Culp Announces Results for Second Quarter Fiscal 2014

  Culp Announces Results for Second Quarter Fiscal 2014

  Board of Directors Authorizes a 25 Percent Increase in the Quarterly Cash
                         Dividend to $0.05 Per Share

Business Wire

HIGH POINT, N.C. -- November 25, 2013

Culp, Inc. (NYSE: CFI) today reported financial and operating resultsfor the
second quarter and six months ended October 27, 2013.

Fiscal 2014 Second Quarter Highlights:

  *Net sales were $70.6 million, up eight percent, with mattress fabric sales
    up two percent and upholstery fabric sales up 17 percent, as compared with
    the same quarter last year. This reflects the highest sales level for the
    second quarter in nine years.
  *Pre-tax income was $4.8 million, up six percent from $4.5 million in the
    second quarter of fiscal 2013.
  *Adjusted net income (non-GAAP) was $4.1 million, or $0.33 per diluted
    share, for the current quarter, compared with $3.9 million, or $0.31 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 $3.1 million, or $0.25 per
    diluted share, compared withnet income of $8.3million, or $0.67 per
    diluted share, in the prior year period.
  *The company’s financial position remained strong with a total cash
    position of $30.5 million and total debt of $5.0million as of October 27,
    2013, even after spending $4.0 million in total for debt and interest
    payments, dividends and capital expenditures during the quarter.
  *The company announced a 25 percent increase in its quarterly cash dividend
    from $0.04 to $0.05 per share, commencing in the third quarter of fiscal
    2014.

Fiscal 2014 Year to Date Highlights

  *Year to date sales were $140.7 million, up four percent from the same
    period a year ago, with mattress fabrics segment sales up one percent and
    upholstery fabrics segment sales up nine percent over the same period a
    year ago.
  *Year to date pre-tax income was $10.3 million, up five percent from $9.9
    million for the same period last year.
  *Year to date adjusted net income (non-GAAP) was $8.8 million, or $0.70 per
    diluted share, compared with $8.4 million, or $0.67 per diluted share, for
    the prior year period.
  *Net income (GAAP) was $6.3 million, or $0.51 per diluted share, compared
    with net income of $11.8million, or $0.94 per diluted share, for the same
    period a year ago.
  *Consolidated return on capital was 29 percent, equal to the same period a
    year ago.
  *Free cash flow was $7.5 million, up from $5.7 million for the same period
    a year ago.
  *The projection for third quarter fiscal 2014 is for overall sales to be
    five to nine percent higher as compared to the previous year’s third
    quarter. Pre-tax income for the third quarter of fiscal 2014 is expected
    to be in the range of $4.5 to $5.0 million. Pre-tax income for the third
    quarter of fiscal 2013 was $4.5million.

Overview

For the second quarter ended October 27, 2013, net sales were $70.6 million,
an eight percent increase compared with$65.6 million a year ago. The company
reported net income of $3.1 million, or $0.25 per diluted share, for the
second quarter of fiscal 2014, compared with net income of $8.3 million, or
$0.67 per diluted share, for the second quarter of fiscal 2013. Net income for
the second quarter of 2014 included an income tax expense of $1.7 million,
while net income for the previous year period included an income tax benefit
of $3.7 million. The income tax benefit for the second quarter of fiscal 2013
included a benefit of $5.6 million, of which $12.2million was for the
non-cash reversal of primarily all of the remaining valuation allowance
associated with the company’s net deferred tax assets in the U.S., partially
offset by a non-cash income tax charge of $6.6 million associated with the
sourced earnings from the company’s subsidiaries in Canada and China.

Given the volatility in the income tax area during previous years, the company
is reporting adjusted net income (non-GAAP), which is calculated using
estimated cash income tax expense for its foreign subsidiaries. (A
presentation of adjusted net income and reconciliation to net income is set
forth on page 6). 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 $50.7 million
in U.S. net operating loss carryforwards as of the end of fiscal 2013. For the
second quarter of fiscal 2014, adjusted net income was $4.1million, or $0.33
per diluted share, compared with $3.9 million, or $0.31 per diluted share, for
the second quarter fiscal 2013. On a pre-tax basis, the company
reportedincome of $4.8 million compared with pre-tax income of $4.5million
for the second quarter offiscal 2013.

