SEC Filing | Culp Inc

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 10, 1997

REGISTRATION NO. 333-18199

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

AMENDMENT NO. 1

FORM S-3

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

CULP, INC.

(Exact name of registrant as specified in its charter)

NORTH CAROLINA 2221 56-1001967
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)

101 SOUTH MAIN STREET
HIGH POINT, NORTH CAROLINA 27261-2686
TEL: (910) 889-5161

(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

FRANKLIN N. SAXON
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
CULP, INC.
101 SOUTH MAIN STREET
HIGH POINT, NORTH CAROLINA 27261-2686
TEL: (910) 889-5161

(Name, address, including zip code, and telephone number, including
area code, of agent for service)

COPIES TO:

ROBIN L. HINSON DAVID M. CARTER
HENRY H. RALSTON HUNTON & WILLIAMS
ROBINSON, BRADSHAW & HINSON, P.A. RIVERFRONT PLAZA
1900 INDEPENDENCE CENTER 951 EAST BYRD STREET
CHARLOTTE, NORTH CAROLINA 28246 RICHMOND, VIRGINIA 23219-4074
TEL: (704) 377-2536 TEL: (804) 788-8200

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. ( )
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: ( )
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: ( )
If this Form is a post-effective amendment filed pursuant to Rule 462(e)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: ( )
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: ( )

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

(Redherring appears on the left hand side of the page, rotated at 90 degrees.
Copy is as follows:)

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED JANUARY 10, 1997

1,600,000 Shares
(Culp logo appears here)

Common Stock

Of the 1,600,000 shares of common stock (the "Common Stock") of Culp, Inc.
("Culp" or the "Company") offered hereby, 1,200,000 shares are being offered by
the Company and 400,000 shares are being offered by certain shareholders of the
Company (the "Selling Shareholders"). See "Selling Shareholders." The Company
will not receive any of the proceeds from the sale of shares offered by the
Selling Shareholders in this Offering (the "Offering").

The Common Stock is listed on the New York Stock Exchange (the "NYSE")
under the symbol "CFI." On January 9, 1997, the last reported sales price of the
Common Stock on the NYSE was $14.125 per share. See "Price Range of Common Stock
and Dividend Policy."

SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) SHAREHOLDERS

Per Share...................................... $ $ $ $
Total (3)...................................... $ $ $ $

(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."

(2) Before deducting expenses of this Offering, all of which are payable by the
Company, estimated at $500,000.

(3) The Selling Shareholders have granted the Underwriters an option,
exercisable within 30 days of the date hereof, to purchase up to an
additional 240,000 shares of Common Stock solely to cover over-allotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to Selling Shareholders will be $ ,
$ and $ , respectively. See "Underwriting."

The Shares are being offered by the several Underwriters, subject to prior
sale, when, as and if delivered to and accepted by them, and subject to certain
conditions. Delivery of the shares is expected against payment therefor on or
about , 1997, at the offices of Wheat, First Securities, Inc.,
Richmond, Virginia.

Wheat First Butcher Singer Raymond James & Associates, Inc.

The date of this Prospectus is , 1997.

[An image of a jacquard fabric provides a background for the text appearing on
this page.]

[PHOTOS OF COMPANY PRODUCT AND END-USE APPLICATIONS]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. ANY SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

[A STYLIZED MAP OF THE WORLD DEPICTING GEOGRAPHIC AREAS OF THE COMPANY'S SALES
OVERLAID ON FABRIC PATTERN BACKGROUND.]

PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL
STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS.
UNLESS OTHERWISE INDICATED, ALL INFORMATION CONTAINED HEREIN ASSUMES NO EXERCISE
OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION OR OF OPTIONS TO PURCHASE COMMON
STOCK OUTSTANDING AS OF THE DATE OF THIS PROSPECTUS.

THE COMPANY

Culp is the largest manufacturer and marketer of furniture upholstery
fabrics in the world and is a leading 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. From fiscal 1992 to fiscal 1996, the Company's net
sales increased at a compound annual rate of 16.4% from $191.3 million to $351.7
million and earnings per share increased at a compound annual rate of 38.0% from
$0.27 to $0.98. Through the most recent quarter ended October 27, 1996, the
Company has achieved 16 consecutive quarters of record earnings per share and 14
consecutive quarters of record net sales, based on comparative periods. Culp has
paid quarterly cash dividends since 1983, and the annual rate of dividends has
been increased each year since 1990.

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 uncolored, unfinished base fabrics (known as greige
goods) used in its products. Culp's staff of over 50 designers uses
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.

The Company's sales growth has occurred across a variety of product lines,
and Culp has developed its manufacturing capabilities with the flexibility to
take advantage of growth opportunities. For example, the Company has recently
experienced a substantial increase in sales of wet-printed flock upholstery
fabrics due to: (i) recent product development improvements in wet-printed flock
manufacturing processes that have enhanced the value of the product to the
consumer as an alternative to more expensive woven velvet fabrics, (ii) strong
international demand for these fabrics and (iii) disruption in the production of
wet-printed flock fabrics experienced by a major competitor that has reduced
available product supply on a near-term basis. To support further sales growth,
the Company intends to open a new facility that is expected to approximately
double its wet-printing capacity. In addition, the Company has experienced
significant growth in sales of printed jacquard upholstery fabrics and mattress
ticking. This increase has resulted from the product line expansion of printed
jacquard mattress ticking, a product category pioneered by the Company,
improvements in printing technologies and the integration of the acquisition of
Rayonese Textile Inc. ("Rayonese") in fiscal 1995.

Culp markets its products worldwide, with sales to customers in over 50
countries. The Company's international sales have increased from $44.0 million
in fiscal 1994 to $77.4 million in fiscal 1996 and were $45.9 million in the
first six months of fiscal 1997. Although shipments to U.S.-based customers
continue to account for most of the Company's sales, Culp's success in building
a global presence has led to an increasing proportion of sales to international
accounts (23.4% of net sales for the first six months of the current fiscal
year). The Company's network of 30 international sales agents represents Culp's
products in major furniture and bedding markets outside the United States.

Over the past five fiscal years, the Company has invested $73.5 million in
capital expenditures to expand its manufacturing capacity, install more
efficient production equipment and vertically integrate its operations. These
expenditures, which have reduced the Company's manufacturing costs, have
included 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 expects to spend
approximately $31 million in capital expenditures during fiscal 1997. A
substantial portion of fiscal 1997's planned expenditures is targeted to expand
the Company's capacity to support sales growth in wet-printed flock fabrics and
printed jacquard upholstery fabrics and mattress ticking and to vertically
integrate a key process in producing unprinted flock greige goods. As a result
of expenditures to date, the Company has been able to support a substantially
higher level of sales, as well as lower its production costs and enhance its
relative competitive position.

Culp has complemented its internal expansion with strategic acquisitions.
The most recent acquisitions include its Rossville/Chromatex business unit
("Rossville/Chromatex") in fiscal 1994 and Rayonese in fiscal 1995. Each of
these acquisitions has been successfully integrated into the Company's
operations and has contributed to Culp's growth.

Trends in upholstery fabrics and mattress ticking demand generally parallel
trends in demand for furniture and bedding. Culp believes that U.S. demographic
trends, particularly the maturation of the "baby boom" generation, will continue
to support long-term growth of the U.S. furniture and bedding industries.
Although the demand for home furnishings in more developed international
geographic regions such as Western Europe is relatively mature, major areas such
as Eastern Europe, the Middle East and Asia are experiencing significant
increases in sales of furniture and home furnishings. Consumers in these areas
are attracted to designs that mirror American tastes, and Culp has been able to
capitalize on this preference.

Management believes that Culp's position as a leading worldwide
manufacturer and marketer of upholstery fabrics and mattress ticking is the
result of the following competitive strengths: (i) broad product offering and
diverse manufacturing capabilities, (ii) manufacturing efficiency and vertical
integration, (iii) design innovation, (iv) diverse global customer base, (v)
distribution capability, (vi) commitment to customer service and (vii) the
ability to integrate acquisitions.

GROWTH STRATEGY

The Company's strategy for continued growth includes five key initiatives:

EXPAND WET-PRINTED FLOCK FABRIC CAPACITY. Culp plans to capitalize on the
increasing worldwide popularity of wet-printed flock fabrics through the
addition of wet-printing equipment and flock coating machinery. In November
1996, the Company's Board of Directors approved capital expenditures for a new
facility that will approximately double Culp's wet-printed flock fabric
capacity. The Company currently plans to begin production at this facility by
July 1997.

GROW INTERNATIONAL SALES. Culp is focusing on expanding its international
sales to capitalize on the growth in demand for furniture and bedding in many
markets outside the United States. Factors aiding Culp include a growing
preference for American designs, the relatively low importance of labor costs in
the Company's fabrics, the Company's overall manufacturing efficiency and Culp's
worldwide distribution capability. The Company plans to continue expanding its
international sales network and is exploring the establishment of distribution
facilities in certain areas outside the United States.

INCREASE CAPACITY FOR PRINTED JACQUARD FABRICS. The Company has experienced
significant growth in sales of printed jacquard mattress ticking and upholstery
fabrics. These fabrics feature designs printed on jacquard greige goods and
offer popular pricing and an appearance traditionally available only on more
expensive woven jacquard fabrics in which the design is woven into the fabric.
The Company's success with printed jacquard fabrics has been possible because of
the Company's diverse printing and finishing capabilities coupled with the
internal availability of jacquard greige goods. To support further sales growth
of these products, the Company is currently expanding capacity at Rayonese by
installing additional narrow and wide-width weaving machines to produce more
jacquard greige goods.

ENHANCE PRODUCT VALUE AND INCREASE VERTICAL INTEGRATION. Culp has
implemented a company-wide program in recent years designed to enhance the
competitive value of its upholstery fabrics and mattress ticking. The Company
believes that this initiative will continue to be vital to its future success in
increasing sales to existing customers as well as broadening its customer base.
This program involves a widespread effort to address manufacturing efficiency,
distribution capability, customer service and design innovation. The Company
believes that the continuation of this effort, including strategic initiatives
to expand vertical integration, will lead to further gains in market share.

PURSUE ADDITIONAL STRATEGIC ACQUISITIONS. The Company's growth has been
significantly enhanced by the integration of strategic acquisitions of
complementary businesses, including Rossville/Chromatex in fiscal 1994 and
Rayonese in fiscal 1995. The Company believes that the continuing trend toward
consolidation within its industry may offer additional opportunities to acquire
complementary businesses on a selective basis.

RECENT DEVELOPMENTS

In addition to the planned expansion of the Company's wet-printing capacity
described above, the Company recently received "best efforts" commitments from
its principal bank lenders, Wachovia Bank of North Carolina, N.A. and First
Union National Bank of North Carolina, to refinance its existing $66 million
credit facility with a $125 million syndicated five-year, unsecured,
multi-currency credit facility. Terms of the proposed new facility include
reduced interest costs, less restrictive financial covenants and additional
borrowing capacity to fund capital expenditures, working capital needs and other
corporate uses, including possible acquisitions. The agent for these lenders has
agreed to use commercially reasonable efforts to complete this refinancing,
which is expected to include several leading international lending institutions.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

The Company's principal executive offices are located at 101 South Main
Street, High Point, North Carolina 27261.

THE OFFERING

Common Stock offered by:
The Company.......................................................... 1,200,000 shares
The Selling Shareholders............................................. 400,000 shares
Common Stock to be outstanding after the Offering...................... 12,540,577 shares
NYSE symbol............................................................ "CFI"
Use of proceeds by the Company......................................... For expansion of facilities, equipment purchases,
possible future acquisitions, repayment of debt,
working capital and other general corporate purposes.
See "Use of Proceeds."

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

(in thousands, except per share data)

SIX MONTHS ENDED
FISCAL (1) OCT. 29, OCT. 27,
1992 1993 1994 1995 1996 1995 1996

STATEMENT OF INCOME DATA:
Net sales..................................... $191,311 $200,783 $245,049 $308,026 $351,667 $163,029 $195,733
Cost of sales................................. 161,204 168,599 202,426 253,345 289,129 134,724 160,691
Gross profit.................................. 30,107 32,184 42,623 54,681 62,538 28,305 35,042
Selling, general and administrative
expenses.................................... 24,597 24,203 27,858 33,432 39,068 18,129 22,568
Income from operations........................ 5,510 7,981 14,765 21,249 23,470 10,176 12,474
Interest expense.............................. 1,421 1,409 2,515 4,715 5,316 2,685 2,424
Interest income............................... (136) (29) (79) (64) (92) -- (117)
Other expense................................. 288 1 350 1,082 956 326 696
Income before income taxes.................... 3,937 6,600 11,979 15,516 17,290 7,165 9,471
Income taxes.................................. 964 2,099 4,314 5,741 6,310 2,650 3,551
Net income.................................... $ 2,973 $ 4,501 $ 7,665 $ 9,775 $ 10,980 $ 4,515 $ 5,920
Net income per share.......................... $ 0.27 $ 0.41 $ 0.69 $ 0.87 $ 0.98 $ 0.40 $ 0.52
Cash dividends per share...................... $ 0.049 $ 0.064 $ 0.080 $ 0.100 $ 0.110 $ 0.055 $ 0.065

Weighted average shares outstanding........... 10,827 10,875 11,076 11,203 11,234 11,209 11,304

OTHER DATA:
Capital expenditures.......................... $ 12,396 $ 11,938 $ 16,764 $ 18,058 $ 14,385 $ 5,090 $ 9,676
Depreciation.................................. 7,085 6,724 8,497 11,257 12,348 6,138 6,321
Net sales per employee (2).................... 108 111 118 118 125 60 64

AS OF OCTOBER 27, 1996
AS
ACTUAL ADJUSTED (4)

BALANCE SHEET DATA:
Working capital...................................................................................... $ 57,230 $ 57,230
Total assets......................................................................................... 219,527 219,527
Long-term debt, including current maturities......................................................... 79,991 64,558
Funded debt (3)...................................................................................... 74,612 59,179
Shareholders' equity................................................................................. 86,835 102,268

(1) The Company's fiscal year ends on the Sunday closest to April 30.
Accordingly, references to fiscal 1992, fiscal 1993, fiscal 1994, fiscal
1995 and fiscal 1996 refer to the fiscal years ended on May 3, 1992, May 2,
1993, May 1, 1994, April 30, 1995 and April 28, 1996, respectively.

(2) Net sales per employee represents net sales for the period divided by the
average number of employees. The average number of employees is calculated
using the number of employees at the beginning and end of each month in the
respective period.

(3) Funded debt is long-term debt, including current maturities, less restricted
investments, which are segregated industrial revenue bond funds pending
application by the Company.

(4) Gives effect to the sale of shares offered by the Company hereby. The $15.4
million estimated net proceeds from the sale of the shares offered by the
Company (after deduction for estimated underwriting discounts and
commissions and offering expenses) have been applied to reduce the balance
of the Company's revolving credit line (long-term debt) pending their
ultimate use. See "Use of Proceeds."

RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE
FOLLOWING RISK FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE COMPANY
AND ITS BUSINESS BEFORE PURCHASING THE COMMON STOCK OFFERED HEREBY. THIS
PROSPECTUS, INCLUDING INFORMATION INCORPORATED BY REFERENCE HEREIN, CONTAINS
CERTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), WHICH REPRESENT THE
COMPANY'S EXPECTATIONS OR BELIEFS, INCLUDING, BUT NOT LIMITED TO, STATEMENTS
CONCERNING INDUSTRY PERFORMANCE, THE COMPANY'S OPERATIONS, PERFORMANCE,
FINANCIAL CONDITION, GROWTH AND ACQUISITION STRATEGIES, MARGINS AND GROWTH IN
SALES OF THE COMPANY'S PRODUCTS. FOR THIS PURPOSE, ANY STATEMENTS CONTAINED IN
THIS PROSPECTUS THAT ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE DEEMED TO BE
FORWARD-LOOKING STATEMENTS. THESE STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL
RISKS AND UNCERTAINTIES, CERTAIN OF WHICH ARE BEYOND THE COMPANY'S CONTROL, AND
ACTUAL RESULTS MAY DIFFER MATERIALLY DEPENDING ON A VARIETY OF IMPORTANT
FACTORS, INCLUDING THOSE DESCRIBED IN THIS "RISK FACTORS" SECTION.

ECONOMIC CONDITIONS. Demand for the Company's products generally is
dependent upon consumer demand for, and production levels of, upholstered
furniture and bedding products, which in turn fluctuate with U.S. and
international economic conditions and cycles. Demand generally is higher during
periods of economic strength and lower during periods of economic weakness or
uncertainty. Key economic conditions influencing demand for Culp's products are
housing starts, sales of existing homes, the level of consumer confidence,
population demographics, trends in disposable income, the level of consumer
spending, prevailing interest rates for home mortgages and the availability of
consumer credit. Adverse economic conditions could have a material adverse
effect on the Company.

COMPETITION. The markets for the Company's products are highly competitive.
Competitive factors include price, quality, product design and styling and
customer service. The Company's market share could be significantly affected by
any one or more of these factors, which could have a material adverse effect on
the Company. In addition, although the Company is the largest supplier of
upholstery fabric to the furniture industry and one of the largest suppliers of
mattress ticking to the bedding industry, some of the Company's competitors are
larger overall and have greater financial resources than the Company. Although
the Company is planning to expand its wet-printing capacity by adding an
additional facility, there can be no assurance that this facility will be
completed on schedule or that, once it is completed, this facility will be
successful. Additionally, there can be no assurance that other competitors will
not expand their capacity to produce wet-printed flock fabrics, thereby reducing
the Company's market opportunity. See "Business -- Competition."

PRICING AND AVAILABILITY OF RAW MATERIALS. Raw material costs make up more
than half of the Company's total production expenses. The Company is dependent
upon outside suppliers for most of its raw material needs. The Company is
subject to price increases and delays in receiving supplies of these materials.
Although most of the Company's raw materials are available from more than one
source, a disruption in the availability or price increases of raw materials
could have an adverse effect on the Company. In particular, the Company
currently relies on one supplier for the bulk of its flock greige goods (the
base fabric used in producing printed flock fabrics). Due to the limited supply
of flock greige goods, there can be no assurance that the Company will be able
to obtain sufficient quantities of this raw material at economical prices if its
existing supply is interrupted. Although the Company plans to begin operating
its own flock coating manufacturing line to produce flock greige goods during
the fourth quarter of fiscal 1997, the flock-coating process differs
substantially from other manufacturing processes used by the Company.
Accordingly, unforeseen technological difficulties or other matters could
materially delay the Company's production of flock greige goods.

