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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 May 3, 1998
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 22, 1998, 12,995,021 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 $130,949,382 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 II
Portions of the Company's Annual Report to Shareholders for the fiscal
year ended May 3, 1998 are incorporated by reference into Items 5,6,7 and 8.
Part III
Portions of the Company's Proxy Statement dated July 31, 1998 in
connection with its Annual Meeting of Shareholders to be held on September 15,
1998 are incorporated by reference into Items 10, 11, 12 and 13.
Exhibits Index begins on page 29
CULP, INC.
FORM 10-K REPORT
TABLE OF CONTENTS
Item No. Page
- -------- ----
PART I
1. Business
Overview......................................................3
Business Organization.........................................4
Business Units................................................4
Business Strategy.............................................6
Capital Expenditures..........................................7
Industry Segments.............................................7
Overview of Industry..........................................7
Overview of Residential Furniture Industry....................8
Overview of Commercial Furniture Industry.....................9
Overview of Bedding Industry..................................9
Products.....................................................10
Manufacturing................................................11
Product Design and Styling...................................12
Distribution.................................................13
Sources and Availability of Raw Materials....................13
Competition..................................................13
Technology...................................................14
Environmental and Other Regulations..........................15
Employees....................................................15
Customers and Sales..........................................15
Net Sales by Geographic Area.................................16
Backlog......................................................16
Year 2000 Considerations.....................................16
2. Properties........................................................17
3. Legal Proceedings.................................................18
4. Submission of Matters to a Vote of Security Holders..............18
PART II
5. Market for the Registrant's Common Stock
and Related Stockholder Matters.................................18
6. Selected Financial Data...........................................18
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................18
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8. Consolidated Financial Statements and Supplementary Data..........18
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..........................19
PART III
10. Directors and Executive Officers of the
Registrant......................................................19
11. Executive Compensation............................................19
12. Security Ownership of Certain
Beneficial Owners and Management................................19
13. Certain Relationships and Related
Transactions....................................................19
PART IV
14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K.........................................20
Documents filed as part of this report............................20
Exhibits..........................................................21
Reports on Form 8-K...............................................26
Financial Statement Schedules.....................................27
Signatures .......................................................28
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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 believes it is the largest manufacturer and marketer 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 90 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. While total sales have grown from $245.0 million in fiscal 1994 to
$476.7 million in fiscal 1998, the Company's international sales have increased
from $44.0 million to $137.2 million during the same period. Although shipments
to U.S.-based customers continue to account for most of the Company's sales,
Culp's success in building a global presence has led to an increasing proportion
of sales to international accounts (29% of net sales for fiscal 1998). 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 seventeen (17) manufacturing facilities, with a combined total
of 2.7 million square feet, that are located in North Carolina (10), 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, and an inventory at a
distributor's warehouse facility in Malbork, Poland.
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 Rossville/Chromatex in fiscal
1994, Rayonese in fiscal 1995 and Phillips Mills, Wetumpka Yarn and Artee
Industries in fiscal 1998.
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Business Organization
Culp is structured in business units. Through fiscal 1998, this
organization consisted of six groups: (i) Culp Textures, (ii) Rossville/
Chromatex, (iii) Velvets/Prints, (iv) Culp Home Fashions, (v) Phillips Mills and
(vi) Artee Industries. This structure has subsequently been reorganized into
four groups: (i) Culp Decorative Fabrics, (ii) Culp Velvets/Prints, (iii) Culp
Home Fashions and (iv) Culp Yarn. Since the new structure was not in place at
all during fiscal 1998 and the identity of each of the previous business units
has remained intact in the new structure, this discussion is based on the
historical organization.
Business Units
Each business unit is accorded considerable autonomy and is responsible
for designing, manufacturing and marketing its respective product lines.
Considerable synergies exist among the business units, 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 business unit's facility are commonly transferred to another
business unit's facility for additional value-added processing steps. For
example, jacquard greige goods manufactured at Rayonese (part of Culp Home
Fashions) are shipped to a Velvets/Prints' facility where printed fabrics are
produced using various printing and finishing equipment. The following table
sets forth certain information for each of the Company's business units.
