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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 2, 1999
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 19, 1999, 12,040,484 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 $94,787,273 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 2, 1999 are incorporated by reference into Items 5,6,7 and 8.
Part III
Portions of the Company's Proxy Statement dated August 13, 1999 in
connection with its Annual Meeting of Shareholders to be held on September 21,
1999 are incorporated by reference into Items 10, 11, 12 and 13.
CULP, INC.
FORM 10-K REPORT
TABLE OF CONTENTS
Item No. Page
- -------- ----
PART I
1. Business
Overview............................................................3
Segments............................................................4
Business Strategy...................................................5
Capital Expenditures................................................6
Overview of Industry................................................6
Overview of Residential Furniture Industry..........................7
Overview of Commercial Furniture Industry...........................8
Overview of Bedding Industry........................................8
Products............................................................8
Manufacturing......................................................10
Product Design and Styling.........................................11
Distribution.......................................................11
Sources and Availability of Raw Materials..........................11
Competition........................................................12
Technology.........................................................12
Environmental and Other Regulations................................13
Employees..........................................................13
Customers and Sales................................................14
Net Sales by Geographic Area.......................................14
Backlog............................................................14
Year 2000 Considerations...........................................14
2. Properties............................................................16
3. Legal Proceedings.....................................................17
4. Submission of Matters to a Vote of Security Holders..................17
PART II
5. Market for the Registrant's Common Stock
and Related Stockholder Matters.....................................17
6. Selected Financial Data...............................................17
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................17
7A. Quantitative and Qualitative Disclosures
About Market Risk...................................................17
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8. Consolidated Financial Statements and Supplementary Data..............18
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..............................18
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...................................................27
Financial Statement Schedules.........................................27
Signatures ...........................................................28
-2-
PART I
ITEM 1. BUSINESS
Overview
Culp, Inc. (the Company) manufactures and markets upholstery fabrics and
mattress tickings primarily for use in the furniture (residential, commercial
and juvenile) and bedding industries on a worldwide basis. The Company's
executive offices are located in High Point, North Carolina. The Company was
organized as a North Carolina corporation in 1972 and made its initial public
offering in 1983. Since 1997, the Company has been listed on the New York Stock
Exchange and traded under the symbol "CFI."
Culp is one of the largest manufacturers and marketers of furniture
upholstery fabrics in the world and is a leading global producer of mattress
fabrics (known as mattress ticking). The Company's fabrics are used principally
in the production of residential and commercial furniture and bedding products,
including sofas, recliners, chairs, loveseats, sectionals, sofa-beds, office
seating, panel systems and mattress sets. Culp markets one of the broadest
product lines in its industry, with a wide range of fabric constructions,
patterns, colors, textures and finishes. This breadth is made possible by Culp's
extensive manufacturing capabilities that include a variety of weaving, printing
and finishing operations and the ability to produce various yarns and unfinished
base fabrics (known as greige goods) used in its products. Although most of the
Company's competitors emphasize one particular type of fabric, Culp competes in
every major category except leather, which accounts for a relatively small
portion of the residential furniture market. Culp's staff of over 75 designers
and support personnel utilize Computer Aided Design (CAD) systems to develop the
Company's own patterns and styles. Culp's product line currently includes more
than 3,000 upholstery fabric patterns and 1,000 mattress-ticking styles.
Although Culp markets fabrics at most price levels, the Company has emphasized
fabrics that have a broad appeal in the "good" and "better" price categories of
furniture and bedding.
Culp markets its products worldwide, with sales to customers in over 50
countries. While total sales have grown from $308.0 million in fiscal 1995 to
$483.1 million in fiscal 1999, the Company's international sales have increased
from $58.0 million to $113.4 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 a significant proportion
of sales to international accounts (23% of net sales for fiscal 1999). 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.
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 Rayonese in fiscal 1995 and
Phillips Mills, Wetumpka Yarn and Artee Industries in fiscal 1998.
-3-
Segments
The Company's operating segments are upholstery fabrics and mattress
ticking, with related divisions organized within those segments. The divisions
within upholstery fabrics are Culp Decorative Fabrics, Culp Velvets/Prints and
Culp Yarn. The division within mattress ticking is Culp Home Fashions. Each
division is accorded considerable autonomy and is responsible for designing,
manufacturing and marketing its respective product lines. Considerable synergies
exist among the divisions, including the sharing of common raw materials made
internally, such as polypropylene yarns, certain dyed and spun yarns, greige
goods and printed heat-transfer paper. Products manufactured at one division's
facility are commonly transferred to another division's facility for additional
value-added processing steps. The following table sets forth certain information
for each of the Company's segments/divisions.