Raw material prices increased during fiscal 1995 and 1996, and the Company
was unable to fully pass along to customers such increases through higher
selling prices. In certain cases, the Company has been able to offset, in whole
or in part, raw material price increases by increased production efficiencies or
a shift to different fabric constructions. There can be no assurance that
significant raw material price increases will not occur in the future or that
profit margins will not be adversely affected by such price increases. See
"Business -- Sources and Availability of Raw Materials."

ACQUISITION RISK. The Company evaluates acquisition opportunities in the
ordinary course of its business. Acquisitions involve numerous risks, including
difficulties in the assimilation of the operations and services of the acquired
companies, the expenses incurred in connection with the acquisition, the
diversion of management's attention from other business concerns and the
potential loss of key employees of the acquired company. There can be no
assurance that future acquisitions, if any, will be successfully integrated into
the Company's operations. In addition, there can be no assurance that the
Company will complete any future acquisitions or that acquisitions will
contribute favorably to the Company's operations and financial condition.

INTERNATIONAL BUSINESS RISKS. International sales have increased from $44.0
million in fiscal 1994 to $77.4 million in fiscal 1996. Such sales are subject
to certain international business risks, including possible unsettled political
conditions, expropriation, import and export restrictions, exchange controls,
inflationary economies and currency risks. The Company's business is generally
conducted in U.S. dollars. Accordingly, fluctuations in currency exchange rates
may adversely affect the ability of the Company to compete effectively with
firms located outside the United States. In particular, strengthening of the
U.S. dollar against foreign currencies could make the Company's products less
competitive on the basis of price in international markets.

ENVIRONMENTAL AND OTHER REGULATIONS. The Company is subject to federal,
state and local laws and regulations in the areas of safety, health and
environmental pollution controls. The Company treats dyeing waste in its
wastewater treatment system operated under governmental permits. Although the
Company believes it is in material compliance with these laws and regulations,
there can be no assurance that environmental requirements will not become more
stringent in the future or that the Company will not incur substantial costs to
comply with such requirements. A failure of the Company to comply with such laws
and regulations could subject it to liability ranging from monetary damages to
injunctive action, which could adversely affect the Company. See
"Business -- Environmental and Other Regulations."

DEPENDENCE UPON KEY PERSONNEL. The Company is dependent upon the continued
services of certain members of senior management, in particular those of Robert
G. Culp, III, Chairman and Chief Executive Officer, and Howard L. Dunn,
President and Chief Operating Officer, two of the founders of the Company. The
Company believes the loss of the services of key members of senior management
could have an adverse effect on the Company. In addition, the Company believes
that its future success will depend in large part upon its continued ability to
attract, retain and motivate additional employees. There can be no assurance
that the Company will be able to attract and retain sufficient qualified
personnel to meet its business needs. See "Management."

SIGNIFICANT SHAREHOLDER. Upon the completion of this Offering, assuming
that the Underwriters' over-allotment option is not exercised, Robert G. Culp,
III will beneficially own, directly and through voting and investment control of
certain shares held in trusts, 25.6% of the outstanding shares of the Common
Stock (23.7% if the Underwriters' over-allotment option is exercised).
Accordingly, Mr. Culp will be in a position to influence the election of the
Company's directors and the outcome of corporate actions requiring shareholder
approval. This concentration of ownership may have the effect of delaying or
preventing a change in control of the Company.

SHARES ELIGIBLE FOR FUTURE SALE. Sales of a substantial number of shares of
the Company's Common Stock in the public market after the Offering could
adversely affect the market price of the shares of Common Stock. All of the
12,540,577 shares of Common Stock to be outstanding upon completion of this
Offering will be freely tradeable without restriction unless held by affiliates
of the Company. All such shares held by affiliates of the Company are eligible
for sale in the public market, subject to the volume and other limitations set
forth in Rule 144 under the Securities Act. The Company, its directors and
executive officers, and certain shareholders, who in the aggregate own 4,095,043
shares, have agreed not to sell any shares of Common Stock (other than shares to
be sold in the Offering) for a period of 180 days from the date of this
Prospectus, subject to certain limited exceptions, without the prior written
consent of the Representatives of the Underwriters. The Company has granted
outstanding options to purchase a total of 588,410 shares of Common Stock, which
are currently vested or are subject to vesting based on performance criteria.
See "Underwriting" and Note 12 of Notes to Audited Consolidated Financial
Statements.

ANTI-TAKEOVER PROVISIONS. The Company's Articles of Incorporation and
Bylaws contain certain provisions that may have the effect of deterring a future
takeover of the Company, including the classification of the Board of Directors
into three classes. These provisions could limit the price that certain
investors might be willing to pay in the future for shares of Common Stock. In
addition, 10,000,000 shares of the Company's preferred stock may be issued in
the future without further shareholder approval and upon such terms and
conditions, and having such rights, privileges and preferences, as the Board of
Directors of the Company may determine. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could adversely affect the market price of shares of
Common Stock and could have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from acquiring, a majority of
the outstanding voting stock of the Company. The Company has no present plans to
issue any shares of preferred stock.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,200,000 shares of
Common Stock offered by the Company hereby are estimated to be $15.4 million
based on a $14.125 price per share after deducting the estimated underwriting
discount and offering expenses. The Company intends to use the net proceeds of
this Offering for capital expenditures (including expansion of facilities and
acquisition of equipment), possible future acquisitions, debt repayment and for
working capital and other general corporate purposes. Pending the ultimate
application of the net proceeds, the Company intends to apply the net proceeds
to reduce the outstanding balance of the Company's revolving line of credit
which currently bears interest at a spread over the one-month LIBOR and is
scheduled to mature on March 1, 2001. While the Company evaluates acquisition
opportunities in the ordinary course of its business, the Company has no present
understandings, agreements or commitments with respect to any such transaction.

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
October 27, 1996 on an actual basis and as adjusted to give effect to the sale
of the shares of Common Stock offered hereby at an assumed offering price of
$14.125 per share, after deduction of the estimated offering expenses and
underwriting discount, and the application of the net proceeds therefrom. The
information in the table below is qualified in its entirety by, and should be
read in conjunction with, the Consolidated Financial Statements (including the
Notes thereto) of the Company included elsewhere in this Prospectus.

AS OF OCTOBER 27, 1996
ACTUAL AS ADJUSTED

(IN THOUSANDS)
Cash and cash investments............................................................... $ 744 $ 744
Restricted investments (1).............................................................. $ 5,379 $ 5,379

Industrial revenue bonds and other obligations.......................................... $ 22,191 $ 22,191
Term loan............................................................................... 32,500 32,500
Revolving credit line................................................................... 24,300 8,867
Other................................................................................... 1,000 1,000
Long-term debt, including current maturities....................................... 79,991 64,558
Shareholders' equity:
Preferred stock, $0.05 par value...................................................... -- --
Common stock, $0.05 par value......................................................... 566 626
Capital contributed in excess of par value............................................ 17,081 32,454
Retained earnings..................................................................... 69,188 69,188
Total shareholders' equity......................................................... 86,835 102,268
Total long-term debt and shareholders' equity.................................... $166,826 $ 166,826

(1) Restricted investments were purchased with proceeds of industrial revenue
bond issues and are invested pending application of such proceeds to project
costs or repayment of the bonds.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Common Stock is listed for trading on the NYSE under the symbol "CFI."
Prior to December 31, 1996, the Common Stock was quoted on the Nasdaq National
Market ("Nasdaq") under the symbol "CULP." The following table sets forth, for
the periods indicated, the high and low sales prices of the Common Stock as
reported on Nasdaq for dates prior to December 31, 1996 and on the NYSE for
dates thereafter and the cash dividends declared by the Company per outstanding
share of Common Stock.

CASH DIVIDEND
HIGH LOW DECLARED

FISCAL 1995:
First Quarter................................................................ $12.50 $ 7.25 $0.0250
Second Quarter............................................................... 9.25 7.50 0.0250
Third Quarter................................................................ 10.50 8.75 0.0250
Fourth Quarter............................................................... 9.75 8.50 0.0250

FISCAL 1996:
First Quarter................................................................ 10.00 7.75 0.0275
Second Quarter............................................................... 11.00 9.00 0.0275
Third Quarter................................................................ 11.50 9.50 0.0275
Fourth Quarter............................................................... 13.25 10.00 0.0275

FISCAL 1997:
First Quarter................................................................ 14.25 11.50 0.0325
Second Quarter............................................................... 14.38 11.75 0.0325
Third Quarter (through January 9, 1997)...................................... 17.00 13.50 0.0325

On January 9, 1997, the last reported sale price of the Common Stock on the
NYSE was $14.125 per share. The Company believes that as of October 27, 1996,
there were approximately 2,800 beneficial owners of the Company's Common Stock.

The Company has paid a quarterly cash dividend since its initial public
offering of Common Stock in 1983, and the annual rate of dividends has been
increased each year since 1990. The most recently declared quarterly dividend
was $0.0325 per share, which represents an annual dividend rate of $0.13 per
share.

SELECTED FINANCIAL DATA

The selected consolidated financial data, with the exception of net sales
per employee, as of May 3, 1992, May 2, 1993, May 1, 1994, April 30, 1995 and
April 28, 1996 and for each of the years in the five-year period ended April 28,
1996 are derived from, and are qualified by reference to, the consolidated
financial statements of the Company, which have been audited by KPMG Peat
Marwick LLP, independent certified public accountants. The consolidated
financial statements as of April 30, 1995 and April 28, 1996 and for each of the
years in the three-year period ended April 28, 1996, and the report thereon, are
included elsewhere in this Prospectus. The selected consolidated financial data,
with the exception of net sales per employee, as of and for the six months ended
October 29, 1995 and October 27, 1996 are derived from the unaudited
consolidated financial statements of the Company. These consolidated financial
statements include all adjustments (consisting of normal recurring adjustments)
which the management of the Company considers necessary for a fair presentation
of the results of the periods. The consolidated financial statements as of
October 27, 1996 and for the six months ended October 29, 1995 and October 27,
1996 are included elsewhere in this Prospectus. The results for the six months
ended October 27, 1996 are not necessarily indicative of the results to be
expected for the entire fiscal year.

(UNAUDITED)
AS OF AND FOR THE AS OF AND FOR THE
YEAR ENDED SIX MONTHS ENDED
MAY 3, MAY 2, MAY 1, APRIL 30, APRIL 28, OCT. 29, OCT. 27,
1992 1993 1994 1995 1996 1995 1996

(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF INCOME DATA:
Net sales............................... $191,311 $200,783 $245,049 $ 308,026 $ 351,667 $163,029 $195,733
Cost of sales........................... 161,204 168,599 202,426 253,345 289,129 134,724 160,691
Gross profit............................ 30,107 32,184 42,623 54,681 62,538 28,305 35,042
Selling, general and administrative
expenses.............................. 24,597 24,203 27,858 33,432 39,068 18,129 22,568
Income from operations.................. 5,510 7,981 14,765 21,249 23,470 10,176 12,474
Interest expense........................ 1,421 1,409 2,515 4,715 5,316 2,685 2,424
Interest income......................... (136) (29) (79) (64) (92) -- (117)
Other expense........................... 288 1 350 1,082 956 326 696
Income before income taxes.............. 3,937 6,600 11,979 15,516 17,290 7,165 9,471
Income taxes............................ 964 2,099 4,314 5,741 6,310 2,650 3,551
Net income.............................. $ 2,973 $ 4,501 $ 7,665 $ 9,775 $ 10,980 $ 4,515 $ 5,920
Net income per share.................... $ 0.27 $ 0.41 $ 0.69 $ 0.87 $ 0.98 $ 0.40 $ 0.52
Cash dividends per share................ $ 0.049 $ 0.064 $ 0.080 $ 0.100 $ 0.110 $ 0.055 $ 0.065

Weighted average shares
outstanding........................... 10,827 10,875 11,076 11,203 11,234 11,209 11,304

OTHER DATA:
Capital expenditures.................... $ 12,396 $ 11,938 $ 16,764 $ 18,058 $ 14,385 $ 5,090 $ 9,676
Depreciation............................ 7,085 6,724 8,497 11,257 12,348 6,138 6,321
Net sales per employee (unaudited)
(1)................................... 108 111 118 118 125 60 64

BALANCE SHEET DATA:
Cash and cash investments............... $ 3,951 $ 7,219 $ 2,693 $ 1,393 $ 498 $ 930 $ 744
Working capital......................... 26,665 34,942 37,949 38,612 56,953 46,373 57,230
Total assets............................ 93,195 106,548 164,948 194,999 211,644 200,404 219,527
Long-term debt, including current
maturities............................ 16,817 26,582 61,562 73,742 82,041 76,692 79,991
Funded debt (2)......................... 16,817 26,582 58,639 72,947 76,791 76,692 74,612
Shareholders' equity.................... 50,651 54,521 62,649 71,396 81,446 75,351 86,835

(1) Net sales per employee represents net sales for the period divided by the
average number of employees. The average number of employees is calculated
using the number of employees at the beginning and end of each month in the
respective period.

(2) Funded debt is long-term debt, including current maturities, less restricted
investments, which are segregated industrial revenue bond funds pending
application by the Company.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following analysis of the financial condition and results of operations
should be read in conjunction with the Consolidated Financial Statements
(including the Notes thereto) included elsewhere in this Prospectus.

OVERVIEW

The Company's net sales have increased from $245.0 million in fiscal 1994
to $308.0 million in fiscal 1995 and $351.7 million in fiscal 1996, with $195.7
million in net sales for the first six months of fiscal 1997 compared to $163.0
million in the first six months of fiscal 1996. Net income per share has
increased from $0.69 in fiscal 1994 to $0.87 in fiscal 1995 and $0.98 in fiscal
1996, and net income per share for the first six months of fiscal 1997 was $0.52
compared to $0.40 for the first six months of fiscal 1996.

Culp's position as a leading worldwide manufacturer and marketer of
upholstery fabrics and mattress ticking has been achieved through internal
expansion and the successful integration of strategic acquisitions. In fiscal
1995, the Company completed the acquisition of Rayonese in a transaction valued
at $10.5 million. The acquisition of Rayonese substantially increased the
Company's capacity to manufacture primarily jacquard greige goods used by the
Company in the production of its printed fabrics, including upholstery fabrics
and mattress ticking. In fiscal 1994, the Company completed the purchase of
Rossville/Chromatex in a transaction valued at $39.3 million. This acquisition
significantly added to the Company's capacity to produce jacquard and dobby
upholstery fabrics marketed principally for residential furniture. In December
1996, the Company entered into an agreement to acquire a 107,000 square-foot
building in Lumberton, North Carolina and executed purchase orders for most of
the new equipment for this facility. This facility is expected to require
capital expenditures of $9 million and to approximately double the Company's
capacity to produce wet-printed flock upholstery fabric. The Company has
experienced increasing demand for this product, particularly in international
markets. The Company anticipates that the Lumberton facility will commence
operations by July 1997.

The Company is organized into four business units: (i) Culp Textures (which
manufactures jacquard and dobby woven fabrics used primarily for residential and
commercial furniture), (ii) Rossville/Chromatex (which manufactures jacquard and
dobby woven fabrics used for residential furniture), (iii) Velvets/Prints (which
manufactures a broad range of printed and velvet fabrics used primarily for
residential and juvenile furniture) and (iv) Culp Home Fashions (which
principally manufactures mattress ticking). The Company believes that this
decentralized business unit structure, adopted in fiscal 1994, has been
effective in increasing business with existing customers, as well as in
broadening the Company's customer base.

The Company's business, which is directly linked to the demand for
upholstery fabrics and mattress ticking, is cyclical in nature and can be
significantly affected by changes in overall economic conditions. See "Risk
Factors -- Economic Conditions."

RESULTS OF OPERATIONS

The following table sets forth certain items in the Company's consolidated
statements of income as a percentage of net sales.

FIRST SIX MONTHS
FISCAL FISCAL FISCAL FISCAL FISCAL
1994 1995 1996 1996 1997

Net sales.................................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.............................................. 82.6 82.2 82.2 82.7 82.1
Gross profit............................................... 17.4 17.8 17.8 17.3 17.9
Selling, general and administrative expenses............... 11.4 10.9 11.1 11.1 11.5
Income from operations..................................... 6.0 6.9 6.7 6.2 6.4
Interest expense........................................... 1.0 1.5 1.5 1.6 1.3
Interest income............................................ 0.0 0.0 0.0 0.0 (0.1)
Other expense, net......................................... 0.1 0.4 0.3 0.2 0.4
Income before income taxes................................. 4.9 5.0 4.9 4.4 4.8
Income taxes............................................... 1.8 1.8 1.8 1.6 1.8
Net income................................................. 3.1% 3.2% 3.1% 2.8% 3.0%

The following table sets forth the Company's net sales by major product
category and business unit for each of the Company's three most recent fiscal
years and the first six months of fiscal 1996 and fiscal 1997. The table also
sets forth the percent change in net sales for the Company's major product
categories of upholstery fabrics and mattress ticking and business units within
each major category for comparative periods.

PERCENT CHANGE
FIRST
NET SALES FISCAL FISCAL SIX MONTHS
FIRST SIX MONTHS 1994 1995 FISCAL
FISCAL FISCAL FISCAL FISCAL FISCAL TO TO 1996
1994 (1) 1995 (2) 1996 1996 1997 1995 1996 TO 1997

(DOLLARS IN THOUSANDS)
Upholstery fabrics:
Culp Textures................... $ 78,317 $ 85,125 $ 84,384 $ 40,299 $ 44,802 8.7% (0.9)% 11.2%
Rossville/Chromatex............. 31,047 63,765 74,203 33,318 39,887 N/A 16.4% 19.7%
Velvets/Prints.................. 97,036 106,803 125,701 55,604 75,100 10.1% 17.7% 35.1%
206,400 255,693 284,288 129,221 159,789 23.9% 11.2% 23.7%
Mattress ticking:
Culp Home Fashions.............. 38,649 52,333 67,379 33,808 35,944 35.4% 28.8% 6.3%
Net sales.................... $245,049 $308,026 $351,667 $163,029 $195,733 25.7% 14.2% 20.1%

(1) Rossville/Chromatex was acquired on November 1, 1993.