Culp's Business Units
---------------------
FISCAL 1998 PRODUCT LINES
MAJOR NET SALES (BASE CLOTH, IF
PRODUCT CATEGORY BUSINESS UNIT (in millions) APPLICABLE)
---------------- ------------- ------------- ---------------
Upholstery Fabrics Culp Textures $ 92.7 Woven jacquards
Woven dobbies
Rossville/Chromatex $ 84.7 Woven jacquards
Woven dobbies
Velvets/Prints $171.4 Wet prints (flocks)
Heat-transfer prints
(jacquard, flock)
Woven velvets
Tufted velvets (woven
polyester)
Phillips Mills $ 32.7 (*) Woven jacquards
Wet prints (flocks)
Heat-transfer prints (cotton)
Woven velvets
Tufted velvets
Mattress Ticking Culp Home Fashions $ 87.3 Woven jacquards
Heat-transfer prints
(jacquard, knit, sheeting)
Pigment prints (jacquard,
knit, sheeting, non-woven)
Yarn Artee Industries $ 7.9 (*) Pre-dyed spun yarns
Chenille yarns
*Partial year includes sales from date of acquisition
-4-
Culp Textures. Culp Textures manufactures and markets jacquard and
dobby woven fabrics used primarily for residential and commercial furniture.
Culp Textures' manufacturing facilities are located in Burlington and Graham,
North Carolina and Pageland, South Carolina. Culp Textures has become
increasingly vertically integrated, complementing its extensive weaving
capabilities with the ability to extrude, dye and texturize yarn. Many of the
designs marketed by Culp Textures feature intricate, complicated patterns such
as floral and abstract designs. Culp Textures 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 Textures to large commercial furniture manufacturers on a "just
in time" basis.
Rossville/Chromatex. Rossville/Chromatex was acquired in fiscal 1994
and includes manufacturing facilities in Chattanooga, Tennessee and West
Hazleton, Pennsylvania. During the fourth quarter of fiscal 1998,
Rossville/Chromatex relocated its Rossville, Georgia dobby manufacturing
operation into a new leased facility in Chattanooga, Tennessee, which is located
about two miles from the previous leased facility. The acquisition of
Rossville/Chromatex expanded the Company's capacity for jacquard and dobby woven
fabrics marketed principally for residential furniture. Although
Rossville/Chromatex markets fabrics to many of the same customers served by Culp
Textures, the patterns produced by Rossville/Chromatex have generally featured
more textured and chenille yarns. Rossville/Chromatex has been particularly
successful in spinning its own novelty yarns to produce textured fabrics that
embody "country" patterns.
Velvets/Prints. Velvets/Prints, Culp's largest business unit,
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, 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, a new facility that opened during the first quarter
of fiscal 1998. A portion of the Company's capital expenditures during fiscal
1997 and fiscal 1998 were directed toward expanding its capacity for printed
fabrics. Culp installed in Burlington the Company's first flock coating line
(which produces flock base or greige goods) to further vertically integrate its
production of wet-printed flock fabrics. This operation began production in the
fourth quarter of fiscal 1997.
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
represent Culp Home Fashions' fastest growing product line, offering customers
better values with designs and textures of more expensive fabrics. Jacquard
greige goods printed by Culp Home Fashions are provided by the business unit's
Rayonese facility and Culp Textures jacquard weaving facility. The expansion of
the Rayonese capacity has been an important factor in the ability of this
business unit to increase its market share. Moreover, the additional Rayonese
capacity has allowed the Company to increase vertical integration by supplying
narrow-width jacquard greige goods to the Velvets/Prints business unit for the
production of printed jacquard upholstery fabrics. Culp Home Fashions'
manufacturing facilities are located in Stokesdale, North Carolina and St.
Jerome, Quebec.
-5-
Phillips Mills. Phillips Mills operates two manufacturing facilities in
Monroe, North Carolina, which produce woven jacquards. Phillips Mills has a
particularly strong competitive position in fabric designs and patterns
associated with casual living styles that are popular with motion furniture.
Additionally, this business unit includes a printed fabrics converting operation
located in High Point.
Artee Industries. Artee Industries manufactures and markets a variety
of pre-dyed spun yarns, including WrapSpun(TM), open-end spun, ring spun and
chenille yarns. Artee Industries operates manufacturing facilities in Shelby,
Cherryville, and Lincolnton, North Carolina and Wetumpka, Alabama. The Wetumpka
facility was acquired in December 1997 and the other Artee plants were purchased
in February 1998. Over half of the production of Artee Industries is used
internally by other Culp business units. The external sales are directed to the
upholstery fabric and apparel markets, and a portion of these shipments are to
competitors of Culp. The acquisition of Artee Industries is expected to provide
Culp more control over its supply of spun and chenille yarns and complement the
Company's increased emphasis on developing new designs. An integral component of
the design of fabrics with innovative designs, patterns and textures is the
availability of different yarns, and the integration of Artee Industries will
enhance the access of Culp designers to a broad variety of spun and chenille
yarns. Culp also plans to utilize the resources of Artee Industries to
accelerate the development of new yarns with innovative colors, textures and
other design characteristics.
