UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 30, 2005
Commission File No. 0-12781
CULP, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-1001967
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or other organization)
101 S. Main St., High Point, North Carolina 27261-2686
(Address of principal executive offices) (zip code)
(336) 889-5161
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to the filing requirements for at
least the past 90 days.
YES X NO
---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES X NO
---
Indicate the number of shares outstanding of each issuer's classes of common
stock, as of the latest practical date:
Common shares outstanding at January 30, 2005: 11,550,009
Par Value: $.05
INDEX TO FORM 10-Q
For the period ended January 30, 2005
Part I - Financial Statements. Page
- ------------------------------ -------
Item 1. Unaudited Interim Consolidated Financial Statements:
- ----------------------------------------------------------------
Consolidated Statements of Income (Loss)--Three and Nine Months Ended January
30, 2005 and February 1, 2004 I-1
Consolidated Balance Sheets--January 30, 2005, February 1, 2004 and May 2, 2004 I-2
Consolidated Statements of Cash Flows--Nine Months Ended January 30, 2005 and I-3
February 1, 2004
Consolidated Statements of Shareholders' Equity I-4
Notes to Consolidated Financial Statements I-5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations I-18
-------------------------------------------------
Item 3. Quantitative and Qualitative Disclosures About I-27
Market Risk
----------------------------------------------
Item 4. Controls and Procedures I-28
-----------------------
Part II - Other Information
- ------------------------------------
Item 6. Exhibits II-1
Signature II-2
Item 1: Financial Statements
CULP, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE THREE MONTHS AND NINE MONTHS ENDED JANUARY 30, 2005 AND FEBRUARY 1, 2004
UNAUDITED
(Amounts in Thousands, Except for Per Share Data)
THREE MONTHS ENDED
------------------------------------------------------------
Amounts Percent of Sales
----------------------- -------------------------
January 30, February 1, % Over January 30, February 1,
2005 2004 (Under) 2005 2004
----------- ----------- ----------- ------------ ------------
Net sales $ 69,060 76,561 (9.8)% 100.0 % 100.0 %
Cost of sales 66,493 62,093 7.1 % 96.3 % 81.1 %
----------- ----------- ----------- ------------ ------------
Gross profit 2,567 14,468 (82.3)% 3.7 % 18.9 %
Selling, general and
administrative expenses 8,191 10,282 (20.3)% 11.9 % 13.4 %
Restructuring expense 1,135 0 100.0 % 1.6 % 0.0 %
----------- ----------- ----------- ------------ ------------
Income (loss) from operations (6,759) 4,186 (261.5)% (9.8)% 5.5 %
Interest expense 912 1,534 (40.5)% 1.3 % 2.0 %
Interest income (42) (113) (62.8)% (0.1)% (0.1)%
Early extinguishment of debt 0 1,672 (100.0)% 0.0 % 2.2 %
Other expense 49 229 (78.6)% 0.1 % 0.3 %
----------- ----------- ----------- ------------ ------------
Income (loss) before income taxes (7,678) 864 (988.7)% (11.1)% 1.1 %
Income taxes * (2,801) 112 (2,600.9)% 36.5 % 13.0 %
----------- ----------- ---------- ------------ ------------
Net income (loss) $ (4,877) 752 (748.5)% (7.1)% 1.0 %
=========== =========== =========== ------------ ------------
Net income (loss) per share, basic $ (0.42) 0.07 (700.0)%
Net income (loss) per share, diluted $ (0.42) 0.06 (800.0)%
Average shares outstanding, basic 11,550 11,529 0.2 %
Average shares outstanding, diluted 11,550 11,859 (2.6)%
NINE MONTHS ENDED
------------------------------------------------------------
Amounts Percent of Sales
----------------------- -------------------------
January 30, February 1, % Over January 30, February 1,
2005 2004 (Under) 2005 2004
----------- ----------- ----------- ------------ ------------
Net sales $ 212,315 232,968 (8.9)% 100.0 % 100.0 %
Cost of sales 191,506 190,283 0.6 % 90.2 % 81.7 %
----------- ----------- ----------- ------------ ------------
Gross profit 20,809 42,685 (51.2)% 9.8 % 18.3 %
Selling, general and
administrative expenses 26,309 31,089 (15.4)% 12.4 % 13.3 %
Goodwill impairment 5,126 0 100.0 % 2.4 % 0.0 %
Restructuring expense 2,289 0 100.0 % 1.1 % 0.0 %
----------- ----------- ----------- ------------ ------------
Income (loss) from operations (12,915) 11,596 (211.4)% (6.1)% 5.0 %
Interest expense 2,789 4,540 (38.6)% 1.3 % 1.9 %
Interest income (98) (356) (72.5)% (0.0)% (0.2)%
Early extinguishment of debt 0 1,672 (100.0)% 0.0 % 0.7 %
Other expense 436 536 (18.7)% 0.2 % 0.2 %
----------- ----------- ----------- ------------ ------------
Income (loss) before income taxes (16,042) 5,204 (408.3)% (7.6)% 2.2 %
Income taxes * (5,920) 1,717 (444.8)% 36.9 % 33.0 %
----------- ----------- ---------- ------------ ------------
Net income (loss) $ (10,122) 3,487 (390.3)% (4.8)% 1.5 %
=========== =========== =========== ------------ ------------
Net income (loss) per share, basic $ (0.88) 0.30 (393.3)%
Net income (loss) per share, diluted $ (0.88) 0.30 (393.3)%
Average shares outstanding, basic 11,549 11,522 0.2 %
Average shares outstanding, diluted 11,549 11,764 (1.8)%
*Percent of sales column for income taxes is calculated as a % of income (loss) before income taxes.
See accompanying notes to consolidated financial statements.
I-1
CULP, INC.
CONSOLIDATED BALANCE SHEETS
JANUARY 30, 2005, FEBRUARY 1, 2004 AND MAY 2, 2004
UNAUDITED
(Amounts in Thousands)
Amounts Increase
------------------------ (Decrease)
January 30, February 1, ----------------- * May 2,
2005 2004 Dollars Percent 2004
----------- ----------- -------- -------- ---------
Current assets:
Cash and cash equivalents $ 13,020 8,932 4,088 45.8 % 14,568
Accounts receivable 26,681 28,282 (1,601) (5.7)% 30,719
Inventories 46,649 52,000 (5,351) (10.3)% 49,045
Deferred income taxes 4,910 12,303 (7,393) (60.1)% 9,256
Other current assets 1,088 2,610 (1,522) (58.3)% 1,634
----------- ----------- -------- -------- ---------
Total current assets 92,348 104,127 (11,779) (11.3)% 105,222
Property, plant & equipment, net 71,024 78,909 (7,885) (10.0)% 77,770
Goodwill 4,114 9,240 (5,126) (55.5)% 9,240
Deferred income taxes 7,115 0 7,115 100.0 % 0
Other assets 1,330 1,577 (247) (15.7)% 1,496
----------- ----------- -------- -------- ---------
Total assets $ 175,931 193,853 (17,922) (9.2)% 193,728
=========== =========== ======== ======== =========
Current liabilities:
Current maturities of long-term debt $ 584 544 40 7.4 % 528
Accounts payable 15,580 17,790 (2,210) (12.4)% 15,323
Accrued expenses 9,568 12,901 (3,333) (25.8)% 13,028
Accrued restructuring costs 5,093 6,353 (1,260) (19.8)% 4,968
Income taxes payable 1,690 2,428 (738) (30.4)% 1,850
----------- ----------- -------- -------- ---------
Total current liabilities 32,515 40,016 (7,501) (18.7)% 35,697
Long-term debt, less current maturities 49,975 50,519 (544) (1.1)% 50,502
Deferred income taxes 0 3,851 (3,851) (100.0)% 4,138
----------- ----------- -------- -------- ---------
Total liabilities 82,490 94,386 (11,896) (12.6)% 90,337
Shareholders' equity 93,441 99,467 (6,026) (6.1)% 103,391
----------- ----------- -------- -------- ---------
Total liabilities and
shareholders' equity $ 175,931 193,853 (17,922) (9.2)% 193,728
=========== =========== ======== ======== =========
Shares outstanding 11,550 11,529 21 0.2 % 11,547
=========== =========== ======== ======== =========
* Derived from audited financial statements.
See accompanying notes to consolidated financial statements.
