SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended January 26, 1997
Commission File No. 0-12781
CULP, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-1001967
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or other organization)
101 S. Main St., High Point, North Carolina 27261-2686
(Address of principal executive offices) (zip code)
(910) 889-5161
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to the filing requirements for at
least the past 90 days.
YES X NO
Common shares outstanding at January 26, 1997: 11,352,477
Par Value: $.05
INDEX TO FORM 10-Q
January 26, 1997
Part I - Financial Information. Page
- ------------------------------------------ -------
Item 1. Consolidated Financial Statements:
Statements of Income--Three and Nine Months Ended I-1
January 26, 1997 and January 28, 1996
Balance Sheets--January 26, 1997, January 28, 1996 and April 28, 1996 I-2
Statements of Cash Flows---Nine Months I-3
ended January 26, 1997 and January 28, 1996
Statements of Shareholders' Equity I-4
Notes to Financial Statements I-5
Sales by Product Category/Business Unit I-9
International Sales by Geographic Area I-10
Item 2. Management's Discussion and Analysis of Financial I-11
Condition and Results of Operation
Part II - Other Information
- -------------------------------------
Item 1. Legal Proceedings II-1
Item 2. Changes in Securities II-1
Item 3. Default Upon Senior Securities II-1
Item 4. Submission of Matters to a Vote of Security Holders II-1
Item 5. Other Information II-1
Item 6. Exhibits and Reports on Form 8-K II-1-II-6
Signatures II-7
CULP, INC.
CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED JANUARY 26, 1997 AND JANUARY 28, 1996
(Amounts in Thousands, Except for Per Share Data)
THREE MONTHS ENDED (UNAUDITED)
Amounts Percent of Sales
January 26, January 28, % Over
1997 1996 (Under) 1997 1996
---------- ---------- -------- ------- -------
Net sales $ 97,468 86,476 12.7 % 100.0 % 100.0 %
Cost of sales 80,317 71,447 12.4 % 82.4 % 82.6 %
---------- --------- -------- ------- -------
Gross profit 17,151 15,029 14.1 % 17.6 % 17.4 %
Selling, general and
administrative expenses 10,760 9,639 11.6 % 11.0 % 11.1 %
---------- --------- -------- ------- -------
Income from operations 6,391 5,390 18.6 % 6.6 % 6.2 %
Interest expense 1,228 1,279 (4.0)% 1.3 % 1.5 %
Interest income (73) 0 ** % (0.1)% 0.0 %
Other expense (income), net 421 266 58.3 % 0.4 % 0.3 %
---------- --------- -------- ------- -------
Income before income taxes 4,815 3,845 25.2 % 4.9 % 4.4 %
Income taxes * 1,805 1,430 26.2 % 37.5 % 37.2 %
---------- --------- -------- ------- -------
Net income $ 3,010 2,415 24.6 % 3.1 % 2.8 %
========== ========= ======== ======== ========
Average shares outstanding 11,342 11,232 1.0 %
Net income per share $0.27 $0.22 22.7 %
Dividends per share $0.0325 $0.0275 18.2 %
NINE MONTHS ENDED (UNAUDITED)
Amounts Percent of Sales
January 26 January 28, % Over
1997 1996 (Under) 1997 1996
---------- ---------- -------- ------- -------
Net sales $ 293,201 249,505 17.5 % 100.0 % 100.0 %
Cost of sales 241,008 206,171 16.9 % 82.2 % 82.6 %
---------- ---------- -------- ------- -------
Gross profit 52,193 43,334 20.4 % 17.8 % 17.4 %
Selling, general and
administrative expenses 33,328 27,768 20.0 % 11.4 % 11.1 %
---------- ---------- -------- ------- -------
Income from operations 18,865 15,566 21.2 % 6.4 % 6.2 %
Interest expense 3,652 3,964 (7.9)% 1.2 % 1.6 %
Interest income (190) 0 ** % (0.1)% 0.0 %
Other expense (income), net 1,117 592 88.7 % 0.4 % 0.2 %
---------- ---------- -------- ------- -------
Income before income taxes 14,286 11,010 29.8 % 4.9 % 4.4 %
Income taxes * 5,356 4,080 31.3 % 37.5 % 37.1 %
---------- ---------- -------- ------- -------
Net income $ 8,930 6,930 28.9 % 3.0 % 2.8 %
========== ========= ======== ======== ========
Average shares outstanding 11,317 11,218 0.9 %
Net income per share $0.79 $0.62 27.4 %
Dividends per share $0.0975 $0.0825 18.2 %
* Percent of sales column is calculated as a % of income before income taxes.
** Measurement is not meaningful.
I-1
CULP, INC.