(2) Rayonese (part of Culp Home Fashions) was acquired on March 6, 1995.

FIRST SIX MONTHS OF FISCAL 1997 COMPARED WITH FIRST SIX MONTHS OF FISCAL 1996

NET SALES. Net sales for the first six months of fiscal 1997 increased
$32.7 million, or 20.1%, from the prior year period. The increase in the
Company's net sales resulted from increased sales to existing customers as well
as sales to new accounts, particularly in the Company's Velvets/Prints and
Rossville/Chromatex business units. Net sales of upholstery fabrics for the
first six months of fiscal 1997 increased $30.6 million, or 23.7%, from the
prior year period. Each of the business units in this product category recorded
higher sales for the 1997 period compared to the first six months of fiscal
1996. Sales of mattress ticking for the first six months of fiscal 1997 rose
$2.1 million, or 6.3%, from the prior year period. International sales,
consisting primarily of upholstery fabrics, increased $11.9 million, up 34.9%,
from the year-earlier period. As a result of this increase, international sales
accounted for 23.4% of the Company's sales for the 1997 period compared with
20.9% for the prior year period.

GROSS PROFIT AND COST OF SALES. Gross profit for the first six months of
fiscal 1997 increased in both absolute dollars and as a percentage of net sales.
Factors contributing to the higher profitability included the increased
absorption of fixed costs as a result of the growth in sales as well as the
benefit from the Company's ongoing capital investment in modernized equipment
designed to lower manufacturing costs and raise productivity. During the first
six months of fiscal 1997, the prices of the Company's raw materials stabilized,
and in some cases declined.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased as a percentage of net sales in the first six
months of fiscal 1997 compared to 1996. Although the Company is continuing to
emphasize cost-containment programs, planned increases in expenses related to
resources for designing new fabrics and higher selling commissions related to
international sales contributed to the higher ratio of expenses to net sales.
The accrual for incentive-based compensation plans through the first six months
of fiscal 1997 was also a significant factor contributing to the increase in
these expenses.

INTEREST EXPENSE. Interest expense, net of interest income, of $2.3 million
for the first six months of fiscal 1997 was down from $2.7 million in the 1996
period due to lower average borrowings outstanding.

OTHER EXPENSE. Other expense increased $370,000 for the first six months of
fiscal 1997 compared to a year ago, principally due to the non-recurring
write-off of certain fixed assets totalling $175,000 and the recognition in the
1996 period of $100,000 in gain related to an indemnification for an
environmental matter.

NET INCOME. Net income increased 31.1% to $5.9 million in the first six
months of fiscal 1997 compared to $4.5 million for the prior year period.

FISCAL 1996 COMPARED WITH FISCAL 1995

NET SALES. Net sales for fiscal 1996 increased by $43.6 million, or 14.2%,
compared to fiscal 1995. The Company's sales of upholstery fabrics increased
$28.6 million, or 11.2%, in fiscal 1996 compared to fiscal 1995. Sales from
Rossville/Chromatex and Velvets/Prints were up significantly from the prior
year, while Culp Textures' sales were down slightly. The increase of $15.0
million in sales from the Culp Home Furnishings business unit reflected higher
shipments to existing accounts and the additional sales from Rayonese. Sales
from the Culp Home Furnishings business unit for fiscal 1996 included $7.7
million from Rayonese, which was acquired on March 6, 1995. Rayonese contributed
$1.4 million to sales for the portion of fiscal 1995 in which it was included in
the Company's results. International sales, consisting primarily of upholstery
fabrics, increased to $77.4 million, up 33.5% from fiscal 1995. International
shipments accounted for 22.0% of the Company's sales for fiscal 1996, up from
18.8% in fiscal 1995. The base of the Company's international customers
continued to broaden, with sales to customers in over 50 countries during fiscal
1996.

GROSS PROFIT AND COST OF SALES. Gross profit for fiscal 1996 increased by
$7.9 million and remained constant as a percentage of net sales at 17.8%. The
cost of most raw materials generally rose throughout fiscal 1996, and the
Company was unable to offset much of the impact of these increases through
higher prices. Raw material price increases were offset by a shift in the
Company's product mix toward fabrics with higher gross margins and increased
production efficiencies. During the latter part of the year, the Company began
experiencing some easing in the rate of increase in the cost of raw materials.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased as a percentage of net sales for fiscal 1996.
Although the Company is continuing to emphasize cost-containment programs,
planned increases in expenses related to the design of new fabrics and higher
selling commissions related to international sales led to the higher ratio of
expenses to net sales.

INTEREST EXPENSE. Interest expense for fiscal 1996 rose 12.7% to $5.3
million. The increase principally reflected additional borrowings related to
funding the acquisition of Rayonese, capital expenditures and an increased level
of working capital needed to support increased sales. The Company experienced
generally lower prevailing interest rates during fiscal 1996.

NET INCOME. Net income increased 12.3% to $11.0 million in fiscal 1996
compared to $9.8 million in fiscal 1995.

FISCAL 1995 COMPARED WITH FISCAL 1994

NET SALES. Net sales in fiscal 1995 increased by $63.0 million, or 25.7%,
compared to fiscal 1994. The increase of $49.3 million in upholstery fabrics was
attributable primarily to the incremental sales of $32.7 million contributed by
Rossville/Chromatex, which was acquired on November 1, 1993. Excluding that
contribution, the Company's sales of upholstery fabrics increased $16.6 million,
or 8.0%. Shipments of each business unit within upholstery fabrics were up for
the year. The $13.7 million increase in sales in mattress ticking primarily
reflected higher shipments to existing accounts and, to a lesser degree, the
success of programs to broaden the customer base. Sales of mattress ticking for
fiscal 1995 included $1.4 million from Rayonese, which was acquired on March 6,
1995. International sales, consisting primarily of upholstery fabrics, increased
to $58.0 million, up 31.6%, from fiscal 1994. This category of sales represented
18.8% of total sales in fiscal 1995 and 18.0% of total sales in fiscal 1994.

GROSS PROFIT AND COST OF SALES. Gross profit for fiscal 1995 increased both
in absolute dollars and as a percentage of net sales. The Rossville/Chromatex
and Culp Home Fashions business units contributed significantly to those gains.
Gross margins for Culp Textures and Velvets/Prints were up, although not as
significantly. The Company experienced increased raw material prices during
fiscal 1995 which generally were not passed along to customers through price
increases.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses declined as a percentage of net sales for fiscal 1995.
The lower ratio of expenses primarily reflects a company-wide program to contain
these costs and operate more efficiently.

INTEREST EXPENSE. Interest expense for fiscal 1995 increased 87.5% to $4.7
million. The increase principally reflected the full-year inclusion of the bank
borrowings and financing provided by the seller related to the acquisition of
Rossville/Chromatex and increased capital expenditures. Significantly higher
prevailing interest rates also contributed to the increase in interest expense
for the year.

OTHER EXPENSE. Other expense for fiscal 1995 increased to $1.1 million
compared with $350,000 in fiscal 1994. The principal factors contributing to the
increased expense were amortization of goodwill related to the
Rossville/Chromatex acquisition and higher debt issue costs.

NET INCOME. Net income increased 27.6% to $9.8 million in fiscal 1995 from
$7.7 million in fiscal 1994.

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY. Cash and cash investments were $744,000 as of October 27, 1996
compared to $498,000 at the end of fiscal 1996. Funded debt (long-term debt,
including current maturities, less restricted investments) decreased to $74.6
million at the close of the first six months of fiscal 1997 from $76.8 million
at the end of fiscal 1996. As a percentage of total capital (funded debt plus
shareholders' equity), the Company's borrowings amounted to 46.2% as of October
27, 1996 compared to 48.5% at the end of fiscal 1996. The Company's working
capital as of October 27, 1996 was $57.2 million compared to $57.0 million at
the end of fiscal 1996.

The Company's cash flow from operations was $16.2 million for the first six
months of fiscal 1997, consisting of $12.7 million from earnings (net income
plus depreciation, amortization and deferred income taxes) and $3.5 million from
changes in working capital. The funds from operations were used principally to
fund capital expenditures of $9.7 million and reduce long-term debt.

FINANCING ARRANGEMENTS. The Company has an unsecured loan agreement with
two banks, which provides for a $32.5 million five-year term loan and a $33.5
million revolving credit line with a five-year term. The term loan requires
monthly installments of $500,000 and a final payment of $6.5 million on March 1,
2001. The revolving credit line requires payment of an annual facility fee and
expires on March 1, 2001. Additionally, the term loan and the credit line
require payment of interest on any outstanding borrowings at an interest rate
based on a spread over the one-month LIBOR. As of October 27, 1996, the Company
had outstanding balances of $56.8 million under the bank facilities and an
additional $9.2 million in borrowings available under the revolving credit
facility. On December 17, 1996, the Company received "best efforts" commitments
from its principal bank lenders, Wachovia Bank of North Carolina, N.A. and First
Union National Bank of North Carolina, to refinance its existing $66 million
term loan and revolving line of credit with a $125 million syndicated five-year,
unsecured, multi-currency credit facility, which is expected to include several
leading international lending institutions. Terms of the proposed new facility
include reduced interest costs, less restrictive financial covenants and
additional borrowing capacity to fund capital expenditures, working capital
needs and other corporate uses, including possible acquisitions. Although the
agent for these lenders, Wachovia Bank of Georgia, N.A., has agreed to use
commercially reasonable efforts to complete this refinancing, subject to certain
conditions including the completion of satisfactory loan documentation, there
can be no assurance that this refinancing will be completed.

The Company also has a total of $21.6 million in currently outstanding
industrial revenue bonds ("IRBs"), which have been used to finance capital
expenditures. The IRBs are collateralized by restricted investments of $5.4
million as of October 27, 1996 and letters of credit for the outstanding balance
of the IRBs and certain interest payments due thereunder. Substantially all of
the bonds are due in one-time payments at various dates from 2008 to 2013, with
interest at variable rates at approximately 60% of the prime rate. In December
1996, the Company borrowed $3.5 million under an IRB to finance additional
jacquard weaving capacity at its West Hazelton, Pennsylvania plant, and the
Company expects to complete a $6.0 million IRB by the end of December 1996 to
finance the installation of flock coating equipment at its plant in Burlington,
North Carolina. The Company anticipates that it will finance capital
expenditures of approximately $8.0 million in connection with the Lumberton,
North Carolina wet-printing facility to be opened by July 1997 with an
additional IRB. After

the completion of these anticipated IRB transactions, the Company's outstanding
IRB debt will be approximately $40 million, the maximum outstanding amount of
such bonds allowed under federal tax law. Therefore, additional IRB financing
will not be available to the Company until the amount of its outstanding IRBs is
substantially reduced.

The Company's loan agreements require, among other things, that the Company
maintain certain financial ratios. The Company was in compliance with these
required financial covenants as of October 27, 1996 and as of the date of this
Prospectus.

As of October 27, 1996, the Company had three interest rate swap agreements
to reduce its exposure to floating interest rates on a $25 million notional
amount. The effect of these contracts is to "fix" the interest rate payable on
$25 million of the Company's bank borrowings at a weighted average rate of 7.1%.
The Company also enters into foreign exchange forward contracts to hedge against
currency fluctuations with respect to firm commitments to purchase machinery,
equipment and certain raw materials when those commitments are denominated in
foreign currencies.

CAPITAL EXPENDITURES. The Company maintains a significant program of
capital expenditures designed to increase capacity as needed, enhance
manufacturing efficiencies through modernization and increase the Company's
vertical integration. Capital expenditures were $16.8 million in fiscal 1994,
$18.1 million in fiscal 1995, $14.4 million in fiscal 1996 and $9.7 million
during the first six months of fiscal 1997. The Company expects that total
capital expenditures for fiscal 1997 will be approximately $31 million,
including the acquisition of, and purchase of equipment for, the Lumberton
facility. Although final budgets for fiscal 1998 have not been determined, the
Company is currently anticipating capital expenditures during fiscal 1998 of
approximately $20 million. The Company believes that cash flows from operations,
the net proceeds from the Company's sale of shares in the Offering and funds
available under existing credit facilities and committed IRB financings will be
sufficient to fund capital expenditures and working capital for the foreseeable
future.

INFLATION

The Company experienced generally higher costs of raw materials during
fiscal 1996 and 1995. Other operating expenses, such as labor, utilities and
manufacturing supplies, also rose over these periods. Competitive conditions did
not allow the Company to fully offset the impact of these increases through
higher prices, which put pressure on profit margins. Although the cost of the
Company's raw materials has stabilized during the first six months of fiscal
1997, and in some cases declined, the net incremental effect on margins will
continue to be influenced by raw material prices, other operating costs and
overall competitive conditions. See "Risk Factors -- Pricing and Availability of
Raw Materials."

SEASONALITY

The Company's business is slightly seasonal, with increased sales during
the Company's second and fourth fiscal quarters. This seasonality results from
one-week closings of the Company's manufacturing facilities, and the facilities
of most of its U.S. customers, during the first and third quarters for the July
4th and Christmas holiday weeks.

NEW ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
which permits a change from the intrinsic value based method of accounting for
stock options (Accounting Principles Board Opinion No. 25) to a fair value based
method for employee stock option and similar equity investments. As an
alternative, the SFAS No. 123 allows the continued use of the intrinsic value
based method accompanied with pro forma disclosures of the fair value based
method. The Company plans to adopt this alternative commencing with the fiscal
year ending April 27, 1997.

The implementation of other new accounting standards will not have a
material impact on the Company's financial statements in fiscal 1997.

BUSINESS

Culp is the largest manufacturer and marketer of furniture upholstery
fabrics in the world and is a leading producer of 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 greige goods used in its products. Culp's
staff of over 50 designers uses 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.

Over the past five fiscal years, the Company has invested $73.5 million in
capital expenditures to expand its manufacturing capacity, install more
efficient production equipment and vertically integrate its operations. These
expenditures, which have reduced the Company's manufacturing costs, have
included 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 expects to spend
approximately $31 million in capital expenditures during fiscal 1997. A
substantial portion of fiscal 1997's planned expenditures is targeted to expand
the Company's printing capacity to support sales growth in wet-printed flock
fabrics and to vertically integrate a key process in producing unprinted flock
greige goods. As a result of expenditures to date, the Company has been able to
support a substantially higher level of sales, as well as lower its production
costs and enhance its relative competitive position.

The Company is organized into four business units (Culp Textures,
Rossville/Chromatex, Velvets/Prints and Culp Home Fashions), which has enabled
it to focus its marketing and manufacturing resources on the unique demands of
its customers and on expanding end-use markets. The Company believes this
organizational structure has proven effective in increasing business with
existing customers, as well as broadening the Company's customer base. Each of
these business units has considerable autonomy in developing its marketing and
manufacturing plans.

Culp believes that its emphasis on product innovation, quality and customer
service has been a significant reason for its success in increasing its share of
the overall market for upholstery fabrics and mattress ticking. The Company has
also been innovative in its use of technology to enhance communication within
the organization and with customers. As an example, CULPLINK, the Company's
proprietary, on-line customer information system, was introduced in May 1995 to
provide certain international customers and key sales agents with the capability
to track the status of orders and shipments, enter orders and access sales
history. CULPLINK is expected to be accessible to customers through the Internet
during fiscal 1998.

Culp has ten manufacturing facilities, with a combined total of 2.2 million
square feet, that are located in North Carolina (4), South Carolina (2),
Pennsylvania (2), Georgia (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. In addition,
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 Rossville/Chromatex in fiscal
1994 and Rayonese in fiscal 1995. Each of these acquisitions has been
successfully integrated into the Company's operations and has contributed to
Culp's growth.

INDUSTRY OVERVIEW

Culp markets products worldwide to manufacturers that operate in three
principal markets and several specialty markets:

RESIDENTIAL FURNITURE. This market includes upholstered furniture sold to
consumers. Products include sofas, recliners, chairs, loveseats, sectionals and
sofa-beds.

COMMERCIAL FURNITURE. This market includes upholstered office seating and
panel systems sold primarily to be used in offices, hotels and institutional
settings. The establishment of home offices is adding to the demand for
commercial furniture.

BEDDING. This market includes mattresses and box springs.

SPECIALTY MARKETS. This category represents several other markets,
including juvenile furniture (baby car seats and baby items), "top of the bed"
(comforters and bedspreads), outdoor furniture, recreational vehicle seating,
automotive aftermarket (slip-on seat covers) and retail fabric stores.

The upholstery fabric manufacturing industry is highly fragmented. Although
several major firms compete in this market, no one firm is dominant. Conversely,
the mattress ticking industry is concentrated among relatively few large
suppliers. The Company believes that the worldwide total market for its products
exceeds $6 billion. American Furniture Manufacturers Association, a trade
association, reports that U.S. residential furniture manufacturers shipped
products valued at approximately $19 billion (wholesale) during 1995.
Approximately 40% of this furniture is believed to consist of upholstered
products, which over the past several years has been the fastest growing
category of residential furniture. According to FURNITURE/TODAY, a leading trade
publication, annual sales of upholstery fabrics in the United States for
residential applications are approximately $2 billion. A recent survey conducted
for Culp by an independent international consulting firm estimated annual sales
of upholstery fabrics outside the United States to be more than $4 billion.

Trends in upholstery fabrics and mattress ticking demand generally parallel
trends in demand for 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, housing starts and existing home sales. The long-term trend
in U.S. demand for furniture and bedding has been one of moderate growth,
although there have been some occasional, temporary periods of a modest downturn
in sales due principally to changes in economic conditions. Periods of decline,
however, have been brief, with annual shipments in the United States declining
in only four of the past 24 years.

The Company believes that demographic trends will continue to support
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 group over the next decade, they will be reaching their
highest earning power. This age group includes the largest consumers of
residential furniture. Furthermore, statistics show that the average size of new
homes has increased in recent years, which generally results in increased
purchases of furnishings per home.