I-2
CULP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JANUARY 30, 2005 AND FEBRUARY 1, 2004
UNAUDITED
(Amounts in Thousands)
NINE MONTHS ENDED
-----------------------
Amounts
-----------------------
January 30, February 1,
2005 2004
----------- -----------
Cash flows from operating activities:
Net income (loss) $ (10,122) 3,487
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 14,505 10,294
Amortization of other assets 100 136
Stock-based compensation 157 157
Goodwill impairment 5,126 0
Deferred income taxes (6,907) 0
Restructuring expense 2,289 0
Changes in assets and liabilities:
Accounts receivable 4,038 3,977
Inventories 2,396 (2,448)
Other current assets 546 594
Other assets 120 522
Accounts payable 1,659 544
Accrued expenses (3,460) (1,170)
Accrued restructuring (1,733) (1,390)
Income taxes payable (160) 2,079
----------- -----------
Net cash provided by operating activities 8,554 16,782
----------- -----------
Cash flows from investing activities:
Capital expenditures (8,216) (4,097)
Purchases of short-term investments 0 10,043
----------- -----------
Net cash (used in) provided by investing activities (8,216) 5,946
----------- -----------
Cash flows from financing activities:
Payments on vendor-financed capital expenditures (1,430) (2,772)
Payments on long-term debt (471) (25,437)
Proceeds from common stock issued 15 58
----------- -----------
Net cash used in financing activities (1,886) (28,151)
----------- -----------
Decrease in cash and cash equivalents (1,548) (5,423)
Cash and cash equivalents at beginning of period 14,568 14,355
----------- -----------
Cash and cash equivalents at end of period $ 13,020 8,932
=========== ===========
See accompanying notes to consolidated financial statements.
I-3
CULP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
UNAUDITED
(Dollars in thousands, except share data)
Capital
Common Stock Contributed Total
-------------------- in Excess Unearned Retained Shareholders'
Shares Amount of Par Value Compensation Earnings Equity
- ----------------------------------------------------------------------------------------------------------------
Balance, April 27, 2003 11,515,459 $ 576 39,749 (559) 55,999 $95,765
- ----------------------------------------------------------------------------------------------------------------
Net income 7,220 7,220
Stock-based compensation 210 210
Common stock issued in connection
with stock option plans 31,175 2 194 196
- ----------------------------------------------------------------------------------------------------------------
Balance, May 2, 2004 11,546,634 $ 578 39,943 (349) 63,219 $103,391
- ----------------------------------------------------------------------------------------------------------------
Net loss (10,122) (10,122)
Stock-based compensation 157 157
Common stock issued in connection
with stock option plans 3,375 0 15 15
- ----------------------------------------------------------------------------------------------------------------
Balance, January 30, 2005 11,550,009 $ 578 39,958 (192) 53,097 $93,441
================================================================================================================
See accompanying notes to consolidated financial statements.
I-4
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of Culp, Inc.
and subsidiaries (the "company") include all adjustments, which are, in the
opinion of management, necessary for fair presentation of the results of
operations and financial position. All of these adjustments are of a normal
recurring nature except as disclosed in notes 9 and 13 to the consolidated
financial statements. Results of operations for interim periods may not be
indicative of future results. The unaudited consolidated financial statements
should be read in conjunction with the audited consolidated financial
statements, which are included in the company's annual report on Form 10-K filed
with the Securities and Exchange Commission on July 16, 2004 for the fiscal year
ended May 2, 2004. Certain items in the fiscal 2004 consolidated financial
statements have been reclassified to conform with the current presentation.
================================================================================
The company's nine months ended January 30, 2005 and February 1, 2004
represent 39 and 40 week periods, respectively.
2. Stock-Based Compensation
Compensation costs related to employee stock option plans are recognized
utilizing the intrinsic value-based method prescribed by APB No. 25, Accounting
for Stock Issued to Employees, and related Interpretations. The company has
adopted the disclosure requirements of SFAS No. 123, Accounting for Stock- Based
Compensation, as amended by SFAS No. 148. Accordingly, compensation cost is
recorded over the vesting period of the options based upon the difference in
option price and fair market price at the date of grant, if any.
The following table illustrates the effect on net income (loss) and
income (loss) per share if the company had applied the fair value recognition
provisions of SFAS No. 123, as amended by SFAS No. 148, for the three months
ended January 30, 2005 and February 1, 2004.
(dollars in thousands, except per share data) January 30, 2005 February 1, 2004
- --------------------------------------------------------------------------------------------
Net income (loss), as reported $ (4,877) $ 752
Add: Total stock-based employee compensation expense
included in net income, net of tax 33 39
Deduct: Total stock-based employee compensation expense
determined under fair value-based method for all awards,
net of tax (117) (116)
- --------------------------------------------------------------------------------------------
Pro forma net income (loss) $ (4,961) $ 675
- --------------------------------------------------------------------------------------------
Income (loss) per share:
Basic - as reported $ (0.42) $ 0.07
Basic - pro forma (0.43) 0.06
Diluted - as reported (0.42) 0.06
Diluted - pro forma (0.43) 0.06
- --------------------------------------------------------------------------------------------
I-5
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following table illustrates the effect on net income (loss) and income
(loss) per share if the company had applied the fair value recognition
provisions of SFAS No. 123, as amended by SFAS No. 148, for the nine months
ended January 30, 2005 and February 1, 2004.
(dollars in thousands, except per share data) January 30, 2005 February 1, 2004
- --------------------------------------------------------------------------------------------
Net income (loss), as reported $ (10,122) $ 3,487
Add: Total stock-based employee compensation expense
included in net income, net of tax 100 105
Deduct: Total stock-based employee compensation expense
determined under fair value-based method for all awards,
net of tax (394) (356)
- --------------------------------------------------------------------------------------------
Pro forma net income (loss) $ (10,416) $ 3,236
- --------------------------------------------------------------------------------------------
Income (loss) per share:
Basic - as reported $ (0.88) $ 0.30
Basic - pro forma (0.90) 0.28
Diluted - as reported (0.88) 0.30
Diluted - pro forma (0.90) 0.28
- --------------------------------------------------------------------------------------------
============================================================================================
3. Accounts Receivable
A summary of accounts receivable follows:
- ----------------------------------------------------------------------
(dollars in thousands) January 30, 2005 May 2, 2004
- ----------------------------------------------------------------------
Customers $ 28,689 $ 33,064
Allowance for doubtful accounts (963) (1,442)
Reserve for returns and allowances (1,045) (903)
- ----------------------------------------------------------------------
$ 26,681 $ 30,719
- ----------------------------------------------------------------------
I-6
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A summary of the activity in the allowance for doubtful accounts follows:
Nine months ended
- --------------------------------------------------------------------------------
(dollars in thousands) January 30, 2005 February 1, 2004
- --------------------------------------------------------------------------------
Beginning balance $ (1,442) $ (1,558)
Provision (for) recovery of bad debt expense 434 (162)
Net write-offs 45 47
- --------------------------------------------------------------------------------
Ending balance $ (963) $ (1,673)
- --------------------------------------------------------------------------------
================================================================================
4. Inventories
Inventories are carried at the lower of cost or market. Cost is
determined using the FIFO (first-in, first-out) method.
A summary of inventories follows:
- --------------------------------------------------------------------------------
(dollars in thousands) January 30, 2005 May 2, 2004
- --------------------------------------------------------------------------------
Raw materials $ 20,200 $ 21,015
Work-in-process 2,868 2,489
Finished goods 23,581 25,541
- --------------------------------------------------------------------------------
$ 46,649 $ 49,045
- --------------------------------------------------------------------------------
================================================================================
5. Accounts Payable
A summary of accounts payable follows:
- --------------------------------------------------------------------------------
(dollars in thousands) January 30, 2005 May 2, 2004
- --------------------------------------------------------------------------------
Accounts payable-trade $ 15,096 $ 13,438
Accounts payable-capital expenditures 484 1,885
- --------------------------------------------------------------------------------
$ 15,580 $ 15,323
- --------------------------------------------------------------------------------
================================================================================
I-7
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
6. Accrued Expenses
A summary of accrued expenses follows:
- --------------------------------------------------------------------------------
(dollars in thousands) January 30, 2005 May 2, 2004
- --------------------------------------------------------------------------------
Compensation, commissions and related benefits $ 5,832 $ 8,040
Interest 1,417 459
Accrued rebates 661 2,258
Other 1,658 2,271
- --------------------------------------------------------------------------------
$ 9,568 $ 13,028
- --------------------------------------------------------------------------------
================================================================================
7. Long-Term Debt
A summary of long-term debt follows:
- --------------------------------------------------------------------------------
(dollars in thousands) January 30, 2005 May 2, 2004
- --------------------------------------------------------------------------------
Unsecured term notes $ 49,975 $ 49,975
Canadian government loan 584 1,055
- --------------------------------------------------------------------------------
50,559 51,030
Less current maturities (584) (528)
- --------------------------------------------------------------------------------
$ 49,975 $ 50,502
- --------------------------------------------------------------------------------
The Company's long-term debt of $50.6 million is unsecured and is
comprised of $50.0 million in outstanding senior notes, with a fixed interest
rate of 7.76% (payable semi-annually in March and September) and a $584,000,
non-interest bearing term loan with the Canadian government. The unsecured
senior notes are payable over an average remaining term of five years beginning
March 2006 through March 2010. The final payment on the Canadian government loan
is due during the company's third quarter of fiscal 2006.
In December 2004, the company amended its agreement with its bank to
provide for a reduced revolving loan commitment of $10.0 million from an
existing commitment of $15.0 million, including letters of credit up to $2.5
million. Borrowings under the facility generally carry interest at the London
Interbank Offered Rate plus an adjustable margin based upon the company's
debt/EBITDA ratio, as defined by the agreement. As of January 30, 2005, there
were $406,000 in outstanding letters of credit in support of inventory purchases
and no borrowings outstanding under the agreement. The credit facility expires
August 2005.