CONSOLIDATED BALANCE SHEETS
JANUARY 26, 1997, JANUARY 28, 1996 AND APRIL 28, 1996
(Unaudited, Amounts in Thousands)
Amounts Increase
January 26, January 28, (Decrease) * April 28,
1997 1996 Dollars Percent 1996
---------- ----------- ------- ------- ----------
Current assets
Cash and cash investments $ 406 1,841 1,435) (77.9)% 498
Accounts receivable 50,157 43,642 6,515 14.9 % 52,038
Inventories 50,755 49,960 795 1.6 % 47,395
Other current assets 3,701 3,436 265 7.7 % 4,167
----------- ------- ------- ------- -------
Total current assets 105,019 98,879 6,140 6.2 % 104,098
Restricted investments 11,778 0 11,778 5,274
Property, plant & equipment, net 86,146 73,356 12,790 17.4 % 76,961
Goodwill 22,413 23,037 (624) (2.7)% 22,871
Other assets 2,906 2,432 474 19.5 % 2,440
----------- ------- ------- -------- -------
Total assets 228,262 197,704 30,558 15.5 % 211,644
=========== ======= ======= ======== =======
Current Liabilities
Current maturities of long-term debt $ 6,100 11,555 (5,455) (47.2)% 7,100
Accounts payable 20,833 22,516 (1,683) (7.5)% 27,308
Accrued expenses 15,644 11,181 4,463 39.9 % 12,564
Income taxes payable 1,753 1,336 417 31.2 % 197
Total current liabilities 44,330 46,588 (2,258) (4.8)% 47,169
----------- ------- ------- ------- -------
Long-term debt 86,266 68,112 18,154 26.7 % 74,941
Deferred income taxes 8,088 5,381 2,707 50.3 % 8,088
Total liabilities 138,684 120,081 18,603 15.5 % 130,198
----------- ------- ------- ------- -------
Shareholders' equity 89,578 77,623 11,955 15.4 % 81,446
Total liabilities and
shareholders' equity $228,262 197,704 30,558 15.5 % 211,644
=========== ======= ======= ======== ========
Shares outstanding 11,352 11,265 87 0.8 % 11,290
=========== ======= ======= ======== ========
Derived from audited financial statements.
I-2
CULP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JANUARY 26, 1997 AND JANUARY 28, 1996
(Unaudited, Amounts in Thousands)
NINE MONTHS ENDED
------------------------
Amounts
------------------------
January 26, January 28,
1997 1996
------------- -----------
Cash flows from operating activities:
Net income $ 8,930 6,930
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation 9,440 9,278
Amortization of intangible assets 634 544
Provision for deferred income taxes 0 (37)
Changes in assets and liabilities:
Accounts receivable 1,881 610
Inventories (3,360) (4,189)
Other current assets 466 (242)
Other assets (642) (57)
Accounts payable (2,213) (2,838)
Accrued expenses 3,080 (351)
Income taxes payable 1,556 675
------------ ----------
Net cash provided by (used in) operating activities 19,772 10,323
------------ -----------
Cash flows from investing activities:
Capital expenditures (18,625) (7,710)
Purchases of restricted investments (9,681) 0
Purchase of investments to fund deferred compensation liability 0 (1,286)
Proceeds from sale of restricted investments 3,177 795
------------ ----------
Net cash provided by (used in) investing activities (25,129) (8,201)
------------ ----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 15,900 10,500
Principal payments on long-term debt (5,575) (4,575)
Change in accounts payable-capital expenditures (4,262) (6,896)
Dividends paid (1,103) (926)
Proceeds from sale of common stock 305 223
------------ ----------
Net cash provided by (used in) financing activities 5,265 (1,674)
------------ ----------
Increase (decrease) in cash and cash investments (92) 448
Cash and cash investments at beginning of period 498 1,393
----------- ----------
Cash and cash investments at end of period $ 406 1,841
============ ==========
I-3
CULP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(Dollars in thousands, except per share data)
Capital
Contributed Total
Common Stock in Excess Retained Shareholders'
------------ of Par Value Earnings Equity
Shares Amount
---------------------------------------------------------------------------------
Balance, April 30, 19 11,204,766 $ 560 $ 16,577 $ 54,259 $ 71,396
Cash dividends (1,236) (1,236)
($.11 per share)
Net income 10,980 10,980
Common stock issued in
connection with stock
option plan 85,534 5 301 306
---------------------------------------------------------------------------------
Balance, April 28, 19 11,290,300 $ 565 $ 16,878 $ 64,003 $ 81,446
Cash dividends (1,103) (1,103)
($.0975 per share)
Net income 8,930 8,930
Common stock issued in
connection with stock
option plan 62,177 1 304 305
---------------------------------------------------------------------------------
Balance, January 26, 11,352,477 $ 566 $ 17,182 $ 71,830 $ 89,578
=================================================================================
I-4
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting of normal recurring
adjustments) which the management of the company considers necessary for a fair
statement of results for the interim periods.