There is an established trend toward consolidation in the furniture
industry at all levels. FURNITURE/TODAY has reported that the ten largest U.S.
furniture manufacturers accounted for approximately 39% of the total industry
sales in 1995, up from a 23% share ten years earlier. This trend is expected to
continue due to several factors, including the need to invest significant
capital to maintain modern manufacturing and distribution facilities, as well as
to provide the sophisticated computer-based systems to interface with retailers
and suppliers. The Company believes that, as this trend continues, opportunities
may increasingly exist for large upholstery fabric manufacturers capable of
supplying the product requirements of large furniture manufacturers on a timely
basis.

Although the demand for home furnishings in more developed international
geographic regions such as Western Europe is relatively mature, major areas such
as Eastern Europe, the Middle East and Asia are experiencing significant
increases in sales of furniture and home furnishings. Consumers in these areas
are attracted to designs 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 and bedding markets
within the United States has led to a fabric manufacturing industry that
features ready access to a broad range of raw materials, large manufacturers
with lower costs resulting from economies of scale and the ready availability of
new designs and patterns. The Company believes that these characteristics enable
Culp to compete effectively in international markets.

COMPETITIVE STRENGTHS

The Company believes that its position as a leading worldwide manufacturer
and marketer of upholstery fabrics and mattress ticking is the result of the
following competitive strengths:

BROAD PRODUCT OFFERING AND DIVERSE MANUFACTURING CAPABILITIES. 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 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 sold in the United States annually). This product line
diversity provides the Company valuable flexibility to adjust to changes in
consumer tastes and styles. Culp produces a wide range of fabric coverings which
appeals to major manufacturers that want to differentiate their products for
competitive reasons. Culp's manufacturing versatility also enhances the
Company's ability to introduce new fabrics.

MANUFACTURING EFFICIENCY AND VERTICAL INTEGRATION. Over the past five
fiscal years, the Company has invested $73.5 million in capital expenditures to
expand its manufacturing capacity, install more efficient production equipment
and vertically integrate its operations. These expenditures, which have reduced
the Company's manufacturing costs, have included 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
plans to spend approximately $31 million in capital expenditures during fiscal
1997. The Company expects that an increasing emphasis of the Company's capital
spending will be directed to the further vertical integration of its operations.
For example, an expansion project currently underway is expected to
approximately double Culp's capacity to extrude polypropylene yarn, which is the
largest category of yarn used by Culp. Additionally, the Company is expanding
its capacity to manufacture jacquard greige goods and adding the capability to
produce flock greige goods. Since raw materials represent more than half of the
Company's production costs, increasing vertical integration is expected to
significantly reduce Culp's overall production costs.

DESIGN INNOVATION. Although design trends within the Company's markets are
generally not subject to radical change, the introduction of new fabric patterns
and designs is a very important aspect of Culp's service to its customers. Culp
has increased its investment in design and creative capabilities in recent
years, and the Company believes that it has one of the most flexible design
programs in the industry. The Company's design staff includes over 50
individuals assigned to the design function in the Company's four business
units, including designers with experience in designing products for specific
international markets. The Company has installed CAD workstations to facilitate
the creation of appealing designs more efficiently. This process significantly
simplifies the process for showing a customer a prototype design compared with
the conventional, and more expensive, practice of producing an actual swatch of
the fabric. During fiscal 1998, Culp expects to consolidate most of its design
resources into a new center that will facilitate the sharing of design ideas and
CAD and other technologies among its business units. The new design center is
expected to enhance the Company's merchandising and marketing of its products by
providing an environment in which customers can be shown new products as well as
participate in product development initiatives.

DIVERSE GLOBAL CUSTOMER BASE. Culp has successfully diversified its
customer base in recent years by increasing its sales to customers in markets
other than the U.S. residential furniture market. The most significant component
of this change has been the growth in international sales, which have increased
from $44.0 million in fiscal 1994 to $77.4 million in fiscal 1996 and were $45.9
million for the first six months of fiscal 1997. International shipments,
principally of upholstery fabrics, accounted for 22.0% of the Company's net
sales in fiscal 1996, up from 18.8% in the prior year. The Company's
international sales are diversified, both by geographic region and product line,
with customers in over 50 countries. Culp has also expanded its marketing
initiatives to further penetrate commercial furniture, juvenile furniture and
certain specialty markets. Sales to customers in markets other than the U.S.
residential furniture market represented 46% of net sales for the first six
months of fiscal 1997.

DISTRIBUTION CAPABILITY. The Company's products are shipped directly from
its manufacturing facilities, as well as from regional distribution facilities
strategically located in areas where there are considerable concentrations of
furniture manufacturers, to improve its ability to meet customers' delivery
demands. Three of these distribution facilities primarily service small and
medium-size residential furniture companies and generally ship orders within 48
hours of receipt. The fourth, and most recent, regional distribution facility,
located in Grand Rapids, Michigan, supplies large commercial furniture
manufacturers on a "just in time" basis. The Company has also developed
worldwide shipping capabilities to supply manufacturers and distributors in
Europe, the Middle East, Asia and the Pacific Rim.

COMMITMENT TO CUSTOMER SERVICE. The Company is committed to delivering
superior customer service. Culp has developed internal information systems that
have enabled it to substantially improve its on-time delivery performance and
reduce its lead time for orders. In addition, the Company works closely with its
customers to coordinate production and delivery schedules. The Company is
continuing to pursue opportunities for enhancing its level of service. CULPLINK,
the Company's proprietary on-line customer information system, was introduced in
May 1995 to provide certain international customers and key sales agents with
the capability to track the status of orders and shipments, enter orders and
access sales history. CULPLINK is expected to be accessible to customers through
the Internet during fiscal 1998.

ABILITY TO INTEGRATE ACQUISITIONS. Culp has complemented its internal
expansion through the integration of strategic acquisitions of other fabric
manufacturers. The acquisitions of Rossville/Chromatex in fiscal 1994 and
Rayonese in fiscal 1995 have added to the growth in the Company's sales and
earnings while strengthening Culp's basic competitive position. The Company
believes that its managerial and financial resources serve as a significant
competitive advantage in supporting the ability to pursue strategic acquisitions
in the future.

GROWTH STRATEGY

The Company believes that its competitive strengths provide it with the
opportunity to build on its leadership position in the global upholstery fabric
and mattress ticking markets. The Company's strategy for continued growth
includes five key initiatives:

EXPAND WET-PRINTED FLOCK FABRIC CAPACITY. Culp is experiencing significant
growth in sales of wet-printed flock fabrics, a product line it entered in late
fiscal 1994. Recent product development improvements in the wet-printed flock
manufacturing processes have enhanced the quality of wet-printed flock fabrics
as an alternative to more expensive woven velvet fabrics. In addition, the
Company has experienced strong international demand for this product. Moreover,
a disruption in production of wet-printed flock fabric experienced by a major
competitor has reduced available product supply on a near-term basis. Culp plans
to capitalize on the increasing worldwide popularity of wet-printed flock
fabrics through the addition of wet-printing equipment and flock coating
machinery. In November 1996, the Company's Board of Directors approved capital
expenditures of $9 million for a new facility that is expected to approximately
double its wet-printing capacity, which is currently approximately 10 million
linear yards annually. This initiative will involve the purchase of an existing
107,000-square-foot building in Lumberton, North Carolina and the installation
of new equipment specifically designed for wet-printed flock fabrics. The
Company currently plans to begin production at this facility by July 1997.

GROW INTERNATIONAL SALES. Culp is focusing on expanding its international
sales to capitalize on the growth in demand for home furnishings in many markets
outside the United States. Factors aiding Culp include a growing preference for
American designs, the relatively low importance of labor costs in the Company's
fabrics, the Company's overall manufacturing efficiency and Culp's worldwide
distribution capability. The Company plans to continue expanding its
international sales network and is exploring the establishment of distribution
facilities in certain areas outside the United States, utilizing its business
model for regional sales and distribution.

INCREASE CAPACITY FOR PRINTED JACQUARD FABRICS. The Company has experienced
significant growth in sales of printed jacquard mattress ticking and upholstery
fabrics. These fabrics feature designs printed on jacquard greige goods and
offer popular pricing and an appearance traditionally available only on more
expensive woven jacquard fabrics in which the design is woven into the fabric.
Culp pioneered the introduction of this fabric category for mattress ticking in
1992. The Company's success with printed jacquard fabrics has been possible
because of the Company's diverse printing and finishing capabilities coupled
with the internal availability of jacquard greige goods. The increase in sales
of printed jacquard fabrics has resulted from the product line expansion of
printed jacquard mattress ticking, improvements in printing technologies and the
integration of the acquisition of Rayonese in fiscal 1995. To support further
sales growth of these products, the Company is currently expanding its capacity
at Rayonese by installing additional narrow and wide-width weaving machines to
produce more jacquard greige goods.

ENHANCE PRODUCT VALUE AND INCREASE VERTICAL INTEGRATION. Culp has
implemented a company-wide program in recent years designed to enhance the
competitive value of its upholstery fabrics and mattress ticking. The Company
believes that this initiative will continue to be vital to its future success in
increasing sales to existing customers as well as broadening its customer base.
This program involves a widespread effort to improve manufacturing efficiency,
distribution capability, customer service and design innovation. The Company
believes that the continuation of this effort, including strategic initiatives
to expand vertical integration, such as yarn extrusion and production of flock
greige goods, will lead to further gains in market share.

BUSINESS UNITS

Culp's organization encompasses four business units: (i) Culp Textures,
(ii) Rossville/Chromatex, (iii) Velvets/Prints and (iv) Culp Home Fashions. The
Company believes that this decentralized structure, adopted in fiscal 1994, has
been effective in increasing business with existing customers and in expanding
the Company's customer base. This management structure delegates more
responsibility to the major operating centers that are directly involved in
day-to-day customer service. The Company believes that this change from a more
centralized decision-making format has encouraged the managers of each unit,
each of whom has extensive experience in the industry, to develop and pursue
growth strategies most appropriate for their respective product lines,
manufacturing assets and customers. Accordingly, Culp's senior management has
been able to devote more time to planning and guiding the Company's strategic
direction, and believes that this organizational structure would facilitate the
integration of any future acquisitions.

Each of these business units is accorded considerable autonomy and is
responsible for designing, manufacturing and marketing its respective product
lines. Considerable synergies exist among the business units, including the
sharing of common raw materials made internally, such as polypropylene yarns,
certain dyed and spun yarns, greige goods and printed heat-transfer paper.
Products manufactured at one business unit's facility are commonly transferred
to another business unit's facility for additional value-added processing steps.
For example, jacquard greige goods manufactured at Rayonese (part of Culp Home
Fashions) are shipped to a Velvets/Prints' facility where printed fabrics are
produced using various printing and finishing equipment. The following table
sets forth certain information for each of the Company's business units.

CULP'S BUSINESS UNITS

MAJOR FISCAL 1996 PERCENT OF FISCAL
PRODUCT CATEGORY BUSINESS UNIT NET SALES 1996 SALES PRODUCT LINES (BASE CLOTH, IF APPLICABLE)

Upholstery
Fabrics Culp Textures $ 84.4 million 24.0% Woven jacquards
Woven dobbies

Rossville/Chromatex $ 74.2 million 21.1% Woven jacquards
Woven dobbies

Velvets/Prints $125.7 million 35.7% Wet prints (flock)
Heat-transfer prints (jacquard, flock)
Woven velvets
Tufted velvets (woven polyester)
Mattress Ticking Culp Home Fashions $ 67.4 million 19.2% Woven jacquards
Heat-transfer prints (jacquard, knit,
sheeting)
Pigment prints (jacquard, knit, sheeting,
non-woven)

CULP TEXTURES. Culp Textures manufactures and markets jacquard and dobby
woven fabrics used primarily for residential and commercial furniture. Culp
Textures' manufacturing facilities are located in Burlington and Graham, North
Carolina and Pageland, South Carolina. Culp Textures has become increasingly
vertically integrated, complementing its extensive weaving capabilities with the
ability to extrude, dye and texturize yarn. Many of the designs marketed by Culp
Textures feature intricate, complicated patterns such as floral and abstract
designs. Culp Textures accounts for the majority of the Company's sales to the
commercial furniture market. The Company maintains an inventory at a third-party
warehouse in Grand Rapids, Michigan to supply fabrics marketed by Culp Textures
to large commercial furniture manufacturers on a "just in time" basis.

ROSSVILLE/CHROMATEX. Rossville/Chromatex was acquired in fiscal 1994 and
includes manufacturing facilities in Rossville, Georgia and West Hazelton,
Pennsylvania. This acquisition expanded the Company's capacity for jacquard and
dobby woven fabrics marketed principally for residential furniture. Although
Rossville/Chromatex markets fabrics to many of the same customers served by Culp
Textures, the patterns produced by Rossville/Chromatex generally feature more
textured and chenille yarns. Rossville/Chromatex has been particularly
successful in spinning its own novelty yarns to produce chenille or textured
plaid fabrics that embody "country" patterns.

VELVETS/PRINTS. Velvets/Prints, Culp's largest business unit, manufactures
and markets a broad range of printed and velvet fabrics. These include
wet-printed designs on flocked fabrics, which have recently experienced
significant growth in demand, heat-transfer prints on jacquard and flocked
fabrics, woven velvets and tufted velvets. These fabrics typically offer
manufacturers richly colored patterns and textured surfaces. Recent product
development improvements in manufacturing processes have significantly enhanced
the quality of printed flock fabrics which are principally used for residential
furniture. These fabrics are also used for other upholstered products such as
baby car seats. These fabrics are manufactured at Burlington, North Carolina and
Anderson, South Carolina. A significant portion of the Company's current capital
expenditures are directed toward expanding its capacity for printed fabrics. The
Company's planned wet print facility in Lumberton, North Carolina will produce
fabrics to be marketed by the Velvets/Prints business unit. Culp is also
installing in Burlington the Company's first flock coating line (which produces
flock greige goods) to further vertically integrate its production of wet-
printed flock fabrics. This operation is expected to begin production in the
fourth quarter of fiscal 1997.

CULP HOME FASHIONS. Culp Home Fashions principally markets mattress ticking
to bedding manufacturers. These fabrics encompass woven jacquard ticking as well
as heat-transfer and pigment-printed ticking on a variety of base fabrics,
including jacquard, knit, poly/cotton sheeting and non-woven materials. Culp
Home Fashions has successfully blended its diverse printing and finishing
capabilities with its access to a variety of base fabrics to offer innovative
designs to bedding manufacturers for mattress products. Printed jacquard fabrics
represent Culp Home Fashions' fastest growing product line, offering customers
better values with designs and textures of more expensive fabrics. Most jacquard
greige goods printed by Culp Home Fashions are provided by the business unit's
Rayonese facility. The expansion of the Rayonese capacity has been an important
factor in the ability of this business unit to increase its market share.
Moreover, the additional Rayonese capacity has allowed the Company to increase
vertical integration by supplying narrow-width jacquard greige goods to the
Velvets/Prints business unit for the production of printed jacquard upholstery
fabrics. Culp Home Fashions' manufacturing facilities are located in Stokesdale,
North Carolina and St. Jerome, Quebec.

PRODUCTS

The Company's upholstery fabrics and mattress ticking can be broadly
grouped under the three main categories of wovens, prints and velvets. The
following table indicates the product lines within each of these categories, a
brief description of their characteristics and identification of their principal
end-use markets.

CULP FABRIC CATEGORIES

UPHOLSTERY FABRICS CHARACTERISTICS PRINCIPAL MARKETS

WOVENS:
JACQUARDS Elaborate, complex designs such as florals and tapestries in Residential furniture
traditional, transitional and contemporary styles. Woven on Commerical furniture
intricate looms using a wide variety of synthetic and natural
yarns.
DOBBIES Geometric designs such as plaids, stripes and solids in Residential furniture
traditional and country styles. Woven on less complicated Commercial furniture
looms using a variety of weaving constructions and primarily
synthetic yarns.
PRINTS:
WET PRINTS Contemporary patterns with deep, rich colors on a nylon flock Residential furniture
base fabric for a very soft texture and excellent wearability. Juvenile furniture
Produced by screen printing directly onto the base fabric.
HEAT-TRANSFER PRINTS Sharp, intricate designs on flock or jacquard base fabrics. Residential furniture
Plush feel (flocks), deep colors (jacquards) and excellent Juvenile furniture
wearability. Produced by using heat and pressure to transfer
color from printed paper onto base fabric.
VELVETS:
WOVEN VELVETS Basic designs such as plaids and semi-plains in traditional Residential furniture
and contemporary styles with a plush feel. Woven with a
short-cut pile using various weaving methods and synthetic
yarns.
TUFTED VELVETS Lower cost production process of velvets in which synthetic Residential furniture
yarns are punched into a base polyester fabric for texture.
Similar designs as woven velvets.

MATTRESS TICKING CHARACTERISTICS PRINCIPAL MARKETS

WOVENS:
JACQUARDS Florals and other intricate designs. Woven on complex looms Bedding
using a wide variety of synthetic and natural yarns.
PRINTS:
HEAT-TRANSFER PRINTS Sharp, detailed designs. Produced by using heat and pressure Bedding
to transfer color from printed paper onto base fabrics,
including woven jacquards, knits and poly/cotton sheetings.
PIGMENT PRINTS Variety of designs produced economically by screen printing Bedding
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. Culp's products range in price from $2.50 per yard to
$7.00 per yard for upholstery fabrics and $1.20 per yard to $7.00 per yard for
mattress ticking.

PRODUCT DESIGN AND STYLING

Although design trends within the Company's markets are generally not
subject to radical change, the introduction of new fabrics and designs is an
important aspect of Culp's service to its customers. Accordingly, 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 50 designers involved in the
design and development of new patterns and styles, including designers with
experience in designing products for specific international markets. Culp uses
CAD systems in the development of new fabrics which assists the Company in
providing what it believes to be one of the most flexible design programs in the
industry. 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 has also supported the Company's emphasis on integrating manufacturing
considerations into the early phase of a new design. Culp intends to continue
employing this design-for-manufacture approach in the development of new
fabrics. The completion of a new design center in fiscal 1998 will enable most
of the Company's designers to be located in a central facility to facilitate the
sharing of design ideas and CAD and other technologies. The new design center is
expected to enhance the Company's merchandising and marketing of its products 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 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.

