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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 2000
Commission File No. 0-12781
CULP, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-1001967
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or other organization)
101 S. Main St., High Point, North Carolina 27261-2686
(Address of principal executive offices) (zip code)
(336) 889-5161
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.05/Share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to the filing
requirements for at least the past 90 days. YES X NO ____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation SK is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of July 24, 2000, 11,208,720 shares of common stock were
outstanding. The aggregate market value of the voting stock held by
non-affiliates of the registrant on that date was $43,400,750 based on the
closing sales price of such stock as quoted on the New York Stock Exchange
(NYSE), assuming, for purposes of this report, that all executive officers
and directors of the registrant are affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Part III
Portions of the Company's Proxy Statement dated August 18, 2000 in
connection with its Annual Meeting of Shareholders to be held on September
26, 2000 are incorporated by reference into Items 10, 11, 12 and 13.
CULP, INC.
FORM 10-K REPORT
TABLE OF CONTENTS
Item No. Page
PART I
1. Business
Overview............................................................3
Segments............................................................4
Business Strategy...................................................5
Capital Expenditures................................................6
Overview of Industry................................................6
Overview of Residential Furniture Industry..........................6
Overview of Commercial Furniture Industry...........................8
Overview of Bedding Industry........................................8
Products............................................................8
Manufacturing......................................................10
Product Design and Styling.........................................11
Distribution.......................................................11
Sources and Availability of Raw Materials..........................12
Competition........................................................12
Technology.........................................................12
Environmental and Other Regulations................................13
Employees..........................................................14
Customers and Sales................................................14
Net Sales by Geographic Area.......................................14
Backlog............................................................14
2. Properties............................................................15
3. Legal Proceedings.....................................................16
4. Submission of Matters to a Vote of Security Holders...................16
PART II
5. Market for the Registrant's Common Stock
and Related Stockholder Matters.....................................16
6. Selected Financial Data...............................................17
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................18
7A. Quantitative and Qualitative Disclosures
About Market Risk...................................................24
8. Consolidated Financial Statements and Supplementary Data..............25
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..............................44
PART III
10. Directors and Executive Officers of the
Registrant..........................................................44
11. Executive Compensation................................................44
12. Security Ownership of Certain
Beneficial Owners and Management....................................44
13. Certain Relationships and Related
Transactions........................................................44
PART IV
14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K.............................................45
Documents filed as part of this report................................45
Exhibits..............................................................46
Reports on Form 8-K...................................................52
Financial Statement Schedules.........................................52
Signatures ...........................................................53
PART I
ITEM 1. BUSINESS
Overview
Culp, Inc. (the Company) manufactures and markets upholstery fabrics
and mattress tickings primarily for use in the furniture (residential,
commercial and juvenile) and bedding industries on a worldwide basis. The
Company's executive offices are located in High Point, North Carolina. The
Company was organized as a North Carolina corporation in 1972 and made its
initial public offering in 1983. Since 1997, the Company has been listed on
the New York Stock Exchange and traded under the symbol "CFI."
Culp is one of the largest integrated marketers of furniture upholstery
fabrics in the world and is a leading global producer of mattress fabrics
(known as mattress ticking). The Company's fabrics are used principally in
the production of residential and commercial furniture and bedding products,
including sofas, recliners, chairs, loveseats, sectionals, sofa-beds, office
seating, panel systems and mattress sets. Culp markets one of the broadest
product lines in its industry, with a wide range of fabric constructions,
patterns, colors, textures and finishes. This breadth is made possible by
Culp's extensive manufacturing capabilities that include a variety of
weaving, printing and finishing operations and the ability to produce various
yarns and unfinished base fabrics (known as greige goods) used in its
products. Although most of the Company's competitors emphasize one
particular type of fabric, Culp competes in every major category except
leather, which accounts for a relatively small portion of the residential
furniture market. Culp's staff of over 75 designers and support personnel
utilize Computer Aided Design (CAD) systems to develop the Company's own
patterns and styles. Culp's product line currently includes more than 3,000
upholstery fabric patterns and 1,000 mattress-ticking styles. Although Culp
markets fabrics at most price levels, the Company has emphasized fabrics that
have a broad appeal in the "good" and "better" price categories of furniture
and bedding.
Culp markets its products worldwide, with sales to customers in over 50
countries. Total sales have grown from $351.7 million in fiscal 1996 to $488.1
million in fiscal 2000, and the Company's international sales have increased
from $77.4 million to $111.1 million during the same period. Shipments to
U.S.-based customers continue to account for most of the Company's sales, but
Culp's success in building a global presence has led to a significant
proportion of sales to international accounts (23% of net sales for fiscal
2000). The Company's network of approximately 30 international sales agents
represents Culp's products in major furniture and bedding markets outside
the United States.
Culp has sixteen (16) manufacturing facilities, with a combined total
of 2.7 million square feet, that are located in North Carolina (9), South
Carolina (2), Pennsylvania (2), Tennessee (1), Alabama (1) and Quebec, Canada
(1). The Company's distribution system is designed to offer customers fast,
responsive delivery. Products are shipped directly to customers from the
Company's manufacturing facilities, as well as from three regional
distribution facilities strategically located in High Point, North Carolina,
Los Angeles, California, and Tupelo, Mississippi, which are areas of high
concentration of furniture manufacturing. Additionally, the Company
maintains an inventory of upholstery fabrics at a warehouse facility in Grand
Rapids, Michigan to supply large commercial furniture manufacturers in that
area.
Culp's position as a leading global marketer of upholstery fabrics and
mattress ticking has been achieved through internal expansion and strategic
acquisitions. The most recent acquisitions include Phillips Mills, Wetumpka
Yarn and Artee Industries in fiscal 1998.
Segments
The Company's operating segments are upholstery fabrics and mattress
ticking, with related divisions organized within those segments. The
divisions within upholstery fabrics are Culp Decorative Fabrics, Culp
Velvets/Prints and Culp Yarn. The division within mattress ticking is Culp
Home Fashions. Each division is accorded considerable autonomy and is
responsible for designing, manufacturing and marketing its respective product
lines. Considerable synergies exist among the divisions, including the
sharing of common raw materials made internally, such as polypropylene yarns,
certain dyed and spun yarns, greige goods and printed heat-transfer paper.
Products manufactured at one division's facility are commonly transferred to
another division's facility for additional value-added processing steps. The
following table sets forth certain information for each of the Company's
segments/divisions.
Culp's Segments/Divisions
FISCAL 2000 PRODUCT LINES
NET SALES (BASE CLOTH, IF
SEGMENT DIVISION (in millions) APPLICABLE)
Upholstery Fabrics Culp Decorative Fabrics $213.2 Woven jacquards
Woven dobbies
Culp Velvets/Prints $151.5 Wet prints (flocks)
Heat-transfer prints
(jacquard, flock)
Cotton prints
Woven velvets
Tufted velvets
(woven polyester)
Culp Yarn $ 17.6 Pre-dyed spun yarns
Chenille yarns
Mattress Ticking Culp Home Fashions $105.8 Woven jacquards
Heat-transfer prints
(jacquard, knit,
sheeting)
Pigment prints
(jacquard, knit,
sheeting, non-woven)
Culp Decorative Fabrics. Culp Decorative Fabrics manufactures and
markets jacquard and dobby woven fabrics used primarily for residential and
commercial furniture. Culp Decorative Fabrics' manufacturing facilities are
located in Burlington, Graham and Monroe, North Carolina, Pageland, South
Carolina, Chattanooga, Tennessee and West Hazleton, Pennsylvania. Culp
Decorative Fabrics has become increasingly vertically integrated,
complementing its extensive weaving capabilities with the ability to extrude,
dye and texturize yarn. The designs marketed by Culp Decorative Fabrics
range from intricate, complicated patterns such as floral and abstract
designs to patterns associated with casual living styles that are popular
with motion furniture. Culp Decorative Fabrics accounts for the majority of
the Company's sales to the commercial furniture market. The Company
maintains an inventory at a third-party warehouse in Grand Rapids, Michigan
to supply fabrics marketed by Culp Decorative Fabrics to large commercial
furniture manufacturers on a "just in time" basis.
Culp Velvets/Prints. Culp Velvets/Prints manufactures and markets a
broad range of printed and velvet fabrics. These include wet-printed designs
on flock base fabrics, heat-transfer prints on jacquard and flock base
fabrics, cotton prints, woven velvets and tufted velvets. These fabrics
typically offer manufacturers richly colored patterns and textured surfaces.
Recent product development improvements in manufacturing processes have
significantly enhanced the quality of printed flock fabrics which are
principally used for residential furniture. These fabrics are also used for
other upholstered products such as baby car seats. These fabrics are
manufactured at Burlington, North Carolina, Anderson, South Carolina, and
Lumberton, North Carolina.
Culp Yarn. Culp Yarn manufactures and markets a variety of pre-dyed
spun yarns, including WrapSpun TM, open-end spun, ring spun and chenille
yarns. Culp Yarn operates manufacturing facilities in Shelby, Cherryville,
and Lincolnton, North Carolina and Wetumpka, Alabama. The Wetumpka facility
was acquired in December 1997 and the other Culp Yarn plants were purchased
in February 1998. Over half of the production of Culp Yarn is used
internally by other Culp divisions. The external sales are directed to the
upholstery fabric, carpet and apparel markets, and a portion of these
shipments are to competitors of Culp. Culp Yarn has provided Culp more
control over its supply of spun and chenille yarns and complemented the
Company's increased emphasis on developing new designs.
Culp Home Fashions. Culp Home Fashions principally markets mattress
ticking to bedding manufacturers. These fabrics encompass woven jacquard
ticking as well as heat-transfer and pigment-printed ticking on a variety of
base fabrics, including jacquard, knit, poly/cotton sheeting and non-woven
materials. Culp Home Fashions has successfully blended its diverse printing
and finishing capabilities with its access to a variety of base fabrics to
offer innovative designs to bedding manufacturers for mattress products.
Printed jacquard fabrics offer customers better values with designs and
textures of more expensive fabrics. Jacquard greige goods printed by Culp
Home Fashions are primarily provided by the division"s Rayonese facility.
Culp Home Fashions" manufacturing facilities are located in Stokesdale, North
Carolina and St. Jerome, Quebec.
Business Strategy
The Company"s plan to maintain leadership in the global upholstery
fabric and mattress ticking segments is based on a business strategy that
includes five main initiatives:
Customer Service and Vertical Integration - continuing to enhance the
competitive value of its upholstery fabrics and mattress ticking through a
company-wide initiative to raise efficiency and improve customer service.
Important aspects of this program have included attaining more consistent
product quality, improving delivery standards and offering more innovative
designs. The Company's ability to realize progress in these areas in the
past has been aided significantly by becoming more vertically integrated
through capital expansion projects and strategic acquisitions.
Representative steps have included adding capacity for producing unfinished
jacquard greige goods, extruding polypropylene yarn and most recently,
manufacturing spun and specialty yarn.
Broad Product Offering - continuing to market one of the broadest
product lines in upholstery fabrics and mattress ticking. Through its
extensive manufacturing capabilities, the Company competes in every major
category except leather.
Diverse Global Customer Base - increasing its penetration into other
end-use markets in addition to U.S. residential furniture, such as bedding,
international, commercial furniture and juvenile furniture.
Design Innovation - continuing to invest in personnel and other
resources for the design of upholstery fabrics and ticking with appealing
patterns and textures. An integral component of the value Culp provides to
customers is supplying fabrics that are fashionable and meet current consumer
preferences. The Company's principal design resources are now consolidated
in a single facility that provides advanced CAD systems and promotes a
sharing of innovative designs among the divisions.
Additional Acquisitions - investing in selective acquisitions
complementary to existing segments.
Capital Expenditures
Since fiscal 1995, the Company has invested $110.5 million in capital
expenditures to expand its manufacturing capacity, install more efficient
production equipment and vertically integrate its operations. These
expenditures have included, among other things, the installation of narrow
and wide-width weaving machines and additional printing equipment to support
the growth in woven and printed upholstery fabrics and mattress ticking. The
Company spent approximately $22.6 million in capital expenditures during
fiscal 2000 for vertical integration and modernization. This level of
capital spending was above the $10.7 million in capital expenditures during
fiscal 1999. During 2000, the key projects relating to vertical integration
included expanding wide loom capacity at St. Jerome, Quebec, Canada and
carding capacity at Wetumpka, Alabama. Projects to modernize existing
facilities encompassed several investments in looms throughout the Company's
operations. The Company is currently planning on capital expenditures for
fiscal 2001 of approximately $16 million.
Overview of Industry
Culp markets products worldwide to a broad array of manufacturers that
operate in three principal markets and several specialty markets:
Residential furniture. This market includes upholstered furniture sold
to consumers. Products include sofas, sleep sofas, chairs,
motion/recliners, sectionals and occasional furniture items.
Commercial furniture. This market includes upholstered office seating
and modular office systems sold primarily for use in offices (including
home offices) and other institutional settings.
Bedding. This market includes mattress sets as well as other related
home furnishings.
Specialty markets. These markets include juvenile furniture (baby car
seats and other baby items), hospitality (furniture used in hotels and
other lodging establishments), "top of the bed" (comforters and
bedspreads), outdoor furniture, recreational vehicle seating,
automotive aftermarket (slip-on seat covers), retail fabric stores and
specialty yarn.
Overview of Residential Furniture Industry
The upholstery fabric industry is highly competitive, particularly
among manufacturers in similar market niches. American Furniture
Manufacturers Association, a trade association, reports that manufacturers of
residential furniture in the United States shipped products valued at
approximately $25 billion (wholesale) during 1999. Approximately 40% of this
furniture is believed to consist of upholstered products. The upholstered
furniture market has grown from $5.4 billion in 1991 to $10 billion in 1999.
Trends in demand for upholstery fabric and mattress ticking generally
parallel changes in consumer purchases of furniture and bedding. Factors
influencing consumer purchases of home furnishings include the number of
household formations, growth in the general population, the demographic
profile of the population, consumer confidence, employment levels, the amount
of disposable income, geographic mobility, housing starts and existing home
sales. The long-term trend in demand for furniture and bedding has been one
of moderate growth, although there have been some occasional periods of a
modest downturn in sales due principally to changes in economic conditions.
The Company believes that demographic trends support the outlook for
continued long-term growth in the U.S. residential furniture and bedding
industries. In particular, as "baby boomers" (people born between 1946 and
1964) mature to the 35-to-64 year age range over the next decade, they will
be reaching their highest earning power. Consumers in these age groups tend
to spend more on home furnishings, and the increasing number of these
individuals favors higher demand for furniture and related home furnishings.
Statistics also show that the average size of new homes has increased in
recent years, and that is believed to have resulted in increased purchases of
furniture per home.
There is an established trend toward consolidation at all levels within
the home furnishings industry. Furniture/Today has reported that the ten
largest residential furniture manufacturers accounted for over 40% of the
industry's total shipments in 1999, up from a 23% share in 1985. This trend
is expected to continue, particularly because of the need to invest
increasing capital to maintain modern manufacturing and distribution
facilities as well as to provide the sophisticated computer-based systems and
processes necessary to interface in the supply chain between retailers and
suppliers. This trend toward consolidation is resulting in fewer, but
larger, customers for upholstery fabric manufacturers. The Company believes
that this environment favors larger upholstery fabric manufacturers capable
of supplying a broad range of product choices at the volumes required by
major furniture manufacturers on a timely basis.
Today's furniture customers prefer more casual and comfortable
furniture, including motion furniture, than did consumers ten years ago. In
addition, customers are placing increasing emphasis on product quality. The
increasing importance of product quality has allowed fabric manufacturers
with effective quality control systems to gain a competitive advantage.
Modern furniture buyers are also demanding faster delivery. To meet this
demand, the furniture industry as a whole has increased its focus on
just-in-time manufacturing methods and shorter delivery lead times.
Culp's international sales declined 2% in 2000 to $111.1 million. The
Company does not believe that this decline suggests any structural shift in
the competitive position of Culp or in the long-term opportunities that are
presented by rising demand for furniture in developing countries. Consumers
in these areas are often attracted to those designs and fashions that mirror
American tastes, and U.S.-based manufacturers such as Culp have been able to
capitalize on this preference. Production costs of fabrics involve a
relatively low labor component, which provides an advantage for a company
with modern, efficient manufacturing equipment and systems. The large size
of the furniture market within the United States has helped establish an
upholstery fabrics industry that features ready access to a variety of raw
materials, larger manufacturers with lower costs resulting from economies of
scale and the availability of new designs and patterns. The Company believes
that these characteristics assist Culp in competing effectively in
international markets.
Overview of Commercial Furniture Industry
The commercial furniture market in the United States represents annual
shipments by manufacturers valued at approximately $12 billion. Seating and
office systems, which represent the primary uses of upholstery in this
industry, represented annual sales of approximately $7 billion annually. At
the manufacturing level, the industry is highly concentrated. The top five
manufacturers of commercial furniture account for an estimated 65% of total
industry shipments. Although demand for commercial furniture can be affected
by general economic trends, the historical pattern has been one of generally
steady growth.
Dealers aligned with specific furniture brands account for over half of
industry shipments of commercial furniture. Some shift in the distribution
of commercial furniture has occurred in recent years in conjunction with the
growth in national and regional chains featuring office supplies.