Certain amounts for fiscal year 1996 have been reclassified to conform with
the fiscal year 1997 presentation. Such reclassifications had no effect on net
income as previously reported. All such adjustments are of a normal recurring
nature.
The results of operations for the nine months ended January 26, 1997 are not
necessarily indicative of the results to be expected for the full year.
==============================================================================
2. Accounts Receivable
A summary of accounts receivable follows (dollars in thousands):
- ------------------------------------------------------------------------------
January 26, 1997 April 28, 1996
- ------------------------------------------------------------------------------
Customers $ 51,807 $ 53,321
Factors -0- 71
Allowance for doubtful accounts (1,304) (1,016)
Reserve for returns and allowances ( 346) (338)
- ------------------------------------------------------------------------------
$ 50,157 $ 52,038
==============================================================================
3. Inventories
Inventories are carried at the lower of cost of market. Cost is determined
for substantially all inventories using the LIFO (last-in, first-out) method.
A summary of inventories follows (dollars in thousands):
- ------------------------------------------------------------------------------
January 26, 1997 April 28, 1996
- ------------------------------------------------------------------------------
Raw materials $ 31,042 $ 29,150
Work-in-process 3,548 5,067
Finished goods 20,842 16,708
- ------------------------------------------------------------------------------
Total inventories valued at FIFO cost 55,432 50,925
Adjustments of certain inventories to the
LIFO cost method (4,677) (3,530)
- ------------------------------------------------------------------------------
$ 50,755 $ 47,395
==============================================================================
I-5
4. Restricted Investments. Restricted investments were purchased with
proceeds from industrial revenue bond issues and are invested pending
application of such proceeds to project costs or repayment of the bonds. The
investments are stated at cost which approximates market value.
5. Accounts Payable
A summary of accounts payable follows (dollars in thousands):
- ------------------------------------------------------------------------------
January 26, 1997 April 28, 1996
- ------------------------------------------------------------------------------
Accounts payable-trade $ 19,357 $ 21,570
Accounts payable-capital expenditures 1,476 5,738
- ------------------------------------------------------------------------------
$ 20,833 $ 27,308
==============================================================================
6. Accrued Expenses
A summary of accrued expenses follows (dollars in thousands):
- ------------------------------------------------------------------------------
January 26, 1997 April 28, 1996
- ------------------------------------------------------------------------------
Compensation and benefits $ 10,791 $ 8,153
Other 4,853 4,411
- ------------------------------------------------------------------------------
$ 15,644 $ 12,564
==============================================================================
7. Long-term Debt
A summary of long-term debt follows (dollars in thousands):
- ------------------------------------------------------------------------------
January 26, 1997 April 28, 1996
- ------------------------------------------------------------------------------
Industrial revenue bonds and other obligations $ 31,666 $ 22,241
Revolving credit line 29,700 23,300
Term loan 31,000 35,500
Subordinated note payable -0- 1,000
- ------------------------------------------------------------------------------
92,366 82,041
Less current maturities (6,100) (7,100)
- ------------------------------------------------------------------------------
$ 86,266 $ 74,941
==============================================================================
I-6
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The company has an unsecured loan agreement with two banks, which provides
for a $31,000,000 five-year term loan and a $33,500,000 revolving credit line,
which also has a five-year term. The term loan requires monthly installments of
$500,000 and a final payment of $6,500,000 on March 1, 2001. The revolving
credit line requires payment of an annual facility fee in advance.
The company's loan agreements require, among other things, that the company
maintain certain financial ratios. At January 26, 1997, the company was in
compliance with these required financial covenants.
At January 26, 1997, the company had three interest rate swap agreements in
order to reduce its exposure to floating interest rates on a portion of its
variable rate borrowings.
The following table summarizes certain data regarding the interest rate
swaps:
notional amount interest rate expiration date
--------------- ------------- ---------------
$ 15,000,000 7.3% April 2000
$ 5,000,000 6.9% June 2002
$ 5,000,000 6.6% July 2002
Net amounts paid under these agreements increased interest expense for the
nine months ended January 26, 1997 and January 28, 1996 by approximately
$233,000 and $196,000, respectively. Management believes the risk of incurring
losses resulting from the inability of the bank to fulfill its obligation under
the interest rate swap agreements to be remote and that any losses incurred
would be immaterial.
The estimated amount at which the company could have terminated these
agreements as of January 26, 1997 is approximately $185,000.
