SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 28, 2002
Commission File No. 0-12781
CULP, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-1001967
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or other organization)
101 S. Main St., High Point, North Carolina 27261-2686
(Address of principal executive offices) (zip code)
(336) 889-5161
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange
------------------- On Which Registered
-------------------
Common Stock, par value $.05/ Share New York Stock Exchange
Rights for Purchase of Series A Participating New York Stock Exchange
Preferred Shares
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to the filing
requirements for at least the past 90 days. YES X NO ____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation SK is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of July 24, 2002, 11,482,959 shares of common stock were
outstanding. The aggregate market value of the voting stock held by
non-affiliates of the registrant on that date was $87,104,550 based on the
closing sales price of such stock as quoted on the New York Stock Exchange
(NYSE), assuming, for purposes of this report, that all executive officers
and directors of the registrant are affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Part III
Portions of the Company's Proxy Statement to be dated August 22, 2002
and filed pursuant to Regulation 14A of the Securities and Exchange
Commission in connection with its Annual Meeting of Shareholders to be held
on September 24, 2002 are incorporated by reference into Items 10, 11, 12 and
13.
CULP, INC.
FORM 10-K REPORT
TABLE OF CONTENTS
Item No. Page
- -------- ----
PART I
1. Business
Overview............................................................3
Segments............................................................4
Business Strategy...................................................5
Capital Expenditures................................................6
Overview of Industry................................................6
Overview of Residential Furniture Industry..........................6
Overview of Commercial Furniture Industry...........................7
Overview of Bedding Industry........................................7
Products............................................................8
Manufacturing......................................................10
Product Design and Styling.........................................10
Distribution.......................................................11
Sources and Availability of Raw Materials..........................11
Competition........................................................12
Technology.........................................................12
Environmental and Other Regulations................................13
Employees..........................................................13
Customers and Sales................................................13
Net Sales by Geographic Area.......................................14
Backlog............................................................14
2. Properties............................................................15
3. Legal Proceedings.....................................................16
4. Submission of Matters to a Vote of Security Holders...................16
PART II
5. Market for the Registrant's Common Stock
and Related Stockholder Matters.....................................16
6. Selected Financial Data...............................................17
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................18
7A. Quantitative and Qualitative Disclosures
About Market Risk...................................................28
8. Consolidated Financial Statements and Supplementary Data..............29
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..............................50
PART III
10. Directors and Executive Officers of the
Registrant..........................................................50
11. Executive Compensation................................................50
12. Security Ownership of Certain
Beneficial Owners and Management....................................50
13. Certain Relationships and Related
Transactions........................................................50
PART IV
14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K.............................................51
Documents filed as part of this report................................51
Exhibits..............................................................52
Reports on Form 8-K...................................................58
Financial Statement Schedules.........................................58
Signatures ...........................................................59
PART I
ITEM 1. BUSINESS
Overview
Culp, Inc. (the Company) manufactures and markets upholstery
fabrics and mattress tickings primarily for use in the furniture
(residential and commercial) and bedding industries. The Company's
executive offices are located in High Point, North Carolina. The
Company was organized as a North Carolina corporation in 1972 and made
its initial public offering in 1983. Since 1997, the Company has been
listed on the New York Stock Exchange and traded under the symbol "CFI."
Culp is one of the largest integrated marketers of furniture
upholstery fabrics and is a leading producer of mattress fabrics (known
as mattress ticking). The Company's fabrics are used principally in
the production of residential and commercial furniture and bedding
products, including sofas, recliners, chairs, loveseats, sectionals,
sofa-beds, office seating, panel systems and mattress sets. Culp
markets one of the broadest product lines in its industry, with a wide
range of fabric constructions, patterns, colors, textures and
finishes. This breadth is made possible by Culp's extensive
manufacturing capabilities that include a variety of weaving, printing
and finishing operations and the ability to produce various yarns and
unfinished base fabrics (known as greige goods) used in its products.
Although most of the Company's competitors emphasize one particular
type of fabric, Culp competes in every major category except leather.
Culp's staff of over 55 designers and support personnel utilize
computer aided design (CAD) systems to develop the Company's own
patterns and styles. Culp's product line currently includes more than
3,000 upholstery fabric patterns and 1,000 mattress-ticking styles.
Although Culp markets fabrics at most price levels, the Company has
emphasized fabrics that have a broad appeal in the "good" and "better"
price categories of furniture and bedding.
Culp markets its products worldwide, with sales to customers in
over 50 countries. Total net sales were $381.9 million in fiscal 2002,
and the Company's international sales totaled $53.5 million during
fiscal 2002. Shipments to U.S.-based customers continue to account for
most of the Company's sales. International sales accounted for 14% of
net sales for fiscal 2002 compared to 19% of net sales in fiscal 2001.
Culp has eleven (11) manufacturing facilities, with a combined
total of 2.1 million square feet, that are located in North Carolina
(7), South Carolina (2), Tennessee (1) and Quebec, Canada (1). The
Company's distribution system is designed to offer customers fast,
responsive delivery. Products are shipped directly to customers from
the Company's manufacturing facilities, as well as from three regional
distribution facilities strategically located in High Point, North
Carolina, Los Angeles, California, and Tupelo, Mississippi, which are
areas with a high concentration of furniture manufacturing.
Segments
The Company's operating segments are upholstery fabrics and
mattress ticking, with related divisions organized within those
segments. The divisions within upholstery fabrics are Culp Decorative
Fabrics, Culp Velvets/Prints and Culp Yarn. The division within
mattress ticking is Culp Home Fashions. Each division is accorded
considerable autonomy and is responsible for designing, manufacturing
and marketing its respective product lines. Significant synergies exist
among the divisions, including the sharing of common raw materials made
internally, such as polypropylene yarns, certain dyed and spun yarns,
greige goods and printed heat-transfer paper. Products manufactured at
one division's facility are commonly transferred to another division's
facility for additional value-added processing steps. The following
table sets forth certain information for each of the Company's
segments/divisions.
Culp's Segments/Divisions
-------------------------
FISCAL 2002 PRODUCT LINES
NET SALES (BASE CLOTH, IF
SEGMENT DIVISION (in millions) APPLICABLE)
------- -------- ------------- -----------
Upholstery Fabrics Culp Decorative Fabrics $152.5 Woven jacquards
Woven dobbies
Culp Velvets/Prints $119.1 Wet prints (flocks)(1)
Heat-transfer prints
(jacquard, flock)
Woven velvets
Tufted velvets (woven
polyester)
Culp Yarn $ 5.3 Pre-dyed spun yarns
Chenille yarns
Mattress Ticking Culp Home Fashions $105.0 Woven jacquards
Heat-transfer prints
(jacquard, knit, sheeting)
Pigment prints (jacquard,
knit, sheeting, non-woven)
(1) Discontinued April, 2002
Culp Decorative Fabrics. Culp Decorative Fabrics manufactures
and markets jacquard and dobby woven fabrics used primarily for
residential and commercial furniture. During 2002, the Company
continued a 2001 restructuring plan designed to increase efficiencies
and eliminate cost. The Company consolidated the operations from the
Monroe, North Carolina and West Hazleton, Pennsylvania facilities into
the remaining facilities, which had resulted in the closure of these
operations during fiscal 2001. Culp Decorative Fabrics' manufacturing
facilities are located in Burlington and Graham, North Carolina,
Pageland, South Carolina, and Chattanooga, Tennessee. Culp Decorative
Fabrics has become increasingly vertically integrated, complementing
its extensive weaving capabilities with the ability to extrude, dye and
texturize yarn. The designs marketed by Culp Decorative Fabrics range
from intricate, complicated patterns such as floral and abstract
designs to patterns associated with casual living styles that are
popular with motion furniture. Culp Decorative Fabrics accounts for
the majority of the Company's sales to the commercial furniture
market.
Culp Velvets/Prints. Culp Velvets/Prints manufactures and
markets a broad range of printed and velvet fabrics. These include
heat-transfer prints on jacquard and flock base fabrics, woven velvets
and tufted velvets. These fabrics typically offer manufacturers richly
colored patterns and textured surfaces. Recent product development
improvements in manufacturing processes have significantly enhanced the
quality of printed flock fabrics for use on residential furniture and
other upholstered products such as baby car seats. These fabrics are
manufactured at Burlington, North Carolina and Anderson, South
Carolina.
Culp Yarn. Culp Yarn manufactures and markets a variety of
pre-dyed spun yarns, including WrapSpun[TM], open-end spun and chenille
yarns. Culp Yarn operates manufacturing facilities in Shelby,
Cherryville, and Lincolnton, North Carolina. Most of the production of
Culp Yarn is used internally by other Culp divisions. The external
sales are directed to the upholstery fabric market. Culp Yarn has
provided Culp more control over its supply of spun and chenille yarns
and complemented the Company's increased emphasis on developing new
designs.
Culp Home Fashions. Culp Home Fashions principally markets
mattress ticking to bedding manufacturers. These fabrics encompass
woven jacquard ticking as well as heat-transfer and pigment-printed
ticking on a variety of base fabrics, including jacquard, knit,
poly/cotton sheeting and non-woven materials. Culp Home Fashions has
successfully blended its diverse printing and finishing capabilities
with its access to a variety of base fabrics to offer innovative
designs to bedding manufacturers for mattress products. Printed
jacquard fabrics offer customers better values with designs and
textures of more expensive fabrics. Jacquard greige goods printed by
Culp Home Fashions are primarily provided by the division's Rayonese
facility. Culp Home Fashions' manufacturing facilities are located in
Stokesdale, North Carolina and St. Jerome, Quebec.
Business Strategy
The Company's plan to maintain leadership in the global
upholstery fabric and mattress ticking segments is based on a business
strategy that includes three main initiatives:
Customer Service and Vertical Integration - continuing to enhance
the competitive value of its upholstery fabrics and mattress ticking
through a company-wide initiative to raise efficiency and improve
customer service. Important aspects of this program have included
attaining more consistent product quality, improving delivery standards
and offering more innovative designs. The Company's ability to realize
progress in these areas in the past has been aided significantly by
becoming more vertically integrated through capital expansion projects
and strategic acquisitions. Representative steps have included adding
capacity for producing unfinished jacquard greige goods, extruding
polypropylene yarn and most recently, manufacturing spun and specialty
yarn.
Broad Product Offering - continuing to market one of the broadest
product lines in upholstery fabrics and mattress ticking, consistent
with customer demand. Through its extensive manufacturing
capabilities, the Company competes in every major category except
leather.
Design Innovation - continuing to invest in personnel and other
resources for the design of upholstery fabrics and ticking with
appealing patterns and textures. An integral component of the value
Culp provides to customers is supplying fabrics that are fashionable
and meet current consumer preferences. The Company's principal design
resources are consolidated in a single facility that provides advanced
CAD systems and promotes a sharing of innovative designs among the
divisions.
Capital Expenditures
Since fiscal 1996, the Company has invested $108.8 million in
capital expenditures to expand its manufacturing capacity, install more
efficient production equipment and vertically integrate its
operations. These expenditures have included, among other things, the
installation of narrow and wide-width weaving machines and additional
printing equipment to support the growth in woven and printed
upholstery fabrics and mattress ticking. The Company spent
approximately $4.7 million in capital expenditures during fiscal 2002,
primarily for modernization. This level of capital spending was below
the $8.1 million in capital expenditures during fiscal 2001. Projects
to modernize existing facilities encompassed several investments in
looms and finishing equipment throughout the Company's operations. The
Company is currently planning on capital expenditures for fiscal 2003
of approximately $8.5 million, with about one-half allocated to
capacity expansion in its Culp Home Fashions division.
Overview of Industry
Culp markets products worldwide to a broad array of manufacturers
that operate in three principal markets and several specialty markets:
Residential furniture. This market includes upholstered
furniture sold to consumers. Products include sofas, sleep
sofas, chairs, motion/recliners, sectionals and occasional
furniture items.
Bedding. This market includes mattress sets as well as other
related home furnishings.
Commercial furniture. This market includes upholstered office
seating and modular office systems sold primarily for use in
offices (including home offices) and other institutional settings.
Specialty markets. These markets include juvenile furniture
(baby car seats and other baby items), hospitality (furniture
used in hotels and other lodging establishments), "top of the
bed" (comforters and bedspreads), outdoor furniture, recreational
vehicle seating, automotive aftermarket (slip-on seat covers),
retail fabric stores and specialty yarn.
Overview of Residential Furniture Industry
The upholstery fabric industry is highly competitive,
particularly among manufacturers in similar market niches. American
Furniture Manufacturers Association, a trade association, reports that
manufacturers of residential furniture in the United States shipped
products valued at approximately $23 billion (wholesale) during 2001.
Approximately 43% of this furniture is believed to consist of
upholstered products, an increase from the prior year. The upholstered
furniture market has grown from $5.4 billion in 1991 to $9.8 billion in
2001 (although down from $10.9 billion in 2000).
Trends in demand for upholstery fabric and mattress ticking
generally parallel changes in consumer purchases of furniture and
bedding. Factors influencing consumer purchases of home furnishings
include the number of household formations, growth in the general
population, the demographic profile of the population, consumer
confidence, employment levels, the amount of disposable income,
geographic mobility, housing starts and existing home sales. The
long-term trend in demand for furniture and bedding has been one of
moderate growth, although there have been some occasional periods of a
modest downturn in sales due principally to changes in economic
conditions.
The Company believes that demographic trends support the outlook
for continued long-term growth in the U.S. residential furniture and
bedding industries. In particular, as "baby boomers" (people born
between 1946 and 1964) mature to the 35-to-64 year age range over the
next decade, they will be reaching their highest earning power.
Consumers in these age groups tend to spend more on home furnishings,
and the increasing number of these individuals favors higher demand for
furniture and related home furnishings. Statistics also show that the
average size of new homes has increased in recent years, and that is
believed to have resulted in increased purchases of furniture per home.
There is an established trend toward consolidation at all levels
within the home furnishings industry. Furniture/Today has reported
that the ten largest residential furniture manufacturers, accounted for
41% of the industry's total shipments in 2001, up from a 23% share in
1985. This trend is expected to continue, particularly because of the
need to invest increasing capital to maintain modern manufacturing and
distribution facilities as well as to provide the sophisticated
computer-based systems and processes necessary to interface in the
supply chain between retailers and suppliers. This trend toward
consolidation is resulting in fewer, but larger, customers for
upholstery fabric manufacturers. The Company believes that this
environment favors larger upholstery fabric manufacturers capable of
supplying a broad range of product choices at the volumes required by
major furniture manufacturers on a timely basis.
Overview of Commercial Furniture Industry
The commercial furniture market in the United States represents
annual shipments by manufacturers valued at approximately $11.0 billion
in 2001, compared to $13.3 billion in 2000. Seating and office
systems, which represent the primary uses of upholstery in this
industry, represented annual sales of approximately $6.5 billion. At
the manufacturing level, the industry is highly concentrated. The top
five manufacturers of commercial furniture account for over 80% of
total industry shipments. Although demand for commercial furniture can
be affected by general economic trends and has slowed in the past year,
the historical pattern has been one of overall growth.
Dealers aligned with specific furniture brands account for over
half of industry shipments of commercial furniture. Some shift in the
distribution of commercial furniture has occurred in recent years in
conjunction with the growth in national and regional chains featuring
office supplies.
Overview of Bedding Industry
According to data compiled by the International Sleep Products
Association ("ISPA"), the domestic conventional bedding market, which
generated estimated wholesale revenues of $4.3 billion during calendar
year 2001, includes approximately 800 manufacturers of mattress sets.
The conventional bedding market accounts for approximately 90% of the
domestic bedding market. Approximately 74% of the conventional bedding
manufactured in the U.S. is sold to furniture stores and specialty
sleep shops. Most of the remaining 26% is sold to department stores,
national mass merchandisers, membership clubs and factory direct
stores. Approximately 70% of conventional bedding is sold for
replacement purposes and the average time lapse between mattress
purchases is approximately 10 years.
Products
As described above, the Company's products include upholstery
fabrics and mattress ticking.