On February 18, 2005, the company entered into an agreement with its bank
to amend the Interest and Leases Coverage ratio such that at the end of each
fiscal quarter beginning with the third fiscal quarter of fiscal year 2005, the
Interest and Leases Coverage Ratio shall not be less than 1.25 to 1.0
I-8
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The company's loan agreements require, among other things, that the
company maintain compliance with certain financial ratios. At January 30, 2005,
the company was in compliance with these financial covenants.
The principal payment requirements of long-term debt during the next five
fiscal years are: 2005 - $0; 2006 - $8,119,000; 2007 - $7,535,000; 2008 -
$19,835,000; and 2009 - $7,535,000.
8. Cash Flow Information
Payments for interest and income taxes follows:
Nine months ended
- ----------------------------------------------------------------------
(dollars in thousands) January 30, 2005 February 1, 2004
- ----------------------------------------------------------------------
Interest $ 1,995 $ 3,835
Income tax payments (refunds) 1,125 (362)
- ----------------------------------------------------------------------
The non-cash portion of capital expenditures representing vendor
financing totaled $29,000 and $331,000 for the nine months ended January 30,
2005 and February 1, 2004, respectively.
================================================================================
9. Restructuring and Asset Impairment Charges
A summary of accrued restructuring follows:
- ---------------------------------------------------------------------
(dollars in thousands) January 30, 2005 May 2, 2004
- ---------------------------------------------------------------------
Fiscal 2005 Upholstery Fabrics $ 1,088 $ 0
Fiscal 2003 Culp Decorative Fabrics 3,987 4,834
Fiscal 2002 Wet Printed Flock 0 100
Fiscal 2001 Culp Decorative Fabrics 18 34
- ---------------------------------------------------------------------
$ 5,093 $ 4,968
- ---------------------------------------------------------------------
Fiscal 2005 Upholstery Fabrics
In October 2004, management approved a restructuring plan within the
upholstery fabrics segment aimed at reducing costs, increasing asset utilization
and improving profitability. Due to continued pressure on demand in this
segment, management decided to further adjust the company's cost structure and
bring U.S. manufacturing capacity in line with current and expected demand. The
restructuring plan principally involves consolidation of the company's
decorative fabrics weaving operations by closing Culp's facility in Pageland,
South Carolina, and consolidating those operations into the Graham, North
Carolina facility. Additionally, the company will be consolidating its yarn
operations by integrating the production of the Cherryville, North Carolina
plant into the company's Shelby, North Carolina facility. Another element of the
restructuring plan is a substantial reduction in certain raw material and
finished goods stock keeping units, or SKUs, to reduce manufacturing
complexities and lower costs, with the ongoing objective of identifying and
eliminating products that are not generating acceptable volumes or margins.
Finally, the company is making reductions in selling, general and administrative
I-9
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
expenses. Overall, these restructuring actions will reduce the number of
associates by approximately 250 people, representing approximately 14 percent of
those in Culp's upholstery fabrics segment. The implementation of these
restructuring initiatives began in the second quarter and is expected to be
completed by May 1, 2005, the end of the current fiscal year. The company
expects the restructuring actions to result in total pre-tax charges of
approximately $19 million ($12 million on an after-tax basis). Approximately $14
million of the pre-tax amount is expected to be non-cash items, including $5.1
million for goodwill impairment (See note 13). Of the total charges expected,
$13.2 million ($8.2 million, net of taxes, or $0.71 per diluted share) was
incurred through the third quarter. The remaining charges are expected to be
recorded in the fourth quarter of fiscal 2005, as incurred.
The $13.2 million in charges incurred thus far in fiscal 2005 consist of
the following: (1) $5.5 million of restructuring expenses related to accelerated
depreciation associated with plant and equipment scheduled to be disposed of,
either by sale or by abandonment, over the next three months and inventory
mark-downs (2) $5.1 million of goodwill impairment, which represents all of the
remaining goodwill associated with the upholstery fabrics segment; (3) $1.3
million in restructuring expenses related to employee termination costs, (4)
$850,000 of restructuring expenses related to the dismantling, moving, and
relocation of equipment to other company facilities, and (5) approximately
$400,000 in write-down of equipment. As reflected in the consolidated financial
statements, restructuring and related expenses were recorded as $2.3 million in
the line item "restructuring expense" and $5.5 million in "cost of sales."
The following summarizes the fiscal 2005 activity in the restructuring
accrual:
Employee Lease
Termination Termination and
(dollars in thousands) Benefits Other Exit Costs Total
- ----------------------------------------------------------------------------------------
Balance, October 31, 2004 $ 1,305 0 1,305
Paid in fiscal 2005 (217) 0 (217)
- ----------------------------------------------------------------------------------------
Balance, January 30, 2005 $ 1,088 0 1,088
- ----------------------------------------------------------------------------------------
Fiscal 2003 Culp Decorative Fabrics Restructuring
During the second quarter of fiscal 2005, the accrual was reduced
$114,000 in employee termination benefits to reflect the current estimates of
future health care claims and reduced $165,000 in lease termination and other
exit costs to reflect current estimates of sub-lease income. The total of these
adjustments was $279,000, or approximately $176,000 net of tax, or $0.01 per
share diluted.
I-10
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following summarizes the fiscal 2005 activity in the restructuring
accrual:
- --------------------------------------------------------------------------------
Employee Lease
Termination Termination and
(dollars in thousands) Benefits Other Exit Costs Total
- --------------------------------------------------------------------------------
Balance, May 2, 2004 $ 500 4,334 4,834
Adjustments in fiscal 2005 (114) (165) (279)
Paid in fiscal 2005 (71) (497) (568)
- --------------------------------------------------------------------------------
Balance, January 30, 2005 $ 315 3,672 3,987
- --------------------------------------------------------------------------------
Fiscal 2002 Wet Printed Flock Restructuring
During the first quarter of fiscal 2005, assets held for sale consisting
of land and a building valued at $180,000 in the other assets line of the May 2,
2004 Consolidated Balance Sheet were sold, resulting in a restructuring credit
of $54,000. An additional restructuring credit of $84,000 was recognized
relating to the write-off of the remaining reserve balance, which consisted of
building related exit costs.
The following summarizes the fiscal 2005 activity in the CVP
restructuring accrual:
- ----------------------------------------------------------------------
Employee Lease
Termination Termination and
(dollars in thousands) Benefits Other Exit Costs Total
- ----------------------------------------------------------------------
Balance, May 2, 2004 $ 0 100 100
Adjustments in fiscal 2005 0 (84) (84)
Paid in fiscal 2005 0 (16) (16)
- ----------------------------------------------------------------------
Balance, January 30, 2005 $ 0 0 0
- ----------------------------------------------------------------------
Fiscal 2001 Culp Decorative Fabrics Restructuring
During the second quarter of fiscal 2005, the reserve was reduced $12,000
to reflect current estimates of future health care claims.
I-11
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following summarizes the fiscal 2005 activity in the CDF
restructuring accrual:
- ----------------------------------------------------------------------
Employee Lease
Termination Termination and
(dollars in thousands) Benefits Other Exit Costs Total
- ----------------------------------------------------------------------
Balance, May 2, 2004 $ 34 0 34
Adjustments in fiscal 2005 (12) 0 (12)
Paid in fiscal 2005 (4) 0 (4)
- ----------------------------------------------------------------------
Balance, January 30, 2005 $ 18 0 18
- ----------------------------------------------------------------------
======================================================================
10. Comprehensive Income (Loss)
Comprehensive income (loss) is the total of net income (loss) and other
changes in equity, except those resulting from investments by shareholders and
distributions to shareholders not reflected in net income (loss).
A summary of total comprehensive income (loss) follows:
Three months ended
- -----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) January 30, 2005 February 1, 2004
- -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (4,877) $ 752
Unrealized gain in fair value of short-term investments 0 57
- -----------------------------------------------------------------------------------------------------------------------------
Net comprehensive income (loss) $ (4,877) $ 809
- -----------------------------------------------------------------------------------------------------------------------------
Nine months ended
- -----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) January 30, 2005 February 1, 2004
- -----------------------------------------------------------------------------------------------------------------------------
Net Income (loss) $ (10,122) $ 3,487
Unrealized gain (loss) in fair value of short-term investments 0 0
- -----------------------------------------------------------------------------------------------------------------------------
Net comprehensive income (loss) $ (10,122) $ 3,487
- -----------------------------------------------------------------------------------------------------------------------------
I-12
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
11. Income (Loss) per Share
Basic income (loss) per share is computed using the weighted-average
number of shares outstanding during the period. Diluted income per share uses
the weighted-average number of shares outstanding during the period plus the
dilutive effect of stock options calculated using the treasury stock method.
Weighted average shares used in the computation of basic and diluted income
(loss) per share follows:
Three months ended
- -----------------------------------------------------------------------------------------
(amounts in thousands) January 30, 2005 February 1, 2004
- -----------------------------------------------------------------------------------------
Weighted average common shares outstanding, basic 11,550 11,529
Effect of dilutive stock options 0 330
- -----------------------------------------------------------------------------------------
Weighted average common shares outstanding, diluted 11,550 11,859
Options to purchase 590,625 shares and 247,625 shares of common stock
were not included in the computation of diluted income (loss) per share for the
three months ended January 30, 2005 and February 1, 2004, respectively, because
the exercise price of the options was greater than the average market price of
the common shares.