==============================================================================
8. Cash Flow Information
Payments for interest and income taxes during the period were (dollars in
thousands)
- ------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------
.
Interest $ 3,437 $ 3,990
Income taxes 4,003 3,148
==============================================================================
9. Foreign Exchange Forward Contracts
The company generally enters into foreign exchange forward contracts as a
hedge against its exposure to currency fluctuations on firm commitments to
purchase certain machinery and equipment and raw materials. Machinery and
equipment and raw material purchases hedged by foreign exchange forward
contracts are valued by using the exchange rate of the applicable foreign
exchange forward contract. At January 26, 1997, the company had approximately
$2,600,000 of foreign exchange forward contracts outstanding.
I-7
Culp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
10. Subsequent Event
On January 30, 1997, the company sold 1,200,000 shares of common stock in
a public offering which provided net proceeds of approximately $16,300,000. The
net proceeds from the offering were used to reduce outstanding borrowings under
the company's revolving credit line.
I-8
CULP, INC.
SALES BY PRODUCT CATEGORY/BUSINESS UNIT
FOR THREE MONTHS AND NINE MONTHS ENDED JANUARY 26, 1997 AND JANUARY 28, 1996
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
Amounts Percent of Total Sales
January 26, January 28, % Over
Product Category/Business 1997 1996 (Under) 1997 1996
Upholstery Fabrics
Culp Textures $ 20,389 20,685 (1.4)% 20.9 % 23.9 %
Rossville/Chromatex 18,953 18,567 2.1 % 19.4 % 21.5 %
39,342 39,252 0.2 % 40.4 % 45.4 %
Velvets/Prints 40,387 31,836 26.9 % 41.4 % 36.8 %
79,729 71,088 12.2 % 81.8 % 82.2 %
Mattress Ticking
Culp Home Fashions 17,739 15,388 15.3 % 18.2 % 17.8 %
* $ 97,468 86,476 12.7 % 100.0 % 100.0 %
NINE MONTHS ENDED (UNAUDITED)
Amounts Percent of Total Sales
January 26, January 28, % Over
Product Category/Business 1997 1996 (Under) 1997 1996
Upholstery Fabrics
Culp Textures $ 65,191 60,984 6.9 % 22.2 % 24.4 %
Rossville/Chromatex 58,840 51,885 13.4 % 20.1 % 20.8 %
124,031 112,869 9.9 % 42.3 % 45.2 %
Velvets/Prints 115,487 87,440 32.1 % 39.4 % 35.0 %
239,518 200,309 19.6 % 81.7 % 80.3 %
Mattress Ticking
Culp Home Fashions 53,683 49,196 9.1 % 18.3 % 19.7 %
* $293,201 249,505 17.5 % 100.0% 100.0%
*US. sales were $70,931 and $67,506 for the three months of fiscal 1997 and
fiscal 1996, respectively; and $220,791 and $196,543 for the nine months of
fiscal 1997 and fiscal 1996, respectively. The percentage increases in U.S.
sales were 5.1% for the three months and 12.3% for the nine months.
I-9
CULP, INC.
INTERNATIONAL SALES BY GEOGRAPHIC AREA
FOR THREE MONTHS AND NINE MONTHS ENDED JANUARY 26, 1997 AND JANUARY 28, 1996
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
Percent of the Company's
Amounts Total Sales
January 26, January 28, % Over
1997 1996 (Under) 1997 1996
Geographic Area
North America (Excluding USA) $ 6,482 5,488 18.1 % 6.7 % 6.3 %
Europe 7,213 5,590 29.0 % 7.4 % 6.5 %
Middle East 4,580 2,383 92.2 % 4.7 % 2.8 %
Far East & Asia 6,862 4,052 69.3 % 7.0 % 4.7 %
South America 855 703 21.6 %
All other areas
$ 26,537 18,970 39.9 % 27.2 % 21.9 %
NINE MONTHS ENDED (UNAUDITED)
Percent of the Company's
Amounts Total Sales
January 26, January 28, % Over
Geographic Area 1997 1996 (Under) 1997 1996
North America (Excluding USA)$ 20,555 16,275 26.3 % 7.0 % 6.5 %
Europe 17,573 13,072 34.4 % 6.0 % 5.2 %
Middle East 13,736 7,933 73.2 % 4.7 % 3.2 %
Far East & Asia 15,893 9,821 61.8 % 5.4 % 3.9 %
South America 2,464 2,297 7.3 % 0.8 % 0.9 %
All other areas 2,189 3,564 (38.6)%
$ 72,410 52,962 36.7 % 24.7 % 21.2 %
International sales , and the percentage of total sales, for each of the last
seven fiscal years follows: fiscal 1991- $20,295 (12%); fiscal 1992-$ 34,094
(18%); fiscal 1993-$40,729 (20%); fiscal 1994-$44,038 (18%); fiscal 1995-
$57,971 (19%); and fiscal 1996-$77,397 (22%).