UPHOLSTERY FABRICS. The Company derives the majority of its
revenues from the sale of upholstery fabrics primarily to the
residential and commercial (contract) furniture markets. Sales of
upholstery fabrics totaled 72.5% of sales for fiscal 2002. The Company
has emphasized fabrics and patterns that have broad appeal at
promotional to medium prices, generally ranging from $2.25 per yard to
$10.00 per yard.
MATTRESS TICKING. The Company also manufactures mattress ticking
(fabric used for covering mattresses and box springs) for sale to
bedding manufacturers. Sales of mattress ticking constituted 27.5% of
sales in fiscal 2002. The Company has emphasized fabrics and patterns
which have broad appeal at prices generally ranging from $1.20 to $8.50
per yard.
The Company's upholstery fabrics and mattress ticking can each be
broadly grouped under the three main categories of wovens, prints and
velvets. The following table indicates the product lines within each
of these categories, a brief description of their characteristics and
identification of their principal end-use markets.
Culp Fabric Categories
----------------------
Upholstery Fabrics Characteristics Principal Markets
- ------------------ --------------- -----------------
Wovens:
Jacquards Elaborate, complex designs such as florals and tapestries in Residential furniture
traditional, transitional and contemporary styles. Woven on Commercial furniture
intricate looms using a wide variety of synthetic and natural
yarns.
Dobbies Geometric designs such as plaids, stripes and solids in Residential furniture
traditional and country styles. Woven on less complicated Commercial furniture
looms using a variety of weaving constructions and primarily
synthetic yarns.
Prints:
Wet prints (1) Contemporary patterns with deep, rich colors on a nylon flock Residential furniture
base fabric for a very soft texture and excellent Juvenile furniture
wearability. Produced by screen printing directly onto the
base fabric.
Heat-transfer prints Sharp, intricate designs on flock or jacquard base fabrics. Residential furniture
Plush feel (flocks), deep colors (jacquards) and excellent Juvenile furniture
wearability. Produced by using heat and pressure to transfer
color from printed paper onto base fabric.
Velvets:
Woven velvets Basic designs such as plaids and semi-plains in traditional Residential furniture
and Contemporary styles with a plush feel. Woven with a
short-cut pile using various weaving methods and synthetic
yarns.
Tufted velvets Lower cost production process of velvets in which synthetic Residential furniture
yarns are punched into a base polyester fabric for texture.
Similar designs as woven velvets.
(1) Discontinued in April 2002
Mattress Ticking Characteristics Principal Markets
- ---------------- --------------- -----------------
Wovens:
Jacquards Florals and other intricate designs. Woven on complex looms Bedding
using a wide variety of synthetic and natural yarns.
Prints:
Heat-transfer prints Sharp, detailed designs. Produced by using heat and pressure Bedding
to transfer color from printed paper onto base fabrics,
including woven jacquards, knits and poly/cotton sheetings.
Pigment prints Variety of designs produced economically by screen printing Bedding
pigments onto a variety of base fabrics, including jacquards,
knits, poly/cotton sheeting and non-wovens.
=====================================================================================================================
Although fabrics marketed for upholstery applications and those
used for mattress ticking may have similar appearances, mattress
ticking must be manufactured on weaving and printing equipment in wider
widths to accommodate the physical size of box springs and mattresses.
The Company's products include all major types of coverings, except for
leather, that manufacturers use today for furniture and bedding. The
Company also markets fabrics for certain specialty markets, but these
do not currently represent a material portion of the Company's business.
Manufacturing
Substantially all of the upholstery fabric and mattress ticking
currently marketed by Culp is produced at the Company's eleven (11)
manufacturing facilities. These plants encompass a total of
2.1 million square feet and include yarn extrusion, spinning, dyeing
and texturizing equipment, narrow and wide-width jacquard looms, dobby
and woven velvet looms, tufting machines, printing equipment for
pigment, heat-transfer and wet printing, fabric finishing equipment and
various types of surface finishing equipment (such as washing,
softening and embossing).
The Company's woven fabrics are made from various types of
synthetic and natural yarn, such as polypropylene, polyester, acrylic,
rayon, nylon or cotton. Yarn is woven into various fabrics on
jacquard, dobby or velvet weaving equipment. Once the weaving is
completed, the fabric can be printed or finished using a variety of
processes. The Company currently extrudes and spins a portion of its
own needs for yarn and purchases the remainder from outside suppliers.
Culp produces internally a substantial amount of its needs for spun and
chenille yarns. The Company also supplies other fabric manufacturers
with spun yarns manufactured by Culp Yarn. Culp purchases a
significant amount of greige goods (unfinished, uncolored base fabrics)
from other suppliers to be printed at the Company's plants, but has
increased its internal production capability for jacquard greige goods
at Rayonese in Quebec, Canada.
Tufted velvet fabrics are produced by tufting machines which
insert an acrylic or polypropylene yarn through a polyester woven base
fabric creating loop pile surface material which is then sheared to
create a velvet surface. Tufted velvet fabrics are typically
lower-cost fabrics utilized in the Company's lower-priced product mix.
The Company's printing operations include pigment and
heat-transfer methods. The Company also produces its own printed
heat-transfer paper, another component of vertical integration.
Product Design and Styling
Consumer tastes and preferences related to upholstered furniture
and bedding change, albeit gradually, over time. The use of new
fabrics and designs remains an important consideration for
manufacturers to distinguish their products at retail and to capitalize
on even small changes in preferred colors, patterns and textures.
Culp's success is largely dependent on the Company's ability to market
fabrics with appealing designs and patterns. Culp has an extensive
staff of designers and support personnel involved in the design and
development of new patterns and styles. Culp uses computer aided design
(CAD) systems in the development of new fabrics, which assists the
Company in providing a very flexible design program. These systems
have enabled the Company's designers to experiment with new ideas and
involve customers more actively in the process. The use of CAD systems
also has supported the Company's emphasis on integrating manufacturing
considerations into the early phase of a new design. The Company's
designers are located in the Howard L. Dunn, Jr. Design Center to
support the sharing of design ideas and CAD and other technologies.
The design center has enhanced the Company's merchandising and
marketing efforts by providing an environment in which customers can be
shown new products as well as participate in product development
initiatives.
The process of developing new designs involves maintaining an
awareness of broad fashion and color trends both in the United States
and internationally. These concepts are blended with input from the
Company's customers to develop new fabric designs and styles. These
designs are introduced by Culp at major trade conferences that occur
twice a year in the United States (January and July).
Distribution
The majority of the Company's products are shipped directly from
its distribution centers at or near manufacturing facilities. This
"direct ship" program is primarily utilized by large manufacturers.
Generally, small and medium-size residential furniture manufacturers
use one of the Company's three regional distribution facilities which
have been strategically positioned in areas which have a high
concentration of residential furniture manufacturers - High Point,
North Carolina, Los Angeles, California and Tupelo, Mississippi. The
Company closely monitors demand in each distribution territory to
decide which patterns and styles to hold in inventory. These products
are generally available on demand by customers and are usually shipped
within 48 hours of receipt of an order. Substantially all of the
Company's shipments of mattress ticking are made from its manufacturing
facilities in Stokesdale, North Carolina and St. Jerome, Quebec, Canada.
In international markets, Culp sells primarily to distributors
that maintain inventories of upholstery fabrics for resale to furniture
manufacturers.
Sources and Availability of Raw Materials
Raw materials account for more than half of the Company's total
production costs. The Company purchases various types of synthetic and
natural yarns (polypropylene, polyester, acrylic, rayon and cotton),
synthetic staple fibers (acrylic, rayon, polypropylene, polyester),
various types of greige goods (poly/cotton wovens and flocks, polyester
wovens, poly/rayon and poly/cotton jacquard wovens, polyester knits,
poly/cotton sheeting and non-wovens), polypropylene resins, rayon
staple, latex adhesives, dyes and chemicals from a variety of
suppliers. The Company has historically made a significant investment
in becoming more vertically integrated and producing internally more of
its goods such as chenille, pile and other filling yarns, polypropylene
yarns, package dyed yarns and printed heat-transfer paper. As a
result, a large portion of its raw materials are comprised of more
basic commodities such as rayon staple, undyed yarns, polypropylene
resin chips, polyester warp yarns, unprinted heat-transfer paper and
polyester woven substrates. Although the Company is dependent upon one
supplier for all of its acrylic staple, most of the Company's raw
materials are available from more than one primary source. The prices
of such materials fluctuate depending upon current supply and demand
conditions and the general rate of inflation. Many of the Company's
basic raw materials are petrochemical products or are produced from
such products, and therefore the Company's raw material costs are
likely to be sensitive to changes in petrochemical prices. Generally,
the Company has not had significant difficulty in obtaining raw
materials.
Competition
Competition for the Company's products is based primarily on
price, design, quality, timing of delivery and service.
In spite of the trend toward consolidation in the upholstery
fabric market, the Company competes against a large number of
producers, ranging from a few large manufacturers comparable in size to
the Company to small producers and converters of fabrics. The Company
believes its principal domestic upholstery fabric competitors are Joan
Fabrics Corporation (including its Mastercraft division), Microfibres,
Inc., and Quaker Fabric Corporation.
Overseas producers have not historically been a source of
significant competition for the Company, but recent trends have shown
increased competition in U.S. markets by foreign producers of
upholstery fabric, furniture components and finished upholstery
furniture, as well as increased sales in the U.S. of leather furniture
produced overseas (which competes with upholstered furniture for market
share). Foreign manufacturers often are able to produce upholstery
fabric and other components of furniture with significantly lower raw
material and production costs than those of the Company and other
U.S.-based manufacturers. The Company competes with lower cost foreign
goods on a basis of design, quality, and reliability and speed of
delivery.
The mattress ticking market is concentrated in a few relatively
large suppliers. The Company believes its principal mattress ticking
competitors are Bekaert Textiles B.V., Blumenthal Print Works, Inc.,
the Burlington House Fabrics division of Burlington Industries, Inc.
and Tietex, Inc.
Technology
Culp views the proper use of technology as an integral part of an
effective and responsive business. The Company continues to evaluate
and employ technology that will help to achieve higher levels of
service to customers and bring operating efficiencies to the
manufacturing process. Some key initiatives include:
- - Use of the Internet has continued to be an important component of
the Company's work. CulpLink provides real-time information for
the Company's customers including order status, shipping and
invoice documentation, sales history, and inventory
availability. Additionally, CulpLink has been expanded to
satisfy some key business to business strategies with the
Company's customers.
- - Culp has continued to invest in technology to aid the design
process. CAD, digital printing, digital imaging, and electronic
interfaces to the production equipment have allowed significant
savings in terms of speed and ease of development.
- - Culp continues to expand shop floor systems in the use of
scanners, radio frequency devices, bar-coding, and process
documentation throughout the Company's manufacturing and
distribution systems. Inventories and manufacturing processes
are tracked by these systems to provide customer service and
operational management with real time information for better
customer service and a more efficient operation. All of these
systems operate on redundant computer hardware and fiber optic
backbones to effectively minimize downtime to the Company's
production processes.
- - The Company's Intranet initiative, named CulpNet, was deployed to
improve efficiency within the company and reduce paper. Forms,
charts, and other internal reporting have been converted to
CulpNet to achieve cost savings and improve communications.
Environmental and Other Regulations
The Company is subject to various federal and state laws and
regulations, including the Occupational Safety and Health Act and
federal and state environmental laws, as well as similar laws governing
its Rayonese facility in Canada. The Company periodically reviews its
compliance with such laws and regulations in an attempt to minimize the
risk of violations.
The Company's operations involve a variety of materials and
processes that are subject to environmental regulation. Under current
law, environmental liability can arise from previously owned
properties, leased properties and properties owned by third parties, as
well as from properties currently owned and leased by the Company.
Environmental liabilities can also be asserted by adjacent landowners
or other third parties in toxic tort litigation.
In addition, under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA"), and
analogous state statutes, liability can be imposed for the disposal of
waste at sites targeted for cleanup by federal and state regulatory
authorities. Liability under CERCLA is strict as well as joint and
several.
The Company provides for environmental matters based on
information presently available. Based on this information and the
Company's established reserves, the Company does not believe that
environmental matters will have a material adverse effect on either the
Company's financial condition or results of operations. However, there
can be no assurance that the costs associated with environmental
matters will not increase in the future.
Employees
As of April 28, 2002, the Company had approximately 3,000
employees, compared to approximately 3,100 at the end of fiscal 2001.
All of the hourly employees at the Rayonese facility in Canada
(approximately 7% of the Company's workforce) are represented by a
local, unaffiliated union. The collective bargaining agreement with
respect to the Rayonese hourly employees was renewed in 2002. The
Company is not aware of any efforts to organize any more of its
employees and believes its relations with its employees are good.
Customers and Sales
Culp's size, broad product line, diverse manufacturing base and
effective distribution system enable it to market products to over
2,000 customers. Major customers are leading manufacturers of
upholstered furniture, including Bassett, Furniture Brands
International (Broyhill, Thomasville, and Lane /Action), Berkline,
Benchcraft, Flexsteel and La-Z-Boy (La-Z-Boy Residential, Bauhaus,
England, Clayton Marcus, and Barclay). Representative customers for
the Company's fabrics for commercial furniture include Herman Miller,
HON Industries and Steelcase. In the mattress ticking area, Culp's
customer base includes the leading bedding manufacturers: Sealy, Serta
(National Bedding and Sleepmaster), Simmons and Spring Air (various
licensees). Culp's customers also include many small and medium-size
furniture and bedding manufacturers. In international markets, Culp
sells upholstery fabrics primarily to distributors that maintain
inventories for resale to furniture manufacturers.
The following table sets forth the Company's net sales by
geographic area by amount and percentage of total net sales for the
three most recent fiscal years.
Net Sales by Geographic Area
----------------------------
(dollars in thousands)
Fiscal 2002 Fiscal 2001 Fiscal 2000
----------- ----------- -----------
United States $328,377 86.0% $331,986 81.0% $376,975 77.2%
Canada / Mexico 32,033 8.4 34,049 8.3 36,032 7.4
Europe 2,291 0.6 6,262 1.5 16,351 3.4
Middle East 6,226 1.6 17,831 4.4 32,929 6.7
Australia / New 10,703 2.8 15,497 3.8 19,102 3.9
Zealand and Asia
All other areas 2,248 0.6 4,185 1.0 6,690 1.4
----- --- ----- --- ----- ---
Subtotal (International) 53,501 14.0 77,824 19.0 111,104 22.8
------ ---- ------ ---- ------- ----
Total $381,878 100.0% $409,810 100.0% $488,079 100.0%
========= ======= ========== ======= ========== =======
Backlog
Because a large portion of the Company's upholstery fabric
customers have an opportunity to cancel orders, it is difficult to
predict the amount of the backlog that is "firm." Many customers may
cancel orders before goods are placed into production, and some may
cancel at a later time. In addition, the Company markets a significant
portion of its sales through its regional warehouse system from
in-stock order positions. Moreover, the company has initiated certain
just-in-time delivery programs for certain key customers. On April 28,
2002, the portion of the upholstery fabric backlog with confirmed
shipping dates prior to June 2, 2002 was $24.1 million.
The backlog for mattress ticking is not a reliable predictor of future
shipments because the majority of sales are on a just-in-time basis.
ITEM 2. PROPERTIES
The Company's headquarters are located in High Point, North Carolina,
and the Company currently operates eleven (11) manufacturing facilities
and three (3) regional distribution facilities. The following is a
summary of the Company's principal administrative, manufacturing and
distribution facilities. The manufacturing facilities are organized by
segment.
Approx.