CUSTOMERS AND SALES

Culp's size, broad product line, diverse manufacturing base and effective
distribution system enable it to market products to more than 2,500 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 and the first six months of fiscal 1997.

NET SALES BY GEOGRAPHIC AREA

(dollars in thousands)

FIRST SIX MONTHS
FISCAL 1994 FISCAL 1995 FISCAL 1996 OF FISCAL 1997

United States................. $201,011 82.0 % $250,055 81.2 % $274,270 78.0 % $149,860 76.5 %
North America (excluding
U.S.)....................... 12,128 4.9 16,707 5.4 23,528 6.7 14,073 7.2
Europe........................ 17,334 7.1 19,177 6.2 18,927 5.4 10,483 5.4
Middle East................... 1,740 0.7 6,081 2.0 15,609 4.4 9,156 4.7
Asia and Pacific Rim.......... 5,529 2.3 8,969 2.9 12,124 3.4 8,815 4.5
South America................. 1,248 0.5 3,749 1.2 2,753 0.8 999 0.5
All other areas............... 6,059 2.5 3,288 1.1 4,456 1.3 2,347 1.2
Total....................... $245,049 100.0 % $308,026 100.0 % $351,667 100.0 % $195,733 100.0 %

DISTRIBUTION

The majority of the Company's products are shipped directly from its
manufacturing facilities. This "direct ship" program is primarily utilized by
large manufacturers. 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.
Culp receives a higher price for the products marketed through its regional
facilities to compensate the Company for the higher costs associated with
maintaining these inventories and operating the local distribution centers.
Substantially all of the Company's shipments of mattress ticking are made from
its manufacturing facilities in Stokesdale, North Carolina and St. Jerome,
Quebec, Canada.

In international markets, Culp sells primarily to distributors that
maintain inventories of upholstery fabrics for resale to furniture
manufacturers. The Company plans to explore the establishment of distribution
facilities in certain areas outside the United States to support increasing
international sales.

MANUFACTURING

Substantially all of the upholstery fabrics and mattress ticking currently
marketed by Culp is produced at the Company's ten manufacturing facilities.
These plants encompass a total of 2.2 million square feet and include yarn
extrusion, spinning, dyeing and texturizing equipment, narrow and wide-width
jacquard looms, dobby and woven velvet looms, tufting machines, printing
equipment for pigment, heat-transfer and wet printing, as well as fabric
finishing equipment. Over the past five fiscal years, the Company has invested
$73.5 million in capital expenditures to expand the Company's manufacturing
capacity, install more efficient production equipment and vertically integrate
its operations. Culp expects that capital expenditures will be approximately $31
million in fiscal 1997. Culp is actively pursuing ISO certification for its
manufacturing facilities. ISO certification is an international recognition of a
company's proven ability to deliver high quality products and services. Culp's
facility at Stokesdale, North Carolina, which produces mattress ticking, was
awarded ISO-9002 certification during fiscal 1997. The Company expects to
complete the ISO certification process at additional facilities in the near
future.

The Company's woven fabrics are made from various types of synthetic and
natural yarn, such as polypropylene, polyester, acrylic, rayon, nylon or cotton.
The Company currently extrudes and spins a portion of its own needs for yarn and
purchases the remainder from outside suppliers. Although Culp expects to
continue to rely on suppliers for the majority of its yarn requirements, the
percentage of internally generated yarn is expected to increase as additional
extrusion equipment is added over the next two years. 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.
Culp purchases a significant amount of greige goods 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
significantly increased the Company's capacity to produce its own jacquard
greige goods. Culp has installed additional equipment at Rayonese to further
increase its capacity for jacquard greige goods.

The Company is currently installing 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 fibers, usually nylon, 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 that helps Culp
reduce its manufacturing costs. Wet printing is the most recent addition to the
Company's printing capabilities, and the Company plans to approximately double
its wet-printing capacity.

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 synthethic and natural yarns
(polypropylene, polyester, acrylic, nylon, rayon and cotton), various types of
greige goods (poly/cotton wovens, flocks, polyester wovens, poly/rayon and
poly/cotton jacquard wovens, polyester knits, poly/cotton sheeting and
non-wovens), polypropylene resins, rayon staple, latex, 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, unprinted heat-transfer paper and unflocked poly/cotton base fabric. Most
of the Company's raw

materials are available from more than one primary source, and prices of such
materials fluctuate depending upon current supply and demand conditions and the
general rate of inflation. Many of the Company's basic raw materials are
petrochemical products or are produced from such products, and therefore the
Company's raw material costs are particularly sensitive to changes in
petrochemical prices. Generally, the Company has not had significant difficulty
in obtaining raw materials.

The Company currently relies on one supplier for most of its flock greige
goods. Due to the limited supply of flock greige goods, there can be no
assurance that the Company will be able to obtain sufficient quantities of flock
greige goods at economical prices if its existing supply is interrupted. In
addition, although the Company plans to begin operating its own flock coating
manufacturing line to produce flock greige goods during the fourth quarter of
fiscal 1997, the manufacturing process for this fabric differs substantially
from the weaving and other processes used in producing the Company's other
fabrics. Accordingly, unforeseen technological difficulties or other matters
could materially delay the Company's production of flock greige goods.

COMPETITION

The upholstery fabrics market is highly fragmented and competitive, and the
Company believes that no one firm dominates the United States or international
markets. The Company believes its principal upholstery fabrics competitors are
the Burlington House Fabrics division of Burlington Industries, Inc., Joan
Fabrics Corporation, Malden Mills, Inc., the Mastercraft division of Collins &
Aikman Company, Microfibres, Inc., Phillips Mills, 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 the largest supplier of upholstery fabric to the furniture
industry 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.

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.

In its examination of the proposed Lumberton facility, the Company
discovered certain chlorinated solvents in the soil and groundwater which are
believed to have originated from an adjacent property. The Company and the owner
of the Lumberton facility are negotiating to exclude the area of the property
known to be affected from the property that the Company is acquiring. The
Company believes that it will not be deemed a responsible party with respect to
such known contamination and accordingly that such contamination will not have a
material adverse effect on the Company's operations or financial condition,
although there can be no assurance that other portions of the Lumberton
property may not become affected in the future or that other environmental
issues may not arise.

In 1992, the Company discovered soil and groundwater contamination at its
Stokesdale, North Carolina facility, which had been purchased in 1986 pursuant
to an agreement in which the seller of the facility indemnified the Company
against environmental contamination on the property. The Company has taken
action to remediate the contamination of this facility and reached a monetary
settlement in 1995 with the former owner of the property under the former
owner's indemnification

obligations to the Company. In addition, the United States Environmental
Protection Agency has obtained a judgment against the owner and lessor of the
Company's plant in West Hazelton, Pennsylvania relating to remediation of soil
and groundwater contamination at the West Hazelton facility. No claim has been
asserted against the Company in connection with the judgment or the
contamination at the West Hazelton facility, and the Company is fully
indemnified against any such claims by the owner of that facility and the
related corporation from which the Company purchased the assets located at this
facility.

EMPLOYEES

As of December 1, 1996, the Company had 3,143 employees. All of the hourly
employees at the Company's facility in West Hazelton, Pennsylvania and all of
the hourly employees at the Rayonese facility in Canada (approximately 15% of
the Company's workforce) are represented by a union. The Company recently
concluded the negotiation of a new collective bargaining agreement with the
union that represents the hourly employees at the West Hazelton plant. The new
contract is scheduled to expire on December 31, 1999 and is subject to
ratification by a vote of the hourly employees. The collective bargaining
agreement with respect to the Rayonese hourly employees expires in 1999. The
Company is not aware of any efforts to organize any more of its employees and
believes its relations with its employees are good.

PROPERTIES

The Company's headquarters are located in High Point, North Carolina, and
the Company currently operates ten manufacturing facilities and three regional
distribution facilities. The Company has entered into an agreement to warehouse
inventory at a regional distribution facility in Grand Rapids, Michigan operated
by a third party. The following is a summary of the Company's principal
administrative, manufacturing and distribution facilities which, unless
otherwise noted, are leased by the Company. The manufacturing facilities are
organized by business unit.

APPROX.
TOTAL AREA EXPIRATION DATE
LOCATION PRINCIPAL USE (SQ. FT.) OF LEASE (1)

HEADQUARTERS AND DISTRIBUTIONS
CENTERS:

High Point, North Carolina Corporate headquarters 33,000 2015
High Point, North Carolina Regional distribution 65,000 2008
Los Angeles, California Regional distribution 45,000 2002
Tupelo, Mississippi Regional distribution 35,000 2002

CULP TEXTURES:

Graham, North Carolina (2) Manufacturing 341,000 N/A
Burlington, North Carolina (2) Manufacturing and distribution 302,000 N/A
Pageland, South Carolina (2) Manufacturing 96,000 N/A

ROSSVILLE/CHROMATEX:

Rossville, Georgia Manufacturing and distribution 396,000 2001
West Hazelton, Pennsylvania Manufacturing 110,000 2013
West Hazelton, Pennsylvania Manufacturing and distribution 100,000 2008

VELVETS/PRINTS:

Burlington, North Carolina Manufacturing and distribution 242,000 2021
Anderson, South Carolina (2) Manufacturing 99,000 N/A

CULP HOME FASHIONS:

Stokesdale, North Carolina (2) Manufacturing and distribution 140,000 N/A
St. Jerome, Quebec, Canada (2) Manufacturing and distribution 202,000 N/A

(1) Includes all options to renew

(2) Owned by the Company

The Company also leases showrooms in Tupelo, Mississippi, High Point, North
Carolina and Iper, Belgium. The Company has entered into a contract to purchase
an additional manufacturing facility in Lumberton, North Carolina, which it
expects to acquire during January 1997.

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company are as follows:

NAME AGE POSITION

Robert G. Culp, III.................................. 50 Chairman of the Board and Chief Executive Officer
Howard L. Dunn....................................... 58 President, Chief Operating Officer and Director
Kenneth M. Ludwig.................................... 44 Senior Vice President -- Human Resources
Franklin N. Saxon.................................... 44 Senior Vice President, Chief Financial Officer and
Director
Harry R. Culp........................................ 45 Director
Baxter P. Freeze..................................... 76 Director
Earl M. Honeycutt.................................... 78 Director
Patrick H. Norton.................................... 74 Director
Earl N. Phillips, Jr................................. 56 Director
Bland W. Worley...................................... 79 Director

ROBERT G. CULP, III is one of the founders of the Company and served as
Executive Vice President and Secretary until 1981, as President from 1981 to
1993, as Chief Operating Officer from 1985 until 1993, and as Chief Executive
Officer since 1988. Mr. Culp has served as a director since 1972, and in 1990,
the Board of Directors elected Mr. Culp Chairman of the Board. Mr. Culp serves
as a member of the local board of directors of First Union National Bank of
North Carolina.

HOWARD L. DUNN, JR. is one of the founders of the Company and served as
Vice President of Manufacturing and Product Development from 1972 until 1988,
when the Board elected Mr. Dunn Executive Vice President. The Board elected Mr.
Dunn President and Chief Operating Officer in 1993. Mr. Dunn has served as a
director since 1972.

KENNETH M. LUDWIG joined the Company in 1985 as Director of Personnel and
was elected Vice President-Human Resources in 1986. Mr. Ludwig has served as
Senior Vice President-Human Resources since June 1996.

FRANKLIN N. SAXON joined the Company in 1983, serving first as Controller
and, since 1985, as Chief Financial Officer and Treasurer. Mr. Saxon was
appointed Corporate Secretary in June 1995 and was appointed Senior Vice
President in June 1996 and has served as a director since 1987.

HARRY R. CULP has been practicing dentistry in High Point, North Carolina
since July 1981. Dr. Culp was elected a director in 1996 and served previously
as a director of the Company from 1990 to 1993. He is the brother of Robert G.
Culp, III.

BAXTER P. FREEZE, SR. served as president of Commonwealth Hosiery Mills,
Inc., a manufacturer of hosiery in Randleman, North Carolina, for 41 years until
his retirement in 1996. He continues to serve as Chairman of the Board of
Commonwealth Hosiery Mills, Inc. Mr. Freeze has served as a director of the
Company since 1972.

EARL M. HONEYCUTT served as president of Amoco Fabrics and Fibers Company,
a textile manufacturing subsidiary of Amoco Chemical Corporation, Atlanta,
Georgia, for 15 years until his retirement in 1983. Mr. Honeycutt has served as
a director since 1983.

PATRICK H. NORTON has served since 1981 as Senior Vice President of Sales
and Marketing and a member of the Board of Directors of La-Z-Boy Chair Company,
a furniture manufacturer. Mr. Norton currently serves as a member of the Board
of Directors of the American Furniture Manufacturers Association. Mr. Norton has
served as a director of the Company since 1987.

EARL N. PHILLIPS, JR. is co-founder and has served as President of First
Factors Corporation, an asset-based lending firm located in High Point, North
Carolina, since 1982. He also serves as a member of several Boards of Directors,
including First Union National Bank of North Carolina. Mr. Phillips has served
as a director of the Company since 1992.

BLAND W. WORLEY served as Chief Executive Officer of
BarclaysAmericanCorporation, a financial services company, from 1975 until 1982
and as Chairman of the Board of that corporation until his retirement in 1985.
Mr. Worley has served as a director of the Company since 1983.

SELLING SHAREHOLDERS

Of the 1,600,000 shares of Common Stock offered by this Prospectus, 200,000
shares are to be sold by the Robert G. Culp, Jr. Family Trust for the benefit of
Harry R. Culp, under an Agreement dated October 31, 1978 (the "Harry Culp
Trust"), and 200,000 shares are to be sold by the Robert G. Culp, Jr. Family
Trust for the benefit of Judith Culp Walker, under an Agreement dated October
31, 1978 (the "Judith Walker Trust"; the Harry Culp Trust and the Judith Walker
Trust are referred to as the "Selling Shareholders"). Harry R. Culp, a director
of the Company, is a beneficiary of the Harry Culp Trust, and Judith C. Walker,
a director of the Company from 1993 to 1996, is a beneficiary of the Judith
Walker Trust. Robert G. Culp, III, Chairman of the Board of Directors and Chief
Executive Officer, is a trustee of each of the Harry Culp Trust and the Judith
Walker Trust and is the brother of Harry R. Culp and Judith C. Walker. Each of
the Selling Shareholders has granted to the Underwriters an option to purchase
an additional 120,000 shares of Common Stock solely to cover over-allotments.

As of the date of this Prospectus, the Harry Culp Trust and the Judith
Walker Trust beneficially own 825,000 shares and 1,029,375 shares (or 7.3% and
9.1%), respectively, of the outstanding shares of Common Stock. Assuming that
all of the 400,000 shares of Common Stock offered by the Selling Shareholders
are sold (and the Underwriters do not exercise their over-allotment option), the
Harry Culp Trust and the Judith Walker Trust will beneficially own, immediately
following the completion of this Offering, 625,000 shares and 829,375 shares (or
5.0% and 6.6%), respectively, of the outstanding shares of Common Stock.
Assuming that the Underwriters' over-allotment option is exercised, the Harry
Culp Trust and the Judith Walker Trust will beneficially own, immediately
following the completion of the Offering, 505,000 shares and 709,375 shares (or
4.0% and 5.7%), respectively, of the outstanding shares of Common Stock.

The Company leases two industrial facilities from partnerships that are, or
have been within the past three years, owned in part by Judith C. Walker and
Harry R. Culp. The initial term of the leases are five to seven years, with one
or more five-year renewal options. Base rent per year for the leased facilities
ranges from $2.05 to $2.40 per square foot, and these facilities contain a total
of approximately 307,000 square feet of floor space. The leases prohibit
assignment or subletting without the lessor's consent but such consent may not
be unreasonably withheld. The lessor is responsible for maintenance only of roof
and structural portions of the leased facilities. The facilities are leased on a
"triple net" basis, with the Company being responsible for payment of all
property taxes, insurance premiums and maintenance, other than structural
maintenance. The Company believes that at the time the leases and any lease
renewals were executed the terms of all such leases were no less favorable to
the Company than could have been obtained in arms-length transactions with
unaffiliated persons, and the Company received independent appraisals to this
effect. The total amount of rent paid by the Company under these leases during
fiscal 1996 was approximately $612,000.

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement among the
Company and Wheat, First Securities, Inc. and Raymond James & Associates, Inc.,
as representatives of the Underwriters (the "Representatives"), the Underwriters
have severally agreed to purchase from the Company and the Selling Shareholders,
and the Company and the Selling Shareholders have agreed to sell to each of the
Underwriters, the respective number of Shares set forth opposite each
Underwriter's name below.

NUMBER OF
UNDERWRITER SHARES

Wheat, First Securities, Inc...........................................................................
Raymond James & Associates, Inc........................................................................

Total........................................................................................ 1,600,000

The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligation is such that they are committed to purchase and pay for all the
Shares if any are purchased.

The Underwriters propose to offer the shares of Common Stock directly to
the public at the public offering price set forth on the cover page of this
Prospectus and to certain securities dealers at such price less a concession not
in excess of $ per share. The Underwriters may allow, and such selected
dealers may reallow, a concession not in excess of $ per share of Common Stock
to certain brokers and dealers. After the Offering, the price to the public,
concession, allowance and reallowance may be changed by the Representatives.

The Selling Shareholders have granted to the Underwriters an option,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to 240,000 additional shares of Common Stock to cover
over-allotments, if any, at the same price per share as the initial 400,000
shares of Common Stock to be purchased by the Underwriters from the Selling
Shareholders. To the extent that the Underwriters exercise this option, each of
the Underwriters will be committed, subject to certain conditions, to purchase
such additional shares of Common Stock in approximately the same proportion as
set forth in the above table. The Underwriters may purchase such shares only to
cover over-allotments made in connection with this Offering.

The Company has agreed not to issue, and all directors and executive
officers of the Company and the Selling Shareholders have agreed not to offer,
sell or contract to sell, or otherwise dispose of, directly or indirectly, or
announce an offering of, any shares of Common Stock or other equity securities
of the Company for 180 days after the date of this Prospectus, subject to
certain limited exceptions, without the prior written consent of the
Representatives.