Commenting on the results, Frank Saxon, president and chief executive officer
of Culp, Inc., said, “We are pleased with our second quarter performance,
marking another excellent quarter and building upon a solid first quarter. 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 create innovative fabrics
season after season is the 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 a
25 percent increase in our quarterly cash dividend. Looking ahead, we continue
to expect another strong year of free cash flow this fiscal year,” added
Saxon.

Mattress Fabrics Segment

Mattress fabric sales for the second quarter were $40.3 million, up two
percent compared with $39.7million for the second quarter of fiscal 2013.

“Our results for the second quarter of fiscal 2014 were in line with our
expectations,” said Iv Culp, president ofCulp’s mattress fabrics division.
“We were pleased with the consistent sales performance during what has been an
unsteady demand period in the mattress industry. Our mattress fabric business
has delivered solid results in spite of some intermittent industry headwinds.
Our operating results for the second quarter were affected by higher sampling
and development costs in advance of new customer roll-outs for calendar 2014,
as well as continued transition costs for our Culp-Lava operation.

“We have continued to capitalize on the growing consumer demand for ‘better’
designed bedding products,” Culp continued. “As the mattress industry has
evolved into a much more decorative business, our customers are more selective
in their fabric choices to achieve today’s fashionable look. In response to
this demand trend, we have increased our design staff, as well as expanded our
design capabilities and technical expertise, to develop an array of innovative
fabric choices across all price points. Additionally, we have a scalable
manufacturing platform and reactive capacity that supports our ability to
deliver a diverse and favorable product mix in line with customer demand. As a
result, we have enhanced our competitive position as a leading supplier of
mattress fabrics and covers to all major players across all categories in the
mattress industry. We are encouraged by the response to our exciting new
innovative designs and recent product introductions with strong future
placements for business in early calendar 2014.

“We also continued to make progress with Culp-Lava, our new mattress cover
operation, and we are pleased with the increased sales contribution during the
second quarter. We are continuing to focus on improving our operating
efficiencies through this transition period for Culp-Lava. With most of the
training and development work behind us, we are beginning to realize improved
productivity that will gradually add capacity and enhance reactivity. We are
excited about the opportunities ahead to leverage this new platform and
enhance Culp’s leadership position in the bedding industry,” added Culp.

Upholstery Fabrics Segment

Sales for this segment were $30.3 million for the second quarter of fiscal
2014, a 17 percent improvement compared with sales of $25.9million in the
second quarter of fiscal 2013.

“We had a solid performance in our upholstery fabrics business during the
secondquarter of fiscal 2014 with higher than expected sales,” noted Saxon.
“The sales increase was product-driven as we have continued to see very
favorable customer response to our creative designs and new product
introductions. Innovation is a critical factor for success in today’s
fashion-driven home furnishings business, and our design team has done an
exceptional job in anticipating customers’ style preferences. Our ability to
offer a diverse product mix of fabric styles and price points, supported by
outstanding service, has enhanced our competitive position. As a result, we
have increased sales both with our key customers and through additional orders
from new customers.

“China produced fabrics continued to drive our growth and accounted for 91
percent of Culp’s upholstery fabrics sales during the quarter. The ability to
leverage our design capabilities with our scalable and 100% owned China
platform has been an important advantage for Culp. We are also pleased with
the steady progress made through our Culp Europe operation, which further
supports our global sales efforts.”

Saxon continued, “We are pleased with the trends in our upholstery fabrics
business with strong fabric placements with customers at the recent October
furniture market. Looking ahead, we are well positioned to build on this
momentum; especially as the housing market gains more traction and consumer
confidence improves.”

