SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended January 28, 1996
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)
(910) 889-5161
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to the filing requirements for at
least the past 90 days.
YES X NO
Common shares outstanding at January 28, 1996: 11,265,423
Par Value: $.05
<PAGE>
INDEX TO FORM 10-Q
January 28, 1996
Part I - Financial Information. Page
- ------------------------------------------ -------
Item 1. Consolidated Financial Statements:
Consolidated Statements of Income--Three and Nine Months Ended I-1
January 28, 1996 and January 29, 1995
Consolidated Balance Sheets--January 28, 1996, January 29, 1995, I-2
and April 30, 1995
Consolidated Statements of Cash Flows---Nine Months I-3
ended January 28, 1996 and January 29, 1995
Consolidated Statements of Shareholders' Equity I-4
Notes to Consolidated Financial Statements I-5
Sales by Business Unit I-9
Export and Foreign Sales by Geographic Area I-10
Sales by Business Unit - Trend Analysis I-11
Item 2. Management's Discussion and Analysis of Financial I-12
Condition and Results of Operation
Part II - Other Information
- -------------------------------------
Item 1. Legal Proceedings II-1
Item 2. Changes in Securities II-1
Item 3. Default Upon Senior Securities II-1
Item 4. Submission of Matters to a Vote of Security Holders II-1
Item 5. Other Information II-1
Item 6. Exhibits and Reports on Form 8-K II-1-II-5
Signatures II-6
<PAGE>
CULP, INC.
CONSOLIDATED INCOME STATEMENTS (Page 1 of 9)
FOR THE THREE AND NINE MONTHS ENDED JANUARY 28, 1996 AND JANUARY 29, 1995
(Amounts in Thousands, Except for Per Share Data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED (UNAUDITED)
------------------------------------------------------------------
Amounts Percent of Sales
--------------------------- ---------------------------
January 28, January 29, % Over
1996 1995 (Under) 1996 1995
----------- ---------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 86,476 77,791 11.2 % 100.0 % 100.0 %
Cost of sales 71,447 64,785 10.3 % 82.6 % 83.3 %
------------ ----------- ----------- -------------- -------------
Gross profit 15,029 13,006 15.6 % 17.4 % 16.7 %
Selling, general and
administrative expenses 9,639 8,295 16.2 % 11.1 % 10.7 %
------------ ----------- ----------- -------------- -------------
Income from operations 5,390 4,711 14.4 % 6.2 % 6.1 %
Interest expense 1,279 1,120 14.2 % 1.5 % 1.4 %
Interest income 0 (14) (100.0)% 0.0 % (0.0)%
Other expense (income), net 266 245 8.6 % 0.3 % 0.3 %
------------ ----------- ----------- -------------- -------------
Income before income taxes 3,845 3,360 14.4 % 4.4 % 4.3 %
Income taxes * 1,430 1,260 13.5 % 37.2 % 37.5 %
------------ ----------- ----------- -------------- -------------
Net income $ 2,415 2,100 15.0 % 2.8 % 2.7 %
============ =========== =========== ============== =============
Average shares outstanding 11,232 11,205 0.2 %
Net income per share $0.22 $0.19 15.8 %
Dividends per share $0.0275 $0.025 10.0 %
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED (UNAUDITED)
---------------------------------------------------------------------
Amounts Percent of Sales
------------------------- -------------------------
January 28, January 29, % Over
1996 1995 (Under) 1996 1995
----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales $ 249,505 222,585 12.1 % 100.0 % 100.0 %
Cost of sales 206,171 184,306 11.9 % 82.6 % 82.8 %
----------- ----------- ------------ ------------ ------------
Gross profit 43,334 38,279 13.2 % 17.4 % 17.2 %
Selling, general and
administrative expenses 27,768 24,227 14.6 % 11.1 % 10.9 %
----------- ----------- ------------ ------------ ------------
Income from operations 15,566 14,052 10.8 % 6.2 % 6.3 %
Interest expense 3,964 3,341 18.6 % 1.6 % 1.5 %
Interest income 0 (61) (100.0) % 0.0 % (0.0) %
Other expense (income), net 592 612 (3.3) % 0.2 % 0.3 %
----------- ----------- ------------ ------------ ------------
Income before income taxes 11,010 10,160 8.4 % 4.4 % 4.6 %
Income taxes * 4,080 3,810 7.1 % 37.1 % 37.5 %
----------- ----------- ------------ ------------ ------------
Net income $ 6,930 6,350 9.1 % 2.8 % 2.9 %
=========== =========== ============ ============ ============
Average shares 11,218 11,203 0.1 %
Net income per share $0.62 $0.57 8.8 %
Dividends per share $0.0825 $0.075 10.0 %
</TABLE>
* Percent of sales column is calculated as a % of income before income taxes.
