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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 28, 2002
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)
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
Common shares outstanding at July 28, 2002: 11,482,959
Par Value: $.05
INDEX TO FORM 10-Q
For the period ended July 28, 2002
Part I - Financial Statements. Page
- ------------------------------------------ -------
Item 1. Unaudited Interim Consolidated Financial Statements:
Consolidated Statements of Loss --Three Months Ended
July 28, 2002 and July 29, 2001 I-1
Consolidated Balance Sheets-July 28, 2002, July 29, 2001 and
April 28, 2002 I-2
Consolidated Statements of Cash Flows--Three Months Ended July 28,
2002 and July 29, 2001 I-3
Consolidated Statements of Shareholders' Equity I-4
Notes to Consolidated Financial Statements I-5
Sales by Segment/Division I-12
International Sales by Geographic Area I-13
Item 2. Management's Discussion and Analysis of Financial I-14
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk I-21
Item 4. Controls and Procedures I-22
Part II - Other Information
- -------------------------------------
Item 6. Exhibits and Reports on Form 8-K II-1
Signature II-2
Certifications II-3
CULP, INC.
CONSOLIDATED STATEMENTS OF LOSS
FOR THE THREE MONTHS ENDED JULY 28, 2002 AND JULY 29, 2001
(Amounts in Thousands, Except for Per Share Data)
THREE MONTHS ENDED (UNAUDITED)
--------------------------------------------------------
Amounts Percent of Sales
--------------------- ---------------------
July 28, July 29, % Over
2002 2001 (Under) 2003 2002
---------- ---------- --------- ---------- ---------
Net sales $ 85,888 86,463 (0.7)% 100.0 % 100.0 %
Cost of sales 72,034 75,674 (4.8)% 83.9 % 87.5 %
---------- ---------- ------------ ---------- ---------
Gross profit 13,854 10,789 28.4 % 16.1 % 12.5 %
Selling, general and
administrative expenses 10,437 11,235 (7.1)% 12.2 % 13.0 %
Restructuring expense 0 1,303 (100.0)% 0.0 % 1.5 %
---------- ---------- ------------ ---------- ---------
Income (loss) from operations 3,417 (1,749) 295.4 % 4.0 % (2.0)%
Interest expense 1,903 2,068 (8.0)% 2.2 % 2.4 %
Interest income (150) (23) 552.2 % (0.2)% (0.0)%
Other expense (income), net 211 572 (63.1)% 0.2 % 0.7 %
---------- ---------- ------------ ---------- ---------
Income (loss) before income taxes 1,453 (4,366) 133.3 % 1.7 % (5.0)%
Income taxes * 538 (1,484) 136.3 % 37.0 % 34.0 %
---------- ---------- ------------ ---------- ---------
Income (loss) before cumulative effect of
accounting change 915 (2,882) 131.7 % 1.1 % (3.3)%
Cumulative effect of accounting change,
net of income taxes (24,151) 0
---------- ----------
Net loss $ (23,236) (2,882)
========== ==========
Basic income (loss) per share:
Income (loss) before cumulative
effect of accounting change $ 0.08 (0.26) 131.3 %
Cumulative effect of accounting change (2.12) 0.00 100.0 %
---------- ---------- --------
Net loss $ (2.04) (0.26) (694.8)%
========== ========== ========
Diluted income (loss) per share:
Income (loss) before cumulative
effect of accounting change $ 0.08 (0.26) 129.9 %
Cumulative effect of accounting change (2.12) 0.00 100.0 %
---------- ---------- --------
Net loss $ (2.04) (0.26) (686.1)%
========== ========== ========
Average shares outstanding 11,383 11,221 1.4 %
Average shares outstanding, assuming dilution 11,765 11,221 4.8 %
* Percent of sales column for income taxes is calculated as a % of income (loss)
before income taxes.
CULP, INC.
CONSOLIDATED BALANCE SHEETS
JULY 28, 2002, JULY 29, 2001, AND APRIL 28, 2002
Unaudited
(Amounts in Thousands)
Amounts Increase
------------------------------ (Decrease)
July 28, July 29, ------------------------- *April 28,
2002 2001 Dollars Percent 2002
--------------- ------------ ------------ --------- ---------
Current assets
Cash and cash investments $ 25,071 549 24,522 4,466.7 % 31,993
Accounts receivable 34,719 52,353 (17,634) (33.7)% 43,366
Inventories 59,721 59,006 715 1.2 % 57,899
Other current assets 13,698 9,893 3,805 38.5 % 13,413
--------------- ------------ ------------ --------- ---------
Total current assets 133,209 121,801 11,408 9.4 % 146,671
Property, plant & equipment, net 89,201 109,417 (20,216) (18.5)% 89,772
Goodwill 9,503 48,129 (38,626) (80.3)% 47,083
Other assets 4,046 1,711 2,335 136.5 % 4,187
--------------- ------------ ------------ --------- ---------
Total assets $ 235,959 281,058 (45,099) (16.0)% 287,713
=============== ============ ============ ========= =========
Current liabilities
Current maturities of
long-term debt $ 455 2,130 (1,675) (78.6)% 1,483
Accounts payable 23,678 24,773 (1,095) (4.4)% 24,327
Accrued expenses 15,239 16,494 (1,255) (7.6)% 18,905
--------------- ------------ ------------ ------- ---------
Total current liabilities 39,372 43,397 (4,025) (9.3)% 44,715
Long-term debt 96,078 108,522 (12,444) (11.5)% 107,001
Deferred income taxes 3,502 10,330 (6,828) (66.1)% 16,932
--------------- ------------ ------------ --------- ---------
Total liabilities 138,952 162,249 (23,297) (14.4)% 168,648
Shareholders' equity 97,007 118,809 (21,802) (18.4)% 119,065
--------------- ------------ ------------ --------- ---------
Total liabilities and
shareholders' equity $ 235,959 281,058 (45,099) (16.0)% 287,713
=============== ============ ============ ========= =========
Shares outstanding 11,483 11,221 262 2.3 % 11,320
=============== ============ ============ ========= =========
* Derived from audited financial statements.
