Culp Announces Results for First Quarter Fiscal 2014

  Culp Announces Results for First Quarter Fiscal 2014

Business Wire

HIGH POINT, N.C. -- August 28, 2013

Culp, Inc. (NYSE: CFI) today reported financial and operating resultsfor the
first quarter ended July 28, 2013.

Fiscal 2014 first quarter highlights:

  *Net sales were $70.1 million, up 1.4 percent, with mattress fabric sales
    up 0.5 percent and upholstery fabric sales up 2.4 percent. This is the
    company’s highest total sales for the first quarter in nine years.
  *Pre-tax income was $5.5 million, the highest first quarter level in the
    company’s history.
  *Adjusted net income (non-GAAP) was $4.7 million, or $0.38 per diluted
    share, for the current quarter, compared with $4.3 million, or $0.34 per
    diluted share, for the prior year period. (Adjusted net income is
    calculated using estimated cash income tax expense. See the reconciliation
    to net income on page 6). Net income (GAAP) was $3.2 million, or $0.26 per
    diluted share, compared withnet income of $3.5million, or $0.28 per
    diluted share, in the prior year period.
  *The company’s financial position remained strong with cash and cash
    equivalents and short term investments of $27.6million and total debt of
    $7.2million as of July 28, 2013.
  *Consolidated return on capital was 32 percent compared with 31 percent in
    the prior year period.
  *Free cash flow was $1.9 million compared with ($3.0) million a year ago.
  *The company paid a cash dividend of $0.04 per share during the quarter,
    representing a 33 percent increase in quarterly cash dividend payments
    from fiscal 2013.
  *The projection for the second quarter of fiscal 2014 is for overall sales
    to be in the range of flat to four percent higher as compared with the
    same period last year. Pre-tax income is expected to be in the range of
    $4.1million to $4.7 million. Pre-tax income for the second quarter of
    fiscal 2013 was $4.5million.
  *The company expects fiscal 2014 to be another excellent year for free cash
    flow.

Overview

For the first quarter ended July 28, 2013, net sales were $70.1 million,
compared with$69.2 million a year ago. The company reported net income of
$3.2 million, or $0.26 per diluted share,forthe firstquarter of fiscal
2014, compared with net income of $3.5 million, or $0.28 per diluted
share,forthe first quarter of fiscal 2013. Results for the first quarter of
fiscal 2014 include a one-time charge of $206,000 for the tentative settlement
of ongoing litigation relating to environmental claims at a closed facility.
This amount is included in the Other expense line item of the Consolidated
Statements of Income.

Given the volatility in the income tax area during fiscal 2013 and previous
years, the company is also reporting adjusted net income (non-GAAP), which is
calculated using estimated cash income tax expense for its foreign
subsidiaries. The company currently does not incur cash income tax expense in
the U.S., nor does it expect to for a number of years, due to approximately
$50.7 million in U.S. net operating loss carryforwards. For the first quarter
of fiscal 2014, adjusted net income was $4.7million, or $0.38 per diluted
share, compared with $4.3 million, or $0.34 per diluted share, for the first
quarter of fiscal 2013. On a pre-tax basis, the company reportedincome of
$5.5 million compared with pre-tax income of $5.4million for the first
quarter offiscal 2013. (A presentation of adjusted net income and
reconciliation to net income is set forth on page 6).

Commenting on the results, Frank Saxon, president and chief executive officer
of Culp, Inc., said, “We are pleased with our first quarter performance,
marking an excellent start to fiscal 2014. These results reflect strong
operating performance in both of our businesses. We continue to experience
favorable customer response to our designs and wide range of products and we
are excited about the progress we are making in product innovation and
creativity. These efforts, which are our top strategic priority, are making
significant contributions to our sales and profit performance, with an
increasing percentage of our sales coming from recent product introductions.
We compete in a product and fashion driven business that is always changing.
As a result, our ability to sustain excellence in creating innovative fabrics
season after season is a key driver to our long-term success.