I-1
<PAGE>
CULP, INC.
CONSOLIDATED BALANCE SHEETS
JANUARY 28, 1996, JANUARY 29, 1995 AND APRIL 30, 1995
(Unaudited, Amounts in Thousands)
<TABLE>
<CAPTION>
Amounts Increase
--------------------------------
January 28, January 29, (Decrease) * April 30,
------------------------
1996 1995 Dollars Percent 1995
---------- ---------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
Current assets
Cash and cash investments $ 1,841 317 1,524 480.8 % 1,393
Accounts receivable 43,642 40,547 3,095 7.6 % 44,252
Inventories 49,960 44,314 5,646 12.7 % 45,771
Other current assets 3,436 2,920 516 17.7 % 3,194
--------- -------- -------- ------------ --------
Total current assets 98,879 88,098 10,781 12.2 % 94,610
Restricted 0 1,602 (1,602) (100.0) % 795
investments
Property, plant & equipment, net 73,356 69,373 3,983 5.7 % 75,805
Goodwill 23,037 18,850 4,187 22.2 % 22,600
Other 2,432 1,215 1,217 100.2 % 1,189
assets
--------- -------- -------- ------------ --------
Total assets $ 197,704 179,138 18,566 10.4 % 194,999
========= ========= ======== ============ ========
Current Liabilities
Current maturities of long-term debt $ 11,555 6,100 5,455 89.4 % 11,555
Accounts payable 22,516 24,126 (1,610) (6.7) % 32,250
Accrued expenses 11,181 10,082 1,099 10.9 % 11,532
Income taxes payable 1,336 1,391 (55) (4.0) % 661
---------- ----------- --------- ------------- ---------
Total current liabilities 46,588 41,699 4,889 11.7 % 55,998
Long-term debt 68,112 65,711 2,401 3.7 % 62,187
Deferred income 5,381 3,477 1,904 54.8 % 5,418
taxes
---------- ------------ ---------- -------------- ----------
Total liabilities 120,081 110,887 9,194 8.3 % 123,603
Shareholders' 77,623 68,251 9,372 13.7 % 71,396
equity
---------- ------------ --------- ------------- ---------
Total liabilities and
stockholders' equity $ 197,704 179,138 18,566 10.4 % 194,999
========== ============ ========== ============== ==========
Shares outstanding 11,265 11,205 60 0.5 % 11,205
========== =========== ========= ============= =========
</TABLE>
* Derived from audited financial statements.
