SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 2, 1999
Commission File No. 0-12781
CULP, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-1001967
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or other organization)
101 S. Main St., High Point, North Carolina 27261-2686
(Address of principal executive offices) (zip code)
(336) 889-5161
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.05/Share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to the filing requirements for
at least the past 90 days. YES X NO ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation SK is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of July 19, 1999, 12,040,484 shares of common stock were outstanding.
The aggregate market value of the voting stock held by non-affiliates of the
registrant on that date was $94,787,273 based on the closing sales price of such
stock as quoted on the New York Stock Exchange (NYSE), assuming, for purposes of
this report, that all executive officers and directors of the registrant are
affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Part II
Portions of the Company's Annual Report to Shareholders for the fiscal year
ended May 2, 1999 are incorporated by reference into Items 5,6,7 and 8.
Part III
Portions of the Company's Proxy Statement dated August 13, 1999 in
connection with its Annual Meeting of Shareholders to be held on September 21,
1999 are incorporated by reference into Items 10, 11, 12 and 13.
CULP, INC.
FORM 10-K REPORT
TABLE OF CONTENTS
Item No. Page
- -------- ----
PART I
1. Business
Overview............................................................3
Segments............................................................4
Business Strategy...................................................5
Capital Expenditures................................................6
Overview of Industry................................................6
Overview of Residential Furniture Industry..........................7
Overview of Commercial Furniture Industry...........................8
Overview of Bedding Industry........................................8
Products............................................................8
Manufacturing......................................................10
Product Design and Styling.........................................11
Distribution.......................................................11
Sources and Availability of Raw Materials..........................11
Competition........................................................12
Technology.........................................................12
Environmental and Other Regulations................................13
Employees..........................................................13
Customers and Sales................................................14
Net Sales by Geographic Area.......................................14
Backlog............................................................14
Year 2000 Considerations...........................................14
2. Properties............................................................16
3. Legal Proceedings.....................................................17
4. Submission of Matters to a Vote of Security Holders..................17
PART II
5. Market for the Registrant's Common Stock
and Related Stockholder Matters.....................................17
6. Selected Financial Data...............................................17
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................17
7A. Quantitative and Qualitative Disclosures
About Market Risk...................................................17
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8. Consolidated Financial Statements and Supplementary Data..............18
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..............................18
PART III
10. Directors and Executive Officers of the
Registrant..........................................................19
11. Executive Compensation................................................19
12. Security Ownership of Certain
Beneficial Owners and Management....................................19
13. Certain Relationships and Related
Transactions........................................................19
PART IV
14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K.............................................20
Documents filed as part of this report................................20
Exhibits..............................................................21
Reports on Form 8-K...................................................27
Financial Statement Schedules.........................................27
Signatures ...........................................................28
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PART I
ITEM 1. BUSINESS
Overview
Culp, Inc. (the Company) manufactures and markets upholstery fabrics and
mattress tickings primarily for use in the furniture (residential, commercial
and juvenile) and bedding industries on a worldwide basis. The Company's
executive offices are located in High Point, North Carolina. The Company was
organized as a North Carolina corporation in 1972 and made its initial public
offering in 1983. Since 1997, the Company has been listed on the New York Stock
Exchange and traded under the symbol "CFI."
Culp is one of the largest manufacturers and marketers of furniture
upholstery fabrics in the world and is a leading global producer of mattress
fabrics (known as mattress ticking). The Company's fabrics are used principally
in the production of residential and commercial furniture and bedding products,
including sofas, recliners, chairs, loveseats, sectionals, sofa-beds, office
seating, panel systems and mattress sets. Culp markets one of the broadest
product lines in its industry, with a wide range of fabric constructions,
patterns, colors, textures and finishes. This breadth is made possible by Culp's
extensive manufacturing capabilities that include a variety of weaving, printing
and finishing operations and the ability to produce various yarns and unfinished
base fabrics (known as greige goods) used in its products. Although most of the
Company's competitors emphasize one particular type of fabric, Culp competes in
every major category except leather, which accounts for a relatively small
portion of the residential furniture market. Culp's staff of over 75 designers
and support personnel utilize Computer Aided Design (CAD) systems to develop the
Company's own patterns and styles. Culp's product line currently includes more
than 3,000 upholstery fabric patterns and 1,000 mattress-ticking styles.
Although Culp markets fabrics at most price levels, the Company has emphasized
fabrics that have a broad appeal in the "good" and "better" price categories of
furniture and bedding.
Culp markets its products worldwide, with sales to customers in over 50
countries. While total sales have grown from $308.0 million in fiscal 1995 to
$483.1 million in fiscal 1999, the Company's international sales have increased
from $58.0 million to $113.4 million during the same period. Although shipments
to U.S.-based customers continue to account for most of the Company's sales,
Culp's success in building a global presence has led to a significant proportion
of sales to international accounts (23% of net sales for fiscal 1999). The
Company's network of approximately 30 international sales agents represents
Culp's products in major furniture and bedding markets outside the United
States.
Culp has seventeen (17) manufacturing facilities, with a combined total of
2.7 million square feet, that are located in North Carolina (10), South Carolina
(2), Pennsylvania (2), Tennessee (1), Alabama (1) and Quebec, Canada (1). The
Company's distribution system is designed to offer customers fast, responsive
delivery. Products are shipped directly to customers from the Company's
manufacturing facilities, as well as from three regional distribution facilities
strategically located in High Point, North Carolina, Los Angeles, California,
and Tupelo, Mississippi, which are areas of high concentration of furniture
manufacturing. Additionally, the Company maintains an inventory of upholstery
fabrics at a warehouse facility in Grand Rapids, Michigan to supply large
commercial furniture manufacturers in that area.
Culp's position as a leading global marketer of upholstery fabrics and
mattress ticking has been achieved through internal expansion and strategic
acquisitions. The most recent acquisitions include Rayonese in fiscal 1995 and
Phillips Mills, Wetumpka Yarn and Artee Industries in fiscal 1998.
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Segments
The Company's operating segments are upholstery fabrics and mattress
ticking, with related divisions organized within those segments. The divisions
within upholstery fabrics are Culp Decorative Fabrics, Culp Velvets/Prints and
Culp Yarn. The division within mattress ticking is Culp Home Fashions. Each
division is accorded considerable autonomy and is responsible for designing,
manufacturing and marketing its respective product lines. Considerable synergies
exist among the divisions, including the sharing of common raw materials made
internally, such as polypropylene yarns, certain dyed and spun yarns, greige
goods and printed heat-transfer paper. Products manufactured at one division's
facility are commonly transferred to another division's facility for additional
value-added processing steps. The following table sets forth certain information
for each of the Company's segments/divisions.
Culp's Segments/Divisions
-------------------------
FISCAL 1999 PRODUCT LINES
NET SALES (BASE CLOTH, IF
SEGMENT DIVISION (in millions) APPLICABLE)
------- -------- ------------- -----------
Upholstery Fabrics Culp Decorative $222.1 Woven jacquards
Fabrics Woven dobbies
Culp
Velvets/Prints $144.1 Wet prints (flocks)
Heat-transfer
prints
(jacquard, flock)
Cotton prints
Woven velvets
Tufted velvets
(woven polyester)
Culp Yarn $21.5 Pre-dyed spun yarns
Chenille yarns
Mattress Ticking Culp Home $95.4 Woven jacquards
Fashions Heat-transfer
prints (jacquard,
knit, sheeting)
Pigment prints
(jacquard, knit,
sheeting, non-
woven)
CULP DECORATIVE FABRICS. Culp Decorative Fabrics manufactures and markets
jacquard and dobby woven fabrics used primarily for residential and commercial
furniture. Culp Decorative Fabrics' manufacturing facilities are located in
Burlington, Graham and Monroe, North Carolina, Pageland, South Carolina,
Chattanooga, Tennessee and West Hazleton, Pennsylvania. Culp Decorative Fabrics
has become increasingly vertically integrated, complementing its extensive
weaving capabilities with the ability to extrude, dye and texturize yarn. The
designs marketed by Culp Decorative Fabrics range from intricate, complicated
patterns such as floral and abstract designs to patterns associated with casual
living styles that are popular with motion furniture. Culp Decorative Fabrics
accounts for the majority of the Company's sales to the commercial furniture
market. The Company maintains an inventory at a third-party warehouse in Grand
Rapids, Michigan to supply fabrics marketed by Culp Decorative Fabrics to large
commercial furniture manufacturers on a "just in time" basis.
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CULP VELVETS/PRINTS. Culp Velvets/Prints manufactures and markets a broad
range of printed and velvet fabrics. These include wet-printed designs on flock
base fabrics, heat-transfer prints on jacquard and flock base fabrics, cotton
prints, woven velvets and tufted velvets. These fabrics typically offer
manufacturers richly colored patterns and textured surfaces. Recent product
development improvements in manufacturing processes have significantly enhanced
the quality of printed flock fabrics which are principally used for residential
furniture. These fabrics are also used for other upholstered products such as
baby car seats. These fabrics are manufactured at Burlington, North Carolina,
Anderson, South Carolina, and Lumberton, North Carolina.
CULP YARN. Culp Yarn manufactures and markets a variety of pre-dyed spun
yarns, including WrapSpun(TM), open-end spun, ring spun and chenille yarns. Culp
Yarn operates manufacturing facilities in Shelby, Cherryville, and Lincolnton,
North Carolina and Wetumpka, Alabama. The Wetumpka facility was acquired in
December 1997 and the other Culp Yarn plants were purchased in February 1998.
Over half of the production of Culp Yarn is used internally by other Culp
divisions. The external sales are directed to the upholstery fabric, carpet and
apparel markets, and a portion of these shipments are to competitors of Culp.
Culp Yarn has provided Culp more control over its supply of spun and chenille
yarns and complemented the Company's increased emphasis on developing new
designs.
CULP HOME FASHIONS. Culp Home Fashions principally markets mattress
ticking to bedding manufacturers. These fabrics encompass woven jacquard ticking
as well as heat-transfer and pigment-printed ticking on a variety of base
fabrics, including jacquard, knit, poly/cotton sheeting and non-woven materials.
Culp Home Fashions has successfully blended its diverse printing and finishing
capabilities with its access to a variety of base fabrics to offer innovative
designs to bedding manufacturers for mattress products. Printed jacquard fabrics
offer customers better values with designs and textures of more expensive
fabrics. Jacquard greige goods printed by Culp Home Fashions are primarily
provided by the division's Rayonese facility. Culp Home Fashions' manufacturing
facilities are located in Stokesdale, North Carolina and St. Jerome, Quebec.
BUSINESS STRATEGY
The Company's plan to maintain leadership in the global upholstery fabric
and mattress ticking segments is based on a business strategy that includes five
main initiatives:
CUSTOMER SERVICE AND VERTICAL INTEGRATION - continuing to enhance the
competitive value of its upholstery fabrics and mattress ticking through a
company-wide initiative to raise efficiency and improve customer service.
Important aspects of this program have included attaining more consistent
product quality, improving delivery standards and offering more innovative
designs. The Company's ability to realize progress in these areas in the past
has been aided significantly by becoming more vertically integrated through
capital expansion projects and strategic acquisitions. Representative steps have
included adding capacity for producing unfinished jacquard greige goods,
extruding polypropylene yarn and most recently, manufacturing spun and specialty
yarn.
BROAD PRODUCT OFFERING - continuing to market one of the broadest product
lines in upholstery fabrics and mattress ticking. Through its extensive
manufacturing capabilities, the Company competes in every major category except
leather.
DIVERSE GLOBAL CUSTOMER BASE - increasing its penetration into other
end-use markets in addition to U.S. residential furniture, such as bedding,
international, commercial furniture and juvenile furniture.
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DESIGN INNOVATION - continuing to invest in the design of upholstery
fabrics and ticking with appealing patterns and textures. An integral component
of the value Culp provides to customers is supplying fabrics that are
fashionable and meet current consumer preferences. The Company's principal
design resources are now consolidated in a single facility that provides
advanced CAD systems and promotes a sharing of innovative designs among the
divisions.
ADDITIONAL ACQUISITIONS - investing in selective acquisitions
complementary to existing segments/divisions.
CAPITAL EXPENDITURES
Since fiscal 1994, the Company has invested $106 million in capital
expenditures to expand its manufacturing capacity, install more efficient
production equipment and vertically integrate its operations. These expenditures
have included, among other things, the installation of narrow and wide-width
weaving machines and additional printing equipment to support the growth in
woven and printed upholstery fabrics and mattress ticking. The Company spent
approximately $10.7 million in capital expenditures during fiscal 1999 for
expansion, vertical integration and modernization. This level of capital
spending was well below the $35.9 million in capital expenditures during fiscal
1998. During 1999, the principal expansion project involved expansion of
facilities (Stokesdale, North Carolina and St. Jerome, Quebec, Canada) at Culp
Home Fashions. The key project relating to vertical integration included
expanding polypropylene extrusion capacity. Projects to modernize existing
facilities encompassed a number of smaller investments throughout the Company's
operations.
During 1999, much of the Company's managerial focus shifted to realizing
higher efficiencies from the investments made during fiscal 1998. As a result,
capital expenditures for fiscal 1999 were less than a third spent in fiscal
1998. The Company is currently planning on capital expenditures for fiscal 2000
of approximately $20 million.
OVERVIEW OF INDUSTRY
Culp markets products worldwide to a broad array of manufacturers that
operate in three principal markets and several specialty markets:
RESIDENTIAL FURNITURE. This market includes upholstered furniture sold to
consumers. Products include sofas, sleep sofas, chairs, motion/recliners,
sectionals and occasional furniture items.
Commercial furniture. This market includes upholstered office seating and
modular office systems sold primarily for use in offices (including home
offices) and other institutional settings.
BEDDING. This market includes mattress sets as well as other related home
furnishings.
SPECIALTY MARKETS. These markets include juvenile furniture (baby car
seats and other baby items), hospitality (furniture used in hotels and
other lodging establishments), "top of the bed" (comforters and
bedspreads), outdoor furniture, recreational vehicle seating, automotive
aftermarket (slip-on seat covers), retail fabric stores and specialty
yarn.
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OVERVIEW OF RESIDENTIAL FURNITURE INDUSTRY
The upholstery fabric industry is highly competitive, particularly among
manufacturers in similar market niches. American Furniture Manufacturers
Association, a trade association, reports that manufacturers of residential
furniture in the United States shipped products valued at approximately $23.5
billion (wholesale) during 1998. Approximately 40% of this furniture is believed
to consist of upholstered products. The upholstered furniture market has grown
from $5.4 billion in 1991 to $9.4 billion in 1998.
Trends in demand for upholstery fabric and mattress ticking generally
parallel changes in consumer purchases of furniture and bedding. Factors
influencing consumer purchases of home furnishings include the number of
household formations, growth in the general population, the demographic profile
of the population, consumer confidence, employment levels, the amount of
disposable income, geographic mobility, housing starts and existing home sales.
The long-term trend in demand for furniture and bedding has been one of moderate
growth, although there have been some occasional periods of a modest downturn in
sales due principally to changes in economic conditions.
The Company believes that demographic trends support the outlook for
continued long-term growth in the U.S. residential furniture and bedding
industries. In particular, as "baby boomers" (people born between 1946 and 1964)
mature to the 35-to-64 year age range over the next decade, they will be
reaching their highest earning power. Consumers in these age groups tend to
spend more on home furnishings, and the increasing number of these individuals
favors higher demand for furniture and related home furnishings. Statistics also
show that the average size of new homes has increased in recent years, and that
is believed to have resulted in increased purchases of furniture per home.
There is an established trend toward consolidation at all levels within
the home furnishings industry. Furniture/Today has reported that the ten largest
residential furniture manufacturers accounted for over 37% of the industry's
total shipments in 1998, up from a 23% share in 1985. This trend is expected to
continue, particularly because of the need to invest increasing capital to
maintain modern manufacturing and distribution facilities as well as to provide
the sophisticated computer-based systems and processes necessary to interface in
the supply chain between retailers and suppliers. This trend toward
consolidation is resulting in fewer, but larger, customers for upholstery fabric
manufacturers. The Company believes that this environment favors larger
upholstery fabric manufacturers capable of supplying a broad range of product
choices at the volumes required by major furniture manufacturers on a timely
basis.
Today's furniture customers prefer more casual and comfortable furniture,
including motion furniture, than did consumers ten years ago. In addition,
customers are placing increasing emphasis on product quality. The increasing
importance of product quality has allowed fabric manufacturers with effective
quality control systems to gain a competitive advantage. Modern furniture buyers
are also demanding faster delivery. To meet this demand, the furniture industry
as a whole has increased its focus on just-in-time manufacturing methods and
shorter delivery lead times.
After a decade of consistent yearly growth, Culp's international sales
declined 17% in 1999 to $113.4 million. The Company believes that this
experience mirrors that of other suppliers of fabrics to markets in Europe and
Asia that were adversely affected by serious economic turbulence during the
year. The Company does not believe that this decline suggests any structural
shift in the competitive position of Culp or in the long-term opportunities that
are presented by rising demand for furniture in developing countries. Consumers
in these areas are often attracted to those designs and fashions that mirror
American tastes, and U.S.-based manufacturers such as Culp have been able to
capitalize on this preference. Production costs of fabrics involve a relatively
low labor component, which provides an advantage for a company with modern,
efficient manufacturing equipment and systems. The large size of the furniture
market within the United States has helped establish an upholstery fabrics
industry that features ready access to a variety of raw materials, larger
manufacturers with lower costs resulting from economies of scale and the
availability of new designs and patterns. The Company believes that these
characteristics assist Culp in competing effectively in international markets.