CULP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JULY 28, 2002 AND JULY 29, 2001
Unaudited
(Amounts in Thousands)
THREE MONTHS ENDED
--------------------------
July 28, July 29,
2002 2001
------------ ------------
Cash flows from operating activities:
Net loss $ (23,236) (2,882)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Cumulative effect of accounting change, net of income taxes 24,151 0
Depreciation 3,641 4,473
Amortization of intangible assets 159 393
Amortization of stock based compensation 52 (13)
Restructuring expense 0 1,303
Changes in assets and liabilities:
Accounts receivable 8,647 5,496
Inventories (1,822) 991
Other current assets (114) (1,987)
Other assets (18) (3)
Accounts payable (2,366) (123)
Accrued expenses (3,666) (1,957)
Income taxes payable 0 (1,268)
------------ ------------
Net cash provided by operating activities 5,428 4,423
------------ ------------
Cash flows from investing activities:
Capital expenditures (3,070) (1,602)
------------ ------------
Net cash used in investing activities (3,070) (1,602)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 0 16
Principal payments of long-term debt (11,951) (1,020)
Change in accounts payable-capital expenditures 1,717 (2,475)
Proceeds from common stock issued 954 0
------------ ------------
Net cash used in financing activities (9,280) (3,479)
------------ ------------
Decrease in cash and cash investments (6,922) (658)
Cash and cash investments at beginning of period 31,993 1,207
------------ ------------
Cash and cash investments at end of period $ 25,071 549
============ ============
CULP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(Dollars in thousands, except share and per share data)
Capital Accumulated
Common Stock Contributed Other Total
--------------------------- in Excess Retained Comprehensive Shareholders'
Shares Amount of Par Value Earnings Income Equity
- ------------------------------------------------------------------------------------------------------------------------------
Balance, April 29, 2001 11,221,158 $ 561 36,915 84,326 $ 121,802
Net loss (3,440) (3,440)
Net gain on cash flow hedges 7 7
Common stock issued in connection
with stock option plans 98,426 5 691 696
- ------------------------------------------------------------------------------------------------------------------------------
Balance, April 28, 2002 11,319,584 $ 566 37,606 80,886 7 $ 119,065
Net loss (23,236) (23,236)
Net gain on cash flow hedges 172 172
Common stock issued in connection
with stock option plans 163,375 8 998 1,006
- ------------------------------------------------------------------------------------------------------------------------------
Balance, July 28, 2002 11,482,959 $ 574 38,604 57,650 179 $ 97,007
==============================================================================================================================
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of Culp, Inc.
and subsidiary include all adjustments, which are, in the opinion of management,
necessary for fair presentation of the results of operations and financial
position. All of these adjustments are of a normal recurring nature except as
disclosed in notes 8 and 12 to the consolidated financial statements. Results of
operations for interim periods may not be indicative of future results. The
unaudited consolidated financial statements should be read in conjunction with
the audited consolidated financial statements, which are included in the
company's annual report on Form 10-K filed with the Securities and Exchange
Commission on July 26, 2002 for the fiscal year ended April 28, 2002.
================================================================================
2. Accounts Receivable
A summary of accounts receivable follows (dollars in thousands):
- --------------------------------------------------------------------------------
July 28, 2002 April 28, 2002
- --------------------------------------------------------------------------------
Customers $ 38,525 $ 46,886
Allowance for doubtful accounts (2,678) (2,465)
Reserve for returns and allowances (1,128) (1,055)
- --------------------------------------------------------------------------------
$ 34,719 $ 43,366
================================================================================
3. Inventories
Inventories are carried at the lower of cost or market. Cost is determined
for substantially all inventories using the LIFO (last-in, first-out) method.
A summary of inventories follows (dollars in thousands):
- --------------------------------------------------------------------------------
July 28, 2002 April 28, 2002
- --------------------------------------------------------------------------------
Raw materials $ 28,717 $ 27,081
Work-in-process 3,115 3,830
Finished goods 28,134 27,233
- --------------------------------------------------------------------------------
Total inventories valued at FIFO 59,966 58,144
Adjustments of certain inventories to LIFO (245) (245)
- --------------------------------------------------------------------------------
$ 59,721 $ 57,899
================================================================================
4. Accounts Payable
A summary of accounts payable follows (dollars in thousands):
- --------------------------------------------------------------------------------
July 28, 2002 April 28, 2002
- --------------------------------------------------------------------------------
Accounts payable-trade $ 20,581 $ 22,947
Accounts payable-capital expenditures 3,097 1,380
- --------------------------------------------------------------------------------
$ 23,678 $ 24,327
================================================================================
5. Accrued Expenses
A summary of accrued expenses follows (dollars in thousands):
- --------------------------------------------------------------------------------
July 28, 2002 April 28, 2002
- --------------------------------------------------------------------------------
Compensation, commissions and related benefits $ 5,660 $ 10,122
Interest 2,448 1,111
Restructuring 1,864 2,445
Other 5,267 5,227
- --------------------------------------------------------------------------------
$ 15,239 $ 18,905
================================================================================
6. Long-Term Debt
A summary of long-term debt follows (dollars in thousands):
- --------------------------------------------------------------------------------
July 28, 2002 April 28, 2002
- --------------------------------------------------------------------------------
Unsecured notes $ 75,000 $ 75,000
Industrial revenue bonds 19,712 30,612
Canadian government loan 1,821 1,852
Obligations to sellers 0 1,020
- --------------------------------------------------------------------------------
96,533 108,484
Less current maturities (455) (1,483)
- --------------------------------------------------------------------------------
$ 96,078 $ 107,001
- --------------------------------------------------------------------------------
In August 2002, the company entered into an agreement with its principal
bank lender that provides for a revolving loan commitment of $15,000,000. The
agreement provides an additional $21,000,000 in letters of credit supporting the
industrial revenue bonds described below. Borrowings under the facility
generally carry interest at the London Interbank Offered Rate plus an adjustable
margin based upon the company's debt/EBITDA ratio, as defined by the agreement.