Business Strategy
The Company's plan to maintain leadership in the global upholstery
fabric and mattress ticking markets is based on a business strategy that
includes four main initiatives:
Enhance Customer Service and Increase Vertical Integration. Culp is
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.
Capitalize on New Product Categories. Culp's diverse manufacturing
capabilities and increasing vertical integration have enabled the company to
capitalize quickly on the increasing popularity of new product categories.
Expand International Sales. Culp's international sales of upholstery
fabrics and mattress ticking has increased sharply in recent years. Factors
contributing to this growth have been the expanding demand for home furnishings
in many international areas and the ability of U.S.-based manufacturers of
fabrics to provide products to these markets at competitive prices.
Pursue Additional Strategic Acquisitions. A meaningful portion of
Culp's growth reflects the integration of strategic acquisitions of
complementary businesses. The company believes that the continuing trend toward
consolidation within the home furnishings industry is likely to offer additional
opportunities to acquire complementary businesses on a selective basis. During
fiscal 1998, Culp has completed the acquisition of Phillips Mills, which added
capacity in jacquard, prints and velvets, as well as Wetumpka Yarn and Artee
Industries, which combined represent Culp's entry into the filling yarn market.
-6-
Capital Expenditures
Since fiscal 1993, the Company has invested $112 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 $35.9 million in capital expenditures during fiscal 1998 for
expansion, vertical integration and modernization. This level of capital
spending was well above the Company's historical rate of investment. The
principal expansion project involved completion of various items related to the
new wet-printing facility at Lumberton, North Carolina. Key projects relating to
vertical integration included expanding yarn extrusion capacity and adding
weaving capacity for jacquard greige goods. Projects to modernize existing
facilities encompassed a number of smaller investments throughout the Company's
operations.
The extent of these investments has meant considerable change in the
Company's operations. All of the jacquard and dobby looms at the Pageland, South
Carolina facility have been moved to allow for an improved product flow. A
modern 290,000 square-foot weaving facility in Tennessee houses the
Rossville/Chromatex line, and 60% of the planned additional yarn extrusion lines
have become operational. Much of the Company's managerial focus has shifted to
realizing higher efficiencies from the new investments made during fiscal 1998.
As a result, the Company is currently planning on capital expenditures for
fiscal 1999 less than half that spent in fiscal 1998.
Industry Segments
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information," effective for periods beginning after
December 15, 1997. The purpose of this standard is to disclose disaggregated
information which provides information about the operating segments an
enterprise engages in, consistent with the way management reviews financial
information to make decisions about the enterprise's operating matters. The
Company will comply with the requirements of this standard for fiscal year-end
1999. Based on a preliminary review, the Company anticipates reporting on three
segments (upholstery fabrics, mattress ticking and yarn).
During fiscal 1998, 1997 and 1996, the Company was principally involved
in designing, manufacturing and marketing of upholstery fabrics and mattress
ticking used in the furniture (residential, commercial and juvenile) and bedding
industries on a world-wide basis.
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.
-7-
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 $21.5
billion (wholesale) during 1997. 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 $8.7 billion in 1997. According to Furniture/Today,
a leading trade publication, annual sales of upholstery fabrics in the United
States for non-automotive applications approximate $2 billion. Based on an
outside survey conducted by an independent marketing survey firm, Culp estimates
annual sales of upholstery fabrics outside the United States to be more than
$4 billion.
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. Periods of decline have
been brief, and annual shipments have declined in only four of the past
25 years.
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 35% of the industry's
total shipments in 1997, 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
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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.
Although the demand for home furnishings in more developed geographic
regions such as Western Europe is relatively mature, major areas such as Eastern
Europe, the Middle East and certain portions of Asia have experienced rising
sales of furniture and home furnishings. 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 $11 billion. Seating and
office systems, which represent the primary uses of upholstery in this industry,
represented annual sales of approximately $6 billion annually. At the
manufacturing level, the industry is highly concentrated. The top six
manufacturers of commercial furniture account for an estimated 60% 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. According to industry sources, since 1971 office furniture shipments in
the United States have increased at a compound annual rate of 10%. Although the
nation's economy has experienced four economic recessions and five years of
negative real GDP growth during the last three decades, office furniture
shipments declined in only two years during that period (1975 and 1991).