Certain amounts for fiscal year 1996 have been reclassified to conform with the
fiscal 1997 presentation.
I-10
Management's Discussion and Analysis of Operations
The following analysis of the financial condition and results of operations
should be read in conjunction with the Financial Statements and Notes and other
exhibits included elsewhere in this report.
Overview
For the three months ended January 26, 1997, net sales rose 13% to $97.5 million
compared with $86.5 million in the year-earlier period. Net income for the
quarter totaled $3.0 million, or $0.27 per share, compared with $2.4 million, or
$0.22 per share, for the third quarter of fiscal 1996. The increase in sales
primarily reflected higher shipments of upholstery fabrics and, to a lesser
degree, increased sales of mattress ticking to both U.S.-based and international
manufacturers. The company experienced a generally favorable pattern in incoming
orders during the period, but the year-to-year gain in sales was lower than in
either the first or second fiscal quarters. Business with U.S.-based customers
increased 5% from a year ago while sales to customers outside the United States
rose 40% for the quarter. International sales are continuing to account for an
increasing percentage of the company's total sales. Demand for the company's
products is dependent on the various factors which affect consumer purchases of
upholstered furniture and bedding including housing starts and sales of existing
homes, the level of consumer confidence, prevailing interest rates for home
mortgages and the availability of consumer credit.
Three And Nine Months Ended January 26, 1997 Compared With Three And Nine
Months Ended January 28, 1996
Net Sales. For the third fiscal quarter, net sales increased $11 million,
or 13%, compared with the year-earlier period. Sales of upholstery fabrics
increased $8.6 million, or 12%, from a year ago. In this product category,
Velvets/Prints had significantly higher sales for the quarter and first nine
months, Rossville/Chromatex had slightly higher sales for the quarter and
substantially higher sales for the nine month period, and Culp Textures had
slightly lower sales for the quarter with a moderate increase for the nine month
period. Sales of mattress ticking for the quarter rose $2.4 million, or 15%,
from a year ago. International sales, consisting primarily of upholstery fabrics
increased $7.6 million from the year-earlier period. International sales
accounted for 27% of the company's sales for the third quarter and 25% for the
first nine months compared with 22% and 21%, respectively, a year ago.
I-11
Gross Profit and Cost of Sales. Gross profit for the third quarter and
first nine months increased both in absolute dollars and as a percentage of net
sales. Factors contributing to the higher profitability included the increased
absorption of fixed costs as a result of the growth in sales as well as the
benefit from the company's ongoing capital investment in equipment designed to
lower manufacturing costs and raise productivity. During the first nine months,
the company also began to experience a stabilization in the cost of raw
materials and, in some instances, has realized lower costs.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased as a percentage of net sales for the third
quarter and increased as a percentage of sales for the first nine months of
fiscal 1997. Although the company is continuing to emphasize cost-containment
programs, planned increases in expenses related to resources for designing new
fabrics and higher selling commissions related to international sales
contributed to the higher ratio of SG&A expenses to net sales for the first nine
months. The accrual for incentive-based compensation thus far in fiscal 1997 has
also been a significant factor behind the increase in these expenses.
Interest Expense. Net interest expense of $1.2 million for the third
quarter was down from $1.3 million in the year-earlier period due to lower
average borrowings outstanding.
Income Taxes. The effective tax rate for the third quarter and first
nine months was 37.5%
Other Expense. Other expense increased $525,000 for the first nine months
of fiscal 1997 compared with a year ago, principally due to the non-recurring
write-off of certain fixed assets totaling $175,000 and the recognition in the
year-earlier period of a gain of $100,000 related to an indemnification for an
environmental matter.
Liquidity and Capital Resources
Liquidity. Cash and cash investments were $406,000 as of January 26, 1997
compared with $498,000 at the end of fiscal 1996. Funded debt (long-term debt,
including current maturities, less restricted investments) increased to $80.6
million at the close of the third quarter from $76.8 million at the end of
fiscal 1996. As a percentage of total capital (funded debt plus total
shareholders' equity), the company's borrowings amounted to 47.4% as of January
26, 1997 compared with 48.5% at the end of fiscal 1996. The company's working
capital as of January 26, 1997 was $60.7 million compared with $56.9 million at
the close of fiscal 1996.