Overview of Bedding Industry
According to data compiled by the International Sleep Products
Association ("ISPA"), the domestic conventional bedding market, which
generated estimated wholesale revenues of $4.1 billion during calendar year
1999, includes approximately 800 manufacturers of mattress sets. The
conventional bedding market accounts for approximately 90% of the domestic
bedding market. Approximately 71% of the conventional bedding manufactured in
the U.S. is sold to furniture stores and specialty sleep shops. Most of the
remaining 29% is sold to department stores, national mass merchandisers,
membership clubs and factory direct stores. Approximately 70% of
conventional bedding is sold for replacement purposes and the average time
lapse between mattress purchases is approximately 11 years.
Products
As described above, the Company's products include upholstery fabrics
and mattress ticking.
UPHOLSTERY FABRICS. The Company derives the majority of its revenues
from the sale of upholstery fabrics primarily to the residential and
commercial (contract) furniture markets. Sales of upholstery fabrics totaled
78% of sales for fiscal 2000. The Company has emphasized fabrics and
patterns that have broad appeal at promotional to medium prices, generally
ranging from $2.20 per yard to $9.50 per yard.
MATTRESS TICKING. The Company also manufactures mattress ticking
(fabric used for covering mattresses and box springs) for sale to bedding
manufacturers. Sales of mattress ticking constituted 22% of sales in fiscal
2000. The Company has emphasized fabrics and patterns which have broad
appeal at prices generally ranging from $1.20 to $8.00 per yard.
The Company's upholstery fabrics and mattress ticking can each be
broadly grouped under the three main categories of wovens, prints and
velvets. The following table indicates the product lines within each of
these categories, a brief description of their characteristics and
identification of their principal end-use markets.
Culp Fabric Categories
Upholstery Fabrics Characteristics Principal Markets
- ------------------ --------------- ------------------
Wovens:
Jacquards Elaborate, complex designs such as florals Residential
and tapestries in traditional, transitional furniture
and contemporary styles. Woven on Commercial
intricate looms using a wide variety of furniture
synthetic and natural yarns.
Dobbies Geometric designs such as plaids, stripes Residential
and solids in traditional and country furniture
styles. Woven on less complicated looms Commercial
using a variety of weaving constructions furniture
and primarily synthetic yarns.
Prints:
Wet prints Contemporary patterns with deep, rich Residential
colors on a nylon flock base fabric for a furniture
very soft texture and excellent Juvenile
wearability. Produced by screen printing furniture
directly onto the base fabric.
Heat-transfer Sharp, intricate designs on flock or Residential
prints jacquard base fabrics. Plush feel furniture
(flocks), deep colors (jacquards) and Juvenile
excellent wearability. Produced by using furniture
heat and pressure to transfer color from
printed paper onto base fabric.
Cotton prints A broad variety of designs featuring deep, Residential
rich colors printed on woven cotton base furniture
fabrics with excellent wearability.
Produced by screen printing directly onto
the base fabric.
Velvets:
Woven velvets Basic designs such as plaids and Residential
semi-plains in traditional and furniture
contemporary styles with a plush feel.
Woven with a short-cut pile using various
weaving methods and synthetic yarns.
Tufted velvets Lower cost production process of velvets in Residential
which synthetic yarns are punched into a furniture
base polyester fabric for texture. Similar
designs as woven velvets.
Mattress Ticking Characteristics Principal Markets
- ------------------ --------------- ------------------
Wovens:
Jacquards Florals and other intricate designs. Woven Bedding
on complex looms using a wide variety of
synthetic and natural yarns.
Prints:
Heat-transfer Sharp, detailed designs. Produced by using Bedding
prints heat and pressure to transfer color from
printed paper onto base fabrics, including
woven jacquards, knits and poly/cotton
sheetings.
Pigment prints Variety of designs produced economically by Bedding
screen printing pigments onto a variety of
base fabrics, including jacquards, knits,
poly/cotton sheeting and non-wovens.
================================================================================
Although fabrics marketed for upholstery applications and those used
for mattress ticking may have similar appearances, mattress ticking must be
manufactured on weaving and printing equipment in wider widths to accommodate
the physical size of box springs and mattresses. The Company's products
include all major types of coverings, except for leather, that manufacturers
use today for furniture and bedding. The Company also markets fabrics for
certain specialty markets, but these do not currently represent a material
portion of the Company's business.
Manufacturing
Substantially all of the upholstery fabric and mattress ticking
currently marketed by Culp is produced at the Company's sixteen (16)
manufacturing facilities. These plants encompass a total of 2.7-million
square feet and include yarn extrusion, spinning, dyeing and texturizing
equipment, narrow and wide-width jacquard looms, dobby and woven velvet
looms, tufting machines, printing equipment for pigment, heat-transfer and
wet printing, fabric finishing equipment and various types of surface
finishing equipment (such as washing, softening and embossing). Culp is
actively pursuing ISO certification for its manufacturing facilities. ISO
certification is an international recognition of a company's ability to
deliver high quality products and services. Culp's facilities at Stokesdale,
North Carolina, which produces mattress ticking, and at Anderson, South
Carolina, which produces woven velvet upholstery fabric, were awarded
ISO-9002 certification during fiscal 1997. Additionally, the Company's
facility at Pageland, South Carolina, which produces jacquard and dobby
upholstery fabric, and the finishing facility in Burlington, North Carolina
were awarded ISO-9002 certification in fiscal 1998. During fiscal 1999, the
Company's weaving facility in Graham, North Carolina and the Culp
Velvets/Prints plant in Burlington, North Carolina successfully completed
ISO-9002 registration. The Company is planning to complete the ISO
certification process at its other facilities over the next several years.
The Company's woven fabrics are made from various types of synthetic
and natural yarn, such as polypropylene, polyester, acrylic, rayon, nylon or
cotton. Yarn is woven into various fabrics on jacquard, dobby or velvet
weaving equipment. Once the weaving is completed, the fabric can be printed
or finished using a variety of processes. The Company currently extrudes and
spins a portion of its own needs for yarn and purchases the remainder from
outside suppliers. As a result of the acquisition of the Culp Yarn plants
during fiscal 1998, Culp produces internally a substantial amount of its
needs for spun and chenille yarns. The Company also supplies other fabric
manufacturers with spun yarns manufactured by Culp Yarn. Culp purchases a
significant amount of greige goods (unfinished, uncolored base fabrics) from
other suppliers to be printed at the Company's plants, but has increased its
internal production capability for jacquard greige goods. The acquisition of
Rayonese in fiscal 1995 increased the Company's capacity to produce its own
jacquard greige goods. Culp has installed additional airjet weaving machines
at Rayonese to significantly increase its capacity for jacquard greige goods.
During the fourth quarter of fiscal 1997, the Company installed its
first flock coating line to produce flock greige goods to be used primarily
as the base cloth for wet and heat-transfer-printed flock products. Flock
fabrics are produced by the application of very short nylon fibers onto a
poly/cotton woven base fabric to create a velvet effect. During the flock
coating process, the fibers are bonded onto the base fabric with an adhesive
substance by utilizing an electrostatic charging procedure which causes the
fibers to vertically align with the base fabric.
Tufted velvet fabrics are produced by tufting machines which insert an
acrylic or polypropylene yarn through a polyester woven base fabric creating
loop pile surface material which is then sheared to create a velvet surface.
Tufted velvet fabrics are typically lower-cost fabrics utilized in the
Company's lower-priced product mix.
The Company's printing operations include pigment and heat-transfer
methods, as well as wet printing. The Company also produces its own printed
heat-transfer paper, another component of vertical integration. Wet printing
is the most recent addition to the Company's printing capabilities.
Product Design and Styling
Consumer tastes and preferences related to upholstered furniture and
bedding change, albeit gradually, over time. The use of new fabrics and
designs remains an important consideration for manufacturers to distinguish
their products at retail and to capitalize on even small changes in preferred
colors, patterns and textures. Culp's success is largely dependent on the
Company's ability to market fabrics with appealing designs and patterns.
Culp has a staff of over 75 designers and support personnel involved in the
design and development of new patterns and styles, including designers with
experience in designing products for specific international markets. Culp
uses computer aided design (CAD) systems in the development of new fabrics
which assists the Company in providing a very flexible design program. These
systems have enabled the Company's designers to experiment with new ideas and
involve customers more actively in the process. The use of CAD systems also
has supported the Company's emphasis on integrating manufacturing
considerations into the early phase of a new design. The completion of the
Howard-L. Dunn, Jr. design center in January 1998 has enabled most of the
Company's designers to be located in the same facility to support the sharing
of design ideas and CAD and other technologies. The design center has
enhanced the Company's merchandising and marketing efforts by providing an
environment in which customers can be shown new products as well as
participate in product development initiatives.
The process of developing new designs involves maintaining an awareness
of broad fashion and color trends both in the United States and
internationally. These concepts are blended with input from the Company's
customers to develop new fabric designs and styles. Most of these designs
are introduced by Culp at major trade conferences that occur twice a year in
the United States (January and July) and annually in several major
international markets.
Distribution
The majority of the Company's products are shipped directly from its
distribution centers at or near manufacturing facilities. This "direct ship"
program is primarily utilized by large manufacturers. Generally, small and
medium-size residential furniture manufacturers use one of the Company's
three regional distribution facilities which have been strategically
positioned in areas which have a high concentration of residential furniture
manufacturers - High Point, North Carolina, Los Angeles, California and
Tupelo, Mississippi. In addition, the Company maintains an inventory of
upholstery fabric at a warehouse in Grand Rapids, Michigan to supply large
commercial furniture manufacturers in that area on a "just in time" basis.
The Company closely monitors demand in each distribution territory to decide
which patterns and styles to hold in inventory. These products are available
on demand by customers and are usually shipped within 48 hours of receipt of
an order. Substantially all of the Company's shipments of mattress ticking
are made from its manufacturing facilities in Stokesdale, North Carolina and
St. Jerome, Quebec, Canada.
In international markets, Culp sells primarily to distributors that
maintain inventories of upholstery fabrics for resale to furniture
manufacturers. The Company plans to explore the establishment of
distribution facilities in certain areas outside the United States to support
international sales.
Sources and Availability of Raw Materials
Raw materials account for more than half of the Company's total
production costs. The Company purchases various types of synthetic and
natural yarns (polypropylene, polyester, acrylic, nylon, rayon and cotton),
synthetic staple fibers (acrylic, rayon, polypropylene, polyester), various
types of greige goods (poly/cotton wovens and flocks, polyester wovens,
poly/rayon and poly/cotton jacquard wovens, polyester knits, poly/cotton
sheeting and non-wovens), polypropylene resins, nylon flock fibers, rayon
staple, latex adhesives, dyes and chemicals from a variety of suppliers. The
Company has made a significant investment in becoming more vertically
integrated and producing more of its jacquard greige goods, polypropylene
yarns, package dyed yarns and printed heat-transfer paper internally. As a
result, a larger portion of its raw materials are comprised of more basic
commodities such as rayon staple, undyed yarns, polypropylene resin chips,
certain polyester warp yarns, unprinted heat-transfer paper and unflocked
poly/cotton base fabric. Although the Company is dependent upon one supplier
for all of its nylon flock fibers and upon one supplier of acrylic staple,
most of the Company's raw materials are available from more than one primary
source. The prices of such materials fluctuate depending upon current supply
and demand conditions and the general rate of inflation. Many of the
Company's basic raw materials are petrochemical products or are produced from
such products, and therefore the Company's raw material costs are
particularly sensitive to changes in petrochemical prices. Generally, the
Company has not had significant difficulty in obtaining raw materials.
Competition
In spite of the trend toward consolidation in the upholstery fabric
market, the Company competes against a large number of producers, ranging
from large manufacturers comparable in size to the Company to small producers
and marketers of specialty fabrics. The Company believes its principal
upholstery fabric competitors are the Burlington House Fabrics division of
Burlington Industries, Inc., Joan Fabrics Corporation (including its
Mastercraft division), Microfibres, Inc., and Quaker Fabric Corporation.
Conversely, the mattress ticking market is concentrated in a few relatively
large suppliers. The Company believes its principal mattress ticking
competitors are Bekaert Textiles B.V., Blumenthal Print Works, Inc.,
Burlington House Fabrics division of Burlington Industries, Inc. and Tietex,
Inc. Although the Company is one of the largest suppliers of furniture
upholstery fabrics and a leading supplier of mattress ticking to the
bedding industry, some of the Company's competitors are larger overall and
have greater financial resources than the Company. Competition for the
Company's products is based primarily on price, design, quality, timing of
delivery and service.
Technology
Culp views the use of technology as a very important element in the
Company's efforts to achieve higher levels of service to its customers and to
produce and deliver its products in an efficient and cost-effective manner.
Some of Culp's key initiatives in this area include:
- - The Company has created a home page on the Internet (www.Culpinc.com).
Through the Internet and the Culp home page, customers can use a system
known as CulpLink to view their current order status, shipping and
invoice information, and twelve months of sales history. The CulpLink
system was developed internally by the Company's MIS department and
provides superior communication with customers throughout the world.
- - Culp has implemented significant upgrades to its design technology and
has opened the state-of-the-art Howard L. Dunn, Jr. Design Center. The
Company has used computer aided design (CAD) technology for many years,
and recent upgrades in hardware and software in the CAD department have
made the process of moving from design to a finished project both
faster and simpler. The Company also has implemented an image
archiving system that will allow electronic storage of all artwork and
easy access to artwork for designers.
- - Local Area Networks (LANs) have been installed at individual plants,
and all of these are combined into one Wide Area Network (WAN),
allowing easy information exchange among various Culp locations and
communication with customers and suppliers through the Internet. Culp
has installed fiber optic cable networks as the communication backbone
throughout the Company, placing the Company in position to easily
expand the user base and to take advantage of this faster data transfer
medium for potential future uses such as video conferencing and
transferring large files like those required for digital images.
- - The Company has recently completed the installation of new shop floor
data collection systems to track inventory movement. This initiative
includes the use of fixed laser scanners, hand-held radio frequency
devices, and industrialized keyboards and display stations at key
points throughout the manufacturing process to record the movement of
goods through production and shipping. The Company makes extensive use
of bar-coding to track products throughout its manufacturing and
distribution systems, and the Company has recently installed new
thermal transfer printers for high quality printing of bar-coded labels
and work orders.
Environmental and Other Regulations
The Company is subject to various federal and state laws and
regulations, including the Occupational Safety and Health Act and federal and
state environmental laws, as well as similar laws governing its Rayonese
facility in Canada. The Company periodically reviews its compliance with
such laws and regulations in an attempt to minimize the risk of material
violations.
The Company's operations involve a variety of materials and processes
that are subject to environmental regulation. Under current law, environmental
liability can arise from previously owned properties, leased properties and
properties owned by third parties, as well as from properties currently owned
and leased by the Company. Environmental liabilities can also be asserted by
adjacent landowners or other third parties in toxic tort litigation.
In addition, under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA"), and analogous
state statutes, liability can be imposed for the disposal of waste at sites
targeted for cleanup by federal and state regulatory authorities. Liability
under CERCLA is strict as well as joint and several. The Company has accrued
reserves for environmental matters based on information presently available.
Based on this information and the Company's established reserves, the Company
does not believe that environmental matters will have a material adverse
effect on either the Company's financial condition or results of operations.
However, there can be no assurance that the costs associated with
environmental matters will not increase in the future.
Employees
As of April 30, 2000, the Company had approximately 3,800 employees.
All of the hourly employees at the Company's facility in West Hazleton,
Pennsylvania and all of the hourly employees at the Rayonese facility in
Canada (approximately 14% of the Company's workforce) are represented by a
union. The collective bargaining agreement with respect to the hourly
employees at the Pennsylvania plant expires in December 2002, while the
collective bargaining agreement with respect to the Rayonese hourly employees
expires in February 2002. The Company is not aware of any efforts to
organize any more of its employees and believes its relations with its
employees are good.
Customers and Sales
Culp's size, broad product line, diverse manufacturing base and
effective distribution system enable it to market products to over 2,000
customers. Major customers are leading manufacturers of upholstered
furniture, including Bassett, Furniture Brands International (Broyhill,
Thomasville and Lane), Lifestyles International (Berkline, Universal,
Benchcraft, Drexel, Henredon and others), Flexsteel and La-Z-Boy (Bauhaus,
England/Corsair, LADD Furniture and others). Representative customers for
the Company's fabrics for commercial furniture include Herman Miller, HON
Industries and Steelcase. In the mattress ticking area, Culp's customer base
includes leading bedding manufacturers such as Sealy, Serta, Simmons and
Spring Air. Culp's customers also include many small and medium-size
furniture and bedding manufacturers. In international markets, Culp sells
upholstery fabrics primarily to distributors that maintain inventories for
resale to furniture manufacturers.
The following table sets forth the Company's net sales by geographic
area by amount and percentage of total net sales for the three most recent
fiscal years.