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OVERVIEW OF COMMERCIAL FURNITURE INDUSTRY
The commercial furniture market in the United States represents annual
shipments by manufacturers valued at approximately $12 billion. Seating and
office systems, which represent the primary uses of upholstery in this industry,
represented annual sales of approximately $7 billion annually. At the
manufacturing level, the industry is highly concentrated. The top five
manufacturers of commercial furniture account for an estimated 65% of total
industry shipments. Although demand for commercial furniture can be affected by
general economic trends, the historical pattern has been one of generally steady
growth.
Dealers aligned with specific furniture brands account for over half of
industry shipments of commercial furniture. Some shift in the distribution of
commercial furniture has occurred in recent years in conjunction with the growth
in national and regional chains featuring office supplies.
OVERVIEW OF BEDDING INDUSTRY
According to data compiled by the International Sleep Products Association
("ISPA"), the domestic conventional bedding market, which generated estimated
wholesale revenues of $3.8 billion during calendar year 1998, includes
approximately 800 manufacturers of mattress sets. The conventional bedding
market accounts for approximately 90% of the domestic bedding market.
Approximately 71% of the conventional bedding manufactured in the U.S. is sold
to furniture stores and specialty sleep shops. Most of the remaining 29% is sold
to department stores, national mass merchandisers, membership clubs and factory
direct stores. Approximately two-thirds of conventional bedding is sold for
replacement purposes and the average time lapse between mattress purchases is
approximately 10 to 12 years.
PRODUCTS
As described above, the Company's products include upholstery fabrics and
mattress ticking.
UPHOLSTERY FABRICS. The Company derives the majority of its revenues from
the sale of upholstery fabrics primarily to the residential and commercial
(contract) furniture markets. Sales of upholstery fabrics totaled 80% of sales
for fiscal 1999. The Company has emphasized fabrics and patterns that have broad
appeal at promotional to medium prices, generally ranging from $2.20 per yard to
$9.50 per yard.
MATTRESS TICKING. The Company also manufactures mattress ticking (fabric
used for covering mattresses and box springs) for sale to bedding manufacturers.
Sales of mattress ticking constituted 20% of sales in fiscal 1999. The Company
has emphasized fabrics and patterns which have broad appeal at prices generally
ranging from $1.20 to $8.00 per yard.
The Company's upholstery fabrics and mattress ticking can each be broadly
grouped under the three main categories of wovens, prints and velvets. The
following table indicates the product lines within each of these categories, a
brief description of their characteristics and identification of their principal
end-use markets.
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Culp Fabric Categories
----------------------
Principal
Upholstery Fabrics Characteristics Markets
- ------------------ --------------- ---------
Wovens:
Jacquards Elaborate, complex designs such as florals Residential
and tapestries in traditional, transitional furniture
and contemporary styles. Woven on Commercial
intricate looms using a wide variety of furniture
synthetic and natural yarns.
Dobbies Geometric designs such as plaids, stripes Residential
and solids in traditional and country furniture
styles. Woven on less complicated looms Commercial
using a variety of weaving constructions furniture
and primarily synthetic yarns.
Prints:
Wet prints Contemporary patterns with deep, rich Residential
colors on a nylon flock base fabric for furniture
a very soft texture and excellent Juvenile
wearability. Produced by screen printing furniture
directly onto the base fabric.
Heat-transfer Sharp, intricate designs on flock or Residential
prints jacquard base fabrics. Plush feel furniture
(flocks), deep colors (jacquards) and Juvenile
excellent wearability. Produced by using furniture
heat and pressure to transfer color from
printed paper onto base fabric.
Cotton prints A broad variety of designs featuring deep, Residential
rich colors printed on woven cotton base furniture
fabrics with excellent wearability.
Produced by screen printing directly onto
the base fabric.
Velvets:
Woven velvets Basic designs such as plaids and Residential
semi-plains in traditional and furniture
contemporary styles with a plush feel.
Woven with a short-cut pile using
various weaving methods and synthetic
yarns.
Tufted velvets Lower cost production process of velvets in Residential
which synthetic yarns are punched into a furniture
base polyester fabric for texture. Similar
designs as woven velvets.
Principal
Mattress Ticking Characteristics Markets
- ---------------- --------------- -------
Wovens:
Jacquards Florals and other intricate designs. Bedding
Woven on complex looms using a wide
variety of synthetic and natural yarns.
Prints:
Heat-transfer Sharp, detailed designs. Produced by Bedding
prints using heat and pressure to transfer
color from printed paper onto base
fabrics, including woven jacquards,
knits and poly/cotton sheetings.
Pigment prints Variety of designs produced economically Bedding
by screen printing pigments onto a
variety of base fabrics, including
jacquards, knits, poly/cotton sheeting
and non-wovens.
================================================================================
Although fabrics marketed for upholstery applications and those used for
mattress ticking may have similar appearances, mattress ticking must be
manufactured on weaving and printing equipment in wider widths to accommodate
the physical size of box springs and mattresses. The Company's products include
all major types of coverings, except for leather, that manufacturers use today
for furniture and bedding. The Company also markets fabrics for certain
specialty markets, but these do not currently represent a material portion of
the Company's business.
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MANUFACTURING
Substantially all of the upholstery fabric and mattress ticking currently
marketed by Culp is produced at the Company's seventeen (17) manufacturing
facilities. These plants encompass a total of 2.7 million square feet and
include yarn extrusion, spinning, dyeing and texturizing equipment, narrow and
wide-width jacquard looms, dobby and woven velvet looms, tufting machines,
printing equipment for pigment, heat-transfer and wet printing, fabric finishing
equipment and various types of surface finishing equipment (such as washing,
softening and embossing). Culp is actively pursuing ISO certification for its
manufacturing facilities. ISO certification is an international recognition of a
company's ability to deliver high quality products and services. Culp's
facilities at Stokesdale, North Carolina, which produces mattress ticking, and
at Anderson, South Carolina, which produces woven velvet upholstery fabric, were
awarded ISO-9002 certification during fiscal 1997. Additionally, the Company's
facility at Pageland, South Carolina, which produces jacquard and dobby
upholstery fabric, and the finishing facility in Burlington, North Carolina were
awarded ISO-9002 certification in fiscal 1998. During fiscal 1999, the Company's
weaving facility in Graham, North Carolina and the Culp Velvets/Prints plant in
Burlington, North Carolina successfully completed ISO-9002 registration. The
Company is planning to complete the ISO certification process at its other
facilities over the next several years.
The Company's woven fabrics are made from various types of synthetic and
natural yarn, such as polypropylene, polyester, acrylic, rayon, nylon or cotton.
Yarn is woven into various fabrics on jacquard, dobby or velvet weaving
equipment. Once the weaving is completed, the fabric can be printed or finished
using a variety of processes. The Company currently extrudes and spins a portion
of its own needs for yarn and purchases the remainder from outside suppliers. As
a result of the acquisition of the Culp Yarn plants during fiscal 1998, Culp
produces internally a substantial amount of its needs for spun and chenille
yarns. The Company also supplies other fabric manufacturers with spun yarns
manufactured by Culp Yarn. Culp purchases a significant amount of greige goods
(unfinished, uncolored base fabrics) from other suppliers to be printed at the
Company's plants, but has increased its internal production capability for
jacquard greige goods. The acquisition of Rayonese in fiscal 1995 increased the
Company's capacity to produce its own jacquard greige goods. Culp has installed
additional airjet weaving machines at Rayonese to significantly increase its
capacity for jacquard greige goods.
During the fourth quarter of fiscal 1997, the Company installed its first
flock coating line to produce flock greige goods to be used primarily as the
base cloth for wet and heat-transfer-printed flock products. Flock fabrics are
produced by the application of very short nylon fibers onto a poly/cotton woven
base fabric to create a velvet effect. During the flock coating process, the
fibers are bonded onto the base fabric with an adhesive substance by utilizing
an electrostatic charging procedure which causes the fibers to vertically align
with the base fabric.
Tufted velvet fabrics are produced by tufting machines which insert an
acrylic or polypropylene yarn through a polyester woven base fabric creating
loop pile surface material which is then sheared to create a velvet surface.
Tufted velvet fabrics are typically lower-cost fabrics utilized in the Company's
lower-priced product mix.
The Company's printing operations include pigment and heat-transfer
methods, as well as wet printing. The Company also produces its own printed
heat-transfer paper, another component of vertical integration. Wet printing is
the most recent addition to the Company's printing capabilities.
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PRODUCT DESIGN AND STYLING
Consumer tastes and preferences related to upholstered furniture and
bedding change, albeit gradually, over time. The use of new fabrics and designs
remains an important consideration for manufacturers to distinguish their
products at retail and to capitalize on even small changes in preferred colors,
patterns and textures. Culp's success is largely dependent on the Company's
ability to market fabrics with appealing designs and patterns. Culp has a staff
of over 75 designers and support personnel involved in the design and
development of new patterns and styles, including designers with experience in
designing products for specific international markets. Culp uses computer aided
design (CAD) systems in the development of new fabrics which assists the Company
in providing a very flexible design program. These systems have enabled the
Company's designers to experiment with new ideas and involve customers more
actively in the process. The use of CAD systems also has supported the Company's
emphasis on integrating manufacturing considerations into the early phase of a
new design. The completion of the Howard L. Dunn, Jr. design center in January
1998 has enabled most of the Company's designers to be located in the same
facility to support the sharing of design ideas and CAD and other technologies.
The design center has enhanced the Company's merchandising and marketing efforts
by providing an environment in which customers can be shown new products as well
as participate in product development initiatives.
The process of developing new designs involves maintaining an awareness of
broad fashion and color trends both in the United States and internationally.
These concepts are blended with input from the Company's customers to develop
new fabric designs and styles. Most of these designs are introduced by Culp at
major trade conferences that occur twice a year in the United States (January
and July) and annually in several major international markets.
DISTRIBUTION
The majority of the Company's products are shipped directly from its
distribution centers at or near manufacturing facilities. This "direct ship"
program is primarily utilized by large manufacturers. Generally, small and
medium-size residential furniture manufacturers use one of the Company's three
regional distribution facilities which have been strategically positioned in
areas which have a high concentration of residential furniture manufacturers
High Point, North Carolina, Los Angeles, California and Tupelo, Mississippi. In
addition, the Company maintains an inventory of upholstery fabric at a warehouse
in Grand Rapids, Michigan to supply large commercial furniture manufacturers in
that area on a "just in time" basis. The Company closely monitors demand in each
distribution territory to decide which patterns and styles to hold in inventory.
These products are available on demand by customers and are usually shipped
within 48 hours of receipt of an order. Substantially all of the Company's
shipments of mattress ticking are made from its manufacturing facilities in
Stokesdale, North Carolina and St. Jerome, Quebec, Canada.
In international markets, Culp sells primarily to distributors that
maintain inventories of upholstery fabrics for resale to furniture
manufacturers. The Company plans to explore the establishment of distribution
facilities in certain areas outside the United States to support international
sales.
SOURCES AND AVAILABILITY OF RAW MATERIALS
Raw materials account for more than half of the Company's total production
costs. The Company purchases various types of synthetic and natural yarns
(polypropylene, polyester, acrylic, nylon, rayon and cotton), synthetic staple
fibers (acrylic, rayon, polypropylene, polyester), various types of greige goods
(poly/cotton wovens and flocks, polyester wovens, poly/rayon and poly/cotton
jacquard wovens, polyester knits, poly/cotton sheeting and non-wovens),
polypropylene resins, nylon flock fibers, rayon staple, latex adhesives, dyes
and chemicals from a variety of suppliers. The Company has made a significant
investment in becoming more vertically integrated and producing more of its
jacquard greige goods, polypropylene yarns, package dyed yarns and printed
heat-transfer paper internally. As a result, a larger portion of its raw
materials are comprised of more basic commodities such as rayon staple, undyed
yarns, polypropylene resin chips, certain polyester warp yarns, unprinted
heat-transfer paper and unflocked poly/cotton base fabric. Although the Company
is dependent upon one supplier for all of its nylon flock fibers and upon one
supplier of acrylic staple, most of the Company's raw materials are available
from more than one primary source. The prices of such materials fluctuate
depending upon current supply and demand conditions and the general rate of
inflation. Many of the Company's basic raw materials are petrochemical products
or are produced from such products, and therefore the Company's raw material
costs are particularly sensitive to changes in petrochemical prices. Generally,
the Company has not had significant difficulty in obtaining raw materials.
-11-
COMPETITION
In spite of the trend toward consolidation in the upholstery fabric
market, the Company competes against a large number of producers, ranging from
large manufacturers comparable in size to the Company to small producers and
marketers of specialty fabrics. The Company believes its principal upholstery
fabric competitors are the Burlington House Fabrics division of Burlington
Industries, Inc., Joan Fabrics Corporation (including its Mastercraft division),
Microfibres, Inc., and Quaker Fabric Corporation. Conversely, the mattress
ticking market is concentrated in a few relatively large suppliers.
The Company believes its principal mattress ticking competitors are Bekaert
Textiles B.V., Blumenthal Print Works, Inc., Burlington House Fabrics division
of Burlington Industries, Inc. and Tietex, Inc. Although the Company is one of
the largest suppliers of furniture upholstery fabrics and a leading supplier of
mattress ticking to the bedding industry, some of the Company's competitors are
larger overall and have greater financial resources than the Company.
Competition for the Company's products is based primarily on price, design,
quality, timing of delivery and service.
TECHNOLOGY
Culp views the use of technology as a very important element in the
Company's efforts to achieve higher levels of service to its customers and to
produce and deliver its products in an efficient and cost-effective manner.
Some of Culp's key initiatives in this area include:
o The Company has created a home page on the Internet (WWW.CULPINC.COM).
Through the Internet and the Culp home page, customers can use a system
known as CulpLink to view their current order status, shipping and invoice
information, and twelve months of sales history. The CulpLink system was
developed internally by the Company's MIS department and provides superior
communication with customers throughout the world.
o Culp has implemented significant upgrades to its design technology and has
opened the state-of-the-art Howard L. Dunn, Jr. Design Center. The Company
has used computer aided design (CAD) technology for many years, and recent
upgrades in hardware and software in the CAD department have made the
process of moving from design to a finished project both faster and
simpler. The Company also has implemented an image archiving system that
will allow electronic storage of all artwork and easy access to artwork
for designers.
-12-
o Local Area Networks (LANs) have been installed at individual plants, and
all of these are combined into one Wide Area Network (WAN), allowing easy
information exchange among various Culp locations and communication with
customers and suppliers through the Internet. Culp has installed fiber
optic cable networks as the communication backbone throughout the Company,
placing the Company in position to easily expand the user base and to take
advantage of this faster data transfer medium for potential future uses
such as video conferencing and transferring large files like those
required for digital images.
o The Company has recently completed the installation of new shop floor data
collection systems to track inventory movement. This initiative includes
the use of fixed laser scanners, hand-held radio frequency devices, and
industrialized keyboards and display stations at key points throughout the
manufacturing process to record the movement of goods through production
and shipping. The Company makes extensive use of bar-coding to track
products throughout its manufacturing and distribution systems, and the
Company has recently installed new thermal transfer printers for high
quality printing of bar-coded labels and work orders.
ENVIRONMENTAL AND OTHER REGULATIONS
The Company is subject to various federal and state laws and regulations,
including the Occupational Safety and Health Act and federal and state
environmental laws, as well as similar laws governing its Rayonese facility in
Canada. The Company periodically reviews its compliance with such laws and
regulations in an attempt to minimize the risk of material violations.
The Company's operations involve a variety of materials and processes that
are subject to environmental regulation. Under current law, environmental
liability can arise from previously owned properties, leased properties and
properties owned by third parties, as well as from properties currently owned
and leased by the Company. Environmental liabilities can also be asserted by
adjacent landowners or other third parties in toxic tort litigation.
In addition, under the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended ("CERCLA"), and analogous state statutes,
liability can be imposed for the disposal of waste at sites targeted for cleanup
by federal and state regulatory authorities. Liability under CERCLA is strict as
well as joint and several. The Company has accrued reserves for environmental
matters based on information presently available. Based on this information and
the Company's established reserves, the Company does not believe that
environmental matters will have a material adverse effect on either the
Company's financial condition or results of operations. However, there can be no
assurance that the costs associated with environmental matters will not increase
in the future.
EMPLOYEES
As of May 2, 1999, the Company had approximately 4,000 employees. All of
the hourly employees at the Company's facility in West Hazleton, Pennsylvania
and all of the hourly employees at the Rayonese facility in Canada
(approximately 13% of the Company's workforce) are represented by a union. The
collective bargaining agreement with respect to the hourly employees at the
Pennsylvania plant expires in 1999, while the collective bargaining agreement
with respect to the Rayonese hourly employees expires in 2002. The Company is
not aware of any efforts to organize any more of its employees and believes its
relations with its employees are good.
-13-
CUSTOMERS AND SALES
Culp's size, broad product line, diverse manufacturing base and effective
distribution system enable it to market products to over 2,000 customers. Major
customers are leading manufacturers of upholstered furniture, including Bassett,
Furniture Brands International (Broyhill, Thomasville and Lane), Lifestyles
International (Berkline, Universal, Benchcraft, Drexel, Henredon and others),
Flexsteel, La-Z-Boy and LADD (Clayton Marcus, Barclay, Pennsylvania House and
American Drew). Representative customers for the Company's fabrics for
commercial furniture include Herman Miller, HON Industries and Steelcase. In the
mattress ticking area, Culp's customer base includes leading bedding
manufacturers such as Sealy, Serta, Simmons and Spring Air. Culp's customers
also include many small and medium-size furniture and bedding manufacturers. In
international markets, Culp sells upholstery fabrics primarily to distributors
that maintain inventories for resale to furniture manufacturers.