Options to purchase 119,008 shares of common stock were not included in
the computation of diluted net loss per share for the three months ended January
30, 2005 because the company incurred a net loss for the period.
========================================================================================
Nine months ended
- ----------------------------------------------------------------------------------------
(amounts in thousands) January 30, 2005 February 1, 2004
- ----------------------------------------------------------------------------------------
Weighted average common shares outstanding, basic 11,549 11,522
Effect of dilutive stock options 0 242
- ----------------------------------------------------------------------------------------
Weighted average common shares outstanding, diluted 11,549 11,764
Options to purchase 479,167 shares and 392,606 shares of common stock
were not included in the computation of diluted income (loss) per share for the
nine months ended January 30, 2005 and February 1, 2004, respectively, because
the exercise price of the options was greater than the average market price of
the common shares.
Options to purchase 157,417 shares of common stock were not included in
the computation of diluted net loss per share for the nine months ended January
30, 2005 because the company incurred a net loss for the period.
================================================================================
12. Segment Information
The company's operations are classified into two segments: mattress
fabrics and upholstery fabrics. The mattress fabrics segment principally
manufactures and sells fabrics to bedding manufacturers. The upholstery fabrics
segment principally manufactures and sells fabrics primarily to residential and
commercial (contract) furniture manufacturers. The upholstery fabrics segment
consists of two divisions: Culp Decorative Fabrics and Culp Velvets/Prints.
Since these divisions have similar products, manufacturing processes, customers,
methods of distribution and economic characteristics, they are aggregated for
segment reporting purposes.
I-13
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Effective May 3, 2004, the company began evaluating the operating
performance of its segments based upon income (loss) from operations before
restructuring and related charges or credits and certain unallocated corporate
expenses. Previously, the company evaluated operating segment performance based
upon gross profit. Operating income (loss) for the prior period and gross profit
for both periods by segment is presented for comparative purposes. Unallocated
corporate expenses represent primarily compensation and benefits for certain
executive officers and all costs related to being a public company. Segment
assets include assets used in the operation of each segment and consist of
accounts receivable, inventories, and property, plant and equipment. The company
no longer allocates goodwill to its operating segments for the purposes of
evaluating operating performance.
Financial information for the company's operating segments as follows:
Three months ended
- -------------------------------------------------------------------------------------------------------------------
(dollars in thousands) January 30, 2005 February 1, 2004
- -------------------------------------------------------------------------------------------------------------------
Net sales:
Mattress Fabrics $ 25,576 $ 25,114
Upholstery Fabrics 43,484 51,447
- -------------------------------------------------------------------------------------------------------------------
$ 69,060 $ 76,561
- -------------------------------------------------------------------------------------------------------------------
Gross profit:
Mattress Fabrics $ 3,478 $ 5,093
Upholstery Fabrics 3,391 9,375
- -------------------------------------------------------------------------------------------------------------------
Total segment gross profit 6,869 14,468
Restructuring related charges (4,302) (1) 0
- -------------------------------------------------------------------------------------------------------------------
$ 2,567 $ 14,468
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Mattress Fabrics $ 1,589 $ 3,039
Upholstery Fabrics (2,010) 2,260
- -------------------------------------------------------------------------------------------------------------------
Total segment income (loss) from operations (421) 5,299
Unallocated corporate expenses (901) (1,113)
Goodwill impairment 0 0
Restructuring and related charges (5,437) (2) 0
- -------------------------------------------------------------------------------------------------------------------
$ (6,759) $ 4,186
- -------------------------------------------------------------------------------------------------------------------
(1) Restructuring related charges represent accelerated depreciation associated
with plant and equipment scheduled to be disposed of, either by sale or
abandonment, over the next three months and is included in the cost of
sales line item in the Consolidated Statements of Income (Loss). These
charges primarily relate to the Upholstery Fabrics segment.
(2) Restructuring and related charges represent the $4.3 million in related
charges for accelerated depreciation and $1.1 million in restructuring
charges for asset movement costs and fixed asset write-downs. (see note 9).
Restructuring charges are included in the restructuring expense line item
in the Consolidated Statements of Income (Loss). These charges primarily
relate to the Upholstery Fabrics segment.
I-14
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Nine months ended
(dollars in thousands) January 30, 2005 February 1, 2004
- -------------------------------------------------------------------------------------------------------------------
Net sales:
Mattress Fabrics $ 78,414 $ 79,122
Upholstery Fabrics 133,901 153,846
- -------------------------------------------------------------------------------------------------------------------
$ 212,315 $ 232,968
- -------------------------------------------------------------------------------------------------------------------
Gross profit:
Mattress Fabrics $ 12,735 $ 17,494
Upholstery Fabrics 13,575 25,191
- -------------------------------------------------------------------------------------------------------------------
Total segment gross profit 26,310 42,685
Restructuring related charges (5,501) (3) 0
- -------------------------------------------------------------------------------------------------------------------
$ 20,809 $ 42,685
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Mattress Fabrics $ 7,166 $ 11,430
Upholstery Fabrics (4,417) 3,993
- -------------------------------------------------------------------------------------------------------------------
Total income from operations 2,749 15,423
Unallocated corporate expenses (2,748) (3,827)
Goodwill impairment (5,126) (4) 0
Restructuring and related charges (7,790) (5) 0
- -------------------------------------------------------------------------------------------------------------------
$ (12,915) $ 11,596
- -------------------------------------------------------------------------------------------------------------------
(3) Restructuring related charges primarily represent accelerated depreciation
associated with plant and equipment scheduled to be disposed of, either by
sale or abandonment, over the next three months and inventory markdowns;
both are included in the cost of sales line item in the Consolidated
Statements of Income (Loss). These charges primarily relate to the
Upholstery Fabrics segment.
(4) The goodwill impairment was the result of an evaluation of all the
remaining goodwill associated with the Upholstery Fabrics segment.
(5) Restructuring and related charges primarily represent the $5.5 million in
related charges for accelerated depreciation and inventory markdowns and
$2.3 million in restructuring charges for fixed asset write-downs, employee
termination benefits, and asset movement costs (see note 9). Restructuring
charges are included in the restructuring expense line item in the
Consolidated Statements of Income (Loss). These charges primarily relate to
the Upholstery Fabrics segment.
I-15
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Balance sheet information for the company's operating segments follow:
- --------------------------------------------------------------------------------
(dollars in thousands) January 30, 2005 May 2, 2004
- --------------------------------------------------------------------------------
Segment assets:
Mattress Fabrics
Current assets $ 24,356 $ 24,565
Property, plant and equipment (6) 21,943 23,126
- --------------------------------------------------------------------------------
Total mattress fabrics assets 46,299 47,691
- --------------------------------------------------------------------------------
Upholstery Fabrics
Current assets 48,974 55,199
Property, plant and equipment (7) 43,736 54,644
- --------------------------------------------------------------------------------
Total upholstery fabrics assets 92,710 109,843
- --------------------------------------------------------------------------------
Total segment assets 139,009 157,534
Non-segment assets:
Cash and cash equivalents 13,020 14,568
Deferred income taxes 12,025 9,256
Other current assets 1,088 1,634
Property, plant & equipment 5,345 0
Goodwill 4,114 9,240
Other assets 1,330 1,496
- --------------------------------------------------------------------------------
Total assets $ 175,931 $ 193,728
- --------------------------------------------------------------------------------
Nine months ended
- --------------------------------------------------------------------------------
(dollars in thousands) January 30, 2005 February 1, 2004
- --------------------------------------------------------------------------------
Capital expenditures:
Mattress Fabrics $ 1,988 $ 365
Upholstery Fabrics 962 4,005
Unallocated corporate 5,376(8) 0
- --------------------------------------------------------------------------------
$ 8,326 $ 4,370
- --------------------------------------------------------------------------------
Depreciation expense:
Mattress Fabrics $ 2,743 $ 2,823
Upholstery Fabrics 7,184 7,471
- --------------------------------------------------------------------------------
Total segment depreciation expense 9,927 10,294
Accelerated depreciation 4,578 0
- --------------------------------------------------------------------------------
$ 14,505 $ 10,294
- --------------------------------------------------------------------------------
(6) Included in property, plant and equipment are assets located in the U.S.
totaling $8.3 million and $9.8 million for January 30, 2005 and May 2, 2004,
respectively.
(7) Included in property, plant and equipment are assets located in the U.S.
totaling $40.6 million and $51.5 million for January 30, 2005 and May 2, 2004,
respectively.
(8) Unallocated corporate capital expenditures for fiscal 2005 primarily
represent capital spending for the new corporate office building.
