(Photo of fabrics appear here along with the Culp logo)
1995 ANNUAL REPORT
<PAGE>
FABRICS FOR FURNISHINGS
(Full page photo of a living room appears here and on next page)
<PAGE>
CULP IS A FULLY INTEGRATED MARKETER OF FABRICS FOR THE FURNITURE, BEDDING
AND INSTITUTIONAL FURNISHINGS INDUSTRIES. CULP OPERATES 10 MANUFACTURING
PLANTS WITH A COMBINED TOTAL OF 2.2 MILLION SQUARE FEET IN NORTH AND SOUTH
CAROLINA, GEORGIA, PENNSYLVANIA AND CANADA. CULP PROVIDES REGIONAL DISTRIBUTION
FACILITIES IN AREAS WHERE CONSIDERABLE FURNITURE MANUFACTURING IS CONCENTRATED
INCLUDING HIGH POINT, NORTH CAROLINA; TUPELO, MISSISSIPPI; AND LOS ANGELES,
CALIFORNIA. CULP EMPLOYS APPROXIMATELY 2,650 ASSOCIATES. CULP'S COMMON SHARES
ARE TRADED ON THE NASDAQ STOCK MARKET (NATIONAL MARKET) UNDER THE SYMBOL CULP.
<PAGE>
(Photo of fabrics appears here)
DIVERSE MARKETS
FURNITURE INDUSTRY
(55% OF 1995 SALES) Culp is the second largest supplier of upholstery
fabrics in the United States. The company provides furniture manufacturers with
a broad product line of upholstery fabrics, including flat wovens (jacquard and
dobby) and velvets (woven, tufted and flock). Culp's business focus is providing
innovative fabric designs at good values with a consistently high level of
customer service.
BEDDING INDUSTRY
(17% OF 1995 SALES) Culp ranks among the top four suppliers of mattress
tickings to the highly concentrated bedding industry. The company markets a
broad variety of printed and damask tickings. Through creative designs utilizing
various fabrics and colors, Culp has helped promote the use of covers with a
more "fashion-conscious" look to differentiate mattress lines at retail.
OTHER MARKETING GROUPS
(28% OF 1995 SALES) Culp exports fabrics to foreign furniture manufacturers
and distributors (18% of 1995 sales) and also provides manufacturers of
institutional furnishings with coordinated packages of contract and upholstery
fabrics.
2
<PAGE>
HIGHLIGHTS
(Diamond) NET SALES FOR FISCAL 1995 reached a new high of $308.0 million.
Net income also set a new annual record of $9.8 million, or $0.87 per share,
up 26% from $0.69 per share in fiscal 1994.
(Diamond) THE ACQUISITION OF RAYONESE Textile Inc. in March 1995 expanded
Culp's customer base and enhanced the company's capacity for manufacturing wide
jacquard fabrics used for mattress ticking and comforters.
(Diamond) CULP'S QUARTERLY CASH dividends during fiscal 1995 totaled $0.10
per share, up 25% from the previous year.
(Diamond) IN JUNE 1995 THE BOARD increased the regular quarterly cash
dividend for the sixth consecutive year. The current indicated annual rate of
$0.11 per share represents a 10% increase over the previous annualized payout.
(Diamond) CAPITAL EXPENDITURES FOR fiscal 1995 reached a new annual total
of $18.1 million. Major initiatives included expanding the company's yarn
manufacturing and fabric weaving capabilities as well as strengthening the
company's information systems.
(Diamond) THE COMPANY'S FINANCIAL position remained sound at the close of
fiscal 1995 with a funded debt-to-capital ratio of 51%. Book value increased to
a new high of $6.37 per share.
(Diamond) ALTHOUGH DOWN FROM A YEAR ago, the price of Culp's shares at the
end of fiscal 1995 represented a 26% compound return over the past five years.
(Bar chart appears here with the following plot points:)
NET INCOME PER SHARE
91 92 93 94 95
$0.27 $0.27 $0.41 $0.69 $0.87
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1994 % CHANGE
<S> <C> <C> <C>
STATEMENTS OF INCOME
Net sales $ 308,026 245,049 25.7%
Gross profit 54,681 42,623 28.3
Income from operations 21,249 14,764 43.9
Net income 9,775 7,665 27.5
Average shares outstanding 11,203 11,076 1.1
PER SHARE
Net income $ 0.87 0.69 26.1%
Cash dividends 0.10 0.08 25.0
Book value 6.37 5.60 13.8
Year-end stock price 9.75 11.63 (16.2)
BALANCE SHEET
Working capital $ 38,612 37,949 1.7%
Total assets 194,999 164,948 18.2
Funded debt 72,947 58,639 24.4
Shareholders' equity 71,396 62,649 14.0
RATIOS
Gross profit margin 17.8 17.4 2.3%
Operating income margin 6.9 6.0 15.0
Net profit margin 3.2 3.1 3.2
Return on beginning equity 15.6 14.1 10.6
Funded debt to equity 102.2 93.6 9.2
Current ratio 1.7 1.9 (10.5)
</TABLE>
3
<PAGE>
(Photo of Robert C. (Rob) Culp, III and Howard L. Dunn, Jr. appears here)
LETTER TO SHAREHOLDERS
Record sales of $308 million, a 26% gain in earnings per share and another
strategic acquisition highlighted fiscal 1995 as a noteworthy year for Culp. New
quarterly highs in both sales and net income were set in each respective period
of the year. This represented a strong corporate performance both in terms of
absolute growth and relative to the results of other companies associated with
the furniture and home furnishings industry. Ironically, investors' concerns,
evidently fostered by recurring forecasts for a slowdown in consumer spending,
kept stock valuations for the group at very low historical levels during much of
our fiscal year. Although this situation was frustrating, our main focus has
remained on the longer-term return generated for the owners of Culp. We are
therefore gratified that the rise in the price of the company's shares over the
past five years has been double that of the industry as a whole and well above
the sizable gains in the popular stock market indices over the same period.
The accomplishments for fiscal 1995 included not only positive contributions
from newly acquired operations but also sound gains in existing product
categories. For the year as a whole, sales of mattress ticking and exports of
upholstery fabrics were especially strong. The inclusion of the
Rossville/Chromatex division for a full year also provided particular impetus to
the year-to-year growth. Our most recent acquisition, Rayonese Textile Inc., was
included for most of the fourth quarter; and that incremental business aided
results in the final period. A complete discussion of the financial developments
during fiscal 1995 is provided in the Management's Discussion and Analysis
starting on page 23, and we encourage you to read those comments which accompany
the audited consolidated financial statements.
Culp's results for fiscal 1995 marked the sixth consecutive year in which we
have achieved higher sales and net income. We are proud of that record which
reflects an earnest commitment throughout the organization to work smarter and
more productively. The strategic operational goal we have set is clear:
Establish Culp as
4
<PAGE>
the leading provider of upholstery fabrics and mattress ticking by utilizing
our resources as effectively as possible. In striving toward that objective, we
have had the benefit in recent years of a sustained resurgence in consumer
purchases of home furnishings. This, in turn, has led to increasing sales for
many retailers and manufacturers-an environment in which most companies in the
industry have done well. Although we too have prospered, our firm intent has
been not just to participate in the broad uptrend but to capitalize on
opportunities to enhance Culp's basic competitive stance, thereby supporting the
company's future expansion. The worldwide broadening of the company's customer
base testifies to the positive momentum we have established. The challenge is to
extend this leadership by recognizing changes now under way and serving as a
catalyst to make the industry more responsive to consumers who are continually
seeking more service, more value and more choices.
This presents a tough combination of demands-one that the home furnishings
industry is addressing through a number of initiatives. New retail concepts
abound with exciting new formats for presenting entire rooms and groupings of
furniture. Electronic ordering systems enable custom selection of styles and
colors and link stores directly with distribution centers and manufacturing
facilities to ensure fast delivery. Although the new retailing landscape is
proving successful, the capital necessary to support this marketing evolution in
home furnishings is, in turn, accelerating the consolidation already under way
at all levels of the distribution channel. Sales of the 100 largest, multi-store
furniture chains in 1994 are reported to have increased well more than twice the
gain for the industry as a whole. The annual survey from Furniture Today, a
leading trade publication, indicates that the top ten chains alone now capture
one of every six dollars spent on furniture, bedding and other home decorative
items. Among manufacturers the same pattern exists. The 25 largest furniture
manufacturers increased their share to 46% of all shipments in 1994, continuing
a long-term trend which has direct implications for Culp.