Letter of credit and commitment fees are also determined by the company's
debt/EBITDA ratio, as defined by the agreement. The credit facility expires in
August 2004.
The unsecured notes have an average remaining term of 6 years. The
principal payments become due from March 2006 to March 2010 with interest
payable semi-annually at a fixed coupon rate of 7.76%.
The industrial revenue bonds (IRBs) are generally due in balloon maturities
which occur at various dates from 2009 to 2013. The IRBs are collateralized by
letters of credit for the outstanding balance of the IRBs and certain interest
payments accrued thereunder. As of July 28, 2002, the interest rate on
outstanding IRBs was 4.6%, including the letter of credit fee percentage.
The company's loan agreements require, among other things, that the company
maintain compliance with certain financial ratios. At July 28, 2002, the company
was in compliance with these financial covenants.
The principal payment requirements of long-term debt during the next five
fiscal years are: 2003 - $455,000; 2004 - $455,000; 2005 - $455,000; 2006 -
$11,456,000; and 2007 - $11,000,000.
================================================================================
7. Cash Flow Information
Payments for interest and income taxes for the three months ended July 28,
2002 and July 29, 2001 follow (dollars in thousands):
- --------------------------------------------------------------------------------
2003 2002
- --------------------------------------------------------------------------------
Interest $ 573 $ 785
Income taxes 430 612
================================================================================
8. Restructuring
In April 2002, management approved a plan to exit the wet printed flock
upholstery fabric business. The exit plan involved closing a printing facility
and flocking operation within the Culp Velvets/Prints (CVP) division, reduction
in related selling and administrative expenses and termination of 25 employees.
The total charge for the exit plan was $9.7 million, of which approximately $8.2
million represented non-cash items relating to fixed asset and inventory
write-downs.
The following summarizes the activity in the CVP restructuring accrual
(dollars in thousands):
- --------------------------------------------------------------------------------
Employee Lease
Termination Termination and
Benefits Other Exit Costs Total
- --------------------------------------------------------------------------------
Accrual established in fiscal 2002 $ 842 $ 610 $ 1,452
Paid in fiscal 2002 (5) (5) (10)
- --------------------------------------------------------------------------------
Balance, April 28, 2002 837 605 1,442
Paid in fiscal 2003 (336) (22) (358)
- --------------------------------------------------------------------------------
Balance, July 28, 2002 $ 501 $ 583 $ 1,084
- --------------------------------------------------------------------------------
During fiscal 2001 and continuing into fiscal 2002, the company undertook a
restructuring plan in its upholstery fabric segment which involved (1) the
consolidation of certain fabric manufacturing capacity within the Culp
Decorative Fabrics (CDF) division, (2) closing one of the company's four yarn
manufacturing plants within the Culp Yarn division, (3) an extensive reduction
in selling, general and administrative expenses including the termination of 110
employees and (4) a comprehensive SKU reduction initiative related to finished
goods and raw materials in CDF. For fiscal 2001, the total restructuring and
related charges incurred were $7.4 million, of which approximately $3.4 million
represented non-cash items relating to fixed asset and inventory write-downs,
and $931,000 represented machinery and equipment relocation costs included in
cost of sales. For fiscal 2002, the total restructuring and related charges
incurred were $2.5 million, of which $160,000 represented non-cash items
relating to fixed asset write-downs, and $1.2 million represented machinery and
equipment relocation costs included in cost of sales.
The following summarizes the activity in the CDF restructuring accrual
(dollars in thousands):
- --------------------------------------------------------------------------------
Employee Lease
Termination Termination and
Benefits Other Exit Costs Total
- --------------------------------------------------------------------------------
Accrual established in fiscal 2001 $ 969 $ 2,116 $ 3,085
Paid in fiscal 2001 (491) (211) (702)
- --------------------------------------------------------------------------------
Balance, April 29, 2001 478 1,905 2,383
Additions in fiscal 2002 925 218 1,143
Paid in fiscal 2002 (891) (1,632) (2,523)
- --------------------------------------------------------------------------------
Balance, April 28, 2002 512 491 1,003
Paid in fiscal 2003 (76) (147) (223)
- --------------------------------------------------------------------------------
Balance, July 28, 2002 $ 436 $ 344 $ 780
================================================================================
9. Comprehensive Loss
Comprehensive loss is the total of net loss and other changes in equity,
except those resulting from investments by shareholders and distributions to
shareholders not reflected in net loss.
A summary of total comprehensive loss for the three months ended July 28,
2002 and July 29, 2001 follows (dollars in thousands):
- --------------------------------------------------------------------------------
2003 2002
- --------------------------------------------------------------------------------
Net loss $ (23,236) $ (2,882)
Gain (loss) on foreign currency contracts, net of taxes:
Net changes in fair value 173 (98)
Net gains reclassified into earnings (1) 0
- --------------------------------------------------------------------------------
$ (23,064) $ (2,980)
- --------------------------------------------------------------------------------
Gains on cash flow hedges reflected in other comprehensive loss above are
expected to be recognized in results of operations over the next nine months.
