 percent of total upholstery fabric sales for
the third quarter, compared with 38 percent a year ago. We have been
highly successful with our China platform and we are excited about the
potential growth opportunities as we expand our capabilities. As our
customers have continued to aggressively source fabrics produced
outside the U.S., we believe Culp is well positioned to meet this
demand with a strong focus on product innovation, quality and global
logistics.
"With respect to the U.S. produced upholstery fabrics business,
since the beginning of fiscal 2007 we have made considerable progress
in changing our product strategy, reducing our manufacturing
complexities and improving our cost structure. However, the declining
sales volumes have continued to affect the profitability of our
overall upholstery fabrics business. During the third quarter, we made
the decision to further consolidate our U.S. upholstery fabrics
manufacturing facilities and outsource our specialty yarn production.
As a result, we are closing the company's weaving plant located in
Graham, North Carolina, and closing the yarn plant located in
Lincolnton, North Carolina. We are transferring certain production
from the Graham plant to our Anderson, South Carolina, and Shanghai,
China, facilities as well as a small portion to contract weavers. We
will continue to operate one upholstery fabrics plant in Anderson,
which will primarily produce velvets and a limited amount of
decorative fabrics. This facility has a book value of fixed assets of
approximately $2.2 million. By further consolidating our U.S.
manufacturing operations and utilizing lower-cost manufacturing
alternatives, we are reducing our operating costs and improving our
domestic capacity utilization. We expect to substantially complete
these moves by the end of fiscal 2007."
Balance Sheet
"We have continued to strengthen our balance sheet with the
prepayment of debt and issuance of equity," Saxon noted. "During
December 2006 and February 2007, we prepaid a total of $7.5 million in
long-term debt scheduled for payment in March 2007. In January 2007,
we issued common stock valued at $5.1 million related to the ITG
acquisition. At the end of the third fiscal quarter, our balance sheet
reflected $10.7 million in cash and cash equivalents and a debt to
capital ratio of 37 percent. Our capital spending plans for fiscal
year 2008 are expected to be approximately $4.0 million and
depreciation is expected to be approximately $6.0 million."
Outlook
Commenting on the outlook for the fourth quarter of fiscal 2007,
Saxon remarked, "The current trends in our mattress fabrics segment
are strong, while business conditions remain very soft in our
upholstery fabrics segment due to weak retail furniture demand and
sharply lower demand for U.S. produced fabrics. Overall, we expect our
fourth quarter sales to be down slightly from the fourth quarter of
last year, and for the first time ever, we believe mattress fabric
sales will be greater than 50 percent of total company sales. We
expect sales in our mattress fabrics segment to be up 45 to 55 percent
for the fourth quarter, reflecting the incremental sales from the ITG
acquisition and some organic growth. Operating income in this segment
is also expected to improve substantially due to higher sales volume,
strong knitted ticking business and the benefits from our recent
capital project. We expect to exceed the third quarter operating
income margin for mattress ticking, even though we are incurring
one-time transition costs related to the integration of the ITG
business.
"In our upholstery fabrics segment, we expect sales to be down
approximately 25 percent for the fourth quarter, with modest growth in
non US produced fabrics and sharply lower sales of U.S. produced
fabrics. We believe the upholstery fabric segment's operating results
will reflect a small operating loss due to the significantly lower
sales and gross profit in U.S. produced fabrics and transition issues
associated with the previously announced closing of two U.S. plants.
However, we are expecting higher gross profit in our non U.S. produced
business and lower selling, general and administrative expenses on a
sequential basis for this segment.
"Considering these factors, we expect the company to report net
income in the fourth quarter in the range of $0.07 to $0.11 per
diluted share, excluding restructuring and related charges for
previously announced restructuring initiatives. 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 and the integration
of the ITG acquisition," said Saxon.
The company estimates that restructuring and related charges for
previously announced restructuring initiatives of approximately $1.8
million ($1.1 million net of taxes, or $0.09 per diluted share) will
be incurred during the fourth fiscal quarter. Including these
restructuring and related charges, the company expects to report
results for the fourth fiscal quarter in the range of a net loss of
($0.02) to net income of $0.02 per diluted share. (A reconciliation of
the projected net income per share calculation has been set forth on
Page 6.)
In closing, Culp added, "We continue to execute our strategy to
move the company forward and believe that fiscal 2007 will represent a
period of significant progress for Culp. We are working through a
number of operational changes that we believe will further enhance our
competitive position in both business segments. We have built a solid
competitive position in mattress fabrics and are very excited about
the incremental value the ITG acquisition will bring to this business.