We have viewed this increasing concentration of resources as an exceptional
chance to establish high performance standards within the company and to expand
our market presence through strategic acquisitions. Fiscal 1995 represented the
first full year of inclusion of Rossville/ Chromatex, which we purchased in
November1993. The incremental sales from Rossville/Chromatex accounted for about
half of the total increase in sales Culp experienced for the full year. Equally
important, the effective merger of Rossville/Chromatex's marketing and
manufacturing capabilities into Culp has firmly established the company as the
second largest manufacturer of upholstery fabrics. In evaluating this
acquisition, we had identified considerable potential synergy between our
organizations. The results during fiscal 1995 soundly affirmed this perspective,
enabling us not only to increase our business with a number of the nation's
largest manufacturers but also to broaden Culp's presence with new accounts.
During fiscal 1995, we continued to consider other acquisition opportunities
and in March 1995 closed the purchase of Rayonese Textile Inc., a privately
owned manufacturer of fabrics for home furnishings based near Montreal, Canada.
The addition of Rayonese Textile Inc. has importantly expanded our line of woven
and printed fabrics. The more significant advantage we have gained from this
transaction, however, is the ability to integrate Rayonese's production capacity
for greige, or unfinished, goods into the flow of fabrics through our existing
mills. During fiscal 1996, we plan to start using Rayonese Textile Inc. as a
primary source for the fabrics we process and market as printed fabrics.
Achieving this step will involve a capital investment program of approximately
$6 million to meet Culp's future needs and to capitalize on the increasing
worldwide demand for wide jacquard fabrics used for large home furnishings items
such as mattress ticking and comforters. The majority of this investment relates
to the purchase and installation of state-of-the-art, air-jet jacquard looms
which should be fully operational by mid year.
The purchase of Rayonese Textile Inc. is the latest in a series of
acquisitions and product line expansions
(Bar graph appears here with the following plot points:)
NET INCOME
(Dollars in Thousands)
91 92 93 94 95
$2,901 $2,973 $4,501 $7,665 $9,775
5
<PAGE>
which extend back over 15 years. Our initial thrust in this corporate
program was to establish Culp's basic capabilities as a fully integrated
marketer of upholstery fabrics and mattress ticking. More recent transactions
have served principally to strengthen the Company's overall competitive
leadership. Integral to this activity has been a concerted effort to understand
customers' needs better and work ever closer with them and suppliers to build
true partnerships. The concept of value continues to emerge as a driving force.
Although easy to state, defining this term proves exceedingly complex. Offering
competitive prices and consistently meeting high quality standards is essential.
At Culp we must also satisfy the important attributes of design and styling to
ensure our fabrics indeed provide value. One of the key changes we have
implemented to accomplish this goal is adoption of a design-for-manufacture
approach in planning new fabrics. Very simply, this concept starts not with
design but with a careful assessment of the market in concert with customers. A
collaborative effort then follows between the design and manufacturing areas to
yield a marketable product truly appealing in value. Similar to the operational
quality programs now firmly in place at Culp, this approach toward marketing new
fabrics is one which demands ongoing measurement to ensure continual progress.
Financial gauges of Culp's operations confirm the success of the effort we
are steadfastly making to contain expenses and increase the return on the assets
we employ. Selling, general and administrative expenses in fiscal 1995 declined
for the third consecutive year as a percentage of net sales. Manufacturing
seconds were lower, and inventory turnover remained well above industry
standards even with the sharply higher level of sales. Although we had expected
capital
(Photo of living room appears here)
6
PHOTO COURTESY OF HAVERTYS FURNITURE
<PAGE>
expenditures for fiscal 1995 to be essentially unchanged from the previous
year, the decision to expand the capacity of Rayonese Textile Inc. contributed
to total spending of $18.1 million, a new annual high for Culp. Over the past
five years, the company's investment in new equipment and facilities has
amounted to $70 million. The magnitude of that commitment to maintain efficient
manufacturing facilities is shown by considering that our capital base (funded
debt plus equity) at the close of fiscal 1995 was $144 million.
For fiscal 1996, we expect a considerably lower level of spending because of
the completion of several modernization programs during the past year.
Culp's strong financial position continues to serve as a vital asset in our
corporate planning. Supported by the company's consolidated balance sheet and
favorable performance in fiscal 1995, the Board approved a 10% increase in the
quarterly cash dividend in June 1995. Culp's dividend has been increased in each
of the past six years, and the current indicated annual rate of $0.11 per share
is more than triple the corresponding rate five years ago, adjusted for the
three stock splits distributed over that period.
As we look ahead over the next several quarters, we find recent industry
reports confirming that a slowing has developed in consumer purchases of
furniture. This pattern, and perhaps more the concern that this trend may signal
a persistent turndown in demand, has caused furniture manufacturers to become
more cautious about forward commitments. We experienced tangible evidence of
this industrywide slow-down in the fourth quarter, and this softness in incoming
orders has carried over into the early part of fiscal 1996. Although the current
environment is affecting the company's short-term results, our fundamental
approach continues to be positioning Culp strongly as a leading supplier of
fabrics for the home furnishings industry.
Acknowledging the near-term uncertainty that exists, we remain confident
about the Company's longer term prospects. This optimism is grounded both in the
tangible measures of Culp's financial performance and in the enthusiasm and
dedication of the 2,650 associates who comprise Culp. We consider the energies
of our entire team to be the essential attribute that will ensure the success of
the company's future.
Sincerely,
(Signature of Robert C. (Rob) Culp, III appears here)
Robert C. (Rob) Culp, III
Chairman and Chief Executive
Officer
(Signature of Howard L. Dunn, Jr. appears here)
Howard L. Dunn, Jr.