I-2
<PAGE>
CULP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
JANUARY 28, 1996 AND
JANUARY 29, 1995
(Unaudited, Amounts in
Thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------------
Amounts
-------------------------------------
January 28, January 29,
1996 1995
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,930 6,350
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation 9,278 8,237
Amortization of intangible assets 544 458
Provision for deferred income taxes (37) (272)
Changes in assets and liabilities:
Accounts receivable 610 (3,804)
Inventories (4,189) (7,718)
Other current assets (242) (421)
Other assets (1,343) (761)
Accounts payable (9,734) (4,340)
Accrued expenses (351) 1,924
Income taxes payable 675 755
----------------- -----------------
Net cash provided by (used in) operating activities 2,141 408
----------------- -----------------
Cash flows from investing activities:
Capital (7,710) (13,606)
expenditures
Purchases of restricted investments 0 (60)
Proceeds from sale of restricted investments 795 1,381
Business 0 0
acquired
----------------- -----------------
Net cash provided by (used in) investing activities (6,915) (12,285)
----------------- -----------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 10,500 20,000
Principal payments on long-term debt (4,575) (9,751)
Net increase (decrease) in bank overdrafts 0 0
Dividends (926) (840)
paid
Proceeds from sale of common stock 223 92
----------------- -----------------
Net cash provided by (used in) financing activities 5,222 9,501
----------------- -----------------
Increase (decrease) in cash and cash investments 448 (2,376)
Cash and cash investments at beginning of period 1,393 2,693
----------------- -----------------
Cash and cash investments at end of period $ 1,841 317
================= =================
</TABLE>
I-3
<PAGE>
Culp, Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited)
(Dollars in thousands, except per
share data)
<TABLE>
<CAPTION>
Capital
Contributed Total
Common Stock in Excess Retained Shareholders'
----------------------
Shares Amount of Par Value Earnings Equity
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, May 1, 1994 11,177,353 $ 558 $ 16,487 $ 45,604 $ 62,649
Cash dividends (1,120) (1,120)
($.10 per share)
Net income 9,775 9,775
Common stock issued in
connection with stock
option plan 27,413 2 90 92
--------------------------------------------------------------------------------------------------------------------
Balance, April 30, 1995 11,204,766 $ 560 $ 16,577 $ 54,259 $ 71,396
Cash dividends (926) (926)
($.0825 per share)
Net income 6,930 6,930
Common stock issued in
connection with stock
option plan 60,657 3 220 223
--------------------------------------------------------------------------------------------------------------------
Balance, January 28, 1996 11,265,423 $ 563 $ 16,797 $ 60,263 $ 77,623
====================================================================================================================
</TABLE>
I-4
<PAGE>
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The financial information included herein is unaudited; however, such
information reflects all adjustments which are, in the opinion of management,
necessary for a fair statement of results for the interim periods.
Certain amounts for fiscal year 1995 have been reclassified to conform with
the fiscal year 1996 presentation. Such reclassifications had no effect on net
income as previously reported. All such adjustments are of a normal recurring
nature.
The results of operations for the nine months ended January 28, 1996 are not
necessarily indicative of the results to be expected for the full year.
================================================================================
2. 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 (dollars in thousands):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
January 28, 1996 April 30, 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Customers $ 43,997 $ 44,014
Factors 528 1,314
Allowance for doubtful accounts (555) (739)
Reserve for returns and allowances (328) (337).
- -------------------------------------------------------------------------------------------------------------------
$ 43,642 $ 44,252
===================================================================================================================
</TABLE>
3. Inventories
Inventories are carried at the lower of cost of market. Cost is determined
for substantially all inventories using the LIFO (last-in, first-out) method.
A summary of inventories follows (dollars in thousands):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
January 28, 1996 April 30, 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 30,426 $ 25,385
Work-in-process 4,369 3,465
Finished goods 18,862 19,834
- -------------------------------------------------------------------------------------------------------------------
Total inventories valued at FIFO cost 53,657 48,684
Adjustments of certain inventories to the LIFO cost method (3,697) (2,913)
- -------------------------------------------------------------------------------------------------------------------
$ 49,960 $ 45,771
===================================================================================================================
</TABLE>
I-5
<PAGE>
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
4. Accounts Payable
A summary of accounts payable follows (dollars in thousands):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
January 28, 1996 April 30, 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bank overdraft $ -0- $ -0-
Accounts payable-trade 19,809 22,647
Accounts payable-capital expenditures 2,707 9,603
- -------------------------------------------------------------------------------------------------------------------
$ 22,516 $ 32,250
===================================================================================================================
</TABLE>
5. Accrued Expenses
A summary of accrued expenses follows (dollars in thousands):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
January 28, 1996 April 30, 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Compensation and benefits $ 5,438 $ 5,252
Acquisition costs 694 1,595
Other 5,049 4,685
- -------------------------------------------------------------------------------------------------------------------
$ 11,181 $ 11,532
===================================================================================================================
</TABLE>
6. Long-term Debt
A summary of long-term debt follows (dollars in thousands).
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
January 28, 1996 April 30, 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Industrial revenue bonds $ 15,712 $ 15,787
Revolving credit lline 20,500 10,000
Term loan 37,000 41,500
Subordinated note payable 1,000 1,000
Convertible note payable 5,455 5,455
- -------------------------------------------------------------------------------------------------------------------
79,667 73,742
Less current maturities (11,555) (11,555)
- -------------------------------------------------------------------------------------------------------------------
$ 68,112 $ 62,187
===================================================================================================================
</TABLE>
I-6
<PAGE>
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The company has a loan agreement 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.