Total Area Expiration
Location Principal Use (Sq. Ft.) of Lease(2)
- -------- ------------- --------- -----------
- - Headquarters and Distribution
Centers:
High Point, North Carolina (1) Corporate headquarters 40,000 2015
Burlington, North Carolina (1) Design Center 30,000 Owned
Los Angeles, California (1) Regional distribution 33,000 2007
- - Upholstery Fabrics:
Graham, North Carolina (1) Manufacturing 341,000 Owned
Burlington, North Carolina Manufacturing and distribution 302,000 Owned
Pageland, South Carolina Manufacturing 96,000 Owned
Burlington, North Carolina Distribution and Yarn Warehouse 112,500 Owned
Chattanooga, Tennessee Manufacturing and distribution 290,000 2018
Burlington, North Carolina Manufacturing and distribution 275,000 2021
Anderson, South Carolina Manufacturing 99,000 Owned
High Point, North Carolina Regional distribution 65,000 2008
Tupelo, Mississippi Regional distribution 57,000 2018
Shelby, North Carolina Manufacturing 101,000 Owned
Lincolnton, North Carolina Manufacturing 78,000 Owned
Cherryville, North Carolina Manufacturing 135,000 Owned
- - Mattress Ticking:
Stokesdale, North Carolina Manufacturing and distribution 220,000 Owned
St. Jerome, Quebec, Canada Manufacturing and distribution 202,000 Owned
___________________________________________
(1) Properties are used jointly by Upholstery Fabrics and Mattress Ticking
(2) Includes all options to renew
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings to which the Company, or its
subsidiaries, is a party or of which any of their property is the
subject that are required to be disclosed under this item.
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of shareholders
during the fourth quarter ended April 28, 2002.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON
STOCK AND RELATED STOCKHOLDER MATTERS
Registrar and Transfer Agent
EquiServe Trust Company, N.A.
c/o EquiServe
Post Office Box 43012
Providence, Rhode Island 02940-3012
(800) 633-4236
www.equiserve.com
Stock Listing
Culp, Inc. common stock is traded on the New York Stock Exchange
under the symbol CFI. As of April 28, 2002, Culp, Inc. had
approximately 3,100 shareholders based on the number of holders of
record and an estimate of individual participants represented by
security position listings.
Analyst Coverage
These analysts cover Culp, Inc.:
BB&T Capital Markets - Joel Havard
C.L. King & Associates - Tom Lewis
Morgan Keegan - Laura Champine, CFA
Raymond, James & Associates - Budd Bugatch, CFA
Wachovia Securities, Inc. - John Baugh, CFA
See Item 6, Selected Financial Data, for market and dividend
information regarding the Company's common stock.
ITEM 6 - SELECTED ANNUAL FINANCIAL DATA
percentfive-year
change growth
fiscal fiscal fiscal fiscal fiscal 2002/2001 rate
(amounts in thousands, except per share amounts) 2002 2001 2000 1999 1998 (5) (5)
- --------------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
net sales $ 381,878 409,810 488,079 483,084 476,715 (6.8)% (0.9)%
cost of sales 319,021 353,823 403,414 406,976 393,154 (9.8) (0.5)
- --------------------------------------------------------------------------------------------------------------------------------
gross profit 62,857 55,987 84,665 76,108 83,561 12.3 (2.8)
S G & A expenses 48,059 50,366 59,935 59,968 52,987 (4.6) 1.3
restructuring expense 10,368 5,625 0 0 0 84.3 N.M.
- --------------------------------------------------------------------------------------------------------------------------------
income (loss) from operations 4,430 (4) 24,730 16,140 30,574 N.M (30.6)
interest expense 7,907 9,114 9,521 9,615 7,117 (13.2) 11.1
interest income (176) (46) (51) (195) (304) 282.6 (8.9)
other expense 2,839 3,336 1,566 1,864 1,358 (14.9) 13.3
- --------------------------------------------------------------------------------------------------------------------------------
income (loss) before income taxes (6,140) (12,408) 13,694 4,856 22,403 50.5 N.M
income taxes (2,700) (4,097) 4,314 1,206 6,336 34.1 N.M
- --------------------------------------------------------------------------------------------------------------------------------
net income (loss) (3,440) (8,311) 9,380 3,650 16,067 58.6 N.M
- --------------------------------------------------------------------------------------------------------------------------------
EBITDA (3) $ 32,976 26,440 44,472 34,645 45,645 24.7 (3.5)
depreciation 17,274 19,391 19,462 18,549 14,808 (10.9) 6.4
cash dividends 0 1,177 1,611 1,788 1,786 (100.0) (100.0)
- --------------------------------------------------------------------------------------------------------------------------------
weighted average shares outstanding 11,230 11,210 11,580 12,909 12,744 0.2 (0.7)
weighted average shares outstanding,
assuming dilution 11,230 11,210 11,681 13,064 13,042 0.2 (1.2)
- --------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
net income (loss)- basic $ (0.31) (0.74) 0.81 0.28 1.26 58.1 N.M
net income (loss)- diluted (0.31) (0.74) 0.80 0.28 1.23 58.1 N.M
cash dividends 0.0 0.105 0.14 0.14 0.14 100.0 (100.0)
book value 10.52 10.85 11.57 10.63 10.15 (3.0) 3.7
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
operating working capital (6) $ 76,938 90,475 112,407 111,886 115,153 (15.0)% 2.0%
property, plant and equipment, net 89,772 112,322 126,407 123,310 128,805 (20.1) (0.3)
total assets 287,713 289,580 343,980 331,714 355,369 (0.6) 3.4
capital expenditures 4,729 8,050 22,559 10,689 35,879 (41.3) (29.4)
long-term debt 107,001 109,168 135,808 140,312 152,312 (2.0) 6.9
funded debt (1) 108,484 111,656 137,486 138,650 151,616 (2.8) 10.6
shareholders' equity 119,065 121,802 129,640 128,428 132,073 (2.2) 1.5
capital employed (4) 227,549 233,458 267,126 267,078 283,689 (2.5) 5.2
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS & OTHER DATA
gross profit margin 16.5% 13.7% 17.3% 15.8% 17.5%
operating income (loss) margin 1.2 (0.0) 5.1 3.3 6.4
net income (loss) margin (0.9) (2.0) 1.9 0.8 3.4
EBITDA margin (3) 8.6 6.5 9.1 7.2 9.6
effective income tax rate 44.0 33.0 31.5 24.8 28.3
funded debt-to-total capital ratio (1) 47.7 47.8 51.5 51.9 53.4
return on average total capital 3.8 (0.9) 6.0 3.6 8.6
return on average equity 3.3 (6.6) 7.3 2.8 13.5
operating working capital turnover (6) 4.5 4.0 4.4 4.3 4.7
days sales in receivables 41 50 49 49 49
inventory turnover 5.4 5.1 5.4 5.6 5.8
- -----------------------------------------------------------------------------------------------------------
STOCK DATA
stock price
high $ 10.74 7.25 11.06 19.13 22.19
low 2.12 1.63 5.00 5.13 16.50
close 9.30 4.95 5.81 8.25 18.88
P/E ratio (2)
high (5) N.M N.M. 13.7 67.6 17.6
low (5) N.M N.M. 6.2 18.1 13.1
daily average trading volume (shares) 24.9 16.2 15.8 30.4 16.0
- -----------------------------------------------------------------------------------------------------------
(1) Funded debt includes long- and short-term debt, less restricted investments.
(2) P/E ratios based on trailing 12-month net income (loss) per share.
(3) EBITDA represents earnings before interest, income taxes, depreciation, amortization, all restructuring
and related charges and certain non-cash charges, as defined by the company's credit agreement.
(4) Capital employed includes funded debt and shareholders' equity.
(5) N.M - Not meaningful
(6) Operating working capital for this calculation is accounts receivable, inventories and accounts payable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis of the financial condition and results of
operations should be read in conjunction with the Financial Statements and
Notes thereto.
Overview
Culp is one of the largest integrated marketers of upholstery fabrics
for furniture and is one of the leading global producers of mattress fabrics
(ticking). The company's fabrics are used primarily in the production of
residential and commercial upholstered furniture and bedding products,
including sofas, recliners, chairs, love seats, sectionals, sofa-beds, office
seating and mattress sets. Although Culp markets fabrics at most price
levels, the company emphasizes fabrics that have broad appeal in the
promotional and popular-priced categories of furniture and bedding.
The company's operating segments are upholstery fabrics and mattress
ticking, with related divisions organized within those segments. In
upholstery fabrics, Culp Decorative Fabrics markets jacquard and dobby woven
fabrics for residential and commercial furniture. Culp Velvets/Prints
markets printed and velvet fabrics used primarily for residential and
juvenile furniture. Culp Yarn manufactures specialty filling yarns that are
primarily used by Culp divisions. In mattress ticking, Culp Home Fashions
markets a broad array of fabrics used by bedding manufacturers.
Results of Operations
The following table sets forth certain items in the company's
consolidated statements of income (loss) as a percentage of net sales.
2002 2001 2000
------ ------ ------
Net sales 100.0% 100.0% 100.0%
Cost of sales 83.5 86.3 82.7
------ ------ ------
Gross profit 16.5 13.7 17.3
Selling, general and administrative
expenses 12.6 12.3 12.3
Restructuring expense 2.7 1.4 -
------ ------ ------
Income (loss) from operations 1.2 - 5.1
Interest expense, net 2.1 2.2 2.0
Other expense 0.7 0.8 0.3
------ ------ ------
Income (loss) before income taxes (1.6) (3.0) 2.8
Income taxes * 44.0 33.0 31.5
Net income (loss) (0.9)% (2.0)% 1.9%
====== ====== ======
* Calculated as a percent of income (loss) before income taxes.
The following table sets forth the company's sales by segment and
division for each of the company's three most recent years. The table sets
forth the change in net sales for the segments and divisions as a percentage
for comparative periods included in the table.
(dollars in thousands) Amounts Percent change
- -------------------------------------------------------------------------------
2001- 2000-
segment/division 2002 2001 2000 2002 2001
- -------------------------------------------------------------------------------
Upholstery Fabrics:
Culp Decorative Fabrics $152,505 $170,326 $213,197 (10.5)% (20.1)%
Culp Velvets/Prints 119,119 122,105 151,543 (2.4) (19.4)
Culp Yarn 5,306 12,581 17,570 (57.8) (28.4)
------------------------------ ----------------
276,930 305,012 382,310 (9.2) (20.2)
Mattress Ticking:
Culp Home Fashions 104,948 104,798 105,769 0.1 (0.9)
------------------------------ ----------------
$381,878 $409,810 $488,079 (6.8)% (16.0)%
------------------------------ ----------------
Restructuring Actions
Exit of Wet Printed Flock Product Line. During March 2002, the company
announced that it was evaluating strategic alternatives for the capital
invested in its wet printed flock upholstery fabrics product line.
Management took this action because of the significant decline in sales and
profitability of wet printed flocks in recent years, a decline related
principally to the strength of the U.S. dollar relative to foreign currencies
as well as a shift in consumer preferences to other styles of upholstery
fabrics. In April 2002 management approved a plan to exit the wet printed
flock upholstery fabric business and has been actively seeking to sell the
assets related to this product line. The exit plan involved closing a
printing facility and flocking operation within the Culp Velvets/Prints
division, a reduction in related selling and administrative expenses, and
termination of 25 employees. The company also recognized certain inventory
write-downs related to this product line. The total charge from the exit
plan and inventory write-down was $9.7 million, of which approximately $8.2
million represented non-cash items consisting of a $7.6 million write-down of
property, plant and equipment to its estimated net realizable value of $2.3
million and a $619,000 write-down of inventory. The company recorded the
total charge in the fourth quarter of fiscal 2002. Of this total, $9.1
million was recorded in the line item "restructuring expense" and $619,000,
related to the inventory write-downs, was recorded in "cost of sales." The
company estimates the annual after-tax carrying costs to maintain the
facilities until the assets are sold will be approximately $200,000, or $0.02
per share. During the fiscal year ended April 28, 2002, sales of wet printed
flocks contributed $17.1 million, or 4.5%, of the company's total sales and
resulted in an operating loss of $2.1 million. The company estimates that
the net loss from these operations on an after-tax basis was approximately
$0.12 per share.
Other Restructuring Actions. During fiscal 2001and continuing
into fiscal 2002, the company undertook a restructuring plan in its
upholstery fabric segment intended to lower operating expenses, increase
manufacturing utilization, raise productivity and position the company to
operate profitably on a 20% lower level of sales. The plan involved (1) the
consolidation of certain fabric manufacturing capacity within the Culp
Decorative Fabrics (CDF) division, (2) closing one of the company's four yarn
manufacturing plants within Culp Yarn, (3) an extensive reduction in selling,
general and administrative expenses including the termination of 110
employees and (4) a comprehensive stock keeping unit (SKU) reduction
initiative related to finished goods and raw materials in CDF. Additionally,
the plan included consolidation of the CDF design operation into the
company's Design Center and the implementation of a common set of raw
material components for CDF. The company also recognized certain inventory
write-downs related to the closed facilities as part of this initiative.
While the physical relocation and movement of machinery and equipment
involved in the restructuring was completed by the end of the second quarter
of 2002 and the related fixed manufacturing cost savings achieved, the
company still has much improvement to make to reach targeted productivity and
variance levels in the CDF division. The total charge from the restructuring,
cost reduction and inventory write-down initiatives was $9.9 million, about
$3.6 million of which represented non-cash items. The company recognized $7.4
million of restructuring and related charges during fiscal 2001, and $2.5
million in fiscal 2002. Restructuring and related charges for fiscal 2002
were recorded as $1.3 million in the line item "restructuring expense" and
$1.2 million in "cost of sales." The costs reflected in "cost of sales" are
principally related to the relocation of manufacturing equipment. Due to the
restructuring plan, the company has now realized annualized reductions of at
least $14 million in fixed manufacturing costs and SG&A expenses. Management
believes the company now has a sound footprint of efficient, world-class
facilities utilizing state-of-the-art equipment that position Culp to meet the
demands by manufacturers for shorter lead times, reliable delivery schedules
and appealing designs.
2002 Compared with 2001
Net Sales. The company's net sales for 2002 decreased by $27.9 million,
or 6.8%, compared with 2001. The company's sales of upholstery fabrics
decreased 9.2% to $276.9 million. For fiscal year 2002, domestic upholstery
fabric sales decreased by 3.3%, or $8.1 million, to $236.6 million. The
decrease related primarily to a decline in sales to the external yarn market
($7.3 million), where the company exited certain businesses, and to a decline
in sales to the commercial furniture market ($4.5 million). The company
believes that it is improving its market share in the U.S. residential
furniture market because of well-received fabric placements in the Culp
Decorative Fabrics and Culp Velvets/Prints divisions. International sales of
upholstery fabric for fiscal 2002 were $40.3 million, down 33.2% from $60.4
million in fiscal 2001.
Compared with fiscal 2001, mattress ticking sales increased .1% to $104.9
million for fiscal 2002. Sales to U.S. bedding manufacturing increased 5.0% to
$91.7 million for fiscal 2002. The company believes that it is gaining market
share in the U.S. bedding market as well. International ticking sales for
fiscal 2002 were $13.2 million, down 24.5% from $17.5 million in fiscal 2001.
Gross Profit and Cost of Sales. For fiscal 2002, gross profit,
excluding restructuring and related charges, increased 11.9% compared with
fiscal 2001, and increased as a percentage of net sales to 16.9% from 14.1%.
This improvement reflected strong gross profit dollar and margin growth in
the Culp Home Fashions, Culp Velvets/Prints and Culp Yarn divisions.
Offsetting these gains somewhat was a decrease in gross profit dollars and
margin in Culp Decorative Fabrics, which occurred in the first half of fiscal
2002. The company is optimistic, however, that gross profit margins in CDF
can be improved significantly over the next one to two years. In order to
achieve this margin improvement, management expects the key drivers will be
(1) increasing the profitability of the current sales mix; (2) improving
manufacturing performance, in terms of productivity and inventory
obsolescence; and (3) a modest sales growth.
Selling, General and Administrative Expenses (SG&A). SG&A expenses were
$48.1 million for fiscal 2002 and decreased $2.3 million, or 4.6%, from
fiscal 2001. The significant factors affecting the year to year comparisons
were bad debt expense of $4.2 million in fiscal 2002 versus $309,000 in
fiscal 2001 and incentive compensation expense of $1.8 million in fiscal 2002
versus $0.0 in fiscal 2001. Without considering these factors in both years,
SG&A expenses were $42.1 million, or 11.1% of net sales, for fiscal 2002,
compared with $50.0 million, or 12.2% of net sales, for fiscal 2001. This
reflects a 15.8% decrease and primarily resulted from the company's decision
to reduce SG&A expenses significantly as part of the 2001 restructuring plan.