President and Chief Operating
Officer
(Four bar charts appear here. The plot points are as follows:)
NET SALES
(Dollars in Thousands)
91 92 93 94 95
$174,107 $191,311 $200,783 $245,049 $308,026
CASH DIVIDENDS PER SHARE
91 92 93 94 95
$0.045 $0.049 $0.064 $0.080 $0.100
RETURN ON EQUITY
91 92 93 94 95
6.4% 6.2% 8.9% 14.1% 15.6%
CLOSING STOCK PRICE
91 92 93 94 95
$3.69 $5.23 $7.20 $11.63 $9.75
7
<PAGE>
FINANCIAL TABLE OF CONTENTS
CONSOLIDATED BALANCE SHEETS . . . . . . . . . . . . . . . . . . . . . . .10
CONSOLIDATED STATEMENTS OF INCOME . . . . . . . . . . . . . . . . . . . .11
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY . . . . . . . . . . . . .12
CONSOLIDATED STATEMENTS OF CASH FLOWS . . . . . . . . . . . . . . . . . 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . .14
REPORT OF INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . .21
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS . . . . . . . . . .22
MANAGEMENT'S DISCUSSION AND ANALYSIS . . . . . . . . . . . . . . . . . . 23
SELECTED QUARTERLY DATA . . . . . . . . . . . . . . . . . . . . . . . . 26
SELECTED ANNUAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . 27
CORPORATE AND SHAREHOLDER INFORMATION . . . . . . . . . . . . . . . . . 28
<PAGE>
FINANCIAL STATEMENTS
<PAGE>
CONSOLIDATED Balance Sheets
<TABLE>
<CAPTION>
APRIL 30, 1995 AND MAY 1, 1994 (DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA) 1995 1994
<S> <C> <C>
ASSETS
current assets:
cash and cash investments $ 1,393 2,693
accounts receivable 44,252 36,743
inventories 45,771 36,596
other current assets 3,194 2,227
total current assets 94,610 78,259
restricted investments 795 2,923
property , plant and equipment, net 75,805 64,004
goodwill 22,600 18,706
other assets 1,189 1,056
total assets $ 194,999 164,948
LIABILITIES AND SHAREHOLDERS' EQUITY
current liabilities:
current maturities of long-term debt $ 11,555 3,050
accounts payable 32,250 28,466
accrued expenses 11,532 8,158
income taxes payable 661 636
total current liabilities 55,998 40,310
long-term debt 62,187 58,512
deferred income taxes 5,418 3,477
total liabilities 123,603 102,299
commitments and contingencies (note 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 11 ,204,766 at April 30 , 1995 and
11 ,177,353 at May 1, 1994 560 558
capital contributed in excess of par value 16,577 16,487
retained earnings 54,259 45,604
total shareholders' equity 71,396 62,649
total liabilities and shareholders' equity $ 194,999 164,948
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
10
<PAGE>
CONSOLIDATED STATEMENTS OF Income
<TABLE>
<CAPTION>
FOR THE YEARS ENDED APRIL 30, 1995, MAY 1, 1994,
AND MAY 2, 1993 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA) 1995 1994 1993
<S> <C> <C> <C>
net sales $ 308,026 245,049 200,783
cost of sales 253,345 202,426 168,599
gross profit 54,681 42,623 32,184
selling, general and administrative expenses 33,432 27,858 24,203
income from operations 21,249 14,765 7,981
interest expense 4,715 2,515 1,409
interest income (64) (79) (29)
other expense 1,082 350 1
income before income taxes 15,516 11,979 6,600
income taxes 5,741 4,314 2,099
net income $ 9,775 7,665 4,501
net income per share $ 0.87 0.69 0.41
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
11
<PAGE>
CONSOLIDATED STATEMENTS OF Shareholders' Equity
<TABLE>
<CAPTION>
CAPITAL
FOR THE YEARS ENDED APRIL 30, 1995, COMMON COMMON CONTRIBUTED TOTAL
MAY 1, 1994, AND MAY 2, 1993 STOCK STOCK IN EXCESS OF RETAINED SHAREHOLDERS'
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) SHARES AMOUNT PAR VALUE EARNINGS EQUITY
<S> <C> <C> <C> <C>
balance, May 3, 1992 5,794,329 $ 290 15,340 35,021 50,651
cash dividends ($0.064 per share) (696) (696)
net income 4,501 4,501
common stock received in exchange
for common stock issued under
stock option plan (1,300) (5) (5)
common stock issued in connection
with stock option plan 14,300 70 70
five-for-four stock split 1,451,832 72 (72) -
balance, May 2, 1993 7,259,161 362 15,333 38,826 54,521
cash dividends ($0.08 per share) (887) (887)
net income 7,665 7,665
common stock issued in connection
with stock option plan, including
$484 of tax benefit 212,140 11 1,339 1,350
three-for-two stock split 3,706,052 185 (185) -
balance, May 1, 1994 11,177,353 558 16,487 45,604 62,649
cash dividends ($0.10 per share) (1,120) (1,120)
net income 9,775 9,775
common stock issued in connection
with stock option plan 27,413 2 90 92
balance, April 30, 1995 11,204,766 $ 560 16,577 54,259 71,396
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
12
<PAGE>
CONSOLIDATED STATEMENTS OF Cash Flows
<TABLE>
<CAPTION>
FOR THE YEARS ENDED APRIL 30, 1995, MAY 1, 1994 AND MAY 2,
1993
(DOLLARS IN THOUSANDS) 1995 1994 1993
<S> <C> <C> <C>
cash flows from operating activities:
net income $ 9,775 7,665 4,501
adjustments to reconcile net income to
net cash provided by operating activities:
depreciation 11,257 8,497 6,724
amortization of intangible assets 628 344 229
provision for deferred income taxes 1,373 1,118 272
changes in assets and liabilities, net of
effects
of businesses acquired:
accounts receivable (5,515) (1,839) (1,404)
inventories (7,281) (4,330) (3,407)
other current assets (310) (304) (104)
other assets (518) (389) (65)
accounts payable 2,319 7,023 (1,252)
accrued expenses 2,180 539 103
income taxes payable 25 (401) 617
net cash provided by operating
activities 13,933 17,923 6,214
cash flows from investing activities:
capital expenditures (18,058) (16,764) (11,938)
purchase of restricted investments (57) (3,593) 0
sale of restricted investments 2,185 670 0
businesses acquired (10,455) (38,205) 0
net cash used in investing
activities (26,385) (57,892) (11,938)
cash flows from financing activities:
proceeds from issuance of long-term debt 23,455 49,203 12,500
principal payments on long-term debt (11,275) (14,223) (2,735)
net decrease in bank overdrafts 0 0 (142)
dividends paid (1,120) (887) (696)
proceeds from common stock issued 92 1,350 65
net cash provided by financing
activities 11,152 35,443 8,992
increase (decrease) in cash and cash investments (1,300) (4,526) 3,268
cash and cash investments, beginning of year 2,693 7,219 3,951
cash and cash investments, end of year $ 1,393 2,693 7,219
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
13
<PAGE>
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.
BUSINESS SEGMENT
The company is a leading manufacturer and marketer of fabrics for the
furniture, bedding, and institutional furnishings markets.
FISCAL YEAR
The company's fiscal year is the 52 or 53 week period ending on the Sunday
closest to April 30. Fiscal years 1995, 1994 and 1993 included 52 weeks.
STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, the company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash investments.
ACCOUNTS RECEIVABLE
Substantially all of the company's accounts receivable are due from
manufacturers in the markets noted above. The company grants credit to
customers, a substantial number of which are located in the United States.
Management performs credit evaluations of the company's customers and
generally does not require collateral.
INVENTORIES
Principally all inventories are valued at the lower of last-in, first-out
(LIFO) cost or market. Information related to the first-in, first-out (FIFO)
method may be useful in comparing operating results to those of companies not
on LIFO. The LIFO valuation method had no effect on net income in 1995 and 1993
and decreased net income $73,000 ($.01 per share) in 1994 compared with the
FIFO method.
RESTRICTED INVESTMENTS
Restricted investments were purchased with proceeds from industrial revenue
bond issues and are invested pending application of such proceeds to project
costs or repayment of the bonds. The investments are stated at cost which
approximates market value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Depreciation is
generally computed using the straight-line method over the estimated useful
lives of the respective assets. Major renewals and betterments are capitalized.
Maintenance, repairs and minor renewals are expensed as incurred. When
properties are retired or otherwise disposed of, the related cost and
accumulated depreciation are removed from the accounts. Amounts received on
disposal less the book value of assets sold are charged or credited to income.
In 1993, the company changed its estimates of the useful lives of certain
property, plant and equipment. These changes were made to better reflect the
estimated periods during which these assets will remain in service. The change
had the effect of reducing depreciation expense by $1,490,000 and increasing net
income by $933,000 ($.09 per share) in 1993.
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.
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
The company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," effective May 3, 1993. The cumulative effect of
this accounting change was not material to the 1994 consolidated financial
statements. Under Statement No. 109, 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 at income tax rates expected
to be in effect when such amounts are realized or settled. Under Statement No.
109, the effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date.
For fiscal 1993 and prior years, the company accounted for income taxes
under APB Opinion No. 11.
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 income will continue to be
invested. At April 30, 1995, the cumulative amount of foreign undistributed
income was not material. Foreign tax credits may be available as a reduction of
United States income taxes in the event of such distributions.
14
<PAGE>
REVENUE RECOGNITION
Revenue is recognized when products are shipped to customers. Provision is
made currently for estimated product returns, claims and allowances.
INTEREST RATE SWAP AGREEMENTS
Interest rate swap agreements generally involve the exchange of fixed and
floating rate interest payment obligations without the exchange of the
underlying principal amounts. These agreements are used to effectively fix the
interest rates on certain variable rate borrowings. Net amounts paid or
received are reflected as adjustments to interest expense.
FORWARD CONTRACTS
Gains and losses related to qualifying hedges of firm commitments are
deferred and included in the measurement of the related foreign currency
transaction when the hedged transaction occurs.