Net Sales by Geographic Area
(dollars in thousands)
Fiscal 2000 Fiscal 1999 Fiscal 1998
----------------- ---------------- ------------------
United States $376,975 77.2% $369,730 76.5% $339,492 71.2%
North America
(excluding U.S.) 36,032 7.4 31,102 6.5 31,160 6.5
Europe 16,351 3.4 19,578 4.1 30,775 6.5
Middle East 32,929 6.7 33,996 7.0 34,412 7.2
Asia and Pacific Rim 19,102 3.9 21,371 4.4 32,344 6.8
South America 2,343 0.5 3,484 0.7 5,158 1.1
All other areas 4,347 0.9 3,823 0.8 3,374 0.7
Subtotal 111,104 22.8 113,354 23.5 137,223 28.8
------- ---- ------- ---- ------- ----
Total $488,079 100.0% $483,084 100.0% $476,715 100.0%
======== ====== ======== ====== ======== ======
Backlog
Because a large portion of the Company's customers have an opportunity
to cancel orders, it is difficult to predict the amount of the backlog that
is "firm." Many customers may cancel orders before goods are placed into
production, and some may cancel at a later time. In addition, the Company
markets a significant portion of its sales through its Regional Warehouse
System from in-stock order positions. On April 30, 2000, the portion of the
backlog with confirmed shipping dates prior to June 4, 2000 was $39.1
million, and on May 2, 1999, the portion of the backlog with confirmed
shipping dates prior to June 6, 1999 was $38.6 million.
ITEM 2. PROPERTIES
The Company's headquarters are located in High Point, North Carolina, and
the Company currently operates sixteen (16) manufacturing facilities and three
(3) regional distribution facilities. The following is a summary of the
Company's principal administrative, manufacturing and distribution facilities.
The manufacturing facilities are organized by segment.
Approx.
Total Area Expiration
Location Principal Use (Sq. Ft.) of Lease (2)
- -------- ------------- --------- -------------
Headquarters and Distribution
Centers: (1)
High Point, North Carolina Corporate headquarters 40,000 2015
Burlington, North Carolina Design Center 30,000 Owned
Los Angeles, California Regional distribution 33,000 2007
Upholstery Fabrics:
Graham, North Carolina Manufacturing 341,000 Owned
Burlington, North Carolina Manufacturing and distribution 302,000 Owned
Pageland, South Carolina Manufacturing 96,000 Owned
Burlington, North Carolina Distribution and Yarn Warehouse 112,500 Owned
Chattanooga, Tennessee Manufacturing and distribution 290,000 2018
West Hazleton, Pennsylvania Manufacturing 110,000 2013
West Hazleton, Pennsylvania Manufacturing and distribution 100,000 2008
Monroe, North Carolina Manufacturing 70,000 2004
Burlington, North Carolina Manufacturing and distribution 275,000 2021
Lumberton, North Carolina Manufacturing 107,000 Owned
Anderson, South Carolina Manufacturing 99,000 Owned
High Point, North Carolina Regional distribution 65,000 2008
Tupelo, Mississippi Regional distribution 57,000 2018
Shelby, North Carolina Manufacturing 101,000 Owned
Lincolnton, North Carolina Manufacturing 78,000 Owned
Cherryville, North Carolina Manufacturing 135,000 Owned
Wetumpka, Alabama Manufacturing 145,000 Owned
Mattress Ticking:
Stokesdale, North Carolina Manufacturing and distribution 220,000 Owned
St. Jerome, Quebec, Canada Manufacturing and distribution 202,000 Owned
(1) Properties are used jointly by Upholstery Fabrics and Mattress Ticking
(2) Includes all options to renew
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings to which the Company, or its
subsidiaries, is a party or of which any of their property is the subject
that are required to be disclosed under this item.
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of shareholders during
the fourth quarter ended April 30, 2000.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON
STOCK AND RELATED STOCKHOLDER MATTERS
Registrar and Transfer Agent
EquiServe
150 Royall Street
Canton, MA 02021
(781) 575-3951
Written shareholder correspondence and transfers should be sent to:
EquiServe
P.O. Box 8217
Boston, MA 02266-8217
Stock Listing
Culp, Inc. common stock is traded on the New York Stock Exchange under
the symbol CFI. As of April 30, 2000, Culp, Inc. had approximately 2,500
shareholders based on the number of holders of record and an estimate of
individual participants represented by security position listings.
Analyst Coverage
These analysts cover Culp, Inc.:
First Union Capital Markets - John Baugh, CFA
C.L. King & Associates - Tom Lewis
Raymond, James & Associates - Budd Bugatch, CFA
Wachovia Securities, Inc. - Kay Norwood, CFA
Value Line - Noah Goldner
See Item 6, Selected Financial Data, for market and dividend
information regarding the Company's common stock.
ITEM 6. SELECTED FINANCIAL DATA (SELECTED ANNUAL DATA)
percentfive-year
fiscal fiscal fiscal fiscal fiscal change growth
(amounts in thousands, except per share amounts) 2000 1999 1998 1997 1996 2000/1999 rate
- ---------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA (5)
net sales $ 488,079 483,084 476,715 398,879 351,667 1.0% 9.6%
cost of sales 403,414 406,976 393,154 326,394 289,129 (0.9) 9.8
- ---------------------------------------------------------------------------------------------------------------------------
gross profit 84,665 76,108 83,561 72,485 62,538 11.2 9.1
S G & A expenses 59,935 59,968 52,987 45,058 39,068 (0.1) 12.4
- ---------------------------------------------------------------------------------------------------------------------------
income from operations 24,730 16,140 30,574 27,427 23,470 53.2 3.1
interest expense 9,521 9,615 7,117 4,671 5,316 (1.0) 15.1
interest income (51) (195) (304) (280) (92) (73.8) (4.4)
other expense 1,566 2,412 1,912 1,521 956 (35.1) 7.7
- ---------------------------------------------------------------------------------------------------------------------------
income before income taxes 13,694 4,308 21,849 21,515 17,290 217.9 (2.5)
income taxes 4,314 1,206 6,336 7,745 6,310 257.7 (5.6)
- ---------------------------------------------------------------------------------------------------------------------------
net income 9,380 3,102 15,513 13,770 10,980 202.4 (0.8)
- ---------------------------------------------------------------------------------------------------------------------------
EBITDA (3) $ 44,222 33,847 44,841 39,404 35,610 30.7 6.6
depreciation 19,462 18,549 14,808 12,688 12,348 4.9 11.6
cash dividends 1,611 1,788 1,786 1,513 1,236 (9.9) 7.5
- ---------------------------------------------------------------------------------------------------------------------------
weighted average shares outstanding 11,580 12,909 12,744 11,624 11,234 (10.3) 0.7
weighted average shares outstanding,
assuming dilution 11,681 13,064 13,042 11,929 11,886 (10.6) 0.4
- ---------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA (5)
net income $ 0.81 0.24 1.22 1.18 0.98 237.5% (1.4)%
net income, assuming dilution 0.80 0.24 1.19 1.15 0.94 233.3 (1.4)
cash dividends 0.14 0.14 0.14 0.13 0.11 0.0 7.0
book value 11.47 10.54 10.11 8.79 7.21 8.8 12.5
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA (5)
working capital $ 99,977 99,324 102,730 69,777 56,953 0.7% 21.0%
property, plant and equipment, net 126,407 123,310 128,805 91,231 76,961 2.5 10.8
total assets 342,878 330,612 354,815 243,952 211,644 3.7 11.9
capital expenditures 22,559 10,689 35,879 26,958 14,385 111.0 4.6
businesses acquired 0 0 58,816 0 0 0.0 (100.0)
long-term debt 135,808 140,312 152,312 76,541 74,941 (3.2) 16.9
funded debt (1) 137,486 138,650 151,616 65,623 76,791 (0.8) 13.5
shareholders' equity 128,538 127,326 131,519 110,789 81,446 1.0 12.5
capital employed (4) 266,024 265,976 283,135 176,412 158,237 0.0 13.0
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS & OTHER DATA (5)
gross profit margin 17.3% 15.8% 17.5% 18.2% 17.8%
operating income margin 5.1 3.3 6.4 6.9 6.7
net income margin 1.9 0.6 3.3 3.5 3.1
EBITDA margin 9.1 7.0 9.4 9.9 10.1
effective income tax rate 31.5 28.0 29.0 36.0 36.5
funded debt-to-total capital ratio (1) 51.7 52.1 53.5 37.2 48.5
return on average total capital 6.0 3.4 8.4 10.1 9.5
return on average equity 7.4 2.4 13.0 15.2 14.4
working capital turnover 4.4 4.3 4.7 5.3 5.3
days sales in receivables 49 49 49 49 46
inventory turnover 5.4 5.6 5.8 6.4 6.0
- ---------------------------------------------------------------------------------------------------------
STOCK DATA
stock price
high $ 11.06 19.13 22.19 19.63 13.25
low 5.00 5.13 16.50 11.50 7.75
close 5.81 8.25 18.88 16.63 13.00
P/E ratio (2)
high 13.7 79.6 18.2 16.6 13.5
low 6.2 21.3 13.5 9.7 7.9
daily average trading volume (shares) 15.8 30.4 16.0 19.7 19.3
- ---------------------------------------------------------------------------------------------------------
(1) Funded debt includes long- and short-term debt, less restricted investments.
(2) P/E ratios based on trailing 12-month net income per share.
(3) EBITDA represents earnings before interest, income taxes, depreciation and
amortization.
(4) Capital employed includes funded debt and shareholders' equity.
(5) Phillips, Wetumpka and Artee included in consolidated results from their
August 5, 1997, December 30, 1997 and February 2, 1998 acquisitions by Culp,
respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis of the financial condition and results of
operations should be read in conjunction with the Financial Statements and
Notes thereto.
Overview
Culp is one of the largest integrated marketers in the world for
upholstery fabrics for furniture and is one of the leading global producers
of mattress fabrics (ticking). The company's fabrics are used primarily in
the production of residential and commercial upholstered furniture and
bedding products, including sofas, recliners, chairs, love seats, sectionals,
sofa-beds, office seating and mattress sets. Although Culp markets fabrics
at most price levels, the company emphasizes fabrics that have broad appeal
in the promotional and popular-priced categories of furniture and bedding.
Culp's worldwide leadership as a marketer of upholstery fabrics and
mattress ticking has been achieved through internal expansion and the
integration of strategic acquisitions.
The company's operating segments are upholstery fabrics and mattress
ticking, with related divisions organized within those segments. In
upholstery fabrics, Culp Decorative Fabrics markets jacquard and dobby woven
fabrics for residential and commercial furniture. Culp Velvets/Prints
markets a broad range of printed and velvet fabrics used primarily for
residential and juvenile furniture. Culp Yarn manufactures specialty filling
yarn that is used by Culp and also marketed to outside customers. In
mattress ticking, Culp Home Fashions markets a broad array of fabrics used by
bedding manufacturers.
Results of Operations
The following table sets forth certain items in the company's
consolidated statements of income as a percentage of net sales.
2000 1999 1998
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of sales 82.7 84.2 82.5
---- ---- ----
Gross profit 17.3 15.8 17.5
Selling, general and administrative
expenses 12.3 12.4 11.1
---- ---- ----
Income from operations 5.1 3.3 6.4
Interest expense 2.0 2.0 1.5
Interest income (0.0) (0.0) (0.1)
Other expense 0.3 0.5 0.4
--- --- ---
Income before income taxes 2.8 0.9 4.6
Income taxes (*) 31.5 28.0 29.0
Net income 1.9% 0.6% 3.3%
=== === ===
* Calculated as a percent of income before income taxes.
The following table sets forth the company's sales by segment and
division for each of the company's three most recent years. The table sets
forth the change in net sales for the segments and divisions as a percentage
for comparative periods included in the table.
(dollars in thousands) Amounts Percent change
- --------------------------------------------------------------------------------
1999- 1998-
segment/division 2000 1999 1998 2000 1999
- --------------------------------------------------------------------------------
Upholstery Fabrics:
Culp Decorative Fabrics $213,197 $222,058 $210,165 (4.0)% 5.7%
Culp Velvets/Prints 151,543 144,073 171,389 5.2 (15.9)
Culp Yarn 17,570 21,513 7,876 (18.3) 173.1
------ ------ ----- ----- -----
382,310 387,644 389,430 (1.4) (0.5)
Mattress Ticking:
Culp Home Fashions 105,769 95,440 87,285 10.8 9.3
------- ------ ------ ---- ---
$488,079 $483,084 $476,715 1.0% 1.3%
======== ======== ======== === ===
2000 Compared with 1999
Net Sales. Net sales for 2000 increased by $5.0 million, or 1.0%,
compared with 1999. The company's sales of upholstery fabrics decreased 1.4%
to $382.3 million and mattress ticking sales increased 10.8% to $105.8
million. This was the first full year in which the company operated with its
current structure of four divisions. This corporate organization, which
evolved from one in which there were six business units, groups related
operations together; and its adoption in 1999 was accompanied by several
changes in managerial positions. The company believes that this new
structure is yielding a number of benefits including improved customer
service, more effective use of design resources and increased manufacturing
efficiency. Culp believes that these factors aided its total net sales to
U.S.-based accounts for 2000, which rose 2.0% for the year.
This growth was offset by a decline of 2.0% in international sales.
After several years of above-average growth, Culp's international sales
declined 17.4% in 1999, following an industry-wide trend. The company took
steps to mitigate the impact of this trend by significantly curtailing
production schedules for certain international-targeted fabrics, introducing
a new line of printed cotton upholstery fabrics, and shifting its marketing
focus to geographic areas where demand appeared more favorable. The company
believes that the significantly smaller decline in international sales for
2000 reflects the results of these actions. The company has a diversified
global base of customers and is seeking to broaden that further to minimize
exposure to economic uncertainties in any geographic area.
The increased sales by Culp Home Fashions (primarily mattress ticking)
during 2000 marked a continuation of the longer-term expansion that this
division has experienced. The introduction of new designs and fabric
constructions, and the advantages of the company's vertical integration, are
driving Culp's growth in mattress ticking. In particular, the ability to
manufacture the jacquard greige (unfinished) goods that are then printed to
produce mattress ticking has aided Culp in meeting faster delivery schedules
reliably and providing improved overall customer service.
Since the close of fiscal 2000, the company has experienced weakening
demand for its products. The company believes the trends toward higher
interest rates and the strength of the U.S. dollar against other currencies
are factors contributing to this slowdown and will present a continuing
challenge for fiscal 2001.
Gross Profit and Cost of Sales. Gross profit for 2000 increased 11.2%
to $84.7 million and increased as a percentage of net sales from 15.8% to
17.3%. The company has taken a number of actions to increase gross profit,
including a shift of its production capacity toward more profitable fabric
categories and substantial steps to reduce operating expenses and raise
productivity.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for 2000 decreased 0.1% and accounted for 12.3% of
sales versus 12.4% in the prior year. The company has increased its
resources for the design of new fabrics and for enhanced information systems.
Interest Expense. Net interest expense of $9.5 million for 2000
compared with $9.4 million in the prior year. Although the company generally
had lower average borrowings during 2000, the reduced debt was offset by
lower capitalized interest related to capital expenditures and higher average
interest rates.
Other Expense. Other expense for 2000 totaled $1.6 million compared
with $2.4 million in the prior year. The decrease is principally due to
higher investment income on assets related to the company's nonqualified
deferred compensation plan.
Income Taxes. The effective tax rate for 2000 was 31.5% compared with
28.0% in the prior year. The lower rates for 2000 and 1999 as compared with
the federal statutory rate of 35% are due principally to tax benefits related
to the company's international sales and to a higher proportion of earnings
from the company's Canadian subsidiary that is taxed at a lower effective
rate. The company expects the effective tax rate for 2000 to be
approximately 34%.
Net Income Per Share. Diluted net income per share for 2000 totaled
$0.80 compared with $0.24 a year ago.
1999 Compared with 1998
Net Sales. Net sales for 1999 increased by $6.4 million, or 1.3%,
compared with 1998. The company's sales of upholstery fabrics decreased $1.8
million, or 0.5% for 1999 compared with 1998. However, fiscal 1999 includes
an incremental contribution of $13.6 million from Culp Yarn (formerly Artee
Industries), which was acquired on February 2, 1998. Excluding the
incremental sales from Culp Yarn, sales of upholstery fabrics decreased $15.4
million, or 4.0% for 1999 compared with 1998. The principal factor
contributing to the lower sales was a pronounced slowdown in international
sales of wet print and heat-transfer printed flock fabrics. This trend,
which the company believes also affected other manufacturers of upholstery
fabrics, became apparent after the close of 1998 and persisted throughout
1999. A large percentage of the company's sales of this product line were
being shipped directly or indirectly to customers in the emerging consumer
markets of Russia, other former Soviet countries and Eastern Europe. All of
these areas encountered very weak economic conditions that, in turn,
adversely affected demand for furniture and other home furnishings. During
1999, the company significantly curtailed production schedules for these
fabrics and shifted its marketing focus for this product category to
geographic areas where demand appears more favorable. The company also
introduced a line of printed cotton upholstery fabrics utilizing some of the
same manufacturing assets used to produce wet print and heat-transfer printed
flock fabrics.
International sales, consisting primarily of upholstery fabrics, decreased
to $113.4 million, down 17.4% from 1998. International shipments accounted
for 23.5% of the company's sales for 1999, down from 28.8% in 1998. The
company continued to experience sluggish demand in some international markets
during 1999, but broadened its marketing program in other geographic areas.
The increased sales by Culp Home Fashions (primarily mattress ticking)
during 1999 were a continuation of the longer-term expansion that this
division has experienced, which management believes is attributable to the
same factors discussed above in the comparison of 2000 to 1999.