I-12
Cash flow from operations was $19.8 million for the first nine months of fiscal
1997, consisting of $19.0 million from earnings (net income plus depreciation,
amortization and deferred income taxes) and $768,000 from changes in working
capital. The funds from operations were used principally to fund capital
expenditures of $18.6 million.
Financing Arrangements. The company has an unsecured loan agreement with
two banks, which provides for a $31.0 million five-year term loan and a $33.5
million revolving credit agreement, both of which mature on March 1, 2001. As of
January 26, 1997, the company had outstanding balances of $60.7 million under
the bank facilities and an additional $3.8 million in borrowings available under
the revolving credit facility. On December 17, 1996, the company received "best
efforts' commitments from its principal bank lenders, Wachovia Bank of North
Carolina, N.A. and First Union National Bank of North Carolina to refinance the
existing term loan and revolving line of credit with a $125 million syndicated
five-year, unsecured, multi-currency credit facility. Although the agent for the
lenders, Wachovia Bank of Georgia, N.A., has agreed to use commercially
reasonable efforts to complete this refinancing, subject to certain conditions
including the completion of satisfactory loan documentation, there can be no
assurance that this refinancing will be completed.
The company also has a total of $31.1 million in currently outstanding
industrial revenue bonds ("IRBs") which have been used to finance capital
expenditures. The IRBs are collateralized by restricted investments of $11.8
million as of January 26, 1997 and letters of credit for the outstanding balance
of the IRBs and certain interest payments due thereunder. In December 1996, the
company borrowed a total of $9.5 million under two IRBs to finance certain
capital investments and expects to finance approximately $8.0 million through an
additional IRB to fund a new wet-printing facility in Lumberton, North Carolina.
As of January 26, 1997, the company was in compliance with the required
financial covenants of its loan agreements.
Capital Expenditures. The company is continuing a significant program of
capital expenditures intended to increase capacity, enhance manufacturing
efficiencies through modernization and increase vertical integration. The
company expects total capital expenditures for fiscal 1997 will be approximately
$31 million and is currently planning to spend approximately $20 million in
fiscal 1998. The company believes that cash flows from operations, funds from a
recently completed secondary offering and funds available under existing credit
facilities and committed IRB financings will be sufficient to fund capital
expenditures and working capital requirements during the remainder of fiscal
1997 and for fiscal 1998.
I-13
Stock Offering. On January 30, 1997 the company sold 1.2 million shares in
a public offering which provided net proceeds of approximately $16.3 million.
The company plans to use the net proceeds on a near-term basis to reduce the
outstanding balance of its revolving line of credit.
Inflation
The company experienced generally higher costs of raw materials during fiscal
1996 and fiscal 1995. Other operating expenses, such as labor, utilities and
manufacturing supplies, also increased over these periods. Competitive
conditions did not allow the company to fully offset the impact of these
increases through higher prices, thereby putting pressure on profit margins. The
cost of the company's raw materials has stabilized during the first nine months
of fiscal 1997, and in some cases, has declined, thereby helping to raise
margins. The net impact on margins from changes in the costs of raw materials
will continue to be influenced by product mix, other operating costs and
competitive conditions.
Forward-Looking Information
This discussion on Form 10-Q contains forward-looking statements that are
inherently subject to risks and uncertainties. Factors that could influence the
matters discussed in the forward-looking statements include the level of housing
starts and sales of existing homes, consumer confidence and trends in disposable
income. 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 adversely affect the company.
I-14
Part II - OTHER INFORMATION
- -------------------------------------------
Item 1. Legal Proceedings
There are no legal proceedings that are required to be disclosed under
this item.
Item 2. Change in Securities
None
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report or
incorporated by reference:
3(i) Articles of Incorporation of the company, as amended, were filed
as Exhibit 3(i) to the company's Form 10-Q for the quarter ended
January 29, 1995, filed March 15, 1995, and are incorporated
herein by reference.
3(ii) Restated and Amended Bylaws of the company, as amended, were
filed as Exhibit 3(b) to the company's Form 10-K for the year
ended April 28, 1991, filed July 25, 1991, and are incorporated
herein by reference.
4(a) Form of Common Stock Certificate of the company
was filed as Exhibit 4(a) to Amendment No. 1 to
the company's registration statement No. 2-85174,
filed on August 30, 1983, and is incorporated
herein by reference.
10(a) Loan Agreement dated December 1, 1988 with Chesterfield County,
South Carolina relating to Series 1988 Industrial Revenue Bonds
in the principal amount of $3,377,000 and related Letter of
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Credit and Reimbursement Agreement dated December 1, 1988 with
First Union National Bank of North Carolina were filed as
Exhibit 10(n) to the company's Form 10-K for the year ended
April 29, 1989, and are incorporated herein by reference.