PER SHARE DATA
Primary income per share is computed by dividing net income by the weighted
average number of common shares outstanding during each year, as restated for
stock splits (11,203,160 in 1995, 11,075,988 in 1994 and 10,874,622 in 1993).
Fully-diluted net income per share is not presented since conversion of the
convertible notes discussed in note 10 into common stock is not materially
dilutive.
RECLASSIFICATION
Certain items in the 1994 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 March 6, 1995, the company acquired Rayonese Textile Inc. (Rayonese), a
manufacturer of home furnishings fabrics based near Montreal, Canada. The
transaction has a preliminary estimated value of approximately $10.5 million and
included the purchase of 100% of the Rayonese common stock and the assumption of
Rayonese's funded debt.
The acquisition was accounted for as a purchase, and accordingly, the
purchase price has been allocated to the assets acquired and the liabilities
assumed based on their estimated fair values at the date of acquisition.
The preliminary estimated fair values of assets and retained liabilities
acquired are summarized below:
(DOLLARS IN THOUSANDS) MARCH 6, 1995
accounts receivable, net $ 1,994
inventories 1,894
other current assets 89
property , plant and equipment 5,000
goodwill 4,137
accounts payable and accrued expenses (2,659)
$ 10,455
The acquisition did not have a material effect on 1995 or 1994 net
sales, net income or net income per share.
On November 2, 1993, the company purchased the operations and assets
relating to an upholstery fabric business operating as Rossville Mills,
Chromatex and Rossville Velours (Rossville/Chromatex). The transaction was
valued at approximately $39.3 million and involved the purchase of assets for
cash, the repayment of Rossville/Chromatex debt and the assumption of certain
liabilities. The goodwill was approximately $18.9 million which is being
amortized on the straight-line method over 40 years. The acquisition was
accounted for as a purchase, and, accordingly, the net assets and operations of
Rossville/Chromatex have been included in the company's consolidated financial
statements since November 1, 1993.
3. ACCOUNTS RECEIVABLE
The company factors a portion of its accounts receivable on a nonrecourse
basis. The factoring arrangements are used solely for credit purposes, and not
for borrowing purposes. A summary of accounts receivable follows:
[S] [C] [C]
(DOLLARS IN THOUSANDS) 1995 1994
customers $ 44,014 33,346
factors 1,314 4,423
allowance for doubtful accounts (739) (631)
reserve for returns and allowances (337) (395)
$ 44,252 36,743
15
<PAGE>
4.INVENTORIES
A summary of inventories follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1995 1994
<S> <C> <C>
inventories on the FIFO cost method
raw materials $ 25,385 20,099
work-in-process 3,465 3,418
finished goods 19,834 15,102
total inventories on the FIFO cost method 48,684 38,619
adjustments of certain inventories to the LIFO cost
method (2,913) (2,023)
$ 45,771 36,596
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) DEPRECIABLE LIVES (IN YEARS) 1995 1994
<S> <C> <C> <C>
land and improvements 10 $ 958 622
buildings and improvements 7-40 12,793 9,533
leasehold improvements 7-10 1,242 1,243
machinery and equipment 3-12 101,427 80,582
office furniture and equipment 3-10 12,020 11,151
capital projects in progress 6,047 9,654
134,487 112,785
accumulated depreciation (58,682) (48,781)
$ 75,805 64,004
</TABLE>
6. GOODWILL
A summary of goodwill follows:
(DOLLARS IN THOUSANDS) 1995 1994
goodwill $ 23,337 18,943
accumulated amortization (737) (237)
$ 22,600 18,706
7. ACCOUNTS PAYABLE
A summary of accounts payable follows:
(DOLLARS IN THOUSANDS) 1995 1994
accounts payable-trade $ 22,647 21,023
accounts payable-capital expenditures 9,603 7,443
$ 32,250 28,466
8. ACCRUED EXPENSES
A summary of accrued expenses follows:
(DOLLARS IN THOUSANDS) 1995 1994
compensation and benefits $ 5,252 3,554
other 6,280 4,604
$ 11,532 8,158
16
<PAGE>
9. INCOME TAXES
A summary of income taxes follows:
(DOLLARS IN THOUSANDS) 1995 1994 1993
current
federal $ 3,473 2,420 1,587
state 699 383 240
4,172 2,803 1,827
deferred
federal 1,374 1,279 230
state 195 232 42
1,569 1,511 272
$ 5,741 4,314 2,099
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:
1995 1994 1993
federal income tax rate 34.1% 34.0 34.0
state income taxes,
net of federal income tax benefit 3.8 3.8 2.8
tax-exempt interest (0.1) (0.2) (0.1)
exempt income of foreign sales corporation (1.5) (1.4) (2.7)
amortization of property basis differences 0.0 0.0 (3.1)
other 0.7 (0.2) 0.9
37.0% 36.0 31.8
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) 1995 1994
deferred tax liabilities:
property , plant and equipment, net $ (5,625) (4,205)
goodwill (432) (144)
employee benefits (249) (108)
other (139) (148)
total deferred tax liabilities (6,445) (4,605)
deferred tax assets:
accounts receivable 357 240
inventories 81 103
compensation 475 167
liabilities and reserves 922 598
alternative minimum tax 699 959
gross deferred tax assets 2,534 2,067
valuation allowance 0 0
total deferred tax assets 2,534 2,067
$ (3,911) (2,538)
Deferred taxes are classified in the accompanying consolidated Balance Sheet
captions as follows:
(DOLLARS IN THOUSANDS) 1995 1994
other current assets $ 1,507 939
deferred income taxes (5,418) (3,477)
$ (3,911) (2,538)
Deferred income tax expense results from the following:
(DOLLARS IN THOUSANDS) 1993
depreciation $ 603
inventory valuation (168)
bad debts (74)
compensation and fringe benefits 11
other (100)
$ 272
At April 30, 1995, the company had an alternative minimum tax credit
carryforward of approximately $699,000 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 $4,071,000 in 1995;
$3,113,000 in 1994; and $1,204,000 in 1993.
17
<PAGE>
10. LONG-TERM DEBT
A summary of long-term debt follows:
(DOLLARS IN THOUSANDS) 1995 1994
industrial revenue bonds $ 15,787 15,929
revolving credit line 10,000 0
term loan 41,500 36,000
subordinated note payable 1,000 9,633
convertible note payable 5,455 0
73,742 61,562
current maturities (11,555) (3,050)
$ 62,187 58,512
The company entered into a loan agreement in April 1994 with two banks,
which provides for a $44,000,000 seven-year term loan and a $33,500,000
revolving credit line. The revolving credit line has a six-year term, or can be
terminated by either of the participating banks upon a thirteen-month notice to
the company. The term loan requires monthly installments of $500,000 which began
in December 1994, and a final payment of $6,500,000 on March 1, 2001. The
revolving credit line requires payment of an annual facility fee in advance.
Additionally, the term loan and the credit line require payment of interest on
any outstanding borrowings at an interest rate based on a spread over the one
month LIBOR (LIBOR at April 30, 1995 was 6.1%). Borrowings under the term loan
and revolving credit line are secured by all accounts receivable, work-in-
process and finished goods inventories, and property, plant and equipment not
already pledged under other borrowings.
The industrial revenue bonds (IRB) are collateralized by property, plant and
equipment with depreciated cost of approximately $10,994,000 and restricted
investments of $795,000 at April 30, 1995. Substantially all of the bonds are
due in one-time payments at various dates from 2008 to 2013, with interest at
variable rates at approximately 70% of the prime rate (prime at April 30, 1995
was 9.0%).
In connection with the Rossville/Chromatex acquisition (note 2), the company
has a subordinated note payable to the former owners with interest based on a
spread over the one month LIBOR. The note is payable on November 1, 1996.
In connection with the purchase of Rayonese Textile, Inc. (note 2), the
company issued a convertible note payable of $5,455,000 bearing interest at
6.0%. The note is payable on March 6, 1998 or upon 45 days notice to the
company by the holders starting on March 6, 1996 and is secured by the stock
and assets of Rayonese. Due to the holders' 45 day notice provision, the
convertible note is classified as a current maturity in the accompanying
consolidated financial statements. At the option of the holder after March 6,
1996, the note is convertible into the company's common stock at a conversion
price of $12.50 per share. The note is not redeemable at the option of the
company.