Culp's Segments/Divisions
-------------------------
FISCAL 1999 PRODUCT LINES
NET SALES (BASE CLOTH, IF
SEGMENT DIVISION (in millions) APPLICABLE)
------- -------- ------------- -----------
Upholstery Fabrics Culp Decorative $222.1 Woven jacquards
Fabrics Woven dobbies
Culp
Velvets/Prints $144.1 Wet prints (flocks)
Heat-transfer
prints
(jacquard, flock)
Cotton prints
Woven velvets
Tufted velvets
(woven polyester)
Culp Yarn $21.5 Pre-dyed spun yarns
Chenille yarns
Mattress Ticking Culp Home $95.4 Woven jacquards
Fashions Heat-transfer
prints (jacquard,
knit, sheeting)
Pigment prints
(jacquard, knit,
sheeting, non-
woven)
CULP DECORATIVE FABRICS. Culp Decorative Fabrics manufactures and markets
jacquard and dobby woven fabrics used primarily for residential and commercial
furniture. Culp Decorative Fabrics' manufacturing facilities are located in
Burlington, Graham and Monroe, North Carolina, Pageland, South Carolina,
Chattanooga, Tennessee and West Hazleton, Pennsylvania. Culp Decorative Fabrics
has become increasingly vertically integrated, complementing its extensive
weaving capabilities with the ability to extrude, dye and texturize yarn. The
designs marketed by Culp Decorative Fabrics range from intricate, complicated
patterns such as floral and abstract designs to patterns associated with casual
living styles that are popular with motion furniture. Culp Decorative Fabrics
accounts for the majority of the Company's sales to the commercial furniture
market. The Company maintains an inventory at a third-party warehouse in Grand
Rapids, Michigan to supply fabrics marketed by Culp Decorative Fabrics to large
commercial furniture manufacturers on a "just in time" basis.
-4-
CULP VELVETS/PRINTS. Culp Velvets/Prints manufactures and markets a broad
range of printed and velvet fabrics. These include wet-printed designs on flock
base fabrics, heat-transfer prints on jacquard and flock base fabrics, cotton
prints, woven velvets and tufted velvets. These fabrics typically offer
manufacturers richly colored patterns and textured surfaces. Recent product
development improvements in manufacturing processes have significantly enhanced
the quality of printed flock fabrics which are principally used for residential
furniture. These fabrics are also used for other upholstered products such as
baby car seats. These fabrics are manufactured at Burlington, North Carolina,
Anderson, South Carolina, and Lumberton, North Carolina.
CULP YARN. Culp Yarn manufactures and markets a variety of pre-dyed spun
yarns, including WrapSpun(TM), open-end spun, ring spun and chenille yarns. Culp
Yarn operates manufacturing facilities in Shelby, Cherryville, and Lincolnton,
North Carolina and Wetumpka, Alabama. The Wetumpka facility was acquired in
December 1997 and the other Culp Yarn plants were purchased in February 1998.
Over half of the production of Culp Yarn is used internally by other Culp
divisions. The external sales are directed to the upholstery fabric, carpet and
apparel markets, and a portion of these shipments are to competitors of Culp.
Culp Yarn has provided Culp more control over its supply of spun and chenille
yarns and complemented the Company's increased emphasis on developing new
designs.
CULP HOME FASHIONS. Culp Home Fashions principally markets mattress
ticking to bedding manufacturers. These fabrics encompass woven jacquard ticking
as well as heat-transfer and pigment-printed ticking on a variety of base
fabrics, including jacquard, knit, poly/cotton sheeting and non-woven materials.
Culp Home Fashions has successfully blended its diverse printing and finishing
capabilities with its access to a variety of base fabrics to offer innovative
designs to bedding manufacturers for mattress products. Printed jacquard fabrics
offer customers better values with designs and textures of more expensive
fabrics. Jacquard greige goods printed by Culp Home Fashions are primarily
provided by the division's Rayonese facility. Culp Home Fashions' manufacturing
facilities are located in Stokesdale, North Carolina and St. Jerome, Quebec.
BUSINESS STRATEGY
The Company's plan to maintain leadership in the global upholstery fabric
and mattress ticking segments is based on a business strategy that includes five
main initiatives:
CUSTOMER SERVICE AND VERTICAL INTEGRATION - continuing to enhance the
competitive value of its upholstery fabrics and mattress ticking through a
company-wide initiative to raise efficiency and improve customer service.
Important aspects of this program have included attaining more consistent
product quality, improving delivery standards and offering more innovative
designs. The Company's ability to realize progress in these areas in the past
has been aided significantly by becoming more vertically integrated through
capital expansion projects and strategic acquisitions. Representative steps have
included adding capacity for producing unfinished jacquard greige goods,
extruding polypropylene yarn and most recently, manufacturing spun and specialty
yarn.
BROAD PRODUCT OFFERING - continuing to market one of the broadest product
lines in upholstery fabrics and mattress ticking. Through its extensive
manufacturing capabilities, the Company competes in every major category except
leather.
DIVERSE GLOBAL CUSTOMER BASE - increasing its penetration into other
end-use markets in addition to U.S. residential furniture, such as bedding,
international, commercial furniture and juvenile furniture.
-5-
DESIGN INNOVATION - continuing to invest in the design of upholstery
fabrics and ticking with appealing patterns and textures. An integral component
of the value Culp provides to customers is supplying fabrics that are
fashionable and meet current consumer preferences. The Company's principal
design resources are now consolidated in a single facility that provides
advanced CAD systems and promotes a sharing of innovative designs among the
divisions.
ADDITIONAL ACQUISITIONS - investing in selective acquisitions
complementary to existing segments/divisions.