10(b) Loan Agreement dated November 1, 1988 with the Alamance County
Industrial Facilities and Pollution Control Financing Authority
relating to Series A and B Industrial Revenue Refunding Bonds in
the principal amount of $7,900,000, and related Letter of Credit
and Reimbursement Agreement dated November 1, 1988 with First
Union National Bank of North Carolina were filed as exhibit
10(o) to the company's Form 10-K for the year ended April 29,
1990, and are incorporated herein by reference.
10(c) Loan Agreement dated January 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, and related Letter of
Credit and Reimbursement Agreement dated January 5, 1990 with
First Union National Bank of North Carolina was filed as Exhibit
10(d) to the company's Form 10-K for the year ended April 19,
1990, filed on July 15, 1990, and is incorporated herein by
reference.
10(d) Loan Agreement dated as of December 1, 1993 between Anderson
County, South Carolina and the company relating to $6,580,000
Anderson County, South Carolina Industrial Revenue Bonds (Culp,
Inc. Project) Series 1993, and related Letter of Credit and
Reimbursement Agreement dated as of December 1, 1993 by and
between the company and First Union National Bank of North
Carolina were filed as Exhibit 10(o) to the Company's Form 10-Q
for the quarter ended January 30, 1994, filed March 16, 1994,
and is incorporated herein by reference.
10(e) Severance Protection Agreement, dated September 21, 1989, was
filed as Exhibit 10(f) to the company's Form 10-K for the year
ended April 29, 1990, filed on July 25 1990, and is incorporated
herein by reference.(*)
10(f) Lease Agreement, dated January 19, 1990, with Phillips
Interests, Inc. was filed as Exhibit 10(g) to the company's Form
10-K for the year ended April 29, 1990, filed on July 25, 1990,
and is incorporated herein by reference.
10(g) Management Incentive Plan of the company, dated August 1986 and
amended July, 1989, was filed as Exhibit 10(o) to the company's
Form 10-K for the year ended May 3, 1992, filed on August 4,
1992, and is incorporated herein by reference.(*)
10(h) Lease Agreement, dated September 6, 1988, with Partnership 74
was filed as Exhibit 10(h) to the company's Form 10-K for the
year ended April 28, 1991, filed on July 25, 1990, and is
incorporated herein by reference.
10(i) Amendment and Restatement of the Employees's Retirement Builder
Plan of the company dated May 1, 1981 with amendments dated
January 1, 1990 and January 8, 1990 were filed as Exhibit 10(p)
to the company's Form 10-K for the year ended May 3, 1992, filed
on August 4, 1992, and is incorporated herein by reference.(*)
10(j) First Amendment of Lease Agreement dated July 27, 1992 with
Partnership 74 Associates was filed as Exhibit 10(n) to the
company's Form 10-K for the year ended May 2, 1993, filed on
July 29, 1993, and is incorporated herein by reference.
10(k) Second Amendment of Lease agreement dated April 16, 1993, with
Partnership 52 Associates was filed as Exhibit 10(l) to the
company's Form 10-K for the year ended May 2, 1993, filed on
July 29, 1993, and is incorporated herein by reference.
10(l) 1993 Stock Option Plan was filed as Exhibit 10(o) to the
company's Form 10-K for the year ended May 2, 1993, filed on
July 29, 1993, and is incorporated herein by reference.(*)
10(m) First Amendment to Loan Agreement dated as of December 1, 1993
by and between The Guilford County Industrial Facilities and
Pollution Control Financing Authority and the company, was filed
as Exhibit 10(p) to the company's Form 10-Q, filed on March 15,
1994, and is incorporated herein by reference.
10(n) First Amendment to Loan Agreement dated as of December 16, 1993
by and between The Alamance County Industrial Facilities and
Pollution Control Financing Authority and the company, was filed
as Exhibit 10(q) to the company's Form 10-Q filed, on March 15,
1994, and is incorporated herein by reference.
10(o) First Amendment to Loan Agreement dated as of
December 16, 1993 by and between Chesterfield
County, South Carolina and
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the company, was filed as Exhibit 10(r) to the company's Form
10-Q, filed on March 15, 1994, and is incorporated herein by
reference.
10(p) Amendment to Lease dated as of November 4, 1994, by and between
the company and RDC, Inc. was filed as Exhibit 10(w) to the
company's Form 10-Q, for the quarter ended January 29, 1995,
filed on March 15, 1995, and is incorporated herein by
reference.
10(q) Amendment to Lease Agreement dated as of December 14, 1994, by
and between the company and Rossville Investments, Inc.
(formerly known as A & E Leasing, Inc.).was filed as Exhibit
10(y) to the company's Form 10-Q, for the quarter ended January
29, 1995, filed on March 15, 1995, and is incorporated herein by
reference.