“We are also pleased that our consistent financial performance, higher cash
flow and sound balance sheet have enabled us to reward our shareholders with
an increase in our quarterly cash dividend. Looking ahead, we continue to
expect another strong year of free cash flow for fiscal 2014,” added Saxon.

Mattress Fabrics Segment

Mattress fabric sales for the first quarter were $38.2 million, up slightly
compared with $38.0million for the first quarter of fiscal 2013.

“Our mattress fabrics business had a solid performance for the first quarter
of fiscal 2014,” said Iv Culp, president ofCulp’s mattress fabrics division.
“We are pleased with our consistent sales, especially when compared with
unusually strong sales for the first quarter of last year. We have continued
to be on par with the industry during a more challenging business environment
than we experienced a year ago. These results reflect our ability to keep pace
with changing customer demand across all price points and fabric styles in the
mattress industry. With our extensive manufacturing platform, flexible
capacity and exceptional design capabilities, we have the ability to produce a
diverse line of products for all categories. As a result, Culp has a strong
competitive position as a full-service supplier of mattress fabrics. Our
innovative designs and new product introductions are resonating with our
customers, resulting in strong future placements with the major players in the
mattress industry. Importantly, we have also remained focused on providing
outstanding customer service, reliable delivery performance and the consistent
quality and value that are synonymous with the Culp brand.

“We continued to make progress during the first quarter with Culp-Lava, our
most recent business venture established to produce and market mattress
covers. We are pleased with the sales contribution this quarter as we have now
completed most of the specialized training and development work necessary for
production at our new Stokesdale, North Carolina, manufacturing facility. We
are focused on improving our operating efficiencies as we work through this
transition period. Additionally, we have the ability to adjust capacity in
line with current and expected demand. We look forward to becoming a more
mature business in the cut and sew operation that can efficiently react to the
seasonality of the mattress industry. We are pleased with our results for the
first quarter and look forward to the long-term growth opportunities for
Culp-Lava.

“Looking ahead, we expect a normal seasonal slowdown in the second fiscal
quarter, which will influence our sales and operating efficiencies. We also do
not expect overall industry demand to be as robust as it was during the second
quarter last year,” Culp concluded.

Upholstery Fabrics Segment

Sales for this segment were $32.0 million for the first quarter, a 2.4 percent
improvement compared with sales of $31.2million in the first quarter of
fiscal 2013.

“We experienced better than expected sales in our upholstery fabrics business
during the firstquarter of fiscal 2014,” noted Saxon. “We were especially
pleased with the sales performance as compared to last year given the strong
industry demand. These results primarily reflect continued favorable response
from key customers to our innovativedesigns and new product introductions.

“Sales of our China produced fabrics continued to be the primary catalyst of
our growth for the firstquarter. China produced fabrics accounted for 94
percent of Culp’s upholstery fabrics sales during the first quarter,
reflecting our ability to offer a diverse product mix of fabric styles and
price points with excellent service and quality. Culp is uniquely positioned
to meet the needs of our customers with our outstanding design capabilities
and our reliable China manufacturing platform. We are pleased with the
increasing level of fabric placements withcustomers in the U.S., China and
Europe. Further, we have an excellent opportunity to build on this momentum,
especially as the economy strengthens and the housing market makes a
meaningful recovery.”

Saxon continued, “We are pleased with our progress with respect to our Culp
Europe operation, especially the sales performance in the first quarter and
the level of fabrics placed with key customers. We remain optimistic about the
long-term opportunities for Culp Europe to enhance our global sales.”