Balance Sheet

“We have continued to maintain a strong financial position, even as we
returned cash to shareholders and reduced our debt during the quarter,” added
Saxon. “The company has generated $7.5 million in free cash flow through the
first six months of fiscal 2014, compared to $5.7 million for the same period
last year. As of October 27, 2013, we reported $30.5 million in cash and cash
equivalents and short-term investments. This cash position also reflects a
scheduled debt and interest payment of $2.5 million made during the quarter.
Additionally, the company paid a $0.04 per share dividend on October 15, 2013.
Total debt at the end of the second quarter was $5.0million, which includes
long-term debt plus current maturities of long-term debt and our line of
credit. Notably, our net cash position, or cash minus total debt, was $25.5
million at the end of the second quarter, representing the highest net cash
level in the company’s history.”

Increase in Quarterly Cash Dividend Payment

The company also announced that its Board of Directors has approved a 25
percent increase in payment of a quarterly cash dividend from $0.04 to $0.05
per share, commencing in the third quarter of fiscal 2014. The dividend will
be paid on January 20, 2014, to shareholders of record as of the close of
business on January 6, 2014. Future dividend payments are subject to Board
approval and may be adjusted at the Board’s discretion as business needs or
market conditions change.

Outlook

Commenting on the outlook for the third quarter of fiscal 2014, Saxon
remarked, “We expect overall sales to be five to nine percent higher as
compared with the third quarter of last year.

“We expect sales in our mattress fabrics segment to be three to seven percent
higher compared with the same period a year ago. Operating income in this
segment is expected to be higher than the same period a year ago, while
operating margins are expected to be comparable to last year.

“In our upholstery fabrics segment, we expect sales to be six to ten percent
higher than the previous year’s third quarter results. We believe the
upholstery fabric segment’s operating income will be higher than the same
quarter of last year, while operating margins are expected to be comparable to
last year.

“Considering these factors, the company expects to report pre-tax income for
the third fiscal quarter of 2014 in the range of $4.5 million to $5.0 million.
Pre-tax income for last year’s third quarter was $4.5million.”

In closing, Saxon remarked, “We are pleased with an excellent first half of
fiscal 2014, which reflects gains in sales and profitability over a strong
first half of last fiscal year. We have many reasons to be optimistic about
the future 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 expected industry demand. We are
also optimistic about an improved economic outlook, especially as the housing
market gains more traction and supports higher 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 residential and commercial furniture. The
company markets a variety of fabrics to its global customer base of leading
bedding and furniture companies, including fabrics produced at Culp’s
manufacturing facilities and fabrics sourced through 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             Six Months Ended
                 October 27,      October 28,    October 27,    October 28,
                 2013             2012           2013           2012
                                                                 
Net sales        $  70,589,000    $ 65,560,000   $ 140,730,000   $ 134,744,000
Income before    $  4,814,000     $ 4,532,000    $ 10,349,000    $ 9,903,000
income taxes
Net income       $  3,096,000     $ 8,268,000    $ 6,326,000     $ 11,792,000
Net income
per share:
Basic            $  0.25          $ 0.68         $ 0.52          $ 0.95
Diluted          $  0.25          $ 0.67         $ 0.51          $ 0.94
                                                                 
Adjusted net     $  4,063,000     $ 3,852,000    $ 8,735,000     $ 8,418,000
income
Adjusted net
income per
share
Basic            $  0.33          $ 0.32         $ 0.72          $ 0.68
Diluted          $  0.33          $ 0.31         $ 0.70          $ 0.67
                                                                 
Average
shares
outstanding:
Basic               12,183,000      12,191,000     12,165,000      12,371,000
Diluted             12,389,000      12,348,000     12,391,000      13,541,000
                                                                 
                                                                 
                                                                 
                                                                 
Presentation of Adjusted Net Income and Adjusted Income Taxes (1)
                                                                 
                 Three Months Ended             Six Months Ended
                 October 27,      October 28,    October 27,     October 28,
                 2013             2012           2013            2012
                                                                 
Income before    $  4,814,000     $ 4,532,000    $ 10,349,000    $ 9,903,000
income taxes
Adjusted
income taxes     $  751,000       $ 680,000      $ 1,614,000     $ 1,485,000
(2)
Adjusted net     $  4,063,000     $ 3,852,000    $ 8,735,000     $ 8,418,000
income
                                                                 
                                                                 
(1) Culp, Inc. currently does not incur cash income tax expense in the U.S.
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.