CAPITAL EXPENDITURES
Since fiscal 1994, the Company has invested $106 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 $10.7 million in capital expenditures during fiscal 1999 for
expansion, vertical integration and modernization. This level of capital
spending was well below the $35.9 million in capital expenditures during fiscal
1998. During 1999, the principal expansion project involved expansion of
facilities (Stokesdale, North Carolina and St. Jerome, Quebec, Canada) at Culp
Home Fashions. The key project relating to vertical integration included
expanding polypropylene extrusion capacity. Projects to modernize existing
facilities encompassed a number of smaller investments throughout the Company's
operations.
During 1999, much of the Company's managerial focus shifted to realizing
higher efficiencies from the investments made during fiscal 1998. As a result,
capital expenditures for fiscal 1999 were less than a third spent in fiscal
1998. The Company is currently planning on capital expenditures for fiscal 2000
of approximately $20 million.
OVERVIEW OF INDUSTRY
Culp markets products worldwide to a broad array of manufacturers that
operate in three principal markets and several specialty markets:
RESIDENTIAL FURNITURE. This market includes upholstered furniture sold to
consumers. Products include sofas, sleep sofas, chairs, motion/recliners,
sectionals and occasional furniture items.
Commercial furniture. This market includes upholstered office seating and
modular office systems sold primarily for use in offices (including home
offices) and other institutional settings.
BEDDING. This market includes mattress sets as well as other related home
furnishings.
SPECIALTY MARKETS. These markets include juvenile furniture (baby car
seats and other baby items), hospitality (furniture used in hotels and
other lodging establishments), "top of the bed" (comforters and
bedspreads), outdoor furniture, recreational vehicle seating, automotive
aftermarket (slip-on seat covers), retail fabric stores and specialty
yarn.
-6-
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 $23.5
billion (wholesale) during 1998. 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 $9.4 billion in 1998.
Trends in demand for upholstery fabric and mattress ticking generally
parallel changes in consumer purchases of furniture and bedding. Factors
influencing consumer purchases of home furnishings include the number of
household formations, growth in the general population, the demographic profile
of the population, consumer confidence, employment levels, the amount of
disposable income, geographic mobility, housing starts and existing home sales.
The long-term trend in demand for furniture and bedding has been one of moderate
growth, although there have been some occasional periods of a modest downturn in
sales due principally to changes in economic conditions.
The Company believes that demographic trends support the outlook for
continued long-term growth in the U.S. residential furniture and bedding
industries. In particular, as "baby boomers" (people born between 1946 and 1964)
mature to the 35-to-64 year age range over the next decade, they will be
reaching their highest earning power. Consumers in these age groups tend to
spend more on home furnishings, and the increasing number of these individuals
favors higher demand for furniture and related home furnishings. Statistics also
show that the average size of new homes has increased in recent years, and that
is believed to have resulted in increased purchases of furniture per home.
There is an established trend toward consolidation at all levels within
the home furnishings industry. Furniture/Today has reported that the ten largest
residential furniture manufacturers accounted for over 37% of the industry's
total shipments in 1998, up from a 23% share in 1985. This trend is expected to
continue, particularly because of the need to invest increasing capital to
maintain modern manufacturing and distribution facilities as well as to provide
the sophisticated computer-based systems and processes necessary to interface in
the supply chain between retailers and suppliers. This trend toward
consolidation is resulting in fewer, but larger, customers for upholstery fabric
manufacturers. The Company believes that this environment favors larger
upholstery fabric manufacturers capable of supplying a broad range of product
choices at the volumes required by major furniture manufacturers on a timely
basis.
Today's furniture customers prefer more casual and comfortable furniture,
including motion furniture, than did consumers ten years ago. In addition,
customers are placing increasing emphasis on product quality. The increasing
importance of product quality has allowed fabric manufacturers with effective
quality control systems to gain a competitive advantage. Modern furniture buyers
are also demanding faster delivery. To meet this demand, the furniture industry
as a whole has increased its focus on just-in-time manufacturing methods and
shorter delivery lead times.
After a decade of consistent yearly growth, Culp's international sales
declined 17% in 1999 to $113.4 million. The Company believes that this
experience mirrors that of other suppliers of fabrics to markets in Europe and
Asia that were adversely affected by serious economic turbulence during the
year. The Company does not believe that this decline suggests any structural
shift in the competitive position of Culp or in the long-term opportunities that
are presented by rising demand for furniture in developing countries. Consumers
in these areas are often attracted to those designs and fashions that mirror
American tastes, and U.S.-based manufacturers such as Culp have been able to
capitalize on this preference. Production costs of fabrics involve a relatively
low labor component, which provides an advantage for a company with modern,
efficient manufacturing equipment and systems. The large size of the furniture
market within the United States has helped establish an upholstery fabrics
industry that features ready access to a variety of raw materials, larger
manufacturers with lower costs resulting from economies of scale and the
availability of new designs and patterns. The Company believes that these
characteristics assist Culp in competing effectively in international markets.
-7-
OVERVIEW OF COMMERCIAL FURNITURE INDUSTRY
The commercial furniture market in the United States represents annual
shipments by manufacturers valued at approximately $12 billion. Seating and
office systems, which represent the primary uses of upholstery in this industry,
represented annual sales of approximately $7 billion annually. At the
manufacturing level, the industry is highly concentrated. The top five
manufacturers of commercial furniture account for an estimated 65% of total
industry shipments. Although demand for commercial furniture can be affected by
general economic trends, the historical pattern has been one of generally steady
growth.