Gross Profit and Cost of Sales. Gross profit for 1999 decreased 8.9% to
$76.1 million. The decline was due principally to a sharp decline in
international sales. Although the company took substantial steps to reduce
operating expenses, it continued to be affected throughout 1999 by excess
manufacturing capacity and lower absorption of fixed costs.
To help offset the pressure on gross margins, the company instituted a
number of actions during 1999. A major change involved reorganization from
six to four divisions during the first quarter. This new corporate alignment
brought related operations together under common management and was
accompanied by several changes in managerial positions. Subsequent steps to
improve profitability that are related to this realignment included a
significant reduction in the capacity for manufacturing printed flock
fabrics, comprehensive programs to reduce inventories and an intense effort
to reduce operating expenses and raise productivity. The cost of raw
materials remained relatively stable in 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased as a percentage of net sales for 1999 to
12.4% compared with 11.1% in 1998. The increase principally related to lower
than expected sales for the year, higher marketing costs for new fabric
designs, incremental costs from the Artee acquisition and increased costs for
credit expenses, partially offset by lower accruals for incentive-based
compensation plans.
Interest Expense. Net interest expense for 1999 of $9.4 million rose
38.3% from $6.8 million in 1998 due to higher average borrowings
outstanding. The increased borrowings related principally to borrowings used
to fund acquisitions during 1998 and the relatively high level of capital
expenditures in 1998.
Other Expense. Other expense increased 26.2% to $2.4 million for 1999
compared with $1.9 million for 1998, due primarily to the incremental
goodwill amortization related to acquired operations in fiscal 1998 and
losses on disposal of fixed assets.
Income Taxes. The effective tax rate for 1999 was 28.0% compared with
29.0% in 1998. The lower rates for 1999 and 1998 as compared with the
federal statutory rate of 35% are due principally to tax benefits related to
the company's international sales and to a higher proportion of earnings from
the company's Canadian subsidiary that is taxed at a lower effective rate.
Net Income Per Share. Diluted net income per share for 1999
totaled $0.24 compared with $1.19 a year ago.
Liquidity and Capital Resources
Liquidity. Cash and cash investments were $1.0 million as of April 30,
2000 compared with $509,000 at the end of 1999. Funded debt (long-term debt,
including current maturities, less restricted investments) amounted to $137.5
million at the close of 2000 versus $138.7 million at the end of 1999. As a
percentage of total capital (funded debt plus total shareholders' equity),
the company's borrowings amounted to 51.7% as of April 30, 2000 compared with
52.1% at the end of 1999. The company's working capital as of April 30, 2000
was $100.0 million compared with $99.3 million at the close of 1999.
The company's cash flow from operations was $21.8 million for 2000,
consisting of $32.6 million from earnings (net income plus depreciation,
amortization and deferred income taxes) offset by $10.8 million from changes
in working capital.
In separate authorizations in June 1998, March 1999, September 1999 and
December 1999, the board of directors of the company authorized the use of a
total of $20.0 million to repurchase the company's common stock. Over the
past two fiscal years, the company has invested $12.2 million to repurchase a
total of 1.8 million shares. This includes the repurchase during fiscal 2000
of 884,264 shares at an average price of $7.50 per share under these
authorizations.
Financing Arrangements. Culp has $75 million of senior unsecured notes
with a fixed coupon rate of 6.76% and an average remaining term of eight
years.
Culp has an $88 million syndicated, unsecured, multi-currency revolving
credit facility. The facility, which expires in April 2002, requires
quarterly payments of interest on all outstanding borrowings and a quarterly
facility fee paid in advance. In April 2000, the company amended the credit
facility to amend certain covenants. Additionally, the amendment increased
the interest rate from LIBOR plus 0.55% to LIBOR plus 0.80% to 0.90%. The
specified pricing matrix will be in effect for fiscal 2001 and is based on
the company's debt to EBITDA and interest and leases coverage ratios, as
defined by the facility. As of April 30, 2000, the company had outstanding
balances of $25 million under the credit facility.
The company also has a total of $32.5 million in currently outstanding
industrial revenue bonds ("IRBs") which have been used to finance capital
expenditures. The IRBs bear interest at variable rates of approximately 71%
of the prime rate (prime at April 30, 2000 was 9.0%). The IRBs are
collateralized by letters of credit for the outstanding balance of the IRBs
and certain interest payments due thereunder.
The company's loan agreements require, among other things, that the
company maintain compliance with certain financial ratios. As of April 30,
2000, the company was in compliance with these financial covenants.
As of April 30, 2000, the company had two interest rate swap agreements
to reduce its exposure to floating interest rates on a $10 million notional
amount. The effect of these contracts is to "fix" the interest rate payable
on $10 million of the company's variable rate borrowings at a weighted
average rate of 6.8%. The company also enters into foreign exchange forward
and option contracts to hedge against currency fluctuations with respect to
firm commitments to purchase certain machinery, equipment and raw materials.
Capital Expenditures. The company maintains an ongoing program of
capital expenditures designed to increase capacity as needed, enhance
manufacturing efficiencies through modernization and increase the company's
vertical integration. Capital expenditures totaled $22.6 million for 2000
compared with $10.7 million for 1999. The company anticipates capital
spending of approximately $16 million in 2001.
The company believes that cash flows from operations and funds
available under existing credit facilities will be sufficient to fund capital
expenditures and working capital requirements for the foreseeable future.
Inflation
The cost of the company's raw materials remained generally stable
during 2000 and 1999. Factors that reasonably can be expected to influence
margins in the future include changes in raw material prices, trends in other
operating costs and overall competitive conditions.
Seasonality
The company's business is slightly seasonal, with increased sales
during the second and fourth fiscal quarters. This seasonality results from
one-week closings of the company's manufacturing facilities, and the
facilities of most of its customers in the United States, during the first
and third quarters for the holiday weeks including July 4th and Christmas.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." As
amended, this new standard is effective for fiscal years beginning after June
15, 2000, which will be effective for the company's fiscal year 2002. This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. The company has not determined the
financial impact of adopting this SFAS and has not determined if it will
adopt its provisions prior to its effective date.
Forward-Looking Information
The company's annual report on Form 10-K 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. Such statements are inherently subject to risks and uncertainties.
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 characterized by
qualifying words such as "expect," "believe," "estimate," "plan," and
"project" and their derivatives. 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. Because of the significant percentage of the company's sales
derived from international shipments, 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. Additionally,
economic and political instability in international areas could affect the
demand for the company's products.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest
rates on debt and foreign currency exchange rates. See additional
disclosures about interest rate swap agreements in the Management's
Discussion and Analysis of Financial Condition and Results of Operations in
item 7 above. The Company's market risk sensitive instruments are not entered
into for trading purposes. The Company has not experienced any significant
changes in market risk since April 30, 2000.
The Company's exposure to interest rate risk consists of floating
rate debt based on the London Interbank Offered Rate plus an adjustable
margin under the Company's revolving credit agreement and variable rate debt
in connection with the industrial revenue bonds. To lower or limit overall
borrowing costs, the Company enters into interest rate swap agreements to
modify the interest characteristics of portions of its outstanding debt. The
agreements entitle the Company to receive or pay to the counterparty (a major
bank), on a quarterly basis, the amounts, if any, by which the Company's
interest payments covered by swap agreements differ from those of the
counterparty. These amounts are recorded as adjustments to interest
expense. The fair value of the swap agreements and changes in fair value
resulting from changes in market interest rates are not recognized in the
consolidated financial statements. The annual impact on the Company's
results of operations of a 100 basis point interest rate change on the April
30, 2000 outstanding balance of the variable rate debt would be approximately
$560,000 irrespective of any swaps associated with this debt.
The Company's exposure to fluctuations in foreign currency
exchange rates is due primarily to a foreign subsidiary domiciled in Canada
and purchases of certain machinery, equipment and raw materials in foreign
currencies. The Company's Canadian subsidiary uses the United States dollar
as its functional currency. The Company generally does not use financial
derivative instruments to hedge foreign currency exchange rate risks
associated with the Canadian subsidiary. However, the Company generally
enters into foreign exchange forward and option contracts as a hedge against
its exposure to currency fluctuations on firm commitments to purchase certain
machinery, equipment and raw materials. The Canadian subsidiary is not
material to the Company's consolidated results of operations; therefore, the
impact of a 10% change in the exchange rate at April 30, 2000 would not have
a significant impact on the Company's results of operations or financial
position. In addition, the Company had approximately $4.8 million of
outstanding foreign exchange forward contracts as of April 30, 2000. As a
result, any change in exchange rates would not have a significant impact on
the Company's results of operations or financial position as the foreign
exchange forward contracts have "fixed" the exchange rate.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
Management's Statement of Responsibility
The management of Culp, Inc. is responsible for the accuracy and consistency
of all the information contained in this annual report on Form 10-K,
including the financial statements. These statements have been prepared to
conform with accounting principles generally accepted in the United States of
America. The preparation of financial statements and related data involves
estimates and the use of judgment.
Culp, Inc. maintains internal accounting controls designed to provide
reasonable assurance that the financial records are accurate, that the assets
of the company are safeguarded, and that the financial statements present
fairly the financial position and results of operations of the Company.
KPMG LLP, the Company's independent auditors, conducts an audit in accordance
with auditing standards generally accepted in the United States of America
and provides an opinion on the financial statements prepared by management.
Their report for 2000 is presented below.
The Audit Committee of the Board of Directors reviews the scope of the audit
and the findings of the independent auditors. The internal auditor and the
independent auditors meet with the Audit Committee to discuss audit and
financial reporting issues. The Committee also reviews the company's
principal accounting policies, significant internal accounting controls, the
Annual Report and annual SEC filings (Form 10-K and Proxy Statement).
Robert G. Culp, III Phillip W. Wilson
Chairman and Chief Executive Officer Vice President and Chief
May 31, 2000 Financial Officer
May 31, 2000
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Culp, Inc.:
We have audited the accompanying consolidated balance sheets of Culp, Inc. and
subsidiary as of April 30, 2000 and May 2, 1999, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the years
in the three-year period ended April 30, 2000. These consolidated financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Culp, Inc. and
subsidiary as of April 30, 2000 and May 2, 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended April 30, 2000, in conformity with accounting principles generally
accepted in the United States of America.
KPMG LLP
Charlotte, North Carolina
May 31, 2000
CONSOLIDATED BALANCE SHEETS
April 30, 2000 and May 2, 1999 (dollars in thousands, except share data) 2000 1999
- -------------------------------------------------------------------------------------------------------------------
ASSETS
current assets:
cash and cash investments $ 1,007 509
accounts receivable 75,223 70,503
inventories 74,471 67,070
other current assets 10,349 9,633
- -------------------------------------------------------------------------------------------------------------------
total current assets 161,050 147,715
restricted investments 0 3,340
property, plant and equipment, net 126,407 123,310
goodwill 49,873 51,269
other assets 5,548 4,978
- -------------------------------------------------------------------------------------------------------------------
total assets $ 342,878 330,612
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
current liabilities:
current maturities of long-term debt $ 1,678 1,678
accounts payable 37,287 25,687
accrued expenses 22,108 21,026
- -------------------------------------------------------------------------------------------------------------------
total current liabilities 61,073 48,391
long-term debt 135,808 140,312
deferred income taxes 17,459 14,583
- -------------------------------------------------------------------------------------------------------------------
total liabilities 214,340 203,286
- -------------------------------------------------------------------------------------------------------------------
commitments and contingencies (notes 10 and 11)
shareholders' equity:
preferred stock, $.05 par value, authorized 10,000,000
shares 0 0
common stock, $.05 par value, authorized 40,000,000
shares, issued and outstanding 11,208,720 at
April 30, 2000 and 12,079,171 at May 2, 1999 560 604
capital contributed in excess of par value 35,266 37,966
retained earnings 92,712 88,756
- -------------------------------------------------------------------------------------------------------------------
total shareholders' equity 128,538 127,326
- -------------------------------------------------------------------------------------------------------------------
total liabilities and shareholders' equity $ 342,878 330,612
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF INCOME
For the years ended April 30, 2000, May 2, 1999,
and May 3, 1998 (dollars in thousands, except per share data) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
net sales $ 488,079 483,084 476,715
cost of sales 403,414 406,976 393,154
- -------------------------------------------------------------------------------------------------------------------
gross profit 84,665 76,108 83,561
selling, general and administrative expenses 59,935 59,968 52,987
- -------------------------------------------------------------------------------------------------------------------
income from operations 24,730 16,140 30,574
interest expense 9,521 9,615 7,117
interest income (51) (195) (304)
other expense 1,566 2,412 1,912
- -------------------------------------------------------------------------------------------------------------------
income before income taxes 13,694 4,308 21,849
income taxes 4,314 1,206 6,336
- -------------------------------------------------------------------------------------------------------------------
net income $ 9,380 3,102 15,513
- -------------------------------------------------------------------------------------------------------------------
net income per share $ 0.81 0.24 1.22
- -------------------------------------------------------------------------------------------------------------------
net income per share, assuming dilution $ 0.80 0.24 1.19
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
capital
For the years ended April 30, 2000, common common contributed total
May 2, 1999 and May 3, 1998 stock stock in excess of retained shareholders'
(dollars in thousands, except share data) shares amount par value earnings equity
- ----------------------------------------------------------------------------------------------------------------------
balance, April 27, 1997 12,608,759 $ 630 33,899 76,260 110,789
cash dividends ($0.14 per share) (1,786) (1,786)
net income 15,513 15,513
common stock issued in connection
with stock option plans 114,051 6 997 1,003
common stock issued in connection
with acquisition of Artee
Industries, Incorporated's assets 284,211 14 5,386 5,400
stock options issued in connection
with acquisition of Phillips' assets 600 600
- ----------------------------------------------------------------------------------------------------------------------
balance, May 3, 1998 13,007,021 650 40,882 89,987 131,519
cash dividends ($0.14 per share) (1,788) (1,788)
net income 3,102 3,102
common stock issued in connection
with stock option plans 10,750 1 34 35
common stock purchased (938,600) (47) (2,950) (2,545) (5,542)
- ----------------------------------------------------------------------------------------------------------------------
balance, May 2, 1999 12,079,171 604 37,966 88,756 127,326
cash dividends ($0.14 per share) (1,611) (1,611)
net income 9,380 9,380
common stock issued in connection
with stock option plans 13,813 1 78 79
common stock purchased (884,264) (45) (2,778) (3,813) (6,636)
- ----------------------------------------------------------------------------------------------------------------------
balance, April 30, 2000 11,208,720 $ 560 35,266 92,712 128,538
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended April 30, 2000, May 2, 1999, and May 3, 1998
(dollars in thousands) 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
cash flows from operating activities:
net income $ 9,380 3,102 15,513
adjustments to reconcile net income to net cash provided by
operating activities:
depreciation 19,462 18,549 14,808
amortization of intangible assets 1,596 1,570 1,371
provision for deferred income taxes 2,176 1,064 1,416
changes in assets and liabilities, net of effects of
businesses acquired:
accounts receivable (4,720) 3,133 (13,207)
inventories (7,401) 12,124 (17,684)
other current assets (16) 522 (660)
other assets (770) (106) (380)
accounts payable 1,029 (8,893) 6,477
accrued expenses 1,082 2,736 1,506
income taxes payable - (1,282) (298)
- --------------------------------------------------------------------------------------------------------------------------
net cash provided by operating activities 21,818 32,519 8,862
- --------------------------------------------------------------------------------------------------------------------------
cash flows from investing activities:
capital expenditures (22,559) (10,689) (35,879)
purchase of restricted investments (40) (119) (8,770)
purchase of investments to fund deferred compensation liability - (735) (581)
sale of restricted investments 3,380 800 15,767
payments for businesses acquired - - (42,966)
- --------------------------------------------------------------------------------------------------------------------------
net cash used in investing activities (19,219) (10,743) (72,429)
- --------------------------------------------------------------------------------------------------------------------------
cash flows from financing activities:
proceeds from issuance of long-term debt 9,543 2,637 86,246
principal payments on long-term debt (14,047) (16,284) (17,100)
cash dividends paid (1,611) (1,788) (1,786)
proceeds from common stock issued 79 35 562
payments to acquire common stock (6,636) (5,542) -
change in accounts payable - capital expenditures 10,571 (2,637) (2,873)
- --------------------------------------------------------------------------------------------------------------------------
net cash provided by (used in) financing activities (2,101) (23,579) 65,049
- --------------------------------------------------------------------------------------------------------------------------
increase (decrease) in cash and cash investments 498 (1,803) 1,482
cash and cash investments, beginning of year 509 2,312 830
- --------------------------------------------------------------------------------------------------------------------------
cash and cash investments, end of year $ 1,007 509 2,312
- --------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include
the accounts of the company and its subsidiary, which is wholly-owned. All
significant intercompany balances and transactions are eliminated in
consolidation.
Description of Business - The company primarily manufactures and markets
furniture upholstery fabrics and mattress ticking for the furniture,
bedding, and related industries, with the majority of its business
conducted in the United States.
Fiscal Year - The company's fiscal year is the 52 or 53 week period ending
on the Sunday closest to April 30. Fiscal years 2000 and 1999 included 52
weeks and fiscal year 1998 included 53 weeks.