In connection with the purchase of Rayonese Textile Inc., 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 loan agreements require, among other things, that the company
maintain certain financial ratios. At January 28, 1996, the company was in
compliance with these required covenants.
At January 28, 1996, the company had five interest rate swap agreements with
two banks in order to reduce its exposure to floating interest rates on a
portion of its variable rate borrowings.
The following table summarizes certain data regarding the interest rate
swaps:
notional amount interest rate expiration date
$ 2,500,000 6.4% July 1996
220,000 7.6% July 1996
15,000,000 7.3% April 2000
5,000,000 6.9% June 2002
5,000,000 6.6% July 2002
The estimated amount at which the company could have terminated these
agreements as of January 28, 1996 is approximately $1,250,000. Net amounts paid
under these agreements increased interest expense for the nine months ended
January 28, 1996 and January 29, 1995 by approximately $196,000 and $112,000,
respectively. 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.
================================================================================
7. Acquisition
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.
I-7
<PAGE>
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The preliminary estimated fair values of assets and retained liabilities
acquired are summarized below (dollars in thousands):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
March 6, 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Accounts receivable, net $ 2,195
Inventories 1,878
Other current assets 39
Property, plant and equipment 3,965
Goodwill 5,034
Accounts payable and accrued expenses (2,656)
- -------------------------------------------------------------------------------------------------------------------
$ 10,455
===================================================================================================================
</TABLE>
8. Cash Flow Information
Payments for interest and income taxes during the period were (dollars in
thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest $ 3,990 $ 3,401
Income taxes 3,148 3,055
========================================================================================================
</TABLE>
9. 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 does not engage in foreign currency speculation. Machinery and equipment
and raw material purchases hedged by foreign exchange forward or option
contracts are valued by using the exchange rate of the applicable foreign
exchange forward or option contract. At January 28, 1996, the company had
approximately $750,000 of foreign exchange forward or option contracts
outstanding.
I-8
<PAGE>
CULP, INC.
SALES BY BUSINESS UNIT
FOR THREE MONTHS AND NINE MONTHS ENDED JANUARY 28, 1996
AND JANUARY 29, 1995
(Amounts in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED (UNAUDITED)
----------------------------------------------------------------------------------------
Amounts Percent of Total Sales
---------------------------------------- ------------------------
January 28, January 29, % Over
Business Units 1996 1995 (Under) 1996 1995
- ------------------------------ ------------------- ------------------- ----------------- -------- -----------
<S> <C> <C> <C> <C> <C>
Upholstery Fabrics
Flat Wovens
Existing Culp $ 20,685 20,940 (1.2) % 23.9 % 26.9 %
Rossville/Chromatex 18,567 16,397 13.2 % 21.5 % 21.1 %
------------------- ------------------- ----------------- --------- ---------
39,252 37,337 5.1 % 45.4 % 48.0 %
Velvets/Prints 31,836 28,307 12.5 % 36.8 % 36.4 %
------------------- ------------------- ----------------- --------- ---------
71,088 65,644 8.3 % 82.2 % 84.4 %
Mattress Ticking 15,388 * 12,147 26.7 % 17.8 % 15.6 %
------------------- ------------------- ----------------- --------- ---------
$ 86,476 77,791 11.2 % 100.0 % 100.0 %
=================== =================== ================= ========= =========
NINE MONTHS ENDED (UNAUDITED)
--------------------------------------------------------------------------------------------------
Amounts Percent of Total Sales
----------------------------------------- ----------------------
January 28, January 29, % Over
Business Units 1996 1995 (Under) 1996 1995
- ------------------------------ ------------------- ------------------- ----------------- --------- ----------
Upholstery Fabrics
Flat Wovens
Existing Culp $ 60,984 63,387 (3.8) % 24.4 % 28.5 %
Rossville/Chromatex 51,885 47,295 9.7 % 20.8 % 21.2 %
------------------- ------------------- ----------------- --------- ----------
112,869 110,682 2.0 % 45.2 % 49.7 %
Velvets/Prints 87,440 75,390 16.0 % 35.0 % 33.9 %
------------------- ------------------- ----------------- --------- ----------
200,309 186,072 7.7 % 80.3 % 83.6 %
Mattress Ticking 49,196 * 36,513 34.7 % 19.7 % 16.4 %
------------------- ------------------- ----------------- --------- ----------
$ 249,505 222,585 12.1 % 100.0 % 100.0 %
=================== =================== ================= ========= ========
</TABLE>
* Includes Rayonese shipments of $1,910 for the three months and $5,732 for the
nine months. The percent increase in sales without Rayonese was 11.0% for the
three months and 19.1% for the nine months.