================================================================================
I-16
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
13. Goodwill Impairment
Due to the continued pressure on demand in the Culp Decorative Fabrics
division within the upholstery fabrics segment, operating profits and cash flows
were significantly lower than expected for the second quarter and year to date
for fiscal 2005. As a result, management determined that the goodwill associated
with the segment should be tested for impairment in accordance with the
provisions of FAS 142, Goodwill and Other Intangible Assets. An independent
business valuation specialist was engaged to assist the company in the
determination of the fair market value of the upholstery fabrics segment. The
fair value as determined using several different methods, including comparable
companies, comparable transactions and discounted cash flow analysis was less
than the carrying value. Accordingly, the company recorded a goodwill impairment
charge of $5.1 million ($3.2 million net of taxes of $1.9 million), or $0.28 per
share diluted in the second quarter of fiscal 2005, related to the goodwill
associated with the upholstery fabrics segment. After the goodwill impairment
charge, the company's remaining goodwill of $4.1 million relates to the mattress
fabrics segment.
================================================================================
14. Recent Accounting Pronouncements
In November 2004, the FASB issued SFAS No.151,"Inventory Costs, an
amendment of ARB No.43, Chapter 4," which clarifies the types of costs that
should be expensed rather than capitalized as inventory. This statement also
clarifies the circumstances under which fixed overhead costs associated with
operating facilities involved in inventory processing should be capitalized. The
provisions of SFAS No.151 are effective for fiscal years beginning after June
15, 2005 and the company will adopt this standard in fiscal 2007. Management has
not determined the impact, if any, that this statement will have on our
consolidated financial position or results of operations.
SFAS No. 123 (Revised 2004), "Share-Based Payment," issued in December
2004, is a revision of FASB Statement 123, "Accounting for Stock-Based
Compensation" and supercedes APB Opinion No. 25," Accounting for Stock Issued to
Employees," and its related implementation guidance. The Statement focuses
primarily on accounting for transactions in which an entity obtains employee
services in share-based payment transactions. SFAS No. 123 (Revised 2004)
requires a public entity to measure the cost of employee services received in
exchange for an award of equity instruments based on the grant-date fair value
of the award (with limited exceptions). That cost will be recognized over the
period during which an employee is required to provide service in exchange for
the award. This statement is effective as of the beginning of the first interim
or annual reporting period that begins after June 15, 2005 and the company will
adopt the standard in the second quarter of fiscal 2006. Management has not
determined the impact, if any, that this statement will have on our consolidated
financial position or results of operations.
================================================================================
I-17
ITEM 2.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This Report and the exhibits attached hereto contain statements that may be
deemed "forward-looking statements" within the meaning of the federal securities
laws, including the Private Securities Litigation Reform Act of 1995 (Section
27A of the Securities Act of 1933 and Section 27A of the Securities and Exchange
Act of 1934). Such statements are inherently subject to risks and uncertainties.
Further, forward-looking statements are intended to speak only as of the date on
which they are made. Forward-looking statements are statements that include
projections, expectations or beliefs about future events or results or otherwise
are not statements of historical fact. Such statements are often but not always
characterized by qualifying words such as "expect," "believe," "estimate,"
"plan" and "project" and their derivatives, and include but are not limited to
statements about the company's future operations, production levels, sales, SG&A
or other expenses, margins, gross profit, operating income, earnings or other
performance measures. Factors that could influence the matters discussed in such
statements include the level of housing starts and sales of existing homes,
consumer confidence, trends in disposable income, and general economic
conditions. Decreases in these economic indicators could have a negative effect
on the company's business and prospects. Likewise, increases in interest rates,
particularly home mortgage rates, and increases in consumer debt or the general
rate of inflation, could affect the company adversely. In addition, changes in
consumer preferences for various categories of furniture coverings, as well as
changes in costs to produce such products (including import duties and quotas or
other import costs) can have significant effects on demand for the company's
products. Also, changes in the value of the U.S. dollar versus other currencies
can affect the company's financial results because a significant portion of the
company's operations are located outside the United States. Further, economic
and political instability in international areas could affect the company's
operations or sources of goods in those areas, as well as demand for the
company's products in international markets. Finally, unanticipated delays or
costs in executing restructuring actions could cause the cumulative effect of
restructuring actions to fail to meet the objectives set forth by management.
Other factors that could affect the matters discussed in forward-looking
statements are included in the company's periodic reports filed with the
Securities and Exchange Commission.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The following analysis of financial condition and results of operations
should be read in conjunction with the Financial Statements and Notes and other
exhibits included elsewhere in this report.
Overview
Culp, Inc., which we sometimes refer to as the company, manufactures and
markets mattress fabrics (known as mattress ticking and used for covering
mattresses and box springs) and upholstery fabrics primarily for use in
furniture manufacturing (residential and commercial). 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."
I-18
Management believes that Culp is one of the two largest producers of
mattress fabrics in North America, as measured by total sales, and one of the
three largest marketers of upholstery fabrics for furniture in North America,
again measured by total sales. The company's fabrics are used primarily in the
production of bedding products and residential and commercial upholstered
furniture, including sofas, recliners, chairs, loveseats, sectionals, sofa-beds,
office seating and mattress sets. Although Culp markets fabrics at most price
levels, the company emphasizes fabrics that have broad appeal in the "good" and
"better" priced categories of furniture and bedding.
The company's fiscal year is the 52 or 53 week period ending on the Sunday
closest to April 30. The year-to-date period for fiscal 2005 included 39 weeks
versus 40 weeks for the same period of fiscal 2004. The company's operating
segments are mattress fabrics and upholstery fabrics, with related divisions
organized within those segments. In mattress fabrics, Culp Home Fashions markets
a broad array of fabrics used by bedding manufacturers. In upholstery fabrics,
Culp Decorative Fabrics markets jacquard and dobby woven fabrics for residential
and commercial furniture and yarn for use primarily by the company, with some
outside sales. Culp Velvets/Prints markets velvet, printed fabrics and
microdenier suedes used primarily for residential furniture.
Effective May 3, 2004, the company began allocating selling, general and
administrative expenses to its operating segments and began evaluating the
operating performance of its segments based upon income (loss) from operations
before restructuring and related charges or credits and certain unallocated
corporate expenses. Previously, the company evaluated operating segment
performance based upon gross profit. Operating income (loss) for the prior
period and gross profit for both periods by segment is presented for comparative
purposes. Unallocated corporate expenses represent primarily compensation and
benefits for certain executive officers and all costs related to being a public
company. Segment assets include assets used in the operation of each segment and
consist of accounts receivable, inventories, and property, plant and equipment.
The company no longer allocates goodwill to its operating segments for the
purposes of evaluating operating performance.
The following tables set forth the company's sales, gross profit and
operating income (loss) by segment/division for the three and nine months ended
January 30, 2005 and February 1, 2004.
I-19
CULP, INC.
SALES, GROSS PROFIT AND OPERATING INCOME (LOSS) BY SEGMENT/DIVISION
FOR THE THREE MONTHS ENDED JANUARY 30, 2005 AND FEBRUARY 1, 2004
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
-----------------------------------------------------------
Amounts Percent of Total Sales
----------------------- --------------------------
January 30, February 1, % Over January 30, February 1,
Net Sales by Segment 2005 2004 (Under) 2005 2004
- -------------------- ----------- ----------- -------- ------------ -------------
Mattress Fabrics
Culp Home Fashions $ 25,576 25,114 1.8 % 37.0 % 32.8 %
----------- ----------- -------- ------------ -------------
Upholstery Fabrics
Culp Decorative Fabrics 25,051 29,678 (15.6)% 36.3 % 38.8 %
Culp Velvets/Prints 18,433 21,769 (15.3)% 26.7 % 28.4 %
----------- ----------- -------- ------------ -------------
43,484 51,447 (15.5)% 63.0 % 67.2 %
----------- ----------- -------- ------------ -------------
Net Sales $ 69,060 76,561 (9.8)% 100.0 % 100.0 %
=========== =========== ======== ============ =============
Gross Profit by Segment Gross Profit Margin
- ----------------------- --------------------------
Mattress Fabrics $ 3,478 5,093 (31.7)% 13.6 % 20.3 %
Upholstery Fabrics 3,391 9,375 (63.8)% 7.8 % 18.2 %
----------- ----------- ------- ----------- ------------
Total segment gross profit 6,869 14,468 (52.5)% 9.9 % 18.9 %
Restructuring related charges (1) (4,302) 0 100.0 % (6.2)% 0.0 %
----------- ----------- -------- ------------ -------------
Gross Profit $ 2,567 14,468 (82.3)% 3.7 % 18.9 %
=========== =========== ======== ============ =============
Operating Income (loss) by Segment Operating Income
- ----------------------------------- (Loss) Margin
--------------------------
Mattress Fabrics $ 1,589 3,039 (47.7)% 6.2 % 12.1 %
Upholstery Fabrics (2,010) 2,260 (188.9)% (4.6)% 4.4 %
----------- ----------- ------- ----------- ------------
Total segment operating income (loss) (421) 5,299 (107.9)% (0.6)% 6.9 %
Unallocated corporate expenses (901) (1,113) (19.0)% (1.3)% (1.5)%
Goodwill impairment 0 0 (100.0)% 0.0 % 0.0 %
Restructuring and related charges and credits (1) (5,437) 0 (100.0)% (7.9)% 0.0 %
----------- ----------- -------- ------------ -------------
Operating income (loss) $ (6,759) 4,186 (261.5)% (9.8)% 5.5 %
=========== =========== ======== ============ =============
Depreciation by Segment
- -----------------------
Mattress Fabrics $ 912 937 (2.7)%
Upholstery Fabrics 2,330 2,475 (5.9)%
----------- ----------- -------
Total segment depreciation expense 3,242 3,412 (5.0)%
Accelerated depreciation 4,362 0 100 %
----------- ----------- -------
Total Depreciation $ 7,604 3,412 122.9 %
=========== =========== ========
(1) The $4.3 million represents restructuring related charges for accelerated depreciation. The $5.4 million
represents accelerated depreciation, asset movement costs, and fixed asset write downs.