The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required to
make in respect thereof.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Robinson, Bradshaw & Hinson, P.A., Charlotte, North
Carolina. Certain legal matters in connection with the Offering will be passed
upon for the Underwriters by Hunton & Williams, Richmond, Virginia. At December
18, 1996, members of Robinson, Bradshaw & Hinson, P.A. beneficially owned less
than 1% of the outstanding shares of Common Stock. Henry H. Ralston, an
Assistant Secretary of the Company, is a member of Robinson, Bradshaw & Hinson,
P.A.

EXPERTS

The Consolidated Financial Statements of the Company and subsidiary as of
April 30, 1995 and April 28, 1996, and for each of the fiscal years in the
three-year period ended April 28, 1996, have been audited by KPMG Peat Marwick
LLP, independent certified public accountants. Such financial statements have
been included herein and in the Registration Statement in reliance upon the
report of KPMG Peat Marwick LLP, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company is subject to the informational requirements of the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities of the Commission, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 as well as at the Commission's
regional offices located at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511 and at Seven World Trade Center, 13th Floor,
New York, New York 10048. Copies can be obtained from the Commission by mail at
prescribed rates. Requests should be directed to the Commission's Public
Reference Branch, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549. Such material may also be accessed electronically by means of the
Commission's home page on the Internet (http://www.sec.gov). Such information
may also be inspected and copied at the offices of the NYSE at 20 Broad Street,
New York, New York 10005.

This Prospectus constitutes a part of a registration statement on Form S-3
(herein, together with all exhibits thereto, referred to as the "Registration
Statement") filed by the Company with the Commission under the Securities Act,
with respect to the securities offered hereby. This Prospectus does not contain
all the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. Reference is hereby made to the Registration Statement, and to the
exhibits thereto for further information with respect to the Company and the
securities offered hereby. Copies of the Registration Statement and the exhibits
thereto are on file at the offices of the Commission and may be obtained upon
payment of the prescribed fee or may be examined without charge at the public
reference facilities of the Commission described above. Statements contained
herein concerning the provisions of documents are necessarily summaries of such
documents, and each statement is qualified in its entirety by reference to the
copy of the applicable document filed with the Commission.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by the Company with the Commission (File
No.0-12781) are incorporated by reference in this Prospectus:

(1) Annual Report on Form 10-K for the fiscal year ended April 28, 1996;

(2) Quarterly Reports on Form 10-Q for the fiscal quarters ended July 28,
1996 and October 27, 1996;

(3) Current Report on Form 8-K filed May 30, 1996; Current Report on Form
8-K filed August 8, 1996; Current Report on Form 8-K filed November 6, 1996, as
amended by Amendment No. 1 thereto on Form 8-K/A filed December 20, 1996; and
Current Report on Form 8-K filed December 20, 1996; and

(4) the description of the Company's Common Stock contained in its Form 8-A
filed with the Commission on December 19, 1996.

All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the Offering shall be deemed to be incorporated by reference
into this Prospectus.

Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.

This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. These documents (not including exhibits to the
documents incorporated by reference unless such exhibits are specifically
incorporated by reference into the information that the Prospectus incorporates)
are available without charge to each person to whom a Prospectus is delivered
upon written or oral request. Requests should be directed to Culp, Inc., 101
South Main Street, High Point, North Carolina 27261, Attention: Investor
Relations Department, telephone: (910) 888-6261.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE

AUDITED CONSOLIDATED FINANCIAL STATEMENTS:

Report of Independent Auditors......................................................................................... F-2

Consolidated Balance Sheets as of April 30, 1995 and April 28, 1996.................................................... F-3

Consolidated Statements of Income for the Years Ended May 1, 1994, April 30, 1995, and April 28, 1996.................. F-4

Consolidated Statements of Shareholders' Equity for the Years Ended May 1, 1994, April 30, 1995, and April 28, 1996.... F-5

Consolidated Statements of Cash Flows for the Years Ended May 1, 1994 April 30, 1995, and April 28, 1996............... F-6

Notes to Audited Consolidated Financial Statements..................................................................... F-7

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS:

Consolidated Balance Sheet as of October 27, 1996...................................................................... F-16

Consolidated Statements of Income for the Six Months Ended October 29, 1995 and October 27, 1996....................... F-17

Consolidated Statements of Cash Flows for the Six Months Ended October 29, 1995 and October 27, 1996................... F-18

Notes to Unaudited Consolidated Financial Statements................................................................... F-19

F-1

REPORT OF INDEPENDENT AUDITORS

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF CULP, INC.:

We have audited the accompanying consolidated balance sheets of Culp, Inc.
and subsidiary as of April 30, 1995 and April 28, 1996, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the years in the three-year period ended April 28, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Culp, Inc.
and subsidiary as of April 30, 1995 and April 28, 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended April 28, 1996, in conformity with generally accepted accounting
principles.

KPMG PEAT MARWICK LLP

Greensboro, North Carolina
May 29, 1996

F-2

CULP, INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE DATA)

APRIL APRIL
30, 28,
1995 1996

ASSETS
Current assets:
Cash and cash investments........................................................................ $ 1,393 $ 498
Accounts receivable.............................................................................. 44,252 52,038
Inventories...................................................................................... 45,771 47,395
Other current assets............................................................................. 3,194 4,191
Total current assets........................................................................... 94,610 104,122
Restricted investments.............................................................................. 795 5,250
Property, plant and equipment, net.................................................................. 75,805 76,961
Goodwill............................................................................................ 22,600 22,871
Other assets........................................................................................ 1,189 2,440
Total assets................................................................................... $194,999 $211,644
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt............................................................. $ 11,555 $ 7,100
Accounts payable................................................................................. 32,250 27,308
Accrued expenses................................................................................. 11,532 12,564
Income taxes payable............................................................................. 661 197
Total current liabilities...................................................................... 55,998 47,169
Long-term debt...................................................................................... 62,187 74,941
Deferred income taxes............................................................................... 5,418 8,088
Total liabilities.............................................................................. 123,603 130,198
Commitments and contingencies (note 11)
Shareholders' equity:
Preferred stock, $.05 par value, authorized 10,000,000 shares.................................... -- --
Common stock, $.05 par value, authorized 40,000,000 shares, issued and outstanding 11,204,766 at
April 30, 1995 and 11,290,300 at April 28, 1996................................................. 560 565
Capital contributed in excess of par value....................................................... 16,577 16,878
Retained earnings................................................................................ 54,259 64,003
Total shareholders' equity..................................................................... 71,396 81,446
Total liabilities and shareholders' equity..................................................... $194,999 $211,644

The accompanying notes are an integral part of the audited consolidated
financial statements.

F-3

CULP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(IN THOUSANDS, EXCEPT PER SHARE DATA)

YEAR ENDED
APRIL APRIL
MAY 1, 30, 28,
1994 1995 1996

Net sales................................................................................ $245,049 $308,026 $351,667
Cost of sales............................................................................ 202,426 253,345 289,129
Gross profit........................................................................... 42,623 54,681 62,538
Selling, general and administrative expenses............................................. 27,858 33,432 39,068
Income from operations................................................................. 14,765 21,249 23,470
Interest expense......................................................................... 2,515 4,715 5,316
Interest income.......................................................................... (79) (64) (92)
Other expense, net....................................................................... 350 1,082 956
Income before income taxes............................................................. 11,979 15,516 17,290
Income taxes............................................................................. 4,314 5,741 6,310
Net income............................................................................. $ 7,665 $ 9,775 $ 10,980
Net income per share..................................................................... $ 0.69 $ 0.87 $ 0.98

The accompanying notes are an integral part of the audited consolidated
financial statements.

F-4

CULP, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(IN THOUSANDS, EXCEPT SHARE DATA)

CAPITAL
CONTRIBUTED
COMMON COMMON IN EXCESS TOTAL
STOCK STOCK OF RETAINED SHAREHOLDERS'
SHARES AMOUNT PAR VALUE EARNINGS EQUITY

Balance, May 2, 1993......................................... 7,259,161 $362 $15,333 $ 38,826 $54,521
Cash dividends ($0.08 per share)........................... -- -- -- (887) (887)
Net income................................................. -- -- -- 7,665 7,665
Common stock issued in connection with stock option plan,
including $484 of tax benefit........................... 212,140 11 1,339 -- 1,350
Three-for-two stock split.................................. 3,706,052 185 (185) -- --
Balance, May 1, 1994......................................... 11,177,353 558 16,487 45,604 62,649
Cash dividends ($0.10 per share)........................... -- -- -- (1,120) (1,120)
Net income................................................. -- -- -- 9,775 9,775
Common stock issued in connection with stock option plan... 27,413 2 90 -- 92
Balance, April 30, 1995...................................... 11,204,766 560 16,577 54,259 71,396
Cash dividends ($0.11 per share)........................... -- -- -- (1,236) (1,236)
Net income................................................. -- -- -- 10,980 10,980
Common stock issued in connection with stock option plan... 85,534 5 301 -- 306
Balance, April 28, 1996...................................... 11,290,300 $565 $16,878 $ 64,003 $81,446

The accompanying notes are an integral part of the audited consolidated
financial statements.

F-5

CULP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

YEAR ENDED
APRIL APRIL
MAY 1, 30, 28,
1994 1995 1996

Cash flows from operating activities:
Net income............................................................................... $ 7,665 $ 9,775 $ 10,980
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.......................................................................... 8,497 11,257 12,348
Amortization of intangible assets..................................................... 344 628 748
Provision for deferred income taxes................................................... 1,118 1,373 2,210
Changes in assets and liabilities, net of effects of businesses acquired:
Accounts receivable................................................................. (1,839) (5,515) (7,786)
Inventories......................................................................... (4,330) (7,281) (1,624)
Other current assets................................................................ (304) (310) (537)
Other assets........................................................................ (389) (518) (103)
Accounts payable.................................................................... (420) 159 (1,077)
Accrued expenses.................................................................... 539 2,180 1,032
Income taxes payable................................................................ (401) 25 (464)
Net cash provided by operating activities........................................ 10,480 11,773 15,727
Cash flows from investing activities:
Capital expenditures..................................................................... (16,764) (18,058) (14,385)
Purchase of restricted investments....................................................... (3,593) (57) (6,019)
Purchase of investments to fund deferred compensation liability.......................... -- -- (1,286)
Sale of restricted investments........................................................... 670 2,185 1,564
Businesses acquired...................................................................... (38,205) (10,455) --
Net cash used in investing activities............................................ (57,892) (26,385) (20,126)
Cash flows from financing activities:
Proceeds from issuance of long-term debt................................................. 49,203 23,455 19,854
Principal payments on long-term debt..................................................... (14,223) (11,275) (11,555)
Dividends paid........................................................................... (887) (1,120) (1,236)
Proceeds from common stock issued........................................................ 1,350 92 306
Change in accounts payable -- capital expenditures....................................... 7,443 2,160 (3,865)
Net cash provided by financing activities........................................ 42,886 13,312 3,504
Decrease in cash and cash investments...................................................... (4,526) (1,300) (895)
Cash and cash investments, beginning of year............................................... 7,219 2,693 1,393
Cash and cash investments, end of year..................................................... $ 2,693 $ 1,393 $ 498

The accompanying notes are an integral part of the audited consolidated
financial statements.

F-6

CULP, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its subsidiary, which is wholly-owned. All significant intercompany balances
and transactions are eliminated in consolidation.

DESCRIPTION OF BUSINESS

The Company manufactures and markets upholstery fabrics and mattress
ticking internationally for the furniture, bedding, and related industries, with
the majority of its business conducted in the United States.

FISCAL YEAR

The Company's fiscal year is the 52 or 53 week period ending on the Sunday
closest to April 30. Fiscal years 1994, 1995 and 1996 included 52 weeks.

STATEMENTS OF CASH FLOWS

For purposes of reporting cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash investments.

ACCOUNTS RECEIVABLE

Substantially all of the Company's accounts receivable are due from
manufacturers and distributors in the markets noted above. The Company grants
credit to customers, a substantial number of which are located in the United
States. Management performs credit evaluations of the Company's customers and
generally does not require collateral.

INVENTORIES

Principally all inventories are valued at the lower of last-in, first-out
(LIFO) cost or market. Information related to the first-in, first-out (FIFO)
method may be useful in comparing operating results to those of companies not on
LIFO. The LIFO valuation method decreased net income $73,000 ($0.01 per share)
in 1994, had no effect on net income in 1995, and decreased net income $66,000
($0.01 per share) in 1996 compared with the FIFO method.

RESTRICTED INVESTMENTS

Restricted investments were purchased with proceeds from industrial revenue
bond issues and are invested pending application of such proceeds to project
costs or repayment of the bonds. The investments are stated at cost which
approximates market value.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is recorded at cost. Depreciation is
generally computed using the straight-line method over the estimated useful
lives of the respective assets. Major renewals and betterments are capitalized.
Maintenance, repairs and minor renewals are expensed as incurred. When
properties are retired or otherwise disposed of, the related cost and
accumulated depreciation are removed from the accounts. Amounts received on
disposal less the book value of assets sold are charged or credited to income.

FOREIGN CURRENCY TRANSLATION

The United States dollar is the functional currency for the Company's
Canadian subsidiary. Translation gains or losses for this subsidiary are
reflected in net income.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill, which represents the unamortized excess of the purchase price
over the fair values of the net assets acquired, is being amortized using the
straight-line method over 40 years. The Company assesses the recoverability of
goodwill by determining whether the amortization of the balance over its
remaining life can be recovered through undiscounted future

F-7

CULP, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

NOTE 1 -- GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
operating cash flows of the acquired businesses. The assessment of the
recoverability of goodwill will be impacted if estimated cash flows are not
achieved.

Other intangible assets are included in other assets and consist
principally of debt issue costs. Amortization is computed using the
straight-line method over the respective terms of the debt agreements.

INCOME TAXES

Deferred taxes are recognized for the temporary differences between the
financial statement carrying amounts and the tax bases of the Company's assets
and liabilities and operating loss and tax credit carryforwards at income tax
rates expected to be in effect when such amounts are realized or settled. The
effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.

No provision is made for income taxes which may be payable if undistributed
income of the Company's Canadian subsidiary were to be paid as dividends to the
Company, since the Company intends that such earnings will continue to be
invested. At April 28, 1996 the amount of such undistributed income was $1.5
million. Foreign tax credits may be available as a reduction of United States
income taxes in the event of such distributions.

REVENUE RECOGNITION

Revenue is recognized when products are shipped to customers. Provision is
made currently for estimated product returns, claims and allowances.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of cash and cash investments, accounts receivable,
other current assets, accounts payable and accrued expenses approximates fair
value because of the short maturity of these financial instruments.

The fair value of the Company's long-term debt is estimated by discounting
the future cash flows at rates currently offered to the Company for similar debt
instruments of comparable maturities. The fair value of the Company's long-term
debt approximates the carrying value of the debt due to the variable interest
rates on the majority of long-term debt at April 28, 1996.

INTEREST RATE SWAP AGREEMENTS

Interest rate swap agreements generally involve the exchange of fixed and
floating rate interest payment obligations without the exchange of the
underlying principal amounts. These agreements are used to effectively fix the
interest rates on certain variable rate borrowings. Net amounts paid or received
are reflected as adjustments to interest expense.

FORWARD CONTRACTS

Gains and losses related to qualifying hedges of firm commitments are
deferred and included in the measurement of the related foreign currency
transaction when the hedged transaction occurs.

PER SHARE DATA

Primary income per share is computed by dividing net income by the weighted
average number of common shares outstanding during each year, as restated for
stock splits (11,075,988 in 1994, 11,203,160 in 1995, and 11,234,363 in 1996).
The effect of stock options on the calculation is not materially dilutive.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

F-8

CULP, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

NOTE 1 -- GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
RECLASSIFICATION

Certain items in the 1995 consolidated financial statements have been
reclassified to conform with the presentation adopted in the current year. The
reclassifications did not impact net income as previously reported.

NOTE 2 -- ACQUISITIONS

On March 6, 1995, the Company acquired Rayonese Textile Inc. ("Rayonese"),
a manufacturer of home furnishings fabrics based near Montreal, Canada. The
transaction was valued at approximately $10.5 million and included the purchase
of 100% of the Rayonese common stock and the assumption of Rayonese's funded
debt. Goodwill on the transaction was approximately $5 million, which is being
amortized on the straight-line method over 40 years. The acquisition was
accounted for as a purchase, and accordingly, the net assets and operations of
Rayonese have been included in the Company's consolidated financial statements
since March 6, 1995.

On November 2, 1993, the Company purchased the operations and assets
relating to an upholstery fabric business operating as Rossville Mills,
Chromatex and Rossville Velours ("Rossville/Chromatex"). The transaction was
valued at approximately $39.3 million and involved the purchase of assets for
cash, the repayment of Rossville/Chromatex debt and the assumption of certain
liabilities. Goodwill on the transaction was approximately $18.9 million, which
is being amortized on the straight-line method over 40 years. The acquisition
was accounted for as a purchase, and accordingly, the net assets and operations
of Rossville/Chromatex have been included in the Company's consolidated
financial statements since November 1, 1993.