Statements of Cash Flows - For purposes of reporting cash flows, the
company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash investments.
Accounts Receivable - Substantially all of the company's accounts
receivable are due from manufacturers and distributors in the markets noted
above. The company grants credit to customers, a substantial number of
which are located in the United States. Management performs credit
evaluations of the company's customers and generally does not require
collateral.
Inventories - Principally all inventories are valued at the lower of
last-in, first-out (LIFO) cost or market.
Restricted Investments - Restricted investments were purchased with
proceeds from industrial revenue bond issues and are invested pending
application of such proceeds to project costs or repayment of the bonds.
The investments are stated at cost which approximates market value.
Property, Plant and Equipment - Property, plant and equipment is recorded
at cost. Depreciation is generally computed using the straight-line method
over the estimated useful lives of the respective assets. Major renewals
and betterments are capitalized. Maintenance, repairs and minor renewals
are expensed as incurred. When properties are retired or otherwise disposed
of, the related cost and accumulated depreciation are removed from the
accounts. Amounts received on disposal less the book value of assets sold
are charged or credited to income.
Interest costs of $146,000, $365,000 and $678,000 incurred during the years
ended April 30, 2000, May 2, 1999 and May 3, 1998, respectively, for the
purchase and construction of qualifying fixed assets were capitalized and
are being amortized over the related assets' estimated useful lives.
Foreign Currency Translation - The United States dollar is the functional
currency for the company's Canadian subsidiary. Translation gains or losses
for this subsidiary are reflected in net income.
Goodwill and Other Intangible Assets - Goodwill, which represents the
unamortized excess of the purchase price over the fair values of the net
assets acquired, is being amortized using the straight-line method over 40
years. The company assesses the recoverability of goodwill by determining
whether the amortization of the balance over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
businesses. The assessment of the recoverability of goodwill will be
impacted if estimated cash flows are not achieved.
Other intangible assets are included in other assets and consist
principally of debt issue costs. Amortization is computed using the
straight-line method over the respective terms of the debt agreements.
Income Taxes - Deferred taxes are recognized for the temporary differences
between the financial statement carrying amounts and the tax bases of the
company's assets and liabilities and operating loss and tax credit
carryforwards at income tax rates expected to be in effect when such
amounts are realized or settled. The effect on deferred taxes of a change
in tax rates is recognized in income in the period that includes the
enactment date.
No provision is made for income taxes which may be payable if undistributed
income of the company's Canadian subsidiary were to be paid as dividends to
the company, since the company intends that such earnings will continue to
be invested. At April 30, 2000, the amount of such undistributed income was
$18.5 million. Foreign tax credits may be available as a reduction of
United States income taxes in the event of such distributions.
Revenue Recognition - Revenue is recognized when products are shipped to
customers. Provision is made currently for estimated product returns,
claims and allowances.
Stock Option Plans - On April 29, 1996, the company adopted SFAS No. 123,
Accounting for Stock-Based Compensation, which requires disclosure of the
fair value and other characteristics of stock options (see note 12). The
company has chosen under the provisions of SFAS No. 123 to continue using
the intrinsic-value method of accounting for employee stock-based
compensation in accordance with Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees.
Fair Value of Financial Instruments - The carrying amount of cash and cash
investments, accounts receivable, other current assets, accounts payable
and accrued expenses approximates fair value because of the short maturity
of these financial instruments.
The fair value of the company's long-term debt is estimated by discounting
the future cash flows at rates currently offered to the company for similar
debt instruments of comparable maturities. The fair value of the company's
long-term debt approximates the carrying value of the debt at April 30,
2000.
Interest Rate Swap Agreements - Interest rate swap agreements generally
involve the exchange of fixed and floating rate interest payment
obligations without the exchange of the underlying principal amounts. These
agreements are used to effectively fix the interest rates on certain
variable rate borrowings. Net amounts paid or received are reflected as
adjustments to interest expense.
Forward Contracts - Gains and losses related to qualifying hedges of firm
commitments are deferred and included in the measurement of the related
foreign currency transaction when the hedged transaction occurs.
Per Share Data - During fiscal 1998, the company adopted Statement of
Financial Accounting Standards No. 128 that requires the reporting of both
net income per share and net income per share, assuming dilution. The
following table reconciles the numerators and denominators of net income
per share and net income per share, assuming dilution:
2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
(Amounts in thousands, Income Shares Per Share Income Shares Per Share Income Shares Per Share
except per share data) (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
- ------------------------------------------------------------------------------------------------------------------------------------
Net income per share $ 9,380 11,580 $0.81 $3,102 12,909 $0.24 $15,513 12,744 $1.22
====== ===== =====
Effect of dilutive securities:
Options 0 101 0 155 0 298
------- ------ ------ ------ ------- ------
Net income per share,
assuming dilution $ 9,380 11,681 $ 0.80 $3,102 13,064 $0.24 $15,513 13,042 $1.19
======== ====== ====== ====== ====== ===== ======= ====== =====
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Reclassification - Certain items in the 1999 consolidated financial
statements have been reclassified to conform with the presentation adopted
in the current year. The reclassifications did not impact net income as
previously reported.
2. ACQUISITIONS
On August 5, 1997, the company purchased the operations and certain assets
relating to an upholstery fabric business operating as Phillips Weaving
Mills, Phillips Velvet Mills, Phillips Printing and Phillips Mills
(Phillips). The transaction was valued at approximately $39.5 million and
involved the purchase of assets for cash, the assumption of certain notes,
liabilities and contracts, the payments under the terms of certain
obligations to Phillips and the issuance of an option for 100,000 shares of
common stock. Goodwill on the transaction was approximately $30.8 million,
which is being amortized on the straight-line method over 40 years.
On December 30, 1997, the company purchased the operations and certain
assets relating to the Wetumpka spun yarn operation of Dan River Inc. The
transaction was valued at approximately $1.4 million and involved the
purchase of assets for cash.
On February 2, 1998, the company purchased the operations and certain
assets relating to a yarn manufacturing business operating as Artee
Industries, Incorporated (Artee). The transaction was valued at
approximately $17.9 million and involved the purchase of assets for cash,
the assumption of certain liabilities and the issuance of a note payable
and common stock of the company. Goodwill on the transaction was
approximately $800,000, which is being amortized on the straight-line
method over 40 years.
The three acquisitions mentioned above were accounted for as purchases, and
accordingly, the net assets and operations have been included in the
company's consolidated financial statements since the dates of the
acquisitions.
3. ACCOUNTS RECEIVABLE
A summary of accounts receivable follows:
(dollars in thousands) 2000 1999
- --------------------------------------------------------------------------------
customers $ 77,981 73,089
allowance for doubtful accounts (1,477) (1,452)
reserve for returns and allowances (1,281) (1,134)
- --------------------------------------------------------------------------------
$ 75,223 70,503
- --------------------------------------------------------------------------------
4. INVENTORIES
A summary of inventories follows:
(dollars in thousands) 2000 1999
- --------------------------------------------------------------------------------
inventories on the FIFO cost method
raw materials $ 46,946 40,728
work-in-process 6,379 6,790
finished goods 26,998 24,885
- --------------------------------------------------------------------------------
total inventories on the FIFO
cost method 80,323 72,403
adjustments of certain inventories to the
LIFO cost method (893) (1,478)
adjustments of certain inventories to market (4,959) (3,855)
- --------------------------------------------------------------------------------
$ 74,471 67,070
- --------------------------------------------------------------------------------
5. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment follows:
depreciable lives
(dollars in thousands) (in years) 2000 1999
- --------------------------------------------------------------------------------
land and improvements 10 $ 2,325 2,227
buildings and improvements 7-40 31,065 30,098
leasehold improvements 7-10 2,659 2,511
machinery and equipment 3-12 195,387 182,189
office furniture and equipment 3-10 11,583 15,548
capital projects in progress 7,930 2,788
- --------------------------------------------------------------------------------
250,949 235,361
accumulated depreciation (124,542) (112,051)
- --------------------------------------------------------------------------------
$ 126,407 123,310
- --------------------------------------------------------------------------------
6. GOODWILL
A summary of goodwill follows:
(dollars in thousands) 2000 1999
- --------------------------------------------------------------------------------
goodwill $ 55,547 55,547
accumulated amortization (5,674) (4,278)
- --------------------------------------------------------------------------------
$ 49,873 51,269
- --------------------------------------------------------------------------------
7. ACCOUNTS PAYABLE
A summary of accounts payable follows:
(dollars in thousands) 2000 1999
- --------------------------------------------------------------------------------
accounts payable - trade $ 26,479 25,450
accounts payable - capital expenditures 10,808 237
- --------------------------------------------------------------------------------
$ 37,287 25,687
- --------------------------------------------------------------------------------
8. ACCRUED EXPENSES
A summary of accrued expenses follows:
(dollars in thousands) 2000 1999
- --------------------------------------------------------------------------------
compensation and benefits $ 14,748 13,136
other 7,360 7,890
- --------------------------------------------------------------------------------
$ 22,108 21,026
- --------------------------------------------------------------------------------
9. INCOME TAXES
A summary of income taxes follows:
(dollars in thousands) 2000 1999 1998
- --------------------------------------------------------------------------------
current
federal $ 657 (1,508) 2,698
state 45 (442) 493
Canadian 1,436 2,092 1,729
- --------------------------------------------------------------------------------
2,138 142 4,920
- --------------------------------------------------------------------------------
deferred
federal 1,514 612 563
state 378 279 102
Canadian 284 173 751
- --------------------------------------------------------------------------------
2,176 1,064 1,416
- --------------------------------------------------------------------------------
$ 4,314 1,206 6,336
- --------------------------------------------------------------------------------
Income before income taxes related to the company's Canadian operation for the
years ended April 30, 2000, May 2, 1999, and May 3, 1998 was $4,900,000,
$6,900,000 and $8,000,000, respectively.
The following schedule summarizes the principal differences between income taxes
at the federal income tax rate and the effective income tax rate reflected in
the consolidated financial statements:
2000 1999 1998
- --------------------------------------------------------------------------------
federal income tax rate 35.0% 35.0% 35.0%
state income taxes, net of federal
income tax benefit 2.0 (2.5) 1.8
exempt income of foreign sales corporation (3.6) (3.1) (6.4)
other (1.9) (1.4) (1.4)
- --------------------------------------------------------------------------------
31.5% 28.0% 29.0%
- --------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities consist of the following:
(dollars in thousands) 2000 1999
- --------------------------------------------------------------------------------
deferred tax liabilities:
property, plant and equipment, net $ (14,987) (13,038)
goodwill (3,175) (2,431)
other (1,324) (108)
- --------------------------------------------------------------------------------
total deferred tax liabilities (19,486) (15,577)
deferred tax assets:
accounts receivable 843 840
inventories 2,396 1,733
compensation 2,358 1,995
liabilities and reserves 1,381 1,841
alternative minimum tax 1,485 849
net operating loss carryforwards 528 0
- --------------------------------------------------------------------------------
gross deferred tax assets 8,991 7,258
valuation allowance 0 0
- --------------------------------------------------------------------------------
total deferred tax assets 8,991 7,258
- --------------------------------------------------------------------------------
$ (10,495) (8,319)
- --------------------------------------------------------------------------------
Deferred taxes are classified in the accompanying consolidated balance sheet
captions as follows:
(dollars in thousands) 2000 1999
- --------------------------------------------------------------------------------
other current assets $ 6,964 6,264
deferred income taxes (17,459) (14,583)
- --------------------------------------------------------------------------------
$ (10,495) (8,319)
- --------------------------------------------------------------------------------
At April 30, 2000, the company had an alternative minimum tax credit
carryforward of approximately $1,485,000 for federal income tax purposes.
Federal and state net operating loss carryforwards with related tax benefits of
$528,000 at April 30, 2000 expire in varying amounts through fiscal 2020. The
company believes that it is more likely than not that the results of future
operations will generate sufficient taxable income to realize the existing
deferred tax assets.
Income taxes paid, net of income tax refunds, were $2,027,000 in 2000;
$2,217,000 in 1999; and $5,218,000 in 1998.
10. LONG-TERM DEBT
A summary of long-term debt follows:
(dollars in thousands) 2000 1999
- --------------------------------------------------------------------------------
senior unsecured notes $ 75,000 75,000
industrial revenue bonds and other
obligations 32,452 35,278
revolving credit facility 25,000 25,000
obligations to sellers 5,034 6,712
- --------------------------------------------------------------------------------
137,486 141,990
current maturities (1,678) (1,678)
- --------------------------------------------------------------------------------
$ 135,808 140,312
- --------------------------------------------------------------------------------
The senior unsecured notes have a fixed coupon rate of 6.76% and an average
remaining term of 8 years. The principal payments become due from March
2006 to March 2010 with interest payable semi-annually.
The company's revolving credit agreement (the "Credit Agreement") provides
an unsecured multi-currency revolving credit facility, which expires in
April 2002, with a syndicate of banks in the United States. The Credit
Agreement provides for a revolving loan commitment of $88,000,000. The
agreement requires payment of a quarterly facility fee in advance. In April
2000, the company amended the Credit Agreement to amend certain covenants.
Additionally, the amendment increased the interest rate from LIBOR plus
0.55% to LIBOR plus 0.80% to 0.90%. The specified pricing matrix will be in
effect for fiscal 2001 and is based on the company's debt to EBITDA and
interest and leases coverage ratios, as defined by the agreement. On
borrowings outstanding at April 30, 2000, the interest rate was 6.69%
(LIBOR plus 0.55%).
The company's $6,000,000 revolving line of credit expires on May 31, 2001.
However, the line of credit will automatically be extended for an
additional three-month period on each August 31, November 30, February 28
and May 31 unless the bank notifies the company that the line of credit
will not be extended. At April 30, 2000, no borrowings were outstanding
under the revolving line of credit.
The industrial revenue bonds (IRB) are generally due in balloon maturities
which occur at various dates from 2006 to 2013. All of the bonds bear
interest at variable rates of approximately 71% of the prime rate (prime at
April 30, 2000 was 9.0%). The IRBs are collateralized by letters of credit
for the outstanding balance of the IRBs and certain interest payments due
thereunder.
The company's loan agreements require, among other things, that the company
maintain compliance with certain financial ratios. At April 30, 2000, the
company was in compliance with these financial covenants.
At April 30, 2000, the company had two interest rate swap agreements with a
bank in order to reduce its exposure to floating interest rates on a
portion of its variable rate borrowings.
The following table summarizes certain data regarding the interest rate
swaps:
notional amount interest rate expiration date
- --------------------------------------------------------------------------
$ 5,000,000 6.9% June 2002
$ 5,000,000 6.6% July 2002
The company could terminate these agreements as of April 30, 2000 and
receive approximately $166,000. Net amounts paid under interest rate swap
agreements increased interest expense by approximately $262,000 in 2000;
$308,000 in 1999; and $232,000 in 1998. Management believes the risk of
incurring losses resulting from the inability of the bank to fulfill its
obligation under the interest rate swap agreements to be remote and that
any losses incurred would be immaterial.
The principal payment requirements of long-term debt during the next five
years are: 2001 - $1,678,000; 2002 - $27,046,000; 2003 - $2,046,000; 2004 -
$368,000; and 2005 - $368,000.
Interest paid during 2000, 1999 and 1998 totaled $9,920,000, $9,579,000,
and $7,067,000, respectively.
11. COMMITMENTS AND CONTINGENCIES
The company leases certain office, manufacturing and warehouse facilities
and equipment, primarily computer, and vehicles, under noncancellable
operating leases. Lease terms related to real estate range from five to ten
years with renewal options for additional periods ranging from five to
fifteen years. The leases generally require the company to pay real estate
taxes, maintenance, insurance and other expenses. Rental expense for
operating leases, net of sublease income, was $8,162,000 in 2000;
$7,440,000 in 1999; and $6,065,000 in 1998. Future minimum rental
commitments for noncancellable operating leases are $6,560,000 in 2001;
$4,718,000 in 2002; $3,495,000 in 2003; $2,637,000 in 2004; $2,357,000 in
2005; and $3,800,000 in later years.
The company is involved in several legal proceedings and claims which have
arisen in the ordinary course of its business. These actions, when
ultimately concluded and settled, will not, in the opinion of management,
have a material adverse effect upon the financial position, results of
operations or liquidity of the company.
The company has outstanding capital expenditure commitments of
approximately $1,345,000 as of April 30, 2000.
12. STOCK OPTION PLANS
The company has a fixed stock option plan under which options to purchase
common stock may be granted to officers, directors and key employees. At
April 30, 2000, 782,614 shares of common stock were authorized for issuance
under the plan. Options are generally exercisable one year after the date
of grant and generally expire beginning ten years after the date of grant.
No compensation cost has been recognized for this stock option plan as
options are granted under the plan at an option price not less than fair
market value at the date of grant.