Dealers aligned with specific furniture brands account for over half of
industry shipments of commercial furniture. Some shift in the distribution of
commercial furniture has occurred in recent years in conjunction with the growth
in national and regional chains featuring office supplies.
OVERVIEW OF BEDDING INDUSTRY
According to data compiled by the International Sleep Products Association
("ISPA"), the domestic conventional bedding market, which generated estimated
wholesale revenues of $3.8 billion during calendar year 1998, includes
approximately 800 manufacturers of mattress sets. The conventional bedding
market accounts for approximately 90% of the domestic bedding market.
Approximately 71% of the conventional bedding manufactured in the U.S. is sold
to furniture stores and specialty sleep shops. Most of the remaining 29% is sold
to department stores, national mass merchandisers, membership clubs and factory
direct stores. Approximately two-thirds of conventional bedding is sold for
replacement purposes and the average time lapse between mattress purchases is
approximately 10 to 12 years.
PRODUCTS
As described above, the Company's products include upholstery fabrics and
mattress ticking.
UPHOLSTERY FABRICS. The Company derives the majority of its revenues from
the sale of upholstery fabrics primarily to the residential and commercial
(contract) furniture markets. Sales of upholstery fabrics totaled 80% of sales
for fiscal 1999. The Company has emphasized fabrics and patterns that have broad
appeal at promotional to medium prices, generally ranging from $2.20 per yard to
$9.50 per yard.
MATTRESS TICKING. The Company also manufactures mattress ticking (fabric
used for covering mattresses and box springs) for sale to bedding manufacturers.
Sales of mattress ticking constituted 20% of sales in fiscal 1999. The Company
has emphasized fabrics and patterns which have broad appeal at prices generally
ranging from $1.20 to $8.00 per yard.
The Company's upholstery fabrics and mattress ticking can each be broadly
grouped under the three main categories of wovens, prints and velvets. The
following table indicates the product lines within each of these categories, a
brief description of their characteristics and identification of their principal
end-use markets.
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Culp Fabric Categories
----------------------
Principal
Upholstery Fabrics Characteristics Markets
- ------------------ --------------- ---------
Wovens:
Jacquards Elaborate, complex designs such as florals Residential
and tapestries in traditional, transitional furniture
and contemporary styles. Woven on Commercial
intricate looms using a wide variety of furniture
synthetic and natural yarns.
Dobbies Geometric designs such as plaids, stripes Residential
and solids in traditional and country furniture
styles. Woven on less complicated looms Commercial
using a variety of weaving constructions furniture
and primarily synthetic yarns.
Prints:
Wet prints Contemporary patterns with deep, rich Residential
colors on a nylon flock base fabric for furniture
a very soft texture and excellent Juvenile
wearability. Produced by screen printing furniture
directly onto the base fabric.
Heat-transfer Sharp, intricate designs on flock or Residential
prints jacquard base fabrics. Plush feel furniture
(flocks), deep colors (jacquards) and Juvenile
excellent wearability. Produced by using furniture
heat and pressure to transfer color from
printed paper onto base fabric.
Cotton prints A broad variety of designs featuring deep, Residential
rich colors printed on woven cotton base furniture
fabrics with excellent wearability.
Produced by screen printing directly onto
the base fabric.
Velvets:
Woven velvets Basic designs such as plaids and Residential
semi-plains in traditional and furniture
contemporary styles with a plush feel.
Woven with a short-cut pile using
various weaving methods and synthetic
yarns.
Tufted velvets Lower cost production process of velvets in Residential
which synthetic yarns are punched into a furniture
base polyester fabric for texture. Similar
designs as woven velvets.
Principal
Mattress Ticking Characteristics Markets
- ---------------- --------------- -------
Wovens:
Jacquards Florals and other intricate designs. Bedding
Woven on complex looms using a wide
variety of synthetic and natural yarns.
Prints:
Heat-transfer Sharp, detailed designs. Produced by Bedding
prints using heat and pressure to transfer
color from printed paper onto base
fabrics, including woven jacquards,
knits and poly/cotton sheetings.
Pigment prints Variety of designs produced economically Bedding
by screen printing pigments onto a
variety of base fabrics, including
jacquards, knits, poly/cotton sheeting
and non-wovens.
================================================================================
Although fabrics marketed for upholstery applications and those used for
mattress ticking may have similar appearances, mattress ticking must be
manufactured on weaving and printing equipment in wider widths to accommodate
the physical size of box springs and mattresses. The Company's products include
all major types of coverings, except for leather, that manufacturers use today
for furniture and bedding. The Company also markets fabrics for certain
specialty markets, but these do not currently represent a material portion of
the Company's business.