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 $3.4 billion during calendar year 1997, includes
approximately 800 manufacturers of mattress sets. The conventional bedding
market accounts for greater than 85% of the entire bedding market in North
America. Approximately 75% of the conventional bedding manufactured in the U.S.
is sold to furniture stores and specialty sleep shops. Most of the remaining 25%
is sold to department stores, national mass merchandisers, membership clubs and
contract customers (including motels, hotels and hospitals). Approximately
two-thirds of conventional bedding is sold for replacement purposes and the
average time lapse between mattress purchases is approximately 10 to 12 years.
-9-
Products
As described above, the Company's products include principally
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 80% of sales
for fiscal 1998. The Company has emphasized fabrics and patterns that have broad
appeal at promotional to medium prices, generally ranging from $2.25 per yard to
$9.25 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 18% of sales in fiscal
1998. The Company has emphasized fabrics and patterns which have broad appeal at
prices generally ranging from $1.20 to $7.00 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 and Residential furniture
tapestries in traditional, transitional and Commercial furniture
contemporary styles. Woven on intricate looms using a
wide variety of synthetic and natural yarns.
Dobbies Geometric designs such as plaids, stripes and solids Residential furniture
in traditional and country styles. Woven on less Commercial furniture
complicated looms using a variety of weaving
constructions and primarily synthetic yarns.
Prints:
Wet prints Contemporary patterns with deep, rich colors on a Residential furniture
nylon flock base fabric for a very soft texture and Juvenile furniture
excellent wearability. Produced by screen printing
directly onto the base fabric.
Heat-transfer prints Sharp, intricate designs on flock or jacquard base Residential furniture
fabrics. Plush feel (flocks), deep colors (jacquards) Juvenile furniture
and excellent wearability. Produced by using heat and
pressure to transfer color from printed paper onto
base fabric.
Velvets:
Woven velvets Basic designs such as plaids and semi-plains in Residential furniture
traditional and 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 which Residential furniture
synthetic yarns are punched into a base polyester
fabric for texture. Similar designs as woven velvets.
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Mattress Ticking Characteristics Principal Markets
- ---------------- --------------- -----------------
Wovens:
Jacquards Florals and other intricate designs. Woven on complex Bedding
looms using a wide variety of synthetic and natural
yarns.
Prints:
Heat-transfer prints Sharp, detailed designs. Produced by using heat and Bedding
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 screen Bedding
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 thirteen of the Company's
manufacturing facilities. These plants encompass a total of 2.2 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. 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.
Although the Company believes it will to continue to rely on suppliers for the
majority of its yarn requirements, the percentage of internally generated yarn
is expected to increase as additional extrusion equipment for polypropylene yarn
is added over the next year. As a result of the acquisition of Artee Industries
(including the purchase of Wetumpka Yarn) during fiscal 1998, Culp expects to
satisfy internally a substantial amount of its needs for spun and chenille
yarns. The Company also plans to continue supplying other fabric manufacturers
with spun yarns manufactured by the Artee Industries business unit. 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
-11-
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. The start-up of
the Lumberton, North Carolina facility during the first quarter of fiscal 1998
approximately doubled the Company's wet-printing capacity.
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 90 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.
-12-
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 at a distributor's warehouse
facility in Malbork, Poland and 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 increasing
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, most of the
Company's raw materials are available from more than one primary source, and
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
fabrics 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.
-13-
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 believes it
is the largest supplier 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:
o The Company has created a home page on the Internet (www.Culp.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.
o 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 is developing an image archiving
system that will allow electronic storage of all artwork and easy
access to artwork for designers.
o 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 between 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.
o 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.
-14-
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 May 3, 1998, the Company had approximately 4,300 employees,
including the employees from Phillips Mills, Artee Industries and Wetumpka
acquisitions. 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 12% 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 1999. Additionally, the collective
bargaining agreement with respect to the Rayonese hourly employees expires in
1999. 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, La-Z-Boy and LADD (Clayton Marcus, Barclay,
Pennsylvania House and American Drew). 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.