The company's bank and IRB loan agreements require, among other things, that
the company maintain certain financial ratios. At April 30, 1995, the company
was in compliance with these required financial covenants.
At April 30, 1995, the company had three interest rate swap agreements with
two banks in order to reduce its exposure to floating interest rates on a
portion of its variable rate borrowings.
The following table summarizes certain data regarding the interest rate
swaps:
NOTIONAL AMOUNT INTEREST RATE EXPIRATION DATE
$ 3,300,000 6.4% July 1996
$ 900,000 7.6% July 1996
$ 15,000,000 7.3% April 2000
The estimated amount at which the company could terminate these agreements
as of April 30, 1995 is approximately $126,000. Net amounts paid under these
agreements increased interest expense by approximately $138,000 in 1995;
$227,000 in 1994; and $283,000 in 1993. 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: 1996-$11,555,000; 1997-$7,100,000; 1998-$6,100,000; 1999-$6,075,000;
and 2000-$6,000,000, assuming that the revolving credit line remains outstanding
for its six year term. The 1996 principal payment requirement assumes the
convertible note payable is called under the holders' 45 day notice provision.
Interest paid during 1995, 1994 and 1993 totalled $4,668,000, $2,254,000 and
$1,388,000, respectively.
18
<PAGE>
11.COMMITMENTS AND CONTINGENCIES
The company leases certain office, manufacturing and warehouse facilities
and transportation and other equipment under noncancellable operating leases.
Lease terms range from five to ten years with renewal options for additional
periods ranging from five to fifteen years. The leases generally require the
company to pay real estate taxes, maintenance, insurance and other expenses.
Rental expense for operating leases, net of sublease income, was $2,486,000 in
1995; $2,021,000 in 1994; and $1,476,000 in 1993. Future minimum rental
commitments for noncancellable operating leases are $2,350,000 in 1996;
$2,070,000 in 1997; $1,605,000 in 1998; $1,163,000 in 1999; $842,000 in 2000;
and $472,000 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 $1,667,000 as
of April 30, 1995.
12.STOCK OPTION PLANS
The company has a stock option plan under which options to purchase common
stock may be granted to officers, directors and key employees. At April 30,
1995, 809,500 shares of common stock were reserved for issuance under the plan.
Options are granted under the plan at an option price not less than fair market
value at the date of grant. Options are generally exercisable one year after the
date of grant and generally expire beginning ten years after the date of grant.
Tax benefits from early disposition of the stock by optionees under incentive
stock options are credited to capital contributed in excess of par value. At
April 30, 1995, 369,721 shares were exercisable and 353,779 shares were
available for future grants. At May 1, 1994, 298,884 shares were exercisable and
551,616 shares were available for future grants.
Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES OUTSTANDING OPTION PRICE
GRANTED CANCELLED/EXPIRED EXERCISED AT YEAR-END PER SHARE
<S> <C> <C> <C> <C> <C>
1993 173,062 0 (26,812) 576,470 $2.82-$4.63
1994 98,269 0 (288,855) 385,884 $2.82-$14.03
1995 97,250 0 (27,413) 455,721 $2.82-$14.03
</TABLE>
During fiscal 1995, the company adopted a performance-based option plan
which provided for the one-time grant to officers and senior managers of options
to purchase 128,000 shares of the company's common stock at $.05 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 128,000
shares. Options under the plan are exercisable the earlier of January 1, 2003 or
approximately 45 days after the end of fiscal 1997 if the company achieves an
annual compound rate of growth in its primary income per share of 17% during the
three-year period ending April 28, 1997. At April 30, 1995, 121,000 options were
outstanding.
13.DEFINED CONTRIBUTION PLAN
The company has a defined contribution plan which covers substantially all
employees and provides for participant contributions on a pre-tax basis and
discretionary matching contributions by the company which are determined
annually. Company contributions to the plan were $771,000 in 1995 and $574,000
in 1994 and 1993.
19
<PAGE>
14. EXPORT SALES
Export sales, which are all denominated in U.S. dollars, accounted for 18%
of net sales in 1995 and 1994, and 21% in 1993 and are summarized by geographic
area as follows:
(DOLLARS IN THOUSANDS) 1995 1994 1993
Europe $ 18,579 17,334 18,253
North America
(excluding USA) 14,024 12,128 11,050
Far East and Asia 8,838 5,529 3,954
South America 2,213 1,248 1,053
Middle East 5,986 1,740 1,561
all other areas 6,459 6,059 5,600
$ 56,099 44,038 41,471
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
$20,484,000 in 1995; $15,464,000 in 1994; and $12,400,000 in 1993. The amount
due from this customer at April 30, 1995 was approximately $2,443,000 and at May
1, 1994 was approximately $800,000.
A director of the company is also a director of the company's lead bank, an
officer and director of one of the company's factors, and an officer and
director of the lessor of the company's office facilities in High Point. The
amount of factor commissions paid to the factor was approximately $55,000 in
1995; $158,000 in 1994; and $204,000 in 1993, and the amount due from the factor
at April 30, 1995 and May 1, 1994 was $808,000 and $1,977,000, respectively. The
amount of interest and other fees paid to the bank was approximately $2,039,000
in 1995; $1,555,000 in 1994; and $542,000 in 1993, and the loans payable to the
bank and amounts guaranteed through letters of credit by the bank at April 30,
1995 and May 1, 1994 aggregated $42,862,000 and $36,115,000, respectively. Rent
expense for the company's office facilities in High Point was approximately
$435,000 in 1995; $427,000 in 1994; and $400,000 in 1993.
Rents paid to entities owned by certain shareholders and officers of the
company and their immediate families were $670,000 in 1995; $630,000 in 1994;
and $599,000 in 1993.
16. FOREIGN EXCHANGE FORWARD CONTRACTS
The company generally enters into foreign exchange forward contracts as a
hedge against its exposure to currency fluctuations on firm commitments to
purchase certain machinery and equipment and raw materials. The Company does not
engage in foreign currency speculation. Machinery and equipment and raw material
purchases hedged by foreign exchange forward contracts are valued by using the
exchange rate of the applicable foreign exchange forward contract. The Company
had approximately $6,056,000 and $2,823,000 of outstanding foreign exchange
forward contracts at April 30, 1995 and May 1, 1994, respectively (primarily
denominated in German marks and Belgian and French francs). The contracts
outstanding at April 30, 1995 mature at various dates in fiscal 1996. The fair
values of these contracts were $6,553,000 and $2,937,000 at April 30, 1995 and
May 1, 1994, respectively. Fair values were estimated by obtaining quotes from
banks assuming all contracts were purchased on April 30, 1995 and May 1, 1994,
respectively.
20
<PAGE>
REPORT OF INDEPENDENT Auditors
To the Board of Directors and Shareholders of Culp, Inc.:
We have audited the accompanying consolidated balance sheets of Culp, Inc.
and subsidiary as of April 30, 1995 and May 1, 1994, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the years in the three-year period ended April 30, 1995. These consolidated
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Culp, Inc.
and subsidiary as of April 30, 1995 and May 1, 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended April 30, 1995, in conformity with generally accepted accounting
principles.
As discussed in note 1 to the consolidated financial statements, the company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes," in
1994.
(Signature of KPMG Peat Marwick appears here)
Greensboro, North Carolina
June 1, 1995
21
<PAGE>
MANAGEMENT'S Responsibility FOR FINANCIAL STATEMENTS
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 Peat Marwick 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 1995
appears on the preceding page.
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 accounting
policies, internal accounting controls, the Annual Report and all annual SEC
filings.
(Signature of Robert G. Culp, III appears here)
Robert G. Culp, III
Chairman and Chief Executive Officer
(Signature of Franklin N. Saxon appears here)
Franklin N. Saxon
Vice President and Chief Financial Officer
June 1, 1995
22
<PAGE>
MANAGEMENT'S Discussion & Analysis
The following analysis of the financial condition and results of operations
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto included elsewhere in this report.