Interest Expense. Interest expense for fiscal 2002 declined from $9.1
million to $7.9 million due to lower average borrowings outstanding and lower
average interest rates over the course of the fiscal year. Interest income
increased due to the significant build up in cash and cash investments during
the year, particularly in the fourth quarter.
Other Expense. Other expense for fiscal 2002 totaled $2.8 million
compared with $3.3 million in the prior year. Goodwill amortization of $1.4
million, or $0.07 per share, is included in Other Expense in fiscal 2002 and
fiscal 2001. With the adoption of SFAS No. 142 in the first quarter of fiscal
2003, the company will no longer record goodwill amortization.
Income Taxes. The effective tax rate for fiscal 2002 was 44.0% compared
with 33.0% for the year-earlier period. The higher rate resulted from
increased tax benefits in 2002 related to he company's loss in the U.S.,
including restructuring and related charges, and to a lower proportion of
earnings from the company's Canadian subsidiary, as well as the recognition
in 2001 of gain from terminated life insurance contracts. The income tax rate
for fiscal 2002 on income before restructuring and related charges was 34.0%.
Net Income (Loss) Per Share. Diluted net loss per share for 2002
totaled $0.31 compared with net loss for 2001 of $0.74. Excluding
restructuring and related charges, diluted net income per share for 2002
totaled $0.35 compared with a net loss for 2001 of $0.30.
2001 Compared with 2000
Net Sales. Net sales for 2001 decreased by $78.3 million, or 16.0%,
compared with 2000. The company's sales of upholstery fabrics decreased
20.2% to $305.0 million and mattress ticking sales decreased 0.9% to $104.8
million. Key factors influencing the year-to-year comparison were the sharp,
persistent weakness in consumer spending on home furnishings, especially in
promotional price categories, and the strength in the U.S. dollar that had an
adverse impact on exports. Culp's international sales declined 30.0% in
2001, following an industry-wide trend.
After a number of years of increasing sales, Culp Home Fashions
(primarily mattress ticking) during 2001 recorded a decline in sales of
0.9%. The company believes that this decline was less than that experienced
for the industry as a whole, which was affected by the slowdown in consumer
spending.
Gross Profit and Cost of Sales. Gross profit declined 33.9% for fiscal
2001 and decreased as a percentage of net sales from 17.3% to 13.7%. The
decline was due principally to lower sales volume that led to unfavorable
cost variances in the company's upholstery fabrics operation. As discussed
above, the company has taken steps to lower expenses by consolidating certain
operations and reducing personnel.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for 2001 decreased 16.0% from the prior year and
accounted for 12.3% of sales for 2001 and 2000. Reflecting the momentum of
the company's actions to reduce expenses, selling, general and administrative
expenses for the fourth quarter declined 28.8% from the year-earlier period
and, as a percentage of sales, declined from 11.5% to 10.5%.
Interest Expense. Net interest expense for 2001 declined from $9.5
million to $9.1 million due to lower average borrowings, partially offset by
higher interest rates.
Other Expense. Other expense for 2001 totaled $3.3 million compared
with $1.6 million in the prior year. The increase was principally due to
lower investment income on assets related to the company's nonqualified
deferred compensation plan, mark-to-market losses on foreign currency forward
contracts for anticipated purchases in the Euro and mark-to-market losses on
interest rate swaps that no longer serve as a hedge due to the repayment of
debt.
Income Taxes. The effective tax rate for 2001 was 33.0% compared with
31.5% in the prior year. The lower rates for 2001 and 2000 as compared with
the federal statutory rate of 35% were due principally to tax benefits
related to the company's international sales and to a higher proportion of
earnings from the company's Canadian subsidiary that is taxed at a lower
effective rate.
Net Income (Loss) Per Share. Diluted net loss per share for 2001
totaled $0.74 compared with net income for 2000 of $0.80.
Liquidity and Capital Resources
Liquidity. Cash and cash investments as of April 28, 2002 increased to
$32.0 million from $1.2 million at the end of fiscal 2001. This significant
increase in cash reflects cash flow from operations of $42.2 million for
fiscal 2002, which exceeded capital expenditures of $4.7 million, debt
repayment of $3.2 million, and reduction of accounts payable for capital
expenditures of $4.0 million.
Financing Arrangements.
During February 2002, the company amended its $75 million term loan
with its lenders to revise certain financial covenants so that a goodwill
impairment charge, under the new Statement of Financial Accounting Standards
No. 142, if any, would not inadvertently cause a loan covenant violation due
only to changes in financial accounting standards. In exchange for these
covenant changes, the company agreed to increase the interest rate paid on
the term loan by 100 basis points. Therefore, the significant goodwill
impairment charge of $23 to $27 million (on an after tax basis) expected to
be recorded in the first quarter of fiscal 2003 will not cause any violation
of its loan covenants.
The company has reduced funded debt by $3.2 million or 2.9% from the
end of the last fiscal year. Funded debt equals long-term debt plus current
maturities. Funded debt was $108.5 million at April 28, 2002, compared with
$111.7 million at the end of fiscal 2001. The company's funded
debt-to-capital ratio was 47.7% at April 28, 2002, its lowest level since
July 1997.
During fiscal 2001, the company amended its credit facility to
include terms that restricted the payment of cash dividends and share
repurchases, limited capital expenditures, increased the interest rate on its
revolving credit facility and increased the letter of credit fees on its
industrial revenue bonds (IRBs). This amended credit facility provided for a
revolving loan commitment of $10 million, and expires on August 22, 2002.
The company had no outstanding borrowings under the facility at the end of
fiscal 2002. The company was in compliance with all covenants contained in
its loan agreements as of April 28, 2002.
The company has received a loan commitment from its principal bank
lender that provides, among other things, for (1) a two year credit facility
starting at $36.1 million and reducing to $27 million as certain IRB
repayments are made, (2) release of the collateral securing the facility, (3)
lower interest rates based upon a pricing matrix, and (4) improved financial
covenants. In exchange for these provisions, the company would agree, among
other things, to repay approximately $20 million of its IRB debt by October
2002, and pay a credit facility fee. The company expects to close this new
credit facility during the second quarter of fiscal 2003.
The company paid off $10.9 million of IRB debt in July 2002 and expects
to pay another $8.0 million in September 2002.
The company enters into foreign exchange forward and option contracts
to hedge against currency fluctuations with respect to firm commitments and
anticipated transactions to purchase certain machinery, equipment and raw
materials.
Commitments
The following table summarizes the company's contractual payment obligations
and commitments (in thousands):
2003 2004 2005 2006 2007 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
Capital expenditure
commitments $1,710 $ - $ - $ - $ - $ - $ 1,710
Accounts payable -
capital expenditures 951 429 1,380
Operating leases 5,023 3,898 2,856 1,885 1,264 1,167 16,093
Funded debt 1,483 463 463 11,463 11,000 83,612 108,484
------------------------------------------------------------------------------
Total $9,167 $4,790 $3,319 $13,348 $12,264 $84,779 $127,667
------------------------------------------------------------------------------
Note: Payment Obligations by Fiscal Year Ending April
Capital Expenditures. The company maintains an ongoing program of
capital expenditures designed to increase capacity as needed, enhance
manufacturing efficiencies through modernization and increase the company's
vertical integration. Capital expenditures, primarily for modernization,
totaled $4.7 million for 2002 compared with $8.1 million for 2001. The
company anticipates capital spending of approximately $8.5 million in 2003.
The company's principal sources of liquidity are (1) cash and cash
investments, (2) cash flows from operations and (3) funds available under its
credit facilities. The company believes these sources will be sufficient for
the foreseeable future to meet its needs for normal working capital and
capital spending as permitted under the terms of the company's loan
agreements.
Inflation
The cost of certain of the company's raw materials, principally fibers
from petroleum derivatives, and utility/energy costs have increased somewhat;
but overall operating expenses are remaining generally stable. Factors that
reasonably can be expected to influence margins in the future include changes
in raw material prices, trends in other operating costs and overall
competitive conditions.
Seasonality
The company's business is slightly seasonal, with increased sales
during the second and fourth fiscal quarters. This seasonality results from
one-week closings of the company's manufacturing facilities, and the
facilities of most of its customers in the United States, during the first
and third quarters for the holiday weeks including July 4th and Christmas.
Critical Accounting Policies and Recent Accounting Developments
Accounting principles generally accepted in the United States of
America require the company to make estimates and assumptions that affect the
reported amounts in the financial statements and accompanying notes. Some of
these estimates require difficult, subjective and/or complex judgments about
matters that are inherently uncertain, and as a result actual results could
differ from those estimates. Due to the estimation processes involved,
management considers the following summarized accounting policies and their
application to be critical to understanding the company's business
operations, financial condition and results of operations.
Accounts Receivable - Allowance for Doubtful Accounts
Substantially all the company's accounts receivable are due primarily
from residential furniture manufacturers and bedding manufacturers.
Ownership of these manufacturers is increasingly concentrated and in certain
cases they have a high degree of leverage and substantial debt load. As of
April 28, 2002, accounts receivable from residential and contract furniture
manufacturers totaled approximately $33.3 million and from bedding
manufacturers approximately $13.6 million. Approximately $10.3 million of the
company's total accounts receivable was due from international customers.
Additionally, as of April 28, 2002, the aggregate accounts receivable balance
of the company's ten largest customers was $17.6 million, or 39% of trade
accounts receivable.
During fiscal 2001 and 2002, there has been significant change in the
home furnishings industry, including the bankruptcy of several of the largest
home furnishings retail chains. This in turn has affected the furniture and
bedding manufacturers who are the company's primary customers. As a result,
Culp has experienced substantially higher credit losses in fiscal 2002. Bad
debt expense for fiscal 2002 totaled $4.2 million compared to $309,000 in the
year-earlier period.
The company continuously performs credit evaluations of its customers,
considering numerous inputs including customers' financial position, past
payment history, cash flows and management capability; historical loss
experience; and economic conditions and prospects. While management believes
that adequate allowances for doubtful accounts have been provided in the
consolidated financial statements, it is possible that the company could
experience additional unexpected credit losses.
Inventory Valuation
The company operates as a make-to-order and make-to-stock business. In
addition, the company stocks its most popular fabrics in its regional
distribution facilities. Although management closely monitors demand in each
product area to decide which patterns and styles to hold in inventory, the
gradual, yet constant shifts in consumer preferences expose the company to
write-downs of inventory.
Substantially all inventories are valued at the lower of last-in,
first-out (LIFO) cost or market. Management continually examines inventory to
determine if there are indicators that the carrying value exceeds its net
realizable value. Experience has shown that the most significant indicator
of the need for inventory write-downs is the age of the inventory. As a
result, the company provides inventory valuation write-downs based upon set
percentages for inventory aging categories, generally using 6, 9 and 12 month
categories. While management believes that adequate write-downs for
inventory obsolescence have been made in the consolidated financial
statements, consumer tastes and preferences will continue to change and the
company could experience additional inventory write-downs in the future.
Revenue Recognition
Revenue is recognized from product sales upon shipment to customers
from the company's various distribution centers. Provision is made currently
for estimated product returns, claims and allowances. Management considers
historical claims and return experience, among other things, when
establishing the allowance for returns and allowances. While management
believes that adequate allowance has been established for returns and
allowances, it is possible that the company could experience levels higher
than provided for in the consolidated financial statements.
Long-lived Assets
Management reviews long-lived assets, which consists of property, plant
and equipment, for impairment whenever events or changes in circumstances
indicate that the carrying value of the asset may not be recovered.
Recoverability of long-lived assets to be held and used is measured by a
comparison of the carrying amount of the asset to future net undiscounted
cash flows expected to be generated by the asset. If the carrying amount of
an asset exceeds its estimated future cash flows, an impairment charge is
recognized for the excess of the carrying amount over the fair value of the
asset. Assets to be disposed of are reported at the lower of the carrying
value or fair value less cost to sell when the company has committed to a
disposal plan.
Events or changes in circumstances that indicate an asset's carrying
amount may not be recoverable include: a) significant changes in its market
price, b) a significant change in the extent or manner in which the asset is
being used, c) adverse change in business climate that could affect the asset
value permanently, d) current and/or historical operating or cash flow losses
and a projection that demonstrates continuing losses associated with the
asset's use, and e) an expectation that it is more likely than not that the
asset will be sold.
The company's assessment at April 28, 2002 and April 29, 2001 indicated
that net undiscounted future operating cash flows of the company's businesses
were sufficient to recover the carrying amount of the long-lived assets under
SFAS No. 121.
In August 2001, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. SFAS No. 144 establishes a single accounting model for long-lived
assets to be disposed of by sale, and also resolves implementation issues
related to SFAS No. 121. The company is required to adopt the provisions of
this statement for fiscal 2003. Adoption of SFAS No. 144 is not expected to
have significant impact on the company's financial position, results of
operations or cash flows.
Goodwill
The company assesses the recoverability of goodwill under SFAS No. 121
by determining whether the amortization of the company's goodwill balance
over its remaining life can be recovered through undiscounted future
operating cash flows of the acquired businesses. If the company determines
that goodwill is impaired, the loss is measured using estimated fair value.
The assessment of the recoverability of goodwill will be impacted if
estimated cash flows are not achieved. Factors that may impact estimated
cash flows include, among other things, consumer demand, the acceptability of
the company's products, ability to offer competitive pricing at acceptable
margins and a number of macro-economic factors including the strength of the
U.S. dollar relative to other foreign currencies.
The company's goodwill at April 28, 2002 totaled $47.1 million and
related to the following divisions: Culp Decorative Fabrics- $42.3 million,
Culp Yarn - $0.7 million and Culp Home Fashions - $4.1 million. The company's
assessment at April 28, 2002 and April 29, 2001 indicated that undiscounted
future operating cash flows of these businesses were sufficient to recover
the carrying amounts of goodwill.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets," which is effective as of the company's 2003 fiscal year
that started April 29, 2002. SFAS No. 142 represents a substantial change in
how goodwill is accounted for. SFAS No. 142 requires that goodwill no longer
be amortized and that goodwill be tested for impairment by comparing the
reporting unit's carrying value to fair value as of April 29, 2002. If any
impairment is indicated, it must be measured and recorded before the end of
fiscal 2003. SFAS No. 142 requires that any goodwill impairment loss
recognized as a result of initial application be reported as of the first
quarter of fiscal 2003 as a change in accounting principle, and that the
income per share effects of the accounting change be separately disclosed.
In response to this requirement, management engaged a business
valuation specialist to assist the company in the determination of the fair
market value of Culp Decorative Fabrics because of the significance of the
goodwill associated with the division and due to its recent operating
performance for fiscal 2001 and 2002, which had been significantly below its
historical level of profitability. As a result of the adoption of SFAS No.
142, the Company expects to record a special (non-cash) goodwill impairment
charge in the range of $23 million to $27 million (on an after tax basis)
related to the goodwill associated with its Culp Decorative Fabrics division.
Goodwill amortization of $1.4 million was reflected for the fiscal
years ending April 28, 2002, April 29, 2001 and April 30, 2000. As of April
29, 2002, goodwill will no longer be amortized.
Forward-Looking Information
The company's annual report on Form 10-K contains statements that may be
deemed "forward-looking statements" within the meaning of the federal
securities laws, including the Private Securities Litigation Reform Act of
1995. Such statements are inherently subject to risks and uncertainties.
Forward-looking statements are statements that include projections,
expectations or beliefs about future events or results or otherwise are not
statements of historical fact. Such statements are often characterized by
qualifying words such as "expect," "believe," "estimate," "plan," and
"project" and their derivatives. Factors that could influence the matters
discussed in such statements include the level of housing starts and sales of
existing homes, consumer confidence, trends in disposable income and general
economic conditions. Decreases in these economic indicators could have a
negative effect on the company's business and prospects. Likewise, increases
in interest rates, particularly home mortgage rates, and increases in
consumer debt or the general rate of inflation, could affect the company
adversely. Because of the significant percentage of the company's sales
derived from international shipments, strengthening of the U.S. dollar
against other currencies could make the company's products less competitive
on the basis of price in markets outside the United States. Additionally,
economic and political instability in international areas could affect the
demand for the company's products.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest
rates on debt and foreign currency exchange rates. The Company's market risk
sensitive instruments are not entered into for trading purposes. The Company
has not experienced any significant changes in market risk since April 28,
2002.