Balance Sheet

“Maintaining a strong financial position and generating free cash flow will
continue to be top priorities for fiscal 2014,” added Saxon. “During the
quarter, we achieved $1.9 million of free cash flow, after investing $4.3
million in capital expenditures and working capital. As of July 28, 2013, we
reported $27.6 million in cash and cash equivalents and short-term
investments. This cash position also reflects $2.6 million spent on an asset
purchase and consulting agreement entered into early in the quarter. The
company paid a $0.04 per share quarterly cash dividend on July 15, 2013, a 33
percent increase from the quarterly cash dividend payments in fiscal 2013.
Total debt was $7.2million, which includes long-term debt plus current
maturities of long-term debt and our line of credit. After the end of the
quarter, we made a scheduled annual principal payment of $2.2 million, thus
further lowering our total debt to $5.0 million.”

Outlook

Commenting on the outlook for the second quarter of fiscal 2014, Saxon
remarked, “We expect overall sales to be in the range of flat to four percent
higher as compared with the second quarter of last year.

“We expect sales in our mattress fabrics segment to be flat to slightly lower
than the same period a year ago. Operating income and margin in this segment
are expected to be lower than the same period a year ago.

“In our upholstery fabrics segment, we expect sales to be moderately higher as
compared to the same time last year. We believe the upholstery fabric
segment’s operating income and margin will be higher than the same quarter of
last year.

“Considering these factors, the company expects to report pre-tax income for
the second fiscal quarter of 2014 in the range of $4.1 million to $4.7
million. Pre-tax income for last year’s second quarter was $4.5million.”

In closing, Saxon remarked, “We are pleased with a strong start to fiscal
2014. We have many reasons to be optimistic about the year ahead with our
outstanding design capabilities and innovative product offerings that are
resonating with customers in both businesses. We will continue to leverage our
scalable and global manufacturing platforms to deliver these products and keep
pace with current and expected industry demand. We are cautiously optimistic
about an improved economic outlook for fiscal 2014, especially as the housing
market gains traction and supports consumer demand for home furnishings. We
believe Culp is favorably positioned for continued growth in this environment
with the financial strength to execute our strategic initiatives and reward
shareholders. Above all, we are committed to outstanding performance for our
customers as a financially stable and trusted source for innovative fabrics.”

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 markets a variety of
innovative fabrics to its global customer base of leading bedding and
furniture companies, including fabrics produced at Culp’s manufacturing
facilities and fabrics sourced from other suppliers. Culp has operations
located in the United States, Canada, China and Poland.

This release contains “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, and we disclaim any duty
to update such statements. 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 expectations for our future operations,
production levels, sales, gross profit margins, operating income, SG&A or
other expenses, earnings, cash flow, and other performance measures, as well
as any statements regarding future economic or industry trends or future
developments. 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 our business and prospects. Likewise, increases in interest rates,
particularly home mortgage rates, and increases in consumer debt or the
general rate of inflation, could affectus adversely. Changes in consumer
tastes or preferences toward products not produced by us could erode demand
for our products. Changes in the value of the U.S. dollar versus other
currencies could affect our financial results because a significant portion of
our operations are located outside the United States. Strengthening of the
U.S. dollar against other currencies could make our products less competitive
on the basis of price in markets outside the United States, and strengthening
of currencies in Canada and China can have a negative impact on our sales of
products produced in those places. Also, economic and political instability in
international areas could affect our operations or sources of goods in those
areas, as well as demand for our products in international markets. Further
information about these factors, as well as other factors that could affect
our future operations or financial results and the matters discussed in
forward-looking statements, is included in Item 1A “Risk Factors” in our Form
10-K filed with the Securities and Exchange Commission on July12,2013, for
the fiscal year ended April 28, 2013.