The following table sets forth the Company's net sales by geographic area
by amount and percentage of total net sales for the three most recent fiscal
years.
Net Sales by Geographic Area
(dollars in thousands)
Fiscal 1999 Fiscal 1998 Fiscal 1997
------------ ----------- ------------
United States $369,730 76.5% $339,492 71.2% $297,308 74.5%
North America
(excluding U.S.) 31,102 6.5 31,160 6.5 27,479 6.9
Europe 19,578 4.1 30,775 6.5 25,245 6.3
Middle East 33,996 7.0 34,412 7.2 23,505 5.9
Asia and Pacific
Rim 21,371 4.4 32,344 6.8 19,646 4.9
South America 3,484 0.7 5,158 1.1 2,604 0.7
All other areas 3,823 0.8 3,374 0.7 3,092 0.8
----- --- ----- --- ----- ------
Subtotal 113,354 23.5 137,223 28.8 101,571 25.5
------- ------ ------- ------ ------- ----
Total $483,084 100.0% $476,715 100.0% $398,879 100.0%
========= ======= ========= ======= ========= ========
BACKLOG
Because a large portion of the Company's customers have an opportunity to
cancel orders, it is difficult to predict the amount of the backlog that is
"firm." Many customers may cancel orders before goods are placed into
production, and some may cancel at a later time. In addition, the Company
markets a significant portion of its sales through its Regional Warehouse System
from in-stock order positions. On May 2, 1999, the portion of the backlog with
confirmed shipping dates prior to June 6, 1999 was $38.6 million, and on May 3,
1998, the portion of the backlog with confirmed shipping dates prior to June 7,
1998 was $40.2 million.
YEAR 2000 CONSIDERATIONS
Management has developed a plan to modify the Company's information
technology to recognize the year 2000. The plan has three distinct areas of
focus; namely, traditional information systems, technology used in support
areas, and preparedness of suppliers and customers.
The initiative for traditional information systems, which started in 1992,
has led to substantial completion of the assessment, required changes and
testing of the Company's operational systems (order entry, billing, sales,
finished goods) and financial systems (payroll, human resources, accounts
payable, accounts receivable, general ledger, fixed assets). The Company is
currently focused on modifying the remaining systems that support the Company's
manufacturing processes. The programming and testing of these systems was
substantially completed by April 1, 1999, and implementation of these systems
was substantially completed by June 30, 1999. The remaining system
implementations are scheduled for completion during the second quarter of fiscal
2000.
-14-
The second area of focus has been an assessment of non-traditional
information technology, which includes the electronics in equipment such as
telephone switches and manufacturing equipment. Inventories of this equipment
have been completed and correspondence has been initiated with vendors and
suppliers of this equipment. The Company is currently evaluating the vendor
responses and testing the equipment. After the testing phase is complete, the
Company will conduct a review of the inventories and the testing procedures,
with this phase expected to also be completed during the second quarter of
fiscal 2000.
The third area of focus is communications with suppliers and customers to
understand their level of readiness and assure a constant flow of materials to
support business plans. Communication to date has shown a high level of
awareness and planning by these parties. The Company has a response rate in the
60% - 70% range, and at the present time no material problems or concerns are
indicated by these responses. However, if a significant vendor or customer is
non-compliant, the Company can give no assurance that such occurrence will not
have an adverse affect on the Company's results. The Company believes its action
plans will minimize these risks and prevent any major interruptions in the flow
of materials and products.
Formal contingency plans will not be formulated unless the Company has
identified specific areas where there is a substantial risk of year 2000
problems occurring. No such areas have been identified.
The plan is being administered by a team of internal staff and management.
Costs incurred in the Company's readiness effort are being expensed as incurred.
Anticipated costs are expected to approximate $800,000 and to date an estimated
$500,000 has been spent. This project, and the year 2000 issue in general, are
not expected to have a significant effect on the Company's operations, though no
assurance can be given in this regard.
-15-
ITEM 2. PROPERTIES
The Company's headquarters are located in High Point, North Carolina, and
the Company currently operates seventeen (17) manufacturing facilities and three
(3) regional distribution facilities. The following is a summary of the
Company's principal administrative, manufacturing and distribution facilities.
The manufacturing facilities are organized by segment.
Approx.
Total Area Expiration
Location Principal Use (Sq. Ft.) of Lease (2)
- -------- -------------- ---------- ------------
o Headquarters and Distribution
Centers: (1)
High Point, North Carolina Corporate headquarters 40,000 2015
Burlington, North Carolina Design Center 30,000 Owned
Los Angeles, California Regional distribution 33,000 2007
o Upholstery Fabrics:
Graham, North Carolina Manufacturing 341,000 Owned
Burlington, North Carolina Manufacturing and distribution 302,000 Owned
Pageland, South Carolina Manufacturing 96,000 Owned
Burlington, North Carolina Distribution and Yarn Warehouse 112,500 Owned
Chattanooga, Tennessee Manufacturing and distribution 290,000 2018
West Hazleton, Pennsylvania Manufacturing 110,000 2013
West Hazleton, Pennsylvania Manufacturing and distribution 100,000 2008
Monroe, North Carolina Manufacturing 70,000 2007
Monroe, North Carolina Manufacturing 70,000 2004
High Point, North Carolina Sales and Design 12,000 2007
Burlington, North Carolina Manufacturing and distribution 275,000 2021
Lumberton, North Carolina Manufacturing 107,000 Owned
Anderson, South Carolina Manufacturing 99,000 Owned
High Point, North Carolina Regional distribution 65,000 2008
Tupelo, Mississippi Regional distribution 57,000 2018
Shelby, North Carolina Manufacturing 101,000 Owned
Lincolnton, North Carolina Manufacturing 78,000 Owned
Cherryville, North Carolina Manufacturing 135,000 Owned
Wetumpka, Alabama Manufacturing 145,000 Owned
o Mattress Ticking:
Stokesdale, North Carolina Manufacturing and distribution 220,000 Owned
St. Jerome, Quebec, Canada Manufacturing and distribution 202,000 Owned
-------------------------------------------
(1) Properties are used jointly by Upholstery Fabrics and Mattress Ticking
(2) Includes all options to renew
-16-
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings to which the Company, or its
subsidiaries, is a party or of which any of their property is the subject that
are required to be disclosed under this item.
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of shareholders during the
fourth quarter ended May 2, 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON
STOCK AND RELATED STOCKHOLDER MATTERS
Information with respect to the market for the Company's common
stock and related shareholder matters is included in the Company's Annual Report
to Shareholders for the year ended May 2, 1999, in the Consolidated Statements
of Shareholders' Equity (dividend information), in the Selected Quarterly Data
under the caption "Stock Data," in the Selected Annual Data under the caption
"Stock Data," in the Shareholder Information under the caption "Stock Listing"
on the back cover page, which information is herein incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA
This information is included in the Company's above referenced
Annual Report to Shareholders, under the caption "Selected Annual Data," and is
herein incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and
Results of Operations is included in the Company's above referenced Annual
Report to Shareholders under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and is herein incorporated by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates
on debt and foreign currency exchange rates. See additional disclosures about
interest rate swap agreements in the Management's Discussion and Analysis of
Financial Condition and Results of Operations in item 7 above. The Company's
market risk sensitive instruments are not entered into for trading purposes. The
Company has not experienced any significant changes in market risk since May 2,
1999.
-17-
The Company's exposure to interest rate risk consists of floating
rate debt based on the London Interbank Offered Rate plus an adjustable margin
under the Company's revolving credit agreement and variable rate debt in
connection with the industrial revenue bonds. To lower or limit overall
borrowing costs, the Company enters into interest rate swap agreements to modify
the interest characteristics of portions of its outstanding debt. The agreements
entitle the Company to receive or pay to the counterparty (a major bank), on a
quarterly basis, the amounts, if any, by which the Company's interest payments
covered by swap agreements differ from those of the counterparty. These amounts
are recorded as adjustments to interest expense. The fair value of the swap
agreements and changes in fair value resulting from changes in market interest
rates are not recognized in the consolidated financial statements. The annual
impact on the Company's results of operations of a 100 basis point interest rate
change on the May 2, 1999 outstanding balance of the variable rate debt would be
approximately $580,000 irrespective of any swaps associated with this debt.
The Company's exposure to fluctuations in foreign currency exchange
rates is due primarily to a foreign subsidiary domiciled in Canada and purchases
of certain machinery, equipment and raw materials in foreign currencies. The
Company's Canadian subsidiary uses the United States dollar as its functional
currency. The Company generally does not use financial derivative instruments to
hedge foreign currency exchange rate risks associated with the Canadian
subsidiary. However, the Company generally enters into foreign exchange forward
and option contracts as a hedge against its exposure to currency fluctuations on
firm commitments to purchase certain machinery, equipment and raw materials. The
Canadian subsidiary is not material to the Company's consolidated results of
operations; therefore, the impact of a 10% change in the exchange rate at May 2,
1999 would not have a significant impact on the Company's results of operations
or financial position. In addition, the Company had $0 of outstanding foreign
exchange forward and option contracts as of May 2, 1999 and, as a result, any
change in exchange rates would not have a significant impact on the Company's
results of operations or financial position.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data are
included in the Company's above referenced Annual Report to Shareholders, and
are herein incorporated by reference. Item 14 of this report contains specific
page number references to the consolidated financial statements and
supplementary data included in the Annual Report.
EXCEPT FOR SUCH PORTIONS OF THE COMPANY'S ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED MAY 2, 1999 THAT ARE EXPRESSLY INCORPORATED BY
REFERENCE INTO THIS REPORT, SUCH REPORT IS NOT TO BE DEEMED FILED AS PART
OF THIS FILING.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
During the two years ended May 2, 1999 and any subsequent interim
periods, there were no changes of accountants and/or disagreements on any
matters of accounting principles or practices or financial statement
disclosures.
-18-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to executive officers and directors of the
Company is included in the Company's definitive Proxy Statement to be filed
pursuant to Regulation 14A of the Securities and Exchange Commission, under the
caption "Nominees, Directors and Executive Officers" and "Reports Of Securities
Ownership," which information is herein incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is included in
the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A
of the Securities and Exchange Commission, under the caption "Executive
Compensation," which information is herein incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Information with respect to the security ownership of certain
beneficial owners and management is included in the Company's definitive Proxy
Statement to be filed pursuant to Regulation 14A of the Securities and Exchange
Commission, under the caption "Voting Securities," which information is herein
incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related
transactions is included in the Company's definitive Proxy Statement to be filed
pursuant to Regulation 14A of the Securities and Exchange Commission, under the
subcaption "Certain Relationships and Related Transactions," which information
is herein incorporated by reference.
-19-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
a) DOCUMENTS FILED AS PART OF THIS REPORT:
1. Consolidated Financial Statements
The following consolidated financial statements of Culp, Inc. and
subsidiary from the Company's Annual Report to Shareholders for the year ended
May 2, 1999, are incorporated by reference into this report.
Page of Annual
Report to
Shareholders
Item [Exhibit 13(a)]
- ---- ---------------
Consolidated Balance Sheets - May 2, 1999 and.................... 11
May 3, 1998
Consolidated Statements of Income -
for the years ended May 2, 1999,
May 3, 1998, and April 27, 1997 ............................... 12
Consolidated Statements of Shareholders' Equity -
for the years ended May 2, 1999,
May 3, 1998 and April 27, 1997 ................................ 13
Consolidated Statements of Cash Flows -
for the years ended May 2, 1999,
May 3, 1998, and April 27, 1997 ............................... 14
Consolidated Notes to Financial Statements....................... 15
Report of Independent Auditors .................................. 24
2. Financial Statement Schedules
All financial statement schedules are omitted because they are not
applicable, or not required, or because the required information is included in
the consolidated financial statements or notes thereto.
-20-
3. Exhibits
The following exhibits are attached at the end of this report, or
incorporated by reference herein. Management contracts, compensatory plans, and
arrangements are marked with an asterisk (*).
3(i) Articles of Incorporation of the Company, as amended, were filed
as Exhibit 3(i) to the Company's Form 10-Q for the quarter ended
January 29, 1995, filed March 5, 1995, and are incorporated
herein by reference.
3(ii) Restated and Amended Bylaws of the Company, as amended, were
filed as Exhibit 3(b) to the Company's Form 10-K for the year
ended April 28, 1991, filed July 25, 1991, and are incorporated
herein by reference.
10(a) Loan Agreement dated December 1, 1988 with Chesterfield County,
South Carolina relating to Series 1988 Industrial Revenue Bonds
in the principal amount of $3,377,000 was filed as Exhibit 10(n)
to the Company's Form 10-K for the year ended April 29, 1989,
and is incorporated herein by reference.
10(b) Loan Agreement dated November 1, 1988 with the Alamance County
Industrial Facilities and Pollution Control Financing Authority
relating to Series A and B Industrial Revenue Refunding Bonds in
the principal amount of $7,900,000, was filed as exhibit 10(o)
to the Company's Form 10-K for the year ended April 29, 1990,
and is incorporated herein by reference.
10(c) Loan Agreement dated January, 1990 with the Guilford County
Industrial Facilities and Pollution Control Financing Authority,
North Carolina, relating to Series 1989 Industrial Revenue Bonds
in the principal amount of $4,500,000, was filed as Exhibit
10(d) to the Company's Form 10-K for the year ended April 19,
1990, filed on July 15, 1990, and is incorporated herein by
reference.
10(d) Loan Agreement dated as of December 1, 1993 between Anderson
County, South Carolina and the Company relating to $6,580,000
Anderson County, South Carolina Industrial Revenue Bonds (Culp,
Inc. Project) Series 1993, was filed as Exhibit 10(o) to the
Company's Form 10-Q for the quarter ended January 30, 1994,
filed March 16, 1994, and is incorporated herein by reference.
10(e) Form of Severance Protection Agreement, dated September 21,
1989, was filed as Exhibit 10(f) to the Company's Form 10-K for
the year ended April 29, 1990, filed on July 25, 1990, and is
incorporated herein by reference. (*)
10(f) Lease Agreement, dated January 19, 1990, with Phillips
Interests, Inc. was filed as Exhibit 10(g) to the Company's Form
10-K for the year ended April 29, 1990, filed on July 25, 1990,
and is incorporated herein by reference.
-21-
10(g) Management Incentive Plan of the Company, dated August 1986 and
amended July 1989, filed as Exhibit 10(o) to the Company's Form
10-K for the year ended May 3, 1992, filed on August 4, 1992,
and is incorporated herein by reference. (*)
10(h) Lease Agreement, dated September 6, 1988, with Partnership 74
was filed as Exhibit 10(h) to the Company's Form 10-K for the
year ended April 28, 1991, filed on July 25, 1990, and is
incorporated herein by reference.
10(i) Amendment and Restatement of the Employee's Retirement Builder
Plan of the Company dated May 1, 1981 with amendments dated
January 1, 1990 and January 8, 1990 were filed as Exhibit 10(p)
to the Company's Form 10-K for the year ended May 3, 1992, filed
on August 4, 1992, and is incorporated herein by reference. (*)
10(j) First Amendment of Lease Agreement dated July 27, 1992 with
Partnership 74 Associates was filed as Exhibit 10(n) to the
Company's Form 10-K for the year ended May 2, 1993, filed on
July 29, 1993, and is incorporated herein by reference.
10(k) Second Amendment of Lease Agreement dated April 16, 1993, with
Partnership 52 Associates was filed as Exhibit 10(l) to the
Company's Form 10-K for the year ended May 2, 1993, filed on
July 29, 1993, and is incorporated herein by reference.
10(l) 1993 Stock Option Plan was filed as Exhibit 10(o) to the
Company's Form 10-K for the year ended May 2, 1993, filed on
July 29, 1993, and is incorporated herein by reference.
(*)
10(m) First Amendment to Loan Agreement dated as of December 1, 1993
by and between The Guilford County Industrial Facilities and
Pollution Control Financing Authority and the Company was filed
as Exhibit 10(p) to the Company's Form 10-Q, filed on March 15,
1994, and is incorporated herein by reference.
10(n) First Amendment to Loan Agreement dated as of December 16, 1993
by and between The Alamance County Industrial Facilities and
Pollution Control Financing Authority and the Company was filed
as Exhibit 10(q) to the Company's Form 10-Q, filed on March 15,
1994, and is incorporated herein by reference.
10(o) First Amendment to Loan Agreement dated as of December 16, 1993
by and between Chesterfield County, South Carolina and the
Company was filed as Exhibit 10(r) to the Company's Form 10-Q,
filed on March 15, 1994, and is incorporated herein by
reference.
10(p) Amendment to Lease dated as of November 4, 1994, by and between
the Company and RDC, Inc. was filed as Exhibit 10(w) to the
Company's Form 10-Q, for the quarter ended January 29, 1995,
filed on March 15, 1995, and is incorporated herein by
reference.
-22-
10(q) Amendment to Lease Agreement dated as of December 14, 1994, by
and between the Company and Rossville Investments, Inc.
(formerly known as A & E Leasing, Inc.), was filed as Exhibit
10(y) to the Company's Form 10-Q, for the quarter ended January
29, 1995, filed on March 15, 1995, and is incorporated herein by
reference.
10(r) Interest Rate Swap Agreement between Company and First Union
National Bank of North Carolina dated April 17, 1995, was filed
as Exhibit 10(aa) to the Company's Form 10-K for the year ended
April 30, 1995, filed on July 26, 1995, and is incorporated
herein by reference.
10(s) Performance-Based Stock Option Plan, dated June 21, 1994, was
filed as Exhibit 10(bb) to the Company's Form 10-K for the year
ended April 30, 1995, filed on July 26, 1995, and is
incorporated herein by reference. (*)
10(t) Interest Rate Swap Agreement between Company and First Union
National Bank of North Carolina, dated May 31, 1995 was filed as
exhibit 10(w) to the Company's Form 10-Q for the quarter ended
July 30, 1995, filed on September 12, 1995, and is incorporated
herein by reference.