A summary of the status of the plan as of April 30, 2000, May 2, 1999 and
May 3, 1998 and changes during the years ended on those dates is presented
below:
2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ---------------------------------------------------------------------------------------------------------------------
Outstanding at beginning
of year 622,052 $ 10.04 429,427 $ 11.06 407,228 $ 8.69
Granted 49,375 8.80 209,375 7.62 87,250 20.34
Exercised (7,313) 2.82 (10,750) 3.28 (65,051) 8.63
Canceled/expired (3,000) 20.25 (6,000) 10.56 - -
- ---------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 661,114 9.98 622,052 10.04 429,427 11.06
- ---------------------------------------------------------------------------------------------------------------------
Options exercisable at
year-end 461,114 10.88 422,052 11.18 353,427 9.08
Weighted-average fair value
of options granted during the year $3.54 $2.88 $7.53
- ---------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
- -------------------------------------------------------------------------------------------------------------------
Number Weighted-Avg. Number
Range of Outstanding Remaining Weighted-Avg. Exercisable Weighted-Avg.
Exercise Prices at 4/30/00 Contractual Life Exercise Price at 4/30/00 Exercise Price
- -------------------------------------------------------------------------------------------------------------------
$ 2.82 - $ 7.50 110,114 3.3 years $4.96 110,114 $4.96
$ 7.63 - $ 7.63 200,000 8.4 7.63 40,000 7.63
$ 7.75 - $ 12.13 192,375 5.6 9.52 152,375 9.63
$ 12.75 - $ 20.94 158,625 5.9 17.00 158,625 17.00
------- --- ----- ------- -----
661,114 6.1 9.98 461,114 10.88
======= === ==== ======= =====
During fiscal 1995, the company adopted a stock option plan which provided
for the one-time grant to officers and certain senior managers of options
to purchase 121,000 shares of the company's common stock at $.05 (par
value) per share. Coincident with the adoption of this plan, the company's
1993 stock option plan was amended to reduce the number of shares issuable
under that plan by 128,000 shares. The accelerated vesting provisions of
this plan were achieved and all options vested 45 days after the end of
fiscal 1997 and, as a result, the compensation expense recorded under APB
Opinion No. 25 was approximately $1,026,000 for the three-year period ended
April 27, 1997. Since these options were granted in fiscal 1995, the
provisions of SFAS No. 123 are not applicable. As of April 30, 2000, the
58,500 options outstanding under the plan have exercise prices of $0.05 and
a weighted-average remaining contractual life of 3.7 years. Options
exercised during fiscal 2000, 1999 and 1998 were 6,500, 0 and 49,000,
respectively.
During September 1997, the company's shareholders approved the 1997
performance-based option plan which provides for the one-time grant to
certain officers and certain senior managers of options to purchase 106,000
shares of the company's common stock at $1.00 per share. Options under the
plan are exercisable on January 1, 2006 due to the company not achieving
net income per share of $1.50 for fiscal 1999. During fiscal 2000, 1999 and
1998, the compensation expense recorded under APB Opinion No. 25 was
$250,000 in each year.
As of April 30, 2000, the 106,000 options outstanding under the plan have
exercise prices of $1.00 and a weighted-average remaining contractual life
of 6.7 years. The weighted-average fair value of the 106,000 options
granted during 1998 was $19.10. Had compensation cost for this stock-based
compensation plan and the fixed stock option plan with 661,114 options
outstanding at April 30, 2000 been determined consistent with SFAS No. 123,
the company's net income, net income per share and net income per share,
assuming dilution would have been reduced to the pro forma amounts
indicated below:
(in thousands, except per share data) 2000 1999 1998
- --------------------------------------------------------------------------------
Net income As reported $ 9,380 3,102 15,513
Pro forma 9,145 2,827 15,377
- --------------------------------------------------------------------------------
Net income per share As reported $ 0.81 0.24 1.22
Pro forma 0.79 0.22 1.21
- --------------------------------------------------------------------------------
Net income per share, As reported $ 0.80 0.24 1.19
assuming dilution Pro forma 0.78 0.22 1.18
- --------------------------------------------------------------------------------
The fair value of each option grant is estimated on the date of grant using
the Black Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2000, 1999 and 1998, respectively: dividend
yield of 1.5%, 1.5% and 1%; risk-free interest rates of 5.7%, 5.4% and
5.5%; expected volatility of 49%, 47% and 42%; and expected lives of 4
years, 4 years and 5.3 years.
13. BENEFIT PLANS
The company has a defined contribution plan which covers substantially all
employees and provides for participant contributions on a pre-tax basis and
discretionary matching contributions by the company, which are determined
annually. Company contributions to the plan were $2,423,000 in 2000;
$1,612,000 in 1999; and $1,103,000 in 1998.
In addition to the defined contribution plan, the company has a
nonqualified deferred compensation plan covering officers and certain other
associates. The company's nonqualified plan liability of $4,788,000 and
$4,044,000 at April 30, 2000 and May 2, 1999, respectively, is included in
accrued expenses in the accompanying consolidated balance sheets. The
company also had assets related to the nonqualified plan of $3,762,000 and
$3,091,000 at April 30, 2000 and May 2, 1999, respectively, which are
included in other assets in the accompanying consolidated balance sheets.
14. SEGMENT INFORMATION
The company's operations are classified into two business segments:
upholstery fabrics and mattress ticking. The upholstery fabrics segment
principally manufactures and sells woven jacquards and dobbies, wet and
heat-transfer prints, and woven and tufted velvets primarily to residential
and commercial (contract) furniture manufacturers. The mattress ticking
segment principally manufactures and sells woven jacquards, heat-transfer
prints and pigment prints to bedding manufacturers.
International sales, of which 94% were denominated in U.S. dollars in 2000,
1999, and 1998, accounted for 23% of net sales in 2000 and 1999 and 29% in
1998, and are summarized by geographic area as follows:
(dollars in thousands) 2000 1999 1998
- --------------------------------------------------------------------------------
North America (excluding USA) $ 36,032 31,102 31,160
Europe 16,351 19,578 30,775
Middle East 32,929 33,996 34,412
Asia and Pacific Rim 19,102 21,371 32,344
South America 2,343 3,484 5,158
All other areas 4,347 3,823 3,374
- --------------------------------------------------------------------------------
$ 111,104 113,354 137,223
- --------------------------------------------------------------------------------
In 2000, 1999 and 1998, no customer represented over 10% of consolidated
net sales. In addition, company assets located outside the United States
are not material for any of the three years presented.
The company internally manages and reports selling, general and
administrative expenses, interest expense, interest income, other expense
and income taxes on a total company basis. Thus, profit by business segment
represents gross profit. In addition, the company internally manages and
reports cash and cash investments, accounts receivable, other current
assets, restricted investments, property, plant and equipment, goodwill and
other assets on a total company basis. Thus, identifiable assets by
business segment represent inventories.
Sales, gross profit and inventories for the company's operating segments
are as follows:
(dollars in thousands) 2000 1999 1998
- --------------------------------------------------------------------------------
Net sales
Upholstery Fabrics $ 382,310 387,644 389,430
Mattress Ticking 105,769 95,440 87,285
- --------------------------------------------------------------------------------
$ 488,079 483,084 476,715
- --------------------------------------------------------------------------------
Gross profit
Upholstery Fabrics $ 58,547 52,286 61,922
Mattress Ticking 26,118 23,822 21,639
- --------------------------------------------------------------------------------
$ 84,665 76,108 83,561
- --------------------------------------------------------------------------------
Inventories
Upholstery Fabrics $ 60,305 55,565 66,336
Mattress Ticking 14,166 11,505 12,258
- --------------------------------------------------------------------------------
$ 74,471 67,070 78,594
- --------------------------------------------------------------------------------
15. RELATED PARTY TRANSACTIONS
A director of the company is also an officer and director of a major
customer of the company. The amount of sales to this customer was
approximately $39,479,000 in 2000; $34,313,000 in 1999; and $30,545,000 in
1998. The amount due from this customer at April 30, 2000 was approximately
$3,797,000 and at May 2, 1999 was approximately $4,517,000.
A director of the company is also an officer and director of the lessor of
the company's office facilities in High Point. Rent expense for the
company's office facilities was approximately $522,000 in 2000; $555,000 in
1999; and $482,000 in 1998.
Rents paid to entities owned by certain shareholders and officers of the
company and their immediate families were $695,000 in 2000; $752,000 in
1999; and $724,000 in 1998.
16. FOREIGN EXCHANGE FORWARD CONTRACTS
The company generally enters into foreign exchange forward and option
contracts as a hedge against its exposure to currency fluctuations on firm
commitments to purchase certain machinery and equipment and raw materials.
The company had $4,761,000 and $0 of outstanding foreign exchange forward
contracts as of April 30, 2000 and May-2, 1999, respectively (denominated
in Euros, German deutsche marks and Swiss francs at April 30, 2000). Due to
the short maturity of these financial instruments, the fair values of these
contracts approximate the contract amounts at April 30, 2000 and May 2,
1999, respectively.
SELECTED QUARTERLY DATA
fiscal fiscal fiscal fiscal fiscal fiscal fiscal fiscal
(amounts in thousands, 2000 2000 2000 2000 1999 1999 1999 1999
except per share amounts) 4th quarter 3rd quarter 2nd quarter 1st quarter 4th quarter 3rd quarter 2nd quarter 1st quarter
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
net sales $ 129,419 113,181 129,542 115,937 132,165 112,093 128,159 110,667
cost of sales 107,342 94,712 105,835 95,525 109,324 92,911 107,685 97,056
- ------------------------------------------------------------------------------------------------------------------------------------
gross profit 22,077 18,469 23,707 20,412 22,841 19,182 20,474 13,611
SG & A expenses 14,913 13,949 16,035 15,038 15,921 14,100 15,474 14,473
- ------------------------------------------------------------------------------------------------------------------------------------
income (loss) from operations 7,164 4,520 7,672 5,374 6,920 5,082 5,000 (862)
interest expense 2,255 2,366 2,484 2,416 2,482 2,308 2,464 2,361
interest income (10) (8) (16) (17) (113) (10) (19) (53)
other expense 366 229 416 555 546 492 604 770
- ------------------------------------------------------------------------------------------------------------------------------------
income (loss) before income taxes 4,553 1,933 4,788 2,420 4,005 2,292 1,951 (3,940)
income taxes 1,362 501 1,628 823 1,109 753 644 (1,300)
- ------------------------------------------------------------------------------------------------------------------------------------
net income (loss) 3,191 1,432 3,160 1,597 2,896 1,539 1,307 (2,640)
- ------------------------------------------------------------------------------------------------------------------------------------
EBITDA (3) $ 12,178 9,655 12,412 9,977 11,534 9,522 9,649 3,142
depreciation 4,981 4,965 4,757 4,759 4,764 4,587 4,822 4,376
cash dividends 393 396 399 423 423 455 455 455
- ------------------------------------------------------------------------------------------------------------------------------------
weighted average shares outstanding 11,213 11,296 11,749 12,063 12,645 12,995 12,995 13,000
weighted average shares outstanding,
assuming dilution 11,298 11,389 11,868 12,219 12,742 13,124 13,120 13,203
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
net income (loss) $ 0.28 0.13 0.27 0.13 0.23 0.12 0.10 (0.20)
net income (loss), assuming dilution 0.28 0.13 0.27 0.13 0.23 0.12 0.10 (0.20)
cash dividends 0.035 0.035 0.035 0.035 0.035 0.035 0.035 0.035
book value 11.47 11.21 11.08 10.64 10.54 10.02 9.94 9.87
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
working capital $ 99,977 97,440 92,800 100,394 99,324 95,712 102,336 103,406
property, plant and equipment, net 126,407 123,303 124,318 120,971 123,310 125,885 126,050 127,287
total assets 342,878 336,206 338,676 327,822 330,612 326,448 342,022 342,698
capital expenditures 8,085 3,950 8,104 2,420 2,189 2,057 3,585 2,858
long-term debt 135,808 137,052 133,875 136,228 140,312 140,210 150,210 154,383
funded debt (1) 137,486 137,683 134,468 136,222 138,650 138,472 148,479 153,559
shareholders' equity 128,538 125,765 125,380 128,127 127,326 130,208 129,124 128,272
capital employed (4) 266,024 263,448 259,848 264,349 265,976 268,680 277,603 281,831
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS & OTHER DATA
gross profit margin 17.1% 16.3% 18.3% 17.6% 17.3% 17.1% 16.0% 12.3%
operating income (loss) margin 5.5 4.0 5.9 4.6 5.2 4.5 3.9 (0.8)
net income (loss) margin 2.5 1.3 2.4 1.4 2.2 1.4 1.0 (2.4)
EBITDA margin 9.4 8.5 9.6 8.6 8.7 8.5 7.5 2.8
effective income tax rate 29.9 25.9 34.0 34.0 27.7 32.9 33.0 33.0
funded debt-to-total capital ratio (1) 51.7 52.3 51.7 51.5 52.1 51.5 53.5 54.5
working capital turnover 4.4 4.5 4.4 4.4 4.3 4.4 4.4 4.5
days sales in receivables 53 49 49 45 49 47 52 48
inventory turnover 5.5 4.8 5.5 5.4 6.4 5.2 5.7 4.9
- ------------------------------------------------------------------------------------------------------------------------------------
STOCK DATA
stock price
high $ 9.88 7.50 10.31 11.06 8.50 8.94 10.44 19.13
low 5.00 5.88 6.69 7.25 5.13 6.50 5.94 9.19
close 5.81 6.00 6.94 10.13 8.25 6.56 7.25 9.19
P/E ratio (2)
high 12.2 9.9 13.9 19.1 35.4 26.6 19.8 24.5
low 6.2 7.7 9.0 12.5 21.3 19.4 11.2 11.8
daily average trading volume (shares) 12.0 10.0 18.8 21.9 34.9 20.3 27.5 38.5
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Funded debt includes long- and short-term debt, less restricted investments.
(2) P/E ratios based on trailing 12-month net income per share.
(3) EBITDA represents earnings before interest, income taxes, depreciation and
amortization.
(4) Capital employed includes funded debt and shareholders' equity.
(5) Phillips, Wetumpka and Artee included in consolidated results from their
August 5, 1997, December 30, 1997 and February 2, 1998 acquisitions by Culp,
respectively.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
During the two years ended April 30, 2000 and any subsequent
interim periods, there were no changes of accountants and/or disagreements on
any matters of accounting principles or practices or financial statement
disclosures.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to executive officers and directors of
the Company is included in the Company's definitive Proxy Statement to be
filed within 120 days after the end of the Company's fiscal year pursuant to
Regulation 14A of the Securities and Exchange Commission, under the caption
"Nominees, Directors and Executive Officers," which information is herein
incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is included in
the Company's definitive Proxy Statement to be filed within 120 days after
the end of the Company's fiscal year pursuant to Regulation 14A of the
Securities and Exchange Commission, under the caption "Executive
Compensation," which information is herein incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Information with respect to the security ownership of certain
beneficial owners and management is included in the Company's definitive
Proxy Statement to be filed within 120 days after the end of the Company's
fiscal year pursuant to Regulation 14A of the Securities and Exchange
Commission, under the caption "Voting Securities," which information is
herein incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related
transactions is included in the Company's definitive Proxy Statement to be
filed within 120 days after the end of the Company's fiscal year pursuant to
Regulation 14A of the Securities and Exchange Commission, under the
subcaption "Certain Relationships and Related Transactions," which
information is herein incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
a) DOCUMENTS FILED AS PART OF THIS REPORT:
1. Consolidated Financial Statements
The following consolidated financial statements of Culp, Inc. and
subsidiary are filed as part of this report.
Page of Annual
Report on
Item Form 10-K
- ---- ---------
Consolidated Balance Sheets - April 30, 2000 and................. 27
May 2, 1999
Consolidated Statements of Income -
for the years ended April 30, 2000,
May 2, 1999, and May 3, 1998 .................................. 28
Consolidated Statements of Shareholders' Equity -
for the years ended April 30, 2000,
May 2, 1999 and May 3, 1998 ................................... 29
Consolidated Statements of Cash Flows -
for the years ended April 30, 2000,
May 2, 1999, and May 3, 1998 .................................. 30
Consolidated Notes to Financial Statements....................... 31
Report of Independent Auditors .................................. 26
2. Financial Statement Schedules
All financial statement schedules are omitted because they are
not applicable, or not required, or because the required information is
included in the consolidated financial statements or notes thereto.
3. Exhibits
The following exhibits are attached at the end of this report, or
incorporated by reference herein. Management contracts, compensatory plans,
and arrangements are marked with an asterisk (*).
3(i) Articles of Incorporation of the Company, as amended,
were filed as Exhibit 3(i) to the Company's Form 10-Q
for the quarter ended January 29, 1995, filed March 15,
1995, and are incorporated herein by reference.
3(ii) Restated and Amended Bylaws of the Company, as
amended, were filed as Exhibit 3(b) to the Company's
Form 10-K for the year ended April 28, 1991, filed July
25, 1991, and are incorporated herein by reference.
3(iii) Articles of Amendment of Culp, Inc. dated October 5,
1999 for the purpose of amending its Restated Charter
to fix the designation, preferences, limitations and
relative rights of a series of its Preferred Stock.
The Articles of Amendment of Culp, Inc. were filed as
Exhibit 3(iii) to the Company's Form 10-Q for the
quarter ended October 31, 1999, filed December 15,
1999, and are incorporated herein by reference.
10(a) Loan Agreement dated December 1, 1988 with Chesterfield
County, South Carolina relating to Series 1988
Industrial Revenue Bonds in the principal amount of
$3,377,000 was filed as Exhibit 10(n) to the Company's
Form 10-K for the year ended April 29, 1989, and is
incorporated herein by reference.