10(r) Interest Rate Swap Agreement between company and First Union
National Bank of North Carolina dated April 17, 1995, was filed
as Exhibit 10(aa) to the company's Form 10-K for the year ended
April 30, 1995, filed on July 26, 1995, and is incorporated
herein by reference.
10(s) Performance-Based Stock Option Plan, dated June 21, 1994, was
filed as Exhibit 10(bb) to the company's Form 10-K for the year
ended April 30, 1995, filed on July 26, 1995, and is
incorporated herein by reference.(*)
10(t) Interest Rate Swap Agreement between company and First Union
National Bank of North Carolina, dated May 31, 1995 was filed as
exhibit 10(w) to the company's Form 10-Q for the quarter ended
July 30, 1995, filed on September 12, 1995, and is incorporated
herein by reference.
10(u) Interest Rate Swap Agreement between company and First Union
National Bank of North Carolina, dated July 7, 1995 was filed as
exhibit 10(x) to the company's Form 10-Q for the quarter ended
July 30, 1995, filed on September 12, 1995, and is incorporated
herein by reference.
10(v) Second Amendment of Lease Agreement dated June 15, 1994 with
Partnership 74 Associates was filed as Exhibit 10(v) to the
company's Form 10-Q for the quarter ended October 29, 1995,
filed on December 12, 1995, and is incorporated herein by
reference.
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10(w) Lease Agreement dated November 1, 1993 by and between the
company and Chromatex, Inc. was filed as Exhibit 10(w) to the
company's Form 10-Q for the quarter ended October 29, 1995,
filed on December 12, 1995, and is incorporated herein by
reference.
10(x) Lease Agreement dated November 1, 1993 by and between the
company and Chromatex Properties, Inc. was filed as Exhibit
10(x) to the company's Form 10-Q for the quarter ended October
29, 1995, filed on December 12, 1995, and is incorporated herein
by reference.
10(y) Amendment to Lease Agreement dated May 1, 1994 by and between
the company and Chromatex Properties, Inc. was filed as Exhibit
10(y) to the company's Form 10-Q for the quarter ended October
29, 1995, filed on December 12, 1995, and is incorporated herein
by reference.
10(z) Canada-Quebec Subsidiary Agreement on Industrial Development
(1991), dated January 4, 1995, was filed as Exhibit 10(z) to the
company's Form 10-Q for the quarter ended October 29, 1995,
filed on December 12, 1995, and is incorporated herein by
reference.
10(aa) Loan Agreement between Chesterfield County, South Carolina and
the company dated as of April 1, 1996 relating to Tax Exempt
Adjustable Mode Industrial Development Bonds (Culp, Inc.
Project) Series 1996 in the aggregate 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 on July 25, 1996, and is incorporated
herein by reference.
10(bb) 1996 Amended and Restated Credit Agreement dated as of April 1,
1996 by and among the company, First Union National Bank of
North Carolina and Wachovia Bank of North Carolina, N.A. was
filed as Exhibit 10(bb) to the company's Form 10-K for the year
ended April 28, 1996 on July 25, 1996, and is incorporated
herein by reference.
10(cc) Loan Agreement between the Alamance County Industrial Facilities
and Pollution Control Financing Authority, North Carolina and
the company, dated December 1, 1996, relating to Tax Exempt
Adjustable Mode Industrial Development Revenue Bonds, (Culp,
Inc. Project Series 1996) in the aggregate amount of $6,000,000.
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10(dd) Loan Agreement between Luzerne County, North
Carolina 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.
10(ee) First Amendment to 1996 Amended and Restated Credit Agreement,
dated as of December 1, 1996, by and among the company, First
Union National Bank of North Carolina, and Wachovia Bank of
North Carolina, N.A
27 Financial Data Schedule.
(b) Reports on Form 8-K:
The following report on Form 8-K was filed during the period covered by
this report:
(1)Form 8-K dated November 6, 1996, included under Item 5, Other Events,
disclosure of the company's press release for quarterly earnings and the
company's Financial Information Release relating to the financial
information for the second quarter ended October 27, 1996.
(2)Form 8-K/A dated December 19, 1996, included under item 5, Other
Events, amending the company's Form 8-K filed November 6, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CULP, INC.
(Registrant)
Date: March 11, 1997 By: s/s Franklin N. Saxon
Franklin N. Saxon
Sr. Vice President and
Chief Financial Officer
(Authorized to sign on behalf
of the registrant and also
signing as principal accounting
officer)
Date: March 11, 1997 By s/s Stephen T. Hancock
Stephen T. Hancock
General Accounting Manager
(Chief Accounting Officer)