I-20
CULP, INC.
SALES, GROSS PROFIT AND OPERATING INCOME (LOSS) BY SEGMENT/DIVISION
FOR THE NINE MONTHS ENDED JANUARY 30, 2005 AND FEBRUARY 1, 2004
(Amounts in thousands)
NINE MONTHS ENDED (UNAUDITED)
-----------------------------------------------------------
Amounts Percent of Total Sales
----------------------- -------------------------
January 30, February 1, % Over January 30, February 1,
Net Sales by Segment 2005 2004 (Under) 2005 2004
- -------------------- ----------- ----------- --------- ------------ ------------
Mattress Fabrics
Culp Home Fashions $ 78,414 79,122 (0.9)% 36.9 % 34.0 %
----------- ----------- --------- ------------ ------------
Upholstery Fabrics
Culp Decorative Fabrics 76,249 91,753 (16.9)% 35.9 % 39.4 %
Culp Velvets/Prints 57,652 62,093 (7.2)% 27.2 % 26.7 %
----------- ----------- --------- ------------ ------------
133,901 153,846 (13.0)% 63.1 % 66.0 %
----------- ----------- --------- ------------ ------------
Net Sales $ 212,315 232,968 (8.9)% 100.0 % 100.0 %
=========== =========== ========= ============ ============
Gross Profit by Segment Gross Profit Margin
- ----------------------- -------------------------
Mattress Fabrics $ 12,735 17,494 (27.2)% 16.2 % 22.1 %
Upholstery Fabrics 13,575 25,191 (46.1)% 10.1 % 16.4 %
----------- ----------- -------- ----------- -----------
Total segment gross profit 26,310 42,685 (38.4)% 12.4 % 18.3 %
Restructuring related charges (1) (5,501) 0 100.0 % (2.6)% 0.0 %
----------- ----------- --------- ------------ ------------
Gross Profit $ 20,809 42,685 (51.2)% 9.8 % 18.3 %
=========== =========== ========= ============ ============
Operating Income (loss) by Segment Operating Income
- ----------------------------------- (Loss) Margin
-------------------------
Mattress Fabrics $ 7,166 11,430 (37.3)% 9.1 % 14.4 %
Upholstery Fabrics (4,417) 3,993 (210.6)% (3.3)% 2.6 %
----------- ----------- -------- ----------- -----------
Total segment operating income 2,749 15,423 (82.2)% 1.3 % 6.6 %
Unallocated corporate expenses (2,748) (3,827) (28.2)% (1.3)% (1.6)%
Goodwill impairment (5,126) 0 (100.0)% (2.4)% 0.0 %
Restructuring and related charges and credits (1) (7,790) 0 (100.0)% (3.7)% 0.0 %
----------- ----------- --------- ------------ ------------
Operating income (loss) $ (12,915) 11,596 (211.4)% (6.1)% 5.0 %
=========== =========== ========= ============ ============
Depreciation by Segment
- -----------------------
Mattress Fabrics $ 2,743 2,823 (2.8)%
Upholstery Fabrics 7,184 7,471 (3.8)%
----------- ----------- --------
Total segment depreciation expense 9,927 10,294 (3.6)%
Accelerated depreciation 4,578 0 100.0 %
----------- ----------- --------
Total Depreciation $ 14,505 10,294 40.9 %
=========== =========== =========
(1) The $5.5 million represents restructuring related charges for accelerated depreciation and inventory
markdowns. The $7.8 million represents the $5.5 million in restructuring related charges plus $2.3
million in restructuring charges for accrued termination benefits, asset movement costs and fixed
asset write-down costs.
I-21
Three and Nine Months ended January 30, 2005 compared with Three and Nine Months
ended February 1, 2004
The financial results for the third quarter reflect continued soft demand
for domestically produced upholstery fabrics and, to a lesser extent, pricing
pressures for mattress ticking and higher raw material costs. Additionally,
because of the scheduled holiday plant closings, the third quarter is typically
a slow period of the year for the company's business. For the third quarter of
fiscal 2005, consolidated net sales decreased 9.8% to $69.1 million; and the
company reported a net loss of $4.9 million, or $0.42 per share diluted,
compared with net income of $752,000, or $0.06 per diluted share, for the third
quarter of fiscal 2004. The financial results for the third quarter of fiscal
2005 include $5.4 million in restructuring and related charges, or $3.4 million
net of tax ($0.29 per diluted share). The financial results for the third
quarter of fiscal 2004 included a $1.7 million charge, or $1.1 million net of
tax ($0.10 per diluted share), associated with a $25.0 million prepayment of the
company's outstanding senior notes. For the first nine months of fiscal 2005,
net sales decreased 8.9% to $212.3 million; and the company reported a net loss
of $10.1 million, or $0.88 per share diluted, compared with net income of $3.5
million or $0.30 per share diluted, for the same period last year. The financial
results for the first nine months of fiscal 2005 included $7.8 million in
restructuring and related charges, or $4.9 million net of tax ($0.42 per share)
and $5.1 million in goodwill impairment, or $3.2 million net of tax ($0.28 per
share). The financial results for the first nine months of fiscal 2004 included
the $1.7 million prepayment charge, or $1.1 million net of tax ($0.10 per share
diluted) described above. Year-to-date for fiscal 2005 included 39 weeks versus
40 weeks for the same period of fiscal 2004.
Goodwill Impairment and Restructuring and Related Charges
Third quarter of fiscal 2005 -- The financial results for the third quarter
include a total of $5.4 million in restructuring and related charges. The
charges are made up of the following: (1) $1.0 million in restructuring expenses
related to the dismantling, moving and relocation of equipment to other company
facilities, (2) approximately $143,000 in write-down of equipment and (3) $4.3
million in accelerated depreciation associated with plant and equipment
scheduled to be disposed of, either by sale or by abandonment, by fiscal year
end. As reflected in the financial statements, restructuring and related
expenses were recorded as $1.1 million in the line item "restructuring expense"
and $4.3 million in "cost of sales."
First nine months of fiscal 2005 -- The financial results for the first
nine months of fiscal 2005 include a total of $12.9 million in restructuring and
related charges and goodwill impairment. The charges are made up of the
following: (1) $4.6 million in restructuring related expenses associated with
accelerated depreciation on plant and equipment scheduled to be disposed of,
either by sale or by abandonment, over the next three months; (2) $5.1 million
of goodwill impairment, which represents all of the remaining goodwill
associated with the upholstery fabrics segment (see note 13 in the Notes to the
Consolidated Financial Statements); (3) $1.0 million in restructuring expenses
related to personnel costs; (4) approximately $850,000 of restructuring expenses
related to the dismantling, moving, and relocation of equipment to other company
facilities; (5) approximately $900,000 in restructuring related inventory
markdowns; and (6) approximately $400,000 in write-downs of equipment. As
reflected in the financial statements, restructuring and related expenses were
recorded as $2.3 million in the line item "restructuring expense" and $5.5
million in "cost of sales." The goodwill impairment was accounted for in
accordance with SFAS 142, Goodwill and Other Intangible Assets. The write-down
of equipment and accelerated depreciation was accounted for in accordance with
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
Personnel costs were accounted for in accordance with SFAS No. 112, Accounting
for Employers' Accounting for Postemployment Benefits.
I-22
Mattress Fabrics Segment
Net Sales -- For the third quarter of fiscal 2005, the mattress fabrics
segment reported sales of $25.6 million compared with $25.1 million for the same
period last year. For the first nine months of fiscal 2005, the mattress fabric
segment reported sales of $78.4 million compared with $79.1 million for the same
period last year. As previously addressed, the year-to-date results reflect a 39
week period versus a 40 week period last year. Mattress ticking has become an
increasingly important part of the company's business, accounting for 37% of
total sales through the first nine months of fiscal 2005.
Mattress ticking yards sold during the third quarter of fiscal 2005 were
10.9 million compared with 10.0 million yards in the third quarter of last year,
an increase of 8.8%. For the first nine months of fiscal 2005, mattress ticking
yards sold were 33.0 million yards compared with 31.5 million yards for the same
period last year, an increase of 4.8%. This increase in yards sold for both the
quarter and year-to-date periods is noteworthy because it occurred as the
bedding industry nears the completion of the transition to selling predominantly
one-sided mattresses, which utilize about one-third less mattress ticking. This
transition at retail began in mid to late calendar year 2002 and was expected to
affect sales on a comparable basis through early calendar 2005. The average
selling price was $2.34 per yard for the third quarter, compared to $2.50 per
yard in the same quarter last year, a decrease of 6.4%. For the first nine
months of fiscal 2005, the average selling price for mattress fabrics was $2.36
per yard compared to $2.50 per yard in the same period last year, a decrease of
5.6%.