I-9
<PAGE>
CULP, INC.
EXPORT AND FOREIGN SALES BY GEOGRAPHIC AREA
FOR THREE MONTHS AND NINE MONTHS ENDED JANUARY 28, 1996
AND JANUARY 29, 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED (UNAUDITED)
-------------------------------------------------------------------------------------
Amounts Percent of Total Sales
------------------------- -----------------------
JANUARY 28, January 29, % Over
Geographic Area 1996 1995 (Under) 1996 1995
- ------------------------------------------- ----------- ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
North America (Excluding USA) $ 5,488 3,412 60.8 % 28.9 % 23.0 %
Europe 5,590 6,047 (7.6) % 29.5 % 40.8 %
Middle East 2,383 1,738 37.1 % 12.6 % 11.7 %
Far East & Asia 2,738 2,008 36.4 % 14.4 % 13.6 %
South America 320 490 (34.7) % 1.7 % 3.3 %
All other areas 2,451 1,123 118.3 % 12.9 % 7.6 %
----------- ----------- ----------- ---------- ---------
$ 18,970 * 14,818 28.0 % 100.0 % 100.0 %
=========== =========== =========== ========== =========
NINE MONTHS ENDED (UNAUDITED)
--------------------------------------------------------------------------------------
Amounts Percent of Total Sales
------------------------- -------------------------
JANUARY 28, January 29, % Over
Geographic Area 1996 1995 (Under) 1996 1995
- ------------------------------------------- ----------- ----------- ----------- ---------- ----------
North America (Excluding USA) $ 16,275 11,204 45.3 % 30.7 % 27.7 %
Europe 13,072 12,937 1.0 % 24.7 % 31.9 %
Middle East 7,933 4,506 76.1 % 15.0 % 11.1 %
Far East & Asia 7,578 6,139 23.4 % 14.3 % 15.2 %
South America 1,163 1,674 (30.5) % 2.2 % 4.1 %
All other areas 6,941 4,049 71.4 % 13.1 % 10.0 %
----------- ----------- ----------- ---------- ----------
$ 52,962 * 40,509 30.7 % 100.0 % 100.0 %
=========== =========== =========== ========== ==========
</TABLE>
* INCLUDES RAYONESE SHIPMENTS OF $1,910 FOR THE THREE MONTHS AND $5,732 FOR THE
NINE MONTHS. THE PERCENT INCREASE IN SALES WITHOUT RAYONESE WAS 15.1% FOR THE
THREE MONTHS AND 16.6% FOR THE NINE MONTHS.
I-10
<PAGE>
Culp, Inc.