================================================================================
10. Income (Loss) per Share
Basic income (loss) per share is computed using the weighted-average number
of shares outstanding during the period. Diluted income per share uses the
weighted-average number of shares outstanding during the period plus the
dilutive effect of stock options calculated using the treasury stock method.
Weighted average shares used in the computation of basic and diluted income
(loss) per share follows:
(in thousands) Three Months Ended
- --------------------------------------------------------------------------------
July 28, 2002 July 29, 2001
- --------------------------------------------------------------------------------
Weighted average common
shares outstanding, basic 11,383 11,221
Effect of dilutive stock options 382 0
- --------------------------------------------------------------------------------
Weighted average common
shares outstanding, diluted 11,765 11,221
- --------------------------------------------------------------------------------
Options to purchase 205,625 shares and 1,022,676 shares of common stock
were not included in the computation of diluted income (loss) per share for the
three months ended July 28, 2002 and July 29, 2001 respectively, because the
exercise price of the options was greater than the average market price of the
common shares.
================================================================================
11. 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, 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.
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, other current assets, property, plant and equipment,
and other assets on a total company basis. Thus, identifiable assets by business
segment represent accounts receivable, inventories and goodwill.
Sales and gross profit for the company's operating segments for the three
months ended July 28, 2002 and July 29, 2001 follow (dollars in thousands):
- -------------------------------------------------------------------------------
2003 2002
- -------------------------------------------------------------------------------
Net sales
Upholstery Fabrics $ 59,950 $ 61,647
Mattress Ticking 25,938 24,816
- -------------------------------------------------------------------------------
$ 85,888 $ 86,463
- -------------------------------------------------------------------------------
Gross Profit
Upholstery Fabrics $ 8,001 $ 4,540
Mattress Ticking 5,853 6,249
- -------------------------------------------------------------------------------
$ 13,854 $ 10,789
- -------------------------------------------------------------------------------
Identifiable assets, consisting of accounts receivable, inventories and
goodwill, for the company's operating segments as of July 28, 2002 and July 29,
2001 follow (dollars in thousands):
- --------------------------------------------------------------------------------
2003 2002
- --------------------------------------------------------------------------------
Upholstery Fabrics $ 72,649 $ 47,256[1]
Mattress Ticking 31,294 11,750[1]
- --------------------------------------------------------------------------------
$ 103,943 $ 59,006
- --------------------------------------------------------------------------------
[1] Includes inventories only for fiscal 2002. Inventories by operating segment
for fiscal 2003: $44,946 for Upholstery Fabrics and $14,775 for Mattress
Ticking.
================================================================================
12. Recently Adopted Accounting Standard
The company adopted SFAS No. 142, "Goodwill and Other Intangible Assets"
effective April 29, 2002. SFAS No. 142 represents a substantial change in how
goodwill is accounted for. SFAS No. 142 requires that goodwill no longer be
amortized and that goodwill be tested for impairment by comparing each reporting
unit's carrying value to its fair value. SFAS No. 142 requires that any goodwill
impairment loss recognized as a result of initial application be reported as a
change in accounting principle, and that the income per share effects of the
accounting change be separately disclosed.
As required by the standard, the company ceased recording goodwill
amortization for fiscal 2003. The following table reconciles net loss to its
amount adjusted to exclude goodwill for the first quarter of fiscal 2002:
(in thousands, except per share data) Three Months Ended
- --------------------------------------------------------------------------------
July 29, 2001
- --------------------------------------------------------------------------------
Reported net loss $ (2,882)
Goodwill amortization, net of tax 230
- --------------------------------------------------------------------------------
Adjusted net loss (2,652)
- --------------------------------------------------------------------------------
Reported net loss per share, basic and diluted (0.26)
Adjusted net loss per share, basic and diluted (0.24)
- --------------------------------------------------------------------------------
For the initial application of SFAS No. 142, an independent business
valuation specialist was engaged to assist the company in the determination of
the fair market value of the Culp Decorative Fabrics (CDF) division because of
the significance of the goodwill associated with the division and due to its
operating performance for fiscal 2002 and 2001. The carrying value of the CDF
division was determined to be less than its fair value as determined using
several different valuation methods, including comparable company, comparable
transaction and discounted cash flow analysis. Accordingly, the company recorded
a goodwill impairment charge of $37.6 million ($24.2 million net of taxes of
$13.4 million), or $2.12 per share diluted, related to the goodwill associated
with the CDF division. After the goodwill impairment charge, the company's
goodwill by division is: Culp Decorative Fabrics - $4.7 million, Culp Yarn -
$700,000 and Culp Home Fashions - $4.1 million.
================================================================================
13. Subsequent Event
On August 27, 2002, the company announced a restructuring plan within the
Culp Decorative Fabrics division aimed at lowering manufacturing costs,
simplifying the dobby fabric upholstery line, increasing asset utilization and
enhancing the division's manufacturing competitiveness. The restructuring plan
principally involves consolidation of the division's weaving, finishing,
yarn-making and distribution operations by closing the facility in Chattanooga,
Tennessee and integrating these functions into other plants. Additionally, the
company plans to significantly reduce the number of stock keeping units (SKUs)
offered in the dobby product line. The company estimates that this plan will
result in a net reduction in workforce of approximately 300 positions.
Restructuring and related charges of approximately $15 million, or $9.1 million
net of taxes, are estimated to be recorded over the next nine months.
Approximately $4.3 million of the restructuring charges are expected to be
non-cash items.
================================================================================
CULP, INC.