(2) Represents estimated cash income tax expense for the company’s
subsidiaries in Canada and China, calculated with a consolidated adjusted
effective income tax rate of 15.6% for fiscal 2014 and 15.0% for fiscal 2013.







Consolidated Adjusted Effective Income Tax Rate, Net Income and Earnings Per Share
For the Six Months Ended October 27, 2013, and October 28, 2012
(Unaudited)
(Amounts in Thousands)


                  SIX MONTHS ENDED                                                
                                    
                        Amounts
                        October 27,   October 28,
                        2013          2012
                                                                                             
                                                                                             
  Consolidated
  Effective GAAP  (1)     38.9   %      (19.1  )%
  Income Tax Rate
                                                                                             
  Reduction of
  U.S. Valuation          -             123.0  %
  Allowance
                                                                                             
  Undistributed
  earnings from           -             (66.5  )%
  foreign
  subsidiaries
                                                                                             
  Non-Cash U.S.
  Income Tax              (23.0  )%     (20.4  )%
  Expense
                                                                                             
  Non-Cash
  Foreign Income         (0.3   )%    (2.0   )%
  Tax Expense
                                                                                             
  Consolidated
  Adjusted        (2)    15.6   %     15.0   %
  Effective
  Income Tax Rate
                                                                                             
                                                                           
                                                                                             
                                                                                             
                        THREE MONTHS ENDED
                        As reported                 October 27,   As                         October 28,
                                                    2013          reported                   2012
                        October 27,                 Proforma      October                    Proforma
                                                    Net           28,                        Net
                        2013          Adjustments   of            2012         Adjustments   of
                                                    Adjustments                              Adjustments
                                                                                             
  Income before         $ 4,814       $ -           $   4,814     $ 4,532                    $   4,532
  income taxes
                                                                                             
  Income taxes (3)       1,718      $ (967   )       751        (3,736 )   $  4,416        680
  Net income            $ 3,096       $ 967         $   4,063     $ 8,268      $  (4,416 )   $   3,852
                                                                                             
  Net income per        $ 0.25        $ (0.08  )    $   0.33      $ 0.68       $  0.36       $   0.32
  share-basic
  Net income per        $ 0.25        $ (0.08  )    $   0.33      $ 0.67       $  0.36       $   0.31
  share-diluted
  Average shares          12,183        12,183          12,183      12,191        12,191         12,191
  outstanding-basic
  Average shares          12,389        12,389          12,389      12,348        12,348         12,348
  outstanding-diluted
                                                                                             
                                                                                             
                                                                                             
                        SIX MONTHS ENDED
                        As reported                 October 27,   As                         October 28,
                                                    2013          reported                   2012
                        October 27,                 Proforma      October                    Proforma
                                                    Net           28,                        Net
                        2013          Adjustments   of            2012         Adjustments   of
                                                    Adjustments                              Adjustments
                                                                                             
  Income before         $ 10,349      $ -           $   10,349    $ 9,903      $  -          $   9,903
  income taxes
                                                                                             
  Income taxes (3)       4,023      $ (2,409 )       1,614      (1,889 )   $  3,374        1,485
  Net income            $ 6,326       $ 2,409       $   8,735     $ 11,792     $  (3,374 )   $   8,418
                                                                                             
  Net income per        $ 0.52        $ (0.20  )    $   0.72      $ 0.95       $  0.27       $   0.68
  share-basic
  Net income per        $ 0.51        $ (0.19  )    $   0.70      $ 0.94       $  0.27       $   0.67
  share-diluted
  Average shares          12,165        12,165          12,165      12,371        12,371         12,371
  outstanding-basic
  Average shares          12,391        12,391          12,391      12,541        12,541         12,541
  outstanding-diluted
                                                                                             
                                                                                             
  (1) Calculated by dividing consolidated income tax expense (benefit) 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) Proforma income taxes calculated using the Consolidated Adjusted Effective Income Tax Rate as
  reflected above.