-9-
MANUFACTURING
Substantially all of the upholstery fabric and mattress ticking currently
marketed by Culp is produced at the Company's seventeen (17) manufacturing
facilities. These plants encompass a total of 2.7 million square feet and
include yarn extrusion, spinning, dyeing and texturizing equipment, narrow and
wide-width jacquard looms, dobby and woven velvet looms, tufting machines,
printing equipment for pigment, heat-transfer and wet printing, fabric finishing
equipment and various types of surface finishing equipment (such as washing,
softening and embossing). Culp is actively pursuing ISO certification for its
manufacturing facilities. ISO certification is an international recognition of a
company's ability to deliver high quality products and services. Culp's
facilities at Stokesdale, North Carolina, which produces mattress ticking, and
at Anderson, South Carolina, which produces woven velvet upholstery fabric, were
awarded ISO-9002 certification during fiscal 1997. Additionally, the Company's
facility at Pageland, South Carolina, which produces jacquard and dobby
upholstery fabric, and the finishing facility in Burlington, North Carolina were
awarded ISO-9002 certification in fiscal 1998. During fiscal 1999, the Company's
weaving facility in Graham, North Carolina and the Culp Velvets/Prints plant in
Burlington, North Carolina successfully completed ISO-9002 registration. The
Company is planning to complete the ISO certification process at its other
facilities over the next several years.
The Company's woven fabrics are made from various types of synthetic and
natural yarn, such as polypropylene, polyester, acrylic, rayon, nylon or cotton.
Yarn is woven into various fabrics on jacquard, dobby or velvet weaving
equipment. Once the weaving is completed, the fabric can be printed or finished
using a variety of processes. The Company currently extrudes and spins a portion
of its own needs for yarn and purchases the remainder from outside suppliers. As
a result of the acquisition of the Culp Yarn plants during fiscal 1998, Culp
produces internally a substantial amount of its needs for spun and chenille
yarns. The Company also supplies other fabric manufacturers with spun yarns
manufactured by Culp Yarn. Culp purchases a significant amount of greige goods
(unfinished, uncolored base fabrics) from other suppliers to be printed at the
Company's plants, but has increased its internal production capability for
jacquard greige goods. The acquisition of Rayonese in fiscal 1995 increased the
Company's capacity to produce its own jacquard greige goods. Culp has installed
additional airjet weaving machines at Rayonese to significantly increase its
capacity for jacquard greige goods.
During the fourth quarter of fiscal 1997, the Company installed its first
flock coating line to produce flock greige goods to be used primarily as the
base cloth for wet and heat-transfer-printed flock products. Flock fabrics are
produced by the application of very short nylon fibers onto a poly/cotton woven
base fabric to create a velvet effect. During the flock coating process, the
fibers are bonded onto the base fabric with an adhesive substance by utilizing
an electrostatic charging procedure which causes the fibers to vertically align
with the base fabric.
Tufted velvet fabrics are produced by tufting machines which insert an
acrylic or polypropylene yarn through a polyester woven base fabric creating
loop pile surface material which is then sheared to create a velvet surface.
Tufted velvet fabrics are typically lower-cost fabrics utilized in the Company's
lower-priced product mix.
The Company's printing operations include pigment and heat-transfer
methods, as well as wet printing. The Company also produces its own printed
heat-transfer paper, another component of vertical integration. Wet printing is
the most recent addition to the Company's printing capabilities.
-10-
PRODUCT DESIGN AND STYLING
Consumer tastes and preferences related to upholstered furniture and
bedding change, albeit gradually, over time. The use of new fabrics and designs
remains an important consideration for manufacturers to distinguish their
products at retail and to capitalize on even small changes in preferred colors,
patterns and textures. Culp's success is largely dependent on the Company's
ability to market fabrics with appealing designs and patterns. Culp has a staff
of over 75 designers and support personnel involved in the design and
development of new patterns and styles, including designers with experience in
designing products for specific international markets. Culp uses computer aided
design (CAD) systems in the development of new fabrics which assists the Company
in providing a very flexible design program. These systems have enabled the
Company's designers to experiment with new ideas and involve customers more
actively in the process. The use of CAD systems also has supported the Company's
emphasis on integrating manufacturing considerations into the early phase of a
new design. The completion of the Howard L. Dunn, Jr. design center in January
1998 has enabled most of the Company's designers to be located in the same
facility to support the sharing of design ideas and CAD and other technologies.
The design center has enhanced the Company's merchandising and marketing efforts
by providing an environment in which customers can be shown new products as well
as participate in product development initiatives.
The process of developing new designs involves maintaining an awareness of
broad fashion and color trends both in the United States and internationally.
These concepts are blended with input from the Company's customers to develop
new fabric designs and styles. Most of these designs are introduced by Culp at
major trade conferences that occur twice a year in the United States (January
and July) and annually in several major international markets.
DISTRIBUTION
The majority of the Company's products are shipped directly from its
distribution centers at or near manufacturing facilities. This "direct ship"
program is primarily utilized by large manufacturers. Generally, small and
medium-size residential furniture manufacturers use one of the Company's three
regional distribution facilities which have been strategically positioned in
areas which have a high concentration of residential furniture manufacturers
High Point, North Carolina, Los Angeles, California and Tupelo, Mississippi. In
addition, the Company maintains an inventory of upholstery fabric at a warehouse
in Grand Rapids, Michigan to supply large commercial furniture manufacturers in
that area on a "just in time" basis. The Company closely monitors demand in each
distribution territory to decide which patterns and styles to hold in inventory.
These products are available on demand by customers and are usually shipped
within 48 hours of receipt of an order. Substantially all of the Company's
shipments of mattress ticking are made from its manufacturing facilities in
Stokesdale, North Carolina and St. Jerome, Quebec, Canada.
In international markets, Culp sells primarily to distributors that
maintain inventories of upholstery fabrics for resale to furniture
manufacturers. The Company plans to explore the establishment of distribution
facilities in certain areas outside the United States to support international
sales.