    
    CULP, INC.
    Condensed Financial Highlights
    (Unaudited)
                                                         
                                         Three Months Ended
                                         July 28,               July 29,
                                         2013                   2012
                                                                
    Net sales                            $    70,141,000        $  69,184,000
    Income before income                 $    5,535,000         $  5,372,000
    taxes
    Net income                           $    3,230,000         $  3,524,000
    Net income per share:
    Basic                                $    0.27              $  0.28
    Diluted                              $    0.26              $  0.28
                                                                
    Adjusted net income                  $    4,749,000         $  4,341,000
    Adjusted net income
    per share
    Basic                                $    0.39              $  0.35
    Diluted                              $    0.38              $  0.34
                                                                
    Average shares
    outstanding:
    Basic                                     12,148,000           12,551,000
    Diluted                                   12,366,000           12,711,000
                                                                
                                                                
                                                                
    Presentation of Adjusted Net Income and Adjusted Income Taxes (1)
                                                                
                                         Three Months Ended
                                         July 28,               July 29,
                                         2013                   2012
                                                                
    Income before income                 $    5,535,000         $  5,372,000
    taxes
    Adjusted income taxes                $    786,000           $  1,031,000
    (2)
    Adjusted net income                  $    4,749,000         $  4,341,000
                                                                
    Culp, Inc. currently does not incur cash income tax expense in the U.S.
(1) due to its $50.7 million in net operating loss carryforwards. Therefore,
    adjusted net income is calculated using only income tax expense for the
    company’s subsidiaries in Canada and China.
                                                                
    Represents estimated cash income tax expense for the company’s
(2) subsidiaries in Canada and China, calculated with a consolidated adjusted
    effective income tax rate of 14.2% for fiscal 2014 and 19.2% for fiscal
    2013.
                                                                

                                                                                      
Consolidated Adjusted Effective Income Tax Rate, Net Income and Earnings Per Share
For the Three Months Ended July 28, 2013, and July 29, 2012
(Unaudited)
(Amounts in Thousands)
                                                                                                
                                THREE MONTHS ENDED
                                                         
                                Amounts
                                July 28,      July 29,
                                2013          2012
                                                                                                
                                                                                                
    Consolidated
    Effective GAAP        (1)     41.6   %      34.4   %
    Income Tax Rate
                                                                                                
    Non-Cash U.S.                 (27.0  )%     (15.0  )%
    Income Tax Expense
                                                                                                
    Non-Cash Foreign             (0.4   )%    (0.2   )%
    Income Tax Expense
                                                                                                
    Consolidated
    Adjusted Effective    (2)    14.2   %     19.2   %
    Income Tax Rate
                                                                                                
                                                                                                
                                                                             
                                                                                                
                                                                                                
                                THREE MONTHS ENDED
                                As reported                 As         As                       As
                                                            Adjusted   reported                 Adjusted
                                July 28,                    July 28,   July 29,                 July 29,
                                2013          Adjustments   2013       2012       Adjustments   2012
                                                                                                
    Income before               $ 5,535                     $ 5,535    $ 5,372                  $ 5,372
    income taxes
                                                                                                
    Income taxes (3)             2,305      $ (1,519 )     786       1,848    $  (817   )    1,031
    Net income                  $ 3,230       $ 1,519       $ 4,749    $ 3,524    $  817        $ 4,341
                                                                                                
    Net income per              $ 0.27        $ (0.13  )    $ 0.39     $ 0.28     $  (0.07  )   $ 0.35
    share-basic
    Net income per              $ 0.26        $ (0.12  )    $ 0.38     $ 0.28     $  (0.06  )   $ 0.34
    share-diluted
    Average shares                12,148        12,148        12,148     12,551      12,551       12,551
    outstanding-basic
    Average shares                12,366        12,366        12,366     12,711      12,711       12,711
    outstanding-diluted
                                                                                                
                                                                                                
(1) Calculated by dividing consolidated income tax expense by consolidated income before income taxes.
                                                                                                
(2) Represents estimated cash income tax expense for our subsidiaries located in Canada and China
    divided by consolidated income before income taxes.
                                                                                                
(3) As adjusted income taxes calculated using the Consolidated Adjusted Effective Income Tax Rate as
    reflected above.
                                            