The Company's exposure to interest rate risk consists of floating
rate debt based on the London Interbank Offered Rate plus an adjustable
margin under the Company's revolving credit agreement and variable rate debt
in connection with industrial revenue bonds. The annual impact on the
Company's results of operations of a 100 basis point interest rate change
on the April 28, 2002 outstanding balance of the variable rate debt would
be approximately $306,000.
The Company's exposure to fluctuations in foreign currency
exchange rates is due primarily to a foreign subsidiary domiciled in Canada
and firmly committed and anticipated purchases of certain machinery,
equipment and raw materials in foreign currencies. The Company's Canadian
subsidiary uses the United States dollar as its functional currency. The
Company generally does not use financial derivative instruments to hedge
foreign currency exchange rate risks associated with the Canadian
subsidiary. However, the Company generally enters into foreign exchange
forward and option contracts as a hedge against its exposure to currency
fluctuations on firmly committed and anticipated purchases of certain
machinery, equipment and raw materials. The amount of Canadian-denominated
sales and manufacturing costs are not material to the Company's consolidated
results of operations; therefore, a 10% change in the exchange rate at April
28, 2002 would not have a significant impact on the Company's results of
operations or financial position. Additionally, as the Company utilizes
foreign currency instruments for hedging anticipated and firmly committed
transactions, a loss in fair value for those instruments is generally offset
by increases in the value of the underlying exposure.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
Management's Statement of Responsibility
The management of Culp, Inc. is responsible for the accuracy and
consistency of all the information contained in this annual report on Form
10-K, including the financial statements. These statements have been
prepared to conform with accounting principles generally accepted in the
United States of America. The preparation of financial statements and
related data involves estimates and the use of judgment.
Culp, Inc. maintains internal accounting controls designed to provide
reasonable assurance that the financial records are accurate, that the assets
of the company are safeguarded, and that the financial statements present
fairly the financial position and results of operations of the Company.
KPMG LLP, the Company's independent auditors, conducts an audit in
accordance with auditing standards generally accepted in the United States of
America and provides an opinion on the financial statements prepared by
management. Their report for 2002 is presented on the following 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 Audit Committee also reviews the company's
principal accounting policies, significant internal accounting controls, the
Annual Report and annual SEC filings (Form 10-K and Proxy Statement).
Robert G. Culp, III Franklin N. Saxon
Chairman and Chief Executive Officer Executive Vice President and
May 31, 2002 Chief Financial Officer
May 31, 2002
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 28, 2002 and April 29, 2001, and the related consolidated
statements of income (loss), shareholders' equity, and cash flows for each of
the years in the three-year period ended April 28, 2002. 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 auditing standards generally accepted
in the United States of America. 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 statements 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 28, 2002 and April 29, 2001, and the results of their
operations and their cash flows for each of the years in the three-year ended
April 28, 2002, in conformity with accounting principles generally accepted in
the United States of America.
KPMG LLP
Greensboro, NC
May 31, 2002
CONSOLIDATED BALANCE SHEETS
April 28, 2002 and April 29, 2001 (dollars in thousands, except share data) 2002 2001
- -------------------------------------------------------------------------------------------------
ASSETS
current assets:
cash and cash investments $ 31,993 1,207
accounts receivable 43,366 57,849
inventories 57,899 59,997
other current assets 13,413 7,856
- -------------------------------------------------------------------------------------------------
total current assets 146,671 126,909
property, plant and equipment, net 89,772 112,322
goodwill 47,083 48,478
other assets 4,187 1,871
- -------------------------------------------------------------------------------------------------
total assets $ 287,713 289,580
=================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
current liabilities:
current maturities of long-term debt $ 1,483 2,488
accounts payable 24,327 27,371
accrued expenses 18,905 17,153
income taxes payable 0 1,268
- -------------------------------------------------------------------------------------------------
total current liabilities 44,715 48,280
long-term debt 107,001 109,168
deferred income taxes 16,932 10,330
- -------------------------------------------------------------------------------------------------
total liabilities 168,648 167,778
=================================================================================================
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 11,319,584 at
April 28, 2002 and 11,221,158 at April 29, 2001 566 561
capital contributed in excess of par value 37,606 36,915
retained earnings 80,886 84,326
accumulated other comprehensive income 7 0
- -------------------------------------------------------------------------------------------------
total shareholders' equity 119,065 121,802
- -------------------------------------------------------------------------------------------------
total liabilities and shareholders' equity $ 287,713 289,580
- -------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
For the years ended April 28, 2002, April 29, 2001,
and April 30, 2000 (dollars in thousands, except per share data) 2002 2001 2000
- -----------------------------------------------------------------------------------------------------
net sales $ 381,878 409,810 488,079
cost of sales 319,021 353,823 403,414
- -----------------------------------------------------------------------------------------------------
gross profit 62,857 55,987 84,665
selling, general and administrative expenses 48,059 50,366 59,935
restructuring expense 10,368 5,625 0
- -----------------------------------------------------------------------------------------------------
income (loss) from operations 4,430 (4) 24,730
interest expense 7,907 9,114 9,521
interest income (176) (46) (51)
other expense 2,839 3,336 1,566
- -----------------------------------------------------------------------------------------------------
income (loss) before income taxes (6,140) (12,408) 13,694
income taxes (2,700) (4,097) 4,314
- -----------------------------------------------------------------------------------------------------
net income (loss) $ (3,440) (8,311) 9,380
=====================================================================================================
net income (loss) per share:
basic $ (0.31) (0.74) 0.81
- -----------------------------------------------------------------------------------------------------
diluted $ (0.31) (0.74) 0.80
=====================================================================================================
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
capital accumulated
For the years ended April 28, 2002 common common contributed other total
April 29, 2001 and April 30, 2000 stock stock in excess of retained comprehensive shareholders'
(dollars in thousands, except share data) shares amount par value earnings income equity
- ----------------------------------------------------------------------------------------------------------------------
balance, May 2, 1999 12,079,171 $ 604 37,966 89,858 128,428
cash dividends ($0.14 per share) (1,611) (1,611)
net income 9,380 9,380
common stock issued in connection
with stock option plans 13,813 1 78 79
common stock purchased (884,264) (45) (2,778) (3,813) (6,636)
- ----------------------------------------------------------------------------------------------------------------------
balance, April 30, 2000 11,208,720 560 35,266 93,814 129,640
cash dividends ($0.105 per share) (1,177) (1,177)
net loss (8,311) (8,311)
common stock issued in connection
with stock option plans 12,438 1 1,649 1,650
- ----------------------------------------------------------------------------------------------------------------------
balance, April 29, 2001 11,221,158 561 36,915 84,326 121,802
net loss (3,440) (3,440)
net gain on cash flow hedges 7 7
common stock issued in connection
with stock option plans 98,426 5 691 696
- ----------------------------------------------------------------------------------------------------------------------
balance, April 28, 2002 11,319,584 $ 566 37,606 80,886 7 119,065
======================================================================================================================
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended April 28 2002, April 29, 2001, and April 30, 2000
(dollars in thousands) 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------
cash flows from operating activities:
net income (loss) $ (3,440) (8,311) 9,380
adjustments to reconcile net income (loss) to net cash
provided by operating activities:
depreciation 17,274 19,391 19,462
amortization of intangible assets 1,575 1,591 1,596
amortization of stock based compensation 144 360 250
provision for deferred income taxes (1,452) (5,394) 2,176
restructuring expense 10,368 5,625 0
changes in assets and liabilities:
accounts receivable 14,483 17,374 (4,720)
inventories 2,098 14,474 (7,401)
other current assets 2,504 827 (16)
other assets (311) 171 (770)
accounts payable 998 (4,530) 1,029
accrued expenses (796) (6,767) 890
income taxes payable (1,268) 1,268 0
- ---------------------------------------------------------------------------------------------------------
net cash provided by operating activities 42,177 36,079 21,876
- ---------------------------------------------------------------------------------------------------------
cash flows from investing activities:
capital expenditures (4,729) (8,050) (22,559)
purchase of restricted investments 0 0 (40)
sale of investments related to deferred compensation plan 0 4,547 0
sale of restricted investments 0 0 3,380
- ---------------------------------------------------------------------------------------------------------
net cash used in investing activities (4,729) (3,503) (19,219)
- ---------------------------------------------------------------------------------------------------------
cash flows from financing activities:
proceeds from issuance of long-term debt 0 564 9,543
principal payments of long-term debt (3,172) (26,394) (14,047)
cash dividends paid 0 (1,177) (1,611)
proceeds from common stock issued 552 17 21
payments to acquire common stock 0 0 (6,636)
change in accounts payable - capital expenditures (4,042) (5,386) 10,571
- ---------------------------------------------------------------------------------------------------------
net cash used in financing activities (6,662) (32,376) (2,159)
- ---------------------------------------------------------------------------------------------------------
increase (decrease) in cash and cash investments 30,786 200 498
cash and cash investments, beginning of year 1,207 1,007 509
- ---------------------------------------------------------------------------------------------------------
cash and cash investments, end of year $ 31,993 1,207 1,007
- ---------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
include the accounts of the company and its subsidiary, which is
wholly-owned. All significant intercompany balances and transactions
are eliminated in consolidation.
Description of Business - The company primarily manufactures and markets
upholstery fabrics and mattress fabrics ("ticking") primarily for the
furniture and bedding industries, with the majority of its business
conducted in North America.
Fiscal Year - The company's fiscal year is the 52 or 53 week period
ending on the Sunday closest to April 30. Fiscal years 2002, 2001 and
2000 included 52 weeks.
Cash and Cash Investments - Cash and cash investments include demand
deposit and money market accounts. For purposes of the consolidated
statements of cash flows, the company considers all highly liquid
instruments with original maturities of three months or less to be cash
equivalents.
Accounts Receivable - Substantially all of the company's accounts
receivable are due principally from manufacturers in the markets noted
above. The company grants credit to customers, a substantial number of
which are located in North America and generally does not require
collateral. Management continuously performs credit evaluations of its
customers, considering numerous inputs including financial position,
past payment history, cashflows and management ability, historical loss
experience and economic conditions and prospects. While management
believes that adequate allowances for doubtful accounts have been
provided in the consolidated financial statements, it is possible that
the company could experience additional unexpected credit losses.
Inventories - Principally all inventories are valued at the lower of
last-in, first-out (LIFO) cost or market. Management continually
examines inventory to determine if there are indicators that the
carrying value exceeds its net realizable value. Experience has shown
that the most significant indicator of the need for inventory
write-downs is the age of the inventory. As a result, the company
provides inventory valuation write-downs based upon inventory aging.
While management believes that adequate write-downs for inventory
obsolescence have been made in the consolidated financial statements,
consumer tastes and preferences will continue to change and the company
could experience additional inventory write-downs in the future.
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 (loss).
In accordance with SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
management reviews property, plant and equipment for impairment whenever
events or changes in circumstances indicate that the carrying value of
the asset may not be recovered. Recoverability of long-lived assets to
be held and used is measured by a comparison of the carrying amount of
the asset to future net undiscounted cash flows expected to be generated
by the asset. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized for the excess of
the carrying amount over the fair value of the asset. Assets to be
disposed of are reported at the lower of the carrying value or fair
value less cost to sell when the company has committed to a disposal
plan. Management's review for impairment of long-lived assets will be
impacted in fiscal 2003 by the provisions of a new accounting
pronouncement issued during fiscal 2002 (see note 19).
Interest costs of $36,000, $99,000 and $146,000 incurred during the
years ended April 28, 2002, April 29, 2001 and April 30, 2000,
respectively, for the construction of qualifying fixed assets were
capitalized and are being amortized over the related assets' estimated
useful lives.
Foreign Currency Translation - The United States dollar is the
functional currency for the company's Canadian subsidiary. Translation
gains (losses) for this subsidiary of ($33,000), $37,000 and $57,000
are included in the other expense line item in the consolidated
statements of income (loss) for the fiscal years ended April 28, 2002,
April 29, 2001 and April 30, 2000, respectively.
Goodwill and Other Intangible Assets - Goodwill, which represents the
unamortized excess of the purchase price over the fair values of the net
assets acquired, is being amortized using the straight-line method over
40 years. The company assesses the recoverability of goodwill by
determining whether the amortization of the balance over its remaining
life can be recovered through undiscounted future operating cash flows
of the acquired businesses. The accounting for goodwill will be
impacted during fiscal 2003 by the provisions of a new accounting
pronouncement issued during fiscal 2002 (see note 19).
Other intangible assets are included in other assets and consist
principally of debt issue costs. Amortization is computed using the
straight-line method over the respective terms of the debt agreements.
Income Taxes - Deferred taxes are recognized for the temporary
differences between the financial statement carrying amounts and the tax
bases of the company's assets and liabilities and operating loss and tax
credit carryforwards at income tax rates expected to be in effect when
such amounts are realized or settled. The effect on deferred taxes of a
change in tax rates is recognized in income (loss) in the period that
includes the enactment date.
No provision is made for income taxes which may be payable if
undistributed income of the company's Canadian subsidiary were to be
paid as dividends to the company, since the company intends that such
earnings will continue to be invested. At April 28, 2002, the amount of
such undistributed income was $25.2 million. Foreign tax credits may be
available as a reduction of United States income taxes in the event of
such distributions.
Revenue Recognition - Revenue is recognized upon shipment, when title
and risk of loss passes to the customer. Provision is made currently
for estimated product returns, claims and allowances. Management
considers historical claims and return experience, among other things,
when establishing the allowance for returns and allowances. While
management believes that adequate allowance has been established for
returns and allowances, it is possible that the company could experience
levels higher than provided for in the consolidated financial statements.
Stock Option Plans - SFAS No. 123, Accounting for Stock-Based
Compensation, requires disclosure of the fair value and other
characteristics of stock options (see note 12). The company has chosen
under the provisions of SFAS No. 123 to continue using the
intrinsic-value method of accounting for employee stock-based
compensation in accordance with Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees.
Fair Value of Financial Instruments - The carrying amount of cash and
cash investments, accounts receivable, other current assets, accounts
payable and accrued expenses approximates fair value because of the
short maturity of these financial instruments.
The fair value of the company's long-term debt is estimated by
discounting the future cash flows at rates currently offered to the
company for similar debt instruments of comparable maturities. The fair
value of the company's long-term debt is approximately $104 million at
April 28, 2002.
Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. RESTRUCTURING
In April 2002, management approved a plan to exit the wet printed flock
upholstery fabric business and has been actively seeking to sell the
assets related to this product line. The exit plan involved closing a
printing facility and flocking operation within the Culp Velvets/Prints
division, reduction in related selling and administrative expenses and
termination of 25 employees. The total charge for the exit plan was
$9.7 million, of which approximately $8.2 million represented non-cash
items. Of the total charge, $9.1 million was recorded in the
restructuring expense line item and $619,000, related to inventory
write-downs, was recorded in the cost of sales line item. During the
fiscal year ended April 28, 2002, sales of the wet printed flock product
contributed $17.1 million, or 4.5%, of the company's total sales and
resulted in an operating loss of approximately $2.1 million.
The following summarizes the restructuring charge and inventory
write-downs (amounts in thousands):
Non-cash Paid in April 28, 2002
Charges Write-downs 2002 Reserve Balance
------- ----------- ------- ---------------
Non-cash write-downs
of fixed assets to net
realizable value $7,613 7,613 - -
Non-cash write-downs
of inventories 619 619 - -
Employee termination
benefits 842 - 5 837
Lease termination
and other exit costs 610 - 5 605
------- ----------- ------- ---------------
Total $9,684 8,232 10 1,442
======= =========== ======= ===============
During fiscal 2001 and continuing into fiscal 2002, the company
undertook a restructuring plan in its upholstery fabric segment which
involved (1) the consolidation of certain fabric manufacturing capacity
within the Culp Decorative Fabrics (CDF) division, (2) closing one of
the company's four yarn manufacturing plants within the Culp Yarn
division, (3) an extensive reduction in selling, general and
administrative expenses including the termination of 110 employees and
(4) a comprehensive SKU reduction initiative related to finished goods
and raw materials in CDF. The 2001 charge from the restructuring and
related costs was $7.4 million, approximately $3.4 million of which
represented non-cash items. Of the total charge, $5.6 million was
recorded in the restructuring expense line item and $874,000, related to
inventory write-downs, and $931,000, related to equipment relocation
costs, were recorded in the cost of sales line item. The 2002 charge
from restructuring and related expenses was $2.5 million, approximately
$160,000 of which represented the non-cash impairment of property, plant
and equipment. Of the total charge, $1.3 million was included in the
restructuring expense line item and $1.2 million, related to equipment
relocation costs, was recorded in the cost of sales line item.