SOURCES AND AVAILABILITY OF RAW MATERIALS
Raw materials account for more than half of the Company's total production
costs. The Company purchases various types of synthetic and natural yarns
(polypropylene, polyester, acrylic, nylon, rayon and cotton), synthetic staple
fibers (acrylic, rayon, polypropylene, polyester), various types of greige goods
(poly/cotton wovens and flocks, polyester wovens, poly/rayon and poly/cotton
jacquard wovens, polyester knits, poly/cotton sheeting and non-wovens),
polypropylene resins, nylon flock fibers, rayon staple, latex adhesives, dyes
and chemicals from a variety of suppliers. The Company has made a significant
investment in becoming more vertically integrated and producing more of its
jacquard greige goods, polypropylene yarns, package dyed yarns and printed
heat-transfer paper internally. As a result, a larger portion of its raw
materials are comprised of more basic commodities such as rayon staple, undyed
yarns, polypropylene resin chips, certain polyester warp yarns, unprinted
heat-transfer paper and unflocked poly/cotton base fabric. Although the Company
is dependent upon one supplier for all of its nylon flock fibers and upon one
supplier of acrylic staple, most of the Company's raw materials are available
from more than one primary source. The prices of such materials fluctuate
depending upon current supply and demand conditions and the general rate of
inflation. Many of the Company's basic raw materials are petrochemical products
or are produced from such products, and therefore the Company's raw material
costs are particularly sensitive to changes in petrochemical prices. Generally,
the Company has not had significant difficulty in obtaining raw materials.
-11-
COMPETITION
In spite of the trend toward consolidation in the upholstery fabric
market, the Company competes against a large number of producers, ranging from
large manufacturers comparable in size to the Company to small producers and
marketers of specialty fabrics. The Company believes its principal upholstery
fabric competitors are the Burlington House Fabrics division of Burlington
Industries, Inc., Joan Fabrics Corporation (including its Mastercraft division),
Microfibres, Inc., and Quaker Fabric Corporation. Conversely, the mattress
ticking market is concentrated in a few relatively large suppliers.
The Company believes its principal mattress ticking competitors are Bekaert
Textiles B.V., Blumenthal Print Works, Inc., Burlington House Fabrics division
of Burlington Industries, Inc. and Tietex, Inc. Although the Company is one of
the largest suppliers of furniture upholstery fabrics and a leading supplier of
mattress ticking to the bedding industry, some of the Company's competitors are
larger overall and have greater financial resources than the Company.
Competition for the Company's products is based primarily on price, design,
quality, timing of delivery and service.
TECHNOLOGY
Culp views the use of technology as a very important element in the
Company's efforts to achieve higher levels of service to its customers and to
produce and deliver its products in an efficient and cost-effective manner.
Some of Culp's key initiatives in this area include:
o The Company has created a home page on the Internet (WWW.CULPINC.COM).
Through the Internet and the Culp home page, customers can use a system
known as CulpLink to view their current order status, shipping and invoice
information, and twelve months of sales history. The CulpLink system was
developed internally by the Company's MIS department and provides superior
communication with customers throughout the world.
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 has implemented an image archiving system that
will allow electronic storage of all artwork and easy access to artwork
for designers.
-12-
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 among various Culp locations and communication with
customers and suppliers through the Internet. Culp has installed fiber
optic cable networks as the communication backbone throughout the Company,
placing the Company in position to easily expand the user base and to take
advantage of this faster data transfer medium for potential future uses
such as video conferencing and transferring large files like those
required for digital images.
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.
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 2, 1999, the Company had approximately 4,000 employees. All of
the hourly employees at the Company's facility in West Hazleton, Pennsylvania
and all of the hourly employees at the Rayonese facility in Canada
(approximately 13% 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, while the collective bargaining agreement
with respect to the Rayonese hourly employees expires in 2002. The Company is
not aware of any efforts to organize any more of its employees and believes its
relations with its employees are good.
-13-
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.
Net Sales by Geographic Area
(dollars in thousands)
Fiscal 1999 Fiscal 1998 Fiscal 1997
------------ ----------- ------------
United States $369,730 76.5% $339,492 71.2% $297,308 74.5%
North America
(excluding U.S.) 31,102 6.5 31,160 6.5 27,479 6.9
Europe 19,578 4.1 30,775 6.5 25,245 6.3
Middle East 33,996 7.0 34,412 7.2 23,505 5.9
Asia and Pacific
Rim 21,371 4.4 32,344 6.8 19,646 4.9
South America 3,484 0.7 5,158 1.1 2,604 0.7
All other areas 3,823 0.8 3,374 0.7 3,092 0.8
----- --- ----- --- ----- ------
Subtotal 113,354 23.5 137,223 28.8 101,571 25.5
------- ------ ------- ------ ------- ----
Total $483,084 100.0% $476,715 100.0% $398,879 100.0%
========= ======= ========= ======= ========= ========
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 2, 1999, the portion of the backlog with
confirmed shipping dates prior to June 6, 1999 was $38.6 million, and on May 3,
1998, the portion of the backlog with confirmed shipping dates prior to June 7,
1998 was $40.2 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; namely, traditional information systems, technology used in support
areas, and preparedness of suppliers and customers.