SALES BY BUSINESS UNIT - TREND ANALYSIS
1994 vs 1995 vs 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
Fiscal 1994 Fiscal 1995 Fiscal 1996
Business Units Q1 Q2 Q3 Q4 TOTAL Q1 Q2 Q3 Q4 TOTAL Q1 Q2 Q3 Q4 TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Upholstery Fabrics
Flat Wovens
Culp Textures $17,444 20,073 19,673 21,127 78,317 19,613 22,834 20,940 21,738 85,125 17,584 22,715 20,685 60,984
Rossville/
Chromatex 0 0 14,330 16,717 31,047 15,140 15,758 16,397 16,470 63,765 15,358 17,960 18,567 51,885
17,444 20,073 34,003 37,844 109,364 34,753 38,592 37,337 38,208 148,890 32,942 40,675 39,252 0 112,869
Velvets/Prints 20,888 24,518 23,714 27,916 97,036 20,644 26,439 28,307 31,413 106,803 23,523 32,081 31,836 87,440
38,332 44,591 57,717 65,760 206,400 55,397 65,031 65,644 69,621 255,693 56,465 72,756 71,088 0 200,309
Mattress Ticking 8,251 9,395 9,531 11,472 38,649 10,952 13,414 12,147 15,820 52,333 15,892 17,916 15,388 49,196
$46,583 53,986 67,248 77,232 245,049 66,349 78,445 77,791 85,441 308,026 72,357 90,672 86,476 0 249,505
Percent increase(decrease) from prior year:
Business Units
Upholstery Fabrics
Flat Wovens
Culp Textures (6.5) (5.2) 3.8 0.3 (1.9) 12.4 13.8 6.4 2.9 8.7 (10.3) (0.5) (1.2) (3.8)
Rossville/
Chromatex N/A N/A N/A N/A N/A 100.0 100.0 14.4 (1.5) 105.4 1.4 14.0 13.2 9.7
(6.5) (5.2) 79.4 79.7 37.0 99.2 92.3 9.8 1.0 36.1 (5.2) 5.4 5.1 2.0
Velvets/Prints 7.4 16.5 10.0 8.3 10.5 (1.2) 7.8 19.4 12.5 10.1 13.9 21.3 12.5 16.0
0.6 5.7 42.5 40.4 23.1 44.5 45.8 13.7 5.9 23.9 1.9 11.9 8.3 7.7
Mattress Ticking 7.5 10.4 27.6 21.2 16.7 32.7 42.8 27.4 37.9 35.4 45.1 33.6 26.7 34.7
1.7 6.4 40.2 37.2 22.0 42.4 45.3 15.7 10.6 25.7 9.1 15.6 11.2 12.1
</TABLE>
I-11
<PAGE>
MANAGEMENT'S DISCUSSION AND 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.
Overview
For the three months ended January 28, 1996, net sales were $86.5 million, up
11% from $77.8 million in the year-earlier period. Net income for the quarter
totaled $2.4 million, or $0.22 per share, compared with $2.1 million, or $0.19
per share, for the third quarter of fiscal 1995. Of the increase of $8.7 million
in sales, $1.9 million was attributable to the contribution from Rayonese
Textile which was acquired during the fourth quarter of fiscal 1995. (See text
below.) The increase in sales, excluding that contribution, primarily reflected
increased exports of upholstery fabrics. Shipments of upholstery fabrics and
mattress ticking to U.S.-based manufacturers experienced a moderate increase
from a year ago. Increased exports also were a primary factor accounting for the
gain in sales for the nine months ended January 28, 1996 to $249.5 million, up
12% from $222.6 million in the first nine months of fiscal 1995. Sales to
U.S.-based customers have also increased through the nine months, but at a
slower rate than export sales. Although the historically low level of home
mortgage rates appears to support a positive outlook for the demand for home
furnishings, the uncertainty regarding consumer confidence is continuing to lead
manufacturers and retailers to contain inventories.
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 purchase 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 7
to the Consolidated Financial Statements.
I-12
<PAGE>
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.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
January 28, January 29, January 28, January 29,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 82.6 83.3 82.6 82.8
Gross profit 17.4 16.7 17.4 17.2
Selling, general and
administrative expenses 11.1 10.7 11.1 10.9
---- ---- ---- ----
Income from operations 6.2 6.1 6.2 6.3
Interest expense 1.5 1.4 1.6 1.5
Interest income 0.0 0.0 0.0 0.0
Other expense (income), net 0.3 0.3 0.2 0.3
---- ---- ---- ----
Income before
income taxes 4.4 4.3 4.4 4.6
Income taxes (*) 37.2 37.5 37.1 37.5
---- ---- ---- ----
Net Income 2.8% 2.7% 2.8% 2.9%
==== ==== ==== ====
</TABLE>
(*) Calculated as a percent of income before income taxes
Three And Nine Months Ended January 28, 1996 Compared With Three Months And Nine
Months Ended January 29, 1995
Sales by major business unit and export and foreign sales by geographic area for
the three and nine months are set forth in separate schedules on pages I-9 and
I-10.