NOTE 3 -- ACCOUNTS RECEIVABLE

A summary of accounts receivable follows:

1995 1996

(IN THOUSANDS)
Customers....................................................................... $44,014 $53,321
Factors......................................................................... 1,314 71
Allowance for doubtful accounts................................................. (739) (1,016)
Reserve for returns and allowances.............................................. (337) (338)
$44,252 $52,038

NOTE 4 -- INVENTORIES

A summary of inventories follows:

1995 1996

(IN THOUSANDS)
Inventories on the FIFO cost method
Raw materials................................................................. $25,385 $29,150
Work-in-process............................................................... 3,465 5,067
Finished goods................................................................ 19,834 16,708
Total inventories on the FIFO cost method.................................. 48,684 50,925
Adjustments of certain inventories to the LIFO cost method...................... (2,913) (3,530)
$45,771 $47,395

F-9

CULP, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT

A summary of property, plant and equipment follows:

DEPRECIABLE LIVES
(IN YEARS) 1995 1996

(IN THOUSANDS)
Land and improvements....................................... 10 $ 958 $ 1,765
Buildings and improvements.................................. 7-40 12,793 13,529
Leasehold improvements...................................... 7-10 1,242 1,320
Machinery and equipment..................................... 3-12 101,427 109,906
Office furniture and equipment.............................. 3-10 12,020 12,152
Capital projects in progress................................ 6,047 8,517
134,487 147,189
Accumulated depreciation.................................... (58,682) (70,228)
$ 75,805 $ 76,961

NOTE 6 -- GOODWILL

A summary of goodwill follows:

1995 1996

(IN THOUSANDS)
Goodwill........................................................................ $23,337 $24,218
Accumulated amortization........................................................ (737) (1,347)
$22,600 $22,871

NOTE 7 -- ACCOUNTS PAYABLE

A summary of accounts payable follows:

1995 1996

(IN THOUSANDS)
Accounts payable -- trade....................................................... $22,647 $21,570
Accounts payable -- capital expenditures........................................ 9,603 5,738
$32,250 $27,308

NOTE 8 -- ACCRUED EXPENSES

A summary of accrued expenses follows:

1995 1996

(IN THOUSANDS)
Compensation and benefits....................................................... $ 6,497 $ 8,153
Other........................................................................... 5,035 4,411
$11,532 $12,564

F-10

CULP, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

NOTE 9 -- INCOME TAXES

A summary of income taxes follows:

1994 1995 1996

(IN THOUSANDS)
Current
Federal................................................................ $2,420 $3,473 $3,345
State.................................................................. 383 699 700
Canadian............................................................... -- -- --
2,803 4,172 4,045
Deferred
Federal................................................................ 1,279 1,374 1,422
State.................................................................. 232 195 145
Canadian............................................................... -- -- 698
1,511 1,569 2,265
$4,314 $5,741 $6,310

Income before income taxes related to the Company's Canadian operation for
the year ended April 28, 1996 was $2,100,000. In the prior year, income before
income taxes from this operation was not significant.

The following schedule summarizes the principal differences between income
taxes at the federal income tax rate and the effective income tax rate reflected
in the consolidated financial statements:

1994 1995 1996

Federal income tax rate...................................................... 34.0% 34.1% 34.2%
State income taxes, net of federal income tax benefit........................ 3.8 3.8 3.4
Exempt income of foreign sales corporation................................... (1.4) (1.5) (1.7)
Other........................................................................ (0.4) 0.6 0.6
36.0% 37.0% 36.5%

F-11

CULP, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

NOTE 9 -- INCOME TAXES -- CONTINUED
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities consist of the following:

1995 1996

(IN THOUSANDS)
Deferred tax liabilities:
Property, plant and equipment, net........................................... $ (5,625) $ (7,328)
Goodwill..................................................................... (432) (720)
Employee benefits............................................................ (249) (295)
Other........................................................................ (139) (142)
Total deferred tax liabilities............................................ (6,445) (8,485)
Deferred tax assets:
Accounts receivable.......................................................... 357 474
Inventories.................................................................. 81 148
Compensation................................................................. 475 960
Liabilities and reserves..................................................... 922 782
Alternative minimum tax...................................................... 699 --
Gross deferred tax assets................................................. 2,534 2,364
Valuation allowance....................................................... -- --
Total deferred tax assets................................................. 2,534 2,364
$ (3,911) $ (6,121)

Deferred taxes are classified in the accompanying consolidated Balance
Sheet captions as follows:

1995 1996

(IN THOUSANDS)
Other current assets.......................................................... $ 1,507 $ 1,967
Deferred income taxes......................................................... (5,418) (8,088)
$(3,911) $(6,121)

The Company believes that it is more likely than not that the results of
future operations will generate sufficient taxable income to realize the
remaining deferred tax assets.

Income taxes paid, net of income tax refunds, were $3,113,000 in 1994;
$4,071,000 in 1995; and $4,623,000 in 1996.

NOTE 10 -- LONG-TERM DEBT

A summary of long-term debt follows:

1995 1996

(IN THOUSANDS)
Industrial revenue bonds and other obligations................................. $ 15,787 $ 22,241
Revolving credit line.......................................................... 10,000 23,300
Term loan...................................................................... 41,500 35,500
Subordinated note payable...................................................... 1,000 1,000
Convertible note payable....................................................... 5,455 --
73,742 82,041
Current maturities............................................................. (11,555) (7,100)
$ 62,187 $ 74,941

F-12

CULP, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

NOTE 10 -- LONG-TERM DEBT -- CONTINUED
The Company has an unsecured loan agreement with two banks, which provides
for a $36,000,000 five-year term loan and a $33,500,000 revolving credit line,
which also has a five-year term. The term loan requires monthly installments of
$500,000, and a final payment of $6,500,000 on March 1, 2001. The revolving
credit line requires payment of an annual facility fee in advance. Additionally,
the term loan and the credit line require payment of interest on any outstanding
borrowings at an interest rate based on a spread over the one month LIBOR (this
LIBOR rate at April 28, 1996 was 5.4%).

The industrial revenue bonds ("IRBs") are collateralized by restricted
investments of $5,250,000 and letters of credit for $22,436,000 at April 28,
1996. Substantially all of the bonds are due in one-time payments at various
dates from 2008 to 2013, with interest at variable rates at approximately 60% of
the prime rate (prime at April 28, 1996 was 8.25%).

In connection with the Rossville/Chromatex acquisition (note 2), the
Company has a subordinated note payable to the former owners with interest based
on a spread over the one month LIBOR. The note is payable on November 1, 1996.

In connection with the purchase of Rayonese Textile Inc. (note 2), the
Company issued a convertible note payable of $5,455,000. The note was payable on
March 6, 1998 or upon 45 days notice to the Company by the holders starting on
March 6, 1996. The holders gave 45 days notice, and the Company repaid the note
payable in March 1996.

The Company's loan agreements require, among other things, that the Company
maintain certain financial ratios. At April 28, 1996, the Company was in
compliance with these required financial covenants.

At April 28, 1996, the Company had five interest rate swap agreements with
two banks in order to reduce its exposure to floating interest rates on a
portion of its variable rate borrowings.

The following table summarizes certain data regarding the interest rate
swaps:

NOTIONAL AMOUNT INTEREST RATE EXPIRATION DATE

$ 2,300,000 6.4% July 1996
150,000 7.6 July 1996
15,000,000 7.3 April 2000
5,000,000 6.9 June 2002
5,000,000 6.6 July 2002

The estimated amount at which the Company could terminate these agreements
as of April 28,1996 is approximately $220,000. Net amounts paid under these
agreements increased interest expense by approximately $227,000 in 1994;
$138,000 in 1995; and $290,000 in 1996. Management believes the risk of
incurring losses resulting from the inability of the bank to fulfill its
obligation under the interest rate swap agreements to be remote and that any
losses incurred would be immaterial.

The principal payment requirements of long-term debt during the next five
years are: 1997 -- $7,100,000; 1998 -- $6,100,000; 1999 -- $6,275,000;
2000 -- $6,200,000; and 2001 -- $5,154,000, excluding payments, if any, on the
revolving credit line for its five-year term. The term loan and revolving credit
facilities expire on March 1, 2001, at which time a final payment of $6,500,000
is due for the term loan and any outstanding borrowings on the revolver are due.
These final payments at the expiration date are not included in the scheduled
payments above.

Interest paid during 1994, 1995 and 1996 totalled $2,254,000, $4,668,000,
and $5,365,000, respectively.

NOTE 11 -- COMMITMENTS AND CONTINGENCIES

The Company leases certain office, manufacturing and warehouse facilities
and transportation and other equipment under noncancellable operating leases.
Lease terms related to real estate range from five to ten years with renewal
options for additional periods ranging from five to fifteen years. The leases
generally require the Company to pay real estate taxes, maintenance, insurance
and other expenses. Rental expense for operating leases, net of sublease income,
was $2,021,000 in 1994; $2,486,000 in 1995; and $3,502,000 in 1996. Future
minimum rental commitments for noncancellable operating leases are $2,874,000 in
1997; $2,466,000 in 1998; $1,458,000 in 1999; $1,221,000 in 2000; $727,000 in
2001; and $5,242,000 in later years.

F-13

CULP, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

NOTE 11 -- COMMITMENTS AND CONTINGENCIES -- CONTINUED
The Company is involved in several legal proceedings and claims which have
arisen in the ordinary course of its business. These actions, when ultimately
concluded and settled, will not, in the opinion of management, have a material
adverse effect upon the financial position, results of operations or liquidity
of the Company.

The Company has outstanding capital expenditure commitments of $1,521,000
as of April 28, 1996.

NOTE 12 -- STOCK OPTION PLANS

The Company has a stock option plan under which options to purchase common
stock may be granted to officers, directors and key employees. At April 28,
1996, 984,187 shares of common stock were authorized for issuance under the
plan. Options are granted under the plan at an option price not less than fair
market value at the date of grant. Options are generally exercisable one year
after the date of grant and generally expire beginning ten years after the date
of grant. At April 30, 1995, 369,721 shares were exercisable and 614,000 shares
were available for future grants. At April 28, 1996, 371,437 shares were
exercisable and 540,750 shares were available for future grants.

Stock option activity under this plan is summarized as follows:

NUMBER OF
NUMBER OF NUMBER OF SHARES NUMBER OF SHARES OUTSTANDING OPTION PRICE
SHARES GRANTED CANCELLED/EXPIRED SHARES EXERCISED AT YEAR-END PER SHARE

1994............ 98,269 -- (288,855) 385,884 $2.82-$14.03
1995............ 97,250 -- (27,413) 455,721 $2.82-$14.03
1996............ 83,250 (10,000) (85,534) 443,437 $2.82-$14.03

During fiscal 1995, the Company adopted a performance-based stock option
plan which provided for the one-time grant to officers and certain senior
managers of options to purchase 121,000 shares of the Company's common stock at
$.05 (par value) per share. Coincident with the adoption of this plan, the
Company's 1993 stock option plan was amended to reduce the number of shares
issuable under that plan by 121,000 shares. Options under the plan are
exercisable the earlier of January 1, 2003 or approximately 45 days after the
end of fiscal 1997 if the Company achieves an annual compound rate of growth in
its primary earnings per share of 17% during the three-year period ending April
27, 1997. At April 28, 1996, 114,000 options were outstanding.

NOTE 13 -- DEFINED CONTRIBUTION PLAN

The Company has a defined contribution plan which covers substantially all
employees and provides for participant contributions on a pre-tax basis and
discretionary matching contributions by the Company which are determined
annually. Company contributions to the plan were $574,000 in 1994; $771,000 in
1995; and $791,000 in 1996.

NOTE 14 -- INTERNATIONAL SALES

International sales, of which 90% were denominated in U.S. dollars,
accounted for 18% of net sales in 1994, 19% in 1995, and 22% in 1996, and are
summarized by geographic area as follows:

1994 1995 1996

(IN THOUSANDS)
Europe............................................................... $17,334 $19,177 $18,927
North America (excluding the United States).......................... 12,128 16,707 23,528
Asia and Pacific Rim................................................. 5,529 8,969 12,124
South America........................................................ 1,248 3,749 2,753
Middle East.......................................................... 1,740 6,081 15,609
All other areas...................................................... 6,059 3,288 4,456
$44,038 $57,971 $77,397

F-14

CULP, INC.

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

NOTE 15 -- RELATED PARTY TRANSACTIONS

A director of the Company is also an officer and director of a major
customer of the Company. The amount of sales to this customer was approximately
$15,464,000 in 1994; $20,484,000 in 1995; and $27,739,000 in 1996. The amount
due from this customer at April 30, 1995 was approximately $2,443,000 and at
April 28, 1996 was approximately $2,608,000.

A director of the Company is also a director of the Company's lead bank, an
officer and director of one of the Company's factors, and an officer and
director of the lessor of the Company's office facilities in High Point. The
amount of factor commissions paid to this factor was approximately $158,000 in
1994; $55,000 in 1995; and $28,000 in 1996, and the amount due from the factor
at April 30, 1995 and April 28, 1996 was $808,000 and $67,000, respectively. The
amount of interest and other fees paid to the bank was approximately $1,555,000
in 1994; $2,039,000 in 1995; and $2,580,000 in 1996, and the loans payable to
the bank and amounts guaranteed through letters of credit by the bank at April
30, 1995 and April 28, 1996 aggregated $42,862,000 and $48,402,000,
respectively. Rent expense for the Company's office facilities in High Point was
approximately $427,000 in 1994; $435,000 in 1995; and $421,000 in 1996.

Rents paid to entities owned by certain shareholders and officers of the
Company and their immediate families were $630,000 in 1994; $670,000 in 1995;
and $680,000 in 1996.

NOTE 16 -- FOREIGN EXCHANGE FORWARD CONTRACTS

The Company generally enters into foreign exchange forward contracts as a
hedge against its exposure to currency fluctuations on firm commitments to
purchase certain machinery and equipment and raw materials. Machinery and
equipment and raw material purchases hedged by foreign exchange forward
contracts are valued by using the exchange rate of the applicable foreign
exchange forward contract. The Company had approximately $6,056,000 and
$1,924,000 of outstanding foreign exchange forward contracts as of April 30,
1995 and April 28, 1996, respectively (primarily denominated in German marks and
Austrian shillings). The contracts outstanding at April 28, 1996 mature at
various dates in fiscal 1997. The fair values of these contracts were $6,553,000
and $1,850,000 at April 30, 1995 and April 28, 1996, respectively. Fair values
were estimated by obtaining quotes from banks assuming all contracts were
purchased on April 30, 1995 and April 28, 1996, respectively.

NOTE 17 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Following is a summary of unaudited quarterly information:

FISCAL 1995 FISCAL 1996
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER 1ST QUARTER 2ND QUARTER

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales................... $ 66,349 $ 78,445 $ 77,791 $ 85,441 $ 72,357 $ 90,672
Cost of sales............... 55,249 64,272 64,785 69,039 60,159 74,565
Gross profit.............. 11,100 14,173 13,006 16,402 12,198 16,107
Selling, general and
administrative expenses... 7,569 8,363 8,295 9,205 8,454 9,675
Income from operations.... 3,531 5,810 4,711 7,197 3,744 6,432
Interest expense............ 1,077 1,144 1,120 1,374 1,297 1,388
Interest income............. (23) (24) (14) (3) -- --
Other expense, net.......... 177 190 245 470 107 219
Income before income
taxes................... 2,300 4,500 3,360 5,356 2,340 4,825
Income taxes................ 850 1,700 1,260 1,931 825 1,825
Net income................ $ 1,450 $ 2,800 $ 2,100 $ 3,425 $ 1,515 $ 3,000
Net income per share........ $ 0.13 $ 0.25 $ 0.19 $ 0.31 $ 0.14 $ 0.27

3RD QUARTER 4TH QUARTER

Net sales................... $ 86,476 $102,162
Cost of sales............... 71,447 82,957
Gross profit.............. 15,029 19,205
Selling, general and
administrative expenses... 9,639 11,300
Income from operations.... 5,390 7,905
Interest expense............ 1,279 1,352
Interest income............. -- (92)
Other expense, net.......... 266 365
Income before income
taxes................... 3,845 6,280
Income taxes................ 1,430 2,230
Net income................ $ 2,415 $ 4,050
Net income per share........ $ 0.22 $ 0.36

F-15

CULP, INC.

UNAUDITED CONSOLIDATED BALANCE SHEET

(IN THOUSANDS, EXCEPT SHARE DATA)

OCTOBER 27,
1996

ASSETS
Current assets:
Cash and cash investments................................................................................... $ 744
Accounts receivable......................................................................................... 52,202
Inventories................................................................................................. 52,300
Other current assets........................................................................................ 3,697
Total current assets...................................................................................... 108,943
Restricted investments......................................................................................... 5,379
Property, plant and equipment, net............................................................................. 80,316
Goodwill....................................................................................................... 22,568
Other assets................................................................................................... 2,321
Total assets.............................................................................................. $ 219,527
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt........................................................................ $ 7,100
Accounts payable............................................................................................ 26,936
Accrued expenses............................................................................................ 16,841
Income taxes payable........................................................................................ 836
Total current liabilities................................................................................. 51,713
Long-term debt................................................................................................. 72,891
Deferred income taxes.......................................................................................... 8,088
Total liabilities......................................................................................... 132,692
Shareholders' equity:
Preferred stock, $.05 par value, authorized 10,000,000 shares............................................... --
Common stock, $.05 par value, authorized 40,000,000 shares, issued and outstanding 11,338,577............... 566
Capital contributed in excess of par value.................................................................. 17,081
Retained earnings........................................................................................... 69,188
Total shareholders' equity................................................................................ 86,835
Total liabilities and shareholders' equity................................................................ $ 219,527

The accompanying notes are an integral part of the unaudited consolidated
financial statements.

F-16

CULP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(IN THOUSANDS, EXCEPT PER SHARE DATA)

SIX MONTHS ENDED
OCTOBER 29, OCTOBER 27,
1995 1996

Net sales........................................................................................... $ 163,029 $ 195,733
Cost of sales....................................................................................... 134,724 160,691
Gross profit...................................................................................... 28,305 35,042
Selling, general and administrative expenses........................................................ 18,129 22,568
Income from operations............................................................................ 10,176 12,474
Interest expense.................................................................................... 2,685 2,424
Interest income..................................................................................... -- (117)
Other expenses, net................................................................................. 326 696
Income before income taxes........................................................................ 7,165 9,471
Income taxes........................................................................................ 2,650 3,551
Net income........................................................................................ $ 4,515 $ 5,920
Net income per share................................................................................ $ 0.40 $ 0.52

The accompanying notes are an integral part of the unaudited consolidated
financial statements.