The initiative for traditional information systems, which started in 1992,
has led to substantial completion of the assessment, required changes and
testing 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). The Company is
currently focused on modifying the remaining systems that support the Company's
manufacturing processes. The programming and testing of these systems was
substantially completed by April 1, 1999, and implementation of these systems
was substantially completed by June 30, 1999. The remaining system
implementations are scheduled for completion during the second quarter of fiscal
2000.
-14-
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. Inventories of this equipment
have been completed and correspondence has been initiated with vendors and
suppliers of this equipment. The Company is currently evaluating the vendor
responses and testing the equipment. After the testing phase is complete, the
Company will conduct a review of the inventories and the testing procedures,
with this phase expected to also be completed during the second quarter of
fiscal 2000.
The third area of focus is communications with suppliers and customers to
understand their level of readiness 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 Company has a response rate in the
60% - 70% range, and at the present time no material problems or concerns are
indicated by these responses. However, if a significant vendor or customer is
non-compliant, the Company can give no assurance that such occurrence will not
have an adverse affect on the Company's results. The Company believes its action
plans will minimize these risks and prevent any major interruptions in the flow
of materials and products.
Formal contingency plans will not be formulated unless the Company has
identified specific areas where there is a substantial risk of year 2000
problems occurring. No such areas have been identified.
The plan is being administered by a team of internal staff and management.
Costs incurred in the Company's readiness effort are being expensed as incurred.
Anticipated costs are expected to approximate $800,000 and to date an estimated
$500,000 has been spent. This project, and the year 2000 issue in general, are
not expected to have a significant effect on the Company's operations, though no
assurance can be given in this regard.
-15-
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 segment.
Approx.
Total Area Expiration
Location Principal Use (Sq. Ft.) of Lease (2)
- -------- -------------- ---------- ------------
o Headquarters and Distribution
Centers: (1)
High Point, North Carolina Corporate headquarters 40,000 2015
Burlington, North Carolina Design Center 30,000 Owned
Los Angeles, California Regional distribution 33,000 2007
o Upholstery Fabrics:
Graham, North Carolina Manufacturing 341,000 Owned
Burlington, North Carolina Manufacturing and distribution 302,000 Owned
Pageland, South Carolina Manufacturing 96,000 Owned
Burlington, North Carolina Distribution and Yarn Warehouse 112,500 Owned
Chattanooga, Tennessee Manufacturing and distribution 290,000 2018
West Hazleton, Pennsylvania Manufacturing 110,000 2013
West Hazleton, Pennsylvania Manufacturing and distribution 100,000 2008
Monroe, North Carolina Manufacturing 70,000 2007
Monroe, North Carolina Manufacturing 70,000 2004
High Point, North Carolina Sales and Design 12,000 2007
Burlington, North Carolina Manufacturing and distribution 275,000 2021
Lumberton, North Carolina Manufacturing 107,000 Owned
Anderson, South Carolina Manufacturing 99,000 Owned
High Point, North Carolina Regional distribution 65,000 2008
Tupelo, Mississippi Regional distribution 57,000 2018
Shelby, North Carolina Manufacturing 101,000 Owned
Lincolnton, North Carolina Manufacturing 78,000 Owned
Cherryville, North Carolina Manufacturing 135,000 Owned
Wetumpka, Alabama Manufacturing 145,000 Owned
o Mattress Ticking:
Stokesdale, North Carolina Manufacturing and distribution 220,000 Owned
St. Jerome, Quebec, Canada Manufacturing and distribution 202,000 Owned
-------------------------------------------
(1) Properties are used jointly by Upholstery Fabrics and Mattress Ticking
(2) Includes all options to renew
-16-
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 2, 1999.
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 2, 1999, 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates
on debt and foreign currency exchange rates. See additional disclosures about
interest rate swap agreements in the Management's Discussion and Analysis of
Financial Condition and Results of Operations in item 7 above. The Company's
market risk sensitive instruments are not entered into for trading purposes. The
Company has not experienced any significant changes in market risk since May 2,
1999.
-17-
The Company's exposure to interest rate risk consists of floating
rate debt based on the London Interbank Offered Rate plus an adjustable margin
under the Company's revolving credit agreement and variable rate debt in
connection with the industrial revenue bonds. To lower or limit overall
borrowing costs, the Company enters into interest rate swap agreements to modify
the interest characteristics of portions of its outstanding debt. The agreements
entitle the Company to receive or pay to the counterparty (a major bank), on a
quarterly basis, the amounts, if any, by which the Company's interest payments
covered by swap agreements differ from those of the counterparty. These amounts
are recorded as adjustments to interest expense. The fair value of the swap
agreements and changes in fair value resulting from changes in market interest
rates are not recognized in the consolidated financial statements. The annual
impact on the Company's results of operations of a 100 basis point interest rate
change on the May 2, 1999 outstanding balance of the variable rate debt would be
approximately $580,000 irrespective of any swaps associated with this debt.