As indicated earlier, the mattress fabrics segment has faced a challenging
pricing environment this fiscal year. This is due in part to the way customers
buy ticking. There is a current trend among mattress manufacturers toward using
common SKU's and less expensive fabric for the borders, which is the ticking
that goes on the side of mattresses and box springs. In addition, mattress
manufacturers are currently incurring higher costs for other mattress
components, such as steel, as well as costs associated with flame retardant
requirements. As a result of these increased costs, mattress manufacturers are
placing additional pressure on mattress ticking prices, and in some instances
manufacturers are moving to lower priced ticking.
Operating income -- For the third quarter of fiscal 2005, the mattress
fabrics segment reported operating income of $1.6 million, or 6.2% of sales,
compared with $3.0 million, or 12.1% of sales, for the prior year period. For
the first nine months of fiscal 2005, operating income was $7.2 million, or 9.1%
of sales compared to $11.4 million, or 14.4% of sales in fiscal 2004. During the
first nine months of fiscal 2005, operating income has been affected by industry
wide pricing pressure, as well as higher raw material costs due primarily to the
increased cost of petroleum based products. In addition to these pressures,
operating income for the third quarter of fiscal 2005 was affected by
manufacturing variances related to the relocation of mattress ticking looms.
The company is taking aggressive steps to address the challenges facing its
business in this segment. First, as previously announced in October 2004, the
company has identified opportunities to reduce operating costs by consolidating
mattress ticking operations. This $7.0 million capital project involves
relocation of ticking looms from an upholstery fabric plant to existing ticking
facilities in the U.S. and Canada and the purchase of new weaving machines that
are faster and more efficient than the equipment they will replace. This
transition is well underway and is expected to be completed as planned by August
2005. More importantly, this transition is expected to generate $4.5 million in
annual savings. Second, to partially offset higher material costs, the company
is implementing a price increase of approximately three percent in this segment
during the fourth quarter of this fiscal year. Third, the company is placing
more design emphasis on new products with higher margins. Management believes
the steps being taken will help the company improve operating margins.
I-23
Segment Assets - Segment assets consist of accounts receivable, inventory
and property, plant and equipment. As of January 30, 2005, accounts receivable
and inventory totaled $24.4 million, compared to $24.6 at the end of fiscal
2004. Also as of January 30, 2005, property, plant and equipment totaled $21.9
million, compared to $23.1 million at the end of fiscal 2004. Included in
property, plant and equipment are assets located in the U.S. totaling $8.3
million and $9.8 million for January 30, 2005 and May 2, 2004, respectively.
Upholstery Fabrics Segment
Net Sales -- Upholstery fabric sales for the third quarter of fiscal 2005
decreased 15.5% to $43.5 million when compared to the third quarter of fiscal
2004. For the first nine months of fiscal 2005, upholstery fabric sales
decreased 13.0% to $133.9 million when compared to the same period last year.
Upholstery fabric yards sold during the third quarter were 9.5 million versus
11.7 million in the third quarter of fiscal 2004, a decline of 19.0%. For the
first nine months of fiscal 2005, upholstery fabric yards sold were 29.5 million
versus 35.4 million for the same period last year. Average selling price was
$4.18 per yard for the third quarter compared with $4.29 per yard in the same
quarter of last year, a decrease of 2.6 %. For the first nine months of fiscal
2005, the average selling price for upholstery fabrics was $4.22 per yard
compared to $4.19 per yard in the same period last year, an increase of less
than 1.0%.
The lower sales dollars and yards primarily reflect continued soft demand
industry wide for U.S. produced fabrics, as the result of the current consumer
preference for leather and suede furniture and the growing competition from
imported fabrics and cut and sewn kits, primarily from China. This paradigm
shift in the industry is having a significant impact on the company's product
mix, leading to significantly lower sales of domestically produced fabrics and
rapidly growing sales of offshore manufactured and sourced products. Given these
factors, it is difficult for management to predict future demand for upholstery
fabrics manufactured in the U.S. or the extent to which the trend toward lower
demand will continue.
With the company's offshore sourcing efforts, including the China platform,
the company is experiencing higher sales of upholstery fabric products produced
outside of the company's U.S. manufacturing plants for fiscal 2005. For the
third quarter of fiscal 2005, these sales increased 92.0% over the prior year
period and accounted for approximately $8.3 million or 19.2% of upholstery
fabric sales for the quarter. Offshore sourced fabrics of $4.3 million accounted
for approximately 8.4% of upholstery fabric sales for the same period last year.
Operating income (loss) -- Operating loss for the third quarter of fiscal
2005 was $2.0 million or 4.6% of sales, compared with operating income of $2.3
million, or 4.4% of sales, for the same period last year. For the first nine
months of fiscal 2005, this segment has experienced an operating loss of $4.4
million or 3.3% of sales, compared with operating income of $4.0 million or 2.6%
of sales, for the same period last year. This significant decrease in segment
operating income as compared to last year was primarily due to further
underutilization of the company's U.S. manufacturing capacity and manufacturing
variances related to restructuring activities. Additionally, the upholstery
fabrics segment has been experiencing higher raw material costs due mainly to
the increase in cost of petroleum based products. Also, included in the
operating loss for the third quarter was a favorable impact of approximately
$500,000 related to a change in the inventory aging percentages for the
converted product line, which are products sourced, primarily from Asia, by the
CVP division. The change was made in order to more accurately reflect current
market conditions and the company's actual experiences.
I-24
In January 2005, Solutia, which is the company's supplier for acrylic
fiber, announced plans to exit the acrylic fiber business by mid-April 2005. The
company has already identified and is working closely with international
suppliers as alternative sources for procuring acrylic fiber. However, until the
fiber purchased from Solutia is utilized and the company begins using these new
suppliers, higher fiber costs will be incurred. To partially offset higher raw
material prices, the company recently announced a price increase of
approximately three to four percent on domestically produced upholstery fabrics.
The company is currently implementing an aggressive restructuring plan to
address the significant decline in operating profit in this segment. The purpose
of the restructuring plan, announced in October 2004, is to consolidate the
decorative fabrics weaving and yarn operations, reduce manufacturing
complexities and lower costs, and significantly reduce selling, general and
administrative expenses. The restructuring is moving ahead as planned and
management believes that the steps taken will improve operating efficiency and
will result in higher asset utilization. However, management will continue to
closely monitor trends in demand for upholstery fabrics produced by its domestic
mills. If sales in the upholstery fabrics segment of U.S.-produced goods
continue to decline and the segment is not able to produce acceptable levels of
operating profit, the company will take additional actions to adjust its cost
structure and capacity to match demand from its customers. The company could
experience additional write-downs of its property, plant and equipment in this
business if further restructuring actions or consolidations of assets take
place.
Segment Assets - Segment assets consist of accounts receivable, inventory
and property, plant and equipment. As of January 30, 2005, accounts receivable
and inventory totaled $49.0 million, compared to $55.2 million at the end of
fiscal 2004. Also as of January 30, 2005, property, plant and equipment totaled
$43.7 million, compared to $54.6 million at the end of fiscal 2004. Included in
property, plant and equipment are assets located in the U.S. totaling $40.6
million and $51.5 million for January 30, 2005 and May 2, 2004, respectively.
Other Corporate Expenses
Selling, General and Administrative Expenses -- SG&A expenses of $8.2
million for the third quarter of fiscal 2005 decreased approximately $2.1
million, or 20.3%, from the prior year amount. As a percent of net sales, SG&A
expenses decreased to 11.9% from 13.4% the previous year, due mostly to lower
incentive compensation expense and significant cost reductions, mainly in the
sales and marketing expense areas. Year-to-date results also reflect lower
spending, as SG&A expenses have decreased by approximately $4.8 million or 15.4%
to $26.3 million compared to the same period last year for primarily the same
reasons as in the third quarter.
Interest Expense (Income) - Interest expense for the third quarter declined
to $912,000 from $1.5 million the previous year due to lower borrowings
outstanding. Interest income decreased to $42,000 from $113,000 the previous
year due to lower invested balances in fiscal 2005. The year-to-date interest
expense and interest income are significantly lower than last year for the same
reasons.
Income Taxes -- The effective tax rate (taxes as a percentage of pretax
income (loss)) for the first nine months of fiscal 2005 was 36.9% compared with
33.0% for the first nine months of fiscal 2004.
As of January 30, 2005, the company has net deferred income assets of $12.0
million, an increase of $6.9 million over net deferred income tax assets of $5.1
million recorded at the fiscal year ended May 2, 2004. This increase results
primarily from the federal and state tax benefits recorded for the loss from
U.S. operations for the first nine months of fiscal 2005.