SALES BY SEGMENT/DIVISION
FOR THE THREE MONTHS ENDED JULY 28, 2002 AND JULY 29, 2001
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
------------------------------------------------------------
Amounts Percent of Total Sales
--------------------- -----------------------
July 28, July 29, % Over
Segment/Division 2002 2001 (Under) 2003 2002
- ------------------------------ --------- ---------- ------------ ---------- ----------
Upholstery Fabrics
Culp Decorative Fabrics $ 34,731 35,160 (1.2)% 40.4 % 40.7 %
Culp Velvets/Prints 23,119 25,520 (9.4)% 26.9 % 29.5 %
Culp Yarn 2,100 967 117.2 % 2.4 % 1.1 %
--------- ---------- ------------ ---------- ----------
59,950 61,647 (2.8)% 69.8 % 71.3 %
Mattress Ticking
Culp Home Fashions 25,938 24,816 4.5 % 30.2 % 28.7 %
--------- ---------- ------------ ---------- ----------
* $ 85,888 86,463 (0.7)% 100.0 % 100.0 %
========= ========== ============ ========== ==========
* U.S. sales were $75,465 and $71,800 for the first quarter of fiscal 2003 and
fiscal 2002, respectively.
The percentage increase in U.S. sales was 5.1% for the first quarter of
fiscal 2003.
CULP, INC.
INTERNATIONAL SALES BY GEOGRAPHIC AREA
FOR THE THREE MONTHS ENDED JULY 28, 2002 AND JULY 29, 2001
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
------------------------------------------------------------------
Amounts Percent of Total Sales
------------------------- -------------------------
July 28, July 29, % Over
Geographic Area 2002 2001 (Under) 2003 2002
- ---------------------------- ------------ ----------- ------------ ----------- ----------
North America (Excluding USA) $ 7,550 8,052 (6.2)% 72.4 % 54.9 %
Europe 123 705 (82.6)% 1.2 % 4.8 %
Middle East 887 2,903 (69.4)% 8.5 % 19.8 %
Far East & Asia 1,331 2,570 (48.2)% 12.8 % 17.5 %
South America 243 159 52.8 % 2.3 % 1.1 %
All other areas 289 274 5.5 % 2.8 % 1.9 %
------------ ----------- ------------ ----------- ----------
$ 10,423 14,663 (28.9)% 100.0 % 100.0 %
============ =========== ============ =========== ==========
International sales, and the percentage of total sales, for each of the last
three fiscal years follows: fiscal 2000 - $111,104 (23%); fiscal 2001 - $77,824
(19%) and fiscal 2002 - $53,501 (14%). International sales for the first quarter
represented 12.1% and 17.0% for 2003 and 2002, respectively.
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
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 and other
exhibits included elsewhere in this report.
Overview
Culp is one of the largest integrated marketers in the world for upholstery
fabrics for furniture and mattress fabrics (ticking) for bedding. The company's
fabrics are used primarily in the production of residential and contract
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.
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 contract 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 primarily used by Culp. In mattress
ticking, Culp Home Fashions markets a broad array of fabrics used by bedding
manufacturers.
Restructuring Actions
On August 27, 2002 the company announced the following restructuring plan.
As a result of successful restructuring and productivity enhancement initiatives
during the past year, the company has identified a significant opportunity for
further restructuring within its Culp Decorative Fabrics ("CDF") division that
is expected to:
- - substantially lower manufacturing costs;
- - dramatically simplify its dobby upholstery fabric product line;
- - significantly increase asset utilization; and
- - enhance the division's manufacturing competitiveness
While the company's recent profit improvement actions have resulted in
substantial gains in productivity and margins at certain CDF locations, the
division's gross profit margins still have significant room for improvement, and
are below management's targeted levels. The progress made at certain CDF plants
over the past year, however, has allowed for higher production outputs at these
locations while using the same asset base. In addition, management has focused
attention within this division to materially reduce manufacturing complexity by:
(1) simplifying raw material components; (2) eliminating low volume finished
goods SKUs; and (3) configuring manufacturing for greater flexibility. The
progress to date has resulted in the identification of additional opportunities
to eliminate the least efficient and higher cost elements of the division's
manufacturing base and to make higher use of the division's most productive
assets. Based upon these considerations, subsequent to the quarter ending July
28, 2002, management approved a plan to significantly simplify dobby upholstery
fabric offerings and consolidate the operations of the division's Chattanooga,
Tennessee facility into other CDF plants, mainly the weaving plant in Pageland,
South Carolina and the finishing plant in Burlington, North Carolina. The
restructuring is expected to reduce annual expenses by $12 million to $15
million when fully implemented, while still maintaining capacity within the
division's manufacturing assets to meet anticipated levels of demand for the
foreseeable future. The benefit of the cost savings is expected to be partially
realized beginning in the third quarter of fiscal 2003, with most or all of the
benefit being experienced by the fourth quarter.
The restructuring action will involve the closing of the Chattanooga facility,
which contains weaving, finishing, yarn-making and distribution operations. This
facility incurred about $20 million in manufacturing labor and overhead costs
during fiscal 2002. Some of the newest equipment located there will be moved to
Pageland and other CDF facilities, while other equipment will be sold or
retired. As an initial step, the forty most modern weaving looms located in
Chattanooga will be moved to Pageland during the company's second quarter,
beginning in September. Also during the second quarter, the finishing,
yarn-making and distribution operations will be consolidated into other CDF
facilities.
As a further part of the restructuring plan, the company will construct a small
addition to the Pageland plant to allow for the increased output at the
facility. The company also plans to purchase twenty (20) high speed weaving
machines to be located at the Pageland facility. Finally, certain jacquard looms
located at CDF's other weaving locations will be modified in ways that will
allow them to produce some of the dobby products now produced at Chattanooga.