                                                              
Reconciliation of Free Cash Flow and Return on Capital
For the Three Months Ended July 28, 2013, and July 29, 2012
(Unaudited)
(Amounts in thousands)
                                                                   
                                                                   
    Free Cash Flow
    Reconciliation
                                                                   
                       Three Months    Three
                       Ended           Months
                                       Ended
                       July 28, 2013   July 29,
                                       2012
                                                                   
    Net cash
    provided by
    (used in)          $  2,675        $ (1,962  )
    operating
    activities
    Minus: Capital        (884     )     (1,008  )
    Expenditures
    Add: Proceeds
    from the sale         104            -
    of equipment
    Add: Excess tax
    benefits
    related to            114            55
    stock-based
    compensation
    Effects of
    exchange rate
    changes on cash      (109     )    (88     )
    and cash
    equivalents
                                                                   
    Free Cash Flow     $  1,900       $ (3,003  )
                                                                   
                                                                   
    Return on
    Capital
    Reconciliation
                                                                   
                       Three Months                  Three
                       Ended                         Months
                                                     Ended
                       July 28, 2013                 July 29,
                                                     2012
                                                                   
    Consolidated
    Income from        $  5,974                      $ 5,479
    Operations
    Average Capital      75,494                     71,532  
    Employed (2)
                                                                   
    Return on
    Average Capital      31.7     %                  30.6    %
    Employed (1)
                                                                   
    Average Capital
    Employed
                                                                   
                       July 28, 2013   April 28,     July 29,      April 29,
                                       2013          2012          2012
                                                                   
    Total assets       $  151,101      $ 144,706     $ 143,160     $ 144,716
    Total                (52,516  )    (49,123 )    (51,329 )    (55,716 )
    liabilities
                                                                   
    Subtotal           $  98,585       $ 95,583      $ 91,831      $ 89,000
    Less:
    Cash and cash         (21,423  )     (23,530 )     (21,889 )     (25,023 )
    equivalents
    Short-term            (6,174   )     (5,286  )     (5,200  )     (5,941  )
    investments
    Income taxes          (292     )     (318    )     -             -
    receivable
    Deferred income       (7,747   )     (7,709  )     (2,337  )     (2,467  )
    taxes - current
    Deferred income
    taxes -               (651     )     (753    )     (2,715  )     (3,205  )
    non-current
    Current
    maturities of         2,200          2,200         2,400         2,404
    long-term debt
    Line of credit        560            561           834           889
    Income taxes
    payable -             320            285           751           642
    current
    Income taxes
    payable -             4,176          4,191         4,131         4,164
    long-term
    Deferred income
    taxes -               4,335          3,075         705           705
    non-current
    Long-term debt,
    less current          4,400          4,400         6,666         6,719
    maturities
                                                                
    Total Capital      $  78,289      $ 72,699     $ 75,177     $ 67,887  
    Employed
                                                                   
                                                    
    Average Capital    $  75,494                    $ 71,532  
    Employed (2)
                                                                   
Notes:
                                                                   
    Return on average capital employed represents operating income for the
    three month period ending July 28, 2013 or July 29, 2012 times four
    quarters to arrive at an annualized value then divided by average capital
(1) employed. Average capital employed does not include cash and cash
    equivalents, short-term investments, long-term debt, including current
    maturities, line of credit, current and noncurrent deferred tax assets and
    liabilities, and income taxes receivable and payable.
                                                                   
    Average capital employed used for the three months ending July 28, 2013
(2) was computed using the two quarterly periods ending July 28, 2013 and
    April 28, 2013.
    Average capital employed used for the three months ending July 29, 2012
    was computed using the two quarterly periods ending July 29, 2012 and
    April 29, 2012.

Contact:

Culp, Inc.
Investor Contact:
Kenneth R. Bowling, 336-881-5630
Chief Financial Officer
or
Media Contact:
Teresa A. Huffman, 336-889-5161
Vice President, Human Resources