Sales of upholstery fabrics for the third quarter were up $5.4 million from a
year ago. Although sales of flat wovens were up for the third quarter, sales of
these fabrics were essentially unchanged for the first nine months compared with
a year ago. Sales of velvets/prints were up 13% for the third quarter,
continuing the positive trend from the first half. The gain in sales of mattress
ticking
I-13
<PAGE>
for the third quarter primarily reflected higher shipments to existing accounts
and, to a lesser degree, a contribution of $1.9 million from Rayonese Textile,
which was acquired on March 6, 1995. Exports and international sales, consisting
primarily of upholstery fabrics, increased 28% for the quarter to $19.0 million
compared with $14.8 million in the year-earlier period. Sales of Rayonese
Textile are categorized by the company as exports and added to the increase on a
year-to-year basis for the third quarter and first nine months. The base of the
company's international customers is continuing to broaden, and sales to each
major geographic area except South America was up through the first nine months.
Gross profit increased as a percentage of net sales for the third quarter due
principally to higher capacity utilization in the velvets/prints business unit
and, to a lesser degree, to shipments of higher margin fabrics to export
customers. Additionally, a price increase was implemented during the second
quarter to offset the impact of higher prices for raw materials.
Selling, general and administrative expenses as a percentage of net sales rose
slightly for the third quarter and first nine months. Although the company is
continuing to emphasize cost-containment programs, planned increases in expenses
have occurred related to the design of new fabrics and to the company's
investment in increased marketing resources.
Net interest expense for the third quarter increased to $1.3 million compared
with $1.1 million in the year-earlier period. The increase for the quarter as
well as the first nine months principally reflected additional borrowings
related to funding the acquisition of Rayonese Textile, capital expenditures and
the higher levels of working capital needed to support the increase in sales.
The effective tax rate for the third quarter declined to 37.2% compared with
37.5%. The lower tax rate for the quarter and first nine months was primarily
due to a higher percentage of income from international operations which are
taxed at a lower rate.
Liquidity and Capital Resources
The company continues to maintain a sound financial position. Funded long- and
short-term debt increased to $79.7 million at the close of the third quarter, up
from $72.9 million at the close of fiscal 1995. As a percentage of total capital
(debt plus total shareholders' equity), the company's debt amounted to 50.6% as
of January 28, 1996, up slightly from the end of fiscal 1995. The company's
current ratio as of January 28, 1996 was 2.1 compared with 1.7 as of April 30,
1995. Shareholders' equity increased to $77.6 million as of January 28, 1996
compared with $71.4 million at the end of fiscal 1995.
I-14
<PAGE>
Because of seasonal factors, the company typically generates the majority of its
cash from operating activities during the second fiscal half. During the first
nine months of fiscal 1996, funds provided from operations totaled $2.1 million.
Borrowings of $10.5 million under a revolving credit agreement were used to fund
capital expenditures and scheduled long-term debt payments during the first nine
months.
The company's borrowings are through financing arrangements with two banks which
provide for a term loan of $44.0 million and a revolving credit agreement of
$33.5 million. As of January 28, 1996, the company had $13.0 million in
borrowings available under the revolving credit agreement.
Capital expenditures through the first nine months totaled $7.7 million. The
capital expenditure budget for the full year, which was increased during the
first half because of the acceleration of a major project, is $15.5 million. 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 the remainder of fiscal
1996.
The $5.5 million convertible note payable which was issued in connection with
the acquisition of the Rayonese Textile Inc. has been called by the holder. The
company plans to repay the note payable during March, 1996 with funds from its
bank credit facilities.
Inflation
The company is experiencing higher raw material costs as well as increases in
the expense of other operating items. Competitive conditions made it difficult
for the company to offset these higher costs, and operating profit margins
declined in both the first and second quarters. A price increase implemented
during the second quarter has helped improve the company's profitability, but
continuing pressure on margins may occur over the remainder of fiscal 1996 and
into fiscal 1997.
I-15
<PAGE>
Part II - OTHER INFORMATION
- -------------------------------------------
Item 1. Legal Proceedings
There are no legal proceedings that are required to be disclosed under
this item.
Item 2. Change in Securities
None
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report or incorporated
by reference.