The following summarizes the fiscal 2001 restructuring and related
charges (amounts in thousands):
Non-cash Paid in April 29, 2001
Charges Write-downs 2001 Reserve Balance
------- ----------- ------ ---------------
Non-cash write-downs
of fixed assets to net
realizable value $2,540 2,540 - -
Non-cash write-downs
of inventories 874 874 - -
Employee termination
benefits 969 - 491 478
Lease termination
and other exit costs 2,116 - 211 1,905
Machinery and equipment
relocation costs 931 - 931 -
------- ----------- ------ ---------------
Total $7,430 3,414 1,633 2,383
======= =========== ====== ===============
The following summarizes the fiscal 2002 restructuring and related
charges (amounts in thousands):
April 29, 2001 2002 Non-cash Paid in April 28, 2002
Reserve Balance Charges Write-downs 2002 Reserve Balance
--------------- ------- ----------- ------ ---------------
Non-cash write-downs
of fixed assets to net
realizable value - 160 160 - -
Employee termination
benefits 478 925 - 891 512
Lease termination
and other exit costs 1,905 218 - 1,632 491
Machinery and equipment
relocation costs - 1,206 - 1,206 -
---------------- ------- ---------- ------ --------------
Total $2,383 2,509 160 3,729 1,003
================ ======= ========== ====== ==============
3. ACCOUNTS RECEIVABLE
A summary of accounts receivable follows:
(dollars in thousands) 2002 2001
- ------------------------------------------------------------------
customers $46,886 60,218
allowance for doubtful accounts (2,465) (1,282)
reserve for returns and allowances (1,055) (1,087)
- ------------------------------------------------------------------
$43,366 57,849
- ------------------------------------------------------------------
4. INVENTORIES
A summary of inventories follows:
(dollars in thousands) 2002 2001
- ------------------------------------------------------------------
inventories on the FIFO cost method
raw materials $ 27,081 31,489
work-in-process 3,830 4,748
finished goods 27,233 24,148
- ------------------------------------------------------------------
total inventories on the FIFO
cost method 58,144 60,385
adjustments of certain inventories to
the LIFO cost method (245) (388)
- ------------------------------------------------------------------
$ 57,899 59,997
- ------------------------------------------------------------------
5. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment follows:
depreciable lives
(dollars in thousands) (in years) 2002 2001
- ------------------------------------------------------------------
land and improvements 10 $ 2,213 2,243
buildings and improvements 7-40 30,325 30,620
leasehold improvements 7-10 2,537 2,534
machinery and equipment 3-12 175,972 200,976
office furniture and equipment 3-10 11,370 11,517
capital projects in progress 987 1,125
- ------------------------------------------------------------------
223,404 249,015
accumulated depreciation (133,632) (136,693)
- ------------------------------------------------------------------
$ 89,772 112,322
- ------------------------------------------------------------------
In connection with the restructurings in fiscal 2002 and 2001 (see note
2), property, plant and equipment with a carrying value of $9.9 million
and $2.8 million, respectively, was written down to its net realizable
value of approximately $2.3 million and $135,000 and reclassified to
assets held for sale, which is included in the other assets line item in
the consolidated balance sheets.
6. GOODWILL
A summary of goodwill follows:
(dollars in thousands) 2002 2001
- ------------------------------------------------------------------
goodwill $ 55,547 55,547
accumulated amortization (8,464) (7,069)
- ------------------------------------------------------------------
$ 47,083 48,478
- ------------------------------------------------------------------
7. ACCOUNTS PAYABLE
A summary of accounts payable follows:
(dollars in thousands) 2002 2001
- ------------------------------------------------------------------
accounts payable - trade $ 22,947 21,949
accounts payable - capital expenditures 1,380 5,422
- ------------------------------------------------------------------
$ 24,327 27,371
- ------------------------------------------------------------------
8. ACCRUED EXPENSES
A summary of accrued expenses follows:
(dollars in thousands) 2002 2001
- ------------------------------------------------------------------
compensation, commissions and related
benefits $ 10,122 7,806
interest 1,111 1,367
restructuring 2,445 2,383
other 5,227 5,597
- ------------------------------------------------------------------
$ 18,905 17,153
- ------------------------------------------------------------------
9. INCOME TAXES
A summary of income taxes (benefits) follows:
(dollars in thousands) 2002 2001 2000
- ------------------------------------------------------------------
current
federal $(2,655) (315) 657
state 0 11 45
Canadian 1,407 1,601 1,436
- ------------------------------------------------------------------
(1,248) 1,297 2,138
- ------------------------------------------------------------------
deferred
federal (635) (4,565) 1,514
state (600) (905) 378
Canadian (217) 76 284
- ------------------------------------------------------------------
(1,452) (5,394) 2,176
$(2,700) (4,097) 4,314
- ------------------------------------------------------------------
Income before income taxes related to the company's Canadian operation
for the years ended April 28, 2002, April 29, 2001, and April 30, 2000
was $4,000,000, $4,400,000 and $4,900,000, respectively.
The following schedule summarizes the principal differences between
income taxes (benefits) at the federal income tax rate and the effective
income tax rate reflected in the consolidated financial statements:
2002 2001 2000
- ------------------------------------------------------------------
federal income tax rate (35.0)% (35.0)% 35.0%
state income taxes, net of
federal income tax benefit (6.3) (4.7) 2.0
exempt income of foreign sales
corporation (0.8) (0.4) (3.6)
gains on life insurance contracts .0 5.0 (1.5)
other (1.9) 2.1 (0.4)
- ------------------------------------------------------------------
(44.0)% (33.0)% 31.5%
- ------------------------------------------------------------------
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) 2002 2001
- ------------------------------------------------------------------
deferred tax liabilities:
property, plant and equipment, net $ (13,783) (15,753)
goodwill (4,701) (3,938)
other (875) (1,095)
- ------------------------------------------------------------------
total deferred tax liabilities (19,359) (20,786)
deferred tax assets:
accounts receivable 1,188 724
inventories 2,904 3,295
compensation 783 556
liabilities and reserves 1,705 2,021
alternative minimum tax 1,416 1,061
net operating loss carryforwards 3,878 8,028
- ------------------------------------------------------------------
gross deferred tax assets 11,874 15,685
valuation allowance 0 0
- ------------------------------------------------------------------
total deferred tax assets 11,874 15,685
- ------------------------------------------------------------------
$ (7,485) (5,101)
- ------------------------------------------------------------------
Deferred taxes are classified in the accompanying consolidated balance
sheet captions as follows:
(dollars in thousands) 2002 2001
- ------------------------------------------------------------------
other current assets $ 9,447 5,229
deferred income taxes (16,932) (10,330)
- ------------------------------------------------------------------
$ (7,485) (5,101)
- ------------------------------------------------------------------
At April 28, 2002, the company had an alternative minimum tax credit
carryforward of approximately $1,416,000 for federal income tax
purposes. Federal and state net operating loss carryforwards with
related tax benefits of $3,878,000 at April 28, 2002 expire in varying
amounts through fiscal 2022. The company believes that it is more
likely than not that the results of future operations will generate
sufficient taxable income to realize the existing deferred tax assets.
Income tax refunds, net of income tax payments, were $2,280,000 in 2002
and $369,000 in 2001. Income taxes paid, net of income tax refunds,
were $2,027,000 in 2000.
10. LONG-TERM DEBT
A summary of long-term debt follows:
(dollars in thousands) 2002 2001
- ------------------------------------------------------------------
unsecured notes $ 75,000 75,000
industrial revenue bonds 30,612 30,612
canadian government loan 1,852 2,347
revolving credit agreement 0 999
obligation to sellers 1,020 2,698
- ------------------------------------------------------------------
108,484 111,656
current maturities (1,483) (2,488)
- ------------------------------------------------------------------
$ 107,001 109,168
- ------------------------------------------------------------------
The unsecured notes have an average remaining term of 6 years. The
principal payments are due from March 2006 to March 2010 with interest
payable semi-annually. The note purchase agreements were amended in
February 2002 to amend certain covenants, including the replacement of
the minimum consolidated net worth test with a minimum tangible net
worth test. Additionally, the amendment increased the fixed coupon rate
from 6.76% to 7.76%.
The company's revolving credit agreement (the "Credit Agreement")
provides for a revolving loan commitment of $10,000,000. Borrowings
under the Credit Agreement generally carry interest at the London
Interbank Offered Rate plus an adjustable margin based on the company's
debt/EBITDA ratio as defined by the agreement. The Credit Agreement
requires payment of a quarterly facility fee. The Credit Agreement was
amended in May 2002 to extend the termination date from June 2002 to
August 2002.
The company's $2,000,000 revolving line of credit expires in August
2002. Borrowings under the revolving line of credit carry interest at
the same rate as described above for the revolving credit agreement. At
April 28, 2002, no borrowings were outstanding under the revolving line
of credit.
The industrial revenue bonds (IRB) are generally due in balloon
maturities which occur at various dates from 2009 to 2013. The IRBs are
collateralized by letters of credit for the outstanding balance of the
IRBs and certain interest payments due thereunder. At April 28, 2002,
the bonds bear interest at a rate of 5.35%, including the letter of
credit fee percentage.
The company's loan agreements require, among other things, that the
company maintain compliance with certain financial ratios. At April 28,
2002, the company was in compliance with these financial covenants.
The principal payment requirements of long-term debt during the next
five years are: 2003 - $1,483,000; 2004 - $463,000; 2005 - $463,000;
2006 - $11,463,000; and 2007 - $11,000,000.
Interest paid during 2002, 2001 and 2000 totaled $8,199,000, $8,950,000,
and $9,920,000, respectively.
11. COMMITMENTS AND CONTINGENCIES
The company leases certain office, manufacturing and warehouse
facilities and equipment, primarily computers and vehicles, under
noncancellable operating leases. Lease terms related to real estate
range from one to ten years with renewal options for additional periods
ranging from two to ten years. The leases generally require the company
to pay real estate taxes, maintenance, insurance and other expenses.
Rental expense for operating leases was $6,605,000 in 2002; $7,907,000
in 2001; and $8,162,000 in 2000. Future minimum rental commitments for
noncancellable operating leases are $5,023,000 in 2003; $3,898,000 in
2004; $2,856,000 in 2005; $1,885,000 in 2006; $1,264,000 in 2007; and
$1,167,000 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 cash flows of the company.
The company has outstanding capital expenditure commitments of
approximately $1,710,000 as of April 28, 2002.
12. STOCK OPTION PLANS
The company has a fixed stock option plan under which options to
purchase common stock may be granted to officers, directors and key
employees. At April 28, 2002, 1,038,750 shares of common stock were
authorized for issuance under the plan. Of this total, 115,875 remain
available for grant. Options are generally exercisable from one to five
years after the date of grant and generally expire five to ten years
after the date of grant.
No compensation cost has been recognized for this stock option plan as
options are granted under the plan at an option price not less than fair
market value at the date of grant.
A summary of the status of the plan as of April 28, 2002, April 29, 2001
and April 30, 2000 and changes during the years ended on those dates is
presented below:
2002 2001 2000
- ----------------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ----------------------------------------------------------------------------------------------
Outstanding at beginning
of year 788,926 $ 8.87 661,114 $ 9.98 622,052 $ 10.04
Granted 290,375 4.07 130,250 3.11 49,375 8.80
Exercised (91,426) 4.45 (2,438) 2.82 (7,313) 2.82
Canceled/expired (65,000) 9.86 - - (3,000) 20.25
- ----------------------------------------------------------------------------------------------
Outstanding at end of year 922,875 7.73 788,926 8.87 661,114 9.98
- ----------------------------------------------------------------------------------------------
Options exercisable at
year-end 491,625 10.64 549,926 10.41 461,114 10.88
Weighted-average fair value
of options granted during
the year $2.14 $1.60 $3.54
- ----------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------------------------
Number Weighted-Avg. Number
Range of Outstanding Remaining Weighted-Avg. Exercisable Weighted-Avg.
Exercise Prices at 4/28/02 Contractual Life Exercise Price at 4/28/02 Exercise Price
- ------------------------------------------------------------------------------------------------------
$ 3.03 - $ 3.05 121,875 4.3 years $ 3.03 35,625 $ 3.04
$ 4.00 - $ 7.50 311,000 5.3 4.30 30,000 6.17
$ 7.63 - $ 7.63 160,000 6.4 7.63 96,000 7.63
$ 7.75 - $ 12.75 224,375 3.5 10.07 224,375 10.07
$ 13.34 - $ 20.94 105,625 5.0 18.43 105,625 18.43
------- --- -------- ------- --------
922,875 4.9 $ 7.73 491,625 $ 10.64
======= === ======== ======= ========
During fiscal 1995, the company adopted a stock option plan which
provided for the one-time grant to officers and certain senior managers
of options to purchase 121,000 shares of the company's common stock at
$.05 (par value) per share. As of April 28, 2002, the 51,500 options
outstanding under the plan have exercise prices of $0.05 and a
weighted-average remaining contractual life of 1.7 years. Options
exercised during fiscal 2002, 2001 and 2000 were 7,000, 0 and 6,500,
respectively. As all outstanding options under this plan have been
fully vested, no compensation expense was recorded in fiscal 2002, 2001
and 2000.
During September 1997, the company's shareholders approved the 1997
option plan which provides for the one-time grant to certain officers
and senior managers of options to purchase 106,000 shares of the
company's common stock at $1.00 per share. Options under the plan are
generally exercisable on January 1, 2006. As of April 28, 2002, the
89,000 options outstanding under the plan have exercise prices of $1.00
and a weighted-average remaining contractual life of 4.7 years. Options
exercised during fiscal 2002, 2001 and 2000 were 0, 10,000 and 0,
respectively. During fiscal 2002, 2001 and 2000, the compensation
expense recorded under APB Opinion No. 25 was $144,000, $360,000 and
$250,000, respectively.
Had compensation cost for the fixed stock option plan with 922,875
options outstanding at April 28, 2002 and the 1997 stock-based
compensation plan been determined consistent with SFAS No. 123, the
company's net income (loss), basic net income (loss) per share and
diluted net income (loss) per share would have been changed to the pro
forma amounts indicated below:
(in thousands, except per share data) 2002 2001 2000
- --------------------------------------------------------------------------------
Net income (loss) As reported $(3,440) (8,311) 9,380
Pro forma (3,722) (8,548) 9,145
- --------------------------------------------------------------------------------
Net income (loss) per As reported $ (0.31) (0.74) 0.81
share, basic Pro forma (0.33) (0.76) 0.79
- --------------------------------------------------------------------------------
Net income (loss) per As reported $ (0.31) (0.74) 0.80
share, diluted Pro forma (0.33) (0.76) 0.78
- --------------------------------------------------------------------------------
The fair value of each option grant is estimated on the date of grant
using the Black Scholes option-pricing model with the following
weighted-average assumptions used for grants in 2002, 2001 and 2000,
respectively: dividend yield of 0%, 0% and 1.5%; risk-free interest
rates of 4.8%, 4.6% and 5.7%; expected volatility of 62%, 54% and 49%;
and expected lives of 5 years, 5 years and 4 years.
13. DERIVATIVES
On April 30, 2001, the company adopted the provisions of SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133, as amended by SFAS No. 137 and SFAS No. 138, requires the company
to recognize all derivative instruments on the balance sheet at fair
value. These statements also establish new accounting rules for hedging
instruments, which depend on the nature of the hedge relationship. A
fair value hedge requires that the effective portion of the change in
the fair value of a derivative instrument be offset against the change
in the fair value of the underlying asset, liability, or firm commitment
being hedged through earnings. A cash flow hedge requires that the
effective portion of the change in the fair value of a derivative
instrument be recognized in Other Comprehensive Income ("OCI"), a
component of Shareholders' Equity, and reclassified into earnings in the
same period or periods during which the hedged transaction affects
earnings. The ineffective portion of a derivative instrument's change
in fair value is immediately recognized in earnings. Adoption of SFAS
133 did not have a significant impact on the company's financial
position, results of operations or cash flows.