Reconciliation of Free Cash Flow
For the Six Months Ended October 27, 2013, and October 28, 2012
(Unaudited)
(Amounts in thousands)

                                          Six Months Ended  Six Months Ended
                                           October 27, 2013   October 28, 2012
                                                              
Net cash provided by operating             $   9,443          $   7,650
activities
Minus: Capital Expenditures                    (1,900   )         (1,946   )
Add: Proceeds from the sale of equipment       113                -
Minus: Payments on life insurance              (30      )         -
policies
Add: Excess tax benefits related to            143                60
stock-based compensation
Effects of exchange rate changes on cash      (298     )        (59      )
and cash equivalents
                                                              
Free Cash Flow                             $   7,471         $   5,705    







Reconciliation of Return on Capital
For the Six Months Ended October 27, 2013, and October 28, 2012
(Unaudited)
(Amounts in thousands)


                    Six Months Ended                         Six Months
                                                                Ended
                     October 27, 2013                           October 28,
                                                                2012
                                                                
Consolidated
Income from          $    11,009                                $  10,148
Operations
Average Capital          76,019                                 71,220   
Employed (2)
                                                                
Return on
Average Capital          29.0       %                            28.5     %
Employed (1)
                                                                
Average Capital
Employed
                                                                
                     October 27, 2013         July 28, 2013     April 28, 2013
                                                                
Total assets         $    156,242             $  151,101        $  144,706
Total                    (54,727    )          (52,516  )       (49,123  )
liabilities
                                                                
Subtotal             $    101,515             $  98,585         $  95,583
Less:
Cash and cash             (24,267    )           (21,423  )        (23,530  )
equivalents
Short-term                (6,220     )           (6,174   )        (5,286   )
investments
Income taxes              -                      (292     )        (318     )
receivable
Deferred income           (7,745     )           (7,747   )        (7,709   )
taxes - current
Deferred income
taxes -                   (661       )           (651     )        (753     )
non-current
Current
maturities of             2,200                  2,200             2,200
long-term debt
Line of credit            585                    560               561
Income taxes
payable -                 304                    320               285
current
Income taxes
payable -                 4,141                  4,176             4,191
long-term
Deferred income
taxes -                   5,016                  4,335             3,075
non-current
Long-term debt,
less current              2,200                  4,400             4,400
maturities
                                                              
Total Capital        $    77,068             $  78,289        $  72,699   
Employed
                     
Average Capital      $    76,019     
Employed (2)
                                                                
                                                                
                     October 28, 2012         July 29, 2012     April 29, 2012
                                                                
Total assets         $    142,443             $  143,160        $  144,716
Total                    (47,055    )          (51,329  )       (55,716  )
liabilities
                                                                
Subtotal             $    95,388              $  91,831         $  89,000
Less:
Cash and cash             (23,464    )           (21,889  )        (25,023  )
equivalents
Short-term                (5,241     )           (5,200   )        (5,941   )
investments
Deferred income           (4,470     )           (2,337   )        (2,467   )
taxes - current
Deferred income
taxes -                   (4,738     )           (2,715   )        (3,205   )
non-current
Current
maturities of             2,401                  2,400             2,404
long-term debt
Line of credit            875                    834               889
Income taxes
payable -                 385                    751               642
current
Income taxes
payable -                 4,188                  4,131             4,164
long-term
Deferred income
taxes -                   856                    705               705
non-current
Long-term debt,
less current              4,416                  6,666             6,719
maturities
                                                              
Total Capital        $    70,596             $  75,177        $  67,887   
Employed
                     
Average Capital      $    71,220     
Employed (2)
                                                                
Notes:
(1) Return on average capital employed represents operating income for the six
month period ending October 27, 2013 or October 28, 2012 times two quarters to
arrive at an annualized value then divided by average capital 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.

(2) Average capital employed used for the six months ending October 27, 2013
was computed using the three quarterly periods ending October 27,2013, July
28, 2013 and April 28, 2013. Average capital employed used for the six months
ending October 28, 2012 was computed using the three quarterly periods ending
October 28, 2012, 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
 
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