GENERAL
The company's business, as well as general demand for upholstery fabrics
and mattress ticking, are cyclical in nature and can be significantly affected
by changes in overall economic conditions. The company believes the key
economic indicators influencing demand for its products are housing starts,
sales of existing homes, the level of consumer confidence, population
demographics, trends in disposable income and prevailing interest rates for
home mortgages. Industrywide demand for upholstery fabrics and mattress ticking
is directly related to sales of upholstered furniture and bedding (mattresses
and box springs).
OVERVIEW
For the fiscal year ended April 30, 1995, net sales were $308.0 million, up
26% from $245.0 million in fiscal 1995. Net income for fiscal 1995 was $9.8
million, or $0.87 per share, up from $7.7 million, or $0.69 per share, for
fiscal 1994. Of the increase of $63.0 million in net sales, $32.8 million was
attributable to the contribution for a full year of the Rossville/Chromatex
business unit which was purchased in November 1993 (see text below). The
increase in net sales, excluding that contribution, reflected higher shipments
of upholstery fabrics and mattress ticking to U.S.-based manufacturers and
increased exports of upholstery fabrics.
ROSSVILLE/CHROMATEX ACQUISITION
As of November 1, 1993, the company completed the purchase of the
upholstery fabric business operating as Rossville Mills, Chromatex and
Rossville Velours. The transaction was valued at $39.3 million and involved the
purchase of assets for cash and the assumption of certain liabilities related
to the business. The assets acquired are principally located in Rossville,
Georgia and West Hazelton, Pennsylvania.
The acquisition is described in more detail elsewhere in this report and in
the company's filings with the Securities and Exchange Commission on Form 8-K
filed November 16, 1993, and amendments to that filing on Form 8-K/A filed
January 15, 1994, and July 15, 1994. See also footnote 2 to the consolidated
financial statements.
RAYONESE TEXTILE INC. ACQUISITION
On March 6, 1995, the company completed the acquisition of Rayonese Textile
Inc. The transaction has a preliminary estimated value of approximately $10.5
million and includes the purchases of 100% of the Rayonese common stock and the
assumption of Rayonese's funded debt. The acquisition is described in more
detail elsewhere in this report and in the company's filing with the
Securities and Exchange Commission on Form 8-K filed December 23, 1994. Also
see footnote 2 to the Consolidated Financial Statements.
ANALYSIS OF OPERATIONS
The table below sets forth certain items in the Consolidated Statements of
Income as a percentage of net sales. Income taxes are expressed as a percentage
of income before income taxes.
PERCENT OF SALES
1995 1994 1993
Net sales 100.0 100.0 100.0
Cost of sales 82.2 82.6 84.0
Gross profit 17.8 17.4 16.0
Selling, general and
administrative expenses 10.9 11.4 12.0
Income from operations 6.9 6.0 4.0
Interest expense 1.5 1.0 0.7
Interest income (0.0) (0.0) 0.0
Other expense (income), net 0.4 0.1 0.0
Income before income taxes 5.0 4.9 3.3
Income taxes* 37.0 36.0 31.8
Net income 3.2 3.1 2.2
*INCOME TAXES ARE CALCULATED AS A PERCENT OF INCOME BEFORE INCOME TAXES.
FISCAL 1995 COMPARED WITH FISCAL 1994
Sales by business unit are set forth in the table below:
AMOUNTS PERCENT
BUSINESS UNITS 1995 1994 CHANGE
Upholstery Fabrics
Flat Wovens
Existing Culp 85,125 78,317 8.7%
Rossville/Chromatex 63,765 31,047 N/A
148,890 109,364 36.1%
Velvets/Prints 106,803 97,036 10.1%
255,693 206,400 23.9%
Mattress Ticking 52,333 38,649 35.4%
308,026 245,049 25.7%
The increase of $49.3 million in upholstery fabrics is attributable
primarily to the incremental sales of $32.8 million contributed by the
Rossville/Chromatex division which was acquired on November 1, 1993. Excluding
that contribution, the company's sales of upholstery fabrics increased $16.5
million, or 8.0%. Shipments of each business unit within upholstery fabrics were
up for the year. The sales gain in the Mattress Ticking business unit primarily
23
<PAGE>
reflected higher shipments to existing accounts and, to a lesser degree, the
success of programs to broaden the customer base. Sales of mattress ticking for
fiscal 1995 included $1.4 million from Rayonese Textile Inc. which was acquired
on March 6, 1995. Fiscal 1996 results will reflect the inclusion of a full year
of the results of Rayonese Textile Inc. Exports, consisting primarily of
upholstery fabrics, increased to $56.1 million, up 27% from fiscal 1994. This
category of sales represented 18% of total sales in 1995 and 21% of total sales
in 1994.
Gross profit for fiscal 1995 increased both in absolute dollars and as a
percentage of net sales. The Rossville/ Chromatex and Mattress Ticking business
units contributed significantly to those gains. Flat Wovens and Velvets/Prints
were up, although not as significantly. The company experienced increased raw
material prices during fiscal 1995 which were not entirely passed along to
customers through price increases.
Selling, general and administrative expenses declined as a percentage of net
sales for fiscal 1995. The lower ratio of expenses primarily reflects a
comprehensive program throughout the company to contain these costs and operate
more efficiently.
Interest expense for fiscal 1995 increased 88% to $4.7 million. The increase
principally reflected the full-year inclusion of the bank borrowings and
financing provided by the seller related to the acquisition of Rossville/
Chromatex and increased capital expenditures. Significantly higher prevailing
interest rates also contributed to the increase in interest expense for the
year.
Other expense for fiscal 1995 increased to $1.1 million compared with
$350,000 in fiscal 1994. The principal factors contributing to the increased
expense were amortization of goodwill related to the Rossville/Chromatex
acquisition and to higher debt issue costs.
The effective tax rate for fiscal 1995 increased to 37.0% compared with
36.0% in fiscal 1994.
As we look ahead over the next several quarters, we find recent industry
reports confirming that a slowing has developed in consumer purchases of
furniture. This pattern, and perhaps more the concern that this trend may signal
a persistent turndown in demand, has caused furniture manufacturers to become
more cautious about forward commitments. We experienced tangible evidence of
this industrywide slowdown in the fourth quarter, and this softness in incoming
orders has carried over into the early part of fiscal 1996. Although the current
environment is affecting the company's short-term results, our fundamental
approach continues to be positioning Culp strongly as a leading supplier of
fabrics for the home furnishings industry.
FISCAL 1994 COMPARED WITH FISCAL 1993
Sales by business unit are set forth in the table below:
AMOUNTS PERCENT
BUSINESS UNITS 1994 1993 CHANGE
Upholstery Fabrics
Flat Wovens
Existing Culp 78,317 79,837 (1.9)%
Rossville/Chromatex 31,047 - N/A
109,364 79,837 37.0%
Velvets/Prints 97,036 87,817 10.5%
206,400 167,654 23.1%
Mattress Ticking 38,649 33,129 16.7%
245,049 200,783 22.0%
The sales increase in upholstery fabrics is primarily attributable to the
incremental sales of $31.0 million contributed by the Rossville/Chromatex
division which was acquired on November 1, 1993. Excluding that contribution,
the company's sales from upholstery fabrics increased 4%. Sales of tufted and
woven velvets were up significantly during the year, but weakness in export
shipments to Europe led to a moderate decline in revenues from heat-transfer
prints. Increased shipments of pigment- and heat-transfer printed tickings
accounted for the higher sales of mattress ticking for the year. Export
shipments increased 6% to $44.0 million.
The increase in gross profit dollars and margins is primarily attributable
to the contribution from the Rossville/Chromatex business unit. Significant
improvements were realized in the profitability of the Mattress Ticking business
unit. These gains were offset in part by a lower return from heat-transfer
prints and jacquard upholstery fabrics.
Selling, general and administrative expenses declined as a percentage of
sales due principally to a reduction in marketing and credit expenses.