I-25
Liquidity and Capital Resources
Liquidity --The company's sources of liquidity include cash and cash
equivalents, cash flow from operations and amounts available under its revolving
credit line. These sources have been adequate for day-to-day operations and
capital expenditures. The company believes its sources of liquidity continue to
be adequate to meet its current needs. Cash and cash equivalents as of January
30, 2005 decreased to $13.0 million from $14.6 million at the end of fiscal
2004, primarily reflecting cash flow from operations of $8.6 million, capital
expenditures and payments on vendor financed capital expenditures of $9.6
million, and payments on long-term debt of $471,000.
Working Capital -- Accounts receivable as of January 30, 2005 decreased
5.7% from the year-earlier level. Days sales outstanding totaled 32 days at
January 30, 2005 compared with 31 days a year ago. Inventories at the close of
the third quarter decreased 10.3% from a year ago. Inventory turns for the third
quarter were 5.6 versus 4.7 for the year-earlier period. Operating working
capital (comprised of accounts receivable and inventories, less trade accounts
payable) was $57.8 million at January 30, 2005 down from $62.5 million a year
ago.
Financing Arrangements -- The company's long-term debt of $50.6 million is
unsecured and is comprised of $50.0 million in outstanding senior notes, with a
fixed interest rate of 7.76%, and a $584,000, non-interest bearing term loan
with the Canadian government. Additionally, the company has a $10.0 million
revolving credit line with a bank. As of January 30, 2005 there was $406,000 in
outstanding letters of credit in support of inventory purchases and no
borrowings outstanding under the agreement. The current bank agreement expires
in August 2005. The first scheduled principal payment on the $50.0 million
senior notes is due March 2006 in the amount of $7.5 million. The Canadian
government loan is repaid in annual installments of approximately $600,000 per
year. The company was in compliance with all financial covenants in its loan
agreements as of January 30, 2005.
In February 2005, the company amended its bank agreement with its lender to
change the Interest and Leases Coverage Ratio such that at the end of each
Fiscal Quarter beginning with the third Fiscal Quarter of Fiscal Year 2005, the
Interest and Leases Coverage Ratio shall not be less than 1.25 to 1.0.
Capital Expenditures -- Capital spending for the first nine months of
fiscal 2005 was $8.3 million, including $29,000 that is the non-cash portion of
capital expenditures representing vendor financing. Also included in the $8.3
million is approximately $5.4 million in capital spending for the purchase of a
building that will serve as the company's new corporate offices and as new space
for the company's showrooms. The company expects the annual operating costs of
the new building to be significantly lower than the lease and related costs
associated with the current facilities. Depreciation for the third quarter was
$7.6 million, of which approximately $4.3 million was related to accelerated
depreciation associated with plant and equipment scheduled to be disposed of
over the next three months. The company's capital budget for fiscal 2005 is
$15.6 million, including approximately $2.0 million budgeted for the non-cash
portion of expenditures representing vendor financing.
Cash Flow from Operations -- Cash flow from operations was $8.6 million for
the first nine months of fiscal 2005, compared with $16.8 million for the same
period last year. This decrease was due primarily to lower profitability.
I-26
Critical Accounting Policies and Recent Accounting Developments
The company considered the disclosure requirements of Financial Reporting
Release No. 60 regarding critical accounting policies and Financial Reporting
Release No. 61 regarding liquidity and capital resources, certain trading
activities and related party/certain other disclosures, and concluded that there
were no material changes during the first nine months of fiscal 2005 that would
warrant further disclosure beyond those matters previously disclosed in the
company's Annual Report on Form 10-K for the year ended May 2, 2004.
In November 2004, the FASB issued SFAS No.151,"Inventory Costs, an
amendment of ARB No.43, Chapter 4," which clarifies the circumstances under
which fixed overhead costs associated with operating facilities involved in
inventory processing should be capitalized. The provisions of SFAS No.151 are
effective for fiscal years beginning after June 15, 2005 and the company will
adopt this standard in fiscal 2007. Management has not determined the impact, if
any, that this statement will have on the company's consolidated financial
position or results of operations.
SFAS No. 123 (Revised 2004), "Share-Based Payment," issued in December
2004, is a revision of FASB Statement 123, "Accounting for Stock-Based
Compensation" and supercedes APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and its related implementation guidance. The Statement focuses
primarily on accounting for transactions in which an entity obtains employee
services in share-based payment transactions. SFAS No. 123 (Revised 2004)
requires a public entity to measure the cost of employee services received in
exchange for an award of equity instruments based on the grant-date fair value
of the award (with limited exceptions). The cost will be recognized over the
period during which an employee is required to provide service in exchange for
the award. This statement is effective as of the beginning of the first interim
or annual reporting period that begins after June 15, 2005 and the company will
adopt the standard in the second quarter of fiscal 2006. Management has not
determined the impact, if any, that this statement will have on our consolidated
financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company is exposed to market risk from changes in interest rates on
debt and foreign currency exchange rates. The company's market risk sensitive
instruments are not entered into for trading purposes. The company'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. As of January 30, 2005, there were no borrowings outstanding under
the company's revolving credit agreement. Additionally, approximately 99% of the
company's long-term debt is at a fixed rate. Thus, any reasonably foreseeable
change in interest rates would have no material effect on the company's interest
expense.
The company's exposure to fluctuations in foreign currency exchange rates
is due primarily to a foreign subsidiary domiciled in Canada and firmly
committed and anticipated purchases of certain machinery, equipment and raw
materials in foreign currencies. The company's Canadian subsidiary uses the
United States dollar as its functional currency. The company generally does not
use financial derivative instruments to hedge foreign currency exchange rate
risks associated with the Canadian subsidiary. However, the company generally
enters into foreign exchange forward and option contracts as a hedge against its
exposure to currency fluctuations on firmly committed and anticipated purchases
of certain machinery, equipment and raw materials. The company does not have any
open forward or option contracts outstanding as of January 30, 2005. The amount
of Canadian-denominated sales and manufacturing costs is not material to the
company's consolidated results of operations; therefore, a 10% change in the
exchange rate at January 30, 2005 would not have a significant impact on the
company's results of operations or financial position. Additionally, as the
company utilizes foreign currency instruments for hedging anticipated and firmly
committed transactions, a loss in fair value for those instruments is generally
offset by increases in the value of the underlying exposure.
I-27
Due to the start up of operations in China, the company does have exposure
to fluctuations in currency rates if China allows its currency to float, since
it has been essentially fixed in relation to the U.S. dollar. Currently, the
risk cannot be hedged. The amount of sales and manufacturing costs denominated
in Chinese currency is not material to the company's consolidated results of
operations; therefore, a 10% change in the exchange rate at January 30, 2005
would not have a significant impact on the company's results of operations or
financial position.
ITEM 4. CONTROLS AND PROCEDURES
The company conducted a review and evaluation of its disclosure controls
and procedures, under the supervision and with the participation of the
company's principal executive officer and principal financial officer as of
January 30, 2005, and the principal executive officer and principal financial
officer have concluded that the company's disclosure controls and procedures are
adequate and effective. In addition, no change in the company's internal control
over financial reporting has occurred during, or subsequent to, the period
covered by this report that has materially affected, or is reasonably likely to
materially affect, the company's internal control over financial reporting.
I-28
Part II - Other Information
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Item 6. Exhibits
(a) The following exhibits are filed as part of this report.
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 July 28, 2002, filed September 11,
2002, and are incorporated herein by reference.
3(ii) Restated and Amended Bylaws of the company, as amended
June 12, 2001, were filed as Exhibit 3(ii) to the
company's Form 10-Q for the quarter ended July 29, 2001,
filed September 12, 2001, and are incorporated herein by
reference.
10(a) Third Amendment to Amended and Restated Credit Agreement
dated as of August 23, 2004 among Culp, Inc. and Wachovia
Bank, National Association, as Agent and as Bank, filed
as Exhibit 10 to Current Report on Form 8-K dated August
26, 2004, and incorporated herein by reference.
10(b) Fourth Amendment to Amended and Restated Credit Agreement
dated as of December 7, 2004 among Culp, Inc. and
Wachovia Bank, National Association, as Agent and as
Bank, filed as Exhibit 10(b) to the company's Form 10Q
for the quarter ended October 31, 2004, filed December 9,
2004, and incorporated herein by reference.
10(c) Fifth Amendment to Amended and Restated Credit
Agreement dated as of February 18, 2005 among Culp,
Inc. and Wachovia Bank, National Association, as Agent
and as Bank filed as Exhibit 99(c) to Current Report on
Form 8-K dated February 18, 2005, and incorporated
herein by reference.
31.1 Certification of Chief Executive Officer Pursuant to
Section 302 of Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer Pursuant to
Section 302 of Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer Pursuant to
Section 906 of Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer Pursuant to
Section 906 of Sarbanes-Oxley Act of 2002.
II-1
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CULP, INC.
(Registrant)
Date: March 10, 2005 By: /s/ Franklin N. Saxon
-----------------
Franklin N. Saxon
President and Chief Operating Officer
(Authorized to sign on behalf
of the registrant and also signing as
principal financial officer)
By: /s/ Kenneth R. Bowling
------------------
Kenneth R. Bowling
Vice President-Finance, Treasurer
(Authorized to sign on behalf
of the registrant and also signing as
principal accounting officer)
II-2