10(u) Interest Rate Swap Agreement between Company and First Union
National Bank of North Carolina, dated July 7, 1995 was filed as
exhibit 10(x) to the Company's Form 10-Q for the quarter ended
July 30, 1995, filed on September 12, 1995, and is incorporated
herein by reference.
10(v) Second Amendment of Lease Agreement dated June 15, 1994 with
Partnership 74 Associates was filed as Exhibit 10(v) to the
Company's Form 10-Q for the quarter ended October 29, 1995,
filed on December 12, 1995, and is incorporated herein by
reference.
10(w) Lease Agreement dated November 1, 1993 by and between the
Company and Chromatex, Inc. was filed as Exhibit 10(w) to the
Company's Form 10-Q for the quarter ended October 29, 1995,
filed on December 12, 1995, and is incorporated herein by
reference.
10(x) Lease Agreement dated November 1, 1993 by and between the
Company and Chromatex Properties, Inc. was filed as Exhibit
10(x) to the Company's Form 10-Q for the quarter ended October
29, 1995, filed on December 12, 1995, and is incorporated herein
by reference.
10(y) Amendment to Lease Agreement dated May 1, 1994 by and between
the Company and Chromatex Properties, Inc. was filed as Exhibit
10(y) to the Company's Form 10-Q for the quarter ended October
29, 1995, filed on December 12, 1995, and is incorporated herein
by reference.
10(z) Canada-Quebec Subsidiary Agreement on Industrial Development
(1991), dated January 4, 1995, was filed as Exhibit 10(z) to the
Company's Form 10-Q for the quarter ended October 29, 1995,
filed on December 12, 1995, and is incorporated herein by
reference.
-23-
10(aa) Loan Agreement between Chesterfield County, South Carolina and
the Company dated as of April 1, 1996 relating to Tax Exempt
Adjustable Mode Industrial Development Bonds (Culp, Inc.
Project) Series 1996 in the aggregate principal amount of
$6,000,000 was filed as Exhibit 10(aa) to the Company's Form
10-K for the year ended April 28, 1996, and is incorporated
herein by reference.
10(bb) Loan Agreement between the Alamance County Industrial Facilities
and Pollution Control Financing Authority, North Carolina and
the Company, dated December 1, 1996, relating to Tax Exempt
Adjustable Mode Industrial Development Revenue Bonds, (Culp,
Inc. Project Series 1996) in the aggregate amount of $6,000,000
was filed as Exhibit 10(cc) to the Company's Form 10-Q for the
quarter ended January 26, 1997, and is incorporated herein by
reference.
10(cc) Loan Agreement between Luzerne County, Pennsylvania and the
Company, dated as of December 1, 1996, relating to Tax-Exempt
Adjustable Mode Industrial Development Revenue Bonds (Culp, Inc.
Project) Series 1996 in the aggregate principal amount of
$3,500,000 was filed as Exhibit 10(dd) to the Company's Form
10-Q for the quarter ended January 26, 1997, and is incorporated
herein by reference.
10(dd) Second Amendment to Lease Agreement between Chromatex
Properties, Inc. and the Company, dated April 17, 1997 was filed
as Exhibit 10(dd) to the Company's Form 10-K for the year ended
April 27, 1997, and is incorporated herein by reference.
10(ee) Lease Agreement between Joseph E. Proctor (doing business as
JEPCO) and the Company, dated April 21, 1997 was filed as
Exhibit 10(ee) to the Company's Form 10-K for the year ended
April 27, 1997, and is incorporated herein by reference.
10(ff) $125,000,000 Revolving Loan Facility dated April 23, 1997 by and
among the Company and Wachovia Bank of Georgia, N.A., as agent,
and First Union National Bank of North Carolina, as
documentation agent was filed as Exhibit 10(ff) to the Company's
Form 10-K for the year ended April 27, 1997, and is incorporated
herein by reference.
10(gg) Revolving Line of Credit for $4,000,000 dated April 23, 1997 by
and between the Company and Wachovia Bank of North Carolina, N.A.
was filed as Exhibit 10(gg) to the Company's Form 10-K for the
year ended April 27, 1997, and is incorporated herein by
reference.
10(hh) Reimbursement and Security Agreement between Culp, Inc. and
Wachovia Bank of North Carolina, N.A., dated as of April 1, 1997,
relating to $3,337,000 Principal Amount, Chesterfield County,
South Carolina Industrial Revenue Bonds (Culp, Inc. Project)
Series 1988 was filed as Exhibit 10(hh) to the Company's Form
10-K for the year ended April 27, 1997, and is incorporated
herein by reference.
-24-
Additionally, there are Reimbursement and Security Agreements
between Culp, Inc. and Wachovia Bank of North Carolina, N.A.,
dated as of April 1, 1997 in the following amounts and with the
following facilities:
$7,900,000 Principal Amount, Alamance County Industrial
Facilities and Pollution Control Financing Authority
Industrial Revenue Refunding Bonds (Culp, Inc. Project)
Series A and B.
$4,500,000 Principal Amount, Guilford County Industrial
Facilities and Pollution Control Financing Authority
Industrial Development Revenue Bonds (Culp, Inc. Project)
Series 1989.
$6,580,000 Principal Amount, Anderson County South Carolina
Industrial Revenue Bonds (Culp, Inc. Project) Series 1993.
$6,000,000 Principal Amount, Chesterfield County, South
Carolina Tax-Exempt Adjustable Mode Industrial Development
Revenue Bonds (Culp, Inc. Project) Series 1996.
$6,000,000 Principal Amount, The Alamance County Industrial
Facilities and Pollution Control Financing Authority
Tax-exempt Adjustable Mode Industrial Development Revenue
Bonds (Culp, Inc. Project) Series 1996.
$3,500,000 Principal Amount, Luzerne County Industrial
Development Authority Tax-Exempt Adjustable Mode Industrial
Development Revenue Bonds (Culp, Inc. Project) Series 1996.
10(ii) Loan Agreement and Reimbursement and Security Agreement dated
July 1, 1997 with the Robeson County Industrial Facilities and
Pollution Control Financing Authority relating to the issuance of
Tax-Exempt Adjustable Mode Industrial Development Revenue Bonds
(Culp, Inc. Project), Series 1997 in the aggregate principal
amount of $8,500,000 was filed as Exhibit 10(ii) to the Company's
Form 10-Q for the quarter ended August 3, 1997, and is
incorporated herein by reference.
10(jj) Asset Purchase Agreement dated as of August 4, 1997 by and
between Culp, Inc., Phillips Weaving Mills, Inc., Phillips
Printing Mills, Inc., Phillips Velvet Mills, Inc., Phillips
Mills, Inc., Phillips Property Company, LLC, Phillips Industries,
Inc. and S. Davis Phillips was filed as Exhibit (10jj) to the
Company's Form 10-Q for the quarter ended November 2, 1997, and
is incorporated herein by reference.
10(kk) Asset Purchase Agreement dated as of October 14, 1997 among Culp,
Inc., Artee Industries, Incorporated, Robert T. Davis, Robert L.
Davis, Trustee u/a dated 8/25/94, Robert L. Davis, Louis W.
Davis, Kelly D. England, J. Marshall Bradley, Frankie S. Bradley
and Mickey R. Bradley was filed as Exhibit 10(kk) to the
Company's Form 10-Q for the quarter ended November 2, 1997, and
is incorporated herein by reference.
-25-
10(ll) Form of Note Purchase Agreement (providing for the issuance by
Culp, Inc. of its $20 million 6.76% Series A Senior Notes due
3/15/08 and its $55 million 6.76% Series B Senior Notes due
3/15/10), each dated March 4, 1998, between Culp, Inc. and each
of the following:
1. Connecticut General Life Insurance Company;
2. The Mutual Life Insurance Company of New York;
3. United of Omaha Life Insurance Company;
4. Mutual of Omaha Insurance Company;
5. The Prudential Insurance Company of America;
6. Allstate Life Insurance Company;
7. Life Insurance Company of North America; and
8. CIGNA Property and Casualty Insurance Company
This agreement was filed as Exhibit 10(ll) to the Company's Form
10-K for the year ended May 3, 1998, and is incorporated herein
by reference.
10(mm) First Amendment to Credit Agreement dated July 22, 1998 among
Culp, Inc., Wachovia Bank, N.A., as agent, First Union National
Bank, as documentation agent, and Wachovia Bank, N.A., First
Union National Bank, SunTrust Bank, Atlanta, and Cooperatieve
Centrale Raiffeisen-Boerenleeenbank B.A., Rabobank Nederland,
New York Branch, as lenders. This amendment was filed as Exhibit
10(mm) to the Company's Form 10-Q for the quarter ended August
2, 1998, and is incorporated herein by reference.
10(nn) Second Amendment to Credit Agreement dated October 26, 1998,
among Culp, Inc., Wachovia Bank, N.A., as agent, First Union
National Bank, as documentation agent, and Wachovia Bank, N.A.,
First Union National Bank, and SunTrust Bank, Atlanta, as
lenders. This amendment was filed as Exhibit 10(nn) to the
Company's Form 10-Q for the quarter ended November 1, 1998, and
is incorporated herein by reference.
13(a) Copy of the Company's 1999 Annual Report to Shareholders, for the
year ended May 2, 1999, furnished for information only except
with respect to those portions incorporated by reference into
this report.
22 List of subsidiaries of the Company.
24(a) Consent of Independent Public Auditors in connection with the
registration statements of Culp, Inc. on Form S-8 (File Nos.
33-13310, 33-37027, 33-80206, 33-62843, and 333-27519), dated
March 20, 1987, September 18, 1990, June 13, 1994, September
22, 1995, and May 21, 1997.
25(a) Power of Attorney of Harry R. Culp, dated June 28, 1999
25(b) Power of Attorney of Howard L. Dunn, Jr., dated June 28, 1999
25(c) Power of Attorney of Robert T. Davis, dated June 28, 1999
25(d) Power of Attorney of Earl M. Honeycutt, dated June 22, 1999
25(e) Power of Attorney of Patrick H. Norton, dated July 3, 1999
-26-
25(f) Power of Attorney of Earl N. Phillips, Jr., dated June 28, 1999
25(g) Power of Attorney of Franklin N. Saxon, dated July 16, 1999
27 Financial Data Schedule
b) Reports on Form 8-K:
The Company filed the following report on Form 8-K during the quarter
ended May 2, 1999:
(1)Form 8-K dated February 17, 1999, included under Item 5, Other Events,
included the Company's press release for quarterly earnings and the
Financial Information Release relating to certain financial information
for the quarter ended January 31, 1999.
c) Exhibits:
The exhibits to this Form 10-K are filed at the end of this Form 10-K
immediately preceded by an index. A list of the exhibits begins on page 29
under the subheading "Exhibits Index".
d) Financial Statement Schedules:
See Item 14(a) (2)
-27-
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities
Exchange Act of 1934, CULP, INC. has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 30th day of July
1999.
CULP, INC.
By /s/ Robert G. Culp, III
--------------------------------------
Robert G. Culp, III
(Chairman and Chief Executive Officer)
By: /s/ Phillip W. Wilson
--------------------------------------
Phillip W. Wilson
(Vice President and Chief Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 30th day of July 1999.
/s/ Robert G. Culp, III /s/ Franklin N. Saxon*
--------------------- ----------------------
Robert G. Culp, III Franklin N. Saxon
(Chairman of the (Director)
Board of Directors)
/s/ Earl N. Phillips, Jr.* /s/ Harry R. Culp *
--------------------- ----------------------
Earl N. Phillips, Jr. Harry R. Culp
(Director) (Director)
/s/ Howard L. Dunn, Jr.* /s/ Robert T. Davis *
--------------------- ----------------------
Howard L. Dunn, Jr. Robert T. Davis
(Director) (Director)
/s/ Earl M. Honeycutt*
---------------------
Earl M. Honeycutt
(Director)
/s/ Patrick H. Norton*
---------------------
Patrick H. Norton
(Director)
* By Phillip W. Wilson, Attorney-in-Fact, pursuant to Powers of Attorney
filed with the Securities and Exchange Commission.
-28-
EXHIBITS INDEX
--------------
Exhibit Number Exhibit
- -------------- -------
13(a) Copy of the Company's 1999 Annual Report to Shareholders, for the
year ended May 2, 1999, furnished for information only except
with respect to those portions incorporated by reference into
this report.
22 List of subsidiaries of the Company.
24(a) Consent of Independent Public Auditors in connection with the
registration statements of Culp, Inc. on Form S-8 (File Nos.
33-13310, 33-37027, 33-80206, 33-62843, and 333-27519), dated
March 20, 1987, September 18, 1990, June 13, 1994, September 22,
1995, and May 21, 1997.
25(a) Power of Attorney of Harry R. Culp, dated June 28, 1999
25(b) Power of Attorney of Howard L. Dunn, Jr., dated June 28, 1999
25(c) Power of Attorney of Robert T. Davis, dated June 28, 1999
25(d) Power of Attorney of Earl M. Honeycutt, dated June 22, 1999
25(e) Power of Attorney of Patrick H. Norton, dated July 3, 1999
25(f) Power of Attorney of Earl N. Phillips, Jr., dated June 28, 1999
25(g) Power of Attorney of Franklin N. Saxon, dated July 16, 1999
-29-
CULP, INC.
101 SOUTH MAIN STREET
POST OFFICE BOX 2686
HIGH POINT, NC 27261
(336) 889-5161
1999
Annual
Report
[LOGO] CULP
About Culp
Culp ranks as one of the world's largest marketers of upholstery fabrics for
furniture and a leading supplier of mattress ticking. The Culp team of
approximately 4,000 associates markets over 3,000 patterns of upholstery fabrics
for furniture and over 1,000 styles of mattress ticking to an international
array of customers. The company is a fully integrated marketer with
manufacturing plants in North and South Carolina, Alabama, Tennessee,
Pennsylvania and Canada.
HIGHLIGHTS
(AMOUNTS IN THOUSANDS, PERCENT
EXCEPT PER SHARE DATA) 1999 1998 CHANGE
- --------------------------------------------------------------------------------
STATEMENTS OF INCOME
Net sales $483,084 476,715 1.3%
Gross profit 76,108 83,561 (8.9)
Income from operations 16,140 30,574 (47.2)
Net income 3,102 15,513 (80.0)
Average shares outstanding
(diluted) 13,064 13,042 0.2
PER SHARE
Net income (diluted) $ 0.24 1.19 (79.8)%
Cash dividends 0.14 0.14 0.0
Book value 10.54 10.11 4.3
BALANCE SHEET
Working capital $ 99,324 102,730 (3.3)%
Total assets 330,612 354,815 (6.8)
Funded debt 138,650 151,616 (8.6)
Shareholders' equity 127,326 131,519 (3.2)
RATIOS
Gross profit margin 15.8% 17.5%
Operating income margin 3.3 6.4
Net income margin 0.6 3.3
Return on average equity 2.4 13.0
Funded debt to capital 52.1 53.5
NET SALES FOR 1999 MARK A RECORD HIGH OF $483.1 MILLION, BUT NET INCOME OF $3.1
MILLION TRAILS YEAR-EARLIER TOTAL OF $15.5 MILLION.
OPERATIONAL REALIGNMENT INVOLVES REDUCTION FROM SIX TO FOUR DIVISIONS.
QUARTERLY FINANCIAL RESULTS SHOW POSITIVE TREND.
STOCK REPURCHASE PROGRAM INITIATED.
(THROUGHOUT THIS ANNUAL REPORT, 1999, 1998, 1997, 1996 AND 1995 ARE USED TO
REFER, RESPECTIVELY, TO THE COMPANY'S FISCAL YEARS THAT ENDED IN THOSE SAME
CALENDAR PERIODS.)
DEAR SHAREHOLDERS:
A year ago we indicated that we saw significant challenges in 1999 to extending
Culp's long-term record of growth. Unfortunately, we did not know how serious
those challenges would be! A substantial decline in international sales of
several of our categories of upholstery fabrics led to a sharp reversal in our
financial performance. The table on the preceding page summarizes the impact of
this development that left net income for 1999 well below the prior year. We are
disappointed with this report that prevented us from realizing our tenth
consecutive year of increased earnings. The industry-wide difficulties we
encountered, however, were not unique to Culp; and we are very encouraged by the
determination of our associates to resume a pattern of growth. We are also
enthusiastic about the results to date of the operational realignment that was
implemented during the year. This change was made to capitalize more effectively
on our managerial and physical resources. The bottom line is that the company's
fundamental competitive position is stronger than ever, and we are optimistic
that this break in our track record will prove temporary.
STOCK REPURCHASE PROGRAM INITIATED
In June 1998 the Board of Directors approved the investment of up to $5 million
for the repurchase of the company's shares. This authorization was followed in
March 1999 with approval to invest an additional $5 million. We are pleased that
the company's improving performance and solid financial position supported the
Board in approving the funds for this program. During fiscal 1999, we
repurchased a total of 938,600 shares at an average price of $5.90 per share.
The timing and size of future transactions will of course depend on market
conditions, but we believe that these repurchases will prove to be a sound
investment of the company's capital.
2
OPERATIONAL REALIGNMENT COMPLETED
Perhaps the most important internal development during 1999 for Culp was a
corporate realignment to accommodate the expanded size of our various divisions
and support future growth plans. The foundation of the new structure was the
formation of four divisions, Culp Decorative Fabrics, Culp Velvets/Prints, Culp
Yarn and Culp Home Fashions, that encompass all of our manufacturing and
marketing operations. This represented a reduction from the six business units
that existed at the start of the year.