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 15, 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 and
related Letter of Credit and Reimbursement Agreement
dated December 1, 1988 with First Union National Bank of
North Carolina were filed as Exhibit 10(n) to the
company's Form 10-K for the year ended April 29, 1989,
and are incorporated herein by reference.
II-1
<PAGE>
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, and related Letter of Credit and
Reimbursement Agreement dated November 1, 1988 with First
Union National Bank of North Carolina were filed as
exhibit 10(o) to the company's Form 10-K for the year
ended April 29, 1990, and are 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, and related Letter of Credit and
Reimbursement Agreement dated January 5, 1990 with First
Union National Bank of North Carolina 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, and
related Letter of Credit and Reimbursement Agreement
dated as of December 1, 1993 by and between the company
and First Union National Bank of North Carolina were
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) 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.
10(g) 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
II-2
<PAGE>
incorporated herein by reference.
10(h) Amendment and Restatement of the Employees'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(i) 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(j) 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(k) 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, and related Reimbursement and Security
Agreement dated as of December 1, 1993 between the
company and Wachovia Bank of North Carolina, National
Association 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(l) 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, and related First Amendment to Letter of
Credit and Reimbursement Agreement dated as of December
16, 1993 between First Union National Bank of North
Carolina and the company was filed as Exhibit 10(q) to
the company's Form 10-Q filed, filed on March 15, 1994,
and is incorporated herein by reference.
10(m) First Amendment to Loan Agreement dated as of December
16, 1993 by and between Chesterfield County, South
Carolina and the company, and related First Amendment to
Letter of Crecit and Reimbursement Agreement dated s of
December 16, 1993 by and between First Union National
Bank of North 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.
II-3
<PAGE>
10(n) Interest Rate Swap Agreements between company and
NationsBank of Georgia (formerly The Citizens and
Southern National Bank) dated July 14, 1989 were filed as
Exhibit 10(t) to the company's Form 10-K, filed on July
27, 1994, and are incorporated herein by reference.
10(o) 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.
10(p) 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(q) 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(r) 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(s) 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(t) 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(u) 1995 Amended and Restated Credit Agreement by and among
Culp, Inc., First Union National Bank of North Carolina
and Wachovia Bank of North Carolina, N.A., dated July 1,
1995 was filed as exhibit 10(y) to the company's Form
10-Q for the quarter ended July 30, 1995, filed on
September 12, 1995, and is
II-4
<PAGE>
incorporated herein by reference.
10(v) Copy of 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) Copy of 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) Copy of 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) Copy of 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) Copy of 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.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
The following report on Form 8-K was filed during the period covered by
this report:
(1) Form 8-K dated November 9, 1995, included under Item 5, Other
Events, disclosure of the company's press release for quarterly
earnings and the company's Financial Information Release relating
to the financial information for the second quarter ended October
29, 1995.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CULP, INC.
(Registrant)
Date: March 12, 1996 By: s/s Franklin N. Saxon
----------------------------------
Franklin N. Saxon
Vice President and
Chief Financial Officer
(Authorized to sign on behalf
of the registrant and also
signing as principal financial
officer
Date: March 12, 1996 By: s/s Stephen T. Hancock
----------------------------------
Stephen T. Hancock
General Accounting Manager
(Chief Accounting Officer)
II-6
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-28-1996
<PERIOD-START> MAY-01-1995
<PERIOD-END> JAN-28-1996
<CASH> 1,841
<SECURITIES> 0
<RECEIVABLES> 44,525
<ALLOWANCES> (883)
<INVENTORY> 49,960
<CURRENT-ASSETS> 98,879
<PP&E> 141,906
<DEPRECIATION> (68,550)
<TOTAL-ASSETS> 197,704
<CURRENT-LIABILITIES> 46,588
<BONDS> 0
563
0
<COMMON> 0
<OTHER-SE> 77,060
<TOTAL-LIABILITY-AND-EQUITY> 197,704
<SALES> 249,505
<TOTAL-REVENUES> 249,505
<CGS> 206,171
<TOTAL-COSTS> 206,171
<OTHER-EXPENSES> 592
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,964
<INCOME-PRETAX> 11,010
<INCOME-TAX> 4,080
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,930
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.62
</TABLE>