F-17

CULP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

SIX MONTHS ENDED
OCTOBER 29, OCTOBER 27,
1995 1996

Cash flows from operating activities:
Net income........................................................................................ $ 4,515 $ 5,920
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation................................................................................... 6,138 6,321
Amortization of intangible assets.............................................................. 358 444
Provision for deferred income taxes............................................................ (36) --
Changes in assets and liabilities:
Accounts receivable.......................................................................... (2,678) (164)
Inventories.................................................................................. (3,861) (4,905)
Other current assets......................................................................... (221) 470
Other assets................................................................................. (23) (22)
Accounts payable............................................................................. 1,632 3,220
Accrued expenses............................................................................. (457) 4,277
Income taxes payable......................................................................... 1,068 639
Net cash provided by operating activities............................................... 6,435 16,200
Cash flows from investing activities:
Capital expenditures.............................................................................. (5,090) (9,676)
Purchases of restricted investments............................................................... -- (107)
Purchase of investments to fund deferred compensation liability................................... (1,286) --
Proceeds from sale of restricted investments...................................................... 795 2
Net cash used in investing activities................................................... (5,581) (9,781)
Cash flows from financing activities:
Proceeds from issuance of long-term debt.......................................................... 6,000 1,000
Principal payments on long-term debt.............................................................. (3,050) (3,050)
Change in accounts payable-capital expenditures................................................... (3,707) (3,592)
Dividends paid.................................................................................... (617) (735)
Proceeds from common stock issued................................................................. 57 204
Net cash used in financing activities................................................... (1,317) (6,173)
Increase (decrease) in cash and cash investments.................................................... (463) 246
Cash and cash investments at beginning of period.................................................... 1,393 498
Cash and cash investments at end of period.......................................................... $ 930 $ 744

The accompanying notes are an integral part of the unaudited consolidated
financial statements.

F-18

CULP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- BASIS OF PRESENTATION

The consolidated financial statements and related notes included herein are
unaudited; however, such statements reflect all adjustments (consisting of
normal recurring adjustments) which are, in the opinion of management of the
Company, necessary for a fair statement of results for the interim periods.

Certain amounts for fiscal year 1996 have been reclassified to conform with
the fiscal year 1997 presentation. Such reclassifications had no effect on net
income as previously reported.

The results of operations for the six months ended October 27, 1996 are not
necessarily indicative of the results to be expected for the full year.

NOTE 2 -- ACCOUNTS RECEIVABLE

A summary of accounts receivable follows:

OCTOBER 27,
1996

(IN THOUSANDS)
Customers.............................................................................. $53,713
Allowance for doubtful accounts........................................................ (1,087)
Reserve for returns and allowances..................................................... (424)
$52,202

NOTE 3 -- INVENTORIES

Inventories are carried at the lower of cost or market. Cost is determined
for substantially all inventories using the LIFO (last-in, first-out) method.

A summary of inventories follows:

OCTOBER 27,
1996

(IN THOUSANDS)
Inventories on the FIFO cost method
Raw materials........................................................................ $31,347
Work-in-process...................................................................... 3,521
Finished goods....................................................................... 21,920
Total inventories on the FIFO cost method......................................... 56,788
Adjustments of certain inventories to the LIFO cost method............................. (4,488)
$52,300

NOTE 4 -- RESTRICTED INVESTMENTS

F-19

CULP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5 -- ACCOUNTS PAYABLE

A summary of accounts payable follows:

OCTOBER 27,
1996

(IN THOUSANDS)
Accounts payable-trade................................................................. $24,790
Accounts payable-capital expenditures.................................................. 2,146
$26,936

NOTE 6 -- ACCRUED EXPENSES

A summary of accrued expenses follows:

OCTOBER 27,
1996

(IN THOUSANDS)
Compensation and benefits.............................................................. $11,447
Other.................................................................................. 5,394
$16,841

NOTE 7 -- LONG-TERM DEBT

A summary of long-term debt follows:

OCTOBER 27,
1996

(IN THOUSANDS)
Industrial revenue bonds and other obligations......................................... $22,191
Revolving credit line.................................................................. 24,300
Term loan.............................................................................. 32,500
Subordinated note payable.............................................................. 1,000
79,991
Less current maturities................................................................ (7,100)
$72,891

The Company has an unsecured loan agreement with two banks, which provides
for a $32,500,000 five-year term loan and a $33,500,000 revolving credit line,
which also has a five-year term. The term loan requires monthly installments of
$500,000 and a final payment of $6,500,000 on March 1, 2001. The revolving
credit line requires payment of an annual facility fee in advance and expires on
March 1, 2001.

The Company's loan agreements require, among other things, that the Company
maintain certain financial ratios. At October 27, 1996, the Company was in
compliance with these required financial covenants.

At October 27, 1996, the Company had three interest rate swap agreements in
order to reduce its exposure to floating interest rates on a portion of its
variable rate borrowings.

The following table summarizes certain data regarding the interest rate
swaps:

NOTIONAL AMOUNT INTEREST RATE EXPIRATION DATE

$15,000,000 7.3% April 2000
5,000,000 6.9 June 2002
5,000,000 6.6 July 2002

Net amounts paid under these agreements increased interest expense for the
six months ended October 29, 1995 and October 27, 1996 by approximately $120,000
and $158,000, respectively. Management believes the risk of incurring losses

F-20

CULP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7 -- LONG-TERM DEBT -- CONTINUED
resulting from the inability of the bank to fulfill its obligation under the
interest rate swap agreements to be remote and that any losses incurred would be
immaterial.

The estimated amount at which the Company could have terminated these
agreements as of October 27, 1996 is approximately $309,000.

NOTE 8 -- CASH FLOW INFORMATION

Payments for interest and income taxes during the period were:

SIX MONTHS ENDED
OCTOBER 29, OCTOBER 27,
1995 1996

(IN THOUSANDS)
Interest.................................................................... $ 2,870 $ 2,411
Income taxes................................................................ 1,582 2,913

NOTE 9 -- FOREIGN EXCHANGE FORWARD CONTRACTS

F-21

[PHOTOS OF COMPANY PRODUCT AND END-USE APPLICATIONS]

[COMPANY LOGO APPEARS HERE]

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
SHAREHOLDERS OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANYONE TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.

TABLE OF CONTENTS

PAGE

Prospectus Summary............................. 3
Risk Factors................................... 6
Use of Proceeds................................ 8
Capitalization................................. 8
Price Range of Common Stock
and Dividend Policy.......................... 9
Selected Financial Data........................ 10
Management's Discussion and Analysis
of Financial Condition and
Results of Operations........................ 11
Business....................................... 16
Management..................................... 27
Selling Shareholders........................... 28
Underwriting................................... 29
Legal Matters.................................. 29
Experts........................................ 30
Additional Information......................... 30
Incorporation of Certain Documents by
Reference.................................... 30
Index to Consolidated Financial Statements..... F-1

1,600,000 Shares
(Culp logo appears here)

Common Stock

P R O S P E C T U S

Wheat First Butcher Singer

Raymond James & Associates, Inc.

, 1997

[An image of a jacquard fabric provides a background for the text appearing on
this page.]

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the Registrant's costs and expenses in
connection with the sale and distribution of the securities being registered,
other than the underwriting discounts and commissions. All amounts shown are
estimates except for the Commission registration fee, the NASD filing fee and
the New York Stock Exchange listing.

SEC registration fee...................................................................... $ 9,061
NASD filing fee........................................................................... 3,490
New York Stock Exchange listing........................................................... 4,200
Blue Sky fees and expenses................................................................ 1,000
Accounting fees and expenses.............................................................. 100,000
Legal fees and expenses................................................................... 150,000
Printing, engraving and mailing expenses.................................................. 100,000
Miscellaneous............................................................................. 132,249
Total................................................................................ $500,000

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 55-2-02 of the North Carolina Business Corporation Act (the "North
Carolina Corporation Act") enables a North Carolina corporation in its articles
of incorporation to eliminate or limit, with certain exceptions, the personal
liability of a director for monetary damages for breach of duty as a director.
No such provision is effective to eliminate or limit a director's liability for
(i) acts or omissions that the director at the time of the breach knew or
believed to be clearly in conflict with the best interests of the corporation,
(ii) improper distributions described in Section 55-8-33 of the North Carolina
Corporation Act, (iii) any transaction from which the director derived an
improper personal benefit, or (iv) acts or omissions occurring prior to the date
the exculpatory provision became effective. The Company's Articles of
Incorporation limit the personal liability of its directors to the fullest
extent permitted by the North Carolina Corporation Act.

Sections 55-8-50 through 55-8-58 of the North Carolina Corporation Act
permit a corporation to indemnify its directors, officers, employees or agents
under either or both a statutory or nonstatutory scheme of indemnification.
Under the statutory scheme, a corporation may, with certain exceptions,
indemnify a director, officer, employee or agent of the corporation who was, is
or is threatened to be made, a party to any threatened, pending or completed
legal action, suit or proceeding, whether civil, criminal, administrative, or
investigative, because of the fact that such person was a director, officer,
agent or employee of the corporation, or is or was serving at the bequest of
such corporation as a director, officer, employee or agent of another
corporation or enterprise. This indemnity may include the obligation to pay any
judgment, settlement, penalty, fine (including an excise tax assessed with
respect to an employee benefit plan) and reasonable expenses incurred in
connection with a proceeding (including counsel fees), but no such
indemnification may be granted unless such director, officer, agent or employee
(i) conducted himself in good faith, (ii) reasonably believed (1) that any
action taken in his official capacity with the corporation was in the best
interest of the corporation or (2) that in all other cases his conduct at least
was not opposed to the corporation's best interest, and (iii) in the case of any
criminal proceeding, had no reasonable cause to believe his conduct was
unlawful. Whether a director has met the requisite standard of conduct for the
type of indemnification set forth above is determined by the board of directors,
a committee of directors, special legal counsel or the shareholders in
accordance with Section 55-8-55. A corporation may not indemnify a director
under the statutory scheme in connection with a proceeding by or in the right of
the corporation in which the director was adjudged liable to the corporation or
in connection with a proceeding in which a director was adjudged liable on the
basis of having received an improper personal benefit.

In addition to, and notwithstanding the conditions of and limitations on
indemnification described above under the statutory scheme, Section 55-8-57 of
the North Carolina Corporation Act permits a corporation to indemnify or agree
to indemnify any of its directors, officers, employees or agents against
liability and expenses (including attorneys' fees) in any proceeding (including
proceedings brought by or on behalf of the corporation) arising out of their
status as such or their activities in such capacities, except for any
liabilities or expenses incurred on account of activities that were, at the time
taken, known or believed by the person seeking indemnification to be clearly in
conflict with the best interests of the corporation. Because the Company's
Bylaws provide for indemnification to the fullest extent permitted under the
North Carolina Corporation Act, the Company may indemnify its directors,
officers and employees in accordance with either the statuary or the
nonstatutory standard.

II-1

Sections 55-8-52 and 55-8-56 of the North Carolina Corporation Act requires
a corporation, unless its articles of incorporation provide otherwise, to
indemnify a director or officer who has been wholly successful on the merits or
otherwise in the defense of any proceeding to which such director or officer
was, or was threatened to be made, a party. Unless prohibited by the articles of
incorporation, a director or officer also may make application and obtain
court-ordered indemnification if the court determines that such director or
officer is fairly and reasonably entitled to such indemnification as provided in
Section 55-8-54 and 55-8-56.

Additionally, Section 55-8-57 of the North Carolina Corporation Act
authorizes a corporation to purchase and maintain insurance on behalf of an
individual who is or was a director, officer, employee or agent of the
corporation against certain liabilities incurred by such persons, whether or not
the corporation is otherwise authorized by the North Carolina Corporation Act to
indemnify such party. The Company's directors and officers are currently covered
under directors' and officers' insurance policies maintained by the Company that
will indemnify such persons against certain liabilities arising from acts or
omissions in the discharge of their duties. Such insurance policies provide $15
million coverage for liabilities, including liabilities for alleged violation of
securities laws.

ITEM 16. EXHIBITS

EXHIBIT NO. DESCRIPTION OF EXHIBIT

1* Form of Underwriting Agreement.
4.1 Articles 4, 5 and 6 of Articles of Incorporation of the Company, filed as Exhibit 3(i) to the Company's Form
10-Q for the quarter ended January 29, 1995, are incorporated herein by reference.
4.2 Article II of the Bylaws of the Company, filed as Exhibit 3(b) to the Company's Form 10-K for the year ended
April 28, 1991, is incorporated herein by reference.
5 Opinion of Robinson, Bradshaw & Hinson, P.A. with respect to the validity of the shares being offered.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Robinson, Bradshaw & Hinson, P.A. (included in Exhibit 5).
24 Powers of Attorney (included on the signature page of the Registration Statement as initially filed).
27 Financial Data Schedule, filed as Exhibit 27 to the Company's Form 10-Q for the quarter ended October 27,
1996, is incorporated herein by reference.

* To be filed by amendment.

ITEM 17. UNDERTAKINGS

The undersigned Company hereby undertakes that, for purposes of determining
any liability under the Securities Act, each filing of the Company's annual
report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions contained in the Company's Articles of Incorporation
and By-laws and the laws of the State of North Carolina, or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned Company hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.

II-2

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Company has duly caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of High Point, State
of North Carolina, on this 10th day of January, 1997.

By: /s/ FRANKLIN N. SAXON
FRANKLIN N. SAXON
SENIOR VICE PRESIDENT

Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.

SIGNATURE TITLE DATE

ROBERT G. CULP, III* Chairman of the Board of Directors January 10, 1997
ROBERT G. CULP, III and Chief Executive Officer

/s/ FRANKLIN N. SAXON Senior Vice President, Chief Financial and January 10, 1997
FRANKLIN N. SAXON Accounting Officer and Director

HOWARD L. DUNN, JR.* President, Chief Operating Officer and January 10, 1997
HOWARD L. DUNN, JR. Director

HARRY R. CULP* Director January 10, 1997
HARRY R. CULP

BAXTER P. FREEZE* Director January 10, 1997
BAXTER P. FREEZE

EARL M. HONEYCUTT* Director January 10, 1997
EARL M. HONEYCUTT

PATRICK H. NORTON* Director January 10, 1997
PATRICK H. NORTON

EARL N. PHILLIPS, JR.* Director January 10, 1997
EARL N. PHILLIPS, JR.

BLAND W. WORLEY* Director January 10, 1997
BLAND W. WORLEY

*By: /s/ FRANKLIN N. SAXON
(FRANKLIN N. SAXON, ATTORNEY-IN-FACT)

II-3

INDEX TO EXHIBITS

EXHIBIT NO. DESCRIPTION

1* Form of Underwriting Agreement.
4.1 Articles 4, 5 and 6 of Articles of Incorporation of the Company, filed
as Exhibit 3(i) to the Company's Form 10-Q for the quarter ended January
29, 1995, are incorporated herein by reference.
4.2 Article II of the Bylaws of the Company, filed as Exhibit 3(b) to the
Company's Form 10-K for the year ended April 28, 1991, is incorporated
herein by reference.
5 Opinion of Robinson, Bradshaw & Hinson, P.A. with respect to the
validity of the shares being offered.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Robinson, Bradshaw & Hinson, P.A. (included in Exhibit 5).
24 Powers of Attorney (included on the signature page of this Registration
Statement).
27 Financial Data Schedule, filed as Exhibit 27 to the Company's Form 10-Q
for the quarter ended October 27, 1996, is incorporated herein by
reference.

* To be filed by amendment.


   
                                                                       EXHIBIT 5
    
 
   
                       ROBINSON, BRADSHAW & HINSON, P.A.
                                ATTORNEYS AT LAW
                            ONE INDEPENDENCE CENTER
                       101 NORTH TRYON STREET, SUITE 1900
                      CHARLOTTE, NORTH CAROLINA 28246-1900
                            TELEPHONE (704) 377-2536
    
 
   
                                January 10, 1997
    
 
   
Culp, Inc.
101 South Main Street
High Point, North Carolina 27261
Attention: Mr. Franklin N. Saxon
    
 
   
RE: Culp, Inc. -- Registration Statement on Form S-3 (File No. 333-18199)
    
 
   
Gentlemen and Ladies:
    
 
   
     We have served as counsel to Culp, Inc. (the "Company") in connection with
the preparation and filing by the Company of a registration statement on Form
S-3, Registration No. 333-18199 (the "Registration Statement"), with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended, relating to the offer and sale of up to 1,840,000 shares
(the "Shares") of the Company's common stock, $.05 par value ("Common Stock"),
including 1,200,000 shares offered by the Company (the "Company Shares") and
400,000 shares offered by certain selling shareholders (the "Selling
Shareholders") plus up to an additional 240,000 shares subject to the
over-allotment option granted by the Selling Shareholders to the Company's
underwriters (such 640,000 shares being referred to as the "Selling Shareholder
Shares"). We understand that the Registration Statement is being amended by an
Amendment No. 1 in which this letter is to be included as Exhibit 5, and that
the Registration Statement may be further amended after the date hereof.
    
 
   
     We have examined drafts of the underwriting agreement to be executed
between the Company, the Selling Shareholders and the representatives of its
underwriters in the form attached as Exhibit 1 to the Registration Statement
(the "Underwriting Agreement"), the Articles of Incorporation and the bylaws of
the Company, all corporate proceedings relating to the authorization, issuance
and sale of the Shares and such other documents and records as we have deemed
necessary in order to enable us to render this opinion.
    
 
   
     Based upon the foregoing, and subject to the conditions set forth below, we
are of the opinion that:
    
 
   
     1. The Company is a corporation duly organized and validly existing under
        the laws of the State of North Carolina; and
    
 
   
     2. The Company Shares, when issued and sold by the Company pursuant to the
        terms and conditions of the Underwriting Agreement, will be legally
        issued, fully paid and nonassessable, and will represent validly
        authorized and outstanding shares of Common Stock of the Company.
    
 
   
     3. The Selling Shareholder Shares have been legally issued, are fully paid
        and nonassessable, and represent validly authorized and outstanding
        shares of Common Stock of the Company.
    
 
   
     The opinions expressed herein are contingent upon the Registration
Statement, as amended, becoming effective under the Securities Act of 1933. We
hereby consent to be named in the Registration Statement and in the prospectus
that constitutes Part I thereof as attorneys who will pass upon certain legal
matters in connection with the validity of the Shares and to the filing of a
copy of this opinion as an exhibit to the Registration Statement.
    
 
   
                                         Sincerely yours,
    
 
   
                                         ROBINSON, BRADSHAW & HINSON, P.A.
    
 
   
                                         /S/  STEPHEN M. LYNCH
    
 
   
                                         Stephen M. Lynch


                                                                    EXHIBIT 23.1
 
                         INDEPENDENT AUDITORS' CONSENT
 
The Board of Directors
Culp, Inc.:
 
     We consent to the use of our report included herein and to the reference to
our firm under the headings "Experts" and "Selected Financial Data" in the
Prospectus.
 
   
Greensboro, North Carolina
January 10, 1997