-15-
Net Sales by Geographic Area
(dollars in thousands)
Fiscal 1998 Fiscal 1997 Fiscal 1996
----------- ----------- -----------
United States $339,492 71.2% $297,308 74.5% $274,270 78.0%
North America
(excluding U.S.) 31,160 6.5 27,479 6.9 23,528 6.7
Europe 30,775 6.5 25,245 6.3 18,927 5.4
Middle East 34,412 7.2 23,505 5.9 15,609 4.4
Asia and Pacific Rim 32,344 6.8 19,646 4.9 12,124 3.4
South America 5,158 1.1 2,604 0.7 2,753 0.8
All other areas 3,374 0.7 3,092 0.8 4,456 1.3
-------- ----- -------- ----- -------- -----
Subtotal 137,223 28.8 101,571 25.5 77,397 22.0
-------- ----- -------- ----- -------- -----
Total $476,715 100.0% $398,879 100.0% $351,667 100.0%
======== ===== ======== ===== ======== =====
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 May 3, 1998, the portion of the backlog with
confirmed shipping dates prior to June 7, 1998 was $40.2 million, and on April
27, 1997, the portion of the backlog with confirmed shipping dates prior to June
2, 1997 was $30.3 million.
Year 2000 Considerations
Management has developed a plan to modify the Company's information
technology to recognize the year 2000. The plan has three distinct areas of
focus - traditional information systems, technology used in support areas, and
preparedness of suppliers and customers.
The initiative for traditional information systems started as far back
as 1992 and has substantially completed all of the Company's operational systems
(order entry, billing, sales, finished goods) and financial systems (payroll,
human resources, accounts payable, accounts receivable, general ledger, fixed
assets). Currently the Company is focused on the remaining systems that support
the Company's manufacturing processes and plans to be substantially complete by
May 1, 1999.
The second area of focus has been an assessment of non-traditional
information technology which includes the electronics in equipment such as
telephone switches and manufacturing equipment. A plan, targeted to be
substantially complete by May 1, 1999, has been formed to evaluate all these
components at every location.
The third area of focus is to communicate with suppliers and vendors to
understand their level of compliance and assure a constant flow of materials to
support business plans. Communication to date has shown a high level of
awareness and planning by these parties.
The plan is being administered by a team of internal staff and
management and the cost of this initiative, principally represented by internal
resources, is not expected to be material to the Company's results of operations
or financial position. This project is not expected to have a significant effect
on the Company's operations, though no assurance can be given in this regard.
-16-
ITEM 2. PROPERTIES
The Company's headquarters are located in High Point, North Carolina,
and the Company currently operates seventeen (17) 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 business unit.
Approx.
Total Area Expiration
Location Principal Use (Sq. Ft.) of Lease (1)
- -------- ------------- ---------- -------------
o Headquarters and Distribution
Centers:
High Point, North Carolina Corporate headquarters 37,000 2015
Burlington, North Carolina Design Center 30,000 Owned
High Point, North Carolina Regional distribution 65,000 2008
Los Angeles, California Regional distribution 33,000 2007
Tupelo, Mississippi Regional distribution 35,000 2002
o Culp Textures:
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
o Rossville/Chromatex:
Chattanooga, Tennessee Manufacturing and distribution 290,000 2018
West Hazleton, Pennsylvania Manufacturing 110,000 2013
West Hazleton, Pennsylvania Manufacturing and distribution 100,000 2008
o Velvets/Prints:
Burlington, North Carolina Manufacturing and distribution 275,000 2021
Lumberton, North Carolina Manufacturing 107,000 Owned
Anderson, South Carolina Manufacturing 99,000 Owned
o Culp Home Fashions:
Stokesdale, North Carolina Manufacturing and distribution 140,000 Owned
St. Jerome, Quebec, Canada Manufacturing and distribution 202,000 Owned
o Phillips Mills:
Monroe, North Carolina Manufacturing 70,000 2007
Monroe, North Carolina Manufacturing 70,000 2004
High Point, North Carolina Sales, Design and Administration 12,000 2007
o Artee Industries:
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
- ------------
(1) Includes all options to renew
-17-
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 May 3, 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON
STOCK AND RELATED STOCKHOLDER MATTERS
Information with respect to the market for the Company's
common stock and related shareholder matters is included in the Company's Annual
Report to Shareholders for the year ended May 3, 1998, in the Consolidated
Statements of Shareholders' Equity (dividend information), in the Selected
Quarterly Data under the caption "Stock Data," in the Selected Annual Data under
the caption "Stock Data," in the Shareholder Information under the caption
"Stock Listing" on the back cover page, which information is herein incorporated
by reference.