This will also aid production during the transition period while equipment is
being moved and installed. Weaving operations at the Chattanooga plant will be
scaled back over time, beginning in the second quarter, and are expected to be
completely terminated by the end of the third quarter.
A key part of the restructuring is a substantial reduction in the complexity of
the company's dobby upholstery fabric product line, which is expected to
increase the efficiency of operations and greatly simplify the raw material
components for this category of fabrics. As part of the changes being announced,
the company plans to discontinue approximately 70% of its stock keeping units
(SKUs) of dobby fabrics by the end of the second quarter. These discontinued
SKUs represented only 10%, or $4 million, of the dobby product line sales for
the twelve months ended July 28, 2002. To minimize the impact on its customers,
the company plans to offer one final production run of the discontinued
products.
The construction at the Pageland facility and new loom purchases are expected to
cost approximately $4 million, and it is anticipated that these assets will be
placed into production by the end of fiscal 2003. The Chattanooga plant
currently has approximately 350 employees, and all of those positions will be
eliminated in the restructuring initiative. It is anticipated that the current
actions will lead to the addition of approximately 50 positions in other CDF
plants. Therefore, CDF expects to reduce its overall headcount by 25% with this
plan.
Once fully implemented, the restructuring plan is expected to significantly
improve gross margins within CDF, while allowing the division the ability to
meet foreseeable levels of demand, all on a substantially lower cost base.
Management expects that the restructuring actions will reduce CDF's annual fixed
manufacturing costs by approximately $8 million, or 29%, from the $29 million
spent in fiscal 2002. The remaining cost savings of $4 - 7 million are expected
to come from reduced variable production costs, as a result of greater
utilization of an asset base that has significantly better efficiency and
employs substantially fewer people. By consolidating the best assets from the
Chattanooga plant into other CDF locations, in combination with transferring
some production to the additional high speed looms that will be added to CDF's
asset base, management anticipates that the average speed and the average
utilization of the weaving and finishing equipment within the division will be
substantially increased.
The actions described above are expected to result in restructuring and related
charges of approximately $15.0 million, which amounts to $9.1 million on an
after-tax basis, or $0.78 per share, diluted. The charges will be incurred
mostly in the second quarter ending October 27, 2002, with approximately
$750,000 expected to be incurred in the second half of fiscal 2003. These
restructuring charges, of which $4.3 million are expected to be non-cash items,
will principally involve building lease termination costs, severance costs,
equipment write-downs, inventory markdowns and equipment relocation costs.
Management will take steps to minimize disruptions in production as the CDF
assets are being moved and re-configured, but it is anticipated that the
restructuring actions will impact operating earnings (before restructuring
charges) during the second quarter by $500,000 to $900,000, or $0.03 to $0.05
per share, diluted. The company expects, however, that these short-term
transition costs will be recovered during the third and fourth quarters of this
fiscal year. Management believes that the long-term gains resulting from this
restructuring will outweigh any short-term costs and the restructuring and
related charges.
Three Months ended July 28, 2002 compared with Three Months ended July 29, 2001
NET SALES - Upholstery fabric sales for the first quarter of fiscal 2003
decreased 2.8% to $59.9 million (see sales by Segment/Division on page I-12).
Domestic upholstery fabric sales increased $2.8 million, or 5.5%, to $53.0
million, while international sales of this category declined $4.5 million, or
39.2%, due primarily to the exiting of the wet printed flock fabric product line
as of April 28, 2002.
Mattress fabric sales for the first quarter of fiscal 2003 increased 4.5% to
$25.9 million. Sales to U.S. bedding manufacturers increased 4.1% while
international sales gained 7.3%.
In line with apparent overall furniture and bedding industry trends, domestic
sales declined by 3.2% for the month of July after being ahead of the prior year
through the first two months of the quarter by 8.8%. It appears that the sales
softness, which began in mid July, has continued into August, and the company
now believes domestic sales for the second quarter ending October 27, 2002 will
be flat to slightly down in comparison with the second quarter of last year.
The company believes that domestic sales for fiscal 2003, as a whole, will
increase over the fiscal 2002 total of $328.4 million.
Gross Profit and Cost of Sales. Gross profit increased $2.1 million, or 17.7%,
compared with the year-earlier period, excluding restructuring and related
charges, and increased as a percentage of net sales to 16.1% from 13.6%. This
significant improvement reflects gross profit dollar and margin gains in each of
the upholstery fabrics divisions, particularly Culp Decorative Fabrics (CDF).
The key factors behind these gains were: (1) a more profitable sales mix across
the divisions; (2) the elimination of the losses related to the wet printed
flock business; and (3) the increasing productivity benefits from the 2001
restructuring actions taken in CDF. The first quarter represented the second
consecutive quarter of higher year-over-year gross profit dollars and margins
for CDF. The company is optimistic that gross margin in CDF can be improved
significantly over the next one to two years. In order to continue the positive
margin trend and reach targeted margin levels, the company is focusing its
efforts to: (1) improve the profitability of the current sales mix by several
gross margin points; (2) substantially improve asset utilization (i.e. the same
or more yards produced on a lower asset base); (3) improve manufacturing
performance, in terms of productivity and inventory obsolescence, and (4)
successfully implement the restructuring plan discussed above.
Partially offsetting these gains in CDF, Culp Home Fashions reported slightly
lower gross profit dollars and margins, due solely to a supply agreement under
which products are sourced in Europe, both because of the higher intrinsic cost
of these European goods, and because of the weakening of the U.S. dollar against
the euro (since the products purchased under the agreement are priced in euros).