The company uses foreign exchange option and forward contracts to manage
the exposure related to forecasted purchases of inventories denominated
in the EURO. The company utilizes cash flow hedge accounting for these
contracts. At April 28, 2002, the duration of these contracts is twelve
months.
The company also uses foreign exchange option and forward contracts to
manage the exposure related to firm commitments to purchase fixed assets
denominated in the EURO. The company has chosen not to utilize hedge
accounting for these contracts, and accordingly changes in the fair
value of these contracts are recorded currently in earnings.
From time to time, the company used interest rate swap agreements to
effectively fix the interest rates on certain variable rate debt. For
fiscal 2000 and prior periods, net amounts paid or received were
reflected as adjustments to interest expense. During 2001, the interest
rate swaps no longer served as a hedge due to the repayment of debt;
consequently the interest rate swaps were recorded at fair value.
During 2002, the company paid $105,000 to terminate the interest rate
swap agreements.
14. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed using the weighted-average
number of shares outstanding during the period. Diluted net income per
share uses the weighted-average number of shares outstanding during the
period plus the dilutive effect of stock options calculated using the
treasury stock method. Weighted average shares used in the computation
of basic and diluted net income (loss) per share are as follows:
(in thousands) 2002 2001 2000
- --------------------------------------------------------------------------------
Weighted average common
shares outstanding, basic 11,230 11,210 11,580
Effect of dilutive stock options 0 0 101
- --------------------------------------------------------------------------------
Weighted average common
shares outstanding, diluted 11,230 11,210 11,681
- --------------------------------------------------------------------------------
Options to purchase 608,750 shares, 769,926 shares, and 718,614 shares
of common stock were not included in the computation of diluted net
income (loss) per share for fiscal 2002, 2001 and 2000, respectively,
because the exercise price of the options was greater than the average
market price of the common shares.
15. BENEFIT PLANS
The company has a defined contribution plan which covers substantially
all employees and provides for participant contributions on a pre-tax
basis and discretionary matching contributions by the company, which are
determined annually. Company contributions to the plan were $1,979,000
in 2002; $2,301,000 in 2001; and $2,423,000 in 2000.
In addition to the defined contribution plan, the company had a
nonqualified deferred compensation plan covering officers and certain
other associates. During January 2001, the company terminated the
nonqualified deferred compensation plan. As a result, the company
surrendered the life insurance contracts related to the nonqualified
plan in order to pay the participants. The net proceeds from those life
insurance contracts totaled $4,547,000.
16. SEGMENT INFORMATION
The company's operations are classified into two business segments:
upholstery fabrics and mattress ticking. The upholstery fabrics segment
principally manufactures and sells woven jacquards and dobbies,
heat-transfer prints, and woven and tufted velvets primarily to
residential and commercial (contract) furniture manufacturers. The
mattress ticking segment principally manufactures and sells woven
jacquards, heat-transfer prints and pigment prints to bedding manufacturers.
International sales, of which 91%, 91% and 94% were denominated in U.S.
dollars in 2002, 2001 and 2000, respectively, accounted for 14%, 19% and
23% of net sales in 2002, 2001 and 2000, respectively and are summarized
by geographic area as follows:
(dollars in thousands) 2002 2001 2000
- ------------------------------------------------------------------------------
North America (excluding USA) $ 32,033 34,049 36,032
Europe 2,291 6,262 16,351
Middle East 6,226 17,831 32,929
Australia, New Zealand and Asia 10,703 15,497 19,102
All other areas 2,248 4,185 6,690
- ------------------------------------------------------------------------------
$ 53,501 77,824 111,104
- ------------------------------------------------------------------------------
One customer represented approximately 13% and 11% of consolidated net
sales for 2002 and 2001, respectively. In 2000, no customer represented
over 10% of consolidated net sales. In addition, company assets located
outside North America are not material for any of the three years
presented.
The company internally manages and reports selling, general and
administrative expenses, interest expense, interest income, other
expense and income taxes on a total company basis. Thus, profit by
business segment represents gross profit. In addition, the company
internally manages and reports cash and cash investments, other current
assets, property, plant and equipment and other assets on a total
company basis. Thus, identifiable assets by business segment represent
accounts receivable, inventories and goodwill.
Sales and gross profit for the company's operating segments are as
follows:
(dollars in thousands) 2002 2001 2000
- ------------------------------------------------------------------------------
Net sales
Upholstery Fabrics $ 276,930 305,012 382,310
Mattress Ticking 104,948 104,798 105,769
- ------------------------------------------------------------------------------
$ 381,878 409,810 488,079
- ------------------------------------------------------------------------------
Gross profit
Upholstery Fabrics $ 33,648 29,511 58,547
Mattress Ticking 29,209 26,476 26,118
- ------------------------------------------------------------------------------
$ 62,857 55,987 84,665
- ------------------------------------------------------------------------------
Identifiable assets, including accounts receivable, inventories and
goodwill, for the company's operating segments are as follows:
(dollars in thousands) 2002 2001 2000
- ------------------------------------------------------------------------------
Identifiable Assets
Upholstery Fabrics $ 117,379 47,129(1) 60,305(1)
Mattress Ticking 30,969 12,868(1) 14,166(1)
- ------------------------------------------------------------------------------
$ 148,348 59,997 74,471
- ------------------------------------------------------------------------------
(1) Includes inventory only for 2001 and 2000. Inventory by operating
segment for fiscal 2002: $44,453 for Upholstery Fabrics and $13,446 for
Mattress Ticking.
17. 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 $48,418,000 in 2002; $45,230,000 in 2001; and $39,479,000
in 2000. The amount due from this customer at April 28, 2002 was
approximately $2,177,000 and at April 29, 2001 was approximately
$5,399,000.
Rents paid to entities owned by certain shareholders and officers of the
company and their immediate families were approximately $726,000 in 2002
and $695,000 in 2001 and 2000.
18. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is the total of net income (loss) and other
changes in equity, except those resulting from investments by
shareholders and distributions to shareholders not reflected in net
income (loss).
A summary of comprehensive income (loss) follows:
dollars in thousands) 2002 2001 2000
- ------------------------------------------------------------------------------
Net income (loss) $ (3,440) (8,311) 9,380
Gain on foreign exchange options, net
of taxes of $4 7 - -
- ------------------------------------------------------------------------------
$ (3,433) (8,311) 9,380
- ------------------------------------------------------------------------------
19. RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142
requires that goodwill and intangible assets with indefinite useful
lives no longer be amortized, but instead be tested for impairment at
least annually. Intangible assets with definite useful lives will
continue to be amortized over their respective estimated useful lives.
The company is required to adopt the provisions of this statement for
fiscal 2003. As a result of this adoption, the company expects to
record a goodwill impairment charge in the range of $23 million to $27
million, net of taxes.
In August 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. SFAS No. 144 establishes a single accounting model for
long-lived assets to be disposed of by sale, and also resolves
implementation issues related to SFAS No. 121. The company is required
to adopt the provisions of this statement for fiscal 2003. Adoption of
SFAS No. 144 is not expected to have a significant impact on the
company's financial position, results of operations or cash flows.
SELECTED QUARTERLY DATA
fiscal fiscal fiscal fiscal fiscal fiscal fiscal fiscal
(amounts in thousands, 2002 2002 2002 2002 2001 2001 2001 2001
except per share amounts) 4th quarter 3rd quarter 2nd quarter 1st quarter 4th quarter 3rd quarter 2nd quarter 1st quarter
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
net sales $ 108,397 90,618 96,400 86,463 101,071 95,880 110,981 101,878
cost of sales 85,379 77,110 80,858 75,674 85,978 86,047 94,094 87,704
- ------------------------------------------------------------------------------------------------------------------------------------
gross profit 23,018 13,508 15,542 10,789 15,093 9,833 16,887 14,174
SG & A expenses 14,236 11,038 11,550 11,235 10,617 12,480 13,491 13,778
restructuring expense 9,065 0 0 1,303 3,121 2,504 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
income (loss) from operations (283) 2,470 3,992 (1,749) 1,355 (5,151) 3,396 396
interest expense 2,056 1,820 1,963 2,068 2,284 2,222 2,285 2,323
interest income (77) (42) (34) (23) (6) (18) (15) (7)
other expense 1,067 435 765 572 1,209 811 575 741
- ------------------------------------------------------------------------------------------------------------------------------------
income (loss) before
income taxes (3,329) 257 1,298 (4,366) (2,132) (8,166) 551 (2,661)
income taxes (1,744) 87 441 (1,484) (705) (2,696) 209 (905)
- ------------------------------------------------------------------------------------------------------------------------------------
net income (loss) (1,585) 170 857 (2,882) (1,427) (5,470) 342 (1,756)
- ------------------------------------------------------------------------------------------------------------------------------------
EBITDA (3) $ 13,068 6,862 8,315 4,731 10,363 2,536 8,330 5,211
depreciation 4,060 4,344 4,397 4,473 4,610 4,738 4,983 5,060
cash dividends 0 0 0 0 0 392 393 392
- ------------------------------------------------------------------------------------------------------------------------------------
weighted average shares
outstanding 11,255 11,221 11,221 11,221 11,212 11,211 11,209 11,209
weighted average shares outstanding,
assuming dilution 11,255 11,304 11,281 11,221 11,212 11,211 11,270 11,209
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
net income (loss)- basic $ (0.14) 0.02 0.08 (0.26) (0.13) (0.49) 0.03 (0.16)
net income (loss)- diluted (0.14) 0.02 0.08 (0.26) (0.13) (0.49) 0.03 (0.16)
cash dividends 0 0 0 0 0 0.035 0.035 0.035
book value 10.52 10.62 10.68 10.59 10.85 10.85 11.37 11.37
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
operating working capital (6) $ 76,938 84,233 84,346 86,586 90,475 94,546 106,607 108,509
property, plant and
equipment, net 89,772 102,547 105,697 109,417 112,322 116,207 120,023 123,636
total assets 287,713 276,781 283,817 281,058 289,580 302,918 324,412 326,483
capital expenditures 1,336 1,105 686 1,602 1,518 2,873 1,370 2,289
long-term debt 107,001 106,960 107,447 108,522 109,168 119,213 125,079 135,150
funded debt (1) 108,484 110,087 110,583 110,652 111,656 121,372 126,757 136,828
shareholders' equity 119,065 120,013 119,838 118,809 121,802 121,586 127,441 127,492
capital employed (4) 227,549 230,999 230,421 229,461 233,458 242,958 254,198 264,320
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS & OTHER DATA
gross profit margin 21.2% 14.9% 16.1% 12.5% 14.9% 10.3% 15.2% 13.9%
operating income (loss) margin (0.3) 2.7 4.1 (2.0) 1.3 (5.4) 3.1 0.4
net income (loss) margin (1.5) 0.2 0.9 (3.3) (1.4) (5.7) 0.3 (1.7)
EBITDA margin (3) 12.1 7.6 8.6 5.5 10.3 2.6 7.5 5.1
effective income tax rate 52.4 34.0 34.0 34.0 33.1 33.0 37.9 34.0
funded debt-to-total capital
ratio (1) 47.7 47.8 48.0 48.2 47.8 50.0 49.9 51.8
operating working capital
turnover (6) 4.5 4.2 4.1 4.1 4.0 4.1 4.2 4.3
days sales in receivables 36 43 47 51 52 48 52 49
inventory turnover 5.8 5.1 5.4 5.1 5.4 4.9 5.1 4.7
- ------------------------------------------------------------------------------------------------------------------------------------
STOCK DATA
stock price
high $ 10.74 5.10 4.15 4.75 5.25 4.13 5.69 7.25
low 5.60 2.12 2.38 3.20 2.37 1.63 3.63 4.94
close 9.30 5.01 2.60 3.95 4.95 3.63 3.88 5.81
P/E ratio (2)
high (5) N.M N.M N.M N.M N.M N.M 19.9 13.7
low (5) N.M N.M N.M N.M N.M N.M 12.7 9.3
daily average trading volume
(shares) 59.7 17.0 15.6 9.1 13.0 39.1 6.6 6.7
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Funded debt includes long- and short-term debt, less restricted investments.
(2) P/E ratios based on trailing 12-month net income (loss) per share.
(3) EBITDA represents earnings before interest, income taxes, depreciation, amortization, all restructuring
and related charges and certain non-cash charges, as defined by the company's credit agreement..
(4) Capital employed includes funded debt and shareholders' equity.
(5) N.M - Not meaningful
(6) Operating working capital for this calculation is accounts receivable, inventories and accounts payable.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
During the three years ended April 28, 2002 and any subsequent
interim periods, there were no changes of accountants and/or disagreements on
any matters of accounting principles or practices or financial statement
disclosures.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to executive officers and directors of
the Company is included in the Company's definitive Proxy Statement to be
filed within 120 days after the end of the Company's fiscal year pursuant to
Regulation 14A of the Securities and Exchange Commission, under the caption
"Nominees, Directors and Executive Officers," which information is herein
incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is included in
the Company's definitive Proxy Statement to be filed within 120 days after
the end of the Company's fiscal year pursuant to Regulation 14A of the
Securities and Exchange Commission, under the caption "Executive
Compensation," which information is herein incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Information with respect to the security ownership of certain
beneficial owners and management is included in the Company's definitive
Proxy Statement to be filed within 120 days after the end of the Company's
fiscal year pursuant to Regulation 14A of the Securities and Exchange
Commission, under the caption "Voting Securities," which information is
herein incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related
transactions is included in the Company's definitive Proxy Statement to be
filed within 120 days after the end of the Company's fiscal year pursuant to
Regulation 14A of the Securities and Exchange Commission, under the
subcaption "Certain Relationships and Related Transactions," which
information is herein incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
a) DOCUMENTS FILED AS PART OF THIS REPORT:
1. Consolidated Financial Statements
The following consolidated financial statements of Culp, Inc. and
subsidiary are filed as part of this report.
Page of Annual
Report on
Item Form 10-K
- ---- ---------
Consolidated Balance Sheets - April 28, 2002 and................. 31
April 29, 2001
Consolidated Statements of Income (Loss) -
for the years ended April 28, 2002,
April 29, 2001, and April 30, 2000 ............................ 32
Consolidated Statements of Shareholders' Equity -
for the years ended April 28, 2002,
April 29, 2001, and April 30, 2000 ........................... 33
Consolidated Statements of Cash Flows -
for the years ended April 28, 2002,
April 29, 2001, and April 30, 2000 ........................... 34
Consolidated Notes to Financial Statements....................... 35
Report of Independent Auditors .................................. 30
2. Financial Statement Schedules
All financial statement schedules are omitted because they are
not applicable, or not required, or because the required information is
included in the consolidated financial statements or notes thereto.
3. Exhibits
The following exhibits are attached at the end of this report, or
incorporated by reference herein. Management contracts, compensatory plans,
and arrangements are marked with an asterisk (*).
3(i) Articles of Incorporation of the Company, as
amended, were filed as Exhibit 3(i) to the Company's
Form 10-Q for the quarter ended January 29, 1995, filed
March 15, 1995, and are incorporated herein by
reference.
3(ii) Restated and Amended Bylaws of the Company, as
amended June 12, 2001, were filed as Exhibit 3(ii) to
the Company's Form 10-Q for the quarter ended July 29,
2001, filed September 12, 2001, and are incorporated
herein by reference.
3(iii) Articles of Amendment of Culp, Inc. dated October 5,
1999 for the purpose of amending its Restated Charter
to fix the designation, preferences, limitations and
relative rights of a series of its Preferred Stock.
The Articles of Amendment of Culp, Inc. were filed as
Exhibit 3(iii) to the Company's Form 10-Q for the
quarter ended October 31, 1999, filed December 15,
1999, and are incorporated herein by reference.