ITEM 6. SELECTED FINANCIAL DATA
This information is included in the Company's above referenced
Annual Report to Shareholders, under the caption "Selected Annual Data," and is
herein incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition
and Results of Operations is included in the Company's above referenced Annual
Report to Shareholders under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and is herein incorporated by
reference.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data
are included in the Company's above referenced Annual Report to Shareholders,
and are herein incorporated by reference. Item 14 of this report contains
specific page number references to the consolidated financial statements and
supplementary data included in the Annual Report.
EXCEPT FOR SUCH PORTIONS OF THE COMPANY'S ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED MAY 3, 1998 THAT ARE EXPRESSLY INCORPORATED BY
REFERENCE INTO THIS REPORT, SUCH REPORT IS NOT TO BE DEEMED FILED AS
PART OF THIS FILING.
-18-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
During the two years ended May 3, 1998 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 pursuant to Regulation 14A of the Securities and Exchange Commission,
under the caption "Nominees, Directors and Executive Officers" and "Reports Of
Securities Ownership," 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 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 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
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.
-19-
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 from the Company's Annual Report to Shareholders for the year
ended May 3, 1998, are incorporated by reference into this report.
Page of Annual
Report to
Shareholders
Item [Exhibit 13(a)]
Consolidated Balance Sheets - May 3, 1998 and....................... 16
April 27, 1997
Consolidated Statements of Income -
for the years ended May 3, 1998,
April 27, 1997 and April 28, 1996................................. 17
Consolidated Statements of Shareholders' Equity -
for the years ended May 3, 1998,
April 27, 1997 and April 28, 1996................................. 18
Consolidated Statements of Cash Flows -
for the years ended May 3, 1998,
April 27, 1997, and April 28, 1996 ................................ 19
Consolidated Notes to Financial Statements.......................... 20
Report of Independent Auditors ..................................... 28
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.
-20-
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.
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, 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 19, 1990, filed on
July 15, 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.
-21-
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.
-22-
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.
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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.
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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.
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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
13(a) Copy of the Company's 1998 Annual Report to
Shareholders, for the year ended May 3, 1998, furnished
for information only except with respect to those
portions incorporated by reference into this report.
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 Harry R. Culp, dated July 6, 1998
25(b) Power of Attorney of Howard L. Dunn, Jr., dated July 6,
1998
25(c) Power of Attorney of Robert T. Davis, dated July 6,
1998
25(d) Power of Attorney of Earl M. Honeycutt, dated July 3,
1998
25(e) Power of Attorney of Patrick H. Norton, dated July 6,
1998
25(f) Power of Attorney of Earl N. Phillips, Jr., dated July
5, 1998
25(g) Power of Attorney of Bland W. Worley, dated July 8, 1998
25(h) Power of Attorney of Franklin N. Saxon, dated July 8,
1998
27 Financial Data Schedule
b) Reports on Form 8-K:
The Company filed the following report on Form 8-K during the quarter
ended May 3, 1998:
(1) Form 8-K dated February 18, 1998, 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 February 1, 1998.
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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
29 under the subheading "Exhibits Index".
d) Financial Statement Schedules:
See Item 14(a) (2)
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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 31st day of July, 1998.
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 31st day of July, 1998.
/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/ Harry R. Culp*
______________________ __________________
Earl N. Phillips, Jr. Harry R. Culp
(Director) (Director)
/s/ Howard L. Dunn, Jr.* /s/ Robert T. Davis*
______________________ __________________
Howard L. Dunn, Jr. Robert T. Davis
(Director) (Director)
/s/ Earl M. Honeycutt* /s/ Bland W. Worley*
______________________ __________________
Earl M. Honeycutt Bland W. Worley
(Director) (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.
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EXHIBITS INDEX
--------------
Exhibit Number Exhibit
- -------------- -------
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
13(a) Copy of the Company's 1998 Annual Report to Shareholders,
for the year ended May 3, 1998, furnished for information
only except with respect to those portions incorporated
by reference into this report.
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 Harry R. Culp, dated July 6, 1998
25(b) Power of Attorney of Howard L. Dunn, Jr., dated July 6,
1998
25(c) Power of Attorney of Robert T. Davis, dated July 6,
1998
25(d) Power of Attorney of Earl M. Honeycutt, dated July 3,
1998
25(e) Power of Attorney of Patrick H. Norton, dated July 6,
1998
25(f) Power of Attorney of Earl N. Phillips, Jr., dated July
5, 1998
25(g) Power of Attorney of Bland W. Worley, dated July 8, 1998
25(h) Power of Attorney of Franklin N. Saxon, dated July 8,
1998
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