10(b) Loan Agreement dated November 1, 1988 with the Alamance
County Industrial Facilities and Pollution Control
Financing Authority relating to Series A and B
Industrial Revenue Refunding Bonds in the principal
amount of $7,900,000, was filed as exhibit 10(o) to the
Company's Form 10-K for the year ended April 29, 1990,
and is incorporated herein by reference.
10(c) Loan Agreement dated January 5, 1990 with the Guilford
County Industrial Facilities and Pollution Control
Financing Authority, North Carolina, relating to Series
1989 Industrial Revenue Bonds in the principal amount
of $4,500,000, was filed as Exhibit 10(d) to the
Company's Form 10-K for the year ended April 29, 1990,
filed on July 25, 1990, and is incorporated herein by
reference.
10(d) Loan Agreement dated as of December 1, 1993 between
Anderson County, South Carolina and the Company
relating to $6,580,000 Anderson County, South Carolina
Industrial Revenue Bonds (Culp, Inc. Project) Series
1993, was filed as Exhibit 10(o) to the Company's Form
10-Q for the quarter ended January 30, 1994, filed
March 16, 1994, and is incorporated herein by reference.
10(e) Form of Severance Protection Agreement, dated September
21, 1989, was filed as Exhibit 10(f) to the Company's
Form 10-K for the year ended April 29, 1990, filed on
July 25, 1990, and is incorporated herein by reference.
(*)
10(f) Lease Agreement, dated January 19, 1990, with Phillips
Interests, Inc. was filed as Exhibit 10(g) to the
Company's Form 10-K for the year ended April 29, 1990,
filed on July 25, 1990, and is incorporated herein by
reference.
10(g) Management Incentive Plan of the Company, dated August
1986 and amended July 1989, filed as Exhibit 10(o) to
the Company's Form 10-K for the year ended May 3, 1992,
filed on August 4, 1992, and is incorporated herein by
reference. (*)
10(h) Lease Agreement, dated September 6, 1988, with
Partnership 74 was filed as Exhibit 10(h) to the
Company's Form 10-K for the year ended April 28, 1991,
filed on July 25, 1990, and is incorporated herein by
reference.
10(i) Amendment and Restatement of the Employee's Retirement
Builder Plan of the Company dated May 1, 1981 with
amendments dated January 1, 1990 and January 8, 1990
were filed as Exhibit 10(p) to the Company's Form 10-K
for the year ended May 3, 1992, filed on August 4,
1992, and is incorporated herein by reference. (*)
10(j) First Amendment of Lease Agreement dated July 27, 1992
with Partnership 74 Associates was filed as Exhibit
10(n) to the Company's Form 10-K for the year ended May
2, 1993, filed on July 29, 1993, and is incorporated
herein by reference.
10(k) Second Amendment of Lease Agreement dated April 16,
1993, with Partnership 52 Associates was filed as
Exhibit 10(l) to the Company's Form 10-K for the year
ended May 2, 1993, filed on July 29, 1993, and is
incorporated herein by reference.
10(l) 1993 Stock Option Plan was filed as Exhibit 10(o) to
the Company's Form 10-K for the year ended May 2, 1993,
filed on July 29, 1993, and is incorporated herein by
reference. (*)
10(m) First Amendment to Loan Agreement dated as of December
1, 1993 by and between The Guilford County Industrial
Facilities and Pollution Control Financing Authority
and the Company was filed as Exhibit 10(p) to the
Company's Form 10-Q, filed on March 15, 1994, and is
incorporated herein by reference.
10(n) First Amendment to Loan Agreement dated as of December
16, 1993 by and between The Alamance County Industrial
Facilities and Pollution Control Financing Authority
and the Company was filed as Exhibit 10(q) to the
Company's Form 10-Q, filed on March 15, 1994, and is
incorporated herein by reference.
10(o) First Amendment to Loan Agreement dated as of December
16, 1993 by and between Chesterfield County, South
Carolina and the Company was filed as Exhibit 10(r) to
the Company's Form 10-Q, filed on March 15, 1994, and
is incorporated herein by reference.
10(p) Amendment to Lease dated as of November 4, 1994, by and
between the Company and RDC, Inc. was filed as Exhibit
10(w) to the Company's Form 10-Q, for the quarter ended
January 29, 1995, filed on March 15, 1995, and is
incorporated herein by reference.
10(q) Amendment to Lease Agreement dated as of December 14,
1994, by and between the Company and Rossville
Investments, Inc. (formerly known as
A & E Leasing, Inc.), was filed as Exhibit 10(y) to the
Company's Form 10-Q, for the quarter ended January 29,
1995, filed on March 15, 1995, and is incorporated
herein by reference.
10(r) Interest Rate Swap Agreement between Company and First
Union National Bank of North Carolina dated April 17,
1995, was filed as Exhibit 10(aa) to the Company's Form
10-K for the year ended April 30, 1995, filed on July
26, 1995, and is incorporated herein by reference.
10(s) Performance-Based Stock Option Plan, dated June 21,
1994, was filed as Exhibit 10(bb) to the Company's Form
10-K for the year ended April 30, 1995, filed on July
26, 1995, and is incorporated herein by reference. (*)
10(t) Interest Rate Swap Agreement between Company and First
Union National Bank of North Carolina, dated May 31,
1995 was filed as exhibit 10(w) to the Company's Form
10-Q for the quarter ended July 30, 1995, filed on
September 12, 1995, and is incorporated herein by
reference.
10(u) Interest Rate Swap Agreement between Company and First
Union National Bank of North Carolina, dated July 7,
1995 was filed as exhibit 10(x) to the Company's Form
10-Q for the quarter ended July 30, 1995, filed on
September 12, 1995, and is incorporated herein by
reference.
10(v) Second Amendment of Lease Agreement dated June 15, 1994
with Partnership 74 Associates was filed as Exhibit
10(v) to the Company's Form 10-Q for the quarter ended
October 29, 1995, filed on December 12, 1995, and is
incorporated herein by reference.
10(w) Lease Agreement dated November 1, 1993 by and between
the Company and Chromatex, Inc. was filed as Exhibit
10(w) to the Company's Form 10-Q for the quarter ended
October 29, 1995, filed on December 12, 1995, and is
incorporated herein by reference.
10(x) Lease Agreement dated November 1, 1993 by and between
the Company and Chromatex Properties, Inc. was filed as
Exhibit 10(x) to the Company's Form 10-Q for the
quarter ended October 29, 1995, filed on December 12,
1995, and is incorporated herein by reference.
10(y) Amendment to Lease Agreement dated May 1, 1994 by and
between the Company and Chromatex Properties, Inc. was
filed as Exhibit 10(y) to the Company's Form 10-Q for
the quarter ended October 29, 1995, filed on December
12, 1995, and is incorporated herein by reference.
10(z) Canada-Quebec Subsidiary Agreement on Industrial
Development (1991), dated January 4, 1995, was filed as
Exhibit 10(z) to the Company's Form 10-Q for the
quarter ended October 29, 1995, filed on December 12,
1995, and is incorporated herein by reference.
10(aa) Loan Agreement between Chesterfield County, South
Carolina and the Company dated as of April 1, 1996
relating to Tax Exempt Adjustable Mode Industrial
Development Bonds (Culp, Inc. Project) Series 1996 in
the aggregate principal amount of $6,000,000 was filed
as Exhibit 10(aa) to the Company's Form 10-K for the
year ended April 28, 1996, and is incorporated herein
by reference.
10(bb) Loan Agreement between the Alamance County Industrial
Facilities and Pollution Control Financing Authority,
North Carolina and the Company, dated December 1, 1996,
relating to Tax Exempt Adjustable Mode Industrial
Development Revenue Bonds, (Culp, Inc. Project Series
1996) in the aggregate amount of $6,000,000 was filed
as Exhibit 10(cc) to the Company's Form 10-Q for the
quarter ended January 26, 1997, and is incorporated
herein by reference.
10(cc) Loan Agreement between Luzerne County, Pennsylvania and
the Company, dated as of December 1, 1996, relating to
Tax-Exempt Adjustable Mode Industrial Development
Revenue Bonds (Culp, Inc. Project) Series 1996 in the
aggregate principal amount of $3,500,000 was filed as
Exhibit 10(dd) to the Company's Form 10-Q for the
quarter ended January 26, 1997, and is incorporated
herein by reference.
10(dd) Second Amendment to Lease Agreement between Chromatex
Properties, Inc. and the Company, dated April 17, 1997
was filed as Exhibit 10(dd) to the Company's Form 10-K
for the year ended April 27, 1997, and is incorporated
herein by reference.
10(ee) Lease Agreement between Joseph E. Proctor (doing
business as JEPCO) and the Company, dated April 21,
1997 was filed as Exhibit 10(ee) to the Company's Form
10-K for the year ended April 27, 1997, and is
incorporated herein by reference.
10(ff) $125,000,000 Revolving Loan Facility dated April 23,
1997 by and among the Company and Wachovia Bank of
Georgia, N.A., as agent, and First Union National Bank
of North Carolina, as documentation agent was filed as
Exhibit 10(ff) to the Company's Form 10-K for the year
ended April 27, 1997, and is incorporated herein by
reference.
10(gg) Revolving Line of Credit for $4,000,000 dated April 23,
1997 by and between the Company and Wachovia Bank of
North Carolina, N.A. was filed as Exhibit 10(gg) to the
Company's Form 10-K for the year ended April 27, 1997,
and is incorporated herein by reference.
10(hh) Reimbursement and Security Agreement between Culp, Inc.
and Wachovia Bank of North Carolina, N.A., dated as of
April 1, 1997, relating to $3,337,000 Principal Amount,
Chesterfield County, South Carolina Industrial Revenue
Bonds (Culp, Inc. Project) Series 1988 was filed as
Exhibit 10(hh) to the Company's Form 10-K for the year
ended April 27, 1997, and is incorporated herein by
reference.
Additionally, there are Reimbursement and Security
Agreements between Culp, Inc. and Wachovia Bank of North
Carolina, N.A., dated as of April 1, 1997 in the
following amounts and with the following facilities:
$7,900,000 Principal Amount, Alamance County Industrial
Facilities and Pollution Control Financing Authority
Industrial Revenue Refunding Bonds (Culp, Inc. Project)
Series A and B.
$4,500,000 Principal Amount, Guilford County Industrial
Facilities and Pollution Control Financing Authority
Industrial Development Revenue Bonds (Culp, Inc.
Project) Series 1989.
$6,580,000 Principal Amount, Anderson County South
Carolina Industrial Revenue Bonds (Culp, Inc. Project)
Series 1993.
$6,000,000 Principal Amount, Chesterfield County, South
Carolina Tax-Exempt Adjustable Mode Industrial
Development Revenue Bonds (Culp, Inc. Project) Series
1996.
$6,000,000 Principal Amount, The Alamance County
Industrial Facilities and Pollution Control Financing
Authority Tax-exempt Adjustable Mode Industrial
Development Revenue Bonds (Culp, Inc. Project) Series
1996.
$3,500,000 Principal Amount, Luzerne County Industrial
Development Authority Tax-Exempt Adjustable Mode
Industrial Development Revenue Bonds (Culp, Inc.
Project) Series 1996.
10(ii) Loan Agreement and Reimbursement and Security Agreement
dated July 1, 1997 with the Robeson County Industrial
Facilities and Pollution Control Financing Authority
relating to the issuance of Tax-Exempt Adjustable Mode
Industrial Development Revenue Bonds (Culp, Inc.
Project), Series 1997 in the aggregate principal amount
of $8,500,000 was filed as Exhibit 10(ii) to the
Company's Form 10-Q for the quarter ended August 3,
1997, and is incorporated herein by reference.
10(jj) Asset Purchase Agreement dated as of August 4, 1997 by
and between Culp, Inc., Phillips Weaving Mills, Inc.,
Phillips Printing Mills, Inc., Phillips Velvet Mills,
Inc., Phillips Mills, Inc., Phillips Property Company,
LLC, Phillips Industries, Inc. and S. Davis Phillips
was filed as Exhibit (10jj) to the Company's Form 10-Q
for the quarter ended November 2, 1997, and is
incorporated herein by reference.
10(kk) Asset Purchase Agreement dated as of October 14, 1997
among Culp, Inc., Artee Industries, Incorporated, Robert
T. Davis, Robert L. Davis, Trustee u/a dated 8/25/94,
Robert L. Davis, Louis W. Davis, Kelly D. England, J.
Marshall Bradley, Frankie S. Bradley and Mickey R.
Bradley was filed as Exhibit 10(kk) to the Company's
Form 10-Q for the quarter ended November 2, 1997, and is
incorporated herein by reference.
10(ll) Form of Note Purchase Agreement (providing for the
issuance by Culp, Inc. of its $20 million 6.76% Series
A Senior Notes due 3/15/08 and its $55 million 6.76%
Series B Senior Notes due 3/15/10), each dated March 4,
1998, between Culp, Inc. and each of the following:
1. Connecticut General Life Insurance Company;
2. The Mutual Life Insurance Company of New York;
3. United of Omaha Life Insurance Company;
4. Mutual of Omaha Insurance Company;
5. The Prudential Insurance Company of America;
6. Allstate Life Insurance Company;
7. Life Insurance Company of North America; and
8. CIGNA Property and Casualty Insurance Company
This agreement was filed as Exhibit 10(ll) to the
Company's Form 10-K for the year ended May 3, 1998, and
is incorporated herein by reference.
10(mm) First Amendment to Credit Agreement dated July 22, 1998
among Culp, Inc., Wachovia Bank, N.A., as agent, First
Union National Bank, as documentation agent, and
Wachovia Bank, N.A., First Union National Bank,
SunTrust Bank, Atlanta, and Cooperatieve Centrale
Raiffeisen-Boerenleeenbank B.A., Rabobank Nederland,
New York Branch, as lenders. This amendment was filed
as Exhibit 10(mm) to the Company's Form 10-Q for the
quarter ended August 2, 1998, and is incorporated
herein by reference.
10(nn) Second Amendment to Credit Agreement dated October 26,
1998, among Culp, Inc., Wachovia Bank, N.A., as agent,
First Union National Bank, as documentation agent, and
Wachovia Bank, N.A., First Union National Bank, and
SunTrust Bank, Atlanta, as lenders. This amendment was
filed as Exhibit 10(nn) to the Company's Form 10-Q for
the quarter ended November 1, 1998, and is incorporated
herein by reference.
10(oo) Rights Agreement, dated as of October 8, 1999, between
Culp, Inc. and EquiServe Trust Company, N.A., as Rights
Agent, including the form of Articles of Amendment with
respect to the Series A Participating Preferred Stock
included as Exhibit A to the Rights Agreement, the
forms of Rights Certificate included as Exhibit B to
the Rights Agreement, and the form of Summary of Rights
included as Exhibit C to the Rights Agreement. The
Rights Agreement was filed as Exhibit 99.1 to the
Company's Form 8-K dated October 12, 1999, and is
incorporated herein by reference.
10(pp) Third Amendment to Credit Agreement dated April 28,
2000, among Culp, Inc., Wachovia Bank, N.A., as agent,
First Union National Bank, as documentation agent, and
Wachovia Bank, N.A., First Union National Bank, and
Suntrust Bank, as lenders.
22 List of subsidiaries of the Company.
24(a) Consent of Independent Public Auditors in connection with
the registration statements of Culp, Inc. on Form S-8
(File Nos. 33-13310, 33-37027, 33-80206, 33-62843, and
333-27519), dated March 20, 1987, September 18, 1990, June
13, 1994, September 22, 1995, and May 21, 1997.
25(a) Power of Attorney of Robert T. Davis, dated June 22, 2000
25(b) Power of Attorney of Howard L. Dunn, Jr., dated June 21, 2000
25(c) Power of Attorney of Patrick B. Flavin, dated June 27, 2000
25(d) Power of Attorney of Patrick H. Norton, dated June 29, 2000
25(e) Power of Attorney of Earl N. Phillips, Jr., dated June 22, 2000
25(f) Power of Attorney of Franklin N. Saxon, dated July 7, 2000
25(g) Power of Attorney of Judith C. Walker, dated June 23, 2000
27 Financial Data Schedule
b) Reports on Form 8-K:
The Company filed the following report on Form 8-K during the
quarter ended April 30, 2000:
(1) Form 8-K dated February 14, 2000, included under Item 5, Other
Events, included The Company's press release for quarterly
earnings and the Financial Information Release relating to certain
financial information for the quarter ended January 30, 2000.
c) Exhibits:
The exhibits to this Form 10-K are filed at the end of this Form 10-K
immediately preceded by an index. A list of the exhibits begins on page 54
under the subheading "Exhibits Index".
d) Financial Statement Schedules:
See Item 14(a) (2)
SIGNATURES
Pursuant to the requirements of Section 13 of the
Securities Exchange Act of 1934, CULP, INC. has caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on the
28th day of July 2000.
CULP, INC.
By /s/ Robert G. Culp, III
Robert G. Culp, III
(Chairman and Chief Executive Officer)
By: /s/ Phillip W. Wilson
Phillip W. Wilson
(Vice President and Chief Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities indicated on the 28th day of July
2000.