10(a) Loan Agreement dated December 1, 1988 with Chesterfield
County, South Carolina relating to Series 1988
Industrial Revenue Bonds in the principal amount of
$3,377,000 was filed as Exhibit 10(n) to the Company's
Form 10-K for the year ended April 29, 1989, and is
incorporated herein by reference.
10(b) Loan Agreement dated November 1, 1988 with the Alamance
County Industrial Facilities and Pollution Control
Financing Authority relating to Series A and B
Industrial Revenue Refunding Bonds in the principal
amount of $7,900,000, was filed as exhibit 10(o) to the
Company's Form 10-K for the year ended April 29, 1990,
and is incorporated herein by reference.
10(c) Loan Agreement dated January 5, 1990 with the Guilford
County Industrial Facilities and Pollution Control
Financing Authority, North Carolina, relating to Series
1989 Industrial Revenue Bonds in the principal amount
of $4,500,000, was filed as Exhibit 10(d) to the
Company's Form 10-K for the year ended April 29, 1990,
filed on July 25, 1990, and is incorporated herein by
reference.
10(d) Loan Agreement dated as of December 1, 1993 between
Anderson County, South Carolina and the Company
relating to $6,580,000 Anderson County, South Carolina
Industrial Revenue Bonds (Culp, Inc. Project) Series
1993, was filed as Exhibit 10(o) to the Company's Form
10-Q for the quarter ended January 30, 1994, filed
March 16, 1994, and is incorporated herein by reference.
10(e) 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(f) Management Incentive Plan of the Company, dated August
1986 and amended July 1989, filed as Exhibit 10(o) to
the Company's Form 10-K for the year ended May 3, 1992,
filed on August 4, 1992, and is incorporated herein by
reference. (*)
10(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 incorporated herein by
reference.
10(h) 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(i) Second Amendment of Lease Agreement dated April 16,
1993, with Partnership 52 Associates was filed as
Exhibit 10(l) to the Company's Form 10-K for the year
ended May 2, 1993, filed on July 29, 1993, and is
incorporated herein by reference.
10(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 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 was filed as Exhibit 10(q) to the
Company's Form 10-Q, filed on March 15, 1994, and is
incorporated herein by reference.
10(m) First Amendment to Loan Agreement dated as of December
16, 1993 by and between Chesterfield County, South
Carolina and the Company was filed as Exhibit 10(r) to
the Company's Form 10-Q, filed on March 15, 1994, and
is incorporated herein by reference.
10(n) 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(o) 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(p) Loan Agreement between Chesterfield County, South
Carolina and the Company dated as of April 1, 1996
relating to Tax Exempt Adjustable Mode Industrial
Development Bonds (Culp, Inc. Project) Series 1996 in
the aggregate principal amount of $6,000,000 was filed
as Exhibit 10(aa) to the Company's Form 10-K for the
year ended April 28, 1996, and is incorporated herein
by reference.
10(q) Loan Agreement between Luzerne County, Pennsylvania and
the Company, dated as of December 1, 1996, relating to
Tax-Exempt Adjustable Mode Industrial Development
Revenue Bonds (Culp, Inc. Project) Series 1996 in the
aggregate principal amount of $3,500,000 was filed as
Exhibit 10(dd) to the Company's Form 10-Q for the
quarter ended January 26, 1997, and is incorporated
herein by reference.
10(r) $125,000,000 Revolving Loan Facility dated April
23, 1997 by and among the Company and Wachovia Bank of
Georgia, N.A., as agent, and First Union National Bank
of North Carolina, as documentation agent was filed as
Exhibit 10(ff) to the Company's Form 10-K for the year
ended April 27, 1997, and is incorporated herein by
reference.
10(s) Reimbursement and Security Agreement between Culp, Inc.
and Wachovia Bank of North Carolina, N.A., dated as of
April 1, 1997, relating to $3,337,000 Principal Amount,
Chesterfield County, South Carolina Industrial Revenue
Bonds (Culp, Inc. Project) Series 1988 was filed as
Exhibit 10(hh) to the Company's Form 10-K for the year
ended April 27, 1997, and is incorporated herein by
reference.
Additionally, there are Reimbursement and Security
Agreements between Culp, Inc. and Wachovia Bank of North
Carolina, N.A., dated as of April 1, 1997 in the
following amounts and with the following facilities:
$7,900,000 Principal Amount, Alamance County Industrial
Facilities and Pollution Control Financing Authority
Industrial Revenue Refunding Bonds (Culp, Inc. Project)
Series A and B.
$4,500,000 Principal Amount, Guilford County Industrial
Facilities and Pollution Control Financing Authority
Industrial Development Revenue Bonds (Culp, Inc.
Project) Series 1989.
$6,580,000 Principal Amount, Anderson County South
Carolina Industrial Revenue Bonds (Culp, Inc. Project)
Series 1993.
$6,000,000 Principal Amount, Chesterfield County, South
Carolina Tax-Exempt Adjustable Mode Industrial
Development Revenue Bonds (Culp, Inc. Project) Series
1996.
$3,500,000 Principal Amount, Luzerne County Industrial
Development Authority Tax-Exempt Adjustable Mode
Industrial Development Revenue Bonds (Culp, Inc.
Project) Series 1996.
10(t) Loan Agreement and Reimbursement and Security Agreement
dated July 1, 1997 with the Robeson County Industrial
Facilities and Pollution Control Financing Authority
relating to the issuance of Tax-Exempt Adjustable Mode
Industrial Development Revenue Bonds (Culp, Inc.
Project), Series 1997 in the aggregate principal amount
of $8,500,000 was filed as Exhibit 10(ii) to the
Company's Form 10-Q for the quarter ended August 3,
1997, and is incorporated herein by reference.
10(u) Form of Note Purchase Agreement (providing for the
issuance by Culp, Inc. of its $20 million 6.76% Series
A Senior Notes due 3/15/08 and its $55 million 6.76%
Series B Senior Notes due 3/15/10), each dated March 4,
1998, between Culp, Inc. and each of the following:
1. Connecticut General Life Insurance Company;
2. The Mutual Life Insurance Company of New York;
3. United of Omaha Life Insurance Company;
4. Mutual of Omaha Insurance Company;
5. The Prudential Insurance Company of America;
6. Allstate Life Insurance Company;
7. Life Insurance Company of North America; and
8. CIGNA Property and Casualty Insurance Company
This agreement was filed as Exhibit 10(ll) to the
Company's Form 10-K for the year ended May 3, 1998, and
is incorporated herein by reference.
10(v) First Amendment to Credit Agreement dated July 22, 1998
among Culp, Inc., Wachovia Bank, N.A., as agent, First
Union National Bank, as documentation agent, and
Wachovia Bank, N.A., First Union National Bank,
SunTrust Bank, Atlanta, and Cooperatieve Centrale
Raiffeisen-Boerenleeenbank B.A., Rabobank Nederland,
New York Branch, as lenders. This amendment was filed
as Exhibit 10(mm) to the Company's Form 10-Q for the
quarter ended August 2, 1998, and is incorporated
herein by reference.
10(w) Second Amendment to Credit Agreement dated October 26,
1998, among Culp, Inc., Wachovia Bank, N.A., as agent,
First Union National Bank, as documentation agent, and
Wachovia Bank, N.A., First Union National Bank, and
SunTrust Bank, Atlanta, as lenders. This amendment was
filed as Exhibit 10(nn) to the Company's Form 10-Q for
the quarter ended November 1, 1998, and is incorporated
herein by reference.
10(x) Rights Agreement, dated as of October 8, 1999, between
Culp, Inc. and EquiServe Trust Company, N.A., as Rights
Agent, including the form of Articles of Amendment with
respect to the Series A Participating Preferred Stock
included as Exhibit A to the Rights Agreement, the
forms of Rights Certificate included as Exhibit B to
the Rights Agreement, and the form of Summary of Rights
included as Exhibit C to the Rights Agreement. The
Rights Agreement was filed as Exhibit 99.1 to the
Company's Form 8-K dated October 12, 1999, and is
incorporated herein by reference.
10(y) Third Amendment to Credit Agreement dated April 28,
2000, among Culp, Inc., Wachovia Bank, N.A., as agent,
First Union National Bank, as documentation agent, and
Wachovia Bank, N.A., First Union National Bank, and
Suntrust Bank, as lenders. This amendment was filed as
Exhibit 10(pp) to the Company's Form 10-K for the year
ended April 30, 2000, and is incorporated herein by
reference.
10(z) Fourth Amendment to Credit Agreement dated July 30,
2000, among Culp, Inc., Wachovia Bank, N.A., as agent,
First Union National Bank, as documentation agent, and
Wachovia Bank, N.A., First Union National Bank, and
Suntrust Bank, as lenders. This amendment was filed as
Exhibit 10(qq) to the Company's Form 10-Q for the
quarter ended July 30, 2000, and is incorporated herein
by reference.
10(aa) Amendments to 1993 Stock Option Agreement dated
September 26, 2000. This amendment was filed as
Exhibit 10(rr) to the Company's Form 10-Q for the
quarter ended October 29, 2000, and is incorporated
herein by reference. (*)
10(bb) Fifth Amendment to Credit Agreement dated January 26,
2001, among Culp, Inc., Wachovia Bank, N.A., as agent,
First Union National Bank, as documentation agent, and
Wachovia Bank, N.A., First Union National Bank, and
Suntrust Bank, as lenders. This amendment was filed as
Exhibit 10(ss) to the Company's Form 10-Q for the
quarter ended January 28, 2001, and is incorporated
herein by reference.
10(cc) Second Amendment to Reimbursement and Security
Agreements dated January 26, 2001, made by and between
Culp, Inc. and Wachovia Bank, N.A. This amendment was
filed as Exhibit 10(tt) to the Company's Form 10-Q for
the quarter ended January 28, 2001, and is incorporated
herein by reference.
10(dd) Sixth Amendment to Credit Agreement dated March 28,
2001, among Culp, Inc., Wachovia Bank, N.A., as agent,
First Union National Bank, as documentation agent, and
Wachovia Bank, N.A., First Union National Bank, and
Suntrust Bank, as lenders. This amendment was filed as
Exhibit 10(a) to the Company's Form 10-Q for the
quarter ended July 29, 2001, and is incorporated herein
by reference.
10(ee) Seventh Amendment to Credit Agreement dated August 29,
2001, among Culp, Inc., Wachovia Bank, N.A., as agent,
First Union National Bank, as documentation agent, and
Wachovia Bank, N.A., First Union National Bank, and
Suntrust Bank, as lenders. This amendment was filed as
Exhibit 10(b) to the Company's Form 10-Q for the
quarter ended July 29, 2001, and is incorporated herein
by reference.
10(ff) First Amendment, dated January 31, 2002 to Note
Purchase Agreement (providing for the issuance by Culp,
Inc. of its $20 million 6.76% Series A Senior Notes due
3/15/08 and its $55 million 6.76% Series B Senior Notes
due 3/15/10), each dated March 4, 1998, between Culp,
Inc. and each of the following:
1. Connecticut General Life Insurance Company;
2. Life Insurance Company of North America;
3. ACE Property and Casualty;
4. J. Romeo & Co.;
5. United of Omaha Life Insurance Company;
6. Mutual of Omaha Insurance Company;
7. The Prudential Insurance of America; and
8. Allstate Life Insurance Company
This amendment was filed as Exhibit 10(a) to the
Company's Form 10-Q for the quarter ended January 27,
2002, and is incorporated herein by reference.
10(gg) Eighth Amendment to Credit Agreement dated March 5,
2002, among Culp, Inc., Wachovia Bank (successor by
merger to Wachovia Bank of Georgia, N.A.), as agent,
First Union National Bank (successor by merger to First
Union National Bank of North Carolina), as
documentation agent, and Wachovia Bank, N.A., First
Union National Bank, and Suntrust Bank (formerly known
as SunTrust Bank, Atlanta), as lenders. This amendment
was filed as Exhibit 10(b) to the Company's Form 10-Q
for the quarter ended January 27, 2002, and is
incorporated herein by reference.
10(hh) Form of Change of Control and Noncompetition Agreement,
each dated December 11, 2001, by and between the
Company and each of Robert G. Culp, III, Howard L.
Dunn, Jr., Franklin N. Saxon, Kenneth M. Ludwig, and
Rodney A. Smith. (*)
10(ii) Ninth Amendment to Credit Agreement dated May 30, 2002,
among Culp, Inc., Wachovia Bank, N.A. (successor by
merger to First Union National Bank), as agent and as
the sole bank.
21 List of subsidiaries of the Company
23(a) Consent of Independent Public Auditors in connection with
the registration statements of Culp, Inc. on Form S-8
(File Nos. 33-13310, 33-37027, 33-80206, 33-62843,
333-27519, 333-59512 and 333-59514), dated March 20, 1987,
September 18, 1990, June 13, 1994, September 22, 1995, May
21, 1997, April 25, 2001, and April 25, 2001.
24(a) Power of Attorney of Howard L. Dunn, Jr., dated June
26, 2002
24(b) Power of Attorney of H. Bruce English, dated July 12,
2002
24(c) Power of Attorney of Patrick B. Flavin, dated July 8,
2002
24(d) Power of Attorney of Patrick H. Norton, dated June
26, 2002
24(e) Power of Attorney of Judith C. Walker, dated June 28,
2002
b) Reports on Form 8-K:
The Company filed the following report on Form 8-K during the
quarter ended April 28, 2002:
(1)Form 8-K dated, February 19, 2002, included under Item 5,
Other Events, the Company's press release for quarterly
earnings and the Financial Information Release relating to
certain financial information for the quarter ended January 27,
2002.
c) Exhibits:
The exhibits to this Form 10-K are filed at the end of this Form 10-K
immediately preceded by an index. A list of the exhibits begins on page 60
under the subheading "Exhibits Index".
d) Financial Statement Schedules:
See Item 14(a) (2)
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities
Exchange Act of 1934, CULP, INC. has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 26th day of July
2002.
CULP, INC.
By /s/ Robert G. Culp, III
Robert G. Culp, III
(Chairman and Chief Executive Officer)
By: /s/ Franklin N. Saxon
Franklin N. Saxon
(Executive Vice President and Chief Financial
and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated on the 26th day of July 2002.
/s/ Robert G. Culp, III /s/ Patrick H. Norton *
------------------- -------------------
Robert G. Culp, III Patrick H. Norton
(Chairman of the (Director)
Board of Directors)
/s/ Franklin N. Saxon /s/ Judith C. Walker *
----------------- ------------------
Franklin N. Saxon Judith C. Walker
(Director) (Director)
/s/ Howard L. Dunn, Jr.* /s/ H. Bruce English*
-------------------- -----------------
Howard L. Dunn, Jr. H. Bruce English
(Director) (Director)
/s/ Patrick B. Flavin*
------------------
Patrick B. Flavin
(Director)
* By Franklin N. Saxon, Attorney-in-Fact, pursuant to Powers of
Attorney filed with the Securities and Exchange Commission.
EXHIBITS INDEX
Exhibit Number Exhibit
10(hh) Form of Change of Control and Noncompetition Agreement,
each dated December 11, 2001, by and between the
Company and each of Robert G. Culp, III, Howard L.
Dunn, Jr., Franklin N. Saxon, Kenneth M. Ludwig, and
Rodney A. Smith. (*)
10(ii) Ninth Amendment to Credit Agreement dated May 30, 2002,
among Culp, Inc., Wachovia Bank, N.A. (successor by
merger to First Union National Bank), as agent and as
the sole bank.
21 List of subsidiaries of the Company
23(a) Consent of Independent Public Auditors in connection with
the registration statements of Culp, Inc. on Form S-8 (File
Nos. 33-13310, 33-37027, 33-80206, 33-62843, 333-27519,
333-59512 and 333-59514), dated March 20, 1987, September
18, 1990, June 13, 1994, September 22, 1995, May 21, 1997,
April 25, 2001, and April 25, 2001.
24(a) Power of Attorney of Howard L. Dunn, Jr., dated June 26, 2002
24(b) Power of Attorney of H. Bruce English, dated July 12, 2002
24(c) Power of Attorney of Patrick B. Flavin, dated July 8, 2002
24(d) Power of Attorney of Patrick H. Norton, dated June 26, 2002
24(e) Power of Attorney of Judith C. Walker, dated June 28, 2002