The slowdown in our international sales served as a catalyst in
implementing this change. We had already identified the need, however, to shift
our resources to ensure that our marketing program was as effective as possible.
Our underlying drive to offer consistently high customer service had involved a
considerable investment of capital in the years leading up to 1999 for
modernization, expansion and vertical integration of our operations. Capital
expenditures over the preceding five years had exceeded $110 million. This
internal expansion had been complemented by the strategic acquisition of related
operating units. During fiscal 1998 alone, we invested $59 million to purchase
other manufacturing operations. These investments helped produce impressive
growth that included more than doubling of net sales over the 1993-1998 period.
The underlying challenge was to cast a long-term growth strategy by
consolidating these new operations, unifying the related products and linking
the various marketing activities.
The formation of these four divisions has already provided meaningful
advantages in increased managerial productivity and improved efficiency in our
information systems. Having related product groups in a single division has
promoted more effective working communications within the operating levels.
These internal partnerships offer greater potential in developing fabrics and
ticking with exciting designs, patterns and textures that still offer value for
customers. An essential step in designing fabrics is considering the practical
manufacturing issues that will be involved for a fabric to be commercially
successful. Each division now controls a
3
fully integrated design process that extends from the origin of each new idea to
the production, sale and distribution of the products. This change has also
supported our emphasis on correlating different fabrics into unified collections
for customers. Culp has the broadest array of fabrics available from any
manufacturer, and we are receiving a very positive response from the effort to
present groupings of complementary fabrics that allow furniture manufacturers to
select fabrics for entire room settings.
INDUSTRY FUNDAMENTALS FAVOR CULP
As we continue to refine our new organizational framework, we believe that
several broad trends within the home furnishings industry are playing directly
to our strengths. Probably the most significant pattern is the ongoing
consolidation at all levels within the supply chain linking manufacturers with
consumers. A recent survey by Furniture/Today reports that the 25 largest
manufacturers of furniture in the United States accounted for 46% of total
industry sales in 1998. The top 10 manufacturers alone represented 37% of the
industry's shipments. These firms are finding that size indeed does matter in
dealing with retailers who also are increasing their competitive presence. The
25 largest retailers of furniture supplied 26% of the market in the latest
survey, up from 24% in the prior year. These larger companies are seeking true
corporate partners who can provide not only the necessary volume of fabrics but
also consistently high product quality and customer service. Culp is firmly
committed to developing these relationships that increasingly rely on
sophisticated information systems to shorten delivery schedules and yet provide
consumers with the choices they demand.
INTERNATIONAL PROSPECTS APPEAR POSITIVE
After a decade of consistent yearly growth, Culp's international sales declined
17% in 1999 to $113.4 million. We believe that our experience mirrors that of
other suppliers of fabrics to markets in Europe and Asia that were adversely
affected by serious economic turbulence during the year. We do not believe that
this decline
4
suggests any structural shift in the competitive position of Culp or in the
long-term opportunities that are presented by rising demand for furniture in
developing countries. Our volume of international sales, while down from the
preceding year, was still the second highest ever for Culp. Furniture
manufacturers throughout the world value the designs and finishes on our fabrics
as essential components of their marketing programs. American styles remain
popular, and we have the advantage of a product with a relatively low labor
content. We have a distribution capability to supply accounts throughout the
world and are enhancing our computerized system to facilitate placing and
tracking orders.
CONTINUED IMPROVEMENT EXPECTED FOR 2000
A primary goal for 2000 is to achieve continued improvement in Culp's
performance. We ended 1999 on a strong note but recognize that the level of net
income in the fourth quarter was still below the company's historical level of
profitability. We continue to be interested in expansion opportunities, but the
emphasis for the immediate term is to maximize the return from existing assets.
Our new organizational structure is focused specifically on that objective, and
we are optimistic about our prospects. The overall backdrop for demand for home
furnishings appears favorable with high employment levels, stable interest rates
and a high degree of consumer confidence.
We sincerely appreciate the hard work throughout Culp during 1999. The
enthusiasm to meet the challenges that we faced was contagious, and we are
grateful to our associates for the strong, positive spirit they exhibited.
Sincerely,
/s/ Robert G. (Rob) Culp, III
- -------------------------------------
Robert G. (Rob) Culp, III
Chairman and Chief Executive Officer
/s/ Howard L. Dunn, Jr.
- -------------------------------------
Howard L. Dunn, Jr.
President and Chief Operating Officer
5
CORPORATE DIRECTORY
ROBERT G. CULP, III
Chairman of the Board and
Chief Executive Officer;
Director (E,N)
HOWARD L. DUNN, JR.
President and Chief Operating Officer;
Director (E)
FRANKLIN N. SAXON
Senior Vice President and President of
the Culp Velvets/Prints division;
Director (E)
DAN E. JACOBS
Senior Vice President and President of
the Culp Decorative Fabrics division
RODNEY A. SMITH
Senior Vice President and President of
the Culp Yarn division
KENNETH M. LUDWIG
Senior Vice President-Human Resources;
Assistant Secretary
PHILLIP W. WILSON
Vice President and Chief Financial Officer
KATHY J. HARDY
Corporate Secretary
HARRY R. CULP
Director; Private Investments,
High Point, NC
ROBERT T. DAVIS
Director, former chairman of
Artee Industries, Incorporated
EARL M. HONEYCUTT
Director (A,C); Retired President,
Amoco Fabrics and Fibers Company,
Atlanta, GA
PATRICK H. NORTON
Director (N); Chairman of the Board,
La-Z-Boy Incorporated, Monroe, MI
EARL N. PHILLIPS, JR.
Director; Chairman of the Board and
Chief Executive Officer, GE Capital
First Factors, High Point, NC
BLAND W. WORLEY*
Director (A,C,N); Retired Chairman of
the Board and Chief Executive Officer,
BarclaysAmericanCorporation,
Charlotte, NC
BAXTER P. FREEZE, SR.
Director Emeritus; Retired President,
Chairman of the Board,
Commonwealth Hosiery Mills, Inc.,
Randleman, NC
BOARD COMMITTEES:
A-AUDIT
C-COMPENSATION
E-EXECUTIVE
N-NOMINATING
* MR. WORLEY RESIGNED AS A MEMBER OF THE BOARD OF DIRECTORS AND ALL COMMITTEES
OF THE BOARD ON JULY 23, 1999 FOR HEALTH REASONS.
6
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 Financial Statements and Notes and other
exhibits included elsewhere in this report.
OVERVIEW Culp is one of the largest manufacturers and marketers in the world for
upholstery fabrics for furniture and is one of the leading global producers of
mattress fabrics (or ticking). The company's fabrics are used primarily in the
production of residential and commercial upholstered furniture and bedding
products, including sofas, recliners, chairs, love seats, sectionals, sofa-beds,
office seating and mattress sets. Although Culp markets fabrics at most price
levels, the company emphasizes fabrics that have broad appeal in the promotional
and popular-priced categories of furniture and bedding.
Culp's worldwide leadership as a manufacturer and marketer of upholstery
fabrics and mattress ticking has been achieved through internal expansion and
the integration of strategic acquisitions.
The company's operating segments are upholstery fabrics and mattress ticking,
with related divisions organized within those segments. In upholstery fabrics,
Culp Decorative Fabrics manufactures jacquard and dobby woven fabrics for
residential and commercial furniture. Culp Velvets/Prints manufactures a broad
range of printed and velvet fabrics used primarily for residential and juvenile
furniture. Culp Yarn manufactures specialty filling yarn that is used by Culp
and also marketed to outside customers. In mattress ticking, Culp Home Fashions
manufactures and markets a broad array of fabrics used by bedding manufacturers.
RESULTS OF OPERATIONS The following table sets forth certain items in the
company's consolidated statements of income as a percentage of net sales.
1999 1998 1997
----- ----- -----
Net sales 100.0% 100.0% 100.0%
Cost of sales 84.2 82.5 81.8
----- ----- -----
Gross profit 15.8 17.5 18.2
Selling, general and administrative
expenses 12.4 11.1 11.3
----- ----- -----
Income from operations 3.3 6.4 6.9
Interest expense 2.0 1.5 1.2
Interest income (0.0) (0.1) (0.1)
Other expense 0.5 0.4 0.4
----- ----- -----
Income before income taxes 0.9 4.6 5.4
Income taxes (*) 28.0 29.0 36.0
Net income 0.6% 3.3% 3.5%
----- ----- -----
- ----------
* Calculated as a percent of income before income taxes.
The following table sets forth the company's sales by segment and division for
each of the company's three most recent years. The table also sets forth the
change in net sales for the segments and divisions as a percentage for
comparative periods included in the table.
(DOLLARS IN THOUSANDS) AMOUNTS PERCENT CHANGE
- --------------------------------------------------------------------------------
1998- 1997-
SEGMENT/DIVISION 1999 1998 1997 1999 1998
- ---------------- ---- ---- ---- ---- ----
UPHOLSTERY FABRICS:
Culp Decorative
Fabrics $ 222,058 $ 210,165 $ 167,730 5.7% 25.3%
Culp Velvets/
Prints 144,073 171,389 156,467 (15.9) 9.5
Culp Yarn 21,513 7,876 -- 173.1 100.0
--------- --------- --------- ----- -----
387,644 389,430 324,197 (0.5) 20.1
MATTRESS TICKING:
Culp Home
Fashions 95,440 87,285 74,682 9.3 16.9
--------- --------- --------- ----- -----
$ 483,084 $ 476,715 $ 398,879 1.3% 19.5%
--------- --------- --------- ----- -----
1999 COMPARED WITH 1998
NET SALES. Net sales for 1999 increased by $6.4 million, or 1.3%, compared
with 1998. The company's sales of upholstery fabrics decreased $1.8 million, or
0.5% for 1999 compared with 1998. However, fiscal 1999 includes an incremental
contribution of $13.6 million from Culp Yarn (formerly Artee Industries), which
was acquired on February 2, 1998. Excluding the incremental sales from Culp
Yarn, sales of upholstery fabrics decreased $15.4 million, or 4.0% for 1999
compared with 1998. The principal factor contributing to the lower sales was a
pronounced slowdown in international sales of wet print and heat-transfer
printed flock fabrics. This trend, which the company believes also affected
other manufacturers of upholstery fabrics, became apparent after the close of
1998 and persisted throughout 1999. A large percentage of the company's sales of
this product line were being shipped directly or indirectly to customers in the
emerging consumer markets of Russia, other former Soviet countries and Eastern
Europe. All of these areas encountered very weak economic conditions that, in
turn, adversely affected demand for furniture and other home furnishings. During
1999, the company significantly curtailed production schedules for these fabrics
and shifted its marketing focus for this product category to geographic areas
where demand appears more favorable. The company also introduced a line of
printed cotton upholstery fabrics utilizing some of the same manufacturing
assets used to produce wet print and heat-transfer printed flock fabrics.
International sales, consisting primarily of upholstery fabrics, decreased to
$113.4 million, down 17.4% from 1998. International shipments accounted for
23.5% of the company's sales for 1999, down from 28.8% in 1998. The company is
continuing to experience sluggish demand in some international markets, but has
broadened its marketing program in other geographic areas.
7
The increased sales by Culp Home Fashions (primarily mattress ticking) during
1999 marked a continuation of the longer-term expansion that this division has
experienced. The introduction of new designs and fabric constructions, and the
advantages of the company's vertical integration, are driving Culp's growth in
mattress ticking. In particular, the ability to manufacture the jacquard greige
(unfinished) goods that are then printed to produce mattress ticking has aided
Culp in meeting faster delivery schedules reliably and providing improved
overall customer service.
GROSS PROFIT AND COST OF SALES. Gross profit for 1999 decreased 8.9% to $76.1
million. The decline was due principally to a sharp decline in international
sales. Although the company took substantial steps to reduce operating expenses,
it continued to be affected throughout 1999 by excess manufacturing capacity and
lower absorption of fixed costs.
To help offset the pressure on gross margins, the company instituted a number
of actions during 1999. A major change involved reorganization from six to four
divisions during the first quarter. This new corporate alignment brought related
operations together under common management and was accompanied by several
changes in managerial positions. Subsequent steps to improve profitability that
are related to this realignment have included a significant reduction in the
capacity for manufacturing printed flock fabrics, comprehensive programs to
reduce inventories and an intense effort to reduce operating expenses and raise
productivity. The cost of raw materials remained relatively stable in 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased as a percentage of net sales for 1999 to 12.4%
compared with 11.1% in 1998. The increase principally related to lower than
expected sales for the year, higher marketing costs for new fabric designs,
incremental costs from the Artee acquisition and increased costs for credit
expenses, partially offset by lower accruals for incentive-based compensation
plans.
INTEREST EXPENSE. Net interest expense for 1999 of $9.4 million rose 38.3%
from $6.8 million in 1998 due to higher average borrowings outstanding. The
increased borrowings related principally to borrowings used to fund acquisitions
during 1998 and the relatively high level of capital expenditures in 1998.
OTHER EXPENSE. Other expense increased 26.2% to $2.4 million for 1999 compared
with $1.9 million for 1998, due primarily to the incremental goodwill
amortization related to acquired operations in fiscal 1998 and losses on
disposal of fixed assets.
INCOME TAXES. The effective tax rate for 1999 was 28.0% compared with 29.0% in
1998. The lower rates for 1999 and 1998 as compared with the federal statutory
rate of 35% are due principally to tax benefits related to the company's
international sales and to a higher proportion of earnings from the company's
Canadian subsidiary that is taxed at a lower effective rate. The company expects
the effective tax rate for 2000 to be approximately 34%.
NET INCOME PER SHARE. Diluted net income per share for 1999 totaled $0.24
compared with $1.19 a year ago.
1998 COMPARED WITH 1997
NET SALES. Net sales for 1998 increased by $77.8 million, or 19.5%, compared
with 1997. The company's sales of upholstery fabrics increased $65.2 million, or
20.1%, in 1998 compared with 1997. The principal factor contributing to the
increased sales was the contribution of $40.6 million from acquired operations
($32.7 million from Phillips Mills, which was acquired on August 5, 1997 and
$7.9 million from Artee Industries, which was acquired on February 2, 1998).
Sales from Culp Velvets/Prints, which manufactures and markets fabrics that have
been especially popular in markets outside the United States, were up from the
prior year. Although the strength in the U.S. dollar relative to other
currencies affected demand for Culp's fabrics, Culp Velvets/Prints achieved
increased international sales during 1998. Sales of Culp Decorative Fabrics rose
at a lesser rate for 1998. Sales of Culp Home Fashions, which principally
consist of mattress ticking and bedding products, rose 16.9% from 1997.
International sales, consisting primarily of upholstery fabrics, increased to
$137.2 million for 1998, up 35.1% from 1997. International shipments accounted
for 28.8% of the company's sales for 1998, up from 25.5% in 1997.
GROSS PROFIT AND COST OF SALES. Gross profit for 1998 increased by $11.1
million and amounted to 17.5% of net sales compared with 18.2% in 1997. The
company benefited from an increased absorption of fixed costs as a result of the
growth in sales, the investment in equipment designed to lower manufacturing
costs and raise productivity and contributions from acquisitions. These benefits
were more than offset in 1998 by the impact of competitive pressures on the
margins of sales to certain U.S. and international customers and expansion
projects that did not reach targeted levels of productivity. The cost of raw
materials remained relatively stable in 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses declined slightly as a percentage of net sales for 1998
to 11.1% compared with 11.3% a year ago. During 1998, the company continued to
incur higher expenses related to expanded resources for designing fabrics with
new patterns and textures and increased selling commissions associated with
international sales. These factors were offset by lower accruals as a percentage
of net sales for incentive-based compensation plans and by the increase in
overall operating efficiency as a result of the growth in net sales.
INTEREST EXPENSE. Net interest expense for 1998 of $6.8 million was up from
$4.4 million in 1997 due principally to borrowings related to the acquisition of
Phillips Mills on August 5, 1997. The company also incurred higher borrowings in
1998 to finance capital expenditures and additional working capital
requirements.
OTHER EXPENSE. Other expense increased to $1.9 million for 1998 compared with
$1.5 million for 1997, principally due to the amortization of goodwill
associated with the acquisition of Phillips Mills.
8
INCOME TAXES. The effective tax rate for 1998 was 29.0% compared with 36.0% in
1997. The lower rate was due principally to increased tax benefits related to
the company's international sales and to a higher proportion of earnings from
the company's Canadian subsidiary that is taxed at a lower effective rate.
NET INCOME PER SHARE. Diluted net income per share for 1998 totaled $1.19
compared with $1.15 a year ago. The weighted average number of outstanding
shares diluted increased 9.3% from 1997, principally due to the company's
secondary offering completed in February 1997.
LIQUIDITY AND CAPITAL RESOURCES LIQUIDITY. Cash and cash investments were
$509,000 as of May 2, 1999 compared with $2.3 million at the end of 1998. Funded
debt (long-term debt, including current maturities, less restricted investments)
decreased to $138.7 million at the close of 1999 from $151.6 million at the end
of 1998. As a percentage of total capital (funded debt plus total shareholders'
equity), the company's borrowings amounted to 52.1% as of May 2, 1999 compared
with 53.5% at the end of 1998. The company's working capital as of May 2, 1999
was $99.3 million compared with $102.7 million at the close of 1998.
The company's cash flow from operations was $32.5 million for 1999, consisting
of $24.3 million from earnings (net income plus depreciation, amortization and
deferred income taxes) plus $8.2 million from changes in working capital.
In separate authorizations in June 1998 and March 1999, the board of directors
of the company authorized the use of a total of $10.0 million to repurchase the
company's common stock. During 1999, the company repurchased a total of 938,600
shares at an average price of $5.90 a share under these authorizations.