/s/ Robert G. Culp, III /s/ Franklin N. Saxon *
Robert G. Culp, III Franklin N. Saxon
(Chairman of the (Director)
Board of Directors)
/s/ Earl N. Phillips, Jr.* /s/ Judith C. Walker *
Earl N. Phillips, Jr. Judith C. Walker
(Director) (Director)
/s/ Howard L. Dunn, Jr.* /s/ Robert T. Davis *
Howard L. Dunn, Jr. Robert T. Davis
(Director) (Director)
/s/ Patrick B. Flavin*
Patrick B. Flavin
(Director)
/s/ Patrick H. Norton*
Patrick H. Norton
(Director)
* By Phillip W. Wilson, Attorney-in-Fact, pursuant to Powers of
Attorney filed with the Securities and Exchange Commission.
EXHIBITS INDEX
Exhibit Number Exhibit
10(pp) Third Amendment to Credit Agreement dated April 28,
2000, among Culp, Inc., Wachovia Bank, N.A., as agent,
First Union National Bank, as documentation agent, and
Wachovia Bank, N.A., First Union National Bank, and
Suntrust Bank, as lenders.
22 List of subsidiaries of the Company.
24(a) Consent of Independent Public Auditors in connection with
the registration statements of Culp, Inc. on Form S-8 (File
Nos. 33-13310, 33-37027, 33-80206, 33-62843, and
333-27519), dated March 20, 1987, September 18, 1990, June
13, 1994, September 22, 1995, and May 21, 1997.
25(a) Power of Attorney of Robert T. Davis, dated June 22, 2000
25(b) Power of Attorney of Howard L. Dunn, Jr., dated June 21, 2000
25(c) Power of Attorney of Patrick B. Flavin, dated June 27, 2000
25(d) Power of Attorney of Patrick H. Norton, dated June 29, 2000
25(e) Power of Attorney of Earl N. Phillips, Jr., dated June 22, 2000
25(f) Power of Attorney of Franklin N. Saxon, dated July 7, 2000
25(g) Power of Attorney of Judith C. Walker, dated June 23, 2000
EXHIBIT 10(pp)
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Third Amendment") is dated
as of the 28th day of April, 2000 among CULP, INC. (the "Borrower"), WACHOVIA
BANK, N.A. (successor by merger to Wachovia Bank of Georgia, N.A.), as Agent
(the "Agent"), FIRST UNION NATIONAL BANK (successor by merger to First Union
National Bank of North Carolina), as Documentation Agent (the "Documentation
Agent"), and WACHOVIA BANK, N.A. (successor by merger to Wachovia Bank of North
Carolina, N.A.), FIRST UNION NATIONAL BANK, and SUNTRUST BANK (formerly known as
SunTrust Bank, Atlanta)(collectively, the "Banks");
W I T N E S S E T H :
WHEREAS, the Borrower, the Agent, the Documentation Agent and the Banks
executed and delivered that certain Credit Agreement, dated as of April 23,
1997, as amended by First Amendment to Credit Agreement dated as of July 22,
1998, and Second Amendment to Credit Agreement dated as of October 26, 1998 (as
so amended, the "Credit Agreement"); and
WHEREAS, the Borrower has requested, and the Agent, the Documentation Agent
and the Banks have agreed to certain amendments to the Credit Agreement, subject
to the terms and conditions hereof;
NOW, THEREFORE, for and in consideration of the above premises and other
good and valuable consideration, the receipt and sufficiency of which hereby is
acknowledged by the parties hereto, the Borrower, the Agent, the Documentation
Agent and the Banks hereby covenant and agree as follows:
1. Definitions. Unless otherwise specifically defined herein, each term used
herein which is defined in the Credit Agreement shall have the meaning assigned
to such term in the Credit Agreement. Each reference to "hereof", "hereunder",
"herein" and "hereby" and each other similar reference and each reference to
"this Agreement" and each other similar reference contained in the Credit
Agreement shall from and after the date hereof refer to the Credit Agreement as
amended hereby.
2. Amendment to Section 1.01. Section 1.01 of the Credit Agreement hereby is
amended by adding the following definitions in the proper alphabetical order:
"Interest and Leases Coverage Ratio" means the ratio of EBILTDA to the sum
of (x) Consolidated Net Interest Expense plus (y) Consolidated Lease
Expense.
"Third Amendment Effective Date" means April 28, 2000.
3. Amendment to Section-2.06(a). Section-2.06(a) of the Credit Agreement
hereby is amended by deleting it in its entirety and substituting the
following therefor:
(a) "Applicable Margin" means:
(i) for the period commencing on the Third Amendment Effective
Date to the first Performance Pricing Determination Date after the
Third Amendment Effective Date, (x) for any Base Rate Loan, 0.00%, and
(y) for any Euro-Dollar Loan or Foreign Currency Loan, 0.55%; and
(ii) from and after the first Performance Pricing Determination
Date after the Third Amendment Effective Date, (x) for any Base Rate
Loan, 0.00% and (y) for each Euro-Dollar Loan or Foreign Currency
Loan, the percentage determined on each Performance Pricing
Determination Date by reference to the table set forth below as to
such type of Loan and the Debt/EBITDA Ratio and the Interest and
Leases Coverage Ratio for the quarterly or annual period ending
immediately prior to such Performance Pricing Determination Date.
Interest and Leases Coverage Ratio
Debt/EBITDA Ratio < 3.0 and > 2.75 => 3.0
-------------------- ------------
=> 3.0 Applicable Margin 0.90% 0.875%
-------------------- ------------
-------------------- ------------
< 3.0 Applicable Margin 0.85% 0.80%
-------------------- ------------
In determining interest for purposes of this Section 2.06 and
fees for purposes of Section 2.07, the Borrower and the Banks shall
refer to the Borrower's most recent consolidated quarterly and annual
(as the case may be) financial statements delivered pursuant to
Section 5.01(a) or (b), as the case may be. If such financial
statements require a change in interest pursuant to this Section 2.06
or fees pursuant to Section 2.07, the Borrower shall deliver to the
Agent, along with such financial statements, a notice to that effect,
which notice shall set forth in reasonable detail the calculations
supporting the required change. The "Performance Pricing Determination
Date" is the date which is the last date on which such financial
statements are permitted to be delivered pursuant to Section 5.01(a)
or (b), as applicable. Any such required change in interest and fees
shall become effective on such Performance Pricing Determination Date,
and shall be in effect until the next Performance Pricing
Determination Date, provided that: (x) for Fixed Rate Loans, changes
in interest shall only be effective for Interest Periods commencing on
or after the Performance Pricing Determination Date; and (y) no fees
or interest shall be decreased pursuant to this Section 2.06 or
Section 2.07 if a Default is in existence on the Performance Pricing
Determination Date.
4. Amendment to Section 2.07(a). Section 2.07(a) of the Credit Agreement hereby
is amended by deleting it in its entirety and substituting the following
therefor:
(a) The Borrower shall pay to the Agent, for the ratable account
of each Bank, a facility fee, on the aggregate amount of such Bank's
Commitment (without taking into account the amount of the outstanding
Loans made by such Bank), at a rate per annum equal to 0.25%. Such
facility fees shall accrue from and including the Closing Date to (but
excluding the Termination Date) and shall be payable on each March 31,
June 30, September 30 and December 31 and on the Termination Date.
5. Amendment to Section 5.19. Section 5.19 of the Credit Agreement hereby is
amended by deleting it in its entirety and substituting the following therefor:
SECTION 5.19. Interest and Leases Coverage. At the end of each
Fiscal Quarter, the Interest and Leases Coverage Ratio shall not have
been less than: (i) for the period from and including the fourth
Fiscal Quarter of Fiscal Year 2000 through and including the fourth
Fiscal Quarter of Fiscal Year 2001, 2.75 to 1.0; and (ii) at all times
thereafter, 3.0 to 1.0.
6. Amendment to Exhibit F. Exhibit F hereby is amended by deleting paragraph 5
thereof and substituting therefor paragraph 5 set forth in Exhibit F attached
hereto.
7. Restatement of Representations and Warranties. The Borrower hereby restates
and renews each and every representation and warranty heretofore made by it in
the Credit Agreement and the other Loan Documents as fully as if made on the
date hereof and with specific reference to this Third Amendment and all other
loan documents executed and/or delivered in connection herewith.
8. Effect of Amendment. Except as set forth expressly hereinabove, all terms of
the Credit Agreement and the other Loan Documents shall be and remain in full
force and effect, and shall constitute the legal, valid, binding and enforceable
obligations of the Borrower. The amendments contained herein shall be deemed to
have prospective application only, unless otherwise specifically stated herein.
9. Ratification. The Borrower hereby restates, ratifies and reaffirms each and
every term, covenant and condition set forth in the Credit Agreement and the
other Loan Documents effective as of the date hereof.
10. Counterparts. This Third Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which counterparts, taken together, shall constitute but one and the same
instrument.
11. Section References. Section titles and references used in this Third
Amendment shall be without substantive meaning or content of any kind whatsoever
and are not a part of the agreements among the parties hereto evidenced hereby.
12. No Default. To induce the Agent, the Documentation Agent and the Banks to
enter into this Third Amendment and to continue to make advances pursuant to the
Credit Agreement, the Borrower hereby acknowledges and agrees that, as of the
date hereof, and after giving effect to the terms hereof, there exists (i)-no
Default or Event of Default and (ii)-no right of offset, defense, counterclaim,
claim or objection in favor of the Borrower arising out of or with respect to
any of the Loans or other obligations of the Borrower owed to the Banks under
the Credit Agreement.
13. Further Assurances. The Borrower agrees to take such further actions as the
Agent shall reasonably request in connection herewith to evidence the amendments
herein contained to the Borrower.
14. Governing Law. This Third Amendment shall be governed by and construed and
interpreted in accordance with, the laws of the State of Georgia.
15. Conditions Precedent. This Third Amendment shall become effective only upon
(i) execution and delivery of this Third Amendment by each of the parties
hereto, (ii) payment to the Agent, for the ratable account of each Bank, of a
fully-earned and non-refundable fee in an amount equal to 0.045% of each Bank's
Commitment, and (iii) payment to the Agent, for the account and sole benefit of
the Agent, of such fees and other amounts as set forth in that certain letter
from the Agent to the Borrower dated as of April 28, 2000 relating to this Third
Amendment. [Signatures Contained on the Next Page]
IN WITNESS WHEREOF, the Borrower, the Agent, the Documentation Agent and
each of the Banks has caused this Third Amendment to be duly executed, under
seal, by its duly authorized officer as of the day and year first above written.
CULP, INC.,
(SEAL)
as Borrower
By: _____________________________________________________
Title:
WACHOVIA BANK, N.A. (successor by merger to Wachovia
Bank of Georgia, N.A. and Wachovia Bank of North
Carolina, N.A.),
as Agent and as a Bank (SEAL)
By: _____________________________________________________
Title:
FIRST UNION NATIONAL BANK (successor by merger to First
Union National Bank of North Carolina),
as Documentation Agent and as a Bank (SEAL)
By: _____________________________________________________
Title:
SUNTRUST BANK (formerly known as SunTrust Bank, Atlanta),
as a Bank (SEAL)
By: _____________________________________________________
Title:
EXHIBIT F
5. Interest and Leases Coverage (Section 5.19)
At the end of each Fiscal Quarter, the Interest and Leases Coverage Ratio shall
not have been less than: (i) for the period from and including the fourth Fiscal
Quarter of Fiscal Year 2000 through and including the fourth Fiscal Quarter of
Fiscal Year 2001, 2.75 to 1.0; and (ii) at all times thereafter, 3.0 to 1.0.
(a) EBILTDA - Schedule 1 $______________
(b) Consolidated Net Interest Expense
- Schedule 1 $______________
(c) Consolidated Lease Expense
- Schedule 1 $______________
(d) Sum of (b) and (c) $______________
(e) Actual ratio of (a) to (d) _____ to 1.0
Minimum Ratio [2.75 to 1.0]
_________ [3.0 to 1.0]
EXHIBIT 22
LIST OF SUBSIDIARIES OF CULP, INC.
Culp International, Inc.
Incorporated in Virgin Islands
3096726 Canada, Inc.
Incorporated under laws of Canada
Rayonese Textile Inc.
Incorporated under laws of Canada
EXHIBIT 24(a)
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Culp, Inc.:
We consent to incorporation by reference in the registration statement numbers
333-27519, 33-13310, 33-37027, 33-80206, and 33-62843 on Form S-8 of Culp, Inc.
of our report dated May 31, 2000, relating to the consolidated balance sheets of
Culp, Inc. and subsidiary as of April 30, 2000 and May 2, 1999, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the years in the three-year period ended April 30, 2000, which report appears
in the April 30, 2000 annual report on Form 10-K of Culp, Inc.
KPMG LLP
Charlotte, North Carolina
July 27, 2000
Exhibit 25(a)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director of CULP,
INC., a North Carolina corporation, hereby constitutes and appoints PHILLIP
W. WILSON the true and lawful agent and attorney-in-fact to sign for the
undersigned as a director of the Corporation the Corporation's Annual
Report on Form 10-K for the year ended April 30, 2000 to be filed with the
Securities and Exchange Commission, Washington, D. C., under the Securities
Exchange Act of 1934, as amended, and to sign any amendment or amendments
to such Annual Report, hereby ratifying and confirming all acts taken by
such agent and attorney-in-fact, as herein authorized.
/s/ Robert T. Davis
Robert T. Davis
Date: June 22, 2000
Exhibit 25(b)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director of CULP, INC.,
a North Carolina corporation, hereby constitutes and appoints PHILLIP W. WILSON
the true and lawful agent and attorney-in-fact to sign for the undersigned as a
director of the Corporation the Corporation's Annual Report on Form 10-K for the
year ended April 30, 2000 to be filed with the Securities and Exchange
Commission, Washington, D. C., under the Securities Exchange Act of 1934, as
amended, and to sign any amendment or amendments to such Annual Report, hereby
ratifying and confirming all acts taken by such agent and attorney-in-fact, as
herein authorized.
/s/ Howard L. Dunn, Jr.
Howard L. Dunn, Jr.
Date: June 21, 2000
Exhibit 25(c)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director of CULP, INC.,
a North Carolina corporation, hereby constitutes and appoints PHILLIP W. WILSON
the true and lawful agent and attorney-in-fact to sign for the undersigned as a
director of the Corporation the Corporation's Annual Report on Form 10-K for the
year ended April 30, 2000 to be filed with the Securities and Exchange
Commission, Washington, D. C., under the Securities Exchange Act of 1934, as
amended, and to sign any amendment or amendments to such Annual Report, hereby
ratifying and confirming all acts taken by such agent and attorney-in-fact, as
herein authorized.
/s/ Patrick B. Flavin
Patrick B. Flavin
Date: June 27, 2000
Exhibit 25(d)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director of CULP, INC.,
a North Carolina corporation, hereby constitutes and appoints PHILLIP W. WILSON
the true and lawful agent and attorney-in-fact to sign for the undersigned as a
director of the Corporation the Corporation's Annual Report on Form 10-K for the
year ended April 30, 2000 to be filed with the Securities and Exchange
Commission, Washington, D. C., under the Securities Exchange Act of 1934, as
amended, and to sign any amendment or amendments to such Annual Report, hereby
ratifying and confirming all acts taken by such agent and attorney-in-fact, as
herein authorized.
/s/ Patrick H. Norton
Patrick H. Norton
Date: June 29, 2000
Exhibit 25(e)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director of CULP, INC.,
a North Carolina corporation, hereby constitutes and appoints PHILLIP W. WILSON
the true and lawful agent and attorney-in-fact to sign for the undersigned as a
director of the Corporation the Corporation's Annual Report on Form 10-K for the
year ended April 30, 2000 to be filed with the Securities and Exchange
Commission, Washington, D. C., under the Securities Exchange Act of 1934, as
amended, and to sign any amendment or amendments to such Annual Report, hereby
ratifying and confirming all acts taken by such agent and attorney-in-fact, as
herein authorized.
/s/ Earl N. Phillips, Jr.
Earl N. Phillips, Jr.
Date: June 22, 2000
Exhibit 25(f)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director of CULP, INC.,
a North Carolina corporation, hereby constitutes and appoints PHILLIP W. WILSON
the true and lawful agent and attorney-in-fact to sign for the undersigned as a
director of the Corporation the Corporation's Annual Report on Form 10-K for the
year ended April 30, 2000 to be filed with the Securities and Exchange
Commission, Washington, D. C., under the Securities Exchange Act of 1934, as
amended, and to sign any amendment or amendments to such Annual Report, hereby
ratifying and confirming all acts taken by such agent and attorney-in-fact, as
herein authorized.
/s/ Franklin N. Saxon
Franklin N. Saxon
Date: July 7, 2000
Exhibit 25(g)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director of CULP, INC.,
a North Carolina corporation, hereby constitutes and appoints PHILLIP W. WILSON
the true and lawful agent and attorney-in-fact to sign for the undersigned as a
director of the Corporation the Corporation's Annual Report on Form 10-K for the
year ended April 30, 2000 to be filed with the Securities and Exchange
Commission, Washington, D. C., under the Securities Exchange Act of 1934, as
amended, and to sign any amendment or amendments to such Annual Report, hereby
ratifying and confirming all acts taken by such agent and attorney-in-fact, as
herein authorized.
/s/ Judith C. Walker
Judith C. Walker
Date: June 23, 2000