The division entered into an agreement with a European supplier last fall as
part of the termination of a long-term supply relationship. The agreement
provided, among other things, that the company maintain a certain level of
weekly purchases through October 31, 2002. Therefore, for the first and second
quarters of this year, the company has been required to source products from
this supplier that are significantly more expensive than products manufactured
at the company's U.S. or Canadian plants in order to meet the agreement's
minimum purchase levels. The margin impact of this European sourcing will be
substantially completed in the second quarter, which ends October 27, 2002. The
company estimates the impact for the second quarter will approximate $800,000 or
$0.04 per share, after taxes. The company had planned during the last fiscal
year for the termination of this supply agreement by initiating a plan to
increase capacity in the U.S. and Canadian plants beginning in the first quarter
and ending by December 2002. This capacity expansion project accounts for
approximately $4.5 million of the company's fiscal 2003 capital spending plan.
Selling, General and Administrative Expenses. SG&A expenses for the first
quarter declined $798,000, or 7.1%, from the prior year, and as a percent of net
sales, SG&A expenses declined to 12.2% from 13.0%. SG&A expenses in the first
quarter include bad debt expense of $347,000 compared with $800,000 in the
year-earlier period.
Interest Expense (Income). Interest expense for the first quarter declined to
$1.9 million from $2.1 million due to significantly lower borrowings
outstanding, offset somewhat by an increase in the interest rate on the private
placement debt. Interest income increased to $150,000 from $23,000 due to
significantly higher invested cash as compared with the prior year.
Other Expense. Other expense for the first quarter of fiscal 2003 totaled
$211,000 compared with $572,000 in the prior year. The decrease was principally
due to the adoption of SFAS No. 142, which discontinued the amortization of
goodwill. Goodwill amortization during first quarter fiscal 2002 was $350,000.
Also, during first quarter of fiscal 2003 debt issue cost totaling $113,700 was
expensed due to the repayment of $10.9 million in industrial revenue bonds
(IRBs).
Income Taxes. Excluding the cumulative effect of accounting change and
restructuring and related charges, the effective tax rate for the first quarter
of fiscal 2003 was 37.0% compared to 34.0% the prior year.
Liquidity and Capital Resources
Liquidity. Cash and cash investments as of July 28, 2002 decreased to $25.1
million from $32.0 million at fiscal year end, reflecting cash flow from
operations of $5.4 million, capital expenditures of $3.1 million, debt repayment
of $12.0 million, stock issuance of $1.0 million and an increase in accounts
payable for capital expenditures of $1.7 million.
Accounts receivable as of July 28, 2002 decreased 33.7% from the year-earlier
level, due principally to the decline in international sales with their related
longer credit terms, and an increase in the number of customers taking the cash
discount for shorter payment terms. Days sales outstanding totaled 34 days at
July 28, 2002 compared with 51 a year ago and 36 at last fiscal year end. The
aging of accounts receivable was 98.7% current and less than 30 days past due
versus 91.9% a year ago. Inventories at the close of the first quarter increased
1.2% from a year ago. Inventory turns for the first quarter were 4.9 versus 5.1
for the year-earlier period. Operating working capital (comprised of accounts
receivable, inventory and accounts payable) was $70.8 million at July 28, 2002,
down from $86.6 million a year ago.
EBITDA for the first quarter of fiscal 2003 was $7.4 million compared with $4.7
million in the prior year. EBITDA includes earnings before interest, income
taxes, depreciation, amortization, all restructuring and related charges,
certain non-cash charges and cumulative effect of accounting change, as defined
by the company's credit agreement.
Financing Arrangements. The company reduced funded debt by $12.0 million from
last fiscal year end. Funded debt equals long-term debt plus current maturities.
Funded debt was $96.5 million at July 28, 2002, compared with $108.5 million at
fiscal 2002 year end. The company's funded debt-to-capital ratio was 49.9% at
July 28, 2002.
Culp has $75 million of senior unsecured notes with an average remaining term of
six years and a fixed coupon rate of 7.76%. The company also has a $1.8 million
non-interest bearing Canadian government loan.
In addition, the company entered into a new loan agreement during August 2002
with its principal bank lender that provides, among other things, for: (1) a two
year $34.7 million credit facility, which includes a $15.0 million revolving
credit line and $19.7 million for letters of credit for the company's industrial
revenue bonds (IRB's) excluding interest, (2) lower interest rates based upon a
pricing matrix, and (3) improved financial covenants. The IRB's are
collateralized by letters of credit for the outstanding balance of the IRBs and
certain interest payments accrued thereunder. Interest on the outstanding IRBs
as of July 28, 2002 was 4.60%. Also, the agreement specifically allows for the
fiscal 2003 Culp Decorative Fabrics restructuring and related charges (see
discussion above).
The company's loan agreements require, among other things, that the company
maintain compliance with certain financial ratios. The company's principal
financial covenants are (1) funded debt to EBITDA; (2) EBILTDA to interest
expense plus leases; (3) funded debt to total capital; (4) funded debt to
tangible capital; and (5) minimum tangible shareholders' equity. EBILTDA
includes earnings before interest, income taxes, lease expense, depreciation,
amortization, all restructuring and related charges, certain non-cash charges
and cumulative effect of accounting change, as defined by the company's credit
agreement. As of July 28, 2002, the company was in compliance with these
financial covenants.
Capital Expenditures. Capital spending for the first quarter of fiscal 2003 was
$3.1 million. The company's original budget for capital spending for all of
fiscal 2003 was $8.5 million, compared with $4.7 million in fiscal 2002. As part
of the fiscal 2003 restructuring plan in the Culp Decorative Fabrics division
(see discussion above), the company increased the budget by $4.5 million to
$13.0 million. Depreciation for the first quarter of fiscal 2003 totaled $3.6
million, and is estimated at $15.0 million for the full fiscal year.