FINANCING ARRANGEMENTS. In April 1998, Culp completed the sale of $75 million
of senior unsecured notes ("Notes") in a private placement to institutional
investors. The Notes have a fixed coupon rate of 6.76% and an average remaining
term of nine years.
Culp has an $88 million syndicated, unsecured, multi-currency revolving credit
facility. The facility, which expires in April 2002, requires quarterly payments
of interest on all outstanding borrowings and a quarterly facility fee paid in
advance. In October 1998, the company amended the credit facility to amend
certain covenants. Additionally, the amendment increased the interest rate
0.375% to LIBOR plus 1.125%. As of May 2, 1999, the company had outstanding
balances of $25 million under the credit facility.
The company also has a total of $35.3 million in currently outstanding
industrial revenue bonds ("IRBs") which have been used to finance capital
expenditures. The IRBs are collateralized by restricted investments of $3.3
million as of May 2, 1999 and letters of credit for the outstanding balance of
the IRBs and certain interest payments due thereunder.
The company's loan agreements require, among other things, that the company
maintain compliance with certain financial ratios. As of May 2, 1999, the
company was in compliance with these financial covenants.
As of May 2, 1999, 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 variable rate borrowings at a weighted average rate of
7.1%. The company also enters into foreign exchange forward and option contracts
to hedge against currency fluctuations with respect to firm commitments to
purchase certain machinery, equipment and raw materials.
CAPITAL EXPENDITURES. The company maintains an ongoing program of capital
expenditures designed to increase capacity as needed, enhance manufacturing
efficiencies through modernization and increase the company's vertical
integration. Capital expenditures totaled $10.7 million for 1999, down from
$35.9 million for 1998. The company anticipates capital spending of
approximately $20 million in 2000.
The company believes that cash flows from operations and funds available under
existing credit facilities and committed IRB financings will be sufficient to
fund capital expenditures and working capital requirements for the foreseeable
future.
INFLATION The cost of the company's raw materials remained generally stable
during 1999 and 1998. Factors that reasonably can be expected to influence
margins in the future include changes in raw material prices, trends in other
operating costs and overall competitive conditions.
SEASONALITY The company's business is slightly seasonal, with increased sales
during the second and fourth fiscal quarters. This seasonality results from
one-week closings of the company's manufacturing facilities, and the facilities
of most of its customers in the United States, during the first and third
quarters for the holiday weeks including July 4th and Christmas.
NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (SFAS) No. 131,
"Disclosures about Segments of an Enterprise and Related Information," effective
for periods beginning after December 15, 1997. The purpose of this standard is
to disclose disaggregated information which provides information about the
operating segments an enterprise engages in, consistent with how management
reviews financial information to make decisions about the enterprise's operating
matters. The company adopted SFAS No. 131 for fiscal year 1999 (see disclosure
in note 14 to the consolidated financial statements).
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," effective for
periods beginning after June 15, 2000, although early adoption is allowed. This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging
9
activities. The company has not determined the financial impact of adopting this
SFAS and has not determined if it will adopt its provisions prior to its
effective date.
YEAR 2000 CONSIDERATIONS Management has developed a plan to modify the company's
information technology to recognize the year 2000. The plan has three distinct
areas of focus; namely, traditional information systems, technology used in
support areas, and preparedness of suppliers and customers.
The initiative for traditional information systems, which started in 1992, has
led to substantial completion of the assessment, required changes and testing of
the company's operational systems (order entry, billing, sales, finished goods)
and financial systems (payroll, human resources, accounts payable, accounts
receivable, general ledger, fixed assets). The company is currently focused on
modifying the remaining systems that support the company's manufacturing
processes. The programming and testing of these systems was substantially
completed by April 1, 1999, and implementation of these systems was
substantially completed by June 30, 1999. The remaining system implementations
are scheduled for completion during the second quarter of fiscal 2000.
The second area of focus has been an assessment of non-traditional information
technology, which includes the electronics in equipment such as telephone
switches and manufacturing equipment. Inventories of this equipment have been
completed and correspondence has been initiated with vendors and suppliers of
this equipment. The company is currently evaluating the vendor responses and
testing the equipment. After the testing phase is complete, the company will
conduct a review of the inventories and the testing procedures, with this phase
expected to also be completed during the second quarter of fiscal 2000.
The third area of focus is communications with suppliers and customers to
understand their level of readiness and assure a constant flow of materials to
support business plans. Communication to date has shown a high level of
awareness and planning by these parties. The company has a response rate in the
60% - 70% range, and at the present time no material problems or concerns are
indicated by these responses. However, if a significant vendor or customer is
non-compliant, the company can give no assurance that such occurrence will not
have an adverse affect on the company's results. The company believes its action
plans will minimize these risks and prevent any major interruptions in the flow
of materials and products.
Formal contingency plans will not be formulated unless the company has
identified specific areas where there is a substantial risk of year 2000
problems occurring. No such areas have been identified.
The plan is being administered by a team of internal staff and management.
Costs incurred in the company's readiness effort are being expensed as incurred.
Anticipated costs are expected to approximate $800,000 and to date an estimated
$500,000 has been spent. This project, and the year 2000 issue in general, are
not expected to have a significant effect on the company's operations, though no
assurance can be given in this regard.
FORWARD-LOOKING INFORMATION This annual report to shareholders and the company's
annual report on Form 10-K contain statements that could be deemed
"forward-looking statements" within the meaning of the federal securities laws.
Such statements are inherently subject to risks and uncertainties.
Forward-looking statements are statements that include projections, expectations
or beliefs about future events or results or otherwise are not statements of
historical fact. Such statements are often characterized by qualifying words
such as "expect," "believe," "estimate," "plan," and "project" and their
derivatives. Factors that could influence the matters discussed in such
statements include the level of housing starts and sales of existing homes,
consumer confidence, trends in disposable income and general economic
conditions. Decreases in these economic indicators could have a negative effect
on the company's business and prospects. Likewise, increases in interest rates,
particularly home mortgage rates, and increases in consumer debt or the general
rate of inflation, could affect the company adversely. Because of the
significant percentage of the company's sales derived from international
shipments, strengthening of the U.S. dollar against other currencies could make
the company's products less competitive on the basis of price in markets outside
the United States and adversely affect the company. Additionally, economic and
political instability in the international area could affect the demand for the
company's products.
10
CONSOLIDATED BALANCE SHEETS
MAY 2, 1999 AND MAY 3, 1998 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 1999 1998
-------- --------
ASSETS
current assets:
cash and cash investments $ 509 2,312
accounts receivable 70,503 73,773
inventories 67,070 78,594
other current assets 9,633 7,808
-------- --------
total current assets 147,715 162,487
restricted investments 3,340 4,021
property, plant and equipment, net 123,310 128,805
goodwill 51,269 55,162
other assets 4,978 4,340
-------- --------
total assets $330,612 354,815
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
current liabilities:
current maturities of long-term debt $ 1,678 3,325
accounts payable 25,687 37,214
accrued expenses 21,026 17,936
income taxes payable 0 1,282
-------- --------
total current liabilities 48,391 59,757
long-term debt 140,312 152,312
deferred income taxes 14,583 11,227
-------- --------
total liabilities 203,286 223,296
-------- --------
commitments and contingencies (notes 10 and 11)
shareholders' equity:
preferred stock, $.05 par value, authorized 10,000,000 shares 0 0
common stock, $.05 par value, authorized 40,000,000 shares,
issued and outstanding 12,079,171 at May 2, 1999 and
13,007,021 at May 3, 1998 604 650
capital contributed in excess of par value 37,966 40,882
retained earnings 88,756 89,987
-------- --------
total shareholders' equity 127,326 131,519
-------- --------
total liabilities and shareholders' equity $330,612 354,815
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
11
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED MAY 2, 1999, MAY 3, 1998,
AND APRIL 27, 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 1997
--------- ------- -------
net sales $ 483,084 476,715 398,879
cost of sales 406,976 393,154 326,394
--------- ------- -------
gross profit 76,108 83,561 72,485
selling, general and administrative expenses 59,968 52,987 45,058
--------- ------- -------
income from operations 16,140 30,574 27,427
interest expense 9,615 7,117 4,671
interest income (195) (304) (280)
other expense 2,412 1,912 1,521
--------- ------- -------
income before income taxes 4,308 21,849 21,515
income taxes 1,206 6,336 7,745
--------- ------- -------
net income $ 3,102 15,513 13,770
========= ======= =======
net income per share $ 0.24 1.22 1.18
--------- ------- -------
net income per share, assuming dilution $ 0.24 1.19 1.15
========= ======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
12
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
CAPITAL
FOR THE YEARS ENDED MAY 2, 1999, COMMON COMMON CONTRIBUTED TOTAL
MAY 3, 1998 AND APRIL 27, 1997 STOCK STOCK IN EXCESS OF RETAINED SHAREHOLDERS'
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) SHARES AMOUNT PAR VALUE EARNINGS EQUITY
balance, April 28, 1996 11,290,300 $ 565 16,878 64,003 81,446
proceeds from public offering of
1,200,000 shares 1,200,000 60 16,235 16,295
cash dividends ($0.13 per share) (1,513) (1,513)
net income 13,770 13,770
common stock issued in connection
with stock option plan 118,459 5 786 791
---------- ----------- ------ ------ -------
balance, April 27, 1997 12,608,759 630 33,899 76,260 110,789
cash dividends ($0.14 per share) (1,786) (1,786)
net income 15,513 15,513
common stock issued in connection
with stock option plans 114,051 6 997 1,003
common stock issued in connection
with acquisition of Artee
Industries, Incorporated's assets 284,211 14 5,386 5,400
stock options issued in connection
with acquisition of Phillips' assets 600 600
---------- ----------- ------ ------ -------
balance, May 3, 1998 13,007,021 650 40,882 89,987 131,519
cash dividends ($0.14 per share) (1,788) (1,788)
net income 3,102 3,102
common stock issued in connection
with stock option plans 10,750 1 34 35
common stock purchased (938,600) (47) (2,950) (2,545) (5,542)
---------- ----------- ------ ------ -------
balance, May 2, 1999 12,079,171 $ 604 37,966 88,756 127,326
========== =========== ====== ====== =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
13
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 2, 1999,
MAY 3, 1998 AND APRIL 27, 1997
(DOLLARS IN THOUSANDS) 1999 1998 1997
------ ------ ------
cash flows from operating activities:
net income $ 3,102 15,513 13,770
adjustments to reconcile net income to net cash
provided by operating activities:
depreciation 18,549 14,808 12,688
amortization of intangible assets 1,570 1,371 810
provision for deferred income taxes 1,064 1,416 966
changes in assets and liabilities, net of effects of
businesses acquired:
accounts receivable 3,133 (13,207) (4,653)
inventories 12,124 (17,684) (6,068)
other current assets 522 (660) (348)
other assets (106) (380) (205)
accounts payable (8,893) 6,477 2,586
accrued expenses 2,736 1,506 2,510
income taxes payable (1,282) (298) 1,383
-------- ------ ------
net cash provided by operating activities 32,519 8,862 23,439
-------- ------ ------
cash flows from investing activities:
capital expenditures (10,689) (35,879) (26,958)
purchase of restricted investments (119) (8,770) (9,770)
purchase of investments to fund deferred
compensation liability (735) (581) (563)
sale of restricted investments 800 15,767 4,002
payments for businesses acquired -- (42,966) --
-------- ------ ------
net cash used in investing activities (10,743) (72,429) (33,289)
-------- ------ ------
cash flows from financing activities:
proceeds from issuance of long-term debt 2,637 86,246 54,500
principal payments on long-term debt (16,284) (17,100) (59,900)
cash dividends paid (1,788) (1,786) (1,513)
proceeds from common stock issued 35 562 17,086
payments to acquire common stock (5,542) -- --
change in accounts payable - capital expenditures (2,637) (2,873) 9
-------- ------ ------
net cash provided by (used in)
financing activities (23,579) 65,049 10,182
-------- ------ ------
increase (decrease) in cash and cash investments (1,803) 1,482 332
cash and cash investments, beginning of year 2,312 830 498
-------- ------ ------
cash and cash investments, end of year $ 509 2,312 830
======== ====== ======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 primarily manufactures and markets
furniture upholstery fabrics and mattress ticking 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 1999 and 1997 included 52 weeks and
fiscal year 1998 included 53 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.
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.
Interest costs of $365,000 and $678,000 incurred during the years ended May 2,
1999 and May 3, 1998, respectively, for the purchase and construction of
qualifying fixed assets were capitalized and are being amortized over the
related assets' estimated useful lives.
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 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 May 2, 1999, the amount of such undistributed income was $15.3
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.
Stock Option Plans - On April 29, 1996, the company adopted SFAS No. 123,
Accounting for Stock-Based Compensation, which requires disclosure of the fair
value and other characteristics of stock options (see note 12). The company has
chosen under the provisions of SFAS No. 123 to continue using the
intrinsic-value method of accounting for employee
15
stock-based compensation in accordance with Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees.
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 at May 2, 1999.
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 - During fiscal 1998, the company adopted Statement of Financial
Accounting Standards No. 128 that requires the reporting of both net income per
share and net income per share, assuming dilution. The following table
reconciles the numerators and denominators of net income per share and net
income per share, assuming dilution:
(Amounts in thousands, Income Shares Per Share
except per share data) (Numerator) (Denominator) Amount
1999
Net income per share $ 3,102 12,909 $ 0.24
Effect of dilutive securities:
Options 0 155
------- ------ -------
Net income per share,
assuming dilution $ 3,102 13,064 $ 0.24
======= ====== =======
1998
Net income per share $15,513 12,744 $ 1.22
Effect of dilutive securities:
Options 0 298
------- ------ -------
Net income per share,
assuming dilution $15,513 13,042 $ 1.19
======= ====== =======
1997
Net income per share $13,770 11,624 $ 1.18
Effect of dilutive securities:
Options 0 305
------- ------ -------
Net income per share,
assuming dilution $13,770 11,929 $ 1.15
======= ====== =======
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.
Reclassification - Certain items in the 1998 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.
2 ACQUISITIONS
On August 5, 1997, the company purchased the operations and certain assets
relating to an upholstery fabric business operating as Phillips Weaving Mills,
Phillips Velvet Mills, Phillips Printing and Phillips Mills (Phillips). The
transaction was valued at approximately $39.5 million and involved the purchase
of assets for cash, the assumption of certain notes, liabilities and contracts,
the payments under the terms of certain obligations to Phillips and the issuance
of an option for 100,000 shares of common stock. Goodwill on the transaction was
approximately $30.8 million, which is being amortized on the straight-line
method over 40 years.
On December 30, 1997, the company purchased the operations and certain assets
relating to the Wetumpka spun yarn operation of Dan River Inc. The transaction
was valued at approximately $1.4 million and involved the purchase of assets for
cash.
On February 2, 1998, the company purchased the operations and certain assets
relating to a yarn manufacturing business operating as Artee Industries,
Incorporated (Artee). The transaction was valued at approximately $17.9 million
and involved the purchase of assets for cash, the assumption of certain
liabilities and the issuance of a note payable and common stock of the company.
Goodwill on the transaction was approximately $800,000, which is being amortized
on the straight-line method over 40 years.
The three acquisitions mentioned above were accounted for as purchases, and
accordingly, the net assets and operations have been included in the company's
consolidated financial statements since the dates of the acquisitions.
3 ACCOUNTS RECEIVABLE
A summary of accounts receivable follows:
(dollars in thousands) 1999 1998
-------- ------
customers $ 73,089 75,695
allowance for doubtful accounts (1,452) (1,244)
reserve for returns and allowances (1,134) (678)
-------- ------
$ 70,503 73,773
======== ======
16
4 INVENTORIES
A summary of inventories follows:
(dollars in thousands) 1999 1998
- ---------------------- ---- ----
inventories on the FIFO cost method
raw materials $ 40,728 45,319
work-in-process 6,790 6,608
finished goods 24,885 31,017
-------- ------
total inventories on the
FIFO cost method 72,403 82,944
adjustments of certain inventories
to the LIFO cost method (1,478) (2,364)
adjustments of certain inventories
to market (3,855) (1,986)
-------- ------
$ 67,070 78,594
======== ======
5 PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment follows:
depreciable lives
(dollars in thousands) (in years) 1999 1998
- ---------------------- ---------- ---- ----
land and improvements 10 $ 2,227 2,205
buildings and improvements 7-40 30,098 21,548
leasehold improvements 7-10 2,511 1,544
machinery and equipment 3-12 182,189 162,070
office furniture and equipment 3-10 15,548 13,508
capital projects in progress 2,788 23,659
--------- -------
235,361 224,534
accumulated depreciation (112,051) (95,729)
--------- -------
$ 123,310 128,805
========= =======
6 GOODWILL
A summary of goodwill follows:
(dollars in thousands) 1999 1998
- ---------------------- ---- ----
goodwill $ 55,547 58,351
accumulated amortization (4,278) (3,189)
-------- ------
$ 51,269 55,162
======== ======
7 ACCOUNTS PAYABLE
A summary of accounts payable follows:
(dollars in thousands) 1999 1998
- ---------------------- ---- ----
accounts payable - trade $25,450 34,340
accounts payable - capital expenditures 237 2,874
------- ------
$25,687 37,214
======= ======
8 ACCRUED EXPENSES
A summary of accrued expenses follows:
(dollars in thousands) 1999 1998
- ---------------------- ---- ----
compensation and benefits $13,136 12,212
other 7,890 5,724
------- ------
$21,026 17,936
======= ======
9 INCOME TAXES
A summary of income taxes follows:
(dollars in thousands) 1999 1998 1997
- ---------------------- ---- ---- ----
current
federal $(1,508) 2,698 5,109
state (442) 493 881
Canadian 2,092 1,729 789
------- ----- -----
142 4,920 6,779
------- ----- -----
deferred
federal 612 563 (26)
state 279 102 (12)
Canadian 173 751 1,004
------- ----- -----
1,064 1,416 966
------- ----- -----
$ 1,206 6,336 7,745
======= ===== =====
Income before income taxes related to the company's Canadian operation for the
years ended May 2, 1999, May 3, 1998, and April 27, 1997 were $6,900,000,
$8,000,000 and $5,500,000, respectively.