Interest expense increased $1.1 million, or 79%, for the year while interest
income increased $50,000. The higher interest expense related principally to the
Rossville/Chromatex acquisition which was funded through additional bank
borrowings and financing provided by the seller.
Other expense increased due to the recognition in fiscal 1993 of a gain of
$640,000 on sales of fixed assets. No similar gain was realized in fiscal 1994.
The effective tax rate increased for fiscal 1994 primarily because of
reduced property basis differences, higher state income taxes and less exempt
income associated with export sales, and higher pre-tax income.
LIQUIDITY AND CAPITAL RESOURCES
The company maintained a sound financial position during fiscal 1995. Funded
long- and short-term debt
24
<PAGE>
increased to $72.9 million at the close of fiscal 1995, up from $58.6
million a year earlier. As a percentage of total capital (funded debt plus total
shareholders' equity), the company's debt amounted to 51% as of April 30, 1995
compared with 48% as of May 1, 1994. The company's current ratio at the close of
fiscal 1995 was 1.7 compared with 1.9 a year earlier. Shareholders' equity
increased 14% to $71.4 million as of April 30, 1995 compared with $62.6 million
as of May 1, 1994.
Cash flows from operating activities totaled $13.9 million for fiscal 1995.
The primary factors contributing to operating cash flows were cash from earnings
(net income plus depreciation and amortization) of $21.7 million and an increase
in accounts payable related to capital expenditures. An increase of $7.3 million
in inventories, which is exclusive of inventories purchased with the Rayonese
acquisition, offset a portion of these sources of operating cash flows. The
issuance of $23.5 million of long-term debt contributed to a total of $11.2
million in net cash provided by financing activities during fiscal 1995. The
funds from operations and financing activities were used to fund capital
expenditures for fiscal 1995 of $18.1 million compared with $16.8 million for
fiscal 1994.
The company's borrowings are through financing arrangements with two banks
which provide for a term loan and a revolving credit agreement. During fiscal
1995, the term loan was increased by $8.0 million to $44.0 million to provide
funds to repay the subordinated note payable; and the borrowing limit under the
revolving credit agreement was raised by $6.5 million to $33.5 million. As of
April 30, 1995, the company had $23.5 million in borrowings available under the
revolving credit agreement.
The company's Board of Directors has approved a capital expenditure budget
of $11.0 million for fiscal 1996. The company believes that cash flows from
operations and funds available under existing credit facilities will be
sufficient to fund capital expenditures as well as financing needs related to
operations during fiscal 1996.
At April 30, 1995, the company had three interest rate swap agreements with
two banks to reduce its exposure to floating interest rates on a portion of its
variable rate borrowings.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement No. 112,
"Employers' Accounting for Postemployment Benefits." Under Statement No. 112,
the cost of postemployment benefits must be recognized on an accrual basis as
employees perform services to earn the benefits. The company implemented this
pronouncement during fiscal 1995, and the impact on the consolidated financial
statements was not material.
INFLATION
During fiscal 1995, the company experienced increases in its raw material
costs that were significantly greater than the increases in recent prior years.
Increases also were experienced in other operating costs such as manufacturing
supplies and spare parts. Market conditions have not allowed the company to pass
all of these cost increases along to customers through price increase for its
products. These factors created downward pressure on the company's profit
margins during the latter stages of fiscal 1995, and this pressure will continue
into fiscal 1996.
(Three bar charts appear here with the following plot points:)
RETURN ON TOTAL CAPITAL
91 92 93 94 95
6.4% 6.0% 7.4% 9.2% 9.6%
CAPITAL EXPENDITURES
(Dollars in Thousands)
91 92 93 94 95
$11,143 $12,396 $11,938 $16,764 $18,058
OPERATING INCOME MARGIN
91 92 93 94 95
2.9% 2.9% 4.0% 6.0% 6.9%
25
<PAGE>
SELECTED Quarterly Data
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL
1995 1995 1995 1995 1994 1994 1994 1994
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS) 4TH QUARTER 3RD QUARTER 2ND QUARTER 1ST QUARTER 4TH QUARTER 3RD QUARTER 2ND QUARTER 1ST QUARTER
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA (4) (5)
net sales $ 85,441 77,791 78,445 66,349 77,232 67,248 53,986 46,583
cost of sales 69,039 64,785 64,272 55,249 62,491 55,352 44,808 39,775
gross profit 16,402 13,006 14,173 11,100 14,741 11,896 9,178 6,808
selling, general and
administrative expenses 9,205 8,295 8,363 7,569 8,455 8,013 6,171 5,219
income from operations 7,197 4,711 5,810 3,531 6,286 3,883 3,007 1,589
interest expense 1,374 1,120 1,144 1,077 884 899 381 351
interest income (3) (14) (24) (23) (23) (11) (29) (16)
other expense (income), net 470 245 190 177 425 91 (120) (46)
income before income
taxes 5,356 3,360 4,500 2,300 5,000 2,904 2,775 1,300
income taxes 1,931 1,260 1,700 850 1,800 1,129 945 440
net income $ 3,425 2,100 2,800 1,450 3,200 1,775 1,830 860
depreciation $ 3,020 2,897 2,718 2,622 2,588 2,378 1,792 1,739
cash dividends 280 280 280 280 223 222 222 220
weighted average shares
outstanding 11,205 11,205 11,205 11,198 11,174 11,098 11,055 10,964
PER SHARE DATA (3) (4) (5)
net income $ 0.31 0.19 0.25 0.13 0.29 0.16 0.17 0.08
cash dividends 0.025 0.025 0.025 0.025 0.020 0.020 0.020 0.020
book value 6.37 6.09 5.93 5.70 5.60 5.30 5.18 5.03
BALANCE SHEET DATA (4) (5)
working capital $ 38,612 46,399 42,964 43,164 37,949 45,823 31,239 38,176
property , plant and equipment 75,805 69,373 68,848 66,535 64,004 60,333 48,295 45,846
total assets 194,999 179,138 178,404 1 64,585 164,948 158,993 106,007 104,058
capital expenditures 4,452 3,422 5,031 5,153 6,603 2,864 4,241 3,056
long-term debt 62,187 65,711 63,462 64,187 58,512 66,293 22,689 27,031
funded debt (1) 72,947 70,209 67,846 66,493 58,639 65,390 25,215 30,907
shareholders' equity 71,396 68,251 66,431 63,912 62,649 59,254 57,275 55,631
RATIOS & OTHER DATA (4) (5)
gross profit margin 19.2% 16.7% 18.1% 16.7% 19.1% 17.7% 17.0% 14.6%
operating income margin 8.4 6.1 7.4 5.3 8.1 5.8 5.6 3.4
net profit margin 4.0 2.7 3.6 2.2 4.1 2.6 3.4 1.8
effective income tax rate 36.1 37.5 37.8 37.0 36.0 38.9 34.1 33.8
debt-to-equity ratio (1) 102.2 102.9 102.1 104.0 93.6 110.4 44.0 55.6
working capital turnover 5.6 5.5 5.8 5.7 5.7 5.3 5.1 5.1
current ratio 1.7 2.1 2.0 2.3 1.9 2.5 2.2 3.0
days sales in receivables 47 44 50 42 43 44 45 42
inventory turnover 6.1 6.0 6.2 5.8 6.6 6.4 6.3 5.9
STOCK DATA (3)
stock price
high $ 9.75 10.50 9.25 12.50 16.25 17.33 9.33 10.83
low 8.50 8.75 7.50 7.25 11.00 8.75 5.67 7.08
close 9.75 9.50 8.75 8.75 11.63 16.00 9.33 7.83
P/E ratio (2)
high 11.2 12.3 11.2 17.0 23.6 27.4 17.4 25.0
low 9.7 10.3 9.1 9.8 16.0 13.9 10.6 16.3
trading volume (shares) 1,617 1,886 3,702 2,956 2,343 5,242 2,056 1,537
</TABLE>
(1) FUNDED DEBT INCLUDES LONG- AND SHORT-TERM DEBT, LESS RESTRICTED
INVESTMENTS.