Inflation
The cost of the company's raw materials is remaining generally stable. 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 moderately 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.
Critical Accounting Policies and Recent Accounting Developments
The company considered the disclosure requirements of Financial Reporting
Release No. 60 regarding critical accounting policies and Financial Reporting
Release No. 61 regarding liquidity and capital resources, certain trading
activities and related party/certain other disclosures, and concluded that there
were no material changes during the first three months of fiscal 2003 that would
warrant further disclosure beyond those matters previously disclosed in the
company's Annual Report on Form 10-K for the year ended April 28, 2002 except
for the areas noted below:
Long-lived Assets
The company adopted the provisions of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, effective April 29, 2002. SFAS No.
144 establishes a single accounting model for long-lived assets to be disposed
of by sale, and also resolves implementation issues related to SFAS 121.
Adoption of SFAS No. 144 did not have a significant impact on the company's
financial position, results of operations or cash flows.
Goodwill
As of April 29, 2002, Culp adopted SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 represents a substantial change in how goodwill is
accounted for. SFAS No. 142 requires that goodwill no longer be amortized and
that goodwill be tested for impairment by comparing the reporting unit's
carrying value to its fair value as of April 29, 2002. SFAS No. 142 requires
that any goodwill impairment loss recognized as a result of initial application
be reported as of the first quarter of fiscal 2003 as a change in accounting
principle, and that the income per share effects of the accounting change be
separately disclosed.
For initial application of SFAS No. 142, an independent business valuation
specialist was engaged to assist the company in the determination of the fair
market value of Culp Decorative Fabrics because of the significance of the
goodwill associated with the division and due to its operating performance for
fiscal 2001 and 2002. As a result of the adoption of SFAS No. 142, the company
recorded a non-operating, non-cash goodwill impairment charge of $37.6 million
($24.2 million net of taxes of $13.4 million), or $2.12 per share diluted,
related to the goodwill associated with the Culp Decorative Fabrics division.
After the goodwill impairment charge, the company's remaining goodwill relates
to the following divisions: Culp Decorative Fabrics - $4.7 million, Culp Yarn -
$0.7 million and Culp Home Fashions - $4.1 million.
Forward-Looking Information
This quarterly report on Form 10-Q 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 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. Finally, unanticipated delays or costs in executing restructuring
actions could cause the cumulative effect of restructuring actions to fail to
meet the objectives set forth by management.
Item 3. 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. 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 July 28, 2002.
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
industrial revenue bonds. The annual impact on the company's results of
operations of a 100 basis point interest rate change on the July 28, 2002
outstanding balance of the variable rate debt would be approximately $197,000.
The company's exposure to fluctuations in foreign currency exchange rates is due
primarily to a foreign subsidiary domiciled in Canada and firmly committed and
anticipated 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 firmly committed and anticipated purchases of certain
machinery, equipment and raw materials. The amount of Canadian-denominated sales
and manufacturing costs are not material to the company's consolidated results
of operations; therefore, a 10% change in the exchange rate at July 28, 2002
would not have a significant impact on the company's results of operations or
financial position. Additionally, as the company utilizes foreign currency
instruments for hedging anticipated and firmly committed transactions, a loss in
fair value for those instruments is generally offset by increases in the value
of the underlying exposure.
Item 4. Controls and Procedures
In the quarter ended July 28, 2002, there were no significant changes in our
internal controls or other factors that could significantly affect these
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are filed as part of this report.
3(i) Articles of Incorporation of the Company, as
amended.
3(ii) Restated and Amended Bylaws of the Company,
as amended June 12, 2001, were filed as Exhibit
3(ii) to the Company's Form 10-Q for the quarter
ended July 29, 2001 filed September 12, 2001,
and are incorporated herein by reference.
10(a) Amended and Restated Credit Agreement dated
as of August 23, 2002 among Culp, Inc. and
Wachovia Bank, National Association, as Agent and
as Bank.
10(b) Fourth Amendment to Reimbursement and
Security Agreements dated August 23, 2002, made
by and between Culp, Inc. and Wachovia Bank,
National Association.
99(a) Certification of Chief Executive Officer
Pursuant to Section 906 of Sarbanes-Oxley Act of
2002.
99(b) Certification of Chief Financial Officer
Pursuant to Section 906 of Sarbanes-Oxley Act of
2002.
(b) Reports on Form 8-K:
The following reports on Form 8-K were filed during the period covered
by this report:
(1) Form 8-K dated June 3, 2002, included under Item 5, Other
Events, the Company's press release for quarterly earnings and
the Financial Information Release relating to certain financial
information for the quarter and year ended April 28, 2002.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
CULP, INC.
(Registrant)
Date: September 11, 2002 By: /s/ Franklin N. Saxon
Franklin N. Saxon
Executive Vice President and
Chief Financial Officer
(Authorized to sign on behalf
of the registrant and also
signing as principal financial officer)
CERTIFICATIONS
I, Robert G. Culp, III, Chairman of the Board and Chief Executive
Officer of Culp, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Culp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present
in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this quarterly report.
Date: September 11, 2002
/s/ Robert G. Culp, III
Robert G. Culp, III
Chairman of the Board and
Chief Executive Officer
I, Franklin N. Saxon, Executive Vice President and Chief Financial
Officer of Culp, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Culp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present
in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this quarterly report.
Date: September 11, 2002
/s/ Franklin N. Saxon
Franklin N. Saxon
Executive Vice President and
Chief Financial Officer