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:
1999 1998 1997
---- ---- ----
federal income tax rate 35.0% 35.0% 35.0%
state income taxes, net of federal
income tax benefit (2.5) 1.8 2.6
exempt income of foreign
sales corporation (3.1) (6.4) (1.7)
other (1.4) (1.4) 0.1
---- ---- ----
28.0% 29.0% 36.0%
==== ==== ====
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities consist of the following:
(dollars in thousands) 1999 1998
- ---------------------- ---- ----
deferred tax liabilities:
property, plant and equipment, net $(13,038) (10,526)
goodwill (2,431) (1,651)
other (108) (326)
-------- -------
total deferred tax liabilities (15,577) (12,503)
deferred tax assets:
accounts receivable 840 590
inventories 1,733 1,356
compensation 1,995 1,515
liabilities and reserves 1,841 1,673
alternative minimum tax 849 0
-------- -------
gross deferred tax assets 7,258 5,134
valuation allowance 0 0
-------- -------
total deferred tax assets 7,258 5,134
-------- -------
$ (8,319) (7,369)
======== =======
17
Deferred taxes are classified in the accompanying consolidated balance sheet
captions as follows:
(dollars in thousands) 1999 1998
- ---------------------- ---- ----
other current assets $ 6,264 3,858
deferred income taxes (14,583) (11,227)
-------- ------
$ (8,319) (7,369)
======== ======
At May 2, 1999, the company had an alternative minimum tax credit carryforward
of approximately $849,000 for federal income tax purposes. 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 $2,217,000 in 1999;
$5,218,000 in 1998; and $5,396,000 in 1997.
10 LONG-TERM DEBT
A summary of long-term debt follows:
(dollars in thousands) 1999 1998
- ---------------------- ---- ----
senior unsecured notes $ 75,000 75,000
industrial revenue bonds and
other obligations 35,278 34,787
revolving credit facility 25,000 30,000
revolving line of credit 0 6,000
obligations to sellers 6,712 9,850
--------- -------
141,990 155,637
current maturities (1,678) (3,325)
--------- -------
$ 140,312 152,312
========= =======
The senior unsecured notes have a fixed coupon rate of 6.76% and an average
remaining term of 9 years. The principal payments become due from March 2006 to
March 2010 with interest payable semi-annually.
The company's revolving credit agreement (the "Credit Agreement") provides an
unsecured multi-currency revolving credit facility, which expires in April 2002,
with a syndicate of banks in the United States. The Credit Agreement provides
for a revolving loan commitment of $88,000,000. The agreement requires payment
of a quarterly facility fee in advance. In October 1998, the company amended the
Credit Agreement to amend certain covenants. Additionally, the amendment
increased the interest rate 0.375% to LIBOR plus 1.125%. On borrowings
outstanding at May 2, 1999, the interest rate was 6.26%.
The company's $6,000,000 revolving line of credit expires on May 31, 2000.
However, the line of credit will automatically be extended for an additional
three-month period on each August 31, November 30, February 28 and May 31 unless
the bank notifies the company that the line of credit will not be extended. At
May 2, 1999, no borrowings were outstanding under the revolving line of credit.
The industrial revenue bonds (IRB) are generally due in balloon maturities
which occur at various dates from 2006 to 2013. All of the bonds bear interest
at variable rates of approximately 66% of the prime rate (prime at May 2, 1999
was 7.75%). The IRBs are collateralized by restricted investments of $3,340,000
and letters of credit for the outstanding balance of the IRBs and certain
interest payments due thereunder.
The company's loan agreements require, among other things, that the company
maintain compliance with certain financial ratios. At May 2, 1999, the company
was in compliance with these amended financial covenants.
At May 2, 1999, the company had three interest rate swap agreements with a
bank 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
The estimated amount at which the company could terminate these agreements as of
May 2, 1999 is approximately $478,000. Net amounts paid under these agreements
increased interest expense by approximately $308,000 in 1999; $232,000 in 1998;
and $301,000 in 1997. 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: 2000 - $1,678,000; 2001 - $1,678,000; 2002 - $27,051,000; 2003 -
$2,051,000; and 2004 - $373,000.
Interest paid during 1999, 1998 and 1997 totaled $9,579,000, $7,067,000, and
$4,834,000, respectively.
11 COMMITMENTS AND CONTINGENCIES
The company leases certain office, manufacturing and warehouse facilities and
equipment, primarily computer, and vehicles, 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 $7,440,000 in 1999, $6,065,000 in 1998; and $4,590,000 in
1997. Future minimum rental commitments for noncancellable operating leases are
$6,356,000 in 2000; $4,480,000 in 2001; $2,968,000 in 2002; $2,302,000 in 2003;
$1,825,000 in 2004; and $5,571,000 in later years.
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 approximately
$5,068,000 as of May 2, 1999.
18
12 STOCK OPTION PLANS
The company has a fixed stock option plan under which options to purchase common
stock may be granted to officers, directors and key employees. At May 2, 1999,
789,927 shares of common stock were authorized for issuance under the plan.
Options are generally exercisable one year after the date of grant and generally
expire beginning ten years after the date of grant.
No compensation cost has been recognized for this stock option plan as options
are granted under the plan at an option price not less than fair market value at
the date of grant.
A summary of the status of the plan as of May 2, 1999, May 3, 1998 and April
27, 1997 and changes during the years ended on those dates is presented below:
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
Weighted-Avg. Weighted-Avg. Weighted-Avg.
Shares Exercise Price Shares Exercise Price Shares Exercise Price
- -----------------------------------------------------------------------------------------------------------------------
Outstanding at beginning
of year 529,427 $12.30 407,228 $8.69 443,437 $ 7.46
Granted 209,375 7.62 187,250 18.89 82,250 12.61
Exercised (10,750) 3.28 (65,051) 8.63 (118,459) 6.81
Canceled/expired (6,000) 10.56 - - - -
- -----------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 722,052 11.09 529,427 12.30 407,228 8.69
======================================================================================================================
Options exercisable at year-end 522,052 12.42 453,427 10.97 336,228 7.91
Weighted-average fair value
of options granted
during the year $ 2.88 $ 6.72 $ 4.55
======================================================================================================================
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------------------------------------
Number Weighted-Avg. Number
Range of Outstanding Remaining Weighted-Avg. Exercisable Weighted-Avg.
Exercise Prices at 5/2/99 Contractual Life Exercise Price at 5/2/99 Exercise Price
- ---------------------------------------------------------------------------------------------------------
$ 2.82 - $ 7.50 108,052 3.4 years $ 4.60 108,052 $ 4.60
$ 7.63 - $ 7.63 200,000 9.4 7.63 0 0
$ 7.75 - $12.75 195,375 5.5 10.31 195,375 10.31
$13.34 - $20.94 218,625 6.1 18.17 218,625 18.17
- ---------------------------------------------------------------------------------------------------------
722,052 6.5 11.09 522,052 12.42
- ---------------------------------------------------------------------------------------------------------
During fiscal 1995, the company adopted a 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. The accelerated vesting provisions of this plan were achieved
and all options vested 45 days after the end of fiscal 1997 and, as a result,
the compensation expense recorded under APB Opinion No. 25 was approximately
$1,026,000 for the three-year period ended April 27, 1997. Since these options
were granted in fiscal 1995, the provisions of SFAS No. 123 are not applicable.
As of May 2, 1999, the 65,000 options outstanding under the plan have exercise
prices of $0.05 and a weighted-average remaining contractual life of 4.7 years.
Options exercised during fiscal 1999 and 1998 were 0 and 49,000, respectively.
During September 1997, the company's shareholders approved the 1997
performance-based option plan which provides for the one-time grant to certain
officers and certain senior managers of options to purchase 106,000 shares of
the company's common stock at $1.00 per share. Options under the plan are
exercisable on January 1, 2006 due to the company not achieving net income per
share of $1.50 for fiscal 1999. During fiscal 1999 and 1998, the compensation
expense recorded under APB Opinion No. 25 was $250,000 in each year.
As of May 2, 1999, the 106,000 options outstanding under the plan have
exercise prices of $1.00 and a weighted-average remaining contractual life of
7.7 years. The weighted-average fair value of the 106,000 options granted during
1998 was $19.10. Had compensation cost for this stock-based compensation
19
plan and the fixed stock option plan with 722,052 options outstanding at May 2,
1999 been determined consistent with SFAS No. 123, the company's net income, net
income per share and net income per share, assuming dilution would have been
reduced to the pro forma amounts indicated below:
(dollars in thousands,
except per share data) 1999 1998 1997
- ---------------------------------------------------------------------------
Net income As reported $3,102 15,513 13,770
Pro forma 2,827 15,377 13,637
- ---------------------------------------------------------------------------
Net income per share As reported $0.24 1.22 1.18
Pro forma 0.22 1.21 1.17
- ---------------------------------------------------------------------------
Net income per share, As reported $0.24 1.19 1.15
assuming dilution Pro forma 0.22 1.18 1.14
- ---------------------------------------------------------------------------
The fair value of each option grant is estimated on the date of grant using
the Black Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997, respectively: dividend yield
of 1.5%, 1% and 1%; risk-free interest rates of 5.4%, 5.5% and 5%; expected
volatility of 47%, 42% and 44%; and expected lives of 4 years, 5.3 years and 3
years.
13 BENEFIT PLANS
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 $1,091,000 in 1999; $1,103,000
in 1998; and $875,000 in 1997.
In addition to the defined contribution plan, the company has a nonqualified
deferred compensation plan covering officers and certain other associates. The
company's nonqualified plan liability of $4,044,000 and $3,059,000 at May 2,
1999 and May 3, 1998, respectively, is included in accrued expenses in the
accompanying consolidated balance sheets. The company also had assets related to
the nonqualified plan of $3,091,000 and $2,355,000 at May 2, 1999 and May 3,
1998, respectively, which are included in other assets in the accompanying
consolidated balance sheets.
14 SEGMENT INFORMATION
The company's operations are classified into two business segments: upholstery
fabrics and mattress ticking. The upholstery fabrics segment principally
manufactures and sells woven jacquards and dobbies, wet and heat-transfer
prints, and woven and tufted velvets primarily to residential and commercial
(contract) furniture manufacturers. The mattress ticking segment principally
manufactures and sells woven jacquards, heat-transfer prints and pigment prints
to bedding manufacturers.
International sales, of which 94%, 94%, and 91% were denominated in U.S.
dollars in 1999, 1998, and 1997, accounted for 23% of net sales in 1999, 29% in
1998, and 25% in 1997, and are summarized by geographic area as follows:
(dollars in thousands) 1999 1998 1997
- ------------------------------------------------------------------
North America (excluding USA) $31,102 31,160 27,479
Europe 19,578 30,775 25,245
Middle East 33,996 34,412 23,505
Asia and Pacific Rim 21,371 32,344 19,646
South America 3,484 5,158 2,604
All other areas 3,823 3,374 3,092
- ------------------------------------------------------------------
$113,354 137,223 101,571
==================================================================
In 1999, 1998 and 1997, no customer represented over 10% of consolidated net
sales. In addition, company assets located outside the United States are not
material for any of the three years presented.
The company internally manages and reports selling, general and administrative
expenses, interest expense, interest income, other expense and income taxes on a
total company basis. Thus, profit by business segment represents gross profit.
In addition, the company internally manages and reports cash and cash
investments, accounts receivable, other current assets, restricted investments,
property, plant and equipment, goodwill and other assets on a total company
basis. Thus, identifiable assets by business segment represent inventories.
Sales, gross profit and inventories for the company's operating segments are
as follows:
(dollars in thousands) 1999 1998 1997
Net sales
Upholstery Fabrics $387,644 389,430 324,197
Mattress Ticking 95,440 87,285 74,682
-------- ------- -------
$483,084 476,715 398,879
======== ======= =======
Gross profit
Upholstery Fabrics $52,286 61,922 56,994
Mattress Ticking 23,822 21,639 15,491
-------- ------- -------
$76,108 83,561 72,485
======== ======= =======
Inventories
Upholstery Fabrics $55,565 66,336 44,239
Mattress Ticking 11,505 12,258 9,224
-------- ------- -------
$67,070 78,594 53,463
======== ======= =======
20
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 $34,313,000
in 1999; $30,545,000 in 1998; and $27,549,000 in 1997. The amount due from this
customer at May 2, 1999 was approximately $4,517,000 and at May 3, 1998 was
approximately $2,413,000.
A director of the company is also an officer and director of the lessor of the
company's office facilities in High Point. Rent expense for the company's office
facilities was approximately $555,000 in 1999; $482,000 in 1998; and $436,000 in
1997.
Rents paid to entities owned by certain shareholders and officers of the
company and their immediate families were $752,000 in 1999; $724,000 in 1998;
and $680,000 in 1997.
16 FOREIGN EXCHANGE FORWARD CONTRACTS
The company generally enters into foreign exchange forward and option contracts
as a hedge against its exposure to currency fluctuations on firm commitments to
purchase certain machinery and equipment and raw materials. The company had $0
and $519,000 of outstanding foreign exchange forward and option contracts as of
May 2, 1999 and May 3, 1998, respectively (denominated in Belgian francs at May
3, 1998). Due to the short maturity of these financial instruments, the fair
values of these contracts approximate the contract amounts at May 2, 1999 and
May 3, 1998, respectively.
17 STOCK OFFERING
In February of 1997, the company completed the sale of 1,200,000 shares of
common stock at a per share price of $15 less commissions and expenses of
approximately $1,700,000 which resulted in net proceeds realized of
approximately $16,300,000. The net proceeds received from the offering were used
to reduce outstanding borrowings under the company's revolving credit line.
The stock offering also included 640,000 shares of common stock sold by two
non-management shareholders at a per share price of $15 less commissions of
approximately $576,000 which resulted in net proceeds realized of approximately
$9,024,000 by the selling shareholders.
21
SELECTED QUARTERLY DATA
fiscal fiscal fiscal fiscal fiscal fiscal
(amounts in thousands, 1999 1999 1999 1999 1998 1998
except per share amounts) 4th quarter 3rd quarter 2nd quarter 1st quarter 4th quarter 3rd quarter
- -------------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA (8)
net sales $132,165 112,093 128,159 110,667 135,834 118,457
cost of sales 109,324 92,911 107,685 97,056 112,644 97,554
- -------------------------------------------------------------------------------------------------------------------------------
gross profit 22,841 19,182 20,474 13,611 23,190 20,903
SG & A expenses 15,921 14,100 15,474 14,473 15,277 13,162
- -------------------------------------------------------------------------------------------------------------------------------
income (loss) from operations 6,920 5,082 5,000 (862) 7,913 7,741
interest expense 2,482 2,308 2,464 2,361 1,837 2,180
interest income (113) (10) (19) (53) (69) (73)
other expense 546 492 604 770 753 492
- -------------------------------------------------------------------------------------------------------------------------------
income (loss) before income taxes 4,005 2,292 1,951 (3,940) 5,392 5,142
income taxes 1,109 753 644 (1,300) 1,236 1,140
- -------------------------------------------------------------------------------------------------------------------------------
net income (loss) 2,896 1,539 1,307 (2,640) 4,156 4,002
- -------------------------------------------------------------------------------------------------------------------------------
EBITDA (4) $11,534 9,522 9,649 3,142 11,796 11,390
depreciation 4,764 4,587 4,822 4,376 4,148 3,791
cash dividends 423 455 455 455 453 444
- -------------------------------------------------------------------------------------------------------------------------------
weighted average shares outstanding 12,645 12,995 12,995 13,000 12,993 12,692
weighted average shares outstanding,
assuming dilution 12,742 13,124 13,120 13,203 13,284 12,986
- -------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA (8)
net income (loss) (7) $ 0.23 0.12 0.10 (0.20) 0.32 0.32
net income (loss), assuming dilution (7) 0.23 0.12 0.10 (0.20) 0.31 0.31
cash dividends 0.035 0.035 0.035 0.035 0.035 0.035
book value 10.54 10.02 9.94 9.87 10.11 9.58
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA (8)
working capital $99,324 95,712 102,336 103,406 102,730 104,026
property, plant and equipment, net 123,310 125,885 126,050 127,287 128,805 113,658
total assets 330,612 326,448 342,022 342,698 354,815 327,322
capital expenditures 2,189 2,057 3,585 2,858 7,696 8,967
long-term debt 140,312 140,210 150,210 154,383 152,312 144,079
funded debt (1) 138,650 138,472 148,479 153,559 151,616 141,223
shareholders' equity 127,326 130,208 129,124 128,272 131,519 121,613
capital employed (5) 265,976 268,680 277,603 281,831 283,135 262,836
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS & OTHER DATA (8)
gross profit margin 17.3% 17.1% 16.0% 12.3% 17.1% 17.6%
operating income (loss) margin 5.2 4.5 3.9 (0.8) 5.8 6.5
net income (loss) margin 2.2 1.4 1.0 (2.4) 3.1 3.4
EBITDA margin 8.7 8.5 7.5 2.8 8.7 9.6
effective income tax rate 27.7 32.9 33.0 33.0 22.9 22.2
funded debt-to-total capital ratio (1) 52.1 51.5 53.5 54.5 53.5 53.7
working capital turnover 4.3 4.4 4.4 4.5 4.7 4.7
days sales in receivables 49 47 52 48 49 52
inventory turnover 6.4 5.2 5.7 4.9 5.9 5.4
- -------------------------------------------------------------------------------------------------------------------------------
STOCK DATA
stock price
high $ 8.50 8.94 10.44 19.13 21.75 21.00
low 5.13 6.50 5.94 9.19 18.63 18.38
close 8.25 6.56 7.25 9.19 18.88 20.00
P/E ratio (2)
high 35.4 26.6 19.8 24.5 17.8 16.2
low 21.3 19.4 11.2 11.8 15.3 14.1
daily average trading
volume (shares) (6) 34.9 20.3 27.5 38.5 16.9 17.5
- -------------------------------------------------------------------------------------------------------------------------------
fiscal fiscal
(amounts in thousands, 1998 1998
except per share amounts) 2nd quarter 1st quarter
- ----------------------------------------------------------------
INCOME STATEMENT DATA (8)
net sales 122,926 99,498
cost of sales 100,191 82,765
- ----------------------------------------------------------------
gross profit 22,735 16,733
SG & A expenses 13,632 10,916
- ----------------------------------------------------------------
income (loss) from operations 9,103 5,817
interest expense 1,820 1,280
interest income (72) (90)
other expense 425 242
- ----------------------------------------------------------------
income (loss) before income taxes 6,930 4,385
income taxes 2,425 1,535
- ----------------------------------------------------------------
net income (loss) 4,505 2,850
- ----------------------------------------------------------------
EBITDA (4) 12,643 9,012
depreciation 3,613 3,256
cash dividends 446 443
- ----------------------------------------------------------------
weighted average shares outstanding 12,668 12,631
weighted average shares outstanding,
assuming dilution 12,980 12,929
- ----------------------------------------------------------------
PER SHARE DATA (8)
net income (loss) (7) 0.36 0.23
net income (loss), assuming dilution (7) 0.35 0.22
cash dividends 0.035 0.035
book value 9.30 8.98
- ----------------------------------------------------------------
BALANCE SHEET DATA (8)
working capital 98,833 88,969
property, plant and equipment, net 107,377 97,128
total assets 320,979 253,319
capital expenditures 10,063 9,153
long-term debt 139,991 96,016
funded debt (1) 131,833 87,930
shareholders' equity 118,005 113,537
capital employed (5) 249,838 201,467
- ----------------------------------------------------------------
RATIOS & OTHER DATA (8)
gross profit margin 18.5% 16.8%
operating income (loss) margin 7.4 5.8
net income (loss) margin 3.7 2.9
EBITDA margin 10.3 9.1
effective income tax rate 35.0 35.0
funded debt-to-total capital ratio(1) 52.8 43.6
working capital turnover 4.8 5.1
days sales in receivables 55 50
inventory turnover 6.1 5.8
- ----------------------------------------------------------------
STOCK DATA
stock price
high 22.19 18.63
low 17.38 16.50
close 19.00 17.63
P/E ratio (2)
high 17.8 15.3
low 13.9 13.5
daily average trading 13.9 15.8
volume (shares) (6)
- ----------------------------------------------------------------
(1) Funded debt includes long- and short-term debt, less restricted investments.