We believe mattress fabrics will be a key driver of the company's
growth going forward. Our upholstery fabrics business is transitioning
into a vibrant global platform and we continue to pursue opportunities
for enhancing the capabilities of our China operation. Together, these
factors are designed to position the company for profitable growth
over the long term in today's global marketplace."
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. Changes in consumer
tastes or preferences toward products not produced or marketed by the
company could erode demand for the company's products. The company's
level of success in integrating its recent acquisition and in
capturing and retaining sales to customers related to the acquisition
will affect the company's ability to meet its sales and profit goals.
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, including the "Risk Factors" section in the
company's most recent annual report on Form 10-K.
CULP, INC.
Condensed Financial Highlights
(Unaudited)
Three Months Ended Nine Months Ended
------------------------- ---------------------------
January 28, January 29, January 28, January 29,
2007 2006 2007 2006
------------ ------------ ------------- -------------
Net sales $55,712,000 $61,035,000 $177,337,000 $190,383,000
Net loss $(2,221,000) $(2,169,000) $(1,276,000) $(10,261,000)
Net loss per
share:
Basic $(0.19) $(0.19) $(0.11) $(0.89)
Diluted $(0.19) $(0.19) $(0.11) $(0.89)
Net income
(loss) per
share, diluted,
excluding
restructuring
and related
charges (1) $(0.01) $(0.10) $0.18 $(0.18)
Average shares
outstanding:
Basic 11,773,000 11,562,000 11,710,000 11,557,000
Diluted 11,773,000 11,562,000 11,710,000 11,557,000
(1) Excludes restructuring and related charges of $4.1 million ($2.1
million, or $0.18 per diluted share, after taxes) for the third
quarter of fiscal 2007. Excludes restructuring and related charges
of $5.6 million ($3.3 million or $0.29 per diluted share, after
taxes) for the first nine months of fiscal 2007.
Excludes restructuring and related charges of $1.7 million ($1.0
million, or $0.09 per diluted share, after taxes) for the third
quarter of fiscal 2006. Excludes restructuring and related charges
of $13.2 million ($8.2 million or $0.71 per diluted share, after
taxes) for the first nine months of fiscal 2006.
CULP, INC.
Reconciliation of Net Loss as Reported to Pro Forma Net Income (Loss)
(Unaudited)
Three Months Ended Nine Months Ended
------------------------- --------------------------
January 28, January 29, January 28, January 29,
2007 2006 2007 2006
------------ ------------ ------------ -------------
Net loss, as
reported $(2,221,000) $(2,169,000) $(1,276,000) $(10,261,000)
Restructuring and
related charges,
net of income
taxes 2,122,000 1,041,000 3,340,00 8,174,000
------------ ------------ ------------ -------------
Pro forma net
income (loss) $(99,000) $(1,128,000) $2,064,000 $(2,087,000)
============ ============ ============ =============
Reconciliation of Net Loss Per Share as Reported to
Pro Forma Net Income (Loss) Per Share
(Unaudited)
Three Months Ended (1) Nine Months Ended (1)
------------------------- --------------------------
January 28, January 29, January 28, January 29,
2007 2006 2007 2006
------------ ------------ ------------ -------------
Net loss per
diluted share as
reported $(0.19) $(0.19) $(0.11) $(0.89)
Restructuring and
related charges,
net of income
taxes 0.18 0.09 0.29 0.71
------------ ------------ ------------ -------------
Net income (loss)
per diluted
share, adjusted $(0.01) $(0.10) $0.18 $(0.18)
============ ============ ============ =============
(1) Per share numbers have been rounded
Culp Inc.
Reconciliation of Projected Range of Net Income (Loss) Per Share
to Projected Range of Pro Forma Net Income Per Share
(Unaudited)
Three Months
Ending
April 29,
2007
---------------
Projected range of net income (loss) per diluted share $(0.02)- $0.02
Projected restructuring and related charges, net of
income taxes 0.09
Projected range of pro forma net income per diluted
share $0.07 - $0.11
===============
CONTACT: Culp, Inc.
Investor Contact:
Kenneth R. Bowling, Vice President of Finance
336-881-5630
or
Media Contact:
Kenneth M. Ludwig, Senior Vice President, Human Resources
336-889-5161