The Company's exposure to fluctuations in foreign currency exchange
rates is due primarily to a foreign subsidiary domiciled in Canada and purchases
of certain machinery, equipment and raw materials in foreign currencies. The
Company's Canadian subsidiary uses the United States dollar as its functional
currency. The Company generally does not use financial derivative instruments to
hedge foreign currency exchange rate risks associated with the Canadian
subsidiary. However, the Company generally enters into foreign exchange forward
and option contracts as a hedge against its exposure to currency fluctuations on
firm commitments to purchase certain machinery, equipment and raw materials. The
Canadian subsidiary is not material to the Company's consolidated results of
operations; therefore, the impact of a 10% change in the exchange rate at May 2,
1999 would not have a significant impact on the Company's results of operations
or financial position. In addition, the Company had $0 of outstanding foreign
exchange forward and option contracts as of May 2, 1999 and, as a result, any
change in exchange rates would not have a significant impact on the Company's
results of operations or financial position.
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 2, 1999 THAT ARE EXPRESSLY INCORPORATED BY
REFERENCE INTO THIS REPORT, SUCH REPORT IS NOT TO BE DEEMED FILED AS PART
OF THIS FILING.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
During the two years ended May 2, 1999 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.
-18-
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 2, 1999, are incorporated by reference into this report.
Page of Annual
Report to
Shareholders
Item [Exhibit 13(a)]
- ---- ---------------
Consolidated Balance Sheets - May 2, 1999 and.................... 11
May 3, 1998
Consolidated Statements of Income -
for the years ended May 2, 1999,
May 3, 1998, and April 27, 1997 ............................... 12
Consolidated Statements of Shareholders' Equity -
for the years ended May 2, 1999,
May 3, 1998 and April 27, 1997 ................................ 13
Consolidated Statements of Cash Flows -
for the years ended May 2, 1999,
May 3, 1998, and April 27, 1997 ............................... 14
Consolidated Notes to Financial Statements....................... 15
Report of Independent Auditors .................................. 24
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 5, 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.
-23-
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.
-25-
10(ll) Form of Note Purchase Agreement (providing for the issuance by
Culp, Inc. of its $20 million 6.76% Series A Senior Notes due
3/15/08 and its $55 million 6.76% Series B Senior Notes due
3/15/10), each dated March 4, 1998, between Culp, Inc. and each
of the following:
1. Connecticut General Life Insurance Company;
2. The Mutual Life Insurance Company of New York;
3. United of Omaha Life Insurance Company;
4. Mutual of Omaha Insurance Company;
5. The Prudential Insurance Company of America;
6. Allstate Life Insurance Company;
7. Life Insurance Company of North America; and
8. CIGNA Property and Casualty Insurance Company
This agreement was filed as Exhibit 10(ll) to the Company's Form
10-K for the year ended May 3, 1998, and is incorporated herein
by reference.
10(mm) First Amendment to Credit Agreement dated July 22, 1998 among
Culp, Inc., Wachovia Bank, N.A., as agent, First Union National
Bank, as documentation agent, and Wachovia Bank, N.A., First
Union National Bank, SunTrust Bank, Atlanta, and Cooperatieve
Centrale Raiffeisen-Boerenleeenbank B.A., Rabobank Nederland,
New York Branch, as lenders. This amendment was filed as Exhibit
10(mm) to the Company's Form 10-Q for the quarter ended August
2, 1998, and is incorporated herein by reference.
10(nn) Second Amendment to Credit Agreement dated October 26, 1998,
among Culp, Inc., Wachovia Bank, N.A., as agent, First Union
National Bank, as documentation agent, and Wachovia Bank, N.A.,
First Union National Bank, and SunTrust Bank, Atlanta, as
lenders. This amendment was filed as Exhibit 10(nn) to the
Company's Form 10-Q for the quarter ended November 1, 1998, and
is incorporated herein by reference.
13(a) Copy of the Company's 1999 Annual Report to Shareholders, for the
year ended May 2, 1999, 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 June 28, 1999
25(b) Power of Attorney of Howard L. Dunn, Jr., dated June 28, 1999
25(c) Power of Attorney of Robert T. Davis, dated June 28, 1999
25(d) Power of Attorney of Earl M. Honeycutt, dated June 22, 1999
25(e) Power of Attorney of Patrick H. Norton, dated July 3, 1999
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25(f) Power of Attorney of Earl N. Phillips, Jr., dated June 28, 1999
25(g) Power of Attorney of Franklin N. Saxon, dated July 16, 1999
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 2, 1999:
(1)Form 8-K dated February 17, 1999, included under Item 5, Other Events,
included the Company's press release for quarterly earnings and the
Financial Information Release relating to certain financial information
for the quarter ended January 31, 1999.
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)
-27-
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 30th day of July
1999.
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 30th day of July 1999.
/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*
---------------------
Earl M. Honeycutt
(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.
-28-
EXHIBITS INDEX
--------------
Exhibit Number Exhibit
- -------------- -------
13(a) Copy of the Company's 1999 Annual Report to Shareholders, for the
year ended May 2, 1999, 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 June 28, 1999
25(b) Power of Attorney of Howard L. Dunn, Jr., dated June 28, 1999
25(c) Power of Attorney of Robert T. Davis, dated June 28, 1999
25(d) Power of Attorney of Earl M. Honeycutt, dated June 22, 1999
25(e) Power of Attorney of Patrick H. Norton, dated July 3, 1999
25(f) Power of Attorney of Earl N. Phillips, Jr., dated June 28, 1999
25(g) Power of Attorney of Franklin N. Saxon, dated July 16, 1999
-29-