(2) P/E ratios based on trailing 12-month net income per share.
(3) Rayonese included in consolidated results from its March 6, 1995 acquisition
by Culp.
(4) EBITDA represents earnings before interest, income taxes, depreciation and
amortization.
(5) Capital employed includes funded debt and shareholders' equity.
(6) Culp's common shares were listed on the New York Stock Exchange on December
31, 1996.
(7) Net income per share data presented in accordance with SFAS No. 128 which
was adopted in 1998.
(8) Phillips, Wetumpka and Artee included in consolidated results from their
August 5, 1997, December 30, 1997 and February 2, 1998 acquisitions by Culp,
respectively.
22
SELECTED ANNUAL DATA
percent
change five-year
fiscal fiscal fiscal fiscal fiscal 1999- growth
(amounts in thousands, except per share amounts) 1999 1998 1997 1996 1995 1998 rate
- --------------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA (3) (8)
net sales $483,084 476,715 398,879 351,667 308,026 1.3% 14.5%
cost of sales 406,976 393,154 326,394 289,129 253,345 3.5 15.0
- --------------------------------------------------------------------------------------------------------------------------------
gross profit 76,108 83,561 72,485 62,538 54,681 (8.9) 12.3
S G & A expenses 59,968 52,987 45,058 39,068 33,432 13.2 16.6
- --------------------------------------------------------------------------------------------------------------------------------
income from operations 16,140 30,574 27,427 23,470 21,249 (47.2) 1.8
interest expense 9,615 7,117 4,671 5,316 4,715 35.1 30.8
interest income (195) (304) (280) (92) (64) (35.9) 19.8
other expense 2,412 1,912 1,521 956 1,082 26.2 47.1
- --------------------------------------------------------------------------------------------------------------------------------
income before income taxes 4,308 21,849 21,515 17,290 15,516 (80.3) (18.5)
income taxes 1,206 6,336 7,745 6,310 5,741 (81.0) (22.5)
- --------------------------------------------------------------------------------------------------------------------------------
net income 3,102 15,513 13,770 10,980 9,775 (80.0) (16.6)
- --------------------------------------------------------------------------------------------------------------------------------
EBITDA (4) 33,847 44,841 39,404 35,610 32,052 (24.5) 7.8
depreciation 18,549 14,808 12,688 12,348 11,257 25.3 16.9
cash dividends 1,788 1,786 1,513 1,236 1,120 0.1 15.1
- --------------------------------------------------------------------------------------------------------------------------------
weighted average shares outstanding 12,909 12,744 11,624 11,234 11,203 1.3 3.1
weighted average shares outstanding,
assuming dilution 13,064 13,042 11,929 11,886 11,461 0.2 2.9
- --------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA (3) (8)
net income (7) 0.24 1.22 1.18 0.98 0.87 (80.3)% (19.0)%
net income, assuming dilution (7) 0.24 1.19 1.15 0.94 0.86 (79.8) (18.8)
cash dividends 0.14 0.14 0.13 0.11 0.10 0.0 11.8
book value 10.54 10.11 8.79 7.21 6.37 4.3 13.5
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA (3) (8)
working capital $99,324 102,730 69,777 56,953 38,612 (3.3)% 21.2%
property, plant and equipment, net 123,310 128,805 91,231 76,961 75,805 (4.3) 14.0
total assets 330,612 354,815 243,952 211,644 194,999 (6.8) 14.9
capital expenditures 10,689 35,879 26,958 14,385 18,058 (70.2) (8.6)
businesses acquired 0 58,816 0 0 10,455 (100.0) (100.0)
long-term debt 140,312 152,312 76,541 74,941 62,187 (7.9) 19.1
funded debt (1) 138,650 151,616 65,623 76,791 72,947 (8.6) 18.8
shareholders' equity 127,326 131,519 110,789 81,446 71,396 (3.2) 15.2
capital employed (5) 265,976 283,135 176,412 158,237 144,343 (6.1) 17.0
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS & OTHER DATA (3) (8)
gross profit margin 15.8% 17.5% 18.2% 17.8% 17.8%
operating income margin 3.3 6.4 6.9 6.7 6.9
net income margin 0.6 3.3 3.5 3.1 3.2
EBITDA margin 7.0 9.4 9.9 10.1 10.4
effective income tax rate 28.0 29.0 36.0 36.5 37.0
funded debt-to-total capital ratio (1) 52.1 53.5 37.2 48.5 50.5
return on average total capital 3.4 8.4 10.1 9.5 9.6
return on average equity 2.4 13.0 15.2 14.4 14.6
working capital turnover 4.3 4.7 5.3 5.3 5.6
days sales in receivables 49 49 49 46 47
inventory turnover 5.6 5.8 6.4 6.0 6.0
- -------------------------------------------------------------------------------------------------------------
STOCK DATA
stock price
high $19.13 22.19 19.63 13.25 12.50
low 5.13 16.50 11.50 7.75 7.25
close 8.25 18.88 16.63 13.00 9.75
P/E ratio (2)
high 79.6 18.2 16.6 13.5 14.3
low 21.3 13.5 9.7 7.9 8.3
daily average trading volume (shares) (6) 30.4 16.0 19.7 19.3 39.7
- -------------------------------------------------------------------------------------------------------------
(1) - (8) See selected quarterly data table footnote
23
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 May 2, 1999 and May 3, 1998, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the years
in the three-year period ended May 2, 1999. 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 May 2, 1999 and May 3, 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended May 2, 1999, in conformity with generally accepted accounting principles.
KPMG LLP
Charlotte, North Carolina
June 2, 1999
MANAGEMENT'S RESPONSIBILITY
The management of Culp, Inc. is responsible for the accuracy and consistency
of all the information contained in this Annual Report, including the financial
statements. These statements have been prepared to conform with generally
accepted accounting principles. The preparation of financial statements and
related data involves estimates and the use of judgment.
Culp, Inc. maintains internal accounting controls designed to provide
reasonable assurance that the financial records are accurate, that the assets of
the company are safeguarded, and that the financial statements present fairly
the financial position and results of operations of the company.
KPMG LLP, the company's independent auditors, conducts an audit in accordance
with generally accepted auditing standards and provides an opinion on the
financial statements prepared by management. Their report for 1999 is presented
above.
The Audit Committee of the Board of Directors reviews the scope of the audit
and the findings of the independent auditors. The internal auditor and the
independent auditors meet with the Audit Committee to discuss audit and
financial reporting issues. The Committee also reviews the company's principal
accounting policies, significant internal accounting controls, the Annual Report
and annual SEC filings (Form 10-K and Proxy Statement).
/s/Robert G. Culp, III
Robert G. Culp, III
Chairman and Chief Executive Officer
/s/Phillip W. Wilson
Phillip W. Wilson
Vice President and Chief Financial Officer
June 2, 1999
shareholder information
CORPORATE ADDRESS
101 South Main Street
Post Office Box 2686
High Point, NC 27261
Telephone: (336) 889-5161
Fax: (336) 887-7089
REGISTRAR AND TRANSFER AGENT
Equiserve
150 Royall Street
Canton, MA 02021
(781) 575-3951
Written shareholder correspondence and transfers should be sent to:
Equiserve
P.O. Box 8217
Boston, MA 02266-8217
AUDITORS
KPMG LLP
Charlotte, NC 28282
LEGAL COUNSEL
Robinson, Bradshaw & Hinson, PA
Charlotte, NC 28246
FORM 10-K AND QUARTERLY REPORTS/INVESTOR CONTACT
The Form 10-K Annual Report of Culp, Inc., as filed with the Securities and
Exchange Commission, is available without charge to shareholders upon written
request. Shareholders may also obtain copies of the corporate news releases
issued in conjunction with the company's quarterly results. These requests and
other investor contacts should be directed to Kathy J. Hardy, Corporate
Secretary, at the corporate address.
ANALYST COVERAGE
These analysts cover Culp, Inc.:
First Union Capital Markets
- John Baugh, CFA
C.L. King & Associates
- Tom Lewis
Raymond, James & Associates
- Budd Bugatch, CFA
Wachovia Securities, Inc.
- Kay Norwood, CFA
Value Line
- Noah Goldner
STOCK LISTING
Culp, Inc. common stock is traded on the New York Stock Exchange under the
symbol CFI. As of May 2, 1999, Culp, Inc. had approximately 2,700 shareholders
based on the number of holders of record and an estimate of the number of
individual participants represented by security position listings.
ANNUAL MEETING
Shareholders are cordially invited to attend the annual meeting to be held
Tuesday, September 21, 1999 at the Radisson Hotel; 135 South Main Street; High
Point, North Carolina.
EXHIBIT 22
LIST OF SUBSIDIARIES OF CULP, INC.
Culp International, Inc.
Incorporated in Virgin Islands
3096726 Canada Inc.
Incorporated under laws of Canada
Rayonese Textile Inc.
Incorporated under laws of Canada
Eexhibit 24(a)
CONSENT OF INDEPENDENT AUDITORS
--------------------------------
To the Board of Directors and Shareholders of Culp, Inc.:
We consent to incorporation by reference in the registration statement numbers
333-27519, 33-13310, 33-37027, 33-80206, and 33-62843 on Form S-8 of Culp, Inc.
of our report dated June 2, 1999, relating to the consolidated balance sheets of
Culp, Inc. and subsidiary as of May 2, 1999 and May 3, 1998, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the years in the three-year period ended May 2, 1999, which report is
incorporated by reference in the May 2, 1999 annual report on Form 10-K of Culp,
Inc.
KPMG LLP
Charlotte, North Carolina
July 28, 1999
Exhibit 25(a)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director of CULP,
INC., a North Carolina corporation, hereby constitutes and appoints PHILLIP W.
WILSON the true and lawful agent and attorney-in-fact to sign for the
undersigned as a director of the Corporation the Corporation's Annual Report on
Form 10-K for the year ended May 2, 1999 to be filed with the Securities and
Exchange Commission, Washington, D. C., under the Securities Exchange Act of
1934, as amended, and to sign any amendment or amendments to such Annual Report,
hereby ratifying and confirming all acts taken by such agent and
attorney-in-fact, as herein authorized.
/s/ Harry R. Culp
-------------
Harry R. Culp
Date: June 28, 1999
-------------
Exhibit 25(b)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director of CULP,
INC., a North Carolina corporation, hereby constitutes and appoints PHILLIP W.
WILSON the true and lawful agent and attorney-in-fact to sign for the
undersigned as a director of the Corporation the Corporation's Annual Report on
Form 10-K for the year ended May 2, 1999 to be filed with the Securities and
Exchange Commission, Washington, D. C., under the Securities Exchange Act of
1934, as amended, and to sign any amendment or amendments to such Annual Report,
hereby ratifying and confirming all acts taken by such agent and
attorney-in-fact, as herein authorized.
/s/ Howard L. Dunn, Jr.
--------------------
Howard L. Dunn, Jr.
Date: June 28, 1999
-------------
Exhibit 25(c)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director of CULP,
INC., a North Carolina corporation, hereby constitutes and appoints PHILLIP W.
WILSON the true and lawful agent and attorney-in-fact to sign for the
undersigned as a director of the Corporation the Corporation's Annual Report on
Form 10-K for the year ended May 2, 1999 to be filed with the Securities and
Exchange Commission, Washington, D. C., under the Securities Exchange Act of
1934, as amended, and to sign any amendment or amendments to such Annual Report,
hereby ratifying and confirming all acts taken by such agent and
attorney-in-fact, as herein authorized.
/s/ Robert T. Davis
-----------------
Robert T. Davis
Date: June 28, 1999
-------------
Exhibit 25(d)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director of CULP,
INC., a North Carolina corporation, hereby constitutes and appoints PHILLIP W.
WILSON the true and lawful agent and attorney-in-fact to sign for the
undersigned as a director of the Corporation the Corporation's Annual Report on
Form 10-K for the year ended May 2, 1999 to be filed with the Securities and
Exchange Commission, Washington, D. C., under the Securities Exchange Act of
1934, as amended, and to sign any amendment or amendments to such Annual Report,
hereby ratifying and confirming all acts taken by such agent and
attorney-in-fact, as herein authorized.
/s/ Earl M. Honeycutt
-----------------
Earl M. Honeycutt
Date: June 22, 1999
-------------
Exhibit 25(e)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director of CULP,
INC., a North Carolina corporation, hereby constitutes and appoints PHILLIP W.
WILSON the true and lawful agent and attorney-in-fact to sign for the
undersigned as a director of the Corporation the Corporation's Annual Report on
Form 10-K for the year ended May 2, 1999 to be filed with the Securities and
Exchange Commission, Washington, D. C., under the Securities Exchange Act of
1934, as amended, and to sign any amendment or amendments to such Annual Report,
hereby ratifying and confirming all acts taken by such agent and
attorney-in-fact, as herein authorized.
/s/ Patrick H. Norton
-----------------
Patrick H. Norton
Date: July 3, 1999
------------
Exhibit 25(f)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director of CULP,
INC., a North Carolina corporation, hereby constitutes and appoints PHILLIP W.
WILSON the true and lawful agent and attorney-in-fact to sign for the
undersigned as a director of the Corporation the Corporation's Annual Report on
Form 10-K for the year ended May 2, 1999 to be filed with the Securities and
Exchange Commission, Washington, D. C., under the Securities Exchange Act of
1934, as amended, and to sign any amendment or amendments to such Annual Report,
hereby ratifying and confirming all acts taken by such agent and
attorney-in-fact, as herein authorized.
/s/ Earl N. Phillips, Jr.
---------------------
Earl N. Phillips, Jr.
Date: June 28, 1999
--------------
Exhibit 25(g)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned director of CULP,
INC., a North Carolina corporation, hereby constitutes and appoints PHILLIP W.
WILSON the true and lawful agent and attorney-in-fact to sign for the
undersigned as a director of the Corporation the Corporation's Annual Report on
Form 10-K for the year ended May 2, 1999 to be filed with the Securities and
Exchange Commission, Washington, D. C., under the Securities Exchange Act of
1934, as amended, and to sign any amendment or amendments to such Annual Report,
hereby ratifying and confirming all acts taken by such agent and
attorney-in-fact, as herein authorized.
/s/ Franklin N. Saxon
-----------------
Franklin N. Saxon
Date: July 16, 1999
-------------
5
1000
12-MOS
MAY-02-1999
MAY-04-1998
MAY-02-1999
509
0
73,089
(2,586)
67,070
147,715
235,361
(112,051)
330,612
48,391
0
0
0
604
126,722
330,612
483,084
483,084
406,976
406,976
59,968
0
9,615
4,308
1,206
3,102
0
0
0
3,102
0.24
0.24