(2) P/E RATIOS BASED ON TRAILING 12-MONTH INCOME PER SHARE.
(3) SHARE AND PER SHARE DATA ADJUSTED FOR STOCK SPLITS, EXCEPT FOR TRADING
VOLUME.
(4) ROSSVILLE/CHROMATEX INCLUDED IN CONSOLIDATED RESULTS FROM ITS NOVEMBER 1,
1993 ACQUISITION BY CULP.
(5) RAYONESE INCLUDED IN CONSOLIDATED RESULTS FROM ITS MARCH 6, 1995
ACQUISITION BY CULP.
26
<PAGE>
SELECTED Annual Data
<TABLE>
<CAPTION>
PERCENT
FISCAL FISCAL FISCAL FISCAL FISCAL CHANGE
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1995 1994 1993 1992 1991 1995/1994
INCOME STATEMENT DATA (5) (6)
<S> <C> <C> <C> <C> <C> <C>
net sales $ 308,026 245,049 200,783 191,311 174,107 25.7%
cost of sales 253,345 202,426 168,599 161,204 147,047 25.2
gross profit 54,681 42,623 32,184 30,107 27,060 28.3
selling, general and administrative expenses 33,432 27,858 24,203 24,597 22,001 20.0
income from operations 21,249 14,765 7,981 5,510 5,059 43.9
interest expense 4,715 2,515 1,409 1,421 1,555 87.5
interest income (64) (79) (29) (136) (536) (19.0)
other expense 1,082 350 1 288 292 209.1
income before income taxes 15,516 11,979 6,600 3,937 3,748 29.5
income taxes 5,741 4,314 2,099 964 847 33.1
net income 9,775 7,665 4,501 2,973 2,901 27.5
depreciation (4) $ 11,257 8,497 6,724 7,085 6,183 32.5
cash dividends 1,120 887 696 533 487 26.3
weighted average shares outstanding 11,203 11,076 10,875 10,827 10,788 1.1
PER SHARE DATA (3) (5) (6)
net income $ 0.87 0.69 0.41 0.27 0.27 26.1%
cash dividends 0.100 0.080 0.064 0.049 0.045 25.0
book value 6.37 5.60 5.01 4.66 4.45 13.8
BALANCE SHEET DATA (4) (5) (6)
working capital $ 38,612 37,949 34,942 26,665 32,445 1.7%
property , plant and equipment 75,805 64,004 44,529 39,315 34,315 18.4
total assets 194,999 164,948 106,548 93,195 88,732 18.2
capital expenditures 18,058 16,764 11,938 12,396 11,143 7.7
long-term debt 62,187 58,512 23,147 14,082 16,817 6.3
funded debt (1) 72,947 58,639 26,582 16,817 18,442 24.4
shareholders' equity 71,396 62,649 54,521 50,651 47,975 14.0
RATIOS & OTHER DATA (5) (6)
gross profit margin 17.8% 17.4% 16.0% 15.7% 15.5%
operating income margin 6.9 6.0 4.0 2.9 2.9
net profit margin 3.2 3.1 2.2 1.6 1.7
effective income tax rate 37.0 36.0 31.8 24.5 22.6
debt-to-equity ratio (1) 102.2 93.6 48.8 33.2 38.4
return on average total capital 9.6 9.2 7.4 6.0 6.4
return on beginning equity 15.6 14.1 8.9 6.2 6.4
working capital turnover 5.6 5.7 5.4 5.7 5.2
current ratio 1.7 1.9 2.3 2.0 2.6
days sales in receivables 47 43 43 43 49
inventory turnover 6.0 6.3 6.4 7.0 6.5
STOCK DATA (3)
stock price
high $ 12.50 17.33 7.33 5.59 4.00
low 7.25 5.67 3.60 3.28 2.57
close 9.75 11.63 7.20 5.23 3.69
P/E ratio (2)
high 14.3 25.1 17.7 20.4 14.9
low 8.3 8.2 8.7 11.9 9.5
trading volume (shares) 10,161 11,178 2,646 1,497 1,703
</TABLE>
(1) FUNDED DEBT INCLUDES LONG- AND SHORT-TERM DEBT, LESS RESTRICTED
INVESTMENTS.
(2) P/E RATIOS BASED ON TRAILING 12-MONTH INCOME PER SHARE.
(3) SHARE AND PER SHARE DATA ADJUSTED FOR STOCK SPLITS, EXCEPT FOR TRADING
VOLUME.
(4) DURING FISCAL 1993, THE COMPANY CHANGED ITS ESTIMATES OF THE USEFUL LIVES
OF CERTAIN PP&E.
(5) ROSSVILLE/CHROMATEX INCLUDED IN CONSOLIDATED RESULTS FROM ITS NOVEMBER 1,
1993 ACQUISITION BY CULP.
(6) RAYONESE INCLUDED IN CONSOLIDATED RESULTS FROM ITS MARCH 6, 1995
ACQUISITION BY CULP. 27
<PAGE>
CORPORATE AND SHAREHOLDER Information
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)
Andrew W. Adams
Senior Vice President, Manufacturing; Director (E)
Franklin N. Saxon
Vice President and Chief Financial Officer, Treasurer, Secretary;
Director (E)
Kenneth M. Ludwig
Vice President, Human Resources; Assistant Secretary
Baxter P. Freeze, Sr.
Director (A,C); Retired President, Chairman of the Board,
Commonwealth Hosiery Mills, Inc., Randleman, NC
Earl M. Honeycutt
Director (A,C); Retired President, Amoco Fabrics and Fibers
Company, Atlanta, GA
Bland W. Worley
Director (A,C,N); Retired Chairman of the Board and Chief
Executive Officer,
BarclaysAmericanCorporation, Charlotte, NC
Patrick H. Norton
Director (N); Senior Vice President, Sales and Marketing;
La-Z-Boy Chair Company, Monroe, MI
Judith C. Walker
Director
Charlotte, NC
Earl N. Phillips, Jr.
Director; Co-Founder and President, First Factors Corporation,
High Point, NC
BOARD COMMITTEES:
A-AUDIT
C-COMPENSATION
E-EXECUTIVE
N-NOMINATING
SHAREHOLDER INFORMATION
TRANSFER AGENT
Wachovia Bank of North Carolina, N.A.
Corporate Trust Department
P. O. Box 3001
Winston-Salem, North Carolina 27102
(800) 633-4236
GENERAL COUNSEL
Robinson, Bradshaw & Hinson, PA
Charlotte, NC 28246
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
Greensboro, NC 27401
MARKET MAKERS
Bridge Trading Company
Herzog, Heine, Geduld, Inc.
Interstate/Johnson Lane
Mayer & Schweitzer, Inc.
Nash Weiss/Div. of Shatkin Inv.
Neuberger & Berman
Raymond, James & Associates
Robinson-Humphrey Co., Inc.
Scott & Stringfellow
Sherwood Securities Corp.
Troster Singer Corp.
Wheat First Securities, Inc.
STOCK LISTING
Culp, Inc. common stock is traded on the Nasdaq Stock Market (National
Market) under the symbol CULP. As of April 30, 1995, the company had
approximately 2,800 shareholders based on the number of holders of record and an
estimate of the number of individual participants represented by security
position listings.
CORPORATE HEADQUARTERS
Culp, Inc.
101 South Main Street
Post Office Box 2686
High Point, NC 27261
(910) 889-5161
FORM 10K, OTHER INVESTOR INFORMATION
If you would like a copy of the Form 10K (Annual Report filed with the
Securities and Exchange Commission) or other information about Culp, please
contact Frank Saxon at the address listed above or at telephone number (910)
888-6266.
ANNUAL MEETING
Shareholders are cordially invited to attend the company's annual
meeting to be held
Tuesday, September 19, 1995 at 9:00 AM
in the Radisson Hotel,
135 South Main Street,
High Point, North Carolina.
28
<PAGE>
<PAGE>
CULP, INC.
101 SOUTH MAIN STREET
POST OFFICE BOX 2686
HIGH POINT
NORTH CAROLINA 27261
(910) 889-5161
<PAGE>
